Commercial Transactions Revision Module

1. Commercial TransactionsRevision Module Summer 2006/07

2. Student 1 The areas I feel very unsure of and would like covered in the revision session even if it is just past questions tackling those areas are: Security-See Student request 4 Title-lecture 4-who has it and when it passes. At this stage, the most appropriate revision may be to have a look at a couple of past questions. One must assume that students have, by now, studied the theory. Examples of application may assist with consolidation of what has been gleaned from that study. The questions chosen to use as illustrations are: Security See later Student request 4 Title September 2006 Question A2- Wine and DIS

3. Student 2 Please go over the assignment, with specific reference to: A “model” answer. The detail required on each issue Application of TPA to such contracts “Consumer” and “personal domestic and household use”

4. A model answer There is very rarely one single model answer to a problem. A variety of positions is generally possible, acceptable and any of these will attain maximum marks if well supported by the law and well argued. There are, however, certain expectations as to which issues an answer will cover on the way to the personal conclusion of the student concerned and these are set out in the marking guides used by the examiner and revising examiner when marking a question. We will go over the one used for the assignment Q for the summer 06/07 semester. This question was also an examination Q in September 2006. Most students doing it as an assignment had the benefit of reading the decision in Goodman Fielder v. Cospak and a lot more time to research and write their answer.

5. Marking Guide for Huntley Q Understood the Q (contract, product liability) 2 Answered the Q 2 Contract (when formed, terms, breach,remedies) 6 SOGA application (if any-e.g. implied terms) 6 TPA application (if any-e.g. implied terms, s.52 6 Reasoning 2 Other e.g. negligence,contributory,instalment C 1 TOTAL 25

6. Detail required Different in exam and assignment because of conditions. For assignment, more research, time possible. Detailed examination of sections and cases. More thorough argument. Statement of principle not enough. Unsatisfactory in both to make statements like…bottles obviously unsuitable for purpose…opinion without support from law.

7. Application of TPA After examination, best conclusion was limited possible application. Implied terms did not apply because they only apply to supplies to a “consumer”. With reference to s. 4B, Huntley not a consumer….size of purchase and for purpose of use in manufacture.Even Consumer with sliver of glass may have had significant problems trying to bring action against manufacturer. Note that you were advising Huntley and not that consumer. Please make sure you study actual sections and not just a description of them.

8. Issues noted in Sept 2006, A3 Superficial knowledge of wording of, and application of, implied terms provisions of SOGA and TPA A failure to analyse logically-Was there a contract? if so, what were the terms? Was there a breach of any of those terms? Remedy? Any other potential actions? Chances of success (involving analysis of counter arguments)?

9. Student 3 Please go over remedies for product liability, both for breach of contract and TPA. We will use some of the material in modules 3, 5. Remedies in contract (for breach of either express terms or those implied by SOGA or TPA) are rescission, termination, damages. In certain cases, equitable remedies such as specific performance may be relevant. We may be able to attract remedies of TPA (e.g. direct action against manufacturer) or for breach of s. 52, 53, unconscionable see ss. 80, 82, 87.

10. Student 4 Please review priorities with Securities. We will start with a review of some parts of modules 9,10. Illustrate by a past exam question. A number of past questions are no longer relevant if they involved Bills of Sale in any aspect. See March 2004 B2 for an example of where a repairers lien has priority over the claims of the receiver.(created first in time and does not have to be registered)

11. Student Question 5 Please clarify “consumer” for me in the context of Q1 of the September 2005 exam. This question involved Vineyard and a lease of crusher See definition of consumer in s. 4B TPA Supply? Less than $40,000($1,000*36months=$36,000) For resupply? Using up in process manufacture? SOGA not applicable, because a lease and not a sale of goods. No need to consider “consumer sale”.

12. Student 6 It would be good to discuss the characterisation/identification of common carriers. See module 6 and March 2006 QA3 Common carrier holds themselves out as willing to carry for anyone. Strict liability. Closest we have is Post Office. Need for statute to limit liability. Also note special legislation for other carriers-airlines, railways, sea freight.

13. Student 7 Please go over the combined issues of contract and electronic commerce as set out in Q1section A of the March 2006 exam. This Q concerned Simon who tried to establish an internet business (Wine Cellar) that would facilitate sales of wine from small wineries directly to the public. He had trouble with the payment system.

14. Student 7 continued QA1 March 2006 • Is there a contract? Online, Yes. ZZZ, unlikely. • Contract for goods or services? Services (design and delivery of website). Some students in exam treated it as sale of “goods”. • E commerce subject to same laws as physical commerce • Breach of Contract? Express terms? Implied? Consumer for TPA? S. 74? Condition or warranty? • Remedies for breach of contract? Damages? Estimate? Obligation to mitigate loss. Some students treated as breach of statute instead of breach of contract. • S.52 application…Online and employees. Note HC outcome re impecunious defendant leading to claims against employees under FTA for reference. • TPA remedies for breach of s. 52? E.g. 80,82,87. • Note Seeley International P/L Cintro P/L (2002) ASAL 55 re design=services and Arms v. WSA Online (2005) FCA 943 plus appeals to full FC and HC. The case of Arms inspired facts of Q.

15. Student 8 Please go over retention of title clauses and when they are ineffective. ROT clauses attempt to reserve title to a seller/supplier. They can be ineffective: • If drafted poorly so they do not retain title. • Circumstances mean that title has passed anyway. E.g. nemo dat exceptions. • They are a charge, not registered and void as against Liquidator. • Inconsistent within themselves or with reality and are a nonsense (BHP).

16. Student 9 Please clarify passing of title and who gets what in a liquidation scenario. Review module 4 as to passing of title-when parties intend, rules to assist when that is not clear, nemo dat rule and exceptions re third parties. Note ROT clauses and M4slides 25ff. In a liquidation scenario owners can claim their goods. Next come creditors-secured, preferred, unsecured. Next come shareholders (subject to recent HC case re right to sue and rank as creditors in certain cases). See module 4, slide 26.

17. Student 10 I understand SOGA deals with all sales of goods and TPA 4B applies to consumers only. If not in a consumer situation, how can one have access to the TPA? Please read sections of TPA carefully. S.4B is only a definition. Some of the operative sections only apply to consumers (e.g. ss.69-71). Others are not so restricted (e.g. s.52)

18. Student 11 Please elucidate the difference between cancel and avoid in relation to insurance contracts. i.e. s.60 and s. 28(2). Cancel means cancel an existing contract. Usually there is no outstanding claim at this point. The insurance just no longer applies.s.60. Avoid means going back and pretending it did not exist. If there was a claim in the meantime, there can be no recovery against the insurer.s.28.

19. Student 12 From Sept 06 paper QB2. I am ok with the parties referred to in parts 1 and 3, but am uncertain about how the secretary of the owners corporation of the Strata Plan fits in. Please clarify. The Owners Corporation would want to investigate to see whether they could enforce the contract of insurance against LOL by arguing that the OC is not bound by the non disclosure of the Managing Agent or has a defence it can use. It may also want to sue Barry in negligence if it concludes that their case has a poor chance of success. The Secretary would have to take charge to call meetings etc, as the Managing Agent is clearly not going to sue himself and there are various approvals to proceed and spend money that would be required from owners.

20. Student 13 Are we permitted to bring the course outline into the exam with us? No, this is a closed book exam. Nothing can be brought into the examination room.

21. Student 14 Can you please explain the difference between a lien and a bailment-you give the mechanic holding onto a car and the dry cleaner as an example for both topics. Are they the same thing? No. Is there a difference? Yes. If so, what is it? 2 completely different areas of the law. Bailment regulates the duties of parties where one has given possession of something to another. So, if I give my car to a mechanic to fix, he has a duty to take reasonable care of it while he is doing so. If I pay the bill, he returns my car. A lien is a security; with a right to hold on to the thing until an obligation is met. If I had not paid the mechanic, he would have a lien over my car until I did.

22. Student 15 Can you show us a practical example of endorsing a cheque/bill of exchange? Yes, will do so in class. If a cheque is payable to order, the way to negotiate it is for the payee to endorse it in favour of someone else. So, if a cheque is payable to me and I want to use it to pay my grocery bill at Coles, I would write on it. Please pay Coles, sign it and hand it over to Coles. My signature is an endorsement. A Bill of exchange might be endorsed 5 times as it is discounted to different parties. Each time it is negotiated, it will be endorsed by the party selling, who will normally be liable on it.

23. Student 16 What are the benefits of negotiable instruments over assignments? Easier and less complicated-no need to know or comply with statutory provisions. E.g. s.12 conveyancing act in NSW…assignment in writing and notice to debtor. Quicker-can just hand it over if payable to bearer Has concept of Holder in due course

24. Edited Revision Winter 2006

25. Student Question 1 Please revise nemo dat exceptions See presentation 4 Also note in Negotiable instruments, the concept of “holder in due course”

26. Student Question 2 Please go over the assignment. This question had previously appeared as an examination QA1 in March 2006. The marking scheme for this Q was the same as that used for exam questions- Understood the Q 2 Answered the Q 2 (a) Breaches-such as basics….contract, TPA 4B, 74, 52, 53 9 (b) Remedies-online and ZZZ-in contract, under TPA (80,82,87) 8 Reasoning 2 Other items-e.g. negligence, financial services, ASIC act 2 TOTAL 25 To achieve a mark out of 100%, the result was multiplied by 4.

27. Outline plan for the answer • The nature of the transaction-one or more contracts for services • Who were the contracting parties-Simon and Online, ZZZ? • What were the express terms of the contract? • What were the implied terms -at general law and implied by statute? • Conditions or warranties? • Are there any preconditions? E.g. Was Simon a consumer for s. 74TPA? • If so, were they met? • Action to bring-breach of contract • Damages-type and method of calculation of amount • Statutory provisions relevant? • Coverage of ss. 52 and 74; ideally also s. 53 an s. 12DA of ASIC Act • Criteria for application? Were they met in this case? • Remedies…ss.80,82,87…what they could achieve in this situation…. • Damages, orders, types, amounts • Development of arguments rather than pure description for both contract action and Statute • Use of Cases to illustrate argument e.g. Seeley, Arms or others as applicable (not just quotes from text with footnote of name of case)

28. Issues arising during marking • In an answer, students were expected to identify the situation as being one of a contract for services. A number of students spent a couple of pages on this, which is too much in the context of this assignment. A surprising number of students equated the design and delivery of a retail website as a sale of software and discussed Toby and St. Albans before concluding that the nature of the contract involved mostly skill and was therefore services. While they came up with the correct conclusion, and could have referred to this by analogy or developed argument in support of such an interpretation, most did not use this in that way. It is a concern that they saw the transaction as a sale of software, rather than design and programming to produce the website; (the end result item of personal property). It is difficult to give good legal advice if one does not have a clear understanding of the underlying transaction. • A couple of people treated the transaction as being one of a sale of goods instead of services….leading to incorrect analysis and application of wrong TPA sections.

29. Issues cont (2) • A couple of people assumed incorrectly that Simon needed to be a consumer to have access to any section of TPA. While this is true of s. 74, it is not true of s. 52 et al. For the s. 74 purposes, students should have analysed whether Simon was a consumer. Most did. • A number of students revealed a superficial or incorrect understanding of the terms and application of ss 52, 74 TPA; usually combined with what appeared to be parts of the text borrowed into their answer, rather than original argument. This results in a descriptive answer, and poor preparation for handling problem questions.

30. Issues cont (3) A considerable number of students incorrectly assumed that the result of a breach of an implied warranty under s. 74 would result in an action for damages pursuant to s. 82 of the TPA. As it is the contract that is breached (with the term implied into it), the correct action is one for breach of contract at common law. The TPA remedies in 80, 82, 87are available for breaches of statutory provisions e.g. 52,53. A good number of students did have an excellent understanding of the application of ss. 82, 87 for damages, noting that s. 82 only applied to present damages suffered (which could include a present value calculation for lost Christmas sales) whereas an order for likely damage could be awarded under s. 87 if the court discretion was exercised.

31. Issues cont (4) • Students should have examined where there were possibilities for an action in breach of contract for express terms as well as s. 74 and in the process discussed the difference between conditions and warranties. A good number of students did so. • A lot of answers were descriptive rather than analysis, application and argument and such answers cannot result in good marks. Students always find it easier to describe what a court should find in a very general way, rather than argue for what a court should find in a specific way, as the latter requires a better knowledge of sections and familiarity with argument in the cases. It is necessary to spend a lot more time in study of actual sections and cases to do this, rather than read summaries in the text. For example, with remedies and damages, it is necessary to work through the type and amounts of damages that should be granted, supported by good argument and case and statute references; not just state that the person could bring an action for damages, without more.

32. Student Question 3 When is the Vienna Convention appropriate? Applies to international contracts between two countries that are party to the convention, unless it is specifically excluded.

33. Student Question 4 Is it possible to contract out of SOGA or the TPA? Yes, to some extent. SOGA- Yes, everything for non “consumer sale”. Yes, everything other than ss. 18, 19, 20, in the case of a “consumer sale”. TPA-No, but bear in mind some provisions only apply to a “consumer” e.g. 69,70,71,72,74 and some limits possible e.g. 68A and 68B.

34. Student Question 5 Please revise sub-bailments See module 6 Bailments

35. Student Question 6 What happens when registration systems overlap? There may be a statutory exception. E.g. if an interest is registrable under RIGA, it does not have to be registered under SIGA. Sometimes you just have to cope with 2 registers e.g. Trade Marks and ASIC

36. Student Question 7 Please explain book debts and also within the context of fixed and floating charges. See security modules 9,10

37. Student Question 8 Mr. Mendel said that one could get the ACCC to take action under s. 53 TPA but not s. 52. Please explain. See s. 75AZC in Part VC Criminal Offence provisions to line up with Commonwealth Criminal Code. Mens rea required. s. 75AZC is a -Mirror provision of s. 53. Can be offence with fine. No equivalent criminal Part VC provision for s. 52.

38. Student Question 9 When we are considering “goods”, we have both the SOGA and TPA. When is it better to bring an action under one or the other? When there is only one available. E.g. a non consumer may only have the implied terms of the SOGA, if any at all. When a choice provides a better, easier, cheaper action or more appropriate remedy.

39. Student Question 10 Please go over Bills of Exchange again-as they are used in finance and in the import/export scenario. See the earlier slides in Module 7and the Westpoint example.

40. Student Question 11 Where there has been a consignment of goods from A to B on the basis that A owns the goods but consigns them to B to sell them to C or return them to A, does B, as bailee at common law and as a mercantile agent, become the “buyer” in s. 5 SOGA for the purposes of s.23 rule4? Yes, unless there is a contrary intention from the contract or the surrounding circumstances. Note that s. 23 is always subject to that proviso.

41. Student Question 11a If so, I am assuming that A, in delivering possession of the goods to B and authorizing B to sell the goods, A has in effect pledged the goods to B and has passed property from A to B, although not title to those goods. No, I am afraid this is not correct. A pledge is a form of security and is not happening here. The first part of your Q was correct. Consignment is a type of bailment. Title would only pass in accordance with the contract made or s.23 Rule 4 SOGA. Subject to these two things, Possession has passed but not title.

42. Student Question 12 Please let me know what s. 12(2) of the Cheques Act means. Is it saying that an order to pay will be conditional (and therefore not a cheque), if it tells the bank which account is to be debited? No. Unfortunately, the draughtsperson of s. 12(2) used a double negative, which makes it difficult to understand. s. 12(1) states that an order to pay on a contingency is not an "unconditional order to pay", Such an instrument is not a cheque and does not become a cheque if the contingency happens. So, if the order is subject to the contingency "if there is more than $1,000 in my account", it is not a cheque and it does not matter if there is, in fact, more than $1,000 in the account at the time. s. 12(2) clarifies that having two other things on the cheque (the particular account to be debited or the transaction giving rise to the payment) do not, by themselves, not make it conditional. These things, if combined with other factors MIGHT make it conditional. I thought cheques already do that. The preprinted cheques that we normally use have our account number on them, but it is possible to have cheques that are not preprinted….we could write them out, have a counter cheque. And, what is the "statement" in (b)? This would be a recital of the transaction giving rise to the drawing of the cheque…e.g. pay Sam Martin for his diagrams.

43. Student Question 13 Is s. 13(2) Cheques Act saying that it can still be a cheque even though it doesn't have the Financial Institution on the instrument but has the payee? No, s. 13(2) is saying that it can still be a cheque even if an extra person is specified on the instrument, in addition to the usual three parties (drawer, payee and Financial Institution). There may be someone else noted on there….an organisation that does not qualify as a financial institution or is not part of the payment system used by banks, but is involved. Some credit unions may be in this position.

44. Student Question 14 I am attempting a past exam paper….September 2004 Part A Question 3. In my answer I say that once a good becomes mixed with another good it loses its identity and the retention of title clause has no effect. Therefore the company supplying the jet propulsion unit has no claim on the goods. The conclusion is sound. The way you have stated is one way in which title to the propulsion unit would have passed. However, please remember that when something can be detached easily without damage, it may not have become part of the other goods in the real sense and so, sometimes title will not pass just because it is attached to other goods. Other relevant things in this question were…. The Letter of Credit was probably payment, so title passed at that point anyway to MS. The retention of title clause would probably have been void as against the Liquidator in any case (and do not forget, you are asked to advise the Liquidator, in your answer!) because it would have been interpreted as a “Charge” (note the interest claimed in any completed boat), and was not registered. If it was a Canadian contract, there might have been other issues, but you were not expected to cover these. The Vienna convention does not address title.

45. Student Question 15 Re: September 2004 Part A Question 3 cont. • I say that the bank has priority because it holds a registered charge over the good. • Yes, that is probably correct. The charge has become fixed. In addition it would have a Bankers Lien…see the part about the letter of credit in return for shipping documents (which would have included the Bill of Lading). Sometimes, a banks position may be subject to a lien in favour of the carrier if that arose prior to the charge becoming fixed, but as the unit has been unloaded and incorporated into the new boat, the carrier no longer has possession and would have given up its lien, unless affected by contract.

46. Student Question 16 Re: September 2004 Part A Question 3 cont. I am having trouble with working out what rights to compensation the company that contracts for the ship to be built has. Based on unjust enrichment, does the bank have to reimburse the company that has paid up until the last instalment? OM would probably just become an unsecured creditor. I doubt that from a legal point of view the bank would be seen as "unjustly" enriched. It is entitled to all assets of MS pursuant to its facilities and registered charge, regardless of whether the company or someone else has paid for them. OM could have protected itself in this situation by the agreement it entered into with MS acquiring an interest in the boat in progress, as it paid instalments. The situation would be different if there were plenty of assets subject to the charge for BB to satisfy itself; in which case it may be forced to leave the boat alone. The Liquidator might have still had a superior claim to OM. It all depends on the contract OM has. On the facts given, OM probably does not have title to the boat in progress. See and apply Sale of Goods Act ss. 22-26. Something remained to be done to put the boat into a deliverable state (launch) and the instalment nature of the transaction reflected this. As a couple of different interpretations were possible, depending on assumptions made on the facts, provided you could justify any argument with relevant law, you would receive marks for whatever interpretation you adopted.

47. Student Question 17 Please give us a sample Q & A covering Security Interests in Goods please? A sample theoretical question may be: What are the formal requirements for the creation of a registrable Aquaculture Mortgage by a non-company Mortgagor? See Act for details. A problem question may be: Sally decided to open a café in March 2006. She borrowed $50,000 to buy machines, appliances, fixtures and fittings from 123 Finance Limited at that time. She granted them a Bill of Sale over the assets of her business; whereby she sold 123 the assets for $50,000 but had the right to have them retransferred when she repaid the loan at the end of 2 years. The Solicitor for 123 Finance forgot to register the Bill of Sale. In July 2006, Sally sold her business including all the assets to X Pty Limited, who had no notice of the Bill of Sale. 123 Finance Limited has asked you whether they are entitled to claim the assets from X pursuant to their Bill of Sale. Students would be expected to consider the ramifications of non-registration in this case (does not affect the validity of the instrument as it did under the old Bills of Sale law), the nemo dat rule, and exceptions. There is no question of insolvency or rights of a Liquidator to consider.