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Case Studies

 

 

Note: Click on a heading below to view case studies.

‘Make good’ arrangement under a commercial lease

The office of South Australian Small Business Commissioner (SASBC) was contacted by the proprietor of a car detailing business (Cliff) who in 2020 commenced leasing commercial premises for a period of three (3) years.

The business was not COVID-19 affected, but was not operating profitably, and Cliff saw no prospect of that occurring. In the ordinary course, Cliff and his business was obliged to pay rent for the whole  three-year term or at least until the landlord was able to find another tenant. Cliff contacted the SASBC to discuss his options.

A case manager was assigned to Cliff, and they contacted the landlord to discuss the situation. Through pre-mediation communication, the SASBC was able to achieve an early release from the lease for Cliff’s business so that it didn’t incur ongoing rental expenses.

As part of the arrangement, Cliff was required to return the premises to the same condition (make good) as at the commencement of the lease. Unfortunately, that was not done to the satisfaction of the landlord and a further dispute developed because of this ‘make good’ requirement.

The SASBC case worked communicated with both the tenant and the landlord to determine what was reasonable under the circumstances, and this was ultimately attended to by the Cliff.

Through careful negotiation, the SASBC was able to relieve Cliff of their obligations under the lease and satisfy the landlord’s requirements as to the condition of the premises without the matter having to go to court.

Commercial Tenancy Dispute - Terminating Lease 

The office of South Australian Small Business Commissioner (SASBC) was contacted by a landlord of a commercial tenancy who was in dispute with his tenant. Both parties had been trying to resolve the dispute through their lawyers, unsuccessfully.

The landlord advised the SASBC case manager that the dispute related to the tenant of the commercial tenancy terminating the lease and vacating the premises, well before the lease expiry date, as a result the landlord sought payment from the tenant for the amount of $29,166 until the end of the term of the lease, which was rejected by the tenant.

Through pre-meditation negotiations the landlord reduced the amount to $16,000 to resolve all matters, which was also rejected by the tenant who counteroffered with the amount of $1000 which the landlord rejected.

As an agreement could not be made, both parties were invited to mediate the dispute under the Retail and Commerical Leasing Act 1995 which they agreed to do. 

The mediation resulted in a successful resolution being reached whereby the tenant would pay the landlord a sum of $4,000 and allow the landlord to retain some of the commercial cooking equipment in full and final settlement of the matter.

Lessee and Tennant – Maintenance dispute

Sally* signed a new lease at a commercial premises when she was starting her new business. When she moved in, Sally realised that the air-conditioning was not in working order and after a failed attempt to contact the agent managing the property Sally contacted the office of South Australian Small Business Commissioner (SASCBC) to lodge a dispute.

The SASBC case worker listened to Sally’s dispute and made contact with the agent managing the property to have an impartial discussion about the air-conditioner.

Upon speaking with the agent it was confirmed that the air-conditioner was indeed faulty, but Sally had also stopped paying rent as required by the signed lease.

Discussions with Sally confirmed that she was not prepared to pay rent until the air-conditioner was repaired or replaced. Advice from the SASBC to Sally stated that taking this path may be deemed as a breach of her lease and could result in being locked-out of premises.

After speaking with both parties and impartially negotiating it was agreed that once Sally paid the rent that was in arrears, the landlord would install a new air-conditioner.

In this case study both the lessee and lessor where both assisted by the SASBC, although it was Sally who initially lodged the dispute.

*Names have been changed

Activation of the Building and Construction Industry Dispute Resolution Code 

The SASBC was approached by a small business that had engaged a contractor to do building work on its premises. It raised a number of issues in relation to the quality of workmanship and the fact that the  work had only been partly completed. It had attempted to resolve the matter directly with the contractor without success. 

The SASBC contacted the contractor, who initially responded. However, communications deteriorated over time to the point that he was no longer engaging. The Small Business Commissioner (SBC) elected to activate one of the six Industry Codes under the Fair Trading Act 1987 – in this case, the Building and Construction Industry Dispute Resolution Code. Under that Code, the SBC was able to mandate that the parties attend a formal mediation in an attempt to resolve the outstanding issues.

A mediation was conducted, and both parties attended in good faith. During the mediation, the parties discussed the matter in depth and the small business came to understand that the contractor had been experiencing issues within his personal life.

The parties were able to reach a settlement agreement at mediation. The contractor agreed to pay compensation for the quality of work, that would need to be repaired by an alternative company.

Peter and his wife Penny own a farm in the mid-north of South Australia. In mid 2020, Peter, Penny and their bank entered into a Deed of Compromise and Release requiring the farmers to repay their facilities in early 2021. Peter and Penny did not meet these terms.

Also in 2021, Peter and Penny decide to divorce. It was agreed that Peter would ‘buy out’ his wife’s share of the farm, which has debts in excess of $300,000. The bank loans were secured by a farming property in the mid-north.

As required under the Farm Debt Mediation Act 2018, the bank sought Farm Debt Mediation through the office of the South Australian Small Business Commissioner (SASBC) prior to taking enforcement action.

A SASBC case officer was assigned to the case, as well as in independent mediator assigned by the Commissioner. All summary papers were read from both sides before an in-person mediation was held with Peter and a bank representative.

An agreement was reached between both parties, with the assistance of the Mediator and the outcomes included:  

  1. the bank capping the Peter’s debt at a significantly reduced amount
  2. the reduced debt to be fully repaid by an agreed set date
  3. no obligation for Peter to repay the debt before that set date
  4. subject to the debt being paid by the set date, no interest would accrue on the reduced sum.

If however, the debt was not fully repaid by the Peter on the set date, his debt would revert to the much higher current debt - with interest having accrued.

This arrangement was captured in a further Deed of Compromise and Release with the bank and bound all parties.

Having undertaken the Farm Debt Mediation, Peter now had the opportunity to finalise the pay-out to his former wife Penny and sell the property, or other assets in an orderly manner and against a significantly reduced debt. 

The bank also had its debt secured. 

Names have been changed 

Case Study 1  - Farmer and Vehicle Manufacturer Dispute Over Motor Vehicles 

Farmer in rural South Australia had purchased a fleet of four, 4-wheel drive utility vehicles in early 2017.

All of the vehicles were within the 3 year or 100,000km warranty period offered by the manufacturer when two of them (and possibly a third) developed cracks in the chassis near the engine compartment.

The farmer made warranty claims prior to the warranty expiry, but these were rejected by the manufacturer, citing abnormal usage.

The farmer was adamant that the vehicles were only used for regular farm-work and rural driving often on gravel roads. Occasionally, the farmer needed to use the 4-wheel drive to avoid becoming bogged.

The farmer rejected any notion that the vehicles were used in any sort of ‘stunt driving’ or ‘rally manoeuvres’ that the manufacturer regularly showed in its TV advertisements. Further, an independent assessment by an RAA approved repairer indicated that the cracking was caused by fatigue.

All four vehicles had been serviced as per the service schedule by the manufacturer’s dealer and the farmer relied upon the manufacturer’s guarantee that their products will not fatigue within 3 years or 100,000km. The farmer simply wanted the manufacturer to honour its warranty by either replacing or repairing the two damaged vehicles.

The COVID-19 pandemic added a layer of complexity to this as the manufacturer’s expert engineers were unable to visit from Victoria to inspect the vehicles.

The OSBC invited the parties to mediate and, to its credit the manufacturer did, notwithstanding that it had advised the OSBC that its position was final, and it would not be swayed into making any offer.

The manufacturer had two people participating in the mediation, one locally (in the room with the farmer and the mediator) and one by teleconference from Melbourne. The farmer attended on his own. Negotiations were lengthy but all parties exhibited good faith throughout.

A resolution was reached under which three of the four vehicles would be inspected at a dealership nominated by the manufacturer, and the resulting costs of repairs to any of the vehicles being shared by the farmer and the manufacturer.

What is noteworthy however, was the credibility of the farmer. Because the manufacturer had a person in the room, who really heard what the farmer had to say, the manufacturer softened its position and offered to share the costs of the repairs. The manufacturer noted on more than one occasion that it could see and hear that the farmer was genuine and that they believed him regarding the use that the vehicles had been put to.

This goes to support, not only the power of mediation, but also the power of “being in the room”.

Had both of the manufacturer’s representatives not been in the room with the farmer, a less satisfactory outcome might well have occurred.

The farmer is to be commended for representing his case very well. To their credit, the representatives of the manufacturer were open to listening and negotiation in good
faith. As is often the case, the ‘X’ factor was the skilled facilitation of the talks by the Commissioner’s independent and accredited mediator.

Case Study 2  - Activation of the Building and Construction Industry Dispute Resolution Code 

The OSBC was approached by a small business that had engaged a contractor to do building work on its premises. It raised a number of issues in relation to the quality of workmanship and the fact that the  work had only been partly completed. It had attempted to resolve the matter directly with the contractor without success. 

The SBC contacted the contractor, who initially responded. However, communications deteriorated over time to the point that he was no longer engaging. The SBC elected to activate one of the six Industry Codes under the Fair Trading Act 1987 – in this case, the Building and Construction Industry Dispute Resolution Code. Under that Code, the SBC was able to mandate that the parties attend a formal mediation in an attempt to resolve the outstanding issues.

A mediation was conducted, and both parties attended in good faith. During the mediation, the parties discussed the matter in depth and the small business came to understand that the contractor had been experiencing issues within his personal life.

The parties were able to reach a settlement agreement at mediation. The contractor agreed to pay compensation for the quality of work, that would need to be repaired by an alternative company.

Overall, this was a great example of the SBC activating one of the Industry Codes, including the extra powers that go with that. It resulted in a successful outcome.

Case Study 3 - Failure to make payments to a supplier 

A small retail shop in regional South Australia found itself in quite substantial debt to one of its major suppliers, which was part of a large multi-national company that usually adopted a quite strict approach to late payment and outstanding debts.

The shop owner worked long hours and the running of the business was unsophisticated – particularly in relation to computers and emails. It ran on very tight margins, even before the discovery of the debt.

The supplier had allowed the debt to accumulate over more than two years without having pursued payment. That changed when its credit- controller demanded the shop pay around $100,000 within a week.

In the first instance, the SBC wrote urgently to the CEO of the supplier and asked it to place a hold on its debt recovery while the OSBC undertook initial investigations.

Those investigations revealed that the shop had two accounts with the supplier. It made payments on one account as required but was unaware of the others as the invoices were going into a “spam” folder of a second email address.

Further investigations revealed that the supplier’s representatives were not particularly proactive in communications with the shop. Put simply, the supplier could have done more to prevent the debts mounting up.

The SBC made a direct appeal to the CEO for some leniency to be exercised in the circumstances.

To the supplier’s credit, it recognised that both parties could have done better and offered the trader a long- term payment regime. The shop remains in business and is steadily repaying the debt.

Case Study 4 -  Small business issue with standard of work 

The OSBC was contacted by a small business that had engaged a specialist company to repair a roller door at its premises.

It reported that the cost for the work was substantially higher than it had been told prior to the work being undertaken, and that the repairs had not resolved the problems.

The OSBC facilitated good-faith negotiations between the parties and was able to help fashion an agreement that included a substantial reduction in the roller- door company’s invoice.

OSBC’s intervention, as well as the parties’ desire to reach a resolution, resulted in the parties being able to move on in their business dealings by way of a successful resolution.

Case Study 5 - Small business issue with a work vehicle

A small business owner had received a substantial quote from a vehicle dealer to address recurring issues with his work vehicle’s turbocharger, as well as oil leaks from the main seal. As the vehicle’s warranty period had only recently lapsed, the complainant was seeking to have the costs waived.

Discussions with the dealer confirmed that the warranty had lapsed and that negotiations between the parties had stalled. Through the SBC’s intervention, negotiations recommenced with both the dealer and the vehicle manufacturer.

The SBC highlighted sections of Australian Consumer Law relating to a product being fit for purpose past the warranty date. The manufacturer subsequently agreed to repair the main seal leak for free, to pay 50% of the labour costs and to provide a 75% discount for parts for repair of the turbocharger.

As a result, a successful resolution was reached via the negotiation process through the OSBC.

How can the Small Business Commissioner help with a dispute?

Click here to find out how the Office of the Small Business Commissioner can help with dispute resolution or phone 1800 072 722.

 

 

 

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