COVID-19, Litigation and Dispute Resolution

Do not pass GO, do not collect $200 – Breach of WHS duties met with jail sentences in recent court decisions

27 February, 2019

In the current climate, it is more important than ever to ensure that you take all the steps you can to protect your business assets.

Your business may have the benefit of a security interest in its goods if it is engaged in hire purchase arrangements, supply of goods on credit terms, long-term leases, or any other arrangement where your business retains rights to its goods as security for its customer’s or client’s payment or other obligations.

If your business does have the benefit of such a security interest, it is imperative to promptly register the security interest on the Personal Property and Securities Register (PPSR). Otherwise, if you don’t, you run the risk that your customers or clients may on-sell the goods, grant another security interest over the property which takes priority over your own security interest, or enter into liquidation, in which case you may lose title to your goods altogether.

Importantly, your business may also be entitled to ‘super priority’ registration on the PPSR, if it engages in specific transactions and provided it complies with the relatively strict registration requirements imposed by the Personal Properties Securities Act 2009 (Cth) (the PPS Act).

In this article, we outline the circumstances in which you may be entitled to ‘super priority’ on the PPSR, the benefits in applying for that priority, and the requirements you need to comply with in order to obtain it.

What is the Personal Property Securities Register (“PPSR”)?

The PPSR is a national register which records an individual or entity’s security interest over personal property.

Personal property is generally any property other than land and encompasses tangible property (e.g. machinery and inventory), intangible property (e.g. intellectual property) and financial property (e.g. shares).

A security interest is an interest in personal property created as a result of a transaction which secures payment or the performance of some other obligation. Such interests can include conditional sale agreements, retention of title arrangements, hire purchase agreements, consignments and leases of goods.

Once you register your security interest on the PPSR, the interest is said to be ‘perfected’. A perfected security interest then takes priority over another unperfected security interest.

Time is of the essence when registering an interest on the PPSR. Generally speaking:

where there are two competing ‘perfected interests’, the one registered earlier in time will be given priority; and
under section 588FL of the Corporations Act 2001 (Cth), you must register your security interest within 20 business days after the security interest is created, or at least 6 months before the grantor (i.e. your customer or client) is placed into administration or liquidation; otherwise, the property will vest in the administrator or liquidator and you will simply be an unsecured creditor.

What is a Purchase Money Security Interest (“PMSI”)?

A PMSI differs from a ‘standard’ security interest, in that PMSIs afford the holder of the interest ‘super priority’ against other security interests in the secured property. This means that the holder’s interest will defeat all other registered security interests, even those registered at an earlier time.

However, you will only be entitled to a PMSI if your interest arises from one of the following transactions:

where you provide a loan to enable the borrower to purchase personal property (and you take security over that property);
where you supply goods on deferred payment terms (e.g. retention of title);
where you deliver goods under a commercial consignment; or
where you lease goods under a ‘PPS Lease’ (which generally means a lease for a term of more than 2 years, or for an undefined term where the lessee has possession of the goods for more than 2 years).

Further, you can only claim a PMSI for commercial property, and not property used for personal or domestic purposes. However, property classified by the PPS Act as serial-numbered property (e.g. motor vehicles) may give rise to a PMSI irrespective of whether it is commercial or personal property.

How do I register my security interest as a PMSI?

If you want to apply for a PMSI, you need to indicate this in your application to register your security interest on the PPSR. Notably, you cannot later amend an existing security interest registration to become a PMSI registration. Accordingly, it is very important to complete and lodge your registration application correctly on the first go.

Further, to obtain the benefit of the super priority, you need to ensure that you register your PMSI within strict timeframes imposed by the PPS Act. Any PMSI registered outside of the timeframes will still be recognised as a security interest but will not attract super priority.

The timeframes for registration depend upon whether the collateral is tangible or intangible property, and whether it is classified as ‘inventory’.

The PPS Act defines inventory as personal property used in an enterprise with a registered ABN for any of the following purposes:

for sale or lease;
to be provided under a contract for services;
to be held as work in progress or as raw material; or
to be held, used or consumed by the person as materials.

The timeframes for registration of PMSIs (to get the benefit of super priority) are as follows:

If the secured property is inventory and tangible property – the security interest must be registered before the grantor (i.e. your customer or client) obtains possession of the property.

If the secured property is inventory but is intangible property – the security interest must be registered before the security interest attaches to, or is created over, the inventory (generally this will mean any time before the agreement giving rise to the security interest is entered into).

If the collateral is not inventory and is tangible property – the security interest must be registered within 15 business days after the grantor obtains possession of the property.

If the collateral is not inventory and is intangible property – the security interest must be registered within 15 business days after the security interest attaches to, or is created over, the property (generally this will be 15 business days after the agreement giving rise to the security interest is entered into).

Takeaways and tips

Creating an effective security interest under contract

Making sure you have the benefit of a security interest in the goods you supply starts at considering the agreement underlying the terms of supply (e.g. the supply agreement, credit agreement, lease agreement or the like). It is important to ensure that such agreement is effective to grant a security interest in your favour.

A supply agreement or credit agreement, for example, might contain a retention of title clause. It might also contain express acknowledgments by the parties that the agreement gives rise to a security interest in the property you supply to the extent your customer or client has outstanding obligations under the relevant agreement. If you are uncertain as to whether your agreement gives rise to a security interest or would like advice on how to effectively incorporate provisions that do so, contact McCabes.

Ensure timely registration

If you have the benefit of a security interest, ensure that you promptly register your interest on the PPSR. Your business may enter into a number of credit agreements with various customers, such that it is challenging to keep track of all the security interests arising and ensure that each is registered. Consider creating a ‘security interest register’, so you can keep track of when a security interest should be registered. It may also be appropriate to delegate the responsibility of registration to a particular officer or staff member in your organisation, to reduce the risk of an opportunity to register a security interest being missed.

Consider registering a PMSI

If your security interest falls within any of the PMSI categories outlined above, ensure that your security interest is registered as a PMSI within the strict timeframes set out in the PPS Act, so you obtain the benefit of ‘super priority’ in the relevant property.

Other methods to consider

Apart from ensuring you have security interests over the goods being supplied, consider whether it is appropriate to request alternative forms of security. This could include obtaining personal guarantees or security over your customer or client’s business assets other than the goods being supplied by you. If this is inappropriate at the start of a commercial relationship, reconsider this strategy if and when your customer or client seeks to negotiate a payment plan or similar arrangement with you.

If you would like any assistance or advice with respect to your supply or other agreements or relating to the registration or enforcement of any security interests, McCabes is well-equipped to provide advice bespoke to your business needs.

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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