Month: April 2020

Commercial Dispute Resolution Process

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Coronavirus, lockdown and drought is the perfect storm for commercial disputes.

In most commercial contracts there are dispute resolution clauses which govern how parties are to try and resolve disputes.  A recent High Court case demonstrates the importance of following the dispute resolution process set out in contracts, rather than simply reverting straight to Court.

Taupo Car Club Inc v TMP Limited (2020) NZHC 495
Facts

Taupo Car Club Incorporated (“TCC”) run sports meetings at the Motorsport Park, Taupo (also known as the Bruce McLaren Motorsport Park).  Previously TCC leased the land from the Taupo Regional Council.  In about 2005, TMP Limited (“TMP”) took an assignment of the lease from TCC and under this agreement TMP agreed to develop the racing track (“the Agreement”).  TMP also agreed to pay an annual levy of $20,000 plus GST.  In exchange, TCC were allowed to use the racing track for a specified number of days “free of charge”.

In 2018 the parties modified the Agreement, deleting the annual levy but inserting that TMP can charge for a range of things (catering, pit garages, track cleaning and a participation levy to name a few).  The Agreement does not specify how any of these charges are calculated.

The Dispute

TCC refuse to pay an arbitrary $50 per car per day participation levy which TMP insist is payable.  TCC has cancelled events until this issue is resolved.

The Agreement contains a dispute resolution clause with the following multi-tier dispute resolution process:

  • Initiating resolution (genuine effort to resolve the dispute);
  • Negotiation;
  • Alternative dispute resolution (but not arbitration at this stage);
  • If all else fails, arbitration.

The parties are not strictly following the dispute resolution steps as TCC is filing a statement of claim in the High Court and asking the Court to declare the $50 per car per day levy unlawful.  TCC’s justification for applying directly to Court is that TMP has repudiated the Agreement by refusing to perform its part of the contract, and therefore the dispute resolution process does not apply.

TMP says that the parties are following the dispute resolution process (albeit loosely) and that its actions do not repudiate the Agreement.

The key issue is whether TMP has repudiated the arbitration clause of the Agreement?  If the clause is still operative, the Court must stay (halt) the statement of claim.

Discussion

The relevant law is clause 8 (1) of Schedule 1 to the Arbitration Act 1996.  It states that the Court can stay proceedings if a dispute is under an arbitration clause.  However, if the arbitration clause is null and void, inoperative, incapable of being performed or that there is no dispute between the parties with regards to the matters agreed to be referred, the Court will not halt the proceedings.

Arguments

TCC put forward two arguments to support its position that the Court proceeding should be allowed to continue:

  • TMP repudiated the arbitration clause and TCC accepted it:

    • By filing the Court proceedings, TCC accepted the repudiation.  TCC tried to show this as TMP were not allowing them to hold events free of charge, cancelling events and not engaging with all correspondence from the solicitors for TCC.  Relying on the English case Downing v Al Tameer [2002] 2 All ER (Comm) 545, where parties had a dispute but one of them denied the contract, the Court found that there was clearly no intention to continue dealing with each other and the arbitration clause did not apply.  However, the Judge said that the position of TMP is quite different.  The Court decided that although TMP took a hard line on the participation levy, they did not reach the threshold of “persistent refusal to perform” necessary for repudiation. Neither did they completely refuse to perform the arbitration clause. Therefore, neither the main contract nor the arbitration clause were repudiated.
  • The requirement for arbitration under the arbitration clause does not and has not arisen because the discussions, negotiation and alternative dispute resolution steps have not been done:

    • TCC argued that the requirement for arbitration under cl 5 does not and has not arisen in this case because the preceding steps in clauses 5.1, 5.2 and 5.3 have not been met. The Judge did not like this argument and rejected it. The Court noted the danger of these multi-tiered resolution clauses but said that TCC and TMP had taken steps “broadly in accordance with the substance (of the arbitration clause).”  The Court also noted that there was some fault on both sides for not following all the steps, but that that is not a basis to deny the effect of the arbitration clause.  The Court agreed with what the solicitor for TMP proposed, in that TMP and TCC having agreed on an arbitration evaluation clause, the Court should allow them to fulfil that intention.
Result

The Court stayed the proceedings and the parties will now need to arbitrate.

Word of Caution

The current uncertain economic times are generating commercial friction.  When disputes arise, for example performing commercial contracts, due invoices or property sales that cannot proceed, the first step should be to check the contract dispute resolution clause and try and resolve the dispute in a way that broadly follows this.  As outlined above, Courts may acknowledge that you have followed the dispute resolution clause and stay any proceeding.  It should be noted that at any time the parties can agree to vary the dispute resolution process.  On the other hand, going down a completely different path could lead to a resolution, but later it could be declared invalid.  As TCC found out, with multi-tiered dispute resolution clauses, it is important to check the clause and take the dispute resolution steps one at a time.

If you would like further information, please contact Daniel Shore on 07 958 7477.

COVID-19 – Health and Safety Requirements when Employees are Working from Home

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In these unprecedented times, many employers are still operating under the condition that their employees are working from home.  While employees are no longer working from their employers’ premises, the COVID-19 level 4 lockdown does not negate an employer’s health and safety obligations under the Health and Safety at Work Act 2015.

Those obligations include ensuring their employees’ physical health and safety is upheld and eliminating or minimising any risks to their employees’ mental health.

This article covers initiatives employers can implement into their health and safety policy to show manaakitanga and ensure the safety and wellbeing of employees.

Risk assessment of the home-based workspace

Under the Act, the health and safety threshold for employers is to ensure their employees’ safety “so far as is reasonably practicable”.  Of course, meeting that standard is generally easier when the employees are “in the office” and the employer can monitor and manage the workspace.  During a lockdown, this standard is certainly harder to achieve since employers do not have access employees’ home workspaces.

For those of us lucky enough to be able to continue working at home, there are practical steps that should be taken to ensure health and safety at home.  Ask employees to undertake a risk assessment of their workspace, considering:

  • Is their workspace dedicated to their work needs, away from noise and distractions?
  • Does their workspace accommodate all the necessary equipment needed to perform their job, including their computer and related materials?
  • Does the workspace enable the employee to comfortably sit at a level where both their forearms and feet rest parallel to the floor?
  • Are their monitors at eye level? If not, could those monitors be adjusted by safely propping them up on books or placing them a different way?
  • Is their working environment safe? This includes ensuring:
    • Personal comfort and safety: floors surrounding the workspace are clear and free from hazards, and ensuring the workspace is well-ventilated and temperate;
    • Electrical safety: cords and other tripping hazards are secured under a desk or along a wall, and multi-boards are not overloaded; and
    • Fire safety: fire safety equipment (e.g. an extinguisher), first aid kits and suitable evacuation plan are available should an emergency occur.
  • Are they taking their allocated breaks and practicing self-care?
  • Is there anything in terms of their workload, hours or responsibilities while working remotely that causes stress or other issues?

Once the assessments are conducted, employers and employees should work together to resolve any potential hazards or minimise risks.  Employees have an obligation to ensure their own health and safety as well, so discussing the issues that arise can help employees with this.

Policies and checks

Employers might want to incorporate this into any existing Health and Safety policy, or make tweaks to any existing Working From Home Policy.  Recording the practical things that your business does can help create a paper trail if ever needed, and provides for consistency as well.

COVID-19 constraints mean employers will not be able to physically check employee workspaces, so factor any additional steps/considerations into your policies and procedures.  This should include any risks to mental wellbeing arising from COVID-19 and the nature of the remote working requirements.  In this regard, we certainly recommend that employers provide flexibility where possible and employees communicate openly and frequently with employers about their respective situations.

Employment law assistance

If you need policies prepared or reviewed, or require assistance on how to manage your health and safety obligations at this time, please contact Renika Siciliano or Jerome Burgess.

Renika is a Director and leads our Workplace Law Team. She can be contacted on 07 958 7429.

Jerome is an Associate in our Workplace Law Team and can be contacted on 07 958 7427.

COVID-19 – Key Questions on COVID-19 for Employers

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Since the announcement of the Government’s COVID-19 Wage and Leave Subsidies we have received a number of questions about how they are to be applied.  Advice on specific queries may be required but we address these general pātai below.

Am I eligible for the wage/leave subsidies?

If you are a New Zealand business with an actual or predicted revenue loss of 30% month on month, you are likely to be eligible.  Check the Work and Income website (at https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html) or contact us to work through the details.

Can employers make employees use their annual leave entitlements to cover the period of leave imposed by the lockdown?

Only where this is done in accordance with the Holidays Act and any relevant employment agreement provisions.  Essentially 14 days’ notice of the requirement to take leave needs to be given.

But employers should always be working with employees as best as possible to agree on annual leave being taken.  If there is agreement between the employer and employee, then leave can essentially be taken at any time.  In these circumstances, we see that employers that have strong communication and trust with their workers are often able to find ways to make the best of a bad situation that help employees keep their jobs and help employers stay in business.

With all this talk of reducing employees to 80% of their work/wages, can employers just do that automatically?

No.  Employers still need to act in good faith and follow proper process to make changes to any employment arrangements.  In practice, the effects of COVID-19 will mean that the discussions around changes are often more readily understood by employees and therefore, it may be easier to engage on any proposed changes and reach agreed outcomes.

Any agreed changes to hours or wages, or agreements to use leave in advance, should all be clearly recorded in writing for the benefit of both parties.

How many different ways are there to structure an employee’s work/leave/subsidy arrangements?

Heaps!  Where employers and employees are working together to proactively find solutions, any arrangement is possible – just as long as it does not take away from minimum legal entitlements.  Some employees may agree to use all their annual leave in one go during the lockdown.  Some may drop to 80%, take a day off and use one day of annual leave per week and have the balance of their pay come primarily from the wage subsidy which the employer is receiving.  In dire circumstances, some employees may even take unpaid leave for an extended period of time just to ensure they have a job in two or three months’ time.

What is the deal with Easter and ANZAC holidays during a lockdown?

Again, the Holidays Act still applies and reflects minimum entitlements.  Employers need to pay their employees in accordance with the Act and any relevant employment agreement provisions.  If an employee would normally work on a holiday and does not, then they are entitled to be paid as they would normally be for that day.  If an employee works on a holiday then they will be entitled to time and a half, and possibly a day in lieu.

We appreciate that there will be a myriad of different scenarios out there and each one needs to be assessed against the above starting point.  COVID-19 does not change any minimum entitlements for employees.  Any employer who does not comply with the law in this regard, or looks to be overly ‘clever’, may face issues down the track.

Be kind to one another and act in good faith.  He waka eke noa.

If you need assistance on any of the employment issues related to COVID-19, please contact Renika Siciliano or Jerome Burgess.

Renika is a Director and leads our Workplace Law Team. She can be contacted on 07 958 7429.

Jerome is an Associate in our Workplace Law Team and can be contacted on 07 958 7427.

COVID-19 – Basics of the COVID-19 Wage and Leave Subsidies

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Business owners are understandably concerned as to the implications that COVID-19 will have on their business and employees, and how to navigate through the uncertainty.  In response, the government have issued the Wage and Leave Subsidies to support the economy and business community through difficult times.

We recommend referring directly to the Ministry of Social Development website for the details of the subsidies given they change often and it is up to employers to ensure that any declaration provided in applying for the subsidies is accurate.

The basics

Employers can only access one subsidy at a time for each employee – so look closely at what you need the subsidy for.

Either way, to access the subsidies, employers need to show a 30% decline in actual or predicted revenue month on month, between January and June 2020, due to COVID-19.  This is a minimum requirement in order to access the Government COVID-19 subsidies.

For both subsidies, employers must declare:

  • They have taken active steps to mitigate the impact of COVID-19 on their business;
  • They will continue (on their best endeavours) to retain and employ employees at least 80% of their income for the subsidy period;
  • If an employer is not in a financial position to pay the relevant employees at least 80% of their normal income, the employer must at the very least pass on to their employees the full subsidy; and
  • They have discussed the application with the named employees, and those employees have consented to the information provided about them in the application.

The subsidies are paid out for each applicable employee at either:

  • $585.80 per week for each fulltime employee (working more than 20 hours per week); and/or
  • $350.00 per week for each part-time employee (working less than 20 hours per week).

Employers must notify the Ministry of Social Development if their situation changes during the period that a subsidy has been received for and will be required to pay back any amounts which they are no longer entitled to.

So which subsidy do you apply for?

For non-essential services, employers may need to access Government support to keep the business going and keep staff employed.  These businesses should consider applying for the Wage Subsidy if they are based in New Zealand with employees legally working here.

The Wage Subsidy is a one-off lump sum payment for employers (including sole traders and self-employed) to enable them to retain their employees for the next 12 weeks.  That is the underlying purpose of the Wage Subsidy – to help people remain in their jobs, while helping businesses stay afloat.

If you have essential workers who cannot work from home and, due to Ministry of Health guidelines, must stay home (e.g. at risk employees), the Essential Workers Leave Support payment may be available.  This is a one-off lump sum payment to enable essential businesses to cover employee wages for 4 weeks.  A further 4 weeks’ cover can be sought by separate application in the fourth week, if needed.

This is designed to help at risk employees keep themselves and others safe, despite the fact that their business may still be operating as an essential service.  Particularly where there are no other viable options for other support (e.g. the employee could elect to take sick or discretionary leave instead of receiving the leave support payment).

Employment law assistance

If you need assistance on applying for or managing the subsidies, please contact Renika Siciliano or Jerome Burgess.

Renika is a Director and leads our Workplace Law Team. She can be contacted on 07 958 7429.

Jerome is an Associate in our Workplace Law Team and can be contacted on 07 958 7427.

COVID-19 – Can we use electronic signatures to sign documents?

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Electronic signatures have been considered valid by New Zealand law for some time.   Faced with the challenges of the Covid-19 crisis and ongoing restrictions on our ability to travel and meet with others, it is likely we will see widescale adoption of electronic signatures as parties seek to progress matters remotely. However, the use of electronic signatures has not yet completely replaced the practice of signing documents by hand.  This article summarises the law on electronic signatures, and discusses the differences (and advantages) of “digital signatures” versus other forms of electronic signature.

The validity of electronic signatures

So long as certain requirements are met, an electronic signature is just as valid as a written signature under New Zealand law.

Part 4 Subpart 3 of the Contract and Commercial Law Act 2017 (the “Act”) regulates the use of electronic technology for legal purposes.  It aims to promote functional equivalence (meaning the law will not discriminate between paper-based transactions and electronic transactions) and technological neutrality (meaning the Act does not specify or favour any particular technology platform).

For an electronic signature to be valid, the Act requires three core elements: (1) identification; (2) reliability; and (3) consent.  To elaborate further, an electronic signature meets the legal requirement for a signature (including a witness’ signature) if:

  • It adequately identifies the signatory (or witness) and adequately indicates the signatory’s approval of the information to which the signature relates (or that the signature has been witnessed);
  • It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature (or witness’ signature) is required; and
  • The person receiving the signed information (or requiring the witnessing) consents to receiving the signature in electronic form.

For the purpose of the Act, an electronic signature will be deemed reliable if:

  • The means of creating the electronic signature is linked to the signatory and to no other person;
  • The means of creating the electronic signature is controlled by none other than the signatory;
  • Any alteration made to the electronic signature after time of signing is detectable; and
  • Where the requirement for a signature is to provide assurance as to the integrity of the information, any alteration made to that information after the time of signing is detectable.
Are there any exceptions?

There are some significant general exceptions to the application of the part of the Act that deals with meeting legal requirements by electronic means.  Some of the key exceptions include:

  • Affidavits, statutory declarations or other documents given on oath or affirmation;
  • Powers of attorney or enduring powers of attorney; and
  • Wills, codicils or other testamentary instruments.

These (and other) important categories of document must still be on paper.

Other documents common in a law office that have always required written signatures include bank documents and authority and instruction (A&I) forms.  While it remains to be seen whether lending institutions will collectively update their current policies regarding written signatures and witnessing in light of the Covid-19 crisis, we have already seen new guidance issued in relation to land transfer documents.    

In its Authority and Identity Requirements for E-Dealing and Electronic Signing of Documents Interim Guideline 2020 published 30 March 2020, Land Information New Zealand (“LINZ”) acknowledged the validity of electronic signatures under New Zealand law and permitted their use with land transfer documents, provided that the electronic signature complies with the requirements of the Act and that the signature is a “digital signature” as opposed to an image of a signature simply inserted onto a document.  Digital signatures are discussed in more detail below.  Practitioners will also have to ensure that an audit record of the digital signing log can be produced, and that the system provides sufficient assurances so that the required certifications can be made.

Digital signature software

The most technologically secure signature (and the form of electronic signature required to comply with the new LINZ guidance) is a digital signature.  A digital signature is a form of encryption technology created and verified by code, and provides a platform to build a secure electronic signature.  Its purpose is to provide verification of the authenticity of a signed record.  Digital signatures will provide a log of the signing activity and, once a signature has been made, that signature and its information, as well as the contents of the document, are locked and unable to be edited or tampered with.

Examples of popular digital signature technology packages include Secured Signing and RightSignature.  This software is not available free to users, and in some cases the cost of obtaining and maintaining a digital signature may not be viable/desirable for lower value and/or lower risk transactions.  However, where a document of significance is to be signed by electronic means, a digital signature offers the highest level of security and reliability, provided the statutory requirements have also been met.

An electronic signature that is not a “digital signature” is an electronic symbol or reference that captures the user’s intent, and is commonly used in email software as a means of signing off.  These simple forms of electronic signature are much less secure than digital signatures and more vulnerable to being challenged on the basis of reliability.

Conclusion

New Zealand law provides a mechanism for the use of electronic signatures on a variety of legal documents.  In most circumstances an electronic signature is a valid way of creating a legal signature where a handwritten written signature would otherwise be used.  For the purposes of security, it is best practice to use encrypted signing software.  There are some significant categories of document where electronic signatures are not yet recognised by the law.  Regardless of the preferred method for signing agreements (whether by hand or electronically), appropriate care should be taken, and advice sought, before assuming legally binding obligations.

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

COVID-19 – What happens to my commercial lease?

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As New Zealand slowly becomes accustomed to our new normal of COVID-19 Level 4 Government restrictions, landlords and tenants are now beginning to wonder what this may mean for their leasing arrangements.

What does my lease say?

Those who have entered into leases using the Auckland District Law Society Sixth Edition standard Deed of Lease (generally, leases entered into since December 2012) will, unless amended via negotiations at the time, have included in their lease standard clause 27.5, which provides that if the tenant cannot “fully conduct” its business from the premises because of an emergency, then a “fair proportion” of the rent and outgoings will cease to be payable from the time the tenant became unable to gain access to the premises to fully conduct its business.

Is this an emergency?

The definition of “emergency” in the standard ADLS lease includes an epidemic.  It has been generally agreed among the legal community that clause 27.5 is triggered for most businesses, with the possible exception of essential services, on the basis that the tenant is unable to fully conduct its business from the premises during the Level 4 lockdown period.

What is a “fair proportion”?

What is less certain is what constitutes a “fair proportion” by which to reduce a tenant’s rent and outgoings – and the opinion will no doubt be different depending on whether you are looking at the issue through the eyes of the tenant or the landlord.

There is no standard answer here.  What is a “fair proportion” in each case will depend on the particular circumstances of the tenancy.  As most lease disputes are resolved via arbitration or some other alternative dispute resolution, there is also no case law on this issue to guide us.

Arguably, this is a valuation issue – and a discussion with your valuer could indeed be helpful.  In our opinion, the interests and rights of both the landlord and the tenant need to be balanced when negotiating any reduction:

  • Presumably the tenant is still storing items in the premises, albeit that it is not fully carrying on its business from the premises. This will be especially relevant if all or part of the tenant’s “business use” stated in the lease is warehousing, storage or similar.
  • The tenant may have a specialist fit-out, and branding on the premises which remains during the lockdown.
  • The tenant has the benefit of being able to immediately commence business from the premises once the lockdown ceases; the landlord cannot re-let the premises.
  • The landlord still needs to pay its mortgage or similar.
  • But importantly, in most situations the tenant will simply be unable to trade.

One thing is clear, whether you are the landlord or the tenant: early discussion around this issue is important.  The team at McCaw Lewis are happy to help with these discussions as needed, and are operating fully from our homes during the lockdown period.

What if my lease does not have a “no access” provision?

Your lease may not include a “no access” provision if it was prepared on an earlier version of the ADLS form (Fifth Edition and earlier) or if it was prepared on the Sixth Edition and the provision removed during negotiations between the parties.

Where a tenant is unable to trade during the COVID-19 Level 4 Government restrictions and, as a result, is struggling with its obligations under the lease, we are encouraging the parties to work together in good faith to find a solution that allows business to resume as normal as soon as the restrictions are lifted.  Solutions might include a reduction of a “fair proportion” of rent, even though the lease does not strictly provide for one, or deferring rent until the restrictions are listed.

Most landlords will not want to see their tenant’s business fail.

If you need assistance with any commercial lease issues, please contact Laura Monahan or Dale Thomas.

Laura is the Managing Associate in our Commercial Team and can be contacted on 07 958 7479.

Dale is the Managing Associate in our Property Team and can be contacted on 07 958 7428.

Contact us

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