[2017] NSWSC 1230
- Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640
[2014] HCA 7
- Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
[2015] HCA 37
- National Australia Bank Ltd v Garrett (2016) 340 ALR 532
Source
Original judgment source is linked above.
Catchwords
[2017] NSWSC 1230
- Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640[2014] HCA 7
- Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104[2015] HCA 37
- National Australia Bank Ltd v Garrett (2016) 340 ALR 532
By Originating Process filed on 15 June 2021, the Plaintiffs, Ms Barnett and Mr Armenis in their capacity as joint and several liquidators of Kimberley Diamonds Ltd (in liq) ("KDL") and KDL apply, under s 182 of the Personal Property Securities Act 2009 (Cth) ("PPSA"), relevantly, for an order that the Second Defendant, the Registrar of Personal Property Securities ("Registrar"), register a financing change statement bringing about certain changes to an entry into the Personal Property Securities Register ("PPSR"), which relates to a security interest registered by the First Defendant, Zhejiang Huitong Auction Co Ltd ("Huitong").
Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2021] NSWSC 865 | Case summary | Zoe
Huitong did not appear in the application, although the Court had made orders confirming the manner in which service could be effected upon it. The Registrar appeared at directions hearings, indicated that it does not oppose the relief in the form now sought by the liquidators and KDL, and was excused from attendance at this hearing. The form of relief sought by the liquidators and KDL has been amended, as a matter of mechanism but not as a matter of substance, in short minutes of order now proposed by the liquidators and KDL, following consultation with the Registrar, so that the amendment would be effected by the registration of a financing statement containing specified information but correcting the matters which the liquidators and KDL contend are inaccurately recorded in the registration.
The liquidators and KDL rely on the affidavit dated 9 June 2021 of Mr Armenis, one of the liquidators, which refers to his and Ms Barnett's appointment as liquidators of KDL, and notes that, at the time of that appointment, KDL was a shareholder in several companies including, relevantly, Mantle Diamonds Ltd ("Mantle Diamonds") and Alto Minerals Pty Ltd ("Alto").
Mr Armenis notes that, prior to the liquidators' appointment, KDL as borrower and Huitong as lender had entered into a Loan Agreement which required KDL to provide security for the loan by way of a Security Deed. That Loan Agreement and Security Deed are in evidence. The Security Deed (Ex P1, 168) relevantly provided, in cl 2.1, that KDL granted a PPSA Security Interest (as defined) over all of the Personal Property (as defined) and charged all of the Other Property (as defined) for Huitong as security for the due and punctual payment of all of the Secured Money (as defined) by KDL. The term "Personal Property" was relevantly defined as all of the "Secured Property" (as defined) which is personal property as defined in the PPSA and includes the "Secured Diamonds". The term "Secured Diamonds" is not defined, but nothing turns on it where there is no issue as to any such secured property in this application. The term "Secured Property" is defined as all of KDL's shares in Mantle Diamonds and all proceeds of sale thereof. Importantly, that definition does not extend to shares in Alto or any proceeds of sale of those shares. The term "Other Property" is defined as the Secured Property, excluding the Personal Property, but it is not apparent that anything presently falls within that category, if the shares in Mantle Diamonds and any proceeds of sale of them are properly treated as personal property as defined in the PPSA.
Returning to the chronology of events, Mr Armenis' evidence is that Huitong registered a security interest on the PPSR, which recorded its interest as "All Present and After-Acquired Property - no exceptions". It will immediately be apparent that a security over "all present and after acquired property" would be significantly wider than the specific security which was granted by KDL to Huitong over its shares in Mantle Diamonds and proceeds of sale of them under the Security Deed.
After the liquidators' appointment, correspondence took place between the liquidators and Huitong as to the scope of the security interest that had been registered by Huitong, and the liquidators rely on an email sent by Mr Armenis in July 2018 as constituting a demand to Huitong to rectify the register for the purposes of s 178 of the PPSA. I am satisfied that that email did have the character of an amendment demand, for the purpose of that section, since it squarely required Huitong to update the PPSR to properly reflect that its security interest (or claimed security interest) in KDL was limited to the shares in Mantle Diamonds and did not extend to the shares in Alto. I will return to the relevance of s 178 of the PPSA, dealing with amendment demands, and s 182 of the PPSA dealing with the Court process in respect of an amendment demand below.
Subsequently, KDL entered into a Share Sale and Purchase Agreement by which it sold its shares in Alto and commenced proceedings in which it sought, inter alia, directions as to the process which it should adopt in respect of the sale of those shares. In those proceedings, the liquidators gave an undertaking to Huitong not to dispose of, or otherwise deal with, the proceeds of sale before a specified date and no further steps were taken by Huitong to agitate issues in those proceedings, which were dismissed in July 2018. That undertaking was subsequently extended, by agreement, to 10 August 2018, and expired at that time. Further correspondence between the liquidator and Huitong or their legal representatives followed. It appears that further proceedings in respect of the sale of shares in Alto also took place in this Court, which it is presently not necessary to address. Mr Armenis also refers to the issue which now arises as to whether the liquidators are entitled to dispose of or deal with the proceeds of sale of the Alto shares in the ordinary course of the liquidation, without regard to the security interest registered by Huitong in the PPSR which would be wide enough to extend to those shares and their proceeds, as distinct from the narrower interest created by the Security Deed.
The liquidators and KDL also rely on the affidavit dated 1 July 2021 of their solicitor, Mr Mattiussi, which refers to orders made by the Court as to service of the proceedings on Huitong and to service of the proceedings in that manner. As I noted above, Huitong has not appeared and sought to be heard in the proceedings.
[3]
The liquidators' and KDL's submissions
Turning now to the liquidators' and KDL's submissions, Mr Spencer, who appears for them, refers to the background to the application and the chronology of events which I have set out above. He refers to the principles applicable to the construction of commercial contracts, including that such a contract will be construed objectively, with reference to the text of the clause in question, and that the Court will seek to achieve a commercially sensible construction by reference to how the contract would be understood by a reasonable person in the relevant circumstances: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 64; [2014] HCA 7 at [35]; Mount Bryce Mining Pty Ltd v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37. I have regard to those principles, although it does not seem to me that any construction question of any particular difficulty arises in this application, where it is clear enough from the terms of the Security Deed to which I have referred above that the Mantle Diamonds shares and their proceeds fall within the defined term "Secured Property" and within the defined term "Personal Property", so as to fall within cl 2.1 imposing an obligation to grant a PPSA security interest over them, but those provisions do not extend to the Alto shares or their proceeds.
The question then arises as to whether it is the terms of the PPS registration or the terms of the underlying Loan Agreement and Security Deed which defines the scope of KDL's and Huitong's rights in the relevant circumstances. KDL and the liquidators accept that they bear the onus of demonstrating that the security interest is different from that which is recorded on the PPS Register, referring to National Australia Bank Ltd v Garrett [2016] FCA 714 and to Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631. Mr Spencer also points to the fact that PPSA registration does not itself create a security interest nor does the registration itself constitute an encumbrance upon the relevant property, but the registration system operates as a means of giving notice of the relevant security. Mr Spencer also submits, and I accept, that whether personal property is encumbered by a claimed security interest as registered on the PPS Register is determined by reference to the underlying transaction that is claimed to have given rise to the security interest in question: Auburn Shopping Village v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 at [66], followed in Re Kimberley Diamonds Ltd (11 July 2018) at [5]-[6]. Here, as I have noted, the Security Deed required the grant of a security interest over the shares in Mantle Diamonds and their proceeds, rather than extending to the shares in Alto and the proceeds of those shares.
Mr Spencer also refers to s 178 of the PPSA, which provides a mechanism for a person with an interest in collateral to give a demand to the secured party requiring a financing change statement to be registered to amend a registration in specified ways. I have noted above that the liquidators of KDL gave such a demand to Huitong on KDL's behalf. One of the permitted forms of amendment is an amendment to omit collateral, where the collateral in which the person making the demand has an interest does not secure any obligation owed by a debtor to the secured party. KDL and the liquidators invoke that provision, so far as they contend that, as the terms of the Security Deed indicate, the collateral in which KDL has an interest, namely the Alto shares, does not secure any obligation owed by KDL to Huitong.
Section 182 of the PPSA in turn allows the person who gave the amendment demand, here KDL and the liquidators, to apply to a Court for an order in relation to that demand. Subsection 182(4) provides that, on an application under that section, if the Court considers the amendment that was demanded was authorised under s 178, the Court may make an order requiring the Registrar to register a financing change statement amending the registration.
[4]
Determination
I am satisfied that, here, the application under s 182 of the PPSA is made by KDL (by its liquidators) who made the amendment demand and was entitled to make that demand where it had an interest in the Alto shares and their proceeds, which were the subject of the security interest registered by Huitong. I am satisfied that, for the purposes of s 182(4) of the PPSA, the amendment demand was authorised under s 178 of the PPSA, because the collateral in which KDL had an interest, namely the Alto shares and their proceeds, did not secure any obligation owed by KDL to Huitong, under the Security Deed.
In these circumstances, the orders sought by KDL and the liquidators should properly be made. I noted above that KDL had consulted with the Registrar as to the form of those orders to fit with the mechanisms adopted for registration under the PPSA. As I noted above, the Registrar does not oppose the orders which the liquidators and KDL seek if the Court is satisfied (as I am) that they are properly made.
For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. These include an order that the costs and expenses of the application be costs and expenses in the liquidation of KDL, where this application has been necessary to secure KDL's entitlement to the proceeds of sale of the Alto shares.
[5]
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Decision last updated: 22 July 2021