News - Pigott Stinson

Workplace Relations Newsletter

Thu, 20 Oct 2011 00:00:00 -1100

Pigott Stinson has published its first Workplace Relations Newsletter. For the latest in employment and workplace relations law, follow this link.

Personal Properties Securities Act

Tue, 27 Sep 2011 00:00:00 -1100

Background

The commencement date for the Commonwealth Government’s long-awaited Personal Property Securities Act (PPSA) has now been pushed back to 30 January 2012. However, because of the dramatic and far-reaching changes the PPSA will introduce it very much remains timely and appropriate for business people to inform themselves of the PPSA’s effect on a wide range of transactions.

The PPSA completely replaces the existing laws and regulations for taking and registering security interests over personal property – that is, security over most types of property except land. So, for example, following the PPSA’s commencement, mortgages over motor vehicles will no longer be registered on REVS, and fixed & floating charges over companies will no longer be registered at ASIC. Instead, they will all be registered on a completely new “PPS Register” established by the PPSA.

In addition, and perhaps more importantly, transactions that were formerly not regarded as security interests – such as retention-of-title arrangements, equipment leases, factoring agreements and commercial consignments – will now be deemed to create security interests. Consequently, and somewhat radically, they too will need to be registered, in order to fully protect the title of the true owner of the goods against, say, the claims of a liquidator or bankruptcy trustee of the customer, or parties who come into possession of the goods with no knowledge of the prior transaction.

Who is affected?

Suppliers utilising retention-of-title terms
Landlords
Equipment lessors
Bailors
Consignors
Buyers and sellers of businesses
Intellectual Property owners
Lenders and credit providers

How businesses should prepare

If you fall into one of the categories listed above, it is now necessary to consider the implications for your business and to determine what action, if any, you will need to take in anticipation of the commencement of the new regime. Things you could begin to do include:

undertaking an audit of all security interests you hold over personal property (including intellectual property (IP)),
identifying existing security interests, such as ASIC charges and REVS registrations, which, whilst they will be automatically migrated to the PPS Register, will ideally need data checking beforehand or upon migration,
recognising that other newly classified security interests (basically the deemed security interests plus security over IP) will not be transferred,
arranging for those previously unregistrable and therefore non-migrated security interests to be recorded on the PPS Register, and
implementing a diary system to renew PPS registrations every 7 years for consumer goods and serial-numbered property (cars, boats, planes and IP with serial numbers), and up to 25 years for other personal property, depending upon the periods specified in the relevant security agreement.

All of this means an added administrative burden on organisations, particularly at the PPSA’s commencement time. Also ideally a firm’s commercial contracts, in particular its agreements which provide credit support to the recipients of goods will need to be checked and, if necessary upgraded for the PPSA.

How will the new register work?

The PPS Register enables parties taking security over personal property to protect (“perfect”) their security interests by the process of registration. As we have noted above, personal property “security interests” will now be of two kinds: the traditional “in substance” security interests, such as fixed & floating charges and mortgages, and the newer “deemed” security interests, such as retention-of-title clauses in supply contracts, goods leases and commercial consignments.

The PPS Register will be on-line and internet-based, accessible 24 hours a day. It will also be accessible by fax, SMS and physical means, such as by a person attending a city-based registry office, as is currently the current practice with ASIC and bills-of-sale registries. The register will be operated by an existing federal government body, the Insolvency & Trustee Services Australia (ITSA).

Details of security interests will be notified to the PPS Register primarily on-line by the addition of information to specified electronic data fields. When complete, these fields will comprise a “financing statement”, from which a “verification statement” will issue to the registrant. An incorrectly completed financing statement will most likely render a registration ineffective. However, unlike with existing registers, a copy of the document creating the security interest will not be deposited on the PPS Register – with the ensuing advantage that security interests can be notified in advance of the actual signing of the underlying documentation.

What else do you need to know?

The initial two year period from the PPSA’s commencement time will be deemed a transition period. This means in particular that security interests created before that time, but which were not previously registrable (the “deemed security interest” referred to above), will continue to be effective during that period, without registration on the PPS Register. Once the transition period has elapsed, however, a registered security interest over the relevant property will override a deemed security interest which remains unregistered.

In addition to establishing the new register, the PPSA introduces -

new terminology – “attachment” and “perfection” when security interests are created; also the floating charge asset is replaced by a “circulating asset”,
a complex set of priority rules, based primarily on registration – but note the new concept of super-priority which is statutorily conferred on some types of security interests relative to others, and
a prescriptive enforcement regime for the holders of security interests, most of which can be contracted out of for business-to-business transactions.

Conclusion

The PPSA is an important step forward in providing a national, one-stop solution to searching, recording and regulation of security interests over personal property throughoutAustralia. If you are an existing holder of security interests you must act now to understand the steps you need to take to ensure your interests are properly recorded and protected. If you never thought you were taking security over personal property then once the PPSA commences you must ensure that if your usual business transactions now fall under the PPSA that you register them. Even if you are considering buying a company after the PPSA’s commencement time you must be mindful of the impact on corporate valuations of any registered security interests.

You are invited to contact us to discuss your business’s risks and opportunities following the commencement of this important new legislation.

Basic Licensing Issues

Thu, 21 Oct 2010 00:00:00 -1100

Section 73 of the Liquor Act 2007 provides, in effect as follows:

1. A registered club must not permit:

(a) intoxication; or

(b) any indecent, violent or quarrelsome conduct,

on the licensed premises of the registered club.

Maximum penalty: $11,000.00.

2. A registered club or an employee or agent of a registered club must not, on the licensed
premises of the registered club, sell or supply liquor to an intoxicated person.

Maximum penalty: $11,000.00.

3. A person (i.e. a member, guest of a member or patron of a club) must not supply liquor to
an intoxicated person on the licensed premises of a registered club.

Maximum penalty: $1,100.00.

Intoxication

Section 5 of the Liquor Act 2007 gives a comprehensive definition of intoxication, which is as follows:

“For the purposes of this Act, a person is "intoxicated" if:

(a) the person’s speech, balance, co-ordination or behaviour is noticeably affected, and

(b) it is reasonable in the circumstances to believe that the affected speech, balance, co-
ordination or behaviour is the result of the consumption of liquor.”

Section 5 also provides for the Director General of Liquor and Gaming “to issue guidelines to assist in determining whether or not a person is intoxicated for the purposes of this Act”.

The guidelines are available at www.olgr.nsw.gov.au.

The guidelines are quite helpful and should be prominently on display in areas of the club where staff are sure to see them and also should be included in the club’s staff handbook so that every employee of the club is aware of them.

How to help protect your employees from prosecution and, if prosecuted, to defend themselves for serving an intoxicated person

It is essential that your employees have been well trained in their RSA obligations and that they have some experience, such that they can give evidence that, as a barperson, they are confident in identifying the signs of intoxication quickly and they have refused service to patrons in the past because of this.
Make sure that all employees know that when they make a call in relation to refusing service to a patron, management and the board will back them up. In particular, directors should not overrule the decision of an employee to refuse service of alcohol.
Do not put trainees and inexperienced bar staff on duty without an experienced barperson being present to keep an eye on them and guide them. Adopt a “buddy system” for inexperienced staff.
Do not roster inexperienced staff on at busy times.
If there is an incident of intoxication and a person is refused service, make sure that, as soon as possible after the event, the barperson and any managers and other witnesses involved make statements with all the details and that, separately, the incident register that must be kept is properly completed.
If an employee has been accused of serving alcohol to an (allegedly) intoxicated person, the employee should be asked to make a statement as quickly as possible after the allegation has been put to them and they should include in that statement all that they can recall about what they saw and did. A prudent course would be to quickly engage a lawyer to represent the employee, in which case, the statement should include a note that the purpose of the statement is to give instructions to the club’s lawyer. This will help keep it from the police and investigators from the OLGR as it should be subject to legal professional privilege.
Obtain statements from other persons who can give evidence corroborative of the employee. These are likely to be fellow employees, but also there may well be patrons who are willing to come forward to assist.
Interview and obtain a statement of the patron who is alleged to have been intoxicated. It is probably best to leave this to the club’s lawyer.
The vital evidence that your employee will need to be able to give is that he or she recalls the patron, recalls serving the patron and recalls the conduct, demeanour and actions of the patron as they presented at the time of service or, if the patron was observed shortly beforehand, how that patron appeared at that time. Of course, what is highly relevant is whether there were any signs of intoxication to be observed.
Make sure your employees do not work under so much pressure that they cannot make an assessment of every patron. This means clubs should not under-staff the bar or overwork bar staff.
CCTV footage is increasingly vital evidence. It is often the best evidence available as to what really took place and a number of cases have been successfully defended because of the quality of the CCTV footage. Make sure that you have good quality cameras and that they are positioned so they show the bar or serving area.
The employee almost always needs to give evidence in his or her defence and should present as a witness of credibility, honesty and good character.

The liability of secretaries

Section 73(4) of the Liquor Act 2004 in effect provides that, if an intoxicated person is on the licensed premises of a registered club, the club is taken to have permitted the intoxication, unless it proves that the club and the club’s employees or agents “took all other reasonable steps to prevent intoxication on the licensed premises” of the club.

Under section 91 of the Liquor Act, the secretary of the club or the approved manager of separate premises of the club can be held personally liable for the offence of permitting intoxication, contrary to section 73.

The good news for directors is that generally they cannot be held liable for the offence of permitting intoxication.

The defence of having taken all reasonable steps to prevent intoxication

While not wishing to be prescriptive, the evidence that needs to be available for a defence by a secretary of a club to a charge of having permitted intoxication include the following:

The nature of the club’s premises;
The number of patrons in attendance at the time of the alleged offence and whether there was a particular function or event;
The age demographic of the patrons;
The skill, experience and training of all staff employed at the relevant time;
The management structure of the club;
The instructions, (preferably in writing) given to all staff and management about their responsibilities in relation to intoxication;
The minutes of staff meetings prior to the events in question, when the issues of RSA and intoxication have been dealt with;
The steps that the secretary or manager has undertaken to personally observe and monitor the performance of the staff, security personnel and the system to prevent intoxication. This is very important. It is not sufficient to simply provide evidence that there was a system in place to prevent intoxication. The secretary or manager who is the defendant must be able to show that he or she was involved in the establishment of that system and physically and personally monitor the effectiveness of the system in operation. Accordingly, if Saturday night is the busy trading night, the secretary needs personally to observe the system in operation on that night on a regular basis and the performance of the staff and, if necessary, initiate adjustments.
The larger the venue, the more difficult will be the task for creating an effective operational system. In some cases, it may be necessary to have designated RSA marshals whose task it is to keep patrons under observation and to weed out those showing signs of intoxication.

Penalty Notices

Sometimes the police or OLGR inspectors issue penalty notices for certain offences made under the Liquor Act, including the offence of permitting intoxication. It is often simpler and less expensive to pay the penalty notices, but remember that, by paying them, the person named in the penalty notice is in effect admitting the offence and this will result in a criminal record in circumstances of disciplinary action against the club or the secretary.

Accordingly, it is probably best to get legal advice before paying a penalty notice so that the decision to pay or not to pay is an informed decision.

Alcohol Related Violence

Since 2008, the NSW Government has implemented a scheme to regulate venues with high levels of alcohol related assaults and other incidents.

The scheme is based on statistics of alcohol related violence compiled by the Bureau of Crime Statistics (BOCSAR) over each 12 month period.

Under this scheme, any licensed premises can be made a “declared venue” with one of three tiers of restrictions imposed on its licence as follows:

Level 1 (19 or more alcohol related incidents recorded over a 12 month period)

2.00am lockout of patrons except members;
No glass containers after midnight;
Cease service of alcohol 30 minutes prior to closure;
No shots, and drink limit restrictions after midnight, such as no ready to drinks over 5% alcohol content and limit of 4 alcoholic drinks per customer per order;
10 minute timeout or the provision of free water and food for 10 minutes every hour after midnight;
Extra security measures;
Maintenance of an incident register to record incidents during the standard trading period and any action taken in response;
A venue safety plan.

Level 2 (12 to 18 alcohol related incidents over a 12 month period)

No glass after midnight;
Cease service 30 minutes after close;
10 minute timeout or the distribution of free water or food for 10 minutes every hour after midnight and actively encourage patrons to drink water;
A venue safety plan.

Level 3 (8 to 11 alcohol related incidents over a 12 month period)

No conditions imposed, but OLGR officers to liaise with the venue to develop a venue safety plan.

The next annual round of the scheme is being implemented in the following stages:

Stage 1

17 September 2010 - Data notification letter sent to venues.

Stage 2

24 September 2010 - Last day for venues to request review meeting with NSW Police.

Stage 3

1 October 2010 - Last day for review meeting between the venues and NSW Police.

Stage 4

8 October 2010 - NSW Police assessment provided to venues and Communities NSW.

Stage 5

15 October 2010 - Last day for venue safety plans to be submitted to Communities NSW.

Stage 6

22 October 2010 - Last day for venue submission on NSW Police assessments to the Director General, Communities NSW.

Stage 7

26 November 2010 - Publication of Regulation.

Stage 8

1 December 2010 - Commencement of Regulation for existing venues and removed venues.

8 December 2010 - Commencement of Regulation for new venues.

The purpose of the scheme is to reduce alcohol related incidents on licensed premises.

A violent incident which occurs on the premises of a club (or other licensed premises) will be assessed as alcohol related, except where it is apparent that the consumption of alcohol was not a contributor to it.

Some examples of circumstances in which violent incidents have not been attributed to licensed premises include:

Where alcohol has not been consumed by either the victims or offenders;
Where the incident occurred at an underage event at which alcohol was not sold or supplied;
Where the incident involved persons seeking entry to the venue and the venue’s management of the queue and the handling of the incident did not contribute to or exacerbate the incident;
Where the offender was not a patron of the venue.

However, persons seeking to enter a venue are considered as patrons and police also consider an incident to have occurred on licensed premises if it occurs:

on the premises itself; or
in the immediate vicinity of the premises, such as the footpaths or car park where there is evidence of direct involvement with the premises.

As indicated above, there will be an opportunity (albeit a brief one) for clubs to discuss with the local police the various incidents attributed to their premises by the BOCSAR data before the police submit their assessments to the Director General of Communities NSW.

It will be in the interests of all clubs to maintain detailed records of each incident which they wish to have the police review.

Once again, CCTV footage and statements from witnesses taken at the time, or shortly thereafter, are going to be very important in the assessment.

Clubs are required by law to maintain an incident register, but the form of that register does not admit as much detail as may be desirable.

Accordingly, it is recommended that, as well as maintaining the incident register, clubs should also have a separate system whereby detailed statements of witnesses to incidents are collected and maintained. Those witnesses are likely to be employees or agents of the club, but also members and other patrons. The system should also retain any relevant CCTV recordings of the incident as they can often be wiped clean after a certain time, which is often quite short.

Venue Safety Plans

All Level 1 and Level 2 venues must have a venue safety plan.

It is expected that licensees will review the effectiveness of the venue safety plan after three (3) months and again at intervals of at least six (6) months.

Any venue safety plan that has been submitted will be taken into account in the categorisation of club premises.

In developing the venue safety plan, clubs should take into account areas for improvement, as well as the club’s compliance history, so that the plan specifically addresses the highest risks for the venue.

An excellent template for a venue safety plan has been prepared by ClubsNSW.

Every club, irrespective of whether it is a declared premises, at risk of becoming a declared premises, or having no record of alcohol related violence, can benefit from implementing a venue safety plan if for no other reason than to implement better OH & S outcomes.

The need for a cultural change

Clubs (and indeed other licensed premises) that have no history, or a very limited history, of alcohol related violence usual have this history and the reputation which goes with it because they have a culture where such conduct is unlikely to arise.

Why this is the case is a product of the history of the club, its demographic (or at least the demographic that it targets) and the way it deals with troublemakers.

Clubs should have zero levels of tolerance for all forms of unacceptable conduct.

Clubs have the advantage over hotels and other licensed venues of being able to discipline their members and of being better able to prevent persons other than members and guests of members from entering their premises.

These are powerful tools for clubs and they should be used.

If a member of a club “plays up”, is intoxicated or offensive, then boards and management of clubs should deal with them firmly.

Substantial periods of suspension for members may cause them and others in the future to think twice before they behave in a fashion that is unacceptable to other members.

Serious and serial offenders should not be allowed to remain members of clubs. Boards of clubs need to be much more willing to use expulsion rather than suspension as a sanction for these people.

Boards of clubs also need to lead by example as they cannot hope to enforce exemplary standards of conduct on other members unless they display it themselves.

Board members should not:

be seen to be intoxicated on the premises of the club;
be abusive to other members or to staff.
be seen to be subject to more lenient standards than the board imposes on members generally.

Board membership should be seen as a duty, not a privilege and should not be a reward for being a “good bloke” or someone’s mate.

The effect of becoming “declared premises” under the Liquor Act

If a club becomes a “declared premises” (particularly at Levels 1 and 2), it will be painful and expensive.

This is because, the cost of compliance will be significant – 10 minutes cessation of liquor sales, the cost of plastic to replace glasses, increased security, etc.

However, and above all, if your club does not comply with any of these requirements, then the club will be in breach of its licence conditions and that in turn may bring about a prosecution by way of a penalty notice or a court attendance notice on the club or the secretary or manager of the premises.

Under section 11 of the Liquor Act each breach of a condition of a licence attracts a maximum penalty of $11,000 or imprisonment for 12 months, or both.

Accordingly if, contrary to the conditions, there are three drinks served in glass after midnight, rather than in plastic containers, then three offences are committed and there will be three separate penalties and three separate criminal convictions.

If staff omit to record an incident in the incident register, irrespective of when that incident occurred, and also fail to record the action taken in response to the incident, there will be two breaches which, if prosecuted, will result in two criminal convictions.

Campbelltown Catholic Club

Campbelltown Catholic Club found itself on the original list of 48 premises when the first version of the declared premises scheme came into effect on 1 December 2008. It is now, and has been for a long time, no longer on the list of declared venues.

In the short period between the announcement of the scheme and its starting date the club acted quickly and effectively to comply with the proposed new conditions.

One of the new conditions was to the effect that after midnight any drink (whether or not it contains liquor) sold or supplied for consumption on the premises of the club must not be served or supplied in a glass or breakable plastic container.

In anticipation of this, on 21 November 2008, the club gave written instructions to all staff as to the terms of the special conditions and that those special conditions would come into effect on 1 December 2008.

Every member of staff was spoken to by senior management of the club and was given the written instructions which they then signed off as acknowledgement that they had received the instructions.

The written instructions were in very clear terms.

On 19 December 2008 – a little over 2 weeks after the commencement of the new regime – undercover police entered the club.

The police were in the club from 10.00pm until 2.30am on the following day and during that time they observed three breaches of the condition about not serving drinks in glass.

They first observed a female patron purchase two 50ml glass bottles of wine from the bar. She then sat at a table with other patrons and started consuming the wine. A short time later, a female RSA marshal employed by the club approached the patron and removed the bottles. The RSA marshal also questioned the female patron as to where she purchased the bottles.

Later, police approached the main bar of the club and ordered a small bottle of sparkling rose. A male bar staff member opened the bottle and handed it to the police with a plastic wine cup. The police returned to their seats. The bottle was placed on the table where it remained for some time until it too was collected by an RSA marshal employed by the club.

Finally, a little later, the police observed a male patron drinking from a bottle of Heineken. When questioned, the male patron indicated that he had purchased the beer from the main bar only a short time earlier.

In relation to these incidents, the club’s secretary was prosecuted by way of a court attendance notice alleging three breaches of the conditions on the club’s licence.

The employees who served the liquor to patrons in the glass containers made statements acknowledging that they had received the appropriate training and instructions and simply had a lapse in their concentration at the time that they served the drinks in glass containers

In each case, the glass did not remain very long on the tables or in the possession of patrons as RSA marshals collected the glass containers.

The secretary entered a plea of guilty to all three court attendance notices.

This plea of guilty came at the end of a 1 ½ day case in which the secretary had successfully defended two court attendance notices alleging that he had permitted intoxication on the club’s premises on earlier occasions.

One of the major factors in the defence of permitting intoxication was that there was a comprehensive, well documented and established system operating in the club to prevent intoxication, including the engagement of a large number of well-trained security and RSA marshals.

The Magistrate who dealt with the plea of guilty in relation to supplying glass was well aware of that system and was well aware of the circumstances whereby the glass came to be served and of the statements by the two employees, as well as the evidence of the observations made by the police and the conduct of the RSA marshals.

The Magistrate was also aware of the prior, completely unblemished, record of the secretary.

Despite representations, the Magistrate remained firmly of the view that there should be a conviction and imposed a fine of $600.00 for each offence.

In rejecting the submission made to him not to proceed to a conviction, the Magistrate indicated it was necessary to have regard to the deterrent effect of a conviction and fine and that it will “send a message” to the industry.

The matter was the subject of an appeal to the District Court.

The appeal was heard in two stages. The first stage was whether there was a common law defence available to the secretary of having taken all reasonable steps to prevent the commission of the offence.

The second stage was that, having regard to all the circumstances of the offence and the secretary’s prior unblemished record, a conviction should not be recorded against him.

Each part of the appeal was heard by a different Judge.

The first Judge determined that at common law there was no defence of having taken all reasonable steps.

The second Judge determined that, notwithstanding all the circumstances of the offence, including a submission that:

The secretary could not have possibly done anything more to prevent the commission of the offence.
It was simply an error by two employees who acknowledged that they had been given the appropriate instruction and
The secretary was a person of acknowledged good character and otherwise unblemished record,

it was in the opinion of the Judge appropriate that there be a conviction and the fines imposed by the magistrate were confirmed.

Accordingly, as the law currently stands, there is no defence to a prosecution of a Club for breaching a condition of its licence other than by convincing a Court then the relevant allegations constituting the offence have not been proved.

Furthermore, given the attitude of the magistrate and the judge in Mr Lavorato’s case, it will be very difficult to persuade judicial officers not to proceed to a criminal conviction for such breaches even where there are extraordinary circumstances and no prior convictions.

The lesson in this for clubs and their secretaries and managers is that every effort needs to be taken to make sure that clubs do not become declared premises and that all conditions on Club licence are strictly obeyed.

The defence of having taken all reasonable steps to prevent the commission of the offence of permitting intoxication is available under section 73(4) of the Liquor Act. However, a similar defence of having taken all reasonable steps is not available to a breach of a condition on a licence and which is punishable by imprisonment for up to 12 months, as well as a fine.

In the Memorandum of Understanding recently entered into between ClubsNSW and the Liberal National Coalition, the Liberal National Coalition say that, if they take government in March 2011, they will introduce such a defence. However, if it is introduced, then, like the defence under section 73(4), it will be a difficult defence to establish.

John Ralston

October 2010

Update on tax and corporations law

Tue, 31 Aug 2010 00:00:00 -1100

A recent judicial decision and an amendment to the Corporations Act have significant implications for trustees and shareholders respectively.

Bankworth Olive Grove –v- DCT (2010) QCA 80 and its effect upon trustees.

In Bankworth Olive Grove –v- DCT (2010) QCA 80, the Queensland Court of Appeal held that the Commissioner of Taxation was entitled to summary judgment against a trustee assessed under section 99A of the Income Tax Act.

The summary judgment was for the amount of $81 million, even though the trustee had not received any of the money on which tax was assessed.

The originator of the trusts was involved in a tax avoidance scheme.

Although the trustee could file an objection to the assessment, this did not relieve the trustee from paying the tax in the meantime and recovering it in due course if the objection were to succeed.

The Court of Appeal found that the trustee remains trustee throughout the whole of the period in which the relevant taxable income is derived and up to the date liability for the tax accrues, a trustee assessed to tax must pay the assessment even thought it has received none of the income.

This case emphasises the potential problems that could arise from acting as a trustee, and highlights the critical importance of anyone acting as a trustee ensuring that a trust’s tax affairs are in order.

Changes to the Corporation Act for the payment of dividends

The Corporations Act was recently amended to change the law relating to payment of dividends.

Previously, dividends could only be paid out of profits.

However, the recent changes to the Corporations Act have created a new three pronged test, which requires any Australian company paying dividends to its shareholders to ensure that:

1. the company’s assets must exceed liabilities after payment of dividends;

2. the payment of the dividend must be fair and reasonable to shareholders as a whole; and

3. the payment of the dividend must not materially prejudice creditors.

One question which arises is whether a proprietary company can continue to pay differential dividends (which of course is a common practice). It may be argued by shareholders who do not receive a dividend that this is not reasonable to shareholders as a whole.

Overview of the New Unfair Contract Terms Provisions of the Trade Practices Act 1974

Mon, 16 Aug 2010 00:00:00 -1100

On 1 July 2010 the Trade Practices Amendment Act (No 1) 2010 brought into effect new provisions of the Trade Practices Act 1974 (the Act), which render a term of a consumer contract void if the term is unfair and is contained in a standard form contract[1] (Unfair Terms Provisions).

These new provisions will have a significant effect on businesses and may introduce an element of uncertainty in respect of key terms in contracts which come within the ambit of the Unfair Terms Provisions.

For businesses that use standard form contracts in their dealings with consumers, the Unfair Terms Provisions can significantly increase the risk of litigation brought by consumers under the Act. It is also anticipated that the Australian Competition and Consumer Commission (ACCC) will be vigorous in its investigation and prosecution of consumer complaints made to it in respect of alleged unfair terms.

It is important for businesses to review their standard form consumer contracts now to minimise the risk of litigation that has been created by the introduction of the Unfair Terms Provisions.

The Unfair Terms Provisions are set out in Schedule 2 Part 2 of the Act, and a reference in this article to a section is a reference to a section in the Schedule.

What types of contracts are captured by the Act?

The Unfair Terms Provisions only apply to consumer contracts that are standard form contracts.

What is a consumer contract?

A consumer contract is a contract for:

a supply of goods or services; or
a sale or grant of an interest in land

to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.[2]

What is a standard form contract?

Section 7(2) stipulates that a court must take into account six criteria for determining whether a contract is a standard form contract, although it may also take into account other matters which it considers relevant. These criteria are:

whether one of the parties has all or most of the bargaining power relating to the transaction;
whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
whether another party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;
whether another party was given an effective opportunity to negotiate the terms of the contract;
whether the terms of the contract take into account the specific characteristics of another party or the particular transaction;
any other matter prescribed by the regulations.

Onus of proof regarding standard form contracts

Be aware that if a party alleges that a contract is a standard form contract, the court will presume that it is a standard form contract unless the other party proves otherwise.[3]

What is an unfair term?

Pursuant to Section 3(1), a term of a consumer contract is unfair if it would:

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

It is important to note that for a term to be considered unfair, the party alleging unfairness must prove the first and third elements listed above. With respect to the second element, the Act presumes that a term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by that term, unless that party proves otherwise.[4]

Section 3(2) provides that in determining whether a term is unfair, a court may take into consideration such matters as the court thinks relevant, but must take into account:

the extent to which the term is transparent; and
the contract as a whole.

A term is transparent if it is expressed in reasonably plain language, is legible, presented clearly and is readily available to any party affected by the term.[5]

Effectively Section 3(2) provides that a term may not be considered unfair if:

the consumer can easily locate, read and understand it;
there are other terms in the contract which offset the detriment which the alleged unfair term may cause to the consumer; and/or
the alleged unfair term operates to provide some benefit as well as a detriment to the consumer.[6]

If a court finds that a term is unfair and therefore void, but the contract can still operate without the unfair term, then the remaining terms of the contract will continue to bind the parties.[7]

The Act provides a list of examples of what may be unfair contract terms, which can be found in Section 4.

Some terms are unaffected

The Act will not affect terms of a contract, to the extent that such terms:

define the main subject matter of the contract;
set the upfront price payable under the contract; or
are required or expressly permitted by law of the Commonwealth, a State or Territory.[8]

Potential for class actions

Depending on the size of its customer base and volume of commerce, a business may enter into the exact same standard form consumer contract with hundreds, if not thousands of consumers in a given period.

Thus the nature of standard form contracts and the effect of the Unfair Terms Provisions have now rendered those who utilise standard form contracts susceptible to class actions on a potentially massive scale.

In addition, the ACCC (or the Australian Securities and Investment Commission in the case of financial contracts) has the power to seek orders from a court for the benefit of a class of persons, where those persons are not parties to the litigation initiated by the ACCC.

Thus “a ruling that a term in a contract is an ‘unfair term’ and void for that reason can have momentous consequences for a respondent, and perhaps for other persons who supply goods or services in the same industry, if a standard form contract is involved, even if the amount claimed by the applicant is small.”[9]

If you use standard form contracts…

Review the terms of your standard form contracts to determine whether any could be considered to meet the definition of “unfair” contained in the Act, and if they do:
- consider whether the term is reasonably necessary to protect your legitimate interests, and if it is not,
- redraft the term to level the playing field between yourself and the other party; or
- ensure that other terms in the contract offset potential detriment to the consumer which may be caused by the alleged unfair term.
Ensure that any key terms which you would want to enforce follow the criteria for transparency as expressed in the Act.

Remember, the Act automatically places the onus on the party relying on the disputed term to prove that the term is reasonably necessary to protect its legitimate interests.

[1] Schedule 2, Part 2, Section 2(1)

[2] Section 2(3)

[3] Section 7(1)

[4] Section 3(4)

[5] Section 3(3)

[6] For example, see Jetstar Airways v Free [2008] VSC 529 (at paragraphs 124 – 137), decided under the unfair contract terms provisions of the Fair Trading Act 1999 (Vic), the sections of which at that time were modeled on provisions of the Unfair Terms in Consumer Contracts Regulations 1999 (UK)

[7] Section 2(2)

[8] Section 5(1)

[9] Per Cavanough J in Jetstar at paragraph 8

Changes to the Home Building Act

Wed, 11 Aug 2010 00:00:00 -1100

Owners Corporations and other home owners can once again breathe a sigh of relief with the recent changes to the Home Building Act 1989 (“the Act”).

The amendments to the Act restore the rights of certain subsequent residential land owners that were removed by the 2010 NSW Court of Appeal decision in Ace Woollahra Pty Ltd v the Owners – Strata Plan 61424 & Anor (“Ace”).

Ace Woollahra Pty Ltd v the Owners – Strata Plan 61424 & Anor

In Ace, Wallis Street Developments Ltd (“the Developer”), pursuant to a joint venture agreement with the owner of the land at the time (PRC Ltd), contracted with the Builder to carry out construction of aged care units. The property was subsequently purchased from PRC Ltd by the Owners Corporation and the other unit holders. The Owners Corporation claimed that the Builder failed to carry out the residential building work in conformity with the statutory warranties implied in the building contract by s18B of the Act.

The issue arose as to whether the Owners Corporation could properly fall within the meaning of “successor in title” to the Developer and therefore bring itself within the umbrella of s18D of the Act.

Section 18D of the Act provides that “a person who is a successor in title to a person entitled to the benefit of a statutory warranty under this Act is entitled to the same rights as the person’s predecessor in title in respect of the statutory warranty.”

The person with the benefit of the warranty was the Developer (not PRC Ltd) and since no one technically bought from the Developer, (because it was not the owner of the land), neither the unit owners nor the Owners Corporation were a “successor in title.”

Whilst the Owners Corporation acknowledged that the Developer was not its predecessor in title, it argued it should be entitled to the Act’s protection by a purposive construction of s18D.

Unfortunately for the Owners Corporation, the court agreed with the Builder stating that the Owners Corporation was not entitled to enforce the statutory warranty against the Builder because there was no contractual relationship between its predecessor in title (PRC Ltd) and the Builder.

Amendments to the Act

The amendments to the Act mean that statutory warranties in respect of home building work are now available to subsequent purchasers of residential property, even where there is no contractual relationship between the builder and the purchaser’s predecessor in title.

Section 18(D) of the Act now provides that a person who is a non-contracting owner in relation to a contract to do residential building work on land is entitled (and is taken to have always been entitled) to the same rights as those that a party to the contract has in respect of a statutory warranty.

The changes will apply retrospectively to all contracts made and insurance policies issued since 1 May 1997.

The amendment appears to restore the operation and intent of the Act to ensure homeowners can rely on both statutory warranties under the Act and Home Owners Warranty Insurance.

Taxis - Protecting the Bailment Arrangement

Wed, 23 Jun 2010 00:00:00 -1100

Seminar paper on protecting the taxi bailment arrangement, presented by Owen Ratner at the Australian Taxi Industry Association Conference at Darwin on 8 June 2010.

I have been asked today to talk about the protection of the bailment arrangement as it applies to the taxi Industry in Australia.

Firstly the purposes of today I will not draw distinction between taxi owners and taxi operators. I will simply categorize both as being taxi owners.

HISTORY

Historically the relationship between taxi owners and taxi drivers has been one of bailment.

So what is a bailment? The legal definition of bailment is "A delivery of goods on a condition, express or implied, that they shall be returned by the bailee to the bailor, or according to his directions, as soon as the purpose for which they are bailed has been fulfilled."

Since the 1850's the courts in England and in Australia have consistently reaffirmed that when a taxi driver drives a taxi cab he does so on his own account. All that the taxi owner does is deliver the taxi cab to the driver under a hiring arrangement or in legal terminology the owner bails the taxi cab to the driver in return for a payment for the use of the taxi cab.

Throughout most of Australia as I understand it taxi drivers provide a share of their takings by way of payment for the use of the taxi cab although in Sydney and some other areas of Australia it is more common for the taxi driver to make a fixed pay in. In either case the payment to the owner is regarded as a pay in for the use (or bailment) of the taxi cab.

Before looking at issues concerning threats to the bailment it is worth discussing some basic principles that apply to the relationship between owners and drivers.

Firstly the fact that a taxi cab is bailed to a taxi driver by the taxi owner does not prevent there being a relationship of employer and employee or independent contractor. It is still conceivable that the taxi cab could be bailed to the taxi driver but at the same time there could exist sufficient factors governing the relationship between the taxi owner and the taxi driver for a court to hold that the taxi driver was the employee of the taxi owner.

So what are the factors that have consistently resulted in courts in almost all cases finding that taxi drivers are bailees and not employees or independent contractors.

In the late 1990's the Federal Commissioner of Taxation decided that it wanted to bring taxi drivers within superannuation laws as employees and as a result a test case was brought before the Federal court of Australia which resulted in 1997 in a decision by Justice Hill in the matter of Federal Commissioner of Taxation v Deluxe Red and Yellow Cabs Co operative Trading Society Limited.

In this case all of the relevant facts concerning how taxi owners and taxi drivers operated in the states of Australia were put before the court and following a detailed examination of the facts and past decisions of the courts in Australia and England, Justice Hill held that taxi drivers were bailees and not employees or independent contractors. Some of the points that can be taken from Justice Hill's decision include the following:

1. "The driver pays the owner and not the other way around". This was an important factor at the time as in a normal employment relationship the employer pays the employee. In all cases considered by the court the driver paid the owner for the use of the taxi cab.
2. In almost all cases there was an agreement in writing or it was implied by legislation as in New South Wales that the arrangement between the taxi owner and the taxi driver was one of bailment and not employment. In law it is important to give weight to what parties agree. It is not the end of the matter but it is an important factor in considering what the true arrangement is between the parties.
3. Justice Hill said "Although some control is exercised by the operators over the drivers, that control is only such as is necessary to ensure compliance with legislation concerning taxis rather than such as to signify employment relationship". Control is an important, but not the only, factor which determines whether a driver is an employee. The Judge noted that in the case of taxi owners there is a degree of control but it is generally only to ensure that drivers comply with the law or comply with the rules of networks which the taxi owners belongs.
4. "Drivers are free to obtain work as they wish and in fact do so". The Judge noted that there was no compulsion on drivers to use the network although it would be in the interest of drivers to do.
5. Drivers provide their own change and directories pay for the petrol consumed and the costs of keeping cars clean.
6. Payment of long service leave, sick leave and worker's compensation premiums. The judge noted that whilst these matters support an argument in favour of employment it needed to be looked at that particularly in New South Wales the requirement for the these payments was imposed by industrial legislation which itself recognized the relationship as one of bailment.

After finding that the relationship between owners and drivers was one of bailment and the judge also then considered whether, notwithstanding the fact that there was a bailment, the drivers could still be considered employees for the purposes of superannuation.

The judge in this situation again referred to the fact that the payment was from the driver to the operator not the other way around. This of course made it very difficult if, not impossible, for any deductions to be made for the purposes of superannuation.

The judge went on also to say "whether a contract is wholly or principally for labour of a person will depend upon whether the contract is one for the production of the result or whether it really is one for the performance of labour."

In this case the judge held that even if it could be said that there was a payment by the operators to the drivers the real relationship between the operators and drivers is that the drivers make payment to the operators for the right to bail the cabs and apply them in their own business. They are neither employees in the ordinary sense nor do they receive payments under contracts for their labor. In other words they were neither employees nor independent contractors.

In this matter the Federal Commissioner of Taxations appealed to the Full Bench of the Federal court where he lost and sought leave to appeal to the High Court which was refused.

Without boring you with detailed statements of the law which were set out by the full bench in rejecting the appeal its worth noting that the judges again restated that important factors in considering whether taxi owners were employers of taxi drivers included the following

In determining whether a person is an employee the following matters are to be considered:

(a) the extent of the ability to control;
(b) type of occupation, the locality whether the work is usually done under the direction of the employer;
(c) the skill required in the occupation;
(d) whether the employer or the workman supplies the instrument and tools and the place of work;
(e) the method of payment;
(f) whether or not the work is a part of the regular business of the employer;
(g) whether or not the parties believe that they are creating the relationship or master and servant.

After considering all the matters the court found the true character of the relationship to be one of bailment and relied heavily on the historical circumstances including the clear line of authority over many years.

ADVANTAGES OF BAILMENT OVER EMPLOYMENT

So what are the advantages of taxi drivers being bailees rather than employees.

The advantages can be summarised as follows:

1. The taxi driver is responsible for his or her own tax. The ownere is not required to deduct PAYE tax nor pay superannuation.
2. The taxi driver is not generally entitled to the benefits that usually apply for the benefit of employees under laws such as Fair Work Act or under awards such as annual leave, long service leave and personal leave. However under certain laws in various states the drivers are entitled to Worker's Compensation coverage and in Sydney where there is a contract determination under the Industrial Relations Act taxi drivers are entitled to annual leave, long service leave and sick leave.
3. There is no vicarious liability imposed by the common law on taxi owners for the acts of taxi drivers. In other words a taxi owner is not responsible for the actions of a taxi driver who drives his or her taxi in the way that he or she would be if the taxi driver were an employee.

PROTECTING THE BAILMENT ARRANGEMENT

So now to the main topic of this talk. Protection of the bailment arrangement.

One would have thought given the long history of courts finding in favour of taxi drivers being bailees including as recently as 1998 taxi owners would be safe for some years yet.

In fact I believe there are number of factors which may give some cause for concern that the status quo will continue.

What are these factors?

1. The players in the industry. Having been in involved in the taxi iIndustry for over 40 years I sense that there is a now greater degree of activism on the part of drivers and a greater recognition by media and bureaucrats of unauthorized representatives of taxi drivers in relationship to the role of taxi drivers in society. I am speaking predominately from my experience in Sydney. In the past and now the Transport Workers Union has represented taxi drivers and whilst there has been quite an active and perhaps disruptive taxi drivers section within the Transport Worker's Union generally the status quo has been maintained and the industrial relationship has been largely uneventful. More recently associations such as the New South Wales Taxi Drivers Association and The Australian Taxi Drivers Association have become far more vocal and for some reason and appear to be receiving a greater recognition by the media, parliamentary enquiries and the Industrials Relations Commission than one would have expected. As an example in the recent award modernization hearing concerning the Passenger Transportation Award the Deputy President took submissions from the Taxi Drivers Association of Victoria. Mr Ryan appearing of behalf of this association argued that the award should very clearly and very specifically provide a classification for taxi drivers and hire care drivers. He went on to argue that taxi drivers were employees. It is not necessary or relevant to go into the detailed arguments that were put by Mr Ryan but it is worth noting that the Deputy President did not give any indication of her being aware of the historical circumstances that I have referred to previously regarding findings of taxi drivers being bailees. In finalising her recommendations she indicated as follows:

" If an employee is an employee as defined under the Act it doesn't matter what the cases have said when it has been put in issue as to which side of the line a particular person on the facts or evidence on that case - the assertion that has been made by you is that there is person who has a status of an employee who drives a taxi around Australia and Mr Ryan and saying that is not so. But in any event I don't have to try and spot someone. Awards already identify a classification of taxi driver. So one might therefore consider whether it is appropriate to have such a classification in any exposure draft that issues."

This statement was made in response to submissions by Leonie Kyriacou from our firm.

It is also noted that the representative of the Transport Worker's Union stated as follows "We can all agree that a lot of taxi drivers or most taxi drivers might be bailees but to say that no taxi driver is an employee. It is a matter of logic, virtually an impossibility and just as I have been sitting at the bar table of done some very basic search of the Commission's decision and seen at least two. One where a person was found to be an employee and one where they weren't and decisions were decided on the facts based on the usual indicia employment and independent contracting status".

So in summary it seems to be that the playing field is changing. The state based Industrial commissions play a lesser role in regulating industrial law and the commissioners sitting in the Federal jurisdiction may have less of an experience in understanding the established concept of bailor and bailee in the taxi Industry. It is almost as if we are travelling in new territory each time a new issue is raised. This allows for a fresh approach by the courts in addressing these issues and whilst they are bound by the line of authority that exists in the courts so far nevertheless it is clear that they are prepared to look at the facts in each case and decide on those facts in determining whether a taxi driver is an employee or not.

Before going on it is worth noting that the new Passenger Vehicle Transportation Award 2010 includes a driver of passenger vehicles as category of employee but that this legislation will not apply to circumstances where individuals bail taxis to taxi drivers as opposed to corporations. This means there is different legislation that applies to say networks which are governed by the Federal laws and individuals who are governed by State laws.

2. Some courts have decided a taxi driver is an employee.

For example the case of McDougall and Castlemaine Taxis Pty Limited and Lukazsewski before Commissioner Lewin in the Australian Industrial Relations Commission Melbourne in 2002 . In that case that the Commissioner held that he was free to and will look at individual operations in order to decide whether a particular taxi driver is an employee or not.

In this particular case the taxi drivers concerned drove in the town of Castlemaine in Victoria. The taxi operation was a small operation and all of the taxis in the town were owned by two people who engaged all the drivers.

The Commissioner examined the law and restated the factors which determine whether a taxi driver is an employee or not. The factors stated by the Commissioner were fairly much consistent with the factors that I have mentioned previously.

The Commissioner said that on balance he would need to consider whether the totality of the situation was such that the work done by the drivers for the owners should be characterised as the sale of their labour to the owners.

Some of the factors that the Commissioner considered worked in favour of the taxi drivers being employees where that:

(a) The taxi owners identified themselves as employers in publicity and advertising.
(b) The taxi service was operated in a prescribed, orderly and established manner.
(c) The drivers conformed to a pattern of service provision in a system of work allocation and performance which was effectively governed and controlled by the taxi owners.
(d) The relationship was supervised, reinforced and in certain cases, subject to specific personal direction of the drivers by the taxi owners.
(e) The taxi owners effectively determined the manner in which the taxi service of the town would be provided and how the work of the drivers was to be performed.
(f) The work of the drivers was monitored and specific detailed instructions were issued to drivers from time to time by the owners of the business about the structure and specific performance of tasks and work.
(g) The work was effectively rostered and rationed and prescribed and defacto systems of work performed according to rules maintained by the taxi owners.
(h) There was no competition for work within the market place.
(i) Drivers were integrated into the service provided by the taxi owners for the people of the town.
(j) The drivers provided no equipment, the taxi was provided by the respondent who also provided the fuel. Drivers were required to provide a uniform.
(k) Drivers were rostered and expected to and felt obliged to present for work.
(l) There was no delegation or assignment of the lease agreement to persons other than the drivers.

In this case, as I've stated, the taxi drivers were found to be employees. So in certain circumstances it is clearly open for a court to find a taxi driver to be an employee based on the facts.

3. It is probably relevant to note that judges are human and where cases involve taxation there is probably less moral pressure on the court to find in favour of an employer/employee relationship as opposed to circumstances where a plaintiff might be disadvantaged by such a finding.

For example, there were two decisions in recent years involving Crisis Couriers owned by a company called Vabu Pty Limited. In the first series of decisions the Federal Commissioner of Taxation endeavoured to argue that bicycle couriers were employees. The full bench of the Supreme Court of New South Wales found that bicycle couriers were in fact independent contractors.

Some time later a person in Sydney CBD was struck by a bicycle courier and seriously injured. He could not identify the bicycle courier and so he sued the owners of Crisis Couriers on the basis that a bicycle courier was an employee of the company and therefore the employer was vicariously liable for the injuries that the individual suffered. In this case the matter went to the High Court where it was found that the earlier decisions concerning bicycle couriers being independent contractors were wrong and in fact the bicycle couriers were employees of the company. The result of this decision was that the unfortunate member of the public was able to recover the as a result of the injuries that he suffered.

I think that with there being a greater focus on anti-discrimination laws involving taxi drivers, a greater awareness of the rights of the public to performance standards being met by taxi networks and a continued focus on the rights of taxi drivers by associations that appear to be far more vocal that the established industrial organisations such as the TWU, there is more pressure on the courts to find in favour of an employer/employee relationship. This is not to case that the courts will not follow precedent but as can be seen from the Castlemaine case, the courts will look at the facts and facts can be interpreted in different ways by different courts in different times in different circumstances.

4. I think that with the focus nationwide on improvements in standards of service by taxi networks there is a greater degree of pressure on the taxi owners to ensure high standards of service and this of necessity may involve imposing a greater degree of control over taxi drivers. The increased focus on providing services for disabled members of the public through wheelchair accessible taxis places pressure on taxi owners to ensure that services are provided in order to meet the demands of the authorities which are in turn imposed by networks. Whilst the court in the Deluxe case considered that imposing requirements on taxi drivers in order to comply with laws may not necessarily result in a finding that the taxi owner is controlling the driver, nevertheless there does seem to be a climate in which there is more of a requirement to control what the driver does than existed in the days when the taxi was simply given to the driver and all the driver had to do was pay for the taxi return it at the end of the shift.
5. Technology has impacted on the flow of the money from the taxi driver to the taxi owner by way of pay-ins. With electronic payment systems becoming a predominant method of paying taxi fares the main method of processing the payments involves the taxi operator receiving a credit for the fares processed by the driver and the taxi driver's pay-ins being set off against the value of taxi fares processed using electronic payment systems or taxi instruments such as the blue and green Cabcharge dockets. The argument therefore that the flow of money is from the taxi driver to the taxi owner is to a large degree affected by the fact that now a large part of the takings of the driver flow back from the taxi owner to the taxi driver. This may well be a factor in any future consideration by courts as to the relationship between the taxi driver and the taxi owner.

I believe that the fixed pay-in system is from the point of view of determining the relationship more likely to support a bailment arrangement than sharing of the meter but as the court has found both circumstances allow for the finding of a bailment. Nevertheless I believe that a fixed pay-in is a safer way to operate if the desire is to maintain factors which support a bailment rather than an employment relationship.

So in summary, I can see no substantial change in the law occurring in the near future but I do believe that there are probably other arrangements similar to the Castlemaine case, probably more so outside metropolitan areas where there is a greater likelihood that the relationship between taxi owner and taxi driver will be found to be one of employment. In all other circumstances I believe that the taxi owners need to be aware that decisions that they make in relation to drivers during their shifts will impact on the relationship that they have with those drivers.

Some things to be aware of are:

Do not describe your drivers as employees;

Do not direct your drivers as to what they do during their shift. The more control you have over your driver the more likely the driver is to being an employee;

Only impose conditions on your drivers that are required by law;

Have a written agreement which includes a confirmation that the driver is a bailee;

Keep the flow of money from the driver to the owner.

Owen Ratner

Strata and Noise Transmission

Tue, 27 Apr 2010 00:00:00 -1100

Strata Stress:
Carpets vs Hard Surface Floors

Noise transmission, particularly in residential strata units, is an unwelcome side effect of the increasing popularity of wooden or other hard floors in homes. However, standard by-laws governing appropriate noise levels in strata developments provide only a general indication of acceptable noise levels. The question of whether a hard floor may properly exist without an additional soft floor covering and not breach noise by-laws will depend on a variety of factors. Consequently, all unit owners thinking of replacing carpet with a hard surface floor must consider the impact of such flooring on his or her neighbour or risk legal action being taken against him or herself.

Owners and occupiers of residential strata apartments must comply with by-laws that apply to their strata development.

Pursuant to by-law 1 of the standard by-laws set out in the Strata Schemes Management Act 1996, an owner or occupier of a lot must not create any noise on the parcel likely to interfere with the peaceful enjoyment of the owner or occupier of another lot or of any person lawfully using common property .¹

More specifically, by-law 14 provides that an owner of a lot must ensure that all floor space within the lot is covered or otherwise treated to an extent sufficient to prevent the transmission from the floor space of noise likely to disturb the peaceful enjoyment of the owner or occupier of another lot. However, this by-law does not apply to floor space comprising a kitchen, laundry, lavatory or bathroom .²

Clearly, by-law 14 does not prohibit hard floors - it merely requires that steps be taken to prevent the transmission of noise. Neither does it limit noise per se but rather limits noise
likely to disturb other occupants in the [strata] scheme.³

The meaning of the words "extent sufficient to prevent the transmission...of noise" is less clear. Caselaw establishes there is no prescribed or recommended method and/or standard of noise insulation in the resolving of noise disputes in residential strata title buildings. Rather, by-law 14 must be taken to impose an objective test rather than a subjective one. In other words, there must exist a probability of the noise disturbing a hypothetical reasonable occupant of another unit.⁴ The onus of proof will lie on the complainant to establish a breach. Once the breach is proven, the defendant must satisfy the court that the steps he/she is taking or will take will be successful in preventing transmission of noise.⁵ Every case depends on its own facts.⁶

In some cases, impact noise may be ameliorated to the extent necessary to satisfy by-law 14 by locating a rug in the areas of hallway, lounge room and dining area⁷ and/or laying quality acoustic underlay8 or floating timber floors. Other cases have specified that in addition to loose rugs being placed in living areas, no hard-soled shoes are to be worn on living areas between the hours of 6pm and 6am and all furniture located on timber/hard floors must be fitted with thick felt pads or other similar alternative material.⁹ In yet other cases, the noise disturbance may be to such an extent that the only suitable remedy is wall to wall carpet and underlay.¹⁰

In Troobnikoff, Nicholas v Toma, J Mrs Bordon J held that "...by-law 14....has to be applied in a pragmatic way. It cannot place an unreasonable burden on the owner of the lot who is required to comply with it. The age and condition of the particular Strata Parcel are also relevant considerations. And of course it has to be expected that some noise will be transmitted though the floor space, particularly at certain times during the day. When the by-law speaks of ‘noise likely to disturb the peaceful enjoyment of a lot', it has to be taken it does this in the above context."

Accordingly, by-law 14 does not prevent the exposing or installing of hard floors, nor does it limit noise per se. However, any person proposing to alter his or her floor within a strata scheme runs the risk that in the worst case scenario, that hard floor may, depending on the circumstances, be required to be covered over by wall to wall carpet at the expense of the person in breach of the by-law. Whether the tribunal will find a breach of by-law 14 will depend on the facts of each particular case including steps taken to prevent noise transmission. Such steps will be assessed within the context of each particular case.

Audra Oliveira-Ben

¹Schedule 1, by-law 1 Strata Schemes Management Act 1996

²Schedule 1, by-law 14 Strata Schemes Management Act 1996

³(Austen. Mr & Mrs v Manche, Mr &Mrs, SB/97/643,23.03.98 page 4) cited in Troobnikoff, Nicholas v Toma, J Mrs [1998] NSWSSB 58 (30 September 1998)

⁴Troobnikoff, Nicholas v Toma, J Mrs [1998] NSWSSB 58 (30 September 1998)

⁵Scarcella v Tullipan (Strata and Community Schemes) 2003

⁶Sachs, Annabel &, and Brunck, Christopher v Owners Corporation SP9438 [1999] NSWSSB 20 (11 March 1999)

⁷Williams v Newcombe & Arpino (Strata and Community Schemes) 2007

⁸Chalmers v Levy (strata and community schemes) 2005 NSWCTTT 197

⁹Zadnik and Bizzaca [2005] WASAT 333 (14 December 2005)

¹⁰Chalmers v Levy (strata and community) 2005 NSWCTTT 197