Question 1.
Wether OB has taken on and breached a fiduciary duty to either, or both of SB and MPL, ultimately depends on the nature of its relationship at any given time with the parties in question. For this I consider the situation with each of the counterparties to OB individually, and throughout the various stages of the financing deal.
Relationship with MPL
A fiduciary relationship is one of confidence and trust whereby one party assumes particular obligations to act in good faith and not against the interest of another (i.e. counterparty).
Fiduciary duty arises automatically when the relationship is one of agent and principal; trustee and beneficiary; director and company; partner and partner; or employer and employee.
In its dealings with MPL, OB appears to be primarily engaged in a banker and customer relationship. As this does not fall under any of the categories of relationships specified above, there is no inherent fiduciary relationship. That being said, OB may have assumed a fiduciary capacity under common law, subject to satisfying the conditions arising from the Hospital Products Ltd vs United States Surgical Corporation (1984) 156 CLR 41 case. OB would be a fiduciary to MPL if it can be shown that it was acting in its interest and in a dominant position rendering MPL vulnerable to potential abuse. On the given facts, there is no clear-cut case to suggest that MPL, by virtue of its directors’ expertise, is vulnerable to abuse by the dominant OB. Therefore OB does not owe MPL a fiduciary duty on the basis of this test.
In this case OB goes on to interest other lenders to finance MPL’s loan, thereby assuming the role of “Arranger” of a syndicated facility. On the given facts, there is no evidence that MPL had consented to such arrangement, although there are no facts to the contrary either. For this I consider the ramifications in either case.
If the syndication was established under authority from MPL, then as “Arranger”, OB doubles as “Agent” to the borrower (as “it is usually apparent that the relationship between Arranger and borrower is one of principle and agent” – Astridge & D’Angelo, p.223), rendering the relationship as one of agent and principal, hence automatically creating a fiduciary responsibility. As such, OB would be required to exercise care and skill and use its best efforts in securing the required finances for MPL. Moreover, OB would owe MPL fiduciary duties to act in good faith, to avoid conflicts of interest, and not make undisclosed profit (Sessions 8&9 – 4.13.4).
On the facts, OB appears to have complied with its duties to exercise care and skill, using its best efforts to secure MPL the necessary funding by outsourcing a portion of the loan, acting in good faith, and not making a secret profit at MPL’s expense.
However, if MPL was not made aware of the syndication structure, a couple of issues may arise. Firstly such a situation would have created a potential conflict of interest whereby OB while acting as “Agent” for MPL, may in actual fact be negotiating terms that are more favourable to the syndicate participants. Additionally, OB may have disclosed to the other lenders information about MPL that may be sensitive in nature, thus failing to protect MPL’s interests in the matter.
There is no evidence on the facts that either case held, and as such it is difficult to state on the facts alone whether OB had breached any of its fiduciary duties to MPL.
Relationship with SB
The nature of the relationship between OB and SB varies, depending on the particular point in time being considered. Before execution of loan OB assumed the role of “Arranger”, and following the execution of the loan as “Agent”, as well as lender.
As the “Arranger”, OB worked to interest other potential lenders on behalf of MPL. The relationship between Arranger and lender does not automatically give rise to fiduciary responsibility, however this may be subjected to testing under the Hospital Products Ltd case.
Acting in the capacity of “Arranger”, OB presented the accounts supplied from MPL, upon which SB and NBC may have relied. However, to establish any fiduciary duty, one would need to show that SB was vulnerable to abuse by OB. On the facts, there is no evidence that either party, OB or SB, was dominant and hence in a position of vulnerability would be difficult to corroborate. One can rather assume that the various parties to the syndication, including SB, were just as expert in this domain and would be capable of independently deciding on the suitability of their participation.
Subsequent to the establishment of the loan, the syndicate participants (including SB) agreed for OB to hold the security on their behalf, and to it disbursing to others any funds received as repayment for the loan. This automatically creates a relationship of trust such that OB would owe a fiduciary duty to SB.
While clearly OB owed SB fiduciary duties, there is no evidence on the facts that OB has breached any such duty.

Question 2(A).
This question relates specifically to the security provided by MPL over its property, and therefore does not warrant any further discussion of securities provided by the directors (i.e. under personal indemnities).
Nature of security
In the given facts, we are told that MPL provided the following security for the loan:
• a fixed charge over factory equipment, and
• a floating charge plus negative pledge over all hardware owned by MPL from time to time, and all patents and licences granted to MPL.
The two types of security provided are basically equitable charges. Under these securities, MPL (as borrower) retains the right to hold and utilise the specified property for the fulfillment of its debt to OB (as chargee) on behalf of the other lenders.
The fixed charge over the factory equipment prohibits MPL from dealing freely with that property in that it cannot dispose of or replace that equipment without the prior consent of OB. A fixed charge over factory equipment would be appropriate as that class of assets would not ordinarily be changed unless rendered non-functional or obsolete.
By contrast, the floating charge does not attach to the specified property until the occurrence of a crystallising event such as “liquidation, receivership, cessation of the business” (Session 10 – 2.11.2) or as would be outlined in the agreement. A floating charge may specify a particular class of asset, the secured property may be replaced periodically, and business may continue as usual in relation to the specified class of assets until the occurrence of a crystallising event. The floating charge was over all hardware, which is transient property, as well as patents and licences granted to MPL. A floating charge over the specified property is appropriate as it is possible to be taken over any or all of MPL’s property, and not necessarily over property that is not frequently replaced, such as the patents and licences.
The floating charge also included a negative pledge, which is a promise not to create any mortgage or charge that ranks equally with, or outranks the floating charge over the same property. In any event of default where it is discovered that MPL may have created such equally- or higher-ranking security, it would be regarded that a crystallising event to the floating charge would have occurred at the time (or just before) the creation of the competing interest. This ensures that OB retains priority over the property covered by the floating charge.
Both the fixed and the floating charges needed to be specified in a written contract between MPL and OB. Given we are to assume that any contracts relevant to the analysis are enforceable, I am comfortable that the securities were made in the appropriate form.
Registrability
To determine if the above securities (fixed charge and floating charge) are registrable under the Corporations Act 2001 (Cth), I look to the specific provisions under the Act. Generally under the Corporations Act s 9, an equitable charge is a registrable security.
More specifically, s 262(1) of the Act outlines 9 categories of registrable securities. Under this legislation “a floating charge on the whole or a part of the property, business or undertaking of the company” is registrable (s 262(1)a). This includes all hardware, patents and licences issued to MPL, which would otherwise still be registrable under s 262(1)e if those assets were covered under a fixed charge.
As the fixed charge was on the factory equipment, which is regarded as personal chattel since it is not attached to the building (i.e. “any article capable of complete transfer by delivery” – s 262(3) of the Act), it too is registrable under s 262(1)d of the Act.
Priority
There are no facts as to whether or not OB’s securities were registered. The implications in relation to priority in the presence of competing securities would differ depending on the actual status of registration. I consider both possibilities in relation to any possible competing securities.
By virtue of their nature as equitable interests, both fixed and floating charges would follow in priority after any legal or equitable interest established at an earlier date, or even a subsequent legal interest acquired “bona fide for value without notice of the prior interest” (Session 11 – 2.2.1).
On the facts, there are no evident competing securities on the property covered under the fixed charge, and most of the assets under the floating charge. Specifically, there are no competing interests on the factory equipment, patents, and licences held by MPL, and most of the delivered hardware. However there is a possibility of a competing interest against the hardware supplier whose terms specify that “title to the goods did not pass until the entire purchase price for each delivery had been paid” (Case facts), with payment to be made within 30 days of delivery.
However, the hardware supplier is essentially an unsecured creditor, and it holds legal title over the goods it supplies until full payment. Its claim is not a security as such, rather a legal interest, which would not be registrable (Session 11 – 2.4.5). Under the circumstances then there is no direct competition between OB and the supplier in relation to the unsettled hardware. This would fall under the Sale of Goods legislation (Goods Act 1958 (Vic)), or nemo dat principle whereby OB would have no claim over the unsettled hardware in MPL’s possession, regardless of registration status. This arises due to the Retention of Title (RoT) clause we are told is stipulated in the supplier’s terms of payment.
Remedies
While OB may have a variety of remedies to pursue, we are specifically asked about its ability to appoint a receiver or to take possession of some or all of the secured property.
Assuming that MPL was in default, and that the floating charge has crystallised, OB would need to consider its options of possession or receivership as per the following logic:
Possession In order for OB (as chargee) to take possession, it would need to have entered into an agreement permitting it to do so (Session 11 – 3.9). There are no facts either way, but assuming there was prior agreement, possession would be dealt with as follows:
• Factory equipment – possible as tangible equipment covered under fixed charge.
• Patents & licences – not possible as intangible assets.
• Hardware (fully owned by MPL) - possible as tangible equipment covered under floating charge, crystallised into fixed charge.
• Hardware (payment outstanding) – not possible as MPL does not have ownership.
Receiver OB’s ability to appoint a receiver is governed by the following conditions:
• On application to the court (Session 11 – 3.18); or
• If applicable, under State property legislation (if specified in a deed (Property Law Act 1958 (Vic) s 101 (deed)/Session 11 – 3.17)); or
• Under the terms of the agreement (Session 11 – 3.15).
There are no facts suggesting the existence of a separate deed or agreement in contract giving OB the power to appoint a receiver, however they may still resort to application through the State Supreme Court.

Question 2(B).
Nature of security
Under the new legislation, the concept of a “security interest” is broadened to include a wider variety of securities currently recognised in Australia, including fixed charges, and floating charges (PPS – 3.2.1). It is defined under Subsection 12(1) as “an interest in relation to personal property provided for or by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)”.
The relevant property that can be used to create a security under the PPS is also covered under the umbrella term of “personal property”, which includes “all property other than lands or rights, entitlements or authorities granted or declared by law” (PPS – 3.1). Thus the property being offered by MPL for security falls under the scope of “personal property”, and would be covered under the one “security interest”.
Additionally, a new type of security interest is introduced by the PPS and applied in this case, that of a “purchase money security interest” (PPS – 3.2.2). Among other situations, but as applicable to this case, this type of security interest explicitly covers goods being sold, whose legal title does not transfer to the possessor until payment is made to the value of the goods (PPS – 3.2.2(d)). This relates particularly to the hardware recently delivered to MPL, for which the supplier would not have received payment at the time of MPL’s default. Contrary to the current legislation, the PPS recognises such a setup as a security interest as opposed to a mere legal interest.
Registrability
Under the new PPS legislation, and assuming that any relevant security interest has attached (as we are instructed to do), it is required to be perfected. The “main rule for perfection” as provided in the PPS, stipulates that a security interest is perfected if (i) it has attached (assumed in this case), and extra steps of either possession, control, or registration of the collateral has occurred (PPS – 4.3.2). As OB has neither control over, nor possession of the factory equipment, patents and licences, and directly owned hardware, it would be required to register its security interests. Actual possession, and ultimately control, would be with MPL. By contrast, while the hardware suppliers would have relinquished control and given up possession of their goods upon delivery to MPL, they would not be required to register their security as they would be protected by the RoT in their terms of payment.
Priority
While priority between security interests under the PPS legislation is generally governed by the “default priority rules” (PPS – 5.2), that are based on a hierarchy determined by timing of creation for unperfected security interests – the earlier ranking higher (PPS – 5.2a); perfected vs unperfected security interest – perfected ranking ahead (PPS – 5.2b); and among perfected securities – the order of perfection (PPS – 5.2c). There are also specific rules (PPS – 5.3) of which one is particularly relevant for this case.
As under the current legislation, there does not appear to be any priority issues relating to OB’s security interest over most of the property, namely factory equipment, patents, licences, and “owned” hardware. However, with the “purchase money security interest” being introduced under the PPS, there would be a competing security interest against OB over the unsettled hardware, as legal title would reside with the supplier. The suppliers “purchase money security interest” would take priority over OB’s security interests (PPS – 5.3/ s62).
Remedies
While OB may have a variety of remedies under the new PPS legislation, we are specifically asked about its ability to “dispose of some or all of the secured property”.
Under the new legislation, disposal of secured property (collateral) can occur in a number of circumstances, first following seizure of the property (PPS – 6.4.3a). As previously established, OB has neither control, nor possession of the property, so in the event of MPL’s default on the loan it would need to seize the secured property first. While more than one method of disposal is available (PPS – 6.4.3b), given the fact that OB had obtained the security for its interest and on behalf of the other lenders, the more appropriate would be by sale. It must first give notice to the grantor (MPL) and other secured parties (including the lenders – SB & NBC, and the hardware supplier) (PPS – 6.4.3d).
Since OB would not already be in possession of the secured property in the event of MPL defaulting, that would have to be seized. Under the PPS, both tangible and intangible property is subject to seizure (PPS – 6.4.2a). However, based on the priorities discussed above, it can seize all hardware, excluding that for which title is still with the supplier (due to non-payment), the patents and licences. As to the factory equipment would depend on how easily it can be moved, for OB would have the alternative of declaring notice of seizure in apparent possession (PPS – 6.4.2b).