Newsletter Autumn/Winter 2014

Family business succession

Written By Laszlo Konya

Business Succession Planning for Blended Families

Family business succession planning can be complicated enough where the owner has children from only one marriage, let alone where there are several sets of children. It may be that some children are actively involved in the family business and wish to acquire equity, while other children have no interest in the family business other than expecting a fair inheritance or ongoing support. How can the owner pass on control of the family business without inadvertently laying the foundations for a messy and costly legal battle after his or her death? And what can be done to ensure the transition is as smooth and successful as possible?

Consult and identify interested children

First, don’t assume you know which members of the next generation are interested in running the business – take the time to discuss it privately with each of them and consider employing the ones who are interested. It should also be made clear only family members who have suitable experience in or outside the business will be considered for leadership roles. This ensures that the next generation acquires practical experience without the pressure and expectation of being the guaranteed successor. It also gives the owner an opportunity to evaluate whether the child is suited to running the family business and how to structure the succession.

Keep the conversations on the succession plan regular and open with all family members. Children in blended families often vary substantially in age and may have had very different upbringings. This may affect their view of the owner’s succession plan. Regular dialogue with all children will help them feel they are involved in the plan and that their views have been considered. This may also limit grievances after the owner’s death and, in turn, limit legal disputes.

If none of the owner’s children are interested in running the family business, then other succession plans or a sale during the owner’s life need to be considered.

Passing control

Second, consider how control of the family business will be passed to the next generation. Will control pass during the owner’s lifetime or upon his/her death?

Passing control, in part or in full, during the owner’s lifetime may assist in ‘bedding down’ the succession plan and allow the owner to act as a ‘guardian’ during the transition phase when he/she is actively able to assist the next generation. This may be particularly important in blended families where the owner is likely to be the common link between all of the children. It may also limit any claim on the owner’s estate as discussed below.

Will

If the owner gives control of the family business through a will, then the relevant child or children may not provide consideration for acquiring control. This would need to be factored into their inheritance vis a vis the other children. Provided that the owner has other assets to sufficiently provide for their other children, this option may be the simplest approach. The will, as part of the succession plan, can be discussed with all family members as noted above.

If the owner doesn’t have sufficient assets to fairly compensate their other children, then a buy option can be built into the will. The will can be very specific about the terms of the buy option or leave certain decisions up to the executors’ discretion. It can contain mechanisms for determining the sale price and specify dates by which the option must be exercised and completion must occur. If the child or children do not have sufficient funds to pay, then loan terms can also be specified.

The buy option may be preferred where the balance of the owner’s estate is given to their surviving spouse. In these circumstances, the child or children acquiring control of the family business would receive (part or all) of their inheritance ahead of others, which may cause friction within the family.

In blended families, the friction may be increased by the surviving spouse attempting to cut out their stepchildren from receiving their inheritance. These issues can be mitigated by various methods, such as the owner granting a life interest in certain assets to their current spouse and giving the remainder interest to their children.

Family Charter

A family charter is a document that sets out the interaction between the family and the family business and aims to preserve the wealth by implementing appropriate governance, similar to the constitution of a publicly listed company.

Documents like this are at their most important when there a several families involved in the business. Particularly if there has been bad blood in the past, as is often the case with multiple marriages.

A family charter can specify how decisions about the family business are to be made. It may also provide for separation between owners and managers of the family business by requiring appropriately qualified professionals, such as accountants, lawyers, financial planners and experienced business executives, to be employed in senior management roles and/or directors. It goes beyond the simple company structure, where shareholders elect the directors.

A family charter may provide for the establishment of a ‘family office’, which is a professionally managed organisation responsible for managing the family business and/or the family wealth and how it can be made to work with more than one family.

A family charter may also contain dispute resolution procedures, which may assist in keeping family disputes out of the public eye (compared with the highly public saga involving the Rinehart family).

Claims against estates

Any succession plan must take into account potential claims against the owner’s estate on the basis that adequate provision has not been made for a particular person. In blended families, there may be an increased risk of such a claim as the owner may have children from several marriages, including step-children, who don’t inherit the owner’s estate equally or acquire equity in the family business.

In Victoria, any person may make a claim on an estate.

Whether a claim will be successful will depend on a variety of factors, which this article will not explore. Specialist advice should be sought if this is a concern.

Generally, claims can only be made against an estate, which means that assets gifted during the owner’s lifetime or assets held on trust are outside the scope of a claim. Therefore, if the owner passes control of the family business during their lifetime, subject to due consideration of tax consequences, then that may limit disputes within the next generation about the family business. This strategy does not apply in New South Wales, where courts can order that property disposed of before death form part of a ‘notional’ estate for the purpose of determining a claim.

Gifts made prior to one’s death may be taken into account when determining a claim where the gifts are acknowledged in a family charter or agreement specifically made in respect of a will and succession assets, which is normally signed by all relevant family members.

Regular review

Succession planning can be seen as a daunting and difficult task, especially in blended families. However, it is simply an element of business planning, such as preparing annual budgets and accounts. Succession planning can assist the owner in implementing sound governance and procedures while he or she is in control of the family business, which may also result in greater productivity, transparency and business growth. If no succession plan is put in place, then all of the owner’s hard work may evaporate very quickly after passing away. Particularly in blended families, where relations can easily descend into legal conflicts if the owner’s actions are not transparent and understood by all.

Once a succession plan is developed, it is imperative that it’s regularly reviewed and revised due to changing circumstances, such as family relationships and business growth. This may require specialist legal advice together with the family lawyer and accountant. The cost of implementing and regularly reviewing a good succession plan will be far outweighed by the risk of messy legal battles following the owner’s passing, the risk of which may be increased in blended families.

Pointon Partners can assist in providing strategies to avoid family maintenance claims and also provide advice in respect of a claim that you may have. If you would like further details regarding these matters, then please contact Tony Pointon or Laszlo Konya or your Pointon Partners contact.

The article can also be found: Family Business Succession 

Consulting with Employee prior to Redundancy – an essential element to defence of an unfair dismissal claim

Written By Michael Bishop

All modern awards and enterprise agreements now require an employer to consult with an employee prior to that employee’s position being made redundant. Although such terms were commonly included in agreements prior to 2010, the Fair Work Act 2009 now mandates their inclusion. If an employer does make an employee redundant without consulting the employee, the employee may successfully bring an unfair dismissal claim.

The standard consultation clause obliges employers to notify employees of significant workplace changes, including a decision to make the employee redundant. Employees can elect to be represented for the purposes of that consultation. Any significant change must be discussed with the employee, including the effect that the change is likely to have on the employee, and any possible measures to mitigate the adverse effects. The employer must give genuine consideration to any matters that the employee or their representative raises during the consultation. The discussion must occur as soon as practicable after the employer has decided to make the change and the employee must be provided, in writing, with all relevant information about the change.

It is extremely important that an employer complies with the consultation requirement, so that they can rely on the ‘genuine redundancy’ exemption from unfair dismissal claims. Under s389 of the Fair Work Act 2009, an employee cannot bring an unfair dismissal claim if their employment has been terminated in circumstances of genuine redundancy. This exemption applies where:

1. the employer no longer requires the person’s job to performed by anyone because of changes in the operational requirements of the enterprise; and
2. the employer has complied with any obligation under a modern award or enterprise agreement to consult about the redundancy; and
3. it is not reasonable in all the circumstances to redeploy the employee in either the employer’s enterprise or an associated entity of the employer.

A recent case involving an employer’s consultation obligation was heard by the Fair Work Commission in March 2014. The case involved Ms Karen Baker, who was made redundant from her position in Human Resources at Roy Morgan Research Ltd.

Roy Morgan Research Ltd v Karen Baker [2014] FWCFB 1175

Karen Baker was an employee of Roy Morgan Research Ltd (Roy Morgan). The Roy Morgan Research Enterprise Agreement 2009-2013 contained the model consultation clause. Ms Baker was told by Roy Morgan that she was being made redundant after the company restructured its HR team. She argued that her dismissal was unfair because Roy Morgan had not complied with its obligation to consult with her prior to redundancy.

On 8 January 2013, Sam Schwartz, the Director – HR and Transformation, told Ms Baker that her position was being made redundant and a new position would be created that she could apply for. He told her that she could participate in the redeployment programme, but if an appropriate position was not found, her employment would be terminated.

In determining what the employer must do to comply with their consultation obligation, Deputy President Gooley referred to a quote by former Commissioner Smith.

“Consultation is not perfunctory advice on what is about to happen. This is [a] common misconception. Consultation is providing the individual, or other relevant persons, with the bona fides opportunity to influence the decision maker.”

The decision

The Fair Work Commission found that Mr Schwartz had not consulted with Ms Baker after he decided to make her position redundant. While Mr Schwartz did tell Ms Baker that he had made the decision, he did not “discuss” the change with her. The conversation merely involved Mr Schwartz informing Ms Baker that her position was being made redundant, and the consequences of that decision. Ms Baker was given no real opportunity to change his mind.

The Fair Work Commission therefore found that Roy Morgan did not comply with the obligation to consult prior to Ms Baker being made redundant. As such, Ms Baker’s dismissal was not a case of genuine redundancy. As Roy Morgan did not establish any other rationale for the termination of Ms Baker’s employment, the Fair Work Commission found the dismissal harsh, unjust and unreasonable. Hence Ms Baker’s unfair dismissal claim was successful, and she was granted a remedy under s394 of the Fair Work Act 2009. Roy Morgan was ordered to pay Ms Baker $37,000 in compensation.

Lessons for Employers from the Case

The Fair Work Commission regards a failure to consult with an employee prior to making the employee redundant as a serious defect in the dismissal process. If an employer does not comply with the obligation, then they are precluded from relying on the ‘genuine redundancy’ exemption from an unfair dismissal claim. As the case demonstrates, complying with the obligation requires more than simply telling the employee about a redundancy decision. Rather, the employee, and if applicable their representative, must be given a genuine opportunity to discuss the redundancy with the decision maker. This includes providing the employee with a bona fide opportunity to change the decision maker’s mind about the redundancy. Failure to comply with the consultation obligation can have serious consequences for an employer, as they will not be able to rely on the “genuine redundancy” exemption. Thus, the employee may bring a successful unfair dismissal claim, if it is found that the dismissal was harsh, unjust or unreasonable.

If you have any questions about redundancy or the Fair Work Act, please contact Michael Bishop or your Pointon Partners contact.

This article can also be found: Consulting With Employee Prior to Redundancy – Essential Element to defence of an Unfair Dismissal Claim

Victorian Retail Leases

Landlords Beware: Are you providing the right form of disclosure?

Written By Ted Vlahos

Background

Leases of retail premises in Victoria are governed by the Retail Leases Act 2003 (Vic) (Act) and the regulations. The former regulations were placed by the new Retail Leases Regulations 2013 (Regulations), which took effect earlier this year.

Introduction of four Disclosure Statements

The most significant effect of the new Regulations was to replace the multi-purpose Disclosure Statement with four separate Disclosure Statements. These statements are to be used in the following scenarios in connection with Victorian retail leases:

1. Retail premises not located in retail shopping centres;
2. Retail premises located in retail shopping centres;
3. Renewal of a lease; and
4. Assignments of a lease with an ongoing business. be automatically registered with the ACNC.

Consequences of failing to give disclosure

There are serious consequences where a Disclosure Statement is not provided by a landlord, or if false misleading or incomplete.

If the landlord fails upon entering into a new lease to provide a Disclosure Statement within the required time, and in the form prescribed by the Regulations, the tenant may, between 7 days and 90 days after entering into the lease, give the landlord written notice that they have not been provided with the prescribed disclosure statement.

In the case of renewal of a lease, if the landlord fails to provide a Disclosure Statement within the time, and in the form prescribed by the Regulations, the tenant may, at any time up to 90 days after the date by which the landlord was required to provide the Disclosure Statement, give the landlord written notice that they have not been provided with the prescribed Disclosure Statement.

If a tenant gives the landlord one of the notices referred to above, then the tenant:

1. May withhold the payment of rent until the day on which the landlord provides the Disclosure
   Statement;
2. Is not required or liable to pay rent for the period commencing on the day the notice was given by the tenant until the landlord gives the tenant the Disclosure Statement; and
3. May terminate the lease at any time within 7 days from when the landlord gives the tenant the Disclosure Statement.

In the case of an assignment of lease, where a landlord fails to provide a tenant with a Disclosure Statement within 14 days of such a request being made by a tenant, the landlord may be subject to financial penalty.

Timing for giving Disclosure

The Act imposes different disclosure obligations on the landlord and strict timing requirements for giving disclosure depending on the circumstances which the landlord must be mindful of.

New items of disclosure

There are some key differences in the new forms of disclosure provided in the Regulations. All forms of disclosure required to be given by the landlord now require disclosure concerning any alteration or demolition works, planned or known to the premises or building/centre in which the premises are located (including surrounding roads and to the land adjacent to or in close proximity to the premises or building/centre in which the premises are located) during the term or any further term or terms.

In addition, the statement for the assignment of a lease also requires a tenant to disclose any matter not connected to the lease agreement, planned or known to the tenant, which may materially affect the viability of the ongoing business over the remaining lease period. The outgoing tenant must also disclose whether the landlord has issued any notices to the tenant pursuant to the Act and any materials variations to the Lease.

The Disclosure Statement for a renewal of a retail lease is quite different from the former multi-purpose Disclosure Statement. The renewal disclosure only requires the landlord to disclose any costs arising under the new lease, and any alteration or demolition works or other matters that may affect the tenant’s business (as noted above).

Form of Disclosure

A Disclosure Statement is required to be given in the form provided under the Regulations. The layout however, such as the appearance and font, may be altered. It is important to ensure when altering a statement that none of the wording of the prescribed form is removed or varied, even where a section may not be applicable.

It is important for both landlords and tenants are aware of the above changes to ensure that their disclosure is made in the correct form and at the appropriate time.

Pointon Partners have an experienced team that can assist Landlords, Tenants, Property Managers and Real Estate Agent with all leasing arrangements, including provision of the appropriate lease and disclosure documents.

We advise on commercial, industrial, and retail leases and can assist with the negotiation, preparation, variation surrender and assignment of leases, sub-leases, licence agreements, agreements to lease, shopping centre leases and mortgages of lease.

We are well versed in helping our clients understand their rights and obligations under leasing agreements and our practitioners regularly appear at VCAT and mediations by the Small Business Commissioner on leasing dispute matters.

If you have any queries regarding the Victorian Retail Lease regulations, please contact Ted Vlahos or David Mazzeo or your Pointon Partners contact.

This article can also be found: Victorian Retail Leases – Landlords Beware are You Providing the Right Form of Disclosure

10 THINGS TO CONSIDER WHEN PURCHASING A LICENSED PREMISES

Written By David Mazzeo

There are many people who dream of buying the corner pub for either a lifestyle change or to operate as a business with friends or family. On the other side of the coin, there are the experienced hospitality operators who want to expand their business interests and increase their licensed venue portfolio.

However, no matter which camp you fall into (or anywhere in between), if you are bitten by the hospitality bug or suffer from hospitality fever you must undertake proper and thorough due diligence prior to signing on the dotted line and committing to a significant investment.

As part of any due diligence process involving the purchase of a licensed hospitality venue (with or without Electronic Gaming Machines), it is important thoroughly consider the following issues:

1. Liquor Licence.

The type of Liquor Licence and the Conditions endorsed on the Liquor Licence will govern how you will be able to use and operate the Licensed Premises.

For example, only Licensed Premises with a General or Full Club Liquor Licence may be approved for the installation and operation of Electronic Gaming Machines.

The Conditions endorsed on the Liquor Licence may also indicate how the business was operated in the past and whether there have been issues with matters such as customer behavior, neighbours, noise, amenity, infringements etc.

A Liquor Licence is an extremely valuable asset and the importance of obtaining expert advice in relation to the Liquor Licence to be transferred to the purchaser as part of the transaction and licensing and operational history of the Licensed Premises, should not be underestimated.

2. Victorian Commission for Gambling and Liquor Regulation (VCGLR) Approved Plans of the Licensed Premises.

a. Green Line Plan (Gaming Venues only).

The Green Line Plan indicates the Approved Premises and the location of the Gaming Area.

Although most Gaming Venues are compliant, it is important when reviewing the approved Plans for the Premises to be aware that after 1 July 2012, all ATM’s installed at Gaming venues will need to have been removed from the venue unless the venue has obtained specific approval from the VCGLR.

In general, it is important request copies of all approvals from the VCGLR to confirm that the Licensed Premises is compliant.

b. Red Line Plan.

The Red Line Plan must accurately reflect the currently approved Licensed Area at the Premises including the Premises layout (internal and external) where liquor is authorised to be supplied.

If you are considering the purchase of Licensed Premises and you are unsure or concerned about the currently approved Plans of the Premises and whether they are accurate, appropriate warranties can be inserted into the Contract of Sale to protect the Purchaser against any anomalies in the Plans and the cost of preparing and obtaining VCGLR approval of new Plans.

Owners of Licensed Premises should make it a habit to regularly review the approved red-line plan to ensure that it is up to date and accurately reflects the current operation of the Licensed Premises.

3. Planning Permits and VCGLR Approvals.

Having the correct planning permission and VCGLR approvals for the operation of the Business is essential. Rectification of these matters can be expensive, time consuming and in the worst case scenario, a deal breaker for a potential Purchaser.

At the outset, it is important to obtain from the Vendor, copies of all planning and VCGLR approvals relating to the:

a. Liquor Licence;
b. Approved Premises;
c. Modifications of the Gaming Machine Area;
d. Alterations to the Approved Premises; and
e. Modifications to the Number of Electronic Gaming Machines installed and operated at the Approved Premises.

4. Vendor’s Venue Operator’s Licence (VOL) (Gaming Venues Only).

If the proposed purchase transaction involves the sale and purchase of shares in the venue operator company and the effective assignment of the VOL to the Purchaser as a result of the share purchase, it is important to obtain a copy of the VOL and conduct a search with the VCGLR in relation to the venue operator’s compliance history.

If the transaction does not involve a share transfer and given that a VOL is not transferrable from the vendor to the purchaser as part of the purchase of Licensed Premises with Electronic Gaming Machines, the Purchaser must obtain expert advice in relation to the Application process and requirements for obtaining the grant of a VOL.

5. Venue Operator’s Agreement (VOA) (Gaming Venues Only).

As part of the transactional due negligence, it is important to obtain copies of and to review any venue operation or venue management agreements that may be assigned by the vendor to the purchaser at settlement.

6. Gaming Agreements (Gaming Venues Only).

It is important for a purchaser to request the vendor provide copies of all gaming agreements for the Licensed Premises including agreements with:

a. Tabcorp Gaming Solutions (TGS);
b. Frontier Gaming Services Co-Operative Limited;
c. Tabcorp Holdings Pty Ltd (Wagering); or
d. Tabcorp Games of Skill.

A prospective purchaser should obtain advice as of the terms of any agreement to determine whether the agreement is transferrable to the purchaser and/or whether the purchaser will need to negotiate or obtain approval of a new agreement prior to settlement of the purchase.

7. ATM Placement Agreements (Gaming Venues Only).

As discussed previously in this article, the requirements for the removal of ATM’s from Gaming Venues have been in place for over 12 months. However, it is important for a purchaser to specifically request copies of any ATM Placement Agreements to which the vendor is a party and request evidence that those agreements have been terminated.

8. Infringement Notices issued to or Disciplinary Proceedings taken against the Venue and/or the Venue Operator by the VCGLR.

It is very important for a purchaser to obtain and review copies of any Infringement Notices issued or Disciplinary Proceedings taken against the venue or the Venue Operator.

A purchaser should also make enquiries of the VCGLR by submitting a Licensed Premises File Search Request to determine the history of the Licensed Premises.

If the purchaser is still unsure, the purchaser should request the vendor to provide warranties in the Contract of Sale as to the compliance history of the venue, similar to the warranties in relation to the accuracy of the approved plans of the Licensed Premises.

9. Orders made against the Venue Operator or the Venue by the VCGLR, VCAT or any other relevant authority for the operation of the Licensed Premises.

As with the Infringement Notices and Disciplinary Proceedings, a prospective purchaser should specifically request copies of any Orders made or obtained by the relevant authorities in relation to the venue’s operation including the:

(a) Victoria Police;
(b) VCGLR; and
(c) Responsible Authority (Council).

10. Details of the EGM Entitlements held by the Vendor (Gaming Venues Only).

In relation to the purchase and transfer of EGM Entitlements, to obtain the following from the vendor:

a. Written confirmation that the vendor has complied and is up to date with all requirements of the Victorian Government in relation to the payment of all deposits, installments and other amounts required to be paid to the State Government;
b. Details of the identifying numbers for each of the EGM Entitlements that will be transferred to the
purchaser; and
c. Details of the geographic and venue conditions endorsed on each of the EGM Entitlements that will be transferred to the purchaser.

Given the significant amount of money at stake, the most prudent purchaser is one who informs and equips themselves with all of the relevant and available information.

For further information on how Pointon Partners can assist you and your hospitality business, please contact David Mazzeo or your Pointon Partners contact.

This article can also be found: 10 Things to Consider when Purchasing a Licensed Premises

Brand Protection Strategies

Written By Tony Pointon

Your brand is a major defining part of your business and legal rights arise in respect of it. You should understand the legal rights arising from your brand and why you should not only register appropriate trademarks but also consider key strategies involving them we detail here.

If you do this you will not only establish strong protection from your competitors, and a platform for business growth but also create value in your business for any eventual sale.

1. Trademarks, Passing Off and Trademark Registration

You have common law rights arising just out of the use of your brand name or mark as soon as your brand name or mark is put into use.

This common law right is sometimes signified by the owner placing a small TM that appears after the brand when it is advertised or in other correspondence , but this is not necessarily so and a common law trademark in respect of the name or mark will exist regardless of this.

This right is protected by the legal redress of passing off which refers to someone attempting to pass themselves off as your business in the market place and causing enough confusion so as to damage your profits. Legal actions requiring the offender to stop using the name and/ or to pay damages, including an account for profits made for the period of the passing off usage can be taken.

The common law rights arising out of the common law trade marks use can be restricted in respect of the area the business is conducted , often to a small area or a State where trading of the product has actually occurred . For example a small Tasmanian store which had conducted a general merchandise business in Tasmania for many years under the name Target , was able to confirm its rights to the name and restrict the rights of Target , now owned by Wesfarmers , in those areas in Tasmania where that store conducted and conducts business.

There may be a dispute in respect of the trademarks existence by others who claim you have not established your business in their area of trade or that they have prior usage and therefore ownership in the areas where they are trading.
The starting point for good brand protection is trademark registration and the good news is that it is not expensive generally to do this , even when it is done by an expert which is highly recommended. If it is put in the hands of someone not fully familiar with the law then the registration can be a slow tortuous failure . Many inexpert applications do not consider the correct form of the application, which leads to:

• too many queries from Intellectual Property Australia
• unknown conflicts that need to be resolved,
• do not claim the correct classes for the business should claim and therefore do not get the required protection,
• end up with a frustrating failure to register.

Registering a trademark gives additional strong legal statutory rights to the common law passing off right, that prohibits others from using a sign or mark that is the same or deceptively similar to the mark you use on goods that fall within the category that your trademark is registered , and there are 36 categories of registration, that are common amongst all countries. The trademark is in respect of the territory of the registration . In Australia the territory is the whole of Australia. You may wish to also register in other territories in which you trade or realistically intend to trade such as New Zealand. You may also use The Madrid Protocol (an international treaty) , which allows you to register international trademarks from Australia in countries that you trade in or intend to trade in , that can give your brand protection in more than the 90 signatory jurisdictions.

The scope of this article does not fully explore issues involving what can or cannot be registered or the process of registration.

The good news is that where you have registered your trademark, the facts of the trademarks existence and extent of use are clearly on the public record which reduces any problems establishing the facts and in addition you have those additional statutory rights. This leads to you being able to send a clear and importantly, effective legal letter, claiming your legal rights and demanding a party to cease using the name .No messy litigation is normally required as the case is clear to all that you will win .If it is not resolved easily, your rights are very strong and the other party will generally be ordered to pay your legal costs as well as damages claimed.

Note also that if your trademark is not registered in a particular jurisdiction or within a class of goods you use your trademark, then you are leaving yourself open to others applying for a mark similar to yours and this can cause significant legal problems involving you having to prove your usage , if they make claim to their rights.

You should also for asset protection purposes, very seriously consider the owner of the trademark and whether it is owned by your trading entity or alternatively it is owned by another related party to you and correctly licenced to the trading entity. The licence needs to be both registered with both Intellectual Property Australia and also under the new Personal Properties Security Register legislation.

In addition to your trademark registrations:

• you should consider and implement domain name registrations of your names and its variations;
• constant monitoring of your trademark for breach should be undertaken;
• conduct a regular scheduled internet search of your trademark;
• word of mouth confusing from any customer or supplier should be carefully followed up;
• ensure that each registration is monitored in respect of its duration . An expert should offer a service of monitoring for you in this regard and you should also know this yourself.
• Send appropriate cease and desist letters from your lawyers as soon as any breach is brought to your attention.

2. Licensing and Distributorships

If you are thinking of expanding into interstate markets or international markets, or if you have already done so, then you need to ensure that your licensing and distribution arrangements do not leave you exposed to the unintended application of your trademark or unwanted parallel importation.

Carefully draft licensing and distribution agreements

When appointing a licensee or distributor it is important that you:

• clearly define the goods that the licensee can apply the goods to
• clearly define the territories that the licensee or distributor is able to sell into.
• place an obligation on a distributor or licensee not to sell to a person in the permitted territory if the distributor or licensee reasonably believes that the person may resell the goods in an unpermitted territory unless you intend that they should.
• Ensure that any advertised sale on the internet or elsewhere by the licencee must point out the above restrictions clearly.

Note that there are many examples of licensees in established markets selling to customers in their allowed territories and those customers resupplying those goods into territories that the licencee has no jurisdiction. The effect is often that the trademark owner or its other legitimate licenced distributors is undercut causing distress or the trademark owner has a potential action against them from their legitimately appointed licensees.

This is known as parallel importation.

Parallel importation

Where your trademark is applied to goods with your consent (for example under a licensing arrangement), then a person doesn’t infringe your trademark simply by importing the goods into a jurisdiction where your trademark is registered.

Expanding on the above example, if:

• you permit a licensee to apply your trademark to goods manufactured in China
• the licensee sells those goods to a person in the permitted territory (Reseller)
• the Reseller then resells them into the United Kingdom, where you have appointed an exclusive distributor
• and you have registered your trademark in the United Kingdom

then your UK trademark has not been infringed because you consented to the application of the mark on the goods in China and to the sale of the goods to the Reseller.

How do you mitigate the incidence of parallel importation?

The most practical way to mitigate the incidence of parallel importation by the above contractual restrictions set out above. Note is would normally be obvious that a customer is buying for the purpose of reselling due to quantity and there would also be a large incentive on the seller to make that sale. This gives the trademark owner contractual rights against the breaching licencee , but not against the on seller (although the licence may give the licensor the right to prosecute on behalf of the breaching licencee) , and also rights to the licencee to prosecute the breaching customer under contract , but not under trademark law. The contractual restrictions must be very carefully drafted as you are restricting the rights of a purchaser from on selling and there are some key legal problems to be addressed in respect of this.

Oddly under trademark law, the trademark owner could not prosecute the end purchaser as he has purchased from a legitimate licensee of the trademark and also the licensee could not prosecute the on seller as he is not the owner of the trademark.

You could also mitigate the incidence of parallel importation by conditionally assigning registration of your trademarks to your exclusive distributors.

For example, you could assign your UK trademarks to your exclusive UK distributor. To protect your interests, your distribution agreement would unconditionally transfer the trademark back to you on termination of the agreement. This process does work in Australia and other jurisdictions , however it needs to be carefully considered.

The effect of this arrangement is that if the Reseller imported the goods into the UK, then it would infringe the trademark of your exclusive distributor in the UK (who registered the trademark in the UK) as your UK distributor did not consent to the application of the trademark.

You consented to the application, but your UK distributor did not.

Value of the Correct Strategy

This article should help you understand the key legal right rights arising from your brand and if you choose to implement the above strategies you will have established strong protection from your competitors passing off on your goodwill, have given your business a platform for growth and also created value in your business for any subsequent sale. We recommend you should seek advice from your advisors to help you implement these strategies and to discuss any other issues arsing from them that are relevant to you.

If you have any queries regarding Brand Protection Strategies, please contact Tony Pointon, David Mazzeo or your Pointon Partners contact.

This article can also be found: Brand Protection Strategies

Participating in a Mediation

Written By Andrew Cox

Anyone involved in a family business these days will sooner or later find themselves attending mediation. Nearly all disputes nowadays will go through a mediation process of one sort or another, including the following:

• Consumer complaints;
• Landlord/tenant disputes;
• Franchisor/franchisee disputes;
• Disputes with suppliers;
• Disputes with financiers;
• Planning objections;
• Building disputes;
• Disputes between co-owners of a business;
• Disputes between family members over a will or trust.

A mediation may occur before proceedings are issued in a Court or Tribunal, either under the terms of a contract, as part of the procedures of a regulator handling a complaint or by agreement between the parties after a dispute has arisen.

Where proceedings have been issued most Courts or Tribunals will require that the parties engage in a mediation prior to the Court or Tribunal hearing the dispute.

Characteristics of mediation

However they arise, mediations are said to have three defining characteristics. Mediations are:

• Voluntary;
• Conducted by an independent third party; and
• Confidential.

Each of these characteristics, however, has some qualifications and exceptions.

Although a mediation is said to be voluntary, you can be required to attend one in various ways. A Court, Tribunal or regulator may require that a mediation occur.

A contract you have signed may require that disputes be referred to mediation. In those cases you may find it necessary to attend a mediation.

It seems a nonsense to say that something is ‘voluntary’ if you have to do it. Why then are mediations said to be voluntary?

Firstly, because the compulsion usually ends with attendance. Unless you have agreed otherwise you can be required to attend a mediation, but be under no obligation to do or say anything further. You are not obliged to make statements, answer questions or make or respond to offers. There have been mediations where a party turns up, obtains confirmation that they have attended and then turns around and walks out. This is not usually a good idea but it illustrates the voluntary nature of a mediation.

Apart from losing what may be the best opportunity of settling a dispute turning around and walking out can create problems if:

• you have previously agreed to mediate the dispute ‘in good faith’;
• the mediation is conducted by a regulator or Court officers rather than an independent third party; or
• the mediator has reporting obligations beyond whether the mediation was held and whether it has finished.

Because mediation is voluntary you can generally end it at any time. The mediator may ask that you not terminate the mediation without first discussing it with her, but whether the mediation continues or not is your decision.

The second way in which mediation is voluntary is that any resolution of a dispute at mediation is subject to your agreement. The mediator can’t impose an outcome upon you. Your advisers cannot make or accept an offer without your instructions. You are the one who decides.

The person conducting the mediation (the mediator) will often be an independent third party who is registered under the National Mediator Accreditation Standards. Sometimes the staff of a regulator or officers of a Court or Tribunal may conduct a mediation.
Whoever conducts the mediation should be independent of the parties and not have an interest in the outcome of the dispute. If you believe that there is some relationship between the mediator and another party then you or your advisers should raise that concern at the earliest opportunity.

Mediators should disclose prior relationships or interests to parties. You might find, for example, that a Court official discloses that his superannuation fund has shares in a Bank which is a party to a proceeding. If that were the fund’s only investment and the dispute was likely to have a substantial impact upon the share price then you might decide to ask for another mediator. If the shares were a minor component of the fund and the dispute would have no effect on the share price then you might decide to continue with that mediator.

The mediator controls the process of the mediation, the parties control the content. The mediator may ask the parties to comply with ‘ground rules’ such as not interrupting, politeness and not leaving without discussing your intention to do so with the mediator.

Mediations are confidential. You cannot discuss the offers or arguments made at mediation with anyone outside the mediation. If a friend or family member accompanies you to the mediation then they will usually be asked to sign a confidentiality agreement to the same effect.

If you believe that another party is breaching the confidentiality of a mediation then you should seek legal advice. The mediator does not have any power to control parties after the mediation.

If the mediation is unsuccessful and a judge or tribunal member has to resolve the dispute then they will not be told anything that occurred at the mediation. This encourages the parties to make concessions or offers for the purpose of the mediation, without affecting the arguments or positions they might adopt in a final hearing.

Within the mediation you will usually have a private discussion with the mediator. In those discussions you may tell the mediator things which you do not want the other party to know. The mediator is under an obligation not to disclose such confidential matters to the other party. Likewise the mediator may have been told matters by the other party which they cannot reveal to you.

The obligations of confidentiality in a mediation are subject to exceptions. A mediator may be required to report admissions of child abuse. A mediator may be obliged to advise other participants of a bomb threat made by a party. These exceptions are, hopefully, unlikely to arise in relation to commercial disputes.

Preparing for mediation

If you have lawyers acting for you then they will prepare your case for mediation. That includes providing relevant documents to the mediator and preparing arguments to be made within the mediation.

Part of a lawyer’s preparation for mediation should include advising you of the costs you have incurred up to mediation and estimating future costs should the matter not settle.

If you do not have lawyers acting for you then you should look at any letters or notices from the mediator or regulator as to steps you should take to prepare for mediation. That will usually include bringing copies of the documents you want to show to the mediator or the other side.

It can be of assistance prior to mediation to write down what you understand the other party’s argument or position to be. That will assist you in identifying the issues in dispute. It may be that at the mediation the other party’s position turns out to be different from what you had understood.

At the mediation you may be asked what you regard as the important issues. It can assist to have thought about that before the mediation and even to make notes of the matters that you think should be discussed.

The role of the mediator

Mediators are not acting as judges; they will not decide your dispute or impose a resolution on the parties. They may, however, recommend an outcome to you or make a comment about the strength or merit of your position.

Mediators are not acting as lawyers; they will not give you legal advice. They may, however, ask your lawyers questions or challenge their assumptions in order to test your position.

Mediators are not investigators. They may ask questions or read documents to understand the dispute, but they are not tasked with finding out the real facts of a dispute or reporting to the parties what they believe actually occurred.

Mediators are listeners and facilitators. They will listen to your side of the story and will try to understand your position. They will assist you to understand the other side’s position. They will discuss various ways to resolve the dispute both in private with you and jointly with the other parties.

Recording a settlement

Often one of the ground rules of a mediation is that nothing is to be regarded as binding on any party until a written agreement is signed. Up until that point either party can withdraw any offers or terminate the mediation without further obligation.

If you have lawyers acting for you then the lawyer will either prepare or check any written settlement agreement.

If neither party has lawyers then the mediator will usually assist the parties in preparing a written document setting out any agreement they have reached.

A settlement agreement usually sets out the things that each party has agreed to do and may include provision for confidentiality, non-disparagement and an agreed public statement about the dispute. It will often contain releases meaning that neither party can sue the other for anything arising out of the dispute.

Regretted settlements

Sometimes a person signs Terms of Settlement but subsequently regrets doing so. They may try to set aside the settlement or sue the mediator or their advisers.

It is very rare for any settlement reached at a mediation to be set aside. One of the few grounds on which that might occur is if the settlement is procured by fraud. The evidentiary requirements to establish fraud are usually not met.

If a settlement is set aside then the dispute is not automatically resolved. A Court or Tribunal may still have to determine the dispute.

A mediator appointed by a Court or Tribunal will usually have an immunity from suit. If so, they cannot be sued in the same way that a judge or magistrate cannot be sued.

A privately appointed mediator usually makes it a condition of their acting as mediator that the parties agree not to sue the mediator. Sometimes such a condition may not be enforceable, particularly if the mediator is a lawyer and their services as a mediator are legal services.

Sometimes people complain that improper pressure was put upon them to settle by their own advisers or the mediator. Clients of lawyers can complain to the Legal Services Commissioner if they believe that to be the case. A lawyer can, however, give robust advice to a client regarding their position and still be acting in the best interests of the client.

There has been only one decided case in Australia about mediator’s liability. In that case the mediator sought to strike out the claim against him before a final hearing and the Court said that the case should go to a final hearing. The matter settled before such final hearing but the Court was not willing to say that the claim against the mediator could never have succeeded: Tapoohi v Lewenberg [2003] VSC 410.

Because it is so difficult to set aside any settlement agreement at mediation it is important to consider all the ramifications before signing one. If there is some element of the agreement on which the parties require further advice, such as tax implications, they can agree to make final agreement subject to their obtaining such specialist advice.

Mediation does not usually result in outcomes that are celebrated by either party. It is designed to find and encourage outcomes with which people are content or can live with. Outcomes imposed by a Court or Tribunal may not have either of those qualities, usually for one party, sometimes for both.

For further information on how Pointon Partners can assist you with mediation matters, please contact Andrew Cox, Brigid O’Dwyer or your Pointon Partners contact.

This article can also be found: Participating in a Mediation

PPSR Alert: Get Your Processes Right or Risk Enforcement Catastrophe

Written By Matt Curnow

How We Can Help Navigate the PPSR Maze

Many of our clients have been struggling to come to terms with the practical implications the Personal Property Securities Register (PPSR) has on their businesses. As this PPSR Alert demonstrates, issues such as timely registration are paramount to a secured party’s ability to enforce their security interests.

Your business may be a secured party if, for example, it:

(a) sells on a retention of title basis; or
(b) has provided loans to another entity (including a related party entity).

Pointon Partners has advised a wide range of clients on a myriad of PPSR issues from creation to enforcement.
Specifically, Pointon Partners can assist you by:

(a) attending your business premises to advise you and your key staff of what the PPSR is, how it operates and to show you how to effectively register your security interests.
We offer our client’s a fixed fee to undertake this service tailored to their particular needs;
(b) prepare and / or review documentation for you to ensure that your security interests are registrable and enforceable under the Personal Property Securities Act 2009 (Cth) (PPSA); and
(c) undertake a risk assessment of your current implementation steps to ensure they are sound, in part so that you avoid your security interests ‘vesting’, as is discussed in this PPSR Alert.

Background

Recent decisions in the New South Wales Supreme Court on the timely registration of security interests registrable on the PPSR have reinforced the importance of secured parties being aware of, and complying with, the registration timeframes contained in the Corporations Act 2001 (Cth) (Act) relating to newly created security interests.

The case of Cardinia Nominees Pty Ltd [2013] NSWSC 32 (Cardinia) is the most recent example of a court taking a hard-line approach on a secured party who failed to register its security interest on the PPSR in a timely manner. The case is primarily important for its commentary in relation to ‘inadvertent’ failures to register and when a court will grant an extension of time for registration beyond the 20 business day window provided for by the Act.

Cardinia demonstrates the risks inherent in security interests registered outside the 20 business day window which commences from date the security interest comes into existence.

What the Act Says

Under section 588FL of the Act a security interest may ‘vest’ in a company (i.e. lose priority against other secured and unsecured interests) in the event that that company enters administration or liquidation, or upon that company entering into a Deed of Company Arrangement with its creditors (Insolvency Event), if the security interest is not registered within the prescribed time.

The prescribed time is defined to mean:
(a) within 20 business days of the interest coming into existence; or
(b) six months prior to an Insolvency Event occurring; or
(c) a later time determined by the Court on application (i.e. later than 20 business days, but prior to six months passing before the occurrence of an Insolvency Event).

Practically, this means that any security interest that is not registered on the PPSR within 20 business days of coming into existence will be exposed to the risk of ‘vesting’ for a 6 month period commencing on the actual date of registration. The only alternative for a secured party is to appeal to the Court’s discretion to extend the initial window.

After 6 months a security interest registered outside the 20 business day window will enjoy the same protections from an Insolvency Event as any other registered interests.

What the Court said in Cardinia

Cardinia demonstrates that courts are becoming increasingly less tolerant of secured parties who are tardy in registering their security interests.

In Cardinia a company (the Secured Party) sought an order extending the initial 20 business day window on the basis that it had ‘inadvertently’ failed to register its interest on the PPSR.

The Secured Party was aware that the security interest existed, and that it needed to be registered within 20 business days (they had been advised previously by the grantor’s solicitor). However, notwithstanding this, the Secured Party argued that it did not understand why it had to register within 20 business days (i.e. it failed to appreciate the consequences of late registration, which caused it to underestimate the urgency of obtaining registration promptly).

The Court accepted the Secured Party’s argument that it had ‘inadvertently’ failed to register its security interest due to a misunderstanding of the significance of timely registration. However, in arriving at its decision, the Court made a number of comments, which are pertinent to other secured parties seeking to rely on a similar argument, as follows:

(a) ‘inadvertence’ of itself will not be a sufficient argument (i.e. the Court must also consider whether granting further time to register will unfairly prejudice other creditors, which in many cases it will);
(b) in this case a second security interest was created during the time when the Secured Party should have registered its own interest, and the Court was unwilling to prejudice that person’s interest (the Second Secured Party) for sake of relieving the Secured Party; and
(c) in order to grant an order extending the registration window an applicant would usually need to demonstrate proof of the grantor company’s solvency. In the case at hand, the Secured Party did not satisfactorily demonstrate this.

Notwithstanding these points, the Court made a conditional order that the date of registration be deemed earlier than the actual registration date, however it said that:

(a) the Second Secured Party’s interest could not be prejudiced (i.e. whilst the Secured Party’s deemed registration date was earlier than the registration date of the Second Secured Party’s security interest, the Secured Party’s application was granted on the condition that it would have no effect against the Second Secured Party. Effectively then, the Secured Party lost its spot in the ‘queue’ of secured creditors); and
(b) it was prepared to grant the deemed date of registration, but allowed that the security could still vest within 6 months of the new deemed date (i.e. in effect, the Court reduced the 6 month risk window by back-dating its start time, but it did not remove the ‘vesting’ risk altogether).

Significance to Clients

Cardinia demonstrates that whilst ‘inadvertence’ is a basis to seek relief from section 588FL of the Act, it is not a broad-brush tool that is readily available to unwitting secured parties. An innocent failure to grasp the legal consequences of timely registration will not absolve the secured party from all risk, as in Cardinia the relief granted is likely to be less than complete.

Cardinia also represents a tougher judicial approach to granting relief. Previously, in Barclays Bank Plc [2012] NSWSC 1095 the same Court (in what was then the primary authority on ‘inadvertence’) were much more willing to grant unconditional relief based on similar factors, although in that case there were no further securities registered within the relevant times, and the grantor company was in a very strong financial position.

The message to be taken from Cardinia is that secured parties should be clearly aware of their obligations in regard to registration timeframes, and implement processes in their businesses to ensure that they are complied with. For certainty, any proposed agreement that creates a security interest should also be reviewed carefully to determine what timeframe will apply to registration, prior to it being executed.

Pointon Partners has advised a wide range of clients regarding the PPSR and is able to provide real solutions to assist your business with coming to grips with its effect.

For further information, or if you have any queries relating to the PPSR or PPSA, please contact Tony Pointon, Nicholas Brand, Laszlo Konya or your Pointon Partners contact.

This article can also be found: PPSR Alert: Get Your Processes Right or Risk Enforcement Catastrophe

CREDITORS STATUTORY DEMANDS

Written By Abilene Singh

A creditor’s statutory demand is an effective and compelling method to recover debts owed by a company. Most compelling is the presumption by the Courts of the insolvency of a company if it fails to comply with a statutory demand. This presumption extends for 3 months following the failure by a company to comply with the statutory demand.

The Law

As a statutory demand is a creature of legislation, there are some crucial elements that must be complied with. The Courts have found that there should be no defects in the demand that give rise to substantial injustice.

In summary, the Corporations Act 2001 (Cth) provides that:

1. The debt must be over $2000.00
2. The demand must be in the prescribed form
3. If the debt is not a judgment debt, the demand must be accompanied by an affidavit in support which must verify that the debt is due and payable
4. There must be no genuine dispute about the debt

Defects

Common defects in statutory demands include the failure to properly serve the demand and any accompanying affidavit on the debtor company. The Corporations Act 2001 (Cth) provides for the service on a company at its registered office by ordinary mail. If the matter proceeds to Court, sometimes the simplest of errors (e.g. incorrect spelling of the debtor’s name and address) may defeat the validity of the statutory demand which could result in the Court application being dismissed with costs payable by the creditor.

Timeline for statutory demands

The swiftness and timely effect of a statutory demand is evident in the following timeline:

• Debt arises and any terms are not complied with (no genuine dispute about the debt)
• Statutory demand and any affidavit is served on the debtor company
• The debtor company is given 21 days from service to either:
• Pay the debt or reach agreement to pay the debt on terms; or \
• Make application to the Supreme Court or the Federal Court to set aside the statutory demand
• 21 days pass and there is no payment or agreement to pay and no application is made to the Court, then the debtor company is presumed insolvent for the next 3 months
• Within the 3 month period the creditor can make application to the Court to wind up the debtor company on the basis that it is presumed insolvent

Likely outcomes
Within the 21 day period –

• The debtor pays the debt or enters into an arrangement with the creditor to make payment of the debt
• The debtor disputes the debt and requests that the creditor withdraw the statutory demand failing which it makes application to the Court to have the demand set aside:

Setting aside statutory demands

Should the debtor put before the Court sufficient evidence that there is a genuine dispute about the debt, the demand can be set aside by the Court and the creditor may be liable to pay the debtor’s legal costs for having to make application to the Court.

The Courts have held that a genuine dispute need not mean that the debtor prove that it might have a successful defence, only that it can point to facts or circumstances that might give rise to a defence.

This is a low threshold and a genuine dispute can include an off-setting claim by the debtor in respect of monies the creditor may owe it.

After the 21 day period –

• The creditor issues Court proceedings to have the debtor company wound up and a liquidator is appointed

Winding up a debtor company

The creditor has the ability to apply to the Court to wind up the debtor company and get a Court appointed liquidator to distribute any of the debtor’s assets. Usually, the costs of this will be a priority in the distribution of the debtor company’s assets.

• Nothing – the creditor is not required to act on the non-compliance with the statutory demand and issue costly Court proceedings, it can simply do nothing

Involvement of the Courts

The Courts can become easily involved in the use of statutory demands and therefore the use of them should not be taken lightly. Statutory demands are given effect pursuant to Commonwealth Legislation and therefore only the superior Courts have jurisdiction to hear any application in respect of them. As such, barristers are often required to be briefed should you wish to set aside a statutory demand or wind up a company for failure to comply with one.

Conclusion

In conclusion, a statutory demand is an effective tool that can be used for the timely collection of undisputed debts. Essentially, debtors are required to respond to the demand within 21 days of service, failing which a presumption of insolvency will be applied by the Courts to that debtor company for the next 3 months. Whilst the Courts can become easily involved and the costs of such involvement can increase costs, if used properly, statutory demands are a highly persuasive mechanism to force payment of debts.

For further information, or if you have any queries relating to Creditor Statuary Demands, please contact Nicholas Brand, Andrew Cox, Amelita Hensman, Brigid O’Dwyer or your Pointon Partners contact.

This article can also be found: Creditors Statutory Demands

Restraint of Trade & Adequacy of Damages

Written By Matt Curnow

The Victorian Supreme Court’s recent decision in Idameneo (No. 123) Pty Ltd v Deady [2013] VSC 727 (Idameneo) demonstrates that Victorian courts will look beyond pre-agreed liquidated damages clauses in commercial agreements to determine the adequacy of remedies available for a breach of a restraint of trade clause.

Facts

The most important facts of Idameneo were that:

1. In 2007 Dr. Deady (Deady) sold his Epping medical practice to the plaintiff and became an employee of the plaintiff’s own medical practice.
2. A condition of the sale of business was that Deady agreed not to leave the plaintiff’s practice and setup a competing practice (a restraint of trade clause).
3. Except in exceptional circumstances (i.e. providing emergency medical treatment) if Deady breached the restraint the contract provided that he would pay an agreed percentage of any income received as a consequence of the breach to the plaintiff (a liquidated damages clause).
4. In  October 2013 Deady gave notice that he intended quit, and subsequently set up a competing practice near the plaintiff’s practice, well within the boundaries of the restraint area.
5. The plaintiff sought to preserve the goodwill purchased in the 2007 sale of business by obtaining an interlocutory injunction against Deady.

Obtaining Interlocutory Relief

An interlocutory application is made when a plaintiff seeks to prevent further damage to their interest by obtaining an order that the defendant not do a particular thing prior to the conclusion of a trial.

In seeking a grant of injunctive relief a plaintiff must demonstrate that on the balance of convenience, restraining a defendant from acting in a particular way will ensure that irreversible damage is avoided (Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, ‘O’Neill’).

Often, a plaintiff seeking interlocutory relief will have to provide an undertaking to the defendant that it will indemnify them against their loss resulting from the injunction in the event the Court decides at a final trial ( after reviewing all the evidence) that the plaintiff was not entitled to injunctive relief.

Because an interlocutory grant is made without full view of all relevant facts, the Courts have established a test most recently stated in O’Neill requiring a plaintiff prove two elements in order to obtain relief:

A. That there is a serious question to be tried

In the present case, it was clearly established that there was a ‘serious question to be tried’ at hearing.
On the evidence presented to the Court, Forrest J was satisfied that Deady’s actions demonstrated a clear breach of the contract of sale and therefore there was a serious question about what damage had been caused by his breach, and what remedy could be available to the plaintiff.

B. That the Balance of Convenience permits injunctive relief

Deady argued that it would be inappropriate to impose an injunction when, on the face of the evidence, damages seemed to be an adequate remedy for the plaintiff’s loss.

Particularly, Deady pointed to the existence of the liquidated damages clause to demonstrate that the parties had previously considered damages as an appropriate remedy for any breach of the restraint clause.

Deady argued that in a previous case (Idameneo (No. 123) Pty Ltd v Butterworth [2013] NSWSC 356, ‘Idameneo 1’) the same plaintiff had sought and failed to obtain an injunction in very similar circumstances against another former employee Doctor because the Court in that case was unwilling to step into the shoes of the parties and alter the parties’ agreement.

The Outcome

Despite the considerable case law supporting Deady’s argument, Forrest J distinguished the present case from Idameneo 1 and ordered that an interlocutory injunction be granted to the plaintiff.

In reaching his decision, his Honour took account of the following matters:

• That the restraint was inserted into the agreement for the benefit of the plaintiff, who had paid a considerable amount for the goodwill of Deady’s business;
• That the restraint was relatively modest – it only extended for 10 km from Deady’s old practice, and the plaintiff’s current practice, and therefore Deady would not be unduly deprived of opportunities to practice medicine elsewhere
• That the likely loss of patients that would result from Deady being permitted to practice within the restraint area could exceed the value of the liquidated damages; and
• That it would be difficult for the Court to quantify the plaintiff’s loss, and therefore make an accurate estimate of the damage suffered (so much so, that Forrest J was not convinced that the agreed liquidated damages could provide an accurate gauge of the plaintiff’s actual loss).

However, beyond the difficulty of calculating the plaintiff’s loss Forrest J also accepted the argument that Deady should be prevented from breaching his promise at the cost of damages, on the basis that it would be contrary to Deady’s promise and would undermine the intention of the parties.

Implications

Forrest J’s decision is a useful guide to how the Supreme Court considers restraint clauses to be more than a mechanism for recovering damages.

His Honour’s decision reflects comments made by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. In that case the High Court flatly rejected the idea that a party to an agreement may elect to make an ‘economic breach’ (i.e. deliberately breach its promise) where the cost of compliance with their agreement exceeds the cost of breach.

Unlike in Tabcorp, the evidence in Idameneo indicated that Deady’s decision to breach the restraint was not premeditated– his evidence was that he had chosen to leave his employment due to irreconcilable differences with his employer. By contrast, in Tabcorp the defendant had entered into a lease agreement with an intention, or at least in contemplation that it would breach a restrictive covenant and simply pay for its breach at a later time.

His Honour summarised his position by reference to an extracted passage of Brereton J in Tullett Prebon (Australia) v Simon Purcell [2008] NSWSC 852:

While the fact that there is a “liquidated damages” provision arguably removes one factor which would otherwise tell in favour of the inadequacy of damages – namely, difficulty of calculation – it does not make it any more just that Mr Purcell should be able to escape from his contractual obligations at the price of paying damages. Equity holds parties to their agreements, rather than allowing them to escape from them at the price of damages. [102]

Economic Breach in Context of Liquidated Damages Clauses

Liquidated damages are often used by purchasers to manage risk of a seller injuring their business’ goodwill after settlement by pre-defining the damage attributable to a breach, making the process of recovery more convenient and cost effective. Typically sellers are reluctant to accept such a level of exposure, and will usually only agree to the inclusion of a liquidated damages clause when they are bargaining from a position of weakness. As such, liquidated damages clauses typically benefit the purchaser exclusively.

Idameneo may foreshadow a shift away from the assumption that the presence of a liquidated damages clause in an agreement is prima facie evidence that damages are an adequate remedy in that case. For purchasers, Idameneo has arguably created a more robust protection in restraint of trade clauses by relaxing the need for plaintiffs to demonstrate the inadequacy of damages before they can obtain injunctions to enforce their restraints.

Conversely, Idameneo is concerning for sellers who may find themselves in the position that a grant of injunctive relief is now more readily obtainable against them. This may lead to scenarios where a restraint clause causes more damage commercially than an award of damages might (and ultimately more cost in time and legal fees to settle disputes than by relying on a pre-agreed estimate of loss).

Pointon Partners can assist in advising on and drafting restraint of trade clauses. If you would like further details regarding these matters, then please contact Michael Bishop, Matt Curnow or your Pointon Partners contact.

This article can also be found: Restraint of Trade & Adequacy of Damages

KOKODA PROJECT – Connecting the Community

Written By: Nigel Howard APM, Superintendent

Pointon Partners has been a keen supporter and Partner of Legal Services to the Kokoda Trail.

In 2006 in response to long term disengagement with youth residing on the public housing estates of Flemington and North Melbourne, police members attached to the Moonee Valley Local Area Command implemented numerous pro-active strategies aimed at decreasing the incidence of youth involvement in crime and to improve relationships between the young people, police and the wider community.

In July 2007 one of the strategies implemented involved officers from the Flemington Police Station taking a group of youth from Debney Park Secondary (now Mt. Alexander Secondary College) and Kensington Community Colleges to Papua New Guinea to walk the famous Kokoda Track.

Since its inception the Victoria Police Kokoda Project has conducted seven (7) treks across the Owen Stanley Ranges and in doing so changed the lives of not only the 118 students from schools within the Moonee Valley Local Government Area that have participated in the event but also the lives of the sponsors, teachers, ambulance paramedics and police members that have also participated.

In 2014 the key objectives of the program are the same as they were in 2007 that being to:

• Provide a positive and life changing experience that would not normally be available to young people within the community;
• Provide support and offer tutoring to youths throughout their current school year and into their final year of schooling;
• Encourage all participants to complete their VCE and enter further education or gain meaningful employment;
• Reduce school absenteeism during their final years of school
• Develop life skills including leadership, organisation, planning, coordination, communication, commitment, judgement, knowledge and importantly resilience with the objective being that they take these skills back to their schools and communities;
• Remove barriers between youth and police in the Moonee Valley Local Area Command;
• Involve the local community, business and government agencies in the program and to use this framework to increase positive interactions within the local community

Since its humble beginnings the Victoria Police has never failed with all participants successfully walking the famous track from Kokoda to Ower’s Corner.

As part of their involvement youth selected to participate in the trek are set a challenge to raise money for the Dav Cavell School that is located at Nine Mile on the outskirts of Port Moresby. This school is very basic yet provides an education for children from surrounding villages. Over the past 3 years students have raised in excess of $30,000 which has been used to build a classroom at the school.

As a result of the programs conducted to date Victoria Police are able to state with confidence that the above objectives are continually realised and the program continues to play a significant role in changing the lives of the youth, police and sponsors that have participated in the program to date.

If you are interested in becoming involved in this project, please don’t hesitate to email Nigel Howard or contact him on 0407 565 154.

This article can also be found: Kokoda Project – Connecting the Community

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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