[Ferrier Hodgson v Whillock & Ors]
This dispute over the ownership rights to comingled grain held in storage by a business that went into administration led to important legislative reforms and valuable lessons in what steps that should be taken to safeguard goods and produce stored by other parties.
In 2005, six growers from the Liverpool Plains region in Northern NSW entered into an agreement with Creasy’s Grain Enterprises (Creasy’s), a private storage agent, for the storage of large amounts of grain – approximately 1000 tonnes of sorghum and barley worth approximately $150,000 at the time of siloing.
The grain was to be stored within a silo facility owned and operated by Creasy’s out of Premer in North-West NSW. The farmers received documentation from Creasy’s confirming the agreement and specifying the types and amounts of grain to be stored by each party.
By August 2005, Creasy’s were under considerable financial pressure, holding debts of more than $23 million at that time. Consequently, the company was placed into administration, with Ferrier Hodgson (FH) appointed as administrators.
The producers who had contracted with Creasy’s for the storage of the grain were informed by FH that they would no longer be able to claim ownership over the grain. This assertion by FH relied upon archaic legal precedents relating to ownership rights over bagged, intermingled grain (Chapman Bros v Verco Bros. and Company Ltd. and Anor).
The existing principle essentially provided that as it was not possible to determine ownership of the intermingled grain, ownership rights would pass to the owner of the storage facility.
Having been earlier provided with assurances that they would be able to reclaim their property, the growers determined to initiate legal action against FH to re-assert their rights to ownership over the grain.
Responding to an application filed in late 2005, the AFFF provided financial support to assist the growers in their legal claims. Following a relatively brief legal battle, the AFFF secured victory by way of an out-of-court agreement from FH to pay the growers the market-value of the grain stored at the time of the agreement.
The total value of the settlement was $97,000, divided proportionally between the growers. Though this may be considered a just outcome, it is regrettable that the situation that gave rise to the action should have come about in the first place.
Though settled out-of-court, the flow-on effects of this case were significant in how they drew awareness to the potential for third parties to claim goods stored by another on their behalf, and the subsequent response to the clear inadequacies this status-quo presented.
In 2006, Mr Peter Draper MP of the NSW Legislative Council moved for an amending Bill – the Sale of Goods and Warehouseman’s Liens Amendment (Bulk Goods) Bill (the Bill) – to prevent similar situations arising in future that would risk farmers being “robbed of what is rightfully theirs”.
The Bill amended the Sale of Goods Act 1923 to:
“ensure purchasers of goods to be delivered from delivered from a bulk storage can, by paying for them, obtain a proprietary right to the goods before they are separated out from the bulk. It will also amend the Warehousemen’s Liens Act 1935 to ensure that an owner of goods delivered into bulk storage retains a proprietary right to those goods after they have become part of bulk storage.” – (Sale of Goods and Warehousemen’s Liens Amendment (Bulk Goods) Bill – Second Reading)
The effect of this was to remove a considerable measure of uncertainty for growers and served as a major step towards ensuring that farmers are treated with fairness and equity in commercial dealings where their rightful property is concerned.
Further to this development of the law, GrainGrowers Australia have advised that growers register their interest in grain that they intend to retain title to on the Personal Properties Securities Register (PPSR) as well as obtaining and retaining clear, concise, and up-to-date warehouse agreements.
This case illustrates the type of outcomes the AFFF aims for – a legal precedent setting win, and permanent legislative change to prevent the same situation in the future.
For more information about the issues involved in this case, contact the NFF or GrainGrowers Australia.