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  • Managing Contractual Non-Performance

    Business Breakfast Club June Summary - The Terminator: Managing Contractual Non-Performance

    This month at Business Breakfast Club, we discussed how to manage contractual non-performance. In particular, we focused on performance measures, reporting requirements, breaches, rights to damages, and rights to terminate. BAL Legal Director, Mark Love shared some of his insights on the topic. Mark touched on:

    The Information Pathway

    Contract management involves contract performance which can be determined via “performance indicators”. These indicators demonstrate that a party has satisfied the criteria to become entitled to payment. “Lead indicators” can provide information on future performance including whether the desired result will be achieved within the agreed time period. It can also provide an early warning of any potential issues that may arise in contract delivery. A well drafted contract will include the following milestones:

    • the deliverable;
    • the means by which the deliverable will come to life;
    • the matters that create barriers for the deliverable; and
    • the matters that mitigate one’s loss at each milestone point.

     Damages

    Damages for breach of contract are compensatory for the other party’s failure to perform the contract. Compensation is rooted in the notion that where a party sustains a loss by reason of a breach of contract, that party should be placed in the same position as if the contract had been performed. To address the breach, you must turn your mind to:

    • whether you will engage a new contractor to rectify the breach;
    • address the balance of performance of the contract in terms of time delays;
    • determine how to keep the contract enforceable; and
    • address the consequences of loss flowing from the works that still need to be completed to keep the contract on foot.

    Arrangements should be put in place to monitor and assess the underperformance in a contract. This may include the parties engaging in an “action plan”. The action plan may require the contract manager to be aware of the contractor’s capabilities, so that the acquiring entity is informed about the goods or services being provided and is able to determine whether the agreed performance standards and rectification path are capable of being met.

    Termination

    Termination of a contract leaves the parties free from any further obligations to perform the contract. Only certain breaches permit you to validly terminate the contract. These include:

    1. a breach of a fundamental term – which relies on the requirements of specific clauses;
    2. repudiation – which relies on the contracting party’s behaviour to demonstrate that the contracting party no longer regards themselves as “bound” by the contract terms; and
    3. a fundamental breach of the contract – whereby the contract has been breached to such a degree that the bargain under the contract cannot be delivered as intended or has been destroyed.

    Ultimately, identifying the common intention of the parties before entering into a contract will ensure that the issues of underperformance or non-performance in a contract are minimised.

    For more information, please contact Mark Love. The next Business Breakfast Club will take place on 13 July 2018. If you would like to attend, please contact us.

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  • Make Good Disputes In Commercial Leasing

    Make Good Disputes in Commercial Leasing

    Commercial and retail leases often contain make good clauses which require the tenant to return the premises to their previous condition at the end of the lease.  Make good clauses can often be a cause of disputes when parties have different understandings of what the obligations are.  This can be a serious issue, as fitouts can be very expensive to install and remove.

    Parties may be so eager for a lease to commence that they forget to give proper consideration to what will happen when the lease ends.  However, it is important that make good obligations are carefully considered before a lease commences.

    Avoiding make good disputes

    The key to avoiding make good disputes is to clarify what the make good obligations are, so that each party understands what is required at the end of the lease.  Issues that should be considered include:

    1. What state should the premises be returned to? Depending on the situation, this might be bare shell, the condition of the premises when the tenant took occupation or simply a clean and tidy state.
    2. What was the state of the premises when taken over? This will be especially relevant  where a lease has been assigned.
    3. What fixtures and fittings does the landlord want removed, and which do they want to keep? Factors to consider include who owns the fitout and whether the tenant took over the lease with an existing fit out.

    Remedies for a failure to make good

    If a tenant fails to make good and leaves the landlord with a costly clean-up bill, the landlord’s only resort may to be take legal action. Courts will rarely make an order for specific performance of a tenant’s make good obligations.  More usually courts will award damages to the landlord, which may not cover the costs of making good the premises.

    To simplify the process of litigation, landlords should ensure that the lease clearly sets out a right to recover costs of the landlord undertaking the make good works so those costs can be recovered as a contractual debt, rather than as damages.

    In addition, landlords should ensure that the tenant’s bond or bank guarantee covers any breach of make good obligations under the lease.  Even if this does not cover the full cost of the landlord undertaking the make good works, it will ensure that at least some of the costs can be recovered immediately.

    An alternative to make good obligations

    As an alternative to the potential uncertainties around make good, a lease can provide for a cash payment by the tenant in return for a partial or complete release from their make good obligations.  However, this requires more effort on the part of the landlord and raises its own issues:

    1. What is a fair amount for any cash payment for release from make good obligations? The amount might be fixed in advance, a reimbursement of the landlord’s costs or an amount to be determined by valuation.
    2. At whose election should the option to use a cash payment be available? This will be particularly relevant if any agreed amount differs from the actual costs of making good the premises.
    3. To what extent is the tenant released from their obligations? The tenant might be completely, or only partially, released from their make good obligations.

    Conclusion

    Make good clauses are a potential minefield for disputes, but most of these problems can be avoided if parties understand the position before entering into a lease, and the lease reflects that understanding.

    Written by Penelope Coffey and Alexander Paton. If you require expert assistance with your commercial leasing, contact us.

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  • DELEGATION OF COUNCIL FUNCTIONS

    Essential Guide to Local Government: Delegation of Council Functions

    The delegation of Council functions is essential to the effective and efficient governance of a local Council. This guide will offer an overview of the fundamentals of delegating and sub-delegating Council functions under legislation and the common law.

    Council’s Ability to Delegate

    The Local Government Act 1993 (LGA) establishes the statutory framework for the delegation of Council’s authority. Further guidance is also given in the Interpretation Act 1987 (Interpretation Act).

    Principally, section 377 of the LGA provides the Council with the power to delegate certain functions to the General Manager or any other person or body (not including another employee of the council). However, the scope of the power to delegate is not without restrictions and Councils need to be aware of the legal principles governing delegations.

    To whom can a council delegate?

    As mentioned above, a Council may delegate functions to the General Manager and to other persons or bodies. However, a Council cannot delegate any of its functions directly to an employee of the Council, other than the General Manager.[1]

    The delegation must be made to either a specified person or body (by name) or to a particular officer or the holder of a particular office.[2] Where a function has been delegated to the holder of a particular office or position, the delegation does not cease to have effect merely because the person in the particular office or position ceases to hold that office or position.  In that case, the person occupying the office or position is taken to be the delegate.[3]

    A function can only be delegated to an office or position that is in existence at the time that the delegation is made.[4]

    How does a council delegate?

    There are certain practical steps which must be taken to validly delegate Council functions. Delegation by a Council to the General Manager, or any other person or body, must be done by resolution.[5] The delegation must also be in, or be evidenced in, writing.[6]

    Delegations may also be limited by being made subject to conditions.[7] Where the conditions are not met, the delegate will have no power to exercise the function and any resulting decision will be liable to be set aside.[8] This means that Councils need to be careful when drafting conditional delegations to ensure that any conditions are clearly expressed and, preferably, do not involve subjective elements which can invite legal challenge. Some examples include delegations that are conditional on whether a conflict with a Council policy is “minor”, that require a determination to be made as to whether strict compliance with a Council policy would be “unreasonable” or “unnecessary”[9] or a condition allowing exercise of the delegation where, following public notification of an application, no “well founded objection” is received.[10]

    Scope of Delegation

    A delegation can cover a wide range of Council functions both under the LGA and also under any other Act.  The General Manager may also delegate any of his or her functions, as well as sub-delegate any functions that have been delegated to the General Manager by the Council.[11] In the exercise of a function by a delegate, the delegate may also exercise any other function that is incidental to the delegated function.[12]

    A Council cannot delegate a function that comprises any of the matters listed in subsections 377(1)(a) to (u) of the LGA.  Those matters include (but are not limited to):

    • making rates, charges and fees;
    • borrowing money;
    • voting of money for expenditure on council works, services or operations;
    • the compulsory acquisition, purchase, sale, exchange or surrender of land; and
    • any function that is specifically required to be undertaken by resolution of the council.

    Neither the Council nor the General Manager can delegate their power of delegation.[13]

    A function cannot be delegated if the function is not in existence at the time that the delegation is made. For example, in the case of Australian Chemical Refiners Pty Ltd v Bradwell[14] a prosecution was commenced under a delegation that had been given before the enactment of the section creating the offence. The Court of Criminal Appeal held that the delegation was ineffective.

    Where a function of the Council depends on the Council forming an opinion, belief or state of mind and the function has been delegated, the function may be exercised by the delegate on the basis of his or her own opinion, belief or state of mind.[15]

    Where discretion is involved in the exercise of a function, a delegation of the function cannot limit or eliminate the discretion.  An example of this type of function is the determination of a development application under section 4.16(1) of the Environmental Planning and Assessment Act 1979.  That function involves the exercise of discretion as to whether or not to approve an application unconditionally, to approve it subject to conditions or to refuse it.  A Council (or General Manager) cannot delegate the power to approve a development application without also delegating the power to impose conditions or refuse it.[16]

    After the Delegation

    When a Council or General Manager delegates a function, the Council or the General Manager still retains the ability to exercise the function at any time before the delegate does so.[17] A delegation may also be wholly or partly revoked by the delegator.[18]

    Councils are also required to review all of their delegations during the first 12 months of each term of office.[19]

    More information

    If you have a specific question about how delegations work, call Alan Bradbury on (02) 6274 0940 or Alice Menyhart on (02) 6274 0911.

    The content contained in this guide is, of course, general commentary only.  It is not legal advice.  Readers should contact us and receive our specific advice on the particular situation that concerns them.

    Are your delegations up to date? – RelianSys Delegations Software an automated web-based solution

    Keeping track of delegations for Council Officers and staff, when structures, titles and personnel are constantly changing, can cause major headaches. This is exacerbated when records are kept manually, using old-fashioned documents and spreadsheets. Bradley Allen Love Lawyers (BAL) has partnered with RelianSys – Australia’s leading provider of automated governance solutions, to provide a fully-integrated web-based solution for Council Delegations.

    The BAL – RelianSys Delegations Software is easy to learn, simple to use, and streamlines your delegations by automating the process – saving time and improving efficiency. Because it is web-based, it can be accessed by anyone, from anywhere, at any time, on any device.  More importantly, the BAL – RelianSys Delegations solution is designed specifically for the Local Government sector, by people who understand governance in Local Government, making it highly intuitive – it thinks the way you think.

    The pricing model is very cost-effective – with all set up, updates, ongoing development, telephone training and support all included in one low-cost annual subscription.

    More importantly, the solution simplifies the process, so it takes the stress and headaches out of managing delegations.

    For a personal guided tour, please start a conversation with Febin Philip, Business Development Manager at RelianSys, on 1300 793 905.

    [1] LGA, s.377(1).

    [2] Interpretation Act, s.49.

    [3] Interpretation Act, s.49(8).  See also Martin v Minister for Mineral and Forest Resources [2010] NSWLEC 131 and [2011] NSWCA 286.

    [4] Australian Chemical Refiners Pty Ltd v Bradwell (1986) 10 ALN at N96.

    [5] LGA, s.377.

    [6] Interpretation Act, s.49(2)(b).

    [7] Interpretation Act, s.49(3).

    [8] Aldous v Greater Taree City Council [2009] NSWLEC 17.

    [9] See Kinloch v Newcastle City Council [2016] NSWLEC 109.

    [10] Lyons v Sutherland Shire Council [2001] NSWCA 430.

    [11] LGA, s.378.

    [12] Interpretation Act, s.49(4).

    [13] LGA, ss.377(1)(t) and 378(1).

    [14] (unreported) NSWCCA No. 236 of 1985 28/2/86.

    [15] Interpretation Act, s.49(7).

    [16] Belmorgan Property Development Pty Ltd v GPT Re Ltd & Anor [2007] NSWCA 171.

    [17] Interpretation Act, s.49(9).

    [18] Interpretation Act, s. 49(2)(c).

    [19] LGA, s.380.

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  • blockchain and cryptocurrency - bitcoin

    Business Breakfast Club May Summary: Blockchain and Cryptocurrency

    This month at Business Breakfast Club, Shaneel Parikh and Harry Hoang of Tailored Accounts, discussed blockchain and distributed ledger technology. Whilst Bitcoin and cryptocurrency has certainly created much hype and challenged the legal and financial landscape, Blockchain is much bigger than Bitcoin. It has the potential to revolutionise multiple industries as well as alter our social and economic infrastructure.

    Some of the topics covered:

    What is Blockchain Technology?

    Blockchain is a continuously growing list of records or transactions which are linked and secured in blocks using cryptography. These blocks subsequently reside within the ledger amongst all users. Important to an understanding of blockchain is a consideration of what distributed ledger technology is as whilst every blockchain is a distributed ledger, not every distributed ledger, is a blockchain.

    What is Distributed Ledger Technology

    A distributed ledger is a database of transactions (or data) that is shared across a network of participants. It is “distributed” because the record is held by each of the users of the network, and when a record is added, each user’s copy is updated with new information both instantaneously and simultaneously.

    What types of Blockchain Systems Exist and What are their Governance Structures?

    In practice, there are two key types of “Blockchain” systems that exist: permissioned or private blockchain and unpermissioned or public blockchain systems. Whilst the courts are yet to consider the legal structure of either system, it is important to consider how the courts could analyse such structures and in particular, which players in such systems the court may ultimately deem liable if something goes wrong.

    Benefits of Blockchain

    • each record is near real time and therefore provides an accurate and time-stamped record of a transaction;
    • public blockchain systems are widely accessible to any individual with a computer;
    • it uses DLT, each network node verifies the transaction and holds an updated copy therefore providing an immutable record ;
    • it is censorship resistant meaning that once it a transaction is made and paid for, it cannot be subject to third party intervention; and
    • each transaction is irreversible.

    Data Protection

    With the recent changes to the Privacy Act, there are certain considerations for Privacy with blockchains. For the owners of private blockchain systems, there are concerns regarding assumption of responsibility for an eligible mandatory data breach that occurs on the private blockchain system. If you operate private blockchains and provide ‘administrator’ access to a third-party contractor for example, and that third-party contractor unlawfully discloses information, irrespective of whether you played any part in the disclosure, there is a strong chance that you will be held jointly-liable for the privacy breach as ultimately you control the system and the information within.

    For more information, please contact Shaneel Parikh. The next Business Breakfast Club will take place on June 8 – if you would like to attend, please contact us.

    A copy of the slides is available here.

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