Carrafa, Gountzos and Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq) v Doka Formwork Pty Ltd
[2014] VSC 570
•14 November 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
No. 2014 02806
| MICHAEL CARRAFA, PETER GOUNTZOS AND DAVID JAMES LOFTHOUSE as liquidators of RELUX COMMERCIAL PTY LTD (IN LIQUIDATION) (ACN 155 749 438) | First Plaintiff |
| RELUX COMMERCIAL PTY LTD (IN LIQUIDATION) (ACN 155 749 438) | Second Plaintiff |
| v | |
| DOKA FORMWORK PTY LTD (ACN 149 754 692) | Defendant |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 October 2014 | |
DATE OF JUDGMENT: | 14 November 2014 | |
CASE MAY BE CITED AS: | Carrafa, Gountzos & Lofthouse (as liquidators of Relux Commercial Pty Ltd (in liq) & Anor v Doka Formwork Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 570 | First Revision: 17 November 2014 |
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CORPORATIONS – PERSONAL PROPERTY - Personal property security interest – Lease – Lessee under administration - Not registered within time – Registration out of time - Interest vests in company - Corporations Act 2001 (Cth) s 588FL, s 588FN – Personal Property Securities Act 2009 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the First and Second Plaintiffs | Mr A P Young of Counsel | Harrick Lawyers |
| For the Defendant | No appearance |
HIS HONOUR:
A. Introduction
The first plaintiffs, Michael Carrafa, Peter Gountzos and David James Lofthouse (First Plaintiffs), are the liquidators of the second plaintiff, Relux Commercial Pty Ltd (in liquidation) (ACN 155 749 438) (Relux), and seek declaratory relief in respect of a question arising in the winding up of Relux.
On 7 April 2014, pursuant to s 436A of the Corporations Act 2001 (Cth) (Act), the First Plaintiffs were appointed joint and several administrators of Relux.[1]
[1]Affidavit of Peter Gountzos sworn on 4 June 2014 [2], Second Affidavit of Peter Gountzos sworn on 3 September 2014 [5].
On 16 May 2014, the second meeting of creditors of Relux was held, whereupon:[2]
(a) pursuant to s 439C(c) of the Act, Relux’s creditors resolved, unanimously, that Relux be wound up; and
(b) pursuant to s 446A of the Act, the first plaintiffs became joint and several liquidators of Relux.
[2]Second Affidavit of Peter Gountzos sworn on 3 September 2014 [17] and Exhibit ‘PG-A’ to the Second Affidavit of Peter Gountzos, 121-129.
In the course of its business, Relux rented formwork and associated equipment (Formwork Equipment) from Doka Formwork Pty Ltd (ACN 149 754 692) (Doka).
Declaratory relief is sought on which of Relux or Doka has the superior right and interest in, and is entitled to possess and deal with, the Formwork Equipment.
On 5 June 2014, the First Plaintiffs commenced this proceeding by originating process to obtain directions in respect of who has the superior right to the Formwork Equipment (the Proceeding).
On 20 June 2014, Doka was represented by Counsel at the first directions hearing in the Proceeding. However, since that time Doka has not participated in the Proceeding.
On 22 August 2014, Ferguson JA made orders facilitating the conversion of the Proceeding from an application for directions, or curial advice, into a proceeding inter partes capable of producing a determination of substantive rights binding on both Relux and Doka.
On 5 September 2014, the plaintiffs’ solicitors received by email from Doka’s solicitors, a letter that stated, amongst other things, that Doka would abide by any decision of the Court save as to costs and did not intend to take further part in the Proceeding.[3]
[3]Exhibit ‘MCH-1’ to the Affidavit of Mark Harrick sworn 6 October 2014, 1- 2.
B. Background
The leases
Until 7 April 2014, Relux had a construction business specialising in pouring, laying and erecting large concrete slabs and panels. As part of its business, Relux bought and leased formwork equipment.
From at least March 2013, Doka leased the Formwork Equipment to Relux.[4] The First Plaintiffs submitted that each lease:
[4]Affidavit of David Atkinson sworn on 29 September 2014 [6].
(a) was initiated by an order in writing containing a description of the required Formwork Equipment signed on behalf of, and sent to Doka by, Relux;[5]
[5]See, for example, Exhibit ‘PG-A’ to the Second Affidavit of Peter Gountzos sworn on 3 September 2014, 153 – 155.
(b) commenced on the date the relevant Formwork Equipment ‘left the Doka warehouse’ or Relux took delivery of it;[6]
(c) was for an indefinite term;[7] and
(d) incorporated the ‘Doka General Terms & Conditions’, printed on the back of each invoice rendered by Doka, which were adopted or accepted by Relux by its conduct (Doka Terms).[8]
[6]Clause 8.1 of the Doka General Terms & Conditions.
[7]Affidavit of David Atkinson sworn on 29 September 2014 [6(b)].
[8]Affidavit of David Atkinson sworn on 29 September 2014 [6(c)]. Doka General Terms & Conditions.
On 20 February 2014, a security interest claimed by Doka in commercial property held by Relux (that was further described as ‘Equipment Rental and Sales especially in Formwork’) was registered on the Personal Property Securities Register.[9]
[9]Exhibit ‘PG 20’ of the Affidavit of Peter Gountzos sworn on 4 June 2014.
For the purposes of the two meetings of creditors of Relux, Doka lodged proofs of debt claiming that Doka is an unsecured creditor of Relux.[10]
[10]Second Affidavit of Peter Gountzos sworn on 3 September 2014 [30] and Exhibit ‘PG-A’, 193-194.
The Formwork Equipment
As at 7 April 2014, the Formwork Equipment leased to Relux by Doka and in the possession of Relux, was leased and delivered to Relux by Doka before 1 January 2014.[11] However, some of the Formwork Equipment was delivered on or about 26 February 2014, and some of the Formwork Equipment was delivered on or about 31 March 2014.[12]
[11]Affidavit of David Atkinson sworn on 29 September 2014 [25].
[12]Affidavit of David Atkinson sworn on 29 September 2014; Plaintiffs’ Outline of Submissions dated 28 October 2014 [9].
In May 2014 the parties agreed to remove the Formwork Equipment from Relux construction sites and store it at various sites in Victoria pending the outcome of the Proceeding.
C. Summary of issues and legislation
The key issue is who has the right to the Formwork Equipment. This depends on whether s 588FL of the Act applies. This section provides that certain interests covered by the Personal Property and Securities Act 2009 (Cth) (PPSA) that are not registered on the Personal Property and Securities Register within a certain time, vest in a company that is being wound up or in administration.
Section 588FL of the Act provides that:
588FLVesting of PPSA security interests if collateral not registered within time
Scope
(1) This section applies if:
(a) any of the following events occur:
(i)an order is made, or a resolution is passed, for the winding up of a company;
(ii)an administrator of a company is appointed under section 436A, 436B or 436C;
(iii)a company executes a deed of company arrangement under Part 5.3A; and
(b)a PPSA security interest granted by the company in collateral is covered by subsection (2).
(2)This subsection covers a PPSA security interest if:
(a)at the critical time, or if the security interest arises after the critical time, when the security interest arises:
(i)the security interest is enforceable against third parties under the law of Australia; and
(ii)the security interest is perfected by registration and by no other means; and
(b)the registration time for the collateral is after the latest of the following times:
(i)6 months before the critical time;
(ii)the time that is at the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever is the earlier;
(iii)if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time – the time that is at the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier;
(iv) a later time ordered by the Court under section 588FM.
Vesting of security interest in company
(4)The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN:
(a) if the security interest first becomes enforceable against third parties at or before the critical time—immediately before the event mentioned in paragraph (1)(a);
(b) if the security interest first becomes enforceable against third parties after the critical time—at the time it first becomes so enforceable.
There is an exception to the application of s 588FL(4) in s 588FN of the Act for certain PPSA security interests.
Therefore, there are three main issues to consider when determining whether or not s 588FL applies:
(a) whether Doka has a PPSA security interest in the Formwork Equipment;
(b) if so, whether that interest was unaffected by s 588FN; and
(c) if so, whether that interest was registered after the time specified in s 588FL(2)(b).
D. Does Doka have a PPSA security interest?
PPSA security interest is defined in s 588FK of the Act as having the meaning given by s 51 of the Act. Section 51 provides that PPSA security interest has the same meaning as a security interest in the PPSA.
Section 12(1) of the PPSA defines security interest as follows:
Meaning of security interest
(1)A security interest means an interest in personal property provided for 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).
Section 12(2) of the PPSA provides an inclusive list of examples of transactions that give rise to a security interest if the transaction secures payment or performance of an obligation. One of these examples, at s 12(2)(i) is ‘a lease of goods (whether or not a PPS lease)’.
Moreover, section 12(3)(c) of the PPSA provides that a security interest includes ‘the interest of a lessor or bailor of goods under a PPS lease’ whether or not the transaction concerned, in substance, secures the payment or performance of an obligation.
The definition of PPS lease is found in section 13 of the PPSA which provides that a PPS lease means a lease or bailment of goods which falls into one of the categories set out in the subsections of section 13(1). Section 13(1)(b) provides that a lease or bailment of goods ‘for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment)’ is a PPS lease.
The Doka Terms at clause 8.1 provide that the rental duration is as follows:
8.1The duration of any rental period commences on the date which the ordered material leaves the Doka warehouse. Any rental period will end on the date the rented material is returned to the Doka warehouse. Any partial return and/or delivery of material shall be deducted pro-rata according to agreed rental rates.
Therefore, the Doka Terms indicate that the lease was for an indefinite period only ending when the Formwork Equipment was returned to Doka.
Section 13(2) of the PPSA excludes leases and bailments by a lessor or bailor who is not regularly engaged in the business of leasing or bailing goods from the definition of PPS lease. However, the evidence of both Mr David Atkinson, the former Operations Manager of Relux,[13] and the numerous orders and invoices for the Formwork Equipment relied upon by the First Plaintiffs, demonstrate that Relux was regularly engaged in leasing goods and therefore s 13(2) does not apply.
[13]Affidavit of David Atkinson sworn 29 September 2014.
In light of the application of these provisions, Doka did have a PPSA security interest within the meaning of the Act as it had a lease of the Formwork Equipment which was also a PPS lease.
E. Is the PPSA security interest unaffected by s 588FL because of s 588FN?
The second issue arises out of the operation of s 588FN of the Act which provides that s 588FL does not apply to certain security interests. Section 588FN provides as follows:
588FN PPSA security interests unaffected by section 588FL
PPSA security interests arising under certain transactions
(1)Subsection 588FL(4) (vesting of security interests in company) does not apply to a PPSA security interest provided for by any of the following transactions, if the interest does not secure the payment or performance of an obligation:
(a) a transfer of an account or chattel paper;
(b)a PPS lease, if paragraph (e) (serial numbered goods) of the definition of PPS lease in subsection 13(1) of the Personal Property Securities Act 2009 applies to the lease, and none of paragraphs (a) to (d) of that definition applies to the lease;
(c) a commercial consignment.
As section 588FN(1)(a) and (c) are not applicable, the relevant question is how s 13 of the PPSA applies to the leases of Formwork Equipment. Section 13(1)(e) of the PPSA applies to leases ‘for goods that may or must be described by serial number in accordance with the regulations’.
The types of property that must be described by serial number are set out in clause 2.2 of Part 2, Schedule 1 of the Personal Property Securities Regulations 2010 (Cth). This clause lists various types of property including, amongst other things, property which is a motor vehicle, watercraft, aircraft or intangible property.As the Formwork Equipment does not fall within these categories of property that must or may be described by serial number, s 13(1)(e) of the PPSA does not apply.
Moreover, the Formwork Equipment does not fall within the ambit of s 588FN(1)(b) because s 13(1)(b) of the PPSA applies to the leases (see paragraph 26 above) rather than ss (a) to (d) of s 13(1) having no application..
Thus, Doka’s security interests are not covered by s 588FN and therefore s 588FL does apply to the security interests.
F. Does the PPSA security interest vest in Relux under s 588FL?
The final issue to consider is whether s 588FL operates to vest Doka’s security interest in the Formwork Equipment in Relux because it was not registered within time. This depends on whether the requirements of s 588FL(2) are satisfied, which are, in summary:
(a) at the critical time, the security interest is enforceable against third parties;
(b) at the critical time the security interest is perfected by registration; and
(c) the registration time for the collateral is after the latest of:
(i) 6 months before the critical time; or
(ii) the earlier of: 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time.
The critical time
The first issue to consider is what was the critical time. Section 588FL(7) defines the critical time as follows:
(7)In this section: critical time in relation to a company means:
(a)if the company is being wound up – when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day under section 513A or 513B; or
(b)in any other case – when, on a day, the event occurs by virtue of which the day is the section 513C day for the company.
Pursuant to s 513B(b) and s 513C of the Act, winding up will be taken to have commenced on the day on which the administration began. As the administration began when the administrators were appointed to Relux on 7 April 2014,[14] this was the critical time.
[14]Affidavit of Peter Gountzos sworn on 4 June 2014 [2], Second Affidavit of Peter Gountzos sworn on 3 September 2014 [5] and Exhibit ‘PG-A’ to the Second Affidavit of Peter Gountzos, 1-2.
Was the security interest enforceable against third parties at the critical time?
The enforceability of security interests against third parties is governed by s 20 of the PPSA and provides as follows:
Enforceability of security interests against third parties
20(1) General rule A security interest is enforceable against a third party in respect of particular collateral only if:
(a) the security interest is attached to the collateral; and
(b) one of the following applies:
(i) the secured party possesses the collateral;
(ii)the secured party has perfected the security interest by control;
(iii)a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).
Was the security interest attached to the collateral?
Pursuant to s 19 of the PPSA, a security interest attaches to the collateral when:
(a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and
(b) either:
(iii) value is given (by the secured party) for the security interest; or
(iv)the grantor does an act by which the security interest arises.
As per the entry on the Personal Property Securities Register, the grantor is Relux and the secured party is Doka.[15]
[15]Exhibit ‘PG 20’ of the Affidavit of Peter Gountzos sworn on 4 June 2014.
Section 19(5) of the PPSA provides that a grantor has rights in goods that are leased under a PPS lease when the grantor obtains possession of the goods. Therefore, Relux satisfied the first element of attachment as it had rights in the Formwork Equipment when it obtained possession of it, that is, when Doka delivered it to Relux.
The second part of the definition of attachment, is that there be value given by the secured party for the security interest or an act performed by the grantor by which the security interest arises. ‘Value’ is defined in s 10 of the PPSA as consideration sufficient to support a contract. This is also satisfied as Doka gave the Formwork Equipment to Relux. Moreover, by accepting and retaining possession of the Formwork Equipment, Relux performed an act giving rise to the lease. As set out above in paragraph 14, the last of the Formwork Equipment was delivered on or about 14 March 2014 and therefore the security interest attached to the collateral before the critical time.
Was there a security agreement which covered the collateral as required by section 20(1)(b)(iii)?
As Doka did not possess or control the Formwork Equipment, ss 20(1)(b)(i) and (ii) are not satisfied. However, s 20(1)(b)(iii) will be satisfied if there was a security agreement within the meaning of s 20 of the PPSA.
Section 20(2) of the PPSA provides as follows:
Written security agreements
(2)A security agreement covers collateral in accordance with this subsection if:
(a) the security interest is evidenced in writing that is:
(i) signed by the grantor (see subsection (3)); or
(ii)adopted or accepted by the grantor by an act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing; and
(b) the writing evidencing the agreement contains:
(i)a description of the particular collateral, subject to subsections (4) and (5); or
(ii)a statement that a security interest is taken in all of the grantor's present and after-acquired property; or
(iii)a statement that a security interest is taken in all of the grantor's present and after-acquired property except specified items or classes of personal property.
Therefore, there are three main formalities requirements:
(a) the security interest is evidenced in writing;
(b) it is signed by the grantor or adopted or accepted by the grantor by their conduct; and
(c) there is a description of the collateral.
Section 10 of the PPSA provides a broad and inclusive definition of ‘writing’ which includes ‘the recording of words or data in any way (including electronically), if, at the time the recording was made, it was reasonable to expect that the words or data would be readily accessible so as to be useable for subsequent reference’.
In relation to the first formalities requirement, the plaintiffs relied upon several documents to demonstrate that the security agreement was in writing including orders placed by Relux and invoices raised by Doka which recorded the details of the hire of the Formwork Equipment. In my view, these documents fall within the wide ambit of the definition of ‘writing’ in the PPSA.
The details of the second requirement, that the document be signed by the grantor, is set out in s 20(3) of the PPSA which provides as follows:
Methods of signing writing
(3)Without limiting subparagraph (2)(a)(i), for the purposes of that subparagraph a grantor is taken to sign writing if, with the intention of identifying the grantor and adopting, or accepting, the writing, the person applies:
(a)writing (including a symbol) executed or otherwise adopted by the person; or
(b)writing wholly or partly encrypted, or otherwise processed, by the person.
In this regard, the plaintiffs provided copies of several orders for Formwork Equipment placed by Relux in writing, which were signed by the then Operations Manager, David Atkinson, either by hand or by virtue of his email signature (which would fall within the broad definition of signing in s 20(3)).
Moreover, the alternative to the requirement of a signature, that the security agreement be adopted and accepted by Relux by its conduct, is satisfied by its conduct of taking delivery of, using and retaining the relevant Formwork Equipment.
These orders and invoices also satisfied the requirement that there be a description of the collateral as they itemised the Formwork Equipment which was the subject of the leases.
Thus, s 20(1)(b)(iii) is satisfied as there was a security agreement within the meaning of s 20(2) of the PPSA which covered the collateral.
At the critical time was the security interest perfected by registration?
At the critical time of 7 April 2014, Doka’s security interests in the collateral were perfected by registration because, as set out in paragraph 12 above, the security interests were registered on 20 February 2014, and the interest was not perfected by possession or control.[16]
[16]Affidavit of Peter Gountzos sworn on 4 June 2014.
Were the security interests registered within time?
In accordance with s 588FL(2)(b) the time within which the security interests must be registered is the latest of:
(a) 6 months before the critical time of 7 April 2014, which is 7 October 2013; or
(b) the earlier of:
(v) 20 business days after the security agreement that gave rise to the security interest came into force; or
(vi)the critical time of 7 April 2014.
I note that there are other times specified in s 588FL(2)(b)(iii) and s 588FL(2)(b)(iv) but that these are inapplicable because no security agreement came into force under the law of a foreign jurisdiction and there has been no application for a later time to be ordered by a Court under s 588FM of the Act.
The analysis of the time within which the interests must have been registered for the three different lease agreements are set out below.
Leases commencing before 21 January 2014
Mr Atkinson deposed that most of the Formwork Equipment was leased before 1 January 2014.[17] However, the plaintiffs chose the date of 21 January 2014 as the assumed date of these leases to illustrate the latest date in January that the leases would vest in Relux by reason of being registered out of time. Using this later date, 20 business days after 21 January 2014 is 19 February 2014. As this is earlier than the critical time of 7 April 2014 and later than 6 months before the critical time (which was 7 October 2013), the time within which these interests were required to be registered was 19 February 2014. Given that the security interests were registered on 20 February 2014, all the leases that commenced before 21 January 2014 vested in Relux.
[17]Affidavit of David Atkinson sworn on 29 September 2014 [25].
Lease commencing on 26 February 2014
In relation to the Formwork Equipment leased on 26 February 2014, 20 business days after 26 February 2014 is 27 March 2014.[18] As this is earlier than the critical time of 7 April 2014 and later than 6 months before the critical time (which was 7 October 2013), the time within which these interests were required to be registered was 27 March 2014. Given that the security interests were registered on 20 February 2014, this lease does not vest in Relux.
Lease commencing 14 March 2014
[18]Counsel referred to 28 March 2014 as the relevant date, however, 20 business days after 26 February 2014 is 27 March 2014.
In respect of the Formwork Equipment leased to Relux by Doka on 14 March 2014, 20 business days after 14 March 2014 is 11 April 2014. As this is later than the critical time of 7 April 2014, but later than 6 months before the critical time (which was 7 October 2013), the time by which these interests were required to be registered was 7 April 2014. Given that the security interests were registered on 20 February 2014, this lease does not vest in Relux.
G. The effect of section 588FL(4)
It follows that, by reason of s 588FL(4)(a) of the Act, Doka’s PPSA security interests in all the Formwork Equipment except for the equipment leased on 26 February 2014 and 14 March 2014, vested in Relux immediately before the first plaintiffs were appointed joint and several administrators of Relux on 7 April 2014.
As noted by courts who have previously considered these and similar provisions of the Act, the effect of these provisions is to extinguish the lessor’s interest in the property where it is not registered within time.[19]
[19]Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337, 359; White v Spiers Earthworks Pty Ltd (2014) 99 ACSR 214, 221.
This can lead to seemingly draconian outcomes, particularly where the property is valuable such as in this case where the Formwork Equipment was valued at over a million dollars. The impact of these provisions is compounded by the broad scope of the PPSA and the large number of interests covered by it.[20] Despite these consequences, as noted in the Explanatory Memorandum, these provisions are needed ‘to prevent security interests being granted fraudulently with knowledge of an imminent administration, liquidation or deed of company arrangement’.[21] Moreover, in order to avoid these consequences, security interest holders can simply ensure they register their interests as soon as possible after they are granted.
[20]See Personal Property Securities Act 2009 (Cth) s 12.
[21]Explanatory Memorandum, Personal Property Securities (Corporations and other Amendments) Bill 2010 (Cth) 13.
H. Disposition
For the reasons set out above, by operation of s 588FL of the Act, all of the security interests in the Formwork Equipment vested in Relux except in respect of the leases which commenced on 26 February 2014 and 14 March 2014. I have made the orders proposed by the First Plaintiffs to give effect to these reasons, declaring that the Defendant’s interest in the Formwork Equipment leased in or before January 2014 vests in Relux, and Relux has the superior right to, and is entitled to, the Formwork Equipment in respect of those leases.
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