A McKenzie Friend (MF) is someone who assists an unrepresented person in court. They can be a lawyer, but they are not a substitute for a lawyer. So lawyer or not, when acting as a MF they may not address the court; they can take notes, organise papers, whisper quietly to and generally assist the litigant. McKenzie v McKenzie (1970) 3 W.L.R 472 was a family law case and MFs are more common in family and guardianship matters, but they may be permitted in any court where an unrepresented person needs assistance to ensure fairness. However, some MFs are overbearing do-gooders, or bush lawyers, who cause disruption and delay rather than actually assist and will not be permitted to remain. In guardianship hearings where there is no right of representation, a lawyer can act as a MF.
Vendor’s duty to co-operate
By Russell Cocks, Solicitor
First published in the Law Institute Journal
Contracts often impose specific obligations on purchasers but these may be accompanied by implied obligations on vendors to co-operate with the purchaser to allow the purchaser to fulfil those obligations.
Contracts of sale of land often include conditions that require a purchaser to undertake some action that will put the purchaser in a position to complete the contract. Such conditions are known as ‘contingent conditions’ in that the purchaser does not promise that the condition will be satisfied but acknowledges that if the condition is satisfied, the contract will no longer be conditional on that condition being satisfied.
A common example is a finance condition whereby the contract is conditional (contingent) upon the purchaser obtaining finance to assist the purchaser to complete the contract, or at least to make application for such finance and notify the vendor of the outcome. The purchaser does not promise that finance will be obtained, but obtaining finance will mean that the contract will proceed. The failure of a contingent condition will generally give a right to terminate a contract.
Contingent conditions may be in contrasted to promissory conditions whereby one, or both, of the contracting parties promise to do something; such as to adjust outgoings, or provide documents, or settle the transaction in a particular way. Generally, the failure of a promissory condition will not give a right of termination unless the condition is essential, or goes to the root of the contract.
Conditions may be both contingent and promissory, as indeed is the finance condition in GC14 of the standard contract. The contract is contingent upon the purchaser obtaining finance, but the purchaser also promises to apply for finance and advise of the outcome of that application. If the purchaser fails to comply with the requirements of the condition, the contingency is deemed to have been satisfied and the contract proceeds unconditionally in respect of finance.
Such conditions specifically impose obligations on the purchaser but also impliedly impose obligations on the vendor. Grubb v Toomey [2003] TASSC 131 and Grieve v Enge [2006] QCA 213 are authority for the proposition that a vendor who agrees to a finance condition in a contract impliedly agrees to make the property available to the purchaser for the purpose of a valuation required by a prospective lender and that a vendor who fails to comply with this obligation will be in breach of contract.
Simcevski v Dixon [2017] VSC 197 concerned the sale of a commercial property that had previously been used as a petrol station and that the purchaser wished to redevelop. The purchaser required finance for the purchase and the financier required a valuation to include an assessment of the likely contamination of the site. However, the contract was not conditional upon finance so it was not open to the purchaser to argue that the implied obligation to make the land available for valuation extended to an obligation to allow investigations.
The purchaser sought to rely on a Special Condition in the contract that stated that the vendor gave no warranty in respect of contamination, that the purchaser had inspected the property and that the purchaser released the vendor from any liability in relation to contamination. The condition also referred to the purchaser conducting investigations in relation to contamination and the purchaser sought to argue that this created an express or implied obligation on the purchaser to conduct those investigations and a consequent implied obligation on the vendor to make the property available for the purpose of conducting those investigations.
In the context of the contract this seemed an ambitious argument, as the purpose of the Special Condition appeared to be to protect the vendor and the court concluded as much. Thus, the court held that the Special Condition did not create an express or implied obligation on the purchaser to conduct investigations. Whilst the court did recognise that a vendor does have an implied general duty to co-operate with the purchaser to allow the purchaser to gain the benefits anticipated to flow from the contract, that duty did not extend to making the property available for the proposed investigations in this case as the purchaser had no obligation to conduct those investigations.
A final argument of the purchaser was that the refusal by the vendor to allow the investigations to be conducted prevented the purchaser from completing the contract and that a vendor in such circumstances should not be entitled to terminate the contract, as to do so would allow the vendor to benefit from its wrongdoing. The court, whilst acknowledging the Prevention Principle, held that, on the facts of this case, the Principle did not apply.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.
Estate planning – An exciting opportunity for small law firms
The usual wills versus a will with estate planning
For most clients a will is a straightforward document that appoints an executor, an alternate executor, perhaps makes some specific bequests of personal items to certain family members, then leaves the balance of the estate to their spouse then their children with a default clause if none of these beneficiaries survive.
The fees charged by most firms are modest and reflect the reality that most clients do not wish to pay a great deal for something that they only reluctantly accept that they need and know they will never personally use and can prepare themselves using a form bought from the post office.
Wills have traditionally been seen as valuable because they eventually bring the firm estate work, rather than valued for the fees associated with the wills themselves. There is an old adage that the goodwill of a practice are the good wills in safe custody.
However, estate planning is a different thing and many firms are now taking a far more comprehensive approach, with a far more profitable result.
Estate planning is an area where small firms can grow their offering to existing clients and attract new, high net worth clients who require and appreciate professional expertise and assistance in this important area of practice.
It is far easier to offer this expertise than many small firms realise. The By Lawyers suite of testamentary trusts and wills clauses, together with the extensive commentary on wills and estate planning, means that firms can confidently advise clients who may have substantial assets including business interests held in company, partnership, trust structures or self-managed superannuation funds.
Whereas a firm might charge few hundred dollars for ‘husband and wife’ wills, the comprehensive succession planning required by a family with substantial assets and interests, including a review of existing structures and documents, preparation of wills which incorporate testamentary trusts, plus other appropriate documents such as powers of attorney and appointments of enduring guardian, is likely to involve fees of many thousand dollars, as well as extending the relationship between the firm and the family to other areas and members. Clients who have such assets and need such advice are mostly very happy to pay for it because they realise the value of the exercise and are as dedicated to retaining their assets for their family as they were to building up those assets in the first place.
Why testamentary trusts?
For clients with substantial assets, complicated families or family members who have medical or personal problems, the use of testamentary trusts has multiple benefits over usual wills, summarised below.
Creditor protection
To protect a bequest from being accessed by creditors of a beneficiary, including guarantees for a business venture.
Divorce of a child
To avoid family assets being redistributed by the Family Court. Assets held in trust are not assets of any individual and the Family Court cannot make an order requiring the distribution of those funds.
Education
Bequests via testamentary trust for payment of school and tuition fees for grandchildren is more tax efficient than simply leaving money to the child’s parents.
High risk beneficiaries
Where one of the beneficiaries is in a high-risk business or has personal issues with drugs or gambling which warrant strict controls being placed on access to any estate funds.
Remarriage of spouse
To limit access to existing family assets by a new family or spouse.
Tax benefits
To minimise tax payable, facilitate income splitting and distribute tax free to children under 18 on marginal rates with the no tax threshold.
Will challenges
Keeping estate assets in trust means they are not in the beneficiaries’ estates and therefore not subject to challenge when they die.
Disabled children
To ensure that any disabled or intellectually impaired children are provided for in the most effective way. A Special Disability Trust can provide a substantial bequest to a disabled child without impacting on any Centrelink benefits.
Identifying the right clients for complex estate planning
Although most clients potentially would benefit from a testamentary trust, their present circumstances do not suggest that one is necessary. In contrast estate planning is essential for clients with high net worth, multiple assets and asset types, business interests, complex business structures, existing family trusts, self-managed superannuation funds, complicated family arrangements and relationships and potential beneficiaries with special needs or personal problems.
Many clients have not considered the need for estate planning which with the aid of By Lawyers commentary and precedents can be offered by practitioners.
The benefits of testamentary trusts
- The fundamental advantage of a testamentary discretionary trust is that the assets are held by the trustee for the beneficiaries, not by the beneficiaries themselves. This allows the protection of assets from claims against beneficiaries and from misuse.
- Separate fixed trusts can be established for separate people or purposes, with conditions. For example, if one child has a drug addiction, a bequest could be left in trust for that child to receive appropriate maintenance and treatment, without them having access to the capital.
- If a beneficiary faces bankruptcy, an inheritance for that beneficiary through a testamentary discretionary trust will not form part of the beneficiary’s bankrupt estate.
- Assets held within a testamentary discretionary trust are not part of the matrimonial pool to be divided up in any family law property settlement in the event of divorce.
- Testamentary trusts also provide an opportunity for testators to control assets after their death, by way of conditional access to trust assets. While not desirable for the beneficiaries, this can certainly be seen by many testators as an advantage.
- Testamentary trusts can be very tax effective – income, capital gains and franked dividends can be distributed among all beneficiaries each year in the most tax-efficient way.
By Lawyers precedents and commentary
Using By Lawyers publications gives your firm the tools and confidence to assist clients with their estate planning, bringing profitable new work and quality new clients into your firm.
GST withholding
By Russell Cocks, Solicitor
First published in the Law Institute Journal
Six months after the ATO introduced new GST Withholding obligations on purchasers of real estate, those changes are starting to have an effect.
In an attempt to reduce avoidance of GST obligations by vendors arising from the practice of illegal phoenix activity, the ATO introduced a GST Withholding obligation on 1 July 2018. The intent of these changes is to require purchasers of certain types of real estate to withhold a portion of the purchase price from the vendor and pay that money to the ATO, to be applied as a credit towards the vendor’s GST liability. This is not a new tax, just a new method of collecting an existing tax. However, as is usually the case when the ATO seeks to transfer responsibility for tax collection, unintended consequences may result in the ‘innocent’ tax collector facing unexpected consequences.
Notice
Unfortunately, the introduction of the Withholding obligation has been complicated by the introduction of a parallel NOTICE obligation on vendors. It is logical in a transaction that generates a purchaser Withholding obligation to require the vendor to notify the purchaser that the obligation exists, but the vendor NOTICE obligation does not mirror the Withholding obligation and applies to a wider set of transactions than the Withholding obligation applies to. By way of example, one of the categories where the purchaser must Withhold is the sale of NEW residential premises but ALL vendors of ALL residential premises are obliged to give a NOTICE. In the case of not-new residential premises, the NOTICE states that the purchaser is NOT obliged to Withhold and given that the vast majority of residential sales are of existing (as opposed to new) properties the effect of the legislation is to require a vast number of vendors to advise the purchaser that no Withholding is required. This obligation appears to be counter-intuitive and has resulted in considerable misunderstanding in relation to the application of the Withholding obligation. It is difficult to glean the motivation behind this wider NOTICE obligation and perhaps this anomaly might be rectified in any review of the legislation.
The most efficient way to deal with the NOTICE obligation when no Withholding is required is to include the NOTICE in the contract with the statement that no Withholding is required. If Withholding is required, the NOTICE must provide the vendor’s name, vendor’s ABN, specify the Withholding amount and when it is payable (at settlement) and may be provided in the contract, or subsequently.
Obligation
In summary, the purchaser must Withhold if the contract relates to:
- new residential premises.
This category can be seen to apply to apartment and townhouse sales where there was a perception of illegal phoenix activity.
- potential residential land.
This category applies to greenfield subdivision sales, again a potential phoenix scenario.
However, this category is wider than lots on a proposed plan. It applies to potential residential land that is included in a (registered) plan of subdivision. It therefore applies to sales of residential lots off-the-plan (because the plan is registered prior to settlement) but also applies to the sale of ANY residential land that is a lot on a plan of subdivision – effectively ALL vacant residential land.
However, Withholding is only required where the vendor makes a taxable supply. Off-the-plan sales by land developers will be in the course of an enterprise and therefore taxable supplies attracting Withholding, but most sales of one-off vacant residential lots will NOT be in the course of an enterprise and therefore will not be a taxable supply and will not attract Withholding. Notwithstanding that no Withholding is required, the vendor must still give the purchaser NOTICE that Withholding does not apply.
Again, this seems counter-intuitive and restricting the obligation to off-the-plan sales might be a future improvement.
Payment
If the vendor gives NOTICE that Withholding applies the purchaser must lodge a form of Withholding notification with the ATO and will then receive a lodgement reference number (LRN) acknowledging the notification and a payment reference number (PRN) to be used when lodging a settlement date confirmation form at the time of payment to the ATO.
Tip Box
•GST Withholding applies to new residential premises and vacant residential land.
•Withholding NOTICE must be given with ALL residential sales.
Power of attorney
By Russell Cocks, Solicitor
First published in the Law Institute Journal
Property lawyers often come across a Power of Attorney in practice and understanding the obligations of an Attorney is important.
The ability of a person (the donor) to delegate power to another (the attorney) has been recognised by the law for centuries. A common law form of Power of Attorney would be in the form of a deed and would recite the appointment by the donor of the attorney and confer power on the attorney. Traditionally such documents would run for many pages and would enumerate extensive powers that the attorney was authorised to exercise on behalf of the donor. Alternatively, the document could be limited in scope, authorising the attorney to exercise specific powers for a specific purpose.
The significance of the power conferred on the attorney was recognised as a reason for government supervision and a system of registration of powers was established. But the cost of this supervisory role was deemed excessive and the registration of powers ceased in the late 20th. century, although a limited registration process is available at the Land Titles Office for ‘heavy users’. The wheel turns in such matters and there are presently calls for law reform to again invoke a registration process.
The form of a power of attorney was governed by the Instruments Act 1958 until the Powers of Attorney Act 2014. This Act sets out in detail the requirements relating to the creation, use and revocation of powers of attorney and recognises various types of powers, the most important of which is the Enduring Power of Attorney. This is so as the common law took the view that the attorney loses power if the donor loses legal capacity and, given the importance of powers for the management of the affairs of the elderly who are susceptible to losing capacity, such a restriction undermines the effectiveness of the power. The Act therefore perpetuates the Enduring power beyond loss of capacity of the donor.
FIDUCIARY DUTY
Perhaps the most important aspect of a power of attorney is the fiduciary duty owed by the attorney to the donor. This is a common law concept and is not mentioned in the Act, although the Act does have a prohibition on the attorney entering into any transaction that may create a conflict between the interests of the donor and the interests of the attorney (s 64) and specifically prohibits the attorney from using the position to make a profit (s 63). These are the two fundamental elements of the common law fiduciary duty and to that extent the Act confirms that duty.
A recent case that considered a breach of the common law duty is Ash v Ash [2017] VSC 577. The donor appointed his daughter (who was a solicitor) as attorney in 2012. By 2014 the donor had lost capacity and the attorney made a number of transfers of the donor’s assets, including superannuation, that resulted in the donor’s assets being substantially diminished. These transfers were to entities associated with the attorney and the attorney directly benefited from these transactions.
The attorney sought to explain the transactions as flowing from previous instructions given by the donor and as a result of the attorney using her ‘signing authority’ at the donor’s bank but the court dismissed these suggestions as a ‘fiction’ and to accept that argument would be to ‘undermine the protective role inherent in the appointment of an attorney’.
The court did not suggest that an attorney can never enter into a transaction creating conflict between the interests of the donor and the attorney and recognised that ‘fully informed consent’ of the donor would justify an attorney entering into such a ‘conflict’ transaction, however the attorney failed to discharge the onus of proving that such consent had been given by the donor.
The donor was represented by a VCAT appointed administrator who successfully sought judgment against the attorney for all losses suffered as a result of the attorney’s breach of fiduciary duty and also judgment against entities associated with the attorney who had been ‘knowing assistants’ in this breach.
Had these actions taken place after 2015 the attorney may well have also been charged under s 135(3) Power of Attorney Act with committing an offence of using a power of attorney to gain financial advantage for the attorney or another person, with a possible penalty of 5 years imprisonment.
Tip Box
•Powers of Attorney create fiduciary obligations that the attorney must honour
•These obligations include a duty to avoid conflicts of interest
•Criminal penalties may apply to breach of these obligations
•Whilst written for Victoria this article has interest and relevance for practitioners in all states
Time management
By Guy Dawson, CEO
Time is finite.
We all have the same quantity.
It cannot be enlarged or extended.
It is set and settled.
So the use of our time, effectively or clumsily, productively or wastefully, differentiates between good outcomes and modest ones. Many of us say: How can we do more when we work all day already? This fails to appreciate that it is the effective use of time, not just time spent, that counts.
So, the question is how to use time effectively?
Not surprisingly it starts with spending no time at all on work through automation.
Interactive data bases populating pre-written letters and documents with automatic entry of accounts to client ledgers. Sublime – concentrate on the law not the production. Introducing such a system is astonishingly time saving to those who have not experienced it before.
It progresses to introducing a system that provides direct access to information that may be needed to find an answer to a legal question or to a practice or procedural issue without any time spent looking for it. Information retrieval can be a major, time-consuming activity in all but the rote work in a practice, and even then there are occasions you need to look something up.
Having established a sewing machine system for handling matters, attention needs to be given to the time spent in communications with staff members, particularly in dealing with the many questions that arise each day such as customer complaints, wage increases and holiday rosters. By having in place a management system that deals with the various office policies and procedures, and that is accessible, and readily understood, by all staff is a major time saver. It also empowers staff members by providing them some independence.
The nature of legal practice is such that no one has the time to devote to administration unless it is critical. Despite good intentions the only consideration given to time usage is at best occasional, when forced on the principal, usually in situations such as a failure to meet a time constraint.
In a truly contradictory fashion time spent on the practice, which is largely seen as the most non-productive expenditure of time is in fact the most productive time saving activity of all!
Habits should be broken
By Guy Dawson, CEO
Despite the encouragement to self-help with the writings
of such as Dale Carnegie and Stephen Covey on winning friends and being highly effective the one habit that remains rigid is the resistance to change.
So as legal insurers struggle to make safe the behaviour of older practitioners, and only have hope for influencing the practice of younger ones, those heralding change from paper to digital from old language to new, from old precedents to better new ones, struggle for converts.
Admittedly change is painful – like learning the operation of a new phone or assembling Ikea furniture. A bit of time and a bit of patience is required for both, and yet neither is plentiful in the life of a practitioner. Yet the rewards are!
It seems the most successful firms welcome and embrace new technology, modernise their precedents, improve management, incentivise staff and refresh their practices each and every day. They make more money, and the practice of law becomes a little easier. Vitality is their habit.
Sounds exhausting – but much less so than the apathy of endless hours of unchanging slog.
De Facto – The Tension Between Family law, succession law and Superannuation
By Guy Dawson, CEO
It is generally accepted that when two people get together there are circumstances that exist, or a period of time that has elapsed, before they can be considered life partners – before their financial lives are joined and divided in an equitable manner on separation or death.
In order to investigate whether there is in fact a de facto relationship in family, succession and superannuation law, the interpretation acts such as the Commonwealth Acts Interpretation Act 1901 section 2F sets out the matters to consider as follows:
(a) the persons are not legally married to each other; and
(b) the persons are not related by family; and
(c) having regard to all the circumstances of their relationship, they have a relationship as a couple living together on a genuine domestic basis. Working out if persons have a relationship as a couple the circumstances considered may include any or all of the following:
(a) the duration of the relationship;
(b) the nature and extent of their common residence;
(c) whether a sexual relationship exists;
(d) the degree of financial dependence or interdependence, and any arrangements for financial support, between them;
(e) the ownership, use and acquisition of their property;
(f) the degree of mutual commitment to a shared life;
(g) whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;
(h) the care and support of children;
(i) the reputation and public aspects of the relationship.
Registering a relationship is tantamount to deciding to marry so it is not a common practice.
Family Law
For the Family Court to make orders, under the Family Law Act 1975, the time that must have elapsed for the finding of a de facto relationship is at least 2 years.
The other circumstances that may establish jurisdiction are:
- That there is a child of the de facto relationship; or
- That the party to the de facto relationship who applies for the order or declaration, made substantial contributions and a failure to make the order or declaration would result in serious injustice to the applicant; or
- That the relationship is or was registered under a prescribed law of a State or Territory.
Financial arrangements before the expiration of that time are matters for consideration by the courts as partnerships or joint venture arrangements.
Succession Law
Succession Law across the States defines the term partner or spouse to include a person who was either married to or in a domestic partnership with the intestate. Domestic partnership is a relationship for a continuous period of at least 2 years prior to death, or that was registered under a prescribed law of a State or Territory, or one that resulted in the birth of a child,.
Superannuation
The relationship test of 2 years, does not apply to the determinations of Superannuation Trustees under the Superannuation Industry (Supervision) Act 1993 .
The failure to include such a time period in the SIS legislation results in some ludicrous decisions which sees large sums of money paid to a boyfriend or girlfriend in a relationship of only a few weeks, or a month or two shacked up, without children and no registered relationship. Family members such as parents and siblings are often overlooked and receive nothing at all.
The SIS Act needs to be brought into line with family and succession law to provide the minimum period of 2 years so common sense can prevail.
Common law allows for common sense
By Guy Dawson, CEO
For reasons hard to understand, the profession seems to have gone along with the growth of regulation and the slow demise of common law.
It needs to be said loudly and clearly that common law allows for individuality, flexibility, and common sense, whilst regulation equates to conformity and rigidity.
It is time to reaffirm that personal responsibility should determine our behaviour, with resort to the good offices of the bench if we stray outside the reasonable bounds set by the laws of contract, crime and tort. The wrong worked on our freedoms, by regulating our behaviour is now ever present.
Each day I am assaulted by the mindlessly inflexible rules designed for everyone and yet suiting no one. These well-intentioned rules are developed to comply with suffocating regulation and administered by impersonal apparatchiks in government and big business, all of whom have lost sight of everyday common manners and friendliness, and all are securing their jobs and protecting their backs against some imagined threat. At the forefront of this unconsciousness are the privacy rules followed closely by the consumer credit rules and verification of identity rules.
It seems that we are no longer to be trusted with the discretionary freedom to choose, contract, and speak, as the imperfection of individual behaviour is no longer preferable to standardised impersonal behaviour produced by controlling regulation.
A source of anxiety
By Guy Dawson, CEO
All of us behave to comply with the views of the group to which we belong. It is our collective mindset. We witness this in our children every day as they seek to fit in with their peers at school. Long hair short hair, shirt in shirt out, don’t drop me off in the Porsche please use the ute, can’t leave before midnight not 10 please Mum. And so it goes. As Aussies we don’t much like the way the Yanks carry on and as for the French or the Germans well what are they all about, they don’t even play cricket.
And so here we are in 2017 in a group which boasts of a 30% depression rate and twice the general population’s substance abuse. And this group has since 1970 multiplied in number 50-fold. This is us – legal practitioners.
So what goes on that makes our group have such a high level of dysfunction? Why is it that almost universally practitioners express their desire to do something else if only there was something else they could do?
Perhaps some answers.
The job is demanding – Organise the office. Use matter management software, accounting software, purchase or subscribe to reliable up to date legal support materials including precedents. Manage risk by using matter plans for the conduct of every matter.
Clients are always trouble – Learn how to ensure the monkey stays on the client’s back – not yours. Put the client’s interests in front of your own. Candour efficiency and charges that are reasonable and in line with the market, are essential in minimising trouble.
Can’t rely on the staff – Incentivise, train and have strong reliable office values. The psychology of all businesses flows down from the top. Your nature will be the nature of the practice. Ideally, light hearted, efficient and successful.
There is always conflict – speak to the other side’s practitioner. Seek compromise and agreement. Resolve arguments as quickly and cheaply as possible. Never put fee earning above quick resolutions.
My professional responsibilities and compliance requirements overwhelm me – remember the purpose of all the rules is to ensure that the relationship with clients is an honest one. Get the retainer right, do the job well and on time, charge market rates, communicate with clients. Easy really !
With the deregulation of fees our profession became a business and put us in competition with an ever-growing group of fellow members.
For the sake of the law it is time we recognised that a ‘business’ model does not work and we returned to the days when we were a profession and part of an important group worthy of the respect of the community for the role we play in the implementation of a fair and stable civil and criminal system. The practice of law is a challenge not a sentence. It has scope for great satisfaction but like all good things takes some work to achieve.
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