Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd

Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd - [2021] FCA 483 - FCA 2021 case summary — Zoe

[15]

Introduction 1 By this application, the plaintiffs (liquidators) seek declaratory relief regarding a 2017 Ferrari GTC4 Lusso vehicle (Ferrari) under [7] and [8] of the liquidators' amended originating process dated 8 July 2020 (amended originating process). On 30 July 2020, pursuant to r 9.12 of the Federal Court Rules 2011 (Cth), the Court granted leave for BMW Australia Finance Ltd (BMW) to intervene for the limited purpose of being heard in respect of those claims. 2 On 27 May 2020, the Ferrari was seized during the execution of a warrant issued on 21 May 2020 by Moshinsky J pursuant to s 530C of the Corporations Act 2001 (Cth) (Corporations Act). That warrant permitted the liquidators to seize books, records and property of Rose Guerin and Partners Pty Ltd (in liquidation) (Company) as trustee for the Rose Guerin and Partners Trust (Trading Trust). 3 The liquidators, by their amended originating process, seek the following relief in [7] and [8] of the amended originating process: Ferrari Application 7. Declarations in respect of the Ferrari … that: a. the Personal Property Securities Register (PPSR) registration by [BMW] … dated 26 June 2018 and numbered 201806260092112 (PPSR Registration) was defective pursuant to section 164(1)(b) of the Personal Property Securities Act 2009 (Cth) (PPSA); b. further or alternatively, the PPSR Registration was defective pursuant to section 164(1)(a) of the PPSA; and c. [BMW]'s security interest in the Ferrari vested in the Company as trustee of the [Trading] Trust immediately before the Plaintiffs were appointed as administrator of the Company pursuant to section 267 of the PPSA. 8. Further or alternatively: a. a declaration that the disclaimer pursuant to section 568 of the Corporations Act dated 11 February 2020 by the Plaintiffs (Disclaimer) was ineffective; and b. further or alternatively, an order pursuant to section 568E of the Corporations Act setting aside the Disclaimer. 4 For the reasons that follow, I will grant the declaratory relief sought by the liquidators in [7(a)], [7(b)] and [7(c)] and [8(a)] of the amended originating process.

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RELEVANT Procedural Chronology 8 The liquidators filed written submissions dated 11 September 2020. BMW filed written submissions dated 2 October 2020. 9 The application came on for hearing on 15 October 2020. Mr Mark Black of counsel appeared on behalf of the liquidators. Mr Wallis QC appeared with Mr Andrew Burnett of counsel for BMW. 10 After hearing the parties' submissions at the hearing on 15 October 2020, I formed the view that a number of matters which arose for consideration on the application had not been adequately addressed by the parties. For this reason, I directed the parties to file supplementary submissions. Pursuant to that direction, BMW filed supplementary submissions dated 29 October 2020 and the liquidators filed supplementary submissions dated 30 October 2020. The application was listed for a further hearing. 11 That hearing was scheduled for 24 November 2020. However, the Court was not able to hear the proceeding on that date, and the matter was adjourned to 27 April 2021 so that the parties could address the Court on the parties' supplementary submissions. 12 The matter came on for hearing on 27 April 2021. At that hearing, Jonathan Evans QC appeared with Mr Mark Black of counsel for the liquidators, and Peter Wallis QC appeared with Mr Andrew Burnett of counsel for BMW. 13 At the hearing on 27 April 2021, BMW made an important concession. Having reflected on the liquidators' supplementary submissions dated 30 October 2020, BMW conceded that: (1) by reason of the operation of s 267(2) of the Personal Property Securities Act 2009 (Cth) (PPSA), BMW no longer has a security interest in the Ferrari; (2) at the time of the liquidators' purported disclaimer (which I will set out in more detail below), the Ferrari was an unencumbered asset of the Company and BMW was an unsecured creditor of the Company; and (3) as a result (as to the ongoing contractual obligations of the Company to make periodical repayments to BMW) there was not a relevant liability to pay money associated with the Ferrari for the purposes of s 568(1)(d) of the Corporations Act. 14 However, BMW did not concede that the Ferrari did not give rise to an "onerous obligation" of the Company for the purposes of s 568(1)(d). 15 The significance of that concession will become clearer after some factual background is appreciated. I turn now to set out that background.

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The notice of disclaimer 27 On 11 February 2020, BMW received an email from the liquidators' firm. That email attached a letter from the liquidators and a "Notice of disclaimer of onerous property" (notice of disclaimer). The email dated 11 February 2020 stated: Please find attached our letter attaching the Notice of Disclaimer for your attention. I advise that we have recorded [BMW] as a partly secured creditor of the Company. Please update us once you have realised the motor vehicle and provide us with the balance sum owing, which will then form an unsecured claim against the Company. 28 The letter dated 11 February 2020 referred to in this email stated: I refer to [the liquidator and BMW's] recent telephone discussion regarding the above matter. I have conducted a review of [BMW's] security and have formed a view that there is unlikely to be any equity in respect of the Company's motor vehicle financed by your company, namely, the 2017 Ferrari GTC4LUS F151 bearing registration number DGB38B ("the Motor Vehicle"). I advise that I have never been in possession of the Motor Vehicle since the commencement of my appointment as Joint and Several Administrator. Please contact the Director of the Company and the Guarantor of the Motor Vehicle financing facility, Ms Rosemarie Guerin, and liaise with her directly with respect to repossession of the Motor Vehicle. Please find enclosed a duly lodged Notice of Disclaimer of Onerous Property (Form 525) in respect of the Motor Vehicle for your attention. 29 The "Notice of disclaimer of onerous property" contained the following "declaration": I, as liquidator of the company, for the purposes of paragraph 568A(1), give notice that I disclaim the property described in the schedule. The property is property of the company and consists of: property that may give rise to liability to pay money or some other onerous obligation[.] The schedule of disclaimed property is: set out below 2017 Ferrari GTC4LUS F151 Bearing Registration No. DGB38B financed under a Chattel Mortgage Agreement (Application No. 2625096) dated 22 June 2018 with BMW Australia Finance Limited[.] (Bold text in the original.) 30 The "Notice of disclaimer of onerous property" was "authenticated" by one of the liquidators, Mr Rohrt, and was dated 11 February 2020. The liquidators had formed the view "that the finance associated with the Ferrari was likely to be significantly in excess" of its value: fifth Rohrt affidavit, [5].

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The liquidators obtain a warrant to seize property of the Company 32 On 19 May 2020, the liquidators filed with this Court an ex parte application. The liquidators sought (among other orders) an order that, pursuant to s 530C of the Corporations Act, a warrant be issued to the liquidators to seize the books and records of the Company. The warrant sought by the liquidators included the following authorisation: YOU ARE HEREBY AUTHORISED, with such assistance as is reasonably necessary from members of the Australian Federal Police and New South Wales Police, to search for and seize all property and books of the Company, coming within the definition of those words in section 9 of the Corporations Act 2001, which are in the possession of ROSE GUERIN AND PARTNERS PTY LTD (IN LIQUIDATION) ACN 158 304 584 and to hold possession of such property and books of the Company seized under this warrant until otherwise directed by order of this Court. (Bold and capitalised text in the original.) 33 The affidavit evidence discloses that the warrant was obtained pursuant to an ex parte application before Moshinsky J on 21 May 2020. On 21 May 2020, this Court issued a warrant for search and seizure (Warrant) which was substantially similar to the terms set out above. The liquidators did not take any step prior to seizing the Ferrari on 27 May 2020 to set aside the disclaimer, or to inform the Australian Securities and Investments Commission (ASIC) or BMW that the liquidators regarded the disclaimer as ineffective. The liquidators did not seek BMW's consent to the liquidators seizing the Ferrari. 34 The first Rohrt affidavit makes no reference to the notice of disclaimer dated 11 February 2020 lodged with ASIC and given to BMW, which indicated that the Ferrari was disclaimed by the liquidators under the Corporations Act on the basis that the Ferrari "may give rise to liability to pay money or some other onerous obligation". 35 It appears from Mr Rohrt's first affidavit that Moshinsky J, on the hearing of the ex parte application on 21 May 2020, was not informed of the existence of the Ferrari nor that the liquidators had on 11 February 2020 served a notice of disclaimer under the Corporations Act. Mr Black of counsel, who appeared for the liquidators on the ex parte application and at the hearing of this matter on 15 October 2020, confirmed that Moshinsky J was not informed of the notice of disclaimer or, it appears, of the existence of the Ferrari.

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The execution of the Warrant 36 On 27 May 2020, the then Company's solicitors sent an email to the liquidators' solicitors (27 May 2020 Email). It relevantly stated: I formally advise that I act for Rose Guerin and Partners Pty Ltd. Without prejudice to the proposition [that] the warrant served [on 27 May 2020] has no validity and from our discussions that your client, [the liquidators,] undertakes that the vehicle: 1. is safe and securely held in the premises of the Australian Federal Police ("AFP"); 2. is not to be removed from the AFP carpark; 3. will not be depose [sic] (sell, charge or encumbered) of prior to 10 June 2020 (when the matter is listed before the court); 4. keys will not be removed from the AFP possession. We appreciate the undertaking provided on behalf of your client. [Sic.] 37 On 28 May 2020, the Warrant was executed at the premises of the Company. In attendance at the execution of the Warrant were: (1) Mr Rohrt and a Ms Helen Forster of the liquidators' firm; (2) two solicitors from Aitken Partners, who act for the liquidators in this proceeding; (3) a representative of Australian Forensics & Investigations Pty Ltd; (4) a locksmith; and (5) three members of the Australian Federal Police. 38 The second Rohrt affidavit records that when the Warrant was executed: [Mr Rohrt] caused [the] Ferrari … to be seized. An agreement was reached with the Director [ie Ms Guerin] which is set out in an email from her lawyer … dated 27 May 2020. 39 The email referred to here appears to be the 27 May 2020 Email. 40 An affidavit of a Recoveries Manager employed by BMW, Mr Matthew James Vennard, sworn 20 August 2020, records that the liquidators did not, at any time prior to 27 May 2020, notify BMW that they intended to seize the Ferrari. 41 On 9 June 2020, BMW received a telephone call from Ms Guerin. Among other things, Ms Guerin indicated to BMW that she was seeking to refinance the Ferrari. Ms Guerin, however, expressed concern that she would not obtain possession of the vehicle even if it was refinanced. BMW informed Ms Guerin that such a concern was misplaced, given the liquidators had disclaimed the Ferrari.

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Correspondence between the liquidators and BMW 42 On 10 June 2020, the liquidators' solicitors wrote to BMW and stated (among other things): … We have been instructed to advise you that our clients have taken possession of the Ferrari in the circumstances described below, and to require that you release your security interest as registered on the Personal Property Securities Register (PPSR). … On 27 May 2020, our clients executed the Warrant at the offices of the Company. On the basis of what follows below, we are instructed to advise you that the Ferrari was seized by our clients on the basis that they have formed a view the Ferrari is property of the Company in circumstances where your registration on the PPSR is defective. [The liquidators' solicitors set out how the relevant PPSR registration was said to be defective.] As a result of the defective registration, section 267 of the PPSA provides that upon an administrator or liquidator being appointed, any unperfected security interest held by a secured party vests in the grantor the moment immediately prior to insolvency event. Therefore, on 19 December 2019, [BMW]'s security interest vested in the Company and [BMW] ceased to be secured. … We note that our client purported to serve a disclaimer of the finance obligations and property on 11 February 2020. Having regard to the above, in our view, there was nothing to disclaim given there was no onerous property or obligation within the meaning of section 568(1) of the [Corporations Act] … 43 On 22 June 2020, BMW's solicitors responded to the liquidators' solicitors' letter of 10 June 2020 and stated (among other things): There is no occasion for your clients to withdraw its disclaimer based on the matters set out in your letter. The position remains that the [v]ehicle was subject to a burdensome financial obligation under the [relevant] [a]greement which your clients sensibly disclaimed. … Our client relied on the disclaimer and did not seek to enforce its rights under the [a]greement against the Company … In the event your clients seek leave to proceed with their proposed application to set aside the disclaimer, then our client wishes to be heard in opposition to the application … 44 On 2 July 2020, the liquidators' solicitors wrote to BMW and stated (among other things): In order to ensure that our client appropriately seeks relief and/or orders with respect to the Ferrari which are necessary to put before the Court, we note that your letter of 22 June 2020 did not provide any response to the matters we raised in our letter concerning the PPSR, particularly the issues concerning your clients [sic] defective registration and the consequence of the same (i.e. the vesting of any security interest in the Company). Can our client take it that your client does not dispute the same and therefore, the only issue your client seeks to agitate concerns the disclaimer (that is, the matters raised in your letter)? 45 On 3 July 2020, BMW's solicitors wrote to the liquidators' solicitors and stated (among other things): … The issues concerning defective registration are overtaken by the disclaimer issues as set out in our letter dated 22 June 2020. We have not received a response to this letter. We observe that your clients have now taken possession of the vehicle which would appear to be beyond the scope of their powers given the disclaimer. Please identify the legal basis for your clients to take possession of the vehicle. Our client demands that your clients take all necessary steps to enable our client to take possession of the vehicle. As you would be aware, our client has a lawful entitlement under the rights and powers set out in clause 15 of the contract dated 22 June 2018. Our client reserves the right to rely on this letter on the question of damages for conversion. 46 On 15 July 2020, the liquidators' solicitors wrote to BMW's solicitors and stated (among other things): … Our clients do not accept that the disclaimer issues set out in your letter of 22 June 2020 overtake the issues concerning the defective registration. As such, we repeat our request that you confirm your client does not dispute the fact that the registration was defective. Our clients maintain the position we have previously set out. For the avoidance of doubt, that is that the disclaimer is either ineffective by reason of the vesting of the security interest, or able to be set aside. We further confirm that the legal basis for our clients to take possession of the Ferrari is pursuant to section 267 of the Personal Property Securities Act 2009 (Cth) (PPSA), given that your clients [sic] unperfected security interest vested in the Company on 19 December 2019, upon our clients appointment as administrators of the Company.

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Liquidators' submissions on defective registration on the Personal Property Securities Register 50 The liquidators submit that the registration by BMW of its security interest against the Ferrari was defective either because there was a defect mentioned in s 165 of the PPSA or because it was seriously misleading within the meaning of s 164(1)(a) of the PPSA. As a consequence, the liquidators submit that, pursuant to s 267 of the PPSA, any security interest held by BMW vested in the Company at the time the Company was placed into administration on 19 December 2019. Those submissions proceed in the following way. 51 Section 164 of the PPSA provides: (1) A registration with security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists: (a) a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or (b) a defect mentioned in section 165. (2) In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it. 52 The liquidators primarily rely on s 164(1)(b) which provides four circumstances in which a defect in the registration can be established. Those four defects are found in s 165 of the PPSA and the plaintiff relies on subsection (d) which provides: For the purposes of paragraph 164(1)(b), a defect in registration that describes particular collateral exists at a particular time if any of the following circumstances exist: … (d) in any case - circumstances in relation to the data related to the registration that are prescribed by the regulations. 53 Section 153 of the PPSA sets out the data required to be provided in a financing statement registered on the PPSR. Item 2 of the table in s 153 of the PPSA provides that the following data is required in relation to a grantor: Whichever of the following is applicable: (a) if the collateral is consumer property, and is required by the regulations to be described by serial number - no grantor's details; (b) if the collateral is consumer property, and is not required by the regulations to be described by serial number - the grantor's name and date of birth, as evidenced in accordance with the regulations, and no other details; (c) in any other case - the grantor's details as prescribed by the regulations. 54 Clause 1.5(1) of Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (PPS Regulations) applies if the secured party or grantor is "a body corporate that is a trustee of a trust that ... has an ABN … and … does not have an ARSN", or if the secured party or grantor is "any other trustee of a trust". 55 Clause 1.5 of the PPS Regulations provides a table concerning data required in circumstances where the grantor (or secured party) is a trustee as follows: Item Trustee Details Source 1 Trustee of a trust for which details have been included on the transitional register, for a migrated security interest Trustee details, as recorded on the transitional register Transitional register 2 Trustee of a trust that holds or has an interest in collateral in the course of, or for, an enterprise that has been allocated an ABN ABN Australian Business Register 3 Trustee of any other trust Trustee details mentioned in paragraph (3)(a) Source mentioned in paragraphs 3(a)

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56 The chattel mortgage makes clear that the Company purchased the vehicle in its capacity as trustee of the Trading Trust. As a consequence, the Company, in its capacity as a trustee, is the grantor. 57 The liquidators submit that, as a consequence, in accordance with item 2 of the table in clause 1.5 of Schedule 1 of the PPS Regulations, the security interest ought to have been registered against the Australian Business Number (ABN) associated with the Trading Trust and not the Australian Company Number (ACN) of the Company. However, a relevant search of the register shows that BMW in fact registered its security interest using the grantor's (ie the Company's) ACN. 58 The liquidators rely on Brereton J's analysis in In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21; 93 NSWLR 611 (OneSteel). In OneSteel, his Honour considered a circumstance where the PPSA and the PPS Regulations required that a financing statement was to include the grantor's ACN, but the secured party had in fact used the ABN. In that particular instance, the ABN in fact incorporated the ACN but included two additional digits. Notwithstanding, his Honour found that this was a defect for the purposes of s 164(1)(b). 59 The liquidators submit that, while his Honour was concerned with a different defect set out in s 165, the rationale for strict compliance is applicable to the current case. His Honour noted that s 170 limits searches of the PPSR to those authorised by ss 171 and 172 and stated at [28]: That means that a search of the register by reference to grantor's details other than those required to be included under s 153 is not authorised or contemplated, and thus in respect of a grantor which is a body corporate and is not a trustee of a trust that has an ABN, only a search by reference to the ACN is authorised. 60 Brereton J went on to summarise the consequence of this at [31]: A search will only return details of what has been registered. A search by ABN will not return registrations against the ACN, and a search by ACN will not return registrations against the ABN. A search of the PPS register using only the ACN as a parameter - which pursuant to s 171(1)(a) is the only authorised search - would not reveal the original registrations. 61 The liquidators submit that, given the Personal Property Securities Register (PPSR) cannot be searched in accordance with the requirements of the PPSA in respect of more than one grantor identifier at one time, it follows that a search of the Trading Trust's ABN did not, and would not, reveal the BMW security interest. The liquidators submit that, in those circumstances, it must follow that there is a defect in the registration for the purposes of s 164(1)(b). 62 Alternatively, the liquidators submit that the registration was in any event seriously misleading for the purposes of s 164(1)(a) of the PPSA. This, the liquidators submit, provides an alternate ground on which the liquidators can show that BMW's registration was defective. 63 The liquidators submit that Brereton J in OneSteel reached the conclusion that the defect under s 164(1)(b) was sufficient to give rise to a misleading event for the purposes of s 164(1)(a) of the PPSA. The fact that an authorised search under the PPSA would not enable a user to discover the registration was sufficient to conclude that the use of the wrong identifier was seriously misleading. 64 The liquidators also point to Brereton J's observation that s 164(2) did not require proof that anyone had actually been misled. At [40], Brereton J stated: It does not avail Alleasing that the administrators, apparently using a B2G interface, discovered the original registrations; it is unnecessary, for a defect to be misleading, to establish that anyone was in fact actually misled. It is the capacity or potential to mislead that is crucial. Here, the defect was such that searchers using one of the two authorised modes of search would not discover the registration. The circumstance that a searcher using one of the authorised means of search would not discover the registration renders the defect misleading, and seriously so - even if, as is suggested, most searchers (the evidence indicates 80%) use B2G platforms which, in the way that has been described, would reveal it. 65 In the circumstances, the liquidators submit that the BMW security interest was seriously misleading and therefore defective pursuant to s 164(1)(a).

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Section 267 of the PPSA 76 Section 267(1) of the PPSA relevantly provides: (1) This section applies if: (a) any of the following events occurs: … (ii) an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise); … ; and (b) a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies: (i) in the case of a company or body corporate that is being wound up - when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day (whether under section 513A or 513B of the Corporations Act 2001, under either section as applied by force of a law of a State or Territory, or otherwise); (ii) in the case of a company or a body corporate to which subparagraph (a)(ii) or (iii) applies - when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise); 77 Because the registration of BMW's security interest was defective (as set out above), BMW's security interest was "unperfected". That is consistent with the concept of "perfection" addressed in s 21 of the PPSA, which provides: 21 Perfection - main rule (1) A security interest in particular collateral is perfected if: (a) the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or (b) all of the following apply: (i) the security interest is attached to the collateral; (ii) the security interest is enforceable against a third party; (iii) subsection (2) applies. (2) This subsection applies if: (a) for any collateral, a registration is effective with respect to the collateral; or (b) for any collateral, the secured party has possession of the collateral (other than possession as a result of seizure or repossession); or (c) for the following kinds of collateral, the secured party has control of the collateral: (i) an ADI account; (ii) an intermediated security; (iii) an investment instrument; (iv) a negotiable instrument that is not evidenced by a certificate; (v) a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation; (vi) satellites and other space objects. Note: For what constitutes possession and control of collateral, see Part 2.3. (3) A security interest may be perfected regardless of the order in which attachment and any step mentioned in subsection (2) occur. (4) A single registration may perfect one or more security interests. 78 Section 19 of the PPSA makes provision for matters relating to the concept of "attachment" under the PPSA. 79 There is no suggestion that BMW's "security interest" was "temporarily perfected" or "otherwise perfected … by force of" the PPSA. There is no suggestion that BMW's security interest satisfied s 21(1)(b). There is also no suggestion that BMW's security interest can satisfy s 21(2) (as required by s 21(1) (b) (iii)). Indeed, BMW has conceded that its registration on the PPSR was not effective and, as a result, BMW cannot satisfy s 21(2)(a) of the PPSA (being the requirement that, "for any collateral, a registration is effective with respect to the collateral"). As a consequence, BMW has rightly accepted that its security interest was "unperfected" for the purposes of s 267(1)(b). 80 The consequence of a triggering event under s 267(1)(a) is set out in s 267(2) which relevantly provides: Security interest vested in grantor (2) The security interest held by the secured party vests in the grantor immediately before the event mentioned in [s 267]1(a) occurs. 81 Section 268 of the PPSA sets out circumstances in which s 267(2) does not apply. Neither party contended that s 268 applies in this case.

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The meaning of a "security interest" 87 A "security interest" is relevantly defined in s 12 of the PPSA as follows: (1) 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). … (2) For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation: (a) … (b) … (c) a chattel mortgage … (Bold, italicised text in the original.) 88 A "grantor" is defined in the PPSA to include: … a person who has the interest in the personal property to which a security interest is attached (whether or not the person owes payment or performance of an obligation secured by the security interest) … 89 The meaning and effect of "the security interest vest[ed] in the grantor" under s 267(2) of the PPSA was explained by Brereton J in Maiden Civil where his Honour stated: 34. … the [relevant] General Security Deed was [an] agreement by which an interest in personal property that secures payment or performance of an obligation was created; it was a "security agreement", and the interest it created in favour of [Fast Financial Solutions Pty Ltd (Fast)] was a "security interest", within the meaning of PPSA. Pursuant to s 19(2), Fast's security interest attached to the [relevant equipment] when it gave value for its security interest by advancing the funds referred to in the [relevant] Loan Agreement and General Security Deed. Once Fast's security interest had attached to the [relevant equipment], it was enforceable against [Maiden Civil (P&E) Pty Ltd (Maiden)], … pursuant to s 19(1) [of the PPSA]. … 70. … [Section] 267(2) … provides that any security interest granted by a corporation that is unperfected at the commencement of its administration or winding up vests in the corporation … 71. Section 267 of the Australian PPSA differs [from the position in Canada], in that, rather than merely rendering the unperfected security interest ineffective against the grantor's trustee in bankruptcy or liquidator, it vests the interest in the grantor. 72. The consequence, in the present case, is that upon the commencement of the administration and/or winding up of Maiden, [Queensland Excavation Services Pty Ltd (QES)]'s unperfected security interests in the [relevant equipment] vested in Maiden …The practical effect is that QES's security interest is extinguished; QES has no further interest in the Caterpillars; and Maiden holds them subject only to the perfected security interest of Fast. (Emphasis added.)

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The effect of s 267 of the PPSA on BMW's unperfected security interest 94 In my view, BMW's chattel mortgage was a security interest for the purpose of s 12(2)(c) of the PPSA. BMW's chattel mortgage was unperfected at the date of the commencement of the administration of the Company on 19 December 2019. In my opinion, the effect of ss 267(1) and (2) is that, from 19 December 2019, the Company held BMW's "interest in" the relevant personal property, comprising the Ferrari, as its unencumbered asset free of BMW's security interest. This is so for the following reasons. 95 Jowitt's Dictionary of English Law (5th edition) provides the following definition of "vest": … When a person becomes entitled to a right, estate, etc., it is said to vest in him … "Vest" is used specially to denote a transfer by or under an Act of Parliament. Thus, the property of a bankrupt vests in the trustee (Insolvency Act 1986 [(UK)] s.306): that is, the property is transferred to the trustee in the same way as if the bankrupt had executed a conveyance of it. 96 That is a definition which accords with the use of "vest" in s 267(2). In light of that meaning, the practical effect of the operation of s 267 of the PPSA (sometimes referred to as "the vesting rule") is that the unperfected security interest is transferred to the Company and the party with the unperfected security interest has no further secured interest in the property which was the collateral for the security interest. A party, such as BMW in this case, who fails to perfect its security interest before a triggering event in s 267(1) - in this case, the administration of the Company - will forfeit the benefit of its security interest and be relegated to the position of an unsecured creditor with a right to prove in the grantor company's insolvency: see Dr James O'Donovan, Personal Property Securities Law in Australia (Thomson Reuters, 2019) at [25.1900] citing (among other authorities) Maiden Civil and In the Matter of Black Opal IP Pty Limited ACN 151 765 356 (subject to Deed Of Company Arrangement) [2013] NSWSC 1225. 97 The potentially "harsh" consequences of the vesting rule under s 267 were referred to by Black J in Production Printing at [41] where, in circumstances where the security interest was not perfected and the security interest vested under s 267, Black J observed: … the vesting provision under s 267 of the PPSA applies, because [the relevant party's] security interest was not temporarily effective and was not perfected on the section 513C day, namely 22 July 2016, and that security interest was vested in PPA under s 267(2) of the Corporations Act. That may be a harsh and possibly unreasonable result in the relevant circumstances, but, for the reasons noted above, that result cannot be avoided under the present legislative regime by reliance on temporary effectiveness under s 166 of the PPSA. 98 The impact of the vesting rule under s 267 of the PPSA was also considered by Barker J in Bredenkamp v Gas Sensing Technology [2017] FCA 1065 (Bredenkamp), where Barker J observed: OPERATION OF THE PPSA 7. It may generally be said that, under the PPSA, the rights of the parties to a transaction that falls within the meaning of "security interest" in s 12 are explicitly not dependent on either the form of the transaction or upon common law notions of title. Rather, the PPSA provides a completely new regime for determination of priorities to collateral following an insolvency event. 8. The general position under the PPSA is that an unperfected security interest is subordinated to the interest of: (1) a person who has perfected a security interest or is entitled to priority under the PPSA; and (2) the grantor of a security interest to which an external controller has been appointed following a relevant insolvency event, such as an administrator or liquidator. 9. Prior to the introduction of the PPSA, an administrator appointed under the Corporations Act 2001 (Cth) traditionally stepped into the shoes of the relevant person or entity he or she was appointed to, and acquired no higher right in that person's or entity's property than that person or entity enjoyed. The PPSA has changed that position. The PPSA confers certain rights in addition to those held by the person or entity, and is directed at ranking those interests. 10. Accordingly, the PPSA replaces the traditional ranking of interests according to who is the true owner and who is the ostensible owner through possession or other rights in that property. In that respect, the PPSA has effected far reaching changes to the law. In Forge Group Power Pty Ltd (in liq) (receivers and mangers appointed) v General Electric International Inc (2016) 305 FLR 101; [2016] NSWSC 52 Hammerschlag J said, at [5], that the PPSA "introduced an innovative (some might say, revolutionary) new national code for determining priorities between parties holding security interests in personal property". 11. The extent to which its provisions prove this observation has been the subject of much discussion in the legal literature and publications considering the operation of the PPSA since its commencement, but not often in decided cases in the Courts - as is revealed below. 12. By virtue of the deeming provisions under s 267(2) of the PPSA, upon the appointment of a controller to a grantor under s 267(1), the grantor may have rights superior to those enjoyed by the grantor prior to that appointment (see also s 588FL of the Corporations Act). Relevantly, an unperfected PPS lease may result in those goods being completely vested in the grantor, even though, prior to the appointment the grantor only had a possessory right in those goods. That vesting may be said to reflect a policy choice by the legislature, and needs to be borne in mind when considering the interaction of different provisions within the PPSA, as well as a claim by a putative legal owner of personal property following a vesting event (for example, as here, on the appointment of the administrator). 99 For the reasons given, by reason of s 267 of the PPSA, at least in the period from 19 December 2019 to 11 February 2020 (being the time when the relevant notice of disclaimer arose), the Company held BMW's interest in the relevant personal property, comprising the Ferrari, as its unencumbered asset free of BMW's security interest. The security interest held by BMW vested in the Company. 100 The question then becomes whether the liquidators' notice of disclaimer affected that position.

[41]

Liquidators' submissions to the effect that the notice of disclaimer was a nullity 103 The liquidators submit that a liquidator's right to disclaim onerous property arises under s 568 of the Corporations Act which sets out the six categories of property that may be disclaimed, namely the categories referred to in ss 568(1)(a)-(f) of the Corporations Act. 104 The liquidators submit that the purported disclaimer involves two types of property, namely the Ferrari itself and the chattel mortgage under which the Ferrari was financed, which is a contract. The applicable subsections of s 568 are therefore s 568(1)(d) in relation to the Ferrari and s 568(1)(f) in relation to the chattel mortgage. 105 The liquidators submit, in relation to the Ferrari, that it is an asset registered in the name of, and owned by, the Company. The liquidators contend that BMW does not have any claim to, or interest in, the Ferrari. The liquidators submit that, insofar as the Company is concerned, the Ferrari is an unencumbered asset and BMW is an unsecured creditor of the Company. 106 As a consequence, the liquidators submit that the purported disclaimer in relation to the Ferrari was, when it was purportedly made, and remains, a nullity. The liquidators submit that this follows because, at the time of the notice of disclaimer, the Ferrari was not "property that may give rise to a liability to pay money or some other onerous obligation" in accordance with s 568(1)(d). 107 The liquidators submit that, insofar as the chattel mortgage is concerned, given it is a contract, the provisions of s 568(1A) apply and the liquidators were required to seek leave of the Court to disclaim the contract unless the contract is, relevantly, an unprofitable contract: Corporations Act, s 596(1A). 108 The liquidators submit that the security interest (granted by the chattel mortgage with BMW) vested in the Company on the liquidators' appointment as joint and several administrators of the Company on 19 December 2019, with the result that BMW became an unsecured creditor. 109 The liquidators submit that it is well established that, where a liquidator, without leave of the Court, purports to disclaim an "unprofitable contract" that is later held to not, in fact, be unprofitable, the disclaimer is null and void due to the failure to obtain the Court's leave: citing In the matter of Blue Sennar Air Pty Ltd (in liq); In the matter of Eye Plantain Pty Ltd (in liq) [2016] NSWSC 772 (Blue Sennar Air) at [9] and [20]-[21]. 110 The liquidators submit that, in circumstances where the Ferrari was not subject to any liability or other onerous obligation, the purported disclaimer is invalid and of no effect. 111 The liquidators submit that the critical question must be whether, as at the date of the purported disclaimer (ie 11 February 2020), the Ferrari (which was worth more than $300,000 and was unencumbered property of the Company) fell within the statutory description in s 568(1)(d), being "property that may give rise to a liability to pay money or some other onerous obligation". 112 The liquidators are not aware of any authority which has specifically interpreted that phrase. The liquidators made four relevant submissions in this respect. 113 First, the liquidators submit that the use of the words "some other onerous obligation" has the effect that the phrase "liability to pay money" should be considered as only involving a liability to pay money which was "onerous" itself, and not merely a liability to pay any amount of money, no matter how small. That is, in the liquidators' submission, the obligation should be "onerous". 114 Second, the liquidators submit that "onerous" is defined by the Oxford English Dictionary as meaning, in a legal context, "involving heavy obligations". 115 Third, the liquidators submit that the word "onerous" as used in s 568(1)(d) can be seen as being an obligation attached to the continued ownership of the property which might be the subject of the disclaimer. 116 Fourth, the liquidators submit that, to be "onerous" in that context, the liability to pay money would need to be such that it created a "heavy" obligation, either by virtue of the obligation being one which extended over a lengthy period of time (where a liquidation should be conducted as quickly as practicable) or by the value of the property which might be the subject of the disclaimer being potentially exceeded by the benefits to be derived from the retention of the property by the liquidators. 117 The liquidators submit that the principal purpose of the disclaimer provisions has been identified in a number of authorities as enabling a liquidator to relieve the company of obligations or liabilities which would prevent a prompt and efficient winding up of the affairs of a company: citing Re Willmott Forests Ltd [2012] VSC 29; 258 FLR 160 at [6]; and Re Middle Harbour Investments Ltd (in liq) (No 2) [1977] 2 NSWLR 652 (Re Middle Harbour) at 657. 118 The liquidators submit that, if these matters are properly taken in to account, the correct construction of the power conferred by s 568(1)(d) is only enlivened if two aspects exist in respect of the specific property which might be the subject of the disclaimer. First, a liability must exist which is associated with specific property. Second, such liability might be reasonably (objectively) considered by the liquidators to potentially exceed the benefits to be derived from the retention of the property by the liquidators. 119 The liquidators submit that, if it is accepted that BMW's chattel mortgage has vested in the Company, there can be no suggestion of the existence of any liability which necessarily attaches to the Ferrari, let alone an "onerous" one. The liquidator submits that the appointment of the administrators on 19 December 2019, and the vesting of BMW's security interest in the Company, had the immediate effect that the Ferrari no longer had any burdens attached to it. Rather, BMW was an unsecured creditor of the Company only. 120 The liquidators submit that, in these circumstances, the liquidators' decision to purportedly disclaim the Ferrari was of no effect.

[42]

The Liquidators' alternative submission that the disclaimer can be set aside 121 Alternatively, the liquidators submit that, if the disclaimer is held to have effect, the Court has the power to set aside a disclaimer pursuant to s 568E of the Corporations Act after it has taken effect. 122 The liquidators submit that, pursuant to s 568E(1), a person who has, or claims to have, an interest in disclaimed property may, with leave of the Court, apply for an order setting aside the disclaimer after it has taken effect. In this respect, as the registered owner of the Ferrari, the Company, through its liquidators, has, or claims to have, an interest in the Ferrari. 123 The liquidators submit that the leave required pursuant to s 568E(1) is to be granted only if the Court is satisfied that it is unreasonable in all the circumstances to expect the liquidators to have applied to set aside the disclaimer before it took effect: Corporations Act, s 568E(2). 124 The liquidators submit that, given their lack of knowledge of the complex issues relating to the PPSA registration at the time of the purported disclaimer, it is unreasonable to expect such an application to have been made within the 14 day time period. The liquidators submit that they were operating with limited information in relation to the operations of the Company and were required to make multiple decisions about the Company's affairs in a short space of time. 125 Section 568E(5) provides that: … the Court may set aside a disclaimer only if satisfied that the disclaimer has caused, or would cause, to persons who have, or claim to have, interests in the property, prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer (and making any further orders) would cause to: (a) the company's creditors; and (b) persons who have changed their position in reliance on the disclaimer taking effect. 126 The liquidators submit that the statutory test in s 568E(5) requires two sets of comparisons to be made. In this case, the liquidators submit a comparison is required between the relative positions of the Company and its creditors as against the position of BMW, on the supposition that the disclaimer is effective or if it is set aside. The relevant prejudice will ordinarily manifest itself in financial disadvantage. 127 The liquidators submit that the significant prejudice to the Company and its creditors in this case is that, if the disclaimer is held to be effective, the external administration will be deprived of an asset worth approximately $314,760 which would (if the disclaimer is in fact set aside) be available for realisation and to form part of the pool of funds available to creditors. 128 The liquidators submit that there is no prejudice to BMW in setting aside the purported disclaimer because BMW's position remains the same notwithstanding the disclaimer being set aside as: (1) any security interest that BMW held had already vested in the Company on 19 December 2019; (2) BMW's position relative to the Company does not change because, either way, it is an unsecured creditor in the winding up. The liquidators submit that, arguably, setting aside the purported disclaimer would improve BMW's position because it would increase the funds available in the winding up to pay creditors; (3) any reliance that BMW placed on the disclaimer is moot - they had already lost the benefit of the security interest as at 19 December 2019; and (4) BMW retains its rights against the guarantor to the chattel mortgage agreement irrespective of the Court's decision to set aside the disclaimer.

[43]

BMW's submissions on the notice of disclaimer 129 BMW submits that an unprofitable contract is not a defined term in the Corporations Act but is commonly understood as a contract where the burden of liabilities exceeds the benefits of the contract, which will impede a liquidator's ability to realise the assets. The question whether a contract is unprofitable is one of fact: citing Blue Sennar Air, [11] and [12]. 130 BMW submits that the purpose of a liquidator's power of disclaimer is usefully summarised in Longley v Chief Executive, Department of Environment and Heritage Protection [2018] 3 Qd R 459; 331 FLR 33; 124 ACSR 527 (Longley) by McMurdo JA, with whom Gotterson JA and Bond J agreed, which described the purpose of a liquidator's power of disclaimer by reference to previous authority in the following ways (at [52]): (1) "the disclaimer of a company's rights automatically operates to release the company from its ongoing correlative liabilities": Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers appointed) (in liq) [2013] HCA 51; 251 CLR 592 (Willmott Growers), [118] (Keane J in dissent); (2) "to rid … the company … of burdensome financial obligations which might otherwise continue to the detriment of those interested in the administration; it is given to enable … the liquidator to advance the prompt, orderly and beneficial administration … of the winding up of its affairs": Re Middle Harbour, 657 (Bowen CJ in Eq); (3) "to enable insolvency administrators to relieve themselves of ongoing liabilities which so prolong the administration and delay the dividend …": Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) (2000) 35 ACSR 484, 498 (Santow J) and cited in Sims v TXU Electricity Ltd (2005) 53 ACSR 295, [15]-[20] (Spigelman CJ, with Sheller JA and Brownie AJA agreeing). 131 BMW submits that the effect of a disclaimer is to terminate a Company's rights, interests, and, importantly, liabilities in respect of the disclaimed property: Corporations Act, s 568D(1). BMW submits that the power of disclaimer does not permit a liquidator to confine the effect of a disclaimer: citing Longley, [53]. 132 BMW submits that the position remains that a liquidator can disclaim onerous contracts to maximise the surplus for creditors and expedite the winding up process. In these circumstances, BMW submits that the contract in this case was unprofitable for the Company and was disclaimed. As a result, BMW submits that the liquidators' disclaimer cannot be described as a nullity. 133 BMW referred to the statutory formulation in s 568(1)(d), being "property that may give rise to a liability to pay money or some other onerous obligation". BMW submits that there are plainly degrees of onerousness. BMW submits that there is no precise line at which an obligation would be characterised as onerous. BMW submits that there are different degrees of risk which would ensure that an obligation with respect to property may be onerous. 134 BMW submits that the fact that the liquidators are entitled to take into account all of the circumstances surrounding the relevant asset is demonstrated by the fact that the liquidator is not required to identify any reasons as to disclaiming the property on the ground of an onerous obligation. BMW submits that different liquidators may form different views as to when an obligation meets the criteria of being onerous and have different appetites for the risk which would entail an obligation meeting that criteria. 135 BMW submits that, while in the possession of the liquidators, the Ferrari required safe ongoing storage, weekly battery recharging and regular servicing. BMW submits that there was the potential for many matters to adversely affect the vehicle. BMW submits that there was a need to maintain insurance in respect of the Ferrari. 136 BMW submits that, in these circumstances, it cannot be said the obligations in respect of the Ferrari were not capable of being regarded by a liquidator as potentially onerous within the liquidator's broad discretion.

[47]

The Ferrari was not "property that may give rise to a liability to pay money" 144 As to s 568(1)(d) of the Corporations Act, the following matters can be noted. 145 As stated above, BMW conceded at the hearing on 27 April 2021 that there was not a relevant liability to pay money associated with the property for the purposes of 568(1)(d) of the Corporations Act. That is, for the purposes of s 568(1)(d) of the Corporations Act, there was not "property that may give rise to a liability to pay money". That was a proper concession by BMW for the following reasons. 146 First, the text of s 568(1)(d) empowers a liquidator of a company, on the company's behalf, to disclaim "property that may give rise to a liability to pay money or some other onerous obligation". 147 Second, as addressed in detail earlier in these reasons, the Ferrari was not "property that may give rise to a liability to pay money". As at the vesting date, any personal obligation owed to BMW by the Company was no longer connected to, or secured by, the property (ie the Ferrari) because of BMW's unperfected security interest and the operation of the vesting rule in s 267 of the PPSA (referred to above). The appointment of the administrators on 19 December 2019, and the vesting of BMW's security interest in the Company, had the immediate effect that the Ferrari - as distinct from obligations owed by the Company - could not give rise to a liability to pay money. BMW was an unsecured creditor of the Company only. 148 In addition, in Willmott Growers, French CJ, Hayne and Kiefel JJ stated at [29] and [35]-[38]: It will be recalled that s 568(1) gives the liquidator of a company power to disclaim "property of the company that consists of" any of six enumerated categories of property. Paragraphs (a) and (b) of s 568(1) refer to "land" and "shares"; paras (c), (d) and (e) refer to "property" of various kinds; and para (f) refers simply to "a contract". … Care must always be exercised in understanding how the word "property" is used in legal discourse. The word may be used in different senses and the very concept of "property" may be elusive. The Act's conferral of a power to "disclaim property" can be given legally sensible operation only by reading the reference in the chapeau to s 568(1) to "property of the company" as not confined to the object in respect of which the property rights exist. Rather, the reference to "property of the company" must be read as directing attention to the legal relationship which exists between the company and the object (whether that object is land, shares, a contract or some other object of property). That reading of the chapeau is consistent with the Act's definition of "property" as "any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includ[ing] a thing in action". The breadth of the kinds of "property" with which s 568(1) deals both demonstrates and requires that no narrow meaning can be given to the legal relationships which are embraced by the word "property" whenever it is used in the provision. The word "property" should be understood as referring to the company's possession of any of a wide variety of legal rights against others in respect of some tangible or intangible object of property. If land was the only object of property with which s 568(1) dealt, the nature and extent of the property rights which may be disclaimed might usefully have been elucidated by reference only to general land law and, in particular, doctrines of estates. But s 568(1) does not deal only with property in land. It deals with a company's "property" in, among other things, bilateral contracts. In that context, as well as in other contexts in which s 568(1) must operate, doctrines of estates cannot inform, let alone limit, the scope of the word "property". Once it is understood, as it must be, that "property" in the chapeau to s 568(1) is a compendious description of legal relationships amounting to "ownership" of objects of property (both tangible and intangible), the reference in para (f) to "a contract" must be understood as identifying, as the disclaimer property, the rights and duties which arise under the contract. The contract is the source of those rights and duties. (Emphasis in the original; citations omitted.) 149 It is also important to avoid conflating the "consequences of disclaimer" and "the ambit of the power to disclaim": Willmott Growers at [49] per French CJ, Hayne and Kiefel JJ. 150 In this respect, BMW's initial submissions referred to certain obligations in the agreement between BMW and the Company. By way of example, clause 5(a) of the agreement between BMW and the Company provides that "[t]he Borrower must … pay to [BMW] the Total Amount Payable by the Instalments at or before the times and in the manner specified in item 5 of the Schedule [to the relevant contract]" (emphasis added). Clause 5(b) provides that "[t]he Borrower must … pay to [BMW] on demand [certain amounts]" (emphasis added). Clause 11.1 provides that "[t]he Borrower must pay on demand all the reasonable costs and expenses of [BMW] relating to or in connection with [certain matters]" (emphasis added). 151 As the emphasised words show, those provisions are plainly personal obligations imposed on the "Borrower", being the Company. They are obligations to pay money. They are not directed towards the "legal relationship which exists between the company and the object": Willmott Growers at [35] per French CJ, Hayne and Kiefel JJ (emphasis added). Rather, they relate to the legal relationship between two persons, namely BMW and the Company. They do not relate to the legal relationship between BMW and the Ferrari. They should not be characterised as being responsive to the description in s 568(1)(d), being "property of the company that consists of … property that may give rise to a liability to pay money" (emphasis added). As a consequence, those obligations are not responsive to the liquidators' notice of disclaimer.

[49]

"Other onerous obligation" 154 The parties were not aware of any authority which has interpreted the phrase "property that may give rise to … some other onerous obligation". In the context of s 568(1)(d), "some other onerous obligation" conveys an obligation that is separate or distinct from, or different or additional to, the other obligation described in s 568(1)(d), being a "a liability to pay money". The Oxford English Dictionary (Oxford University Press, March 2021) contains the following definition of "onerous": "[o]f the nature of a legal burden or obligation; … unreasonably burdensome, involving obligations which outweigh the possible benefits". Jowitt's Dictionary of English Law (5th edition) provides that "onerous" means: A contract, lease, share or other right is said to be onerous when the obligations attaching to it counterbalance or exceed the advantage to be derived from it, either absolutely or with reference to the particular possessor. 155 In Re Middle Harbour, Bowen CJ in Eq interpreted the power to disclaim "any estate or interest in land which is burdened with onerous covenants": Re Middle Harbour, p 656. His Honour stated at p 659 that these words were "appropriate to cover land in respect of which there exist onerous covenants from which may arise financial liabilities constituting a burden on the land, in the sense that they may be enforced against the land". 156 Having regard to those matters, it should be noted that there was very limited argument concerning the ambit of the phrase "other onerous obligation" in s 568(1)(d) of the Corporations Act. In those circumstances, this judgment need not set out a comprehensive analysis of the concept. It is sufficient to state that the words "other onerous obligation" require an evaluation as to whether a relevant obligation answers the description of being "onerous" in the context of s 568(1)(d). In light of the limited argument on the meaning of that phrase, it would not be appropriate to set out a test that goes beyond the text of s 568(1)(d). It is sufficient to say that I accept the liquidators' submissions that an "onerous obligation" may include a requirement that imposes a sufficiently heavy burden. An "onerous obligation" may, in a number of circumstances, include requirements attached to property that outweigh or exceed the monetary or non-monetary benefits that could foreseeably be derived from the relevant property. An "onerous obligation" may also include property which has "financial liabilities" that can be "enforced against" the property: Re Middle Harbour, p 659.

[50]

Application to the facts 157 When the nature of the phrase "other onerous obligation" is appreciated, immediately before the notice of disclaimer, the Company's obligations in relation to the Ferrari should not be categorised as an "other onerous obligation" within the meaning of s 568(1)(d). 158 This is because, from 19 December 2019, by operation of the vesting rule in s 267 of the PPSA, BMW's unperfected security interest vested in the Company and the Company held the Ferrari as its unencumbered asset free from BMW's security interest. The notice of disclaimer was made by the liquidators on 11 February 2020 subsequent to the automatic vesting of the security interest on 19 December 2019 when the Company was placed into administration. 159 In these circumstances, as at the date of the notice of disclaimer (being 11 February 2020), rather than having financial burdens attached to it, the evidence discloses that the Ferrari had an estimated value, as at 20 August 2020, of $314,760, and I infer that the Ferrari would have had a similar value as at 11 February 2020. By reason of the operation of the vesting rule in s 267 of the PPSA, the Ferrari was an unencumbered asset of the Company which had a value in excess of $300,000. On any view, having possession of an unencumbered asset that has a value exceeding $300,000 is not an "onerous obligation". At the relevant time, there were no obvious burdens attached to it which would exceed the value of $300,000. There were also no liabilities which could be enforced against it. 160 As to BMW's submissions that there were ongoing storage, weekly battery recharging, regular servicing, and insurance requirements attached to the Ferrari which were "onerous obligations", I do not accept those submissions. I was not taken to any evidence as to what those obligations involved and why they would satisfy the statutory text of being "onerous". In light of the value of the Ferrari to the Company, I do not accept that these types of obligations outweighed that value such that they could be described as "onerous".

[53]

BMW's submissions 165 BMW submitted that the liquidators should be denied the declaratory relief which they seek on discretionary grounds. 166 BMW submits that on 27 May 2020 the liquidators, without taking any step to set aside the disclaimer, or to inform ASIC or BMW that it regarded the disclaimer as ineffective, or to seek the consent of BMW, seized the Ferrari. BMW submits that this seizure was made pursuant to an ex parte application for a warrant of search and seizure granted by Moshinsky J on 21 May 2020. 167 BMW submits that Mr Rohrt of the liquidators acknowledges that he was warned by an undisclosed staff member about the disclaimer at the time of the seizure, but says that he already formed the view that the disclaimer was ineffective when the Warrant was obtained. BMW contends that the disclaimer, or Mr Rohrt's opinion that the disclaimer was ineffective, was not disclosed to Moshinsky J as part of the ex parte application. BMW submits that the liquidators' solicitors did not seek to withdraw the disclaimer until some two weeks later on 10 June 2020. 168 BMW submits that the intrusive nature of a search and seizure application is a significant imposition on the rights of citizens and ought to be accompanied by a high standard of candour. BMW submits that the liquidators have not respected the intrusive powers granted to them by this Court and, if the liquidators held the view that the disclaimer was ineffective then they should have sought to set it aside before, or as part of, their application to Moshinsky J. BMW submits that, at the very least, the existence of the disclaimer should have been disclosed to Moshinsky J. 169 BMW submits that, in these circumstances, the liquidators should be denied the declaratory relief they seek. BMW submits that the liquidators have, on the basis of their own untested views as to their notice of disclaimer, acted inconsistently with their notice of disclaimer, and without having first taken proper steps to regularise the position or even inform the Court before seizing the Ferrari. BMW submits that such conduct should not be condoned by the Court.

[54]

Principles 170 In Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, Gibbs J addressed the nature of declaratory relief. His Honour stated at 437-438: It does … seem to me that the Scottish rules summarized by Lord Dunedin in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade Ltd., should in general be satisfied before the discretion is exercised in favour of making a declaration: "The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought." Beyond that, however, little guidance can be given. As Lord Radcliffe said in Ibeneweka v. Egbuna: "After all, it is doubtful if there is more of principle involved than the undoubted truth that the power to grant a declaration should be exercised with a proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making. Beyond that there is no legal restriction on the award of a declaration." (Citations omitted.) 171 In JN Taylor Holdings Ltd (in Liq) v Bond (1993) 59 SASR 432 (JN Taylor), King CJ (with whom Prior and Perry JJ agreed) stated at 435-437: Authoritative judicial statements make it clear that the jurisdiction to grant declaratory relief is very wide and that judicial pronouncements appearing to restrict the circumstances in which such relief will be granted relate to the sound exercise of the discretion rather than to jurisdiction: Ibeneweka v Egbuna [1964] 1 WLR 219 at 225; Forster v Jododex Australia Ply Ltd (1972) 127 CLR 421 esp per Gibbs J at 438; Salmar Holdings Pty Ltd v Hornsby Shire Council [1971] 1 NSWLR 192, per Mason JA at 201 … In Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation (supra), Street CJ (at 53) repudiated the notion of jurisdictional cut-off points in relation to declaratory relief. Moffitt P said (at 57): "The proper conclusion to be drawn concerning the power to make a declaration is that the jurisdiction (in the strict sense) to grant declaratory relief in a properly constituted action is very wide, so that no particular limitation can be pointed to …" … The proposition that there is no limit to the jurisdiction of the court to grant declaratory relief would be an incomplete and misleading statement of the true position unless there be added the further proposition that there are circumstances which are so contra-indicative to the exercise of the discretion in favour of the grant of declaratory relief that the existence of those circumstances would lead almost inevitably to the exercise of the discretion against the making of a declaration. Examples of such decisively contra-indicative circumstances can be found in the cases. A declaration will not be made except in matters "which have a real legal context, and to the determination of which the Court's procedure is apt": Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation (supra) per Hutley JA at 61. There must be some person who has a true interest in opposing the declaration. The question raised must not be purely theoretical. There must not only be a party with a true interest in opposing the declaration, but the plaintiff must have a real interest in having the question determined: Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438, per Lord Dunedin at 448. That interest may exist although the apprehended impact on the plaintiff may be no more than a future possibility: Hordern-Richmond Ltd v Duncan [1947] 1 KB 545. If, however, the determination of the question could not affect the plaintiff's legal rights or commercial or personal interests now or in the future, that is to say would "produce no foreseeable consequences for the parties" (Gardner v Dairy Industry Authority (1977) 52 ALJR 180 at 188, per Mason J), see generally Ainsworth v Criminal Justice Commission (supra) at 581-582, the declaration would almost certainly be refused. 172 The nature and power of declaratory relief was recently addressed in some detail by the Full Court in Clarence City Council v Commonwealth of Australia [2020] FCAFC 134; 382 ALR 273 (Jagot , Kerr and Anderson JJ) (Clarence). In Clarence, the Full Court stated at [62], [65] and [70]: This Court's primary source of power is the [Federal Court of Australia Act 1976 (Cth) (FCA Act)]. Relevantly, to the extent that this Court is otherwise vested with jurisdiction (Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; 201 FCR 378 (MSY Technology) at [8]-[9] and [21] per Greenwood, Logan and Yates JJ), s 21 of the FCA Act empowers the Federal Court as follows: 21 Declarations of right (1) The Court may, in civil proceedings in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed. (2) A suit is not open to objection on the ground that a declaratory order only is sought. … Section 23 of the FCA Act additionally confers upon the Federal Court broad powers to award relief to a party: 23 Making of orders and issue of writs The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. … [T]here remains a residual discretion as to whether or not relief should be granted in the circumstances of the particular case: Australian Conservation Foundation Inc v The Commonwealth [1980] HCA 53; 146 CLR 493 at 511 per Aickin J. It is established that this discretion is very wide: [JN Taylor] at 435-436 per King CJ, with Prior and Perry JJ agreeing. Indeed, Gibbs CJ expressed in Forster v Jododex Australia Pty Ltd [1972] HCA 61; 127 CLR 421 at 437 that it was a discretion that was "neither possible nor desirable to fetter … by laying down rules as to the manner of its exercise". 173 The Court also observed at [189]: The court's discretion to award declaratory relief is directed by the interests of justice. As expressed by Neuberger J (as his Lordship then was) in Financial Services Authority v Rourke [2001] EWHC 704 (Ch); [2002] CP Rep 14 at 18 (as quoted in Equity: Doctrines & Remedies at p 630): … when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration. (We agree with the view of the authors of Equity: Doctrines & Remedies (at p 630), though, that this statement should not be taken to exhaustively state the considerations relevant to the exercise of the court's discretion: ibid.)

[55]

Application to the facts of this case 174 Having regard to those principles, certain evidence of one of the liquidators, Mr Rohrt, should be noted. The fifth Rohrt affidavit records the following: … on our appointment as liquidators of the Company, we had serious difficulties in obtaining books and records. On the basis of the information available to me at the time, I understood that the Ferrari was an asset of the Trading Trust and had an associated liability to [BMW]. I understood at that time based on the limited books and records I had available that the finance associated with the Ferrari was likely to be significantly in excess of the value of the Ferrari itself. I also did not have possession of the Ferrari. I had also caused a search of the Personal Property Securities Register to be undertaken in relation to the Company. I noted that BMW had registered their security interest against the Ferrari. At the time, I did not turn my mind to the validity or otherwise of the registration nor did I seek advice as to its validity. On the basis that I understood the liability secured against the Ferrari exceeded its value, and that there were ongoing obligations to make payments, on 11 February 2020 I signed the Notice of Disclaimer (Purported Disclaimer). … I am aware that under the provisions of the Corporations Act 2001 (Cth), a party seeking to set aside a disclaimer must do so within 14 days and otherwise leave of the Court is required. I did not make the application within that period because following signing the Purported Disclaimer, I did not have any reason to re-consider the matter until when the Warrant was sought and obtained in this proceeding. At that time, having re-considered the PPS registration, I formed the view that the registration was defective. I did so on the basis that I noted the registration was against the Company's Australian Company Number and not the Australian Business Number allocated to the Trading Trust. On that basis, I formed the view that the security interest had actually vested in the Company the moment prior to it being placed into administration on 19 December 2019. Accordingly, I formed the view that the Ferrari was property I was entitled to seize pursuant to the Warrant issued by this Court. During the execution of the Warrant on 27 May 2020, when I was informed that the Ferrari was located and I needed to provide instructions as to whether or not it should be seized, I was reminded by one of my staff that I had signed the Purported Disclaimer. Prior to seizing the Ferrari, I considered the Purported Disclaimer and formed the view that given the security interest had vested in the Company, the Purported Disclaimer was ineffective. I formed this view given that I considered I was not able to disclaim the chattel mortgage associated with the Ferrari pursuant to s 568(1)(d) of the Corporations Act 2001 given that there was no liability to pay money or some other onerous obligation attached to the Ferrari. Given that the security interest had vested in the Company, I formed the view that BMW were now an unsecured creditor. Having formed those views, and following the seizure of the Ferrari, I instructed my lawyers to communicate these matters to both Ms Guerin and to BMW and to amend the Originating Process filed in these proceedings … On the basis of the above, I verily believe that the Company and therefore Mr Dixon and I as liquidators have a claim to the Ferrari on the basis that the security interest vested in the Company, and therefore it is an asset capable of being realised for the purposes of the liquidation. 175 The sixth Rohrt affidavit records the following: … I seek to clarify my evidence that "I did not have any reason to re-consider the matter until when the Warrant was sought and obtained in this proceeding." After the Disclaimer had been signed on 11 February 2020 I did not turn my mind to the issue of the disclaimer or the Ferrari until after the Ferrari had been located on the day the Warrant was executed, being 27 May 2020. I did so only when I was considering whether I could seize the Ferrari and at that time I was reminded by a staff member that I had signed the Disclaimer as I depose to in [my] 11 September Affidavit. To be clear, I had not reconsidered any issues relating to the Disclaimer at the time the matter came before Moshinsky J on 21 May 2020. It was only after the Ferrari was located on 27 May 2020, but before I formed the view that I could seize it, that I considered the question of whether the Disclaimer was effective or ineffective. As a result of that consideration I formed the view that [BMW]'s registration of the security interest under the Personal Property Securities Act was ineffective and therefore that security interest vested in the Company. This led me to the view that I was able to seize the Ferrari. 176 In light of this evidence (which was not challenged by BMW), I am satisfied that there are no discretionary considerations which warrant refusing the declaratory relief sought by the liquidators. This is so for the following reasons. 177 First, one of the liquidators, Mr Rohrt, has deposed to the circumstances in which he came to the view on 27 May 2020 that he could seize the Ferrari because BMW's security interest under the PPSA was ineffective and, as a result, the security interest had vested in the Company upon the Company being placed in administration on 19 December 2019. In short, Mr Rohrt deposes to not having turned his mind to issues relating to the notice of disclaimer (after having signed the notice on 11 February 2020) until executing the warrant on 27 May 2020 and locating the Ferrari on that day. Specifically, Mr Rohrt deposes to not considering any of the issues relating to the disclaimer on 21 May 2020, being the date the ex parte application was made before Moshinsky J. 178 Second, Mr Rohrt was not cross-examined and this affidavit evidence was unchallenged. Mr Rohrt's evidence should be accepted. BMW's attempts to impugn Mr Rohrt's conduct cannot, in those circumstances, provide a basis to deny the declarations sought by the liquidators. 179 As a consequence, I am satisfied that the matters deposed to by Mr Rohrt in his affidavits dated 11 September 2020 and 14 October 2020 provide a satisfactory explanation as to why the existence of the notice of disclaimer and the Ferrari were not matters which were raised before Moshinsky J at the hearing of the ex parte application for the Warrant on 21 May 2020. I am satisfied that there are no discretionary considerations which warrant refusing the declaratory relief sought by the liquidators.

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