News & Events

  • 7 BAL Lawyers staff ranked in the 2019 edition of Best Lawyers - Australia

    Bradley Allen Love is pleased to announce that 7 lawyers from our Canberra office including 4 Legal Directors and 2 Directors, have been named in The Best Lawyers in Australiaâ„¢ 2019.

    The following Bradley Allen Love lawyers are included among the Best Lawyers in Australia for 2019:

    • Alan Bradbury – Canberra, Government Practice, Planning and Environment Law;
    • John Bradley – Canberra, Leasing Law, Real Property Law;
    • Mark Love – Canberra, Commercial Law, Insolvency and Reorganisation Law, and Corporate Law;
    • John Wilson – Canberra, Labour and Employment Law, Occupational Health and Safety Law;
    • David Toole – Canberra,  Commercial Law, Trusts and Estates;
    • Ian Meagher – Canberra, Insurance Law, Litigation; and
    • Bill McCarthy – Canberra, Insurance Law.

    This is the tenth consecutive year the Alan Bradbury has been acknowledged for his expertise. Managing Legal Director John Wilson makes his seventh appearance in the list, and Mark Love and John Bradley were recognised for their respective practices for the fifth year. This year, David Toole, Ian Meagher and Bill McCarthy have also been recognised for the first time in Best Lawyers.

    John Wilson congratulated his colleagues on their achievements.

    “A listing in Best Lawyers is a considerable honour, reflecting as it does the praise of fellow practitioners in each speciality,” he said. “For six of my colleagues and I to be included speaks highly to the calibre of our team at Bradley Allen Love.”

    Best Lawyers is the oldest and most respected peer-review publication in the legal profession. A listing in Best Lawyers is widely regarded by both clients and legal professionals as a significant honour, conferred on a lawyer by his or her peers. For more than three decades, Best Lawyers lists have earned the respect of the profession, the media, and the public, as the most reliable, unbiased source of legal referrals anywhere.

    The full list is available here.

    best lawyers

    Above: David Toole, Mark Love, John Wilson, Alan Bradbury, John Bradley, Ian Meagher and Bill McCarthy- listed in The Best Lawyers in Australia 2019

    ABOUT BEST LAWYERS

    Best Lawyers is the oldest and most respected attorney ranking service in the world. Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. 83,000 industry leading attorneys are eligible to vote from around the world, and Best Lawyers received almost 10 million evaluations on the legal abilities of other lawyers based on their specific practice areas. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honour.

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  • Managing performance with an ace procurement contract

    When forming “the deal” considerable focus is often given to “the price”, yet the theory goes: “price” trades off against “certainty” and “timing”; each of “certainty” and “timing” apply pressure to the margins of “price”. Placing pressure on “timing” and “certainty” increases the risk of “non-performance”.

    The most critical aspect of contract preparation is to address the risk of “non-performance” and so as a procurement contract unfolds, the “risk of non-performance” relies on the purchaser knowing how well the contractor has been performing and, in turn, help the purchaser predict how well the contractor will continue to perform. These tools are:

    • “Performance Indicators”: “what has been done”, typically used to demonstrate that a party has satisfied the criteria to become entitled to a payment; and
    • “Lead Indicators”: which provide information on future performance and should demonstrate whether the desired results will be achieved within the agreed timeframe and cost, providing an early warning of any problems in the delivery of the contract.

    A core skill in contract preparation is to determine what performance or lead indicators might exist to help manage contract performance. Having a good contract structure will give you options (whether through re-performance, damages or termination rights) to get the goods or services you bargained for; and critical in that is the delivery of the purpose for which the contract exists.

    The foreword to the “Better Practice Guide on Developing and Managing Contracts” published by the Australian National Audit Office in 2012 urges: –

    [C]ontract management is not an end in itself, and it is important that all contracting decisions and actions focus on the outcomes that entities are seeking to achieve and cost-effective delivery approaches”[1]

    In the event of a contract breach and in the choices and timing of performance and lead indicators, it is paramount that the parties do not lose sight of what it is they committed to do. In order to effectively manage contract performance, the parties must keep that “goal” in mind.

    Where the Commonwealth is a party, it is important to note its obligations under with the Public Governance, Performance and Accountability Act 2013 (PGPA Act). Section 15 requires the “accountable authority” of a Commonwealth entity to promote the “proper” use of public resources i.e. uses which are efficient, effective, economical and ethical. All businesses should keep these principles in mind.

    Structuring a contract to address non-performance

    Performance and lead indicators exist to support the decisions you might wish to make in the course of contract management.

    Identifying what the deliverable is, the means by which the deliverable will be delivered (the steps that need to be in place in that pathway) and the matters that put that delivery pathway at risk, can be used to efficiently and effectively manage the contract by delivering information on a contractors performance in meeting existing contractual requirements and, where appropriate, ensuring that future requirements will also be met.

    Performance measures should be designed to alert the contract manager to potential problems so that remedial action can be taken if needed. Identifying areas for potential dispute early can help you guide compliance with the contract or effectively resolve the potential dispute (without that dispute ever arising).

    Characterising damages and loss from breach

    Further, timing your performance and lead indicators to critical stages of contract delivery should coincide with those points when it becomes most convenient to “cut your losses” and run, if you can. There are many considerations in that decision:

    • Is the deliverable contractor easily substituted?
    • Even if the deliverable can be substituted, what is the consequential cost of delay?

    It is important to be cognisant that a given procurement may simply be a building block embedded within a broader purpose or design. In those circumstances, the possible consequence of terminating the contract is that there may be a greater impact on the procuring party as opposed to the losses which flow naturally from the breach of “that contract”.

    Rectifiable defaults clauses typically deal with issues such as:

    • the deficiency represented by the breach – will you engage a new contractor to rectify the breach? and
    • addressing the consequence to the balance of the performance, particularly in terms of delay.

    While such clauses should be geared towards repairing the relevant default, when partnered with delay clauses, they are often seen as a procedural step towards “termination”, rather than as a contract management tool to keep the contract alive and address the consequences of loss flowing from the works needed to keep the contract on foot.

    Managing Performance

    Complex procurement must rely on the skill, judgement and expertise of the contract party to identify and deal with issues arising not only from the environment into which a deliverable will be put, but issues arising from the development of the delivery and then the way in which the resulting output (or absence of it) will affect the moving environment into which the outcome will be placed.

    While much of the assessment and performance risk can and should be controlled through relationship management and good communication, a good procurement contract should be structured so that there is an action plan for performance, clear milestones and deliverables, along with subsequent action that would result from underperformance.

    If you have any questions about procurement or contract management, please get in touch with our Business team.

    [1] Developing and Managing Contracts, Better Practice Guide; ANAO (www.anao.gov.au), forward by Ian McPhee, Auditor General. The ANAO website states that post PGPA, “Substantially the content of this Guide, in particular the underlying concepts and principles of better practice, remain relevant.”

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  • Disproportionate Apportionment? A caution to defendants involved in claims under the Building Act 2004 (ACT)

    Earlier this month, the ACT Supreme Court released the judgment of Hyblewski v Bellerive Homes Pty Ltd [2019] ACTSC 44. This decision has serious implications for defendants involved in actions over defective building works under the Building Act 2004 (ACT) as it raises serious questions regarding the apportionment of liability in the context of building cases in the ACT.

    Facts

    The plaintiff purchased land in the ACT to build a residential property. She sued the first defendant, the builder of the house and the second defendant, the building certifier, for various defects in building works. During the course of the hearing, the plaintiff settled with the builder, so the case proceeded against the certifier only.

    The plaintiff claimed damages against the certifier for a number of defects in the construction of the building, including poor brickwork, the failure to provide an adequate foundation for the building works, the failure to install a moisture barrier between slabs and the failure to build nib walls in accordance with the approved plans.

    The certifier denied his responsibility for the defects, arguing that the standard of care required by the certifier is lessened by the fact that the builder has to provide statutory warranties. He also argued that issues relating to aesthetic appearance and quality of building work were not the certifier’s responsibility, and that it was not his role to second guess variations from the approved plans. Both of these arguments were rejected by the Court.

    Decision

    The certifier was found to be liable for the defects in the building works. The Court held that if the certifier had performed his statutory and contractual duties with reasonable care and skill, he would have identified the defects and notified the builder such that the builder would have remedied them. Whilst the certifier was not required to detect and rectify every defect in the works, the judge found that these particular defects were such that the certifier should have caused them to be remedied. As such, the certifier’s breaches were found to cause the whole of the loss suffered.

    With regards to apportioning liability, the Building Act 2004 (ACT) only permits apportionment of liability where each defendant was found to be liable. In this case, the certifier was the only defendant who was found to be liable, since the other previous defendant (the builder) had settled with the plaintiff before judgment. Therefore, apportionment of liability to the builder was not available, and the certifier had to bear all liability for the damage suffered.

    Key Messages

    1. Where a plaintiff sues two or more parties for defective building work, but there is only one party that is found to be liable (because for example, the other parties had settled with the plaintiff prior to judgment), no apportionment of liability will be available under the Building Act 2004 (ACT), and the relevant defendant will be liable for the totality of damages.
    2. Building certifiers will not be able to shirk liability by claiming that issues of aesthetic appearance and quality of work are not their responsibility.
    3. Certifiers will not be able to escape liability by deferring their responsibilities to a builder. For example, a certifier will not be able to argue that it was not their responsibility to check whether departures from approved plans were agreed upon before allowing a variation to go ahead.

    If you need advice or further clarification on the decision, please do not hesitate to contact the Litigation Team.

    Written by Kate Meller and Maxine Viertmann.

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  • They're here

    On 21 February 2019, the Residential Tenancies Amendment Bill 2018 (No 2) (ACT) passed in nearly identical form as was originally presented in the Legislative Assembly on 1 November 2018. With a default commencement date of 5 March 2020 (and unless an earlier commencement date is fixed by notice) agents have plenty of time to educate themselves and seek guidance on the changes. Though these changes appear to be a conscious push to move the ACT to a more tenant friendly jurisdiction, it does also bring with it the risk of an increase in disputes and other applications before the ACAT. It is important that agents recognise this risk and integrate procedures to properly accommodate the changes to ensure both their business and the rights of the landlord remain adequately protected and (as far as is possible) uninterrupted.

    Modifications

    One of the major changes introduced by the Bill is the restriction on a landlord’s right to refuse a tenant’s application to renovate or modify the premises. The grounds for refusal depend on the type of modification requested:

    • for special modifications, a landlord may only refuse the tenant’s request if the landlord first obtains the ACAT’s prior approval. These types of modifications include:
    • minor modifications, which are those alterations that can be removed so that the premises are restored to substantially the same condition as at the commencement of the agreement; or
    • alterations undertaken:
      • for the safety of the tenant (e.g. furniture anchors, child safety gates or fittings);
      • on written recommendation of a health practitioner (e.g. safety ramps or safety rails);
      • to improve the energy efficiency of the premises;
      • for the security of the premises (e.g. deadlocks, security doors and alarms); or
      • to allow access to telecommunication services,
    • for any other alterations or modifications, a landlord must not unreasonably refuse the tenant’s application.

    For a request to undertake a special modification, the landlord’s consent will be taken to have been granted if the landlord fails to make an application to the ACAT (for an order to refuse the modification) within 14 days of the tenant making the request. It is imperative then that an agent, upon receiving a modification application from a tenant, passes the tenant’s request onto the landlord as soon as possible.

    The modification, whether special or otherwise, is not at the complete discretion of the tenant, however, as a landlord may impose reasonable conditions on the tenant’s modifications. Such conditions might include that the tenant:

    • provide the landlord with a copy of the plans and specifications before works are carried out;
    • undertake the modifications in accordance with all laws, regulations and the requirements of any relevant authority;
    • uses suitably qualified tradespersons;
    • takes out policies of insurance (noting the interest of the landlord) relevant for the type of works; or
    • obtains and provides copies of all approvals and certificates evidencing proper completion of the works.

    If the modifications improve the premises, landlords should also consider including a condition that the modifications are to remain in the premises on expiry of the agreement, though in such circumstances the tenant is likely to expect reasonable compensation or a contribution from the landlord.

    Pets

    Another change introduced by the Bill is the restriction on a landlord’s right to decline a tenant’s application for the keeping of pets on the premises where there is provision in the tenancy agreement allowing the landlord to do so. Like modifications, a landlord may impose conditions, but these conditions may only relate to the number of animals or the cleaning or maintenance of the premises. For any other conditions or for a landlord to validly refuse the tenant’s request, the landlord must apply to the ACAT for approval.

    Where an agent receives such a request from a tenant the agent should carefully consider the conditions to be imposed so as to provide the landlord with appropriate options. These might include that the carpet is professionally cleaned (perhaps even on a number of occasions) during the term of the tenant’s occupation or that the premises is fumigated on expiry of the tenant’s occupation.

    Break Lease Clause

    Another major change introduced by the Bill is the limitation on the fee payable by the tenant under a ‘break lease clause’.

    Though a break lease clause is optional, under the new changes, if the tenant terminates the tenancy under a break lease clause during the first half of the fixed term (subject to the fixed term being 3 years or less), the tenant will be liable for:

    • where less than half the fixed term has expired, 6 weeks rent; or
    • where half the fixed term has expired, 4 weeks rent,

    but where the landlord enters into a new tenancy agreement for the premises prior to the expiry of the above periods (6 weeks or 4 weeks) the liability of the tenant will be reduced by an amount equal to the rent paid by the new tenant during that period. Essentially, the liability of the tenant is capped to the actual loss (in terms of rent at least) suffered by the landlord.

    In relation to the tenant’s potential liability to the landlord, other than for rent, under the Bill this is now limited to:

    • where half or more of the fixed term has expired, an amount equivalent to 2/3 of 1 weeks’ rent; or
    • where less than half of the fixed term has expired, an amount equivalent to 1 weeks’ rent,

    but only where the tenant vacates the premises more than 4 weeks before the end of the fixed term.

    It should be noted, however, that these limitations only apply where the landlord enters into a new tenancy agreement within the defined period.

    By capping the landlord’s right to recover from the tenant the actual loss suffered, particularly in relation to having to advertise and re-let the premises, this change is likely to lead landlords to refuse to include a break lease clause in the agreement and to instead rely on the provisions of the Act and their rights under contract law.

    Though the changes introduced by the Bill do bring with them an inherent risk of encouraging the parties, whether in dispute or simply seeking clarification or approval, to seek an order from the ACAT and thereby overburden the services of the ACAT, the managing agent remains in a unique position to guide the parties to a mutual and commercial resolution within the framework of the Act and the prescribed tenancy terms. Agents then, should take the opportunity now to consider the repercussions of the changes and to start the education process with their landlord clients before the changes take effect.

    If you need advice or further clarification on the changes, please do not hesitate to contact the BAL Real Estate Team.

    Written by Benjamin Grady and Riley Berry.

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  • Unconscionable Conduct and Undue Influence: Business Breakfast Club March Summary

    This month at Business Breakfast Club Riley Berry of BAL Lawyers discussed unconscionable conduct and undue influence with a focus on the Australian Consumer Law and what these factors mean for commercial contracts.

    Unconscionable Conduct and Undue Influence

    There are several instances where a Court will overturn a contract based on the conduct of one of the parties prior to making the contract. Two of the most prevalent are unconscionable conduct and undue influence. Unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgement as to the [the innocent party’s] own self-interest”. The other party must also unconscientiously take advantage of that special disadvantage. There are two types of undue influence: Actual undue influence where it can be proven that one person exerted influence over another to have them enter into the contract, and presumed undue influence which is a deemed relationship of influence were one party is antecedent to the other party. The spheres of undue influence and unconscionable conduct overlap and the line between the two is often blurred.

    Remedies Available

    Only a Court can make a determination if there has been unconscionable conduct or undue influence. As a result if you feel that you have been a victim of this, there are few options except to litigate or to file a complaint with ACCC. Alternately if you are in a position of greater bargaining power and entering into an agreement it is important to ensure that none of your actions risk being viewed as unconscionable or the contract may be undermined by a Court. The best option is to be aware of what actions a Court might consider unconscionable, and avoid engaging in those actions, or avoid entering into contracts with a party engaging in conduct that may be considered unconscionable.

    To avoid being a victim of unconscionable conduct:

    • ensure all commercial agreements are in writing (and both parties have the contract)
    • make sure you fully understand all the terms of the transaction
    • do not sign any agreements without reading them carefully
    • ask for plain language explanations and obtain independent professional legal or financial advice if unsure
    • do not allow yourself to be talked into a deal that is wrong for you by high pressure sales tactics. Be wary of tight decision deadlines

    To avoid engaging in unconscionable conduct:

    • consider the characteristics and vulnerabilities of your customers. For example, use plain English when dealing with customers from a non-English speaking background
    • make sure your contracts are thorough, easy to understand, not too lengthy and do not include harsh, unfair or oppressive terms
    • ensure you have clearly disclosed important or unusual terms or conditions of an agreement
    • give customers the opportunity to seek advice about the contract before they sign it
    • do not reward your staff for unfair, pressure-based selling

    For more information, please contact Riley Berry. The next Business Breakfast Club will be held on 12 April 2019 on “Advertising and Promotion – Pitfalls and Risks”. If you would like to attend, please click here to go to the event listing.

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  • Being a political player Risks to navigate in electoral advertising requirements

    Being a political player: Risks to navigate in electoral advertising requirements

    With 2019 being an election year there will be a significant increase in political donations being made to candidates, political parties and special interest groups. The recent changes to the Commonwealth Electoral Act 1918 (the CEA) have manifestly changed the definition of “electoral matter”, and since this phrase is the legislative “hook” for obligations and disclosures required by the CEA, it is important to be aware of how these changes affect your potential involvement in political advocacy.

    Political Campaigner Registration

    The CEA has amended the definition of “electoral matter” to matter which has a “dominant purpose of influencing the way voters vote”. The risks associated with the subjectivity of the dominant purpose test, and the fine distinction between a publication being “public education” and an “electoral matter”, should prompt entities to consider whether they need to register as a political campaigner under the CEA. If the electoral expenditure of an entity has:

    • exceeded $500,000 in any one of the previous three financial years; or
    • exceeds over $100,000 during the current financial year,

    the entity must register as a “political campaigner” within 90 days of exceeding the threshold or risk civil penalties of $42,000 and in some circumstances up to three times that amount.

    Foreign Interest Electoral Reform

    Parliament has tightened the rules regarding foreign donations and entities should be conscious of these rules particularly where their cash flow includes international revenue streams. Entities that:

    • were incorporated in Australia; or
    • have their head office in Australia; or
    • have their principal place of activity in Australia,
    • do not qualify as foreign donors.

    It is highly unlikely that an Australian entity will face any issues where their cash flow includes international revenue streams. Indeed subsidiaries of foreign companies directly fall within the scope of the exceptions to what is a “foreign donor” under the CEA. However an issue can arise where the foreign entity “gives” to its Australian entity a sum which is:

    • for the purposes of incurring electoral expenditure; or
    • for the dominant purpose of creating or communicating electoral matter; or
    • a political “gift”.

    Further, where a “scheme” was thought to exist for the purpose of avoiding CEA restrictions, then the receipt of the “gift” or “expenditure” will have infringed the prohibition against foreign donations. Therefore an Australian subsidiary that funded a political gift or electoral expenditure would be well advised to ensure that it did so from its own profits (where those profits were derived from Australian activities or activities that had Australia as its head/principal office).

    Other salient changes to be aware of:

    1. The reworking of existing advertising material will be treated as new. Material for each variation must be separately authorised and a “paper trail’ must be kept for each authorisation.
    2. There also is a dominant purpose test for reportable “expenditure”. This test, if managed, will make the distinction between “research” and the creation or publication of the advertisement clearer.

    The new regime is intended to be protective of the public putting the onus of a pro-disclosure regime on entities incurring expenses that may be related to electoral matters. Entities interested in making donations or publishing views should explore and consider their legal liabilities before doing so.

    If you have any questions or concerns about your obligations under the CEA, get in touch with our Business law team.

    Written by Mark Love with the assistance of James Connolly and Riley Berry.

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  • Decisions, Decisions: Adjudicator decisions and non-jurisdictional errors

    In early 2018, the High Court of Australia handed down the landmark cases of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4.  The case regarded the reviewability of adjudicator determinations under the Building and Construction Industry Security of Payment Act 1999 (NSW), which has comparable counterparts in other states and territories in Australia, including the ACT (the SOP Legislation).  The decision has serious ramifications for those making payment claims under SOP Legislation. Ultimately, the High Court decided that errors of fact (as opposed to errors of law) made by an adjudicator under the security of payment regime are not reviewable or capable of being quashed by courts.

    Jurisdictional Errors & Non-Jurisdictional Errors

    Non-jurisdictional errors are commonly known as ‘errors of fact’. As the colloquial description suggests, they are errors that do not involve a question of law, but rather as simply factual points which an adjudicator may decide upon, albeit wrongly.  If an adjudicator makes an ‘error of fact’ it will not affect their power or authority to make a decision.

    However, if an adjudicator makes a jurisdictional error (that is, an ‘error of law’), it means that he or she may lack the power or authority to have made the determination in the first place. Given this, and notwithstanding the intended binding effect of the SOP Legislation, jurisdictional errors can be quashed by the courts.

    This said, the distinction between non-jurisdictional error and jurisdictional error is not always clear cut. Much turns on the body making the determination, and the legislative framework underpinning the decision and empowering the decision maker. This difficult distinction has plagued judges for many years.

    The facts of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd:

    Probuild Constructions subcontracted Shade Systems to supply and install external louvres for an apartment development. Shade served on Probuild a ‘payment claim’ under the NSW SOP Legislation.  In response Probuild provided a ‘payment schedule’ which denied liability on the basis that a higher amount of liquidated damages was payable in Probuild’s favour in relation to delays of Shade in its works.

    The adjudicator rejected Probuild’s liquidated damages claim on the basis that liquidated damages could not be calculated until either practical completion (of the works) or termination of the subcontract, and concluded that Probuild was to pay Shade under the claim.

    Probuild sought to quash the determination of the adjudicator on the basis of non-jurisdictional errors, meaning that they contained errors of fact, namely that the adjudicator mistakenly considered that:

    • there was no entitlement to liquidated damages arose until practical completion or termination of the subcontract; and
    • that Probuild needed to demonstrate that Shade was at fault for the delay for which it claimed liquidated damages.

    The question for the High Court in this case was this: Are errors of fact/non-jurisdictional errors in decisions under the SOP Legislation reviewable by the courts?

    The court’s findings

    Ultimately, the High Court held that adjudicator determinations under the SOP Legislation are not reviewable by courts, even if such determinations do contain errors of fact.

    The majority held that although the SOP Legislation does not expressly prohibit courts from reviewing non-jurisdictional error, the Act does not intend to permit such review either.  Thus, to allow the courts to intervene over factual arguments would conflict with the overarching objectives of the SOP Legislation.

    In reaching this conclusion, the High Court specifically took into account:

    1. the overarching objectives of the SOP Legislation are expediency and efficiency in dispute resolution, and does not encourage ‘lengthy consideration by an adjudicator of detailed submissions on all questions of law’[1];
    2. the SOP Legislation provides for informal procedures to determine an adjudication application[2];
    3. there is no intended right of appeal from the determination of an adjudicator under the SOP Legislation; and
    4. the SOP Legislation nevertheless preserves parties’ abilities to enforce contractual rights and defers final determination of these rights to alternative forums.

    The consequences

    • Courts are still able to review or quash determinations affected by jurisdictional errors of law, such as those where the decision maker does not have authority to decide the matter or where ‘basic and essential requirements which are preconditions to a valid adjudicator’s determination’[3] are absent. Logically this makes sense: an adjudicator ruling on an issue not intended to be adjudicated under the SOP Legislation, cannot be protected by the binding intentions of the SOP Legislation.
    • This finding makes it harder for those dissatisfied with an adjudicator’s determination, to challenge and review it. Those who are dissatisfied with the determination of an adjudicator under the SOP Legislation should seek to identify a jurisdictional error in the determination in order to seek review, instead of taking issue with a mistake of fact by the adjudicator.
    • However, the SOP Legislation does not diminish the ability of the parties to enforce their contractual rights, including where an adjudicator has erred in determining the amount of a progress payment.[4] As such, an aggrieved party will be able to seek recourse from the courts by bringing a separate proceeding under contract. Though whilst that slower legal process turns its wheels, any amount awarded by an adjudicator generally can be called upon by a winner in the security of payments regime.

    If you have any questions or concerns about adjudicator decisions or non-jurisdictional error, get in touch with our Litigation team.

    Written by Kate Meller with assistance from Maxine Viertmann.

    [1] [41]

    [2] [42]

    [3] Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428, [53] citing Brodyn

    [4] [46]

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  • Landlord Deemed to have Repudiated Lease for not replacing Air-Conditioning

    Landlord Deemed to have Repudiated Lease for not replacing Air-Conditioning

    A dispute between a commercial tenant and its landlord over the air-conditioning (AC) performance in the leased premises has resulted in the tenant abandoning its lease, and the landlord, in attempting to enforce its rights under the lease, being held to have repudiated the lease by the Victorian Civil and Administrative Tribunal (Tribunal). Given the frequent tensions that arise between landlords and tenants over this repeatedly temperamental item of plant in buildings, the Victorian decision sounds a warning to all landlords of commercial property.

    The decision made in October 2018 was in the case of S 3 Sth Melb Pty Ltd v Red Pepper Property Group Pty Ltd. The facts of the case were of particular interest as they involved a series of agreements in relation to the AC made between the parties, the details of which were sequentially altered and revised verbally prior to the final lease documentation being executed. This will feel as familiar territory for those involved in commercial leasing. Minor details are often not compensated for in the initial agreement, or are subject to change due to other circumstances. What tends to remain consistent however through the negotiating process is the fundamental commercial agreement which stipulates who has responsibility or liability.

    The fundamental agreement was a key consideration in this case as well. The AC special condition in the lease ended up being fairly typical. It made the tenant responsible for maintenance and servicing of the AC, however, the landlord was responsible for capital repairs. This is a very common arrangement in self-contained premises where the AC services a single tenant. The AC in this premises unit was old and, despite being refurbished by the landlord at the start of the lease, it performed so poorly that the tenant who was operating a fitness centre eventually lost customers to other competitors. The dispute between the parties dragged on for over 12 months with frequent periods of non-communication. As expected, the tenant relied on the provision of the lease that required the landlord to address repairs of a capital nature whilst the landlord in return argued that the problem fell within the tenant’s maintenance obligations. The Tribunal considered various arguments as to specific repairs and whether they constituted a tenant or landlord responsibility, but ultimately the Tribunal focused on what it deemed a fundamental term of the lease.

    Although the parties eventually agreed to continue with the old (refurbished) AC system, the original agreement, as actually drafted in the Lease, was that the landlord had agreed to install AC to service the premises. This agreement was consistent from the outset and was also documented in a Heads of Agreement, which the Tribunal recognised to be a fundamental agreement between the parties. Therefore by failing to carry out repairs (even disputed repairs) or failing to replace the AC, the landlord was, in the opinion of the Tribunal, actually failing in its contractual duty to provide an AC system which could service the premises and this responsibility was given priority over any failure to maintain by the tenant. It was that failure of a fundamental term of the lease that constituted a repudiation by the landlord. The result was that the tenant could legally walk away from the lease.

    What does all this mean? Even though this was a Victorian decision, the reasoning given by that Tribunal could have implications in the ACT where similar cases are examined. Landlords and agents acting on behalf of landlords will need to exercise caution on how commercial agreements between the parties are represented between parties. Needless to say, standard conditions drafted in leases should not be taken for granted as to their effect and care should be taken to record the specifics of the agreement between the parties. Of equal importance is the conduct of the parties in dealing with any disputes. In most cases a tenant will be of the view that AC is a fundamental component of its ability to conduct its business in a leased premises. Similarly a landlord will expect that the AC will function adequately forever if the tenant maintains it as agreed. The potential for disagreement when a problem occurs is high. Landlords should therefore be explicit as to the extent of their commitment towards AC plant from the outset. Upgrading, replacing or repairing the AC should be treated as a specific consideration with care to identify that the cost of such commitment has been contemplated in the final commercial terms of the lease agreement. Otherwise, the risk should be clearly earmarked as resting with the tenant to accept the AC (or any other specific item or service) in the condition as at the commencement of the lease.

    Further, given the outcome of this case, it would be prudent to obtain legal advice immediately once a dispute arises. The circumstances of each case will always be different and sometimes the drafting in the lease will not always be accommodating. Seeking advice from an experienced lawyer could influence the strategy on how a party approaches and responds to a dispute. It is reasonable to imagine that the landlord in this case envisaged positive prospects of success or a worst case scenario where the AC had to be replaced at its cost. The likelihood of the Tribunal making a finding of repudiation against the landlord for failure to replace the AC system in its entirety and the subsequent loss of the value of the lease probably did not enter into the equation and was undoubtedly unexpected. Therefore, to reduce the risk of the unexpected it may be wiser for affected parties to contact their legal advisers before committing to a course of action.

    Update: On appeal, the Supreme Court of Victoria overturned the Tribunal’s decision.

    The Landlord in this case has been successful in appealing the earlier decision of the Tribunal.  The Supreme Court of Victoria has held that the Tribunal wrongly construed the Landlords obligations under the Lease, specifically the obligation to install an AC unit to service the Premises.  Further, the Supreme Court ruled that the doctrine of repudiation has been misapplied by the Tribunal.

    The Supreme Court’s reasoning again focused on the facts and the drafting in the Lease, highlighting some important points:

    1. The Landlords obligation to install AC to service the Premises was held not to be a continuing obligation.
    1. The Landlords repair obligation (capital repairs) was held not to be an essential term of the Lease.

    The drafting and the manner in which the obligations were expressed were relevant in the Supreme Court’s reasoning.

    Importantly, the Supreme Court’s decision commented on the application of the principles of repudiation, emphasising that a Contract cannot be terminated by a party not willing or able to perform its own obligations under the Contract.  In this case, the Tenant was also in breach for failing to enter into the requisite maintenance contract for the AC.

    If you would like to know more about your obligations and responsibilities as a landlord, please get in touch with George Kordis or reach out to our Real Estate Team.

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  • Stepping Stone Liability: When Business Gets Personal

    Companies are traditionally chosen as the vehicle of choice for operating a business; it is a separate legal entity, with the same rights as a natural person and can incur debt, sue and be sued. It has a ‘corporate veil’ that is designed to limit a shareholder’s and director’s liability – the people are not generally liable for the company’s debts.

    Despite the ‘corporate veil’ enabling people to pursue social and commercial ventures without significant fear of personal liability, company directors nonetheless remain subject to a vast array of duties in their individual capacities; these duties tend to expose the director to a form of personal liability.  The Corporations Act 2001 (Cth) requires directors to comply with fundamental duties of care, and at all times to act in the best interests of their companies.

    Breaches of these directors’ duties can arise in the context of breaches of the law by the company itself giving rise to the notion of ‘stepping stone’ liability where a company contravention leads to the establishment of a director’s individual liability for failing to prevent that contravention.

    Stepping stone liability in practice

    The earlier approaches to stepping stone liability were dealt with in a series of proceedings brought by ASIC against the directors of the James Hardie group of companies (JHIL) where those directors approved the separation of two subsidiaries facing asbestos related liabilities from the group. As part of the separation, JHIL announced on the ASX that there would be funds available to meet present and future asbestos related claims made against the separated companies.

    It was subsequently discovered that this ASX announcement contained misleading statements about the sufficiency of the funds available, thus breaching the ongoing disclosure requirements of the ASX and constituting the first stepping stone. ASIC argued (and the Court subsequently found) that it followed that the directors had breached their duty to act with care and diligence by approving the announcement.

    While this is a straightforward example of stepping stone liability, it is not always this simple.

    Skipping steps: shedding light on the nuances of stepping stone liability

    As the recent case of ASIC v Cassimatis (No 8) [2016] FCA 1023 made clear, it is entirely possible to have one step without the other. For example:

    • the company does not need to have been found to have breached a provision of the Corporations Act or any other law in order for directors to be found liable for a breach of their duties; and
    • even if the company has breached the law, a breach of duty is not presumed. Rather, it requires a consideration as to whether the director has exercised reasonable care, to “prevent a foreseeable risk of harm to the interests of the company”.

    The Cassimatis case concerned the directors of a financial advice company (the defunct Storm Financial Ltd) who had allowed the company to provide inappropriate financial advice to clients without having a reasonable basis to do so in breach of the Corporations Act.

    The Federal Court found Mr and Mrs Cassimatis breached their directors’ duties by permitting, or failing to prevent Storm from providing inappropriate investment advice. In particular the Court found that a reasonable director with the responsibilities of the Cassimatises would have been aware of a strong likelihood of contravention of the law and would have taken precautions to prevent it.

    Then what is required of directors?

    Cassimatis established a ‘balancing act’. Justice Edelman confirmed that the relevant test of whether a director has exercised their duties will require ‘balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question’.[1] Edelman J further clarified that harm encompassed ‘any of the interests of the corporation’ and that the task of risk-benefit balancing required consideration of what a reasonable person would have done in response to the risk in light of the particular circumstances.[2]

    The Cassimatis case is a helpful reminder to company directors that strict compliance with a company’s legal obligations may not always be enough to shield themselves from personal liability, and that they must always exercise their duties honestly, and in the bests interests of the company.

    If you have any questions or concerns about your obligations as a company director, get in touch with our Business law team.

    Written by Lauren Babic with thanks to Bryce Robinson

     

    [1] ASIC v Cassimatis (No 8) [2016] FCA 1023, [465]-[486].

    [2] ASIC v Cassimatis (No 8) [2016] FCA 1023, [480]-[483].

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  • Protecting National Security or Enabling National Intrusion?

    Since its passing on 9 December 2018, controversy has tainted the Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018, primarily centring on the need to balance national security concerns and the right to privacy. Put forward by the Department of Home Affairs, the bill was proposed to keep pace with the increasing use of encrypted communications. It was designed to aid law enforcement and intelligence agencies to combat serious crimes, with an emphasis on “terrorism”. In fulfilling its design, it amends several statutes, all with the aim of empowering these agencies to access encrypted electronic devices that would be considered “private”. The amendments further seek to protect law enforcement and intelligence agencies, and providers from legal action. For the agencies, this is done through amending the Administrative Decisions (Judicial Review) Act 1977 to ensure that the actions carried out under the new legislation are not subject to judicial review. For those assisting law enforcement agencies, the Criminal Code Act 1995 is amended to offer protection from criminal liability, provided the conduct is consistent with the requests.

    While the effect of this legislation has the potential to ripple outwards, it primarily concerns ‘designated communications providers’,[1] which include carriers, carriage service providers, device manufacturers, and software and application providers. Thus, virtually all electronic communications will be open to scrutiny as there won’t appear to be a reason to exclude device or carriage service suppliers.

    The core purpose of this legislation is to create a new scheme that regulates communication providers while allowing them to voluntarily assist intelligence and law enforcement agencies. Yet the legislation empowers these agencies to compel providers to grant them access to encrypted data. There are three mechanisms by which this can occur:

    • Technical assistance requests;
    • Technical assistance notices; or
    • Technical capability notices.

    While the former is a voluntarily action, the latter two are mandatory notices; if a communication provider does not comply with a notice, civil penalty provisions apply (with penalties up to $9,999,990).[2]

    Both technical assistance requests and technical assistance notices involve law enforcement and intelligence agencies asking or compelling communications providers to assist them in accessing encrypted data where they are already capable of such assistance. Technical capability notices, however, involve these agencies compelling communications providers to create a new capability that gives the law enforcement and intelligence agencies access. The latter is the most controversial, and as such involves a few caveats, one being that the notice cannot require the provider to construct a capability that removes electronic protection.[3] In other words, law enforcement and intelligence agencies cannot compel companies to create a built-in ‘backdoor’ to their system.

    Additionally, technical assistance notices and technical capability notices can only be issued if:

    • it is in the interests of national security or
    • it is in the enforcement of criminal law for serious Australian or foreign offences.[4]

    Technical assistance requests can be issued for these reasons and to protect Australia’s national economic wellbeing.

    Moreover, any request or notice can only be issued if:

    • the requirements proposed are reasonable and proportionate;
    • it is practicable to comply; and
    • it is technically feasible to comply.[5]

    Even with the accountability mechanisms described above, concerns still exist about the powers granted to government officials. Scattered throughout the legislation are provisions that enable law enforcement and intelligence agencies to bypass the restrictions “if not practicable”. For example, before issuing technical capability notices it is necessary to provide a written consultation notice to the communication provider, informing them of the proposed notice and inviting them to make submissions to alter the notice.[6] This period must run for at least 28 days.[7] However, section 317W(3) allows this period of consultation to be ignored if it is impractical or if the Attorney-General is ‘satisfied that the technical capability notice should be given as a matter of urgency’.[8]

    Ultimately, this newly passed legislation alters the landscape of Australian cyber security. With more changes potentially on the horizon, it would be prudent for those specifically targeted by these changes to understand their obligations.

    What it means for us, is that we have more reason to remain vigilant as to what, politically, passes for our “national interest”, and also that we have a means of monitoring potential corrupt access and use of not only these powers but the information that is revealed.

    For more information on the Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018, or any questions relating to this article, please contact Mark Love.

    [1] Telecommunications and other Legislation Amendment (Assistance and Access) Act 2018, s 317C.

    [2] Ibid, s 317ZA(3) and 317ZB(1): 47,619 penalty units for a body corporate; 238 penalty units for any other person or entity.

    [3] Ibid, s 317ZGA(1).

    [4] Ibid, s 317A,.317A and s317B. A serious Australian offence is one which carries a penalty of a minimum 3 year imprisonment.

    [5] s 317P (for technical assistance requests); and s 317V (for technical capability notices).

    [6] Ibid, s 317W(1).

    [7] Ibid.

    [8] Ibid, s 317W3(a)and (b).

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