Dunphy v Sleepyhead Manufacturing Co Ltd - [2007] NZCA 241

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IN THE COURT OF APPEAL OF NEW ZEALAND
CA63/06
[2007] NZCA 241
BETWEENCHRISTINE MARGARET DUNPHY AND IAIN BRUCE SHEPHARD

Appellants

ANDSLEEPYHEAD MANUFACTURING COMPANY LIMITED

Respondent

Hearing:23 May 2007

Court:Glazebrook, Hammond and O'Regan JJ
Counsel:H L Thompson for Appellants

M M B van Ryn and M V Robinson for Respondent

Judgment:14 June 2007 at 12 noon

JUDGMENT OF THE COURT

A The appeal is dismissed.
BThe appellants must pay to the respondent costs of $6,000 plus usual disbursements.

REASONS OF THE COURT
(Given by O’Regan J)

Table of Contents
Para No

Introduction  [1]
Context  [2]
Summary judgment  [12]
Issues  [13]
Was Sleepyhead attempting to enforce rights between the
      parties to the security agreement?  [16]
Did the liquidators act as agents for BNZ?  [38]
Did the liquidators have an obligation to account to Sleepyhead?     [49]
Result  [51]
Introduction
[1]       This appeal raises a narrow point of interpretation of ss 36 and 40 of the Personal Property Securities Act 1999 (PPSA). Specifically, the issue is whether a security agreement which has not been signed or assented to by the debtor is enforceable against the liquidator of the debtor. Harrison J found that it was: Re King Robb Ltd (in liq); Sleepyhead Manufacturing Co Ltd v Dunphy & Anor (2006) 9 NZCLC 264,000 (HC). He found that the appellants, Ms Dunphy and Mr Shephard, who are the liquidators of King Robb, were liable for conversion because they refused to hand over to the respondent, Sleepyhead, the goods subject to Sleepyhead’s security agreement and refused to account to Sleepyhead for the proceeds of sale. The liquidators appeal to this Court against that finding.
Context
[2]       Sleepyhead supplied goods (bedding products) to King Robb on the basis that Sleepyhead retained title until paid, and that Sleepyhead had a security interest in the goods in terms of the PPSA. The terms of sale were set out in the invoices for goods supplied by Sleepyhead, but, although requested to do so, King Robb never signed the standard security agreement provided to it by Sleepyhead. Sleepyhead did, however, register a financing statement on the Personal Property Securities Register. It was accepted by the liquidators that there was a contract in terms of the invoices between Sleepyhead and King Robb. But, importantly, Sleepyhead accepted that King Robb had never assented to these terms in writing. This was significant because of the terms of s 36(1) of the PPSA which provides:
(1)A security agreement is enforceable against the third party in respect of particular collateral only if—
(a)the collateral is in the possession of the secured party; or
(b)the debtor has signed, or has assented to by letter, telegram, cable, telex message, facsimile, electronic mail, or other similar means of communication, a security agreement …

[3] The term “third party” is not defined, but some assistance is provided by s 7, which gives a general description of Part 3 of the PPSA, in which s 36 appears. In the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] NZCA 241
Decision Date: 14 June 2007

CaseChat Overview and Summary

This appeal concerns the enforceability of a security agreement which has not been signed or assented to by the debtor. The appellants, Ms Dunphy and Mr Shephard, liquidators of King Robb, appealed against the finding of the High Court that they were liable for conversion because they refused to hand over to the respondent, Sleepyhead, the goods subject to Sleepyhead's security agreement and refused to account to Sleepyhead for the proceeds of sale. The central issue is whether Sleepyhead's security agreement, which had not been signed or assented to by the debtor, is enforceable against the liquidators. The Court found that the liquidators were not third parties and were acting as agents of the debtor, King Robb, when they sold the goods subject to Sleepyhead's security interest. As a result, Sleepyhead's security interest was enforceable against the liquidators. However, the Court also found that the liquidators were acting as agents for the Bank of New Zealand (BNZ) in realising the assets subject to BNZ's security interest. Therefore, the liquidators were entitled to reject Sleepyhead's attempt to take possession of the goods that were subject to both BNZ's and Sleepyhead's security interests. The liquidators were, however, required to account to Sleepyhead for the proceeds of the sale of the goods subject to Sleepyhead's security interest, by virtue of s 117 of the Personal Property Securities Act 1999. The appeal was dismissed, and summary judgment was entered against the liquidators for $26,225 plus interest. The Court also awarded costs of $6,000 and usual disbursements to Sleepyhead.

Orders