Commercial, COVID-19, Litigation and Dispute Resolution

Federal Government’s fight against COVID-19 ramps up – the implications of the second stimulus package for distressed SMEs and small lenders

24 March, 2020

Today, the Federal Government has seen its second stimulus package, to combat the economic challenges Australia faces in the wake of the coronavirus pandemic, enter into law. The stimulus package, valued at about $189 billion, and representative of about 9.7% of Australia’s annual GDP, contains support in the form for individuals and households, business and for the flow of credit (Second Stimulus Package).

We outline some important aspects of the Second Stimulus Package designed to benefit business, households and individuals, with a particular focus on the small to medium-sized enterprise market (SME) in this article.

We previously reported various changes, including:

  1. temporary changes to the insolvency laws in our articles titled Relaxed insolvency laws now in force to offset economic impact of COVID-19 and Get out of gaol free – Australian Government announces temporary changes to insolvency laws in response to novel coronavirus outbreak; and
  2. financial assistance provided to SMEs in our article titled Key points on the new Federal Government economic stimulus package for SMEs.

1. Guaranteeing loans through the SME Guarantee Scheme

A significant part of the Second Stimulus Package is the Coronavirus Small and Medium Enterprises Guarantee Scheme, involves the Federal Government’s commitment of up to $20 billion of lending to SMEs (SME Guarantee Scheme), as set out in the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Bill 2010 (SME Lending Guarantee Bill).

In the bill’s Explanatory Memorandum, the Government expressed that “the SME Lending Guarantee Bill gives effect to Government’s commitment to enter into risk-sharing agreements with financial institutions to ensure that credit continues to flow to SMEs so that SMEs can continue to meet their immediate financing needs during the uncertain economic conditions caused by the Coronavirus” (paragraph [17.1]).

Essentially, eligible corporate lenders under the SME Guarantee Scheme will be provided with guarantees by the Government for loans with terms, that may include that:

  1. the borrower is an SME (including sole traders), with an annual turnover of up to $50 million;
  2. the principal does not exceed $250,000 per borrower;
  3. the principal must be repaid within three years, with an initial six-month repayment holiday; and
  4. there is no security, meaning that you, as a borrower, will not be required to provide any asset as a security for the loan.

The lender is able to extend the term of the loan, however, the Government expects that the lender acts reasonably and makes good business judgment by considering the variable economic circumstances.

The SME Guarantee Scheme will commence the day after the relevant bill, being the SME Lending Guarantee Bill receives Royal Assent. Applications for new loans made under the scheme will be made available until 30 September 2020.

The SME Lending Guarantee Bill is law as of today, after receiving Royal Assent yesterday.

2. Supporting SMEs through the Business Growth Fund Bill

The Australian Business Growth Fund (Coronavirus Economic Response Package) Bill 2020 (Business Growth Fund Bill) will authorise investment into the Australian Business Growth of up to $100 million in Commonwealth funding.

This measure is in response to the challenge that SMEs face in having access to capital. To illustrate the challenge faced, the Government pointed to the Reserve Bank of Australia observation of the reluctance of banks to finance start-ups, the difficulty of entrepreneurs to enter into an unsecured loan of more than $100,000 to support trading, and how medium-sized businesses struggle to provide security when all their real estate has already been provided as collateral (Explanatory Memorandum [18.3]).

Consequently, SMEs’ retained profits are being used to fund expansion, which is and will continue to be impacted by COVID-19.

To facilitate this, the Business Growth Fund Bill will enable investment by the Commonwealth in a “company” (as defined in the Corporations Act) through forming or participating in forming a company, acquire shares in a company or become a member of a company, and acquire debentures of a company. And, it is that company which operates a “Fund” for the Government to provide support in the SME market.

The Business Growth Fund Bill is law as of today, after receiving Royal Assent yesterday.

3. Boosting the securities market through the Structured Finance Support Fund

The Structured Finance Support (Coronavirus Economic Response Package) Bill 2020 (Structured Finance Support Bill) established a Structured Finance Support (Coronavirus Economic Response) Fund (SFS Fund) and the Structured Finance Support (Coronavirus Economic Response) Fund Special Account (collectively, the Funds). The Funds are aimed at improving and ensuring continued access to lending markets. The SFS Fund will invest “in securitised loans, including residential mortgages, written by smaller lenders, through either warehouses or the term market. This will support the ability of smaller lenders to:

  • continue to issue new loans in the current economic conditions resulting from the impact of the Coronavirus; and
  • obtain funding from markets at a competitive price” (Explanatory Memorandum [20.6]).

Securitisation is a form of funding which involves packaging loans into tradeable debt securities. Securities are typically split into tranches, with varied risk allocated to each tranche. Cash that is generated from the loans are used to service the interest and principal payments to investors in the securities. The securities market is a vital source of financing for small lenders and healthy market competition is crucial to its accessibility. The SFS Fund and SFS Special Fund will promote liquidity in that market.

The Structured Growth Fund Bill is law as of today, after receiving Royal Assent yesterday.

The new law will empower the Minister with the power to invest monies in the account, with an initial $15 billion credit the day after the bill receives Royal Assent, which we expect to be shortly.

This liquidity push will no doubt spark an increase in demand for securities in the securities market.

4. Temporary exemptions from obligations under the Corporations Act

The new Coronavirus Economic Response Package Omnibus Bill 2020 (Omnibus Bill) has also become law, which will also enable the Minister with the power to determine that a specified class of persons (as defined under the Corporations Act) are exempt from specified obligations in the Corporations Act or its regulations. The Treasurer may modify any specified obligations under the Corporations Act or its regulations to enable that specified class of person can comply.

This is a significant new measure, and companies under the Corporations Act should monitor closely whether they fall within the specified class of persons and how their obligations have been reduced.

The exemption will commence from either the date of the legislative instrument or at an earlier time as specified by the legislative instrument.

The abovementioned temporary changes to the Corporations Act, as reflected in the Omnibus Bill, is law as of today, after receiving Royal Assent yesterday.

5. Providing administrative relief for certain tax obligations

The Australian Tax Office will provide, on a case-by-case basis, administrative relief for certain tax obligations of taxpayers affected by COVID-19.

This includes:

  • providing businesses with the ability to deter payment of certain taxes up to six months;
  • permitting businesses to vary its pay-as-you-go instalment amounts to zero for the March 2020 quarter, and accordingly claim a refund for any instalments made for the September and December 2019 quarters.

Key takeaways

  1. As of today, there is a raft of new laws from the Second Stimulus Package, so SMEs will be particularly interested in how to access the benefits.
  2. The SME Guarantee Scheme will facilitate up to $20 billion lending to SMEs.
  3. SMEs will have access to a robust funding regime through the Business Growth Fund.
  4. Expect an increased access by SMEs in the securities market to finance expansion and/or trading.
  5. Be alive to any legislative instrument passed by the Treasurer, as you may fall within the specified class of persons and may be required to perform different, possibly reduced, obligations under the Corporations Act.
  6. For further information concerning other aspects of the Second Stimulus Package, take a look at our other articles on the subject: Relaxed insolvency laws now in force to offset economic impact of COVID-19, Get out of gaol free – Australian Government announces temporary changes to insolvency laws in response to novel coronavirus outbreak and Key points on the new Federal Government economic stimulus package for SMEs.

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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 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