VSC orders review of liquidator's conduct and fees
In the recent decision of Westpoint Corporation Pty Ltd (in liq) v Yeo [2018] VSC 705, Westpoint Corporation (WPC) have been successful in having the Victorian Supreme Court inquire into the remuneration of the liquidators of Westpoint Finance (WPF). WPC is the major unsecured creditor of WPF.
The case ensued after WPC alleged that WPF's liquidators ‘failed to properly perform their duties' in incurring legal costs of approximately $600 000 and accruing remuneration in excess of $455 000, after pursuing three legal claims for commission in respect of the sale of real estate in circumstances where WPF did not hold the requisite licence and where there were statutory provisions prohibiting the recovery or retention for reward.
Consequently, in February 2017, WPC filed a complaint with the Supreme Court of Victoria seeking that the court conduct an inquiry into the conduct of the liquidators of WPF, pursuant to s536 of the Corporations Act.
WPC also sought a review of the liquidators remuneration pursuant to s504, contending that by pursuing the three legal claims, the amount available for distribution to the creditors of WPF was diminished by approximately $1 million. In doing so, WPC contended that the remuneration approved and paid to the liquidators to date, totalling over $1.4 million, was disproportionate to the $3.8 million recovered by the liquidators in the winding up.
Ultimately the court found in favour of WPC, concluding that an inquiry should be held into the liquidator’s conduct, pursuant to s536(1)(b) of the Corporations Act (now repealed). Despite this, Sloss J held that the review should be confined to their conduct in pursuing PRD Realty Qld; one of the three real estate agents originally targeted by WPF's liquidators.
In relation to WPC’s request for a review of remuneration, the court held that the monies generated by the liquidators between March 26 2006 and October 2 2011 ought to be reviewed pursuant to s504(1).
Whilst inquiries into the conduct of insolvency practitioners is not a common occurrence, they can occur and this case presents a useful example of what the court might consider in determining whether to order an inquiry. The case is useful both to insolvency practitioners and creditors.
PPSR: Your registrations may be expiring soon!
The Personal Properties Securities Register (PPSR) is a vital risk minimisation tool for both businesses and consumers in buying, selling, leasing, renting and hiring transactions. However, over 120,000 registrations are set to expire on 31 January 2019! It is imperative that you ensure any lapsing registrations are extended to protect your interests.
Why you should renew
Registration on the PPSR solidifies your position as a secured creditor, ultimately allowing you to recover property when a customer becomes insolvent or defaults on a payment. However once your registration expires, you will be unable to extend or renew it, and will thus risk losing priority to another secured party when you attempt to re-register.
What you need to do
- Review the status of your existing registrations and take note of any which are due for renewal
- Ensure that you update any changes to your original registrations, such as party details, new contracts or property upgrades
- Extend you registrations to continue to secure your interest.
We are here to help
We understand that navigating a PPSR expiry can be a stressful and challenging time. We have assisted numerous clients through the process and are here to ensure your experience is not a stressful one. If you want to ensure that your property and interests are protected, please do not hesitate to call us.
Limitation period for costs assessment application runs from date of delivery of lump sum bill
In the matter of QLD Law Group – A New Direction Pty Ltd v Crisp [2018] QCA 245, the Queensland Court of Appeal held that the limitation period for an application for costs assessment by a client runs from the date of delivery of a lump sum bill of costs and not a later itemised bill.
Background and the proceeding below
The respondent, Ms Crisp, had been a plaintiff in a personal injuries proceeding, represented by the appellant in that proceeding.
After the conclusion of that proceeding, the appellant issued a lump sum bill to the respondent on 28 April 2015.
Almost 11 months later in March 2016, the respondent requested that the appellant provide an itemised bill pursuant to section 322 of the Legal Profession Act 2007 (Qld) (the LPA).
The itemised bill was provided by the appellant on 19 May 2016 and almost a year after that (i.e. almost 2 years after the initial lump sum bill was delivered in April 2015), the respondent applied to have the appellant’s costs assessed pursuant to section 335 of the LPA.
Section 335(5) of the LPA provides that a client may make a costs application within 12 months after
- the bill was given, or the request for payment was made, to the client or third party payer; or
- the costs were paid if neither a bill was given nor a request was made.
The central issue of contention was whether the 12-month period commenced from the delivery of the lump sum bill on 28 April 2015 (and therefore expired in April 2016) or from the delivery of the itemised bill on 19 May 2016 (and therefore not expiring until May 2017).
At first instance, the Magistrate applied the former interpretation and found that the respondent’s costs application had been made out of time. The Magistrate also dismissed the respondent’s application to extend time to bring the costs application and accordingly, dismissed the costs application.
On appeal to the District Court of Queensland, Judge Kent QC preferred the latter interpretation and granted the appeal, overturning the decision of the Magistrate.
The appellant then applied to the Queensland Court of Appeal for leave to appeal the decision.
The appeal
Sofronoff P (with whom Morrison and Philippides JA agreed) analysed the wording of the relevant provisions in Part 3.4 of the LPA and noted that section 335 provided for the assessment of costs, not the assessment of a bill (or bills) of costs. His Honour stated:
The statute does not make the delivery of an itemised bill, or indeed the delivery of any kind of bill, a condition precedent to the right to make a costs application. This is consistent with the absence of an idea that it is a bill that is to be assessed. Section 335 does not refer to an assessment of a bill but to “an assessment of the whole or any part of legal costs”. The legal costs may be those referred to in a lump sum bill or an itemised bill. But they may also be the legal costs that have been the subject of the “request” or the payment that are also referred to in s 335(5). It is not only the delivery of a bill that triggers the beginning of the limitation period; it is triggered by a solicitor’s request for payment or by a client’s payment of costs. It can therefore be concluded that there is nothing in s 335 that, for the purposes of an application for an assessment of legal costs, promotes the importance of an itemised bill over a lump sum bill or even that distinguishes between them.
His Honour also noted that section 332 of the LPA distinguished between the effect of delivery of a lump sum bill and delivery of an itemised bill in respect of a law practice’s ability to commence legal proceedings to recover legal costs, stating further that:
These express provisions that distinguish between the legal effects of the delivery of one kind of bill from the legal effects of the delivery of another kind of bill suggest strongly that the absence of any similar distinction in s 335 means that, for the purposes of s 335(5), there is no distinction.
As a result, his Honour determined that the 12-month period within which a client may apply for costs assessment under section 335(5) of the LPA commenced from the delivery of a lump sum bill and did not restart upon the provision of a later itemised bill at the request of a client.
Accordingly, the application for leave to appeal was granted and the appeal was allowed. The proceeding was remitted back to the District Court for the respondent’s appeal against the decision of the Magistrate to refuse to extend the time within which the application for costs assessment could be brought to be determined (determination of this issue was not previously required given that Judge Kent QC had found that the application for costs assessment was made within time).
Conclusion
The decision is of interest to practitioners because it clarifies just when the 12-month limitation period for an application for costs assessment by a client commences and confirms that the later delivery of an itemised bill after the delivery of an initial lump-sum bill does not restart the limitation period afresh.
The decision also has application near nationwide given that the terms of section 335 of the LPA have similar counterparts in most other states, including in New South Wales and Victoria where similar wording to that contained in section 335(5) is to be found in section 198(3) of the Legal Profession Uniform Law, the successor in those jurisdictions to the legislation arising from the Legal Profession Model Bill formulated by the Standing Committee of Attorneys-General and implemented in most Australian states in the mid-2000s upon which the Queensland LPA is based.
FCA clarifies aspects of compensable loss
A recent decision of the Federal Court has given guidance on how damages for loss arising from a wrongly-granted injunction are calculated. The case of Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556 belongs to a long running pharmaceutical patent litigation regarding a patent for an extended-release formulation of the medicine venlafaxine. The judgement is important not just in the area of patents, but for any case involving an injunction leading to economic loss such as restraints of trade.
This litigation began in 2009 when the Court granted interlocutory injunctions restraining three generic drug companies from (among other things) supplying their generic brands of venlafaxine in Australia. This decision was confirmed in 2010 by Jagot J who granted final injunctions against the generic manufacturers. This was overturned a year later in 2011 by the Full Federal Court with the High Court refusing any further appeal.
Following the Full Court’s decision, the three manufacturing companies, as well as their upstream suppliers and the Commonwealth of Australia, began proceedings against Wyeth who had sought the injunction in 2009. The claim of the manufacturers and suppliers were based upon economic loss suffered by the manufacturers during the injunction period. The Commonwealth’s claim was based on monopolisation by Wyeth causing the cost of subsidising venlafaxine to rise, however this claim was settled before the judgement was delivered.
In the published reasons for judgement, Jagot J provided an extensive overview of the manner in which damages are to be calculated. In summary there are three key questions to be answered:
- What is the loss?
- Did the loss flow directly from the order?
- Was the loss foreseeable at the time of the order?
In assessing the claims from the remaining parties Jagot J made several important findings:
First, that this principle does not protect a party from the ordinary consequences of litigation, it only protects from those losses arising “from the operation of an order made by a court before the rights of the parties are able to be fully determined” ([128] - [140]). Similarly, anticipatory steps in regard to a pending interlocutory application cannot engage the principle for similar reasons.
Second, simply because an applicant was successful in obtaining an order at first instance does not mean an injunction was not wrongly granted, an assessment of whether an injunction was wrongly granted must be made in reference to the final appeal decision ([234] to [237]).
Third, the discharge of the interlocutory injunctions marked the end of the relevant period for the claimant’s loss, loss suffered as a result of a final injunction does not flow directly from an interlocutory injunction ([238] – [272]).
Fourth, interlocutory injunctions can have a foreseeable and direct adverse effect on a person who is neither a party, nor bound by the injunction ([219]).
FCA rejects Westpac's responsible lending settlement
In the recent matter of Australian Securities & Investments Commission v Westpac Banking Corporation [2018] FCA 1733, Perram J of the Federal Court dismissed an application by ASIC and Westpac Bank for judicial approval of a penalty settlement. ASIC tends to favour reaching settlements rather than litigation for the purpose of applying penalties due its relative efficiency. A settlement can be preferential to litigation in terms of time expended and cost, especially in investment cases with large plaintiff classes or numerous issues.
This case is particularly unique as Perram J made amicus curiae appointments — the appointment of an independent third party to assist the Court in certain ways — to argue against the application in the place of Westpac.
The penalty was concerned with the methods employed by Westpac regarding home loan suitability assessments in a period between 12 December 2011 and March 2015. The specific method in question was a rule of Westpac’s Automated Decision System which gave a 'Final Net Monthly Surplus/Shortfall' calculation. The issue was that the calculation was not based on financial information provided by the customer, but rather a benchmark known as the HEM Benchmark based on data gathered by the ABS.
Westpac and ASIC had agreed that use of the HEM Benchmark was a contravention of s 128 of the National Consumer Credit Protection Act 2009 (Cth) (‘the Act’). Perram J strongly disagreed with this outlining that s 128 is focused on entering into a credit contract before making an assessment. In his Honours own words “… using the HEM Benchmark does not conceivably contravene s 128”. His Honour then went on to critique the substance of the agreement, noting that other than stating Westpac breached s 128, it did not outline what conduct or facts resulted in the breach.
Even after a thorough examination of the relevant facts and submissions by counsel for both parties, Perram J was not convinced that the draft orders presented to him were sufficient to fulfil the obligations of the Court under s 166 of the Act. Section 166 requires a court making a declaration for the purposes of a civil penalty provision to specify the conduct constituting the contravention. His Honour was quite blunt in expressing that he felt the conduct specified was conduct that could breach s 128 stating “I simply do not accept that the conduct specified in the declaration is conduct which could possibly be a contravention of s 128. I will not declare conduct which is not unlawful to be unlawful. The contraventions of s 128, that is the entry into credit contracts, must be specified. The declaration tells one next to nothing.”
On this basis, the joint application was refused with a case management hearing set for November 27. In making this refusal Perram J state “… I accept the need for the Court to encourage settlements in this area but the desirability of doing so does not permit the Court to become a rubber stamp”.
Foodora rider awarded $15k for unfair dismissal
The Fairwork Commission has handed down a highly important decision in the matter of Joshua Klooger v Foodora Australia Pty Ltd [2018] FWC 6836. Mr Klooger was a delivery rider for Foodora in Melbourne who had his employment terminated after he spoke out against pay rates and conditions in the Foodora structure and gig economy generally.
Mr Klooger commenced working as a 'Corporate Rider' (delivery rider) with Foodora in March 2016. Until his dismissal he held various titles/positions such as 'Rider Captain' and 'Driver Manager'. When Mr Klooger first began working as a rider in 2016, workers would select shift times in certain geographical locations through Foodora’s app or website. Access to shift selection was not restricted or preferenced except for users designated as 'Captains'. In October 2017, Foodora introduced a new system of shift selection. This system would use certain performance metrics, such as number of orders delivered per hour, to rank users into a series of ‘batches’ that would determine when a user was able to select upcoming shifts. Additionally, Foodora had been progressively reducing payments for new riders/drivers since about July 2016 to the point where an hourly rate was eliminated and replaced by a flat rate of $8.00 per delivery in February 2018.
Shortly after the payment rate had reached $8.00 per delivery, Mr Klooger made a complaint about pay rates and conditions at a public rally and on an interview with the television show 'The Project'. Following these appearances, Foodora management requested Mr Klooger hand sole control of a mobile messaging app chat group to Foodora. When Mr Klooger failed to comply with these requests, Foodora advised they had decided to no longer contract his services, effective immediately. In response Mr Klooger filed an application for an unfair dismissal remedy pursuant to s 394 of the Fair Work Act 2009.
Foodora raised two lines of argument, first that Mr Klooger was an independent contractor and not entitled to unfair dismissal protections, and second even if he were an employee he was dismissed for a valid reason. In establishing Mr Klooger’s status as an independent contractor counsel for Foodora pointed to the agreement between the parties which was a standard form contract titled “INDEPENDENT CONTRACTOR AGREEMENT” expressly stipulating Mr Klooger was engaged as an independent contractor and not an employee. Other indicators of contractor status included: the level of control Mr Klooger reserved over the amount of shifts he did or did not take in a week, that the service agreement was not exclusive, and the ability to have someone else discharge the obligations. (Foodora drivers/riders could have someone other than themselves perform deliveries with permission).
In terms of the validity of the reason for dismissal, Foodora pointed to its request for Mr Klooger to handover administrative control of the chat group and Mr Klooger's failure to do so as a valid reason for his dismissal under s 387(a).
Counsel for Mr Klooger disputed both assertions arguing that Mr Klooger worked directly for Foodora and not as part of a distinct, independent trade or company of his own. Secondly the reason for dismissal was not valid as it was unclear what the actual reason was, was not based in fact, and failed to give Mr Klooger any real opportunity to respond.
Commissioner Cambridge weighed a number of factors such as the nature of work and manner in which it was performed, the terms and terminology of the contract, ability to delegate work, level of control over working conditions, expenses/capital investment on the part of Mr Klooger and the extent of remuneration received. On these factors the Commissioner found that the proper characterisation of that relationship was that of employee-employer, in the Commissioners own words: “the applicant was not carrying on a trade or business of his own, or on his own behalf, instead the applicant was working in the respondent’s business as part of that business. The work of the applicant was integrated into the respondent’s business and not an independent operation.”
On the issue of the dismissal, the Commissioner rejected the arguments of Foodora that the dismissal was based on a valid reason. Referring to an email chain between Foodora managers on 28 February and 1 March 2018, the Commissioner determined that the substantive and operative reason for Mr Klooger’s dismissal was his conduct involving public agitation and complaint about the terms and conditions that Foodora imposed on its delivery riders/drivers.
As Foodora is currently in voluntary administration, Mr Klooger was unable to seek reinstatement, rather he sought damages. The Commissioner agreed with this remedy and determined, based on an average weekly remuneration, that Mr Klooger be awarded the sum of $15,559.00 as compensation.
QCA: Consideration must be given to the time taken to assess costs when determining security payments
In the recent matter of Monto Coal 2 Pty Ltd & Ors v Sanrus Pty Ltd & Ors [2018] QCA 309, the Queensland Court of Appeal provided a reminder that the time required to assess costs may be taken into account when determining whether a respondent is able to realise assets to pay security.
Background and the proceeding below
The proceeding related to a dispute over a joint venture to mine coal at Monto entered into in 2002. The proceeding had a long history, having been commenced in October 2007. The plaintiffs consented to provide security for the defendants’ costs of $250,000 in December 2007 and at the time of writing, the proceeding is listed for trial for 16 weeks in 2019.
In December 2017, the defendants applied to the Court to increase the security from $250,000 to $4,000,000.
At first instance, Crow J dismissed the application on the basis that the defendants failed to meet the essential threshold requirement in r671(a) of the Uniform Civil Procedure Rules 1999 that there is reason to believe that the plaintiff will not be able to pay the defendants’ costs if ordered to do so.
His Honour based his decision upon evidence provided on behalf of the plaintiffs that their interest in the joint venture (the evidence indicated that the total value of the joint venture was $100,000,000) significantly exceeded the estimate of the defendants’ likely costs of the proceeding ($4,000,000) and that the plaintiffs may sell that interest in order to satisfy any costs liability to the defendant should their action fail.
The defendants appealed his Honour’s decision on the basis that, relevantly, his Honour had failed to apply the correct threshold test under r671(a) and had erred in failing to find that there was “reason to believe” that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them.
The defendants needed to succeed on each of those points in order for the appeal to succeed.
The decision on appeal
Gotterson JA (with whom McMurdo JA and Boddice J agreed) held that the primary judge had applied too strict a threshold test under r671(a). The primary judge had approached the test on the basis that the defendants were required to satisfy the Court that the plaintiff “will not” be able to pay the defendants’ costs if ordered to do so, whereas the defendants were merely required to satisfy the Court that there was “reason to believe” that the plaintiffs would not be able to pay costs if ordered to do so.
In reaching his decision with respect to whether the primary judge should have in fact found that there was reason to believe that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them, Gotterson JA preferred the view was that it was for an applicant for security to adduce evidence from which the Court may form a reason to believe that a plaintiff will not be able to pay the defendants’ costs if ordered to pay them.
His Honour then turned to consider the time period within which a plaintiff must pay a defendant’s costs, observing that:
The expression itself does not stipulate when, or by what means, the plaintiff company is to be able to pay the costs order. It does not require, for example, that in order to be able to pay a costs order, a company must have available liquid funds sufficient to meet the costs order on the date that the order is made. To put it another way, it does not state or imply that a company will be unable to pay unless it has on hand such liquid funds at that date.
His Honour then cited an observation of von Doussa J in Beach Petroleum v Johnson and stated that:
These observations imply, correctly in my view, that the period of time likely to be required for determination, by assessment or otherwise, and allowing for resolution of any disputes that arise in the determination process, is to be taken into account. So also is the opportunity that the plaintiff corporation will have within that period to realise non-liquid assets in order to pay the quantum of the ordered costs as and when they are ultimately determined.
The appellants had contended that the Court should find that there was reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to pay them due to uncertainty surrounding when the plaintiff may be able to realise its interest in the joint-venture.
Gotterson JA ultimately found that on the evidence available, there was no reason to infer that the realisation of the plaintiffs’ interest in the joint venture in order to satisfy any costs order would take longer than the process of determining the costs payable. His Honour also noted that the process of costs assessment may take a considerable time given that the proceeding had commenced some 11 years earlier in 2007 and was listed for 16 weeks’ trial.
In light of that, his Honour held that the threshold requirement that there be reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to do so had not been met and accordingly, dismissed the appeal.
Conclusion
The decision is a timely reminder to practitioners that:
- the threshold contained in r671(a) necessary for security for costs to be awarded requires only a “reason to believe” that the relevant party cannot pay costs if ordered to do so, rather than a concluded opinion that the relevant party cannot pay costs if ordered to do so; and
- the relevant time at which the threshold is to be analysed is not at the time that the order for costs is made; but rather, at the time when the costs must be paid at the conclusion of the costs assessment process. This allows non-liquid assets to be taken into consideration as available to satisfy a costs order if a plaintiff can show that those assets could be sold prior to the conclusion of the costs assessment process. Practically, this may be of assistance in resisting an application for security for costs noting the significant length of time that the costs assessment process can take.
FCA: Unfair preferences recovered from trust property must benefit creditors
The Federal Court has held that payment from trust property recovered as an unfair preference must be applied by trustee in bankruptcy for the benefit of creditors of the trust.
Lane (Trustee), in the matter of Lee (Bankrupt) v Commissioner of Taxation (No 3) [2018] FCA 1572
Background
Mr Lee was the sole trustee of the Warwick Lee Family Trust (the Trust). Prior to his bankruptcy, Mr Lee paid the sum of $322,447.58 to the Commissioner of Taxation (the Commissioner) in discharge of taxation liabilities arising from the operation of a Subway franchise operated by the Trust. Mr Lee had funded that payment by using $171,659.00 of his own funds and $150,788.58 funds of the Trust, in doing so he exercised his right of exoneration as trustee[1]. The right of exoneration is the right of the Trustee to discharge obligations incurred in their capacity as trustee directly from the assets of the Trust.
After the bankruptcy of Mr Lee, the Commissioner agreed to return the sum of $322,447.58 to the trustee in bankruptcy in response to an assertion that the payment to the Commissioner constituted an unfair preference under section 122 of the Bankruptcy Act 1966 (Bankruptcy Act).
The issue for determination by Derrington J was whether, upon the recovery of the funds from the Commissioner, the trustee in bankruptcy held all funds for the benefit of all creditors of the estate of Mr Lee (both in his personal capacity and in his capacity as trustee of the Trust) or whether the trustee in bankruptcy held the sum of $150,788.58 (representing the amount initially paid by Mr Lee from funds of the Trust) for the benefit of Trust creditors only[2].
The Commissioner contended that the former view prevailed, whereas the trustee in bankruptcy contended that the latter view prevailed[3].
Decision
In reaching his determination, his Honour noted that section 122 of the Bankruptcy Act operated without the need for an order of the Court; that is, the payment is avoided upon the making of a sequestration order if the provision is applicable[4].
His Honour noted that as a matter of practical reality, however, that although the effect of the provision is to void a transfer to which it applies, transfers in effect remain effectual until a trustee in bankruptcy takes steps to avoid it[5]. Significantly, his Honour also noted that if a trustee in bankruptcy’s action to establish that a transfer was avoided by virtue of section 122 was successful, the “title in the property is to be regarded as not ever having passed”[6].
After undertaking an analysis of the basis of the trustee in bankruptcy’s entitlement to recover the preferential payment pursuant to section 122 of the Bankruptcy Act, his Honour concluded that:
Mr Lee’s entitlement to use trust funds only arose by reason of his position as trustee and because the debt arose from the administration of the trust. Outside of his office as trustee, he was not entitled to pay the funds to the Commissioner nor did he have any entitlement to recover them when the payment was found to be void. It necessarily follows that the right to recover the payments from a transaction which was avoided was a right which was held for the benefit of the trust[7].
After careful analysis of the Commissioner’s contention that any repayment by the Commissioner of an equivalent amount to that paid to it by Mr Lee utilising the right of exoneration from the Trust would be held by the trustee in bankruptcy free of all trust obligations and could be used to discharge debts to non-trust creditors, his Honour concluded that:
If a trustee acquires a chose in action as a consequence of the operation of a trust, that chose in action is held pursuant to the trustee’s rights and obligations, no less than other trust property. In this case, the taxation liability which was discharged by the payment of trust funds to the Commissioner arose as a result of the operation of the trust and Mr Lee paid the amount of $150,788.58 out of the trust funds to discharge that liability and, pro tanto, it reduced the trustee’s equitable lien over the trust assets. He was only entitled to use that money by reason of his position as trustee and the rights and entitlements he acquired as a result. When the transaction was avoided by reason of the making of the sequestration order, the right to recover the payment only existed because of Mr Lee’s position as trustee. His right to recover the amount paid is subject to the trust obligation to use the trust funds for the purposes of the trust. It is not possible to hive off from the other rights and obligations of a trustee, the right to recover payments made for the purposes of the trust which have been avoided. The right is necessarily a constituent element of the bundle of rights and obligations of the trustee and no principle was referred to which suggests that a trustee might exercise such rights independently of the other trust obligations [8]. [underlining added]
Conclusion
The decision is of assistance given that the issue in contention was not the subject of any direct Australian authority[9].
It now stands as authority for the proposition that when funds paid by a trustee in exercising their right of exoneration from trust assets are recovered as an unfair preference pursuant to section 122 of the Bankruptcy Act, the repaid funds are themselves “subject to the obligation to use them in the manner required of the original funds, being for the purposes of discharging trust debts”[10].
It should be noted, however, that his Honour’s conclusions arise as a result of his analysis of the terms and effect of the particular recovery provisions in the Bankruptcy Act and for that reason, caution ought be exercised before seeking to use the decision in the context of the broadly equivalent provisions of the Corporations Act 2001.
It should also be noted that at present, the decision of the Full Bench of the Supreme Court of Victoria in Commonwealth v Byrnes (as joint and several receivers and managers of Amerind Pty Ltd) (recs and mgrs apptd) (in liq) (2018) 354 ALR 789 is subject to appeal in the High Court of Australia. The High Court’s decision on the nature of a trustee’s right of exoneration may well alter the position further.
WA businessman jailed for $890k phoneix activity
A Western Australian Phoenix operator has been sentenced to five years and four months in prison for fraudulently obtaining more than $890 000 through illegal phoenix activity. He was also ordered to repay the money.
The proceeding ensued after an extensive investigation by the Australian Tax Office which revealed that Western Australian businessman Sung Jae Cho had intentionally accumulated debt, liquidated his business to avoid paying the bill and then set up operation through a different corporate entity. It was alleged that he also failed to report and remit the GST and Pay As You Go (PAYG) withholding while having sole and full control of the relevant entities.
The decision follows mounting scrutiny over the impact phoenixing operations are having on Australia's economy, which is estimated to cost the country between $1.8billion and $3.2 billion each year.
Assistant Commissioner Aislinn Walwyn claims this decision signals a "strong reminder to those involved in illegal phoenix activity that if you engage in this behaviour you will get caught." She warned that Australia's Phoenix taskforce will "continue to follow up phoenix operators despite their efforts to conceal their activities."
However the ATO believes the ruling significantly underscores the seriousness of the crime, asserting that it does not adequately reflect Mr Cho's conviction of 20 charges, spanning over 13 years from 1997.
Buyer Beware: Real Estate Agent Not Liable for Misleading Statement
In the matter of Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223, the court was required to consider whether McGrath, in their capacity as a real estate agent, had engaged in misleading or deceptive conduct by making representations to a property purchaser about parking availability.
The proceedings commenced after Amy Hyder purchased a Sydney property for $9.4 million in February 2015, with her husband conducting the purchase negotiations and ultimately making the decision to proceed with the sale.
Acting on behalf of the property's seller, McGrath published printed and online advertising material which described the property as having 'plentiful parking' and highlighted that the property featured a "double garage plus private off-street and driveway parking.'
Both the online and printed material featured the following disclaimer:
"Scale in meters. Indicative only. Dimensions are approximate. All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee its accuracy and interested persons should rely on their enquiries."
Having inspected the property on at least four occasions, the Hyder's understood that it featured a double garage. There was also space in front of the garage for two more cars, however parking here would block access to the garage. Public parking was not permitted on the street.
The lot also included a strip of land which gave two other lots access to their homes, with these lots having right of way over the strip. However, prior to the Hyder's purchase, this space had been treated as parking for the property owners and at the time of purchase it featured two signs which read 'Private Parking Space 24'. '24' represented the street number of the relevant property.
Upon inspecting the property, the Hyder's had been informed by McGrath that the property owners had exclusive use of the 'private parking' area. The promotional material also included a detailed site plan showing images of three cars parked in this strip.
After agreeing to a purchase price of $9.4 million, Mrs Hyder signed a standard form contract of sale, which was accompanied by attachments including:
- copies of a title search that noted the relevant rights of way;
- the relevant deposited plan; and
- the memoranda of transfer creating the rights of way.
The contract also included special conditions which indicated that the purchaser had not relied on any statements, inducements or representations made by or on behalf of the vendor (including by any estate agent acting on their behalf).
Despite this, Mrs Hyder commenced proceedings against McGrath in April 2016, alleging that the agent's pre-sale representations about parking availability contravened s18 of Australian Consumer Law. In doing so, Mrs Hyder contended that she had suffered a loss as a result of McGrath's misleading and deceptive conduct, stating that she would not have purchased the property at the price of $9.4 million had the representation not been made.
At first instance the primary judge dismissed the appellant's claim, finding that although McGrath had engaged in misleading and deceptive conduct, Mrs Hyder had not suffered loss as a result.
On appeal, the court was required to consider whether the primary judge erred in finding that Mrs Hyder would have proceeded with the purchase.
Ultimately, the court dismissed the appeal, finding that McGrath had not engaged in misleading or deceptive conduct. In doing so, it held that the parking information was not endorsed by McGrath, but rather information which it expressly or impliedly disclaimed responsibility for. Moreover, it held that Mrs Hyder had failed to establish that she suffered loss as a result of the conduct. The appeal was dismissed with costs.
