Crushing Services International Pty Ltd trading as CSI Mining Services v Lithium Developments

Introduction

1. On 6 May 2024 the plaintiff (CSI or Contractor) registered a security interest in certain crushing plant as collateral on the Personal Property Securities Register established under the provisions of the Personal Property Securities Act 2009 (Cth) and Personal Property Securities Regulations 2010 (Cth). The security agreement that gave rise to the security interest came into force on 4 May 2022. By originating process filed on 31 July 2024 CSI sought an order pursuant to s 588FM of the Corporations Act 2001 (Cth) fixing 6 May 2024 as the time for CSI to register the security interest for the purposes of s 588FL(2)(b)(iv) of the Corporations Act. On 12 September 2024 I made the requested orders. These are my reasons for doing so.

Preliminary matters

1. The originating process, affidavits of Quentin John Barrett sworn 30 July 2024 and Annabel Rose Beech affirmed 31 July 2024 and written submissions were served on the defendant (Lithium Developments (Grants NT) Pty Ltd or Company) on 2 August 2024. In addition to those affidavits, CSI filed, read and relies on a further affidavit of Ms Beech affirmed 13 August 2024 and an affidavit of Jacquelin Kirton affirmed 4 September 2024. By letter dated 13 August 2024 from Thomson Geer Lawyers, who represented in that letter that they act for the Company, to Herbert Smith Freehills, the solicitors for CSI, the Company indicated that on the basis that the orders sought in the application include the order sought in para 2 of the originating process (a 'Guardian Securities condition') the Company did not object to the orders sought and did not intend to appear at the hearing.
2. Consistently with the indication in the letter of Thomson Geer, the Company has not filed a notice of address for service or appearance and did not appear at the hearing of the originating process. Therefore, the orders were made, in effect, ex-parte and without a contradictor. For that reason, amongst others, I considered it appropriate to make the order extending the latest time for registration of the collateral subject to a Guardian Securities condition.

Legislative framework

1. The PPS Act and the PPS Regulations, with limited exceptions, apply to all security interests in personal property and make provision for registration of those security interests on the PPS Register established under the Act and Regulations. The PPS Act makes provision for certain rules relating to security interests and these rules address priorities between security interests and the circumstances in which a person takes personal property free of security interests. The rules also address transfer and enforcement of security interests. The concept of 'perfection' of a security interest is central to the operation of these provisions. Perfection of a security interest is also important because, if any of certain insolvency events occur with respect to the grantor and the security interest in unperfected at that time, the security interest vests in the grantor immediately before the insolvency event: s 267 of the PPS Act. That is, the grantee 'loses' the security interest.
2. A security interest in a particular collateral is perfected if the security interest is attached to the collateral, is enforceable against a third party and a registration under the PPS Act is effective with respect to the collateral, or the secured party has possession of the collateral, or, for certain kinds of collateral, the secured party is in control of the collateral: s 21 of the PPS Act. Section 19 describes the circumstances in which a security interest is enforceable and has attached to the collateral. Section 20 describes the circumstances in which a security interest is enforceable against a third party in respect of particular collateral. Section 24 provides that a secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor and vice versa with respect to possession of a grantor or debtor. The term 'collateral' means personal property to which a security interest is attached; that is, the secured property: s 10. A 'security agreement' means an agreement or act by which a security interest is created, arises or is provided for, or writing evidencing such an agreement or act: s 10. A security agreement is effective according to its terms: s 18(1).
3. CSI brought the proceeding because where: (1) any of certain insolvency events occurs (e.g., winding up, appointment of an administrator or execution of a deed of company arrangement) with respect to a grantor company; and (2) a security interest is perfected by registration and no other means; and (3) the registration for the collateral is after the end of 20 business days after the security agreement that gave rise to the security interest came into force, the PPS Act security interest vests in the grantor company: s 588FL of the Corporations Act. That is, if any of the applicable insolvency events occurs and the security interest is not perfected by a means other than registration under the PPS Act, CSI will not be able to enforce the security interest against the Company.
4. Section 588FL(2)(b)(iv) contemplates that the Court may order a later time than the 20-business day period under s 588FM and, if so, that later time fixes the latest time for registration of the collateral for the purposes of s 588FL. Section 588FM of the Corporations Act provides (notes omitted): 588FM Extension of time for registration (1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv). (2) On an application under this section, the Court may make the order sought if it is satisfied that: (a) the failure to register the collateral earlier: (i) was accidental or due to inadvertence or some other sufficient cause; or (ii) is not of such a nature as to prejudice the position of creditors or shareholders; or (b) on other grounds, it is just and equitable to grant relief. (3) The Court may make the order sought on any terms and conditions that seem just and expedient to the Court.
5. The effect of these provisions is that making the orders sought in the originating process will fix the latest time for registration of the collateral at 6 May 2024; namely, the actual date of registration of the collateral. Therefore, if any of the relevant insolvency events occurs, the security interest will not vest in the Company.
6. The principal issues that arise in this proceeding are: (1) whether CSI has a security interest in the relevant collateral that can be registered under the PPS Act; (2) whether the Court is satisfied that the failure to register the collateral earlier was accidental or due to inadvertence of some other sufficient cause; and (3) if so, whether the Court should make the requested order.

Relevant facts

1. CSI is a wholly owned subsidiary of Mineral Resources Ltd. CSI is a crushing contractor which provides crushing, screening and processing services to miners.
2. The Company is the owner and (or) operator of a lithium mining project in the Northern Territory known as the Finniss Lithium Project. A part of that project includes a mine known as the Grants open pit mine. The Company is a wholly owned subsidiary of Core Lithium Ltd which is listed on the Australian Securities Exchange.
3. On 4 May 2022 CSI, as the Contractor, and the Company made a crushing services contract (CS Contract). Under the terms of the CS Contract, CSI was contracted to design, supply, install and commission and then operate and maintain a crushing plant at the Finniss Lithium Project. (In these reasons capitalised terms are used as described or defined in the CS Contract unless otherwise defined or described in these reasons.)
4. The CS Contract contains the following relevant terms:
5. The Company is the owner of the Site: cl 7(a).
6. The Company grants the Contractor a non-exclusive and non-assignable licence to occupy the Site at no costs during the term of the CS Contract to enable the Contractor to perform the Works: cl 7(b).
7. The term 'Works' includes mobilisation to Site, and the construction and ownership of the Facilities during the Development Phase, the Commissioning of the Facilities, the operation and maintenance of the Facilities, the processing of the Annual Tonnage Rate of Ore during the Operations Phase and the demobilisation of the Contractor and the Facilities following the Operations Phase as required by the CS Contract: cll 1.1, 4.1(b), 11(a).
8. Subject to the terms of the CS Contract, the Facilities (which is defined to include the Crushing Plant and all associated plant, equipment and infrastructure) are and remain the property of the Contractor: cl 8.
9. In consideration for performance of the Works, the Company is to pay the Contractor at the rates set out in the Remuneration Schedule: cl 12(a).
10. On the Operations Phase Completion Date (which is ten years after the Date of Commissioning), the Contractor, at its own cost and expense, is to remove all of the Contractor's and all Sub-contractor's fixed and mobile property from the Site, within a reasonable time after the Operations Phase Completion Date, commence removal of the Facilities from Site, relocate for the Site all of its employees and Sub-contractors and make the Site safe and tidy: cl 6.4(a).
11. At any time after seven years from the date that the Operations Phase commences, the Company may, by written notice to the Contractor, elect to acquire the Crushing Plant free of all encumbrances for the Acquisition Fee: cl 43. The Acquisition Fee payable is $10,874,100 after seven years, $8,546,300 after eight years, $5,887,300 after nine years and $2,850,000 after ten years from the Date of Commissioning: Sch 2 cl 2.8. In the absence of an election by the Company, the Contractor may offer to transfer the Crushing Plant to the Company for the Acquisition Fee: cl 43(c).
12. Further, cl 47 of the CS Contract is as follows:
13. PPSA 47.1 Interpretation All terms in this clause 47 have the meanings given to them in the PPSA. 47.2 Security Interest (a) The Contractor's rights in respect of the Works under this clause 47 constitutes a Security Interest in the Works as the collateral under the PPSA. (b) The Security Interest attaches to the Works from the date of this Contract and there is no agreement to defer attachment to a later time than as specified above. (c) This Contract is a security agreement for the purposes of the PPSA. 47.3 Registration (a) The Company agrees that the Contractor may register a financing statement on the Personal Property Securities Register to protect its interest in the Works. (b) The Company must promptly, at its own cost, do anything that the Contractor asks it to do to achieve effective registration and ensure that it has a perfected Security Interest under the PPSA which has priority over all other security interests in relation to the Works. (c) The Contractor is liable for all fees and expenses incurred by the Contractor in relation to the registration of a financing statement or a financing change statement on the Personal Property Securities Register in connection with clause 47.3. 47.4 Purchase money security interest The Company agrees that the Contractor may register its interest in the Works as a purchase money security interest (as that term is defined in the PPSA) on the Personal Property Securities Register. 47.5 Notices under the PPSA Without limiting any other provision of this Contract, the Company waives its rights to receive any notice under the PPSA (including a copy of any verification statement), and the Contractor is not obliged to give any such notice to the Company, unless the notice is required by the PPSA and that requirement cannot be excluded. 47.6 Change of name The Company must notify the Contractor within 5 Business Days after any change in the Company's name or any trading name. 47.7 Contractor's rights Where the Contractor has rights in addition to those in Chapter 4 of the PPSA, those rights shall continue to apply. 47.8 Non-disposal of Works The Company must not, without the prior written consent of the Contractor which may be withheld at the Contractor's sole discretion, dispose, sell, transfer, lease, charge, lend, part with possession of or in any other way deal with the Works, Facilities or any part thereof.
14. Installation and commissioning of the Facilities, including the Crushing Plant, was completed on 24 October 2022. Thereafter, CSI operated the Crushing Plant to process ore as contemplated by the CS Contract during the Operations Phase.
15. The Site for the Finniss Lithium Project comprises an area of approximately 1,200 hectares, but the whole area of relevant mining tenements is significantly larger. The Site is remote and is fenced by a basic farm fence that is not secure. The Site is accessed from an internal mine road that runs off a public road. There is a boom gate on the mine access road intended to prevent unauthorised vehicle access to the Site. The Crushing Plant cannot be accessed by vehicle other than through the mine access road and boom gate. The Crushing Plant is not separately fenced within the Site. However, the Crushing Plant location is distinct as it is on a different relative level to other infrastructure on the Site. Parts of the Crushing Plant are marked with 'CSI' branding, but it is necessary to be relatively close to the plant to observe that branding. The Facilities are able to be locked or barricaded to exclude non-CSI personnel, but while the Crushing Plant is operating, the Facilities are unlocked. Otherwise, access to the Facilities by non-CSI personnel is only permitted under the direct supervision of CSI employees.
16. On 22 December 2023 Core Lithium made an ASX announcement to the effect that it was undertaking a strategic review of its operations to address a deterioration in lithium market conditions. On 5 January 2024 Core Lithium announced that it had decided to suspend mining operations at the Grants open pit mine and continue processing ore stockpiles. Subsequently, representatives of the Company approached Mr Barrett with a view to re-negotiating the terms of the CS Contract or making a new contract. Those negotiations are ongoing. In the meantime, CSI continued to process the ore stockpile through the Crushing Plant. However, those operations ceased on 28 May 2024 and the Crushing Plant transitioned to 'care and maintenance' mode. The whole Finniss Lithium Project has now moved or is moving to care and maintenance mode.
17. CSI contends that, by reason of the terms of the CS Contract and the other facts and matters to which reference has been made, it has a security interest in the Facilities (Crushing Plant) within the meaning of the PPS Act. CSI also contends that its security interest was perfected before registration on the PPS Register because it is in possession of the Facilities. That possession is both actual and apparent for the purposes of s 24 of the PPS Act.
18. In his affidavit Mr Barrett describes the circumstances in which CSI failed to register the putative security interest on the PPS Register before 6 May 2024. These may be summarised as follows.
19. Mr Barrett is employed by CSI in the position of a commercial general manager. In that role he was responsible for negotiating contracts between CSI and its clients and the management and conduct of contracts with those clients. He was responsible for the negotiation and conduct of the CS Contract.
20. Notwithstanding cl 47, at the time CSI entered into the CS Contract, Mr Barrett did not appreciate that CSI's interest in the Crushing Plant could be registered on the PPS Register. The first draft of the CS Contract was prepared by the Company and Mr Barrett was focussed on the commercial terms of the agreement and not the terms dealing with mechanics or implementation. He does not recall reviewing or considering cl 47. He was assisted by the MRL contracts team, but does not recall anyone in that team drawing cl 47 to his attention.
21. After Core Lithium made its announcement of the strategic review in December 2023, Mr Barrett became concerned about the long-term financial viability of Core Lithium and the Company as its subsidiary. As a consequence, he requested that the MRL risk and compliance team undertake a review to assess the extent to which CSI ought to protect itself by a PPS Register registration. After making that request, Mr Barrett was informed that a different team, the MRL transactional treasury and controls team, had responsibility for PPS Register registrations. Mr Barrett then requested a member of that team to undertake the assessment in January 2024.
22. No steps were taken by the relevant team until Mr Barrett followed up in April 2024. Shortly thereafter advice was received from Herbert Smith Freehills and registrations were made on 6 May 2024.
23. CSI made two registrations of security interests in which the collateral is described as 'The Crushing Plant (as that term is defined in Crushing Services Contract between the Secured Party and the Grantor dated 4 May 2022, as amended from time to time (Contract)) supplied by the Secured Party to the Grantor, pursuant to the Contract, including any components substituted into the Crushing Plant from time to time.' The registration numbers are 202405060043314 and 202405060044236.

What is a 'security interest'?

1. The concept of a 'security interest' is another central feature of the PPS Act.
2. Section 12(1) of the PPSA provides that: 'A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)' (emphasis original). Section 14(1)(a) provides, relevantly, that a 'purchase money security interest means … a security interest taken in collateral, to the extent that it secures all or part of its purchase price' (emphasis original). A purchase money security interest is a particular kind of security interest that, when perfected by registration within 15 business days after the grantor obtains possession or the interest attaches to the property, has a higher priority than other perfected securities interests: s 62.
3. There are two elements of a security interest described in s 12(1): (1) whether there is an interest in personal property provided for by a transaction; and (2) whether, in substance, the interest in personal property secures payment or performance of an obligation. Whether the second element is satisfied raises a question of characterisation of the transaction and is not merely a question of interpretation. In that enquiry, the form of the transaction and the identity of the person who has title to the property is to be disregarded in favour of the commercial or economic substance of the transaction. Nonetheless, where the transaction includes a written agreement, the provisions of that agreement must be construed for the purpose and in the course of ascertaining the substance of the transaction: Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134; 59 WAR 232 at [114], [189], [197]-[198] (Buss P and Murphy JA).
4. Justice Besanko recently considered the meaning and width of the concept of 'security interest' in Kirkalocka Gold Pty Ltd (Recs and Mgrs Apptd) v Zenith Packif (KLK) Pty Ltd [2024] FCA 428. The issues in that case were whether Zenith had a security interest in a power plant on Kirkalocka's property under the terms of a power purchase agreement and, if so, whether that interest was perfected by Zenith before Kirkalocka went into administration.
5. After explaining the concept of a 'security interest' articulated in Gold Valley and Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326; 49 VR 86, Besanko J observed: 55 In order for a transaction to give rise to a security interest in substance, there must be something to create an interest that is enforceable in the event of non-payment or non-performance of the obligation (Gold Valley Iron at [263] per Vaughan JA; Dura at [107] per Santamaria JA). Ordinarily, the concept of a security interest under the PPSA covers a situation where one person (the secured party) has an interest in some personal property in another's possession to assure or support the payment or performance of an obligation (Gold Valley Iron at [259] per Vaughan JA). The requirement in s 12(1) that the interest in personal property be "provided for" by a transaction is different and wider than words such as "created" or "arising" used in other parts of the PPSA (see, for example, s 8(1)(a), (b), (c), (g), the definition of "security agreement" and s 73(1) and s 73(2) and Central Cleaning Supplies (Australia) Pty Ltd v Elkerton (in his capacity as joint and several liquidator of Swan Services Pty Ltd (in liq)) [2015] VSCA 92; (2015) 321 ALR 181 (Central Cleaning Supplies) at [27]-[20]). In Central Cleaning Supplies, the appellant was the supplier of cleaning equipment to a purchaser. The invoice contained a statement that the subject of the sale would remain the property of Central until the purchase price had been paid to Central Cleaning Supplies in full. In the course of the Full Court's reasons, the Court said (at [16]): One of the examples given in s 12(2) - by subpara (d) - is "a conditional sale agreement (including an agreement to sell subject to retention of title)". Plainly enough, each contract between Central and Swan for the sale and supply of particular equipment was "an agreement to sell subject to retention to title". It was, moreover, a transaction of the requisite character, because in substance the retention of title by Central secured payment of the purchase price by Swan. Thus, the interest in the goods "provided by" that transaction was a "security interest" within the meaning of s 12(1). 56 In Gold Valley Iron, Vaughan JA said (at [363]): The single most important feature is the option to purchase. When the nature and structure of the option to purchase is understood it becomes apparent that in substance the hire agreements are a secured sales transaction. The transaction takes its legal form as a title-retention device for security purposes. The implications of the option to purchase are supported by a number of other features of the hire agreement. The contrary factors are peripheral indicia which do not detract from the conclusion that the transaction serves the function of securing the payment or the performance of an obligation as inheres from the option to purchase in the circumstances of the hire agreements. Gold Valley Iron involved an agreement for the hire of mining equipment. The hire agreements were dated 13 December 2019 and involved the respondent in that case agreeing to hire to the first appellant mining equipment owned by the respondent for at least 10 continuous months. On 17 February 2020, the first appellant was placed into voluntary administration. On 19 March 2020, the first appellant was placed into liquidation and the second and third appellants were appointed its joint and several liquidators. After the first appellant was placed into liquidation, the respondent demanded that the appellants return or release the mining equipment to the respondent. The appeal to the Western Australian Court of Appeal was allowed.
6. The provisions of the Purchase Power Agreement (PPA) under consideration in Kirkalocka were similar in effect to the provisions of the CS Contract. Under cl 3.1 of the PPA, Zenith was to supply, install, operate and maintain the Zenith Power Plant on the power station site. Clause 3.4(a) provided that Zenith was to be granted access to the site from the date of the agreement and cl 3.3(b) provided that Zenith had a non-exclusive and non-assignable licence to occupy the site during the term of the PPA. Clause 3.5 provided that nothing in the PPA operated to transfer title to, or grant any interest in, the works or Zenith Power Plant to Kirkalocka except as provided by the option to purchase clause. Clause 13(a) provided for Kirkalocka to have reasonable access to the power station site and cl 13(b) granted Kirkalocka effective control of and access to certain equipment in the case of emergency. Clause 23 gave Kirkalocka certain step-in rights in the case of default by Zenith and, in those circumstances, Kirkalocka assumed possession of the Zenith Power Plant in accordance with the provisions of the PPA. Kirkalocka was granted a right to purchase the Zenith Power Plant in certain circumstances. The purchase price varied over a series of 123 months starting with an opening price of $8,217,000 and ending at zero. If not purchased, Zenith was required to remove the Zenith Power Plant and rehabilitate the site: Kirkalocka at [20]-[22], [30], [40].
7. One of Kirkalocka's contentions was that Zenith had a security interest through a term providing for retention of title in the Zenith Power Plant. The submission was that in circumstances where, under the PPA, Zenith agreed, in effect, to supply and install the Zenith Power Plant at the site controlled by Kirkalocka and to operate the Zenith Power Plant to provide electricity exclusively to Kirkalocka, cl 3.5 of the PPA was, in substance, a retention of title device, the effect of which was that title to the Zenith Power Plant only passed to Kirkalocka if it exercised its purchase option. That is, it operated to secure payment of the purchase price. After addressing Zenith's contentions, Besanko J said: 71 In Gold Valley Iron, Vaughan JA, after referring to the examples in s 12(2)(d),(e),(h) and (i) of the PPSA, said the following (at [271]-[273]): 271 With each of these examples there is no immediate passing of legal title (albeit that, with some of these transactions, an eventual passing of legal title is anticipated or at least possible). However, in each case there is a transfer of possession. As between conditional seller/purchaser, owner/hirer, consignor/consignee and lessor/lessee the latter takes possession of the goods. So these are transactions where one party (the creditor/seller) retains legal title but another party (the debtor) has possession and apparent ownership. 272 The operation of the PPSA in relation to such transactions is awkward and, to some extent, counter intuitive. It might be thought anomalous that the party in possession through a transaction by way of conditional sale, hire purchase, consignment or lease may provide for a security interest in the relevant goods in favour of the legal title holder. A non-owner debtor is providing for an interest in personal property in favour of the owner. So too it may seem anomalous to say that the secured party's interest in the goods (the secured party being the creditor/seller) is provided for by the transaction where the secured party owned the goods before the transaction and continues to hold legal title after the transaction. 273 One must, however, put aside preconceived notions based on the operation of the general law and instead apply oneself to the text and structure of the PPSA. Counsel referred to this passage whilst at the same time acknowledged that the concept that the owner of goods could be granted an interest in its own goods seem "counterintuitive". 72 The provisions of the PPA do not give rise to a conditional sale because Kirkalocka does not agree to purchase the goods, it has only an option to purchase the goods. The other matter is that possession of the Zenith Power Plant vested with Zenith and Kirkalocka never possessed the Zenith Power Plant. Nor do the provisions of the PPA give rise to a hire purchase agreement because it cannot be said that in a real sense Kirkalocka was using the Zenith Power Plant for the term of the PPA (see Bridge MG , Personal Property Law, (3rd ed, Oxford University Press, 2002) pp 40, 121, 135). There is also the matter already mentioned that I have found that Kirkalocka never had possession of the Zenith Power Plant. 73 The case involves some unusual circumstances. Had the Zenith Power Plant been in the possession of Kirkalocka, then subject to one matter, the case would have been relatively straightforward. There would have been a security interest in personal property being Zenith's legal title in the Zenith Power Plant and its ability to reclaim the plant on default by Kirkalocka in the performance of its obligations under the PPA or the exercise by Kirkalocka of its option to purchase. … 75 The question then comes down to whether the fact that at all times Zenith retained possession of the Zenith Power Plant means that it did not have a security interest within s 12(1) of the PPSA. I have given this matter anxious consideration. I was not referred to any authority directly on the point. I have concluded that possession or not, s 12(1) is wide enough to cover a situation such as the present, particularly where Kirkalocka by the end of the term, and assuming no early termination, would have paid off a substantial proportion of the value of the Zenith Power Plant and possibly more. 76 Zenith's interest in personal property is the legal interest with a retention of title clause which can be engaged should Kirkalocka not perform its obligations under the PPA, including its obligation to make payment of the Capacity Charges and the Energy Charges. I do not consider that the fact that the Termination Payment for Kirkalocka's default and which the parties agreed was a genuine pre-estimate of the loss and damage that would be suffered by Zenith for the early termination of the PPA makes any difference to the conclusion I have reached, particularly as I consider it clear that there would be a security interest had Kirkalocka had possession of the Zenith Power Plant and there is no apparent link between the issue of possession and the agreed quantum for loss and damage suffered as a result of a breach of the PPA. 77 In conclusion, Zenith had a security interest by reason of s 12(1) of the PPSA.

Does CSI have a security interest in the Crushing Plant?

1. It is not necessary on an application of this nature to determine whether CSI has a registrable security interest in the Crushing Plant under the CS Contract. Further, it would not be appropriate to do so in circumstances in which there is no contradictor. It is sufficient for the purposes of this proceeding if I am satisfied that it is reasonably arguable that the CS Contract makes provision for an interest in personal property that, in substance, secures payment or performance of an obligation: Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Pty Ltd [2019] WASC 438 at [29] (Vaughan J).
2. While I have no reason to doubt the correctness of the analysis of Besanko J in Kirkalocka, I understand that an appeal has been instituted from that judgment. Also, his Honour expressed his conclusions after 'anxious consideration'. Further, as his Honour recognised, there is something counterintuitive about the owner and possessor of personal property having a security interest in that property granted to it by a grantor that is neither owner nor possessor of that property. Ultimately, his Honour's reasoning turned on the width of the concept of 'security interest' in s 12(1) of the PPS Act.
3. Nonetheless, accepting the width of the concept of 'security interest' Besanko J described in Kirkalocka, I am satisfied that it is reasonably arguable that the CS Contract makes provision for a security interest in the Crushing Plant. Clauses 8 and 43 and Sch 2 cl 2.8 of CS Contract are similar in effect to the provisions of the PPA that Besanko J found gave rise to a security interest in Kirkalocka. Additionally, cl 47 of CS Contract arguably evinces an intention to grant a security interest in the Works (including the Facilities and Crushing Plant) to secure the performance of the Company's obligations under the CS Contract, including payment of the purchase price for the Crushing Plant in the event that it exercises the option to purchase that plant. In keeping with that intention, cl 47.4 provides that the 'Company agrees that the Contractor may register its interest in the Works as a purchase money security interest (as that term is defined in the PPSA) on the Personal Property Securities Register'. As already mentioned, a purchase money security interest is a particular type of security interest and includes a security interest taken in collateral, to the extent that it secures all or part of its purchase price.

Has there been perfection of the security interest?

1. CSI submits that there has been perfection of the asserted security interest by registration, albeit more than 20 business days after the CS Contract came into force, and by operation of ss 19 - 21 of the PPS Act. The security interest attached on execution of the CS Contract because the Company had rights in the collateral, or power to transfer rights in the collateral, and value was given for the security interest: s 19(1), s 19(2). The security interest was enforceable against a third party because it is attached to the collateral and CSI possesses the collateral: s 20(1)(a), s 20(1)(b)(i). The security interest is perfected because it has attached to the collateral, is enforceable against a third party and CSI has possession of the collateral (other than possession as a result of seizure or repossession): s 21(1)(b), s 21(2)(b). The Company is not in actual or apparent possession for the purposes of s 24(1). CSI has actual and apparent possession. It has apparent possession because a hypothetical observer who is able to see the Crushing Plant would believe CSI to be in possession of it because certain equipment is marked with CSI branding, access to the Facilities by non-CSI employees is only permitted under the supervision of CSI employees and the Facilities are capable of being locked to exclude non-CSI personnel.
2. Justice Besanko considered similar contentions in similar circumstances in Kirkalocka. There the security interest had not been perfected by registration. It was not in issue that all elements of ss 19 - 21 were established except for the requirement that Zenith be in the possession or apparent possession of the power plant. Justice Besanko found that the power plant was in the actual possession of Zenith. Therefore, the critical question was whether it was in the apparent possession of Zenith or the apparent possession of Kirkalocka.
3. Justice Besanko found that Zenith was in actual possession of the Zenith Power Station based on the provisions of the PPA to which reference has been made in para [27] of these reasons: Kirkalocka at [41]. These provisions of the PPA were of similar effect to cll 4.2(b), 7(a), 7(b) and 8 of the CS Contract. I accept that it is reasonably arguable that CSI is in actual possession of the Facilities (including the Crushing Plant) based on these provisions of the CS Contract and the facts to which Mr Barrett deposes in his affidavit about the manner in which access to the Facilities is controlled by CSI.
4. With respect to apparent possession, Besanko J applied an objective test of whether a hypothetical observer would conclude that the relevant party was in possession of the power plant. Justice Besanko said that the hypothetical observer must at least be able to see the personal property in issue. His Honour then reasoned that if the 'hypothetical observer was inside the Site and was able to view the Zenith Power Plant from a reasonable distance, that observer would see the large Zenith Pacific sign on the building, and I consider would conclude that [the power plant] was at least in the apparent possession of Zenith. The position is even stronger if it is appropriate to place the hypothetical observer in one of the buildings comprising the Zenith Power Plant because that person would see in large letters "Zenith Pacific" on the floor of the building and various other indications that Zenith was in possession. However, it is unnecessary to go that far, to reach the conclusion that Zenith was in apparent possession of the Zenith Power Plant.': Kirkalocka at [94].
5. Applying the same reasoning as Besanko J, the issue of whether the Facilities (including the Crushing Plant) is in the apparent possession of CSI is a question of fact based on what conclusions a hypothetical observer would reach about possession. The evidence CSI has adduced is not particularly cogent. However, having regard to the nature of this proceeding, I need not reach any definitive conclusion and, for the reasons already given, it would not be appropriate to do so. I am satisfied on the facts deposed in Mr Barrett's affidavit and the photographs exhibited to it, that there is at least a serious factual question to be tried about whether the Facilities are in the apparent possession of CSI and, therefore, that any security interest has been perfected by possession because the Facilities are not in the apparent possession of the Company.
6. The question of perfection of any security interest by possession is of significance to this proceeding for two reasons. First, on the available material, CSI's case for apparent possession appears weaker than Zenith's case in Kirkalocka. Further, Kirkalocka is subject to appeal. Therefore, CSI is exposed to the risk that any security interest has not been perfected by possession. Second, to the extent that any security interest has been perfected by possession, that diminishes the risk of prejudice to unsecured creditors if the Court exercises its discretion to fix a later time for registration. Both are reasons for exercising the discretion in favour of CSI, but pull in opposite directions as regards the risk of prejudice to unsecured creditors.

Should a later time be fixed?

1. For the purposes of s 588FM(2)(a)(i) of the Corporations Act, 'inadvertence' is concerned with human error or oversight or not being properly attentive: Bluewaters Power 1 at [40]-[41]. It includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so: Re Appleyard Capital Pty Ltd [2014] NSWSC 782; 101 ACSR 629 at [10] (Brereton J) and the authorities there cited. Thus, inadvertence will readily be found where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of its statutory obligations: Re Accolade Wines Australia Ltd [2016] NSWSC 10123 at [14] (Brereton J).
2. I am satisfied, based on the facts deposed in Mr Barrett's affidavit to which reference is made at para [20] of these reasons, that the failure to register the collateral before 6 May 2022 was due to inadvertence within the meaning of s 588FM(2)(a)(i). Thus, a precondition to exercise of the discretion to make an order under s 588FM(2) has been met. Many factors may be relevant to the exercise of the discretion, but a primary factor is the extent to which the order sought would cause prejudice to third parties, in particular, unsecured creditors.
3. Prejudice to unsecured creditors is not necessarily established merely by demonstrating that the return to them in an administration or liquidation of the company would be diminished if the security interest does not vest in the company. The position of the unsecured creditors may have been the same if there had been timely registration. 'The type of prejudice that is of particular relevance is prejudice attributable to the delay in registration, rather than prejudice from making the order (which is inevitable).' Put another way, the relevant prejudice is that which flows from the failure to register earlier, not from making the order: Appleyard Capital at [30].
4. In Re Transurban CCT Pty Ltd [2014] NSWSC 1909 Brereton J made the following further relevant observations: 13 In Appleyard Capital, I also discussed the significance of risk or prejudice to unsecured creditors and concluded that although the presence or absence of such prejudice was a relevant discretionary consideration, relevant prejudice was not necessarily established merely by showing that the dividend to unsecured creditors would be reduced if the security interests were not to vest in the company, as those creditors may well have been in no better position had the security interest been registered in a timely manner. The type of prejudice that is of particular relevance is prejudice attributable to delay in registration, rather than prejudice from making the order (which is inevitable). The period of delay in effecting registration is relevant, primarily because the shorter the delay the less likely that failure to register within time will have had any impact. The significance of the passage of time is mainly related to the possibility of competing interests having arisen, in particular through others having dealt with the company on the footing that the collateral was unencumbered. The mere fact that if the extension is granted unsecured creditors will be deprived of the benefit of the security interest vesting in the company and thus receive less dividend is no objection to making an order. (emphasis added.)
5. As already mentioned, the risk of prejudice of that kind resulting from the delay in registration is mitigated to the extent that any security interest was perfected by CSI being in possession of the collateral. If any security interest was so perfected, unsecured creditors would be in no worse position because s 588FL of the Corporations Act applies where the security interest is perfected by registration and no other means and s 267 of the PPSA would also not apply because the security interest was perfected other than by registration.
6. The solvency, or otherwise, of the grantor is also a relevant consideration. Where the grantor is clearly solvent the risk of prejudice to unsecured creditors may be so low as to be effectively not a consideration at all. As Vaughan J put it in Bluewaters Power 1 (at [54]): 'If solvent that may be the end of the matter.' But, if the Court cannot be satisfied that there is no risk of prejudice to unsecured creditors, an order may be made reserving leave to apply to set it aside in the event of a relevant insolvency event.
7. In Appleyard Capital Brereton J observed: [28] In practice, … it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a "Guardian Securities condition" reserving leave to any liquidator or administrator appointed within 6 months to apply to set the order aside. This course, or one similar to it, was taken in Limited Company per Long Innes J, where solvency was dubious; in L H Charles & Co per Clauson J, where liquidation was in contemplation; in Cinema Art Films per Myers CJ; in Guardian Securities per McLelland J, where there was "no evidence whatsoever as to the solvency or otherwise of the company creating the charge" (at 98); and in Bevillesta per Robson J, where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees per Black J, where again the evidence of solvency was inconclusive; in Re Apex Gold Pty Ltd [2013] NSWSC 881 per Hammerschlag J, where administration was imminent; and in Black Opal IP per Brereton J, where there was some but less than comprehensive evidence of solvency.
8. The financial statements of Core Lithium, the parent of the Company, as at 30 June 2023 were in evidence. It records a healthy surplus of assets over liabilities in its balance sheet and that position had not deteriorated to any significant extent as at 31 December 2023. However, the financial health of the parent does not provide any information about the financial position of its subsidiary. The evidence suggests that there has been a fall in the market price for lithium which may have had an adverse financial impact on the operations of both the parent and the subsidiary. In January 2024 operations at the Grants open pit mine were suspended. The whole Finniss Lithium Project has been or is moving to 'care and maintenance'.
9. Further, there does not appear to have been any registration of a security interest over personal property that would include the Facilities on the PPS Register after May 2022 and before 6 May 2024. Therefore, there are no evident grounds for considering that unsecured creditors would have dealt with the Company on the footing that the Facilities were already encumbered by some other security interest.
10. In the absence of any other evidence, I cannot be satisfied that the insolvency risk is negligible or even low. Thus, the potential prejudice to unsecured creditors which have dealt with the Company since May 2022 remains a relevant and significant consideration.

Disposition

1. On balance and having regard to all the matters to which reference has been made, I am satisfied that an order should be made fixing the time for registration of the collateral at 6 May 2024. However, that order should be subject to a Guardian Securities condition. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.