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Commercial Transactions

Module 11

Summer Session 2011-12

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This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

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Risk Management

Identification

Systems and management

Characterisation / structure of transaction

Contract negotiation and draftingLiability Limitation and Exclusion clauses-Module 10

Dispute Resolution-Module 8Securing an obligation-Modules 10,11

Insurance-Module 12

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Limitation / Exclusion Clauses

PossibleStructure v. specific clausesExtent varies between B2B and B2C-

legislationExtent varies within B2B-bargaining

power, skill, strategyNegotiation - who bears what risks

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Limitation, exclusion clauses in contracts

Type of contract-B2B (large or small?), B2C, B2C standard form

Stand alone and specific clausesCombined with other aspects of contractInterpretationStatutory impact

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EXCLUSION and LIMITATION IMPLIED CONDITIONS / WARRANTIES

GENERAL RULES:

SALE OF GOODS ACTALL MAY BE EXCLUDED EXCEPT IN “CONSUMER SALE”S. 62 DEFINITION OF CONSUMER SALES. 63 ONUS OF PROOF WITH PARTY CONTENDING IT IS NOT A

CONSUMER SALES. 64 PROVISIONS PURPORTING TO EXCLUDE SS. 18,19,20 (EXCEPT

19(4)) IN CONSUMER SALE IS VOID

AUSTRALIAN CONSUMER LAWSOME ONLY APPLY TO “Consumer”CANNOT BE EXCLUDED BUT SOME LIMITS POSSIBLE

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LIMITS ON EXCLUSION IMPLIED TERMS- SOGA

S. 64

(1) Any provision in, or applying to, a contract for a consumer sale and purporting to exclude or restrict the operation of all or any of the provisions of sections 18, 19 and 20 (section 19(4) excepted) or any liability of the seller for a breach of a condition or warranty implied by any provision of those sections is void.

(2) express warranty or condition in consumer sale does not negative a condition as to merchantable quality implied by Act

(3)…expression “merchantable quality”…

(4) No implied condition of merchantable quality for defects brought to buyer’s notice before contract

(5) Re merchantable quality….court may add manufacturer as a party….make order that manufacturer pay…remedy

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ACL

Note provisions regarding

UNCONSCIONABLE

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Unfair contract terms

Reminder re S. 23 ACL

A term of a consumer contract is void if the term is unfair and the contract is a standard form contract

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Unfair contract termsWhat is a consumer contract?s. 23(3)A consumer contract is a contract for A supply of goods or services or A sale or grant of an interest in land To an individual whose acquisition of the goods,

services or interests is wholly or predominantly for personal domestic or household use or consumption

Note this is different to definition of consumer s.2The subjective purpose of person is what is relevant.Note that businesses excluded other than “sole traders”.See ASIC Act s. 12BF for financial products and services.

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Unfair contract termsWhat is a standard form contract?

Not defined, and if alleged, it is presumed to be one unless proven otherwise.

Expressly excluded in s. 28 are:

Contract of marine salvage or towage

Charter party of a ship

Contract for carriage of goods by ship

Constitutions of a company managed investment scheme or other kind of body

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Unfair contract termsStandard form contract

Not defined, but in deciding whether a contract is a standard form one or not, court must consider (s.27):

Whether 1 party has all or most of the bargaining power Whether the contract was prepared by 1 party before any

discussion Whether another party was required to accept or reject

the terms Whether another party was given an effective opportunity

to negotiate terms Whether terms take into account specific characteristics

of another party or particular transaction Any other matter prescribed by regulationsNOTE similarity with 32ZDA of Victorian Fair Trading Act

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Unfair contract termsWhat does “unfair” mean? S.24

1. If, it would cause significant imbalance in rights and obligations

2. Not reasonably necessary to protect legitimate interests of party advantaged

3. It would cause detriment (financial or otherwise) if applied or relied upon

NOTE similarity to s. 32W of Victorian Fair Trading Act.

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Unfair contract termsWhat does “unfair” mean? S.24

In determining whether unfair, a court may consider any relevant matter, but must consider

The extent to which the term is transparentA term is transparent if expressed in reasonably plain language; and legible and presented clearly and readily available to any party affected by the term

The contract as a whole.

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Examples of unfair terms s.25

Permits one party to avoid or limit performancePermits unilateral terminationPenalises one party but not another for breach or terminationPermits one party but not another to vary termsPermits one party but not another to renew or notPermits one party to vary the upfront price without giving the other party the right to

terminatePermits one party to unilaterally vary characteristicsPermits one party to unilaterally determine breachLimits the liability of a party for its agentsPermits one party to assign to detriment of other party without consentLimits one party’s right to sue another partyLimits the evidence one party can adduce in proceedings on the contractImposes the evidential burden on one party in proceedingsHas an effect prescribed in regulationsNOTE similarity to s. 32X of Victorian Fair Trading Act

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Terms excluded s. 26

The following terms are excluded from the unfair regime

To the extent that the term----- Defines the main subject matter of the contract;

or Sets the upfront price payable Is a term required or expressly permitted by law

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Effect of term being held unfair

There may be prohibited terms in regulations. Use of such a term will be a contravention of Act

Only court can determine whether a term in a standard contract is unfair.

Proceedings can be commenced in Federal Court by a party to the contract (s.250ACL) or regulator (s.250ACL)

Court can order an injunction (s.80 CCA), prohibiting payment or transfer of money or other property (s.87A CCA), to provide redress to non party consumers (87AAA CCA) and such other orders as it considers appropriate (s.87CCA).

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BAILMENT EXCLUSION CLAUSES

BAILOR AND BAILEE CAN AGREE TO MODIFY

WAS TERM AGREED TO BY BAILOR? IF SO, MEANING? EACH CASE DETERMINED ON OWN FACTS. A FEW PRINCIPLES: DISPLAY OF NOTICES Mere display not enough. Bailor must have agreed to terms Or, be taken to have done so. Large letters, prominent location, Chance to read and proceed or Small print on tickets

CONSTRUCTION AGAINST BAILEE …in case of ambiguity, against the party asserting it

TICKETS Did Bailor know document contained contractual conditions? Did Bailor think it was a receipt only?

FUNDAMENTAL BREACH Only relevant now to construction Deviation outside contract not covered by exemption. SUB BAILMENTS Sub-bailee sometimes can rely; sometimes not, mostly not.

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EXCLUSION OF LIABILITY

1. The person seeking to rely on an exemption clause must establish it has become part of the contract by showing either:

That it was included in a contract signed by the other; or That he or she had taken steps which were reasonably sufficient in

the circumstances to give notice; or That the parties had intended to contract on the same basis as

before.

2. If the nature of an exemption clause is misrepresented, the person seeking to rely on it will not be permitted to do so.

3. An exemption clause will be construed strictly-any ambiguity against the person seeking to rely on it.

4. An appropriately worded exemption clause can exclude a party from liability for negligence, although it will not normally be construed as doing so in the absence of clear words to that effect.

5. Exemption clauses will not normally be construed as limiting or excluding liability for acts done outside the terms or scope of the contract. Thomas

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Exemption Clauses

Whether a particular exemption clause governing a bailment effectively excludes liability for breach of either a party’s common law duties or contractual obligations all depends on whether, on proper construction, clause is wide enough to cover breach in question. See Nissho Iwai Australia Ltd v. Malaysian International Shipping Corp Berhardt (1989) 167 CLR 219, 227.

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THOMAS NATIONAL TRANSPORT (Melb.) PTY LTD v. MAY & BAKER (Aust) Pty Ltd (1966) 115 CLR 353

TNT regularly employed subcontractors to pick up goods around Melbourne and transport them to their central depot; which closed at 5.30pm. On the day in question the subcontractor collected the goods and finished around 5.40. As he was too late, he took his loaded truck home as he had been directed to do by TNT when he was too late. He backed it into his garage but in the early hours of the morning a fire broke out damaging the goods.

In an action for damages, the HC held that it was implicit in the contract between TNT and the customer that their goods would be taken to and received by the depot. Accordingly, taking the goods home was an unauthorised departure or deviation from the terms of the contract and precluded TNT from relying on the exclusion clause in the contract.

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BAILMENT and EXCLUSION CLAUSES

Kamil Export (Aust) Pty Ltd v. NPL (Aust) Pty Ltd (1996) I VR538

Shipper shipped goods from Melbourne to Guam and other goods from Melbourne to Nauru, with same carrier. In Guam goods were unloaded into warehouse and released to consignee without bill of lading. In Nauru goods were also unloaded into warehouse and 11/20 pallets released with shippers consent to consignee without production of bill of lading. Remaining 9 released without production of BL. Shipper sued carrier for damages for loss of Guam goods and loss of 9 pallets of Nauru goods.

Carrier relied on exemption clauses in bill of lading which also contained clauses which made it clear that the carrier would not only transport the goods from port to port but would also "deliver" them.Implied term that a carrier will deliver only in exchange for the bill of lading….long practiced understanding in merchant shipping.Specific clauses agreed can defeat the object of the contract of carriage, …e,g, negligence perhaps…..but not here. Held not to cover deliberate conversion. "The question is ordinarily whether, on the proper construction of the contract, it can be said that the language of the exemption clearly applies to the event or kind of event which has actually happened, notwithstanding that its effect may defeat the object of the carriage contract".

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Exclusion Clause in Kamil Export v. NPL

"The carriers obligations in respect of the goods shall begin when the goods are accepted at the ocean vessel's rail at the port of lading and shall continue until the goods are discharged at the ocean vessel's rail at the port of discharge. The Carrier shall not in any circumstances whatsoever be liable for any loss or for delay or damage to the goods (whether in his actual or constructive possession or not) howsoever caused occurring before they are accepted at the ocean vessel's rail at the port of loading or after they are discharged at the ocean vessel's rail at the point of discharge.

The Carrier may at any time and for any purpose whatsoever discharge the goods or any part thereof from the vessel whether before or after sailing from the port of lading and/or land or store the same either on shore or afloat and/or trans-ship or forward the same by sea, air and/or land. In any such case, the Carrier shall not be liable for any loss, damage or delay howsoever caused to the goods arising after discharge from his vessel."

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Matthew Short &Assoc. P/L v. Riviera Marine (Int.) P/L &

Anor (2001) NSWCA 281. The Facts

Riviera, manufacturer motor cruisers, sold some o/s, exporting through Pt Botany. In1997 Mr&Mrs S, of US caused broker,B to procure Riviera to build motor cruiser (34/18). At time of contract, boat “future goods” within meaning of SOGA. Dealing followed standard pattern. When boat ready, Riviera booked arrangements with Short, the carrier, for 34/18 to be shipped to California on “Direct Currawong” leaving Aug 97. Once again, standard dealings between R and S. Because of IR situation at Botany, Short could not have his own employees take 34/18 alongside ship and employed contractors. Campbell had a low loader to transport it alongside and then a crane would load.Fax by Riviera to Boland advising on shipment.Further to your fax of this afternoon please find hereunder indicative costs to cover the 2 shipments as requested. (Riviera will be including transport to wharf Sydney/crane etc on their invoice as F.O.B)

Campbell drove under archway. Superstructure of 34/18 struck large metallic sign attached to the archway causing considerable damage. Smiths refused to take a repaired boat and a different cruiser was sent.

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Matthew Short &Assoc. P/L v. Riviera Marine (Int.) P/L & Anor (2001) NSWCA 281. The Facts cont.Riviera sued Campbell in negligence…failure to keep a proper lookout, failure to notice and observe position of sign, failure to avoid driving under the sign, failure to detour around the sign, failure to drive at a sufficiently low speed so as to permit stopping at the moment of impact, failure to stop at impact.There was a contract between Short and Campbell.Clause 3: Subject to 18 and 20 hereof the carrier shall not be under any liability whether in tort or in contract for any loss of or damage to or misdelivery, delay in delivery, concealed damage, deterioration, contamination, evaporation, non-delivery of goods held in its care, custody or control,or any consequential loss arising therefrom howsoever caused including but not limited to any negligence or breach of contract by the carrier. Clause 21: Indemnity

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Matthew Short &Assoc. P/L v. Riviera Marine (Int.) P/L & Anor (2001) NSWCA 281.

Riviera claimed damages from Short and Campbell and won. Short was ordered to indemnify Campbell under a clause in the Conditions of Carriage. Appeal.Held by Heydon JA (MeagherJA and IPP AJA concurring) allowing appeal and dismissing cross appeal;Short was not liable to Riviera for the damage to 34/18 by Campbell’s negligence. If Riviera was owner of 34/18 at the time of accident, Riviera and Short were not in legal relationship of bailment since Short did not have possession of 34/18 as distinct from some other form of relationship with it. Short was not in breach of any duty to Riviera because Campbell was an apparently capable carrier. The exclusion of liability term in Conditions of Carriage between Short and Campbell did not defeat Riviera’s claim against Campbell because although Short contracted with Campbell in fulfilment of its duties to Riviera, Short nonetheless contracted with Campbell as principal not agent for Riviera. However, clause 21 Indemnity applied as between Short and Campbell.

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Security over personal property

Reason for security Types New Personal Property Securities Regime Differences with existing regime Focus for Summer Semester 2011 – 12

Priorities as between different types of securities.

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Security over personal propertySuppliers and financiers associated with commercial transactions usually require some reassurance that their money is going to be repaid or an obligation met.

In addition to a contractual obligation or promise, they often ask for security. In this context, this provides access to some other way of satisfying the obligation, should the promise not be met.

In the next two modules we study security:

The types-so that students recognise them and know the elements necessary for successful creation and enforcement.

Priorities-in situations of failure or dispute, there may be competition for assets …so that some creditors will get their money back and some may not.

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Security over personal property-change in law

The law on this topic has been undergoing radical change over the past five years and is about to have the most radical change of all. Uniform Commonwealth laws (Personal Property Securities Act have been passed which will replace state regimes that have also changed over the past 5 years. Commencement of the new Personal Property Register and regime 30 January, 2012.

The topic is examinable. Any problem question in the exam will be based on the assumption that the new law applies, and more specifically, involve the focus area for the semester.

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PERSONAL PROPERTY SECURITY -the process of reform

THE STATE OF THE LAW IN 2000

“The law in Australia relating to securities over personalty is in a confused and uncertain state. Under the current regime, the legal position of security holders is determined by reference to a patchwork of State and Federal legislation, superimposed on a fabric of often-outmoded principles of case law. The rights and liabilities of the debtor and third parties vis a vis the secured creditor are largely dependent upon the form of security transaction rather than its substance.

The availability of statutory procedures for the registration of security interests and the consequences of failing to utilize such procedures vary with a medley of factors including the type of property over which the security is given; the jurisdiction within which the property is located; the legal nature of the security given; and the mould in which the security agreement is cast.” Gillooly Securities over Personalty (The Federation Press, Sydney 1994)

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PERSONAL PROPERTY SECURITY

REFORM PROPOSALS 1 Dec 1995 Bond University Plan of action

Personal Property Security Law Reform workshop

1. A legal regime uniform throughout Australia 2. A single regime for regulation of priorities both as between security

interest-holders and as between them and outsiders 3. Single national system of registration 4. A functional definition…i.e. anything which functions as security

whatever it is called 5. A system which applies to all types of personal property and all types

of debtors 6. A regime where priorities depend on date of registration and not

notice 7. A regime which accommodates the floating charge with the objective

of determining priority by date of registration 8. A regime which recognises the implications of legal issues addressed

in Article 9 UCC(US)-enforceability and remedies.

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The state of reform in 2012

Personal Properties Securities Act passed- New single Federal Register created. Adopts substance

over form. One consequence will be to change the relevance of title in determining priorities. (ROT clause takers will have to register to protect priority).

States cede powers in this area to Commonwealth. Consequential legislation, Regulations being passed. Significant Lead up for institutions to adapt, forms, registers

etc required-Implementation and commencement new laws and regime

January 30, 2012.

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PERSONAL PROPERTY SECURITY

In practice, we need to appreciate both existing law (in general) and new provisions for two reasons-Legal concepts remain the same under the new regime, just their treatment when used as security, changes.There will be a ten year period where old forms will flow through the system, transitional treatment exists, and the new system is being implemented.

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A CONFUSING ARRAY OF REGISTRATION SYSTEMSREPLACED BY A SINGLE REGISTER FOR MOST pp

PREVIOUSLYDIFFERENT REGISTERS FOR DIFFERENT DEBTORS

Corporations Act for charges granted by companiesDIFFERENT REGISTERS FOR DIFFERENT PROPERTY

Ships…Australian Register of Ships Intellectual Property…Register of Designs, TMs, Patents or Plant

Variety Rights. No register for Copyright. Life Insurance…mortgage/assignment must be noted in company

register Shares…company register is for title; not encumbrances Other…Registration of Interests in Goods Act..note for Motor Vehicles,

might have to look in all Australian Registers to be safe. Book debts…Vic and Qld only Security Interests in Goods Act 2005.

DIFFERENT REGISTERS FOR DIFFERENT FORMS OF SECURITY Corporations register applies to charges; not to title retention.

REGISTERS OVERLAP Note changes with new SIGA -Some state based

NO REGISTERS FOR SOME TYPE OF SECURITIES

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Function of Security

When a debtor defaults on an unsecured loan, the general remedy is to sue for debt in the courts. After judgement, a creditor may proceed to execution or winding up.

Some dangers with this strategy:

Problems with - sufficiency of general cash to service debt assets to cover repayment ability and willingness of debtor to repay litigation may be unsuccessful for many reasons litigation is slow an costly other creditors may have claims or priority prudential consequences for lending entity

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Arranging Security

Because of dangers associated with unsecured lending (credit risk) or obligations:

1. Creditors can increase pool of general assets available e.g. guarantees from

others, charges over all assets, set off

2. They can seek to gain rights to specific assets:

negative and positive covenants

special rights of preference,

rights of pursuit into hands of third parties

access to a specific asset or pool of assets without the need to take legal action

3. They can retain title to personal property (ownership) via an ROT clause and

grant a licence to use, possess etc an item while an obligation is outstanding

but not ownership.

Credit risk is the risk that a debtor/business partner either will not or cannot meet

an obligation

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Some Terms that come up in Bank Lending

Bills of lading Book debtsBuy backs Certificates of depositCharges (fixed and floating) over enterprise Chattel mortgagesCharges over individual assets Choses in actionChoses in possession Conditional salesCrops DebenturesFactoringGovernment bonds Growing woolGuarantees Hire purchaseIndemnity InsuranceLeasingLife policiesMotor vehicle charges

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Some Terms That Come Up inCommercial Lending

Cont.Leasing-finance and operatingLetter of Comfort-acknowledgement, change in control, support.Liens-possessory, maritime, equitable, statutoryLife policies-key man insurance, termination value.Mortgages over real estateMotor vehicle chargesNegative pledges-promise not to do somethingOptions-over shares to facilitate equity for debt swapPawnbrokingSecuritisationSet-offSubordination arrangements and rights of preferenceSyndicated lendingTerm deposits

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OLD LAW-difficulties

ITEM SECURITY REGISTRABLEGuarantee Yes NoPledge Yes Usually notLien Yes. Usually not. Lease Depends on terms MaybeTitle Retention clause Depends on terms MaybeCharge Yes Depends on subjectEquitable charge Yes Maybe. Legal Mortgage Yes Depends on subject Equitable Mortgage Yes Depends on subjectConsumer Mortgage Yes Usually yesCar, Boat Security Yes YesFactoring Maybe Maybe Declaration of trust Usually not-depends on term Usually not Stoppage in transit No No. Set off Debatable Depends on interpretation

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PPSCharacteristics and concepts

Possession-Who has possession of the personal property during

the existence of the security?

Substance v. form.What is the arrangement trying to achieve?

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Aspects of creation & use-PPS

Attachment-steps required to create the interest to make it effective between grantor and grantee

Perfection-steps required to give the security priority in relation to third parties claiming an interest in the secured property.

Recovery/Priority-what actually happens in a contest for the personal property, and implementation of rights.

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TYPES OF SECURITY

We will consider:

1. Pledges2. Liens3. Mortgages4. Charges5. Variations

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1. A delivery of goods by one person to another as security for a loan 2. Goods remain property of pledgor who is entitled to repossession on

repayment of loan 3. A type of bailment

Pawnbrokers Not covered by Common law

Covered by Pawnbrokers Act and Second-Hand Dealers Act 1996 (NSW) Required to be licensed Must display name, keep record all pawns and give duplicate copy

entry to pawner Right to redeem protected. Cannot use goods during pledge. Duty to

take reasonable care. Conditions for sale of unredeemed pawns stipulated If unredeemed and sold, pledgee obliged to hold excess over amount

lent plus interest and expenses for pledgor

PLEDGE OR PAWN

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LIENS

ENTITLEMENT OF ONE PERSON - THE LIENEE TO HOLD THE GOODS, PROPERTY OR SECURITY OF ANOTHER

THE LIENOR UNTIL THE LIENOR SATISFIES AN OUTSTANDING LIABILITY TO THE LIENEE

USUALLY ARISE WITHOUT FORMAL AGREEMENT

TYPES

1. POSSESSORY

2. EQUITABLE

3. MARITIME

4. STATUTORY

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Liens and PPS

Note

that liens which arise by operation of law are one of the exceptions to the definition of “security interest” in the new PPSA.

Generally, liens arising in the ordinary course of business will prevail over a security interest.

The PPSA may affect priority.

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Right of lienee to retain possession until liability satisfied Sometimes called common law lien

Unpaid seller of goods Agent for charges

Possession is essential and must be lawful Particular liens Relate to debt owing in respect of particular goods Common carrier and innkeeper People who improve the goods with skill and labour e.g. accountant and books, mechanic and car, tailors, dry cleaners, repairers and dyers Lien arises with completion of agreed work. Only applicable to charges for work done, not other moneys owing General Right to retain possession until all moneys owing regardless of whether from work done or otherwise arises by agreement or by reason of custom or trade usage Bankers, Solicitors - Only relates to documents left with them in their capacity as banker / solicitor; not those just for safe custody Stockbrokers, Mercantile agents, Insurance brokers

POSSESSORY LIENS

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EQUITABLE LIENS

Right conferred

by law

to have property utilised

to ensure payment

Possession not a prerequisite

e.g. contract fails through no fault of purchaser…purchaser has equitable lien over property for repayment of deposit

Binding on anyone who buys the property with notice

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Exercised by issue of proceedings against property in admiralty jurisdiction.

May arise:

(a) In favour of seamen for their wages

(b) In favour of salvors on property saved

(c) In favour of master for wages and disbursements properly paid

(d) In favour of holder of bottomry bond

(e) In favour of claimants with respect to damage by collision

(f) Legislation may award priority

e.g. seamens wages over other maritime liens.

MARITIME LIENS

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Exercised by issue of proceedings against property in admiralty jurisdiction.

May arise:

(a) In favour of seamen for their wages

(b) In favour of salvors on property saved

(c) In favour of master for wages & disbursements properly paid

(d) In favour of holder of bottomry bond

What is a bottomry bond?

A bond entered into by the owner of a ship or his agent whereby, in consideration of money advanced for the purposes of the ship, the borrower undertakes to repay with interest if ship terminates voyage successfully; the debt being lost in case of non-arrival of the ship. It binds the ship and freight. Lien in favour of holder.

(e) In favour of claimants with respect to damage by collision

(f) Legislation may award priority e.g. seamens wages over other maritime liens.

MARITIME LIENS

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STATUTORY LIENS

Circumstances giving rise

Operation

Effect

Governed by relevant Act

Some examples: Claims by statutory authorities and councils to land

taxes and rates Warehouse staff for wages

Warehousemen’s Liens Acts of 1935 (NSW) Lien on crops and wool

Liens on Crops and Wool and Stock Mortgages Act 1898 (NSW)

Lien in favour of administrator and liquidators under the Corporations Act

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Statutory lien example

Airservices Australia v. Canadian Airlines International Ltd (1999) HCA 62

Canadian leased a plane to Compass Airlines. When the latter went into receivership, Canadian tried to take back its plane; only to discover that there was a statutory lien under the Civil Aviation Act for $2,888,740.97 for unpaid charges and penalties for landing fees, maintenance, traffic control etc. Airservices would not release the plane until they were paid. CAA had its own Statutory Lien register.

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WOODWORTH V. CONROY

(1976) 1 QB 884

Woodworth and Co, Commercial Investigators Clients of Conroy, Accountants 1971 Woodworth called for their papers and tax files Conroy refused, alleging unpaid fees Woodworth sued in detinue Conroy claimed a lien over tax files and entitled to

possession

Lawton LJ 1. Discussion of whether accountants could have any kind of

lien 2. No precedents 3. Similar to other professionals 4. At least a particular lien 5. Might be general, but no need to decide

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The bankers lienA very important right arising by operation of law, which in

combination with contract and rights of set-off protects a banker.

It entitles the banker to hold on to anything deposited with it in it’s capacity as banker (as opposed to a specialised purpose such as for safekeeping). E.g. cheques deposited, bills of lading.

Note that it often has special treatment. E.g. in administration and liquidation (Corporations Act s. 440JA).

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The bankers lienHow it can interact with other securities.

A bank has a general lien over all of its customer’s documents, which come into its hands as part of its banking business. (Contrast this with having no lien over share certificates left with it for safe custody). It arises by operation of law and is independent of, and additional to any rights conferred by agreement.When combined with a contractual right of sale, this means that the bank has the power of sale without resort to the courts. Therefore, the bank would be entitled to sell goods the subject of a bill of lading, which it has received in the course of trade finance, and use the proceeds to satisfy the customer’s overdue obligations to it. It cannot apply for a foreclosure order and become absolute owner of the goods. Its sole remedy is to sell them.The interest of the bank under its lien may be subject to the lien of a carrier for unpaid freight, but will prevail over unpaid seller’s right of stoppage in transit.If there is a floating charge over all the assets of a company, the lien will have priority if created first in time and before the floating charge crystallised into a fixed charge.

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Other Liens

Stages of recognition of common law lien:

Usually arises through custom Clear evidence of usage Judicially recognised May alter with the times as customs, industries

and practices change.

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MAJEAU CARRYING CO V. COASTAL RUTILE

(1973) 129 CLR 48

Majeau carrier and warehouseman for CR CR owed it a lot of money Receiver appointed Receiver called for return of minerals owned by CR Majeau refused and claimed a general lien arising either as a

matter of common law or by custom and usage

Stephen J 1. Considerable discussion of authorities 2. Conclusion that there is no judicially recognised general lien

for warehousemen under common law 3. To prove Custom carries heavy onus 4. Is custom likely to operate to detriment of other creditors 5. Must prove certainty, lack of ambiguity, reasonableness and

long standing 6. High standard of proof 7. Statutory lien withdrawal in 1967 went against claimant 8. No common law or customary right

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Lienor had 2 trucks, TI and TII which she delivered to Lienee for repairs. Lienee, after repairing TI delivered it to Lienor without having been paid. Lienee then refused to return TII until the repairs to TI were paid for. What is the position of Lienor and Lienee?

P carries out repairs on D's car, but because D cannot pay the repair bill, P refuses to allow D to take the car or the laptop on the back seat until D pays. Is P acting within his rights?

A pawnbroker has a loan that is overdue and unpaid. What are his rights or lien or power of sale?

Liens

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Solicitor has acted on a large matter for ABC Limited and fees for past 3 months unpaid. He has claimed a lien on the file and books and records held belonging to the company. ASIC announces a special investigation and orders him to produce the files and books. He does so in compliance. Has he lost the lien? He refuses. Can he do so? In the same matter, after looking at the books ASIC does not think them relevant to its investigation and returns them. A Liquidator is appointed. How does this affect the lien?

Sam owned a racehorse and put it to be trained by Ray Porterhouse. He had the right to remove it from his stables and run it in races twice a year other than as agreed with her. He had done this for Easter and notified her that he would be doing this at the end of August. Because his account was not paid, Ray refused and claimed a lien. Can he do that?

More liens

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1. Particular possessory lien only.

2. No. Particular possessory lien only. Car only. Laptop not included.

3. Pawnbrokers Act not lien. Title moves to Pawnbroker and he has right of sale.

4. Lien still exists. S. 37(6) ASIC act. Offence not to produce.

5. Still lien, but cannot create more after Liquidator appointed.

6. No, continuous lawful possession required.

Some answers to our questions

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MARGIOTTA V. LEGAL SERVICES COMMISSIONER Confirmed Solicitor’s Lien…NSWSC August 2000

Mr. and Mrs Bertones complained about a Solicitor Anthony Margiotta. Complaints dismissed by Professional Conduct Committee of the Law Society and Legal Services Commissioner. Bertones brought further complaint that Solicitor had failed to release all their files. He claimed lien for unpaid fees. Reason for wanting them was to ascertain whether there was an action against Mr. M for professional negligence.Under s. 152(2) of the Legal Profession Act:If a legal practitioner…against whom a complaint is made claims a lien over documents relating to the matter the subject of the complaint, the Council or the Commissioner may require the legal practitioner or interstate legal practitioner to waive the lien if satisfied it is necessary for the orderly transaction of the client’s business.The Commissioner determined that it was necessary for the orderly transaction of business of the Bertones that the lien be waived and directed the handing over of the files.The court confirmed lien but noted that it existed for benefit of both solicitor and client-enables the client to have legal work carried out without advance payment. “Business” should be construed widely to mean the client’s legal matters or general affairs and not just some commercial activity.

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THE OFFICIAL TRUSTEE IN BANKRUPTCY V. KIOUSSIS (2000) NSWSC 248 Solicitors Lien

Solicitor found to have a lien, but only for one part of the work he had done.

Harry Kioussis and his wife Angela owned 5 pieces of real estate. The title deeds were held by the solicitor Mr. Nikolaidis. Harry went bankrupt and the Trustee took over his estate. There was considerable legal work arranging refinancing, as well as litigation matters the Kioussis family were engaged in. No automatic general lien. One must look at the circumstances of how the documents came into the hands of the Solicitor to see if a general lien was intended /could be inferred. The cases tend to suggest that if documents are given to solicitor for a specific purpose, then ordinarily, as with Bankers liens, a court will not infer a general lien.In this case Mr. Nikolaidis found to have a lien, but only for proper costs of negotiation of finance, mortgage and ancillary matters and not the litigation.

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PLEDGES AND LIENSWHAT IS THE DIFFERENCE?THE PLEDGE

Arises as a result of a deliberate act by the pledgor. Principal remedy is the right to sell the collateral. The pledgee must exercise reasonable care in making the sale and is accountable to the pledgor for any surplus in the proceeds after the money owing to the pledgee has been paid.THE LIENBy contrast, a lien can arise automatically, without any conscious intention by the lienor.A lienee generally does not have power of sale, but merely a right of retention of the collateral as a means of exerting pressure on lienor.In some states powers of sale conferred on certain lienees in certain circumstances-including securing payment for work and materials used on chattels of the lienor. Workers Liens Act 1893 (SA) s. 41 Also legislation dealing with disposal of uncollected goods E.g. Disposal of Uncollected Goods Act 1996 (NSW). Other Statutory Powers of sale. E.g. under the sale of goods legislation for an unpaid seller in possession or exercising a right of stoppage in transit.

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Pledges and Liens

“’One who has a lien has only a right of detaining the res until the money owing is paid: a lien disappears if possession is lost, and there is no right of sale’. A lien is merely a personal right and cannot be taken in execution; a pledge creates an interest in the pledgee that can be seized in execution”

(HD in Palgo Holdings Pty Ltd v. Gowans (2005) 221 CLR 249 at [18])

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Mortgages

Legal Mortgage Absolute assignment with an agreement to reconvey

when obligation met. Supplemented by equitable right of redemption.

Equitable Mortgage Over property in which mortgagor has legal or

equitable title.

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What is a CHARGE?

Osborn, A concise Law Dictionary

A charge is a form of security for the payment of a debt or performance of an obligation, consisting of the right of a creditor to receive payment out of some specific fund or out of the proceeds of the realisation of specific property.

Corporations Act

“charge” means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.

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What is the DIFFERENCE BETWEEN A FIXED AND A FLOATING CHARGE?

The fixed charge is a specific legal charge right from the beginning.

The floating charge floats above it or is an equitable charge on the property for the time being in whatever form it happens to be in from time to time. It “crystallises” into a specific/fixed charge on the happening of certain defined events (usually default or the appointment of a receiver).

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VULNERABILITY OF FLOATING CHARGES

Under a floating charge, the chargor retains not merely ownership and possession of secured property, but also the ability to deal with that property in the ordinary course of business, free from the interest of the floating chargee.

It can create subsequent fixed charges which will rank in priority over the floating charge

It may also be subject to any rights of set-off or liens arising with respect to the charged assets before the charge crystallises.

The floating charge is also vulnerable to the clams of execution creditors who complete execution before the charge crystallises or a landlord who distrains on chattels on the premises for non-payment of rent.

Note also Corporations Law and Insolvency Law may affect priority of the floating charge with respect to particular payments e.g. benefit of insurance proceeds to third parties, wages and salaries within limits.

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CHARGES-registration required? CORPORATIONS

LAW-s.262(1)(a) A floating charge on the whole or a part of property, business, undertaking;(b) A charge on uncalled share capital; (c) A charge on call made but not paid;(d) A charge on a personal chattel, including one unascertained or to be acquired in the future, but not including a ship registered in an official register(e) A charge on goodwill, a patent or licence under a patent, a trademark or service mark or a licence to use a trade mark or service mark, on a copyright or a licence under a copyright or on a registered design or a licence to use registered design;(f) A charge on a book debt;(g) A charge on a marketable security, not being;(i)A charge created in whole or in part by the deposit of a document of title to the marketable security; or (ii) A mortgage under which the marketable security is registered in the name of the chargee or a person nominated by the chargee;(h) A lien or charge on a crop, a lien or charge on wool or a stock mortgage;(i)A charge on a negotiable instrument other than a marketable security.

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Charges-when registration not required under Corporations law

s. 262 (2) The provisions of this Chapter mentioned in subsection (1) do not apply in relation to:

(a) a charge, or a lien over property, arising by operation of law;

(b) a pledge of a personal chattel or of a marketable security;

(c) a charge created in relation to a negotiable instrument or a document of title to goods, being a charge by way of pledge, deposit, letter of hypothecation or trust receipt;

(d) a transfer of goods in the ordinary course of the practice of any profession or the carrying on of any trade or business; or

(e) a dealing, in the ordinary course of the practice of any profession or the carrying on of any trade or business, in respect of goods outside Australia.

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What is a personal chattel for Corporations law?

s. 262(3). The reference in paragraph (I)(d) to a charge on a personal chattel is a reference to a charge on any article capable of complete transfer by delivery, whether at the time of the creation of the charge or at some later time, and includes a reference to a charge on a fixture or a growing crop that is charged separately from the land to which it is affixed or on which it is growing, but does not include a reference to a charge on:

(a) a document evidencing title to land

(b) a chattel interest in land;

(c) a marketable security;

(d) a document evidencing a thing in action; or

(e) stock or produce on a farm or land that by virtue of a covenant or agreement ought not to be removed from the farm or land where the stock or produce is at the time of the creation of the charge.

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REX DEVELOPMENTS PTY LIMITED AND COMPANIES ACT 1981 WILLIAM JAMES HAMILTON V .NZI CAPITAL CORPORATION LIMITED (1993) ACTSC 67Liquidator sought proceeds of cheques received by NZI Capital after a certain date.

In 1985, NZI lent money to Rex secured by a fixed and floating charge. It was fixed with respect to“(iv) all book and other debts and other moneys now or in the future owing to the chargor and the benefit of all rights, securities, indemnities and guarantees now or in the future held by the chargor in relation to those moneys.”In 1986, NZI released …all book debts now or in the future owing to the chargor from the charge.April 1987 Rex sold its principal asset; a hotel. As it received cheques, they were endorsed and paid directly to NZI to keep reducing the debt.

Disposition after order for winding up and therefore void? Liquidator argued that the cheques were proceeds of book debts and therefore excluded from the charge and available to all creditors. Cheques different from book debts? Yes said court. 2 different forms of personal property. Clear from method by which ownership of each is transferred….negotiable instrument can be transferred by delivery v. assignment under statute (Conveyancing Act). See also distinction recognised in Companies Act 1981.

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Security interests over personal chattels when chargor not a corporation-old law

Separate State regime

Ref: Security Interests in Goods Act 2005 and Registration of Interests in Goods Act (cars and boats)

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1. Property not to pass until payment in full. Without more, not a security interest. Title has not passed. Conditional sale. See

SGA 22,23,24. 2. Legal title passes but equitable and beneficial ownership remains with seller until

payment in full. Interest reserved is beneficial interest charged back by buyer to seller. A

charge/security. 3. Where goods may be converted into something else and unpaid purchase price

charged against new item or work in progress. Charge 4. Seller is granted an interest in goods into which the supplied goods are worked or

manufactured and supplied goods cannot be severed. Generally construed as charge back from buyer to seller. Note however,

Associated Alloys and Accession. 5. All monies Romalpa clause Normally does not operate to create security interest.

RETENTION OF TITLE CLAUSES Are they security interests under existing/old law?

SOME ARE. SOME ARE NOT. DEPENDS ON DRAFTING.Note changed treatment under new regime

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Until the date of payment, purchaser, if AIV so desires, is required to store this material in such a way that it is clearly the property of AIV. AIV and purchaser agree that, if purchaser should make new object(s) from the material, mixes the material with another objects or if this material in any way whatsoever becomes a constituent of another object AIV will be given the ownership of these new objects as surety of the full payment of what purchaser owes AIV. To this end AIV and purchaser now agree that the ownership of the article(s) in question, whether finished or not, are to be transferred to AIV and that this transfer of ownership will be considered to have taken place through and at the moment of the single operation or event by which the material is converted into a new object or is mixed with or becomes a constituent of another object. Until the moment of full payment of what purchaser owes AIV purchaser shall keep the object in question for AIV in his capacity of fiduciary owner and, if required, shall store this object in such a way that it can be recognized as such. Nevertheless, purchaser will be entitled to sell these objects to a third party within the framework of the normal carrying on of his business and to deliver them on condition that-if AIV so requires-purchaser, as long as he has not fully discharged his debt to AIV shall hand over to AIV the claims he has against his buyer emanating from this transaction.

Aluminium Industrie Vaasen BV v. Romalpa Aluminium Ltd (1976) 1 WLR 676

The ownership of the material to be delivered by AIV will only be transferred to purchaser when he has met all that is owing to AIV, no matter on what grounds.

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Chattis nominees traded as Gascoigne Furniture and sold leather lounges to Norman Ross which went into liquidation. Was the all monies retention of title clause a charge and therefore void against the Liquidator for want of registration? Ownership in such goods is retained by Gascoigne Furniture until payment is made for the goods and for all other goods supplied by Gascoigne Furniture. If such goods are sold by the customer prior to payment and if they shall become constituents of other goods then the proceeds of sale thereof shall be the property of Gascoigne Furniture. While it was clear from the authorities that the first part of the clause did not create a charge, it was argued that the second part of the clause created a charge as it must be intended as a form of security…over one lot of goods in relation to another lot. Found not to be in this case on authorities. There is quite some lack of certainty on the point as respected lawyers and academics argue (Professors Goodhart and Jones) that it cannot be seen as a conditional sale pending payment and therefore must be a security. Note some commercial effects of such clauses…see text for Puma Australia case on p.574 and question 4 on p. 576.

CHATTIS NOMINEES P/L V. NORMAN ROSS HOMEWORKS P/L (1992) 28 NSWLR 338

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ASSIGNMENT OF CHOSES IN ACTIONFocus: Assignment of Debts

Suppose Tom lent $100 to Dick for a month. Suppose also that if Tom found he needed the money earlier, he may want to sell the debt to Joe for $90 and tell Dick to pay Joe instead of him. This could not be enforced in common law.

Debts originally could not be assigned at common law. At some point relief was gained in equity and so debts came to be assignable in equity. When the courts were amalgamated, statutory assignment was introduced. To have an absolute assignment of a debt in NSW, one needs to comply with s. 12 of the Conveyancing Act. In the commercial world Factoring is used extensively.

Absolute assignments which do not comply with the statutory requirements, conditional assignments, assignments of part of a debt and assignments by way of charge may be valid as equitable assignments. But, to be valid they must be for consideration. The intention of the assignor must be plain. Notice is not necessary to pass title, although it is necessary for 2 reasons. The assignee may pay the wrong person or the creditor may lose priority because of the rule in Dearle v. Hall (order of notice).

Sometimes, novation was used instead because of problems. The law merchant had found another way. Negotiable instruments. Simpler and more effective than assignment. Notice does not have to be given and assignee does not take subject to equities.

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CONVEYANCING ACT 1919 - SECT 12 Assignments of debts and choses in action

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.

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ASSIGNMENT OF DEBT AND NOTICE

TO (name of debtor ) of (address) and all others whom it may concern

IN CONSIDERATION of the sum of……I hereby assign to the said (name of assignee) the sum of …………. being part of the money now due from you the said (name of debtor) to me under a contract dated …….. in respect of the house therein contracted to be erected and executed by me.

AND I authorise and request you to pay the said sum of…….and for such sum the receipt of the said (name of assignee) shall be your discharge.

AND if and so far as may be necessary to give effect to this assignment I irrevocably appoint the said (name of assignee) my attorney for me and in my name or otherwise to demand sue for recovery receive and give effectual discharge for the said sum of …….. hereby assigned.

Signed on this…..day of……..200X (Signature of Assignor)

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Security over IP

Relevance in modern Australian service economyEntertainment, publishing businesses-copyrightSport-TMs / brandsConsumer products-TMs / brandse.g. a new beverage-trade secret, trade mark for

brand, slogans, shape of bottle, patent for process to make it and copyright on packaging, advertising material.

Mining and Agriculture-PatentsInternational exposure in unprotected markets

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IP security challenges

Intangible and no physical possession possible

Rights not well understood

Difficult to determine identity of true owner (s)

Some unprofitable or unattractive to people other than owners.

Special skill required to value IP

Complex legal issues mean IP security is not “lender friendly”

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COPYRIGHT ACT 1968 - SECT 196Assignments and licences in respect of copyright

1. Copyright is personal property and, subject to this section, is transmissible by assignment, by will and by devolution by operation of law.

2. An assignment of copyright may be limited in any way, including any one or more of the following ways:

a) so as to apply to one or more of the classes of acts that, by virtue of this Act, the owner of the copyright has the exclusive right to do (including a class of acts that is not separately specified in this Act as being comprised in the copyright but falls within a class of acts that is so specified);

b) so as to apply to a place in or part of Australia;

c) so as to apply to part of the period for which the copyright is to subsist.

3. An assignment of copyright (whether total or partial) does not have effect unless it is in writing signed by or on behalf of the assignor.

4. A licence granted in respect of a copyright by the owner of the copyright binds every successor in title to the interest in the copyright of the grantor of the licence to the same extent as the licence was binding on the grantor.

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TRADE MARKS ACT 1995 SECT 106

(1) A registered trade mark, or a trade mark whose registration is being sought, may be assigned or transmitted in accordance with this section.

(2) The assignment or transmission may be partial, that is, it may apply to some only of the goods and/or services in respect of which registration is sought or the trade mark is registered, but it may not be partial in relation to the use of a trade mark in a particular area.

(3) The assignment or transmission may be with or without the goodwill of the business concerned in the relevant goods and/or services.

SECT 109

Application for record of assignment etc. of registered trade mark to be entered in Register

(1) If a registered trade mark is assigned or transmitted: (a) the person registered as the owner of the trade mark; or (b) the person to whom the trade mark has been assigned or transmitted; must apply to the Registrar for a record of the assignment or transmission to be entered in the Register.

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TRADE MARKS ACT 1995 Cont.

SECT 109 Cont.

(2) The application must: (a) be in an approved form; and (b) be filed, together with any prescribed document, in accordance with the regulations.

Note: For approved form and file see section 6.

SECT 111

Notice of application to be given to person recorded as claiming interest in trade mark etc.

If an application made under section 107 or 109 in relation to the assignment or transmission of a trade mark complies with this Act, the Registrar must notify in accordance with the regulations any person recorded under Part 11 as claiming an interest in, or a right in respect of, the trade mark.

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Sample short Q

(a) What type of lien does a Solicitor have over client files?

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Student Question 1

In slides mention is made of pledge, letter of hypothecation and trust receipt. What is a letter of hypothecation?These three are different ways of taking security over documents of title and other import/export documentation by banks financing by way of letter of credit. They differ in the degree of possession. A pledge involves handing over possession of the documents to the bank which holds them, a letter of hypothecation entitles the bank to possession of them, but only on default and a trust receipt is given when documents are permitted to go out of the bank’s possession for a specific purpose..e.g. to sell the goods to get the money to pay down the facility.