Welcome to our first Commercial Litigation newsletter.
The newsletter will be distributed quarterly, and will contain
topical articles on legal issues and developments, as well as news
of Cornwall Stodart's Commercial Litigation team.
This quarter we have included news on the thrice-delayed
commencement of the Person Property Securities Act 2009,
as wells as a discussion on current civil dispute resolution
legislation. We also bring you information on proportionate
liability and some successful matters our team has recently
concluded.
Please don't hesitate to contact us if you would like more
information on any topic, whether covered in this newsletter or
not. We hope you find the newsletter informative and
useful.
Wayne Kelcey, Partner and Head of Commercial Litigation
Wayne has over 20 years' litigation experience and particular
expertise in insolvency and property law.
He has acted in a vast range of complex commercial disputes,
including shareholder, intellectual property and major construction
litigation. Wayne has a well deserved reputation for creating 'out
of the box' solutions to avoid costly court proceedings.
Wayne is sought by clients for his strategic approach and
ability to quickly identify the commercial imperatives relevant to
any dispute. He enjoys partnering with his clients to produce
highly successful and commercial outcomes.
Before practising law, Wayne was a member of the Australian
Federal Police. He also acted as a consultant with the Office of
Strategic Crime Assessments and was engaged as a senior lecturer in
the Faculty of Law and Management at La Trobe University. These
roles have enhanced his skills as a legal practitioner.
Does your business use retention of title clauses? If so, read
this
The Personal Property Securities Act 2009
(PPSA) provides a new regime applicable to most
categories of 'personal property'. This includes the supply by
businesses of most goods, including stock and other goods supplied
under retention of title (also known as 'ROT' or
Romalpa) clauses.
In September 2011, the commencement of the PPSA was delayed
until early 2012 (at the latest, 1 February 2012). By the
Personal Property Securities Amendment (Registration
Commencement) Bill 2011, introduced to the House of
Representatives on 12 October 2011, the Attorney General was
provided with scope to delay the commencement date further should
he wish to do so. No date has yet been provided by the Attorney
General for the commencement of the PPSA.
While the PPSA has been delayed multiple times, relying on the
continuation of such delays may give rise to risk. Not preparing
your business for the early 2012 commencement date may preclude you
from pursuing your contractual rights provided for in your terms
and conditions and invoices.
Generally, the new regime under the PPSA will replace the
existing rules concerning a suppliers' current rights and
entitlements under ROT clauses. The PPSA requires that:
- all sales by ROT be registered; and
- all new ROT agreements and clauses comply with legislative
requirements.
The new PPSA rules concerning ROT are complicated, however
essentially:
(a) if your business
supplies goods before the commencement date (early 2012)
under a pre-existing ROT clause, that supply of goods
will, in most instances, automatically be covered by the
PPSA for up to 2 years;
(b) if your business
supplies goods on or after the commencement date (early
2012), under a ROT clause dated before the commencement
date, that supply of goods will not automatically be
covered by the PPSA; and
(c) if your business
supplies goods on or after the commencement date (early
2012), under a ROT clause dated on or after the
commencement date, that supply of goods will not
automatically be covered by the PPSA.
If your interest is automatically covered by the PPSA,
you will still need to take steps to secure your rights within the
next 2 years. Failure to do so will cause you to lose your
entitlement.
If your interest is not automatically covered by the
PPSA, you will need to take steps as soon as possible to secure
your interest. If you do not do so, you run the risk of losing your
rights.
Civil dispute resolution legislation
Over the last 12 months there have been significant legislative
developments across state and federal jurisdictions that affect the
way civil proceedings are conducted in Victorian and federal
courts.
The Victorian Act and overarching
obligations
The Civil Procedure Act 2010 (Vic) (Victorian
Act) commenced on 1 January 2011. It introduced a number
of 'overarching obligations' that apply to all civil proceedings
heard and issued in a Victorian court (that is, the Magistrates
Court, the County Court and the Supreme Court). The Victorian Act
requires all parties to the dispute (including expert witnesses and
funders) to comply with - and also certify that they have read and
understood - these obligations.
Overall, the Victorian Act seeks to ensure that parties conduct
themselves appropriately by only pursuing claims and defences that
have a proper basis, negotiating settlements where possible,
avoiding delays and keeping costs to a minimum. By way of example,
parties are under an obligation to disclose documents to the other
side that are critical to the resolution of a proceeding at the
'earliest reasonable time' after they become aware of the document
in their control.
There are consequences if parties do not act in accordance with
the overarching obligations. For example, costs may be ordered
against a party, or a claim or defence may be struck out by the
court.
The Federal Act and 'genuine steps'
requirement
The Civil Dispute Resolution Act 2011 (Cth)
(Federal Act) came into effect on 1 August 2011
and imposes obligations on prospective litigants to take genuine
steps to resolve a dispute before proceedings are commenced in
either the Federal Court or Federal Magistrates Court.
Unlike the Victorian Act, the Federal Act has a more limited
purpose. It aims to 'ensure that, as far as possible, people take
genuine steps to resolve disputes before certain civil proceedings
are instituted'. If dispute resolution is unsuccessful and
proceedings are issued, each party must file a 'genuine steps
statement' to the effect that genuine steps have been taken to
resolve the dispute.
While the Federal Act does not prescribe what genuine steps must
be taken by parties (instead allowing parties to decide what steps
are appropriate in the circumstances), it does provide examples of
'genuine steps' that could be taken by a party. Examples include
attempting to negotiate with the other party with a view to
resolving some or all the issues in dispute, providing relevant
information and documents to the other party to facilitate
resolution of the dispute and considering whether the dispute could
be resolved by an alternative dispute-resolution process.
Under the Federal Act, as is the case under the Victorian Act,
the court is able to take into consideration what genuine steps
were taken by the parties (and whether those steps were
appropriate) when exercising its discretion to award
costs.
*****
The Victorian Act initially required parties to engage in
'pre-litigation requirements' (this has since been repealed).
However, while there is no legislative requirement to engage in
pre-litigation requirements, we have found that in appropriate
cases pre-litigation steps may be utilised to expedite the
settlement of matters (without the need to issue proceedings) and
to minimise costs. Indeed, our experience is that, by providing the
other side with an evidence pack (which also contains an analysis
of the evidence) relied on to support a claim as early as possible,
meaningful settlement negotiations can be engaged in, often
resulting in settlement prior to any proceedings being issued - or
where proceedings have been issued, we have been able to obtain
orders consenting to judgment without proceeding to a contested
hearing.
Commercial Litigation Success Stories
A sleeping asset saved
'Our clients
had an unusual situation in a members' voluntary liquidation.
Shortly after lodging the necessary reports with ASIC to trigger
deregistration of the entity, a sleeping asset (of unknown and
contingent value) was discovered by their client, the company's
holding entity. We met the client within a day, filed and served
the application and supporting affidavit the following week, and
two weeks later achieved the desired outcome with commendation by
the court.'
Adrian Lasky, Partner, Commercial
Litigation
Our client
Our client was a liquidator for a
leading international accounting and insolvency firm. The company
our client was liquidating was a subsidiary in a large group of
entities.
Their ambition
Our client wanted a swift and
commercial solution that would both achieve the desired outcome and
enable them to retain a sleeping asset for their ultimate client.
The process required two stages: first, obtaining the required
extension of time from the court; and second, determining a
commercial strategy for distributing the asset to the holding
company.
The first task (extending the timeframe
for deregistration) was subject to strict time restrictions. This
meant that if the court application was not successful on the first
return, there was limited time to address any concerns the court
might have. There was no room for error. This stage was
successfully achieved with the court granting the application at
the first return date, with a commendation on the quality of
submissions provided to the court.
The second task (distributing the
asset) was complicated by clauses in the primary agreement, which
imposed preconditions on an assignment by the company of its
interest. Included in these preconditions were significant
notice periods, which time would have significantly delayed the
disposition of the asset. It was further complicated by the fact
that since the primary agreement (dated in the 1990s prior to the
holding company's acquisition of the company), multiple assignments
had occurred of various rights and duties between the parties. We
structured a commercial outcome that facilitated the assignment of
the asset as desired within 4 weeks of the date of the successful
court application. This was many months faster than the timeframe
provided in the assignment preconditions.
Enhancing their
success
We were able to provide a swift resolution to a matter that
concerned both our client and its ultimate client. The resolution
saved an asset from being ultimately transferred to ASIC, and
instead enabled the asset to be transferred to the holding company
and remain to the benefit of the group. This enabled our client to
achieve both its own objectives and those of one of its largest
clients in a swift and commercial manner.
Behind the
headlines
This matter included two facets: a court application and an
asset transfer. Accordingly, the litigation and 'front-end'
commercial members of our Reconstruction & Insolvency team
worked together, focusing on their speciality, to achieve the
outcome within a short timeframe. In this way, we were able to
access the broad range of skills and experience available
throughout the firm to achieve the desired result.
Team members: Adrian Lasky and John Hutchings,
assisted by Katherine Payne and Dean Katz.
A complex administration
'In advising
our clients on a complex administration of a registered managed
investment scheme, our Reconstruction & Insolvency team
successfully used the legislative framework of Part IV of the
Corporations Act in a new and innovative way, in order to validate
the appointment of our clients as administrators. In the meantime,
we remained a crucial partner to our clients in the efficient and
effective conduct of the administration.'
Paul Buitendag, Partner and Head of
Reconstruction & Insolvency
Our clients
Our clients are the voluntary
administrators over a company that is the responsible entity of a
property trust engaged in real property investments with a
particular focus on the retirement and aged care village
industry.
Their ambition
The validity of our clients'
appointment as administrators of the scheme had been questioned by
a secured creditor shortly after appointment. In circumstances
where substantial costs were being incurred (and continued to be
incurred) in complying with their statutory obligations as
administrators, our clients were understandably anxious to obtain
focused and practical legal advice, and certainty in respect of
their appointment, as soon as possible.
Within a week of receiving
instructions, our Reconstruction & Insolvency team reviewed a
range of company documents, and drafted an application and
affidavit in support seeking an order that our clients' appointment
was valid, or in the alternative should be validated using section
447A of the Corporations Act 2001 (Cth). On 29 October
2010, his Honour Justice Sifris made orders validating the
appointment of administrators from 18 October 2010 pursuant to
section 447A, notwithstanding that the initial appointment was not
valid.
That judgment was subsequently appealed
by the secured creditor and ultimately was heard by their Honours
Court of Appeal Justices Buchanan and Mandie, and his Honour
Justice Almond on 6 June 2011. Their judgment was handed down on 21
September 2011, and while their Honours allowed the appeal on the
basis that Justice Sifris had decided on the basis of factual
material that was not before him, they ultimately reached the same
conclusion. Our clients' appointment as administrators was
validated from 18 October 2010, and the conduct of the
administration continues on that basis.
Enhancing their
success
We were able to provide efficient and
accurate advice on an issue that was crucial to our clients'
commercial interests, and ultimately were successful in arguing
that their appointment as administrators should be validated. As a
result, our clients can continue the conduct of the administration
confident in their standing as administrators.
Behind the
headlines
While the appeal judgment was pending,
our clients were under a continuing obligation to comply with the
Act in investigating the assets and liabilities of the scheme. Our
Reconstruction & Insolvency team provided a range of litigation
and 'front-end' or commercial services to our clients, to assist in
the efficient and effective running of a complex administration,
which involved a range of stakeholders and interested
parties.
Team members: John Hutchings, Paul
Buitendag and Gid Meltzer, assisted by Alex Nicol and Dean
Katz.