We would like to wish all of our clients, colleagues, referrers, connections, family and friends a happy festive season and a big thank for your continue support during 2020!

We look forward to continuing to work with everyone in 2021.

When did you start at Sierra Legal? I started at Sierra Legal in February 2014.

What were you doing before Sierra Legal? I was living and working in London as a Senior Associate in the Corporate team at SJ Berwin LLP (now King & Wood Mallesons) in London. 

What is the most exciting thing you are working on right now? I am working on some commercial agreements for a business that, amongst other things, provides some very cool drone equipment and services for cinematographic use (including for movies like Thor Ragnarok and Aquaman).

What do you do with your time when you aren’t advising on M&A deals and reviewing contracts? I have 2 daughters who keep me very busy outside of work.  I’m currently also in the middle of a home renovation project and I provide some company secretarial assistance to a not-for-profit accelerator for early stage start-ups in the Agricultural and Food sectors in Australia. I also like swimming, bike riding, yoga, gardening and doing Just Dance with my girls.

What was your first job? Waitressing for a couple of Malaysian restaurants in Brisbane.

What was the first thing you bought with your own money? I don’t remember but I’m sure it would have been some sort of fashion item – maybe a purse or a pair of shoes!

What was the last book you read? The Secret Commonwealth by Phillip Pullman. Before that, I also started reading Homo Deus (A Brief History of Tomorrow) by Yuval Noah Harari, but I haven’t finished this one yet – it’s interesting but a bit dry.

Favourite place? My favourite city that I’ve visited is Istanbul.  Otherwise, I love any place with a good beach.

Favourite food? Too difficult to choose just 1 – my top 3 would probably be Malaysian Fried Kueh Teow (a fried, flat noodle dish); Malaysian egg and onion roti canai with lamb curry; roast chicken or roast pork (with yorkshire pudding, veg and gravy).  The first 2 are from growing up in Malaysia and the last choice had to go on the list because when I was pregnant with my first daughter in London, I went off all Asian food and kept craving roast (particularly roast chicken) and 3 veg!

Least favourite food? Japanese natto (fermented soy beans).  I lived in Japan for a year after I graduated from Uni and I could never bring myself to have more than a taste – I don’t like the texture.

If you were stranded on a desert island, what 3 things would you want with you? An oasis, veggie seeds and some music.  It might be nice to be stranded there for awhile if I had these things! 

Best advice you have received? Not really advice but a quote I once read, which seems to have a number of variations but is essentially as follows – a person really only needs 3 things in life to be happy: something to do, someone to love, something to look forward to!

On 19 November 2020, ASX released Compliance Update no. 10/20 to announce the expiry, on 30 November 2020, of the temporary capital raising relief measures that had been introduced to assist ASX-listed entities affected by the COVID-19 pandemic to undertake emergency capital raisings.

Previously, these capital raising relief measures had been updated with effect from 23 April 2020, extended until 30 November 2020, and further updated on 15 September 2020 as a result of the ongoing stabilisation in market conditions.

However, following recent consultations by ASX with ASIC and other industry stakeholders, ASX confirmed in Compliance Update no. 10/20 that the temporary capital raising relief measures will expire on 30 November 2020.

A listed entity seeking to rely on these capital raising relief measures is required to (among other things):

• announce the capital raising to the market on or before 30 November 2020; and
• give written notice to ASX (not for release to the market) about the proposed capital raising, with ASX to then acknowledge by written notice that the entity is entitled to rely on the capital raising relief measures.

A copy of Compliance Update no. 10/20 can be found here.

Sierra Legal welcomes Michael Abrahams to the team as a Senior Consultant.

In conjunction with his work for Sierra Legal, Michael will also continue as General Counsel, Company Secretary and Integrity Officer at Essendon Football Club.

Welcome Michael!

Buying a business normally involves a substantial amount of due diligence by the buyer on the target business.  Before committing to the transaction, the buyer will want to ensure that it knows what it is buying, including what obligations it is assuming, the nature and extent of the target businesses contingent liabilities, problematic contracts, litigation risks, and intellectual property issues.  

As such, it is important for a seller to have all of their business records and documentation up to date, so that a buyer can obtain a good understanding of the business and to minimise the risk of a buyer undervaluing the business or not proceeding with the acquisition.

In our experience, the following are a few key matters that buyers don’t want to see when they are undertaking due diligence:

• Corporate registers not up to date:  This could reflect that the rest of the business documents and records are inaccurate and unreliable. If the register of members is not accurate and up to date, it may be difficult to prove who the owners/sellers are (in a share sale transaction).
• Business assets owned by numerous entities:  The buyer could be concerned that it may not be purchasing all of the assets required for the business.  The buyer may also need to expend time and costs to restructure the business and its assets after the transaction – the buyer may take this into consideration and reduce the purchase price.
• Numerous registrations on the Personal Property Securities Register:  This could ring alarm bells that the business is relying too heavily on credit.  The release of registrations on the PPSR can be a time-consuming process and often causes delays in completion.
• Intellectual property that is essential to the business is not owned by the seller:  The buyer could be concerned that it may not be able to acquire or use the intellectual property required for the business.  The buyer is likely to require the acquisition of, or right to use, the intellectual property as a condition precedent to completion.
• Lack of contracts or expired contracts:  The buyer could be concerned that the relationships with major customers and suppliers may end after the sale.  This may create uncertainty as to whether the business has in place all of the contracts needed for its ongoing operation, and its continued revenue or supply (as the case may be).
• Contracts with onerous assignment or change of control consent provisions:  This could mean that the third party may not consent to the sale.  This is particularly important for agreements with major customers and suppliers.
• Salaries, employee entitlements and superannuation payments are not up to date:  There could be a risk of potential action by employees for unpaid salary and entitlements. This could reflect that the business has not been managed properly, and that there could be other hidden liabilities.
• Leases that have expired or are about to expire:  If a premises is required for the business and the lease has expired or is about to expire, the buyer could be concerned that it may not be able to continue to use the premises after completion. This could also reflect that the business has not been managed properly.
• Litigation that is on foot or threatened:  The buyer could be concerned that the business may be exposed to unknown liabilities or liabilities of uncertain value, as well as potential damage to its reputation or goodwill.

Whether the above are critical to a buyer will depend on the nature of your business, the purchase price, and the risk appetite of the buyer.  Many of the above items can also be corrected or managed before you proceed to offer your business for sale. 

If you are a business owner who is considering selling your business and you are concerned about whether there are any issues or gaps with your records and documentation, you may consider arranging a legal audit of your business prior to it being offered for sale.  If a legal audit is of interest, please get in touch with one of the Sierra Legal team.   

We are growing!  

Sierra Legal is proud to announce that Michael Abrahams, a highly regarded commercial lawyer, is joining our expanding law firm. 

Michael has been the General Counsel, Company Secretary and Integrity Officer at Essendon Football Club since 2014, and is excited to be sharing this role with his new part-time position as a Senior Consultant at Sierra Legal.  

Michael’s broad range of experience as the General Counsel at Essendon will add a valuable dimension to the suite of legal services that Sierra Legal provides its clients, particularly those clients who themselves have in-house legal teams or are looking to outsource part or all of their legal function.  Michael's unique skills and position as a practising in-house lawyer who "knows what the client thinks", will further enhance the Sierra Legal unique offering and client promise - top quality legal advice, that is commercially focused, on time and reasonably priced.

Michael’s passion for legal drafting, and developing systems that result in more efficient and effective legal and commercial outcomes, will also be put to good use as part of Sierra Legal’s innovative and cutting-edge document automation service offering, Arreis Automation.  

Welcome to the team Michael!

We are delighted to have assisted DWM Solutions and its founders and directors Nick Clift and Jeni Clift on their merger with Milan Industries.

Both DWM Solutions and Milan Industries are leading IT partners in providing Managed IT, Business Continuity Solutions, IT Security, Managed Hosting, and IT Consultancy services and the new dynamic business offers clients a reliable multi-national SMB and valuable mid-market service provider for IT support.

It was a pleasure working with Nick and Jeni and we wish Nick, Jeni, Milan and their team all the best for their continued growth and success.

The ACCC has recently commenced legal action in the Federal Court against Fuji Xerox Australia with the ACCC alleging that there are 31 different terms in Fuji Xerox’s standard form contracts that are unfair (including automatic renewal terms, excessive exit fees and unilateral prices increase). 

You can read more about the case against Fuji Xerox in the ACCC’s press release - https://www.accc.gov.au/media-release/fuji-xerox-in-court-over-alleged-unfair-contract-terms

If you need any assistance reviewing your standard form contracts to ensure that they comply with the Unfair Contract Terms regime in the Competition and Consumer Act, please do not hesitate to get in touch with the Sierra Legal team.

The ACCC has recently made the Competition and Consumer (Class Exemption—Collective Bargaining) Determination 2020 (Class Exemption). 

The Class Exemption will allow small businesses, franchisees and fuel retailers to collectively negotiate with their suppliers/processors, franchisor or fuel wholesaler (respectively), without first having to seek ACCC approval (although notification to the ACCC is required). 

The ACCC has advised that they will announce when the Class Exemption is ready for use, which is likely to be early 2021.  Please see the recent ACCC Media Release for further information - https://www.accc.gov.au/media-release/class-exemption-will-enable-small-businesses-to-collectively-bargain.  We will provide further updates as the ACCC releases its guidance for, and commencement date of, the Class Exemption.

Here are the latest updates from Sierra Legal - Newsletter.

If you have any queries about any of the articles in our Newsletter, please do not hesitate to get in touch with the Sierra Legal team.

Following our previous articles about temporary laws that were implemented because of COVID-19 to make it easier for company officers to sign documents electronically, the recent 2020-21 Budget indicates that reforms will be implemented to make these temporary laws permanent. 

The recent Budget also indicates that another welcome reform will be the permanent implementation of measures that allow companies to hold virtual Annual General Meetings.

We will provide further updates when any proposed measures become law.

We were delighted to assist CRG Operations Pty Ltd, and its directors Edward Plowman, Graeme Goldman and John Weste, on the recent acquisition of the Clark Rubber Group.

Clark Rubber is a successful Australian retailer with a history dating back to 1946.  With a national store footprint, Clark Rubber stores are specialists in pools, foam and rubber and over the past 75 years, Clark Rubber has developed into one of the most recognisable retail brands in Australia with a reputation for providing high quality customer service.

You can read more about Ed, Graeme and John here - https://www.splashmagazine.com.au/crg-operations-acquires-clark-rubber/ or visit the Clark Rubber website - https://www.clarkrubber.com.au/.

We congratulate CRG Operations on the acquisition, and wish the new owners and the Clark Rubber Management Team all the best for their continued growth and success.

If you need assistance with buying or selling a business please do not hesitate to get in touch with the Sierra Legal Team.

In our April legal update we provided commentary on temporary changes to the insolvency/bankruptcy regimes in the Corporations Act and Bankruptcy Act that were implemented to assist businesses and individuals navigate through Covid-19.

One of the changes was a new, temporary,  ‘safe harbour’ provision so that the directors of a company that incur a debt while the company is insolvent (or the company becomes insolvent as a result of incurring the debt) will not contravene the Corporations Act and those directors will not contravene their personal duty to avoid insolvent trading.  This temporary safe harbour that was to originally expire in September 2020, but has now been extended to 31 December 2020.

However, notwithstanding the extension to the safe harbour period, directors will need to be aware of the wording of the temporary ‘safe harbour’, particularly paragraph (3) set out below, and a director’s ability to rely on the safe harbour.

The temporary safe harbour provides that subsection 588G(2) of the Corporations Act (which is the duty on a director to avoid insolvent trading) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

1. in the ordinary course of the company’s business; and
2. during the period commencing on 25 March 2020 and ending when the temporary safe harbour is revoked (which is currently expected to be 31 December 2020); and
3. before any appointment during that period of an administrator, or liquidator, of the company.

Therefore, the wording of this safe harbour provision appears to suggest that, in addition to satisfying paragraphs (1) and (2), to rely on the safe harbour an administrator or liquidator must be appointed by the directors prior to the end of the safe harbour period.  That is, the safe harbour will not apply, and directors of the company could still be liable for debts incurred during the safe harbour period, unless an administrator or liquidator is appointed prior to the end of the safe harbour period.

Please get in touch with the Sierra Legal team if you have any queries.

Our May 2020 Legal Update on document signing by companies during Covid-19 provided guidance on temporary laws that were implemented that made it easier for company officers to sign documents, including permitting an agreement to be signed electronically by company officers.  The new law was to last for 6 months from 6 May 2020.

The Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (“Determination”) has now extended the operation of the temporary laws until 21 March 2021. 

Please see our May 2020 Legal Update for further details on these temporary laws and the ways in which a document can be signed by a company. If you have any queries please get in touch with the Sierra Legal team.

We recently sat down with Senior Associate Ken Gitahi to ask all the burning questions …

When did you start at Sierra Legal? 1 February 2018.

What were you doing before Sierra Legal? I was a senior lawyer at another top tier boutique corporate law firm in Melbourne.

What do you do with your time when you aren’t advising on M&A deals and reviewing contracts? Generally running around after my 3 very energetic kids (ages 7, 5 and 3).  Given the current Covid-19 lockdown in Melbourne, however, I have not been doing much running around after the kids (which I’m not complaining too much about).  The home-schooling, on the other hand, has been the biggest test of patience I have ever had to endure.  Bravo to all the teachers out there.

What was your first job? Door-to-door sales/collections for a not-for-profit in Perth.  Tough gig, especially in the WA summer, and we had to be in full suits too!  Needless to say, I didn’t last long, BUT some “good” came from it (see the answer to the next burning question).

What was the first thing you bought with your own money? A first generation X-box console!!!  It was quite the momentous occasion when I walked into that EB Games store and plonked my hard earned $$$ from the aforementioned door-to-door sales/collections job.  I used to be quite the gamer in my younger days.  Not so much now though, sadly, principally due to the 3 very energetic kids previously referred to. 

What was the last book you read? ‘Too Much and Never Enough’ by Mary L. Trump PhD.  I’m about to start reading ‘Disloyal’, A Memoir by Michael Cohen.  There’s a theme here clearly.  I am fascinated by US politics in the Trump era particularly in the current lead-up to the November 2020 presidential elections.  Australian politics, by comparison, is quite uneventful, for which I am incredibly grateful.  Long may that continue! 

Favourite place? Masai Mara National Reserve.  Google it!

Favourite food? Kenyan-style chapatis.  Google them!

Least favourite food? Anchovies.  Licorice a close second.  Pickles, too.  Can’t. Stand. Them. #dontgoogleoreatthem!

Best advice you have received?

“There’s still time to change the road you’re on” – (advice received from Led Zeppelin)

“You gotta fight for your right to party” – (advice received from Beastie Boys)

We recently sat down with Peter Jorgensen, Managing Director of All States Vehicle Logistics Pty Ltd trading as Spiral Logistics.

Peter is an energetic, analytical and innovative CPA-qualified senior executive with over 20 years’ experience in the transport and logistics sectors.  He also has a dual role as the CFO of a Property Developer.  He has extensive commercial and business experience, including in relation to business acquisitions.

Peter was instrumental in facilitating and implementing the acquisition of Spiral Logistics, a leading Australian logistics business for specialised freight, with a focus on providing transport services to the steel industry in Victoria, New South Wales and Queensland.  Sierra Legal worked closely with Peter on the legal aspects of this acquisition.

In this Q&A, Peter shares his thoughts and tips on acquiring a business in Australia.

When you look at buying a business, what are you actually buying?

Most people operate their business through a company.  This means that you can either buy the shares held by the shareholders in the company or the assets used by the company to operate the business.  If the business is operated by a sole proprietor or through a trust, then you may be limited to buying just the assets.

Can you share your top 5 tips when acquiring a business?

Tip 1:  Try to negotiate an exclusivity period with the seller, during which the seller cannot deal with other prospective buyers in relation to the sale and purchase of the business.

Tip 2:  Understand your funding options.  Before negotiating with a seller in relation to the purchase of a business, you need to know how you will fund the purchase price.  If you will get the funds from a loan (for example from a bank) you should speak to the bank and obtain a pre-approval for the loan and ensure that the purchase of the business will be subject to the bank agreeing to provide the loan.

Tip 3:  Undertake due diligence.  This is an important process through which you investigate the business to verify its past activities and performance, and its future prospects, to ensure you are paying a fair price for it.  Through due diligence, you can also identify any risks associated with the business and its future prospects and determine whether to proceed with the purchase at all, or how the identified risks can be addressed.  Due diligence can be a time consuming process so this should be taken into account when negotiating the length of the exclusivity period with the seller.

Tip 4:  Understand what protections you may need in the transaction documents as a result of due diligence.  These protections typically take the form of warranties and indemnities from the seller in the transaction documents.

Tip 5:  Engage as early as possible with any third parties whose approval may be required to complete the transaction (e.g. banks, landlords, customers, suppliers etc).  This will assist with the early identification of any requirements that need to be complied with before the approvals are provided and ensure that delays to the completion of the transaction are minimised.

What kind of due diligence would you typically conduct on a target business?

Ideally a buyer should conduct commercial, financial, tax and legal due diligence on a business it is proposing to acquire.  Depending on the buyer’s experience or familiarity with, and the complexity of, the type of target business and its sector, the buyer may choose to conduct the bulk of the commercial and/or financial due diligence itself and only engage external advisers to assist with tax and legal due diligence.  However, depending on the target company and the nature of its business, or based on preliminary findings from the due diligence process, the buyer may also need to engage other experts to assist with the commercial due diligence, such as property/planning experts, environmental experts and lawyers with expertise on employment matters, IP matters (e.g. patent attorneys) and insurance matters.  If costs are an issue, then it is possible to engage external advisers such as accountants, tax advisers and lawyers to only conduct limited scope due diligence on discrete, material areas of the target’s business.

If a buyer will engage external advisers to conduct due diligence, those experts would typically provide a due diligence report to the buyer.  Typically, I would request that a due diligence report is prepared on an “exceptions only” basis (i.e. where the focus is to identify issues that are discovered during the due diligence exercise and which would include recommendations on how to deal with any such issues).  However, for less complex or risky acquisitions, or if costs are an issue, then it may be possible to request a report that only focuses on some key, material areas (i.e. a very limited scope due diligence report).

Thanks to Peter for his time and for sharing these thoughts and tips.

If you are a business that requires specialist freight or logistics support, please contact Peter on +61 411 695 634 or peter.jorgensen@spirallogistics.com.au (https://www.spirallogistics.com.au/).

If you are looking at acquiring a company or business and require legal support with your acquisition, please get in touch with one of the Sierra Legal team.

On 31 March 2020, ASIC and the ASX announced temporary capital raising relief measures to assist ASX-listed entities affected by the COVID-19 pandemic to undertake emergency capital raisings (please see our March article on these measures). These measures were updated with effect from 23 April 2020 (please see our April article on these updates) and extended until 30 November 2020 by the ASX on 13 July 2020.

On 15 September 2020, the ASX released Compliance Update no. 09/20 to announce further changes to these measures as a result of the ongoing stabilisation in market conditions since these measures were extended in July, and to announce a number of other compliance updates, as summarised below:

Changes to the temporary emergency capital raising relief

• From 16 September 2020, any listed entity wishing to take advantage of the ASX temporary emergency capital raising relief measures must satisfy the ASX that it is raising capital predominantly for the purposes of addressing the existing or potential future financial effects on the entity resulting from the COVID-19 pandemic and/or its economic impact, along with satisfying the other existing conditions.
• Where a capital raising appears to the ASX to have inequitable features for existing security holders, the ASX may withhold the benefit of the relief measures from the listed entity, even if the capital raising is specifically COVID-19 related and urgently needed.

Ratification of issues of securities under the increased placement capacity relief

• Under the temporary emergency capital raising relief measures, the 15% limit on placements by listed entities without shareholder approval in listing rule 7.1 has been increased to 25%.
• Following a number of queries from listed entities and their advisers, the ASX has reiterated in Compliance Update no. 09/20 that listed entities that have utilised the temporary extra 10% placement capacity under listing rule 7.1 cannot subsequently ratify or replenish the used up extra 10% placement capacity.
• Listed entities that have relied on the temporarily increased placement capacity in listing rule 7.1 are only able to approve or ratify issues made from their normal 15% placement capacity under listing rule 7.1 but not from the 10% temporary extra placement capacity.

Updates to ASX listing rule Guidance Notes

In Compliance Update no. 09/20, the ASX announced the release of updates to listing rule Guidance Notes 3, 4, 12 and 19, as follows:

• Guidance Note 3 (Co-operatives and Mutuals Listing on the ASX) has been updated to add a new section 7.6 addressing the ‘mutual capital instruments’ that mutual entities are now able to issue under Part 2B.8 of the Corporations Act and the similar ‘co-operative capital units’ that co-operatives are able to issue under Division 2 of Part 3.4 of the Co-operatives National Law.
• Guidance Note 4 (Foreign Entities Listing on the ASX) has been amended to add the Tel Aviv Stock Exchange as an acceptable listing venue for foreign exempt listings and to reflect the relief ASIC has recently granted to US-incorporated listed companies to allow them to prepare and file accounts under section 601CK of the Corporations Act using US GAAP rather than Australian IFRS.
• A number of changes have been made to Guidance Note 12 (Significant Changes to Activities) including to clarify the preliminary steps an entity should take before announcing a proposed significant transaction under listing rule 11.1.
• Guidance Note 19 (Performance Securities) has been substantially amended to address emerging areas of concern with performance securities, including by expanding this Guidance Note to cover performance options and performance rights, as well as performance shares.

Compliance requirements for draft notices of meeting

• On 1 December 2019, a number of substantial amendments were made to the listing rules relating to the requirements for notices of meeting and voting exclusions.
• In Compliance Update no. 09/20, the ASX reminds listed entities to ensure that draft notices of meeting submitted to the ASX for review reflect these amendments.

Changes to operating hours during daylight saving

• Daylight saving commences in New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia at 2:00 a.m. EST on Sunday, 4 October 2020, and will end at 3:00 a.m. on Sunday, 4 April 2021.
• As Western Australia will be 3 hours behind Sydney time during daylight saving, ASX Market Announcements will stay open until 8.30 p.m. EST (5.30 p.m. WST) starting on Monday, 5 October 2020.

A copy of Compliance Update no. 09/20 can be found here.

Sierra Legal is proud to have advised the National Lotteries and Newsagents Association (NLNA) on an exhaustive tender process that resulted in the appointment of Finn Business Sales as the exclusive business broker of the NLNA, to represent Australian newsagents seeking to buy or sell newsagency businesses.

Finn Business Sales is part of Australia’s largest business brokers network – The Finn Group – which is Australia’s largest network of business brokers in Australia and has offices in all major cities and regional areas of Australia.  Australian newsagents looking to buy or sell newsagency businesses will therefore benefit from the depth of experience and resources available to Finn Business Sales.

The NLNA is the peak national body representing the interests of Australian newsagents and lottery agents.  Over 5,000 Australian newsagents and lottery agents have subscribed with the NLNA, which was formed with the clear purpose of improving the income and profile of its subscribers.

As part of its partnership with Finn Business Sales, the NLNA has established “News4Sale”, which is a platform that enables Australian newsagents to list their newsagency businesses for sale.  The “News4Sale” platform is available to all Australian newsagents via https://www.nlna.com.au/news4sale/.

Sierra Legal is an industry partner of the NLNA and is the preferred provider of commercial legal services to the NLNA and its subscribers.  We congratulate Finn Business Sales on its successful tender and appointment as the exclusive business broker of the NLNA.

For more information, please contact Craig Sanford and Kenneth Gitahi at Sierra Legal.

Sierra Legal would like to congratulate Straight Bat Private Equity on the recent completion of its first portfolio investment in one of Australia’s leading process engineering service providers.

Straight Bat Private Equity is an income oriented private equity fund that invests in mature, highly robust, medium sized Australian businesses and as a long-term partner with founders.

Straight Bat Private Equity is associated with the family of Flight Centre co-founder Geoff Harris AM, and its team includes Geoff and Brad Harris, Janine Allis, Adam Lewis, Steve Gledden, Rob Nicholls and Richard Palmer.

Sierra Legal assisted Straight Bat Private Equity on all the legal aspects of its first portfolio investment.

For more information, please contact Craig Sanford or Ken Gitahi at Sierra Legal.

Here are the latest news updates from Sierra Legal - Newsletter.

We recently sat down with Jonathan Lewin, Commercial Director of Simoco Wireless Solutions Pty Ltd.

Simoco Wireless Solutions specialises in building wireless communications networks for sectors where reliability, integrity and clarity are paramount, from utilities to government, public safety to transport.

In this Q&A, Jonathan shares his thoughts on the importance of having an effective set of terms and conditions for use with suppliers.

What are supplier terms and conditions?

Supplier terms and conditions set out the basis on which a business and a supplier to that business will transact with each other. 

While a business will usually have a set of terms and conditions for use with its customers or clients, many businesses do not have their own terms and conditions for use with their suppliers.

Why are they important and what is the advantage of having them?

It is important that a business has its own supplier terms and conditions because a business’ own terms of supply are likely to be more favourable to the business.  This is particularly important for regular or high-value suppliers.  If a business does not have its own supplier terms and conditions:

• the supplier’s terms and conditions (which will typically be more favourable to the supplier) will usually apply; or
• if neither party has any relevant terms, the terms of the agreement between the business and the supplier will need to be determined in other ways (e.g. from correspondence between the parties, general legal principles etc), which can lead to uncertainty, which in turn can lead to costly disputes.

While it may not always be possible for a business to engage a supplier on the business’ own supplier terms, the advantage to the business of having such terms is that:

• it will generally allow these terms to at least be proposed as the basis of engagement with the supplier; and/or
• used as a basis for negotiating better terms of supply from the relevant supplier. 

Sometimes, if a supplier insists on using their own terms and conditions, the business can also use its own supplier terms and conditions as a guide for requesting changes to the supplier’s terms and conditions that may be more favourable to the business.

In your experience, what are the most negotiated terms or concepts in a supplier’s terms and conditions of trade?

In general, I usually find that the most commonly negotiated terms with suppliers are:

• price; and
• the time it will take for the relevant goods or services to be provided. 

After that, other areas of focus are usually concepts relating to when risk in the goods or services passes from the supplier to us, termination rights, indemnities and limitations on liability.

In your experience, what can be some of the worst outcomes for a business if it is not able to use its own supplier terms and conditions or at least negotiate some more favourable terms in the supplier’s terms and conditions?

I have had experiences where a business has either had to:

• pay a supplier for items that were not built to specifications; or
• pay the supplier despite the goods being delivered late (with the flow on effects of late delivery being that the business’ ability to fulfill its own obligations to the end customer was affected). 

Because the supplier’s terms and conditions limited the supplier’s liability for such things, there was limited recourse for the business and as such the business decided to “settle” the matter by paying an agreed amount to the relevant supplier (as it wasn’t worth it for the business to engage in a lengthy dispute resolution process with the supplier).

I have also been involved in a situation where a business ordered goods from a supplier under the supplier’s terms and conditions, where the goods were required for a high-value contract with the end customer.  The supplier delivered some but not all the goods which caused the business to be in breach of its contract with the end customer.  Because of the non-delivery of the goods, the business withheld payment for the goods.  The supplier then made payment claims against the business (notwithstanding the fact that it failed to supply the majority of the goods that were ordered).  The business was then forced into a semi-litigious battle with the supplier which resulted in significant loss and damage to the business.  This may have been mitigated if the business had used its own supplier terms and conditions or a more favourable version of the supplier’s terms and conditions.

Thanks to Jonathan for his time and for sharing these thoughts and tips.

If you are a business that requires wireless communications network solutions, get in touch with the team from Simoco Wireless Solutions (https://www.simocowirelesssolutions.com/).

If you are a business owner and have any questions on the legal aspects of your customer or supplier terms and conditions, or if you require assistance with preparing a set of customer or supplier terms and conditions, please get in touch with one of the Sierra Legal team.

We were delighted to assist CEO James Rennie and Australian UAV on their recent acquisition of, and merger with, leading drone business Uaviation.  It was a pleasure working with James and his team!”

You can ready more about Australian UAV and Uaviation here - https://www.auav.com.au/auav-uaviation-merger/

Jen has just enjoyed a 6 month secondment with Medibank’s in-house legal team, supporting their Customer and Portfolio division and advising on consumer-facing collateral and their customer loyalty program.  During that time, she gained insight into the private health insurance industry (including how it responded to Covid-19), Medibank’s diverse business, and how its flexible culture supports work/life balance.  She also picked up some tips on how to look after her health and wellbeing!

As part of the DynamicBusiness.com.au "Let's Talk" series, Sierra Legal Senior Associate Troy Mossley shares his thoughts on "the legal support your business needs." Read Troy's thoughts and the rest of the discussion here - https://dynamicbusiness.com.au/featured/lets-talk-the-legal-support-your-business-needs.html

Sierra Legal Director, Michael Jeffery, has recently been featured in this article by Dorna Moini from Documate. Thanks Dorna!

Article: https://www.law.com/legaltechnews/2020/06/22/5-ways-smbs-use-automation-to-keep-up-in-the-remote-and-online-world/