The right to bare arms: can someone else own rights in your skin?

26 April, 2017

The recent decision of Brereton J in In the matter of SurfStitch Group Limited [2018] NSWSC 164 reinforces the nature and fundamental importance of the exercise of making a “just estimate” of the value of creditors’ claims for voting purposes by administrators (formerly pursuant to Corporations Regulations 2001, reg 5.6.23(2), now Insolvency Practice Rules (Corporations) 2016, rule 75‑85).

On 24 August 2017, Messrs Park, Olde and Hansell were appointed joint and several administrators of SurfStitch Group Limited. Prior to their appointment, two shareholder class actions were commenced against SurfStitch. The administrators identified 3,313 shareholders who may be potential group members in the class actions.

Pursuant to section 563A(1) of the Corporations Act 2001, the payment of a subordinate claim against a company is to be postponed until all other debts payable by, and claims against, the company are satisfied. The claim of each person who may be a group member in the class actions falls within limb (b) of the definition of ‘subordinate claim’ in s 563A(2) (being “any other claim that arises from buying, holding, selling or otherwise dealing in shares in the company”).

The administrators applied to the Supreme Court of New South Wales for various relief, including:

  • An order pursuant to section 600H, entitling subordinate claimants to vote at the second meeting of creditors at which the future of the company is to be decided;
  • An order pursuant to section 447A, modifying the operation of Corporations Regulations, reg 5.6.23, so that the Chair of the meeting may admit any group member claimant (including those who have lodged sufficient particulars of their debt or claim or a formal proof) for a just estimate of $1.

Pursuant to section 600H,  subordinate creditors are to vote as a creditor of the company at a meeting of creditors only if the Court so orders. Brereton J had little difficulty in making such an order in the present case because the administrators had formed the view that even on a pessimistic scenario, it is likely that there will be a surplus after paying all debts and claims other than subordinate claims. Accordingly, his Honour was satisfied that the subordinate claimants have “a real financial interest in the external administration” of SurfStitch (being one of the matters relevant to an order under s 600H).

Turning, then, to the proposed order permitting the Chair to admit any subordinate claimant who may be a group member in the class actions for a purported just estimate of $1, Corporations Regulations, reg 5.6.23(2) provides that:

A creditor must not vote in respect of:

(a) an unliquidated debt; or

(b) a contingent debt; or

(c) an unliquidated or a contingent claim; or

(d) a debt the value of which is not established;

unless a just estimate of its value has been made”.

His Honour set out (at [20]) the circumstances in which an administrator may admit a claim for voting purposes with a nominal “just estimate” of $1, as follows:

  • where the claim cannot be quantified by a just estimate but it appears that the creditor is a creditor for at least some amount (such as where the debt is subject to an uncertain contingency);
  • where there is no or limited material from which a conclusion as to the just value of the debt can be drawn;
  • where it is almost impossible to ascribe a value to the claim;
  • where a claim is an “all or nothing” one and there is no realistic intermediate figure.

In the present case, the administrators submitted that it was appropriate to dispense with the requirement for the administrators to make any just estimate other than a nominal one because of the difficulties that they are likely to encounter in doing so, having regard to, amongst other things, evaluating the prospects of success of the class actions, the various alternative approaches to estimating the losses (which would not necessarily be the same for all claimants), the sheer number of such claims (potentially up to 3,313), and the time and financial cost of the exercise required.

The subordinate claimants opposed the order sought, contending amongst other things that $1 would likely undervalue their claims.

Brereton J was not persuaded that the factors proffered by the administrators, referred to above, afforded sufficient reason for the administrators not undertaking the reg 5.6.23 exercise at all. In this regard, his Honour emphasised the nature of the inquiry which reg 5.6.23 requires an administrator undertake. After referring to the oft-quoted observations of Barrett J in Selim v McGrath (2003) 47 ACSR 537, which include that any decision under reg 5.6.23 “will be of a somewhat summary nature”, his Honour said (at [23]):

“Those observations do not mean that the exercise need not be undertaken where it is complex; rather, they mean that despite the complexity of the exercise, the administrators are entitled to take a robust, rough and ready approach to evaluation. There is a difference between a summary approach, and an arbitrary one”.

His Honour also stated that he was not persuaded, “assuming without deciding that by resort to s 447A it could be done”, that it was appropriate to circumvent the rights given to creditors in the way contemplated. In the words of his Honour (at 25]):

“Effectively removing a right of appeal from an administrator’s decision on admission of a proof, even only for voting purposes, is a significant erosion of creditors’ rights”.

Accordingly, his Honour concluded that the administrators should not be permitted to admit the subordinate claimants for $1 only without attempting to make a “just estimate” of those claims.


  • The exercise which reg 5.6.23 requires an administrator undertake is not intended to be an onerous one, but it must be attempted genuinely.
  • An exercise of the power under section 447A, modifying how Part3A of the Act is to operate in relation to a particular company, involves the court addressing two questions: the first is one of power (whether the order sought can be made) and the second is one of discretion (whether if it the order can be made, it ought to be made). In the present case, Brereton J declined to make the order sought as a matter of discretion, without deciding if the order could be made.
  • Although subordinate creditors rank behind other creditors and claimants of a company by virtue of section 563A(1), they still have rights under the Corporations Act which must be respected. In this regard, it has been said that “it is a contravention of a deeply rooted principle of company law for a court to assist one creditor to improve its position vis-a-vis another creditor after it enters an insolvency regime”: Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in Liq)(1973) 131 CLR 605 at 613 per Menzies J.

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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
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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). 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Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

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