Property and Commercial Tips and Traps – July 2015

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Hold on to your records!

Last month the Federal Court found the former directors of the Forgione Family Group Pty Ltd (in liq) were liable for insolvent trading by failing to retain the company’s financial records.

Amongst other claims, the company liquidator successfully brought the action against the former directors pursuant sections 286(2) and 588E(4) of the Corporations Act (2001) Cth (Act). Those sections state that if a company fails to retain its financial records correctly for seven years, and in a manner which would enable true financial statements to be prepared and audited, the company is presumed to be insolvent during that time.

The directors claimed that the reason the financial records for certain periods were not retained was due to one of the directors losing the records whilst the company was moving offices; and accordingly the failure to retain the records did not occur due to an act or omission of the company.

The Court rejected this argument, holding that because the obligations under sections 286(2) and 588E(4) are strict obligations, the company was in breach of the Act when the financial records were lost – whether at the time the former director was acting with the authority of the company or not.

As the Court explained, this construction promotes the purpose of this part of the Corporations Act, namely to assist a liquidator in bringing recovery actions (including recovery actions against former directors for insolvent trading) when it is necessary to prove insolvency and the company’s financial records are not available.

The Treasurer’s win

The Federal Court of Australia recently found the Sydney Morning Herald (SMH) and The Age published defamatory material about Federal Treasurer, Joe Hockey. Last year the Sydney Morning Herald, The Age and also the Canberra Times published articles that said Mr Hockey  was providing “privileged access” to a “select group” in return for donations to the Liberal Party via a “secretive” fundraising body (the North Sydney Forum) whose activities were not disclosed fully to election funding authorities.

Each of the SMH, The Age and The Canberra Times also posted the articles on social media and tweeted only the words “Treasurer for Sale” or “Treasurer Hockey for Sale”. The SMH also advertised its print article with a placard reading in large, bold font, “Treasurer for Sale”.

The Court found that the SMH placard and two tweets by the Age were defamatory of Mr Hockey. The Court found that each of these publications implied that Mr Hockey:

  • Corruptly solicited payments to influence his decisions as Treasurer of the Commonwealth of Australia; and
  • Is corrupt in that he was prepared to accept payments to influence his decisions as Treasurer of the Commonwealth of Australia.

The Court did not find the Canberra Times articles defamatory because the article did not carry the headline “Treasurer for Sale” and that the focus of the article was on the conduct of the “select group” rather than on Mr Hockey.

A renovator’s delight

The New South Wales Supreme Court recently found that the sale of residential property is not a transaction “in trade or commerce” attracting liability under the Australian Consumer Law.

The vendors bought a home in New South Wales and after living in it for approximately five years, renovated the property with a view to selling it for profit. The property was advertised for sale (both online and in print) stating that “no detail has been spared with this meticulously designed and built home”, with “fixtures and finishes of the highest standard”. The vendors engaged the services of a real estate agent and sold the property to the purchasers for $3,350,000.

Once the purchasers moved in however, they discovered the property had extensive building defects including substantial water damage.

The purchasers brought a claim (in amongst others) for contravention of the Australian Consumer Law which states that a person must not, in a transaction for trade or commerce involving the sale of land, make a false or misleading representation concerning the characteristics of the land.

On appeal the Court found in favour of the vendors, holding that a person who sells their home (whether through a real estate agent or not) would not, in the usual course of the matter, be said to be doing so in the course of a trade or business or in a business context. The Court also stated that the renovation of and sale of a residential property, which was clearly lived in as a home, with a view to making a profit did not amount to the sale of the property in trade or commerce under the Australian Consumer Law.

HR Manager liable for company’s contravention

The HR Manager of ACI Operations Pty Ltd (a glass bottle manufacturer) may be liable for her employer’s breach of the Fair Work Act (Act). The Federal Court found that ACI Operations breached the Act when its HR Manager provided an employee with a dismissal letter two days prior to the period set down by the Act.

The employee sustained a workplace injury and in 2011 he verbally agreed to enter into a revised employment agreement presented to him by the HR Manager modifying his duties.

WorkCover South Australia subsequently told ACI Operations that it was no longer obliged to provide the employee with work. Accordingly, the HR Manager presented the employee with a dismissal letter stating that he should immediately stop coming to work, but would continue to be paid by ACI Operations during the notice period.

ACI Operations submitted to the Court that given WorkCover South Australia’s advices, at the time the dismissal letter was presented to the employee, the employment relationship between the parties was frustrated by the employee’s “inability to carry out the work that ACI requested him to perform”.

Judge Denys Simpson rejected this argument, finding that the conduct of both the employer and employee demonstrated that the doctrine of frustration did not apply.

His Honour stated that ACI Operations has entered into a new contact of employment with the employee in 2011 which recognised the employee’s limited working capacity which both parties “had been happy to recognise” for over a year until WorkCover provided its advice. His Honour went onto explain that:

“The very fact that ACI had [the HR manager] deliver the letter… advising the [employee] that his employment would be terminated… leads me to believe that ACI believed that there was a contract of employment in place…

[i]f it had already been terminated by the doctrine of frustration, there would be no need for a letter advising of termination some time in the future.”

By presenting the employer with the dismissal letter two days before the minimum time period set down by the legislation, the HR Manager was subsequently found to be involved in her employers contravention and faces penalties for her involvement under the Act.

For further information, please do not hesitate to contact us.

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