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Marcus Hassall

Gone in 60 seconds: statutory forfeiture of proceeds of crime in the ACT.

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comments: 0 Categories: Proceeds of crime

“GONE IN 60 SECONDS” – Statutory forfeiture in the ACT

(as published in Ethos, March 2017)

The title of this article exaggerates slightly the effect of the provisions of Division 5.2 of the Confiscation of Criminal Assets Act 2003 (ACT) (COCA), but not unconscionably so.  In any event, if the result is that criminal law practitioners pay attention, and are made aware of the drastic consequences which can befall the unwary, the exercise of poetic licence will have been justified.

What is “statutory forfeiture” of property?

“Statutory” forfeiture of property – also sometimes called “automatic” forfeiture – is a confiscation mechanism incorporated into the legislative schemes of a number of Australian jurisdictions, including the ACT, South Australia, Victoria and the Commonwealth.[1]  In essence, statutory forfeiture refers to the confiscation of property by operation of statute, and without any express order of a Court.  The prerequisites for statutory forfeiture (in the ACT and other relevant jurisdictions) include that:

  • A person (“the suspect”) is charged with and later convicted of a serious offence (broadly defined to include all offences punishable by imprisonment for 5 years or longer);[2]
  • In reliance on the alleged offence, the DPP (or other relevant authority) applies for and obtains a restraining order over property owned or controlled by the suspect, or over property which is suspected of being either “proceeds” or an “instrument” of the alleged offence (this can occur either before or after conviction);[3] and
  • Following the “conviction” of the suspect (as to which see further below), the waiting period prescribed by the relevant Act expires without a challenge to the restraint of the property having been lodged (or, alternatively, where any such challenge has been dismissed by the Court).[4]

Where the above prerequisites are satisfied, at midnight on the date on which the waiting period expires, ownership of any and all property which remains subject to the relevant restraining orders passes to the state (or Territory).  Title to non-registrable property passes absolutely, and immediately, whilst title to registrable property (such as interests in land) passes in equity, pending completion by government authorities of the registration requirements.[5]  And, significantly, title passes regardless of whether the suspect, or even the relevant government authorities, are aware of the occurrence.

 

Specific features of the ACT statutory forfeiture scheme

There are a number of features of the ACT statutory forfeiture scheme which are significant, and which create the potential for draconian outcomes:

  • 14-day waiting period. The ACT legislature has prescribed an extremely short waiting period between the “conviction” of a person, and the time when statutory forfeiture takes place – namely, “14 days after the day of conviction”.[6]  By comparison, the corresponding waiting periods under the South Australian, Victorian and Commonwealth schemes vary from 60 days to six months.[7]

 

  • “Day of conviction”. The phrase “day of conviction” is not defined in COCA – the Act merely provides (somewhat unhelpfully) that a person is “taken to be convicted” of an offence “on the day the person is convicted”. [8]  As noted by Refshauge J in R v Meyboom (2012) 256 FLR 450, the meaning of the term “conviction” is protean, and can mean different things in different contexts.  The Victorian Court of Appeal has repeatedly held, in interpreting the statutory forfeiture provision contained in the Confiscation Act 1997 (Vic),  that a person’s day of “conviction” is not necessarily, or evenly commonly, the date on which the person is sentenced, but will often instead be the date on which a guilty plea is entered (or the court formally finds the accused guilty) andthe matter then being adjourned for sentence.[9]  Whilst the issue has not been specifically addressed in context of statutory forfeiture in the ACT, in Meyboom Refshauge J held, for the purpose of determining when the limitation period for lodging an appeal had started to run, that the appellant’s “conviction” had been the date on which the judge found him guilty and adjourned the matter for submissions on sentence.[10]

 

  • No obligation to notify of date for statutory forfeiture. COCA requires that, at the time a restraining order over property is made, the DPP provide notice of the order to the owner of the property, and to any other person whom the DPP suspects may have in interest in the property.  In general terms, therefore, affected persons are put on notice that – at a future date – their property may be confiscated, and they are entitled from that time onwards to take steps to have their property removed from restraint.  Importantly, however, COCA does not prescribe the form which notification of a restraining order is obliged to take, and in particular does not include any requirement that a person with an interest in restrained property be notified about the risk of statutory forfeiture.  Further, once “conviction” has occurred, (whenever that may be), COCA does not impose any obligation on the DPP to warn a person about the specific date when statutory forfeiture will take place.

 

Implications

Understandably, persons who are subject to prosecution for serious criminal offences, and those who advise them, are generally preoccupied with questions of guilt or innocence, and the potential punishment which may be imposed in those proceedings.  In comparison with the public shaming and deprivation of liberty which may await an accused at the end of a prosecution process, it may be tempting (and indeed entirely appropriate) to treat the potential loss of property as something which is less significant, and which can be dealt with “afterwards”, when the prosecution process is complete.  In addition, in many cases, the outcome of confiscation proceedings may depend directly on the outcome of the related criminal proceedings – i.e. if an accused is acquitted it is highly likely that his or her property will end up being released.

Add to this, it is fair to say that there is little general awareness of provisions of proceeds of crime legislation.  Such legislation is technical in nature, relatively rarely used, and most criminal law practitioners simply have no idea about the potential for, or implications of, statutory forfeiture.

As a third but significant factor, one must consider the possibility that, over the course of a significant criminal proceeding, there can be changes in the legal representation (if any) of the accused, either as between different firms or counsel, and/or as between privately funded or legally aided representatives.  A lawyer who comes into a matter “down the track” may simply be unaware of restraining orders over property that have been made in the past, and of the potential for statutory forfeiture.

In the above context, the features of the ACT statutory forfeiture scheme identified above create a potential for significant injustice.  The practical outcome may be that, a mere fortnight after an accused either enters a plea of guilty, or is found guilty, at a time when he or she is likely to be stressed, and undergoing a significant change of perspective, regardless of whether he or she is sentenced immediately or the sentencing process is adjourned to a later date, title to all property which remains subject to a restraining orders will pass to the Territory by operation of statute.

If one adds to this the proposition that statutory forfeiture can occur without an accused, or his or her lawyers, receiving any warning as to its potential, nor any advice as to the specific date on which statutory forfeiture will occur (once that is known), and the potential for significant unfairness and injustice is clear.

Jurisprudence from other jurisdictions demonstrates that there have been cases where the potential for statutory forfeiture of property escaped the attention both of a convicted person, and his or her legal advisers, with the result that property was confiscated without their realisation, and without the possibility for forfeiture to be contested.[11]  It is one thing for such a process to occur two months or six months after a person’s “day of conviction” (when there is at least some chance that his or her sentencing will have been finalised).  It is a more radical and disturbing proposition, it is submitted, for statutory forfeiture to occur a mere 14 days after “conviction”.

Conclusion

In 2010 the Commonwealth passed amendments to federal statutory forfeiture provisions so as to:

  • Provide that “day of conviction” for the purposes of statutory forfeiture means the day on which a person is sentenced; and
  • Require the relevant federal authority, once the “conviction date” of a person has crystallised, to provide written notification of the date when statutory forfeiture will occur to “any person who has, or claims, or whom the authority reasonably believes may have an interest in” restrained property.

The writer respectfully submits that, as a matter of procedural fairness, and in order to avoid potential legal challenges, the ACT legislature should give careful consideration to making corresponding amendments to Division 5.2 of COCA.

In the meantime, criminal lawyers practising in the ACT need to be acutely aware of the provisions of Division 5.2 of COCA, and of the peculiarly dire outcomes which can flow if careful heed to their potential application is not paid.

[1] Aside from the ACT provisions, already identified, see respectively Division 2 of Part of the Criminal Assets Confiscation Act 2005 (SA), Division 4 of Part 3 of the Confiscation Act 1997 (Vic) and Part 2-3 of the Proceeds of Crime Act 2002 (Cth).

[2] See s 58(1)(a) & s 13(2), Confiscation of Criminal Assets Act 2003 (ACT).

[3] S 58(1)(b).

[4] S 58(2)-(3).

[5] Division 9.2, Confiscation of Criminal Assets Act 2003 (ACT).

[6] S 58(2), Confiscation of Criminal Assets Act 2003 (ACT).  If the restraining order is not made until after the day of conviction then statutory forfeiture occurs 14 days after the restraining order is made.

[7] See s 74, Criminal Assets Confiscation Act 2005 (SA); s 35, Confiscation Act 1997 (Vic); s 92, Proceeds of Crime Act 2002 (Cth).

[8] S 15(2)(a).

[9] See e.g. DPP (Vic) v Nguyen (2009) 23 VR 66; Lemoussu v DPP (Vic) (2012) 35 VR 148; & Trajkovski v DPP (Vic) [2012] VSC 121.

[10] At [18]-[32].

[11] See for example DPP (Cth) v Helou (2004) 185 FLR 378 and DPP (Vic) v Nguyen (2009) 23 VR 66.

Canberra prisoner’s attempt at tax fraud lands him a longer sentence.

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27.10.16.  A Canberra prisoner will spend an extra year in jail after what an ACT Supreme Court judge has described as an “amateurish” attempt to defraud the Australian Taxation Office.

Matthew John Millard, 33, pleaded guilty to nine charges of lodging fraudulent tax claims, several of which were in other people’s names.

The claims were among a number lodged at Canberra’s jail by other prisoners who have also been prosecuted.  In Millard’s case the tax office had processed three of the returns, and paid him more than $17,000, before the crime was discovered.

Justice Michael Elkaim assessed the crime as of moderate seriousness.

“Although intentional, premeditated and occurring over a period of time, the offences here were not the product of a particularly sophisticated conduct,” he said.

“Rather they are an amateurish attempt to defraud the Commonwealth and obtained undeserved funds.  Had the details revealed a more clever process I would have increased the level of severity.”

If all Millard’s claims had been processed he would have received nearly $70,000.

His sentence will mean an extra year in jail on top of his existing sentence, meaning he will be eligible for release in September next year.  He has also been ordered to repay the $17,000 already sent to him.

http://www.abc.net.au/news/2016-10-27/tax-fraud-canberra-prisoners-sentence-extended-amateur/7969044

Bias application heard in ACT Supreme Court

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comments: 1 Categories: Administrative law

11.9.15.  The ACT government has argued a tribunal member who found its medical intern selection policy was racially discriminatory is deliberately trying to run a test case.

The clash between the ACT government and a senior ACT Civil and Administrative Tribunal member was sparked by his decision in the case of Qinglin Wang, a Chinese doctor who alleged the territory’s policies had discriminated against him.

Dr Wang, a former director of neurology at Tianjin Medical University in China, came to Australia in 2001 with 17 years’ professional experience and master’s degree in neurology.
He was unable to get a placement as an intern at the Canberra Hospital. The ACT, like most jurisdictions, has a policy of preferring Australian-trained doctors for its intern placements.

Dr Wang launched action in the ACAT, arguing the policy was racially discriminatory.

The case came before tribunal senior member Allan Anforth, who found in the doctor’s favour in an interim decision earlier this year.

That decision found the policy directly discriminated against Dr Wang.

Mr Anforth is yet to decide on whether the policy indirectly discriminated against Dr Wang.

But the ACT launched action to try and force the tribunal member to remove himself from the case, alleging reasonable members of the public may see him to be bias.

When he refused to do so in July, the government took the matter to the ACT Supreme Court, where the hearing wrapped up on Friday.

Lawyers for the territory described a “cumulative effect” of Mr Anforth’s personal experience with a daughter and a medical college, his publicly expressed beliefs that racism existed in the community, and statements about the “racist crap” in emails sent to him this year, which he appeared to use to galvanise his decision.

Mr Anforth was overheard in casual conversation talking with an expert witness in the case about a Four Corners episode concerning bullying of registrars by specialists in the medical system. He told the witness of his daughter’s experience with a royal college, which was criticised for discriminating on gender grounds and against those tutored by overseas-trained specialists.

The territory has argued Mr Anforth’s views and personal experience show apprehended bias. It has also argued he appears to be deliberately using the case as a “test case” for discrimination in medical intern policies.

The ACT argued the apprehended bias had both infected Mr Anforth’s past decision, and rendered him unable to continue in the case.

If successful, the bid would see Mr Anforth removed as the presiding member on the case. The matter would then be sent back to the ACAT for another member to re-hear.

But Dr Wang’s barrister, Marcus Hassall, argued there was no logical connection between Mr Anforth’s comments, some of which were described as off-handed and flippant, and his decision.
He said the experience of Mr Anforth’s daughter, one of nepotism and favouritism at a medical college, was not connected to his decision on whether the ACT’s medical intern policy was discriminatory.

“It’s a historical matter, from a different jurisdiction, where there was an outcome favourable to the member’s daughter,” he said.
“We say the context is quite different.”

Mr Hassall said the ACT had to properly establish its case of bias, but said the vagueness and ambiguity of Mr Anforth’s comments did not meet the required threshold.

Associate Justice David Mossop has reserved his decision on the case, and will hand it down at a later date.

http://www.canberratimes.com.au/act-news/medical-intern-policy-racism-row-hits-act-supreme-court-20150911-gjkbgu.html

 

Climate Council Kimberley Challenge

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15.4.15. CLIMATE COUNCIL KIMBERLEY CHALLENGE 2015!!

 

Support my participation in the Challenge by DONATING ONLINE and/or by coming to the “Q&A on Climate Change”, ANU Arts Centre, 6pm, 24 June 2015 (all proceeds to the Climate Council).

BOOK TICKETS HERE!

No breach of ACT Human Rights Act

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comments: 0 Categories: Criminal law Tagged: ,

2.2.15.  A prisoner has taken the ACT Government to court alleging breaches of the Human Rights Act after being refused the opportunity to work in a Canberra jail.

Isa Islam, 43, is serving a nine-year sentence in the Alexander Maconochie Centre at Hume for a vicious assault on a man at Ainslie in 2009.

Islam told the ACT Supreme Court that since being placed in the management section of the jail he had been refused work, despite other inmates in the same area being allowed to work.

He said he was told it was the jail’s policy not to allow him to work while he was in the section.

“I was told it was because of behavioural issues,” Islam said.

But he said the other inmates with jobs in the jail also had a violent history.

“It is a clear discrimination.” he said.

“It’s unjust, inequitable and unfair.”

Islam told the court he was very keen to work and said the decision to deny him work was a breach of the Human Rights Act.

“I’d kill for a cleaning job,” he said, although he later admitted this was an unfortunate choice of words.

Islam was placed in the management section after a serious assault on another prisoner who had taunted him about not getting parole in 2013.

He pleaded guilty and is to be sentenced for that offence next month.

He was also involved in another violent incident at the prison last year.

Prisoner ‘could be a tremendous asset’ to the jail

Islam told the court he had used his time in jail to study, achieving a Bachelor degree and three Masters, before enrolling in a PhD program that he is now working to complete.

He said study in jail could be hard, but it was also easier at times.

“You do not have option of going out, but it is difficult to get books and journals,” he said.

Islam told the court jail was a difficult environment.

“Jail is like going back to high school all over again except there’s even less intelligent people,” he said.

He told the court his long work history in the Australian Air Force and education should make him a very useful worker.

“With all due respect I think I could be a tremendous asset to the AMC,” he said.

The government’s lawyer, Marcus Hassall, said Mr Islam was clearly a very intelligent person.

“But it is beyond the scope of the AMC to provide tailored employment for all detainees like him,” he said.

The court has reserved its decision.

http://www.abc.net.au/news/2015-02-02/act-jail-allegedly-breaching-human-rights-by-denying-inmate-work/606403

Compulsory examinations and the right to a fair trial

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24.3.14.  Marcus Hassall reports on X7 v Australian Crime Commission [2013] HCA 29 and Lee v New South Wales Crime Commission [2013] HCA 39.  (Originally published in the NSW Bar News, Summer 2013.)

The proposition that a person with a pending criminal charge may be compulsorily examined pursuant to a parallel inquisitorial process, including about the subject-matter of the charge, may be inherently controversial, and has resulted in differing decisions of the High Court in the past.[i]  Two recent decisions of the High Court, involving similar facts, again indicate divergent approaches to the question of when a statute will be interpreted as permitting such an examination.

X7 v Australian Crime Commission

Legislation

Division 2 of Pt II of the Australian Crime Commission Act 2002 (Cth) (the ACC Act) provides for examiners appointed under the Act to conduct compulsory examinations for the purposes of operations or investigations which the Board of the ACC has designated as ‘special’ operations or investigations.  S  30 of the ACC Act provides that an examinee in such an examination may not refuse to answer questions on the basis of the privilege against self-incrimination, but that where the privilege is claimed prior to answering, the answer then given is not admissible in any criminal proceedings against the examinee (save for proceedings for giving false evidence).  Further, s 25A(9) provides that an examiner ‘must’ give a direction prohibiting or limiting publication of evidence given in an examination ‘if the failure to do so might … prejudice the fair trial of a person who has been, or may be, charged with an offence’.

Background

X7 was arrested by officers of the Australian Federal Police and charged with drug trafficking and money-laundering offences.  Whilst in custody, X7 was summonsed to attend an examination before the ACC.  Initially, X7 was asked, and answered, questions relating to the subject matter of his pending charges.  When the examination resumed after an adjournment, however, X7 declined to answer any further such questions.  The examiner informed X7 that he would, in due course, be charged with the offence of failing to answer questions.  The examiner made a direction pursuant to s 25A(9) of the ACC Act restricting publication of X7’s evidence, and in particular prohibiting any provision of X7’s evidence to officers of the Commonwealth Director of Public Prosecutions or police officers associated with the prosecution of the offences with which X7 had been charged.

X7 commenced proceedings in the original jurisdiction of the High Court seeking injunctive relief against the ACC and its officers, and in particular restraining any further compulsory examination in respect of the matters the subject of the offences with which he had been charged.  The parties agreed to state two questions of law for consideration of the Court:

  1. Does Division 2 of Part II of the ACC Act empower an examiner appointed under s 46B(1) of the ACC Act to conduct an examination of a person charged with a Commonwealth indictable offence where that examination concerns the subject matter of the offence so charged?
  2. If the answer to Question 1 is ‘Yes’, is Division 2 of Part II of the ACC Act invalid to that extent as contrary to Ch III of the Constitution?

The decision

By majority (Hayne, Bell and Kiefel JJ, French CJ & Crennan J dissenting), the High Court held that the first question stated should be answered ‘No’, and that the second question therefore did not arise.

Discussion

Hayne and Bell J delivered the leading judgment of the majority, with Kiefel J providing short additional reasons.  Hayne and Bell JJ were of the view that, in considering the first stated question, it was critical to bear in mind that an affirmative answer would ‘fundamentally alter the accusatorial judicial process that begins with the laying of a charge and culminates in the accusatorial (and adversarial) trial in the courtroom’.[ii]  Their Honours considered that:

Permitting the Executive to ask, and requiring an accused person to answer, questions about the subject matter of pending charge would alter the process of criminal justice to a marked degree, whether or not the answers given by the accused are admissible at trial or kept secret from those investigating or prosecuting the pending charge.[iii]

More particularly, Hayne and Bell JJ were of the view that merely requiring an accused to answer questions about the subject matter of a pending charge prejudices the accused in his or her defence of the pending charge ‘whatever answer is given’, and whether or not the answer can be used ‘in any way’ at the trial, because any admission made ‘will hinder, even prevent, the accused from challenging at trial that aspect of the prosecution case’.[iv]  Instead of being in the position of an ordinary accused, the particular accused ‘would have to decide what plea to enter, what evidence to challenge and what evidence to give or lead at trial according to what answers he or she had given at the examination.’[v]

Having regard to the above premise, Hayne and Bell J (with whom Kiefel J agreed) held that the mooted ‘fundamental alteration to the accusatorial criminal justice process’ could only be made ‘clearly by express words or by necessary intendment.’[vi]  Their Honours held that the relevant provisions of the ACC Act were not sufficiently clear.  In respect of a submission that the words of s 25A(9) of the ACC Act specifically contemplated the use of the examination provisions after charges being laid, their Honours held that whilst the words used ‘were sufficiently general to include that case, … they do not deal directly or expressly with it’:[vii]

It is the generality of the words used in the ACC Act … and the absence of specific reference to examination of a person who has been charged about the subject matter of the pending charge, which presents the issue for determination in this case.[viii]

In respect of three previous High Court decisions in the context of bankruptcy and company liquidation legislation, where it had been held that the relevant statutes did permit the compulsory examination of a person with a pending criminal charge, Kiefel J articulated the view of the majority in stating:

… [that] trilogy of cases… [is] to be understood as the result of an historical anomaly, commencing with the divergent view taken by the Chancery Court from that of the common law and continuing through the series of legislation which preceded that dealt with in those cases.[ix]

Lee v New South Wales Crime Commission

Legislation

S 31D(1)(a) of the Criminal Assets Recovery Act 1990 (NSW) (the CAR Act) provides that, if an application is made for a confiscation order under the Act, the Supreme Court may make an order for the examination on oath of ‘the affected person’ or another person ‘concerning the affairs of the affected person, including the nature and location of any property in which the affected person has an interest’.  Such an examination is to take place ‘before the Court’.  As with the provisions of the ACC Act considered by the Court in X7, the CAR Act provides direct use immunity on an examinee in respect of any answer given in an examination, provided the privilege against self-incrimination is claimed.  The CAR Act at the relevant time (and later the Court Suppression and Non-publication Orders Act 2010 (NSW) also conferred on the Supreme Court power to make non-publication orders for the purpose of preventing or minimising prejudice to an examinee facing criminal charges.[x]

Unlike the ACC Act, the CAR Act also contained provisions which: expressly permitted derivative use to be made of answers given in an examination;[xi] and stated that the fact criminal proceedings have been instituted is not a ground on which the Supreme Court could stay proceedings under the Act.[xii]

Factual background

Jason Lee and Wok Seong Lee (the appellants) were arrested and charged with drug and money-laundering offences.  The New South Wales Crime Commission (NSWCC) applied for confiscation orders in respect of property of the first appellant, and later applied for an order for the examination of both appellants.

At first instance Hulme J declined to make examination orders on the basis that the appellants were awaiting trial and the proposed examination would expose them to questioning about matters relevant to the charges against them.

The NSWCC appealed to the NSW Court of Appeal, which unanimously (Beazley, McColl, Basten, Macfarlan and Meagher JJA) reversed the decision of Hulme J and ordered that the appellants each be examined on oath before a registrar of the Supreme Court.  The Court of Appeal found that Hulme J had erred in failing to consider the significance to the exercise of the discretion conferred by s 31D(1)(a) of the express abrogation by the CAR Act of the privilege against self-incrimination combined with the express rejection of the conferral of derivative use immunity and of the ordering of a stay merely by reason of the fact of criminal proceedings having been instituted.[xiii]

The appellants were granted special leave to appeal to the High Court from the whole of the judgment and order of the NSW Court of Appeal.

The decision

By majority (French CJ, Crennan, Gageler and Keane JJ, Hayne, Bell and Kiefel JJ dissenting), the High Court dismissed the appeal.

Discussion

The majority comprised separate judgments of French CJ and Crennan J and a joint judgment of Gageler and Keane JJ.  Each of the majority judgments disavowed the propositions that the ‘principle of legality’ (relied on in effect, though not in terms, by the majority in X7) inhibits a legislature’s ability to override the protections usually afforded to those accused of criminal offences, and that the elevation of the public interest over the common law’s consideration for the individual in bankruptcy and corporate insolvency cases was a mere ‘historical anomaly’ which could not occur in other legislative contexts.[xiv]  Gageler and Keane J observed:

The principle [of legality] ought not … be extended beyond its rationale: it exists to protect from inadvertent and collateral alteration rights, freedoms, immunities, principles and values that are important within our system of representative and responsible government under the rule of law; it does not exist to shield those rights, freedoms, immunities, principles and values from being specifically affected in the pursuit of clearly identified legislative objects by means within the constitutional competence of the enacting legislature.[xv]

And later:

The interpretative strictures of the legality principle should not be applied so rigidly as to have a sclerotic effect on legitimate innovation by the legislature to meet new challenges to the integrity of the system of justice.[xvi]

It also appears to have been significant to the reasoning of the majority that the proposed examination under consideration in Lee was to be conducted before an officer of the NSW Supreme Court, rather than before an executive body.[xvii]  This provided greater assurance that the relevant examination could be conducted in such a way as to avoid a real (as opposed to merely possible) risk to the administration of justice.[xviii]

Significantly, Hayne J, in a vigorous dissenting judgment, expressed the view that the questions for determination by the Court were indistinguishable from those which had been determined by the majority in X7, and that, unless X7 was to be overruled, the doctrine of precedent required that it be applied.[xix]  His Honour observed succinctly:

All that has changed between the decision in X7 and the decision in this case is the composition of the Bench.  A change in composition in the Bench is not, and never has been, reason enough to overrule a previous decision of this Court.[xx]

Conclusion

It will remain a matter for debate whether Lee was in fact on all fours with X7, and whether the majority in Lee, in reaching a different conclusion to the majority in X7, sidestepped the doctrine of precedent.  In either case, it appears likely the further litigation will be required before there is complete clarity as to the limits of the legislature’s ability to provide for the compulsory examination, in parallel inquisitorial proceedings, of persons with pending criminal charges.

 

[i] See Hammond v The Commonwealth (1982) 152 CLR 188 and Hamilton v Oades (1989) 166 CLR 486.

[ii] At [124].

[iii] At [70].

[iv] At [71].  Emphasis contained in the original.

[v] At [124].

[vi] At [125].

[vii] At [83].

[viii] Ibid.

[ix] At [161].

[x] Section 62 of the CAR Act, later repealed and replaced by the Court Suppression and Non-publication Orders Act 2010 (NSW) – see especially s 8(1)(a) and (e).

[xi] Section 13A(3) of the CAR Act.

[xii] Section 63.

[xiii] [2012] NSWCA at [56], [92], [101].

[xiv] See French CJ at [38], Crennan J at [126], and Gageler and Keane JJ at [313]-[317].

[xv] At [313]

[xvi] At [317].

[xvii] See for example French CJ at [19], [55]-[56], and Gageler and Keane JJ at [340].

[xviii] See in particular Gageler and Keane JJ at [340].

[xix] At [62].

[xx] At [70].

Setting Aside Statutory Demands

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comments: 0 Categories: Commercial law, Insolvency

20.2.14.  Presentation given by Marcus Hassall on behalf of the ACT Law Society.

On the one hand, the procedure for making a “statutory demand” contained in Part 5.4 of the Corporations Act 2001 (Cth) (the Corporations Act)is a potent mechanism for a creditor seeking to disgorge funds from a (allegedly) recalcitrant, debt-owing Australian company – if the demand is not complied with, the creditor is well advanced along the road to having the company wound up in insolvency.

On the other hand, however, a company seeking to have a statutory demand set aside need only establish that there is a “genuine dispute” as to the existence of the relevant debt, and/or a “genuine claim against the creditor by way of counterclaim, set-off or cross-demand” equal to or exceeding the amount specified in the statutory demand.

It has been observed that the task facing a company seeking to have a statutory demand set aside “is by no means at all a difficult or demanding one”.[1]  So: is the process of applying for a statutory demand to be set aside really “a walk in the park”?  Or are there aspects of this exercise which make it slightly more hazardous, perhaps more akin to a walk “along the precipice”?

This paper:

  • Reviews the relevant legislative framework; and
  • Highlights a number of recent cases which clarify aspects of the relevant legal principles to be applied on an application to set aside a statutory demand, and which illustrate the possible contrasting outcomes in practice.[2]

BACKGROUND: LEGISLATIVE FRAMEWORK[3]

When is the statutory demand procedure available?

The statutory demand procedure contained in Part 5.4 of the Corporations Act is available in relation to one or more debts owed by a company to a person, provided the total of the relevant debt (or debts) reaches the statutory threshold, currently $2,000.[4]  The debt (or debts) must be “due and payable”, so the procedure is not available in relation contingent or unliquidated sums.[5]  A statutory demand may be issued by any legal “person” (whether another corporate entity or a natural person), and may be served on any of the various types of proprietary and public companies capable of being registered under the Corporations Act[6].

A practitioner should be wary of the potential costs implications, however, of issuing a statutory demand against a company which turns out to be “plainly solvent”.  In Owners Corp SP 66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497, Owners Corp SP 66609 (Owners Corp)commenced winding-up proceedings again Perpetual Trustee Co Ltd (Perpetual) – yes, the well-known and publically listed company – based on the assertion that Perpetual had not responded within 21 days to a statutory demand said to have been properly served on it by Owners Corp.  The winding up proceedings were ultimately discontinued by consent, but on the question of costs Palmer J ordered Owners Corp to pay Perpetual’s costs of the winding up proceedings, on an indemnity basis from the date when Perpetual had written to Owners Corp citing clear evidence of its solvency.[7]

Procedural requirements for making a statutory demand

The formal requirements for a statutory demand are set out in subsections 459E(2) and (3) of the Corporations Act.  The demand:

  • must be in writing in the prescribed form;[8]
  • must be signed by or on behalf of the creditor;
  • must specify the total of the debt (or debts);
  • must require the company to pay the debt or secure or compound the debt to the creditor’s satisfaction within 21 days;[9]
  • (unless the debt is a judgment debt) must be accompanied by an affidavit that verifies that the debt is due and payable and is in the prescribed form;[10]  and
  • must be validly served on the company.[11]

Where the above procedural requirements are complied with, the debtor company will have 21 days within which either to comply with the demand or apply for it to be set aside (as to which, see below), failing which the company will be taken to have failed to comply with the demand.[12]

Procedural requirements for challenging a statutory demand

Importantly, there are a number of threshold procedural requirements with which a company must comply, promptly, in order to be able to pursue an application to set aside a statutory demand.  Compliance with these requirements is mandatory – i.e. unless they are complied with the court will lack jurisdiction to entertain the application, and there will be no alternative but for it to be dismissed.

Specifically, a company which seeks to challenge a statutory demand is required to file and serve an application to set aside the demand, and a supporting affidavit, within 21 days after being served with the demand.[13]  The timeframe applies strictly, in respect of both the application and the supporting affidavit, and to the service of both of those items on the respondent – the court will not grant any application for an extension of time.[14]  (Where an application is validly made within time, however, the period for compliance with the statutory demand is automatically extended until 7 days after the application is finally determined, or until such other time as the court may direct.[15])

The Corporations Act does not prescribe the contents of the affidavit required to be filed in support of an application to set aside a statutory demand (the supporting affidavit),[16] and there is no “settled and universal principle” which must be satisfied by such an affidavit.[17]  Necessarily, however, the affidavit must address one or more of the criteria set out in sections 459H and 459J, which prescribe the circumstances in which the court either must or may set aside a statutory demand.  A reading of those provisions indicates that the supporting affidavit will need to assert one or more of the following: that there is a genuine dispute about the existence or quantum of the debt referred to in the statutory demand; that the company has a genuine claim against the creditor by way of counterclaim, set-off or cross-demand; that the statutory demand contained a defect which will cause substantial injustice unless it is set aside;[18] and/or that there is “some other reason” why the demand should be set aside.[19]

It has been held that a supporting affidavit which “merely asserts the existence of a dispute or an offsetting claim” will not be sufficient for the purposes of establishing a “genuine” dispute or counterclaim, so if only an affidavit of this type is filed within the 21 day period, the application to set aside the statutory demand will necessarily fail. [20]  The level of detail and formality which is required to be contained in a supporting affidavit is considered further below.

 

What happens if the set-aside application is dismissed?

In the event that a company’s challenge to a statutory demand is dismissed, the company will thereafter have seven days, or such other period as may be ordered by the court, to comply with the statutory demand.[21]  If the company fails or declines to comply with the demand within this period, the creditor will be in a position to commence proceedings for the winding up of the company in insolvency.[22]  (This option also arises, of course, if the company fails either to comply with or bring an application to set aside the statutory demand within the initial 21-day period following service.)

This is not a paper regarding the winding-up of a company in insolvency.  Importantly, however, in the context of statutory demands, section 459S of the Corporations Act provides that, where an application for the winding up of a company relies on the prior failure of a company to comply with a statutory demand, the company is not permitted – without leave of the court – to oppose the application on a ground that was raised, or which could have been raised, on an application to set aside the statutory demand.  In practical terms this means that, at this stage of proceedings, the company will be precluded – unless leave is obtained – from asserting that there is a dispute as to the debt on which the statutory demand was based, or a genuine offsetting claim, regardless of whether or not those issues have been previously raised.

In relation to the granting of leave, subsection 459S(2) provides that a court is not to grant leave unless it is satisfied that the ground sought to be raised by the company (and which was or could have been raised in an application to set aside the statutory demand) is material to proving that the company is solvent.  In Chief Commission of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179, Austin J was of the view that the exercise of the discretion to grant leave under section 459S involved three considerations, namely:

  1. A preliminary consideration of the defendant’s basis for disputing the debt which was the subject of the demand;
  2. An examination of the reason why the issue of indebtedness was not raised in an application to set aside the demand, and the reasonableness of the party’s conduct at that time;[23] and
  3. An investigation of whether the dispute about the debt is material to proving that the company is solvent.[24]

As noted by Barrett J in Hanson Construction Materials Pty Ltd v FEC Civil Pty Ltd [2009] NSWSC 161, the relevant authorities indicate some difference of approach in determining the level of “materiality” required before a particular ground will be found to be capable of being material to a company’s solvency.[25]  What does seem to emerge from a review of the cases, however, is the following:

  • If a company intends to prove that it is solvent regardless of whether or not the debt which formed the basis for the statutory demand is payable, it will be difficult for the company to establishing that a ground based on a dispute about the debt is “material” to proving the company’s solvency within the meaning of section 459S(2).[26]
  • Where a company will undoubtedly be insolvent if the debt which is the subject of the statutory demand is owed, but may be solvent if it is not owed, a ground based on a dispute about the debt will be “material” to proving the company’s solvency and therefore a granting of leave under section 459S(2) may be appropriate.[27]

 

GETTING A STATUTORY DEMAND SET ASIDE: A WALK IN THE PARK OR ALONG THE PRECIPICE?

 

We now know that the consequences of a failure to have a statutory demand can be drastic (and precipitous!) for the company concerned – unless the demand is then complied with, the creditor is entitled to apply to have the company wound up in insolvency; in the context of that application the company is presumed to be insolvent; and in contesting the insolvency application the company is prima facie barred from raising any matters it could have raised in order to set aside the statutory demand.  These potential consequences add significance to statutory demand proceedings, and the recipient of such a demand could therefore be forgiven for suddenly experiencing sensations of “staring into the abyss”.

 

What then are the legal principles to be applied on an application to set aside a statutory demand on the basis that there is a “genuine dispute” as to the alleged debt, and/or a “genuine claim by way of cross-claim, set-off or cross-demand”?

 

The supporting affidavit – form and substance

 

A critical first issue to consider in this context, which has already been foreshadowed, is the level of detail and formality (in terms of compliance with the rules of evidence) which is required to be contained within the supporting affidavit to be filed and served within 21 days of receipt of the statutory demand.  Obviously, three weeks may be a relatively short timeframe given the need to consult with legal representatives, settle documents, and the potential complexities of modern commercial disputes.

 

A review of the relevant authorities discloses the following principles:

 

  • As already indicated, it is not sufficient for the supporting affidavit merely to assert the existence of a dispute or an offsetting claim;
  • The supporting affidavit need not, however, detail in admissible form all of the relevant evidence, although it must (as a minimum) contain a statement of the material facts on which the applicant company intends to rely to show a genuine dispute or offsetting claim exists;[28]
  • In that context, it may be sufficient for the supporting affidavit merely to verify the truth of pleadings or correspondence which are annexed to the affidavit;[29]
  • The hearsay rule may not be applied with the same strictness as is required in a fully contested hearing of a principal dispute – rather, as in the case of interlocutory proceedings, hearsay evidence may be admissible provided evidence of the source of the hearsay is adduced;[30]
  • For example, evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account necessarily be inadmissible to establish a fact relevant to whether or not there was a genuine dispute about indebtedness;[31]
  • The supporting affidavit (unlike a statutory demand) may assert a counterclaim or offsetting claim based on a claim for unliquidated damages;[32]
  • Matters which have been adequately identified in the supporting affidavit within the 21-day period may be able to be expanded upon with more detailed evidence at a later time, but an applicant cannot rely on any ground for setting aside the demand which was not raised in the supporting affidavit;[33] and
  • Further, a supporting affidavit which asserts the existence of an offsetting claim, but which neither states the amount of the claim nor provides the court with any material from which a court could estimate the amount, will not be sufficient to attract the court’s jurisdiction to set aside the statutory demand.[34]
Final hearing – what establishes a “genuine” dispute or counterclaim?

There is an abundance of jurisprudence concerning the principles to be applied in determining whether an asserted dispute, counterclaim, off-set or cross-demand rises to the level of being “genuine” within the meaning of section 459H of the Corporations Act, and therefore sufficient to warrant a statutory demand being set aside – so much so, in fact, that the core principles can be difficult to distil.

In this context, however, a number of recent New South Wales and Victorian cases have cited with approval a useful summary of relevant authorities and principles set out by Robson J in Rhagodia Pty Ltd v National Australia Bank (2008) 67 ACSR 367.[35]  From that summary, and, the following propositions and principles, which may be of assistance, can be distilled:

  • It is not necessary for a company to advance a fully evidenced claim.  Something “between mere assertion and the proof that would be necessary in a court of law” may suffice. [36]
  • The dispute or off-setting claim should have a sufficient objective existence to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile.[37]
  • The evidence asserting a genuine dispute or offsetting claim must satisfy the court that there is “a serious question to be tried” or “an issue deserving of a hearing” or a “plausible contention requiring investigation”.  It is not necessary that the evidence “conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable”.[38]
  • No in-depth examination or determination of the merits of the alleged dispute is necessary, or indeed appropriate, as the application is akin to one for an interlocutory injunction.  Moreover, the determination of the “ultimate question” of the existence of the debt should not be compromised.[39]
  • The expression “genuine dispute” raises much the same sort of considerations as the “serious question to be tried” criterion in an application for an interlocutory injunction or for the extension or removal of a caveat.[40]
  • Beyond a perception of genuineness (or the lack of it), the court has no function.  It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.[41]
  • However, the court need not accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” or “a patently feeble legal argument or an assertion of facts unsupported by evidence”.  Except in such an extreme case, however, a court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute.[42]
  • A company will fail in the task of establishing a genuine dispute only if is found that the contentions upon which it seeks to rely are so devoid of substance that no further investigation is warranted.  The court will not engage in any form of balancing exercise between the strengths of competing contentions.[43]

HOW IS THE TEST APPLIED IN PRACTICE? RECENT CASES INVOLVING APPLICATIONS TO SET ASIDE STATUTORY DEMANDS

A number of recent cases illustrate how courts apply the principles identified above in practice, sometimes with contrasting outcomes.  The decisions which will be reviewed here (in the chronological order in which they were delivered), are the decision of Rein J of the New South Wales Supreme Court in Re Go Electrical Pty Ltd [2013] NSWSC 824; the decision of the Victorian Court of Appeal in Troutfarms Australia Pty Ltd v Perpetual Nominees Pty Ltd [2013] VSCA 176; and the decision of the New South Wales Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Pty Ltd [2013] NSWCA 344.

Re Go Electrical Pty Ltd [2013] NSWSC 824.

In this matter Go Electrical Pty Ltd (Go Electrical), the defendant, had served on the plaintiff, an electrical contractor (CES) a statutory demand for over $1.8 million in respect of electrical equipment which had been ordered by CES from Go Electrical in connection with a building project for which CES was the electrical contractor.  CES applied for the statutory demand to be set aside pursuant to section 459H, or alternatively section 459J, of the Corporations Act, claiming among other things that:

  • At least $50,000 worth of goods purported to be covered by the debt referred to in the statutory demand, and possibly as much as $950,000 worth of such goods, had not in fact been delivered by Go Electrical to CES;
  • It had a cross-claim against Go Electrical in respect of loss and damage suffered by it as a result of Go Electrical’s late delivery of equipment, which it was claimed had resulted in:

o   CES losing the contract for the building project on which it had been working and with an estimated consequential loss of $1.637 million;

o   Unquantified future losses resulting from the damage to CES’s commercial reputation.

  • There was also a cross-claim against Go Electrical in respect of various items of equipment which CES claimed had been defective.

In upholding CES’s application for the statutory demand to be set aside, Rein J of the NSW Supreme Court made the following findings:

  • Adequacy of supporting affidavit as to the “undelivered goods” claim.  Whilst the supporting affidavit filed on behalf of CES within the 21-day period had asserted that only $50,000 worth of goods had not in fact been delivered by Go Electrical, a later affidavit sought to contend that the value of goods not delivered could be as high as $950,000.  The swelling of this claim by such a magnitude effectively constituted a new ground for disputing the statutory demand, rather than amplification or clarification of a ground which had been raised within the 21-day period.  Rein J held that this claim therefore offended against the principle identified in Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (above), and would not have upheld the application to set aside the statutory demand on this basis.[44]
  • On the other hand, the available material demonstrated that CES had grounds for a cross-claim against Go Electrical based on the latter’s failure to deliver goods in a timely fashion.  Although this was an unliquidated claim, there was evidence that the delay in delivery had caused CES to lose the contract for the building project on which it had been working, and that this could ultimately cost CES a sum in the vicinity of $1.637 million.  There was also evidence to indicate that CES had a potential claim for damages to its reputation and good will, and accordingly the court was satisfied that there was a genuine claim to an offsetting amount of at least $1.83 million.

Troutfarms Australia Pty Ltd v Perpetual Nominees Pty Ltd [2013] VSCA 176

This matter involved an appeal against a refusal by the Supreme Court of Victoria to set aside a statutory demand issued by Perpetual Nominees Pty Ltd (Perpetual) to Troutfarms Australia Pty Ltd (Troutfarms) for a sum in excess of $6 million said to be owed by Troutfarms as guarantor of two loan agreements between Perpetual and third parties.  Troutfarms did not dispute the authenticity or validity of the relevant loan documents, the guarantee or the quantum of the debt, but contended that there was a genuine dispute about the debt because (among other things) it had supposedly been released from its liabilities by an oral agreement made with Perpetual, inconsistent with the written documents, that it pay only a sum of $1.6 million to Perpetual by a particular date.

In finding that there was no genuine dispute about the debt which was the subject of the statutory demand served on Troutfarm, and dismissing Troutfarm’s appeal, Osborn JA (with whom Ashley JA agreed) made the following observations:

  • It was inherently improbable that Perpetual, a fully secured lender, would give up a substantial aspect of its security in return for payment of a minor fraction of the secured debt for the questionable advantage of having two of the secured properties refinanced rather than sold under mortgage;
  • Troutfarm’s assertion that there had been an agreement for it to be released from its liabilities was not supported by any documentary evidence, and in fact there was evidence of contradictory documents and conduct after the time when the supposed agreement was entered into; and
  • The primary judge had been correct to adopt the formulation of McClelland CJ in Eyota (above), namely that the court was not required to accept uncritically as giving rise to a dispute statements in affidavits which are “equivocal, lacking precision, inconsistent with undisputed contemporary documents … or inherently improbable”.[45]

Britten-Norman Pty Ltd v Analysis & Technology Pty Ltd [2013] NSWCA 344

This matter also involved an appeal against a refusal by the trial judge to set aside a statutory demand, however on this occasion the New South Wales Court of Appeal upheld the appeal, finding that there had been sufficient evidence before the trial judge sufficient to establish a genuine offsetting claim.

Analysis & Technology Pty Ltd (A&T) had served a statutory demand on Britten-Norman Pty Ltd (Britten-Norman) for a sum of $128,421.50 representing outstanding monies said to be owed by Britten-Norman to A&T for the lease of aircraft surveillance equipment.  Britten-Norman owned aircraft and tendered for various government contracts for aerial surveillance in support of bushfire fighting.  A specific item of equipment developed by A&T, the Surveillance Management System MK II (SMS2), was installed into the Britten-Norman aircraft with a view to enabling the aircraft to be able to perform the surveillance required, however Britten-Norman was unsuccessful in obtaining the various contracts.  Britten-Norman ultimately requested the equipment to be removed, and purchased a new system outright for a sum of $400,000.  Britten-Norman paid some of the invoices which had been rendered by A&T for lease of the SMS2 and associated services, but failed to pay the sum of $128,421.50 specified in the statutory demand.

In affidavit material filed in an application to set aside the statutory demand, Britten-Norman asserted that it had been implied term of the contract with A&T, that the SMS2 would have sufficient surveillance accuracy to win the various government contracts for which Britten-Norman was tendering.  Britten-Norman asserted that, in fact, the SMS2 was substantially less accurate than was required by the relevant government agencies, and that it was as a result of that lack of accuracy that it was unsuccessful in winning the government contracts.  Britten-Norman asserted that, as a result, it had an action for misleading and deceptive conduct and breach of contract against A&T.  In reliance on these causes of action Britten-Norman asserted the following by way of counterclaim against A&T:

  • Had the misleading and deceptive conduct not occurred it would not have incurred the liability to pay A&T the sum sought in the statutory demand;
  • In addition, Britten-Norman asserted a loss of $144,000 per year, being the estimated gross profit which it claimed it would have achieved had the SMS2 had the required accuracy (this was based on the assumption that Britten-Norman would have won the relevant government contracts, and would have flown 360 flight hours per year at a profit of $400 per hour – these figures were not substantiated); and
  • Britten-Norman also sought by way of damages the cost of purchasing outright a replacement for the SMS2, which had cost it $400,000.

At first instance the primary judge had determined in effect that he was not satisfied as to the “genuineness” of Britten-Norman’s asserted cross-claim because there was a “striking” lack of contemporaneous documentation evidencing any complaint by Britten-Norman as to the accuracy of the SMS2.  (This was notwithstanding evidence from the director of Britten-Norman that he had deliberately not raised any complaint because his son had been working for A&T.)  More fundamentally, the primary judge ruled that even there was a genuine cross-claim, he could not be satisfied on the evidence provided that Britten-Norman had sustained loss or damage in an amount that exceeded that claimed in the statutory demand.  In particular, he rejected the claim for lost profits as being insufficiently substantiated, and doubted the entitlement of Britten-Norman to claim the asserted cost of purchase of a replacement system in any action it might bring.

In upholding Britten-Norman’s appeal, the New South Wales Court of Appeal observed that “the existence of evidence that casts doubt, even significant doubt, on an applicant’s contention that there is a disputed debt or an offsetting claim, is not the basis for a rejection of an application under section 459H”.[46]  Whilst the lack of contemporaneous documentation evidencing a complaint about the accuracy of the SMS2 may have created doubt about Britten-Norman’s case, it did not of itself necessarily render the witness’ evidence as lacking in credibility, reliability or cogency.  The Court also observed that there were aspects of Britten-Norman’s case – e.g. the fact that the director’s son had been working for A&T – which had not been challenged, and in particular counsel for A&T had not sought to cross-examine the director of Britten-Norman.  In the circumstances the Court found that the evidence as a whole gave rise to a “plausible contention requiring investigation”, and that the primary judge had in effect entered upon an assessment of the credibility and weight of evidence which was “more than is required for an applicant to satisfy s 459H”.[47]

In relation to the issue of whether Britten-Norman had established a claim of sufficient quantum (i.e. equal to or exceeding the amount specified in the statutory demand), the Court agreed that there were doubts as to whether or not Britten-Norman was properly entitled to claim in damages the cost of having purchased outright a replacement aircraft surveillance system (i.e. for $400,000).[48]  Nevertheless, the Court found in respect of the misleading and deceptive conduct claim that the available evidence supported the claim that, but for the alleged misleading and deceptive conduct, Britten-Norman would not have incurred any liability at all to A&T (the total liability, part of which had been discharged, had been $190,751.00).  A fortiori, Britten-Norman would not have incurred a liability in excess of $128,421.50.  Accordingly the Court held that the evidence was sufficient to establish a plausible offsetting claim which was in excess of the statutory demand, and therefore warranted the statutory demand being set aside.

CONCLUSION

It may be fair to suggest, as a general proposition, that the task facing a company seeking to have a statutory demand set aside is not necessarily a difficult or demanding one.  Because there are strict procedural requirements which must be observed, however, and because the courts will occasionally find that the contentions on which an alleged dispute or counterclaim is based are “so devoid of substance that no further investigation is warranted”, practitioners should not assume that an application to set aside a statutory demand will succeed, and should not regard the exercise as a “walk in the park”.  Indeed, because of the drastic potential consequences which may flow if such an application is unsuccessful, there are some aspects of litigation in this area which may feel more like a walk “along the precipice”.

FOOTNOTE REGARDING STATUTORY DEMANDS SERVED BY THE AUSTRALIAN TAXATION OFFICE

It should be noted that the High Court has held that a statutory demand issued by the Australian Taxation Office in respect of a “tax debt” will not be susceptible to an application to set aside the demand by reference to an assertion of “genuine dispute”.  The production of Notices of Assessment by the Australian Taxation Office is “conclusive evidence” of the relevant debt, except in proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (i.e. internal objection within the ATO and then to the Administrative Appeals Tribunal).[49]  As a result the existence and amount of the “tax debts” cannot properly be the subject of a “genuine dispute” for the purposes of section 459H of the Corporations Act.[50]  The fact a proceeding under Part IVC of the Taxation Administration Act 1953 does not alter this position.[51]

 

[1] See Solarite Airconditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 at [23] per Barrett J.

[2] The cases to be reviewed are Re Go Electrical Pty Ltd [2013] NSWSC 824, Troutfarms Australia Pty Ltd v Perpetual Nominees Pty Ltd [2013] VSCA 176, and Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344.

[3] See further the Flowchart which is Annexure A to this paper.

[4] Section 459E(1) and the definition of “statutory minimum” in section 9, Corporations Act.  At the time of writing no alternative statutory minimum has been prescribed.

[5] See First Line Distribution Pty Ltd v Whiley (1995) ACSR 185 at 188 and cases there cited.

[6] See the definition of “company” contained in section 9 of the Act.

[7] Perpetual was also ordered, however, to pay Owners Corp’s costs of a section 459G application which had been brought by Perpetual out of time (on a party-party basis).

[8] The prescribed form is Form 509H – see Schedule 2, Corporations Regulations 2001.

[9] Section 459E(2).

[10] Section 459E(3).

[11] For modes of valid service see section 109X of the Corporations Act.

[12] Section 459F.

[13] Section 459G.

[14] David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265; Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.

[15] Section 459F(2).

[16] Section 459G refers simply to “an affidavit supporting the application”.

[17] See Financial Solutions Australasia Pty Ltd v Predella Pty Ltd [2002] WASCA 51 per Parker J at 115.

[18] For an example of such a defect see First Line Distributors Pty Ltd v Whiley (1995) 18 ACSR 185 (single statutory demand purportedly issued on behalf of three separate creditors).

[19] See Process Machinery v ACN 057 260 590 [2002] NSWSC 45 at [13].

[20] Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.

[21] Section 459F(2).

[22] See sections 459P(1)(b) and 459C(2)(a).

[23] This issue obviously would not arise in circumstances where the issue of indebtedness had been raised on an unsuccessful application to set aside the statutory demand.

[24] At [49].

[25] See in particular at [2]6 to [28].

[26] Switz Ltd v Glowbind Pty Ltd (2000) NSWLR 661 per Spigelman CJ at [54].

[27] Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216 per White J at [64].

[28] Graywinter Properties Pty Ltd v Gas & Fuel Corp Superannuation Fund (1996) 70 FCR 452.

[29] Ibid.

[30] Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344 at [37].

[31] Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527 per White J at [21]-[22], cited by the New South Wales Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd at [38].

[32] Re Go Electrical Pty Ltd [2013] NSWSC 824 per Rein J at [8].

[33] See Energy Equity Corp Ltd v Sinedie Pty Ltd [2001] WASCA 419 and Meadowfield Pty Ltd v Gold Coast Holdings Pty Ltd [2001] WASCA 360.  For an example of a case applying this proposition see the discussion of the decision of the NSW Supreme Court in Re Go Electrical Pty Ltd [2013] NSWSC 824 (discussed later in this paper).

[34] See for example Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd (2005) 23 ACLC 1266.

[35] See Re Go Electrical Pty Ltd [2013] NSWSC 824, Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd [2013] VSCA 176, and Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344 at [51]-[52].

[36] Ibid, cited by Robson J in Rhagodia at [92].

[37] Ibid.

[38] Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344 at [36].

[39] Per Dodds-Streeton JA in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd (2008) 66 ACSR 67 at [57], cited by Robson J in Rhagodia Pty Ltd v National Australia Bank (above) at [91].

[40] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 per McClelland CJ at 787-8.

[41] Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605 per Thomas J, cited by McClelland CJ in Eyota at 787-788, in turn cited by Robson J in Rhagodia at [93].

[42] Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 (Eyota)per McClelland CJ at 787-8, cited by Robson J in Rhagodia at [93].

[43] Solarite Airconditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 at [23] per Barrett J, cited by Daubney J in Welldog Pty Ltd v World Oil Tools Inc [2013] QSC 180 at [36].

[44] At [28].

[45] At 787.

[46] At [60].

[47] At [70].

[48] At [79].

[49] Section 177, Income Tax Assessment Act 1936 (Cth).

[50] Deputy Commissioner of Taxation v Broadbeach Properties [2008] HCA 41 at [58] per Gummow ACJ, Heydon, Crennan and Kiefel J.

[51] Ibid and see sections 14ZZM and 14ZZR of the Taxation Administration Act 1953 (Cth).

Peter Slipper’s defence team argues criminal charges against him should be stayed – ABC News, 19 February 2014

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19.2.14.  Peter Slipper’s defence team argues criminal charges against him should be stayed.

The ACT Supreme Court has reserved its decision after hearing an application to place a stay on charges against the former parliamentary speaker Peter Slipper.

Slipper is defending accusations he misused Commonwealth-funded cabcharge vouchers to visit Canberra wineries in 2010, before he was made speaker.

He has pleaded not guilty to the three charges.

His defence team has told the court the definition of parliamentary business is at the heart of the matter and the prosecution must prove Slipper was not travelling on parliamentary business.

The defence argues Slipper could not receive a fair trial under the Parliamentary Privileges Act and the court has no jurisdiction to hear the matter.

His legal team says if the court determines what parliamentary business is that will have consequences not only for Slipper’s case but also for parliament as a whole.

But the prosecution labelled those arguments nonsense, saying the defence has only made a hypothetical case that there would be unfairness in the matter.

The prosecution says there are ways to avoid breaching parliamentary privilege during proceedings.

A decision will be be handed down at a later date.

Peter Slipper was the Federal Member for the seat of Fisher in Queensland, but lost his seat in the last Federal poll.

Slipper was not in court for Wednesday’s hearing.

Peter Slipper’s legal team Kylie Weston-Scheuber and Marcus Hassall arriving at court, but the former speaker stayed away.

ABC News, 19 February 2014.

Affidavits that support your cause of action.

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6.3.14.  An affidavit is one of the civil litigator’s tools of trade.  If deployed skilfully, it is “invisible” (like a good referee in a sports match), in that it is simply a conduit via which the court is informed of the nature of, basis for, and evidence supporting the client’s case.  A poorly drafted affidavit, however, can divert attention away from, and significantly damage, a client’s case, and may also reflect poorly on the practitioner.

The purpose of this paper is to review some of the key aspects of drafting of affidavits, with a view to enabling practitioners to achieve maximum effect (and minimum damage!) from their clients’ affidavits.

 

PURPOSE OF AFFIDAVITS

An affidavit represents the evidence of a witness in written form.[2]  One of the key purposes of an affidavit is to expedite outcomes in civil hearings by providing the other parties, and the court, with advance notice of the evidence supporting the deponent’s case.  Affidavits also achieve time savings in the actual conduct of civil hearings, in that usually they replace oral evidence in chief of a witness.

In civil matters in the ACT, evidence is required to be given by affidavit in any matter started by way of an originating application.  In proceedings commenced by way of originating claim the primary rule is that evidence must be given orally in open court, however this is subject to contrary order of the Court and also to contrary agreement of the parties.[3]  In practice, evidence in chief is given by way of affidavit in many civil cases.  In addition, any evidence filed in support of an interlocutory application is required to be given by way of affidavit.[4]

Because an affidavit essentially replaces oral evidence in chief, its contents must conform with the rules of evidence, including but not limited to the evidentiary rules with respect to relevance, hearsay, and opinion.  Some of these rules, in the context of affidavits, are discussed further below.

I will not discuss in detail in this paper the rules with respect to the form of affidavits, which are set out, for the purposes of civil proceedings in the ACT, in Division 6.10.2 of the Court Procedure Rules 2006 (although the rules relating specifically to Annexures and Exhibits are referred to later in this paper).  It is important to note, however, that many of these rules (e.g. for page numbering, consecutive paragraph numbering, etc.) have the aim of assisting the Court to digest affidavit material, and accordingly compliance is not just a technicality but a question of courtesy to the Court and positively assisting the client to present the client’s case.

 

RELEVANCE/CONFORMITY WITH PLEADINGS AND CASE THEORY

In order to be relevant, evidence must be capable of rationally affecting, directly or indirectly, the assessment of the probability of the existence of a fact in issue in proceedings: s 55, Evidence Act 2011 (ACT).[5]

In a civil case, relevance is also determined by reference to the pleadings.  Whilst a particular fact or allegation may be relevant in a general sense to a dispute between the parties, if it raises or goes to a cause of action or defence which has not been raised in the pleadings, then (absent special circumstances) it is highly likely that the court will regard it as irrelevant and inadmissible.

By way of example, in a case involving a contractual dispute about the supply of widgets, if the plaintiff’s case (as revealed in the pleadings) is that she suffered economic loss as a result of the widgets being delivered late by supplier X, evidence as to the poor quality of widgets produced by X is likely to be ruled to be irrelevant and inadmissible.

A further restriction which it is suggested should be observed by practitioners, but which does not arise as a matter of law, is that – to the extent possible – an affidavit should only contain material which is relevant to, and supports, whatever case theory has been developed in relation to the client’s case.

For example, in the “widget” scenario described above, if the plaintiff’s case theory is that supplier X was generally a person of good faith but did not deliver the widgets to the plaintiff on time because he had over-committed himself to too many different widget contracts, a judgment call would have to be made about whether to include in the plaintiff’s evidence an affidavit from a former employee of X to the effect that X had once stated that he resented and disliked the plaintiff because of the plaintiff’s success as a retail supplier of widgets.

As a general proposition, then, it is suggested that it is usually worth being relatively conservative in making judgments as to whether material is sufficiently relevant to warrant inclusion in an affidavit.  Material which is of no or marginal relevance can lead to unnecessary objections and divert attention away from the critical evidentiary matters.

 

EVIDENCE OF CONVERSATIONS/HEARSAY

It should be borne in mind, of course, that in many cases affidavit evidence recounting out-of-court representations by the deponent or others will be inadmissible on the basis that it constitutes hearsay: section 59, Evidence Act.  There are numerous exceptions to the hearsay rule, which in a civil case include the following:

  • The evidence is relevant for a non-hearsay purpose – e.g. in a defamation case to prove that the allegedly defamatory representation was made: s 60;
  • The maker of the representation is “not available” within the meaning of the Evidence Act: s 63;
  • The maker of the representation is available and is to be called as a witness, or alternatively it would cause undue expense or undue delay, or would not be reasonably practicable, to call the person who made the representation to give evidence: s 64;
  • Representations contained in business records: s 69;
  • Contents of tags, labels and writings: s 70; and
  • Admissions: s 81.

In so far as affidavit evidence may be sought to be led of a conversation on the basis that one of the abovementioned exceptions is applicable, care should be taken – wherever possible – to ensure that the relevant conversation is reported in direct speech.

Strictly speaking, there is no legal rule which requires evidence of conversations (assuming such evidence is relevant) to be given in this manner, rather than in indirect or reported speech.[6]  The practice is strongly preferable, however, for a number of reasons including the following:

  • The Court will always prefer to have, and where possible is entitled to have, the “best evidence” available (there is further discussion of the “best evidence” principle later in this paper).  In respect of evidence of conversations, the “best evidence” is an actual reproduction of the relevant conversation in “I said”/”She said” form, rather than a report on the conversation in indirect speech.
  • Reporting of conversations in indirect speech creates the potential for editing on the part of the deponent (which may be entirely inadvertent on the part of the deponent).  Take for example the following example:

EVIDENCE OF CONVERSATION IN INDIRECT SPEECH: He told me our contract was over.

EVIDENCE OF CONVERSATION IN DIRECT SPEECH: He stated to me: “This thing is over.”

Note the subtle but potentially significant difference in meaning between the two above versions – the direct speech contained in the second version does not necessarily support the conclusion weaved into the indirect speech contained in the first version.

  • The use of indirect speech in evidence of a conversation may diminish the probative value of the evidence so adduced, and may also give rise to the potential for an application for the evidence to be excluded pursuant to section 135 of the Evidence Act on the basis that it is potentially confusing or misleading: see LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 543 NSWLR 31 per Barrett J at 33-34.

In the above context it should be noted that witnesses are not expected to have word-perfect recall of conversations which may have occurred some time ago, and it is perfectly acceptable for evidence of this type to be couched in terms of: “I then said words to the effect of …”.

 

COMPETENCE

A consideration which can be easily overlooked in the context of written affidavit evidence is the need to establish that the deponent has the competence to give the evidence which is contained in the affidavit.  In this context I refer to “competence” not in the strict legal sense relating to competence of witnesses (as to which see sections 12-13 of the Evidence Act), but in the sense of the deponent’s physical and mental capacity to give the evidence which is contained in the affidavit.

In this context it should be borne in mind that whilst courts are principally interested in from a witness (or a lay witness) is what that witness personally did, saw, heard or otherwise perceived, it may be necessary or at least desirable in some instances – particularly in written affidavit evidence – to explain how it was that the witness was able to do/see/hear/otherwise perceive what the witness says she did/saw/heard/ otherwise perceive, i.e. the witness’s capacity to give the particular evidence.  An example may serve to illustrate the point.

LESS DESIRABLE: “On 1 January 2014 whilst at work I overheard the defendant saying to Mrs X: ‘I just can’t cope with the number of widget contracts I have at the moment”.

MORE DESIRABLE: “On 1 January 2014 I was performing tasks in the photocopier room at work.  The photocopier room is adjacent to the office of Mrs X, and sufficiently close to be able to hear conversation from inside Mrs X’s office when Mrs X has her door open.  On this occasion I observed that Mrs X did have her door open and I also overheard the defendant say to Mrs X: ‘I just can’t cope with the number of widget contracts I have at the moment”.

 

PRIVILEGE

It goes without saying that affidavit evidence should not include material which is subject to a privilege which the opponent may assert, such as legal professional privilege or “without prejudice” or “settlement” privilege.[7]  Nevertheless, it is surprising on how many occasions there is an attempt to lead such material, particularly evidence which infringes the “without prejudice” privilege.

Practitioners should note the contents and potential breadth of section 131(1) of the Evidence Act, which contains an express prohibition on the presentation of evidence of:

“(a)        a communication that is made between people in dispute, or between 1 or more people in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or

(b)          a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.”

There are of course numerous exceptions to section 131(1), which should be noted,[8] and which include the entitlement of a party to provide “full disclosure” of the substance of particular settlement negotiations where the other party has adduced only part of that evidence and it is reasonably necessary to do so to enable a proper understanding of the other evidence that has already been presented.[9]

 

BEST EVIDENCE PRINCIPLE

In circumstances where a witness has annexed or exhibited a relevant document to his or her affidavit, it is both pointless and impermissible for the witness then to purport to summarise the contents or effect of the document – the document will speak for itself and is the “best evidence” of its contents.  See further Golden Eagle International Trading Pty Ltd v Zhang (2007) 229 CLR 498 at 500[4].

Where it is necessary or desirable in an affidavit to refer to the contents of another document, the best approach may be for the deponent simply to “note” or otherwise refer to the contents of the document (rather than purport to summarise or paraphrase it), and then give whatever (relevant) evidence the deponent has to give about the document.  An example might be as follows:

Witness A, the plaintiff, annexes to her affidavit a letter received from the defendant, by which the defendant asserted that Witness A had breached a contract between them and purported to terminate the said contract.  Witness A wants to say in her affidavit that, although she says she had not breached the contract, she nevertheless treated the defendant’s letter as a repudiation of the contract and accepted that repudiation.

IMPERMISSIBLE

The defendant wrote to me on 25 December 2013 purporting to terminate the contract between us on the basis that I had supposedly breached it.  Notwithstanding that I had not breached the contract I decided to accept his repudiation.  A copy of the letter from the defendant dated 25 December 2013 is annexed to this affidavit and marked “A”.

PERMISSIBLE

I refer to the defendant’s letter to me dated 25 December 2013, a copy of which is annexed to this affidavit and marked “A”.  Upon receiving that letter I read its contents and formed the view that the defendant had repudiated the contract between us.  Notwithstanding that I did not agree with the matters set out in the letter I decided to accept the defendant’s repudiation and terminate the contract.

CONCLUSION/OPINION & ASSUMED FACTS

A very large proportion of modern cases require the admission into evidence of opinion evidence, be it based on specific expertise, derived from experience, or otherwise.  This is of course entirely proper.

Similarly, it will often be either necessary or convenient for a witness to give evidence which is based on assumed facts – e.g. as to the existence of a legally binding contract between the parties, or

The proper admission of affidavit evidence within the above categories requires, however, the construction of an “edifice” on which the opinion or other evidence can solidly rest, namely the identification and proof of the “assumed facts”.  By default, it is usually for the practitioner to ensure that the edifice is soundly constructed, namely all relevant assumed facts have been identified, and secondly that – where necessary – those assumed facts have been sufficiently proven.

Most practitioners will be familiar with the decision of the NSW Court of Appeal in Makita (Aust) Pty Ltd v Sprowles, the essence of which is that where expert opinion is based on assumed facts which are not sufficiently identified and (where necessary) proven, so that the court can exercise its own judgment about the matter regarding which the opinion is expressed, the evidence may be ruled inadmissible.

It is therefore necessary to consider a client’s affidavit evidence “as a whole” and to ensure that, where expert or other evidence is to be called which relies on particular assumed facts, those facts are sufficiently identified and proven via other affidavits.

 

ARGUMENTATIVE OR INFLAMMATORY MATERIAL

There will often be a temptation, particularly in warmly contested disputes, for practitioners to include (sometimes at the request of their clients) material which is argumentative, or inflammatory (or both).  For example, a party may wish to include in his or her affidavit a particularly insulting or rude statement made to him or her by the other party, which the client may think is relevant to the other party’s general character or credit, or an opinion of the client that the other party “could not be taken seriously”.

My experience is that, unless such matters are directly relevant to and required for the proper resolution of the issues in dispute, it is almost always better for them to be omitted.  Aside from considerations of admissibility, which may well arise, there are a number of reasons for this approach:

  • In my experience there is usually enough “heat” in the litigation process without any unnecessary fanning of the flames;
  • Judges and magistrates have usually “seen it all before”, will pay little attention to evidence of this type, and may think that its inclusion reflects poorly on the judgment of the practitioner;
  • Practitioners should not be mere mouthpieces for their clients; and
  • Inclusion of material of this type can divert attention away from more critical and analytical thinking about the client’s case.

ANNEXURES AND EXHIBITS

Be aware of the difference between annexures and exhibits.  An annexure is a document which is physically attached to and filed with the affidavit, and stays with the affidavit permanently.  An exhibit is a document which is separate from, but filed with the affidavit, and must be accompanied by a certificate signed by the person before whom the affidavit was sworn or affirmed, and be identified with the initials of the deponent followed by a number (e.g. “Exhibit MJH-1”).  In the ACT, the annexures to an affidavit must not exceed 50 pages.[10]  If more than 50 pages are required then an exhibit should be used.

It is important also that annexures and exhibits be appropriately marked and paginated, particularly where they are bulky.  Although not legally mandatory, the following conventions can be usefully observed in this context:

  • Annexures can be identified starting at “Annexure A” through to “Annexure Z”, and then if necessary “Annexure AA” etc.;
  • Where it is proposed to rely on more than one affidavit of a particular deponent in a case it can be useful to make Annexures or Exhibits consecutive upon the last Annexure or Exhibit in the earlier affidavit.  E.g. if the last exhibit in the earlier affidavit is “Exhibit MJH-8”, the first Exhibit in the next affidavit should be labelled “Exhibit MJH-9”.

 

CASE STUDY

As an illustration of some of the principles referred to above, practitioners may wish to read the judgment of Allsop P in the matter of International Finance Trust Company Limited & Anor v New South Wales Crime Commission (2009) 189 A Crim R 559; [2008] NSWCA 291.

One of the issues before the New South Wales Court of Appeal in that matter is whether affidavit material which had been placed before the Supreme Court at first instance, in support of an application for a restraining order over property under the Criminal Assets Recovery Act 1990 (NSW), had been sufficient to demonstrate that there were “reasonable grounds” for the suspicion of the deponent that a particular person had engaged in “serious crime related activity”.  Because the proceedings were interlocutory in nature, the deponent had been entitled to include in his affidavit, and rely on, hearsay material.

Nevertheless, Allsop P (with whom Beazley JA agreed) held that, because of the way the affidavit was structured, large parts of it were inadmissible, and therefore that the affidavit as a whole failed to support the asserted “reasonable suspicion” on the part of the deponent.  As a result, restraining orders over millions of dollars in bank accounts were found to have been obtained invalidly.

McClellan CJ at CL (in a minority judgment) disagreed with the majority.  Ultimately, the restraining orders which had been obtained by the New South Wales Crime Commission were set aside by the High Court on other grounds (i.e. because the provisions under which they were obtained were unconstitutional).  Nevertheless the case is a good illustration of the drastic consequences which can flow if insufficient critical attention is given to the drafting of affidavits.

The key parts of Allsop P’s judgment appear at [7]-[39], and have been distributed with these paper (along with the key parts of the relevant affidavit) for ease of reference.

 

 

MARCUS HASSALL

6 March 2014.

 

[1] This paper draws significantly on a paper originally prepared by R.A. Pepper (as she then was) dated 31 July 2003 entitled “Affidavits: The Basics”, and updated by Ian Neil SC in August 2007 and Cynthia Cochrane on September 2009 and March 2011, and also on a paper by Alan Sullivan QC dated May 2011 and entitled “Preparing Affidavits & Evidentiary Statements”.

[2] R.A. Pepper, op cit, [3].

[3] Rules 6700-6701, Court Procedure Rules 2006 (ACT).

[4] Rule 6007, Court Procedure Rules.

[5] See also the same provision in the Evidence Act 1995 (NSW) and the Evidence Act 1995 (Cth).  Hereafter I refer generically to the Evidence Act by which is intended a reference to all three of the aforementioned Acts.

[6] See the judgment of Barrett J in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 543 NSWLR 31 at 33-34, as referred to by Alan Sullivan QC in “Preparing Affidavits & Evidentiary Statements” (supra) at [7.14]-[7.15].

[7] Alan Sullivan QC, op cit, 8.3.3.

[8] See section 131(2) et seq.

[9] See paragraph 131(2)(c).

[10] Rule 6712(2), Court Procedure Rules 2006.

Administrative Law case note for Bar Bulletin

Date:
Author: Categories: Administrative law Tagged: , , ,

Co-ordinated Constructions Pty Ltd & ACT Construction Occupations Registrar & Anor [2012] ACAT 55

 

In this matter before the the ACT Civil and Administrative Tribunal (“ACAT”) the applicant Co-ordinated Constructions Pty Ltd (“Co-ordinated Constructions”) sought administrative review of a decision of the ACT Construction Occupations Registrar ordering it to rectify building work undertaken by it at residential premises in Curtin.

Co-ordinated Constructions, the holder of a builder’s licence under the Building Act2004 (ACT), had been engaged by the owner of the premises, Mr Smith, to undertake alterations and additions to an existing residence.  This included the construction of a new lower floor area (consisting of a rumpus room, bedroom, ensuite, laundry and stairs) built below natural ground level, and accessible by a flight of four steps from the double garage of the existing residence.  The extension was completed in May 2009.

In December 2010, following heavy rain, water entered the downstairs extension through the western wall of the building causing water damage and major disruption to Mr Smith and his family.  Similar water ingress events occurred in the same location in February 2011, December 2011 and March 2012.  When attempts to resolve the issue with the applicant failed, Mr Smith lodged a complaint with the respondent in January 2011, leading to the making of the rectification order which was the subject of the proceedings.

Sections 35 and 38 of the Constructions Occupations (Licensing) Act 2004 confer on the Constructions Occupations Registrar a discretion to make a rectification order where he determines that there has been a contravention of an operational Act (including the Building Act), and that it is “appropriate” to do so.  Section 42 of the Building Act requires building work to be carried out in a proper and skilful manner, but also “in accordance with approved plans”.

In arguing that the Registrar ought not to have exercised his discretion to make a rectification order, the applicant relied on the fact that the building work had been approved by a qualified certifier under the Building Act, and on the fact that the owner Mr Smith had, to a significant degree, taken on design responsibility for the building work by initially having sketch plans drawn up by his own architect, by engaging engineers to prepare structural engineering drawings with respect to the building work.  The applicant argued that, even if the building work allowed water ingress after heavy rain, the work they had undertaken was consistent with the relevant “approved plans” (in accordance with which they were required to work under the Act).  In all these circumstances, the applicant submitted, there had been no contravention of the Building Act, and/or it could not have been “appropriate” for the Registrar to have issued a rectification order.

In the alternative, the applicant argued that the wording of the rectification order had been defective in that it had merely ordered the builder to re-undertake the building work so that it resulted in a building which was compliant with the Building Code, without specifying the mechanism by which the builder was to achieve this result.

The Tribunal noted that section 36 of the Constructions Occupations (Licensing) Act 2004, since its amendment in 2007, provided that the fact that the building work had been approved did not preclude the Registrar from issuing a rectification order.[1]

In respect of the applicant’s argument that there had been no contravention of the Building Act, the Tribunal held that, regardless of what was provided in the approved plans, the relevant building work could not have been carried out in a “proper and skilful manner” unless it had been carried out in such a way as to comply with the requirements of the Building Code of Australia.  In that regard, the Tribunal found the building work to be defective because, even though none of the relevant plans referred to it, in order for the work to comply with the Building Code there needed to be a method of subsoil drainage behind the new underpinning to prevent water ingress after heavy rain.  The absence of any reference to such a draining system in the approved plans did not remove the obligation of the builder itself to ensure compliance with the Building Code (applying JM Kelly (Project Builders) Pty Ltd v Queensland Building Services Authority [2010] QCAT 568).

The Tribunal also rejected the applicant’s argument that it was not appropriate for the Construction Occupations Registrar to have issued a rectification order in circumstances where the building owner had taken on design responsibility, and/or because the approved plans had been defective in relation to the issue of subsoil drainage.  The Tribunal ruled that the fact that the plans had been inadequate did not oblige, or entitle, the builder only to work “in accordance with the approved plans” where to do so meant that the building would not comply with the Building Code.  In this respect it may have been significant that, in relation to other issues, the approved plans had been amended or departed from at the suggestion of the applicant when the applicant considered it necessary or desirable.

Finally, the Tribunal rejected the argument that, as part of the rectification order, the Construction Occupations Registrar ought to have set out the mechanism by which the builder should make the building compliant with the Building Code.  The Tribunal held that it was consistent with the scheme of the Building Act and the Construction Occupations (Licensing) Act that it was for the builder, not the regulator, to ascertain the means for achieving compliance with the Building Code.

The Tribunal did however hold, that, consistent with the contractual agreement between the parties, the owner of the premises should pay for the cost of the additional design work which would be necessary for a solution to the subsoil drainage issue to be resolved, with the builder then to implement that solution.

The decision of the Tribunal confirms that, under the legislative scheme created by the Building Act and the Construction Occupations (Licensing) Act, the builder stands at the apex of responsibility for ensuring that building work complies with both the Building Act and the Building Code of Australia.  Here, even the fact that the neither the architect, the structural engineer, nor the certifier engaged by the building owner had considered the approved plans’ treatment of the subsoil drainage issue to be inadequate, the builder was nevertheless found to be ultimately responsible when they proved to be so.

 

[1] Prior to this amendment, His Honour Chief Justice Higgins had held, in ACT Constructions Registrar v Tokich [2006] ACTSC 89, that the Registrar was estopped from issuing a rectification order in respect of building work which had been the subject of a building approval under the Building Act.  The Tribunal held that that decision was no longer applicable.