Laws 2210 Semester 2 2005 Final Exam

LAWS 2210 SEMESTER 2 2005 FINAL EXAM

Question 1 Mark: 31.5/40

Question: 2A Mark: 15/20

Total Mark: 46.5/60 = 78%

How to Use this Script: These Sample Exam Answers are based on problems done in the past two years.

Since these answers were written the law may have changed and/or the subject may have changed. Additionally, the student may have made some mistakes in their answer, despite their good mark. Therefore DO NOT use this script by copying or simplifying part of it directly for use in your exam or to supplement your summary. If you do so YOUR MARK WILL PROBABLY END UP BEING WORSE!

The LSS is providing this script to give you an idea as to the depth of analysis required in exams and examples of possible structures and hence to provide direction for your own learning. Please do not use them for any other purposes - otherwise you are putting your academic future at risk.

A number of issues arise from the fact situation at hand.

(1) Can M claim for the loss caused by the fire under his K with Preacher?

M has an insurance K with P under the ICA as it does not fall within the exceptions listed at s 9. Preacher has refused to pay out on the basis that M did not own the goods at the time of damage-that is they are arguing M does not have an insurable interest: Truman. This situation closely resembles Macaura given the transfer of property from M to S. M will prevail in this situation however by application of s 16(1) of the ICA which states that the K will not be void on these grounds. Given M is the managing director of S and owner, the loss by S will establish ‘insurable interest’: s 17 ICA [loss doesn’t =insurable interest, just not void. What actual loss has M suffered?]

Whether M can claim on the shed will depend on the interpretation of the term in the policy which provided that M “warrants that the premises are in good condition with appropriate and maintained fore devices”. This will constitute a continuing warranty. Given that it is written in plain language, “maintain fire devices” [maintained- suggests have been maintained not will be…] it is likely to be upheld by the court: Thomson v Weems. The K may or may not be rescinded on this basis however by application of s 554. [Interpret contra proferentes. Really a continuing warranty?]

That is, payment of payout will depend on whether the failure to maintain could “reasonably be regarded” as causing the loss. It is likely that the failure to maintain the fire equipment seen as “contributing to the loss per s 554(4) and thus resulting in a reduction of payout. [Good re s 54 even if s 54 prob not applicable as prob re C.W]

In respect of faulty wiring, will depend on interpretation of warranty-not very clear what “good condition” equates to. Courts prob apply contra proferentes in favour of M. If courts find it clear enough may result in rescission of K under s 54(2).

(2) Zoe’s floating charge

Z has a floating charge over stock in trade-this charge is registered therefore holds against creditors in respect of liquidation. The key question is whether the charge has crystallised and therefore whether Z can call in her debt. Floating charges crystallise where Co:

(1) ceases or stops business (2) a receiver is appointed (3) winding up (4) by agreement: Fire Nymph

In this case, no info relating to an agreement per Fire Nymph [default?]. Also unsure whether business is to be ‘wound up’. If charge is held by court to have crystallised, Z’s ability to retrieve may depend on priority challenge by River (retention of title) and whether goods have passed to Jayne and the local businesses.

(3) Retention of title with River

A number of issues arise here as to whether this clause will cause title to rest with R.

(1) Firstly, the clause is not present in a pre-delivery contractual agreement-they are just an invoice which is a post contractual document, thus it will not hold: Armour [but it may still be incorporated] (2) Retention of title is lost upon mixing of goods. Here clay altered by specification as skill and labour alter the raw material, therefore it is likely that given issues (1) and (2) it is likely that clause will hold.

River may argue that M has consented to a charge being placed over goods made with clay. Need to look to the fact situation. Possibility of non-registered floating charge [fixed-applies to specific items]

Creation of a trust over clay products: equitable: Associated Alloys.

[it would be a mortgage operating as a charge] (4) Contracts with local suppliers

M ability to call for return of stock will depend on the nature of the relationship under the contract. Given the stock is sold and commission is kept-the relationship looks like an agency relationship-commission agent. Need to examine the contract for evidence of authority: Freeman v Lockyer

Also apply SOG Act. Does not come within s 6(1) def of contract for sale of goods as transfer based on commission, not sale [could go further, Weiner v Harris re rule 4?]

[if the suppliers don’t own the stock, who will prevail-Zoe or River?]

(5) Jayne Cob

Whether M can keep the firefly depends on whether property has passed according to the SOG Act.

(1) Need a contract of sale of goods. The key question here is whether this is a K for “goods”. That is, may be a K for service. Test is whether the substance of the K was the production of something to be sold (SOG) or whether the substance of the K is that of skill and labour: Robinson. There are comparisons between the sculpture here and the portrait in Robinson-this is a hard case so not sure which way court will go: Hewett. [needed a bit more fact analysis].

If held to be a K for SOG per s 6(1) then look to transfer rules. Property passes when intended to pass: s 22(1). No intention clear from agreement (s 23(1)) so look to rules. The sculpture is a future good and is by description (ie Jayne provides detailed instructions) so goods pass according to rule 5: s 23(6). Need deliverable state(it is finished). Unconditional appropriation?-yes, obviously goods in question: Carlos Federspiel. [?][Could M change his mind? Delivery?]

Conclusion: M must give firefly to Cobb. Note, must be of reasonable price: s 13(2) [presume they have agreed on price]

Priority Dispute Between Z and R. Both have equitable charges. Z is first in time and will therefore take priority: Latec Investments. R not registered with ASIC nad earlier registered priority over later unregistered: s 280(1)(c) [what about s 279?]

[overall this was a very well answered question that covered the issues really well. Fact analysis in places could have been better: Insurance-good but:  What is the nature of M’s loan?  Needed to interpret K clause contra prof-is it really a C.W? Zoe/River-Good coverage (classification of interests) -Priorities-s 279? Shops-Good but NB Weiner v Harris Firefly-needed better fact analysis}

Mark 31.5/40

Question 2 Part A

It has been argued that the provisions of the ICA relating to the duty not to misrepresent facts combine to allow insured parties to avoid disclosure and misrepresent material facts and still recover under the K. Examination of the terms of the ICA and caselaw in which they have been interpreted reveal the inaccuracy of this statement.

Insurance K’s are based on the idea of ‘good faith’. That is, parties are required to act with a high level of honesty and disclose those facts relevant to the contract. Under the common law, insureds were required to disclose those facts which the prudent insurer would consider relevant to determine whether to accept the insurance contract or not: Mayne Nickless. This test however has been replaced with a less onerous test in the ICA, given, as stated in Permanent Trustee v FAI, that require an “ insured to disclose every matter which is reasonably knowable by the insured…would impose an extraordinarily high burden”. This is not to say however that insureds can avoid disclosure under the ICA and be confident of recovery.

According to s 21(1) of the ICA, the insured falls under an obligation to disclose those matters known to be relevant to the insurers decision to undertake the risk (this is the subjective element of the test), and those matters which a reasonable person in the circumstances would have known to be relevant (this is the objective element).

This is clearly a less onerous test, given the shift from objectivity based on an insurers knowledge, to that based on a reasonable person. Further in favour of the insured is the provision of the ICA (s 28) which states that where non-disclosure or misrep was not fraudulent may not void the K.

Insureds do not however have an extensive power to misrepresent or non-disclose. S 28 states that where the non-disclosure or misrep has prejudiced the insurers decision, the payout may be reduced by that amount. Furthermore, caselaw suggests that non- disclosure of material facts will be treated very seriously.

A good example is the case of Twenty First Maylux. The consumer in this case had been involved in insurance K’s where prior criminal convictions were held to be relevant to the determination of the insurance K. The individual later signed up to an insurance K and was not directly asked about any prior criminal convictions. The court held that this amounted to a non-disclosure as the individual was aware that the matter was relevant.

While non-fraudulent non-disclosure and misrepresentations may not result in rescission of the insurance K, insureds should not be confident of recovering under these circumstances. That is, the payout will be reduced by the level of prejudice which that non-disclosure or misrepresentation has caused. Where the non-disclosure or misrepresentation is held to have heavily prejudiced the insurer, the insureds payout may be heavily reduced.

[Good effort made here to engage with the question posed and get into the terms of the ICA. Comparisons to common law didn’t really further the answer but getting into the connection between ND/misrep and insurer loss did (s 28). Good.]

Mark 15/20