Legislative Council Fifty-First Parliament, Third Session (51-3) 51 3 Parliament of South Australia Legislative Council published Bills Statutes Amendment (Bulk Goods) Bill STATUTES AMENDMENT (BULK GOODS) BILL Introduction and First Reading Introduction and First Reading Received from the House of Assembly and read a first time. Second Reading Second Reading The Hon. P. HOLLOWAY Legislative Council Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (17:23): I move: That this bill be now read a second time. I seek leave to have the second reading speech and explanation of clauses inserted in Hansard without my reading them. Leave granted. This Bill is designed to overcome a difficulty in the law about the sale of goods. It is concerned with goods that are stored in a bulk store before being either on-sold or retrieved. It addresses two problems. First, there is the risk for the owner who deposits the goods, if the operator of the bulk store becomes insolvent before the goods are on-sold. The High Court in the 1933 case of Chapman Bros v Verco Bros and Company Ltd ((1933) 49 CLR. 306) held that the deposit of goods in the bulk store in these circumstances could not be regarded as a bailment because it was impossible to return the exact goods deposited. It therefore reasoned that the arrangement under which the goods were deposited with the bulk store could only be a contract of sale. Property had therefore passed to the bulk-store operator at the time of deposit. The result is that the seller who has deposited grain but has not been paid for it is at risk if the operator of the bulk store becomes insolvent before the goods are on-sold. The seller cannot retrieve the goods, but has not been paid the price, so he or she becomes merely an unsecured creditor in the liquidation. This problem was highlighted when difficulty arose in New South Wales in 2005 when a silo operator became insolvent and the liquidator initially claimed that the grain deposited by various unpaid growers was his to sell. The case eventually settled and the growers were paid, but the New South Wales Government proceeded to amend the Warehouseman’s Liens Act to ensure that the problem would not arise in future. Second, a similar problem can arise for the buyer if the goods in the bulk store have been on-sold to him but not collected. The buyer has paid the price for the goods but has not yet taken delivery of the quantity he has paid for. Because of section 16, as these goods have not been ascertained, should the seller become insolvent, once again, the buyer, despite having paid the price for the goods, becomes an unsecured creditor in the insolvency. The latter problem received the attention of the English and Scottish Law Commissions in 1993, resulting in an amendment to the United Kingdom Sale of Goods Act by the U.K. Parliament in 1995. That amendment gives the buyer of unascertained goods forming part of an identified bulk an interest in the bulk, in common with the other buyers, from the time the goods are paid for and the bulk identified. The buyers are treated as owners in common of the bulk. Property thus passes even though the goods have not been separated. This ownership in common is an interim provision to give the buyer some protection until the goods are ascertained and he becomes their sole owner. At the same time, some modifications are made to the rules of common ownership to permit dealings with the bulk. The New South Wales amendment that I mentioned dealt with both problems at once by adopting the model of the English law, as it protects buyers, and adopting a mirror-image provision to protect sellers. The Bill now before us does the same as the New South Wales law. Members should understand that the Bill does not seek to restrict the parties’ freedom to make whatever agreement they wish. As with both the UK provisions and the New South Wales provisions, these are default rules, subject to any agreement between the parties to the contrary. They are meant to deal with the case where the contracting parties have made no provision for these matters but are not meant to stop the contracting parties deciding on some other arrangement that suits them better. The purpose of this Bill, then, is to protect both producers, who deposit interchangeable goods in a bulk store, and the buyers of those goods, against the risk that the operator of the warehouse becomes insolvent before the seller has been paid for the goods. The Bill is not retrospective. It will apply to contracts of sale or deposits in a bulk store that are made after the new law starts. In the meantime, it is, however, entirely open to producers and buyers who are worried about the present state of the law to protect themselves by the terms of their contracts. I commend the Bill to the House. Explanation of Clauses Explanation of Clauses Part 1—Preliminary 1—Short title 2—Commencement 3—Amendment provisions These clauses are formal. Part 2—Amendment of Sale of Goods Act 1895 4—Amendment of section A2—Interpretation This clause defines bulk for the purposes of new section 20A. 5—Amendment of section 16—Goods must be ascertained This amendment is consequential upon new section 20A. 6—Insertion of section 20A This clause inserts new section 20A as follows: 20A—Contracts of sale for goods forming part of bulk The proposed section applies to a contract of sale for a specified quantity of unascertained goods if— the goods, or some of them, form part of a bulk that is identified either in the contract or by subsequent agreement between the parties; and the buyer has paid for some or all of the goods that form part of the bulk. The proposed section provides that, unless the parties otherwise agree— property in an undivided share in the bulk is transferred to the buyer; and the buyer becomes an owner in common of the bulk, as soon as both of the conditions referred to in subsection (1) have been met. Under the proposed section, unless the parties otherwise agree, the buyer's undivided share in the bulk at any time is the share that, at that time, is equivalent to the quantity of goods paid for and due to the buyer out of the bulk divided by the quantity of goods in the bulk. If at any time the aggregate of all buyers' undivided shares in the bulk exceeds the whole of the bulk, those shares are to be reduced proportionately so that the aggregate is equal to the bulk. If a buyer has paid for only some of the goods due to the buyer out of the bulk, any delivery to the buyer out of the bulk is to be attributed to the goods for which payment has been made. Part payment for any goods is to be taken to be payment for a corresponding part of the goods. The proposed section provides that a person who has become an owner in common of the bulk will be taken to have consented to— delivery of goods out of the bulk to another owner in common of the bulk, being goods that are due under a contract to that other owner; and any dealing with, or removal, delivery or disposal of, goods in the bulk by another owner in common of the bulk (but only to the extent of that other owner's undivided share in the bulk). No cause of action lies against a person by reason of that person's having acted in accordance with subsection (7)(a) or (b) in reliance on the consent that exists by virtue of that subsection. The proposed section provides that nothing in the section— imposes an obligation on a buyer of goods out of the bulk to compensate any other buyer of goods out of the bulk for any shortfall in the quantity of goods received by that other buyer; or affects a contract or other arrangement between buyers of goods out of the bulk for adjustments between themselves; or affects the rights of a buyer under a contract to which this section applies. This section does not apply to a contract of sale entered into before the commencement of the Statutes Amendment (Bulk Goods) Act 2008. Part 3—Amendment of Warehouse Liens Act 1990 7—Amendment of long title 8—Amendment of section 1—Short title These clauses are consequential upon new section 14A. 9—Amendment of section 4—Interpretation This clause defines bulk for the purposes of new section 14A. This clause amends the definition of operator of a warehouse as a consequence of new section 14A. The amended definition reflects the fact that an operator of a warehouse is not a bailee for the purposes of new section 14A. 10—Insertion of section 14A This clause inserts new section 14A as follows: 14A—Intermingled goods The proposed section applies to goods that have been deposited with an operator of a warehouse by their owner (the depositor), or by his or her authority, and that have become intermingled with other goods of the same kind owned by, or deposited with, the operator of a warehouse so as to form a bulk. The proposed section provides that, as from the time the goods become part of the bulk, unless the parties otherwise agree— the depositor's property in the goods becomes property in an undivided share in the bulk; and the depositor becomes an owner in common of the bulk; and subject to paragraph (d) the depositor and the operator of the warehouse each have, in relation to the depositor's undivided share in the bulk, the same obligations as they would have had in relation to the goods had they not become part of the bulk; and the obligation of the operator of the warehouse to deliver the goods to, or to the order of, the depositor becomes an obligation to deliver an equivalent quantity of goods out of the bulk to, or to the order of, the depositor. Under the proposed section, unless the parties otherwise agree, the depositor's undivided share in the bulk at any time is the share that, at that time, is equivalent to the quantity of goods that have been deposited by the depositor less the quantity of goods that have been delivered out of the bulk to, or to the order of, the depositor. If at any time the aggregate of all depositors' undivided shares in the bulk exceeds the whole of the bulk, those shares are to be reduced proportionately so that the aggregate is equal to the bulk. The proposed section provides that a person who has become an owner in common of the bulk will be taken to have consented to— any delivery of goods out of the bulk to another owner in common of the bulk, being goods to which this section applies; and any dealing with, or removal, delivery or disposal of, goods in the bulk by another owner in common of the bulk (but only to the extent of that other owner's undivided share in the bulk). No cause of action lies against a person by reason of that person's having acted in accordance with subsection (5)(a) or (b) of the proposed section in reliance on the consent that exists by virtue of that subsection. The proposed section does not apply to goods deposited with the operator of a warehouse before the commencement of the Statutes Amendment (Bulk Goods) Act 2008. Debate adjourned on motion of Hon. J.M.A. Lensink.