In This Issue:

Welcome to the Winter 2003 Edition of In Practice

Company Officers Tax obligations

Dummy Bidding

Reference Risk

Management Rights

Stamp Duty

Contractors Rights

Finance Brokers Fees

Dress Sense

Stolen Goods

Giving Notice

We hope our website, will provide you with a client interface, enabling us to keep you informed on a more regular basis of changes in the law relevant to you and which will enable you to access and log in for defined purposes.

Please take the time to read our “Hot Tips” and “Breaking Developments” for up-to-the minute changes in Law and how they may affect your situation.

We have applied for Quality in Law certification, which is a process, designed to increase the efficiency of our client service. We are also spending substantial sums of money in upgrading our management software, integrating our office procedures.

Congratulations to our Senior Associate, Maria Townsend, who has been conferred a Masters Degree in Law, by the University of Sydney. She majored in Commercial Law and Trade Practices.

We look forward to receiving your feedback regarding our new website and any suggestions for topics you may wish to see included in our forthcoming Newsletters.

The changes implemented in the past 12 months has seen Gells Lawyers become a more competitive and efficient legal practice, able to offer quality service to its many valued clients. We thank you for your ongoing support.

Peter Gell on behalf of the Directors.

The Income Tax Assessment Act says the public officer is answerable for the company requirements under the Act and in the case of default is liable for the same penalties as the company would have been.
Assuming a person is honest in his/her dealings with the tax office, mere appointment as a company officer carries little tax risk, except where a company fails to pay withholdings, such as PAYG, which are due.

However, that can be a major risk – it is relatively common for companies in financial difficulties to be seduced by the ease of obtaining a “loan” from the tax office by not sending money due to it. In particular, non-executive directors, if examined by the tax office, will normally find it hard to provide an acceptable defence.

General Rule
As a general rule directors, secretaries and public officers are not liable for the tax debts incurred by a company. An exemption might be when the company is insolvent – although in those circumstances one would normally expect that tax losses available to the company would offset any taxable income it subsequently incurred.

When Companies Don’t Pay
A director may be personally liable for tax, which should have been paid by the company, which has not been sent to the tax office (most obviously PAYG tax instalments).

Each company director can be personally liable for the entire amount. Whether this is morally justifiable or not, the tax office is likely to pursue the director most likely to be able to pay the unpaid amount and leave it to that director to seek indemnity from the other directors.

However, before recovering that tax from a director, the tax office has to give him or her notice of its intention. The director then has 14 days to get the company to send the due amount to the tax office, enter into an agreement with the tax office to pay the withheld amount (an agreement which would not protect the director if the company subsequently broke the agreement), appoint an administrator for the company or begin winding the company up.

There are only 2 defences available to a director. To escape the liability, a director may have to prove that because of illness or other good reason, he or she did not take part in the management of the company at any time when a director, or took all reasonable steps to ensure that the directors complied with the obligations – broadly speaking, to cause one or all the four things referred to above to have happened before the date payment to the tax office is due or that there were no such steps they could have taken.

It might be difficult for a director acting alone to cause one of those four things to happen. If this is the case it might be that the most reasonable thing a director can do is to take professional advice and to present that advice to the other directors.

Other Tax Offences
Where a corporation commits a taxation offence, a person who takes part in the management of the corporation, whether an officer of it or not, is deemed to have committed the taxation offence and is punishable accordingly. This can include a director or a company secretary. Such offences include non-lodgement of tax returns or the provision of false information to the tax office and might even lead to an officer being liable for the company’s tax.

This places an onerous duty on a person. For example, simply relying on the company’s accountant to lodge tax returns may not be enough. Some sort of personal check might be necessary.

It does not matter that the director or secretary might have been acting honestly. However, it is a defence if they can prove that they did not aid, abet, counsel or procure the act or omission of the corporation concerned: and were not in any way, by act or omission, directly or individually, knowingly concerned in or party to the corporations act or omission.

Goods and Services Tax (GST)
So far as indirect tax is concerned, the tax office can serve a notice on a director or secretary of a company and they will have the same liability as if the notice had been given to or served on the company or its public officer.

This has not been tested in the courts: however, it is unlikely to mean that a director or secretary would be personally liable for goods and services tax.

Discussing the situation with us will ensure that you know your rights and obligations.

(Source: “In touch with the Law” Issue #2 2003)

In one case, a 12th final (and genuine) bid at auction was preceded by 11 dummy bids. The auctioneer invented 5 bids; a person engaged by the vendor’s real estate agent made four bids and the auctioneer’s agent made 2 bids. In this case, the defendant, arguing that he was not bound by the contract for sale, tried to establish (unsuccessfully) that he had also made a false bid.

As the Minister responsible recently described the situation, currently the auctioneer can generate fictitious bids “from trees and passing cars, dogs and birds or other imaginary bidders”.

Under the new Act, the number of vendor bids at an auction of residential property or rural land will be limited to one, which must be notified in the conditions of sale. The Act makes a distinction between rural land and other land auctions, which are not covered by it – rural land is defined as land used for grazing livestock, dairying, orcharding or any other purpose declared by the regulations to be a rural purpose.

The auctioneer is required to state clearly that the bid is by the vendor, or someone on behalf of the vendor or auctioneer, as soon as it is taken. Essentially, while one dummy bid may still be taken. It is intended that it be exposed.

Licensed agents will record bidder’s name and addresses, after getting proof of identity, in a bidders record, which is to be given to the auctioneer prior to, bids being taken. The bidder is then identified at the auction by something such as an allocated identifying number, which is also recorded. A bidder whose name is not listed because of a failure on the agent’s part will still be able to make a binding bid, but the auctioneer may attract a fine of $11,000 for taking one.

There are other significantly increased penalties, for instance failure by vendors, their agents or auctioneers to follow the new rules on dummy bidding, may result in fines of up to $22,000. An agent who fails to properly maintain a bidder’s record may be fined up to $11,000.

There are still some unclear areas, such as what happens if someone you know well bids at an auction of your property: or what if a trustee family member puts a family property to auction after probate is granted and wants to buy it on their own behalf.

Consult your solicitor for more information on the new procedures.

(Source: “In touch with the Law” Issue #2 2003)

Management Rights
Keeping tabs on changing rules in strata schemes.
A series of cases and changes in strata title legislation have been impacting on the management rights industry in New South Wales.

In a recent case it was found that an agreement that had been made by a body corporate to have a manager who did not have a strata-managing license was illegal and void. This has raised the prospect that many NSW management agreements, which have been acquired for substantial sums of money, are also void.

Management rights established before 1st July 1997 (that is, under the old Strata Titles Act.) are most likely to be at risk of invalidation because of this decision. Documents associated with those rights will need to be carefully analysed and in many cases may need to be re-documented with the co-operation of the owners corporations.

Rights established between then and February this year when the new amendments came into effect, may also be at risk and should be analysed. If there is any doubt they should also be re-documented.

Management rights over strata property date back to the 70’s when serviced apartments on the Gold Coast, Queensland started to emerge as a popular form of holiday accommodation and a tax effective way to invest in a holiday home. The industry developed in NSW in the 90’s. In recent years, undesirable practices in the sale of management rights by developers and a range of problems being experienced by owners’ corporations prompted the NSW Parliament to enact the amendments to legislation, which have now come into effect.

These will be inconvenient for developers but will not necessarily resolve the problems experienced in the past by lot purchasers and owners corporations. Further amendments are likely.

Contact us for more information on these matters.

(Source: “In touch with the Law” Issue #2 2003)

Stamp Duty
How does GST fit in?

Recent decisions have possible implications for stamp duty calculations.

One case considered whether the stamp duty on a contract for the sale of land should be calculated by reference to the whole of the purchase price, which was GST inclusive. The court held that it should and in its decision took into account that no separate GST component of the purchase price had been identified.

In another case a tobacco retailer claimed a refund of an amount equal to the tobacco licence fee, which had been paid by the retailer to a tobacco wholesaler. The court held that a refund should be paid. Part of its reasoning was that the invoice issued by the tobacco wholesaler to the retailer separately identified the amount of the tobacco licence fee.

On the basis of the decisions that have been made, there is at least an argument that a separately identified GST gross-up does not form any part of the duty base for calculating stamp duty payable on a dutiable transaction subject to GST.

For further information regarding Stamp Duty and GST, please contact our offices.

(Source: “In touch with the Law” Issue #2 2003)

Contractors Rights
Payments in the construction industry made more secure.

The right of sub-contractors to receive progress payments has been bolstered by recent changes to the law and procedures for recovering amounts, which are due, have been streamlined.

The changes have important consequences for builders, contractors, sub-contractors and suppliers. They are aimed at providing contractors and subcontractors with a more favourable process for obtaining progress payments and thereby securing cash flow

If a builder or head contractor fails to make a payment, claimants will now have the right to take unfixed plant or materials as security for it. Interest can also be claimed on amounts that are overdue.

A significant measure, with the aim of enforcing prompt payment is the “adjudication certificate”. This may simply be filed in court. It will no longer be necessary for a claimant to commence proceedings for the recovery of a debt by issuing a summons.

Close attention should be paid to the tight timeframes for responding to payment claims or adjudication applications. The certainty of well-drafted contracts, which provide for an un-ambiguous progress payment regime and clarity about matters that may be considered in assessing a payment claim, can be a benefit to everyone.

(Source: “In touch with the Law” Issue #2 2003)

Finance Brokers Fees
Court backs consumers.

A finance broker firm took a couple to court after they refused to pay an exorbitant $6,000 in brokerage fees, but has had its claim dismissed.

The couple supported by their solicitors, went to court to successfully defend a claim by the finance broker who had offered them the chance to “pay their home loan off years earlier”.

The couple had accepted the offer for someone to come and visit them in their home and show them a financial plan that would make them better off financially. They signed a contract for services with the company before they had read all the fine print.

When they read the contract details later that day, the couple realised the financial plan and refinancing deal offered by the company was not going to be sustainable on their budget. They also noticed that the estimated costs of refinancing their home would have been close to $10,000 and that the interest rate offered in the deal was almost half a percent higher than their current rate. When they wanted to cancel the contract the company refused and took them to court in pursuit of its fees.

It is important to seek legal advice before entering into contracts. Consumers may also have the right to cancel contracts within a cooling-off period, even if the agreement was entered into at home. It is important to get legal advice about any contract quickly as delay may be fatal to any right to cancel.

Contact our office for more information regarding these matters.

Dress Sense
Constraining male employees’ attire can be discriminatory.

Two recent cases show a more relaxed attitude by tribunals to the issue of male dress. One OK’d a male employee wearing an earring at work: in the other, a collar and tie was found not to be de rigeur

It is accepted that dress codes have a function in helping achieve a corporate identity. However, employers must ensure that any policy they implement, whether about dress codes or anything else, applies equally to both sexes, and is reasonable, taking into account the nature of the business.

In one case, a male service station employee who wore a small stud-like earring in his left ear had received warning letters that his employer’s rules on personal presentation did not allow such adornment. The NSW Administrative Decisions Tribunal found there was no action by the company to dismiss female employees for wearing earrings and that the subsequent dismissal of the male employee was discriminatory and thus unlawful.

In another case, which occurred in the UK but could have influence in Australia, a male employee was disciplined for failing to wear a collar and tie to work. The tribunal found this was discriminatory and there were no reciprocal dress arrangements for women. The issue was not considered insignificant, as the employer was willing to terminate the employment of an employee who failed to abide by its policy.

Stolen Goods
Who owns or gets compensation for improvements?

What are your rights if you are the owner of a vehicle which is stolen, or the unwitting recipient of one, who then forks out money on improvements? The answer is, it depends.

If a person buys a car privately, performs the usual checks through REVS, the Register of Encumbered Vehicles, and then does the car up, all the while ignorant that the car has been stolen, what is the legal position of the first owner, and of the other, also innocent party, who may have changed the car radically since purchasing it, perhaps spending large sums of money in the process?

Two significant cases give two different avenues of approach on ownership and compensation for valuable additions to stolen assets.

In one case, Mr. M. purchased a car from someone who did not have the authority to sell it. After purchase, Mr. M. did the car up and doubled its value. Following an action under the Criminal Procedure Act, it was held that in the case of stolen goods, the only person entitled to the property is the owner, who should get recovery. It does not matter that the goods have been improved. A purchaser of stolen property, however innocent, cannot obtain title to it and improves it at his own peril. In this case the vehicle was returned to its original owner and Mr. M. was not compensated for the money he had spent.

However, if a private action is brought, the deciding case is one, which took place in the Supreme Court. This involved a dispute between two parties who claimed ownership of a yacht. The hull, which was owned by one of the parties, was worth $1.777 million, while $24,409 worth of work was done on the boat by the other party.

The judge ordered that the yacht be returned to the owner, but compensation was to be paid to the other party for the work which was considered to confer an ‘incontrovertible benefit’. One factor considered was whether the improvements could be physically detached. Where they could not, compensation could be imposed as a term of repossession.

In another example, referred to in court, a person had fitted new tyres to a truck under hire purchase. The truck was repossessed and the question was whether the owner of the tyres, before they were attached to the vehicle could get them back.
The court held that the tyres remained the property of the person who owned them before they were affixed to the truck. The point was made that a chattel only accedes to another if it cannot be removed without destroying it or causing serious injury to the whole so formed.

Giving Notice
Is it still necessary when repudiating a tenant’s lease?

A recent decision weakens the statutory protection for tenants, introduced as long ago as 1882, by which landlords give notice to tenants when they consider the tenant has breached a lease.

The area of leases is a frequent source of contention and the need for certainty on legal entitlements is paramount.

Until recently, the process for breaches of lease was clear. If a rent agreement was breached, the landlord did not need to issue a notice, but could simply re-enter the premises. This would immediately force the defaulting tenant to seek relief against loss, which was usually readily granted, but was only given on condition that the rent was brought up to date.

With other non-rent agreements, the landlord needed to give notice to make good the contract before a right of re-entry or forfeiture became enforceable. This gave the tenant the opportunity to remedy the breach within a reasonable time of the notice being served.

In a recent case, there were serious rent and other breaches of a lease over a large hotel. The tenant who had taken over a dilapidated hotel had arranged that he did not need to make certain rental payments if he were to make agreed improvements to the property. The parties disagreed about what that involved. The court said that it could use its discretion in considering non-rental breaches in such a case.

This creates uncertainty about how a court will view un-remedied and unadvised breaches of a lease by a tenant in the future and highlights how important it is to have the conditions in any lease clearly drafted at the outset.