Full Federal Court Dismisses Misleading & Deceptive Conduct Appeal
By Amelita Hensman
Senior Associate
On 22 March 2012 the Full Federal Court dismissed an appeal by George Haros against the findings made in Haros v Linfox Australia Pty Ltd [2010] FCA 699. Mr Haros was a former business manager of Linfox Australia Pty Ltd (‘Linfox’) who alleged that he was misled during the recruitment process about the nature of his role and his job security.
The First Instance Decision
Mr Haros was recruited by Linfox in late 2008 through Mahlab, a recruitment agency, to act as a Business Manager for Avalon Airport. Prior to that Mr Haros was a general manager at Mobi Living Pty Ltd. In March 2009, less than 4 months after he had commenced with Linfox, Mr Haros was terminated on the grounds of redundancy (although during the proceeding Linfox acknowledged that they had in fact terminated his employment for unsatisfactory performance, but believed redundancy was an easier way to end the employment).
The general manager of Linfox met Mr Haros and the nature of the business was explained as well as the role of business manager. Further to this, Mr Haros met the chairman of the board of directors at Linfox, Mr Fox. Mr Haros complained that Linfox and its former general manager at Avalon had in the course of negotiating his contract of employment, contravened the Trade Practices Act 1974 (Cth) [1]and the Fair Trading Act 1999 (Vic) by engaging in conduct which was misleading or deceptive or likely to be misleading or deceptive or was liable to mislead Mr Haros about aspects of his employment with Linfox.
Mr Haros maintained that during his pre-employment negotiations Linfox made the following misleading representations to him that:
i) Linfox wanted to employ him for at least approximately three years and omitted to inform him that it may resile from this representation if the then General Manager resigned; and
ii) Linfox did not employ anyone other than its former General Manager in the management or performance of activities comprehended by the Business Manager role and omitted to inform him that it already employed people to perform those activities.
Justice Tracey held that none of the alleged misrepresentations had been made out.
The First Representation
His Honour considered the language used by those who dealt with Mr Haros during the recruitment process and noted that words like “potential” and “opportunities” were repeatedly used and it was held that:
“There was nothing in the language employed which could reasonably have been interpreted as an assurance or a representation that Linfox wanted to employ Mr Haros as a Business Manager at Avalon ‘for at least approximately three years”.
Justice Tracey also found that the terms of Mr Haros’ employment contract were also inconsistent with Linfox having made such a representation as the contract did not contain a three year or other minimum term but included a three month probationary period during which Mr Haros could be terminated with notice and following probation termination could occur by three months notice or payment in lieu of notice.
The Second Representation
Mr Haros alleged that during the recruitment process Linfox neglected to advise him that other employees worked on commercial work at the Avalon site and by such omission Linfox had implied that no one other than the General Manager was employed to perform such work. Justice Tracey rejected this noting that Mr Haros had not asked any questions which might reasonably have been expected to educe such information during the recruitment process and it could not be reasonably expected that the general manager was the only one undertaking commercial work at a busy and developing airport.
Justice Tracey found:
“Mr Haros was attracted to the position. He applied for it. He did not seek, nor was he granted, employment for a fixed term. He was offered the business manager’s position and accepted it. He did so on mutually acceptable terms and conditions which had been freely negotiated. He laboured under no disabilities during the negotiations…”
Conclusions
Justice Tracey held on the evidence that Linfox had not made the representations and even if Linfox had made the representations, they would not constitute misleading or deceptive conduct. In arriving at this conclusion Justice Tracey gave weight to the fact that despite negotiating other changes to his contract, Mr Haros signed the contract which included an “entire agreement” clause and a “no reliance” clause.
The Appeal Decision
Mr Haros appealed the decision of the Federal Court on the grounds that the Court had erred in overlooking items of probative evidence favourable to his case. It was also submitted that the delay between Mr Haros’ oral evidence and the delivery of judgment, a period of one year, had deprived the Court of the opportunity to properly consider the available evidence.
The Full Court stated “Mr Haros had failed to establish any error…that would entitle him to succeed in this appeal”. The Full Court held that the primary judge did not err in finding that the alleged representations were not made, and upheld the conclusions expressed about the importance of the terms of the contract of employment.
While Justice Tracey did not consider “every single item” of evidence, his reasons were adequate and not adversely affected by delay.
The Full Court further held that, even if Mr Haros was able to establish that Linfox had made representations which were misleading or deceptive, he would have failed in his claim because he was unable to prove reliance on those representations. Mr Haros pleaded that he had suffered loss by reason of his reliance on the representations after resigning from Mobi Living Pty Ltd.
In rejecting this the Full Court noted that there were many factors which could have brought about his resignation and it was not a case where an inference could be drawn that one or more factors materially influenced a decision. Mr Haros had failed to adduce express evidence of his reliance.
Lessons For Employers
i) Use the right language during recruitment. Using language to describe employment as “potential” and “opportunities” during the recruitment process is less likely to amount to a representation which can then form the basis of a claim for misleading and deceptive conduct.
ii) Where allegations are made about misleading representations, the court will place significant weight on negotiations about the terms of the contract and the content of the contract in determining the matter.
iii) The importance of the contract of employment. It is prudent to include provisions in a contract of employment which state that the contract forms the “entire agreement” between the parties and supersedes any previous representations or commitments made during negotiations. This decision indicates having a well drafted contract of employment is likely to overcome any contrary claims by an employee that they were misled when accepting a role with the employer.
Pointon Partners is able to assist employers in drafting and/or reviewing employment contracts to ensure your business is protected. If you have any queries in relation to this article please contact Michael Bishop or Amelita Hensman of our office.
Phoenixing – Cracking Down On The Mythical Bird Spreading Its Wings
Written by Andrew Cox
Consultant
In December 2011, the Gillard Government issued a press release calling for submissions in response to draft laws it plans to introduce into Parliament to combat the problem of phoenixing in Australia.
The laws, contained in the Corporations Amendment (Phoenixing Activity and Other Measures) Bill 2012 (‘Phoenixing Bill’) and the Corporations Amendment (Similar Names) Bill 2012 (‘Similar Names Bill’) respectively, propose amendments to the Corporations Act 2001 (Cth) (‘Act’) which have been several years in the making. By way of example, the key ideas within the laws have been drawn from, amongst other sources:
i) a proposals paper entitled ‘Action against fraudulent phoenix activity’ released by the then Rudd Government in 2009 (‘Proposals Paper’);
ii) a stocktake on corporate insolvency laws published by a Parliamentary Joint Committee in 2004; and
iii) submissions from other stakeholders.
Background
The term phoenix, as it is used in the corporate world, derives its name from the mythical Arabian bird which was fabled to live for 500 or 600 years, burn itself to death, and rise from the ashes in the freshness of youth to live through another cycle of years.
In a business context, phoenixing occurs when a company of limited liability fails (i.e. is unable to pay its debts to unsecured creditors, including the Australian Taxation Office) and, at the same time or shortly thereafter (i.e. within 12 months), the same business rises from the ashes (often with the same directors, employees, premises and customers) in the form of a new company of limited liability, without the debts of the failed entity.
To put the problem in context, the Proposals Paper posited that latest estimates indicate phoenixing rips approximately 600 million dollars per year from the public purse. Its effect on other unsecured creditors has been more difficult to measure.
Phoenixing Bill
The amendments to the Act contained in the Phoenixing Bill will provide the Australian Securities and Investments Commission (‘ASIC’) with an administrative power to order the winding up of a company when, amongst other considerations, the company appears to have stopped trading and can therefore be deemed abandoned. The Phoenixing Bill, which is part of the Gillard Government’s Protecting Workers Entitlements package announced in 2010, will have an impact on employees wishing to access the General Employee Entitlements and Redundancy Scheme (‘GEERS’), which is not available when a company has been abandoned but has not been wound up. GEERS provides employees of companies that have been wound up a Government subsidised payment of some of their unpaid employee entitlements.
At the time of writing, the Gillard Government had received ten submissions from the Australian Institute of Company Directors, the Insolvency Practitioners Association of Australia and other stakeholders in relation to the Phoenixing Bill. In light of this, it is difficult to predict whether it will be put to Parliament in its current form.
Similar Names Bill
The amendments to the Act contained in the Similar Names Bill impose personal liability upon directors for the debts of phoenix companies that are set up using the same or a similar name to a failed company.
Under the Similar Names Bill, which borrows from but does not mirror law already in place in the United Kingdom, a ‘similar name’ is a name that is so similar to the name of the failed company as to suggest an association with the failed company. The degree of similarity required is not set out and, as a result, should the Similar Names Bill become law, it will be up to the court to settle the question of degree on a case by case basis.
In summary, under the Similar Names Bill, liability is imposed on a director for debts incurred by a company (‘Debtor Company’) if:
i) the person was a director of the Debtor Company when the debts were incurred;
ii) the person was a director of a failed company at any time during the 12 month period ending the start of the relevant date in relation to the winding up of the failed company; and
iii) the failed company was known by the same or a similar name as the Debtor Company.
Directors of the Debtor Company will not be liable under the Similar Names Bill where the failed company has paid all of its debts in full. In addition, directors will be entitled to apply for an exemption order from the court, or an exemption from the liquidator of the failed company, if they can establish that they have acted honestly and without the intention of seeking to avoid paying creditors. In deciding whether to grant an exemption, the court or a liquidator will consider:
i) whether there were reasonable grounds for suspecting a failed company was insolvent at the time it incurred debts; and
ii) the extent and circumstances to which the assets, employees, premises and contact details of the failed company are now used by the Debtor Company.
It is important to note that Similar Names Bill does not address phoenix activity where a similar name is not used by a new entity. Consequently, it is difficult to predict the impact it, and the Phoenixing Bill, would have. Nevertheless, their existence indicates the Government’s ongoing desire to tackle the problem, which is not particularly surprising given its impact on the national revenue base.
Pointon Partners has a wide breadth of experience advising insolvency practitioners, creditors and directors and is able to advise on the implications on the Phoenixing Bill and the Similar Names Bill on such persons.
If you have any queries regarding the above, or regarding any other aspect of insolvency law, please contact Andrew Cox of our office.
The New PPS Regime
By Laszlo Konya
Senior Associate
The Personal Property Securities Act 2009 Cth has introduced some fundamental changes to the laws of securities and property (other than real estate). Pursuant to the Act, the Personal Property Securities Register (‘PPSR’) commenced operation at the end of January 2012. The PPSR is an online register of security interests in personal property.
The concept of a ‘security interest’ is central to the Act. Security interests may arise where:
i) Personal property is used to secure payment or performance of an obligation (e.g. retention of title, hire purchase, finance lease etc); or
ii) Personal property is leased or bailed.
Transactions that give rise to security interests may be affected by the Act and such security interests may need to be registered on the PPSR within strict timeframes. Failure to register may result in the security interest losing priority to a subsequent security interest, including loss of property.
If a security interest is validly registered on the PPSR, then a secured party (i.e. the person holding the security interest) may be able to enforce the security interest by the following methods:
i) The secured party may be able to trace into the proceeds of sale of the personal property. For example, if your business supplies goods to customers on a retention of title basis and the customer sells the goods to third parties, then you may have a security interest in the customer’s book debt in relation to that sale to the third party or the proceeds of sale; or
ii) The secured party may be able to enforce its security interest notwithstanding that the property securing an obligation has been installed in or affixed to other goods. For example, if your business supplies components on retention of title basis and those components are built into a machine, then you may continue to have a security interest in the components. Depending on the circumstances, you may have priority against someone that has a secured interest in the machine.
In addition to the above, a secured party may be able to exercise a power of sale or may be able to retain the personal property that was the subject of the security interest.
The Act provides for a two year transitional period within which secured parties can adapt to the Act and the operation of the PPSR. During this period, security interests created prior to 30 January 2012 can be registered on the PPSR to ensure that they maintain their appropriate priority as against other security interests. Therefore, if you or your business was granted security interests prior to 30 January 2012, then you should ensure that those security interests are registered on the PPSR as soon as possible. All charges registered on the ASIC Register of Company Charges were automatically migrated across to the PPSR upon commencement of the PPSR, however the PPSR should be searched to ensure that migration occurred properly as some problems with the migration process have been reported.
If you have any queries or concerns regarding the Personal Property Securities Act, then please contact Andrew Cox or Laszlo Konya of our office.
New National Business Registration System
Written by David Mazzeo
Director
As at 28 May 2012, the Australian government will introduce a New National Business Names Registration System (‘the New System’) which will merge the registration of all Australian Business Numbers (‘ABNs’) and business names into one national business name register. This will eliminate the need for businesses to register their names on a state by state basis.
The new system will be administered and managed by the Australian Securities and Investment Commission (‘ASIC’) and replace the previous systems administered in offices of each State and Territory.
Aside from removing the inconvenience and compliance costs incurred by multiple registrations across the various States and Territories, the introduction of the New System will assist in identifying the entities behind the business names and help the Government in preventing the registration of conflicting names, as well as undesirable names that may be misleading or offensive.
Generally speaking, the shift to the New System will have minimal impact upon trading. However, with such large scale integration comes the problems associated with dealing with existing conflicting business names and associated intellectual property rights.
Transferring Existing Business Names
Trading entities will not be required to transfer their business name to ASIC when the New System is launched if their business name is currently registered in a State or Territory. Their existing business name registration will automatically be transferred over into the New System.
This also applies for entities who have registered their business name in multiple states and territories. These identical business names will be transferred over into the New System as a single registration.
Duplicate Business Names
If the same business name is registered in different States or Territories to separate trading entities, ASIC will assign each name in each State an identification tag usually noting their location (eg. VIC, TAS, QLD). The business name appearing on store signs or on business communications will not be required to carry the state sign in the business name however the distinctive sign will be noted on the business name registry.
For example: If John from Melbourne runs John’s Car Wash in Victoria and a separate and non related John from Brisbane operates a separate John’s Car Wash in Queensland, during the transition into the New System, each business name would be registered with a state locator inserted in the register (eg. John’s Car Wash (VIC)). This would permit each John to run their respective car wash businesses in each state.
However, after the commencement of the New System, if another entity making a new application to register John’s Car Wash, it would be rejected by ASIC, as the John’s Car Wash business name is now grandfathered into the system.
Renewal of Business Name Registration
Existing business names will need to pay their renewal fees for registration when their original state business name renewal date falls due. The fee will depend on the length of registration required by the trading entity ($70 for three years or $30 for one year).
Where one business name is registered in multiple states or territories by one trading entity, under the New System this entity will be only required to pay one registration fee. ASIC will also provide them with the opportunity to align their registration date under the New System if the business names were registered on different dates in each States and Territories.
For new businesses, registration of your business name will continue on a state by state basis up until the commencement date of the New System.
Conflicting Business Names
The integration of each state registry into the New System increases the exposure of business names and businesses to trade mark infringement.
It is important to note that a company and business names are statutory obligations that do not provide legal ownership over the use of the name. While legislation provides that identical names cannot be registered, it permits for similar names to be registered, which increases the chances of conflicting business names.
Essentially, as we are not provided a monopoly over our business or company name by purely registering it with ASIC or through a state or territory office, the need to ascertain legal ownership over the use of the name will now gain greater momentum as businesses discover conflicting names after the launch of the New System. The primary means of ascertaining such ownership and protection will be through trade mark registration.
Trade mark registration of a business name provides a legal right that can be enforced against other businesses which use a name that is similar to your business name in a class of goods or services that similar to those covered by your trade mark.
IP Australia has backed the move by the Australian Government to introduce the New System as it increases the awareness for businesses to legally protect their intellectual property and understanding the limited protection afforded by company and business name registration.
For the majority of trading entities, the New System will have a minimal practical impact on their trading as the obligations imposed upon entities largely reflect their obligations under existing State and Territory legislation. The New System, however, increases the importance on the legal ownership of business names and encourages entities to safeguard the goodwill of their company that has been acquired through trading under a certain business name.
Pointon Partners has experience in advising on all issues relating to intellectual property and the registration of business and company names. If you have any queries in relation to the above article, please contact David Mazzeo of our office.
Customs Seizure – Notices of Objection
Written by David Mazzeo
Director
Trade marks are an important and visible marketing device. In differentiating a product from the competition, a trade mark helps identify the uniqueness of a product from its rivals. An increasing concern with respect to trade marks is the unauthorised importation of counterfeit goods which threatens both the profits and reputation of Australian businesses.
In order to protect your trade mark and brand from the importation of counterfeit or pirated goods you must have a Notice of Objection in place with the Australian Customs Service (‘Customs’). Importers and trade mark owners should be aware that a Notice of Objection allows Customs to seize goods suspected of infringing intellectual property rights before they come into the Australian market.
The Trade Marks Act 1995 (Cth) (‘the Act’) identifies who is eligible to lodge a Notice of Objection and under what circumstances Customs may seize goods. The process of lodging a Notice of Objection is explored in greater detail below.
Notice of Objection
Section 132 of the Act provides that the registered owner of a trade mark, or in certain circumstances an authorised user, may object to the importation of goods bearing a trade mark that is substantially identical or deceptively similar to the registered trade mark. Customs is empowered to seize such goods by virtue of section 133 of the Act.
Where goods appear to infringe a trade mark covered by a valid Notice of Objection and it appears they are intended for commercial purpose, such as sale of the goods, then Customs may seize the goods. The scheme only empowers Customs to take seizure action where there is a Notice of Objection in place.
Validity of Notice of Objection
For a Notice of Objection to be valid for the purposes of section 132 of the Act the notice must:
i) object to the importation of goods infringing a trade mark registered in respect of goods (please note a Notice of Objection cannot be made in respect of services provided under a particular mark);
ii) identify the trade mark and the goods in respect of which it is registered; and
iii) be lodged by a person entitled to lodge a Notice of Objection.
Who may lodge a Notice
A Notice of Objection may be lodged by:
i) the registered owner of a trade mark; or
ii) an authorised user of the trade mark.
Where a Notice of Objection is lodged by an authorised user of a trade mark, then documents that evidence either:
i) that the authorised user has the authority to lodge a Notice of Objection; or
ii) that the authorised user requested the registered owner to give the notice, and the registered owner gave no response within a two (2) month period must accompany the Notice of Objection.
Term of Notice
A Notice of Objection under the Act is valid for a period of four years. A trade mark owner, or authorised user, may re-lodge a Notice of Objection following the four year period to ensure ongoing protection. Notices may be withdrawn at any time if the owner no longer requires the notice.
Seizure of Goods
Notice of Seizure
Pursuant to section 134 of the Act, Customs must give notice either personally or by post as soon as practicable after goods are seized to the owner of the goods which identifies the goods and states that the goods have been seized under section 133 of the Act, and the objector.
Action Period
An action period is given whereby the seized goods will be held for ten (10) working days from the date the objector is notified of the seizure. The period may be extended where approval is given by the CEO of Customs.
During the action period the following may occur:
i) the objector may commence legal action; or
ii) the objector may consent to the release of the goods; or
iii) the owner of the goods has the option to voluntarily forfeit the goods, provided civil action has not commenced.
Release of the Goods
If the objector does not commence legal proceedings during the action period and the owner of the goods has not voluntarily forfeited the goods, then Customs must release the goods to the owner. Release of the goods does not prevent the trade mark owner from later taking action against the importer under the Act.
Forfeiture
Where legal action is commenced the court will make an order in relation to the goods, being either that the goods be released to the owner or that they be forfeited to the Commonwealth. Generally where they are forfeited, the Customs CEO will direct the goods be destroyed or donated to charity.
Security
The objector lodging a Notice of Objection must provide a Deed of Undertaking to Customs. The Deed is a formal undertaking that the objector will pay any costs incurred by Customs in enforcing the Notice of Objection. Expenses may include the costs of seizing the goods.
Customs may require payment of a security sufficient to meet their expenses of seizing the goods. Until full payment of the security is made by the objector, Customs will not be obliged to seize the goods.
Information to assist Customs
Any information that trade mark owners are able to provide can assist Customs to intercept imports of infringing goods passing through the Customs barriers. Customs have advised that information may include but is not limited to the following:
i) name of owner/importer;
ii) name of overseas
iii) supplier/manufacturer;
iv) name of ship, airline, flight no.;
v) expected date/port of arrival;
vi) details/description/quantity/ country of origin of goods;
vii) details of importers authorised to import goods bearing your trade mark.
Please note that Notices of Objection may also be made under the import provisions of the Copyright Act.
If you have any queries regarding these matters or protecting intellectual property rights generally then please do not hesitate to contact David Mazzeo of our office.
Employee or Independent Contractor?
A Difficult Distinction
By Sophie Ware
Lawyer
The recent Federal Court case of ACE Insurance Ltd v Trifunovski [2011] (ACE Case) illustrates the difficulties now faced by individuals and businesses alike in making the distinction between an employee and an independent contractor. It is clear that there is no specific definition separating the two, nor a single indicator which may be used to make the distinction, but rather a list of considerations which must be taken into account when analysing the “totality” of the relationship and each individual fact scenario.
The ACE Case saw Justice Perram make the distinction where five sales representatives, who had been engaged as independent contractors, claimed annual and long service leave entitlements upon termination of their contracts on the basis that they were employees.
The Court decided that the sales representatives were in fact under a contract of employment, rather than that of an independent contractor and as a result, the deemed employees were subsequently entitled to annual and long service leave benefits which had accrued for the duration of their employment.
Factors to Consider
Ultimately, the court determined that there was only one business being carried on within the employment relationship, being that of ACE Insurance Ltd. The reasoning for this decision centred around the following fundamental considerations which proved the basis for the decision:
i) Goodwill was being generated for the benefit of ACE Insurance Ltd, as opposed to that of the business of the sales representative;
ii) ACE Insurance Ltd exercised significant organisational control over the sales representatives by way of organising them into teams within a three tiered hierarchical structure; and
iii) The opportunity for advancement through the organisation was used as an incentive for performance.
In addition to the elements mentioned above, the Court further discussed a number of other common indicators which may assist in determining if the sales representative is an employee or an independent contractor. These included but were not limited to:
i) Terms of the contract;
ii) Provision of uniforms;
iii) Provision of training;
iv) Whether tools were supplied by the company or individual;
v) Whether subcontracting is permitted;
vi) Whose benefit goodwill is generated for through the provision of services;
vii) Whether there is an expectation of continued work,
viii) Whether the individual is provided with paid leave
ix) Method of payment, i.e. whether wages are paid or commission provided;
x) How tax is dealt with;
xi) Degree of control held over individual; and
xii) Hours of work performed.
Although under their contracts the sales representatives were permitted to carry on other forms of business whilst contracted with ACE Insurance Ltd, in reality the hours worked meant that this was not feasible. It was argued that some of the sales representatives employed their own administrative staff, however such employment did not extend to the employment of people to assist in sales of insurance. In addition to this it was put forward that the sales representatives issued tax invoice to ACE Insurance Ltd for work performed it was found that these invoices were actually prepared by ACE Insurance Ltd.
How Does This Affect Businesses?
In the event that an individual is deemed to be contracted as an employee rather than an independent contractor, the business can be liable, among other things, for tax obligations, superannuation obligations and claims for employee benefits. In addition to this business potentially face civil penalties arising under the Fair Work Act 2009 (Cth) of up to $33,000.00 per contravention.
The ACE Case, along with that of On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 and Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation [2010] FCAFC 52, show an increasing trend which has emerged in recent times of court findings that persons engaged or contracted were actually employees of the company rather than contractors.
This case ultimately reminds us of the need to tread carefully when classifying an individual as an independent contractor, as in the event that the classification is incorrect, penalties can be severe.
If you have any queries regarding the above article please contact Michael Bishop or Sophie Ware of our office.
[1] On 1 January 2011 the Trade Practices Act 1974 (Cth) was renamed the
Competition and Consumer Act 2010 (Cth).
If you require any further information or advice, please click here to be directed to our Directors, Consultants, Senior Associates and/or Property Services team here at Pointon Partners.
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