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Legal Insight Issue 4

Legal Insight Issue 4

Contents:

ADR - A Prerequisite to Commencing all Federal Civil Litigation

Building and Construction Industry Payments Act - Adjudicator's Determination Set Aside

Unfair Contracts - It's Now Law!

Protect Your IP - New Free Government Service

New Stamp Duty on Registration of Transfers

Director's Liability for Insolvent Trading

ADR - A Prerequisite to Commencing all Federal Civil Litigation

The Federal Government's new Civil Dispute Resolution Bill provides that parties to Federal Civil litigation should genuinely attempt to negotiate and settle their disputes prior to commencing any proceedings. If enacted, the Legislation will provide that as far as possible, parties should take "genuine steps" to resolve their differences prior to commencing proceedings. On commencing proceedings parties will have to file a statement ("ADR Statement") stating that they have taken steps to resolve the dispute, or if they have not, setting out the reason (eg. urgency, immediate threat to the safety of a person or property). The Legislation will operate in respect of all Federal Court and Federal Magistrates Court matters.

The Federal Government is clearly seeking to reduce the number of disputes being litigated in the Federal jurisdiction. Parties will have to carefully consider their options regarding settlement of their disputes before commencing litigation.

Some commentators have criticised the Bill as yet another means by which (particularly deep pocketed) parties may attempt to tactically delay the resolution of disputes.

It is unlikely that the Bill will operate to prevent a matter proceeding before the Federal Court, once a proceeding is commenced. However, the requirement to file an ADR Statement should assist to narrow the issues in dispute and focus each party's attention on the question of settlement. If a Judge considers that the ADR Statement of either party is not sufficient, it is expected that the Judge will exercise his or her powers/discretion to order the parties to mediation or to attempt settlement and then return for further directions to progress a matter. As it stands, the only matters which will be excluded from the Bill's operation are:

  1. proceedings under the Native Title Act, 1993;
  2. proceedings under the Family Law Act, 1975 (where other dispute resolution procedures already exist);
  3. civil penalty provision proceedings; and
  4. appeal proceedings.

We have previously stated in Legal Insight that provisions similar to those proposed in the Bill are also likely to be implemented at State level. The Courts and Governments are actively promoting early attempts to resolve disputes.

 

Building and Construction Industry Payments Act - Adjudicator's Determination Set Aside

The Building and Construction Industry Payments Act, QLD (similar to the Building and Construction Industry Security of Payment Act 1999, NSW) provides a quick, strict and favourable process for builders to receive payment during the course of construction work. Very stringent and non-extendable time frames for responding to builder's payment claims generally mean that a principal is unable to raise set-offs, defences and/or cross-claims until the construction is complete. However, a recent Queensland Supreme Court decision confirms that there are ways to set aside an adjudicator's determination.

Facts

  1. The Builder served a payment claim for approximately $540,000.00.
  2. The Principal responded with a payment schedule proposing to pay nothing.
  3. The Adjudicator determined that the Principal should pay the Builder approximately $289,000.00 and rejected the Principal's claimed set-off of approximately $50,000.00.

Court's Finding

  1. The adjudicator had rejected the set-off claim (which was based on a contractual right to liquidated damages for delay in completion) after interpreting the relevant clause of the contract.
  2. Neither the Builder nor the Principal had made submissions in respect of the relevant clause of the contract and its effect. Rather, the parties were in disagreement as to the date of practical completion.
  3. As the adjudicator had rejected the Principal's set-off on a basis without affording the Principal an opportunity to make submissions, the adjudicator denied the Principal procedural fairness in not being able to make submissions as to the correctness (or not) of the adjudicator's interpretation of the clause.

This decision again confirms that there are very limited grounds on which an adjudication determination can be challenged. Under the Security of Payments legislation this decision is likely to result in adjudicators providing more substantial reasons for their determinations and allowing parties to make submissions regarding the meaning of contentious provisions in building contracts.

 

Unfair Contracts - It's Now Law!

We previously reported (see our prior addition of Legal Insight) that amendments to the Trade Practices Act would soon be enacted to further strengthen a consumer's rights.

The majority of the consumer protection amendments came into force on 1 July 2010. Accordingly, any standard form consumer contracts entered into or amended on or after this date will be subject to the new laws. The amendments provide as follows:

  1. unfair terms in standard form contracts are void;
  2. a term is unfairif:
    1. it causes a significant imbalance to the parties' rights and is not reasonably necessaryto protect the interests of the benefiting party; and
    2. it would cause detriment to the burdened party if the benefiting party relied on it;
  3. a presumption arises that the term isn't reasonably necessary to protect the benefiting party's interest, which will therefore need to be rebutted by a supplier;
  4. a consumer is an individual who purchases goods or services wholly or predominantly for personal, domestic or household use or consumption (the purpose for acquiring the goods/services is the important question, rather than the nature of the goods/services);
  5. a consumer may also be a purchaser of goods or services where the goods/services do not exceed $40,000 (including business to business sales/supplies);
  6. express warranties and pre-contractual statements made in respect of goods will be nonexcludable (i.e. this suggests that clauses which purport to exclude pre-contractual representations will be void – this is significant!);
  7. clauses which attempt to exclude the new warranties are invalid;
  8. the Trade Practices Act is expected to be renamed the Competition and Consumer Act, from 1 January 2011.

The effect of these amendments should not be taken lightly. We suggest that all standard form sale/supply contracts be reviewed in light of these amendments.

 

Protect Your IP - New Free Government Service

IP Australia, together with the Australian government and overseas intellectual property departments, has recently launched an online tool for businesses to protect their intellectual property. The Intellectual Property Explorer is available at http://intellectualpropertyexplorer.com/

 

New Stamp Duty on Registration of Transfers

As from 1 July 2010 duty is payable on all Transfers lodged on title to NSW property which exceeds $500,000.00. The amount of the duty is calculated pursuant to a scale, with the maximum rate being 0.25% of the sale price. Although this new stamp duty has been subject to criticism, it is intended that the extra revenue will be used for the Torrens Assurance Levy. This Levy provides compensation for people (in the main, mortgagees) who have suffered loss under the Torrens register by reason of fraud.

 

Director's Liability for Insolvent Trading

A recent NSW Supreme Court decision Sims –v-Khattar (2010) NSWSC 102 is a timely reminder of directors' obligations in respect of managing the solvency of their companies.

Facts

A construction company performed building works. A dispute arose between a body corporate and the construction company for defective works. This resulted in the construction company being wound-up in insolvency. Three years later, liquidators commenced an action against three directors of the construction company for alleged insolvent trading.

Court's Finding

The three directors had engaged in insolvent trading. More importantly, the Court found that the presumption of insolvency arose at a substantially earlier time than had been put to the Court as a result of a contravention of Section 286 of the Corporations Act, 2001. Section 286 provides that a company is presumed to be insolvent on and from the time at which it fails to keep proper books and records. The three directors were ordered to pay over $500,000.00 to the liquidators as a result of the insolvent trading.

It is important for directors of corporations to remember that they are obliged to ensure that the company maintains proper books and records detailing accurately the company's financial position at all times. A failure to do so, in circumstances of a liquidation, may have disastrous results.

 

 

Hugh & Associates is a Sydney based legal firm with extensive experience in commercial, finance and insolvency law and litigation. If you require legal advice in these areas, we would be pleased to assist you.

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