Issue 4 -were the bailments ones for which the company provided value?
114 In the event I am wrong about the answer to the s 13(2)(b) question, I should consider this question.
115 This question arises because of s 13(3), which provides that:
This section only applies to a bailment for which the bailee provides value.
116 The word "value", used in s 13(3), is defined by s 10 and:
(a) means consideration that is sufficient to support a contract; and
(b) includes an antecedent debt or liability; and
(c) in relation to the definition of purchase money security interest - has a meaning affected by section 14.
117 The receivers contend that the para (a) meaning is relevant and met here.
118 Applying the same approach to the construction referred to in Hamersley at [329], the receivers say "consideration" is to be given its legal meaning. They acknowledge that its definition has proved elusive in the authorities, but for the reasons expressed by the learned editors of Carter JW, Contract Law in Australia (6th ed, LexisNexis, 2013) at [6-11], submit that it covers the meaning there suggested, namely:
Some act or forbearance involving legal detriment to the promisee, or the promise of such an act of forbearance, furnished by the promisee as the agreed price of the promise.
119 The receivers note that the question of "value" in the context of a PPS lease was also considered in Re Arcabi, and has also been considered in the legal literature, for example in Duggan, A, Brown, D, Australian Personal Property Securities Law, (2nd ed, LexisNexis, 2016) at [3.39].
120 The receivers note that in Re Arcabi, two potential "value" meanings were identified in the course of argument:
first, that any bailment under a contract for which the bailee provides consideration (including a promise to provide particular services) is potentially a PPS lease, even though the bailment aspect of the contract is incidental to its performance; and
secondly, and alternatively, that s 13(3) requires specific consideration to be given by the bailee for the bailment.
121 Re Arcabi did not, however, need to resolve that question because the Master found the s 13(2)(b) exception applied.
122 The receivers note that Duggan, at [3.39], comments on Re Arcabi to the following effect:
if s 13(3) is read as referring to value provided by the bailee at large, it has the effect of bringing all bailments within the scope of the definition because the bailee always provides value in one sense or another; and
section 13(3) is clearly intended to limit the meaning of PPS lease, but on the above construction it imposes no limitation at all.
123 It is suggested by the receivers that this Duggan commentary must be read in conjunction with the commentary at [4.13], which discusses value in the context of attachment for the purposes of s 19(2), at which point it is observed that the reason for the value requirement is that, without value, there is no consideration for the security interest and a valid security interest depends upon consideration. The receivers suggest, however, that the value requirement in s 13(3) is more confined than that contained in s 19(2), because in s 13(3) there is an absence of the dispensation of the value requirement where the "grantor does an act by which the security interest arises", which appears in s 19(2).
124 The receivers say that there is nothing in s 13(3) which provides any indication that "value" should be given a different meaning to how that term is to be applied where it is used elsewhere in the PPSA (for example, the use of the term in s 19). That is, consistent with ordinary statutory construction principles, the defined term, "value", should be given the same meaning wherever it is used in the PPSA. That is, the focus of the inquiry should be on whether "consideration" for that bailment arrangement has been given.
125 In addressing the issue raised by Duggan as to the consequences of reading s 13(3) as being for value at large, the receivers contend the concern is not well justified because there are examples of where a bailment that falls within the PPSA may not come within a deemed PPS lease because there has been no "value" for that bailment. The receivers proffer the following example:
A carpenter is subcontracted by a builder to carry out works at an owner's premises. The owner doesn't know that the subcontractor is performing works at the premises. The carpenter leaves his tools of trade at the premises. The owner appoints an administrator, and a claim is made by the administrator that those tools have vested in the owner because there had been an unperfected security interest arising from a deemed bailment under s 13(1). In that circumstance where the owner had no contractual relationship with the carpenter, did not know the carpenter was performing any works or that the carpenter had left tools at the premises, there is no consideration provided by the owner as bailee for that bailment. As such, the carpenter's tools would not be a deemed PPS lease and therefore would not have vested in the owner upon appointment of an administrator.
126 The receivers submit that, in circumstances where there is an example of how a bailment arrangement could fall outside a deemed "PPS lease" by reason of a lack of provision of value, there is no justification for giving a narrow reading to the meaning of "value" for the purposes of s 13(3) so that it is confined to specific consideration to be given by the bailee for the bailment. However, for the purposes of this application, the receivers submit that there has been "consideration" provided by the company for the bailments whether a broad or narrow view as to "value" is adopted.
127 The receivers approach the question of value given on the basis that "consideration" for the bailments was provided by the company as bailee to GSTC as bailor in the following circumstances:
(1) The company was to ensure that the four categories of equipment were safely and securely stored in the company's secured premises. They observe Dr Pope specifically responds to this at [103] of his affidavit, and does not deny that the company had this obligation.
(2) GSTC charged the company a management fee for the assistance provided by GSTC. That management fee arrangement is discussed at page 15 of the administrators' s 439A report as to the affairs of the company dated 26 April 2017.
(3) The company issued invoices for the completion of works (as Mr Meldrum explained) using the:
(a) GTI equipment (although no income was actually generated because the works were for trials); and
(b) Fibre Optic equipment.
128 In respect to the management fee arrangements described in the s 439A report, the receivers say there is no suggestion in GSTC's evidence that such a management arrangement was not in place. Dr Pope's evidence at [28] of his affidavit is that, where there were projects in Australia (or the region), the company would retain GSTC on a "cost plus" basis to provide specialised products and services for the benefit of the customer. It was essentially a "subcontract agreement" between the two companies. The company was established as GSTC's wholly owned subsidiary to exploit commercial opportunities within Australia using the core technology, which would see GSTC hopefully obtain a return on its investment. Those "cost plus" payments by the company were, the receivers say, the "consideration" for the arrangement, and for the purposes of the PPSA should be taken to be the value provided by the company as "bailee" for the PPS lease.
129 The receivers further contend there is no suggestion by GSTC that it was providing the four categories of equipment to the company on the basis that the company had those items free of charge. GSTC always expected to receive a reward for its provision of the relevant equipment whether under the "cost plus" arrangement, or as part of the management fees payable.
130 They also say there was additional value given in respect to certain items of the equipment in the following ways.
131 First, the company's staff prepared commercial invoices to determine import taxes and took delivery of the GSTC Tools at Toowoomba, and the GSTC tools remained at that location.
132 Secondly, GSTC accepts that, following delivery of the Fibre Optic Tools and at the time of the administrators' appointment, the company and GSTC were cooperating to complete the installation of the Silixa fibre optic system for DBP, and the company's employees had been engaged in installation of the fibre optic system for DBP. They say Dr Pope implicitly accepts that the company's employees had the right to use the GSTC Fibre Optic Tools because, in the second sentence of [103] of his affidavit, he only refers to the GSTC Tools as not being allowed to be used by the company.
133 Thirdly, Mr Clemence, an employee of the company, was involved in the completion of the project using the GTI equipment to undertake testing at certain coal seam gas wells in Queensland.
134 The receivers contend that the fact that no specific fee was paid by GSTC to the company for the bailment of the four categories of equipment is not to the point: the relevant issue is whether, looking at the entire nature of the bailment relationship, value was given by the company as bailee. For the reasons advanced, the receivers say such value was provided.
135 GSTC notes s 13(3) provides that s 13 only applies "to a bailment for which the bailee provides value". Section 10 relevantly defines "value" to mean consideration that is sufficient to support a contract. It says s 13(3) should therefore be read as excluding gratuitous bailments. In this it also relies on the reasoning of the New Zealand Court of Appeal in Rabobank at [40]. Parliament's intention, it contends, was to deem certain lease/bailment transactions to be PPS leases where they were not easily distinguishable from finance leases. Parliament did not intend for bailment transactions that could not be confused with finance leases, to be brought within the operation of the PPSA.
136 GSTC observe that in the Second Reading Speech of the Personal Properties Securities Bill 2009 (Commonwealth, Parliamentary Debates, House of Representatives, 24 June 2009), the Hon R McLelland stated that the purpose of the bill was to reform the law on secured financing using personal property. The Honourable Member stated that the bill would reduce complexity and introduce greater consistency "among the different kinds of secured finance".
137 GSTC submits that if the deeming provisions in s 12(3) and s 13 of the PPSA are read as being directed at ensuring that lease/bailment transactions that are not easily distinguishable from finance leases are treated as if they are finance leases, then this is consistent with the purpose or object of the PPSA. On the other hand, if the deeming provisions in s 12(3) and s 13 are read as being directed at gratuitous bailments that could not possibly be confused with finance leases, this is not consistent with the purpose or object of the PPSA.
138 It also refers to Re Arcabi and notes the two possible interpretations of the requirement in s 13(3) read with the definition of "value" in s 10. GSTC says I do not need to resolve the question for (at least) the same reason it was left open by the Master, namely, that s 13(2)(b) applies here. But it accepts that, on the receivers' case, I will have to resolve it, because I must find, on that case, that the bailment does not fall within the s 13(3) exclusion.
139 GSTC also refers to Duggan, which, as noted above, expresses the view that the preferred reading of s 13(3) is that it means value provided by the bailee specifically for the bailment, and not value provided by the bailee at large. This is on the basis that Parliament clearly intended s 13(3) to operate as a limitation. If it is read as referring to consideration at large then it is no limitation at all. It is also on the basis that this reading is more consistent with the policy objectives of the Act.
140 In the present case, GSTC submits the company did not provide any "value" to GSTC in any event in respect of the bailment, or in the context of some larger contractual arrangement.
141 In respect of the GSTC Tools, it says the evidence is that these were only to be used by GSTC. The only entity that stood to benefit from their use was GSTC. The only relevant "service" that was provided in respect of the GSTC Tools was that of storage. To the extent that it was provided, it was provided by the company to GSTC. So, if the bailment were to be for reward, it would be GSTC (the bailor) who would provide the "value" rather than the company. The bailee (the company) did not provide any value.
142 GSTC says the position in respect of the GSTC Fibre Optic Tools is the same. Those tools were used by GSTC to install fibre optic systems on the DBP Project. The company did not provide any value to GSTC. There would be no reason for it to do so.
143 As to the GTI equipment, GSTC says it was used by GSTC and GTI for testing. The testing concerned the development of a new wireless gauge system. No income was generated by the testing. The company did not provide any value to GSTC or to GTI. There would be no reason for it to do so.
144 GSTC says, however, it is accepted that the company used the GSTC IT equipment. This is a circumstance where the company derived a benefit by reason of the equipment being at the company premises. But the company did not provide any value to GSTC for the alleged bailment. As to the receivers asserting that the company stored the GSTC IT equipment safely and maintained it in good working order, GSTC says this is not evidence of value being provided by the company for the bailment. A subsidiary may be expected to keep safe the equipment of its parent even if it is not a bailee.
145 GSTC submits that, on a proper analysis, if there are bailments, they are gratuitous bailments, and that the provisions of s 13 should be read in a way that excludes such alleged bailments in furtherance of the purpose or objects of the PPSA.
146 Broadly, I accept the submissions made on behalf of GSTC that "value" sufficient to support a contract was not provided in respect of the bailments of the relevant equipment. At what might be referred to as the "global level", the provision of the relevant equipment by GSTC to the company was to enable the company to conduct the Australian Business, as described by Dr Pope. While that was intended to be a profitable business, with financial benefit potentially flowing to GSTC, I find it difficult to conclude that value of that indirect nature, including the management fee, in the circumstances of this case, should be seen as satisfying the statutory concept of "value" appearing in s 10.
147 I am inclined to adopt the view expressed in Duggan and relied on by GSTC, that the relevant value must be more specific than a global financial or business arrangement such as that described by Dr Pope in his evidence. Without intending to suggest that some business arrangements, which might involve some quid pro quo of a nature not involving direct payment for goods supplied on bailment, may never constitute "value" as defined in s10, I have real difficulty in concluding that the financial benefits identified here should be considered consideration sufficient to support a contract. The "consideration" is, in my view, quite uncertain. It is also too indirectly related to the provision of the goods to support the ready conclusion that the goods were bailed for such benefits.
148 While the analogy with the factual circumstances of Rabobank and Re Arcabi, as relied on by GSTC, may not be entirely apt, because of the different factual circumstances from this case, in each case some value, in the general sense of a financial benefit, was intended to be gained by the bailors in placing the goods with the bailee. But that value did not involve a direct payment of some fee, or a sufficiently connected financial benefit made by the bailee to the bailor to constitute consideration sufficient to support a contract, in my view.
149 Similarly, in my view, in this instance the lack of any sufficiently connected financial benefit for the bailing of the equipment by GSTC with the company militates against there being relevant "value" as defined by s 10 by reference to the consideration factor. As I have said, while not meaning to suggest that a more indirect financial benefit is never capable of supplying the relevant notion of contractual consideration, and thus "value" as defined in s 10, for a bailment the more diffuse nature of the business model employed by GSTC with its Australian subsidiary, the company, leads me to the conclusion that, on the facts of this case, the financial arrangements do not constitute such consideration; and so, by virtue of s 13(3) there can be no deemed PPS lease in this case.
150 I should add that I do not find the hypothetical example proferred by the receivers at [125] above as to why a broad view of value should be adopted to be compelling. I doubt that goods inadvertently left at premises in such a situation would ever constitute a "bailment" at law. See Rabobank at [17].