Journal of Banking and Finance Law and Practice update: September 2011

Internet banking fraud – Alan L Tyree

Accrued entitlements which are not yet “due”: A lost priority for employees in receiverships – Lindsay Powers
Recent developments in relation to schemes of arrangement and deeds of company arrangement in multi-jurisdictions – Gerard Breen

Liability of the arranger of a syndicated loan – Masahiro Ueno

For the pdf version of the table of contents, click here: JBFLP Vol 22 Pt 3 Contents.

Internet Banking Fraud: R v Johnson [2006] QCA 362
(from the Banking Law and Banking Practice section; citation (2011) 22 JBFLP 214)

By Alan L Tyree*

The defendant was charged with and convicted of dishonestly applying to his own use a sum of money belonging to Suncorp Metway Ltd. His point on appeal to the Queensland Court of Appeal was that his account with Suncorp Metway had a credit balance of $9,715 and that withdrawing that sum could not amount to dishonestly applying Suncorp’s property.

The money was deposited in the defendant’s account by means of an internet fraud. According to bank investigations, a person using a Chinese based internet service provider logged into the account of Romark Design Constructions Pty Ltd on 11 November and transferred $9,715 to the defendant’s account. The directors of Romark testified that they had not authorised the transfer, nor had they disclosed access information.

A little more than an hour after the transfer was made, the defendant logged into his internet account and made a balance inquiry. The balance was $9747.25, up from $32.25 the day before. Evidence showed that the defendant’s account received pension and social security payments since it had been opened in 2004. The balance was usually small, but there was one entry of $4,870 that had later been reversed.

The defendant withdrew various sums over the next week, reducing the account balance to $7.70.

Trojans

Suncorp determined that Romark’s computer was infected with a “Trojan”. As described to the court, a Trojan is a program that can record keystrokes and send information back to its home base. A Trojan, said Suncorp, may infect a computer through certain websites or via emails.

Although Suncorp did not mention it, the vulnerability of some computer systems is substantially higher than others.

The initial Australian Securities and Investments Commission (ASIC) consultation paper on reviewing the Electronic Funds Transfer Code of Conduct (EFT Code) noted that “some industry representatives” proposed that users should be liable for the full amount of losses from malicious code compromises unless they have minimum or adequate equipment security.¹

The problem with that proposal is that there is no effective protection for most consumer level computers. An AusCERT study from 2006 found that 60% of “malware” are not detectable by anti-virus software at the time when the malware is discovered “in the wild”.²

Financial institutions have chosen to implement electronic banking via web browsers on consumer grade equipment. This equipment is inevitably exposed to attack by Trojans and other forms of malware. ASIC rightfully rejected the attempt to throw losses caused by malware onto consumers.

Russian emails

The $4,780 transaction was also an internet fraud. In October, the National Bank Internet Fraud Detection Team advised Suncorp that a fraudulent transfer was being made to the defendant’s account from one of National’s customer’s accounts.

Because of internal procedures, this amount was credited to the defendant’s account but with a “pledge” on the account. This meant that the defendant was unable to draw on the sum.

The defendant, when contacted, said that he understood what was happening. He had received emails from one “Lee Chusu”, advising the defendant that a sum would be deposited to his account. He was asked to keep $70 for his trouble and pay the remaining $4800 to a Western Union account in the name of “David Rau” of St Petersburg,Russia.

Why did “Lee Chusu” send an email to the defendant? It seems that the defendant had replied to an offer of employment, apparently a “spam” email. In so doing, he had supplied details of his account with Suncorp Metway. An expert from Suncorp Metway testified that people such as the defendant were known as “mules”, and the entire process was probably a money laundering operation.

Account confusion

What is the effect of a fraudulent or mistaken crediting of an account? The defendant argued that he was entitled to withdraw an amount standing to the credit of his account. The cases are not entirely consistent on the effect of altering an account, a matter that will be dealt with in a later note.

However, in this author’s opinion, the Queensland Court of Appeal came to the correct decision, holding that:³

a genuine chose in action is not extinguished by a fraudulently created debit entry; and
a fraudualently created credit entry creates only the illusion of a chose in action.

In other words, the debt owed by the bank to the customer is not altered by a fraudulent alteration of the accounts. The Court also noted, wryly, that “fraud gives a right of action to the victim, not the perpetrator.”

EFT Code: Business vs consumer

The bank in R v Johnson was able to determine the reason for the unauthorised transfer from the Romark account, but suppose that it had not been able to do so and the origins of the transaction remained a mystery. Which party should bear the loss?

The answer, most unfortunately, depends on whether the EFT Code, to be fashionably renamed the EPayments Code, applies.

If the Code applies then an innocent victim is responsible for a portion of the loss. Under the existing Code and the proposed EPayments Code, the amount is $150. “Innocent” means that the customer has not contributed to the loss by behaviour identified by the Code. If the Code does not apply, then it is necessary to consider common law rules. The basic principles are:

a bank account is, in law, a debt owed by the bank to the customer: Foley v Hill;⁴
the bank is claiming that the transfer is a payment made on behalf of the customer and that this results in a reduction of the debt owed to the customer;
when repayment of a debt is disputed, it is up to the debtor to show, on balance of probabilities that the debt has been repaid: Young v Queensland Trustees Ltd.⁵

The High Court in Young held that an older Victorian case, Nelson v Campbell⁶ was wrongly decided. Nelson had held that the burden of proof was on the creditor.

Consequently, when a customer claims that a transaction is unauthorised, the burden of proof is on the bank to show that it was authorised or there is some other factor that entitles it to debit the account. We are assuming that the bank is unable to do this.

Because of intense opposition from certain “stakeholders”, the ASIC draft Code does not apply to small businesses. Therefore, the Code would not apply to Romark, and they would be entitled to have the account re-credited for the full amount. Had they been “consumers” to which the Code applied, they would have been required to contribute $150.

To add consumer insult to consumer injury, note that the small business has access to the Financial Services Ombudsman in order to resolve the dispute between itself and the bank.

Why, it might be wondered, does the consumer protection of the EPayments Code reduce consumer protection? The answer is in the process followed by ASIC in drafting the Code. ASIC adopts a principle of negotiation between “stakeholders”. In the process, each is expected, explicitly or implicitly, to give up something.

EFT providers have long known that they are liable for unattributable unauthorised transaction, but they have exercised their market power in order to ignore their obligations. In the ASIC procedures, they have agreed to do what they should have been doing all along, provided the consumers forego certain rights. The same process has been followed with respect to mistaken internet payments.⁷

The “consumer problem” is twofold:

consumers don’t have rights that they should have; and/or
the costs of exercising existing rights is so high that the wrongdoer is effectively immune.

Legislation such as the Australian Consumer Law addresses the first problem, granting consumers rights such as non-excludable guarantees with respect to provided services and goods.

The second problem is addressed through the existence of consumer tribunals such as the NSW Consumer, Trader and Tenancy Tribunal, or alternative dispute resolution bodies such as the Financial Ombudsman Service. Neither of these solutions require the consumer to negotiate away rights.

The bargaining model adopted by ASIC effectively compromises consumer rights in exchange for providing affordable remedies. When most of the “stakeholders” around the bargaining table are the people who refuse to honour their legal obligations, the results are not likely to be optimal from a consumer perspective.

*Consultant; formerly Landerer Professor of Information Technology and Law, University of Sydney

Australian Securities and Investments Commission, Reviewing the EFT Code, Consultation Paper No 78 (2007) at [7.20].
AusCert, 2006 Australian Computer Crime and Security Survey, p 22.
R v Johnson [2006] QCA 362 at [31].
Foley v Hill (1848) 2 HL Cas 28; 9 ER 1002.
Young v Queensland Trustees Ltd [1956] HCA 51.
Nelson v Campbell [1928] VLR 364.
See Hexter D, “Against conscience: Recovering mistaken Internet payments” (2011) 22 JBFLP 83.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 22 Part 4) contains the following material:

Articles

The new “shorter” Product Disclosure Statement regime: Some issues and potential market responses – Vince Battaglia

Effective from 22 June 2010, but subject to an implementation period (and any further extension of that period granted by the Government), the Corporations Amendment Regulations 2010 (No 5) (Cth) introduced a new disclosure regime for certain financial products. These regulations amend the Corporations Regulations 2001 (Cth) (Corpora- tions Regulations) to prescribe the form and content of Product Disclosure Statements (PDSs) for standard margin loans, superannuation products (except “defined benefits funds” and “pension products”) and interests in “simple managed investment schemes”. As this new regime applies only to these specific financial products, and is mandatory for these financial products, the regime sits alongside the current disclosure regimes under Australian corporations law. This article describes the application of this new product disclosure regime, in particular to applicable superannuation products and interests in simple managed investment schemes, and considers some of the legal and practical issues arising under the new regime and some potential market responses to such issues.

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The trustee’s lien or charge over trust assets: A PPSA security interest or not? – Nuncio D’Angelo and Helena Busljeta

The Personal Property Securities Act 2009 (Cth) has effected fundamental change to the way in which security interests over personal property are to be identified, classified and perfected. The underlying philosophy of the Act is a substance over form approach. So, while it clearly deals with traditional securities such as charges and mortgages, as an “in substance” regulatory regime it also embraces transactions that may not currently be classified as securities but which, in substance, involve an interest in personal property being given to secure payment or performance of an obligation. A question arises as to whether a trustee’s rights of indemnity, lien and/or charge with respect to the trust estate, where the estate includes personal property, is a “security interest” within the meaning of the PPSA. It is argued that, while it is conceptually possible for a trust to be used as a security device, the trustee’s ordinary indemnity, lien and/or charge, as such, does not constitute a PPSA security interest.

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Personal property securities legislation: What happens when a company becomes insolvent? Lessons from Canada and New Zealand – Linda Widdup

Personal property securities legislation was enacted in Canadian jurisdictions many years ago and, more recently, in New Zealand. In these jurisdictions, some of the important effects of the legislation did not become apparent until a grantor of a security interest became insolvent and the courts were called upon to interpret the legislation in order to deal with the ensuing priority disputes. This article will discuss some of the issues that arose in Canada and New Zealand when parties impacted by the legislation failed to recognise the legislation applied to their transactions or appreciate how the new registration system was intended to operate. While this legislation is premised on delivering greater clarity and certainty to the law of personal property securities, this was not always obvious in the aftermath of the legislation coming into force.

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The case of Goodridge v Macquarie Bank and novation of (syndicated) loan agreements – Andreas Ruthemeyer

In the beginning of 2010 Mr Goodridge won an action against Macquarie Bank Ltd in the Federal Court of Australia. The decision was overturned by the full bench of the Federal Court of Australia. This article was originally written before the appeal decision was handed down. It considers the trial judge’s obiter with respect to novation and the full bench’s assessment of the obiter. The trial judge, Rares J, declared that the broad novation clause used by Macquarie Bank to transfer its rights and obligations was ineffective. This article submits that the contractual terms used by Macquarie Bank did not satisfy the legal elements of a novation, a problem which may also exist in the standard terms and conditions of other market participants. It is argued that the underlying commercial desire for a novation may also be achieved by an express and prospective two step contractual instrument agreed on by the lender and the borrower. Finally, this article submits that the issues considered in the obiter do not relate to syndicated loans because the syndication contract usually provides for a sophisticated novation procedure which avoids the problems raised in Goodridge v Macquarie Bank Ltd (2010) 265 ALR 71.

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The Inglis language – an analysis of the rule in Inglis, the law of equity and new trends – Andrew Francis Vella

In recent times, a willingness by the courts to depart from the strict requirements of the general rule in Inglis has given rise to the impression that there is a growing number of exceptions to the general rule. Two categories of cases which might be mistaken for new exceptions to the rule are cases involving: (1) a reasonable refinance proposal by the mortgagor (Refinance Exception) and (2) enforcement against the mortgagor’s home (Home Exception). Neither of these purported exceptions are true exceptions to the general rule. Rather, they are manifestations of either an application of the general rule in Inglis or the application of the balance of convenience test by the courts.

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Circulating security interests under the Personal Property Securities Act 2009 (Cth) compared to floating charges – Lionel Meehan

The Personal Property Securities Act 2009 (Cth), which is anticipated to commence on 30 January 2012, restates the law relating to floating charges over personal property, and (effectively) renames floating charges over personal property as circulating security interests.

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Sections

BANKING LAW AND BANKING PRACTICE – Leigh Schulz

Basel III and the increased costs clause: Who bears the cost?

INSOLVENCY LAW AND MANAGEMENT – Lindsay Powers

The long arm of insolvency law: English Courts lead the way

RECENT PUBLICATIONS – Maria Thiveos and Sue Welsh

For the pdf version of the table of contents, click here: JBFLP Vol 22 Pt 4 Contents.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 23 Part 1) contains the following material:

Articles

Proprietary rescission and the impact of insolvency – Alexandra M Whelan

In the context of insolvency, the privileged position of creditors with vested proprietary interests in assets held by the insolvent or bankrupt is uncontroversial. For a creditor, holding a vested proprietary interest may be the difference between being paid out in full and not being paid at all. This article considers how the law treats an equitable proprietary right to rescind (a “mere equity”) after the commencement of bankruptcy or liquidation. In particular, it examines the situation where the party with the proprietary right to rescind does not elect to exercise that right until after the party holding the relevant property goes into liquidation or bankruptcy, and explains the Australian and British jurisprudence on mere equities and proprietary interests in the context of insolvency. The article provides an overall assessment of the law and proposes a way forward that attempts to reconcile the aims of insolvency, the statutory regimes, jurisprudence and relevant policy considerations.

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Regulating the entry of foreign banks into China’s banking sector – He Wei Ping

This article provides an overview of the means available for foreign banks to enter the Chinese banking sector. Emphasis is given to the current legal and regulatory framework in relation to five available vehicles: representative offices; foreign branches; local incorporation; equity participation; and county banks. In highlighting the regulatory controls surrounding these means, this article seeks to identify and critically review the regulatory implications for foreign banks and their operations in China.

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Sections

BANKING LAW AND BANKING PRACTICE – Alan L Tyree and John Sheahan SC

Questioning a valid mandate
Class actions against banks for exception fees: Three wheels have fallen off the band wagon

INSOLVENCY LAW AND MANAGEMENT – Lindsay Powers, Gerard Breen and John Melluish

Requests for court assistance under the UNCITRAL Model Law: Avoiding “judicial bad manners”

RECENT PUBLICATIONS – Maria Thiveos and Sue Welsh

TOKYO – Masahiro Ueno

Amendments to the Financial Instruments and Exchange Act

CANADA – Professor Benjamin Geva and Professor Stephanie Ben-Ishai

New Canadian not-for-profit corporations statute proclaimed in force

BOOK REVIEW

Law of Investments by J McLaren, M Naylor and M Toohey

For the pdf version of the table of contents, click here: JBFLP Vol 23 Pt 1 Contents.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 23 Part 2) contains the following material:

Articles

Minimising risks to covered bondholders in Australia – Michael WL Symons

In October 2011, the Australian government amended the Banking Act 1959 (Cth) to allow for covered bonds. The hoped-for results include greater funding certainty to domestic banks; however, this relies upon the covered bond regime’s success in providing new low-risk, collateralised debt products for investors. This article considers risks to covered bondholders. Its focus is three-fold: the maintenance of depositor protection at the expense of covered bondholders; judicial interpretation of contracts necessary to implement transaction under the covered bond regime; and legal risks introduced by choices made in specifying the regime. As well as identifying possible risks, this article suggests that improvements could be made to the advantage of both banks and covered bondholders.

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Preventing the release of commercially-sensitive information under the Personal Property Securities Act 2009 (Cth) – Kenton Steicke and Michael Spurritt

The Personal Property Securities Act 2009 (Cth), which has recently come into operation, has fundamentally changed the previous regime for taking security over personal property; however, not all of its effects are immediately obvious. This article deals with a perhaps unexpected but significant outcome that has received little attention thus far. Under the new personal property securities regime, certain “interested persons” will be able to access information of a business not previously available. These interested persons may include competitors and the information they can obtain may be commercially sensitive. This article explains who these interested persons are, what information they can request and the strategies that may be employed by businesses that wish to keep such information private.

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When capital is inadequate: A hypothetical case for amending the Basel Accord’s capital adequacy requirements to facilitate development and disaster recovery in developing countries – Andrew G Pingree

The Basel Accord’s capital adequacy regime includes risk-weighting categories of substantial variance. While no liquid capital need be held for loans to the most stable of borrowers, 12% of loan value is required for safety against loans to the least stable. This creates inefficiency for lenders with unstable clients. Unstable borrowers are more common in less developed and developing countries and sometimes in major disaster areas. This in turn creates a disincentive for lenders to do business in such areas, creates an unfair advantage for the developed world, and thereby may contribute to the difficulties faced by developing countries in development and disaster recovery efforts. This study relies largely on theory due to a lack of relevant empirical data, and reviews a variety of plausible reasons for and against having high risk-weighting for unstable borrowers. Where data is available it is found that sophisticated, developed economies are capable of managing their own disaster recovery efforts through government intervention. It is also found that poorer nations and entities therein are able to obtain finance and debt resolution through a variety of backdoor means, and have shown solid economic growth in recent years accordingly. However, if international banking is to be subject to ever tighter regulation to minimise risk and the financial backdoors are closed, then the developing world may face an uphill battle in obtaining further finance. Only if the risk-weighting categories are brought closer together, with some liquidity required behind loans to stable borrowers and less required behind loans to unstable borrowers, will the developing world be able to obtain good quality finance and continue overcoming poverty while the world risk-proofs its financial system.

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Managing insolvency risk in New Zealand’s settlement before interchange payments system – Simon Jensen and Kellee Clark

In a world first, the New Zealand payments system has recently moved from a multilateral deferred payments system to a system based on bilateral settlement before interchange (SBI). SBI entails settlement taking place through the exchange of value between banks’ exchange settlement accounts at the Reserve Bank of New Zealand prior to interchange, and posting of the relevant credits and debits to the underlying account holders’ accounts at the receiving bank. This article examines the legal insolvency risk issues that were addressed as part of the introduction of the SBI system. In particular, it considers the legal characteristics of items in an interchange file; whether the simultaneous creation and discharge of a debt under New Zealand’s payments system rules is legally effective; whether bilateral netting arrangements are necessary (or effective) to manage insolvency risk; and whether there is a residual risk that transactions will be vulnerable as voidable preferences.

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Sections

BANKING LAW AND BANKING PRACTICE – Alan L Tyree and John Sheehan SC

Bitcoin
A timely look at the law of penalties

SECURITIES AND MORTGAGES – Craig Wappett and Angela Flannery

Choice Constructions Pty Ltd v Janceski (No 3) [2011] WASC 358

COMMERCIAL AND FINANCE LAW – Patrick Lowden and Lachlan Roots

Valcorp Australia Pty Ltd v Angas Securities Ltd [2012] FCAFC 22: Lenders found to have been equally as negligent as the valuers upon whom they relied in advancing funds

RECENT PUBLICATIONS – Maria Thiveos and Andrea Mathews

For the pdf version of the table of contents, click here: JBFLP Vol 23 Pt 2 Contents.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 23 Part 3) contains the following material:

Articles

New bottle for old wine? The characterisation of PPSA security interests – Diccon Loxton

In Australia, the Personal Properties Securities Act 2009 (Cth) (PPSA) became effective on 30 January 2012. It follows similar legislation in Canada and New Zealand, and in turn might be the inspiration for similar changes elsewhere. The PPSA sweeps up a wide variety of transactions that are treated as security interests on a substantive test, or simply “deemed” to be security interests. In most ways it treats all such transactions alike so that differences between traditional forms become irrelevant. This has led overseas courts and commentators to treat the legislation as replacing the traditional forms of transaction with one new form of statutory security interest, at least in some respects. This article examines whether Australian courts are likely to follow that view. It lists the circumstances in which it may still be relevant to enquire into the attributes of a particular PPSA security interest. Some of those circumstances or the underlying concerns are peculiar to the Australian legislation. The article suggests it is unnecessary to give PPSA security interests a unitary characterisation. It is more appropriate and consistent to retain flexibility by recognising that the PPSA covers a wide variety of interests that retain their character, or at least their different attributes. It suggests Australian courts may come to a different conclusion from overseas commentators if they proceed by closely analysing the actual words of the Australian statute and consider the differences.

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The duties of bank customers: W(h)ither Tai Hing? – Christopher Hare

For almost a century now, the common law (in almost every Commonwealth jurisdiction) has expected little of bank customers in terms of operating and monitoring their bank accounts so as to minimise the risk of fraudulent or unauthorised account transactions. This position was confirmed by the Privy Council in the seminal case of Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80. This article’s central thesis is that the position established in Tai Hing is no longer tenable: not only is the decision itself flawed in conceptual, historical and economic terms, but its application leads to inconsistent results. Accordingly, this article proposes a direct reversal of Tai Hing by the imposition of enforceable duties on bank customers or, at the very least, provides encouragement to courts to have recourse to other doctrines (such as estoppel, contributory negligence or vicarious liability) to circumvent the worst excesses of Tai Hing.

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Cheques and conversion: Five different categories of fraud – Dr Vicky Priskich

Cheque fraud can take a variety of forms. This article classifies cheque fraud into five different categories for the purpose of analysing the legal issues arising in an action for conversion. Leading authorities are examined.

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The High Court’s decision in Equuscorp: Standing clear of the poisoned fruit – Mathew Briggs and Kanaga Dharmananda

The High Court of Australia’s decision in Equuscorp Pty Ltd v Haxton; Equuscorp Pty Ltd v Bassat; Equuscorp Pty Ltd v Cunningham’s Warehouse Sales Pty Ltd (2012) 86 ALJR 296 has serious implications for lenders or assignees taking on loans that form part of a broader investment scheme. The High Court found that loan agreements were part of a scheme, in breach of the Companies Code 1982 (NSW). This resulted in the assignee being left without a cause of action against borrowers owing money under the loan agreements. This article considers the risk to lenders of being precluded by the actions of a promoter from recovering the debt, the uncertainty as to the circumstances when there will be preclusions, and identifies steps that lenders can take to minimise the risk of being left to bear the losses flowing from the tainted scheme.

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Sections

Payment by cheque

Sahab v R-G & Castle: Amending the indefeasible register

FINANCIAL MARKETS

Flawed asset provision in English Law ISDA Master Agreement clarified
Bond restructuring: Trick or treat?

Financing scheme for renewable energy power plant

Redwood Master Fund Ltd v TD Bank Europe Ltd [2002] EWHC 2703 (CH): Syndicated loans – challenging the majority

For the pdf version of the table of contents, click here: JBFLP Vol 23 Pt 3 Contents.

*Please note that the links to the content in this Part will direct you to Westlaw AU. If you are still using Legal Online, the links can be found in the LOLA PDF at the bottom of this post.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 23 Part 4) contains the following material:

Articles

The CAMAC Report on managed investment schemes: Another opportunity missed? – Nuncio D’Angelo

The 2012 Corporations and Markets Advisory Committee’s Report on Managed Investment Schemes was much anticipated, following the release of its Discussion Paper in 2011. It is the latest in a series of similar reports and contains a range of recommendations addressing selected issues emerging from the many recent scheme collapses. However, its centrepiece proposal – a separate legal entity to replace registered schemes – while appealing and theoretically workable, is too radical to have any realistic chance of implementation in the short to medium term. Alternative proposals are stated as a series of aspirational principles (some reiterating recommendations in previous reports), leave complexities unresolved and are not exhaustive. For these reasons the Report may not provide the necessary stimulus for expeditious reform and, indeed, may represent yet another missed opportunity at a time when the market, and legislators, need clear guidance for swift remediation.

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The doctrine of merger and post-judgment contractual interest – Sam Hiebendaal

Default interest clauses give creditors a right to compensation for loss of the use of money when the debtor fails to repay on time. However, due to an arcane rule of common law called the doctrine of merger, that right only applies to the period pre-judgment (unless the contract specifically provides otherwise). In other words, the judgment extinguishes the creditor’s right to interest at the contractual rate. This article explains why, and argues that the doctrine of merger should be modified because it: achieves the very opposite of its intended purpose; fails to reflect modern contracting parties’ intentions; is inconsistent with other areas of the law relating to interest; and creates perverse incentives for debtors and creditors. The article also explains why and how the courts have the power to award post-judgment contractual interest at common law.

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If it waddles and quacks, it’s probably a duck: The New Zealand Supreme Court’s decision in Hickman v Turner and Waverley Ltd – Mace Gorringe and Finn Howie

Hard cases make bad law. Bearing this in mind, the Supreme Court of New Zealand’s decision on the failed group of finance companies known as “Blue Chip” has met with a certain amount of negative sentiment. While the popular press celebrated a victory for the investors, some critics suspected the court sympathised with the victims and stretched the ambit of the Securities Act 1978 (NZ) to help them. The authors disagree with this view and generally agree with the Supreme Court’s decision and reasoning. Perhaps the main controversy is that it took New Zealand’s highest court to rule on the matter for the correct decision to be reached.

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Sections

Verification clauses
High Court restates Penalty Doctrine in class action against ANZ?

Warning to financiers – register PPS security interests correctly or lose priority to collateral: Carson, in the matter of Hastie Group Ltd (No 3) [2012] FCA 719

Charitable trusts: Some important reminders
Credit facilities and Ch 7 of the Corporations Act

Disclaimer: Washing away the rights of a tenant?

ISDA Master Agreement – Interpretation developments

Final report of the task force for the payments system review proposes major overhaul of the Canadian payments system

BOOK REVIEW

The Payment Order of Antiquity and the Middle Ages by B Geva

For the pdf version of the table of contents, click here: LOLA – JBFLP Vol 23 Pt 4 Contents or here: WAU – JBFLP Vol 23 Pt 4 Contents.

The persistence of equitable doctrines with respect to the law relating to personal property securities: Assessing the impact of the Personal Property Securities Act 2009 (Cth) – Nicholas Mirzai

*Please note that the links to the content in this Part will direct you to Westlaw AU. If you are still using Legal Online, the links can be found in the LOLA PDF at the bottom of this post.

The latest issue of the Journal of Banking and Finance Law and Practice (Volume 24 Part 1) contains the following material:

Articles

The Personal Property Securities Act 2009 (Cth) has had a profound impact on the legal profession affecting commercial law, corporate law, insolvency, securities law and equity and trusts amongst other practice areas. In seeking to understand what falls within the scope of the legislation it is equally important, if not more so, to understand its confines. Whilst commonly approached on the basis that the “new replaces the old”, this simplification, without qualification, serves to mislead. As the purported codification of the law with respect to security interests taken over personal property, the question remains: how self-sufficient is the Act in its application? In addressing this question, this article examines the continued role of equity under the statute focusing on the characterisation of security interests, the law of tracing and the residual jurisdiction of the general law in the determination of priority disputes.

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Imposing proprietary interests in insolvencies – Richard Calnan

When a company enters into insolvency proceedings, a creditor with a personal claim against the company is normally unable to enforce that claim except by proving for a dividend in the company’s insolvency proceedings along with all other creditors. However, if a person has a proprietary interest in an asset held by the company, that person is generally entitled to enforce its proprietary interest in the company’s insolvency, thereby taking priority over the general creditors of the company. Proprietary interests are normally created by agreement, but they are sometimes imposed by the courts where there is no such agreement. This article discusses some of the situations in which the courts do impose proprietary interests in an insolvency. It argues that to do so creates problems both for property law and for insolvency law, and that the courts should limit the circumstances in which they impose proprietary interests in insolvencies.

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Covered bonds: Their introduction and regulation in Australia – Alicia Back

The Banking Amendment (Covered Bonds) Act 2011 (Cth) represents an important change to the Australian financial system in facilitating the issuance of covered bonds. A type of debt instrument characterised by dual recourse to both the issuing financial institution and a segregated cover pool of assets, covered bonds had been subject to a strict prohibition on the basis of their perceived inconsistency with principles of depositor preference, entrenched in Australian banking law since the commencement of the Banking Act 1959 (Cth). The new statute adopts securitisation technology to facilitate an Australian covered bond market. This article analyses the contextual matrix that has motivated this significant law reform, drawing on historical analysis as well as international regulatory develop- ments in light of the Global Financial Crisis. Further, this article deconstructs the Banking Amendment (Covered Bonds) Act, critically analysing the framework that has been created for covered bond issuance by single ADIs and groups of ADIs engaging in aggregation techniques. Ultimately, it is concluded that the Australian covered bond regime is legislatively less stringent than international equivalents – in particular that of the United Kingdom – and the potential consequences of this are explored.

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Case note: Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) [2012] FCA 1028 – Lesa Bransgrove

Australian councils and charities were found by the Federal Court to be the victims of mis-selling of financial products by Grange, subsequently acquired by the now defunct Lehmans Brothers. There were four claims pleaded by the applicants, namely misleading and deceptive conduct, negligence, breach of contract and breach of fiduciary duty on the part of Grange in recommending and selling these complex financial products to the applicants. The court found that Grange’s role as trusted adviser to the applicants informed the content of their obligations in contract, tort and under statute to disclose the material risks of the financial products, which made them inherently unsuitable for the applicants and as a fiduciary, to frankly and fully disclose the size of its profits from its dealings with the applicants and the way these profits were earned. Disclaimers negating Grange acting as an adviser in the product documentation and marketing materials were held to be irrelevant given Grange’s role as trusted adviser. The court rejected any contributory negligence on the part of the applicants because the court found that the applicants did not have a duty to second guess Grange’s advice. The court also refused to find the rating agencies contributory negligent, given Grange’s misuse of ratings was done by Grange alone and not by the rating agencies. The decision has important lessons for banks regardless of whether they act as a trusted adviser or a mere seller vis-à-vis clients.

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Sections

Deferred payment letters of credit

Charges over insurance monies: Steigrad v Bridgecorp

A step back from universalism: Rubin and New Cap Re in the UK Supreme Court

Amendments to the Financial Instruments and Exchange Act

New Zealand’s AML/CFT regime – the countdown to implementation

For the pdf version of the table of contents, click here: LOLA – JBFLP Vol 24 Pt 1 Contents or here: WAU – JBFLP Vol 24 Pt 1 Contents.

June is an especially busy month for Thomson Reuters journals. Here is a selection of what is being published in June.

Journal of Banking and Finance Law and Practice

The June issue will be jam-packed with interesting and informative articles and sections covering recent case law, legislation and theory both in Australia and abroad.

Articles to be included:

“What is an “absolute” assignment? Further reflections on charges, “tacking” and marshalling” by Lee Aitkin
“The New Zealand Supreme Court speaks on bankers’ mandates and dishonest assistance” by Michael Lenihan
“Twinsectra versus Elizebethan Theatre: Comments on the Nature of the Quistclose Trust” by Andrew Pingree

Sections to be included:

Banking Law and Banking Practice – “Silent confirmation of credits” by Alan L Tyree
Commercial and Finance Law – “Arbitrating financial ‘star wars’” by Bryan Pape
Financial Markets – “Disclaimers – ally or neutral bystander?” by Paul O’Brien
New Zealand – “Does cyprus provide lessons for new zealand’s open bank resolution, and do we need to broaden the discussion?” by Gene Turner and Simon Jensen
and more!

Online Currents

The June issue will include the usual RoundUp columns (such as Company News, Around the Blogs and Web Watch) as well as the following articles for the online information industry:

“The Digital Rights Management minefield”
An article by Denise Sutherland finding that DRM – a method used by digital content providers to reduce piracy of their content – is more of a hindrance than a help. DRM is problematic and can impinge on customer’s rights to fair use of content.
“Election 2013: Managing the information flow”
An article by Jane Douglas providing a selection of material, from the credible to the less authoritative, on where to go for background information amidst the news and spin on the federal election.
“Android apps”
An article by Jon Jermey discussing the development of apps for android devices, finding that apps exemplify the modern trend towards provision of software as a service rather than a product.
“Booked out: Online events bookings services”
An article by Michelle McLean looking at online booking services by way of a case study of one library’s experience.

Public Law Review

The June issue will include a mix of articles, comments and recent developments that provide critical analyses of public law and statutory interpretation. The contents will include:

“Anomalous occurrences in unusual circumstances? Extrajudicial activity by High Court justices: 1903 to 1945″
An article by Fiona Wheeler challenging the conventional wisdom that justices of the High Court of Australia have generally refrained from extrajudicial work. As an example, Fiona discusses the extrajudicial service, now largely forgotten, by members of the High Court in its formative years.
“The Royal Commission into Institutional Responses to Child Sexual Abuse: Safely in Judicial Hands?”
A comment by Gabrielle Appleby and Matthew Stubbs on whether the appointment of serving judges of State and Commonwealth courts to the Royal Commission are constitutionally valid.
“Constitutional wrongs in Singapore: A comment on Tan Eng Hong v Attorney-General”
A comment by Shubhankar Dam discussing a recent Singapore case in which the question arose as to whether the applicant had standing to challenge a provision of law that materially affected him, but had not been prosecuted under.
“The Papua New Guinea “two Prime Ministers’ saga”: Parliament testing the supremacy of the Constitution”
A comment by Vergil Narokobi discussing the events that led to Michael Somare being replaced by Peter O’Neil as Prime Minister. At the centre of these events is the question whether political expediency and perceived democratic legitimacy has trumped the rule of law and supremacy of the PNG Constitution.

Criminal Law Journal

Articles coming up in the June issue include:

“A Committal Waste of Time? Reforming Victoria’s Pre-Trial Process: Lessons from other Jurisdictions” by Asher Flynn. This article considers court inefficiency, and the shift towards the implementation of law reforms that seek to speed up the delivery of justice – especially the modification, amendment and abolition of the pre-trial committal hearing. It examines whether any proposed changes will increase the effectiveness of the committal hearing by enhancing court efficiency levels, or whether reform can provide better protections to the most vulnerable accused who come before the law by redressing the perceived exclusivity of the Victorian committal hearing.
“Obtaining the best evidence from children and witnesses with cognitive impairments – ‘Plus ça change’ … or prospects new?” by Terese Henning. This article looks as the problem of comprehension and communication when obtaining evidence from children, and considers various measures to improve the experience. The measures in question are the use of advance directives to control cross-examination, the video recording of these witnesses’ entire testimony in the absence of the jury and the use of intermediaries/interpreters to aid their communication with the court. The implications of these measures for the right to a fair trial are briefly considered.
“Case and comment: The Queen v Khazaal [2012] HCA 26 and federal anti-terrorism offences” by Miriam Gani. As the first High Court decision involving the substantive offence provisions of the Commonwealth Criminal Code, The Queen v Khazaal is an important addition to the jurisprudence on anti-terrorism law in Australia.

Building and Construction Law Journal

This month’s issue of BCL will include:

“Proportionate Liability in Arbitrations in Australia: Some Resolution of Uncertainties” by David Levin QC. A follow up to the author’s article in mid-2009 (2009) 25 BCL 298, where he explored the somewhat vexed issue as to the applicability in commercial arbitrations in Australia of the various statutory provisions enacting proportionate liability in the various Australian States and Territories .
“Breaches of natural justice in alternative dispute resolution of construction disputes” by Jeremy Coggins. Arbitration, expert determination and statutory adjudication are three of the most commonly used forms of alternative dispute resolution (ADR) used in the construction industry. For a quasi-judicial ADR process to be effective, it needs to provide an appropriate balance between procedural fairness and the need for finality of outcome. This is not necessarily the case where the parties have agreed to allow a third party to determine their dispute in a more informal procedural manner. This article considers the extent to which the Court requires the rules of natural justice to be applied in arbitration, expert determination and statutory adjudication.
“Penalties percolating through the construction industry: Andrews v Australia and New Zealand Banking Group Ltd” by Patrick Easton. This article was the winner of the 2013 Student Brooking Prize, presented by the Society of Construction Law. It deals with the Andrews litigation in the High Court dealing with whether or not a breach of contract is an essential element to relief against penalties.

Australian Journal of Competition and Consumer Law

This issue of AJCCL is crammed with interesting pieces written by a host of practitioners and academics, which have been carefully sourced by our General Editor, Dr Ron Desiatnik. Sections included in the June part are: Access to Services, Defective Goods, Report from Africa and Report from India. We are also glad to see the return of “Economic(s) Matters” and “Commission Cameos”, providing insightful updates. The two articles in this issue are:

“Australian Competition Law still trips over barriers to entry” by Paulina Fishman. This article discusses the concept of barriers to entry is an important consideration in many Australian competition decisions. Merely technical and divisive in economics, this borrowed concept is especially muddled in the competition law context. There is an incontrovertible need for it to be explained, delineated and clarified. To that end, this article expounds the nature, effect, and theoretical foundations of barriers to entry; scrutinises particular examples of entry barriers (both structural and strategic); and broaches a number of related concepts.
“Proposals for an ACCC makeover” by Frank Zumbo. Has the Australian Competition and Consumer Commission (ACCC) become too big and unwieldy as a single agency? Is there any merit in breaking up the ACCC into specialist, stand-alone bodies? While it is certainly good practice to regularly review Australian’s competition and consumer laws, it is also good practice to regularly review the operation of the ACCC and to assess whether its resources are being used most effectively. Ultimately, no government agency should be above independent scrutiny and the ACCC is no exception.

To stay in touch and be notified when these journal issues have been published, click on the “keep updated via email” box on the right.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 24 Part 2) contains the following material:

Articles

What is an “absolute” assignment? Further reflections on charges, “tacking” and marshalling – Lee Aitken

This article examines a number of important and interrelated matters that arise when taking any security interest. It focuses on recent cases in which the relevant issues set out below have been examined in detail. First, what is an “absolute” assignment of an interest? Secondly, assuming that the secured lender enjoys the benefits of an equitable charge, how is such a charge to be enforced as a matter of practice? Thirdly, if the secured lender enjoys the benefits of a number of securities, to what extent must he “marshall” them to prevent other creditors being unfairly treated in the realisation of the security.

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The New Zealand Supreme Court speaks on bankers’ mandates and dishonest assistance – Michael Lenihan

Banks routinely undertake a wide range of activities in which the issue of dishonest assistance may arise. However, there is little judicial guidance on what might, or might not, be dishonest assistance in a given situation. This can place a bank in a position of difficulty if it has concerns about a transaction. The recent New Zealand Supreme Court and Court of Appeal decisions in Westpac New Zealand Ltd v MAP & Assocs Ltd are of interest. Westpac defended a claim for breach of mandate by pleading that following the customer’s instructions may have subsequently exposed it to liability for dishonest assistance. Both the Court of Appeal and Supreme Court agreed with Westpac that the transaction in question was indeed suspicious. The defence pleaded by Westpac failed, however. Despite this, the decisions of both courts provide valuable guidance for banks where it has suspicions about a proposed transaction.

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Twinsectra versus Elizebethan Theatre: Comments on the nature of the Quistclose trust – Andrew Pingree

The circumstances in which Quistclose trusts have been found or argued for have been treated in different ways by different courts. This article poses and answers certain questions comparing the formulation in two different cases. It is found that existence of mutual intention is important, but whether a contract needs to exist is questionable. Further investigation is conducted into whether a direct relationship between settlor and trustee is needed and some suggestion is found that it is not. The contradiction as to whether the Quistclose trust is a resulting trust or an express trust is examined and it is found that a dual trust is necessary, and that the Elizabethan formulation is acceptable and the reasoning behind the Twinsectra formulation is flawed. Grounds are identified that show scenarios that may be looked upon as Quistclose trusts are best dealt with flexibly and not under one strict formulation. Both formulations are consistent with the beneficiary principle. Mutuality of intention is identified as a significant aspect that touches upon the circumstances of origination.

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Sections

Silent confirmation of credits

Provident: Existence of a penumbral duty

Proportionate liability in the context of fraud and negligence: Is there a concurrent liability?

FINANCIAL MARKETS

Disclaimers – Ally or neutral bystander?

Enforcement – what to expect under the financial conduct authority
An update on legal advice privilege
Court of Appeal confirms a suitable investment recommendation or loan cannot be rendered unsuitable by an incidental failure of procedure
Unreasonably withholding consent – what is the appropriate standard of reasonableness?

Does Cyprus provide lessons for New Zealand’s Open Bank Resolution, and do we need to broaden the discussion?

For the pdf version of the table of contents, click here: LOLA – JBFLP Vol 24 Pt 2 Contents or here: WAU – JBFLP Vol 24 Pt 2 Contents.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 24 Part 3) contains the following material:

Articles

Arbitrating financial “star wars” – Bryan Pape

This article considers the use of arbitration as a way of resolving financial disputes involving “over-the-counter” (OTC) derivatives. Understanding these derivatives is vital to avoiding systemic risk in the global financial economy. OTC derivative disputes involve important challenges, not only because of their complexity, especially in the case of non-centrally cleared derivatives, but also because of their unfamiliarity among commercial arbitrators who are likely to be pressed by the parties for a speedy delivery of an award.

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Improving the ability of guarantors to make a real choice: Lenders’ practices in taking third party guarantees – Denise McGill and Nicola Howell

This article considers recent cases on guarantees of business loans to identify the lending practices that led the court to set aside the guarantee as against the creditor on the basis that the creditor had engaged in unconscionable conduct. It also explores the role of industry codes of practice in preventing unconscionable conduct, including whether there is a correlation between commitment to an industry code and higher standards of lending practices, whether compliance with an industry code would have produced different outcomes in the cases considered, and whether lenders need to do more than comply with an industry code to ensure their practices are fair and reasonable.

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Dealings in collateral under the Personal Property Securities Act 2009 (Cth) – in search of a “harmonious whole” – Bruce Whittaker

Australian courts have just recently had their first opportunity to consider the substantive operation of the Personal Property Securities Act 2009 (Cth) (PPSA), in a decision of the New South Wales Supreme Court handed down in June 2013. This has thereby given a first indication of how courts will go about the task of breathing life into the PPSA. Will they embrace the “vibe” and interpret the legislation in a broad and flexible manner, consistent with approaches overseas, or will they approach the task in a stricter, more traditional fashion? Will they draw extensively on the wealth of case law and academic commentary that is available in relation to similar legislation in Canada and New Zealand, or will they limit themselves for guidance to more usual extrinsic materials? This article starts by considering what approach Australian courts should take to the task of interpreting the PPSA, and tests that against the approach taken by the New South Wales Supreme Court in that decision. The article then tests the capacity of the PPSA to produce meaningful outcomes if it is interpreted using traditional Australian principles of statutory interpretation by considering what happens to a perfected security interest in collateral when the collateral is dealt with without the secured party’s consent. In doing so, it identifies areas of particular uncertainty, and makes suggestions for reform.

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Sections

Interpreting the UCP

Preservation and suspension clauses in guarantees: When will they be effective?

Lender Liability – Is there a duty of care to warn or guard against risk of loss?

Cambridge Gas rejected

Supreme Court clarifies meaning and application of “balance sheet insolvency” test All monies guarantee held to be just that
Investor’s loss caused by her own “extraordinary and unreasonable decision” not to meet a margin call when she was able to do so
The EU’s fourth money laundering directive

For the pdf version of the table of contents, click here: LOLA – JBFLP Vol 24 Pt 3 Contents or here: WAU – JBFLP Vol 24 Pt 3 Contents.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 24 Part 4) contains the following material:

Articles

Tracing value and the value of tracing: Three puzzles for the banking lawyer – Christopher Hare

The divide between common law and equity has hampered the development of a coherent set of tracing principles, creating unnecessary confusion and complexity when a plaintiff seeks to trace the value in his property through even the most commonplace types of banking transaction. The judiciary has been surprisingly reticent to embrace the notion of a unitary set of tracing principles, despite long-standing and increasingly overwhelming academic support for such a development. Placed firmly within the tradition of such calls for reform, this article highlights (and criticises) three areas in which the inconsistency and internal incoherence of the current tracing principles has created “puzzles” for the banking lawyer. In particular, this article contends that common law tracing (like its equitable counterpart) should be capable of identifying value in funds that have been transferred to the recipient electronically or have passed through a clearing system (regardless of the precise payment mechanism employed). Furthermore, whilst payments made to discharge overdrafts or other liabilities should generally remain untraceable, this article argues that the nature, function and policy justifications underlying tracing militate in favour of a limited exception to that basic proposition.

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The legal status of online currencies: Are Bitcoins the future? – Rhys Bollen

Bitcoin has been described as a decentralised virtual currency. Virtual currencies are a form of money and a payment system. However, being a decentralised system, there is no central issuer, authority or register-keeper. Bitcoin is unique, not because it is a virtual currency, but because it is a decentralized non-issued electronic currency. Regulation of virtual currencies is at a very early stage. Most regulatory regimes are not well designed to cater for this type of payment system. However, creating and protecting trust is a crucial issue in the regulation and public acceptance of new payment services. It is generally accepted that adequate regulation is a key precursor to consumer acceptance of new payment methods, including mobile banking and payments. This article examines the legal and regulatory status of virtual currencies.

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Forum responses

FORUM ARTICLE

Crowdfunding: Recent international developments and its compatibility with Australia’s existing regulatory framework – Matthew Vitale

Crowdfunding has recently emerged as an alternative means of raising capital. This has the potential to challenge the existing regulatory framework for capital raisings and securities regulation, and has resulted in different responses from regulators in the European Union and the United States. However, there has been only a limited response by Australian regulators to this emerging industry. This article considers the emergence of crowdfunding through the convergence of the two distinct concepts of crowdsourcing and microfinance. The various crowdfunding models that have emerged are considered and the Australian regulatory issues associated with each are identified. Finally, an assessment of whether Australia’s current regulatory framework is compatible with crowdfunding is made, with recommendations for regulatory action.

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Sections

Taking reasonable care to sell mortgaged property and the use of “mortgagee sale” in advertising
Application to extend registration time for security interests under the corporations act – implications from recent cases

Protecting the interests of local creditors in an international insolvency: Ackers v Saad Investments Co Ltd Revisited

FINANCIAL MARKETS

English Court of Appeal dismisses appeal relating to claim for mis-selling of interest rate swap

High Court explores facility agent duties
Interpretation of material adverse change and rescheduling of debt provisions
Right to borrow not an “asset” for the purposes of standard commercial court freezing order
Enforceability of refund guarantees by the English courts: When is a demand under a refund guarantee (performance bond) invalid?

HONG KONG AND CHINA

Listing on the Hong Kong Stock Exchange

For the pdf version of the table of contents, click here: WAU – JBFLP Vol 24 Pt 4 Contents.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 25 Part 1) contains the following material:

Articles

No-action clause in bond trust – Benjamin Liu

The “no-action” clause, which provides that bondholders may not proceed against an issuer unless certain conditions are met, is included in almost all bond trust instruments. This article compares two approaches in interpreting this clause, the expansive approach and the restrictive approach, and argues that the former should be preferred. The article also analyses whether pre-default claims are covered by the no-action clause, and in what situations the claim of a bondholder is an individual claim (which is not barred by the no-action clause) as opposed to a class claim (which is barred). The no-action clause has been subjected to strong criticism in recent years. Possible solutions could include imposing a duty of information disclosure on the trustee and active participation by the bondholders in the enforcement process.

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Over-the-counter derivatives regulation in China: How far across the river? – Mark Hsiao

In 2011, China revised its prudential regulation on the derivatives activities of financial institutions as a result of the global financial crisis. This article considers how prudential regulation, supervision of conduct and requirements that limit risk-taking are used to achieve policy objectives in the context of regulating derivatives in China. This is particularly pertinent in the case of China, where financial institutions were formerly state-owned enterprises. These objectives are closely related to defining the legitimate purpose of contracts which are used to hedge default risk of credit assets owned by financial institutions. The article also considers the legal aspects of the executory contract arising from the legal transplant of the International Swaps and Derivatives Association Master Agreement 2002 into China in the form of National Association of Financial Market Institutional Investors documents, and the way in which the Contract Law of the People’s Republic of China 1999 (China) and the Enterprise Bankruptcy Law of the People’s Republic of China 2006 (China) interact to offer a solution to the issue. Finally, the article offers an explanation of existing Chinese central counterparty and finality orders in clearing and settlement systems for possible alignment with international recommendations on over-the-counter derivatives regulation at Pittsburgh in 2009.

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Road map for financial inclusion in India – Aditi Patanjali

This article examines the role that central banks play in promoting financial inclusion in developing countries through credit allocation, with particular focus on India. It attempts to analyse the impact that access to credit has on development. It looks into whether central banks of developing countries have different responsibilities from their counterparts in developed countries. It considers in particular what the Reserve Bank of India (RBI) and the Indian government have done to address the concerns of credit allocation. It also suggests possible reforms in the financial sector that can be undertaken by India for more comprehensive financial inclusion.

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Sections

Fees and penalties
Code of Banking Practice 2013

Disclaimed leases: Is there any hope for tenants?

Amendments to laws relating to financial products

Steigrad v Bridgecorp: The Supreme Court decision

For the pdf version of the table of contents, click here: WAU – JBFLP Vol 25 Pt 1 Contents.

The Journal of Banking and Finance Law and Practice (JBFLP) was first published in April 1990, and this year has reached its 25^th volume.

The first ever issue opened with a foreword by the Hon Mr Anthony Murray Gleeson AC QC, who was then Chief Justice of the NSW Supreme Court. He commented:

It is of the essence of commercial law that it should be certain and clear, so that the rights of parties to business transactions are readily ascertainable without resort to litigation. Nevertheless … law and practice in this area grow and change, and there is a need for persons interested in the field to be kept up-to-date with developments, as well as an occasional need for reminders concerning established principles and their relevance to new circumstances.

Over the years, contributors to the Journal have included both judges and practitioners, alongside academics. Some of our feature authors include the Hon Andrew Rogers, Dr Michael G Hains, Alan Tyree, Dr Vicky Priskich and Donald B Robertson.

While early issues of the Journal considered questions such as “how safe are travellers’ cheques?”, today you are more likely to see coverage of the legal status of Bitcoin and online currencies. Another fascinating new area in finance is crowdfunding. This was covered in the Journal recently by Matthew Vitale in his article “Crowdfunding: Recent International Developments and its Compatibility with Australia’s Existing Regulatory Framework”.

The Journal continues to record and analyse legal developments both in Australia and in international jurisdictions, keeping readers informed and up-to-date.

As the Journal marks its 25^th Volume, it continues to be led by General Editor Gregory Burton SC and Consulting Editor Robert Baxt AO, with an extensive domestic and international Editorial Board.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 25 Part 2) contains the following material:

Articles

Insolvencies, bailouts and resolutions: Dealing with banks when the music stops – Ayowande A McCunn

The failure of a bank can have adverse consequences for the real economy in terms of credit rationing. This article analyses the effect of placing a bank into the standard insolvency process. It argues that bailouts are provided by governments because they are cheaper than credit rationing. It then explores alternative options for resolving banks without bailouts.

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Filling the capital gap: The financing case for crowdsourced equity funding in Australia – Jason Zein

Australian entrepreneurs face great difficulty in attracting the necessary capital to turn their potentially valuable ideas and technologies into long term viable businesses. This article analyses the role that crowdsourced equity funding can play in assisting to finance innovation and entrepreneurship in the Australian economy. In particular, it focuses on the capital gap that arises in the development of a new venture, especially in its expansion stage, and considers the role that equity crowdfunding can play in addressing this capital gap.

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Marshalling, the Personal Property Securities Act 2009 and third party securities: Highbury and Szepietowski – New applications of enduring principles – Hon WMC Gummow AC and JGH Stumbles

A junior secured creditor looks to marshalling when its secured rights are typically prejudiced or lost because of an accident of choice made by the senior creditor. The recent English decisions in Highbury Pension Fund Management Co v Zirfin Investments Management Ltd [2013] EWCA Civ 1283 and National Crime Agency v Szepietowski [2013] 3 WLR 1250, the principal focus of this article, are examples where the marshalling claims ultimately failed notwithstanding that they were successful in lower courts. In each case, the unavailability of marshalling is best explained by the terms of the arrangements between the parties. However, part of the reasoning in each of the cases purports to justify the respective outcomes on wider principles which are not necessarily consistent with marshalling’s true equitable rationale. In this article, the authors analyse the court’s reasoning in each case. In so doing, they explore the equity which is the mainspring of marshalling and canvass how marshalling remains potentially relevant for current security interests including third party securities and securities subject to the Personal Property Securities Act 2009 (Cth).

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Sections

Forum response: Crowd sourced equity fundraising convergence, the public and the private

Change of position in the High Court
Performance bonds: Preventing payment

Pitfalls in applying the marshalling doctrine

For the pdf version of the table of contents, click here: WAU – JBFLP Vol 25 Pt 2 Contents.

Thomson Reuters is pleased to announce the appointment of Dr William (Bill) J Gough as co-editor of the Securities and Mortgages section in the Journal of Banking & Finance Law & Practice.

Supplied Bill Gough

Bill, previously a partner at Allen Allen & Hemsley and Coudert Brothers, International, is an independent legal consultant specialising in transactional and advisory engagements, and supply of precedent formwork systems, for legal firms within the banking and finance and corporate and commercial legal practice areas.

Bill is the respected author of the textbook Company Charges (Butterworths), based on his original Cambridge Ph D thesis, which was awarded the prestigious Yorke Prize. The Modern Law Review described the 2nd edition of Company Charges as “one of a handful of texts on company law that could genuinely be regarded as a classic“.

Bill as an independent legal consultant provides a powerful skillset combination of both extensive practical transactional experience and deep scholastic knowledge.

Bill has over the years been engaged in transactional and advisory matters, including bank and general lender secured acquisition financings, project and syndicated financings, leveraged leasing, securitisations, corporate group debt, equity, business and asset restructurings, and private issue fundraisings and tax effective structuring solutions through debentures, convertible notes, redeemable preference shares, unit trusts, and subordinated and hybrid securities.

Bill has over the last 15 years undertaken, on a legal consultancy basis, numerous precedents projects for medium and large size law firms in the banking, finance, corporate and commercial legal practice areas, comprising some hundreds of documents.

Bill is the author of the Thomson Reuters online legal precedents system Australian Commercial Precedents.

Bill has during the course of his career, in addition to his textbook on Company Charges, also authored numerous published and unpublished articles and conference and seminar papers on the subjects of company charges, insolvency reform and personal property security reform. He has in the past been engaged as a consultant by the Australian Bankers’ Association and commercial banks for the preparation of reports and governmental submissions on the subjects of insolvency and personal property security reform.

Bill’s contributions will be of great benefit to readers of Journal of Banking & Finance Law & Practice and we take great pleasure in welcoming him to the team.

Stay tuned or follow us on Twitter for more news from our Journals portfolio.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 25 Part 3) contains the following material:

Articles

Factors that affect corporate governance practices in Saudi Arabian listed banks – Ashraf Al-Sahafi, Marcus Rodrigs and Lisa Barnes

The global financial crisis has resulted in increased attention to corporate governance practices, especially in one of the most affected sectors: banking. Good corporate governance is a significant issue in the banking sector, which is a major engine of economic growth and contributes to the stability of a country’s financial market. This article examines the level of compliance with the Corporate Governance Regulations (CGRs) in the Saudi Arabian banking sector and the factors that affect the level of compliance. The annual reports for all listed banks in Saudi Arabia for the years 2006, 2009, and 2012 have been analysed. The results shown in this article demonstrate that the level of compliance with the CGRs in the Saudi Arabian banking sector has improved significantly since 2006. While the level of compliance was very low in 2006 (42%) it has increased considerably to 63% and 78% in 2009 and 2012 respectively. It has been found that the level of compliance is positively affected by board size, audit committee size, banks size and leverage ratio; whereas board independence is associated negatively with the level of compliance.

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Illegality as a ground for withholding payment in documentary credit transactions – Hang Yen Low

This article considers whether illegality provides a valid ground to withhold payment under a documentary credit. A distinction is drawn between two circumstances where the documentary credit is illegal, and where the underlying contract which a documentary credit supports is illegal. The refusal of payment in circumstances where the documentary credit itself is illegal is not a contentious issue since it is well established in the general law of contract that a contract which is illegal is void or unenforceable. However, whether payment can be refused on the basis of the illegality of the underlying contract connected to the documentary credit is open to debate. The refusal of payment on this ground will constitute an exception to the autonomy principle since the documentary credit itself is not directly illegal and is traditionally seen as a separate contract from the underlying contract. Unlike other jurisdictions, English law is slowly recognising an illegality exception, although the exception is in need of further refinement. The article proposes that illegality should be recognised as an exception to the autonomy principle and provides suggestions to define and limit the scope of the exception.

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Sections

Is a uniform stop payment rule possible?

A bribe or a secret commission is held on trust for the principal

Keeping your eye on the ball (and other valuable restructuring lessons)

Electronic presentment and deposit of cheques

Changes ahead for New Zealand’s Consumer Credit Legislation: Credit contracts and Consumer Finance Amendment Act 2014

BOOK REVIEW

Mann on the Legal Aspect of Money by C Proctor

For the pdf version of the table of contents, click here: WAU – JBFLP Vol 25 Pt 3 Contents.

Journal of Banking and Finance Law and Practice 25th Anniversary – Q and A with General Editor Gregory Burton SC

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 25 Part 4) contains the following material:

Articles

It has been a busy year for the Journal of Banking and Finance Law and Practice as it celebrates its 25th anniversary. To mark the occasion the General Editor, Gregory Burton SC, answered some questions about the Journal’s progression over the last 25 years.

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Applicable law in letters of credit transactions – Hang Yen Low and Keith Uff

Where a letter of credit is used in a sale of goods transaction on the home market, it is unlikely that issues in relation to conflicts of law will arise because the legal system applicable to the contract of sale or the letter of credit is unlikely to be that of a foreign system. However, where it is used in international trading, the letter of credit will transcend national borders and involve various parties in different countries. Hence, it is not uncommon for conflict of law issues to arise in letters of credit transactions. Conflict of law rules are of great importance as they affect the determination of the rights and obligations of the various parties involved and the resolution of international legal disputes. This article attempts to explore conflict of laws issues under a letter of credit transaction from the perspective of English law, with a focus on the determination of the applicable law to contractual obligations in the absence of a choice of law clause. This issue is far from simple due to the many autonomous, yet linked, contractual relationships arising from a letter of credit transaction.

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Why the Australian finance industry should pay closer attention to chattel paper – Nicholas Mirzai and Paul Richter

Those familiar with the priorities prescribed by Pt 2.6 of the Personal Property Securities Act 2009 (Cth) (PPSA) will no doubt be aware of the default position that a security interest perfected “first in time” prevails over competing security interests pursuant to s 55(3). They will also likely be aware of the concept of a “purchase money security interest” provided for by s 14 and the “super priority” conferred on such an interest by s 62 of the PPSA. The reason for this understanding is reasonably straightforward from a commercial perspective, that is, at the time one seeks to enforce a security interest it is likely that only the creditor who holds the first ranking security interest will be able to recover that which it is owed. What might not be appreciated at first blush is that s 71 of the PPSA also provides that a person who acquires chattel paper or an interest in chattel paper usually prevails over general security interests and purchase money security interests in the chattel paper. Notwithstanding this, the use of chattel paper as a financing tool is rare in Australia for reasons which can only be speculated. This article explores the concept of chattel paper and its utility in Australian commerce in particular circumstances, to ensure secured parties are best protecting their interests.

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Pacific injustice and instability: Bank account closures of Australian money transfer operators – Ken C Ooi and Ross P Buckley

Remittances from Australia to the Pacific Islands play a significant role in encouraging economic development and stability in the region. Money transfer operators promote financial inclusion and provide an important service by facilitating these remittances. Despite providing such a valuable service, Australian money transfer operators have been facing account closures by their banks. This article aims to examine the impact of regulation on financial inclusion. It argues that the current approach to anti-money laundering and counter-terrorist financing regulation has had the unintended consequence of encouraging banks to create financial exclusion. The article concludes that timely attention from industry, banks, government and regulatory bodies is required and provides suggestions to address this issue.

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Sections

Forum response: Why should Australian policymakers care about crowdfunding?

BEA games

TAX AND STAMP DUTY

The High Court is set to consider the Victorian Lend Lease decisions

Secret commissions and theft by employees

Cross-border insolvency: Federal Court considers the location of “centre of main interests” again

Amendments to the Financial Instruments and Exchange Act

Canadian government releases public consultation paper on a Taxpayer Protection and Bank Recapitalization regime

For the pdf version of the table of contents, click here: WAU – JBFLP Vol 25 Pt 4 Contents.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 26 Part 1) contains the following material:

Articles

Responding to bank failure: Evaluating open bank resolution in New Zealand – Jordan Boyd

In June 2013, the Reserve Bank of New Zealand’s open bank resolution policy became a “live option”, available to the Reserve Bank to use in the event of bank failure. Open bank resolution is, in short, a modified company bankruptcy process under which the bank would close; a portion of creditors’ claims would be frozen to meet the distressed bank’s debts, and the bank would re-open for business the following day. This article evaluates open bank resolution as a response to bank distress, with a focus on its effect on retail depositors. The article argues that open bank resolution is an inadequate response to the threat of bank failure due to its lack of specificity, its unrealistic assumptions about the discipline retail depositors’ exercise over banks, and its lack of consideration about how open bank resolution might interact with a retail deposit guarantee. The article concludes that, had the Reserve Bank engaged with these issues, it likely would have found satisfactory responses to many of the deficiencies in the open bank resolution policy.

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Bank custodians and systemic risk in the Australian superannuation system – M Scott Donald and Rob Nicholls

Custodians play an integral role in the administration of Australia’s superannuation system. This article considers the way in which the small number of custodians, and the increasingly diverse set of services they provide to superannuation funds, gives rise to systemic risk within the superannuation system. It also considers the way in which the current regulatory scheme addresses this risk. It finds a regulatory scheme in which the potential for systemic risk is increasingly recognised but in which little is currently done to manage this risk as a result of institutional, political and jurisdictional factors.

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The adjudication of Shari’ah issues in Islamic finance contracts: Guidance from Malaysia – Tun Abdul Hamid Mohamad and Adnan Trakic

Islamic finance contracts are not immune to the Shari’an compliance risk. Parties are free to raise Shari’ah issues and courts are expected to recognise and adjudicate the same. English law was and still is the most preferred choice of law in cross-border Islamic finance contracts. However, there is little that an English court can do to adjudicate Shari’ah issues. This is not surprising as it is, after all, a secular court which is not equipped to ascertain Shari’ah ruling. Hence, this article proposes Malaysian law as the law of reference. The Shari’ah issues raised before the Malaysian courts will be referred to the Shari’ah Advisory Council of the Central Bank of Malaysia for ruling which will then bind the courts. The efficacy and workability of this model has already been tested in Malaysia. This article argues that the model could be exported to and adopted by other countries wishing to introduce and develop their own Islamic finance industry.

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Sections

The Code of Banking Practice in Courts
Equitable contribution and the covenant not to sue: Lavin v Toppi

WEALTH MANAGEMENT

Looking back to take a step forward – The implied obligation of mutual trust and confidence in the superannuation context

For the pdf version of the table of contents, click here: JBFLP Vol 26 No 1 Contents.

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The latest issue of the Journal of Banking and Finance Law and Practice (Volume 26 Part 2) contains the following material:

Articles

Agricultural security interests under the PPSA – Matthew Broderick and Nick Humzy-Hancock

The Personal Property Securities Act 2009 (Cth) has modernised the law of security interests over agricultural personal property, with particular emphasis on crops and livestock. It has replaced State and Territory bill of sale, crop, wool, and livestock legislation, which dates back to the 19th and 20th centuries. Whilst the legislative reinvigoration of this area of law is welcome, this article analyses whether the new provisions facilitate the needs of farming enterprises and financiers in current times.

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It might be yours there but it’s not down here: Issues arising under the PPSA in cross-border transactions – Stephanie Derrington

As a relatively new piece of legislation, the Personal Property Securities Act 2009 (Cth) (PPSA) is yet to be the subject of much significant judicial consideration. Whilst the position of the Australian courts is becoming clearer in relation to domestic disputes, parties to cross-border transactions continue to encounter an alarming number of uncertainties with respect to the enforcement and maintenance of their security interests. This article considers the relevant problematic provisions of the PPSA and considers them in light of the authorities dealing with corresponding legislation in other jurisdictions. It then attempts to provide some guidance and suggestions as to the best means of protecting security interests in cross-border transactions.

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Sections

Banking practice, clearing house rules and a payment gone wrong
Bank fees class action in Australia fails before full Federal Court

Guarantees of prior debts
An hawala and a trust walk into a shop: An Australian perspective

WEALTH MANAGEMENT

When is an express trust constituted? Korda v Australian Executor Trustees

Extensions of shelf life of voidable transactions claims – Recent High Court decisions

Assignee who has acquired loans receivable covered by a revolving guarantee before guaranteed obligations are fixed may demand payment from guarantor

Insisting on a modern approach to compensation in commercial trust cases

The lawyer’s duty of commitment to the client’s cause: Protecting the psychological conditions necessary for the solicitor-client relationship to form

For the pdf version of the table of contents, click here: JBFLP Vol 26 No 2 Contents.