Bowen Buchbinder Vilensky

Archive for the ‘Commercial Litigation’ Category

Why Liquidators Must be Independent – and Seen to be Independent
Tuesday, April 21st, 2015

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By Craig Hollett, Director at Bowen Buchbinder Vilensky Lawyers

(with assistance from Henry Burke)

21 April 2014

Liquidators and administrators should be aware that they are required to be independent, and may be disqualified from that role even if they only appear not to be independent. In ASIC V Franklin [2014] FCFCA 85, which was a recent appeal by ASIC to the Full Court of the Federal Court, ASIC successfully applied to have three experienced insolvency professionals disqualified as liquidators for precisely this reason.

Facts

In early 2013, Walton Group engaged Mawson Group (“Mawson”), a business advisory and corporate restructuring firm, to assess its restructuring options.

In late September 2013, Walton Group sold off a significant part of its business to entities created in July and August 2013 and owned and/or directed by persons closely connected with Mawson. This business included construction contracts, intellectual property, business records, plant equipment and stock.

Shortly after these transactions had taken place, Mawson referred Walton Group to accounting firm Lawler Draper Dillon (“LDD”) to undertake a voluntary administration of the Walton Group. Mawson had commenced referring other insolvency work to LDD since about February 2012, and the revenue from this referral relationship comprised about $750,000 in the 2012/2013 financial years.

The Corporations Act requires the administrators of a company to give a ‘declaration of relevant relationships and indemnities’ (“DIRRI”) to creditors, which enables them to resolve at a first creditors’ meeting whether they wish to retain or replace the administrators over concerns of independence.

The LDD DIRRI document stated that “… [Walton Group was] referred by .. Mawson Group, who refers us insolvency type matters from time to time. Referrals from solicitors, business advisors and accountants are common place and do not impact on our independence in carrying out our function as administrators. Other than this, there are no other known relevant relationships …”.

LDD selected insolvency professionals Glenn Franklin, Stirling Horne and Jason Stone to undertake the voluntary administration of Walton Group. Mawson was influential in the selection process.

On 8 November 2013, the creditors resolved to undertake a voluntary liquidation of Walton Group. It was agreed by the administrators at least by 15 October 2013 that liquidation would require them as liquidators to investigate six of the pre-administration transactions and eight links between the parties to those transactions and Mawson. This was in order to ascertain whether they might have been voidable or uncommercial transactions.

On 16 December 2013, ASIC commenced to have Franklin, Horne and Stone removed as liquidators on the ground that there was a reasonable apprehension of bias of the liquidators.

Decision

The judge decided that a reasonable fair-minded observer might reasonably decide that because of the respondents’ interest in not jeopardising future income, they might not discharge their duties with independence and impartiality. The fact that Mawson influenced the selection of the administrators added to this concern.

On this basis, the judge held that the liquidators should be removed as liquidators of Walton Group.

Summary

 Insolvency practitioners should be careful when they consider the possible conflicts that might arise out of referral relationships. If there is even any appearance of bias in this relationship, they should consider seeking legal advice as to the possible impact that this relationship has on their ability to act independently during the insolvency process.

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How Best to Submit an Insurance Claim?
Tuesday, August 26th, 2014

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By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

26 August 2014

What’s the best way to submit an insurance claim.  In three words: through a lawyer.  Of course, if it’s a straightforward and relatively minor claim – for example, when you discover someone has reversed into your car, denting the passenger door and causing a couple of hundred of dollars worth of damage – there is probably no need or point involving a lawyer.

But for larger and more complex matters, legal advice can make all the difference because the wording of an insurance claim is extremely important.  I want to make it abundantly clear than under no circumstances should an insurer be lied to or deceived.  But getting advice on what information must be included in any claim form submitted to an insurer, and how to word this information, is critically important.

I have been involved in cases where significant disability claims have been paid out, while others, that seemed identical, were not.  The difference in outcomes was likely caused or contributed to by the way the claim form was completed.

If an insurer rejects your claim, that’s not the end of the road.  You can seek legal help to have a letter written to the insurer demanding a full explanation of the basis of rejection of the claim.  The grounds on which the claim has been rejected may be able to be contested and other arguments raised in support of your case.

If the insurer still refuses to accept the claim in part or in whole then, you may then have the option to commence legal action against the insurer for breach of the insurance contract and/or on other grounds, which the insurer will be required to defend.

Whilst current statistics suggest that around 70% of these kinds of disputes are settled during the course of the litigation and mediation process that occurs before going to trial, given the protracted nature of the process and the potentially high legal costs associated with it, you would be well advised to use the services of a fixed price fee lawyer. Doing so provides more peace of mind about costs, and also helps ensure that the momentum of the action is maintained.

In summary, for the quickest and cleanest result, when submitting an important insurance claim, get help from a fixed fee lawyer.

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Pay Now, Argue Later: Principals Must Follow an Adjudicator’s Decision
Tuesday, July 22nd, 2014

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By Craig Hollett, Director at Bowen Buchbinder Vilensky Lawyers

22 July 2014

One of the main purposes of Western Australia’s Construction Contracts Act 2004 (WA) is to make sure that progress payments keep flowing.  Historically, this has caused significant financial hardship to contractors who sometimes had to wait for years to be paid – in the meantime, having to finance the cost of running their own businesses themselves.

The Construction Contracts Act has a system of rapid adjudication if a payment dispute arises, which is conducted without any oral hearing, and in which the Adjudicator makes a determination.  That determination may require the principal to make payment to a contractor of disputed invoices, which means the debt is payable. The contractor may then enforce the determination under the Civil Judgments Enforcement Act 1004 (WA).

Alternatively, if the principal is a company, the contractor can issue a Creditors Statutory Demand.  The risk of a Creditors Statutory Demand can be the potential for a principal  to set it aside on the basis that a “genuine dispute” exists about the existence or amount of the debt.    In such an application, the principal must establish there is a bona fide dispute which is not spurious, hypothetical, illusory or misconceived.

The Western Australian Court of Appeal recently considered such a situation following two separate determinations by an Adjudicator under the Construction Contracts Act 2004 (WA).

The Court of Appeal drew an analogy to the way in which tax debts are treated – i.e., you may dispute the amount you owe the tax office, but you must pay first and argue later.  The Court of Appeal said that even though the principal had commenced District Court proceedings disputing the liability to pay the debts which were the subject of the adjudication, this did not give rise to a genuine dispute which would be capable of setting aside the Creditors Statutory Demand.

This case provides a clear direction to contractors who can take advantage of these provisions to receive payment, even while there may be a dispute continuing with the principal.  This is a very different situation from the one they’ve faced in the past when they had to wait until the conclusion of any Court proceedings before they can hope to see any payment, often with crippling financial consequences.

This case has important implications both for principals and contractors.  As always when signing contracts, seeking legal advice in the short term can save a great deal of financial and emotional energy later.

The full decision of Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 is available on the Supreme Court website (http://decisions.justice.wa.gov.au/supreme/supdcsn.nsf/judgment.xsp?documentId=5EE18FD9166D886E48257CC40013285E&action=openDocument&SessionID=DRZT6Y89A4).

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There’s a Mistake on Your PPSR Registration: What Now?
Monday, May 5th, 2014

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By Craig Hollett, Director at Bowen Buchbinder Vilensky Lawyers

5 May 2014

The Personal Property Securities Act 2010 (“PPSA”), which came into effect in January 2012, has had a big impact on many Australian businesses.  PPSA legislation created the Personal Property Securities Registrar (“PPSR”), a national, online register, requiring interests in personal property to be registered.    Such interests may be as small as a plasma TV bought on hire purchase from Harvey Norman or as major as a multi-million dollar commercial property lease.

 So, what happens when someone makes a mistake filling in a PPSR online form?  The PPSA says that a mistake will make a registration ineffective if it is ‘seriously misleading.’  But the term ‘seriously misleading’ has not been defined.

As it happens a mistake was made in NSW when, instead of entering a company’s ACN, its ABN was used.  When the case came to court (Future Revelation Ltd v Medica Radiology and Nuclear Medicine Pty Ltd [2013] NSWSC 1741) Justice Brereton said, in his decision, that it is well known the PPSA is modelled on and derived from similar legislation in Canada and New Zealand.  The Court therefore looked to a Canadian decision to assistance in defining the term ‘seriously misleading.’

Canadian case law suggests that the test for whether a mistake is “seriously misleading” is whether it will result in the registration not being disclosed upon a search.  In Future Revelation, such a search would have identified clearly enough the secured party, even though its ABN and not ACN was stated.  The judge’s view was very clear that this defect was not seriously misleading or indeed for that matter misleading at all.

This is unlikely to be the last word on this issue as the application in Future Relevations was made urgently on an ex-parte basis and the situation could well differ should this matter return to the Court for further argument or if a similar matter is brought before the Court.

The important lesson to take away from this decision is the importance of checking and double checking information contained on the PPSR at the time of registration to ensure this sort of issue does not arise, because it may render the relevant security interest ineffective.

If an error is discovered, then it may be possible to amend the registration (see http://www.ppsr.gov.au/ForBusiness/Howtoregister/Pages/default.aspx) and a party affected by an incorrect registration can demand the registration be amended (see http://www.ppsr.gov.au/AsktheRegistrar/PracticeStatements/Documents).

Remember: when in doubt, consult a lawyer.  Most of us don’t charge for an initial phone conversation to decide if your own query needs further action.

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Pitfalls of Construction Adjudication
Friday, April 11th, 2014

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By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

11 April 2014

 Disputes are more common in the building and construction area than in most other sectors of the economy.  Poor workmanship, time constraints and demands for payment for extras falling outside of an original contract, are just a few of the typical reasons for disputes.

When the WA Government passed the Construction Contracts Act in 2005, the aim was to enable disputes to be fast-tracked through an Adjudication process, rather than for disputing parties to have to wait to go to Court.

While Adjudication has been a great step forward in many ways, there is one major pitfall: if a claim is made against your organisation, you have only fourteen days to respond.  These are calendar days, not business days, and no concession is made for public holidays.  For example, if you receive a claim on 22nd December, you have until the 5th of January to respond.

The short response period may not always be a problem, at most times of the year, and for simple cases.  But it’s a very different matter in disputes which involve major construction project payments or where there are significant factual or legal complexities involved, and these need to be dealt with  unexpectedly when key staff are on leave.

My advice to companies which may find themselves having to respond to Adjudication claims is threefold:

1. Put in place procedures for making your organisation aware, as soon as practicable, of a claim for Adjudication having been served and for dealing with it swiftly.  This may involve educating staff as to the processes involved and the importance of the timeframes under the Act as well as having contingency plans in place as to how the response is to be dealt with if, for example, critical staff members are absent or there is a risk that a claim for Adjudication may be served just prior to or over a public holiday period or when for some other reason the business may be temporarily closed.

2. Get your documentation/software in order. As a Respondent, it is up to you to supply the Adjudicator with a copy of any relevant documents in support of your response.  Most often this happens by email.  The onus falls on you to make sure that documents are delivered to the Adjudicator in a way that they can be opened and read (compliance with Electronic Transactions Act 2011 (WA).  It seems incredible, but there are situations where Respondents fail simply because the documents they thought they had delivered to the Adjudicator either never arrived, or could not be opened by the Adjudicator.  If you don’t get your documentation and software in order, your side of the story may simply never be heard.

3. Take legal advice  The detail of a claim or response is critical.  The very wide range of contracts used in the construction industry today underlines the importance of looking at each case individually.  The best time to get legal advice is before offering or signing a contract.  The next best time is the moment you suspect there are grounds for a dispute!

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