Re Carpenter International Pty Ltd
[2016] VSC 118
•24 March 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2015 000175
IN THE MATTER OF CARPENTER INTERNATIONAL PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 165 690 657)
| MATTHEW JAMES DONNELLY DAVID MARK HODGSON ANDREW STEWARD REED HEWITT IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF CARPENTER INTERNATIONAL PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 165 690 657) & CARPENTER INTERNATIONAL PTY LIMITED (ADMINISTRATORS APPOINTED) (ACN 165 690 657) | Plaintiffs |
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JUDGE: | CAMERON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24-26 August 2015 |
DATE OF JUDGMENT: | 24 March 2016 |
CASE MAY BE CITED AS: | Re Carpenter International Pty Limited |
MEDIUM NEUTRAL CITATION: | [2016] VSC 118 |
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CORPORATIONS – Administrators seeking directions from the Court in relation to disposing of property of the company under administration and dealing with sale proceeds – Corporations Act 2001 (Cth), ss 442C and 447D.
CORPORATIONS – Vesting of security interest in personal property – Meaning of ‘security agreement’ and ‘came into force’ – Effect of assignment on vesting – Interpretation of the timeframe – Corporations Act 2001 (Cth), s 588FL.
CONTRACT – Competing contracts – ‘Battle of the forms’ – Which set of terms applies.
CONTRACT – Conditions as to formation – Conditions as to performance.
PERSONAL PROPERTY SECURITIES – Defendants registered their interests on the Personal Property Securities Register– Whether security interests perfected by registration – Were registrations in time – Personal Property Securities Act (2009) (Cth), s 267.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr H Austin | Clayton Utz |
| For the First and Second Defendants | Mr D Turner | SLM Lawyers |
| For the Third Defendant | Mr P Crutchfield and Mr B McLachlan | Patane Lawyers |
HER HONOUR:
What are these proceedings about?
These proceedings are about the ownership of certain cattle. In short, who owns (in the sense of having legal and beneficial title to) the cattle? The various disputes about the ownership of the cattle arise because of the terms of agreements (and, specifically, which terms apply), whether a particular party held a security interest in the cattle and, if so, whether any such security was registered in time.
Background
Carpenter International Pty Ltd (‘Carpenter’) was in the live cattle export business. Its business involved purchasing cattle through a del credere agent, then moving the cattle to a feedlot for quarantine and testing and, finally, subject to those checks, exporting the cattle.
Administrators were appointed to Carpenter on 24 March 2015. The administrators are the plaintiffs in this proceeding. They filed an originating process dated 26 May 2015 seeking orders and directions under ss 442C and 447D of the Corporations Act 2001 (Cth) (‘the Act’) and/or the Court’s inherent jurisdiction. They sought orders giving them leave to dispose of the cattle, with any sale proceeds to be dealt with in accordance with several conditions, and directions that they are justified in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of the cattle.
The defendants appearing in this proceeding were creditors of Carpenter. They were Dairy Livestock Services Pty Ltd (‘DLS’), Charles Stewart & Company Pty Ltd (‘CS’), Charles Stewart Nash McVilly Pty Ltd (‘CSNM’), and GG Feedlot Pty Ltd (‘GG Feedlot’).
DLS, CS, and CSNM are livestock agents. They act as del credere agents for the vendor farmers, so they guarantee the purchaser’s payment of the purchase price. The agents receive a commission, and if they pay the vendors, they take assignment of the vendors’ rights under the sale contracts. DLS, CS and CSNM contend that they have perfected security interests in some of the cattle and, accordingly, Carpenter has no rights to those cattle.
There was no appearance before me, nor were any submissions made, by any other party. However, it falls upon the Court to consider the issues in relation to other cattle.
On 19 August 2015, GG Feedlot filed an Interlocutory Process seeking declarations that it has a perfected security interest in the cattle located on its feedlot, pursuant to a contract with Carpenter. It also seeks declarations that its perfected security interest has priority over any other party’s claims to the cattle. GG Feedlot’s sole concern is that the primacy of its security interest is recognised. It is to be noted that GG Feedlot’s application was adjourned.
The matter came on for trial on 24 August 2015. During the trial, the administrators were given leave to file their Further Amended Originating Process dated 25 August 2015.[1] The Further Amended Originating Process contains various schedules which set out details of various contracts, being Schedules A, B, D, and E. GG Feedlot’s application concerns some cattle which is described as ‘Schedule A’ and possibly ‘Schedule E’ cattle to which I will later refer.[2] DLS, CS and CSNM are not concerned with Schedule A or Schedule E cattle. It is therefore convenient to deal with DLS, CS and CSNM’s claims in the first instance. Their claims concern Schedule B cattle.
[1]T228:5.
[2]T226.
On 29 September 2015, I made orders giving the administrators leave to dispose of cattle, subject to conditions in relation to the sale proceeds. All the cattle the subject of this proceeding have now been sold, by either Carpenter or GG Feedlot. Given the cattle have been sold, the dispute now concerns entitlement to the sale proceeds.
On 29 September 2015, I reserved my decision on the ownership and security interest issues. These reasons will address those ownership and security interest issues as between Carpenter and the del credere agents, namely DLS, CS, and CSNM and the agents referred to in the schedules to the Further Amended Originating Process. These reasons will not address what security interest, if any, GG Feedlot has in any of the cattle, nor the lawfulness of any actions it has taken to sell certain cattle.
How ought the respective claims to the cattle be categorised?
To determine Carpenter’s and the agents’ respective rights to the sale proceeds, it will be necessary to determine their rights to the cattle after the administrators were appointed. As referred to, the administrators have grouped the cattle into four categories:
(a) Schedule A cattle. These cattle were not the subject of any registration on the Personal Property Securities Register (‘PPSR’) before the administrators were appointed.
(b) Schedule B cattle. These cattle were the subject of registration on the PPSR before the administrators were appointed. They were also the subject of contracts, sometimes constituted by multiple signed sets of terms.
(c) Schedule D cattle. These cattle were the subject of contracts, sometimes constituted by multiple signed sets of terms. These cattle were rejected by Carpenter during the purchase process.
(d) Schedule E cattle. These cattle were the subject of contracts comprising only Carpenter’s standard terms.
Summary of decision
For the reasons set out below, after the administrators were appointed to Carpenter, in my opinion, title to the four categories of cattle was as follows, subject to resolution of GG Feedlot’s claims:
(a) Carpenter had title to the Schedule A cattle;
(b) Carpenter had title to the Schedule B cattle;
(c) Carpenter had title to the Schedule D cattle;
(d) Carpenter had title to the Schedule E cattle.
Questions to be answered
The questions in this case can be divided up and answered according to the four categories of cattle, as Carpenter has done. However, it would be convenient for me to start with the claims of DLS and CS/CSNM which are centred on the cattle in Schedule B. I will firstly address the issues raised by DLS followed by the issues raised by CS/CSNM before returning to the other categories of cattle the subject of the application and the direction sought by Carpenter regarding the equitable lien on cattle.
‘Battle of the forms’ – what were the terms of the contracts? – DLS and Carpenter
Both Carpenter and DLS referred to this issue as the ‘battle of the forms’ so, for convenience, I will adopt that terminology in this judgment. The issue to be determined is what terms formed part of the contract governing the transactions entered into by Carpenter and DLS.[3] There was, in some instances, more than one form – which prevails or are they able to sit together? In particular, and most significantly, did those terms include the retention of title clauses in the DLS contracts? This clause forms the critical foundation of the claim of DLS.
[3]T171:6.
Carpenter’s submissions
Numerous affidavits were filed on behalf of Carpenter on which they sought to rely as follows:
(a) the affidavit of Matthew James Donnelly sworn 22 May 2015 (‘first Donnelly affidavit);
(b) the affidavit of Matthew James Donnelly sworn 25 June 2015 (‘second Donnelly affidavit’);
(c) the affidavit of John Edward Berkefeld sworn 3 July 2015 (‘first Berkefeld affidavit’);
(d) the affidavit of Matthew James Donnelly sworn 8 July 2015 (‘third Donnelly affidavit’);
(e) the affidavit of John Edward Berkefeld sworn 7 August 2015 (‘second Berkefeld affidavit’);
(f) the affidavit of Matthew James Donnelly sworn 10 August 2015 (‘fourth Donnelly affidavit’).
Carpenter submitted that there were 76 transactions entered into by Carpenter and DLS. Carpenter accepted that for 61 of those transactions, only a DLS contract was executed, and the DLS terms therefore apply.[4] In 11 transactions both a DLS contract and a Carpenter contract were signed. Therein lies the so-called ‘battle of the forms’. Carpenter submitted that for those transactions, its terms should prevail.[5] It appears that DLS contracts were not signed for the remaining transactions.
[4]Plaintiffs’ Outline of Submissions, [67(a)]; T85:8.
[5]Plaintiffs’ Outline of Submissions, [67(b)].
In this case, there are two entire and apparently comprehensive signed agreements sitting side by side.[6] Both contracts were signed. The significance of both contracts being signed is analysed in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[7]
[6]T68:3.
[7](2004) 219 CLR 165, [40]-[45].
Carpenter submitted that the DLS contracts were signed first, and the Carpenter contracts were signed immediately thereafter, but Carpenter then seemed to accept that the timing of the contracts is not a matter of great concern.[8] The primary battle of the forms argument pressed by Carpenter was based on clause 2 of the Carpenter contracts as, it was contended, clause 2 is the only way to ‘unlock’ the ‘two duelling documents’.[9] Clause 2 of the Carpenter contracts provided:
Legal Agreement: These Terms and conditions together with the Livestock Purchase Contract and any other documents provided by Carpenter International which relate to the sale of the Livestock make up the agreement between the Vendor and Carpenter International for the purchase of Livestock by (the Agreement). The Agreement shall not include any terms and conditions of the Vendor or its agent including (without limitation) the Vendor’s tax invoice or purchase summary, even if received by Carpenter International after this Agreement is delivered to the Vendor. These Terms and Conditions shall apply to all future sales of Livestock from the Vendor to Carpenter International unless expressly excluded.
[8]T243:22; T245:29.
[9]T254:15.
Carpenter submitted that this clause establishes that it ought succeed in the battle of the forms.[10] Clause 2 gives paramountcy to the Carpenter terms, and allows the Court to hold that the Carpenter terms prevail, even if the vendor agent terms are signed.[11]
[10]T56:30.
[11]Plaintiffs’ Outline of Submissions, [42].
The objective theory of contract holds that contracts providing for paramountcy must be given effect to. There was a signed contract with an entire agreement clause, and the subcontractors’ subjective purposes in having a document to prove the number of cattle purchased and obtain the appropriate remuneration, does not change the objective fact that the parties signed a contract. Carpenter also argued that it and DLS did not contract on consistent terms, so it could not be said that the regularity of dealings would be such that where there is a battle of the forms clause 2 of the Carpenter contract is displaced.[12]
[12]Ibid [68].
DLS relied upon McMahon v National Foods Milk Ltd.[13] In response, Carpenter argued that clause 2 purports to single out, or at least expressly identify, the vendors’ terms as being excluded.[14] This means clause 2 is effective to prevent enforcement of the collateral contract. Carpenter relied on the following passage quoted in McMahon:
Ultimately, the resolution of the issue must depend on intention as to the scope of the entire agreement clause. Arguably, if the clause refers expressly to collateral contracts that should be sufficient statement of intention that a collateral contract may not be put forward [as] an additional express term of the bargain. But if there is no express reference to collateral contracts, it seems odd to regard a clause in the main agreement as effective to prevent enforcement of the collateral contract…[15]
[13](2009) 25 VR 251 (‘McMahon’).
[14]T256:21.
[15](2009) 25 VR 251, [39] (Nettle JA, with whom Neave and Dodds-Streeton JJA agreed).
Carpenter submitted that although clause 2 seeks to exclude any vendor agent terms completely, the aim is to look for a harmonious result, and the Court will therefore seek to reconcile the two sets of terms.[16] For this reconciliation process Carpenter relied on Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd.[17] Where terms of the competing contract are not inconsistent with the Carpenter contract, they may be included in the terms governing the transaction. The del credere provisions of the agents’ contracts are an example of provisions that are not inconsistent with the Carpenter contracts. When provisions are inconsistent, however, the Carpenter provisions, it was submitted, should prevail.
[16]Plaintiffs’ Outline of Submissions, [42]; T253:20.
[17][1979] 1 WLR 401.
The retention of title clauses in the vendor agent contracts constitute the prime example of provisions that are inconsistent with the Carpenter contracts. The retention of title clauses are inconsistent with clauses 4(l) and 4(m) of the Carpenter contract, which provided:
l) Upon delivery of the Livestock, Carpenter International shall have the right to enter the premises where the Livestock is held in order to inspect the Livestock and may, in its sole discretion, reject any Livestock that do not comply with terms of the Agreement (“Inspection”). It shall be the responsibility of the Vendor and at the cost of the Vendor to remove the rejected Livestock. The Parties agree that the Livestock shall not be deemed accepted by Carpenter International until Carpenter International has carried out its Inspection.
m) Risk in the Livestock shall remain with the Vendor until Carpenter International has completed the inspection upon which point risk and title in the Livestock accepted by Carpenter International shall pass to Carpenter International.
The argument that the retention of title clauses did not form part of the contract between the parties was said to be further supported by the fact that in all but two of the 76 transactions involving Carpenter and DLS, the vendor signed a Vendor Declaration and Instruction form (‘VDI’) and returned it to Carpenter.[18] The signing of the VDIs fortifies the application of the Carpenter contract where there is a battle, because the VDIs were part of the Carpenter contractual relationship.[19] The Carpenter contract required that the VDIs had to be signed and returned.
[18]Plaintiffs’ Outline of Submissions, [69].
[19]T85:19.
The Carpenter contracts and VDIs provided for Carpenter rejecting cattle that did not meet the further testing in quarantine, and without the Carpenter and VDI terms forming part of the terms governing the transactions, Carpenter would not be entitled to reject cattle; it would have to accept and pay for all cattle that passed the initial blood testing and were moved to quarantine.[20] The handwritten annotation ‘subject to China Protocols’ on the DLS contracts does not confer the right of rejection that was in fact exercised by Carpenter.
[20]T249-250.
As an alternative, Carpenter submitted that looking at the transactions as a whole, and the conduct of the parties, the retention of title terms should not be considered to be part of the contractual terms governing the transactions on the basis of Dwyer v Chicago Boot Co Pty Ltd.[21] Carpenter, however, did acknowledge that Dwyer is of limited assistance here because the retention of title term there was printed on the back of an invoice and not on a contract signed by the purchaser. Further, Dwyer dealt with conduct and incorporation of terms over a period of time.[22]
[21](2011) 82 ACSR 193 (‘Dwyer’). See Plaintiffs’ Outline of Submissions, [44]-[47].
[22]T72:7.
DLS’ submissions
DLS relied on affidavit of Scott Lord sworn 28 July 2015.
In summary, DLS sought various orders for declaratory relief, namely:
(a) a declaration that the DLS pro forma contracts prevailed as between it, Carpenter and the vendor farmers, alternatively that certain critical terms (as DLS saw it) formed part of any agreement between those parties;
(b) a declaration that DLS had perfected its registered security interest under s 588FL of the Act within time; and
(c) that, as a result, DLS is the absolute legal and beneficial owner of the cattle the subject of the agreements.
In DLS’ submission, the questions to be addressed in this battle of the forms issue are only of contractual construction.
The process of signing the DLS contracts was as follows. DLS made arrangements for the inspection of cattle at vendor farmer properties. There were various combinations of parties present at inspections. There was DLS and Carpenter, DLS alone acting as agent for Carpenter, or DLS and a subcontractor of Carpenter.[23] Once cattle had been selected, the following took place in every case:
[23]Outline of Submissions of DLS, [6].
(a) a price for the cattle was negotiated and cattle numbers confirmed;
(b) a DLS standard form contract was completed and signed by or on behalf of the vendor, Carpenter, and DLS as agent.[24] These contracts were signed at the place where the cattle were inspected, on the day of inspection. The contracts were tripartite, with the vendor, Carpenter, and DLS as parties;
(c) property of origin declarations and diseases forms were completed by the vendors; and
(d) Carpenter provided ear tags which were placed on the selected cattle.[25]
[24]At trial DLS explained that there may be one or two instances where the DLS contract was not signed by all the parties: T143:11; T168:12.
[25]Outline of Submissions of DLS, [7].
When Carpenter acted through an employee, only a DLS contract was signed.[26] Where Carpenter engaged a subcontractor to attend the inspection, then and only then, a Carpenter contract was signed by or on behalf of one or more of the vendor, Carpenter, and DLS as agent.[27] Sometimes the Carpenter contract was signed only by or on behalf of Carpenter.
[26]T152:26.
[27]Outline of Submissions of DLS, [8].
DLS submitted that, based on the evidence of Mr Lord and Mr Bond, the better view is that the Carpenter contracts and the DLS contracts were all signed contemporaneously at the farm.[28] DLS submitted that the only way to make commercial sense of these two contracts sitting together is to conclude that, in the context where a Carpenter subcontractor signs Carpenter’s terms, that document only operates as evidence of an administrative arrangement between Carpenter and its subcontractor. In short, it was contended, the Carpenter contract is simply a document on which the subcontractor may rely to demonstrate to Carpenter the number of head of cattle that have effectively been ‘signed up’, thus forming the basis for the subcontractor’s entitlement to commission.[29]
[28]T187:4. Put another way, they were signed so closely to each other that it does not matter which was signed first: T245:6.
[29]Outline of Submissions of DLS, [9]. DLS relied on Mr Bond’s affidavit affirmed 24 June 2015, [10], in which Mr Bond deposed that Carpenter instructed him to have the Carpenter contracts prepared and signed, and that he was required to complete a record of all purchases as he was paid on a per head basis: T162:22.
Mr Lord’s evidence was that in his experience, the vendor, DLS and Carpenter referred to the DLS contract not the Carpenter contract, when referring to the terms of the agreement between them.[30] DLS also argued that the fact that the Carpenter contract was only signed when a subcontractor was involved was an ‘objective background fact known to both parties’.[31]
[30]T150:2.
[31]T159:1.
On DLS’ case, the purpose of the DLS contracts was to govern the tripartite transaction, and the purpose of the Carpenter contracts, as I have observed, was to enable the subcontractor to go back to Carpenter and prove how many cattle the subcontractor had signed up, and be remunerated accordingly.[32]
[32]T187:13.
The Carpenter contracts, it was contended, were a form of external verification of the sale, and they guarded against subcontractors fraudulently seeking payment from Carpenter.[33] A concession was made that the evidence of this alleged purpose of the Carpenter contracts was not overwhelming.[34] DLS submitted that on Carpenter’s case, there is only a purpose for the Carpenter contracts being signed, not a purpose for both sets of contracts being signed.[35] Given DLS’ argument gives purpose to both contracts, in my opinion, it should be preferred to Carpenter’s construction.
[33]T190:5.
[34]T189:31.
[35]T188:5.
DLS submitted that where a DLS contract was signed by all parties and a Carpenter contract was signed only by Carpenter or a Carpenter subcontractor (that is, not by all the parties), only the DLS terms apply to the transaction. This is because the Carpenter terms were not accepted by the vendor or DLS.[36] In such cases, the Carpenter contract only had effect, it was submitted, between the parties signing it.
[36]Outline of Submissions of DLS, [17].
In the limited portion of transactions where the DLS contract and Carpenter contract were both properly executed, DLS contended that only the DLS contract applies, because:
(a) if Carpenter intended the Carpenter contract to form all or part of its purchase agreements, it would no doubt have sought that a Carpenter contract be signed by all parties for all transactions. Instead, the Carpenter contract was only used when Carpenter was represented by a subcontractor;
(b) viewed objectively, it makes little sense that on the rare occasion Carpenter was represented by a subcontractor, the terms of the tripartite agreement would be radically different and that important terms for DLS would be entirely excluded;
(c) the Carpenter contract did not contain critical terms of the tripartite agreement, including terms in respect of DLS’ status and rights as del credere agent, DLS’ commission rates, and the retention of title clause. It would be a commercial nonsense for DLS to pay the vendors if rights of assignment were not included in the terms of the agreement.[37] In this context, the ‘entire agreement’ clause in the Carpenter contract makes little sense. The Carpenter contract may be the entire agreement between Carpenter and its subcontractors, but it cannot be the entire agreement between Carpenter, DLS and the vendors;
[37]T165:25.
(d) DLS did not consider that the Carpenter contract was intended to contain the terms of the purchase agreement. Rather, DLS considered the Carpenter contract to be administrative and used by Carpenter and its subcontractors to calculate the commission payable on a particular transaction. Only the DLS contract contemplates and deals with the tripartite situation;
(e) elements of the Carpenter contract suggest it was not intended to regulate the tripartite relationship, such as the definition of ‘parties’ as ‘both’ Carpenter and the vendor farmer. The Carpenter contracts did not contemplate the role played by DLS in the tripartite arrangement, namely that Carpenter would pay DLS and DLS would pay the vendors. The del credere agent paying the vendor farmer was a background fact known to both parties; and
(f) the completion of the DLS contract by Carpenter in every purchase transaction seems inconsistent with Carpenter’s contention that the DLS contract was considered to be of no effect. There were no cases in which a DLS contract was not completed.[38]
[38]Outline of Submissions of DLS, [18]-[19]; T177:8, T178:27.
Relying on MLW Technology Pty Ltd v May,[39] DLS argued that the modern approach to contractual construction is to look at the matter objectively from the point of view of an honest business person, to proceed in a common sense, non-technical way, and to avoid an uncommercial construction.[40] In about 80 per cent of the contracts, there is no contest that the DLS terms apply. DLS then asked, viewing the matter as a reasonable business person would, why would different terms apply to the tripartite arrangement whenever Carpenter acted through a subcontractor? There would be no commercial purpose being served by there being separate terms in that situation.[41] The construction that makes most commercial sense is that the Carpenter contracts did not affect the legal relationships between the three parties.[42]
[39][2005] VSCA 29.
[40]Outline of Submissions of DLS, [23]; T150:26.
[41]T151:28.
[42]T191:1.
If, however, the Carpenter terms applied, DLS argued, in the alternative, that the entire agreement clause in the Carpenter contracts did not oust certain critical terms in the DLS contracts. For this argument DLS relied on McMahon, in which Nettle JA held that:
It seems that the view which has been taken in England is that a merger provision should generally be treated as applying to agreements which might otherwise operate as collateral contracts. And at one level, the logic of that approach is appealing. If business persons were asked as a matter of principle what is meant by an entire agreement clause, they would probably reply that it means what it says. Shorn of surrounding circumstances, the idea that an entire agreement clause should not be taken to extend to a collateral contract because the latter is a separate contract would possibly be thought of as quaint. But lawyers must beware of generalities. In an age of contractual development which puts contextual interpretation ahead of formalism, each case is unique. The question in each case is what the merger clause in question “would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.[43]
[43](2009) 25 VR 251, [39] (citations omitted); T160:1.
In this case, the entire agreement clause in the Carpenter contracts must be viewed in its own unique context. Three parties deliberately and carefully signed another contract at the same time and the Carpenter contracts were only signed when Carpenter acted through a subcontractor.[44]
[44]T172:10.
As I have observed, DLS’ principal submission was that in the circumstances of the execution of the DLS contracts and Carpenter contracts (which included an entire agreement clause), the Court ought conclude that the Carpenter contracts have effect only as between Carpenter and its subcontractors.[45] As between Carpenter, the vendors and DLS, the Carpenter terms, it was contended, have no legal operation. Alternatively, if the Carpenter contracts apply, the ‘entire agreement’ must be interpreted to include terms of crucial importance to the vendors and DLS such as the del credere and retention of title clauses in the DLS contracts.[46] DLS accepted that this argument, based on McMahon, was more difficult.[47]
[45]Outline of Submissions of DLS, [25(a)].
[46]Ibid [25(b)].
[47]T196:20.
Consideration
In the relatively small number of transactions where there is a battle of the forms, in my opinion, the DLS terms prevailed, including the retention of title clause. This is so for the following reasons.
During trial I asked why DLS did not, when the subcontractor produced the Carpenter contract for signing, say that in about 80 per cent of transactions a Carpenter contract was not signed and DLS did not intend to sign one just because Carpenter was acting through a subcontractor.[48] The only answer provided was that, viewed objectively as a tripartite arrangement, the Carpenter terms do not make sense, and a reasonable business person would not think that the terms of the tripartite arrangement should or would change where a subcontractor was involved.[49] DLS repeated its submission that the only commercially sensible construction available is that the Carpenter contract was intended to regulate and confirm the agreement between Carpenter, its subcontractor and DLS as to the number of cattle.[50]
[48]T155:13.
[49]T155:25; T157:23.
[50]T158:3.
Viewed objectively, the subcontractor must have some interest in being able to prove the number of cattle being purchased. It was submitted that it ‘would border on commercially absurd to have a different contractual arrangement for the 20 per cent of cases where there’s a sub-contractor than for the 80 per cent, where no one can point to any evident commercial purpose for that’.[51] DLS also highlighted the absence of an explanation by Carpenter as to why it only had a Carpenter contract signed when it acted through a subcontractor.[52]
[51]T159:9.
[52]T164:13.
As I have indicated, in my view, where there is a battle of the forms, the DLS terms prevailed, including the retention of title clause. As DLS submitted, and I agree, the Carpenter contracts were only used when Carpenter acted through a subcontractor and the Carpenter contracts were not intended to be binding as between the vendor, vendor agent, and Carpenter. Carpenter did not provide an explanation for why the Carpenter contracts were only signed when it acted through a subcontractor. In my opinion, the better view is that the terms governing the transactions were the DLS terms as well as the terms in the VDIs.
I reject Carpenter’s alternative argument based on Dwyer. Where only DLS contracts were signed, Carpenter conceded that the retention of title clauses applied. Where there was a battle of the forms, Carpenter argued that looking at the parties’ conduct, the retention of title clauses should not be considered to form part of the governing terms. The conduct relied on in this alternative argument was conduct other than signing the Carpenter contract.
Carpenter did not submit that the conduct of the parties in transactions governed by DLS terms alone differed from the conduct of the parties in transactions the subject of a battle of the forms. It appears that after signing the contract or contracts, the conduct of the parties in relation to retention of title was consistent in all transactions. If the conduct of the parties in transactions governed by DLS contracts alone did not result in the retention of title clauses not forming part of the governing terms, it is difficult to see how such conduct could achieve that result in the other transactions. It would be artificial to find that the conduct of the parties in a relatively small handful of transactions resulted in retention of title terms not forming part of the contract, while not making the same finding in relation to 61 other transactions where the parties conducted themselves similarly.
In reaching this conclusion, I have had regard to the evidence of Mr Lord in his affidavit of 28 July 2015 and the terms of the DLS contracts, in particular, clauses 3, 6, 10, 18 and 25.
Did DLS’ security interest vest in Carpenter under s 588FL of the Act?
It is not disputed by Carpenter that the retention of title clauses amount to a security interest under the Personal Property Securities Act 2009 (Cth) (‘the PPSA’).
The key issue to be determined as between Carpenter and DLS is whether the security agreement that ‘gave rise’ to DLS’ security interest, ‘came into force’ within 20 business days before DLS registered that security interest on the PPSR. If it did, s 588FL of the Act does not apply to DLS’s security interest. If it did not, s 588FL does apply and DLS’ security interest vests in Carpenter. DLS did not seek any extension of time under s 588FM.
Resolution of this issue turns on the meaning of the expression ‘the security agreement that gave rise to the security interest came into force’ in s 588FL(2)(b)(ii) and whether the security agreement that gave rise to the security interest was the DLS contract or the act of DLS paying the vendor. It is not in dispute that if the security agreement in essence was the act of DLS actually paying the vendors, then each security interest was registered in time and did not vest under s 588FL.[53] It also appears not to be in dispute that if the security agreement was the DLS contracts (as opposed to payments thereunder), then each security interest was not registered in time and therefore vested under s 588FL.
[53]Plaintiffs’ Outline of Submissions, [80]; Outline of Submissions of DLS, [42(b)].
Section 588FL provides:
Scope
(1) This section applies if:
(a)any of the following events occurs:
…
(ii) an administrator of a company is appointed under section 436A, 436B or 436C;
…
and
(b)a PPSA security interest granted by the company in collateral is covered by subsection (2).
(2) This subsection covers a PPSA security interest if:
(a)at the critical time, or, if the security interest arises after the critical time, when the security interest arises:
(i) the security interest is enforceable against third parties under the law of Australia; and
(ii) the security interest is perfected by registration, and by no other means; and
(b)the registration time for the collateral is after the latest of the following times:
(i) 6 months before the critical time;
(ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier;
(iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time—the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier;
(iv) a later time ordered by the Court under section 588FM.
Vesting of security interest in company
(4) The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN:
(a)if the security interest first becomes enforceable against third parties at or before the critical time—immediately before the event mentioned in paragraph (1)(a);
(b)if the security interest first becomes enforceable against third parties after the critical time—at the time it first becomes so enforceable.
The term ‘security agreement’ is defined in s 10 of the PPSA as meaning:
(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.
In Re Appleyard Capital Pty Ltd,[54] Brereton J made the following observations about the operation of ss 588FL and 588FM:
Broadly, the effect of s 588FL(2) is that when a company is being wound up, an administrator has been appointed or a deed of company arrangement executed, any PPSA security interest which was perfected, registered, or enforceable against a third party after the latest of 6 months before the critical time or 20 days after the security agreement came into force or such later time as the court may fix under s 588FM, vests in the company, for the benefit of creditors generally, and the secured creditor loses the benefit of the security.
…
...If the collateral is registered within 20 days after the security agreement comes into force, the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within 6 months. However, if it is not registered within that period, and the company goes into liquidation or administration within 6 months after it is registered, then the security interest vests in the company for the benefit of creditors generally — unless a later time is fixed under s 588FM. In other words, the effect of not registering within 20 days is to expose the secured creditor to the loss of its security if the company goes into liquidation within 6 months of the actual date of registration, when otherwise the security would have been effective even in the event of liquidation or administration within 6 months. Essentially, the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company if it goes into liquidation or administration within 6 months after the actual date of registration, and thereby preserve the secured creditor’s security, to the necessary detriment of the unsecured creditors for whose benefit the security interest would otherwise vest in the company. The only utility of such an order is in the event that the company does go into liquidation or administration within 6 months.[55]
[54](2014) 101 ACSR 629 (‘Appleyard’).
[55]Ibid [8], [13] (citations omitted).
Section 267 of the PPSA is not relevant as between Carpenter and DLS because DLS registered its security interests on 16 March 2015, so ‘clearly DLS got in before administration’.[56]
[56]T86:3.
Carpenter’s submissions about DLS’ security interest
Carpenter submitted that DLS’ security interest vested in it pursuant to s 588FL. As to the meaning of ‘security agreement’ Carpenter relied on Central Cleaning Supplies (Australia) Pty Ltd v Elkerton.[57] It was submitted that the utility of the decision in Elkerton is in its approach to the interpretation of the expression ‘created, arises or is provided for’. Carpenter also submitted that Elkerton involved an umbrella contract between supplier and purchaser, whereas this case is concerned with individual contracts because the vendor varies in each transaction.[58] I will return to the decision in Elkerton below.
[57](2015) 321 ALR 181 (‘Elkerton’).
[58]Plaintiffs’ Outline of Submissions, [78]; T87:1.
In this case, the relevant security agreements which effectively provide for the grant of a security interest are the DLS contracts. The latest DLS contract is dated 4 February 2015, more than 20 business days before registration occurred. As DLS did not register on the PPSR within 20 business days of the date of any of the DLS contracts, so Carpenter says, its security interests vested in Carpenter under s 588FL.
Carpenter agreed that if DLS is correct in saying that the 20 business day period commences from the dates of the assignment of rights to DLS by the vendors on payment under the contracts, and not the dates of the DLS contracts themselves, then each security interest was registered in time and did not vest in Carpenter under s 588FL.[59] However, Carpenter argued that DLS’ position is untenable.
[59]Plaintiffs’ Outline of Submissions, [80].
If DLS is asserting that it has a valid security interest perfected by registration, it must meet the requirements of ss 19, 20 and 21 of the PPSA in order to make good its claim.[60] Under s 21(1)(b)(ii) of the PPSA, a security interest must be enforceable against a third party before it may be perfected by registration. For DLS’ security interest to be enforceable against a third party, the security agreement must be evidenced in writing signed by the grantor or adopted by the grantor. This is required by s 20(1) and (2) of the PPSA. The only security agreement that fits that description is the signed DLS contract.[61] Although an act may amount to a security agreement under s 10, the act of paying the vendors is not a written agreement and therefore cannot establish a security interest enforceable against a third party.[62] Accordingly, for the purposes of s 588FL(2)(b)(ii), the DLS contracts were the ‘security agreement that gave rise to the security interest’. This means, in my view, that the 20 business day period is calculated from the contract date and not any subsequent act or assignment.
[60]T88:8.
[61]Plaintiffs’ Outline of Submissions, [81].
[62]T88:21.
On the issue of assignment, Carpenter submitted that subsequent assignments of security interests do not alter the requirement to register within 20 days after the security agreement comes into force. If assignments did have that effect, the registration system would be open to abuse because a ‘sort of musical chairs of assignments can alter the start time’ of the 20 day period.[63] DLS could have registered at the date of the DLS contracts, or before, to protect its interest, without contravening s 151 of the PPSA. Carpenter submitted that this is supported by ss 161 and 162 of the PPSA.[64] Further, s 21(4) of the PPSA provides that a single registration can cover multiple arrangements and be effective.
[63]T263:7.
[64]T89:14; T260:19.
As to the alleged need to be precise about the collateral the subject of the security interest, Carpenter submitted that the form of PPSR registration usually employed and in fact employed by DLS only requires a description of the class of collateral and DLS’ own description of the cattle.[65] It is not the case that DLS could not register until it could be specific about individual cattle. The fact that some cattle might be rejected did not prevent a registration.[66] DLS could and should have registered on the execution of the contracts.[67] The fact that something else needed to happen before DLS could enforce its interest against Carpenter did not mean that DLS’ interest was incapable of registration at the time of executing the DLS contracts.[68] Further, given the almost invariable practice of DLS paying the vendors and taking assignment of their rights, it would not have been reckless under s 151(1) for DLS to register a security interest at the time of signing the DLS contracts.[69]
[65]T260:25.
[66]T261:18.
[67]T262:21.
[68]T262:17.
[69]T262:6.
Finally, Carpenter submitted that the relationship of del credere agent does not create a security interest in addition to the retention of title clause.[70]
[70]Plaintiffs’ Outline of Submissions, [84].
DLS’ submissions
DLS submitted that it did not have a security interest until it paid the vendors for their cattle. The vast majority of those payments occurred on 9 or 10 March 2015. In his affidavit the director of DLS, Scott Lord, set out the payments made by DLS to the vendors, in the period in or about 25 February 2015 to 17 March 2015.[71] At that time, the vendors’ rights, including the retention of title clause, were assigned to DLS. DLS could then, and only then, it was said, register its security interest on the PPSR. As DLS registered its security interest within 20 days of paying the vendors, it perfected the security interest by registration and s 588FL does not apply.
[71]Affidavit of Scott Lord, sworn 28 July 2015, [56]-[59].
DLS put its position in this way. ‘Security agreement’ is defined in s 10 of the PPSA as an agreement or act by which a security interest is created, arises or is provided for; or writing evidencing such an agreement or act. In this case, DLS paying the vendors was the act by which the security interest was created or arose, because the security interest was assigned from the vendor to DLS at that point and not before. The security interest therefore arose or was created on the dates of payment by DLS to the vendors. The security agreement was the act of payment, rather than a written agreement, so DLS had 20 business days from the dates of payment to perfect its interest by registration, and it did so.
DLS submitted that Carpenter’s position should not be accepted for six reasons. First, when entering into the DLS contracts, DLS did not have a security interest to register because the benefit of the retention of title clause lay with the vendors alone. Until DLS paid the vendors and the benefit was assigned to DLS, there was no security interest for DLS to register. Until DLS paid the vendors, it only had a contingent security interest.[72] In trial DLS accepted that it may have been possible to register its contingent interest at the outset, but argued that it still had the right to register upon paying the vendors.[73]
[72]T209:21.
[73]T210:13; T211:10.
Second, DLS’ contingent security interest was not identifiable at the time it entered into the DLS contracts. The number and identity of the cattle that were finally sold to Carpenter were not known until after various tests had been performed and Carpenter informed DLS of the final numbers. Carpenter informed DLS of the final numbers in late February to early March 2015, at which point DLS was able to begin paying the vendor farmers.
Third, s 151(1) of the PPSA says that a person must not apply to register a financing statement 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. Civil penalty provisions apply for a breach of s 151(1). It would have been reckless for DLS, it is submitted, to register its possible contingent security interest before it had some certainty that the interest would arise.
Fourth, the purpose of the PPSR is to provide for certainty of dealing, which purpose would be undermined by parties seeking to register any possible or contingent security interest.
Next, pt 5.6 of the PPSA provides for amendments in certain circumstances, so if the vendor and DLS each registered a retention of title security interest over the same property, there may be demands for DLS’ contingent registration to be removed.
Finally, just because s 21(4) of the PPSA allows for multiple security interests to be perfected in a single registration, does not mean that it is reasonable or even possible for the vendors and DLS to register their respective interests in a single registration.
As to the terms of s 588FL, DLS argued that the key phrase in s 588FL is ‘came into force’. Critically, s 588FL(2)(b)(ii) uses the expression ‘came into force’ and not ‘was executed’ or ‘was entered into’.[74] If s 588FL(2)(b)(ii) were intended to operate so that a person must register at the outset in order not to be burdened with the consequence of somebody else’s fault, it would say so.[75] It does not say so; it says ‘came into force’. When looking at s 588FL, the Court should be careful not to construe legislation as interfering with contractual rights unless it is very clear that that is what Parliament intended.[76] That statutory construction argument appeared to be rooted in the principle of legality.
[74]T206:9.
[75]T215:19.
[76]T202:29.
DLS submitted that its approach to registration was reasonable in the circumstances, and that no other approach was open to it. In trial DLS conceded that this submission was overreaching.[77]
[77]T213:8.
Consideration
For the reasons that follow, in my opinion, Carpenter’s submissions must be accepted and preferred to those of DLS.
In this case it is not in dispute that the retention of title clause in the DLS contracts provides a security interest for the purposes of the PPSA.[78] Clause 3 of the DLS contracts provides that where delivery is made to or possession is obtained by Carpenter or its representative before the purchase price is paid in full:
[78]Plaintiffs’ Outline of Submissions, [51]; Outline of Submissions of DLS, [42(a)].
(a) Carpenter does not acquire title to the livestock;
(b) Carpenter holds the livestock as trustee for the vendor farmer; and
(c) Carpenter must act in a fiduciary capacity in its relationship with the vendor farmer.
DLS, as del credere agent, paid the vendors and took assignment of the rights of the vendors under the DLS contracts. This was reflected in clauses 25.1 and 25.2 of the DLS contracts, which provided:
The Agent acts as del credere agent unless otherwise indicated in the Contract Particulars.
Where the Agent is acting as a del credere agent, the Vendor and the Purchaser agree that if the Agent pays to the Vendor the Price in full less commission then the rights of the Vendor under this Agreement shall be assigned to the Agent to do anything the Vendor could do under this Contract…
It was not argued that the DLS contract particulars indicated otherwise. As contemplated by clause 25.2, DLS did pay the vendors the purchase price in full less commissions, and it took assignment of the benefit of the retention of title clause.
The Court was not taken to any authorities on the operation of s 588FL in cases of assignment. In Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd[79] there had been an assignment of the security interest. It was submitted that the 20 day period in s 588FL(2)(b)(ii) was said to expire 20 days after the original security deed was executed, not 20 days after the assignment. The security interest was registered within 20 days of the original security deed being executed, so it was not necessary to consider whether the assignment established a new security interest for the purposes of s 588FL. Nor was it necessary to consider whether a new 20 day period commenced upon assignment. While often of assistance,[80] decisions of New Zealand and Canadian courts are unlikely to be helpful in this case because there are no provisions in those jurisdictions equivalent to s 588FL.[81]
[79](2013) 283 FLR 122.
[80]Ibid [5]; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337 (Albarran), [32].
[81]See Bruce Whittaker, Review of the Personal Property Securities Act 2009: Final Report, 27 February 2015, [8.7.1]-[8.7.3] and [9.2.2]; Albarran (2013) 277 FLR 337, [70]-[72]. In Canada there are provisions similar to s 267 of the PPSA, for instance s 20(2) of the Saskatchewan Personal Property Security Act 1993, but I am unaware of any provisions equivalent to s 588FL of the Act. Broadly, s 267 and s 20(2) deal with security interests unperfected at the date of an insolvency event. The important times in those sections are the date of the insolvency event and the date of registration. The sections do not turn on the date the relevant security agreement came into force, therefore cases considering those sections will not assist in the determination of this issue. There are no provisions in New Zealand equivalent to either s 267 or s 588FL.
The retention of title clause is the basis of the security interest in this case. The next question is what security agreement created, gave rise to or provided for that security interest. In Elkerton the Court of Appeal considered the definition of ‘security agreement’ in s 10 of the PPSA. The Court was required to decide whether a credit application was or gave rise to an agreement that provided for the granting of security interests in cleaning equipment supplied to the respondent after the credit application was submitted. If it did, it was a transitional security agreement within the meaning of s 307 of the PPSA. The credit application stated that the supply of goods by the seller was governed by the seller’s standard terms and conditions. Those standard terms and conditions included a retention of title clause, which appeared on the back of the invoices for each equipment order, but did not appear in the credit application.
On the definition of security agreement, most significantly, the Court held:
Although “security interest” is defined by reference to transactions, “security agreement” is not. Instead, the latter definition speaks of “an agreement” or “an act” by which a security interest “is created, arises or is provided for”. On ordinary principles of interpretation, the legislature must have intended that each of these alternatives — “is created”, “arises” and “is provided for” — has its own work to do.
…
In the first of these, the genesis of the security interest is to be found in the agreement or act itself. The entering of the agreement, or the doing of the act, “creates” the security interest. An example of this would be a contract for the sale of the goods which itself includes a retention of title clause. That is an agreement which creates the security interest in the vendor of the goods. By contrast, an agreement or act will “provide for” a security interest if it makes provision for the creation of a security interest in the future and/or by some other agreement or act.[82]
[82](2015) 321 ALR 181, [17], [19].
The Court held that when the appellant supplied the first lot of equipment, it accepted the respondent’s credit application and an agreement came into force that governed all future supplies of equipment.[83] By incorporating the appellant’s standard terms and conditions, including a retention of title clause, that agreement provided for the grant of a security interest in relation to all future supplies of equipment. The agreement was therefore a transitional security agreement, and the security interests granted in respect of the equipment subsequently supplied were transitional security interests.[84]
[83]Ibid [32]-[34].
[84]Ibid [40].
In this case the source of the security interest is plainly the DLS contracts. The DLS contracts were agreements by which a security interest was created, arose and certainly was provided for, within the meaning of s 10 of the PPSA. DLS did not argue to the contrary. Instead, DLS argued that its security interest, in contrast to the vendors’ distinct security interest, was sourced not in the DLS contracts themselves, but in the act of paying the vendors. This was said to be because at the date of the DLS contracts, DLS did not have the benefit of the retention of title clause as it was yet to be assigned. I do not agree with this argument.
Assignment of the benefit of the retention of title clause did not create a new retention of title clause or a new security interest. Rather, the assignment involved a transfer from the vendors to DLS of the existing rights under clause 3 of the DLS contracts.[85] Accepting DLS’ argument would mean that a new 20 day period under s 588FL(2)(b)(ii) would commence each time a security interest is assigned. It would mean that the vendor could miss its 20 day window to register and therefore be vulnerable to vesting under s 588FL, but upon assignment, an assignee could register immediately after the assignment and be immune to s 588FL, thereby attaining a better position than the vendor. This is inconsistent with the nature of an assignment, which is to transfer an existing right rather than create a new right, and it is also inconsistent with s 60 of the PPSA.
[85]See Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, 26 (Windeyer J); Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395, [32], [42]-[43] (Finn and Sundberg JJ).
Section 60 of the PPSA provides that ‘if a security interest in collateral is transferred, the transferred interest has the same priority immediately after the transfer as it had immediately before the transfer’. This provision is consistent with the position that an assignment of a security interest does not create a new security interest, and that the 20 day period in s 588FL(2)(b)(ii) does not reset upon an assignment. If a new security interest arose upon assignment, the PPSA would unlikely grant the new security interest the same priority as the original security interest.
Paying the vendors was the act by which the existing security interest was transferred to DLS. It was not the act by which a security interest was created, arose or was provided for. At the time the DLS contracts were signed, the benefit of the retention of title clauses lay with the vendors alone. DLS could have investigated whether the vendors had registered their security interests before it paid the vendors. It could have refused to pay the vendors and left Carpenter liable for the purchase price under the DLS contracts. As del credere agent DLS had the option, not the obligation, to pay the vendors and take an assignment of the vendors’ rights against Carpenter. Before paying them, DLS could have required timely registration by the vendors of their security interests.
DLS argued that its contingent security interest was not identifiable at the time it entered into the DLS contracts, so the 20 day period cannot begin to run from that time. In this case, it is incumbent upon the Court to consider s 588FL(2)(b)(ii), in combination with s 10 of the PPSA, and identify three matters: the security interest; then the security agreement that created, gave rise to or provided for that security interest; and finally, the date on which that security agreement came into force.
DLS contended that the identity of the cattle the subject of the security interest was not known until Carpenter advised it of ‘final numbers’. DLS did not argue that the notification of ‘final numbers’ was either the security agreement or the date when the security agreement came into force. On DLS’ own argument, the notification of final numbers is not relevant to the analysis of s 588FL(2)(b)(ii) in this case.
DLS may have been able to register a contingent security interest after signing the DLS contracts without infringing s 151(1) of the PPSA. I am not satisfied that had DLS registered a financing statement upon signing the DLS contracts, it could have been said that DLS did not believe on reasonable grounds that it would become a secured party in relation to the collateral.
Given DLS’ status as del credere agent and the fact that it did (possibly regularly) pay vendors, in my view DLS would have had reasonable grounds at the time of signing the DLS contracts for believing that it would become a secured party. It must be recalled that in the context of the battle of the forms dispute, DLS emphasised that its role as del credere agent and the fact it was the one to pay the vendors, was a background fact known by all parties.
Registering in advance of assignment is also contemplated by s 162 of the PPSA, which provides that a ‘financing statement, or a financing change statement, may be registered to reflect the transfer of a security interest, or of collateral, before or after the transfer’. DLS argued that s 162 supports its argument because it allows for registration after a transfer.[86] I reject that argument. Statements as to registration being possible do not mean that time in s 588FL(2)(b)(ii) starts to run from the date that registration is possible. Registration is still possible more than 20 days after the relevant security agreement comes into force, but this does not mean that the time in s 588FL(2)(b)(ii) begins to run at a date later than when the security agreement came into force.
[86]T213:16.
I agree with DLS’ submission that the certainty of dealing that the PPSR aims to provide would be undermined by parties seeking to register any possible or contingent security interest. However, certainty of dealing would also be undermined if the 20 day period in s 588FL(2)(b)(ii) resets upon assignment. Accepting Carpenter’s submissions does not necessarily lead to parties seeking to register any possible or contingent security interest. In this case, an alternative would have been for DLS to simply have demanded that the vendors register their security interests in a timely manner, and then change the vendors’ registration into its own name after paying the vendors. Section 60 of the PPSA ensures that priority is not lost when transferring security interests. There was no need for DLS to register its own security interest in addition to the vendors’ registration, had the vendors registered. If the vendors did not register, DLS could have registered a contingent security interest. In such a scenario there would only be DLS’ registration, not the vendors’, so there would not be a multiplicity of registrations. If DLS registered an interest in time but the vendors did not, and DLS’ registration were challenged, the fact that DLS’ registration was the only registration immune to s 588FL would likely be taken into account when deciding whether to remove DLS’ registration.
I reject DLS’ submission that its approach to registration was reasonable in the circumstances and that no other approach was open to it. I have already outlined the other approaches that were open to DLS. Another approach would have been for DLS to apply for an extension of time to register under s 588FM, possibly on the basis that the vendors failed to register earlier due to inadvertence or some other sufficient cause.
DLS also made submissions in relation to the principle of legality. DLS described Carpenter’s construction of s 588FL as unfairly burdening DLS with the consequences of the vendors’ wrongdoing or fault and as interfering with DLS’ rights.[87] In my view, construing the legislation in the way argued for by Carpenter does not interfere with DLS’ contractual rights or deprive them of any contractual rights. When taking an assignment of the vendors’ rights under the contracts, DLS took those rights as the vendors left them. That is, if the vendors did not perfect those rights by not registering in time, DLS took those rights in their impaired form. There has been no legislative interference with those rights and it is therefore difficult to give any credence to the submission that Parliament somehow ablated DLS’ proprietary rights in the cattle.[88]
[87]T202:6; T203:30.
[88]T205:19.
The legislation does not alter DLS’ proprietary rights; it operates on them in whatever form of their inheritance. As DLS was not bound to take assignment of impaired rights, there is no unfairness in holding that DLS is ‘burdened’ by the failure of the vendors to register in time.
Returning now to the three matters that s 588FL(2)(b)(ii), in combination with s 10 of the PPSA, requires the Court to identify in this case. It is not disputed that the security interest is the retention of title clause in the DLS contracts. I have found that the security agreement is the DLS contracts, not the act of DLS paying the vendors. The parties have not argued that the DLS contracts came into force on any day other than the dates of execution. DLS did not argue that if the security agreement that gave rise to its security interest was the DLS contracts, those contracts did not come into force until DLS paid the vendors. Rather, DLS only argued that the security agreement that gave rise to its security interest was the act of paying the vendors. As none of the parties argued that the DLS contracts came into force on any date other than the date of execution, as I have indicated, I consider that the execution dates are the dates on which the security agreements came into force.
It is worth noting that had I found that upon DLS paying the vendors and taking assignment of the benefit of the retention of title clauses, a new security interest came into being, I would still have held that the 20 day period in s 588FL begins to run from the date of execution of the DLS contracts. This is because payment to the vendors by DLS and the assignment were contemplated and provided for by the DLS contracts. In Elkerton the Court of Appeal said ‘an agreement or act will “provide for” a security interest if it makes provision for the creation of a security interest in the future’.[89] If the assignment created a new security interest, then the DLS contract was an agreement that provided for the creation of that security interest, and is therefore a security agreement for the purposes of s 588FL.
[89](2015) 321 ALR 181, [19].
DLS did not register its security interest within 20 business days of the dates of execution of the DLS contracts. Accordingly, its security interests in the cattle the subject of the contracts to which it was a party, vested in Carpenter under s 588FL.
‘Battle of the forms’ – what where the terms of the contracts? – Carpenter and CS and CSNM
There are two issues to be determined in relation to CS and CSNM. It is to be noted that there initially appeared to be two possible sources for the security interest claimed by CS and CSNM. First, a credit application submitted by Carpenter to CS and CSNM on or about 21 January 2014. The credit application provided that if the application was accepted, all the ‘General Trading Terms’ as amended would be binding on Carpenter in future cattle purchases through CS and CSNM. A document entitled ‘Trading Terms & Conditions’ appeared on the second page of the credit application. Clause 3 of the Trading Terms provided that ‘until payment of all monies owed to Charles Stewart, the Customer holds the Products as fiduciary bailee and agent for the supplier’. The question is whether this credit application constituted a security interest.
The second possible source for a security interest is the CS and CSNM contracts applicable to individual transactions involving Carpenter and CS or CSNM. The first issue to be determined is whether the CSNM contracts contained a retention of title clause. It is common ground that the CS contracts contained a retention of title clause.
For some transactions, the parties signed a Carpenter contract and a CS or CSNM contract. This is the battle of the forms and it needs to be determined what terms governed the transactions. If the CSNM contracts contained a retention of title clause, and if the CS and CSNM contracts applied to the transactions, CS and CSNM had security interests in the cattle. Carpenter conceded that in respect of 36 transactions involving Carpenter and CS, CS has a security interest.
Carpenter’s submissions
Carpenter submitted that clause 3 of the credit application did not expressly provide that CS or CSNM retained title until the purchase price was paid. Accordingly, clause 3 is unlikely to give rise to a security interest.[90] Further, the credit application is a bipartite agreement that refers to CS/CSNM as supplier, whereas the ultimate transactions were tripartite arrangements involving a vendor as supplier.[91] The credit application did not cover the tripartite arrangements that in fact occurred. Clause 3 was a standard term that was not relevant to the transactions ultimately undertaken.
[90]Plaintiffs’ Outline of Submissions, [59].
[91]T82:1.
There were 53 transactions entered into by Carpenter and CS. Thirty-six of those transactions were documented only by a signed CS contract, and Carpenter conceded that for those transactions, the CS contract applies.[92] Clause 15.1 of the CS contract provided that title to the cattle did not pass to Carpenter until the purchase price was paid in full. In at least 36 transactions involving Carpenter and CS, a retention of title clause applied. Four of the 53 transactions were documented only by a signed Carpenter contract, which did not contain a retention of title clause. The remaining 13 transactions were documented by a signed CS contract and a signed Carpenter contract. In respect of those 13 transactions, Carpenter submitted that there is a battle of the forms and that the Carpenter contract prevails.
[92]Plaintiffs’ Outline of Submissions, [60].
Carpenter submitted that it and CS did not contract on consistent terms, so it could not be said that the regularity of dealings would be such that where both contracts were signed, clause 2 of the Carpenter contract was displaced. Clause 2 of the Carpenter contract provided that the Carpenter contract should be considered to be the sole repository of contractual terms. Carpenter noted that clause 2 specifically referred to excluding the vendor’s terms.[93]
[93]T240:17.
Carpenter also submitted that in all but three of the 53 transactions the vendors signed a VDI. By executing the VDI the vendors agreed that rejected cattle would not be returned to the vendors, and vendors would instead receive a price of $200, $250 or $400 per head of rejected cattle, pursuant to the particular VDI. The VDIs fortify the position that the Carpenter terms apply in cases of a battle.[94]
[94]T84:3.
In response to CS and CSNM’s arguments on the battle of the forms, Carpenter contended that there is no ‘first shot’ because there are two documents sitting side by side, which were signed at the same time. Given the Carpenter, CS and CSNM contracts have the same date and were signed within a short space of time by the same people, a conclusion that because one document was signed first, it prevails, cannot be sustained. The Court must resolve how to give effect to the two contracts in a commercially sensible way.[95] The Court cannot resolve this issue simply by deciding whether one contract was signed a minute before the other.[96]
[95]T239:22.
[96]T240:8.
There were 17 transactions entered into by Carpenter and CSNM.[97] Four transactions were documented only by a signed CSNM contract, which Carpenter argued did not contain a retention of title clause. Thirteen transactions were documented by a signed CSNM contract and a signed Carpenter contract. In respect of those 13 transactions, Carpenter submitted that there is a battle of the forms and that the Carpenter contract prevails.
[97]Plaintiffs’ Outline of Submissions, [65].
In support of its argument that the CSNM contract did not contain a retention of title clause, Carpenter submitted that CSNM conceded the CSNM contract ‘did not continue onto the back of the CSNM standard sale contract’.[98] Carpenter also submitted that it was not suggested that Carpenter was ever provided with notice of the terms on the reverse side of the CSNM contract.[99] The front side of the contract did not provide[100] that the parties agree to be bound by any terms put forward by CSNM, and it did not include a retention of title clause. Carpenter contended that absent the alleged ‘understanding’ of Mr Bond, a former Carpenter contractor, there is nothing to suggest that Carpenter was ever informed that CSNM intended to contract on the ALPA terms.[101] Carpenter objected to the evidence as to this alleged ‘understanding’.[102]
[98]Ibid [66].
[99]Ibid.
[100]The plaintiffs’ submission that the front side of the CSNM did so provide appears to be in error: Plaintiffs’ Outline of Submissions, [66]. The front side of the CSNM contract does not contain such a term.
[101]Ibid.
[102]T84:22.
CS and CSNM’s submissions
CS and CSNM rely on five affidavits:
(a) an affidavit sworn 19 June 2015 by David Michael Stewart (‘Stewart affidavit’);
(b) an affidavit affirmed 19 June 2015 by Corey Daniel Baulch (‘Baulch affidavit’);
(c) an affidavit sworn 19 June 2015 by Phillip Justin McVilly (‘McVilly affidavit’);
(d) an affidavit affirmed 24 June 2015 by Warren Christopher Bond (‘Bond affidavit’); and
(e) an affidavit affirmed 25 June 2015 by Warren Christopher Bond (‘Bond B affidavit’)
and the exhibits to those affidavits, numberedDMS-1 to DMS-18, CDB-1 to CDB-3, WCB-1 to WCB-4, respectively.
CS and CSNM submitted that the credit application was an umbrella document that covered all future transactions between Carpenter and CS and CSNM.[103] The retention of title clauses in the individual contracts merely reflected the understanding set out in the credit application that until it paid the purchase price in full, Carpenter held the cattle as fiduciary bailee and agent for the supplier. It seems, however, that CS and CSNM did not argue that the credit application created, gave rise to or provided for a security interest.[104] They sought to distinguish the case of Elkerton.[105]
[103]Charles Stewart Group Submissions, [56].
[104]T135:16.
[105]T136:8.
CS and CSNM submitted that the CS/CSNM contracts were signed by all the parties first.[106] The CS/CSNM contracts contained the standard ALPA terms. After signing the CS/CSNM contracts, Carpenter’s agent produced and completed a Carpenter contract, which according to his evidence, was the basis for his remuneration. The other parties then signed the Carpenter contract.
[106]Charles Stewart Group Submissions, [52].
CS and CSNM conceded that applying a ‘last shot’ approach would mean the Carpenter terms prevail and CS and CSNM would not have any security interests.[107] However, while it is possible that the Carpenter contracts were intended to replace the CS/CSNM contracts, there is no language in the Carpenter contracts to that effect.[108]
[107]Ibid [47].
[108]Ibid [53].
The signing of the Carpenter contracts did not affect the existence of the contract already made on the CS/CSNM terms, unless the Carpenter terms were accepted as a variation of the prior CS/CSNM terms either expressly or by conduct.[109] CS and CSNM argued that there was no such variation.[110]
[109]Ibid [57].
[110]T124:8.
CS and CSNM submitted that the battle of the forms cases do not apply to this case, because here there is a concluded contract with clear terms, albeit subject to conditions precedent.[111]
[111]T123.
As to the CSNM contracts, CSNM acknowledged that several terms, including the retention of title clause, were missing from the back page.[112] CSNM argued that the ‘misprint’ ‘should not matter’ because Mr Bond’s evidence was that he was familiar with ALPA contracts and he was aware they contained a retention of title clause. Mr Bond was one of Carpenter’s subcontractors, so his state of knowledge should be imputed to Carpenter.[113] CSNM submitted that signing the CSNM contracts in the knowledge that the terms missing from the back page formed part of the standard ALPA terms, is sufficient to incorporate the missing terms.[114] The missing terms were incorporated by reference, by a course of dealing, or by reasonable notice and were accepted on behalf of Carpenter by its agent Mr Bond. CSNM submitted that this conclusion is borne out by Mr Bond’s familiarity with the terms of sale used in the industry and by CS/CSNM in particular.
[112]Charles Stewart Group Submissions, [59].
[113]Ibid.
[114]Ibid [61].
Consideration
With justification, it appears that Carpenter misunderstood CS and CSNM to be arguing that the credit application was a security agreement, and Carpenter therefore made submissions as to why the credit application form did not amount to a security agreement. CS and CSNM did not ultimately press the argument that the credit application was a security agreement for the purposes of s 588FL. This is not surprising because in disputes under s 588FL(2)(b)(ii), it benefits the secured party to argue that the security agreement is a later document, and therefore the 20 day period commences later. I need not decide whether the credit application amounted to a security agreement. Were I required to decide, I would be inclined to say that it did not, based on the wording of the credit application and the principles enunciated in Elkerton.
The CSNM contract did not include a retention of title clause. These are clauses, by their very essence, that create and alter the rights of parties. Accordingly, precision is required if parties intend that such clauses be incorporated into their contractual arrangements.
These matters ought not be left to chance or even to a presumed state of affairs based on a general knowledge of industry practices or a course of dealing in other circumstances or contexts. Commercial parties are well equipped to protect their interests and avail themselves of such protections that the law gives, should they wish to do so.
Mr Warren Bond acted as Carpenter’s agent when dealing with CS and CSNM. In his first affidavit Mr Bond deposed that the sales contracts he signed on behalf of Carpenter when dealing with CS and CSNM were the Charles Stewart standard form contracts. He said:
Once the cows were tagged by me, Corey Baulch would fill out a sales contract bearing the CS logo … These sale contracts were Charles Stewart standard form contracts…
… The same process and order of signing was followed when the CSNM contracts were signed. Usually I dealt with Phillip McVilly in relation to the CSNM contracts.[115]
[115]Affidavit of Warren Christopher Bond affirmed 24 June 2015, [6], [9].
In his second affidavit Mr Bond deposed that:
During my dealings with CS and CSNM I have always been aware that the Charles Stewart Group use the Australian Council of Livestock Agents Limited terms (“the ALPA terms”) on the Charles Stewart Group standard form contract. I am familiar with the ALPA terms as the ALPA terms are used by many agents I deal with and I am aware that the ALPA terms contain a retention of title clause.
Since affirming my earlier affidavit it has been brought to my attention that the ALPA terms on the CSNM standard sale contracts between [Carpenter] as purchaser and each of the farmers as vendors did not continue onto the back of the CSNM standard sale contracts.[116]
[116]Affidavit of Warren Christopher Bond affirmed 25 July 2015, [2]-[3]. Paragraph [4] of the affidavit was struck out after the Court upheld the plaintiffs’ objection to it.
Mr Phillip McVilly represented CS and CSNM when dealing with Carpenter, and he signed the CSNM contracts on CSNM’s behalf. He deposed that he has known Mr Bond for 10 years and has had dealings with him on behalf of CSNM in relation to Carpenter from December 2014 to February 2015.[117] He also deposed that when completing sale contracts involving CSNM and Mr Bond as agent for Carpenter, he followed the same contract process that Mr Corey Baulch set out in paragraphs [6]-[11] of his affidavit.[118] Mr Baulch, who represented CS in dealings with Carpenter, deposed as follows:
I would draw up [CS’] standard form contract with all the trading the [sic] details…
[CS’] contract would then be signed by me as agent, the farmer himself as vendor and Bond as agent for the purchaser, Carpenter.[119]
[117]Affidavit of Phillip Justin McVilly sworn 19 June 2015, [4].
[118]Ibid [5].
[119]Affidavit of Corey Daniel Baulch affirmed 19 June 2015, [8]-[9].
Mr Baulch exhibited a copy of CS’ standard form contract, which copy included a retention of title clause on the second page.
Despite his evidence, Mr McVilly did not, in fact, draw up the company’s standard form contract as exhibited to Mr Baulch’s affidavit. Instead, Mr McVilly drew up a contract missing several of the terms included in the company’s ‘standard form contract’. Mr McVilly did not give any evidence as to this omission and whether it was deliberate or accidental. Nor did he give any evidence as to any discussion between him and Mr Bond as to the ALPA terms or the terms of the transaction more generally.
In its submissions CSNM argued that:
Whether or not one party’s standard terms are incorporated depends on whether that which each party says and does is such as to lead a reasonable person in their position to believe that those terms were to govern their legal relations. The Court has to determine what each party was reasonably entitled to conclude from the acts and words of the other.[120]
[120]Charles Stewart Group Submissions, [59] (emphasis added).
CSNM relied on Mr Bond’s knowledge that the ALPA terms contained a retention of title clause to contend that the retention of title clause was incorporated into the contract, either by reference, by reasonable notice, or by a course of dealing.[121]
[121]Ibid [60]; T126.
I am not persuaded by CSNM’s argument. The full ALPA terms were not referred to in the CSNM contract, nor were they referred to by Mr McVilly or Mr Bond when signing the contracts. There is no evidence of any representation by CSNM that the full ALPA terms applied, or by Carpenter that it would be bound by the full ALPA terms. The retention of title clause was therefore not incorporated by reference. As for reasonable notice, I agree with Carpenter’s submission that it has not been suggested that Carpenter was ever given notice of the omitted terms.[122] The front side of the CSNM contracts did not say that Carpenter agreed to any terms put forward by CSNM, and there is nothing else to suggest that Carpenter was ever informed that CSNM intended to contract on full ALPA terms. As for a course of dealing, CSNM could not point to any contracts between it and Carpenter that contained all the ALPA terms, particularly the retention of title clause. CSNM did not seek to rely on the course of dealing between CS and Carpenter, which course of dealing involved the full ALPA terms. Had it done so it would have needed to persuade the Court that a course of dealing with one entity within a corporate group can amount to a course of dealing with a different corporate entity within that group.
[122]Plaintiffs’ Outline of Submissions, [66].
I accept that the signed VDIs formed part of the terms governing the cattle purchases. The cattle were purchased by Carpenter for export to China, so the conditions and suitability for export to China were critical terms of the transactions. Those terms were contained in the VDIs. The importance of the VDIs is captured in Mr Bond’s evidence that:
Each vendor’s property had to comply with the China protocol. I was required to have a Carpenter form called ‘Vendor Declaration & Instructions China, Breeder Cattle v1.2’ form signed by each vendor. This was one of several forms necessary for the China protocol.
It was necessary for a vendor to sign a form declaring that the cattle were fit and healthy; able to breed and that they satisfied the ACGEA guidelines (Australian Cattle Genetics Export Agency) for the relevant breed. The sale and acceptance of the heifers was always subject to these strict requirements and also satisfactory blood tests, pregnancy tests and property clearance tests on the vendor’s farm. If any of the heifers did not satisfy the requirements they would be rejected as unsuitable for export to China.[243]
[243]Affidavit of Warren Christopher Bond affirmed 24 June 2015, [12]-[13].
Mr Stewart, Managing Director of CS, also referred to the VDIs as containing conditions of the sale contracts.[244]
[244]Affidavit of David Michael Stewart sworn 19 June 2015, [36].
The signed VDIs sat alongside the Carpenter contract or the vendor agent’s contract. Where the Carpenter contract and a VDI applied to the transaction, title to the cattle passed to Carpenter upon Inspection, as explained below in relation to the Schedule E cattle. The subsequent rejection of the cattle did not alter the passing of title to Carpenter at the time of Inspection.
Where the DLS or CS contract and a VDI applied to the transaction, one of two situations applied:
(a) DLS and CS had a retention of title security interest in the cattle, despite the terms of the VDI. However, as discussed in relation to the Schedule B cattle above, DLS and CS’ security interests in the cattle vested in the plaintiffs under s 588FL of the Act; or
(b) the VDI term ‘Heifers rejected from the shipment for non-compliance with the above requirements will not be returned to the vendor’ displaced the retention of title clause in the DLS and CS contracts, and DLS and CS were never granted a security interest in the cattle.
In either situation, DLS and CS did not have a perfected security interest enforceable against the plaintiffs.
Where the CSNM contract and a VDI applied to the transaction, CSNM did not have a perfected security interest in the cattle as the CSNM contract did not contain a retention of title clause.
In relation to the other vendors, the conclusion is the same as that for the Schedule A cattle. The other vendors did not have a perfected security interest enforceable against the plaintiffs, and the rejection of their cattle did not alter that fact.
There were eight head of cattle in respect of which no VDI was signed. Carpenter submitted and I find that:
(a) one head of cattle was subject only to CSNM terms.[245] As I have found that the CSNM terms did not contain a retention of title clause, CSNM does not have a perfected security interest enforceable against Carpenter in respect of this head of cattle;
(b) six head of cattle are the subject of a battle between Carpenter’s and CS’ terms.[246] Had this cattle not been rejected, it would have been included in the Schedule B cattle. I have already found that CS’ terms applied, and that CS had a security interest that vested in the plaintiffs under s 588FL of the Act, as discussed above; and
(c) one head of cattle is the subject of a battle between Carpenter’s and Frontier’s terms.[247] Had this head of cattle not been rejected, it would have been included in the Schedule A cattle, as Frontier did not register a security interest on the PPSR. If Carpenter’s terms applied, title to the cattle would have passed to Carpenter upon Inspection. If Frontier’s terms applied, Frontier had a security interest that vested in the plaintiffs under s 267 of the PPSA.
[245]Plaintiffs’ Outline of Submissions, [138].
[246]Ibid [137].
[247]Ibid [137].
Accordingly, for each head of Schedule D cattle, either title passed to Carpenter upon Inspection under the Carpenter contracts, or any security interest in the cattle vested in the plaintiffs under s 267 of the PPSA or s 588FL of the Act. It is unnecessary to determine which of those applies to each head of cattle.
As I have found it unnecessary to determine the effect of the terms of the VDI on the vendor agents’ terms, the Court will give a direction pursuant to s 447D of the Act that differs slightly from that sought by the plaintiffs. The Court directs that the plaintiffs are justified:
(a) in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of those of the Schedule D cattle that would, but for their rejection, have been Schedule E cattle, on the basis that title to the relevant cattle passed to Carpenter;
(b) in proceeding on the basis that Carpenter is entitled to deal with those of the Schedule D cattle that would, but for their rejection, have been Schedule A cattle or Schedule B cattle; and
(c) upon selling the Schedule D cattle, in treating any net proceeds from any sale of the cattle as Carpenter’s property, subject to any further security claim made by GG Feedlot (including any issue as to priority) being accepted or established.
Schedule A Cattle
The Schedule A cattle were not the subject of dispute by the parties that appeared in these proceedings; no contradictor appeared at trial or filed submissions in respect of those cattle. DLS, CS and CSNM were not involved in any of the Schedule A cattle transactions.
The plaintiffs seek a direction pursuant to s 447D of the Act that they are justified in proceeding in respect of the Schedule A cattle on the basis that:
(a) Carpenter is the absolute legal and beneficial owner of the cattle because the Carpenter terms applied to the Schedule A cattle transactions; or
(b) Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 267 of the PPSA.
The plaintiffs also seek a direction pursuant to s 447D of the Act that they are justified in treating any net proceeds from any sale of the Schedule A cattle as Carpenter’s property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.
Schedule A cattle is cattle to which a retention of title clause applied if the vendor agents’ terms governed the relevant transactions. If Carpenter’s terms applied, there was no retention of title clause. The plaintiffs conceded that the agents’ terms applied to some transactions, but submitted that there was a battle of the forms in relation to other transactions.[248]
[248]Plaintiffs’ Outline of Submissions, [28]-[29].
Critically, none of the Schedule A cattle was the subject of registration on the PPSR.[249] Any security interests in respect of the Schedule A cattle would have vested in the plaintiffs under s 267 of the PPSA. It is therefore unnecessary to determine whether Carpenter’s terms or the vendor agents’ terms applied to the relevant transactions. Even if the vendor agents’ terms applied to all the Schedule A cattle transactions, and there was a retention of title clause, the security interest in the cattle vested in the plaintiffs under s 267 of the PPSA.
[249]Affidavit of Matthew James Donnelly sworn 22 May 2015, exhibit MJD-29; Plaintiffs’ Outline of Submissions, [53]-[54].
I note that the plaintiffs’ Further Amended Originating Process and written submissions are inconsistent in their identification of the agents and vendor in respect of the Schedule A cattle. The Further Amended Originating Process lists the following vendor and agents as parties to the Schedule A cattle transactions:
(a) Bauer, LH&PA Pty Ltd (vendor);
(b) Alex Scott & Staff;
(c) Alex Scott & Staff (Korumburra);
(d) Alex Scott & Staff (Warragul);
(e) Charles L King;
(f) Frontier;
(g) J&J Kelly;
(h) Maddison Livestock; and
(i) Mokoan Trust Agency.
The plaintiffs’ submissions omit Charles L King, but otherwise list the same vendor and agents. Based on the evidence and submissions, it is not clear why Charles L King was omitted in the submissions in respect of Schedule A cattle. Nothing turns on this, as any security interests in the Schedule A cattle vested in the plaintiffs pursuant to s 267 of the PPSA.
As I have found it unnecessary to decide whether the Carpenter terms or the vendor agents’ terms applied to the Schedule A cattle, the Court will give a direction pursuant to s 447D of the Act that differs slightly from that sought by the plaintiffs. The Court directs that the plaintiffs are justified in proceeding in respect of the Schedule A cattle on the basis that Carpenter is entitled to deal with the cattle because any security interest granted by Carpenter in respect of the cattle vested in Carpenter immediately before the appointment of the plaintiffs on 24 March 2015 pursuant to s 267 of the PPSA.
The Court also directs that Carpenter is justified in treating any net proceeds from any sale of the Schedule A cattle as Carpenter’s property, subject to any claim to any further security interest with the requisite priority in respect of the cattle made by GG Feedlot being accepted or established.
Schedule E Cattle
Schedule E cattle is cattle to which only the Carpenter terms applied, meaning that there was no retention of title clause that applied to these cattle. There was no contradictor in respect of the Schedule E cattle.[250] The plaintiffs seek a direction pursuant to s 447D of the Act that they are justified:
(a) in proceeding on the basis that Carpenter is the absolute legal and beneficial owner of the Schedule E cattle on the basis that only Carpenter’s terms were signed and applied to the purchase; and
(b) upon selling the Schedule E cattle, in treating any net proceeds from any sale of the cattle as Carpenter’s property, subject to any further security claim made by GG Feedlot (including any issue as to priority) being accepted or established.
[250]CS did not make any submissions in relation to the Schedule E cattle transactions in which it was involved.
The vendors and agents that were party to the Schedule E cattle transactions were:
(a) Hillco Pty Ltd (vendor);
(b) Kosch, DG & HJ (vendor);
(c) IND Lifetech Australia Pty Ltd (vendor);
(d) Charles L King;
(e) CS;
(f) L & F Seuren;
(g) LMB Linkee;
(h) Mokoan;
(i) Phil Woods Cattle Services;
(j) Pinkerton Palm Hamlyn & Steen (Penola);
(k) Pinkerton Palm Hamlyn & Steen; and
(l) TDC Penola.
Carpenter submitted that, with some exceptions that I will set out below, the Carpenter terms were the only terms that were signed by the necessary parties and that were applicable to the Schedule E cattle.[251] The exceptions were as follows:
[251]Plaintiffs’ Outline of Submissions, [10].
(a) three transactions involving Charles King where the Carpenter contracts were not signed by all of the vendor, vendor agent and Carpenter;
(b) two transactions involving CS where the Carpenter contracts were signed only by Carpenter;
(c) one transaction involving Mokoan where the Carpenter contract was signed only by Carpenter;
(d) one transaction involving Phil Woods where the Carpenter contract was signed only by Carpenter and Phil Woods;
(e) one transaction involving TDC Penola where the Carpenter contract was signed only by Carpenter and the vendor; and
(f) all transactions involving Pinkerton Palm, as the Carpenter contracts were not signed by the vendor agent.[252]
[252]Ibid [13]-[15].
Carpenter submitted that in those transactions no other signed terms were found or appeared to be applicable, so the parties must be said to have adopted the Carpenter terms.[253] In respect of the transactions involving Pinkerton Palm, Carpenter submitted that solicitors for Pinkerton Palm have confirmed that the Carpenter terms applied.[254]
[253]Ibid [14].
[254]Ibid [15].
As there were no submissions or evidence to the contrary, I accept Carpenter’s submissions that the Schedule E cattle transactions were governed by the Carpenter terms. Clause 4(l) and (m) of the Carpenter contract provided that:
Upon delivery of the Livestock, [Carpenter] shall have the right to enter the premises where the Livestock is held in order to inspect the Livestock and may, in its sole discretion, reject any Livestock that do not comply with terms of the Agreement: (“Inspection”). It shall be the responsibility of the Vendor and at the cost of the Vendor to remove the rejected Livestock. The Parties agree that the Livestock shall not be deemed accepted by [Carpenter] until Carpenter has carried out its Inspection.
Risk in the Livestock shall remain with the Vendor until [Carpenter] has completed the Inspection upon which point risk and title in the Livestock accepted by [Carpenter] shall pass to [Carpenter].
Carpenter submitted that inspection occurred by, at the latest, 3 March 2015.[255] By this time, title to the Schedule E cattle had passed regardless of whether the cattle were later the subject of a rejection email.[256]
[255]Ibid [10], [23].
[256]Ibid [23].
Mr John Berkefeld, General Manager of Carpenter, deposed that on Carpenter’s instructions the vendors and/or vendor agents delivered the cattle to one of GG Feedlot’s feedlots between 18 and 21 February 2015.[257] Some cattle were rejected at the feedlot gate, but the others were accepted into the feedlot and were subjected to Carpenter’s ‘induction’ and ‘breeding soundness’ testing at the feedlot.[258] Carpenter submitted that this testing process amounted to the Inspection referred to in cl 4(m) of the Carpenter contract.[259]
[257]Affidavit of John Edward Berkefeld sworn 3 July 2015, [53].
[258]Ibid [53], [55], [57]-[59].
[259]Plaintiffs’ Outline of Submissions, [19].
The defendants did not file any evidence or make any submissions to the contrary in relation to Inspection. I accept Mr Berkefeld’s evidence as to delivery of the cattle to the feedlot and the testing that occurred there. I also accept Carpenter’s submission that the testing conducted at the feedlot amounted to Inspection within the meaning of cl 4(m) of the Carpenter contract. Accordingly, under cl 4(l) of the Carpenter contract, title to the Schedule E cattle passed to Carpenter.
The Court will give the direction sought by the plaintiffs in respect of the Schedule E cattle.
Equitable lien
The plaintiffs sought a direction that they are justified in proceeding on the basis that they have an equitable lien over the proceeds of the sold cattle for Universal Distributing[260] expenses.[261] In their Further Amended Originating Process the plaintiffs sought:
A direction pursuant to section 447D of the Act that the Plaintiffs are justified in proceeding on the basis that they are entitled to be indemnified for reasonable expenses incurred by them in the care, preservation and maintenance of Cattle A, Cattle B and Rejected Cattle and an equitable lien over Cattle A, Cattle B and Rejected Cattle and/or any proceeds of any sale of the said cattle to secure the same.[262]
[260]Re Universal Distributing Co Ltd(in Liq) (1933) 48 CLR 171.
[261]Plaintiffs’ Outline of Submissions, [124].
[262]Further Amended Originating Process, [4].
At trial the plaintiffs said that they did not press the Court to make an order on this issue.[263] They were not asking the Court to determine whether they should be granted an equitable lien.[264] Rather, they were asking the Court for a direction in similar terms to that given by Robson J in Re Great Southern Managers Ltd (No 1).[265] In that case his Honour said:
Pursuant to s 424 of the Act, the first to fourth plaintiffs are justified in carrying on their duties as receivers and managers of the fifth plaintiff and proceeding on the basis that if they incur reasonable expenditure and reasonable remuneration in the care, preservation, protection, and/or realisation of the scheme property referred to in the paragraph above, they will be entitled to indemnify themselves for their expenditure out of the scheme property and the product thereof and be entitled to a lien over the scheme property and the product thereof to secure the same in priority to all other charges thereon.[266]
[263]T97:13.
[264]T266:4.
[265][2009] VSC 642.
[266]Ibid [26].
The plaintiffs said that the ‘amount of that lien, whether it’s made out, is necessarily going to be a separate question’.[267] For now, they simply seek a direction that they are justified in proceeding on the basis that they have a lien and that they are justified in acting accordingly.
[267]T97:24.
Separately, in the ‘Miscellaneous’ section of the Further Amended Originating Process, the plaintiffs sought a direction that they:
…are justified, and otherwise acting reasonably, in asserting an entitlement to an indemnity secured by an equitable lien against the sale proceeds of Cattle A, Cattle B, Rejected Cattle and Cattle E for the payment of their costs, expenses and remuneration relating to:
(a) the care and maintenance of Cattle A, Cattle B, Cattle E and Rejected Cattle;
(b) all enquiries and assessments necessary to ascertain the ownership of and any other rights with respect to such cattle; and
(c) facilitating the sale of such cattle,
regardless of title or ownership.[268]
[268]Further Amended Originating Process, [11].
However, the plaintiffs submitted that this issue only becomes relevant in the event that Carpenter is found to have no title in respect of the cattle the subject of the proceeding.[269] The plaintiffs noted that s 443D confers on them a statutory lien out of the company's property.[270] Section 443D of the Act provides:
The administrator of a company under administration is entitled to be indemnified out of the company’s property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009) for:
(a) debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA(2); and
(aa) any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and
(b) his or her remuneration as fixed under section 449E.
[269]Plaintiffs’ Outline of Submissions, [125].
[270]Ibid [127].
The plaintiffs contended:
…that [Carpenter] has title to the cattle the subject of the proceeding. In that event, the statutory lien will apply with respect to debts incurred by the Administrators and remuneration approved with respect to that cattle. If, contrary to the Administrators contention, any or all of the cattle is found not to be CIPL’s property, the statutory lien will not be engaged.[271]
[271]Ibid [128].
As with the first direction, the second direction sought by the plaintiffs does not require the Court to determine issues of quantum.[272]
[272]Ibid [133]; T98:19.
DLS did not make any submissions in relation to the plaintiffs’ claim for directions concerning an equitable lien.
CS and CSNM submitted that the s 443D statutory lien is not available against a perfected security interest in PPSA reservation of title property. Therefore any entitlement of the plaintiffs to be paid their costs and expenses must be in the nature of a ‘Universal Distributors [sic] lien that are thrown against the fund recovered from the sale of all property whether subject to a security interest or not’.[273] I reject CS and CSNM’s argument that the plaintiffs may only recover their costs and expenses through a Universal Distributing lien, because I have found that none of DLS, CS and CSNM has a perfected security interest in the cattle.
[273]Charles Stewart Group Submissions, [99].
CS and CSNM also made submissions of a serious nature as to the conduct of the plaintiffs in the administration of Carpenter.[274] Essentially, they submitted that instead of attempting to seek creditors’ agreement to proposed cattle sales, the plaintiffs should have approached the Court at the outset seeking directions under s 447D of the Act. What actually happened was that the plaintiffs delayed in approaching the Court and in this time they incurred ‘very high agistment, veterinary and other costs’, which costs were not reasonably and honestly incurred.[275] It was argued that this justified an order against the plaintiffs under s 447E of the Act.
[274]Ibid [100]-[102].
[275]Ibid [101].
At trial CS and CSNM said that it was not appropriate to consider the plaintiffs’ conduct at this stage; it was a matter for after the Court has determined whether CS and CSNM are secured or unsecured parties.[276]
[276]T138:9-18.
GG Feedlot objected to the giving of the direction concerning the equitable lien. At trial counsel for GG Feedlot submitted the following:
What I dispute is that the parties until now have always said GG Feedlot should not appear because we’ll take the money from the proceeds of the sale and we’ll put to the side and nobody's going to touch it.
…
And now they’re saying, wait we’ll take the funds associated with the upkeep of the cattle out of it first. That’s a completely different scenario.
…
This is something that’s to be determined in the judicial proceeding if they have such a lien. And if they have such a lien and if they can establish that that lien has priority, then indeed that should happen. But what my problem with the direction that they seek it now is it allows them to simply grab that money without a judicial determination that they have such a lien. That’s not a problem.
My problem is not that if they can establish they that lien and while my Peter, my learned friend, can do that in a separate application, that they’re not entitled to take the money. My problem is that just until now it was always said we’ll put the proceeds aside so they cannot come and say, well we take whatever we want from the proceeds anyway.[277]
[277]T221:17-T222:16.
The plaintiffs responded to GG Feedlot’s concerns by saying that the purpose of the lien is to ‘provide the degree of comfort that in moving forward with proceeding to agitate for a lien, we’re acting appropriately. That’s all it is. It’s not deciding the lien and it’s not trying to go through the backdoor’.[278]
[278]T229:2.
I turn now to the question of whether the Court should give the direction sought in paragraph 11 of the Further Amended Originating Process. I note that the Court has found that none of DLS, CS and CSNM has a perfected security interest in the cattle, and has given the plaintiffs directions that, subject to resolution of GG Feedlot’s claims, the plaintiffs are justified in treating any net proceeds from the cattle sales as Carpenter’s property. Given that it is possible that GG Feedlot will establish that it has a perfected security interest in some of the cattle, it is understandable that the plaintiffs are concerned about their entitlement to an equitable lien.
It is not necessary in light of my findings in relation to the sale proceeds of Schedules A, B, D and E cattle for the Court to determine the question of an equitable lien in respect of those cattle, except in the case of GG Feedlot.
GG Feedlot claims it has a perfected security interest in certain of the cattle, and it does not concede that the plaintiffs are entitled to an equitable lien. If GG Feedlot is successful in its claim, the plaintiffs may seek the equitable lien at that time. If GG Feedlot is unsuccessful, the plaintiffs will not need to seek an equitable lien.
Until GG Feedlot’s claim is resolved, the plaintiffs have the comfort of the directions given by the Court in paragraphs 242, 259, 267, 268, 277. I will not make any ruling in relation to any claim for an equitable lien until and unless GG Feedlot is fully heard on its application.
As to the plaintiffs’ conduct, in my opinion, responsible and prudent efforts have been made to ensure the wellbeing of the cattle in question.
I do not consider that, on the evidence, the actions of the administrators have been anything other than responsible, and they have certainly not been profligate. It would be a grave situation had they not properly and diligently attended to the health and welfare of the cattle, necessarily incurring expense to do so.
Further, the administrators were naturally charged with the task of assessing the ownership of the cattle and to make such inquiries and conduct such investigations as was necessary to determine those questions. There is no doubt that such actions, such as caring for, and looking after the cattle and incurring expense to ascertain their true ownership were necessary. These tasks inevitably, in my opinion, take longer than most parties would wish. However, this, in itself, does not make their actions unreasonable.
Further, the sale of cattle necessarily involved costs which were, in my opinion, reasonably and responsibly incurred.
Costs
I will hear the parties on the question of costs and the form of orders.
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