Rouse Lawyers

It’s no secret that online sales of goods and services are growing, and fast. The very efficacy of certain retail models is being questioned.  There are a number of legal risks to consider before trading online.  Some are unique to e-commerce, but the bulk of normal contractual principles also apply, some of which are often overlooked by online entrepreneurs.

It is not news to any business owner that online transactions (and their resultant contracts) are as important as their paper counterparts. And while it may be easy to register a .com domain, online intellectual property rights are becoming increasingly acknowledged by our global economy.

One concern is that many online ventures are “bootstrapped” and the lack of funds can lead to avoidance of perceived non-critical costs. Suppliers of goods online still have to deal with the Competition and Consumer Act and State based fair trading laws. As with a bricks and mortar business, if you import and sell goods in Australia you are deemed to be the manufacturer. Comparably, there are implied warranties as to the quality of goods, and limited scope to reduce responsibility for defective goods.  Online service providers, especially professional services, must consider the laws of negligence, and be sure to limit the nature, scope and reliance on the services they provide.

Traditional trade mark and copyright law is now filtering through to the world’s domain name administrators (the national bodies authorised to administer top level domains) and flagrant intellectual property infringement such as cyber squatting is fast becoming a thing of the past.

Other considerations include the emergence of blogs and public online forums. These new forms of public media inevitably give rise to instances of defamation and privacy concerns with resultant claims stemming from different jurisdictions.

If your business is or is thinking about supplying goods or services online, speak to us about reviewing your terms and conditions and intellectual property to ensure that you are ready to deal with this ever changing landscape.

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In the event that you do not have a valid Will, on the date of your death, your estate will be distributed in accordance with the rules of intestacy, which are as follows:

If you have a Spouse and no children: The whole estate to your spouse

If you have a Spouse and children: If the value of the estate is less than $150,000.00 excluding household chattels, then all to your spouse.  If the value exceeds $150,000 excluding household chattels then household chattels to the spouse, $150,000 to the spouse and:

(a)   If one child -  one half of the rest of the estate, with the child receiving the other half; or

(b)   If more than one child – one third of the rest of the estate, with the remainder of the estate being divided equally among the children.  If a child of yours has predeceased you, leaving children, then their children take the interest of that your child would have taken, equally. 

Example:  Bill dies leaving his wife Mary and two children Peter and Mark.  His estate is worth $500,000.00 (excluding household chattels).  Mary receives $150,000.00, household chattels and $116,666.66.  Peter and Mark each receive $116,666.66.

No spouse but have Children – Children receive estate divided equally between them.

If you have a De facto spouse: to receive a spousal entitlement they must be the sole partner of yours in a de facto relationship with you, for a continuous period of not less than 2 years prior to death. 

De facto relationships are defined as two adult persons, who live together as a couple, and who are not married to one another or related by family.

Example: Bill and Mary have been dating for two and a half years, but only living together for 18 months.   Bill has two children from his previous marriage: Peter and Mark.   His estate is worth $500,000.00.  In addition, Mary and Bill bought a house as tenants in common for $200,000.00 eighteen months ago, but it is now worth $300,000.  Bill dies without a Will.   Mary receives $0.00 Peter and Mark receive $250,000.00 each for the $500,000.00 and then Bill’s half interest in the house.  Peter and Mark don’t like Mary and therefore decide that Bill’s half interest in the house should be in the form of cash.    

No spouse, no Children – Estate distributed equally between the following classes (in order):

1. Parents;
2. Brothers and Sisters;
3. Nieces and Nephews;
4. Grandparents;
5. Aunts and Uncles
6. Cousins;
7. The Crown.

Example:

Bill dies with no children and no spouse.  His parents died in a car crash 10 years ago.  He had two sisters and three nieces.  They were unfortunately killed in the same plane crash as Bill.   His Grandparents are also deceased.  His mother had a sister who died leaving a daughter, now 38.  Bill has never met his cousin, but now, due to his not having a Will, she is inheriting his $2.5 million estate. 

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Under the new Personal Property Securities Act 2009 (Cth) (“the Act”) a security interest is an interest in personal property and in substance secures payment of a debt or other obligation.   A security interest incorporates the previous forms of security such as mortgages and charges over assets; however, it also incorporates transactions such as:

(a)   traditional retention of title (“ROT”) clauses in contracts (where a purchaser has possession of the property but does not acquire title from the seller until the full purchase price is paid); and

(b)   financing or operational leases of personal property for a term exceeding twelve months (or 90 days in the case of a motor vehicle, boat or aircraft). 

Under the Act, suppliers and lessor’s who utilised ROT clauses will become secured parties with a security interest in the property supplied.  In order to protect themselves, suppliers and lessor will need to register their security interest in the property supplied or leased. 

Provided the security interest is registered,  suppliers and lessor utilising ROT clauses will receive a purchase money security interest which entitles them to take priority over all other, including earlier, security interests in the collateral where the requirements of the Act have been complied with.

The Act also provides protection against a trustee in bankruptcy or a liquidator as the property subject to the security interest will not be available to a trustee in bankruptcy or a liquidator. 

It is important to note that the Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee.   A single registration may cover subsequent security interests in property that is supplied under later agreements. 

Given the above, it is highly recommend that all businesses review not only their client arrangements but also their business practices to determine when they should register a security interest.   Some key considerations include:

1. The history of the supplier/client relationship and the degree of trust;
2. The likelihood the supply or lease will be dishonoured;
3. How often you enter into transactions with a client;
4. The value of the collateral;
5. The frequency of supply and if more than one supply, the value of the combined supply; and
6. the likely depreciated value of the collateral. 

To discuss whether your business should look at updating their practices, or to discuss these changes to the law generally, please do not hesitate to contact our offices.

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The recent Federal Court decision of Australian Securities and Investments Commission v Healey [2011] FCA 717 (“Centro”) shows the significant obligations that directors need to take into account when approving financial statements of their company. In this instance, the directors approved financial reports for Centro Property Group and Centro Retail Group which failed to disclose that the cumulative liabilities of both companies were $3.75 billion.

Justice Middleton held that certain directors and former officers of Centro had:

(1) Breached their duties to act with due care and diligence under sections 180(1) and 601FD(3) of the Corporations Act 2001 (Cth)(“the Act”); and
(2) Failed to take all reasonable steps to comply with, or secure compliance with the financial reporting obligations contained in Part 2M.3 of the Act, pursuant to section 344(2) of the Act.

In making this decision, his Honour clarified that directors have a responsibility to read, understand and focus on the contents of the financial reports they are required to approve or adopt. It is not sufficient for a director to be briefed by a party with knowledge of the contents of the financial report.

Further, the responsibility of the director extends to require that the director ensures that the financial statements are consistent with the director’s knowledge of the company’s financial position, which requires the director to examine in detail the report and be continually apprised of the company’s financial circumstances.

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A shareholders’ agreement is a contract that regulates the rights and obligations of members of a company.  A shareholders’ agreement is not a mandatory document required under the Corporations Act2001 (Cth) (“the Act”), however, it provides an important mechanism for regulating aspects of a company not catered for in either the company’s constitution or the replaceable rules of the Act.  It further assists in the overall running of the business by providing certainty with respect to the obligations/expectations/rights of the members of the company.   

Shareholder agreements generally cover the following matters (among others):

1. exit strategies for members (i.e. agreements to sell shares on particular occurrences, i.e. death);
2. the financing policy of the company;
3. determining who is to manage the day-to-day business of the company;
4. the requirements and conditions of any shareholder loans;
5. the dividend distribution policy of the company;
6. restraints of trade with respect to the members and their related key persons;
7. a shareholder’s rights to appoint/remove directors; and
8. any pre-emptive rights a member has to acquire shares in the event of another member selling their shares. 

A further advantage of a shareholder agreement is to reduce the risk of potential disputes between members.  Shareholder disputes can be costly and only reduce business value.  Where a dispute does arise however, it is most important that a clearly defined procedure is contained in the shareholders’ agreement setting out  how the dispute will be handled, so as to minimise disruption to the business.

To discuss whether a shareholders’ agreement would be beneficial for your organisation, please contact Matthew Rouse on 07 3648 9900.

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Franchisors ongoing health and safety obligations for franchisees

The Defendant, Parker Hannifin (Australia) Pty Ltd operates ‘The Hose Doctors’ franchise.  Franchisees purchase a Hose Doctor Van which is a customised and stocked van with the Franchisors’ logo.  The rear of the van is a mobile service centre, which stores equipment, including hazardous gases.  In 2008, a franchisee’s van exploded with significant damage caused to neighbouring buildings and vehicles.  The Franchisee was also injured in the explosion.  An investigation by Workcover (NSW) determined that the explosion was the result of an open valve on a tank containing acetylene and also that the vehicle did not comply with Australian Standards in relation to ventilation requirements for transportation of gases.

The Court found as follows:

1. The van constituted a ‘premises’;
2. Parker Hannifin had control of the ‘premises’ in the course of their trade or business;
3. The ‘premises’ were used by  franchisees who are not employees of Parker Hannifin; and
4. Parker Hannifin had failed to ensure that the ‘premises’ were safe with respect to Health and Safety requirements.

The Court determined that the relationship between the Franchisor and Franchisee was no different to a principal/contractor relationship and that as Parker Hannifin had substantial control over their franchisees (i.e. by the supplying of the equipment to allow the franchises to operate) that they were responsible for ensuring that the Vans met Australian safety standards.  Parker Hannifin were fined $110,000.00.

This case demonstrates the need for Franchisors to have formal and up-to-date workplace health and safety processes in place for their franchisees. Further, these processes need to be consistently monitored and updated for best practice and compliance.

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 By Belinda Pinnow and Matthew Rouse

In November 2010, the Full Bench of Fair Work Australia (“FWA”) handed down the authoritative decision of Ulan Coal Mines Limited (“Ulan”) v Honeysett and others (“The Honeysett Employees”) which provide the steps an employer needs to take to redeploy a redundant employee (so as to prevent a claim for unfair dismissal under the Fair Work Act 2009 (Cth)) (“FWA 2009”). 

Under the Unfair Dismissal provisions of the FWA 2009, an employee cannot bring an action for unfair dismissal in the instances of genuine redundancy. A redundancy is not considered to be genuine where:

1. The employer has not complied with any consultation obligations in a modern award agreement or enterprise agreement that applied to the employment; or
2. It would have been reasonable (in all the circumstances) for the person to be redeployed within
   1. The employer’s enterprise; or
   2. The enterprise of an associated entity of the employer.

It was accepted between the parties that the employer had complied with point 1, and the appeal turned on the issues of:

1. Whether the employee could have been redeployed within the the employer’s enterprise or associated entity; and
2. What constituted a reasonable attempt of redeployment under the FWA 2009.   

Impact of this decision on Employers

1. When making an employee redundant, you need to consider whether there is an available position within your company or an associated entity that the employee would be able to fill instead of being made redundant;
   
2. If there is a general application process in place, consider giving the employee preference over the general pool.  Please note this may not be enough to avoid unfair dismissal.
3. In the event that re-training would make an employee suitable for a position, this should be fully considered as an alternative to dismissal. 

Please note however, that you if you are classified as a Small Business there are different rules that govern unfair dismissal and redundancy. 

Factual Background

The Honeysett Employees were a group of 10 employees who were among 14 employees retrenched as a result of the restructuring of Ulan’s coal mining operations. 

Ulan is a mine located in New South Wales and is part of Xstrata Coal Pty Ltd (“Xstrata”) (a number of companies within the Xstrata group operate coal mines in New South Wales are are therefore associated entities of the employer Ulan).  The other mines operated by Xstrata were not in close proximity to the Ulan mine with the nearest mine being located over 100 kilometres away.

At the time of the dismissals, there were positions available at the other mines operated by Xstrata and Ulan took steps to ascertain the availability of suitable positions for The HoneysettEmployees in these mines.  The Honeysett Employees were not, however, given any preference and had to compete against other applicants for these positions. 

The Commissioner (at first instance) concluded that it would have been reasonable for most of The Honeysett Employees to be redeployed in the vacant positions at the other Xstrata mines. 

Appeal

Ulan appealed the decision on the basis that the Commissioner had failed to construe the meaning and effect of the redeployment provisions under the FWA 2009. The appeal was dismissed with the FWA concluding the following:

1. The redeployment provision places a limitation on an employer’s ability to mount an absolute defence for Unfair Dismissal in instances where there has been a genuine redundancy (explained above).  The defence of “genuine redundancy” is not available where it would have been reasonable to redeploy the employee. 
2. It is implicit in the redeployment provision that it might be reasonable for an employee to be redeployed within an associated entity of the employer.  An employer cannot submit that it would be unreasonable to redeploy merely because it would involve re-deployment to an associated entity.  Further factual circumstances will need to be established to show the unreasonableness of this redeployment, for instance, a completely different managerial structure. 
3. The time of answering the question of redeployment is at the time of the dismissal.  The employer cannot rely on a defence that the employee has, post dismissal, obtained employment at an associated entity.�In fact, if this were to occur, this could assist in finding that redeployment would have been reasonable as opposed to dismissal. 
4. In determining whether the redeployment would have been reasonable, there are number of matters that will be taken into account:
   1. The nature of the position available;
   2. The qualifications required to perform the job;
   3. The employee’s skills, qualifications and experience;
   4. The amount of training required to make the employee suitable for the position;
   5. The location of the job in relation to the employee’s residence; and
   6. The remuneration that is offered. 

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A recent High Court decision has made it clear that Lessee’s face potential liability in the event they alter leased premises without the Lessor’s consent. 

In 1996, the applicant Tabcorp Holdings Ltd (“Tabcorp”) and the respondent Bowen Investments Pty Ltd (“Bowen”) entered into a ten year lease term with two five year options to renew.  Prior to entering into the lease, Bowen had taken considerable care and expense in the construction of the foyer to the leased premises, with the foyer containing specialised materials (such as San Francisco Green Granite).  In or around June 1997, Tabcorp approached Bowen regarding making alterations to the foyer area.  Bowen responded in turn saying that consent was not given. 

Bowen subsequently attended the premises and discovered that the glass and stone partition, timber paneling and stone floor tiles had been removed and what remained of the floor work was in the process of being jack-hammered.  Despite protests on the part of Bowen, Tabcorp completed the alterations to the foyer area around August 1997.  The Lease between Bowen and Tabcorp contained the following lease provision by which the Tenant covenanted:

“Not without the written approval of the Landlord first obtained (which consent shall not be unreasonably withheld or delayed) to make or permit to be made any substantial alteration or addition to the Demised Premises”

The lease also contained covenants that the Tenant will:

-       Keep the premises in repair;

-       To yield up the premises on the determination of the lease in good repair; and

-       To make good any breakage or damage.

These provisions are considered standard lease terms. 

The Federal Court originally found in favour of Bowen and awarded damages in the amount of $34,820.00 (which represented the difference in the value of the property with the old foyer and the value with the new foyer.  Bowen appealed this decision.  On appeal from the Federal Court of Australia, the High Court awarded Bowen damages in the sum of $1.38 million which represented the cost of returning the foyer to its original state as at 2004/2006 (when the initial lease term expired).  Tabcorp proceeded to appeal this decision and sought orders from the High Court to re-instate the original damages award of $34,820.00. 

The High Court dismissed the appeal by Tabcorp.  In determining this award, the Court made clear the following:

1. The covenant in the lease meant that Bowen was contractually entitled to the preservation of the premises without unauthorised alterations.
2. The contractual principle that the purpose of damages for breach of contract is to place the aggrieved party in the same position (as far as is possible via money) as if the contract had been performed.  The loss in this instance was the cost of restoring the premises to the condition it would have been in had the covenant not been breached. 
3. Should tenants elect to undertake works to the premises in breach of a lease covenant, they run the risk that damages from the Court will be on the basis of the cost the Landlord will incur in returning the premises to its pre-alteration state.   

The High Court further considered that in future cases the following approaches may be applied to the assessment of damages for a similar case:

1. Where the rectification of the damage would be taking place at a future date, an estimate of the amount of money required at the future date may be determined and then discounted down to a present value, which would require the investment of these damages for use at that future date.
2. The assessment of the damages as at the date of the breach of the covenant, with the damages to carry interest from the date of the breach. 

This case illustrates the need for Lessee’s to carefully consider their obligations under the Lease and to ensure that they obtain the Lessor’s written consent prior to undertaking any works on the leased premises.

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What is the Small Business Fair Dismissal Code

As of 1 January 2010, private sector employees are protected by the new national industrial relations system, the Fair Work Act, while public sector employees are covered by the state industrial relations system. 

The Small Business Fair Dismissal Code is a new national workplace system designed to assist small businesses and their employees and works in conjunction with the Fair Work Act 2009.

The new system provides that the minimum employment period is now twelve (12) months (instead of the original six (6)) and that an employee cannot make a claim for unfair dismissal within this twelve (12) month period.

The system also recognises that Small Businesses are unlikely to have expert Human Resources staff and aims to assist employers ensure that any valid dismissals are not considered to be unfair.  This is done via the Dismissal Code Checklist, discussed below. 

What constitutes a Small Business?

Under the Code, a small business is considered to be any business where the employer employs less than fifteen (15) full-time equivalent employees.  Please note that this number can include employees of related entities. 

Application for Unfair Dismissal Remedy

An employee has fourteen (14) days from the date of the dismissal coming into effect to lodge an application to Fair Work Australia.  Applications are made to Fair Work Australia as part of the new national scheme.  Unfair Dismissal is determined to have occurred when an employee applies to Fair Work Australia and it is determined that:

-       The employee was dismissed; and

-       The dismissal was harsh, unjust or unreasonable; and

-       The dismissal was not the case of genuine redundancy; and

-       In the case of the employer being a small business, where the dismissal was not consistent with the Small Business Fair Dismissal Code.

For small businesses, for an employee to be eligible to make an unfair dismissal remedy application the employee must have:

-       Completed a minimum employment period of at least one (1) year; and

-       Be covered by an award agreement if they earn more than $113,800.00 a year.

In what circumstances is conduct likely to be found Harsh/Unjust/Unreasonable?

In determining whether the employee’s dismissal was harsh, unjust or unreasonable, Fair Work Australia is required to consider the following:

1. Whether there was a valid reason for the dismissal related to the person’s capacity or conduct; and
2. Whether the person was notified of that reason; and
3. Whether the person was given an opportunity to respond to any reason related to capacity or conduct of the person; and
4. Any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and
5. If the dismissal related to unsatisfactory performance by the person whether the person had been warned about that unsatisfactory performance before the dismissal;
6. The degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal.

How can you prevent a claim for Unfair Dismissal?

Steps you can take

1. Ensure that you have a valid reason for dismissing the employee and that you maintain a written record to substantiate your reasons; and
2. Giving the employee written notification of these reasons prior to dismissal and affording the employee an opportunity to respond and rectify; and
3. Allowing a person to have a support person present during any performance reviews where dismissal is going to be discussed. 

Usage of the Small Business Fair Dismissal Code Checklist

The Australian Government has provided a checklist for small business operators as a guide to complying with the Small Business Fair Dismissal Code.  It is recommended that employers use this checklist and keep a copy of the completed checklist on file in the event of a future action.  We have attached this checklist to this correspondence. 

This checklist is also accessible via:

http://www.fairwork.gov.au/Templatesformschecklists/Small-Business-Fair-Dismissal-Code.pdf

Please be aware that filling in this checklist does not necessarily mean that the Code has been complied with, it acts as a guide only.

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What is a Testamentary Trust & how do they work?

A testamentary trust is a trust that has been created as a result of a person’s last Will and Testament.  It is a discretionary trust meaning that the trustee has discretion to allocate the income and capital of the trust among any or all of the trust’s beneficiaries. 

The activities of the testamentary trust are governed by the terms of a trust deed or the provisions of the Will that establish the trust.  The Will/trust deed will generally give the trustee a wide power of investment and is usually combined with a Memorandum of Wishes.  The Memorandum of Wishes is not a binding document, but rather acts as a guide for your trustees regarding the way you wish the trustee to provide benefits to your children (or other beneficiaries). 

A testamentary trusts main purpose is for the protection of assets should any beneficiaries be involved in legal proceedings, for example a divorce. 

While it should be mentioned that the Family Court does have wide powers under the Family Law Legislation and can still take into account the trust’s assets in any legal proceedings; the use of the trust will result in a clear separation of those assets which have been inherited by your beneficiaries (and within the trust’s control) and those assets which they have acquired during their marriage.�

What are the Advantages/Disadvantages of a Testamentary Trust?

Further information

For further information on how a Testamentary Trust could work for you, please do not hesitate to contract Matthew Rouse on 07 3648 9900.

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