by Amy Lowry | Apr 4, 2024 | Insights
Upon the breakdown of a marriage or de-facto relationship, important time limitations apply for property settlement or spousal maintenance applications.
The time limitation in in de facto relationships is two years from the date of separation, In the cases of marriage, the time limitation is 12 months from the date of divorce being effected by the Courts. This means that the time limit for married couples does not start when they separate, but rather when the couple is legally divorced. Parties are ineligible to apply for divorce until they have been separated on a final basis for at least 12 months.
It is important to negotiate and formalise an agreement as soon as possible and within the time limitations. This can be done by way of Consent Orders, filing an Application with the Federal Circuit and Family Court of Australia (‘The Court)’ or a Financial Agreement.
It is possible to resolve property matters or spousal maintenance applications outside of the time limitation by consent of both parties. However, if no consent is obtained, a party seeking to alter property would need to apply to the Court for property settlement or spousal maintenance. If they are outside of the time limitation set out above, they must seek permission from the Court. This is formally known as seeking ‘leave of the Court to proceed out of time’. The party making the application must demonstrate that: either:
- A hardship would be caused to themselves or their child/ren if they are not allowed to apply; or
- At time of expiry, they would have been unable to support themselves without a government benefit such as an income tested pension, allowance, or benefit.
The power of the Court to grant leave to proceed out of time is discretionary. Therefore, in order to protect their financial interests, parties should not assume that it would be granted, and should ensure that property matters and spousal maintenance are dealt with as soon as possible and prior to the expiry of the time limitation applicable.
We recommend that parties obtain legal advice as soon as possible following separation and prior to the expiry of the time limitation.
by Amy Lowry | Apr 4, 2024 | Insights
Appointing an executor needs careful consideration and planning, but what happens if the executor you decide on is domiciled in another country and non-resident of Australia?
The Australian jurisdiction has specific taxation laws when concerning inheritance and can have significant implications on foreign executor’s as well as the beneficiaries of the estate. There are distinct disadvantages of appointing a non-resident Executor in Australia.
The disadvantages of appointing a foreign executor can create issues in the areas of practicality and taxation.
The issue of practicality creates the obvious hurdle of physical proximity between jurisdictions. Administering an estate usually requires detailed completion and execution of documents in the presence of a qualified witness. Further, there is the task of physically attending to estate administration requirements, such as assessing estate assets and sale of same. This can be a major hurdle where an executor is not present in Australia. This can create barriers in punctual and effective estate administration. In addition, differing time zones and potential language and cultural nuances can impede the flow of administration and contact between the executor and third parties assisting in the estate administration.
The second issue of taxation is probably the most significant implication to consider. Australian residents who dispose of real property can enjoy taxation benefits in most cases, however, if the executor is deemed a foreign resident, then those tax benefits might not be available.
For example, when dealing with real property the executor may have a Foreign Capital Gains Withholding Tax applicable to the sale of real property that exceeds $750,000. Furthermore, if the executor is classed as a foreigner for tax reasons, then the estate may be treated as such and be excluded from accessing the tax-free threshold.
Another added layer of complexity is associated with Trusts created under Wills. If the executor is a foreign resident, then the Trust created under the Will can be treated as a foreign entity for the purposes of Foreign Investment Review Board approval to transfer real property to the Trust.
While appointing a foreign executor is not prohibited in Australia, it does come with significant implications and effective administration requires a firm understanding of the Australian legal landscape. Therefore, if a foreign executor has been appointed, it would be highly recommended to appoint another executor who is an Australian resident to aid with the effective administration of the estate and as to avoid the issues addressed above.
by Amy Lowry | Feb 29, 2024 | Insights
Make sure you get documented release upon your exit.
When a director decides to exit a business, partnership, or joint venture their obligations will not automatically cease upon their exit, especially where a personal guarantee has been provided. Therefore, careful consideration needs to be given to the potential legal and financial aspects of exiting a company or partnership. This article highlights the importance of obtaining documented release from personal guarantees and potential implications for the exiting party.
Understanding a personal guarantee
In simple terms, a personal guarantee is a legal promise made by an individual (“the Guarantor”) that they will meet and perform the obligations of a third party if that third party is unable to repay a debt. In a commercial context, personal guarantees are associated with creditors (e.g lenders), leasing, or other contractual obligations and are commonly used where the lender deems the borrower as an elevated risk. Therefore, a personal guarantee acts as a safeguard mechanism against the debt for the lender.
Personal guarantees are not all the same, so it is crucial that the guarantor understands the level of debt that the third party holds, as well as understanding the legal implications of providing a guarantee. Once a joint venture or partnership has been dissolved, or a director decides to resign, if a guarantee has been provided their legal obligation might not cease upon the dissolution or resignation. Generally, there is no time limit on a guarantee which makes it critical to obtain documented release from the guarantor. To be released, the guarantor must make a request to the creditor and any other party to the arrangement. For example, upon a director’s resignation the director can contact the lending party to request a release or request an incoming director to continue with the guarantee providing all parties provide consent.
Documented release and implications
To make the release legally binding the parties will need to reduce the agreement to a Deed which will act as both a protective measure from disputes and formalise the closure of the agreement which then discharges the guarantor’s obligation. Another important reason why documented release ought to be obtained is that personal guarantees can impact an individual’s credit history. If the lender calls on the guarantee after the dissolution of the partnership, or the director has exited, and a Deed has not been executed then the ramifications to the individuals borrowing capacity will most certainly be impacted.
Documented release from personal guarantees allows for clarity and certainty for all parties involved, which aids in reducing potential misunderstandings. Thus, making the process a necessity for business exits. Prioritising documented release will protect against legal pitfalls and protect an individual’s financial wellbeing post severing business ties.
If you require further advice on how to obtain documented release or how a personal guarantee interacts with your business, or other commercial matters, then our office can assist you.
by Amy Lowry | Feb 29, 2024 | Insights
The Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2011 (Cth) have been amended to further provide consumers with protections from the use of unfair contract terms in standard form contracts. These protections are enhanced by bringing in civil penalties for the use and reliance upon unfair contract terms. The changes also broaden the scope of business impacted by the restrictions on unfair contract terms.
Within the building and construction industry, the use of standard form contracts can be extensive. You may have come across standard form contracts such as those between head contractors and sub-contractors, leasing arrangements, loan agreement, domestic building contracts and commercial design and construct contracts.
Application of Unfair Contract Terms
Historically, protections against unfair contract terms were limited to contracts where at least one party to the contract was a business, employing less than twenty people and the upfront payable cost of the contract did not exceed a monetary threshold.
Since the amendments, unfair contract term protections will apply where at least one party to the contract is a business, employing 100 or less people or has an annual turnover for the last income year of less than $10,000,000.00.
These amendments have broadened the class of businesses that must comply with the unfair contract protections. Therefore, for small businesses owners, it is important to consider whether you now fall within the scope of businesses that must comply with the protections. Failure to comply will now result in civil penalties.
Standard Form Contracts
Unfair contract term protections also apply to standard form contracts. Within the building and construction industry, the use of standard form contracts is prevalent. You may already use or have come across standard form contracts such as the Master Builders and QBCC pro forma contracts. Where a consumer is alleging a contract is a standard form contract, it will be presumed to be a standard form contract unless you can prove otherwise.
Indications that a contract is a standard form contract will include (but are not limited to):
- if the contract was offered on a ‘take it or leave it’ basis;
- if there has been repeated use of the same contract offered and entered on the same ro substantially similar terms;
- the terms were not altered to the individual parties’ circumstances;
- where one party had limited or no opportunity for negotiating terms;
- one party was only permitted to negotiate on a set of terms for example from a range of options determine by the other party; and
- one party was only able to negotiate on minor or insubstantial terms.
What is an unfair contract term?
An unfair contract term is one which would cause a significant imbalance in the parties’ rights and obligations arising under the contract that are not reasonably necessary to protect the legitimate interests of the party intending to rely on the term and would cause detriment to a party if the term was relied upon.
Only a court can determine that a term is an unfair contract term and there will be a consideration of all the facts and circumstances in the matter. This means that whilst a term may be deemed an unfair contract term in one instance, it may not be an unfair contract term in another.
The court will also consider whether the term was transparent. This mean, if you attempt to hide terms in fine print or are written in complex legal jargon, the court may determine it was not transparent, potentially leading to a finding that the term was an unfair contract term.
The Australian Securities and Investment Commission have provided some examples of unfair contract terms, these include:
- unilateral variation clauses – only permitting one party to vary the terms after signing the contract;
- indemnity clauses – where one party must pay all costs and expenses incurred by the other exercising their rights on a full indemnity basis and not including a requirement for the party to mitigate their losses;
- liability limitation clauses – where the term significantly reduces, limits or caps a parties liability;
- disproportionate termination clauses – where one party is permitted a wide scope of termination rights compared to the other party;
- automatic renewal clauses – where the contract is automatically renewed without notice to the other party; and
- cash settlement based on cost to the insurer – where a term allows the insurer to settle a claim based on the cost the insurer would incur to rebuild or repair a home as opposed to the actual cost for a homeowner to rebuild or make repairs.
Terms that will not be Unfair Contract Terms
There are some set terms which will not fall into the category of an unfair contract term, even though they may be used on a recurring basis across many previously entered contracts. These include terms that:
- define the subject matter of the contract – for example: the product or service offered under the contract;
- set the upfront payable price;
- are required by or expressly permitted by law;
- are taken to be included by operation of a law – however, if the term goes beyond what is required by law, the unfair contract term protections will apply; and
- result in other contract terms being included because of the operation of another law.
Penalties for Use and Reliance on Unfair Contract Terms
If a court determines that a term unfair, the term will be found void and the contract treated and read as if the term never existed. If the contract can still operate without the use of that term, the parties will still be bound by the other terms and obligations under the contract.
Further, there are now financial penalties that will be imposed on businesses where an unfair contract term was proposed, applied or relied upon. Where there were multiple unfair contract terms within the one contract, each term will attract a separate penalty. These penalties for businesses will be the greatest of the following:
- $50,000,000.00;
- three times the value of the ‘reasonably attributable’ benefit obtained from the conduct (if the court can determine this);
- if a court cannot determine the benefit, 30% of adjusted turnover during the breach period.
When do these changes apply from?
The protections and changes that have been brought apply to consumer contracts and small business contracts:
- entered into on or after 9 November 2023;
- to existing contracts that have been renewed on or after 9 November 2023; and
- existing contracts that have been varied on or after 9 November 2023.
We recommend that you review your contracts and consider whether your business will be required to comply with the unfair contract term protections and if so, whether your contracts are currently compliant.
For a more in-depth conversation about the changes and requirements under the new regime, please contact our office.
