HIS HONOUR: The plaintiff Primaplas Pty Ltd ("Primaplas") is in the business of manufacturing and supplying resins. One of its customers was the first defendant Gelpack Enterprises Pty Ltd ("Gelpack"), which is now in liquidation, the second defendants being its liquidators. By the time Gelpack went into liquidation, it admittedly owed Primaplas some $1,026,000 for resins supplied and delivered by Primaplas to Gelpack. Gelpack used those resins, in conjunction with materials sourced from other suppliers, to manufacture plastic products which it has, in due course, sold. The liquidators apparently recovered some of Gelpack's products and sold them, and hold a fund of money in the sum of less than $700,000. The claims against the company, not only by Primaplas but by other suppliers, considerably exceed that amount.
The plaintiff contends that it supplied its resins to Gelpack upon terms which conferred on it a "security interest" for the purposes of the (CTH) Personal Property Securities Act 2009 ("PPSA"). Their contention to that effect was rejected by the liquidators on 4 December 2014 in the following terms:
The liquidators of the company provide notice of their intention to reject the PMSI claim 14 days after the date of this letter.
By an originating process filed on 19 March 2015, said to be by way of appeal from the liquidators' decision pursuant to (CTH) Corporations Act 2001, s 1321, Primaplas claims leave to proceed against the company in liquidation, a declaration that it has a valid and perfected security interest over the goods it supplied to Primaplas, and alternative relief.
In so far as the originating process constitutes an appeal under Corporations Act, s 1321 (which, I think, is the preferable way to approach the matter), it is out of time, as (NSW) Supreme Court (Corporations) Rules 1999 require such an appeal to be filed within 21 days or such further time as the Court may permit. The question that arises is plainly an arguable one, and one of considerable importance in deciding the priorities in respect of such funds as remain available in the liquidation. The delay in initiating an appeal is explained, at least in part, by attempts to resolve the dispute without before having to approach the Court. There is no suggestion of any prejudice to the administration from the time that has passed. The hearing has been brought on quite expeditiously since the originating process was filed. In those circumstances, I am minded to extend time for instituting an appeal under s 1321 from the relevant decision.
The liquidators argued that there was limited utility in the relief sought, and that if the declaration sought, which is the only relief claimed, was not without utility, the proceedings were at least premature. That position sits a little uncomfortably with the complaint that they were instituted out of time.
It is absolutely correct that if the Court makes declarations to the effect of those sought, that will not finally resolve the issues. That is because declaring that the plaintiff has a valid and perfected security interest would not resolve any dispute as to the quantum or extent of that interest in the proceeds of the co-mingled products into which the security interest would now have to be traced. That tracing process, however, is one that need not necessarily be undertaken in Court. The evidence indicates that, though it may have its challenges, such a tracing process is not impossible. The liquidator deposes to having a stock list of finished goods produced by the company which contains pricings and dates, and that to confirm their accuracy, they need to be reconciled against production records and interviews with employees "to ascertain which and to what extent the goods" - that is to say, the goods supplied by Primaplas - "were utilised in production of specific finished products". However, if anything, that suggests that while there are difficulties, the tracing process is feasible.
It is plain that while their present decision rejecting the claim to a security interest remains on foot, the liquidators will see no need or reason to undertake that tracing exercise. If the Court comes to the conclusion that the decision was wrong, they will no doubt take a different attitude as to the utility of any such exercise, and it may well be that that can proceed without further involvement of the Court. If the ultimate formulation of a claim quantifying and identifying the extent of the security interest were to proceed in Court, then the questions currently tendered for resolution would first have to be decided in any event. Accordingly, I do not think that this is a case in which the declaratory relief sought is without utility or premature. To the contrary, it seems to me that it will resolve, one way or another, a question of importance in the liquidation, and facilitate the further conduct of the liquidation with that issue having been clarified and resolved. Accordingly, there seems to me considerable commercial utility in resolving this issue now, rather than leaving it for another day. I therefore reject the submission that the Court should not embark on the questions raised by the originating process for lack of utility or prematurity.
Accordingly, I turn to the substantive issues.
In 2007, the then finance manager, who was also a director of Gelpack, one Ash Jani, executed on behalf of Gelpack a credit account application form on the letterhead of Primaplas and transmitted it to Primaplas. That application form included Primaplas's "General Terms and Conditions of Trade". Those terms and conditions included:
5 Passing of property
Title and property in and all goods remain vested in the supplier and do not pass to the customer until full payment and cleared funds is received by the supplier for supplies of all goods and services to the customer, as well as all other amounts owing to the supplier by the customer.
6 Miscellaneous.
6.1. The supplier reserves the right to vary these conditions and/or payment terms given to the customer with immediate effect. The supplier will use its best efforts to give reasonable notice to the customer before any proposed variations.
Thereafter, Gelpack placed orders for the supply of goods with Primaplas, and Primaplas supplied goods pursuant to those orders. It is not in dispute that Mr Jani had the requisite authority to execute the General Terms and Conditions of Trade, nor do I understand it to be in dispute that cl 5 set out above (which I will call the 2007 Retention of Title or "ROT" clause) applied to goods and services thereafter supplied pursuant to the orders made.
On or about 1 August 2012, the financial controller of Primaplas sent to Gelpack a letter addressed to "Dear Valued Customer" and headed "Terms and Conditions of Trade", which referred to the enactment of the PPSA and a review of Primaplas's Terms and Conditions of Trade. The letter stated that Primaplas had registered its security interests, which must have drawn the attention of Gelpack to the fact that Primaplas had registered its security interests on the PPS register, as in fact it had on 16 July 2012. The letter continued by attaching a copy of new terms and conditions of trade which stated, "will apply to any orders accepted after this notification". The letter invited the recipient to sign and return a copy as an acknowledgment of receipt and consent, but again emphasised:
From the date of this notification all future orders will be subject to the enclosed T&Cs and by placing orders after receipt of this notice, you will be deemed to have accepted the new T&Cs and agreed that all future orders are subject to the new T&Cs.
The new terms and conditions provided, by clause 2, that they applied to any agreement between Primaplas and the customer after their acceptance. The customer agreed:
The customer shall be deemed to have accepted the terms and conditions of trade if the customer submits any order or makes a purchase utilising the credit account after receipt of the terms and conditions of trade or if they have signed an acknowledgment of the terms and conditions of trade.
Clause 6 provided:
All interests in and entitled to any goods supplied or delivered by Primaplas will remain with Primaplas and will not pass to the customer until the price and any charges have been paid in full.
Clause 11 charged the customer's interest in any property with payment of the price and charges pursuant to the agreement, and provided that Primaplas should be entitled to register a caveat over the customer's real property. Under the heading "PPSA", clause 11 provided that the customer granted as security for the price and charges, "a security interest in all of the customer's present and after-acquired property in which the customer has rights and a PMSI in all the goods supplied to the customer pursuant to the terms and conditions of trade."
At the foot of the terms and conditions appeared, in bold, the term:
The customer and guarantor acknowledge, having read and understood the Primaplas terms and conditions of trade prior to executing this acknowledgment, by executing this acknowledgement the customer and guarantor grants the security interest and warrant the accuracy of the acknowledgement, promises and warranties set out herein.
A copy of the terms and conditions was signed by Mr Paul Hone, who described himself as the Operations Manager of Gelpack, and returned by him to Primaplas in early 2013. The liquidators dispute Mr Hone's authority to bind the company to those terms and conditions. In addition to the return of the signed terms and conditions by Mr Hone, Gelpack continued after August 2012 to place orders for goods with Primaplas and Primaplas continued to supply Gelpack.
When delivered, the goods were accompanied by a "pallet docket" or similar delivery document which included, amongst other things, the wording:
For terms and conditions of sale, MSDS and material data sheets, please refer to Primaplas Pty Limited…
The invoices issued by Primaplas included at their foot the following:
Note: Supply of the goods and product identified on this tax invoice is subject to Primaplas' terms and conditions of trade.
Retention of title
Title to the goods and product does not transfer to the customer until all moneys owning to us have been paid in full.
We might charge interest on the overdue amount.
The primary question for resolution is whether the ROT clause and/or the express grant of a security interest in the 2012 terms and conditions bind Gelpack.
The starting point, chronologically, for that analysis, is to consider the effect of the August 2012 notification. Under the 2007 contract, Primaplas reserved the right unilaterally to change the terms and conditions. While undertaking to give notice of its intention to do so, where possible, such notice - let alone consent - was not a pre-condition to a change. The 2007 contract authorised Primaplas to change the terms and conditions from whenever it chose to do so.
The liquidators accept that the August 2012 letter and notification had the effect of superseding the 2007 terms and conditions by exercise of Primaplas's unilateral reserved right to do so, but dispute that it had the effect of substituting the new terms and conditions. I am afraid I am unable to see the logic in that submission. If, as appears to be accepted, Primaplas was entitled unilaterally to vary its terms and conditions, then what it did on 1 August 2012 was not just to extinguish the preceding terms and conditions, but also to substitute new ones. Thus, as it seems to me, even in the absence of anything that ensued after 1 August 2012, by varying its terms and conditions on that date, it exercised a power reserved to it under the 2007 contract and Gelpack was thereupon bound by the 2012 terms and conditions.
The fact that the covering letter requested signing and return of the terms and conditions did not make such signing and returning a pre-condition to the new terms taking effect. That is made clear enough in the letter itself, emphasising that the new terms apply to any orders accepted after that notification. Nor does the fact that the terms and conditions themselves provide for acceptance have that consequence. The terms and conditions of 2012 are a generic document intended to apply both to new accounts and to existing customers, and if they operated - as they did in this case - by virtue of the authority conferred in the 2007 contract, no further act of acceptance was required.
That analysis seems to me to render strictly unnecessary consideration of what happened thereafter, but lest I be wrong on that point, I will address, perhaps less thoroughly than might otherwise be appropriate, what did happen thereafter.
First, Gelpack continued to place orders and to be supplied goods. That amounted, as it seems to me, to submitting an order or making a purchase within the provisions of cl 2 of the terms and conditions of trade to which I have referred, and thus amounted to an acceptance by conduct of the new terms of trade. In circumstances where, so far as the evidence permits, notice of the new terms had been sent to Gelpack - even if that notice was received and processed by Mr Hone, and assuming for present purposes he did not have actual authority to agree to the terms and conditions - it seems to me that placing orders by Gelpack after Gelpack, by any of its officers or employees, had received the terms - indeed, after the terms had been received in the letterbox, whether or not they came to any particular person's attention - accepted them by conduct.
Next, as I have said, Mr Hone executed and returned the terms and conditions. True, he was the Operations Manager and not a finance manager or director. It is, however, common ground that his authority included the placing of orders for materials and supplies on behalf of Gelpack. Generally speaking, it was he who, on behalf of Gelpack, negotiated the prices upon which goods would be supplied by Primaplas to Gelpack. As it seems to me, if he had authority to negotiate prices and to place orders at the negotiated prices, it is inescapable that he also had authority to agree the terms on which supply would take place. While that might be more doubtful in respect of a charge over Gelpack's real property, I do not think it can seriously be doubted that it at least extended to a fairly standard term of trade like a retention of title clause. Implicit in the authority to make binding orders for goods is the authority, at least within the scope of what are ordinary terms of trade, to agree to the terms on which those goods are to be supplied. Accordingly, it seems to me that Mr Hone had authority to agree to the terms and conditions on which Gelpack would purchase goods from Primaplas.
Next, even if all of that is incorrect, Gelpack continued not only to order but to pay for goods. The fact that it paid for goods ordered by Mr Hone upon the terms of trade to which he had agreed is itself an act of ratification of his authority to place those orders, and therefore of the terms on which those orders were placed. Moreover, as I have said, each of the invoices and other related documentation contained references to Primaplas's terms of trade, and the invoices in particular drew attention to the retention of title clause.
The better view, I think, is that, at least in this case, the note at the foot of each invoice did not amount to a new contractual term but reminded the recipient that the retention of title clause contained in the terms and conditions of trade that were incorporated in every purchase included such a clause. By continuing to pay those invoices and re-order further goods, knowing that the terms and conditions included such a clause, Gelpack either ratified Mr Hone's entry into the 2012 terms and conditions or, by the repeated course of dealing, incorporated into each separate contract between them the retention of title clause.
Accordingly, in my view, Gelpack did agree in a binding way to grant a security interest at least in the nature of a retention of title clause in respect of goods supplied to it by Primaplas. Moreover, the conclusion I have reached concerning the effect of the 1 August 2012 letter means that it also agreed to grant a security interest in all present and after-acquired property in the terms of the 2012 terms and conditions.
Primaplas seeks a declaration that it has a valid and perfected security interest in the goods supplied by it to Gelpack. PPSA, s 12(2)(d), provides that a security interest includes an interest in personal property provided by, inter alia, a conditional sale agreement, including an agreement to sell subject to retention of title.
Section 19(1) provides that a security interest is enforceable against a grantor in respect of particular collateral only if it is attached to that collateral; and subsection (2) provides that such an interest attaches to collateral when the grantor has rights in the collateral and either value is given to the security interest or the grantor does an act by which the interest arises. In this case, the grantor, being Gelpack as the purchaser under each relevant contract, has rights in the collateral. It is not necessary that those rights be of absolute ownership, although it may be necessary that they be more than mere possession. In this case, under the contracts, Gelpack was the purchaser and equitable owner, subject only to the retention of title clause. It plainly had rights in the collateral. Value was given for the security interest by Primaplas, in that the creation of the security interest formed part of the consideration for the supply of the goods.
Section 20(1) provides that a security interest is enforceable against a third party in respect of particular collateral only if the interest is attached to the collateral - which requirement I have just found to be satisfied - and if, relevantly, a security agreement that provides for the security interest covers the collateral in accordance with subsection (2) [see s 20(1)(b)(iii)].
As to subsection (2), a security agreement will cover collateral if it is evidenced in writing - that is, either signed by the grantor or adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing - and the writing evidencing the agreement contains a description of the particular collateral. In this case, the security agreement can be seen to be evidenced in writing in the 2012 terms and conditions. For the reasons I have given, I would find that Mr Hone's signature is a signature by the grantor but, even if it were not, the conduct of Gelpack in continuing to place orders after receipt of the 2012 terms and conditions is conduct that, in the light of the terms of the letter, reasonably appears to have been done with the intention of adopting or accepting the writing. The ongoing placement of orders and payment of invoices with knowledge of the note at the foot of each invoice is further such conduct. In any of those ways, there was writing adopted or accepted by Gelpack which identified goods supplied by Primaplas as the collateral caught by the security interest. The requirements of s 20(2) are therefore satisfied.
Although there was some debate as to whether the reference in s 20(2)(a)(ii) to "reasonably appears" is from the position of the bystander or a person in the position of the grantee, probably little turns on that difference. The bystander would at least be taken to be aware of what had preceded the relevant act between the parties and in particular of the relevant writing. In circumstances where the 2012 terms and conditions had been supplied in August 2012 and had been referred to repeatedly on delivery notes and invoices thereafter, it would have appeared to the reasonable bystander that in placing further orders, Gelpack was intending to accept what was in those terms and conditions.
Section 21 provides that a security interest in particular collateral is perfected if, relevantly, it is attached to the collateral - which I have already found; if it is enforceable against the third party - which I have already found; and if subsection (2) applies. Subsection (2) applies, relevantly, if for any collateral, a registration is effective with respect to the collateral. There are registrations, the effectiveness of which has not been disputed, identifying the registration kind as "security interest". The grantor is Gelpack, the secured party is Primaplas and the collateral is:
All goods supplied by the secured party to the grantor, including but not limited to resins and film, for the manufacture of plastic products and related goods.
That description captures all the security interests claimed in this case. It is permissible for one registration to cover security interests created by multiple contracts if it be necessary to rely on the repeated series of invoices to find the relevant security interest.
Accordingly, I am satisfied that relief essentially to the effect of that sought by the plaintiff should be granted.
The Court orders that:
1. Time for the plaintiff to institute an appeal from the decision of the liquidators made on 4 October 2014 be extended up to and including 19 March 2015.
2. Pursuant to Corporations Act, s 1321(1), the Court reverses the decision of the liquidators to reject the plaintiff's claim that it has a security interest in the goods supplied by it to Gelpack.
In lieu thereof, the Court declares that:
1. The plaintiff has a perfected security interest in all goods supplied by it to Gelpack including, but not limited to, resins and film for the manufacture of plastic products and related goods, for the purposes of Personal Property Securities Act, s 21.
The Court further orders that:
1. The defendant pay the plaintiff's costs of the proceedings.
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Decision last updated: 21 October 2015