When you enter a work place you are entitled to believe that you are entering a safe working environment to do your job description. Obviously accidents are not predictable and they do occur at random times but it is your employer’s duty to maintain a safe procedure and safe working environment. This was highlighted in the primary judgement of Metri v Nestle Australia Limited 2021 NSWSC 343 whereby a worker was injured using a forklift and the employer was held responsible on appeal.

 

Facts

On 16 August 2012, Mr Metri, an employee of Nestle was operating a forklift manufactured by Linde Material Handling and was moving within the Nestle warehouse. Without warning, the forklift began accelerating to great speeds not previously being seen by Mr Metri. Mr Metri attempted push the brake pedal however it did not work. After a few moments the vehicle suddenly stopped, causing Mr Metri to be thrown from the vehicle onto the floor. After being thrown from the forklift, it began accelerating again and it ran over Mr Metri’s foot. As a result of the accident, Mr Metri suffered an amputation below the knee on his left foot and significantly affected his capacity for work in  the future.

 

Liability

Nearly 2 weeks before the accident a similar incident occurred with another Nestle employee whereby the forklift accelerated and then suddenly stopped and accelerated again. Fortunately no one was hurt on this occasion and the incident was reported and the vehicle was tagged, which meant that a technician from the manufacturer was to repair the forklift. A technician from Linde Material Handling looked at the vehicle and found it to be driving as per the standards and untagged the vehicle.

Mr Metri filed claims against Nestle Australia Limited as his employer and Linde Material Handling Pty Limited as the 3rd party/ forklift manufacturer. Nestle filed a crossclaim against Linde Material Handling due to their technician not repairing the vehicle at the time he untagged the forklift.

 

Result at first instance

When the Supreme Court of NSW heard the matter His Honour Adamson ordered Nestle to pay Mr Metri approximately $2.9 million in damages and placed all liability against Nestle. His Honour Adamson placed great importance on the fact that Nestle previously considered that a seatbelt should be fixed to the seat and that is the duty of the employer to consider whether that it is appropriate to avoid placing their employees in places of peril. Nestle immediately appealed this judgment to the Court of Appeal on 7 April 2021.

 

Court of Appeal Proceedings

Nestle appealed this judgment on the basis that J Adamson identified the risk at an undue level of generality and that Linde was liable in negligence to Mr Metri. The Court of Appeal considered multiple issues which are noted below before dismissing the appeal made by Nestle.

With regards to the risk of harm it was identified that Nestle exposed Mr Metri to a risk which could have been avoided by way of a seatbelt or maintaining a proper reporting register as to the error of the vehicle and providing a detailed description of the error for the Linde technician to properly investigate. Nestle was aware of the risks that were associated with a vehicle with no seatbelt or not having a proper recording system.  The Court agreed that Nestle breached their duty by not providing a adequate system of communicating defects for Linde to properly consider the fault. As a result of Nestle’s negligence Mr Metri suffered harm , injury and loss. The Court of Appeal considered whether Linde was at fault and found that Linde did not owe a duty to exercise reasonable care because the Linde Technician was only given limited information to identify the defect and there was no duty to advise Nestle of additional safety precautions to consider upgrading the safety such as having seatbelts.

In summary the Court of Appeal dismissed Nestle’s appeal application and this stands as a reminder to employers that they must exercise a greater duty of care more than anyone else.

In law, a conflict of interest may arise where a person (such as a lawyer) owes a duty to serve the interests of another person (such as a client) and is simultaneously serving the interests of a third party in relation to the same, or a related, matter.

This can make it difficult for the person who owes the duty to impartially advance the potentially inconsistent interests of the parties they are serving.

A conflict of interest may be considered to arise even if there is no improper or unethical conduct. Sometimes, the appearance or possibility of a conflict of interest may prevent a person from serving the interests of two or more parties.

Lawyers may experience a conflict of interest if they:

  1. Act against a former client in circumstances where they have information about the former client because of having previously acted for them.
  2. Act for both parties in a matter. For example, acting for both parties involved in negotiating the terms of a contract.
  3. Have a personal in the matter. For example, acting for a party on the sale of a property in which the lawyer has an interest.

What about Christian Porter’s Case?

Former Attorney-General Christen Porter had appointed Sue Chrysanthou SC to represent him in a defamation case against the ABC.

Jo Dyer, a friend of the woman who accused Mr Porter of rape, commenced legal proceedings in the Federal Court of Australia to prevent Ms Chrysanthou from representing Mr Porter based on an alleged conflict of interest.

The alleged conflict of interest arose from a meeting between Ms Chrysanthou and Ms Dyer in November 2020 in which Ms Chrysanthou was found to have received confidential information relating to the accusations against Mr Porter.

Federal Court Justice Tom Thawley held that the information provided by Ms Dyer to Ms Chrysanthou remained “relevant to the defamation proceedings brought by Mr Porter” and could represent a “danger of misuse”.

While it was accepted that Mr Porter may suffer prejudice on the basis that Ms Chrysanthou had already been working on his case for some time, the Court considered that he was able to obtain alternative representation.

Mr Porter and Ms Chrysanthou have been ordered to pay Ms Dyer’s costs of the legal proceedings in the sum of $430,200.00.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

In January 2017, a tenant was replacing a clutch kit on his vintage vehicle and was welding a patch on the floor of this vehicle. This resulted in a fire that caused significant damage to the tenant’s rental property.

The tenant subsequently received demands from the property’s owner for payment of $786,000.00 for the damage to the property.

The tenant held a ‘special vehicle policy’ (Policy) for third party liability with the NRMA, and sought to be indemnified under the Policy against the claim for property damage. NRMA denied indemnity.

The tenant filed a complaint with the Australian Financial Complaints Authority (AFCA) seeking that NRMA pay the claim for damages in full.

The NRMA denied the claim on the basis that third party liability cover under the Policy only extended to the use of vehicle and did not cover damage that was in the tenant’s physical and legal control. The NRMA considered that the welding, which caused the fire, did not fall under the scope of ‘using’ the vehicle.

In particular, the NRMA relied on the following exclusion clause in the Policy:

We will not pay for damage to property belonging to, or in the physical or legal control of you or any person using your vehicle and/or any attached trailer, caravan or sidecar.

The tenant maintained that the NRMA had taken a narrow interpretation of the Policy and the exclusion did not apply in these circumstances.

AFCA considered that the Policy clearly outlined that vehicle ‘use’ included private repair works and servicing and, therefore, was satisfied that welding fell within the definition of ‘use of the vehicle.’

However, AFCA found that the NRMA was entitled to deny the tenant’s claim on the basis that the tenant had physical control of the rental property pursuant to his residential tenancy agreement.

Although the tenant argued he was a “mere tenant”, and no right to do anything at the property other than live there, AFCA considered that he could prevent or grant access to the premises at all material times and therefore had physical control of the area.

In this instance, the Policy was clear and it excluded accidental damage to property that was in the tenant’s physical and legal control.

This decision is an important reminder that not every event that leads to loss or damage will be covered by your insurance policy.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

CBRE (V) Pty Ltd v Trilogy Funds Management Limited [2021] NSWCA 316

In December 2021, Trilogy Funds Management (as the trustee of the Pacific First Mortgage Fund (“the Fund”)) commenced proceedings against CBRE (V) Pty Limited (“CBRE”) to recover monies lent by the Fund to the Indigo Group to purchase properties.

The Fund claimed that it only made loans to the Indigo Group because CBRE had provided misleading property valuations (“the 2021 Proceedings”).

CBRE sought a summary dismissal of the 2021 Proceedings claiming that they were an abuse of process. CBRE pointed to proceedings that had been brought against it in 2015 by City Pacific, an entity previously responsible for the Fund (“the 2015 Proceedings“).

CBRE argued that the 2021 Proceedings were an abuse of process because they concerned the same issues the subject of the 2015 Proceedings.

The Factual Circumstances

On 25 May 2006, City Pacific engaged CBRE to provide a valuation of properties owned by Marina Cove Pty Ltd.

On 1 June 2006, CBRE valued the properties at $34.8 million. Shortly after the valuation, Marina Cove Pty Ltd sold the properties to the Indigo Group for $30.47 million. Indigo Group obtained a loan of $27.84 million from the Fund to assist its purchase of the properties (“2006 Valuation”).

On 8 October 2007, City Pacific obtained a separate valuation from the Indigo Group for two other properties. This related to a separate transaction and arose from separate circumstances. In reliance of the valuation obtained from the Indigo Group, City Pacific entered into a contract with the Indigo Group and paid an amount of $11.11 million (“2007 Valuation”).

In 2015, City Pacific and its related entity commenced proceedings against CBRE and claimed that the properties valued substantially less than what CBRE had valued. City Pacific said CBRE knew that the valuation was not reliable and knew that such a valuation would assist City Pacific in lending money to the Indigo Group to purchase the said properties.

Decision at first instance

In the 2021 Proceedings, CBRE argued that the 2021 Proceedings were an abuse of process and should have been joined with the 2015 Proceedings. The trial judge ruled against CBRE and made the following comment:

“…the claims in the two sets of proceedings were properly made by different plaintiffs in respect of different losses arising from different transactions incurred at different times.”

Decision on appeal

CBRE appealed to the New South Wales Court of Appeal.

The key issue on appeal was whether the nature of the claims made in the two sets of proceedings were regarded as the same.

The Court undertook a comparison between the 2015 Proceedings and the 2021 Proceedings and made the following findings:

  1. In the 2015 Proceeding, City Pacific commenced proceedings in respect of $11.1 million.
  2. In the 2021 Proceedings, the Fund commenced proceedings in respect of $27.84 million.
  3. The only overlap between each of the proceedings were the 2006 Valuation but the claims are ultimately issued by different parties for different losses arising from different transactions.

The Court of Appeal found in favour of the Fund and dismissed the appeal brought by CBRE.

The Court held that in order to constitute an abuse of process, the conduct of the plaintiffs must be so unreasonable as to bring the administration of justice into disrepute. The Court found that in these circumstances this would not bring disrepute to the administration of justice and although there are some overlap between the respective proceedings, they ultimately were brought by different parties, related to different issues and arose from different transactions.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

Section 28(3) of the Insurance Contracts Act 1984 (Cth) (“the Act”) provides that an insurer may reduce the amount it pays in response to a claim if there has been a misrepresentation or non-disclosure by the insured. However, there are circumstances where an insurer may be prevented from relying on that section.

This issue was explored in Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 (No 2) [2021] FCAFC 145.

Factual Background

CTS 39788 (“Body Corporate”) was the Body Corporate for an apartment block in North Queensland. The Body Corporate had identified structural defects in the apartment block. The defects were attributed to defective roof framing, which had not been compliant with manufacturer installation standards.

In around March 2017, during Cyclone Debbie, damage was caused to the roof of the apartment block.

Prior to the cyclone, the Body Corporate took out a policy with Allianz for public liability and property damage. The Body Corporate had disclosed to Allianz that there were defects in the apartment block, but failed to specifically disclosure the existence of the defects in the roof.

As a result of the damage caused by Cyclone Debbie, the Body Corporate made a claim under the Allianz policy.

Allianz advised the Body Corporate that ‘despite the non-disclosure issue’ it would honour the claim and indemnify the Body Corporate for and against the damage to the roof.

However, Allianz subsequently sought to reduce its liability to $0 pursuant to Section 28(3) of the Act and said that had it been aware of the structural defects in the roof it would not have extended cover to the Body Corporate.

The Body Corporate commenced proceedings against Allianz in the Federal Court of Australia.

In the Federal Court, Allianz was able to establish that there was a non-disclosure by the Body Corporate that entitled Allianz to invoke Section 28(3) of the Act. However, the Federal Court found that Allianz  was estopped from relying on Section 28(3) of the Act because it had initially elected not to exercise its rights in relation to the Body Corporate’s non-disclosure.

Allianz appealed to the Full Court of the Federal Court of Australia.

Issues for consideration on appeal

Allianz’s appeal raised the following questions:

  1. Can an election made by an insurer restrict its ability to rely on Section 28(3) of the Act?
  2. Did Allianz’s previous comments to honour the claim despite the non-disclosure issue prevent it from waiving its rights to deny the claim.

Decision

The Full Court of the Federal Court held that Allianz could not rely on Section 28(3) of the Act. The Body Corporate had initially disclosed certain information to Allianz but omitted specific disclosure of structural damage to roof trusses. The Court did not find this to be a breach of the duty of utmost good faith and said that the insurer could have initially relied on Section 28(3) of the Act when the information had first been disclosed to Allianz by the Body Corporate.

The Court ultimately said that it was unfair for Allianz to change its position. The Body Corporate made decisions in reliance of Allianz’s comments to honour the claim and such comments waived any rights of Allianz to limit its liability under Section 28(3) of the Act.

Implication of this Decision

This decision shows how important it is for an insured to comply with its duties of disclosure. Failure to disclose relevant information to an insurer may result is severe consequences such as the denial of a claim. Notwithstanding this clear requirement, it is important to carefully review a decision made by an insurer and ensure that the insurer does not absolve itself from prior representations or promises made to an insured.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

Splash Waterpark Pty Ltd v Tim Schnitzerling [2021] NSWDC 62 is a reminder that litigants must lead evidence in support of the claim damages suffered or otherwise risk their claim being dismissed; even if the Court finds that the defendant has breached its duty of care.

 

Background

On 12 February 2017, a yacht named ‘Magnolia’ was anchored in Coffs Harbour. The yacht was owned and skippered by the defendant. The plaintiff’s inflatable waterpark was located north-east of the yacht. On the day, strong southerly winds blew into the harbour and dragged Magnolia (including its anchor) into the waterpark.

The plaintiff alleged that the defendant was negligent, as he:

(a)   allowed the defendant’s vessel to drift close to Jetty Beach and the Plaintiff’s Property.

(b)   failed to observe the dangers of allowing the Defendant’s Vessel to drift towards the Plaintiff’s property.

(c)   failed to observe the weather forecast before leaving securing the Defendant’s vessel.

(d)   failed to take adequate action and additional measures to prevent damage to the Plaintiff’s Property in circumstances where the Defendant knew or ought reasonably to have known, upon visual inspection, or observing the weather forecast that strong winds were forecast.

(e)   failed to take reasonable care to ensure that the Defendant’s Vessel was properly secured to its moorings.

(f)   failed to use sufficient lines to secure the Defendant’s vessel in circumstances where the Defendant knew or ought reasonably to have known of the expected weather conditions.

(g)   failed to properly check the conditions of the lines and mooring before securing the Defendant’s Vessel.

(h)   failed to ensure that the Defendant’s vessel was properly secured in circumstances where the Defendant knew or ought reasonably to have known of the expected weather conditions.

(i)   failed to take reasonable care to ensure that the Defendant’s Vessel was properly anchored.

(j)   failed to anchor the Defendant’s vessel properly in circumstances where the Defendant knew or ought reasonably to have known of the expected weather conditions.

(k)   failed to keep a proper lookout.

(l)    failed to avoid colliding with the plaintiff’s Property.

 

Decision

After having considered the admissible evidence adduced by the parties, Justice Russell first found that the particulars (c), (g) and (k), as set out above, were not made out. Justice Russell then found that the defendant breached his duty of care to the plaintiff, because he failed to reset the anchor despite his knowledge that southerly winds were going to occur that afternoon.

Despite the breach of duty of care having been established, the plaintiff was unable to prove, on balance of probabilities that the defendant’s breach had caused it any loss and damage.

In particular, the plaintiff was unable to prove an amount it had claimed for repair costs and loss of profits.

Repair Costs

In support of its repair costs, the plaintiff only tendered an invoice. The plaintiff did not provide any evidence in relation to nexus between the invoice and the alleged repair costs.

Loss of Profits

The plaintiff sought damages for loss of profits between 13 February 2017 and 7 April 2017, which is the period when the waterpark was under repair. The plaintiff’s director alleged that, on average, the waterpark made $1,500 per day in profits. However, no expert evidence was served in support of this proposition.

To rebut the plaintiff’s claim, the defendant served a report from a forensic accountant. The key finding of this report were that that in order for the plaintiff to quantify its loss of profits, it needed to establish each of the following:

  1. the expected operating days over the closed period;
  2. the expected number of paid admissions for each operating day over the closed period;
  3. the expected income for each admission;
  4. provide a breakdown of business expenses, including the ongoing expenses even when the business is closed;
  5. provide comparative records for similar businesses in the area; and
  6. provide a history of previous income, attendance reports, weekly payroll, and breakdown of bad weather days.

 

Implications

Justice Russell’s decision is an important reminder that in order to establish a complete claim in negligence, a plaintiff needs to be able to prove that a defendant’s breach caused its alleged loss and damage. In order to do this, a plaintiff must lead appropriate evidence in support of the defendant’s breach of duty of care, and the associated losses and damages.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

In Australian Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Limited [2021] NSWSC 1577, Justice Ball considered two important questions regarding the power of the Australian Financial Complaints Authority (AFCA):

  1. Is AFCA required to conduct hearings as a part of its complaint handing process?
  2. What steps does AFCA need to take to reach its determination?

 

Background Facts

On 16 May 2014, Australian Capital Financial Management Pty Ltd (ACFM) lent to Australian Sheepskin & Hide Pty Ltd (ASSH) up to $2 million, which was guaranteed by Benyu Bai (Mr Bai) and his wife, Wenhua Yang (Ms Yang).

In support of the guarantees, Mr Bai and Ms Yang provide signed mortgages to ACFM over two residential properties.

The loan agreement and the associated documents were signed by David Lee on behalf of Ms Yang pursuant to an authority. Ms Yang signed the documents in June 2014, upon her return to Australia.

By July 2014, ASSH encountered financial difficulties.

On 26 August 2014, ACFM exchanged a contract for sale over one of the residential properties.

Around February 2015, ACFM commenced proceedings in the New South Wales District Court against Mr Bai and Ms Yang for payment of $742,800 owing under the loan agreement (District Court Proceedings).

On 14 March 2016, Mr Bai and Ms Yang voluntarily departed Australia due to the Minister refusing to grant Ms Yang a Business Owner (Residence) Visa, which they attempted to appeal to the Administrative Appeals Tribunal.

As there was no appearance by Mr Bai and Ms Yang at the District Court Proceedings, the Court granted judgment in favour of ACFM in the amount of $738,876.39. However, on 31 October 2018, the judgment was set aside.

On 15 February 2019, an AFCA complaint was lodged on behalf of Mr Bai and Ms Yang.

AFCA’s Decision

AFCA determined that the guarantees provided by Mr Bai and Ms Yang were “unfairly obtained” and therefore the guarantees were invalid and unenforceable. AFCA’s reasons for reaching this conclusion was as follows:

“In relation to obtaining guarantees, the lender, having regard to the size and purpose of the proposed loan, and good industry practice at a minimum must meet the following conduct standards:

  • the lender to provide a prominent notice to the proposed guarantor that:

>   they should obtain independent legal advice on the effect of the guarantee

>   there are financial risks to providing a guarantee

>   they can refuse to enter into the guarantee

  • the lender must provide to the proposed guarantor a copy of the related loan contract and related security contracts
  • the lender must permit the proposed guarantor until at least the next day to consider the guarantee and related loan and security contracts, unless the guarantor is legally advised. Where the proposed guarantor is a director of the borrowing entity, the lender must permit sufficient time for the director to consider these documents unless the director waives this requirement
  • the lender must not give the guarantee to the borrower (or someone acting on behalf of the borrower) to arrange for the signing of the guarantee
  • the lender must ensure the guarantee is signed by the guarantor in the absence of the borrower.”

Based on the above, AFCA noted that ACFM provided the loan agreement to the guarantors in English, when Mr Bai and Ms Yang did not speak or read English. At the same time, ACFM provided the loan security summary and the loan drawn down summary in Mandarin to the guarantors. AFCA held that this would have been unnecessary if Mr Bai and Ms Yang did understand English. Further, AFCA noted that the guarantors were not provided an opportunity to obtain legal advice, and as such they did not understand the effect of the guarantee.

ACFM sought to review the decision on the basis that it was denied procedural fairness based on the way the factual issues were determined by AFCA. Counsel for ACFM argued that there ought to have been a hearing and appropriate procedures allowing for cross-examination of the guarantors.

 

Decision

Justice Ball disagreed with ACFM’s submission and dismissed these proceedings brought by ACFM.

His Honour held that:

  1. AFCA Rules require it to determine disputes in an independent, impartial, and fair manner;
  2. AFCA Rules also required that it deals with complaints in an efficient, effective and timely manner. AFCA is not bound by the rules of evidence, but must consider all circumstances having regard to the legal principles, applicable industry codes or guidance and good industry practice;
  3. AFCA is not required to conduct ‘hearings’ and allow cross-examination. Instead, it is allowed to resolve conflict by reference to objective facts available to it; and
  4. both parties were provided opportunities to provide written submission.

Based on the above, there was no denial of procedural fairness to ACFM.

 

Implications

The decision reminds lenders and their solicitors that, when preparing submissions for AFCA, you will need to:

  1. provide all relevant contemporaneous documents; ad
  2. prepare comprehensive submissions, including reasons why the claimant’s submissions/evidence should be rejected; and
  3. have regard to the legal principles, applicable industry codes or guidance and good industry practice in your submissions.

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.

In the recent case of Dutton v Bazzi [2021] FCA 1474, the Federal Court considered a dispute between a political figure and a refugee advocate sparked by the publishing of a single tweet.

On 25 February 2021, refugee advocate Shane Bazzi made a post comprising of six words through social media platform, Twitter.

The tweet stated ‘Peter Dutton is a rape apologist’ and garnered thirteen re-tweets, over 1,000 views and approximately 150 interactions before it was deleted on or around 6 April 2021 following a demand by Mr Dutton’s legal representatives. Accompanying the statement was a link to an article published by the Guardian which references quotes by Mr Dutton in respect of refugee access and entry in Australia.

In particular, the article written by Helen Davidson, opens with the following statement: ‘Peter Dutton has said women have been “trying it on” in claiming they were raped and needed an abortion as part of a poly to get to Australia for medical treatment from refugee centres on Nauru’.

Subsequently, Mr Dutton commenced defamation proceedings on 23 April 2021, seeking damages and orders preventing Mr Bazzi from publishing any further defamatory materials. In doing so, Mr Dutton alleged that the tweet conveyed four defamatory meanings, being that he:

  1. condones rape;
  2. excuses rape;
  3. condones the rape of women; and
  4. excuses the rape of women.

Justice White ultimately agreed that the tweet conveyed the abovementioned defamatory meanings and so awarded damages in the amount of $35,000.00 against Mr Bazzi. However, his Honour did not award aggravated damages, finding that Mr Bazzi had not acted so improper or unjustifiable to warrant the provision of further damages. Further, orders restraining further publication were not made against Mr Bazzi.

This case is an example of the significant costs which may be incurred if found to have published defamatory materials, especially in circumstances involving a public figure.

On 20 December 2021 Mr Bazzi filed a notice of appeal in the Federal Court on the basis that his Honour made an error in determining that his tweet carried the meaning that Mr Dutton ‘excuses rape’. His legal representatives provided a press release to this effect which was published to Mr Bazzi’s Twitter page shortly thereafter.

We anticipate that the matter will be heard sometime in 2022.

 

If you have any questions or concerns please contact Chamberlains and talk to our dispute resolution team today.

Summary

On 16 December 2021, judgment was handed down in Federal Court of Australia proceedings QUD 31 of 2021, which found that set off provisions under the Corporations Act 2001 (Cth) (Act) cannot be relied on to reduce an unfair preference claim under section 588FA of the Act.

The judgment will likely see practical consequences in the increased capacity of liquidators to acquire voidable transactions under the statutory priority regime.

The matter came before the Court as a special case under rule 38.01 of the Federal Court Rules 2011 (Cth) to give effect to the consideration requested by Justice Derrington, and presented the reservation for the Full Federal Court of Australia under section 25 of the Federal Court of Australia Act 1976 (Cth).

After a detailed consideration of the history of section 553C of the Act and its predecessors, the Court ultimately found that a creditor’s obligation to repay an unfair preference to a company in liquidation under section 588FF of the Act could not be reduced by way of set-off, as that obligation does not satisfy the requirement of mutuality.

In the end, the Full Court decided that the creditor of an insolvency company has no statutory eight of set-off against a liability to repay an unfair preference.

Critical takeaways are:

  • Creditors can no longer rely on section 553C to provide set-offs to voidable payments sought by liquidators.
  • The Purpose of the Act is to maintain and protect the priority regime, ensuring that all creditors are treated equally in liquidation. The Court holds that set-offs under section 553C cannot contravene this system.


Relevant Facts

The Defendant creditor received payment during the relation-back period of $190,000.

Against those voidable payments in the scope of the liquidation and the pari passu principle, the Defendant sought to set-off those payments against debits to the company in liquidation, totalling $194,727.23.

The question reserved by Justice Derrington for consideration to the Court from these facts was:

Is statutory set-off, under s 553C(1) of the Act, available to the Defendant in this proceeding against the Plaintiff’s claim as liquidator for the recovery of an unfair preference under s 588FA of the Act?


Application From The Court

Mutuality

Mutuality under section 553C of the Act requires:

  • The mutual debts, mutual credits and other mutual dealings must arise between the same persons; and
  • The ‘benefit or burden’ of the mutual debits, mutual credits and other mutual dealings must lie in the same interests; and
  • The mutual debits, mutual credits and other mutual dealings must be commensurable.

The Defendant maintained that a connection of mutuality existed in order to satisfy section 553C’s set-off requirements. The Court challenged the presumption to the mutuality between the indebtedness of a company to the creditor and the liability of the creditor pursuant to the Court order to pay the company at the suit of the liquidator.

A particular area of contention was the purpose and design to the respective sections 553C and s588FA of the Act, and their impact upon Mutuality.

The Plaintiff put forward the two sections operated in different spheres and thus were independent in their application. The Court referred to previous iterations and substitutes to the Act such as the Companies Act of 1961 and Precursory authorities such as The Australian Bankruptcy Law and Practice material to garner a sense of the interaction between the acts and their purpose as follows:

‘Moneys, which under a bankruptcy become payable to the trustee because they were payable to the debtor, come prima facie within the mutual credits section, but not if they are moneys which upon bankruptcy become payable to the trustee in his right as trustee and not by virtue of their being payable to the debtor’

The Court considered that this statement was wide enough to encompass the lack of mutuality and by extension the denial of the right to set-off any debt owed to the creditor. The prevalence of such a position in continuing editions of the report and the sentiment established in the Harmer Report, the Court then concluded; a creditor’s obligation to re-pay an unfair preference to the company in liquidation under section 588FF of the Act could not be reduced in way of set-off, as that obligation does not automatically satisfy the requirement of mutuality.

The Court refers to paragraph 287 of Hiley v People’s Prudential Assurance Co Ltd (1938) 60 CLR 468, which states that:

The answer to whether or not there was mutuality was to be gained by ascertaining the rights by reference to the natural outcome of previous transactions.

While the act of sharing mutual debts and credits and even interests, the Court claimed that liquidation and preference payment orders could not form part of the natural outcome of previous transaction and qualify for mutuality.

It was founded upon the application of case law such as Hiley and previous legislation such as the Companies Act that the obligation to disgorge preference payments was a new obligation that arose after the liquidator had obtained orders for the acquisition of voidable payments. There was no sense by the Court in which such an obligation could be due prior to the order being made and the winding up of the company. Accordingly, that obligation could not be mutual with an old debt arising out of the company’s pre-liquidated dealings with creditors.


Statutory Priority Regime

Allowing a creditor to rely on statutory set-off effectively results in them receiving the set-off portion of an otherwise successful unfair preference claim in priority to other creditors.

Such a conclusion offends the notion of fairness that underpins mutuality in s 553C and the statutory order of priority of certain creditor.

This outcome goes against the ruling and sentiments raised in the Harmer report, an authoritative document in the scope of Insolvency legislation created by the Australian Law Commission in 1988. It concluded:

An insolvency administration should be impartial, efficient, and expeditious.

The Court outlined that such an interaction could not be the status quo due to its contravention of the guiding principles established in the Act and the Harmer Report and undermines the principles of the Statutory Priority Regime.

 

***Assisted by Connor Wilkinson

 

If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency and restructuring lawyers today.

The lead gynaecologist at The Canberra Hospital (TCH), Omar Adham, has received multiple complaints after patients experienced severe complications as a result of his surgeries. Most of the patients reportedly had problems after Dr Adham performed keyhole surgery, more specifically to aid endometriosis.

The federal regulator has confirmed that an investigation has been launched due to the number of complaints from previous patients of Dr Adham. Between 2013 and 2019 nine complaints were lodged against the Canberran gynaecologist.

A few Dr Adham’s former patients have stepped forth in a coverage by ABC News. These are women who had to be put in intensive care and has ended up with lasting pain after Adham’s surgical complications. The full story can be found here.

Chamberlains is currently investigating these claims and we urge that others in the same situation contact us.

If you have been wrongly treated, or experience complications after a medical procedure, please contact our team of injury compensation lawyers.