There is lot at stake if for an employer who incorrectly identifies a relationship as one between contractors when in fact the relationship is properly defined as one between employer and employee. An improper assessment of the relationship can lead to the financial ruin of a business. The improper assessment may result in a requirement for the unexpected payment of many years of award payments, sick leave, holiday leave, long service entitlements and superannuation. It is essential to get this right.
It is necessary to note at the outset that you cannot agree that a person is a contractor if in fact that person is an employee. An agreement between the parties of this kind is of no effect. The payments due to employees are required by statute and cannot be waived by anyone, not even the employee.
If it looks like a duck and quacks like a duck it is probably a duck. It should be no surprise that the courts don’t place any weight upon the “title” given to a worker. To assess whether a worker is an employee or a contractor the whole of the relationship must be examined.
Since the High Court decision in Hollis V Vabu (2001) 207 CLR 21 the common law distinguishes employees and contractors by considering various indicators under seven headings: Read more
A Caveat is a notice that a person can give to the registrar of titles. It will generally stop anyone else registering any interest on a title to land.
So why would someone want to stop another person from registering an interest on a title. Let me tell you about a case that I was involved with, it illustrates better than any explanation why caveats are so important.
About 10 years ago I acted for a farmer. He lived on his Macadamia nut farm with his wife. He had been given the farm by his father.
His daughter had found herself in some trouble and decided that she needed money. In order to get that money she went to a private lender. As you know lenders don’t lend money unless they receive a mortgage in return. The mortgage is their assurance that they will be paid. A mortgage is a right given to a lender to sell a property to pay a loan. The daughter had no house to mortgage.
What could she do? Read more
The Personal Property Securities Register (the Register) and the Personal Property Securities Act 2009 (Cth) (PPSA) came into operation on 30 January 2012.
Land is not personal property under the PPSA and the PPSA does not apply to interests in fixtures.
Under the PPSA the secured party is responsible for amending the Register when there is a change to a security interest.
Secured Party means a person who holds a security interest for the person’s own benefit or for the benefit of another person.
Other parties may also correct the register. There is currently no prescribed release form.
Buyers may take personal property free of security interest in some cases. Under the PPSA there are extinguishment rules which mean that in some situations a purchaser will take possession of personal property free of a security interest if for instance: Read more
Do you lease premises for your business? Many business owners do not realize that when they sell their business and assign their lease, they may remain liable to the landlord for many years after the assignment. If the buyer (the new business owner) can’t pay the rent then the landlord may come looking for the previous tenant to cover the loss. Is that you?
Many leases actually provide that an assignment of the lease does not release the previous tenant from liability to the landlord.
Don’t despair! Read to the end of this article where we make reference to some legislation that may assist if you are a retail shop tenant. Read more
An advertisement was placed in the Sunshine Coast Daily on 19 January 2012 seeking nominations to join the Light Rail Taskforce.
This can be done by visiting the Consultation Hub.
The Consultation Hub http://sunshinecoastlightrail2020.com.au/ is available to you, if you would like find out what’s happening with the project; if you would like to join an online discussion forum or if your would like to share your light rail experiences on that site.
This initiative is clearly designed to ensure that momentum is maintained and to measure interest. The arguments for light rail are compelling.
To register online. Go to http://sunshinecoastlightrail2020.com.au/taskforce and follow the prompts Read more
One of the problems with our modern legal and business system is that it is exploited by those who know how to exploit it. Yet, for others who genuinely need the protection, that these systems were designed to provide, the red tap and excessive cost, makes help impossible to obtain.
We see this commonly in disputes relating to unpaid debts and money owed due to breach of contract. A person who owes money, may well know that it is often not worthwhile for a creditor to pursue payment. This is because the legal cost of chasing payment is too great. A debtor who believes that a creditor will not chase payment is unfortunately less likely to pay.
I have included some links at the end of this article that may assist anyone who is owed money.
Fortunately since December 2009 QCAT (Queensland Civil and Administrative Tribunal) has Read more
Private companies that have less than 50 non-employee shareholders can raise funds from the general public if that fund raising does not require a disclosure document to be prepared.
You should of course obtain legal advice in relation to the requirements associated with fund raising, as these requirements change from time to time however, we can give you some general information here. If you wish to raise funds you may find this short article useful. We would enjoy the opportunity to assist you.
Keep in mind that even if a disclosure document is not required there are significant risks that need to be managed in terms of, Read more
If you are charged an extravagant fee, as a result of breaching a contract, then you should refuse to make payment without getting legal advice.
When a party to a contract breaks that contract there are consequences. If the injured party has suffered damages then that injured party can recover those damages from the defaulting party but, penalties cannot be recovered.
If for instance you agree that you will pay your phone bill within a certain time, after receiving an invoice but, you fail to make that payment on the due date, then you have broken that contract. You are in default. But what damage has the phone company suffered as a result of your late payment. Well, that depends upon the circumstances. Perhaps there is no real damage suffered at all. If so, why should you have to pay a fee which amounts to a penalty?
The Australian Consumers Association has raised awareness of fees that are imposed by banks and has made public statements about the illegality of certain fees.
There is potential for courts to rule, that fees such as: Read more
Section 51 AE of the Competition and Consumer Act (previously the Trade Practices Act) provides for industry codes such as the Franchising Code.
A breach of the Code constitutes a breach of the Competition and Consumer Act.
Section 51 AD of the Competition and Consumer Act provides that “a corporation must not, in trade or commerce, contravene an applicable industry code”
In a case known as Ketchell’s case the court was asked to look at the consequences of a failure to breach the code.
The facts of the case put simply are that the franchisor brought an action to recover money that the franchisee said was owning under the franchise agreement. Mrs Ketchell was the franchisee. Mrs Ketchell argued that the franchisor had not complied with the code. The code requires that the franchisor obtain a certificate confirming that the franchisee had read and had an opportunity to understand the disclosure document provided by the franchisor.
Mrs Ketchell did not provide the certificate. Mrs Ketchell said that the failure to obtain the certificate signed by her was not only a breach of the code but it also had the effect that the franchisor was not entitled to receive any payments under the franchise agreement. The Supreme Court of NSW agreed with Mrs Ketchell.
This case however had unexpected consequences. In a separate case brought by Hoy Mobile Pty Ltd against Allphones in the Federal Court the Franchisor argued that it had not complied with the disclosure provisions of the code and that as a result the franchise agreement was void. The result the franchisor said, was that the franchisee could not make claims under that franchise agreement for money that the franchisee was owed.
The Federal court said that the NSW Supreme Court was incorrect in Ketchells case. The federal court held that non-complaince with the code could not have been intended to have the draconian consequence of invalidating a franchise agreement.
The High Court looked at Ketchells case and handed down its decision on 27 August 2008 it was a unanimous decision. A breach of the code will not necessarily void the Franchise Agreement.
What then can a franchisee do in the event of a breach of the code. The code does not explicitly stipulate penalties.
1. seek an injunction,
2. seek damages,
3. seek non-punative orders,
4. seek other orders including perhaps variations to contracts.
Lots of people have great ideas but, do not have the time, the focus or the money, to implement or advance those ideas. In these times, which many business people see as, uncertain times, people are not prepared to take a risk, even if the potential reward is handsome.
There are however ways of reducing the cost and risk associated with the development of an idea, project or business, while at the same time obtaining access to a bank of ideas, knowledge and resources, at no upfront cost. Yes, less cost and a better chance of success! It is possible! Read more
What kinds of fees should a franchisee expect to pay? We have listed below some of the most common fees. It is not always true that you get what you pay for! In the case of franchising the best question may be to ask what you are getting (in the franchise agreement) rather than focus too heavily on what you are paying. But don’t be fooled! The answer to this pertinent question can only be found in the franchise agreement. A franchisor who offers the world but, cannot back this up with written promises, in the franchise agreement is worth very little and should be paid accordingly.
1. What fees are payable? Consider royalties, promotion and advertising funds, initial fees, renewal and sale fees, legal fees, start -up costs – required equipment etc
2. How are fees calculated – are fees fixed or percentage?
3. When are fees Payable? Are you required to make payments before you sign and if so how is any refund given in the event that you do not proceed?
4. How are fees paid? Eg direct debit
5. What are fees paid for? Is the franchisor required to provide any identifiable level and quality of service in return for the payment?
6. How are fees reviewed and are there likely to be substantial increases?
7. What other start up costs will you incur? Uniforms, equipment, fit out, occupancy costs.
8. Are you required to expend money on advertising in addition to any advertising levy.
Many franchisors impose a sale fee which in some cases can be tens of thousands of dollars. It is important to know at the point of entering the franchise what it will cost to escape the arrangement when, in the future, that becomes necessary.
If you are required to contribute to a marketing or other cooperative fund, the franchisor must prepare a financial statement of the fund=s receipts and expenses and the amount spent on administration, production, advertising. Unless 75% of the franchisees agree otherwise, this statement must be audited within three months of the end of the financial year. The franchisor must give you a copy of the statement within 30 days of your request.
If you require help checking your Franchise Agreement before you purchase or if you have a concern contact us.
If you are a commercial tenant you probably already know that retail shop tenants have a higher level of protection than do other commercial tenants. A retail shop landlord is restrained from doing certain things.
You may be a retail shop tenant even if you do not operate a retail shop. It is essential that you are able to determine if you are entitled to the benefits of the act. A link to the Retail Shop Leases Act is set out here.
Landlords are not permitted to pass on the cost of preparing a lease to their retail shop tenant.
There are rules about the maximum proportion of outgoings that a landlord can ask a retail shop tenant to pay.
The landlord is restricted in the way that increases in rental can be imposed.
There are other benefits also. Read more
Could anyone disagree that most property values on the Sunshine Coast Queensland have been in decline for at least the last 2 years? By my reckoning many properties are significantly less expensive than they were in 2007 which was the height of the property boom on the Sunshine Coast. So don’t get slugged for land tax that you don’t owe!
It is important to know if your lease is classified as a retail shop lease as there are advantages for this kind of tenant. In order to determine if your lease is a retail shop lease see please follow this link. RSL
The following information has been provided by the Australian Competition & Consumer Commission (ACCC) in response to questions submitted by the Franchise Advisory Centre. The information was provided for general guidance only. The outcome of any matter investigated by the ACCC will be determined on the circumstances of the particular case, and will be guided by the ACCC’s Compliance and enforcement policy (attached). We note that provisions of the Trade Practices Act other than s.51AD may also apply when assessing a franchise matter.
1. How will changes to a system’s operations manual be affected by the new provision in relation to disclosure of unilateral contract variations?
Under new item 17A of Annexure 1 (item 9A of Annexure 2), a franchisor will be required to disclose the circumstances in which it has unilaterally varied a franchise agreement in the past (during the relevant period specified in the Code), as well as the circumstances in which it may unilaterally vary the franchise agreement in the future.
If a franchise agreement requires the franchisee to comply with an operations manual, and provides that the franchisor may vary the operations manual unilaterally, then this would need to be disclosed as a possible future variation.
2. The Business Minister announced in March that a plain English guide would be provided in consultation with the franchise community for distribution with franchisor disclosure documentation. What’s happening with this guide? Read more
The Federal Court has penalised Allphones Retail Pty Ltd $45,000 for contempt of orders following action by the Australian Competition and Consumer Commission.
Justice Nicholas found that the conduct was both ‘serious’ and ‘deliberate’, having been undertaken by a number of Allphones’ senior personnel.
The orders which Allphones has been found to have breached concerned two undertakings given by Allphones to the court in October 2008.
They prohibited the company from withholding consent to the assignment of an Allphones franchise if the franchisee would not sign a deed releasing Allphones from liability and required Allphones to give the ACCC 7 days’ written notice of its intention to withhold consent to the assignment of an Allphones franchise on the basis that the new franchisee must enter into a new franchise agreement.
“This decision sends a clear message that the ACCC and the Court regard breaches of court orders very seriously,” ACCC Chairman Graeme Samuel said today.
“Those who act in contempt of court can expect to be vigorously pursued by the ACCC,” Mr Samuel said. Allphones acknowledged that its conduct was both wrongful and culpable, and apologised to the Court and franchisees.
Allphones made joint recommendations with the ACCC to the court as to the appropriate fine.
I attended a seminar held by the Franchise Council yesterday. The speakers were Ralph Edwards and Phillip Chapman of Lease 1. A link to their website is http://www.lease1.com.au/contact.html
There were a number of good points made which have caused me to consider the process of negotiating a lease. We suggest that you always obtain legal advice before proceeding to any negotiation. Here are some suggestions:
1. Pressure on a tenant builds as the date for renewal approaches. Tenants are well advised to Read more
Raine & Horne Pty Ltd –v- Adacol Pty Ltd [2006] NSWSC 36
What is the effect of a restraint of trade after termination of a Franchise Agreement?
Adacol was a Raine & Horne franchisee at Brighton and Ramsgate in Sydney.
The franchise agreement provided:
“29.1 – The franchisee and the (guarantors) agree they will not for a period of 12 months after termination (for whatever reason) of this deed, conduct or be in any way employed or interested in any real estate agency business which carries on business substantially within a 5km radius of the premises.”
The franchisor terminated the Franchise Agreement on the basis that Adacol “voluntarily abandoned the franchise business or the franchise relationship” prior to the end of the term.
Adacol continued to operate from the same premises but instead as a Ray White franchisee. It was a condition of the Ray White franchise agreement that franchise fees be waived until the end of the Raine & Horne term.
Was the restraint of trade is void for public interest? Was Raine & Horne was able to show the restraint is no wider than is reasonably necessary to protect its legitimate interests?
The court found that there were some differences between restraints imposed on employees and restraints imposed on Franchisees.
It is interesting to note that Adacol could have avoided the operation of the restraint if it conducted a real estate agency business outside of the 5km radius of the restraint. This was so, even if it sold or managed properties within the 5km radius, or serviced customers who had previously been customers of the business.
The court found that a franchisor has the following interests to be protected by a restraint of trade:
1. Its direct interest in receiving franchise fees under the franchise agreement. In this case, Adacol proposed to continue to pay the franchise fees until the end of the term.
2. An interest in the franchise itself over and above the revenue it derives from it. e.g. at the end of the franchise, Raine & Horne may enter into a new franchise agreement with a third party, without competition from the former franchisee. This is different from starting up a new franchise business and facing competition from the existing franchisee trading from the original premises. Support for this interest was found in the assignment provisions of the franchise agreement, which provide for the franchisee to be restrained from competing with the purchaser.
3. Raine & Horne has significant goodwill in an existing business built up over many years, notwithstanding that goodwill had been contributed to by Adacol.
The court found that the restraint was enforceable!
Assume firstly that the hypothetical Franchise System is a properly run Franchise System. Of course this is not always the case. In this hypothetical system, what then are the primary risks to success?
It should be expected that the reasons for failure in small business are in many cases the same as the reasons for failure of a Franchisee within a franchise system.
The failure rate for franchised businesses is perhaps less than for private small business as a whole because while some applicants would not be accepted by any competent franchisor, there is no restriction on any punter starting a business. It must be accepted that some people are not suited to owning a business.
What however are the most common reasons for failure within a franchise system. I recently followed a panel of advisors who considered these to be the primary causes of failure:
1. Under- capitalization. If there is not enough money available to make it through the tough times then success will be dependant on luck. A good accountant can provide information about how much working capital is required. Under-capitalization will also cause other failures related to funding which are disguised as something else. For instance, inability to employ the right people and failure to obtain the right advice, are often related to under funding.
2. Not enough motivation. If for any reason the franchisee loses motivation to succeed in the franchise then it is unlikely that the franchised business will be successful. A genuine burning desire to succeed will overcome many problems. Some franchisees hold a belief that it is not necessary to work as hard in a franchise system. This is incorrect. Success in franchising requires hard work, particularly in the early days.
3. Lack of ability. If the franchisee does not have the necessary skills they should not be selected by the franchisor. Nevertheless, even in a good system, a franchisor will from time to time select the wrong candidate. This can happen for many reasons and is a cause of failure.
4. Failure to make genuine energetic effort to follow the system -”I know better than your system” or “I can’t do those things”. Franchising is about following someone elses system. Once a franchisee is not able to do this, then energy is focused on the wrong thing and the franchising system will work against the franchisee, not for them.
5. Failure to work on the business and in particular work on effective marketing. Read the E-myth. A franchisee should not try to do everything themselves.
A dilemma which often faces commercial and retail shop tenants in Queensland is whether or not they should register their Lease with the titles office.
It is common in practice for the Tenant to bear the costs of and incidental to the registration of the Lease. This can include the costs of having a Premises surveyed and plans prepared, lodgement fees and requisitions. This can all be a very costly process.
The question that often confronts a Tenant is: do the risks associated with not registering the Lease justify the initial costs of registration?
So what are the risks? Read more
If you are buying into a franchised system, it will be important to ensure two things:
1. that the Franchisor is performing well
2 that the Franchisee’s existing business (if any) is performing well, within the franchise system.
Franchisor Performance
These investigations are part of your due diligence. There is more to due diligence than having your lawyer check the contracts and your accountant check the figures. Obviously these things need to be done and it would be foolish to consider a purchase without these checks however, you, also have a role to pay.
Every Franchisor is obliged to keep a current disclosure document. That disclosure document is a very useful source of information for you. It should, if properly written tell you if the Franchisor has been terminating franchises and if franchises have been failing or disputes have been brewing. It will tell you the experience level of the Franchisor and much more. If you do not understand the disclosure document then you should get assistance. If the disclosure document is not well written this should be a warning to you.
The disclosure document should also provide you with contact details for past and present franchisees. The purpose of this is to allow you the opportunity to make contact with franchisees so that you can make enquiries in relation to how well the system works and what the Franchisor and its representatives are like. Try to read between the lines. Franchisees do not like to openly criticize the Franchisor as they sometimes fear that this may impact on their business.
You should consider the age of the franchise system, the age of the underlying business and the number of Franchisees within the system and their history. A young franchise system may have additional risk as it will not have a track record and the experience of the Franchisor will then be of particular importance. This experience should be tested rather than accepted on face value. A new franchise system may be more flexible with the arrangements that they are prepared to offer, so perhaps you can twist an arm, to get an advantage but, beware of a Franchisor who is too flexible and is prepared to make a lot of changes. This may be a sign of inexperience at best and at worst, is desperation to make a sale.
Take note of the recruitment process and how professionally it functions. A Franchisor who is prepared to take on anyone who is prepared to hand over some cash may be putting the whole system at risk and your business along with it.
Get details in relation to how the training process will work. The training process will be used by the Franchisor to assess you.
Do not underestimate the importance of personalities. You will have to work with the franchisee and its representatives. Find out who will be your direct contact within the franchise system. A franchisee who likes the Franchisor and their representatives is far more likely to succeed. So it is important to make sure that you believe that you can relate to both individuals and the culture in the Franchisor organization.
Actively ask yourself “what is the Franchisor promising to do for me”. The Franchisors obligations should go beyond renting a name. In a well run system the benefits of the system to the franchisee should be obvious – the list is not exhaustive but may include: group advertising and websites, referral of work, a respected brand, training, buying power, centralized phone number and a manual that sets out a unique systems that gives the brand its character.
In a well run system there should be annual events and opportunities for Franchisees to meet with the Franchisor and other Franchisees.
Franchisee Business Performance
Your accountant will obviously deal with issues related to business performance.
You should however also consider some additional matters. Where does the performance of the franchised business sit within the system. In any existing business the Franchisor should be able to provide this information. Does the business perform better or worse than the average franchise within the system? What can be done to improve performance? What risks are there to the continuing performance of the business? You might also ask your accountant to let you know what the benchmarks are within the industry as a whole. Does a franchisee with an average performance within the system outperform the industry average?
Ask these questions of your Franchisor and you will get a feeling for how well the Franchisor knows the industry and how well they understand their own franchise system.
The cost of preparing legal documentation to turn a business into a franchised system is between $8000 and $20,000 plus GST . This cost may be recovered by the sale of franchises. Once the template documents are prepared the franchisee should pay the franchisor’s costs to prepare and issue the documents, as well as the cost of negotiations. We set up franchise systems for clients throughout Australia. Please contact us for an instant quote. The task of preparing this documentation is a routine legal engagement for us however it is a lengthy process where each step in the process must be respected. We can usually provide draft franchise documentation within 2 weeks of receiving instructions.
The cost and time involved is determined by the complexity of the system, and the extent to which the client has resolved issues relating to the workings of the system. For example if the franchise system relates to a home or vehicle based system, then the cost is generally not much more than $8000 plus GST. When it is necessary to incorporate procedures relating to retail shop leasing then this would normally add another level of processes and cause cost increases.
Riba Business Lawyers aim to build an understanding of your concept and system at an early stage so that we can be of use to the franchisor throughout the life of the franchise system.
The standard documents that Riba Business Lawyers prepare are:
We also prepare the first letters, which introduce the franchisee to the documentation in the manner required by the code. We suggest that Riba Business Lawyers are employed to issue the first disclosure documents and Franchise Agreements so that we can ensure that the required certificates are obtained and that time frames are adhered to. It is of little use complying with time frames, if it is not possible to prove that the time frames have been respected. Dairies, telephone notes, and documentation must be kept meticulously.
The cost of the documentation can move toward the higher end of the range as the system becomes more complex. Complexity can be added for instance by:
The costs of preparing franchise documentation is usually reduced if the client is able to provide a well written operations manual which makes clear the way in which the franchise system is intended to operate. The operations manual will usually set out more detail about operations than will the Franchise Agreement itself.
Please contact Riba Business Lawyers for a no obligation free quote. If you are in the early stages of considering franchising your business please contact us and we can set you on the right path. You may be eligible for a free thirty minute consultation.
A tenant may have no legal right to complain, if a landlord is charging “unfair” rent which is well above the amount that a valuer might say is market rent. The lease determines the rent that is charged. In better times a deal may be struck between the landlord and the tenant. Over time circumstances and the economy may change. Rent is not however determined by the rental market at any particular time. Rental is determined only by the lease. But there may be other things which a tenant can do. Read more
If you are a business that rents premises then you should urgently have a lawyer check to see if your lease is secure.
In some areas of Queensland small commercial landlords might be under strain and business owners may as a result lose their business. Below we have set out the steps that you can take to make sure that your business is not affected. Unfortunately many leases in Queensland are not protected as Section 66 of the Land Title Act has been ignored or forgotten. If the landlord is put into insolvency or bankruptcy then the commercial tenants may be in serious trouble.
A bank wanting to sell business premises does not necessarily want to keep the business in place, Read more
The ACCC is watching!
If you are a Franchisor but you are not bothering to keep your Disclosure Document up to date then you could be in for a nasty surprise!
On 1 January 2011, the ACCC was given the power to monitor compliance with the Franchising Code.
The power enables the ACCC to obtain from a Franchisor any information or documents it is required to maintain under the Franchising Code. The recipient of an audit notice has 21 days to comply.
Examples of documents the ACCC may request include:
The ACCC have indicated that while they have the power to conduct the audit randomly they will concentrate their efforts on Franchisors who have been the subject of complaints.
We can help you put processes in place to ensure that your legal documentation is kept effectively and up to date.
Most transactions whether for the sale of property or a business include at least two or three important dates. These dates are:
1. The date that the contract is signed by the parties to that contract
2. The date that special conditions are satisfied
3. The date that the contract reaches settlement or completion. The completion date and the settlement date are different words, used to describe the same thing.
Which of these dates do authorities rely upon when determining the date of the sale? Read more
Many people wrongly believe that if an agreement is not put in writing they are not required to honour the agreement. This is incorrect (except for some exceptions, one of which is noted below). A verbal agreement may be enforced by either party to the agreement regardless of whether that agreement is in writing. So be careful what you agree! The difficulty you may have guessed is, proving what was agreed. Indeed we see many agreements, even written agreements that are very unclear. There is sometimes so little detail or, so little care taken, that it is difficult to know what the parties are intending. Read more
The Competition and Consumer Act makes “unfair” contract terms void. If a clause is void it cannot be enforced.
Business people should review their standard form contracts regularly to ensure that they are fair.
Consumers should be aware that they may not be bound by the terms of any contract that they have entered into if those terms are not fair.
In order for the act to make an unfair contract term void, the contract must be a consumer contract and the contract must be in standard form.
A consumer contract is a contract for the supply, to an individual of goods or services or land for reasons of personal, household or domestic use or consumption.
It is hard to be sure what a standard form contract is. It is likely however that any contract which is based on a document prepared in advance of any negotiations, that is little changed as a result of negotiations or the considerations of the particular circumstances are likely to be standard form contracts.
A contract that is prepared specifically for a particular transaction and which did not use some form of agreement that was prepared on some earlier occasion will not be a standard form contract.
It is easy to imagine that the “click to accept” contracts that are often seen when transacting on the internet will be judged to be standard form contracts.
What is the test of whether a contract term is “unfair”? A contract term is nothing more than a part of a contract.
The courts will ask the following kinds of questions to determine if a contract term is unfair:
Does the term cause an imbalance in the rights and obligations of the parties?
Is the term necessary in order to protect the party who has the advantage of that clause?
Would the term cause detriment to the party that it is used against?
It is also relevant whether the term is written in plain language and is available.
It is important to note, that an unfair clause or term does not make the entire contract unenforceable, it is only the unfair term that is unenforceable.
If you are borrowing in the name of a company your bank will always require the directors and sometimes others to personally guarantee the obligations of your company.
If the bank requires a guarantee from someone who is not a director or from someone that they suspect gets no benefit from the loan then they may insist that the guarantors get legal advice. This is done by insisting that a lawyer give a certificate confirming that the lawyer has provided legal advice.
Lawyers are not keen to give this advice for a number of reasons:
1. Lexon is the company that provides insurance to all Queensland lawyers. Lexon sees the issuing of these certificates as risky.
2. Many of the clauses in the bank guarantees are inherently unfair.
3. The terms of guarantees can be complex.
The issuing of a solicitors certificate adds a significant cost to the expensive process of obtaining a loan.
You should speak with your bank before documents are issued to see if this cost can be avoided. We are not suggesting that you should not obtain advice. It is important to understand your rights and obligations however there is a significant cost to obtaining this kind of advice and the issuing of a certificate to the bank does not, of itself, protect you.
All of this started with a case known as Armadio.
Commercial Bank of Australia v Amadio [1983] HCA 14: An elderly couple known as the Amadios, signed a guarantee for thier son’s bank, so that their son could obtain a loan. The Amadios believed that their son’s business was doing well, but it was not. When the son’s business failed, the bank sought to enforce the guarantee against the Amadios. A court decided that the guarantee was unconscionable and said that the bank could not rely upon the guarantee. It was held that the guarantee was “manifestly disadvantageous” to the Amadios. The court decided that the bank must have been aware of this but chose to take no steps to ensure that the Amadios were properly advised.
The result is that banks will now often require a solicitors certificate to ensure that steps have been taken to protect the guarantor. Often the requirement for a certificate can be waived if the matter is dealt with early. If however, arrangements are not made at an early stage the bank may seek solicitors certificates even when the only guarantors are directors of the company.
“That contract’s not worth the paper its written on”. I understand that this is how people may feel, when they have taken the time to make a contract, yet a dispute arises anyway. Nevertheless this statement is rarely true, where a contract is properly drafted.
The point of a contract is to provide the parties to the contract, with a starting point, in case there is a disagreement. It is not the case that a White Knight will ride in, to put things right, when the terms of the contract are broken. If the agreement is properly drafted there will be a good number of matters on which it is more difficult to have an argument. Yet there will remain scope for an argument and it is up to you to enforce your rights. You will see below there are things that you can do to make a dispute less likely. Read more
Unless you have seen first hand, the way that legal proceedings can be built or destroyed, by a written note relating to a matter in issue, then you cannot appreciate how much lawyers and the court system love bits of paper. Written notes on bits of paper can literally determine the outcome of legal proceedings.
The absence of written notes can cause lawyers on both sides of an argument to work for days preparing affidavit material, each trying to recount, with limited success what was said. In many cases the factual debate is often won by the person with the best supporting paper. Read more
The Australian Consumer Law has replaced various State and Territory laws from 1 January 2011. This means that business and consumers throughout Australia are now governed by the same consumer laws.
The ACL is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth)
The Trade Practices Act 1974 (Cth) has been repealed and many of its provisions now appear in the Competition and Consumer Act.
Some parts of the Competition and Consumer Act mirror the wording of the Trade Practices Act, however there have been significant changes to the provisions of the Trade Practices Act. The numbering of the Act has changed therefore Businesses that use documents that refer to the Trade Practices Act and its various provisions should amend those documents so that they now refer to the correct provision of the Competition and Consumer Act.
If you wish to update the documents and agreements that you use in business you may wish by way of example to consider these changes:
| Trade Practices Act 1974 | Subject/Section Title | Competition and Consumer Act |
| 51A | Misleading representations with respect to future matters | Schedule 2, Section 4 |
| 52 | Misleading or deceptive conduct | Schedule 2, Section 18 |
| 51AA | Unconscionable conduct within the meaning of the unwritten law | Schedule 2, Section 20 |
| 51AB | Unconscionable conduct | Schedule 2 , Section 21 |
| 51AC | Unconscionable conduct in business transactions | Schedule 2, Section 22 |
One of the most significant changes introduced by the Australian Consumer Law is the introduction of unfair contract terms law, which commenced on 1 July 2010 and which relates only to standard form contracts. Contracts formed Read more
Employee or Contractor?
The farmer who lost his farm – Why use a Caveat?
Personal Property Register affects Conveyancing
Still liable under lease when business sold?
Consultation for Light Rail Project Progressing
Stand up for yourself without spending a fortune on Lawyers
How to raise funds for your project or business without going to a bank.
You do not have to pay penalties!
What happens if a Franchisor Breaches the Code?
Syndicates and Partnerships – used to fund and further, ideas!
Due Diligence – Franchising- Money Issues
Is your Queensland lease a Retail Shop Lease?
Land Tax Valuations – watch out! It’s expensive and don’t assume the valuation will be correct.
Some Things To Consider Before Buying A Business
Selling Your Business – What information do you need to complete the transaction successfully?
Protection for Retail Shop Tenants.
ACCC information – Code and other Requirements explained.
Franchisor in Contempt of Court Orders
Lease Negotiations – Some Hints
Franchising Restraints of Trade
Top Five Reasons Why Franchisees fail in a well run Franchise System
Should a Commercial Lease be Registered?
How to tell if a Franchise System is well run?
What does it cost to Franchise your Business?
Unfair Rent in a Commercial Lease.
Don’t lose your business if the landlord goes Broke!
Franchising Code Audits By the ACCC
What is the legal Date of a Sale
Do Contracts Need to be in Writing?
What can you do if a contract is unfair?
Why does your bank require a solicitor to explain the guarantee?
Why business people don’t want to go to court!
How to Avoid Litigation or improve your chances.
What is the Australian Consumer Law?
Theme: Traction by The Theme Foundry
