How are enforceable penalties set out in contracts?

Contracts are commonplace in business and life. A well-drafted contract can provide certainty and clarity for businesses and others by creating legal obligations for each party to do what they say they will. But what if a party to a contract doesn’t do what they promised they would? Are you allowed to penalise that party for not fulfilling their obligations under the contract? We will explore the enforce-ability of so-called ‘penalty clauses’ in light of a recent decision in the Court of Appeal.

What is a penalty clause?

It is common for businesses to try to reduce their risk of suffering a loss under a contract. One way businesses try to minimise their risk is by including a clause in the contract that requires money to be paid to them to compensate for loss if the other party doesn’t do what they promise.

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Going out on your own

Company structure or sole trader for business?

You have decided to quit your job, and go out on your own to run your own business. Do you form a company or trade in your own name? We outline some of the pros and cons of these two options to help you make a decision.

Trading through a company

Brown Biscuits Limited: owner Jackie Brown

Brown Biscuits Ltd (BBL) is a separate legal entity. There are some significant advantages of trading through a limited liability company.

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Business briefs

Mānuka honey trade mark disputes

An ongoing dispute for the MANUKA HONEY trade mark demonstrates the importance of identifying your intellectual property (IP) and protecting that IP in the markets in which you trade.

The Mānuka Honey Appellation Society (MHAS) in New Zealand has applied to register a certification trade mark for MANUKA HONEY, which would limit the use of the term ‘Mānuka Honey’ in New Zealand to strictly New Zealand-based products[3].

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Restructuring your business

Consultation is key

New year, new you – new business structure? Restructuring is common in the new year when business owners feel refreshed and ready to take on the next challenge. The process however, is often shrouded in uncertainty (and stress) for employees.

Following the correct procedure for a restructure will allow your employees time to feel heard and to ensure decisions are made in good faith. They need to know your plans so they can ask the right questions and get the required support during a restructuring process.

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Shareholdings for employees or family members

Rewarding value and increasing engagement

Bringing a key employee or a family member into your business by offering them a shareholding can be a powerful motivator and a significant indicator of how much you value their contributions to your success. However, the process should be done carefully with a robust shareholders’ agreement and company constitution, as there are many facets of the company-shareholder relationship that must be agreed upon to ensure a harmonious future between yourself and the new shareholders.

The circle of trust

First and foremost, your shareholders should be people whose values are aligned with those of your business. Even if they are minority shareholders, there are circumstances in which you will have to rely on their good judgement. The easiest way to prevent disagreements down the road is to carefully consider their business sense, character and propensity for confrontation before embarking on shareholder discussions.

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Smooth sailing this summer

Avoid common mistakes when employing summer staff

With summer fast approaching, many businesses will be hiring temporary staff to meet their needs over the busy summer months. Taking on temporary staff can throw up some tricky issues. Employers often are uncertain about what employment agreement is appropriate for temporary staff and how their holiday entitlements should be met. We explore the pros and cons of different kinds of agreements for temporary employees and provide guidance on their annual leave and holiday pay entitlements.

In general, there are two types of employment agreements that can be used for temporary employees:

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Business Briefs

Eminem – importance of IP indemnities in agreements

The Court of Appeal[1] has ruled that the National Party must pay Eight Mile Style, the production company of prominent rapper Eminem, damages of $225,000 for breaching the copyright of Eminem’s song ‘Lose Yourself’. This decision highlights the importance of including intellectual property (IP) indemnity clauses in a contract.

An IP indemnity is designed to protect against loss for a breach of another’s IP rights. In this case, the National Party had bought the track ‘Eminem Esque’ to use in its 2014 election campaign advertisements. It relied on assurances from the licensor that it was not breaching copyright. The court found that using the track was, indeed, a breach of copyright.

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Employing people with a past

How the clean slate legislation works

Employing staff is never a simple process. Finding people with the right skills and personality to fit into your team can be challenging. Today’s employers go through a rigorous process when recruiting; most believe it’s better to put time into getting the right person than to have to deal with the consequences if things don’t work out.

One aspect of all staff recruitment is background checks on applicants. This is more important in some roles than others.

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Are restraint of trade clauses worth the bother?

Have an expertly-drafted agreement

Restraint of trade clauses are common in the sale and purchase of a business and in some employment agreements. In a business context, they offer protection to a buyer who has acquired a business and prevent the seller from directly competing against the buyer. A restraint provision in an employment context is designed to protect the employer’s business interests when key employees leave. There’s a general perception that these clauses are difficult to enforce, so why bother?

Non-competition restraint – sale of a business

The purpose of a non-competition restraint in regard to the sale of a business is to ensure that the purchaser is able to retain the benefits of the business they have purchased including existing and potential customers. It prevents the seller from establishing, working for or being involved in a similar business. Non-competition restraints are routinely used in the sale and purchase of businesses.

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Resource management system review

Complex task ahead

In contrast to the review of the NAIT system that we discussed in our previous post, it will be challenging for the government to get a consensus on the recently announced review of the resource management system. The four leading political parties have differing views on how to manage resource management issues. In particular, the Coalition government has three partners – all of which have somewhat contrasting policy positions.

The review will be undertaken by a resource management review panel made up of people with skills in relevant areas. The panel is chaired by Tony Randerson QC, a retired Judge of the Court of Appeal. Additional members will be appointed in the coming months.

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