Litigation and Dispute Resolution

NSW Strata Reforms – Key changes of how it will affect you

23 August, 2016

In our 2019 article “The year ahead for directors: what’s in store for 2019“, we discussed some of the Federal Government’s proposed changes to the Corporations Act 2001 (Cth) (Corporations Act) which had the potential to impact company directors. A number of the proposed amendments have just been implemented over one year on from their introduction into Parliament (the delay predominantly relates to the dissolution of Parliament for the 2019 Federal election). We outline some of the key proposals and how they will impact directors below.

These include:

  1. establishing a new Director Identification Number scheme, which involves prescribing every registered Australian director with a unique numerical identifier;
  2. introducing new creditor-defeating disposition provisions under the Corporations Act;
  3. expanding the Director Penalty Notice regime for unpaid GST; and
  4. introducing a new law imposing penalties on companies for permitting an associate to engage in foreign bribery.

A new DIN regime

In December 2019, the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (Cth) (Registries Modernisation Bill) was reintroduced in the House of Representatives to replace its predecessor which lapsed in April 2019. The Registries Modernisation Bill proposes the introduction of new Director Identification Numbers (DINs) for registered directors. Under the proposed regime, any person appointed as a director of a corporation must apply for a DIN prior to their appointment. A DIN is a unique numerical identifier attributed to each director in perpetuity, which according to the Explanatory Memorandum, will “provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities.”

The most notable change contained in the new version of the Registries Modernisation Bill is the requirement for directors to apply for a DIN prior to their appointment. In the previous version, directors were given 28 days following their appointment to apply.

The following table is an updated summary of the maximum penalties for breach of the proposed DIN regime:

Targeting illegal phoenixing with a range of new measures

New creditor-defeating provisions under the Corporations Act

As discussed in detail in our last article, the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 (Combatting Illegal Phoenixing Bill) has been introduced to target unlawful phoenixing. The bill received assent on 17 February 2020 and accordingly, the majority of provisions outlined below have come into force as at 18 February 2020.

Phoenixing of companies occurs when company directors seek to avoid paying company liabilities by winding up the debtor company and transferring its assets to a new company. In 2018, phoenixing was estimated to cost the Australian economy about $2.9 billion to $5.1 billion annually.

The Combatting Illegal Phoenixing Bill has introduced novel creditor-defeating provisions, which are designed to specifically target transfers of company assets for less than market value (or the best price reasonably obtainable) which have the effect of preventing, hindering or significantly delaying the availability of a company’s assets during liquidation for creditors.

The creditor-defeating provisions operate alongside the current broader director duties provisions, including sections 181, 184 and 588G, which require directors to act in good faith, for a proper purpose and to prevent trading whilst insolvent.

The new laws also mean that:

  1. a creditor-defeating transfer is voidable if the transfer is made when the company is insolvent or becomes insolvent as a result of the disposition within the following 12 months;
  2. liquidators may make an application to the Court for an order to recover assets in relation to a voidable creditor-defeating disposition; and
  3. ASIC’s powers are strengthened, so that it can make orders (either at the request of a liquidator or on its own initiative) to recover assets the subject of of voidable transactions, for the benefit of creditors.

Directors (and other officers) may face civil and/or criminal liabilities if they fall afoul of the new provisions. The penalties include:


Expanding the reach of DPNs

As previously reported, under Division 269 in Schedule 1 of the Taxation Administration Act 1953 (Cth) the Commissioner may serve a Director Penalty Notice (DPN) on a director making him or her personally liable for their company’s failure to meet its superannuation guarantee charge (SGC) or PAYG withholding obligations, and requiring the director to pay the relevant sums within 21 days of being served with the DPN. The personal exposure of directors under DPNs may be significant, as it is equal to the actual or an estimate of the unpaid obligation of the company.

The Combatting Illegal Phoenixing Bill extends the regime to include a company’s unpaid GST, meaning that the possible personal exposure of directors will increase. This change will take effect from 1 April 2020.

Prohibiting improper director resignations

The Combatting Illegal Phoenixing Bill has also changed the law concerning the resignation of directors so as to prohibit directors from resigning and then improperly backdating resignations to avoid personal liability.  In short, the law will prevent a sole director from resigning in circumstances where it would leave a company without a director.

The law is directed to preventing directors engaging in phoenixing by resigning and thereby intentionally transferring accountability to other directors, such as a ‘straw director’. As articulated in the Explanatory Memorandum, a ‘straw director’ is usually someone without any real involvement in a company, who has little to no knowledge of their directorship or employment, and who may have limited assets to frustrate any recovery process. In some circumstances, a straw director can also be a deceased or fictious person.

A comparative summary of the law is as follows:


New laws criminalising foreign bribery

Directors of corporations operating internationally should be aware of the proposed changes contained in the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (CCC Bill). The CCC Bill makes it an offence under the Criminal Code Act 1995 (Cth) for a body corporate’s failure to prevent foreign bribery by an associate, if the bribery is committed for the profit or gain of the body corporate. An offence under this section carries a penalty the greater of either:

  • $21 million;
  • The value obtained by the associate either directly or indirectly as a result of the offence; or
  • 10% of the body corporate’s annual turnover in the 12 months preceding the offence.

Notably, a statutory defence is incorporated into the CCC Bill, where a body corporate can show that they had adequate procedures in place to prevent the commission of a foreign bribery offence by an associate. The CCC Bill gives the Minister express powers to publish guidance on what steps a body corporate can take in order to engage the defence. With the CCC Bill is currently before the Senate, directors of companies operating internationally should ensure that any published Ministerial guidance is incorporated into company policies, employment contracts and/or supply agreements if the Bill is passed.

Additionally, the CCC Bill also proposes to repeal and replace the existing definition of “dishonest” in the Criminal Code with a new objective definition of “dishonest”. The proposed change would mirror the change to the definition of the term “dishonest”  under the Corporations Act implemented last year  – “dishonest according to the standards of ordinary people”. You can read about the effect of the amended definition under the Corporations Act in our “The year ahead for directors: what’s in store for 2019” article.

Where to from here?

After a relatively slow Parliamentary year in 2019 due to the prorogation of Parliament for the Federal election, it is likely that the Federal Government will push hard for the proposed changes outlined above in the first half of 2020.  These changes will mean that:

  • as a registered director, you may soon have to apply for a DIN;
  • be aware of your responsibilities in relation to preventing creditor-defeating dispositions and backdating resignations as a consequence of the Combatting Illegal Phoenixing Bill entering into law;
  • be proactive and audit your company’s books to ensure there is no unpaid GST, as from 1 April 2020 directors will be exposed to personal liability for the same under the DPN regime;
  • audit your company policies, employment and supply contracts to prohibit and mitigate the risks of foreign bribery being committed by an associate of your company.

McCabes has experience in advising directors on compliance with all of their duties, including their duty to act in the best interests of the company, and acting in proceedings concerning breaches of directors’ duties. If you have concerns about compliance, contact our Litigation and Dispute Resolution Team for advice.  

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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