By Jonathan Nathan, Corporations and Insolvency Law Editor of Wolters Kluwer
In The Owners — Strata Plan 80647 v WFI Insurance Limited t/as Lumley Insurance  NSWSC 1161, Darke J in the NSW Supreme Court provided valuable comment on the test for claims for unliquidated damages to be provable in bankruptcy providing further guidance on the operation of s 82(2) of the Bankruptcy Act 1966 (Cth). Section 82(2) is discussed in the commentary at ¶16-030 of CCH’s Australian Insolvency Management Practice commentary.
This decision may have ramifications for those seeking to prove for claims for unliquidated damages in bankruptcy as it appears it will now suffice if the contract, promise, tort or trust (referred to in s 82(2) of the Bankruptcy Act), is more than a mere background of the claim and provides the essential framework for the claim. Previously the only guidance given on s 82(2) was in Coventry v Charter Pacific Corporation Limited  HCA 67 where the High Court rejected the view of the Victorian Court of Appeal that a claim for a contract or promise would only be proveable under s 82(2) of the Bankruptcy Act if it is an essential element of the cause of action.
The context of this decision was the denial of a claim by an insurer (specifically a home warranty insurer under the Home Building Act 1989 (NSW)) made by the owners of a strata plan on the basis that the claim was not a claim for unliquidated damages proveable in bankruptcy as it concerned a demand otherwise than in the nature of a contract, promise or breach of trust which are the only types of claims for unliquidated damages which are provable in a bankruptcy (see s 82(2) of the Bankruptcy Act).
The insurer took this position as it alleged the owners’ claim was a claim for breach of the statutory warranties implied into contracts for residential building work by s 18B of the Home Building Act and hence was a statutory claim rather than a contractual one.
The owners opposed this position, successfully arguing that their claim was a mere extension of the contractual claim which would ordinarily be open to a developer in whose shoes they were standing as a successor in title pursuant to s 18D of the Home Building Act.
The court considered the leading High Court case on the point, Coventry v Charter Pacific, and came to the view that the owners’ claim was a claim provable in bankruptcy as the claim was a “statutory variant” of a contractual claim and in particular stated at  that:
“The contract is more than mere background to the making of the claim. It provides the essential framework from which the rights and obligations, as between the Owners Corporation and Mr Crestani [the bankrupt], can be determined. In my view, the connection between the claim and the contract is strong enough to conclude that the claim arises by reason of the contract between Mr Crestani and Versace Developments Pty Limited [the developer in whose place the Owners were suing]. I do not regard that conclusion as involving any undue stretching of the language of s 82(2) of the Bankruptcy Act.”
This article first appeared in CCH’s Australian Commercial Law Tracker on 27 August 2015.