Business - Parry Field Lawyers

It was great to participate in the Canterbury Tech Summit this year. The overarching theme was about disruption and how it will impact work in the future. We had a booth and had a good flow of people visiting and chatting about this topic and others. Our interest in this area is how digital disruption will impact on lawyers and how we work in the future. The event was sold out with around 650 people in attendance including a surprise visit from the Prime Minister who gave a speech about the IT industry in New Zealand and shared his thoughts on the future.

We noticed that from several different speakers there was a real message about “listening to your customer” when working out where your business was going. That fit well with our theme of “hacking your service provider” which was really a message about what you can expect from service providers and how to get the most out of them in light of new technology and digital disruption.

At the end of the talk we wondered if there would be many questions and there were – always a good sign! We enjoyed the discussion with people about topics like AI and how that will affect professionals as well as how lawyers will deal with new technology that pushes the boundaries of existing laws. Our overall message was that disruption can actually improve the customer experience with professional services firms. You should be challenging your service provider to explain how they will use the new ways of doing things to provider a more improved and efficient service to you.

For more on this topic see the following article that we wrote which outlines our views on this subject: http://innovate.parryfield.com/2016/09/13/digital-disruption-new-law/

We had been unsure what to expect from the Tech Summit but reflecting on the event it was a great opportunity to connect with others in the same sector and to chat to them about what they are doing.

Introduction

When considering entering into a joint venture arrangement in New Zealand with another party it is important to be aware of potential issues before they even raise their head and become problems. This article describes some of the key points to watch out for if you are considering a joint venture in New Zealand. It can also serve as a good reminder of a checklist of points to consider to review the health of your joint venture if you are already in one.

1. Valuing different contributions

It can be hard to value what each party brings to the table. Typically a joint venture will be entered into because each party has recognized that the other one is able to bring some unique skill or background to a proposed business. Often for one party this may simply be the ability to provide capital such as finance or land while the other party has a certain expertise. Alternatively, two companies who are generally competitors may decide that working together will help them to scale up and achieve more.

Either way the key point is not to undervalue what you bring to the joint venture. If the other party has an ingenious idea but no financing and you can unlock capital for their idea to grow, then you hold significant bargaining power. Equally if you are the one with the industry expertise and knowledge then you should not sell yourself short in negotiations with a financier. We have seen this from both sides and often wondered why one party wasn’t more highly valuing what they bring to the table. Sometimes there is a tendency to value tangible contributions over the intangible ones, which may not always be appropriate. So, in each case hold out for as much equity and participation in the joint venture as you can.

2. Form of joint venture

Most commonly we would see a new company formed under the Companies Act 1993, which has two shareholders. That way the new entity will be a standalone venture separate from each of them. Typically it will have its own set of advisors and employ its own staff (although one party may second certain individuals in to assist). Profits will be returned as dividends to the shareholders.

However, that is not the only option. Alternatively there could simply be a joint venture agreement between two parties which sets out how they will work together. This is called an unincorporated joint venture. There is no separate legal personality of the joint venture so it cannot contract on its own with third parties. This model may be used for financing, tax or accounting reasons.

Another possible structure is a Limited Partnership under the Limited Partnership Act 2008. This structure may be particularly attractive when one of the parties is an overseas entity because tax liability sits at the level of the partners rather than in the corporate structure. Also the details of the limited partners are less publicly available.

It pays to work through the possible structures well in advance so you know what you want to propose to the other side.

3. Ownership shares and deadlock

You may think that an equal sharing in ownership is fair and that is usually correct. However, the danger of an equal split is that decisions can get stalled if the parties cannot agree and so deadlock can result. This can have a negative impact on the profits and reputation of the joint venture. There are some ways to deal with a situation of deadlock though which are outlined in the next point.

4. Overcoming deadlock

A deadlock situation can be fatal to a joint venture. This is especially so when the shareholding is the same and there are also an equal number of directors appointed by each party. One way to deal with this is to have a rotating chairman who has the casting vote. Also, there can be a list of really key issues which are reserved as decisions for the shareholders rather than directors. All joint venture arrangements should have clear disputes resolution procedures, including, where appropriate the ability to refer matters to independent experts or umpires.

5. “Service” arrangements and extraction of value

Commonly we see that one party is the expert in the subject matter of the joint venture and so they often end up contracting to provide services to the joint venture. That is fine, but the other party should closely look at those agreements and build in clauses that ensure these will be “arms’ length” arrangements. If one party is an overseas entity they may be relying on their local partner to provide a lot of the “on the ground” work. They may not realise that the same local partner is extracting a lot of value from the arrangement with the company through charging of high consultancy services, management fees or other arrangements.

6. Exiting the joint venture

There should be a clear pathway for getting out of the joint venture. For example, if one party wants to exit they may have to first offer their shares to the other party before they can they sell to a third party. Such pre-emption rights can be included in the joint venture agreement.

What if one party wants to exit and the other party does as well? This can be built in as “tag along” rights so that the party who is selling their shares to a third party may need to allow the other party to join in that sale. Other typical rights could include “drag along” rights where a party is able to force their joint venture partner to also sell their shares to a third party. All of these options need to be considered and worked through at the start of the joint venture.

7. Other points to consider when setting up a joint venture

The following issues should also be considered at the beginning:

capital and funding obligations going forward;
scope of the JV company;
will it be permissible for the shareholders to enter into other joint ventures or initiatives that may compete with this joint venture?;
business plan and budgets;
management and who will lead the joint venture;
ownership of land;
circumstances that may trigger termination;
tax implications;
minority protection rights;
information flow to parent companies;
marketing arrangements;
powers of veto;
will there be parent company guarantees;
confirm no competition law issues; and
if a foreign company is involved, whether Overseas Investment Office (OIO) approvals needed.

8. No one situation …

… is like the other. Many joint ventures can have more than two parties, with variable negotiating power, parties with different skills, land or finance available. It is important to tailor the documentation to the situation.

We have experience in setting up joint ventures and providing advice about different situations and would be happy to discuss your circumstances.

We have seen a lot of employers falling into some common pitfalls when interacting with their employees. These are our Top 10 Tips for employers for avoiding the most common employment relations issues.

1. Do a thorough pre-employment check Make sure to screen all potential employees before hiring them. Things such as criminal history, medical-and drug-testing, and good referee checks can help avoid employment problems down the road.

2. Finalise and sign employment agreements before an employee starts work The employment agreement is the most important document of the employment relationship, so make sure it is finalised and signed before the employee starts work. A 90 Day Trial Period will only be enforceable if the agreement is signed before the employee starts work.

3. Choose the correct employment agreement Whether you use a permanent, fixed-term, or casual agreement will depend on the circumstances, and each carries its own benefits and risks. Do not be tempted to use a fixed-term agreement to establish whether an employee is suitable for permanent employment.

4. Have policy documents on display and easily accessible Employee practices are often governed by company policies as well as by the terms of their employment agreement or job description. Whether they relate to health and safety, company vehicles, IT, or telecommunications, employees can only be bound by rules they are informed of, so have all policy documents accessible and encourage employees to read them.

5. Keep proper records of every employee This includes records of the employee’s annual and sick leave entitlements, wage/salary records, job descriptions, and a copy of their employment agreement. Make sure you have a file for each employee, and that all their records are filed in it.

6. Always consult with employees before adjusting their hours, roles, or terms Employers cannot unilaterally change the terms on which an employee works. Consulting with employees on these matters is vital, and you may find that they have ideas you had not considered.

7. Keep up-to-date with developments The law is changing all the time; make sure to keep up-to-date with the latest changes to employment law, even where it seems irrelevant to your specific business. It may be that the law has wider application than you expected, or that it becomes relevant further down the track.

8. Act promptly and follow correct disciplinary and redundancy procedures Where you suspect an employee of misconduct or poor performance, act promptly and always follow clear and fair procedures. Never ambush employees with allegations or performance review meetings. Give employees full and timely notice of any disciplinary meetings, and allow them time to prepare and respond.

9. Do not be afraid to go to mediation Most employment problems can be resolved by either informal negotiation or in mediation. Mediation is a voluntary and highly flexible method of resolving disputes, and often leads to mutually satisfactory outcomes.

10. When in doubt, come to us Whenever you have concerns about an employee or the terms of your employment agreements, talk to your lawyer before taking any steps. We can help to determine the best approach to take, resolve disputes as quickly as possible, and assist in improving your employment agreements.

Parry Field has been assisting employers in New Zealand since 1948. Based in Christchurch we have the experience and resources to help you.

Introduction

We’ve all seen the headlines about growing Chinese investment around the world and New Zealand is certainly no exception. Although you may already have been in business for years and have a great deal of experience, if you want to be truly successful with a Chinese counterparty then there are some key cultural differences which you should take on board. With that in mind we have set out some points to be aware of when you’re dealing with Chinese investors. Read more

The Consumer Law Reform Bill (“the Bill”) contains significant changes to New Zealand consumer laws, and will affect a wide range of businesses. At this stage it looks like it will come into force in or about October 2013, although some sections will have a transition period of 6 months or more before they become effective.

Regulation of the relationship between businesses and consumers in New Zealand is currently largely dictated by the Fair Trading Act 1986 (“the FTA”) and the Consumer Guarantees Act 1993 (“the CGA”). The Bill will strengthen and update both of those Acts, among others, and will align them more closely with Australian consumer law.

The changes will affect the relationship between businesses and consumers and the relationship between businesses and businesses. This article discusses some of the more substantial amendments and what you should do to prepare for these changes.

Unfair Contractual Terms

A significant number of proceedings brought by consumers (or the Commerce Commission) against businesses, have been for breach of section 9 of the Fair Trading Act which stipulates a person shall not, in trade, engage in conduct that is misleading or deceptive, or likely to mislead or deceive.

The Consumer Law Reform Bill introduces a further restriction; that a person, in trade, must not include an unfair contract term in a standard form consumer contract, or rely on or enforce such a term.

A contract is presumed to be standard form until proved otherwise. Factors which will point to a standard form contract include:

whether one party has all the bargaining power;
whether the contract was prepared before any discussion relating to the transaction occurred; and
a lack of opportunity to negotiate.

The bill gives examples of unfair contract terms, which include:

A term that permits one party (but not the other party) to avoid or limit the
performance of the contract, or to terminate, vary or renew the contract; and
A term that limits one party’s right to sue another party, or limits one party’s
vicarious liability for its agent.

To limit the risk of uncertainty to consumer contracts the unfair terms provisions are only enforceable by the Commerce Commission. The Commerce Commission can apply to a Court for a declaration that a term is unfair, and if successful, that term will not be able to be enforced or relied upon.

The unfair contract provisions will come into force 15 months after the Bill receives Royal assent to allow businesses time to prepare.

How can you Prepare for the Changes

Examine any standard form contracts that your business relies upon, and determine whether any terms may be regarded as “unfair”.

The Commerce Commission has stated that they expect all businesses to comply with the new provisions by the date the new law comes into force, so make changes to affected contracts sooner rather than later.

Unsubstantiated Representation

The Bill will make it an offence under the FTA for a person, in trade, to make an unsubstantiated representation.

An unsubstantiated misrepresentation is a claim made about a good or service without any reasonable basis,irrespective of whether it is true or not.

Currently the onus is on the Commerce Commission to prove that a claim made by a trader is false. Under the Bill the trader will have to make sure that they have good grounds for making any claims about their products.

The law does not apply to representations that a reasonable person would not expect to be substantiated, such as “puffery” (i.e. ‘Red Bull gives you wings. In determining whether a representation is substantiated the Court will consider industry standards.

The degree of evidence required is likely to be a factual issue. Considerations such as how specific the representation is, the type of product (is it potentially dangerous), and the accessibility to evidence (can the consumer easily test the representation themselves) are relevant in similar Australian law.

How can you Prepare for the Changes

If you are in the business of supplying services or goods you should first identify representations that you are making that consumers are likely to rely upon.
Having identified these, begin the process of ensuring that representations you are making are supported by evidence. Your legal advisor will be able to assist in determining what evidence is likely to be necessary.

Contracting out of the Fair Trading Act and Consumer Guarantees Act

Under the Bill parties will not be able to contract out of the FTA or the CGA, except in some situations when both parties are in trade. In those circumstances it must be fair and reasonable that the parties are bound by the contracting out provision.

In determining what is “fair and reasonable” the Court will take into account various circumstances including:

The value of the goods;
Whether the other party was required to accept the terms and conditions; and
The respective bargaining power of the parties.

How can you Prepare for the Changes

Review your business to business agreements to determine whether contracting out clauses should be added, or whether existing clauses are fair and reasonable.

Extending the Consumer Guarantees Act – Auctions and Guarantee of Delivery

Under the Bill consumers will be able to rely upon the CGA when purchasing of goods by way of auction, including online, such as through Trade Me. Further, those supplying goods, whether by auction or otherwise, will be liable for loss or damage to goods in transit. Delivery to the consumer will also need to occur within a reasonable time (if no specific time is agreed).

How can you Prepare for the Changes

Make sure you are familiar with your obligations under the CGA.
Make sure your representations as to time of delivery are realistic.

Should you need any assistance with this, or with any other commercial matter, please contact Kris Morrison or Tim Rankin at Parry Field Lawyers (348-8480).

You may have hired a worker as a contractor or have begun working as a contractor, but the Courts may see the relationship differently to you. Instead, the Court may decide that the relationship was rather one of employer-employee. This can have significant implications, as outlined below.

In deciding this issue, the Court has to consider the “real” nature of the relationship. To this end, the Court:

• Must consider all relevant matters, including any matters that indicate the intention of the parties; and

• Are not to treat as a determining matter any statement made by the parties that describes their relationship (e.g. if the contract describes one party as a contractor).

So what is the distinction between an employee and a contractor?

The distinction usually lies in whether the person is performing the services as a person in business on his/her “own account. If they are in business on their “own account”, they will usually be an independent contractor.

The Courts have developed a variety of tests over the years to assist in assessing the relationship. Examples of these include:

• What degree of control does the employer have over the work done and the way in which it is performed? The more control an employer has, the more likely it is to be an employment relationship.

For example, if the worker is required to work set hours, is not able to sub-contract the work out to anyone else, is unable to work for other competing businesses, is required to follow workplace rules and is closely monitored, this is may suggest that the “contractor” is actually an employee.

• Is the person a fundamental part of the business – are they “part and parcel of the organisation” or do they merely have an ancillary role?

The more integral to the business, the more likely you are to be an employee.

• Was the person performing the services on his/her own account or as part of the business?

For example, if the worker is providing his/her own tools/equipment, is invoicing the organisation, is able to hire his/her own labour and is responsible for his/her own tax and ACC payments, this may suggest that the worker is a contractor.

Why should this distinction be of a concern for me?

If you engage a worker as a contractor but then, later, that worker is held to be an employee, the following flow-on effects could occur:

• You or your organisation/company could become liable for backdated holiday pay and sick pay from the commencement of the services;

• The tax position will be reassessed. You may become liable for tax.

• The worker will be able to follow all of the processes contained in the Employment Relations Act 2000 including bringing a personal grievance against you/your organisation.

Vice versa, if you are performing work as a “contractor” but fail to see how your situation is any different to a regular employee, you may be missing out on employment entitlements which you are legally entitled to such as holiday pay/leave, sick pay, bereavement leave, kiwi-saver contributions and minimum wage entitlements. You may also believe that you are prevented from bringing a personal grievance against your “employer”.

If you are intending to take on a new worker and wish him/her to be a contractor, at a minimum you should ensure the following:

• That there is a “contact for services” contract in place (we can draft an appropriate document for you);

• That the person is invoicing you/your company for the services provided and payment is made on receipt of an invoice. The person will need to be responsible for their own tax and ACC payments;

• That you do not exercise too much control over the services and how they are being provided e.g. make sure there is flexibility in terms of when the services are to be performed and allow the person to undertake other work (even if it for a competing business);

• That the person provides his/her own equipment/tools (where appropriate).

If you are currently contracted as a “contractor” and are unsure whether in fact you should be classified as an employee, we recommend that you raise this with the business you work for and/or contact us for further advice.

Should you need any assistance with this, or with any other Employment matter, please contact Hannah Carey at Parry Field Lawyers (348-8480).

New Zealand Exempt Collective Investment Vehicles – Submission on turning New Zealand into a Financial Hubinvestors and overseas sourced income.

Set out below is our joint submission with Christchurch law firm Helmores to the Inland Revenue Department on the officials’ issues paper “Allowing a zero percent tax rate for investors investing in a PIE“.

Read more

You may have seen the term Portfolio Investment Entity or PIE used in the local newspapers and wondered what it was all about. In this article we explain the reason for the provisions, and what they to do.

Read more

Is a GST Domestic Reverse Charge a Good Idea?

GST is a hazardous tax, not only for taxpayers, but also for the Government. Unlike income tax, the Government has a commitment to refunding GST, and this part of the GST mechanism leaves the tax open to manipulation. The hazard is greatest where the assets sold are largest. The domestic reverse charge mechanism will to an extent reduce the risk the Government faces from being ripped off through the GST system.

New Zealand Exempt Collective Investment Vehicles – Submission on turning New Zealand into a Financial Hubinvestors and overseas sourced income.

Is a GST Domestic Reverse Charge a Good Idea?

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