Laurus Group Pty Ltd (admin apptd) v Mitsui & Co. (Australia) Ltd (No 2)
[2023] VSC 412
•20 July 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 05931
BETWEEN:
| LAURUS GROUP PTY LTD (ACN 131 050 363) (ADMINISTRATOR APPOINTED) AS TRUSTEE FOR THE LAURUS GROUP UNIT TRUST AND ANOR | Plaintiff/Defendants by Counterclaim |
| and | |
| MITSUI & CO. (AUSTRALIA) LTD (ACN 004 349 795) | Defendant/Plaintiff by Counterclaim |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 July 2023 |
DATE OF JUDGMENT: | 20 July 2023 |
CASE MAY BE CITED AS: | Laurus Group Pty Ltd (admin apptd) v Mitsui & Co. (Australia) Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 412 |
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PERSONAL SECURITIES – Whether moneys paid into Court by way of security for costs pursuant to a consent order gives rise to a security interest pursuant to s 12(1) of the Personal Property Securities Act 2009 (Cth) (‘PPSA’) – Whether moneys paid into Court pursuant to a consent order gives rise to a security interest provided for by a transaction – Whether security interest is an interest that is created, arises or is provided for by operation of the general law and falls within s 8(1) of the PPSA – Whether an interest that falls within s 8(1) of the PPSA is also a security interest that falls within s 12(1) of the PPSA – Dura Australia (Constructions) Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86 – Diversa Pty Ltd & Ors v Taiping Trustees Ltd (2022) 401 ALR 161.
PRACTICE AND PROCEDURE – Consent orders – Role of Court when receiving consent orders – Groser v Equity Trustees Ltd (2008) 19 VR 598.
PAYMENT OUT OF MONEYS HELD IN COURT – Whether order should be made for payment out of moneys held in Court on account of security for costs without taxation first occurring – Boz One Pty Ltd v McLellan [2015] VSCA 145.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/First Defendant by Counterclaim (by its Administrator) | D McAloon | Gadens |
| For the Defendant/Plaintiff by Counterclaim | C Brown with H McAvaney | Corrs Chambers Westgarth |
| The Second Defendant by Counterclaim was excused from appearing | ||
HIS HONOUR:
Introduction
By way of brief background to these reasons, this proceeding was commenced by writ filed on 30 December 2019 and was substantively heard in April and May 2022, following which judgment was handed down on 24 June 2022.[1] Orders were made dismissing the plaintiff’s claim and for judgment in favour of the plaintiff by counterclaim, in circumstances explored in further detail below.
[1]Laurus Group Pty Ltd v Mitsui & Co (Australia) Ltd [2022] VSC 360 (‘Laurus’).
During the course of the substantive litigation, the defendant/plaintiff by counterclaim (‘Mitsui’) had become concerned that if it successfully defended the claim brought against it by the plaintiff/first defendant by counterclaim (‘APT’) [2], APT would be unable to pay Mitsui’s costs.
[2]The plaintiff/first defendant by counterclaim carried on business under the name Australian Pipe & Tube. During the substantive proceeding and in the primary reasons for judgment it was referred to as APT. It is referred to as APT in these reasons.
Accordingly, it made an application for security for costs pursuant to r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’) and s 1335 of the Corporations Act 2001 (Cth) (the ‘Act’). After a contested hearing, orders were made on 29 June 2021 that APT provide security for costs up to and including mediation in the amount of $30,900, by way of payment of funds into Court (the ‘First SFC Orders’). APT paid the moneys into Court in accordance with the First SFC Orders.
Following mediation, the parties agreed on the provision of further security in the amount of $100,000 and subsequently the Court made orders by consent on 11 April 2022 that APT provide security in the amount of $100,000 by payment of funds into Court (the ‘Second SFC Orders’). APT paid the moneys into Court in accordance with the Second SFC Orders.
Following the trial of the proceeding, APT’s claim was dismissed and judgment was granted in favour of Mitsui on the counterclaim. Orders were made, inter alia, that APT pay Mitsui’s costs of the proceeding (including the counterclaim).
Mitsui’s apprehension that APT would be unable to pay Mitsui’s costs if Mitsui successfully defended the claim, proved to be well founded.
On 30 November 2022, APT was placed into voluntary administration and Sam Kaso from Cor Cordis was appointed administrator (the ‘Administrator’).
The Administrator contends that the amount paid into Court pursuant to the Second SFC Orders gave rise to a security interest for the purposes of the Personal Property Securities Act 2009 (Cth) (the ‘PPSA’), which security interest had not been registered by Mitsui and hence, was an unperfected security interest as at the date of the appointment of the Administrator. The Administrator contends that such interest vests in APT immediately before the appointment by reason of s 267 of the PPSA, and accordingly, seeks an order that the funds held in Court pursuant to the Second SFC Orders be paid out to the Administrator.
The Administrator makes no such claim in respect of the amount paid into Court pursuant to the First SFC Orders. The Administrator’s argument distinguishes between the First SFC Orders, which were made following a contested hearing, and the Second SFC Orders, which were made by consent.
The discrete issue raised by this application is whether the payment of moneys into Court pursuant to a consent order gives rise to a security interest within the meaning of s 12(1) of the PPSA.
For reasons set out below, I do not consider that it does.
The facts in more detail
On 20 December 2019, APT commenced this proceeding against Mitsui. David Brandi was subsequently joined to the proceeding as the second defendant by counterclaim on 14 September 2020.
On 12 April 2021, Mitsui’s solicitors wrote to APT’s solicitors requesting that APT provide security for Mitsui’s costs of defending the claims brought by APT, up to and including mediation.
On 22 April 2021, APT’s solicitors wrote to Mitsui’s solicitors, refusing to provide security.
On 3 May 2021, Mitsui’s solicitors wrote a further letter to APT’s solicitors which repeated its request that APT provide security. The letter outlined that:
(a) the Court had the power to order security for costs against APT, because APT is a corporation and there is reason to believe that APT had insufficient assets in Victoria to pay the costs of Mitsui if ordered to do so by a Court; and
(b) the Court was likely to exercise its discretion to order that APT provide security for Mitsui’s costs because:
(i) the inability of APT to pay Mitsui’s costs exposes Mitsui as an innocent defendant to bear the expense of defending its position;
(ii) APT’s claims lacked merit; and
(iii) Mitsui did not cause APT’s impecuniosity.
Notwithstanding the further letter, APT’s solicitors maintained the refusal to provide security.
On 14 May 2021, Mitsui filed a summons seeking orders pursuant to r 62.02(1)(b) of the Rules and s 1335 of the Act that APT provide security for Mitsui’s costs.
Following a hearing before Judicial Registrar Steffensen on 29 June 2021, the Court made the First SFC Orders, which were:
(a) the plaintiff provide security for costs for the period from 29 June 2021 up to and including any further mediation held before trial in the amount of $30,900 by payment of funds into Court;
(b) if the plaintiff fails to provide security in accordance with the above, the proceeding as against the defendant is stayed; and
(c) the plaintiff pay 30% of the defendant’s costs of, and incidental to, the summons dated 14 May 2021 and the hearing on 28 June 2021 and 29 June 2021 to be taxed in default of agreement.
On or around 22 July 2021, the sum of $30,900 was paid into Court in satisfaction of the First SFC Orders.
After a mediation held on 15 December 2021 failed to resolve the proceeding, on 14 February 2022, Mitsui’s solicitors wrote to APT’s solicitors requesting that APT pay $167,500 into Court as security for Mitsui’s costs up to and including trial.
On 15 March 2022, APT’s solicitors sent an email to Mitsui’s solicitors advising that APT would agree to provide further security, but objected to the amount sought. In the email, the solicitors advised that they had been instructed that APT would offer $100,000 of additional security prior to trial. The email concluded by requesting that Mitsui’s solicitors advise whether that was satisfactory, in which case APT’s solicitors would ‘obtain instructions as to the timing of payment and [would arrange] for some consent orders to be filed dealing with the payment into Court’.
On 21 March 2022, Mitsui’s solicitors sent an email to APT’s solicitors advising that they had instructions to accept the offer and enclosed a proposed consent order for execution and filing.
Following the sending of two further emails to APT’s solicitors, which were not the subject of any response, on 7 April 2022, Mitsui’s solicitors emailed the Judicial Registrar’s chambers seeking a return date for the summons.
On 8 April 2022, APT’s solicitors signed and returned the consent orders previously sent to them by Mitsui’s solicitors, which had been changed so as to alter the time for payment of the funds into Court.
On 11 April 2022, the Court made the Second SFC Orders by consent that:
(a) the plaintiff must give security in the amount of $100,000 for costs for the period from 15 December 2021 up to and including trial by payment of funds into Court by 4:00pm on 12 April 2022; and
(b) if the plaintiff fails to comply with the above order, the proceeding as against the defendant is stayed.
On or around 22 April 2022, the sum of $100,000 was paid into Court in satisfaction of the Second SFC Orders.
On 24 June 2022, judgment was handed down in the proceeding.[3] Orders were made dismissing the claims brought by APT and Mr Brandi and ordering that APT and Mr Brandi pay Mitsui $7,401,572.41. Further orders were made directing the parties to confer as to the calculation of interest and costs.
[3]Laurus (n 1).
On 7 July 2022, the Court made orders, inter alia, that:
…
2.the plaintiff and the defendants by counterclaim pay the defendant/plaintiff by counterclaim’s costs of the proceeding (including the counterclaim), including reserved costs, on the following basis:
(a)as to the plaintiff/first defendant by counterclaim, on a standard basis up to and including 11:00am on 16 June 2020 and on an indemnity basis thereafter; and
(b) as to the second defendant by counterclaim, on a standard basis,
to be taxed in default of agreement.
On 30 November 2022, APT was placed into voluntary administration and the Administrator was appointed.
In an affidavit filed in response to this application, Mitsui’s solicitor has deposed that Mitsui’s taxed costs of the trial proceeding in respect of the First SFC Orders period are approximately $241,143.66, which substantially exceeds the security held in Court for this period of $30,900, and that Mitsui’s taxed costs in respect of the Second SFC Orders period are approximately $395,271.78, which substantially exceeds the security held in Court for this period of $100,000.
As noted above, the Administrator makes no claim with respect to the funds paid into Court pursuant to the First SFC Orders. Relatedly, the parties have executed orders providing for the payment out of Court to Mitsui of the $30,900.
The sum paid into Court pursuant to the Second SFC Orders of $100,000 remains held in Court.
It is common ground that Mitsui did not register any interest on the personal property securities register in respect of the funds paid into Court pursuant to either the First SFC Orders or the Second SFC Orders.
Relevant statutory provisions
The PPSA established a ‘single national law governing security interests in personal property.’[4]
[4]Explanatory Memorandum, Personal Property Securities Bill 2009 (Cth) 10.
In the present case, the Administrator’s submission proceeds on the basis that Mitsui is ‘the secured party’, and the interest Mitsui held in the funds paid into Court is a ‘security interest’.
‘Security interest’ is defined in s 12 of the PPSA as follows:[5]
[5]Noting that there are other components of the definition that are not relevant to this proceeding and therefore are not included in this judgment.
(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).
(2)For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:
(a) a fixed charge;
(b) a floating charge;
(c) a chattel mortgage;
(d) a conditional sale agreement (including an agreement to sell subject to retention of title);
(e) a hire purchase agreement;
(f) a pledge;
(g) a trust receipt;
(h) a consignment (whether or not a commercial consignment);
(i) a lease of goods (whether or not a PPS lease);
(j)an assignment;
(k)a transfer of title;
(l)a flawed asset arrangement.
Section 8 of the PPSA is also relevant and provides, among other things:[6]
[6]Section 8 appears in Pt 1.2 of the PPSA titled ‘General Application of this Act’.
Interests to which this Act does not apply
(1)This Act does not apply to any of the following interests (except as provided by subsection (2) or (3)):
(a)the interest of a seller who has shipped goods to a buyer under a negotiable bill of lading, or its equivalent, to the order of the seller, or to the order of an agent of the seller, unless the parties have otherwise evidenced an intention to create or provide for a security interest in the goods;
(b)a lien, charge, or any other interest in personal property, that is created, arises or is provided for under a law of the Commonwealth (other than this Act), a State or a Territory, unless the person who owns the property in which the interest is granted agrees to the interest;
(c)a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law;
…
Section 10 of the PPSA is entitled ‘The Dictionary’. Relevant definitions include the following:
general law means the principles and rules of the common law and equity.
…
Chapter 2 of the PPSA is entitled ‘General rules relating to security interests’. Section 16 is entitled ‘Guide to this Chapter’ and provides, inter alia:
Part 2.2 contains some general principles relating to … security interests, the agreements that govern them and their enforceability. The Part describes how a security interest is attached to personal property and perfected.
Section 17 is the guide to Part 2.2 of Chapter 2 of the PPSA and provides, inter alia:
A security interest is only effective if it has attached to collateral.[7] A security interest attaches to collateral when the grantor has rights in the collateral, or can transfer it to the secured party, and value is given, or the security interest otherwise arises.[8]
[7](Emphasis in original).
[8]Goode and Gullifer describe the concept of attachment as one which:
‘denotes the creation of the security interest as between debtor and creditor. The effect of attachment is that the security interest fastens on the asset so as to give the creditor rights in rem against the debtor himself though not necessarily against third parties. Attachment of a security interest is thus to be distinguished from perfection of a security interest, the latter usually involving a further step (possession, registration, notice, or attornment) which constitutes notice of the security interest to third parties and must be taken if they are to be bound.’
Roy Goode and Louise Gullifer, Goode and Gullifer on Legal Problems of Credit and Security (Thomson Reuters, 6th ed, 2017) 65 [2-02].
Section 18 is entitled ‘General rules about security agreements and security interests’ and provides, inter alia:
(1)A security agreement is effective according to its terms.
(2)A security agreement may provide for security interests in after-acquired property.
Pursuant to s 19(1) of the PPSA, a security interest must ‘attach’ to collateral before it is enforceable against a grantor. Sections 19(2) and 19(3) provide:[9]
[9](Emphasis in original).
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 the security interest attaches at the time specified in the agreement.
The decision in Dura
As was observed by Santamaria JA in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd & Ors (‘Dura’),[10] the PPSA is based on Canadian provincial legislation and remotely on Article 9 of the United States Uniform Commercial Code:[11]
[The PPSA] provides for the creation and registration of security interests in personal property and their enforcement against those that have granted them and against third parties.
[10](2014) 49 VR 86 (‘Dura’).
[11]Ibid 91 [16].
Whilst s 12 of the PPSA uses the word ‘transaction’, there is no definition of that word in the PPSA. As noted by Santamaria JA in Dura, the word is one of considerable generality, covering a broad range of activities, and is:[12]
apt to describe conduct giving rise to rights, where the creation of those rights may be said to be consensual as between parties, as well as conduct as a result of which rights arise by operation of law, notwithstanding the absence of any consent inter partes. It is itself apt to describe a payment into a joint account such as occurred in the present case: the payment (like all payments) involved an action in which something passed from one person to another.
[12]Ibid 123 [110].
In Dura, the applicant appealed against a judgment obtained against it by the respondent and applied for a stay against execution. The Court of Appeal granted a stay, but on the condition that the judgment debtor/applicant, Dura, pay $1 million into an interest bearing account in the joint names of the solicitors for the parties, pending the hearing and determination of the appeal or further order and to abide the outcome of the appeal.
Dura paid the sum into the relevant account. Subsequently, the appeal was dismissed. Dura was then placed into liquidation. The liquidator argued that the judgment creditor, Hue, had a ‘security interest’ in the funds in the joint account which, because it had not been perfected, had vested in Dura.
Hue argued that there was no consensual transaction as was required by s 12 of the PPSA. It argued that neither party agreed with the other to do anything. Rather, Hue submitted the payment was a unilateral acceptance by Dura of a court-imposed condition. Hue argued that it did not agree with the condition and nor was it required to do so. It also argued that Dura did not consent in any relevant sense to the creation of the interest in favour of Hue.
Santamaria JA, with whom Maxwell P and Whelan JA agreed, accepted Hue’s argument, concluding that:[13]
[13]Ibid 129 [130].
(a) Hue acquired an equitable charge in the monies in the joint account;
(b) when the monies were paid into the joint account, at best, Dura retained rights of due administration and an equity to redeem any monies found to be unnecessary to satisfy Hue’s rights as a judgment creditor;
(c) because the interest acquired by Hue in the monies in the joint account:
(iv) was a charge that arose by operation of the general law; and
(v) was not ‘provided for by a transaction’,
it was not a ‘security interest’ under s 12 of the PPSA; and accordingly,
(d) because the interest acquired by Hue was not a ‘security interest’, s 267(2) of the PPSA did not operate to vest the interest in the liquidator of Dura.
Fundamental to his Honour’s conclusion that the interest acquired by Hue in the monies in the joint account was not provided for by a ‘transaction’, was the conclusion that Hue’s interest did not arise out of a consensual transaction with the consequence that Dura was not the grantor of a security interest and nor was Hue a secured party under the PPSA.
In reaching that conclusion, his Honour referred with evident approval to statutory indicia within the PPSA, authoritative texts and analogous reasoning in other jurisdictions, which all pointed to a conclusion that the interest must arise out of a consensual transaction between the grantor and the secured party. Thus, in Personal Property Securities Law in Australia, Professor James O’Donovan wrote:[14]
The interest in personal property must be provided for in a transaction. In other words, the security interest must arise as a result of a consensual transaction rather than by operation of law.
[14]James O’Donovan, Thomson Reuters, Personal Property Securities Law in Australia vol 1 (at update 48) 4 - 5 [10.110].
Similarly, his Honour referred to an article entitled ‘The PPSA: The Extended Reach of the Definition of the PPSA Security Interest’, in which Professor John G H Stumbles from the University of Sydney identified four elements present in s 12(1) of the PPSA, which are that:[15]
[15]John G H Stumbles, ‘The PPSA: The Extended Reach of the Definition of the PPSA Security Interest’ (2011) 34 University of New South Wales Law Journal 448, 450–1.
(a)there must be an outstanding existing monetary or non-monetary obligation;
(b)there must be an ‘in substance security’ to support the performance of that obligation;
(c) the security must amount to an ‘interest’ in personal property; and
(d) the interest must arise out of a transaction.
His Honour also noted the observations of Anthony Duggan and David Brown in Australian Personal Property Securities Law, who wrote:[16]
PPSA s 12 limits the application of the statute to a security ‘provided for by a transaction’. In other words, subject to (the) limited exceptions … the PPSA only applies to consensual security interests. To reinforce this point, PPSA, paras 8(1)(b) and (c) provide that the statute does not apply to a security interest or other interested personal property arising by operation of law.
[16]Anthony Duggan and David Brown, Australian Personal Property Securities Law, (LexisNexis Butterworths, 1st ed, 2012) 60 [3]–[42] (emphasis in original); cf Jamie Glister ‘The Role of Trusts in the PPSA’ (2011) 34 University of NSW Law Journal 628, 636–7.
Again, with evident approval his Honour cited the following from Duggan and Brown:
PPSA s 19 sets out the requirements for attachment of a security interest. While ‘attachment’ may be a new and perhaps initially unfamiliar expression in Australian law, the underlying concept is straightforward and its common law origins are easily identifiable. Broadly speaking, there are three requirements that must be met before a security interest can attach to collateral:
(1) there must be a valid security agreement;
(2) the secured party must give value for the security interest; and
(3) the grantor must have rights in the collateral: sub-s 19(2).[17]
[17]Duggan and Brown (n 17) 77 [4.11].
The Canadian analogues similarly considered by His Honour also confirmed that a security agreement was essential to the creation of a security interest.[18]
[18]Ronald CC Cuming, Catherine Walsh and Roderick J Wood, Personal Property Security Law (Irwin Law Inc Toronto, 2nd ed, 2012) 116 N 2; I Trade Finance Inc v Bank of Montreal [2011] 2 SCR 360.
His Honour concluded that there were three elements fundamental to the concept of attachment contained in s 19 of the PPSA, of which two were express and the third was presupposed. His Honour noted that the express elements were consideration passing from the creditor to the debtor (such as a loan) and the debtor having rights in collateral and the power to transfer those rights to the creditor. His Honour then concluded that the element presupposed by the two express elements was the existence of an agreement between the creditor and the grantor, concluding importantly that absent ‘an agreement between the person who has the power to transfer rights in the collateral in return for value being provided by the transferee, the security interest cannot attach to the collateral.’[19]
[19]Dura (n 10) 126 [120].
Against that background, his Honour concluded that because the interest of Hue in the monies paid into court did not arise out of a consensual transaction between it and Dura, its interest in the funds was not a ‘security interest’ within s 12 of the PPSA, with the consequence that Dura was not the ‘grantor’ of a security interest and nor was Hue a ‘secured party under PPSA’.[20]
[20]Ibid 128 [126].
Santamaria JA conducted a detailed review of the authorities relating to the nature of the interest retained by a party that has made a payment either into court or into a joint account and of the interest acquired by the party for whose benefit the payment was made.[21] His Honour’s analysis included consideration of the respective interests in relation to payments into court by way of security for costs.[22]
[21]See generally Dura (n 10) 98–116 [40]–[86].
[22]Ibid 107–10 [64]–[71].
Although his Honour made specific reference to the rights retained and obtained by the payer and the beneficiary with respect to monies being paid into court as a condition of being given leave to defend an action, or paid into court or into a joint account by way of interpleader and the interest acquired by an applicant for a freezing order when such an order is made or money is paid into a joint account,[23] his Honour did not expressly reach any conclusion with respect to the position relating to payments into court (or into a joint account), on account of security for costs. Nevertheless, on this application, the Administrator accepted that the same analysis applied, regardless of the basis on which the moneys were paid into Court.
[23]Ibid 115–16 [86].
His Honour did however make reference to the analysis of Hill J in Dwight v Commissioner of Taxation.[24] In that case, a plaintiff company was ordered to pay amounts by way of security for costs which it paid into an account in the joint names of the solicitors for the parties. Regardless of the form in which security for costs is given, Hill J considered that the property the subject of the security continues to be the general property of the person who has given the security. However, his Honour continued by referring to the interest of the person for whose benefit the security has been provided, describing it in the following way:[25]
[that person or party] would have no proprietary interest in the property forming the security, but at best would have a right, in the nature of an equitable charge, giving him, after a costs order has been made and the costs taxed or agreed, recourse to the fund to satisfy the terms of the judgment.
[24]Ibid 107 [64]; Dwight v Commissioner of Taxation (1992) 37 FCR 178 (‘Dwight’).
[25]Dwight (n 24) 186.
His Honour later observed:[26]
Where the security takes the form of an order that moneys be deposited in the names of the solicitors of the parties, the monies will be held, at least until the time a cost order is made (and perhaps until a bill of costs has been prepared and taxed, in default of agreement between the parties as to the quantum of costs), in trust for the plaintiff who has deposited them with the trustees. However, the trustees will be affected by, and bound to have regard to, the equitable rights of the defendant, which rights are co-extensive with his rights to have the fund held pending the determination of the proceedings and the making of a cost order, and if that order be in his favour, pending his having recourse to the fund to the extent of the costs taxed or agreed. In other words, the defendant has rights in the nature of a lien over the fund to secure reimbursement to himself, if an order of costs be made in his favour, out of the security fund.
[26]Ibid.
In Hewett v Court,[27] Deane J described an equitable lien in the following terms:[28]
An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness … Though called a lien, it is, in truth, a form of equitable charge over the subject property … in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout … Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure.
[27]Hewett v Court (1983) 149 CLR 639.
[28]Ibid 663 (citations omitted).
Both parties rely on aspects of the reasoning in Dura. The Administrator places particular emphasis on the following:[29]
In my opinion, because the interest of Hue in the moneys paid into Court did not arise out of a consensual transaction between it and Dura, its interest in the funds was not a ‘security interest’ within s 12 of the PPSA. It follows that Dura was not the ‘grantor’ of a security interest, nor was Hue a ‘secured party’ under the PPSA.
Further, in so far as Hue acquired an equitable charge over the moneys paid into Court, the PPSA did not apply as that charge answered the description of ‘a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law’, within the meaning of s 8(1)(c) of the PPSA. Its interest arose as a result of Dura complying with the condition imposed by the Court of Appeal. There was no contractual or any other transaction or arrangement between the parties. Hue did not agree to the Order and did not agree to a stay of its judgment in exchange for the payment into the joint account.
[29]Dura (n 10) 128–9 [126]–[127] (emphasis added).
Mitsui too relies on the same paragraphs, but draws particular attention to the parts in the latter paragraph above which precede the sentences emphasised and also draws attention to paragraphs 86 and 87, in which his Honour concluded that the plaintiff (in the instance under consideration in Dura) acquired an equitable lien or charge over the moneys, upon the funds being paid into Court.[30]
[30]Dura (n 10) 115–16 [86]–[87].
Mitsui submits that its interest is one in the nature of a lien or charge arising by operation of the general law when the funds were paid into Court pursuant to the Second SFC Orders and therefore constitutes ‘a lien, charge or any other interest in personal property that is created, arises or is provided for by operation of the general law within the meaning of s 8(1)(c) of the PPSA’.
Insofar as that reasoning and conclusion applies to the provision of security pursuant to an order for security for costs following a contested hearing, such as the First SFC Orders, the Administrator has no quibble. He accepts that the interest acquired by Mitsui over the moneys paid into Court pursuant to the Second SFC Orders may also be an interest in the nature of a lien or equitable charge in the same way as that obtained following the First SFC Orders. However, he argues that such a conclusion does not mean that the interest is not also a security interest within the meaning of s 12 of the PPSA, in which case, s 12 prevails. The Administrator relies upon Diversa Pty Ltd & Ors v Taiping Trustees Ltd (‘Diversa’)[31] where Beach J of the Federal Court of Australia considered that where an interest could be characterised as satisfying both s 12 and s 8(1)(c) of the PPSA, s 12 of the PPSA is the ‘lead provision’, such that any such interest would be ‘captured by s 12 rather than [the carve out in] s 8(1)(c)’.[32]
The decision in Diversa
[31]Diversa Pty Ltd & Ors v Taiping Trustees Ltd (2022) 401 ALR 161 (‘Diversa’).
[32]Ibid 197 [225]–[226] (Beach J).
Diversa involved, among other things, a priority dispute with respect to the proceeds of the sale of shares in Madison Financial Group Pty Ltd (‘Madison’). The shares were realised by the receivers of SC Australian Holdings 1 Pty Ltd (‘SCAH’). SCAH was a wholly owned subsidiary of Sargon Capital Pty Ltd (‘Sargon’). The issue in the case relevant to this dispute was whether there was a security interest in favour of Taiping Trustees Ltd (‘Taiping’). Taiping was a secured creditor of Sargon, but also asserted that it had the benefit of security given by SCAH to secure obligations owed by Sargon to Taiping. His Honour found that the delivery by SCAH of share certificates, together with share transfer forms executed by SCAH to be held by Taiping in escrow gave rise to a security agreement (the ‘Madison Shares Security Agreement’) arising by conduct between SCAH and Taiping,[33] which on the ordinary application of s 12(1) of the PPSA gave rise to a security interest in personal property, being the Madison shares owned by SCAH (the ‘Madison Shares’). He considered that the relevant transaction that gave rise to the interest was the provision of the share certificates and share transfer forms pursuant to the Madison Shares Security Agreement’.[34] His Honour noted the breadth of s 12(1) and that its scope included a ‘pledge’, which for the purposes of Australian law, encompassed the provision of the share certificates and the share transfer forms.[35]
[33]Ibid 187 [166] (Beach J).
[34]Ibid 189 [175] (Beach J).
[35]Ibid 190 [185] (Beach J).
His Honour observed that the provision of the share certificate and the share transfer forms may have given rise to an equitable mortgage in favour of Taiping,[36] which interest falls within s 8(1)(c) being ‘a charge or other interest … that is created arise or is provided for by operation of the general law’, but noted that any such equitable mortgage could only arise because the parties had entered into the Madison Shares Security Agreement.[37] In such a case, the security falls within both s 12(1) and s 8(1)(c) of the PPSA.
[36]Ibid 190 [186] (Beach J).
[37]Ibid 195–6 [218]–[224] (Beach J).
The Administrator relies on this line of reasoning to submit that even if Mitsui is correct that the interest acquired by Mitsui when the moneys were paid into Court is in the nature of an equitable charge which arises by operation of the general law, it is still nevertheless an interest which falls within s 12(1) of the PPSA because it arose out of a consensual transaction between APT and Mitsui.
The nature of consent orders
Given the submissions which differentiate between the First SFC Orders and the Second SFC Orders, it is necessary to say something about consent orders.
Rule 59.07 of the Rules provides, among other things:
Consent to judgment or order by parties not in attendance
(1)Where parties to a proceeding are agreed upon the terms in which a judgment should be given, or an order made, in the proceeding, the Court may, if satisfied that the parties who are to be bound consent, give judgment or make an order in those terms without requiring the attendance of the parties.
(2)As evidence of the consent of a party not in attendance, the Court may accept a document or facsimile copy of a document signed by the solicitor on the record for that party.
Rule 59.07 recognises that a court has inherent power to control its own proceedings and is not obliged to act upon the request of the parties to give judgment or make an order by consent.[38] In making consent orders, the role of the Court is not to act as a rubber stamp; the Court’s duty when receiving consent orders is to consider whether in all the circumstances, the orders are appropriate.[39] The Court must ensure that a proposed consent is both within power and appropriate. Absent orders to the contrary, an order cannot be enforced until authenticated.[40]
[38]James Hardie & Co Pty Ltd v SeltsamPty Ltd (1998) 196 CLR 53; Hennes v Hobsons Bay City Council [2012] VSCA 215.
[39]Groser v Equity Trustees Ltd (2008) 19 VR 598.
[40]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 60.01 (the ‘Rules’).
Analysis
Mitsui acquired an interest in the funds paid into Court on 22 April 2022 pursuant to the Second SFC Orders. The interest so acquired was in the nature of an equitable lien or equitable charge, which arose by reason of the general law, and as such falls, within the scope of s 8(1)(c) of the PPSA.
Assuming in favour of the Administrator, that an interest which falls within s 8(1)(c) of the PPSA is not excluded from the ambit of the PPSA provided it also falls within s 12(1), s 12(1) requires that it be:[41]
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).
[41](Emphasis added).
Section 10 of the PPSA headed ‘The Dictionary’ contains the following definitions, among others:[42]
provides : a security agreement provides[43] for a security interest if the interest arises under[44] the agreement.
security agreement means:
(a)an agreement or act by which a security interest is created, arises or is provided for;[45] or
(b)writing evidencing such an agreement or act.
[42]See also [38] above.
[43](Emphasis in original).
[44](Emphasis added).
[45](Emphasis added).
In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton,[46] the Court of Appeal, in the context of considering a retention of title clause in an agreement for the sale of goods, noted that the words ‘created, arises or is provided for’ each had its own work to do, observing that there is a difference between an agreement or act ‘which creates’ a security interest and an agreement or act ‘which provides for’ a security interest. The Court of Appeal considered that the genesis of the security interest in the former is found in the agreement or act itself such as a contract for the sale of goods which included a retention of title clause whilst an example of the latter was an agreement which made provision for the creation of a security interest in the future and/or by some other agreement or act. In both respects however, the Court’s focus was on the terms of the relevant agreement.
[46](2015) 296 FLR 25.
In Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd,[47] the Court of Appeal of the Supreme Court of Western Australia considered whether a hire purchase agreement ‘provided for’ the creation of a security interest. Buss P and Murphy JA noted that where the relevant transaction is created by or arises under a written agreement, it is essential to construe the agreement for the purposes of ascertaining the substance of the transaction.[48] Vaughan JA, after noting that the relevant statutory language was not whether a transaction ‘created’ a security interest but rather whether an interest in personal property was ‘provided for’ by a transaction that in substance secured payment or performance of an obligation, undertook a two stage process which commenced with the proper construction of the agreement.[49]
[47][2022] WASCA 134.
[48]Ibid [114].
[49]Ibid [244].
Here, the relevant transaction identified by the Administrator is the agreement between Mitsui and APT in relation to the provision of further security for costs reached on 21 March 2022 (or perhaps 8 April 2022).[50] It is necessary to construe this agreement in order to ascertain whether it provides for the creation of Mitsui’s interest as equitable lienee or chargee.
[50]See below [82].
APT offered to provide further security for costs in the amount of $100,000 by its solicitors’ email of 15 May 2022.. The email sought a response from Mitsui’s solicitors as to whether that was satisfactory, in which case, APT’s solicitors advised that they would seek instructions as to the timing of the payment and ‘we can then arrange for some consent orders to be filed dealing with the payment into Court’.
Mitsui’s solicitors responded by email sent 21 March 2022, conveying their instructions to ‘accept your offer’ and attaching ‘proposed consent orders in word and PDF for your execution and filing’. The attachment was in the form of a ‘minute of proposed consent orders’ to be made by the judge, without requiring the attendance of the parties pursuant to r 59.07 of the Rules with provisional authentication by the judge pursuant to r 60.02(1)(b) of the Rules.[51] The draft recorded that:
THE COURT ORDERS BY CONSENT THAT:
1.The Plaintiff must give security in the amount of $100,000 for costs in the period from 15 December 2021 up to and including trial by payment of funds into Court by 4.00 pm on 4 April 2022.
2.If the Plaintiff fails to comply with order 1, the proceeding as against the Defendant is stayed.
Following the absence of any response and advice from the Court that the application could be heard on 9 May 2022, APT’s solicitors amended the earlier minute of proposed consent orders by replacing the date by which the security was to be provided from 4 April 2022 with 12 April 2022, signed the minute and arranged for it to be to be signed by Mitsui’s solicitors, before emailing the signed minute to the Court on 8 April 2022 accompanied by a joint request from the parties that the orders be made in chambers.
On 11 April 2022, the Court made orders, authenticated on that day in the following terms:
THE COURT ORDERS BY CONSENT THAT:
1.The Plaintiff must give security in the amount of $100,000 for costs in the period from 15 December 2021 up to and including trial by payment of funds into Court by 4:00 pm on 12 April 2022.
2.If the Plaintiff fails to comply with order 1, the proceeding as against the Defendant is stayed.
At the hearing, the Administrator submitted that the consensual transaction arose by reason of the agreement between the parties made 21 March 2022. Based on the above narrative, the better view is that the relevant agreement arose on or about 8 April 2022, given that the time by which the security was to be provided was altered and there is no evidence that this alteration was agreed until 8 April 2022. Nothing turns however on whether the agreement was made on 21 March 2022 or 8 April 2022.
Whenever made, the parties intended and understood that the product of their consensus was to be the making of orders by the Court, and that it was to be those orders not any private agreement between the parties which was to be the source of their rights and obligations relating to the question of security for costs. Any payment into Court was to be made pursuant to such orders that may be made with the consequences in the event of non-payment being those set out in any order or otherwise as ordered by the Court.[52] Further, once the funds had been paid into Court, the question of payment out would similarly be determined by the Court, not by the private agreement between the parties. The parties can also be taken to have understood that the Court’s role in making the orders (or not, as the case may be), was not an act of a ministerial nature but an independent judicial act requiring due consideration of the appropriateness of the order.
[52]For example, r 62.04 of the Rules provides that the Court may dismiss a claim where a plaintiff fails to provide security required by an order.
Against that background, the private agreement between APT and Mitsui reached on 8 April 2022 did not ‘provide for’ the subsequent creation of Mitsui’s interest as an equitable lienee (or charge) of the funds paid into Court pursuant to the Second SCF Orders. As properly understood, the private agreement reached 8 April 2022 amounted only to an agreement to seek orders by consent from the Court in the form of the minute forwarded to chambers on that day. Upon the provision of the consent orders to chambers on 8 April 2022, all obligations imposed by the agreement were fully discharged by performance. There was nothing left to do by either party under the agreement. The obligations imposed under the agreement did not include an obligation to pay the moneys into Court. Nor did they provide for any grant by APT of an interest over any funds paid into Court in favour of Mitsui.
Once the Second SFC Orders were made, APT became liable to an obligation which arose under the orders and Mitsui acquired concomitant rights to enforce the orders. Upon APT’s compliance with paragraph 1 of the Second SFC Orders, Mitsui acquired an equitable lien over the funds to which it could have recourse if the Court later made an order for payment out.
The transaction identified by the Administrator in the form of an agreement to submit orders to the Court with a joint request that they be made was the precursor to, but not that which provided for the creation of the interest in property. The interest that arose was not one provided for under the agreement between APT and Mitsui.
Diversa is distinguishable. The Madison Shares Security Agreement imposed an obligation on SCAH to deliver the share certificates and the transfer forms to Taiping. The section 8(1)(c) of the PPSA interest discussed by his Honour was an equitable mortgage obtained by Taiping over the Madison shares. An equitable mortgage of personal property such as shares can arise by way of the deposit of a share certificate.[53] The agreement as found by his Honour was an agreement which included an agreement to deposit the share certificates and therefore amounted to an agreement to grant an equitable mortgage over the shares or alternatively an agreement to do an act (namely, deposit the share certificates) which when performed gave rise to an equitable mortgage by operation of the general law. That is not the case here. The agreement here was limited to the execution of the proposed consent orders and their provision to the Court, with the attendant joint request that the Court make the orders. It is the subsequent independent act of the Court in making the orders and the payment into Court pursuant to the orders which gives rise to Mitsui’s interest.
[53]Harrold v Plenty (1901) 2 Ch 314.
Nor does the reasoning of Santamaria JA in Dura preclude such a conclusion. Whilst part of paragraph 127 of the reasons in Dura is supportive of the Administrator’s submission,[54] the balance of paragraph 127 is supportive of the characterisation advanced by Mitsui; the relevant interest being one which came about as a result of Dura (here APT) complying with the condition imposed by the Court of Appeal. Nor does paragraph 126 assist; the phrase used in that paragraph is ‘arise out of ‘ which does not appear in s 12 of the PPSA which refers to the interest being ‘provided for’ by the transaction, whilst ‘provided for’ appears in the definitions section of the PPSA as meaning ‘arising under’. Arising under is a narrower concept than arising out of.[55] Where the relevant transaction is an agreement, there is no reason to interpret the phrase ‘provided for’ in any other way than by asking whether the terms of the agreement provide for the creation of the relevant interest. They did in Diversa but do not here for the reasons earlier stated.
[54]The part emphasised above at [62].
[55]Chimimport Plc v G D Alesio SAS (The Paola D’Alesio) [1994] CLC 459, 465.
The conclusion in Dura that the interest came about by reason of compliance with a condition imposed by the Court of Appeal has as much application in the case of a Court imposed condition which arises from a consent order as it does from an order made following argument. In both cases, it is an act done in compliance with a court-imposed condition or order, which by reason of the general law, gives rise to the creation of the interest. Dura did not consider whether an agreement to submit proposed consent orders or the making of consent orders gives rise to a security interest within the meaning of s 12 of the PPSA because that was not a matter in issue. The parts of the reasoning relied upon by the Administrator must be considered in that context.
The Administrator’s submission elides the agreement between parties to execute proposed consent orders and provide them to the Court with the subsequent act of the Court in making the orders. It then conflates those events with APT’s payment of moneys into Court pursuant to the orders.
When APT paid the monies into Court, it did so pursuant to the Court order and not pursuant to the earlier agreement. In the result, the security interest was created upon the payment of monies into Court pursuant to court order and not pursuant to a consensual transaction between APT and Mitsui. Accordingly, the Administrator’s claim is dismissed.
Remaining matters
The remaining question is whether the Court should order that the funds paid into Court pursuant to the Second SFC Orders be paid out to Mitsui notwithstanding that the costs order has not yet been taxed or agreed.
Mitsui submits that this should happen because:
(a) the Court ordered that APT paid Mitsui’s costs of the proceeding in accordance with the costs orders earlier set out;
(b) the estimate of Mitsui’s entitlements to its taxed costs incurred during the period the subject of the Second SFC Orders substantially exceeds the $100,000 in security held; and
(c) it would be unreasonable to require Mitsui to tax its costs in circumstances where it ought not be able to recover the costs of taxation against APT in the administration.
There was no opposition to this course, which in any event is both in accordance with authority and self-evidently with the cost efficient timely administration of justice and thus concordant with the Civil Procedure Act 2010 (Vic).
In Boz One Pty Ltd v McLellan,[56] the Court of Appeal ordered the release of funds held in court as security for costs to a successful party, notwithstanding that taxation had not occurred in circumstances where the successful party tendered a solicitor’s affidavit deposing to the quantum of that party’s actual costs; the solicitor’s affidavit contains a transparent and reasonable estimation process as to the proportion of the successful party’s actual costs that would be recoverable following taxation and attribution between the unsuccessful parties and the estimate generated by the solicitor’s affidavit exceeded the amount held as security by such an extent that it was very likely, that following taxation the successful party’s costs would be greater than the amount held as security. A relevantly similar approach was adopted by Thawley J in JWR Productions Australia Pty Ltd v Duncan-Watt (No 3).[57]
[56][2015] VSCA 145.
[57][2020] FCA 528 [16].
Each of those considerations apply here; the affidavit sworn by Mitsui’s solicitor deposes that the likely quantum of Mitsui’s taxed costs is $636,414. That affidavit deposes as to the reasoning and is transparent in its assumptions concerning taxation and attribution. The estimated cost quantum is about six times greater than the amount held as security in respect of the Second SFC Orders. Accordingly, the amount held pursuant to the Second SFC Orders shall be paid out to Mitsui immediately and without requiring Mitsui to first tax its costs.
Mode of authentication(1) Subject to paragraph (4) and to Rule 28A.05, a judgment or order is authenticated when a form of the judgment or a form of the order, as the case requires—
(b) is signed by the Judge of the Court, the Associate Judge or the judicial registrar giving the judgment or making the order.
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