14 April, 2015

On 9 March 2017 the NSW Court of Appeal handed down its decision in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38, unanimously allowing the liquidator’s appeal against a decision of Brereton J applying principles of proportionality and ad valorum to reduce the liquidator’s outstanding remuneration from the $63,000 claimed by the liquidator to $20,000.

Prior to this decision the NSW Supreme Court was the only jurisdiction where the court was taking the approach of assessing a liquidators’ remuneration with an overriding consideration of whether the remuneration was proportionate to the realisations in the external administration. The NSW Court of Appeal’s decision brings NSW back into step with the Federal Court and the other interstate superior courts as to how courts should assess the reasonableness of liquidators’ remuneration.

This decision is of particular relevance to liquidators dealing with smaller liquidations and allows insolvency practitioners more scope to be remunerated for the work they consider reasonable and necessary in the conduct of a liquidation, having regard to their statutory obligations, professional duties and experience, rather than necessarily being tied to an assessment of the “value add” outcomes of each step they take. The NSW Court of Appeal stated in this regard that “the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it…  Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work.”

The NSW Court of Appeal confirmed that when the court is assessing a liquidator’s claim for remuneration, “the task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10)” ([2017] NSWCA 38 at [60]). The Court noted that while the court should not apply a proportionality or ad valorum approach by simply applying a percentage without regard to the particular work required in the liquidation, there may be cases where it is not appropriate to determine a liquidator’s remuneration by reference to time based calculation using standard hourly rates, and that applying a rate or scale to a liquidator’s remuneration such as that applied by Finkelstein J in RE Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, may be appropriate in certain circumstances.

Background

Proportionality has been one of the key issues for the insolvency profession in recent times.  In previous articles, McCabes has examined the trend arising in cases determined by Brereton J in the NSW Supreme Court which increasingly emphasised the importance of liquidator remuneration being proportionate to the realisations in the external administration over remuneration assessed on a time basis by reference to an insolvency practitioner’s standard hourly rates. Previous articles regarding proportionality and IP remuneration can be found here and here.

Creditors can approve external administrator’s remuneration.  However, in applications to the court for approval of an IP’s remuneration (under sections 473 and 504 of the Corporations Act 2001 (Cth), the court is required to take into account various matters including the extent to which the work performed by the insolvency practitioner (IP) was reasonably necessary, the quality of the work performed, the complexity of the work performed and the value and nature of any property dealt with by the IP.  The overriding concern of these provisions is that the remuneration must be “reasonable”.

In contrast, in recent cases in the NSW Supreme Court Brereton J determined the question of the costs incurred by external administrators by reference to the fact that ultimately external administrators are custodians of a limited pool of resources which are to be administered for the benefit of an entity’s creditors.

In the NSW Court of Appeal

Recognising the importance of these issues to the insolvency profession, the NSW Court of Appeal considered submissions from the liquidator, the Australian Securities and Investments Commission (ASIC) and the Australian Restructuring Insolvency and Turnaround Association (ARITA) on the questions arising on the appeal from the decision of Brereton J in Re Sakr Nominees Pty Ltd [2016] NSWSC 709.

ASIC submitted that the decision of Brereton J should be upheld and that “in the context of smaller liquidations questions of proportionality and value loomed large and the contrast between the interests of the liquidator and those of the creditors and contributories is often brought into sharp relief” ([2017] NSWCA 38 at [35]).  ASIC’s position was that the ordinary course for determining remuneration in smaller liquidations should be on an ad valorum basis, that is, by reference to how much value the insolvency practitioner’s work had brought to the liquidation.  ASIC focused on the primary purpose of the liquidation process which is to transfer the assets of the company to the creditors and contributories.

ARITA’s submissions focused on the fact that many tasks liquidators are required to undertake consistent with their professional obligations pursuant to statute do not increase recoveries or progress distribution to creditors and contributories.  ARITA noted that the value added by tasks that do not have these direct outcomes cannot be assessed by a percentage based assessment of the recoveries in the liquidation.  The crux of ARITA’s submissions was that “percentage based methods based on monetary outcomes do not provide proportionality in the true sense of the reward for reasonably necessary work properly performed” ([2017] NSWCA 38 at [44]).

The NSW Court of Appeal accepted the arguments of the liquidator and ARITA, in overturning Brereton J’s decision, and remitted the matter back to the NSW Supreme Court for another judge to determine the appropriate remuneration for the liquidator.

The NSW Court of Appeal confirmed that when the court is assessing a liquidator’s claim for remuneration, “the task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10)” ([2017] NSWCA 38 at [60]).  The Court noted that while the court should not apply a proportionality or ad valorum approach by simply applying a percentage without regard to the particular work required in the liquidation, there may be cases where it is not appropriate to determine a liquidator’s remuneration by reference to time based calculation using standard hourly rates, and that applying a rate or scale to a liquidator’s remuneration such as that applied by Finkelstein J in RE Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, may be appropriate in certain circumstances.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

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