Commercial Transactions
Module 10
Summer Session 2010-11
©MNoonan2011
This presentation and Copyright therein is the
property of Maureen Noonan and is prepared
for the benefit of students enrolled in the
Commercial Transactions course conducted by
the Law Extension Committee and is available
for their individual study. Any other use or
reproduction, including reproduction by those
students for sale without consent is prohibited.
©MNoonan2011
Risk Management
Identification
Systems and management
Characterisation / structure of transaction
Contract negotiation and drafting
Liability Limitation and Exclusion clauses-Module 10
Dispute Resolution-Module 8
Securing an obligation-Modules 10,11
Insurance-Module 12
©MNoonan2011
Limitation and Exclusion
 Possible
 Structure v. specific clauses
 Extent varies between B2B and B2C-
legislation
 Extent varies within B2B-bargaining
power, skill, strategy
 Negotiation - who bears what risks
©MNoonan2011
Limitation, exclusion clauses in
contracts
 Type of contract-B2B (large or small?),
B2C, B2C standard form
 Stand alone and specific clauses
 Combined with other aspects of contract
 Interpretation
 Statutory impact
©MNoonan2011
EXCLUSION and LIMITATION
IMPLIED CONDITIONS / WARRANTIES
GENERAL RULES:
SALE OF GOODS ACT
ALL MAY BE EXCLUDED EXCEPT IN “CONSUMER SALE”
S. 62
DEFINITION OF CONSUMER SALE
S. 63
ONUS OF PROOF WITH PARTY CONTENDING IT IS NOT A
CONSUMER SALE
S. 64
PROVISIONS PURPORTING TO EXCLUDE SS. 18,19,20 (EXCEPT
19(4)) IN CONSUMER SALE IS VOID
AUSTRALIAN CONSUMER LAW
SOME ONLY APPLY TO “Consumer”
CANNOT BE EXCLUDED BUT SOME LIMITS POSSIBLE
©MNoonan2011
LIMITS ON EXCLUSION IMPLIED TERMS
- SOGA
S. 64
(1) Any provision in, or applying to, a contract for a consumer sale
and purporting to exclude or restrict the operation of all or any of
the provisions of sections 18, 19 and 20 (section 19(4) excepted) or
any liability of the seller for a breach of a condition or warranty
implied by any provision of those sections is void.
(2) express warranty or condition in consumer sale does not negative
a condition as to merchantable quality implied by Act
(3)…expression “merchantable quality”…
(4) No implied condition of merchantable quality for defects brought
to buyer’s notice before contract
(5) Re merchantable quality….court may add manufacturer as a
party….make order that manufacturer pay…remedy
©MNoonan2011
ACL
Note provisions regarding
UNCONSCIONABLE
©MNoonan2011
Unfair contract terms
Reminder re S. 23 ACL
A term of a consumer contract is void if the
term is unfair and the contract is a
standard form contract
©MNoonan2011
Unfair contract terms
What is a consumer contract?
s. 23(3)
A consumer contract is a contract for
 A supply of goods or services or
 A sale or grant of an interest in land
 To an individual whose acquisition of the goods,
services or interests is wholly or predominantly for
personal domestic or household use or consumption
Note this is different to definition of consumer s.2
The subjective purpose of person is what is relevant.
Note that businesses excluded other than “sole traders”.
See ASIC Act s. 12BF for financial products and services.
©MNoonan2011
Unfair contract terms
What is a standard form contract?
Not defined, and if alleged, it is presumed to be
one unless proven otherwise.
Expressly excluded in s. 28 are:
Contract of marine salvage or towage
Charter party of a ship
Contract for carriage of goods by ship
Constitutions of a company managed investment
scheme or other kind of body
©MNoonan2011
Unfair contract terms
Standard form contract
Not defined, but in deciding whether a contract is a
standard form one or not, court must consider (s.27):
 Whether 1 party has all or most of the bargaining power
 Whether the contract was prepared by 1 party before any
discussion
 Whether another party was required to accept or reject
the terms
 Whether another party was given an effective opportunity
to negotiate terms
 Whether terms take into account specific characteristics
of another party or particular transaction
 Any other matter prescribed by regulations
NOTE similarity with 32ZDA of Victorian Fair Trading Act
©MNoonan2011
Unfair contract terms
What does “unfair” mean? S.24
1. If, it would cause significant imbalance in rights
and obligations
2. Not reasonably necessary to protect legitimate
interests of party advantaged
3. It would cause detriment (financial or
otherwise) if applied or relied upon
NOTE similarity to s. 32W of Victorian Fair Trading
Act.
©MNoonan2011
Unfair contract terms
What does “unfair” mean? S.24
In determining whether unfair, a court may
consider any relevant matter, but must consider
The extent to which the term is transparent
A term is transparent if
 expressed in reasonably plain language; and
 legible and
 presented clearly and
 readily available to any party affected by the term
The contract as a whole.
©MNoonan2011
Examples of unfair terms s.25
Permits one party to avoid or limit performance
Permits unilateral termination
Penalises one party but not another for breach or termination
Permits one party but not another to vary terms
Permits one party but not another to renew or not
Permits one party to vary the upfront price without giving the other party the right to
terminate
Permits one party to unilaterally vary characteristics
Permits one party to unilaterally determine breach
Limits the liability of a party for its agents
Permits one party to assign to detriment of other party without consent
Limits one party’s right to sue another party
Limits the evidence one party can adduce in proceedings on the contract
Imposes the evidential burden on one party in proceedings
Has an effect prescribed in regulations
NOTE similarity to s. 32X of Victorian Fair Trading Act
©MNoonan2011
Terms excluded s. 26
The following terms are excluded from the unfair
regime
To the extent that the term---- Defines the main subject matter of the contract;
or
 Sets the upfront price payable
 Is a term required or expressly permitted by law
©MNoonan2011
Effect of term being held unfair
 There may be prohibited terms in regulations. Use of
such a term will be a contravention of Act
 Only court can determine whether a term in a standard
contract is unfair.
 Proceedings can be commenced in Federal Court by a
party to the contract (s.250ACL) or regulator (s.250ACL)
 Court can order an injunction (s.80 CCA), prohibiting
payment or transfer of money or other property (s.87A
CCA), to provide redress to non party consumers
(87AAA CCA) and such other orders as it considers
appropriate (s.87CCA).
©MNoonan2011
BAILMENT
EXCLUSION CLAUSES
BAILOR AND BAILEE CAN AGREE TO MODIFY
WAS TERM AGREED TO BY BAILOR? IF SO, MEANING? EACH
CASE DETERMINED ON OWN FACTS. A FEW PRINCIPLES:
DISPLAY OF NOTICES
Mere display not enough. Bailor must have agreed to terms Or, be taken
to have done so. Large letters, prominent location, Chance to read and
proceed or Small print on tickets
CONSTRUCTION AGAINST BAILEE …in case of ambiguity, against the
party asserting it
TICKETS Did Bailor know document contained contractual conditions?
Did Bailor think it was a receipt only?
FUNDAMENTAL BREACH Only relevant now to construction
Deviation outside contract not covered by exemption.
SUB BAILMENTS
Sub-bailee sometimes can rely; sometimes not, mostly not.
©MNoonan2011
1.



2.
3.
4.
5.
EXCLUSION OF LIABILITY
The person seeking to rely on an exemption clause must establish it
has become part of the contract by showing either:
That it was included in a contract signed by the other; or
That he or she had taken steps which were reasonably sufficient in
the circumstances to give notice; or
That the parties had intended to contract on the same basis as
before.
If the nature of an exemption clause is misrepresented, the person
seeking to rely on it will not be permitted to do so.
An exemption clause will be construed strictly-any ambiguity against
the person seeking to rely on it.
An appropriately worded exemption clause can exclude a party from
liability for negligence, although it will not normally be construed as
doing so in the absence of clear words to that effect.
Exemption clauses will not normally be construed as limiting or
excluding liability for acts done outside the terms or scope of the
contract. Thomas
©MNoonan2011
Exemption Clauses
Whether a particular exemption clause governing a bailment effectively
excludes liability for breach of either a party’s common law duties or
contractual obligations all depends on whether, on proper construction,
clause is wide enough to cover breach in question. See Nissho Iwai
Australia Ltd v. Malaysian International Shipping Corp Berhardt (1989)
167 CLR 219, 227.
©MNoonan2011
THOMAS NATIONAL TRANSPORT (Melb.) PTY LTD v. MAY
& BAKER (Aust) Pty Ltd (1966) 115 CLR 353
TNT regularly employed subcontractors to pick up goods
around Melbourne and transport them to their central depot;
which closed at 5.30pm. On the day in question the
subcontractor collected the goods and finished around 5.40.
As he was too late, he took his loaded truck home as he had
been directed to do by TNT when he was too late. He backed
it into his garage but in the early hours of the morning a fire
broke out damaging the goods.
In an action for damages, the HC held that it was implicit in the
contract between TNT and the customer that their goods
would be taken to and received by the depot. Accordingly,
taking the goods home was an unauthorised departure or
deviation from the terms of the contract and precluded TNT
from relying on the exclusion clause in the contract.
©MNoonan2011
BAILMENT and EXCLUSION CLAUSES
Kamil Export (Aust) Pty Ltd v. NPL (Aust) Pty Ltd (1996) I VR538
Shipper shipped goods from Melbourne to Guam and other
goods from Melbourne to Nauru, with same carrier. In Guam goods
were unloaded into warehouse and released to consignee without bill of
lading. In Nauru goods were also unloaded into warehouse and 11/20
pallets released with shippers consent to consignee without production of
bill of lading. Remaining 9 released without production of BL. Shipper sued
carrier for damages for loss of Guam goods and loss of 9 pallets of Nauru
goods.
Carrier relied on exemption clauses in bill of lading which also contained
clauses which made it clear that the carrier would not only transport the
goods from port to port but would also "deliver" them.Implied term that a
carrier will deliver only in exchange for the bill of lading….long practiced
understanding in merchant shipping.Specific clauses agreed can defeat the
object of the contract of carriage, …e,g, negligence perhaps…..but not here.
Held not to cover deliberate conversion. "The question is ordinarily whether, on
the proper construction of the contract, it can be said that the language of the
exemption clearly applies to the event or kind of event which has actually happened,
notwithstanding that its effect may defeat the object of the carriage contract".
©MNoonan2011
Exclusion Clause in Kamil Export v. NPL
"The carriers obligations in respect of the goods shall begin when the
goods are accepted at the ocean vessel's rail at the port of lading and
shall continue until the goods are discharged at the ocean vessel's rail at
the port of discharge. The Carrier shall not in any circumstances
whatsoever be liable for any loss or for delay or damage to the goods
(whether in his actual or constructive possession or not) howsoever
caused occurring before they are accepted at the ocean vessel's rail at
the port of loading or after they are discharged at the ocean vessel's rail at
the point of discharge.
The Carrier may at any time and for any purpose whatsoever discharge
the goods or any part thereof from the vessel whether before or after
sailing from the port of lading and/or land or store the same either on
shore or afloat and/or trans-ship or forward the same by sea, air and/or
land. In any such case, the Carrier shall not be liable for any loss, damage
or delay howsoever caused to the goods arising after discharge from his
vessel."
©MNoonan2011
Matthew Short &Assoc. P/L v. Riviera Marine (Int.) P/L &
Anor (2001) NSWCA 281. The Facts
Riviera, manufacturer motor cruisers, sold some o/s,
exporting through Pt Botany. In1997 Mr&Mrs S, of US caused broker,B to
procure Riviera to build motor cruiser (34/18). At time of contract, boat “future
goods” within meaning of SOGA. Dealing followed standard pattern. When boat
ready, Riviera booked arrangements with Short, the carrier, for 34/18 to be
shipped to California on “Direct Currawong” leaving Aug 97. Once again,
standard dealings between R and S. Because of IR situation at Botany, Short
could not have his own employees take 34/18 alongside ship and employed
contractors. Campbell had a low loader to transport it alongside and then a
crane would load.Fax by Riviera to Boland advising on shipment.Further to
your fax of this afternoon please find hereunder indicative costs to cover the 2
shipments as requested. (Riviera will be including transport to wharf
Sydney/crane etc on their invoice as F.O.B)
Campbell drove under archway. Superstructure of 34/18 struck large metallic
sign attached to the archway causing considerable damage. Smiths refused to
take a repaired boat and a different cruiser was sent.
©MNoonan2011
Matthew Short &Assoc. P/L v. Riviera
& Anor (2001) NSWCA 281.
Marine (Int.) P/L
The Facts cont.
Riviera sued Campbell in negligence…failure to keep a
proper lookout, failure to notice and observe position of
sign, failure to avoid driving under the sign, failure to
detour around the sign, failure to drive at a sufficiently low
speed so as to permit stopping at the moment of impact,
failure to stop at impact.
There was a contract between Short and Campbell.Clause
3: Subject to 18 and 20 hereof the carrier shall not be
under any liability whether in tort or in contract for any loss
of or damage to or misdelivery, delay in delivery, concealed
damage, deterioration, contamination, evaporation, nondelivery of goods held in its care, custody or control,or any
consequential loss arising therefrom howsoever caused
including but not limited to any negligence or breach of
contract by the carrier. Clause 21: Indemnity
©MNoonan2011
Matthew Short &Assoc. P/L v. Riviera Marine (Int.) P/L
& Anor (2001) NSWCA 281.
Riviera claimed damages from Short and Campbell and
won. Short was ordered to indemnify Campbell under a clause in the
Conditions of Carriage. Appeal.
Held by Heydon JA (MeagherJA and IPP AJA concurring) allowing appeal
and dismissing cross appeal;
Short was not liable to Riviera for the damage to 34/18 by Campbell’s
negligence. If Riviera was owner of 34/18 at the time of accident, Riviera
and Short were not in legal relationship of bailment since Short did not
have possession of 34/18 as distinct from some other form of relationship
with it. Short was not in breach of any duty to Riviera because Campbell
was an apparently capable carrier.
The exclusion of liability term in Conditions of Carriage between Short and
Campbell did not defeat Riviera’s claim against Campbell because
although Short contracted with Campbell in fulfilment of its duties to
Riviera, Short nonetheless contracted with Campbell as principal not agent
for Riviera.
However, clause 21 Indemnity applied as between Short and Campbell.
©MNoonan2011
Security over personal
property
 Reason for security
 Types
 New Personal Property Securities Regime
 Differences with existing regime
 Focus for Summer Semester 2010-11 –
treatment of floorplan arrangements and
company charges under new regime.
©MNoonan2011
Security over personal property
Suppliers and financiers associated with commercial
transactions usually require some reassurance that their money is
going to be repaid or an obligation met.
In addition to a contractual obligation or promise, they often ask
for security. In this context, this provides access to some other
way of satisfying the obligation, should the promise not be met.
In the next two modules we study security:
The types-so that students recognise them and know the
elements necessary for successful creation and enforcement.
Priorities-in situations of failure or dispute, there may be
competition for assets …so that some creditors will get their
money back and some may not.
©MNoonan2011
Security over personal propertychange in law
The law on this topic has been undergoing radical change over the
past five years and is about to have the most radical change of all.
Uniform Commonwealth laws (Personal Property Securities Acthave been
passed which will replace state regimes that have also changed over the
past 5 years. Expected implementation originally May 2011, most likely
October 2011.
The topic is examinable. Any problem question in the exam will be
based on the assumption that the new law applies, and more
specifically, involve the focus area for the semester.
Any short question in the exam would be on differences between the
existing and new regimes.
©MNoonan2011
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)
©MNoonan2011
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.
©MNoonan2011
The state of reform in 2010
Personal Properties Securities Act passedNew single Federal Register created. Adopts substance over form.
One consequence will be to change the relevance of title in
determining priorities. (ROT clause takers will have to register to
protect priority).
States passing legislation to cede powers in this area to
Commonwealth.
Consequential legislation, Regulations being passed.
Lead up for institutions to adapt, forms, registers etc requiredImplementation and commencement new laws and regime scheduled
for May 2011, but will most likely be extended until October, 2011.
©MNoonan2011
PERSONAL PROPERTY SECURITY
We need to appreciate both existing law and
new provisions for two reasons Legal concepts remain the same under the
new regime, just their treatment when used as
security, changes.
 There will be a ten year period where old
forms will flow through the system,
transitional treatment exists, and the new
system is being implemented.
©MNoonan2011
A CONFUSING ARRAY OF REGISTRATION SYSTEMS
TO BE REPLACED BY A SINGLE REGISTER FOR MOST pp
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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
©MNoonan2011
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
©MNoonan2011
Arranging Security
Because of dangers associated with unsecured lending (credit risk) or obligations:
1. Creditors can increase pool of general assets available e.g. guarantees from
others, charges over all assets, set off
2. They can seek to gain rights to specific assets:

negative and positive covenants

special rights of preference,

rights of pursuit into hands of third parties

access to a specific asset or pool of assets without the need to take legal action
3. They can retain title to personal property (ownership) via an ROT clause and
grant a licence to use, possess etc an item while an obligation is outstanding
but not ownership.
Credit risk is the risk that a debtor/business partner either will not or cannot meet
an obligation
©MNoonan2011
Some Terms that come up in Bank Lending
Bills of lading
Buy backs
Charges (fixed and floating) over enterprise
Charges over individual assets
Choses in possession
Crops
Factoring
Government bonds
Guarantees
Indemnity
Leasing
Life policies
Motor vehicle charges
Book debts
Certificates of deposit
Chattel mortgages
Choses in action
Conditional sales
Debentures
Growing wool
Hire purchase
Insurance
©MNoonan2011
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
©MNoonan2011
OLD LAW-difficulties
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
©MNoonan2011
TYPES OF SECURITY
We will consider:
1.
2.
3.
4.
5.
Pledges
Liens
Mortgages
Charges
Variations
©MNoonan2011
Characteristics and concepts
 Possession-
Who has possession of the personal property during
the existence of the security?
 Substance v. form.
What is the arrangement trying to achieve?
©MNoonan2011
Aspects of creation & use
 Attachment-steps required to create the interest
to make it effective between grantor and
grantee
 Perfection-steps required to give the security
priority in relation to third parties claiming an
interest in the secured property.
 Recovery/Priority-what actually happens in a
contest for the personal property, and
implementation of rights.
©MNoonan2011
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 Common law
Covered by Pawnbrokers Act and Second-Hand Dealers Act 1996 (NSW)
 Required to be licensed
 Must display name, keep record all pawns and give duplicate copy
entry to pawner
 Right to redeem protected. Cannot use goods during pledge. Duty to
take reasonable care.
 Conditions for sale of unredeemed pawns stipulated
 If unredeemed and sold, pledgee obliged to hold excess over amount
lent plus interest and expenses for pledgor
©MNoonan2011
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
©MNoonan2011
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
©MNoonan2011
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
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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)
©MNoonan2011
Statutory lien example
Airservices Australia v. Canadian Airlines International Ltd
(1999) HCA 62
Canadian leased a plane to Compass Airlines.
When the latter went into receivership, Canadian
tried to take back its plane; only to discover that
there was a statutory lien under the Civil Aviation
Act for $2,888,740.97 for unpaid charges and
penalties for landing fees, maintenance, traffic
control etc. Airservices would not release the
plane until they were paid. CAA had its own
Statutory Lien register.
©MNoonan2011
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
©MNoonan2011
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.
©MNoonan2011
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
©MNoonan2011
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?
©MNoonan2011
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?
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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
©MNoonan2011
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.
©MNoonan2011
Mortgages
 Legal Mortgage
Absolute assignment with an agreement to reconvey
when obligation met. Supplemented by equitable
right of redemption.
 Equitable Mortgage
Over property in which mortgagor has legal or
equitable title.
©MNoonan2011
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.
©MNoonan2011
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).
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
Security interests over personal
chattels when chargor not a
corporation-old law
Separate State regime
Ref: Security Interests in Goods Act 2005 and
Registration of Interests in Goods Act (cars and
boats)
©MNoonan2011
RETENTION OF TITLE CLAUSES
Are they security interests under existing/old law?
SOME ARE. SOME ARE NOT. DEPENDS ON DRAFTING.
Note changed treatment under new regime
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.
©MNoonan2011
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
©MNoonan2011
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.
©MNoonan2011
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
©MNoonan2011
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
©MNoonan2011
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)
©MNoonan2011
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
©MNoonan2011
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”
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
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.
©MNoonan2011
Sample short Q
(a) What type of lien does a Solicitor have over client
files?
©MNoonan2011
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.
©MNoonan2011