Queensland Court of Appeal rules that liquidators’ disclaimer trumps environmental protection order
Background
Prior to its winding up, Linc Energy Limited (in liq) (Linc) had owned and operated an underground coal gasification project near Chinchilla. A necessity of that operation was that Linc required environmental authorities issued under the Environmental Protection Act 1994 (Qld) (the EPA).
An Environmental Protection Order (EPO) was issued by the Chief Executive of the Department of Environment and Heritage Protection (Chief Executive) pursuant to section 358 of the EPA on 13 May 2016. The effect of that EPO was that Linc was compelled to comply with its duties arising from the activities undertaken on the land to take all reasonable and practicable measures to prevent or minimise harm arising from the carrying out of those activities.
Shortly after the EPO was issued, the appellant liquidators were appointed to Linc. On 30 June 2016, the liquidators gave notice disclaiming, amongst other things, the land at Chinchilla and the environmental authorities under the EPA which it held for the site. The liquidators contended that the consequence of the disclaimer under section 568(1) of the Corporations Act 2001 (CA) was that they were relieved of the requirements of the EPO, on the basis that they constituted “liabilities… in respect of the disclaimer property” as defined by section 568D of the CA.
The Chief Executive contended that notwithstanding the disclaimer of the property described above, Linc remained bound to comply with the EPO. The liquidators then applied to the Supreme Court of Queensland for a direction pursuant to section 511 CA that they would be justified in not complying with the EPO.
The proceedings at first instance
The liquidators contended, in summary, that they were relieved of their obligations under the EPO issued under the EPA (a Queensland Act) as a result of their disclaimer of the land and associated environmental authorities under section 568(1) of the CA (a Commonwealth Act), because of the operation of section 109 of the Constitution, which provides that:
When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.
In opposition to that, the Chief Executive (joined by the Attorney-General for the State of Queensland who had been granted leave to intervene) contended that section 5G of the CA applied such that the provisions of the EPA in fact prevailed over the right to disclaim (and its attendant consequences) under the CA. Relevantly, sub-section 5G(11) provides:
A provision of the Corporations legislation does not operate in a State or Territory to the extent necessary to ensure that no inconsistency arises between:
- the provision of the Corporations legislation; and
- a provision of a law of the State or Territory that would, but for this subsection, be inconsistent with the provision of the Corporations legislation.
Justice Jackson found for the Chief Executive at first instance.
The decision on appeal
The Court of Appeal unanimously decided to reverse the decision below and found in favour of the liquidators.
The Court of Appeal found, in summary, that:
- the obligations arising from the EPO were liabilities in respect of disclaimed property, irrespective of whether the environmental authority itself constituted disclaimed property.
In delivering the leading judgment, Justice McMurdo determined:
Once the land and MDL had been disclaimed, there was no activity which could be carried out by Linc to which the general environmental duty could attach, and for which this EPO could have operated in the pursuit of its stated purpose. The connection between the disclaimed property and the liabilities under the EPO is thereby clear and immediate: the liabilities under the EPO were premised upon Linc’s carrying out activity which it could not and would not carry out, once the land and the MDL had been disclaimed.
- Once disclaimed, section 568D of the CA provided that Linc’s obligations under the EPO, being liabilities in respect of the disclaimer property, terminated. It was not possible to ‘sever’ or selectively terminate some liabilities but not others.
Emphasising that the State had readily admitted and alleged that a consequence of the disclaimer of the land at Chinchilla was that it had passed to the State, Justice McMurdo, found:
It could not have been intended that by a disclaimer of property, a liquidator could cause a company to lose all of its rights and interests in or in respect of the property, but remain burdened by a liability in respect of it. That would be an absurd operation of a law which has a long recognised purpose of enabling the company to rid itself of burdensome obligations. To put the matter another way, as a matter of construction, s 5G cannot displace the effect of s 568D on some or all of a company’s liabilities but not upon the other effects of a disclaimer. Consequently, the appellants are correct in submitting that s 5G(11) could be applied in this case only by impugning the disclaimer itself.
Conclusion
The High Court of Australia dismissed the Chief Executive’s application for Special Leave to Appeal the decision of the Queensland Court of Appeal on 14 September 2018.
As a result, it remains to be seen whether the decision elicits a response from state legislatures or environmental authorities seeking to bind liquidators to remedial actions required under an EPO notwithstanding disclaimer, whether by legislative intervention or by careful phrasing of the EPO to the effect that its requirements do not create liabilities in property capable of disclaimer.The next battleground may well be whether valid disclaimer of property has occurred in particular instances. No express finding was made on that point by Justice Jackson at first instance because the matter had proceeded on the premise that disclaimer had occurred because of admissions made by the respondents. Yet notwithstanding the “unambiguous” admissions made, the respondents sought in the appeal to depart from that position and put in issue the disclaimer, which the Court of Appeal did not permit.
The risk of service by post: Court finds bankrupt at fault for not receiving mail
Last month the Federal Court handed down their decision in the case of Szepesvary v Weston (Trustee), in the matter of Szepesvary (Bankrupt) (No 2) [2018] FCA 87. The case considered an application by Szepesvary to annul bankruptcy pursuant to s153B of the Bankruptcy Act 1966 and to set aside the bankruptcy notice upon which the creditor’s petition was based, pursuant to s 30(1) of the Bankruptcy Act.
The debt associated with the bankruptcy notice had been assigned to ACM Group Ltd by Westpac Banking Corporation. Westpac contended they subsequently provided Szepesvary with a written notice that his liability previously owing to Westpac was due and payable to ACM. At trial, ACM relied on Westpac's computer records which indicated the notice had been sent to Szepesvary's residence on 6 October 2011.
Szepesvary claimed he did not receive the Notice until many years later, at which point he was already bankrupt. Despite this, Szepesvary acknowledged he could not recall all of the correspondence he received from Westpac and ACM dating back to 2011. He also testified that the house in which he lived had multiple letterboxes and that it was not uncommon for his mail to be mistakenly delivered to his neighbour.
In determining whether the notice had been served to Szepesvary, O'Callaghan J considered s134 of the Property Law Act 1958 (Vic), which specifies that an absolute assignment of writing will only be effective if express notice is given to the debtor.
Moreover, his Honour referred to s160(1) Evidence Act 1995 (Cth), which states:
- "It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted."
Lastly, O'Callaghan J referred to the judgement of Jacobson J in Leveraged Equities Limited v Goodridge:
- "It is trite law that there is a prima facie presumption of fact that an envelope addressed and posted and not afterwards returned reached its destination in the ordinary course of post."
Accordingly, his Honour concluded ACM had presented sufficient evidence to support a finding that the Notice had been adequately addressed and posted, and that Szepesvary's evidence was not sufficient to negate the presumption.
O'Callaghan J emphasized the role of a recipient in the correct service of a document, drawing upon the finding of Lindgren J in Deputy Commissioner of Taxation v Trio to conclude that the risk of non-delivery created by Szepesvary could not have been known by Westpac:
- "There are strong policy reasons why any risk arising from the fact that there is no letter box or any other facility for receipt of mail at the registered office or from such an arrangement should lie with the company. It is the company that chooses not to have such a facility or to have as its registered office premises to which it is not practicable for mail to be delivered."
Ultimately the case was dismissed with costs. It serves as a timely reminder to all parties of the importance of ensuring documents are served correctly when delivered by post.
Unfair Contract Terms: Court Quashes JJ Richards Standard Form Contracts
Last October the Federal Court of Australia handed down their decision in the matter of Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd. The case centered on JJ Richards standard form contracts, with the ACCC alleging the contracts contained unfair terms.
It followed a series of amendments to Australian Consumer Law, implemented in late 2016, which extended the ACL’s scope to protect small businesses from unfair terms in business-to-business standard form contracts.
Following the amendments, the ACCC notified JJ Richards that there appeared to be a number of unfair terms within its standard form contracts. However the company failed to address these concerns and so the ACCC commenced proceedings.
The amended legislation stipulates that a contract will be ‘unfair’ where it is one sided or excessive, creates a ‘significant imbalance’ between the parties and where its provisions are not reasonably necessary to protect the benefiting party’s legitimate interest. Moreover, it deems that a small business contract exists where, at the time of assent;
- the relevant business employs fewer than 20 people; and
- the upfront price payable under the contract is no more than $300 000 or $1million if the contract is for more than 12 months
At trial, JJ Richards was found to have included a total of 8 unfair clauses within its standard form small business contracts. The decision rendered all illegitimate clauses void and thus JJ Richards was unable able to rely on any provisions;
- allowing JJ Richards to unilaterally increase its prices;
- binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
- removing any liability for JJ Richards where its performance is “prevented or hindered in any way”;
- allowing JJ Richards to charge customers for services not rendered for reasons that are beyond the customer’s control;
- granting JJ Richards exclusive rights to remove waste from a customer’s premises;
- allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days;
- creating an unlimited indemnity in favour of JJ Richards;
- preventing customers from terminating their contracts if they have payments outstanding and allowing JJ Richards to continue charging customers equipment rental after the termination of the contract.
Ultimately, the decision serves as a timely reminder to large businesses of the need to review small business standard form contracts. It upholds the Australia's commitment to protecting small businesses and highlights the importance of revising clauses that may otherwise be rendered void and unenforceable if challenged as unfair pursuant to the ACL.
The ACCC has since published a report addressing common terms of concern in small business contracts. It offers guidance on how best to manage contracts in light of the amendments and outlines a number of strategies implemented by other other companies across a broad range of industries.
