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DIFFERENT FORMS OF

ADMINISTRATION IN CORPORATE INSOLVENCY

 

BY MARK DOBLE, PARTNER 

7 MAY 2013

 

 

OVERVIEW
1. In this paper I address the three most common types of administration of insolvent corporations.
2. The three types of administrations with which I intend to deal are:
(1) Liquidation;
(2) Voluntary  administration  with  a  view  to  executing  a  deed  of  company arrangement; and
(3) Receiverships.
3. I should point out that in the context of liquidation, or winding up, there are two types. One is voluntary liquidation and the other is official liquidation namely a winding up by way of Court order. Ultimately, little turns on whether a liquidation is entered into voluntarily or imposed by the Court.
4. At some stage, we can discuss the various pitfalls associated with each type of administration.

 


LIQUIDATION OR WINDING UP
5. I will deal firstly with Court windings up, namely Official Liquidation.
6. An Official Liquidation is generally brought about on the application of a particular creditor who has in most cases first served a creditor's statutory demand for payment of debt pursuant to section 459E of the Corporations Act.
7. With or without a judgment, a creditor who asserts that there is no dispute as to a debt it is owed may serve a statutory demand pursuant to section 459E of the Corporations Act. The corporation upon which the demand is served has 21 days in which to either:
(1) Pay the debt; or
(2) Make an application to the Court to set aside the statutory demand on the basis that the debt is disputed.
8. If the debtor company does not take one of these courses there is a statutory presumption of insolvency which triggers the creditor's right to commence proceedings in either the Supreme Court of any State or Territory or the Federal Court for the winding up of the company.
9. There are very limited avenues of defence to such an application.
10. Assuming no defences are raised, the Court will make a fairly routine order winding up the debtor company and appointing a liquidator.
11. The liquidator's role is to wind up the affairs of the company namely, to bring in and dispose of its assets and thereafter to distribute the proceeds according to the priority afforded by section 556 of the Corporations Act.
12. That priority is essentially:
(1) The legal costs of the creditor who brought the winding up application;
 


(2) The costs and expenses of the liquidator incurred in relation to the winding up itself;
(3) Employees entitlements; and
(4) Pro rata amongst unsecured creditors of the company.
13. Sadly, in most windings up, there is rarely a distribution after the liquidator's remuneration and expenses. I should point out however that  a liquidator is performing a statutory function pursuant to the Corporations Act and must take each job as it comes. What I'm getting at is, in at least half, probably closer to three quarters of Court appointed windings up, there are no assets at all and the liquidator has foisted upon him or herself the obligation to conduct the winding up notwithstanding that he or she will not be paid.
14. Once a liquidator has been appointed, the functions of the company's offices are suspended. Only the liquidator can deal with the company's assets and affairs.
15. Once the liquidator's role has been performed, the company's affairs have been wound up and its assets realised and distributed, the liquidator applies to the Australian Securities and Investments Commission to have the company deregistered. At that time the company ceases to exist.
16. From an unsecured creditor's point of view, there are two salient matters arising out of the appointment of a liquidator.
17. The first is the liquidator's right to disclaim onerous property. What this means is if there is property, such as a lease or a contract, which is "onerous" upon the company (that is to say costs money), the liquidator has a right to disclaim that property and simply walk away from it. The other party to any such transaction has no rights of recourse back against the liquidator.
18. The second issue which may be of relevance is a liquidator's right to "claw back" antecedent transactions. There are a number of antecedent transactions voidable at the insistence of a liquidator. They include:
(1) Unfair preference payments;
(2) Uncommercial transactions;
(3) Unfair director related transactions; and
(4) Voluntary alienation of property with an intention to defraud creditors.
19. For unsecured creditors who were in a trading relationship with the company, the most likely antecedent transaction to be of relevance is an unfair preference payment.
20. An unfair preference is essentially:
(1) A transaction between the company and a creditor;
(2) Entered into at a time when the company is insolvent (within 6 months prior to the commencement of the winding up); and
 


(3) Which results in the creditor receiving more than it would receive if the transaction was set aside and the creditor were to prove in the winding up.
21. An example might be as follows:
(1) Company A owes Bill $50.00 and Betty $50.00;
(2) Company A only has $50.00;
(3) Company A likes Betty more than it likes Bill and pays the entirety of its savings namely $50.00 to Betty and Bill gets nothing.
(4) In an ideal world, the liquidator would demand that Betty repay him or her $50.00 and, having accounted to him or herself for his fees, would divide the net proceeds equally between Bill and Betty such that neither has been preferred.
22. There are defences to a claim by a liquidator for an unfair preference, commonly known as the "good faith" defence. To make out such a defence, a creditor would have to be able to prove that he or she was unaware that the debtor company was unable to pay its debts as and when they fell due and such had no knowledge that he or she was being preferred.


 

VOLUNTARY WINDING UP
23. There are two types of voluntary windings up.
24. The first type of voluntary liquidation is a creditors' voluntary winding up in which case the company appoints a liquidator prior to any creditor making a Court application for its winding up.
25. A creditors' voluntary winding up may also occur as part of the voluntary administration process which I will discuss shortly.
26. The second is known as a members' voluntary winding up. In a members' voluntary winding up, the corporation is solvent and the liquidator's role is simply to bring in the assets and distribute them amongst the shareholders according to the shareholders' entitlements. If, upon the appointment of a liquidator in a members' voluntary winding up, it becomes apparent that the company is in fact insolvent, the liquidator must call a meeting of the company's creditors and the liquidation will morph into a creditors' voluntary winding up.
27. The function of a liquidator in either an official liquidation or voluntary liquidation is the same and the consequences for unsecured creditors are the same.


 

OTHER TYPES OF COURT APPOINTMENT
28. There are two other types of Court appointed liquidators.
29. The first is under the so called "just and equitable" ground, usually arising out of a shareholders' dispute.
30. The second is a provisional liquidation. A provisional liquidator is appointed to maintain the status quo while the over-riding dispute is sorted out. A provisional liquidator will often continue to trade the company's business.

 

VOLUNTARY ADMINISTRATION
Part 5.3A of the Corporations Act
31. Part 5.3A of the Corporations Act was enacted with the express object of providing for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the Company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the Company or its business to continue in existence - results in a better return for the Company's creditors and members than would result from an immediate winding up of the Company.
32. Part 5.3A deals with voluntary administration of a Company.
33. A Company, by resolution of its Board may appoint an administrator if the Board thinks it is or will become insolvent (section 436A). A secured creditor or a liquidator can also appoint a voluntary administrator.
34. Upon the appointment of the administrator, the administrator must hold a meeting of creditors within 5 business days after his or her appointment (section 436E).
35. The purpose of the section 436E meeting is to advise creditors in relation to the appointment of the administrator and the particulars of the conduct of the administration.
36. Upon the appointment of the administrator, creditors' rights to take any action against the Company are stayed. With certain, limited exceptions, a secured creditor or the owner of property occupied or leased by the Company cannot take action.
37. Pursuant to section 443A, an administrator is liable for debts he or she incurs in the performance or exercise, or purported performance or exercise of any of his or her functions and powers as administrators for:
(a) services rendered; or
(b) goods bought; or
(c) property hired, leased, used or occupied by the Company.
 


This would include amounts due under any Agreement (including a franchise agreement) moving forward.
38. Pursuant to section 439A, the administrator of a Company must convene a second meeting of the Company's creditors within 21 days from the day on which the administration begins for the purpose of informing creditors of the circumstances of the Company and making a recommendation as to the Company's future.
39. At that meeting, creditors may elect to adjourn the meeting for up to a further 60 days.
40. In reporting to creditors, the administrator must make a recommendation as to the future of the Company. The 3 options are:
(a) the Company be wound up;
(b) the Company enter into a Deed of Company Arrangement; or
(c) the administration end.
41. Given that in order to appoint a voluntary administrator, a Company must generally be insolvent, it is quite unusual for an administrator to recommend or for creditors to resolve that the administration simply end.
42. If the Company is wound up, the administrator becomes the liquidator and the Company proceeds by way of creditors' voluntary administration.
43. In the event that the Deed of Company Arrangement is proposed by directors or shareholders (or another interested party) the Company will remain in existence with debts being compromised or paid in full (depending upon the Deed proposal). Generally, control of the Company returns to its directors under a Deed of Company Arrangement.
44. The administrator (of the Deed) generally simply administers the Deed fund (being the fund of money paid under the Deed of Company Arrangement for the benefit of creditors). Once the Deed fund has been paid out in accordance with the terms of the Deed, the Deed of Company Arrangement ends and the Company continues on. Debts due by the Company to creditors are generally extinguished once the Deed has been fully effectuated.
45. The Supreme and Federal Courts have power to intervene in relation to the conduct of the administration and any Deed of Company Arrangement. Creditors have standing to make an application to either Court.
 


RECEIVERSHIPS
46. A receiver or receiver and manager is generally appointed by a secured creditor pursuant to what used to be called a charge and what is now known, under the Personal Properties and Securities Legislation as a security interest.
47. It is probably easier to refer to security interests by their previous names.
48. A non-circulating security interest used to be called a fixed charge. A fixed charge is a charge, or mortgage, over a specific item, for example a truck.
49. A circulating security interest used to be known as a floating charge. It is so named because it "floats" over the assets of a company as they exist from time to time until the charge is crystallised, generally by reason of a default by the debtor company.
50. Most charges make provision for the appointment by the secured creditor of a receiver.
51. Whilst a  receiver bears obligations  to  all creditors,  he  or she  generally  behaves differently to a liquidator. A receiver's first priority is to pay the secured creditor and once the secured creditor has been paid, the receiver will retire.
52. It is important to note that it is far from uncommon that when a company is placed into liquidation or appoints a voluntary administrator, that a secured creditor will appoint a receiver "over the top" to protect the interest of the secured creditor.

 

DEALING WITH INSOLVENCY ADMINISTRATORS
53. Many unsecured creditors will have a serious vested interest in the event of the insolvency of a company with whom they have been in a trading relationship or perhaps a franchise relationship.
54. From the outset, it is important to attempt, as best as possible, to establish some sort of rapport with the insolvency administrator to work in everyone's best interests to preserve as much as possible of the insolvent company's business as is possible either with an aim to rehabilitating the insolvent company and continuing to trade or alternatively to ensure that its business is saleable and also to increase the return to creditors of the insolvent company.P

 

PSA
55. I have discussed previously the new terms of art under the Personal Properties Security Legislation.
56. It cannot be denied that PPSA had teething problems particularly in terms of the additional searches necessary to ascertain who had security over what.
 


57. Part of the problem is that people were registering as securities, documents which did and do not have the legal force and effect of granting a security. Unfortunately, in the 18 months or so to date since the regime came into play, that hasn't really changed.
58. From a practical perspective, you should, by reference to the description of the goods said to be secured under a search be able to identify what they are.

 

Mark Doble is Head of Eakin McCaffery Cox Lawyer's litigation department. He has extensive experience in corporate insolvency and bankruptcy.

Nothing in this paper is to be considered as legal advice in respect of any particular circumstance. Readers are encouraged to contact Mark Doble on 02 9265 3045 or This email address is being protected from spambots. You need JavaScript enabled to view it. for further information or for specific advice

 

 

POST CONTRACT MANAGEMENT:
WE HAVE THE CONTRACT, NOW WHAT?

 Gregory Ross 1

Abstract: Winning a contract, whether by direct negotiation, acceptance of a tender lodged, success in an expression of interest process followed by negotiation or otherwise is only the first step.

Ensuring that the contract works operationally on the ground to achieve its intended purpose is commonly overlooked when so much adrenalin has been invested in “winning” the contract. The paper addresses a range of issues which arise in ongoing management of contracts, particularly those involving Government.

For contracts involving the public sector, the main focus of this paper, one must also recognise that the management of contracts is commonly undertaken by constantly changing staff who are subject to review by oversight agencies as well as media scrutiny. Contracts involving the simple sales of simple goods or delivery

 


1 Gregory Ross is a partner in Law Firm Eakin McCaffery Cox, Sydney, NSW Australia. The author is an Accredited Specialist in Government and Administrative Law under the NSW Law Society Specialist Accreditation program and was the NSW Law Society's Head Assessor for that field in 2011-13. The
paper is based on the text of a presentation by him 26 September 2013 entitled POST CONTRACT MANAGEMENT: WE HAVE THE CONTRACT, NOW WHAT at the 13th National Public Sector Contracts and Procurement Management Summit Canberra Australia 2013 organised by Learning Network Solutions. Since 1988 the author has practised in the areas of Administrative Law, Government Contracting, Industry Facilitation and Probity matters, including legislative reform and procurement
projects to achieve the best value for money for clients. He has, for some time, provided Probity Advisory/Audit services to clients. He was, for a period, a member of the Organisation Review Committee of NSW’s Independent Commission Against Corruption. He and some of his clients work with lawyers in a variety of countries to implement many client projects, particularly to do with education services within Australia and beyond. He was involved in facilitating electronic commerce and proposals for Automation in Administrative Decision Making. He is a Member of the Australian Institute of Management (NSW), NSW Law Society, the Law Council of Australia, the Commonwealth Lawyers Association and the Commonwealth Association of Public Sector Lawyers and a Qualified Member of the Australian Association of Procurement & Contract Management. The text of the paper is not to be taken as legal or commercial advice as to any particular circumstances, but a discussion of general issues relevant to ongoing contract management so far as concerns Government contracts in Australia.

2 Such as Audit Authorities, Anti Corruption agencies, Ombudsmen and the like.


of simple services aside, the management of any ongoing contract is not only necessary, but if not properly conducted, can lead to downfall.

This paper begins with an outline of the issues associated with the current issues and structures relevant to contract management. These include various publications and their content is not the subject of this paper. This paper, rather, it examines the issue of what is necessary for effective contract management being reclassification of contract management as recognising a relationship in flux, rather than a document set in stone.


The paper then turns to examine various instances, in some of where inappropriate contract management can and has frustrated the fulfilment of the contract’s purpose. This is further expanded upon in the context of defining the contract itself, dealing with intellectual property, dealing with confidential information, variations to the contract, performance of the contract, termination of the contract and dispute resolution.

How big an issue?

The complexity and size of the contract management issue is evidenced by the number of "hits3" for the various topics listed here:-

  • Contract Management
181,000

Contract Management Plan

102,000,000

Contract Management Software

82,600,000

Contract Management Courses

33,600,000

As I understand it, from various NSW Government Annual reports, in the year 2010/2011 the NSW Government spent an estimated $12.7 billion on goods and services. State Contracts Control Board4 organised contracts accounted for about
$3.8 billion of that expenditure in that year.

This paper can, accordingly, really only be seen as scratching the surface of a huge topic.

In my view, post-contract management is, without having to be elaborated upon, clearly more an art than a science. What is appropriate for managing one contract will not necessarily be appropriate for another.

 


3 Google search conducted 30 August 2013
4 A  central  contracting  authority  in  New  South  Wales,  Australia,  since  replaced  by  the  NSW
Procurement Board which is now is responsible for oversight of the NSW Government’s procurement system. It is a policy and directive body which aims to ensure compliance. It issues directions to agencies, makes decisions and monitors the progress of agency compliance. It also accredits agencies to undertake their own procurement of goods and services
  
However,  that  does  not  mean  management  of  contract  cannot  be  done methodically, systematically and often with the benefit of technology.


Topics relevant to management of a contract which I deal with in this paper include:-

• Compliance by the Parties

• Dealing with Intellectual Property and Deliverables

• Confidential & Private Information

• Variations

• Performance

• Termination

• Dispute Resolution
 

Systems aiding post-contract management

Conceptually all contracts, whether written, oral or partly written and partly oral, involve management steps to do with--

• planning and creation of contract;
• identification and provision for risk issues;
• preparation of documentation;
• contract approval;
• performance monitoring
• dealing with changes; and
• expiration (whether by effluxion of time, termination or otherwise)

It is, of course, a risk management and commercial decision determining upon the extent and degree of management of any particular contract but the aim of any implementation of contract management systems, whether paper based or electronic, is to make monitoring the process easier and more effective. That includes all aspects of performance, tracking milestones and obligations, supervising renewals, terminations and expirations.

Not insignificant is the tracking of cash flows and other relevant financial information.

Any post-contract management system, either manual or electronic, allows organisations of all sizes to manage contracts and the contract cycle. These systems can provide benefits and can be instrumental in underpinning the key business process of contract management.

However, in order to be effective whatever the system used, it must be keyed or tailored to the particular contract and additionally, to the staff of the entity managing the contract

Both at Commonwealth and at State levels there are various policy documents and publications with respect of contract management.

Private sector organisations, particularly large organisations, have their own versions.

This paper deals not with these publications but by reference to the practical day to day issues I have seen and continue to see in contract management operations.

Some are successful. Some are not.
 

Post-contract management systems and government agency staff

Government procurement has and always has been a slightly specialised field. It has its own problems. Ongoing contract management is one of them. Those contract management issues include, not simply checking on performance and paying on invoice, but dealing with the scrutiny to which public sector staff involved in contract management are subject.

The responsibility for contract management for government agencies puts its staff involved in that contract management more in the line of scrutiny for probity type reasons. This, of course, requires the agencies to ensure that their staffs are properly trained in both what they are doing and why they are doing it. Unfortunately and too often, in my observations, agency staff are not adequately trained in contract management and the reasoning behind steps in contract management.

Having advised NSW ICAC and been a member of its internal review board for some period, it is apparent to me that many of the allegations of wrongdoing made in respect of misfeasance or malfeasance in management of government contracts flow from staff not having been properly trained or the agency not having apt contract management resources.

From my experience, the people involved in negotiating public sector procurement contracts, especially in the Public Sector, are likely to move on and are likely to be different from those involved in the ongoing management of the contract.

Accordingly, the contract has to stand or fall on its words with new people involved later on having to manage the contract, so highlighting the need for the actual ongoing management of the contract to be done properly. They need to know what was anticipated, what is the deliverable and how do they manage it best.

Public sector staff are not only subject of oversight agencies but also, in many instances, political and media scrutiny as to all stages of the procurement and contract management cycle.

Increasingly frequently employers engage staff on a part-time basis and, not infrequently, on a job sharing basis. This can have adverse consequences on consistent and ongoing performance, particularly in context of contract management, unless carefully handled. The employees who have fewer difficulties with ongoing management where they use part-time staff make use of appropriate checklists, whether manual or electronic, against which performance can be measured by whoever is on deck at a particular time.

However, whether the staff administering a contract are full-time, part-time or job share, there needs to be an appropriate checklist of performance criteria and timelines, payment, performance, satisfaction of milestones and the like relating to the deliverables under a contract. The checklist, in its most current form, must be relevantly available to all relevant staff likely to be involved in management.
 


Contract as an Ongoing Relationship

Many years ago, the firm of which I was then a partner sent me to Hong Kong as “Our Man in Hong Kong”. One of the many things I learnt whilst there was that the Chinese attitude to contract was very different to that to which we of a “common law” tradition held. Whereas common lawyers saw contracts as all but fixed in stone, the Chinese perspective was much more of a fluid and ongoing relationship.

With practical developments in Australia, we have come to recognise much more the importance of proper and ongoing “hands on” contract management.

Various Australian Government and State Government publications on procurement and contract management are now cast in terms which make express reference to the need to maintain open communication and have a relationship sufficiently fluid enough to deal with various exigencies which will arise from time to time. Relevant Commonwealth and State government procurement guidelines manuals and like all have their place. They are an important tool but albeit sometimes dull reading.

There is obviously no one cut suits all answer to contract management, however changing the way we frame post-contract management allows for a more dynamic and robust period contract negotiation, bedding down, transition in, transitioning and or negotiation out.

 

Van Halen5 and The Brown M&Ms

The music group Van Halen had been touring for some time and at some venues had experienced real problems with the setting up and even safety at some of the performance venues.

Band member, David Lee Roth, had a bright idea to improve safety. The band started inserting deep in the "rider" to their performance contracts words prohibiting brown M&Ms from backstage. There was also provision that the consequence, if one was found, was that the promoter forfeited its fee. Obviously David Lee Roth and the band were of the school of thought that the hip pocket nerve is the most sensitive and therefore a good one to use to encourage proper performance

The brown M&Ms were not simply one rather crazy and sometimes excessive requirements commonly found in rock group contract riders but it was a contract performance tool. If the band found brown M&Ms, the band concluded that the promoter had not read the contract and they would probably fail a safety check. From what I've read, David Lee Roth, upon finding brown M&Ms backstage, would put on a real performance.

Promoters quickly learned that if you are dealing with Van Halen, you read contract in detail and comply with it.

In preparing for this seminar, I decided to test the concept, though in a much more prosaic contract context – having my car cleaned.

Rather than take all the usual stuff out of the car before delivering it to the car wash, I left one or two pieces of material under the driver's seat, just check whether they actually cleaned under the seats.

I thought I would see whether they were still there when I collected the car.

Rather pleasingly, the material had been removed from under the car seat and stacked neatly in the boot/trunk of the car.


 


5 An American hard rock band.


  
Obviously that is not a major exercise in contract management but it does give a simple illustration of how doing something simple can be an effective tool in contract management.


When Does Contract Management Commence?

Notwithstanding the title of this paper, the key point to changing the framework of contract management centres on the period of which the contract commences. That is, the contract commences not when it has been secured or executed, but when it is being arranged.

The first question I commonly ask when instructed to prepare a new set of contract documents or a request for tender/proposal is along the lines of "What problems have occurred under the old contract?” This is the first step to management of any contract.
 

Clarity: The Who, What, When, Why & How of Contracts


In the actual contract and its management, the main and initial issues are to identify clearly who is to do what, for whom, when, why, to what standards and for how much. Doing so is essential for positive contract management in post contract award procedures and key for the consequences that flow from any issues that may arise. Contract outputs or deliverables should be, so far as is possible, crystal clear and certain. It is that very certainty of output which can make contract management easier.

In both the pre-contract and contract management process ensuring transparency of process and resilience of process ensures fairness to would-be suppliers as well as government. The clarity that is necessary is key to reshaping the thinking of contract management; it is imperative that the relationship is defined in no uncertain terms.

Topics relevant to management of a contract include:-

• Compliance by the Parties

• Dealing with Intellectual Property and Deliverables

• Confidential & Private Information

• Variations

• Performance

• Termination

• Dispute Resolution


  
Necessarily, the length of the term of the contract and the complexity of the contract contribute both to the quantum and difficulties likely to be involved in managing a particular contract.

I have, over the years, been involved in a couple of hospital contracts. Whilst the actual construction of hospitals raises interesting practical management issues, what I want to talk about is the ongoing management of long-term service provision contracts relating to the provision of medical care, particularly in public hospital context.

One such complex contract, with which I was involved, was to do with a private sector organisation building and operating a hospital facility. Part of the patient cohort was to be "public patients" who would be treated at the private facility by the operator under a contract with a State Government Health Authority.

With an envisaged 30 to 40 year term, the obvious issue which arose was how to deal with changes in medical best practice relevant to treating of various diseases. The relatively easy part, given the frequency and speed with which medical treatments develop, was to provide that if, for “public patients”, the relevant treatment did not have a corresponding Commonwealth Government "item number"; it would not be relevantly chargeable.

Decisions, over 30 to 40 years, to do with patient treatment, patient protocols and the thousand and one other issues to be dealt with in operating a major hospital necessarily are subject to immense change.

The contract arrangement necessarily had to provide for regular review and approval processes relating to treatment methodologies and other contingencies that arose. The contract envisaged the creation of a committee which would meet regularly to review relevant developments and implement or approve and document relevant changes in diagnosis and treatment. This was effective to ensure transparency and resolution; an example of effective contract management that also ensured the staff dealing with the contract had ample recourse for review of the contract and a current mode of checking contractual issues.

 

Intellectual Property and Contracts Management

The tracking and management of Intellectual Property issues is of particular concern in contract management. Too often, things go awry in respect of Intellectual Property because it wasn’t managed adequately in context of a relevant contract.

Some years ago I advised in respect of a situation in which a major organisation negotiated a funding agreement with one of my clients for carrying out certain research. The client was short staffed and had engaged a subcontractor to assist in responding to the request for tender, negotiations and later performance of work under the contract. Accordingly both the client and the subcontractor were totally aware of the provisions of the head agreement which, as is not uncommon, had provisions in the document under which intellectual property in the research report to be prepared was to vest in the party calling the tender.

Our client was aware of this. The subcontractor was aware of this.

The subcontractor’s role was not all that major and it had fallen to a relatively junior officer of our client to prepare the sub contractor agreement. For reasons that I didn’t understand at the time and still don’t understand, the client had the sub contractor working on the project before the contractor had been formally engaged, literally to negotiate it. Needless to say, the subcontractor, who at all material times knew of the requirement that intellectual property in the project report was to vest in the party calling the tender, decided to play games and did not bother to raise with our client the fact that the form of sub contract used made no reference to transferring intellectual property to our client, let alone the party calling the tender.

A significant fight ensued.

By failing to engage the subcontractor on terms consistent with its obligations under the head contract, the client ended up, not only having to pay the subcontractor for services actually rendered but also having to pay an amount for an assignment of the copyright in text prepared by the sub contractor.

Although the amount wasn’t particularly large, the essence of this scenario highlights that a subcontractor must ensure that the back-to-back contracts work in respect of intellectual property. If the client used a staff member, the issue would not have arisen because the relevant Australian Copyright legislation would have vested copyright in the client6.

 


6 Copyright Act 1968 (Commonwealth of Australia) Section 35(6) “Where a literary, dramatic or artistic work to which neither of the last two preceding subsections applies, or a musical work, is made by the author in pursuance of the terms of his or her employment by another person under a contract of service or apprenticeship, that other person is the owner of any copyright subsisting in the work by virtue of this Part.” However, the terms of the contract of employment and the nature of the exact relationship as to what is ‘in the course of his or her employment” will need close analysis, Edsonic v Cassidy [2010] FCA 1008.and SRC IP Holdings Pty Ltd v The Australian Council for Educational Research Limited [2012] FCA 779). The Copyright Act also has provisions (see section 176 Copyright Act 1968) where work is done “under the direction or control “of a government agency.


Checklists for IP in contract management  
It is recommended that a register of Intellectual Property is maintained during the term of the contract. It can list both background intellectual property brought to the contract and the intellectual property created pursuant to the contract.

The following points regarding Intellectual Property should be reflected in a checklist relevant to management of any particular contract:-

• What is it?

• What is it made from?

• Who owns background IP

• Who owns IP of the contract?

• If co-owned, what about commercialisation and royalty issues?

• Moral Rights, Patents and Registered Designs

• Tracking It – a register?

• Offshore Issues

Copyright and IP is a topic in itself, so my comments on its management in this paper are necessarily very general, a mere general outline

Where, for instance, the Federal funds a State Agency which then causes work to be done through its staff or subcontractors who may include other State Governments, companies, and individuals all of whom may be contributing their own pre existing IP and or contribution to the IP in whatever is being produced, care needs to be taken to ensure Intellectual Property issues are aptly dealt with.

Care is needed in identification at the start of the negotiation process to ensure transparency and reliability of the final contractual outcome. Government agencies too often in my view seem to want to own everything, so there is a need to be careful to try and avoid giving away the party’s intellectual property in contracts unnecessarily. If the Government agency has to be able to use something, it is often better to grant a licence, rather than give away ownership.
 

Moral Rights

Difficulties inherent in managing arrangements for appropriate consents in respect of moral rights must be expected, can raise unusual ‘”industrial” issue and must be clearly thought through where contractors and or subcontractors and or their staff are used.
  
Moral rights comprise three types of moral rights. Moral rights conferred in Australia under Part IX of the Copyright Act, effective from 21 December 2000. They apply to copyright works only.

Moral rights are independent, personal rights, not, in my view, strictly IP rights despite being provided for in the Copyright Act, and are designed at maintaining integrity of works. They have origins in European law but long movie credits are sometimes seen as the simplest example.

“Right of integrity” essentially means author’s right not to have his or her work subjected to “derogatory treatment”, meaning treatment that is prejudicial to the author’s reputation or honour, for instance, a material distortion of a work. What is prejudicial is difficult to define because of the inherently subjective nature and there is little guidance in the Copyright Act on the point. Moreover, the changes are so recent that there is little or no case law to guide us and one can only look at overseas experiences.

One issue to be taken into account is what is “reasonable” for the terms of the consent in the situation, which takes into account the nature of the work, the purpose for and manner in which it is used, industry practice, whether the work was created in the course of employment or another type of contract, nature of any consent, whether it was paid for and so on.

Moral rights always remain with the original author or creator, not the employer (unlike most copyright). They cannot be waived or assigned. They expire with their owner. However, consents can and should be obtained.  These should always be in writing and set out the specific nature and scope of the consent.

Where texts or policies are being written, the consent will have to envisage updates changes and or replacement.

Often the “Work” is specified in a schedule or annexure.

That is fine but where you have more than one party owning the product issues can arise as to who can do what with it.
 

Confidential Information

Intellectual property laws do not protect “ideas” of themselves but there can be confidentiality provisions which go some way to protecting ideas. However the law’s mechanism to do with protecting ideas as an example of confidential information is primarily contractual.

What is "confidential" in a given situation depends not only on the terms of the relevant contract but also privacy legislation, whether State or Federal.
  
Successful management of confidential information issues in often involves a process of tagging relevant material to highlight its status. Ideally, a party will require all people relevantly involved in a contract involving confidential information sign a confidentiality agreement to keep information confidential. With the increase in outsourcing by both state and federal agencies the frequency with which the need to manage contracts involving use of private or confidential information has significantly increased. Tracking and management of confidential and/or private information in ongoing contracts is all-important. Freedom of Information and or Government Information Provision Act laws can, of course, have an effect upon when and how some information might be disclosed,

Variations

Changes of contract scope and the like, have implications on price as well is what is to be delivered. Any change to arrangements should be appropriately thought through, and diligently documented, preferably pursuant to an express provision in the base contract.

An aspect of changes which I have increasingly seen is the propensity of changes of name to occur without explanation, which invariably reduces the integral component of transparency in effective contract management. Where circumstances confronted by an ongoing contract change, the parties need to manage change. Sometimes that change involves formal or informal variation of the contract.

By way of example, often upon some sale of business or restructure of a corporate group, the name on the invoice is altered. Too often have I seen that explained as being to do with a change of ownership of or sale of a business? Contracts are not simply assets which can be bought and sold like chattels.

Whilst properly documented change in name of an entity is neither here nor there, the problem is that, and especially in context of contracts where one party is public sector entity, often businesses are sold and those involved in the transaction failed to appreciate [or do they just ignore the fact?] Contracts are not simply widgets transferable by delivery or the like.

In a Government contract context, this can lead to a new contractor totally unacceptable to government being in a position to influence the provision of goods and services to Government.

If an organisation uses checklists, for contract management, one of the items on the checklist should be to query any change of name which might suggest that the new contractor may have taken an assignment of the contract without legal niceties being satisfied. Names will need to be checked each time an invoice is received.
  
All too frequently, where there is a dispute, there are changes in the name of the contract party.

Too often when businesses are sold, those involved in the transaction failed to appreciate [or do they just ignore the fact?] that Contracts are not simply widgets transferable by delivery or the like.

Deeds, historically, should only be varied by Deeds, though Deeds should only be needed rarely.

Exchange of letters can be as good as formal contract, they too can deal with default termination.

Whilst some people suggest that “variations” should become “schedules” attached to the base contract, my view is that schedules can only exist at the time any contract was entered into. Accordingly, I tend to avoid describing variations as “schedules” but there is nothing to stop an agreed variation being stored with the base contract.

In negotiating any such change or variation, particularly in the public sector, there is a real need to have available and preferably involved in the negotiations the staff member whose delegation is appropriate for approving or disapproving of the proposed variation.

Unfortunately a seemingly simple contract variation arrangement can fall apart because the agency representative negotiating the change did not have delegation, either as to power or financially, to sign off on the variation and the relevant delegate was not available within the timeframe required for compromising the contract in question by the envisaged variation.
 

Checklists and dealing with variations

If a contract involves or envisages changes, whether a change of law or change of circumstances, the best contracts will have a mechanism for dealing with those changes built into it. The parties should agree upon a process to manage the change, rather than launch straight into sometimes acrimonious change negotiations. Needless to say, proper documentation of variation negotiations, including the date of commencement of the contract variations is crucial in the proper, management of a contract which has gone off the rails.

These checklists must be utilised, but can only be utilised properly where it is established that the parties know what is wanted not only before a contract is prepared but also in any management negotiations and for some “fallback” position acceptable  to  the  agency  to  be  known  before  it  embarks  on  any  variation negotiation. On tactics, it can only be suggested contract negotiators have fall back options.
 

Performance

The clearer and more objective the performance criteria and deliverables are the less room there is for dispute.

Commonly contract outputs or deliverables / defined as the “work” should be set in a schedule or annexed. As standards change, there is a need for a mechanism for agreeing and adopting changes.

Wherever there is an inadequacy in performance, it should be advised to the contractor at the earliest possible date, preferably before any invoice relevant to that work is paid. If and when it is necessary to rely on a default clause, perhaps with a view to terminating, it is going to be much easier if there is a clear paper chain drawing the inadequacies to the attention of the service provider at the earliest possible date.

All too frequently, when I go through a client file where there is a dispute, I find that there are changes in the name of the contract party.

Whilst properly documented change in name of an entity is neither here nor there, the problem is that, and especially in context of contracts where one party is public sector entity, often businesses are sold and those involved in the transaction failed to appreciate [or do they just ignore the fact?] Contracts are not simply widgets transferable by delivery or the like.

There is a need for some formality in the management of an assignment of the contract. Public sector agency staff must comply with finance legislation as the authorisation of invoices. In that context change of name of an invoice should be a red flag.

Sometimes managing a non-performance issue involves thinking outside the square. Sometime ago I was involved in resolving something of an impasse which have arisen between a major overseas technology contractor in three government entities with which it was engaged under one contract.

The three government agencies all had their own list of wants and reasons they thought the contractor was in breach of the contract and also, to a lesser extent, why the needs and wants of some of the other agencies involved were getting in the way of what had to be done.

I sat and listened to the more for a while and that she had to point out to them that being three agencies of the same government it was probably better to recognise that we were on the same side and not air their own dirty linen in front of the contractor. That helped because they then started focusing on the practicalities what was going on with the contractor.

It fairly quickly became apparent to me, having spent time living and working in Asia, that a goodly part of the problem with the management of the contract was a personality clash between the contractor's head representative in Australia and the lead manager on behalf of the three agencies in the curing the personality clash might help the contract.

I recommended a letter, from upon high in government, to the managing director of the contractor in its own country expressing concern as to this unfortunate personality clash.

Surprise, surprise! The contractor’s management was similarly concerned about the contract going around and around in circles and quickly took the chance to have its organisation fronted in Australia by different individual.

The contract fell into place quite quickly.

It is emphasised that the contract terms and making allegations of breach of contract is not always the best way of managing the contract, especially where the underlying issue must involve a degree of mutual commitment by not just the contracting entities but also by the staff of each involved in the project.

Termination

Termination is rarely the most preferred contract management option. Termination and or threats of termination should be something of a last resort. Probity is relevant not simply to the decision as to choosing whom a Government will contract with, but is particularly relevant to the ongoing liaison/monitoring under a contract, especially if there is ever a need to rely on variation or termination provisions.

All the following points on Termination should be reflected in a checklist relevant to management of any particular contract:-

• Probity in termination

• Timetable for delivery

• Tie to objective criteria

• Consequences of poor performance

• Satisfaction of performance criteria

• Link to default clause

• Monitoring & report mechanism

A question often arises about what to do about payment in context of early termination. It is common, especially in Government contracts where there are often provisions allowing early termination, for the clauses to go on to provide for part payment for work done and accepted prior to the termination.

From my time working with the New South Wales Independent Commission Against Corruption, I must emphasise the need for clear documentation in respect of managing bad performance and termination. Termination without cause clauses are relatively common in government, especially where projects are depending upon the existence of particular government policy or a particular funding arrangement which may not persist long-term.

In context of contracts with an entity where there is need to comply with specific standards, consider attaching standards as a schedule which marks or denotes the responsibilities of either party for their respective obligations and provide for updates and changes.
 

Dispute resolution

The cost of dispute is not to be ignored and parties should try to minimise it in managing issues and disputes which arise under contracts. I offer the following as my recommendation as to Alternative Dispute Resolution (ADR):

• Discussion between parties & Elevation in Hierarchy

• Conciliation

• Mediation

• Arbitration (where appropriate7)

• Court

So far as dispute resolution is concerned, where parties are dealing with another government agency, try to avoid the cost of more common commercial dispute resolution clauses. It is almost always preferable to have an initial negotiation between the parties with a view to resolving disputes rather than revert initially to external service providers.

Where another Government agency is involved, try referring disputes, after an attempt at resolution by discussions between officers of the agencies, for resolution


 


7 In the author’s experience arbitration can be just as costly as resort to a court.

  
in accordance with relevant Governmental directions for resolution of disputes between government agencies.

Where dealing with a commercial entity, try to have an ADR provision which seeks remedy in discussions first, before resort to formal and sometimes expensive ADR. However, there are some situations where resort to a Court is an imperative.

In that respect, I refer to the 2011/2012 Taxi Council challenge to a NSW Department of Education and Training (as it then was) Request for Tender8 for transport services for children with mobility issues. The Taxi Council asserted, in effect,  that  transportation  of  the  children  fell  within  the  definition  of  “public
transport”, with the consequence that only bus companies and taxis could do the work. Discussion failed to resolve the issue, so Court proceedings were commenced. The Department of Education opposed the assertion and its view was upheld by the Court, but the time taken to finalise the proceedings involved delay which was disadvantageous to the Department.
 




Some General Comments

Contracts can take many and varied guises. Oral contracts can be entered into but, especially in the public sector procurement context, oral contracts and their management raise much more significantly difficult issues as to proof of what is or is not agreed and what the terms of the contract are. They are much more difficult to manage, primarily because there is little or no evidence of the actual terms of the contract. But any contract may be as simple as a written offer letter and a signed acceptance or even acceptance by conduct.

The clearer and more objective are contract requirements, the less room for dispute there is.

Contracts are not simply about “widgets”. There is no such thing as a standard form contract appropriate for all circumstances. Similarly, there is no universal standard contract management template. Careful preparation, storage, use and updating of precedents for appropriate situations is paramount both for formation of contract and for management of contracts.

Increasingly, the best way to deal with who owns what is to be specific about it. If there is any doubt, have a schedule.  So far as public sector agencies are

 

8 TEAMCARD PTY LTD v STATE OF NSW [2011] NSWSC 1008
 

concerned, related contract management issues include how things are described, internal delegations and authorisations and changes of authorised officers.

If contractor is to be able to use the deliverable produced under the contract, what license terms and conditions will the agency impose and document? Where the contract involves reports, texts and course related papers which will have to be updated or changed from time to time, it is all the more important to address moral rights consents initially to minimise problems with ‘moral rights”. IP rights and their sharing, if appropriate, need to be set out clearly. Jointly owned and used rights create their own issues and problems, not the least of which where are an agency co-owns product with a contractor and the contractor is allowed to use it, what liability might the agency suffer which has to be protected against?

Difficulties inherent in managing arrangements for appropriate consents in respect of moral rights must be expected. They can raise unusual ‘”industrial” issue and must be clearly thought through where contractors and or subcontractors are used.

For Public Sector bodies, the prohibition on assignment is very important. Key person involvement can drag a contract over the line to being an employment contract, so be careful about doing that without good cause.

Just as tailoring of contract templates is the key to efficient contract writing for public sector agencies, so tailoring of appropriate management templates is the key to proper, efficient and economical ongoing management. It is very important to work from last approved precedent or template, not from something used a while ago, which may have had something important deleted from or varied in it.

Confidential information is, increasingly lending itself to being listed in a schedule where capable of identification at the time of entry into a contract. Where identified after entry into a contract, it can be labelled.

As agencies develop standard agreements and refine their management of contracts, I don’t see why they should not go into contract negotiations making the contractor aware of their base performance checklist against which performance will be measured. Indeed, in some cases, it would seem the best option.

It is more than surprising how commonly arrangements for payment are inadequately provided for. Wherever possible, my recommendation is to tie the obligation to pay to some objective event or milestone, and / or to satisfying specified measurable contractual output requirement. Try to avoid contracts which involve commitment to pay by reference to a rate but have no real parameters as to what the price will be and no mechanism for terminating the relationship and payment obligation. Annexing or extracting from a quote can help to tie to a fee. Expenses and on costs can be an unwanted expensive addition, if not properly provided for. Wherever possible, try to exclude them. Where they cannot be excluded, seek a provision under which they are to be managed by having to be approved before being incurred.

It is sometimes possible to limit the obligation to pay so the obligation does not arise unless and until the government purchaser is satisfied that the goods or services provided comply with requirements of the contract. If so, the relevant contract and checklist should make express reference to the time within which any acceptance rejection period has to be made and notified to the contractor to ensure compliance. This issue of provisioning, to ensure one’s ability to satisfy one’s resourcing obligations under a contract, may seem relatively self-explanatory. However, I am constantly puzzled by contracts involving work over a number of years which have no real tie to the availability of funds to enable the project to be carried out and paid for.

Commonly contract outputs or deliverables / defined as the “work” should be set in a schedule or annexed. As standards change, there is a need for a mechanism for agreeing and adopting changes. Wherever there is an inadequacy in performance, it should be advised to the contractor at the earliest possible date. If and when it is necessary to rely on a default clause, perhaps with a view to terminating, it is going to be much easier if there is a clear paper chain drawing the inadequacies to the attention of the service provider at the earliest possible date.

It is, of course, a commercial / risk management decision, as to what “standard” items can be included or excluded from or varied in a particular contract checklist.

In consortium arrangements, it is particularly important for the respective roles of all participants to be known and set out in the relevant agreement. It is possible to have separate schedules in the relevant contract checklist for each player which lists the respective obligations and performance criteria of each player.

There are many policies with which Government requires contractors to comply; Therefore, as a matter of ongoing management, contract checklist should include provisions for updating the contractor of any changes to relevant policies.


 


The Freedom of Information (FOI) / Government Information Provision Act (GIPA) legislation deal in some detail with Government obligations as to what is can and how it can release information about contracts. This paper is not the place for detailed discussion of FOI/GIPA obligations but they exist. As a matter of management of a contract affected by FOI/GIPA, I recommend close liaison with your agency FOI/GIPA team.

Over the years, I have to say I have been surprised in the FOI days how few dispute crossed my desk about ‘commercial in confidence”. It is still a bit early to say whether GIPA, with its change of policy to be more in favour of disclosure than was the case in an older FOI context, will change that.
 

Conclusion

Just as contracts, particularly those involving Government, should clearly set out the obligations to be undertaken by each party so that, as if and when something goes wrong, not only can Government assert its position but, from a political perspective, it is important for an agency’s Minister to be able to stand on the floor of Parliament and justify the contract, not just its concept and content but also its ongoing management..

Effective contract management is necessarily in the glare of publicity which descends upon Government in the event of an oversight authority or media perceived inadequacy in the formation, management and or termination of a contract.

Contract procedures, contract terms and conditions and contract management cannot proceed upon the basis of the old Australian saying “she’ll be right mate”.

Proper and tailored contract management processes, manual and computer based, and documents are the key tools to successful management of a contract but are of little value if not in the hands of adequate numbers of adequately trained staff.

26 September 2013

 

 

 

 

Gregory Ross | Partner
Eakin McCaffery Cox

Level 28,1 Market Street
Sydney  NSW  2000
PO Box Q1196 QVB  NSW  1230;
DX 1069  Sydney

 

 

 

 

 

Can an adviser to a company be a shadow director?

 

Christina Cavallaro, Associate

Mark Doble, Partner

 

27 August 2013

 

Overview

Is there a risk that an adviser to a company may be deemed to be a shadow director?

This paper examines the circumstances in which a person may be found to be a shadow director and provides some practical tips on how advisers can avoid being shadow directors.

In particular, this paper will address the following:

  • What is a shadow director?
  • What activity constitutes being a shadow director?
  • Determining factors established in the leading case, Buzzle Operations v Apple
  • How to avoid being a shadow director
  • Consequences
  • Professional indemnity insurance

 

What is a shadow director?

  • The definition of a director under section 9 the Corporations Act 2001 is quite broad.
  • The test for being a director is not based on your designation but is related to the function you perform.
  • This means a director can include a person:
    • appointed as a director;
    • appointed as an alternate director;
    • who acts in the position of a director (even though not formally appointed); and/or
    • on whose instructions or wishes the directors of a company or body are accustomed to act.
  • A person who falls within the third category is generally considered to be a de facto director.
  • A person who falls within the last category is generally considered to be a shadow director.
  • It is possible for a person to fall within both categories if they have never been formally appointed as a director but still exercise power and influence over the company.
  • The recent case of Grimaldi v Chameleon Mining NL (No. 2) [2012] has held that only an individual (and not a corporation) can be a director of a company.

 

What activity constitutes being a shadow director?

  • The current leading case on shadow directors is Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109. In this case, the New South Wales Court of Appeal determined the factors that would make a person a shadow director.

 

Background on Buzzle v Apple

  • Six resellers of Apple products decided to merge and form a new company called Buzzle Operations.
  • Each of the resellers bought stock on credit from Apple Computer Australia Pty Ltd (‘Apple’).
  • As part of the merger, the Apple resellers needed to transfer their stock to Buzzle.
  • Apple had a charge over the stock to be transferred which meant that Apple needed to consent to the transfer.
  • Apple agreed to the transfer. Buzzle entered into a new reseller agreement with Apple and Apple took a charge over Buzzle’s assets.
  • Apple and in particular, one of its finance directors, assisted Buzzle in the merger.

 

The activities of Apple and its finance director included:

  • Participating in meetings on the merger
  • Making suggestions about the merger and its structure
  • Requesting financial information about the merger
  • Questioning the Apple resellers' ability to pay the debt owed to Apple
  • Raising concerns about Buzzle's financial position, management capabilities and accounting system
  • Negotiating the new reseller agreement and security to be provided to Apple by the Apple resellers and Buzzle.

 

Instructions given by Apple to Buzzle

The board of Buzzle were accustomed to following Apple’s instructions, including in relation to:

  • The merger of the six reseller companies into Buzzle
  • Buzzle's product range
  • The appointment of accountants to conduct due diligence on the Apple resellers
  • Buzzle’s level of indebtedness
  • The preparation of Buzzle’s financial reports
  • How Buzzle should apply its future cash-flows
  • The security to be given by Buzzle to Apple
  • Payment of money to Apple in relation to the Apple resellers' debts
  • Collection of Buzzle's receivables
  • Buzzle's post-merger business operations and functions.

 

Claim by liquidator against Apple and finance director

  • Buzzle became insolvent but continued to trade.
  • Shortly after, Apple appointed receivers to Buzzle under its charge.
  • Buzzle ultimately went into liquidation.
  • Buzzle’s liquidator sought to claim $57 million against Apple and its finance director.
  • The liquidator argued that since Buzzle complied with instructions from Apple and its finance director, then Apple and the finance director were shadow directors and should be liable for insolvent trading.

 

Factors to determine whether a person is a shadow director

  • The Court ultimately found that Apple and the finance director were not shadow directors of Buzzle and set out the following factors for determining whether a person is a shadow director:

 

  • There needs to be a causal connection between the alleged shadow director giving instructions and the company acting on it.
  • The person needs to have directed the company to act in accordance with their instructions or wishes over a period of time, and the company needs to be accustomed to following these directions for the person to be a shadow director. To show that the board was “accustomed to acting” there would need to be a pattern of behaviour and habitual compliance over a period of time.
  • The alleged shadow director does not need to exercise influence over the whole board. Influence over the governing majority is sufficient.
  • A person will not be a shadow director where the person is giving advice in their professional capacity or the personhas a professional business relationship with the company, even if the directors usually act on that advice.
  • Such advice must be given to directors in their capacity as directors rather than in a managerial capacity. For example, giving instructions to executives rather than directors would not make you a shadow director.

 

  • After reviewing previous cases, the Court also set out the following five principles in relation to shadow directors:

 

  1. Not every person whose advice and instructions are followed by a board will be a shadow director.
  2. If the person has a genuine interest in giving advice to the board (such as a bank or mortgagee) then the mere fact that the board takes that advice to protect itself from the mortgagee’s “wrath” does not make the mortgagee a shadow director.
  3. A shadow director does not need to have control over every facet of the company, nor does it matter that the company disregards the shadow director’s advice from time to time.
  4. Even if a person is in a position of control over the company, it needs to be shown that the person actually exercised their control over the company to be found a shadow director.
  5. Where the board splits into a majority and minority faction, the person may be a shadow director if the influence controls the real decision makers.

 

 

Who is making the board's decisions?

 

  • The following distinction needs to made:

 

  • If the board is acting on advice because the board has considered the advice and made its own decision that acting on the advice is in the best interests of the company, then the person will not be deemed a shadow director.
  • If the board is acting on the advice without first evaluating it because it has simply deferred decision making to that person or it considers the advice given as a sufficient reason to act, then the person may be deemed a shadow director.
  • For example, Buzzle claimed that it did not have any choice but to follow Apple’s instructions. However, this was not because Buzzle had deferred its decision making to Apple. Rather, it is because Buzzle knew that the merger could not occur if it did not follow Apple’s instructions.

 

The Court’s Decision

  • After applying the above principles, the Court found that even though Apple was accustomed to having Buzzle comply with its instructions, neither Apple nor the finance director were found to be shadow directors. Even though Apple and the finance director exercised power as creditors of Buzzle and applied pressure to Buzzle's board, Buzzle could still exercise its own judgment and could decide whether to comply with Apple's instructions.

 

Could an adviser be a shadow director?

  • The question of whether a person is a shadow director will depend on the particular facts of the case.
  • Intention is irrelevant. You do not need to have the intention to act as a director to be considered a shadow director. Nor does the company need to intend for you to act as a director for you to be considered a shadow director.
  • As an adviser, you will not be a shadow director so long as the advice you give to the company or directors is in the proper performance of your functions attaching to your professional capacity, or your business relationship with the directors or the company.
  • You will not be a shadow director simply because the company or directors follow your advice.
  • However, there is a risk that you could be a shadow director if you act outside the scope of your professional or business relationship with the directors or the company.

 

How to avoid being a shadow director for a company

  • To avoid being a shadow director for a company, ensure that you:

 

  • Give advice rather than directions or instructions to the company.
  • Confine your role to the professional capacity in which you have been retained.
  • Provide advice that is within the scope of your professional or business relationship with the directors or the company.

 

  • If you are still concerned that you could be a shadow director, it would also be prudent to ensure, as far as practicable, that:

 

  • You clearly communicate and record in writing the basis upon which you are to be involved in the company's decision-making process and the advice and assistance to be provided by you to the company.
  • Communications between you and the company are recorded in writing to prove how the board has made decisions in the event that allegations of being a shadow director arise.
  • The company has an independent board of directors to ensure that board are left to make their own decisions in relation to the advice you have given.
  • The directors of the company seek independent advice (such as legal and accounting advice) in circumstances where you and the company have conflicting interests.

 

Consequences of being a shadow director

  • Once a company goes into liquidation, the liquidator will usually look to commence proceedings against some or all of the former directors of the company based on a breach of their duties.
  • In identifying the directors, the liquidator will not just look at the validly appointed directors as potential defendants but will also look at those people who were involved in the management of the company as shadow directors.
  • If a person was found to be a shadow director, they would have all the same legal obligations, duties and liabilities as any other director of a company.
  • This means a shadow director has the same obligations as a director validly appointed, such as to act in good faith in the best interests of the company and with reasonable care and diligence.
  • It also means that a shadow director can be found liable for breaching director's duties, such as insolvent trading or unreasonable director related transactions.

 

Will your Professional Indemnity Insurance cover you if you are found to be a shadow director?

  • This will largely depend on your professional indemnity ('PI') insurance policy.
  • Generally a PI insurance policy protects professionals against legal liability for claims which arise from the advice or services provided to clients.
  • A policy in the name of a corporation will extend to its directors and employees.
  • You would need to look at the activities that are covered by the policy, whether any exclusions apply to those activities under the policy and the types of claims that are covered.
  • PI policies cover civil liability claims which arise from an insured's conduct of their professional business or the provision of professional services. The four branches of civil law are tort law (such as negligence), contract law, statutory law and equity.
  • While the PI policy will generally cover all four branches, the policy will only respond to civil liability claims that arise from the provision of professional services by the insured as stated in the policy schedule.
  • This means that if you are acting outside the scope of the professional services you should be providing, then you may not be covered by the PI policy. However, this will depend on the terms of the policy.

 

 

Christina Cavallaro is an Associate in Eakin McCaffery Cox Lawyer's litigation department. She has experience in a broad range of commercial litigation and dispute resolution matters.


Mark Doble is Head of Eakin McCaffery Cox Lawyer's litigation department. He has extensive experience in corporate insolvency and bankruptcy.

 

Nothing in this paper is to be considered as legal advice in respect of any particular circumstance. Readers are encouraged to contact Christina Cavallaro on 02 9265 3092 or This email address is being protected from spambots. You need JavaScript enabled to view it. ';document.getElementById('cloakf907f24277fe593e2672ea4aed41c922').innerHTML += ''+addy_textf907f24277fe593e2672ea4aed41c922+'<\/a>'; or Mark Doble on 02 9265 3045 or This email address is being protected from spambots. You need JavaScript enabled to view it. for further information or for specific advice.


 

Eakin McCaffery Cox Lawyers is a medium sized law firm based in the Sydney CBD, offering
a wide range of legal services to business, individual and government clients. With more
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Procurement?

Keeping Procurement Under Control?

 

Plus ca change, plus c'est la meme chose.

 

When I was invited to write this paper, I remembered an incident to do with NSW Government procurement law which occurred soon after I was appointed Assistant Crown Solicitor for NSW in 1990.

I received a phone call from an officer of the State Contracts Control Board (SCCB). The caller started reading through what she said was a Crown Solicitor's office opinion.

As she read, I thought - this all sounds a bit familiar, but I could not re call writing it nor delegating it to be done by someone else at the Crown Solicitor's office.

Once the client officer had finished reading much of the opinion to me, I apologised for not recognising the opinion and commented consistently with the immediately preceding sentence.

She laughed.

"Oh no" she said.

She had been going through some records of the SCCB and found an opinion written by my predecessor in office in about 1932 which appealed to her sense of humour because the 1932 one raised a couple of issues to do with NSW Government procurement, which I had, since my appointment, still been raising as an unresolved issue in the 1990s.

Procurement in NSW

  • Implications of the new NSW Government Procurement arrangements
  • Some Problems in Practice
  • Terms of the contract - Appropriateness and Tailoring of templates
  • Risk Management: What can the lawyers do?

In context of NSW Government contracting, particularly the pre-contract process, the issues are, in my understanding of the law given my involvement in Government procurement 20 years and more, to ensure:-

• understandability and transparency of process;
• resilience of process;
• ensuring fairness to would-be suppliers as well as government; and
• purchase at a price fair to vendor and purchaser.

This paper is not the opportunity to deal in any significant detail with issues of the law and process of the law of the land to do with contract law, including "process contract" but I do outline some issues relevant to Government procurement contracting, particularly goods and services (as opposed to major infrastructure deals, which have their own issues,) flowing from the most recent changes to NSW Government Procurement processes.

Time constraints prevent any detailed examination of issues relating to infrastructure projects and or Information Technology Systems and services being considered today. They could easily each involve seminars of a whole day or more, but the underlying contract, process and probity issues remain much the same as those for the general contractual procurement of goods and services.

Time today only allows a consideration of the general principles.

In Australia, Government Contracting has and always has been a specialised field. It has its own issues.

Now, more than ever, those issues include the scrutiny to which public sector staff-involved in procurement are subject.

Government procurement and Government contracting ranges, of course, from buying everything from stationery for Government offices to procuring armed weapons, from public transport to water supplies

Procurement reform has been in progress for some years and many steps have been taken in the last couple of years.

One of the most significant developments having implications for Public Sector staff is the devolution of responsibility for procurement which puts agency staff involved in that procurement more in the line of scrutiny for probity type reasons.

Accordingly, we are confronting a new regimen in which staff in agencies, in the absence of the SCCB, are no longer protected from allegations of a probity type in context of basic Government procurement.

This of course requires the Government to ensure that its staff are properly trained in both what they are doing and why they are doing it.

From my observations, that training is often, too often, inadequate.

Since I initially became involved in Government contracting in the late 1980s, having advised NSW ICAC and been a member of its internal review committee, I can tell you that many of the allegations made in respect of misfeasance or malfeasance in Government procurement and contracting flow from staff not having been properly trained.

They might be trained in process, but, all too often, not in the reasons.

In short, my attitude to Government contracting is that the people involved in negotiating contracts, especially in the Public Sector, are likely to move on.

Therefore, there is a real need to have a clear paper trail before and after grant of contract as well as being clear up front. The contract, however formal or informal, has to address clearly WHAT, WHO, WHEN, WHERE AND WHY1 of procurement and contracting.

In my observations, operations under the new regime do not seem, to me, to place adequate emphasis on this.

Contracts and drafting, particularly in a Government procurement context, are a dynamic area of legal and commercial issues. It is also, in my experience, one in which contract templates and processes must be seen as an exercise in continuous improvement.

Indeed, in my view, the templates promulgated by the NSW Procurement Board might best be described as "works in progress", for a number of reasons, some of which I mention later in this presentation. Not the least of those reasons is that in mid May 2013 a new version of the standard standing offer contract was published by the NSW government,


 


1 Indeed, I not infrequently deliver a seminar paper so entitled.
 
 

which is totally consistent with the government policy which expressly states that documents will be reviewed from time to time.

The important thing, from a lawyer's perspective, is to ensure that the pre-contract processes and the post-contract award management as well as the words of the contract clearly specify;

  • Who Is To Do What
  • For Who, When
  • How
  • For What Price & How Is It To Be Paid For
  • Who Owns What

However, for the purposes of today's seminar, my concern is more with the refinement of processes flowing from the NSW State Government's most recent changes of policy in respect of procurement.

In any actual contract, the main and initial issue is and will remain to identify clearly who is to do what, for whom, when, why, to what standards and for how much.

As a contract drafting lawyer, I appreciate that I may be something of a pedant but I'm not sure the documentation used under the reformed procurement arrangements in New South Wales actually creates the degree of certainty most lawyers would wish in preparing a contract.

Whilst lawyers might like all contracts to be "bespoke", it is not and cannot be the reality in most government procurement arrangements.

The Past

In the dim, dark days of last century, when I first became significantly involved in Government procurement, the system involved:

1. the SCCS organising contracts for the "public service", from which agencies could buy from at will;
2. agency officers could do direct purchasing for goods and services under a relatively small threshold, some without quotes (for small value), some a number of quotes (some oral, some in writing) again dependent upon the value of the contract ;
3. where quotes were required for goods to another threshold the use of EOI or RFT for procurements of significant values unless there was an existing "period contract' relevant to particular goods or services which would be used by agencies2.

The threshold concept remains under the document reforms, with obvious changes to the monetary limits in question.

The terms and conditions used by SCCS for general goods and services, when I first started acting for it, involved about four pages of close print which came to about 27 clauses.

It was good for me because, after advising on them for a short while, I could practically recite them , which was great for giving advice over the telephone in response to queries which came in from time to time (by which I mean time and time and time again).

I well remember guidelines relating to value of goods or services thresholds which determined whether a full tender, a number of quotes or straight purchase could be adopted. The new procurement policies update those thresholds.

The system applicable in the early 1990s involved a handful of policies to be borne in mind. They included New South Wales regional policy development, a reference for Australian textiles and the like.


 


2 This paper does not deal with the other then option of using internal Government one-stop shop "Government Stores" which changed its name to
"Q Stores".
 

Back then, when there was a dispute with a supplier about some aspect of the goods or services provided, one could normally negotiate a settlement arrangement, if for no other reason that most suppliers were disinclined to cut off the hand that fed them by forcing Government to terminate their appointment to whatever panel contract was in issue.

In the 21st century, contractors are more litigiously minded as well as being more minded to go to the media by way of complaint. The NSW Procurement reforms are, in part, to deal with that reality.

Intending contractors are also probably more inclined to make complaint to oversight authorities, such as the NSW Ombudsman and the Independent Commission Against Corruption of NSW.
 
Challenges to various tender processes, led to the Courts finding the "process contract" 3 and obligations concerning confidential information4.

More and more government policies became relevant to the evaluation of tenders so complicating the process and warranting the recent reforms.
 

The Now

As I understand it from various NSW Government Annual reports, in the year 2010/2011 the NSW Government spent an estimated $12.7 billion on goods and services.

SCCB contracts accounted for about $3.8 billion of that expenditure in that year.

Under the new procurement policies we have the NSW Procurement Board, replacing SCCB, but with more an overview policy role than actual contract creation, though it does have a role in propounding templates for use by public sector agencies.

Where the NSW government has "whole of government' contracts in place, agencies should make use of them. The list of the contracts is available on the NSW Procure Point website.

This presentation will not address the issues relating to monetary limits for thresholds for various procurement methodologies, as they are freely available on the NSW Procurement Board website and will, of course, change over time.

The current link to the detail is:- http://www.procurepoint.nsw.gov.au/policy/goods-and-services /goods-and-services­ policies/using-nsw-government-contracts.

As mentioned above, the most significant changes are that substantive procurement procedure is now delegated back to the agencies themselves and the practicalities of procurement in regional areas has been recognised for agencies in those areas .

With the aggregation of various agencies into mega "clusters", it is envisaged that there will be some "piggybacking" arrangements under which other agencies in the broader NSW Government diaspora will be able to access contracts in particular goods and services categories which had their origins in creation for and by some major agency which has a much greater needs of particular goods or services in issue.

The concept under the new arrangements is that procuring agencies will make use of the most up-to-date template for the various procurement needs. That will involve developing this skill of being able to move between and select from the various templates well aware of their own needs and the requirements and content of each of the various templates offered. They include: -

1. Easy Registration template situations and awareness of the operation of the Approved List and the Plain English Contract and Dictionary for the Approved List;
2. the non-IT Standing Offer Agreement Template;
3. the customer contract order arrangements - particularly services;

3 Hughes Aircraft Systems International Inc v AirseNices Australia (1997) 76 FCR 151 and Cubic Transportation Systems Inc v New South Wales [2002] NSW SC 656 (in the latter of which the Court read down the attempted contractual exclusion of the process contract concept in contrast  to State Transit Authority (NSW) v Australian Jockey Club in which the Court held that the circumstances made it plain that the idea of a process contract was excluded).
4  Wagdy Hanna and Associates Pty Ltd v National Library of Australia (20 12] ACTSC 126
 
4. tendering conditions in Statement of Requirements ;
5. Agency Specific Terms - non-IT;
6. Request for Quote whether under State contract or not. Significant issues under the current arrangements include -
• contract amount thresholds which allow procurement under the thresholds by reference to quote or the like a relatively silent as to the actual terms and conditions of the contract;
• listing and interrelation of the many new policies relevant (though I might query how well RFT terms and contractual terms can be expected to deal with non-compliance with policies allowing agencies to take some enforcement action);
• issues to do with whether larger agencies, whose contracts are to be available for "piggybacking" by other agencies, will be in a position properly to know and appreciate some of the needs of the lesser agencies so as to have the terms and conditions in the main contract adequate for use by the smaller agencies. At the same time, there is the issue whether suppliers, who may be able to supply the larger agencies in an economically viable way, will not be disadvantaged by potentially being obliged to supply smaller agencies where the relevant quantum of purchase and/or a small number of delivery places may not exist; and
• that although the documents are updated from time to time, details of changes from time to time are not flagged as one might have liked.

Implications of the New NSW Government Procurement Arrangements

In late March 2013, when I started writing the main substance of this paper, I asked one of our firm ' s law clerks to store all the linked NSW Procurement (and other linked agencies) website pages in one folder on my computer chose to check relevant NSW Government websites relating to procurement, particularly for goods and services.

That involved downloading 90 documents and I or webpages not including relevant Acts of Parliament, Regulations and a number of very relevant ICAC publications. That involved over 110 MB of data (comprising 76 folders containing 584 files) which I understand corresponds to I do not know exactly how many pages of text, but it was over 300 pages.

And that, does not include all relevant contract templates.

My clerk took it upon herself to prepare what might be described as a site map. It simply listed the main webpages and the follower pages. It did not purport to deal with the cross-linking which becomes obvious when one starts working through the NSW Procurement webpages.

The site map, when printed out, manages to reach 16 pages.

One can be excused for wondering how all of that will improve efficiency, transparency, understanding and the like, especially for very small traders who supply the Government.

It is perhaps not obvious that the new Procurement system:-

1. involve significant amounts of reading, review of templates and updating of agency templates consistently with the Procure Point updates;
2. involves navigating a number of interrelated websites;
3. how much it costs both the agencies and private sector entities wishing to supply goods and services to government;
4. requires a degree of vigilance in maintaining awareness of the current templates , policies, regulations, guidelines and the like, at I don't know what cost.

A couple of the standard form Procurement Contract templates I have had occasion to look at and/or advise upon, this year, exceeded 70 pages.

Whilst lawyers may well like each and every contract, in the perfect world in which they would wish to live, to be bespoke, separately and discreetly negotiated and drafted, that cannot be the policy or procedure in government.

It is too costly, too impractical and too time-consuming.
 
Careful use of appropriate flexible templates is, of course and with appropriate risk management exercises being undertaken, the only viable option.

Regrettably in my experience of the templates which have crossed my desk and those I have found online and read, I find the following problems have regularly arisen: -

1. definitions are adopted, but not used;
2. the substantive  part of the contract using words and expressions which require definition without defining them;
3. the flawed or inadequate linkage between the Definitions and the Substantive part of the contract with various schedules allowing some issues to fall through cracks;
4. in some, the linkage between the substantive contract provisions and the goods or services being specified in a non-existent supply schedule;
5. the liability and particularly liability cap provisions are not being properly understood;
6. things like Performance Criteria being alluded to but not properly outlined, let alone measured ;
7. in one or two, the "performance criteria” and performance milestones involved more filing reports as to performance, than actual performance or compliance with milestones and measurement.

The consequence is likely to be one of lack of contractual linkage. In many, perhaps most, contracts, it may not matter.
However, in my experience Government contracts and Government Contract being what they are, it is only a matter of time before some contract is put in place which has significant linkage problems.

The last thing Government needs is not to be able to enforce performance standards under contracts or be unable to take enforcement action, such as termination and/or recovery of damages.

Earlier in this paper I touched upon the issue of agency staff now being much more in the firing line for criticisms relating to tender processes and/or other procurement procedures and projects.

From my own experience with the Media and Government Procurement Contracts over the years, I can almost see journalists rubbing their hands in anticipation of writing articles critical of the outcome of some procurement contract process, lambasting some public sector officer the journalist sees as "responsible" and who may or may not have made some minor mistake inherent in using standard templates.

The old adage of not letting the truth get in the way of a good story seems almost to have been created especially to deal with journalistic stories about government procurement exercises.

I myself have been described by the media as an "interventionist bureaucrat" and "die hard defender of the old legal order" in respect of advice I gave in respect of a flawed tender process which needed a dose of common sense legal advice.

A perhaps unintended consequence of the devolution of the procurement function to agencies is that much of the expertise previously existing at SCCB/NSW Procurement has been dissipated.

As I mentioned earlier, in the 21st century, contractors are more litigiously minded as well is being more minded to go to the media by way of complaint. The NSW Procurement reforms are, in part, to deal with that reality.

Overall in one sense, other than clarifying monetary threshold issues a little and having some of the actual procurements now carried out by agencies, not a central contract authority, I am not sure that the new procurement arrangements will actually make very much difference, though the insertion of the provision requiring agencies to pay interest on accounts not paid within 30 days may well cause some aggravation.
 
Some Problems in Practice

Peekaboos -- "PCBUs"

Recent legislation, particularly that to do with Workplace Health and Safety Act 2011 NSW [see particularly sections 20 to 26], now places obligations much more on the person or persons in a position to "control' a workplace or particular aspects of it.

In the context of procurement contracts involving contractors coming on to a government site, contractors going onto a third party site and/or government staff going onto a contractor site, real issues of control and responsibility can and do arise.

The historical option of having a broad brush indemnity, such as that contained in some template contracts, is, in my view, no longer adequate.
Indeed, given the template's5 provisions allowing the relevant government agency to inspect premises of the supplier [and/or the reverse]. I can imagine that in some circumstances inspection of those premises before grant of contract and from time to time, during the term of the contract, will need to be carried out.

The nature of obligations imposed on the person in a position to "control' a workplace under current legislation involve quasi-criminal liability.

There must be some real doubt as to whether the contractual indemnity will be adequately enforceable in respect of such liability let alone whether it is even worth considering as an option to deal with the issue by purporting to "delegate responsibility" to a contractor.

Probity in the Process

The delegation back to agencies of procurement task of course brings with it the obligation to maintain openness and transparency of process.

Not infrequently and particularly for large procurements government has long adopted the prudent practice of making use of probity auditors and/or probity advisors.

A little to my surprise, I have noticed an increasing propensity for both State and Federal agencies to make use of internal resources for probity advice/audit.

The very nature of probity advice/audit implies something of an external review of the particular processor subject of the advice/audit.

Whilst I can appreciate the cost savings of using internal resources for probity advice/audit, it does raise the real risk that some probity advice/audit might not be considered as sufficiently objective to satisfy the requirements of the market place.

Whether that role can or should be carried out by a department or agency legal team, to bolster the objectivity aspect, will, of course, depend on the availability of staff to do so.

I would have thought that another reason in favour of the use of lawyers for probity advice/audit is that, at least to some extent, much of their advice may well be privileged from disclosure. However, that will really depend on the detail of the operations of any internal legal team and the extent to which it can properly assert a degree of objectivity sufficient to attract legal professional privilege.

 

 

5 For the purposes of this paper the reader should note that I worked from NSW Procurement goods and services standing offer templates obtained from NSW Procurement 's website in May 2013 and which is described as being dated January 2013 but which was updated by way of refinement on that site in mid May 2013.
 
Keeping up to Date

Needless to say, agencies which have not previously been much involved in the procurement process will have to think carefully about their systems for tracking contracts. I have often, over the years, have had to advise agencies which, for one reason or another, had forgotten to replace contracts before they expired.

Keeping Procurement Under Control?

It seems trite to say that the ability of anyone to keep procurement under control very much depends on the size of the organisation in question and, more importantly, the resources being put into doing so.

Indeed, the very fact that smaller agencies are allowed to "piggyback" on the contracts of larger agencies somewhat complicates the issue.

I well appreciate that long-term unavailability of resources has led to a situation in which the current government moved to implement its policy of reform of the Procurement system.

Almost universally within NSW State Government , the internal legal teams of departments and agencies are under significant stress resource-wise and may often be unable adequately and properly to support their internal procurement teams as well as the NSW Procurement Reforms seem to envisage.

Legal teams will have to take great care clearly to identify their role so far as concerns procurement exercises undertaken by their employer department/agency. Responsibility to agencies (especially those which are comprised within a different legal entity) which "piggyback" on a main contract is problematic, at best.

One of the NSW Procurement Board templates talks in terms of the Government Principal being able to "novate" the contract to other government departments and agencies. One can only hope that the use of the word "novate" was not intended to convey the meaning understood by lawyers which is clearly inappropriate to arrangements between government departments which are all themselves the one legal entity - the State of New South Wales.

Legal teams will have to clearly identify their role in the terms of engagement relating to the role so far as concerns procurement exercises undertaken by their employer department/agency.

That will include, I suggest:-

1. clear specification of minimum notification and turnaround times. The last thing needed by an overstretched internal legal team is a request from the Procurement section of the department/agency giving 24 hours or less time to consider and advise on what will often involve very large contract documents with a considerable amount of support -explanation papers;
2. finding time to settle agency templates well before they are needed;
3. recommending apt process to deal with the Workplace safety issues mentioned above;
4. clear specification of the need to give consideration to the liability cap provisions in the standard documents;
5. acceptance, almost as due diligence exercise, but in light of new workplace safety legislation, that there is a need to consider all aspects of the location of the performance of the services as relevant to who is in control for the purposes of that legislation and "PCBU'' issues rather than, as may historically have been the norm, simply to rely on broadbrush indemnities which do not now adequately deal with the situation;
6. consideration whether proper "milestones" and/or "performance criteria" have been identified and adequately provided for in the contract documents;
7. finding time to settle agency arrangements to apply where the particular agency is to be the lead agency in respect of which other agencies can "piggyback", consistently with the new Procurement Policy, when the "lead agency" may not be particularly familiar with the requirements of "piggybacking" smaller agencies; and
8. development of agency specific risk management profiles and how they link to the relevant provisions of the approved templates.
 
Terms of the Contract - Appropriateness and Tailoring of Templates

With most of today's audience being lawyers, they will not be surprised to know that my view is that contracts are not simply about " widgets" and that there is no such thing as a "one size fits all' standard form contract appropriate for all circumstances.

Careful preparation, storage, use and updating of precedents for appropriate situations is paramount. The changes to the procurement regime in New South Wales do not change that.

In fact and in part, they rely upon documentation management of that type and apt risk management.

Many times over the years, I have been engaged by agencies with a view to "tailoring" a "widget contract" to a fairly specific (and often quite sophisticated) procurement need well beyond what was in contemplation when the "widget contract' template was put together .

In my observation, this seems to relate more to "services" procurements than to "goods", "IT" type goods can raise the issues similar to those applying in respect of "services" .

The goods and services template propounded by the NSW Procurement Board does have some flexibility to deal with "Service Lever' issues and some extra contract provisions provided they can come within the definition of "Additional Terms and Conditions" in the template for Goods.

The "Customer Contract Order Template" contained in the current goods and services template with which I have worked suggests that the scope for "Additional Terms and Conditions" is fairly narrow as is the definition of "Service Levels".


One version of the template uses wording suggesting that the scope for tailoring for Additional Conditions and the like may be limited to things like working with children checks, Intellectual Property rights to be assigned to the customer and insurance amounts.

Surely, that is too impractically narrow.


The standard templates refers to "Service Levels" as "the minimum performance levels set out in a Supply Schedule" but in the absence of a specified Supply Schedule (an issue which applies more to the Head Contract than a Customer Contract and few I have seen actually provided for it) the matter would appear to be someone up in the air.

The Customer Contract Order Templates (Services) attached to the standard Goods and Services Template has provision for "Special Terms" and it is a somewhat unresolved question whether and to what extent "Special Terms" can involve terms and conditions at variance to or inconsistent with terms and conditions of the standard template, as are often need for more sophisticated "services" .

Thankfully and not infrequently, the template contract envisages "Additional Conditions" being added when purchasing agency places an Order.

Client agencies I have advised understand that NSW Procurement does not see these provisions as allowing really free amendment but in one or two contracts upon which I have had to advise, there was a need to make considerable special provision.

Thankfully some of the current templates do not use the wording which caused problems in some earlier procurement contracts which allowed amendment provided it did not "derogate" any material sense from the template.

Unfortunately the template for Procure IT v3.0, whilst using terminology suggesting a degree of flexibility for variations does so in a somewhat circuitous way with which I and my clients have had difficulty.

Careful Review of the Templates

Careful review of the various Procurement templates, is a matter of prudent risk management, is needed because perusal of the current version discloses the usual sort of problem;-
 
1. definitions are adopted, but the definition is not used in the substantive text of the substantive part of the contract document ;
2. the substantive part of the contract uses words and expressions which require definition but are not defined ;
3. the linkage between the Definitions and the Substantive part of the contract with various schedules is not thought through adequately with the consequence that a number of issues may fall through cracks;
4. indeed, in some, the linkage between the substantive contract provisions and the goods or services to be
specified with in a supply schedule the format of which is not always provided;
5. the liability and particularly liability cap provisions are not properly understood by those in some agencies who are involved in putting the contract together;
6. things like Performance Criteria are alluded to but not properly outlined, let alone measured.

In one or two, the "performance criteria" and performance milestones involved more filing reports as to performance, than actual performance or compliance with milestones. Indeed, in one contract template the words "performance criteria" do not appear in the reference to "milestones" appears in the schedule is not picked up in the substantive text

Procurement Contract or Funding Contract

I have, in advising on many contracts in the last decade, noticed something of a shift in Government operations, much of it driven by outsourcing.

In my perception, governments not infrequently now using the procurement processes and formats for what might really be described as "funding agreements" .

This obviously raises the question "What is it?" in respect of any particular "procurement" proposal. "

I use the four slides in the presentation simply to raise the issue of whether, in any given situation, the use of a procurement process by Government might not involve something other than a conventional procurement and something more in the nature of a funding arrangement and whether there is a meaningful difference .

This type of contract may well raise significant issues under Government Information Provision Act type legislation.

Often have I seen Funding Agreements which amounted to little more than a services contract under which a Government Agency , for one or other reasons, wishes to have an external entity or entities carry out certain activities rather than doing so itself. I have seen them used effectively to cover a budget deficiency.

The slides were to do with the Ansett staff entitlements bailout. In that sense, you may recall that the Commonwealth Government implemented an arrangement to ensure the payment to employees of the failed Ansett group's certain specified salary entitlements, the cost of which was to be borne by the travelling public which had to pay a levy with every domestic flights in Australia for a period of time.
The matter is outlined in the Report6 to the Commonwealth made under Section 24 of the Air Passenger Ticket Levy (Collection) Act  2001

"Section 24 of the Act requires the Workplace Relations Minister to table a report on the following matters :

• payments authorised under section 22 of the Act;

• the activities to which those payments relate.

This is the first such report and it covers the period 1 October 2001 to 31 March 2002. In summary, payments made under s.22 of the Act during the reporting period were:
• $8.0 million paid  to a private  sector  entity  (SEES Pty  Ltd) to meet repayment  obligations  of a loan facility
established for the Special Employee Entitlements Scheme for Ansett group employees (SEESA). This report also provides other relevant information, including:


6
http://www.deewr.gov.au/WorkplaceR elations/Programs/Employee Entitlements/SEESA/ Documents/SEESA_010801to310302.pdf
 
• $283.3  million  advanced  from  the  loan  facility  to  the Ansett  Administrator s  for payment  of employee entitlements under

the provisions of SEESA;

• $1. 7 million expenses incurred by the Commonwealth in collecting the ticket levy and administering SEESA;"

Sometimes activity envisaged in contract is, to my view, jurisdictionally and constitutionally, a State matter and the Commonwealth was merely providing funds sometimes to procure a particular end result but, on a number of occasions, I found the content of the documents was such that I considered that the Commonwealth was actually using the Funding Agreement to overcome its lack of power in a particular field and to impose its requirements
contractually7.

Alternatively, I had to ask 'was the obligation undertaken ultra vires the State?'

Even to the extent any particular Funding Agreement involves activity between three or more Government agencies of a kind which might be perceived as having a commercial aim, the question arises whether things like the NSW Public Authorities (Financial Arrangements) Acts ''joint-venture" provisions would apply and be subject to the new NSW Procurement arrangements will stop.

Whilst there is some exemption in those provisions where Government agencies are involved, it is not, in my view, as simple as saying that in the event that there are all Government agencies the relevant provisions do not apply.

In one or two such examples, I found contractual provisions requiring a State agency to comply with Commonwealth procedures and/or policies notwithstanding that there was NSW legislation directly on point.

Indeed, I see that as having led to cl. 6 Public Sector Employment and Management (Goods & Services) Regulation 20108 which overcame that perceived inconsistency issue in context of projects funded under the National Building
and Jobs Plan (State Infrastructure Delivery) Act 2009.

In that situation, existing State provisions and or Regulations dealing with the issues the subject of the contract, particularly procurement, were overruled.

To an extent, that was to facilitate the Building Education Reform policy of the Commonwealth. It was seen as apt to amend the then NSW Public Sector Management (Goods and Services) Regulation to put beyond doubt that compliance with the contractual provisions with the Commonwealth would not put New South Wales public servants in conflict with the law of New South Wales.

I do have to wonder how prudent and proper it is, in a Federation, for one sovereign entity to require another sovereign entity to abdicate its sovereign status by requiring it to comply with the laws and policies of the funding jurisdiction which laws and policies may well not be applicable in the jurisdiction of the funded sovereign entity.

Would not too much of that undermine the constitutional structure of the Federation? But that is not for consideration today.
Risk Management: What Can the Lawyers Do?

The new NSW regime envisages the NSW Procurement Board having an overarching role in respect of terms and conditions but I doubt it has the resources properly to carry out such a role.

Even if the NSW Procurement Board consistently sets template provisions, the old problem which will arise will be as to the extent to which agencies, exercising the procurement function themselves , will properly and adequately appreciate the commercial, risk, probity in process and legal reasoning behind some of the terms and conditions set by the NSW Procurement Board.

7 Query  whet her and to what extent the implications of the case of Williams v Commonwealth of Australia [2012) HCA 23 (20 June 2012) do not in fact now bear upon the proposed referendum for Constitutional amendment to recognise Local Government and so overcome doubts as to the Commonwealth powers to fund Local Government  activity .
8 now repealed.
 
In my observations, often the procurement section of agency, for one reason or another, seeks to operate independently of the Legal Services section of agency.

That may make it very difficult for Legal Services sections to have meaningful input into and/or maintenance of approved templates, but Legal Services sections will have to work closely with relevant procurement staff on lines of responsibility.

Too often have I seen, both in public sector and private sector , the benefits of good templates being wasted by people working, not from the base template but from a contract recently used by somebody they work with who said was a good one for that type of deal.

An earlier document may well have been very appropriate for the earlier deal, but if and to the extent that it departed, for one reason or another, from the provisions of the standard template, alas, too often, the reasons for doing so in the reasons for particular provisions will not be apparent. I doubt Procurement Sections will have resources adequate to compare the terms of the "recent' agreement with the template to allow staff to determine what has been removed or added and what the reasons were for doing so.

Hence, staff should work from the base template but, alas I fear they too often will not be able to do so. Those base template will themselves need, from time to time updating and review.

Where a Procurement Section wants advice from the Legal Services section or some approval from Legal Services section, it is an absolute imperative that a proper timeframe be set in place to enable lawyers to give meaningful and useful advice.

Similarly and where at all possible, I would recommend that Legal Services sections of agencies become involved in the training of procurement staff and the settling (and long-term review from time to time) of relevant agency specific refinements to template precedents .

When I refer to training, I mean not simply the basics of the contract process that the probity and processor rules relevant to procurement in the public sector.

As mentioned earlier in the paper, an internal legal team may well be able to offer assistance in the context of probity advice/audit and, in doing so, provide aspects of the probity advice/audit with legal professional privilege.

Thank you

 



 

I want to go to the Land & Environment Court
 
by Mario Prodromou, Consultant
 
21 February 2014

[HTML Version]    [PDF Version]

 

Council hasn't approved my DA - What should I do
 
by Mario Prodromou, Consultant
 
21 February 2014

[HTML Version]    [PDF Version]

 

What If Someone Pinches Your Name, Logo or Staff Uniform?

Fair competition is intended to benefit consumers by keeping prices under control. But not all people play by the rules.

What if somebody competes with your business unfairly, by using a logo or website similar to yours or adopts a staff uniform similar to that used by your staff?

You have probably read of disputes about trading names and deceptively similar logos. They can be quite expensive, just as is losing business to a competitor.

Is your trading name or business logo as  protected as you think? Merely registering a business name and securing a domain name may not adequately protect your business.

Registration of your logo and/or trading name, if distinctive enough, as a Trade Mark can give you greater protection somebody starts using the same or something very similar.

Registration as a Trade Mark gives a statutory right to exclusive use of your trademark registered name and/or logo.

We can assist you by checking the availability of your name and/or logo as a Trade Mark. If likely to be available, we can assist you with actual registration.

Please feel free to contact Greg Ross (9265 3070) if you would like to discuss the possibility of better protecting your company name logo and/or staff uniforms.
 

Thankyou for contacting Eakin McCaffery Cox. One of our representatives will be in touch shortly.

 
On 22 May 2015 from 5.30pm - 8pm (the opening of the Vivid Festival) Eakin McCaffery Cox Lawyers is hosting a French Wine Tasting and Networking Event in our boardrooms.  The event is run by Australiance, an organisation which predominantly provides information and resources to French expats living in Australia.  Eakin McCaffery Cox Lawyers hosted the event last year and it was an enjoyable evening and a great opportunity to network with French expats and many others who just like France and French wine.
 
If you are interested in attending you can register here with Australiance, places are limited:  http://www.australiance.com/our-events/wine-tasting#sthash.t9b7lZf3.dpuf
 
 

Internships and Mentoring

Eakin McCaffery Cox Lawyers hosts students from the Paris Bar School for 6 month internships as part of their studies and experience.  These internships, which the firm has offered consecutively over the last 3 years, have been an enriching experience for the students and our staff alike.  At this link you can read about Rémi Avon's recent experience with our firm: Please click here

 

 

 

 

 

 

Charter for the Advancement of Women in the Legal Profession
 

Eakin McCaffery Cox Lawyers are proud to have become a signatory to the Law Society's Charter for the Advancement of Women in the Legal Profession.

 

Speaking English is an important skill for a French lawyer. Many avocats, or solicitors,in Paris run their practices in both French and English, having local and international clients.

After receiving my master degree from La Sorbonne University and having successfully passed the Paris Bar School exam I was looking for a professional experience abroad.

My six-month internship at Eakin McCaffery Cox Lawyers (EMC) has prepared me for future practice as a French avocat.

I was drawn to Australia for its excellent reputation as a country with a dynamic legal market and an enjoyable way of life.  An internship in an Australian law firm is an extraordinary opportunity to improve my English and acquire professional skills.  In my time at EMC I have been involved in many matters and other workings of the firm.  As a result my English has improved to a standard that will be to my advantage for future practice in Paris.  

It has also been a unique opening to many enriching cultural aspects.

Part of my internship comprised attending Court proceedings, mediations and client meetings with senior solicitors. This opened my eyes to the practical distinctions between the French and Australian legal systems but more importantly, it has confirmed for me the two countries’ common foundation in legal theory. Thanks to that common background, I could understand many aspects of Australian law.

I have assisted the partners and solicitors with legal research of Case law and statutes or regulations on specific matters and have drafted documents and emails. The work has improved my understanding of legal notions I was not previously familiar with and added to my legal vocabulary.

It has been a very interesting experience to assist Jennifer Shaw on matters regarding professional responsibility and conduct. Having recently studied the Code of Conduct of the avocats in my final year at the Paris Bar School, I found many similarities between the Legal Profession Conduct Rules in NSW and in Paris and have become more familiar with ethical duties of lawyers in both countries.

Another facet of my internship saw me take up the role of ‘Clerk’. Assisting in the general administration of the firm has helped me to understand the base of the legal work in Australia and the way EMC’s work is organised.

In recent years EMC has hosted four French interns, all from the Paris Bar School. Since November 2016, EMC offers internships of six months directly to the students of the Paris Bar School through the school’s website.

I am very grateful to everyone at EMC for allowing me to have this amazing professional experience in Sydney, and also very glad to see the relationship between EMC and the Paris Bar School set to last.

Rémi Avon

 

 

 

 

 

We are proud to support various charities and organisations:

 

 

Camp Quality https://www.campquality.org.au/

Dymocks Children’s Charities http://dcc.gofundraise.com.au/

The University of Technology AFL team, the BATS   http://utsafc.com.au/

 

 

We are proud to be associated with the following organisations:

http://www.aals.net.au/
Gregory Ross, Partner, is a Member of the Anglo-Australian Lawyers Society.

http://www.aapcm.com.au
Gregory Ross, Partner, is a Qualified Member - Australian Association of Procurement and Contract Management.

http://www.aibc.org.au/
John Cox, Partner, is President of the Australia India Business Council (NSW Chapter), and a Director and Company Secretary of Australia India Business Council Limited (National Body).

http://www.aim.com.au
Gregory Ross, Partner, is a Member of Australian Institute of Management.

http://www.capsl.org/
Gregory Ross, Partner, is Secretary to the Commonwealth Association of Public Sector Lawyers.

http://cips.org/en-au/
Gregory Ross is a member of the NSW branch of the Chartered Institute of Purchasing & Supply (CIPS), a UK entity incorporated under Royal Charter by Her Majesty’s Privy Council and was in July 2014 elected to its NSW Council.

CIPS exists to promote and develop high standards of professional skill, ability and integrity among all those engaged in purchasing and supply chain management. CIPS assists individuals, organisations, Government and the procurement profession as a whole.
 
http://www.commonwealthlawyers.com
Gregory Ross, Partner, is a member of the Commonwealth Lawyers Association.
 
http://www.companydirectors.com.au/
John Cox, Partner, is a Fellow of the Australian Institute of Company Directors.
 
http://www.lawsociety.com.au/about/organisation/committees/Currentcommitteeslist/
Stephen Boatswain, Partner, is Member of NSW Law Society Employment Law Committee and is a member of the NSW Law Society Specialist Accreditation Advisory Committee in Employment and Industrial Law.
 
Gregory Ross, Partner
Member Legal Qualifications Committee (and related Practical Experience subcommittee) of NSW Legal Profession Admission Board
Member Licensing Committee Law Society NSW
Member Government Solicitors Committee Law Society NSW
 
http://www.nationaltrust.org.au/nsw/Home
Tim Eakin, Partner, the solicitor for the National Trust of Australia (NSW) since 1989.
 
http://www.scholarships.org.au/
John Cox, Partner, is a director of the Australian Scholarships Foundation.
 
http://sydney.edu.au/alumni/
John Cox, Partner, is Legal Adviser to the University of Sydney Alumni Foundation.
 
http://www.ugandahighcommission.org/
John Cox, Partner, is Honorary Consul General for the Republic of Uganda.
 
http://www.utsunion.uts.edu.au/
John Cox, Partner, is Legal Adviser to UTS Union Limited.

We are proud to be associated with the following organisations:

http://www.aals.net.au/
Gregory Ross, Partner, is a Member of the Anglo-Australian Lawyers Society.

http://www.aapcm.com.au
Gregory Ross, Partner, is a Qualified Member - Australian Association of Procurement and Contract Management.

http://www.aibc.org.au/
John Cox, Partner, is President of the Australia India Business Council (NSW Chapter), and a Director and Company Secretary of Australia India Business Council Limited (National Body).

http://www.aim.com.au
Gregory Ross, Partner, is a Member of Australian Institute of Management.

http://www.capsl.org/
Gregory Ross, Partner, is Secretary to the Commonwealth Association of Public Sector Lawyers.

http://cips.org/en-au/
In July 2014 Gregory Ross was elected to the NSW Council of the NSW branch of the Chartered Institute of Purchasing & Supply (CIPS), a UK entity incorporated under Royal Charter by Her Majesty’s Privy Council.

CIPS exists to promote and develop high standards of professional skill, ability and integrity among all those engaged in purchasing and supply chain management. CIPS assists individuals, organisations, Government and the procurement profession as a whole.
 
http://www.commonwealthlawyers.com
Gregory Ross, Partner, is a member of the Commonwealth Lawyers Association.
 
http://www.companydirectors.com.au/
John Cox, Partner, is a Fellow of the Australian Institute of Company Directors.
 
http://www.dentalcouncil.nsw.gov.au
Rosemary MacDougal, Consultant, is a member of the Dental Council of New South Wales as constituted under the Health Practitioner Regulation National Law (NSW).
 
http://www.lawsociety.com.au/about/organisation/committees/Currentcommitteeslist/
Stephen Boatswain, Partner, is Member of NSW Law Society Employment Law Committee and is a member of the NSW Law Society Specialist Accreditation Advisory Committee in Employment and Industrial Law.
 
http://www.nationaltrust.org.au/nsw/Home
Tim Eakin, Partner, the solicitor for the National Trust of Australia (NSW) since 1989.
 
http://www.ranzco.edu/
Rosemary MacDougal, Consultant, is a member of the Royal Australian and New Zealand College of Opthalmologists Human Research Ethics Committee.
 
http://www.scholarships.org.au/
John Cox, Partner, is a director of the Australian Scholarships Foundation.
 
http://sydney.edu.au/alumni/
John Cox, Partner, is Legal Adviser to the University of Sydney Alumni Foundation.
 
http://www.ugandahighcommission.org/
John Cox, Partner, is Honorary Consul General for the Republic of Uganda.
 
http://www.utsunion.uts.edu.au/
John Cox, Partner, is Legal Adviser to UTS Union Limited.

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SYDNEY AUSTRALIA 2000

Postal address
PO Box Q1196, QVB NSW 1230
DX 1069 SYDNEY

General enquiries
Phone: +61 2 9265 3000
Fax: +61 2 9261 5918
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Partner enquires
You can contact our Partners directly here

Career enquiries
To find out more about a career at Eakin McCaffery Cox, or to submit your resume contact David Wood [link to ‘DW page’]

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I want to go to the Land & Environment Court!

 



I have heard clients say this before and think no-one should want to go to Court, although the Land & Environment Court ("L&E Court") is probably a more pleasant court to be in than others. 

By the time applicants under a DA seek legal advice, they are usually unwilling to wait anymore or try again with their local consent authority (usually their local council).  These applicants are not happy with:

  • a refusal; or,
  • a consent with unfair conditions; or,
  • with what seems like continued "moving the goalposts" in trying to obtain a consent to their development application ("DA").

Before L&E Court action is recommended, applicants should aim to have the best DA possible in terms of meeting their needs and addressing real concerns of their council.  A useful paper summarising the types of things to consider before getting to the point where the L&E Court may be their best option is located here "Council hasn't approved my DA - What should I do!".

To work out whether lodging an application in the L&E Court is their best option, applicants need to know what that involves - and should ask their legal adviser:

  • how much will going to the L&E Court cost?

[unlike most other court proceedings, Class 1 appeals (which apply to DAs) are usually on the basis that each party pays their own costs irrespective of the outcome - but there are exceptions!]

  • how long will it take?

[According to the L&E Court website, 97% of Class 1 appeals were finalised within 12 months, and 78% were finalised within 6 months, of commencement.  The median time for all Class 1 appeals was 108 days.]

  • are there any alternatives? and
  • what are my prospects?

The 2011-2012 Local Development Performance Monitoring Reports from NSW Planning & Infrastructure summarised that:

  • 47% of Class 1 appeals involving a DA were approved by the L&E Court.  That 47% could be split further to distinguish between successful Class 1 appeals without amended plans (28%) and successful appeals with amended plans (19%);

 

  • 37% of Class 1 appeals were withdrawn or dismissed and therefore unsuccessful;

 

  • 17% of the Class 1 appeals involved DAs which were resolved through consent orders, that is, through agreement of the parties.  This can mean different outcomes, some involving a successful outcome, possibly outside the L&E Court system, and some, an unsuccessful outcome or changed circumstances for the applicant.  It seems probable that some of these cases would involve some sort of successful outcome though, but as that 17% is not analysed further it is not possible to read too much into this figure.

[For more statistics and other Local Development Performance Monitoring Reports including how your local council compares, click here:
http://www.planning.nsw.gov.au/en-au/developmentproposals/performancemonitoring.aspx]

The statistics for a successful outcome therefore look fairly positive for applicants as a group, but, it is important to bear in mind that the lawyers acting for prospective applicants in the L&E Court would have already dissuaded some of their clients from court action if they believed the prospects of success were not good.

Each DA and Class 1 appeal is different as are the circumstances surrounding each matter.  There are many factors that influence whether a Class 1 appeal is likely to be successful, such as:

  • the level of compliance with planning instruments and policies;
  • the surrounding built environment;
  • whether sufficient information has been provided; and,
  • the nature of objections received.

Back to the statistics though - of the Class 1 appeals that are successful, a significant proportion, around 40%,  involved some amendments to the proposed development at some point in the Class 1 appeal process.  One possible reason is that sometimes it takes commencing Class 1 action to get the parties to really focus on the DA and avenues available to an approval.  It is important, at least from the applicant's point of view, to carry out a thorough review before commencing proceedings as explained in this paper [link to "Council hasn't approved my DA - What should I do!"]

There are strict time limits on when a Class 1 appeal can be lodged, so, if you like your prospects, the next question is:

When can I lodge?

Applicants can lodge a Class 1 appeal within 6 months after the date that:

For DAs

  • the applicant received notice of the determination of their DA or their DA is deemed to be determined;

                DAs are "deemed" to be determined

  • 40 days from the day the DA is lodged for an "ordinary" DA;
  • 60 days for integrated development, designated development or where concurrence is required;
  • 90 days for State significant development.

 

 or, For modification/section 96 applications

  • the applicant received notice of the determination of their modification/section 96 application or their modification/section 96 application is "deemed" to be determined.

                Modification/section 96 applications are deemed to be determined:

  • 40 days from the day the modification/section 96 application is lodged

 

[For appeals concerning DAs ss 82(1), 97(1) of the Environmental Planning & Assessment Act 1979 ("EP&A Act") & cl 113 of the Environmental Planning & Assessment Regulation 2000 ("EP&A Regulation") & for appeals concerning modification/section 96    applications: ss 96(6), s97AA of the EP&A Act & cl 122A of the EP&A Regulation]

Eakin McCaffery Cox Lawyers can help by advising you through the DA process and available options as well as acting as your legal representatives in commencing and running a Class 1 appeal in the L&E Court on a cost effective basis.

Please contact Eakin McCaffery Cox Lawyers on (02) 9256 3000 for advice and action on planning, Council and the Land & Environment Court matters.

This paper is a summary providing general information and should not be construed as specific legal advice.  Each development application is different and is made in different circumstances which require subjective assessment before legal advice may be provided. 

Council hasn't approved my DA - What should I do?


 

This is probably the most common question asked of planning lawyers and an experience most people would prefer to avoid.

The refusal, or "failure", to give a consent to a development application ("DA") by consent authorities (usually local councils) can have a very personal impact on applicants who are often not professional developers and are not familiar with the world of councils and developments.  For professional developers a refusal, or failure, can have serious financial consequences and the time and cost of further pursuing a development consent can make a once viable project unviable.

Applicants applying for a new home are often bewildered by how difficult and emotional the process can be when consent is not granted to their DA, especially where there are, what look like, similar homes nearby.

Seasoned developers usually have a more direct way of dealing with councils and are more circumspect when their DA is not progressing however their experience does not make it any easier financially.

Despite what you might expect,  there is no legal obligation on councils to make a decision on a DA and sometimes DAs can remain undecided for... ever. 

Some councils prefer asking applicants to withdraw their DAs rather than assessing them.

There are other, mostly political, pressures for councils to act, but, practically, a council can not be forced to make a decision one way or the other on a DA.

Adversarial communications should always be avoided as it is creates a barrier to dealing with what might be very real issues with the proposed development.  Councils and their officers are well aware of appeal rights and it is usually not helpful to remind them of those rights.  

So what do you do if your DA has been refused or has not been determined by your local council?

First, take a long hard look at your DA

Whether your development is for an extension to your home or a large scale commercial development the first step should be to take a long & critical look at your DA. 

This means looking at:

  • any reasons the council has for not approving the DA - consider whether it would be worthwhile applying for access to council's file relating to the DA.  Councils usually have a downloadable form on their websites providing for informal access without charge (photocopying excluded) under the Government Information (Public Access) Act.  For minimal, or no, cost other than time, this can be a source of very useful information;

 

  • advice from your architect and other consultants on any areas they believe could improve your chances of an approval from the council without overly compromising your proposed development;

 

  • any areas where your DA does not comply with council's planning documents; and

 

  • although this may be hard to do, if there are vocal neighbours objecting to your DA and this is impacting on the council's assessment, then it would be good to meet them if possible to understand why they object - maybe their issue can be easily addressed or they don't completely understand your DA and the impacts.

Amend your plans if it helps get you where you want to be

At the very least, a review and amended plans may help you address some, if not all, of the issues and may lead to development consent for your DA.  Time and effort spent at this point is almost never wasted and can save a lot of time, money and heartache down the track.

It is not always the case that plans will need to be amended after your review to help obtain development consent, but, sometimes, minor amendments, or a complete re-think with amended plans or even a new DA may be the best approach to have a good chance of obtaining consent. 

What is important though is that you go through the process, because if it becomes unlikely that any consent will be issued by the council then appeal options may have to be considered.  It is better to review now rather than halfway through a court case.

Check what options are available for the Council to have a re-think

Before you do consider appeal options to the Land & Environment court ("L&E Court") it is a good idea, in respect of a refused DA at least , to check whether your council has any internal review procedures.  Although sometimes these can be a waste of time; they are rarely costly options; they don't prevent you taking other action; and they can, in some cases, lead to a good outcome. 

An example is the City of Sydney Council which has an appeal panel which regularly meets to re-consider DAs.  

In one particular DA lodged with the City of Sydney Council which was approved but with conditions that substantially limited the development to the extent it was not viable, the panel listened to our argument.  The Deputy Mayor at the time volunteered to attend the site with the panel and discuss options for an amended design.  The members of the panel attended the site and within half an hour a proposal satisfactory to both the applicant and the Council was worked out - amended plans were lodged and a consent was issued fairly quickly by the Council.

There are also more formal review options available required under legislation where a refused DA, or a consent to a DA  with challenging conditions can be re-assessed by a different Council planning officer (or the Council if the Council made the original decision) under a section 82A review (s82A of the Environmental Planning & Assessment Act, 1979 NSW ("the Act")).  A refused modification application (also known as a section 96 application) can also be reviewed under s96A of the Act.

The cost of s82A applications are relatively low and the odds of success are high according to the Local Development Performance Monitoring Report 2011-2012 which found that 70% of section 82A reviews were approved by councils with 18% refused in 2011-2012
(see link to this and the latest reports from the Department of Planning & Infrastructure http://www.planning.nsw.gov.au/en-au/developmentproposals/performancemonitoring.aspx)

One risk area with these types of reviews is that is technically possible to end up with a "worse" consent after the review however if you have an unworkable consent then this is probably not a real risk.  It may even be possible to amend plans as part of a s82A review application subject to the amended plans being substantially the same as those originally assessed. 

Want to go to Court?

If you are considering appeal options to the L&E Court then, unless you have the luxury of time (and money),  you will want to proceed with the best DA possible.  There are limited opportunities to amend your plans once an appeal to the L&E Court is commenced and if you are able to amend then it will be at greater cost than before an appeal.

If you are interested in appeal options beyond the relevant council then please click here which will link to another summary paper "I want to go to the Land & Environment Court!".

Time limits!

There are time limits for lodging s82A review applications, s96AB review applications and commencing L&E Court proceedings.  These time limits are strict and it is recommended that advice is sought on the time limits that apply so that any review or appeal rights are not lost.

 

Eakin McCaffery Cox Lawyers can help by advising you through the DA process and available options as well as acting as your legal representatives in L&E Court proceedings on a cost effective basis.

Please contact Eakin McCaffery Cox Lawyers on (02) 9256 3000 for advice and action on planning, Council and the Land & Environment Court matters.

This paper is a summary providing general information and should not be construed as specific legal advice.  Each development application is different and is made in different circumstances which require subjective assessment before legal advice may be provided.

 

 

 

 

Development Consent Conditions,

the good, the bad &

the...rest. 

 

 

Great news! - Your development has been approved!

Let's read through these conditions, I'm sure they will be fine...

Unfortunately for some, the joy of an approval can be fleeting.

Conditions on a development consent ("a Consent") can sometimes become another hurdle to overcome just when an applicant thought they were getting to the end of the development application part of the process.

In more serious cases a council may impose conditions on a Consent that can significantly undermine the value of the Consent to the point where the proposed development is not viable or worthwhile.

For example, conditions may require that:

  • the developer carry out some construction; or other tasks such as ongoing monitoring and testing; or make some payments or contributions; that were never contemplated or part of the development application ("DA") process;
     
  • the proposed development be significantly changed by deleting parts of buildings; or,
     
  • certain works or other tasks are required to be undertaken which do not relate to what is proposed to be built but relate to neighbouring locations and concerns. 

If you find yourself in this position you will need to know what you can do about potentially removing or amending that condition.

Maybe the condition isn't valid

If the condition isn't valid then this may be the best argument available to argue for its removal.

Section 80A of the Environmental Planning & Assessment Act 1979 (NSW) ("EP&A Act") sets out a prescriptive list of requirements for conditions.  Here is a link to that section: [http://www.legislation.nsw.gov.au/maintop/view/inforce/act+203+1979+cd+0+N]

Apart from section 80A however there are also past cases which set out tests as to whether a condition of consent is valid or not.

One of the leading cases applied by the Land & Environment Court of NSW ("L&E Court") to help determine whether a condition is valid or not is Newbury District Council v Secretary of State for Environment [1981] AC 578.  That case set out the Newbury principles which consists of three principles or tests which remain relevant today to help determine whether a condition imposed on a development consent is valid or not.

The three principles are:

  • the condition must be imposed for a planning purpose;
  • the condition must fairly and reasonably relate to the development proposed in the application; and,
  • the condition must be reasonable.

There have been later cases that have expanded on those three principles however they remain a useful and relevant starting point.

A recent case where the test was successfully applied by an applicant in challenging the validity of a condition is Cavasinni Constructions Pty Ltd v Fairfield City Council [2010] NSWLEC 65

  • In this case the Council imposed a condition of consent requiring a right of way be created and registered over the land the subject of the development for the benefit of three neighbouring properties.  The Commissioner of the L&E Court who dealt with the application to remove the condition decided that the condition was valid. 
  • On appeal to a Judge of the L&E Court, Justice Craig applied the Newbury principles and decide that the condition failed the second Newbury principle, that is, he found that the condition did not fairly and reasonably relate to the proposed development and therefore was invalid.

Even if it is valid, it doesn't mean you can live with it

There are other circumstances which do not involve any invalidity claims but the condition is simply not possible or acceptable to an applicant. 

It could really be any condition that adversely affects any part of the proposed development but the more common examples of these types usually involve:

  • conditions which reduce the size of a proposed building by removing rooms or levels or otherwise requiring a reduction in the size of the proposed building; and,
  • conditions which limit the operating hours or a proposed use such as a restaurant or bar.

How do you remove unfavourable conditions?

There are a few different ways but the options are really to apply to either the Council or the L&E Court or both.

In respect of the Council, the options are to:

  • lodge a s82A review application with the Council and the application to review the development consent will be reviewed by another Council officer (if it was originally approved by a Council officer) or the Council members (if it was originally approved by the Council members); or 
     
  • lodge a section 96 modification application with the Council for its consideration.  [If the Council does not approve the application it is possible to apply for a review of that decision as well but at that point it may not be worthwhile applying again to Council].

In respect of the L&E Court, it may be possible to lodge a  Class 1 appeal to the L&E Court seeking deletion or amendment of the condition from the development consent.  A Class 1 appeal may also be lodged from a refusal (deemed or actual) of a section 96 modification application.

[refer to "I want to go to the Land & Environment Court!" for more information.]

It may also be possible to lodge Class 4 proceedings in the L&E Court in respect of potentially invalid conditions in which case the question of validity will be dealt with by a Judge of the L&E Court.  This may be the best strategy in certain circumstances but such an application would be exceptional rather than the normal course to seek amendment or removal of a condition.

Invalid conditions can sometimes mean invalid consents

In the case of Ben-Menashe v Ku-ring-gai Municipal Council [2001] NSWLEC 168 the L&E Court  considered whether the Council could validly impose a condition requiring that subdivision of a previously approved dual occupancy be a strata subdivision despite the applicant seeking a Torrens title subdivision in its development application.

Justice Lloyd decided that "The condition in effect and in substance converts the application from that for which consent was sought into something substantially different."  Justice Lloyd found that in his opinion "there had been no consent to the application in this case".  The outcome being that the applicants were left with an undetermined development application.

Time limits!

There are time limits for lodging s82A review applications, s96AB review applications and commencing L&E Court proceedings.  These time limits are strict and it is recommended that advice is sought on the time limits that apply so that any review or appeal rights are not lost.

_________________________________________________________________________________

Eakin McCaffery Cox Lawyers can help by advising you through the DA process and available options as well  as acting as your legal representatives in L&E Court proceedings on a cost effective basis.

Please contact Eakin McCaffery Cox Lawyers on (02) 9265 3000 for advice and action on planning, Council and the Land & Environment Court matters.

 

This paper is a summary providing general information and should not be construed as specific legal advice.  Each development application is different and is made in different circumstances which require subjective assessment before legal advice may be provided.