Legal Insight Issue 11


Severe Impact of Non-Compliance with "Genuine Steps Statement" Requirements

Australia Wide Business Name Register

Defects in the Personal Property Securities Act Register

Public Examinations – Examinees Granted Access to Affidavit in Support of Examination Summons

Federal Court Power to Award Security For Costs of Complying with a Subpoena to Produce Documents

Employer Entitled to Restrain Professional Employee

Settlement Agreements Reached at Mediation – Care Required

Proportionate Liability – Who is Responsible for the Loss?


Severe Impact of Non-Compliance with "Genuine Steps Statement" Requirements

Justice Reeves in the recent Federal Court (QLD) decision of Superior IP International Pty Limited –v- Ahearn Fox Patent & Trade Mark Attorneys (2012) FCA 282 expressed frustration arising out of the fact that the parties and their lawyers had not filed, as required by the Civil Dispute Resolution Act, 2011 (Cth) ("Act") a genuine steps statement.

We remind our readers that the Act requires people to take genuine steps to resolve disputes before certain types of civil proceedings are instituted, including filing a genuine steps statement at the time of filing an application.  Applications to set aside a statutory demand under section 459G of the Corporations Act are not excluded from the operation of those provisions.

The case involved an application to set aside a statutory demand.  The total debts alleged to be due amounted to slightly over $10,000.00.  The parties had filed approximately 450 pages of Affidavit material.

In frustration, Reeves J adjourned the matter at the commencement of hearing due to the failure by both parties to file a genuine steps statement and also the fact that the lawyers had not made any attempt to resolve the dispute.  The Judge also required each solicitor to notify his client of the legal fees intended to be charged.  His Honour also drew the lawyers' attention to the overarching purpose of the Federal Court of Australia Act ("FCA") and Rules, namely, to conduct the matter for the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

A further concern was that the parties' lawyers had not attempted to communicate with each other to resolve voluminous objections to the Affidavit material.

Ultimately, the statutory demand was set aside, but not without potentially serious ramifications for the parties' lawyers.

His Honour found that the manner in which the proceedings were conducted was "the absolute antithesis of the overarching purpose of civil practice and procedure" set out in the FCA.  He commented that such conduct can significantly undermine the efficient disposal of litigation, has the potential to erode public confidence in the justice system and can bring the legal profession into disrepute.

In exercising his discretion as to costs, due to the failure of both parties to comply with the overarching purpose provisions of the FCA and the Act, Reeves J:

  1. directed the Registrar to provide a copy of the reasons to the Queensland Law Society, Bar Association of Queensland and Legal Services Commission;
  2. directed each solicitor to provide a copy of the judgment to his client and advise the client to seek independent legal advice on the question of costs; and
  3. directed that the two solicitors be joined as parties to the proceedings for the limited purpose of determining the question of costs.

Clearly, His Honour is contemplating ordering the solicitors to bear the costs of the proceedings. 

Ultimately, no costs orders were made under the 23 March 2012 judgment.  As at the date of publishing this article, we are not aware of any subsequent decision in which costs orders have been made to finally dispose of the proceedings.


Australia Wide Business Name Register

Further to our prior article, we now confirm that the National Register of Business Names came into effect on 28 May 2012.

We understand that all business names on State and Territory Registers across Australia have been (or are in the process of being) migrated.  The new Register will be maintained by ASIC, which also maintains the Company's Register across Australia.

Businesses with a registered business name will be shortly sent an invitation to register for "ASIC Connect".

We are hopeful that the unification of State and Territory Business Name Registers will result in a simpler and more streamlined procedure for searching, registering, transferring and renewing business names.  Readers need to be careful when conducting searches because there may be more than one business name which is identical, now that all the State and Territory registers have been merged into one.


Defects in the Personal Property Securities Act Register

We have had first hand experience of certain charges from the (now redundant) ASIC Register having been defectively migrated to the new Personal Property Securities Act ("PPSA") Register.  The main defect we have encountered is a search of a company returning no results (suggesting that the company does not have any Security Interests registered against it) when in fact it did. 

We have also heard of others encountering a more serious defect when conducting searches under the PPSA.  This more serious defect is a charge not being migrated at all or not being disclosed on any search – i.e. although there was a valid registered charge on the ASIC Register at commencement of the new PPSA, it was not migrated at all to the new PPSA Register.

We can assist you to register security interests, confirm the status of your security interests and also to review your relevant contractual terms and conditions to ensure they are adequately worded in view of the PPSA provision.


Public Examinations – Examinees Granted Access to Affidavit in Support of Examination Summons

The Federal Court has held (in Sutherland –v- Pascoe; In the matter of Matrix Group Limited ATF The Matrix Group Unit Trust (In Liq) ACN 061 549 371 [2012] FCA 453) that proposed examinees be granted access to the liquidator's affidavit filed in support of Examination Summonses and Orders for Production.  The Court granted access on an undertaking of counsel and solicitors for the proposed examinees not to disclose the contents to anyone, including their clients.

Briefly, there were proceedings in the Supreme Court of New South Wales ("Former Proceedings") which were settled by consent.  The liquidator then applied for (and obtained) orders for various Examination Summonses and Orders for Production to be issued.

The Applicants argued (and the Court accepted) that the proposed examination seemed to cover most, if not all, of the issues agitated in the Former Proceedings.  On this basis, the Applicants argued that the proposed examination was an abuse of process or the liquidator was otherwise estopped from proceeding with an examination.  The Court confirmed that the appropriate test in deciding whether to grant access to the material is to decide whether there is "an arguable case [that the issue of the Summonses] exceeded the power of the Court and access to the affidavit is likely to assist in determining the correctness of the challenge".

Readers should note that this was an interlocutory decision and hence the Court did not conduct a full hearing on the merits.


Federal Court Power to Award Security For Costs of Complying with a Subpoena to Produce Documents

Justice McKerracher in the recent case involving Burrup Fertilisers Pty Limited (Receivers and Managers Appointed), found that the relevant Federal Court Rules were sufficiently widely worded to permit the Court to order an overseas individual who had served a Subpoena to Produce documents to provide security for the compliance costs relating to the Subpoena, before the subpoenaed person was required to comply with that Subpoena.  The Judge directed the Registrar of the Court to review and fix the amount of security to be ordered.  Compliance with the Subpoena was stayed pending payment of the security.


Employer Entitled to Restrain Professional Employee

A recent decision of the Victorian Court of Appeal confirms what is already a well established principle that employers are entitled to impose post employment restraints on professional employees. 

As a starting point, post employment restraints, being in restraint of trade, are anti competitive and for that reason against public policy and void.  Post employment restraints are only enforceable if the employer can demonstrate that the restrictions imposed are reasonable and no more than is necessary for the protection of the employer's legitimate business interests.

In Birdanco Nominees Pty Ltd v Money, Mr Money's former employer Bird Cameron was successful in enforcing a three (3) year post employment restraint and awarded $188, 495.65, in damages together with interest and its costs of the proceedings.  Mr Money, who initially commenced employment with Bird Cameron as a trainee accountant, resigned to take up part-time employment with another accounting firm and part-time employment with a client of Bird Cameron.  Whilst Mr Money held a supervisory position within the Company, he had not completed his accounting qualifications nor had he attained standing within any professional accounting bodies. 

The Court held that Bird Cameron had a 'legitimate interest in protecting the goodwill developed with its clients as a result of its employees, including Mr Money, performing accounting services.  The legitimate interest was found to be the customer connection that Bird Cameron has with those clients who dealt directly with Mr Money.  The Court further reasoned that clients of an accounting firm (and one might argue, other professional services providers) typically establish a close, personal and continuing relationship with those people they deal directly with.  Furthermore, those employees will develop an intimate knowledge and understanding of their clients' affairs and build a relationship of confidence.  This creates value in the service provided to the client and this goodwill is a legitimate proprietary interest of the employer.

After determining that Bird Cameron had a legitimate interest capable of protection, the Court then had to determine whether the restraint was reasonable.  Whilst a three (3) year restraint is at the higher end of the spectrum, the Court held that the duration of the restraint did not make it unreasonable in light of the interest sought to be protected and the nature of the relationship between Mr Money and Bird Cameron's clients.  The Court considers whether a restraint is reasonable as at the date the parties enter into the agreement. 

When determining whether a restraint is reasonable it will also be relevant if the restraint operates to preclude the former employee practising in his or her profession.  If the restraint operates with this effect, then it is arguably unreasonable.  The terms of the restraint need to be defined with precision and an ambiguous or oppressively broad restraint will not be reasonable.  

Whether a post employment restraint is enforceable will turn on the individual facts and circumstances.  Decisions such as this serve as a timely reminder that it pays to be diligent and to review post employment restraints when entering into an employment agreement.


Settlement Agreements Reached at Mediation – Care Required

In a recent decision of Sackar J, Supreme Court of NSW, in the matter of AW Ellis Engineering Pty Limited & Ors –v- Malajo Pty Limited & Ors (2012) NSWSC 55 the difficulty surrounding "Heads of Agreement" signed by parties at the end of a successful mediation session was highlighted. 

Ultimately Sackar J determined, based on general contractual construction and interpretation principles, including the intention of the parties to be immediately bound and the surrounding facts and circumstances, that a document signed by the representatives of the parties and entitled "Heads of Agreement" was a binding contract between the parties.  His Honour ordered specific performance on the grounds that the plain and unequivocal language showed that the signatories intended to be immediately bound upon signing the Heads of Agreement.  All essential and relevant terms to constitute an enforceable contract were present. 

The Heads of Agreement set out a number of specific provisions and included a clause stating "Without affecting the binding nature of these Heads of Agreement the parties within 7 days to execute a formal document or documents as agreed by their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement".  It was unsuccessfully argued by the Defendant's representatives that this clause contemplated further terms and that therefore the Heads of Agreement was incomplete and uncertain. 

In an endeavour to agree a formal document, after the mediation, the parties and their legal representatives considered and provided input in relation to a detailed draft document incorporating the substantive provisions in the Heads of Agreement as well as other clauses. 

Interestingly, His Honour addressed those clauses in the draft detailed document that were not the subject of agreement in the correspondence between the parties' legal representatives.  Each such provision was considered and His Honour indicated those provisions or parts of provisions which he found were reasonable and consistent with the agreement constituted by the Heads of Agreement.  His Honour ordered that the Heads of Agreement, along with the balance of the more detailed document as had been agreed during the course of the subsequent negotiations as well as those provisions which had not been agreed but which he found to be reasonable, were able to specifically performed. 

His Honour's judgment contains a good summary of the relevant principles to be applied by a Court when construing whether or not a binding agreement exists.  We have not set those principles out in this article.  If you would like further input regarding such matters, please contact us. 

The clear lesson from this case is that parties should be well prepared before attending a mediation and at the time settlement is reached, including documenting all relevant provisions that they wish to incorporate.  It is advisable to take with you to a mediation a draft settlement agreement.  If this is not possible, any document such as a heads of agreement signed by the parties must incorporate a clear indication that the parties intend to be bound immediately and all essential or critical terms must be incorporated.  Incomplete or uncertain terms or missing essential terms will be problematic and may lead to a finding that no legally binding contract has been made.


Proportionate Liability – Who is Responsible for the Loss?

In a recent decision of the NSW Court of Appeal (Mitchell Morgan Nominees Pty Limited & Anor –v- Vella & Ors [2011] NSWCA 390), the Court has shed light on who is a "concurrent wrongdoer" and how proportionate liability provisions operate under the Civil Liability Act, 2002 (NSW) ("Act").  Complex issues were considered and decided by the Court.  This article only considers one of those issues. 

The relevant facts are:

  1. Caradonna & Vella formed a joint venture to promote a boxing match. 
  2. Caradonna obtained possession of Vella's certificates of title and used same to borrow money for his own purposes and in the process forged Caradonna's signature, with the assistance of Flammia (referred to in the judgment as "a dishonest solicitor") who represented that the forged signature was Vella's. 
  3. Hunt & Hunt ("Solicitors") acted as solicitors for the financier which advanced in excess of $1 million to Caradonna ("Loan Monies").
  4. The financier unsuccessfully sought recovery of the Loan Monies from Caradonna.

The Court was asked to decide who was liable for the loss and, if more than one party, in what proportion.  The Court found as follows:

  1. A distinction must be drawn between the fraud which was done, the application for a loan, the preparation of a mortgage which did not adequately impose a repayment obligation, the act of loaning money, obtaining security, the failure to repay the Loan Monies and the failure of documents and/or security.
  2. Three parties contributed to the financier's loss, being Caradonna and Flammia ("Fraudsters") for their fraud and the Solicitors for negligently failing to ensure that a bank had security to protect its interest. 
  3. In the claim by the financier against the Solicitors, the damage caused to the financier was the failure of having an adequate agreement and not having the benefit of security when the loan was not repaid.  The acts of the Fraudsters did not cause that damage.  Further, the Fraudsters had no control whatsoever over the wording of the mortgage prepared by the Solicitors.  The Fraudsters were therefore not concurrent wrongdoers in the financier's claim against the Solicitors.  
  4. Although the damages (the monetary compensation) sought to be recovered by the financier is the same (i.e. the Loan Monies), the Fraudsters on the one hand and the Solicitors on the other hand did not cause the same damage (i.e. loss). 
  5. If the mortgage was drafted with an appropriate covenant it would have been effective to allow the financier to recover the Loan Monies despite the fraud.  The damage flowed from the absence of mortgage security which came from an inappropriately worded mortgage.  Notwithstanding the forged loan agreement was part of the occasion for the loss, it is distinct from the harm from the payment out of the Loan Monies. 
  6. The Court was critical of previous tests used in these cases which look at mutuality and, in particular, the damages (i.e. money) recoverable rather than identifying the damage (i.e. loss) caused by the wrong. 
  7. The Court cited some useful examples and analogies, including where a thief steals money from a bank and as a result of the negligence of the bank's insurance broker the theft is not covered by the policy.  In this case, the damage caused by the thief would be the loss of the bank's money.  Nothing which the broker did or did not do in respect of the policy caused the theft.  However, the damage caused by the broker is the bank's inability to obtain indemnity from its insurer.  Nothing done by the thief affected the broker's actions.  The thief would not be a concurrent wrongdoer in relation to a claim by the bank against its broker for negligently arranging insurance.


The reasoning in this case may initially seem arbitrary and contrived.  However, we respectfully agree with the finding and although the result may appear to circumvent the intended operation of the Act, instead it carefully considers and explains what a "concurrent wrongdoer" is for the purposes of the Act.



Hugh & Associates is a Sydney based legal firm with extensive experience in commercial, finance and insolvency law and litigation. If you require legal advice in these areas, we would be pleased to assist you.

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