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Law & Business

Question:


I am owed a large amount of money by one of my customers and I am worried that he will not pay. It has been suggested to me that I should put a caveat on his house to recover the money I am owed. Can I do this, and what is the process?


Answer:


Recovering the debt will probably not be that simple!


A caveat is a notification on the title to a property which can prevent that property being sold. However, to put a caveat on a property you must have some interest in that property; you must have been given some kind of ownership, or a mortgage, or a charge over the property, usually by a written agreement. It is not enough to just say that you are owed money by the owner of the property.


If you had a written agreement with your customer which said that his property was charged with any debts owing to you, then you may well have a right to put a caveat on his home. However that is unlikely and if you put on a Caveat illegally, you may be held liable for costs or damages incurred by your customer as a result of the caveat being lodged. It is therefore something you would not do lightly and you need to see your solicitor to get detailed legal advice.


Even if you did have a right to put a caveat on the property, a caveat does not give you the right to sell the property. It would stop the property being sold until you agreed to lift the caveat in exchange for the moneys you were owed. This may not help you if the property is being sold by the owner’s bank, which would have priority to get paid ahead of you. Also, the owner might take action in the Supreme Court to seek an order that the Caveat be lifted in certain circumstances.


You should speak to your solicitor about trying to resolve the dispute with your customer, and if you are unable to reach any satisfactory agreement for repayment, then you may need to start court proceedings to sue for the debt. If you obtain a court judgment you may then be able to obtain a writ on the title to the property. which has a similar affect to a Caveat. A judgment may also assist you in starting bankruptcy proceedings against the customer and your solicitor will be able to advise you on the process and the risks involved.


You should also review your credit processes to try and prevent a large debt arising again, and perhaps try to take security from credit customers by way of a charge over property or by personal guarantees for outstanding debts.


Question:


My brother and I and a third associate have a small but increasingly successful business. We are all committed to the business but we are concerned about the welfare of our families should any of us die or become disabled. Apart from having the usual life and disability coverage, how can we protect the interests of our families and our partners if one of us did face an unforeseen tragedy?


Answer:


This is a problem that’s easily solved by the use of what’s known as a “Buy/Sell Agreement” this tool assures the fair and orderly transfer of ownership interests in a private business. It operates like a prenuptial agreement for business owners and states the terms under which remaining owners, or even the business entity itself, will buy out your interest. It preserves continuity of ownership and ensures that everyone is fairly treated, buyers as well as sellers.


You’ll want your buy/sell agreement to provide how the business is to be valued, how the buy out is going to be funded (with insurance) and under what circumstances you may invoke the agreement. Death is reasonably obvious but what if one of you just disappears or how disabled must you be to make your partners agree to buy you out?


The agreement can be between the business and its owner or among various owners. Frequently, the agreement will be backed by life insurance policies on all the principals so as to guarantee the capacity of the buyer to pay if the need arises.


Tax issues will apply to a buy/sell agreement so careful drafting by a good lawyer will be necessary if this strategy is used


Question:


I own a retail shop that sells electrical equipment. One of the suppliers I purchase equipment from has been pressuring me to sell their products at a recommended retail price. They have also threatened to stop supplying me with their equipment if I do not agree. What should I do?


Answer:


As the owner of a retail shop, you should not allow a supplier to threaten you or to put pressure on you to sell the suppliers product at a set price.


The action of the supplier in pressuring you to sell their products at a recommended retail price is illegal, and should be prevented.


Resale price maintenance occurs when a supplier sets a minimum price, or when the supplier tries to set a minimum price, below which you are not allowed to sell their products. It is illegal in Australia for a supplier to engage in retail price maintenance when supplying a product to a customer.


If the supplier was allowed to pressure you into selling a product at a set price, this would restrict the ability of your business to be competitive in the market. This would then prevent you from setting the prices of your products at a competitive level determined by you.


A supplier is allowed to suggest a recommended retail price, but it must be just that. It can only be a price that the supplier suggests to you, the supplier can not force you to sell their products at the suggested price. The supplier is not allowed to use any form of influence, pressure or persuasion to make you comply with their recommended retail price.


If a supplier does attempt to specify a minimum price to you, you should let the supplier know that their actions are illegal. You should also speak with a solicitor to determine how to prevent the supplier from doing this.


You can also contact the Australian Competition & Consumer Commission, which is a government department designed to protect the interests of retail shop owners.


Question:


I am the administrative manager for a private school. Our insurance company has advised that the school may not have insurance for situations where a teacher takes students on an excursion and signs an agreement with an organiser or venue which contains an indemnity clause. Such clauses are designed to lay all the blame and responsibility for any injury caused to a student back on the school. Is this correct and how can the school avoid the problem?


Answer:


The normal public liability insurance policy which is probably held by the school indemnifies the school for liability caused by the acts or omissions of its employees or agents. There is usually a specific exclusion of indemnity where the insured has essentially increased its exposure to liability through a contract with another party.


It is not uncommon for teachers to take students for outdoor experiences or activities such as swimming or horse riding where the venue operator or activity organiser requires the teacher to sign an agreement containing an indemnity clause. Where the teacher signs such an agreement he or she arguably does so as agent for the school and effectively binds the school to the terms of the contract. In practical terms if a student is then injured in the course of engaging in the activity, even where that injury has been caused by the negligence of the venue operator or activity organiser, that party may be able to seek indemnity from the school.


Often in these cases an injured student will successfully bring legal proceedings against both the school and the organiser of the activity. In many of those situations under the general law where no contract exists the school may be able to look to the organiser of the activity for an indemnity if that party has been negligent. However, where a contract exists and an indemnity clause in favour of the activity organiser against the school has been agreed to, then the school may be unable to enforce an indemnity against the activity organiser and indeed may be exposed under the contract to the organiser.


In such circumstances the insurance company for the school will not extend indemnity under the policy to the school and will be within its rights to refuse to do so. The school could be exposed to tens of thousands of dollars of compensation and legal costs and in some situations even more.


The situation described here has general implications for any business where employees at any time sign agreements with suppliers or service providers and such agreements contain indemnity clauses. The situation arises because senior management fail to realise the danger of less senior personnel signing such agreements. In the school situation there should be a general rule that teachers do not sign any agreements. If such an agreement is thrust into the teacher’s hand moments before the activity commences then there should be a strict rule enforced that such agreements are not signed at all.


It is my view that it is worth while for nearly all businesses to have a relationship with an external commercial lawyer so that such agreements can be routinely checked before being signed by the appropriate person in the organisation. This has the added benefit that if a mistake is made some recourse may be available against the lawyer.


If this procedure seems unnecessarily cumbersome and expensive, think of an organisation involved in a case I am currently conducting. An employee signed such an agreement without thinking and probably without reading the terms and has exposed his employer to a liability of $5,000,000.00.