Insolvency

Recent developments that tighten the noose around copyright infringers

20 May, 2015

In All Class Insurance Brokers Pty Ltd (In Liq) v Chubb Insurance Australia Ltd [2020] FCA 840, the Federal Court of Australia was asked to determine an application for security of costs. According to the Court, in considering whether an order for security for costs will stultify litigation by companies in liquidation, it must look to who stands to benefit from the litigation and that “those who stand to share the benefits of litigation cannot shirk its burdens” involving any adverse costs order in litigation.

The proceedings

The proceedings concern allegations that the sole director, secretary and shareholder of All Class Insurance Brokers (All Class), Mr Bowmaker, withdrew over $2 million from All Class’ trust account over the course of several years.

In April 2013, All Class went into liquidation. In 2014, the liquidator of All Class lodged a claim under an insurance policy taken out with the defendant, Chubb Insurance Australia Ltd (Chubb), for loss arising from the trust funds misappropriated by Mr Bowmaker. The claim was characterised by the liquidator as a claim arising from theft by an employee.

The parties engaged in a series of negotiations over several years, however ultimately, Chubb did not accept that Mr Bowmaker was an employee and refused to indemnify All Class under the policy.

Consequently, the liquidator, on behalf of All Class, commenced proceedings in 2019 seeking an order that Chubb indemnify All Class under the insurance policy.

Steps prior to the security for costs application

Given that All Class was in liquidation, Chubb unsurprisingly held concerns that it would not be able to meet an adverse cost order made in Chubb’s favour. Chubb sent several letters requesting that All Class provide information about its asset position which were not responded to.

Given All Class’ failure to respond, Chubb approached the Court and received orders that it present All Class with a security for costs proposal. All Class again failed to provide a response to Chubb’s proposal by the date set by the Court and so Chubb filed the present application seeking an order that All Class provide security for Chubb’s costs of the proceedings.

Initially, the application was stood over until March 2020 to allow the parties to participate in mediation. However, the parties were unable to resolve the issue and the application proceeded with judgment delivered in June 2020.

Security for costs 101

Security for costs applications arise when a defendant has concerns that a plaintiff will not have the ability to repay the defendant’s costs incurred in defending the proceedings if the plaintiff’s claim is ultimately unsuccessful.

In this way, such applications operate as a protective mechanism designed to mitigate the defendant’s risk that an adverse cost order against the plaintiff will be unable to be recovered.

In bringing an application, the defendant must satisfy the court that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so. This may be for a number of reasons including:

the plaintiff was impecunious;
the plaintiff is ordinarily a resident outside of Australia;
there is reason to believe the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings; or
the plaintiff is suing for the benefit of another.

Once the threshold question of the plaintiff’s inability to pay the defendant’s costs has been satisfied, the defendant must persuade the Court that it should exercise its discretion in favour of granting the relief sought.

In exercising this discretion, the Court may consider:

whether the application has been brought promptly;
the merit of the plaintiff’s claim and/or the plaintiff’s prospects of success;
whether the plaintiff’s impecuniosity in attributable to the defendant’s conduct which is the subject of the plaintiff’s claim;
whether the application for security is oppressive and/or being used to stifle the plaintiff’s right to litigate;
whether the plaintiff is effectively in the position of the defendant;
whether there are any persons standing behind the plaintiff who are likely to benefit from the litigation and who would be willing to provide the necessary security e.g. directors of a company commencing proceedings;
whether an order for costs made against the plaintiff would be enforceable within Australia; and
whether it is in the public interest to reject the application.

This being the case, the Court’s discretion is broad and unfettered. The Court must exercise its discretion judicially having regard to all the circumstances of the case.

Ultimately, the Court will aim to reach a decision that provides a balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings.

Form of security and form of order

If the defendant is successful on their security for cost application, the plaintiff will be ordered to provide some form of monetary security as directed by the Court. This security will typically take the form of a bank guarantee or deposit of funds into the Court.

Usually, the Court will grant a stay of the proceedings until the plaintiff has provided the required security, failing which the proceedings may be dismissed.

The quantum of security to be provided will depend on the case; however, the defendant must show adequate reasons for requesting the amount suggested, including the likely costs that the defendant anticipates it will incur going forward.

Be careful liquidators: Those who stand to benefit from litigation cannot shirk its burdens

Having been in liquidation since 2013, the Court was satisfied that All Class was impecunious. Affidavit evidence established that there were no further funds left in the liquidation, the liquidator’s fees of more than $350,000 remained unpaid and All Class’ solicitors and counsel were acting on a speculative basis.

Having determined that All Class would be unable to pay Chubb’s costs in the proceedings if ordered to do so, the Court then considered several discretionary matters.

The Court accepted both parties brought their claims in good faith and both All Class’ claim and Chubb’s response had reasonable prospects of success.

All Class argued that its impecuniosity was the result of theft, fraud or dishonesty by an employee, being the very risk that Chubb’s policy purported to insure against and that an order would stifle the litigation.

The Court found that when considering whether the litigation would be stultified, it must look to who stood to benefit from the proceedings if All Class was successful. Quoting Australian Equity Investors, An Arizona Ltd Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57, the Court reiterated that “those who stand to share the benefits of litigation cannot shirk its burdens”.

The Court found that in the absence of evidence to the contrary, there were four creditors of All Class who had the ability to fund the security and further, there was no reason to conclude that an order of security would stifle the litigation.

Consequently, the Court considered it fair and in the interests of justice to make an order for security of costs. The Court did not accept the amount being claimed by Chubb though, revising the quantum of security to $50,000 being the sum that the Court believed to be adequate for a one-day hearing to determine the policy construction issue.

All Class was given 28 days to comply with the order, failing which, the proceedings be dismissed with costs.

Conclusion

Security for costs applications are a powerful tool that can be utilised to protect a defendant’s financial exposure in litigation. Liquidators should remain mindful that companies in liquidation are particularly vulnerable to a security for costs order when the Court may infer that there are creditors who would stand to benefit from the outcome of the litigation.

If you have had proceedings commenced against you, we encourage you to contact McCabes Litigation and Dispute Resolution group today. McCabes is highly skilled at conducting litigation and facilitating dispute resolution. We are well placed to help you with any commercial dispute.

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