Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd

The PMSIs, super priority and s 293 of the PPSA 72 An order is also sought concerning the registration of the financing statements that relate to each PMSI. This is sought to protect what is known as super priority. In summary, the failure to lodge a registration on the PPSR in respect of a PMSI within 15 business days from the grantor obtaining possession of the relevant goods disentitles the secured party to the super priority afforded to the PMSI under the PPSA. 73 The super priority is conferred by ss 62 and 63 of the PPSA which provide: 62 When purchase money security interests take priority over other security interests Scope (1) This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest. (2) The purchase money security interest has priority if: (a) the purchase money security interest is in inventory or its proceeds; and (b) the purchase money security interest is perfected by registration at the time: (i) for inventory that is goods - the grantor, or another person at the request of the grantor, obtains possession of the inventory; or (ii) for any other kind of inventory - the purchase money security interest attaches to the inventory; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. Personal property other than inventory (3) The purchase money security interest has priority if: (a) the interest is in personal property, or its proceeds, other than inventory; and (b) the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies: (i) for goods - the day the grantor, or another person at the request of the grantor, obtains possession of the property; (ii) for any other property - the day the interest attaches to the property; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. 63 Priority between competing purchase money security interests in collateral A perfected purchase money security interest (the priority interest) that is granted by a grantor in collateral or its proceeds to a seller, lessor or consignor of the collateral has priority over any other perfected purchase money security interest that is granted by the same grantor in the same collateral if the priority interest is perfected: (a) if the collateral is inventory that is goods - at the time the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (b) if the collateral is inventory and is not goods - at the time the priority interest attaches to the collateral; or (c) if the collateral is not inventory, and is goods - before the end of 15 business days after the day the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (d) if the collateral is not inventory, and is not goods - before the end of 15 business days after the day the priority interest attaches to the collateral. 74 Now let me just focus for the moment on s 62. 75 Section 62(1) only applies where s 62(3) is complied with, which includes the 15 business days timing requirement (s 62(3)(b)(i)), unless extended pursuant to s 293(1)(a), which applies to the perfection of PMSIs. 76 Under s 62, a PMSI has priority as against competing non-PMSI perfected security interests in the same collateral irrespective of the competing security interest(s) holder's awareness, consent or otherwise regarding the grant of the PMSI, provided that ss 62(2) or 62(3) have been complied with. So, if the grant of a PMSI to a third party constitutes a breach of an earlier AllPAAP security interest holder's agreement with the grantor, then the recourse for the AllPAAP security interest holder is to pursue the grantor for breach of contract. It does not otherwise affect the validity of the PMSI or its priority. So, had CBA correctly lodged a financing statement on the PPSR in respect of the relevant registration number of each aircraft concerning its PMSIs, it would have been able to avail itself of s 62 regardless of any earlier in time AllPAAP security interest. 77 So, in the present case, if CBA is unable to obtain the benefit of s 62 and the super priority concerning PMSIs, it could only seek to rely on the default priority rules in s 55 insofar as any question of priorities as between other secured parties who have taken a security interest over the same collateral was to arise. In this regard, s 55 provides that: 55 Default priority rules (1) This section sets out the priority between security interests in the same collateral if this Act provides no other way of determining that priority. (2) Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests. (3) A perfected security interest in collateral has priority over an unperfected security interest in the same collateral. (4) Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs. (5) For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest: (a) the registration time for the collateral; (b) the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral; (c) the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act. (6) A time is a priority time for a security interest only if, once the security interest is perfected at or after that time, the security interest remains continuously perfected. 78 There are various practical effects flowing from what has occurred concerning the PMSIs if super priority is lost. Let me deal with some of them. Absent an order under s 293(1)(a), any other PMSI taken over any equipment the subject of finance provided to HM Aircraft would take priority over the CBA's interest in that equipment notwithstanding that the acquisition of the relevant equipment was financed by CBA. Further, CBA would also be in a lesser position more generally. 79 Let me turn to s 293. 80 Section 293(1)(a) provides: 293 Timing - applications for extension of time (1) On application, a court may make an order extending the number of business days in a period specified in the following provisions if the court is satisfied that it is just and equitable to do so: (a) paragraphs 62(3)(b) (perfection of purchase money security interests); … 81 When considering whether to grant relief under s 293(1)(a), I am required to have regard to the elements set out at s 293(3), which provides: … (3) In making an order to extend a period under subsection (1), the court must take into account the following: (a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause; (b) Whether extending the period would prejudice the position of any other secured parties or other creditors; (c) Whether any person has acted, or not acted, in reliance on the period having ended. 82 As to s 293(3)(a), inadvertence or accident for the purposes of s 293(3)(a) of the PPSA has the same meaning as their cognate forms in s 588FM of the Corporations Act. Accordingly, the same matters as I have already set out in the context of s 588FM are relevant, and I would draw the same conclusions. 83 Let me deal with ss 293(3)(b) and (c). Now I need say little about the concept of s 293(3)(c). It is a self-explanatory factual inquiry. Let me elaborate on s 293(3)(b). 84 The concept of "prejudice" in s 293(3)(b), as compared with prejudice under s 588FM(2)(a)(ii) of the Corporations Act, was contrasted in Re Accolade Wines Australia Limited [2016] NSWSC 1023 by Brereton J (at [27]) in the following terms: As explained in Appleyard Capital, in s 588FM(2)(a)(ii), the prejudice referred to is prejudice to the position of creditors or shareholders from "the failure to register the collateral earlier" - in other words, prejudice attributable to not making a timely registration. That means that, to evaluate prejudice for the purposes of s 588FM, one compares the position of the creditors if an extension is granted, with their position if there had been an effective timely registration; often there will be no difference. However, the prejudice referred to in s 293(3)(b) is prejudice from "extending the period". This directs attention not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed. 85 His Honour went on to say (at [28] and [29]): … If an order is made under s 293(1) extending the period for registration of the Plaintiffs' PMSIs, the AllPAP holders will lose that priority in respect of the particular collateral which is the subject of the Plaintiffs' PMSIs. It follows that they will be prejudiced by extending the period. However, such prejudice, while not irrelevant, is not conclusive. Appleyard Capital explained that in the context of s 588FM, prejudice to other creditors could not be conclusive because otherwise an order would never be made in any case in which it mattered: in any case where an extension was of utility, there would inevitably be prejudice by removing the collateral from the pool available to satisfy unsecured creditors generally, and enabling that result was the fundamental purpose of the provision. The same applies here: the essential purpose of granting an extension is to reinstate the priority to which a PMSI would otherwise be entitled over prior AllPAPs (as it will in any event have priority over later AllPAPs), and thus in any case in which the remedy is of any practical utility, there will be prejudice to a prior AllPAP holder. 86 Like Gleeson JA in Northern Managed Finance Pty Ltd v 4 in 1 Wyoming Pty Ltd (2017) 120 ASCR 167 at [64] to [68], I will adopt that approach. 87 So, in order to obtain relief under s 293 it is neither necessary, nor would it be possible in most cases, for the security interest holder to demonstrate that there is no prejudice to other secured parties at all as a consequence of the grant of the relief sought. 88 Instead, because of the factors that weigh in favour of the making of the orders, an AllPAAP holder bears a forensic burden of demonstrating why they would be unfairly prejudiced (in the relevant sense) due to their reliance on what appeared on the PPSR at the time they took their relevant security interest (see Re Accolade Wines at [52]). 89 The circumstances of the case before me demonstrate an absence of prejudice and also an absence of reliance. 90 In respect of the relevant aircraft, no other secured party has a registered financing statement on the PPSR over the relevant serial numbers, save for one helicopter (registration number [x]), which I will discuss in a moment. 91 Further there is one subsequent AllPAAP (with exceptions) registered in respect of HM Aircraft, as well as a number of financing statements in other collateral classes. 92 In relation to the helicopter with registration number [x], no prejudice arises from the conflicting serial number registration. In short, the National Australia Bank registered an interest in a helicopter owned by Landour Pastoral Company in respect of a Robinson R44 Helicopter with that registration number whereas CBA's registration was in respect of a Bell 206B-3 Helicopter owned by HM Aircraft. So, CBA's registration was made in respect of a different aircraft coincidentally bearing the same registration number. 93 Let me say something about the subsequent registrations. 94 Four secured parties have subsequently registered a security interest in HM Aircraft: Sanctuary Aircraft, Aero Facilities, Capital Finance and BOQ Equipment. But each relevant security interest is limited to specific goods over which CBA does not hold a specific security interest. But I need to say something further about Aero Facilities. Up until yesterday its position was unclear concerning its security, and so it was joined as a second defendant. 95 There is a so-called AllPAAP (with exceptions) registered by Aero Facilities. But whilst registered as an AllPAAP with exceptions, the true nature of the security is limited to an identified Cessna aircraft. So, the otherwise universality of an AllPAAP has excluded all objects therein bar one. How it could sensibly have been described as an AllPAAP, albeit with exceptions, is puzzling. And there is more. Shortly before the hearing yesterday, an affidavit was filed describing the true nature of Aero Facilities' interest to be under a finance lease. In any event, I am satisfied that Aero Facilities has no security interest in any collateral other than the Cessna aircraft, which has nothing to do with the collateral the subject of CBA's security interests. Clearly, Aero Facilities is not prejudiced by the orders that I propose to make.

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