The recent Queensland Court of Appeal decision of Allencon Pty Ltd v Palmgrove Holdings Pty Ltd trading as Carruthers Contracting [2023] QCA 6, highlights for all parties to carefully consider their obligations when issuing a payment schedule within the stipulated time period. Failure to do so would result in judgment in the full amount of a payment claim.
In this case, Allencon Pty Ltd (Allencon) entered into a subcontract with Palmgrove Holdings Pty Ltd trading as Carruthers Contracting (Palmgrove) in 2021 to carry out certain construction roadworks as part for the lump sum of $2.08 million (Subcontract).
Allencon submitted a payment claim in an amount of $955,079.48 on 24 December 2021 (Payment Claim).
In Queensland, section 76 of Building Industry Fairness (Security of Payment) Act 2017 (Qld) (Act) provides parties who do not intend to pay the full claimed amount by the due date, must give the claimant a payment schedule by the earlier of:
Further, the conditions of the Subcontract included a term to the effect that payment schedules were required to be given by Palmgrove within 21 calendar days of receipt of the claim.
In the present case, 21 calendar days were less than 15 business days under the contract because under the Act a business day excluded weekends, public holidays, and the days from 22 December to 10 January.
On 28 January 2022, Palmgrove issued a payment schedule, which was within the 15 business days of receiving the payment claim as defined by the Act, but not within 21 calendar days under the contract.
The Court of Appeal held that the payment schedule was not served within time, because it was not served within 21 days specified in the contract.
This case confirms that parties should carefully consider differences between the time for service of payment schedules provided for in a construction contract and the time for serve of payment schedules under the Act.
In this case, the Supreme Court of New South Wales reinforced the importance of following the proper methods of service of progress claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA).
In the abovenamed case, A&H Floors 2 Doors Australia Pty Ltd (A&H Floors) were performing flooring works for a building being developed by Equa Building Services Pty Ltd (Equa).
On or about 30 June 2021, A&H Floors sent an email enclosing a payment claim to an email address ending with “@ardengroup.com.au”. However, the specific email address was not one which was used by an authorised representative of Equa.
Equa did not respond to the payment claim.
On or about 30 August 2021, A&H Floors made an adjudication application and the Adjudicator found that the payment claim had been validly served by email as the domain “@ardengroup.com.au” was used by all people representing Equa.
Equa filed a summons in the Supreme Court of New South Wales seeking orders that the determination be set aside on the basis that the payment claim had not been validly served.
The Court set aside the determination finding that section 31(1)(d) of SOPA requires that an email be sent “to an email address specified by the person for the service of documents of that kind”. The email was not served in accordance with any of the methods of service under SOPA or otherwise permitted under the construction contract, and the particular addressee of the payment claim had never been employed by Equa or any related entities.
This case is an important reminder to claimants to put processes in place to ensure that payment claims are served in a manner permitted by SOPA.
*This article was prepared with the assistance of Priyanka Ram*
Obtaining summary judgment under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA)
When a payment claim is served by a Claimant, the Respondent has 10 business days (or shorter if provided in the Construction Contract) to prepare and serve a payment schedule on the Claimant within that timeframe.
If a Respondent does not serve a payment schedule in time, a statutory debt arises for the amount of the payment claim.
If a Respondent does serve a payment schedule in time, a statutory debt arises for the amount of the payment schedule.
The statutory debt may be enforced in one of two ways by a Claimant by commencing proceedings in a court to enforce the statutory debt.
If proceedings are commenced in Court to enforce a statutory debt, a Claimant may apply for summary judgment.
Summary judgment is a judgment without a trial where a Claimant satisfies the court that there is no triable issue. Generally, this requires a Claimant to show that there is no factual matter that involves oral evidence that is in dispute.
Because SOPA restricts a Respondent from making a cross-claim or raising a defence in relation to matters arising under the construction contract in those proceedings, provided it can be shown that the statutory debt arose, a Claimant will often be able to readily satisfy the Court that there is no issue to be tried and that summary judgment should be entered for the claimed amount.
*This article was prepared with the assistance of Priyanka Ram*
Choosing the right purchase price mechanism is a significant aspect of structuring an M&A transaction. Importantly, how purchase price is structured, and the mechanisms used to establish the purchase price, directly impact the final consideration amount in the deal as well as the risks allocated between the deal participants.
There are several purchase price mechanism options in M&A transactions – this article focuses primarily on completion accounts and locked box mechanisms, being the two most common mechanisms in an M&A transaction. Whilst the general inclination for each deal participant is, naturally, to select the mechanism which enables them to maximise their respective value out of the deal, there are ultimately a number of factors that can practically impact whether a completion accounts or locked box mechanism is selected. These factors are such as:
In identifying and negotiating the best purchase price mechanism, deal participants ought to carefully consider the specifics of their respective deal and their positions with respect to the above factors. Ultimately, regardless of the purchase price mechanism selected, deal participants can also seek implementations of appropriate safeguards in a Share Purchase Agreement (SPA) entered into between the parties to reduce risks and enhance their positions with respect to the transaction.
We briefly summarise the purchase price mechanism options as follows.
Completion accounts
Completion accounts mechanism involves the adjustment of purchase price on basis of the actual financial position of the target company (this typically occurs post-completion), as determined by an agreed-upon financial principles and conditions between the deal participants. In such transactions, deal participants will agree to an estimated financial position of the target company at completion (also known as the ‘enterprise value’), which would subsequently be “trued-up” against the target company’s actual financial position post-completion by way of adjustments. On this basis, in an acquirer’s perspective, purchase price established via completion accounts offer a more accurate and fairer reflection of a target company’s value on basis of the company’s actual financial circumstances. Further, given the adjustable nature of the purchase price, risks in relation to changes or volatility in respect of the target company’s financial position post-completion are also distributed between deal participants (rather than primarily on the acquirer in a locked box mechanism). Completion accounts are therefore more acquirer-friendly, but it can introduce a curveball into the transaction in a seller’s perspective if the target company’s actual financial position results in significant adjustments against the seller.
The downside to completion accounts is that they are complex and time-consuming to negotiate and execute. At the SPA-negotiations stage, deal participants would need to negotiate and work towards a mutually agreed position in respect of accounting principles and financial metrics to be used in preparing the completion accounts as well as the scope of the completion accounts (e.g. what constitutes as cash and debt in the target company), given that any adjustments would impact the scope and value of the final purchase price. In addition, deal participants should also seek to implement relevant warranties and indemnities in the SPA in the context of their respective risks in connection with the completion accounts. Deal participants are also required to work together post-completion to prepare and finalise completion accounts.
Locked Box Mechanism
Locked box mechanism involves deal participants agreeing to a fixed purchase price without undergoing any post-completion adjustments, determined on basis of the target company’s historical financial statements. Thus, the purchase price is “locked” on basis of the target company’s financial position at a point in time, making the mechanism more seller-friendly given the certainty around purchase price.
Whilst locked box mechanism offers simplicity and efficiency with respect to deal completion, the mechanism presents certain risks in an acquirer’s perspective. Relevantly, given that historical financial statements of the target company are relied upon to derive the purchase price, risks of changes or volatility to a target company’s financial position after the locked box date are not appropriately accounted for in the mechanism.
In a locked box transaction, acquirers can seek to minimise their risks with respect to the transaction in a number of ways, such as:
Conclusion
The selection of purchase price mechanism directly impacts consideration value for each deal participant. Therefore, it is important that deal participants carefully consider the specifics of the deal and their respective positions to select the mechanism appropriate for their transaction (having regard to economic interests and risk appetite). In addition, regardless of the chosen mechanism, deal participants must take care to negotiate and seek implementation of protective terms to address risks against them under an SPA.
Contact our Corporate & Commercial Law Team for any queries regarding purchase price mechanisms in M&A transactions.
Dawning Investments Pty Ltd [2022]
In the recent decision of Dawning Investments Pty Ltd [2022] the Supreme Court of Victoria considered a scenario where two companies and unit trust established to conduct property investment and development business. The Court was asked to determine whether conduct of companies’ affairs was contrary to the interest of members as a whole and if this conduct was unfairly prejudicial to or unfairly discriminatory against the member.
Company One and Company Two did development work together.
Two natural persons, plaintiff and defendant, were inter alia (i) equal shareholders in Company One and Company Two, and (ii) directors of Company Two. The defendant was the sole director of Company One.
The plaintiff brought an application pursuant to s233 and s461 to wind up Company One and Company Two.
Originally, defendant had borrowed money from plaintiff’s parent for the venture. The plaintiff’s parent only agreed so plaintiff could learn the property development business in a quasi-partnership venture, built on trust.
Various loans between the entities, and the plaintiff’s parent, were made for Company Two to purchase properties for development.
Over time, the plaintiff’s spouse became involved. The plaintiff took a passive role in the venture.
The plaintiff alleged that the defendant caused over $3,000,000.00 in improper transfers from Company One’s accounts.
The defendant returned a significant amount of that sum.
Evidence suggested the defendant “parked” some of Company One’s money in the defendant’s own offset accounts to reduce the defendant’s interest payments, and bought a car without permission.
The defendant diverted funds of Company One, that could have been used to pay its debts and made other payments with a lack of transparency; apparently a breach for directors duties, as well as sufficient to enliven both s461 and s232.
The breakdown in relations was shown by increasingly toxic WeChat exchanges.
The lack of trust stymied further development opportunities, but the defendant said suggestions of a breakdown in relations were exaggerated.
Company One and Company Two had not prepared financial statements from 2018 with no explanation. The defendant blamed plaintiff’s spouse for not providing the supporting documents needed.
Breaches of director duties and inadequate accounts can be sufficient to wind up a Company on the just and equitable basis.
Company One and Company Two also failed to comply with their tax obligations or pay their debts; likely a breach of directors’ duties and sufficient to ground an s461 order.
The failure by Company Two to resist a VCAT claim against it is further evidence of deadlock between the parties.
The lack of records made it difficult for the Court to understand the Company’s position. It appeared at least one insolvency test might be met.
To the extent that defendant raised transactions plaintiff engaged in that might have been improper, the Court considered a liquidator would be well placed to pursue these.
The erosion of trust and confidence meant it would be just and equitable to wind the Companies up (s461) and that the conduct was relevantly unfair (s232).
The status quo was “wholly unsatisfactory” and the existing problems – tax debt, poor record keeping and governance – were likely to worsen. Independent liquidation was therefore attractive.
There was no alternative remedy and so the Court ordered that Company One and Company Two be liquidated.
This case illustrated the principle of just and equitable winding up and the importance of adhering to directors duties. If you would like advice in relation to corporate disputes please do not hesitate to reach out to our team.
*This article was prepared with the assistance of Christie Preston*
Independent contractors, employees and directors all have different rights, obligations, roles, and responsibilities within a company. It is incredibly important that individuals, as well as businesses, understand the difference between these different working relationships.
An employee is someone who is employed to work in someone else’s business and generally provides their services exclusively to the employer. The employer is the employee’s boss and controls how, where and when they do their work (so far as reasonable). Employees are entitled to receive the benefit of the National Employment Standards (NES) and have minimum entitlements set by modern awards or enterprise agreements.
An independent contractor on the other hand is someone who works for themselves and provides their services to a range of clients. They operate their own business and are considered to be their own “boss”. Unlike employees, independent contractors to not receive the benefit of the National Employment Standards or any industrial instruments. The term of their engagement is generally set out in a contract between them and the company.
A director is responsible for overseeing the affairs of a Company in accordance with the Corporations Act 2001 (Cth). A director’s main obligations include:
The Importance of Entering into a Contract…
Legal and commercial uncertainty arises within a business when merely an oral contract is entered into, opposed to there being clear terms set out in a written contract. This issue was recently examined in the case of Sarah Mandelson v Invidia Foods Pty Ltd, Angelo Sperlinga, Richard Simiane [2023] FWC 50.
In 2021, the sole director of Sarric Pty Ltd, owned and operated Serendipity Ice Cream, sold it to Invidia Foods Pty Ltd after reaching an oral business agreement. The terms of the business agreement included that:
However, no agreement or contract of employment was entered into.
In reaching its findings that the worker was an independent contractor, the Fair Work Commission affirmed that the principles in the case of Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1apply whether the contract is written, oral or some combination of both. Further, the Commission suggested that the “multifactorial approach” which was previously employed created “legal and commercial uncertainty” and the focus in determining a working relationship moving forward is not based upon the terms of a contract that were agreed. Noting that contracts vary in nature, Deputy President Boyce commented that “subsequent conduct may be admissible in specific circumstances for specific purposes – to objectively determine the point at which the contract was formed, the contractual terms that were agreed or whether the contract has been varied or discharged”.
Ultimately, if a Director wants to be labelled as a “Consultant” or “Contractor” rather than as an “Employee”, the Commission reiterated that merely labelling a worker “does not change the nature and content of the parties’ relevant rights and obligations under the contract”.
Key Takeaways
* This article was prepared with the assistance of Ebony Billett *
In a recent case the Fair Work Commission (FWC) has outlined the importance of employer’s implementing safeguards through their workplace policies and procedures.
In Terrence McGlashan v MSS Security Pty Limited [2022] FWC 3304 the FWC was required to examine whether an employer is permitted to record conversations of their employees and if they were permitted to do so, what safeguards and permissions an employer may need to have in place to protect them from any claims.
In this case, the employee argued that the recording phone conversations between himself and colleagues, were illegally or improperly obtained and claimed that these recordings should be excluded as evidence. Ultimately, it was determined by the Commissioner that the recordings “do not contravene the relevant legislation and there is no compelling reason as to why this evidence should otherwise be excluded”.
Since this decision was handed down, questions have been raised as to how and when an employer is entitled to intercept and record phone conversations within their workplace.
The Legal Framework
An employer may be entitled to do intercept and record conversations in the workplace if they have telecommunications interception laws and clauses noted in their employment contract specifically relating to surveillance. Additionally, it is important employers are adopting all necessary measures to prevent a claim from being made against them, including adopting policies and making it clear to employees that conversations within the workplace, as well as calls made externally will be monitored.
The relevant pieces of legislation an employer should be taking into account include:
All three (3) pieces of legislation outline the intentions of using various equipment and when listening devices must not be used. For example, as outlined in section 4(1) of the Listening Devices Act 1992 (Cth):
Section 6 of the Telecommunications (Interception and Access) Act (Cth) refers to interception and where interception occurs it is only taken to have breached this section of the Act if an interception has occurred without the knowledge of the person making the communication.
It is imperative that employers are aware of the legal framework governing obligations surrounding intercepting and recording telecommunication if they are seeking to implement the recording of conversations in the workplace. If an employer records phone conversations, their workplace policies and procedures should specifically include a provision directly relating to surveillance within the workplace.
Further, since the COVID-19 pandemic, employers have had to adapt to flexible working arrangements, which has involved adapting to Microsoft Teams meetings and Zoom meetings. If an employer has to record a meeting via one of these platforms or through an alternative platform, this is permitted under state legislation if all parties to the conversation are aware of the recording and give their consent.
If an employee has been notified that their conversations will be recorded and accessed, this needs to be done in accordance with all relevant workplace policies and procedures, including their employment contract with respect to clauses relating to telecommunications interception laws and surveillance clauses in the contract.
Is recording a conversation at work a valid reason to dismiss an employee?
With the increased use of technology in the workplace, it is becoming much more common for employees to use a smartphone to record conversations between themselves and other employees, to gather evidence of workplace bullying or sexual harassment.
Under the Surveillance Devices Act 2007 (NSW), it is an offence to deliberately install, operate or maintain a listening device or record a private conversation when there is a party that is unaware of the recording. However, this legislation does not prohibit the use of a listening device where an employee is hearing impaired.
In Chandler v Bed Bath N’ Table Pty Ltd [2020], it was found that the behaviour of an employee in making a covert recording at work was sufficient reason to make reinstatement impossible due to a loss of trust between the employer and the employee.
To put it simply, recording a conversation at work is illegal and grounds for the employer to take disciplinary action for breaches of workplace policies and procedures. It may also be grounds for the employer to take disciplinary action against the employee, including to terminate the employment relationship.
Key Takeaways
* This Article was prepared with the assistance of Ebony Billett *
Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133
In the recent decision of Wonga Pastoral Development Co Pty Ltd [2023], the Supreme Court of New South Wales considered a scenario where an application for leave to bring derivative application was sought by a shareholder in respect of a family company.
In this family dispute, the plaintiff wanted the Court’s leave to pursue a $10m claim on behalf of the Company. The plaintiff said the $10m was owed by the first defendant, a trustee of a family trust, as a loan to be repaid.
The plaintiff also sought leave to proceed against the second and third defendant for breaching their duties to the Company.
The plaintiff said the loans were made where the first defendant had doubtful capacity to repay, and where interest was not charged.
At a 2021 meeting, the Company’s directors (including an independent director) considered the loan from the first defendant and resolved not to seek repayment at that time.
The plaintiff gave an undertaking to pay the Company’s costs if leave was granted, despite not having much money.
A dispute regarding the third defendant’s removal as trustee of a family trust led to a far-reaching settlement deed being entered into in 2019 that had established the Company’s corporate governance structure, including the independent director.
There are a number of related pieces of litigation on foot between the parties.
It was accepted by all that the Company was not going to bring proceedings seeking repayment or alleging breaches of duty.
Whether the plaintiff was acting in good faith in pressing a claim against the first defendant was considered in the context of the plaintiff being a shareholder in the Company, there being inconsistencies in the plaintiff’s claim, and the plaintiff’s offering of an indemnity of dubious value.
Whether the plaintiff was acting in good faith in pressing the claims against the second defendant and third defendant was assumed to be so but, later, found to be irrelevant as the claims raised no serious question to be tried.
The Court was not satisfied that the claim was in the Company’s best interests. No financial evidence comparing alternatives was tendered, and the Court was reluctant to disturb the commercial judgement of the Company’s directors.
The Court noted the established corporate governance principle that directors could legitimately make decisions against the wishes of a majority of shareholders.
It was found to be contrary to the Company’s best interests to “sidestep” or “outflank” the decision of Company’s board not to pursue the debt now, especially as no challenge was raised to the decision-making process used.
Was it in the best interests of the Company for the plaintiff to bring the claim? The Court said no, due to the existing family tensions and possible inability of the plaintiff to separate the interests from his own, and the fact that the plaintiff did not propose instructing independent lawyers if leave was granted.
As the claim was not brought in good faith or in the Company’s best interests, the plaintiff was not granted leave to pursue the Company’s claim against the first defendant.
Nor were the claims against the second or third defendant seriously arguable. The plaintiff’s claim was poorly pleaded and contradictory in part – whether the loan would or would not be repaid, whether it was currently statute-barred or not.
The plaintiff’s application was dismissed.
This case illustrates the principle of derivative action and the importance of bringing a claim in good faith and in the best interest of the relevant company. If you would like advice in relation to corporate disputes please do not hesitate to reach out to our team.
Trindall v NSW Aboriginal Education Consultative Group Inc [2023] NSWSC 85
In the recent decision of Trindall v NSW Aboriginal Education Consultative Group Inc [2023], the Supreme Court of New South Wales considered an application for an interlocutory injunction.
An association relating to the education of First Nations people, the defendant, planned to convene a meeting to consider removing its president, the plaintiff. The plaintiff applied to the Court on an urgent basis to restrain the defendant from doing so.
The meeting was set for a Sunday, the plaintiff having been provided with very little notice. The plaintiff approached the Court for an urgent hearing on the Friday beforehand, and the Court made the orders sought.
The president said that the meeting was not called in accordance with the defendant’s constitution, and for it to proceed would be to deny procedural fairness, i.e. the chance to respond to criticism.
The president had been involved in education for 40 years, was a life member of the defendant, and had been elected president in 2021.
The plaintiff said that if their role as president was to end, they may need to reapply for their existing job, with a risk they might fail.
The defendant’s work includes seeking, and then applying, funding. The evidence suggested the plaintiff would argue that they deserved credit for $20m in funding for the association.
Evidence suggested a power struggle and the passing of a motion of no confidence in the plaintiff in December 2022.
In January 2023, lawyers for the 8 other members of the management committee wrote to the plaintiff setting out complaints and seeking a response.
The complaints included complaints of misusing the defendant’s funds.
The plaintiff denied the complaints.
The plaintiff was sick in hospital at the time of the hearing and would not recover in time to attend the meeting in any case.
The plaintiff satisfied the criteria for an interlocutory injunction: proving there was a serious question to be tried and the balance of convenience favoured an injunction.
The obligation of the association to afford the plaintiff procedural fairness arose by inference.
For the meeting to proceed would offend that requirement due to: the plaintiff’s illness, the lack of particulars of the claims made, and the lack of time given to respond to the claims.
As such, the Court found that a serious question arose.
The defendants could not show any prejudice arose from the delay, the risk of the president incurring costs that were not reasonably identifiable was not apparent.
The plaintiff would likely suffer serious reputational loss if the meeting was to go ahead.
Indeed, the defendant may suffer loss of funding for removing its president in circumstances where procedural fairness appears that it may have been denied. The external funding the defendant relies on may be put at risk.
The plaintiff would almost certainly suffer financial loss if the meeting went ahead, where the defendant would be unlikely to suffer loss.
The balance of convenience was met, and the injunction was granted.
This case illustrates the importance of procedural fairness with respect to an order for an interlocutory injunction. If you are seeking such orders, there must be a serious question to be tried. If you would like advice in relation to corporate disputes, please do not hesitate to reach out to our team.
Zphere Pty Ltd v Pakis [2022] VSC 496
In the recent decision of Zphere Pty Ltd v Pakis the Supreme Court of Victoria considered a res judicata and abuse of process scenario. A partner in accountancy firm had previously brought a proceeding against a defaulting partner which had been finally determined by consent orders. The court had to determine whether the proceeding should be stayed on abuse of process grounds.
This partnerships dispute was litigated in large part, then settled.
Before final orders were made, deeds were signed that saw the defendant pay a sum, surrender their partnership assets, and the proceedings were dismissed.
The plaintiff, a former partner of the partnership then sued the defendant for the same breach.
The defendant said the plaintiff was bound by the deeds; was estopped due to res judicata; and was bringing a claim which was an abuse of process.
The earlier litigation related to the defendant taking an improper benefit in breach of partnership obligations. The plaintiff was never joined to them or made aware of them.
At the core of each of issues is the similarity of the old litigation, and the new.
The doctrine of res judicata requires, in essence, two issues, to be dealt with. Was the first litigation a final decision? Yes, the dismissal orders were final. Next: was the plaintiff a “privy” of the parties to it?
The plaintiff highlighted their absence from the earlier litigation, powerlessness to intervene, and lack of knowledge of it.
The plaintiff’s claim was for 9.8% of the value of the breach based on the plaintiff’s partnership share. In fact, the 9.8% was not a share as TiC, but an entitlement on dissolution not divisible into proportions as against the defendant.
The Court found a partnership interest is analogous to a trust. Like a trust, legal interests are subject to the equities of others. As trustees are privies then, following this analogy, so are partners.
As such, the plaintiff was estopped from pursuing this element of the claim by the doctrine of res judicata.
The plaintiff joined the partnership pursuant to a 2006 deed which was in force at the time of the breach.
The earlier proceedings were commenced by the partnership governed by a 2017 deed (which the plaintiff did not sign, having previously left).
The breach was suffered by the partnership at the time of the breach (i.e. pursuant to the 2006 deed) and to be distributed pursuant to that partnership’s constitution.
The 2017 deed appointed a representative of the (new) partnership. That representative and the (new) partners ran and settled the earlier litigation.
As such, the deed did not release the defendants from the plaintiff’s claim.
The defendant said the plaintiff’s claim was an abuse of process due to the prospect of inconsistent findings, and the defendant’s prejudice suffered if forced to relitigate a claim the defendant considered concluded.
The defendant failed to have the proceedings dismissed as an abuse of process. The defendant could have joined the plaintiff to the earlier proceedings, and didn’t. The defendant could have sought to have the plaintiff sign up to the settlement deed, and didn’t.
The defendant succeeded on estoppel due to res judicata and lost the argument that they were bound by the deeds and this was not found to be an abuse of process.
The plaintiff was thereby prevented from bringing the claim.
This case illustrated the doctrine of res judicia. It also emphasised the high threshold for a deciding of an abuse of process. If you would like advice in relation to corporate disputes please do not hesitate to reach out to our team.