The categories of eligible managed fund investments for significant investor visa holders have recently been expanded. The new categories are: annuities, derivatives, mortgages and interests in unregulated managed funds. Changes to the existing categories provide for a wider range of investments in those categories.

From 23 November 2013, ASIC-regulated fund managers operating complying managed funds will be able to invest in the classes of investments set out in the table below (changes to existing categories are underlined).

Clients operating or proposing to operate registered or unregistered schemes for SIV investors will need to consider whether they have the appropriate authorisations on their AFS licence and appropriate investment powers in their trust deeds or constitutions before making changes to the asset classes within the products they offer.

While a scheme catering to SIV investors may not need to be registered, a number of operators are choosing to register schemes so that they can offer a higher standard of compliance and professional management to a foreign investor base.

We note that the categories of eligible investments in government bonds and Australian proprietary companies have not changed.

For further information, please contact:

In the media

ASIC surveillance targets illegal phoenix activity

ASIC are targeting company directors with a history of failed companies as part of a surveillance program to combat illegal phoenix activity. ASIC action to combat phoenix activities includes removing directors who have been involved in two or more failed companies from the industry (10 September 2013)

To read more, please click here.

Trade deal branded ‘rule for the corporation by the corporation’

Companies could gain the right to challenge laws that threaten their ability to make future profits under a planned giant trade agreement spanning the Pacific and taking in Australia, according to a leading scholar (03 September 2013)

To read more, please click here.

Global Network of Director Institutes issues perspective on Integrated Reporting

A global network of director institutes has today released a paper supporting improvements to the way organisations report to their shareholders and other stakeholders, including in ways guided by the International Integrated Reporting Framework (29 August 2013)

To read more, please click here.

Published – articles, papers, reports

ASIC Market supervision update, Issue 37, August 2013

Author: ASIC – The update includes: Suspicious activity reporting – ASIC Update; Updates to market supervision cost recovery arrangements, New rules on dark liquidity and high-frequency trading. Report into hybrid securities, Markets Disciplinary Panel (28 August 2013)

To read more, please click here.

High Court rules on mistakes in corporate governance

Author: Matt Couper and Michael Elliott, KGC, 02 September 2013 – Appointment of director had taken place in contravention of company’s articles of association Director’s appointment can be validated despite the fact that the director who appointed her had not been properly appointed as a director himself at the time. The Court takes approach to not punish inadvertent mistakes that don’t have significant consequences

To read more, please click here.

Cases

Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472

CONTRACT – breach – repudiation – franchise agreement – whether termination unlawful – whether breach by franchisor of essential term – willingness to perform only in manner substantially inconsistent with obligations

CONTRACT – breach – unreasonable restraint of trade

RESTITUTION – claim for work and labour done – flawed method of proving any loss suffered

TORT – inducement of breach of contract – attempt to establish case by inference

PRACTICE AND PROCEDURE – application to amend pleadings during trial – leave granted – date from which amendment to take effect – whether new and distinct cause of action – relation back effect of order.

To read more, please click here.

George Christopher Harris v Sophia Rothery (as co-executor of the Estate of the Late Christopher George Harris) [2013] NSWSC 1275

TRUSTS AND TRUSTEES – Principles of construction of trust deed and notices under deed – Whether father’s appointment of adult son as appointer and protector effective TRUSTS AND TRUSTEES – Office of appointer and protector – Whether power to appoint successor fiduciary or personal EQUITY – General principles – Undue influence – Whether applicable to appointment to an office under a trust deed

To read more, please click here.

BigTinCan Pty Ltd v Ramsay [2013] NSWSC 1248

EQUITY – breach of fiduciary duties owed to a company by a director – knowing assistance in a dishonest and fraudulent breach of fiduciary duty – test of causation for breach of fiduciary duty – equitable compensation for a lost opportunity – CORPORATE LAW – breach of Corporations Act 2001 (Cth) s 181

To read more, please click here.

Re Krypton Nominees Pty Ltd [2013] VSC 446

CORPORATIONS – Sale of shares – Misleading and deceptive conduct – Whether plaintiff relied on misrepresentations – Judgment for plaintiff – Corporations Act 2001 ss 1041E, 1041H and 1345.

CORPORATIONS – Sale of shares – Failure to provide Product Disclosure Statement – Whether plaintiff a “sophisticated investor – Sale of shares on terms – Whether total amounts payable satisfied exemption in s 708(8)(a) – Corporations Act 2001 ss 50AA, 707 and 708(8)(a).

CORPORATIONS – Whether the defendants conduct was unconscionable within the meaning of the unwritten law – Whether the plaintiff was at a special disadvantage – Claim rejected –ASIC Act 2001 s 12CA.

AGENCY – Contract for purchase of shares made by a company in a group of companies pending nomination of a member of that group by group’s accountant as the appropriate purchasing company – Contract negotiated by director who controlled group of companies – Whether company nominated by the accountant entitled to ratify contract of sale and become the purchaser – Whether nominated company entitled to rely on representations made to the director who negotiated the contract in seeking to have contract of purchase set aside for misleading and deceptive conduct and failure to provide a Product Disclosure Statement – Nominated company entitled to ratify contract and exercises remedies available to initial contracting company.

EQUITY – Whether the defendants owed a fiduciary duty to the plaintiff – Relevant applicable principles – Whether inequality of bargaining power – Claim rejected.

To read more, please click here.

Contact Us

Warren Scott  Partner

Direct Line: (03) 9605 0984

wscott@millsoakley.com.au

Daniel Livingston  Partner

Direct Line: (03) 9605 0965

dlivingston@millsoakley.com.au

Matthew Watson  Partner

Direct Line: (02) 8289 5884

mwatson@millsoakley.com.au

Martin Williams  Partner

Direct Line: (02) 8289 5861

mwilliams@millsoakley.com.au

Andrew Johnson  Partner

Direct Line: (07) 3228 0408

ajohnson@millsoakley.com.au

Late last year significant changes to privacy law were enacted by the Commonwealth parliament. They are to come into effect in March 2014. This beneficially gives all holders of the private information of others time to adjust and take appropriate steps to ensure compliance with the new standards.

Most entities which handle personal information about individuals, including most Australian companies, charities and many aspects of government, will need to comply with the new regime.

A tailored and targeted approach needs to be taken by charities and not for profit organisations as to when and how they ensure that their systems comply with the new world of privacy that is looming.

Charities are in a position where in many aspects of their activities they may deal with legally protected information. Both the identity and details of donors and beneficiaries will in all likelihood be held by a charity.

The new changes incorporate a set of 13 Australian Privacy Principles, which replace the prior foundational concepts set out in earlier versions of the Act. Those of most relevance to those in charge of charities are likely to be:

1.     The open and transparent management of personal information;
2.     Allowing individuals to deal with you anonymously or pseudonymously (subject to practicality);
3.     The collection of solicited or sought personal information;
4.     The collection of unsolicited personal information;
5.     Use and disclosure of personal information;
6.     The adoption, use or disclosure of government related identifiers (i.e. Medicare number/driver’s licence number);
7.     The quality of personal information;
8.     Security of personal information;
9.     Access to personal information; and
10.   Correction of personal information.

All are directed to the protection and privacy of information held about others.

Compliance with the legislation is neither discretionary nor flexible. Whilst there is obviously a commercial need to balance the cost of compliance and training of staff with prudent management, the implications of not observing the law could be significant.

There is a much greater sting in the tail for breaches of the Act. The Privacy Commissioner has much wider powers to take enforcement steps in relation to breaches. Civil penalties can be up to $1.1 million for corporate entities and $220,000 for individuals. Penalties can apply to any person or individual, who aids, abets or knowingly assists in breaches of the Act.

The terms of your Privacy Policy must be made available to all whose information you do, or will, hold. It must be transparent, clear and easily understood.

Aligned with the drafting of the Policy will be its observance. It is necessary for you to do what you say you will in the Policy.
Importantly your obligations in relation to the receipt of information you did not intend to collect are also enhanced under the new law, and information must be destroyed if it is no longer needed for a lawful purpose.

Close consideration needs to be given to:

1.     Creating or amending a privacy policy;
2.     Training staff who will deal with the personal and confidential information of individuals; or
3.     Setting up a complaint or dispute resolution mechanism when someone alleges their rights under the Act are being infringed.

These steps will assist not only in complying in general terms with the obligations of the Act, but set up safeguards to assist in avoiding breaches of the Act in the misuse of personal information which could give rise to serious implications for you and your organisation.

Contact Us

Damian Ward
Partner
Email: dward@millsoakley.com.au

The recent Supreme Court of NSW decision in the case of Dickman v Holley, Re; Estate of Simpson1 demonstrates the Court’s willingness to set aside a will on the grounds of undue influence and lack of testamentary capacity, some years after probate has been granted.

We look at the issues in the case relating to will making and probate, and highlight several key messages to take from this case.

Facts

Mrs Simpson (deceased) made a will, leaving the whole of her estate to the Salvation Army (charity) for the use and benefit of the nursing home she lived in prior to her death (second will). The lawyer who created the will was also the lawyer for the charity, and the deceased appointed someone from the charity as her executor. Probate was granted and the estate was paid to the charity.

Four years later, Mr Dickman, a close friend of the deceased’s, sought for that probate to be revoked. Mr Dickman was the executor and sole beneficiary of the deceased’s earlier will (first will). Mr Dickman also sought probate to be granted to him in respect of the first will.

Mr Dickman claimed that the deceased lacked testamentary capacity when the second will was made, and that the second will was made through the undue influence of the deceased’s neighbours and also the charity’s officers. These claims were based on the deceased’s age and health, and events involving the deceased’s neighbours and the charity’s officers.

Court’s Decision

The Court held that the charity should reimburse the deceased’s estate.
There was a question as to whether Mr Dickman’s claim to revoke the grant of probate of the first will was barred because he did not commence proceedings until four years after probate was granted. The Court concluded that the claim was not barred.

The Court said that the second will should be revoked on the basis that the deceased lacked testamentary capacity. It was considered that as a result of the deceased’s extreme age (96 years), physical weaknesses and emotional liability, the deceased would not have been capable of standing up to the pressure imposed by others and evaluating the strength of the claims being made about her estate.

Key Messages

There are several key messages to take away from this case:

• A claim to revoke a grant of probate some years after it has been granted may not be barred.
• Charities should generally be careful about the extent to which they are involved in the creation of wills in which they are likely going to be a beneficiary, to avoid claims of undue influence.
• If a charity’s lawyer is involved in the creation of a will, the lawyer should ensure that they undertake appropriate checks of the testator’s testamentary capacity, and keep thorough records of this.

1 Dickman v Holley [2013] NSWSC 18

Contact Us

Ciara Lui
Lawyer
Email: clui@millsoakley.com.au

For those of you who attended the first 2013 Mills Oakley Not-for-Profit breakfast seminar in April, you will have met Shirley. Shirley is a not so hypothetical incoming not for profit CEO facing a range of legal, marketing and technology challenges and looking for solutions. In this issue we introduce George, the Chair of the Board, preparing for the incoming CEO…

George is a man to respect. He’s at the top of his career and his role as Chair in an organisation that gives kids a better chance in life is not just a feather in his cap. He is there because he believes that the work the organisation does is unique and vital. He’s proud of its achievements, cares about the staff, and goes out to bat for the organisation at fundraising events, with contacts, money, time and effort. Being on this board is personal and enables him to ‘contribute’ to society in a way that utilises his experience, skills and motivation.

Juggling the demands of a full-size career, family and a board position, let alone a chairmanship is tricky though, and when George stops to think about it, he’d have to admit that the organisation has hit a few speed bumps of late. For one thing, the previous CEO left the organisation a little dysfunctional and their culture a little toxic. They seemed like the right person, and they won some great contracts, but they acted more like a military tank at critical moments, when what was needed was more like a circus unicycle. It’s OK. The new CEO will fix it.

George will give the new CEO the task of creating fundraising and financial sustainability–that item on the board agenda that just keeps sliding because there are too many vested interests, and quite frankly no-one knows what the answer is. And they can deal with those stakeholders with their complex and often competing needs. And make sure the staff feel empowered and become more productive and cohesive. They’ll create a high performing team, and take the organisation to the next level. There’s no question the organisation is ready. The board want to help–they just need to be pointed in the right direction.

The new CEO comes in and they’re everything George and everyone else had hoped for. A real leader. They build solid relationships with the board members, consult with stakeholders and are energetic and positive. All those difficult issues can finally be given to someone to resolve – the COO who had to act up into the CEO position and could derail the whole process if not properly managed; the strategy that was being led by the Board member who should be good at this kind of stuff but isn’t; the fundraising event that saps everyone’s time and energy but rolls on year after year.

George knows it’s important to give the new CEO some KPIs. They’ve only been in the role a few weeks, so it’s not ideal for them to write their own probationary objectives, but he doesn’t have the time or headspace. He’d like to see if they can talk to the Board too about how it could become more effective. I mean, yes, strictly speaking the board’s effectiveness is his role, but maybe they can deliver some of those uncomfortable messages which get Barry, Harry and Jo to realise their time is up. It’s tricky, draining and time consuming work and he knows he isn’t doing anything differently from how he and the Board worked with the last CEO. But maybe this time things will be different…

If this scenario rings some bells or looks like an organisation you know, you’re not alone. People for Purpose works with talented and capable board members like George every day–as well as stand-out CEOs like Shirley.

In our experience, there are three critical things that can be done by a Chair to increase the chances of making a new CEO or senior executive hire successful:

1.     Reflect on what kind of leader you are being for the organisation and how can you become the model of leadership you are hoping for from the new CEO. It’s useful to remember that 70% of an organisation’s culture is driven by leadership, and as Chair your leadership behaviours are a critical part of that culture setting.1

2.     Ask yourself how you can create a good strong working relationship with the new CEO. As respective leaders of the executive and management functions of the organisation, your relationship and the quality of your communication is critical. Set clear and mutual expectations, and early on show that you are genuinely open to feedback.

3.     Consider what support you and the CEO might need, either together or separately, to achieve your potential as individuals and as leaders of your respective teams of board and staff. If you would benefit from a fresh perspective or you need to close a skill, knowledge or capability gap, then ask yourself if it’s really cost effective to drag on without that help.

People for Purpose is a social purpose enterprise that partners with for-purpose organisations to fill leadership positions – including Chairs, Board members, CEOs and senior executives – and then helps those people to achieve their potential. We offer on-boarding and coaching programs for senior positions, helping to make sure the resources invested in bringing good candidates in, deliver the much-hoped for organisational outcomes.

Rachael McLennan | rachael@peopleforpurpose.com.au

1 Richard E. Boyatzis, Becoming a resonant leader

Section 150 licences that were issued after 1998 now have no legal basis. The Australian Securities and Investments Commission (ASIC) is unable to provide any advice on what to do with them, so our advice is that you relegate them to the very bottom of a filing cabinet or perhaps frame them for the sake of posterity.

Previously, companies pursuing charitable purposes applied for and held “section 150 licences” entitling them to be registered with ASIC as a company limited by guarantee without the word “Limited” in their names.
Now, amongst other things, a company must be a charity registered with the Australian Charities and Not-for-Profit Commission (ACNC) and then the word “Limited” can be automatically dropped.

So in practical terms, this means that any company holding a section 150 licence which is not registered as a charity with the ACNC, or does not hold a licence that was in force prior to 1 July 1998, must reinstate the word “Limited” into its name.

The main difficulty with this new system is that it is cumbersome for new charities. When a new company becomes incorporated as a public company limited by guarantee, it must have the word “Limited” in its name, and therefore also in its constitution. It must then apply to the ACNC to be registered as a charity before being entitled to drop the word “Limited”. We believe that if it wishes to then drop the word “Limited” from its name, the new charity must apply to ASIC using a Form 432 and pay a $357 fee before it is able to drop the word “Limited” from its legal name. The charity can change its constitution to remove the word “Limited” without passing a special resolution. The charity must then notify the ACNC of the change in its name and constitution using a Form 3B.

We have paraphrased the old and the new section 150 of the Corporations Act 2001 (Cth) below:

Essentially, a company should only omit the word “Limited” from its name in the following two circumstances:

1.    Where the company is a charity registered with the ACNC and its constitution prohibits payment of any fees to directors and payment of any other money to directors without board approval.

2.    Where the company holds a pre-existing licence that allowed the company to omit “Limited” from its name which was in force immediately before 1 July 1998 and has remained in force. The company must not have:

(a)     breached a condition of the licence;
(b)     pursued objects or purposes that would have prevented it being granted the licence;
(c)     applied its profits or other income to promote objects or purposes that would have prevented it being granted the licence;
(d)     paid a dividend to its members;
(e)     modified its constitution to allow it to do anything set out in paragraphs (a) to (d); or
(f)     failed to notify ASIC of changes to the licence or to its constitution where it was required to do so.

If your company falls into the circumstance at (1) above, then it may drop the word “Limited” (subject to formally notifying ASIC through form 432 and notifying the ACNC). This means that it can drop the word “Limited” anywhere that the name of the company is required to be used, including on all legal documents and on the ACNC and Australian Companies Registers.

Where a company previously held a licence in accordance with section 150 of the Corporations Act and now does not fit into one of the two circumstances listed above, it must notify ASIC of non-compliance with section 150 requirements by submitting a “Form 433” to ASIC.

The law does not include transitional provisions explaining what companies should do where they previously held section 150 licences, but they now do not fit into one of the two circumstances listed above. This is because the relevant law has not been revoked, it has simply been changed. The eligibility criteria has changed and so companies must notify ASIC if they no longer satisfy that eligibility criteria. There appears to be no additional requirement for companies to revoke their section 150 licences.

Contact Us

Clementine Baker
Lawyer
Email: cbaker@millsoakley.com.au

The governance standards, which are not yet operative, set out basic standards that all charities except basic religious charities (referred to hereafter as Charities) must comply with.

If a charity does not comply with the governance standards, the Australian Charities and Not-for-Profits Commission (ACNC) has powers to de-register the charity and remove directors.

On 1 July 2013 certain rules in the Corporations Act 2001 will be switched off which, amongst other things, protect charities from the bad behaviour of directors. The intention is that the governance standards will be switched on in their place.

Once the governance standards commence, every Charity must comply with the governance standards to the extent that such compliance is not inconsistent with its governing document (i.e. its constitution).

A significant point to note is that once the governance standards commence, they will operate retrospectively. Any changes which a Charity has made to its constitution since 5 March 2013 must be not inconsistent with the governance standards.

If there are inconsistencies between what the governance standards require and what a Charity constitution allows, and those inconsistencies existed prior to 5 March 2013, then the Charity will have until 1 July 2017 to fix the problem.

While most Charities will already be complying with the governance standards, there are some things that Charities should do to ensure they are complying with the ACNC’s requirements and to protect themselves from the bad behaviour of directors. Charities will eventually be required to amend their constitutions, but there may be some interim measures that they should take now.

Timing: the governance standards may not be switched on in time – what happens then?

The governance standards are expected to become operative on 1 July 2013.

However, the law actually says that the governance standards will commence on the latter of 1 July 2013 or the last day on which the governance standards could be disallowed in either House of Parliament.

We understand that the Government intends for that date to be before 1 July 2013. However, if the Senate scheduling does not permit the governance standards to be considered, then the governance standards may not commence before Parliament goes into caretaker mode. For this reason, no one knows when the governance standards will commence.

If the governance standards do not commence by 1 July 2013, then there will effectively be a gap in the law. The Corporations Act 2001 provisions will be switched off, but the governance standards will not be switched on. For this reason, we think charities need to protect themselves.

Warning: the governance standards do not offer the same level of protection to charities as the Corporations Act did – protect yourselves!

Regardless of whether the governance standards commence in time or not, the governance standards do not provide charities with the same level of protection as was provided by the Corporations Act.

Previously a director was liable under the Corporations Act if that director failed to comply with directors’ duties, such as the duty to disclose conflicts of interest. Under the governance standards, a Charity can be held accountable if a director fails to disclose a conflict of interest, but the director himself/herself cannot be held accountable other than being suspended or removed from their role as director.

Charities should consider how best to protect themselves and ensure that directors are accountable in some way for their actions.

How do charities do this??

Charities should familiarise themselves with what the governance standards require. In summary, the five governance standards require the following:

Standard One: Purposes and not-for-profit nature of a registered entity

Charities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this to the ACNC and provide information about their purpose to the public.

Standard Two: Accountability to members

Charities must take reasonable steps to be accountable to their members and provide their members adequate opportunity to raise concerns about how the charity is governed.

Standard Three: Compliance with Australian laws

A charity must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty of 60 penalty units ($10,200) or more.

Standard Four: Suitability of responsible entities

Charities must check that their responsible persons are not disqualified from managing a corporation (under the Corporations Act 2001) or currently disqualified from being a responsible person for a registered charity by the ACNC Commissioner. Charities must take reasonable steps to remove responsible persons that do not meet these requirements.

Standard Five: Duties of responsible entities

Charities must take reasonable steps to make sure that the members of their governing body know and understand their legal duties and that they carry out their duties. 1

Charities which have not changed their constitutions since 5 March 2013 do not have to change their constitutions until 1 July 2017. However, they still need to comply with the standards above. Therefore, if a Charity chooses not to update its constitution, it should take other steps to ensure compliance.

In particular, Charities should adopt policies to ensure that they are checking that their responsible persons have not been disqualified and that their directors are complying with certain standards. The following are examples of policies which Charities may adopt:

-     a policy that the Board will take reasonable steps to ensure that the Board does not at any time include a director who is disqualified from managing a corporation under the Corporations Act 2001 or from being a responsible entity under subsection 45.20(4) of the Australian Charities and Not-for-profits Commission Amendment Regulation 2013.

-     a policy requiring that every director sign an agreement with the Charity acknowledging that that director is subject to, and must comply at all times with, the duties set out in Governance Standard 5 in section 45.25 of the Australian Charities and Not-for-profits Commission Amendment Regulation 2013.

We recommend that Charities make changes to their constitutions. There are likely to be many inconsistencies in constitutions which would not prevent Charities from complying with the governance standards, but which should still be clarified in constitutions. For example, many constitutions will refer to certain sections of the Corporations Act, where that reference may now need to be removed or instead refer to a section of the governance standards or the Australian Charities and Not-for-Profits Commission Act 2012.

Further, the governance standards provide greater flexibility in terms of how Charities operate. For example, Charities must still be accountable to their members but will not necessarily have to hold AGMs. If Charities wish to take advantage of some of these more flexible arrangements, they will need to change their constitutions accordingly.

Charities which have changed their constitutions since 5 March 2013 should ensure that those provisions are not inconsistent with the governance standards. Charities should amend any such inconsistent clauses prior to 1 July 2013.

What does this mean for charities that aren’t companies?

The committee members of incorporated associations will still be subject to the relevant associations law in the relevant State/Territory. Incorporated associations should not be concerned by the gap in the law or the lack of protection against wayward committee members.

All Charities must comply with the governance standards regardless of their entity structure, so they should still ensure that they have measures in place to check that, for example, committee members are not disqualified.
All Charities should consider whether they wish to take advantage of the increased leniency for Charities under the governance standards.

2013 Federal Election

Just to throw a spanner in the works, the Federal Opposition Party has announced that if it comes into power in September 2013, it may wind back the ACNC and undo many of the changes the ACNC has introduced, including the governance standards. It is unclear how long it would take the Opposition Party to make any such changes.

 1 Source: ACNC Website (http://www.acnc.gov.au/ACNC/Manage/Ongoing_Obs/Governance/GovStds/ACNC/Edu/GovStds_overview.aspx?hkey=18fdef33-9f88-4a3f-ac61-e3a8ba3fdac6)

Contact Us

Ciara Lui
Lawyer
Email: clui@millsoakley.com.au

The ACNC has released a sample of the 2013 Annual Information Statement (AIS) that all charities will need to complete in due course.

A copy of the sample AIS and the ACNC’s guidelines are available on the ACNC website www.acnc.gov.au. The AIS is due to be finalised shortly.

To further assist you when you complete the AIS, here are the main FAQs that some of you have raised with us so far:

1.    Do I need to provide any financial information?

No. The 2013 AIS asks for non-financial information only. The 2014 AIS will ask for the same non-financial information and also financial information. There is information about the 2014 AIS on the ACNC website which indicates what financial information will be required.

2.    Can I complete the AIS online?

The AIS is currently in paper form, but we understand that the ACNC is working on making the AIS available for completion online. You should receive correspondence from the ACNC in due course.

3.    For question 2 in the AIS, I have to put my charity’s legal name. How do I find this out?

Your charity’s legal name is the name that is linked to your ABN.

4.    How can I check what the charitable purposes of our charity are for question 7 in the AIS?

You can check the objects in your constitution and also information you have on your website or in other documents about your purposes. You can tick as many boxes as you like, but we suggest you tick the main purposes.

5.    Where do I obtain the figures from for answering question 15?

Your annual report, payroll records and WHS records may assist you. It may be useful to record this information in a separate document going forward, given you will be required to provide it annually. Remember, you can just give an estimate.

6.    Completing Section D is optional. Is there any point in completing it?

It may take some time to complete, but we suggest that you complete this section to assist the ACNC to cut red-tape. The more information of this nature that they can acquire directly from charities, the more support they will have when they negotiate with other State, Territory and Federal bodies regarding reporting obligations.

7.    Who needs to complete Section E, the declaration?

At this stage, this should be either a committee member/director or an agent who has written authority from a committee member or director.

Contact Us

Clementine Baker
Lawyer
Email: cbaker@millsoakley.com.au

An aspect of the decision in The Owners – Strata Plan No. 50276 v Thoo [2013] NSWCA 270 which requires an article all of its own, is its finding that a breach of section 62 of the Strata Schemes Management Act 1996 (“SSMA”) by an owners corporation does not give rise to a claim in damages. This overturns what had been understood to be the law until now.

The Decision in Thoo

In the earlier New South Wales Supreme Court (“NSWSC”) judgment the subject of the appeal, Justice Slattery relied on Lubrano v The Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308 to find that the Owners Corporation owed a statutory duty under section 62 of the SSMA to maintain the common property, the breach of which gave rise to a claim for damages. Lin v The Owners – Strata Plan No 50276 [2004] NSWSC 88 cited Lubrano, as did Seiwa Pty Ltd v The Owner of Strata Plan 35042 [2006] NSWSC 1157.

However, the New South Wales Court of Appeal (“NSWCA”) in Thoo said none of the judges in Lubrano specifically addressed the question of whether a breach of the statutory duty gave rise to a private cause of action, and that Seiwa also did not deal with the statutory duty question (as the issue had been dropped shortly before Hearing and thus had not been argued and tested before the Court). It also found that in the decision of Trevallyn-Jones v Owners Strata Plan No 50358 [2009] NSWSC 694, referred to Lubrano and Seiwa, the owners corporation did not dispute that a private right to damages arose by reason of breach of section 62 (meaning the issue had not been tested).

The NSWCA noted that Nicita v Owners of Strata Plan 64837 [2010] NSWSC 68 noted that it was “well established”, and “clearly stated” in Seiwa, that section 62 created a statutory duty. However, it was also noted that Nicita acknowledged the comments in Ridis v Strata Plan 10308 [2005] NSWCA 246 that the system of adjudication established under Chapter 5 of the SSMA existed to deal with disputes as to an owners corporation’s obligations.

The NSWCA noted that McColl J said in Ridis that the lot owner did not assert a statutory cause of action arising from section 62 and relied on common law negligence.

The NSWCA acknowledged that Justice McColl’s comments on the issue of the statutory duty not giving rise to a claim for damages were “obiter dicta” (meaning they were comments made in passing, rather than being the basis of the reasons for the actual decision, referred to as “ratio decidendi”), and noted that Justice Slattery in the earlier Thoo decision being appealed found Justice McColl’s observations in Ridis were not an impediment to find that a breach of section 62 gave rise to a claim in damages.

The Owners Corporation submitted that Justice Slattery should have followed McColl J in Ridis rather than Seiwa, Trevallyn-Jones and Lin as done (and as argued by Dr Thoo).

The question of whether a breach of statutory duty gives rise to a cause of action in damages is a question of legislative intention and legislative language.  The Owners Corporation submitted that it was relevant whether the legislation provides for an alternative remedy, as the existence of Chapter 5 in the SSMA caused Justice McColl to find a breach of section 62 did not give rise to a claim in damages, and that Ridis should therefore be preferred to contrary decisions.

The NSWCA noted that the SSMA sets out to provide for the management of strata schemes and resolution of disputes. Under Chapter 5, an Adjudicator has power to make orders to deal with disputes, which can be appealed to the Consumer, Trader and Tenancy Tribunal and then the New South Wales District Court. The orders of an Adjudicator have effect as a resolution of the owners corporation to do what is necessary to comply with an order of the Court. Accordingly, if the order was to comply with section 62 to repair or replace common property and the owners corporation failed to do so, the obvious remedy would be a mandatory injunction. Section 138(3)(d) provides that an Adjudicator cannot make an order for payment of damages. The NSWCA found this was an indication that such disputes be resolved in a manner not involving the payment of damages.

The NSWCA held that Ridis found, albeit “obiter”, that a breach of section 62 did not allow for a claim for damages because the legislature intended an Adjudicator under Chapter 5 to regulate compliance with section 62 and it had no power to order damages. The NSWCA ultimately found that the approach of Justice McColl should be preferred to the various NSWSC cases cited by Thoo as to the intention of the legislature, although Justice Slattery was entitled to prefer the contrary decisions as he had (they just disagreed).

The NSWCA also found that neither decision in Proprietors of Strata Plan No 30234 v Margiz Pty Ltd nor MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 dealt with the issue of whether the equivalent section in the strata legislation prior to section 62 gave rise to a private right to an action in damages. Indeed, Margiz found no such right.

Conclusion

The decision in Thoo throws out what was understood to be the law established by repeated decisions over decades, based on obiter in Ridis.

The NSWCA appears to do this on the basis the various previous decisions that seemed to provide findings to this effect had not dealt with the specific question, while Justice McColl’s obiter comments had dealt with it and the NSWCA agreed with Justice McColl’s reading.

In our view, the reasoning for ignoring Nicita is not clear, although by implication the Court in that case was following earlier decisions which the NSWCA found did not establish what Nicita said had been established.  The NSWCA in Thoo also does not seem to have considered Riley v The Owners – Strata Plan 73817 [2012] NSWCA 410 (which analysed Ridis), although whether the decision would have been different had it had regard to this decision is difficult to say (and would probably need another article again).

The entire approach of the NSWCA seems to be founded on an analysis that Chapter 5 provides a comprehensive scheme for dealing with strata disputes, including those involving section 62. The logic seems to be that, as the scheme explicitly cannot order payment of damages, such cannot be claimed for a breach of section 62.

However, a question that is not explicitly dealt with is what if the only remedy for part or all of the breach is damages? Ensuring an owners corporation undertakes repairs is only a partial remedy if failure to comply with section 62 has caused other damage. For example, if the roof is leaking in a strata scheme and the water ingress causes damage to internal fitting and fixtures, such as furniture and electrical goods, it would seem that Adjudicator’s orders to do work or a mandatory injunction enforcing such would not be an effective remedy in that regard. Similarly, damages appear to be the only adequate remedy to compensate owners for the costs of alternative accommodation if they have to move out while the roof is rectified.

The decision in Thoo would seem to leave open a claim for damages in negligence, as opposed to for a breach of statutory duty. Indeed, the NSWCA says that in Ridis the appellant relied on a breach of section 62 as evidence of negligence (although a breach was apparently not conclusive evidence of such negligence having occurred). A negligence case would still need to be proven, but is still apparently open to persons suffering damages.

Given these types of disputes do arise the issue will almost certainly come before the Courts again in the future. However, it would seem likely the Court of Appeal will need to deal with the issue if it is to be to a different conclusion, as the lower courts will usually find themselves bound by this decision, unless Parliament provides some clarification or guidance prior to then.

For more information, please contact:

Paul Jurdeczka | Partner
pjurdeczka@millsoakley.com.au

Deliang Chin | Lawyer
dchin@millsoakley.com.au

We have included the simple flow-chart below to help you identify your entity’s tax status. With any luck a few of our readers will discover that they do not need to be paying income tax or, at the very least, they can benefit from the mutuality principle.

Categories of tax exempt NFPs

-       Community service organisations

-       Cultural organisations:

•  Art

•  Literature

•  Music

•  Musical purposes

-       Public educational institution

-       Employment organisations:

•  Employee association

•  Employer association

• Trade union

-       Health organisations:

•  Public hospital

•  Non-profit hospital

•  Benefit organisations

-       Resource development organisations:

•  Agricultural resources

•  Aquacultural resources

•  Aviation

•  Fishing resources

•  Horticultural resources

•  Industrial resources

•  Manufacturing resources

•  Pastoral resources

•  Tourism

•  Viticultural resources

•  Information and communications technology resources

-       Scientific organisations:

•  Scientific institution

•  Science association

•  Scientific research fund

-       Sporting organisations:

•  Animal racing

•  Game or sport

For an entity to be income tax exempt under one of the categories listed above, it must satisfy the criteria specific to that category. The criteria are listed in the ATO’s publication ‘Income tax guide for non-profit Organisations’ which is available at www.ato.gov.au.

Contact Us

For more information regarding this article, please contact Clementine Baker, Lawyer on (02) 8289 5849

The Australian Charities and Not-for-Profits Commission (ACNC) has implemented its new Governance Standards, effective from 1 July 2013.

All charities (except basic religious charities) must comply with the Governance Standards to become registered and to maintain their registration with the ACNC.

The Governance Standards set out minimum standards of governance, to help promote public trust and confidence in charities. The Governance Standards also allow greater flexibility in terms of how charities operate.

We set out below a brief summary of each of the Governance Standards* and take a look at examples of what charities could do to ensure they comply with the Governance Standards. This is not a comprehensive list, and we suggest you seek further advice before implementing any changes to the manner in which your charity operates. Please keep in mind that some changes may require you to amend your constitution.

Please note the following:

•   The ACNC Act and the Governance Standards refer to a charity as a “registered entity” and a director as a “responsible entity”. We have used the terms “charity” and “director” respectively for ease.

•   A charity has until 1 July 2017 to make any necessary changes if there is a specific part of its governing document that prevents it from complying with any of the Governance Standards.

•   If a charity is an incorporated association, the charity will be deemed to have complied with Governance Standard 5 if its relevant legislation sets out committee member duties and those duties are being complied with by the charity.

GOVERNANCE STANDARD 1:  Purposes and not-for-profit nature of a charity

A.    What is required

Governance Standard 1 requires that charities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this and provide information about their purpose to the public.

B.    How to comply

Most existing charities will already be complying with Governance Standard 1 and will not need to do anything further.

Examples of what a charity could do to comply with Governance Standard 1 include:

•   including the following clauses in its constitution:

o         an objects clause setting out its charitable purpose; and

o         the not-for-profit clauses required by the Australian Taxation Office for a charity to obtain charitable tax concessions.

•   ensuring it undertakes activities which progress its charitable purpose.

•   providing a copy of the constitution to the ACNC to be included on the ACNC’s online register.

•   including information about its purpose and activities on its website or in distribution material.

GOVERNANCE STANDARD 2: Accountability to members

A.    What is required

Governance Standard 2 requires that charities must take reasonable steps to be accountable to their members and provide their members adequate opportunity to raise concerns about how the charity is governed.

B.    How to comply

Incorporated associations are generally required by their relevant legislation to be accountable to their members by holding an AGM. Up until 1 July 2013, pursuant to the Corporations Act 2001 (Cth), companies were also required to hold an AGM.

However, for companies, the introduction of Governance Standard 2 provides charities with the opportunity to review whether holding an AGM (and the process and requirements that come with holding an AGM) is the most suitable way to be accountable to their members. (Please note that incorporated associations must still hold an AGM if required by their relevant legislation.)

Examples of what a charity could do to comply with Governance Standard 2 include:

•   Regardless of the process, as a minimum, a charity should always provide members with:

o         financial information and/or an annual report about the organisation to explain its operations;

o         an opportunity for concerns/issues about governance to be raised;

o         an opportunity for voting and resolutions to be passed; and

o         an opportunity to elect directors.

•   With regard to how a charity could organise for the above to occur in a manner which is effective and cost efficient, a charity could implement one of the following options:

o         continue holding an AGM if it is effective for that charity;

o         convene an AGM, but via teleconference;

o         instead of holding an AGM, a charity could be accountable to its members “on the papers”, that is, circulate information, require feedback by a specific time and have circulating resolutions. Directors could be elected by postal ballot or online voting; or

o         create a virtual meeting where members could converse with each other and the management of the organisation through, say, a chat room.

GOVERNANCE STANDARD 3: Compliance with Australian laws

A.    What is required

Charities must not commit a serious offence (such as fraud) under any Australian law or breach a law.

B.    How to comply

We consider that it is imperative that all charities use their best endeavours not to breach any laws.

GOVERNANCE STANDARD 4: Suitability of responsible persons

A.    What is required

Charities must ensure that their directors are not disqualified from managing a corporation under the Corporations Act 2001 (Cth), or disqualified from being a director of a registered charity by the ACNC Commissioner. Charities must take reasonable steps to remove any responsible person who does not satisfy these requirements.

B.    How to comply

Examples of what a charity could do to comply with Governance Standard 4 include:

•   As a minimum, include a clause in its constitution stating that all directors will meet Governance Standard 4 at all times.

•   Search public registers before a director is elected/appointed, and annually thereafter, and keep a record of the searches it has undertaken.

•   Have each candidate for directorship answer a questionnaire where the various disqualifying events are listed, and the candidate has to disclose if any of those events have occurred in the twelve month period prior to his/her  appointment/election to the board.

•   Have each director sign a declaration when he/she is elected/appointed regarding Governance Standard 4.

GOVERNANCE STANDARD 5: Duties of responsible persons

A.    What is required

Charities must take reasonable steps to make sure that responsible persons understand and carry out the duties set out in this standard.

B.    How to comply

Examples of what a charity could do to comply with Governance Standard 5 include:

•   As a minimum, insert a clause in its constitution stating that the directors will comply with the duties at all times.

•   Include a list of all the duties, and the consequence(s) for non-compliance, in the letter of appointment of each director.

•   Establish board policies/charters which support and enable the directors to comply with this governance standard.

•   Arrange training for the directors on directors’ duties generally.

*Source of summaries of Governance Standards: ACNC website www.acnc.gov.au.

Contact Us

For more information regarding this article, please contact Clementine Baker, Lawyer on (02) 8289 5849

Before becoming a director of a not-for-profit board, you should do your homework. You should understand what the organisation is about, and whether or not you will be able to work with the organisation.

We have included a list of useful matters to consider to assist you in obtaining a good understanding of the organisation before you take your seat at the board table.

STEP 1: Establish the organisation’s legal and reputational status

(a)    Establish what kind of legal entity the organisation is:

(i)       If the organisation is a public company limited by guarantee, you will have to comply with the Corporations Act 2001 (Cth).

(ii)      If the organisation is an incorporated association, you will have to comply with the associations legislation in your State or Territory (i.e. Associations Incorporation Act 2009 (NSW)).

(iii)     If the organisation is a trust or other entity, your legal obligations will be different again.

(b)   Is the organisation a registered charity? Check the Australian Charities and Not-for-Profits Commission Register (www.acnc.gov.au) to confirm. The website has useful information to help you understand the obligations of charities.

(c)   Ask the current board if there have been any legal claims against the organisation in the last three years or any outstanding or pending claims that may result in board liability.

(d)   Try to understand what the organisation’s reputation is in the community. Use Google.

(e)   Is the organisation affiliated with any other organisation? What is the legal relationship between the organisations?

STEP 2: Review the relevant documents

Request copies of all relevant documents. The organisation may not have all of these documents, but if they exist, you should review them:

(a)   the governing document (including all amendments);

(b)   the current by-laws (if any);

(c)   a list of current directors and officers (including the CEO), indicating when their terms expire;

(d)   a list or chart of staff positions and duties, with the salaries of the highest paid members;

(e)   a list of board committees and advisory committees;

(f)    the two most recent audited financial statements and any subsequent financial statements or reports;

(g)   any policy document or mission statements that are not part of the by-laws;

(h)   the organisation’s website and any printed literature that is regularly handed out to donors or clients of the organisation;

(i)    conflict of interest policies for board members and officers; and

(j)    any director liability insurance policy and a summary of other insurance coverage for the organisation.

STEP 3: Pay particular attention to the governing document

(a)   The governing document is usually, but not always, called the constitution.

(b)   The governing document constitutes a contract between you and the organisation and its members. You should read it carefully as you will be bound by its terms.

(c)   Ask when the last time was that the governing document was reviewed. We recommend that governing documents be reviewed at least every 2-3 years to ensure consistency with the law, good governance, best practice and to ensure that the document is still relevant for the organisation.

(d)   Some of the most important parts of the constitution for you to review are:

(i)       The board or committee section.

This section will explain the process for appointing or electing you to the board, what your term of office will be, how many times you could be re-appointed or re-elected and how you could be removed from office. The constitution may also set out what office-bearer positions there are on the board.

(ii)      The objects section.

This section is the organisation’s mandate to operate. The organisation cannot do anything which is inconsistent with the objects.

(iii)     The directors’ remuneration clause.

As a not-for-profit organisation, directors cannot receive a share of the profits of the organisation. Some not-for-profits do, however, pay directors sitting fees and fees for services performed outside the scope of their role as director.

(iv)     The indemnities clause.

This clause sets out the extent of any indemnities offered to directors of the organisation. You should check that you are happy with the level of protection you will receive. Is the organisation paying indemnity insurance? Will that protection extend beyond your term of office?

STEP 4: Ask questions

The board

(a)   Are there separate governance policies? If so, request a copy and review them. The governance policies may set out your role and responsibilities.

(b)   Ask the current board:

(i)       Who are the current board members and how long has each of them held office?

(iii)     If it is not set out in the constitution, what will be your term of office and can you be re-appointed or re-elected to the board?

(iv)     What is the size of cover for the directors’ liability insurance?

(v)      Is the CEO a board member?

(vi)     Is there a clearly defined policy or CEO instrument of delegation prescribing the board’s delegation to the CEO?

(vii)    Are there any separate codes of conduct or ethical practice?

(viii)   What committees have the authority to act on behalf of the board between board meetings? What committees are purely advisory? How are committees elected or appointed?

(ix)     Does the organisation offer each director a deed of indemnity and access?

(x)      Ask discretely about any excessive politics which are played at board level. Is it the case that one or two of the directors (or even a powerful figure who is not actually on the board) exercises excessive control over the dynamics and decision making of the board?

(xi)     How are officers appointed? Is the actual practice consistent with policies or by-laws? What arrangements are in place with the highest paid employees? What are their salaries and how long are their contracts for?

(xii)    Does the organisation have a risk management policy?

Expectations of you

Ask the current board:

(a)   About board meetings:

(i)       How often are board meetings held, how long do they run for and what is the attendance rate like at board meetings?

(ii)      Who prepares the agenda and are board papers and reports always sent to directors at least a week in advance of board meetings?

(iii)     What is the focus of board meetings generally? For example, board meetings may focus on policy development, operational decision-making, financial assessment, operational monitoring or strategic discussions.

(b)   Are there any board committees? And will you be expected to sit on them?

(c)   Will you be an office-bearer?

(d)   What expenses will be reimbursed?

(e)   Are there any policies outside of the constitution for removing directors for non-performance?

(f)    How much will you be paid, if anything?

(g)   What induction and ongoing training is provided to board members?

(h)   Is there a directors’ manual or resource to assist the director in understanding the role and familiarising oneself with the organisation?

The strategic direction of the organisation

Find out answers to the following questions from the documents or from asking the board:

(a)   Does the organisation have a strategic plan? When was it last reviewed? Does it reflect the actual practice of the organisation? Have strategic goals been met in the last two years?

(b)   How is strategic performance reported to the board?

(c)   How is the CEO’s performance measured?

(d)   What are the current CEO’s qualifications and experience and how long has the CEO held the position?

(e)   How involved is the board in other operational matters such as appointment of staff, internal dispute resolution, work health and safety?

STEP 5: Familiarise yourself with the finances

Find out answers to the following questions from the documents or from asking the board:

(a)   What is the organisation’s tax status?

(b)   How are financial matters reported to the board?

(c)   What are the organisation’s sources of funds?

(d)   What has the organisation’s cash position been like over the previous year?

(e)   Are you confident, from your review of the financial reports, that the organisation can meet its debts and liabilities? If you are not certain, ask.

(f)    Are long-term borrowings, e.g. mortgages over buildings, adequately secured?

(g)   Is there an audit committee? Who is the auditor and how long has that person been the auditor? Do the last two audited financial reports include any concerns from auditors?

(h)   Does the organisation have an independent external financial advisor?

(i)    Are there financial policies and systems in key areas such as financial reporting, CEO and officer remuneration, financial management and protection of assets?

(j)    What are the organisation’s significant assets and what are their values?

(k)   Does the organisation have a policy to protect its assets?

(l)    How often does the board review financial reports and policies?

(m)  Does the organisation have an investments policy? Are investments secured? Does the organisation have an overdraft arrangement with a bank? Is that facility utilised often?

(n)   Who has authority to sign cheques on behalf of the organisation? Who has authority to purchase major capital items?

STEP 6: Clarify anything that doesn’t seem right

After reviewing the documents and making the enquires above, if there is anything that doesn’t seem right to you, ask more questions. For example:

(a)   Do you see anything on the website, the financial statements, the tax returns, or elsewhere that raises issues around potential conflicts of interest between any board members and the organisation?

(b)   Do you see anything else on the website or in operations that may be inconsistent with the organisation’s tax-exempt status?

Importantly, would you support the objects from the organisation constitution and can you dedicate the time required to attend meetings and remain up-to-date and knowledgeable about the finances of the organisation?

Contact Us

For more information regarding this article, please contact Isabelle Whelan, Lawyer on (02) 8289 5836

What is the risk associated with being a director of a not-for-profit organisation?

There are over 500 pieces of legislation in Australia which impose personal liability on directors and officers of public companies limited by guarantee, and committee members of incorporated associations.

As a Director¹, you should be aware of your legal obligations. While we cannot summarise all of the legislation that imposes obligations on Directors in this article, a good starting point is the directors’ duties which all Directors must comply with.

To help you understand the risk associated with your legal obligations, we have included some commentary on how frequently Directors have been “getting into trouble”. We also have a quick look at defences, indemnities and insurances for Directors to help you to manage that risk.

Directors’ legal obligations

As a Director of a company or association, you must:

(1)   Comply with the governing document

Directors must comply with the company’s governing document – its constitution. The constitution is a legal contract that every Director enters into with the company/association when that Director agrees to sit on the board.

(2)   Comply with the ‘Directors’ Duties’

Directors must comply with the ‘Director’s duties’ (these duties are prescribed by legislation and case law and are largely the same whether you are a Director of a company or an association) which are:

(a)   be honest and careful in your dealings both with the company/association and on behalf of the company/association;

(b)   know what the company/association is doing, including how the company/association is faring financially;

(c)   make sure that the company/association can pay all of its debts on time;

(d)   ensure that the company/association keeps proper financial records;

(e)   always act in the best interests of the company/association, even if this may not be in:

a.        your own interests; or

b.        the interests of any member organisation that has appointed or elected you onto the Board or employs you; and

(f)    do not improperly use your position to gain an advantage or cause detriment to the company/association.

(g)   use any information you receive through your position properly and in the best interests of the company/association. Using that information to:

a.        gain, directly or indirectly, an advantage for:

i.      yourself;

ii.     the member organisation which elected/appointed you or employs you; or

iii.    any other person; or

b.        harm the company/association,

    may be a crime or may expose you to other claims.

(h)   always disclose any material personal interest to other Directors as soon as practicable after any conflict arises.

(3)   Comply with other relevant legislation

Directors should be aware of their possible personal liability for breaches of other State or Federal legislation. For example, environmental and work health and safety legislation now often provides that both a corporation and the Directors or persons concerned in its management will be guilty of offences committed by the corporation regardless of any active involvement, for example, section 10 of the Environmental Offences and Penalties Act 1989 (NSW).

Another area in which there may be hidden dangers for Directors is revenue law. Directors should be aware of the potential personal liability for breaches of State and Federal legislation dealing with matters such as: customs and excise, stamp duty, payroll tax and land tax under all of which the persons in control of a corporation may be personally liable in cases where the corporation has failed to pay.

Directors can be personally liable for any unpaid superannuation. Directors must ensure that the organisation either meets its obligations to pay superannuation, or goes promptly into voluntary administration or liquidation. The penalty which could be imposed on a Director is equal to the unpaid amount of the organisation’s liability under its obligation. This duty applies to Directors of incorporated organisations as well as members of a committee of an unincorporated association.²

Directors of registered charities can be personally liable if the charity is found to have committed an offence where the Director aided, abetted, counselled or procured the relevant act or omission and did not take reasonable steps to ensure the charity did not commit the offence.³

Penalties

The graph below summarises the types of penalties imposed on Directors of companies in the last financial year. The Australian Securities and Investments Commision (ASIC) and the Commonwealth Director of Public Prosecutions achieved 75 enforcement outcomes in the corporate governance area and 640 enforcement outcomes in the small business area. These penalties included criminal, civil and administrative action, enforceable undertakings and negotiated outcomes.

The majority of these penalties have been imposed on the Directors of for-profit companies. Apart from offences relating to shares and the market, the offences are in many cases the same as those that a not-for-profit Director could be charged with.

(For ease of reading the graph, we have grouped the penalties which are most relevant for not-for-profit Directors on the far right of the graph.)

Update – some recent case studies

(a)   Duty of Care and Diligence

Mr Lindberg, a former managing director of AWB Limited, contravened the Corporations Act 2001 (Cth) by failing to act on information available to him regarding the operation of the AWB Limited overseas. Mr Lindberg was fined $100,000 and disqualified from managing corporations for two years.⁴

Mr Ingleby, a former CFO of AWB Limited, contravened the Corporations Act by failing to act on information available to him regarding the operation of the AWB Limited overseas. Mr Ingleby was fined $40,000 and disqualified from managing corporations for 15 months.⁵

(b)   Duty to Act Honestly

Mr Northcoate pleaded guilty to one count of dishonestly withholding information from the Compass Hotel Group Ltd board and using his position to gain financial advantage. Mr Northcoate also pleaded guilty to two counts of submitting misleading documents to ASIC.

Mr Northcoate was sentenced to a total effective sentence of two years imprisonment to be served by way of an Intensive Correction Order.⁶

(c)   Duty to Keep Informed

Ms Baranov, former director of Bar Um Pty Ltd and MIB Systems Pty Ltd, failed to take an active part in the management of Bar Um and MIB Systems, failed to inform herself of all the activities of these companies and failed to take reasonable care to act diligently and in the best interests of the companies. Ms Baranov was disqualified from managing corporations for 18 months.⁷

(d)   Duty Not to Trade while Insolvent

Mr Plymin, Mr Elliott and Mr Harrison were the former directors of Water Wheel Holdings Limited and Water Wheel Mills Pty Ltd. Each of the directors had contravened the insolvent trading provisions of the Corporations Act and they were penalised as follows:

-   In relation to Mr Plymin, the Court ordered that he:

o         be banned from managing a corporation for 10 years;

o         pay compensation of $1,428,000 to the companies (jointly with Mr Elliott);

o         pay pecuniary penalties of $25,000; and

o         pay ASIC’s taxed costs jointly with Mr Elliott, but neither was obliged to pay more than 80% of the total.

-   In relation to Mr Elliott, the Court ordered that he:

o         be banned from managing a corporation for four years;

o         pay compensation of $1,428,000 to the companies (jointly with Mr Plymin);

o         pay pecuniary penalties of $15,000; and

o         pay ASIC’s taxed costs (jointly with Mr Plymin, but neither was obliged to pay more than 80% of the total).

-   In relation to Mr Harrison, the Court ordered that he:

o         be banned from managing a corporation for seven years; and

o         pay compensation of $300,000 to the companies.⁸

(e)   Duty to Keep Financial Records

Mr Baranov, former director of Bar Um Pty Ltd and MIB Systems Pty Ltd, failed to assist the liquidator to locate items, failed to take reasonable steps to ensure that financial records were maintained and failed to act with the reasonable care and diligence to allow Bar Um to trade in circumstances where its expenses exceeded its income. Mr Baranov was disqualified from managing corporations for 2 years.⁹

(f)    Duty to Act in Good Faith

Mr Loiterton, Mr Hall and Mr Sapier, the former directors of Clifford Corporation Limited and a director of a subsidiary, Signature Group Australia Limited, each committed in excess of 11 acts of dishonesty with regard to their financial records, in contravention of the Corporations Act. These breaches resulted in the following penalties:

-   Mr Barrie Loiterton was banned from managing a corporation for 17 years and fined $400,000.

-   Mr Hall was banned from managing a corporation for 14 years and fined $285,000.

-   Mr Sapier was banned from managing a corporation for eight years and fined $120,000.¹⁰

(g)   Duty Not to Misuse Information

Mr Vizard, the former director of Telstra, used confidential information obtained while he was a director for an improper purpose. Mr Vizard was disqualified from managing corporations for 10 years and ordered to pay pecuniary penalties of $390,000.¹¹

(h)   Duty to Disclose Information

Seven directors and former Chief Financial Officer of Centro Properties Group and Centro Retail Group, received penalties for breaching their disclosure duties when they signed off on financial reports that failed to disclose significant matters. The Court fined Mr Scott $30,000, and disqualified Mr Nenna from managing corporations for two years. The Court ordered the defendants to pay ASIC’s costs of the action.¹²

(i)    Not Manage a Company while Disqualified

Mr Durant managed a company while disqualified.
Mr Durant was prevented from managing a corporation for a further two years, in addition to his initial two year disqualification.¹³

Defences and indemnities

(1)   Defences

Given the amount of legislation imposing personal liability on Directors, it is not surprising that there are also numerous defences available to Directors.

The main defence available to a Director is where the Director reasonably relied on information or expert advice. Generally, it is reasonable for a Director to rely on expert advice where the Director believes on reasonable grounds that the person who gave the advice was an expert in that area and the Director relied on that advice in good faith and after making an independent assessment of the information. We note that the independent assessment criterion is an important one – the Director must still understand the advice and assess that advice in the context of the Director’s knowledge of the organisation, and the complexity of the structure and operations of the organisation.

A Director is responsible for the exercise of a power by a person to whom that Director delegated the power. However, it is a defence for that Director if the Director believed on reasonable grounds that the delegate would exercise the power in accordance with the duties imposed on Directors, and the Director believed on reasonable grounds and after making proper inquires that the delegate was reliable and competent in relation to the power delegated.

Directors of charities will not be liable for an offence committed by the charity if the Director could not take part in the management of the charity at the relevant time due to illness, or the Director took all reasonable steps to ensure that the charity did not commit the offence.

(2)   Indemnities

Most Directors have some level of protection from certain personal liabilities through indemnity clauses in the organisation’s governing document which favour the organisation’s Directors and officers. Many organisations are finding that such indemnity clauses are not sufficient, and hence are also protecting their Directors by means of a deed of indemnity in favour of each individual Director.

However, there are important restrictions imposed by statute on the liabilities that may be indemnified by a company. The Corporations Act restricts the liabilities that may be indemnified by a company so that a company cannot indemnify a Director for:

-   conduct involving a wilful breach of duty in relation to the company;

-   a contravention of sections 182 or 183 of the Corporations Act which prohibit a Director from making improper use of information or improper use of their position; or

-   liabilities incurred as a Director including:

o         a liability owed to the company;

o         a liability for a pecuniary penalty, or a compensation order, resulting from a breach of a civil penalty provision (including the insolvent trading provisions); or

o         a liability that is owed to someone other than the company/related company and did not arise out of conduct in good faith.

(3)   Insurance

As well as indemnities provided by an organisation to its Directors, many organisations pay for Directors and officers insurance (D&O Insurance). Generally, D&O Insurance consists of the following components:

-   a direct cover component which provides indemnification to Directors where the company itself is unable or unwilling to do so;

-   a company reimbursement component, which provides for the company to seek reimbursement for those amounts which it is required (or in some cases allowed), under its constitution, to indemnify the Directors; and

-   optional extra protections, for example, providing cover for spouses of Directors.

A company can pay the premiums for an insurance policy that covers certain breaches of duty only. The company cannot pay premiums on policies that seek to protect the Director from a wilful breach of duty, or a breach of sections 182 or 183 of the Corporations Act – the Director would have to take out a policy to protect himself or herself from those breaches.

D&O Insurance generally excludes claims brought by one insured party against another insured party. Therefore, actions brought by the company (which are a significant source of liability for a Director) are excluded.

It is also worth noting that any D&O Insurance policy must not be inconsistent with the indemnities provided in the organisation’s constitution, so that one document does not negate the protections provided by the other.

More information:

•   Australian Securities and Investments Commission (compliance) – http://www.asic.gov.au/

•   NSW Fair Trading (committee obligations) – http://www.fairtrading.nsw.gov.au

•   Australian Taxation Office – www.ato.gov.au

•   Australian Charities and Not-For-Profits Commission – http://www.acnc.gov.au/

•   Office of Liquor, Gaming and Racing (fundraising) – www.olgr.nsw.gov.au/charitable_home.asp

•   Office of the Privacy Commissioner – www.privacy.nsw.gov.au

•   Anti-Discrimination Board – www.lawlink.nsw.gov.au/adb

•   NSW Industrial Relations (employment) – www.industrialrelations.nsw.gov.au

•   Fair Work Ombudsman (employment) – www.fairwork.gov.au

•   Workcover Authority of NSW (safety) – www.workcover.nsw.gov.au

Contact Us

For more information regarding this article, please contact Clementine Baker, Lawyer on (02) 8289 5849

In the media

Fast food, fitness firms to be audited

In the ACCC’s next round of audits we will be looking at franchises from the takeaway food and health and fitness industries, however our audits will not be restricted to these two sectors. During the last financial year, the ACCC received 740 complaints from people involved in franchising, with more than 100 of them related to misleading conduct and false representations about potential earnings (21 October 2013)

To read more, please click here.

$2 million penalty for bearings cartel

The Federal Court has made orders by consent against Koyo Australia Pty Ltd ordering it to pay penalties of $2 million following action by the ACCC. The Court found that in 2008 and 2009, Koyo Australia made and gave effect to two separate cartel arrangements (18 October 2013)

To read more, please click here.

ASIC takes civil action against GE Money

ASIC  have started legal action against consumer credit provider GE Money, seeking financial penalties against the company for making false or misleading representations (17 October 2013)

To read more, please click here.

Queensland introduces landmark director liability reforms

The Newman Government is implementing significant reforms which will reduce red tape and the burden of liability on directors in Queensland, the Australian Institute of Company Directors said today (17 October 2013)

To read more, please click here.

Former Wintech Group MD pleads guilty

The former managing director of Wintech Group Limited,  Kim Wong, has pleaded guilty 10 charges including stealing $1.057 million. Mr Wong pleaded guilty to the theft, falsifying Wintech prospectuses and providing false information to the Australian Securities Exchange (14 October 2013)

To read more, please click here.

In practice and courts

ASIC reports on corporate insolvencies 2012–2013

ASIC have published an annual overview of corporate insolvencies based on statutory reports lodged by external administrators for the 2012–13 financial year. (17 October 2013)

To read more, please click here.

ASIC have released a consultation paper on financial reporting by stapled securities issuers.

Consultation paper CP 217 Presentation of financial statements by stapled entities (CP 217) seeks feedback on proposals for presenting combined financial information covering these stapled entities. Submissions close 30 November 2013.(11 October 2013)  

To read more, please click here.

Cases

Li v Wu [2013] FCA 1067

CONTRACTS – misleading and deceptive conduct – breach of express and implied terms – equitable compensation – construction of contract – indemnity provisions – member loans – breach of fiduciary  duty  should not be permitted because of a failure by Mr Li to articulate in sufficient time the basis for the claim for compensation – Fair Trading Act 1992 (ACT)

To read more, please click here.

Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2013] VSC 543

EQUITY – Fiduciaries –  Director  of family trust company arranged for the company to borrow money to make superannuation contributions to himself and family – Whether  director  breached fiduciary  duties  – Whether shareholders prospectively assented to transactions – Whether shareholders ratified transactions – Interests of beneficiaries of trust – Liability for knowing receipt – Whether sufficient knowledge – Liability for receipt of trust property as volunteer – Meaning of ‘volunteer’ – Whether superannuation fund provides valuable consideration in exchange for member or employer contributions – Cook v Benson [2003] HCA 36; (2003) 214 CLR 370 applied – Whether plaintiff has unclean hands –  Director  breached fiduciary  duty  but no liability since recipient company had insufficient knowledge and was not a volunteer.

To read more, please click here.

Cirillo and Registrar of Personal Property Securities [2013] AATA 733

CORPORATIONS – Securities – Personal Property Securities Act 2009 – Amendment demand given seeking removal of registration from Personal Property Securities Register – Registrar refused to register a financing change statement amending registration – Whether reasonable grounds to suspect amendment sought not authorised – Collateral continues to secure debt owed by the applicant – Amendment sought not authorised – Decision under review affirmed.

Personal Property Securities Act 2009 (Cth), ss 178, 180, 181 and 191

To read more, please click here.

Visa Global Logistics Pty Ltd v Smith & Anor [2013] VCC 1262

Guarantee – Director guaranteed company’s credit application – Ceased to be a director in 2006 – Company failed to pay for goods supplied in 2012 – Plaintiff’s accounts manager aware in 2006 that defendant no longer a director of company – Whether plaintiff entitled to enforce guarantee against former director.

To read more, please click here.

Woodcroft-Brown v Timbercorp Securities Ltd & Ors [2013] VSCA 284

CORPORATIONS – Appeal – Managed investment scheme – Product disclosure statement – Disclosure of prescribed information by Responsible Entity – Meaning of ‘significant risk’ – Whether a risk ceases to be a ‘significant risk’ if it is capable of being managed – Whether risks that are being managed are required to be disclosed – Whether information contained in Annual Reports and ASX announcements required to be included in the product disclosure statement – Whether directors had knowledge of information about a ‘significant risk’ – Whether non-disclosures relied upon – Appeal dismissed – ss 674, 675, 1013C, 1013D, 1013E, 1013F, 1022B of the Corporations Act 2001 (Cth).

MISLEADING AND DECEPTIVE CONDUCT – claims under s 1041H(1) of the Corporations Act 2001 (Cth) – Considerations relevant to assessing whether representations misleading and deceptive – Whether representations relied upon – Appeal dismissed.

To read more, please click here.

Contact Us

Warren Scott  Partner
Direct Line: (03) 9605 0984
wscott@millsoakley.com.au

Daniel Livingston  Partner
Direct Line: (03) 9605 0965
dlivingston@millsoakley.com.au

Matthew Watson  Partner
Direct Line: (02) 8289 5884
mwatson@millsoakley.com.au

Martin Williams  Partner
Direct Line: (02) 8289 5861
mwilliams@millsoakley.com.au

Andrew Johnson  Partner
Direct Line: (07) 3228 0408
ajohnson@millsoakley.com.au

As outlined in our March 2013 advisory note, legislative changes are now being proposed as a result of the Collins inquiry into insolvencies in the New South Wales construction industry.

Last week the Building and Construction Industry Security of Payment Amendment Bill 2013 (Bill) was introduced into Parliament. It may be enacted with little amendment as early as the end of 2013. A full copy of the Bill can be found at:

http://www.legislation.nsw.gov.au/bills/docref/fa089236-0b7c-edfc-ae5f-eac3b7f57b35

Minister Andrew Constance, in his second reading speech, stated the reasons for the changes were to:

“introduce reforms that will provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain”.

OVERVIEW

The changes proposed by the Bill do not address a number of the recommendations arising from the Collins inquiry. The Bill does not address for example extending the regime to residential house construction with a value over $1 million or empowering adjudicators to deal with contractual retention funds.

The Bill does however, contain significant proposed amendments to the Building and Construction Industry Security of Payment Act 1999 (ACT), including:

1.   Statutory payment terms.

A principal will only have 15 business days in which to make payment to a head contractor, the time running from the date upon which the head contractor’s payment claim was made.

A head contractor will only have 30 business days in which to make payment to a subcontractor, the time running from the date upon which the subcontractor’s payment claim was made.

These requirements will not apply to any exempt contract (pursuant to section 7(2)(b)) or any sub-contract that is “connected to” such an exempt contract).

There will be no ability for the parties to contract out of these terms, provisions and any clauses that seek to do so will be void.

2.    Removal of requirement for payment claims to state that they are made under the Act.

The requirement to include the statutory endorsement on a payment claim is removed, other than for exempt contracts.

3.   Mandatory contractor statements (Statutory Declarations).

For a payment claim to be valid under the Act, a claimant will need to include with the claim a supporting statement in the prescribed form.  Amongst other things, the statement will need to carry a certification that all subcontractors have been paid amounts due and payable to them.

It will be an offence to submit a payment claim without a supporting statement or to knowingly submit a supporting statement that is false or misleading.  Under the Bill, new provisions give “authorised officers” of the Department of Finance and Services of NSW, powers to investigate, collect documents and enforce these provisions. A failure to include a supporting statement may also result in a fine being imposed.

IMPLICATIONS

For principals and those financing principals, there are cash flow implications that arise under the Bill. Under the proposed change the due date for payment made under a construction contract would be no later than 15 business days after the payment claim is made and parties would be barred from seeking to include provisions for payment beyond that time-frame. This alters the current position where parties are entitled to contract a time for payment as they saw acceptable.

Principals will need to ensure that their financial arrangements are organised to enable compliance with the new regime. Otherwise, they may need to make the payment themselves pending receipt of the funds from a financier.

For subcontractors, the Bill may not provide much relief. Many subcontractors may currently already enjoy more favourable terms than the 30 business days proposed in the Bill. It is possible that the statutory terms in the Act will create a default benchmark as head contractors relax subcontractor payment terms from anything earlier than 30 business days to the end of that period. This could negatively affect subcontractors currently enjoying shorter payment terms than 30 business days.

RECOMMENDATIONS

The Bill includes other proposed amendments to the Act.  Whilst those highlighted above are significant it would be advisable for principals, head contractors and subcontractors to ensure they understand and are conversant with the changes that are likely to impact upon all parties within the Industry

Careful consideration to commercial implications are required, not least the impacts that the amendments would have on project capital requirements.

QUESTIONS

If you have any questions regarding this article or any other building, construction or infrastructure matter, please contact:

Ziv Ben-Arie
Partner
T: (02) 8289 5854
E: zbenarie@millsoakley.com.au

Vlad Vishney
Lawyer
T: (02) 8289 5868
E: vvishney@millsoakley.com.au.

SYDNEY BUILDING, CONSTRUCTION & INFRASTRUCTURE

McConnell Dowell Constructors (Aust) Pty Ltd v Heavy Plant Leasing Pty Ltd [2013] QSC 269

Can a contractor submit a claim under a State security of payment act, after the contract under which the work was done is terminated by the principal? In Queensland the answer is likely to be “no” whilst in New South Wales, it still appears uncertain.

QUEENSLAND

In the McConnell judgment delivered earlier this month, the Queensland Supreme Court explored the distinction between the Queensland and New South Wales Security of Payment regimes by looking at the reasoning of Lyon J in Walton Constructions (QLD) Pty Ltd v Corrosion Control Technology Pty Ltd [2012] 2 Qd R 90 which was more recently supported by De Jersey CJ, in his decision in McNab NQ Pty Ltd v Walkrete Pty Ltd & Ors [2013] QSC 128.

Explaining the distinction between the two jurisdictions, Applegarth J said [at 22]:

“..Justice Peter Lyons held that generally terms of a contract do not operate after termination and that after termination there is no longer a contract under which a reference date could occur.[5] His Honour identified significant differences between the Queensland definition of “reference date” and the New South Wales provision. His Honour stated, the Queensland definition “gives greater primacy to the provisions of the contract dealing with the making of a claim for a progress payment than does the language of the New South Wales Act”.[6]  The conclusion that a reference date does not arise after termination of the contract was held to be consistent with the “general nature of the payments for which provision is made by the BCIP Act”.[7]”

Arguably the McConnell decision goes further than Walton and McNab (albeit in obiter). In Walton and McNab the views expressed by the Court were, that a reference date could still arise post-termination, providing there was an express provision in the contract to that affect. In McConnell there appeared to be such a provision in the form of clause 26.5 of the contract which allowed for a final, post-termination evaluation of the account and payment to the contractor.

However, his Honour reasoned that the effect of clause 26.5 was in fact to create a new contract between the parties, apart from the original construction contract. Further, this new contract would no longer be considered a ‘construction’ contract for the purposes of the Act.

This approach appears to adopt to some extent and then extend, the reasoning in the recent New South Wales Supreme Court decision of Romeo v TQM Design and Construct Pty Ltd [2013] NSWCA 72, where the Court held that a final deed of settlement and release signed by the parties to finalise a construction contract, was not covered under the ambit of the Security of Payments regime as it was a separate contract which was not a “construction contract” for the purposes of the Act.

NEW SOUTH WALES

Although it is generally accepted that in New South Wales reference dates continue to accrue to a claimant, even after a contract is terminated (see Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2004] NSWCA 394 at 62-65), recent decisions again appear to make that position less certain.

In addition to the Romeo decision, in another recent New South Wales decision of Hill v Halo Architectural Design Services [2013] NSWCA 865, Stevenson J said:

“Where a contract makes no provision for reference dates to continue after work has ceased, no further reference dates will accrue to a claimant for the purposes of the Act: See The Trustees of the Roman Catholic Church for the Diocese of Lismore v TF Woollam and Son [2012] NSWSC 1559.”

IMPLICATIONS

Both potential claimants and respondents should be aware, that when a contract is terminated, the terms of the contract may affect the parties’ rights under the relevant Security of Payment regime of the State in which the work is done, and that the impacts may vary between different State jurisdictions. Advice should be sought at the time of negotiating contract terms and prior to entering into contracts, and also during the court of administering contracts, and prior to termination.

Also, because a contract termination may extinguish a claimant’s right to submit a statutory payment claim, claimants should take action early and exercise their rights under the relevant Acts if they perceive a risk of contract termination, for instance if served with a show cause notice.

QUESTIONS

If you have any questions regarding this article or any other building, construction or infrastructure matter, please contact:

Ziv Ben-Arie
Partner
T: (02) 8289 5854
E: zbenarie@millsoakley.com.au

Vlad Vishney
Lawyer
T: (02) 8289 5868
E: vvishney@millsoakley.com.au.

SYDNEY BUILDING, CONSTRUCTION AND INFRASTRUCTURE

In the media

Barrier Reef conflict claims

Members of the Marine Park Authority with ties to resource companies are accused of a conflict of interest. The board of the agency charged with protecting the Great Barrier Reef has failed to adopt its own experts’ recommendation that it ban port developments which threaten the reef (30 October 2013)

To read more, please click here.

Woodchip giant stripped of environmental certification over koala deaths

Australia’s largest exporter of eucalyptus woodchips has been stripped of its environmental certification and has been forced to make a public apology over the harm it has caused to koalas (28 October 2013)

To read more, please click here.

ICAC to examine lucrative prime leases linked to Obeid

‎The alleged corrupt business dealings of Labor powerbroker Eddie Obeid and his family will again be under the spotlight at an Independent Commission Against Corruption (ICAC). Over the next three weeks the commission will examine how the leases of three prime properties in Sydney’s Circular Quay area were sold to the Obeids in 2003 (28 October 2013)

To read more, please click here.

Federal Government releases laws to repeal mining tax

Draft laws to abolish the Minerals Resource Rent Tax (MRRT) have been released ahead of their expected introduction to parliament next month (24 October 2013)

To read more, please click here.

Strategic assessment for petroleum activities in Commonwealth waters

The Government has prioritised the strategic assessment so that NOPSEMA’s environmental regulation can be recognised as meeting the requirements of the EPBC Act without additional referral or approval required from a separate Commonwealth regulator. The assessment including public consultation on the draft strategic assessment report, will be released in late 2013 (25 October 2013)

To read more, please click here.

Property developers need to factor law into climate change

A developer of a large resort and residential community was dealt a blow when its development application was overturned in the Queensland Planning and Environment Court earlier this year, after  not adequately taking into account climate change-related sea level rise (22 October 2013)

To read more, please click here.

ASIC warns consumers about ads recommending SMSFs purchase properties through government scheme

The Australian Securities and Investments Commission (ASIC) has sounded a warning about people promoting self-managed super funds (SMSFs) encouraging consumers to invest in residential property via the government’s National Rental Affordability Scheme (NRAS) (22 October 2013)

To read more, please click here.

ANZ analysis

While the near-term outlook for the Australian economy remains soft as it adjusts to the windback of mining investment, stronger Property Council-ANZ Property Industry Confidence Survey sentiment provides a positive outlook for the property market (17 October 2013)

To read more, please click here.

Kiribatian asks New Zealand to treat him as climate change refugee

A man from the low-lying South Pacific nation of Kiribati has asked a New Zealand court to let him pursue his claim as a climate change refugee. His bid to stay in the country as a refugee was rejected by an immigration tribunal, but he is appealing against the decision (16 October 2013)

To read more, please click here.

Westfield report: profits linked to UK tax haven of Jersey

A new report released to the ABC has revealed how the $60 billion Westfield shopping centre group does so well financially, showing the firm’s main UK company has paid only a small fraction of its revenue in tax (17 October 2013)

To read more, please click here.

Commonwealth Games Village a step closer

The Queensland Government has reached the next stage of its procurement process to select a private developer for the Commonwealth Games Village at Parklands on the Gold Coast.

The government, through Economic Development Queensland (EDQ), expects to announce the preferred proponent in early 2014 (30 October 2013)

To read more, please click here.

Queensland legislation passed to protect national parks

Queensland parliament passed amendments to cut red tape and increase protection of the state’s national parks on 29 October 2013, through the Nature Conservation and Other Legislation Amendment Bill (No. 2) 2013. Tenures will be streamlined into two main categories– national parks and regional parks (29 October 2013)

To read more, please click here.

New Queensland planning provisions for local councils released

Local councils will now have a simpler planning scheme to work with following the release of Queensland Planning Provisions version 3.0, to assist local governments when preparing planning schemes that is standardised across the state (28 October 2013)

To read more, please click here.

State farmers in final battle over Qld mega mine

Farmers fighting the massive Alpha coal mine project fear the Queensland government will try to silence opposition to similar, future projects. A group of farmers (the (CCAQ)  has gone to the Land Court of Queensland to challenge approvals for the multi-billion-dollar joint venture between Gina Rinehart’s Hancock Coal and GVK (25 October 2013)

To read more, please click here.

Qld CSG water to be used for drinking

A New plant built for gas company QGC in Chinchilla will desalinate millions of litres of salt water released as a byproduct from coal seam gas extraction (23 October 2013)

To read more, please click here.

North Stradbroke community to benefit from extension of sand mining

The North Stradbroke Island Protection and Sustainability Amendment Bill 2013 was introduced into Queensland Parliament this week. The legislation provides for sand mining to continue on the island until 2035, and will not occur within national parks or environmentally sensitive areas on North Stradbroke Island (18 October 2013)

To read more, please click here.

Queensland frees flood maps to ease premiums pressure

Flood affected councils and residents in Queensland are hoping that a landmark deal brokered by the Newman Government to give insurers access to free flood map data will place heavy downward pressure on premiums that skyrocketed after successive floods (17 October 2013)

To read more, please click here.

State Government launches Queensland Airports Strategy

The Government has released a new Economic Directions statement, Economic Directions Statement – Queensland Airports 2013-2023, to drive airport expansion and employment across Queensland. The statement aims to build on 40 of the state’s leading airports which have strategic significance for economic growth (16 October 2013)

To read more, please click here.

Queensland Conservation grants available to protect cultural heritage

The Minister for Environment and Heritage Protection has announced $600,000 to support a range of heritage conservation projects in Queensland under Round Two of Everyone’s Environment grants program (16 October 2013)

To read more, please click here.

Published – articles, papers, reports

Emissions Reduction Fund Terms of Reference White Paper / Department of the Environment

The Australian Government seeks the views of the community on the design of the Emissions Reduction Fund. These views will be considered in the development of an Emissions Reduction Fund Green Paper to be published in December 2013 and an Emissions Reduction Fund White Paper to be published in early 2014 (released 16 October 2013)

To read more, please click here.

Economic Directions Statement – Queensland Airports 2013-2023 / Queensland Government

The new Economic Directions statement aims to build on 40 of the state’s leading airports which have strategic significance for economic growth. The amended State Planning Regulation will exclude infrastructure on airports, and ancillary works from any development assessment referral under the Vegetation Management Act. Available to download from:  www.dsdip.qld.gov.au/airports (17 October 2013)

In practice and courts

 [Draft] MRRT and related measures Repeal: consultation

On 24 October 2013, the Government released an exposure draft of the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 and explanatory memorandum for public consideration. Interested parties are invited to comment on the draft amendments to the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. Closing date for submissions: Thursday, 31 October 2013

Email: MRRTRepeal@treasury.gov.au

Reminder: National Parks emergency grazing measures to end

The Government will not extend emergency grazing measures in national parks beyond 31 December. More information on drought assistance measures is available at http://www.daff.qld.gov.au/environment/drought/assistance  (28 October 2013)

South East Queensland’s (SEQs) water resources review and discussion paper

A blueprint for the flexible and cost-effective management of SEQ water resources has been released for public consultation, with submissions closing on 31 December 2013. More information about water management in Queensland is available at www.dews.qld.gov.au and the discussion paper on the review of the level of service objectives, is available at  http://www.dews.qld.gov.au/water-supply-regulations/regional-water-supply/south-east-queensland (28 October 2013)

Regional Plans and the Review of the Strategic Cropping Land (SCL) Framework

The Regional Plans will identify and map Priority Agricultural Areas (PAA) that will be protected.

New legislation will be needed to implement the regional plans and the government will introduce a Regional Planning and Development Act into Parliament later this year  (24 October 2013)

To read more, please click here.

Queensland Planning Provisions version 3.0 (QPP)

Released on 25 October, the revised QPP is the standard planning scheme provisions made under the Sustainable Planning Act 2009. They provide a consistent format and structure for local government planning schemes across Queensland.  QPP 3.0 also includes provisions for councils involved in the de-amalgamation process.

To read more, please click here.

Reminder: 10 year Gold Coast waterways strategy

The final strategy will be released at the end of the year and covers the Broadwater as well as rivers, lakes and canals from the Logan River to the Tweed River. The consultation period will be until 1 November 2013. To view and provide feedback on the draft Strategy visit www.gcwa.qld.gov.au or phone 5539 7350 or email mail@gcwa.qld.gov.au

Cases

Moreton Bay Regional Council v Mekpine Pty Ltd & Zacsam Pty Ltd [2013] QLAC 5

COMPUL SORY ACQUISITION – claim for compensation by tenants in a retail shopping centre –whether the land resumed was part of the “common areas” of the tenant’s leases – the effect of the definition of “common areas” in the Retail Shop Leases Act 1994 whether s 43 of the Retail Shop Leases Act 1994 creates an “interest” in relation to land – whether the tenants have an “interest” in the land resumed by virtue of their leases or the Retail Shop Leases Act 1994 – meaning of “interest” in s 12(5) of the Acquisition of Land Act 1967

To read more, please click here.

Legislation

Agricultural and Veterinary Chemicals Code Instrument No. 4 (MRL Standard) Amendment Instrument 2013 (No. 8)

This instrument amends the Agricultural and Veterinary Chemicals Code Instrument No. 4 (MRL Standard) 2012 to set new and varied MRLs and make other changes to the Tables with respect to certain residue definitions, commodities and substances.  Administered by: Agriculture (17 October 2013)

To read more, please click here.

[Draft] Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 – 24 October 2013

Amends acts including:  Superannuation (Government Co-contribution for Low Income Earners) Act 2003; Superannuation Guarantee (Administration) Act 1992 and the Tax and Superannuation Laws

Amendment (2013 Measures No. 1) Act 2013

The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 removes the Minerals Resource Rent Tax with effect from 1 July 2014 and discontinues or re-phases the measures that were intended to be funded by the MRRT (loss carry back; small business instant asset write off threshold; accelerated depreciation for motor vehicles; geothermal exploration provisions; income support bonus; and schoolkids bonus)

To read more, please click here.

Exposure Draft Bills released – 16 October 2013

Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (PDF – 914 KB)

This main Repeal Bill), which would repeal the Clean Energy Act 2013 with effect from 1 July 2014. The CE Act is the main legislation establishing the CPM and outlines the rules for its operation in the fixed price period to 30 June 2015 and its transition to a market-based emissions trading scheme from 1 July 2015.

The Main Repeal Bill would also make consequential amendments to related legislation, including the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and the Australian National Registry of Emissions Act 2011 (ANREU Act).

Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2013 (PDF – 346 KB) |

True-up Shortfall Levy (Carbon Tax Repeal) Bill 2013 (PDF – 187 KB)

Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2013 (PDF – 350 KB)

Climate Change Authority (Abolition) Bill 2013 (PDF – 410 KB)

Clean Energy (Income Tax Rates and Other Amendments) Bill 2013 (PDF – 209 KB)

Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013 (PDF – 347 KB)

Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013 (PDF – 262 KB)

Queensland

Bills Update

Residential Tenancies and Rooming Accommodation and Other Legislation Amendment Bill 2013

Covers obligations, breaches, termination, minimum leases, damages – Introduced by: T L Mander MP on 10/09/2013 Stage reached: Report from Committee on 22/10/2013

G20 (Safety and Security) Bill 2013

Covers regulation for lawful assembly and security areas, offences, arrest, custody, bail, compensation, disclosure of information – Introduced by: J M Dempsey MP on 20/08/2013
Stage reached: Passed with amendment on 29/10/2013

Nature Conservation and Other Legislation Amendment Bill (No. 2) 2013

Introduced by: S L Dickson MP on 20/08/2013
Stage reached: Passed with amendment on 29/10/2013

North Stradbroke Island Protection and Sustainability and Another Act Amendment Bill 2013

Introduced on 17/10/2013 Stage reached: Referred to Committee on 17/10/2013

Liquor (Red Tape Reduction) and Other Legislation Amendment Bill 2013

Introduced by: J P Bleijie MP on 15/10/2013 Stage reached: Referred to Committee on 15/10/2013

Acts as Passed

No 51: Directors’ Liability Reform Amendment Act 2013 – Reduces liability on areas including: building, energy, foreign land ownership, housing, land sales, resources exploration and mining  – Passed 29 October 2013

No 50: Nature Conservation (Protected Plants) and Other Legislation Amendment Act 2013 – Reduces national park tenure categories within the Act from 14 to seven, tenures will be streamlined into two main categories– national parks and regional parks –Assent Date: 29/10/2013

Commences: by Proclamation

Regulations

No 203: Nature Conservation Legislation Amendment Regulation (No. 3) 2013 – 18-10-2013 – amends the Nature Conservation Act 1992

No 204: Environment and Heritage Protection Legislation Amendment Regulation (No. 1) 2013 – 18-10-2013 – amends the Coastal Protection and Management Act 1995; Environmental Protection Act 1994; Nature Conservation Act 1992; Queensland Heritage Act 1992; Sustainable Planning Act 2009; Waste Reduction and Recycling Act 2011 and Wild Rivers Act 2005

No 205: Building Amendment Regulation (No. 1) 2013 – 18-10-2013 – amends the Building Act 1975

No 208 Forestry Legislation Amendment Regulation (No. 1) 2013 – 25-10-2013 – Forestry Act 1959 – amendment to timber reserves in Queensland

Queensland legislation can be accessed at www.legislation.qld.gov.au

Contact Us

Andrew Johnson  Partner
Direct Line: (07) 3228 0408
ajohnson@millsoakley.com.au

Michael Nixon  Partner
Direct Line: (07) 3228 0450
mnixon@millsoakley.com.au

In the media

ABS: rises in council rates and utility bills contribute to inflation

The quarterly figures released by the Australian Bureau of Statistics this week have revealed  Price rises in bills to consumers from council rates and state energy suppliers have helped nudge-up Australia’s official inflation rate (24 October 2013)

To read more, please click here.

Property developers need to factor law into climate change

A developer of a large resort and residential community was dealt a blow when its development application was overturned in the Queensland Planning and Environment Court earlier this year, after  not adequately taking into account climate change-related sea level rise (22 October 2013)

To read more, please click here.

ANZ analysis

While the near-term outlook for the Australian economy remains soft as it adjusts to the windback of mining investment, stronger Property Council-ANZ Property Industry Confidence Survey sentiment provides a positive outlook for the property market (17 October 2013)

To read more, please click here.

Published

NSW planning bill 2013: White paper feedback report / NSW Department of Planning and Infrastructure

The review of NSW’s 33-year-old planning system has involved unprecedented consultation, receiving just under 5000 submissions on the White Paper and Exposure Bills (23 October 2013)

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Announcements

Laws to prevent child falls from windows in force: Office of Fair Trading (NSW)

Owners corporations must have window safety devices installed above the ground floor that allow windows to open no more than 12.5cm when the lock is engaged. Owners corporations have until 13 March 2018 to install the devices (24 October 2013)

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Cases

Military Road No 158 Pty Limited v Lion Pacific Projects (Neutral Bay) Pty Limited (Controller Appointed) (In liq) [2013] NSWSC 1545

Injunction preventing the third defendant selling the properties refused. Orders the second plaintiff to withdraw the caveat on the properties with leave to lodge a caveat in the same terms immediately following completion of the sale.

EQUITY – application for an injunction to prevent the third defendant exercising its rights to sell the properties as mortgagee in possession on the basis that the second plaintiff’s equitable interest, arising out of a call option entered into with the first and second defendants, will not be adequately protected if the properties are sold – offer by the purchaser to the caveator of call option in almost identical terms -  Real Property Act 1990 (NSW)

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Australia and New Zealand Banking Group Ltd v Kavia Holdings Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2013] NSWSC 1532

REAL PROPERTY – possession of land – proper construction of mortgage – whether property a secured debt under the mortgage – whether a tenancy order ought to be made under s 125(4) of the Residential Tenancies Act 2010 – whether “special circumstances” exist – bank entitles to possession of property

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Stojanovski v Stojanovski [2013] NSWSC 1491

Grant leave to the plaintiff to file a further caveat pursuant to Real Property Act, s 74O(2).

REAL PROPERTY – application for extension of caveats – in the alternative an application for injunction restraining the defendant from dealing with two parcels of land – Family Provisions Act claim by a brother in law of the defendant in relation to the estate of his late mother, including a claim for designation of two of the properties currently held by the defendant as notional estate – defendant and her husband separated and entered in to a Deed of Settlement in relation to marital assets, including the properties he inherited from his late mother – conduct allegedly designed to remove the assets from the plaintiff’s reach without his knowledge – plaintiffs application for access to the terms of the Deed of Settlement refused by the Family Court of Australia – but plaintiff intends to appeal from that decision – whether plaintiff has a caveatable interest in the properties because of his Family Provisions Act claim or otherwise – whether the estate’s executor has a caveatable interest – whether the circumstances warrant the grant of an injunction in the nature of a freezing order – whether balance of convenience warrants the issue of an injunction.

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Burwood Council v Ralan Burwood Pty Ltd [2013] NSWLEC 173

JUDICIAL REVIEW: application by Council for (1) declarations of invalidity of construction certificates, (2) declarations that developer in breach of Environmental Planning and Assessment Act 1979, and (3) orders for remedial work – validity of certificates – do changes to a project agreed by a certifier make the development “inconsistent” with the consent – whether orders can be made against those not in breach of the Act – whether developer is vicariously responsible for acts of others – utility of declarations – discretion – costs

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Gamble v Wilson [2011] NSWDC 240

Judgment for the plaintiffs against the defendants on the claim in the sum of $24,438 inclusive of pre-judgment interest

Judgment for the defendants/cross-claimants against the plaintiffs/cross-defendants on the cross-claim in the sum of $32,001.52 inclusive of pre-judgment interest

CONTRACT -landlord and tenant – lease of premises for hardware business – claim in conversion by lessees consequent upon lessors terminating lease and retaking possession – whether lease validly terminated – whether lessor had right to retake possession – cross-claim for breach of lease by lessors – assessment of damages for conversion and breach of lease

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Contact Us

Lachlan Paterson  Partner
Direct Line: (02) 8289 5895
lpaterson@millsoakley.com.au

Catherine Hallgath  Partner
Direct Line: (02) 8289 5806
challgath@millsoakley.com.au

Vera Visevic  Partner
Direct Line: (02) 8289 5812
vvisevic@millsoakley.com.au

In the media

Property developers need to factor law into climate change  

A developer of a large resort and residential community was dealt a blow when its development application was overturned in the Queensland Planning and Environment Court earlier this year, after  not adequately taking into account climate change-related sea level rise (22 October 2013)

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ASIC warns consumers about ads recommending SMSFs purchase properties through government scheme  

The Australian Securities and Investments Commission (ASIC) has sounded a warning about people promoting self-managed super funds (SMSFs) encouraging consumers to invest in residential property via the government’s National Rental Affordability Scheme (NRAS) (22 October 2013)

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Eastland expansion to create new Ringwood town centre  

Construction on the massive Eastland Shopping Centre expansion is set to begin with 150 new stores and a restaurant precinct due to be open by Christmas in 2015, Premier Denis Napthine announced today (29 October 2013)

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A $120 million tower of investment in Southbank  

Minister for Planning Matthew Guy has approved a new $120 million residential complex in Southbank, boosting economic investment and liability in the central area (29 October 2013)  

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Cases

J Renee Nominees Pty Ltd – v – Mastrogiannis & Anor [2013] VCC 1381  

Trade Practices – claim for return of deposit following rescission of contract for sale of property – whether representations made to induce entry into the contract – whether representations would give rise to relief under 9 Fair Trading Act 1999 (Vic) / s18 Australian Consumer Law 2010 (Cth); for innocent misrepresentation; and/or for negligent misstatement – whether in the alternative there was a fiduciary relationship such as could give rise to a breach of fiduciary duty – whether alternatively the plaintiff was entitled to rescind pursuant to s27(8) of the Sale of Land Act 1962 (Vic) – counterclaim for damages for failure to complete – quantum of damages – whether director of proprietary company also liable under contract.

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Burnet v Yarra CC (Includes Summary) (Red Dot) [2013] VCAT 1753  

NATURE OF CASE Abuse of process

PRACTICE OR PROCEDURE – consideration of individual instance or systemic issues

Application for review by objector struck out for abuse of process pursuant to section 75(1) Victorian Civil and Administrative Act 1998 – attempt by objector to secure a commercial advantage for the person bringing the proceeding – importance of third parties acting bona fide

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ZX Group Pty Ltd v LPD Corporation Pty Ltd [2013] VSC 542  

VENDOR AND PURCHASER – Contract for sale of land – Prior sale – Pre-contractual and contractual warranties that land not previously sold – Breach of warranty – Previous sale – Whether warranty essential term – Whether serious breach of intermediate term –Purported termination by purchaser under contractual default provisions – Breaches of s 32 Sale of Land Act 1962 – Purported rescission under s 32(5) Sale of Land Act 1962 – Rescission denied under s 32(7) Sale of Land Act 1962 – Fraudulent misrepresentation – Whether rescission for fraudulent misrepresentation – Whether contract affirmed – Service of notice to complete by vendor – Rescission notice – Repudiation by purchaser – Election by vendor – Alleged rescission on alternative ground – Misleading or deceptive conduct under s 52, s 53A Trade Practices Act 1974 (Cth) – Damages under s 82 Trade Practices Act 1974 (Cth) – Rescission and order for repayment of deposit under s 87 Trade Practices Act 1974 (Cth).

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Trewarne Antique & Fine Jewellery Pty Ltd v Perpetual Limited (Retail Tenancies) [2013] VCAT 1743  

Letter of offer – acceptance invited – agreement stated to be subject to approval of Landlords – limited time for communication of approval specified – no notice of approval given within time – interpretation of letter – intention of the parties – letter expressed in terms of a concluded agreement – performance required by Tenant – offer accepted – terms performed by tenant – Landlords purporting to refuse approval after time expired – condition of approval not a condition precedent to the formation of a contract but a condition precedent to performance – agreement unconditional upon expiration of time for communication of approval

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Ierardi v Morrison (Retail Tenancies) [2013] VCAT 1742  

Retail Lease – option for further term – whether exercised – whether tenant estopped from denying existence of further term or of new lease – overholding – increases in rental – how made and when effective – re-entry when no arrears unlawful

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Contact Us

James Price  Partner
Direct Line: (03) 9605 0824
jprice@millsoakley.com.au

In the media

Rural Funds Management accused of takeover

A proposal to merge and list three agricultural property funds by Rural Funds Management (RFM) contravenes regulatory guidelines and is more reflective of a “takeover” scenario, according to a group of financial planners (19 November 2013)

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ANZ found not to have breached price fixing provisions

The Federal Court has today dismissed proceedings brought by the ACCC in alleging that Australian and New Zealand Banking Group Limited (ANZ) had breached the price fixing provisions of the Trade Practices Act 1974 (the Act), now Competition and Consumer Act 2010 (CCA) (18 November 2013)

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Woolworths and Coles agree to new code governing their commercial relationships with suppliers

The Food and Grocery Council says a new code of conduct will help protect its members from unfair treatment by the major supermarket chains. The code prohibits the supermarkets from using suppliers’ intellectual property to develop their own products and from changing contracts retrospectively (18 November 2013)

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In practice and courts

ASIC reviews employee incentive schemes

ASIC has released a Consultation Paper 218 on employee incentive schemes for persons offering and receiving shares or other financial products under an employee incentive scheme. It seeks feedback on ASIC’s proposals to extend relief currently in Class Order [CO 03/184] and Regulatory Guide 49 Employee share schemes (RG 49). The proposals reflect changes to the Corporations Act as well as developments in market practice for structuring employee share schemes (14 November 2013)

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CAMAC Annual Report

The Corporations and Markets Advisory Committee (CAMAC) has released its Annual Report 2012-13 (undated), which includes information on recent corporations and markets issues and developments concerning CAMAC and the outlook for 2013-14.

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Updated Discussion Paper – Crowd Sourced Equity Funding

The Corporations and Markets Advisory Committee (CAMAC) has made available an updated version of its Discussion Paper – Crowd sourced equity funding (updated October 2013) The updated paper takes into account various US, UK and European Commission regulatory updates from October 2013

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Forthcoming Conferences and Events 2013

The Essential Director Update – September -October 2013

The Essential Director Update is one of the most anticipated series in the company director’s calendar,  an exclusive, complimentary, member-only annual seminar held nationally.

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Cases

Westpac Banking Corporation v Lee [2013] NSWCA 375

MISLEADING OR DECEPTIVE CONDUCT – financial services – s 12DA Australian Securities and Investment Commission Act 2001 (Cth) – where respondents had not read the documents provided by the appellants in relation to a complex financial product – where strong reservations on credit had been expressed – whether respondents were led into error by the appellants in relation to the capital protection feature – whether the appellants caused the respondents’ loss – where post-facto evidence relied upon – dismissed

Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12 BAB, 12DA, 12DB

Corporations Act 2001 (Cth) ss 708, 761G(4), 761G(7), 944A, 946A

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In the matter of Global Mortgage Equity Corporation Pty Limited [2013] NSWSC 1586

CORPORATIONS – share capital – shares – valuations -where orders made by Court of Appeal provide for a valuation to be undertaken by reference to the market value of the whole share capital of the company – where conflicting expert valuation evidence – where expert evidence differed on the application of differing methodologies – whether earnings-based valuation or valuation based on unadjusted balance sheet should be applied. Corporations Act 2001 (Cth) ss 95A, 296, 307

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Crosby & Browning v Narellan Pools Fraser Coast [2013] QCAT 509

Swimming pool defects – liability of franchisor and franchisee – damages or replacement – breach of contract – breach of statutory obligations – limitation periods – ongoing structural warranty – liability of pool manufacturer – measure of damages

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MIS Funding No 1 Pty Ltd v Buckley [2013] VSC 607

CORPORATIONS – unregistered managed investment scheme – no prospectus – information memorandum offering investment only to limited classes of investors – representations made by investor – funds loaned to invest in scheme – whether defendant a “professional investor” – meaning of “control” – Corporations Act 2001 (Cth), ss 9, 708(11) (as enacted in the Financial Services Reform Act 2001 (Cth)).

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Contact Us

Warren Scott  Partner
Direct Line: (03) 9605 0984
wscott@millsoakley.com.au

Daniel Livingston  Partner
Direct Line: (03) 9605 0965
dlivingston@millsoakley.com.au

Matthew Watson  Partner
Direct Line: (02) 8289 5884
mwatson@millsoakley.com.au

Martin Williams  Partner
Direct Line: (02) 8289 5861
mwilliams@millsoakley.com.au

Andrew Johnson  Partner
Direct Line: (07) 3228 0408
ajohnson@millsoakley.com.au