BUSINESS BRIEFLY
October 1998 Issue No 30

WHEN A DELAY IS A DELAY

When does "a delay" occur? When it occurs, or after it has finished occurring? If you think this question is nonsense, consider the requirements of a contractor giving notice to a contract manager/administrator in a commonly used standard form construction contract.

Clause 35.5 of AS2124-1992 requires a contractor to give notice of a claim seeking an extension of time, "within 28 days after the delay occurs". There are bars in place to prevent out of time claims being considered.

When the delay "occurs", is a question considered in a recent Queensland case where a contractor claimed a 166 day delay because an owner had failed to supply a phone system on time. The period of delay claimed was October 1995 to June 1996 but the notice seeking the extension of time was not given until June or July 1996 - soon after the delay had ended but a long time after it had started to occur.

The owner argued that the delay had occurred back in October and that the contractor was out of time for making a claim. The contractor argued that the delay only "occurred" after the period had ended and that his claim was within time.

The matter went through progressive courts, and, ultimately the Queensland Court of Appeal determined that a delay "occurs" when it starts and that Clause 35.5 requires a contractor to give notice within 28 days of the delay starting even though it might be continuing. This also means that the contractor will be obliged to provide continuing facts and bases for that claim once the extent and duration of the delay are known.

Extensions of time claims are a fertile ground for disputes between owners and contractors and this decision affects contractors, engineers, superintendents, contract managers and owners.

For further information on this article or contract administration and management, contact Celine McInerney, Partner on (61 8) 8210 1206 or via E-mail: cmcinerney@normans.com.au.

GOOD NEWS FOR EXPORTERS

For some time now, some exporters of value added goods or services have been able to obtain a 20% rebate on pay-roll tax. This rebate is available to exporters of services where South Australian employees have made a significant contribution to those services supplied and also to exporters of goods which have been manufactured, produced or processed in their final form in South Australia. Grading, packaging and sorting are not regarded as processing for the purposes of the rebate and the rebate does not apply to the export of processed minerals, petroleum products and unprocessed primary produce.

The amount of the rebate is calculated using the following formula:

R = V/S x P x 20 %
Where,

R = Rebate;
V = AUD$ South Australian export earnings for the period
S = AUD$ South Australian earnings
P = South Australian pay roll tax payable after deducting other rebates.

Export earnings for the purpose of the rebate means the Free on Board sale value of goods sold to purchasers outside South Australia and/or the South Australian component of the consideration received in Australia for services supplied outside Australia.

In order to claim this significant rebate, exporters must complete and lodge an application for the rebate with the State Taxation Office. For further information on the rebate or the procedures for claiming the rebate, contact Christopher Darby, Associate on (61 8) 8210 1286 or via E-mail: cdarby@normans.com.au.

BAD NEWS FOR BUSINESS SELLERS

In the recent decision of the Federal Commission of Taxation v Murray, the High Court effectively reduced the potential scope of the goodwill exemption contained in Section 160ZZR of the Income Tax Assessment Act.

The taxpayers in that case operated a taxi business which was subsequently sold for a purchase price which included $189,000.00 payable in respect of "goodwill (licence value)".

The tax office treated the $189,000.00 portion of the purchase price received by the taxpayer as consideration for the sale of the taxpayers? taxi licence and therefore deprived the taxpayers of a reduction in the capital gain on the sale of the business in respect of that portion of the purchase price.

The Federal Court held that the Section 160ZZR exemption applied to the $189,000.00 as it was the sale price for the "monopoly goodwill" which arose in part from the limited competition in the taxi industry by virtue of the licence system. In reversing the Federal Court's decision, the High Court held that the sale of the licence did not involve a transfer of goodwill within the meaning of Section 160ZZR. Instead, the High Court held that the sale of the taxi licence was the sale of an asset which was a source of goodwill, but was not goodwill itself.

In the course of delivering its judgement, the majority of the High Court stated:

"Goodwill is inseparable from the conduct of a business. It may derive from identifiable assets of the business, but it is an indivisible item of property, and it is an asset that is legally distinct from the sources - including other assets of the business - that have created the goodwill ...... and the sale of an asset which is a source of goodwill, separate from the business itself, does not involve any disposition of the goodwill of the business ...... that which can be assigned and transferred from the business may, while it is connected to the business, be a source of the goodwill of the business but cannot logically constitute any part of the goodwill of the business".

Although the decision of the High Court in Murray's case may clarify the law on the nature of goodwill, the decision will clearly reduce the potential scope for taxpayers to claim the benefit of the goodwill exemption under Section 160ZZR.
For further information on Murray's case, please contact Johanna Churchill, Senior Associate on (61 8) 8210 1236 or via E-mail: jchurchill@normans.com.au.

ADVOC UPDATE

Norman Waterhouse is a member of Advoc which is an association of independent commercial law firms with representative offices throughout the world. Norman Waterhouse's affiliation with Advoc adds to the pool of collective expertise available to you.

Because of our geographical location we concentrate our efforts in Asia and the local group is known as Advoc Asia.

It is with great pleasure that we announce that the Perth law firm of Kott Gunning has recently become a member of the Advoc group. Kott Gunning was established in 1919 and has developed into one of the few major players in the Western Australian legal community to provide a full range of legal services to clients. Their broad range of expertise includes insurance law, construction and engineering law, and property law. Kott Gunning's admission to Advoc reinforces our interstate and international links with law firms sharing compatible aims and aspirations.

Makes & Partners in Jakarta, Indonesia has also recently become a member of the Advoc Asia group. Their practice areas include corporate and commercial law, foreign and domestic capital investment, restructures, mergers and acquisitions, banking and corporate finance, capital markets, telecommunications, energy and infrastructure and real property law.

Lutfi & Company in Dubai has also become a member of Advoc and joins an increasing membership from countries including Australia, Malaysia, Hong Kong, India, Indonesia, Philippines, Sri Lanka, Singapore, the United Arab Emirates, and thirty-six members throughout Europe.

Norman Waterhouse believes that with the shrinking global marketplace, local legal and commercial experience is of paramount importance to our clients conducting business overseas. We are committed to providing excellent legal service to you both in Australia and internationally.
If there is any way you feel our involvement with Advoc can be of any assistance to you, contact Brendan Murray, Partner on (61 8) 8210 1204 or via E-mail: bmurray@normans.com.au.

(from Colin, Biggers and Paisley Newsletter, March 1998)