Month: April 2015

Fair Trading Amendment Act

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Enacted in 1986, the purpose of the Fair Trading Act is to encourage competition in trade, while protecting consumers from misleading and deceptive trade practices.  2014 saw a number of significant changes in New Zealand consumer law, specifically, the introduction of the Fair Trading Amendment Act 2013 (“the Act”).

We set out the changes below.

Unsubstantiated representations

The new Act has introduced a provision that prohibits traders from making unsubstantiated representations.  The purpose of this change is to discourage traders from making claims that are untrue.  A Business must be able to ‘back up’ its claims before its product goes to a consumer.  A representation is unsubstantiated if the person making the representation does not, when the representation is made, have reasonable grounds for the representation, irrespective of whether the representation is false or misleading.

Contracting out of the Act

Previously, a business was unable to enforce any agreement that was contrary to its obligations under the Fair Trading Act.  The new Act gives businesses the ability to contract out of certain Fair Trading Act obligations in their dealings with other businesses.  Businesses may only contract out of the provisions relating to misleading and deceptive conduct, and representations.  Both parties must agree to contract out of the provisions, and the agreement must be in writing.

Unfair contract terms

In March 2015, the Court, on application by the Commerce Commission, will be able to declare terms in some consumer contracts to be unfair contract terms.  For further information on this change, please see our article on the new section 26A.

Product safety

The Act now includes a provision for voluntary recalls of products that are found to be unsafe and increases the powers of the Commission relating to this.  The Minister of Consumer Affairs may require a supplier to recall goods, disclose information or provide a repair, replacement or refund, if it was reasonably foreseeable that use or misuse of a good could cause injury.

Unsolicited goods or services

Under the Act, it is an offence for a person to assert or appear to assert that they have any right for payment for unsolicited goods or services.  An unsolicited good or service is a good or service provided to a person when that person has not asked for that good or service.  A sender of unsolicited goods must inform the recipient of their rights and obligations.  The recipient is not obliged to pay for unsolicited goods, his or her only obligation is to make the goods available for collection by the sender within 10 working days after the goods are delivered.  If the goods are not collected within that period, the recipient takes the goods as an unconditional gift.

Layby sales

The Act now regulates layby sales, however these new provisions only apply to agreements entered into after 17 June 2014.  The Act provides that a layby sale must be in writing, and a copy of this is to be given to the consumer.  Information relating to cancellation of the sale, including any fee to be charged and how this is calculated must be also be provided.

Uninvited direct sales

An uninvited direct sale is when a business, or their agent, approaches a consumer uninvited at their home, workplace, or over the telephone.  The Act replaces the Door to Door Sales Act 1986 which previously regulated door-to-door and telemarketing sales.  Under the  Act, a consumer has  a five working day period from receipt of the sale agreement (or at any time if no agreement is given) in which the consumer may cancel the contract.  The consumer must be given oral notice of the cancellation provision and a written copy of the sale agreement before agreeing to the transaction.

Extended warranties

Regulation relating to extended warranties has been introduced to allow for greater consumer protection.  When offering extended warranties, suppliers must set out the existing rights of the consumer and what extra rights the extended warranty will provide.  There is also a regulated cooling off period and liability for the actual warranty provider as well as the supplier who arranged the extended warranty.

Auctions

The auction process is now specifically regulated under the Act.  Auctions, for the purpose of this section, are conducted by auctioneers and a fee or commission is charged.  Online auction-style sites, such as TradeMe are excluded.  This section makes it clear how auctions are to be run and introduces new rules relating to vendor bidding.  The Consumer Guarantees Act 1993 will now also apply to goods and services sold at auctions and by tender.

Conclusion

The Fair Trading Amendment Act is a key development in New Zealand consumer law and seeks to modernise the legislation relating to the sale and purchase of consumer products.  It will also align our consumer standards with similar Australian legislation as many of our goods and services cross the Tasman.

The Act is a positive change to consumer law, it has not only strengthened consumer rights and created bold new obligations on businesses in trade, it has also provided the Commerce Commission with the tools needed to successfully enforce the Act.

The Fair Trading Amendment Act will significantly impact most businesses.  We suggest that all businesses review their current procedures to ensure that they comply with the changes.  Please contact one of our Team for assistance should you have any queries.

If you would like further information please contact Laura Monahan on 07 958 7479.

Part two: New financial reporting standards – charities

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Introduction

The new financial reporting standards are now in place (as at 1 April 2015) for registered charities.  Part one of this series summarised the different tiers of the reporting standards, and how to move between tiers.  This part outlines the non-financial information which is required to be included in the reports.

Entity information

The new reports must contain a general descriptive summary to provide information concerning a charity’s activities including what it does and how it is organised.  This is necessary to assist the public’s understanding and to help with the interpretation of the performance report.  This should include the following details:

  • The charity’s name, type and legal basis (for example, charitable trust or incorporated society);
  • A purpose or mission and the key difference or awareness the charity is trying to achieve;
  • General information on the structure of the charity’s operations.  This should include governance arrangements and details of those holding governing and managerial positions in an organisation;
  • A brief overview of the charity’s main sources of income and resources (as a brief introduction as this is covered further in later sections of the financial report);
  • The main methods used to raised funds (if applicable);
  • Details of  volunteer numbers and information about reliance on any goods or services provided to the organisation;
  • Any additional information that may assist the public to gain an overall understanding of the particular charity.

The above points are required only for the purpose of a summarised introduction to the financial reports.  The details of each point are required to be expanded on in the financial performance report headings, set out in more detail below.  The amount of detail required will depend on the size of the charity and the complexity of its operations.

Statement of service performance

A charity should provide mainly non-financial information under this heading.  This information is required to help understand the activities of the entity during a financial year. This can be broken down into two main sections:

  • Outcomes: what a charity is seeking to achieve in terms of their impact on society.  This is closely related to its mission or purpose as outlined in the entity information above but this section should aim to provide further specific details on its short to mid-term goals.
  • Outputs: this section should provide quantification of the goods and/or services that a charity has delivered in the current year.  A charity is not expected to provide detail on every output in a year, rather only the outputs that are significant to performance.
Statement of financial performance

The performance report will need to include financial statements that show details of a charity’s revenue and expenses (balance sheet) and the resulting surplus or deficit from each financial year.  Revenue, for the purposes of financial statements, is income other than that received from borrowings or asset sales.  Examples of revenue may include public donations, philanthropic grants, donations, membership fees received, and proceeds from goods and services to a charity on its own account.  Expenses are regarded as day to day expenses of an organisation such as petrol, rent, office supplies, advertising, salaries/wages and power.  Capital expenses are not required to be reported.  These are fixed asset purchases of significant value to an organisation and that last longer than 12 months.  For example, motor cars, computers, furniture, as well as additions to existing assets such as buildings or land, all of which will not need to be reported.

Statement of financial position

Charities will be required to provide details regarding their total current assets and liabilities.  This is essentially a snapshot of what the charity owns and owes and the value of its member’s financial interest in the charity.  “Current” for the purposes of the report means assets or liabilities that are expected to be cashed within the following reporting period.  For example bank accounts, cash, debtors and prepayments, inventory, property, equipment and investments.  Liabilities that are required to be reported may include bank overdrafts, creditors/accrued expenses, employee costs payable, unused donations or grants and any loans owed by a charity.

Statement of cash flows

Cash flow statements are required to inform those interested about a charity’s cash movements during a financial period.   A statement of financial performance indicates the revenue and expenses while a statement of cash flow provides those interested with information around the timing of transactions.  A charity’s cash flow statement is comprised of payments and receipts from operating and investment/financing activities.  For instance a charity will need to report on receipts from operating activities such as donations, fundraising, fees, subscriptions, goods and services and dividends and any operating payments made to suppliers and employees.  Investment receipts may include things like property, equipment or capital from members while investment payments comprise payments to acquire property, equipment or capital repaid.

Next steps for registered charities

While the financial side of the reports will not be different to what was done previously by many charities, the non-financial aspects of the new reports will be.  No doubt some charities may find the extra steps time consuming where resources are already stretched.  Other charities may see the changes as an opportunity to reflect on the overall purpose of the organisation and how it is achieving or attempting to achieve that purpose.  This reflection may lead to a refocusing of the activities long-term.  In any event, the information will be available to the public, funders and other stakeholder, and may influence how charities are supported by these stakeholders.

This article is part two of a three part series.  The final article in this series will summarise the rules for related entities and provide guidance as to when consolidated accounts are required.

If you would like further information please contact Jessica Middleton on 07 958 7436.

What’s mine is yours, right?

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Introduction

The Property (Relationships) Act 1976 (“the Act”) sets out the law governing the distribution of relationship property on separation.  The starting point in any relationship property dispute is equal sharing between the two parties.  However, a contracting out agreement may be entered into by the parties and this will take priority over the Act (historically known as a “prenuptial agreement”).  That said, entering into such an agreement demands caution; there are strict rules and conditions that must be satisfied in order for the agreement to have any legal footing.  If the correct procedure is not followed, the agreement may well be set aside.

Requirements for a valid agreement

For an agreement to be valid regardless of what it may be trying to achieve, a specific procedure must be followed when the agreement is drawn up:

  • The agreement must be in writing and signed by both parties;
  • Each party must have independent legal advice;
  • The signature of each party must be witnessed by a lawyer;
  • The lawyer who witnesses the signatures must certify that the implications of signing have been explained to both parties.

As these factors indicate, an agreement drawn up at the kitchen table will not be enforceable regardless of the intention or agreement of the parties.  This is to ensure that both parties understand and agree to exactly what they are signing, because often it can be overlooked when parties are caught up in the emotion of the relationship.

You have a valid agreement – but is it enforceable?

Assuming the procedural requirements above are followed, on the face of it the agreement will be valid.  However the question then becomes will it stand the test of time?  Relationships are not static and the assets and liabilities of each party will continue to develop.   A contracting out agreement should be treated as a living document, constantly evolving, and therefore should be updated as you would your will.

An agreement made in light of current circumstances will not necessarily be relevant five years later if the position of the parties has changed so that it would be a “serious injustice” to uphold the agreement.  As earning capacity, assets and debts change, the agreement may become less and less fair, which may give rise to a serious injustice.   However the passing of time in itself will not invalidate an agreement; other circumstances must be taken into account.

In making an assessment of whether the agreement will be upheld the court will have regard to:

  • The provisions of the agreement;
  • The length of time since the agreement was made;
  • Whether the agreement was unfair or unreasonable at the time it was entered into;
  • Whether the agreement has become unfair or unreasonable in light of changes in circumstances;
  • The fact the two parties wished to achieve certainty with the agreement;
  •  Any other matters the Court considers relevant.

Taking into account all of these factors that may be relevant, if the Court is convinced that the provisions have given rise to a serious injustice then the agreement will be set aside and the equal sharing provision under the Act will apply.

One particularly common consideration is whether the agreement has become unfair or unreasonable since the agreement was entered into.  Whether or not the change in circumstances was foreseen will also be relevant.  Not every injustice will entitle a Court to set aside an agreement.   There must have been at the time of entering into the agreement, or subsequently because of a change of circumstances, unfairness or a lack of equity of a substantial kind.

What is a “serious injustice”?

When undertaking its assessment the Court is essentially looking for a significant change in circumstances of one party compared to the other, thus making the agreement that was entered into significantly unfair at the time of separation.  A common example is where one party is unduly forced to sign an agreement that the party is not happy signing, that is to their own detriment or the others benefit.  There must be a mutual agreement between the parties.

An example is the Family Court decision of M-LA v AVW.  In this case, due to the agreement to keep all assets separate, the result would have left the wife with $4,387.00 in assets and the husband with $289,903.00. The reason was because the wife had given up work in order to care for a child.  The Court held the agreement caused a serious injustice, as the agreement “went too far in depriving the wife of any realistic opportunity of accruing relationship property”.   The structure and changes to the relationship over its course invalidated the agreement, showing the importance of keeping the agreement updated and relevant over the course of the relationship, regardless of how long the relationship is expected to last.

Conclusion

Continuing to update a contracting out agreement over the course of a relationship is vital.  Although it may seem costly, as a percentage of the assets you are protecting, the legal fees are minimal and it is best to be safe and not risk having the agreement pulled apart at the mercy of the Court.   The agreement should be updated every few years or whenever there is a significant change in the dynamic of the relationship.

If you would like further information please contact Renika Siciliano on 07 958 7429.

Residential care subsidy applications and trust reversals

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Introduction

The 2011 abolishment of gift duty means that property or money of any value can be freely gifted by natural persons without any duty imposition.  However, gifting limits allowed under the Social Security (Long-term Residential Care) Regulations 2005 remain unchanged and therefore gifting property to a Trust or third party (or company) must be done with caution.  In some instances, where a home has been transferred to a Trust, the question is whether an applicant’s home should remain in the Trust, or be returned to the settlor prior to the application for the rest home subsidy.

The gifting limit

These limits are $6,000 per 12 month period in the five year gifting period before the date of assessment for a residential care subsidy, and $27,000 per year for each 12 month period prior to this. Where an applicant for a subsidy has previously gifted more than either of these limits, eligibility may be affected when applying for a subsidy.

The Court of Appeal in B v The Chief Executive of the Ministry of Social Development [2013] held that these gifting limits apply per couple.  That is to say, if a couple gift a total of $54,000 ($27,000 each) to a Trust or third party, half of this may be included (i.e. “added back”) in an assessment by the Ministry of Social Development (MSD) if the gift is made outside the five year gifting period.  A gifting programme in the five years prior to the application being made can be entered into.  The yearly (12 month) limit imposed here is $6,000.

A failure to accurately disclose all gifting may well result in a finding of “deprivation”. The MSD will take deprivation into account in an assets assessment, so it is vital that assets are disclosed. Deprivation may also be found where assets are sold at undervalue, finance is restructured so as to reduce the income or assets of the applicant, or ownership of property is transferred from the applicant to a third party.

Threshold and eligibility

Current Government policy is very much along the lines that if an individual has the resources to support him/herself in relation to residential care then he/she will not receive assistance from the State.  The MSD will assess each person on the basis of the value of his/her assets and his/her ability to pay.

There are currently two asset value thresholds for an applicant aged 65 years or older, which will render an applicant eligible for a residential care subsidy:

  • Threshold A is $218,423 (including the value of the applicant’s house and car), and may apply if the applicant is single, or if both the applicant and partner are in long-term residential care;
  • Threshold B is $119,614 (not including the value of the applicant’s house and car), and may apply for a couple if only one spouse is in long-term residential care.  A couple eligible under threshold B will however, have the option of opting for threshold A instead, if they wish.

Certain assets are always excluded from an MSD assets assessment: personal belongings, such as clothing or jewellery; household furniture and effects; and pre-paid funeral expenses up to $10,000 in a recognised funeral plan.

Effect on a trust

These gifting limits create the anomaly that a settlor of a Trust may end up in a worse position having his/her home in a Trust, than that which would apply if they had never gifted away the property in the first place.  If the value of the gifting is above the limits set out above, this will be added to the applicant’s asset value when the assessment is conducted.  If the value is above threshold A, the applicant will not be eligible for a residential care subsidy.  An applicant in this situation is also unable to claim under threshold B for the personal home exemption, as the home is owned by the Trust.

There is however a silver lining: if “but for” the gifting of the home to the Trust, the applicant would have been below threshold B, a Trust reversal may be initiated.  This means ownership of the property in the Trust will be distributed back to the settlor of the Trust.  The settlor will be in the same position he or she was in prior to the gifting.  Such a situation will only arise if the applicant would have otherwise been under the threshold B value ($119,614), when totalling the value of his/her assets excluding home and car.

Trust income

Aside from the assets assessment of the individual, MSD will also consider the income of the applicant in an income assessment.  Income from a trust is considered to be a form of deprived income. “But for” the Trust – the income would have been available to the settlor(s) of the Trust.  The current income thresholds for the year 1 July 2014 to 30 June 2015 are:

  • Single applicant: $963 per year;
  • Couple, if both are in care: $1,925 per year;
  • Couple, if only one is in care: $2,887 per year.

MSD will look at the deprivation by the applicant settlor and may (and in most cases will) “add it back” to the financial means assessment.  This means that Trust income will usually be taken into account in any income assessment.  The MSD position is that an applicant should take all reasonable steps to maximise his/her income.

Conclusion

It is crucial that every applicant understands the range of choices available, and the implications of each of those choices, not only in the short term but in the later stages of life. Before deciding to gift property to a Trust, it is important to consider the size of the gifting, and how gifting will affect eligibility for a residential care subsidy. It is important to seek legal advice on the best approach to gifting assets, as future planning is essential, taking into account the implications of each option.

If property has already been transferred to a Trust, legal advice should again be sought to ascertain whether a Trust reversal should be commenced.  A number of factors need to be considered, including: what assets (other than the house) the Trust has; what assets the applicant has in his/her personal name (for the purpose of a threshold calculation); wider trust obligations; and the other implications of reversing the Trust. Other benefits in retaining a Trust may of course be relevant. All of these factors need to be taken into account to ensure that an informed decision is made.

If you would like further information please contact Gerard Rennie on 07 958 7422.

Landlocked Māori land

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The Māori Land Court (“the Court”) has the ability to order reasonable access to landlocked Māori land.  This article examines the considerations the Court takes into account when determining whether to grant access, what the Court can actually do when faced with an application for access, and how McCaw Lewis can help.

Te Ture Whenua Māori Act 1993 (“the Act”), which governs Māori land, recognises that land is a tāonga tuku iho of special significance to Māori and therefore the retention of it should be promoted, and the occupation, development and utilisation of it facilitated.

It is with this philosophy in mind that the Court has the jurisdiction to order reasonable access to Māori land, being either Māori freehold land or general land owned by Māori that ceased to be Māori land under the Māori Affairs Amendment Act 1967, where that land does not have reasonable access i.e. it is surrounded by other blocks and has no road, driveway or easement leading to it.  The key consideration is whether there is “reasonable access” to the block.  In some situations access to a block by boat may be considered reasonable where in other cases it may not be considered reasonable.  Each application is assessed on a case by case basis weighing up all the circumstances.    Therefore, whilst informal arrangements can be made with neighbours to access your land, an application to the Court is the only way this access can become legal.

With this in mind, and given up to a third of Māori land was landlocked in 2000, the jurisdiction of the Court to unlock the land is particularly important.

Considerations of the Court

Whereas in the past applications to unlock Māori land had to be made to the High Court, since an amendment to the Act in 2002 applications are made to the Māori Land Court.  This, it is hoped, makes it easier for owners of landlocked Māori land to bring their applications before a less formidable and less costly court.  Under the Act, when considering an application, the Court must have regard to a number of factors:

  • The nature and quality of the access (if any) to the landlocked land that existed when the applicant purchased or otherwise acquired the land;
  • The circumstances in which the landlocked land became landlocked;
  • The conduct of the applicant and the other parties, including any attempts that they may have made to negotiate reasonable access to the landlocked land;
  • The hardship that would be caused to the applicant by the refusal to make an order in relation to the hardship that would be caused to any other person by the making of the order;
  • Other factors where the access would cross conservation land or a railway line; and
  • Such other matters as the Court considers relevant.

Of those matters we consider the following in more detail.

The nature and quality of the access (if any) to the landlocked land that existed when the applicant purchased or otherwise acquired the land

Since the establishment of Māori freehold land titles legislation has sought to ensure that special succession rules exist in order that such land remains with the whānau upon the death of an owner.  Therefore, today, most owners of Māori land hold title through succession and not through purchase.  In light of this, it is unlikely that the inherited nature of access will be an impediment to owners seeking to unlock Māori land.

The circumstances in which the landlocked land became landlocked

Generally, given Māori land was landlocked through no fault of the owners (through historical partitions or because of public works takings) it is unlikely that owners applying for reasonable access will be denied upon this consideration.

The hardship that would be caused to the applicant by the refusal to make an order in relation to the hardship that would be caused to any other person by the making of the order

The Court has found that, if it comes to the view that the benefits for the owners as a whole outweigh the detriment to the landowner affected by the application, or that the detriment can be compensated for or dealt with in some way, then the Court may look favourably upon the application, provided that all other requirements have been met.

In Houpapa v Woods – Taharoa A Sec 6D No 2 Block (2012) 44 Waikato Maniapoto MB 167 (44 WMN 167) the Court considered these matters closely.  In that case the applicant had applied for access over a neighbouring block as there was no access by road.  There was access by boat and by foreshore however the applicant gave evidence that these methods were expensive and difficult.  Despite the application being dismissed as only one of a number of owners had applied (which did not equate to the statutory requirement that “the owners” make the application), the Court provided a comprehensive decision which considered each of the factors closely.  There the Court set out a number of matters the owners would need to address if they were to make an application for access in the future including:

  • When determining what was considered “reasonable access” the Court took into account the purposes which the land was used for as well as what physical access is reasonably necessary in this case.  Here, the Court indicated that it would need further evidence as to what the intended land use would be before making an assessment as to the kind of access that was reasonably necessary.  It did however note that access by boat or along the foreshore was sufficient for recreational uses of the block, including visiting wāhi tapu that may be on the block;
  • Both the applicants and neighbours raised misconduct on the part of the other party.  The Court found that none of the evidence produced for either side was sufficient for it to determine who was at fault, or who was most at fault.  Regardless the Court found that such misconduct by each party, even if proven, would not be sufficient on its own to determine the application one way or the other, although it might weigh with other factors;
  • The applicant alleged he would suffer hardship if the application were not granted due to the difficulty he would have in establishing a proposed economic farm on the property if he did not obtain easier access.  The Court was sceptical about the proposal and noted a lack of business plan, feasibility study or other evidence to show there would be economic benefit concluding that any future application would need to address these matters if it were to have a chance of success.

The above factors highlight just how unique every application for access to landlocked Māori land is and while there are some general factors the Court will look at when faced with such an application, each case is determined on its merits.

What can the Court do?

If, after considering all matters the Court is of the opinion that reasonable access should be granted to the landlocked land, the Court may create an easement (which gives you permanent permission to use a piece of land for access) or transfer another piece of land to the owners of the landlocked land.

When granting access the Court can also set such terms and conditions as it thinks fit, most of which involve costs to the applicant, including payment of compensation or exchange of land with another person, the fencing of any land and the upkeep and maintenance of any land or fence.

How can McCaw Lewis help?

McCaw Lewis can assist you to determine whether your land is landlocked, negotiate with neighbours for access and, if necessary, make an application to the Court.

If you would like further information please contact Kylee Katipo on 07 958 7424.

Contact us

HAMILTON OFFICE

P. 07 838 2079

E. reception@mccawlewis.co.nz

Level 6, 586 Victoria Street
Hamilton 3204
New Zealand

TE KŪITI OFFICE

P. 07 878 8036

E. reception@mccawlewis.co.nz

36 Taupiri Street
Te Kūiti 3910
New Zealand