Reinstatement of pre-Corporations Law (1991) companies: Part 1

I was recently briefed to remove a caveat from a property that was lodged by a company that was registered and dissolved (now termed 'deregistered') under the Companies Act 1961 (Vic). The application was successful, however the process of getting there was complex.

This post discusses how a company, which existed and was deregistered before the Corporations Act 2001 (Cth) and before the Corporations Act 1989 (Cth) can be reinstated.

s601AH of the Corporations Act provides for the reinstatement of a company that has been deregistered. s601AH provides as follows:

Reinstatement by ASIC 

(1) ASIC may reinstate the registration of a company if ASIC is satisfied that the company should not have been deregistered. 

Reinstatement by Court 

(2) The Court may make an order that ASIC reinstate the registration of a company if:

(a) an application for reinstatement is made to the Court by:

(i) a person aggrieved by the deregistration; or(ii) a former liquidator of the company; and

(b) the Court is satisfied that it is just that the company's registration be reinstated.

 (3) If the Court makes an order under subsection (2), it may:

(a) validate anything done between the deregistration of the company and its reinstatement; and(b) make any other order it considers appropriate. 

Note: For example, the Court may direct ASIC to transfer to another person property vested in ASIC under subsection 601AD(2). 

ASIC to give notice of reinstatement 

(4) ASIC must give notice of a reinstatement in the Gazette . If ASIC exercises its power under subsection (1) in response to an application by a person, ASIC must also give notice of the reinstatement to the applicant. 

Effect of reinstatement 

(5) If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim.

The definition of 'company' under the Corporations Act is 'a company registered under this act...'. This immediately gives the impression that s601AH will not apply to companies registered under previous companies legislation which applied before 2001. However, s1378 Corporations Act provides for the carrying over of companies registered under previous companies legislation, and therefore the application of the Corporations Act to those companies. Unfortunately, s1378 does not apply to companies that have been registered and deregistered under old companies acts.

s1378 provides as follows:

(1) If: 

(a) before the commencement, a company was registered under Part 2A.2 of the old Corporations Law of a State or Territory in this jurisdiction; and
(b) that registration was still in force immediately before the commencement;

the registration of the company has effect (and may be dealt with) after the commencement as if it were a registration of the company under Part 2A.2 of this Act as a company of whichever of the company types listed in subsection (2) corresponds to its previous class and type.

In Parker v Australian Asbestos [2002] NSWSC 520 this was recognised as a problem for reinstatement of old companies which have been deregistered under previous companies legislation, particularly pre-1991 corporations legislation. At [8] to [10] Austin J discussed the issue:

8 The first question to consider is whether the Court can order the reinstatement of the three companies under s 601AH of the present Corporations Act. Section 601AH (2) permits the Court to make an order that the Commission reinstate the registration of a company if, relevantly, the application for reinstatement is made to the Court by a person aggrieved by the deregistration, and the Court is satisfied that it is just that the company's registration be reinstated. Section 601AH of the present Corporations Act is in substance identical with s 601AH of the previous Corporations Law. Section 601AH was introduced into the Corporations Law by the Company Law Review Act 1998, which commenced on 1 July 1998. The 1998 Act also introduced the transitional provision in s 1362CH, to which I shall refer.

9 The Court's jurisdiction to make a reinstatement order under s 601AH is available only in the case of a "company". The word "company" is defined in s 9 of the Corporations Act, to mean a company registered under the Corporations Act. Section 1378 has the effect that if a body was registered as a company under the former Corporations Law and the registration was still in force immediately before the commencement of the Corporations Act on 15 July 2001, then as from 15 July 2001 the body is treated as if it were registered as a company under the new Corporations Act. Consequently, the body is a "company" for the purposes of the definition in s 9 of the Corporations Act, and if it is deregistered after the new Act commenced on 15 July 2001, the Court has jurisdiction to reinstate it under s 601AH (2).

10 For the sake of clarity, consider next the case of a body that was a company formed and registered under the Corporations Law of New South Wales, and was deregistered before 15 July 2001. That body is not a "company" within the definition in s 9 of the Corporations Act, since it has not been registered under the Corporations Act and is not deemed by s 1378 to have been so registered. Therefore the present power of the Court in s 601AH (2) of the Corporations Act could not be used to reinstate that body, absent any supplementation from the transitional provisions to which I shall refer below.

For that reason recent authorities have formed the view that s601AH is not the appropriate route for reinstatement of a company that was registered and deregistered under pre-1991 corporations legislation. However there have been diverging authorities on whether the Corporations Act empowers the Court to reinstate a company deregistered under pre-1991 corporations legislation.

In the next post I will discuss the avenues for reinstatement for such companies and the state of the authorities.

Advocates' immunity and settlements: Goddard Elliott v Fritsch [2012] VSC 87

I do not propose to go into detail about the matter of Goddard Elliott v Fritsch [2012] VSC 87 as I'm certain that my fellow blogger, Stephen Warne, will do that on his blog http://lawyerslawyer.net/.

By way of summary Goddard Elliott v Fritsch concerned a mentally ill man who was involved in a family law proceeding in the Family Court. He settled on the door of the court on terms which were 'overly generous to his wife' (at [2]) and he sued his solicitors and counsel for negligence on the basis that they took and acted on instructions which the man did not have the mental capacity to give. There was also an allegation of negligence arising out of lack of preparation for the trial.

All parties except the law firm, Goddard Elliott, settled their claims and the matter proceeded to a trial before Bell J. Goddard Elliott also issued a counterclaim for their fees. Bell J found that the solicitors were not liable for negligence by reason of 'an ancient principle, surviving in Australia, which immunises solicitors and barristers against liability for loss and damage caused by court-related negligence' (at [3]).

Bell J discussed generally the state of advocates' immunity in Australia at [790] to [792]:

790 The common law immunity of suit for advocates is ancient.[204] It has been abolished in the United Kingdom,[205] New Zealand[206] and Canada[207] never had it. In Australia, by authority of the High Court which binds me, it has been retained.[208] 

791 The scope of the immunity in Australia was identified in Giannarelli[209] and confirmed in D’Orta-Ekenaike.[210] According to Mason CJ in Giannarelli, the immunity applies to the in-court work of an advocate and certain out-of-court work as well. In relation to work done out of court, the principle is that the immunity extends to ‘work done out of court which leads to a decision affecting the conduct of the case in court’.[211] In that connection, the Chief Justice approved[212] the statement of McCarthy P in Rees v Sinclair[213] that the immunity applied to work which was intimately connected ‘with the conduct of the cause in Court’. In D’Orta-Ekenaike, Gleeson CJ, Gummow, Hayne and Heydon JJ said the tests pronounced by Mason CJ and McCarthy P did not ‘differ in any significant way’.[214] McHugh J held that lawyers owed ‘no actionable duty of care in respect of out-of-court conduct that is intimately connected with in-court conduct. They do, however, owe actionable duties of care in respect of conduct that is not intimately connected with in-court advocacy.’[215] 

792 The rationale for the immunity is the general public interest in ensuring, and maintaining public confidence in, the administration of justice.[216] Historically, that general public interest purpose of the immunity embraced more specific considerations, such as the difficulty of examining on the spot judgments made by advocates about the conduct of a case in court, ensuring barristers represented their clients fearlessly in court and the adverse consequences for the administration of justice which arise from the re-litigation of concluded proceedings. In Giannarelli, it was confirmed that the immunity rested entirely ‘on considerations of public policy’,[217] but mainly on the basis of the last two considerations.[218] In reviewing the immunity in D’Orta-Ekenaike, the High Court focussed chiefly on the third consideration – finality. As we have seen, Gleeson, Gummow, Hayne and Heydon JJ held the central justification of the immunity was ‘the principle that controversies, once resolved, are not to be reopened except in a few narrowly defined circumstances’.[219] Their Honours later emphasised the point. They said the underpinning of the system of justice was ‘the need for certainty and finality of decision. The immunity of advocates is a necessary consequence of that need’.[220]

Bell J then went on to discuss the law concerning advocates' immunity in the specific circumstances of the case, between [793] and [833]. I won't detail those discussions here.

Bell J found that the solicitors were negligent because they failed to properly prepare the matter for trial and because they took and acted on instructions which the client did not have the mental capacity to give, and of which they should have been aware (at [1139]). However Bell J held that the solicitors were immunised from, and therefore not liable for, negligence by reason of advocates' immunity which His Honour found 'deeply troubling' (at [1145]):

Advocates’ immunity operates in Australia to shield solicitors and barristers from liability for negligence (and other wrongs) occurring in the course of work leading to decisions about, or intimately connected with, the conduct of a case in court. After examining decisions of the High Court of Australia which bind me, I have decided that advocates’ immunity supplies a complete defence to Mr Fritsch’s claim for damages against Goddard Elliott. Its capacity negligence (as does its preparation negligence) falls within the immunity because it occurred in the course of work leading to decisions about, or intimately connected with, the conduct of a case in court, which is a very wide test. By reason of the immunity, Goddard Elliott is not liable to pay damages for the loss which its negligence caused Mr Fritsch, a conclusion to which I am driven by the binding authorities and find deeply troubling.

The end result was that the solicitors were successful in suing for their fees by way of counterclaim.

On a side-note, apportionment of liability for concurrent wrongdoers under Part IVAA of the Wrongs Act 1958 was also discussed by Bell J at [1104] to [1126]. It appears that counsel and the expert witness remained nominal parties in order to allow an apportionment of liability under Part IVAA. Bell J considered the principles applicable where some parties have settled and others remain in the litigation at [1108] to [1109]:

1108 There is nothing in the proportionate liability provisions preventing one or more concurrent wrongdoers from settling with the plaintiff or even among themselves.[431] The terms of settlement between one concurrent wrongdoer and the plaintiff can have no relevance to the plaintiff’s continuing claim against another concurrent wrongdoer until the court has made a finding of liability against that latter wrongdoer.[432] The court has not yet determined what relevance the terms of settlement may have after such a finding has been made. What is clear, and relevant to the present case, is that the liability for damages of a remaining concurrent wrongdoer who is found to have breached their duty of care does not depend ‘on the amount recovered or recoverable under the terms of settlement [with another wrongdoer], at least insofar as the plaintiff does not recover an amount in excess of his or her total loss and damage’.[433] The liability of the remaining concurrent wrongdoer, like the liability of all concurrent wrongdoers who are parties, depends on and is limited by their just share of responsibility for the loss and damage as assessed by the court under s 24AI(1).[434]

1109 As we have seen, each of Mr Ackman, Mr Rosen and Mr Ferguson have settled with Paul in the proceeding in this court. I have made orders dismissing the claims by Paul against them with no order as to cost. Paul obtained no amount of damages under the settlements. He obtained only contributions to his legal costs. There is no basis for going behind the terms of the settlements in that regard. Therefore the settlements will not be relevant to the proportionate liability assessment which I must make in relation to Goddard Elliott as the remaining concurrent wrongdoer. The assessment will be carried out in accordance with the principles which I will hereafter explain. Consistently with the practice adopted in this court,[435] the settling defendants have been retained as nominal parties to the proceeding for the purpose of the application of the proportionate liability provisions. This is necessary for the maintenance of Goddard Elliott’s reliance on those provisions.[436]

The matter has been widely reported, particularly because of the criticism by Bell J of the application of advocates' immunity to the facts of the case. Strangely enough, the Age published an article 'Judge questions barristers' immunity' which detailed the settlement sums paid by counsel and the expert witness (presumably by their insurers) to resolve the case against them.

As noted by Bell J, advocates immunity has been abolished in other Commonwealth jurisdictions. It will be interesting to see what happens if the matter is appealed, and how far it goes.

Disclaimer of a lease by a landlord: Willmott Forests Ltd [2012] VSC 29

The matter of Willmott Forests Ltd [2012] VSC 29 was a preliminary question before Davies J of the Supreme Court of Victoria. The proceedings arose from managed investment schemes involving forestry plantations. The liquidator was seeking court approval to disclaim leases held by the grower investors. The preliminary question was 'Are the liquidators able to disclaim the Growers’ leases with the effect of extinguishing the Growers’ leasehold estate or interest in the subject land?'. The answer to this was 'no' (at [4]).

Her Honour summarised the facts which led to the decision at [1]:

The first plaintiff, Willmott Forests Limited (“WFL”) is the responsible entity and/or manager of eight registered managed investment schemes (“MIS”), six unregistered “Professional Investor” MIS, eleven unregistered contractual MIS and five unregistered partnership MIS. These MIS are forestry operations conducted on land which is either freehold land owned by WFL or leased by WFL from third parties. The members of the MIS (“the Growers”) have rights to grow and harvest trees on that land under project documents that include lease and licence agreements with WFL for the use and occupation of the land. WFL is in liquidation and the liquidators have entered into six interdependent contracts (“the sale contracts”) for the sale of part of the freehold land, unencumbered by the rights of the Growers conferred by the project documents, including the leases and licences (“the Growers’ rights”). A transfer of clear title to the freehold land cannot be effected unless the Growers’ rights are terminated or extinguished. 

The application arose because the sale contracts required the freehold land to be sold unencumbered by the rights of the growers, including in the leases. The liquidator sought to disclaim the leases under the power contained in s568 of the Corporations Act 2001. In a previous proceeding, the liquidators were given approval to disclaim the leases 'on the condition that the liquidators seek the Court’s consent before disclaiming the project documents' (at [1]).

s568 provides as follows:

(1) Subject to this section, a liquidator of a company may at any time, on the company's behalf, by signed writing disclaim property of the company that consists of:
(a) land burdened with onerous covenants; or
...
(f) a contract;
whether or not:
(g) except in the case of a contract--the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it; or
(h) in the case of a contract--the company or the liquidator has tried to assign, or has exercised rights in relation to, the contract or any property to which it relates.

The critical section considered was s568D, which provides as follows:

568D(1) [Effective disclaimer terminates company’s rights] A disclaimer is taken to have terminated, as from the day on which it is taken because of 568C(3) to take effect, the company’s rights, interests, liabilities and property in or in respect of the disclaimer property, but does not affect any other person’s rights or liabilities except so far as necessary in order to release the company and its property from liability. 

Her Honour considered that in the case of an insolvent tenant, the termination of the tenant's rights, interests, liabilities and property in or in respect of the disclaimer property ends the lease. Whereas in the case of an insolvent landlord this does not end the lease because (at [11]):

a disclaimer of the lease by the liquidator of the landlord would only terminate the rights, interests, liabilities and property of the landlord but it would not bring the lease to an end for all purposes. [13] Specifically, it would not bring the tenant’s proprietary interest in the land to an end. The tenant’s proprietary rights in the land will continue to subsist, even though the effect of disclaimer is that the landlord’s interests and liabilities under the lease have been terminated. Thus the effect of disclaimer is different where the lease is disclaimed by the liquidator of the landlord.

Her Honour summed up the issue as follows (at [14]): 'Is the termination of the Growers’ leasehold estates necessary to release WFL or its property from liability?'. In answering this, Her Honour said as follows (at [16]):

In my view, it does not follow a fortiori that the disclaimer would operate upon the separate property rights of the Growers by virtue of the proviso. First, it is not apt to describe a leasehold estate as a liability nor is it apt to characterise it as an encumbrance on the landlord’s property. A leasehold estate is a grant of property right and the grant of property right confers on the tenant different legal rights in the property than the rights attaching to the landlord’s reversionary interest. It is therefore unnecessary to extinguish the Growers’ leasehold estates in order to release WFL’s property from its liability. Moreover, it is to be borne in mind that the property proposed to be disclaimed is the contract for lease, under which WFL has already leased the land to the Growers. It is therefore unnecessary to interfere with the Growers’ property rights in order to release WFL from its liability to lease because the leases have been effected. Accordingly, the answer is that the proviso in s 568D has no application.

The decision is interesting because it suggests that in circumstances where a lease imposes some 'liability' on an insolvent landlord (e.g. maintenance obligations), then the landlord is able to disclaim that liability but the lease (particularly the interest of the tenant in the land) could otherwise remain intact. The issue of the severability

I understand that an application has been made for leave to appeal.

Expert reports: Makita and Idoport.

Evidence of expert opinion is one exception to the rule that opinion evidence is inadmissible (see s79 Evidence Act). In order for that expert opinion to be admissible, it must qualify as expert evidence under s79, which requires the following:

• the person called as an expert has specialised knowledge;
• that specialised knowledge is based on the person's training, study or experience; and
• the opinion of the person which is adduced in evidence is wholly or substantially based on that knowledge.

The most referenced consideration of s79 is the judgment of Heydon JA (as His Honour then was) in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705. In Makita at the trial level, an employee was suing an employer for injuries resulting from slipping on the employer's stairs. The employee relied on an expert which opined that the tread on the stairs was slippery at the time of the accident. That opinion was based on tests performed more than 9 years after the accident on the stairs. Further, evidence was given that the stairs were used by the employee prior to the accident, and by others at all times, without incident. The Trial Judge admitted the report and, on appeal, the NSW Court of Appeal held that the Trial Judge had erred in accepting the evidence.

At [85] Heydon JA set out a summary of the rules for admissibility of expert evidence under s79, as follows:

In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v The Queen (at 428 [41]), on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise".

In Idoport Pty Ltd & Anor v NAB Ltd & Ors [2001] NSWSC 123 Einstein J considered the admissibility of expert opinion evidence under s79 and referred to extra curial commentary of Heydon JA (as His Honour then was) within a paper delivered at a seminar in 2000 dealing with aspects of the Evidence Act. The commentary, according to Einstein J, 'conveniently identifies and elucidates the relevant requirements under the following 7 headings' (at [10]):

1. There must be a field of specialised knowledge and the witness must identify it. 
2. The witness must have expertise in an aspect of that field, and must identify it. 
3. The opinion proffered must be substantially based on the expertise of the witness and the witness must identify it. 
4. Any factual assumptions underlying the witness's opinion must be clearly identified and articulated. 
5. Any factual observations made by the witness which underly the witness' opinion must be clearly identified and articulated, and the observations must have been sufficiently detailed to form a satisfactory basis for the opinion. 
6. If the witness relies on a combination of factual assumptions and factual observations, they must be identified. 
7. The witness must explain how the knowledge on which the witness is an expert applies to the facts assumed or observations made so as to produce the opinion propounded. 

Both Makita and Idoport are useful in that they provide a fulsome consideration of s79 and the requirements for admissibility. Also, they have handy summaries, which can act as a checklist for submissions on the admissibility of expert evidence.

The bank fee class action, stage 1: Andrews v ANZ Banking Group Limited [2011] FCA 1376

The matter of Andrews v Australian and New Zealand Banking Group Limited [2011] FCA 1376 was a hearing before Gordon J concerning the issue of whether the various fees and charges imposed by the ANZ bank on various customer defaults were capable of being characterised as penalties. The hearing was the first stage in a series of hearings designed to determine if the exception fees charged by the ANZ were unenforceable.

Her Honour set the scene about what was not in issue at [3]:

3 It is also important to identify what is not in issue.  ANZ accepted that in considering the law of penalties, the Exception Fees did not constitute a genuine pre-estimate of damage.  However, consideration of the quantum of the Exception Fees and, in particular, whether that Exception Fee was out of all proportion to the likely damage suffered by ANZ was deferred to a later hearing.  Next, these reasons for decision do not consider other accounts offered by ANZ or undertake some general enquiry into the practices of ANZ or any other bank.  They consider only the Separate Questions.  

That is, the question of whether the Exception Fees were all out of proportion to the loss was for a later date.

The plaintiff, being a representative plaintiff in a group proceeding, argued the following:

1. That the fees arose on breach of the contract between the ANZ and the customer, and by reason of that fact they were capable of being characterised as penal.
2. In the alternative, the law of penalties is capable of including amounts incurred on the happening of an event that does not constitute a breach of contract.

Her Honour concluded that the law of penalties is not capable of operating in the absence of breach (at [77] to [80]):

77 What the applicants sought to do was to construct an argument, based not only on old decisions but also the historical origins of the law of penalties, that the law of penalties is not confined to payments upon breach but extends to payments upon conditions or events lying within the area of obligation of the party required to make the payment.  That enterprise carried at least as much risk as that warned against by Mason and Wilson JJ in AMEV-UDC Finance Ltd at 183 and 186. 

78 The modern jurisdiction cannot be divorced from its origins in the wide dispensing power of the Court of Chancery in respect of oppressive bargains:  Meagher, Heydon and Leeming, at [18-095].  The law of penalties, confined (as it is) to payments for breach of contract, is a narrow exception to the general rule whereby the law seeks to preserve freedom of contract, allowing parties the widest freedom, consistent with other policy considerations, to agree upon the terms of their contract.  As stated in Ringrow at [31] and [32] in the joint judgment of Gleeson CJ and Gummow, Kirby, Hayne, Callinan and Heydon JJ: 

The law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships ...  Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed.  That is why the law on penalties is, and is expressed to be, an exception from the general rule.  It is why it is expressed in exceptional language. 

See also Thomas JA in Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445 (at [26]) that “[t]he surveillance of courts over contracts is not based upon any underlying approval or disapproval of incentives or disincentives, which are a natural part of commercial arrangements”. 

79 Courts have consistently rejected a jurisdiction in equity to interfere with contractual freedom on the generalised ground that the provision in question is harsh or constitutes a hard bargain:  see, by way of example, Campbell Discount at 614 per Viscount Simonds and at 626 per Lord Radcliffe; Export Credits Guarantee at 224 per Lord Roskill; Meagher, Heydon and Leeming, at [18-100].  Instead, courts have developed equitable and common law principles in particular, well recognised, circumstances to prevent contracts being used as a means of taking unfair advantage of persons in positions of vulnerability, particularly the principles relating to unconscionable conduct, undue influence and duress. 

80 Indeed, the parties agreed that equity had a continued role to play in a number of circumstances where the common law would otherwise operate harshly or unconscientiously.  In those circumstances, equity would operate remedially and apply its restitutionary principles to overcome the consequences of a party having paid a penalty.  For present purposes, it is neither necessary nor desirable to seek to classify that jurisdiction as concurrent or auxiliary:  see Meagher, Heydon and Leeming, at [1-095].  

Her Honour considered that late payment fees were capable of being characterised as penalties, as they were an instance of breach of the customer's contract with ANZ. However, Her Honour identified four other fees, specifically honour fees, dishonour fees, over limit fees and non-payment fees, as not being capable of being characterised as a penalty. These were not capable of being characterised as penal because they did not arise from a breach, but instead they arose from a request by a customer to advance funds.