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City of Swan v Lehman Brothers: Deed of Company Arrangements and Third party Releases The High Court of Australia is expected soon to hand down its judgment in Lehman Brothers v City of Swan. It is likely that this judgment will definitively determine whether Deeds of Company Arrangement under Pt 5.3A of the Corporations Act (“the Act”) are able to force creditors to give releases to third parties. Dispute Resolution lawyer, Anna McFarlane, discusses the decision of the Full Court of the Federal Court and provides a brief outline as to the possible outcomes of the High Court appeal.

On 15 September 2008 Lehman Brothers “On payment in full of the Litigation Justices Stone, Rares and Perram all held Holdings Inc (“Lehman Inc”) filed for Creditor’s Final Dividend all Claims by the that properly construed this subsection Chapter 11 Bankruptcy in the US. On Litigation Creditors [including the plaintiffs] does not allow a DOCA to deprive non- 17 September 2008, Lehman Brothers against the Company or a Lehman Entity consenting creditors of their rights to sue Asia Holdings Limited (“Lehman Asia”) and all Insurance Claims except those third parties. In holding that a DOCA followed suit and appointed provisional that arise out of the Preserved Contractual of itself cannot provide for third party liquidators. Then on 26 September Rights are, for ever released discharged and releases, each member of the Full Court 2008 Voluntary Administrators were extinguished.” employed differing reasoning, yet each appointed to Lehman Brothers Australia shared elements of commonality. Each Limited (“Lehman Australia”). At the The Full Court was asked, in essence, to judge discussed the expression “so far as second meeting of creditors, the creditors determine firstly whether the DOCA seeks concerns”, and sections 444A, 435A, and voted in favour of executing the Deed of to extinguish the plaintiffs’ claims against 444J. Justices Rares and Perram both also Company Arrangement (“DOCA”); 61 Lehman Entities; and secondly, if it does, discussed the decision in Fowler v Lindholm ($256 million in value) to 58 ($72 million whether there is power under Pt 5.3A of and its relevance to Pt 5.3A. in value). The DOCA was executed on the Act to include such provisions. 12 June 2009. “so far as concerns” Power and Validity Prior to entering into external The fourth defendant submitted that administration, Lehman Australia sold Subsection 444D(1) of the Act provides: “”so far as concerns” meant “relating to”, Collaterised Debt Obligations (“CDOs”) “connected with”, “being of interest or “A deed of company arrangement binds all importance” or “affecting” claims against to the plaintiffs all of which are Local creditors of the company so far as concerns Government councils. It is that act which the company” and that therefore sub- claims arising on or before the day specified section 444D(1), properly construed, has lead to potential claims against entities in the deed under paragraph 444A(4)(i).” related to Lehman Australia (“Lehman binds creditors in respect of their claims Entities”), and it is those claims that are It is this section which gives a DOCA its that have a nexus with the company. the subject of the third party releases. binding force. The defendants submitted that Clause 11 of the DOCA provides: pursuant to this section, the DOCA bound creditors in respect of their claims against the company, insurers, other creditors and other third parties.

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There are a number of previous judicial Sections 444A, 435A and 444J A similar point of difference in the decisions regarding section 444D(1) judgements of Justices Stone and Perram Given the reference to section 444A in however, as Justice Stone pointed out is found in their discussion of the influence section 444D, it is unsurprising that each of in her judgment, these decisions neither and effect of section 444J, which provides the judgments refer to section 444A. In fact deal with the phrase “so far as concerns” that guarantees and indemnities are not Justice Rares went so far as to state that: or “go so far as to read the section affected by the release provided in section “The significance of the provision of s 444A(4) as referring only to claims against the 444H in respect of DOCAs. This section (b) and (i) in the construction of 444D(a) is company”. Justices Stone and Perram was introduced following the decision in obvious.” His Honour then went on to hold explicitly, and Justice Rares implicitly, M & S Bulter Investments Pty Ltd v Granny that: considered that the phrase “so far as May’s Franchising Pty Ltd. In that decision, concerns” was ambiguous, in that it “The literal, grammatical, and common sense Justice Spender held that a DOCA “can was capable of meaning those phrases construction of s 444D(1) is that it refers to only deal with company property.” Justice referred to above, and also of the more claims of creditors corresponding to those Stone held the enactment of section restrictive interpretation proffered by the referred to in s 444A(4)(b) and (i)…” 444J does not adversely affect Justices plaintiffs, namely that it relates only to Spender’s judgment, but rather supports claims against the company. Justice Stone also considered these it. Conversely Justice Perram held that provisions relevant and that “claims” in the section 444J ‘merely ensures that a Both Justices Stone and Rares referred context of section 444A(4)(b) and (i) “clearly guarantor is not released’ because the to the “basic” principle of statutory refers to claims against the company”. Justice principle debtor is released; he did not construction namely that without “clear Stone further considered that the fact that discuss Justice Spender’s decision. words that are not capable of another in section 444A, and indeed throughout Pt construction”, a statute should not 5.3A, “creditors are referred to in their capacity Fowler v Lindholm be interpreted as interfering with the of creditors of the company”. Justice Perram Justices Rares and Perram held that the property rights of an individual. It is clear similarly held that the construction proffered Full Court of the Federal Court decision in that the third party releases provided by the defendants does not sit comfortably Fowler v Lindholm was not relevant to the under the DOCA sought to interfere with with the reference to 444A(4)(i) in 444D(1). operation of Pt 5.3A. Fowler v Lindholm the plaintiffs’ property rights pertaining was heard on 3 and 4 September 2009 to potential claims against those parties. All three judges considered that the and the joint judgment of Justices Emmett, Accordingly Justice Rares held, because objective of Pt 5.3 A, to provide for the Gordon and Jagot was delivered three “no express words in Pt 5.3A support”, business, property and affairs of an insolvent weeks prior to judgment being delivered the broad interpretation submitted by company, was relevant to the construction in City of Swan v Lehman Australia. In the defendants and this interpretation of 444D(1). Justice Rares held that, at a Fowler v Lindholm the Court held that in interferes with existing property rights, minimum, this objective is not reflective of relation to schemes of arrangement under it must be rejected. Interestingly, Justice Parliament intending a DOCA to permit the Pt 5.1 of the Act, “...the Court had power Stone went further to suggest that this majority of creditors to deprive a minority to approve the Schemes containing the principle applies to any “existing” right, of any rights or claims they might have provision for release and indemnity [of but ultimately held that “although this against entities other than the company in third parties].” principle still has life it is not … necessary administration. Justice Stone further held to rely on it.” that given this objective, section 444D At first glance the two judgments appear should be construed as referring to the to be disharmonious. The following facts claims of the creditors against the company. are common to both matters: Justice Perram, by contrast, held that at a high level of abstraction, minds could • the plaintiff was an investor legitimately differ as to the effect of section 435A on the construction of section 444D. • the entity through which the plaintiff invested had become insolvent

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• the scheme of arrangement or Despite appearances to the contrary, it is There are a number of conclusions DOCA was entered into as a result possible for the decisions in City of Swan v open to the High Court. In relation to of the entities insolvency Lehman Brothers, and Fowler v Lindholm to the power contained in section 444D, exist harmoniously. The answer might lie the Court could decide that a DOCA • the claims which were the subject in reliance upon the court’s supervisory is capable of providing for third party of the release related to the plaintiff’s functions in relation to Pt 5.1 and in releases. It could agree with the Full Court investment particular those sections relating to the in City of Swan v Lehman Brothers that voting procedures. None of the judges in section 444D does not permit a majority • the release was to a third party City of Swan v Lehman Brothers referred to of creditors, pursuant to a DOCA, to • the plaintiff did not consent to the the differences in voting procedure between deprive the minority of their rights and release. Pts 5.1 and 5.3A of the Act. The two most claims against third parties. In deciding in important of these are: this manner, it could disapprove of the In considering the relevance of the judicial judgment in Fowler v Lindholm or explain interpretation of Pt 5.1 to Pt 5.3A of the • In order to pass a resolution to enter by reference to the differences in judicial Act, Justice Perram focussed upon what a creditor’s scheme of arrangement, supervision and voting procedures how Parliament intended by the language it the consent of the majority in number the two principles are able to co-exist. It has used in Pt 5.3A. He held that in 1992, of creditors and 75 percent in value is is anticipated that whatever the outcome when Pt 5.3A was introduced, the state of needed, whereas to enter a DOCA, of the appeal in City of Swan v Lehman the law in relation to third party releases all that is required is the consent of a Brothers, the judgment of the High under Pt 5.1 was uncertain. majority in number and value. Court will discuss the decision in Fowler v Lindholm and set guidelines for the Ultimately, Justice Perram held that • Under Pt 5.1, but not Pt 5.3A, the future of third party releases in creditor’s Fowler v Lindholm was not relevant to creditors can be divided into classes schemes of arrangement and deeds of his judgment because the question was for the purposes of voting. company arrangement. whether, at the time of enacting Pt 5.3A, It is also important to note that in respect of Parliament knew that third party releases Piper Alderman’s Amanda Banton acts Pt 5.1, the court has a supervisory role both were available under Pt 5.1 and therefore for the plaintiffs in these proceedings. prior to the meeting in approving or refusing whether it was intended, by its use of the scheme of arrangement as passed by the word “arrangement”, to import that the creditors. Accordingly, it is possible to scope to Pt 5.3A. structure the voting procedure at a meeting Although, ultimately holding that what of creditors held under Pt 5.1 so that those is achievable through Pt 5.1 schemes creditors who are asked to provide third of arrangement “does not bear on the party releases under the scheme vote as one construction of Pt 5.3A”, Justice Rares class. In order to pass a resolution approving criticised the Court’s judgment in Fowler v the scheme of arrangement, it would Lindholm’s for not referring to “the basic therefore be necessary to gain the consent principles of statutory construction”. of at least the majority in number and 75 percent in value of the creditors who are Justice Stone did not expressly discuss asked to forfeit their rights and claims against the decision in Fowler v Lindholm. She the third parties. This construction could did however note that in light of the arguably lead to a situation where a creditor substantial judicial supervision which is is deprived of its rights in relation to a third necessary under Pt 5.1, but not Pt 5.3A, party pursuant to a scheme of company it was unsurprising that there is more arrangement, but would not have been scope as to what can be achieved under deprived of these rights under a DOCA. Pt 5.1 than Pt 5.3A.

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Recent Decision on Unconscionability in Retail Leasing – Lessors Beware: You are Bound by the Actions of Your Agents The Administrative Decisions Tribunal (Retail Leases Division) has recently handed down its decision in Putri Kenanga Pty Ltd v Pham. The case involved a claim by the lessee that the lessor, via its agents, had engaged in unconscionable conduct under the Retail Leases Act (NSW). Dispute Resolution Partner, Tom Griffith, examines the decision.

The lessee, Mr Japardi, leased premises b. whether, as a result of conduct The leading authority on unconscionable from the lessor from which he ran an engaged in by the lessor, the lessee conduct in the context of retail leases is Indonesian restaurant. His wife, Ms Lie, was required to comply with conditions the judgment of Chief Justice Spigelman was the chef, but was not a party to that were not reasonably necessary in Attorney General of New South Wales v the lease. The unconscionable conduct for the protection of the legitimate World Best Holdings Limited: claim related to a series of visits by the interests of the lessor, and “120. Unconscionability is a landlord’s leasing agents to the restaurant … during which the agent forcefully well‑established but narrow principle d. whether any undue influence or demanded that the lessee pay outstanding in equitable doctrine. It has been pressure was exerted on, or any unfair rent owed to the lessor. applied over the centuries with tactics were used against, the lessee considerable restraint and in a Section 62B of the Retail Leases Act, or a person acting on behalf of the manner which is consistent with the regarding unconscionability provides as lessee by the lessor or a person acting maintenance of the basic principles follows: on behalf of the lessor in relation to the of freedom of contract. It is not lease, and a principle of what “fairness” or “Unconscionable Conduct in Retail Shop … “justice” or “good conscience” require Lease Transactions g. the requirements of any applicable in the particular circumstances of the case … 1. A lessor must not, in connection with industry code, and a retail shop lease, engage in conduct … 121.The Ministerial Second Reading that is, in all the circumstances, i. the extent to which the lessor Speech indicates a similar concern unconscionable … unreasonable failed to disclose to the to distinguish what is unconscionable … lessee: from what is merely unfair or unjust. Even if the concept of 3. Without in any way limiting the matters (i) any intended conduct of the to which the Tribunal may have regard unconscionability in section 62B of lessor that might affect the the Retail Leases Act is not confined to the purpose of determining whether a interests of the lessee, and lessor has contravened subsection (1) in by equitable doctrine, as the decisions under section 51AC of the Trade connection with a retail shop lease, the (ii) any risks to the less arising Practices Act suggest, restraint in Tribunal may have regard to: from the lessor’s intended decision‑making remains appropriate. conduct (being risks that the Unconscionability is a concept which a. the relative strengths of the lessor should have foreseen would requires a high degree of moral bargaining positions of the lessor not be apparent to the lessee), and and the lessee, and obloquy. If it were to be applied as if (k) the extent to which the lessor and the it were equivalent to what is “fair” or lessee acted in good faith.” “just”, it could transform commercial relationships in a manner which the www.piperalderman.com.au 4 March 2010 [PUBLICATION NAME] [PUBLICATION NAME]

Minister stated was not the intention • the lessor, via its agents, demanding and damage made by the lessee, which of the legislation. The principal of rent, the calculation of which was ran to over $200,000.00. The Tribunal “unconscionability” would not be a inaccurate and overstated concluded that if demands for payment doctrine of occasional application, of arrears had been communicated in an when the circumstances are highly • the agents behaving in an aggressive and appropriate manner, without aggression unethical, it would be transferred intimidating manner during their visits and intimidating behaviour, nothing in into the first and easiest port of call to the restaurant such that the Tribunal the evidence suggested that anything when any dispute about a retail lease concluded that their conduct amounted different would have occurred. The arises.” to harassment and high pressure tactics only claim that the lessee was able to sustain was a claim that the lessor had • upon their eviction, the agents required The Tribunal noted in this case that the impermissibly turned off the lessee’s fridge the lessee and Ms Lie to vacate the lessor’s agents were relevantly bound after re-entry, thereby spoiling a quantity premises within a very short period by a code of conduct under the NSW of perishable food in the refrigerator. of time (between one and two hours) Real Estate Agents’ Rules of Conduct The Tribunal therefore awarded the without any apparent justification. promulgated by the Department of Fair lessee damages of $2,916.00 in respect Trading. Those rules relevantly provide The Tribunal accepted the claims by of the unconscionable conduct claim, that an estate agent must act honestly, Mr Japardi and Ms Lie that the behaviour representing the value of the food that fairly and professionally with all parties of the lessor’s real estate agents during was destroyed, plus interest. in the transaction, and must not mislead certain visits to the premises to demand or deceive any party in a negotiation The case is a reminder to lessors that they rent was aggressive and intimidating, and or a transaction [Rule 3] and require can be held responsible for the conduct that the agents exerted unwarrantable agents to exercise reasonable skill, care of their agents, especially where those emotional pressure on Ms Lie in particular and diligence [Rule 4]. Rule 5 relevantly agents have used high pressure tactics n circumstances where they knew or should states “an agent must not engage in high to achieve the landlord’s objectives. The have realised that Ms Lie was particularly pressure tactics, harassment or harsh or case is also a reminder for those making susceptible to such pressure. Such conduct unconscionable conduct”. unconscionable conduct claims that in in the Tribunal’s opinion amounted to order to make good a claim for damages “high pressure tactics” and “harassment” The relevant conduct involved: it is important to establish a clear link as described by the code of conduct. between the conduct complained of, and • a series of visits by the agents to the loss allegedly suffered. the restaurant during which the The Tribunal then turned to the question agents loudly demanded payment of of whether the lessee suffered any loss as a outstanding rent, in the presence of result of the unconscionable conduct of the the restaurant’s customers lessor’s agent. The Tribunal found that there was no link between the breach permitted by the lessor’s agent and the claim for loss

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Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Limited: kookaburra gets the last laugh Corporate Associate, Will Fennell, summarises the copyright aspects of the widely publicised Federal Court proceedings against the composers and publishers of the iconic Australian pop song, “Down Under”, recorded by Men at Work.

The decision concerned allegations a number of instruments and it was he who Objective similarity including breach of copyright in respect of added the flute riff to Down Under. Ham the pop song “Down Under”, recorded in was not called by the respondents to give The giving of evidence would have been 1979 and again in 1981 by Men at Work. evidence. particularly colourful in this case. The Both recordings feature a flute riff which question of objective similarity, per the the applicant, Larrikin Music Publishing Down Under was released as a B-side to the authority in Austin v Columbia Gramophone Pty Ltd (“Larrikin”), claimed breached single “Key Punch Operator” in late 1979, Co Ltd, depends “to a large degree upon copyright held by them in the children’s and then again in 1981 on the “Business as the aural perception of the judge and upon musical round, “Kookaburra sits in the old Usual” album. Larrikin claimed that these the expert evidence”. Accordingly, the gumtree” (“Kookaburra”). recordings of Down Under, and certain judgment refers to vocal and musical other recordings of it, namely two Qantas renditions by Colin Hay and the expert Kookaburra was composed in 1934 by advertisements, infringed its copyright in witnesses using guitar and piano. Miss Marion Sinclair. Composed as a Kookaburra. In particular, it was claimed the ‘musical round’ (each of the four bars is flute riff in Down Under reproduces two Justice Jacobsen found that a sufficient sung contemporaneously by 4 separate bars from Kookaburra. degree of objective similarity existed. In voices), Kookaburra was donated by Miss arriving at this conclusion, His Honour Sinclair for use in a fundraising publication Copyright is infringed where a person, considered various musical elements of the Girl Guides Association of Victoria. without permission, “reproduces a substantial including melody, key, tempo, harmony The rights to Kookaburra were purchased part of the work”. In order for a ‘reproduction’ and structure. from the Estate of Sinclair by Larrikin in to have occurred, there must be both Melody March 1990. A previous decision of the (a) an objective similarity and (b) a causal Federal Court, Larrikin Music Publishing Pty connection between the two works. A Expert evidence given by both sides Ltd v EMI Songs Australia Pty Limited (30 “casual connection” requires actual copying, agreed with the resemblance of the July 2009), had considered, and answered and does not include substantially similar melodies. Further, evidence given by Men in the affirmative, whether Larrikin in fact works resulting from independent work. at Work lead singer Colin Hay, including owned the copyright. The respondents The principal respondents were said not to renditions of the Down Under flute riff on to these proceedings were two EMI dispute the existence of a causal connection guitar, and an admission by him to singing companies, and former Men at Work between the works. (in substitution for the flute) the relevant band members Colin Hay and Ronald bars from Kookaburra when performing Accordingly, two issues were in dispute Strykert. Down Under during live concerts from between the parties. First, whether there about 2002, seemed to “answer the The original version of Down Under was was a sufficient degree of objective similarity question beyond any real doubt” for His jotted down on a notepad by one of the between the flute riff in Down Under Honour. The respondents also submitted band’s founding members, Colin Hay, in and the two bars of Kookaburra. Second, that His Honour had become “sensitised around 1978. Men at Work formed in whether the two bars of Kookaburra to the similarity between the melodies” so as 1979 as a trio with Colin Hay and Ronald appearing in Down Under constituted a to be able to hear the objective similarity Strykert, accompanied by a drummer substantial part of Kookaburra. between them, however this submission (who was not identified in the judgment). was ultimately not accepted. Greg Ham, a classically trained musician, joined the band in mid 1979. Ham played

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Key “I also accept his evidence that the “slur” His Honour noted that the question of The respondents submitted that weight is a distinctive element of the melody and structure turned solely on the structure should be given to the differences in pitch rhythm of Kookaburra which is replicated in of the flute riff and the separation of the between the melodies in Kookaburra and Down Under” bars of Kookaburra by the basic hook. Down Under. However, the respondents’ Accepting Larrikin’s submission that the Harmony expert conceded that in effect key was separation of the notes by the basic hook insignificant as “it is the relative pitches The respondents submitted that the melody does not make them different, but merely within the song which allow the listener to in Down Under was harmonised in a minor means the listener hears them differently, identify the song”. Noting that Kookaburra key, whereas the 1934 transcript was in a His Honour held: would “tend to be pitched to suit the voices major key. However, His Honour did not “It follows in my view that the separation of singing it”, His Honour found that the accept this difference made the bars from the two phrases from Kookaburra are not a difference in pitch between Down Under Kookaburra unrecognisable, recognising material difference in Down Under and their and the 1934 version of Kookaburra was Larrikin’s expert evidence that the “change separation or punctuation by the basic hook of no consequence. in harmony is a bit like shining a different light on it”. does not prevent a finding of reproduction” Tempo and rhythm Structure Other grounds It was conceded by Larrikin that no The respondent’s claimed that Down Under tempo marking existed on the 1934 was both a more layered song, and, that One of the respondents’ answers to the Kookaburra transcript. However, His the bars of Kookaburra which appear in it claim made against them was to ask the Honour accepted Larrikin’s expert were separated by what Larrikin’s expert rhetorical question “if both Kookaburra evidence that the tempo was more or less identified as the “basic hook”. Larrikin’s and Down Under are such icons, and the the same. In terms of rhythm, His Honour expert described the basic hook as similarities so strong, why did it take so long referred to the example given by Larrikin’s comprising the following notes: for anyone to recognise the connection?” expert regarding the difference in rhythm between Chet Baker’s “Every Time We Reference was made to the ABC panel Say Goodbye” and Ella Fitzgerald’s version quiz show “Spicks and Specks”, and in of the same song, and held that nothing particular a 2007 program in which panel turned on the issue of rhythm between members were asked to identify the the two songs. Australian nursery rhyme that the Down Under flute riff was based on. The panel Further, His Honour referred to the members had difficulty in recognising the The following example shows the relevant evidence given by Larrikin’s expert, in link although after the host said “this bit bars of Kookaburra (appearing at bars two respect of the “slur” of the Kookaburra especially”, the link was made. melody (the ends of lines one and two of and four) separated by the basic hook (at the 1934 transcript which end in “tree-ee” bars one and three): and “he-ee” respectively) and held:

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Notwithstanding, His Honour held The respondents failed to call Mr Ham Conclusion that the elevated musical experience to give evidence. This had important of panel members and the difficulty they repercussions against their case. His The Court found that both the 1979 and experienced in making the link was not Honour held: 1981 recordings of Down Under infringed “sufficient to overcome the conclusion that Larrikin’s copyright in Kookaburra. the relevant degree of objective similarity is “It is trite to say that I can infer that his However, the two Qantas advertisements made out”. evidence would not have assisted the respon‑ were not an infringement as they did dents’ case. But it is also open to me to infer not reproduce a substantial part of Was Kookaburra copied by that Mr Ham deliberately reproduced a part the work. The Court also found that Men at Work? of Kookaburra, an iconic Australian melody, Larrikin is entitled to recover damages for the purpose and with the intention of for misrepresentation (in respect of As observed by Lord Reid in Ladbroke v evoking an Australian flavour in the flute riff”. representations made by the respondents William Hill (Football) Ltd, “reproduction” to various royalty bodies including His Honour used the failure to call Ham to in an action for breach of copyright means APRA and AMCOS) under the Trade reinforce a finding of objective similarity, copying and does not include substantially Practices Act 1974 and the corresponding however, this also appears to answer similar works arising from independent provisions of the fair trading legislation. work, without copying. the qualification in Ladbroke, namely that reproduction does not include substantially The question of quantum of damages Ham (the flute player) admitted that he similar works arising from independent is yet to be determined. Larrikin have was aware of Kookaburra, that he had work, without copying. foreshadowed a claim in the amount of heard it at school and that he was “pretty 40% to 60% of past royalties. There are sure” Kookaburra appeared in his school’s Substantial part of the work a number of indications in the judgment to song book. Ham also admitted that he suggest that an order to this extent may Both experts agreed that the first two added the flute riff in an attempt to “inject be unlikely. However, His Honour did bars of Kookaburra were the ‘signature’ some Australian flavour into the song”. The accept that a ‘continuing representation’, to that song. However His Honour did music video to the 1981 recording shows had occurred, and accordingly, the not consider that of itself was sufficient Ham sitting in a tree playing flute to a limitation period will not be limited to to find that a substantial part of the work koala in a hangman’s noose. six years. had been taken. Rather, in order to find Colin Hay, on the other hand, was born that a substantial part had been taken, His E-bulletin will bring readers an update in Scotland and immigrated to Australia. Honour relied upon Colin Hay’s admission when the question of quantum has been In his evidence, he claimed to be unaware stated above that in live performances since heard. of Kookaburra when the recordings about 2002, Hay would sometimes sing the were made, and that he was not aware flute line using the lyrics from Kookaburra. at the time when Ham was playing a Furthermore, His Honour noted that flute in a tree that it was a reference to approximately 50% of Kookaburra had been Kookaburra. Hay told the Court he had reproduced in Down Under. no recollection of hearing Kookaburra during his schooling in Scotland or when growing up in Australia.

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Connor Hunter (A Firm) v KeenCrest Pty Ltd and Hurren: Latest on Ratchet Clauses The Queensland Court of Appeal handed down a decision last year that permits leases of retail premises to contain rent review mechanisms which allow for a market rent review or a CPI rent review, although on the proviso the rent is not to be less than the rent previously payable. Property Senior Associate, Nick Prove, explains the reasoning.

The provisions, widely referred to as In coming to its decision, the Court of The majority construed these review “ratchet clauses”, were considered as a Appeal (two judges concurring; one clauses to be structures that provided breach of the Retail Shop Leases Act (Qld) dissenting) said that there was no need for an annual review of rent by reference 1994 (“the Act”) and excluded from retail to resort to extrinsic materials but rather to a prescribed method or criterion, leases. We discussed the trial judge’s focus on the words of the Act itself. They and should that method not produce decision which affirmed the prohibition pointed out that the Act in section 27, an increase in rent, the clauses required on ratchet clauses, in our March 2009 allows for review mechanisms which bring there be no review. The consequence E-bulletin edition. The trial judge did about increases, but will not permit any they found was that the clauses did not not come to his decision based solely decrease in rent. For example, percentage provide for a change in rent by reference on the content of the Act, but relied on increases over the previous year, fixed to the outcome of two methods of the Explanatory Note to the bill tabled amounts in addition to the previous year’s calculating the change, but provided for in Parliament, and the Minister’s speech. rent, and a combination of percentage only one method of calculating a change The Explanatory Note in referring to and fixed increase over the previous year. in rent. the proposed legislation contained the Accordingly the rent will go up, but not following relevant passage: down throughout the term of the lease. In The dissenting judgement did make this sense, they considered ratchet clauses reference to the extrinsic material as “If a retail shop lease provides for review were validated under the Act. The use evidence of the Parliament’s intended of rent to be undertaken with reference of the term “ratchet clauses” was hence outcome for reviews of rent under the to more than one basis, the rent payable considered unhelpful. Act. It is clear that the outcome intended remains the same for the next rental by the drafters of the Act has not been period following a review as the rent which The retail lease in question contained met by this decision. It appears the applied to the previous period. clauses which provided for changes in rent decision will not be appealed and remains equivalent to movement in the Consumer to be seen whether the Queensland This clause will prohibit the use of Price Index, although with the rent not to Parliament will enact legislation which “ratchet” clauses (where rent can rise, but be less than the previous year’s rent. The overturns the decision. Caution should not fall) and “multiple rent review” clauses same proviso applied in the circumstance of also be applied in redrafting clauses for (where rent is reviewed by reference to a market review of the rent, such as on the Queensland leases of retail premises, two or more bases and the method result‑ exercise of an option for a further term. The as any changes made in reliance on ing in the highest rent selected).” Court considered that this qualifying proviso, this decision could ultimately result in which did not permit the rent to be less than unenforceable or even invalid reviews There were other statements contained in the previous year’s rent, was not a change should the Act be amended. this material which made it quite clear that of rent but preserved the status quo. To the the intention of the Act was to prohibit contrary, that qualification prevented any “ratchet” clauses. It should also be noted change to the rent. that no definition of “ratchet” clauses was formulated.

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GM Canola Update Corporate Division lawyer and agribusiness group member, Bianca Battistella, reports on recent developments in the legislative regime surrounding genetically modified canola.

Western Australia has joined the other The basis of the OGTR’s approval was its The trials were closely supervised by the major grain growing states in becoming conclusion that the GM canola varieties Department of Agriculture and Food and the third state to approve commercial posed no greater risk to human health or those involved in the trial were obliged cultivation of genetically modified the environment than conventional canola. to participate in a training program to canola. New South Wales and Victoria GM canola is the first GM agricultural crop ensure the maintenance of the highest have allowed farmers to grow GM used primarily as a food crop that has been biosecurity standards from receipt of the canola commercially since 2008, leaving approved for general release in Australia. seed until after delivery to Cooperative only South Australia, Tasmania and The purported benefits of GM canola Bulk Handling Ltd for export. the Australian Capital Territory with include its resistance to some herbicides, subsisting moratoria on GM crops. such as glyphosate, used as broad acre On 25 January 2010 Western Australian weed control. Agriculture and Food Minister, Terry As detailed in the May 2008 edition of Redman, approved an exemption under the E-bulletin, crop moratoria legislation Since 2004 there has been a moratorium the Act to permit cultivation of GM canola was enacted in all States and Territories on commercial cultivation of all GM crops crops in Western Australia, pursuant of Australia that have a climate conducive in Western Australia. The moratorium to the Genetically Modified Crops Free to growing canola crops, namely New operates by virtue of the Genetically Modified Areas Exemption Order 2010, which came South Wales, Victoria, South Australia, Crops Free Areas Act 2003 (WA) (“Act”). into operation on 29 January 2010. The Tasmania, the ACT and Western exemption order operates to exempt Australia. This occurred after the Office of Exemptions under the Act have been persons whom cultivate GM canola in the Gene Technology Regulator approved permitted in recent years for small-scale Western Australia from committing the the commercial release of two varieties research trials and other purposes. Most relevant offence in section 5(1) of the of GM canola in 2003, namely, Bayer significantly, an exemption order was Act, for so long as that GM canola is CropScience’s InVigor® and Monsanto issued under the Act in April 2009 for a licensed for international release into the Australia’s Roundup Ready®, pursuant to limited commercial-scale trial of GM canola environment under the Gene Technology the newly established national regulatory cultivation, including plantings of up to Act 2000. scheme surrounding certain dealings with 1000 hectares at 20 separate sites, in an GM organisms under the Gene Technology attempt to demonstrate the supply chain Act 2000 (Cth). management and agronomic viability of OGTR approved GM canola.

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Mr Redman reported that commercial reckless and unjustified decision made by a The South Australian Government trials in Western Australia in 2009 Government which has given no thought to announced on 28 April 2008 the “demonstrated successful cultivation the consequences” and that its implications extension of its moratorium on GM crops and segregation of GM canola” and that will only impact negatively on consumers and indefinitely. This is yet to be the subject of despite the occurrence of 11 minor the majority of farmers. any further reviews or recommendations events, “all were managed appropriately and, according to the Government, is and segregation from paddock to port The debate on this issue in South Australia unlikely to become an issue during this was achieved”. Whilst the yields were has been reinvigorated as a result of change year’s state election. comparable to non-GM canola varieties, in Western Australia’s position. Monsanto growers reported that the GM technology Australia (an owner of the GM technology) For so long as the South Australian facilitated efficient weed control and ease and the president of the grains section of the moratorium remains in place, the ability of management. South Australian Farmers Federation share of Victorian GM canola farmers to freely the view that South Australia’s prevailing transport GM canola to South Australian This exemption is a significant moratorium is putting our farmers at a ports, without the risk of legal action, is development for Western Australian disadvantage. On the other hand, Greens impaired. Interestingly, claims have been farmers. One of the purported benefits member Mark Parnell claims that that made that South Australia’s moratorium is that the lifting of the moratorium will Western Australia’s move to commercial may in fact amount to a breach of section offer growers of canola added choice in GM crop cultivation actually offers us 92 of the Australian Constitution, which their cropping systems, assisting them a market advantage in the form of “an provides for unrestricted trade between to improve profitability and maintain opportunity to target markets, like Japan, states. Ironically the South Australian international competitiveness. According that continue to reject GM crops”. Government is also making use of this to Mr Redman, Western Australia is the section to challenge Victoria’s 4 per cent major canola producing state in Australia Mr Parnell has urged the State Government annual cap on water permanently traded and in 2008-09 exported $535 million to maintain the moratorium on GM crops out of the state to South Australia and the worth of canola, primarily to Netherlands, in South Australia, calling on Mr Rann to Federal Government. France, Pakistan, Japan and Belgium. publicly commit to a further extension of the GM crop moratorium. At the same time, GM The controversy associated with GM supporters, including some South Australian canola is still yet to show any signs of farmers, Victorian Agriculture Minister Joe abating. This is evidenced by Western Helper and university experts, have called on Australia’s opposition Agriculture the Government to lift the ban. Minister Mick Murray’s comments that this development “is an ill-conceived ,

www.piperalderman.com.au 11 March 2010 Piper Alderman

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