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Can I get out of my Contract due to Coronavirus?

Question: Can I get out of my Contract due to Coronavirus?

Answer: Maybe. Let’s take a look.

1. Is there a written force majeure clause? Maybe not, but check first. Check what it covers.

2. Is there a generally implied force majeure right in every contract in Australia? No. Parties to contracts cannot terminate their written contracts just because of the coronavirus.

3. What about the rest of the world? In some jurisdictions, yes. Check if your contract is governed by the laws of another country.

4. Is my contract frustrated by coronavirus because I cannot get to a bank, or cannot get my goods to the customer on time or I cannot pay my loan as I cannot operate my business? Possibly -

(a) Can the contract no longer go ahead as envisaged due to a fundamental change in the contract? Note here that buyers cannot terminate just because a contract becomes difficult;

(b) Is there a future event that will impact the contract that will arise because of the pandemic now? For example, can couples who plan to marry get out of their contracts if the venue cannot allow a gathering?
(c) Is there a change in the law which will make the contract illegal? Difficult EGM’s that Boards wish to delay may also fall into this category.

Question: If no to the above, then what do I do to get out of my contract?

5. There are usually many ways to terminate a contract or at least put yourself into the position to terminate:

(a) Seller’s default allowing you to terminate;
(b) Misrepresentation or mistake;
(c) Badly written special conditions;
(d) Identity and name of the buyer written correctly?
(e) Assets being acquired in the contract correctly identified?
(f) Unenforceable for any other reason?
(g) For land contracts, see finance clause, due diligence rights and FIRB clause.

6. Buyers need to be very careful here as terminating incorrectly may lead to the seller or counter party having rights for wrongful termination, which may be worse than if the buyer completed the contract. There are competing interests and the sellers/suppliers have rights under the contract and at law. Careful review of the contract rights and then controlled execution are the better way to go.

Question: What if I cannot get out of it but cannot settle anyway?

7. There are many, many options –

(a) Extensions in exchange for a higher deposit
(b) Extensions in exchange for satisfaction of some conditions
(c) Forfeit deposit or prepayment of damages to obtain cancellation
(d) Negotiate, negotiate, negotiate. If an agent assisted in introducing the asset under contract, then use the agent to see what is important to the supplier, landlord or seller and see if you can provide what the other party needs in exchange for a relaxation in the conditions and if possible, cancellation.

Question: What do I do about my lease that I cannot pay?

8. First off, and as above, you should review the lease and see what the legal position is in relation to termination and security. Was it signed properly? Have the personal guarantees been signed correctly including witnessing by an ‘independent’ person? Is the property defined correctly? Is there a loophole to get out of it? If yes (and importantly, even if the answer is ‘maybe’), then that provides opportunity to negotiate.

9. As widely reported, the Government has announced the introduction of a 6 month moratorium on eviction. That all sounds very loose. Maybe the tenant still has to pay rent but if it does not, then the landlord cannot act on its legal rights to evict for that period, but can immediately act on those rights after the 6 months ends. Maybe that is what it means but no-one knows. Until we do know, we recommend clients concentrate on what they do know.

10. In that light, other options include:

(a) Use bond money and ask for an extension on topping up the bond;

(b) Ask for relief, so maybe 6 months at half rent. Landlords will probably7 want some income rather than none at all with no prospect for another tenant around the corner. Maybe the landlord will agree to the reduced rent in exchange for an extension of the lease term;
(c) Sell assets to the landlord in exchange for rent;
(d) Allow the landlord to take security over other assets, interest free, to be released in a certain amount of time.

Takeaways

11. Steps to take in relation to contracts that you want to terminate or change –

(a) First and foremost, review your legal position;
(b) Work out strategies to terminate the contract if you can, based on that legal position, but do it carefully so you do not end up in a worse position;
(c) Use what points and pressure you can to negotiate a better position thinking outside of the square to satisfy the other side so both parties can have a satisfactory outcome.

To discuss further, please contact:


  

Posted in: SMH Blog at 03 April 20

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Annualised Wage Arrangements - Big Deal or Not?

    ANNUALISED WAGE ARRANGEMENTS - BIG DEAL OR NOT?


Flexibility changes

1. The Fair Work Commission made changes last year to the flexibility provisions in Modern Awards covering a broad spectrum of industries including for clerks and restaurant workers, effective 1 March 2020. The Commission is rolling out the changes to all other Modern Awards over the next few months. The changes are only for full-time employees.

 

2. Under almost all Modern Awards, employers can pay employees above the minimum (which I call in this article the ‘top-up’) in order to avoid the hassle of calculating and accounting for various entitlements, including: 

minimum weekly wages;
 allowances for uniform, meals and travel;
 overtime rates and penalties; and
 annual leave loading.


The relevant Modern Awards permit this flexibility, so long as the employee is no worse off. As this can be open to some abuse, the Fair Work Commission want to improve regulation to ensure that employees are not overly disadvantaged.
3. From 1 March 2020, employers need to calculate and account for all of the employees’ entitlements and allowances as if there were no flexibility provisions and then ensure that the employee is paid those minimums and entitlements at the end of each 12 months. That requirement will be quite difficult to implement for most employers, who have legitimately avoided accounting for those entitlements by paying the top-up by way of increased wage.

 

Mountain or a Molehill?


4. In the explanatory documents issued by the Fair Work Commission prior to these changes, the Commission explained that employers who pay a healthy top-up and are well above the minimums would not need to make any changes to their employment agreements. However, those employers who justify the non-payment of the allowances and entitlements by just scraping over the minimum, are in danger of falling foul of these new arrangements and will be subject to potential audit and sanctions from 1 March 2020.


5. Whether these changes represent a mountain or a molehill depends on the extent of the top-ups being paid, and, as always, the documents and evidence held by the employer.


6. First step for all employers, whether the top-ups are large or small, is to assess to whom it will apply –
(a) which employees are full-time;
(b) which employees are subject to a Modern Award that has the change imposed;
(c) which employees have flexible entitlements paid by the top-up and what entitlements are they? 

 

7. Next step is to work out how much should be paid to the full-time employee to make sure that if the minimum wage was being paid under the Award, what would be the monetary value of the entitlements that the employee would otherwise receive? Then compare that to the top-up being paid and the employer can see if it is enough.


8. Next step is to work out historically if the full-time employee has been underpaid and, if so, make it up.


9. Next step is to vary any written employment contract, or create one, so that the employee agrees that the top-up is sufficient, the calculations are agreed to by the employee and that the employee agrees to not receiving the entitlements that are subject to flexibility and prefer to have the top-up in cash. This needs to be done in the manner prescribed in the Modern Award. 

 

Takeaway


10. We suggest all employers go through the above steps, now. By doing that, employers will also be writing out their justification of the top-ups which will provide ready justification for Fair Work if there is any complaint and audit.


11. Given the recent spate of Fair Work’s activity in this space and the devastating reputational damage that follows (Calombaris and 7-Eleven to name but two), I do not expect any leniency if there are breaches of these laws.


For any questions, please contact Frank Dwyer. 

 

Frank Dwyer Special Counsel
Accredited Specialist Business Law Small Myers Hughes Lawyers

Direct: 07 5552 6647
Email: fdwyer@smh.net.au

www.smh.net.au | twitter | linked in SMH Legal Pty Ltd ABN 61 117 403 853


Liability limited by a scheme approved under Professional Standards Legislation
 

Posted in: SMH Blog at 18 March 20

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Who owns Copyright in Independent Contracting Arrangements

 It is a common occurrence. A company engages an independent contractor to assist, for example, in the development of software to use in its business. The company provides the instructions and what they wish to achieve and the contractor develops the software accordingly. The company pays the contractor and assumes that it then owns the copyright in the software and can do with the software whatever it so pleases.

 

The law on ownership of copyright in independent contracting arrangements

 

Copyright is a legal protection over particular intellectual property, for example “works” such as books, artworks, source code for a website and computer programs. Copyright recognises the creator’s expression of an idea and entitles the owner to monopoly rights over the work including the right to reproduce, to copy, to make adaptations of, to publish and to enter into commercial arrangements.

 

The general rule in relation to copyright is that the original author of the copyright is the owner of it. There are some exceptions to this rule, such as copyright created by an employee during the course of their employment where, in most cases, the employer will own the copyright. Another exception is the creation of a commissioned film; it is the person who commissioned it that owns the copyright in the film, not the director.

 

Contractors are not employees. Unless the contractor assigns copyright to the company in writing, the contractor will own the copyright in the software and the company will (subject to the terms of the relevant agreement) only have an implied licence to use the software in the form provided by the contractor. Accordingly, the company would not be able to, amongst other things, make an adaptation or copy of the software without the contractor’s prior consent.

 

Implications for the company

 

As stated above, if ownership in copyright is not assigned to the company, ownership remains with the contractor. In these cases, typically the contractor will be taken to have granted the company a licence to use the software for the purpose for which it was developed. Accordingly, any use by the company of the copyright that is outside of the terms of the licence granted to it by the contractor will constitute a breach of the contractor’s intellectual property rights, and also potentially a breach of contract. This could entitle the contractor to obtain an injunction preventing the company from using the copyrighted subject matter in this manner and also recover damages or an account of profits.

 

If the company is looking to undertake any form of capital raising activities, it may be difficult to secure investment if the copyright owned by the contractor forms an integral part of the company’s business offering. This is largely because a prudent investor will insist that a warranty is provided by the company in any subscription documentation to the effect that it owns all of the intellectual property utilised by the company in its business. A company that provides the warranty because it mistakenly believes it owns copyright in its software or other intellectual property may then be sued by the investor claiming damages in breach of that warranty. A company aware that it does not own copyright would need to find a way around providing such warranties. However, any such attempts would no doubt raise a red flag with the investor, placing the entire transaction at risk, particularly where a diligent investor will insist on carrying out due diligence in any event.

 

Further, if the company does not own the copyright, the value of the company may be detrimentally affected.

 

Take away messages

 

To avoid copyright issues:


1. agreements with any contractors should contain terms whereby the contractor assigns to the company all rights and ownership in any copyright created during the course of the contractor’s engagement; and


2. obtain legal advice prior to entering into any significant agreements with independent contractors to ensure that you are fully informed in relation to the ownership of, among other things, copyright as well as the implications that it may have on your business going forward.
 

Posted in: SMH Blog at 06 February 19

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7 Year Anniversary of PPSA - Time to Review Your Security Interests

 31 January 2019 marks seven years since the commencement of the Personal Property Securities Act 2009 (Cth) (the PPSA). Why is this significant? Because seven years is the maximum period that security interests relating to ‘consumer property’ or any property described by serial number (e.g. cars, tractors, watercraft and aircraft) can be registered for on the Personal Property Securities Register (the PPSR). Registrations relating to ‘commercial property’, whilst capable of being registered for periods in excess of seven years, are also capable of being registered for seven years.

Any registrations that were submitted on or before the first day of commencement of the PPSA that prescribed a registration period of seven years will expire on 30 January 2019. Expiry of a registration can have serious consequences, including the previously secured party becoming an unsecured creditor and loss of priority to other creditors.

In circumstances where registrations are unable to be renewed after they expire, now is the time to urgently review your PPSR registrations to determine whether renewal of your registrations are required. If you require any assistance with respect to the review or renewal of your security interests, please feel free to contact us.

Posted in: SMH Blog at 29 January 19

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THE PIT FALLS OF CONVEYANCING

 Buying and selling a home is often one of the most significant transactions in your life. During the course of buying or selling your home you may experience a variety of mixed emotions and there are certain aspects of the conveyancing process that you should be aware of to ensure that the transaction runs as smoothly as possible.


Some of the common areas where things can go wrong are:

(a) Not Paying the Deposit on Time

If you don’t pay the initial or balance deposit on time under most contracts the Seller would be allowed to:

(i) terminate the Contract;
(ii) keep the deposit already paid (if any);
(iii) claim the unpaid deposit amount from you as a debt; and
(iv) sue you for breach of Contract, which could include a claim for the shortfall if the Seller can not sell the property for the same price that you were going to pay.

(b) Not being able to settle on the agreed date

The day that you pay the balance of the Purchase Price to the Seller, you become the legal owner of the property and you receive the keys to your new home. This is known as the Settlement Date, and it is an important date to mark on your calendar.

Prior to the signing of a Contract, you should determine the best settlement date that works for you and your financier (if applicable). If you are unable to settle by the due date under the Contract and the Seller does not agree to extend, the Seller could elect to exercise the rights outlined in (a) above.

It is important to note that the Seller is under no obligation whatsoever to agree to an extension of this or any date under the Contract.

(c) Finance

If you require the assistance of your bank to partially fund your purchase, the Contract should be made subject to you receiving a satisfactory Finance Approval, regardless of whether you have a “pre-approval” or are confident with your ability to obtain the required loan from the bank. If you do not make the Contract subject to finance and you are unable to access the funds required complete the purchase, the rights of the Seller (as outlined in (a) above) would apply.

If the Contract is subject to finance approval and you fail to notify the Seller of such approval by the due date, the Seller will be entitled to terminate the Contract up until the point that you satisfy (or waive) the condition. The deposit would be refunded to you in this circumstance.

If you do terminate under finance approval, you must be able to show that you made a genuine attempt to obtain finance and a letter from your bank denying the application is always handy to have available.

(d) Building and Pest

Regardless of the age of the property, you should always arrange for a Building & Pest inspection to be undertaken by a qualified professional.

If you are not satisfied with the report or the Seller doesn’t agree to fix what you want, you can terminate the Contract, provided you act reasonably in this regard. For example, the Seller could argue that you are not acting reasonably if you terminate for something that is only aesthetic and not structural or major in nature. If you were to terminate under this condition, the deposit would be refunded to you.

(e) Insurance

In Queensland, the Contract provides that the risk of the property passes to the Buyer when the contract is signed by both parties (and not on settlement as you would naturally think). In NSW, the risk passes on settlement. You should ensure that adequate insurance is in place should an insurable event occur at the Property following entry into the Contract (eg. flood, fire or total destruction).

(f) Deemed Satisfied Clauses

You should carefully review any amendments made to the standard conditions or deadlines for due dates under the Contract. Contracts often come across our desk where a condition will be ‘deemed satisfied’ on an agreed date unless the buyer has advised otherwise. While this is great for a Seller, it could be a nightmare for a buyer as a condition that is crucial to your purchase, (e.g. finance approval) could be automatically satisfied if you miss the due date, notwithstanding you haven’t received the OK from your bank.

(g) Disclosure Statements

If you are purchasing a unit, you should review the information contained in the Disclosure Statement prior to signing the contract so that you are aware of any amounts payable to the Body Corporate (eg. Administrative and Sinking Fund levies).

Lessons:

Our experience is that one out of every 3 sales has some sort of problems.

Engage a lawyer prior to signing the contract and be prepared to pay a reasonable fee. People think conveyancing is simple and often treat it as a commodity. You will get what you pay for. The cut price conveyancing companies work on the basis of hooking you in with a cheap quote and then catching you with “extras” which would otherwise be standard in the normal course.


Sebastian Roberts
Associate Small Myers Hughes Lawyers
sroberts@smh.net.au

Posted in: SMH Blog at 19 March 17

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