Update: Unfair contract terms reforms commence

Posted on by influence legal.
The current status

From 9 November 2023, expanded provisions for unfair contract terms (‘UCTs’) found in standard form contracts have taken effect under the Australian Consumer Law and the ASIC Act. These changes will apply to any new contract, and any amended or renewed contract, made from that date.

unfair contracts
To assist understanding of the reforms for both industry and consumers, ASIC has provided new guidance you can find here.

Background

Before the reform, unfair contract terms in standard contracts with small businesses and consumers were void but not illegal. The first key amendment is that unfair contract terms are now illegal and attract significant financial penalties. The criteria for establishing whether a contract term is deemed ‘unfair’ have remained largely unchanged.

Expanded scope

Small business threshold: As part of these reforms, the scope of small businesses eligible for Unfair Contract Terms (UCT) protections has been widened. To fulfill the updated criteria for small businesses, a company must either employ fewer than 100 individuals or generate less than $10 million in annual turnover.

Standard form contracts: The UCT protections continue to apply to standard form contracts. However, a significant change is that even if the other party is provided the opportunity to negotiate minor adjustments to the contract’s terms or to choose from a selection of term options, the contract may still be considered standard form. Also, a contract may still be classed as standard even if another party involved in a different transaction had the ability to negotiate and implement significant modifications to that same form of contract.

Notable legislative changes

The recent amendments have removed the monetary contract threshold formerly stipulated by the ACL, which restricted the upfront price payable in the contract to not exceed $300,000.

Under the ASIC Act, the UCT regime will now only apply to a small business contract if the upfront price payable (excluding interest) for the contract is $5 million or less.

Implications

Under the Australian Consumer Law, the maximum penalty for violations of the UCT regime has been raised.

For companies, the penalty has increase to $50 million from the previous $10 million, or it may calculated as three times the benefit gained by the company if quantifiable. Alternatively, it can amount to 30% of the corporation’s turnover during the period of the offence, as opposed to the previous penalty of 10% based on the annual turnover only within the 12 months before the breach. For individuals, the maximum penalty has been changed from $500,000 to $2.5 million.

These penalties will apply to new contracts, renewals, or modifications of existing contracts that are entered into on or after 9 November 2023.

If you would like us to review your standard templates in light of the new provisions, please contact us.

Author: Zaki Zeini, paralegal.

Remember to express your IP licences clearly!

Posted on by influence legal.

The recent decision in Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39 overturned a significant copyright ruling and has potential for significant flow-on effects for photographers and other content creators.

Background

House for sale
Real estate photographers will need to adjust how they do business after this decision.

Hardingham, an independent real estate photographer, took photos of properties for real estate agents under oral contracts. The agents uploaded the photos to realestate.com.au (REA). REA then provided the photos to RP Data, a service that allows real estate agencies to use photos for property marketing campaigns.

When agents uploaded the photos to REA, they accepted clickwrap terms which gave REA “an irrevocble and perpetual licence to use the content … for any purpose related to our business”. RP Data argued that this licence meant it was able to use the photos once permitted to do so by REA. Hardingham contended that the licence had to be subject to a limitation so that it ended once the property was sold or leased.

At first instance Thawley J found that the sub-licence from REA to RP Data should be permitted because it was inferred from the parties’ conduct and should be implied to give business efficacy to the arrangements. It was not subject to any time limit.

On appeal to the Federal Court, the Full Court found that they were not satisfied that the terms should be implied or inferred, and that any implied licence did not extend beyond the property marketing campaign.

High Court

In December, the High Court overturned the Federal Court’s decision. The question, in this case, was what a reasonable person would consider, based on the parties’ words and conduct.

The Court found that there was nothing in the oral contracts, between Hardingham and the original real estate agencies, to suggest that the photos could not be used after the campaign. They all knew that the photos uploaded to REA and RP Data remained there after the completion of the campaign and on a history tab for the property. That had been the case for a number of years.

So, the real estate agencies were capable of licensing the photos to REA on its standard terms, and REA was capable of licensing them to RP Data. Accordingly, RP Data did not infringe Hardingham’s copyright.

Action

This case has important implications for photographers and other content creators, and is an important reminder to put clear, written agreements in place when licensing copyright and other IP. You can exclude implied terms and make sure that the parties’ expectations match. If you would like assistance with documenting your copyright agreements, contact us.

Author: Ashna Govil, paralegal.

Beware of new unfair contract rules and higher penalties!

Posted on by influence legal.

Businesses need to take another look at their standard contracts, now that the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 has expanded the unfair contract terms laws and introduced higher penalties for breaches of the Act.

Unfair contract terms status

Until these amendments, unfair contract terms in standard contracts with small businesses and consumers were void, but not illegal. The first key amendment is that unfair contract terms have become illegal and are now subject to significant financial penalties. The ACCC has welcomed this change due to the “adverse consequences of unfair contract terms on consumers and small businesses.”

Extended definition of small business contract

The second key change expands the scope of “small business” contracts to which the regime will apply. Now, a small business contract is a contract where one party to the contract is a business that employs fewer than 100 persons (previously 20 persons) or has a turnover for the last year of less than $10 million.

Unbalanced scales and book
Check whether your standard contracts are balanced. Image by Freepik

Another key point in this change is that where a party permits minor amendments to a standard form contract, it will still be considered as a standard form contract. Previously, it was considered that any negotiated change would be sufficient to avoid the effect of the unfair contracts rules.

The party which drafted the contract is required to prove that it is not a standard form. Remember as well that the rules apply even where the party which drafted the contract is also a small business.

With the extended definition of a small business contract, the new laws empower courts to rewrite commercial standard form contracts, including the power to void, vary, or refuse to enforce unfair contract terms.

Increased penalties for breaches of the Act

The third key change is the very significant increase of the maximum penalties under the Act for engaging in anti-competitive conduct and breaches of the ACL:
• $50 million (currently $10 million)
• Three times the value of the reasonably attributable benefit obtained from the conduct or
• If the courts cannot determine the value of the benefit, 30% of the body corporate’s turnover during the period it engaged in the conduct.

The ACCC hopes these penalties will serve as a “strong deterrent message to companies…to not mislead or act unconscionably towards consumers.” These amendments took effect on 10 November 2023.

Businesses should review their standard form contracts for terms that provide a significant advantage but go beyond what is needed to protect their legitimate interests. If you would like assistance to review your standard contracts, contact us.

Author: Ashna Govil, paralegal.

Who controls the copyright in your online posts, really?

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In a recent article we looked at how important it is for artists and content creators to ensure they have a written, signed contract for any licence agreement. A recent New York case highlights the strict licensing terms on social media platforms and the trade-off between exposure for your content, against control of your works.

Sinclair v Mashable – what happened?

Stephanie Sinclair is a renowned photographer whose portfolio includes works featured in The New York Times, Time Magazine and National Geographic. Like many creators, Sinclair uses Instagram as a platform to share her works.

influence legal apps
Do you understand what you’re agreeing to when you upload content?

Sinclair uploaded one of her photographs (an image of a mother and child in Guatemala) to her Instagram account. She was then contacted by digital media and news website, Mashable, offering $50 in exchange for a licence to use the photograph for a story on female photographers. Sinclair declined the offer.

Undeterred by the refusal, Mashable went ahead and used it anyway, taking advantage of Instagram’s API to embed her post of the photo in their website. Mashable didn’t make a copy of the photo – just linked back to the photo on Instagram – but the overall effect was the same. When Mashable refused to remove the embedded post, Sinclair commenced proceedings for copyright infringement.

A not-so picture perfect judgment

On face value, it might seem fairly straightforward that by using Sinclair’s copyright work without her permission, Mashable had infringed her copyright.

However, in this case, the devil was in the details – specifically, in Instagram’s Terms of Service (TOS).

Judge Kimba Woods found that by creating an Instagram account, Sinclair had agreed to Instagram’s TOS. These TOS included a term granting Instagram a “non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide licence to the Content.”

The judge determined that when Sinclair posted the photo to her public Instagram profile, she had “granted Instagram the right to sublicence the photograph, and Instagram validly exercised that right by granting Mashable a sublicense to embed and display the Photograph on their website.”

Even though Sinclair had refused to license the photo directly, Mashable could still validly obtain a sub-license from Instagram to embed the photo.

Private v public

Sinclair argued that Instagram’s TOS were unfair. Users must decide between either:

  • choosing to have a private profile and losing out on the advantages of sharing their works on the biggest photo sharing platform in the world, or
  • choosing to have a public profile in exchange for surrendering rights in their uploaded content to Instagram.

In her judgment, Judge Woods acknowledged the difficulty of this position, but determined that Instagram’s TOS were binding:

“Instagram’s dominance of photograph- and video-sharing social media, coupled with the expansive transfer of rights that Instagram demands from its users, means that [Sinclair]’s dilemma is a real one… But by posting the photograph to her public Instagram account, Plaintiff made her choice. This court cannot release her from the agreement she made.”

What does this mean for you?

As an artist or content creator, it is likely that you will rely on social media as a major platform for sharing your work. And while it is incredibly important to share your work with the public, there is another very important thing to consider; and it’s also one of the most ignored – the fine print.

The terms and conditions for online platforms, including Instagram, often contain broad terms applying to any content you upload – including the right to sub-license to third-party websites.

Sinclair’s case serves as a great reminder that when signing up to any online sharing platform, it is always worth taking the time to understand the terms you are agreeing to. You may not be able to negotiate the terms, but you can choose which works you share and make sure you retain practical control over valuable content.

Author: Blake Motbey, Associate

What are you implying?

Posted on by influence legal.

There are several ways for terms be implied into a commercial contract. Terms can be implied:

  • by law – such as the consumer protection provisions of the Australian Consumer Law or the implied duty of good faith; or
  • by fact, where a term is reasonable, equitable, obvious and necessary to give business efficacy to the contract.

The recent case of Rehau v AAP Industries provides a useful reminder that key terms can be implied into a contract, with significant effect.

The facts


Terms that you may not have intended can be implied into your contract

AAP Industries, a manufacturer of plumbing products, and Rehau, a wholesale supplier, were in dispute over a supply agreement dated 1999.

AAP Industries had agreed to supply 9 specified plumbing products to Rehau at a fixed price. The initial term of the agreement was 12 months with automatic renewals.

In 2013, after trying to renegotiate prices, Rehau stopped ordering the products. AAP Industries claimed that this was a breach of the agreement.

AAP Industries argued that although the agreement didn’t state so expressly, it contained an implied exclusivity clause, requiring Rehau to purchase the products only from AAP Industries.

The decision

Both the primary judge and the Court of Appeal agreed with AAP Industries.

The court’s view was that even though there was no exclusivity clause, the agreement, when construed as a whole, required Rehau to purchase the products exclusively from AAP Industries.

The main provisions that were considered included:

  • AAP Industries had to reserve production capacity to meet Rehau’s requirements and to plan raw material to meet Rehau’s deadlines.
  • AAP Industries had to maintain 2 months’ buffer stock free of charge.
  • Any failure by AAP Industries to meet a delivery deadline would constitute default of performance, entitling Rehau to withdraw from the Contract.
  • The agreement renewed automatically unless a party gave 3 months’ notice.

The court said that these terms meant it was equitable and reasonable to find that exclusivity was implied. The court also said that the agreement didn’t make sense without exclusivity as otherwise AAP Industries would have to hold buffer stock and reserve capacity with no corresponding obligation on Rehau to buy.

Sackville AJA noted the case of Colonial Ammunition Co v Reid, which stated that where a written agreement contains express terms relating to a party, the court should only find an implied obligation for the same party in the clearest case. In this case, the court considered that the proper construction of the contract was sufficiently clear to warrant the implication of exclusivity.

“Shall”

This case also highlights the importance of plain language drafting. Issues about interpreting “shall” vs “will” have a lengthy history.

In this case, the provision that stated “Rehau shall purchase the

[plumbing products]

from AAP” was interpreted as an obligation on Rehau to purchase the products at the fixed price. A non-legal reader could easily think this was a statement of intention, not obligation.

This finding was made even though the fixed price was not actually set out in the document.

Takeaways

The key takeaways from this case are:

  • You can exclude implied terms and warranties (to the extent permitted by law) in a general clause, but it works even better to add clear statements on important issues – for example, that the agreement is non-exclusive.
  • If you use plain language drafting, your business is more likely to understand its obligations and be able to head off potential disputes.

If you would like us to review your standard contracts with these takeaways in mind, contact us.

Highlights of 2018 and areas to watch in 2019

Posted on by influence legal.

2018 came and went in a flash. France celebrated glory in the FIFA World Cup in Russia; Banksy sold his ‘Girl With Balloon’ painting for $1.86 million before the artwork shredded itself seconds after the gavel dropped; and the online world was captivated by the World Record Egg. And as we say goodbye to summer and settle into the working year, why not take the chance to reminisce on some of the more important developments of 2018, and look forward to those that 2019 has in store?

Looking back on 2018

  • New obligations were enforced under the European Union General Data Protection Regulation (the GDPR). While the GDPR is an EU regulation, the obligations have a wide reach, applying to all Australian businesses who have an establishment in the EU, offer goods & services to the EU, or monitor the behaviour of individuals in the EU.
  • As part of the government’s safe harbour and insolvency reforms, we saw the introduction of the ipso facto insolvency reforms by way of the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Act 2017. The reforms apply to contracts entered into on or after 1 July 2018, affecting the ability of contracting parties to exercise termination, enforcement or other rights that are triggered by a company restructuring or insolvency.
  • The European Parliament voted in favour of introducing the controversial EU Copyright Directive, a legislation designed to better meet the needs of copyright protection in the internet age. The proposed directive caused significant global debate around the detrimental effects of Articles 11 (the Link Tax) and 13 (the Meme Ban), headlined as the ‘death of the Internet’.
  • The ACCC highlighted its hard stance against franchises attempting to contract out of their obligations under the Franchising Code of Conduct and the Competition and Consumer Act. The ACCC’s case against Husqvarna Australia highlighted the importance of all companies that appoint dealers, distributors, licensees or similar, to confirm whether their contracts are in fact franchise agreements.
  • A Victorian Supreme Court cast some doubt over the enforceability of contractual provisions that attempt to limit the period in which parties can claim for misleading or deceptive conduct. This arose in the case of Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246, where the court considered the enforceability of a contractual provision requiring claims (including for misleading or deceptive conduct) to be made within 7 days.Justice Riordan, deciding in contradiction to a number of NSW decisions, ruled in favour of the “no exclusion principle”, stating that allowing the enforceability of such time limitations on claims would be against the public policy underpinning the provisions of the Australian Consumer Law (ACL).

Some areas to watch in 2019

  • Discussions over the EU Copyright Directive continue, with negotiators for the European Parliament aiming to finalise the directive shortly. However, negotiations have broken down, with the three-way discussion between Council, Parliament and member states  derailed over the exact wording over Article 11 and Article 13. Consequently, the “trialogue” discussion that was set to take place on  23 January was cancelled. With upcoming EU elections in May, there likelihood of any closure on this matter in the near future is low, with a final vote likely to take place under the next parliament.
  • The Telecommunications and Other Legislation Amendment (Assistance and Access) Act 2018, commonly referred to as the AA Bill, was passed in December of last year. The Bill’s aim is to compel various companies, especially those in communications industries, to assist Australian security and law enforcement agencies by allowing access to encrypted communications they believe may contain plans for illegal or terrorist activity. The implications of the Bill will be an interesting area to watch throughout the year, with a number of people, especially those within the tech and start-up communities expressing their concerns.
  • On 10 December 2018, the ACCC released its Digital Platforms Inquiry Preliminary Report. The ACCC’s report is founded on questioning the role and accountability of the global digital platforms (such as Facebook and Google) in the supply of advertising, news and journalism in Australia. The final report addressing these issues will be due on 3 June of this year.
  • There has been some debate globally and in Australia regarding the “hipster antitrust” laws, questioning the standards of competition law. The current foundation of competition law in Australia is focused on consumer welfare. However, concerns have been raised that this standard is too narrow and does not allow for prosecution of some types of conduct that some commentators believe competition law should cover.While this debate is likely to continue throughout the year, ACCC Chairman Rod Sims has reinforced Australia’s consumer welfare position, expressing their opposition to the introduction of broader interest considerations of public policy into competition law enforcement.

Author: Blake Motbey, Paralegal.

Can I protect my business when an employee leaves?

Posted on by influence legal.

When running a business, you will inherently find yourself in competition with other businesses and companies in your industry or market area.

However, it is not uncommon to find your best employee has decided to move on to work for a competitor; nor is it rare for an employee to resign with ambitions to start their own business in direct competition to you.

So, what can you do when a valuable employee suddenly becomes the competition?

Restraint of trade clauses

To protect themselves in the event of an employee’s exit, many Australian businesses regularly include restraint of trade clauses in their employment agreements.

Employers may use these clauses to try to prevent former employees, as well as contractors or suppliers, from:

  • Competing against the former employer;
  • Soliciting clients; or
  • Poaching other employees.

Restraints are often also used to protect the employer’s or customer’s confidential information, in conjunction with standalone confidentiality clauses.

A reasonable restraint of trade clause can help protect your business

Validity of restraint clauses

Restraint clauses are legally presumed to be void, as it is considered contrary to public policy to unreasonably prevent a person from lawfully obtaining gainful employment.

However, there are some circumstances in which the court may override this presumption and find a restraint clause to be valid and enforceable. The key principle is reasonableness.

Reasonableness

A restraint clause will be considered ‘reasonable’ when it restricts no more than is reasonably necessary to protect the employer’s legitimate commercial interests.

An employer does not have a legitimate interest in merely protecting themselves against competition as such. Instead, the employer must demonstrate special circumstances that justify the need for the restraint.

These circumstances may include:

  • The scope of the employment;
  • The nature of the employer’s business;
  • An employee’s connection to clients;
  • Access to confidential informational or trade secrets; and
  • Whether the employee received any compensation or remuneration for the restraint.

Employers will also often specify both a restraint period and a geographical area for which the clause applies. However, the court will consider whether the duration and reach of the restraint goes beyond what is adequate in protecting the employer’s interest.

In Pearson v HRX Holdings, the Federal Court found that a lengthy restraint against HRX co-founder, Mr Pearson, was reasonable.

HRX, an HR company, sought to enforce a restraint on Mr Pearson preventing him from working within the HR industry for 2 years.

The court held the restraint was reasonable because:

  • Pearson was vital in building and retaining the company’s client base, and was considered the ‘human face’ of the company;
  • He had access to all the company’s confidential information;
  • The two-year period reflected the average client contract length and gave the company reasonable opportunity to renew these without competition from Mr. Pearson; and
  • The clause was negotiated and specifically tailored to Mr. Pearson, and in exchange for the restraint, Mr. Pearson would receive his salary for the restraint period as well as an 8% shareholding.

By comparison, in Just Group v Peck, the restraint clause was determined to be unreasonable.

Just Group attempted to enforce a restraint preventing Ms Peck, former CFO, from working with their competitor, Cotton On.

The clause attempted to restrain Ms Peck for 2 years from carrying on “any activity, the same or similar to” her role with Just Group in Australia and New Zealand. The clause also referred to a list of 50 brands Ms Peck would be prevented from working with.

The court determined that this restrained went beyond what was required to protect Just Group’s legitimate business interests, considering that:

  • “Any activity” undertaken by Ms Peck as CFO was likely to be similar in any CFO role or similar position;
  • The clause was too broad and prevented Ms Peck from working with any other fashion brand or retailer, including non-competitors; and
  • The list of 50 brands included a majority that were not in competition with Just Group.

Just Group had given enough evidence proving Cotton On was a competitor, and if the clause had been more specific towards the brand, the restraint may have been enforceable. However, the court held the annexure was to be read as a whole and could not be re-written later in attempt to restrain Ms Peck from working with a specific competitor.

These cases highlight the importance of restraint clauses being drafted to be specific to an organisation’s precise business interests.

Summary

If you are an employer or customer wanting to include restraint of trade clauses in your agreements, it is important to remember that the reasonableness of a restraint of trade clause is determined by the specific nature and circumstances of your business and the individual employee or contractor.

If you would like more information on restraint of trade and confidentiality clauses to protect your business, contact us.

Author: Blake Motbey, Paralegal.

What’s this ipso facto whatsit?

Posted on by influence legal.

Like us, you may at first have read straight past the headlines of recent articles about the “ipso facto” changes in the context of the safe harbour reforms. However, on further exploration it’s clear that it will be important for businesses and their commercial advisers to be aware of this upcoming legislative change.

The ipso facto changes and safe harbour changes, both relating to insolvency, are both included in the recent package of enterprise incentive reforms as part of the National Innovation and Science Agenda.

Safe harbour

Directors have long been subject to strict requirements preventing them from allowing a company to trade when insolvent, meaning that companies in financial distress had to promptly appoint an administrator or liquidator.

The safe harbour reforms under the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 will protect directors from personal liability, but allow the company to continue to trade and incur debts, where the directors start developing a course or courses of action that are reasonably likely to lead to a better outcome for the company than immediate administration or liquidation. The company will need to meet employee entitlement, tax and other statutory requirements.

The goal of these reforms is, in part, to attract investment, and experienced directors, to new businesses in the start-up economy, and to allow businesses to trade out of early difficulties.

Rights triggered by insolvency (“ipso facto” rights)

As part of the package of enterprise incentive reforms, the new “ipso facto” regime will commence on 1 July 2018.

Ipso facto rights are rights under a contract that allow Party A to take action on the occurrence of a specified event; they can be distinguished from rights that arise on Party B’s breach.

In this context, we are talking about Party A’s rights to take action when Party B becomes insolvent. Common rights include:

  • terminating;
  • suspending or stepping in;
  • calling on a bank guarantee or other security;
  • setting-off; or
  • cancelling or changing credit terms.

In the past these have been seen as sensible rights for Party A to have in case of Party B’s insolvency. For customers, they allow an orderly transition to a new supplier before the supplier stops performing altogether. On the other side, they allow suppliers to minimise their losses when a customer looks likely to collapse owing funds.

Under the enterprise incentive reforms, as Party A you will not be able to exercise ipso facto rights arising from your Party B’s:

  • voluntary administration;
  • receivership;
  • a scheme of arrangement; or
  • financial position, where it is subject to one of the reasons above.

The legislation includes anti-avoidance provisions which cover reasons that, in substance, are contrary to the new rules. Likely areas to be caught here are a breach of financial covenants, like debt to equity ratios or net tangible assets. In some circumstances Party B may be able to prevent you from exercising other rights, such as a termination for convenience right, that you have chosen to exercise solely because of Party B’s financial position.

You will still be able to exercise rights for an actual payment default or breach of obligations to perform.

Your rights are stayed during the period of the insolvency process, but cannot be reactivated in respect of the original issue once the stay period is over.

There are exceptions where your Party B is a foreign entity which becomes insolvent, or your contract is governed by overseas law. Some additional exceptions will also be prescribed by regulation – these are likely to be banking and financial markets contracts.

What should you do?

The reforms are not retrospective. If your contract is in place before 1 July 2018 and continues to run into the future, your contract will be grandfathered and you will still be entitled to exercise rights triggered by insolvency.

For contracts which are made after 1 July – including contracts which expire and are then renegotiated after 1 July – you will need to review your processes in 2 key areas:

  • avoid the risk of accidentally exercising these rights, if they have been included in the contract, without your Party B’s agreement. Although there are no legislative penalties, you will run the risk of breaching the contract yourself (potentially a repudiation entitling your Party B to make a claim against you) if you try to terminate for insolvency when you are not entitled to do so.
  • review your credit terms and how you will react to early warning signs of insolvency in the future. It may be too late to wait to act until there has been an actual contract breach, so suppliers may react to these changes by allowing shorter credit terms overall, and customers may need to place more focus on developing back up options for when a supplier collapses.

If termination and step-in rights for insolvency are important to your business, you should also consider:

  • taking steps to keep current contracts on foot, rather than allowing them to expire and then renegotiating, and
  • whether, under your contract, each new order is treated as a separate contract or as part of the original, grandfathered contract.

Thanks to Scott Mannix at Maddocks for an excellent recent presentation on this important issue.

Anti-bribery and corruption requirements for Australian businesses

Posted on by influence legal.

Many Australian businesses who deal with customers based in the US and UK will be faced with contract clauses requiring compliance with the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act.

There is a lot of doubt and disagreement about the way that these laws apply to conduct outside the home jurisdiction and whether Australian businesses should accept these contract clauses.

Here are some key points to know if you are confronted with a clause like this.

Coverage

Anti-bribery and corruption (ABAC) laws focus on 2 key areas:

  • corruption of public officials; and
  • bribery in the private sector.

Australia

Australia has its own anti-bribery and corruption (ABAC) requirements.  Specific requirements include:

  • State and Territory legislation applying to bribery of public officials and private individuals;
  • Criminal Code (Commonwealth) offences for bribery of Commonwealth officials;
  • Criminal Code offences for bribery of foreign officials (with some application to overseas conduct); and
  • false accounting offences where a business falsely records bribes as legitimate expenses.

Australian laws also catch “grease” payments, also known as facilitation payments.  These are payments to public officials to speed up or smooth out an approval which would have happened anyway, and are distinguished from payments to change an outcome. Grease payments are only permitted if they meet certain criteria, including prompt, accurate records.

We are expecting further tightening of Australian ABAC requirements when the Crimes Legislation Amendment (Combatting Corporate Crime) Bill is implemented, most likely later this year.

US

The FCPA catches all US entities including their overseas subsidiaries; US subsidiaries of overseas entities; overseas entities which issue securities in the US; and overseas entities which take steps towards the corrupt conduct in the US.

It covers corrupt gifts and payments to foreign public officials – defined very broadly – for the purpose of obtaining or retaining business.

Foreign public officials would include, for example, a doctor in a state hospital, or a government official who also acts in a private capacity where the corrupt conduct occurs.

There is no materiality threshold so small gifts are caught – the test is the purpose of the payment or gift.

Controversially, the FCPA does not apply to grease payments, on the basis that they do not change the outcome. These may still be prohibited under the local laws where the conduct takes place.

UK

The Bribery Act covers the bribery of any person to obtain or retain business or a business advantage. Unlike the FCPA it applies to private sector as well as public sector conduct.

The Bribery Act covers both making and taking bribes, and a foreign public official is defined more narrowly than in the FCPA.

It applies to overseas conduct of UK firms and their subsidaries and emphasises a compliance culture with strict liability corporate offences (that is, there is no requirement to prove the company meant to commit the offence).

There is no exception for grease payments, but the Ministry of Justice has released guidance suggesting that prosecutors will exercise discretion where the company:

  • has a clear policy;
  • has issued guidance to staff;
  • is monitoring compliance;
  • is recording gifts;
  • is taking proper action to inform local governments; and
  • is taking practical steps to curtail grease payments.

Where does this leave Australian suppliers?

Both US and UK companies (and their Australian subsidiaries) are obliged to do supplier due diligence to avoid liability for ABAC issues. For the FCPA, for example, this is understood to include doing business with reputable third parties who are acting in compliance with the FCPA, and this leads to contractual requirements for compliance in Australian supply contracts.

Many Australian companies are naturally reluctant to agree, in a contract, to be caught by overseas legislation that would not otherwise apply to them. It is important to recognise, though, that the customer may have very limited discretion on these issues, meaning that these clauses can be a negotiation roadblock.

Possible compromises to offer include:

  • compliance with your own ABAC policies;
  • compliance with the Criminal Code and applicable State and Territory legislation;
  • compliance with detailed obligations stated in the contract which equate to, but don’t refer to, the overseas legislation; or
  • an obligation to assist the customer with its own compliance.

If, as will often be the case, the customer insists on an express reference to the overseas legislation, then you’ll need to review the detail against your existing legal obligations and your own ethics policies.

If you would like advice on a specific ABAC clause, contact us.

Know your customers’ rights

Posted on by influence legal.

In a previous post we looked at the issue of written terms and conditions so dense that it was practically impossible for consumers to understand them.

This issue was highlighted last month when Purple WiFi revealed that it had hidden community service requirements for free WiFi users inside its clickwrap terms.  Only one person claimed the prize that was also concealed in the terms, while 22,000 agreed to clean toilets, hug stray animals and paint snail shells “to brighten up their existence”.


Screenshot – Lululemon website

What about when terms and conditions don’t actually match your customers’ rights at law?

The recent Lululemon issue provides a great example. Lululemon has agreed to pay $32,400 in penalties after the ACCC issued infringement notices relating to misleading representations about consumer rights.

The Australian Consumer Law provides guarantees for faulty consumer goods and services.

Lululemon listed sale items on its website under the heading “We Made Too Much” with the statement “We made a little extra – don’t be shy, help yourself. It’s yours for keeps so no returns and no exchanges”.

Lululemon’s return policy also said “Final sale items like underwear, water bottles + We Made Too Much gear are yours for keeps”.

In addition, staff were alleged to have stated that there was no refund right for faulty products.

The ACCC alleged that these statements were representations that customers were not entitled to a refund or replacement for faulty goods, which is not the case under the Australian Consumer Law.  The consumer guarantee rights provide for refunds in the case of a major failure of goods or services.  This applies equally to full price and sale price products.

Importantly, these guarantees cannot be excluded in consumer transactions, and it’s a contravention of consumer law to attempt to exclude them in your terms and conditions.  However, they can be limited.  Check your terms and conditions to see if they include an up to date statement of your customers’ rights under the Australian Consumer Law as well as any permissible limitations.

If you would like us to review your terms and conditions, contact us.