Denbride Pty Ltd and Registrar of Personal Property Securities

[2015] AATA 938

Denbride Pty Ltd and Registrar of Personal Property Securities [2015] AATA 938 (4 December 2015)

Division	TAXATION AND COMMERCIAL DIVISION
File Number(s)	2015/1676
Re	Denbride Pty Ltd
APPLICANT
And	Registrar of Personal Property Securities
RESPONDENT
And	Eagle Boys Dial-a-Pizza Australia Pty Ltd
OTHER PARTY

DECISION

Tribunal	Senior Member McCabe
Date	4 December 2015
Place	Brisbane

The decision under review is affirmed.

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Senior Member McCabe

Catchwords

PERSONAL PROPERTY SECURITIES REGISTER – register amendment – franchise agreement – franchise agreement obligations secured through fixed and floating charges - options – financing change statement – decision affirmed

Legislation

Personal Properties Securities Act 2009 (Cth), ss 178, 180, 181

REASONS FOR DECISION

Senior Member McCabe

4 December 2015

1. The Registrar of Personal Properties Securities maintains a register which includes information about security interests that are attached to personal property. The register was created under the Personal Properties Securities Act 2009 (Cth) (the Act), and replaces some of the registers formerly maintained by the Australian Securities and Investments Commission (ASIC) and a range of state agencies. Where a security interest is registered, those who subsequently deal with the property are taken to have notice of the registrable interest, and the interest may be enforceable against an external administrator.

2. Denbride Pty Ltd (Denbride), the applicant in these proceedings, wants the Registrar to amend the register. Denbride says a registered interest held by Eagle Boys Dial-A-Pizza Australia Pty Ltd, the other party (Eagle Boys), should effectively be struck out because Denbride’s relationship with Eagle Boys has ended, and no further obligations are owed. Eagle Boys disagrees. 

3. The reviewable decision should be affirmed. I explain my reasons below.

   Background to the application

4. Eagle Boys enters into franchise agreements with small businesses that own and operate Eagle Boys-branded outlets around Australia. A copy of the franchise agreement between Eagle Boys as franchisor (the body providing the franchise services) and Denbride (which owned and operated an Eagle Boy’s outlet in Woodford) is set out in exhibit 3 at annexure A. The agreement was for a term of five years from 7 December 2009 with the option of renewing for a further five years.

5. Denbride accepted a variety of obligations under the franchise agreement. These include:

   ·(at clause 8.3(h)) An obligation to pay a range of costs, including all costs on an indemnity basis “for the enforcement or attempted enforcement on [Denbride]…(even if not successful) by [Eagle Boys] of the Transaction Documents.” The expression Transaction Documents is defined in clause 1.1 to include any documents connected to the grant of the franchise including documents relating to “the consents, transfers or options in connection with this Agreement or other documents in this definition;”

   ·(at clause 31.3) a range of obligations in the event Eagle Boys decides to exercise an option to buy Denbride’s business pursuant to clause 31.2. Clause 31.3 provided for the sale to occur at an agreed price with detailed provisions in the balance of clause 31 for an expert valuation in the event the parties could not agree on a price.

6. The obligations were secured through fixed and floating charges over Denbride’s assets. A copy of the security documents are reproduced in exhibit 3 at annexure B. The security documents were signed on 7 December 2009. They were duly registered on the register formerly maintained by ASIC; a copy of the certificate of entry of a charge is found at p 70 of exhibit 3. The details on that register in due course formed part of the details on the Registrar’s register.

7. Mr Bruce Mansfield, a director of Denbride, provided a statement: exhibit 2. He also made remarks at the hearing although he was not cross-examined.  He said he was not making enough money out of his franchised business and indicated dissatisfaction with the arrangement. He said Denbride decided not to renew the agreement for a further five years as it was entitled to do under the franchise agreement. Mr Mansfield informed Eagle Boys of its decision on 5 November 2014. A copy of the email is reproduced in exhibit one at p 21. The email asserted Denbride “[did] not and will not owe you any monies what so ever and therefore we have fulfilled our Franchise agreement to the full extent.” The email went on to explain (confusingly) that Denbride was invoking clause 31 of the franchise agreement, which was actually the franchisor’s option to buy the business. Mr Mansfield informed Eagle Boys that it would have 7 days to inspect the plant and equipment:

   and make us an offer, we have other interested parties and will provide the plant and equipment to the highest bidder to satisfy the banks [sic] first charge…No expert valuer will be consider [sic] by us so please do not attempt to invoke this clause as it will not be considered… 

8. I note Mr Mansfield and his representative, Mr Noor, insisted during the hearing that Denbride was never in default under the terms of the franchise agreement, and that it did not owe Eagle Boys any money at the time the notice was sent on 5 November 2014. Mr Mansfield also said Denbride just wanted to get out of the business and was trying to deal with its termination as quickly as possible so he could move onto other opportunities. He hinted at a difficult relationship with Eagle Boys during the life of the franchise agreement and was concerned that Eagle Boys might ‘drag its feet’ to prevent the site being taken over by another chain of pizza suppliers.

9. Eagle Boys delivered its response to the notice on 6 November 2014 through its solicitors, Elliott May Lawyers. The email is reproduced at p 77-79 of exhibit one. The letter referred to a number of statements in Mr Mansfield’s email that “make it clear that you intend to conduct yourself in a manner that is inconsistent with your obligations to our client under the Franchise Agreement.” The solicitor went on to refer to the rights and obligations of the parties under clause 31. The email confirmed Eagle Boys intended to exercise its rights under clause 31 and invited Denbride to nominate a price in accordance with clause 31.3; the solicitor added a representative of Eagle Boys would be in contact to arrange an inspection of the plant and equipment but did not intend to be bound by a time limit of 7 days as suggested by the applicant. The solicitor added that if agreement could not be reached on a price pursuant to clause 31.3, Eagle Boys expected the provisions with respect to an expert valuation would apply.

10. The solicitor also said Eagle Boys expected the terms of the Franchise Agreement would be honoured and indicated it would enforce its rights under that agreement and the security documents in the meantime.

11. The solicitor subsequently raised an invoice in respect of professional fees in connection with that letter. Further correspondence occurred, and further professional costs were incurred by Eagle Boys. Those invoices (or some of them, at least) were passed on to Denbride for payment pursuant to clause 8.3(h) of the Franchise Agreement.

12. Mr Noor suggested Eagle Boys was dragging its feet to secure some sort of commercial advantage for itself at the expense of the outgoing franchisee. Mr Noor said other franchisees had also complained about similar treatment. He described what amounted to a “Catch-22” situation in which his client could not escape the obligations imposed under the Franchise Agreement, and the client’s attempts to disentangle itself only served to create fresh or more onerous obligations.

    The notice to amend and the reviewable decision

13. Denbride says its obligations under the Franchise Agreement and security documents have concluded. It sent a notice to Eagle Boys under s 178 of the Act demanding that Eagle Boys agree to amend the registration to reflect that reality. Eagle Boys did not agree. A copy of the notice was provided to the Registrar who subsequently provided a notice to Eagle Boys under s 180 inviting it to, in effect, show cause within a period of days. Once that period is expired, s 181 obliges the Registrar to register a financing change statement that amends the registration “unless the Registrar suspects on reasonable grounds that the amendment is not authorised under section 178”. (Section 178 sets out two species of authorised amendment: one that ends the effective registration, and the other which omits any reference to particular collateral.)

14. The Registrar in this case decided on 13 February 2015 it had reasonable grounds to suspect the amendment was not authorised: exhibit one at p 307. Its reasons are more fully explained in the statement required pursuant to s 37 of the Administrative Appeals Tribunal Act 1975: exhibit one at p 15.

    Should the register be amended?

15. I accept there is a valid franchise agreement. Denbride and Eagle Boys are parties to that agreement. It creates obligations, including the obligation to indemnify in clause 8 and obligations in relation to the option to purchase which are set out in clause 31. The performance of those obligations is explicitly secured by the fixed and floating charge, which is registered. Eagle Boys has incurred legal and other fees as a result of correspondence with the applicant in connection with the exercise of the option to purchase: the Franchise Agreement, on its face, provides the applicant will indemnify Eagle Boys against those costs. The applicant also indicated in its initial letter of 5 November 2014 that it would not accept the nomination of an expert, even though it was obliged to do so under the terms of the Franchise Agreement.  It follows there are obligations, including debts, which have arisen under the agreement and which are ongoing. I am satisfied I have reasonable grounds for suspecting the amendment sought is not authorised in those circumstances.

16. Denbride has argued the fees and other obligations were not reasonable. There is certainly a whiff of unconscionability in the air, and there may be a valid claim that the contract, or some of its terms, was unfair. But that is a question to be decided by a court of competent jurisdiction having regard to all the facts and the Australian Consumer Law and other enactments. My role, and the role of the Registrar, is narrower. We are not in a position to resolve the larger commercial dispute between the parties. It is enough that I am satisfied the obligations appear to be real; unless and until those obligations are set aside or varied in subsequent proceedings in another place, I am not in a position to order an amendment to the register.

17. The decision under review is affirmed. 

I certify that the preceding 17 (seventeen) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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Associate

Dated 4 December 2015

Date of hearing

23 November 2015

Advocate for the Applicant

Mr Alan Noor

Counsel for the Respondent

Counsel of the Other Party

Mr Michael Piotrowicz

Mr Stephen Carius