LEGAL PROFESSION ADMISSION BOARD
SEPTEMBER 2015
COMMERCIAL TRANSACTIONS
Time:
Three hours (Plus 15 minutes reading time).
Permitted Materials:
This is an open book examination. Candidates may refer to any
books and any printed or handwritten material they have
brought into the examination room.
Instructions:
This paper consists of six (6) questions.
Candidates are required to attempt two (2) questions only from Part A and
two (2) questions only from Part B.
If a candidate answers more than the specified number of questions, only
the first two (2) questions attempted from each Part will be marked.
All questions are of equal value.
All questions may be answered in one examination booklet.
Each page of each answer must be numbered with the appropriate question
number.
Candidates must indicate which questions they have answered on the front
cover of the first examination booklet.
Candidates must write their answers clearly. Lack of legibility may lead to a
delay in the candidate’s results being given and could, in some
circumstances, result in the candidate receiving a fail grade.
Candidates must NOT write their name on or anywhere inside the answer
booklet.
This examination is worth 80% of the total marks in this subject.
Answers submitted must be a candidate’s own work. Reproducing material without attribution
may constitute plagiarism. Sources quoted must be acknowledged in accordance with
accepted referencing conventions.
Candidates are warned that cheating and/or bringing unauthorised material into the
examination room may result in instant expulsion from the examination and may result in
exclusion from all further examinations.
This examination should not be relied on as a guide to the form or content of future examinations in this subject.
©2015 Legal Profession Admission Board
Answer two (2) questions from Part A and two (2) questions from Part B for a total of
four (4) questions.
Each Question is worth 20 marks.
PART A
Question 1
Following 100 years of family effort, Alison and Jim had conducted a very successful sheep
farming enterprise on large acreage for 25 years. Unfortunately, in 2013, they became
involved in a property development project, which failed, leaving them indebted to Austral
Bank Limited (Austral) for $16million.
Alison and Jim were desperate. After selling all their assets, other than some sheep and a
small part of their farm (consisting of poor agricultural land), they still owed $2million and
faced bankruptcy proceedings commenced by Austral.
Jim met Frank at the house of a neighbour. Frank said that since recovering from a mild
stroke, he was more interested in helping people than making money, that he was a qualified
lawyer and experienced business consultant. He suggested they resolve their debt issues
with Austral by letting him negotiate a settlement, after which they should sell their sheep and
wool to finance a gravel quarry on their land. He also said that they definitely had a good
cause of action to recover at least $3million from the property developers behind the failed
project, and wondered why their lawyer had not done something about that.
In fact, Frank had begun a Law degree 25 years ago, but hated lawyers, so never finished it.
He knew nothing about wool, sheep, or any type of farming or mining and was an
undischarged bankrupt.
Unable to afford his consulting fees, Alison and Jim agreed with Frank’s suggestion to form a
Joint Venture Company, Azola Pty Ltd. Frank was able to convince Alison and Jim that
because of their precarious financial position, they should not be shareholders or Directors of
Azola, and that they could trust him to deliver on his promise of allocating them the proceeds
of sale of the wool and sheep, (less a 10% fee for him) to get them back on their feet. Frank’s
wife Betty was made sole shareholder and Director of Azola, which bought the sheep and the
farmland for $10,000. Frank made no effort to contact Austral about a settlement.
A week later, Frank urged Alison and Jim not to fight the bankruptcy proceedings and offered
to sell the sheep before a bankruptcy order was made, so they could keep the proceeds out
of the hands of the bankruptcy Trustee. When they hesitated, he put a lot of pressure on them
by telephoning constantly, bullying and intimidating them. Azola sold the sheep for $400,000
and distributed the money via dividend to Betty.
(Question 1 continues)
1
(Question 1 continued)
Austral has decided that there is no point in bankrupting Alison and Jim. They are relieved
about that, but embarrassed and distraught about the loss of their sheep and farm. They have
come to you for advice about whether there is anything they can do.
Advise Alison and Jim.
Question 2
This question concerns the facts in VIS Moot 11, referred to in Module 9 of the course. It
involved a contract for the purchase and sale of packaging equipment between a food
packaging company and a manufacturer of packaging equipment, in different countries. Both
countries are parties to the United Nations Convention on Contracts for the International Sale
of Goods (known as CISG or the Vienna Convention) and the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. The equipment was used to
package salt and, due to the corrosive nature of that substance, proved unsuitable.
a) Why did Equapack give notice of Arbitration to Medi-Machines S.A.?
b) What was the law of the contract?
c) On what legal basis did the Claimant assert it was entitled to relief?
d) What vulnerabilities were there in the arguments of the Claimant?
e) What is the benefit of confidentiality in this (or, any) International Commercial
Arbitration?
Question 3
Eric, Managing Director of Fort Constructions Limited (“Fort”) seeks your advice in relation to
the following circumstances.
Over a period of the last 9 years and due to Eric’s longstanding personal relationships with Mr
and Mrs Patterson, the shareholders and Directors of Patterson Tyre Centre Limited (PTC),
their company has supplied, fitted and maintained tyres on a fleet of vehicles owned by Fort.
There is no written arrangement. It has been entirely based on trust. The tyres in stock were
held in a warehouse on the PTC premises pending fittings. No stocktaking or other audits
were undertaken by Fort at any time and it had no other internal control procedures in place.
(Question 3 continues)
2
(Question 3 continued)
Eric now believes that PTC has systematically swindled Fort (for approximately $1million) by
invoicing it for more tyres than it supplied. A forensic accountant (that the new Board of Fort
has insisted be employed for the task), has provided a report (based on copies of 9 years of
invoices retrieved from electronic Cloud storage and information PTC disclosed in an ACCC
public inquiry into the tyre industry). The findings in that report are as follows:
1. In the 9 year period, PTC purchased 815 new tyres and 2,485 retreads in total.
2. In the 9 year period, PTC invoiced Fort for 3,302 new tyres and 3,606 retreads.
3. On average, tyre expenses for the Construction industry are 3.25% of turnover
whereas Fort had expenditure of 5.5%.
4. On average, tyre spend is 24% of road user charges whereas for Fort, it was 57%.
5. PTC had 3 main customers, including Fort.
Advise Eric and Fort as to what legal action (if any) Fort can take against PTC and/or
the Pattersons to recover the money Eric believes Fort is entitled to.
PART B
Question 4
In December 2013 Rockcliff Builders Limited (Rockcliff) sold 25 apartments in Marrickville to
investors, off the plan. Each of the investors paid $20,000 by way of a non-refundable deposit
which was released to Rockcliff on exchange of contracts. Each investor also signed and
handed over to Rockcliff 6 Promissory Notes for $100,000 due 30 August 2015 in favour of
Rockcliff. The Notes state that interest at 8% is payable from the moment notice is given to
the relevant investor that an occupation certificate has issued. Completion of the contract
must occur within 21 days of that notice.
Rockcliff assigned these Promissory Notes to Mobile Bank Limited (MBL) in March 2014 as
security for a loan to Rockcliff of $10 million (to enable them to build the apartments),
repayable on 31 August 2015. As part of the documentation for the loan and assignment,
copies of the Notes were included and MBL had the right to demand their production at any
time. The bank advanced the $10 million to Rockcliff.
On 31 December 2014, MBL requested that Rockcliff endorse the Promissory notes and
deliver the originals to it. Before this took place, Rockcliff became insolvent and went into
Receivership. The apartments are not finished and the appointment of a Receiver gives either
party a right to rescind the Contract of Sale. It is now 5 September 2015 and MBL has written
letters to each investor demanding payment of the Promissory Notes and advising that it
intends to commence legal action for recovery of the value of the Promissory Notes from
them, if not paid within 14 days.
(Question 4 continues)
3
(Question 4 continued)
One of these investors, Martin, is your client. He has presented you with the MBL letter
addressed to him.
Draft a letter to MBL in response to the one they have sent to your client.
Question 5
Sedanto Developments Pty Ltd (Sedanto) is a large property developer and your client.
AVI Insurance Limited (AVI) provides Contractor and Plant Insurance to Sedanto.
In March 2015, the boom of a crane owned by Sedanto, and operated by its employee Hero
Hamani (HH), collapsed for a total loss of the crane. At the time, the crane was lifting into
place the second last of 25 concrete panels, each weighing between 36 and 38 tonnes, as
part of the construction of a factory. Immediately afterwards, Sedanto notified AVI.
In April 2015, Sedanto submitted a claim to AVI for the full loss of $7million. AVI refused to
indemnify Sedanto. Its reasons for refusal included that the damage was not accidental,
sudden and unforeseen and therefore not covered by the policy. It occurred because the
crane had been operated otherwise than in the manner for which it was designed (i.e. well
outside design specifications in that at the time of the loss it was on a 7 degree slope instead
of level and experienced structural overload). This was in breach of a clear exclusion clause
in the policy.
Aldo, the Managing Director of Sedanto has told you that he believes that the collapse of the
crane was due to a failure of welded joints due to a pre-existing weakness in the crane and
that it was stationary and on level ground at the time. He wants to take action against AVI to
force them to indemnify Sedanto. Aldo says that all insurers try to get out of their obligations
and never conduct independent investigations. They just send people to find ways to justify
their actions.
iPhone video footage is available of the scene, which commences a minute or so after the
crane had collapsed. Aldo says it had slewed to one side and moved somewhat after the
collapse. The footage shows the wreckage, the final resting position of the counterweights,
the ground surface around on all sides, debris scattered about by the impact and various
workers observing the scene.
After speaking to the insurer, it has emailed you a letter which includes the following:
(Question 5 continues)
4
(Question 5 continued)
“The day after the collapse of the boom, we appointed a Solicitor, who immediately appointed
an experienced engineer, a metallurgist and a representative of the crane manufacturer to
assist with the investigation. They interviewed various people at the site including Hero,
reviewed the iPhone video and took their own measurements, diagrams and photos. They
concluded that the crane had been operating on a 7 degree slope at the relevant time.”
Advise Aldo and Sedanto in relation to the following:
(a)
Identify 3 central issues in the case, the answer to which would determine
whether any legal action against AVI would be worth taking/successful.
(b)
Whether this is a situation to which s. 54 of the Insurance Contracts Act might
apply.
(c)
The relevance of the Duty of Utmost Good faith to this situation and the
consequences of any breach of that duty by AVI.
(d)
Whether you would recommend ADR of any type be tried prior to litigation.
Question 6
Please answer five (5) only of the following questions:
(a)
What is the relevance of metadata to the discovery process in litigation?
(b)
In the case between Matthew Short & Associates Pty Ltd and Riviera Marine
(International) Pty Ltd, Campbell caused the damage to the boat, but Short was
the one who had to pay for it. Why was this so?
(c)
What is a PMSI?
(d)
In what circumstances would you advise a client to attempt Mediation of a
dispute?
(e)
When is a lien a “security” for the purposes of the Personal Property Securities
Act?
(f)
What can you do if a lesser quantity of goods is delivered to you than you
ordered?
(g)
Do the consumer guarantees in the Australian Consumer Law apply to eBay
auctions?
(h) In what circumstances will you be liable for an unauthorised transaction, billed to
your credit card?
(i)
Can an innocent third party purchaser always get title to goods at the cost of the
true owner?
(j)
Has the implementation of the Personal Property Securities Act affected the
leasing industry?
END OF PAPER
5