Insolvency

Winner takes all – what priority is afforded to a cost order made against a company in liquidation after the commencement of the winding up?

9 December, 2019

Receiverships usually arise from a secured creditor exercising their rights under a loan contract or mortgage following a default. But even where no default occurs, the Supreme Court of New South Wales has jurisdiction to appoint a receiver to preserve the property of an association pending the resolution of a dispute about the management of the association’s property.

Jurisdiction

In addition to the Court’s inherent equitable jurisdiction, sections 23 and 67 of the Supreme Court Act 1970 NSW provide a jurisdictional foundation for the appointment of a receiver and manager to both incorporated and unincorporated associations.

The jurisdiction to appoint a receiver is one of equities oldest remedies and as such is able to be moulded to the particular needs of the situation in the context of enabling the management of a charitable organisation to be returned to constitutional order: Attorney General v Schonfeld [1980] 1 WLR 1182 at 1186-1188 per Megarry VC (Schonfeld). In Schonfeld, the headmaster of a London Grammar School was unwell and due to retire. Under the articles of the school, the general governance of the school – including the power to appoint a headmaster – rested with the governors, many of whom could not be found. Dr Schonfeld was one such governor who strongly opposed any attempt to lessen his control of the school and in particular, to any appointment of a replacement headmaster, save by his agreement. This deadlock was resolved by Sir Robert Megarry V-C by appointing a receiver prior to the imminent departure of the retiring headmaster to make “a clean sweep of all who are or claim to be foundation governors so as to remove uncertainties and to put into office eight foundation governors whose title is derived from an order of the Court”.

A more recent exposition of the Court’s equitable jurisdiction, in the context of a need to restore a charitable organisation to sound management can be found in Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 (Sengthong) in which Lindsay J held that the principles relating to the preservation of property pending litigation apply as much to charities as to other bodies, where there is either:

such dispute between the known officials themselves that they cannot carry on the business of their organisation in a proper manner; or
that their identity is for any reason in dispute, so that it is not known for certain who is entitled to act on behalf of the body they should be managing.

In such cases, the court will interfere by the appointment of a receiver and, if required, a manager, pending the resolution of such disputes, or the ascertainment of the identity of the proper officials, to enable the business of the organisation to be properly conducted in the meantime.

Principles

The Court’s discretion to appoint a Receiver where it is ‘just or convenient’

Section 67 of the Supreme Court Act 1970 (NSW) enables the Court to appoint a receiver by interlocutory order in any case in which it appears to the Court to be “just or convenient” to do so. The observations of Johnson J in McLean v McKinlay and Ors [2004] WASC 2 that “it can be seen that the jurisdiction is quite general and, in its terms, unlimited” were adopted by Lindsay J in Sengthong (at [186]). This being the case, the words “just or convenient” do not confer an arbitrary or unregulated discretion on the court: Harris v Beauchamp Bros [1894] 1 QB 801 at 809. The power to appoint a receiver is to be exercised judicially and with due regard to authorities which are binding on the court: Parker v Campden London Borough Council [1986] Ch 162 per Donaldson MR, at 173 and 179.

Great care must inform the Court’s discretion

The Court’s discretion to appoint a receiver to an association will be exercised with great caution and circumspection, after full consideration of the facts of a particular case and the interests of all parties concerned, for a reason strongly appealing to the judge to whom the application is made (National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31).

The Receivers duty of fair dealing

In determining whether it is appropriate to appoint a receiver in any set of circumstances, the Court will have regard to the role which the receiver is to play. In the context of appointment to an association, the receiver’s position is quite different from that of receivers appointed pursuant to contractual arrangements or pursuant to other statutory provisions. With respect to an association, the role of a receiver is to take possession of the property as the Court’s officer with the duty of dealing with it fairly in the interests of all the parties to the proceedings: Re Newdigate Colliery Ltd [1912] 1 Ch 468 at 478. The receiver’s responsibility is to the Court. He or she is not the agent of, or the trustee for, any of the parties, nor subject to their control: Co-operative Farmers’ & Graziers’ Direct Meat Supply Ltd v Smart [1977] VR 386, at 391.

Alternatives to receiverships

Section 55 of the Associations Incorporation Act 2009 (the Act) provides that the Commissioner of NSW Fair Trading may appoint an administrator to administer an association’s affairs if:

the association has persistently failed to comply with the requirements of this Act or the regulations, and
having regard to those circumstances, the Secretary is satisfied that it is in the interests of the association’s members or creditors for an administrator to be appointed.

The considerations that may be relevant to an appointment under s55 of the Act have been set out in a policy document dated September 2016 published by Department of Finance, Services and Innovation:

are the issues of significant public concern or potential detriment (a factional feud within an association is not likely to meet this criteria)?
is the association in receipt of government funding that may be placed at risk if the association continues to operate without intervention?
are there other options available to members or creditors that are more appropriate than intervention by the Commissioner, for example actions available to creditors to recover monies owing, the association applying for voluntary cancellation and utilising dispute resolution procedures;
are there other more appropriate compliance actions that are warranted (for example directing an association to cause the whole or any specified part of its financial records to be audited)?;
the probable length and expense of the administration and if it is likely the association will be able to meet the expenses of administration out of its resources.

Section 63 of the Act sets out a number of grounds in which one may seek an order for the winding up of an association, which include insolvency (63(c) of the Act), pecuniary gain to members (63(d) of the Act) and where the committee of the association have acted in affairs of the association in the interests of the committee or the committee members rather than in accordance with the association’s objects, or in any other manner that appears to the Court to be unfair or unjust to the association’s members (63(f) of the Act).

Where an Association has property to be preserved and an independent party is needed to resolve conflicts which seriously prejudice the operation of the organisation, a Court-appointed receiver may prove to be a flexible and appropriate remedy to restore the Association to sound management.

published by

Andrew Lacey

Managing 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