Personal Property Securities LAWS 6956: Semester 2, 2020

Take-home exam This exam addresses material covered in all sessions (except for the material in Session 4 relating to remedies and the registration regime). The maximum word limit (excluding footnotes, endnotes and bibliography) is 2,000 words. The due date is set out in the Unit Outline. The exam is marked as a whole out of 70. In the lead-up to Christmas, a jewellery retailer, Sparkler Pty Ltd, is considering buying 5 diamonds (‘the diamonds’) and a diamond cutting and polishing machine (‘the machine’) from Diaco Ltd, an Australian diamond merchant specialising in buying and selling unusually shaped diamonds. Diaco trades through an online website, which Sparkler discovered following Diaco’s television advertising campaign run on commercial TV channels in November 2019 announcing significant discounts on jewellery purchases made before 18 December 2019. Advise Sparkler as to the extent to which its purchase of the machine and the diamonds under a retention of title sale is likely to be impacted by the arrangements made by Diaco described below. Support your advice by reference to the provisions of the Personal Property Securities Act 2009 (Cth) and Australian (and, where relevant, Canadian and New Zealand) case law. In April 2017 Diaco leased the machine for 3 years from a leasing company, Lesco Ltd, making quarterly rental payments, with a view to exercising an option to buy it on 31 March 2020 with a nominal payment of $10. Under the lease’s written terms and conditions, Lesco was responsible for damage to the machine incurred through severe weather. Due to a violent storm in September 2019 causing water damage to Diaco’s premises, the machine was damaged and sent to Repco Ltd, a repairer. Lesco instructed Repco to affix a protective anti-corrosion metal coating (through deposit of a layer of aluminium) to the steel supports of the machine. Lesco has paid the repair bill for the damage but has not yet paid the price of the coating, which was applied to the machine on the basis that title to that coating would not pass until full payment. The machine, duly coated, was returned to Diaco. On 1 October 2019 Lesco registered a financing statement, after Diaco on that date paid not only the rental payment due on that date, but the earlier payment due on 1 July 2019 which it had overlooked paying. On 10 August 2018, Diaco had granted its bank, Helpbank Ltd, a security interest over its present and future assets, duly executing a security agreement on that date to secure a loan of $100,000 for the purchase of the diamonds from a diamond collector. Helpbank paid the collector directly on that date, whereupon the collector delivered the diamonds to Diaco. (Helpbank did not, however, register a financing statement until 30 November 2018.) On 6 October 2018, concerned about an outbreak of burglaries close to its warehouse, Diaco deposited the diamonds with Northpoc Bank Ltd by way of safe custody. On 10 May 2019, in need of further funds due to cash-flow problems, Diaco borrowed for 12 months $200,000 from Northpoc and on that same day emailed Northpoc granting Northpoc a security interest over those diamonds in the event that Diaco defaults under the Northpoc loan. On 29 November 2019, following a heated dispute with its corporate loans manager at Northpoc, Diaco decided to refinance that Northpoc loan by entering into a 12-month loan agreement with Eastpic Bank Ltd, under which Eastpic would, following registration of a financing statement, discharge the Northpoc loan on 15 December 2019 by paying Northpoc all outstanding moneys and take on that date a security interest over the diamonds following their return by Northpoc to Diaco on that same date.