From 1 January 2012, suppliers and manufacturers, in addition to complying with the laws under the Australian Consumer Law, will be required to comply with additional requirements for a warranty against defects.
The warranty must, among other things:
(a) contain the warrantor’s name; business address, phone number and email address (if any);
(b) set out relevant claim procedures;
(c) state when the period within which a defect in the goods must appear in order for the consumer to claim the warranty;
(d) state who will bear the expense of claiming the warranty, and if the expense is to be borne by the Manufacturer, how the consumer can claim those expenses; and
(e) include the following statement: “Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and for compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”
Failing to comply with these requirements may lead to a penalty of up to $50,000 and a criminal conviction.
Suppliers and manufacturers should take steps to ensure that their terms and conditions and warranties are compliant now ready for 1 January 2012.
Issuing a statutory demand
Scenario: You have issued an invoice to a client for work performed. The invoice is now overdue, and a letter to the client demanding payment has gone unanswered. You are not sure why the client has not paid – is the client experiencing cashflow problems?
What do you do in this situation? You could commence an action to recover the money in the Supreme, District or Magistrates Court, depending on the amount involved. The court processes give a party failing to pay a debt time to respond and that party can often delay judgment being obtained for the money.
If your client is a corporation, the debt is for more than $2,000 and you have doubts about your client’s capacity to pay, another alternative is to issue a statutory demand for payment. A statutory demand is a form prescribed by the Corporations Act 2001. It can be extremely useful for extracting payment from a recalcitrant debtor, as there are serious consequences for failing to comply with the demand. A creditor that issues a statutory demand can, if after 21 days the debtor fails to pay the debt or apply to the Supreme Court to set aside the demand, apply to wind up the debtor in insolvency. In those proceedings the debtor is presumed to be insolvent and bears the onus of proving that it is not.
It is important to note that a statutory demand process was designed to streamline insolvency proceedings, not to help creditors recover debts. Issuing a statutory demand solely as a debt recovery mechanism may be an abuse of process. Before you issue a demand, you should have some doubt as to the solvency of the debtor.
You should also be completely certain that your client owes you the money and there is no genuine basis on which it can dispute the debt or set off another amount owed by you. The amount of the debt must be certain and must be correctly stated in the demand. If the demand includes an interest component, the method of calculating interest must be properly set out. The Corporations Act and the relevant court rules set out specific requirements for the demand and the supporting affidavit. Care must be taken to ensure those requirements are obeyed, or the court may set aside the demand and order that you pay the debtor’s costs.
Receiving a statutory demand
Scenario: A creditor has issued an invoice and, after the invoice has become due, served your company with a statutory demand for payment. What do you do?
Basically, you have, at least, 3 choices. If your company cannot pay the debt then you may need to consider applying to put the company into administration. Otherwise you can either pay the amount in the demand (or otherwise secure that amount to the creditor’s satisfaction), or you can apply to the Supreme Court to have the demand varied or set aside. You must do one or the other within 21 days of being served with the demand. Failure to do so is deemed to be an act of insolvency and supports an application to wind up the company.
The Court will set aside a statutory demand for one of four reasons:
1. There is a genuine dispute as to the existence or amount of the debt.
2. The debtor has a genuine cross-claim against the creditor which will offset the debt.
3. The demand contains a defect which will cause a substantial injustice if the demand is not set aside.
4.There is some other good reason for setting aside the demand.
The application to set aside the demand must be accompanied by an affidavit which sets out the facts and gives the reasons why the demand should be set aside. If the affidavit does not raise a particular ground, the debtor will not be able to later change its position to rely on that ground.
The application, together with an affidavit in support, must be filed with the Court and copies served on the creditor within 21 days of service of the statutory demand. The Court has no power to extend the time to bring the application.
The most important thing to note is that if you have been served with a statutory demand, time is of the essence. You have 21 days to decide whether to pay the creditor or fight the demand, and there are no circumstances under which you can get an extension. If you are in any doubt as to your rights, you should get legal advice as soon as possible.
For further information or advice on this topic, please contact Chris Dunnell, Senior Lawyer, by email at cdunnell@talbotolivier.com.au or Brendan Taylor, Principal, by email at btaylor@talbotolivier.com.au.
In this case, the Western Australian Supreme Court of Appeal considered an express term in a memorandum of understanding which placed an obligation on the parties to a deal with each other in good faith. Despite the parties acting honestly, the Court had to consider whether an unreasonable proposal put forward by the respondent was evidence of a lack of good faith.
1. Facts
Strzelecki Holdings Pty Ltd (Strzelecki) wished to purchase land owned by Cable Sands Pty Ltd (Cable Sands) near Capel. The land had been mined for mineral sands and at different locations on the land there were collections of radioactive tailings. The parties did not enter into a conventional contract of sale in relation to the land because there was a concern about how tailings were to be dealt with in view of Strzelecki’s wish to develop the land for housing. Instead the parties entered into a memorandum of understanding (MOU) in October 2004 which focused on the remediation process designed to deal with the radioactive tailings.
Clause 12 of the MOU provided that “The parties are, while this Memorandum of Understanding remains in effect, to at all times deal with each other in good faith.”
During the negotiation period in 2006, Cable Sands prepared proposed special conditions to the contract for the sale of land. The special conditions included provisions that Strzelecki would be responsible for the remediation work and would provide indemnity to Cable Sands together with a $25 million, 20 year bank guarantee.
Strzelecki contended that Cable Sands acted unreasonably and failed to act in good faith having regard to the circumstances in which Cable Sands sought the guarantee and indemnity, in that:
(a) the guarantee and indemnity were proposed in connection with a requirement by Cable Sands that Strzelecki undertake the remediation despite Cable Sands’ ability to do so; and
(b) the demand for a guarantee and indemnity was made two weeks into a 30 day negotiation period in 2006 without it ever having previously been raised during the currency of the MOU.
2. Decision at first instance
The trial judge’s conclusion about the contractual nature of the MOU was that it was a contract that bound the parties immediately in terms which they agreed. The parties were not prepared to enter into a binding contract for the sale of land until the due diligence process was carried out. The trial judge found that the parties expected to make a further contract to operate in substitution for the first agreement containing, by consent, additional terms and the parties bound themselves by agreement to a process which they describe as due diligence investigation and to negotiation in good faith towards the making of a contract for the sale of land.
The trial judge found that the respondent did not breach its contractual obligation to act in good faith. The investigation which had to be done by Cable Sands was effectively derailed when it received advice that the solution envisaged in the MOU was not possible. The trial judge found that Cable Sands was acting honestly seeking to protect itself against liability it feared might arise out of its activities interfering with the radioactive content of the soil and although no specific contractual terms were advised until the special conditions were formulated, Cable Sands expressed the hope that the negotiations would progress.
3. Decision on appeal
The grounds of appeal alleged that the demand by Cable Sands for an indemnity and a $25 million, 20 year bank guarantee was conduct which established a breach of the obligation on Cable Sands to deal with the Strzelecki in good faith.
Pullin JA stated that “the MOU only required that the parties ‘deal’ with each other honestly… it did not require the parties to act in the interests of the other party.” Pullin JA went on to state that “The MOU clearly contemplates that they ‘deal’ with each other by negotiating. This does not suggest that the content of an offer made in negotiations where the parties must deal with each other in good faith must pass some objective test of reasonableness to be assessed by the courts.”
It was found that the parties should ‘deal’ with each other in good faith by:
(a) subjecting themselves to the process of negotiation; and
(b) keeping an open mind in the sense of being willing to consider such proposals as may be propounded by the other party and put forward options for the resolution of any differences which may develop in the negotiations.
It was found by the Court of Appeal that there was no evidence of conduct from which it may be inferred that Cable Sands was not acting honestly and did not subject itself to the process of negotiation and Strzelecki did not contend otherwise. It was also found that there was no evidence that the $25 million guarantee was unreasonable in the circumstances.
The appeal was dismissed by all three judges.
4. Practical Implications
This case highlights the obligations placed on all parties subject to an express term to ‘deal’ with each other in good faith. When it comes to the content of a proposal made during negotiations, the mere content of a proposal which relates to the subject matter of the negotiations may not amount to a breach of good faith. Parties subject to a good faith clause need to show a willingness to negotiate and to continue to negotiate in good faith.
What is a “Simple” Will?
There is a greater degree of certainty with a “simple” Will as to what will happen with the estate than with a testamentary trust. That is because with a simple Will, all or part of the assets in the estate are held on trust, but the beneficiaries are limited in nature and number and each of the beneficiaries has a fixed or “absolute” interest in the trust and its assets.
In the usual case, assuming children are the beneficiaries of a simple Will, they would share equally in the estate – for example, if there are 2 children, they would each have a 50% interest in the estate. The estate would be divided between them either when, for example, each of them reaches 25 years of age or when the youngest surviving child reaches 25 years of age.
If either or both children do not reach 25 years of age leaving their own children, then the usual position is for those children to step into their deceased parent’s shoes to receive their deceased parent’s 50% of the residue of the estate equally.
The advantages of a “simple” Will are just that – it is simple and each child knows what their proportion of the estate will be.
In most cases, after death, the executor or executors would divide the estate equally into 2 trusts – one for each child and those trusts would operate in tandem (usually). The executor or executors would have power to pay income or capital or both of a child’s trust to that child or to transfer capital from each respective trust to that trust’s beneficiary before the child reaches 25 years of age. In addition, the executor could choose to wind up the trust or trusts early.
Because the number and nature of the beneficiaries is known and there is no discretion granted to the executor to benefit persons other than the beneficiaries, the beneficiaries’ interests are clearly established.
The disadvantages of a “simple” Will are that there are no asset preservation benefits (bankruptcy/family law), nor is there the possibility of income splitting between beneficiaries to take advantage of the adult marginal rates of taxation that would not otherwise be afforded to beneficiaries under 18 years of age.
What is a testamentary trust?
The alternative to a “simple” Will is for a testamentary trust to be established in the Will to hold the estate (or part of the estate).
Whether it is worthwhile establishing a testamentary trust depends on a number of factors, such as the potential size of the estate (a rule of thumb would be that the assets to go into the trust be valued at more than $1 million), the Will maker’s (and perhaps their beneficiaries’) desire to have testamentary trusts and whether there are any asset preservation advantages.
The initial trustee of the trust is usually the executor or executors. The usual position is for the children to be the primary beneficiaries of the trust, but they would not be the only beneficiaries. The trust would also have “general” beneficiaries who, generally, would consist of the primary beneficiaries’ spouses, their children, grandchildren, perhaps even their great grandchildren and potentially other related parties, eg companies and trusts and charities. The beneficiaries could extend to nieces and nephews and other such persons.
Unlike a “simple” Will, none of the beneficiaries (including the primary beneficiaries) would have a fixed interest in the trust (or its assets). In other words, they would not have any actual entitlement to receive a proportion of capital or income, except at the vesting date (ie when the trust terminates). Entitlements to capital or income would depend upon the discretion of the trustee/executor during the course of the administration of the trust.
To ensure there is some oversight of the trustee’s action, the primary beneficiaries could be granted a power of veto which would enable them to “hire and fire” the trustee.
There are other features of a testamentary trust which are different from a more simple Will.
A terminating date or vesting date must be included in a testamentary trust. That date is usually the day which is 80 years after your death. Because of the potential 80 year duration of the trust, it is usual to include an early vesting provision which allows the trustee to terminate the trust before 80 years have passed.
One advantage of a testamentary trust are that it can be used to preserve assets from claims by third parties. A trustee in bankruptcy of one of the primary beneficiaries would struggle to lay claim to the assets remaining in the testamentary trust.
In addition, there are some potential (albeit now heavily qualified) family law advantages were a primary beneficiary to have problems with a relationship. Although there are some asset preservation advantages, a Family Court Judge does have the power to look behind a testamentary trust and to determine who actually controls the trust and who receives a benefit from the trust and to make orders against trustees of a testamentary trust, even though those trustees are not parties to a marriage. Having said that, it is possible to say that a testamentary trust does have advantages in the family law context over a “simple” Will.
One other primary advantage of a testamentary trust is the sheer level of flexibility granted to the trustee, particularly with respect to splitting income between beneficiaries (even beneficiaries under 18 years of age) to take advantage of the adult marginal rates of taxation.
However, that advantage of flexibility might also prove to be a disadvantage, particularly in circumstances where there might be less oversight of the trustee’s actions than there should be.
A way of resolving concerns about oversight of a trustee’s actions might be to appoint joint executors and trustees – perhaps 3 of them. The disadvantage is that this may prove to have some practical difficulties insofar as all 3 executors/trustees would need to “sign off” in respect of any decisions taken for the trust, but it would provide the necessary oversight and the necessary “checks and balances” to allay any concerns that would otherwise be the case had only one executor and trustee (whoever that person might have been) been appointed.
Conclusion
Some people regard testamentary trusts as a way of ruling from the grave. Potentially, that is true. Although testamentary trusts can be very handy, they are not for everyone and they can sometimes be used to overcomplicate what is really quite a simple matter. On the other hand, simple Wills are not for everyone either and do not always address legitimate concerns for the family. To find out what is best for you, please contact us for advice about your circumstances.
What happens if the executor of your Will has died before you?
Your beneficiaries, loved ones and estate are likely to suffer much inconvenience, cost, stress and delays that could have been avoided.
To explain, it is important to understand that, even though there is no executor of your Will, your Will remains valid so that your beneficiaries are still entitled to share in your estate under your Will. However, because there is no executor there may be serious difficulties in administering your estate and in distributing your assets to your loved ones.
That is because where there is no executor there is no person who has the automatic right to step into your shoes legally to take charge and to distribute your estate according to your Will, until the Supreme Court appoints someone (usually a beneficiary) to be the administrator under a Grant of Letters of Administration of your Will.
A common example of this type of situation is where a person contracts to sell a property before death but the settlement does not occur before that person dies. Without an executor to sign the documents allowing settlement to go ahead, there is a strong possibility that the estate will end up in breach of contract and be liable to the buyer for penalty interest or, in the worst case, for damages.
What steps can be taken to avoid not having an executor?
Prevention is better than cure.
The best way to avoid not having an executor is to make sure that you have a valid Will in which you have appointed more than one executor jointly or as a substitute. One executor only is not enough. That executor might die before you or might decide not to take up the appointment. The easiest way to avoid the problem of not having an executor of your Will is to have multiple executors.
What if there is no executor?
The Supreme Court has rules as to who among the beneficiaries of your Will has “prior right” to take up the appointment to be administrator of your Will. These rules are based on earlier decisions of the Supreme Court and can be very confusing even for lawyers who have practised in this area for many years. Also, the rules are old and not very clear for they are based primarily upon UK laws and court decisions established before 1925, most of which no longer apply in the UK but, ironically, still apply in WA. You will not be able to look these rules up on the internet. You will need a lawyer to explain the rules to you and you will need a lawyer to prepare the applicant’s application to the Supreme Court for a grant of Letters of Administration of the Will.
This is the kind of application which is neither simple nor standard and is just one of the areas where Talbot Olivier can help you.
What if the rules appointing administrators do not cover the situation?
Because the rules appointing administrators are circumscribed, it is not uncommon for siutations to arise where there is no executor of a Will together with no clear legal support for the Supreme Court to appoint a beneficiary to be the administrator of the Will.
Where this happens, the traditional approach of most estate administration lawyers is to encourage the beneficiaries to approach the Public Trustee or an authorised trustee company, each of which has a special right to obtain grants of administration of Wills in cases where there seems to be no other option readily available. Of course, there is a price to pay for this service insofar as it will mean that the beneficiaries will have no control of the administration of the estate and costs are likely to escalate.
But there may no be another way.
Pushing the envelope – what is the scope of the Supreme Court’s power to make grants of Letters of Administration of Wills?
Recently on behalf of a client company which was the only beneficiary of a Will of which there was no validly appointed executor, Talbot Olivier successfully made written submissions to the Supreme Court that its power to issue grants to beneficiaries of a Will was wider than previously thought.
Before this decision, it was not known in WA whether, under WA’s pre-1925 UK-based laws, an ordinary company had a right either as an executor or as a beneficiary to take a grant of a Will or whether it had the right to appoint an individual to take out the grant on its behalf. The easy option would have been to advise the client to approach the Public Trustee or a trustee company. But in this case, on the application of our client, the Supreme Court answered these questions by issuing the grant to an individual appointed by the our client to take out the grant on our client’s behalf.
We argued in our submissions, which were accepted by the Supreme Court, that the Court had a broad general discretion to depart from the ordinary rules to issue grants where there were “special circumstances.” In the particular circumstances facing our client, the Court agreed that there were special circumstances entitling our client to a grant.
Although the decision has to be seen in the light of the particular facts with the outcome perhaps being different had there been different (event slightly different) circumstances, this decision may have wider application to other unusual or difficult scenarios.
It seems that the door is ever so slightly ajar and means that if none of the usual rules apply and if the Supreme Court is prepared to accept that there are special circumstances on a given set of facts, the Supreme Court might exercise its discretion to depart from the ordinary rules for the purpose of issuing a grant to an applicant not otherwise entitled to a grant.
If you think that there might be “special circumstances” for you to administer an estate, please contact us for specific advice.
If you die without a validly executed Will, you are considered to have died intestate.
What happens if you die intestate?
If you die intestate, your assets will be distributed in accordance with your State’s relevant intestacy legislation. In Western Australia, the Administration Act determines the distribution.
Essentially, the State will decide who gets your property, without any regard as to your feelings toward family members, nor any special relationships you may have formed outside of your family.
You have no control over the disposition of your property, so if you care about who owns your property, you should have a Will prepared before you die.
Also, even if you have a Will, it may be invalid or it may not dispose of all your property that forms your estate or might form part of your estate after your death. If your Will does not cover all your assets, then your estate could be partially intestate in respect of those assets as well.
What is the formula?
The statutes vary from State to State, but in Western Australia the rules may be summarised as follows:
- first to your surviving husband/wife or de facto spouse and children in varying proportions. If there are no children, the husband/wife or de facto inherits everything;
- if there is more that one surviving child and a spouse/de facto, the first $50,000 is given to the spouse/de facto, with any excess divided between the children as to two-thirds and the spouse/de facto as to one third;
- if there are children but no surviving spouse/de facto, the surviving children receive equal shares of the estate. If any child of the deceased has died before the deceased but has left children of his or her own (grandchildren of the deceased) then that grandchild would inherit his or her parent’s share of the deceased’s estate;
- parents, brothers, sisters, uncles, aunts, nephews, nieces or first cousins by blood of the deceased may also share in certain circumstances, (but only if there is no living spouse, de factor spouse, children or grandchildren). If necessary, a search will be made to identify any living next of kin;
- finally, if there is no living next of kin, your estate goes to the Government.
Some Examples:
(a) What if I want to disinherit some of my relatives? How can I do that without a Will?
Unfortunately, you can’t. That is why having a Will is extremely important. If you die owning any property that is not mentioned in your Will or given away by some other means, it will pass under the intestacy rules, possibly to relatives that you do not like. The best way to disinherit someone is to make a Will and dispose of all of your property under that Will.
(b) I don’t get along with my stepchildren. Will they be entitled to my property when I die?
No, currently in Western Australia, under the Administration Act, stepchildren are not entitled to receive anything from your estate. If you do not adopt the stepchildren or make any type of agreement to adopt them before you die, they will not be entitled to receive anything from your estate. Therefore, unless you provide for them in your Will, they will not share in your estate.
(c) My girlfriend and I recently had a son. Will he be able to inherit from us if we are not married?
Your son will be able to inherit from either or both of you but there may be a question as to the child’s paternity if your name does not appear on your son’s birth certificate as the father.
An Enduring Power of Guardianship (EPG) is a legal document that allows you to appoint another person to make important personal, lifestyle and treatment decisions on your behalf were you ever to become incapable of making such decisions yourself. This person is known as an enduring guardian.
What can an enduring guardian do?
An enduring guardian’s powers are limited to what you specify in the EPG. An enduring guardian can be authorised to make decisions about things such as where you live, the support services to which you have access and the treatment you receive. You can give your enduring guardian the power to make all of these decisions or your can limit their decision-making authority.
If you give your enduring guardian the authority to make all personal, lifestyle and treatment decisions, they will be able to:
- decide where you live, whether premanently or temporarily;
- decide who you will live with;
- decide whether you work and, if so, any matters related to that work;
- provide or refuse consent, on your behalf, to any medical, surgical or dental treatment or other health care (including palliative care and life-sustaining measures such as assisted ventilation and cardiopulmonary resuscitations);
- decide what education and training you receive;
- commence, defence, conduct or settle any legal proceedings on your behalf, except proceedings that relate to your property or estate;
- advocate for and make decisions about the support services to which you will have access; and
- seek and receive information on your behalf. An enduring guardian cannot make decisions for you on property or financial matters.
If you wish to give someone the authority to make financial decisions on your behalf, you will need to make an Enduring Power of Attorney.
Why do I need an enduring guardian?
Preparing an EPG is the only way you can have control over who will make lifestyle decisions on your behalf if you are ever unable to do so yourself. You may lose your capacity to make decisions permanently through dementia or brain injury or you may lose capacity temporarily, by becoming unconscious as a result of an illness or accident.
The appointment of your enduring guardian takes effect only if you lose the capacity to make your own personal or lifestyle decisions.
If you do not have an enduring power of guardianship and you lose capacity a guardian may be appointed by the State Administrative Tribunal. The appointed guardian might be a member of your family, a friend, or an independent guardian from a Government department. The Tribunal may appoint an independent Government guardian even if family members are willing and able to act, especially if there is conflict within the family. The outcome could be unfavourable, but could have been avoided if you had appointed an enduring guardian yourself under an EPG.
Choosing your enduring guardian?
The person (or people) whom you appoint to be your enduring guardian of guardians must be 18 years of age or older and have full legal capacity. You can appoint any person you choose, as long as they agree to take on the role. They should be someone that you trust to respect your wishes.
You can appoint more than one enduring guardian to be joint enduring guardians, but they must act jointly which means they must reach agreement on any decisions they make on your behalf. If you plan to appoint more than one enduring guardian it is important you consider their ability to work together on your behalf.
You can also choose to appoint a second person (an alternative guardian). That person can only make decisions on your behalf when the initial guardian is unable to do so.
Your eduring guardian does not need to reside in Western Australia although their availability should be considered and they should be easily contactable to assist in decision making.
Preparing your Enduring Power of Guardianship
We can help you prepare your Enduring Power of Guardianship and ensure that it reflects your wishes. In order to prepare an EPG, you must:
- be 18 years of age or older; and
- have full legal capacity (this means you mst be able to make a formal agreement and to fully understand the implications of statements contained in that agreement).
What other documents should I prepare?
We are also able to help you in preparing your Will, an Enduring Power of Attorney and an Advanced Health Directive. These documents help to ensure that your wishes are met if you lose capacity to make your own decisions and also allow for the correct distribution of assets after you die.
Australian consumer law has recently been significantly altered by the introduction of the Australian Consumer Law Acts, which apply across Australia. The Acts change many aspects of existing consumer law and introduce new concepts as well.
These changes will have a significant impact on domestic consumers and the businesses that supply goods and services to them. These businesses should review their standard form contracts to ensure that they are not open to challenge by consumers.
The first phase of the Acts, which came into operation on 1 July 2010, introduced new provisions regulating unfair terms in standard form consumer contracts.
A party to a standard form consumer contract, the ACCC or ASIC can now ask a Court to declare any term which is unfair to be void. A party cannot enforce a term that has been declared void. If the term is declared void the contract will otherwise continue to bind the parties if it can operate without the unfair term.
1. What is a consumer contract?
A consumer contract is a contract made with an individual person for:
(a) the supply of goods or services;
(b) the sale or grant of an interest in land; or
(c) the supply of financial products or services,
which is wholly or predominantly for personal, domestic or household use or consumption.
2. What is a standard form contract?
The Act does not contain a definition of what is a standard form contract but instead lists a number of things which the Court must take into account when deciding whether a contract is a standard form contract. These include:
(a) the parties bargaining power;
(b) whether the contract was prepared prior to any discussion between the parties;
(c) whether there was an opportunity to negotiate the terms of the contract; and
(d) whether the terms of the contract take into account the specific characteristics of the parties or the particular transaction.
If one party claims that a consumer contract is a standard form contract then the other party must prove otherwise.
3. What is an unfair term?
A term is unfair if:
(a) it would cause a significant imbalance in the parties rights and obligations;
(b) the party advantaged by the term cannot prove that it was reasonably necessary in order to protect its legitimate interests; and
(c) it would cause detriment to the other party if it were enforced.
The Court may also take into account other relevant factors. Examples in the Act follow a general theme that a term may be unfair if it restricts the legal rights or obligations of one party but not the other.
4. Examples
Examples of standard form consumer contracts are:
(a) mortgage contracts and lease agreements;
(b) hire purchase agreements and credit card contracts;
(c) telephone plan or internet service contracts;
(d) health and fitness club memberships; and
(e) contracts for the provision of travel services, such as airline tickets or holiday packages.
Examples of terms that may be unfair are:
(a) a term granting one party a right to unilaterally vary the contract;
(b) a term granting one party a right to terminate a contract for minor breaches or without notice; or
(c) a term excluding the liability of a supplier or provider of goods or services.
5. Implications
Consumer protection law previously focused on the negotiation process, so that a contract would be set aside if, for example, the negotiations involved unconscionable conduct or if one party exercised undue influence over the other. These new provisions will invalidate terms in standard form consumer contracts on the basis of the actual terms in themselves, without reference to, or with limited reference to, the negotiation process. It will therefore no longer be sufficient for businesses to simply explain the terms of the contract and recommend, for example, that a consumer seeks independent legal advice.
Businesses should therefore carefully review their standard form consumer contracts and ensure that their terms are not at risk of being considered unfair.
The Australian Government will be conducting an overhaul of the current business name application system. Currently, business names in Australia must be registered separately in every state or territory where the business operates. The new system will be a national registration framework and will be administered and maintained by ASIC.
What is the new national system?
The national system is expected to come into operation in April 2011 and the process for registering a business name will be via an online application system. New businesses will be required to obtain an ABN in order to apply for a business name. If a business registers for an ABN and a business name, the business name will be listed as ‘pending’ until an ABN has been issued.
Registration of a business name will require a single application which will then be valid in all states and territories. There will be a set fee for registrations, being $30.00 for one year and $70.00 for three years. This represents a significant reduction in fees, particularly for businesses wishing to trade in more than one state or territory.
What will happen with existing business names?
Existing business names will not be required to apply for an ABN, nor will renewals of existing businesses require an ABN. All existing names on all state and territory business name databases will be transferred onto the national register automatically.
What will happen with Identical names?
Under the current registration systems, identical business names can be registered by different entities trading in different states and territories. Under the new system an application for an identical name will not be able to be registered. Businesses should ensure their business name registrations do not lapse before the introduction of the national register, because they may be unable to re-register the business name due to identical names being transferred from state systems onto the national register.
Are there any restrictions on business names?
An online and automated test will be used to determine whether a particular name can be registered. Generally business names will be registered unless the name:
(i) contains foreign language characters;
(ii) contains restricted words that require consent, such as ANZAC;
(iii) likely to be offensive; or
(iv) is identical or almost identical to a registered company name.
What about trademarks?
Most businesses are unaware that simply registering a business name does not grant them any intellectual property rights over the use of the name. To protect trading names, businesses need to register trademarks. For more information please see our article “Trademarks vs Business Names – Do we really need trademarks?”
Are franchises affected by the national scheme?
Under the current system, franchisees when registering their business name provided a letter of consent to the Department of Commerce from the franchisor. Under the national system, the franchisee will not be required to provide written permission from the franchisor to the ASIC. Importantly for franchising, the test for identical names will allow the registration of a business name that differs only by a location regardless of whether or not there is a relationship between the businesses. For example, Ovenu and Ovenu Balcatta.
Therefore, Franchisors will need to regularly check the ASIC register to ensure that only authorised franchisees have registered a business name in the name of the franchise and ideally should protect their name by the use of trademarks. Under the new system, trademarks will become even more important to franchisors given that the registration of franchise names will no longer require written permission from franchisors in order to register the name.
The Personal Properties Security Act 2009 (Cth) (PPSA) received Royal Assent on 14 December 2009 and is expected to commence in May 2011. Its importance to Australian businesses is potentially as great if not greater than the changes brought about in 2001 by the Corporations Act 2001 (Cth). The PPSA will overhaul all areas of personal property securities and will deem certain terms in standard terms and conditions security interests.
What is a security interest?
The PPSA defines a security interest as an interest in relation to personal property provided for by a transaction that in substance secures payment or the performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). Under the PPSA a security interest must be perfected (often by registration) to be enforceable.
What is personal property?
Personal property is any form of property other than land or buildings and fixtures which form part of that land. It can include tangibles such cars, boats, machinery, crops; as well as intangibles such as shares, intellectual property (such as a licence) and contract rights.
How will the PPSA affect my standard terms and conditions?
As a result of the PPSA, security arrangements including retention of title provisions contained in standard terms and conditions of an Australian business will need to be updated prior to May 2011 so that a security interest is not lost or otherwise defeated by a third party. Confidentiality, assignment, notice and enforcement provisions in standard terms will also need to be addressed. Some of these issues are examined below.
A. Retention of title (ROT): ROT clauses are frequently used in contracts to retain title to goods that are being sold on credit or otherwise are handed over to someone who has not paid for them in full. Prior to the PPSA, ROT clauses were effective and enforceable without registration. Under the PPSA they will need to be registered. If you do not register your ROT as a security interest, you run the risk that some other party will register a security in respect of your goods. If someone else does register an interest in the same goods, and you have not registered your interest, the registered third party may have the right to take the goods to satisfy their debt ahead of you. This may be the case even if there is a ROT clause in your favour.
B. Confidentiality: Ordinarily a confidentiality clause provides that information is confidential unless the law provides otherwise. Under the PPSA, certain persons may be able to request a copy of your security agreement unless there is an obligation of confidence preventing such disclosure. Therefore standard confidentiality provisions will need review to ensure the disclosure provisions of the PPSA are appropriately contracted out of.
Other changes
- Terminology such as “fixed charge” and “floating charge” will no longer be used.
- Phrases such as “attachment”, “perfection”, “enforcement” “purchase money security interests” and “super priority” will become commonplace as well as the rules governing them.
- The company charge registration system under the Corporations Act will be replaced with the electronic registration of security interests on the Personal Properties Security Register (PPSR), by way of a financing statement.
- The PPSR will be a single national register which will replace more than 40 other registers operated by or on behalf of the Commonwealth, States and Territories.
If you would like advice on how your standard terms and conditions and other commercial contracts can be PPSA compliant and the implications of the PPSA for your business please contact Louis van Aardt by email on lvanaardt@talbotolivier.com.au or Russell Morley on rmorley@talbotolivier.com.au for further information.
