Atkinson Vinden Lawyers
L a w Ta l k
Keeping business clients in touch with the law
W
IN THIS ISSUE:
Welcome to this edition of Law Talk, the Business
Newsletter of Atkinson Vinden.
In this edition Rod Berry, the Director of our Information
and Communication Technology team, summarises some
important issues in relation to employee fraud.
Sheena Joshi of our Commercial team sets out an
interesting example of what occurs in a typical partnership
dispute.
There is also an article by Chris McClure on the dangers
and problems with the granting of “indemnities”.
We trust that the information in Law Talk is of value and
relevance to you.
Warm regards
Information and
Communication
Technology Law
Employee Fraud
Commercial Law
Partnership Disputes
Problems with Indemnities
Employee Fraud
A
A recent study indicates that 40%
of Australian businesses suffer from
some sort of employee fraud.
Most companies which have policies designed
to avoid or detect internal fraud focus on
risks related to employees in lesser positions
of authority. Ironically, the cases routinely
prosecuted by the authorities indicate that the
focus should actually be on management level
employees, because they have more privileged
access to company IT systems, and can therefore
do far greater damage.
The potential for a malevolent or greedy
employee to misuse their access rights can be
profound, and has brought many businesses to
their knees. We have advised on several such
situations in recent months, where IT systems
have been sabotaged or misused by senior
staff members, at great cost to the companies
involved.
For fraud to take place, there must necessarily
be an absence of control or safeguards. In the
context of employment, the critical question
is the degree to which employees are held
accountable for the powers of access they have
to their employer’s IT system.
Some degree of control can be exercised
passively through such measures as:
aving IT control procedures well documented;
nh
aving a code of conduct for staff with zero
nh
tolerance regarding deviations from it;
n e nsuring that no single person is responsible
for a complete transaction from start to finish;
aving clearly articulated lines of authority
nh
regarding specific transactions;
eing cautious about who is employed
nb
(including proper background checks and
even making use of social networking sites to
investigate potential candidates);
erforming regular accounting reconciliation
np
processes; and
n implementing physical access controls.
The same technology which has exposed
companies to fraud risks also provides employers
with opportunities to fight back. In particular,
in NSW the Workplace Surveillance Act (“the
Act”) recognises that circumstances will arise
in the workplace where it is appropriate to
conduct electronic surveillance of employees.
That surveillance may be by way of video
cameras, computers or tracking technology.
The surveillance may either be overt (openly
conducted) or covert (hidden). Overt surveillance
may be used to supervise employee performance
as well as to keep an eye out for misconduct.
Covert surveillance may only be used to identify
criminal misconduct.
To use overt surveillance, such as checking on
employee emails and internet usage, an employer
must give notice to employees at least 14 days
before commencement warning them that this
will take place, indicate the type of surveillance
Continued on page 2
Information and Communication Technology Law Continued
that will be carried out, how it will be carried out, when it will
start, whether it will be continuous or intermittent, and whether
it will be limited to a specific period or ongoing. All employers
are well advised to have in place a clear, regularly reinforced,
policy of email and internet surveillance of staff. Absent proper
notice, such evidence will be considered unlawfully obtained,
rendering any dismissal unfair.
Covert surveillance requires pre-approval by a
Magistrate. It could include using spyware (which
for example can allow a third party to view on
a separate computer what appears on the
employee’s computer in real time), and the
use of keyloggers, which record all keystrokes
used on a computer for later analysis. The
results of the surveillance must be reported
back to the Court. If criminal conduct is
uncovered (such as fraud), this evidence can
then be used to terminate the employee
summarily for serious and wilful misconduct,
and perhaps more importantly, to enable the Police
to prosecute the matter.
There are specific sections of the Crimes
Act (NSW) addressing workplace fraud.
Section 156 makes it a crime, punishable by
up to 10 years gaol, to steal property belonging to the employer.
Section 308G makes it a crime punishable by up to 3 years gaol
to produce, supply or obtain data with the intent of committing
a serious computer offence, and section 308H makes the
unauthorised access to or modification of restricted data held
in a computer (such as the confidential
information of a company not within an
employee’s area of responsibility) punishable
by up to 2 years gaol.
When an employee is prosecuted for
workplace theft, they will almost
always have their sentence
Rod Berry
reduced if they can
show genuine remorse
by having paid back the amount stolen
from their employer. The fact of their
prosecution will also act as a very strong
deterrent to other employees considering
similar conduct. Because of these factors, in
most situations an employer is well advised to
hand matters of fraud to the Police. However,
in some instances, where a wider fraud may
be at play, there may be value in considering
the civil search powers available through the
Supreme Court before the employee
concerned is put on notice about
what has been identified.
Atkinson Vinden has recently
established an ICT law department because of the growing
legal needs of our clients in the area of information and
communications technology, including ICT issues arising in the
context of the workplace. Visit our website at www.atkinvin.
com.au to learn more about this exciting new area of our
practice, or give us a call to discuss your needs.
Commercial Law
Partnership Disputes – What happens
when neither partner wants to let go?
L
Lawyers are often called upon to assist in the resolution
of partnership disputes and more often than not, to
assist to remove one partner (whether an individual or
a corporation) from the partnership entirely.
We recently acted in a large partnership dispute involving
two companies, one based in Australia and the other based
overseas. The geographical constraints and language barrier
made resolution far more complicated than in matters where the
partners are in regular communication with each other.
The breakdown in the partnership relationship occurred for
a number of reasons, the largest being the lack of trust of one
partner in the other and the inability of the overseas partner
to manage daily the operations of the business including
management of the partnership bank account, payment of
invoices and the domestic partner being involved in conflicting
business enterprises that ultimately would
affect the financial performance of the
partnership.
The parties naturally looked to their
Partnership Agreement for guidance as to
the manner in which the dispute should
be dealt with. However, the Partnership
Sheena Joshi
Agreement was not clear on the events that
would trigger a termination, the manner in which the property
of the partnership should be dealt with and the way to handle a
deadlock. In this case, both parties wished the other to exit and,
while our client was in a secure financial position to buy out the
other partner’s interests, the other partner indicated that it too
was financially able to purchase our client’s interest. Had the
Partnership Agreement been clear on these matters, resolution
Commercial Law Continued
would not have been required as the rights of the parties would
have been dictated by the terms of the Partnership Agreement.
After substantial negotiation, the parties ultimately reached
an agreement whereby our client would purchase its partner’s
interest in all of the partnership’s property. The only issue that
then remained was at what price?
Again, this was a matter of negotiation as the Partnership
Agreement was silent on the manner in which such payment
would be calculated. A price was eventually agreed upon and
the matter was finalised.
But what happens in matters where no resolution can be
reached?
The next step is to commence litigation and it is important
that the affected party consider carefully issues such as what it
is that they wish to achieve by litigation. Are they prepared for
or do they desire the partnership to be dissolved? Do they wish
to sell or acquire the other partner’s interest in the partnership?
What is the value of their interest and the partnership? Is the
partnership trading profitably? Are there any other means of
resolving the differences?
Prior to the commencement of any proceedings, a detailed
letter of demand should be forwarded to the other partner
detailing how it is alleged that the other partner has breached
the Partnership Agreement and giving the other partner a
reasonable time to remedy the alleged breaches if possible.
It is important to note that commencing litigation to enforce
a right or to prevent a breach of the Partnership Agreement
or of the relevant legislation should be the last resort in that it
may well lead to the irretrievable breakdown of the partnership
relationship as well as providing a result that neither party is
satisfied with.
For example, a dissolution of partnership will not generally
be ordered by a Court simply because the partners have minor
differences or even if a partner is mistreated in some respects.
The differences between the partners must result in a
conclusion that in all probability the partnership cannot be
continued.
Further, a Court may order that a receiver be appointed if
there are some assets of the partnership which are in danger or
the business cannot be carried on by the partners as there is a
serious dispute. Usually a receiver is appointed for the purposes
of protecting the goodwill of a business so that the partnership
can be dissolved and the business sold.
The appointment of a receiver is an expensive exercise and
will not be ordered if there are other means by which to have an
orderly winding up of the partnership business.
The court may be reluctant to appoint a receiver due to the
serious consequences of such an appointment, especially when
the appointment may cause irreparable loss to one of the
partners.
As mentioned above, many disputes arise when the parties’
performance requirements are vague and unspecific. Disputes
are often the result of a lack of awareness or imprecision during
negotiations. Commercial terms are often given much higher
priority than legal terms and it is the latter that will assist the
parties during a dispute.
The main requirement to avoid partnership disputes is a clearly
written partnership agreement including a dispute handling
process. This should set out a formalised manner in which the
parties may exit the partnership and the conditions in which such
exit may take place.
If you would like more information on partnerships or
partnership disputes please contact Sheena Joshi on (02) 9411
4466.
Commercial Law
The Dreaded “I” Word….
M
Most people, even those with a non-commercial/legal
background will have heard of the word “Indemnity”
even if they may not fully understand its concept.
The Oxford Dictionary defines an indemnity as:
n“
a security or protection against a loss or other financial
burden, or
n a security against or exemption from legal responsibility for
one’s actions, or
n a sum of money to be paid as compensation in respect to a
loss sustained or other financial burden.”
Forms of indemnity can include cash payments, repairs,
replacement or reinstatement with the word often used as a
synonym for “compensation” or “reparation”.
As a legal concept “indemnity” usually
has a far more specific meaning, namely, to
compensate another party to a Contract for
any loss that such other party may suffer
during the performance of the Contract.
The obligation to indemnify can also be
distinguished from a guarantee granted by Chris McClure
one party (usually) in regard to the debts or
potential debts of another or the performance of contractual
obligations by another.
Lawyers will often grimace when they are asked to either
draft or interpret indemnity clauses in Contracts or Agreements.
Such clauses are often the last provisions agreed in contractual
Continued on page 4
Commercial Law Continued
negotiations because there is often so much at stake – as can
be imagined from the noted dictionary definition. They are
usually the subject of robust argument because there is often
so much at stake. Indemnities may enable a contracting party
to get around common legal hurdles such as:
nO
bligations to mitigate losses.
n T ransferring liability to another party altogether.
nG
etting around rules of “remoteness”.
Accordingly Court outcomes can sometimes appear
unjust and even ridiculous. Invariably in such situations the
indemnifying party has not taken legal advice as to the risks it is
being exposed to or, even if it has, takes a commercial decision
with the consequent risk, because it wishes to proceed with
the services or work which is the subject of the Contract or
Agreement, and obtain the resultant monetary reward.
A recent Queensland decision provided a useful summary of
the principles governing the construction of indemnity clauses
by the Courts. Such clauses are to be construed strictly even
(as occurred in the referred case) with an apparently unfair
outcome. In this case the indemnifying party was found liable
to indemnify another party for claims that were actually based
on that party’s own negligence.
Yes, you say, but this is only a Queensland State Court
judgment and is unlikely to be followed in other States or
our Federal Courts... but think again. The case provides a
useful summary of the principles governing the construction
of indemnity clauses and highlighted the consistent approach
of Courts in their interpretation, on a strict construction basis.
Whilst it is true that any doubt as to the construction of the
clause will be resolved in favour of the indemnifying party, if the
ordinary meaning of such a clause is clear and the commercial
and contractual context supports such a construction then
a Court will give effect to the provisions of the indemnity,
regardless of the outcome.
In a democracy, the Courts say parties to an Agreement
should be free to include whatever terms they consider
appropriate and as negotiated. Courts have no role in overruling
the parties’ bargain by rewriting a provision that simply seems
unfair or to lack balance.
The Queensland case is a timely reminder to ensure good
legal advice is obtained in respect to all important Contracts or
Agreements where:
np
rotection in the form of suitably drafted indemnities is
needed; or
nw
here a party needs to ensure it is not exposed to unjust
compensation or reparation claims as a result of unchallenged
indemnity clauses in such Contracts or Agreements.
Please contact Chris McClure or any member of our
Commercial Law Team at Atkinson Vinden on 9411 4466 for
details or advice.
Keeping in touch
Please photocopy the form below and fax it to 02 9412 3657
B2-11
Do we have your email address: please notify us so that we can also communicate with you by email.
If any of the details shown on the outer envelope are not correct eg your name, title or address, please complete the form
below and fax or mail it to us. Alternatively, if you have a relative or friend who would like to receive our newsletter please
provide their details and fax or mail to us.
■ Incorrect info
■ Add friend/relative
Title: ■ Mr ■ Mrs ■ Ms ■ Dr ■ Other____________________ Name______________________________________________
Old Address________________________________________________________________________________________________ _______________________________________________________ Postcode_ ________ Email_____________________________
New Address_______________________________________________________________________________________________ _______________________________________________________ Postcode_ ________ Email_____________________________
Phone_______________________________Fax_________________ Email_ _____________________________________________
Chatswood Level 8, 10 Help Street, Chatswood NSW 2067
ATKINSON VINDEN
LAWYERS
PO Box 450, Chatswood NSW 2057 DX 29582 Chatswood
Tel: (02) 9411 4466
Fax: (02) 9412 3657
Also by appointment only
Newcastle
[email protected]
www.atkinvin.com.au
MLC Centre, Sydney
This business newsletter is intended to provide you with general information. You should obtain professional advice before you undertake any course of action. If you no longer wish
to receive this information from Atkinson Vinden, or any other communications, please contact us and ask to be removed from our database.
©Copyright Atkinson Vinden