ByLawyers News and Updates

Employer’s redundancy assumption goes awry in dismissal case

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By Brad Petley

Acumen Lawyers Workplace relations and safety law specialists

In Brief

In the recent appeal case about a redundancy, Fair Work Australia (“FWA”) rejected an employer’s “assumption” that a manager would be insulted if offered redeployment to a more junior position following a restructure: Jenny Craig Weight Loss Centres Pty Ltd v Margolina [2011] FWAFB 9137.

What does the Fair Work Act say about redundancy?

The Fair Work Act sets out a number of requirements in order for a dismissal to be considered unfair. One such requirement is that the dismissal must not be a case of “genuine redundancy.”

If an unfair dismissal claim is lodged but FWA finds that the dismissal was because of a “genuine redundancy,” it will bring the claim to an end.

A dismissal will not have been a genuine redundancy, if it would have been “reasonable” in all the circumstances for the employee to have been redeployed within the employer’s enterprise (or an entity associated with the employer’s enterprise).

The Jenny Craig dismissal case

In 2011, Jenny Craig Weight Loss Centres (“Jenny Craig”) restructured its operations resulting in a female manager’s redundancy and dismissal.

Prior to the redundancy, the woman was employed as a Regional Manager. The employee’s position involved significant responsibility including hiring and firing staff, as well as the strategic direction and revenue growth of Jenny Craig centres within her region.

The employee challenged her dismissal by lodging an unfair dismissal claim with Fair Work Australia (FWA).

Under the Microscope – The Employer’s Actions

During the appeal hearing, it emerged that:

  • The possibility of redeployment was never discussed with the employee
  • There were a number of more junior management positions vacant at the time (although of lesser responsibility and pay) including that of “Centre Leader”
  • The employee had the necessary skills, qualifications and experience for a Centre Leader position
  • If offered, the employee would have accepted a Centre Leader position
  • No alternative position was offered to the employee

An excuse put forward by the employer for failing to offer redeployment was that an offer of a lesser position, it had assumed, would be taken as a “complete insult” by the employee concerned.

The Decision

FWA held that the dismissal was not a case of a “genuine redundancy” because redeployment to a Centre Leader position would have been reasonable in all the circumstances.

Factors taken into account by FWA included that:

  • There had been an option of redeployment to a centre leader position
  • The employee had the necessary skills, qualifications and experience for that position
  • There was no reason to disbelieve the employee’s evidence that she would have accepted the position if it were offered

Lessons for Employers

Employers should:

  • If considering a restructure, be mindful of the Fair Work Act’s “genuine redundancy” requirement
  • If redeployment is available but to a lesser position – never assume that an employee will reject redeployment
  • Whether an employee may be “insulted” by a particular offer of redeployment is not a valid reason for failing to discuss redeployment with the employee
  • If in doubt about whether an employee has the relevant skills, qualifications and experience for a particular vacancy – discuss those concerns with the employee and seek his/her feedback.

Ensure compliance with workplace laws

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By Brad Petley

Acumen Lawyers Workplace relations and safety law specialists

Even though the Fair Work Act 2009 has been in full operation for just over 2 years, we are continually surprised by the amount of outdated employment contracts and workplace policies still in use. The Fair Work Act introduced the National Employment Standards (NES) and Modern Awards. The NES brought about changes to a number of minimum terms and conditions, which necessitated amendment to many existing employment contracts and workplace policies in order to bring them in line with the NES.

The risk to employers who fail to rectify non-compliant contracts is legal action by the Fair Work Ombudsman for a breach of the NES and/or a relevant Modern Award and the prospect of a civil penalty of up to $6,600 for an individual employer and $33,000 for a corporate employer.

The solution for remedying non-compliant employment contracts is relatively simple – re-issue new compliant agreements. If changes to existing agreements were merely a restatement of applicable Fair Work Act provisions, the consent of affected employees would not be needed. That is because the revised employment contract would be merely recognising the changes automatically brought about by the commencement of the Fair Work Act. Of course, if an employer wished to introduce other terms into a revised contract (unrelated to the Fair Work Act’s changes), those terms would require the agreement of the employee affected.

Ensure Workplace Policies and Employment Contracts are workable.

In the 2011 case of Tara Davies v Hip Hop Pty Ltd T/A Hippity Hop Child Care (an unfair dismissal case) Fair Work Australia considered an employer’s policy so poorly worded that a breach of the policy could not constitute a valid reason for a dismissal. Thus, the employer’s dismissal action was found to be unfair.

A mistake that employers sometimes make is to create unnecessary disciplinary restrictions in their workplace policies. The “3 warnings before dismissal stipulation” is somewhat of an HR myth. Some employers mistakenly include such a precondition in workplace policies as well-intentioned guidance for their managers to follow. In reality, however, such restriction would leave a manager without the necessary discretion to take dismissal action when faced with serious misbehavior, if the requisite amount of prior warnings had not been issued.

Industrial tribunals often take a dim view of an employer’s failure to follow its own procedure, if it resulted in an employee’s dismissal. Where an employee’s dismissal is found to be unfair, an order for reinstatement of the employee or the payment of monetary compensation could follow.

How many warnings are necessary?

The Fair Work Act does not set out any minimum amount of warnings that must be issued in order for a dismissal to be considered fair. Whether none, one or more prior warnings are appropriate before an employer may dismiss a misbehaving or underperforming employee, it will depend on the facts and circumstances of each case.

If an employer is unsure of its rights or obligations, advice is always recommended.

Lessons to take-away

Employers should:

  1. Audit their business’s employment contracts and policies to ensure compliance with the National Employment Standards and modern awards.
  2. If necessary – reissue new (compliant) employment contracts
  3. Amend workplace policies that are found to be non-compliant with workplace laws and/or containing flawed or overly prescriptive provisions.
  4. If there are none in place – implement written employment contracts and written workplace policies as soon as possible.
  5. Seek advice and assistance, if in doubt.

Costs and caveats

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A caveat is a document authorised by s 89 Transfer of Land Act 1958 (Vic.) as a means by which a person claiming an interest in the land of another person can record that interest on the title to land owned by that other person. The virtue of a caveat is that it serves to give notice to the world of the interest of the caveator and generally means that a person dealing with the registered proprietor of the land will require that the caveat be satisfied prior to completion of any transaction. A caveat is often used by a person who is owed money by the registered proprietor to provide quasi-security for that debt.

A caveat must be supported by a caveatable interest in the land and whilst a simple debt owed by the registered proprietor to a creditor will not, of itself, create a caveatable interest, a debt supported by a charging clause will do so. Thus a document that records the debt and charges the land with repayment of that debt will justify a caveat.

Lawyers perform services for clients and are entitled to charge costs for those services. Many lawyers enter into costs agreements with clients in respect of those costs and those costs agreements may include a term whereby the client charges the client’s land, or the client’s interest in the land of another, with payment of those costs: Porter & Anor v Bonarrigo [2009] VSC 500. Prudently, the costs agreement would also include a term whereby the client acknowledges that the lawyer may lodge a caveat over that land to secure payment of those costs.

There may be an argument that the lawyer in such circumstances should advise the client to seek independent legal advice in relation to the proposed charge and caveat, but that is a matter for another day.

In passing it may be noted that the caveat may be lodged against a property even if the client is only one of the registered proprietors and indeed may be lodged against the property of a person other than the client, if it can be established that the client also has an (unregistered interest) in that property, for instance, by way of a constructive trust.

Thus caveats are common in family law disputes where one party may not have access to funds but does have an interest (either registered or unregistered) in matrimonial property. However the case of Brott v Shtrambrandt [2009] VSC 467 highlights a potential problem with such caveats, particularly in the family law area. Beach J. held that lawyers’ costs agreements are, in appropriate circumstances, subject to what was then the Consumer Credit (Victoria) Code, arising out of the Consumer Credit (Victoria) Act 1995, the current equivalent of which is the National Credit Code, arising out of the National Consumer Credit Protection Act 2009 (Cth).

The code is designed to regulate consumer lender. At first glance one might wonder how a costs agreement can constitute lending, but the various definitions in the Act mean that deferral of payment of a debt constitutes the giving of credit and any agreement to secure the payment of that debt constitutes a mortgage. If the agreement includes a provision whereby ‘a charge is or may be made for providing the credit’ then the code applies. Lawyers are entitled to charge interest on unpaid accounts (Legal Profession Act 2004 s 3.4.21(4)) and a costs agreement that provides for the payment of interest will be a ‘credit contract’. A lawyer’s practice clearly satisfies the requirement that the credit be provided in the course of business and so, provided the client is a ‘natural person’ or a ‘strata corporation’ and the ‘credit’ is provided for personal purposes, the costs agreement will be subject to the National Credit Code. These two latter requirements makes the code particularly relevant in a family law environment, but it will apply to all clients who operate as a personal, as opposed to corporate, entity in other than a business environment.

A costs agreement may therefore be a ‘credit contract’ and also constitute a ‘mortgage’ under the National Credit Code. Section 44(1) of the code requires a mortgage to ‘describe or identify the property which is subject to the mortgage’ and subsection (2) provides that ‘a provision in a mortgage that charges all the property of the mortgagor is void’. Thus a provision in a costs agreement that fails to identify the charged property or seeks to charge all the property of the client will be struck down and any caveat lodged pursuant to such a costs agreement will be susceptible to challenge.

This decision later played out in Shtrambrandt & Anor v Hanscombe & Ors [2012] VSC 102. Beach J. had identified the successful legal challenge to the caveats lodged pursuant to the costs agreement independently of arguments advanced by the parties. By that stage Shtrambrandt was self-represented but he had been represented by various solicitors and barristers in the proceedings over several years and he sued those lawyers for failing to have identified this defence. After a 13-day trial in relation to this and other issues Ferguson J. decided that, given the novelty of the argument, the lawyers had not been negligent in failing to identify that defence.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Subdivision – Off the plan sales – Materially affects

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many properties are sold ‘off the plan’. This is the phrase used to describe a property that is a lot on a proposed plan of subdivision, meaning that the plan of subdivision creating the lot has been drawn but it is not yet registered at the Land Titles Office.

Historically, it was not permissible to sell ‘off the plan’. Until amendments to the Sale of Land Act 1962 it was basically illegal to enter into a contract for the sale of a piece of land unless that land had its own title. Unfortunately the subdivision process can be very time consuming as the infrastructure required for the plan to get to a stage where responsible authorities are satisfied that the plan can be registered and separate titles issued is often substantial. In the case of land subdivision, this involves the provision of roads and services; and, in the case of building subdivision, it involves construction of the building. However the market consisted of vendors who were keen to secure purchasers for these separate lots and purchasers who were keen to secure their ‘little piece of heaven’ and so the restriction on sale that was a dampener on economic activity was eased.

However, in recognition that such contracts generally involve a developer and a consumer and therefore are conducted in an uneven bargaining environment, some restrictions still apply to such sales. These restrictions also recognise that there is likely to be a substantial delay between contract and settlement. Indeed, this very month, an obligation to include a conspicuous Notice to that effect in every off the plan contract has come into force. Other statutory provisions relating to such sale include limitation on the amount of the deposit and an obligation that it be held on trust, an obligation to include information about land surface works, a default period for registration (sunset clause) after which time the purchaser may avoid the contract and protection against changes to the proposed plan. These obligations require the inclusion of various provisions in the contract and these are included in the General Conditions.

Despite the fact that off the plan sales form a substantial part of the market, there have been relatively few decisions that have considered the meaning of these statutory protections. In the apartment market, there were some proceedings involving dissatisfied purchasers in the early days of the Docklands project, but those complaints tended to relate to price rather than off the plan issues. In the land subdivision market, the lack of cases probably reflects the fact that it is just too expensive for John Citizen to consider taking a land developer to Court in relation to such matters.

In recent years off the plan sales have become popular in an area that is something of a combination of the other two areas. Urban renewal and infill housing has created a market for small land subdivisions that involve the subdivider either constructing a home on the subdivided land or arranging for that construction. This scenario produced the recent case of Joseph Street P/L v Tan [2012] VSCA 113 discussed in the September 2012 column and has now produced Besser v Alma Homes P/L [2012] VSC 460.

This case involved a 4 lot plan of subdivision of a large block on a main road in Caulfield and the purchaser entered into an off the plan contract for a ‘front’ unit for $1,250,000. The contract included a copy of the proposed plan of subdivision which included a plan showing a common driveway between the two front blocks giving road access for the two rear units and revealed that an owners corporation would be created with each unit having a 25% entitlement and liability. After registration of the plan the purchaser became aware that the lot entitlement and liability had changed so that each front unit had an entitlement and liability of 1 out of 202 – less than 0.5%. This unilateral decision by the developer had apparently been made on the basis that the front units would not use the common property and, on a liability basis, could be seen to advantage the front units.

However this proposal had not been communicated to the purchaser, who took the view that the change amounted to “an amendment to the plan of subdivision which will materially affect the lot” thereby entitling the purchaser to avoid the contract pursuant to s 9AC of the Sale of Land Act 1962. The vendor argued that the change to the lot entitlement and liability schedule was not a change to the plan, but that argument was rejected. Similarly, the vendor’s argument that the amendment did not “materially affect” the lot was, not surprisingly, rejected. Pagone J. alluded to the loss of voting rights consequent upon the amendment, but the affect on insurance entitlement in the case of a combined building policy would also be a powerful reason to find material affectation.

Interestingly, the fact that the notification of the amendment and the purchaser’s avoidance was made after registration of the plan was not an issue. Section 9AC(1) does include the words ‘before the registration of the plan’ but presumably the vendor accepted that as notification came after registration of the plan, an attempt to limit the purchaser’s avoidance right to prior to registration would be doomed to fail. The interaction between s 9AC and s 10, which also creates an avoidance right but is limited to exercise prior to registration, is uncertain and legislative clarification of the purchaser’s rights in this regard is needed.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Subdivision – Off the plan sales – Best endeavours – Part 2

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The April 2011 column considered the case of Joseph Street Pty Ltd v Tan, a decision at first instance reported at [2010] VSC 586. The case has now been reversed on appeal, reported at [2012] VSCA 113.

The effect of the Court of Appeal decision would appear to make the entering into of a s 173 Planning and Environment Act 1987 Agreement compulsory for developers in all circumstances where the municipal council is prepared to enter into such an Agreement.

The case involved a ‘villa unit’ style development of 6 single storey units in Box Hill. Units were sold off the plan with settlement to be after registration of the plan in accordance with common practice. The builder that the developer had contracted to undertake construction failed to do so and the developer was forced to find another builder. As a result, construction was not completed within the time allowed by the contract for registration of the plan (the sunset period) and the developer rescinded the contract.

The purchaser refused to accept rescission and sued for specific performance of the contract on the basis that the vendor had failed to use ‘best endeavours’ to have the plan registered. It had been established at first instance that this obligation consisted of both an express contractual obligation and also as an implied obligation.

The Full Court identified that registration of the plan could only be achieved when the council had issued a Certificate of Compliance, but that there were two methods by which the developer could obtain that Certificate and thus fulfil the contractual obligation to secure registration of the plan:

  1. the developer could complete all the building works to the satisfaction of all relevant service authorities; or
  2. the developer could enter into a s 173 Agreement with Council after entering into agreements with service providers.

Evidence given on behalf of the developer suggested that the s 173 Agreement option was limited to ‘greenfield’ developments and had not been contemplated by the developer as an option. However evidence from the council suggested that s 173 Agreements were common in ‘smaller’ developments and indeed the planning permit issued in respect of the development had referred to the possibility of just such an Agreement.

The effect of the s 173 Agreement is to give the council the ability to register on the ‘parent’ title (the title to the unsubdivided land) the requirement that the development be constructed in accordance with the planning permit issued in respect of the development. If council has the benefit of such an Agreement then, subject to the satisfaction of other relevant authorities, council is able to be satisfied that the development will be built in accordance with the permit and council’s planning responsibility in relation to supervision of construction is thereby satisfied. If construction is not in accordance with the permit, council is entitled to enforce the s 173 Agreement against the developer and all subsequent registered owners.

The s 173 Agreement process appears to be a shortcut to registration of the plan, as a certificate of compliance may be issued by council well in advance of completion of all construction and infrastructure works. The requirement that the developer enter into satisfactory agreements with infrastructure providers is a pre-condition to a s 173 Agreement and such arrangements may be tedious to negotiate, but once achieved registration of the plan can quickly follow.

This might cause concern for a purchaser if the only requirement on the vendor is registration of the plan. As can be seen from the above, this could be achieved well before construction is complete, but no purchaser is going to want to pay for a half finished property. Thus a purchaser needs to be satisfied that settlement will only be due after both registration of the plan and issue of a certificate of occupancy. Whilst there is much to be said against a certificate of occupancy being a true reflection that all works have been completed, it is at least an objective confirmation that most works have been completed. A better test is a satisfactory report from the purchaser’s building consultant, but few developers are prepared to countenance such a hurdle.

Whilst the Court of Appeal in Joseph Street may have identified a shortcut that was open to the developer, it is interesting to note that the developer was not aware of that possibility and there is no suggestion that the purchaser ever suggested to the developer that such a process was available, let alone that the developer refused to follow that course. Apparently, the mere fact that the option was available and not taken was enough to satisfy the Court that the developer had failed to use his best endeavours. A true case of ignorance is no excuse.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Lawyers selling real estate

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Legal practitioners are licensed to provide legal advice. Estate agents are licensed to sell real estate. Both professions operate, in part, in the real estate industry and at times the distinction between their respective roles may become blurred. Indeed, the 1990s saw a push in Victoria for lawyers to take a more active role in the industry, along the lines of the Scottish model where lawyers are actively involved in the marketing of real estate. This desire to broaden their area of influence may well have been a response by lawyers to the perceived contraction of their work base resulting from the rise of conveyancers. The fact that an agent’s commission will usually be between 10 and 20 times the average legal bill for a transaction might also have played some part.

A lawyer wishing to gain an estate agent’s licence could reasonably expect to be able to satisfy the various formality requirements and so it is possible to hold both a licence to practice law and a licence to sell real estate. Not many lawyers choose to do so, but it is possible. Anecdotal evidence suggests that most lawyers prefer to practice in an environment that recognises the different skills associated with the provision of legal advice, as opposed to the marketing skills associated with a sales environment. This may be described as a collaborative method of practice, with the lawyer developing a working relationship with one or more estate agents designed to deliver the two separate skill sets to the client from two distinct sources. However this method of practice is susceptible to allegations of conflict of interest and the lawyer must take care to ensure that the client is aware that the lawyer’s loyalties lie with the client, notwithstanding a close working relationship between lawyer and agent. The dark side of this collaborative model is inappropriate referral by one participant to the other, sometimes involving payment for that referral, but such situations are rare.

However a lawyer might also be involved in the sale of real estate on behalf of a client without holding an estate agent’s licence. Section 5(2)(e) Estate Agents Act 1980 recognises an exception to the obligation to hold an estate agent’s licence for:

Any Australian legal practitioner (within the meaning of the Legal Profession Act 2004) for the purpose only of carrying out the ordinary functions of an Australian legal practitioner.

The breadth of this exception was tested in Noone v Mericka & Ors [2012] VSC 101.

Peter Mericka is an Australian legal practitioner and has for a number of years conducted a legal practice known as Lawyers Real Estate. This practice ‘combined’ the role of lawyer and real estate agent and offered vendors a ‘one-stop shop’ with a fixed fee for both the sale of the vendor’s property and the legal work associated with that sale. This is akin to the Scottish model and the costs for this ‘combined’ service were more than a lawyer’s standard conveyancing fee but considerably less than a standard estate agent’s commission. Mericka gained an estate agent’s licence in 2010 but had conducted his business prior to that time on the basis of the exception in s 5(2)(e). This drew the attention of Consumer Affairs Victoria, which is the regulatory authority pursuant to the Estate Agents Act, and alleged that Mericka had contravened the Act by selling real estate without holding an estate agent’s licence.

Sifris J. concluded that whilst the ordinary functions of an Australian legal practitioner might include the selling of real estate on behalf of a client ‘where it is required or is incidental to the provision of legal services to a particular client’ the activities of Mericka did not come within the exception. These activities involved ‘ongoing and systematic marketing and advertising in connection with the sale of clients’ properties’. It was the repetitive nature of the services offered which lead to the conclusion that the activities took the work outside of the ‘ordinary functions’ of a lawyer. Indeed the judge described this work as ‘engaging in the business of a real estate agent’.

The consequence was that Mericka had contravened the Estate Agents Act for that period of time during which he was unlicensed and had also engaged in misleading and deceptive conduct by advertising that he was entitled to sell real estate on behalf of clients without having an estate agent’s licence. Imposition of a penalty was adjourned to another day.

Sifris J. also decided that the exception could never apply to an incorporated legal practice as it is limited to an Australian legal practitioner and this, by definition, must be an individual, albeit an individual practising alone or in partnership. This anomaly should be addressed as there is no reason why a practitioner who has adopted the perfectly acceptable practising method of utilising an incorporated legal practice should be discriminated against. The same may be said for a practitioner practising in a multidisciplinary practice, another mode of practice recognised by the Legal Profession Act. Indeed the motivation for establishing a multidisciplinary practice is to encourage lawyers to expand their areas of practice into ‘nontraditional’ areas, and a multidisciplinary practice that involved the occasional sale of client’s property is a logical area for expansion.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Wills and estates – Death in the house

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Death can impact on a conveyancing transaction in a number of ways, whether the death occurs prior to commencement or during the course of the transaction.

Survivorship

One common example is where one joint tenant dies after the parties have separated. The survivor claims the whole of the property by survivorship, but the beneficiaries of the deceased argue that the separation of the parties severed the joint tenancy and that survivorship does not apply. It is impossible to provide a categorical formula for resolving such disputes as each case will very much depend upon the length and circumstances of the separation. The one thing that is certain however is that the lawyers will, as always, be regarded as the bad guys no matter how the dispute is resolved.

Sales generally

The fact that a registered proprietor has died does not necessarily mean that a proposed sale has to go ‘on hold’. There may be good reasons why an asset should be disposed of promptly after the death of the owner, but equally good reasons why the estate of the deceased may take some considerable time to be finalized. A sale in such circumstances need not await all of the formalities of a grant of probate as an executor of a will is entitled to enter into a contract to sell an asset of the estate even though the executor has not obtained a grant of probate at the time the contract is entered into. The sale is made subject to the executor obtaining a grant of probate and the proposed settlement date takes that condition into account, for instance by specifying settlement ‘on the 1st June or 14 days after the vendor obtains probate’.

However an executor in such circumstances cannot enter into a terms contract as the executor is not ‘presently entitled to become the registered proprietor’ as required by s 29D Sale of Land Act.

This ability to ‘intermeddle’ with estate assets is only available to an executor named in the will and is not available to a person who may intend to apply for a grant of letters of administration of a deceased estate as such an appointment is very much at the discretion of the Court.

Sensational deaths

That someone died in a house that is now for sale is a reasonably common event. To date such circumstances have not caused the common law any concern and fall within the ambit of caveat emptor – let the buyer beware, so a vendor in such circumstances has no duty to bring the death to the attention of a prospective purchaser. That someone was murdered in the house does not alter the common law’s view, but modern statutory principles of misleading and deceptive conduct may impose additional vendor disclosure obligations. A case involving such circumstances came before the New South Wales Administrative Decisions Tribunal late last year in the context of disciplinary proceedings against an agent involved in such a sale: Hinton & Ors v Commissioner for Fair Trading [2006] NSWADT 257 and Hinton & Ors v Commissioner for Fair Trading [2006] NSWADT 299. Whilst the comments do not directly bear on the vendor’s obligations, it is noted that the vendor did in fact agree to release of the purchaser from the contract when the purchaser became aware of the circumstances of the death after entering into the contract.

A vendor proposing to sell such a property might consider including a special condition in the contract to the effect that the purchaser is aware that the former owner died whilst residing in the property and that the death occurred in unusual circumstances.

Death during the course of the contract

If a vendor dies during the course of the contract, the vendor’s lawyer should advise all parties concerned of the death and take steps to establish the ability of the legal personal representative (either executor or administrator) to complete the transaction – (1989) Law Institute Journal 1149 (December) – which may require a ‘temporary’ grant (ad colligendum bona) if settlement is imminent. Whilst the ‘easy’ solution would appear to be to rely on existing documents (particularly if the transfer of land has been signed by the deceased in anticipation of settlement) such action is fraught with danger. The same may be said of relying on a transfer signed by an attorney under power when the donor/vendor has died.

Settlements conducted in such circumstances are liable to be challenged by the ‘prodigal son’ or other unexpected potential beneficiary of the deceased’s estate who finds that the main asset of the estate has been disposed of and distributed on the basis of a transfer which took place after the death of the deceased.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

What you need to know about the the Personal Property Securities Act 2009

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By Lawyers

Many practitioners have expressed concerns as to how the new legislation will affect them, and expressed fears they will overlook actions they should take.

This is written to assist in quelling those fears.

What must a practitioner look out for?

Generally a practitioner will need to either search the registry to establish that personal property is not encumbered, or to register a security interest that has been documented to ensure the priority of that interest.

Registration and search will be the everyday actions that practitioners take to protect their client’s interests. Both are simple processes and in time will become second nature.

Security interests covered by the Personal Property Securities Act (PPSA) include:

  • charges;
  • mortgages and pledges;
  • conditional sale agreements;
  • sale of goods subject to retention of title;
  • hire purchase agreements;
  • consignments; and
  • leases of goods.

The central fact to remember is that the Act provides a method of establishing priority of competing interests in personal property. It does not affect the efficacy of agreements vis-a-vis the parties and it does not apply to real property.

Existing agreements and arrangements need not be recreated, however if required there are security agreement precedents provided in the Step-by-Step publication.

There is a two-year grace period to allow for the implementation of the new arrangements and registration of security interests.

However note security interests in goods supplied on retention of title basis will not necessarily have the benefit of the transitional grace period, so consideration should be given to registering them after commencement of the Act.

Existing charges registered with ASIC, and many other financial arrangements such as those recorded in registers of encumbered vehicles, will be automatically migrated to the PPS Register.

To assist practitioners to avoid any oversights we have included reminders or cues in the instructions checklists for sale of business, mortgage, lease, and sale and purchase of real estate.

The PPSA will not be of much relevance to conveyancers unless there is personal property included in the sale that sensibly might be subject to finance. A search of the registry to ensure it is unencumbered is easily made. This doesn’t mean searching for the usual fixtures or minor inclusions in residential sales, but rather something such as an expensive ride on mower.

On the other hand, when acting on the purchase of a business a search should be made to ensure that the goodwill, stock, plant and equipment are not encumbered.

Practitioners will clearly not be caught out when issues are specifically raised by clients – for instance, in relation to such matters as retention of title clauses in their terms of trade – as they will have time to research our commentary and other sources and to direct the client to the array of available information.

The main arrangements clients will need to reconsider are as follows:

  • Supply contracts that contain a retention of title clause may require registration as purchase money security interests to protect the interests of the seller.
  • Equipment leases or bailments of more than 12 months may require registration to protect the interests of the equipment owner.
  • Leases of more than 90 days duration of serial numbered goods may require registration to protect the owner’s interests.
  • Some charges in joint venture agreements may need to be reviewed.

The usual transactions that will trigger the need for action are when a client wishes to secure a debt on personal property or when a client is buying or lending on security of personal property.

Some examples
  1. Sale of business with money left in, secured on any part of the business such as stock, plant and equipment, goodwill and licences: a common situation.
  2. Sale of personalty with vendor finance: a common situation.
  3. Companies giving directors or shareholders charges over assets to secure loans: a common situation.
  4. Provision of goods subject to retention of title until paid: clients will need to review their terms of trade and decide whether they need to register and if so, whether they will register or simply take the risk with their regular customers.
  5. Lease of personalty: not often seen in small practices.
  6. Sale of real estate with fixtures or fittings that are subject to finance agreements that need to be discharged: unusual.

The Personal Property Securities Register has developed five interactive tutorials to assist practitioners:

  • Getting started;
  • Creating a registration;
  • Creating an account;
  • Searching the PPS Register; and
  • Creating a secured party group.

For further information about how the register works:

Email: enquiries@ppsr.gov.au
Phone: 1300 007 777 (1300 00PPSR)

Tip Box

Whilst written for Federal practitioners this article has interest and relevance for practitioners in all states.

Retail lease – Predominant use

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Predominant Use

By Russell Cocks, Solicitor
First published in the Law Institute Journal

Section 4(1)(a) of the Retail Leases Act 2003 provides that the Act applies to premises:

wholly or predominantly for –

  1. the sale or hire of goods by retail or the retail provision of services

The Act was designed to protect retail tenants, specifically tenants of large shopping complexes where there was a perception of disproportionate bargaining power. However the Act is not limited to large complexes, although some of the provisions apply to a ‘retail shopping centre’, which is defined as five premises owned by the one landlord, and additional restrictions apply to such premises.

As the Act applies to retail premises generally, it may apply to shops and offices in strip shopping centres and even to stand alone premises in residential or industrial areas that have a retail use. Thus a solicitor who provides services to the public from a suburban office and a panel beater in an industrial estate may be entitled to the benefit of the protections provided by the Act.

It is important to understand that it is the use of the particular premises that determines the applicability of the Act, not the character of the tenant. Thus a solicitor is no doubt engaging in retail services and the solicitor’s office will be subject to the Act, but a separate storage facility rented by the solicitor as part of the legal practice will not be covered by the Act as those premises are not used for the provision of retail services to the public.

This distinction between retail and non-retail premises is simple when separate premises are used, but the distinction is less clear when the same premises are used for both retail and non-retail purposes. Such a situation might arise, for instance, where a business rents a large warehouse facility to manufacture furniture but also has a ‘front of house’ retail sales component. Determining whether the premises are ‘retail’ will depend upon whether the ‘predominant use’ of premises is retail and two obvious tests for determining the predominant use in such a situation are the comparative area occupied by the various uses and the proportion of income derived by each use. In the present example it is likely that the manufacturing facility would occupy the majority of the area and the income derived from retail sales would be a small proportion of total income and thus the predominant use is manufacturing, and so the Act will not apply.

The dictionary meaning of ‘predominant’ is ‘greatest’ or ‘most important, powerful or influential’. However the question is not so much what is ‘predominant’ but rather ‘predominant’ what? Consideration of whether the retail component of the business occupies the ‘greatest’ amount of the area of the premises or generates the ‘greatest’ proportion of income would appear to be relevant tests, but they are not the only factors to be taken account: see Elmer v Minute Wit Enterprises P/L [2002] VCAT 1101.

That case concerned a shop in a strip shopping centre that was rented by a tenant who sold antique furniture, a scenario that would ordinarily be retail premises. However the tenant’s principal business was conducted from nearby premises and the shop was used only for display and storage, only being opened when an inquiry was directed to the principal place of business. This, in addition to other reasons, justified a finding that the premises were not retail premises within the meaning of the Act and introduced a ‘time’ test into the mix.

A similar ‘time’ test was adopted in Evans & Ors v Thurau P/L [2011] VCC 1354. The subject property was an apartment in a ski lodge which was subject to a requirement in the head lease that the apartment be available for rental through the head tenant to members of the public when not in use by the subtenant. It was argued that this meant that the property was ‘holiday accommodation’ and therefore ‘retail premises’ and that the dispute should therefore be before VCAT. Judge Anderson concluded that the fact that the snow season was limited and that the subtenant could, if they choose, occupy the premises for the whole of that season to the exclusion of the public meant that the predominant use was not retail. The fact that a retail use was one of the possible uses was not enough.

It can been seen from these cases that the determination of whether the ‘predominant use’ of premises is retail will depend upon a number of possible factors, some or all of which may play a greater or lesser role in the determination in each case. Apart from what the lease itself may provide, the courts may consider the area occupied by the retail component, the income earned by that component and the time that the retail component is utilised.

It will be interesting to see how these factors will come into play when an inevitable question comes up for determination. That will be a dispute arising from premises used for retail sales conducted entirely by phone, fax or internet, a typical call centre environment. Such premises do not include physical access to the premises by members of the public, but certainly involve retail sales. No doubt one party will argue that public access is an integral part of retail sales within the meaning of the Act, an argument that appears to have some merit when the purposes of the Act are considered.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Co-owners and easements – Two topics

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

This column is concerned with two cases on entirely different topics, but connected by a similarity in the name of the principal parties and the fact that they are recent decisions in the Real Property List of VCAT, a jurisdiction that is growing in importance for property lawyers. Pavlovic v GEADSI Nominees P/L [2012] VCAT 997 (Pavlovic) concerns an easement and Pavlovich v Pavlovich [2012] VCAT 869 (Pavlovich) concerns co-ownership.

Pavlovic took place in a fairly conventional inner suburban setting. The two protagonists were neighbours, with Pavlovic having purchased his property in recent years with the intention of renovating and living in the property and GEADSI having constructed three units on the adjoining property some 15 years previously. At that time GEASDI had obtained from the then owner of the Pavlovic property consent to construct a stormwater drain across the Pavlovic property and a stormwater pipe had been constructed such as to take the stormwater from the GEADSI land through the Pavlovic land and to a laneway at the rear. This pipe was below the surface of the ground and Pavlovic was not aware of the pipe when he purchased the property as it was not recorded as an easement on the title, not evident to a physical inspection and he was not otherwise been informed of its existence.

Pavlovic intended to construct improvements in the backyard and discovered that the soil was so saturated that it would be necessary to remove the soil at a cost of $15,550 before commencing construction. Additionally, it would be necessary relocate the pipe to prevent the ongoing saturation of the soil below the improvements. Pavlovic wanted the pipe removed. He commenced these proceedings for an order pursuant to s 16 Water Act 1989.

GEADSI argued that the pipe constituted an implied easement and that Pavlovic, as subsequent purchaser, was bound by that easement. The Tribunal rejected that argument, effectively finding that the consent given by the previous owner did not create a proprietary right and was not enforceable against subsequent owners. An argument based on a prescriptive easement was rejected on the basis that the right to use the pipe arose by consent. The recent case of Kitching v Phillips [2011] WASCA 19 was referred to. Effectively, the Tribunal was of the view that the original temporary solution to the drainage problem should not be allowed to impact on the proprietary rights of the new owner – a glowing endorsement of fundamental Torrens principles. GEADSI was ordered to pay the costs of removing the saturated soil and to remove the pipe.

Pavlovich on the other hand concerned an application by a co-owner pursuant to the ‘partition provisions’ of the Property Law Act 1958, specifically s 228. The parties to the proceedings were registered joint tenants and, unusually, the application was not for a ‘partition’ as that word is generally understood but rather a transfer from one co-owning joint tenant to the other joint tenant. Whether VCAT had power to do so occupied the first portion of the judgement, with a conclusion that the power conferred by s 228 did indeed authorise such a transfer.

The parties were mother and son. There was evidence that as part of a downsizing exercise the mother had purchased a property but was unable to gain temporary finance, so the son was added as a joint tenant. Shortly after, the loan was repaid from the proceeds of sale of the mother’s original property and so the subject property was owned as joint tenants, although the son had effectively made no financial contribution.

Ten years later the mother applied for an order that the son transfer his interest in the property to the mother. The mother argued that it had always been intended that the son would do so when the loan was repaid. The son argued that it had been agreed at the time that the son would remain as joint tenant and then ‘inherit’ the property upon his mother’s death as gifts were made to other siblings that would be ‘offset’ by the son taking the property. Essentially the issue was a factual one and the Tribunal accepted the mother’s version.

The Tribunal concluded that whilst the son was a legal joint tenant, beneficial ownership resided entirely with the mother, therefore the son was ordered to transfer his interest in the property to the mother so that she would become sole legal and beneficial owner. Concern was raised, but dismissed, that because the Tribunal was therefore finding that the son had no beneficial interest, he could not be a co-owner within the meaning if the Act and VCAT therefore had no jurisdiction.

This is similar to an argument raised in Garnett v Jessop [2012] VCAT 156. Jessop was the sole registered proprietor and Garnett sought partition on the basis that he had made contributions and therefore held an equitable interest on the basis of a constructive trust. VCAT dismissed a submission that only legal (registered) owners qualify as ‘co-owners’ within the meaning of the Act and held that a party claiming an equitable interest is a ‘co- owner’ and therefore entitled to seek partition.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

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