Daniela Ackland named Women’s Insolvency Network Australia (NSW) president

7 April, 2017

Section 440D imposes a stay on “proceedings in a court” against a company whilst it is in administration under Part 5.3A of the Corporations Act. It is well established that the term “proceedings in a court” does not include an arbitration proceeding: see Larkden Pty Limited v Lloyd Energy Systems Pty Limited [2011] NSWSC 1305 at [42] (Hammerschlag J). Notwithstanding this, can the Court use its general power to make orders under s447A to extend the reach of s440D in order to impose a stay on an arbitration against a company in administration?

That was the essential question in the recent Supreme Court of New South Wales case In the matter of THO Services Limited (administrators appointed) (ex tempore judgment delivered 21 March 2016), in which McCabes acted for the plaintiff administrators.

Background facts

In 2008 the Commonwealth of Australia (acting through the Department of Defence) as principal and THO Services Limited (the company) as contractor entered into a contract for the construction of a physical fitness complex, including swimming pool, at a RAAF Base in Queensland.

In July 2015, the Commonwealth sent a letter of demand to the company in relation to alleged defects arising out of the contracted works. The Commonwealth’s claim was quantified in the amount of approximately $12.7 million.

In September 2015, the Commonwealth exercised a right under the construction contract and referred its claim to the ICC Court of Arbitration in Hong Kong. In late December 2015, an arbitrator was appointed.

On 25 January 2016, with the company’s insurers yet to confirm their position in relation to granting indemnity, the board of directors of the company appointed Paul Gerard Weston and Geoffrey Trent Hancock of Pitcher Partners NSW Pty Ltd as joint administrators of the company pursuant to section 436A of the Corporations Act (the administrators).

On or about 1 February 2016, the arbitrator set a procedural timetable for each step in the arbitration up to and including a 5 day hearing on liability in Melbourne in November 2015.

In the absence of s440D imposing a stay on any arbitration, the administrators were compelled to actively defend the arbitration in order to avoid any risk that a failure to defend the arbitration would adversely affect the company (including any insurance policy held by the company).

The administrators subsequently sought relief from the Supreme Court of New South Wales, using its broad power to make orders about how Part 5.3A of the Act is to operate in relation to a particular company, to extend the application of s440D so that the arbitration commenced by the Commonwealth against the company would be stayed.

The Commonwealth opposed the making of the orders on the basis that (among other things):

The Court’s power in s447A cannot be used in the way proposed by the administrators;
And if the power can be used in this way, the Court ought not exercise its discretion in the manner sought.

Section 447A

Part 5.3A of the Corporations Act is entitled ‘Administration of a company’s affairs with a view to executing a deed of company arrangement’. Section 447A(1) provides that the Court may make such order as it deems appropriate about how the Part is to operate in relation to a particular company.

The High Court observed in Australasian Memory v Brien [2000] HCA 30; 200 CLR 270 at [17] et seq that there is nothing on the face of s 447A(1) that suggests that it should be read down, that the reference to “this Part” is to be understood as a reference to each of the provisions in it, that “the orders contemplated are orders that alter how the Part is to operate in relation to a particular company”, and that s447A is “an integral part of the legislative scheme provided for by Pt 5.3A”.

Goldberg J said in In the matter of Ansett Australia Limited and Mentha [2001] FCA 1806; 115 FCR 376 at [52]-[53] that any exercise of power under s 447A must be consistent with the object of Pt 5.3A found in s435A, and that there is no limitation on the power under s 447A that the alteration to the way in which Pt 5.3A is to operate cannot affect or impinge upon creditors (that issue being relevant to the exercise of discretion rather than the existence of the power).

Issues in dispute

The two questions for the Court to determine in the present case were: (1) does the Court have power to make the order proposed by the administrators under s447A; and, if it can be made (2) should the Court make the order in the exercise of its discretion.

As to whether the Court has power to make the proposed order, the administrators acknowledged that s447A did not appear to have been employed for this specific purpose previously. However, the administrators pointed to the breadth of the power under 447A and submitted that the proposed exercise of the power was consistent with the objects of Part 5.3A.

The Commonwealth submitted that the Court did not have power as the proper characterisation of the order sought by the administrators was not an order about how Part 5.3A is to operate in relation to a particular company but rather an order relating to arbitral proceedings, being a matter or right which (it was said) is not addressed at all in Part 5.3A. The Commonwealth also submitted that the broad power in s447A cannot be interpreted as allowing that which is not specifically provided for in s 440D; or, put another way, it cannot be used to “re-write the legislation” to stay a non-curial proceeding.

Determination

On 21 March 2016, Justice Brereton of the Supreme Court of New South Wales delivered an ex tempore judgment upholding the administrators’ application and granting the order proposed, thus staying the arbitration proceeding instituted by the Commonwealth against the company. In reaching the conclusion that the order proposed by the administrators was within the power of s447A, his Honour observations included:

the authorities (Australasian Memory and Ansett referred to above) run contrary to the proposition that s447A cannot be used to enlarge the scope of operation of Pt 5.3A (or “re-write the legislation”) in a particular case.
it is not accurate to say that arbitrations stand outside Part 5.3 For example, s444E, which applies to stay a “proceeding” against a company until a deed of company arrangement terminates, captures an arbitration.
There is no policy reason as to why a creditors’ voluntary winding up should operate to stay an arbitration against a company (s500) but a court ordered winding up should not (s471B), or why a deed of company arrangement should operate to stay an arbitration against a company (s444E) but an voluntary administration should not (s440D). This requires the attention of an appropriate law reform commission or agency to ensure consistency.

Brereton J went on to conclude that the order proposed by the administrators should properly be made in the exercise of the Court’s discretion.

Take home points

Section 447A permits the Court to make a wide class of orders. The fact that it may not have been used in a particular way previously should not be viewed as an impediment. The critical issue is whether the proposed use is consistent with the object of Part 5.3A.
The appointment of voluntary administrators is designed to provide the company with ‘breathing space’ while the company’s future is resolved. In light of the fact that arbitral proceedings “may be as distracting, time consuming and expensive for an administrator as curial ones” (Larkden at [42) per Hammerschlag J], the decision by Brereton J in the present case appears an eminently sensible one and in the interests of all creditors of the company.

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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