According to Veda head of commercial risk Moses Samaha, the PPSR delivers great opportunity to businesses, but they must understand what the changes mean for their business practices.

“By registering your security interests on the PPSR, your business will be at a lower risk from the bad debts of partners and suppliers. And, it will better your business’ position in the list of creditors in the event of insolvency or liquidation. Registering your interests on the PPSR should be an integral part of good practices in credit management and will help protect your business,” Samaha said.

Here are 10 tips from the team at Veda for preparing your business for the PPSR:

REVIEW

1. Review your trading activities – Does your business lease or supply goods to partners?  The PPSR can help you ensure that your business gets paid if a debtor defaults or goes bankrupt.

2. Review and amend business documentation – Make sure that all company materials are updated in line with the new PPSR legislation. This includes your contracts, terms and conditions and any marketing materials.

3. Evaluate your current credit policies and processes – The PPSR is an opportunity to streamline processes and improve efficiencies within your organisation. You may not want to register and search the PPSR register for all debtors. Take the time to think through your risk strategies and evaluate how you are working to get the most out of the new legislation

4. Train your staff – Make sure that your team understand the new changes and what it means for your business. Whilst a great opportunity lies ahead, to date, the change has been seen as somewhat disruptive: dates have changed, business processes need to be changed, there are greater cost implications, etc. If they will be working with the new PPSR, sign your staff up for a seminar on how to get the most out of it, and work correctly and efficiently with the new register.

5. Check your IT and Credit Management Systems – You may need to make some changes to your internal IT and credit management systems:

• Make sure that they enable the collection and storage of information required for the PPSR such as party details, collateral descriptions and other data required to register and maintain security interests.

• If you use automated credit management software – how do your decision rules change given you have potentially new information at hand?
• Have you thought about how will you connect/interact with the PPSR?
• Consider whether you will manage registrations directly with the PPSR or if you prefer to use the services of a broker. Veda’s PPSR solution is designed to sit on top of the PPSR to help you engage with it more efficiently and cost-effectively.

PREPARE

6. Seek legal advice –The Personal Properties Securities Legislation is one of the most significant changes to the rights of trade creditors in the last 20 years. In order to understand the full effect of what PPSR means it is recommended you obtain your own independent legal advice.

7. Identify which assets need to be registered on the PPSR –A registered interest will have priority over an earlier unregistered one so this will help protect your business assets. Create a list of your current security interests, registered and unregistered, and then identify which of these require action once the PPSR commences.

8. Collect accurate information and validate the data – Inaccurate data can mean that your registrations will have no value in the event of insolvency or default. Accurate information is key to registration. If customers are individuals or sole traders, make sure you have the correct name and date of birth as recorded on their driver’s licence. And try to capture and validate full ABN and ACN details where possible. Working with an external solutions provider can be useful in this respect; for example Veda’s PPSR solution will do an automatic check to help you verify the data you are putting into the PPSR, helping you ensure it is complete and correct.

TAKE CHARGE

9. Take market advantage – For non-financial institutions, the PPSR will have a number of benefits and bring a level-playing field when it comes to registering security assets, putting smaller businesses on par with the big players. The PPSR can better your position in the list of creditors in case of insolvency or liquidation and it will help you take control and manage security from your debtors. So take the advantage!

10. Benefit as a consumer – The PPSR isn’t just for businesses but it also holds a number of advantages for consumers. If you are looking to buy used goods, such as a car or boat, the PPSR can help you verify that there is no security interest registered on it. Searching the PPSR will help protect you from buying goods which could be repossessed.

The ACMA said it’s received a number of complaints about wayward VHA dealers who’ve ignored the Do Not Call Register to telemarket Vodafone and 3 Mobile products.

As a result, VHA has been ordered to audit and report back to the ACMA on all its dealers’ telemarketing activities.

“If it finds any of its dealers potentially breaching the Do Not Call Register Act [of 2006], it must report the dealer to the ACMA immediately,” ACMA chairman Chris Chapman said.

Under the enforceable undertaking, VHA has also committed to:

• Require all its subsidiaries and dealers to keep comprehensive records of the telemarketing calls made; and
• Implement robust procedures around recording VHA’s customers’ consent to be called by, or requests to opt out of receiving, telemarketing calls from VHA, its subsidiaries or any dealer.

If the business doesn’t meet these obligations, the undertaking could be enforced by the Federal Court.

The latest action comes just weeks after the ACMA warned Vodafone for not adequately protecting its customer’s privacy. An investigation found it had:

• failed to classify and analyse complaints as required by the TCP Code

• failed to provide timely customer information about network performance issues in late 2010
• poor systems in place for protecting the privacy of customers’ personal details prior to January 2011.

Any additional breaches of this nature could see Vodafone fined up to $250,000, the ACMA said.

Getting value from your fleet can be complex and costly without the right support. Managing vehicle depreciation, residual and maintenance risk, and keeping the whole-of-life cost and management of the vehicle under control can syphon valuable time and money away from your core business.

What can a fleet management expert deliver?

1. Maintenance management: Continual maintenance of your company vehicles is essential to avoid large costs further down the track. Understanding your maintenance and repair expenses can be a headache. Good fleet management programs will take control of your vehicle maintenance and repairs from preventative maintenance scheduling to emergency roadside assistance. This means lower costs and greater convenience for your business.
2. Corporate level discounts: Fleet management companies can aggregate the needs of numerous clients to deliver greater buying power on fuel, labour, and parts.  These discounted rates are then passed on to clients.
3. Reduce your administration time: Fleet management offers flexible service options to handle your fleet administration and support needs, saving your business valuable time and money.
4. Save money through better efficiency: Fleet managers provide customized vehicle selection, advanced technology and expert analysis to help your lower fuel consumption, reduce your costs and reduce your CO₂ emissions.

The maintenance of your fleet is crucial, but so is its efficiency. As the country strides towards a greener economy, and as climate change is taken into account in the management of assets, reducing fuel consumption and maximizing the efficiency of your vehicle fleet becomes a more prominent factor in the business management mix.

In this context, the old mantra rings true that the most dynamic businesses adapt in anticipation of a change, rather than as an afterthought. The first step is examining your current operations; the second, the introduction of change.

While the Federal Government’s carbon tax scheme excludes transport fuels for light vehicles, a string of policy incentives to reduce vehicle emissions offer the perfect catalyst to reduce your fleet’s carbon footprint, but again, the right advice essential. On 10 May this year, the Treasurer announced as part of the Federal Budget, changes to the calculation of fringe benefits tax (FBT) for car fringe benefits to remove adverse environmental incentives for people to drive more and further to increase their tax concessions. The new FBT scheme applies a single tax rate of 20 percent, regardless of the kilometres travelled during that FBT year.

Initiatives like these targeted at the fleet industry are not surprising in light of recent Government figures highlighting that the transport industry contributes 15 percent of the country’s CO2 emissions, and light vehicles including passenger/sport utility vehicles and commercial vehicles account for 64 percent of transport emissions.

Business success in a carbon-constrained economy will be underpinned by how well businesses can adapt to more environmentally efficient operations. Good fleet managers can offer valuable guidance and products to help analyze business information to find out how to best run an energy efficient fleet. By becoming energy efficient, companies can simultaneously save money and reduce their impact on the environment.

Four simple steps to fleet energy efficiency

1. Measure: First, a business needs to set a baseline for current fuel costs and carbon emissions. Without knowing where to begin, progress will not be effectively measured.
2. Analyse: Determine where improvements should be made. Comparing the efficiency of different vehicles, retraining drivers and tracking routes to reduce fuel use are good first steps.
3. Implement: Create cost and emissions-reducing strategies for the company. The faster new strategies are implemented, the faster savings will start.
4. Track: Monitor the fuel-efficient performance. Highlight the areas where costs are going down and improve where they are not. Continue to refine goals to become more efficient.

The Minister for Infrastructure and Transport, the Hon Anthony Albanese, recently released a discussion paper that examines how to implement carbon dioxide emissions standards for new light vehicles from 2015. Cars and other light vehicles contribute around 55 million tonnes of carbon emissions to the atmosphere each year, so the light vehicle sector is an important area for action for achieving the national five percent target for carbon reduction by 2025.

According to the Federal Chamber of Automotive Industries, smaller vehicle adoption is already catching on in Australia, making up 36 percent of all vehicle purchases for 2011. However, the Australian automotive industry is on the cusp of a more profound change; elective vehicle (EV) adoption.  Key players in the Australian automotive market for cleaner and more efficient energy generation have thrown their weight behind efforts to make EVs more feasible in Australia, significantly improving accessibility for business customers.

Recent strategic commitments by Better Place, GE and Renault Australia will help to build comprehensive infrastructure for EVs delivering convenience and affordability to customers that is equal to or better than petrol driving.  GE recently made a commitment to add 1,000 EVs to its Australian fleet as part of a global pledge to buy 25,000 EVs by 2015.

While electric powered fleets might be a few years away for the majority of businesses, there are definitely benefits to putting a focus on fleet efficiency – both from an operational and financing perspective. A cooler economic outlook is breeding a more cost conscious approach among Australian businesses and according to a recent MYOB research report, more than half of SMEs believe an economic recovery is more than 12 months away. Businesses are also thinking more about how to extract maximum value and to manage their balance sheet effectively.

From financing through to remarketing, operational metrics to environmental performance indicators, re-evaluating your fleet management approach can help save time and money and turn your business vehicles into strategic assets.

–      Neil McKay is General Manager, Custom Fleet, GE Capital.

Mergers and acquisitions are excellent strategies to generate growth. In many cases, the goal is often to create a sustainable competitive advantage or protect market share. However, pursuing a merger or acquisition does have its risks, especially if the deal is overpriced and heavily debt funded. Despite these risks, it is clear that merger and acquisition activity is increasing, especially in challenging sectors such as retail.

There’s no doubt that many retailers in Australia are experiencing some challenging conditions. The value of the Australian dollar and relative ease with which consumers can buy over the internet coupled with reduced consumer spending have made business difficult. Consequently, many businesses are facing increased financial pressure and the immediate need to manage costs and increase efficiencies. One of the ways in which business can do this is to merge with a similar business and share back office platforms and systems. The value of doing so can be easily seen in Dymocks’ acquisition of Healthy Habits a couple of years ago. At first glance bookstores and sandwich bars have little in common, but on closer evaluation, the opportunity to share common back office systems was an obvious incentive.

Exploiting economies of scale can help companies reduce their fixed cost base and increase profit margins. It may also enable greater efficiencies in meeting consumer demands, marketing and distribution costs or the introduction and cross utilisation of products. The Fosters Group is a good example. In the early 1990s, Fosters’ strategy was to diversify its product offering into wine. It quickly acquired Mildara Blass, Rothbury and Beringer Wine Estates in a few short years. Its intent was to become a global premium-branded beverage company. Obviously, some mergers are more successful than others. In an apparent reversal of its long-held strategy, Fosters has been de-merging its wine operations after years of underperformance. Just last year, Fosters sold off non-essential wine brands and in May 2011 spun off its wine division into a separately listed company.

Partner selection

Undoubtedly, one of the most critical issues facing businesses considering a merger is to find the right partner. Whether the merger involves small or large businesses, the partners’ objectives, ethos, way of doing business and expectations need to be aligned. Prospective partners need to agree on all aspects of the proposed merger and conduct an early assessment of the regulatory and legal hurdles. The latter is especially important to avoid unnecessary costs and time.

Each party involved in a merger or acquisition need to undertake proper due diligence. This involves a thorough assessment of the others business; its structure, financial results, management, systems, contracts and debts just to name a few. As a general rule, the more due diligence, the greater the probability the merger or acquisition won’t be derailed for some unforeseen reason.

Quite often, it is beneficial for businesses seeking to merge or acquire to seek assistance from brokers or agencies. These third parties can often find the most appropriate partner through their broad networks and general knowledge of the business community and their clients’ needs.

Legal structure

There are a number of ways in which an acquisition can take place:

1. Acquisition of shares. Here, the purchaser acquires shares in the target company. One of the risks in this approach is that the purchaser “inherits” the target company’s past – including all of its liabilities. The purchaser cannot decide on which assets it wishes to purchase or which liabilities it wishes to assume.
2. Acquisition of the business or of business assets. Here, the purchaser selects the assets it wishes to acquire. As such, it will not be burdened with having to accept the target company’s liabilities. However, the purchaser needs to ensure that the assets it acquires are not encumbered by a mortgage or some other security interest.

One of the most important issues in this type of acquisition is to ensure the title in the relevant assets is properly transferred. This includes intellectual property assets such as trademarks and any other materials related to the brand.

Although merger and acquisition activity has increased over the last few years, valuing a specific opportunity has become more challenging in that time due to the uncertain economic and financial circumstances. Consequently, it is critically important purchasers clearly understand the form of payment and financing options available. Prudent purchasers will seek appropriate professional advice when valuing the target company’s assets and business.

Earn outs

In today’s markets, purchasers are generally more cautious about acquiring businesses. One of the most obvious points of concern is the degree of gearing the purchasers are generally willing to accept.

Earn-outs provide a method of mitigating some degree of risk. Here, the seller’s ability to receive payments as a result of the transaction is directly linked to the businesses performance. If the business reaches or exceeds certain targets then the seller’s payments are paid in accordance with the sales agreement. If the business fails to achieve the target performance level, then some reduction (also contained in the sales agreement) in the amount to be paid is made.

In the earn-out scenario, each party has some degree of risk. The purchaser may not be able to get the seller to agree to the earn-out conditions. The seller has to ensure the purchaser does not deliberately fail to meet the target performance. More often than not, the seller remains in close contact with the business, often in an advisory or even executive role.

Earn-outs can reduce a purchaser’s initial payment and to a certain extent at least, provide some security that the business will continue to perform. In effect, the purchaser minimises the risk of over-paying for future revenues and profits.

For the seller, agreeing to an earn-out may result in a higher effect sales price than an outright and immediate sale. However, sellers should generally be cautious about performance-based earn-outs.  It is a case of balancing the upfront payments with the risk associated with the ongoing performance of the business. Ideally, the seller should obtain a substantial up-front payment and have limited exposure to the ongoing performance of the business. The rationale for this is that if a substantial portion of the purchase price was linked to post-settlement performance, the purchaser has a heightened interest in manipulating the businesses’ performance to minimise the payments to the seller.

Earn-outs pose risks for both the purchaser and the seller. Parties which enter into such arrangements should ensure that appropriate conditions are included in the sales agreement so that the performance potential of the business is protected.

Every business owner should have a clear exit strategy to extract the maximum value from the business upon exit. Whether or not the maximisation of value comes from merging or acquiring another business, exit strategies should be well planned in advance. This will help avoid the potential for poor decision making when under pressure.

It is critical that shareholders have an agreed and well-documented exit strategy. Shareholders often have very different and conflicting views which often only come to light as an offer to merge or be acquired is laid on the table. It is essential that every business has a well drafted shareholders agreement covering the principles to be applied in the event the business is engaged in a merger or acquisition.

As with most business issues, obtaining high quality professional advice early can often help the business and its owners avoid conflict and confusion when critical opportunities become apparent.

–      Marwan Kojok, Executive Partner, DCS Lawyers.

Unfortunately, this time of year can lead to excessive alcohol consumption and inappropriate office behaviour, often documented across social media channels, creating tension in the office or worse still, legal implications for those involved.

Without the right legal advice and protection, it’s often the employer who is liable for any misconduct leading to injury or abuse at the office Christmas party.

Health and safety laws and the welfare of employees are still the responsibility of the employer at the office Christmas party even if it’s outside of working hours and off workplace premises. Workers Compensation and Occupational Health and Safety laws continue to cover employees at sanctioned Christmas functions, and in some instances can include situations where employees making their way home or remaining at a venue beyond the organised function suffer workplace injuries, bullying or assault.

Making the most of social time with colleagues without policing the party is a fine balance made all the more complicated by social media which has the potential to ‘broadcast’ evidence of inappropriate behaviour globally within seconds.

To avoid liability this festive season it’s important for employers to set boundaries and understand their rights and the rights of their employees.

Responsible service of alcohol

The responsible service of alcohol is often a grey area when it comes to the office Christmas party. While employees are expected to know their own limits, it is important to note that an employer is ultimately responsible for behaviour and service of alcohol. If cutting costs means having a Christmas party in the office, the lines are all the more blurred.

• Ensure alcohol is served responsibly by providing an appropriate amount of food, and predetermined travel arrangements to ensure employees have safe travel options to return home.
• Be aware of actions such as placing a tab behind a bar, particularly at an after party. This may encourage excessive drinking and could give rise to liability for behaviour into the early hours of the morning.
• If Christmas celebrations are held in the office, the person serving alcohol must be covered by an RSA licence and must not consume alcohol before or during the event.

Appropriate workplace behaviour

Most employees have a firm understanding of appropriate workplace behaviour, however it is a good idea to remind them of the expected standard of behaviour in the lead up to the function and encourage responsible behaviour by practising what you preach.

• Send an email to all staff prior to the Christmas function to ensure they are aware of their obligations under company policies and procedures and remind them of the expected standard of behaviour.
• If you do not have any policies relating to discrimination, sexual harassment, drug and alcohol use or employee conduct in general, it is important to seek legal advice from a workplace specialist.

When the party’s over

If an employee chooses to continue to consume alcohol and party after the official office Christmas party has concluded, an employer may be liable for their behaviour if they haven’t set time parameters for the function. The ‘8 till late’ lingo on an invitation may leave you liable for incidents well after the clock strikes 12.

• Clearly state the commencing and concluding times of the function on the invitation or email to employees. Many employers may fall into a litigation trap if they fail to provide specific times. If a timeframe is not specified, an employer is liable for any misconduct even after the official office function has concluded. Confirm with employees in writing when the official function ends, and that any activities they choose to undertake following that time (or venue) are not the responsibility of the employer.

Christmas is a time to let your hair down and enjoy the company of those you work with, but getting the balance right is the key to a successful party for all involved.

—Nicholas Duggal is a workplace legal expert and partner at TressCox Lawyers

Preparing your business for a carbon tax

While your business may not be one of the top 500 biggest polluters, there are a number of things you can start doing now to prepare your business for the impact of the proposed carbon price. This requires looking at your business from two different perspectives: upstream (the way you procure goods and services as inputs to your business) and downstream (the way you price and sell your own products/services).

Upstream, there are a number of things you can start to think about, including:

• identify the contracts governing your acquisition of electricity, gas and emission intensive products
• ascertain whether the supplier has any ability to change prices for supply after 1 July 2012
• seek to estimate the most likely change in your input prices
• if your contracts expire before 1 July 2012, seek to negotiate favourable input prices past 1 July 2012
• understand the basis for any price increase passed onto your business and challenge it if it seems unreasonable.

Downstream, it is important that all businesses understand their contractual ability to pass on carbon tax-related costs to their customers in the form of increased prices for the downstream supply of goods and services. If you plan to pass on any increase in such costs to your business, it is critical that you quantify and record those additional carbon tax-related costs with reasonable precision, in order to substantiate any claims that price increases are the result of such costs.

Watchful eye of the ACCC

The Clean Energy Regulator will have powers to disclose protected information and receive information from other regulators, including the Australian Competition and Consumer Commission (ACCC) and ASIC, and will work with these regulators to ensure businesses comply with the competition and consumer laws and financial services laws.

The ACCC will be provided with additional funding of $12.8 million over four years to investigate, monitor and control how businesses work the carbon tax into their pricing structures and make carbon tax representations to consumers.

This level of funding (when combined with the anticipated exchange of information between the Clean Energy Regulator and the ACCC) will mean that businesses will need to exercise caution in making carbon tax-related pricing claims and representations. As part of this, the Government has directed the ACCC to give priority to education, awareness and prosecution action to ensure businesses do not make false or misleading statements or representations about the impact of the carbon tax on the price they pass onto and charge consumers.

The ACCC has recently informed the market that it proposes to issue substantiation notices to companies in respect of any carbon tax-related pricing claims which it suspects may be misleading. In addition, the ACCC is also empowered to issue infringement notices or public warning notices and may also investigate and prosecute businesses for making misleading carbon tax-related pricing claims. If a breach of the law is established, this may attract penalties of up to $1.1 million for a company and $220,000 for an individual.

As the Government has maintained that the price impact of the carbon tax on households will be minimal, the Government will be keen to ensure the ACCC uses its powers to stop businesses:

• from inflating prices above the level necessary to absorb carbon tax-related costs
• falsely claiming that price increases are due to the carbon tax.

Accordingly, any carbon tax-related pricing claims made by businesses are expected to be scrutinised by the ACCC.

Conclusion

Businesses of all sizes, not just the top 500 polluters, should start to plan for the introduction of a carbon tax. Businesses will need to:

• accurately capture and record all carbon tax-related costs in order substantiate any carbon tax related price increases
• review all pricing representations to ensure no false, misleading or exaggerated claims are made about the impact of carbon tax related costs on pricing.

–Murray Deakin is a Partner in Middletons’ Competition and Regulatory Group.

The Lonely Planet brand was originally created by Tony and Maureen on a side table in a hotel room. Wheeler came up with the name while singing the song ‘Space Captain’ written by Matthew Moore. He sung the words ‘Once while travelling across the sky this lonely planet caught my eye’. The actual words are ‘lovely planet’ but Wheeler preferred his version of the lyrics and from this humble beginning Lonely Planet is now one of the world’s most respected and valuable travel trade marks.

To maintain the integrity and value of the Lonely Planet brand Wheeler and his team played an active role in the management their IP by monitoring the market for imitators and taking swift action against infringers. This was part of the reason the brand was so attractive to BBC Worldwide who purchased the remaining 25 per cent stake in February 2011 for $67 million.

It was during the carefree days of their youth in the 1970s that Maureen and Tony Wheeler learned that IP ownership arrangements with third parties need to be clearly defined – after the first profits of their tiny company were eaten away by authors who had retained copyright ownership over their books.

“We realised almost immediately that this was not sustainable business model. It became very clear to us how important it was to control and manage our IP.  Clearly defining the IP ownership arrangements with any third parties or suppliers involved in the business – before they started work was something we started doing very seriously from that point.”

“We started paying writers to go and research and write for us, but ensured that the IP belonged to Lonely Planet’. This was the thing that made Lonely Planet a success story – the integrating an IP management strategy into our overall business and exporting plan. Controlling your IP rights is very important,” Wheeler added.

Wheeler still continues to travel and write for the Lonely Planet and recently gave a presentation at IP Australia on the company’s history—how he and Maureen grew a small Melbourne business in the 1970s into what is now internationally recognised as the global ‘Bible’ for tourists – Watch it now at IP Australia’s YouTube Channel.

The Notice Scheme aims to create a positive change in internet behaviour by prosecuting users who infringe the 1986 Copyright Act. It will see users a warning notice if they’re suspected of copyrighting content and they can receive up to three warning notices in a 12-month period. If a user continues to pirate content, they may have their details passed on to copyright holders, who may take legal action.

The proposal came about as a result of discussions between the Communications Alliance, the five major internet service providers (ISPs), the federal government and rights holders.

According to Communications Alliance CEO John Stanton, the scheme has a strong focus on educating customers.

“We believe the Notice Scheme can greatly reduce online copyright infringement in Australia, while protecting consumer rights, educating consumers about how to access legal online content and helping Rights Holders to protect their rights,” Stanton said.

According to Stanton the scheme will also ensure rights holders make content more legally accessible to consumers.

“Equally important is the need for Rights Holders to ensure that consumers have access to legal and affordable content online, to reduce the motivation to source content in ways that might be illegal,” Stanton said.

The trial for the scheme will take place over an 18-month period before being implemented. The proposal will undergo further consultation before full details and a timetable are released.

“We look forward to continuing the discussions with Rights Holders, consumer representatives, the broader ISP community and the Federal Government, then to launching an agreed scheme that is that is efficient, fair and cost-effective for all parties, particularly consumers,” Stanton added.

According to ComOps research, 87 percent of managers believe the new work health and safety regime will be of benefit to their organisation, and  60 percent of businesses feel the laws personal liability provisions are a positive move.

The harmonisation of Australia’s WHS legislation is intended to minimise areas of risk, and implement greater accountability and visibility into workplace safety practices within organisations.

A key focus of the legislation is to improve communication and implement more comprehensive reporting, which means business owners, directors and other management will find their duty of care more tightly defined.

When asked about the three most critical factors for driving a successful WHS program, 74 percent said creating the right culture was the most important factor, while 52 percent indicated having management support and participation was the second most important factor.

Almost half of all respondents said deploying tools in the business to report on hazards and incidents was the third most important factor.

The research found almost two thirds of businesses have already prepared processes and systems in time for the legislation’s implementation, and just 18 percent believe it will take them at least another six to 12 months to achieve the task.

According to ComOps general manager Daniel Sheahan, businesses would be well advised to audit their risk management strategy and revisit their existing WHS plans, “and confirm that they are still appropriate and will meet the requirements of the new legislation.”

“Harmonisation provides an excellent opportunity for organisations to strengthen their management and employees’ awareness of risk.”

According to CPB Lawyers senior associate Julian Mellick, businesses that assume their ability to pass on the costs of the carbon tax is protected by standard ‘change in law’ clauses in existing contracts, could be in for a surprise.

“’Change in law’ clauses allow prices to be adjusted where there’s been a major regulatory change. But they are unlikely to be very helpful on the carbon tax because they typically require the change to be ‘not reasonably anticipated’, which is hardly the case since these reforms have been expected for some time.”

Mellick warns the clauses often only cover situations where reforms require payment of a particular fee or charge. While the large carbon emitters liable for the tax fall into this category, other businesses saddled with higher input costs “would be left out in the cold.”

Going forward, all businesses should consider whether to incorporate specific carbon pass-through clauses into their new contracts, Mellick urges.

“When tailoring a carbon pass-through clause, companies should consider the scope of the costs that may be passed on, such as whether both direct and indirect costs are covered as well as any incidental compliance costs. There should also be transparency, equity and accountability around how those costs are calculated.”

Given the legislation will move to a fluctuating market price in 2015, the contract should also include a process for assessing the carbon cost pass-through mechanism every couple of years to ensure it’s operating as intended.

In the case of existing long term contracts, Mellick recommends that businesses consider negotiating amendments to deal specifically with how the costs and risks of the carbon tax should be allocated between the parties.

“Dominant parties may seek to rely on the muscle of their market power to negotiate amendments in their favour. But even so, businesses should still question whether it’s in their longer term interests to insist their suppliers and contractors take on 100 per cent of the risk.”

According to Mellick, the elements of a first-rate carbon pass-through clause include:

• Ensure there is an appropriate allocation of the risks and costs associated with the carbon tax/price between contracting parties;
• Consider the scope of costs that can be passed through such as whether direct and indirect costs are covered and how any fines or penalties are to be dealt with;
• Include incentives for suppliers to minimise their carbon costs through the adoption of emission reduction strategies or acquisition of well-priced permits;
• Ensure there is transparency, equity and accountability in how the pass-through costs are determined;
• Provide for a periodic evaluation of the carbon costs pass-through mechanism over the contract term; and
• Incorporate a cost-effective and efficient dispute resolution process to sort out any disagreements.

For more information about energy, renewables and resources, please see the website of CBP Lawyers or contact Julian Mellick at jcm@cbp.com.au