Overview

Each trustee is grappling with issues particular to their fund arising out of the implementation of the Stronger Super reforms.  Earlier this month, the trustee of the Retail Employees Superannuation Trust (REST) resolved one such problem relating to director remuneration with the assistance of the Court.

REST appeared to be having difficulty finding suitably qualified and experienced persons to act as directors because its trust deed did not expressly permit the Trustee or its directors to be remunerated. Solving the problem required the resolution of a conflict of existing directors’ duties and their interests, and a conflict with one of its sponsoring organisations.

The judgment in Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681 (14 November 2013) describes an urgent application that was filed, heard and decided by the Duty Judge within three days.

This article summarises the case and discusses its broader implications for fund trustees and their directors. Director remuneration highlights the inherent conflict between trustee directors’ duties and interests. Trustees and directors need to review their governing rules, not only on remuneration but also as to how a trustee will meet the additional expenses and liabilities they are exposed to under Stronger Super.

Judicial advice is a valuable tool for trustees in managing risk and change in this challenging environment.

CASE NOTE

The trustee of REST applied for orders under the Trustee Act 1925 (NSW) (Trustee Act) that it ‘would be justified’ in amending the REST Trust Deed primarily to:

(a)       entitle the Trustee and its directors to be paid a fee; and

(b)       permit the appointment of independent directors.

The Trustee Act provides that a trustee may apply to the Court for an opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. It is known colloquially as ‘judicial advice’ and is provided for in Trustee Acts of each state and under the inherent jurisdiction of the Courts.

Relevant facts:

The Judge noted that:

(a)       there was no power under the REST Trust Deed for the Trustee to be remunerated out of the fund;

(b)       neither the directors nor the Trustee were being paid any remuneration;

(c)       the obligations of the Trustee and its directors have increased significantly since REST was established in 1987;

(d)       REST has grown significantly in size;

(e)       the Trustee and its directors spend significant time and effort performing their duties; and

(f)        based on recent experience, the Trustee was concerned that it would become increasingly difficult to attract suitable directors due to the significant time required to be devoted to the performance of their obligations.

The Trustee had notified APRA and its sponsoring organisations of the proposed amendment and the court application. One of the sponsoring organisations objected to the directors receiving any remuneration, on the basis that ‘for industry super funds, directors of a Trustee should continue to provide their services on a gratuitous basis.’

Darke J approved the amendment and payment of reasonable remuneration, observing at [4]:

The roles performed by, and the attendant responsibilities of, the directors are plainly considerable and call for a high level of diligence and expertise.

His Honour accepted the Trustee’s evidence that it was ‘generally accepted’ that directors of substantial trustees were entitled to remuneration and stated at [15]:

The obligations which are cast upon such directors are significant, and even burdensome, and it is reasonable to expect that directors of the requisite quality will require remuneration.

His Honour also referred to a similar application in Cuesuper Pty Ltd [2009] NSWSC 981 and stated:

In circumstances where the exercise by the trustee of its power of amendment pursuant  to . . .  the trust deed could give rise to questions of conflict between duties and personal interests, it is also sensible for the trustee to seek the direction of the Court pursuant to s 63 of the Act.

COMMENTRY

Why it was ‘sensible’ for REST to seek judicial advice

Most industry funds remunerate their directors and many made the necessary amendments to their trust deeds a number of years ago. REST may not have sought judicial advice but for the conflict with its sponsoring organisation. However, it was prudent to do so in any event particularly in light of statements by the Court when the then trustee of Cuesuper applied for similar advice in 2009.

In Cuesuper, the Court referred to an earlier case which stated that the trustee was unable to amend the deed to provide for trustee remuneration because of the conflict of interest. While it is not spelt out in Re REST the Courts have an inherent jurisdiction to approve trustee remuneration in the interests of ensuring proper administration of a trust.

Support for the proper remuneration of directors

In approving the amendments to the Cuesuper deed, the Court observed that a failure to pay remuneration in order to retain a professional and committed board would be ‘penny wise, pound foolish’.

While the Stronger Super reforms may well justify greater remuneration for directors, this line of judicial authority poses serious questions for boards to consider in any steps to increase their own remuneration. There is an inherent conflict of duty and interests in directors setting their own remuneration.

If trustees and directors do not properly attend to matters involving director remuneration, they may regret it when the remuneration disclosure laws come into effect in 2014 given the greater level of scrutiny that they will be subjected to.

Uses of judicial advice

This case is the first instance of a Court recognising the enhanced obligations of trustees and directors under the Stronger Super reforms, however trustees did not need the Court to tell them that the duties on directors are significant and burdensome.

Re REST is more relevant as a timely reminder of the availability of the Courts to provide judicial advice to trustees in a broad range of matters. It can be used to resolve conflicts of interest, authorise remuneration and approve the compromise of disputes or controversies. It can also be used to approve amendments to a trust deed that are either within power or beyond the power of amendment. It is also in keeping with a recent High Court decision that  it is proper for a trustee to seek ‘judicial advice’ before commencing or defending legal proceedings.

The reason why the Courts offer this service is twofold, to protect the trustee (and directors) and to protect the trust.

Judicial advice and risk management

Trustees are adapting to radical changes in superannuation in an environment that is increasingly high risk for trustees, directors, executives and staff. The Courts have long recognised the entitlement of trustees to the Court’s protection in facing such risks.  But how many trustees would have judicial advice in their Risk Management Strategy?

Trustees may focus their minds on risks from the members’ perspective but should not lose sight of risks to the Trustee, its directors, executives and staff. These are important factors in governance risk and that residual category in SPS 210, other risks that may have a material impact of a RSE licensee’s business operations.

Trustees and directors should not take any comfort from the Tranche 4 concession requiring a litigant to seek leave before suing directors under the new director covenants. In his recent article on the new conflicts obligations and director liabilities (linked here), Mark Bland explained how the principle encapsulated in an obscure latin phase (nunc pro tunc) would likely render it useless.

Judicial advice and governance

The Courts have long recognised the entitlement of trustees to the Court’s protection in facing such risks and also the Court’s assistance in dealing with limiting trust deeds.

In the wake of Re REST, other trustees may consider making an application to resolve difficult and / or contested issues that have arisen in the implementation of Stronger Super reforms.

Trustees may see judicial advice as a means of resolving conflicts or controversies associated with board composition, conflicts of duty and interests of directors. For example, trustees may find that they need to make new arrangements in order to ensure the Trustee does not have to resort to its directors’ pockets to pay an APRA infringement notice.

* * *

The judicial advice process is an exception to the rule of adversarial litigation. As the Re REST case indicates, it can be heard without any other parties, may involve an affidavit or two and can be heard swiftly by the court if prepared properly. Its value should not be discounted by trustees as a risk management and change management tool.

Contact Us

Mark Bland
Partner
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Marius Rajanayagam
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As widely reported, the Tax Office released Draft Taxation Ruling TR 2013/D6 (the Draft Ruling) on 13 November 2013. The Draft Ruling concerns the treatment of payments by a private company arising from matrimonial property proceedings under Div 7A of ITAA1936 for under market value.

The Draft Ruling expresses the Tax Office’s view that s 109J of ITAA1936 cannot, in any circumstances, apply to a payment made by a private company to shareholder or an associate of a shareholder in satisfaction of orders under s 79 of the Family Law Act 1975. The Tax Office therefore concludes that Div 7A applies to such a payment (ie it is not excluded under s 109J), Thus, such a payment will be taxable to the recipient as a deemed dividend (although it is likely that the dividend will be frankable by the private company under s 109RC of ITAA 1936).

The Tax Office’s U-Turn

The Draft Ruling is a major U-turn by the Tax Office from their previous (and long standing) view that s 109J could exclude certain payments by a private company arising because of matrimonial property proceedings from the operation of Div 7A.

In particular, the Tax Office’s current view is inconsistent with many private binding rulings on s 109J (eg, PBR 1011434884971, PBR 1011437352778, PBR 1011482127581, PBR 1011509693406 and many others). The Draft Ruling is also implicitly inconsistent with previous Tax Office public opinions on s 109J (ATO ID 2004/462). In ATO ID 2004/462, the Tax Office states that s 109J requires a payment of money (rather than a transfer of property) and that the private company be a party to the family law proceedings.

Section 109J: what does it actually require?

Section 109J states that:

“A private company is not taken under section 109C to pay a dividend because of the payment of an amount to the extent that the payment:

(a)   discharges an obligation of the private company to pay money to the entity; and

(b)   is not more than would have been required to discharge the obligation had the private company and entity been dealing with each other at arm’s length.” (emphasis added)

Paragraph 88 of the Draft Ruling states that in the Tax Office’s view, it is not sufficient to test what ought to be paid to discharge the relevant obligation. What is also required is a contractual foundation test of what the relevant obligation would be, had the parties been dealing at arm’s length immediately prior to the subject obligation being incurred by the company. That is despite the words of s 109J(b) appearing more concerned with the amount of the payment rather than the obligation.

The Tax Office argues that comments by Lingren J in Di Lorenzo Ceramics Pty Ltd & Anor v FC of T 2007 ATC 4662 and the policy intent of s 109J (ie, avoiding an under market transfer of value out of a private company being a disguised dividend via a “soft loan” for instance) support the Draft Ruling on this point. In our view, the reference in para 89 of the Draft Ruling takes the comments of Lingren J out of context. The policy issue is dealt with later in this article.

The “Alternative Postulate”

Assuming that the Draft Ruling is correct, s 109J(b) therefore requires a comparison with an alternative hypothesis in which the private company is dealing with the “payee” at arm’s length.

Given the recent amendments to Pt IVA, most practitioners would be weary of the words “alternative postulate”. Practitioners will recall that with the recent t IVA changes, the “alternative postulate” test was modified to include certain unrealistic assumptions.

In the Draft Ruling, a similar approach is taken. However, instead of having to work with unrealistic assumptions, the Tax Office simply concludes that in the context of a private company and family law proceedings, the amount of the “arm’s length” obligation will always be zero. This is because “the Commissioner considers there is no identifiable circumstance under which a private company might make a gratuitous appropriation of profits to a non-shareholder in discharge of an obligation in an arm’s length dealing as required by the test in paragraph 109J(b) of the ITAA 1936”. (emphasis added)

Never in the best interests of the company?

It is difficult to see how a private company can never deal with its shareholders (or associates) on an arm’s length basis merely because family law proceedings are involved. By adopting this view, the Tax Office appear to be confusing the concept of “dealing at arm’s length” with the concept of parties “being at arm’s length”.

In our experience, family law proceedings can have a devastating effect on the financial health of a private company. For this reason, it is usually in a private company’s best interests to achieve an out of court settlement (and avoid litigation) or settle family law proceedings by participating in a binding financial agreement. As a blanket rule, it is difficult to see how there could be “no identifiable circumstance” where incurring a family law obligation is not in the commercial best interests of a private company.

Interestingly, the Tax Office cites s 109RC and the explanatory memorandum to the Bill introducing s 109RC to justify this view that s 109J is not intended to apply in such circumstances. However, can the explanatory memorandum to s 109RC really influence the clear words of s 109J? Such an approach seems at odds with the usual principles of statutory interpretation (in particular, the golden rule of giving statutes their clear meaning unless that meaning gives rise to an absurd result). Below is an example of the tax effect of the non-application of s 109J, based on the Draft Ruling.

When does the Draft Ruling apply from?

The Tax Office proposes that the final Ruling (once issued) will apply both before and after its date of issue. The Commissioner proposes not to undertake active compliance activities (eg, audits) to apply that view in respect of any family law property orders made before the date the final Ruling is issued. The Draft Ruling nevertheless states the Commissioner’s view and the Commissioner will apply that view where he is required to do so. We note that the Tax Office has already applied this view in some very recent private binding rulings (see, for instance, PBR 1012507588469).

The Benefit of a Private Ruling

Due to the protection afforded by obtaining a private ruling binding, affected taxpayers who have obtained favourable private rulings on the subject can rely on those private rulings. More generally, this experience serves as a great example of the benefits in seeking a private binding ruling and the certainty that a taxpayer can achieve by doing so (particularly where the Tax Office changes its interpretation of the law).

Summary

We consider that the Commissioner’s view of s 109J(b) is flawed. The Draft Ruling should be withdrawn and rewritten so that it is consistent with the actual words of the section, the previous Tax Office stance and in light of the issues raised in this article.

The Tax Office invites comments on the Draft Ruling and provides the relevant contact details at Appendix 3 of the Draft Ruling. We encourage readers with like opinions to join us in doing so. In the interim, extreme care needs to be taken to structure family law settlements in light of this new risk.

**** First Published in CCH’s Australian Income Tax Tracker – Issue 11 November 2013

Contributed by:

Jack Stuk
Partner
Private Advisory
jstuk@millsoakley.com.au

Andrew Henshaw
Lawyer
Private Advisory
ahenshaw@millsoakley.com.au

On 15 October 2013, the Victorian Law Reform Commission (VLRC) released its final report on Victoria’s succession laws. The VLRC recommended that the notional estate provisions that exist in NSW should not be adopted in Victoria.

Leaving aside whether Parliament adopts the VLRC’s recommendation, the rejection of “notional estate” provisions in Victoria does not mean that inter vivos (during life) transactions made in cases with no connection to NSW cannot be subject to attack under a testator family maintenance claim (TFM Claim).

Importance of private property rights – generally

Several submissions made to the VLRC stated that the notional estate provisions should not be adopted due to their imposition on inter vivos private property rights. Those submissions reflect the current law that, broadly, people can deal with their property during their life however they wish (as long as on lawful terms).

For instance, a person may (outside NSW generally) gift most of their assets during their “twilight years” if capable, and thus reduce the size of their estate and the amount of money which could be the subject of a TFM Claim.

The Supreme Court of Victoria’s Submission to the VLRC

Of particular interest was the Supreme Court of Victoria’s submission to the VLRC, as it has jurisdiction over probate matters, including larger TFM claims. The Court considered the introduction of notional estate provisions. However on balance, the Court gave qualified support to the principle that the law ought not to detract from the general proposition that persons are able to deal with their property as they wish.

Caution: artificial arrangements

However, the above is a general principle which is not always upheld. Practitioners should carefully note a cautionary warning in the Supreme Court’s submission, that if there is evidence in Victoria of people “entering into artificial arrangements designed to avoid their moral obligation…“, then the introduction of a “notional estate scheme” may be necessary.

This cautionary warning raises 2 important questions, which are discussed below:

(1)               What is in an artificial arrangement that may in future be subject to notional estate provisions?

(2)               Could an “artificial arrangement” be attacked even without a notional estate scheme?

What is an artificial arrangement?

It is unclear what an “artificial arrangement” is, as referred to by the Supreme Court. Macquarie Dictionary states that “artificial” means “feigned; fictitious; assumed”.

Clearly, a simple gift of a real property (including the transfer of legal title) is not an “artificial arrangement”. That is so, even if the transaction is made for the purpose of reducing the value of a person’s estate or frustrating a TFM claim, leaving aside the doctrine of “sham” which is discussed below. However, many succession plans do not involve simple gifts, given the significant CGT and duty that generally arise from such transactions.

Artificial – Part IVA?

The general anti-avoidance tax laws (eg Pt IVA of the ITAA 1936) perhaps give some guidance on what types of arrangements could be “artificial”. Practitioners may recall that the explanatory memorandum to the original enactment of Pt IVA explained that it was designed to target “…tax avoidance arrangements that … are blatant, artificial or contrived“. Practitioners would be well aware that Pt IVA applies (or the ATO may determine that it applies) to much more than “artificial arrangements”.

Are round robin arrangements artificial?

Adopting this analogy with Pt IVA, query whether some “round robin” arrangements, such as a “gift and loan back” arrangement (which purports to reduce the size of the donor’s estate during his or her lifetime) could be deemed to be artificial arrangements which attempt to frustrate a TFM claim?

Take for instance the recent case of Symond v Gadens Lawyers Sydney Pty Ltd [2013] NSWSC 955 (reported at 2013 WTB 46 [1967]). In that case, there were a number of complex transactions which took place which involved an element of “round robin payments by promissory notes“. The tax expert engaged by Mr. Symond (who had over 25 years practice experience in taxation law) stated, in the context of a foreseeable Pt IVA audit and assessment, that “the circularity of those steps ‘exhibited contrivance’ of a kind that was likely to attract the Commissioner’s attention.”.

With estate and succession planning, there are “round robin” arrangements which are promoted by some advisors that could be described (particularly by an aggrieved party) as contrived or artificial. These types of arrangements are often proffered as having the same practical effect as a gift of the physical assets, but without the same tax consequences, the most simple of which is the common “gift and loan back” arrangement.

Leaving aside the risk that the recently amended anti-avoidance provisions could apply, or that the transaction may not be legally effective, could the “gift and loan back” be the type of artificial arrangement the Supreme Court was referring to?

Of course, there are many estate and succession plans which have much more complex arrangements and structures than a “gift and loan back” arrangement. The common theme of these arrangements is that they attempt to shift equity out of a person’s assets so that the “gross” assets which form part of a person’s estate (and may be subject to a TFM Claim) have little or no net value.  If an estate or succession plan is structured or implemented poorly, it is not difficult to envisage those arrangements being characterised as “artificial or contrived” in some circumstances.

Further, it is not implausible that any future changes to address “artificial or contrived arrangements” made to avoid certain persons receiving a share of an estate, as alluded to by the Supreme Court of Victoria, could apply to arrangements “entered into” many years prior to any future law changes. For this reason, we recommend that any estate or succession plan be reviewed to make sure it is not “artificial or contrived”.

Could artificial arrangements be unwound without legislative change?

Even without notional estate laws, some inter vivos transactions may be subject to attack for the purpose of an aggrieved person making a TFM Claim. The Supreme Court’s submission notes that a number of cases have come before it in which there is evidence of uncommercial transactions during the lifetime of a testator, often very close to the end of that person’s life, which arise in circumstances that warrant careful investigation as to whether the transaction was valid. These cases may come before the Court as applications to set aside transactions due to undue influence, unconscionability, lack of capacity or in other ways. An example of this is the recent case of Mataska v Browne [2013] VSC 62. This case should be noted with extreme caution, as the principle which the case stands for can subject certain inter vivos transactions to scrutiny or even unwind those inter vivos transactions for the purpose of bringing a TFM Claim.

Mataska v Browne –inter vivos transaction attacked by an aggrieved child

Mataska v Browne concerned the estate of a testator (the Mother) who died aged 89. Several years prior to her death, the Mother executed a will appointing Child A as executor and sole beneficiary of her estate (to the complete exclusion of Child B). A few years later, the Mother sold her home and purchased a new property (the Property) as joint tenants with Child A (the Transaction).

The Mother died just over 12 months after the Transaction. The effect of the Transaction was that Child A received the Property (which passed via survivorship rather than by the Mother’s Will). Without the Property, the Mother’s estate was worth less than $10,000, meaning a TFM Claim by Child B would not be financially worthwhile.

Despite not being a beneficiary of the Mother’s Will, Child B brought proceedings for a limited grant of letters of administration, that Child A be passed over as executor and a declaration that Child A holds the Property on trust for the Estate. In other words, Child B sought to attack the validity of the inter vivos Transaction made by the Mother so that a TFM Claim against the Mother’s estate would be financially viable.

The Court agreed with Child B that the circumstances of the Transaction required “careful investigation” to determine whether it was valid. Further, the Court held that Child A (as executor of the estate) would not carry out that investigation, as Child A was in a clear position of conflict between her duty to the Mother’s estate and her personal interest in ensuring that the Transaction was upheld. This is despite Child A being the only beneficiary of the Mother’s estate. Accordingly, the Court ordered that Child B be given a limited grant of letters of administration.

The ultimate outcome concerning the validity of the Transaction and the ultimate distribution under the estate is not known (the matter may well have settled during mediation, given the potential for the parties’ costs to erode the majority of the value of the estate). However, the case demonstrates the potential for an aggrieved child to take legal action against the executor. Even where excluded from the will, he or she may be able take control of an estate for the purpose of scrutinising and potentially unwinding suspect inter vivos transactions of the deceased. The case also demonstrates the benefit of appointing a genuinely independent executor, where estate disputes are likely to arise.

Mataska v Browne could also apply to other inter vivos transactions, such as sham transactions. Further, it is not difficult to foresee that this principle may even be extended to certain “artificial or contrived” transactions on the grounds of public policy (see Barns v Barns [2003] HCA 9).

Sham transactions and artificial transactions

Transactions that are “artificial or contrived” are generally legally effective if correctly implemented. However, transactions which are a sham are not generally legally effective. A sham is something that is intended to be mistaken for something else or that is not really what it purports to be, as the parties to the transaction share a common intention that the transaction will not create the legal rights and obligations that it appears to.

For instance, could a “gift and loan back” arrangement be scrutinised or attacked by an aggrieved child in a similar manner to Mataska v Browne, if both the parent and child consider the “gift and loan back” as nothing more than a contrived device to defeat a TFM Claim? This same could be said for any other “round robin” arrangement.

Barns v Barns: Against public policy?

Assuming that the “gift and loan back” arrangement (or other round robin arrangement) is not a sham, could those arrangements be unwound if they are “artificial”?

The case of Barns v Barns [2003] HCA 9 considered, but did not resolve exactly what transactions or arrangements that attempt to contract out of the family provision laws will be void against public policy. When the High Court has the chance to further consider the matter, could the Court hold that certain “artificial” arrangements, such as round robin arrangements, be void as against public policy?

That path is supported by Gleeson CJ’s comments in Barns v Barns regarding the operation of and the policy rationale for family estate provision laws:

“That policy is of public, as well as private, importance. To implement that policy, the legislature has conferred upon courts a discretionary jurisdiction to make provision out of a deceased person’s estate in a manner that, to a greater or lesser extent, may override testamentary intention. A construction of the Act that permits a testator to nullify its operation by agreeing in advance to dispose of his or her estate in a certain fashion tends to defeat the purpose of the legislation.”

Estate and succession planning: Risk Mitigation

Of course, this is not to say case law will bring in de-facto notional estate provisions. However, the absence of notional estate provisions does not mean that certain inter vivos transactions cannot be scrutinised or attacked by an aggrieved beneficiary for the purposes of bringing a TFM Claim. This is particularly the case where those transactions are artificial, contrived or a “sham”.

A consideration of these risks should be a part of any robust estate or succession plan and there may be solutions to minimise these risks. As always, the devil is in the detail which inevitably requires intense analysis of a client’s full history, facts and current circumstances.

**** First published in Thomson Reuters Weekly Tax Bulletin – Issue 48, 15 November 2013

Jack Stuk
Partner
Private Advisory
jstuk@millsoakley.com.au

Edward Skilton
Senior Associate
Private Advisory
eskilton@millsoakley.com.au

Andrew Henshaw
Lawyer
Private Advisory
ahenshaw@millsoakley.com.au

An estate succession plan may leave particular family members of the deceased feeling that they have not been sufficiently provided for under the deceased’s estate succession plan. A disgruntled family member may be able to use the often overlooked NSW Notional Estate provisions to bring a testator family maintenance claim (or the threat of such a claim) against the deceased estate. These Notional Estate provisions are wide reaching, have extraterritorial jurisdiction and can form a dangerous weapon with which claimants can dismantle an estate succession plan.

What is a TFM claim?

Laws in each state allow certain family members to challenge a deceased’s Will if the person was “short changed”. This is known as a testator family maintenance claim (“TFM claim”). A successful TFM claim will usually result in the court making an order in favour of the claimant, out of the assets of the deceased estate.

Whether a TFM claim is ultimately successful depends on a range of circumstances. Regardless of the outcome, such a process can be costly and emotionally debilitating for all of those involved. Further, a TFM claim has the potential to destroy the deceased’s legacy. For the executor of the estate, defending a TFM claim can result in significant legal costs. Even where a claim is successfully defended, the legal costs incurred are often not fully recoverable, thus eroding the resources of the estate, resources that might otherwise be distributed to the beneficiaries of the estate.

In most States, a TFM claim only ”attacks” property held by the deceased at the date of their death (ie property that forms part of their estate). This means that particular types of property are generally outside the realm of a TFM claim and not subject to such a challenge. These “outside assets” include those owned with a joint tenant, superannuation death benefits paid direct to a beneficiary (as opposed to via the estate) and assets held by a company or trust (albeit controlled by the deceased as director/trustee and or appointor when alive) where any shares or units are not owned by the deceased.

How does NSW differ?

The Succession Act (NSW) 2006 (the Act) enables a court to treat certain property transferred (within 3 years of death) that is not actually part of a deceased estate as being notionally part of their estate. This means that for a TFM claim, a court not only looks at the assets that were actually part of the deceased’s estate on death but also the assets of the notional estate. This can increase the prospects of the TFM claim succeeding, as well as the potential sum (including costs) that the court may award to the TFM claimant.

These notional estate provisions also potentially frustrate the wishes of the deceased. Professional advisors (including legal practitioners, accountants and financial planners) that overlook the reach and operation of these laws do so at their clients’ peril as well as their own.

Why should non-NSW advisors and clients be concerned?

The NSW notional estate provisions are not simply an issue for those advising clients living (ie domiciled) in NSW. The Act extends to any property within NSW. This includes real NSW property (ie land), shares in a company incorporated in NSW (including a shelf company or trustee company), superannuation assets and many other financial assets that are legally situated in NSW.

Even where the deceased is not domiciled in NSW and has no actual estate or assets physically located in NSW, these “Notional Estate” provisions may apply.

The mere use of a holding company incorporated in NSW could bring the notional estate provisions into operation:

Interstate reform – Notional Estate

Although the notional estate provisions currently only exist in NSW, similar notional estate provisions may be implemented in other States in the foreseeable future given the Uniform Succession Laws Project. The National Committee of that project has recommended that other States adopt the notional estate provisions (however, the Victorian Law Reform Comission have recently recommended that similar notional estate provisions should not be enacted in Victoria at this point in time).

When can property form part of the Notional Estate?

The notional estate provisions are designed to prevent people “getting around” the conventional TFM claim laws by moving property outside their actual estate prior to their death (see Example 2 above). The Act casts a wide net to achieve this goal.

For a property to be part of the notional estate, a “relevant property transaction” must occur. This can include any positive act or omission that directly or indirectly results in the property being owned by some other than the deceased or subject to a trust.

Secondly, the “relevant property transaction” must take place within certain specified times from the date of death of the deceased. There are different tests that will apply depending on the actual length of time between when the “relevant property transaction” took place and the death of the deceased.

As demonstrated below, the notional estate provisions do not apply to any “relevant property transaction” that took place more than 3 years before the death of the deceased.

WARNING: transactions taking place more than 3 years ago can be caught due to special “deeming rules” affecting timing.

A transaction in the conventional sense of the word is not the same as a “relevant property transaction” as defined under the NSW notional estate provisions. Property could be part of the notional estate even though the last transaction (in the conventional sense) took place more than 3 years ago. This is because the Act contains deeming rules that deem certain “relevant property transactions” (which includes omissions) to take effect on the person’s death.

This can throw up many unexpected outcomes. Where these deeming rules apply, the relevant property is immediately included in the notional estate (and hence subject to a TFM claim). This is demonstrated below.

Transferring assets to trust controlled by transferor

Many advisors use trust structures to protect assets against TFM claims. The example below highlights the impact the notional estate provisions could have on trust where the deceased (until their death) had the power to control the trust. In these circumstances, the assets of the trust could form part of the notional estate.

Conclusion

Although the 3 year “relevant property transaction” time limit is designed to give some certainty, there are many instances where, in effect, there is no time limit. Careful planning can limit exposure to these provisions.

One way could be to pass control to others (such as their children) during the deceased’s lifetime. However, divesting oneself of control of assets is a big decision. How many of us are prepared to handover control during our lifetimes, particularly in circumstances that could trigger adverse taxation consequences? If so, other strategies may be possible and would need to be tailored to suit the particular circumstances.

Next steps

This is a complex area of law. Those that could be affected by these provisions should seek to “audit” their estate plans to consider whether the NSW notional estate provisions could apply. When in doubt, professional advice should always be sought.

Given that similar notional estate provisions could conceivably be introduced in other States, estate plans which are not at all connected to NSW should also be “future proofed” to limit the impact of any similar provisions introduced in other States.

Of course, the issue of notional estates is only one aspect of estate planning. We recommend that estate plans be reviewed at least every 2 years to account for any changes in circumstances.

*** First Published in Thomson Reuters Weekly Tax Bulletin – Issue 32, 26 July 2013

Jack Stuk
Partner
Private Advisory
jstuk@millsoakley.com.au

Edward Skilton
Senior Associate
Private Advisory
eskilton@millsoakley.com.au

Andrew Henshaw
Lawyer
Private Advisory
ahenshaw@millsoakley.com.au

In the media

ACCC quarterly report puts spotlight on statutory information gathering powers

The ACCC has published its September 2013 quarterly report, ACCCount. In the last quarter, the ACCC was involved in 10 proceedings relating to competition enforcement across industries as diverse as air freight, manufacturing components and financial services, which are still underway (04 November 2013)

To read more, please click here.

ASIC launches defence to Senate inquiry

The corporate regulator has released its major 200-page submission to the Senate inquiry into the performance of ASIC. As part of its defence ASIC pointed to the fact that Australia’s financial system performed better than nearly every other jurisdiction in the world during the global financial crisis (31 October 2013)

To read more, please click here.

ATO investigates $65m GST fraud in gold bullion trade – Australian Federal Police

The ATO is investigating companies in the gold bullion industry suspected of GST fraud totalling more than $65 million. The ATO, AFP and Australian Crime Commission executed search warrants on premises associated with the companies operating in the gold bullion and precious metals industries (30 October 2013)

To read more, please click here.

ASIC concerns result in changes to online advertising by Insure 247

Companies need to make it very clear to consumers whether their websites contain true product comparisons or are simply promoting their own product. This follows an announcement from the ASIC that Insure 247 Pty Ltd (Insure 247) has made changes to its online insurance websites following ASIC concerns they contained misleading or deceptive advertising (28 October 2013)

To read more, please click here.

Published – articles, papers, reports

Small Business Access to Finance: Year to March 2013 / Australian Bankers’ Association (ABA) and Council of Small Business of Australia (COSBOA)

Small businesses who expect their revenues to increase are more concerned about access to finance, whether or not they currently have a loan.  A little less than half of the small businesses surveyed expect their revenue to grow; and of these, 14.5%, are concerned about access to finance (released 30 October 2013)

To read more, please click here.

Annual Report 2012-2013 / Australian securities & Investments Commission (ASIC)

The annual report for the 2012-13 financial year was tabled in the Australian Parliament (30 October 2013)

To read more, please click here.

Why business ethics matter to your bottom line / Institute of Chartered Accountants Australia

The paper looks at the need for businesses to build institutional integrity into an organisation to support employees in making ethical choices. Applied business ethics in Australia is not given the same amount of focus than some other parts of the world (October 2013)

To read more, please click here.

Reflecting on Australian franchise growth / Fiona Taylor

Looking back over the last decade of franchising in Australia the sector has experienced strong growth, with an average biennial growth rate of more than 10 per cent.  Apart from the slight contraction from 2008 to 2010 as a result of the global financial crisis, growth generally ranged between 14-15% biennially over the last decade (see infographic) (30 October 2013)

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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)

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Willmott Forests Ltd (Receivers & Managers appointed) (in liquidation) v Primary Securities Ltd [2013] VSC 574

CORPORATIONS – Forestry managed investment scheme – Responsible entity replaced – Whether land on which scheme operates is scheme property – Not contribution of money’s worth to the scheme – Not property acquired with contributions or proceeds of contributions – Land not held on trust – Former responsible entity stands in the shoes of outgoing responsible entity – Rights of former responsible entity now rights of replacement responsible entity – Extent of forestry rights – Replacement responsible entity’s entitlement to those rights – Corporations Act 2001 (Cth) ss 9, 601FC, 601FS, 601FT.

To read more, please click here.

Geemaz Management Pty Ltd v Geelong Motors Pty Ltd [2013] VSC 571

CONTRACT – Terms of commercial agreement recorded in annotated email print out signed by the parties – Whether parties signing the email print out intended to conclude an enforceable bargain – car dealership franchises – Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 388; Ermogenous v Greek Orthodox Community (2002) 209 CLR 95; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Australian Communications Corp Pty Ltd v Coles Group Ltd [2011] VSC 490; and Ryldedar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603.

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.

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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

In the media

Artorios Ink director and manager to pay $100,000 for ink cartridge scams

The Federal Court has ordered a director and manager to pay a penalty of $50,000 each after they admitted to being knowingly concerned in contraventions of the Australian Consumer Law. The Court also made declarations by consent, and accepted undertakings they would not manage or be a director of a corporation for five years (03 December 2013)

To read more, please click here.

ATO targets companies as $1.8b in revenue looms

An estimated $1.8 billion in tax revenue could be up for grabs from multinationals in the resources, energy and technology sectors, as the Tax Office and business gear up for a fight on the way cross-border transactions are assessed (02 December 2013)

To read more, please click here.

ACCC addressing market failure

Address market failure and competition will unleash the incentives to win by best meeting the needs of consumers, ACCC Chairman Rod Sims said today. Privatisation and congestion pricing, for example, are also measures that can greatly improve incentives (29 November 2013)

To read more, please click here.

Mortgage Choice cops fine for false advertising

Mortgage broking house Mortgage Choice has paid more than $30,000 in fines over false advertising. ASIC has issued three separate infringement notices to Mortgage Choice — one for representations made in the television advertisements and two for claims made on the websites — each carrying a penalty of $10,200 (28 November 2013)

To read more, please click here.

We must invest more in innovation: AVCAL

AVCAL has lodged a submission to the National Commission of Audit. The submission urges the commissioners to maintain support for the Innovation Investment Fund (IIF) programme and the implementation of the 2013 McKeon Review recommendation for the establishment of a Translational Biotech Fund (TBF) (28 November 2013)

To read more, please click here.

Cyber cover takes off as privacy crackdown looms

AIG and the University of Canberra’s Centre for Internet Safety are releasing a white paper that estimates 65% of sensitive or confidential information held by SMEs is not encrypted or safeguarded by cyber cover.  The new Privacy Act will carry data-breach fines of $1.7 million for companies or $340,000 for individuals (25 November 2013)

To read more, please click here.

Cases

Bob Jane Corporation Pty Ltd v ACN 149 801 141 Pty Ltd [2013] FCA 1255

TRADE MARKS – infringement of registered trade marks – injunctions – whether respondents’ marks were substantially identical with or deceptively similar to the applicant’s trade marks – defence of use in good faith.

TRADE PRACTICES – misleading and deceptive conduct – passing off – declarations – representations of discount made – use of similar domain names – whether director of a company liable as a joint tortfeasor – whether “person involved” – tyre franchises

PRACTICE AND PROCEDURE – leave to change names of respondents – leave to proceed against the third respondent.

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In the matter of Courtesy Real Estate (NSW) Pty Limited [2013] NSWSC 1666

CORPORATIONS – oppression – seriously arguable case that removal of director was in breach of shareholders agreement – whether balance of convenience favours interlocutory order for reappointment of director – where applicant had not been a director for several months before interlocutory relief seeking his reappointment was sought – availability of other orders to protect applicant’s interests.

To read more, please click here.

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)).

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

Warwick Painter Partner
Direct Line: (02) 8289 5808
wpainter@millsoakley.com.au

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

The High Court last week upheld the decision of the Court of Appeal of the Supreme Court of Victoria  in relation to the proposed disclaimer of leases by the liquidators of Willmott Forests Limited (Receivers and Managers Appointed)(In Liquidation) (“WFL”).  Prior to the liquidators’ appointment, WFL had granted leases in forestry land to members (called “Growers”) in certain of WFL’s managed investment schemes.

The majority of the High Court stated the effect of the disclaimer was the extinguishment of the Growers’ leasehold estate or interests in the subject land.

The decision affords reassurance for liquidators regarding the breadth of their disclaimer powers and a liquidator’s ability to disclaim leases and move to realise land owned by a company to which they are appointed.  It should be noted, however, that the High Court left open the question of whether the liquidators required the leave of the Court before disclaiming the Growers’ leases.

Commercial impact of the decision

Willmott is an unusual case in that it is rare for liquidators of landlords to disclaim lease agreements.  The High Court’s decision provides some certainty for liquidators in those unusual situations where they are appointed to companies subject to unprofitable long-term leases with tenants.  Willmott provides that such leases can be disclaimed by liquidators and upon the disclaimer taking effect, any proprietary interests granted under the lease will also be brought to an end.  In these circumstances, liquidators will be left free to realise the property without being restrained by third party leasehold interests.

The Willmott decision also raises real questions about the commercial value of leasehold interests and any mortgages granted over those interests.  It will be interesting to see if Willmott will change the lending practices of financiers where leasehold interests are offered up as security.

The High Court’s reasoning

The High Court’s decision focused on the operation of section 568 of the Corporation Act 2001 (Cth) (“Act”).  Section 568(1A) of the Act provides that “[a] liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with the leave of the Court”.  Section 568D(1) of the Act then prescribes that the effect of the disclaimer is that it terminates, from the day it takes effect, “the company’s rights, interest, liabilities and property in or in respect of the disclaimer property, but does not affect any other person’s rights or liabilities except so far as necessary in order to release the company and its property from liability.”

The majority of the judges in the High Court found that each of the Growers’ leases was a “contract” and the rights and duties which WFL as landlord had under those leases were bundles of rights and duties which together constituted a species of property of the company which could be disclaimed.  Given this, their Honours surmised, it necessarily followed that, from the effective date of the disclaimer, WFL’s liability to provide the Growers with quiet enjoyment of the leased land and the Growers’ rights to quiet enjoyment of the property were also terminated.

Their Honours further noted that a tenant in this scenario suffering loss because of the disclaimer had two options open to it. Firstly, pursuant to section 568D(2) of the Act, the tenant could prove for its loss in the winding up of the landlord company as a creditor of that company and secondly, pursuant to section 568B of the Act, the tenant could apply to the Court within a specified period of time for the disclaimer to be set aside provided the disclaimer caused it “prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s creditors.”

Keane J, in dissent to the majority finding of the High Court, stated that the word “disclaimer” was primarily concerned with disowning rights rather than repudiating an obligation.  In addition, Keane J argued, the policy behind the disclaimer provisions in the Act was to expedite the realisation of the company’s assets in the administration of the insolvent estate and not to “expand the pool of assets available to creditors by clawing back property previously disposed of by the company.”  Accordingly, whilst the liquidators of WFL may be entitled to disclaim the contracts to lease this “would not mean that the Liquidators could seize possession of the leased land contrary to the rights which have accrued to each of the Growers.”

For more information about this decision please contact Ariel Borland and Nirupa Manoharan on 03 9670 9111 or by email aborland@millsoakley.com.au or nmanoharan@millsoakley.com.au

Mills Oakley is acting for Financial Index Wealth Accountants (FIWA) on its proposed $130 million off-market takeover offer for the entire share capital in Centric Wealth Limited (Centric Wealth).  Under the offer, Centric Wealth shareholders will receive 8.9 cents cash per ordinary share.

FIWA is one of Australia’s leading independent providers of retail financial planning, accounting and wealth management services.  Centric Wealth is a leading high-end wealth advisory firm with approximately $4.1 billion assets under advice (AUA).  The proposed transaction will create one of Australia’s largest financial advisory businesses with $7.6 billion AUA.

The proposed transaction is being part funded by KKR Asset Management (KKR), a credit business with $20.4 billion in assets under management and an affiliate of KKR & Co.  The fundraising will result in KKR acquiring an equity stake equivalent to approximately one third in FIWA.

The Mills Oakley team is led by Partners Martin Checketts (Private Advisory) and Daniel Livingston (Corporate Advisory).  They are assisted by Partner Adam Lunn (Employment) and Senior Associate Nicole Tumiati (Corporate Advisory).  Mills Oakley is advising on all aspects of the acquisition and the capital raising.

Daniel Livingston commented “This transaction reinforces FIWA’s position as a market leader in the financial advisory industry.  We are delighted to have been able to assist FIWA with such a significant transaction.  This transaction has also been a great opportunity for us to demonstrate the breadth and depth of the experience of our corporate transactions team, and also our particular expertise in the financial services industry.”

The Bid Implementation Agreement was signed on 11 January 2014.  The offer period is expected to open on 17 February 2014 and close on 17 March 2014.

Chase Corporate Advisory are acting as corporate advisors to FIWA.  King and Wood Mallesons are acting for Centric Wealth and Allen & Overy are acting for KKR.

Major changes to Australia’s Privacy Laws will come into effect from early March 2014. That means, if the Privacy Act applies to you and your business, it’s time to start getting ready for the changes.

The Act will apply to all large business, all health service providers and any small business with an annual turnover of more than $3million that either:

1.   Is related to a larger business;
2.   Trades in personal information;
3.   Provides services under a Commonwealth contract;
4.   Runs a residential tenancy database;
5.   Is a reporting entity under the Anti-Money Laundering and Counter-Terrorism Financing Act.

Businesses who weren’t previously captured by the Privacy Act could now find themselves caught by virtue of the changes.

If you are not sure whether the Act applies to you then contact us.

What the changes mean for you

The changes will affect how businesses can handle and process personal information, use personal information for direct marketing and disclose personal information to those overseas (such as internet hosting or data storage).

The changes to the Privacy Act will also give the Information Commissioner new powers to investigate serious breaches and assess compliance of business. The Information Commissioner also has the right to impose penalties for breaches of the Act.

Getting ready for 2014

Business will need to get ready now in order to make sure that they are ready for and comply with the new Privacy Act.

Changes that need to be made to your business privacy and compliance actions include:

• Consideration about what you tell people when you collect their personal information;
• Ensuring that your privacy policy is up to date and complies with the changes in the Act;
• Ensuring that you have an effectively implemented privacy compliance program throughout the organisation;
• Understanding your obligations if you use off-shore data storage or IT services;
• Knowing whether you can continue to use information for direct marketing or whether you need to undertake different processes.

So in 2014, your first action should be to conduct a privacy compliance audit to work out where the gaps are between your current compliance policy and the new requirements. You should look at how personal information in your business is collected, how its used and stored and whether its disclosed.

Identifying the gaps now will give you the time to fix them before the start of the changes … because the changes to the Privacy Act are coming ready or not!

For more information or assistance with your privacy compliance audit contact:

Gina Bozinovski  Special Counsel
Direct Line: (07) 3228 0426
gbozinovski@millsoakley.com.au

Gavin Douglas  Special Counsel
Direct Line: (02) 8289 5855
gdouglas@millsoakley.com.au

Background

On and from 1 December 2013, all ASX-listed mining and exploration entities are required to comply with the new reporting requirements set out in Chapter 5 of the ASX Listing Rules and the 2012 version of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the 2012 JORC Code).

Overview of the key requirements

As a general rule, public reports must comply with the 2012 JORC Code when they contain information relating to exploration targets, exploration results, mineral resources, ore reserves and production targets. In the case of material or ‘significant’ projects, where the relevant information:

- is reported for the first time; or
- has materially changed since it was reported to the market for the first time,
the ASX Listing Rules require the disclosure of both:
- a report that is compliant with the 2012 JORC Code; and
- prescribed additional information (which varies depending on the type of information being reported).

Changes to the 2012 JORC Code

When reviewing of the previous JORC Code, the JORC Committee aimed to:

Certain changes will have a significant impact on the reporting practices for the industry. By way of example:

Some staggered implementation

Another key change imposed by the 2012 JORC Code is the requirement to conduct at least one pre-feasibility study before declaring an Ore Reserve. Although early compliance is encouraged by both the ASX and the JORC Committee, this requirement will not become compulsory until 1 December 2014. For more information or assistance please contact:

Gavin Douglas Special Counsel
Direct Line: (02) 8289 5855
gdouglas@millsoakley.com.au

Gina Bozinovski  Special Counsel
Direct Line: (07) 3228 0426
gbozinovski@millsoakley.com.au

Bruno Solia Lawyer
Direct Line: (02) 8289 5871
bsolia@millsoakley.com.au

Background

There is now less than a month left before the transitional period granted by the Personal Property Securities Act 2009 (Cth) (PPSA) comes to an end. Starting on 31 January 2014, all security interests over personal property which arose before 30 January 2012 and which have not been either registered on the Personal Property Securities Register (PPSR) or otherwise perfected under the PPSA will become unperfected security interests. Amongst other things, the PPSR replaced numerous State and Federal registers of security interests, including the register of company charges that was maintained by the Australian Securities and Investments Commission (ASIC).

Scope

The PPSA creates a relatively new regime in Australia which governs the way in which obligations can be secured. In most cases, the PPSA applies to transactions in which the performance of an obligation or the payment of a sum of money is secured by rights over an item of personal property (a security interest). Commercial and financing arrangements to which the PPSA applies include, by way of example:

Perfection

In PPSA jargon, perfection is synonymous with being recognised as a secured creditor. Until 30 January 2014, all pre-PPSA security interests benefit from temporary perfection but, as the name suggests, this type of perfection is only temporary and will no longer apply after that date. There are three other methods of perfection; however, the most effective way of obtaining continuous perfection is to make a registration on the PPSR.

Risk

Having an unperfected security interest means losing priority against third parties who perfected their interest; even if the perfected security interest arose after the unperfected security interest. Most importantly, title is irrelevant for the purposes of the PPSA and may be defeated by a perfected security interest.

Urgent Action Required

Before 30 January 2014, being the end of the transitional period, you should:

Perfecting a security interest remains a purely commercial decision which must be made after conducting a risk assessment of each transaction. Relevant considerations would include:

That said, making a registration on the PPSR remains the most simple and cost effective way of perfecting a security interest against the interests of other persons.

Please let us know if we can assist you with a review of your current and registered security interests, with a view to ensuring that your interests are adequately protected on and from 31 January 2014.

For more information please contact:

Gavin Douglas Special Counsel
Direct Line: (02) 8289 5855
gdouglas@millsoakley.com.au

Gina Bozinovski  Special Counsel
Direct Line: (07) 3228 0426
gbozinovski@millsoakley.com.au

Bruno Solia Lawyer
Direct Line: (02) 8289 5871
bsolia@millsoakley.com.au

The new year also brings with it new changes to the Fair Work Act 2009 (FW Act). Significantly for employees and employers, the changes to the FW Act introduces measures designed to address bullying in the workplace.

As part of a range of amendments under the Fair Work Amendment Bill 2013 (the Bill), the former government introduced legislative changes that allow a worker who has been bullied at work to apply to the Fair Work Commission (FWC) for an order to stop the bullying.

The term “bullied at work” is defined as persistent and repeated negative behaviour directed at an employee and that behaviour creates a risk to health and safety.

For the behaviour to be considered “bullying” it must be satisfy the three criteria:

•    repeated,
•    unreasonable and
•    cause a risk to health and safety.

‘Repeated behaviour’ refers to the persistent nature of the behaviour and can refer to a range of behaviours over time and that ‘unreasonable behaviour’ is behaviour that a reasonable person, having regard to the circumstances may consider to be “unreasonable”. The test for unreasonableness is therefore an objective test.

Actions and behaviours that may be considered unreasonable and therefore constitute workplace bullying, could include setting unreasonable timeframes or changing work arrangements such as rosters or leave; unjustified criticism or complaints; or spreading misinformation of malicious rumours about a person; or behaviour that is victimising, humiliating, intimidating or threatening.

Importantly for employers, reasonable actions taken by management to address performance issues will not be considered bullying. The Explanatory Memorandum states that employers have rights and obligations to take appropriate management action and make appropriate management decisions. Employers will still to be able to make necessary decisions to respond to poor performance, take disciplinary action or direct and control the way work is carried out as long as such actions are carried out in a reasonable manner and do not leave the individual feeling victimised or humiliated.

The changes will also enable FWC to make orders to stop the bullying. Such actions may include contacting the employer or other parties to the application, conducting a conference or holding a formal hearing. In the course of dealing with a matter, the FWC may make a recommendation to the parties or express an opinion.

What can you do?

As an employer you are under an obligation to understand the new changes and what they mean for you and your employees. Now is the time consider whether your processes and policies up to date and whether you and your staff understand the changes and how they affect each of you and your business.

Mills Oakley Lawyers can help you understand the legislative changes and put in place the necessary processes and policies aimed at preventing, identifying and addressing incidences of bullying in the workplace.

For more information contact us on:

Gina Bozinovski  Special Counsel
Direct Line: (07) 3228 0426
gbozinovski@millsoakley.com.au

Gavin Douglas  Special Counsel
Direct Line: (02) 8289 5855
gdouglas@millsoakley.com.au

BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd & Ors [2013] QCA 394

Executive summary

Readers may recall that in May 2013 we discussed the decision of the Supreme Court of Queensland in BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd (No 2) [2013] QSC 67 in the publication ‘Court declines to set aside adjudication decision despite jurisdictional error.’

The Court of Appeal has very recently delivered its judgment of the appeal brought by BM Alliance Coal Operations Pty Ltd (BMA), which effectively reverses the decision in the Supreme Court of Queensland, meaning that:

• jurisdictional error by a decision maker (including error relating to a discrete part of a decision) will render an entire decision void and no legal consequences can flow from that decision; and
• a party who pays money paid pursuant to a void adjudication decision is able to recover that payment in whole, including those parts of the payment that do not relate to the jurisdictional error.

Background

The appellant (BMA) entered into a construction contract with the respondent (BGC) for the construction of a dam. BGC served a payment claim pursuant to the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act) which included claims for alleged latent conditions and termination costs.

Subsequent to service of a payment schedule, the payment claim was referred to adjudication. The adjudicator awarded to BGC a progress payment which included amounts for latent conditions and termination costs.

BMA appealed the adjudicator’s decision to the Supreme Court on the basis that the decision was void as a result of jurisdictional errors relating to the award of termination costs and latent conditions amounts, absent any contractual entitlement.

The court found that the adjudicator committed jurisdictional error in respect of the award of termination costs.

Initially the court declared the adjudication determination void by virtue of jurisdictional error. The court later revoked its declaratory order and relisted the matter for hearing to consider whether a decision affected by jurisdictional error was invalid for all purposes.

The court also gave further consideration to whether it had a discretion to give orders for remedies more convenient and satisfactory, such as allowing payments based on the parts of the determination not infected by want of jurisdiction, rather than simply declaring the determination void.

Appeal by BMA

In relation to the key issues arising from jurisdictional error, the appeal was made on the following grounds:

Justice Muir (who delivered the leading judgment in the Court of Appeal) held that there were no provisions in the BCIP Act which addressed whether a jurisdictional error on part of an adjudicator will render a determination nugatory, and “the decisions of the High Court relied on by BMA make it plain that once a court determines that decision of the type in question is affected by jurisdictional error, the decision cannot give rise to legal consequences”.

Therefore, the court held that the primary judge erred in finding that the adjudicator’s decision, even where affected by jurisdictional error, “retained effect until he exercised his discretion to grant a declaration or make an order quashing or setting aside the decision”.

As an adjudication determination affected by jurisdictional error cannot give rise to legal consequences, parties are no longer able to seek orders severing discrete elements of a determination so as to preserve others.

Further, the court held that the primary judge erred by denying BMA the remedy necessitated by the finding of jurisdictional error.

The remedy identified in this case was the recovery of the adjudication amount paid by BMA. As the adjudication decision was entirely void for jurisdictional error, it did not give BGC entitlement to payment of any part of the adjudication amount.

Further to severance, the court also:

• held, consistent with rules of contractual interpretation, that if a general clause had intended to also operate in respect of a specific clause, the specific clause should expressly or impliedly be said to be subject to the general (this is particularly relevant in relation to notice provisions under construction contracts); and
• reconfirmed that it was not sufficient for an adjudicator to merely consider or refer to the contract – adjudicators are, to avoid falling into jurisdictional error, obliged to apply the contract.

Conclusion

This case is significant for both claimants and respondents.

Construction proponents should keep in mind that an adjudicator’s determination, found by the court to be affected by jurisdictional error, will have no legal effect.

Adjudicators must be aware of their obligations under the relevant security of payments legislation and construction contracts. Simply referring to the relevant passage, without application, will not be sufficient.

This case also serves as an important reminder that when drafting and interpreting contracts, regard must be had to the interaction of clauses and clauses which are subject to another. If this is not specified, it is likely that in the event of an inconsistency, the specific clause will trump the general.

Finally this case reaffirms that the express language of BCIP Act and the express and implied terms of the construction contract are the foremost determinants of a party’s rights, rather than policy considerations said to underpin the regime.

For more information, please contact:

The NSW Supreme Court has handed down two cases recently of relevance to Owners Corporations.

The Owners – Strata Plan No. 62022 v Sahade:

An Owners Corporation’s general meeting was held to be invalid because insufficient notice was given to the Plaintiff under clause 32 of Schedule 2 of the Strata Schemes Management Act 1996 (SSMA), which requires strict compliance.

During the matter evidence was tendered which established when the notice letter was posted, and under Section 76 of the Interpretations Act 1987 the letter was deemed to have been received 4 working days later. But under Section 36 of that Act the day the notice was received is excluded from calculation, such that the meeting was found to be held one day too early (or the notice received one day too late to have a meeting on that date).

This case is a good reminder of the strict compliance requirements for notice of general meetings, and that when in doubt executive committees and strata managers should provide more notice to be safe.

Gannon v The Owners – Strata Plan 14403:

An Owners Corporation resolved to raise additional contributions to the administrative fund to comply with a Council Fire Order under section 76(4) of the SSMA. The Local Court held the Appellant (being Gannon in the Supreme Court) did not pay the levy when required, and awarded the expenses incurred by the Owners Corporation to recover these levies under section 80 of the SSMA.

The Appellant submitted that, before a special levy could be raised under section 76(4), the Owners Corporation must be faced with other expenses it cannot at once meet from either the administrative or sinking funds, and this prerequisite was not met. The Supreme Court held that it is sufficient for the purposes of sections 75, 75A & 76 that the Owners Corporation has an estimate of expenses it will incur, and a precise amount is not necessary.

The Supreme Court also held the Owners Corporation was entitled to recover legal expenses under section 80, but there was insufficient evidence to establish the quantum of costs incurred and it was found appropriate to refer the legal costs to assessment.

This case provides some solace to Owners Corporations that estimates of expenses will be sufficient when looking at passing special levies, and provide more flexibility in dealing with these issues than if exact amounts were required first.

For more information, please contact:

Paul Jurdeczka | Partner
pjurdeczka@millsoakley.com.au

Deliang Chin | Lawyer
dchin@millsoakley.com.au

In the Media

$145,000 for fake customer testimonials and country of origin claims

The Federal Court has ordered Euro Solar and Australian Solar Panel to pay $125,000 after it was admitted that YouTube videos advertising the companies contained fake customer testimonials and made false representations about the country of origin of solar panels. The  director of both companies was also ordered to pay $20,000 for his role in publishing the videos (17 January 2014)

To read more, please click here.

ACCC opposes Sonic Healthcare’s acquisition of Delta

The ACCC has indicated that it will oppose the proposed acquisition of the Delta Imaging Group by Sonic Healthcare Limited, stating that the deal will substantially lessen competition in the MRI and imaging markets in Maitland and Newcastle (17 January 2014)

To read more, please click here.

ASIC extends relief for stapled securities

ASIC has extended class order relief that allows issuers of stapled securities to present consolidated or combined financial statements. The corporate regulator believes the amended class order (CO 13/1050) will clarify that consolidated or combined reporting by entities issuing stapled securities can continue under the new accounting standard on consolidation accounting (10 January 2014)

To read more, please click here.

Franchise Council of Australia welcomes Franchising Code update in 2014

In today’s Australian Financial Review, Minister for Small Business, Bruce Billson said the Coalition would act early in 2014 to “maintain world-class regulatory support for a crucial part of the economy” (07 January 2014)

To read more, please click here.

In practice and courts

Compliance guides for hotels and clubs  - AUSTRAC

Two guides to help small gaming venues to meet their obligations under anti-money laundering legislation have been released by AUSTRAC. They provide examples of suspicious customer behaviour in gambling venues and outline a step-by-step process to: identify the risk in the venue, develop a plan for managing and maintaining the risk, establish good record keeping and reporting (07 January 2014)

To read more, please click here.

Takeovers Panel Consultation Paper – Draft Revised Guidance Note on Dividends

A Consultation Paper seeking public comment in relation to a new draft Guidance Note on Dividends.. The Panel seeks comments from interested persons on the draft Guidance Note by Friday, 28 February 2014 (10 January 2014)

To read more, please click here.

New ASIC Info Sheet — ePayments Code: Reporting data on unauthorised transactions

ASIC has published a new Information Sheet No 195 - ePayments Code: Reporting data on unauthorised transactions

To read more, please click here.  

New ASIC Info Sheet — Using ‘Limited’, ‘No Liability’ or ‘Proprietary’ in a name

ASIC has published a new Information Sheet 189 Using ‘Limited’, ‘No Liability’ or ‘Proprietary’ in a name

To read more, please click here.

New ASIC Info Sheet — Disputing proprietary company shareholder rights

ASIC has published a new Information Sheet 188 Disputes about your rights as a proprietary company shareholder (member).

To read more, please click here.

New ASIC Info Sheet — Disputing similar business names

ASIC has published a new Information Sheet 187 Disputes about similar business names.

To read more, please click here.

New ASIC Info Sheet — Disputing access to company info

ASIC has published a new Information Sheet 186 Disputes about access to company information.

To read more, please click here.

Cases

470 St Kilda Road v Robinson [2013] FCA 1420

INSURANCE – Directors’ and Officers’ liability insurance contract – Whether exclusion clause for acts or omissions “in the rendering of, or actual or alleged failure to render any professional services to a third party” applied – Whether “project management” is a profession within the meaning of that word in the contract – Principles relating to construction of exclusion clauses in contracts of insurance – Meaning of “service”, “profession” and “professional service” – Whether cross-claimant’s conduct was done in the “rendering of a service” – Whether conduct done in the rendering of a “professional service” – Exclusion clause held not to apply – Separate Question answered “no”.

EVIDENCE – Objection to admissibility of expert report on basis that expert opinion intruded impermissibly on the judicial function of the Court – Opinions provided included construction of contract clauses in contest – Objection upheld – Application by cross-respondent under s 144(1)(b) of the Evidence Act 1995 (Cth) to tender bundle of documents – Documents admitted into evidence.Building and Construction Industry Security of Payments Act 2002 (Vic); Competition and Consumer Act 2010 (Cth); Evidence Act 1995 (Cth)

To read more, please click here.  

Gerard Cassegrain & Co Pty Ltd (in liquidation) v Cassegrain [2013] NSWCA 455

DIRECTORS’ DUTIES – whether directors breached their duties under Corporations Act 2001 (Cth) and at equity in causing their company to transfer shares it owned in two other companies to an individual who was the wife of one director and the daughter of the other – whether shares transferred at undervalue – whether breach of directors’ duties under the Corporations Act and at equity regardless of whether shares transferred at undervalue due to improper purpose breach and conflict breach – whether directors should be excused under s 1318 of the Corporations Act

EQUITY – knowing receipt – where statement of claim did not seek relief from knowing recipient – where primary judge awarded relief against knowing recipient as well as directors in breach from whom the statement of claim had sought relief – where knowing receipt complained at first instance that relief not pleaded against her – where primary judge did not give leave to plaintiffs to amend statement of claim and did not advert to the issue in awarding relief against knowing recipient

REMEDIES – at equity and under Corporations Act for breach of directors’ duties – where primary judge ordered enquiry as to damages or compensation to be awarded to company in relation to transfer of shares at undervalue – whether primary judge erred in not immediately assessing the equitable compensation to be paid by reference to the difference between the amount the company received as consideration for the shares and the findings made by her Honour as to the value of the shares as at the time of transfer – whether in calculating statutory compensation under s 1317H of the Corporations Act the shares were to be valued as at the time of transfer or as at time of assessment of compensation

To read more, please click here.

Promoseven Pty Ltd v Prime Project Development (Cairns) Pty Ltd (Subject to a Deed of Company Arrangement) & Ors [2013] QCA 405

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – RELATED PARTY TRANSACTIONS – where the appellant and the first respondent entered into a joint venture agreement to carry out property development – where the appellant and the first respondent each owned 50 per cent shares in Bluechip Development Corporation (Cairns) Pty Ltd, which they used as a joint venture vehicle to develop the land – where HSBC Banking Corporation Limited largely funded the development, and holds the first registered mortgage – where the appellant originally contributed $1.2 million, while the first respondent originally contributed $962,628 – where both provided additional funds to Bluechip some of which were secured by a second registered mortgage in favour of both the appellant and the first respondent – where the development was completed in May 2009

PROCEDURE – MISCELLANEOUS PROCEDURAL MATTERS – OTHER MATTERS – where the respondents filed a notice of contention seeking to uphold the appeal on the basis that the appellant had ulterior purposes in pursuing the relief sought – where the respondents alleged special advantage would arise with respect to proceedings presently before the Federal Court of Australia – whether there is any substance to the ulterior motive contention

To read more, please click here.

Yousef v Taxsmart Group Pty Ltd & Anor [2013] FCCA 2089

INDUSTRIAL LAW – Termination of employment in alleged contravention of a general protection – identifying the general protection – confusion caused by blending of employment agreement and ancillary franchise agreement – entering into franchise agreement pre-condition to entering into employment agreement – question of whether there was a fixed term of employment – question of whether termination was a “genuine redundancy” – onus of proof – small award made, but other claims dismissed.

To read more, please click here.

Australian Consumer and Competition Commission v Camavit Pty Ltd [2013] FCA 1397

CONSUMER LAW – Consumer guarantee provisions misleading or deceptive conduct – representations about the existence, exclusion or effect of a guarantee, right or remedy – admitted contraventions – agreed orders – whether orders appropriate – whether civil penalty within appropriate range – compliance program.Camavit Pty Ltd has a Harvey Norman franchise in Campbelltown, an outer western suburb of Sydney. It operates a retail outlet known as the Harvey Norman AV/IT Superstore Campbelltown from which it sells electronic goods.     The regulator, the ACCC, seeks declaratory and injunctive relief, pecuniary penalties and other orders. This case is one of a series of cases in which the ACCC has successfully obtained orders of a similar kind against Harvey Norman franchisees

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

Warwick Painter Partner
Direct Line: (02) 8289 5808
wpainter@millsoakley.com.au

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

In the media

ASIC releases report on regulating complex products

With financial products and markets continually growing in complexity, ASIC has reviewed its approach to regulating complex products, with the release of Report 384 Regulating complex products (REP 384) about its review (31 January 2014)

To read more, please click here.

Divestitures to dominate M&A activity: JP Morgan

This year, while business confidence is starting to improve, Australian corporations will be focusing on maintaining strong balance sheets and refining their strategic focus, in some cases involving non-core divestments and demergers (31 January 2014)

To read more, please click here.

Employee share scheme review to boost start-ups

Federal Treasury has renewed the review of the policy settings for employee share schemes (ESSs) for start-ups with the announcement of further stakeholder consultations to address concerns raised over the barriers currently in place restricting the use of ESSs by start-up companies (24 January 2014)

To read more, please click here.

Published – articles, papers, reports

ASIC enforcement report – July to December 2013 / ASIC: 31 January 2014

ASIC achieved 340 enforcement outcomes. This included criminal as well as civil and administrative (e.g. a banning or disqualification) actions, and negotiated outcomes, including enforceable undertakings (EU). There were 112 outcomes achieved in the market integrity, corporate governance and financial services areas, and 228 in the small business area  (31 January 2014)

To read more, please click here.

The value of corporate culture / Luigi Guiso, Paola Sapienza, Luigi Zingales; Chicago Booth Research Paper No. 13-80

The authors study how different governance structures impact the ability to sustain integrity as a corporate value. They find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact (revised 24 January 2014)

To read more, please click here.

Cases

Re Queensland Police Credit Union Ltd (2013) 31 ACLC 13-056:

Restrictions on indemnities, insurance and termination payments. Termination payments made to former directors under deeds executed before commencement of Corporations Amendment (Improving Accountability on Termination Payments) Act 2009. Ambiguity in transitional provision. Application of transitional provision. Whether payments contravened s 200B of Corporations Act 2001.

Australian Competition and Consumer Commission v P & N Pty Ltd [2014] FCA 6

CONSUMER LAW – misleading and deceptive conduct – false or misleading representations purporting to be testimonials and concerning place of origin of goods – penalty – where respondents admitted engaging in contravening conduct – where parties submitted draft consent orders, joint submissions and statement of agreed facts – whether declarations, orders and pecuniary penalties proposed by parties appropriate.

Held: Declarations, injunctions, publication and other orders made and pecuniary penalties of $50,000 for first and second respondents, $25,000 for third respondent and $20,000 for fourth respondent imposed

Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) ss 4, 18, 29, 224, 232, 246;  Corporations Act 2001  (Cth)

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

Warwick Painter Partner
Direct Line: (02) 8289 5808
wpainter@millsoakley.com.au

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

In the media

ASIC extends short PDS relief

ASIC has extended interim class order relief from the shorter product disclosure statement (PDS) regime for multi-funds, superannuation platforms and hedge funds for a further 12 months, to June 30, 2015. The full PDS requirements under the Corporations Act 2001 apply to products that have been excluded from the shorter PDS regime (12 February 2014)

To read more, please click here.

ASIC cancels Capital Advisers’ licence

ASIC has cancelled Capital Advisers Pty Ltd’s (Capital Advisers) Australian Financial Services (AFS) licence. ASIC has also cancelled Capital Advisers’ Australian credit licence. The cancellations follow ASIC concerns the group was unable to comply with its licence conditions and it subsequently going into voluntary administration (12 February 2014)

To read more, please click here.

Reduce employee share schemes’ red tape and move the taxation point

With the government currently consulting on employee share schemes for start-ups and ASIC issuing draft regulatory guidance for companies on such schemes, Governance Institute took the opportunity to make the point that these schemes are facing significant challenges (11 February 2014)

To read more, please click here.

Cases

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35

BANKING AND FINANCIAL INSTITUTIONS – law of penalties – penalties at law – penalties in equity – genuine pre-estimate of damage – breach of contract – collateral or accessory stipulation – security for, and in terrorem of, satisfaction of primary stipulation – further accommodation – alternative mode of performance – inherent circumstances – extravagant and unconscionable – loss and damage – late payment fee – honour fee – dishonour fee – overlimit fee – non-payment fee – card accounts – saving accounts – business accounts – unconscionable conduct – unjust transactions – unfair contract terms – limitation defences

To read more, please click here.

Columbus Investment Services Ltd [2014] NSWSC 47

Order that the costs of this application, calculated on an indemnity basis, be paid out of the EQUITY – trusts and trustees – plaintiff responsible entity of registered scheme – purpose of scheme cannot be accomplished – notice given to unit holders under s 601NC Corporations Act – unit holders resolve that registered scheme be wound up – doubt about validity of proxy – unit holder declines to execute release under constitution – complaint to ASIC – application for judicial advice that plaintiff may wind up registered scheme and distribute assets -  Corporations Act 2001 (Cth)

To read more, please click here.

Traderight (NSW) Pty Ltd (ACN 108 880 968) & Ors v Bank Of Queensland Limited (ACN 009 656 740) (No 17) and 13 related matters [2014] NSWSC 55

TRADE PRACTICES – misleading or deceptive conduct – the operation of the Trade Practices Act 1974 (Cth) (TPA) ss 51A, 52 and 59(2) – the operation of the Fair Trading Act 1987 (NSW) (FTA) ss 41, 42 and s 54(2) – the relevance of a disclaimer in determining whether conduct was misleading or deceptive – the circumstances in which silence can be misleading or deceptive – the making of implied representations of fact – whether, on the facts of this case, the alleged implied representations were drawn by the plaintiffs – what constitutes a future matter within the meaning of the TPA s 51A and the FTA s 41 – the burden of proof under the TPA s 51A and the FTA s 41 – whether the defendant had reasonable grounds for the representations concerning a future matter within the meaning of the TPA s 51A and the FTA s 41 – the limitation period on a claim for personal injury for misleading or deceptive conduct – the application of the TPA ss 82(2) and 87E
TRADE PRACTICES – unconscionability – the operation of the TPA ss 51AC – the effect of the TPA s 51AA(2) on a claim under s 51AA in circumstances where a claim is made under s 51AC – what constitutes unconscionable conduct within the meaning of the TPA s 51AC – the operation of the  Franchising  Code of Conduct cl 16(1) – the limitation period on a claim for unconscionable conduct – the application of the TPA s 87F
TORTS – negligent misstatement – whether the defendant had a duty to take reasonable care in making representations to potential  franchisees  – whether the defendant had a duty of care not to express opinions unless it had reasonable grounds for doing so – whether the defendant breached that duty of care.

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

Warwick Painter Partner
Direct Line: (02) 8289 5808
wpainter@millsoakley.com.au

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

Courtesy of John Storey | Partner, Private Advisory

Both sides of Australian politics profess to support small business. But currently, in my view at least, it is the government itself that is the biggest impediment to small business, in the form of red tape and regulation. And nothing contributes more than Australia’s labyrinthine tax system.

Like an out of control virus the multitude of tax laws, regulations, rulings and decisions expands every year, seemingly without limits. As far as I am aware there has been no attempt to actually measure this. So my colleagues and I at Mills Oakley have done just that.

We’ve looked at how many pages of new “Tax Rules” were introduced in the year ending 30 September 2013. Tax Rules include any tax related Legislation, Regulations, Explanatory Memoranda, Rulings, Determinations, Interpretive Decisions, Decision Impact Statements for both the Commonwealth and the States. The result? A whopping 7,526 pages of new Tax Rules. See the chart above which has the monthly breakdowns. The Index will be updated regularly, and it will be interesting to see if the virus is spreading or if the tide can be rolled back.

Of course, something as subjective as “tax compliance” cannot be scientifically calculated. For example some Tax Rules can actually help reduce compliance costs, such as redrafting poor legislation, or a new ruling that clarifies a difficult area of tax law. On the other hand, the Index does not pick up all sources of tax complexity. The Index only tracks “final” Tax Rules, so it excludes Bills, Draft Legislation and mere announcements (such as Budget announcements) for example, even though unenacted legislation sometimes needs to be carefully considered, particularly where it will have retrospective application (in fact unenacted tax announcements are a huge source of tax complexity). Similarly, draft tax Rulings are not counted (just finals). See below an example of a draft Ruling that requires immediate attention by some taxpayers.

Despite this, measuring the sheer amount of Tax Rules each year is a good start to measuring Australia’s tax compliance burden. One highlight for me from this month’s figures is the huge spike in the month of June 2013 (2,628 pages of changes). June is the end of the financial year when business owners and their tax and financial advisers have a plethora of things to consider (end of year tax planning, preparing trust distribution minutes, calculating and attending to super contributions to name but a few). Just the time to bombard us all with 2628 pages of tax changes!

An updated Tax Compliance Index will be published in the Mills Oakley quarterly newsletter, The Tax Storey. To subscribe, please email John Storey at jstorey@millsoakley.com.au.

BIM (Building Information Modelling) is a technology to create 3-D representations or digital prototypes of any construction or infrastructure project.

BIM can enhance project management by enabling participants to fully visualise the project, improve project coordination, save costs and work together to address issues during the design phase rather than later in the construction phase.  Owners are also increasingly using BIM once construction is complete, to assist in managing buildings throughout their life cycle.

Why organisations should consider BIM

Implemented properly, BIM can substantially improve project outcomes. 

Contractors can use BIM to assist in increasing efficiency through better project coordination, project scheduling, increased use of pre-fabricated materials for construction, and more accurate cost estimations.  A recent survey of contractors[1] reported that the use of BIM on projects increased profits, reduced rework (the leading cause of schedule overruns), cut project duration and resulted in fewer document errors and omissions.

Additionally, contractors working in both the domestic and international markets are using BIM expertise as a marketing tool to acquire new work. 

For owners of construction and infrastructure projects, BIM provides a more accurate realisation of the project during the design phase by providing the opportunity to have a virtual walkthrough of the project as it progresses to ensure that the progressing design meets their requirements. Owners also benefit from increased cost savings, fewer design coordination issues and higher quality projects

When BIM is used during the design phase to generate life cycle profiles, it provides building owners with invaluable information about the total projected life cycle costs of a project.  These profiles can inform owners as to whether the life cycle costs are affordable, or if the design needs to be modified to help reduce costs.

BIM also has substantial benefits for building owners beyond the design and construction phase, and can be used post-construction to assist with asset management and maintenance.  Current software applications exist that can generate building maintenance plans from the BIM project data.  Using BIM, building owners can also track and manage spaces in buildings.  In addition, “as-built” 3-D BIM models can be created by using lasersto assist in the asset management of buildings from the “pre-BIM” era.

BIM is most effective when a “Full BIM” (also referred to as a “Federated” BIM model) is used during the design phase.  Full BIM consists of a series of linked individual BIM models created by the project participants (the architect, different engineering disciplines and contractor).  

In Sydney, BIM has been used on buildings such as the University of Technology Sydney’s Dr Chau Chak Wing Building, and the Coca-Cola Building at 40 Mount Street in North Sydney.

Why BIM is different

BIM is more than just 3-D CAD because of the object information it contains. Although the industry shift to CAD many years ago proved more efficient than manual drafting for creating construction documentation, the end result was still a drawing containing  a series of lines.  In contrast, a BIM model is created by objects, and these objects, and the information contained within them, are what makes BIM unique. 

When a BIM model is created, a wall, steel column or mechanical duct is not drawn in the model, an object is added to a model that contains the specific properties and dimensions of the object.  Manipulation of these objects enables revisions to be made easily during the design phase.

The BIM model is used to generate standard 2-D construction drawings, but it can also be used to detect clashes between different disciplines, because the objects contain their true dimensions.  The object data can also be used by contractors for more accurate construction scheduling (4-D BIM) and cost estimation (5-D BIM).  

Using BIM for a project

BIM modifies the traditional design process especially in the context of “Full BIM” where the project participants are working collaboratively from early in the design development phase. 

If BIM is going to be used for a project, ideally the decision needs to be made very early in the process, and if so the parties need to:

1. decide what information they want to get from BIM;
2. develop a BIM execution process for how the information is going to be developed, and
3. develop a BIM information exchange for ensuring the parties provide the information at the time it is needed during the design phase.

Specifically, some of the issues that need to be addressed when using BIM include: will a BIM manager be needed, who is in charge of the model, whether different parties (for example architect, managing contractor or contractor) are in charge of the model at different stages in the design process, how information is going to be exchanged, the party who is responsible for providing the information, where is the information going to be stored, what is the naming convention for the files so that the referenced or linked files function properly across project teams, what level of detail (LOD) will be used in model development, and can the model be relied upon by the project participants?   

Incorporating BIM into construction contracts

BIM can be incorporated into any type of contract.  In the US, the Consensus Docs 301 BIM Addendum was created as an overlay to work with existing standard form contracts.  BIM has also been used in Australia in conjunction with the Australian standard form Design & Construction contract.

However, the full benefits of BIM are best achieved with a collaborative contract structure (involving all project participants – for example managing contractor, integrated product delivery or alliance models) where all participants are involved in the project design from an early stage. 

New legal issues created by BIM include liability, confidentiality and copyright issues, and need to be addressed in any BIM-related contract.  In addition, the items discussed in the previous section (BIM execution process and BIM information exchange) should also be included in a project’s contract documentation.

How Mills Oakley can help you realise the potential of BIM

BIM is a promising technology but correct execution is crucial to its successful use on projects. Very little work has been done in developing construction/infrastructure documentation that fully provides for BIM.

Existing contract structures need to be amended to fully incorporate BIM, especially in the context of “Full BIM” where collaboration throughout the project is essential to the project’s success. Mills Oakley’s key BIM contacts are available to assist.

In our next update, we will examine the common methods of project delivery and discuss their compatibility with BIM.

________________________________________

[1] See The Business Value of BIM for Construction in Major Global Markets – How Contractors Around the World are Driving Innovation with Building Information Modeling (2014)