Davidson and Registrar of Personal Property Securities
[2015] AATA 549
•29 July 2015
Davidson and Registrar of Personal Property Securities [2015] AATA 549 (29 July 2015)
Division TAXATION AND COMMERCIAL DIVISION
File Number 2014/2139
Re SHERRYN DAVIDSON
APPLICANT
And REGISTRAR OF PERSONAL PROPERTY SECURITIES
RESPONDENT
And DAVIDSONS BLINDS & SHUTTERS PTY LTD
PARTY JOINED
DECISION
Tribunal Deputy President S A Forgie
Date 29 July 2015
Place Melbourne
The Tribunal has decided to:
1.set aside the decision of the respondent dated 7 February 2014; and
2.substitute a decision that the respondent register a financing change statement amending PPSR Registration 201204090003017 in accordance with the Amendment Demand dated 13 November 2013.
[sgd] S A Forgie
Deputy President
CATCHWORDS
PERSONAL PROPERTY SECURITIES – amendment demand for a financing change statement to be registered to amend registration of security interest – whether collateral described in the registration secures any obligation owed by debtor to secured party – debtor a partnership – agreement signed as part of winding up of business of partnership by one of partners – partnership not bound by agreement signed other than in the ordinary course of business – agreement not in the ordinary course of business – agreement executed in name of partnership but not relating to partnership’s business – agreement not binding to secure payment of debt.
LEGISLATION
Administrative Appeals Tribunal Act 1975 ss 3, 25, 27, 29, 29AB, 29AC, 32, 33, 35, 37, 41, 43, 69
Business Names Act 1962 (Vic)Migration Act 1958 ss 189, 196
Motor Traffic Ordinance 1939 (ACT) s 139D
Partnership Act 1892 (NSW) s 5Partnership Act 1958 (Vic) ss 8, 9, 10, 37
Personal Property Securities Act 2009 ss 10, 12, 18, 19, 21, 22, 55, 147, 150, 153, 155, 156, 157, 160, 163, 164, 165, 166, 178, 179, 180, 181, 182, 185, 186, 191, 261, 296, 333, 336Taxation Administration Act 1953
Family Law Rules 2004 Part 15.5
Personal Property Securities Bill 2009 cl 296
Personal Property Securities Regulations 2010 reg 5.9CASES
Re The Trustee for the Confidential Trust and Commissioner of Taxation [2013] AATA 682
George v Rockett (1990) 170 CLR 104
Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266
Cruickshank v Warren (1976) 9 ACTR 30
Goldie v Commonwealth of Australia (2002) 188 ALR 708
Robertson v Grigg (1932) 47 CLR 257
Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liquidation) (1948) 76 CLR 463
Taylor v White (1964) 110 CLR 129
Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1
National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251REASONS FOR DECISION
Deputy President S A Forgie
29 July 2015
On 26 November 2013, Ms Sherryn Davidson, now known as Ms Sherryn Burge, gave the Registrar of Personal Properties Securities (Registrar) an amendment statement under s 180(3) of the Personal Property Securities Act 2009 (PPS Act). Her statement related to an amendment demand given to Davidsons Blinds & Shutters Pty Ltd (Blinds & Shutters) demanding an amendment to end the effective registration of PPSR Registration 201204090003017 on the basis that no collateral described in the registration secured any obligation (including a payment) owed by a debtor to Blinds & Shutters. The Registrar decided not to register a financing change statement to end effective registration. He made that decision on 7 February 2014.
At [20]-[39] below, I have outlined the relevant provisions of the PPS Act. The question at the heart of the matters to be decided is whether Blinds & Shutters entered a security agreement with a partnership known as “T&S Davidson”. It was agreed that there is a document that purports to be such an agreement between T&S Davidson and Blinds & Shutters but the question is whether it was properly executed on behalf of T&S Davidson. Ms Burge and Mr Travis Davidson were the only two partners in that partnership. The question arises because Ms Burge contends that the document was executed only by Mr Davidson at a time when the partnership had come to an end. I do not accept that this was so but I do find that, under ss 9 and 10 of the Partnership Act 1958 (Vic) (Partnership Act), those agreements did not bind T&S Davidson with Blinds & Shutters. That meant that the partnership could not be held to have granted a security interest because, without those agreements binding T&S Davidson, it did not incur any obligations under them. That meant that the personal goods referred to in the agreement were not subject to a security interest. Therefore, with particular reference to Item 1 in the table at s 178(1), I decided that there are no reasonable grounds that the amendment is not authorised under s 178. In light of that decision, I have made the further decision to set aside the decision of the Registrar dated 7 February 2014. In its place, I have substituted a decision that the Registrar register a financing change statement amending PPSR Registration 201204090003017 in accordance with the Amendment Demand dated 13 November 2013.
BACKGROUND
On the basis of the evidence given by Ms Burge, Mr Davidson and Ms Krzempek at the hearing and having regard to the material in the documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (AAT Act) (T documents), I make the findings of fact set out in this section of my reasons.
In 2004, Ms Burge and Mr Travis Davidson were in partnership on both a personal and professional basis. Their professional partnership was known as “T&S Davidson”. It was registered with an Australian Business Number (ABN) under the name “SL Davidson & TG Davidson” from 10 May 2004.[1]
[1] T documents; T13 at 75
In so far as it is relevant, cl 15 of the Deed of Partnership (Partnership Deed) they signed in March 2004 stated:
“THE partners shall: -
(a)-(b)…
(c)Be just and faithful to the other of them and at all times give to such other full information and truthful explanations of all matters relating to the affairs of the partnership and afford every assistance in their power in carrying on the business for their mutual advantage.”
Clause 16 provided that:
“NO Partner shall without the consent of the other partners: -
(a)…
(b)Give any security or promise for the payment of money on account of the firm unless in the ordinary course of business.
(c)-(e)…
Any partner committing any breach of the foregoing stipulations shall indemnify the other of them from all losses and expenses on account thereof.”
Clause 1 provided for the commencement and dissolution of the “partnership business”, which was described as “MANUFACUTER, [sic] WHOLESALE & RETAIL CURTAINS & BLINDS”. The partnership business would continue until mutually dissolved or otherwise dissolved as provided for in the Partnership Deed.
Clause 17 provided for dissolution of the partnership by either of the partners. It provides:
“IF ANY partner (hereinafter called ‘the defaulting partner’) shall: -
(a)Commit any breach of any of the provisions of Clause 15 and 16, hereof or,
(b)-(d)…
(e)Not desire to carry on the partnership, then and in any such case the other or others may within one month after becoming aware thereof by notice in writing determine the partnership as to the defaulting partner and the provisions of Clause 18 hereof shall apply as if the defaulting partner had died.”
Clause 18 provided that the defaulting partner was required to sell his or her interest to the partnership at a price calculated in accordance with cl 19.
The partnership acquired Davidsons Blinds & Curtains (Blinds and Curtains). It was also involved in online sales of roller blinds under the name of “Just Roller Blinds”.[2] At the end of January 2011, the personal relationship between Ms Burge and Mr Davidson came to an end and they separated. Registration of the partnership’s ABN and its registration for the purposes of the Goods and Services Tax were cancelled on 3 June 2011.[3] Their business continued trading until on or about 8 June 2011 when it ceased trading.
[2] T documents; T5 at 24
[3] T documents; T13 at 75
On 7 May 2011, “Davidsons Blinds & Shutters” was registered as a business name under the Business Names Act 1962 (Vic).[4] On or about 8 June 2011, Blinds & Shutters commenced operation. Ms Sharon Krzempek was its sole director, secretary and shareholder. On 13 June 2011, Mr Davidson, for T&S Davidson, and Ms Krzempek, for Blinds & Shutters, signed a document headed “Agreement between T&S Davidson & Davidsons Blinds & Shutters Pty Ltd”.
[4] Certificate of Registration of Business Name attached to Blinds & Shutters Statement of Facts, Issues and Contentions
Under the agreement, Blinds & Shutters agreed to sub-lease various equipment and to lease other equipment, website and intellectual property until the partnership of T&S Davidson was wound up or for the following six months, whichever occurred first. Lease payments in respect of the sub-let equipment was based on the amount of the lease payments owed by Blinds & Curtains plus 10%. Payments were fixed for the lease of the remaining property. Blinds & Shutters also agreed to purchase existing stock from T&S Davidson. The way in which the purchase price would be calculated was set out in the agreement. As for the items that T&S Davidson had already agreed to make and supply to their customers when they traded under the name of Blinds & Curtains, the agreement provided:
“T&S Davidson agrees to purchase products made internally from Davidson’s Blinds & Shutters at a rate previously used for wholesale sales to complete outstanding jobs.
T&S Davidson agree to pay Davidson’s Blinds & Shutters for the installation of products already sold by T&S Davidson at the rates quoted in the customer’s original quote.
T&S Davidson agree to pay Davidson’s Blinds & Shutters an administration fee of 5% of the original invoice price for moneys collected for T&S Davidson. This fee will cover costs associated with administering this agreement and all other minor costs not individually itemised in this agreement.”[5]
[5] T documents; T5 at 20
On 6 April 2012, Ms Krzempek and Mr Davidson signed another document. Ms Krzempek signed it as Director of Blinds & Shutters. Mr Davidson signed it as “Partner T&S Davidson”. The document reads:
“I hereby give authority for Davidson’s Blinds & Shutters to register the plant, stock and equipment currently being leased from T&S Davidson as security in Davidson’s Blinds & Shutters Personal Property Securities Register claim against monies owed to Davidson’s Blinds & Shutters by T&S Davidson.”[6]
[6] T documents; T5 at 21
A security interest was registered on 9 April 2012 under PPSR Registration 201204090003017. The collateral type described as “Commercial property” and the “collateral class” was described as “All present and after-acquired property – No exceptions”.[7]
[7] T documents; T4 at 16
Ms Burge’s solicitors sent a copy of an Amendment Demand to Ms Krzempek under cover of a letter dated 13 November 2013.[8] The demand was to the effect that Blinds & Shutters register a financing change statement to end the registration because no collateral described in the registration secured any obligation (including a payment) owed by a debtor to the secured party.
[8] T documents; T3 at 7 and 8
On 26 November 2013, Ms Burge lodged an amendment statement naming Blinds & Shutters as the Secured Party. She identified herself as the Grantor in the registration and as having an interest other than a security interest in the collateral described in the registration. Ms Burge went on to state:
“the collateral in which I have an interest, identified as the particular collateral above does not secure any obligation (including a payment) owed by a debtor to the Secured Party.”[9]
[9] T documents; T3 at 4-6
On 13 December 2013, the Registrar sent a copy of the amendment notice to Blinds & Shutters inviting its response to whether or not he should register a financing change statement.[10]
[10] T documents; T4 at 9-10
On 8 January 2014, Ms Krzempek responded by email to the Registrar’s invitation. She noted that some of the property that remained in the possession Blinds & Shutters included an Ultracut Ultrasonic cutting table, a Mitsubishi Express Van, sewing machines, stock, various tools and plant and equipment. After referring to the two documents dated 13 June 2011 and 6 April 2012, Ms Krzempek wrote:
“The debt which currently is approximately $32,000 owing by T&S Davidson to Davidson’s Blinds & Shutters was forensically examined by Mr Phillip Rundle who is a partner in the Forensic Accounting firm of ‘Grant Thornton’.
Grant Thornton was commissioned by the court to provide a report, dated 20/2/2013 for a property settlement between Travis & Sherryn Davidson. (copy attached)
I believe with the documented evidence provided clearly shows the debt is well overdue and that there is clearly assets of T&S Davidson which I am in possession of, and will remain in possession of until this debt is paid in full.”[11]
[11] T documents; T5 at 18
THE SUBMISSIONS
Ms Burge submitted that the partnership between her and Mr Davidson had come to an end before the agreement dated 13 June 2011. That is illustrated by the fact that the ABN registration of T&S Davidson had already come to an end on 3 June 2011. Mr Davidson knew that when he signed the agreement on 13 June 2011 and also knew that Ms Burge did not agree with his doing so. Ms Krzempek was also aware of those facts at the time that she signed the agreement. Ms Burge submitted that both Mr Davidson and Ms Krzempek knew that the partnership had dissolved before they signed the second agreement dated 6 April 2012.
On behalf of Blinds & Shutters, Ms Krzempek said that she had no knowledge that the partnership’s ABN had been cancelled or that the partnership had come to an end when she signed either agreement. It was her understanding that the partnership continued until 15 August 2013 when Mr Davidson was declared bankrupt. She referred to a letter dated 11 December 2014 from Quinney & Associates, Chartered Accountants, to the effect that they had acted for the partnership of T&S Davidson since its inception on 17 March 2004. To the best of their knowledge, the partnership had never been formally and mutually dissolved as required by the partnership agreement. Since the breakdown in the marriage of the partners, Quinney & Associates had continued to prepare all financial accounts and taxation returns on behalf of the partnership. Mr Davidson had undertaken all actions reasonably required of the partnership and had acted in accordance with the partnership agreement. Ms Krzempek submitted that the last taxation return had been lodged in relation to the 2013 financial year.
LEGISLATIVE FRAMEWORK
General outline
In summary, the PPS Act applies to security interests in personal property. A security interest is enforceable against the grantor and against third parties in circumstances prescribed in the legislation. The PPS Act also prescribes the order of priority of security interests and requires the Registrar to maintain a Register. Throughout the PPS Act, there are various qualifications. I recognise them but, because they do not apply in this case, do not propose to mention them further.
Security interest
The expression “security interest” is defined in s 12(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).”
Sections 12(2) and (3) complement s 12(1) by specifying interests that come within the expression. Sections 12(3A) and (4) expand it and ss 12(5) and (6) exclude certain licences and rights. Personal property is property, including a licence, other than land or a right, entitlement or authority that is granted by or under a law of the Commonwealth, State or a Territory and declared by that law not to be personal property.[12]
[12] PPS Act; s 10
The agreement by which a security interest is created, arises or is provided for is a “security agreement” for the purposes of the PPS Act. So too is “writing evidencing such an agreement or act.”[13] The general rules about security agreements and security interests are set out in s 18:
“(1) A security agreement is effective according to its terms.
(2)A security agreement may provide for security interests in after-acquired property.
(3)A security interest in after-acquired property attaches without specific appropriation by the grantor.
(4)A security agreement may provide for future advances.
(5)A security interest is taken to secure reasonable expenses in relation to the enforcement of the security interest, unless the parties agree otherwise.”
[13] PPS Act; s 10
The reference in s 19(3) to the “grantor” is a reference to one or other of the persons identified in the definition of that word in s 10. Paragraphs (a) and (f) of that definition are relevant in this context. They provide:
“grantor means:
(a)a person who has the interest in the personal property to which a security interest is attached (whether or not the person owes payment or performance of an obligation secured by the security interest); or
(b)-(e)…
(f)in relation to a registration with respect to a security interest:
(i)a person registered in the registration as a grantor; or
(ii)a person mentioned in paragraphs (a) to (e).”
Enforceability of a security interest
Enforceability of a security interest is the subject of Part 2.2 of Chapter 2 of the PPS Act. Section 19(1) provides for enforceability against a grantor:
“A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral.”
The “collateral” referred to in this subsection:
“(a) means personal property to which a security interest is attached; and
(b)in relation to a registration with respect to a security interest – includes personal property described by the registration (whether or not a security interest is attached to the property).
Note: Section 161 authorises the registration of a financing statement that describes personal property before or after a security agreement is made covering the property, or a security interest that has attached to the property.”[14]
[14] PPS Act; s 10
The time at which a security interest “attaches” to collateral is the subject of s 19.[15] The general position is stated in ss 19(2) and (3):
[15] PPS Act; s 10
“Attachment rule
(2)A security interest attaches to 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:
(i) value is given for the security interest; or
(ii) the grantor does an act by which the security interest arises.
Time of attachment
(3)Subsection (2) does not apply if the parties to a security agreement have agreed that a security interest attaches at a later time, in which case the security interest attaches at the time specified in the agreement.”
Sections 19(4), (5) and (6) clarify and qualify the general propositions stated in ss 19(2) and (3) but they are not relevant in this case.
The “secured party” to which reference is made in s 19(2) means, in the context of this case:
“(a) … a person who holds a security interest for the person’s own benefit or for the benefit of another person (or both); and
(b)…
(c)in relation to a registration with respect to a security interest – includes a person registered as a security party in the registration.”[16]
[16] PPS Act; s 10
Part 2.6 of Chapter 2 regulates the priority between competing security interests in collateral and, in some cases, other interests. I will mention only three of the rules. They are set out in ss 55(2) to (6):
“(2) Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests.
(3)A perfected security interest in collateral has priority over an unperfected security interest in the same collateral.
(4)Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs.
(5)For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest:
(a)the registration time for the collateral;
(b)the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral;
(c)the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act.
(6)A time is a priority time for a security interest only if, once the security interest is perfected at or after that time, the security interest remains continuously perfected.
Note:A security interest in the proceeds of original collateral has the same default priority as the security interest in the original collateral (see subsection 32(5)).”
The reference to a security interest’s being “perfected” is a reference to circumstances described in ss 21 and 22. For the purposes of this case, I note that a security interest is perfected if a security interest has attached to collateral and registration is effective with respect to the collateral.[17]
[17] PPS Act; ss 21(2)(a) and (3)
Register of Personal Property Securities
The Registrar is required to establish and maintain a register known as the Personal Property Securities Register[18] (Register). Under s 150(1)(a), a person may apply to the Registrar to register a financing statement with respect to a security interest. A “financing statement” is the “… data registered (or that is to be registered) pursuant to an application for registration under subsection 150(1). …”[19] Under s 150(2), a person may apply to the Registrar to register a financing change statement to amend a registered financing statement. Section 153(1) requires a financing statement to consist of data that complies with the data it sets out in a table. Its provisions apply also to a financing statement as amended by the registration of a financing change statement. Details of the data set out in the table include details about the secured party, the grantor and the way in which notices must be given together with a description of the collateral and any proceeds and the end time for registration.[20] A statement of whether the security interest is to be subordinated to any other security interest may be included.[21]
[18] PPS Act; s 147(1)
[19] PPS Act; s 10
[20] PPS Act; s 153(1) Items 1-5
[21] PPS Act; s 153(1) Item 6
The registration of a financing change statement is a “registration event”.[22] A “verification statement” is a written statement in an approved form verifying the registration of a financing statement or financing change statement with respect to a security interest other than a financing change statement registered under ss 185 or 186 and other data in relation to the registration event, a secured party, a grantor or collateral.[23]
[22] PPS Act; s 155(a)
[23] PPS Act; ss 155(a) and (b)
The Registrar is required by s 156(1) to give a verification statement in relation to a registration event to a person registered as a secured party in the registration both before and after the registration event. The person to whom the Registrar gives a verification statement under s 156 is known as the “statement holder”.[24] As soon as reasonably practicable after the time of the registration event, a statement holder must give a notice of the statement to a persons registered as a grantor in the registration immediately before and after the time of the registration event.[25]
[24] PPS Act; s 157(1)
[25] PPS Act; s 157(1)
The “registration time” with respect to collateral described in a registration has the meaning given by ss 160, 333 or 336.[26] Section 160 is the only one of those provisions that is relevant in this matter. Section 160(1) provides that:
“A description of collateral starts to be registered in a registration with respect to a security interest, in relation to a particular secured party, at the moment (the registration time) when the description becomes available for search in the register in relation to the secured party.
Note 1:A written search result is evidence of a registration and of the registration time (see section 174).
Note 2:A registration may stop being effective even if it is available for search in the register (for example, because of a defect – see section 164).
Note 3:If 2 or more registrations describe the same collateral in relation to the same secured party, there may be different registration times for the collateral in relation to each of the registrations.”
[26] PPS Act; s 10
Subject to the provisions of ss 164, 165 and 166 relating to defects in registration, s 163(1) provides:
“A registration with respect to a security interest that describes particular collateral, in relation to a secured party, is effective with respect to that collateral from the registration time for the description of the collateral until the earliest of the following times:
(a) the end time (if any) registered for the collateral;
(b)if the registration is amended to omit the collateral description – the amendment time;
(c)the time when the description of the collateral in the registration stops being available for search in the register (by reference to that time) in respect of the secured party.
Note:For the registration time for the collateral, see section 160.”[27]
[27] The “amendment time” for an amendment time to a registration is the moment when the amended registration becomes available for search in the register: PPS Act; s 160(2).
A person with an interest in collateral may require changes to the registration. Such a person may achieve that by making an amendment demand under Part 5.6 of Chapter 5 in certain circumstances. Section 178(1) sets out the way in which an amendment demand is made:
“A person with an interest (including a security interest) in collateral described in a registration with respect to a security interest may give a demand (an amendment demand), in writing, to the secured party for a financing change statement to be registered to amend the registration as authorised by the following table:
Note:If the secured party does not comply with the amendment demand, the demand may be enforced under Subdivision A (administrative process) or Subdivision B (judicial process) of Division 3.
Authorised amendments Item
When amendment is authorised.
What amendment is authorised
1
No collateral described in the registration secures any obligation (including a payment) owed by a debtor to the secured party.
Amendment to end effective registration (including amendment to remove the registration).
2
The particular collateral in which the person has an interest does not secure any obligation (including a payment) owed by a debtor to the secured party.
Amendment to omit the collateral.”
I am concerned only with the administrative process set out in Subdivision A of Division 2 of Part 5.6 of Chapter 5. Its provisions do not come into operation unless a secured party is given an amendment demand, an application to register a financing change statement in compliance with the demand has not been made before the end of five business days after the demand was given to the secured party and there are no proceedings in a court under s 182 relating to the amendment demanded.[28]
[28] PPS Act; s 179(1) and see also s 179(2)
A person who gave the amendment demand to the secured party may give a statement to the Registrar. The statement must be in the approved form stating the amendment demanded as well as anything else specified by the Regulations.[29] Regulation 5.9 of the Personal Property Securities Regulations 2010 (Regulations) sets out the statements that must be made in the statement. They are:
[29] PPS Act; s 180(3)
“(a) that the person has given an amendment demand to the secured party as required by section 178 of the Act;
(b)that the amendment demand was given at least 5 business days before the day that the statement was given to the Registrar;
(c)that:
(i)no collateral described in the registration secures any obligation (including a payment) owed by a debtor to the secured party; or
(ii)the collateral in which the person has an interest does not secure any obligation (including a payment) owed by a debtor to the secured party;
(d)that:
(i)the approved form is accompanied by any written response to the amendment demand received from the secured party; or
(ii)no written response was received from the secured party;
(e)that there are no court proceedings currently before a court (including a court of appeal) that relate to the amendment demanded;
(f)that the person will notify the Registrar if proceedings that relate to the amendment demanded come before a court (including a court of appeal);
(g)that the security agreement providing for the security interest is not an instrument or other document:
(i)by which a person issues or guarantees, or provides for the issue or guarantee of, an obligation secured by a security interest; or
(ii)in which another person is appointed as trustee for the person to whom the obligation is secured by the security interest is owed;
(h)that the information contained in the form is correct.”
Section 180(4) provides that:
“An amendment notice must be given in response to a statement under subsection (3) as soon as practicable after the statement is given (unless an amendment notice has already been given at the initiative of the Registrar.”
The provision does not state who must give that amendment notice but it would seem that it is the Registrar. As s 180(4) notes, the Registrar might have already given an amendment notice at his own initiative. His or her power to do that is stated in s 180(2). Section 180(1) also gives the Registrar power to give the secured party an amendment notice in accordance with s 180(5). The contents of the amendment notice confirm that it is a notice given by the Registrar. They are specified in s 180(5):
“An amendment notice is given in accordance with this subsection if:
(a)the notice is in the approved form; or
(b)the notice:
(i)states the amendment demanded; and
(ii)invites the secured party to submit a response to the amendment demand in writing to the Registrar before the end of 5 business days after the day the notice is given (or an extended period approved by the Registrar); and
(iii)sets out the effect of section 181 (amendment of registration); and
(iv)if a statement is given under subsection (3) – includes a copy of the statement.
Note:The provision of false or misleading information in any response to the invitation may be an offence against Part 7.4 of the Criminal Code.”
Section 181, to which reference is made in s 180(5)(b)(iii), deals with the Registrar’s duties once an amendment notice has been given to a secured party under s 180. Provided the Registrar observes the time limits set out in ss 181(2) and (3), he or she:
“… must (at his or her initiative) register a financing change statement amending the registration (including an amendment to remove the registration) in accordance with the amendment demand, unless the Registrar suspects on reasonable grounds that the amendment is not authorised by section 178.”
In making a decision under s 181(1), the Registrar must consider any response given by the secured party to the invitation in the amendment notice together with any other relevant information.[30]
[30] PPS Act; s 181(4)
Generally, the Registrar must wait for five business days after the amendment notice has been given to the secured party or such longer period he or she has approved in relation to the particular amendment demand or to a class of amendment demands.[31] If the secured party has responded to the invitation in the amendment notice and the Registrar has no reason to believe that the secured party intends to give a further response, he or she may register a financing change statement before the expiration of those five business days or longer period approved by the Registrar.
ONUS OF PROOF AND STANDARD OF PROOF
[31] PPS Act; s 181(3)
Onus of proof
Part 8.6 of Chapter 8 makes provisions regarding onus of proof and knowledge. Section 296(1) reads in part:
“In a proceeding in Australia under this Act, the onus of proving the following facts lies with the person asserting those facts:
(a)the fact that a security interest attaches to personal property;
(b)the fact that a security interest is perfected by registration;
(c)-(l)…”
There is an initial question to be asked. That is whether a proceeding in the Tribunal, such as the review of the Registrar’s decision, is a “proceeding … under this Act …”, being the PPS Act, or whether it is a proceeding under the AAT Act. If it is the former, the onus will apply but not if it is a proceeding under the AAT Act.
A. The power of the Tribunal to review a decision
To answer the question, I will begin with s 25(1) of the AAT Act. It provides:
“An enactment may provide that applications may be made to the Tribunal:
(a)for review of decisions made in the exercise of powers conferred by that enactment; or
(b)for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment.”
On its face, an enactment providing that an application may be made to the Tribunal does not of itself give the Tribunal power to review the decision to which the application relates. Until 1 July 2015, the Tribunal’s power to review any decision in respect of which an application was made to it under any enactment was expressly stated in s 25(4). With the passage of the Tribunals Amalgamation Act 2015 (TA Act) and its implementation from 1 July 2015, s 25(4) has been repealed.[32] The reason for the Tribunal’s having power to review a decision in respect of which an application is made to it must now be implied from the provisions of the AAT Act and, on almost every occasion, at least one other enactment.
[32] s 3 and Schedule 1, Item 40
Section 25(1) provides that an enactment may provide that applications may be made to the Tribunal for review of decisions of the sort it goes on to describe in paragraphs (a) and (b). The reference to “an enactment” in s 25(1) of the AAT Act (emphasis added) means that the AAT Act may itself provide that an application may be made to the Tribunal for review of a decision made in the exercise of powers it confers.[33] More generally, the provision is to be found in another enactment be it an Act or, in some instances, an Ordinance or any instrument made under any such Act or Ordinance.[34] In this case, the provision is found in s 191 of the PPS Act. Of relevance is s 191(h), which provides:
“An application may be made to the Administrative Appeals Tribunal for review of the following decisions made by the Registrar:
(a)-(g) …
(h)a decision to refuse to register a financing change statement in accordance with the amendment demand, under subsection 181(1);
(i)-(m)…”
[33] It does so in s 69A(2) where it provides that either party to a proceeding may apply to the Tribunal for review of the taxed amount decided upon by an officer of the Tribunal after taxing costs in accordance with s 69A(1).
[34] AAT Act; s 3(1): definition of “enactment”
Section 191(1)(h) does not identify the person who is entitled to make the application for review. That is left to s 27(1) of the AAT Act, which provides that “… the application may be made by or on behalf of any person or persons … whose interests are affected by the decision.” Ms Burge is a person whose interests are affected by the Registrar’s decision to refuse to register a financing change in accordance with her amendment demand. Therefore, she may be said to have an entitlement, privilege or right to apply to the Tribunal. Her entitlement or right to apply for review would have no meaning if the Tribunal does not have a correlative or corresponding power, authority or even a duty to review the decision.
In the absence of s 25(4), there is no express statement that the Tribunal has that power, authority or duty, however described. Its power, authority or duty must now be implied from the fact that an application for review may be made to it and from the powers it is given to determine particular issues relating to, or aspects of, an application or review of a decision that is the subject of an application for review.
Section 29(7) is an example of the former when it provides:
“The Tribunal may, upon application in writing by a person, extend the time for the making by that person of an application to the Tribunal for review of a decision (including a decision made before the commencement of this section) if the Tribunal is satisfied that it is reasonable in all the circumstances to do so.”
An example of the latter is found in s 25(4A):
“The Tribunal may determine the scope of the review of a decision by limiting the questions of fact, the evidence and the issues that it considers.”
Section 43(1) provides an even clearer example in providing:
“For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision and shall make a decision in writing:
(a)affirming the decision under review;
(b)varying the decision under review; or
(c)setting aside the decision under review and;
(i)making a decision in substitution for the decision so set aside; or
(ii)remitting the matter for reconsideration in accordance with any directions or recommendations of the Tribunal.”
By implication, provisions such as these are consistent with my conclusion that the Tribunal has power to review a decision in respect of which an application has been made to it.
B. Is the proceeding under the AAT Act or the PPS Act?
Given that the Tribunal has power to review a decision in respect of which an application has been made to it, it seems to me that the application made by Ms Burge is a proceeding in the Tribunal under the AAT Act rather than a proceeding under the PPS Act. Once the application is made, its progress is governed by reference to the provisions of the AAT Act. That is so even if the enactment providing for applications to be made to the Tribunal has added to, excluded or modified the operation of the provisions of ss 27, 29, 29AB, 29AC, 32, 33 and 35 or of ss 41(1), 43(1) or (2) of the AAT Act in relation to those applications.[35] Even in their altered form, the provisions of the AAT Act continue to provide the legislative framework within which the decision is reviewed. It is not the PPS Act which authorises an application to be made to the Tribunal. Certainly, the Tribunal may exercise the powers and discretions conferred on the decision-maker. The decision-maker under s 178 of the PPS Act is the Registrar. The Tribunal, however, exercises those powers in a proceeding under the AAT Act and not in a proceeding under the PPS Act.
[35] I considered the operation of s 25(6) in Re The Trustee for the Confidential Trust and Commissioner of Taxation [2013] AATA 682 before its recent amendment by the TA Act. My conclusion was reached in the context of the Taxation Administration Act 1953 (TAA). It was to the effect that, s 25(6) began from the proposition that the provisions of the AAT Act are intended to set the broad framework within which applications may be made to the Tribunal and within which the Tribunal reviews the decisions to which the applications relate. Even though, on its face, s 25(6) suggests that only limited modifications may be made to that framework, Parliament had clearly intended to change aspects of that framework when it enacted Part IVC of the TAA. Part IVC provides for applications to be made to the Tribunal for review of reviewable objection decisions. It was enacted in 1991 and so after the enactment of s 25(6) in 1975. Parliament must be taken to have been aware of the limitations expressed in s 25(6). By acting as if those limitations did not impose any barrier to its enacting legislation contrary to those limitations, it must be taken to have intended that they did not apply in relation to applications made to the Tribunal under Part IVC. To that extent, the operation of s 25(6) and other provisions of the AAT Act must be taken to have been added to, excluded or modified by the provisions of Part IVC of the TAA in relation to the applications to which it applies but not generally.
C.Section 296 and the onus of proof not applicable
My conclusion that the proceeding in this matter is under the AAT Act and not under the PPS Act leads me to the conclusion that the onus of proof provided for by s 296 does not apply. I am reinforced in that conclusion by a comparison of the particular matter in respect of which s 296 imposes an onus and the issue at the heart of the decision to which the application for review relates. Section 296(a) is the factual issue most relevant in the resolution of this matter. The issue at the heart of the decision is raised by Item 2 of s 178. Reading the two side by side, they are:
Section 178, Item 2
Section 296(a)
“The particular collateral in which the person has an interest does not secure any obligation (including a payment) owed by a debtor to the secured party.”
“the fact that a security interest attaches to personal property”
Section 296(a) must be read with s 19(2), which I have set out at [25] above. The wording is not a precise reflection of Item 2 of s 178. Section 19(2) requires as its first criterion only that the grantor has either “rights in the collateral” or the “power to transfer rights in the collateral to the secured party”. Value must be given for the security interest or the grantor must have done an act by which the security interest arises. Item 2 of s 178, on the other hand, is drafted from a broader perspective. It requires the person who has made the amendment demand to have an “interest” in the collateral but that person may, or may not, be the grantor or the debtor or a secured party. It would seem that the issues raised by Item 2 and s 296(a) have a different scope and focus. Section 296 is not intended to relate to issues raised by s 178 and the subject of the Registrar’s decision under s 181(1) and of review by the Tribunal. I am reinforced in my view by [30] of the Explanatory Memorandum to the Personal Property Securities Bill 2009 in referring to cl 296. Reference was made only to proceedings in an Australian court and not to administrative proceedings:
“In any proceedings in an Australian court, the onus of proving that a security interest has attached to personal property, is perfected or has been taken free of a security interest, would lie with the person making those assertions.”
Standard of proof: suspects on reasonable grounds
In reviewing the Registrar’s decision under s 181(1), I must ask myself the same question as he was required to ask i.e. whether I suspect on reasonable grounds that the amendment sought in an amendment notice given to the secured party (Blinds & Shutters) is not authorised under s 178. The starting point for my consideration of the state of mind I must be in is the observation made by the High Court in George v Rockett:[36]
“ Suspicion, as Lord Devlin said in Hussien v Chong Fook Kam ... [[1970] AC 942 at 948], ‘in its ordinary meaning is a state of conjecture or surmise where proof is lacking: “I suspect but I cannot prove.”’ The facts which can reasonably ground a suspicion may be quite insufficient to ground a belief, yet some factual basis for the suspicion must be shown. …”[37]
[36] (1990) 170 CLR 104
[37] (1990) 170 CLR 104 at 115
Suspecting that a thing is so on reasonable grounds is different from simply suspecting that it is so. In a passage approved by the High Court in George v Rockett, Kitto J said in Queensland Bacon Pty Ltd v Rees:[38]
“A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion but without sufficient evidence’, … Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. …”[39]
[38] (1966) 115 CLR 266; Barwick CJ and Kitto J; Menzies J dissenting
[39] (1966) 115 CLR 266 at 303
In Cruickshank v Warren,[40] Connor J considered whether a police officer, Sergeant Warren, had “reasonable cause to suspect” that Mr Cruickshank had driven a motor vehicle under the effect of intoxicating liquor to such an extent as to be incapable of having proper control over it. If he did, Sergeant Warren had power under s 139D(1) of the Motor Traffic Ordinance 1939 (ACT) to require Mr Cruickshank to submit to a breath test. His Honour said:
“ The phrase ‘reasonable cause to suspect’ is not without difficulty. The primary dictionary meaning of ‘suspect’ is to imagine that something is so without having proof, or proper proof, that it is so. This notion does not march easily with the notion of ‘reasonable cause’. I look therefore to the general context of s 139D(1) to see which of the other meanings of ‘suspect’ should be given to it in sub-s (1). I think it is apparent that sub-s (1) of s 139D is designed to avoid random testing. In other words, there must be something about the person in question which distinguishes him from other members of the public and makes it desirable that he should submit to a breath test. The phrase ‘reasonable cause to suspect’ however, in my view, plainly cannot mean that the investigation has reached the stage where a member of the police force feels that some driving offence involving consumption of alcohol can be proved against the person in question either beyond reasonable doubt or even on the balance of probabilities. Plainly enough before the breath test has been given the investigation has reached only an intermediate stage. It is a question of whether at that stage there is sufficient justification for going on to require a breath test. In this context I think the proper way to interpret the phrase ‘reasonable cause to suspect’ in s 139D is to interpret it as meaning the formation by a member of the police force of a reasonable view that the person involved may have committed an offence under sub-par (1) [sic (a)], or may have been the driver at the time of an accident under sub-par (b), or may have been in an accident and may have alcohol in his blood under sub-par (c). …”[41]
[40] (1976) 9 ACTR 30
[41] (1976) 9 ACTR 30 at 31
In Goldie v Commonwealth of Australia,[42]the Full Court of the Federal Court considered s 189(1) of the Migration Act 1958 (Migration Act) which, at the time, provided that “If an officer knows or reasonably suspects that a person in the migration zone is an unlawful non-citizen, the officer must detain the person.” The majority, Gray and Lee JJ, referred to dictionary definitions of the words “suspect” and “suspicion” and said that, on its own, the word “suspects” “… would be capable of being construed to include the formation of an imagined belief, having no basis at all in fact, or even conjecture. …”.[43] After looking at the consequences of arbitrary arrest on Australia’s obligations under the International Covenant on Civil and Political Rights, they continued:
“… To avoid these consequences, the word ‘reasonably’ has been placed before the word ‘suspects’ in s 189(1). The adverb makes it clear that, in order to justify arrest and detention, the suspicion that a person is an unlawful non-citizen must be justifiable upon objective examination of relevant material. Given that deprivation of liberty is at stake such material will include that which is discoverable by efforts of search and inquiry that are reasonable in the circumstances.”[44]
[42] (2002) 188 ALR 708
[43] (2002) 188 ALR 708 at 710
[44] (2002) 188 ALR 708 at 710
Section 189(1) of the Migration Act refers to the officer’s “knowing” as well as “reasonably suspecting”. What is meant by “knows” assists in determining what is meant by “reasonably suspects”:
“… Before an officer could know that a person is an unlawful non-citizen, the officer would have to have reached a level of satisfaction of that fact approaching certainty. If, as in the present case, the person concerned were not an unlawful non-citizen, because he or she was the holder of a visa entitling him or her to be in Australia, it would be impossible for the officer to know the contrary. The context of the phrase ‘reasonably suspects’ suggests that something substantially less than certainty is required. Reasonable suspicion, therefore, lies somewhere on the spectrum between certainty and irrationality. The need to ensure that arrest is not arbitrary suggests that the requirement for a reasonable suspicion should be placed on that spectrum not too closely to irrationality.”[45]
[45] (2002) 188 ALR 708 at 710
The consequence of detention under s 189(1) of the Migration Act was that the person must be kept in immigration detention until removal from Australia or deportation under that legislation or until granted a visa.[46] Therefore, the period of detention can be indefinite and the scheme of the Migration Act does not contemplate a curial review of the person’s status. Gray and Lee JJ said:
“… These provisions confirm that the appropriate construction of s 189 is that an officer in forming a reasonable suspicion is obliged to make due inquiry to obtain material likely to be relevant to the formation of that suspicion.”[47]
[46] Migration Act, s 196(1)
[47] (2002) 188 ALR 708 at 711
The principles in these authorities are relevant in deciding whether the Registrar “suspects on reasonable grounds” that the amendment is not authorised under s 178. They show that care must be taken to focus on the subject of any such suspicion. The Tribunal need not be satisfied of the subject on the balance of probabilities or even feel “certain” in order to suspect on reasonable grounds that it is not authorised. It must, however, have more than a “feeling” that cannot be supported by pointing to any objective event or events to support it. It must look to the whole matrix of information in the context of the issue to be decided.
To adapt the words of the Full Court of the Federal Court in Goldie v Commonwealth of Australia, that leads to the conclusion that a suspicion on reasonable grounds must be placed on the spectrum between certainty and irrationality at a position that is not too close to irrationality. Precisely where that position is struck depends on the subject of the suspicion and the relevance of that subject in the wider legislative scheme. Whether a decision-maker has a suspicion on reasonable grounds must then be assessed in light of where that position has been struck having regard to all of the evidentiary material.
CONSIDERATION
The legislative scheme regarding amendment of the Register
The subject of the suspicion is the authorisation of the amendment under s 178. The immediate context in which the issue must be decided is the registration of the financing change statement but the wider context is the integrity of the system of regulation of security interests. It is a system that seeks to ensure that the interests of the grantor and those of the secured party are protected as are those of third parties who may have dealings involving personal property in which a security interest is held. It is a system where registration provides those protections but where registration may also limit the ability of a person to deal with that personal property even though the payment or obligation in relation to which the security interest was given has been made or performed.
The procedure set out in s 178 followed by the administrative process set out in ss 180 and 181 enables a person who has an interest in personal property that is the subject of a registered security interest to demand rectification of the Register. Parliament has not imposed an onus on the person seeking rectification to establish that payment has been made or the obligation performed. It has not left the matter to be decided on the balance of probabilities. Instead, it has weighted the scales in favour of rectification as sought by the person who gave the secured party the amendment notice under s 180. That weighting, however, can be overcome not by the secured party’s having to establish on the balance of probabilities that the amendment is not authorised but by there being material that leads the Registrar, and this Tribunal in turn, to suspect on reasonable grounds that the amendment is not authorised by s 178. Suspicion on reasonable grounds is a less rigorous standard than satisfaction on the balance of probabilities. The weighting can be contrasted with that in s 182, which sets out the judicial process for considering an amendment demand. On an application to it, a court must consider whether the amendment demanded is, or is not, authorised by s 178. It would do that on the balance of probabilities for no mention is made of any other standard of proof.
The evidence
Much of the evidence given by Ms Burge and Mr Davidson concerned events surrounding the end of their marriage and their subsequent difficulties in communication. In essence, Ms Burge said that Mr Davidson had not consulted her about steps he took in bringing the business of Blinds & Curtains to an end and that Ms Krzempek knew that the partnership had come to an end when she signed the agreements in 2011 and 2012.
Ms Krzempek said that it was her understanding that, when a partnership was being wound up, it was proper to deal with only one of the partners. In response to Ms Burge’s question as to why she had not questioned Mr Davidson as to whether he had the right to sign on behalf of the partnership, Ms Krzempek replied that the business had to be wound up. She had to finish the work that Blinds & Curtains had undertaken and she did not think that Ms Burge should have been involved in the transfer of the lease from Blinds & Curtains to Blinds & Shutters. She did not think about any impact that the transfer might have on Ms Burge and did not ask Mr Davidson about any involvement Ms Burge continued to have in the business.
At the time of the transfer, Ms Krzempek said, Blinds & Curtains was in debt and in no position to continue its business. There were discussions between her and Mr Davidson and between Mr Davidson and others about opening a new business. Another person proposed investing money to keep Blinds & Curtains open but that proposition was rejected. Mr Davidson asked if anyone was interested in the business. He registered the new business name and then transferred its registration to her, Ms Krzempek said. She did not purchase the business of Blinds & Curtains but started instead the new business of Blinds & Shutters.
As for registering the security interest, Ms Krzempek said that she could not recall who had advised her to do that. Blinds & Shutters finished the work that Blinds & Curtains had committed to and was owed just over $30,000 for doing so. Ms Krzempek thought that Mr Davidson had probably drafted both the 13 June 2011 and the 6 April 2012 agreements.
Ms Krzempek and her accountant, Mr Davidson said, had the idea to register a security interest. He was not sure who had drafted them but he did have a large input into the first agreement dated 13 June 2011. As for the agreement dated 6 April 2012, he did not know if he had drafted that or not but he said that he would have had a fair bit to do with it. Ms Krzempek would have as well.
Mr Davidson said that Ms Burge had not made herself available to be consulted and he was left with no choice but to make the decisions that he did in order to keep good faith with the customers who had paid deposits for their blinds and curtains but who had not received delivery of their goods when their personal and profession relationship broke down. It was possible that he told Ms Krzempek that Ms Burge was no longer involved in the business but he did not know. Mr Davidson confirmed that Ms Krzempek had paid nothing for the business. He did not think that Ms Burge should have been a party to the agreements that he had signed because he had tried in vain to arrange meetings and had been rejected.
Ms Burge said that she had not been able to attend the premises of Blinds & Curtains as she had been working. In any event, the letters passing between her solicitors and those of Mr Davidson had led her to believe that settlement of their affairs was very close. Mr Davidson’s response to her was that he was sure that she believed that to be so but that he had explained to her that settlement was neither feasible nor close. He was left to make the best decisions he could on behalf of the partnership. The way Mr Davidson saw matters was set out in an email he sent to his solicitor and, on 21 November 2012, sent on to Ms Burge’s solicitor:
“Ms Krzempek and myself draw [sic] up the agreement for her to lease the equipment, a way for her to buy stock at full purchase price and most importantly a way for customers’ orders which were work in progress with deposits paid for, could be completed and final payments be made. This was without disposing of any assets of the partnership. Ms Krzempek gained a new lease from the landlord, set up new trading accounts with banks and suppliers and hired some of the past employees.
By Ms Krzempek starting this new entity and myself agreeing to this lease, it gave the partnership a way of completing the outstanding work and receiving almost all of the monies owed from the debtors, which then gave us a way of reducing the creditors of the partnership by approx. $150,000 to $200,000, not to mention the way it stopped the current customers who had work in progress to receive their already partially or fully paid for products.
It has also allowed for the current leases of the partnership to be paid thru continued revenue to the partnership of more than $2,700 per month to stop the creditors from foreclosing on the many debts, however this was only a temporary measure as these debts still need to be paid.
I felt by signing this agreement was the only option at the time and a way to keep the creditors away from the doors for both partners, which it has so far.”[48]
[48] Ms Burge’s Statement of Facts, Issues and Contentions; Annexure P
When the business of Blinds & Curtains closed its doors, it had debts in the order of $480,000. That was reduced to about $100,000 including the debt of approximately $32,000 owed to Blinds & Shutters. Mr Davidson said that he had kept records of the amounts paid by customers and the cost of completing the work of Blinds & Curtains. This was fully investigated by the forensic accountant for the Family Court proceedings.
Ms Burge questioned Mr Davidson as to why Blinds & Curtains would owe any money given the way in which the blinds and curtains were costed and the retail price determined. Customers were required to pay one third of the retail price as a deposit when they placed their orders. Given the mark up from the cost base, the remaining two thirds recovered from the customers on completion should have covered the costs of manufacturing the blinds and curtains.
The report prepared by Mr Phillip Rundle of Grant Thornton was prepared in accordance with Part 15.5 of the Family Law Rules 2004 and with the standards and guidelines of the Institute of Chartered Accountants in Australia and in accordance with APES 215 Forensic Accounting Services of the Accounting Professional and Ethical Standards Board. He was engaged by Ms Burge’s solicitor, Mr Heinz of Heinz & Partners and Mr Davidson’s solicitor, Mr Oakley of Cinque Oakley Senior. Mr Rundle prepared it on the basis of information provided by both Mr Davidson and Ms Burge as well as from Ms Krzempek. He had access to Blinds & Curtains’ taxation and financial statements and Blinds & Shutters’ profit and loss statements for the years ended 30 June 2011 and 2012 and the period ended 31 October 2012 and its balance sheet as at 30 June 2011 and 31 October 2011.
On the basis of information provided by Ms Burge and the transactions in the trading account, Mr Rundle noted that, between 30 June 2011 and 14 October 2012, payment had been made to Blinds & Shutters in the amount of $14,659.[49] That was recorded at [7.3.9] of his report as payment for work done by Blinds & Shutters on behalf of Blinds & Curtains. Mr Heinz had advised Mr Rundle that Ms Burge had paid one outstanding debt of $3,500 to a trade supplier. Mr Cinque had advised Mr Rundle that all debts to the suppliers (other than the sum of $3,500 paid by Ms Burge) and a debt of approximately $50,000 to the Australian Taxation Office had been paid. Other debts remained unpaid.[50] Among them was the sum of $57,000 owed to Blinds & Shutters but, as with the other debts he listed, Mr Rundle stated that he was unable to verify this information to any documentation.[51]
[49] T documents; T5 at 27
[50] T documents; T5 at 31
[51] T documents; T5 at 32
Consideration
The essential issue is whether Mr Davidson had authority to sign the two agreements. The first was the agreement dated 13 June 2011 regarding the lease of various property, the purchase of stock by Blinds & Shutters from Blinds & Curtains and Blinds & Shutters’ undertaking to complete work for Blinds & Curtains. The second agreement dated 6 April 2012 effected the grant of the security interest. Whether he had authority depends first on whether the partnership of T&S Davidson was in existence at the time that he signed on its behalf.
As far as Mr Davidson’s bankruptcy was concerned, it brought the partnership to an end by virtue of s 37 of the Partnership Act. The two agreements he negotiated with Blinds & Shutters, however were long before his bankruptcy on 13 August 2013 and the partnership of T&S Davidson was intact at the time.
Ms Burge submitted that Mr Davidson was in breach of the partnership agreement when he purported to enter those agreements on behalf of the partnership. She relied on cll 15 and 16 in making that submission. It seems to me that it is arguable that Mr Davidson was in breach of the Partnership Deed. Although I will explain why he may have been in breach of cl 16(b), I do not think that it brought their partnership agreement to an end and that it continued when he signed the agreements with Blinds & Shutters. I will return to that but, for the moment note that cl 16(b) provides that no partner shall, without the consent of the others, “Give any security or promise the payment of money on account of the firm unless in the ordinary course of business.”
Whether Mr Davidson acted in breach of cl 16(b) of the Partnership Deed depends on whether he acted “in the ordinary course of business”. That expression, or related expressions, have received consideration in various contexts. Features that have been identified as characteristics have been somewhat shaped by those various contexts:
(1)In Robertson v Grigg,[52] the issue was whether certain payments that had been made to a contractor had been made in the ordinary course of business so that they would not be regarded as preferential payments under then s 95 of the Bankruptcy Act 1924:
[52] (1932) 47 CLR 257; Gavan Duffy CJ, Rich, Starke, Dixon, Evatt and McTiernan JJ
“… [T]he test under sec. 95 of the ordinary course of business is not whether the act is usual or common in the business of the debtor or of the creditor, but whether it is ‘a fair transaction, and what a man might do without having any bankruptcy in view… The road making contracts into which the debtor entered promised good profits, but the debtor required financial assistance in carrying them out mainly for the payment of wages and obtaining materials. Such assistance could be obtained, and, probably, only obtained, if the person rendering assistance were protected by an assignment of the moneys coming due under the contracts. The transaction was fair and reasonable, and such as any man might engage in without adverting even to the possibility of bankruptcy.”[53]
[53] (1932) 47 CLR 257 at 267-268 per Gavan Duffy CJ and Starke J
“… The ‘ordinary course of business’ is not, I think, to be related to any special business carried on by either debtor or creditor but is concerned with the character of the impeached transaction itself. …”[54]
[54] (1932) 47 CLR 257 at 273 per Evatt J
(2)The issue for the High Court in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liquidation)[55] was whether the respondent had made a preferential payment to the appellant with the consequence that it was void under s 298(1) of the Companies Act 1936 (NSW):
[55] (1948) 76 CLR 463; Latham CJ, Rich and Williams JJ
“…The provision does not require that the transaction shall be in the course of any particular trade, vocation or business. It speaks of the course of business in general. But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation.”[56]
[56] (1948) 76 CLR 463 at 477 per Rich J
(3)Again in the context of preferential payments, Dixon J said in Taylor v White:[57]
[57] (1964) 110 CLR 129; Dixon CJ, Kitto, Taylor, Menzies and Windeyer JJ
“… I do not doubt that ‘in the ordinary course of business’ refers to ‘business’ as a general conception and is not restricted to the conduct of any particular business such as the business carried on in a shop or merchant’s office or the like, but is referring to the transaction of business as a known and recognized activity pursued by anybody engaged in an attempt to win or earn or ‘make’ money or a living in a systematic or regular way. …”[58]
[58] (1964) 110 CLR 129 at 136
(4)Section 10 of the Partnership Act 1892 (NSW) provided that the firm was liable when one of its partners, acting in the ordinary course of business of the firm, or with the authority of his or her co-partners, committed a wrongful act or omission causing a third party loss or injury. The firm carried on business conducting liquidations, receiverships and the supply of taxation and secretarial services. One of the partners fraudulently misappropriated funds of a company while acting as its receiver and manager:
“ To say that the liability declared by s 10 and s 11 is an aspect of the general law of principal and agent is not to say that a member of a firm cannot be acting in the ordinary course of the business of a firm when engaging in activities which, for one reason or another, that person alone amongst the members of the firm can undertake. One such reason might be that he or she holds a particular office or appointment. … However, the essential task remains one of identifying the nature and scope of the business of the firm and relating the wrongful act to the business so identified. There is no reason in principle why three accountants, one of whom is a registered liquidator, another of whom is a registered auditor, an another of whom is a registered tax agent, cannot carry on, in partnership, the businesses of winding up companies, auditing accounts, and preparing income tax returns. There are in practice good reasons why they might agree to do so.
The nature and scope of the business of a firm will fall to be determined by reference to the agreement between the partners. … If partners have agreed to carry on a certain kind of business and that business includes acting in a particular manner or capacity then conduct by one of them in pursuance of that agreement will attract the operation of s 10. It is their agreement to go into that kind of business which is the foundation of their joint and several liability.”[59]
“ In considering whether the act of a person is done in the ordinary course of the business of a firm of which he is a member, it is, of course, necessary to determine what the business of the firm is. Sometimes the business of the firm is defined or described in the partnership agreement. In such a case, the court must decide, as a question of fact, whether the act in question can be and was done in the course of carrying it on. This may be decided by reference to specific evidence that an act of the kind in question is apt to be, or was, done in carrying on such a business. Or, in some cases, the court may be in a position to take notice of the fact that a business of the kind in question is apt to be carried on by doing acts of the relevant kind.
In other cases, where the business is not defined or described in the partnership agreement, it is necessary to decide, on the facts of the case, what the business is and what acts are apt to be done in carrying it on. …”[60]
[59] Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1 at 10-11 per Gleeson CJ with whom Mahoney and Meagher JJA agreed
[60] (1990) 23 NSWLR 1 at 11 per Mahoney JA
Bearing these principles in mind, I see that the partnership business is the business described in the Schedule to the Partnership Deed and any other business the partners agree upon.[61] As there is no evidence that they agreed upon any other business, I find that the business of T&S Davidson was the manufacture and the wholesale and retail sale of curtains and blinds. That description suggests that the partnership was undertaking the manufacture of the curtains and blinds rather than subcontracting the task. That it did manufacture the goods themselves is supported by evidence given by all three witnesses. The partnership employed up to 17 persons in various roles including manufacturing. Therefore, I find that the usual practice of the partnership was to manufacture the curtains and blinds itself and not to subcontract that task to an outside entity. The transactions under scrutiny involved the lease of the equipment that T&S Davidson used to enable it to carry out its business and effectively subcontracted its manufacturing work to another entity. Neither characteristic fitted the way in which T&S Davidson conducted its business in the ordinary course of events. Therefore, Mr Davidson’s signing an agreement to pay for the completion of the work could not be said to have been in the ordinary course of the partnership’s business and nor could his giving security for payment for the work.[62]
[61] Partnership Deed; cl 2
[62] A finding that his actions were not in the ordinary course of business does not equate with a finding that Mr Davidson acted improperly. On his evidence, he was trying his best to minimise the losses he and Ms Burge faced. It is not relevant for me to consider the matter further.
That was a breach of cl 16(b) but it would not have dissolved the partnership. All that it amounted to was a trigger point that Ms Burge could have relied upon on under cl 17(a) to give Mr Davidson a notice in writing to determine the partnership. I would reach the same conclusion if Mr Davidson could be said to have been in breach of cl 15(c). If Ms Burge had given the notice, Mr Davidson would have been required to sell his interest in the partnership to her in accordance with cl 18 of the Partnership Deed as provided by cl 17(e). None of that happened and the partnership continued to exist when Mr Davidson signed both agreements on behalf of the T&S Davidson.
Whether Mr Davidson had authority to bind T&S Davidson when he signed the agreements depends on s 9 of the Partnership Act. It provides:
“Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.”
Section 9 has two aspects. One is that every partner is an agent of the partnership (firm[63]) for the purpose of the “business of the partnership”. The other is that, unless the person with whom he or she is dealing knows that the partner has no authority or does not believe him or her to be a partner, every partner binds the partnership when he or she “does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member …”.
[63] Partnership Act; s 8
As I have already found that Mr Davidson was not acting in the ordinary course of business in granting the security interest to Blinds & Shutters, he cannot be said to have either acted for the purpose of the “business of the partnership” nor done an “… act for carrying on in the usual way business of a kind carried on by the firm of which he is a member” within the meaning of s 9.[64] Although it would seem on the evidence that he was acting with the best of motives - which were to try to minimise the debts of the partnership - his actions were directed to bringing the business of the partnership to an end and not directed to its business at all. That means that neither aspect of s 9 of the Partnership Act is brought into play and Mr Davidson’s signing the agreement with Blinds & Shutters cannot be taken to bind T&S Davidson.
[64] National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251; Gibbs CJ, Wilson, Brennan and Dawson JJ; Deane J dissenting at 275 per Brennan J considering the equivalent provision to s 9 in the Partnership Act 1892 (NSW): s 5.
The same difficulty arises under s 10 of the Partnership Act. It provides:
“An act or instrument relating to the business of the firm and done or executed in the firm-name or in any other manner showing an intention to bind the firm by any person thereto authorized whether a partner or not is binding on the firm and all partners.
This section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments.”
Both the agreement relating to the lease of equipment to Blinds & Shutters and its completion of Blinds & Curtains orders and that relating to the grant of a security interest to Blinds & Shutters were signed by Mr Davidson in the firm name. Each shows that he intended to bind T&S Davidson. They are, however, only two of the three elements that must be met before the effect of s 10 will be that they are binding on the partnership. The third is that the act or instrument, in this case the act of entering the agreements or the agreements themselves, related to the “business of the firm”. As I have previously found, the business of the partnership was the manufacture and wholesale and retail sale of blinds and curtains. The agreements did not relate to that business but to the winding up of that business. Therefore, s 10 cannot be relied upon to find that the acts of entering either agreement, or either agreement itself, bound the partnership, T&S Davidson.
In view of these findings, I do not suspect on reasonable grounds that the amendment is not authorised by s 178 of the PPS Act. In particular, it is not authorised by Item 1 of the table set out in s 178(1). Therefore, I set aside the decision of the Registrar dated 7 February 2014 and substitute a decision that the Registrar register a financing change statement amending PPSR Registration 201204090003017 in accordance with the Amendment Demand dated 13 November 2013.
I certify that the eighty three preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: ……….....[sgd]...................................................
Associate
Date of Hearing 22 April 2015
Date of Decision 29 July 2015
For the Applicant self represented
Solicitor for the Respondent Mr M Piotrowicz and Ms M Mackellar
For the Party Joined Ms S Krzempek
The amendment to s 25(6) of the AAT Act effected by the TA Act is to add two sections – ss 29AB and 29AC – to those previously listed. Their addition does not alter the view that I previously reached although I would add one rider to it. My view applies only to instances in which the enactment effecting the addition, exclusion or modification is effected by an Act of Parliament. Under the AAT Act, however, an “enactment” may refer to both Acts of Parliament and to legislative instruments including regulations: AAT Act; s 3(1). Regulations are valid if authorised by an Act of Parliament. Section 25(6) is a source of authority but it is a source that is limited to the addition, exclusion or modification of the provisions it specifically lists. Unlike an Act of Parliament, regulations and other legislative instruments may not add to, exclude or modify any other provisions of the AAT Act. Had Parliament wanted to lift that limitation on regulations, it had only to remove references to specific provisions of the AAT Act.
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