Insolvency, Litigation and Dispute Resolution

Amendments to the Farm Debt Mediation Act come into effect

10 September, 2018

In December last year, we reported on a Federal Court judgment ordering costs against a non-party director for his unreasonable conduct to materially influence the conduct of a company involved in the winding up of the company. You can read the article here. Earlier this year, the New South Wales Court of Appeal (the Court) exercised similar powers in Brand2Content t/as Franchise Works v Dalby [2019] NSWCA 16 by ordering a non-party director, Mr Dalby to pay for Brand2Content Pty Ltd’s (Brand2Content) legal costs given his personal interest in the outcome of the appeal proceedings.

The facts

In November 2016, Brand2Content commenced proceedings in the New South Wales Supreme Court against three companies for claims of damages arising from alleged breaches of contract and for misleading and deceptive conduct.

Mr Dalby was a director of all three defendants and up until 8 February 2018, he held 80% of total shares in each of those companies. In February 2018, Ball J delivered judgment in favour of Brand2Content.

In March 2018, the three defendant companies’ lodged an appeal, and Mr Dalby, in his personal capacity, entered into a cost agreement with Osborn Law for provision of legal services with respect to appeal.

On 12 March 2018, Osborn Law wrote to Brand2Content’s solicitors:

“We are instructed to seek a stay of the judgment on the basis that the defendants do not have capacity to pay. If necessary we will rely upon the enclosed financial documents. It is clear on any reading of the documents that our clients, including [SABA], do not have capacity to pay.”

The financial documents concerned the financial position of each appellate company, which largely comprised of unpaid entitlements owing to the family trusts associated with Mr Dalby.

On 15 March 2018, Brand2Content provided an offer of compromise, which was rejected by the appellants. Shortly thereafter, Brand2Content twice requested from the appellants’ security for its costs of the appeal, which was also rejected, thus prompting Brand2Content to file a notice of motion for security of costs later that month. Prior to the motion being heard, one of Mr Dalby’s companies, Solar & Batteries Australia Pty Ltd (SABA) which was a cross-claimant in the original proceeding entered into voluntary liquidation with debts of more than $5 million and all of Mr Dalby’s companies ceased using the services of Osborn Law. Brand2Content’s solicitors were also unsuccessful in their efforts to contact the appellants.

Soon after, Brand2Content filed a notice of motion to dismiss the appeal for want of due despatch.

Despite being served with the motion, the appellants did not appear at the hearing and the appeal was ultimately dismissed by Simpson AJA.

Brand2Content sought orders for the costs of the appeal be paid on an indemnity basis and that Mr Dalby, the non-party director of the appellants, pay those costs.

When non-party cost orders can be made

The Court’s power to order costs against a non-party is derived from section 98(1) of the Civil Procedure Act 2005 (NSW), which provides that:

“Subject to rules of court and to this or any other Act:

(a)   costs are in the discretion of the court, and

(b)   the court has full power to determine by whom, to whom and to what extent costs are to be paid, and

(c)    the court may order that costs are to be awarded on the ordinary basis or an indemnity basis”

To determine whether a non-party costs order should be made pursuant to section 98(1), Gaudron J adopted the following five well-established principles set out by Basten JA in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [210]:

“1. the unsuccessful party to the proceedings was the moving party and not the defendant;

 2. the source of funds for the litigation was the non-party or its principal;

 3. the conduct of the litigation was unreasonable or improper;

 4. the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest’ and

 5. the unsuccessful party was insolvent or could otherwise be described as a person of straw.”

Application of the principles

Mr Dalby disputed four of the five principles that Brand2Content submitted were satisfied.

Was Mr Dalby the source of funding for the appeal?

Simpson AJA accepted that it was “more likely than not that Mr Dalby was the source of funds for the appeal” given:

  • the dire financial position of the parties as disclosed in the March 2018 correspondence; and
  • the unlikelihood of Osborn Law agreeing to engage with the appellants unless Mr Dalby agreed to personally finance the appellants’ legal costs.

Were the appellant companies insolvent, or at the least, impecunious?

Simpson AJA observed that the point of time in which the appellant companies’ insolvency should be assessed “… to be the time at which the order is sought or is made” given that the order is for payment by a third party of a costs obligation. His Honour was satisfied that the appellant companies were insolvent, or at the least, impecunious as at the relevant time.

Did Mr Dalby have a personal interest in the outcome of the appeal?

Simpson AJA agreed with the submissions made by Brand2Content that Mr Dalby had a substantial personal and financial interest in the outcome of the appeal as Mr Dalby:

  • accepted liability for personally funding the appeal (for reasons set out above);
  • was a unitholder of the trust and beneficiary for the Dalby Family Trust. He also held shares in the other appellant companies that were trustees for the Adam Dalby Family Trust (ADFT). Mr Dalby was the primary beneficiary of the ADFT, which was owed a substantial debt by an appellant company; and
  • had a history of effecting asset transfers between his entities. Therefore, failure of the appeal could cause his companies to be placed in liquidation, which would affect his capacity to control those assets.

Did Mr Dalby act unreasonably or improperly during the course of the proceedings?

Simpson AJA held that Mr Dalby controlled the appellant companies’ conduct during the litigation, and his Honour accepted that some of Mr Dalby’s conduct can be described as unreasonable or improper given his failure to cause the appellate companies to:

  • cooperatively engage with Brand2Content regarding their requests for security for costs;
  • file a notice of discontinuance; and
  • update Osborn Law of their proper address for service.

Although Simpson AJA observed that Mr Dalby, on balance, did not act unreasonably or improperly, her Honour viewed that Mr Dalby commenced and conducted the appeal for personal benefit through his family trusts, the appellant companies and to defeat Brand2Content’s rights to the judgment debt.

Accordingly, Simpson AJA ordered that the costs of the appeal be paid on an indemnity basis from 16 March 2018, being the date on which the offer of compromise was made, and that Mr Dalby pay the costs of the appeal.

Take away messages

  • Directors beware – the Court has a wide-reaching discretion to award non-party cost orders if the director’s personal interest is the driver behind pursuing court proceedings unreasonably.
  • Failure to provide a personal undertaking for security of court costs does not limit exposure to non-party cost orders.
  • As previously described in our article “Court Orders against Non-Party Directors” and shown in Brand2Content, similar powers vest in other State and Federal Courts to make non-party cost orders.

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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 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

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
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023