The idea of cloud storage has become
more pertinent over recent years given the exponential advancement of
technology. More businesses endeavour to have more 'paper-less' environments
with the view to creating more efficient, not to mention tidier, storage
systems. 'Cloud storage' or 'cloud computing' was defined by the United States
Department of Commerce National Institute of Standards and Technology as a
model for enabling convenient network access to a shared pool of resources,
including networks, storage and applications, that can be accessed with
minimal service provider contact.
Types of cloud storage
There are many different cloud storage models which
each carry different risks. These include, but are not limited to, private
cloud, community cloud and public cloud. Private cloud is where the cloud
infrastructure provides for the exclusive use by a single organisation e.g.
Cisco. Community cloud is for the use by a specific community of organisations
that share the same mission e.g. Google Apps. Both the private and community
clouds may be owned and managed by the organisation, a third party or mixture
of both and exist on or off premises. Public cloud is for the open use by the
general public and is typically owned and operated by a government department
or a business e.g. Amazon.
Benefits of cloud storage
Some of the benefits for investing in cloud storage include reliable backup
storage, more storage capacity, flexibility, economies of scale, more
efficient professional services, reduced IT costs, fewer hardware write-offs,
better quality servers, and reduced risk of losing physical files during
natural disasters as has occurred in the Christchurch earthquakes.
However, with these benefits come a number of risks.
Risks of cloud storage
Client confidentiality is a core concept, for example, within the legal
industry, a lawyer has a duty to protect and to hold in strict confidence all
information concerning a client's business and affairs under the Lawyers and
Conveyancers Act 2006 and the Privacy Act 1993. Generally, this is one of the
major factors for some businesses being reluctant to implement cloud storage
systems. There have been a number of unfortunate instances where private
information has been disclosed; for example, in February 2015 the United
States Internal Revenue Service was hacked whereby personal information of
334,000 accounts was unlawfully accessed through the online tax system.
Inside this edition
The Corporate Veil
Domestic Violence Victims Protection Bill
Why is competition law important? - NZME and Fairfax media merger case
Personal Lending Guarantees - Enforceability
- a Lawyer's analysis of the rules of rugby's ruck."
Quirky Commonwealth Laws
Potentially, a cloud storage provider could have access to client information
or even sell stored information to unauthorised persons. With cloud storage
having no geographical boundaries, the relevant and applicable legal
jurisdiction can become blurred, particularly in the context of overseas third
party cloud storage providers. Cloud storage providers may require ownership
of the stored data to protect their interests and may provide information to
government agencies when requested. In light of this, when engaging services
of cloud storage providers, the terms and conditions of any agreement should
be carefully considered. Further, a cloud storage provider would need to be
capable of customising software for, by way of example, the legal industry,
and adapting to its changes. Local cloud storage providers may have the
flexibility to provide this; however, they may not offer the same technology
and financial security as overseas cloud providers.
Anyone who engages the services of a cloud storage provider must ensure that
client confidentiality will not be compromised and all reasonable steps have
been taken to ensure third parties or hackers cannot access client data.
Accordingly, clients should be informed that their personal information is
held with a third party.
Methods to mitigate cloud storage
Even with all the necessary precautions in place, breaches may still occur.
However, there are ways to mitigate the risks associated with cloud storage;
examples include implementing the necessary agreements for acceptable service
levels and remedies for non-compliance and conducting due diligence of service
providers; creating strict restrictions and security on access to information;
enforcing terms for the transfer of data; and knowing where the data will be
stored and the privacy laws applicable. Backup systems for damage control must
be established and highly confidential information could be stored in a
different manner to low risk information.
The decision to invest in cloud storage is a balancing act between the
efficiencies of technology and the potential risks associated with privacy in
the light of business strategy and priorities.
Section 15 of the
Companies Act 1993 ("Act") states that a company has a legal personality in
its own right and is separate from its shareholders. This is a principle known
as the Salomon principle, originating from the case of Salomon v A Salomon &
Co Ltd. The Salomon principle provides that a company is essentially regarded
as a legal person separate from its directors, shareholders, employees and
agents. This means as a separate legal entity, a company can be sued in its
own name and own assets separately from its shareholders.
The corporate veil is drawn from the Salomon principle which separates the
rights and duties of the company from the rights and duties of the
shareholders and directors. Essentially, the corporate veil is a metaphoric
veil with the company on one side of it and its directors and shareholders on
the other and liability does not pass through.
The corporate veil does not provide protection to its shareholders and
directors for their personal conduct or allow companies to be used for sham
transactions. Accordingly, the courts may lift or pierce the corporate veil.
The corporate veil and Salomon principle were applied in Lee v Lee's Air
Farming Ltd. The Court ruled that although Lee was the controlling
shareholder, sole director and chief pilot of Lee's Air Farming Ltd, he was
also considered an employee of the company and thus the company was a separate
legal entity, even though Lee's Air Farming Ltd was essentially a 'one-man
entity'. This ruling created the opportunity for the corporate veil to be
misused and has since been regulated against by imposing reckless trading
The corporate veil can be lifted by the courts if its presence would create a
substantial injustice. This is the process used to look behind the corporate
fašade and identify the true nature of a transaction.
The corporate veil may be lifted in a number of circumstances, for example
where a subsidiary company is in liquidation in the context of a group of
companies as illustrated in Steel & Tube Holdings Ltd v Lewis Holdings Ltd.
The subsidiary company was placed into liquidation and the plaintiff sought
the debt owed by the subsidiary from the group of companies rather than the
subsidiary as a separate entity. The Court of Appeal agreed with this approach
as the subsidiary was not run as a separate legal entity. Some of the factors
the Court considered were that the directors of the subsidiary managed the
subsidiary as officers of the parent company and did not hold separate board
meetings for the subsidiary. Technically, the subsidiary was a separate legal
entity but it was not managed as a separate entity. Accordingly, the Court
lifted the corporate veil to pool the assets of the related companies. The
courts may not always apply this approach to groups of companies but this case
identifies the importance of ensuring each entity within a group of companies
is managed as a separate legal entity.
The Courts may
pierce the corporate veil and remove the protection of the Salomon principle
to prohibit fraud. This was evident in Gilford Motor Co Ltd v Horne where a
managing director agreed not to engage with his former employer's customers
but proceeded to do so through a newly formed company. The courts pierced the
corporate veil to reveal the sham transactions occurring behind the fašade of
Generally, the courts are reluctant to pierce the corporate veil to protect
creditors in the absence of fraud. However, where reckless trading takes place
by directors, s 135 of the Act allows for the veil to be pierced.
In the case of tax evasion or unauthorised tax avoidance, the courts may look
past the Salomon principle, pierce the corporate veil and declare the company
a sham. The courts will only lift or pierce the veil where an inequitable
situation may be occurring behind the corporate facade based on the facts of
each case. The corporate veil is vital for the legitimate use of the corporate
structure and the protection of shareholders and directors and thus, by its
very existence, promotes the playing field for taking commercial risks.
The Domestic violence ("DV") has proven
to be a significant issue in New Zealand. For example in 2016, the New Zealand
("NZ") Police investigated 118,910 incidents of family violence, that equates
to approximately one DV incident every five minutes. The most recent
parliamentary debate on the issue has resulted in The Domestic Violence -
Victims' Protection Bill ("Bill"), originally proposed by the Green Party,
which had its first reading in March 2017. This Bill aims to offer greater
protection to victims of DV ('Victim/s') in an employment context. T
he Bill aims to reduce:
1. The stigma attached to being a Victim;
2. The abuse of Victims in the workplace; and
3. To require employers to adhere to more
The Bill proposes to assist Victims by
introducing a definition of, "a victim of domestic violence" under section 5
of the Bill and amending several different pieces of employment legislation to
better cater to the needs of Victims.
The Bill defines a Victim as a person who suffers DV who can produce a
"domestic violence document" ("DVD") because they have suffered DV or provide
care to an individual in their immediate family who suffers DV. A DVD is a
collection of documents that provide evidence that a person falls within the
definition of a Victim. Examples of these documents are a police report or
The proposed changes to employment legislation are the introduction of DV
leave, flexible working for Victims, Health and Safety Requirements and new
prohibited grounds of discrimination. These are described below.
1. DV leave: The Bill proposes to amend the Holiday Act 2003 by introducing
ten days within a 12 month period paid "domestic violence leave" for Victims.
To be eligible, the person must supply their employer with their DVD. The
employer will be expected to approve the leave "as soon as practicable".
2. Flexible working for Victims: The Bill proposes to amend the Employment
Relations Act 2000 so that Victims can request flexible working arrangements
such as working from a different location or unusual hours. Employees who make
this request will need to have been employed by the same employer for at least
six months and have not made a flexible working request for at least 12
3. Health and Safety Requirements: The
Bill proposes to amend the definition of "hazard" to include situations
arising from DV. This would require persons conducting a business or
undertaking (PCBU's) to have a policy for dealing with hazards that arise in
the workplace due to DV. A PCBU will also have to take reasonable and
practicable steps to provide health and safety representatives with training
to support workers who are Victims.
4. Prohibited grounds of discrimination: The Bill proposes introducing being a
Victim as a prohibited ground of discrimination under the Human Rights Act
1993 and the Employment Relations Act 2000.
The current government states that this Bill is seeking to remedy something
that has already been addressed by the existing provisions within current
Employment and Health and Safety legislation. Immigration Minister Mr
Woodhouse also stated there was no need for the initiative as many employers
go above the minimum employment standards; for example, Countdown already
offers ten days DV leave.
The discussion above suggests that the
current government is content to leave more comprehensive DV initiatives to
businesses. They have voiced the opinion that they believe the extra leave
will burden small businesses and therefore do not support the Bill in its
current form. However, leaving the instigation of DV initiatives to businesses
may result in Victims only receiving the limited support offered by current
Currently, it is estimated that DV is costing $368 million or more a year
particularly through lost productivity, businesses losing staff, and
retraining. The Human Rights Commission has launched a campaign to encourage
businesses to introduce more comprehensive family violence policies in their
workplaces. Equal Employment Opportunities Commissioner Dr Jackie Blue states
"By implementing a family violence policy, the cost savings to the business
will be truly significant but crucially, for victims, it can be life-changing
Where many New Zealand businesses are going beyond the current legislation to
provide support to Victims, some are not. This Bill, if passed into law will
recognise DV as a workplace hazard and accordingly, require New Zealand
businesses to implement new workplace policies. So, with the report from
Parliament due on 8 September 2017, this is one space to watch.
The Competition law promotes or seeks to
maintain competition in marketplaces. It does this by restricting
anti-competitive trade practices, mergers and business acquisitions, and
The Ministry of Business, Innovation and Employment's ("MBIE") Report titled
"Competition in New Zealand Industries: Measurement and Evidence" (the
"Report") submits that competition in the market can create a positive
relationship between profits and productivity for businesses. An increase in
competition stimulates managerial efforts and promotes businesses to be more
innovative which increases productivity over time. As competition increases,
the less efficient businesses tend to exit the market, encouraging quality
products within the market. In contrast, a lack of competition arguably
results in an average performing economy due to the absence of competition as
a driver towards productivity and quality.
The Report addresses the possibility of
high levels of competition decreasing the productivity and quality of the
market place. However, studies of the relationship between competition and
innovation often show that a majority of markets would perform better with the
competition. The Report records that New Zealand markets are small and
isolated due to New Zealand's geographical position. Therefore, increased
competition is likely to stimulate rather than curtail innovation.
New Zealand Commerce Commission
The Commerce Commission ("the Commission") operates under the Commerce
Commission Act 1986 and monitors and governs competition in the markets. The
Commission examines anti-competitive practices such as agreements between
businesses that have the potential to increase prices or reduce the choice of
goods or services. A relevant case study is the application for a merger
between the two largest news companies in New Zealand, New Zealand Media and
Entertainment ("NZME") and Fairfax New Zealand ("Fairfax").
Merger between NZME and Fairfax
In late 2016, NZME and Fairfax proposed a merger between the two companies
which would see NZME paying Fairfax Australia $55 million if the merger was
Allegedly, the merger was proposed due to
Fairfax's falling revenue. Fairfax Australia reported that for the New Zealand
Branch revenue fell 8 percent for the last six months of 2016 and its
operating profit dropped 10 percent due to a consumer shift from traditional
media sources to online media sources. Greg Hywood, the Chief Executive of
Fairfax Australia, said that they had plans to restructure Fairfax into a more
sustainable business model if the merger was not approved.
Despite Fairfax explaining
their market challenges to the Commission, the Commission gave a preliminary
"no" to the merger on 8 November 2016. They then rejected the merger
completely on 2 May 2017. The decision released by the Commission stated that
if the merger were allowed to proceed it would result in, "an unprecedented
level of media concentration for a well-established democracy." Due to the
extent of the two organisations' investments, the Commission's decision
reports that the merger would be likely to lessen competition by increasing
prices and/or decreasing quality for the readers and/or advertisers in
advertising and reader markets, and as a result, the merger should not be
Fairfax has now appealed the
decision of the Commission to the High Court on the basis that the Commission
exceeded its authority by considering social and political considerations. The
companies also reported that the Commission had breached procedure due to the
anonymity and confidentiality afforded to the parties that made submissions
against the merger. The companies allege that the Commission had breached the
principles of natural justice and procedural fairness. The High Court process
began at the end of May; there have been no further updates.
Without competition law regulating mergers, the merger between NZME and
Fairfax would not have been questioned and the possible consequences would not
have been explored. The NZME and Fairfax case study demonstrates that
competition law can assist in protecting consumers and citizens alike and,
therefore, is very important to the development of our economy and society at
A Guarantor is a person who gives a
promise to repay the debt of a borrower. By agreeing to pay a debt the
Guarantor has made a guarantee to the institution or person lending the funds
("lender"). Frequently when someone gives a guarantee they are also giving an
indemnity. An indemnity is a contractual promise to accept liability for any
loss by the lender that is accumulated in the process of the recovery of a
There are different types of guarantees:
unlimited, limited, unsecured or secured. An unlimited guarantee generally
gives the lender an ability to demand the Guarantor repays all monies owing,
whereas a limited guarantee has an agreed amount payable by the Guarantor. An
unsecured guarantee is not attached to any particular asset of the Guarantor.
In contrast, a secured guarantee grants security over a specific asset owned
by the Guarantor, e.g., their house.
Personal guarantees are becoming more common in the parent-child scenario.
However, the parents sometimes underestimate the extent of the risk they
assume when signing a guarantee. Regularly, the guaranteed loan represents a
large portion of the parents' assets and therefore may have significant
consequences on the parents' current and future living standards if the lender
demands payment of the debt. It is important to note that a personal guarantee
is not for a specific timeframe. Therefore, the Guarantor may be liable for
any current loans, future financing or credit card debts.
Guarantees are legally binding documents
and are enforceable through the Courts. Extinguishing the obligations under a
guarantee can be difficult as the parties must adhere to the terms and
conditions of the guarantee. Guarantors may request the lender to release them
from their liability under the guarantee; however, it is the lenders' decision
to release a Guarantor from their obligations under the guarantee.
In the case Tait-Jamieson v Cardrona, Mr Tait gave a personal guarantee for
the debt owed by a local organisation to Cardrona Ski Resort ('Cardrona'),
however, did not sign the written guarantee prepared. When Mr Tait realised
that he had not signed the guarantee he conveyed to Cardrona in verbal and
written form that regardless of him not signing the guarantee he would
underwrite the debt. Cardrona subsequently demanded payment of the debt from
the Guarantors. Mr Tait stated that the guarantee was not enforceable against
him as he did not sign the written guarantee. However, the Court held that Mr
Tait had adequately expressed his intention to be contractually bound by the
guarantee by his previous verbal and written correspondence and therefore must
honour his obligations under the guarantee.
Tait-Jamieson v Cardrona demonstrates that once a person
sufficiently expresses an intention to be bound by a guarantee, the guarantee
is likely to be enforceable. However, in New Zealand, lenders who offer
guarantees must also adhere to the responsible lending laws of the Credit
Contracts and Consumer Finance Act 2003. These state that lenders must ensure
a borrower, or Guarantor, is likely to be able to make repayments towards the
debt without suffering substantial hardship.
This legislation was applied to the case of a pensioner who
agreed to guarantee his son's loan of $2,000.00. His son defaulted on the
weekly payments immediately. The lender demanded the repayments from the
pensioner which would have left a residue of $25.25 of his pension payment per
week. The case was heard by Financial Services Complaints Limited which found
that the pensioner was not a suitable Guarantor and that the lender had
breached their duties under the responsible lending laws. The judgement
resulted in the lender discharging the pensioner's liability under the
Therefore, while guarantees are frequently enforceable, there is an
expectation that lenders will act responsibly when assessing the viability of
Finally, below are some considerations to contemplate
before becoming a Guarantor:
1. Receive independent legal advice;
2. Make sure you understand the wording of the written guarantee;
3. Be aware that the lender does not have to pursue the borrower "to the ends
of the earth" before turning to the Guarantor for repayment of the debt; and
4. If possible, engage in a limited guarantee to try and minimise any
Ruck - a Lawyer's analysis of the rules of rugby's ruck."
All Black, Richie McCaw, ended active play many times by
successfully tackling the opposing team's ball carrier to the ground. Quickly
joined by his team mates who bind together over the ball, each team's players
use their feet to play the ball. The winners of the ruck are the team that can
drive the ball behind to the rear player's back foot where it can be picked up
and passed along. Offside lines for each team are drawn at the opposing rear
player's feet, and any encroaching team risks a penalty. As a result, the ruck
has a material impact on the ability for teams to contest ball possession.
But what happens if the defending side chooses not to ruck?
Earlier this year, in a controversial match between Italy and England, Italy
chose not contest any rucks. As a result, there was no offside line, and the
Italian players were able to obstruct the flow of the game. The All Blacks use
the rule more subtly with about half their tackles transitioning into rucks.
It is also why many argued Richie McCaw was offside.
Therefore, rucking, or a lack of, seems to be wholly legal and within the
black letter law of rugby.
Quirky Commonwealth Laws
Legislation does not always keep up with society so archaic
but quirky laws of the Commonwealth remain on the statute books as shown in
the examples below.
1. United Kingdom:
a. Under the metropolitan Police Act 1839 it is illegal to beat or shake any
carpet or rug in the street. However beating or shaking a doormat is allowed
before 8am; and
b. Under the Salmon Act 1986 it is illegal to handle salmon in suspicious
a. The Summary Offences Act 1966 states that it is an
offence to fly a kite or play a game in a public place "to the annoyance of
another person"; and
b. The Marketing of Potatoes Act 1946 states that it is illegal for a
distributor of potatoes to be in possession of more than 50kg of potatoes that
are sourced from a person or organisation other than the Potato Marketing
It is apparent that the world moves on and people forget to clean up the
statute books. Because repealing these laws does not seem to be a priority,
these quirky laws seem to be here to stay.
If you have any questions about the newsletter items,
please contact me, I am here to help.
Scannell & Co - 122
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(06) 876 6699 or (021) 439 567 Fax: (06) 876 4114 Email:
information in this newsletter is to the best of the authors' knowledge true
and accurate. No
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