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Contract Law News, March 2011

Vague “friendly” arrangements can leave you with your fingers burnt

Saleh and Romanous: failed joint property venture

The recent case of Saleh v. Rannous emphasises that it is critical to confirm with whom you are dealing in a contract and what they are promising.

Saleh entered into a contract to sell a property to Romanous in 2004. Saleh's brother owned the adjoining property and they had received developmental consent to combine the two properties and to build 8 two story town houses upon the property. The purchase price was negotiated between Saleh and Romanous on the basis that the two properties would be developed together. Saleh provided Romanous with a statutory declaration stating that the brother had appointed Saleh as his agent for negotiating for development of the properties. Before the exchange of contracts Saleh assured Romanous that he would negotiate with his brother for the development and should it not go ahead, Romanous would receive his money back and not be required to go through with the sale. When the negotiations for the proposed joint development failed, Romanous attempted to rescind the contract while Saleh issued proceedings to have the contract enforced in 2008.

The Court of Appeal held the evidence was sufficient to find a pre-contractual promise of Saleh to Romanous that the contract would not go ahead should the development not go ahead. This gave rise to a promissory estoppel which meant Saleh could not enforce his rights under the contract for sale. Rather than giving positive rights to Romanous under equity, the decision prevented Saleh from enforcing his contractual rights. This means that Romanous was not able to enforce other rights under the contract. However, the Court granted a remedy under s55 (2A) of the Conveyancing Act 1919 (NSW) to recover the deposit.

The new Personal Property Securities Act

You will recall that Forum Law has included regular updates on this new legislation in our previous News Issues. The start date for the introduction of the new legislation has been postponed until October 2011 as the Government recognises the significant effect it will have on business in Australia.

The Personal Property Securities Act [“the PPS Act”] will replace in excess of 70 pieces of legislation Australia-wide concerning the securing of title in property owned by others [other than real property i.e. land].

The new Act will affect all personal property including goods, motor vehicles, debts, and any intellectual property which is currently governed by a statutory system of registration [namely trade marks, designs and patents and possibly copyright as this form of property is governed by an Act].

The registration of your interest in any personal property will secure your interest [as a secured creditor] in the property and give you priority over others who may claim an interest in the said property, for example a liquidator, or another creditor who may registered their interest in the Company's property after you have registered your interest on the PPS Register.

We advise that your retention of title clauses on your invoices, or any other Romalpa clause in contracts or agreements be sufficient to support your claim to goods you have sold to a buyer where those goods have not yet been paid for in full [under a “retention of title” /Romalpa clause on your invoice]. So, if your buyer is wound up and a liquidator is appointed to the buyer company, you, [as the seller] will no longer be able to claim an interest in unpaid for goods under your retention of title clause unless you have registered that interest under the PPSA.

To be eligible to register an interest in the property, a person will have to satisfy the following pre-conditions:

Have an interest [the Security Interest]in the property [the property is referred to as the Collateral]

Having the nature of that interest recorded in a document [the Attachment]

Registering the Security Interest on the PPS Register [or taking possession of the Collateral]

If you wish to secure your interest in another's property under the new PPS Act you will need to enter into an Agreement which can be the basis of the registration of a Security Interest. This type of interest can be likened to what is currently known as one of the following:

  • a charge over a company's assets,
  • a retention of title clause in a contract/sales invoice
  • a bill of sale

Or other secured interest in personal property.

Your registered interest be known as a “perfected” Security Interest under the new PPS Act.

All company charges currently registered with ASIC will be automatically transferred to the new PPS Register when the new Act comes into force in October 2011.

We advise you to contact us to assist you with

  • identifying what interests you currently have and are likely to have over other's property
  • the nature of those interests and whether you require those interests to be documented and registered under the new PPS Act
  • whether any already documented interests require registration under the new PPS Act

Please do not hesitate to telephone us or arrange to visit us for an obligation free discussion of up to 30 minutes to discuss your requirements.

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