Apple's 4G iPad 3 advertising and the ACCC - undertakings filed

In response to the proceeding filed by the ACCC, Apple has filed undertakings in the Federal Court of Australia.

A media release from the ACCC notes that Apple has filed undertakings which provide that until further order or hearing, Apple Pty Limited would as soon as is reasonably practicable and by no later than 5 April 2012:

• display a statement that the “This product supports very fast cellular networks. It is not compatible with current Australian 4G LTE networks and WiMAX Networks” in its promotional materials, on its website and online store
• distribute signage with the same wording to resellers to be displayed at points of sale
• contact by email any persons for whom Apple Pty Limited has an email address and who have purchased the “iPad with WiFI + 4G” between 16 March and 28 March 2012 (including pre-orders prior to 16 March 2012) including statements to the effect that “This product supports very fast cellular networks. It is not compatible with current Australian 4G LTE networks and WiMAX Networks” and that such persons are entitled to return the product and request a refund within a timeframe specified in the email.

The following are the main steps in the proceeding leading to trial:

• A directions hearing has been scheduled for 16 April 2012 at 9:30am. 
• A mediation has been ordered for 18 April 2012. 
• A hearing on liability has been set down commencing 2 May 2012

The ACCC release is here.

Reinstatement of pre-Corporations Law (1991) companies: Part 2

In my last post I noted that s601AH of the Corporations Act 2001 (Cth) does not appear to give a Court power to reinstate a company that was registered and deregistered under pre-1991 corporations legislation.

However the authorities diverge on whether the Corporations Act is the appropriate avenue for reinstatement of a company that was either 'deregistered' or 'dissolved' under pre-1991 corporations legislation.

In terms of what companies laws have previous applied, I note that the following are some of the main acts which are the equivalent of the modern Corporations Act since the 1960's:

• The Companies Act 1961, being uniform State Acts.
• The Companies (Victoria) Code and the Companies (Application of Laws Act) 1981, being uniform State Acts.
• The Corporations Act 1989 (Cth) (the Corporations Law)
• The Corporations Act 2001 (Cth) (the Corporations Act).

In Parker v Australian Asbestos [2002] NSWSC 520, Austin J formed the view that although s601AH did not appear to apply to a company registered and deregistered under pre-1991 corporations legislation, there were other provisions in the Corporations Act which allowed s601AH to apply to such companies.

The reasoning and provisions are as follows (and contained at [11] to [14] of Parker):

1. S610AH Corporations Act provides for the reinstatement of a 'company'. 
2. ‘Company’ is defined under the Corporations Act as a company registered under that Act. As such, a company deregistered before the commencement of the Corporations Act is not a company for the purposes of the Corporations Act. 
3. S1400 Corporations Act provides that if a right was acquired under a provision of the Corporations Law (being the Corporations Act 1989) in force before 15 July 2011 and corresponds to a provision of the Corporations Act, then that carries over. 
4. S601AH Corporations Act has a corresponding s601AH in the Corporations Law. 
5. S1362CH of the Corporations Law (which does not have a corresponding provision in the Corporations Act) extends s601AH Corporations Law to reinstatement of companies incorporated under previous laws, including state laws, such as the Companies Act 1961. 
6. Because 601AH is a carried over provision, and because the carried over provision extends to earlier acts such as the Companies Act 1961, the company can be reinstated under s601AH of the Corporations Act.

For that reason, Austin J held that a company that was registered and deregistered under the Companies Act 1961 could be reinstated under s601AH of the Corporations Act.

For clarity, s1362CH Corporations Law provides the following:

ASIC's powers under section 601AH extend to the reinstatement of the registration of a body corporate that: 

(a)was at some time before commencement incorporated or taken to be incorporated under a previous law of this jurisdiction corresponding to Chapter 2 of the old law; and
(b)was deregistered before commencement.

In City West Water Ltd v Mr D Investments Pty Ltd [2002] VSC 553, Senior Master Mahony (now Associate Justice Mahony) disputed the correctness of the reasoning of Austin J. Associate Justice Mahony noted that s1362 of the Corporations Law only applied to ASIC's powers, and not the Court's powers. The criticism of the reasoning is set out at [26]:

With respect, as has been seen, the subject of s 1362CH was limited to `ASIC's powers' and the section did not have such a general operation with respect to the whole of s 601AH as Austin, J suggests in the passage quoted in [25]. In particular, it had no application to the jurisdiction of the Court under s 601AH (2).

For that reason, Associate Justice Mahony was 'compelled to conclude that, the company having been deregistered under the Code, the Court's jurisdiction to make the order for reinstatement of its registration is still to be found in s 459 (6) of the Code' (at [28]).

This decision has been followed an applied in Armitage v HXE Limited [2010] NSWSC 1109 to reinstate a company under the Companies Act 1961.

Armitage and City West Water are authorities in strong support of the proposition that if a company is deregistered/dissolved under pre-1991 corporations legislation, particularly the Companies Act 1961 and the Companies (Victoria) Code, then it is to be reinstated under those past Acts.

Apple's 4G iPad 3 advertising and the ACCC

The ACCC is filing a claim tomorrow against Apple for Apple's advertising which claims that the iPad 3 is 4G compatible.

The ACCC release is here.

The ACCC says that the iPad 4 advertising is misleading because 'it represents to Australian consumers that the product "iPad with WiFi + 4G" can, with a SIM card, connect to a 4G mobile data network in Australia, when this is not the case.'

The ACCC will be seeking urgent interlocutory relief and final orders including injunctions, penalties, orders for corrective advertising and orders for refunds to affected persons.

Withdrawal of an admission: Hodgson v Amcor; Amcor v Barnes & Ors [2012] VSC 94

The matter of Hodgson v Amcor; Amcor v Barnes & Ors [2012] VSC 94 was a dispute concerning the Amcor management. Hodgson was suing for amounts owing to him on termination of his contract of employment, and Amcor was counterclaiming against its management for breach of fiduciary and like duties for acting in their own interests when selling two Amcor businesses.

Amcor's defence contained an admission of fact, including:

4.(g) For the financial year 2003/2004, the Defendant and Plaintiff agreed on budget and performance measures to be met by the Plaintiff, upon achievement of which the Plaintiff would be entitled to a bonus and such measures included, inter alia, compliance with all laws including without limitation the Trade Practices Act 1974 (Cth) (TPA) (MIP Framework 2003/04). 

8. It says that the Plaintiff did not meet the budget and performance measures agreed by the Defendant and Plaintiff for the financial year 2003/2004 as described in paragraph 4 above and otherwise denies each and every allegation in paragraph 8 SOC.

Amcor issued a reply and sought to withdraw the above admissions after the trial was completed. His Honour Vickery J discussed the relevant principles for withdrawal of admissions in light of the case management principles which were set out in Aon (at [492] to [500]).

...Amcor relied upon McKenzie v Commonwealth of Australia[56] and Jeanes v Commonwealth of Australia.[57]

493 In McKenzie Gillard J discussed the principles concerning an application to amend a defence to withdraw an admission made, which were summarized as follows:

(b) No amendment would be allowed if it raised a false issue or did not raise an arguable defence.
(c) The issue is one of justice between the parties ensuring that the real matters in controversy are decided.
(d) The trial is the proper place to determine all claims and defences and it is not appropriate, except in a clear case on a summary application to amend, to exhaustively investigate the facts and the law.
(e) The burden of proof or persuasion may be crucial on an application where there are disputed facts.
(f) It is not the law that a defendant is not permitted to resile from an admission unless it was shown the admission was made inadvertently or through error; justice is the determinant.
(g) It is unnecessary to show that there was some error or mistake which led to the form of the pleading and that there is a reasonable explanation for having made the admission, before a party may seek to withdraw the admission. A court usually requires some explanation for the change in approach, but in the absence of the same, or whether it was an adequate or inadequate explanation, can hardly determine the outcome of the application in the face of compelling reasons of justice.

494 In accordance with these well established principles governing amendment, as they stood at the time McKenzie was decided, Gillard J granted to the Commonwealth the opportunity to argue the issue it wished to raise at trial, saying that prima facie it was entitled to amend its pleading, and “Whether it be permitted depends upon whether the plaintiff will suffer a prejudice which cannot be overcome”.  

495 It is to be noted that in McKenzie, the Commonwealth sought leave to amend its defence in excess of two years after the date it delivered its defence, however, the proceeding had not been fixed for trial.  

496 The principles referred to by Gillard J in McKenzie were said by his Honour to be supported by a number of decisions, including Queensland v J L Holdings Pty Ltd[58] where the High Court said:

Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties. In taking an opposite view, the primary judge was, in our view, in error in the exercise of her discretion.

497 The principles as to withdrawal of an admission and amendment referred to in McKenzie were re-stated by Gillard J in Jeanes. 

498 However, since McKenzie and Jeanes, the High Court handed down its decision in Aon Risk Services Australia v Australian National University,[59] which it did on 5 August 2009. This decision affirmed the importance, not only to the parties, but to the Court and other litigants, of a “just but timely and cost-effective resolution of a dispute between the parties to a proceeding”.[60] French CJ noted there is “an irreparable element of unfair prejudice in unnecessarily delaying proceedings”.[61] In particular, the Chief Justice drew attention to “the waste of public resources”, the “strain and uncertainty imposed on litigants” and “the potential for loss of public confidence in the legal system” arising from adjournment of trials without adequate justification [62] Similarly, in Aon, Gummow, Hayne, Crennan, Kiefel and Bell JJ referred to the “ill-effects of delay” upon employees and officers of corporations, as well as upon defendant corporations whose ability to plan financially may be affected by a contingent liability.[63] 

499 In Aon, the High Court accepted the principles of case management by the courts, saying:[64] 

Such management is now an accepted aspect of the system of civil justice administered by courts in Australia. It was recognised some time ago, by courts here and elsewhere in the common law world, that a different approach was required to tackle the problems of delay and cost in the litigation process.

500 In so doing, the High Court expressly overruled statements in its previous decision of Queensland v JL Holdings to the effect that case management concerns are only relevant in exceptional circumstances. In its place it was ruled that courts must always consider the public interest in the efficient use of court resources when determining whether to grant indulgences such as amendment of pleadings and adjournments.

Vickery J rejected the application to amend as follows (at [501] to [505]):

501 In the present case, Amcor’s application to amend was made when the trial was all but over, with all of the evidence concluded, and the principal submissions in final address delivered. It was only in an otherwise short reply that Amcor made its application. 

502 Amcor did not contend, or put on evidence, to suggest that the pleading in question was the product of mistake or inadvertence. Nor could it have properly been contended that this was the case, in my view, because of the positive nature of the plea advanced in paragraph 4(g) of Amcor’s defence. No other reason or excuse was put forward for the state of its original pleading. 

503 Nevertheless, Amcor submitted that Hodgson, in spite of the admissions made in its pleading, went into evidence on the matter in his witness statement and accordingly, the parties went to trial seeking a determination of the issue on the facts. Further, senior counsel for Amcor, in the face of objection, challenged Hodgson on one component of his MIP bonus calculation relating to the relevant head count and put to him that there was no agreement about that, to which Hodgson replied that he disagreed. 

504 I am not satisfied that Amcor has made out its case for the amendment which it sought. Hodgson was entitled to proceed to trial on the basis of the admissions made in Amcor’s pleading. Although he called evidence on the point, he may well have put on or referred to additional evidence on the issue, had the relevant pleas not been in place. A tight timetable was put in place for the hearing of the Quantum Trial. Had the amendment been granted, an application to reopen the trial with the calling of further witnesses was foreshadowed. This may well have resulted in the trial being adjourned to enable this to occur, following a period during which the parties would have to consider their position in the light of the amendment. This would have defeated the timetable set for the hearing of this part of the proceeding and been inimical to the case management regime which had been put in place to govern the trial. It may well have delayed the conclusion of the Quantum Trial and compounded the delays already suffered in this litigation. 

505 For these reasons, I reject Amcor’s application to amend its pleadings made in the course of the Quantum Trial, as I have described.

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

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

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

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

Reinstatement by ASIC 

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

Reinstatement by Court 

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

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

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

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

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

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

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

ASIC to give notice of reinstatement 

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

Effect of reinstatement 

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

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

s1378 provides as follows:

(1) If: 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

s568 provides as follows:

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

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

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

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

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

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

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

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

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