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					Commercial
Transactions

Module 10
Summer Session 200809
           Security over personal property
Suppliers and financiers associated with commercial
transactions usually require some reassurance that their money is
being repaid or an obligation met.
In addition to a contractual obligation or promise, they often ask
for security. In this context, 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. (9)
Priorities-in a situation of failure, there are usually more creditors
than assets and we must allocate assets in a certain order-so that
some creditors will get their money back and some may not.(10)
            Security over personal property-
            change in law
The law on this topic changed in 2006 for non Company securities
over personal chattels. The Security Interests in Goods Act (SIGA)of
2005 repealed the Bills of Sale Act and replaced it with a new regime.
It also repealed and replaced provisions relating to agricultural
securities. Please review past examination questions with this in
mind.
The new legislation retains the concept of a Bill of Sale (called a
Security interest in Goods) and a Register, but removes a lot of the
formality, the distinction between ordinary and traders bills.
Registration is optional except for agricultural goods, but priority will
be determined in order of registration.
The topic is examinable.
Discussions continue between the states for uniform laws.
                                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)
                           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.
         The state of reform in 2008-09
NSW Bills of Sale Act has been abolished, some
  simplification, agricultural securities combined with other
  personal property securities. Some other states,
  likewise.
May 2008 National Consultation Personal Properties
  Securities Bill- will change relevance of title in
  determining priorities-functional rather than technical
  legal approach e.g. as to form-changes to definition of
  security interest (e.g.ROT takers will have to register to
  protect).
Moving quickly. Revised Bill issued. There will be a lead up
  for institutions to adapt, forms, registers etc required-
  implementation not expected before 2010/2011.
                                   PERSONAL PROPERTY SECURITY
                                     SOME RELEVANT LEGISLATION

COMMONWEALTH
 Air Navigation Act 1920
 Patents Act 1990, Designs Act 1906, Trade Marks Act 1995
 Life Insurance Act 1995
 Shipping Registration Act 1981
 Bankruptcy Act

NSW
 Security Interests in Goods Act 2005 (which repeals the Bills of Sale
  Act 1898 and Liens on Crops and Wools and Stock Mortgages Act
  1898)
 Consumer Credit Code
 Corporations Act 2001
 Factors (Mercantile Agents) Act 1923
 Registration of Interests in Goods Act 1986
 Pawnbrokers Act
                                    PERSONAL PROPERTY SECURITY
                                          REGISTRATION SYSTEMS

                    DIFFERENT REGISTERS FOR DIFFERENT DEBTORS
   Corporations Act for charges granted by companies
                  DIFFERENT 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
                           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
                                          Arranging Security

Because of the dangers associated with unsecured lending or
  obligations:
1. Creditors can increase pool of general assets available e.g.
   guarantees from others.
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 for repayment without the
   need to take legal action
               Some Ways to Better Secure Repayment in
                           Bank Lending
Bills of lading                               Book debts
Buy backs                                     Certificates of deposit
Charges (fixed and floating) over enterprise  Chattel mortgages
Charges over individual assets                Choses in action
Choses in possession                          Conditional sales
Crops                                         Debentures
Government bonds                              Growing wool
Guarantees                                    Hire purchase
Indemnity                                     Insurance
Leasing                                       Liens
Life policies                                 Mortgages over real estate
Motor vehicle charges                         Negative pledges
Options                                       Pawnbroking
Set-off                                       Stock mortgages
Subordination arrangements and rights of preference
Term deposits
                   Some Terms That Come Up in
                      Commercial Lending


Bills of lading                         Book debts
Buy backs                               Certificates of deposit
Charges (fixed and floating) over enterprise/individual assets
Chattel mortgages
Choses in action and Choses in possession
Conditional sales
Crops, Growing wool, Stock mortgages
Debentures                              Factoring
Government bonds                        Guarantees
Hire purchase                           Indemnity
Insurance
                     Some Terms That Come Up in
                        Commercial Lending

Cont.
Leasing-finance and operating
Letter of Comfort-acknowledgement, change in control, support.
Liens-possessory, maritime, equitable, statutory
Life policies-key man insurance, termination value.
Mortgages over real estate
Motor vehicle charges
Negative pledges-promise not to do something
Options-over shares to facilitate equity for debt swap
Pawnbroking
Securitisation
Set-off
Subordination arrangements and rights of preference
Syndicated lending
Term deposits
                  FINANCING AND ”SECURITY”

ITEM                   SECURITY                        REGISTRABLE
Guarantee               Yes                                   No
Pledge                  Yes                            Usually not
Lien                    Yes.                           Usually not.
Lease                   Depends on terms               Maybe
Title Retention clause Depends on terms                Maybe
Charge                   Yes                       Depends on subject
Equitable charge         Yes                            Maybe.
Legal Mortgage           Yes                       Depends on subject
Equitable Mortgage       Yes                       Depends on subject
Consumer Mortgage        Yes                          Usually yes
Car, Boat Security        Yes                         Yes
Factoring                 Maybe                         Maybe
Declaration of trust      Usually not-depends on term Usually not
Stoppage in transit       No                              No.
Set off                   Debatable            Depends on interpretation
                              PLEDGE OR PAWN


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 Code

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
                    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
                                 POSSESSORY LIENS

                    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
                 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
                                MARITIME LIENS



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


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.
               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)
                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
              The bankers lien
              How 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.
It 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.
           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
                                           Liens


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?
                                       More liens



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?
                Some answers to our questions


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.
                 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.
            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.
              PLEDGES AND LIENS
              WHAT 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 LIEN
By 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.
                            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.
         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).
               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.
                         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.
                          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.
           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.
              REX DEVELOPMENTS PTY LIMITED AND
              COMPANIES ACT 1981 WILLIAM JAMES
              HAMILTON V .NZI CAPITAL CORPORATION
              LIMITED (1993) ACTSC 67
Liquidator 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.
     Security interests over personal
     chattels when chargor not a
     corporation


See new Security Interests in Goods Act 2005
and Registration of Interests in Goods Act (cars
and boats)
    CONSUMER CREDIT CODE

          Harmonisation
           Streamlining
            State laws

       Consumer Protection

             Scheme:
     Consumer Credit Act (Qld)
       Code is in Schedule 1

           State legislation
Some of it amends certain provisions
   Some maintain Hire Purchase

 Consumer Credit Act 1994 (NSW)
           THE CREDIT CONTRACT

1. WRITTEN OFFER
 SIGNED BY BOTH PARTIES
 OR
 ACCEPTED BY CONDUCT
2. PRE CONTRACTUAL DISCLOSURE
SS.14,15
3. FORMAL REQUIREMENTS
S.12
4. ALTERATIONS CORRECTLY INITIALLED
5. COPIES PROVIDED TO DEBTOR
6. ADMINISTRATIVE COMPLIANCE:
 NOTICES
 PERIODIC STATEMENTS
 CHANGES
           PRE-CONTRACTUAL STATEMENT
             MOSTLY S. 15 INFORMATION
          STATEMENT OF RIGHTS CONTENTS

15A   Names of credit providers
15B   Amount of credit
15C   Annual percentage rate
15D   How interest charges calculated and frequency of debit
15E   Total interest charges and maximum duration interest
      free periods
15F   Repayment / instalment details
15G   Credit fees and charges, reimbursements third parties
15H   Changes to interest, credit fees and charges
15I   How often statements sent
15J   How and when default interest is applied
15K   If there is a mortgage/guarantee, statement that it
      includes enforcement expenses
15N   Details lenders mortgage insurance or credit insurance
      financed by contract and when fee payable

REMEDY ONLY
IF “KEY REQUIREMENTS”(S.100) NOT DISCLOSED
            KEY REQUIREMENTS
           TO ACTIVATE LIABILITY
             TO CIVIL PENALTY

S.100

1. AMOUNT OF CREDIT
2. ANNUAL PERCENTAGE RATE
3. DEFAULT RATE
4. CALCULATION OF INTEREST CHARGES
5. TOTAL AMOUNT OF INTERET CHARGES PAYABLE
6. EXCESSIVE OBLIGATIONS
              MACQUARIE CREDIT UNION LTD V. DIRECTOR-GENERAL
                                        DEPARTMENT OF FAIR TRADING
                                    (1998) 2 ACCR 676 (1998) ASC 155-014
                                              Commercial Tribunal of NSW
Macquarie applied under s. 101 (incentives if contravening institution
brings it rather than waiting for consumer) s. 15G Declaration
1. Failure to disclose reimbursement bank fee in case dishonour. In
brochure but not contract. 2. Failure to disclose third party charges,
valuation fees, mortgage preparation, stamp duty, LTO fees registration. In
brochure but not contract. 3. Failure to state total amount of interest
charges Over 500 contracts affected; in implementing software.
Found technical breaches No civil penalty in this case taking into
account prudential standing and other specific criteria of s. 103; i.e.
conduct credit provider and debtor before and after entering into
Contract, whether contravention deliberate, loss suffered by debtor,
when credit provider first became aware, existence of systems or
procedures to prevent or identify contraventions, whether
contraventions could have been prevented, action taken by credit
provider to remedy, time, nature of application, anything else
relevant.
            Requirements Mortgages securing
            obligations under CCC credit contract
Must be in writing, signed by Mortgagor (s.38). If not, unenforceable.
Must identify goods or property affected or void for uncertainty (s. 40)
If goods acquired under a continuing credit contract, a Mortgage covering
all goods supplied from time to time is void and not permitted by s.
42(1), but a Mortgage over specified items can be valid.
CCC contains a general prohibition on indemnities.
All money mortgages that secure credit provided under a future credit
contract are acceptable, but to be enforceable, the credit provider must
obtain the mortgagors written consent to the extension.
Third party mortgages are prohibited.

Note also other general provisions in CCC regarding advertising, behaviour
and unjust conduct
          THE STATUS OF ALL MONEYS CLAUSES
               In mortgages and guarantees

UNDER THE CODE
What is an all moneys clause?
One which attempts to cover all moneys owing no matter what
for and no matter whether now or in the future
MORTGAGES
S.43
Acceptable BUT to be enforceable
Credit provider must give copy of future credit contract to
mortgagor
And obtain their written consent to extension of mortgage
GUARANTEES
S. 56
For each extension Guarantor must be informed
And acceptance obtained in writing
Otherwise, such extension void
                                               UNJUST TRANSACTIONS S.70
                           Includes unconscionable, harsh or oppressive
                   List of issues to consider contained in s. 70(2) (a)-(o)
a) Consequences compliance/non-compliance b) Relative bargaining
power c) Whether provisions subject negotiation d) Whether reasonably
practicable for applicant to negotiate changes or rejection e) Whether
conditions unreasonably difficult to comply with or not reasonably
necessary f) Whether debtor, mortgagor or guarantor, or person
representing them reasonably able to protect interests because age,
physical or mental condition g) Form of contract and intelligibility language
h) Whether or not independent advice obtained i) Extent provisions, legal
and practical effect accurately explained and whether or not they
understood j) Whether credit provider/other person exerted /used unfair
pressure, undue influence or unfair tactics and if so, nature and extent k)
Whether credit provider took measures to ensure debtor etc understood
nature implications and their adequacy l) Whether at time of contract credit
provider knew or could have ascertained by reasonable inquiry of debtor,
that debtor could not pay without substantial hardship m) Whether terms or
conduct credit provider justified in light of risks n) Terms of comparable
transactions with others o) Any other relevant factor
                 RELATED SALES CONTRACTS


                                                             s. 117
                                    Linked credit provider means
   A credit provider with whom supplier has a contract
    arrangement or understanding
   A credit provider to whom supplier by arrangement regularly
    refers persons
   A credit provider whose forms are made available to people by
    supplier
   A credit provider with whom supplier has contract arrangement
    or understanding where applications can be signed at the
    premises

1. Linked credit provider liable for loss suffered by supplier.
2. And jointly and severally liable with supplier for loss or
   damages suffered by debtor as result of
   misrepresentation, breach of contract under credit or sale
   contract.
             LINKED CREDIT PROVIDER S. 73TPA


LINKED CREDIT PROVIDER, in relation to supplier CREDIT PROVIDER
:with whom the supplier has a contract, arrangement or understanding relating
to supply, to whom the supplier, by arrangement with the credit provider,
regularly refers persons for the purpose of obtaining credit and whose
forms of contract or forms of application or offers for credit are, by
arrangement with the credit provider, made available to persons by the supplier;
or credit applications can be signed at premises.
If consumer suffers loss or damage as a result of misrepresentation, breach of
contract, or failure of consideration in relation to the contract, or as a result of a
breach of a condition that is implied in the contract by virtue of section 70, 71
or 72 or of a warranty that is implied in the contract by virtue of s. 74 of this
Act or section 12ED of the ASIC Act 1989, the supplier and the linked credit
provider are, subject to this section, jointly and severally liable to the consumer
for the amount of the loss or damage.
6.(1) Code applies to provision of credit if
(a) the DEBTOR is a NATURAL PERSON ORDINARILY RESIDENT in
    this jurisdiction or a STRATA CORPORATION formed in this
    jurisdiction; and
(b) the credit is provided or intended to be provided WHOLLY OR
    PREDOMINANTLY for PERSONAL, DOMESTIC OR HOUSEHOLD
    purposes; and
(c) a CHARGE is or may be made for providing the credit; and
(d) the credit provider provides the credit in the COURSE OF A
    BUSINESS of providing credit or as part of or incidentally to any other
    business of the credit provider.
INVESTMENT NOT personal, domestic or household purpose.
The PREDOMINANT PURPOSE for which credit is provided is (a) the
    purpose for which MORE THAN HALF of the credit is intended to be
    used; or (b) if the credit is intended to be used to obtain goods or
    services for use for different purposes, the purpose for which the
    goods or services are intended to be MOST USED.
   PROVISION OF CREDIT TO WHICH CODE
            DOES NOT APPLY

7.(1) SHORT TERM CREDIT - total period not exceeding 62
days.
(2) CREDIT WITHOUT PRIOR AGREEMENT
For example, when a cheque account becomes overdrawn
but there is no agreed overdraft facility
(3) CREDIT FOR WHICH ONLY ACCOUNT CHARGE
PAYABLE - fixed charge that does not vary according to the
amount of credit provided.
(4) JOINT CREDIT AND DEBIT FACILITIES - If relates only
to the debit facility.
(5) BILL FACILITIES
(6) INSURANCE PREMIUMS BY INSTALMENTS
(7) PAWNBROKERS
(8) TRUSTEES OF ESTATES - an advance to a beneficiary
or prospective beneficiary of the estate.
(9) EMPLOYEE LOANS
(10) REGULATIONS MAY EXCLUDE CREDIT
                      RETENTION OF TITLE CLAUSES
                        (See text 108-109, Chapter 7. )
                     ARE THEY SECURITY INTERESTS?
              SOME ARE SOME ARE NOT. DEPENDS ON DRAFTING.

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

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.
                     ASSIGNMENT OF CHOSES IN ACTION


An example of where the validity of assignment of choses in action may
arise indirectly is given in Allianz Australia Insurance Limited & Ors v.
General Cologne re Australia Limited (2003) NSWSC 144.
The Solicitors Liability Committee provided compulsory professional
indemnity insurance to Solicitors in Victoria. It obtained reinsurance for
part of the risk from Switzerland General Insurance (SGI). SGI in turn,
reinsured with Cologne. SGI, wishing to give up its local insurance
licence, executed a deed of assignment in favour of its local subsidiary;
which in turn executed a deed of assignment to Allianz. Allianz sought
reimbursement for legal expenses of actions from Cologne under one of
the reinsurance contracts.
The proceedings were decided on a construction of the contract, which did
not include the legal expenses. However, the issue of assignment arose in
the following ways:
                   ASSIGNMENT OF CHOSES IN ACTION Cont.



Cologne argued that the purported assignments were ineffective because:
 The deed did not assign the contract of reinsurance because it
   mentioned only insurance (definition found to cover reinsurance).
 There could not have been an equitable assignment of the potential
   benefit of the contract of reinsurance because at the time the Deed
   was executed, any benefit was future property which was not assigned
   for valuable consideration or constituted a bare right of action which is
   not assignable at either law or equity. The court agreed.
 If there was a chose in action capable of assignment, it was ineffective
   because it did not comply with the notice requirements in s. 12 of the
   Conveyancing act. The court found there was a letter satisfying the
   requirement for notice.
                          ASSIGNMENT OF CHOSES IN ACTION
                             Focus: 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.
                       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.
                      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)
                           Security over IP
Relevance in modern Australian service economy
Entertainment, publishing businesses-copyright
Sport-TMs / brands
Consumer products-TMs / brands
e.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-Patents
International exposure in unprotected markets
        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”
                       COPYRIGHT ACT 1968 - SECT 196
                 Assignments 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.
                               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.
                           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.
        Sample short Q-March 2007

(a) Is it possible for a financier who wishes to lend
    money to Sylvia and Gino Berutti, Hawkesbury
    River oyster farmers, to take security over their
    oysters? If so, how? If not, why not?
(b) When considering priority issues between
    competing securities, is registration on an incorrect
    Register nevertheless sufficient notice to prevent a
    later security holder from gaining priority over an
    earlier security?
(c) What type of lien does a Solicitor have over client
    files?
        Student Question 1
In slide 35 and s. 262 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.

				
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