Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd

[2017] NSWSC 1230

Supreme Court

New South Wales

Medium Neutral Citation:

Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230

Hearing dates:

15 June 2017

Date of orders:

14 September 2017

Decision date:

14 September 2017

Jurisdiction:

Equity

Before:

Ward CJ in Eq

Decision:

(1) Summons dismissed with costs.
(2) Declare that the cross-respondent repudiated the Deed of Sale of Poker Machine Permits dated 17 February 2017 expressly by refusing to complete the sale of the Poker Machine Permits as and from 7 April 2017 up to the filing of the cross-claimant’s cross-summons unless the cross-claimant consented to the declaratory relief and orders sought in the proceedings, which repudiation was accepted by the cross-claimant by the filing of its cross-summons.
(3) Declare that the Deed of Sale of Poker Machines dated 17 February 2017 has been validly terminated with effect from the date of filing of the cross-summons in these proceedings.
(4) Order that the cross-respondent pay the cross-claimant’s costs of the cross-summons.

Catchwords:

PERSONAL PROPERTY SECURITIES ACT 2009 (CTH) – Whether registration in respect of statutory licences amounted to an encumbrance

 

CONTRACT – Terms – Whether express or implied term obliged vendor to convey statutory licences free of encumbrances

 

ESTOPPEL– Estoppel by representation and estoppel by convention – Whether vendor estopped from denying existence of term obliging it to convey statutory licences free of encumbrances – Equitable estoppels – Whether vendor made clear and unequivocal assurances on which purchaser relied to its detriment

 

CONTRACT – Termination – Repudiation – Whether purchaser repudiated contract – Whether vendor accepted repudiation by filing of cross-summons

  EQUITY – Relief against forfeiture – Whether vendor’s reliance upon common law right of termination is unconscientious by reason of fraud, accident, mistake or surprise

Legislation Cited:

Conveyancing Act 1919 (NSW), s 68
Gaming Machines Act 2001 (NSW)
Personal Property Securities Act 2009 (Cth), ss 14(1), 14(2), 55, 62, 164, 165
Personal Property Security Bill 2008
Sale of Goods Act 1923 (NSW), s 17

Cases Cited:

AAP Industries Pty Ltd v Rehau Pte Lte [2017] NSWSC 390
Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12
ASIC v Rich [2003] NSWSC 297
Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36
Benwine v Jabetin; Jabetin v Liquor Administration [2004] NSWSC 995
Boensch v Pascoe [2010] NSWSC 1172
Botros v Freedom Homes P/L [1999] QCA 150
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Breen v Williams (1996) 186 CLR 71; [1996] HCA 57
Butts v O’Dwyer (1952) 87 CLR 267; [1952] HCA 74
Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 25
Codelfa Constructions Pty Ltd v State Rail Authority for NSW (1982) 149 CLR 337
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32
Commonwealth v Verwayen (1990) 170 CLR 394
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26
DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728; [2011] NSWCA 348
Doueihi v Construction Technologies Australia Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Eaton v Lyon (1789) 30 ER 1223
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Equitrust Ltd v Franks [2009] NSWCA 128
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407
Future Revelation v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741
Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10
Gregory v Wilson (1852) 68 ER 687
Grundt v Great Boulder Mines Pty Gold Mines Ltd (1937) 59 CLR 641
Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221
In the matter of Elite Sydney Pty Ltd [2016] NSWSC 1934
Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602; [2005] NSWCA 92
Kelly v Solari (1841) 152 ER 24
Kennedy v Vercoe (1960) 105 CLR 521
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61
Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11
Lennox v Cameron (1997) 8 BPR 15,939
Louinder v Leis (1982) 149 CLR 509
Low v Bouverie [1891] 3 Ch 82
Madden v Kerereski [1983] 1 NSWLR 305
Malding Pty Ltd v Metcalfe (1989) NSW ConvR 55-495
Melacare Industries of Australia Pty Ltd v Daley Investments Pty Ltd (1995) 6 BPR 14,005
Miller Heiman Pty Ltd v Sales Principles Pty Ltd [2017] NSWCA 106
Milos Nominees Pty Ltd v FJ & MJ Parker Pty Ltd (1981) 2 BPR 9248
Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55
Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5
Mount Bruce Mining Pty Ltd v Wright Prospecting Ltd (2015) 256 CLR 104; [2015] HCA 37
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64
Pitt v Holt; Futter v Futter [2013] 2 AC 108; [2013] UKSC 26
Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] NSWCA 8
Priestley v Priestley [2017] NSWCA 155
Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40
Re Lambert (1994) 20 OR (3d) 108
Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852
Re Minister for Immigration & Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65
Saleh v Romanous (2010) 79 NSWLR 453; [2010] NSWCA 274
Shiloh Spinners Ltd v Harding [1973] AC 691
Shirlaw v Southern Foundaries (1926) Limited [1939] 2 KB 206
Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127; [2007] VSCA 257
State of New South Wales v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503; [2002] NSWSC 178
Stern v McArthur (1988) 165 CLR 489; [1988] HCA 51
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57
TMA Australia Pty Ltd v Indect Electronics [2015] NSWCA 343
Van Dyke v Sidhu [2013] NSWCA 198
Vaswani v Italian Motors (Sales & Service Ltd) [1996] 1 WLR 270
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7

Texts Cited:

A Robertson, “Three Models of Promissory Estoppel” (2013) 7 Journal of Equity 226
B McFarlane, “The Limits of Estoppel” (2013) 6 Journal of Equity 250
Andrew Robertson, “Three Models of Promissory Estoppel” (2013) 7 Journal of Equity 226
Commonwealth, Parliamentary Debates, House of Representatives, 24 June 2009
JD Heydon, MJ Leeming and PG Turner, Meagher Gummow & Lehane’s Equity: Doctrines and Remedies (LexisNexis, 5th ed, 2015)
John McGee (ed), Snell’s Equity (31st ed, 2005, Sweet & Maxwell)
Smith, Principles of Equity (4th ed, 1908)
K Lewison et al, “The Interpretation of Contracts (5th ed, 2012)
PW Young, “Unconscionability and Promissory Estoppel” (2016) 90 Australian Law Journal 878
Young, Croft and Smith, On Equity (2009, Lawbook Co)

Category:

Principal judgment

Parties:

Auburn Shopping Village Pty Ltd (Plaintiff)
Nelmeer Hoteliers Pty Ltd (Defendant)

Representation:

Counsel:
M J Heath (Plaintiff)
N Mirzai (Defendant)

  Solicitors:
Milad S Raad & Associates (Plaintiff)
Jones Day (Defendant)

File Number(s):

2017/00082849

Publication restriction:

Nil

Judgment

1. HER HONOUR: By summons filed 17 March 2017, the plaintiff (Auburn Shopping Village Pty Ltd, to which I will refer as Auburn Village) seeks declaratory and other relief in relation to a dispute involving an agreement pursuant to which it was to acquire certain poker machine permits (the Poker Machine Permits) from the defendant (Nelmeer Hoteliers Pty Ltd, to which I will refer as Nelmeer).

2. Broadly speaking, Auburn Village contends that Nelmeer was in breach of an express (or implied) term of the said agreement (a Deed of Sale of Poker Machine Permits dated 17 February 2017 (the Sale Agreement)) requiring Nelmeer to transfer the Poker Machine Permits free of all encumbrances or security interests claimed by other parties in relation to the Poker Machine Permits (or, alternatively, in breach of an express or implied term that Nelmeer would provide sufficient comfort to that effect) and had not done all things necessary on its part to complete the Sale Agreement. Auburn Village further contends (by reference to various kinds of estoppel: by representation, by convention, and an “equitable estoppel”) that Nelmeer is estopped from denying an obligation to transfer the Poker Machine Permits free of encumbrance or to provide “sufficient comfort” to that effect.

3. Auburn Village accordingly maintains that a notice to complete served on it by Nelmeer on 8 March 2017, requiring completion of the Sale Agreement by 22 March 2017, is void and of no effect.

4. Auburn Village accepts that since 7 April 2107 there have been no impediments to the transfer to it of the Poker Machine Permits free of encumbrance but did not, until the outset of this hearing, tender the purchase price for the Poker Machine Permits (for reasons that I will come to in due course). It says that it has at all times been, and remains, ready, willing and able to settle the sale; and it seeks an order compelling Nelmeer to transfer the Poker Machine Permits to it. As already adverted to, at the hearing a bank cheque for the purchase price in respect of the Poker Machine Permits was tendered.

5. Auburn Village also contends that it has a claim for damages arising from the failure of Nelmeer to complete the sale on the completion date (20 February 2017), that loss being referable to the increased rent that was to have become payable by Nelmeer to it from the time of completion of the sale.

6. Nelmeer denies that it was obliged to transfer the Poker Machine Permits free from encumbrance (or to provide sufficient comfort to the effect that they were not encumbered) and denies that it is estopped from denying such an obligation. Its position is that even if there were found to be an obligation on it to transfer the Poker Machine Permits free from encumbrance it was at all times in a position to do so. It maintains that the registration of claimed security interests on the Personal Property Securities Register (the PPSR) established under the Personal Property Securities Act 2009 (Cth) (the PPSA) does not of itself constitute an encumbrance and says that the entries on the PPSR of which Auburn Village complained did not need to be removed in order for completion of the transfers to occur free of encumbrance. Nelmeer submits that Auburn Village’s claim is misconceived in this regard, in that none of the security interests referred to in any of the said PPSR registrations had anything to do with the Poker Machine Permits.

7. Nelmeer contends that Auburn Village, by its conduct (to which I will refer in due course), has repudiated the Sale Agreement, which repudiation Nelmeer says it has accepted by electing to terminate the Sale Agreement. Nelmeer has filed a cross-summons on 26 April 2017 in which, among other relief, Nelmeer seeks a declaration that, by filing its cross-summons, it accepted Auburn Village’s repudiation of the Sale Agreement. Its position is very clear – it does not now wish to transfer the Poker Machine Permits to Auburn Village and says it should not be required to do so.

8. Insofar as Nelmeer maintains that it has validly terminated the Sale Agreement for repudiation, Auburn Village in its reply submissions seeks relief against forfeiture. Nelmeer maintains that such relief is not available as a matter of law and, in any event, should not be granted.

9. As will be seen, a central issue in this case is the effect of registration, on the PPSR, of claimed security interests in personal property. For the reasons that follow, I accept the submissions of Nelmeer in that regard. I have concluded that Auburn Village did repudiate the Sale Agreement (by refusing to complete the sale after 7 April 2017 unless Nelmeer consented to the declaratory relief it had sought in these proceedings) and that the Sale Agreement was validly terminated by Nelmeer. As to the claim for relief against forfeiture, I consider this to be a case of the kind considered by the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 where the question is as to whether equity should relieve against loss of a contract for sale validly terminated at law by the vendor. In the present case, in circumstances where I am not satisfied that Nelmeer caused or contributed to the conduct I have found to amount to repudiation, I am not persuaded that it is unconscientious for Nelmeer to exercise its legal right of termination. Accordingly, the summons should be dismissed with costs and the relief sought under the cross-summons should be granted.

Background

10. By way of background, I note the following.

Lease of “The Village Tavern”

11. Auburn Village is the owner of licensed hotel premises situated within the Auburn Shopping Village, trading as “The Village Tavern”. The business owner is Mr Nelson John Meers (Mr Meers Snr). Nelmeer leases the hotel from Auburn Village pursuant to a registered ten year lease commencing on 6 May 2010.

12. Pursuant to cl 32(a) of the memorandum of lease, Nelmeer (as lessee) acknowledged and agreed that the Liquor Licence, which is defined in the lease as a specified hotel licence, and all poker machine entitlements attached to that hotel licence from time to time (including, among other things, the Poker Machine Permits if the option to purchase in cl 34 of the lease was properly exercised and completed by the lessor), was the property of Auburn Village.

13. In turn, pursuant to cl 32(c), Auburn Village (as lessor) acknowledged and agreed that the Poker Machine Permits (defined as including the fifteen poker machine permits attached to the Liquor Licence as at the commencement of the lease and any poker machine permits subsequently purchased or acquired by the lessee) were the property of Nelmeer.

14. Pursuant to cl 32(d), Nelmeer further acknowledged and agreed that:

… any future right, permit, licence, or other benefit (other than the Poler Machine Permits, which will remain the property of the Lessee) which may become available, or in any way associated with, or appurtenant to the Liquor Licence, shall be the beneficial property of the Lessor, and to the extent that title thereto may vest in the Lessee, such title shall be held by the Lessee upon trust for the Lessor.

15. Auburn Village was granted an option to purchase the Poker Machine Permits from Nelmeer (cl 34), such option being exercisable before 6 May 2013 (subject to the rights given to Nelmeer under cll 34(c) and (j)). Auburn Village exercised that option by notice dated 22 March 2016. There is no dispute as to the validity of the exercise of option.

16. Completion of the sale and purchase of the Poker Machine Permits was to take place 14 days after the price was determined under cl 34(e) (see cl 34(g)). The mechanism for the determination of the price for the Poker Machine Permits (pursuant to cl 34(e)) was that, if the parties did not agree on the price within 14 days after exercise of the option, then the price was to be determined by a valuer to be appointed as set out in that sub-clause. On completion, Auburn Village was to pay the price plus GST by bank cheque as directed by Nelmeer.

17. On and from completion, the minimum annual rent payable under the lease was to be increased by an amount equal to 10% of the price (exclusive of GST) and GST was to be payable on the increased minimum annual rent (cl 34(i)).

18. There was apparently some time taken in the valuation of the Poker Machine Permits. By email sent on 25 January 2017, Mr Neil Kerz, the in-house solicitor for the group of companies of which Auburn Village is part (the Raad Group) notified a director of Nelmeer (Mr Nelson Simon Meers, to whom I will refer as Mr Meers in distinction to his father, Mr Meers Snr) that Auburn Village had received the valuation of the Poker Machine Permits (prepared by a Mr Andrew Magin) and was ready to complete the purchase immediately. To finalise the purchase, Mr Kerz requested a tax invoice and an agreement for sale. In response, by email dated 1 February 2017, Mr Meers forwarded a Deed of Sale of Poker Machine Permits and tax invoice to Mr Kerz. The stipulated purchase price was $4,275,000 inclusive of GST. There is no dispute as to the calculation of the price.

19. There followed some negotiation of the terms of the proposed deed, the final version of which was ultimately executed by the parties on 17 February 2017.

The Sale Agreement

20. By cl 1.1 of the Sale Agreement, the completion date was fixed for 20 February 2017 (which was the next business day after execution of the Sale Agreement, there being an intervening weekend). There was no provision in the Sale Agreement making time of the essence.

21. Clause 5.4 of the Sale Agreement provided that:

5.4   The Vendor agrees that pending expiration of the lease the vendor shall hold the PMP’s [i.e., the Poker Machine Permits] pursuant to the licence in trust for the purchaser, and shall not sell, dispose of, alienate or encumber the PMP’s, and upon the expiration of the lease the interest of the vendor in the PMP’s shall revert to the purchaser and the vendor will at that time do all things necessary to transfer the license [sic], all gaming machine entitlements and the PMP to the purchaser or its nominee. Pending expiration of the lease each of the parties agrees to do all things exclusively within their power, and to execute all consents, necessary to enable the purchaser to be recorded as a party having a financial interest in the PMP and the license [sic] generally. [my emphasis]

PPSR search on 20 February 2017

22. On 20 February 2017, the due date for completion of the Sale Agreement, at 9.40am Canberra time, Mr Kerz carried out a search of the PPSR. In cross-examination his evidence was that the first time he had conducted a PPSR search in relation to the transaction was that morning (T 24.15). He said that he had done so in accordance with his normal practice when acting on a conveyance of real property (T 31).

23. That PPSR search revealed the existence of various entries on the PPSR in respect of Nelmeer. Within about ten minutes of receiving the PPSR search result Mr Kerz sent an email to Mr Meers (acting of his own motion but, he said, within his authority to protect the interests of Auburn Village), noting that there were “numerous personal property security interests registered against the company [Nelmeer]” and advising Mr Meers that:

Prior to settlement we will require releases of each of those securities as against the PMP’s [the Poker Machine Permits] to be registered, or the forms of release delivered to us, with allowance for all registration fees to be incurred.

24. Mr Kerz accepted in cross-examination that at that stage nothing less than a discharge from the PPSR (of the registrations in question) would have satisfied him (see T 27.10-15).

25. Pausing there, in submissions in the present proceedings Auburn Village identified four entries on the PPSR search that it says related to interests that affected the Poker Machine Permits and should have been removed to make the Poker Machine Permits free from encumbrance on transfer, those being: a security interest claimed by Meerfam Pty Ltd (Meerfam); two separate security interests claimed by Westpac Banking Corporation (Westpac); and a security interest claimed by Druin Pty Ltd (Druin), to which I will refer (consistently with the parties’ correspondence) as the “Druin encumbrance”. It is only the Druin encumbrance that remains relevant for the purposes of the issues raised in the present proceedings.

24. There was then correspondence (on which Auburn Village places weight both for its estoppel arguments and in the context of its application for relief against forfeiture) between Mr Kerz and Mr Meers as to what would satisfy Auburn Village’s concerns (or make it comfortable) as to the interests registered on the PPSR. I summarise that correspondence below.

Correspondence from 21 February 2017 up to issue of a notice to complete on 8 March 2017

27. Mr Meers’ initial response by email on 20 February 2017 at 12:47pm related to the registration(s) recording Westpac as the secured party. He said that he did not believe St George (apparently there referring to St George and Westpac, by then its parent company, interchangeably) had a specific security over the Poker Machine Permits and asked whether it would suffice for him to procure a formal letter from St George/Westpac with a statement to that effect.

28. Mr Kerz then forwarded at 1:30pm a copy of the PPSR search to Mr Meers and stated that the form of letter Mr Meers had proposed would not remove the registered securities over “general property – no exceptions”; that the search did not give him enough information “to tell over which assets security has been taken in each other case”; and that he would need details of each of the several charges over “other goods” “to determine whether they catch the PMP’s”.

29. The following morning at 10:46am, Mr Kerz sent to Mr Meers an email expressly placing on record that his client (Auburn Village) was ready, willing and able to complete the purchase “as soon as you are able to complete the sale free from encumbrances”.

30. In response, Mr Meers, by email of 21 February 2017 at 12:54am, advised Mr Kerz: that all the securities listed on the PPSR related primarily to two “Freehold Going Concern Hotel” businesses that Nelmeer owned in addition to being the lessee of the Auburn Village Tavern; that Nelmeer had borrowings from “St George (Westpac)”, which had a general property mortgage over all the assets of Nelmeer; and that the other listed secured parties were suppliers – “basically anyone who gives our business credit terms”, referring by way of example to a supplier whose security interest was over beer supplied on credit terms and the lessor of betting terminals whose security interest was solely over that equipment. Mr Meers concluded that “[u]nderstandably, therefore, we cannot simply have those security interests removed from the Nelmeer Hoteliers PPSR”. However, Mr Meers put forward what he referred to as three “standard options” in order for Auburn Village to obtain comfort that the Poker Machine Permits were free of encumbrance. The first (being the simplest and broadest solution, according to Mr Meers, and one that he said would enable the sale to complete quickly) was that Nelmeer provide a covenant that the Poker Machine Permits “are unencumbered or will be unencumbered when the transfer occurs” and that any damages incurred by Auburn Village if that proved to be incorrect would be covered by Nelmeer. Mr Meers said that this covenant could be added to the Sale Agreement.

31. The second option to which Mr Meers referred was that, if Westpac did have a specific security interest over the Poker Machine Permits (which he was “reasonably sure” it did not – but something he said he had nonetheless asked Westpac to confirm), was to arrange for Westpac to do a “partial release” of its security interest, specifically releasing any security over the specific Poker Machine Permits. The third option was that, if Westpac (and every secured party on the PPSR) did not have a specific security interest over the Poker Machine Permits, he could arrange each party to provide a letter saying that it did not have any security interest in the specific permits.

32. Mr Kerz, who agreed in the witness box that the offer to obtain some letters of comfort did not satisfy him at that time, responded on 22 February 2017 at 2:15pm that his client was prepared to settle on the basis of a combination of the three options that Mr Meers had proposed: namely, the first option referred to above, but with the proviso that the undertaking was supported by the personal guarantee of Mr Nelson Meers (by which I understand, from subsequent correspondence, that he was referring to Mr Meers Snr) and subject to certain additional conditions. Those additional conditions included the delivery of partial releases from those security holders holding security over “general property – no exceptions” (“not just Westpac”, then referring to Mr Meers’ second option) and the provision of letters from all other registered PPS security holders “confirming that they had no personal property or other security interest over the licence, the gaming machine entitlements, the gaming machine permits, nor any of landlords fixtures and fittings in the hotel” (referring to Mr Meers’ third option). Mr Kerz further advised that his client was prepared to allow a period of 60 days for the vendor to provide all the releases and letters; and that the “additional requirements” needed to be incorporated in a supplementary deed prepared by or at Nelmeer’s cost.

33. That email elicited a response from Mr Meers on 22 February 2017 at 3:58pm that there was “no obligation under the terms of the lease” or the Sale Agreement for it “to provide any releases or discharges with regard to the sale” of the Poker Machine Permits. Mr Meers asserted that “[w]e have done everything reasonably expected to allow completion according to the Lease and to accommodate [Auburn Village’s] concerns” and intimated that Auburn Village was “continually find[ing] reasons not to complete”. Mr Meers refused to entertain any further amendment to the Sale Agreement or any supplementary deed – “primarily because there is no requirement for us to do so under the Lease, and secondarily because its overkill”. Pausing there, it is clear therefore that by 22 February 2017, Nelmeer had put Auburn Village on notice that it denied any obligation to transfer the Poker Machine Permits free of encumbrance.

34. Auburn Village’s position was to the contrary. Mr Kerz maintained, by email of 22 February 2017 at 5:09pm, that his client was entitled to be satisfied that the Poker Machine Permits were “free of all personal property and other securities” and suggested that the vendor had given no consideration “to the need to transfer beneficial title free from encumbrances” and was now attempting to avoid that requirement. (This, it was suggested in argument, may have been harking back to the content of cl 5.6 of the Sale Agreement to which I will refer in due course.)

35. Mr Meers’ response at 5:25pm was to state that the Poker Machine Permits were not encumbered and that “[p]rocuring letters from everyone who has ever extended Nelmeer Hoteliers credit terms (which owns multiple businesses) to state they have no interest in the Village Tavern PMP’s is complete overkill”. By then, Nelmeer’s position that there were no encumbrances was also clearly on the table.

36. By email dated 23 February 2017 at 11:07am, Mr Kerz responded that search of the PPSR did not assist in identifying over exactly which assets any particular security interest was secured and so Auburn Village had no way of knowing that the Poker Machine Permits were not encumbered. He asserted that the two securities recorded as being over “general property – no exceptions” and those securities recorded as company charges (which he said were prima facie fixed and floating charges over all assets of the company) would clearly encumber the Poker Machine Permits; and he reminded Mr Meers that it had been Mr Meers’ proposal to obtain letters confirming that each particular security holder claimed no security over the Poker Machine Permits. He stated that if the vendor was not prepared to accept the regime that Auburn Village had offered, it would be left with no option but to insist that Nelmeer prove to its satisfaction that every registered security interest did not encumber the Poker Machine Permits.

37. After further correspondence from Auburn Village, including reference to potential litigation to break “the current impasse”, by email of 8 March 2017 Mr Meers served various documents on Auburn Village: a Deed Poll of Warranty from Nelmeer stating that the Poker Machine Permits were unencumbered; letters from St George Bank and Meerfam stating, respectively, that those entities (the St George letter expressly referring to Westpac) had no security interest in the Poker Machine Permits; the “previously provided” tax invoice in respect of the Poker Machine Permits and a notice to complete, requiring completion of the sale by 22 March 2017, failing which the notice stated that the vendor “shall exercise all other rights and remedies as are available to them by reason of the Purchaser’s breach, including but not limited to termination of the Contract”.

Further PPSR searches on 10 March 2017 and correspondence

38. Auburn Village carried out further PPSR searches on 10 March 2017 (this time by PPSR registration number – which provided more detail as to the nature of the security interest claimed and collateral over which it was claimed). By email that day at 9:58am Mr Kerz rejected the submitted proposed deed of warranty (as unsupported by the personal guarantee of Mr Meers Snr) and rejected the validity of the “purported notice to complete” both in substance and in form. Mr Kerz noted that Auburn Village had offered to settle immediately on terms allowing a 60 day period to provide the letters Nelmeer had “volunteered to provide” on condition that the undertaking was supported by the personal guarantee of Mr Meers Snr. In the stated interests of resolving the issue Mr Kerz said he was instructed to offer two alternatives: first, to settle on the basis of a deed of warranty by Mr Meers Snr personally or, second, to require the provision of letters of acknowledgment from “all” security holders registered on the PPSR. The email stated that it was “the obligation of the vendor” to deliver the Poker Machine Permits “free from encumbrances” but that Auburn Village was “willing to give consideration to any proposal you may make, but have not yet made, to satisfy my client that the PMP are unencumbered”. The email also demanded the immediate withdrawal of the notice to complete, failing which Mr Kerz advised that Auburn Village would commence proceedings for a declaration of the rights of the parties.

39. Pausing there, the 10 March 2017 PPSR search of the registration in respect of the Druin encumbrance disclosed, relevantly, that the claimed interest was a “purchase money security interest” (PMSI) over “Commercial property – Other goods” and that the interest was claimed over proceeds described as “All present and after acquired property”.

40. Further communications from Mr Kerz ensued on 15 March 2017, including a demand from the firm of lawyers who employ Mr Kerz that the notice to complete be withdrawn. Mr Kerz also stated that his client was “entitled to be satisfied that Druin Pty Ltd claims no interest over the poker machine permits”.

41. The response from Mr Meers, by email of 16 March 2017, was to the effect that more assurances regarding the lack of encumbrance had been provided than required under the lease or the Sale Agreement; that sufficient assurances had been provided for any reasonable person to be comfortable that the Poker Machine Permits were not in fact encumbered; and that Nelmeer would not withdraw the notice to complete and expected completion by no later than 22 March 2017.

Commencement of proceedings by summons filed 17 March 2017

42. It was against this background that the present proceedings were commenced by way of summons, Auburn Village seeking interlocutory relief to restrain Nelmeer from acting on the notice to complete. Orders were made to that effect by consent on an interlocutory basis on 20 March 2017 and the matter was then placed in the expedition list.

Letter of 7 April 2017 from Nelmeer’s solicitors

43. By letter dated 7 April 2017, solicitors acting for Nelmeer (Jones Day) wrote to Mr Kerz setting out their response to the relief claimed in the summons and setting out the basis on which they believed that the claims made by Auburn Village in the proceedings were untenable. The letter addressed in turn the claims based on an express or implied term and the estoppel argument. The letter also addressed the position in relation to the claimed security interests appearing on the PPSR as held by Westpac and by Druin.

44. In summary, Jones Day contended that the “Westpac letter” that had been provided to Auburn Village on 8 March 2017 (see [37] above), evidenced that Westpac has no security interest in the Poker Machine Permits, including in the beneficial interest in the Poker Machine Permits that Auburn Village would acquire under the Sale Agreement if and when completion occurred. As to the Druin encumbrance (that being used as a defined term to refer to the security interest apparently held by Druin appearing on the PPSR with regard to Nelmeer when the 20 February search was conducted), it was said that this had “transitioned to the PPSR when the register was established” and that Druin had omitted to remove the security interest from the PPSR notwithstanding that the interest had ceased to exist under the Druin terms and conditions in January 2012. (The Druin terms and conditions refer to an agreement which governed the credit account which Nelmeer used to purchase low-value electrical goods from a Harvey Norman store. The letter explained that Druin was the corporate entity under which the retailer ‘Harvey Norman Commercial’ trades.) The letter further noted that since those matters had been drawn to Druin’s attention, Druin had removed the Druin encumbrance from the PPSR.

45. The 7 April 2017 letter made clear that it was Nelmeer’s position that the claimed Westpac security interests “never extended to a beneficial interest in the PMPs” and that the Druin encumbrance had ceased to exist as at 3 January 2012; and hence that neither affected the beneficial interest in the Poker Machine Permits. The letter went on to say (at [34]):

It follows that our client had fully performed any term which [Auburn Village] claims should be implied into the [Sale Agreement] in relation to the Encumbrances when your client failed to complete the acquisition of the [Poker Machine Permits] on 20 February 2017. Contrary to the relief claimed in the Summons this also means that our client could not have been in breach of the [Sale Agreement] on 20 February 2017 or at any time thereafter.

46. It was further asserted that Auburn Village was in breach of the Sale Agreement when it did not complete the acquisition on 20 February 2017 and Nelmeer’s position was expressly reserved with regard to that contravention.

47. In the same letter, Jones Day then put an open offer to Auburn Village, on behalf of Nelmeer, that Auburn Village discontinue the legal proceedings on the basis that each party bear its own costs relating to the proceedings thus far and that the parties enter into an amending deed under which a new completion date would be agreed (and under which there would be an acknowledgement and agreement by Auburn Village that it was satisfied that there were no further steps required to discharge any of the security interests prior to completion, as well as mutual and unconditional releases with respect to the matters the subject of the dispute). The letter stated that the increased rent would take effect on and from completion under the amending deed. The offer was stated to be open to 5pm on 12 April 2017.

Auburn Village’s response to the 7 August 2017 offer

48. Auburn Village’s first response to the above offer, on 10 April 2017, was that it was willing to settle the purchase that day (and thereby to minimise the issue of damages) but that, as to the proposal that the legal proceedings be dismissed, it required Nelmeer’s agreement to pay its costs and damages, failing agreement to which it said that “the issue of costs and damages shall be determined by the court”. (It was also said that proceedings had been commenced to protect Auburn Village’s position following Nelmeer’s “repeated statement that the permits were unencumbered, and [Nelmeer’s] service of a notice to complete” and that the proceedings could have been “entirely avoided” by Nelmeer “taking the action it has now taken” to remove the Druin encumbrance “instead of disputing that the encumbrance may have affected the title to the permits”.)

49. However, a second letter was sent on that same day by Auburn Village’s solicitors, on the basis of advice that the above settlement proposal did not adequately protect Auburn Village’s rights, expressly withdrawing the proposal set out in the first letter of 10 April 2017 (see [48] above) and rejecting the proposal that had been put by Nelmeer (see [47] above). In relation to the Druin encumbrance, Auburn Village’s solicitors noted that they had on that day confirmed that the Druin encumbrance had been discharged and the recording of its registration removed and stated that “[t]he history of that security is not a matter which concerns our client.” This letter then stated that:

Our client remains ready willing and able to settle the sale agreement.

Based on what we have said above and in the light of the removal of the Druin encumbrance there would not be an impediment to settlement in the normal course.

Therefore, our client would be prepared to settle the transaction as early as today but it cannot settle the proceedings unless there is also a determination or an agreement about its loss arising from your client’s breach. [my emphasis]

Accordingly, in absence of any alternative acceptable agreement it would seem that the only realistic option is that your client indicate its consent to Orders and declarations 1, 2, 3 (or 4 & 5 in the alternative), 6, 7 & 8. This would leave the issue of damages to be determined [which the letter went on to opine would seem to be a “mathematical exercise”].

50. The declarations in respect of which consent was sought (as a pre-requisite to, or perhaps more accurately as a condition of, Auburn Village’s preparedness to settle the Sale Agreement that day) were, in essence, declarations: that the notice to complete was void and of no effect; as to the proper construction of the Sale Agreement (i.e., as to the existence of the express or implied terms for which Auburn Village contended, or as to the existence of an estoppel precluding Nelmeer from denying the existence of any such terms); that Nelmeer had not done all things necessary on its part to be done to complete the Sale Agreement; and that Nelmeer was in breach of the alleged express (or implied) terms.

Reinstatement of Nelmeer’s offer

51. Nelmeer did not accept that proposal and would not consent to the orders sought in the summons. Rather, by letter dated 11 April 2017 its solicitors invited Auburn Village to reconsider its initial proposal, which was said to remain open (though strictly speaking this would operate as a new offer since the earlier offer had already been rejected) until 5pm on 12 April 2017. Auburn Village did not accept that reinstated offer nor did it then tender the purchase price for the Poker Machine Permits.

Allegation of repudiation

52. By letter dated 20 April 2017, Nelmeer’s solicitors then asserted that Auburn Village’s failure to complete and failure to agree to or comply with the proposal of 7 April 2017 constituted a repudiation of the Sale Agreement. The letter stated that:

If it is [sic] was in any way equivocal following the expiration of our client’s proposal on 12 April 2017, for abundant clarity, our client accepts your client’s repudiation of the Deed on and from the lapsing of our client’s offer on 12 April 2017 at 5:00pm and elects to terminate the Deed to the extent that this is not inconsistent with Order 1 of the orders made by the Supreme Court of New South Wales in this matter on 20 march 2017 (the Orders).

To the extent that the above is inconsistent with the Orders, our client proposes to file a Cross-Summons to effect termination of the Deed to be determined following the determination of your client’s Summons.

53. That was where the matter rested prior to the hearing of the summons and cross-summons on 15 June 2017.

Auburn Village’s present position

54. In its written submissions dated 5 June 2017, Auburn Village’s position is that, at a practical level, it was not concerned about 20 of the 24 registered personal property security interests because the property affected by those securities was sufficiently particularised so as not to affect the Poker Machine Permits. In relation to the four remaining interests, Auburn Village says that it was (and is) prepared to accept:

•   Meerfam’s letter dated 7 March 2017, which was forwarded to it by Nelmeer under cover of the 8 March 2017 email, as confirmation that Meerfam did not claim any ongoing security interest in respect of the Poker Machine Permits;

•   the “Westpac letter” as adequate comfort in respect of the two Westpac security interest registrations; and

•   in relation to the Druin encumbrance, “some form of comfort” that Druin did not have any interest in the Poker Machine Permits (though it says that this issue was not resolved prior to the commencement of proceedings on 17 March 2017 and was only resolved by the confirmation given by Jones Day in their letter dated 7 April 2017 (see [43] above), that Druin had “removed the Druin Encumbrance from the PPSR”.

55. Auburn Village maintains that the terms of the Sale Agreement required the discharge of the Druin encumbrance prior to the transfer of the Poker Machine Permits. It has calculated its losses, as a result of the “failure” of Nelmeer to settle the Sale Agreement on 20 February 2017, in effect, the loss of the increased rent and interest thereon, up to 21 October 2017 as being in the order of $275,263.81. However, there was some dispute between the parties as to the calculation of that sum (referable to different positions taken on the applicability of GST) and it was agreed at the outset of the hearing that for the purposes of the case the loss would be treated as being in the sum of $118,000.

56. Auburn Village emphasises that, during the course of the negotiations in relation to the completion of the Sale Agreement (from 20 February to 20 April 2017), to which I have referred above, it offered on two occasions that it was prepared to allow Nelmeer a period of 60 days to provide either releases of the security interests concerned or letters of comfort to the same effect.

Issues

57. The issues identified by Auburn Village as raised in these proceedings may be summarised as follows:

1. Whether the Sale Agreement contains an express term (or alternatively an implied term of law and/or fact) to the effect that Nelmeer was required to transfer the Poker Machine Permits free of any security interest held by any other party or alternatively provide sufficient comfort to that effect.

2. In the alternative, whether Nelmeer is estopped by reason of its conduct from denying that it was a term of the Sale Agreement that the Poker Machine Permits would be transferred to Nelmeer free of any security interest held by any other party or alternatively that it provide sufficient comfort to that effect.

3. If the answer to either of the above is in the affirmative, whether the “purported service” by Nelmeer of the notice to complete served under cover of an email dated 8 March 2017 is void and of no effect.

4. Whether Auburn Village is entitled to damages by reason of Auburn Village failing to complete the sale, and, if so, in what amount.

5. Whether an order should be made for the specific performance of the Sale Agreement.

6. Whether Auburn Village repudiated the Sale Agreement by failing to accept the offer to settle the proceedings made by Nelmeer on 7 April 2017.

7. If the answer to the previous issue is in the affirmative, whether any failure of Auburn Village to accept the offer dated 7 April 2017, entitled Nelmeer to terminate the Sale Agreement.

58. Pausing here, the declaratory relief sought in the summons makes no reference to the alternative way in which the express/implied term is couched by Auburn Village in its submissions. In its submissions Nelmeer characterised this as a reformulation of the alleged implied term and submitted that the reformulation weighed against a conclusion that the implied term contended for (and expressed now in the alternative) satisfies the test for the implication of a term as a matter of fact. For Auburn Village it seems to be put that there is an element of interchangeability between the two formulations, in that one way that an obligation to transfer free from encumbrances might be satisfied would be by the provision of letters of comfort or the like that the purchaser could accept as satisfying it that the permits were free of encumbrance (see the debate at T 52.1-28).

59. To those issues should be added the issue raised in Auburn Village’s reply submissions as to whether (assuming that the issues as to repudiation and termination are determined in Nelmeer’s favour) Auburn Village is entitled to claim, and should be granted, relief against forfeiture. Although Nelmeer objected to this issue being raised at all, it not having been relief claimed in the summons, I accepted the submission for Auburn Village that this arose in response to the relief claimed by Nelmeer in its cross-summons. Particularly since the case had not been conducted by way of pleadings, and the question of law raised by the application for relief against forfeiture was able to be dealt with by discrete written submissions after judgment was reserved, I indicated that I would deal with that further issue.

60. In summary, in respect of issues (i)-(vii) Auburn Village contends the following:

1. that it was an express term, or alternatively an implied term of law and/or fact, of the Sale Agreement that Nelmeer was required to transfer the Poker Machine Permits the subject of the Sale Agreement free of any security interest held by any other party or to provide sufficient comfort to Auburn Village to that effect;

2. in the alternative, that Nelmeer is estopped by reason of its subsequent conduct from denying that there was a term of the Sale Agreement to the above effect;

3. that the purported service of the notice to complete served under cover of the email dated 8 March 2017 is void and of no effect; and

4. that any failure to accept the offer dated 7 April 2017 made by Nelmeer could not and does not entitle Nelmeer to terminate the Sale Agreement.

61. Nelmeer submits that Auburn Village’s case is premised on several misconceptions – most significantly that, even if the express or implied term contended for by Auburn Village could be established (which is denied), Nelmeer was not in breach at any material time because the Poker Machine Permits were unencumbered on the completion date and at all times thereafter. It maintains that relief against forfeiture is not available or, if it is, should not be granted.

Status of the PPSR entries

62. Before addressing the arguments as to the construction of the Sale Agreement, it is convenient to deal with the question as to the effect of registration of a claimed security interest on the PPSR (which Auburn Village relies upon for its contention that the registered interests constituted an “encumbrance” on the Poker Machine Permits).

63. As I have noted elsewhere, the passage of the PPSA radically changed the definition or conceptualisation of personal property security interests by providing “default rules” for the creation, priority and enforcement of such security interests (see Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] NSWCA 8 at [41]-[42]). The PPSA has simplified and streamlined the multi-jurisdictional approach to finance law, by removing arbitrary distinctions around the form of security, nature of collateral and personality of the grantor, and has reoriented Australia’s personal property security framework “around the rights of parties to enforce their interests” (see Revised Commentary to the Personal Property Security Bill 2008, December 2008 at 18).

64. Relevantly, it is important to recognise that the PPSA (unlike the Torrens system in relation to land) is a “notice-based” system.

65. In Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852 (at [32]) Brereton J took note of the fact that the PPSA was modelled on Canadian legislation and considered that the Commonwealth government should be taken to have intended the same approach. The Court of Appeal of Ontario, in Re Lambert (1994) 20 OR (3d) 108, said this of the Canadian legislation (at [32]-[33]):

The purpose of the registration system is to provide enough information to enable a person searching the system to know whom to contact to obtain information regarding a secured transaction. It is for this reason that the registration system is referred to as a notice-filing system. [my emphasis]

66. Similarly, in Future Revelation v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741 at [6] described “the purpose of registration” as being “to enable the existence of the security interest in the collateral to be searched and ascertained” (my emphasis). Thus, as Auburn Village accepts, registration of a claimed security interest on the PPSR puts someone searching the register on notice of potential encumbrances. However, as Nelmeer correctly points out, under the PPSA registration does not of itself create a security interest nor does registration constitute an encumbrance. Whether personal property is in fact encumbered by a claimed security interest as registered on the PPSR must be determined by reference to the underlying transaction claimed to have given rise to the security interest in question.

67. Integral to the PPSA is the extensive framework there set out for determining priority as between security interests in the same property. Registration of a financing statement or financing change statement, with respect to a security interest or specified personal property, operates to perfect that interest for priority purposes. The “default” priority position, one of last resort, is provided for in s 55 of the PPSA as follows:

(1)   This section sets out the priority between security interests in the same collateral if this Act provides no other way of determining that priority.

…

Priority between unperfected interests

(2)   Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests.

Perfected security interest has priority over unperfected security interest

(3)   A perfected security interest in collateral has priority over an unperfected security interest in the same collateral.

Priority for perfection in other ways

(4)   Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which priority time (see subsection (5)) for each security interest occurs.

…

68. Relevant also to the present case are the following provisions:

43   Taking personal property free from unperfected security interest

(1)   A buyer or lessee of personal property, for value, takes the personal property free of an unperfected security interest in the property

...

62   When purchase money security interests take priority over other secured interests

(1)   This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest.

…

(2)   The purchase money security interest has priority if:

(a)   the purchase money security interest is in inventory or its proceeds; and

(b)   the purchase money security interest is perfected by registration at the time:

(i)   for inventory that is goods--the grantor, or another person at the request of the grantor, obtains possession of the inventory; or

(ii)   for any other kind of inventory--the purchase money security interest attaches to the inventory; and

(c)   the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest.

…

Personal property other than inventory

(3)   The purchase money security interest has priority if:

(a)   the interest is in personal property, or its proceeds, other than inventory; and

(b)   the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies:

(i)   for goods--the day the grantor, or another person at the request of the grantor, obtains possession of the property;

(ii)   for any other property--the day the interest attaches to the property; and

(c)   the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest.

…

164   Defects in registration – general rule

(1)   A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists:

(a)   a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or

(b)   a defect mentioned in section 165.

(2)   In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it.

(3)   A registration that describes particular collateral is not ineffective only because the registration is ineffective with respect to other collateral described in the registration.

165   Defects in registration – particular defects

For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist:

(a)   in a case in which the collateral is required by the regulations to be described by serial number in the register--no search of the register by reference to that time, and by reference only to the serial number of the collateral, is capable of disclosing the registration;

(b)   in a case in which the collateral is not required by the regulations to be described by serial number in the register--no search of the register by reference to that time, and by reference only to the grantor's details (required to be included in the registered financing statement under section 153), is capable of disclosing the registration;

(c)   if the registered financing statement (as amended, if at all) indicates that a security interest in the collateral is a purchase money security interest (to any extent)--the security interest is not a purchase money security interest (to any extent) in the collateral;

(d)   in any case--circumstances in relation to the data related to the registration that are prescribed by the regulations.

69. The term “purchase money security interest” (PMSI), as referred to in ss 62 and 165(c), is defined in s 14(1) of the PPSA (subject to various exceptions in s 14(2) which are not relevant for present purposes) as follows:

A purchase money security interest means any of the following:

(a)   a security interest taken in collateral, to the extent that it secures all or part of Its purchase price;

(b)   a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;

(c)   the interest of a lessor or bailor of goods under a PPS lease;

(d)   the interest of a consignor who delivers goods to a consignee under a commercial consignment.

70. Nelmeer submits that none of the four security interests with which Auburn Village now says it was (as a practical matter) concerned had anything to do with the Poker Machine Permits, whether as at the completion date under the Sale Agreement or at any later stage.

71. As already noted, it is the registration of the “Druin encumbrance” which Auburn Village asserts precluded any transfer of the Poker Machine Permits free from encumbrance until its removal from the PPSR as notified on 7 April 2017. The purported security interest taken by Druin over the commercial property and other goods of Nelmeer (as described in the PPSR) is a PMSI (see p 2 of the 10 March 2017 PPSR search).

72. There are two limbs to Nelmeer’s submission that the Druin encumbrance was not a security interest affecting the Poker Machine Permits (and hence that they were free from encumbrance) at all relevant times.

73. First, it argues that there was an error in the registration of the Druin encumbrance on the PPSR, such that Druin did not have a perfected interest over Nelmeer’s collateral and consequently there was no encumbrance on the transfer of the Poker Machine Permits. Second (and related to the first), it argues that the mere fact of registration of the Druin encumbrance did not make it valid and operative, and therefore the registration of that claimed interest did not need to be removed from the PPSR in order for there to be no encumbrance affecting the Poker Machine Permits.

74. As to the first, as noted above the Druin encumbrance was registered and described on the PPSR (until its removal) as a PMSI. It is Nelmeer’s submission that this was an improper characterisation and, consequently, there was a defect in the registration of the Druin encumbrance for the purposes of s 165(c), the effect of which was that the registration was ineffective to perfect the claimed security interest.

75. I have extracted the definition of a PMSI at [69] above. Nelmeer notes that a PMSI commonly arises in the context of the supply or manufacture of goods, where the PMSI secures purchase moneys advanced by the supplier or manufacturer. Nelmeer says that it is because the supplier is providing these assets (but for which the assets would have never come to be in the hands of the purchaser) that the PPSA gives that supplier a “super priority” under s 62.

76. Having regard to the definition of a PMSI, Nelmeer submits that in order for the Druin encumbrance to have been properly so described or characterised it would be necessary for the Poker Machine Permits to have been “supplied” by Druin. Clearly that was not the case. The Poker Machine Permits are statutory licences – personal property created and granted by the State of New South Wales pursuant to the Gaming Machines Act 2001 (NSW). Auburn Village did not suggest otherwise (though, in the context of the implied term argument, it did suggest that the permits were, or were analogous to, “goods” falling within the Sale of Goods Act for the purpose of the implied warranties provided for under that legislation – see T 52.35, for example – something Nelmeer disputes).

77. Since the statutory rights conferred by the Poker Machine Permits were not, on any view, granted or supplied to Nelmeer by Druin, Nelmeer submits (and I accept) that Druin could not be said to hold a PMSI in respect of those permits. (That is so at least in light of the definition of a PMSI in s 14(1)(a), and I note that although s 14(1)(b) refers to “a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights” (my emphasis), it was not at any stage suggested that the Poker Machine Permits had been acquired by money supplied by Druin.) Incorrect description of Druin’s claimed interest as a PMSI means that the registration would be ineffective pursuant to s 164(1)(b) (itself referring, relevantly, to s 165(c)) of the PPSA and hence any security interest held by Druin at the relevant time (despite the registration of that interest) would have remained unperfected for the purpose of the PPSA and would not have priority over or affect Auburn Village’s interest on acquisition of the Poker Machine Permits.

236. In response, Auburn Village argues that if Nelmeer is correct (as I consider it was) about the status of the security interests, then Auburn Village was under a misconception contributed to by the conduct of Nelmeer. It is said that this brings the circumstances within the special head of mistake (alternatively, within the head of accident). It is further argued that Nelmeer, by seeking to deal with Auburn Village, either assumed (as did Nelmeer) that the security interests affected the permits or acted “against the contingency that they might”.

237. Alternatively, again assuming that Nelmeer is correct, Auburn Village submits that the relevant mistake was as the true status of the security interests. Auburn Village says that in this case the position is broadly analogous to the general application of relief against forfeiture discussed by Young et al in On Equity at [5.970], in the sense that the PPSR disclosed to the world security interests that prima facie could or did affect the permits. Auburn Village argues that in combination with Nelmeer’s conduct in seeking to remove the last registration only after proceedings commenced, it accepted either implicitly or expressly that they might affect the permits.

238. In any event, Nelmeer submits that none of the “special heads” will be met where the plaintiff's default is wilful or merely inadvertent (referring to Gregory v Wilson (1852) 68 ER 687 at 690; Shiloh Spinners Ltd v Harding [1973] AC 691 at 722; Eaton v Lyon (1789) 30 ER 1223 at 1224).

239. In respect of wilfulness, Nelmeer argues that Auburn Village’s conduct (and the evidence in this case) is consistent with the assertion that Auburn Village was not, at all material times, “ready, willing and able” to satisfy its end of the bargain under the Sale Agreement. Nelmeer submits that the “anecdotal and unsupported references” to Auburn Village being in a position to complete, based on what it says are no more than what Mr Kerz was instructed in that regard and what Mr Crane said about moneys being available (from separate legal entities, without demonstrating any means by which this was to become Auburn Village’s money), should be rejected. It is said that outside of the evidence adduced during the course of the hearing, there is no objective evidence that Auburn Village was ready, willing and able to complete at any material time. Nelmeer does not suggest that the Court need make any positive finding that Auburn Village was not ready, willing and able to complete; rather it says that on the evidence it should be found that Auburn Village has failed to satisfy the Court that it was in such a position at all material times. It says that if such a finding is made then Auburn Village’s failure to complete was, at worst, wilful and, at best, due to its own inadvertence, either of which findings would result in the application of the doctrine of relief against forfeiture being refused.

240. Finally, Nelmeer says that it would be “unconscionable” for the Court to intervene by way of forcing it to complete a contract that it has now elected to terminate in circumstances where Auburn Village has failed to take any step to complete the contract notwithstanding there being no impediment to doing so since 7 April 2017. Nelmeer says that the “misconceived notion” that completion of the contract would in some way jeopardise Auburn Village’s claim for damages cannot prejudice Nelmeer’s right to terminate nor could injunctive relief prevent such an election when the basis for the injunctive relief fell away no later than 7 April 2017.

241. In relation to the existence of unconscientious conduct on the part of Nelmeer and in the alternative to its submissions as to mistake and accident, Auburn Village argues that Tanwar makes it clear that the “special heads” of relief referred to in decided cases “...do not disclose exhaustively the circumstances which merit equitable intervention” (Tanwar at [58]). Accordingly, Auburn Village submits that the unique circumstances of this case (namely, the conduct of Nelmeer in taking steps to remove the encumbrances, including after the proceedings were commenced) constitute a category justifying relief not strictly falling within the special heads of the decided cases so far but not excluded by them.

242. Finally, Auburn Village advances submissions in relation to the “subsidiary questions” referred to by the plurality in Tanwar at [40]. Their Honours quoted the following passage from the judgment of Mason and Deane JJ in Legione v Hateley (1983) 152 CLR 406 at 449; [1983] HCA 11:

In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser’s breach? (4) What is the magnitude of the purchaser’s loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?

246. As Tanwar makes clear, one should not treat these questions as determinative in a case such as the present (Tanwar at [43]). Nonetheless, they may be well relevant.

247. In relation to the first, Auburn Village submits there is sufficient evidence to assert that Nelmeer’s conduct contributed to a breach by Auburn Village as set out above. Auburn Village says that Nelmeer’s suggestion that it pointed out the misconceptions as early as 21 February 2017 is not correct. Auburn Village argues that they were simply “views of” Nelmeer as to why the security interest would not affect the Poker Machine Permits which were inconsistent with the security interests as described in the PPSR.

248. In relation to the second, it is argued that this question should be addressed in light of a context in which funds for settlement were always available, there was a clear intention to settle, and the last security interest was only removed after proceedings were commenced. It is said that any default is trivial or slight, and certainly inadvertent (assuming Nelmeer is correct on the status of the security interests) and certainly not wilful. Auburn Village says that Nelmeer’s submission on the question of wilfulness is without merit, as is the suggestion that there was a lack of objective evidence as to Auburn Village being ready, willing and able to complete.

249. In relation to the third, Auburn Village says that the vendor here (that is, Nelmeer) does not assert or suffer any damage or other adverse consequence by reason of any breach. It is said that Nelmeer “gets paid the full amount of the transaction”. Further, Auburn Village says that, since the period when the sale was intended to complete, Nelmeer has had the benefit of revenue from the machines it operates pursuant to the Poker Machine Permits.

250. As to the fourth, Auburn Village says that in contrast to Nelmeer’s gain the magnitude of Auburn Village’s loss is large. Auburn Village loses the permits attached to the premises and runs the risk that the vendor seeks to sell them elsewhere and thereby reduce the value of the licence owned by the Plaintiff.

251. Finally, as to the fifth, Auburn Village says that specific performance with or without compensation is an adequate safeguard for Nelmeer. Again, Nelmeer has had the benefit of the revenue from the permits since the date of intended settlement.

252. In light of the foregoing, Auburn Village submits that if it does fail in its primary claims then relief against forfeiture is justified.

Determination as to claim for relief against forfeiture

253. In the present case, the Sale Agreement does not in terms provide for the determination of an existing interest in the Poker Machine Permits upon the happening of some event. As noted above, Auburn Village did not at any stage obtain legal title to the permits. No argument was run that cl 5.4 created an immediate equitable interest in the Poker Machine Permits (it was not suggested, for example, that Auburn Village as beneficiary of some express trust would have been entitled to call for the transfer of the Poker Machine Permits irrespective of whether or not it repudiated the Sale Agreement and that repudiation was accepted by Nelmeer). The nub of Auburn Village’s complaint is that Nelmeer has elected to terminate the Sale Agreement and that as a consequence Auburn Village is unable to secure a transfer to it of the permits in accordance with that agreement. Accordingly, as Nelmeer submits, the present case is most appropriately approached from the perspective of the decision in Tanwar. The focus of enquiry is what Lord Wilberforce in Shiloh Spinners called (at 723) “the special heads of fraud, accident, mistake or surprise”, the plurality in Tanwar describing those categories (at [58]) as identifying “in a broad sense” what may make it inequitable for a vendor to rely upon the termination of a contract in answer to a claim for specific performance by a purchaser. In short, it is necessary for Auburn Village to demonstrate that Nelmeer’s reliance upon its legal right to terminate is unconscientious in the sense envisioned in Tanwar. Auburn Village has failed to do so.

254. The present case is not a case of fraud or surprise. As was said in Tanwar at [58], it is necessary in such cases to point to the conduct of the vendor as having in some significant respect caused or contributed to the purchaser’s breach of the essential time stipulation. Auburn Village’s decision not to complete the contract was the product of its own interpretation of the Sale Agreement and certain assumptions as to the nature of the PPSR. Neither understanding was caused by any conduct of Nelmeer, nor did Nelmeer contribute to such understandings – on the contrary, although it considered Auburn Village’s concerns in good faith and proposed forms of accommodation, it made explicit by as early as 22 February that any such accommodation was not in fact required by the Sale Agreement.

255. Nor is this a case of accident. It has been said that equity will not relieve “where the possibility of the accident may fairly be considered to have been within the contemplation of the contracting parties” (Tanwar at [66], quoting with apparent approval Smith, Principles of Equity (4th ed, 1908) at 243-244). In the present case, the possibility that Auburn Village’s construction may have been erroneous (or that the Druin encumbrance was not, in fact, an encumbrance at all) was hardly outside the contemplation of the parties; it was in fact the very essence of the dispute.

256. That leaves the question of mistake. The question is whether Auburn Village’s misapprehension as to the nature and effect of registration on the PPSR qualifies as a mistake in the eyes of equity. The only decision to which I was referred on this point (Tanwar itself not involving any mistake; see Tanwar at [60]) was the decision of the Supreme Court of the United Kingdom in Pitt v Holt. Although that decision concerned equity’s jurisdiction to grant relief in respect of voluntary dispositions, I accept that Pitt v Holt may shed some light in the present context. (In this regard, I note that the authors of MGL cite Pitt v Holt for the proposition that mistake in the context of relief against forfeiture may come about “with or without such conduct by the party who would benefit from the forfeiture” (MGL at [18-255]).)

257. Even if it be accepted that Auburn Village laboured under an incorrect conscious belief or tacit assumption which was relevantly causative, such a mistake was ultimately unilateral and the question remains whether that will suffice in the present circumstances. In Pitt v Holt, Lord Walker spoke (at [122]) of the need for “a causative mistake of sufficient gravity” and suggested:

… as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

258. There are some difficulties in characterising Auburn Village’s mistake as one concerning the legal character or nature of the transaction, or as relating to some matter of fact or law basic to it. On its own submission, Auburn Village’s mistake ultimately concerned the “true status” of the PPSA security interests; that is, the nature and effect of registration on the PPSR. Although there is force to the suggestion that equity will be slow to grant relief in respect of a mistake concerning matters otherwise extraneous to a transaction, I accept that in the present case the mistake ultimately arose out of Auburn Village’s own (erroneous) construction of the Sale Agreement. Nonetheless, I have concluded that it is not unconscientious for Nelmeer to rely upon its legal right in the face of Auburn Village’s mistake.

259. The mistake, on any view, was of Auburn Village’s own making. That does not necessarily dispose of the question. For example, there is authority, at least in the context of a common law action for money had and received, that a plaintiff’s carelessness or negligence is no bar to recovery per se (Kelly v Solari (1841) 152 ER 24; Pitt v Holt at [114]). Similarly, the plurality in Tanwar expressly excluded mistake from the cases in which it would be necessary to point to a vendor as having caused or contributed to the purchaser’s breach and also expressly noted the absence of any argument in that case based on mistake (see Tanwar at [58]). In relation to the latter, however, I do not consider that their Honours intended to suggest that the vendor’s conduct is irrelevant in the context of mistake. The present case is clearly not one in which the vendor has expressly or impliedly acquiesced in the mistake or otherwise caused or contributed to it. It is hardly a case of any sharp practice on the part of Nelmeer. Such facts are not decisive, but they may be relevant as part of an holistic consideration of all the circumstances.

260. The present case involved two commercial parties in an arms-length transaction. By 10 April 2017 any mistake, however reasonable or understandable that may have been (and I accept that the PPSA is complex legislation with which all members of the legal profession will not necessarily be familiar), was arguably no longer causative (other concerns – such as the desire to preserve a claim for damages, which could only have arisen on the mistaken construction of the Sale Agreement – clearly having come into play) or, if relevantly causative, was no longer of sufficient gravity as to warrant equitable intervention.

261. By letter dated 7 April, Nelmeer’s solicitors informed Auburn Village of Nelmeer’s position in relation to the summons. Among other things, that letter made clear the nature of the Druin encumbrance and informed Auburn Village of its removal from the PPSR. In such circumstances, I cannot accept that it would be unconscionable or unconscientious for Nelmeer now to rely on its common law right of termination. Even assuming (as appears to be the case) that the letter of 7 April 2017 did not disabuse Auburn Village of its earlier misconceptions, I fail to see any requisite unconscientiousness in the circumstances by the time of 10 April 2017. By that time Nelmeer had in fact done far more than was required by it under the Sale Agreement and, significantly, Auburn Village nonetheless refused to settle the transaction unless there was also “a determination or an agreement about its loss”.

262. It can be accepted, as Auburn Village submits, that the special heads referred to in Shiloh and Tanwar “...do not disclose exhaustively the circumstances which merit equitable intervention” (Tanwar at [58]). However, I do not accept that this takes the matter any further in circumstances where the “unique” feature of the case to which Auburn Village refers is merely the eventual removal of the PPSR registrations (something that I do not consider was required by any express or implied term of the Sale Agreement).

Orders

1. Summons dismissed with costs.

2. Declare that the cross-respondent repudiated the Deed of Sale of Poker Machine Permits dated 17 February 2017 expressly by refusing to complete the sale of the Poker Machine Permits as and from 7 April 2017 up to the filing of the cross-claimant’s cross-summons unless the cross-claimant consented to the declaratory relief and orders sought in the proceedings, which repudiation was accepted by the cross-claimant by the filing of its cross-summons.

3. Declare that the Deed of Sale of Poker Machines dated 17 February 2017 has been validly terminated with effect from the date of filing of the cross-summons in these proceedings.

4. Order that the cross-respondent pay the cross-claimant’s costs of the cross-summons.

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Decision last updated: 14 September 2017