Corporate, Employment

Relief for landlords: Land Tax Relief Package to help landlords come to the table

28 April, 2020

There have been many articles published in the last week or so about the recommendations handed down by Commissioner Hayne in his report following the Banking Royal Commission (Report). Our colleagues at McCabes posted an article last week about some of the likely impacts, particularly in terms of how ASIC will approach litigation and other enforcement action moving forward.

There are of course many themes arising from the Report. Culture, remuneration and governance feature highly and are inextricably linked. In this article we will look at the issues and recommendations in so far as how culture, including how employees are remunerated, has allowed misconduct to occur. It is clear that many of the areas of concern, the risks and the recommendations identified in the Report could apply far beyond the financial services sector. They can apply equally to any organisation with a sales business.

Understanding organisational culture

But what is a ‘’culture’’? What is a ‘’good’’ or ‘’bad’’ culture? How can organisations ensure they drive a positive culture which successfully balances the wellbeing of employees, shareholder return and customers’ interests?

The Report considers what is ‘‘culture’’? It states:1

“The culture of an entity can be described as the ‘shared values and norms that shape behaviours and mindsets’ within the entity.2 It has been described as ‘what people do when no‑one is watching’ 3 and that description captures what might be called the essentially ‘internalised’ or ‘instinctive’ application of shared values and norms. The shared values and norms can be seen as both reflecting and constituting the culture of an entity. It is evident that culture can drive or discourage misconduct.”

Although there are obviously many different elements that make up a ‘’culture’’, it is ultimately shaped by the people who work in an organisation and the behaviours they display. How certain behaviours are recognised and encouraged can therefore have a significant impact on culture. It would be naïve to think that ‘’culture’’ doesn’t affect your business. It translates into tangible financial benefits through employee attraction and retention, customer satisfaction and ultimately, shareholder value.

It is also clear that culture needs to be led from top down, from the Board, senior management and line management, working with human resources teams, their risk and compliance teams and internal and external audit. A strong positive culture requires integrity at all levels of management. It’s all very well having company values, but if they are not being lived and breathed in an organisation it breeds a culture of mistrust at best and potential misconduct at worst. However, “that tone must also be echoed from the bottom and reinforced at every level of the entity’s management and supervision.”4

The effects of remuneration structure on organisational culture   

The Australian Securities and Investments Commission (ASIC) identified as key risks in 2017-2018, culture and conduct in financial services resulting in poor outcomes for investors and consumers.5 ASIC considers that poor culture can drive poor conduct. That is very much borne out in the Report. One of the key issues arising out of the Royal Commission was that the way in which remuneration structures were designed and operated, such that they drove poor behaviours and, on many occasions, instances of misconduct. In a world where we have to be increasingly customer-centric but at the same time maintain and grow revenue, how should employees be incentivised to perform? We know that recognising employees is one of if not the most powerful ways in which organisations can positively impact most aspects of workplace culture. But it does not need to be and in fact can be counter-productive to only recognise financial performance.

Balancing fixed and variable remuneration

There is much discussion and debate within the Report about how to balance fixed versus variable remuneration, both at senior executive level and for front line staff. The Reports states:

“remuneration and incentives, especially variable remuneration programs tell staff what the entity rewards. Hence, remuneration and incentives tell staff what the entity values. Remuneration both affects and reflects culture. As the Commission’s work has shown, and is now not disputed, poor remuneration and incentive programs can lead, and have led, to poor customer outcomes.” 6

The Report also discusses the need for variable remuneration structures to be designed to promote ethical behaviour and compliance with laws and standards, and that they should be implemented so as to manage the risk of misconduct. Design and  implementation must each stand up to scrutiny.

The Report concludes that one method of remunerating employee is not preferable to another and neither is a particular percentage of one over another. However, with variable remuneration, there clearly needs to be much more focus on the ‘‘how’’ not just the ‘‘what’’. The findings of the Royal Commission highlight that there needs to be a move away from not just focusing on the outcome but how you got there. We are seeing a growing trend away from reward (still an important factor in motivating employees) being based on financial metrics. The Sedgwick Report7 in April 2017, made 21 recommendations arising out of Mr Sedgwick’s independent review of product sales commissions and product-based payments in retail banking in Australia. The recommendations were that incentives should no longer be paid to any retail bank staff based directly or solely on sales performance. Rather, eligibility to receive any personal incentive payments should be based on an assessment of that individual’s contribution across a range of measures of which sales (if included at all), should not be the dominant component and the maximum available payments should be scaled back significantly for some roles.

Some of the considerations posed by the Report are:

  • Is part or all of the variable remuneration to be paid unless there are disqualifying reasons?
  • Or is part of all of it be paid only if certain conditions are met?8
  • In the case of deferred reward, does the structure allow for unvested portions to be re-clawed?
  • In the case of deferred reward, does the structure allow for vested portions to be re-clawed?

The Report notes that the remuneration arrangements examined by the Royal Commission generally allowed for the board to take the decision to forfeit part or all of the unvested portion of deferred renumeration but rarely provided for remuneration that has vested to be clawed back. Hayne is clear in his views that organisations should build in clawback arrangements for the vested portions of deferred remuneration so that in circumstances of later discovered misconduct, the organisation has some come back.

At senior executive level Hayne concludes that “if the board reduces the variable remuneration of executives for their poor management of non-financial risk, and tells other staff that the variable remuneration of those who are accountable for particular events or forms of conduct has been reduced, it sends a clear message to all staff about accountability and what kinds of conduct the board regards as unacceptable”.9

At frontline staff level similar issues exist. Despite some organisations moving away from focusing just on the “what” to the “how” and the “what”, there remains too much focus on the “what”. An example of this is when you unpack the ‘‘discretionary effort’’ applied by an employee as assessed, to find it is actually just a euphemism for selling the [bank’s] products10. This could apply to so many businesses and their remuneration structures. Although many organisations have balanced scorecards, the question is whether there are the right behavioural metrics embedded or whether they are they just using a different set of outcome metrics that would not stand up to scrutiny and ensure the right outcomes

Individual v group component in incentives

What has been reported as having some success is the approach of moving away from allocating variable remuneration or at least some of the variable remuneration on an individual basis to a model that rewards group performance. For ANZ, this is an approach that they have applied at many levels of the organisation as part of a pilot program, from call centre staff, branch staff, operational staff, customer complaint staff and technology staff. The results are apparently ‘’encouraging’’11. It was reported by the ANZ that there had been no diminution in business performance and that the staff say they prefer it.  It is said to encourage better team work, better utilisation of staff expertise and experience and better education between staff. There are no doubt downsides. Our minds turn to the staff member who is not a team player, who lets others down and then causes resentment to breed within the team.  No structure is perfect at the end of the day, but what is clear is that the tide is changing. It would seem we are almost going full circle back to a service versus sales model but there needs to be balance.

Significance for Organisations

In light of the Report and the focus on corporate culture, remuneration and governance, there is a lot of work to do. All organisations would be wise to revisit their remuneration structures, particularly the variable ones. Do they work? Do they need to be updated or undergo a complete overhaul? What type of culture are they driving? Do they promote putting the customers’ interests first?

Whether you have commission plans, short term incentive plans, long term incentive plans, discretionary bonus schemes or other, the Employment and Corporate teams at McCabes are well versed in these areas and can assist with audits, reviews, overhauls and recommendations on a range of incentive arrangements, whether that be an executive or frontline level. We also have experience across the Employment and Corporate teams in preparing employee incentive scheme documentation.

1 Final Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 4 February 2019, p334
2 Cf CBA Prudential Inquiry, Final Report, 81. I deliberately omit reference to a ‘system’ of shared values and norms if only to emphasise that culture is observed and described, not created apart from, or imposed on, the entity.
3 G30, Banking Conduct and Culture: A Call for Sustained and Comprehensive Reform, July 2015, 17.
4 Final Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 4 February 2019, p335
5 Australian Securities and Investments Commission, ‘ASIC’s Corporate Plan 2017-18 to 2020-21’, August 2017.
6 Final Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 4 February 2019, p335
7 Retail Banking Remuneration Review Report, Stephen Sedgwick AO, 19 April 2017
8 Final Report, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 4 February 2019, p352
9 Ibid, p 366
10 Ibid, p 368
11 Ibid, p 374, evidence of Mr Elliott of ANZ

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
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