What happens when a trust or superannuation fund undergoes changes? Does this give rise to a new structure or trust? What sort of changes are we talking about? Two cases when examined jointly will show that the law remains unclear due to the contradiction between the two rulings.

Overview

A recent case Primary Health Care Ltd v Commissioner of Taxation [2010]  FCA 419 highlighted the importance of “independent intellectual effort” in copyright cases.

Facts

The beneficial owner of a trust, the applicant, purchased certain medical and dental practices on behalf of the trust. The applicant alleged to obtain the copyrights interest as part of the purchase of practices, which fell under computable income and as such was allowed for tax deductions from the net revenue of the trust. In this case, Copyright was claimed for the following:

• Prescriptions
• Health summaries
• Referral letters
• Consultation notes of the acquired medical and dental practices.

Findings

It was noted by Justice Stone that for a medical record to qualify as literary work it should contain some individual intellectual effort and so could copyright exist. All medical records that were claimed for copyrights were assessed by Justice Stoneas follows:

Consultation notes that had only one author was considered continuous narrative, which displayed independent intellectual effort and so was qualifying for copyright protection. However, the consultation notes that had multiple authors were restricted.

Prescription consisted only of the names of medications, dosage and standard directions therefore was not qualified for copyright protection and also health summaries that had a list of previous illnesses and actions were restricted.

The referral letters contained intellectual independent effect and content were driven by the purpose of the letters so it qualified for copyright protection.

Outcome

Justice Stone found that in medical records like prescriptions, health summaries, referral letters and consultation notes do not involuntarily attract copyrights. So she determined that such records should be examined on a case by case basis which also displays the level of independent intellectual effort that would justify classifying the record as an original literary workfor the purposes of the Copyright Act 1968.

A significant part of the recent changes to the unfair dismissal rights for the employees of small businesses under the Fair WorkAct 2009 (the Act) was instituting Small Business Fair Dismissal Code Checklist (the Code). This was in response tolatest decisions of Fair Work Australia (FWA).

All small business must be aware of these changes, as they will have a direct impact on the measures involving termination of employees in small business, mainly redundancies.

This new change in law is designed to give small businesses (employing less than 15employees) with an easy set of procedures for the fair termination of employees. The Code came into effect on 1 July 2009. The Code mainly gives two set of guidelines. Firstly, the minimum employment term has been doubled to 12 months; the employees cannot file a claim for unfair dismissal for this period. Secondly, if small business owners carefully follow these simple set of guidelines for the fair termination of employees from the Code, it will automatically guarantee that any dismissal of an employee is not unfair.

Key Changes                        

The focus of the changes to the Code’s checklist is mainly on redundancies and the rights of an employee. Below is the summary of the latest changes to the Code:

Complying with s 389 of the Act – One of the changes include compliance with s 389 all the employers shall comply with all the requirements of this section to make sure that the termination was a fair discharge.

The checklist also consists of another question to remind small business owners that they must follow the consultation clause which states that the before taking a finaldecision of terminating an employee, the employers must consult either the employee or his/her representative.

Earlier, the checklist asked a simple question to the employers: If the employment was dismissed because of a genuine redundancy? Now this question has been extended to “'In other words, was the dismissal because you didn't require the person's job to be done by anyone because of changes in the operational requirements of your business?'.

Another change to the Code is related to the rights of an employee. Before the final decision regarding the termination, every employee must be provided with a support person to attend the discussion relating to the redundancy issues.

Although,it is true that if the small business employers comply with the Code when dismissing an employee, the dismissal will be considered fair. But the preamble of the checklist evidently states that compliance with the Checklist does not necessarily mean compliance with the Code.

The below link from the FWA website provides the checklist of how the small business owners need toreflect on termination of any employment.

http://www.fairwork.gov.au/termination/small-business-fair-dismissal-code/pages/default.aspx

A recent Mantra case provides relief to brand owners seeking to register color asa trademark (TM). Federal Court decision of MarsAustralia Pty Ltd v Société des Produits Nestlé SA [2010] FCA 639 (Mantracase), Mars Australia Pty Ltd (Mars) was allowed to register its color called 'Whiskas Purple’, which it uses in its “Whiskas” brand of cat food as a TM.

Background

Mars,the owner of the well-known cat food Whiskas had used its Whiskas Purple color on its cat food products.

Mars applied for registering 'Whiskas Purple' as a TM. Although at first, the application was accepted, the registration was later abandoned by the trademark authorities due to opposition from Nestle. Nestle contested that the color purple was not able to differentiate Mars’ products from those of other traders.

Mars further appealed in the Federal Court, which later accepted the Mars’s contention that colour could indeed function as a TM of a product. Mars submitted significant evidence to prove the same. Mars proved that:

Mars had used its colour 'Whiskas Purple' in Australia since 2000 and it had been greatly endorsed and promoted.

The colour had been used as the leading colour across the entire variety of Mars’ cat food products;

Mars also made clear that the color 'Whiskas Purple' was created and carefully chosen for the Mars Group in Europe to form a stronger brand name identity for Whiskas.

Federal Court Decision

The court allowed Mars application to proceed to registering its shade of purple as its TM. The Court further held that Mars had implemented a completely new color and had heavily endorsed it from the outset in its packaging and advertising supplies up to the time that Mars filed its TM application.

While other companies in Australia have used a range of shades of purple on their own pet food products, the shade of purple in Mars’s case was used to signify specific range within a product. On the other hand, Mars had used its colour 'Whiskas Purple' as abrand in its own right.

Lessonfor Brand Owners

The lesson from this case is that it is vital that all the Brand Owners must apply for registration of their TM in case they use color as a feature of their mark. However, it should be noted that registering a single color would not be easily obtained.

It is vital to build a fine branding plan from the beginning to make sure that the TM is endorsed and used widely. It should be ensured that the uniqueness of the TM color could be established. 

Section 482 of the Corporations Act allows an application to terminate the liquidation of a company. In Leveraged Capital Pty Ltd (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739, it was held that an application under section 482 may require the implementing of a Deed of Company Arrangement (DOCA). This, however, is not generally granted as it is necessary that such orders allowing the company to be released from liquidation should be as much in the public interest as in the interest of creditors bound by the DOCA.

QUICK FACTS

Modena Imports Pty Ltd (Modena) was in the business of importing luxury sports cars. Eventually, Modena incurred a debt of $3 million due to the misconduct of one of Modena’s directors.

Modena had further failed to maintain adequate books and records since 2005. The liquidator, therefore, found that Modena could claim insolvency under section 286 of the Corporations Act.

Under initial inspection it was found that Modena had $50,000 for payment towards the liquidator’s fees. In the absence of realizable assets, the liquidator recommended a DOCA for the creditors. This DOCA was to be funded by the Australian Corporate Restructuring Services Pty Ltd (ACRS).

The person who ran the ACRS was Mr James Byrnes who had been prohibited by ASIC after his involvement in four failed companies. ASIC was granted leave to participate in the proceedings.

On conducting the cross examination of one of Modena’s directors, it was revealed that the company was actually worth $500,000. This paved way towards the likelihood that Mr Byrnes would receive the remaining assets if the DOCA was approved.

COURT’S FINDINGS

The court stated that there are certain requirements for granting an application under section 482. The application should show the circumstances that led to the winding up of the company; the extent to which the credit amount is owed to the creditors; the dispositions of the creditors; and clearly indicate the solvency of the company.

Further, in case there has been any act of non compliance with director’s duties, then an explanation for the same must be provided for.

Finally, the application must be consistent with commercial ethics and public interest.

All these factors must jointly prove that it is a positive case - this was not so in the instant case, mainly on account of a breach of directors’ duties and on grounds of dishonesty.

SUMMARY

An application for terminating a liquidation action in lieu of a DOCA is granted by courts only after keeping the public interest foremost in mind. Due to this precaution exercised by the courts, the granting of any such application is dependent on many of the good faith factors and remains discretionary.

In a recent case of contractual damages between North Sydney Leagues' Club Ltd v Synergy Protection Agency Pty Ltd [2010] NSWSC 256, the Court held that fixed overhead costs should be taken into account in determining net profit in calculating expectation damages.

ISSUES

1) What are Expectation Damages? These damages aim to restore the aggrieved party in a position where the damage had not occurred.

2) It is not disputed that when assessing loss of profits, the difference between revenue and costs is to be taken into account.

3) However, are fixed costs a part of the above equation?

4) If fixed costs are included, the overall costs would logically increase and subsequently the profit would also decrease.

COURT’S FINDINGS

Assessing damages is left up to the court’s discretion. It usually tends to follow one of two assessment basis - expectation damages and reliance damages.

Reliance damages allow the wronged party to recover damages on the basis that it would not have incurred but for the breach of the contract. Unfortunately, Syngery only pleaded one basis and did not make room for an alternative. The court held that Synergy should have made room for a second basis.

How then are fixed overhead costs calculated?

Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 provides guidance on this evidentiary question. As per this case, factors taken into account included whether the overheads were increased by the sale of the product; whether they reflected costs which would have decreased; whether they reflected costs which would have inevitably accrued; or whether there was surplus capacity.

In essence, courts pay attention to the nature of the costs and their connection to the contract.

LESSONS

1) It is advisable to consider all bases before seeking damages – a backup option will not hurt.

2) The good news is that overhead fixed costs are recoverable although within bounds.

3) This depends on whether these types of costs are extra costs indeed or losses.

4) Courts will restore parties in the position before the damage occurred or if the damage had not occurred but it will not put the party in a better position had the contract been performed.