April, 2018 - Parry Field Lawyers

Consequential loss is a loss that arises as a result of a breach of contract. In contracts, parties often exclude liability for consequential loss which is provided for in an exclusion clause.

If you are entering into negotiations for a contract, it is important that you understand what consequential loss is, when damages can be claimed for consequential loss, and how to effectively exclude liability.

A question that arises when dealing with consequential loss is how far you can actually go in claiming damages for a consequential loss? Where do you draw the line?

Say, for example, that Mrs Smith has purchased a freezer for her catering business from Mr Jones, which she has filled with ice cream. This ice cream is for a stall that she has been running at the local fair for a few years now, and is a favourite for many fair-goers. Unfortunately, the freezer broke the day before the fair causing all of the ice cream to melt and meaning that Mrs Smith cannot serve ice cream at her ice cream stall and would therefore not make any profit. The lack of ice cream at the stall meant that there were a lot of grumpy children, and grumpy children meant grumpy parents which resulted in a lot of backlash on the fair.

The following year, the fair suffered a 50% reduction in attendance as a direct result of the grumpy children and the lack of ice cream, and the organisers then had to cancel the fair in subsequent years and claimed the amounts they lost from poor Mrs Smith.

Mrs Smith now wants to sue Mr Jones in damages for the loss of profit and the amounts claimed by the fair organisers, which were losses resulting from the breaking of the freezer. But how far can Mrs Jones actually go in claiming these damages? Let’s look at some cases and see what they say.

Hadley v Baxendale

In an 1854 English Court of Exchequer decision Hadley v Baxendale, Alderson B famously established the remoteness test, which is a two-limb approach where the losses must be:

Considered to have arisen naturally (according to the usual course of things); or
Reasonably considered to have been in the contemplation of the parties at the time when they made the contract as a probable result of the breach of it.

Alderson B said that in order for a party to successfully claim damages on the grounds of consequential loss, the loss must fall into either of those two categories.

McElroy Milne v Commercial Electronics

In 1992 in New Zealand, Cooke P said this test no longer applied in modern law, and he established a multi-factorial discretionary approach in which a range of factors are to be taken into consideration, including foreseeability.

Transfield Shipping v Mercator Shipping (The Achilleas)

This is more recent English House of Lords decision concerning the late return of a ship. In this case, the judges established that while Hadley v Baxendale is generally a good approach, there are certain circumstances where it may not necessarily apply.

These judgments create confusion in determining what actually constitutes a consequential loss and where to draw the line. Generally speaking, however, the loss must have been in the contemplation of the parties for it to amount to a consequential loss.

A way forward: What should the clause say?

In our view there are three ways forward:

No exclusion of consequential loss – this means that the parties are leaving it up to the interpretation of the Courts;
Include a general consequential loss clause; or
Incorporate a bespoke clause for the specific contract.

Where possible, we recommend a general exclusion of consequential loss with some examples of specific situations (essentially a bit of both 2 and 3 above).

Other options available:

Remember that a contract is ultimately a give and take from each side and another way that a party can limit liability in a contract is by putting a total cap on their liability.

Another option is that a party could limit liability by stating a time period in which the other party can bring a claim. A small company negotiating with a large multinational will have less scope and a template agreement is much more difficult to get changes made to it.

Ultimately, whichever route is taken depends on the preference of the parties, and their negotiations will also play a role in determining what liability is excluded.

Every situation is unique and how much Mrs Smith could claim for will depend on what the contract said and the circumstances of the situation. Whatever your scenario, we have a dedicated commercial team at Parry Field Lawyers who can give you personalised advice on all aspects of your business ventures. This article is also based on a more detailed analysis of the cases mentioned above – contact us if you would like a free copy of that.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Kris Morrison or Steven Moe at Parry Field Lawyers (348-8480).

If you are in start-up mode then you have plenty to think about – so when it comes to setting up your Company you may be wondering what is essential and what is not? In this article we talk about a Constitution and explain what it is and the role it can play for your Company.

To set up a Company the key things you need are a Shareholder and Director (needs to be NZ resident or a director in an Australian company). A Constitution is not legally essential in order to set up a Company but they are very common. This is because they can alter the ‘default’ position under the Companies Act. Without a Constitution the Companies Act provisions apply to your new venture. That may be fine in some simple situations where there is only one shareholder and director but in the usual scenario of multiple people involved it can pay to be specific and customise how you want the rules to apply.

It is worth remembering that because a Constitution is a public document it also allows for transparency in case someone wants to look it up on the Companies Office website (as opposed to a Shareholders’ Agreement which is a private document). More on the Shareholders’ Agreement and what that is another time.

So turning to what a Constitution would typically cover, they deal with how the Company will run in relation to matters such as:

• Setting out clearly the purpose of the Company;
• Information regarding the Shares such as how they are issued and transferred and whether there are any restrictions on selling or transferring shares;
• About distributions and when dividends will be paid and the process;
• Regarding Directors such as the number of directors, how they are appointed and how they resign or are removed;
• Meetings and what will make up quorums of the Board or Shareholder meetings; and
• What happens if the Company is wound up and ceases to trade.

While it may seem like having a Constitution is not necessary if you will be the sole Director and sole Shareholder it is important to think long term – how about in 2 years when you want to bring in an investor? It is likely that having a framework to show that covers off the key points about how the Company operates will be helpful. We would be happy to talk through some of the issues involved as we deal with start-ups most days of the week.

Recently we prepared a guide called “The Start-ups Legal Toolkit” which is a free ebook – contact us if you would like a copy. We also have resources on our “Innovate” website with templates and articles and guides there.

Contacts: Steven Moe – stevenmoe@parryfield.com and Kris Morrison – krismorrison@parryfield.com

If you are in start-up mode then you have plenty to think about – so when it comes to setting up your Company you may be wondering what is essential and what is not? In this article we talk about a Constitution and explain what it is and the role it can play for your Company.

To set up a Company the key things you need are a Shareholder and Director (needs to be NZ resident or a director in an Australian company). A Constitution is not legally essential in order to set up a Company but they are very common. This is because they can alter the ‘default’ position under the Companies Act. Without a Constitution the Companies Act provisions apply to your new venture. That may be fine in some simple situations where there is only one shareholder and director but in the usual scenario of multiple people involved it can pay to be specific and customise how you want the rules to apply.

It is worth remembering that because a Constitution is a public document it also allows for transparency in case someone wants to look it up on the Companies Office website (as opposed to a Shareholders’ Agreement which is a private document). More on the Shareholders’ Agreement and what that is another time.

So turning to what a Constitution would typically cover, they deal with how the Company will run in relation to matters such as:

Setting out clearly the purpose of the Company;

Information regarding the Shares such as how they are issued and transferred and whether there are any restrictions on selling or transferring shares;

About distributions and when dividends will be paid and the process;

Regarding Directors such as the number of directors, how they are appointed and how they resign or are removed;
Permit insurance to be taken out for the Directors;
Meetings and what will make up quorums of the Board or Shareholder meetings; and

What happens if the Company is wound up and ceases to trade.

While it may seem like having a Constitution is not necessary if you will be the sole Director and sole Shareholder it is important to think long term – how about in 2 years when you want to bring in an investor? It is likely that having a framework to show that covers off the key points about how the Company operates will be helpful. We would be happy to talk through some of the issues involved as we deal with start-ups most days of the week. Recently we prepared a guide called “The Start-ups Legal Toolkit” which is a free ebook – contact us if you would like a copy. We also have resources on our “Innovate” website with templates and articles and guides there.

Contacts:

Steven Moe – stevenmoe@parryfield.com and Kris Morrison – krismorrison@parryfield.com

Three of us (Ken Lord, Kris Morrison and Steven Moe) will be going up to Wellington to participate in this conference. We have been involved in the organising committee for the last 6 months and Steven Moe will be moderating two sessions as follows:

Session 2: Are there too many charities in New Zealand

Cheryl Spain – The Gift Trust
Dellwyn Stuart – Auckland Foundation
Jamie Cattell – Charities Services
Kate Russell – Fundraising Institute of New Zealand
Sue Barker – Sue Barker Charities Law

Moderator: Steven Moe – Parry Field Lawyers

And

Session 9: Funding, social enterprise and the intersection with charities who operate businesses

David Woods – Whai Rawa Fund Limited
Levi Armstrong – Patu Aotearoa
Louise Aitken – Akina Foundation
Matt Dodd – Russell McVeagh
Michael Gousmett – Independent researcher and commentator on charities law

Moderator: Steven Moe, Parry Field Lawyers

The conference is being organised by the Charity Law Association of Australia and New Zealand (CLAANZ), Chartered Accountants Australia and New Zealand (CAANZ) and Parry Field (among others). Charities Services is also supporting this event.
The conference will focus on current topics of interest in fields of charity law and accounting.
The aims of the conference are to:
• inform and educate on important topics for charities
• strengthen links, contacts and collaboration within the sector community; and
• share lessons learnt and best practice that have worked for others, both within New Zealand and beyond.

We will report back on how it went!

Have you ever wondered what happens to your affairs when you lose the capacity to handle them yourself? We live in a world of uncertainty, and it is important that you are prepared for whatever challenges might come your way. One way you can be prepared is by appointing an Attorney for your property or personal care and welfare by way of Enduring Power of Attorney.

What is an Enduring Power of Attorney?

There are two types of Enduring Powers of Attorney – an Enduring Power of Attorney in relation to Personal Care and Welfare, and an Enduring Power of Attorney in relation to Property. An Enduring Power of Attorney grants a person (or people) of your choice powers over your personal care and welfare or your property. This can be the same person for either personal and property matters, or separate people, depending on what you want. In exercising their powers, they have a fiduciary duty to act in your best interest always and are required to encourage you to act on your own behalf as much as you can.

Unlike an ordinary power of attorney, an enduring power of attorney does not cease to have effect once the ‘donor’ suffers from mental incapacity.

While a property power of attorney can be activated while you still hold mental capacity, a personal care and welfare power of attorney cannot be activated until you have lost mental capacity, and there is a higher threshold for incapacity.

So why have Enduring Powers of Attorney?

It is a good idea to have Enduring Powers of Attorney because you never know what life is to going to throw your way. A time may come where you can no longer speak for yourself or make crucial decisions on your own behalf, and having Enduring Powers of Attorney is a way of protecting yourself and your affairs.

It grants powers to a person you trust to ensure that your personal care or property affairs are properly looked after. It is really important that the attorney to whom you grant powers is trustworthy and someone who you are confident will manage your affairs in your best interest.

When you appoint an attorney for property or personal care, you can choose how specific their powers are, and you can also choose to have successor (ie back-up) attorneys or you can specify the names of people who you want either or both your attorney and successor attorney to consult when making any decisions. You can also even specify who you want to assess your mental capacity, as long as their scope of practice includes assessing mental capacity.

Everyone, regardless of age, should make an Enduring Power of Attorney while they still hold the capacity to do so.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Pat Rotherham – patrotherham@parryfield.com or Ken Lord – kenlord@parryfield.com at Parry Field Lawyers (348-8480).

The IRD has just issued some new guidance on cyrptocurrency here (end of March, 2018). It is interesting to think about traditional Government and how it responds to something new like blockchain and its currently most well known child, cryptocurrency. The key takeaways are the following points they make which for the first time make clear the regulatory environment that they are wanting people to be operating within (these are direct quotes from their Q&A statement):

cryptocurrency is property, not currency.
Cryptocurrency received as payment for goods or services is business income, which is taxable.
This is seen as a barter transaction and you’ll need to calculate the value of the cryptocurrency in New Zealand Dollars (NZD) at the time it’s received.
For some ‘alt coins’ (cryptocurrency other than Bitcoin) it may be necessary to convert into US dollars, or any other fiat currency, and then convert into NZD.
Rates can vary significantly between different exchanges and currencies. You must use a consistent exchange and conversion approach.
Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from selling it are taxable.
For income tax purposes, cryptocurrencies also have similar characteristics to gold bullion.

The IRD had issued some previous guidance before but some of the points here had not been clear. This guidance indicates that in New Zealand they want to be capturing the value created from the ownership of any cryptocurrency. Doing that may involve some hurdles to calculate what those values actually will be in New Zealand dollars to report on (eg on a sale calculate Alt coin value -> USD value -> NZD value -> pay tax on that).

The other interesting aspect is if you are receiving payment for goods and services that is to be treated as taxable business income. What are the flow on impacts of such a regulatory environment in terms of impact on small players who are planning to use a cryptocurrency for small scale projects and as a way to transfer value for someone providing a service, or someone selling some goods. On an initial reflection about this it means, for example, if I grow organic vegetables in my back garden and receive cryptocurrency in exchange for them from a third party that when I sell them like that then that cryptocurrency is business income that I need to pay tax on. It adds a layer of complexity perhaps once a regulatory body like the IRD gets involved in what could have been a seamless exchange of cryptocurrency for the exchange of goods or services. It will be important to keep an eye out and watch how this all develops.

Here are some reflections on reading “View from the Top: An inside look at how people in power see and shape the World”. The book was based on 550 interviews over 10 years with CEOs and business leaders and the author had been in Christchurch recently. I did not attend any meetings but a friend loaned me the book so had a read if it.

What stood out to me was the purposeful approach those interviewed took in their lives. They did not sit back and wait for the right situation to present itself – they were proactive and up skilled and met the right people then embraced opportunities. How often do we, by contrast, expect good things to just happen?

Another point which stuck out was that the people often knew the value of EQ and having a diverse network of support and wide range of interests – being generalists rather than too specialist.

The final key thing for me was the use of the word “catalyst” – that the best leaders also draw the best out of others as well. Hand in glove with this was the fact that they all recognised someone had helped them along the way and so they too looked to help the next generations coming up.

The conclusion had a few other key points that included:

– act personally, but think institutionally

– maximise opportunities, but leave something behind

– great leaders sacrifice

I would like to have seen a bit more on the shadow side of being so driven – there was some discussion on how leaders made time for family but I got the sense there was a lot more material there. Should someone working a 100 hour week and making millions be applauded when their children don’t know them?

I would recommend the book as a high level overview of some key things to consider if you are thinking about your own life and the different leadership roles you may have.

Hadley v Baxendale

McElroy Milne v Commercial Electronics

Transfield Shipping v Mercator Shipping (The Achilleas)

A way forward: What should the clause say?

What is an Enduring Power of Attorney?

So why have Enduring Powers of Attorney?

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