Important notice

5.4 Misleading advertising – can advertisers be responsible for misleading and deceptive content?
(By Elizabeth O’Donovan, Deacons)

Cassidy v Saatchi & Saatchi Australia Pty Ltd [2004] FCAFC 34, Full Court Federal Court of Australia, Moore, Mansfield and Stone JJ, 25 February 2004

The full text of the judgment is available at:

http://cclsr.law.unimelb.edu.au/judgments/states/federal/2004/february/2004fcafc34.htm
or
http://cclsr.law.unimelb.edu.au/judgments/

(a) Summary

This case dealt with the issue of whether an advertising agency, Saatchi & Saatchi Australia Pty Ltd, (the Respondent) which used its skills to create and prepare an advertisement for a client which conveyed misleading representations to viewers of the advertisement, was engaging in misleading and deceptive conduct for the purposes of section 12DA of the Australian Securities & Investments Commission Act 2001 (Cth) (ASIC Act) which is in similar terms to section 52 of the Trade Practices Act 1974 (Cth) (TPA).

The Australian Competition and Consumer Commission (ACCC) appealed to the full court of the Federal Court of Australia against the decision of a single judge of the Federal Court of Australia who held that the Respondent had not breached section 12DA of the New ASIC Act.

This case has received attention in the media due to the warnings given by Graeme Samuel, the ACCC’s chairman, that the media must be aware of its responsibilities in relation to the provisions relating to misleading and deceptive advertising under the TPA.

The appeal was dismissed and the decision at first instance that the Respondent had not breached its responsibilities under section 12DA of the ASIC Act was upheld.

(b) Facts

The Respondent provided advertising services to the NRMA Pty Ltd (NRMA) over the course of several years. The NRMA ran a series of newspaper advertisements which represented that pregnant women could have their babies delivered without making any payment for hospitalisation or medical expenses. The advertisements stated that NRMA would make every payment for its fund members irrespective of how advanced the pregnancy was at the time when the mother joined the fund.

There were some disclaimers in small print to the advertisements. However, a pregnant woman was fully covered only after payment of any policy excess or ‘co-payment’. Women who were pregnant at the time of joining the fund were required to have completed a 12 month waiting period with NRMA or with their existing fund.

It was not disputed that the advertisements contained representations which were misleading. The issue was whether the misrepresentations contained in the advertisements were “made by the Respondent” for the purposes of finding the Respondent liable under section 12DA of the ASIC Act.

The Respondent submitted that it had prepared the advertisement for NRMA in the knowledge that, if approved, they would be likely to be published as part of an advertising campaign. It was accepted that the Respondent did not approve the advertisements or authorise or arrange for their publication. There was no claim that the Respondent aided or abetted the contravention by its principal of s 12DA of the ASIC Act or that it was knowingly concerned in the contravention of s 12DA by its principal.

Stone J of the Full Court, noted that the statutory schemes found in both the TPA and the ASIC Act distinguish between principal and accessorial liability and that there were good policy reasons for preventing liability from being cast too widely.

The learned judge at first instance considered whether the Respondent could have “made the misrepresentations” by having created the advertisements with the intention or knowledge that they would later be published by NRMA by placing them in newspapers. However, her Honour held that it was the NRMA who, although utilising the Respondent’s expertise in advertising, had decided what message to convey to the public and, ultimately, whether or not to deliver that message.

Her Honour accepted that the Respondent had produced the advertisements in question, their content was approved by NRMA and that the approval included a legal “sign off” by the NRMA’s in house legal counsel. Her Honour also took the view that the advertisements did not convey to the public that the misrepresentations were made by the Respondent. Her Honour did not accept that the appearance of the Respondent’s name at the bottom of the advertisement was sufficient to convert the advertisement into a joint representation by NRMA and the Respondent.

(c) Decision

The Full Court upheld the decision at first instance and found that the Respondent had not breached its responsibilities under section 12DA of the ASIC Act.

The court’s findings appear to be based upon the distinction between the creation of representations which are misleading and deceptive and the act of dissemination of those representations. In this case, although the advertisements were created by the Respondent and then used by the NRMA to mislead or deceive people, there was nothing in the Respondent’s conduct in and of itself which could be categorised as directly misleading or deceptive.

Therefore, the court took the view that the Respondent did not engage in misleading or deceptive conduct as the NRMA retained ultimate control over what was done with the misleading advertisements.

5.5 Appointment of provisional liquidator – whether court should refuse application to appoint provisional liquidator where receiver already appointed
(By Nicole Evison, Corrs Chambers Westgarth)

National Investment Institute Pty Ltd (ACN 098 189 863) (In Liquidation) v Property Corporate Services Pty Ltd, in the matter of Property Corporate Services Pty Ltd (ACN 098 898 572) [2004] FCA 175, Federal Court of Australia, Victorian District Registry, Goldberg J, 27 February 2004.

The full text of the judgment is available at:

http://cclsr.law.unimelb.edu.au/judgments/states/federal/2004/february/2004fca175.htm
or
http://cclsr.law.unimelb.edu.au/judgments/

(a) Background

This case concerns a determination by the Federal Court as to whether it should refuse an application pursuant to section 472(2) of the Corporations Act 2001 (Cth) (the “Act”) for the appointment of a provisional liquidator where a receiver had already been appointed. The Federal Court was also called upon to determine whether section 532(2) of the Act precluded the appointment of the provisional liquidator on the grounds that the appointee was a partner of an officer of the respondent company, Property Corporate Services Pty Ltd (“PCS”).

(b) Facts

This case concerned PCS, the treasury entity of a group of companies ultimately owned and controlled by Mr Henry Kaye (the “Henry Kaye Group”). On 25 February 2004, the plaintiffs, National Investment Institute Pty Ltd (in liquidation) (“NII”) and Andrew Hewitt (in his capacity as liquidator of NII) (“Mr Hewitt”) made application to the Federal Court for the following orders:

         that PCS be wound up in insolvency pursuant to sections 459A and 459B of the Act;
         in the alternative, that PCS be wound up on just and equitable grounds pursuant to section 461 of the Act; and
         that, until the hearing of the winding up proceedings, the court appoint a provisional liquidator pursuant to section 472(2) of the Act.

Mr Gregory Keith, a partner of Mr Hewitt at Grant Thornton, was nominated for the role of provisional liquidator. The defendant, PCS, supported by Mr Smith (a property developer) and LAS Investments Corporation Pty Ltd (“LAS”) (a company associated with Mr Smith) opposed the orders sought.

(c) Decision

(i) Involvement of LAS and the sale of the Marrickville property

On 23 November 2003, a governing deed was executed by PCS, Mr Kaye, other companies in the Henry Kaye Group, Mr Smith and LAS under which Mr Smith and LAS agreed to provide financial accommodation by way of forbearing to sue for the repayment of financial accommodation. This governing deed was subsequently varied by a deed of variation on 8 December 2003 whereby Mr Smith and LAS agreed to procure an additional advance in respect of a property development (the “Marrickville property”) by Marrickville Holdings Pty Ltd (“Marrickville Holdings”).

On 24 November 2003, ASIC registered a fixed and floating charge over the assets of PCS in favour of LAS in respect a number of commercial transactions and property developments engaged in by LAS with companies in the Henry Kaye Group. A second charge was registered on 13 January 2004 over the assets of Marrickville Holdings in favour of Mr Smith and LAS.

On 26 February 2004, Mr Smith and LAS appointed Mr Barry Taylor as receiver and manager of the assets and property of PCS pursuant to the charge registered on 24 November 2003.

The Court noted that, following settlement of the Marrickville property, PCS, as one of two creditors of Marrickville Holdings, should receive approximately $5.62 million of an estimated $6 million if distributed on a pro-rata basis. Settlement of the Marrickville property was to be effected on 1 March 2004.

(ii) Indebtedness of PCS to NII

During the course of Mr Hewitt’s administration of NII, the accounts showed a loan by NII to PCS in the amount of $29.1 million. This loan was not documented or recorded in writing, however, in the governing deed of 23 November 2003, Mr Kaye and the companies in the Henry Kaye Group acknowledged that PCS owed NII approximately $29 million.

(iii) Appointment of provisional liquidator

Goldberg J held that the appointment of a receiver by Mr Smith and LAS to the assets of PCS was no bar to the appointment of a provisional liquidator. Goldberg J stressed the importance of appointing an independent person to take control of the affairs of PCS having noted the connection between Mr Kaye’s interests and the interests of Mr Smith and LAS under the governing deed. Goldberg J provided:

“It is essential that an independent person take control of the affairs of PCS as soon as possible to ensure the integrity of the recoverability of the debts and obligations otherwise due to it. … Although it might be contended that a receiver under a debenture charge is a person who is independent of the directors of, and shareholders in, the company, it must be remembered that Mr Kaye’s financial fortunes are intimately tied up with those of Mr Smith and LAS. By virtue of clause 6.1 of the governing deed, Mr Kaye had a personal interest in having the interests of Mr Smith and LAS preferred over other creditors.”

Goldberg J also had concerns in respect of undertakings given by Mr Kaye on 30 January 2004 at the hearing of an application by ASIC to appoint receivers over the property of Mr Kaye and PCS. Mr Kaye and PCS undertook not to transfer, deal with, diminish, mortgage, assign or dispose of any of their assets otherwise than for full value and in the ordinary course of business, or to meet legal or living expenses. Goldberg J did not consider that the undertakings provided adequate protection for PCS “from having the funds that would otherwise be available to it” from Marrickville Holdings. After considering the above issues and accepting the fact that PCS was in fact insolvent, not trading and there was a likelihood that the company would be wound up, Goldberg J was satisfied that a provisional liquidator should be appointed to PCS.

(iv) Leave to appoint Mr Keith as provisional liquidator

It was argued by PCS that Mr Keith was precluded from being appointed provisional liquidator as he was the partner of an officer of PCS. Goldberg J, however, granted leave to Mr Keith pursuant to section 532(2) of the Act to seek to be appointed provisional liquidator of PCS. Goldberg J was motivated by the short time frame within which a provisional liquidator would need to move to protect the proceeds of the Marrickville property given that it was to settle on 1 March 2004.

(v) Undertaking by the plaintiffs as to damages

As a condition for the appointment of the provisional liquidator, the plaintiffs were ordered to give an undertaking as to damages. Relying on the decision of Austin J in Lubavitch Mazel v Yeshiva, the plaintiffs submitted that the undertaking was not necessary as it was “not conceivable that the provisional liquidator could not cause any damage to LAS”. However, Goldberg J was of the view that it is not a question of whether the appointment of the liquidator causes damage, rather, it is a consideration of “whether there are any appropriate reasons against requiring the party seeking the appointment” to give the undertaking. On the facts presented, he did not find that any appropriate reasons existed. However, Goldberg J did limit Mr Hewitt’s undertaking to his recourse to the assets of NII.

5.6 Attendance of administrator at creditor’s meeting by video link conference
(By Sonia McMillan, Phillips Fox)

Holzman v New Horizons Learning Centre (Canberra) Pty Ltd [2004] NSWSC 90, New South Wales Supreme Court, Palmer J, 24 February 2004

The full text of the judgment is available at:

http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2004/february/2004nswsc90.htm
or
http://cclsr.law.unimelb.edu.au/judgments/

(a) Background

The administrator of four companies made an application to the NSW Supreme Court seeking an order permitting him to attend a meeting of creditors by video conference link. The meeting of creditors was to be held pursuant to section 439A of the Corporations Act 2001 (Cth) which requires that the ‘administrator is to preside’.

An order was sought by the administrator to ensure that attendance by video conference link, as opposed to personal attendance, complied with the requirement ‘to preside’.

The application by the administrator was made under section 447A which gives the Court discretionary power to make any order it thinks appropriate in relation to a particular company in the context of administration.

(b) The relevant facts

The four subject companies are part of a group of subsidiaries of a holding company, each of which conducted a franchise business respectively in Canberra, Perth, Adelaide and Brisbane.

The intention of the meetings of creditors was to propose a Deed of Company Agreement for consideration by the respective creditors. These Deeds were to be provided by the directors of each company to the administrator prior to the proposed meetings.

The administrator was obliged to convene and hold the meetings as a matter of urgency because of the time limit imposed by section 439A(5). Given these time constraints, that each meeting was to be held in a different city, that the administrator required time to review the proposed Deeds of Company Agreement, and that the estimated cost of personal attendance at each meeting was in excess of $15,000, an order was sought to enable appearance by video link rather than in person.

(c) The meaning of ‘to preside’

The administrator’s uncertainty as to whether or not appearance by video link was sufficient to comply with the requirement ‘to preside’ imposed by section 439B, was based on two recent decisions of the NSW Supreme Court in which this requirement was considered.

In Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612, Austin J stated that a meeting convened under section 439A in which the administrator ‘is to preside’ requires the administrator to be ‘physically present’.

Austin J confirmed this interpretation in Re A&D Hagan Pty Ltd (Receiver and Manager Appointed) (Administrator Appointed) (2003) 46 ACSR 434 where he stated that section 439B requires the administrator ‘to chair the section 429A meeting personally’.

Both of these cases involved a different factual matrix to the present application, as they involved the respective administrators seeking an order to appoint a nominee to chair the relevant meeting.

(d) The decision

Palmer J agreed with the decisions of Austin J in the above named two cases, stating that the language of section 439B suggests that the administrator must be physically present in the same room as the creditors during a meeting. Therefore, upon a true construction of the section, an administrator cannot preside at a section 439A meeting by video conference link unless obtaining an order under section 447A.

Palmer J stated that in issuing an order under section 447A, the overriding consideration was whether or not, in all of the circumstances, the creditors would be disadvantaged.

In this case, Palmer J concluded that the creditors would not be disadvantaged at the proposed meetings if the administrator attended by video conference link. Attending by video conference would be financially beneficial, and it would also give the administrator more time to consider the proposed Deeds of Company Agreement, in light of the time frames involved.

Palmer J expressly stated that if the issues raised by creditors were complex and difficult such that discussion was inhibited by the video link, the creditors could vote to adjourn for further discussion at meetings at which the administrator was physically present.

The orders sought by the administrator were made.

5.7 Proceeding against a company in administration – the scope of section 440D of the Corporations Act
(By Adam Baxter, Mallesons)

Arpic Pty Ltd v Austin Australia Pty Ltd [2004] NSWSC, New South Wales Supreme Court, Barrett J, 24 February 2004

The full text of the judgment is available at:

http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2004/february/2004nswsc83.htm
or
http://cclsr.law.unimelb.edu.au/judgments/

The defendant is a building contractor, who was undertaking construction work for the plaintiff. Following a progress claim by the defendant, and subsequent adjudication under the Building and Construction Industry Security of Payment Act 1999 (“BCI Act”), an amount was deemed payable by the plaintiff to the defendant.

The plaintiff complied with the adjudication according to section 23 of the BCI Act, depositing the money to be held in trust in a Westpac account, to be paid to the defendant pending the conclusion of the ongoing dispute. The defendant applied to Westpac and obtained the money prior to the pending arbitration. The plaintiff sought, and obtained, an interlocutory order that the defendant had, contrary to the BCI Act, unlawfully obtained the money, and must pay the money into a designated account to be held pending a court order. The defendant company subsequently appointed administrators under Part 5.3A of the Corporations Act 2001 (Cth).

The plaintiff originally advanced a claim that did not effectively seek payment of the money to the plaintiff. The plaintiff therefore made an application for leave to amend and make effective a claim requesting summary judgment that the defendant must pay the amount in question to the plaintiff. The issues were:

(1) Whether section 440D of the Corporations Act applies to the application for leave to amend the summons in the way formulated by the plaintiff; and

(2) Whether leave under section 440D should be granted in respect of the application for summary judgment and, if needed, in respect of the application for leave to amend the summons.

Section 440D provides that during the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with except with the administrator’s written consent or with the leave of the court.

In refusing the application, Justice Barrett reasoned:

(i) The overall effect of the plaintiff’s proposed amendment would amount to an additional claim in respect to the asserted wrongs already the subject of the claims in the summons. Since section 440D prohibits any step properly regarded as “proceeding with” the “proceedings” commenced by the summons against a company in administration, the plaintiff’s application for leave to amend is subject to section 440D.

(ii) Since the plaintiff’s case for legal entitlement to a money judgment is not self-evident, leave in respect of the application for summary judgment should not be granted. This follows the principle in Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1,063 that the purpose of section 440D is to allow the administrator to have time to assess the situation and work out a situation that is in the common interests of the creditors. Therefore only an exceptional case would warrant leave to proceed under section 440D.

5.8 Obtaining the Court's approval to enter into settlements
(By Candice Murdock, Blake Dawson Waldron)

Ansett Australia Ground Staff Superannuation Plan Pty Ltd (as trustee of the Ansett Australia Ground Staff Superannuation Plan) v Ansett Australia Limited (Subject to a Deed of Company Arrangement) [2004] FCA 130, Federal Court of Australia, Goldberg J, 24 February 2004

The full text of the judgment is available at:

http://cclsr.law.unimelb.edu.au/judgments/states/federal/2004/february/2004fca130.htm
or
http://cclsr.law.unimelb.edu.au/judgments/

The case of Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Limited [2004] FCA 130 follows litigation between the parties in the Supreme Court of Victoria and the Court of Appeal. In this case the parties sought the Court’s approval to enter into terms of settlement and that each of the two parties could properly perform and give effect to the terms of settlement arising from the litigation.

(a) Background of proceedings

The Ansett Australia Limited group of companies (Ansett) was placed in administration under the Corporations Act 2001 in September 2001. Most of the Ansett employees were terminated, some, after many years of service. That service gave rise to a number of employee entitlements, including superannuation payments.

It became apparent to the administrators that Ansett did not have sufficient funds to cover all employee entitlements. Consequently, the Commonwealth Government advanced funds as a loan to Ansett to “top up” the funds to pay employee entitlements, to the extent that those entitlements were not able to be met from the assets of Ansett. Under this arrangement, the Commonwealth Government ranked in priority as an employee, ahead of non-employee unsecured creditors.

During the administration an issue arose as to whether Ansett employees had been retrenched by the administrators in such circumstances as would give rise to an entitlement of employee members of the Ground Staff Superannuation Plan (the Plan) to a superannuation payment based on retrenchment. The trustee of the Plan, Ansett Australia Ground Staff Superannuation Plan Pty Ltd (Trustee) argued that the member employees were entitled to additional superannuation payments, and that its claim to have the fund topped up to meet members’ entitlements should receive priority over the claims of other Ansett creditors. The administrators argued that even if the employees were entitled to the additional superannuation payment, the priority of the Trustee’s claim had been relegated by the Ansett creditors to that of an unsecured creditor pursuant to the Ansett Deed of Company Arrangement.

Ansett entered into the deed of company arrangement in May 2002 after extensive consultations, which preserved the position of the Commonwealth but relegated the position of the Trustee to that of an unsecured creditor. In doing so, the deed of company arrangement varied the order of priority that would otherwise apply under the Corporations Act 2001.

The Trustee commenced proceedings in the Federal Court in June 2002 seeking to have the deed of company arrangement terminated or amended so as to delete or vary the provisions that denied priority to the Trustee’s claim. However, the Trustee commenced proceedings in the Supreme Court of Victoria due to perceived jurisdictional issues in the Federal Court. The Federal Court proceedings were adjourned pending the outcome of the Supreme Court proceedings.

The Supreme Court held that the retrenched members of the Plan were entitled to superannuation payments, however Ansett’s obligation to pay further funds into the plan did not attract priority under the Corporations Act. The Trustee appealed to the Court of Appeal and the administrators cross-appealed. The appeal was allowed and the cross-appeal adjourned.

Following the Court of Appeal decision, the parties returned to the Federal Court and revived the adjourned proceedings. By the time the matter came before Goldberg J in November 2003, it was estimated that the parties in litigating their claims had incurred costs in excess of $3 million. Consequently, a significant amount of money was being removed from the funds available to be distributed to Ansett employees. Given this, Goldberg J referred the matter to mediation with a direction that the ACTU, the represented unions and the Commonwealth be entitled to participate in the mediation. The court proceedings were adjourned.

As a result of the mediation of the proceedings, the parties reached an agreement in principle. However, in order to give effect to the agreement, the parties required a court order allowing for the variation of the deed of company arrangement and directions that the parties could give effect to the terms of settlement reached and distribute funds accordingly.