Telemarketers and False Advertising: What to do about it if you have entered into a Contract?

Telemarketers and False Advertising: What to do about it if you have entered into a Contract?

We have all received those uninvited telephone calls from someone desperately trying to sell us goods and/or services – often during dinner with the family or at the most inconvenient time possible.

At Nautilus Law Group, we have heard many stories of people agreeing to enter into contracts for goods and/or services as a result of an uninvited phone call, to later find out that the promises which were made to them by the person on the phone are not what they contracted for once they receive the goods or services.

These types of contracts may include a contract to join a program which claims to provide personalised training for property investment or wealth advice, for savings on electricity or natural gas, for home improvements, among many other possible contracts of the like.

The contract agreed to may be expensive and often after the call or even after endorsement of a contract for goods and services unsolicited, the consumer finds those promises evaporate and reality hits that they agreed to an inappropriate arrangement.

What can you do about it?

The Australian Consumer Law provides protections for situations such as this. If the contract for goods and/or services costs more than $100 but less than $40,000, and the contract was made as a result of an uninvited telephone call or an uninvited sale at your doorstep, it is likely that the contract is an unsolicited consumer agreement and specific protections will apply.

These protections include the seller being legally required to send you a copy of the contract within 5 business days after the telephone call, which must clearly state a cooling off period, and include a Notice of Termination which can be used by you to terminate the contract during the cooling off period.

There are further protections in the Australian Consumer Law which impose guarantees that goods be of acceptable quality, match any demonstration model or sample you inspected, be fit for the purpose the business told you it would be fit for and any purpose that you made known to the business before purchasing, and come with full title and ownership. In respect to offers for services (such as personalised wealth planning or property investment classes) the services must be provided with acceptable care and skill or technical knowledge, be fit for the purpose or give the results that you and service provider had agreed to, and the services provider must take all necessary steps to avoid loss and damage to you.

If you have entered into a contract for goods and/or services as a result of an uninvited telephone call or sale at your doorstep, or the goods and services do not meet the guarantees outlined in this article, you may have remedies under the Australian Consumer Law.

If you are unhappy with goods or services you have purchased and require some legal advice, please do not hesitate to contact Tyler Smith of Nautilus Law Group at Tyler@nautiluslaw.com.au or phone 07 5574 3560. We will be happy to assist!

https://www.accc.gov.au/consumers/sales-delivery/telemarketing-door-to-door-sales/unsolicited-consumer-agreements#unsolicited-consumer-agreements

https://www.accc.gov.au/consumers/sales-delivery/telemarketing-door-to-door-sales

https://www.accc.gov.au/consumers/consumer-rights-guarantees/consumer-guarantees

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Unintentionally Bound: the Case of Informal Agreements in Commercial Tenancy Ventures

It comes as a surprise to clients when, on occasion, they find themselves either subject to, or trying to enforce, “informal agreements”.  Informal agreements may come in the form of an exchange of discussions in respect to an arrangement, or a signed Lease Offer.  It may be that the informal agreement is a sword for a client (for example, the client wants to push the arrangement in the absence of a written contract signed by the parties), or a shield for a client (for example, the client wants to avoid the arrangement because there was no written contract signed by the parties – or the terms were not finally agreed).

Whether the arrangement relates to a supply of goods, services or a commercial leasing arrangement – a legally binding arrangement may be determined by way the conduct of the parties (such as one of the parties completing a condition agreed to start the arrangement (for example, supplying a service), or an exchange of emails about an arrangement), even in the absence of a formal contract – whether or not the contract is ultimately signed.

 

When are negotiations binding?

Courts look at the objective intention of the parties when determining whether there is a legally binding agreement.  That is, whether a reasonable person would consider the agreement to be legally binding, and not the parties’ subjective intention.

Courts have found a legally binding agreement in the following situations:-

  1. When a vendor and purchaser of commercial property agreed to the essential terms of the agreement over email, noting that the agreement was “subject to contract” and “subject to execution”.  A court found that this was essentially an “agreement to contract” and made judgement against the vendor (who attempted to withdraw from the transaction due having found a more favourable third party purchaser);
  1. Negotiations between a tenant and landlord whereby the essential terms of the lease were agreed upon were found to constitute an agreement to lease.  This was the case even though the negotiations began with “subject to formal lease documents being signed” and that not all (minor) terms were agreed.  The landlord was ordered to pay damages to the tenant for failing to countersign the formal lease document; and
  1. A tenant who, after negotiating and signing a letter of offer with a landlord, proceeded to obtain council approvals (with the landlord’s assistance) and took steps to fit-out premises without a formal lease in place was found to be bound by an agreement to lease.

When determining the intention of the parties, regard will be to the surrounding circumstances of the negotiations, the relationship of the parties, subject matter of the agreement and other relevant factors.

 

What can you do to ensure no binding agreement is in place until documents are signed?

Parties who do not wish to be bound by negotiations or pre-contract documents (e.g. heads of agreement) must ensure that they clearly and consistently reiterate to the other party in all correspondence that no legally binding agreement will be formed until formal and final documentation has been signed.  As the above cases reveal, merely stating “subject to contract” is not enough.

Further, prospective tenants should not enter into possession and pay rent until the lease is signed as this may constitute acceptance by conduct. Conversely, a landlord should not accept rent until they are in a position to be bound.  More generally, parties should not begin performing their obligations under the agreement before the documents are signed.

However, the risks of making an agreement conditional is as a sword which can be used against you – as the other party to a transaction may similarly withdraw from the arrangement if there is no legally binding agreement. This may mean that you could lose a commercially advantageous deal if it is not locked in.

In any negotiation, you should always seek legal advice before accepting the terms of an agreement (whether by email, orally or otherwise) and before signing any preliminary document.

Nautilus Law Group has a team of professionals experienced in commercial and property agreements.  It may be that our team can give you a “thumbs up” or recommendation for variations in a short meeting, or for more complex matters – the engagement may be extended.

Engaging a lawyer to advise on an agreement is an investment in certainty, as the costs of remedying a failed arrangement greatly outweigh the costs savings of avoiding advice.

We welcome you to contact our Property and Commercial Team to discuss your arrangements.  Please free to contact Marguerite, our department manager, on (07) 5574 3560 or by email to marguerite@nautiluslaw.com.au.

Can an employee acquire a residential property as an investment in the employee’s Self Managed Superannuation Fund (SMSF), if the employer is a property developer?

Answer:  Maybe, maybe not.

This question asks whether an employee is a related party of their employer (or the employer a related party of the employee’s SMSF) for purposes of Section 71 Superannuation Industry (Supervision) Act 1993 (SISA), in respect to the In-House Asset Test and Section 66 of the SISA, in respect to the prohibition against acquiring certain assets (including residential property) from a related party.

There is no default rule that an employee is an associate of their employer.  The analysis does not, however, end at that fact.

A related party of another is defined at section 10(1) of the SISA as a member, a standard employer sponsor of the Fund, or a Part 8 Associate of either the member or the standard employer sponsor of the Fund.

Assuming the employee’s SMSF is not an employer sponsored fund, the question is whether the employer may nonetheless be a Part 8 Associate of the employee.

A Part 8 Associate is defined at section 70B of the SISA as a relative of an entity (if the employee is unrelated to the employer, no problem), a partner of the entity (if the employee is not a partner – then not a problem), a trustee of a trust for which the entity is “controlled” (if the employee has no influence over the trust, receives no income or capital, etc. – then not a problem), or if the employee has a “sufficient influence” or “majority voting interest” in the entity (this could be the area in which the test is relevant, because as an employee she may have significant influence over the conduct of the entity), or another Part 8 Associate of the employee has this influence (for example, a family member controls the employer or a related entity of the employer).

In respect to the question of “sufficient influence”, we consider section 70E of the SISA, and note that it may be the case that the employee has considerable conduct in the employer’s affairs.

For example, the employee may, for a property developer, determine the properties to be acquired and/or developed, and be charged with the derivation of investors and the profit sharing relationships.  The employee may also, in such circumstances, receive a bonus on the development projects.  The directors may rely on the employee to provide recommendations across the business.  In this case, the employee may likely have “sufficient influence” to be a related entity to his employer.  Similarly, if the employee received, as a consequence of employment, the right to demand an asset as compensation for the services to the employer, this may be “sufficient influence” to be a related party.

On the other hand, if the employer is a property developer, and the employee is a secretary with float tasks over administration matters, it is quite likely the employee has little or no influence over her employer.

The circumstances in which section 70E may apply in an employee/employer relationship are complicated and should be considered on the facts and circumstances (consider for example the relationship between employer and employee for purposes of the Fringe Benefits Tax Assessment Act 1986 (Cth)).

Provided the employee is not a Part 8 Associate (nor a related party of the employee) to the employer, then the employee may acquire assets of the employer at arm’s length and commercial terms (subject to satisfying at all times section 62 of the SISA, being the Sole Purpose Test), without restriction under the test of section 66 (restricting acquisitions of assets from members and their related parties), and section 71 (In-House Asset Test) would not apply if the asset was acquired.

Notwithstanding the above, any transaction must be compliant with section 109, with every stage of the acquisition, including any vendor finance arrangements, made on arm’s length and commercial terms.  Whilst sections 67 and 67A do not prevent an employer from lending money to an employee (subject to any restrictions posed by Division 7A of the Income Tax Assessment Act 1997), the finance arrangements (limited recourse borrowing arrangements) must be such that the vendor (employer) does not retain title over the asset pending settlement of the borrowing.

If you have any queries regarding the subject of this article, please do not hesitate to contact Katrina Brown via email or on 07 5574 3560.

Related Party LRBAs and PCG 2016/5: A review and recommendations for Trustees for Smooth Sailing

The release of PCG 2016/5 comes as no surprise, which follows on the back of the Australian Taxation Office (ATO) publications ATO ID 2015/27 and ATO ID 2015/28, which set the tone for related party Limited Recourse Borrowing Arrangements (LRBAs).  The ATO’s 2015 position clarified that nil interest rates and/or interest rate terms being other than “commercial” in nature, constituted “non-arms’ length income” within the meaning of subsection 295.550(1) of the Income Tax Assessment Act 1997 (ITAA97).

PCG 2016/5 sails past interest rates, and now gives the ATO’s position on the entirety of related party LRBAs, including requirements for principal and interest monthly payments, security, terms of lending and standards for setting fixed and variable interest rates.

IS ANYONE REALLY SURPRISED BY PCG 2016/5?

Given the overriding “sole purpose test” at section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) – what would lead anyone to think a related party LRBA could be made on other than an “arms’ length” basis, with a commercial standard of reference required?  Let’s think this through – we are limited in acquiring assets from members and “related parties” of members by section 66 of the SISA, we are prohibited from providing financial assistance to members and relatives of members by section 65 of the SISA and we are required to deal with investments at an “arms’ length” in accordance with section 109 of the SISA.  So, does it come as any real surprise that, if a member or a related party of the member is going to lend money to the self-managed superannuation fund (SMSF), it has to be on commercial terms?

It scares me when Trustees lose sight of the overriding black cloud of Part IVA of the ITAA97, and forget that the ATO has the benefit of hindsight in assessing anti-avoidance schemes.  Looking beyond Trustees, those of us advising Trustees must also be alert to our civil, and possible criminal, exposure under SISA, including but not limited to section 55 of the SISA, which puts us, as advisors, on the line to pay losses or damages suffered by any “person” (not limited to members) as a consequence of another “person” (not limited to trustees) involved in a contravention of a SISA covenant.   Remembering the Courts and Financial Ombudsman Service quite often favour the consumer, we need only look to section 52 of the SISA to appreciate the broad liability stacked on our shoulders when giving advice to SMSF Trustees of any nature which is other than, on its face, based on all parties acting on commercial arms’ length terms.

Let’s look, therefore, at PCG 2016/5.  Whilst the ATO provides us with peace of mind as to its interpretation of “arms’ length terms” for purposes of related party LRBAs in the Safe Harbour provisions, the ATO recognises at paragraph 4 of PCG 2016/5 that other arrangements may nonetheless be based on arms’ length terms.

Safe Harbour 1:  The LRBA and real property (commercial or residential)

Interest Rate Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors. Applicable rates:

– For the 2015-16 year, the rate is 5.75%[1]

– For the 2016 17 and later years, the rate published for May (the rate for the month of May immediately prior to the start of the relevant financial year)

Fixed / variable Interest rate may be variable or fixed

–  Variable – uses the applicable rate (as set out above) for each year of the LBRA

–  Fixed – trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 5 years.

The fixed rate is the rate published for May (the rate for the May before the relevant financial year).

The 2015-16 rate of 5.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 5 years (see ‘Term of the loan’ below)

Term of the loan Variable interest rate loan (original) – 15 year maximum loan term (for both residential and commercial)

Variable interest rate loan (re-financing) – maximum loan term is 15 years less the duration(s) of any previous loan(s) relating to the asset (for both residential and commercial)

Fixed interest rate loan – a new LRBA commencing after publication of these guidelines may involve a loan with a fixed interest rate set at the beginning of the arrangement. The rate may be fixed for a maximum period of 5 years and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 15 years.

For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 5.75% as their fixed rate, provided that the total fixed-rate period does not exceed 5 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 15 years.

Loan to Market Value Ratio (LVR) Maximum 70% LVR for both commercial and residential property

If more than one loan is taken out to acquire (or refinance) the asset, the total amount of all those loans must not exceed 70% LVR.

The market value of the asset is to be established when the loan (original or re-financing) is entered into.

For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015.

Security A registered mortgage over the property is required
Personal guarantee Not required
Nature and frequency of repayments Each repayment is of both principal and interest

Repayments are monthly

Loan agreement A written and executed loan agreement is required

Safe Harbour 2:  The LRBA and a collection of stock exchange listed shares or units

Interest Rate Reserve Bank of Australia Indicator Lending Rates for banks providing standard variable housing loans for investors plus 2%. Applicable rates:

–  For the 2015-16 year, the interest rate is 5.75% + 2% = 7.75%[2]

–   For the 2016-17 and later years, the rate published for May plus 2% (the rate for the May before the relevant financial year)

Fixed / variable Interest rate may be variable or fixed  – Variable – uses the applicable rate (as set out above) for each year of the LBRA
– Fixed – trustees may choose to fix the rate at the commencement of the arrangement for a specified period, up to a maximum of 3 years (see ‘Term of the loan’ below). The fixed rate is the rate for May plus 2% (the rate for the May before the relevant financial year)

The 2015-16 rate of 7.75% may be used for LRBAs in existence on publication of these guidelines, if the total period for which the interest rate is fixed does not exceed 3 years (see ‘Term of the loan’ below)

Term of the loan Variable interest rate loan (original) – 7 year maximum loan term

Variable interest rate loan (re-financing) – maximum loan term is 7 years less the duration(s) of any previous loan(s) relating to the collection of assets

Fixed interest rate loan – a new LRBA commencing after publication of these guidelines may involve a loan that has a fixed interest rate set at the beginning of the arrangement. The rate may be fixed up to for a maximum of 3 years, and must convert to a variable interest rate loan at the end of the nominated period. The total loan term cannot exceed 7 years.

For an LRBA in existence on publication of these guidelines, the trustees may adopt the rate of 7.75% as their fixed rate, provided that the total period of the fixed rate does not exceed 3 years. The interest rate must convert to a variable interest rate loan at the end of the nominated period. The total loan cannot exceed 7 years.

LVR Maximum 50% LVR

If more than one loan is taken out to acquire (or refinance) the collection of assets, the total amount of all those loans must not exceed 50% LVR.

The market value of the collection of assets is to be established when the loan (original or re-financing) is entered into.

For an LRBA in existence on publication of these guidelines, the trustees may use the market value of the asset at 1 July 2015.

Security A registered charge/mortgage or similar security (that provides security for loans for such assets)
Personal guarantee Not required
Nature and frequency of repayments Each repayment is of both principal and interest

Repayments are monthly

Loan agreement A written and executed loan agreement is required

[1] Interest is to be calculated monthly on a compounding basis.

[2]Interest is to be calculated monthly on a compounding basis.

So, what happens if you can’t fit your arrangements into the Safe Harbours?  You aren’t sunk just yet.

LET’S CONSIDER THE LOAN TERMS…

If your client borrowed from a commercial lender to on-lend to the SMSF, what does the commercial lender’s terms to the client look like?

To keep this simple, let’s create a reference:

Client Pty Ltd, as Trustee for Client Superfund, borrows from John Smith, the sole director of Client Pty Ltd and sole member of Client Superfund, to acquire Greenacre for $500,000.  John borrowed $530,000 from Awesome Bank, secured against his home, on a 30 year interest free term, with the first 5 years being interest free only, with principal and interest from year 6.  John gave a personal guarantee, and also offered up security against his personal share portfolio.  The LVR was 80% of the combined value of John’s home and his share portfolio.  The interest on the loan is variable, based on Awesome Bank’s published rates.  Awesome Bank has their own internal assessment processes for determining variable rates.  John’s advisor told him that he could on-lend at the Awesome Bank’s rate for the full acquisition value, on matching loan terms.  John’s advisor also made sure John registered a mortgage over the property.  What happens now?

Can John rely on Awesome Bank’s terms to escape the Safe Harbours?  Not entirely.

Awesome Bank has recourse against John’s income as well, as the security and later acquired assets of John (through the personal guarantee).  John only has recourse against the real property owned by the SMSF, and nothing else.  Accordingly, given the additional risk, one would expect a commercial lender in John’s position would have either required higher interest rates, shorter terms or a varied LVR.  However, the terms of Awesome Bank’s lending to John are nonetheless material; the first approach for John is to seek out Awesome Bank’s LRBA terms.  If Awesome Bank’s LRBA terms at the time of acquisition were more lenient than the Safe Harbour provisions, John has a commercial “arms’ length” reference to hold to support a variation from the Safe Harbour.  However, to the extent his LRBA terms are more favourable than the Awesome Bank’s LRBA terms, John would need to vary his own LRBA to match (even if the variation was less than the Safe Harbour provisions).

What if Awesome Bank did not offer LRBA lending at the time of acquisition?  Perhaps John could then look to Community Bank instead.  If Community Bank has lending terms which were more lenient than the Safe Harbour provisions, then John would have a commercial “arms’ length” reference to support a variation.

To the extent John tries to find “arms’ length” terms different to the Safe Harbour provisions, he is best to ensure the comparative is truly “commercial”.  John should not look to his best mate Bob, who is a third party lender, to provide the “commercial” comparative – unless Bob is a recognised credit provider who has engaged in LRBA arrangements as a regular component of his business (which business commenced well before the publication of ATO ID 2015/27 and ATO ID 2015/28).

LET’S CONSIDER SOME STRATEGIES…

Let’s say that John has to figure out how to raise the shortfall in the LVR.  What are some options?

  1. John could make additional concessional and non-concessional contributions (subject to the contribution caps and restrictions) by allowing part of the loan to be paid down (do not forget the paperwork and required transactions!);
  1. John could invite new members to the fund and their rollovers and/or contributions could be used to reduce the loan (make sure the investment strategy is considered for each);
  1. John could sell the asset (which could be difficult by 30 June – but it is an option); and/or
  1. John could re-finance through Awesome Bank, and give Awesome Bank a personal guarantee (hopefully Awesome Bank values his business).

What if John is in pension phase, and he has to fund increased repayments on the LRBA from the SMSF?  John could look to any of the above options, and he could also:

  1. Commute his pension and roll back to growth phase;
  1. Commute his pension, and commence a part pension with the balance of his member interest in growth phase; and/or
  1. Vary the terms of his pension to reduce his payments to the statutory minimums.

PCG 2016/5 is not the end of the world, but it is a wake-up call to all advisors in the SMSF space to favour conservatism in strategies.  There may be litigation which flows out of PCG 2016/5, given some advisors made exceedingly ambitious strategic recommendations to clients who will not be able to float adequate remedial action by 30 June 2016.  The ATO has given advisors a bit of leeway and, with a bit of creative manoeuvring, many SMSFs can sail to the Safe Harbours with minimal frustration (consider the above options, if the client could fund to lend – the client may likely remediate by treating funds as contributions).

If you would like to discuss PCG 2016/5 or what the ATO Safe Harbours mean for you or your clients, please contact Katrina Brown on 07 5574 3560 or via email.

 

A complying self-managed superannuation fund may be settled by an instrument having the effect of a deed – allowing for execution by digital signature

A complying self-managed superannuation fund (SMSF) is a trust at law, which is subject to the requirements and restrictions of the Superannuation Industry (Supervision) Act (SISA), Superannuation Industry (Supervision) Regulations (SISR), Income Tax Act Assessment Act 1997 (ITAA97), Income Tax Act Assessment Act 1936 (ITAA36), and such further relevant Commonwealth and State based legislation applicable thereto.

Whilst industry practice favours the establishment of a SMSF by “deed”, there is no obligation under Commonwealth or State legislation that a SMSF conform with the obligations of the common law characteristics of a deed.  Section 10(1) of the SISA defines a deed to include “an instrument having the effect of a deed”.

Whilst the term “instrument” is not defined under the SISA, nor defined under the Acts Interpretation Act 1901 (Cth), the reference to “governing rules” and “deed” are used interchangeably, with the term “governing rules” defined at Section 10(1) of the SISA to mean, in respect to a “fund, scheme or trust”…“(a) any rules contained in a trust instrument, other document or legislation, or a combination of them, or (b) any unwritten rules, governing the establishment or operation of the fund, scheme or trust”.

Accordingly, setting aside the debate as to whether electronic transactions and digital signatures are allowed in respect to the settlement of a “deed” – a SMSF may be settled by any instrument which has the effect of a deed.

What, therefore, is an “instrument which has the effect of a deed”?

Returning to the nature of a SMSF, we cannot overlook the simplicity of what constitutes a trust.  A trust has three necessary elements:  the trustee, the trust property and a beneficiary.  A trustee can also be the beneficiary, provided the trustee is not the only one (consider Section 17A of the SISA – with its restriction that a single member cannot act as a sole trustee).  Whilst a trust may be settled by deed, there is no obligation at common law or statutory law to settle a trust by deed.  In fact, a trust can be settled by common intention of parties, and to this end – the definition of “governing rules” at Section 10(1) allows for “unwritten rules.”

Whilst the writer does not suggest a SMSF may be settled on a resulting or implied trust, the writer does not agree with the proposition that the formalities of a deed are necessary for the establishment or maintenance of a “complying” SMSF under the SISA.  To the contrary, the SISA accommodates settlement by any instrument which is a deed, or has the effect of a deed.  The focus throughout the SISA is on the governing rules, to which there is no formality of implementation.

In particular, Section 8 of the Electronic Transactions Act 1999 (Cth) (ETAC) stipulates that a transaction is not invalid under the laws of the Commonwealth merely because it takes place wholly or partly by means of one or more electronic communications.  A “transaction” is defined at Part 1, Section 5 of the ETAC to be “any transaction in the nature of a contract, agreement, or other arrangement”, “any statement, declaration, demand, notice or request” and “any transaction of a non-commercial nature”.  Part 2, Section 10 of the ETAC provides that the signature of a person may be given electronically, provided consent is given to the execution and method.  Part 2A of the ETAC allows for the application of Parts 1 and 2 of the ETAC to contracts and transactions in the nature of a contract.  To the extent an “instrument having the effect of a deed” is in the nature of a contract, Part 2A makes allowances for electronic transactions and digital signatures in respect to such instruments, notwithstanding the exclusions at Item 142 of Schedule 1 of the Electronic Transactions Regulations 2000 (Cth).   To read the exclusions at Item 142 to broadly prohibit the applications of the ETAC to the SISA for such purposes is, the writer suggests, against legislative intent.

EXECUTION BY A CORPORATION

Section 127 of the Corporations Act 2001 (CA) does not limit the means by which a corporation can execute a deed.  The Electronic Transactions Act Regulations 2000 (Cth) (ETR) exclude the application of the ETAC from applying in respect to “company laws” – but the inclusive nature of Section 127 of the CA does not prevent the company from resolving a means of executing a deed by way of electronic signature.

Whilst parties referring to a deed executed by a corporation, other than a prescribed manner at Section 127 of the CA, may require additional evidence of the corporation’s execution of the deed – the provision of the evidence does not invalidate the execution made by the corporation in accordance with its own mechanisms.

EXECUTION BY AN INDIVIDUAL

The following States either allow for, or are likely to be deemed to allow for, the execution of a deed by electronic means by an individual:

The following States do not allow deeds to be executed by electronic means by an individual, and it is therefore in these States that consideration must be given to what constitutes the execution of an “instrument having the effect of a deed”:

Therefore, returning to the question of what is an “instrument having the effect of a deed”?  The formalities of the common law execution of a deed in respect to the signing and delivery on “parchment, vellum or paper” are not obligated by the SISA.  Notwithstanding, four of the Australian States allow deeds to be issued electronically.  It follows that an “instrument having the effect of a deed” is an instrument, transacted with consent of the parties, by way of electronic mechanisms suitably qualified in accordance with the relevant Electronic Transactions Acts of the Commonwealth and States.

The Queensland Court of Appeal, in 400 George Street (Qld) Pty Ltd v BG International Ltd [2010] QCA 245, considered the question of what constitutes a deed, and in doing so considered 12 Halsbury’s Laws of England, 4th ed, para 1301, which defines a deed as “an instrument” which:

“…must express that the person or corporation so named makes, confirms, concurs in or consents to some assurance (otherwise than by way of testamentary disposition) of some interest in property or of some legal or equitable right, title, or claim, or undertakes or enters into some obligation, duty, or agreement enforceable at law or in equity, or does or concurs in some other act affecting the legal relations or positions of a party to the instrument or of some other people or corporation.”

The term “instrument” is not defined under the SISA or the Acts Interpretation Act 1901 (Cth) (AIA); however the Acts Interpretation Act 1954 (QLD) (AIA), Schedule 1 defines a “document” as “any paper or other material on which there is writing…and any disc, tape or other article or any material from which sounds, images, writings or messages are capable of being produced or reproduced (with or without the aid of the device)”.  An “instrument” is defined in the AIA as any “document.”

Section 44 of the Property Law Act 1974 (QLD) (PLA) entitled “Description and form of deeds”, does not require a deed to be on parchment, vellum or paper.  Notwithstanding, Part 2 of the Electronic Transactions Act (QLD) (ETAQ) allows for an electronic instrument to be effective, provided the execution standards are satisfied and the transaction is not excluded.

Specifically, an electronic instrument is taken to be effective by Sections 16 and 17, of Part 2 of ETAQ, where:  a) the electronic form of the document is provided by a reliable mechanism which maintains the integrity of the information contained in the document,  b) it is reasonable to expect the information contained in the electronic form will be readily accessible for subsequent reference and c) the parties to the communication consent to the provision of an electronic form.  Part 4 of the ETAQ reads Part 2, to apply to any “transaction” in the nature of a contract.

Therefore, deducing from 400 George Street, “an instrument which has the effect of a deed” is an instrument in which parties thereto express a consent, undertaking, obligation, duty or agreement which affects an interest in property, or some legal or equitable right, title or claim.  The formalities of execution are not necessarily dispositive, provided the intention of the parties  is demonstrated.

Is an “instrument having the effect of a deed” not, therefore, for purposes of establishing a complying SMSF, in the “nature of a contract”, such that Part 2 of the ETAQ allows for the execution of SMSF deeds (which are, notwithstanding the name, an “instrument having the effect of a deed”)?

There is no case law to answer this question; however, reading the statutory provisions above cited as inclusive, rather than exclusive, it would follow, the writer suggests, that a SMSF may be validly settled by a quasi-deed (for example, a self-managed superannuation fund deed of establishment, settled without compliance to the PLA and/or common law execution standards), electronically by not only corporations – but individual trustees.  Electronic transactions are not foreign to the SISA (see Section 11D) or CA (see Chapter 2P), and the modern business practice of electronic dealings would reasonably lead to a conclusion that it is unlikely that a SMSF would be found to be non-complying merely because a deed was executed electronically and by way of digital signatures of company officers and/or individuals and their respective witnesses – as a SMSF can be established by an “instrument having the effect of a deed” (Section 10(1) of the SISA).

It may be that third parties may require a company to execute more traditionally for their internal requirements; however, this requirement does not negate the effect of the “instrument having the effect of a deed,” given the consent and intentions of the parties to be bound therein.  Further, given the inflexibility of banks and other relevant institutions, it is best practice to adopt a means of execution by individuals likely to be universally accepted; however, given a SMSF does not have to be settled in common law deed form, there is no express prohibition to adopting digital signatures for the execution of a deed (notwithstanding in absence of the formality, it would be “an instrument having the effect of a deed) of the individual and his/her witness.

SMSF Blueprint – a welcome resource for superannuation trustee planning and strategy

“SMSF BLUEPRINT” LAUNCH  – A WELCOME RESOURCE FOR SUPERANNUATION TRUSTEE PLANNING AND STRATEGY

During the last year, it has been my pleasure to assist Julie Dolan, of SMSF Blueprint, with ideas and concepts desperately needed by our clients who utilise self-managed superannuation funds (SMSFs) in their investment portfolios.I am pleased to see the launch of SMSF Blueprint in the industry, and have offered to share the platform with our clients to assist in the dissemination of what we believe to be a sound tool for our clients.  The firm receives no remuneration whatsoever, but I believe strongly in the platform and its usefulness to our clients – so wanted to share this resource with you.

Whilst Julie is a consultant with the Firm, I find her educational platform to be an astounding educational benefit and compliment to the offering of our team generally.

I, along with Julie, have advised many trustees across Australia this year in respect to SMSF compliance, and this educational platform was established by Julie and her partners to address what appears to be an industry wide confusion as to trustee obligations and strategies.  I have been consulted on a number of non-compliant SMSFs in the last year, and I am concerned about the expanding enforcement powers of the ATO generally (not  to suggest that I disagree with the enforcement process, and its purpose in the marketplace).

Breaches of the rules and regulations can be a very costly exercise – as demonstrated by a recent case in which a 62 year old trustee was handed down an 80 hour community service order after failing to lodge multiple years’ tax returns.

Along with its existing compliance powers, the ATO introduced its new penalty regime effective from 1 July 2014. Penalties of up to $10,200 per trustee for certain breaches of the rules and regulations can be handed down by the ATO. These penalties are payable by the trustee and cannot be reimbursed from the fund.

I am a subscriber to SMSF Blueprint, and find the content to be brilliant and easy to use.  I ca use it with clients for demonstration purposes, and general education. However, it is a platform that you can subscribe to for ongoing compliance and training purposes.  Plus, Julie and her team offer strategic ideas in respect to planning ideas.  The platform changes constantly, with new content on legislation and forward planning ideas.

I am recommending the platform for all of my clients, and making it a mandatory subscription for my new SMSF clients because the risks of not complying are too great.  It is such an easy and convenient platform, you can watch the videos anytime and anywhere.  It is like having a financial advisor at your fingertips – and certainly gives you the fuel for informed discussions with your financial advisor and accountant.  I personally think the platform saves clients’ money, because they can do research and investigate ideas on their own – and then go to the specialists for advice on the suitability and implementation process on those ideas that they find worthwhile considering.

Of course, I am always here to help you in your SMSF planning – but I believe clients should be informed, and the SMSF Blueprint platform is a minimal cost for a vast resource to SMSF trustees.

If you would like to speak to Julie, please feel free to give her a call on 040 445 5001, or email her.   Definitely have a look at SMSF Blueprint, if you are considering or managing a SMSF – I think you will be quite pleased at the platform.

For your convenience, you can click here to view the link that I use to link through to SMSF Blueprint.

Katrina Brown BA ATIA SSA TEP
Senior Lawyer