Commercial Transactions

1. Commercial Transactions Module 9 Summer Session 2006-07

2. Security over personal property Suppliers and financiers associated with commercial transactions usually require some reassurance that their money is being repaid or an obligation met. In addition to a contractual obligation or promise, they often ask for security. In this context, access to some other way of satisfying the obligation, should the promise not be met. In the next two modules we study security: The types-so that students recognise them and know the elements necessary for successful creation and enforcement. (9) Priorities-in a situation of failure, there are usually more creditors than assets and we must allocate assets in a certain order-so that some creditors will get their money back and some may not.(10)

3. Security over personal property-change in law The law on this topic has changed for non Company securities over personal chattels. The Security Interests in Goods Act (SIGA)of 2005 repealed the Bills of Sale Act and replaces it with a new regime. It also repeals and replaces provisions relating to agricultural securities. Please review past examination questions with this in mind. The new legislation retains the concept of a Bill of Sale (called a Security interest in Goods) and a Register, but removes a lot of the formality, the distinction between ordinary and traders bills. Registration is optional except for agricultural goods, but priority will be determined in order of registration. The topic is examinable. Discussions continue between the states for uniform laws.

4. 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)

5. 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.

6. PERSONAL PROPERTY SECURITY SOME RELEVANT LEGISLATION COMMONWEALTH • Air Navigation Act 1920 • Patents Act 1990, Designs Act 1906, Trade Marks Act 1995 • Life Insurance Act 1995 • Shipping Registration Act 1981 • Bankruptcy Act NSW • Security Interests in Goods Act 2005 (which repeals the Bills of Sale Act 1898 and Liens on Crops and Wools and Stock Mortgages Act 1898) • Consumer Credit Code • Corporations Act 2001 • Factors (Mercantile Agents) Act 1923 • Registration of Interests in Goods Act 1986 • Pawnbrokers Act

7. PERSONAL PROPERTY SECURITY REGISTRATION SYSTEMS DIFFERENT REGISTERS FOR DIFFERENT DEBTORS • Corporations Act for charges granted by companies DIFFERENT REGISTERS FOR DIFFERENT PROPERTY • Ships…Australian Register of Ships • Intellectual Property…Register of Designs, TMs, Patents or Plant Variety Rights. No register for Copyright. • Life Insurance…mortgage/assignment must be noted in company register • Shares…company register is for title; not encumbrances • Other…Registration of Interests in Goods Act..note for Motor Vehicles, might have to look in all Australian Registers to be safe. • Book debts…Vic and Qld only • Security Interests in Goods Act 2005. DIFFERENT REGISTERS FOR DIFFERENT FORMS OF SECURITY • Corporations register applies to charges; not to title retention. REGISTERS OVERLAP • Note changes with new SIGA -Some state based NO REGISTERS FOR SOME TYPE OF SECURITIES

8. 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

9. Arranging Security Because of the dangers associated with unsecured lending or obligations: 1. Creditors can increase pool of general assets available e.g. guarantees from others. 2. They can seek to gain rights to specific assets: • negative and positive covenants • special rights of preference, • rights of pursuit into hands of third parties • access to a specific asset or pool of assets for repayment without the need to take legal action

10. Some Ways to Better Secure Repayment in Bank Lending Bills of lading Book debts Buy backs Certificates of deposit Charges (fixed and floating) over enterprise Chattel mortgages Charges over individual assets Choses in action Choses in possession Conditional sales Crops Debentures Government bonds Growing wool Guarantees Hire purchase Indemnity Insurance Leasing Liens Life policies Mortgages over real estate Motor vehicle charges Negative pledges Options Pawnbroking Set-off Stock mortgages Subordination arrangements and rights of preference Term deposits

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

12. Some Terms That Come Up inCommercial 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

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

14. PLEDGE OR PAWN 1. A delivery of goods by one person to another as security for a loan 2. Goods remain property of pledgor who is entitled to repossession on repayment of loan 3. A type of bailment Pawnbrokers Not covered by Code Covered by Pawnbrokers Act and Second-Hand Dealers Act 1996 (NSW) • Required to be licensed • Must display name, keep record all pawns and give duplicate copy entry to pawner • Right to redeem protected. Cannot use goods during pledge. Duty to take reasonable care. • Conditions for sale of unredeemed pawns stipulated • If unredeemed and sold, pledgee obliged to hold excess over amount lent plus interest and expenses for pledgor

15. 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

16. 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

17. 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

18. 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.

19. 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.

20. 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 woolLiens on Crops and Wool and Stock Mortgages Act 1898 (NSW)

21. 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

22. The bankers lienHow 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.

23. 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

24. 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?

25. 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?

26. 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.

27. 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.

28. THE OFFICIAL TRUSTEE IN BANKRUPTCY V. KIOUSSIS (2000) NSWSC 248 Solicitors Lien Solicitor found to have a lien, but only for one part of the work he had done. Harry Kioussis and his wife Angela owned 5 pieces of real estate. The title deeds were held by the solicitor Mr. Nikolaidis. Harry went bankrupt and the Trustee took over his estate. There was considerable legal work arranging refinancing, as well as litigation matters the Kioussis family were engaged in. No automatic general lien. One must look at the circumstances of how the documents came into the hands of the Solicitor to see if a general lien was intended /could be inferred. The cases tend to suggest that if documents are given to solicitor for a specific purpose, then ordinarily, as with Bankers liens, a court will not infer a general lien.In this case Mr. Nikolaidis found to have a lien, but only for proper costs of negotiation of finance, mortgage and ancillary matters and not the litigation.

29. PLEDGES AND LIENSWHAT 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.

30. 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.

31. 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).

32. 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.

33. 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.

34. 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.

35. 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.

36. 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.

37. Security interests over personal chattels when chargor not a corporation See new Security Interests in Goods Act 2005 and Registration of Interests in Goods Act (cars and boats)

38. CONSUMER CREDIT CODE Harmonisation Streamlining State laws Consumer Protection Scheme: Consumer Credit Act (Qld) Code is in Schedule 1 State legislation Some of it amends certain provisions Some maintain Hire Purchase Consumer Credit Act 1994 (NSW)

39. THE CREDIT CONTRACT 1. WRITTEN OFFER • SIGNED BY BOTH PARTIES • OR • ACCEPTED BY CONDUCT 2. PRE CONTRACTUAL DISCLOSURE SS.14,15 3. FORMAL REQUIREMENTS S.12 4. ALTERATIONS CORRECTLY INITIALLED 5. COPIES PROVIDED TO DEBTOR 6. ADMINISTRATIVE COMPLIANCE: • NOTICES • PERIODIC STATEMENTS • CHANGES

40. PRE-CONTRACTUAL STATEMENT MOSTLY S. 15 INFORMATION STATEMENT OF RIGHTS CONTENTS 15A Names of credit providers 15B Amount of credit 15C Annual percentage rate 15D How interest charges calculated and frequency of debit 15E Total interest charges and maximum duration interest free periods 15F Repayment / instalment details 15G Credit fees and charges, reimbursements third parties 15H Changes to interest, credit fees and charges 15I How often statements sent 15J How and when default interest is applied 15K If there is a mortgage/guarantee, statement that it includes enforcement expenses 15N Details lenders mortgage insurance or credit insurance financed by contract and when fee payable REMEDY ONLY IF “KEY REQUIREMENTS”(S.100) NOT DISCLOSED

41. KEY REQUIREMENTS TO ACTIVATE LIABILITY TO CIVIL PENALTY S.100 1. AMOUNT OF CREDIT 2. ANNUAL PERCENTAGE RATE 3. DEFAULT RATE 4. CALCULATION OF INTEREST CHARGES 5. TOTAL AMOUNT OF INTERET CHARGES PAYABLE 6. EXCESSIVE OBLIGATIONS

42. MACQUARIE CREDIT UNION LTD V. DIRECTOR-GENERAL DEPARTMENT OF FAIR TRADING (1998) 2 ACCR 676 (1998) ASC 155-014 Commercial Tribunal of NSW Macquarie applied under s. 101 (incentives if contravening institution brings it rather than waiting for consumer) s. 15G Declaration 1. Failure to disclose reimbursement bank fee in case dishonour. In brochure but not contract. 2. Failure to disclose third party charges, valuation fees, mortgage preparation, stamp duty, LTO fees registration. In brochure but not contract. 3. Failure to state total amount of interest charges Over 500 contracts affected; in implementing software. Found technical breaches No civil penalty in this case taking into account prudential standing and other specific criteria of s. 103; i.e. conduct credit provider and debtor before and after entering into Contract, whether contravention deliberate, loss suffered by debtor, when credit provider first became aware, existence of systems or procedures to prevent or identify contraventions, whether contraventions could have been prevented, action taken by credit provider to remedy, time, nature of application, anything else relevant.

43. Requirements Mortgages securing obligations under CCC credit contract Must be in writing, signed by Mortgagor (s.38). If not, unenforceable. Must identify goods or property affected or void for uncertainty (s. 40) If goods acquired under a continuing credit contract, a Mortgage covering all goods supplied from time to time is void and not permitted by s. 42(1), but a Mortgage over specified items can be valid. CCC contains a general prohibition on indemnities. All money mortgages that secure credit provided under a future credit contract are acceptable, but to be enforceable, the credit provider must obtain the mortgagors written consent to the extension. Third party mortgages are prohibited. Note also other general provisions in CCC regarding advertising, behaviour and unjust conduct

44. THE STATUS OF ALL MONEYS CLAUSES In mortgages and guarantees UNDER THE CODE What is an all moneys clause? One which attempts to cover all moneys owing no matter what for and no matter whether now or in the future MORTGAGES S.43 Acceptable BUT to be enforceable Credit provider must give copy of future credit contract to mortgagor And obtain their written consent to extension of mortgage GUARANTEES S. 56 For each extension Guarantor must be informed And acceptance obtained in writing Otherwise, such extension void

45. UNJUST TRANSACTIONSS.70 Includes unconscionable, harsh or oppressive List of issues to consider contained in s. 70(2) (a)-(o) a) Consequences compliance/non-compliance b) Relative bargaining power c) Whether provisions subject negotiation d) Whether reasonably practicable for applicant to negotiate changes or rejection e) Whether conditions unreasonably difficult to comply with or not reasonably necessary f) Whether debtor, mortgagor or guarantor, or person representing them reasonably able to protect interests because age, physical or mental condition g) Form of contract and intelligibility language h) Whether or not independent advice obtained i) Extent provisions, legal and practical effect accurately explained and whether or not they understood j) Whether credit provider/other person exerted /used unfair pressure, undue influence or unfair tactics and if so, nature and extent k) Whether credit provider took measures to ensure debtor etc understood nature implications and their adequacy l) Whether at time of contract credit provider knew or could have ascertained by reasonable inquiry of debtor, that debtor could not pay without substantial hardship m) Whether terms or conduct credit provider justified in light of risks n) Terms of comparable transactions with others o) Any other relevant factor

46. RELATED SALES CONTRACTS s. 117 Linked credit provider means • A credit provider with whom supplier has a contract arrangement or understanding • A credit provider to whom supplier by arrangement regularly refers persons • A credit provider whose forms are made available to people by supplier • A credit provider with whom supplier has contract arrangement or understanding where applications can be signed at the premises 1. Linked credit provider liable for loss suffered by supplier. 2. And jointly and severally liable with supplier for loss or damages suffered by debtor as result of misrepresentation, breach of contract under credit or sale contract.

47. LINKED CREDIT PROVIDER S. 73TPA LINKED CREDIT PROVIDER, in relation to supplier CREDIT PROVIDER :with whom the supplier has a contract, arrangement or understanding relating to supply, to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit and whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or credit applications can be signed at premises. If consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of s. 74 of this Act or section 12ED of the ASIC Act 1989, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage.

48. 6.(1) Code applies to provision of credit if (a) the DEBTOR is a NATURAL PERSON ORDINARILY RESIDENT in this jurisdiction or a STRATA CORPORATION formed in this jurisdiction; and (b) the credit is provided or intended to be provided WHOLLY OR PREDOMINANTLY for PERSONAL, DOMESTIC OR HOUSEHOLD purposes; and (c) a CHARGE is or may be made for providing the credit; and (d) the credit provider provides the credit in the COURSE OF A BUSINESS of providing credit or as part of or incidentally to any other business of the credit provider. INVESTMENT NOT personal, domestic or household purpose. The PREDOMINANT PURPOSE for which credit is provided is (a) the purpose for which MORE THAN HALF of the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be MOST USED.

49. PROVISION OF CREDIT TO WHICH CODE DOES NOT APPLY 7.(1) SHORT TERM CREDIT - total period not exceeding 62 days. (2) CREDIT WITHOUT PRIOR AGREEMENT For example, when a cheque account becomes overdrawn but there is no agreed overdraft facility (3) CREDIT FOR WHICH ONLY ACCOUNT CHARGE PAYABLE - fixed charge that does not vary according to the amount of credit provided. (4) JOINT CREDIT AND DEBIT FACILITIES - If relates only to the debit facility. (5) BILL FACILITIES (6) INSURANCE PREMIUMS BY INSTALMENTS (7) PAWNBROKERS (8) TRUSTEES OF ESTATES - an advance to a beneficiary or prospective beneficiary of the estate. (9) EMPLOYEE LOANS (10) REGULATIONS MAY EXCLUDE CREDIT

50. RETENTION OF TITLE CLAUSES (See text 108-109, Chapter 7. ) ARE THEY SECURITY INTERESTS? SOME ARE SOME ARE NOT. DEPENDS ON DRAFTING. 1. Property not to pass until payment in full. • Without more, not a security interest. Title has not passed. Conditional sale. See SGA 22,23,24. 2. Legal title passes but equitable and beneficial ownership remains with seller until payment in full. • Interest reserved is beneficial interest charged back by buyer to seller. A charge/security. 3. Where goods may be converted into something else and unpaid purchase price charged against new item or work in progress. • Charge 4. Seller is granted an interest in goods into which the supplied goods are worked or manufactured and supplied goods cannot be severed. • Generally construed as charge back from buyer to seller. Note however, Associated Alloys and Accession. 5. All monies Romalpa clause • Normally does not operate to create security interest.