P Twin Holdings Pty Ltd as Trustee for the P Twin Trust v SG Old Pty Ltd
[2017] WADC 77
•9 JUNE 2017
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: P TWIN HOLDINGS PTY LTD as Trustee for the P TWIN TRUST -v- SG OLD PTY LTD [2017] WADC 77
CORAM: GOETZE DCJ
HEARD: 23-25 & 27 JANUARY 2017
DELIVERED : 9 JUNE 2017
FILE NO/S: CIV 3774 of 2014
BETWEEN: P TWIN HOLDINGS PTY LTD as Trustee for the P TWIN TRUST
Plaintiff
AND
SG OLD PTY LTD
Defendant
Catchwords:
Legal practitioners - Professional negligence - Failure to register security documents on Personal Property Security Register - Causation - Contributory negligence - Concurrent wrongdoing by borrower - Failure to mitigate - Damages
Legislation:
Civil Liability Act 2002 (WA)
Personal Property Securities Act 2009 (Cth)
Result:
Judgment for the plaintiff in the sum of $151,479.81
Representation:
Counsel:
Plaintiff: Mr S Penglis
Defendant: Mr P Mendelow
Solicitors:
Plaintiff: Jackson McDonald
Defendant: Gilchrist Connell
Case(s) referred to in judgment(s):
Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 215 ALR 385
Allstate Explorations NL v Blake Dawson Waldron (A Firm) [2010] WASC 97
Bakovski v Lenehan [2014] NSWSC 671
Berryman v Hames Sharley (WA) Pty Ltd (2008) 38 WAR 1
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] 179
Carmody v Priestley & Morris Perth Pty Ltd (2005) 30 WAR 318; [2005] WASC 120
Chappel v Hart (1998) 195 CLR 232
Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158
Hawkins v Clayton (1988) 164 CLR 539
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 53 NSWLR 1
Hunt & Hunt Lawyers & Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613
May v Mijatovic [2002] WASC 151
Pedulla v Panetta [2011] NSWSC 1386
Perpetual Trustee Company Limited v Ishak [2012] NSWSC 697
Rogers v Whitaker (1992) 175 CLR 479; (1992) 109 ALR 625
Vellav Permanent Mortgages Pty Ltd [2008] NSWSC 505
Voli v Inglewood Shire Council (1963) 110 CLR 74
Western Australia v Watson [1990] WAR 248
Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463
GOETZE DCJ:
Introduction
On 10 May 2012, the plaintiff, P Twin Holdings Pty Ltd as Trustee for the P Twin Trust, advanced the sum of $332,000 to enable Foxrov Pty Ltd to purchase a prime mover.
P Twin required legal documentation to secure the advance.
Instructions were given to the defendant, SG Old Pty Ltd, an incorporated legal practice practising under the name of Capital Legal, to prepare such documentation and provide security. Capital Legal prepared a loan agreement and a general security deed which, on 30 May 2012, were both forwarded to P Twin for execution by it and Foxrov.
Nothing further occurred until 2 July 2012, when Capital Legal requested instructions about registering the loan agreement on the Personal Property Securities Register (PPSR), pursuant to the provisions of the Personal Property Securities Act 2009 (Cth) (PPSA). This request was repeated on 24 July 2012, 22 August 2012 and 21 September 2012.
Foxrov executed the loan agreement and general security deed on 20 September 2012, being the same day it sold the prime mover without notice to P Twin. Foxrov then returned the documents to P Twin.
On 21 September 2012, P Twin provided the documents to Capital Legal for registration, which occurred on 25 September 2012. As registration occurred only after Foxrov had sold the prime mover, P Twin was not able to secure its interest in it. Foxrov subsequently went into liquidation and is unlikely to pay a dividend to unsecured creditors. Further, as the deed was not registered by 21 September 2012, P Twin was not able to pursue the party to whom Foxrov sold the prime mover.
P Twin now sues Capital Legal to recover its loss limited to not being secured, alleging that Capital Legal failed to protect P Twin's security interest by not registering a financing statement on the PPSR within the statutory period limited by the PPSA, notwithstanding that the loan agreement and general security deed had not then been prepared and executed.
Dramatis personae and some further background
Mr Richard Tay
Mr Richard Tay is a businessman living in Fremantle. He lives in a block of apartments, with office space, the ownership of which is connected to his family. It was Mr Tay who, on behalf of P Twin, attended to all relevant matters concerning the loan.
Ms Pearlrie Tay
Ms Pearlrie Tay is the daughter of Mr Tay. She ordinarily resides in Singapore. She was merely a figurehead director and shareholder of the plaintiff body corporate. She really had no part to play concerning the loan and any subsequent matters.
Mr Nicholas Calin
Mr Nicholas Calin is also a businessman who, at relevant times, resided in the same block of apartments as Mr Tay. From December 2008, Mr Calin, or business interests associated with him, leased the apartment in which he resided and three offices in the same building. In this way, Mr Tay and Mr Calin were well known to each other. Prior to May 2012, Mr Calin and his business interests met all financial obligations due to Mr Tay and his business interests and was not any cause for concern.
Mr Calin was involved in the mining industry. In early 2012 he, or one of his business interests, was leasing a prime mover for use in mining. He discussed this with Mr Tay. Mr Calin proposed the purchase of the prime mover with funds provided by loan from one of Mr Tay's family interests to one of Mr Calin's family interests, with monthly repayments of the loan equating the same amount as was then being paid by him under the lease. Mr Tay agreed to this.
Ms Michaela Calin
Ms Calin is the daughter of Mr Calin. She was the sole director and shareholder of Foxrov Pty Ltd, which was the corporate body utilized by Mr Calin to borrow funds from P Twin to purchase the prime mover.
Mr Joe Lawrence – Lawrence Business Management
Mr Joe Lawrence is the managing director of Lawrence Business Management Pty Ltd trading as Lawrence Business Management.
Mr Tay was involved in business ventures such that, from time to time, Mr Tay instructed Mr Lawrence about those matters. He discussed the loan to Mr Calin with Mr Lawrence.
P Twin Holdings as trustee for the P Twin Trust
Mr Lawrence provided Mr Tay with a deed of settlement dated 8 March 2012 establishing a trust and providing for Mr Lawrence to be the settlor of that trust and for Ms Tay to be the initial trustee thereof. She was also the only specified beneficiary under the trust, known as the P Twin Trust.
Further, Mr Lawrence accessed a shelf company, P Twin Holdings Pty Ltd, of which Ms Tay became the sole director and shareholder on 4 April 2012.
At a meeting on 12 April 2012, the deed of settlement in respect of the P Twin Trust was tabled and the settlement cheque for $10 was provided by Mr Lawrence. By a further meeting on 24 April 2012, P Twin Holdings Pty Ltd was appointed as the trustee of the P Twin Trust.
SG Old Pty Ltd practising as Capital Legal
Capital Legal was a wholly owned subsidiary of Lawrence Business Management Pty Ltd.
Capital Legal's office was in the same office block as Lawrence Business Management. They occupied offices next to each other, with a shared reception between them.
Mr Barry Stark was the senior legal practitioner at Capital Legal.
Mr Benjamin Garvey was an employed legal practitioner at Capital Legal.
In the course of past business ventures, Mr Tay had been introduced to Capital Legal by Mr Lawrence.
The facts concerning P Twin's claim
Mr Tay alleges that in early May 2012, he attended upon Mr Garvey and advised him of the proposed loan to Mr Calin to purchase a prime mover, through their respective family interests. Mr Tay alleges he asked Mr Garvey what information would be required to document and secure the loan. Mr Tay alleges that Mr Garvey advised him:
You go and get the detail of the truck and the purchase details. Then I will do the document for you.
Mr Tay's evidence is that he later gave a note to Mr Garvey reading as follows:
1.Date: 10/5/12
2.Loan agreement
3.Amount: $332,000
4.Payment: $17,500 per month
5.Term: 36 months
Lender:P Twin Holdings as trustee for the P Twin Trust
Borrower:Foxrov Pty Ltd
ACN:141 385 579 of Ground Floor, 185 High Street,
Fremantle 6160
Mr Tay alleges that, at this later meeting, he also gave to Mr Garvey a copy of an invoice dated 7 May 2012 from AV Truck Services Pty Ltd in respect of the subject prime mover, together with a further document from AV Truck Services which reads as follows:
Date – 10 May 2012
From – P Twin Holdings P/L as trustee for the P Twin Trust
Amount - $332,000
Being for – Western Star stock number W819
It is not disputed that the Western Star stock number W819 is the relevant prime mover referred to in the invoice from AV Truck Services. Two cheques were paid in the total sum of $332,000. Further, it is not disputed that such total sum was paid through Mr Tay's family members, via the P Twin Trust, and then, onto AV Truck Services on behalf of Foxrov.
Mr Tay also alleges that he delivered to Mr Garvey a Department of Transport licence and third party insurance receipt and new vehicle licence. Those documents are both dated 11 May 2012.
Mr Garvey does not recall meeting with Mr Tay as alleged, or that he received from him any of the documents referred to above. It is not necessary to resolve this difference. However, it seems that, at all material times, copies of these documents were in the possession of Capital Legal following an email dated 14 May 2012, by which Mr Lawrence wrote to Mr Stark as follows:
Hi Barry
I will bring around some documents regarding a loan agreement that is required for our client
P Twin Holdings Pty Ltd
Atf
P Twin Trust
A very simple doc will do and the security to be
1.Personal Guarantee of directors
2.PPSR or F and F charge
3.Charge on the vehicle
Regards
Joe Lawrence
Managing Director
In turn, Mr Stark sent an email to Mr Garvey in the following terms:
FW: Loan agreement (9031)
Importance: High
Sonia will bring you the hard file, I have some notes from Joe.
Suggest you use the docs from 8990 as precedent. You will need a separate 'charge' for the vehicle, and you can ask Andrew Grace about registering it at REVS.
I've told Joe $1,500 to $2,000, so plse change costs agreement accordingly.
On 15 May 2012, Capital Legal then opened up a new file details schedule. On 18 May 2012, Ms Sonia Shere, the practice manager at Capital Legal, sent an email to Ms Tay regarding the loan to Foxrov and enclosing a costs agreement which Ms Tay was asked to sign and return at her earliest convenience.
The costs agreement relevantly provided as follows:
5.You have engaged us to act in relation to the following matters ('the work'):
(a)Draft Loan Agreement (borrower Foxrov Pty Ltd);
(b)Draft Personal Property Securities Act Document;
(c)Draft Security Document in respect of the Vehicle; and
(d)Draft Guarantor Document.
The costs agreement then provided that the instructions did not include
the rendering of any taxation or taxation related advice.
On 24 May 2012, Ms Shere sent a further email to Ms Tay attaching another copy of the same costs agreement and requesting that it be signed. Mr Tay had signed the costs agreement on 15 May 2012, but it was not signed until 25 May by Ms Tay as director and guarantor.
Also on 24 May, Mr Garvey sent an email to Mr Lawrence advising that the costs agreement had been sent to P Twin Holdings for execution, but not yet returned and saying that:
We cannot start work until we receive the signed costs agreement.
Barry suggested I advise you of this.
Further, cl 33 of the costs agreement provided that it was to commence on 15 May 2012.
Then, on 25 May 2012, Mr Garvey sent an email to Mr Stark in the following terms:
This is an unusual matter. The loan is for $332,000 to buy a prime mover.
The repayments are $17,500 per month for 36 months. The total repayment amount is therefore $630,000.
The vehicle appears to already be in the name of the borrower which is also strange.
I attach the loan agreement and general security document. There are a few more queries and I have put comments where these occur.
Please note that we previously did a loan agreement between the borrower and a related company in February (File 8956). That agreement was very brief, but given the size of the loan and the length of the agreement, the attached documents are much more suitable (particularly in relation to the PPSA).
Then, on 29 May 2012, Mr Stark replied by email to Mr Garvey as follows:
I've marked up my changes to both in filepro, mainly to the Loan Agreement. I deleted your comment about the guarantor, because our original instructions required one to be inserted.
With the Security document, plse have Sonia insert a footer in the Index pages and move the one signature clause to the left, before sending both to Joe.
Later on that day, Mr Garvey emailed the draft documents to Mr Lawrence, with a carbon copy being sent to Mr Stark. It seems that Mr Lawrence made some changes to the documents and, on 29 May 2012, he requested advice by email as follows:
Does the loan agreement need to mention that the Vehicle itself is security and that it will be registered on the PPSR?
Need to know first thing.
Mr Garvey responded to Mr Lawrence by email as follows:
The loan agreement does make reference to the Vehicle but only insofar as specifying that the loan proceeds must be spent on the vehicle.
The loan agreement makes reference to the 'Security' which is a reference to the General Security Document which specifically identifies the vehicle as collateral.
I also attach a company search and the PPSR results for Calin Haulage Pty Ltd.
Further, on 30 May 2012, Mr Garvey sent an email to Mr Lawrence as follows:
Schedule 2 of the document specifically refers to the vehicle by its vehicle identification number as collateral.
It will be specifically registered on the PPSR.
On 30 May 2012, Mr Garvey sent an email to Mr Stark in the following terms:
Agreement is attached with Joe and my changes marked up.
Only substantial issue is that the money has already been transferred (was transferred to vehicle dealer on 10 May 2012). Also Joe amended clause 9.1(h).
Please check document. I will finalise changes and send to Joe.
Thanks.
On 30 May 2012, Mr Stark replied by email to Mr Garvey as follows:
It's fine, I have made some minor changes.
There is nothing we can do about the money already having been paid. I am not a boffin on past consideration, so suggest you tell Joe in your covering email that the 10 May payment may well constitute past consideration, and that we cannot guarantee that the transaction may therefore not be susceptible to attack or over turn for that reason.
Suggest to him that he point this out clearly to the client when sending them the documents, and also that Nicholas Calin must get the Solicitor's Certificate signed, before he signs the Loan Agreement.
Later still, on 30 May 2012, after finalizing the documents, Mr Garvey sent an email to Mr Lawrence, copied to Mr Stark, advising of the matters raised above as follows:
Please find attached the amended loan document.
We are concerned that as the advance has already been paid, if the loan was deemed to be past consideration, then the transaction may be susceptible to being overturned.
In any event we have prepared a solicitor's certificate for Nicholas Calin as he is not a director of the Borrower. He must get the certificate signed before he signs the loan agreement.
Further, on 30 May 2012, Mr Stark also sent a later email to Mr Lawrence as follows:
When you send the docs to clients, could you please point the issue with the possible past consideration out to them? Unfortunately it's done, so they need to be told clearly.
If you don't mind, could you also please advise them the extra work and document will result in the costs possibly exceeding our estimate?
On 31 May 2012, Mr Lawrence sent the documents to Mr Tay by simply repeating verbatim Mr Stark's two-paragraph email detailed immediately above and asking him to 'note the comments' and also to have the solicitor's certificate executed.
On 31 May 2012, Capital Legal sent to Mr Lawrence a memorandum of costs for the work having been done.
The matter then appears to have lain dormant until 2 July 2012, when Mr Garvey sent an email to Mr Lawrence, not copied to either Mr Tay or Ms Tay, in the following terms:
Has the loan agreement and general security document been signed regarding the Western Star prime mover?
If so the agreement should be registered on the personal property security register to note P Twin's Holding security interest.
Please advise if we are instructed to take any action to register the interest.
If so, could we please have a copy of the signed document. Thanks.
On 23 July 2012, Mr Lawrence instructed Mr Garvey by email as follows:
Please chase up client direct.
Either thru Richard or Pearlrie.
On 24 July, 2012, Mr Garvey sent an email to Ms Tay as follows:
We prepared a loan agreement and general security document for you back in May with respect to the Western Star Prime Mover that Foxrov Pty Ltd purchased with funds advanced by P Twin Holdings Pty Ltd.
Have the loan agreement and the general security document been signed yet?
If so the loan agreement should be registered on the personal property security register (PPSR) to note P Twin Holdings security interest.
It is very important that the interest/loan document is registered on the PPSR as soon as possible. If it is not registered and the party you have given the loan to goes bankrupt, the creditors of that party could take possession of the Prime Mover and vehicle to satisfy their debts, leaving you as an unsecured creditor because your interest is not registered.
Our fee to register the fee/loan document (should you wish us to do so) is $250 plus GST. There is also a fee of $7.50 payable to the government registry to register your interest.
Please advise if we are instructed to take any action to register the interest/loan document. If so could we please have a copy of the signed document. If not, we suggest that you register the loan document yourself at its earliest opportunity. You can do so on the following website: >
Copies of this email were also sent to Mr Tay and to his wife.
On 22 August 2012, Mr Garvey sent another email to Ms Tay asking whether the security document was to be registered.
Then, on 20 September 2012, Foxrov sold the prime mover. On the same date, Mr Calin obtained execution of the solicitor's certificate and Foxrov executed the loan documents.
On 21 September 2012, Mr Garvey sent another email to Ms Tay and Mr Tay as follows:
I refer to my email of 24 July 2012 and 22 August 2012, copies of which are attached.
Can you please advise if you require us to register P Twin Holdings Pty Ltd security interest on the Personal Property Security Register at the earliest opportunity? We remind you that until your interest is registered it is not secured.
Can you please supply us with a signed copy of the loan and security documents for this purpose?
If you do not want us to register the interest, we suggest that you register the loan document yourself at the earliest opportunity. You can do so on the following website: look forward to hearing from you.
Then, on 24 September, Mr Garvey sent emails to Mr and Mrs Tay, but not Ms Tay, by way of reminder. Mr Tay responded that he had delivered the documents to him the previous Friday, 21 September, which Mr Garvey then acknowledged as being correct and said that he would proceed to registration. This occurred on 25 September 2012. On 27 September 2012, he advised that registration had been effected. The documents were then returned to Ms Tay, together with a further account for registration costs.
However, on 20 September 2012, Foxrov sold the prime mover to Geraldine Nominees Pty Ltd trading as Daimler Trucks Perth for $270,000, inclusive of GST, in respect of which $230,000 was applied towards the purchase of other stock, and $40,000 was transferred into Foxrov's bank account. P Twin was not then advised of this sale.
On 16 October 2012, Daimler Trucks then sold the prime mover for the sum of $240,909.09, plus GST. The GST provision took the sale price to $270,000.
On 24 July 2013, Saint Como Resources Pty Ltd registered a security interest on the PPSR over
all present and after acquired [commercial] property [of Foxrov] – no exceptions.
On 23 October 2013, Mr Calin informed Mr Tay that Foxrov had sold the prime mover. This followed default from 10 October 2012 in Foxrov failing to pay in full all monthly instalments due under the loan agreement.
On 28 January 2014, a receiver and manager was appointed to administer the assets of Foxrov and on 21 February 2014, Foxrov went into liquidation, such that a dividend to unsecured creditors is unlikely.
Mr Calin has disappeared and was not able to be served with a summons in this action.
The loan agreement
Notwithstanding the requirement as contained in the costs agreement for the provision of four separate documents, only two separate documents were in fact prepared, being a loan agreement and a general security deed.
The loan agreement contained a provision for guarantees by Ms Calin as director of Foxrov, and her father Nicholas Calin. There was also a solicitor's certificate with respect to the guarantee provided by Mr Calin. That certificate referred to both the loan agreement and the general security document.
The loan agreement recited that Foxrov intended to purchase a prime mover. It further recited as follows:
B.The Lender advanced the sum of Three Hundred and Thirty Two Thousand Dollars ($332,000.00) to the Borrower on the Draw Down Date ('the Advance').
…
G.In consideration of all the above, and as security for repayment of the Loan, the Borrower has agreed to grant to the Lender, the Security.
By cl 1.1, the loan agreement defined the following terms:
'Drawn Down date' means 10 May 2012;
…
'PPSA' means Personal Property Securities Act 2009 (Cth);
…
'Security' means … security interest;
'Security Interest' means:
(a)PPSA Security Interest;
…
Further, the loan agreement contained the following clauses:
1.2(v)Unless the context indicates otherwise, a term which is defined in the PPSA has the meaning given to that term in the PPSA;
3.1On the Draw Down date the Lender upon request by the Borrower, provided the sum of Three Hundred and Thirty Two Thousand Dollars ($332,000) to the Borrower by electronic funds transfer to the seller of the Vehicle as nominated by the Borrower on the terms and subject to the conditions set out in this Agreement;
4.1In consideration of the Advance, the Borrower is to repay the Lender the sum of $630,000 on or before the Repayment Date ('the Repayment Amount');
4.2The Borrower must repay the Repayment Amount in monthly instalments of $17,500 and payable on the Instalment Payment Dates.
5.1(a)… the Borrower must, on demand by the Lender, pay to and indemnify the Lender against …
(a)The negotiation, preparation, execution and (if applicable), stamping and registration of this Agreement and the Security;
...
The general security deed
By the general security deed, Foxrov was described as the grantor and P Twin was described as the secured party in respect of the prime mover, which was described as the collateral. The deed recited that P Twin had extended to Foxrov financial accommodation pursuant to the loan agreement on condition that Foxrov secure repayment of that financial accommodation by executing the deed.
By cl 1.1, the security deed defined the following terms:
'Collateral' means all PPSA Personal Property and all Other Property;
'Collateral Security' means any Security Interest …;
'Permitted Security Interest' means:
(i)any Security Interest over any of the Grantor's assets to which the Secured Party has expressly consented;
'PPS Register' means the Personal Property Securities Register established under s 147 of the PPSA;
'PPSA Personal Property' means:
(i)All the Grantor's right title and interest in all present and after acquired property in which the Grantor can be a grantor of a security interest under the PPSA. …
…
'Security Interest' means:
(i)A PPSA security interest;
…
Further, the security deed contained the following clauses:
1.2(v)Unless the context indicates otherwise, a term which is defined in the PPSA has the meaning given to that term in the PPSA;
2.1The Grantor grants to the Secured Party a Security Interest in the Collateral (which was defined as the prime mover in the relevant schedule) to secure the payment of the Secured Money and the punctual performance of all of the Grantor's other obligations to the Secured Party at any time.
6.1(l)This Deed creates a first ranking Security Interest over the collateral …;
7.2(g)Financing Statement
Not without the prior written consent of the Secured Party, permit any financing statement, other than in relation to the Secured Party, to be registered in respect of the Collateral;
9.1(i)Each of the following events listed in this Clause 9 is an Event of Default ….
(i)Other than by any act of the Secured Party, any Security Interest created by this Deed or any Collateral Security:
(i)ceases to have the priority that it purports to have under this Deed or Collateral Security;
(ii)ceases or fails to attach to any Collateral that is intended to be the subject of this Deed or Collateral Security; or
(iii)ceases to secure the payment of the money or the performance of the obligations that it purports to secure;
...
The deed further provided that no‑one other than P Twin had a perfected security interest in any collateral by possession or control, and that if P Twin released collateral from a PPSA security interest, it would register a financing statement or a financing change statement on the register, if it was required to do so under the PPSA.
The Personal Property Securities Act 2009 (Cth)
Before proceeding any further, it is necessary to note some of the PPSA provisions.
First, s 10 provides many definitions including, in relation to this matter, the following:
collateral:
(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).
financing statement means data registered (or that is to be registered) pursuant to an application for registration under s 150(1).
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
…
(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) – (e).
perfected has the meaning given by s 21.
personalproperty means property (including a licence) other than:
(a)land; or
(b)a right, entitlement or authority that is granted by law and declared by that law not to be personal property for the purposes of the PPSA.
purchase money security interest has the meaning given by s 14.
registration means a registered financing statement … with respect to:
(a)a security interest; or
…
secured party:
(a)means a person who holds a security interest for the person's own benefit or for the benefit of another person (or both); and
(b)if the holders of the obligations issued, guaranteed or provided for under a security agreement are represented by a trustee as the holder of the security interest – includes the trustee; and
(c)in relation to a registration with respect to a security interest – includes a person registered as a secured party in the registration.
security agreement means:
(a)an agreement or act by which a security interest is created, arises or is provided for; or
(b)writing evidencing such an agreement or act.
Secondly, other provisions of the PPSA provide for security interests, perfection thereof and enforceability against a third party as follows:
s 12(1)A security interest means an interest in personal property provided for by a transaction that, in substance, secures a 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).
…
s 20(1)A security interest is enforceable against a third party in respect of particular collateral only if:
(a)the security interest is attached to the collateral; and
(b)one of the following applies:
…
(iii)a security agreement that provides for the security interest covers the collateral in accordance with subsection (2)
(2)A security agreement covers collateral in accordance with this subsection if:
(a)the security agreement is evidenced by writing that is:
(i)signed by the grantor
… and
(b)the writing evidencing the agreement contains:
(i)a description of the particular collateral …
…
s 21(1)A security interest in particular collateral is perfected if:
(a)the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or
(b)all of the following apply:
(i)the security interest is attached to the collateral;
(ii)the security interest is enforceable against a third party;
(iii)subsection (2) applies.
(2)This subsection applies if:
(a)for any collateral, a registration is effective with respect to the collateral; or
…
Thirdly, the PPSA provides for registration of a financing statement with respect to a security interest, without formal documentation, as follows:
s 150(1)a person may apply to the Registrar to register a financing statement with respect to:
(a)a security interest;
…
(3)The Registrar must register the financing statement … in accordance with the application, but only if:
(a) the application is in the approved form; and
(b)the fee (if any) … has been paid; and
(c)the Registrar is not satisfied that the application is:
(i)frivolous, vexatious or offensive, or contrary to the public interest; or
(ii)made in contravention of section 151 (belief about security interest); and
(d)the registration would not be prohibited by the regulations.
s 151(1)A person must not apply to register a financing statement … that describes collateral, unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral (otherwise than by virtue of the registration itself).
Fourthly, the PPSA provides for registration of a purchase money security interest (PMSI), perfection and priority thereof, as follows:
s 14(1)A purchase money security interest means any of the following:
(a)a security interest taken in collateral, to the extent that it secures all or part of its purchase price;
(b)a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;
s 62(1)This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest.
…
(3)The purchase money security interest has priority if:
(a)the interest is in personal property, or its proceeds, other than inventory; and
(b)the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies:
(i)for goods—the day the grantor, or another person at the request of the grantor, obtains possession of the property;
…
(c)the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in s 153, that the interest is a purchase money security interest.
The effect of the PPSA and the general security deed
The PPSA recognizes that, from time to time, parties to financing arrangements may wish to proceed immediately with a loan from a lender to a borrower to enable that borrower to purchase personal property without waiting for formal legal documentation to be prepared, executed and registered under the PPSA. In this way, either a security interest or a PMSI can be created under the PPSA.
As to the general security deed, it can be seen that:
1.by cl 1.1(oo), the term 'security interest' therein included a PPSA 'security interest' as set out above in s 12(1) of the PPSA;
2.by cl 2.1, Foxrov granted P Twin a security interest in the collateral prime mover;
3.cl 6.1(l) created a first ranking security interest over the collateral; and
4.cl 9.1(i) intended that there be priority in the security interest created by that deed. Such priority could only be obtained by registration.
In the circumstances of this transaction, P Twin's cl 1.1(oo) security interest was not just a security interest taken in collateral, to the extent that it secured all of its purchase price, but it was also a PMSI by virtue of s 14(1) of the PPSA, being a security interest taken in collateral by P Twin, which gave value for the purpose of enabling the grantor, Foxrov, to acquire rights in the collateral prime mover to the extent that the value was applied to acquire those rights.
Once the PMSI had been so granted by Foxrov to P Twin, P Twin was, by s 150(1), able to apply for registration of a financing statement with respect to that PMSI, subject to the required belief on reasonable grounds as set out in s 151(1).
A financing statement is data contained in an application for registration under s 150(1)(a) with respect to a security interest. Mr Garvey gave evidence that such registration can be achieved by logging into the PPSR website and providing the data requested in the appropriate form. It is a 10 minute task.
Within a few days of advancing funds to purchase the prime mover, instructions were given to Capital Legal to prepare necessary security documentation. This carries with it the inference that Mr Tay reasonably believed Foxrov would execute that documentation, and P Twin would then become a secured party in relation to the collateral, otherwise than by virtue of the registration of the financing statement. Given Mr Tay's leasing history since December 2008 with Mr Calin and his business interests, there was no reason in May 2012 to suspect Foxrov would not execute the documentation. Mr Tay was not cross‑examined to suggest otherwise.
If Capital Legal had registered a financing statement with respect to P Twin's PMSI within 15 business days from the date Foxrov took possession of the prime mover, then by force of s 62(3)(b), such PMSI was perfected and P Twin would have had priority over all other security interests granted by Foxrov in the collateral prime mover. During the trial, this priority was referred to as 'super priority'.
The registration of the financing statement did not require any writing or input from Foxrov. However, P Twin was still required to become a secured party in relation to the collateral and that, in turn, required execution of a security agreement, which covered the collateral, describing that collateral and signed by the grantor.
However, if a security interest is not a PMSI, then s 62 has no application and perfection must be obtained in accordance with s 21, which generally speaking, requires the security interest to be attached to the collateral, that security interest to be enforceable against a third party (s 20) and that there be an effective registration with respect to the collateral.
To be enforceable against a third party, the security interest in respect of particular collateral must comply with s 20. Generally speaking, this requires the security interest to be attached to the collateral with a security agreement in writing, signed by the grantor and describing the particular collateral. A brief note will suffice.
The parties agree that the time limit providing for super priority to P Twin was either 31 May or 1 June 2012. However, a later registration of a PMSI would still have provided priority to P Twin but, it would not have been a super priority.
There is no time limit on registering a security interest generally.
If Capital Legal had registered a mere security interest with respect to the collateral, it would have been perfected if the security interest attached to the collateral was enforceable against a third party and it was effectively registered with respect to the collateral. Hence, apart from registration, a writing signed by the grantor and complying with s 20 was required to perfect the security interest.
On registration, such security interest would have priority according to the timing of its registration, but it would not have super priority.
The oral evidence
Ms Pearlrie Tay
Ms Tay was not able to offer any relevant evidence.
Mr Richard Tay
Mr Tay was not cross-examined about his knowledge of registration of a financing statement. It cannot be assumed that Mr Tay had any knowledge of a financing statement or a PMSI or that, before 24 July 2012, he knew of the requirements of registration and how and when such registration might have been achieved.
Mr Barry Stark
First, Mr Stark gave evidence that Capital Legal's 'policy position' was to not commence work until it had received the costs agreement executed by the ultimate client. However, he conceded that instructions from P Twin were not conditioned upon such execution.
In his evidence Mr Stark:
1.knew, by 25 May 2012, that the registration of the prime mover had transferred to Foxrov;
2.conceded that, had he known in May 2012, P Twin had already advanced funds to Foxrov, then 'alarm bells would have rung', by reason that the party intending to be secure would not have had security;
3.later conceded that, as the loan agreement acknowledged the drawn down date as being 10 May 2012, he knew of such payment by at least 29 May 2012;
4.believed that a signed agreement was required before registration and further, he would have registered the signed agreement upon receipt of it;
5.knew, in May 2012 that, to be a good security and to have legal efficacy, the security needed to be registered under the PPSA;
6.acknowledged that the failure to register the financing statement was tantamount to P Twin not having a security agreement at all;
7.was not aware of any time limits for registration, but registration should occur 'as soon as possible';
8.knew that the proper discharge of his duties required him to advise P Twin about the legal efficacy of the transaction, including the need for registration under the PPSA;
9.did not know why Mr Garvey did not give advice about registration in May 2012 or why he asked for instructions about registration of the security interest by email on 24 July 2012;
10.did not know between May and July 2012 the meaning of the term 'financing statement';
11.did not know between May and July 2012 what a purchase money security interest was; and
12.conceded the knowledge of the PPSA by Capital Legal as at May 2012 was seriously flawed.
Mr Benjamin Garvey
Prior to instructions from P Twin, Mr Garvey had attended legal education seminars about the PPSA. One was through Legalwise and another was in‑house from an expert in the area, whose name he could not recall.
In his evidence, Mr Garvey:
1.knew, before drawing the loan and security documents on 24 and 25 May 2012, that registration of the prime mover had been transferred to Foxrov;
2.knew that P Twin had paid money for the prime mover by at least 30 May 2012 and that P Twin was unsecured. This was why he reported that payment to Mr Stark;
3.knew that registration of a security interest was required to obtain priority to 'legitimize' the security, for enforcement of the lender's rights against third parties and to maintain priority;
4.accepted he had a duty to advise on what was required to perfect P Twin's security;
5.did not specifically recall, in May 2012, 'turning [his] mind' to registration on the PPSR and did not communicate the requirement for registration to P Twin before 24 July 2012;
6.in July 2012, did not appreciate he was able to register P Twin's interests without an executed loan document and general security deed;
7.was not familiar with the provisions of the PPSA and as to what constituted writing or a signature from a grantor for the purpose of enforceability of a security interest against third parties;
8.in May 2012, did not know what a financing statement was;
9.in May 2012, knew what a PMSI was;
10.thought a PMSI gave super priority, ie, priority over all other charges regardless of their registration date, but only if registered within 15 business days of money being provided in return for the purchase of collateral. He understood that this time ran from 10 May 2012;
11.did not know he could still register a PMSI beyond the time limit of 15 business days; and
12.did not recall 'turning [his] mind' to the time limit, but in September 2012, after the loan agreement and the general security deed had been executed, he then formed the view that the security was not a PMSI, given that it was not registered within the 15‑day time limit.
Mr Garvey gave evidence that upon registration of a security interest, certain details are required as set out in the registration he effected on 25 September 2012.
Once the loan documents had been executed and returned to him, Mr Garvey instructed his secretary to register a security interest by simply typing in all details, including 'Security interest', but not a PMSI, as follows:
1. Registration details Registration number: 201209250086281 Change number: 19369366 Registration kind: Security interest Is registration transitional?: Yes Is registration migrated?: No Dates Start time: 25/09/2012 18:35:34 (Canberra time) Change time: 25/09/2012 18:35:34 (Canberra time) End time: 25/09/2019 23:59:59 (Canberra time) 2. Secured party group Secured party 1 Organisational identifier type: ACN Organisation identifier: 156 933 863 Organisation name: P TWIN HOLDINGS PTY LTD Address for service Addressee: Pearlrie Tay Email address: [email protected] Mailing address: Unit 21, 185 High Street
FREMANTLE, WA
AUSTRALIA, 6160
Physical address: Unit 21, 185 High Street
FREMANTLE, WA
AUSTRALIA 6160
3. Collateral Collateral type: Commercial property Collateral class: Motor vehicle VIN: 5KKJABBG3CPBN4514 Vehicle registration number: 1DXE704 Are proceeds claimed? Yes Proceeds claimed description: All present and after acquired property Is purchase money security interest?: No Is inventory No
Is subordinate No Giving of notice identifier 9031 4. Grantors Grantor 1 ACN 141 385 579
The pleadings
The statement of claim alleges breach of contract and negligence by Capital Legal in that its legal practitioners failed to fully protect the priority of P Twin's security interest. More particularly, Capital Legal could and should have registered a financing statement on the PPSR with respect to the prime mover before the end of 15 business days after Foxrov obtained possession of it, ie, 31 May 2012.
P Twin claims that by reason of Capital Legal having failed to register its interest in the prime mover, P Twin did not have any registered security at all, such that Geraldine Nominees Pty Ltd trading as Daimler Trucks Perth was able to purchase the prime mover free from P Twin's PMSI with the result that P Twin lost the benefit of that PMSI. P Twin was not then able to obtain possession of the prime mover, or its sale proceeds.
Capital Legal admits that it was an implied term of its retainer that it would exercise reasonable care in providing legal services to P Twin in respect of the work undertaken as set out in the costs agreement. It also admits that it owed a duty of care in providing that work.
The defence pleads that the costs agreement provided only for the preparation of documents being:
(a)a loan agreement;
(b)a PPSA document;
(c)a security document in respect of the prime mover; and
(d)a guarantee document.
The defence also pleads that the registration of P Twin's interests on the PPSR was not within the scope of the legal services Capital Legal was instructed to provide.
Capital Legal further alleges that P Twin was guilty of contributory negligence.
Capital Legal further pleads that this is an apportionable claim to which s 5AI of the Civil Liability 2002 (WA) applies, such that Foxrov is a concurrent wrongdoer by having sold the prime mover. It was Foxrov's conduct which caused or contributed to the loss of P Twin.
Capital Legal also alleges that Mr Tay is a concurrent wrongdoer in that he arranged for P Twin to advance the relevant funds without security.
It is further alleged that P Twin failed to mitigate its loss by delay in executing the relevant documents, delay in acting on advice to register its interests and failure to use its powers under the general security deed to mitigate its loss and to enforce its rights against the guarantors.
The issues
The issues in this action include the following:
1.Has P Twin proved that Capital Legal acted in breach of contract or was negligent?
2.If so, has Capital Legal proved that:
(a)P Twin was guilty of contributory negligence;
(b)Foxrov and Mr Tay were concurrent wrongdoers, such that, the claim by P Twin ought to be reduced in accordance with any wrongdoing; and
(c)was there failure to mitigate any loss?
Legal principles
Capital Legal was bound to exercise due care, skill and diligence, bringing to the task in hand the competence and skill usually employed by legal practitioners practising their profession and taking proper care in what they did: Voli v Inglewood Shire Council (1963) 110 CLR 74, 84, as followed by Hasluck J in May v Mijatovic [2002] WASC 151 [90]. Hasluck J went on to say [91] ‑ [92]:
The due care, skill and diligence were to be exercised in doing what the solicitor was retained or briefed to do. Because a solicitor's duty lies in tort as well as contract, it may be that in particular circumstances the solicitor is required to go beyond the specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client. Hawkins v Clayton (1988) 164 CLR 539 at 579.
The approach of the High Court in Hawkins v Clayton (supra) was applied in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. The Court of Appeal held in that case that the duty of a solicitor to his client lies in tort as well as in contract. Justice Kirby said at 652 that the attempt to limit a solicitor's duty strictly to the scope of his retainer was inconsistent with the holding of the High Court in Hawkins v Clayton (supra) because it attempts to confine the duty of care to a contractual format. He accepted that the duty of care lies also in tort and recognised that the consequences of tort liability may not be the same as contractual liability. Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care, it will not chart exclusively the parameters of that duty, for the duty may require the taking of positive steps beyond the specifically agreed professional task or function where these [are] steps necessary to avoid a real and foreseeable risk of economic loss being sustained by the client.
There is no doubt that P Twin is able to proceed in both contract and tort alleging breach of contract and professional negligence and, where concurrent liability exists, P Twin has the right to assert the cause of action that appears to be the most advantageous to it in respect of any particular legal consequences: Carmody v Priestley & Morris Perth Pty Ltd (2005) 30 WAR 318; [2005] WASC 120 [92].
Bearing in mind the defence pleaded that the extent of Capital Legal's instructions was to only prepare legal documents, it is then pertinent to consider the true ambit of the instructions given to Capital Legal and in this regard, Anderson J in Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325, 332 – 333, held that, upon the receipt of instructions, there is a duty in the legal practitioner to advise the lay client on any matter reasonably necessary to protect the client's interests, whether expressly requested or not. There is an assumed request for advice. This was followed in Berryman v Hames Sharley (WA) Pty Ltd (2008) 38 WAR 1 [391] and in Carmody v Priestley where Hasluck J said:
[93]Where a professional provides a service to a client, in the absence of an express term to the contrary, an implied term of the contract under which the service is supplied is that the professional will exercise reasonable care and skill in providing the service. Where there is a contract, the extent of the professional's liability to the client may depend upon or be affected by the terms of the contract. The terms may confine or exclude the existence of a duty of care owed by one part to the other.
…
[98]… the scope of the duty of care and the nature of the standard of care to be exercised by the professional will depend upon the circumstances of each case including the quality of instructions given and the urgency of the situation. However, although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care, it will not chart exclusively the parameters of that duty, for it has been held in some cases that the duty of care may require the taking of positive steps beyond the specifically agreed professional task or function where the steps in question are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client: Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642; Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325 at 332.
Another example is Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] 179 in which Buss JA said [116]:
The appellant's request for advice from Jackson McDonald as to whether there were grounds to lodge a caveat, and the appellant's instructions (after receipt of that advice) to lodge a caveat, at least arguably imposed on Jackson McDonald a duty to give any advice reasonably necessary as to the form and type of caveat which should be lodged, whether advice as to the form or type of caveat was expressly requested or not. Compare Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325 per Anderson J at 332 – 333.
In Allstate Explorations NL v Blake Dawson Waldron (A Firm) [2010] WASC 97, E M Heenan J followed Hasluck J in May v Mijavotic and Carmody v Priestley & Morris Perth Pty Ltd. EM Heenan J further referred to Rogers v Whitaker (1992) 175 CLR 479; (1992) 109 ALR 625, 490 as had Hasluck J, in noting the need for a physician or surgeon to warn a patient of material risks associated with some course of medical treatment or therapy. Rogers v Whitaker was followed in Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 53 NSWLR 1 [147], following Hawkins v Clayton (1988) 164 CLR 539 in which Deane J held (583 ‑ 585) that:
In the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and foreseeable risk of economical loss by the client, or in particular circumstances, even a person who is not a client but who may be adversely affected … .
These principles are self‑explanatory. Here, there was a real and foreseeable risk of economic loss to P Twin if priority security by registration of the PMSI was not obtained. By reason of the need for that security, the costs agreement will not chart exclusively the parameters of Capital Legal's duty, for the law of tort recognises that positive steps beyond the preparation of documents was required so as to avoid P Twin's risk of economic loss.
Findings on P Twin's claim
The facts concerning P Twin's claim as set out above are, save as noted, not disputed. Based on those facts, Capital Legal failed to:
1.advise of registration in the general sense or at all until 24 July 2012 and 21 September 2012 and then, to only advise of the need to obtain security by registration of the loan agreement on 21 September 2012;
2.advise of registration of a financing statement or register a financing statement before either 31 May or 1 June 2012, or at all;
3.gain a perfected PMSI for P Twin at any time, whether with or without super priority;
4.alternatively, advise of the need to comply with s 20 of the PPSA and to obtain an appropriate writing signed by Ms Calin; and
5.register a security interest until 25 September 2012, whether enforceable against a third party or not.
The defence of instructions limited to preparing documents
The defence limiting instructions to the preparation of documents and excluding registration cannot be accepted for the following reasons:
1.The initial instructions from Mr Lawrence were in respect of:
a loan agreement … a very simple doc … security to be PPSR or F and F charge
This instruction required not only the preparation of a loan document, which could only evidence the loan and provide for its terms, but it also required registration on the PPSR, in order to obtain the required security.
2.The costs agreement recognized the need to prepare a loan agreement and a general security deed. It also required a Personal Property Securities Act security document. There would be no need for such a document if registration was not contemplated.
3.Having recited the engagement to provide the abovementioned documents, the costs agreement immediately thereafter provided that:
We understand our instructions/the work do not include the rendering of any taxation or taxation related advice (including, without limitation, advice relating to GST, CGT, Income Tax and FBT), unless we are specifically instructed to do so. If such advice is required, you will need to obtain it yourself.
The costs agreement excluded only advice about taxation matters.
4.The costs agreement did not exclude advice as to registration, or the fact of registration, or the different types of registration, on the PPSR. It did not seek to contradict Mr Lawrence's
instructions of ... security to be ... PPSR …
There is no evidence of any other attempt, whether oral or written, to contradict these instructions.
5.On 25 May 2012, Mr Garvey sent an email to Mr Stark advising that the prime mover appeared to already be in Foxrov's name. He also referred to the PPSA.
This email from Mr Garvey to Mr Stark is important for three reasons:
(a)the vehicle appeared to already be in the name of the borrower which Mr Garvey reported, was strange;
(b)there was to be both a loan agreement and a general security document; and
(c)Mr Garvey's reference to the PPSA.
6.By email dated 29 May 2012, Mr Lawrence asked:
Does the loan agreement need to mention that the Vehicle itself is security and that it will be registered on the PPSR?
to which Mr Garvey responded on 30 May 2012:
The loan agreement makes reference to the 'Security' which is a reference to the General Security Document which specifically identifies the vehicle as collateral.
Mr Lawrence's email is important by reason of its reference both to the prime mover as security and registration on the PPSR. Mr Lawrence was therefore persisting with his initial instruction requiring registration, which was not contradicted.
7.By a subsequent email on the same day, Mr Garvey advised Mr Lawrence that:
It will be specifically registered on the PPSR.
By this email, Mr Garvey confirmed Mr Lawrence's instructions from both 14 and 29 May 2012. Mr Garvey's reference to registration on the PPSR is contrary to the pleaded defence.
8.The loan agreement and the general security deed prepared by Capital Legal were drafted with reference to the PPSA, adopting terms and definitions from the PPSA into those documents.
If the instructions to Capital Legal did not include registration, then there would be no point in drawing the general security deed at cost to P Twin. The loan agreement would have been sufficient to evidence the loan, the requirement to pay monthly instalments and other obligations.
9.By cl 6.1 of the general security deed, Foxrov warranted that:
(j) the collateral was free from security interests;
(l) the deed created a first ranking security interest over the collateral;
…
10.By cl 9.1(i) of the general security deed, Foxrov intended that P Twin's security interest would have priority. This priority could only be achieved by registration. The general security deed prepared by Capital Legal therefore demanded registration of P Twin's interest on the PPSR.
11.Capital Legal was under a duty to exercise due care, skill and diligence, bringing to the task in hand the competence and skill usually employed by legal practitioners practising their profession and taking proper care in what they did.
12.Capital Legal was aware that this duty required it to advise of other matters relevant to the transaction besides the preparation of documents, namely the provision of advice respecting past consideration and the need for a solicitor's certificate and that is why Mr Garvey and Mr Stark both sent emails to Mr Lawrence concerning such matters. Hence:
(a)by email dated 30 May 2012, Mr Garvey sent the final documents to Mr Lawrence expressing concern about past consideration and advising that the transaction may be susceptible to being overturned. He also wrote of the need for a solicitor's certificate; and
(b)Mr Stark also sent an email on 30 May 2012 to Mr Lawrence about past consideration.
13.These last two emails are really meaningless to a layman. The emails raise more questions than they provide answers.
What does it mean that 'the transaction may be susceptible to being overturned'? By whom could it be overturned and how? What could be done to stop that? How was Mr Lawrence to 'point out the issue'? Was it up to Mr Lawrence to give legal advice? He was not a legal practitioner. If the transaction was susceptible to being overturned, proper instructions were required and detailed advice should have been given.
However, nothing really turns on this other than to show the accepted duty to provide advice and to reveal just how lacking advice was. The mere execution of formal documents did not provide the required security to P Twin.
14.By reason of the same duty referred to at [11] above, Capital Legal, working in the area covered by the PPSA and instructed to act in a transaction of the kind under consideration:
(a)should reasonably have been expected to be aware that registration of a financing statement was required under s 150(1);
(b)should have sought instructions to ascertain there were reasonable grounds for the belief required by s 151;
(c)should have been aware that s 62(3)(b) by its terms would operate to perfect the PMSI by such registration;
(d)should have advised P Twin of the different bases for registration; and
(e)on the view of the transaction adopted by Capital Legal, should have advised P Twin at the outset that:
(i)until execution and registration of the loan agreement and the general security document, there was no security; and
(ii)an interim writing from Foxrov complying with s 20 was required without delay in order to obtain a perfected security interest upon registration.
15.In cross‑examination, Mr Stark and Mr Garvey both accepted their duty in relation to [14(e)(i)]. However, in breach of that duty, P Twin was not advised of this until 24 July 2012 and 21 September 2012, and then, it was only on the latter date that security was addressed. Mr Stark could not explain why such advice had not been given earlier.
16.In recognition of the duty to advise as to the requirement for registration, Mr Garvey sent an email to Mr Lawrence, but not P Twin, on 2 July 2012 noting that requirement.
Then, at Mr Lawrence's invitation, on 24 July 2012, Mr Garvey advised Ms Tay, as follows:
(a)the loan agreement should be registered on the PPSR to note P Twin's security interest;
(b)it was very important to register
as soon as possible.
warning that creditors of Foxrov could take possession of the prime mover to satisfy their debts and leave P Twin as an unsecured creditor; and
(c)a copy of the signed loan agreement was required for registration purposes if Capital Legal was to register it.
On 21 September 2012, Mr Garvey advised Ms Tay that P Twin's interest was not secure until registered. This was the first time such advice was given as to the requirement for security by registration, as being separate to execution of the formal documents.
17.It is self‑evident from these emails that advice as to fact of registration was important, together with the reasons for registration. Such advice should have been provided at the earliest opportunity.
Prior to these emails, P Twin had not received any advice at all from Capital Legal regarding registration, although Mr Garvey had advised Mr Lawrence on 30 May 2012 that registration would occur. This advice was copied to Mr Stark. It was not copied to P Twin.
18.Capital Legal's duty to advise P Twin extended to registration advice, whether that be so in relation to:
(a)the true circumstances of this transaction, not understood by Capital Legal, ie, the need for registration of a financing statement with respect to the PMSI within the statutory time limit, so that P Twin should obtain the first ranking security interest as provided by cl 6.1(l) and as intended by cl 9(1)(i) of the general security deed; or
(b)the preparation and execution of formal legal documents thereof as dealt with by Capital Legal.
19.Registration of either a financing statement or a loan document to provide security was not ancillary to the preparation of legal documents or to be regarded as an optional extra. Registration of a financing statement or the loan document was required to bring legal efficacy to the transaction.
Registration was instinctively an inherent and integral part of the instructions in order to obtain the desired security, with intended priority.
Security of the first ranking security interest could not be achieved without registration.
20.If the defence is correct that the contractual terms of the costs agreement excluded registration, then the duty of care in the circumstances of this matter should not be confined to the contractual format. There was also such a duty of care in tort which bound Capital Legal to advise on both registration of a financing statement and the loan document so as to obtain the required security.
There is no evidence that Foxrov had capacity to pay P Twin anything more than it did before moving into receivership and liquidation.
Further, it is not known when P Twin consulted its present legal practitioners, but P Twin sought advice in relation to this matter and now this action has been brought.
It is not for P Twin to prove that it has used its best endeavours to recover its loss. Clearly, however, P Twin was taking some steps. It is the detail which is missing.
It is for Capital Legal to prove that P Twin failed to mitigate its loss. It has not done so. The submissions from Capital Legal about what might have been recovered amount to speculation, for which there is no room. Here, Capital Legal has not provided any or any sufficient evidence to prove the steps which it suggests were open to P Twin to mitigate its case. It has not proved the resources of those against whom recovery might have been made.
In all the circumstances, breach of the duty by P Twin to mitigate its loss has not been proved.
Damages
On 20 September 2012, Foxrov traded in the prime mover at Daimler Trucks. Daimler Trucks then sold the prime mover.
This sale breached cl 5.2 of the general security deed as prepared by Capital Legal. Generally speaking, this clause prevented Foxrov from selling the collateral prime mover without the prior written consent of P Twin.
By reason that Daimler Trucks purchased the prime mover encumbrance free, P Twin was not able to pursue Daimler Trucks for the sale proceeds and it was not able to pursue the purchaser of the prime mover for its return.
Evidence was led at the trial that, as at September 2012, the prime mover was valued at $250,000. Daimler Trucks sold the prime mover in October 2012 by way of an arm's length transaction to a third party for $240,909.09, exclusive of GST.
Then after October 2012, Foxrov was regularly delinquent in meeting its monthly obligations to repay the loan and interest due under the loan agreement in consequence of which, P Twin instructed legal practitioners who, on 22 October 2013, issued a notice of default and seizure of collateral to Foxrov. This resulted in P Twin learning that the prime mover had been sold the previous year.
In October 2013, when P Twin sought to recover the prime mover, its value had reduced to the sum of $200,000.
Subsequently, Foxrov went into receivership on 28 January 2014, and then into liquidation on 21 February 2014.
It can be seen that there was a diminution in the value of the prime mover from $250,000 or $240,909.09 in September/October 2012 to $200,000 in October 2013.
The submission from Capital Legal is that, for the purpose of assessing damages, the relevant value of the prime mover should be the value as at October 2013 when P Twin sought to recover the prime mover. This was the first real action by P Twin in respect of default by Foxrov. Capital Legal also submitted that even though the prime mover had been sold in September 2012, Foxrov may not have defaulted thereafter. However, with the benefit of hindsight, it is known that Foxrov did default in its monthly instalments over the course of the year leading up to October 2013, and hence the default notice.
Upon ascertaining in November 2013 that the prime mover had been sold, it was then open to P Twin to choose the most effective method of recovery of its loss by reason of that sale being possible because its PMSI was not registered.
Had Capital Legal done that which it was required to do and registered P Twin's PMSI by way of a financing statement on or before 31 May or 1 June 2012, P Twin could have had immediate recourse to Daimler Trucks for the sum of $240,909.09. Daimler Trucks would not appear to have had any arguable defence to any such claim. This would be a far more economical method of recovery with a better result than attempting to pursue a prime mover in the hands of a third party, not knowing the whereabouts of the prime mover, alternatively taking proceedings against Foxrov, which of course, very quickly went into receivership and liquidation as outlined above.
In these circumstances, P Twin was in a strong position to proceed against Daimler Trucks. However, that option was not open to it by reason of Capital Legal not having registered the financing statement such that Daimler Trucks was able to purchase an encumbrance free prime mover.
Capital Legal was well aware that without registration of the loan document, P Twin's situation was tantamount to not having any security. It failed to advise on the requirements of registration and it failed to register a financing statement, simply because it did not know that such option was open.
In the circumstances, it is appropriate to put P Twin into the position it would have been in had Capital Legal registered the financing statement. The prime mover was sold on 20 September 2012. That is when P Twin lost its security. It's loss should therefore equate the sale price as at the date.
The sale price $240,909.09 is based on historical fact and there is no need for any allowance for the cost of recovery and possible sale costs or legal costs.
P Twin is also entitled to interest from 20 September 2012 at the rate of 6% per annum pursuant to the Rules of the Supreme Court, there being no evidence as to commercial interest rates during the relevant period, as follows:
Sale price 20 September 2012 $240,909.09 Interest @ 6% per annum ÷ 365 = $39.60 per day 20 September 2012 to 19 September 2016 = 1461 days 20 September 2016 to 9 June 2013 = 262 days Total days 1723 days x $39.60 $68,233.37 $309,142.46 Less 51% $157,662.65 $151,479.81
Conclusion
There shall be judgment for P Twin in the sum of $151,479.81.
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