Insolvency

A warning to company directors: Federal Court orders $240,000 penalty for director being ‘knowingly concerned’ in the company’s false or misleading conduct

11 March, 2021

Upon bankruptcy, section 60(2) of the Bankruptcy Act 1966 (Cth) (Act) operates to protect those whom the bankrupt was suing, by staying the proceedings until such time as the trustee in bankruptcy elects whether to continue to prosecute the action or to abandon it. That election must be made within 28 days after the Trustee is put on notice of the proceedings. The rationale behind the section is to prevent the scenario wherein a costs order made against a party to the proceedings is rendered unenforceable by virtue of that party becoming bankrupt. As always, there are some exceptions, such as an action relating to personal injury, or the death of the bankrupt’s spouse, de facto partner or family member. In these circumstances, the bankrupt may continue to prosecute those claims in their own name. In the recent case of Muir v Angeles [2020] NSWSC 1056, the Supreme Court of NSW was faced with the question of whether a family provision claim made by a bankrupt prior to his bankruptcy should be stayed under section 60(2) of the Act.

Background

In December 2018, the plaintiff, Ms Muir, made a family provision claim against the estate of her late father in the Supreme Court of NSW. As part of her claim, she sought a declaration that half of the proceeds of sale of a property owned by the defendant, Mr Angeles, were part of the notional estate of her father. Mr Angeles, filed a defence and a cross-summons in July and August 2019 respectively, wherein he made a family provision claim of his own, asserting that he had been the spouse of the deceased at the time of death. During the course of the proceedings, Mr Angeles filed a debtor’s petition and declared bankruptcy. He then filed a submitting appearance to the Court, noting that he would “not take part in any future proceedings and [would submit] to the making of all orders sought, and the giving or entry of judgment in respect of all claims made.”

On 28 February 2020, the Trustee in Bankruptcy wrote to Ms Muir noting that he was aware that the bankrupt was involved in the proceedings, and that pursuant to section 60 of the Act, the proceedings would be stayed until such time as he elected to pursue or discontinue them. On 16 April 2020, Ms Muir wrote to the Trustee contending that since 28 days had passed since the Trustee was made aware of the proceedings, and no such election had been made in this time, that the Trustee was deemed to have abandoned the claim. No response was received in relation to this letter. Accordingly, Ms Muir applied to the Court for an order that the proceedings had been abandoned by the Trustee pursuant to section 60(3), judgment in her favour, and an order dismissing Mr Angeles’ family provision claim.

Issues for the Court

In determining the matter, the Court was required to relevantly decide:

Whether a claim for family provision could be considered an “action” within section 60(2) of the Act thereby requiring a stay?
What was the requisite form of notice which had to be given to the Trustee in Bankruptcy before they could elect to prosecute or discontinue the bankrupt’s proceedings?

Is a family provision claim an “action” pursuant to section 60(2) of the Act?

Section 60(2) of the Act relevantly provides:

An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

Section 60(5) defines “action” within the section to mean “any civil proceeding, whether at law or in equity”.

“Civil proceedings” is defined in section 3(1) of the Civil Procedure Act 2005 (NSW) as “any proceedings other than criminal proceedings”.

In determining the issue, Hallen J first considered whether the scope of section 60(2) was confined to an action which vests in a Trustee in Bankruptcy by virtue of section 58 of the Act. Section 58(1) of the Act provides that all property of the bankrupt vests with the Official Trustee when a debtor becomes a bankrupt. Property ordinarily includes a “chose in action”, that is, the right of a bankrupt to pursue an action.

His Honour held, citing a body of authorities, that a bankrupt’s claim for family provision is a personal, bare/non-assignable right of the bankrupt, and accordingly will not vest in the trustee in bankruptcy under section 58 of the Act. That is, it is not a type of claim that is taken away from the bankrupt and put into the hands of the Trustee, as is the case with, for example, a commercial dispute or debt recovery proceedings.

Notwithstanding this conclusion, Hallen J held that the application of section 60(2) operated independently from section 58, and accordingly:

“The meaning of the term “action” is not to be confined to the property of the bankrupt to which s 58 applies. Instead “action” must be given the meaning set out in s 60(5), a meaning that is broad enough to encompass a claim for a family provision order…” at [90]

Accordingly, as none of the exceptions provided for in section 60(4) of the Act applied to permit Mr Angeles to continue to litigate the claim in his own name (because the family provision claim was not an action for personal injury or in relation to the death of a partner), a statutory stay of the proceedings came into operation upon Mr Angeles’ bankruptcy. It was therefore necessary for the Trustee to elect to either take over the family provision claim or to abandon it.

Notice requirements

Having determined that the family provision proceedings were stayed under section 60(2), the Court then considered whether the Trustee in Bankruptcy had abandoned the claim.

Under section 60(3) a Trustee has 28 days “after notice of the action is served upon him or her by a…party to the action” to make an election to prosecute or discontinue an action. If a Trustee fails to make an election within this time, they will be considered to have abandoned the action.

Hallen J outlined at [104] that any notice to the Trustee must include the following:

a statement to the effect that the notice is given pursuant to section 60 of the Act;
a recitation of the existence of the action involving the bankrupt;
a statement identifying the party giving the notice as a party to the legal proceedings; and
a statement requiring the Trustee to make a written election within the 28-day time period, noting that failure to provide such an election will result in the Trustee being deemed to have abandoned the action.

Whilst in this case, no such formal notice was given to the Trustee, the Court held that the letter from Ms Muir to the Trustee dated 16 April 2020, was sufficient to alert the Trustee of the need to make such an election. Accordingly, and given that the Trustee in Bankruptcy was afforded “ample opportunity” to make the election, the Court held that the family provision claim had been abandoned by the Trustee and dismissed the claim.

Takeaways

There are at least four key takeaways from this case.

The definition of “action” in section 60(2) of the Act will be interpreted broadly to encompass any civil proceedings commenced by a bankrupt prior to their bankruptcy, and a bankrupt will lose the right to continue to prosecute a family provision claim.
There are very limited exceptions as to which types of claims a bankrupt may continue to prosecute in their own name.
Trustees in Bankruptcy need to make a timely and informed assessment of the merits of continuing any claims brought a bankrupt prior to their bankruptcy. They also need to ensure that they respond to any notice issued by another party within the 28-day time period at the risk of being deemed to have abandoned the claim.
Conversely, if you are involved in proceedings commenced by a party who later becomes bankrupt, you should ensure that you issue an appropriate notice on the Trustee in Bankruptcy as soon as possible, to ensure that you do not incur further costs in litigating a claim which a Trustee may later abandon.

McCabes has extensive experience in advising both Trustees in Bankruptcy and bankrupts of their rights and obligations under the Bankruptcy Act 1966 (Cth).

published by

Chiara Rawlins

Principal

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023