News & Events

  • Stamp duty changes in the ACT from 1 July 2019

    Stamp duty changes in the ACT from 1 July 2019

    You may be aware that the ACT Government is introducing changes to the payment of stamp duty in the ACT from 1 July this year. But, what exactly will be changing from the current stamp duty regime?

    Home Buyer Concession Scheme

    The current Home Buyer Concession Scheme will be amended from 1 July 2019 so that the concession will be available to both new and established dwellings and there will be no property value threshold.

    This means that eligible first home buyers will no longer be required to purchase a new dwelling or vacant land for the concession to apply and will obtain the concession regardless of the value of the property. This will apply to Contracts exchanged after 1 July 2019.

    First home buyers will, however, still be required to meet all of the following eligibility criteria:

    1. The buyer must be over 18 years of age (or a lower age if approved in individual circumstances at the Commissioner for Revenue’s discretion).
    2. The total gross income of the all buyers and their domestic partners (if any) in the financial year prior to the transaction date (the Contract date) must be under the total gross income threshold amount. The threshold amount is based on a sliding scale beginning at $160,000 for single people or couples with no dependent children.
    3. All buyers and their domestic partners must satisfy the current and previous property home ownership test. This means that they must not have held a legal or equitable interest in land within the two years prior to the contract date.
    4. At least one buyer must occupy the property as their principal place of residence for a continuous period of at least one year beginning within twelve months of settlement of the transaction.

    As the relevant duty determination has not yet been released, some of the detail of the above may change between now and 1 July 2019.

    The change to stamp duty coincides with the ACT Government abolishing the first home owners grant. This means that first home buyers purchasing a new dwelling or vacant land below the existing thresholds (and who otherwise satisfy the eligibility requirements) will be able to obtain the first home owners grant only if the Contract is exchanged on or before 30 June 2019.

    Changes to the rate of stamp duty

    The ACT government has also released the Taxation Administration (Amounts Payable – Duty) Determination 2019 (No 1) (the Determination). The Determination sets the amounts payable for stamp duty (where no concession applies) from 1 July 2019 for residential and commercial property in the ACT.

    The rate of duty payable for residential property has decreased across the board, meaning that all those who are not eligible for a stamp duty concession will pay less duty for contracts exchanged after 1 July 2019. The size of the duty reduction will depend upon the purchase price of the particular property in question.

    There has been no change to the rates of duty payable for commercial property, where no duty is payable for property with a dutiable value less than or equal to $1.5 million and $5.00 per $100 is payable for property with a dutiable value greater than $1.5 million.

    If you would like more information on the changes to stamp duty in Canberra, please contact Julian Pozza or the Commercial Real Estate Section at BAL Lawyers.

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  • Canberra Home Owner's Building Insurance Are you covered bw

    Canberra Home owner’s building insurance: are you covered?

    With concerns about building construction quality in the ACT becoming more prevalent, those buying a new dwelling or constructing their own may increasingly look to statutory warranties and insurance schemes for protection. However, the recent case of The Owners – Units Plan No. 3115 v The Trustees of the Master Builders Fidelity Fund Scheme [2019] FCA 115 (The Owners – Units Plan 3315) should serve as a cautionary tale, as these protections may not be a robust as they first seem.

    Insurance requirements under the Building Act

    The Building Act 2004 (ACT) (the Building Act) requires a builder to obtain one of the following prior to commencing certain residential building work:

    1. A residential building insurance policy for the work;
    2. A certificate issued by an approved insurer stating that the insurer has insured the work under a residential building insurance policy; or
    3. A fidelity fund certificate from an approved fidelity fund scheme.

    The insurance requirements of the Building Act apply to residential building work of no more than three storeys. The requirements are aimed at protecting home owners from the negligence or a breach of statutory warranties by the builder which causes the owner loss. In practice, in the ACT this will often be done by obtaining a fidelity fund certificate from the Master Builders Fidelity Fund scheme (the Scheme).

    The background of the case

    The Owners – Units Plan No. 3115 involved a claim made by the Owners Corporation of the Elara Apartments. Completed in 2007, the Elara Apartments have been beset by a long list of defects, with owners claiming flaws in the common property, structural load bearing walls, balconies and the provision of services.

    The Owners Corporation commenced proceedings against the Developer for breach of the statutory building warranties, however, these were discontinued when the Developer entered liquidation. The Owners Corporation then made a claim against the Fidelity Fund certificates issued by the Scheme in respect of each Unit (the Certificates). The Scheme refused to consider the claim due as it was made outside of the timeframe contained in the Certificates.

    The decision

    In The Owners – Units Plan No. 3115, the Court found:

    1. A claim under a fidelity fund certificate in the ACT does not arise until the builder becomes insolvent, disappears or dies and the owner suffers loss from breach of a statutory warranty or the builder’s negligence;
    2. The basis of the claim must arise within the period set out under the Building Act and the fidelity fund certificates (in these circumstances, this was five years after the issue of the Certificate of Occupancy for each unit); and
    3. As the Builder did not enter insolvency until after this period had expired, the claim did not arise within the period of cover and the Scheme was not required to consider the claim.

    As a result of the above, the Scheme was entitled to refuse to consider the Owners Corporation’s claim and the Owners Corporation was unable to obtain any relief from the Certificates.

    It is clear that when purchasing a new dwelling or constructing your own dwelling, there are important and complex considerations to take into account. The relevant insurance or fidelity fund protection is only one such aspect. Prudent buyers and home owners will conduct their own due diligence into matters concerning the construction of the dwelling (including the insurance cover) to ensure their investment is protected.

    If you need advice on building insurance, please contact Julian Pozza or the Commercial Real Estate Section at BAL Lawyers.

    Original Article published by Julian Pozza on The RiotACT.

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  • Doing Business Better Blockchain In Transport Logistics

    Doing Business Better - Blockchain in Transport & Logistics

    If you take a look around you, the likelihood is that you are surrounded by all sorts of goods that have sailed oceans, crossed plains, and its title traded through many hands all before ending up in your home or workplace. It is estimated that around 90% of global trade annually is carried out by shipping. Yet, despite the enormous scale of the transport and logistics industry, and our immense dependence on it, the sector continues to grapple with—and tolerate—some serious inefficiencies.

    Each year, businesses involved in global trade absorb significant losses to account for uncertainty in their systems and records. One simple shipment can be subject to around 200 different transactions or communications, between up to 30 organisations.[1] With so many parties—often with different systems and with competing interests—the margin of error can swell considerably. Add to this the commercial incentives to retrospectively tinker at the edges of the data to cover over delays or damage, for example, and the problem grows larger still. To account for these inaccuracies, businesses often include extra inventory in their consignments, representing a significant ongoing cost over time.

    Earlier , we made the case for the incorporation of Blockchain technology in supply chain management. In this article, we explore the need for an innovative solution to data management in the transport and logistics industry, and how Blockchain may be just the right fit.

    Covered from end to end: the benefits of Blockchain in logistics

    One of the inevitable downfalls of the current machinery of international trade is that, despite process digitisation on a grand scale, there are still ‘analogue gaps’ that arise whenever goods and accompanying information are transmitted from one party or system to another.[2]

    When you multiply this across the entire supply chain, a significant margin of error and uncertainty emerges, leaving open the possibility that any given piece of inventory may be recorded as being in two places at once, or not being anywhere at all.

    Blockchain represents a well-matched solution to this problem. As we explained in our first article on the basics of Blockchain, the fundamental premise of the technology is the existence of a real-time, permanent and unchangeable record of information distributed across the entire network of users.

    By using Blockchain technology to track the unique identifier of any given item of stock, the status of that item can be ascertained by any party at any given moment, and can be traced right back to the start. Retrospective data manipulation is impossible, as is the existence of the same piece of inventory in two places at once.

    These gains in accuracy, certainty and accountability may leave businesses significantly better off in the long run, allowing for more accurate projections to be made and eliminating the need for deliberate oversupply to account for uncertainty.

    Doing business better: embedding transactions into the Blockchain

    Not only do ‘analogue gaps’ render the records held by parties along the supply chain somewhat unreliable, they also give rise to one of the most excruciating challenges of modern commerce: debtor management.

    One would be hard-pressed to find a business that doesn’t know all too well the pain of preparing and sending invoices, only to have them missed, processed at a glacial pace, or conveniently ‘lost’ altogether. Herein lies a further layer of promise: not only can Blockchain trace transactions, it can be the framework through which the transactions are carried out.

    As we explained in one of our earlier articles, smart contracts are self-executing contracts in the form of a set of encoded instructions that self-perform when certain pre-set criteria are met. In this context, Blockchain may be able to alleviate the hair-pulling associated with traditional invoicing. By tracing inventory throughout the supply chain, smart contracts can be used to trigger automatic and instantaneous payment upon confirmed receipt of goods by a consignee.

    Not only does this enhance certainty, reduce risk and eliminate delays in payment, it may also significantly reduce administrative costs and personnel requirements. Whatever the outlay of introducing Blockchain throughout the global supply chain, it is certain to pale into comparison to the long-term savings that can be expected.

    Looking ahead

    The promise of Blockchain in the international movement of goods seems, perhaps, obvious. This opportunity hasn’t gone unnoticed; indeed, IBM, Maersk, Accenture and several other companies have all been making headway. Yet still, why haven’t we moved further?

    There are some important barriers to be overcome. The fragmentation of the global supply chain across a vast group of players, though making it a natural target for Blockchain-based rationalisation, also makes it uniquely difficult to get everyone to adopt a common system. Commercial incentives, regulatory barriers, limited trust, and the sheer scale of the challenge may all inhibit progress.

    The starting point, then, must be a cultural shift. There is a need to convince organisations, and the people within them, of the benefits of collaboration, as well as building up knowledge and understanding of Blockchain and what it might represent for the sector.

    If you are interested to know more or have questions about how changing supply chains or Blockchain might affect your business, please get in touch with Mark Love in our Business team.

    [1] https://www.ibm.com/downloads/cas/VOAPQGWX

    [2] https://www.ey.com/Publication/vwLUAssets/ey-blockchain-and-the-supply-chain-three/$FILE/ey-blockchain-and-the-supply-chain-three.pdf

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  • Catastrophic Injuries - A Cautionary Tale

    Catastrophic Injuries - A Cautionary Tale

    Background

    In 2009, a (then) 15 year old boy ran across a road after his two friends in Richardson, when he was tragically struck by a passing vehicle.  The impact caused the infant plaintiff to suffer catastrophic injuries. When the two friends ran across the road, the driver of the vehicle looked across the road, took her foot off the accelerator.  The driver’s foot hovered over the brake pedal in the fear the two would run back onto the road. In looking in the direction of those two boys, the driver did not see the plaintiff then step onto the road.  By then it was too late.

    The plaintiff commenced an action in negligence against the driver in the ACT Supreme Court, which was heard before Elkaim J in June of 2018.  The plaintiff was ultimately unsuccessful in his action, which led to an appeal being hearing this year in the ACT Court of Appeal.

    First Instance Findings

    The first instance judge found that the plaintiff failed to prove that the driver was negligent, essentially because she acted reasonably in the (albeit unfortunate) circumstances.  In particular, it was found that the plaintiff himself was more negligent than the driver for stepping onto road when it was not safe to do so.  The driver, in the court’s view, was not acting unreasonably by having her attention on the two other boys.

    In case his decision on liability was appealed, Elkeim J went on to assess the plaintiff’s damages (notwithstanding he would not received any sum with an unsuccessful verdict against him).  Had he won though, Elkaim J assessed the plaintiff’s damages quite highly; in excess of $8 million, though held that sum should be reduced by 75% for the plaintiff’s own contributory negligence.  As it turns out His Honour’s liability decision was appealed.

    The Appeal – Lee v McGrath [2019] ACTCA 6

    On appeal, the ACT Court of Appeal upheld the first instance judge’s findings, concluding that the driver was not liable in negligence. The plaintiff argued that the driver should have looked back across the road to the plaintiff’s direction faster than she did, as to do so may have allowed her to slow down faster to prevent the collision. However, the Court of Appeal accepted that the driver’s distraction by the two boys running across the road was a reasonable response to their emergence. The Court of Appeal also did not find that plaintiff was necessarily visible to the defendant when the first two ran across the road, meaning there was no reason for his presence to have been anticipated.  Whilst the outcome of the accident, and the litigation, was tragic for the plaintiff, the duty of care owed by the defendant driver was high, as motor vehicle drivers owe a higher standard of care to pedestrians, due to the level of harm that can be caused. The courts generally look at the circumstances of each case in determining, whether or not, a standard of care has been met. Section 45(1) of the Civil Law (Wrongs) Act 2002 (ACT) (the CL Act) establishes a ‘but for test’ for causation, whereas, section 46 of the CL Act addresses the burden of proof. In determining liability for negligence, the plaintiff always bears the burden of providing, on the balance of probabilities, any fact relevant to the issue of causation.  That the driver “may” have done things differently to have avoided the accident, is a distinct question to whether she was acting reasonably – which the courts accepted she was.

    Key Lessons

    This case demonstrates the harsh reality of negligence law, which can leave an individual that is injured in a motor accident without an award of damages if they are unable to prove that the driver was negligent or at fault.

    Although such an injured individual may be unable to claim compensation through the courts, they may be eligible for care, support, treatment and rehabilitation under the ACT Lifetime Care and Support Scheme. Individuals that have been catastrophically injured in motor accidents in the ACT, regardless of fault, may be eligible for the scheme. The scheme covers pedestrians, cyclists, motor bikes and motor vehicles as long as one vehicle involved in the motor accident had compulsory third party cover. Catastrophic injuries include:

    • traumatic brain injury
    • spinal cord injury
    • amputations
    • burns
    • permanent blindness.

    For more information on the scheme please visit: https://apps.treasury.act.gov.au/ltcss/home

    If you need advice about being injured in a motor vehicle accident, please contact the Litigation team at BAL Lawyers.

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  • Principals with Professional Principles

    Principals with Professional Principles Seminar

    At the heart of Australia, the Canberra local community encompasses a diverse range of professions, all united by initiative, ambition and drive. Such traits have recently been seen in a meeting of the minds between the ACT Public School Principals, and Canberra’s largest local law firm, Bradley Allen Love Lawyers (BAL), in an initiative created to exchange knowledge between the managers of legal practice and the manager of schools. 

    The Canberra Community: Principals with Professional Principles
    Gabrielle Sullivan and Jason Holmes at the seminar: Principals with Professional Principles

    Although at first glance it may seem odd for lawyers and teachers to come together – the world of corporate law seems poles apart from primary and secondary school educators – reflection on the role of principals reveals some areas of intersection. School principals are managers (amongst many other things). They need to make peace and order through setting standards and resolving disputes. When you think about, this is not so different from what lawyers do every day.

    The professional learning program of the ACT Principal’s Association acknowledges the increasingly complex and diverse role of principals. It aims to engage principals with other non-teaching professionals, to broaden their horizons and learn how the work practices of non-teaching professionals may strengthen their own work.  

    On a cold winter’s afternoon this week, Gabrielle Sullivan, lawyer and Director in BAL’s Employment and Investigations Group, volunteered her time to welcome the ACT Principals to BAL’s city boardroom. Over wine and hors d’oeuvres, Gabrielle initially noted the ‘unusual gathering’, and commented that such a meeting is ‘potentially highly constructive – when we realise that we all have something to offer to others and to learn

    Gabrielle shared her insights as to how lawyers ‘get the facts straight’, how they negotiate, and how they manage time, staff, documents and emails.  Acknowledging that that how  principals relate to their staff, students and parents is critical to inspiring Australia’s next generation of leaders, she concluded with tips for persuasive personal and virtual presentation.

    The Principals were very engaged in the presentation, and honest and lively exchanges were had. BAL Lawyers was delighted to provide their offices and event coordinator on a pro bono basis for this community –building event.

    Attendees of the Principals with Professional Principles seminar

    Mr Jason Holmes, principal of Harrison School, who initiated the venture with BAL, was delighted with the event. He and the ACT Principals Association are looking forward to continuing to explore more professional linkages with the Canberra community.

    If you would like more information about this seminar, or have a speaking request, please contact our Employment and Industrial Law Group or call 02 6274 0999.

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  • Law Graduate – Business and Corporate

    We're Recruiting: Law Graduate – Business and Corporate

    This role will consist of you handling all the intricacies of Business and Corporate law and a fantastic development opportunity to work with a successful business, gain professional development, and the opportunity for personal growth within the legal sector. 

    The successful applicant must have:

    • A completed Bachelor of Laws;
    • Some experience working in some capacity within a law firm (i.e. as a Paralegal, Law Clerk, Legal Assistant, Law Graduate);  
    • Experience working in a commercial environment;
    • A solutions focused attitude, with commitment to delivering an exceptional standard;
    • A proactive and enthusiastic approach to seeing tasks through to completion;
    • A collaborative attitude and approach in all aspects of working life; 
    • Commitment to providing exceptional client service at all times;
    • Excellent interpersonal and communication skills, both written and verbal;
    • High levels of attention to detail;
    • Strong IT, computer and research skills and willing and able to adapt to new technologies quickly; and
    • Motivation for continuous learning.

    If you think that this role would suit you and you have the relevant experience, please email helen.parrett@ballawyers.com.au with your CV and a covering letter outlining what experience you have that would make you an ideal candidate for the role.

    Applications that do not have a covering letter WILL NOT be considered.

    If you have any questions please do not hesitate to contact Helen Parrett on helen.parrett@ballawyers.com.au. 

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  • Appointing a Testamentary Guardian for your Minor Children in the ACT – 5 points you should know

    Appointing a Testamentary Guardian for your Minor Children in the ACT – 5 points you should know

    1. The Legislation

    Every State and Territory in Australia has legislation which gives each parent the right to appoint a guardian by Will to take effect after his or her death.

    In the ACT the relevant legislation is the Testamentary Guardianship Act 1984 (“the Act”). Section 8 of the Act states that:

    “Each parent and each guardian of a child may, by Will or codicil, appoint a person to be a guardian of the child or persons to be guardians of the child”

    The State and Territory Acts are similar but in no way identical – there are differences and intricacies among the States and Territories.

    You should seek advice on which legislation applies to you.

    2. Changing Times and Changing Lingo

    Times have changed – the State and Territory legislation across the Australian jurisdictions refer to the older concepts of “guardianship” and “custody”. These concepts and terminology were removed from the Family Law Act 1975 in 1996.

    Part VII Div 2 of the Family Law Act  1975 introduces the concept of “parental responsibility” and defines the term in Section 61B as meaning “all the duties, powers, responsibilities and authority which, by law, parents have in relation to children”.

    “Custody” and “Guardianship” Orders have been replaced with “Parenting Orders” that can govern the long term or day to day care, welfare and development of the child.

    3. The interplay between the State and Territory legislation and the Family Law Act 1975

    The appointment of a testamentary guardian may be affected by the provisions of the Family Law Act 1975.

    Section 51(xxi) of the Australian Constitution empowers the Commonwealth to make laws with respect to marriage and Section (xxii) empowers the Commonwealth to make laws with respect to “divorce and matrimonial causes; and in relation thereto, parental rights and the custody and guardianship of infants”.

    In all Australian jurisdictions therefore, the Commonwealth can make laws with respect to guardianship of the child of the marriage.  However, without a referral of power from the States, the Commonwealth could not legislate in respect of a child who was not a child of the marriage.

    Changing familial values over the years and the increase in more and more people having ex-nuptial children meant that between 1986 and 1990, all Australian States (with the exception of Western Australia) referred their powers with respect to guardianship, custody, maintenance and access in relation to ex-nuptial children to the Commonwealth.

    A referral of power to the Commonwealth is not required from the ACT, the Northern Territory and Norfolk Island because s 122 of the Australian Constitution assigns to the Commonwealth plenary power to “make laws for the government” of the Territories.

    What this means is that each State and Territory legislation regarding the appointment of testamentary guardians must be read in the context of the Family Law Act 1975. It is said that the Family Law Act 1975 is intended to completely “cover the field” with regard to the parental responsibility of children and notwithstanding that Part VII of the Family Law Act 1975 does not deal with the appointment of  testamentary guardians it is intended to comprehensively cover parental responsibility.

    4. Appointing a Testamentary Guardian in the ACT

    In the ACT, where there is a no surviving parent of the child and no relevant Parenting Order on foot then the appointment of a testamentary guardian allows the appointed guardian to have daily care and control of the child and the rights and responsibilities to make decisions concerning the child.

    But, where there is a surviving parent and/or relevant Parenting Order in place, then the appointment of a testamentary guardian might require a joint guardianship arrangement, or might not take effect at all.

    As a general rule of thumb therefore, it is good practice for a parent to appoint a testamentary guardian in their Will to take effect:

    a. immediately where they are the sole surviving parent or

    b. if the other parent has predeceased the appointing parent.

    In all cases, the appointment of a testamentary guardian should be done with the knowledge and acceptance that the Family Law Act 1975 may ultimately take priority and precedence. In all cases, a Court will of course have regard to the best interests of the child at the time of their parent’s death.

    5. Things you should consider when appointing a Testamentary Guardian

    Though not an exhaustive list, the following is a list of some of the matters you should consider when deciding who to appoint as at testamentary guardian for your child or children:

    • Do I trust my testamentary guardian to always act in the best interests of my child or children?
    • Where does my testamentary guardian live and will my child or children need to relocate after my death?
    • Does my testamentary guardian have children of their own and can they assume the responsibility of my child or children?
    • What is my testamentary guardians religious and political views and position in respect to disciplining my child?
    • What is my testamentary guardian’s view on education?
    • Can (and will) my testamentary guardian ensure my child or children maintain ongoing contact with my extended family after my death?
    • Is my testamentary guardian likely to survive me?
    • What does the mother/father of my child or children think about the testamentary guardian I have appointed? What does my child or children think about them (a question to ask your child or children if they are old enough);
    • Should I make some financial provision for my testamentary guardian? A gift in my Will or perhaps just allow for reimbursement of the costs associated with the guardianship of my child or children?

    If you need advice on appointing a Testamentary Guardian please contact Golnar Nekoee  from our Wills and Estate Planning Team for more information.

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  • Outgoing, going, gone – Recovery of outgoing costs in leases

    It is common knowledge that commercial rates have increased substantially since the commencement of the Territory’s tax reform in 2012. For many owners, the increase in commercial rates now poses the question of affordability and viability. Whether an existing owner or a potential buyer, it is now essential that the terms of the lease and the information contained in the disclosure statement are scrutinised to determine whether the recovery of outgoing costs is valid.

    If you are a landlord of a commercial or retail lease that falls within the parameters of the Leases (Commercial and Retail) Act 2001 (the Act), Part 9 is worth a read.

    So what are outgoings? And how can they be recovered?

    In summary:

    An outgoing includes:

    • an expense directly related to the operation, repair or maintenance of the building that contains the premises or, if located in a retail area of a shopping centre, an area used in connection with the retail area;
    • rates, taxes, levies and other statutory charges; and
    • for premises located in the retail area of a shopping centre, the cost of promoting the premises or centre.

    To be recoverable:

    • the nature of the outgoing must be stated in the disclosure statement; and
    • the lease must state the outgoings that may be recovered, how the amount is to be calculated or apportioned and how the outgoings may be recovered.

    The above seems relatively simple, right? Surprisingly, it is not uncommon for a landlord to fall short of the above requirements and for a dispute to then arise between the parties. To reduce the likelihood of a dispute arising, consider the following tips:

    • The nature of the outgoings not being properly stated in the disclosure statement.

      Pay particular attention to the type or nature of the outgoing being recovered. For example, the City Centre Marketing and Improvements Levy (applies to commercial properties in the City and some area of Braddon) is a separate charge to general rates. To be recoverable, the Levy should not be lumped under ‘general rates’ but should be specifically stated in the disclosure statement.
    • The lease failing to clearly state the outgoings to be recovered.

      Though many leases will contain a broad definition of outgoings, it is important to revisit this definition to ensure consistency between the lease and the disclosure statement. If not stated in the lease, the outgoing will not be recoverable.
    • The lease failing to clearly state how the amount is to be calculated. 

      This is particularly important for commercial building that contains a number of tenancies but is not unit titled. In that particular circumstance, care should be given to the proportion payable by each tenant. For instance, where one tenant is liable to pay 100% of the general rates amount and another is liable for increases in the general rates amount over a base year, the landlord will not be able to validly recover the full general rates amount from the first tenant as it will likely have recovered part of the rates from the second tenant. This then leaves the provisions of the lease (for the first tenant) unclear as to what proportion the first tenant remains liable and is open to interpretation.

    If you have any queries relating to commercial leasing in the ACT or NSW, please contact our Real Estate Team.

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  • A PPSA Priority Reminder

    A PPSA Priority Reminder

    In O’Keeffe Heneghan Pty Ltd (in liquidation); Aus Life Pty Ltd (in liquidation); Rocky Neill Construction Pty Ltd (in liquidation) trading as KNF Group (a firm) (No 2) [2018] NSWSC 1958, the NSW Supreme Court strongly reminded us of the superior priority that an authorised deposit-taking institute’s unregistered security interest (perfected by control) has over the interests of secured creditors perfected under the personal property securities regime. The proceedings involved three companies in liquidation (together known as KNF Group).

    The Important Facts

    In mid-2016 the KNF Group entered into a loan arrangement with IFG Network Australia Pty Ltd (IFG) that was secured by a General Security Deed which extended IFG’s interest over all present and future acquired property of the KNF Group. On 25 July 2016, IFG registered and perfected this security interest on the PPSR.

    KNF Group also held two bank accounts with the Commonwealth Bank of Australia (the Bank). KNF Group’s obligations to the Bank were secured by a general security interest over KNF property but the Bank failed to register its security interest. On the 12, 13 and 15 March 2017 KNF transferred money out of one of their accounts with the Bank to an offshore bank account held by OzForex Ltd for the purpose of acquiring property in Ireland.

    On 16 March 2017, KNF Group directors resolved to place each of the three companies into voluntary administration. The OzForex transfer failed and the administrators of the KNF Group were paid $224,409.

    The Bank and IFG then started a battle over which party had better security over (and therefore priority to) the $224,409.

    The Priority Battle

    The Court upheld that under section 21(1) of the Personal Property Securities Act 2009 (Cth) (the PPSA), a bank with an ADI security interest perfected by control, has automatic priority over any other security interest.

    The NSW Supreme Court made the following important findings regarding the priority of creditors under the PPSA regime:

    • The Bank successfully argued that the account held with the Bank was “collateral” to which its security interest attached;
    • The transfer of money out of the ADI account in the lead up to the voluntary administration did not prevent the Bank from asserting control over that money. Importantly, the Court held that the PPSA allowed for a secured creditor to follow collateral into the hands of a third party. As such, the proceeds of collateral were identified as traceable property; and
    • The Court held that it would be irrational to prioritise IFG’s security over an ADI’s security simply because the money was wrongly transferred out of the account.

    The Court concluded that the Bank (as an ADI), successfully perfected its security interest by control under the PPSA. Therefore, the Bank had priority ahead of IFG’s perfected registered secured interest.

    This case is a reminder to registered secured creditors that perfecting your interest under the PPSA regime may not protect their interests against ADI’s.

    If you have any questions regarding the priority of your secured interest under the PPSR regime, contact Katie Innes.

    Written by Katie Innes with the assistance of Felicity Thurgate

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