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Latest Issue of Australian Insurance Law Bulletin released

by Thomas Gaffney 30. August 2011 09:48

The latest issue of the Australian Insurance Law Bulletin has been released.

Subscribers' attention is drawn to the following articles in particular:

Vero Insurance Ltd v QBE Insurance (Australia) Ltd considered


Court revisits basis for challenging FOS decisions


Update on the proposed changes to the Insurance Contracts Act

Rehana Box and Crystal Lawton BLAKE DAWSON

Cyberbullying — where does a school’s duty of care end?


Sparking a divide in defining “damage” in business interruption claims?

Ray Giblett and Jessica Kinny GADENS LAWYERS

To subscribe to the Australian Insurance Law Bulletin or other LexisNexis Products, go to lexisnexis.com.au 



The Centro case - discussion by Robert Austin

by Martha.Ware 1. July 2011 16:08

Click here for a link to Robert Austin's interview with the Financial Review.

ITX Group Pty Limited, in the matter of ITX Group Pty Limited (No 2) [2010] FCA 1501

by Martha.Ware 7. June 2011 14:15


itX Group Pty Limited (the Company) applied to the court for the approval of a scheme of arrangement following the requisite majority agreement of its shareholders. The court had previously granted orders to the effect that the Company convene a meeting of its ordinary shareholders for the purpose of considering, and if thought fit, approving a scheme of arrangement between the Company and its shareholders.  The meeting was held following the annual general meeting: [1].


At the annual general meeting a special resolution was passed approving the payment of a special dividend. A resolution agreeing to the scheme was also passed by the shareholders: [3].


Emmett J was satisfied that the meeting was convened in accordance with the order of the Court and the Rules: [2].


A class ruling was issued by the Commissioner of Taxation as to the effect of the scheme on shareholders.  This was one of a number of events conditional to the scheme. Certificates were provided to the court to show that all required conditions had been satisfied: [4].


ASIC was shown to have no objection to the scheme of arrangement (s 411(17)(b) of the CA requirement): [5].



Emmett J found that in all circumstances it was appropriate to approve the scheme of arrangement pursuant to s 411(4)(b) of the CA. Emmett J also considered it appropriate that the company be exempted from complying with s 411(11) of the CA: [5].


Relevant paragraphs of Ford

[24.060], [24.071]


Ford's Principles of Corporations Law

Innamincka Petroleum Limited, in the matter of Innamincka Petroleum Limited [2010] FCA 1421

by Martha.Ware 7. June 2011 14:13


Innamincka Petroleum Limited (Innamincka) applied to the court under s 411 of the CA for orders to convene a meeting of its members for the purpose of considering a proposed scheme of arrangement (Scheme). Under the proposed Scheme, all shareholders of Innimincka will transfer their shares to Drillsearch Energy Limited (Drillsearch). They will receive 2.5 Drillsearch shares for every 1 Innimincka share: [1]


Innamincka listed on the ASX: [2]. Drillsearch also listed on the ASX: [3]. Under the proposed Scheme, Innamincka will become a wholly owned subsidiary of Drillsearch and cease to be listed on the ASX, although Drillsearch will continue to be listed. The directors of Innamincka unanimously recommended that the shareholders should vote for the proposed Scheme: [4].


Directors of Innamincka retained BDO Corporate Finance Queensland Limited (BDO) to assess the Scheme and provide a report.  An abridged version of the report is to be provided to the shareholders in the explanatory memorandum connected to the proposed Scheme: [5].


BDO expressed the view that the proposed Scheme was fair and that the proposal was reasonable: [8]-[9]. BDO stated that the proposal is in the best interests of the Innamincka shareholders, but strongly recommended that shareholders consult their own professional advisers, consider their own individual positions, etc: [10].


Drillsearch and Innamincka entered into a Merger Implementation Agreement on 7 September 2010: [12]. The proposed break fee amount was consistent with the views expressed by the Takeover Panel: [18].


The two classes of shareholders are dealt with differently under the proposed Scheme: [20].


ASIC was notified of the proposed Scheme.  ASIC stated no intention to oppose the Scheme: [26].



Emmett J was satisfied that Innamincka is a Part 5.1 body and that s 411 therefore applies to a scheme of arrangement between Innamincka and its shareholders.  Emmett J satisfied that the proposal will be properly disclosed to shareholders: [27].


Orders were granted that Innaminka convene a meeting of its members pursuant to s 411 to consider the proposed scheme: [29].


Relevant paragraphs of Ford

[17.360], [24.020], [24.030], [24.040], [24.041], [24.071], [24.130], [24.160].

Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey (No. 2) [2011] FCA 59

by Martha.Ware 18. May 2011 12:22


This case concerned a motion by successful respondents for indemnity costs. The Applicants, the receivers and managers of AFG Pty Limited (“the Company”), commenced the substantive proceedings under s 424 of the Corporations Act 2001, seeking directions from the court to confirm the correct company within the Allco corporate group which employed certain employees.  The respondents, employees of the Company, were joined through no fault of their own to participate as contradicters to assist the court in deciding the issues on which the applicants required guidance: [15]. The proceedings were therefore commenced largely for the benefit of the applications to protect them, in the event that directions were given and followed, from an allegation of breach of duty: [18].


The court had previously made orders that the applicants were to pay the respondent’s solicitors $200,000 on account of costs and disbursements.  At the conclusion of the proceedings, the respondents’ costs totalled $1,567,360.69: [2].


The issue for determination on the present motion is whether the respondents should have their costs on an indemnity basis as they seek or on a party/party basis as contended by the applicants: [17].


The proposed application under s 424 was found to be an inappropriate vehicle to deal with the application and the application was therefore amended to seek declaratory relief that a certain company was the entity responsible for employment of certain employees, of which the respondents were: [18].


The court found that unless the respondents are indemnified for their costs there is a prospect that they will suffer such an injustice given that the applicants are entitled to full indemnity out of the proceeds of the charged assets and yet the respondents are not entitled to a similar indemnity.  Further, the respondents have not delayed or obstructed the applicants’ conduct of the proceedings: [18].


During the proceedings, a substantial burden fell on the respondents to ensure that they provide sufficient evidence to the court to ensure it was fairly appraised of the true position surrounding their engagement as employees. That situation arose from the manner in which employment contracts were contrasted within the Allco Group and was not a situation of the respondents’ making: [29], [31].


The fact that the court found in favour of the respondents in respect of a range of factual matters is not sufficient to ground an order for indemnity costs: [41].


If the proceedings had been run as true adversary litigation between parties, the settled practice of the court not making an order for payment of costs other than on the basis of party/party would apply: [55].



The court noted that the respondents’ costs are not payable by the applicants personally but out of a pool of property which is under their control pursuant to their appointment as receivers and managers: [56].


The court found that the respondents’ costs are just as much a cost of the receivership as the applicants, the applicants being indemnified out of the fund or pool of property they control: [56].


The court ordered the respondents’ costs to be paid on an indemnity basis from the assets controlled by the applicants.


Relevant paragraphs of Ford

[25.112], [25.160], [27.182], [27.480]


Ford's Principles of Corporations Law

Entirity Business Services v Garsoft [2011] FCA 76

by Martha.Ware 18. May 2011 12:21


Two former business partners operated a joint venture via the applicant company which was dissolved.  The applicant company brought an action against its former director and his entities.


The applicant company claimed that the third respondent was responsible for managing its accounting records and failed to do so properly which resulted in an inaccurate reflection of the company’s financial position at the time of the dissolution of the joint venture. The applicant company also claimed that it owns copyright in two computer programs and that the respondents have infringed that copyright. 


The respondents cross claimed against the applicant for unpaid invoices issued to the applicant.


The court determined three questions to be answered: firstly, were the respondents responsible for the accounting records of the applicant, secondly, did the third respondent make a misleading representation about the financial position of the applicant and if so did the applicant suffer damage, and finally, does copyright subsist in certain works, who owns the copyright and has it been infringed: [4].


The applicant bears the burden of establishing its case on the balance of probabilities that a representation or a number of representations were made by the third respondent about the state of the applicant’s finances in terms which caused Mr Barlow, the applicant’s director and shareholder, to agree to a demerger: [40].


In failing to properly set up and maintain the applicant’s accounting system, the applicant claimed that the third respondent had breached his duties as a director in failing to exercise care and diligence. 


His Honour stated that the third respondent became a director of the applicant as a result of a joint venture arrangement; he did not become a director because he possessed special skills in maintaining accounts or bookkeeping. There is a material difference between the two and the third respondent therefore, did not breach his director duties: [62].


With respect to the applicant’s claim for misleading conduct, the court found that on the basis that the applicant failed to adduce evidence of the third respondent’s alleged representations, the claim must fail.  Essentially, the applicant had pleaded a different case than it sought to prove by evidence: [64].


The court considered the role of pleadings in court proceedings.  The applicant pleaded relief under section 42 of the Fair Trading Act 1987 (NSW).  That section refers to representations of existing fact.  The applicant however adduced evidence of a representation being made concerning future matters.  Accordingly, the court found that the applicant had failed to prove its case as pleaded: [74].


In respect to the applicant’s claim for breach of copyright, the court found that the applicant did not prove that the software said to manifest the breach of copyright was software provided to or written for or on behalf of the applicant rather than developed by another person and, accordingly, dismissed the claim: [78,79].



Judgment was given in favour of the applicant against the first respondent for the sum of $39,982.50 and in favour of the first respondent against the applicant for the sum of $28,673.08.


Relevant paragraphs of Ford



Ford's Principles of Corporations Law

Elite Transport Holdings Pty Limited v Elite Transport Services Pty Limited (In Liquidation) [2011] FCA 85

by Martha.Ware 17. May 2011 14:07


This case concerns an application seeking various declarations in relation to the applicant’s claimed office as trustee of a trust (“the Trust”) and as to ownership of certain property as trust property.


The question for determination is whether the relevant property was, at the time that the court ordered the winding up of the first respondent, owned by the first respondent or by the applicant as the claimed trustee of the Trust.


The second respondent, the liquidator of the first respondent, is without funds and indicated that he submits to the orders of the court, save as to costs.  The second respondent sought to be excused but the court indicated that it would be assisted by the second respondent appearing with representation at the hearing. 


Evidence was presented by the applicant in the form of minutes of meeting of directors of the first respondent which indicated that the directors resolved to cease operating and transfer all assets to the applicant in its capacity as trustee of the Trust: [14].


The court also noted the significance of evidence which indicated that an ABN for the Trust existed and was in existence prior to the winding up of the first respondent.  Further, Business Activity Statements for the Trust were proven to have been lodged: [18].



The court found that the evidence points persuasively to the fact that the Trust was indeed in existence and trading prior to the date of the winding up of the first plaintiff and was prepared to find as such in the absence of any evidence to the contrary: [20].


The respondents also sought an order for costs.  The applicant did not dispute that the respondents’ costs of preparing and filing the second respondent’s affidavit should be met but disputed payment of the second respondent’s costs for appearing at the hearing on the basis that the appearance was unnecessary: [24].


The court noted that it had requested that the second respondent be represented at the hearing in order to provide assistance in determining the matter.  Further, the applicant was responsible for a delay in the hearing.  The court determined to exercise its discretion to order the applicant to pay the respondents’ costs: [25].


Relevant paragraphs of Ford



Ford's Principles of Corporations Law

Dominion Mining Limited, in the matter of Dominion Mining Limited [2010] FCA 1504

by Martha.Ware 11. May 2011 08:04


This case concerned an application by Dominion Mining Limited (“the Company”) for orders that the court convene a meeting of its members for the purpose of considering a scheme of arrangement between the Company and its shareholders: [1]. The proposed scheme will result in the Company becoming a wholly owned subsidiary of Kingsgate Consolidated Limited and will give the Company’s shareholders and option holders approximately 24% of Kingsgate. 


The prerequisites for the making of orders under s 411(1) of the Corporations Act 2001 have been satisfied, that is, it is clear that the Company is a Part 5.1 body as referred to in s 411: [10].


A copy of the proposed scheme booklet to be distributed to members and option holders has been provided to ASIC who has indicated that it does not intend to propose to make submissions or oppose the schemes: [11]. His Honour was taken through, in detail, the contents of the scheme booklet which discloses sufficient details of the scheme to enable persons affected by the scheme to make an informed decision: [12].


The schemes have been unanimously recommended by directors of the Company and KPMG has provided a detailed report expressing an opinion that the scheme is fair and reasonable: [13].


The court’s attention was drawn to a number of matters that may be relevant to its exercise of discretion: [15]. The question of whether to approve the scheme is a question to be considered by the court at a second hearing when approval of the scheme is sought if agreed to by the requisite majorities: [21]. Attention was also brought to the operation of s 3(a)(10) of the Securities Act 1933 of the United States.  That section provides for an exemption for the registration of offers and sale of securities where an exchange transaction is involved.  A condition of that exemption is that the court that approves such an exchange transaction is informed, that the issuer intends to rely on the court’s approval in order to obtain exemption in the United States, which has been done.  It is not, however, for the Court to express any view as to whether the procedures or processes are sufficient to satisfy the requirements for the exemptions in the US: [23].



The court was satisfied that the proposed scheme booklet is adequate to disclose to the members of the Company information relevant to the making of their decision as to whether vote in favour or against the proposed resolutions at the meeting the Company seeks to convene.



Relevant paragraphs of Ford

[24.071], [24.150]


Ford's Principles of Corporations Law

Deputy Commissioner of Taxation v Great Wall Resources Pty Limited (Controller Appointed) [2010] FCA 1509

by Martha.Ware 11. May 2011 08:02


This case concerned an application by the creditor for the Company to be wound up in insolvency on the basis of failing to comply with statutory demand: [1]. The Company sought to rely upon two affidavits sworn by an account and two affidavits sworn by a solicitor.  The account’s affidavit stated that he was satisfied that the Company was solvent within the meaning of s 95A of the Corporations Act 2001: [4].

The creditor argued that the accountant was not qualified to give the opinion given in his affidavit evidence and further, the evidence was based upon third hand knowledge of the company: [4].


The Company owns, develops and sells parcels of residential land: [7].


Although the Company’s assets and liabilities statement indicated assets of $8.562 million and liabilities of $3.862 million, his Honour stated that the company could not be said to be in a position to pay its debts as and when they fall due unless it could be shown, at best, that the parcels of land will be sold in the fairly near future in order to generate sufficient funds to meet liabilities: [7].


The Court noted that the assets and liabilities statement also omitted a judgment debt in the Supreme Court for in excess of $800,000.  Although the company claimed it intended to appeal the judgment, no evidence of an appeal or prospects of an appeal were presented and the court found that the debt should be treated as a current liability: [8].


The Company had failed to adduce admissible evidence of its ability to pay its debts, despite given the opportunity.  There is no guarantee that the company will achieve sales that will enable it to meet its current liabilities of in excess of $4.5 million: [11].



The court did not see any reason for adjourning the hearing and ordered the winding up of the company: [13].


Relevant paragraphs of Ford

[1.320], [10.150], [10.210], [20.100], [20.120], [27.050], [27.080], [27.091], [27.240], [27.340]


Ford's Principles of Corporations Law

Deputy Commissioner of Taxation v Debut Developments Pty Limited [2011] FCA 69

by Martha.Ware 10. May 2011 15:12


An application was made by the company to set aside a winding up order made by the Registrar.


Having failed to comply with a statutory demand, an application for the company to be wound up was made.  That application was adjourned on several occasions to enable the company to seek finance to meet the alleged debt. 


Prior to the adjourned winding up application being heard, the company was placed into administration.  The company did not appear at the adjourned application and the registrar made orders for the company to be wound up.


The company adduced evidence from its sole director stating that nobody appeared on behalf of the company at the winding up hearing as the director had thought the administrator would appear and the administrator thought the director would appear: [9].


An application was made under s 482(1) and 482(3) of the Corporations Act 2001.  The court found that it is not appropriate to make an order under s 482.  That section would terminate the winding up but not set aside the Registrar’s orders: [12].


It is appropriate for an order to be made under Order 35 rule 7(2)(a) of the Federal Court Rules: [13].


The evidence of the director in support of the application was that a Deed of Company Arrangement was to be presented to creditors, and that such arrangement would provide a better return for creditors than a formal winding up. 



The court found that it is in the interest of creditors that they have an opportunity to consider the propose DOCA and that it was appropriate to set aside the winding up order provided that the liquidators costs be paid by the company’s director: [17].


Relevant paragraphs of Ford

[27.100], [27.128], [27.129]


Ford's Principles of Corporations Law


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