In our experience many companies continue to execute commercial documents incorrectly or not at all. This potentially has implications if a party wishes to rely upon the terms of a contract for example for payment, enforcement, confidentiality, breach and termination.
The commonly accepted methods of executing a document, including a deed at common law, involve the use of the common seal and signature by the directors and secretary, or by the method which is prescribed by the company’s constitution.
Execution of deeds
The prime law governing the execution of deeds by companies is section 127 of the Corporations Act 2001 (2001 Act) and section 10 of the Property Law Act 1969 (1969 Act). The rules are that a deed may be validly executed:
- by a company under seal with a signature of a director and a secretary (section 10 of the 1969 Act and section 127(2) of the 2001 Act); or
- by two directors of the company, or a director and a company secretary (section 127(1) of the 2001 Act); or
- in the case of a sole director company then that director or director/company secretary alone can sign the deed, and the document must be expressed to be a deed (section 127(1) of the 2001 Act).
Execution of other agreements
Section 127 of the 2001 Act also applies to the execution of documents other than deeds. Accordingly an agreement may be validly executed:
- by a company under seal with a signature of a director and a secretary (section 127(2) of the 2001 Act); or
- by two directors of the company, or a director and a company secretary (section 127(1) of the 2001 Act); or
- in the case of a sole director company then that director or director/company secretary alone can sign the agreement, and the document must be expressed to be a deed (section 127(1) of the 2001 Act).
What are the consequences of failing to execute a deed or agreement properly?
An outsider dealing with the company may assume that a deed or agreement has been duly executed by the company if it meets the requirements set out above, as applicable.
However, where a company fails to comply with these requirements, the legal effect is, technically speaking, that there is no contract. Statute law is silent on whether the defaulting party or parties may be allowed to escape from being bound by the contract. It would appear that this would be a decision for a court to determine, based on the facts. Section 127(4) of the 2001 Act, however, makes it clear that section 127 does not limit the ways in which a company may execute a document.
Parties dealing with a company which has, for some reason, failed to properly execute a deed, may find themselves taking comfort from section 127(4). This is because case law suggests that the section may cover the situation where, by virtue of some act, the contract is binding on the company. Hence, a contract not properly executed may nevertheless be treated as a valid and binding contract because the company had represented to an outsider that the contract had been validly executed. In that event the rules of estoppel would operate so that the company would be prevented from denying that the document was binding: Prime Constructions v Westbridge Investments (2004) 22 ACLC 1.
For further information or advice on whether your company contracts are validly executed and on associated risks or enforceability, please contact Paul Kordic, Principal, by email at pkordic@talbotolivier.com.au or Louis van Aardt, Senior Associate, by email at Lvanaardt@talbotolivier.com.au
As long ago as 1641, Judge Dodderidge noted that there is almost no-one who has not been an executor, who will not ever be an executor, who will never need an executor or who will not have a legacy paid to them by an executor.
If it is almost inevitable that someone will be, need or receive something from an executor, you think we’d know a lot more about what an executor does. Unfortunately, for many people, the first time they have to consider the duties of an executor is at the same time they are grappling with the emotional turmoil following the death of a loved one.
The first steps
While it is an executor’s duty to organise the funeral, this is generally done by, or in conjunction with, the immediate family of the deceased. The necessary funeral expenses are allowed to be paid prior to any other debts or charges the deceased may have had. An executor does need to be aware that the funeral must be in keeping with the size of the estate – it would be a breach of the executor’s duties to arrange an extravagant funeral that exhausted the deceased’s estate, leaving no funds to meet debts or legacies due to be paid to beneficiaries under the will.
Once the funeral has been conducted, the executor needs to start the process of winding up the estate. The first step in most cases is to apply for a grant of probate. This is the process whereby it is proved that the Will is the last and valid Will of the deceased. As a part of this application, the executor will need to state all of the movable and immovable assets held by the deceased in his or her own name as well as the deceased’s own liabilities, together with respective values. The kinds of immovable assets to be considered include real estate and land, while other assets such as personal possessions, motor vehicles, shares and bank accounts are considered movable. If you are unsure about the value of any asset, getting an expert valuation may be very useful. For liabilities, consider mortgages, loans, credit cards and small debts such as telephone and utility bills.
Example
Jim and Betty have been married for 35 years. Jim recently passed away. He and Betty owned a house as joint tenants and had a joint bank account. They also jointly owned all the furniture and household effects. Jim owned $500,000 worth of Wesfarmers shares and a car which was registered in his name. It is only the shares and car that need to be included in the grant of probate application as these are held solely in Jim’s name.
To obtain a grant of probate, the executor, also called the applicant and the deponent in this part of the process, makes an application to the Supreme Court. Because, in Jim’s and Betty’s case, Jim’s Wesfarmers shares cannot be administered until a probate is granted, it may be worth considering legal assistance with this step because the Supreme Court does have fees for making an application that may not be refundable if a serious mistake is made.
To accompany the application, you will need:
- The original Will and, if there are any, any original codicils;
- The original death certificate and a copy if you want the original returned; and
- An affidavit stating whether or not the deceased married or divorced after the Will was executed.
You will also need to provide the full names and current residential addresses for the witnesses to the Will and any codicils. If you cannot locate the witnesses, you will need to state what you have done to locate the witnesses. This is another area where legal assistance can prove useful.
Administering the estate
The executor should start keeping detailed records of all steps taken in the administration of the estate. Expenses incurred in administering the estate such as the costs of selling assets can be met by the estate. As the executor will need to account to the beneficiaries for all of the estate’s funds, a prudent executor will keep track of all expenditure and income so that any questions the beneficiaries have can be easily answered. An executor is in a similar position as a trustee and as such has a duty to perform the executor’s duties as an ordinary, prudent business person would.
An important consideration at this stage is protection of the assets. An executor takes responsibility for the deceased’s assets so it is very important to ensure that those assets are insured – an executor could end up personally liable to the beneficiaries if those assets are destroyed and insurance has not been renewed!
While there is no death duty payable in Australia, there may be outstanding taxation owed by the deceased. A taxation return will need to be filed with the Australian Taxation Office. If money is owed, it is to be paid out of the estate, and any refund belongs to the estate.
After the funeral and expenses relating to obtaining the grant of probate are met, the executor will need to pay all debts and other liabilities of the deceased. Not all of the deceased’s assets will be available to the estate to satisfy the estate’s debts. For example, if the deceased owned real estate as a joint tenant, then the surviving joint tenant will own the whole of the real estate under the survivorship provisions. Life insurance and superannuation benefits may also be in a protected position. If they are subject to a binding nomination (other than to the estate of the policy or fund holder), they will not available to the estate to satisfy the debts.
Unless an executor is certain about the deceased’s debts, it would be prudent to advertise in a suitable newspaper for any of the deceased’s creditors to come forward to advise the executor of any debts. If an executor does advertise and pays only those debts of which there is notice, the executor can distribute the estate knowing that he or she will not be personally liable for any other estate debts that are subsequently revealed.
In order to meet the estate’s debts, it may be necessary to sell some of the estate’s assets or for the estate to borrow funds. If assets are to be sold, it is important that the executor acts responsibly to ensure that the assets are sold at their market value. Any sale of assets will need to comply with the appropriate processes so expert assistance may be useful at this stage.
Once the debts are paid and there are no known challenges to the Will, the assets can be distributed to the beneficiaries. Gifts under a Will may be specific or general. A specific gift is one that is described in the Will and can clearly be identified as separate from the rest of the estate such as “my piano”, “the grandfather clock in the hallway” or “my 500 preference shares in XYZ Ltd”. By contrast, a general gift is something which can be provided from the estate such as “$10,000 to Mary”. After all other legacies are set aside or provided for, and the liabilities of the estate are met, the remainder of the estate, or residue, can be distributed to the residuary beneficiaries.
When legal advice should be sought
- If an executor considers that the task of administering the estate may prove overwhelming, the cost of using a solicitor to administer the estate instead would be a worthwhile expense and reasonable legal costs can be paid from the estate funds.
- If an executor feels under pressure from one or more of the beneficiaries to deal with the estate in a particular way, engaging a “neutral” solicitor may ensure that each beneficiary feels they are being dealt with fairly.
- If the estate is particularly complex, such as an estate that involves the deceased’s business, or a family trust.
- If it seems that the estate might be insolvent, then the executor should get legal advice as there may be special provisions under federal bankruptcy legislation that applies to the estate.
- If the executor is aware that the deceased has left someone out of the Will who might be expected to be a beneficiary, such as the deceased’s child or de facto spouse, then it is possible that the excluded person might make a claim against the estate under the Inheritance (Family and Dependants Provision) Act. It may be prudent to seek legal advice to ensure that the estate is able to defend such an action.
Dementia is a general term that is used to describe a group of illnesses which result in the progressive decline in a person’s mental capacity. In Australia, dementia ranks as the fourth leading cause of death among the population aged 65 years and over and the risk of being diagnosed with dementia significantly increases as we age.
Dementia affects estate planning and estate administration in various ways.
With respect to estate planning, although a client is generally presumed to have capacity, having dementia rebuts this presumption and can make estate planning very difficult. In cases where a client is suffering from dementia or where an estate planning lawyer suspects a client might be suffering from dementia, as with all estate planning, an estate planning lawyer should consider carefully whether the client has testamentary capacity. Whether or not a client has testamentary capacity is a legal question, but medical evidence is highly relevant.
Among other factors, the following matters should be considered when assessing a person’s testamentary capacity:
- whether or not the client understands the nature of making a Will and the effect of the document;
- whether the client knows the nature and extent of assets of which he or she is disposing under the Will;
- whether the client understands the “moral” claims which he or she should consider when leaving his or her estate, for instance, the claims of his or her spouse or children when deciding who should benefit from the estate. A person does not necessarily need to leave the estate to these individuals, but the individual should be able to show that consideration has been given to these individuals and, ideally, to provide an explanation as to the reasons for what might be regarded as potentially unusual estate planning choices; and
- whether the person could be suffering from any delusions.
If a person who suffers from dementia wishes to make a Will, and is able to pass the legal test, then it is prudent for his or her estate planning lawyer to contact that person’s doctor to request a medical opinion as to whether or not, in the doctor’s opinion, the client has the necessary capacity to make a Will. However, even if the client passes the test and obtains positive medical evidence, there is still no guarantee that having such evidence in place would prevent the Court from later declaring the Will to be invalid, but the evidence is likely to go some way towards supporting the validity of the Will.
The existence of dementia on the death certificate as a contributory cause of death can lead to problems for the executor in obtaining a grant of Probate of the Will as, unfortunately, doctors often fail to specify for how long a person was suffering from dementia. A Will is only valid if, amongst many other things, a person had the relevant level of testamentary “capacity” on the date on which he or she gave instructions to make and then sign the Will.
When considering the contents of an application for Probate of a Will where dementia appears on the death certificate, even if it is only as a contributory cause, third party evidence from both the witnesses to the Will and from the deceased’s general medical practitioner will often be required by the Supreme Court to support the contention that the Will is valid.
For more information on this matter or estate planning generally, please call either Sarah Walton (direct line 9420 7166) or Rob Durey (direct line 9420 7105).
You know who you are. Your family know who you are. So why would your estate planning lawyer require any clarification as to who you are?
From the perspective of estate planning/estate administration, potential problems may arise when people hold assets in different names; for instance, where an individual has changed his or her name as a result of a divorce, marriage or because of a personal preference.
Whilst the individual and the individual’s family may well be aware of the person’s not so “secret” identities, banks, share registries and other asset holding organisations may not be.
Accordingly, problems may arise when it comes to administering a person’s estate and either Letters of Administration or, alternatively, probate of a person’s Will is granted in only 1 or 2 names as the relevant organisations might not know the deceased by that name or names. Because copies of these Supreme Court-issued documents are often required by organisations before releasing a person’s assets, it would make the administration of an estate much more straightforward if the name under which the person holds the asset marries up with the name appearing on the Court-issued document.
To avoid such an issue, before making a Will, it is worthwhile always double checking in what name you hold assets and, if necessary, amending the title to these assets to your correct legal name. Alternatively, raise the fact that you go by another name, or indeed several names, with your estate planning lawyer, so that he or she can make reference to these names in your Will.
When considering what is an alternative name, the presence or absence of a middle name is not normally treated as an alias, nor is the use of a diminutive i.e. if a person is known by the name Sam and his full name is Samuel.
For the purpose of administering an estate, if it becomes apparent that an individual holds assets in several names, it is prudent to apply for a grant of Probate of a person’s Will or Letters of Administration in all of the individual’s names.
For more information on this matter or estate planning generally, please call either Sarah Walton (direct line 9420 7166) or Rob Durey (direct line 9420 7105).
Second and third marriages and two or three long term de facto relationships are becoming more common in today’s society. With the increase in the number of blended families and multiple spouses, “life interests” are often seen as a method of providing a place to live for the current spouse while retaining the actual asset for the benefit of the children from a previous marriage.
“Life interests”, “life tenancies” or “life estates” may be created in personal or real property. It is most commonly used as a term to describe an interest in property for the term of a person’s lifetime.
Generally, the life tenant will have a right to possess and enjoy an asset for the duration of his or her lifetime or until he or she violates a condition of the tenancy. Once the life tenant dies or violates the relevant condition, the ownership of the asset is transferred to the “remaindermen”, who are those persons who are entitled to the ownership of the asset after the life tenant’s death.
The terms of the life interest are commonly set out in a person’s Will or in a deed. Overall, life interests are often seen as a good way of allowing a party to provide for his or her current spouse, via the life interest, while preserving capital for a future generation.
In addition, life interests appear to becoming more popular as a result of more people buying property as tenants in common – that is, each party owns a distinct share (eg 50% or 30%) which he or she can “gift” under his or her own respective Wills. Unlike a joint tenancy, this distinct share does not pass automatically via survivorship to the other owner upon the first owner’s death.
However, life interests are not something that should be entered into lightly and careful thought should be given to a number of aspects of a life interest. The “mechanics” of establishing the life tenancy are fraught with potential difficulties.
For instance:
(a) who should be the legal owner of the property during the currency of the life tenancy? Should it be the executors rather than the life tenant? Should the life tenant be one of the executors of the Will?
(b) what happens if the life tenant needs to sell the property (let’s say, to go into a nursing home)? Can the life tenant (or the executor of the Will on the life tenant’s behalf) use part of the proceeds towards payment of the residential care home bond or would the life tenancy be deemed to terminate?
(c) does the life tenant have a mere right of residency in the property only or does the life tenant have a “real” life tenancy which allows he or she to enjoy all of the fruits of the tenancy, including receiving the net income received from the property by leasing it to a third party if he or she is not able to, or does not wish to, reside any longer in the property?
(d) can the life tenant (or the executor on the life tenant’s behalf) sell the property to purchase a smaller and more manageable property? If so, what happens to any excess funds?
(e) who is to pay for the upkeep and maintenance of the property, in particular, careful thought should be given to whether or not the deceased’s estate (generally, the residuary estate) is to pay for any of the rates and taxes or bills associated with the property. Should there be a separate fund in the Will to pay for these contingencies?; and
(f) are the chattels (personal possessions) in the property to form part of the life tenant’s interest and will items of specific value, such as family antiques, remain in the property?
All theses issues must be considered and the consequences of each decision considered carefully when considering whether to include a life interest or life estate in a Will.
Unfortunately, life interests have a number of serious disadvantages associated with them, including that a life interest can lead to longstanding frustrations between the life tenant and the remaindermen. Life interests can also create considerable uncertainty, in that the remaindermen may never know when they may ultimately receive the benefit of the asset. Life interests may often also add costs and delays to the finalisation of the administration of the estate. Further, life interests can often cause conflicts between the life tenant and remaindermen if the persons who will ultimately receive the property feel it is not being maintained adequately by the life tenant.
The potential negative capital gains tax consequences of life interests should not be overlooked. Typically, the general tax position is that the estate will be entitled to the main residence exemption if the property was the deceased’s home and the property is sold and settlement of the sale of the property takes place within 2 years from the date of the deceased’s death. However, a life tenancy significantly complicates this position and the position becomes even more complicated if the life tenant decides during his or her lifetime to surrender his or her interest in the property and the life tenant and the remaindermen decide it would be best to sell the property. In both cases, significant capital gains tax consequences may flow from a disposal of the property.
Overall, life interests should never be seen as an easy answer to a complex estate planning situation. Whether or not a life interest is appropriate to your circumstances, and the potential repercussions of a life interest, should always be carefully considered by your estate planning lawyer.
For further information please contact our Principal in charge of Estate Planning, Rob Durey at rdurey@talbotolivier.com.au or Sarah Walton at swalton@talbotolivier.com.au .
After several weeks of hearings, on 4 February 2010, the Federal Court handed down a landmark decision concerning internet piracy and the liability of iiNet, an Internet Service Provider to the film industry (iiNet Decision).
Justice Cowdroy of the Federal Court decided that iiNet did not authorise copyright infringement on its network, despite finding that iiNet’s customers had downloaded pirated material.
Facts
For a more detailed background of the case please see our previous article by clicking here.
In the proceedings, AFACT, (on behalf of the film and television studios), alleged that iiNet had authorised copyright infringement by failing to take reasonable steps to prevent sharing and downloading of movies and television shows via the BitTorrent system.
AFACT had collected evidence (whilst posing as an iiNet customer) showing that iiNet’s customers were using the BitTorrent system to download copyrighted movies and television programmes. AFACT sent multiple emails to iiNet informing it of the copyright infringement and asked it to take steps to prevent its customers from continuing to download such material. AFACT’s notices also required iiNet to cancel its infringing customers’ subscriptions. iiNet refused to comply with AFACT’s requests and in fact did not take any steps at all to stop the infringing conduct.
Decision
The Court found that the conduct of iiNet’s individual customers in downloading the pirated material amounted to copyright infringement. However, the critical question was:- did iiNet authorise the copyright infringement of these iiNet customers by failing to take any steps to stop that infringing conduct?
Under the Copyright Act 1968 (Copyright Act) a person who authorises the infringement of copyright is treated as if they have infringed copyright directly.
The Court commented that while iiNet had knowledge of the infringements occurring, and it did not act to stop them, that fact did not necessarily mean that it had authorised those infringements.
In deciding whether iiNet had authorised the infringement, the Court considered the following:
- the distinction between providing the “means” of infringement in contrast to providing merely a precondition to infringement occurring;
- the power to prevent the infringements; and
- the extent to which iiNet approved the infringement.
The Court distinguished providing the “means” of infringement, such as a website dedicated to peer-to-peer file sharing (such as in Cooper) or a series of photocopying machines, which could amount to authorisation, with providing a precondition to the infringement occurring. It found that merely providing access to the Internet did not amount to providing the “means” of infringement. It found that the “means” of infringement was the use of the BitTorrent system and iiNet had no control over such use.
The Court considered iiNet’s power to prevent the infringements and because iiNet had no control over the BitTorrent system itself, it found that the measures requested in the AFACT notices would not, if iiNet had taken those measures, have been considered to be a relevant power to prevent the infringement nor would they be considered reasonable steps to prevent it.
Consequently, the Court found that iiNet, by doing no more than provide the Internet to its customers could not be seen to be approving the infringement. The Court again compared the current circumstance with those set out in the Cooper and Kazaa decisions where the parties intended copyright infringements to occur.
Rather helpfully, although not required to do so, the Court also considered the following issues:
- Telco defence: Under the Telecommunications Act (Telco Act), ISPs, such as iiNet, must protect the confidentiality of information of its customers. iiNet argued that if it had adhered to AFACT’s requests it would have breached the Telco Act. The Court disagreed with iiNet and found that the information could be disclosed in accordance with one of the exceptions to the Telco Act.
- Safe harbour provisions for repeat infringers:
(a) Under the Copyright Act, if a service provider, such as iiNet satisfies certain conditions, the Court cannot impose damages, account of profits or other monetary relief against that provider (Safe Harbour provisions).
(b) In order to take advantage of the Safe Harbour provisions, the service provider must have a repeat infringer policy. Such a policy was in dispute and AFACT argued that iiNet did not have such a policy.
(c) The Court found iiNet’s policy of requiring a Court to find that an infringer had repeatedly infringed copyright was appropriate in this case and formed the basis of a repeat infringer policy in the context of the Safe Harbour provisions.
(d) Therefore, had the Court found that iiNet had authorised the infringement, it would have been able to rely on the Safe Harbour provisions to reduce its liability.
Practical Implications
This is a significant development in the decisions concerning internet piracy and copyright infringement. Importantly, the Court has confirmed that there is no legal obligation or duty on any person to protect the copyright of a third party. The extent of the obligation is a legal prohibition on doing an act comprised in the copyright or authorising another to do that copyright infringing act.
In addition, it is one of only few Australian decisions to have considered the impact of the Safe Harbour provisions. Although the comments do not form part of the Court’s decision, it will be useful as a starting point to achieve compliance with those provisions.
Future
Whilst the Court recognised the legitimate interests of the industry to prevent what it acknowledged was widespread infringement through the use of the BitTorrent system, this interest does not make ISPs, such as iiNet, responsible for protecting and enforcing the industry’s rights.
Despite the comprehensive judgement, we expect that this matter has only just begun. It is likely, that AFACT (on behalf of the film and television studios) will appeal the decision to the Full Federal Court.
Senator Stephen Conroy’s recent comments may also increase the chance of an appeal by AFACT, as he would prefer that the ISPs and the movie industry have discussions rather than introducing new laws regarding illegal file sharing. A full report of Senator Conroy’s comments is available by clicking here.
The decision is no doubt a significant development in clarifying the law as it relates to ISPs. However, for all the individuals who may think this decision gives them free reign to download as much copyrighted material as possible, they should consider the recent Australian who was fined $1.5million in damages and ordered to pay $100,000 in legal costs for illegally downloading from and uploading to, the Internet, a popular game for the Nintendo Wii. It is important to note that the infringer here went beyond a mere downloader when he uploaded the game to the Internet for download using the BitTorrent system. A full report of the story is available by clicking here.
In this case, the Victorian Court of Appeal considered a mortgagee’s statutory duty[1] to act in good faith and have regard to the interests of the mortgagor in exercising its power of sale. The statutory principles regulating a mortgagee’s power of sale are broadly consistent with the common law, and the case provides general guidance to mortgagees when exercising its power on a mortgagor’s default.
Facts
The mortgagee sold the property to an employee of the mortgagee’s solicitors for $360,000 in April 2006. The property had been valued in March 2006 at $350,000. The mortgagee advertised the property in newspapers and on the internet. But instead of sale by auction as recommended by the valuer and agents, the property was disposed of by private sale to the employee.
The mortgagor brought an action against the mortgagee and the purchaser seeking to set aside the sale and claiming damages from the mortgagee for breach of its duty to take reasonable care in selling the property at the best price which was reasonably to be obtained. The mortgagor provided evidence from two valuers, fixing the market value of the property at $415,000 and $420,000.
The question is, did the mortgagee act reasonably in relying on its valuation in March 2006 ($360,000) by selling the property to an associated party?
Decision
The trial judge held that, although evidence on the valuation carried out by the mortgagee was unsatisfactory, and the mortgagee did not provide the best opportunity to obtain the highest sale price, the mortgagor failed to discharge the onus of establishing a breach of the mortgagee’s obligation.
On appeal by the mortgagor, it was held that
- the mortgagee breached its statutory duty;
- the mortgagee was required to “fully test the market”, which it failed to do by abandoning the auction and accepting an offer from an “insider” at the lower end of the range of estimated sale prices; his Honour noted that the mortgagee’s reaction to the employee’s offer “was not to ascertain what further steps might be taken to increase the price, but rather to discover whether the offer could be accepted without incurring liability to the mortgagor”;
- the trial judge was required to determine the value of the property at the time it was sold and, in light of the trial judge’s criticisms of aspects of the valuations, should have preferred the evidence of the valuer that fixed the market value at $420,000 (i.e. damages were $60,000);
- the identity of the purchaser was relevant to both the onus of proof and the sufficiency of the steps taken to protect the mortgagor’s interests and obtain the best price;
- the fact that the sale price was within the range of possible sale prices was not sufficient to discharge the burden that a mortgagee must assume when the sale is to an “insider”. The mortgagee in such circumstances is under a duty to obtain the best price available.
Practical Implications
This case highlighted the strictness of a mortgagees’ duty of good faith, especially when there is a potential conflict, such as in a private sale to an associated party, between a mortgagee’s duty to obtain the best price available in the market and its desire to obtain the best bargain for the purchaser.
In summary, the duty of mortgagees when exercising a power of sale is a duty to exercise reasonable care to ensure the property is sold at market value. It is noted that a statutory duty is imposed on mortgagees, under the Property Law Amendment Bill[2] which is currently before the WA Parliament, to take reasonable care to ensure that land is sold for not less than its market value.
To meet this legal requirement, mortgagees should take care to:
- take the property to market through use of appropriate advertising and to seek the advice of agents to attract the largest number of potential buyers;
- sell the property at an auction when possible; and
- obtain a written valuation before sale especially where there is movement in the property market.
[1] s 77 of the Transfer of Land Act 1958
[2] Property Law (Mortgagees’ Power of Sale) Amendment Bill 2009 (WA)
In Western Australia, there are two methods for co-owners to hold property – as joint tenants or as tenants in common.
Joint Tenancy is where each owner is jointly entitled to the whole property. By necessity, joint tenants must hold their interest jointly so that their interests in the property are unified. On the death of a joint tenant, the interest of that joint tenant automatically passes to the other surviving joint tenant or tenants (if more than one) by survivorship and without reference to any intention that the deceased person may have indicated in his or her Will.
For example, if a husband and wife hold a property as joint tenants and the husband dies, the wife is automatically the owner of the property. The terms of the Will of the husband would not matter.
Tenancy in common is where two or more individuals hold property in any shares they choose. Unlike with a joint tenancy, the owners own separate shares in the property eg 50/50 or 30/70. When an owner dies that owner’s share of the property passes in accordance with his or her instructions as set out in his or her Will.
So what type of tenancy should you choose?
Asset Protection – If one of the owners is exposed to greater financial risk or to the threat of bankruptcy, there are pros and cons as to the type of holding. Please discuss with your solicitor or accountant before you buy a property and decide how to hold it.
Family Law considerations – If the financial contributions to the property are not equal, it is important to record correctly and accurately the extent of your particular contribution so that the other party, (your spouse) does not receive more than he or she is entitled to receive or more than you would like he or she to receive. A tenancy in common may be the more appropriate way of holding the property in that case.
Estate Planning – Consider this scenario – A husband (the “first husband”) and wife, who have 2 children, own a home. The husband dies leaving his widow as the sole owner of the property. She finds a new husband (the “second husband”) but wants this property to go to her 2 children from her first marriage.
If the first husband and his wife had held the property as tenants in common and the husband’s Will had been properly drafted, he could have left his share of the property under his Will in such a way that it would be held for the benefit of his 2 children. For this to be possible, the property must be held by the first husband and wife as tenants in common. If the property were held by them as joint tenants or if the first husband had left his share of the property under his Will outright to his wife, then after her death the widow’s second husband might be entitled to the property even though it was never the intention that that be the case.
Can I change my mind?
If you choose one particular tenancy over the other, it is possible to alter the holding to the other type. The most common example of this is the severing of a joint tenancy in favour of a tenancy in common. However, before embarking on this course, it would be very important to consider both the stamp duty and capital gains tax consequences (if any) of a change to the tenancy.
For further information or advice on this topic, please contact Russell Morley, Senior Lawyer, by email at rmorley@talbotolivier.com.au or Rob Durey, Principal, by email at rdurey@talbotolivier.com.au.
Caveat is a Latin word meaning “let him beware”. While the legal profession uses the word in a range of situations, the one with which most people are familiar is when a caveat is said to be placed on somebody’s title to land.
What is a caveat
A caveat is a tool you can use to protect your interests against a person who owns real property; that is, who owns land. Under the Transfer of Land Act 1893 (WA) you can lodge a caveat with the Registrar of Titles. This means your interest will be noted on the title. If the owner of that land tries to transfer it to someone else such as by selling it, you will be notified of the event and it will not be possible for the transfer to be registered until your interest has been dealt with.
For example, if you and a land owner enter into a contract for renovations of a house on that land and your contract acknowledges your right to do so, you might lodge a caveat for unpaid money. If the owner tries to sell the house, the title can’t be transferred until your disputed payment is settled and the caveat is withdrawn. Otherwise, it might remain against the title
When else might I use a caveat?
A caveat might also be used if you have a contract with someone for the provision of goods and your contract includes a Romalpa or retention of title clause. This clause allows you to enter someone’s property and retrieve the unpaid goods. However, if these goods are affixed to the land (such as when you supply and fit plumbing fixtures) this isn’t practicable so a caveat may be lodged to record your interest in the land until the payment dispute is settled.
Is lodging a caveat that simple?
No. A land owner’s title is protected from people lodging caveats that can’t be justified.
So what should I do?
You need to make sure that the land owner and the person who owes you money are the same person. If this is not the case then you may encounter problems with your lodgement.
In a recent case[1], a landscaper was owed money on a contract he had made with a contractor who had since gone into liquidation before paying for most of the work. The landscaper’s terms and conditions gave him the right to enter the premises and retrieve the goods supplied. However, as some of the goods supplied had become a part of the land, the landscaper lodged a caveat over the land on which he had done the work. Unfortunately, the owner was a third party and not the contractor. Neither the owner, nor the owner’s agent, knew of the Romalpa clause in the contract – this was one of the factors two of the judges commented on when they decided the caveat should not be extended.
If you want to lodge a caveat, or if you’re not sure about your contract or the identity of the owner, it is always best to obtain legal advice. A correctly lodged caveat by a legal professional will ensure the caveat achieves its purpose.
How do I do it properly
You need to complete a caveat lodgement form which is available from Landgate. You may also need to make a statutory declaration setting out the nature of the interest you are claiming – if you don’t lodge a statutory declaration when required, the caveat will have no effect. After the caveat is registered with the Registrar of Titles, the Registrar will contact the landowner to give notice of the caveat
The landowner can then summons you, the caveator, to appear before a judge of the Supreme Court where you will have to explain why the caveat should not be removed. This is where getting legal advice will start to pay off. The process can move quickly and if you are prepared ahead of time, this will help to make the process less stressful.
In the case mentioned above, the landscaper was able to convince the Master of the Court, who heard the first application, that the caveat should be extended. The Master gave a series of orders to ensure that the issue in dispute was brought to trial but the landscaper didn’t follow these steps. The landowner then asked the Court of Appeal to reconsider the extension. Two of the three judges agreed that the caveats should not be extended. This meant, the caveats would cease to have any effect.
The lesson to learn from this is: don’t assume the caveat alone will solve the issue; you still need to take the necessary steps you need to settle the original dispute.
What if someone lodges a caveat on my land?
The Registrar will advise you about the caveat when it is received. It is advisable to obtain legal advice to make sure you are able to take the right steps to have the caveat removed. Alternatively, that legal advice may help you solve the dispute that lead to the caveat being lodged in the first place.
A caveat can be a useful tool in protecting your interest; however, it is not a resolution to your dispute with the landowner about payment for work done or goods received. This dispute still needs to be resolved. What a caveat will do is to give you some peace of mind that your interest in the land will be protected if the landowner tries to sell the land before the dispute is resolved.
A final word
Although it may appear to be relatively simple to lodge a caveat in the first instance, a party who subsequently has a caveat removed may find itself liable to the landowner for any loss suffered as a result of a wrongly lodged caveat. Make sure you take advice as to whether your claimed interest is truly caveatable. If it isn’t, you may be paying damages to the owner for any loss caused by the caveat.
[1] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
If you are in the business of selling goods to another party before receiving payment, you probably already have a clause in your standard terms and conditions stating when ownership of the goods transfer from yourself to the other party. It is therefore useful to know what your rights are and how you can enforce these rights under this sort of clause which is known as a Romalpa or “retention of title” clause.
A little history
The Romalpa clause is named after the defendant in an English case from 1976, Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd[1]. The scenario in that case is one that’s probably familiar to many business people. The vendor, a Dutch company, had supplied aluminium foil to the purchaser, an English company. In their contract there was a clause saying that ownership of the foil didn’t transfer to the purchaser until the purchaser had paid all payments owing to the vendor and, that until the date of payment, the purchasers had to store the foil in such a way that it was clearly still the property of the vendor. If the foil was mixed with other materials to create new objects then the vendor would have ownership of those new objects until full payment had been received. The purchaser had a duty to look after the goods in such a way as to protect the interests of the vendor. If the purchaser sold the objects to a third party but still owed the vendor money then the vendor would get the benefit of any sub-claim against the third party.
When the purchaser got into financial trouble and a receiver was appointed, the vendor asserted its rights under this clause in the contract and claimed that, because of the clause, it had priority over secured and unsecured creditors. The Queen’s Bench and Court of Appeal agreed with the vendor and so the Romalpa clause became a way to protect a vendor’s ownership of goods which had been delivered to the purchaser and used but had not yet been paid for.
A recent example[2]
A landscaping business supplied a quotation to a contractor who was overseeing construction of a tavern in Perth’s southern suburbs. The contractor accepted the quotation which included the following term:
“The ownership of the goods supplied by the contractor to the customer shall remain with the contractor until payment in full has been received by the contractor. If such payment is overdue in whole or in part the contractor shall have every right (without prejudice to any other rights) and is hereby authorised by the client to enter into and upon the premises (between 8am and 5pm) where the goods may be stored or in use (with or without others) to retake possession and remove the same. The customer hereby indemnifies the contractor against any claim, action or damages arising out of any such action against the cost of the same.”
Unfortunately for the landscaper, the contractor went into liquidation leaving a large portion of the goods and services unpaid for. In addition, many of the goods supplied were attached to the land which belonged to a third party, the owner of the site. Because of this, the landscaper could not assert his right to retake possession of the goods he had supplied and instead placed caveats on the owner’s land.
In conventional building arrangements, any contract the contractor enters into with a sub-contractor, binds the contractor but not the owner unless the wording of the contract is such that the owner is also bound.
In this case, the owner was bound so the landscaper had permission to enter the owner’s property and remove the goods that had been supplied as part of the subcontract and for which payment had not been received in full. Because some of the goods had been attached to the land, they had changed in status from personal property to real property which meant that the landscaper could no longer use the Romalpa clause to retake possession in order to retain his title in the goods.
The landscaper lodged two caveats with the Registrar of Titles claiming an interest in the owner’s land. He said that the Romalpa clause meant that he had an interest in the land, and that he had a right to protect his interest which amounted to the price of the unpaid invoices. The landscaper was not able to persuade two of the three judges that the owner of the land was aware of the contact, let alone the Romalpa clause. This meant that the owner was not a party to the contract and could not be bound by the clause.
Lessons to learn
A Romalpa clause is a useful tool for vendors to use to protect their interests when supplying goods to purchasers who will be paying for the goods some time after delivery. It is especially useful when the goods supplied are likely to be used to make different objects or are going to become fixed to the land and are no longer retrievable by the vendor if the purchaser does not pay.
Following this recent case, it is evident that a vendor could still use a caveat to enforce an interest in the land to which goods have been affixed. However, this will only be effective if the original contract under which the payment fell due was made with the owner or the owner’s agent. Because the landscaper’s contract was with the contractor, he couldn’t assert his right under the Romalpa clause by lodging a caveat on the owner’s land.
If you use a Romalpa clause in your standard terms and conditions, you should:
- Make sure you know who you want to be bound by the clause; and
- Check with a lawyer skilled in contract law that your clause is as effective as possible.
If you have a Romalpa clause you want to enforce, it is worthwhile getting expert legal advice just to make sure you comply with your own terms and conditions. If the purchaser challenges your right to enforce the clause it will be useful if you can demonstrate that you have complied exactly with what the contract says.
There may be times when you supply goods that become attached to the land and are therefore not removable if the purchaser doesn’t pay. One way to protect your interests is to lodge a caveat over the purchaser’s land to which you have attached your goods. But a word of caution – this is not the end of the process. If you are going to take this step, it is recommended that you seek legal advice to ensure that you can really achieve what it is that you want to achieve.
A Romalpa clause is a useful tool in contract with purchasers but, as with any tool, it will only be effective if it is used properly.
[1] [1976] 2 All ER 552
[2] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
