[Examiner comments]
LAWS2210 Semester 1 2004 Final Exam
Question: 1Mark: 20/30
Question 2(ii)Mark: 11/15
Question 3(ii)Mark: 13/15
TotalMark: 44/60 = 73%
QUESTION 1
Issue Plan
Are Troy’s charges effective vs Liquidator?
How will T’s charges affect other security interests?
Is D’s charge effective vs Liquidator?
Is the interest over the 3 purebred dogs a charge or a lien? [OR A PLEDGE?]
Fish:
Have R’s fish been mixed?
Effect of title clause?
Trust over proceeds effective?
Priorities over fish?
Has title passed in E’s Dog?
Troy’s Floating and Fixed Charge [?There was only one??]
Troy’s floating charge of $50,000 over stock in trade has been registered (s262) and is therefore not void against the liquidator under s266. His fixed charge will be void versus the liquidator under s266 as it must be registered under s262 but is not [Yes it is]
The floating charge will be subject to other interests taken out prior to liquidation unless it has been crystallised. Here the provision of fixed charges was to enable the business to stay afloat and not to defeat the floating charge (Fire Nymph). The floating charge has therefore not crystallised and is subject to the other security interests. [No. Crystallised at liquidation]
Dean’s Fixed Charge
This charge is not void versus the liquidator as it has been registered (s266, s 262). This fixed charge will have priority over Troy’s floating charge under s279. As this charge is fixed, however, it will not be over a changing class of assets, so more information as to exactly when the charge was created and the particular assets in the store acquired to determine if it applies. [Good]
Interests in the 3 Purebred Dogs
As the contract between Tracy and the business allows animals to be held until all monies are paid, the business probably has a pledge rather than a lien.
If the business interest is a lien then: [why?]
For a particular lien to arise, the business must have added value to the chattel and not merely maintained it (Southern Livestock). The value of the pledge [?] would be limited to vets fees, which add value given that a healthy dog is more valuable than a sick or dead dog, and not boarding costs.
It is unlikely a general lien will arise here as not customary
If the business’ interest is a pledge, then the interest extends to both boarding and vet costs.
If either a pledge or a lien, the business will gain priority over the floating charge of Troy. [?]
Interests: 1 Liquidator, 2 Troy floating. D’s charge is not over these assets as made 6 months ago. [No => Troy has Title, the charges never settle on the dog??]
Interest in the 30 tropical fish
For R’s retention of title clause to be effective she must be able to identify the fish. Here the fish have been commingled (Associated Alloys) as it is impossible to identify R’s fish in the mixed batch [co-ownership?]
As the contract gives title in the mixed fish to R, it acts as a chattel mortgage. Under s9, a chattel mortgage is treated as a charge for the purposes of the Corps Act and must be registered under s262(1). As it is not registered here, the charge will be void against the liquidator.
[Trust?]
As against Troy’s earlier registered floating charge, R’s later chattel mortgage will lose out as both are required to be registered under s s262 and R’s is not, so is a later unregistered charge: s 280(1)(c)
Order of priorities
1 Liquidator [Dean?]
2 Troy’s floating charge
3 R’s chattel mortgage
If D’s fixed charge attached after the fish were supplied, he would get first priority, but we need more information as to when exactly the fist were purchased.
Interest in proceeds
For R’s trust over proceeds to be effective, must be able to identify the proceeds (Associated Alloys). Here cant => not effective.
Interest in Dog from Eric
Has title in the dog passed to the business?
Under Nemo Dat the business cannot pass title which it doesn’t have. But under s29(2) if the business received the dog in good faith from Eric, the tansaction will bind the original owner which doesn’t consent.
As the cheque bounced, it is unlikely that the owner would consent to E selling the dog, however, any withdrawal of consent is ineffective once E has possession (Newtons v Williams)
This would give good title to the business which is passes on to the customer.
There is no claim against this dog in the liquidation.
[Very good – could have done s27. Good effort; covered the issues. BUT
[charges - misread the facts, some errors
[pledge – only discuss liens? => Priorities confused
[ROT – reasonable coverage
[SOGA – OK
[20/30
QUESTION 2(II)
To determine if A has to pay S for the bikes or can recover from insurer, need to know if title has passed & when it passes
Under s22(1), title passes when it is intended to pass. Her the contract requires A to bear the risk of any stock on the floor, chich may indicate title has passed where there is something to support it. A is required to purchase after 12 months if motorcycles no on sold, further indicating that at the point of delivery, the only uncertainty is the timing of the payment to S, not the inevitability that title will pass.
However, this is rebutted by a clause stating that immediately prior to on sale, a sale will occur between S & A. If this is sufficient intent to determine when title passes, then it does so at sale, so S has title until sale, if not then there is uncertainty as to intent from the contract and the rules in s23 apply to ascertain intent.
Under Rule 1, s23(2), if there is an unconditional contract for the sale of specific goods in a deliverable state, title passes when the contract is made. Here the contract is unconditional as there are no conditions precedent to it existing (McPherson v Dench) and the goods are in a deliverable state.
It is likely that there is no contrary intent as to when title passes, given that the clauses indicate different timing for transfer of risk and sale. Therefore s 23(2) will apply to make title pass at the time of contract. [good]
Insurance Claim
If the title in the stock has passed to A, then they can successfully claim under the insurance contract provided that fire damage is covered. However, they would need to prove to the insurer that title has passed.
If title has not passed to A, then it is unlikely they will be able to recover from the insurer as the clause is clear, unless A can establish that S is their agent. If anything A is S’s agent and A as the insured party seems unlikely to recover. [Did A get insurance as S Agent? Good Coverage]
QUESTION 3(II)
Insurance Contract 1: business insurance
The insurer will argue that M has breached the insurance policy by not servicing the fire extinguisher, as the insured warrants that “a safe system of work will be maintained.”
However, “a safe system of work” is an ambiguous term and will be interpreted contra profarentum in M’s favour (Huddleston). The clause is stronger than the statement of mind provision in (Huddleston), so M will not be able to avoid it altogether.
The contract will not be interpreted to defeat the point of the contract (Albion). SO provided M was not courting a known danger (Albion) is is not likely that he will have breached the provision. To this end, more information is needed of the effectiveness of fire extinguishers 3 months over due for service versus a fire extinguisher of equivalent age that is 1 day short of requiring service.
As there has beena breach of continuing warranty, under s54, the insurer can only terminate if the breach has caused the loss, but can reduce liability to pay by any proportion of loss caused.
Here the fire extinguisher being overdue for service didn’t case the loss, so insurer cant avoid paying. The insurer could reduce payment by any proportion of the loss caused but it is unlikely this will be much reduction unless the extinguisher completely stopped working [Great]
Health Insurance Policy
Insurers will argue M made a misrepresentation about the severity of his asthma or failed to disclose its severity.
Misrep?
s27: misrepresentation does not occur by giving an obviously incomplete answer. If the insurer required more, M’s answer ‘I get asthma’ was obviously incomplete and not a misrepresentation.
Non Disclosure
As this is an eligible contract, m only has to answer the questions asked under s21A(9). So even though the severity of his asthma would reasonably be relevant and therefore disclosed under s21(1), the insurer is deemed to have waived non disclosure.
Furthermore, the answer was obviously incomplete, as particulars were necessary were necessary as to severity, and the insurer insured anyway & waived under s23(3) => no misrep or breach of duty to disclose
=> no remedy for insurer, cant avoid contract
=> M can get payout [Great 13/15]