Belinda Ryan

Victoria announces extension of COVID-19 rent relief scheme for commercial leases  

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On 20 August 2020 the Victorian government announced that as a result of the continuing impact of Stage 3 and Stage 4 restrictions in Victoria, the COVID-19 protection measures for commercial leases and licences would be extended to 31 December 2020.  The existing measures are detailed in the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) and the regulations made under that Act.  These regulations currently expire on 29 September.

New regulations will be issued to give effect to the extension, but before that can happen, the Act needs to be amended.  A Bill to amend the Act passed the Legislative Assembly on 4 September 2020. It now moves on the Legislative Council for consideration where debate is due to end on 17 September 2020. There is little doubt the Bill will be passed. The extension has been applauded by the Australian Retailers Association, which reported that 60% of its retailers were still engaged in negotiations with landlords for rental relief.

While the details of how the extension will operate and who will be eligible for extended relief will not be known until the new regulations are issued, we can gain a some understanding of how the extension will work from the government’s press release on 20 August 2020.

Moratorium on rental increases

The ban on rent increases will continue unchanged until 31 December 2020. There is potential for this moratorium to be further extended as the Bill provides a mechanism for the government to make new regulations up until 26 April 2021.

Moratorium on evictions

The ban on tenant evictions is set to continue. However, a notable change is that this moratorium will not apply in “specific circumstances”.  As yet it is not clear what these circumstances will be.

Definition of eligible lease

The Bill alters the definition of an eligible lease. The current regulations only cover leases where the tenant is both an SME and an employer eligible for the JobKeeper scheme. However, a new, broader definition of eligible lease is prescribed by the new Bill. The second reading speech that accompanied the Bill states that the new definition will include sole traders, not for profit businesses and franchisees. Tenants will no longer be required to be businesses with employees to be included in the scheme.

Rent reductions proportional to turnover

The approach under the existing regulations endeavoured to balance the tenant’s reduction in turnover and the landlord’s ability to absorb loss.  The government announcement indicates the new regulations will increase the focus on the tenant’s financial circumstances and establish stronger measures to ensure that rent relief is directly proportional to reduction in turnover.

Increased powers for the Victorian Small Business Commission (VSBC)

At present, landlords and tenants can apply to the VSBC for assistance in resolving rent relief disputes by way of mediation. However, the VSBC cannot make binding orders. In its press release on 20 August 2020, the Victorian government stated that the VSBC “will now also have greater capacity to make an order on rent relief if a landlord refuses to respond to rent relief requests.”

The increased powers were confirmed in the Bill tabled in parliament last week. Under the new regulations, the VSBC will be able to make binding orders:

  • directing landlords to give specified rent relief to tenants; and
  • governing the process for rent relief applications by tenants, including what documents the tenant must provide to the landlord.

The Bill also allows for the review and enforcement of binding orders by VCAT.

Assistance to landlords

While the government announcement suggests the new regulations will place more emphasis on the tenant’s turnover situation and less on the landlord’s financial position, there will be new measures to assist landlords. First, a $3000 grant per tenancy will be available for eligible small commercial landlords. Secondly, a land tax waiver of up to 50% will be available for all landlords who provide tenants with an outright rent waiver for at least 3 months.

Conclusion

The extension means that landlords and tenants can now continue to engage in negotiations without the fear that the protections will end on 29 September 2020.  However, we await release of the new regulations to fully understand how they will operate.

Our Property Team can provide advice and assistance on how to plan and manage the process in accordance with the Initial Regulations and New Regulations, in a way that best protects your rights and entitlements, whether as a landlord or tenant.

with Christian Mennilli, Graduate at Law

Case Note: Ko v Hall and Ors [2020] VSCA 224

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On 4 September 2020, the court of appeal handed down its decision in Ko v Hall and Ors [2020] VSCA 224. The main issue in this case was whether a determination by the medical panel made outside of the time frame prescribed by s 28LZG(3) of the Wrongs Act 1958 (Vic) (“the Act”) would be invalid. Under this section, a medical panel must give its determination as to whether a claimant has suffered significant injuries:

  • within 30 days of the claimant or a registered health practitioner complying with a request by a medical panel; or
  • within a longer period as agreed by the claimant and the respondent.

While the court decided that the medical panel’s determination was valid in this instance, the minority judge provided useful commentary against part of the majority’s judgement.

Background

The claimant sought damages for personal injuries from the respondent surgeon. As with almost all non-employment and motor vehicle claimants she had to show that she had a significant injury as a result of the respondent’s alleged negligence. As a result of the respondent’s refusal to accept that the claimant had a significant injury, the issue was referred for determination by a medical panel. On 8 March 2019, the claimant was examined by the panel and, by agreement of the parties, the due date for the panel’s determination was extended from 7 April 2019 to 22 April 2019. The panel did not meet this deadline.

On 16 May 2019, almost a month after the determination was due, the panel once again requested for, and the parties agreed to, a further extension of time until 30 May 2019. A determination was issued in favour of the respondent on 20 May 2019, which was within the new extended time frame.

The claimant subsequently applied for judicial review claiming that the panel’s failure to meet the deadline on 22 April 2019 meant that its determination was effectively invalid. Though the parties had consented to an extension on 16 May 2019, this was after the longer time frame had expired. The claimant submitted that since the consent was provided after a deadline had already expired, any decision made by the panel after 22 April 2019 could no longer be valid. In other words, it was argued that once a determination had been rendered invalid due to the effluxion of time, that defect could not be cured by a subsequent consent to an extension of time.

Judgement

The court had to ascertain whether s 28LZG(3) only allowed the parties to agree to an extension before time had expired or whether they could agree to one, even after time had expired. The court found no reason to limit what it saw as the plain words of paragraph (b) which enabled parties to agree to a longer period for determination.

It noted that if the parties could not be empowered to agree to an extension merely because time had expired, no matter how willing both parties were to have an extension, they would be required to commence the significant injury process afresh. The court believed that this consequence would be inconvenient and counterproductive to the legislative intent that the significant injury process be completed expeditiously. In the circumstances the court held that the medical panel made its determination within the time required in s 28LZG(3) and its determination was valid.

Though this conclusion was sufficient to dispose of the case in the respondent’s favour, for the sake of completeness, the court proceeded to address a further issue of whether a decision by the medical panel given outside the time limit in 28LZG(3) would become invalid.

Unlike the provisions in the Act which imposed time limits on respondents, there are no consequences which apply to a medical panel for issuing a determination after the period in s 28LZG(3) has expired. This, the court held, seemed to be a consistent and apparently deliberate difference made by the legislature. If it had been the legislature’s intention to invalidate decisions by the medical panel for non-compliance with a time limit, the court held that it would have explicitly said so in the Act. Additionally, the fact that the parties can extend time by agreement under paragraph (b) of the section was consistent with the idea that the panel’s jurisdiction was not intended to last only up to the end of the 30 day period.

The court held that the time limit under s 28LZG(3) was not a condition of the panel’s authority and the judicial review proceeding was dismissed.

Minority Judgement

Though Justice McLeish agreed with the majority’s decision to dismiss proceedings, he disagreed with the judges’ finding that a panel’s decision would still have jurisdiction if it was made outside the time limit.

Justice McLeish noted that paragraph (a) of the s 28LZG(3) clearly identifies a 30 day deadline for the due date. If more time was needed, paragraph (b) then offers an “express cure” for that problem. Thus where paragraph (b) does not apply, that is if the parties do not agree to a time extension, the panel is disempowered from giving its determination if not done within the 30 day period and the same would apply if the panel failed to make its determination within a longer agreed period.

In applying this principle, Justice McLeish was of the view that a medical panel which fails to give its determination within the required period, absent any agreement by the parties to extend that time, would be without jurisdiction to do so after time expired.

Importantly, his honour emphasised that to construe s 28LZG(3) as making compliance a condition of jurisdiction is not to undermine the efficiency of the scheme or to inconvenience claimants. Rather, it is to provide a motivation for a medical panel to do its work within the specified period, and to leave it in the hands of the parties to decide whether the panel can still proceed if it fails to meet the deadline.

Comments

The judgement from this case is a reminder that parties are empowered to exercise the flexibilities afforded to them by the law. The court’s decision confirms that the determination of a medical panel will still be valid even if it is given outside of the time limit prescribed by s28LZG(3)(a). Furthermore, under s28LZG(3)(b), parties can agree to extend the deadline even after the due date for the panel’s decision has lapsed.

It is important to note, however, that in this case the claimant’s agreement to the extension was a key factor in upholding that the medical panel had jurisdiction. Justice McLeish has suggested that without such agreement, the time limit will strictly apply to invalidate decisions by the panel issued outside that time limit. The fact that the majority weren’t overly concerned by a Panel’s failure to comply with the statutory time limits coupled with the practical reality that in most cases its hardly worth reviewing a Panel determination means that this issue is unlikely to be revisited, even if Justice McLeish made some important points in his judgment.

If you would like any advice in this area, please contact Hunt & Hunt.

with Michelle Nguyen, Graduate at Law

Shareholders’ Agreements – Why do you need one?

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It’s always a question of priority when setting up a private business – every dollar is precious. If a dollar is to be re-invested, it needs to be well invested.

We often hear business owners wondering why they should invest in a Shareholders’ Agreement

  • “we get along really well”
  • “we’ve known each other a long time”
  • “I trust him or her”
  • “if we have a problem, we’ll just work it out commercially”.

And that might well be right. But like any relationship breakdown, the circumstances and timing are often unpredictable and so is the response. Plus, money is involved (often a lot of money), so the stakes are high.

The importance of investing in a Shareholders’ Agreement

A good Shareholders’ Agreement for your business will never be exactly the same as one for any other business and what should or should not be included will always reflect the business’ specific circumstances. While all Shareholders’ Agreements have some level of similarity, the particular options for each of the relevant issues are nearly endless. Your Shareholders’ Agreement needs to be carefully prepared to accommodate the needs of the particular business and the particular business owners. There is no such thing as one-size-fits-all! The “pre-packaged” agreements you can buy off the shelf can be poorly drafted, generic and certainly will not have taken into account the particular, unique circumstances of your business.

Things to consider when drafting a Shareholder’s Agreement include:

  • the dynamic and relationship between the shareholders, such as the percentage of shares held and what is being brought to the table by each business owner;
  • whether the business is a start-up or mature;
  • shareholder expectations in terms of future capital/debt funding;
  • the long term objectives of the company (e.g. remain private, look to sell or float in the medium term);
  • the nature of the business’ assets- e.g. a going concern dependant for its value on continuing to trade, or a collection of more “passive” assets;
  • if you have an employee shareholder and he / she leaves the company, do they still retain their shareholding? A breakdown in relationship can create a range of problems; and
  • how do you best protect the business from an outgoing shareholder establishing a competing business.

What could go wrong?

If there is no Shareholders’ Agreement in place, and a dispute (or even a decent difference of opinion) arises, it is more likely that a value destroying dispute and perhaps litigation will follow, as there is no agreed “set of rules”. Where there is no guidance on how disputes should be managed, a “free for all” situation can result.

In the absence of a Shareholders’ Agreement, a dispute may well end with a court ordering that the company be wound up. This would result in high litigation costs, both financial and emotional, the appointment of a liquidator, destruction of serious value built up over many years of hard work as well as loss of any control over the outcome.

Indeed, even if none of the parties want to litigate, the stalemate and inability to move forward with the business will see value diminish or disappear – sometimes very quickly.

These problems can largely be avoided through the use of a Shareholders’ Agreement which sets the rules and adequately predetermines the management of disputes.

Conclusion

A good Shareholders’ Agreement will set out a map for running the business and resolving issues, acting as a framework for dealing with unexpected events. When drafting a Shareholders’ Agreement, the skill is not just reading what’s in the agreement, it’s the experience of knowing what is not in the agreement. Sometimes leaving something out is to your advantage. Sometimes it’s not. It’s also knowing what the other options might be. Ultimately, any outlay in expense incurred from investing in a Shareholder’s Agreement will be cheaper than dealing with a dispute or court proceeding down the track when things do not go to plan.

with Elissa Raines, Lawyer

First dumping, now Australian wine exporters face a countervailing duty investigation by the Chinese Government

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Following on from the recently announced dumping duty investigation into Australian wine, the Chinese Government hit the industry with a countervailing duty investigation on 31 August.  Below we briefly set out the claims that will be investigated by the Chinese government, the difference between a dumping and countervailing investigation and what further actions needs to be taken by Australian wine exporters.

What is a countervailing investigation?

Countervailing investigations are aimed at removing the effect of subsidies provided by the target country that hurt producers in a foreign country.  Under WTO rules, a Government can impose countervailing duties against imports from another country to offset the effect of government subsidies provided to producers in that country.  Subsidies take many forms such as grants, tax relief, Government supplying inputs to production a low price and expense rebates.

Not all benefits give rise to countervailing duties.  The subsidies must be tied specifically to exports or provided to specific businesses or businesses in a specific industry or region.

How does a countervailing investigation differ from a dumping investigation?

The main difference between dumping and countervailing investigations is activity that duties are aimed to address. In dumping investigations, the activity is the selling of goods to an export market at a price less than its “normal” value.  In a countervailing investigation, the activity is the Government providing benefits to producers in the target country.

However, there are similarities.  In each there will be an investigation into whether the domestic industry has suffered loss and whether imports from the target country caused that loss.  There is also an overlap in that the same activity that gives rise to a claim of subsidisation may also lead to a finding of a particular market situation in the target country.  Such a finding impacts on how the dumping margin is calculated – normally resulting in high dumping margins.

Importantly, the same activity cannot be used to impose dumping and countervailing duties.  This does not mean that both duties will not be imposed, just that one will be decreased to avoid double counting.

What has been alleged against Australian wine exporters?

The Chinese Government will investigate a claim that the Australian federal and state Governments have provided 40 different types of subsidies to the Australian wine industry.  A key example of a benefit is the wine equalisation tax system (WET) and WET producer rebate.  The amount of this rebate is currently $350,000 per manufacturer.  Since its inception, the WET producer rebate has always placed Australian at risk of a countervailing investigation.

Another example is the Export and Regional Wine Support Package.  Parts of this package include wine export grants which have the specific aim of increasing wine exports to China.

A third example is the export markets development grant.  Under this grant, 50% of the costs of export related marketing expenses can be offset by Government payments.  Being export specific, these payments are likely to be closely reviewed by the Chinese government.

Any program available only to certain sectors, such as wine producers, or certain regions, will also be closely reviewed.

It is alleged that the subsidised goods are causing harm to Chinese manufactures of wine.  These claims are very similar to those made in the dumping investigation.  Again, we urge Australian exporters to make submissions as to the non-price reasons why Australian wine is succeeding in China and the factors other than Australian wine that are causing Chinese wine manufacturers to suffer loss.

A specific countervailing rate has not been alleged.  Much will depend on which companies are investigated.  The benefits offered by the Australian government may be significant for a small business.  However, for Australia’s largest exporters the benefits may be immaterial.

What should Australian wine exporters do?

As with the dumping investigation, the initial key step is to register with the Chinese government.   Failure to do so will result in the exporter being treated as an uncooperative exporter and may be subject to the highest possible duty rate.  If you have already registered for the dumping investigation you will need to register again for the countervailing investigation.

Following registration, the Chinese government will select certain exporters to review in detail.  Those exporters will need to complete a detailed questionnaire regarding their costs of manufacturer and the value of any benefits received from State and Federal Governments.

We are here to help

Hunt & Hunt, with the assistance of Chinese lawyers that specialise in dumping and countervailing investigations, can assist with exporter registration, completion of exporter questionnaire and submissions on issues such as what has caused any loss.

Victorian Court of Appeal rules on third party unfair preference payments

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On 5 August 2020, the Victorian Court of Appeal handed down its judgment in Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198, providing clarity on the circumstances in which a third party payment may amount to an unfair preference.

Ultimately, the Court of Appeal held that, where a third party pays the debt of a company which later goes into liquidation, the payment must diminish the available assets of the insolvent company to fall within s.588FA(1)(b) of the Corporations Act 2001 (Cth) (“Act“).  This will be the case where the third party is indebted to the insolvent company, and payment by the third party to the insolvent company’s creditor reduces that liability.

Background

Eliana Construction and Developing Group Pty Ltd (in liq) (“Eliana“) was indebted to Mad Brothers Earthmoving Pty Ltd (“Mad Brothers“) in respect of excavation works carried out at a site in Taylors Hill, Victoria.

Eliana and Mad Brothers agreed to settle the debt on payment by Eliana of $220,000. Rock Development & Investments Pty Ltd (“Rock“), a company related to Eliana, borrowed money from a lender (“Nationwide“) to pay the debt.  Nationwide transferred $220,000 to Mad Brothers to discharge Eliana’s debt under the settlement agreement.

In the subsequent liquidation of Eliana, Eliana’s liquidator brought an unfair preference proceeding against Mad Brothers in respect of the $220,000 payment. The main issues which arose during the proceeding were:

  • whether Eliana was a party to the transaction within the meaning of s.588FA(1)(a) of the Act; and
  • whether the $220,000 payment was received “from” Eliana within the meaning of s.588FA(1)(b) of the Act.

The liquidator’s unfair preference claim was successful at trial.  However, the judgment was overturned on appeal in the Supreme Court.  The liquidator subsequently appealed to the Court of Appeal.

The Court of Appeal’s judgment

The liquidator argued that Eliana authorised Rock to make the payment, and that was sufficient to establish that Eliana was a party to the transaction, and that the payment was received “from” Eliana.

While accepting Eliana was, in fact, a party to the transaction, the Court of Appeal found that the $220,000 payment was not an unfair preference.  This is because the payment was not received “from” Eliana, as required by s.588FA(1)(b) of the Act.  The Court’s conclusions were stated at [120] as follows:-

  • A company may be a party to a transaction within the meaning of s.588FA(1)(a) of the Act where it directs a third party to make a payment to a creditor, or it authorises or ratifies such a payment. However, the payment will not necessarily be received “from the company” within the meaning of s.588FA(1)(b) of the Act.
  • The words “from the company” in s.588FA(1)(b) of the Act have the effect that a payment will only amount to a preference if it is received from the company’s own money, meaning money or assets which the company is entitled to.
  • In order for a preference to be “from the company”, its receipt by the creditor must diminish the assets of the company available to creditors.
  • A payment by a third party, which does not diminish the assets of the company available to creditors, is not a payment received “from the company,” and therefore cannot be an unfair preference.

The Court considered the existence, or otherwise, of a debtor / creditor relationship between Rock and Eliana to be a matter of significance.  If Rock was indebted to Eliana, the impugned payment would have reduced that debt, and given Mad Brothers the benefit of money Eliana was entitled to.  In those circumstances, the payment would have reduced the value of Eliana’s asset (i.e. the debt), and would have been received “from” Eliana, within the meaning of s.588FA(1)(b) of the Act.

However, the Court could not be satisfied, on the available evidence, that Rock was indebted to Eliana.  Accordingly, the Court concluded that there had been no diminution in Eliana’s assets as a result of the transaction.  The payment was not, therefore, an unfair preference.

Implications

While the Court of Appeal’s judgement has clarified the law in respect of third party payments, one unintended consequence of the judgement may be to inform insolvent companies, and their creditors, about how to structure payments to avoid the unfair preference provisions under the Act.  We expect this issue will arise more frequently with the rise of insolvencies predicted as a result of the global COVID-19 pandemic.

with Mark Pennini, Lawyer & Michelle Nguyen, Graduate at Law

Flexibility within reason – Recent cases demonstrate limitations on the exercise of JobKeeper enabling directions

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Since 9 April 2020, the temporary JobKeeper legislation has allowed employers to vary the working hours of employees in response to the COVID-19 pandemic. This JobKeeper enabling direction, among others, aims to assist businesses to retain its workforce despite reductions in revenue and available work and the Government health measures which have been put in place to control it. Employers should note however, that this flexibility is not absolute and recent decisions by the Fair Work Commission (FWC) illustrate that the exercise of these directions must still be reasonable.

Directions must be proportionate to available work

The case of Allan Jones v Live Events Australia Pty Ltd [2020] FWC 3469 (3 July 2020) is a timely reminder for employers not to overplay their hand when issuing stand down directions. Mr Jones was employed as a broadcast engineer at Live Events and most of his rostered work was at horse racing events in Western Australia. Although the pandemic had disrupted the sports industry generally, horse racing continued relatively uninterrupted in Western Australia.

By March 2020, Live Events had formed the view that the impact of the pandemic on its business more broadly would be significant enough to require operations to be cut back. Live Events asked its staff to voluntarily agree to a 40% reduction in salary and working hours. Mr Jones refused the pay reduction and from March to June 2020 he continued to work at least 80 hours per fortnight with occasional overtime.

In June 2020, Live Events notified Mr Jones of its intention to issue a JobKeeper enabling direction to reduce his minimum working hours from 80 hours to 48 hours per fortnight (a 40% reduction). Mr Jones disputed the reasonableness of this direction as productive work was still available and was being performed.

The FWC held that the direction issued by Live Events was authorised, but that the direction was so overwhelmingly precautionary, it was unreasonable. The level of reduction was not proportionate to his rostered hours, prospective work hours or to the arrangements of other technical crews in Western Australia. Furthermore, at the time that Live Events imposed the reduction of Mr Jones’ hours by 40%, it had lifted the 40% reduction imposed on other staff to 20%.

The FWC varied the direction to a minimum of 64 working hours per fortnight (i.e. it imposed a 20% reduction for Mr Jones), concluding that this was more reasonable in the circumstances.

The FWC cautioned that its variation order was not a green light for the employer to reduce hours without an objective or fair basis for doing so. Even if objective circumstances exist to allow the full flexibility of the varied direction to be utilised, the FWC said that Live Events should first explore reasonable alternatives to a reduction in hours or income. Finally, the FWC stated that it would be inappropriate for Live Events to leave the varied direction in place if, during the period of its operation, the employer lifted the 20% reduction for other employees and returned its workforce to 100% of hours and salary.

Decision considers fairness between different employees

In Transport Workers’ Union of Australia v Prosegur Australia Pty Limited [2020] FWCFB 3865 (23 July 2020) the relevant JobKeeper enabling direction to reduce hours was found to be reasonable.

In this case, Prosegur initially proposed a blanket reduction in working hours to a minimum of 25 hours per week for full-time, part-time and casual employees. Concerned that this direction would disproportionately affect the entitlement of full-time employees, the Fair Work Commission Full Bench directed Prosegur and the Transport Workers’ Union (TWU) to seek to reach agreement on a direction that would be workable and reasonable. Prosegur and the TWU both agreed that it was necessary and appropriate to reduce the ordinary hours of the full-time employees to a minimum of 60 hours per fortnight.

The parties further agreed that this direction should be conditioned by a distribution method. The proposed method was that work would be allocated first to full-time employees, then to part-time employees and finally to casual employees to ensure they could all achieve their minimum work hours. Any extra available work would then be prioritised in the same order.

Though it was legally unnecessary to issue a JobKeeper enabling direction to casual employees, Prosegur proposed to provide casual workers with a minimum of 25 working hours per week, while the TWU proposed a minimum of 20 hours. The Commission had regard to a spreadsheet provided by Prosegur of hours worked in the period from April to July 2020 and was satisfied that there were sufficient hours available to be distributed in the manner Prosegur proposed. Accordingly, the FWC accepted the alternative JobKeeper enabling directions proposed by Prosegur on the basis it was fair to all employees – it would allow full-time employees to maintain approximately full-time pay, while retaining the minimum hours for part-time and casual employees.

Key takeaways

The unpredictable nature of today’s business conditions (particularly in Victoria) mean it is sensible that JobKeeper enabling directions continue to be available beyond 28 September 2020 to allow employers to trade through this crisis. However, it is important to remember that these directions cannot be given carte blanche. Employers must properly consider practical solutions to the challenges presented by the coronavirus pandemic, and utilise JobKeeper enabling directions to the extent that they are reasonable, necessary and appropriate in the circumstances.

Whether a direction is reasonable should include consideration of how similar employees are being treated. The differing contractual entitlements of full-time, part-time and casual employees should also be taken into account, so that these three classes of employees are not treated in identical fashion.

If you or your business have been affected by JobKeeper enabling directions and you would like advice on this matter, please contact the Employment Team at Hunt & Hunt.

 

with Michelle Nguyen
Graduate at Law