From 1 July 2009, companies who participate in a transfer of business (formerly referred to as transmission of business under the Workplace Relations Act 1996 (Cth) ('WR Act') will have to comply with proposed changes under the upcoming Fair Work Act 2009 (Cth) ('the Act').
The Act marks a significant change from the current rules in the WR Act governing transfer of business arrangements by:
Effect of transfer: following a transfer of business under the Act, the transferring employees will be covered by the old employer's enterprise agreements (and named employer awards if applicable) indefinitely, until the enterprise agreements or awards are terminated or replaced in accordance with their terms and the appropriate legislation.
The Act also provides that after the transfer of business has taken place, new employees of the employer who are directed to perform work that was previously performed by the employees for the old employer (that is, "transferring work") will also be covered by the old employer's enterprise agreements (and named awards if applicable) in circumstances where the new employer has no enterprise agreement or named award capable of applying to the employees performing the transferring work.
This raises the difficult situation of a new employer potentially being bound by different enterprise agreements in relation to employees performing the same work. If enterprise agreements (and named employer awards) of the old employer and the new employer are both capable of covering the work, then:
Fair Work Australia (FWA) will have a role in determining the application of enterprise agreements (and named employer awards) of the new employer to transferring employees, and whether enterprise agreements (and named employer awards) apply to non-transferring employees. It is possible to apply to FWA for orders that the old employer's enterprise agreements (and/or named employer awards) do not continue to apply to transferring employees after the transfer of the business. FWA may also make an order varying enterprise agreements.
Implication:The Act's transfer of business provisions represent a significant change to the current law governing transmission of business arrangements. It is vital that all companies are aware of these provisions as they will apply to all transfers of business from 1 July 2009.
The Federal Government has released its exposure draft of legislation designed to limit the level of termination payments that can be made to senior executives without shareholder approval. The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (the 'Bill') proposes amendments to the Corporations Act 2001 (the 'Act') to lower the threshold at which companies require shareholder approval for termination payments.
The Act currently provides that shareholder approval is required if the amount paid on termination to a director (or a senior manager who has been a director of the company in the previous year) is in excess of a prescribed formula. The relevant amount is determined by the individual's length of service with the maximum amount currently set at seven years' total remuneration.
Reduction in cap: the Bill proposes to reduce the cap for shareholder approval to one year's base salary, irrespective of length of service (except if the person has served for less than a year, when the threshold is lower again). The threshold will no longer take into account any other benefits, such as bonuses or other incentives.
Identifies payments "in connection with departure": the Bill is accompanied by regulations clarifying when a benefit is given in connection with a person's departure from office. Importantly, payments in lieu of notice and any accelerated or automatic vesting of options are taken to be a benefit in connection with a person's departure from office
Also, the category of benefits to which the cap applies is more specifically set out. Benefits will be identified as either "in" or "out" for the purposes of the threshold. For example, the payment of any voluntary out of court settlement, or a superannuation payment in excess of the statutory amount, will be "in", that is they will be taken into account in determining whether the payment has reached the threshold amount. However, deferred bonuses and payments from certain defined benefits superannuation schemes are "out".
Broader scope of individuals to which the cap applies: the categories of individuals to which the cap applies will be expanded. For disclosing entities (e.g. listed companies and some regulated managed investment schemes), the cap will apply not just to directors, but to key management personnel and the five highest remunerated company executives (if different).
Increased penalties and prescribed times for approval: there will be potential fines for individuals of up to $19,800 (increased from $2,750) whilst retaining the option of six months imprisonment, and for corporations of up to $99,000 (increased from $16,500), for payments without shareholder approval.
The time at which shareholder approval must be sought for payments in excess of the threshold is also prescribed. Any shareholder votes on termination benefits must take place at a general meeting that occurs after the executive's departure. This is to give shareholders the opportunity to assess termination payments in the context of the recipient's actual performance. In addition, the relevant meeting must not have been called for the sole or dominant purpose of passing the resolution.
Operation is not retrospective: importantly, the new laws, if enacted, will not apply retrospectively to existing contracts that have already been settled. However, variation of existing contracts with respect to remuneration and other terms and conditions may bring the contract within the scope of the amended provisions.
In light of the recent Taxation Ruling TR 2009/2 ("Ruling") employers considering reducing employee numbers based on a downsizing, restructure or reorganisation of their operations should review the terms of, and the circumstances surrounding, any proposed termination of an employee's employment and consider whether any payments made in consequence of such a termination qualify for concessional tax treatment as genuine redundancy payments.
A payment made to an employee will be eligible for concessional tax treatment under the Income Tax Assessment Act 1997 if it qualifies as a "genuine redundancy payment" and certain other conditions are satisfied.
The Ruling provides that for a payment to qualify as a genuine redundancy payment:
The Takeovers Panel, in the International All Sports Limited (IAS) proceedings, recently delivered the first panel (and review panel) decision dealing with an application by a restricted party to be released from a standstill, so that it could make an unsolicited bid for a listed company. The Panel declined to release the restricted party (Centrebet) from its standstill undertakings to IAS.
A standstill is a contractual prohibition on a restricted party (Centrebet) offering to acquire any shares in a listed company (IAS). Standstills are very common provisions in confidentiality agreements to allow the restricted party to conduct due diligence on the listed party. They have the effect of:
The terms of a standstill should be commercially justifiable according to the nature of the confidential information and the nature of the recipients. Emphasis was placed on the protection of information that is price-sensitive or commercially sensitive. The term of the Centrebet standstill was found to be commercially justifiable and consistent with market practice.
The Panel has power to vary terms of a standstill if its effect is unacceptable having regard to the maintenance of an 'efficient, competitive and informed' market for control of the relevant body.
The English Court of Appeal decision in Tele2 International Card Company SA and Others v Post Office Limited  EWCA Civ 9 is a timely reminder that:
Facts: Tele2 and others (Tele2) entered into an agreement in 2001 with Post Office Limited (POL) whereby Tele2 was to supply POL with phone cards and services and POL agreed to market and sell those cards and services (the agreement).
Under the agreement, Tele2 was required to provide parent company letters to POL annually each year. They failed to provide one for 2004. This gave POL the right to terminate the agreement, but it did not do so until late 2004 when it gave notice to terminate.
Issue: Tele2 argued that since POL had delayed giving notice by nearly a year and continued to perform the agreement without any protest about the breach, POL had affirmed the agreement by election and was thus not entitled to give notice to terminate for the breach.
POL's defence relied on a waiver clause in the agreement, which stated that any delay, neglect or forbearance on part of either party in enforcing any provision of the Agreement should not be deemed as a waiver.
Decision: Regarding election, The Court of Appeal found that POL had elected to abandon its right to terminate by continuing to perform its contractual obligations; agreeing or accepting the ongoing performance by the Tele2 parties; and not protesting the breach or reserving its rights.
On the issue of the no waiver clause, the Court of Appeal found that the 'no waiver' clause did not deal with election and could not prevent an election to abandon the right to terminate from existing (i.e. either the party does or it does not).
For these reasons POL was not entitled to give the notice of termination and doing so was an anticipatory renunciation of the agreement. Its later cessation of performance was a repudiatory breach of the agreement, which entitled Tele2 to claim damages from POL.
Impact of Decision: 'No waiver' clauses are generally designed to guard against a waiver arising in circumstances where a party has failed to fully enforce its rights under a contract. For example, where the agreement requires X to do something by a certain time but Y has on one or more occasions accepted late or non-performance of that obligation, the 'no waiver' clause is designed to ensure that that party can insist on timely performance of that obligation in the future without a waiver arising.
In Petrosillo v Coles Group Supply Chain Pty Ltd AIRC  AIRC 3, the Australian Industrial Relations Commission (AIRC) upheld the dismissal of an employee who ate a Snickers bar while working at a Coles Group supply warehouse.
The chocolate bar formed part of the employer's business stock at the warehouse and the employee ate it after it was thrown to him by a fellow worker during work hours. The AIRC held that the employee should have recognised that the chocolate bar had or was likely to have been stolen by his co-worker. The employee breached the employer's anti-theft policy (a "check-seal" policy) which had been agreed to by the employee at induction.
Considering the employee had a 4 year unblemished employment record with the Company, the decision may seem harsh. However a very important factor in the employer's decision to terminate was that the employee had been dishonest during the employer's investigation into the alleged theft. The Coles Group had a code of conduct that stipulated that employees were required to be "open and honest" in their dealings with the Coles Group. The employee's lack of honesty during his employer's enquiries destroyed the required relationship of mutual trust and confidence. Thus the Coles Group had a valid reason for terminating the employment relationship.
In WT Pty Ltd  AIRC 189, the Australian Industrial Relations Commission has rejected an employer’s application to set aside an obligation to pay redundancy pay.
The employer ceased trading, and its sole employee became redundant. The employer was bound by a state award (preserved as a notional agreement preserving state award, or NAPSA) which included an obligation to pay redundancy pay. The NAPSA allowed the employer to apply to the Commission to have the redundancy pay obligation varied if the employer obtained acceptable alternative employment for the employee.
The employer had helped the employee to set up his own business using the employer’s premises and equipment. However, the Commission did not accept that this constituted acceptable alternative employment because the worker was running his own business and was not employed.
In the case of McRae v Watson Wyatt Australia Pty Ltd, the Federal Magistrates Court delivered a ruling that serves as a warning to employers to be careful of what is said when negotiating with new employees.
Federal Magistrate Raphael found that a redundancy provision that was discussed in pre-employment negotiations formed part of the employee's contract.
Facts: Kathryn McRae accepted a role as a superannuation consultant at Watson Wyatt Australia Pty Ltd in 2000. During pre-employment negotiations, she contacted Watson Wyatt's then managing director by telephone about the absence of a redundancy clause in her letter of offer. The managing director assured her during the call that although the company did not include redundancy clauses in its employment contracts, its staff were "well looked after" and, in the "unlikely event" of redundancy, she could expect to receive three weeks' salary for every year of service.
Ms McRae was made redundant in August 2007. She brought a claim for breach of contract after Watson Wyatt denied that any such redundancy arrangements had been made, and offered her only one month's severance pay. The employer argued that even if the telephone conversation had taken place, the former managing director's promises were "mere puffery", and could not be considered binding.
Furthermore, Watson Wyatt argued that a subsequent contract made in 2004, after a promotion, excluded any pre-employment negotiations as the subsequent contract made provision that "this letter sets out the entire agreement with you regarding the terms and conditions of your employment with the employer".
Decision: Federal Magistrate Raphael found that the managing director was the "guiding mind" of the organisation and consequently, the employee had every right to have faith in the assurances he made after she expressed her concerns. The employer was ordered to pay $106,615 for breach of contract plus interest.
Implications: This case shows that verbal representations can be contractually binding. Employers should consider the following when looking at hiring new staff:
The Assistant Treasurer and Minister for Competition Policy & Consumer Affairs, Chris Bowen MP, today released An Australian Consumer Law: Fair market - Confident consumers information and consultation paper. The new unified, single national consumer law involves an overhaul of the Trade Practices Act to regulate the sale of goods and services in Australia.
The key components of the policy framework involve a new national consumer law, to be called the Australian Consumer Law, based on the existing generic consumer protection provisions of the Trade Practices Act (TPA) and included as a schedule to the TPA. It also involves new consumer laws which will include:
Unfair Terms Prohibition
There is a prohibition on "unfair terms" in standard form contracts given to consumers on a "take it or leave it" basis. An "unfair" term in a consumer contract is one which "causes significant imbalance in the parties' rights and obligations arising under the contract, and is not reasonably necessary to protect the legitimate interests of the supplier." The unfair contract terms regulation will cover standard form contracts like those consumers would be used to signing for their utilities, mobile phones and bank accounts." Other contexts in which standard form contracts are commonly used include software end user licences, e-commerce and internet services, online auctions, airline, bus and rail transport services, subscription television and magazine services, and health and fitness centre memberships.
The regime is to start on January 1, 2010.
The Fair Work Bill 2008 (Cth) introduces significant changes to the transmission of business laws which currently exist. The provisions aim to ensure that enterprise agreements and certain modern awards that covered employees of an "old" employer continue to cover those employees if they are offered and accept employment with the "new" employer.
The new test for determining whether a transfer of business occurs for the purposes of determining whether certain industrial instruments transmit to a new employer is broader than current provisions. The Bill focuses on whether there has been a transfer of work between two employers and the connection between the two employers.
Under the Bill, a transfer of business will occur when:
It is important to maintain the confidentiality of any information or trade secrets imparted during a competitive tender process. This is highlighted in the recent decision of the Federal Court in Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd  FCA 803. The relevant information related to the design of a load restraint system for a curtain-sided trailer used for carrying cargo (the Krueger Concept).
Facts: Camerons was invited to respond to a Request for Proposal issued by Amcor for the cartage of Amcor cargo (the tender). Camerons sought designs and quotes from three competing parties, including Krueger and Vawdrey, for the manufacturer of trailers which it would need if the proposal succeeded.
Camerons met separately with Vawdrey and Krueger (Camerons/Krueger meeting) to discuss, among other things, methods by which to restrain the trailer load. Vawdrey and Krueger produced to Camerons various sketches and quotations. Camerons' response to the Amcor tender, which was ultimately successful, included drawings, made by Krueger, of the Krueger Concept. However, Camerons ultimately awarded the contract for the manufacture of the trailers to Vawdrey. Vawdrey's final submissions, made to Camerons a day after Camerons won the tender, included a load restraint system remarkably similar to the Krueger Concept.
Krueger brought proceedings against Camerons for breach of confidential information, and against Camerons and Vawdrey for copyright infringement and contravention of the Trade Practices Act 1974 (Cth). Krueger alleged that after it disclosed the Krueger Concept to Camerons at the Camerons/Krueger meeting, Camerons disclosed it to Vawdrey and Vawdrey used it to win the contract with Camerons.
Decision: Justice Gordon found there was an oral agreement between Krueger and Camerons that 'any quotation, drawings, and technical and pricing information provided by Krueger, including the Krueger Concept, would be kept confidential'. Camerons breached its contractual obligation of confidence by disclosing the Krueger Concept to Vawdrey.
Justice Gordon found that but for the disclosure of Krueger's confidential information by Camerons to Vawdrey, Krueger would have won the contract with Camerons.
This case is a reminder to:
In Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd  FCAFC 197, the Full Federal Court unanimously decided that Elwood Clothing (a designer of fashionable street wear under the "Elwood" brand name) owned copyright in a range of its t-shirt and swing ticket designs. The court overturned the trial judge's finding that a t-shirt and swing ticket design, which employees of Cotton On Clothing ("Cotton On") admitted to copying from designs released by Elwood, did not constitute an infringement of copyright.
Facts: Employees of Elwood designed an innovative t-shirt design ("NewDeal") which was extremely successful and one of its best sellers. They also designed an innovative and unique label design ("Vintage Sport Swing Tag") which was used on a range of its garments including "NewDeal". Cotton On released a similar t-shirt to "NewDeal" in 3 different styles and also released a similar swing tag to "Vintage Sport Swing Tag". At trial, evidence showed that the Cotton On designers blatantly copied the Elwood t-shirt and swing tag designs.
At trial, Justice Gordon found "NewDeal" and "Vintage Sport Swing Tag" were protectable designs under copyright law as artistic, not literary, works, as the function of the words and numbers was visual, not semiotic. However Justice Gordon found no infringement since Cotton On had merely copied the overall design shape and layout - these were ideas and not a "substantial part" of the drawings. Despite the same layout being used, because Cotton On changed the words and numbers, Justice Gordon found the result to be a different visual impression.
Decision: Elwood appealed the findings to the Full Federal Court who unanimously upheld the appeal. The court agreed that the designs were original artistic works but found that the Cotton On designs did in fact infringe the copyright in the "NewDeal" design and the "Vintage Sport Swing Tag" design.
While the Full Federal Court accepted that Cotton On had changed the words and the numbers, the real question was whether Cotton On reproduced a substantial part of Elwood Clothing's original designs - a question which they unanimously answered in the affirmative.
This decision upholds copyright protection for designers and innovators of original clothing designs, and demonstrates that even though many changes were made to Cotton On's design this was insufficient to avoid infringement. Changes to the colour, words or numbers in a design may not be enough for a copier to evade a finding of copyright infringement. Where there is clear evidence of access to the original work and reference then significant changes need to be made in the new design for a designer to escape liability for copyright infringement.
Accordingly designers must take care when referencing another person's copyright work. The test for an infringement of copyright is not whether there has been an exact reproduction of the work, rather a person will be found to have infringed copyright if they have created a substantial reproduction of the copyright work in question.
In JLCS Pty Ltd v Squires Loft City Steakhouse Pty Ltd (No 2)  FCA 8 Finkelstein J made an order preventing the use of a trademark after steps were taken to avoid a previous declaration and restraint on its use.
In 2007 JLCS Pty Ltd granted Squires Loft City Steakhouse Pty Ltd (SLCS) a licence to operate a steakhouse restaurant at Goldie Place in Melbourne, under the name of its trade mark "Squires Loft". After subsequent changes in the ownership of SLCS, JLCS claimed the licence was terminated. SLCS made a counterclaim that the licence was still current and furthermore, that JLCS interfered with their use of the mark by permitting it to be used by a competitor, the City Grill Room, which operated another steakhouse restaurant less than 500 metres from the Goldie Place restaurant.
The judge dismissed JLCS's claim and granted a declaration that JLCS was obliged not to use or permit the use of the mark in location so proximate to the Goldie Place restaurant. He found that permitting the City Grill Room to use the mark was a breach by JLCS (the current owner of the mark) of its obligation not to derogate from the grant to SLCS of the licence to use the mark.
It is notable that the draft licence agreement prepared by the parties provided for SLCS to have an exclusive area in which no other person would be granted a licence to use the mark however the typed version of the draft did not specify the area of exclusivity and no agreement on an area of exclusivity was reached. After examining evidence, the judge implied a reasonable area that provided SLCS sufficient protection from competition for their restaurant and still allowed JLCS the capacity to licence other restaurants in the central business district.
However, even after the declaration and restraints on use of the mark were made, JLCS continued to deny SLCS the benefit of the licence:
Both were found to be transparent attempts by JLCS to avoid the declaration and to get around the injunctions. The ambit of the injunctions prevented JLCS from permitting the use of the mark by the City Grill Room however others were using the mark on behalf of the City Grill Room. The judge found it clear that the website was designed so that the City Grill Room could take the benefit of the Squires Loft mark. Finkelstein J restrained JLCS and its associated parties from using or permitting the use (including the use on any internet site) of the trade mark "Squires Loft" to promote the City Grill Room restaurant.
In Agricultural and Rural Finance Pty Ltd v Gardiner  HCA 57, the Australian High Court made a timely statement in an economic climate where investors and other debtors are more likely to seek to stretch and avoid their payment obligations. In considering the meaning of "punctual payment" and whether late payments by investors in a failed tax minimisation scheme triggered an indemnity under that scheme, it held that investors who delayed payment could not rely on the indemnity.
Facts: Under the scheme's prospectus an investor could obtain finance to assist in funding the initial management fee. Those that did could enter into an indemnity agreement with a company associated with the lender, for the purpose of protecting investors if the scheme failed by covering the investors for their liability under the loan agreements.
The scheme collapsed and the investors who borrowed money sought to rely upon the indemnity. A condition to the indemnity was "punctual payment" of any sum payable under the loan agreements. However the investors had not always done this, having in some instances paid amounts well after they were due.
In their defence, the investors argued that the "punctual payment" condition to the indemnity was satisfied as their payments, although late, had been accepted.
Decision: All of the High Court judges held that there was no reason not to apply the ordinary everyday meaning of "punctual payment" - that meaning being payment on time. They also held that in this case the condition of "punctual payment" had not been waivered or varied due to the lender's acceptance of late payments.
Thus the investors were without the protection of the indemnity and were liable for the money loaned to them in those circumstances where they had not punctually paid amounts owing under their loan agreements.
This judgment sends a timely message to all debtors that the practice of seeking to stretch payment terms will not be looked upon favourably by the courts and may even deprive debtors of being able to enforce a right which would otherwise absolve them of liability. It also sends out a warning to creditors to take care when accepting late payments so that they don't inadvertently vary to their disadvantage an agreement which they have with their debtors.
In Wilson Parking Australia 1992 Pty Ltd v Rush  FCA 1601, the Australian Federal Court granted orders preventing two former employees of a car park operator from soliciting customers for their new employer. This decision demonstrates the courts' willingness to uphold employers' interests and to enforce restraint of trade and confidentiality clauses in an employment contract in certain circumstances where the employment contract is carefully drafted to include reasonably enforceable provisions.
Facts: Two senior employees resigned from their management positions and took up employment with a competitor. The employees took confidential and commercially sensitive information, such as sale volume figures, sale summaries and customer lists, when they left and used it to entice customers to the competitor. This information was critical to the original employer's capacity to derive profits in a highly competitive market. The employer sought an interlocutory injunction.
Decision: The Court granted an order restraining the employees from:
The order is unusual because it applies to indeterminate owners and customers. However, in the circumstances, the Court found it necessary to make a "robust order".
In light of this recent decision, employers should review their standard employment contracts, particularly in respect of senior employees, to ensure that the business' interests are properly protected.
A recent unanimous decision of the Court of Appeal (Interstar Wholesale Finance Pty Limited v Integral Home Loans Pty Limited  NSWCA 310) has given some guidance on the law of penalties.
The facts concerned an agreement allowing the Lender (a financial institution) to terminate the agreement if the Lender formed the "reasonable opinion" that the Originator (loan originator) had engaged in deceptive or fraudulent activity. The Lender terminated the agreement under this power.
In these circumstances, the Lender also used a particular clause of the agreement allowing the Lender to cease the payment of all ongoing trail commissions. The Originator claimed that this clause was void as a penalty.
The Court of Appeal decided that the Relevant Clause was not a penalty. One of the reasons for this finding was that although there is conflicting authority, the better view in Australia is that the doctrine of penalties is constrained to circumstances of breach of contract. A provision cannot be a penalty if it applies upon an event which is not a breach of the contract, such as the reasonable opinion of the Lender that the Originator had engaged in fraudulent activity.
The judgment has also clarified that a contract will contain a voidable penalty provision if:
The Full Federal Court has reinforced the principle that in circumstances where parties to a commercial agreement have bargained for the provision of performance guarantees there is little scope for the importation of notions of unconscionability to restrain parties from exercising their clear legal rights under such guarantees.
Facts: Clough Engineering Ltd (Clough) and Oil and Natural Gas Corporation Ltd (ONGC) were parties to a contract to develop oil and gas fields off the coast of India. Various Australian banks had issued guarantees for performance of the contract. Under the contract, in the event Clough "failed to honour" any of the commitments contracted for, ONGC was entitled to call on the guarantees.
Following disputes with Clough, ONGC terminated the contract and called upon the performance guarantees. Clough sought an injunction restraining ONGC from making the demand and the banks from making payment under the performance guarantees.
Clough contended that the words "failed to honour" required it to be established as a fact that Clough had actually breached its contractual obligations, and that ONGC was not entitled to make a demand merely by asserting a breach of contract. Clough further claimed that ONGC's conduct in calling on the guarantees was unconscionable in contravention of section 51AA of the Trade Practices Act 1974 (Cth).
Decision: The Full Court held that on a proper construction of their express terms, and those in the main contract, the performance guarantees were valid and unconditioned upon any actual breach by Clough.
The Full Court referred to the commercial purpose of the performance guarantees in holding that there was little scope for importing notions of unconscionability to restrain the parties' exercise of their legal rights under the guarantees. In rejecting Clough's arguments as to unconscionability, the Full Court looked to the wider purpose of the performance guarantees as an allocation of commercial risk between the parties and as a provider of security to their holder.
In the absence of fraud or want of good faith it is the express terms of the commercial bargain (in this case the main contract and the performance guarantees themselves) which determine the extent of the parties' legal rights. The courts will be generally reluctant to allow equitable principles of fairness to intervene to alter the express and unequivocal terms bargained for.
Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (2008) 249 ALR 458
The much anticipated new workplace relations regime from the Rudd government was released on Tuesday. The 476-page "Fair Work" Bill lifts minimum employment standards, encourage collective bargaining and double the number of workers who have access to unfair dismissal claims. The changes will remove much of the complexity of existing law. Some of the main provisions in the Fair Work Bill are:
Businesses in the software, publishing, media and internet industries may prefer to assign, rather than licence, copyright and intellectual property for commercial reasons. However, the Australian Taxation Office (ATO) has recently stated in Taxation Ruling TR 2008/7 that an Australian Company (AusCo) that pays for an assignment of copyright from a Foreign Company (ForeignCo) may be liable to royalty withholding tax even though the assignment appears to be an outright sale and not a licence or royalty arrangement.
For Australian tax purposes, an AusCo that makes a payment to a ForeignCo that is a "royalty" is liable to withhold royalty withholding tax from that payment and remit the tax withheld to the ATO. A royalty payment is a payment or credit for the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right is a royalty. An outright sale or transfer of ownership of copyright, and other intellectual property, would not be a royalty. If the payment is not a royalty, no withholding tax is payable.
It is important to understand the Australian tax implications of an assignment, transfer or licence of intellectual property involving offshore entities. In particular, AusCo will need to review the contractual terms of any licence and assignment of intellectual property it has with ForeignCo to determine if AusCo has an obligation to withhold royalty withholding tax, and more importantly, whether the payment to ForeignCo is to be grossed up for tax that is withheld in Australia. Any gross up of tax will be an additional cost to AusCo.
A High Court decision ruled that legal costs related to protecting an employee's income are tax deductible. Although the case related to a public servant, there may be wider implications for the private sector if it is arguable that disciplinary action has resulted in a reduction of wages.
A tax deduction would cut legal fees by up to 45 per cent for those on the top tax rates. The case has the potential to increase the likelihood that employees and employers would seek legal advice in relation to terminations and redundancies.
In Royle v Cheetham Salt Ltd  AIRC 709, the Australian Industrial Relations Commission has held that an employer had a valid reason to dismiss an employee who received and disclosed confidential information. However, the employee's termination was found to be harsh because the dismissal process was unfair.
The employee received details of confidential senior management emails from a co-worker. The employee passed on this information in conversation with her colleagues. The Commission found that the employee's actions breached "any usual code of acceptable behaviour". Her actions put the reputation of her employer at risk, and invaded the personal privacy of her colleagues. Thus the employer was justified in terminating her employment.
However, the Commission found that the employee was not given a "fair go all round" leading up to termination. The employer held a meeting to discuss the issue with her, and she was dismissed in the same meeting. The employee was not made aware of the seriousness of the meeting, and turned down the opportunity to have a representative present. Further, the employer failed to clearly put the allegations to the employee, and did not give her time to consider the allegations or discuss them with anyone. Therefore, even though the employer had a valid reason for dismissing the employee, the employee's termination was harsh. The employee was awarded compensation equivalent to her five week notice period.
Australia's most expensive litigation between the liquidator of the Bell Group and a syndicate of 20 of the world's biggest banks was finalised last week. It closes the final chapter on the 1991 collapse of Bell Group after a mammoth 13 years and more than $500 million in legal fees.
Owen J, in the WA Supreme Court, delivered a 2643 page decision. The case hinged on whether the 20 banks that participated in Bell Group's 1990 refinancing knew that Bell's directors were in breach of their duties when they received security over the company's assets. Bell's bond holders argued the banks did know, and that they were entitled to receive the benefit of the $283 million the banks realised when they sold the assets in 1991 (now worth about $1.5 billion). Owen J held that by granting security to the banks, Bell Group directors breached the fiduciary duties they owed to the Bell companies and contravened the duty to act in the best interests of the individual companies. He found that Bell Group was insolvent in 1990, and the directors knew the companies were almost insolvent and breached their duties in giving the banks security over the group's assets.
However, the banks successfully established they did not knowingly assist in the breach and their claim on assets ranked ahead of bondholders. This means the banks, which may be ordered to return the proceeds of the asset sales plus interest to Bell's liquidator, may get a significant amount of that money back by way of distributions, since they remain priority creditors. The decision sets important precedents relating to directors' duties.
A recent decision of the High Court in Northern Territory v Collins  HCA 49 provides important guidance on the meaning of the word "supply" and the phrase "staple commercial product" in contributory patent infringement proceedings.
The Northern Territory granted statutory licences between 1993 and 2001 to Collins and later to the Australian Cypress Oil Company (ACOC) to enter its land and harvest cypress trees. In 1999 Collins registered a patent for producing oil from the mixture of the bark and wood of cypress trees through steam distillation. Following the Territory's grant of a licence to ACOC, Collins sued the Territory for contributory infringement under section 117 of the Patents Act 1990 (Cth). It was alleged ACOC used oil extracted from the trees to make blue cypress oil by a process protected by the Collins' patent.
The key provision at issue was section 117(2)(b) which provides:
Collins alleged that the Territory supplied a product that was not a staple commercial product with reason to believe that it would be used to produce oil in a manner which infringed his patent. The Territory said that was not liable under section 117, as it did not supply the timber, and because the timber was a staple commercial product.
The High Court ruled in favour of the Territory. It considered that the grants of the licences constituted a supply. The licences were a means of allowing ACOC the right to remove and use the timber. This was, in practical effect, a supply. It confirmed that "supply" has a broad meaning.
The High Court also prefers a broad interpretation of "staple commercial product", which narrows the circumstances in which suppliers will be liable for contributory infringement. The High Court held that cypress timber is a staple commercial product.
The decision means that a person who commercially supplies a product which has a variety of lawful uses is unlikely to infringe, except where the supplier either instructs or induces the infringing use, or advertises the product with such instructions or inducement. Those who supply products that could be used to infringe a patent should consider whether they could be liable for contributory infringement.
The New South Wales Court of Appeal in Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney  NSWCA 217 examined the implied contractual duty of good faith or mutual trust and confidence in Australia. While each case turns on its own facts, this case supports the general propositions that:
The case provides some reassurance to employers concerned about a rising number of employee claims based on implied contractual duties. The scope and extent of any implied duty of good faith or trust and confidence in Australian employment contracts is uncertain, and even if the duties do exist, a breach of such duties will not generally give rise to damages for distress, humiliation, injury to feelings or loss of reputation in what can be called unfair dismissal circumstances. After Russell decision, employees aggrieved by a dismissal will find it difficult to successfully claim damages against an employer for alleged breaches by the employer of implied duties of good faith and mutual trust and confidence.
In Electra Air Conditioning BV v Seeley International Pty Ltd  FCAFC 169 (8 October 2008) the Full Federal Court dismissed an Appeal against a primary judge's interpretation of an exclusive distribution agreement. At first instance, Seeley International Pty Ltd (Seeley) brought proceedings against Electra Air Conditioning (Electra) seeking declarations in relation to Electra's obligations arising out of an exclusive distribution agreement.
On 15 May 2007 Electra and Seeley entered into an exclusive distribution agreement whereby Electra appointed Seeley as its exclusive distributor of its refrigerated air conditioners in Australia and New Zealand for a period of at least three years. In accordance with the agreement, Seeley was obliged to submit to Electra purchase orders and Electra was obliged to notify Seeley whether Electra accepted the purchase order. Section 4.3 required Electra to accept a purchase order from Seeley unless there was a breakdown or failure of its manufacturing facilities.
During the first year of the contract, Electra could not obtain required credit insurance and advised Seeley it would consequently withhold supply. Seeley sought a declaration that Electra was obliged to accept all purchase orders submitted pursuant to section 4.3 of the agreement and supply was not conditional upon the amount of credit insurance that Electra had in place. The Full Federal Court held the primary judge was correct in finding no ambiguity in the agreement regarding the requirement for Electra to accept purchase orders. The appeal was dismissed.
This decision highlights the importance of drafting distribution agreements in clear and unambiguous terms.
Law firm Deacons has issued a media release that contractual arrangements between corporations and their senior executives may be harshly tested in the fall-out of the current global economic crisis. "The robustness of a contract is never more important than when times toughen. The flaws in executive contracts will reveal exposure to both parties that could have been avoided," says Deacons' partner, David Cross. Cross said that boards and executive teams should look to minimise further risk to business by ensuring their executive contracts are appropriately tailored to the parties' circumstances.
Deacons WorkplacePulse survey revealed that 4% of companies create individual contracts for senior executives, 38% use standard "off the shelf" contract forms and 45% use contracts prepared by in-house lawyers or an external law firm. With recruiting senior executives involving great time and expense, companies should not be lax but follow through with appropriate contractual arrangements. Contracts should reflect the importance of the executive's role in the business and the impact on the business should the executive leave.
The Australian Trade Marks Office refused registration for a shape because the evidence did not demonstrate use as a trade mark of the shape of a four-bar chocolate.
In Aldi Stores (a limited partnership) v Societe Des Produits Nestle S.A.  ATMO 76 on 27/8/08, Aldi opposed the registration of a Nestle trade mark of chocolate confectionary, "the shape of the good, being four bars attached to one another by a thin base".
The Hearing Officer opposed on the basis of section 41 of the Trade Marks Act 1995 (Cth). It was held it was not a trade mark at all but "a functional shape of the goods, one which the applicant does not use as a trade mark but is attempting to disguise as one". The shape applied for was not inherently adapted to distinguish the applicant's confectionary and, therefore, s 41(6) of the Act applied. The Hearing Officer took the view on the evidence that '... the public is not being educated to see the 4-bar shape as a trade mark, but to see that the product may readily and conveniently be snapped into either single or 2-bar portions ...'. The Hearing Officer was not convinced on the evidence that the shape has been used as a trade mark.
The decision highlights that evidence presented in support of the registrability of a trade mark, such as a shape trade mark, must show that the shape in question is being used as a trade mark. In concluding that the shape is not capable of distinguishing the applicant's products from those of others, the Hearing Officer made specific mention of the invisibility of the shape when the goods are sold, and the functional aspects of the shape being emphasised in advertising.
Nestle has appealed the decision.
The Workplace Minister, Julia Gillard, on 18 September 2008, unveiled the Rudd Government's new fair dismissal code for small businesses. The proposed new laws would allow companies with less than 15 employees to terminate an employee's employment after giving them one warning and time to improve their behaviour.
Small business employers can dismiss employees with less than 12 months service at any time without consequence. After the 12 month period has passed, employers will have to comply with a new Fair Dismissal Code for Small Business. Two critical aspects of the code are that a small business employer must: 1) Give the employee one warning, based on a reason that validly relates to the employee's conduct or capacity to do the job; and 2) Provide a reasonable opportunity for the employee to improve his or her performance.
The code is intended to start on 1 July 2009. The legislation has yet to be released and is scheduled for release later this year.
The Supreme Court of New South Wales case of Tullett Prebon (Australia) Pty Limited v Simon Purcell  NSW SC852 (21 August 2008) questioned the enforcement of non-competition obligations during the term of an employment contract, in circumstances where the employee was on "garden leave".
Garden leave is the practice of instructing an employee who is leaving an employer to stay away from working or performing any duties during their notice period. The practice is often used to prevent employees from working for the employer's competitors for a period of time. During garden leave, employees continue to receive their normal pay and are covered by any contractual duties until their notice period expires.
The defendant, Mr Purcell, was employed under a fixed term contract containing a clause prohibiting him from working for a competitor throughout the term of employment and for a period of three months afterwards. He resigned to work for a competitor. The employer notified him the contract of employment was still on foot and sent him on garden leave pursuant to a clause in the contract. However, Mr Purcell commenced working for the competitor and the employer applied for injunctions to restrain him from doing so until the expiry of the contract.
Justice Brereton held that Mr Purcell should be restrained from working for a competitor for a period of six months from the date upon which he attempted to resign and not for the full term of the contract. Even though the employment contract was still on foot, the Court approached the question of whether the employee should be restrained from working for a competing business in the same (quite strict) way as if the employer was trying to enforce a post-employment restraint of trade - any restraints on competition will not be enforced unless they are reasonable. The Court drew a distinction between the contract of employment (which in this case had not been terminated) and the "relationship" of employment, which had come to an end as soon as the employee stopped working. It was irrelevant that the employee was on garden leave and did not alter the situation.
Employers should note from this case that keeping the employment contract on foot and sending the employee on garden leave does not necessarily make it easier to enforce any non-competition clauses in the contract. Garden leave obligations should be supplemented by enforceable contractual provisions restraining the employee’s activities following the end of the employment relationship.
A Federal Court decision handed down on 12 September 2008 (Irving v Smith  FCA 1391) considered whether a deed of company arrangement (DOCA) should be set aside on the basis that it was oppressive, prejudicial to, and discriminatory against, creditors of a company.
The facts, briefly, are as follows. Administrators were appointed to Longreach Capital Pty Ltd (Longreach). Creditors' meetings were held between 23 May 2009 and 21 August 2008. During these, two DOCA proposals were received by the administrators - one from Mrs Irving (the plaintiff and at the relevant time sole director of Longreach) and one from Mr Byrnes.
Shortly before a meeting of creditors was held on 5 August 2008, the administrators received and accepted a number of new and revised deeds of debt assignment dated 4 August 2008 whereby two creditors (Campus Pty Ltd (K-C) and Kenmore Developments Pty Ltd (K-D)) had assigned claims for damages and costs orders to four entities (New Creditors). The meeting was adjourned until 14 August 2008, when the administrators recommended neither proposal to creditors but recommended that Longreach be wound up. However the DOCA, as proposed by Mr Byrnes, was executed pursuant to a resolution of creditors. The votes cast in favour of the resolution included K-C, K-D and each of the New Creditors. The DOCA was later executed.
Mrs Irving, the plaintiff, appealed against the administrators' decision to allow the New Creditors to vote on the resolution. She argued that K-C and K-D's had split their debt to allow more than one vote for the debt. She also argued there was a cut off time for lodgment of proofs of debt at the point where notices convening the meeting where sent. This was unless the assignment was bona fide and not for the purpose of manipulating the voting at the meeting. The result of the assignment she argued was that a larger number of creditors were entitled to vote at the meeting and the support of those creditors allowed the DOCA resolution to pass. Even if the New Creditors were allowed to vote, she argued, the DOCA should be terminated under section 445F of the Corporations Act (the Act) because it was oppressive or unfairly prejudicial to creditors or contrary to the interests of the creditors of Longreach as a whole.
The Court found no ground to warrant termination of the DOCA.
Goldberg J found the debts were not split. The expression "creditors" in sections 439A and 439C of the Act is not limited to entities to whom a company is indebted either at the date notice is given by the administrators to creditors or the publication of the notice of meeting and is not given a limited temporal aspect. Creditors in a voluntary administration under Pt 5.3A of the Act were "were all persons who had debts or claims against a company provable in its winding up."
Because the deeds of assignment were effective, the chair of the meeting was entitled to count the votes of the assignees of the debts. The assignments were bona fide and there was no evidence the deeds were executed to obtain voting power to pass the DOCA resolution.
The test for whether the DOCA was oppressive or unfairly prejudicial or unfairly discriminatory is whether the impact of the DOCA on one or more of the creditors bound by it is one of overall unfairness. It is the effect of the DOCA rather than its purpose which is to be considered and taken into account.
Goldberg J held that the administrators' report presented a clear choice to creditors, indicating assumptions made and variable factors including the advantages and disadvantages of pursuing a deed of company arrangement or, alternatively, liquidation. These assumptions and factors required creditors to make a choice and their choice did not result in a deed that was oppressive, unfairly prejudicial or unfairly discriminatory towards the general body of creditors including the plaintiff.
This decision shows that an assignee of a debt will have creditor voting rights, even where the debt was assigned after notice of a creditors' meeting is given, provided the assigned debt is a discrete debt, and the assignment is not for the purpose of manipulating voting rights. It also demonstrates that a DOCA will not be oppressive, unfairly prejudicial or unfairly discriminatory towards creditors only because there is a possibility that had the company been wound up there may have been a better result for the creditors. Voting creditors are entitled to make an informed choice on the matter.
A court decision delivered on August 22 heralded a welcome success for independent contractors. Keldote Pty Ltd v Riteway Transport Pty Ltd  FMCA 1167 is a significant case, being probably the first substantive action brought for an unfair contract under the Independent Contractors Act 2006 (Cth) (IC Act). The Federal Magistrates Court found in favour of three independent contractors in an action against Riteway Transport Pty Ltd.
The three contractors were owner-drivers with substantially identical contracts with the principal, Riteway. The contracts required each contractor to supply a vehicle "approved by the [principal], and subject to the requirements of the [principal] from time to time", and to update the vehicle every five years. In early 2007, Riteway told the contractors to replace their single trailers with b-doubles. The contractors requested $300 extra per trip to cover the additional costs however Riteway offered only a $200 increase per trip.
The owner-drivers made an application under section 12(1) of the IC Act which allowed the Court to review an independent contractor's services contract on grounds it is unfair or harsh. Federal Magistrate Cameron found the contracts were unfair as they entitled Riteway to impose unilaterally, and without making commensurate compensation to the contractors, a significant change to the equipment required to service the contracts. He emphasised the IC Act requires consideration of the fairness of the contracts at the time they were entered into it. The contract was amended to limit Riteway's power by requiring the provision of a replacement vehicle which had "specifications reasonably equivalent to the vehicle to be replaced."
This decision affects all Australian businesses engaging independent contracts. When entering into a contract with an independent contractor, businesses should put the agreement in writing where it is made clear the parties intend the relationship to be one of principal and independent contractor (not employer/employee). Other important matters to be made clear are the purpose of the contract, the tasks to be completed, the date when work should commence and be completed, the amount to be paid for work done and the method and frequency of payment, and dispute handling procedures. It is also important to realise that the independence and flexibility accorded to independent contractors sometimes come at the expense of businesses. Independent contractors are not bound by the same confidentiality requirements as employees and other duties under the employment relationship. Accordingly confidentiality agreements may come in handy.
Lawlive has several templates for Contractor Agreements available for both those engaging the services of a contractor and contractors providing services.
The Federal Court of Australia delivered a recent judgment, after construing a detailed software Licence Agreement, dismissing a cross-claim that the Licensor (SAG) was entitled to additional licence and maintenance fees from its Licensee (RWWA). SAG claimed that RWWA's installation of a copy of the System, the subject of the Licence Agreement, on its off-site disaster recovery mainframe breached cl 12.3 of the Licence Agreement.
Clause 12.3 states "Software AG hereby expressly authorises the Licensee to copy the System(s) (in object code only) and the Documentation for archival or emergency restart purposes PROVIDED THAT no more than (3) copies made by the Licensee of the then current system version shall exist at any time and all old versions shall be destroyed" (emphasis added).
RWWA contended that cl 12.3 entitled it to install a copy of the System at a disaster recovery site (DR Site) and test the facility's capacity to function. SAG argued cl 12.3 was much more expressly limited in term merely granting only basic rights. Any additional usage beyond would require additional licence fees, and services fee for copying, installation and usage of the System at the DR Site. In response, RWWA said cl 12.3 must be given some sensible commercial meaning, no matter how strictly and literally the contract is construed. Such construction reflects what a reasonable person in position of parties would have understood it to mean. Further, construction is not restricted to the text of the Licence Agreement but should take into account surrounding circumstances known to parties and the purpose of the object of the contract. A literal approach would produce a ridiculous commercial result that goes against common sense.
Justice McKerracher held RWWA, by making and storing a disaster recovery copy of the System at the DR Site, had not breached the Licence Agreement. SAG's literal construction would be at least unreasonable, inconvenient and also unjust. Instead, cl 12.3 was intended to be permissive for the purpose of permitting the licensee to reproduce software to extent that may be required for the use contemplated under the Licence Agreement i.e. for emergency restart purposes. This was the use for which RWWA was storing copy of the System at the DR Site. Thus SAG was not entitled to payment of any additional licence fees pursuant to the Licence Agreement in respect of the installation of the copy of the System.
Racing & Wagering Western Australia v Software AG (Australia) Pty Ltd  FCA 1332
LawLive is currently undergoing final checks on Software Licence Agreement templates to be released soon.
A recent media release by the Workplace Ombudsman provides an important reminder for businesses to comply with all formal requests from workplace inspectors. Criminal proceedings were instituted against a director of an Adelaide roofing business for failure to produce employment records as part of the Ombudsman's investigations into allegations made by a former employee of the business. The allegations included a claim the employee was owed over $28,000 for unpaid overtime work. After several months of refusing requests to hand over employment records, the director told the Ombudsman that the matter was settled privately however he failed to provide any evidence of the negotiated outcome.
Legal action was also taken on similar allegations against a Perth hairdresser, Sterling Crown Pty Ltd. Sterling repeatedly refused to produce employment records and consequently the Ombudsman could not carry out audits, nor investigate allegations by a former employee. These allegations included unpaid overtime, failure to provide superannuation and failure to provide payslips. If found guilty, Sterling faces a maximum penalty of $5500 for each contravention of the Workplace Relations Regulations 2006.
As part of complying with requests from workplace inspectors, it is prudent for businesses to maintain an up to date record of all employees which should be entered into a central employment register. Lawlive can draft Employment Records (Short or Long depending on the detail required) and a Employment Register as good management practice for your business.
A decision of the New South Wales Court of Appeal in Australand Constructions Pty Ltd (Australand) entered into a subcontract with Erect Safe Scaffolding (Australia) Pty Ltd (Erect Safe) to provide scaffolding on its construction site. Mr Sutton was an employee of Dalma Formwork Pty Ltd (Dalma), another subcontractor engaged by Australand. Whilst working on the site, Mr Sutton was injured when his head struck a crossbar erected by Erect Safe. Before the incident Australand noticed the hazardous crossbar but did not record it in its minutes and did not direct Erect Safe to remove the hazard. Accordingly Justice McClellan apportioned responsibility 60% to Erect Safe, 25% to Australand and 15% to Dalma.
Australand argued that clause 11 of its subcontract with Erect Safe provided that "the Sub-contractor must indemnify Australand against all damages etc…incurred by Australand arising out of the performance of the Subcontract Works and its other obligations under the Subcontract." Justice McClellan construed the indemnity clause as lacking ambiguity and requiring Erect Safe to indemnify Australand. So even though Australand was partly at fault, its indemnity clause covered it against any liability. The decision shows the importance of using clear language in indemnity clauses and how Contractors and Consultants need to be aware of any obligations they owe under such clauses. Lawlive's Consultant and Contractor Agreements have the option of including a guarantee and indemnity.
Australand Constructions Pty Ltd (Australand) entered into a subcontract with Erect Safe Scaffolding (Australia) Pty Ltd (Erect Safe) to provide scaffolding on its construction site. Mr Sutton was an employee of Dalma Formwork Pty Ltd (Dalma), another subcontractor engaged by Australand. Whilst working on the site, Mr Sutton was injured when his head struck a crossbar erected by Erect Safe. Before the incident Australand noticed the hazardous crossbar but did not record it in its minutes and did not direct Erect Safe to remove the hazard. Accordingly Justice McClellan apportioned responsibility 60% to Erect Safe, 25% to Australand and 15% to Dalma.
Australand argued that clause 11 of its subcontract with Erect Safe provided that "the Sub-contractor must indemnify Australand against all damages etc…incurred by Australand arising out of the performance of the Subcontract Works and its other obligations under the Subcontract." Justice McClellan construed the indemnity clause as lacking ambiguity and requiring Erect Safe to indemnify Australand. So even though Australand was partly at fault, its indemnity clause covered it against any liability. The decision shows the importance of using clear language in indemnity clauses and how Contractors and Consultants need to be aware of any obligations they owe under such clauses. Lawlive's Consultant and Contractor Agreements have the option of including a guarantee and indemnity.
The ACMA has released the Content Services Code which applies to all ISPs, hosts and providers of content having a connection with Australia. In particular, the Code sets out guidelines for service providers to protect children and minors from unsuitable online and mobile content. The Code is effective from 16 July 2008.
The Code prescribes that all content likely to be MA15+ or above must be assessed and classified by trained content assessors, hired by providers of online and mobile content. By requiring content classification assessment, this code assists both children and their parents to make informed choices about what is, or is not, suitable for viewing online or on mobile phones. The Code also sets out best practice guidelines for providers and hosts of content on how to manage and respond to customer complaints and contains information about online safety and the risks around the use of chat services for consumers.
The Code was prepared by the IAA and is in force under Schedule 7 of the Broadcasting Act 1992 (Cth). It can be accessed on ACMA's website at: www.acma.gov.au
Yesterday the Victorian Auditor-General released a guide for CEOs and CIOs who are accountable for projects where the technology available and proposed may not be entirely understood. While the guide has been prepared for the public sector, it no doubt should have relevance for executives in the private sector whose businesses are about to embark on major ITC systems where there is always some uncertainty and therefore an element of risk. The Guide can be accessed at the Auditor-General's website at www.audit.vic.gov.au.
The West Australian Court of Appeal has recently upheld an application by two sisters who were the primary beneficiaries of a family discretionary trust to have a new trustee appointed.
At trial, the Master had noted that it 'is doubtful whether a trust could ever better fit the description of a discretionary trust. The powers given to the trustee are wide and unfettered'. The trust deed did include some very broad provisions: the trustee was empowered to invest, acquire and sell the trust property 'at the trustee's uncontrolled discretion'; and the trustee was entitled to exercise all his powers 'notwithstanding any conflict of interest'. However the Master incorrectly held that the powers conferred on the trustee were so wide that the sisters had no ground to challenge the conduct of the trustee. Importantly, the Master failed to set out any legal test or criteria as the basis for considering removal of a trustee and the Master's finding that the trustee 'could do what he likes' based on the terms of the trust deed misconstrued a trustee's obligations.
Martin CJ referred to the two sources of the court's jurisdiction to remove a trustee: one within the court's inherent jurisdiction; and the other under the State Trustee Act. Fundamental to the exercise of its power under either of these sources was the court had to have regard to the welfare of the beneficiaries of the trust which was 'to be found in the safety of the trust estate' in which they had an interest. The court referred to the leading High Court decision in Miller v Cameron (1936) where it was held that a court's discretionary power to remove a trustee included where circumstances existed that provided a ground on which the discretion could be exercised; an example of this might be inaction on the trustee's behalf. The court also referred to the more recent WA decision in Smith (2006) where the court held that its discretion to remove a trustee could include where a trustee 'has failed to understand what are the obligations properly imposed upon him or her in the administration of the trust'. Finally Martin CJ noted that it was not necessary for the beneficiary to claim bad faith on the part of the trustee in order to bring an action for removal. The appeal court set aside the master's decision and the matter was remitted for retrial.
The decision is a reminder that even where a discretionary trust gives very wide powers to the trustee, where the welfare of beneficiaries may ultimately be prejudiced the courts will generally review a trustee's actions (or inactions as the case may be). Trustees should always be mindful of their obligations as trustees in relation to trust property and they should seek professional advice for guidance as to their conduct as trustees to minimise the chance of being challenged for alleged abrogation of their duties or for misconduct. See Elovalis v Elovalis  WASCA 141 (4 July 2008).
As the 'greening' of commerce in Australia gains momentum, many companies wish to advertise their 'green' credentials. However, it is very important to be aware of possible misleading and deceptive conduct in relation to making 'green' claims.
The ACCC has recently released a Guideline which will assist businesses and marketeers to ensure they remain within the law when making 'green' statements in relation to their products. The guidelines may be accessed at: www.accc.gov.au
The IPA issued an updated Code of Practice, effective from 1 May 2008. The Code applies to all insolvency practitioners in Australia except voluntary administrators. The Code covers: duties & obligations of practitioners; stakeholders to be considered; independence of practitioners; disclosure issues; communication; timeliness in attending to duties; property dealings & conflict of interests; competition & advertising; remuneration principles; quality assurance (APES Standard 320); compliance management (AS 3806); risk management (AS 4360); complaints management (AS 4269); and templates to assist compliance.
Creditors and shareholders should also be familiar with the Code to ensure they are aware of insolvency practitioner duties and obligations in respect of stakeholder interests in the external administration of a company. The Code can be accessed at www.ipa.com.au.
The ACCC (Australian Consumer & Competition Commission) provides some invaluable information for traders in relation to compliance and regulatory matters including the following:
See the ACCC for small business at www.accc.gov.au.
The Federal Court last week published its decision following a claim by a company (Liquid Engineering 2003 Pty Ltd - "LE 2003") that 2 trade marks registered by a former employee should be removed from the IP Australia Register because the former employee was not and never was the owner of the marks. The case was somewhat complex because there had been several predecessors in title since the original owner (Andrews) created the marks Exit Rust and Fuel Set in about 1990. The marks were assigned by Andrews by deed of transfer in 1996 to his proprietary company which became a public company in 2001. In April 2003 the public company went into receivership and the business was sold to LE 2003. Edwards was employed as a sales manager from 1998 through the changes to April 2003. However in February 2003 while still employed he filed applications for registration of Exit Rust and Fuel Set in his own name. LE 2003 was successful in its claim that Edwards did not have title to the marks (they were effectively held on constructive trust by Edwards for LE 2003) however as LE 2003 had in the meantime filed its own applications for the same marks, the registrations in Edwards' name were removed from the Register rather than a direction made to the Registrar to record LE 2003 as the owner. Edwards endeavoured to show that the IP transferred by Andrews in 1996 was only a licence and not the title: Justice Gordon rejected this, noting that while "Andrews may not have understood at the time that the unregistered trade marks had value", title was effectively transferred because the evidence showed that all IP rights had been included.
This case raises two important issues for companies:
Yesterday the ATO issued public notices to employers who use schemes that the Tax Office says are 'abusive tax schemes' which, in the absence of a Private Ruling, will attract close scrutiny and may attract penalties for tax avoidance. Employers who contact the ATO prior to an audit will be entitled to a reduction in any penalties that would otherwise be payable. The particular schemes are:
For full information see Taxpayer alerts 2008/13 and 2008/14 at www.ato.gov.au/atp.
ASIC has recently released Report 124 in relation to administrator investigations under s438A and reporting under s439A to creditors on a company's business, property, affairs and financial circumstances for the purpose of enabling the creditors to make an informed decision about the company's future. Report 124 includes 8 recommended points to be considered when an insolvency practitioner is preparing a s439A report:
The Report is available on the ASIC website at www.asic.gov.au.
Yesterday the Federal Government released full details of the 10 National Employment Standards (NES) which come into effect on 1 January 2010. These are: 1. Maximum weekly hours of work 2. Request for flexible working arrangements 3. Parental leave and related entitlements 4. Annual leave 5. Personal/Carer's leave and compassionate leave 6. Community service leave 7. Long service leave 8. Public holidays 9. Notice of termination and redundancy pay 10. Fair Work Information Statement.
Further information can be obtained at www.workplace.gov.au.
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Last week the Federal Court handed down its decision following an allegation of misuse of confidential information given at a meeting, as well as copyright infringement and contravention of the Trade Practices Act 1974 (Cth). This note will only deal with the confidential information aspect.
K is a designer and builder of trailers, C companies is a transport and logistics group Australia-wide and V manufactures and sells semi-trailers and truck bodies throughout Australia; V is a competitor of K. C sought quotes from both K and V for a new trucking system for C's use in a contract with Amcor. At K's first meeting with C, K divulged its newly devised truck 'load restraint system'. No signed confidentiality undertakings were made and oral undertakings were disputed by C. C subsequently awarded the contract to V whose system was remarkably similar to K's. C had had meetings and telephone conversations with V and the judge found that the 'sequence and temporal proximity of events provides more than a reasonable basis to conclude ... a disclosure of [K's] confidential information" by C to V.
K sued C and V on the basis that there had been express agreement to keep certain information confidential, there was an equitable obligation based on the relationship between K and C, and that K had disclosed that information to V to K's detriment. As there was no signed confidentiality agreement between K and C, the judge applied the 3 element test to establish breach of equitable obligation of confidence (information has necessary quality of confidentiality, information was imparted in circumstances importing one of confidence, and unauthorised use of that information was to the detriment of the party who disclosed). The judge held that the 3 element test was satisfied and that damages crystallised when C awarded the contract to a party other than K.
This case is a serious reminder of the benefits of obtaining signed confidentiality agreements. The absence of such a document in this case meant that K, C and V were put to great expense of time and resources collecting the evidence to support their oral statements (which often conflicted and in one case there were conflicts between the evidence one party gave in support of a patent matter with that which it gave on the present case) - see Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd  FCA 803 (30 May 2008).
In a meeting with two parties, each of whom will make confidential disclosures, a mutual confidentiality deed is prudent or separate deeds drawn up by each party which should be executed as a formality before the meeting proceeds.
Late last week the Privacy Commissioner released 7 case notes in relation to allegations of breach of the Privacy Act 1988 (Cth) handled by her office. These were in relation to the following topics:
These administrative decisions were determined under either the legislated National Privacy Principles or the Information Privacy Principles (applicable to government authorities). We strongly recommend these decisions be read as they are a reminder of the strict obligations relating to the collection and use of personal information: see www.privacy.gov.au/news/media/2008_07.html.
The Commonwealth Attorney General has published a media release in relation to the proposed national Personal Property Securities ("PPS") legislation. PPS involves taking a security interest in all types of property such as cars, boats, livestock, shares and intellectual property but excludes real estate interests such as mortgages and leases. According to the AG, this legislation will replace more than 70 current State and Territory schemes and will close loopholes which presently exist. The proposed legislation is currently in Bill form and when passed will provide for the establishment of a national on-line Register. The PPS legislation has been labelled the most important national legislative scheme since the introduction of the Corporations Act in 2001. The AG's department has set up a dedicated website link, providing access to a number of very informative background material - see www.ag.gov.au/pps.
The Federal Court recently handed down its decision in favour of an employee who claimed he had been wrongfully dismissed on discriminatory grounds contrary to s15 of the Disability Discrimination Act 1992 (Cth). The facts were that the claimant, Mr G, had applied for and accepted a position as a field officer for the ATO. The formal Offer of employment was subject to a medical test and the medical form indicated that 'if any medical problems existed, their effect on employment could quite possibly be resolved". At the ATO's behest and before the ATO received the results of the medical tests, Mr G commenced a training program with the ATO as part of his employment. The medical tests revealed Mr G had high blood pressure and the ATO ostensibly withdrew its Offer of employment. The Court noted that for s15(1) of the Act to apply, it made no difference whether the employment had commenced or whether an offer of employment was withdrawn before acceptance. The defence available to an employer under s15(4) was not established by the ATO; subsequent medical tests had shown that Mr G suffered from 'white coat syndrome', a common medical condition which refers to the anxiety many people have when undergoing medical tests which results in higher blood pressure readings than would otherwise be the case. The ATO also failed to show that Mr G was not able to undertake his employment duties. See Gordon v Commonwealth of Australia  FCA 603 (6 May 2008).
This case is a reminder that an employer who is considering terminating employment or withdrawing an offer of employment on the basis of adverse medical results should seek professional advice to ensure that they are not about to act in a discriminatory manner in contravention of legislation.
On 15 May 2008 a suite of new Forms came into effect as part of the incremental changes being conducted pursuant to the Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 (Cth). The new Forms relate to:
See the AIRC website for full information: www.airc.gov.au. There is also a new webpage relating to the process of awards modernisation, due to be finalised by 31 December 2009, at www.airc.gov.au/awardmod/.
The Federal Government has announced (in its May 2008 budget) that there will be a reduction in the scope for family trusts to be used as a mechanism to lower income tax by utilising losses.
The Treasurer also announced that the definition of 'family' in the family trust election rules will be changed to limit lineal descendants to children or grandchildren of the test individual or the test individual's spouse. Concomitant with this, it will no longer be possible for family trusts to make a once-off variation to the test individual specified in a family trust election except in the circumstances of marriage breakdown.
Recently Tullet Prebon (Australia) Pty Ltd applied for an interlocutory injunction to enforce a 3 month restraint of trade provision in its employment contract with Mr Purcell, a share broker. Tullet Prebon claimed the contract was still on foot (with Mr Purcell on 'gardening leave' following his notice of resignation) however Mr Purcell claimed that Tullet Prebon repudiated the employment contract when he resigned. At interlocutory stage, it was not possible to determine by means of cross-examination of witnesses (as to who said what/when and who took what actions) whether in fact the contract was still current or had been repudiated: this issue being critical as to whether the restraint of trade clause was enforceable (if the contract still on foot) or if it was not enforceable (where the contract had been repudiated) freeing Mr Purcell to start immediately with his new employer.
Having discretionary power whether to grant the injunction, the court held that damages would be assessable and noted that Mr Purcell was being paid his gardening leave by Tullet Prebon. However Tullet Prebon would be prejudiced if the injunction were not granted: the customer connection built up by Mr Purcell but paid for by Tullet Prebon (an allowance of about $5,000 per month to Mr Purcell) was a 'legitimate asset' of the firm and the 3 month restraint that the parties had agreed to at the time of entering the contract was appropriate in these circumstances. The injunction was granted enforcing the restraint, having regard to the fact that an expedited hearing to finalise the matter was available.
The case is a reminder that where employment contracts include a restraint of trade on termination, employers and employees should take great care when purporting to terminate these contracts because repudiation by the employer will cancel the restraint of trade. See Tullet Prebon (Australia) Pty Ltd v Simon Purcell  NSWSC 437 (23 April 2008).
Recently the Court of Appeal in NSW affirmed a lower court finding that a contractor, Michael's Appliance Services Pty Ltd, which had provided services in respect of goods prior to retail sale was not liable for damages under Section 75AD of the Trade Practices Act 1974 (Cth). Section 75AD falls within Part VA of the Act relating to liability of manufacturers and importers for defective goods.
The claimant injured his hand on the door of his refrigerator and sued Michael's. The fridge had been imported however Michael's had been contracted to affix stainless steel panels prior to sale. On the facts of the case, Michael's carried out its services on someone else's premises, had no responsibility for delivery of the goods and provided the importer with an invoice for its services. In the circumstances, Michael's was merely a licensee: it was not even a bailee since at no time did it ever have title to or possession of the refrigerator. As licensee, Michael's was not a 'supplier' and therefore did not fall within the s75AD regime of liability. However, contractors should be vigilant regarding the terms of their contracts and the circumstances in which they perform their obligations to ensure they are not unwittingly captured by the provisions of Part VA. See James Spittles v Michael's Appliance Services Pty Ltd  NSWCA 76 (14 April 2008).
In the West Australian Supreme Court, a liquidator brought an action seeking an account: his company (Windslow) and Olympic Holdings were in disagreement as to the amount owing under assigned charges due to the existence of a separate 'running account' of unsecured advances made by Olympic to Windslow.
In 2002 the HSBC Bank had provided funds to Windslow secured by a registered mortgage and 2 fixed and floating charges, the "Securities". The Securities contained an 'all moneys' clause and permitted HSBC to assign its rights. In 2005 HSBC assigned its rights to Olympic and in defence to Windslow's action to account, Olympic claimed that all its advances to Windslow were covered by the Securities it acquired from HBSC due to the 'all moneys' clause. It was noted that only HSBC and Olympic were signatories, ie. Windslow was not a party to the assignment but it did receive subsequent notice of the transfer. At trial, the court held that the amounts secured by the charges were limited to the amount advanced by HSBC as assigned in 2005 on the basis of privity of contract and interpretation of the Securities based on the context in which they were given.
The Court of Appeal agreed with qualification: since Windslow was not a party to the assignment agreement, Windslow did not consent to any purported 'tacking' of unsecured advances to the Securities. Furthermore the Securities expressly referred to "the Bank" which, in the context of the charge documents, did not 'embrace any and all creditors' of Windslow; and in any case, the charges only permitted HBSC to assign its 'rights' under each of the Securities which were expressly in relation to the money lent pursuant to the charges.
However, where the trial Court had held that the Securities excluded both pre-assignment and post-assignment advances by Olympic to Windslow, the Court of Appeal held this was correct as regards the pre-2005 liability, but it did not have to make a finding in relation to post-assignment indebtedness. Heenan AJA addressed the policy issues at the heart of not permitting an unsecured creditor taking assignment of a secured liability to purportedly 'secure' an unsecured liability, with or without the consent of the debtor, noting issues of priority of secured and unsecured debts, and tacking.
This case is a reminder that great care should be taken when drafting an 'all moneys' charge, mortgage or other security over assets where the chargee/mortgagee has the right to assign: to ensure that the chargor/mortgagor is not unwittingly agreeing to liability to an unidentified/un-named party who may in future be identifiable whereby an 'all moneys' liability has expanded which may be enforceable (so long as there are no intervening third party priorities of security). See Olympic Holdings Pty Ltd v Windslow Corporation Pty Ltd  WASCA 80 (10 April 2008).
Last week the NSW Supreme Court handed down its decision determining which of two charges duly registered pursuant to the Corporations Act 2001 (Cth) took priority, ie. which charge ranked before the other. Both charges affected property of Smeaton Forklifts Pty Ltd, the third defendant. The first charge was a 'floating charge' registered by B&B prior to the second charge given by CBFC which claimed to be a 'fixed charge'.
It was common ground that the general priority rules set out in Section 280 of the Corporations Act gave B&B's charge priority unless that priority was displaced. CBFC defence was that such displacement had occurred: either on the basis as provided in the statutory regime (in particular s279) or alternatively, since the charge was given as security for a loan to Smeaton, it fell outside the statutory regime.
In relation to displacement under the Corporations Act, s279(3) provides that the holder of a registered floating charge is deemed to have consented to the charge being postponed to a subsequent registered fixed charge unless Notice is lodged with ASIC before registration of the subsequent charge. On the facts, no such Notice was lodged - critically, B&B had marked 'no' in response to the question whether the creation of subsequent charges was restricted or prohibited when it filed registration of its charge with ASIC.
In response, B&B claimed that the goods covered by CBFC's charge were in fact subject to a floating charge (and not a fixed charge) because Smeaton hired the goods out to third parties. However the judge refused to countenance the fact that if goods leave the chargor's control or possession that this affects or changes the status of the charge. The Court confirmed that although 'fixed charge' is not defined by the Corporations Act, under general law fixed charges and floating charges are 'mutually exclusive categories'. The Court also referred to a House of Lords decision which held that a fixed charge is one that 'fastens on ascertained and definite property' or on property which can be ascertained or defined. On the facts, CBFC's charge was correctly a fixed charge.
Therefore CBFC's charge took priority as a fixed charge under s280 because of B&B's omission to displace that priority as provided in s279(3). Although unnecessary, the Court briefly addressed CBFC's alternative claim that the charge fell outside the statutory regime.
This decision is a reminder how critical it is to ensure all care and diligence when completing statutory lodgement forms because rights and interests can ultimately be at stake: Smeaton was in voluntary winding-up without funds to meet the claims of both B&B and CBFC. See B&B Budget Forklifts Pty Ltd v CBFC Ltd  NSWSC 271 (1 April 2008).
This week the Australian Taxation Office has released two Taxpayer Alerts regarding the use of certain trusts including Unit Trusts that the ATO considers worthy of its risk assessment for taxation purposes. (See http://www.ato.gov.au/atp/.)
The NSW Supreme Court recently found that a company was validly appointed under a trust deed as the new trustee following a creditors' voluntary winding up of the original trustee. The new trustee applied to the court to order transfer of all trust property including all books, documents and records which the former trustee was resisting due to the concerns of the liquidator about the ability to 'recover and recoup out of the trust property' whatever was due to the trustee company in the exercise of its duties. The case raised the issue of rights of a trustee in relation to trust property and the protection/recognition of those rights when the trustee is replaced. Barrett J stated it was 'axiomatic that a trustee has a right to be indemnified out of trust assets against personal liabilities' validly incurred however it was not necessary for the trustee to retain possession of the trust property to protect those rights. On transfer of trust property to the new trustee, the outgoing trustee should obtain an appropriate indemnity from the new trustee. Barrett J directed that the former trustee transfer the trust property forthwith. See Ronori Pty Ltd v ACN 101 071 998 Pty Ltd  NSWSC 246 (20 March 2008).
In the case of Martech and Energy World, an executive provided his services as the Managing Director through his company Martech. When he voluntarily withdrew his application for reappointment to the board and tendered his resignation, Martech sued the company (1) for the shortfall of fees due under the consultancy agreement which had previously been volunatarily waived; (2) for a termination payment calculated in accordance with the consultancy agreement; and (3) several other claims including misleading and deceptive conduct and which were dismissed by the primary judge. The decision was appealed.
It is not possible here to give full details of the case (at trial the Court's decision runs to 80 x A4 pages). In short: (1) the primary judge upheld the claim for the shortfall in fees on the basis that the executive had unilaterally waived payment while the company was in financial difficulties; it is well established law that a contract is not varied by the action of one party (here, "mere forbearance") unless the other party provides consideration or the action is recorded in a deed under seal, neither of which happened in this instance; (2) the appeal court upheld the claim for the termination payment because as a matter of interpretation, the termination clause as drafted extended to cover payment where there had been a mutually agreed termination. The appeal court noted it was incumbent upon the company 'to negotiate an escape' from such liability which it had omitted to do and it was therefore liable under this head as well as for the shortfall found by the trial judge.
This decision is a reminder to companies/employers that when a staff member waives fees or salary due under a contract, it is important to either enter a fresh agreement or evidence the change by way of deed of variation. Where a services agreement includes a termination payment clause, the termination agreement should include a release to exclude the operation of the original agreement. When negotiating services agreements, it is important to consider in what circumstances a termination payment will be payable and in particular if there is termination by mutual agreement. See Martech International Pty Ltd v Energy World Corporation Ltd  FCAFC 35 (21 March 2007) and  FCA 1004.
The Deputy Prime Minister, Ms Julia Gillard, released a Media Statement on 14 February 2008 outlining the Government's proposed IR changes. In short, the new legislation (which has yet to be passed by Parliament) will introduce:
The new awards to be implemented will contain 10 important employee entitlements such as penalty rates and overtime.
We will post more information when there are legislative updates.
Last year the NSW Supreme Court held that assets of a partnership which has been dissolved but not formally wound up remain assets of the partnership; ie. the assets do not become personal property of the partners, but remain as property of the partnership and on realisation are to be used to satisfy any remaining liabilities or obligations of the partnership - see Beale v Trinkler  NSWSC 1058 (1 June 2007).
The case stands to alert partners that, in the event of a commercial dispute (in this instance, sale of cattle progeny), the Court will not facilitate an action (in this instance under s36A of the Conveyancing Act 1919 (NSW)) by one partner to overcome the limitation of a partnership agreement. The Court noted that its role in such circumstances was to appoint a receiver to wind up the partnership.
From 1 July 2008, OSCAR is the new Federal government IT portal for Australian companies to report greenhouse gas emissions, reductions, removals and offsets, and energy consumption and production under the National Greenhouse and Energy Reporting Act 2007 (Cth). The Act requires mandatory reporting by companies which meet a specified threshold of emissions and mandatory keeping of records. The legislation sets out compliance (including monitoring procedures) and enforcement arrangements. OSCAR stands for Online System for Comprehensive Activity Reporting.
To see the Australian Government's fact sheet click here: www.greenhouse.gov.au .
On 18 March 2008 Engineers Australia and IP Australia will be conducting a 1 day seminar in Melbourne on the topic of IP for engineers. The program includes seminars on the practicalities of IP in engineering; patents, designs and trade mark issues; the role of IP Australia; and engineering case studies. For information/registration go to www.ipaustralia.gov.au or email Nina Lenz: firstname.lastname@example.org.
The Australian Designs Office has recently published an administrative decision relating to a claim for ownership of designs for an electronic car trailer gadget registered in the name of a manufacturer/distributor (the company). The designer, who was not an employee of the company, had in May 2003 signed a manufacturing/distribution agreement with the company which included a confidentiality clause prohibiting the company 'at any time during or after the term' of the agreement from divulging information about the designer's products. Unfortunately, the agreement was silent as to ownership of any IP (intellectual property) rights to products created by the company 'peripheral' to its relationship with the designer.
In March 2004 the designer filed a provisional patent application for his gadget and the specifications became publicly available in September 2005. The company filed its design applications some five months later in February 2006.
On the evidence, the Deputy Registrar held that the designs which the company had registered were sufficiently different to the designs covered by the confidentiality clause. Taking into account the similarities between the registered designs and the patent application, publication of the patent application had removed much of the designer's entitlement to his rights of confidentiality under the agreement. What residual rights may have remained pursuant to the confidentiality clause (ie. aspects of the original design given to the company that had not been included in the designer's patent application) were 'not substantially replicated' in the company's registered designs. It was noted that the company had filed an action against the designer under the Patents Act 1990 (Cth) which has yet to be determined.
This decision is a salutary reminder of the importance of getting professional advice when dealing with any IP rights. See Gravolin v Locmac Holdings  ADO 7 (12 Dec 2007).
The Federal Court recently held (20 December 2007) that there was no breach of copyright, no right of obligation of confidentiality, no breach of a term of his former employment contract nor was there contravention of the Corporations Act 2001 when an IT technician was sued by his former employer (the company) for using certain source code for his next employer. The source code, the subject of the claim by the company, was used to create a 'table file' and an 'editor file' within a comprehensive CMS (content management system) which enabled website owners to perform their own online editing of content. Table files and editor files were not 'fixed, unchanging' entities and variations were routinely made by developers generally. Such files were used in the construction of websites of various clients of the company.
Further details as to why the company was unsuccessful in its action may be posted shortly. See Dais Studio P/L v Bullet Creative P/L  FCA 2054.
If you are seeking a Collective Agreement which has passed the Federal government's 'Fairness Test', as of December 2007 these have been published on the Federal government's WorkPlace Authority website at http://www.oea.gov.au/, together with related information including details on the 'Fairness Test'.
The new Federal government has announced that it will bring into parliament legislation to change substantially many of the provisions of the Work Choices legislation. At this stage those changes have not been announced. LawLive recommends that for all new employees you use our common law employment agreements. As soon as the new laws are known, LawLive's lawyers will be retained to review all of our employment documents to ensure that they are compliant.
On 5 December 2007 the Federal Court held in favour of the Australian Taxation Office that two mining engineers who had attempted to arrange their "employment affairs in a way that would bring about the most advantageous taxation treatment" by means of contracting through 3rd party entities (in this case, one through a family company and the other by means of a family trust and each through the intermediary of an independent recruitment agency) amounted to 'personal services' for taxation purposes. The Court upheld the ATO's determination that the engineers' services did not fall within the ATO's PSB regime implemented under the Income Tax Assessment Act 1997 (Cth), and therefore the fees for services were subject to personal income tax. Of note, the engineers submitted invoices for hours worked based on an hourly fee and were not sufficiently 'results' orientated to fall within the PSB guidelines. Also of note, the acquirer of the services 'provided all necessary office equipment and tools of trade' thus not satisfying s87-18(3)(b) of the Act - see IRG Tech Services Pty Ltd v Deputy Commissioner of Taxation  FCA 1867.
Following this decision, independent contractors seeking 'advantageous taxation' will need to ensure that their services contracts are appropriately drafted to cover their particular circumstances, and we recommend legal advice be sought.
In 2006, the Federal Court made a significant legal finding in relation to property held in a discretionary trust, which challenged the traditional proposition that such property is generally not accessible except as provided in the Trust Deed. The Court held that, in some circumstances, property held by a trustee (whether a company or individual) on trust for an individual and that individual is the "effective controller or owner of the trust property", then that property may be available to creditors of the individual. The decision was not appealed.
Therefore it is important when establishing a discretionary (family) trust to ensure that an individual who may be at risk of pursuit by creditors is not an appointor or trustee (or major or sole shareholder of a company appointed as trustee) so that trust property will remain quarantined from creditors - see ASIC Re Richstar Enterprises v Carey (No 6)  FCA 814 (29 June 2006).
The West Australian Court of Appeal recently held that the fee set out in a contract was the only amount payable for those services and the service provider was not entitled to claim any additional amount on the basis that the contractor received work of a much higher value.
The facts were that a construction company engaged the services of a drainage contractor to construct a sewer line to connect the construction company's development to the main sewer, for which the contractor was to be paid $20,174. The construction company provided a site plan on which was notated that the contractor had to check relevant 'invert levels' critical to the sewer line construction. However, because the site plan was inaccurate, the contractor had to drill for a second time and claimed an extra $9,000 against the construction company either on the basis that the 2nd drill was not part of the contract or alternatively that the sewer line as finally constructed was effectively worth $29,000 and the contractor was owed the balance on a quantum merit basis. The case at trial found in favour of the contractor.
The construction company appealed from that decision and was successful. The Appeal Court stated that it was a fundamental point of contract law that where there is a 'valid and enforceable contractual promise' regarding compensation for the subject matter covered by a contract (in this case, the construction of the sewer line), the law will not uphold a subsequent claim for 'reasonable remuneration' (per the High Court in Pavey & Matthews Pty Ltd v Paul  HCA 5).
Motto for contractors and consultants when contracting services for a fixed fee - ensure the contract states clearly what work/services the fee covers because there is no basis for a claim for a 'top up' fee (based on quantum meruit) however there may well be a valid claim for additional services not covered by the contract. See Perum Building & Construction Pty Ltd v Tallenford Pty Ltd  WASCA 245 (15 November 2007).
The NSW Court of Appeal recently upheld an executive's claim against his former employer that he was entitled to the payment of superannuation in relation to the amount of salary he was paid on termination, however the Court declined to find that he was entitled to a redundancy payment. On the facts, his contract of employment (initially set out in a letter and amended in subsequent correspondence to the executive) provided that 6 months' notice was required to be given by either the employer or the employee. His letter of contract entitled him to superannuation at 9% of his base salary (this was double the then current statutory rate which the Court noted was effectively a salary sacrifice on the employee's part).
The employer gave 6 months' notice and shortly thereafter informed the executive that he was not required to work out his term and paid him in lieu but omitted to pay superannuation. In court, the employer argued that it did not have to pay super because it was not a payment 'to the employee' but was a payment to the trustee of a complying fund under the super Act. The Court held that although the payment was to the trustee, it was a payment 'made on behalf' of the executive to which he was contractually entitled by way of the salary component.
However the executive failed to establish that he was also entitled to a redundancy payment. The employer introduced a redundancy Policy subsequent to the executive's employment however the Policy had not been circulated to all employees (for example via its intranet), so the Court refused to find that the employer had incorporated its redundancy policy into all employment contracts and the employer was not contractually bound to pay the executive any redundancy. The Court declined to infer that the redundancy was an implied term, because it failed the 'business efficacy' test and it was not a 'necessary incident' in relation to employment contracts.
The case is a salutory reminder to employers to ensure that any term of employment which is specific to one employee is expressly stated, and that company policies which apply to all employees are given to each and every employee either in hard copy or published on an intranet, to avoid having such issues resolved by legal action. It is also confirmation that superannuation must be paid in relation to salary entitlements on termination. See Willis v Health Communications Network Ltd  NSWCA 313 (6 November 2007).
It was recently held in the Federal Court that a Distribution Agreement was not a franchise agreement within the meaning of the Franchise Code (Cth). A franchise agreement needed to comply with Clause 4(1) of the Code. In the present case, the distribution agreement's lack of compliance with subclause 4(1)(b) of the Code was critical. There are 3 limbs to subclause (b): (i) that the franchisor grants the right to carry on the business of offering, supplying or distributing the relevant goods and/or services; (ii) that this right is granted under a system or marketing plan provided by the franchisor; and (iii) that this system/marketing plan must be determined, controlled or suggested by the franchisor. In this case, the distribution agreement did not amount to a franchise agreement because, on the evidence, "advice" and "encouragement" provided by the Head Distributor fell "well short of a system or marketing plan". And because of this absence of an imposed system or marketing plan, the third limb (of control by the franchisor) was of course absent. Notably, the fact that there was no ongoing support, no territory restriction, little marketing and sales guidance and that no royalties were payable indicated the absence of a franchise.
Justice Tracey refused to consider whether actions by the parties subsequent to the entry into the agreement meant that it might effectively be a franchise arrangement (rather than purely a distribution agreement) because it was impossible to know whether in the future the 'franchisor' might or might not decide to enforce any terms and the decision required determination 'by reference to the terms of the proposed agreement'.
The case confirms that a distribution agreement must expressly comply with Clause 4(1) of the Franchise Code if protection under the Code is required. See ACCC v Kyloe Pty Ltd  FCA 1522 (18 Oct 2007).
Earlier this year, the ACT Supreme Court of Appeal upheld a decision that a provision in a contract for casual services which purported to restrict the contractor's right to provide services outside the contract was void on public policy grounds. The contract engaged the services of an aircraft maintenance engineer who was already employed as an engineer elsewhere but who was able to work outside that employment. The Court considered the matter of industry practices and standards and found there was nothing to indicate that the restraint clause was reasonable within that environment. It was also notable that the services agreement expressly excluded the contractor from workers compensation and insurance, and that there was no obligation to supply the contractor with 'any defined quantum of work'.
In these circumstances, it was contrary to public policy to endeavour to restrain the contractor from undertaking other casual work, and the restraint of trade clause was void. It was also noted that restraint of trade provisions which validly apply to employer/employee contracts did not automatically apply to service agreements. This decision indicates it may be even harder to prove validity of a restraint of trade clause when the worker is contracted to provide part-time or casual services, however this will depend on the particular industry. (Capital Aircraft Service Pty Ltd v Brolin  ACTCA 8 of 26 April 2007).
The Federal Court recently held that an agreement to supply adhesive protective 'skins' for mobile phones, iPods and other handheld electronic items did not include an implied term that the manufacturer was not to supply those goods to another customer even though the customer commissioning the manufacture had provided some design work and knowledge relating to the process. The production agreement was partly oral and partly in writing; the written part of the agreement included invoices issued by the manufacturer and several emails between the parties. The manufacturer subsequently sold the manufactured goods to another company and the original customer challenged the manufacturer alleging there was an implied term that it would not "manufacture, distribute, promote ... or sell skins on its own behalf for supply by it to any entity other than [the customer]".
The Court found that where there was an informal agreement (as opposed to a formal agreement where all the terms & conditions are set out), it was "not easy to identify with precision" what term or terms should be implied into such arrangement. On the facts of the case, the customer had provided designs and knowledge relating to the manufacturing process, the 'skin' product was not unique and there was no confidential information involved; the agreement was for no set period of time and did not specify a minimum quantity. For these reasons, it was held it was not appropriate to imply a term that the manufacturer could not sell to a third party, noting that such condition was not "necessary for the reasonable or effective operation" of the manufacturing agreement.
If a customer wishes to limit or prohibit a manufacturer/producer from supplying to other parties, it is prudent to have such limitation expressly included in a formal written agreement rather than rely on a Court to subsequently imply that restriction. (See Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd  FCA 1621 of 29 October 2007).
A decision of the New South Wales Supreme Court handed down today affirms legal precedent that an insolvent company in liquidation generally should not remain as trustee of a trust because there is a possibility that the liquidators may have a conflict of interest. This could arise because liquidators have both a duty to the company as liquidators and duties to beneficiaries as trustees of the trust. In the case before White J there was a potential conflict regarding expenses incurred by the company: whether those expenses had been incurred by the company as trustee or by the company in its own right. However a company in liquidation was not automatically disbarred from acting as trustee and White J noted that liquidators should seek Court directions if "difficulties arise". See Dreiberg & Anor v Bettles & Carter as Liquidators of Corindi Beach Developments Pty Ltd  NSWSC1204 of 30 October 2007.
On 4 October 2007 the Federal Court published its decision regarding a claim by Boyce's Automotive Data Pty Ltd against Autodata Ltd for breach of confidentiality. Boyce claimed AutoData breached confidentiality in relation to certain material set out in a Report which Boyce had prepared and had given to AutoData as part of a formal settlement of a related claim. Following the High Court decision in Moorgate in 1984, the Federal Court in the present case confirmed that when considering whether material is "confidential", both objective and subjective factors are relevant: the objective factor takes into account whether the information has the necessary quality of confidence; the subjective factor takes into account whether the preservation of confidentiality or secrecy is of 'substantial concern' to the claimant, which includes but is not limited to commercially sensitive or valuable information.
Therefore if you consider that a party has breached a confidential matter previously included in a deed of confidentiality signed with that party, a legal assessment will need to be made to determine whether that confidential information falls within the subjective and objective factors set out above prior to filing any court action for breach of confidence.
Recently the NSW Court of Appeal (in Canon Australia Pty Ltd v Patton) has considered the position of director-principals who gave personal guarantees on behalf of their distribution company, when those guarantees were called upon by the creditor-supplier Canon. The guarantee provided by the Pattons included that they would be liable to Canon even where Canon had stopped supplying its products. The distribution agreement included a provision whereby Canon was entitled to withhold delivery of its products where payment of previous invoices remained outstanding; it was also a term of the agreement that invoices were payable at the end of the month following the month in which the product had been invoiced.
Canon had served letters of demand relating to amounts of outstanding invoices from Patton's company covering a 6 month period, and the Pattons did not dispute that the goods had not been paid for. The Pattons endeavoured to avoid the supplier's claim on the grounds that the supplier had behaved unconscionably in contravention of the Trade Practices Act 1974 (Cth) (s51AC) when it stopped supplying the Patten's company with product. The Appeal Court found that the company's significant debt to Canon was due to the cash flow problems experienced by the company's own customer-debtors and was not related to Canon's refusal to supply, and in any case Canon was entitled under its contract with the company not to supply while its invoices were outstanding.
On 30 July 2007 the ATO issued a Practice Statement giving an amnesty in relation to certain payments, loans and debts forgiven by a company to a related party which would be deemed dividends in the absence of a Loan Agreement complying with the provisions of Section 109N of the Income Tax Assessment Act 1936, and the absence of the documentation was due to an oversight (eg 'honest mistake' or 'inadvertent omission') by the taxpayer or someone on his/her behalf.
The amnesty is in force until 30 June 2008 and covers any Division 7A payment, loan or debt forgiven which fell within tax years 2001-2002 to 2006-2007 inclusive so long as specific corrective action has been taken. The corrective action includes formal completion of a Division 7A Loan Agreement complying with Section 109N. After 30 June 2008 company audits of related party transactions will recommence and fines will be imposed again.
The 7A Company Loan Agreement on the LAWLIVE™ website complies with the provisions of Section 109N however we recommend Users obtain independent legal/tax advice to ensure that in relation to their own circumstances they fully comply with all 'corrective action' prescribed by the Tax Commissioner.
As of 20 July 2007, there is a new requirement imposed on all employers by the Workplace Authority. You must give all your existing employees a Workplace Relations Fact Sheet:
The required Workplace Relations Fact sheet can be found on the Workplace Relations website.
New Documents released:
THE WORKPLACE RELATIONS AMENDMENT (WORK CHOICES) ACT 2005 - WHAT EMPLOYMENT RECORDS DO YOU NOW HAVE TO KEEP?
NOTE: The Work Choices Legislation applies to all companies that are employers.
Before the Work Choices Legislation, an employer only had to keep employment records in respect of employees whose employment conditions were governed by an industrial award or agreement. The new legislation imposes far wider and more extensive obligations on employers to keep employment records: Part 19 of the Work Choices Legislation requires employers to now keep comprehensive employment records not only of employees who are subject to awards, but of all employees.This includes everyone from juniors to the Chief Executive Officer.
Failing to keep proper employment records can lead to fines under the Work Choices Legislation and workplace inspectors have a right to come onto your premises and access those records. Employment records must include the following:
LAWLIVE™ is released to the public in November, offering businesses and individuals the opportunity of minimising legal costs by building legal documents online.
New documents in the final stages of legal checks to be released soon:
If you wish to be updated on any new documents, make sure you are registered for News & Updates in the "Manage my account" section.