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Review: Insolvent Investments

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Insolvent Investments, Stewart J Maiden eds., LexisNexis Butterworth, 2015, Chatswood, Australia

This is not a read for the lighthearted. But, Insolvent Investments is a fantastic specialist textbook examining the system of managed investments schemes and their related vehicles. Insolvent investments are a complex and increasingly frequent part of litigation having particularly emerged over the last 15 years. These schemes and the sheer complexity of them takes up an inordinate amount of court time and judicial contemplation.

Managed investment schemes are governed primarily by 5C of the Corporations Act but the judiciary has often been called in to fill the gaps. Specifically, the courts have had to create jurisprudence on how to wind up managed investment schemes and define the duty of officers operating pursuant to such schemes, ultimately defining their obligations as arising primarily under the act and not in a strict fiduciary role.

Insolvent Investments covers everything from directors duties to the rights of third parties and the role of creditors verses the pecking order for allocation of assets following dissolution.

Insolvency and bankruptcy are key areas of legal practise that tangentially permeate so many different areas of law that every practitioner should at least have a fundamental understanding of to allow them offer their clients a full view of their obligations and options.

At the end of the day, if this is not your specialist area of practise, then you will need to consult a specialist. However, to consult that expert on a somewhat level pegging, this book certainly does take you a long way to getting there and will empower you to engage that practitioner from a level of informed knowledge, with all the power of an in-depth exploration drawing from the finest legal, academic and judicial minds dedicated to exploring this specific area of law.

This review has been written for the ACT Law Society who provided the writer with the book.
Tom Barrington-Smith is currently completing his Australian Restructuring, Insolvency &  Turnaround Association advanced certification to supplement his legal qualifications towards certification as a specialist insolvency practitioner.

When Are Your Pleadings Embarrassing?

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If a Judge or practitioner ever refers to your pleadings as embarrassing don’t necessarily take it personally. Embarrassing pleadings is a defined term and refers more to the intention of the pleading instead of the skill of the person drafting it.

Embarrassing Pleadings

A pleading is embarrassing where it is “unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him” Meckiff v Simpson [1968] VR 62 at 70.

In Shelton v National Roads & Motorists Association Limited [2004] FCA 1393 at [18], Tamberlin J explained the concept of “embarrassment” with respect to pleadings:

“Embarrassment in this context refers to a pleading that is susceptible to various meanings, or contains inconsistent allegations, or in which alternatives are confusingly intermixed, or in which irrelevant allegations are made that tend to increase expense. This is not an exhaustive list of situations in which a pleading may be embarrassing: see Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434.”

Pleadings can be embarrassing even when they do contains an adequate cause of action if the facts they rely upon are expressed in such a way as to leave difficulties or doubts about figuring out what they are exactly referring to. This can be through generalities, vagueness or any other framing of the proceedings that prevents the defendant from knowing in advance the case it is required to meet.

Remedy

If the court considers pleadings to be embarrassing then the appropriate remedy is to strike out the pleading rather than to order the provision of particulars. This may seem harsh, but the reality is that it is not the function of particulars to replace the necessary components of a pleading, simply to augment them.

Pleadings are everything. Actions are often commenced with insufficient pleadings with too many lawyers thinking that they can simply amend at a later date if the pleadings are found to be insufficient. Unfortunately, for the client, this will normally be accompanied with a big costs order if the court allows it at all.

Builder Not Entitled to Payment for $400k Work

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If you haven’t followed the building contract then you won’t get paid, regardless of how much work you have performed.

R Developments Pty Ltd -v- Forth & Anor saw a big shift towards stricter operation of the contract as the stating point when determining how a builder should be compensated for a claim for unpaid work.

R Developments (the builder) quoted and agreed to build a property in Yarralumla for $972,000. After the initial $72,900 deposit, the builder was entitled to be paid $100,000 once the property reached the slab stage, with payments set up for the other stages in the usual manner.

The builder no doubt realised his folly when he had completed $380,000 in work without reaching the slab stage. There were also a number of deposits for materials and the builders profit margin which had been incurred but not paid. The builder claimed a number of variation notices for additional work had been submitted to the owner and accepted by virtue of getting no reply.

The builder then alleged that the owner had not shown a capacity to pay for the extra works and purported to terminate on this basis, claiming short of $600,000 in damages.

Strict contract – no right to estoppel

Estoppel can be broadly defined as a group of rules of equity by which the Courts can prevent injustice, including in cases where they would not otherwise be able to, ie. even if a contract doesn’t provide for it.

Part of the builders claim was that the contract was validly terminated under the requirement to prove finance, or in the alternative, as they had performed $380,000 worth of work, they were entitled to be reimbursed for that work to prevent injustice.

David Robens of Kamy Saeedi Law, successfully argued that the owners had fulfilled their requirements under the contract and that the bank had previously shown that finance was guaranteed even in light of the variations.

Under the contract, the builder was entitled to insist on finance but not once works had been commenced as this was enough to show the builder’s acceptance of meeting this requirement. This acceptance included losing the right to terminate for non-compliance of it. Therefore the termination was invalid and the builder was entitled to no compensation for the work performed.

Normally the builder may then experience some relief through equity, but the court was not particularly receptive on this occasion.

As the owner had already received a benefit resulting from the breach of contract ($300k free work) they were only awarded nominal damages and costs in defending the action.

Implications

The implications of such a decision are wide-ranging for construction law in the ACT. The Courts had previously been somewhat reticent to punish builders too harshly for under-quoting. Sure they were required to take a hit, but usually nothing like this.

The fact that the builder walked away from a claim for almost $600,000 worth of work and materials and got nothing with costs awarded against them should serve as a stark warning to builders or indeed any tradesman in the Territory.

Further to this, and excuse the brag, but the Kamy Saeedi Team poked some pretty big holes in the arguments of a well used construction law firm relying on the pro forma contract prepared by another prominent construction law firm and used by builders as a matter of practice. More than a brag, this certainly raises issues about how construction litigation will result in the future given the hard right turn this case indicates.

After a lengthy dispute, the owner now has the benefit of a lot of free work and is able to recommence building their dream home.

If you would like to discuss this matter further, please contact either Tom Barrington-Smith or David Robens from the Kamy Saeedi Law Commercial Team.