Equitable Charging Clause

Charging clauses are included in many commercial agreements as a form of security to ensure the performance by the parties, of their obligations and to allow a party to register a caveat against any real estate the other party may own.

Particularly trade suppliers and credit providers often include an equitable charging clause in their contractual agreements.

A charging clause essentially enables the supplier to then register a caveat against any real estate the other party may own. A caveat can be used to prevent a person from selling or re-financing the property until the caveat is lifted.

Where you believe you are entering into an agreement that contains a charging clause it is imperative to obtain legal advice. Otherwise, you may end up handing over more than you bargained for to satisfy your debts in the event that you cannot pay them.

Alternatively, for suppliers and credit providers a charging clause can be a powerful tool to ensure that you will be repaid for any credit or goods that you provide. Whilst courts are unlikely to void a charging clause, particularly in commercial transactions, if these clauses are too onerous they may be deemed to be unfair or a penalty.

Consequently, care must be taken when drafting such clauses into your commercial contracts to ensure they are enforceable.

Contact Walker & George to assist you in drafting or negotiating your contracts.

Quantum Meruit Claims

A service provider, who provides services, for example a builder under a construction contract, has the right to be paid for those services pursuant to the terms of the contract. However, where that service provider cannot make a claim for payment pursuant to a contract they have the right to make a quantum meruit claim instead.

Quantum meruit claims are founded on the idea that it is unjust for a party to receive a benefit (i.e. services rendered) without paying for such a benefit. Accordingly, the party who performed the work or provided the benefit is entitled to make a claim for the reasonable value of the services provided or work completed.

Before making a quantum meruit claim ensure that there is no contract in place. Making a claim for breach of contract will usually be simpler and more cost effective as there is no need to prove the existence of an agreement or contract.

A contract may not be in place in the following circumstances:

  1. there was a contract but it has since been made void, terminated, frustrated or is otherwise unenforceable;
  2. there is a contract in place but the client has requested further works outside of the contract; and, or
  3. where the negotiation of the contract is ongoing but for whatever reason, work has commenced.

The following must be proved in order to be successful in a quantum meruit claim:

  1. that work has been performed and completed satisfactorily; and
  2. that the service provider has suffered loss (i.e. non-payment). The service provider may only claim damages in the amount of the reasonable value of the work completed.

If you have received a quantum meruit claim or have undertaken work and not been paid contact Walker & George for assistance.

Restraint of Trade Clauses

A restraint of trade is a clause in a contract or agreement that restricts one party from engaging in conduct with another person or business that is not a party to that agreement. These restraints are commonly found in certain types of contract, for example, a contract for the sale of business or an employment agreement.

The operation, including the validity and voidability, of restraint of trade clauses are largely governed by the Competition and Consumer Act (including the Australian Consumer Law) (the Act) and for NSW the Restraints of Trade Act. However, section 51 of the Act, excludes the operation of the Act in relation to employment, partnerships and sales of business.

For the most part, other than those who are in business, you are most likely to encounter a restraint of trade clauses in an employment contract. These clauses usually prevent an employee from engaging in certain activities during their employment and restrain their activity in the industry / profession after their employment. These clauses take different forms including:

  1. Non-competition clauses;
  2. Non-solicitation clauses; and
  3. Confidentiality clauses.

Non-competition clauses may prevent employees and former employees from working for certain competitors, or within a certain time period and distance from the business. The restraint usually applies both during the employment and for a period after.

non-solicitation clause will prohibit a former employee from soliciting or enticing their previous employer’s clients to follow them or reduce the level of business they do with the previous employer.

Confidentiality clauses prevent current and former employees from disclosing the confidential information of the business to third parties. This obligation lasts as long as the information itself is confidential  and after you have ceased being an employee.

The law in this space must manage the competing interests of allowing parties to engage in free trade and protecting business’ legitimate interests. Courts have taken the position that the party seeking to restrain bears the onus of proving the reasonableness of the restraint. Alternatively, the restrained party may also attack the restraint on the basis that it is against public policy.

Please contact Walker & George to provide advice on any restraints that you may be agreeing to or are subject to.

Unfair Contractual Terms

A term of a contract may be found unfair for the purposes of section 24 of the Australian Consumer Law (the ACL) if:

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

Relevantly, the party who benefits from the alleged unfair term will be required to prove that the term is reasonably necessary to protect their legitimate interests.

During the Court’s consideration of whether or not a contract term is fair or not, the Court will consider the contract as a whole and if the term is transparent or not.

If the Court considers that a term is transparent, this does not mean that the Court will determine that the term was fair. If the Courts find that term is not fair, that term becomes voidable and can be severed from the rest of the contract.

Section 24 of the ACL provides guidance on when a term will be considered transparent including if it is “expressed in reasonably plain language” and “readily available to any party affected by the term.” “Readily available” has been held by the Court to mean accessible or able to be reviewed.

The unfair contractual term provisions are an attempt to level the imbalance that may occur between negotiating parties where one of those parties is an individual or a small business and are negotiating with a party with more bargaining power or market share.

Please contact Walker & George to provide advice and assist in negotiating or considering any contract you intend to enter into.

Priority Creditors

The below diagram highlights the importance of perfecting your security interests, particularly in the context of insolvency.

Perfecting your security interest ensures that you are better placed to recover your asset (or a percentage value of it) in the event of insolvency as you will be placed in the prior (higher) “secured creditors” category.

All creditors in a prior category will be paid out before distributions are made to the next category of creditors. Once the assets are insufficient to discharge all creditors’ debts in the current category a proportionate distribution will be made to those creditors.

Please contact Walker & George to discuss managing, perfecting and enforcing your security interests.

What are Security Interests?

The Personal Property Securities Act 2009 (NSW) (the PPSA) section 12 defines a security interest as “an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation.” This section also provides a helpful list of examples of a security interest.

Section 21 of the PPSA then deals with how to perfect your security interest to ensure you are a priority, secured creditor.

In order for a security interest to be perfected it must be:

  1. attached – attachment occurs when the party granting security has rights (or the power to transfer rights) in the property and does an act (for example executing a security agreement) that creates the security interest;
  2. enforceable against a third party – a security interest is enforceable once it is attached and either the secured party is in possession or control of the property or the security interest has been registered; and
  3. registered and, or in possession or control of the secured party.

As is shown by the above, steps 2 and 3 are interconnected and mutually reinforcing.

Regardless of the security interest and the property, all security interests should be registered on the Personal Property Securities Register at a minimum.

Please contact Walker & George to discuss managing, perfecting and enforcing your security interests.

Directors’ Duties

One of the most common reasons for setting up a company is to allow the company to own and operate a business to limit the personal liability of the people running the business (namely, the directors).

Whilst this is in large part true, directors who breach their duties in common law, equity and under statute may be pursued personally by liquidators if the company becomes insolvent.

The Duties

Act in Good Faith: Whilst many judgments have commented on this duty, the NSW Court adopted the following list of more specific requirements of the duty outlined by the Western Australian Supreme Court:

  1. act in the interests of the company, and not misuse or abuse directors’ powers;
  2. avoid conflict between personal interest and interests of the company;
  3. avoid using position to make secret profits; and
  4. do not misappropriate company’s assets for themselves.

Act for Proper Purpose: Central to this duty is that the director does not act in their own interest which includes gaining a personal advantage, disadvantaging the company and improperly using company information.

Act with Care and Diligence: This duty requires a director to take reasonable steps to manage and monitor the affairs of the company such as attending board meetings, understanding the company’s financial position and reviewing and maintaining current financial records.

Interconnected with the above duties is the protection afforded to a director by the business judgment rule. In order for the rule to apply a director must have made a business judgment, in good faith, for a proper purpose and being aware of the company’s current circumstances.

Lastly, a director is required not to trade a company while it is insolvent, subject to certain provisions of the Corporations Act 2001 (Cth), namely the safe-harbour provisions.

Please contact Walker & George to either discuss how we may assist your company or advise you in your capacity as director.