Edmonds Judd

Your Own Business

Are Uber drivers employees and why does that matter for you?

Commercial, Employment, First Job, Uncategorized, Your Own Business
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A case from the Court of Appeal on Monday acts as an urgent reminder that you can’t contract out of the Employment Relations Act (the Act) and that includes by calling the relationship an independent contract when it is not. The case involved four Uber drivers and the companies that own and run Uber Drive and Uber Eats.

Uber argued that they were not employers but provided an introduction service. Interestingly, adapting to new ways of working, the Court held that the drivers were all employees when they were logged in to the Uber Drive App.

Using an independent contractor rather than taking on an employee is attractive because it cuts out a whole swathe of costs, paperwork, responsibility and inconvenience: holidays, sick leave, termination issues and PAYE to name a few.  If you get the nature of the relationship wrong however, it can have an enormous impact on the employer: investigation, prosecution, fines and penalties, PAYE arrears, holiday pay arrears and much, much more.

So how do we know when a relationship is actually employment if we can’t rely on what the parties themselves agree in the contract? The answer is section 6 of the Act. Section 6 requires the court to focus on the realities of the parties’ mutual rights and obligations. In particular: how is the relationship working in practice (especially if that differs from the contract)?

Three key issues that the Court must weigh up are:

  • the extent of the control over the worker,
  • the degree of integration of the worker into the business, and
  • the “fundamental test” of whether the worker is carrying on their own (independent) business.

 The Uber case in particular emphasised Uber’s control of the workers which included Uber controlling fare setting and performance management, and right to discipline. They looked at the practice as it varied from the contract: even though the drivers could theoretically choose when and where they worked, they were penalised for not working regularly. They were not an independent business as the drivers were restrained by Uber from expanding their business. For example, there was a ban on contacting clients independently.

This situation might not be substantially different from many ‘independent contracts’ on our farms or in a small business setting.

If you have an independent contractor and that worker only works for you (perhaps because you do not permit subcontracting or them taking on other jobs, or simply because the job takes up all available time), if you can dictate what that worker must do from day to day and how they do it, if you can discipline them, if they work on your site and you provide most of the equipment, then it might be time to take a second look and seek independent professional advice.

Nicolette Brodnax
Nicolette Brodnax, Special Counsel

Over the fence

Property, Relationships, Rural, Your Own Business
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Contract grazing

Contract grazing is one of the ways you can farm that does not require land ownership. It is an arrangement where land ownership, livestock ownership and organising the grazing can all be managed separately.

Any species of livestock that are bred for meat or dairy (for example: cattle, sheep, goats or deer) can be the subject of contract grazing arrangements.

When involved in contract grazing, it’s imperative that you have a written contract that ensures a mutual understanding and definition of the obligations and responsibilities amongst the parties.

It is also important to include an animal health programme ensuring the animals’ welfare is protected and maintained, including the day-to-day management, health management, animal arrival obligations and reproduction requirements. The contract should include how and when payments should be made, and how any conflicts could be resolved.

The arrangement can involve up to a maximum of three separate entities each carrying out a specific role – the landowner, the livestock owner and the grazier (grazing manager). The grazier oversees the grazing activities and provides management expertise to the land and livestock owners.

If you are involved in contract grazing, don’t hesitate to contact us when you need to organise the contract.

90-day trial periods available again for all employers

As it had indicated pre-election, the government reinstated the 90-day trial periods for all employers. The 90-day trial period has had something of a flip-flop history.

First introduced in 2008, trial periods were initially applicable for employers with 19 or fewer employees; the overarching idea was that it would reduce the risks that employers face when hiring a potential employee. In 2010, the 90-day trial period was extended to all organisations – whatever their size. In 2018, the Labour coalition amended the law back to being applicable to only employers who had fewer than 20 employees. However, since December 2023, the 90-day trial periods have been reinstated for organisations of all sizes. There is ongoing debate that the 90-day trials diminish the risks for employers and increases the uncertainty for employees.

A 90-day trial period can be used for your employees if they have not previously worked for you. For you to include a trial period when hiring a new employee, you and your prospective employee must agree to the trial period before they start work. The trial provision must be included in their employment agreement to be able to terminate within that trial period. If you want to dismiss your ‘trialled’ employee, it’s essential the correct steps are taken during the process.

You should note that your dismissed employee is not entitled to bring a personal grievance in respect of the dismissal if it is within the trial period. It’s important to be aware, however, this does not prevent your employee raising a personal grievance on other potential qualifying grounds such as discrimination or bullying.

We strongly recommend you talk with us early if you intend including a trial period or using a trial period to dismiss your employee. Getting it wrong can cause much distress for them, and a great deal of money and time for you.

Minimising phosphorus in waterways

Most farmers work hard to manage the water quality on their properties. They change grazing arrangements, manage their fertiliser applications, fence riverbanks and wetlands, plant trees and place sediment traps.

Dairy farm fertiliser effluent contains phosphorus that may enter freshwater from run off or leaching from paddocks. Although phosphorus is essential for plant growth and crucial for food security, it leaves a devastating footprint on the environment. A key ingredient in synthetic fertilisers, the damaging impacts are seen when phosphorus contaminates lakes, rivers and (ultimately) the ocean. Phosphorus can encourage the growth of algae in fresh water that pollute and degrade the health, mauri and wairau of our water. It means our waters may not be suitable for swimming, fishing and drinking, and affects its biodiversity.

The good news is, however, that in many areas the amount of phosphorus in our waterways is declining. All farmers should minimise the impact of phosphorous leaching by stock exclusion, creating riparian buffers, undertaking planting and preventing runoff from critical source areas.

The National Policy Statement for Freshwater Management (NPS-FM 2020) provides guidelines for monitoring and managing dissolved reactive phosphorus in rivers and how freshwater should be managed. Farmers are recommended to apply phosphorus to paddocks only if necessary. An increase in plant productivity could lead to a decrease in run off and less erosion. Using a phosphorus index ensures you can find paddocks that have high potential for phosphorus loss and therefore avoid using that fertiliser.

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Live animal exports

Latest news, News, Property, Rural, Your Own Business
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Government intends to lift the ban

In April 2023, following intense pressure from animal welfare organisations, the Labour government banned live animal exports. The basis of the ban was centred on an independent review that New Zealand’s international reputation was being damaged by its live animal export programme because of animal welfare standards being breached.

The government’s plan

With the ongoing pressure from SAFE (Save Animals From Exploitation) and other animal welfare organisations, the government is proceeding with caution. It intends to introduce amendments to the Animal Welfare Act 1999 that will impose strict regulations and ensure a ‘gold standard’ of care. This includes fit-for-purpose live export ships and certification regimes for the livestock and their destination country. The government believes these regulations will protect animal welfare and safety.

The government has not indicated the timing for these proposed legislative changes.

 

The good . . .

The answer is obvious – revenue. In 2022, before the ban on live animal exports, revenue of $524 million was generated for the farming sector. Reports say the ban resulted in a loss of between $50,000– $116,000/year per farm[1] that, in the current economic climate, is significant to those who have lost this source of revenue. The return of live animal exports may bring some financial relief to farmers. With the level of red tape involved, the actual benefit of live animal exports is unclear.

 

The bad . . .

No animal, except of course those of the aquatic variety, is designed to sustain long journeys by sea. Exporting live animals to China, for example, can take anywhere between 15–40 days and, during that time, the animals have endured rough seas, long periods of standing in their own excrement, heat stress and injuries. The conditions during the journey are aggravated further because once the ship docks, there are no assurances of continuing animal welfare and safety on land. Many importing countries lack the minimum welfare standards that New Zealand enforces.

And the ugly

While petitions have been submitted and lobbyists are in full force in New Zealand, elsewhere in the world live animal exporting continues to be practised. Earlier this year, 2,000 cattle and 14,000 sheep spent two weeks enroute from Perth to the Middle East, only to be turned around and returned to port at Fremantle where they remained on the ship for almost six weeks while the exporter attempted to obtain a new export permit. The Australian government is now under immense pressure to follow through with its own election promise to ban live animal exports.

Will our government follow through on lifting the ban?

That remains unknown. Each side of the argument will continue to pressure the government to make what that side believes is the right decision.

There remains a strong belief that live animal export represents such a small share of agricultural revenue (0.2%)[2] since 2015 that the damage to New Zealand’s ‘clean’ reputation is far worse than the benefit of the export receipts.

What farmers can certainly expect is that if the live animal export ban is overturned, there will be stricter regulation and more red tape, and the costs associated with those increased regulations may be onerous. Farmers can expect an update to this process this year.

[1] Livestock Export New Zealand.

[2] Ibid.

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Postscript

Latest news, News, Uncategorized, Your Own Business
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Holidays Act 2003 to be overhauled

 

Both employers and employees will be relieved that the government is prioritising overhauling this legislation.

“Change has been a long time coming, and I know there are many who are frustrated with the Holidays Act. We need an Act that businesses can implement, and that makes it easy for workers to understand their entitlements,” said the Minister for Workplace Relations and Safety, Brooke van Velden.

 

The government will develop an exposure draft of the new legislation for consultation. It has indicated that the previous government’s decision to double sick leave entitlements for all eligible workers has caused difficulties to some businesses and increased the disparity between part-time and full-time workers. As well, employers have long struggled with apportioning annual leave; an accrual system is mooted, rather than the current entitlements system.

 

It is expected that the exposure draft of the Holidays Bill will be released for targeted consultation in September. “I believe it is important to hear from small businesses in particular, given small businesses will adopt a range of working arrangements and often do not have the same payroll infrastructure as larger organisations,” the Minister added.

 

Although registration for targeted consultation closed on 8 July, we will keep you up-to-date with how this new legislation progresses.

 

Roadside drug testing to be rolled out

 

In May, the Minister of Transport, Simeon Brown, indicated the government will introduce legislation that will enable roadside drug testing to improve road safety.

 

“Alcohol and drugs are the number one contributing factor in fatal road crashes in New Zealand. In 2022, alcohol and drugs contributed to 200 fatal crashes on our roads. Despite this, only 26% of drivers think they are likely to be caught drug driving,” said the Minister.

The legislation is likely to be introduced mid-2024 and passed towards the end of the year.

 

 

 

Visual artists will receive royalties when work on-sold

Long-awaited legislation that comes into force on 1 December 2024 will allow New Zealand’s visual artists to receive royalties when their work is sold on the secondary market.

 

Passed in August last year, the Resale Right for Visual Artists Act 2023 will enable the collection of a 5% royalty each time an eligible artist’s work is sold on the secondary art market. The scheme is for artworks that sell for $1,000 or more. The collection agency, Copyright Licensing New Zealand, will deduct a percentage of the royalty as an administrative fee.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Employee burnout

First Job, Health Issues, Your Own Business
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Acknowledge and address this

The effects of burnout and work-related stress are an issue that both employers and employees should acknowledge and address.

 

Under the Health and Safety at Work Act 2015, organisations have a clear obligation to prevent harm not only to their employees’ physical health, but also their mental health.

 

 

What is burnout?

‘Burnout’ is the result of chronic workplace stress that is not successfully managed. The World Health Organization has stated burnout is an occupational phenomenon and it is not classified as a medical condition. Although burnout is not depression, it is recognised as a major risk factor for depression and anxiety.

 

Burnout affects people differently and the symptoms of burnout are varied. Some common symptoms include:

  • Exhaustion: Feeling drained and emotionally exhausted
  • Low productivity: Negativity about work or being unable to concentrate. This can affect the ability to carry out normal, everyday tasks at work
  • Increased mental distance from one’s job: Becoming cynical about work and distancing from one’s colleagues, and
  • Physical issues such as insomnia, headaches or stomach aches.

 

 

Employers’ obligations

You must be aware of your obligations to manage health and safety risks, including supporting any of your employees who are struggling mentally, and take steps to address the issues.

 

Prevention, as they say, is always better than cure, and in terms of preventing burnout you have a great deal of influence in setting the culture of your workplace. Burnout is often the result of an unhealthy workplace culture. Workplaces that have unmanageable workloads, unreasonable deadlines and lack of support can all contribute towards burnout. You should therefore proactively consider the following:

  • Are your employees given achievable goals?
  • Are there established processes to enable your employees to raise any issues and concerns they might have?
  • Is training provided to both your managers and employees on how to deal with mental health issues?

 

If a staff member discloses that they are struggling with burnout, you should take proactive steps to understand what is causing the issue and what is required to address it. It may be necessary to get advice from a medical professional (it is important to maintain confidentiality in line with your employee’s wishes and any privacy requirements).

 

In addressing your employee’s burnout, you should look for a solution that works for you both. It is prudent that all decisions and any agreements between you both are recorded in writing as evidence of the steps that have been taken.

 

Aside from the legal considerations of your health and safety duties, from a business perspective there is strong evidence that investing in the health and wellbeing of your staff provides a substantial return on investment. This is not surprising, given that burnout reduces productivity and is associated with high staff turnover. Taking steps to avoid employee burnout is good for business.

 

 

Feel burnt-out as an employee?

It is important you talk to someone at work as soon as possible. Although it may be difficult to talk about stress and burnout, it is vital that your workplace becomes aware of it and is given an opportunity to stop the situation from getting worse. By asking for help and support, it enables your employer to make necessary adjustments. This may include rebalancing the demands and responsibilities of your role, cutting back on unnecessary tasks or establishing a set of objectives to work towards.

 

 

A recent court case

Burnout was the issue in an Employment Relations Authority (ERA) case[1] in which an employee successfully argued that he was constructively dismissed because his employer had failed to provide him with a safe working environment.

 

The employee had raised concerns about his work-life balance and even informed his manager that he was ‘burnt out’ and could not continue due to being ‘broken by the workload.’ When his employer did not take prompt action to address these issues, the employee resigned.

 

The ERA held that it was reasonably foreseeable that the employee would resign unless his burnout concerns were addressed, and ruled that his employer should have taken more formal and proactive steps to understand their employee’s mental health situation. As a result, significant financial remedies were awarded to the employee, including $25,000 as compensation for hurt and humiliation.

 

 

Employers take note

Employers have a duty to protect their employees in health and safety issues, and this includes their mental health. A person’s work environment can have a significant impact on their mental wellbeing and, as a result, employers must take prompt, meaningful action should staff burnout arise.

 

If someone on your staff is struggling with burnout, it is important that they communicate this to you or their manager. For some guidance on steps to help avoid employee burnout, please contact us. We are here to help.

 

[1] Perry v The Warehouse Group Limited [2023] NZERA 773.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Preparing your business for sale

Commercial, Your Own Business
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Whether you’re retiring, pursuing new ventures or looking to cash in on your hard work, selling a business is a significant milestone and one that needs careful planning and preparation.

To ensure the greatest return on your investment, your business should be at its best when it goes on sale. Building value in your business is important in attaining an optimum result.

 

 

Strengthening operations

As a starting point, you should ensure the business can operate successfully without you. All its operations and processes should be well-implemented and running smoothly.

It’s important to delegate responsibilities to capable managers early on. Work to reduce the business’s reliance on you and have a management succession plan in place detailing who will support the incoming owner and what pre-settlement training will be provided.

 

Sales are critical to the success of any business. It’s therefore important that before you put your business up for sale, you focus on increasing the volume of sales. Tighten up on all expenses and eliminate any shrinkage.

Give your premises a thorough clean. Ensure all physical and digital assets are in good condition, and that sensitive data is secure. Tidy your database and ensure you have favourable terms in place with suppliers, or consider the need to transfer distributor or dealership rights if that’s applicable. Damaged and obsolete stock should be disposed of and not included in the sale.

 

Collate the information concerning the business’s website, phone numbers, social media information, passwords and an up-to-date client database. Consider compiling this into a ‘starter’ document (operations manual) that will make it easy for the buyer to be up and running early on.

A potential buyer will want to see that the business has an existing marketing strategy for the next year and beyond. This will add value and may lead to a quicker sale.

 

Although this is a matter for the buyer of your business to consider, you should think about your current employees. Are they likely to be transitioned across to the new owner or will there be redundancies? Good communication with the buyer is important in respect of all employment issues. Existing employees are not likely to be notified of the sale until after the sale and purchase agreement is signed and/or it becomes unconditional.

 

Discuss with the buyer how customers will be notified of the business sale. The retention of customers is a major part of the goodwill of a business; to ensure a smooth transition, thought needs to be put into this process. Both parties should work together and plan on how your customers will be notified of the change of ownership. In the case of significant customers or clients or referrers of work, it may be necessary to arrange for personal introductions.

 

 

Marketing your business

When marketing your business to prospective buyers, you want to showcase its unique selling points. Engaging the services of independent professional advisors who specialise in business sales will be very helpful and provide invaluable assistance.

Considering who your potential purchasers are and negotiating with them can be very time-consuming. Professional advisers understand the market, can identify prospective purchasers, will assist with marketing your business and advise you on the sale process.

It is important to establish the right sale price. Advisers will look at the nature of the business including the value of its assets and its profitability to ensure an appropriate price is set.

If an inflated price is set at the outset, this will deter potential buyers.

 

 

Finance

Buyers will want to review the historical performance of your business to ensure they are buying a sound and profitable operation. The sale price should reflect the financial position of the business.

Financial statements and tax returns of the business should be formally reviewed by your accountant rather than being generated in-house to ensure their accuracy and to address any red flags. This will make the due diligence process easier for buyers, who will be assured that records are accurate.

 

Buyers’ lenders will be interested in cash flow and the ability to service any loans a buyer may have or need.

In preparation, formalise deals with customers and suppliers, and update your business forecasts. Search the Personal Property Securities Register to identify security interests registered over your business assets. Seek the removal of any that are no longer required and others that can be removed as part of the sale process.

 

Give some thought to work in progress/partially completed projects; we will include provisions in the sale contract to cover this situation. It may be that payments made by customers and clients following settlement could be apportioned between the parties. If you have issued gift vouchers and they are redeemed after the sale, a mechanism should be included in the sale agreement to cover this.

Sometimes when selling, a proportion of the sale price is contingent on the performance of the business following its sale. This is often referred to as an ‘earn-out.’ If this is the case, there should be a carefully worded formula included in the sale agreement. This will often include the involvement of an independent assessor. We will help draft any necessary clauses.

 

Check with your accountant about any taxes, GST and other obligations that may affect the sale. Your options when selling can differ depending on the business structure you have. Getting this wrong can lead to an unexpected tax bill; advice from your accountant is essential.

 

 

Legal

When selling your business, there are many legal considerations. You should talk with us early to ensure there are no complications down the line. You do not want any issues to arise with the buyer that have the potential to lead to a dispute.

Review your existing contracts, leases and any business compliance obligations. Make sure any trademarks and copyrights are updated, and that patents and licenses are secured and transferrable. You may want to renew these as their expiry could devalue your business. Completing an audit of your intellectual property and legal obligations reduces any risks for buyers, and for you.

 

The information provided to prospective buyers that relates to your business’s processes, finances and intellectual property is important and should be protected. Entering into a non-disclosure agreement with them will ensure that any confidential information about your business remains secure even if a sale falls through.

It is likely that the buyer will insist on a restraint of trade clause in the agreement. You should consult with us to ensure it is worded correctly and will not significantly impact your future plans.

 

Finally, it is important to keep your business running well when it is on the market as it may take time to sell. Be honest and realistic in your dealings, and keep up the marketing. Investing effort into thorough planning will increase the likelihood of achieving a successful outcome.

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Commercial leases

Commercial, Property, Your Own Business
0

Reinstatement obligations for tenants

There are many rights and obligations that affect both tenants and landlords at the beginning, during and at the expiry or earlier termination of a commercial property lease.

 

The obligations on a tenant to reinstate the premises are usually set out in clause 20.1 of the ADLS Deed of Lease[1] and are important terms for both tenants and landlords to understand. Essentially the tenant is obligated to return the premises to the landlord in the same condition and state that it was at the beginning of the lease.

 

 

Tenants be careful before undertaking work

It is crucial that tenants understand their obligations before undertaking any work, and that your landlord must approve any alterations in writing. Having written approval does not mean that you won’t be required to remove any fixtures or alterations that have been made to suit your business needs or use of the space.

 

However, it is not an automatic requirement for you to reinstate the premises. Only where your landlord requires it to be reinstated does this obligation apply to you.

 

If your landlord does require reinstatement of the premises, you have a number of things to consider when deciding whether to make any alterations to complete a customised or business-specific fitout. These include the cost of potentially having to remove fixtures or reverse alterations, the benefit that any such alterations or fitout will have for your business, the length of your lease and/or how many rights of renewal there may be. These aspects of the lease are essential for you to consider before you complete any works given that you may be required to reinstate the premises.

 

As a tenant, you also need to understand that any reinstatement is entirely at your cost, and any fixtures or fittings you do not remove by the expiry or termination of the lease may become your landlord’s property without any need for them to compensate you.

 

Further to this, any cost that your landlord incurs in removing your fixtures or fittings or carrying out reinstatement work you have not completed can be recovered from you by your landlord.

 

Finally, you must also repair any damage caused in the process of removing your fixtures and fittings from the premises. This can be problematic if you have completed significant structural alterations where reinstatement may be difficult or even impossible to complete without causing some damage to the building or premises you are vacating.

 

Disputes

Where a dispute arises about the cost or compensation claimed by either party to the lease for reinstatement or damage caused in the process, the default position in the lease is that the parties submit the dispute for arbitration.[2]

 

Arbitration can be a costly and drawn-out process so having a firm grasp on obligations around reinstatement either at the beginning of the lease or before undertaking any fitout works or alterations is absolutely essential. This is particularly important if you are considering significant alterations that could be costly to remove to reinstate the premises.

 

Take care

The proposed lease should be carefully reviewed. This includes the standard terms of the deed of lease[3] as they relate to reinstatement and the dispute resolution process and any specific terms or variations to the default terms which may reduce liability or impose stricter obligations on both parties.

 

Commercial leases can be tricky things and it’s essential to get advice to avoid costly mistakes.

 

If you are a prospective tenant or landlord, we will work with you through this process.

[1] ADLS Deed of Lease Sixth Edition 2012 (5).

[2] Clause 43.

[3] Clauses 20 and 43.

 

 

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Can losses be recovered from a faulty building?

Commercial, Property, Your Own Business
0

Design professionals can rely on limited liability clauses

The High Court recently found that the construction and insurance sectors can rely upon limited liability clauses when defending claims for negligence or breach of contract in commercial projects.

 

Background

In 2018, the Tauranga City Council (TCC) decided to build a nine-storey car parking building with 550 car parks on land it owned in central Tauranga. However, it ended up selling the land with a partially completed car parking building two years later for $1.

The TCC used a consulting engineering firm to design the car parking building; it engaged a second firm of engineers to check the design. Construction of the building began in June 2018.

 

The failed construction process

In March 2019, when the building was 20 metres high, a steel beam twisted while concrete was being poured. A third firm of engineers reviewed the building’s structural design. The firm’s initial conclusion was that the foundations, including the basement walls, were inadequate and that 300 tonnes of reinforcing steel and 140 truckloads of concrete were needed to strengthen them.

Construction was paused while a detailed design was prepared for the required remedial work. In June 2020, the TCC abandoned the project after receiving advice that it would cost: $26.5 million to demolish the building, $55.4 million to strengthen it and $64.4 million to rebuild it completely.

 

The court case

The TCC subsequently sold the land and building for $1 and filed legal proceedings in the High Court against the two engineering firms involved in the original design of the building. The TCC sought to recover losses of more than $20 million.

 

Limitation clauses

The TCC’s contracts with both engineering firms contained limited liability clauses seeking to cap the engineers’ liability to the TCC for any faulty design work at a set figure. A key issue in the case was whether the contractual limitation clauses were legally effective. This precise issue had not been previously considered by the New Zealand courts.

There is no general legal rule that prevents parties from agreeing to limit or exclude liability for a breach of contract. However, the court needed to consider the impact of section 17 of the Building Act 2004. Section 17 states that all building work must comply with the Building Code regardless of whether a building consent is required.

The TCC’s lawyers argued that the clauses limiting the engineers’ liability amounted to an attempt by the engineers to contract out of the duty to do all building work so that it complied with the Building Code.

‘Building work’ includes the design work done by engineers. They claimed this meant that the clauses were unlawful and unenforceable.

The court held, however, that the clauses did not attempt to avoid the duty to comply with the Building Code; they merely limited the consequences of failing to do so.[1] This means that it is possible for anyone involved in the building industry to contractually limit their liability, but not exclude it entirely.

 

Fair Trading Act claim

The TCC also brought a claim against the engineers under the Fair Trading Act 1986 (FTA). The TCC argued that the engineers’ incorrect design advice amounted to misleading or deceptive conduct, breaching the FTA. This type of claim could only be brought against those who provide advice, not those who do physical building work.

Claims under the FTA can be a powerful tool for parties that have suffered losses, as the general rule is that parties cannot contract out of liability under this legislation. However, the court may uphold a clause that seeks to limit or exclude liability for a breach of the FTA between commercial parties under section 5D if it considers that the clause is fair and reasonable.

The court will consider matters such as the contract’s value and the parties’ respective bargaining powers when deciding whether a particular term is fair and reasonable.

In this particular case, the court decided that the clauses in the contracts with the TCC seeking to limit the engineers’ liability were fair and reasonable, and thus enforceable.

Section 5D only applies to contracts between commercial parties. This means that it will not usually be possible for a designer to contract out of liability under the FTA for residential building work.

 

What to do?

Design professionals can limit their liability for defective design work if commissioned for commercial construction work. Your organisation cannot rely on recovering any losses caused by faulty design. This means that you need to be careful to choose a reputable design professional. It also means that it may be worthwhile having design work peer-reviewed for substantial projects.

[1] Tauranga City Council v. Harrison Grierson Holdings Ltd [2024] NZHC 714.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

The Budget 2024

Commercial, Health Issues, News, Your Own Business
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A no-frills outlook

Although it is clear the economic outlook is somewhat gloomy, in delivering the 2024 Budget, the Minister of Finance, Nicola Willis, said that savings across government have resulted in responsibly-funded tax relief. “Spending is targeted, effective and affordable.”

The government has promised targeted investments in public services, including healthcare, education, and law and order. Front-line services will be increased.  Having said that, the minister has admitted the Budget is “tight but realistic” and she intends to stick closely to these allocations.

 

Tax relief

The much-promised tax cuts have been delivered.

As previously signalled, the Budget will help what the government calls ‘the New Zealand squeezed middle income earner’. For the first time since 2010, personal tax brackets have been adjusted for New Zealanders earning up to $180,000 pa. Overall, average income households will have up to an extra $102 in their back pockets each fortnight.

Additional FamilyBoost payments will help around 100,000 families manage the costs of early childhood education with up to $150/fortnight.

These tax changes take effect from 31 July this year (a month later than promised) in order for payrolls to accommodate the re settings. Changes to FamilyBoost will apply from 1 July.

The government has reiterated the restoration of tax deductibility for interest on residential investment properties, as well as the adjustment to the bright-line test from 10 years back to two years from 1 July this year.

 

Health

Frontline health services have received a boost. Emergency departments, primary care, medicines and public health will get $8.15 billion additional operating and capital funding over the next four years:

  • $3.44 billion has been allocated for hospital and specialty services (including $31 million to increase security in emergency departments)
  • An additional $2.12 billion will be available for primary care, community and public health providers including GPs, Māori health services, mental health services and aged care services
  • Free breast screening will be gradually extended for 70–74-year old women (currently only available up to 69 year olds); an extra $31.2 million
  • Pharmac will receive additional funding of $1.77 billion over four years, which is said to just cover ongoing costs for additional medicines, and
  • The mental health initiative, Gumboot Friday, has $24 million to deliver services to young New Zealanders.

 

On the other side of the coin:

  • Free prescriptions have gone for most New Zealanders. However, free prescriptions will remain for those under 14 years old, people aged 65 and over and for Community Services Card holders, and
  • Promised additional funding for cancer drugs has not materialised. Since the Minister delivered the Budget, she has stated that the government aims to make an announcement on cancer drug funding this year.

 

Education

There will be increased spending on schools and early childhood education equating to $2.93 billion in extra operating and capital funding, including $440.8 million of reprioritisation. The government is allocating:

  • $1.48 billion to build new schools and classrooms and to maintain and upgrade existing school properties. This includes funding for kōhanga reo, play centres, kindergartens, kura kaupapa Māori, special schools, and intermediate, secondary and charter schools.
  • $516.4 million to support schools and early childhood education providers, plus $153.3 million to establish charter schools
  • $477.6 million to continue the Healthy School Lunches programme for the next two years
  • $67 million to support schools to use the new structured literacy approach when teaching reading, and
  • Funding is switched to allow a fees-free final year of tertiary study, rather than free fees in the first year.

 

Law and order

The government has reiterated its pledge to crack down on crime and keep communities safe. This includes:

  • Funding of $1.94 billion for more frontline Corrections officers, increased support for offenders to turn away from crime and increased prison capacity, and
  • $651 million allocated to support frontline policing (including increased pay) and for an additional 500 police officers and additional operational support staff.

 

Public services

$140 million is budgeted for an additional 1,500 social housing places, delivered by community housing providers.

$1.1 billion is allocated to ensure disabled people can access the essential services, equipment or support they need.

Hawke’s Bay and Auckland communities will receive $1 billion-plus for the rebuild and recovery from Cyclone Gabrielle and the Anniversary Day floods. $939.3 million of this is allocated for road repairs.

 

Infrastructure

The government, as it has previously signalled, is investing heavily in roading – $4.1 billion to accelerate priority roading projects including Roads of National Significance.

$200 million will be invested to support KiwiRail carry out maintenance and renewals on the national rail network.

 

Climate change

The government wants to support the country’s transition to a low-emissions economy and climate-resilient future. The minister said that around $2.6 billion of climate initiatives funded from the previous government’s Climate Emergency Response Fund will continue.

Later this year the government will consult on plans to deliver emissions reductions over the second emissions budget period. The minister confirmed that the Emissions Trading Scheme will play a vital role in reducing emissions.

 

In summary

While the Budget could not be considered an austerity plan, it is certainly a ‘no frills’ programme indicating the government will be running a tight financial ship over the next few years.

Treasury expects the economy to pick up later this year, including inflation returning to its target band of 1–3% and a fall in interest rates.

All things being equal, the government expects the country’s operating balance (before gains and losses) to head into surplus in the 2027–28 financial year.

In the meantime, however, we will all need to hold on to our hats and buckle our belts a little tighter over the next few years.

To read more detail about the Budget, click here for the Budget documents.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.


Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Postscript

Commercial, First Job, House, Property, Rural, Your Own Business
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Incorporated societies: must reregister by April 2026

The clock is ticking for New Zealand’s 24,000 incorporated societies to reregister by 5 April 2026. Under the Incorporated Societies Act 2022, if your incorporated society does not reregister by this time, it will automatically cease to exist.

During the next two years, every existing incorporated society must decide whether to retain its incorporated status by seeking reregistration. If it opts to reregister, it must check that its constitution (the rules of the society) comply with the requirements of the new Act. This will almost always involve amendments being made to the constitution and, in a significant number of cases, an entirely new constitution being adopted.

There is quite a list of requirements to reregister. To learn more, go to:

www.is-register.companiesoffice.govt.nz If you need advice on any aspect of reregistering, please don’t hesitate to contact us.

Minimum wage increases

 On 1 April the minimum wage increased. This covers:

  • Adult minimum wage increased from $22.70 to $23.15/hour
  • Starting-out and training minimum wage rose from $18.16 to $18.52/hour

Remember that all rates are gross and before any lawful deductions such as PAYE, student loan repayments, child support, etc.

Make sure your payroll people, HR/finance teams and your accountant are all aware of these changes.

Before you dig

Whether you want to replace a fence around your property, are a contractor installing a new cable along a street or a new gas pipe, or are working for the council in resurfacing the road, it is vital that you check there are no cables or pipes below ground.

beforeUdig is an online service which enables anyone undertaking design and excavation works to obtain information on the location of cables, pipes and other utility assets in and around any proposed dig site.

It provides a ‘one stop shop’ for contractors to communicate about their planned activities with utilities and asset owners.

To find out more, go to www.beforeudig.co.nz/home.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650