IN TOUCH WITH THE LAW 2012

CONSUMER LAW

Group buying deals so hot they can burn.

Many legal issues arise for advertisers when deciding to promote or sell their services and goods on group buying websites.

As the name suggest, group buying involves buyers making a commitment to buy a service or product at substantially discouted rates, and the purchase is not finalised until a certain level of sales is achieved. Group buying sites offer advertisers a guaranteed amount of profit and exposure to a sizeable and new audience.

But things can, and have, goen wrong. there are numerous examples of advertisers who have been caugth unawares and unprepared for the unexpeted demand after a promotion on a group buying site.

Advertiseres may then run a foul of Australian consumer laws, and group buying sites – due to their profile – may also be caught in the web.

If you contemplating offerering your services via a group buying website, be aware of your obligations under the Australian Consumer Laws, such as the guarantee that services are supplied within a reasonable time frame. Do you research on how the sector works, whether your product can be sold on a group buying website, and what your competitors are doing. Do the maths for the best and worst case scenarios. Be aware of your obligations under the Australian consumer laws, such as the guarantee that services are supplied within a reasonable time frame;  shop around for the most suitable group buying site. Be preapred to negotiate better terms with the group buying site if, fore example, the site targets your niche, and find out whether you will have control over the promotional material because in the event of any misleading or deceptive conduct or passing-off claims, you may be held responsible.  Much of the same applies to group buying sites, which also need to be aware of a new code of conduct, which some of the larger sites have signed up to, confirming their commitments to consumers, and other legal obligations such as spam and privacy laws; have a policy to deal with advertisers who fail to deliver; make sure your brand is protected and that you are indemnified against third party claims. Have a marketing strategy and think about how to get your best advertisers coming back and train staff on areas of potential liability.

DIRECTORS’ DUTIES

Approving financial statements a serious matter

A recent court decision against the directors of a major company demonstrates how demanding are a director’s duties when approving financial statements.

To meet those demands, boards may seek to change the way in which financial information is presented to directors and how they review it. Information overload is not an excuse for failing to read, understand and focus on material provided to the board, especially material relating to the approval of financial statements.

The decision identifies limits on the extent to which directors can rely on management and external advisers. The law imposes a special responsibility on directors for approving financial statements. They cannot simply delegate that responsibility. Where directors know enough to spot a possible error in draft financial statements, they must question management and their external advisers.

It means that directors must have a degree of financial literacy. This knowledge should extend at least as far as basic accounting concepts and conventional accounting practices. However, the decision leaves unclear the question whether a director’s knowledge should extend beyond this and, if so, how far.

The court ruled that current and former directors of Centro, a debt-laden shopping centre owner, had broken the law by approving incorrect financial accounts which classified more than $2 billion in short-term loans as long-term loans.

The company’s former chief financial officer admitted to having broken the law but, in their defence, the directors said they had employed a major accounting firm to make sure the accounts were correct.

The judge decided that eight men had contravened the Corporations Act because they did not check that the accounts were correct.

“The directors are intelligent, experienced and conscientious people,” he said. “There has been no suggestion that each director did not honestly carry out his responsibilities as a director … However, I have found … that the directors failed to take all reasonable steps required of them, and acted in the performance of their duties as directors without exercising the degree of care and diligence the law requires of them.”

PLANNING AHEAD

What is an enduring guardian?

An enduring guardian is someone you appoint, at a time when you have capacity, to make personal, health or lifestyle decisions on your behalf should you lose the capacity to make them for yourself.

When you appoint an enduring guardian you should choose which decision-making areas you want your enduring guardian to have. For example, you can authorise your enduring guardian to decide such things as where you may need to live or what medical treatment you should receive.

Your enduring guardian must act in your best interest and within guardianship laws. You cannot give your guardian a function that would involve them in an unlawful act, such as euthanasia.

PERSONAL INFORMATION

Lessons from recent privacy violations

News of data security breaches at major organisations that reveal thousands of individuals’ personal information is not uncommon these days. Privacy impact assessments can be an important method of lowering the risk.

Inadequate security may be a breach of Australia’s privacy laws, but the actions of customers and the media may create more havoc and opportunities for economic loss than government intervention, as recent cases involving Telstra, Vodafone and Google illustrate.

Many companies seem to consider the privacy laws have no teeth, but the commercial ramifications of media reports regarding breaches of customer privacy can be significant and do great damage to a company’s reputation. For example, some reports suggested that Vodafone lost several hundred thousand customers as a result of its recent breach.

Prevention is always better than a disaster recovery cure. The ability to conduct a privacy impact assessment and establish a legal due diligence defence for the treatment of personal information may also uncover weaknesses in systems that can be remedied before any breaches occur.

The privacy laws regulate how businesses in Australia deal with personal information and they affect all organisations collecting it. Personal information is defined as being “information or an opinion about an individual whose identity is apparent or can reasonably be ascertained from the information or opinion”.

For businesses that operate in the credit reporting, credit provision or health space, are additional rules apply. For other organisations, whose annual turnover is in excess of $3 million, the main application of the law is the requirement to comply with a set of national principles.

The Office of the Privacy Commissioner has a guide to privacy impact assessments on its website, and your solicitor can help you in ensuring your business is in compliance with the law and not exposed to prosecution.

HANDLING A TAX DEBT

Identifying technical issues is key

Unless you are a taxpayer who is self-assessing and subject to pay-as-you-go instalments, the general rule is that tax has to be paid within 21 days of receiving a notice of assessment.

The tax office doesn’t have to prove its assessments are correct. It is up to the taxpayer to prove one is wrong and they will have to pay at least part of any disputed tax before the authorities decide whether it needs to be paid or not.

The tax office set out the principles underlying its approach in guidelines earlier this year: “If a tax debtor does not pay by the due date and does not contact us, we assume they are not going to pay and take whatever action is necessary to recover the debt.”

If a taxpayer believes a debt should not be paid or they can’t pay it within 21 days, they should contact the tax office at once, and apply to pay by instalments if need be.

The fact that a taxpayer disputes a debt does not prevent the tax office from collecting the tax. The basic rule is that it will only agree to defer recovery action when it considers a genuine dispute exists and the taxpayer has arranged to pay half the disputed amount. However, it will not grant a deferral if it considers the revenue at risk, or the objection is frivolous or without merit.

Litigating the tax office can be a lengthy and emotionally costly business. As a key to settlement negotiation your solicitor will identify discrete technical issues and try to convince the tax office that it is not going to win them. The tax office doesn’t approve of commercial settlements or ‘horse trading’, unless there is a benefit in doing so over and above the returns that would flow from taking bankruptcy or insolvency action.

With respect to a company, directors may avoid incurring tax debts by initiating its liquidation. As an alternative, a company might simply be deregistered. But this could be false economy. The law provides for reinstatement of a deregistered company where a person has been aggrieved by deregistration.

Further, unsuccessful deregistering or liquidation of a company might in the end cause it to be subject to extra tax penalties and even cause a director to be subject to prosecution.

STRATA LAW

Court puts limit on insurer taking it to excess

The amount of the excess payable by an owners corporation when a claim is made on a home owner’s warranty insurance policy in relation to common property building defects has now been determined by the courts in NSW.

A recent court case establishes that when a claim is made by the owners corporation on the home owners warranty insurance policy for a breach of the statutory warranty affecting the common property, only one excess is payable.

The case is important, particularly for those who live in residential units, because it means it is not necessary for lot proprietors to make individual claims under the insurance policy in order for the insurer’s indemnity to be enforced. Similarly, it is not necessary for the owners corporation to claim indemnity on behalf of the individual lot proprietors.

Lot proprietors will now be able to breathe a sigh of relief as they will not be required to pay an excess in respect of defects to common property.

In the case, the insurer argued that the policy had been taken out on behalf of each of 201 lot proprietors and that the owners corporation had made a claim for indemnity on behalf of each of the lot proprietors. The excess payable, the insurer argued, was to be determined by multiplying the number of lots insured (201) by the $500 excess. It contended the excess payable was $100,500 – an amount that exceeded the owners corporation’s claim.

The Court of Appeal’s decision to strike down the insurer’s argument removes the absurdity that would permit a claim by a lot proprietor for $700 for minor defects to a bathroom cupboard in a lot, while a claim in respect of a $100,000 defect in common property would not be met.

DISPUTED DEBT

Company not saved from insolvency

The courts have found a company can be wound up for insolvency even though its debt is in dispute.

In a recent case, a receiver and manager had been appointed by Westpoint over a company’s assets, claiming a debt of over $6 million.

The Australian Security and Investments Commission applied to wind up the company alleging it was insolvent.

Company law states that the courts must presume a company is insolvent if, during or after three months after application, a receiver has been appointed under a legal agreement relating to securities.

The company had other debts of $1.7 million and assets of $5.7 million. It disputed the Westpoint debt, arguing that the debt owed was $5 million less than claimed, an argument the judge did not accept. He then wound up the company.

On appeal, the High Court found that the principle that the court would not order a winding-up on the basis of a disputed debt did not apply in the case brought by ASIC. It stated that “the principle was based upon the potential abuse, by creditors, of the winding up process to compel a solvent company to pay a genuinely disputed debt”.

That could not apply to ASIC in this case, as it did not claim the status of creditor and did not seek winding up on the basis of a debt owed.

OH&S

When is it safe to dismiss employees?

A string of recent unfair dismissal cases has seen employees reinstated to their former positions following dismissal for breaches of safety regulations and practices.

In recent occupational health and safety cases, the Fair Work Australia authority has considered various factors that lessen the severity of actions taken against employees.

To avoid costly court cases, employers considering disciplinary action would be well advised to think about the terms of the safety policy that has been breached and the consequences envisaged by the policy. Breaches should be assessed in light of any relevant subjective factors that might suggest a more moderate penalty.

As a guide, some of the factors that have been considered by Fair Work Australia are the personal and economic situation of the employee, including age, education, employment prospects, possible financial hardship and adverse impact on the employee’s marriage.

Other factors that have been taken into account are the employee’s unblemished record, practice by other staff, the length of time since training was last provided and the obligation to indicate whether additional training is required being placed on the employee rather than the employer.

Genuine remorse and contrition shown by the employee over past conduct and undertakings to improve in the future have also been considered.

ASTROTURFING

Misleading advertising on social media

Astroturfing refers to an orchestrated expression of support for a cause, product, service or policy designed to give the impression of a grassroots movement.

Under Australian law, if a business engages in this type of practice and misleads consumers, it breaches both the law and the advertising code of ethics.

There have been a few publicised instances of astroturfing in Australia, including the most recent revelation that opponents of plain cigarette packaging, the Alliance of Australian Retailers, was a front for Big Tobacco.

In 2004, Westfield paid $3.5m to Kirela to settle a law suit alleging the former had hired a PR company to set up the North Strathfield Residents’ Action Group to oppose Kirela’s development of a new retail centre in Strathfield, which would have competed with Westfield’s Burwood centre.

Most of the cases have been in the political activism space, but now the rapid rise in the use of a variety of social media platforms by businesses to promote their brands and products online has created an environment ripe for the phenomenon of astroturfing.

What is designed to appear to be a genuine grassroots movement or groundswell of support is in fact a sophisticated and carefully targeted PR campaign. The term is derived from the brand of synthetic carpeting designed to look like real grass: AstroTurf.

While it is understandable that a business may be tempted to engage in astroturfing to fashion a groundswell of support for its products or services, it is worth remembering that such activity carries a double risk. Not only could it expose the company to legal action for misleading consumers – the other gamble is that once the artificial nature of the support movement has been revealed, the ruse will completely backfire and destroy any goodwill which has been created.

CARBON PRICE GOUGING

Prevention is better than cure

The government has announced that the ACCC, the Australian Competition and Consumer Commission, will be given responsibility to police how businesses pass on the carbon price and for ensuring they do not engage in price gouging by using the carbon price as an excuse to increase prices beyond its actual effect.

The best way to avoid such unwanted attention from the national regulator is to make an early start on preparing for the implementation of the carbon price.

For example, businesses should be asking the following questions:

  • Is my business going to absorb the impact of the carbon price or is it proposing to pass the cost on to customers?
  • Has my business prepared estimates of the likely impact of the carbon price on its prices?
  • How do these estimates compare to the estimates prepared by the goverment?
  • Does my company wish to advise customers that price increases are due to the effect of the carbon price or does it wish to remain silent on this point?
  • Will forward estimates of the likely impact of the carbon price on my prices stand up to ACCC scrutiny?
  • Have all frontline staff been briefed on what to say if asked about the impact of the carbon price on prices?

While the simplest ways of avoiding unwanted attention is either to absorb the effect of the carbon price or to make no mention of it in relation to price rises, these approaches do not make good business sense. Businesses have a right to pass on the impact of the carbon price in the form of higher prices and should do so.

The most sensible approach is to take the time now to calculate the likely effect of the carbon price on the price of your goods and services and then advise customers in clear and unambiguous terms what that effect is.

ROAD RULES

Heavy vehicle signage found to be outside the rules

The NSW Supreme Court has questioned the legality of heavy vehicle signage, which may render unsafe past convictions for contravention of these signs.

Heavy vehicles are compelled by signage to enter heavy vehicle checking stations for assessment of their suitability to carry loads.

In defending their prosecution for failing to comply, the lawyers for two truck drivers argued that signage in the terms “Heavy Vehicle Checking Station 300m. Vehicles over 8t GVM must enter” did not strictly comply with the Road Rules and was confusing.

The judge agreed. He noted the definitions of vehicle, motor vehicle and truck under the rules had the combined effect that all trucks are vehicles, but only some vehicles are trucks (the rules define trucks as a motor vehicle over 4.5t GVM). The judge also said that, by reason of those definitions, a sign requiring vehicles over 8t GVM to do something would necessarily include all trucks over 8t GVM but would not include all trucks.

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The law is constantly changing and this newsletter
describes developments which may be relevant to
you. If you are in any doubt about these or any other
aspects of the law, please make an appointment to
see your solicitor.

SOCIAL NETWORKING

Can you control it?

Social media is a double-edged sword. Businesses are increasingly starting to use it for marketing purposes but also face the risks of their employees abusing it, either at work or through comments they or their friends post online.

Facebook has more than 500 million active users; 200 million of whom access it via their mobile devices. Banning the use of Facebook or any social media applications from computers at work will not prevent employees accessing it on their mobile phones or home computers.

Attempts at controlling all discussions about the workplace or postings by employees’ friends about work will most likely infringe industrial law provisions.

The solution will be found in a social media policy that allows you to use social media to improve communication while maintaining productivity and network security.

You must consider a social media policy within the context of your particular workplace environment. The role of the policy is to provide guidance for staff and management, especially in outlining the difference between representations made on social media platforms on behalf of the business and personal use.

An effective policy will assist in protecting your business’ reputation by preventing loss of confidential, sensitive or privileged information; ensuring compliance with the law; and protecting your business against claims for defamation, unlawful dismissal, cyber-bullying and harassment and invasion of privacy.

You will also have to review your company’s network security policy to enable the safe and secure use of social media sites.

When formulating a social media policy, you should consider:

  • type of use;
  • nature of the policy (what it should include);
  • the law, particularly industrial and anti-discrimination laws, codes of conduct and workplace agreements;
  • consequences of breaching the policy; and
  • the policy’s currency.

Speak to a lawyer about the legal issues you should be aware of when formulating your workplace social media policy.

FACEBOOK

Liability for publication

Businesses using social media need to closely monitor what goes up on such sites, particularly when they have the ability to delete content posted by customers.

A business has recently been held liable for misleading testimonials posted by customers on its Facebook fan page.

The court found it was not necessary for there to be any positive conduct on the part of the business for it to be considered a publisher of the words. If the business had the power to delete the posts, that was enough.

The case is a clear warning to all businesses using social media as part of their marketing strategy that compliance with the law does not only relate to words they post online, but those that their customers, clients or friend say as well.

If you are unsure of your status when marketing via social networks contact your solicitor.

ILLUSORY SAVINGS

Misleading two-price comparisons under attack

The ACCC has been vigorously pursuing companies that quote misleading higher prices in comparison to so-called sale prices.

Two-price advertising, often called comparative price advertising, contrasts the sale price with a higher price for the same or a similar product. It usually takes one of four forms: recommended retail price, was/now advertising, strike-through and competitor price advertising. A powerful marketing tool, it generally doesn’t offend Australian consumer law if the overall impression created is genuine. Any price comparison must not be illusory.

 Ads risk breaching the law if the calculated saving is based on the difference between the current sale price and a higher price at which the product has not actually been sold for a reasonable period of time and in reasonable quantities immediately before the date of the discount.

Whether conduct is misleading or deceptive is largely determined by the overall impression created in the minds of consumers. A fine-print disclaimer may not be enough to stop consumers being misled over the true nature of savings.

A significant number of ACCC investigations into advertising practices conclude in companies making enforceable undertakings to take corrective advertising, implementing compliance programs and acknowledging the undertakings will be available for public inspection.

 

SHAM CONTRACTING

Two parts to employee test involves intuition

Whether someone providing services to a business is classed as an employee or independent contractor be difficult to assess, but the distinction is important, and failing to establish it correctly can prove costly.

In a recent case, an interpreting and translating business which classified its interpreters as independent contractors found itself facing penalties.

The business engaged skilled people who could not renegotiate the rate at which they were remunerated but who were free to reject jobs and undertake work from rival companies.

Having recognised most of the interpreters as independent contractors, the company had not made employee minimum superannuation contributions for them.

The Tax Office, however, assessed the company as liable for super contributions for over 2,500 interpreters on its books over a five-year period and the case went to court.

In considering the matter, the judge said he looked beyond the mere contractual description to the real substance of the parties roles, functions and work practices which establish the “totality of the relationship“ an approach involving what he described as a mell test, or a level of intuition.

There were two aspects to the test: Is the person performing the work an entrepreneur who owns and operates a business? And do they represent that business rather than the business receiving the work? If the answer to that question is yes, in the performance of that particular work, the person is likely to be an independent contractor. If no, then the person is likely to be an employee,” the court held.

The company presented evidence of seven interpreters which the judge did not consider was a representative sample. He found only two of the seven owned and operated their own business and that the company had failed to establish the majority of its 2,500 translators and interpreters were independent contractors.

As a result it was liable to pay the superannuation guarantee charge. Employers need to be wary of sham contracting if they fail to provide required employee entitlements they face a maximum penalty of $33,000 for each breach.

YOUR WILL

Where is it?

Where should you keep your will?

Keep your will in a safe place. It is preferable not to keep the will yourself in case it is mislaid. If the will is mislaid, it may be presumed to have been revoked. Solicitors hold wills on behalf of clients, usually at no charge. You should keep a copy of your will and note on it where the original is kept.

It is advisable to tell your executor where your will is kept. If you want to give personal instructions that you do not want to appear in your will, you can simply leave your executor a letter of instructions.

CLOUD COMPUTING

Legal issues for service contracts

Before you decide to sign up for cloud computing, there are issues relating to location of data, security and reliability, and data exit that you should be aware of.

˜The cloud relates to providing computing services such as computer power, data storage and applications over the internet. Businesses can usually buy these services from companies such as Microsoft, Salesforce, Google or Telstra.

For businesses, the benefits of the cloud are that it can be cheaper than the outlay on hardware or software, more flexible, easier to manage and efficient.

There are, however, some issues to consider. A key question is where your data is stored or processed. The cloud may not be tied to any location, and the service provider may not know where your data is residing. The issues that arise here relate to your responsibility for data protection and privacy.

Before you consider moving to the cloud, you will need to perform proper due diligence. This should cover the parties in the cloud relationship, enforceability of the contract, and liability for breaches.

One remaining issue to be aware of relates to being locked-in to certain applications or systems and if you want to transfer data or applications, whether the data is portable between service providers. You need to be aware of this, particularly in relation to data retention laws and regulations. Depending on the situation, data needs to be accessible for five, seven or 10 years after creation.

If you are thinking of joining the cloud, you should have your solicitor look carefully through your cloud computing service contract and its terms and conditions of use.

FAMILY TRUSTS

Losing out on land tax threshold

A businessman with a family discretionary trust also had a block of land on the coast and plans to redevelop it.

He inherited the property, worth about $1.5 million, from his parents and it had been in his name for some years.

He also held a share portfolio in his family discretionary trust and decided to transfer the property into the trust before adding value by building a new holiday home. What he hadn’t taken into account was this would increase his land tax bill.

The businessman was familiar with the process. The land value of the property was the same as the previous year “ about $1.25 million. He calculated land tax at $13,808“ $1.25 million minus the $387,000 land tax threshold ($863,000) multiplied by 1.6 per cent (the land tax rate).

However, the land tax threshold doesn’t apply to special trusts and, in essence, most trusts are special trusts, except those that jump through the hoops of the definition of ‘fixed trust’ under the Land Tax Management Act. To be a fixed trust, beneficiaries must be presently entitled to the income and capital under entrenched provisions.

This is the opposite to a family discretionary trust where beneficiaries only become entitled to income at the end of each year and often don’t become entitled to the capital until the trust ends.

Unfortunately, just because the property is owned by the family trust, land tax will be an extra $6,192 each year.

MEDIATION

Court is not the only way to resolve a dispute

Mediation can be a much more user-friendly way of resolving a dispute than going to court, and it has a proven success rate. Mediation is informal and, if successful, provides a cheaper and quicker means of settling differences.

Statistics show that more than 90 per cent of cases are settled before they reach court. Mediation can enable settlement to occur even earlier. Early settlement reduces the stress inevitably involved in court proceedings, particularly where a person may have to give evidence. It also reduces legal and other costs, such as those involved if you have to take time off work or from business for prolonged court attendance.

Mediation can also help the relationship between parties to survive their dispute, because it allows them to formulate their own mutually acceptable solutions.

Even if parties do not settle their dispute, they do clarify and narrow the issues at the mediation, which can reduce the time and expense of the court hearing. At the very least, parties who have been through a mediation will have had an opportunity to discuss and clarify the disputed issues.

Your solicitor can advise you on whether your dispute is suitable for mediation, prepare your case and attend the mediation with you, and also help you draft a settlement agreement.

GREEN RETROFITS

New environmental upgrade agreements

Market barriers that have previously prevented owners from improving their buildings green credentials have been removed with new laws allowing for environmental upgrade agreements.

If you are a building owner, the opportunity may be there for you to improve the energy efficiency of your building through the newly introduced environmental upgrade agreements (EUAs). The agreements can relate to non-residential or multi-residential strata buildings with 20 or more lots.

Businesses can make use of EUAs to take concrete practical action on climate change that could be consistent with your long- and short-term business plans and corporate social responsibility.

The EUA is a financing mechanism that allows money borrowed for environmental upgrades to be considered as a council charge. This charge becomes a debt that will run with the land, providing additional security for lenders.

An EUA must specify the works to be carried out, the amount to be advanced, and the repayment structure.

The works must reduce energy or water consumption, reduce greenhouse gas emissions, enable the monitoring of environmental quality or encourage alternative methods of transportation.

Parties to the EUA need to work out how they want the charge to be levied either by a single annual instalment or quarterly instalments or other means.

Strata lot owners will pay increased strata levies, representing their proportion of the charge. The charge may be passed on to tenants depending on whether the lease already allows recovery of any council charge.

Eventual sale of the land with an environmental upgrade charge should also be dealt with in the EUA.

Councils can bring legal proceedings to recover unpaid money and can also sell the affected land if the charges remain outstanding for more than five years.

For advice on entering an EUA, contact your solicitor.

OVERSEAS JAUNTS

Tax Office review of conference expenses

The Tax Office recently issued a tax alert that claiming tax deductions on conference attendance are under review. Self-study programs are under particular attention.

To show expenditure is tax deductible, taxpayers need to be able to demonstrate the required connection between outgoing and assessable income.

It is not for the Tax Office to judge how much someone should spend in deriving assessable income, which means, for example, that it can’t say someone should have travelled economy rather than first class. The Tax Office can only say whether the expenditure was incurred in deriving income or not.

Normally, there is no issue about claiming deductions for travelling to overseas conferences. The principal difficulty arises in determining how to apportion expenses when someone wants to both attend a conference and take a holiday. (It need not necessarily be on a time-spent basis.)

But some might find fitting in a conference interferes with other activities. Formal conference sessions at a ski resort are often held between seven and nine in the morning so as not to interfere with a day’s skiing.

Sometimes, even, it can be hard to find a conference somewhere one wants to visit. Self-study programs by some travel companies seem to overcome this. They allow study at a time and location of your choice and you can undertake the program alone or in a group.

The Tax Office has said that these types of arrangements are under review. What perhaps should be of most concern to people wishing to attend overseas conferences is the inference that the Tax Office is also interested in programs which allow a period of time to be spent at the taxpayer’s own leisure. It seems also to be concerned where seminars are conducted on cruises.

Contact your solicitor for advice on tax issues.

NEW CONSUMER LAW
Mandatory reporting

Suppliers of goods and product-related services now face criminal offence penalties for failure to report incidents of harm to consumers.

Under the new Australian Consumer Law, suppliers of consumer goods and product-related services who become aware of a death, serious injury or illness caused by the use of a consumer good, must now report the event to the Australian Competition and Consumer Commission within two days or risk being guilty of a criminal offence.

An injury or illness will be reportable if medical treatment has been sought and someone believes the incident was related to the good or service supplied. This is a broad interpretation, setting a low threshold for required reporting.

Suppliers should familiarise themselves with this new obligation, the guidelines and the regulations, and take steps to ensure that internal policies and procedures enable them to promptly and efficiently monitor, receive and assess information about relevant incidents and comply with the reporting obligation. Failure to comply is a criminal offence punishable by a fine.

Suppliers are those who sell, lease, exchange, hire, or make available for hire-purchase, consumer goods. Suppliers of product-related services provide, grant or confer those services. Consumer goods are goods intended or likely to be used for personal, domestic or household use or consumption. A product-related service includes services such as installation, maintenance, repair or cleaning, assembly and delivery of consumer goods.

The reporting obligation does not apply to suppliers of general or consumer services. A supplier’s obligation to notify is only engaged where the supplier is aware of a death, serious injury or illness, and considers, or another person considers, it was, or may have been, caused by the use, or foreseeable misuse, of the consumer goods.

Any awareness, however acquired, is likely to trigger the obligation.

Suppliers can comply with the new law by completing and submitting an online form via the ACCC website.

COURT ORDERS
An inconvenient truth

If you believe your intellectual property, such as a trademark, is being copied, you will usually want the other business to stop straight away, but as a recent high-profile incident shows, a strong case is not the only consideration.

 Organic Marketing’s application for a court order to stop Woolworths Limited using the words “honest to goodness” in a food marketing campaign succeeded in arguing that the retail giant had a case to answer, but failed on the ‘balance of convenience’ test.

This test involves an assessment of whether the inconvenience or injury which the applicant would be likely to suffer if a court order were refused outweighs or is outweighed by the injury which the defendant would suffer if a court order were granted.

Woolworths successfully argued that there would be huge losses — both direct and brand-related, if it had to abandon a $3 million national campaign, compared to the then undetermined damage to Organic Marketing’s business reputation.

EVIDENCE
Signatures, squiggles and electronic signatures

If it is a symbol, a squiggle or in electronic form, can a signature still authenticate a document or piece of writing as that of the signatory?

Traditional manual, hard-copy signatures still endure, while electronic commerce continues to revolutionise how life is lived and how business is done.

A signature is a person’s name or mark made to authenticate a document or writing. It can be in any form or symbol. If in doubt, there must be evidence that the signatory had the intention to sign. Beyond that, there is no law prescribing the form that a signature must take. It can be any version of the signatory’s name so long as it has been adopted by the signatory with the purpose of authenticating a document. It can be a printed signature, a rubber stamp or computer-produced. It can be the appearance of the name of the signatory. It need not be made manually.

An electronic signature is no more than an electronic means of performing the functions of a signature – authentication and intention to be bound.

The law has quickly adapted to electronic commerce with, for example, the e-administration of the law and the legal process, the computerisation of land title and conveyancing, the recognition of the formation of contracts electronically – offer and acceptance by email or by fax – and the imposing of liability for breaches in electronic format of duties of care.

The common law accepts an electronic signature in paperless transactions to authenticate a document and indicate intention to be bound.

The law takes electronic signatures at their face value, and does not yet require the use of action to authenticate or identify them. However, a document’s integrity (unaltered content), authenticity (sender’s identity), and confidentiality (of the signatory’s identity or document’s contents) are not ensured merely because an electronic signature is provided.

Electronic commerce in Australia has been helped by a special law that ensures electronic transactions are equivalent to a hard-copy version, and that there is technological neutrality. This law has replaced the thousands of instances where there was the need for notice in “writing” or that a document be “signed”.

NEIGHBOURS
Building good fences may take negotiation

There is no requirement to have a fence if you and your neighbour don’t want one. But if you want a fence and your neighbour doesn’t, you should get a quote for one to be built and discuss it with the neighbour.

If you don’t reach agreement, you can give the neighbour a written notice specifying the fencing work proposed. If after serving the notice you and your neighbour still cannot agree, either of you may ask the Local Court or land board to make an order about the fencing work required. If a fence is to be built, you and your neighbour usually, though not always, will have to share the cost.

Usually, you will both share equally the cost of repairs to any fence between your properties. However, if the fence was damaged because either of you was careless (for instance, by a fire or by trees or structures in poor condition) then the responsible party must pay for repairs. If agreement cannot be reached about who is responsible for the repair work, a court or land board can be asked to make an order before the work is carried out.

CONFIDENTIALITY
Employer’s right to view lawyer’s email

A recent US case noted that an email sent by an employee to her lawyer from her work computer was not a ‘confidential communication between a client and a lawyer’.

The employee had acknowledged her workplace rule that communications are not private and may be monitored. The court likened this to claiming privilege when consulting her attorney in a workplace conference room in a loud voice with the door open.

The court found that there was no waiver of privilege since there was no privilege in the first place.

The privilege legislation requires that the communication be transmitted by a means which “disclosed the information to no third persons other than those who are present to further the interest of the client in the consultation”.

Client privilege is not affected by the general fact that third parties assist in the delivery of email.

SUPPRESSION ORDERS
Protecting people living with HIV

The ability to make suppression orders is an extremely important power of the court to protect the confidentiality of people, for example, those living with HIV who are often discriminated against or victimised.

A new law introduced late last year makes it more straightforward for parties to get suppression orders, though the courts have always had powers to make them.

The law confers powers on NSW courts to impose suppression orders and non-publication orders on certain defined grounds. Non-disclosure orders – by publication or otherwise – allow courts to order pseudonyms to be used instead of parties’ names, and for matters to be heard in closed court, under certain conditions.

It does not dilute protections in existing laws that already protect the identities of those with HIV.

Importantly, the courts maintain their discretionary power to weigh relevant interests in the particular case before them. This means balancing the public interest in having open courts against protecting confidential medical information and HIV-positive individuals from further discrimination and detriment as a result of the disclosure of their condition.

Without a way to protect their confidentiality, people living with HIV would, in many instances, be extremely reluctant to proceed with complaints.

This has to be balanced against the public interest of having open courts where information, including a person’s HIV status, may be raised and widely circulated to members of the public and the media.

SUB-CONTRACTORS
Gain new right to earmark funds owed to contractor

Under recent changes to the law, subcontractors can now claim against principal contractors for payments due to them from contractors.

If you are a subcontractor, the changes effectively enable you to earmark money owed to a contractor from the principal contractor to secure the former’s liability for progress payments to you. It minimises the risk of non-payment due to a contractor’s insolvency.

You must first lodge an adjudication application and then serve on the principal a “payment withholding request”.

On receiving this, the principal contractor must hold back from any money owed to the contractor an amount equal to that specified in the request, pending a court decision. This obligation extends to owners.

The result is that a principal contractor who does not comply with a request becomes liable (together with the contractor) for the debt owed to you. The obligation to withhold payment also operates as a defence for the principal contractor against claims for recovery of the money it owes to the contractor.

The principal contractor’s obligation to withhold an amount equal to that specified in the request remains in force only until:
- the adjudication application is withdrawn;
- the contractor pays you the amount;
- you serve a notice of claim and debt certificate on the principal contractor; or
- a period of 20 days elapses after the principal contractor has been served with the adjudication determination;

whichever occurs first.

A payment withholding request allows you, in effect, to use money owed to the contractor by the principal contractor as security for your entitlements to progress your payments under the
subcontract.

FINANCIAL REPORTS
Company officer shares liability for failure to lodge

The company secretary of a business listed on the Australian Stock Exchange was placed on a good behaviour bond for six months and ordered to pay court costs earlier this year after failing to meet the reporting requirements that are part of the laws governing corporations. His company was fined and also ordered to pay costs.

The government investigators found that the company had failed to:
- hold an annual general meeting within five months of the end of its financial year;
- lodge a half-yearly financial report with within 75 days of the end of a particular period;
- provide its financial report, directors’ report and auditor’s report to its members within four months of the end of a financial year; and
- lodge its annual report within three months of the end of a financial year.

Under the law, company secretaries can be held responsible for the failure of companies to lodge their financial reports. 

If you are a company officer and suspect that your business may not be able to meet its financial reporting and AGM requirements, see your solicitor about what options may be available to seek an extension of time.

ADVERSE ACTIONS
Broader protections withstand the test

If you are an employee and union member facing disciplinary action because of your union activities, two recent decisions by the courts may come to your rescue.

Under new workplace laws, it is unlawful for employees to be injured in relation to their employment, have their position altered to their prejudice, or be dismissed because they engaged in industrial activity. These protections have not been tested until recently.

In the first case, a union delegate’s employer disciplined him for sending what it claimed was an inappropriate email to other employees. The delegate argued he had been participating in lawful industrial activity.

The court held in favour of the employee, saying the disciplinary action was connected to the worker’s industrial activity – that is, informing other employees, also union members, of issues happening at work. Therefore, the law protected the employee when he was acting in his capacity as a union delegate.

In the second case, an employee had made an inquiry and complaint about his pay. His employer suspended his (and other employees’) overseas postings and telephoned him and spoke to him in an intimidating fashion.

The court accepted the worker had a right to make an inquiry or complaint in respect of his pay. It found the suspension of overseas postings and intimidating phone call were designed to prevent the employee from pursuing his pay claim, and constituted an injury to his employment.

NOT YOUR ALTER EGO
Private companies are tax identities

The failure to recognise that a private company has a separate identity, and that dealings between one and its shareholders and directors have tax implications, is a misconception which causes taxpayers a steady stream of problems.

The fact that companies and individuals have different tax rates creates tax complexity, allowing for deliberate – or sometimes accidental – tax planning.

It makes tax sense for shareholders and directors to use company profits, say by way of loans or use of assets owned by the company, instead of the company paying taxable dividends to them.

Not surprisingly, the tax law tries to prevent this. A payment or loan by a private company to its shareholders might be taxed as an unfranked ‘deemed dividend’. It used to be possible to avoid this by the company giving a shareholder use of an asset instead of giving them the asset but since an amendment to the law in mid-2009, ‘payment’ has included provision of an asset for a shareholder’s use.

Not all loans count. One area of contention is whether an ‘unpaid present entitlement’ is a loan. Last October, the Tax Office announced that if the accounts of a trust or company have incorrectly classified an unpaid present entitlement, they have until 31 December 2011 to self-correct.

The restrictions only apply insofar as the company has a distributable surplus. In a recent case a company had made non-tax deductible payments to an offshore entity which the Tax Office claimed should be assessed to the taxpayer as deemed dividends. The taxpayer argued that the company did not have a distributable surplus, claiming the amount of the company’s net assets should be reduced by the amount of the payments, the additional tax payable as a consequence of the non-allowance of tax deductions for them and the interest on the additional tax, and the court agreed. There could be far-reaching implications for other cases.

Contact your solicitor if you would like to discuss your company’s tax issues.

  

 

In touch with the law No.1 of 2011
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In this issue
■Rising seas: Protecting the beachhouse
■Wills: Can I change my mind?
■Early guilty plea: How are sentencing discounts decided?
■Paying tax on employee shares: Clearing up the rules
■Tenders pitfall: Beware of creating risk of claims
■Safety slip: Compensation could be harder to win
■Maintenance: Do I have to pay to support my children or spouse?
■Landlord and tenant: Renting laws have been rewritten
■Breaking the contract: When employee can’t just walk away

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RISING SEAS

Protecting the beachhouse

New laws from January 2011 may help resolve some of the problems arising from property damage due to rising seas, but the strict conditions applying to protection works will make it very difficult for landholders in emergency conditions.

Coastal erosion has been a longstanding problem for many beachfront properties right across the NSW coastline. It is even more of a concern now that climate change is predicted to result in rising sea levels and increased frequency and ferocity of storms.

The emphasis in the new coastal management laws in NSW is on planning, and local councils will now have to develop plans which deal with the impacts of rising seas, the maintenance of any protection works, and their impact – such as increased beach erosion elsewhere.

Consent will only be given for coastal protection works that do not unreasonably limit public access to a beach or headland and when adequate funding is in place to ensure the works can be restored and maintained.

Previously, most protection works, even in an emergency, required development consent. Under the new laws, emergency protection works will now only require a certificate from the local council for protection such as sand bags – but not rocks or concrete – to be used to lessen the effects of wave erosion.

The works can only be carried out to protect a building used for residential, commercial or community purposes, and the distance between the building and the erosion escarpment must be less than 10 metres, as certified by a surveyor or authorised officer.

Dune restoration areas must not be disturbed unless written approval is obtained from the relevant authority, and there are other very detailed requirements for protection of vegetation and specifying the materials that are permitted.

In summary, not only must the detailed technical and locational criteria be met and a certificate obtained, but a property owner may also need to obtain written approval from relevant public authorities, engage a surveyor to prepare a survey, and an engineer to prepare a certificate.

If you have legal concerns about the security of your coastal property, consult your solicitor about how best to go about protecting it.

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WILLS

Can I change my mind?

You are free to alter your will at any time. If your circumstances change, you can and should consider changing your will. If you marry it is very important that you make a new will.

However, you cannot simply make an alteration by, for instance, crossing something out in the original will and writing in your new wishes.

If the alterations are minor, your can help you make a codicil (a separate document in which you change a provision in your will), but it is usually better to make an entirely new will unless the change is very simple. A codicil must be signed in the presence of two witnesses, in the same way as the original will.

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EARLY GUILTY PLEA

How are sentencing discounts decided?

In 2000, courts gave guidelines that the sentencing discount for a guilty plea should fall in the range of 10 to 25 per cent, considering the time the plea is entered, its usefulness and the complexity of the issues.

Some eight years after this guideline, new laws were passed following concern about the trend of late guilty pleas in criminal trials. The new laws clearly set out the discount for pleas. If a plea of guilty is entered before an offender is committed for trial, a discount of 25 per cent should ordinarily be imposed. If entered after committal, the discount should ordinarily be up to 12.5 per cent.

An offender may also be given a discount for cooperation with authorities.

One offender, Ellis, who had committed a number of armed robberies on post offices and commercial premises, confessed to a minister of religion, decided to contact a solicitor and then confessed to police.

In Ellis’s case, the courts began by noting the leniency that should be given to someone entering a plea of guilty and then explained that where conviction follows a voluntary disclosure of guilt, a greater degree of leniency enters into the sentencing decision.

The court decided that the leniency to be shown to a person who discloses their responsibility for a crime would vary according to how likely it was that the police would eventually discover their guilt, and also the likelihood of their being able to prove it.

An ‘Ellis discount’, as it has become known, may in some cases be enough to result in a sentence other than full-time imprisonment, where such a sentence might otherwise be inevitable.

While it is understandable that a decision to go to police and confess involvement in a serious criminal matter would require some reflection, too much delay can result in the chance to obtain an Ellis discount being missed, or else seeing the potential discount being reduced.

It is better to make a confession as soon as possible, to ensure that the matter is brought before a court before the opportunity evaporates.

The courts have suggested that the total discount, whether for a plea of guilty, assistance to authorities, or an Ellis discount, should not exceed 50 per cent of what would otherwise be the appropriate penalty.

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PAYING TAX ON EMPLOYEE SHARES

Clearing up the rules

The law on the taxation of employee share schemes changed in 2009, but some still find it confusing.

The general rule is that if an employee is given a share or a right to acquire a share, either gratis or at a discount, the value of the share or discount is included within the employee’s assessable income.

The new rules still contain an alternative between being taxed upfront or at some future time, but they are more restrictive. For most people, the major difference lies in three significant changes.

First, and most controversial, are the ‘real risk of loss’ rules. Deferment is not allowed under the new rules unless the employee has a real risk of losing the share or right other than by disposing of it. A Tax Office guideline says that the meaning of “real” is “something more than a mere possibility”. The Tax Office will accept performance hurdles or a minimum term of employment. It says that there is no real risk of forfeiture under a scheme which simply includes a condition which restricts an employee from disposing of an interest for a specified time, allows the employee to forfeit the interest, or provides for forfeiture if there is fraud or gross misconduct.

The second significant change is the replacement of the “cessation time” rules with “deferred taxing point rules”. The deferral point is the first of seven years after the employer acquired the share or right, the date the employee ceases employment with the employer, or where there is no longer any restriction on disposal.

Third, unlike the old law, whether a share or right is subject to taxation upfront or is deferred depends upon the structure of the scheme and is not an decision made by the employee.

Tax-planning opportunities are generally quite limited. The challenge is to identify an acceptable risk to the employee which would also be acceptable for tax purposes.

Speak to your solicitor if you would like further advice on arrangements on any employee share scheme you may be considering.

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TENDERS PITFALL

Beware of creating risk of claims

The process of tendering can give rise to contractual rights and obligations before any final deal is signed. It is important for personnel on both sides of the process to understand there are risks involved, for example over statements that might give rise to claims.

A recent case which emphasises the importance of this principle involved the Victorian Parliament, which had issued a request for tender for system integration services to implement a new desktop standard operating environment for the Parliament.

The company which submitted the lowest tender, but failed to win the bid, objected to losing the job and took the matter to court, saying it should have been awarded the contract.

The company argued that it had taken a minimalist approach in its tender, which focused on cost, as it had relied on what a parliamentary employee had told the company – that “cost, cost, cost” would be the major determinant.

However, it was an express condition of the request for tender that tenderers ought not to rely on any other information – including that provided by employees, agents and consultants of Parliament – unless it was expressly set out in the request for tender or advised in writing.

Accordingly, the court decided that if the company had misunderstood the selection criteria, it was not due to any fault of the Parliament or as a result of anything contained in its request for tender documentation.

The court also said that the obligation to assess tenders on the basis of value for money does not compel the selection of the cheapest tender and that there was no obligation to inform the tenderers of the actual weightings to be applied in making the final assessment.

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SAFETY SLIP

Compensation could be harder to win

It may now be difficult to prove responsibility for injury when someone slips and hurts themselves at a time and place you would usually expect spillages to occur, even if there is no system of cleaning and inspection in place.

In a recent case, a person slipped on a chip, or grease from one, in a shopping mall, just outside a large retail store and quite close to a food court.

In an initial trial, the retail store was found guilty of negligence, because it owed a duty of care to anyone in the sidewalk sales area, but did not have an adequate cleaning system in place to detect a spillage such as the chip and have it removed.

However, the appeal court found that even if periodical inspections and cleaning had been carried out with the minimum frequency required for the occupier to be taking reasonable care, the possibility arose that the chip had fallen between the last such probable inspection and the arrival of the person who slipped on it.

The court emphasised that the slip was not one equally likely to occur throughout the day. The person had slipped at lunchtime, and the court said that there was no basis for concluding that the chip had been on the ground for long enough for it to be detected and removed by the operation of a reasonable cleaning system.

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MAINTENANCE

Do I have to pay to support my children or spouse?

Both parents are responsible for the financial support of their children until the child reaches the age of 18 or until completion of the school year in which the child turns 18.

Child support can be paid as parents agree, or it can be assessed by the Child Support Agency, which uses formulas it has developed for the purpose.

The child support laws are complex. If you want to know what amount is payable, contact the Child Support Agency or speak to your solicitor.

In relation to maintenance, each spouse or former de facto partner is expected to try to support himself or herself after separation. However, maintenance may be payable if a spouse or partner is unable to meet their own needs. Common examples are where a spouse or partner has the care of young children or is unable to work because of a disability.

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LANDLORD AND TENANT

Renting laws have been rewritten

New laws to deal with issues in the rental market and reduce the level of disputes started on 31 January 2011. Among other things, the new laws recognise longer-term tenancies, the rights of cotenants, water conservation practices and the impact of domestic violence on rental agreements.

Tenants who have been in premises beyond the term of the original lease will now have more time to move out, with the notice period increased to 90 days in cases where the landlord wants them to move out without specific reasons. The notice period has increased to 30 days in cases where notice is given just before the end of a lease.

Landlords in turn have more certainty because, unless the notice is retaliatory in nature, the NSW tenancy tribunal must end the lease and return the property to the landlord if the tenant does not move out after being given a ‘no grounds’ notice to vacate. However, tenants should not be evicted simply for asserting their rights.

Landlords will be able to reduce the eviction process by two weeks if they apply for orders from the tenancy tribunal at the same time as giving notice to the tenant.

Cotenants now have room to move in the new laws, with some types of dispute in shared households able to be taken to the tenancy tribunal. By giving 21 days notice to end their contract with the landlord once a fixed‑term lease ends, a cotenant can end their liability for future rent or damage. This will help avoid the situation where cotenants remained on a lease even long after leaving.

Written permission from the landlord is now required if a tenant wants to bring in an extra cotenant, but landlords cannot be unreasonable in making their decisions. A refusal based on potential overcrowding of the premises or the new person’s name being on a tenancy database would not be considered unreasonable.

Victims of domestic violence living in rented property now have a right to change the locks and seek to take over a lease, even if they are not officially a tenant or cotenant.

If water usage of the property is separately metered for payment by the tenant, the law now requires that the premises be water efficient.

Tenants who want to make a minor change to premises will still need written approval, but there is now an obligation for landlords to be reasonable, which may be important in cases such as the installation of child safety locks on windows.

Every tenant in NSW must now be given at least one way to pay their rent that does not involve a fee being charged, but if a cheque bounces or a direct debit is dishonoured, the tenant will have to pay any costs involved for the landlord.

A termination based on failure to pay rent will now be cancelled if a tenant catches up on overdue rent or follows an agreed repayment plan, but not if they are shown to have frequently failed to pay their rent on time.

A landlord can apply directly to the tenancy tribunal for possession of the premises without giving notice, if a tenant or a guest deliberately or recklessly causes serious damage to the premises, or if they have injured or are likely to injure the landlord, agent or neighbours.

Tenants now have a right to know, before they sign a lease, if a contract to sell the property has been drawn up, or if a bank has taken legal steps to foreclose on the landlord.

When rented premises are put up for sale, only two inspection periods each week will be allowed, and agents have to make reasonable efforts to agree with tenants on inspection times, but can negotiate if more access is required.

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BREAKING THE CONTRACT

When employee can’t just walk away

An employee can’t automatically terminate an employment contract by simply rejecting it and walking away from the job – and there can be costly consequences for them if they do.

In a recent case, a highly successful finance broker entered an employment contract for a two‑year term. Some months later, in breach of the contract, he began working for a competing company.

His employer successfully obtained a court order to stop him from working for the opposition and then placed him on paid leave while they tried to sort things out. In doing so, the employer elected to continue the finance broker’s employment in accordance with the terms of his contract.

Shortly before the court order expired, the employer directed the employee to return to work. When he didn’t do so, the employer treated this as a final failure to observe the terms of the employment contract and took the case to court seeking compensation.

The employer’s claim was based on a clause in the contract which provided a way the amount of compensation could be calculated if the contract was terminated by the employee’s repudiation of it.

In finding that the employment contract was still in place, and the employer was ready, willing and able to perform its part of the bargain, the court upheld the employer’s claim and ordered the former employee to pay a sum of over $500,000 in addition to the legal costs which had been incurred by the employer in pursuing the case.