ASIC vows to crack down on corporate misbehaviour by prioritising litigation
Following criticism in the wake of the Hayne Royal Commission, ASIC has vowed to crack down on increasing business misconduct by implementing a new 'litigate-first' strategy. In doing so, the corporate regulator has committed to placing a greater emphasis on litigation, warning that it will 'move more quickly to, and accordingly conduct more, civil and criminal court actions against larger financial institutions.'
The move follows the alarming findings of the Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, at which the regulator was denounced for being too soft on misbehaviour and for 'rarely' going to court.
Consequently, ASIC has admitted that it must change its approach, seeking to place greater emphasis on litigation and warning that it will first ask, 'why not litigate?' when assessing how to address misconduct.
However, ASICs strategy is already under scrutiny, after litigation efforts against Westpac saw the Federal Court impose a paltry $3.3 million fine for unconscionable conduct - a mere fraction of ASIC's $58 million request.
This outcome has revealed that reform is necessary if further misconduct is be prevented, with Justice Beach declaring that although he wished to impose a much greater fine to deter others, this 'seriously inadequate' penalty was the most he could impose under law.
Despite this, ASIC commissioner Sean Hughes has warned that 'it is inevitable that there will be more litigation and more people out there in the market who will have to be prepared for a much firmer, much stronger regulator, who is far less likely to compromise. Whether such an approach is appropriate will have to be determined but the writer is sceptical that a firmer approach is warranted. In the writer’s view, targeted litigation with genuine outcome ought to be the focus and as part of that process compromise must be balanced against the outcome sought.
FCA: Income protection payments not exempt in bankruptcy
In the matter of Gittens v Field (Trustee) [2018] FCA 976, the Federal Court of Australia has held that income protection payments from personal injury are assessable income under the Bankruptcy Act.
Having owned and operated a dental practice for almost 25 years, John Gittens had retained two income protection policies which sought to protect his livelihood in the event that he suffered total disablement that rendered him unfit to work.
In 2015, Gittens was preparing a barbeque when he cleavered the top of his left index finger, resulting in amputation and thus hindering his ability to continue work as a dentist. Gittens subsequently lodged a claim pursuant to the policies, and it was accepted that he was entitled to receive income protection payments of $270 000 per year.
On the 25 January 2017, after leaving his dentistry business, Gittens entered bankruptcy. On the same day, Malcolm Field, in his capacity as the trustee of the bankrupt estate, issued Gittens with a contribution assessment notice pursuant to s 139W of the Bankruptcy Act. The notice outlined the contribution Gittens was liable to pay, calculated with regard to the income protection payments he had received, or was likely to receive. Relevantly, Field held that these payments were 'income', and as such were to be considered when applying the regime established by the Act.
However Gittens disputed the assessment and subsequently initiated proceedings. In doing so, he contended that the trustee had no entitlement to the benefits as they were property that was not divisible between his creditors by virtue of s 116(2)(g).
Accordingly, the court was required to consider whether the monthly payments arising under the income protection policy were in fact 'income', or whether they were exempt as arising from personal injury.
Ultimately, the court held that income does not vest in the bankruptcy trustee, but rather is payable by way of a statutory formula pursuant to Div 4B, PtVI of the Act.
Moreover, Charlesworth J held that s 116 is not the sole means for identifying divisible property, and that as such, it is not necessary to resort to s 116(2)(g), which specifically excludes monies derived by personal injury.
Relevantly, his Honour noted that, "had Mr Gittens not lost his earning capacity, his income as a dentist would be subject to the income provisions...and...viewed in that way, it is difficult to see how the creditors of the bankrupt in that situation could be unjustly swelled or advantaged by the application of the income contribution scheme to the Benefits."
This case bears an interesting distinction from the decision in Berryman, in which a lump sum TPD payment was held to be protected in bankruptcy, on the basis that it was a one-off payment that had not been quantified by reference to income or earning capacity.
Video recording deemed sufficient to constitute will
In the recent decision of Radford v White [2018] QSC 306, the Queensland Supreme Court held that a video recording was sufficient to constitute a deceased man's will.
On 24 January 2018, Jay Schwer passed away from an accidental overdose after self-administering pain killers following surgery for a motorcycle accident. At the time of his death, Mr Schwer had not executed a formal will, however had expressed his intentions in a video recording filmed by his de facto partner Katrina Radford.
The recording was made on 21 November 2016, after Ms Radford requested that he make a will before purchasing a motorcycle. In the video, Mr Schwer declared that "everything", including "all money and super funds", was to go to Ms Radford and that his "soon to be ex-wife Nicole White" was to receive nothing. Mr Schwer also allocated a portion of his possessions to his daughter Aleena.
Following Mr Schwer's death, Ms Radford made an application to the court seeking orders that the recording be recognised as a document that formed his will within the meaning of s18(2) of the Succession Act 1981 (Qld). In doing so, Ms Radford submitted that the video expressed Mr Schwer's testamentary intentions and that the court should be satisfied that Mr Schwer intended that it form his will.
Accordingly, Justice Jackson was required to consider whether the video recording constituted a document under section 18(2). Moreover, his Honour was required to determine:
- Whether the video recording stated Mr Schwer's testamentary intentions;
- Whether Mr Schwer intended that the recording operate as his will; and
- Whether Mr Schwer did in fact have testamentary capacity.
Is the video recording a document?
In reaching his conclusion, Justice Jackson referred to previous cases in which a digital video disc and an audio recording satisfied the meaning of document as required by section 18. As such, his Honour concluded that the video recording was a document.
Did the video recording purport to state the testamentary intentions of Mr Schwer?
Justice Jackson concluded that "there was no question" that the video recording purported to state Mr Schwer's testamentary intentions because:
- Mr Schwer stated the reason for the recording, being that his partner had requested he do a will before collecting his motorcycle later that day;
- Mr Schwer indicated that he would repeat his intentions by filling out "the damn forms" later;
- Mr Schwer used the words "but as sound mind and body", likely indicating his appreciation of the legal formality relating to wills; and
- Mr Schwer clearly stated how and when he wished his money and possessions to be allocated.
Did Mr Schwer intend that the video recording should without more operate as his will?
Given the context in which the recording was made, the court was satisfied that Mr Schwer clearly intended that it was to operate in the event of his death. Specifically, the court held that Mr Schwer's intention to complete the forms at a later date did not displace his intention that the recording was to operate as his will in the meantime. The court noted that the delay in actually attending to fill out the forms could be explained by the head injury sustained in the motorcycle crash and the resulting memory loss of the day the recording was made.
Did Mr Schwer have the necessary capacity?
As an informal will, Ms Radford bore the onus of establishing Mr Schwer's capacity. In doing so, she presented substantial evidence which indicated that since childhood, Mr Schwer had functioned at a high intellectual level.
In seeking to establish the contrary, Ms White adduced evidence of Mr Schwer's behaviour and state of mind in the months preceding his death. However, the court held that Ms White's evidence was not relevant to Mr Schwer's capacity at the date the recording was made, and even if it were, it did not displace the evidence that otherwise proved his capacity.
Decision
Ultimately, Justice Jackson was satisfied that Ms Radford had successfully established each of the conditions required for the video recording to constitute a will within the meaning of section 18(2). The recording was declared the will of Mr Jay Schwer.
If you are ever in the unfortunate situation of taking instructions for the will of a person who may be likely to die imminently, this case presents a useful source of the alternatives available to a written will. Despite this, section 18 relief for informal wills is not a substitute for thorough estate planning.
The importance of claiming privilege in s19 examinations
Have you been served with a Compulsory Examination Notice under section 19 of the Australian Securities and Investments Commissions Act? Here's a short guide through the process and the reasons why claiming privilege against self-incrimination is important.
Compulsory Examination
A compulsory examination, or a section 19 examination, grants ASIC the power to ask questions about a matter which they are investigating. If you have been served with a compulsory examination it is imperative that you attend, as failure to participate or answer the questions asked is an offence punishable by both heavy fines and imprisonment.
Before
If you have been served with notice to attend an examination, the law requires that you are afforded ample time to prepare. In doing so, it is recommended that you elect to have a lawyer present to help you navigate the process and to ensure your rights are protected.
The examination will be conducted in a private location, and will be highly confidential in nature. As such, your lawyer is the only person who you are entitled to have present in the room.
Before commencing, the ASIC officer should inform you of your rights and obligations, including that you must not discuss the meeting with anyone, for a specified period of time. The exception to this is that you may discuss the interview with your lawyer if they are in attendance. If your lawyer does not accompany you, you should first seek permission from ASIC to discuss the meeting with your lawyer afterward.
During
Throughout the interview you will be obliged to answer all questions directed at you, even if doing so exposes you to self-incrimination.
There is no inherent privilege against self-incrimination. In order to prevent self-incriminating evidence being admitted at trial, two conditions must be satisfied:
- you must claim privilege in respect of your answer before answering a question; and
- at trial, the court must find that the answer would in fact incriminate the examinee.
Having a lawyer present can assist in alleviating the stress associated with the examination process. Not only can a lawyer instruct you as to when you should claim privilege, but they can also assist in holding the examiners to account, by ensuring that their questions remain lawful and do not unnecessarily incriminate you.
After
Following the examination you will be sent a transcript of the meeting and asked to review it. Once you have checked it for errors, you must sign it.
As the transcript may ultimately be used as evidence against you in a civil or criminal trial, it is crucial that you review it carefully. In doing so, you should ensure that the answers you claimed privilege over have been excluded. If you believe an error has been recorded on the transcript, you should ask your legal team to notify ASIC in writing.
We are here to help
We understand that being served with a section 19 notice can be a stressful and overwhelming time. We have assisted numerous clients through the process . If you want to ensure that ASIC do not exceed their lawful authority in the questions they ask, and to ensure that you properly claim privilege, please do not hesitate to call us.
VSC approves remuneration after liquidator incurs $7k fee justifying $34k
In the recent decision of Custometal Engineering Pty Ltd (in liquidation) [2018] VSC 726, two liquidators incurred almost $7,000 in fees whilst seeking to justify their $34,000 remuneration.
The case ensued after Custometal Engineering Pty Ltd entered voluntary administration on 21 September 2017, with Sam Kaso and Daniel Juratowitch appointed as administrators.
On 11 October 2017, the Supreme Court of Victoria ordered that the administration be terminated, that the Company be wound up and that Kaso and Juratowitch be appointed as joint and several liquidators.
Subsequently, in September 2018 the liquidators sought approval of their remuneration as the Company’s administrators pursuant to s60-10(1)(c) of the Insolvency Practice Schedule for the amount of $33,872.50. They also sought that the costs of the application be costs in the Company’s liquidation, hence bringing the total claim to $40,860.
Accordingly, the court was required to consider whether liquidators had prima facie established a case for remuneration and subsequently whether that remuneration should be approved under r9.2 Supreme Court (Corporations) Rules 2013 (Vic). In doing so, the court was required to consider whether the remuneration being claimed was reasonable.
In determining the reasonableness of the remuneration, Matthews JR considered the following factors:
- Whether there was an appropriate delegation of the work performed;
- Whether the tasks conducted were necessary to have been performed;
- Whether the time taken to complete those tasks, and therefore the amounts charged for them, was reasonable; and
- Whether there was any evidence of unnecessary duplication of work.
Ultimately the court was satisfied to approve the remuneration sought by the liquidators, holding that the liquidator’s costs of application be costs in the Company’s liquidation.
In an era where issues of proportionality are high on the agenda, particularly with the judiciary, this case presents an interesting example of a situation where the costs of making such an application seem disproportionate to the costs being sought and presents yet a further example of why approval of these costs should be facilitated in a different manner, possibly by legislative change as the current law sees many liquidators spending significant resources to justify their remuneration at additional cost to creditors.
HCA allows ASIC v Lewski appeal
In the matter of Australian Securities & Investments Commission v Lewski & Anor, the High Court has partly allowed an appeal by the corporate regulator, after it alleged the directors of Australian Property Custodian Holdings Pty Ltd (APCHL) breached their duties by amending the constitution of a failed aged care and retirement trust.
In December 2000, Australian Property Custodian Holdings Pty Ltd (APCHL) created a unit trust called the Prime Retirement and Aged Care Property Trust, of which it was the responsible entity. The trust was subsequently registered by ASIC as a managed investment scheme in July 2001, and the consolidated trust deed became the constitution of the managed investment scheme.
In July 2006, after struggling to sell the units, the directors of APCHL amended the constitution by introducing substantial new fees payable to APCHL. In doing so, the directors introduced a 'listing fee’, which was payable once the scheme's units were listed on the Australian Securities Exchange.
The amended constitution was lodged in 2006, and the following year the directors determined that the listing fee would be paid to companies associated with William Lewski, one of APCHL's directors who controlled the trust's responsible entity.
Subsequently, the case ensued after ASIC alleged that Mr Lewski was improperly granted $33 million from the company for consulting on its ASX listing, and a further $60 million for the purchase of the management rights for the portfolio of villages owned by the company.
At first instance the trial judge held that the fees were invalid, and that the directors had subsequently breached their duties.
However, the directors subsequently appealed to the Full Federal Court, where it was held that the trial judge erred in its finding. In doing so, the court held that the certain amendments had 'interim validity' unless and until they were set aside, and that the directors were thus entitled to act in accordance with their honest belief that the amendments were valid.
ASIC then appealed to the High Court, which ultimately held that the Full Federal Court had erred in this decision. In doing so, the court concluded that the directors had breached various provisions of the Corporations Act 2001 (Cth), having failed to take reasonable care, to be loyal to members of the trust, to not use their position improperly and to comply with the legal requirements for amendment.
Despite this, the court held that the Full Federal Court was correct in finding that the directors had not been complicit in a breach of s 208. The case has now been remitted to the Full Federal Court for determination of penalty and disqualification orders, costs and ASIC's cross-appeal to that court.
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]).
