The decision of the Privy Council in Maynegrain Pty. Ltd. v. Compafina Bank 1 is notable for several reasons. It raises significant questions about the common law rules relating to agency and the tort of conversion, and suggests an area in which greater vigilance on the part of institutions providing credit secured on commodities may be needed. Regrettably, the decision also indicates that some of the applicable principles of liability in this context were insufficiently appreciated and explored.

The contractual mechanics of the case were complicated, and were complemented by a marked degree of misunderstanding among the parties. Essentially, the litigation centred upon a series of advances made by a Swiss bank (Compafina) to an Australian enterprise known as Bulk Terminals and Exporters (or “BTE”). The advances were negotiated and implemented through the ANZ Bank and were secured upon quantities of barley acquired by BTE. The barley, as acquired, was deposited by BTE with a warehouse company (Maynegrain) at Brisbane.

The agreed machinery for the operation of both credit and security was as follows. BTE was required to obtain warehouse receipts from Maynegrain for each consignment of barley deposited by BTE in the warehouse. These receipts were to be in Compafina’s name. They were to be transmitted to Compafina (along with other stipulated documents), whereupon Compafina would credit ANZ with an advance of 80 % of the purchase price of the consignment. The evident object and effect of this procedure was to render Compafina equitable pledgees of the barley, legal ownership residing in BTE.

In several respects, the agreed arrangements were not observed. There was an initial period during which BTE did not obtain warehouse receipts at all but merely provided a personal letter acknowledging on their own behalf that quantities of barley had been received into Maynegrain’s store. Even when this practice was corrected, the issued receipts were in the name of ANZ and not in that of Compafina. The irregularity persisted for as long as the barley remained in the store.

Neither Compafina nor Maynegrain were aware, during the storage interval, of this deviation from the agreed financing procedure. Compafina assumed that the appropriate receipts had been issued by Maynegrain; and accordingly that Maynegrain were aware of their interest in the goods. Maynegrain, however, had merely conformed with the stipulations imposed by BTE and ANZ and had thus issued the receipts in the name of ANZ. They had not participated in the original financing arrangements and had no reason to suppose that ANZ were not the financiers of BTE