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High Court determines position on proportionate liability under the Design and Building Practitioner’s Act 2020 (NSW) – The Pafburn Case

High Court determines position on proportionate liability under the Design and Building Practitioner’s Act 2020 (NSW) – The Pafburn Case

Jan 21, 2025 | Construction, News, Real Estate

High Court determines position on proportionate liability under the Design and Building Practitioner’s Act 2020 (NSW) – The Pafburn Case

Background

The High Court of Australia (HCA) recently assessed issues regarding proportionate liability raised pursuant to the Design and Building Practitioners Act 2020 (NSW) (DBPA) and the Civil Liability Act 2002 (NSW) (CLA), where ultimately, the issues may be revisited in subsequent cases due to the split 4:3 nature of the decision. In the lower Court’s assessment of the issues, the NSW Court of Appeal found that the developer and builder could not apportion their liability to the subcontractors that were utilised throughout conducting the works. Both the majority and minority judgements of the HCA provide important considerations for developers and builders when considering their risks and liabilities in construction projects which are captured by the DBPA and CLA.

Relevant Legislation

To understand concepts in the High Court’s judgement, we set out below the relevant sections in the DBPA and CLA.

Section 37 DBPA (Duty of Care)

Section 37 of the DBPA sets out the section 37 duty of care, namely, the duty to take reasonable care to avoid economic loss caused by defects. This duty of care is owed by persons who carry out construction work. 

Sections 39 and Section 41 DBPA 

Section 39 of the DBPA states that the section 37 duty of care is non-delegable, i.e. a person who carries out construction work cannot delegate (or subcontract) the duty of care to others.   

Section 41 provides that Part 6 of the DBPA (which includes the above sections) is subject to the CLA. 

Sections 5Q CLA and Part 4 CLA (proportionate Liability)

Section 5Q of the CLA states that if a person owes a non-delegable duty, then that person is vicariously liable to others it engaged to complete the works. 

Section 39 of the CLA provides that, where a person is vicariously liable to another, then that person is also  liable for the other person’s portion of liability.   

Unhelpfully, for the purposes of interpretation, ‘non-delegable’ in section 5Q of the CLA is a reference to the concept’s common law meaning, whereas this concept has a different statutory meaning provided in section 39 of the DBPA. 

What happened?

This matter was originally brought by the Owners of Strata Plan 84674 (Owners) after alleged defective work had been undertaken. The Owners brought the action against Pafburn Pty Ltd (Pafburn) as the builder and Madarina Pty Ltd (Madarina) as the developer (together, Appellants) where the Owners argued that the Appellants breached their statutory duty to exercise reasonable care to avoid economic loss caused by defects owed under section 37 of the DBPA.

Pafburn accepted its liability under the DBPA, however, defended that it should not solely be liable to the Owners for the alleged defective works, rather that they are able to proportion their liability to the subcontractors. The NSW Court of Appeal found that due to section 37of the DBPA, Pafburn was not able to proportion its liability noting it a non-delegable duty in the context of the CLA. Pafburn appealed this decision which brought forth the HCA’s findings.

Arguments brought to the HCA for determination 

Each parties’ positions before the HCA were as follows:

Appellants arguments

The section 37 duty of care is owed by each person that “carries out construction work” (specifically section 37(1) DBPA) and reading it in this manner brings forth an apportionable claim per section 34 of the CLA.

Due to these sections being operative in this manner, the Appellants argued they are entitled to reduce their liability by that owed by the subcontractors and certifiers whose works they could not control, and that contributed to the alleged loss from the defective work.  

Owners arguments

The Owners argued the Appellants each owe the section 37 duty of care and that section 39 of the DBPA makes this non-delegable.

Further, that section 5Q of the CLA and section 39 of the DBPA which the Owners assert applies, purports that the Appellants are vicariously liable for the work carried out by the subcontractors and certifiers.


The findings 

The HCA decision was split 4:3 and their Honors’ reasonings are as follows:

Majority Judgement

The majority held:  

  1. the section 37 duty of care when read together with section 39 of the DBPA imposes a non-delegable duty;
  2. section 5Q of the CLA applies to non-delegable duties, and as such a person can be vicariously liable for the negligence of those to whom the work was delegated;
  3. the proportionate liability scheme under Part 4 of the CLA does not apply to the duty imposed by section 37 of the DBPA;
  4. the Appellants cannot limit their liability by apportioning to other ‘concurrent wrongdoers’ (e.g., subcontractors and certifiers) because they are wholly liable for the economic loss caused by construction defects and vicariously liable for the persons they engaged; and
  5. the Appellants can pursue cross-claims against others (subcontractors and certifiers) for breach of any duty owed to them, to the extent that they are they are found liable to the Owners.

Minority Judgement

The Justices who formed the minority, found that section 37 of the DBPA is apportionable considering the following:

  1. that interpreting the DBPA as a whole, one must begin with the text of the law as opposed to an assumption on the reach or operation of a provision;
  2. weight was to be placed on the wording of section 37 of the DBPA. Doing this, the minority noted two key aspects, being that:

    • section 37 creates a “statutory duty to take reasonable care to avoid economic loss caused by defects” and is imposed on “a person who carries out construction work”. The minority went on further to opine that “given the different ‘construction work’ each person ‘carries out’, the scope of the duty owed by each person is different”; and
    • the s. 37 duty of care is owed to subsequent owners. The minority found this part was included to clarify that the duty is owed to an end user.

Section 39 of the DBPA does not turn the section 37 duty of care into the common law ‘non-delegable’ duty but rather ensures that a person who owes the duty of care cannot escape liability by assigning liability for the part of the work they completed. Their reasoning noted head contractors engage subcontractors to complete works in which the head contractors themselves are not experienced, or in work which they are not equipped to do, and as such it would seem to be unreasonable to make a head contractor strictly liable for work it did not and could not complete.

The minority also found that section 5Q of the CLA does not apply to the section 37 duty of care as:

  1. the section 37 duty of care imposes a duty to exercise reasonable care to avoid economic loss caused by defects which cannot be delegated;
  2. section 5Q of the CLA is concerned with a non-delegable duty of strict liability to ensure reasonable care is taken;
  3. the section 37 duty of care is not a duty of strict liability;
  4. the s. 5Q provision is concerned with the common law non-delegable duties;
  5. a “non-delegable duty is not a “duty of care” but the section 37 duty of care expressly states that it is a duty of care; and
  6. further, a ‘non-delegable duty’ is owed by the employer alone, whereas the section 37 DOC is owed by all workers carrying out construction work.

The final decision 

The final decision that sections 37 and 39 of the DBPA, and section 5Q of the CLA (excluding Part 4 of the CLA) provides that the Appellants in this instance are wholly responsible for ALL works and thus owed a duty of care to the Owners.

It then speaks to the aspect, that if the Appellants want to ‘apportion’ their liability, they are legally entitled to do so only once the economic loss claimed is determined, and then by way of cross claim the Appellants seeking to apportion the liability to the subcontracting parties.

The majority decision was concluded by noting that the Owners now have to prove the Appellants caused the economic loss that they are claiming.

Final thoughts

This decision is a big decision in that the High Court was split so it is reasonable to assume that the law should expect a change to clarify these relevant liability provisions.

It is now set out that in instances where an owner of a property desires to bring a claim under the DBPA for defective works, the developer and builder, in their relevant capacities, are not able in the first instance in the consideration whether the works caused damage,  to apportion this liability to those individuals and companies they engaged to complete the works.

A builder/developer, however, may bring claims against subcontractors responsible for the defective works, by way of a cross-claim, to recoup the moneys it paid to the owner.

It is therefore imperative that a developer carefully considers its contractual positions with all subcontractors it engages on projects, to ensure that a developer can recoup from the subcontractors if it is found that the developer breached the DBPA to the extent such breach related to a subcontractor’s work.

It is our expectation that there will be more coming in relation to this case.

 

If you have any questions, please contact the team at Keighran Legal + Advisory.

 

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Unfair Contract Terms in Construction Contracts: Are you aware of the risks?

Unfair Contract Terms in Construction Contracts: Are you aware of the risks?

Jun 19, 2024 | Construction, News, Real Estate

Unfair Contract Terms in Construction Contracts: Are you aware of the risks?

If you work in the construction industry as a developer, builder or subcontractor, it is highly likely that the newly expanded unfair contract term (UCT) regime will apply to you. The introduction of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (the Act) heavily expanded the scope of the UCT regime and created new, heavier penalty provisions. The penalty provisions set out in the act amend those found in Schedule 2 of the Competition and Consumer Act 2010 (Cth). 

 The construction industry’s use of standard contracts, engagement of small businesses through subcontractors and regular interaction with consumers means that the risk of liability from the UCT regime is high. 

The Unfair Contract Term Regime

The amendments to the UCT regime by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) commenced on 9 December 2023. 

As set out in the Act, a contract term is unfair if:  

  1. it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  2. it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  3. it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

All three elements must be proved by an applicant for a court to find the term unfair. The court is allowed to consider any factors it deems relevant but must consider the extent to which the term is transparent and the contract as a whole. Following the Act’s introduction, the maximum penalties for corporations that enforce an unfair contract term is now the greater of $50,000,000, three times the value of the benefit received or 30% of the company’s adjusted turnover during the breach period. 

What is a standard form contract?

The Act clarifies that a person contravenes the UCT regime if the unfair contract term applied, or relied on, is a term of a standard form contract. 

In order to define what a standard form contract is, the court is able to take into account any factor. However, they must consider the following factors: 

  1. the balance of bargaining power;
  2. whether the contract was prepared by one party;
  3. whether the other party was required to accept or reject the contract in the form presented;
  4. whether the other party was permitted to negotiate the contract; and
  5. whether the terms take into account any specific transaction or party details.

For example, if you are a low volume residential home builder then the home building contracts that your clients sign may still constitute a standard contract despite only being used every so often. 

Now, courts are permitted by law to determine a standard form contract despite the existence of:  

  1. an opportunity for a party to negotiate changes to terms of the contract that are minor or insubstantial;
  2. an opportunity for a party to select a term from a range of options determined by another party; or
  3. an opportunity for a party to another contract to negotiate terms of the other contract.

As an example from a builder’s perspective, even if your home building contract allows for the homeowner to select from a range of terms, or if you give one homeowner the power to negotiate but another home owner does not have power to negotiate, your contract may still be a standard term contract. 

Who does the UCT regime apply to and what’s changed?

The UCT regime applies to small business contracts and consumer contracts. 

A contract is a consumer contract if the contract is for a supply of goods or services or a sale or grant of an interest in land, and the individual who is acquiring the good, service or interest acquires it predominantly for personal, domestic or household use or consumption. Examples may include residential leases, home building insurance contracts or home building contracts. 

Following the Act coming into effect, the definition of small business contract was changed to a far wider scope. The definition of a small business is now a business that employs fewer than 100 persons or has a turnover of less than $10,000,000. There is no longer a price cap on the contract price, meaning that any contract regardless of the price may be subject to the UCT regime


Next Steps

As a result of these changes, it is highly likely that even if you or your company are not a small business, the party on the other side may be. This means that the UCT regime along with its associated penalty provisions may apply to your contractual arrangements. For example, in subcontractor – head contractor relationships where the subcontractor is likely a small business.  

In the alternative, you may be one of these small businesses who have previously been affected by unfair contract terms, and these amendments may provide some additional leverage to ensure that your contracts remain fair. 

To ensure that you as a business are protected from these changes, we recommend: 

  1. reviewing your contracts that fit the standard term contract definition for any unfair contract terms; and
  2. reviewing your client or customer base to assess whether they (or you) have less than 100 employees or an annual turnover of less than $10,000,000.00.

 

If you have any questions, please contact the team at Keighran Legal + Advisory.

 

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Electronic Signing in Australia – Where is it up to?

Electronic Signing in Australia – Where is it up to?

Jul 13, 2023 | Construction, Hotels, News, Real Estate, Uncategorized

Electronic Signing in Australia – Where is it up to?

A legislative comparison of electronic signing regimes in Australia

Background

In 2020, temporary changes to the Corporations Act 2001 (Cth) (the Act) were made as a COVID safety measure, which allowed for the electronic execution of documents. This article provides insights on how the changes have now been made permanent in the respective State and Territories.

Following on from the Corporations Amendment (Meetings and Documents) Act 2022 (Cth), companies are now able to execute contracts, deeds, and other documents electronically. This has prompted the States and Territories to follow suit, by amending State and Territory legislation to enact similar provisions that replicate the amendments made to the Corporations Act 2001 (Cth).

The amendments to both Commonwealth and State laws have sought to strike a balance between providing sufficient security in the identification of signatories as well as affirming the intention to create legal relations and facilitating more efficient and cost-effective practices of conducting business through broadening the means of executing documents in a post-pandemic era. One of the main benefits of electronic conveyancing is the speed and convenience it offers, allowing transactions to be completed without the need of paper-based documents reducing the risk of error and delays, and saving resources for all parties involved.

Commonwealth Legislation 
The Corporations (Coronavirus Economic Response Determination (No. 1) 2020 was the Commonwealth’s first amendment to electronic execution law. This modified the operation of provisions of the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth), to allow for meetings to be held online, and documents to be executed electronically.

To solidify the permanency of these laws, the Corporations Amendment (Meetings and Documents) Act 2022 (Cth)was introduced, not only affirming the electronic execution of documents, but more specifically establishing that: 

    • documents (including deeds) may be signed electronically by any method that identifies both the identity and intentions of the party, in accordance with sections 110A(2) and 110A(3) of the Act;
    • an agent can execute a document (including a deed) on behalf of a company electronically, in accordance with section 126;
    • a sole director proprietary company that does not have a company secretary can now also execute a document (including a deed) in accordance with section 127(1) or section 127(2);
    • for a company executing a document under seal under section 127(2) of the Act, the witness can observe the witnessing of the seal by electronic means; and
    • for the execution of a deed, delivery is not necessary if a company executes a deed in accordance with section 127(1) or section 127(2).

New South Wales
New South Wales was one of the first of the States to implement provisions for electronic execution in April 2020. Throughout 2020 and 2021, New South Wales made numerous changes, and introduced new laws expanding the types of documents that can be executed electronically.
These changes namely allowed for:

    • the remote witnessing of signatures through an audio-visual link;
    • the electronic signature of a client authorisation;
    • paper land dealings to be signed and witnessed electronically; and
    • owners’ corporations and community associations to vote and execute documents electronically, without having an affixed seal.

While most of these amendments did not have an expiration date, all have since become permanent. The Electronic Transactions Act 2000 (NSW) was amended through the Electronic Transactions Amendment (Remote Witnessing) Act 2021 (NSW) establishing permanency for the electronic execution, remote witnessing, and attestation of documents. These amendments further allowed for a signatory or a witness of a signatory to be located outside of the jurisdiction for any document being executed in accordance with the of Laws of New South Wales.

Victoria 

Alongside New South Wales, Victoria implemented provisions for electronic execution in April 2020. The COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 (Vic) allowed for deeds to be electronically executed and permitted the remote witnessing of transactions and other documents that had previously required in-person witnessing under Victorian law. This was repealed and replaced with the Justice Legislation Amendment (System Enhancements and Other Matters) Act 2021 (Vic) which amended the Electronic Transactions Act 2000 (Vic), providing that:

    • electronic signatures are sufficient and may be witnessed through an audio-visual link;
    • a deed may be created in electronic form and may be signed, sealed, and delivered by electronic communication; and
    • a mortgage may be in electronic form.

The Justice Legislation Amendment (System Enhancements and Other Matters) Act 2021 (Vic) further amended the execution and witnessing requirements under the Powers of Attorney Act 2014 (Vic). However, electronic execution must adhere to ‘remote execution procedure’ as set out in sections 5A to 5D.

Queensland
Following New South Wales and Victoria, Queensland made amendments to various legislation including the Property Law Act 1974 (Qld), Oaths Act 1867 (Qld) and the Power of Attorney Act 1998 (Qld) now allow individuals to sign documents electronically including deeds, oaths, affidavits, general powers of attorneys and declarations.

At the end of 2021, the Justice and Other Legislation Amendment Act 2021 (Qld) was introduced, in an attempt to make some of these temporary measures permanent. However, while the Act was assented to on 24 November 2021, the relevant provisions in the Act were only to take effect on a day to be fixed by proclamation.

Now, pursuant to Proclamation No 2 of the Justice and Other Legislation Amendment Act 2021 which was signed on 17 March 2022, the relevant provisions (commenced on 30 April 2022), which permit:

    • affidavits and statutory declarations being in electronic form, electronically signed and witnessed through an audio-visual link;
    • general powers of attorney (POA) for businesses being in electronic form, signed electronically without a witness and made in counterparts/by split execution;
    • corporations executing a POA without using a common seal;
    • deeds being made or signed electronically, without a witness and without needing to be sealed; and
    • mortgages being in electronic form and signed electronically by the mortgagor or the mortgagee, without the need for any witnesses.

Australian Capital Territory (ACT)
As amended in 2012 by the Electronic Transactions Amendment Act 2012 (ACT), the Electronic Transactions Act 2001 (ACT) had already facilitated the electronic execution for certain documents (provided that execution is conducted in accordance with section 9). 

In 2020, the ACT introduced the COVID-19 Emergency Response Act 2020 (ACT), as a temporary measure, permitting for certain documents to be witnessed by an audio-visual link. The documents that are generally included under section 4 of COVID-19 Emergency Response Act 2020 (ACT) are POAs and enduring Powers of Attorney, health directions, wills, and affidavits.

For remote witnessing to be considered valid in the ACT, the legislative amendments required the witness to:

    • observe the signatory sign the document in ‘real time’;
    • provide confirmation through signing the document or a copy of the document;
    • be reasonably satisfied that the document signed by the signatory is the same document (or a copy of the same document) as signed by the witness in confirmation; and
    • endorse the document by providing a statement that specifies the method used to witness the document, and that the signature was witnessed in accordance with section 4 of the COVID-19 Emergency Response Act 2020 (ACT).

However, this legislation expired on 31 December 2022, following the end of the penultimate COVID-19 emergency period, and the ACT is still yet to legislate any provisions for remote witnessing post-COVID.

Western Australia
Western Australia introduced the COVID-19 Response and Economic Recovery Omnibus Act 2020 (WA) in its response to the COVID-19 pandemic. Under this act, witnesses can witness signatories signing certain documents, such as affidavits and statutory declarations (under the Oaths, Affidavits and Statutory Declarations Act 2005 (WA)), remotely through an audio-visual link, using technology that facilitates continuous and simultaneous audio and visual communication (e.g., FaceTime, Zoom or Microsoft Teams).

Division 4 of Part 2 of the Act was extended until 31 December 2022, pursuant to the COVID-19 Response and Economic Recovery Omnibus Act 2020 Postponement Proclamation 2021 (WA). However, in 2023, Western Australia has made no advancements towards instituting legislation to provide avenues for permanent electronic witnessing.

South Australia
In 2020, South Australia introduced temporary measures, extending the list of persons who could witness statutory declarations, as well as suspending the requirement for land registry instruments to be witnessed.

From 20 April 2020, pursuant to the COVID-19 Emergency Response (Section 16) Regulations 2020 (SA)(Regulations), the list of persons who could witness statutory declarations in South Australia under the Oaths Act 1936 (SA) was extended to include all the persons listed in Schedule 1 of the Regulations.

The South Australian Government has made regulations under the Oaths Act 1936 (SA) as amended by the Oaths (Miscellaneous) Amendment Act 2021, to allow, from 14 October 2021, affidavits to be witnessed remotely over audio-visual link. Also commencing on 20 April 2020, the COVID-19 Emergency Response (Section 17) Regulations 2020 (SA) provided that section 17 of the COVID-19 Emergency Response Act 2020 does not apply when a person is required to be physically present to witness the signing, execution, certification or stamping of a document or to take any oath, affirmation or declaration in relation to a document.

Northern Territory
The Northern Territory introduced the Land Legislation Amendment Bill 2022 in November 2022, and it was successfully passed by the Northern Territory Government in February of 2023. The Land Legislation Amendment Bill 2023 purpose was to has amended the Electronic Conveyancing Act 2013. The key provisions to provide that documents may take the form of electronic conveyancing documents, references to signing or executing of documents are references to documents that are electronically signed, requirements for clients authorisations for electronic conveyancing and requirements for verification of identity.

Tasmania
The Tasmanian government enacted the COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 (Tas) as its response to COVID-19. The Act was assented to on 27 March 2020 and consolidated on 3 September 2022. The COVID-19 Disease Emergency Notice 18/2020, made under section 17 of the COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 further allowed for the remote witnessing of certain types of documents, provided that:

    • the intended recipient of the document must agree to the method of signature, by way of supplying the producer of the document with their email address or telephone number for the purpose of receiving the document as being sent through email or facsimile;
    • the witness must observe the signatory sign the document through an audio-visual link in ‘real time’; and
    • the witness must be satisfied the document being signed by the signatory is the same document, as the document the witness is attesting to observing the signatory sign.

Subsequently, Disease Emergency Notice 2/2021 and Notice 12/2021 have been made to further allow for documents to be served, signed and witnessed through electronic means as authorised under section 17 of COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 (Tas), provided they are signed in accordance with section 7 of the Electronic Transactions Act 2000 (Tas). Nevertheless, wet-signatures and in person witnessing are still required for certain categories of documents, including the valid execution of deeds.

Final Thoughts

The amendments made to the Commonwealth law, as well as the amendments that many of the States and Territories have made to their own legislation has actively assisted in enhancing the practical aspects of executing documents in Australia.  These laws improve both the cost and time efficiency of signing and witnessing documents, by incorporating the technology that has been both developed and relied upon during the COVID-19 pandemic. This has led to efficiencies in practice in completing transactions, which has had positive impacts in the time it now takes and the cost of completing transactions.

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An obligation to “carry on the business” – High Court defines the principles in Laundy’s Case

An obligation to “carry on the business” – High Court defines the principles in Laundy’s Case

Apr 19, 2023 | Construction, Hotels, News, Real Estate, Uncategorized

An obligation to “carry on the business” – High Court defines the principles in Laundy’s Case

A decision regarding the sale and purchase of a hotel in Pyrmont that has impacts on many current transactions has recently been handed down from the High Court of Australia. The primary question in the case revolved around “carrying on” provisions, a standard contract provision included in almost all Hotel (and sale of business) transactions. The interpretative scope of what that phrase actually means has now been determined.

 

The Facts

 

In January 2020, Laundy Hotels (Quarry) Pty Ltd (the vendor) and Dyco Hotels Pty Ltd (the purchaser) entered into an agreement to purchase the Quarryman’s Hotel and associated business (the Hotel) in Pyrmont for $11.25 million. Completion of the land and business contracts were initially contracted to occur on the 30th and 31st of March 2020 respectively.

During the period post-exchange and pre-completion the COVID-19 pandemic occurred – bringing with it, mandatory public health orders. During that time, the Hotel was not providing dine in services and was instead operating as a takeaway food and beverage business. On 25 March 2020, the purchaser informed the vendor that it would not complete the contract because the vendor was not ready, willing and able to complete due to its breach of clause 50.1 which required the vendor to “carry on the Business in the usual and ordinary course as regards its nature, scope and manner …”. The vendor disagreed, subsequently served a notice to complete, and terminated the contract once completion did not occur at the expiry of the notice to complete.

 

“Usual and ordinary course…”

Clause 50.1 of the contract provided that “from the date of the contract up until Completion, the vendor must carry on the Business in the usual and ordinary course as regards its nature, scope and manner.” This type of clause is generally accepted and included in contracts involving the simultaneous sale of land and its associated business, as is usual in hotel transactions. The key question was whether the vendor’s operation of the Hotel which was limited by public health orders, and not operating with the full scope at the time the contract had been entered into constituted a breach of clause 50.1.

 

The Findings

The High Court found that the vendor did comply with the obligation as the proper construction of the clause implied that “the vendor’s obligation…. is moulded by, and subject to, the law as in force from time to time”. It was also further reasoned that because the Hotel operates pursuant to its liquor and gaming licence, contravention of public health orders could place that licence at risk and thus actually cause a breach of the clause.

The High Court also investigated several other provisions in the contract including the vendor’s warranties and excluded warranties and found that the requirement for the carrying on of the Hotel to be lawful was not required to be stated in the contract, as the nature of the Hotel required specific legal authority to continue to operate.

 

What does this case mean for hotel transactions?

The case puts beyond doubt that the a vendor’s ability to continue to operate the business in the “usual and ordinary course” is subject to what is actually permissible at law, which may change from exchange to completion. A vendor cannot be compelled to continue to operate a business contrary to law or regulations to fulfil a contractual promise to a purchaser.

For vendors, it is important to ensure that your warranties, excluded warranties and “carrying on” provisions are flexible enough such that sudden changes in the broader regulatory landscape can be accommodated for, and amendments are made to sale and purchase agreements to follow this decision to put purchasers on notice of what may be deemed to be a somewhat obvious interpretation. Purchasers will need to understand that “carrying on” and other similar clauses do not mean that on completion a purchaser will receive the identical business that has initially been contracted for, as the business may be subject to change depending on unforeseen legal and regulatory impositions.

However, should the legal and regulatory framework remain constant, “carrying on” provisions will continue to provide the requisite protection for purchasers as vendors will be obligated to adhere to these contractual provisions.

 

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Legislative Wrap-Up 2022: Grant of option now dutiable

Legislative Wrap-Up 2022: Grant of option now dutiable

Mar 13, 2023 | Construction, Hotels, News, Real Estate, Uncategorized

Legislative Wrap-Up 2022: Grant of option now dutiable

On 19 May 2022, the Duties Act 1997 (NSW) was amended by the State Revenue and Fines Legislation Amendments (Miscellaneous) Act 2022 (NSW) (the Act). Upon its royal assent, a new head of duty and substantial amendments to the current Act were made and imposed on transactions which result in a “change of beneficial ownership”.

Pursuant to s 8(1)(b)(ix) of the Act, the term “change in beneficial ownership” includes:

    • the creation of dutiable property;
    • the extinguishment of dutiable property;
    • a change in equitable interests in dutiable property;
    • dutiable property becoming the subject of a trust; and
    • dutiable property ceasing to be the subject of a trust.

The above is designed to broaden the scope of transactions which are now considered dutiable under this Act.

 

How does this affect you?

    One of the most important outcomes from the introduction of this legislation is that duty is now payable on the grant of an option.

    Under ss 11(1)(K) of the Act, an option to purchase land in NSW is a creation of dutiable property. Pursuant to s 8(3) of the Act, the creation of dutiable property constitutes a change of beneficial ownership. Therefore, duty is now payable on a grant of an option to purchase land in NSW.

    At the time the Act came into effect, there was much ambiguity on whether the above assessment was in fact correct. However, Revenue NSW have been quick to suppress any uncertainty, noting the following in their published guidance notes:

    “A put option and/or call option granted over dutiable property in NSW (such as over land or an interest in land) is a ‘change in beneficial ownership’.  This means that duty is payable on any grant fee paid for a put and/or call option entered into from this date”.

    “Section 8(1)(b)(ix) of the Duties Act 1997 introduces duty on certain transactions that results in a change of beneficial ownership of dutiable property. This includes the creation of dutiable property. This means that duty will be payable on the grant of a put and/or call option.”

    The Act also made the following amendments which must be noted:

     

      • duty on acknowledgement of trust;
      • providing for a refund of foreign purchaser surcharge duty/ surcharge land tax in relation to a transfer of land, after the transfer, the land is used by the transferee whole or predominantly for commercial and industrial purposes; and
      • the introduction of a new anti-avoidance regime into the Taxation Administration Act, which replace anti-avoidance provisions in Part 11A of the Duties Act.

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    Legislative Wrap-Up 2022: Corporations Act gets a new virtual look

    Legislative Wrap-Up 2022: Corporations Act gets a new virtual look

    Mar 13, 2023 | Construction, Hotels, News, Real Estate, Uncategorized

    Legislative Wrap-Up 2022: Corporations Act gets a new virtual look

    In late February, the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) (Meetings and Documents Act) came into effect, amending the Corporations Act 2001 (Cth) (Corporations Act). Shaped by the evolving role technology plays in a post-COVID world, the Meetings and Documents Act came with a raft of changes.

    What has changed?

    The Meetings and Documents Act accommodates for the increasingly virtual nature of business by amending sections 249R and 252P of the Corporations Act to allow a meeting of members to be held online. In addition to being held physically, meetings can now be held at both physical venues and virtually (a hybrid meeting), or entirely virtually, if the technology has been consented to by all directors.

    As well as this, the Meetings and Documents Act also allows for technology-neutral signing of documents, so long as the method of signing properly identifies the person and indicates their intention and is as reliable as would be appropriate.

    Sole director signing now easier

    The Meetings and Documents Act also amended the Corporations Act to permit a sole director of a company that has no company secretary to sign under s 127(1) of the Corporations Act. Previously, a sole director could only sign under s 127(1) if they were also the company secretary. Importantly, this change means the assumptions made under s 129(5) as to the due execution of company documents applies and extends to documents which are signed by a sole director only, without the signature of a company secretary.

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