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Prenuptial Agreement 90B

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					                                                                      ISSUE No. #27 - August 2008



IN THIS ISSUE
• Confidential Information – Important                               Confidential information –
   Lessons for Employers ............................ 1
• GST compliance for property dealings –
   a moving target........................................ 2
                                                                     important lessons for
• Business Succession Basics....................... 2
• Pre-Nuptial Agreements and other
                                                                     employers
   Relationship Agreements......................... 3                                     The need for employers to protect their confidential
• Use of trade marks on imported goods ....... 4                                          information has been highlighted by a recent decision of the
• Scam alert! ................................................. 4                         NSW Supreme Court. On 4 June 2008, the Court made
• What’s New at Moores................................ 5                                  orders restraining a former employee from using certain
                                                                                          documents, but did not restrain him from using information
                                                                                          “which he may have retained in his mind”.

Editorial                                                           Leanne Tully
                                                                    Senior Lawyer
                                                                                             Case Note – Digital Products Group v Opferkuch

                              th                                    Workplace Relations
Welcome to the 27 issue of Discovery. In                                                In this case, Mr Opferkuch accidentally copied his former
this edition the important issue of employers                                           employer into an email quoting detailed sales and pricing
protecting their confidential information is                         figures relating to the former employer, Digital Products Group (‘DPG’).
discussed.                                                           This gave DPG the evidence it needed to show that Mr Opferkuch was
                                                                     using its price and sales figures in his new job. The implication was that he
We look at GST compliance for property                               had taken actual documents from DPG, because the data was “not of the
dealings – just when you thought GST was a
                                                                     kind likely to be carried in someone’s head”.
known quantity along comes a Court case to
challenge the way you might be reporting
GST. Again we look at the issue of business                          The Court ordered that Mr Opferkuch should not use, copy or show any
succession and the importance of getting the                         documents containing certain information relating to DPG. However, the
basics right.                                                        Court refused to order that he should not use unwritten information relating
                                                                     to DPG. The Judge stated that he would be entitled to make use of his
We explain how your assets can be protected                          general knowledge of DPG’s sales and pricing in his new employment.
by pre-nuptial agreements and other
relationship agreements. This is an important                        DPG attempted to rely on a Confidential Information clause in its written
issue for the professional advisor who must                          offer of employment to Mr Opferkuch. However, the Judge indicated that
ensure that existing agreements for their                            the clause restrained the disclosure of certain unwritten information and not
clients are valid or open to challenge under
                                                                     the use of that information, and said that the clause may not have been
the Family Law Act.
                                                                     binding because Mr Opferkuch never signed the document.
In our “What’s New at Moores” section we
introduce some new recruits and explain the                          Important Lessons:
renovations being undertaken within in our
office.                                                              1.    Ensure that all employees with access to sensitive information agree in
                                                                           writing to keep that information confidential.
We trust you will find the articles and
                                                                     2.    Ensure that the confidentiality agreement or clause is worded
comments of interest and assistance to you in
managing your business and personal                                        appropriately, so that it is wide enough to be useful, but not so wide as
investments.                                                               to be unreasonable.
                                                                     3.    Include in the confidentiality agreement or clause the following points:
David Wells
Managing Principal


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                                                                  discovery : issue No. #27 August 2008

      (a) a definition of confidential information          should not apply since there had been no "supply" of
          specifying the documents and information          the land.
          the employer wishes to protect – including
          any exceptions such as information forming        After contrary decisions by the Administrative
          part of the employee’s general skill and          Appeals Tribunal and the Federal Court, the case
          knowledge;
                                                            has now been decided by the High Court of
      (b) details as to the things an employee must         Australia. Unfortunately, the decision is not in favour
          not do – such as use, copy or disclose the        of the taxpayer. The Court decided that a forfeited
          confidential information;                         deposit will attract GST where the deposit was in
                                                            relation to a "taxable supply".
      (c) any limits on the confidentiality obligation –
          such as time-frames beyond which certain          Keep the following things in mind:
          information ceases to be sensitive;

      (d) clear obligations regarding the return of         •    The case does not only apply to property
          documents       and   information    upon              transactions.  The ATO considers that this
          termination of employment;                             decision is equally applicable to contracts for
                                                                 other goods and services.
      (e) agreement that it may be necessary for the
                                                            •    If you're the seller, seek advice before asking for
          employer to obtain an injunction as well as
                                                                 a higher deposit - to do so may result in you
          damages.
                                                                 having to report the deposit as a "part payment"
                                                                 and may result in a premature GST liability.
4.    Ensure that restraint clauses are used where
      necessary. DPG was in a relatively unusual            •    In order to claim an input tax credit for your
      position in having the evidence of its former              forfeited deposit (if you're the person who
      employee’s activities sent to it by email. For             couldn't complete the deal), you MUST have a
      many employers, it is difficult to gather evidence         tax invoice.
      of breaches of confidentiality obligations until it
      is too late. A restraint clause can be used to        •    Do your sums and consider the GST
      prevent a former employee from competing with              consequences before telling your lawyer to bring
      a former employer.       As with confidentiality           the contract to an end.
      clauses, restraint clauses must be carefully
      worded to ensure they are enforceable.
                                                            Business Succession
For assistance in preparing employment agreements
which protect your confidential information and the         Basics
goodwill of your business, contact our Workplace                                In Discovery 24, we talked about the
Relations Group.                                                                importance of arranging for business
                                                                                succession in your business and how
                                                                                it might be achieved, whether you
GST Compliance for                                                              wish to pass your interest in the
                                                                                business to your business partner,
property dealings – a                                                           the next generation or upcoming
                                                                                  employees.
moving target                                               Cecelia Irvine-So
                                                            Senior Lawyer -
                                                            Commercial       We touched on the importance of
                 Just when you thought GST was a
                                                            Group            considering what will happen to
                                                                             your interests in your business if
                 known quantity, along comes a Court
                                                            you were to unexpectedly die or become
                 case to challenge the way you might
                                                            permanently disabled.      It was noted that it is
                 be reporting GST.                          important to consider:
                 The Reliance Carpet case
                                                            •    whether you would effectively place your spouse
                                                                 into your shoes, running the business with your
              Reliance sold a piece of land for                  current business partner;
Andrew Boer
Principal,    almost $3m plus GST. The purchaser
Property Grouppaid a 10% deposit, but failed to pay         •    whether your spouse could or would be able to
              the balance on the settlement date.                discharge your functions;
Reliance issued a rescission notice and terminated          •    whether, where your spouse could not discharge
the contract when the purchaser failed to pay the                those functions, your business partner would be
monies due. The 10% deposit was forfeited to                     prepared to pay them your share of the profits;
Reliance under the terms of the contract.                        and
                                                            •    whether your business partner could afford to
The ATO decided to assess GST on the forfeited                   buy out your interest in the business.
deposit retained by Reliance, effectively taking
1/11th of the deposit as GST revenue.                       We discussed how many businesses implement
Understandably, Reliance objected - it said GST             Buy-Sell Agreements funded by life insurance, to

                                                                                                                 Page 2 of 5
                                                                 discovery : issue No. #27 August 2008

ensure that on the unexpected death or disability of       Lastly, the temptation to own insurance via the
one of the partners, the outgoing person is paid their     business and claim a deduction can lead to the
insurance proceeds and the other person takes over         proceeds not being CGT free, as they may be
their interest in the business.                            considered to have a revenue purpose for lost
                                                           profits, rather than a capital purpose.
Some of the key issues in relation to voluntary exit
agreements were raised – that is, dealing with what        The lesson with business succession matters and
happens if there is a “falling out” or somebody wants      buy-sells, is to make haste slowly and to consider all
to leave the business, and how the interest in a           of the available options, as relative costs and
business is valued and paid where there is no life         benefits need to be considered from the perspective
insurance.                                                 of each party.

A current trend in business succession is to own life
insurance in one’s superannuation.                         Pre-nuptial agreements
The abolition of RBLs has made the ownership of life       and other relationship
insurance in superannuation more attractive.
Previously, any proceeds received above the RBL            agreements
would be taxed as excess benefits at the top
marginal rate plus Medicare levy.                                            Family lawyers can draft legally
                                                                             binding agreements to protect clients
However, owning life insurance in superannuation                             in     the     following     diverse
                                                                             circumstances:
does have some restrictions and it is important to
note these before plunging in:
                                                                             a)   a pre-nuptial agreement in
                                                                                  contemplation of marriage –
•   Whilst the tax deduction can be claimed for the
                                                          Stephen Winspear         section 90B Family Law Act
    premiums, the deduction is claimed within the         Principal,               (“B”   stands  for   before
    fund and is only available for life and TPD (Total    Family Law Group
    and Permanent Disability Insurance).                                           marriage);

•   Trauma insurance, such as insurance in the             b)    an agreement entered into during the marriage
    event of a heart attack, is generally not obtained           governing division of property and maintenance
    via superannuation and there is no permitted                 after separation but prior to divorce – section
    deduction. There is also debate about whether                90C (“C” stands for current marriage);
    the ownership of trauma insurance can render a
    super fund non-complying, because a trauma is          c)    an agreement governing division of assets and
    not necessarily consistent with the sole purpose             spouse maintenance after divorce – section 90D
    of superannuation which is to provide for                    (“D” stands for divorce); and
    retirement.
•   Tax might still be payable on the proceeds as          d)    cohabitation agreements under state or territory
    they are paid out of the super fund in the                   laws for de facto couples (usually applicable to
    absence of a superannuation death benefit                    both heterosexual and same sex couples) –
    dependent (at 30% plus Medicare levy).                       these can be entered into prior to cohabitation,
•   Practically, there still may be access issues in             during cohabitation or after separation. They
    relation to the proceeds coming out of the fund.             are binding under most state and territory laws
    Where the purpose of the superannuation fund                 but specific advice should be obtained.
    and/or the conditions of release do not accord
    with the policy purpose, proceeds can still            Estate planners and accountants need to beware as
    become trapped.                                        to whether existing agreements for their clients are
                                                           valid or open to challenge.
•   Ultimately, there is usually some tax to pay on
    TPD proceeds, when paid out of the fund to the
                                                           A recent decision of the Full Court of the Family
    ultimate member.
                                                           Court, Black v Black (2006) 205 FLR 137, has cast
The lesson is that care still needs to be taken, and       doubt on the validity of many pre-nuptial agreements
consideration given to ownership of life insurance in      (and post-nuptial agreements) previously prepared
super just as in any other manner. Sometimes,              under the Family Law Act.
banks and financial institutions also set up situations
where insurance for all relevant parties is owned by       The basic question in that case was whether the
one trustee, and then the trustee holds the proceeds       Family Law Act provisions specifying how to enter
on trust for the beneficiaries. This can lead to tax       into binding financial agreements are to be
issues, and also has fees involved which ought to be       interpreted very strictly or liberally. The answer was
considered up front.                                       that they should be interpreted strictly so the




                                                                                                               Page 3 of 5
                                                               discovery : issue No. #27 August 2008


agreement in that case was invalid.                       lemonade, first concocted in 1922, to allow cyclists
                                                          “who wanted a more refreshing drink so they could
Therefore it is now clear law that agreements must        continue on their journey without falling off their
include in the body of the agreement a statement          bicycles!”
that each party acknowledges that before signing the
agreement they have received independent legal            US wine company E&J Gallo Winery had already
                                                          registered the trade mark "Barefoot" in Australia in
advice about:
                                                          relation to wine, and sued Lion Nathan for
 (i)     the effect of the agreement on the rights of     infringement of its trade mark. Lion Nathan in turn
         that party; and                                  brought action against Gallo to have its "Barefoot"
(ii)     the advantages and disadvantages, at the         trade mark removed for non-use.
         time that the advice was provided, to the
         party of making the agreement.                   In its June 2008 judgement, the Federal Court of
                                                          Australia made some important findings:
This applies to all agreements drafted to date under
sections 90B, C or D of the Family Law Act. As a          •   beer and wine are sufficiently different goods
result, many completed agreements may now be                  that Gallo's registration of the "Barefoot" trade
invalid!                                                      mark in relation to wine did not prevent Lion
                                                              Nathan from using the trade mark "Barefoot
I recommend that estate planners and accountants              Radler" in relation to beer; and
check every pre-nuptial agreement on their files to
see that they comply with the above or else their         •   Gallo's trade mark should be removed for non-
clients will be at serious risk. There are also other         use, because Gallo had failed to use its trade
technicalities which may render pre-nuptial                   mark in Australia.
agreements (and post-nuptial agreements) invalid. If      Two simple lessons can be learned from this case:
professional advisers fail to refer their clients for
advice about these matters, and the client is             •   registration of a trade mark in relation to certain
inadequately protected at the end of their domestic           goods or services does not prevent another
relationship, I believe that in some circumstances            person from using a similar trade mark in
there may be an argument that that adviser was                relation to different goods or services; and
negligent. If you have any doubts, recommend to
your clients that they obtain family law advice as        •   failure to use a registered trade mark leaves it
insurance against any future difficulties.                    vulnerable to be removed for non-use.

Note that the Commonwealth Parliament may pass            This judgement also has a number of technical
legislation later this year to bring de facto             implications that are potentially quite important,
relationships under the Family Law Act for all            though beyond the scope of this article. These will
purposes. That is, separating de facto partners           undoubtedly be raised by Gallo in its appeal, which it
would be treated like married couples when they           has already lodged.
separate. In anticipation of this happening, all
cohabitation agreements being entered into at this
time should mirror the provisions of the Family Law       Scam alert!
Act and include the provisions referred to above.         We have recently received a number of letters
This will maximise their chances of being                 encouraging Australian businesses to register to be
enforceable in future.
                                                          listed in the Industry and Commerce 2008 business
This is a very technical area of family law, but real     directory. The letters originate from Spain and
and binding benefits are available here if these          appear quite legitimate and professional. The letters
matters are handled carefully. We would be happy          give the false impression that there is an existing
to assist if you have any queries or if you would like    listing in the directory, and that the contact details
to refer clients to us for advice about their proposed    merely need to be confirmed or updated.
agreement.
                                                          On signing up, businesses commit themselves to
                                                          appearing in the next 3 editions of an essentially
Use of trade marks on                                     worthless business directory, and are charged
                                                          $A1,300 per edition. The fine-print also states that
imported goods                                            the listings will continue beyond the initial 3 editions
                                                          unless cancelled.
                   In January 2008, Australian brewer
                   Lion Nathan launched "Barefoot         At least two Australian Government agencies,
                   Radler" a beer with a lemon and lime   Austrade and the ACCC, warn about this scam.
                   twist. The name "Barefoot" was         Similar scams also exist in relation to trade fair and
                   intended to convey a relaxed,          exhibition directories, and underscore the importance
Nils Versemann       summery feel. The term "Radler"      of reading documents carefully before signing them,
Senior Lawyer        means "cyclist" in German, and       particularly where you are not familiar with the
Commercial Group
                     also describes a type of beer with   person you are dealing with.


                                                                                                               Page 4 of 5
                                                                         discovery : issue No. #27 August 2008




 What’s New at Moores…
   Welcome to Nawal Ismail and Joelle Blackburn

   Joelle Blackburn has recently joined Moores Legal as its Human Resources Manager. Joelle
   has worked in Human Resources for over twenty years and consulted in that area for
   numerous industries including manufacturing, telecommunications, insurance and professional
   services.

   Nawal Ismail is a new addition to our Commercial Group and comes to us from a Melbourne
   CBD law firm. Nawal studied in Singapore, USA, Sydney and Melbourne and has travelled
   extensively throughout Asia, Europe and the Middle East. Nawal is also fluent in oral and
   written Malay. Nawal is a commercial lawyer and has worked with small to large corporate
   entities on commercial, property and litigation matters.

   We welcome both Joelle and Nawal and look forward to working with them.

   Expansion

   If you have been a recent visitor to Moores Legal you will have noticed the renovation works
   on the ground floor of our building. With the steady increase in numbers in our different
   practice areas we have enlarged our office space. Our private client areas of family law and
   personal injury together with our administration group now taking up a major portion of the
   ground floor. Our reception and meeting rooms remain on level 1.




                     MURRAY BAIRD – Business and Corporate Law           ANDREW SIMPSON – Estate Structuring & Probate and Elder Law
Principals
                 •                                                   •
                 •   TIM ADAM – Personal Injury and Employment Law   •   ALLAN SWAN – Estate Structuring & Probate
                 •   ANDREW SCOTT– Business and Sports Law           •   JENNIFER DIXON – Estate Structuring & Probate
                 •   STEPHEN WINSPEAR– Family Law                    •   PETER SZABO – Family Law
                 •   PETER LOFTUS– Property and Finance              •   ANDREW BOER – Commercial and Property Law
                 •   PHILIP CURTIS– Estate Planning & Structuring
                 •   ANDREW SUDHOLZ– Commercial and Property Law     Consultants
                                                                     TIM CONNOR – Personal Injury Law
                 •   DAVID WELLS – Commercial Dispute Resolution
                                                                     PETER ANDREW – Employment Law
                                                                     STEVEN SAPOUNTSIS – Commercial Dispute Resolution
                                                                     TERRY FRASER – Aged Care




                                       9 Prospect St. Box Hill Vic 3128
                                  Lv 10, 350 Queen St. Melbourne Vic 3000
                                 12/1140 Nepean Hwy, Mornington Vic 3931
                            Telephone: [03] 9898 0000 Facsimile: [03] 9898 0333
               info@mooreslegal.com.au www.mooreslegal.com.au www.MooresTraining.com.au

				
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