Module 9 Security(1)Summer0607

8/8/2019 Module 9 Security(1)Summer0607

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Commercial

Transactions

Module 9

Summer Session 2006-07


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Security over personal property

Suppliers and financiers associated with commercialtransactions usually require some reassurance that their money isbeing repaid or an obligation met.

In addition to a contractual obligation or promise, they often askforsecurity. In this context, access to some other way ofsatisfying 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 theelements necessary for successful creation and enforcement. (9)

Priorities-in a situation of failure, there are usually more creditorsthan assets and we must allocate assets in a certain order-so thatsome creditors will get their money back and some may not.(10)


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Security over personal property-

change in lawThe law on this topic has changed for non Company securities over

personal chattels. The Security Interests in Goods Act (SIGA)of 2005

repealed the Bills of Sale Act and replaces it with a new regime. It

also repeals and replaces 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.


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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 aconfused and uncertain state. Under the current regime, thelegal position of security holders is determined by reference to a

patchwork ofState and Federal legislation, superimposed on afabric of often-outmoded principles of case law. The rights andliabilities of the debtor and third parties vis a vis the securedcreditor are largely dependent upon the form of securitytransaction rather than its substance.

The availability of statutory procedures for the registration ofsecurity interests and the consequences of failing to utilize suchprocedures vary with a medley of factors including the type ofproperty over which the security is given; the jurisdiction withinwhich the property is located; the legal nature of the securitygiven; and the mould in which the security agreement is cast.

GilloolySecurities over Personalty (The Federation Press, Sydney 1994)


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REFORM PROPOSALS 1Dec 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 securityinterest-holders and as between them and outsiders3. Single national system of registration4. A functional definitioni.e. anything which functions as security

whatever it is called5. A system which applies to all types of personal property and all types

of debtors6. A regime where priorities depend on date of registration and notnotice

7. A regime which accommodates the floating charge with the objectiveof 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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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 ofSaleAct 1898 and Liens on Crops and Wools and Stock Mortgages Act1898)

Consumer Credit Code Corporations Act 2001 Factors (Mercantile Agents) Act 1923 Registration of Interests in Goods Act 1986 Pawnbrokers Act


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REGISTRATION SYSTEMS

DIFFERENT REGISTERS FOR DIFFERENT DEBTORS Corporations Act for charges granted by companies

DIFFERENT REGISTERS FOR DIFFERENT PROPERTY

ShipsAustralian Register of Ships Intellectual PropertyRegister of Designs, TMs, Patents or Plant

Variety Rights. No register for Copyright.

Life Insurancemortgage/assignment must be noted in companyregister

Sharescompany registeris for title; not encumbrances OtherRegistration of Interests in Goods Act..note for Motor Vehicles,

might have to look in all Australian Registers to be safe. Book debtsVic 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 -

y sufficiency of general cash to service debt

y assets to cover repayment

y ability and willingness of debtor to repayy litigation may be unsuccessful for many reasons

y litigation is slow an costly

y other creditors may have claims or priority

y

prudential consequences for lending entity


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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:

j negative and positive covenants

j special rights of preference,

j rights of pursuit into hands of third parties

j access to a specific asset or pool of assets for repayment without the

need to take legal action


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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


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Some Terms That Come Up in

Commercial Lending

Bills of lading Book debtsBuy backs Certificates of deposit

Charges (fixed and floating) over enterprise/individual assetsChattel mortgagesChoses in action and Choses in possessionConditional salesCrops, Growing wool, Stock mortgages

Debentures FactoringGovernment bonds GuaranteesHire purchase IndemnityInsurance


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Some Terms That Come Up in

Commercial Lending

Cont.

Leasing-finance and operatingLetter of Comfort-acknowledgement, change in control, support.Liens-possessory, maritime, equitable, statutory

Life 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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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 MaybeCharge 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


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1. A delivery of goods by one person to another as security for a loan2. Goods remain property of pledgor who is entitled to repossession on

repayment of loan3. A type of bailment

PawnbrokersNot 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

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

Unpaid seller of goodsAgent for charges

Possession is essential and must be lawfulParticular liens

Relate to debt owing in respect of particular goodsCommon carrier and innkeeperPeople who improve the goods with skill and labour e.g. accountant andbooks, mechanic and car, tailors, dry cleaners, repairers and dyersLien arises with completion of agreed work. Only applicable to charges forwork done, not other moneys owingGeneral

Right to retain possession until all moneys owing regardless of whetherfrom work done or otherwise arises by agreement or by reason of customor trade usageBankers, Solicitors - Only relates to documents left with them in theircapacity as banker / solicitor; not those just for safe custody

Stockbrokers, Mercantile agents, Insurance brokers

POSSESSORY LIENS


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EQUITABLE LIENS

Right conferredby law

to have property utilised

to ensure payment

Possession not a prerequisite

e.g. contract fails through no fault ofpurchaserpurchaser has equitable lien over propertyfor 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; thedebt 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 riseOperation

Effect

Governed by relevant Act

Some examples:

Claims by statutory authorities and councils to landtaxes and rates

Warehouse staff for wagesWarehousemens Liens Acts of 1935 (NSW)

Lien on crops and woolLiens on Crops and Wool and Stock Mortgages Act

1898 (NSW)


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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 topossession

Lawton LJ

1. Discussion of whether accountants could have any kind of

lien2. 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 lien

How it can interact with other securities.

A bank has a general lien over all of its customers 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 customers overdue obligations to it. It cannot apply for a

foreclosure order and become absolute owner of the goods. Its sole remedy is tosell 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 sellers 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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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 authorities2. 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 creditors5. Must prove certainty, lack of ambiguity, reasonableness

and long standing

6. High standard of proof

7. Statutory lien withdrawal in 1967 went against claimant8. 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 ordershim 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

COMMISSIONERConfirmed Solicitors

LienNSWSC August 2000

Mr. and Mrs Bertones complained about a Solicitor Anthony Margiotta. Complaints

dismissed by Professional Conduct Committee of the LawSociety 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 ascertainwhether there was an action against Mr. M for professional negligence.Under s. 152(2)

of the Legal Profession Act:If a legal practitioneragainst 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 clients business.The Commissioner determined that it

was necessary for the orderly transaction of businessof 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 clients

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 solicitorMr. Nikolaidis. Harry went bankrupt andthe 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 wasintended /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 caseMr. 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 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-includingsecuring 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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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 andpossession of secured property, but also the ability to deal with thatproperty in the ordinary course of business, free from the interest of thefloating chargee.

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

It may also be subject to any rights of set-off or liens arising with respectto 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 whodistrains on chattels on the premises for non-payment of rent.

Note also Corporations Law and Insolvency Law may affect priority ofthe floating charge with respect to particular payments e.g. benefit ofinsurance 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 inpart 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 laws. 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 anyprofession 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 chargedseparately 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 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 andguarantees 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 thatthe 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 acorporation

See new Security Interests in Goods Act 2005and Registration of Interests in Goods Act (carsand boats)


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CONSUMER CREDIT CODE

Harmonisation

Streamlining

State laws

Consumer Protection

Scheme:

ConsumerCredit Act (Qld)

Code is in Schedule 1

State legislation

Some of it amends certain provisions

Some maintain Hire Purchase

ConsumerCredit Act 1994 (NSW)


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THE CREDIT CONTRACT

1. WRITTEN OFFER

SIGNED BY BOTH PARTIES

OR

ACCEPTED BY CONDUCT

2. PRE CONTRACTUAL DISCLOSURE

SS.14,153. FORMAL REQUIREMENTS

S.12

4. ALTERATIONS CORRECTLY INITIALLED

5. COPIES PROVIDED TO DEBTOR

6. ADMINISTRATIVE COMPLIANCE:

NOTICES

PERIODIC STATEMENTS

CHANGES


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PRE-CONTRACTUAL STATEMENT

MOSTLY S. 15 INFORMATION

STATEMENT OF RIGHTS CONTENTS

15A Names of credit providers15B Amount of credit15C Annual percentage rate15D How interest charges calculated and frequency of debit

15E Total interest charges and maximum duration interestfree periods15F Repayment / instalment details15G Credit fees and charges, reimbursements third parties15H Changes to interest, credit fees and charges15I How often statements sent15J How and when default interest is applied15K If there is a mortgage/guarantee, statement that it

includes enforcement expenses15N Details lenders mortgage insurance or credit insurance

financed by contract and when fee payable

REMEDY ONLY

IF KEY REQUIREMENTS(S.100) NOT DISCLOSED


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KEY REQUIREMENTS

TO ACTIVATE LIABILITY

TO CIVIL PENALTY

S.100

1. AMOUNT OF CREDIT

2. ANNUAL PERCENTAGERATE3. DEFAULT RATE

4. CALCULATIONOF INTEREST CHARGES

5. TOTAL AMOUNT OF INTERET CHARGES PAYABLE

6. EXCESSIVEOBLIGATIONS


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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 institutionbrings 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. Inbrochure but not contract. 3. Failure to state total amount of interestcharges 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 intoContract, 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 elserelevant.


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Requirements Mortgages securing

obligations under CCC creditcontractMust 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 creditcontract 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, behaviourand unjust conduct


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THE STATUS OF ALL MONEYS CLAUSES

In mortgages and guarantees

UNDER THE CODEWhat is an all moneys clause?

One which attempts to cover all moneys owing no matter whatfor 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 tomortgagor

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


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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 bargainingpower c) Whether provisions subject negotiation d) Whether reasonablypracticable for applicant to negotiate changes or rejection e) Whetherconditions unreasonably difficult to comply with or not reasonablynecessary 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 languageh) Whether or not independent advice obtained i) Extent provisions, legaland practical effect accurately explained and whether or not theyunderstood 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 understoodnature implications and their adequacy l) Whether at time of contract creditprovider knew or could have ascertained by reasonable inquiry of debtor,that debtor could not pay without substantial hardship m) Whether terms orconduct credit provider justified in light of risks n) Terms of comparable

transactions with others o) Any other relevant factor


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RELATED SALES CONTRACTS

s. 117Linked credit provider means

A credit provider with whom supplier has a contractarrangement or understanding

A credit provider to whom supplier by arrangement regularly

refers persons A credit provider whose forms are made available to people bysupplier

A credit provider with whom supplier has contract arrangementor understanding where applications can be signed at thepremises

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 ofmisrepresentation, breach of contract under credit or salecontract.


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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 whoseforms of contract or forms of application or offers for credit are, byarrangement 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.


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6.(1) Code applies to provision of credit if

(a) the DEBTOR is a NATURAL PERSON ORDINARILY RESIDENT inthis jurisdiction or a STRATA CORPORATION formed in this

jurisdiction; and

(b) the credit is provided or intended to be provided WHOLLYORPREDOMINANTLY 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 COURSEOF ABUSINESS of providing credit or as part of or incidentally to any otherbusiness 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 beused; or (b) if the credit is intended to be used to obtain goods orservices for use for different purposes, the purpose for which thegoods or services are intended to be MOST USED.


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PROVISION OF CREDIT TO WHICH CODE

DOES NOT APPLY

7.(1) SHORT TERM CREDIT - total period not exceeding 62days.(2) CREDIT WITHOUT PRIOR AGREEMENT

For example, when a cheque account becomes overdrawnbut there is no agreed overdraft facility

(3) CREDIT FOR WHICH ONLY ACCOUNT CHARGEPAYABLE - fixed charge that does not vary according to theamount of credit provided.(4) JOINT CREDIT AND DEBIT FACILITIES - If relates onlyto the debit facility.(5) BILL FACILITIES

(6) INSURANCE PREMIUMS BY INSTALMENTS(7) PAWNBROKERS

(8) TRUSTEES OF ESTATES - an advance to a beneficiaryor prospective beneficiary of the estate.(9) EMPLOYEE LOANS

(10) REGULATIONS MAY EXCLUDE CREDIT


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1. Property not to pass until payment in full.

Without more, not a security interest. Title has not passed. Conditionalsale. See SGA 22,23,24.

2. Legal title passes but equitable and beneficial ownership remains withseller until payment in full.

Interest reserved is beneficial interestcharged back by buyer to seller. Acharge/security.

3. Where goods may be converted into something else and unpaid purchaseprice charged against new item or work in progress.

Charge4. Seller is granted an interest in goods into which the supplied goods areworked or manufactured and supplied goods cannot be severed.

Generallyconstrued 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

(See text 108-109, Chapter 7. )ARE THEY SECURITY INTERESTS?

SOMEARESOMEARE NOT. DEPENDSON DRAFTING.


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Until the date of payment, purchaser, if AIV so desires, is required to store thismaterial in such a way that it is clearly the property of AIV. AIV and purchaser agreethat, if purchaser should make new object(s) from the material, mixes the materialwith 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 ofthe full payment of what purchaser owes AIV. To this end AIV and purchaser nowagree that the ownership of the article(s) in question, whether finished or not, are tobe transferred to AIV and that this transfer of ownership will be considered to havetaken place through and at the moment of the single operation or event by whichthe 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 purchaserowes AIV purchaser shall keep the object in question for AIV in his capacity offiduciary owner and, if required, shall store this object in such a way that it can berecognized as such. Nevertheless, purchaser will be entitled to sell these objects toa third party within the framework of the normal carrying on of his business and todeliver them on condition that-if AIV so requires-purchaser, as long as he has notfully discharged his debt to AIV shall hand over to AIV the claims he has against hisbuyer emanating from this transaction.

Aluminium Industrie Vaasen BV v. Romalpa Aluminium Ltd

(1976) 1 WLR 676The 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 toNorman Ross which went into liquidation. Was the all monies retention of titleclause a charge and therefore void against the Liquidator for want of registration?

Ownership in such goods is retained by Gascoigne Furniture until payment ismade 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 becomeconstituents 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 notcreate a charge, it was argued that the second part of the clause created acharge as it must be intended as a form of securityover 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 andacademics argue (Professors Goodhart and Jones) that it cannot be seen as aconditional sale pending payment and therefore must be a security.

Note some commercial effects of such clausessee 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 ACTION

An example of where the validity of assignment of choses in action mayarise 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 forpart of the risk from Switzerland General Insurance (SGI). SGI in turn,reinsured with Cologne. SGI, wishing to give up its local insurancelicence, executed a deed of assignment in favour of its local subsidiary;which in turn executed a deed of assignment to Allianz. Allianz soughtreimbursement for legal expenses of actions from Cologne under one ofthe reinsurance contracts.

The proceedings were decided on a construction of the contract, which didnot include the legal expenses. However, the issue of assignment arose inthe following ways:


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Cologne argued that the purported assignments were ineffective because:

The deed did not assign the contract of reinsurance because itmentioned 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 Deedwas executed, any benefit was future property which was not assignedfor valuable consideration or constituted a bare right of action which isnot 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 theConveyancing act. The court found there was a letter satisfying therequirement for notice.

ASSIGNMENT OF CHOSES IN ACTION Cont.


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ASSIGNMENT OF CHOSES IN ACTION

Focus: Assignment of Debts

Suppose Tom lent $100 to Dick for a month. Suppose also that if Tom found heneeded the money earlier, he may want to sell the debt to Joe for $90 and tell Dick topay 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 wasgained in equity and so debts came to be assignable in equity. When the courts wereamalgamated, statutory assignment was introduced. To have an absolute

assignment of a debt in NSW, one needs to comply with s. 12 of the ConveyancingAct. 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 ofcharge may be valid as equitable assignments. But, to be valid they must be forconsideration. 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 wrongperson or the creditor may lose priority because of the rule in Dearle v. Hall (order ofnotice).

Sometimes, novation was used instead because of problems. The law merchanthad found another way. Negotiable instruments. Simpler and more effective thanassignment. 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 (notpurporting to be by way of charge only) of any debt or other legal chose inaction, of which express notice in writing has been given to the debtor,trustee, or other person from whom the assignor would have been entitledto receive or claim such debt or chose in action, shall be, and be deemed tohave 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 thedate of such notice, and all legal and other remedies for the same, and thepower to give a good discharge for the same without the concurrence of theassignor: Provided always that if the debtor, trustee, or other person liablein respect of such debt or chose in action has had notice that such

assignment is disputed by the assignor or anyone claiming under theassignor, or of any other opposing or conflicting claims to such debt orchose in action, the debtor, trustee or other person liable shall be entitled, ifhe or she thinks fit, to call upon the several persons making claim thereto tointerplead 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 ofI hereby assign to the said (nameof assignee) the sum of . being part of the money now due from

you the said (name of debtor) to me under a contract dated .. inrespect 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 suchsum 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 inmy name or otherwise to demand sue for recovery receive and giveeffectual discharge for the said sum of .. hereby assigned.

S

igned on this..day of..200X

(Signature of Assignor)


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Security over IP

Relevance in modern Australian service economy

Entertainment, publishing businesses-copyright

Sport-TMs / brands

Consumer products-TMs / brandse.g. a new beverage-trade secret, trade markfor

brand, slogans, shape of bottle,patentforprocess to make it and copyrighton packaging,

advertising material.Mining and Agriculture-Patents

International 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 notlender friendly


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COPYRIGHT ACT 1968 - SECT 196

Assignments and licences in respect of copyright

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

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

a) so as to apply to one or more of the classes of acts that, by virtue of thisAct, the owner of the copyright has the exclusive right to do (including aclass of acts that is not separately specified in this Act as being comprisedin 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 haveeffect 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 copyrightbinds every successor in title to the interest in the copyright of the grantor ofthe 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 beingsought, may be assigned or transmitted in accordance with this section.

(2) The assignment or transmission may be partial, that is, it may apply tosome only of the goods and/or services in respect of which registration issought 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 ofthe 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 personregistered as the owner of the trade mark; or (b) the person to whom thetrade 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 theregulations.

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 undersection 107 or109 in relation to theassignment or transmission of a trade mark complies with this Act, theRegistrar must notify in accordance with the regulations any personrecorded underPart 11 as claiming an interest in, or a right in respect of,the trade mark.

Module 9 Security(1)Summer0607

Documents

Transcript of Module 9 Security(1)Summer0607