News & Events

  • 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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  • Safety first: last chance to comply with NSW cladding regulations

    Safety first: last chance to comply with NSW cladding regulations

    With the fire to the Melbourne building, Neo200, on 4 February 2019, combustible cladding has again been thrust into focus as a continuing safety risk. Fortunately, no one was injured in the blaze however it is a timely reminder for owners of their responsibilities under the Environmental Planning and Assessment Amendment (Identification of Buildings with External Combustible Cladding) Regulation 2018 (NSW) (the Regulation).

    What buildings does the Regulation apply to?

    The Regulation applies to:

    • residential apartment buildings;
    • other residential buildings, such as hotels, boarding houses, backpacker accommodation and aged care buildings;
    • public buildings, such as cinemas, child care centres and schools; and
    • mixed used buildings, part of which are used for residential purposes or accommodation, which have external combustible cladding.

    External combustible cladding is defined in the Regulation as:

    • any cladding or cladding system comprising metal composite panels, including aluminium, zinc and copper, that is applied to any of the building’s external walls or to any other external area of the building, or
    • any insulated cladding system…that is applied to any of the building’s external walls or to any other external area of the building.

    The Regulation does not apply to buildings which are solely used for retail or commercial purposes or houses.

    What do owners need to do?

    The owner or Owners Corporation must register the building on the NSW Cladding Registration Portal.

    For existing buildings, registration is required by 22 February 2019. For newly constructed buildings, registration must occur within 4 weeks after the building is first occupied. A failure to register will incur a $1,500 fine for individuals or a $3,000 fine for corporations.

    If an owner or Owners Corporation is unsure whether combustible cladding has been applied to the building, they should seek advice from an appropriately qualified building professional.

    Seeking legal advice will ensure that you are aware of your obligations and understand the importance of the cladding regulations. If you have any questions about cladding regulations, please get in touch with Julian Pozza or reach out to our Real Estate Team.

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  • ESSENTIAL GUIDE TO LOCAL GOVERNMENT LAW DEVELOPMENT CONTROL ORDERS UNDER THE EPA ACT

    Essential Guide to Local Government Law: Development Control Orders Under the EPA Act

    Development control orders (orders) are powerful tools for a council to use to deal with compliance issues. Orders are given in accordance with s.9.34 and Schedule 5 of the Environmental Planning and Assessment Act 1979 (the Act), and failure to comply with an order can have significant financial and legal consequences for the recipient.

    This Essential Guide will assist local councils to determine when it is appropriate to give an order, how to give a valid order, and what to do in an emergency.

    When can a council give an order?

    A council has the power to give any order identified in the Table in Schedule 5 of the Act in the circumstances described in that Table. Column 1 of the Table identifies the types of orders a council can give; Column 2 outlines the circumstances in which the various kinds of order can be given; and Column 3 identifies who the order can be given to.

    When should a council give an order?

    A council must determine whether in the individual circumstances of each case it is appropriate to give an order. Some of the things to be considered are:

    • The seriousness and continuing nature of the breach;
    • The impacts of the breach on adjoining owners/occupiers, the general public or the environment;
    • Any hardship to the recipient, including expense and inconvenience – an order must not cause injustice disproportionate to the ends secured by the order;
    • Whether there has been excessive delay by the Council in responding to the breach;
    • The time for compliance with an order, balancing the public interest in bringing about compliance and any hardship for the recipient;
    • Whether an order will, or is likely to, make the recipient or other persons homeless – if so, the council must consider availability of satisfactory alternative accommodation in the locality;
    • Whether the order will affect the heritage significance of the item (if an order is for a heritage item on the State Heritage Register or under order by s.136 of the Heritage Act 1977); and
    • Whether more than one order is to be given to the same recipient, and whether they should be given in the same instrument.

    It is appropriate for a council to give an order – what next?

    The council (or an employee with the appropriate delegation) must first give notice to the person to whom the proposed order is directed of the following:

    1. the intention to give the order
    2. the terms of the proposed order
    3. the proposed time for compliance; and
    4. that the recipient may make representations to the council as to as to why the order should not be given or as to the terms of or period for compliance with the order.

    If the Council ultimately decides to give the order, the terms of the order will need to closely follow the terms of the proposed order set out in this notice. Some care should therefore be taken when drafting the notice to ensure the terms of the proposed order are clear and able to be readily understood by the person to whom it is given.

    The language used and information contained in a notice is very important and will affect the clarity, validity, and enforceability of the proposed order – language used in the notice should be consistent. It is also important that the notice correctly identifies the recipient (making sure that the recipient is a legal person and not, for example, simply a business name), their relationship to the land, why they are being given the notice), and the premises (lot/DP reference and street address).

    The following checklist can assist to ensure a notice (and therefore an order) is drafted correctly:

    1. Explicitly state the intention of the council to give an order to the recipient. Detailed characterisation of how a breach has arisen will often be of assistance for the recipient to understand why a notice is being given:
      • Identify the relevant legislation and, if relevant, environmental planning instrument).
      • What are the relevant statutory provisions giving rise to the alleged breach?
      • How do those provisions apply in the particular circumstances?
      • Clearly identify the actual breach being alleged.
      • If the breach of a consent condition is alleged, clearly identify the actual condition and describe the way in which it is alleged that the condition is not being complied with.
    2. Be specific when drafting the terms of the proposed order:
      • State exactly what it is that the recipient is to do, or refrain from doing, to remedy the breach.
      • Ensure that the recipient will be able to understand what is expected of them to avoid further compliance action.
    3. The proposed time for compliance must be reasonable and clear. Immediate compliance may be required where there is a serious risk to health or safety, or in an emergency. However, if immediate compliance is unnecessary, give real consideration to what will need to be done to comply with the order and how long that is likely to take.
    4. Inform the recipient of their right to make representations, including:
      • what the recipient may make a representation to the council about – i.e. why the order should not be given, the terms of the proposed order or the period for compliance with it;
      • to whom representations might be made – this may be the Council itself, a Council committee or a nominated person at the Council;
      • the date by which any representation is to be made (this needs to be a date that is reasonable in the circumstances); and
      • that a legal practitioner or agent may make the representations on their behalf.

    For certain kinds of orders, notice must also be given to other people:

    1. If a heritage item will be affected by the proposed order, the council must give notice of the proposed order to the Heritage Council and consider any submissions it makes before deciding whether to give the order.
    2. If a council proposes to give an order in relation to development for which another person is the consent authority, the council must give the other person notice of its intention to give the order.
    3. If a council proposes to give an order in relation to building work or subdivision work for which the council is not the certifier, the council must give the principal certifier notice of its intention to give the order.

    How is a notice served on the recipient?

    A notice, and any subsequent order, must be served using one of the methods prescribed in s.10.11 of the Act. Service must be effected correctly for the notice and any subsequent order to be enforceable.

    Giving an order

    When a council gives a notice expressing its intention to give an order, sometimes the recipient will remedy the breach of their own accord. If the breach has been remedied, it would be inappropriate and possibly unlawful for the Council to proceed to give the order.

    If the recipient of the notice makes representations to the council or nominated person during the time period detailed in the notice, the council must consider those representations before determining whether to give the proposed order.  A failure to consider any such representations may invalidate a subsequent order, so it is important to make sure a record is made of how the representations have been taken into account. It is also good practice to set out the consideration of the representations in the body of any subsequent order. Having considered any representations, the council may proceed to give the recipient an order if it is still appropriate to do so (either in the terms proposed in the notice, or amended), or not give an order.

    If given, an order must state that the recipient has the right to appeal against the order to the Land and Environment Court of NSW (the LEC) within 28 days of the date of service of the order.

    Reasons for giving the order must also be provided to the recipient at the same time (either within the order itself or in an accompanying document), except in an emergency. A council should ensure that the reasons are not a mere restatement of the circumstances specified in the Table in Schedule 5 in which the order may be given. The reasons should be sufficient to enable the recipient to be able to understand why the order has been given and to decide whether to accept the order or to appeal.

    An order takes effect from the time of service, or a later time if it is specified in the order itself. Methods of service are set out in s.10.11 of the Act.

    The situation is an emergency – what can be done?

    A council may proceed straight to giving an order when it is expressed to be given in an emergency. A number of requirements are dispensed with or are different in an emergency:

    • no requirement to give a notice;
    • no requirement for a council to hear or consider representations;
    • the time for compliance in the order can be “immediate”; and
    • reasons may be given the next working day.

    There is no definition of an “emergency” under the Act. While a council has some discretion to decide whether an emergency exists, its decision needs to be justifiable.  To be an emergency, there will usually be harm of some kind if the order is not given.

    For further information or assistance with orders, please contact Alan Bradbury and the Local Government & Planning team.

    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.

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  • Stating the obvious, why you need an ACT Disclosure Statement

    Stating the obvious, why you need an ACT Disclosure Statement

    The Leases (Commercial and Retail) Act 2001 (ACT) states that a Disclosure Statement must be issued to a tenant but by who, when and what information needs to be included?

    Who?

    For a new lease, the landlord must give the tenant a Disclosure Statement. Where there is an assignment of lease, the tenant must provide a copy of the Disclosure Statement (issued by the landlord) to the assignee.

    Where the tenant intends to exercise an option to renew and the tenant requests a Disclosure Statement, the landlord must give the tenant a Disclosure Statement. If the tenant can’t find their copy, they can ask the landlord for a copy to give to the potential assignee or subtenant.

    What is it?

    A summary of the terms of the lease and a statement as to the outgoings to be recovered from the tenant (if any).

    It is important to note that the Leases Act doesn’t just apply to a ‘lease’, it also applies to some licences meaning that a landlord may be required to provide a Disclosure Statement to a licensee.

    When?

    A landlord must provide the Disclosure Statement at least 14 days prior to the lease being entered into. That is, upon execution of the lease by the parties or the tenant entering into possession of the premises (whichever is earlier).

    If a tenant exercises an option to renew a lease and requests a Disclosure Statement, a landlord must provide the Disclosure Statement within 14 days of the tenant’s request.

    What information should it include?

    A Disclosure Statement must be in the prescribed form, state the landlord’s accounting period (if not a financial year) and contain a written estimate of the outgoings to be recovered from the tenant. It is particularly important for the nature of all outgoings to be stated as they may not otherwise be recoverable from the tenant.

    Where the landlord becomes aware of a significant change to the information contained in the Disclosure Statement, the landlord must tell the tenant as soon as possible in writing.

    What happens if a Disclosure Statement is not provided?

    If the landlord is required to provide a Disclosure Statement and fails to do so within the required timeframes, the tenant may terminate the lease within the first three (3) months of the term. In some circumstances though, the landlord may not be able to meet those time frames and in those cases the landlord should request that the tenant waive the time limits. This requires the tenant to obtain independent legal advice and have a “Section 30 Certificate” signed by a solicitor.

    In summary

    The Disclosure Statement is an important part of the lease agreement and the landlord should consider the information to be included in the Disclosure Statement carefully. A failure to state certain information (such as the nature of the outgoings) or state information correctly can lead to serious financial consequences.

    Seeking legal advice will ensure that you are aware of your obligations and understand the importance of the Disclosure Statement. If you have any questions about leasing, please get in touch with Benjamin GradySandy Meaney or reach out to our Real Estate Team.

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  • contract terms

    Unfair Contract Terms and the Banking Royal Commission: Business Breakfast Club February Summary

    This month at Business Breakfast Club, Lauren Babic of BAL Lawyers discussed unfair contract terms with a specific focus on the remedies available for small businesses and consumers, and the Australian Competition and Consumer Commission’s (ACCC) approach to unfair contract terms. We also had a roundtable discussion about the recent report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

    Unfair Contract Terms and Remedies Available

    Terms that allow one party to unilaterally change the contract without the consent of the other party should be a warning sign that the terms may be unfair. We looked at the case of Australian Competition and Consumer Commission v Servcorp Limited [2018] FCA 1044 and specifically the contracts in that case to identify any unfair terms. The clauses the Court considered unfair related to limiting the performance of the contract, no reciprocal indemnity clauses, automatic renewal clauses, and terminating the contract for convenience without giving the other party any equal rights which might balance the relationship.

    Once a term is deemed to be unfair, that term becomes void and is no longer binding on the parties. The rest of the contract will continue to operate without the unfair term. A party who seeks to impose or enforce an unfair term may be held to be engaging in unconscionable conduct or misleading and deceptive conduct.

    ACCC’s Approach

    In 2016, the ACCC conducted a review of standard form contracts in a number of industries. Of the contracts reviewed, the most commonly occurring problems were terms that allowed the contract provider to unilaterally vary all terms, broad and unreasonable power to protect themselves against loss or damage, and an unreasonable ability to terminate the contract.

    If you find an unfair term in a contract to which you are a party, the ACCC recommends that you:

    1. negotiate with the contract provider to amend the unfair term;
    1. contact the ACCC or the relevant state or territory fair trading agency;
    1. seek legal advice;
    1. seek dispute resolution assistance; or
    1. seek a ruling from a court or tribunal that the term is unfair.

    For more information, please contact Lauren Babic. The next Business Breakfast Club will be held on 8 March 2019 on Undue Influence and Unconscionable Conduct: What Thorne v Kennedy means for business contracts. If you would like to attend, please contact us.

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  • The Transfer Balance Cap and CSSPSS Pensions

    The Transfer Balance Cap and CSS/PSS Pensions

    It has been almost 18 months (from 1 July 2017) since the Federal Government imposed a $1.6 million cap on the total amount that a member can transfer into the tax-free pension phase (known as the “Transfer Balance Cap”).

    Now that some time has passed, certain irregularities have been brought to light with regard to the treatment of reversionary Commonwealth Superannuation Scheme (CSS) and Public Sector Superannuation Scheme (PSS) pensions and the Transfer Balance Cap.

    This article looks at the current law regarding the Transfer Balance Cap generally and how the Transfer Balance Cap is affected when a “reversionary pensioner” is in receipt of a reversionary CSS or PSS pension. Some of the principles raised in this article will also apply to other defined benefit pension but for this article, we will examine only the CSS and PSS scheme.

    The Transfer Balance Cap System – a Recap

    The Transfer Balance Cap system operates via a “credits and debits” system – a credit is an assessment against the cap and a debit arises to reduce the assessment against the cap.

    The following “ledger” provides some examples of credits and debits against the Transfer Balance Cap:

    Transfer Balance Cap Ledger – $1.6 Million
    Credit
    (assessment against cap)
    Debit
    (reduction of assessment against cap)
    • When an income stream commences (from 1 July 2017)
    • The value of super interest supporting income streams on 30 June 2017
    • When person has other types of superannuation income streams (eg Transition to Retirement income stream) and they either reach 65 years or notify the fund trustee that they have satisfied another condition of release
    • Commutations (or lump sums) taken from income stream
    • Adjustments to meet family law settlements
    • “Replenishment debits” approved by the ATO. Replenishment debits apply in limited circumstances where the value of an income stream has been impacted by bankruptcy, fraud or dishonest

     

    Division 294 of the Income Tax Assessment Act 1997 (“The Act“) deals with the calculation of Transfer Balance Caps and section 294-25 of the Act provides the general rule for credits to the Transfer Balance Account.

    It is important to note that investment gains and losses do not alter the transfer balance cap. Income stream payments also will not change the transfer balance cap either.

    Defined Benefit Pensions

    CSS and PSS pensions are both examples of defined benefit pensions – that is, a type of pension plan based on a predetermined formula.

    Defined benefit pensions have special rules which recognise their non-commutable nature. These types of pensions receive a credit to the Transfer Balance Cap by their “Special Value, which is determined by multiplying the “annual entitlement” by a factor of 16.

    An example

    Consider the case of Joseph and Mary. Joseph becomes entitled to a CSS pension of $100,000 per annum as at 1 July 2018 when he permanently retires from the Public Service and claims his benefits.

    Joseph will have reached his Transfer Balance Cap limit ($100,000 x 16 = $1.6 million).  One of the great benefits of the CSS is that Joseph’s pension is indexed and will increase every 6 months. In January 2019, the CSS/PSS indexed pension increase was set at 0.8%[1]. Fortunately for Joseph, any subsequent increases to his defined benefit pension will not affect his Transfer Balance Cap.

    Reversionary Pension Recipient – Mary

    In the example above, what happens to Mary and her Transfer Balance Cap if Joseph subsequently dies?

    The rules of the CSS entitle Mary to a reversionary pension equating to 67% of Joseph’s indexed pension at the time of his death if she satisfies the definition of an “eligible spouse”.  Let us assume at the time of Joseph’s death, his CSS pension has been indexed such that the pension as at the date of his death is valued at $110,000 per annum. As we saw above, the subsequent indexation to Joseph’s pension would not affect his Transfer Balance Cap.

    Assuming Mary is entitled to receive 67% of Joseph’s CSS pension value as at the date of his death, what would be the credit to Mary’s Transfer Balance Cap. Would it be (a) or (b) below:

    1. a credit of $1,179,200 (being 16 x (67% of $110,000) – keeping Mary is within her Transfer Balanced Cap allowance
    2. a credit of $1,760,000 (being 16 x 110,000) – meaning Mary has exceeded her Transfer Balance Cap allowance

    From a logical point of view, one would assume the answer is (a) – the credit to Mary’s Transfer Balance Cap would be based on the value of the reversionary pension she receives.

    Reversionary Benefits paid to a Spouse

    Unfortunately the torturous and arcane provisions of the Superannuation Act 1976 (and in particular, section 94) make more than one interpretation of the Special Value possible in the above example. The Commonwealth Superannuation Corporation have adopted an interpretation which severely prejudices Reversionary Pension recipients.

    That view is as follows – based on section 94, the spouse of a deceased pensioner is entitled to receive the first 7 pension payments at the original pension rate (that is, at the same rate the deceased pensioner was receiving). As we saw above, the “Special Value” of a superannuation interest is determined by multiplying the “annual entitlement by a factor of 16. The annual entitlement is worked out taking the “first superannuation income stream” to which the recipient is entitled.

    The first superannuation income stream the spouse is entitled to receive is at the original pension rate and as a result, the spouse’s Transfer Balance Cap is assessed as if the spouse was in receipt of the original pension rate. No allowance is made for the fact that after the after 7 pension payments, the spouse’s pension is deceased.

    In the above example, Mary’s Transfer Balance Cap would be assessed on her receiving a pension of $110,000 per annum, meaning she would have exceeded her Transfer Balance Cap allowance.

    Due to increased queries from the public and financial advisors alike, the Commonwealth Superannuation Corporation has released a Fact Sheet which outlines the interpretation of the current rules regarding reversionary pensions and their Special Value. The Fact Sheet can be found here (document CSF33).

    Recent Media Release

    Thankfully, the Federal Government has recognised the unintended consequence arising from the introduction of the Transfer Balance Cap on reversionary defined benefit pensions.

    On 31 October 2018 Assistant Treasurer Stuart Robert issued a Media Release titled “Retirement income covenant and ensuring a fair and effective superannuation system”  which can be found here. Among other things, the Media Release mentioned the following:

    Finally, the valuation of defined benefit pensions under the transfer balance cap will be amended to reflect when pensions are permanently reduced following an initial higher payment, such as for some public sector defined benefit reversionary pensions or reclassification of invalidity pensions. This will ensure that holders of these pensions are not disadvantaged when reductions occur”

    While the Media Release is a promising step in the right direction, until legislative changes are drafted and come into force, the current law stands to assess reversionary pensioners unfairly.

    Written by Golnar Nekoee, Director, Wills and Estate Planning

     

    [1] (following the Australian Bureau of Statistics release of the CPI data for the Section 2018 quarter)

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