NSWCA: Liquidators Unable to Recover Third Party Payments as Unfair Preferences
In the recent case of Hosking v Extend N Build Pty Limited, the New South Wales Court of Appeal was required to consider whether payments made by a third party to an insolvent company’s creditor could be recovered by the liquidators as unfair preferences.
In 2012, Built NSW Pty Ltd subcontracted work to Evolvebuilt, with the arrangements subsequently formalised in a building contract. Evolvebuilt then engaged secondary subcontractors to undertake the work, however the subcontractors ceased work on 12 March 2013 after Evolvebuilt failed to pay.
On the same day, the Construction, Forestry, Mining and Engineering Union (CFMEU) wrote to Built instructing them to make the outstanding payments. Built also received a letter from Evolvebuilt, who requested that they pay the secondary subcontractors pursuant to cl 28.2 of the sub-contract.
Following this, Built made initial payments and after assessing the outstanding amounts, made further payments on 28 March. Despite this, Kennico, one of the secondary sub-contractors did not receive any such payments, and so Evolvebuilt made payments to Kennico of its own accord.
After Evolvebuilt entered liquidation in 2015, the company’s liquidators initiated proceedings, alleging the payments made by Evolvebuilt to Kennico and by Built to the other secondary sub-contractors on 28 March were voidable. In doing so, the liquidators argued that the payments were unfair preferences pursuant to s 588FA of the Corporations Act 2001 (Cth), entered into at a time when Evolvebuilt was insolvent.
At first instance Bereton J found that although the Kennico payments were unfair preferences, the Built payments were not. However, he found that Kennico was entitled to rely on the good faith defence in s588FG(2), as a reasonable person in their position would not have had an actual fear that Evolvebuilt was insolvent.
Despite this, the case was later heard on appeal where the liquidators contended that the primary judge erred in concluding that the payments made by Built were made in accordance with CFMEU’s request and not in accordance with Evolve’s request. Moreover, they argued that the primary judge was incorrect in finding that the payments were not made from an asset that benefitted Evolve, and that the request from Evolve to pay its secondary subcontractors was part of a ‘chain of causation’ that caused the payments to be made.
On appeal, the court was required to consider:
- If the payments made by Built were ‘unfair preferences’; and
- Whether Kennico was entitled to rely on the defence.
The court rejected the liquidator’s contentions and so the appeal was unanimously dismissed. In doing so, the court held that as s588FA(1)(a) requires that a debtor company and creditor are ‘parties to the transaction’, it was necessary to identify the ‘transaction’ and determine whether Evolvebuilt was a party to it. Despite this, they did not rely upon a ‘chain of causation’ connecting the debtor company to the payments. It was ultimately held that payments to the five sub-contractors were not unfair preferences.
As to the applicability of the good faith defence, the court held that it was not available to Kennico as a reasonable person in their position would have had ‘a positive apprehension or fear’ that Evolvebuilt was be unable to pay its debts. In doing so, the court relied on evidence which indicated that Kennico had notice that Evolvebuilt was 'unable to pay everyone'.
HCA Confirms Validity of Holding DOCAs
In the recent case of Mighty River International Ltd v Hughes, the High Court of Australia considered 2 cases on appeal from Supreme Court of Western Australia. Both involved a contested deed of company agreement (DOCA) entered into between Mesa Minerals Ltd and its creditors.
The case ensued after Mesa Minerals Ltd entered voluntary administration in July 2016. Subsequently, on 20 October the company’s creditors approved a Holding DOCA that ended the voluntary administration but did not introduce a final proposal to restructure the company and avoid liquidation.
Mighty River International Pty Ltd, a minority shareholder in Mesa, disagreed with this decision and thus initiated proceedings. In doing so they asserted that Holding DOCAs were generally not consistent with the wording and intention of the Corporations Act and were consequently invalid.
At trial, Mighty Rivers argued that the DOCA was void and should thus be set aside. In doing so, they relied on section 444A(4)(b) of the Corporations Act, asserting that the DOCA did not specify any property which would be available to satisfy the claims of Mesa’s creditors and did not otherwise make provision for any return to creditors. They also contended that the natural wording of the act suggests some property must be available for distribution, as it fails to include the words “if any” in relation to property. Lastly, they argued that as the court has the power to extend the convening period for meetings of creditors, Parliament must not have intended administrators to be able to extend the period by DOCA.
However, the respondents argued that the relevant provision was not drafted with the intention that administrators would make property available to creditors but rather, to inform creditors of the property available to be distributed. In doing so, they argued that even where there is no property to distribute, the creditors ought to be made aware of this.
Moreover, they asserted that where there is no property to distribute to satisfy creditor claims in a DOCA, creditor claims may be fulfilled through alternate means such as by offering a debt for equity swap; in which creditors forfeit their rights to enforce their debts in exchange for shares in the company.
The High Court of Australia ultimately upheld the previous decision, dismissing both appeals with costs. They are expected to publish their reasons shortly.
Google Loses Online Defamation Case
A recent decision of the High Court of Australia has allowed Milorad "Michael" Trkulja to sue Google for defamation, following a six-year legal battle.
After being shot in the back in a Melbourne restaurant in 2004, Trkulja was falsely linked with Melbourne’s criminal underworld and later featured in a series of online search results and images. Trkulja subsequently initiated proceedings, alleging Google defamed him by publishing photos which wrongly associated him with well-known Australian criminals including Carl Williams, Chopper Reid and Tony Mokbel.
A 2012 decision of the Victorian Supreme Court found in favour of Trkulja, concluding that Google had defamed him by publishing photos and search results linking him to prominent figures of Melbourne’s underworld.
However, the Victorian Court of Appeal later overturned the decision, ruling the case had no prospects of successfully proving defamation. In doing so, the court found in favour of Google on the following grounds:
- Google is not a publisher
- The Google search results were not defamatory
- Google is entitled to immunity for public policy reasons
Despite this, in 2017 the High Court granted Trkulja special leave to appeal the decision. In arguing his case, Trkulja claimed Google searches for “Melbourne criminal underworld” produced results which associated him with notorious criminal figures, thus positioning him as a criminal himself and ultimately amounting to defamation.
Google contended that it would be ‘irrational’ for a reasonable person to assume all results in the search were of criminals, asserting that the relevant searches also returned results of movie posters, photos of actor Marlon Brando and images of crime victims.
Trkulja also claimed defamation on the basis that Google’s autocomplete function returned suggestions such as, ‘criminal’, ‘underworld’ and ‘is a former hit man’, after inputting his name. However, the court accepted Google’s submission that autocomplete is merely an automatic function influenced by previous search results.
Despite this, the High Court ultimately found in favour of Trkulja, supporting his claim that the Google search results were likely to persuade a reasonable person that he was “somehow associated with the Melbourne criminal underworld.”
In doing so, the court unanimously ruled that Google was in fact a publisher, concluding that “it is strongly arguable that Google’s intentional participation in the communication of the allegedly defamatory results to Google search engine users supports a finding that Google published the allegedly defamatory results.” Moreover, the court held that “the search results complained of had the capacity to convey to an ordinary reasonable person viewing the search results that Mr Trkulja was somehow opprobriously associated with the Melbourne Criminal Underworld, and, therefore, that the search results has the capacity to convey one or more of the defamatory imputations alleged.”
The outcome of this case, and the conclusion that search engines are in fact publishers in their own right, is likely to have serious implications for all search engine operators in Australia. However, whilst Mr Trkulja’s win signals significant progress for Australian defamation law, it remains just another step in his lengthy court battle, with Mr Trkulja set to return to the Victorian Supreme Court later next year.
NSWCA: Chorley Exception May Extend to Barristers
In the matter of Pentelow v Bell Lawyers Pty Ltd [2018] NSWCA 150, the New South Wales Court of Appeal was required to consider whether the ‘Chorley exception’ applies to barristers as well as to solicitors. The Chorley exception is an exception to the well-established rule that a self-represented litigant is not entitled to professional costs for acting for him or herself in legal proceedings and provides that self-represented litigants who are solicitors are entitled to recover professional costs for work they have undertaken in legal proceedings.
In doing so, the court was also required to consider whether, if the exception did apply, it would extend to include circumstances in which barristers had engaged legal representation to act on their behalf in the relevant proceeding.
Background
The case involved Janet Pentelow, a barrister who brought proceedings in both the Local Court and Supreme Court of New South Wales, seeking to recover unpaid fees following a dispute with her client (who had been her instructing solicitors). Although the Supreme Court awarded costs in Ms Pentelow’s favour in respect of both proceedings, the cost assessor later rejected in its entirety that part of the costs claimed by Ms Pentelow for preliminary work that she had undertaken herself prior to engaging legal representation, such as drafting the originating process and her affidavit of evidence.
During a subsequent review by the Costs Review Panel, Ms Pentelow’s claim for costs relating to work that she had undertaken was again disallowed on the on the basis that Ms Pentelow was not self-represented as she was represented by solicitors and senior counsel in the prior proceedings, and on the basis that the Chorley exception did not extend to barristers. Ms Pentelow subsequently appealed to the District Court of New South Wales, however was unsuccessful on the same basis and thus sought judicial review of the decision pursuant to s69 of the Supreme Court Act 1970 (NSW).
Here, the New South Wales Court of Appeal was required to consider the following grounds:
- Whether the Chorley exception extends to barristers;
- Whether Ms Pentelow was a self-represented litigant; and
- Whether the Chorley exception applied to Pentelow in circumstances where she engaged legal representatives but also undertook legal work herself.
Whether the Chorley exception applies to barristers
In contending that the Chorley exception applies to self-represented barristers, Ms Pentelow submitted that the court must have regard to the underlying rationale for the rule. In doing so, Ms Pentelow contended that as a barrister’s costs are able to be quantified by the same processes by which a solicitor’s costs are, they too should fall within the ambit of the Chorley exception.
Beazley ACJ (with whom Macfarlan JA agreed) accepted this submission, ultimately concluding that as there was no binding authority, it was appropriate to consider the rationale for the exception. Ultimately, her Honour determined that the Chorley exception extended to the work undertaken by a self-represented barrister, so long as that work was not expressly proscribed by the Bar Rules. Significant in Beazley ACJ’s reasoning was the fact that there was now significant overlap in the work undertaken by both solicitors and barristers and the costs of each may be assessed under the same costs assessment processes. It is important to note that the costs of solicitors and barristers are also assessed under the same costs assessment processes in Queensland and other jurisdictions in Australia, as well as New South Wales.
Whether Ms Pentelow was a self-represented litigant
The court identified that in order to be entitled to relief by way of judicial review, the applicant must establish error of law or jurisdictional error because a question of fact was not amenable to judicial review. In doing so, it held that this ground failed on the basis that it sought to challenge a finding of fact and thus, was not amenable to judicial review.
Whether the Chorley exception applied to Ms Pentelow in circumstances where she engaged legal representatives but also undertook legal work herself
In determining the final ground, Beazley ACJ (with whom Macfarlan JA agreed) concluded that despite having engaged legal representation, Ms Pentelow was entitled to recover costs for legal work she undertook herself. Her Honour held that this issue raised a question of mixed fact and law, which was amenable to judicial review. Ultimately, her Honour concluded that Ms Pentelow’s entitlement to recover specific items of costs claimed was a matter for costs assessment and the matter was remitted to the District Court of New South Wales and the Costs Review Panel for that purpose.
Conclusion
This case highlights an interesting facet of law in that it was found that the costs of self-represented barristers undertaking legal work not otherwise proscribed by the Bar Rules fall within the Chorley exception. Given the criticism that the Chorley exception and its underlying rationale has drawn in recent times, it will be interesting to note how the High Court will handle such matters that emerge in future cases.
NSWCA: Voluntary Administrator Lawful in Terminating Rabbi’s Employment
In a recent matter before the New South Wales Court of Appeal, the court was required to determine whether the Voluntary Administrator of the South Head Synagogue acted lawfully in terminating the employment of Chief Rabbi Benzion Milecki. In doing so, they were required to consider whether Orthodox Jewish Law (Halakah) could be incorporated into Australian Law, thus meaning that the Rabbi’s appointment was for life.
The case ensued after the Synagogue was placed into administration in 2017, following which the administrator immediately terminated the Rabbi’s employment contract and later prohibited him from attending the synagogue.
Rabbi Milecki consequently brought proceedings against the administrators, claiming that Hazakah (life tenure) was a term of the contract, and that the purported termination of his employment was not permitted.
At first instance, the termination of Rabbi Milecki’s employment was found to be unlawful, with Justice Bereton concluding that Hazakah was incorporated, or alternatively implied, as a term of the contract. However, on appeal, the court unanimously found the administrator was acting within the law by terminating the contract.
In finding against the Rabbi, the court held that “It was not a term of the respondent’s contract of engagement with the second appellant that his appointment as rabbi could not be terminated otherwise than in accordance with the halachic or Orthodox Jewish legal principle of Hazakah.”
The appeal judges ruled that Halakah could apply to congregation but not to the company. Accordingly, as Australian law was found to apply, in which all employees are terminated when a company is placed into administration, Rabi Milecki’s termination was ultimately deemed lawful. He was subsequently ordered to pay the administrators costs.
Court Awards Liquidators Unfair Preference Payments
In the matter of Trenfield v HAG Import Corporation (Australia) Pty Ltd the court was required to consider whether the liquidators of Lineville Pty Ltd were entitled to recover a number of payments as preferences pursuant to s588FA of the Corporations Act 2001 Cth. The payments in question were made by Lineville to HAG Import Corporation, with HAG disputing the liquidator’s entitlement to the payments on the basis that they were not made in respect of an unsecured debt. In doing so, HAG argued that the payments were amounts paid for goods which had been supplied to the company on terms granting HAG a security over the goods or the proceeds of sale of those goods, and that the value of HAG's security was in excess of the amount paid.
In reaching a conclusion, the court was required to consider:
- Whether the security interest had been perfected;
- Whether the creditor was a secured creditor, and if so, at what point in time; and
- How any security was to be valued
Had the Security Interest Been Perfected?
The court applied s267 of the PPSA which provides that correct registration of a security interest prevents the security from vesting in a liquidator or administrator if the company goes into external administration. Here, the registration was not valid for the purposes of the PPSA and thus upon appointment of the administrators, any security interest held by HAG vested in Lineville. In delivering its verdict, the court held that the security interest had not been perfected as it had incorrectly been identified as ‘transitional’.
Despite this, the court ultimately contended that the unperfected security interest was still effective between the parties. In doing so, it held that the PPSA does not make an unregistered security interest completely void.
When Did the Creditor Become Secure?
The court held that the relevant time for determining whether the debt was unsecured is pursuant to the time of each payment. In doing so, it applied s588FA (2) of the Corporations Act, contending that the security has to be valued at the date of each particular payment, in order to perform the calculation required by subsection (2).
How Any Security Was To Be Valued?
After much consideration as to how the value of the security was to be determined, the court held that it was to be assessed as the value of the security to the creditor. Relevantly, it held that in circumstances where there was no expert evidence as to the appropriate basis to value the goods, the matter must be resolved as a matter of common sense. Accordingly, the court held that the appropriate way to value the stock held by the company is at the wholesale price.
Concluding Judgement
Ultimately, judgement was handed down in favour of Lineville, with HAG ordered to pay its liquidators $473,291 plus interest pursuant to s58 of the Civil Proceedings Act 2011. However, in determining the period for which interest will accrue, the court contended that HAG must be allowed a reasonable time after the demand was made by the liquidators before interest begins to run. According to the statement of claim admitted by the HAG, the first letter of demand was sent on 7 August 2014, and further letters of demand were sent on 3 December 2014, 18 February, 30 April, 17 July and 28 September 2015. It was thus held that interest was payable from 7 August 2015, 12 months after the first letter of demand.
