Have You Met the Disclosure Requirements relating to Substantially Prejudicial Terms?

Headshot of Ya Zhang - Solicitor at Everingham Solomons TamworthFrom 1 January 2021, businesses dealing with consumers in New South Wales (NSW) are liable to penalties if they do not disclose to consumers:

  • terms of contracts that substantially prejudice the interests of the consumer;
  • if the business receives a commission or referral fee when recommending the consumer buys goods or services from another supplier.

The legislation applies to businesses (companies and individuals) whether located inside NSW or not that are dealing with “consumers” in NSW.

Disclosure of substantially prejudicial terms

Businesses caught by the new law must take reasonable steps to make customers aware of the substance and effect of terms that may ‘substantially prejudice’ the interests of consumers.

Currently there is no clear provision defining what constitutes a substantially prejudicial term.

Disclosure of substantially prejudicial terms must be made before supplying the goods or services. For example, before the consumer signs the contract or makes a payment.

Disclosure of commission or referral arrangement

Where a business acts as an intermediary receiving a financial incentive from another supplier, it must take reasonable steps to make customers aware of any commission or referral arrangements with another supplier when recommending goods or services provided by that supplier.

Disclosure must be made before acting under such commission or referral arrangement. For example, before the consumer is redirected from the intermediary to the supplier or before the consumer makes the purchase.

What constitutes “reasonable steps”?

There is no guidance in the legislation as to what constitutes “reasonable steps”.  According to the NSW Department of Fair Trading, “reasonable steps” means taking actions that “one would reasonably expect would create awareness in a consumer” and should be:

  • appropriate in the circumstances; and
  • sufficient to create awareness in the consumer.

What businesses need to do if they supply goods or services to NSW consumers

If your business supplies goods or services to NSW consumers, you should:

Step 1   Identify any terms which might “substantially prejudice” the interests of a consumer.

Step 2   Consider what “reasonable steps” you need to take to alert consumers of these terms before supplying the consumer with the relevant goods or services.

Step 3   Take those reasonable steps.

In light of the lack of guidance in the legislation, steps 1 and 2 will very much depend on the nature of your business and how you supply your goods and services.

The fines for breaching this law are substantial – up to $110,000 for corporations and $22,000 for individuals so don’t take the risk. We are here to help.

If you need assistance in reviewing your terms and conditions of supply, please contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Ya Zhang.

How did companies first begin?  A historical look at the Company

Headshot of Clint Coles - Director at Everingham Solomons TamworthUp to the late middle ages, business was pretty steady – one family owned a cow, another some cabbages, there was mutual jealousy and so they swapped.  In time, money was used to facilitate more complex exchanges but, all in all, relatively few people were involved and there wasn’t a huge need for capital.

Around the 1600s though, people started exploring the world. Trade followed exploration and trade was very profitable so naturally the great families of the era liked to keep it to themselves.  Notwithstanding, there were two major problems:

  1. firstly, intercontinental explorers were thin on the ground and trade required the wealthy to give some brash upstart a great deal of money and send him to some remote corner of the globe; and
  2. secondly, trade exploration required tonnes of capital, and given the risks, often more capital than one family was willing to contribute on their own, so there was a need for joint investment from unrelated parties.

A system was needed to record who was trustworthy and who had whose money and because everyone knew they could trust their King, the monarch assumed the right to allow these early joint stock companies to operate.

One of the earlier companies to receive a Royal Charter was the British East India Company.  Regrettably, it developed a reputation for oppressing and pillaging India over a few centuries, so they changed their name to the Honourable East India Company and, obviously, that cleared things right up.

Through the colonial period, trade increased Gross Domestic Products which even royal families saw as a good thing, so seizing the opportunity to do less and get more, the regulation of companies was lowered and stock certificates came to be traded amongst progressively more common people.

The industrial revolution increased business size and technicality to unprecedented levels and the essential problems were heightened:

  1. investors didn’t have the foggiest understanding of Carnegie’s Steel or Rockefeller’s oil, and while they didn’t like these risks, they didn’t want to forgo their profits either; and
  2. companies had become so big, that they required continual diversified funding from a large number of investors to continue expansion and operation.

Thus emerged the concept of limited liability. To get people to invest it was necessary to create a law that separated the shareholders from the company itself, and limited their liability for the company’s risks up to the amount they had paid for the share capital.

That remains the essence of a limited liability company today and explains why a right to sue a company does not include a right to sue its directors or shareholders.  Without the rule, which sometimes seems harsh, our economy could not have developed as it has.

If you have any commercial law enquiries, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles

Restraints in the Context of an Employee, Director and Shareholder

Headshot of George Hoddle - Director at Everingham Solomons TamworthIt is not uncommon in businesses that an employee can also simultaneously be a Shareholder and Director of a company. The matter of Agha v Devine Real Estate Concord & ORS [2021] NSW CA 29 dealt with this situation.

This case considered restraints in circumstances where there was a Shareholders Agreement and an Employee Agreement for Mr Agha. Both of the documents contained clauses in relation to Restraint of Trade as well as clauses protecting confidentiality. An issue that needed to be considered was which restraint applied out of the two documents as they provided different periods and overlapping areas of restraint.

The post-employment restraint period under the Employment Contract was for a maximum of twelve months whereby the restraint in the Shareholders Agreements was for a period of three years.

The brief facts of this case were as follows:

Mr Agha gave notice to Devine Real Estate that he was going to resign from his employment, sell his shares and resign as a Director.

Devine Real Estate discovered shortly thereafter that Mr Agha had sent confidential information to his personal email address and entered into an Employment Agreement with a competitor, Bell Property.

Devine Real Estate then brought proceedings in the Supreme Court which were later put on appeal by Mr Agha.

Both the primary judgment and the Court of Appeal agreed that the more extensive restraint in the Shareholders Agreement was valid and enforceable. Given Mr Agha’s seniority and position as a past shareholder it was reasonable.

Further, Mr Agha was in breach of soliciting existing clients within a restraint area whilst working for a direct competitor.

The case of Agha v Devine Real Estate Concord highlights the need for properly drafted Employment Agreements but also Shareholders Agreements. It is important that employees, Shareholders and Directors are aware of the post-employment obligations as an employee as well as any restraints contained in relevant Shareholders Agreements and the duties owed by a Director to a company.

Should you need assistance in relation to these issues, Everingham Solomons has the expertise to assist, because Helping You is Our Business.

Click here for more information on George Hoddle.

Resolving Shareholder Disputes – the benefit of Shareholders Agreements

Headshot of David Southwood - Solicitor at Everingham Solomons TamworthPeople commonly operate a business through a private company. A typical structure involves the business participants as being both directors and equal shareholders of the company.

When a company is created, there are basic rules that govern its affairs, however these rules do not address commercial decisions a company must make. For so long as everyone gets along, this type of basic company arrangement works well.

However, if there is a breakdown in the relationship between the business participants, problems can emerge. For example, the business participants may be unable to reach agreement about the future of the business. This type of situation is commonly called a “deadlock”.

If a deadlock emerges, people are often surprised to hear that there are limited options to resolve a deadlock. For example, there is no mechanism by which one shareholder can require another to sell their shares to them. Further, the Courts are reluctant to involve themselves in commercial disagreements between shareholders.

However, there is a solution – it is called a “Shareholders Agreement”. A Shareholders Agreement is a contract between shareholders in a company and its purpose is to provide greater detail about the operation of a company and resolution of deadlocks. For example, a Shareholders Agreement can contain mechanisms that require shareholders to sell their shares or buy those of another shareholder.

The key takeaway is this: if you a starting a company with others, you should enter into a Shareholders Agreement. It will provide certainty and assist in resolving deadlocks, which allows you to focus on your business. If you would like further information regarding a Shareholders Agreement, Everingham Solomons would be pleased to assist as Helping You is Our Business.

Click here for more information on David Southwood.

Understand the “Permitted Use” in your Commercial or Retail Lease

Headshot of Ya Zhang - Solicitor at Everingham Solomons Tamworth

If you are a tenant, you need to understand how you can use the leased premises when entering into a commercial or retail lease. For example, you may intend to use the premises as a restaurant or as a bookstore in Tamworth. How you can use the lease premises is negotiated and agreed before you enter into the lease and is provided in the “permitted use” clause of the commercial or retail lease.

The permitted use clause should accurately describe how you intend to use the premises during the lease term, including what you will be doing on the premises now and in the future, and any products or services you will manufacture or sell on the premises. The permitted use clause, even just a few words, is an important commercial term in the lease.

First of all, the permitted use has an impact on the future of the tenant’s business. A broader description of the permitted use is preferred as it will allow a range of activities to be carried out. A narrow description may restrict the tenant’s ability to expand the business. Therefore, tenants need to consider if the permitted use is broad enough to adequately cover their core business and any ancillary activities.

Secondly, tenants should consider the ability to transfer the lease to a third party. A highly restrictive permitted use may affect the tenant’s ability to assign the lease if the landlord is not willing to consent to a change to the permitted use. This is particularly relevant if the tenant intends to sell the business. A broad description of permitted use in the lease would make it easier to find a purchaser of the business.

Lastly, permitted use is closely related to the development approval. Before entering into the lease, tenants should research and enquire about whether the premises are suitable for their intended use and ascertain whether their intended use is permitted on the premises. If the intended use of the premises has not been approved by the council, the tenant will need to lodge an application and obtain the development approval from the council.

If you have any inquiries in respect of your commercial or retail lease, please contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Ya Zhang.

Covid retail leasing update

Headshot of Clint Coles - Director at Everingham Solomons TamworthWith the recent and unfortunate resurgence of retail lockdowns it’s timely to revisit landlord and tenant obligations in the retail leasing landscape.

On 13 July 2021, the Covid Retail and Other Commercial Leases (Covid 19) Regulation 2021 enacted.

In its original form, it did not require that tenants and landlords renegotiate rent as they were required to through 2020, but instead provided simply that landlords could not take ‘prescribed action’ against tenants unless they had first attempted mediation.

That situation was altered, however, on 13 August 2021 as lockdowns continued and became more widespread across the state. From that date, sections 6C & 6D were added to the regulation which, in effect re-instated the obligation of landlords to renegotiate leases under the National Code of Conduct.

The code of conduct remains unchanged from 2020 and essentially provides that the leasing parties should negotiate rental reductions proportionate to the lessee’s downturn in revenue, with half of the reduction to be effected as a waiver and the remaining half as a deferral.

The most obvious difference between the 2020 and 2021 versions of the retail leasing relief is in the qualifying criteria. Under the 2021 regulation, a tenant will only qualify as an ‘impacted lessee’ if they are in receipt of either the Microbusiness Grant, Business Grant or JobSaver payments and have an annual turnover of less than $50m.

The current regulation runs to 13 January 2022, but does not apply to leases entered into after 26 June 2021.

If you have any inquiries in respect of retail leasing, please contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles

How to get what you deserve – ensure you get paid

Headshot of David Southwood - Solicitor at Everingham Solomons TamworthWhen you do a job, you rightly expect to be paid. Sadly, we often see clients that are chasing money for work they have done.

However, there are many things that can be done when you initially engage a client to reduce the risk that they will not pay you in the future. Similarly, in the event you are not paid, there are early steps that can be taken that will make pursuing the debt easier. Some things to consider when engaging a new client include the following:

  • Client Details: Make sure you correctly identify who your client is and ensure you have accurate details for the client. For example, are you dealing with a person or their company? Doing this will avoid a debate as to who is liable to pay you in the future and make pursuing them easier.
  • Security: If you have standard terms and conditions, you should include a clause whereby the client grants you security over their assets to secure payments due to you. If a client is concerned you can access their assets, this will increase the chance of them paying you to avoid this from happening.
  • Guarantors: Getting multiple people or entities to guarantee a debt will allow you to pursue them in the event that your client fails to pay you. In particular, if you are dealing with a company, it is wise to have another person, such as a director of the company, to personally guarantee payments due to you. This is because a company may not have any assets. Accordingly, if a company fails to pay you, when you pursue the company they may not have any assets to repay the debt to you. In comparison, a person will often have assets in their own name, such as houses, vehicles and other personal property.

At Everingham Solomons Solicitors, we can assist with ensuring your client intake process and contracting terms provide you with maximum protection. And, in the event you are still not paid, we have deep experience in debt recovery, as Helping You is Our Business.

Click here for more information on David Southwood.

Insolvent trading

A company is its own legal entity. While it doesn’t have a pulse, just like a person, a company can enter into contracts, incur debts, sue and be sued in its own name.

The directors of a company however must be living, breathing people.  They are the people that control the company.  Although the company is able to do things in its own name, it does so at the will of the directors.

Because a company is a separate entity from the directors that guide it, normally a company’s debts are repaid only from the company’s assets. The company’s creditors do not have access to the directors’ personal assets to repay the company’s debts.  Understandably, this causes frustration for the creditors where the company is broke but its directors appear wealthy.

One of the few exceptions to this rule comes from section 588G of the Corporations Act which makes it unlawful for a director to causes a company to incur a debt knowing that the company cannot repay it.

If a director causes or allows the company to trade whilst insolvent , the creditor, the company liquidator, or ASIC can sue the director personally to have the director repay the debt either to the creditor or the company.

The proceedings against the company director are not only compensatory. They can be criminal in nature as well. ASIC has the power to prosecute directors for insolvent trading with the penalties including fines up to $220,000 and imprisonment for 5 years.  The director can also be disqualified from acting as a director in the future.

A word of warning however:  Insolvent trading cases are relatively rare. They are legally complex and expensive to pursue. Very few company liquidations result in insolvent trading prosecutions.

The practicality of dealing with companies is that creditors should be diligent in investigating the company’s creditworthiness and should often take written guarantees from the directors or shareholders behind the company.

If you have any commercial litigation enquiries, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles

The Christmas Break – George Hoddle

GRHThe heat has arrived in the North West and the countdown to Christmas is here. This is an opportunity for employers to review how their business deals with one of the biggest liabilities that sits on their books. It is of course annual leave.

The January period in the region for many industries and sectors is often the quietest month which in turn may or may not require a fully staffed workplace.

Under the National Employment Standards (NES) workers in full time employment are guaranteed a minimum four weeks annual leave per year or for some shift workers 5 weeks. If those minimum weeks of annual leave are not taken during the calendar year the residual leave not taken accumulates. If this is multiplied over a number of years a significant liability owed to employees can leave a business exposed.

A practical way to reduce this liability is to direct or require employees to take their annual leave over the Christmas/New Year shutdown. Approximately 28% of Australian workers are ‘forced’ to take annual leave each year.

Whether or not an employer can require an employee to take annual leave depends on the terms of applicable modern award (noting that there are 83 modern awards) and or the terms of their employment contract.

An employee should be given eight weeks written notice but no more than 12 months’ notice of forced leave. In circumstances where leave is required the leave must be at least one week. Employees cannot use personal leave as annual leave as these are two separate entitlements and under the NES cannot be traded off.

Another option to reduce liabilities is for employees to “cash out” their annual leave. An employer can’t pressure employees to do so and if agreed the agreement must be in writing. Any payment must be made at the same rate as if the employee was taking leave.

The potential exposure of accumulated annual leave highlights the need for correctly drafted employment contracts. At Everingham Solomons we have the expertise to advise you on the terms of modern awards and the drafting of employment contracts.

The team at Everingham Solomons wishes everyone a safe and Merry Christmas and we look forward to helping you in 2018 because, Helping You is Our Business.

Click here for more information on George Hoddle.

Bank fees class action fails – Keiran Breckenridge

KXBbwA class action bought by credit card, consumer and business deposit customers of a bank in relation to dishonour fees, late payment fees and the like has failed in the High Court.

We have all experienced these fees and felt annoyed at having to wear such a large amount for what seems to be a minor default on a credit card or bank account. The customers in this case argued that the fees they paid were not a reasonable estimate of the actual costs to the bank of their default.  They argued that the fees amounted to the imposition of a penalty by the bank and were unenforceable.  The customers demanded the bank repay those amounts to them and others in the class of customers.

Experts were called by both sides as to what actual costs were caused to the bank by events that triggered the fees. The customers argued that only a narrow range of costs were incurred by the bank.  The bank’s expert included a broader range of costs.

The customers succeeded initially, the Federal Court finding that the fees charged by the bank were a penalty. On appeal the Full Federal Court disagreed.  The High Court then settled matters by finding that the fees were not penalties; the bank was entitled to be compensated for a broad range of costs caused by the triggering events.

At Everingham Solomons, we have the experience and expertise to assist you with legal advice on your relationship with your bank, one of your key business partners because Helping You is Our Business.

Click here for more information on Keiran Breckenridge