SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities

Legislative scheme 13 The guide to the PPS Act states that it is a law about security interests in personal property: s 3. 14 Part 2.2 of the PPS Act contains general principles relating to security interests, the agreements that govern them and their enforceability. The part describes how a security interest is attached to personal property and perfected: s 16. 15 Section 17 provides relevantly: A perfected security interest has priority over an unperfected security interest, and the security interest that has been continuously perfected for the longest time generally has the highest priority (see Part 2.6 for priority rules). Perfection occurs when a security interest has attached to collateral and any further steps needed to make the security interest effective against third parties have been taken. These steps involve registration on the Personal Property Securities Register or possession or control of the collateral. In certain situations this Act provides for perfection, or temporary perfection, by the operation of the Act itself. 16 Section 21 of the PPS Act provides relevantly: (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; … 17 The register is established and maintained by the Registrar pursuant to s 147 of the PPS Act. The contents of the register are specified by s 148 of the PPS Act as, relevantly, data in registered financing statements (as amended by any registered financing change statements) with respect to security interests. 18 A "financing statement" is defined by the dictionary in s 10 of the PPS Act ("Dictionary") to mean data registered (or that is to be registered) pursuant to an application for registration under s 150(1) of that Act. 19 A "financing change statement" is defined to mean data amending a registered financing statement. 20 Part 5.3 of the PPS Act is entitled "Registration". A person may apply to the Registrar to register a "financing statement" with respect to a security interest: s 150(1)(a). A person may also apply to the Registrar to register a "financing change statement" to amend a registered financing statement: s 150(2). 21 By s 150(3), the Registrar must register the financing statement or financing change statement in accordance with the application, but only if the conditions set out in that sub-section are satisfied. 22 From both ss 148 and 150, it appears that the contents of the register is primarily determined by the contents of applications to register financing statements and financing change statements that are submitted to the Registrar so that the data contained in the applications may be included in the register. Further, the Registrar is obliged to register statements in accordance with applications for registration, subject only to the restrictions imposed by s 150(3). The Registrar is not required by the Act to verify or validate the contents of applications made under s 150(1). 23 Part 5.4 of the PPS Act is entitled "When a registration is effective". As noted above, by s 21, a security interest in particular collateral will only be perfected if there is an effective registration with respect to the collateral. 24 A description of collateral starts to be registered in a registration with respect to a security interest, in relation to a particular secured party, at the moment (the registration time) when the description becomes available for search in the register in relation to that secured party: s 160 PPS Act. 25 A financing statement, or a financing change statement, may be registered to reflect the transfer of a security interest, or of collateral, before or after the transfer: s 162 PPS Act. 26 Section 163 provides: (1) A registration with respect to a security interest that describes particular collateral, in relation to a secured party, is effective with respect to that collateral from the registration time for the description of the collateral until the earliest of the following times: (a) the end time (if any) registered for the collateral; (b) if the registration is amended to omit the collateral description--the amendment time; (c) the time when the description of the collateral in the registration stops being available for search in the register (by reference to that time) in respect of the secured party. 27 Mr Markus put the position as follows: … what happened in this case is that through the exercise of the registrar's powers and duties under subsection (c) of section 150, the registrations became ineffective. 28 Part 5.7 of the Act is entitled "Removal of data and correction of registration errors". Part 5.7 comprises ss 183 to 188. 29 Section 183 is headed "Guide to this Part". It provides: The Registrar may remove data in certain situations, for example if its retention is contrary to the public interest. The Registrar may also remove old data, restore removed data and correct errors or omissions made by the Registrar. 30 Section 184 deals with removal of data by the Registrar on "general grounds" which include the Registrar being satisfied that the application to register the data was frivolous or vexatious, the data is offensive, or the retention of the data in the register is contrary to the public interest. 31 Section 185 confers a power on the Registrar to: …register a financing change statement to remove data (including an entire registration) with respect to a security interest from the register to reflect the fact that the registration has been ineffective under s 163 for 7 years or more. 32 As Mr Markus observed, s 185 underscores the fact that the Act does not require the removal of registrations that become ineffective. Further, s 185 may imply that the Registrar is not empowered to remove registrations that have become ineffective, without more, until after the expiration of seven years. 33 Section 186 provides: (1) The Registrar may (at his or her initiative) register a financing change statement to restore data to the register (including an entire registration) if it appears to the Registrar that the data was incorrectly removed from the register under this Act. (2) If data is restored to the register under subsection (1), for the purposes of this Act the data is taken never to have been removed from the register. 34 Section 188 provides: (1) The Registrar may (at his or her initiative) register a financing change statement to amend a registration to correct an error or omission made by the Registrar. (2) If a registration is corrected under subsection (1), this Act applies as if the error or omission had never been made.

Creation of security interests 35 On 14 May 2013, the grantor granted to the assignor security in relation to the assets of the grantor. 36 That day, the assignor registered security interests on the register. The applicants' undisputed evidence was that the Registrar issued the assignor with the following "certificate registration numbers": a. 01305140009782 with end time 1/05/2019 11:59:59 PM; b. 201305140009795 with end time 1/05/2019 11:59:59 PM; c. 201306040017043 with end time 1/05/2019 11:59:59 PM (although documentary evidence shows that the probable end time for this registration was 1/06/2019 11:59:59 PM). 37 I will refer to these three end times as "the original end times".

Assignment of security interests 38 On 23 May 2014, the assignor entered into a deed with the second applicant to assign certain debt and securities in respect of the grantor ("the first deed"). Clause 2.2 of the deed relevantly provides: [the assignor] assigns, and [the second applicant] takes an assignment of, all of the [assignor's] estate and interest in the Securities, the moneys secured by or payable under the Securities and the benefit of all the [assignor's] rights, powers and entitlements under the Securities in consideration of the [second applicant] paying to the [assignor's] the Settlement Sum… The "Securities" are defined in the deed to include the security interests. 39 Pursuant to this deed, the assignor agreed to "transfer the registration on the register in respect of the Securities" to the second applicant within 10 business days from the receipt of the "Settlement Sum". The agreement to transfer the registrations appears to reflect the language of s 162 of the PPS Act. There is no evidence that anything was done to perform this obligation prior to 22 July 2014. 40 On 11 June 2014, the second applicant entered into a deed with the first applicant, to assign certain debt and securities in respect of the grantor ("the second deed"). Clause 2.2 and the definition of "Securities" in the second deed are in substantially identical terms to the first deed.

Applications to register financing change statement which do not reflect transfer of security interest, and which change end date of registrations 41 On 18 July 2014, the solicitors for the second applicant wrote to the assignor requesting "all security tokens" in respect of the security interests registered on the register. The unchallenged evidence was that this letter was a request to the assignor to "transfer" the registrations of the security interests to the second applicant. 42 In July and August 2014, the first applicant also made email requests to the assignor to "transfer" the registrations, apparently to enable the first applicant to be recorded on the register as the secured party for each registration. 43 Although the financing change statements were not in evidence, the unchallenged evidence of the applicants was that on 22 July 2014, the assignor filed an application to register a financing change statement in respect of each of the registrations which, in substance, amounted to an application to amend the original end times to "22/07/2014 15:59:48 (Canberra Time)". 44 There is no dispute that the security interests were not discharged on 22 July 2014. There is no dispute that the financing change statements filed on 22 July 2014 did not reflect the assignor's intentions and contained information in error that caused the end time data in the register to be changed, to the apparent detriment of the applicants.

Attempts to have the end times corrected to reflect the parties' intentions 45 The assignor's error was identified within an hour of the lodgement of the applications. 46 On 23 July 2014, the assignor sent three forms to the Registrar entitled "Request to remove data or correct errors made by the Registrar" which sought "to have the entire registration restored" for each of the three security interests. The reasons given were: The registration was discharged by accident through training a new staff member, it should not have been discharged whatsoever. 47 By letter dated 24 July 2014, the assignor wrote to the Registrar saying relevantly: Unfortunately on 22 July 2014, [the assignor] did not transfer the Registrations to [the second applicant] but released the Registrations. The release was incorrectly made. [The assignor] apologises for this inconvenience to you and your staff, however, requests that the Registrar please register a financing change statement to restore the Registrations under [s 186 of the PPS Act]. Would you please advise…of any further information you may need to effect restoration of the Registrations, as once the restoration is effected the Transfer of Registrations to [the second applicant] can be attended to. 48 By email dated 28 July 2014, an officer of the Australian Financial Security Authority ("AFSA") wrote to the assignor, stating, in substance, that the Registrar did not have the necessary power to do what was requested. 49 A further request was made to the Registrar by letter from e.law Legal Services on behalf of the applicants dated 6 August 2014, in response to which the AFSA officer stated that the Registrar's position remained unchanged. 50 These proceedings were commenced on 7 August 2014 and the application was heard on 8 August 2014.

Searches of the register and registration certificates 51 The applicants tendered two searches of the register, conducted on 13 May 2014 and 8 August 2014. They also tendered three documents entitled "registration number search certificate" dated 23 July 2014 ("certificates"). 52 The 13 May 2014 search shows that the register contained the following relevant data on that date: a. For registration number 201305140009782: Start: 14/05/2013 9:20:19 AM End: 1/05/2019 11:59:59 PM Changed: 14/05/2013 9:20:19 AM Collateral Type: Commercial Collateral Class: All present and after-acquired property - No exceptions Change number: 22216557 Secured parties: [the assignor] b. For registration number 201305140009795: Start: 14/05/2013 9:20:19 AM End: 1/05/2019 11:59:59 PM Changed: 14/05/2013 9:20:19 AM Collateral Type: Commercial Collateral Class: Intangible property - Account Change number: 22216558 Secured parties: [the assignor] c. For registration number 201306040017043: Start: 4/06/2013 10:31:36 AM End: 1/06/2019 11:59:59 PM Changed: 4/06/2013 10:31:36 AM Collateral Type: Commercial Collateral Class: Intangible property - Account Change number: 22503161 Secured parties: [the assignor] 53 The certificates show that the registration end times for each security interest were changed on 22 July 2014 to "22/07/2014 15:59:48 (Canberra Time)". The certificates each contain the following statement: Registration State: Expired 54 The 8 August 2014 search does not include any data concerning the three registrations.

The mistake in the applications to register financing change statements 55 The applications to register financing change statements lodged by the assignor on 22 July 2014 with respect to the security interests granted by the grantor to the assignor and issued with the registration numbers referred to in paragraph 37 above mistakenly applied to change the "end times" registered for the relevant collateral to 22 July 2014.

What the register contains 56 Based on the certificates, I conclude that the register presently contains the data set out in the certificates with respect to the security interests including registration numbers, registration start times, grantor, collateral and security party details, the registration end times of 22/07/2014 15:59:48 (Canberra Time) and the statement "Registration State: Expired". 57 The effect of that data is that a search of the kind conducted on 8 August 2014 does not reveal the data in the register that is set out in the certificates. 58 However, the registrations were not removed from the register upon the registration of financing change statements with respect to the security interests on 22 July 2014. 59 I infer from the submissions on behalf of the Registrar, particularly, the statement set out at paragraph 27 above that, as a result of receiving the applications to register financing change statements in this case, the end time registered for the collateral was amended so that the previously effective registration for each of the security interests ceased to be effective. 60 In the absence of any evidence that the original end times still form part of the contents of the register, the May 2014 searches when compared to the certificates demonstrate that the original end times have been removed from the register. The consequence of the removal of the original end times in this case is that the registrations do not appear on the 8 August 2014 search. 61 This conclusion is consistent with the requirement in s 148(a) that the register contains data in registered financing statements as amended by any registered financing change statements. Section 148(a) does not require the register to contain data that has been replaced by amended data. As a matter of logic and ordinary English, data that has been replaced, and which no longer appears on the register, has been removed from the register. 62 Accordingly, it is necessary to consider whether the Registrar's power under s 186 may be exercised to restore to the register the original end times.

Registrar's power under s 186 PPS Act 63 Mr Markus argued that s 186 addresses an incorrect exercise of the Registrar's powers to remove data, not any other exercise of power. Alternatively, he submitted that what needs to be demonstrated is that change has been incorrectly effected. He argued that, when the Registrar acts in accordance with a duty imposed on him by s 150 to register a financial change statement in accordance with the application, it could not be said that the performance of that duty is an incorrect act. 64 Counsel for the applicants, Ms Gatland, argued that data may be found to have been "incorrectly removed" from the register even though there was no error on the part of the Registrar. In this regard, she noted that s 188 empowers the Registrar to correct errors or omissions made by him or her. Accordingly, she argued that s 186 must be directed towards the removal of data by the Registrar in circumstances not involving error or omission by him or her. 65 At least in correspondence, the Registrar accepted that the power in s 186 extends beyond the restoration of data incorrectly removed under Part 5.7 to removals under Part 5.6. Under that Part, a person with an interest in collateral may require changes to the registration by way of an "amendment demand" given to the secured party. There is an administrative and a judicial process set out in ss 181 and 182 respectively for registration amendments, which include amendments "to remove the registration" or "to omit the collateral": see s 178(1). If the power in s 186 applies to the removal of data under s 182, then it is difficult to argue that it is limited to addressing an incorrect exercise of the Registrar's powers to remove data because, under s 182, the Registrar is acting under order of the court. 66 The power under s 186 is conditioned upon it appearing to the Registrar that "the data was incorrectly removed from the register under this Act". 67 In my view, data may be removed from the register under the PPS Act pursuant to an application under s 150, if s 150(3) requires the Registrar to register a financing change statement and, in doing so, requires the Registrar to remove data from the register. 68 The Macquarie Dictionary Online defines "incorrect" to mean: 1. Not correct as to fact; 2. Improper; 3. Not correct in form or manner. 69 In my opinion, the word "incorrectly" does not require the identification of an error on the part of the Registrar in removing data from the register. What is required is that data has been removed from the register which ought correctly to be included in the register. This interpretation reflects the difference in language between s 186 and s 188, which concerns the correction of errors and omissions by the Registrar. 70 Further, an ordinary English interpretation of the words "incorrectly removed from the register" includes an act of removal which occurs as a result of error on the part of a person making an application under s 150. This result is consistent with the kinds of circumstances in which data may be incorrectly removed under ss 181 and 182. 71 The evident purpose of s 186 is to ensure that data which should be included in the register, but which has been incorrectly removed, may be restored to the register. It is plainly a "remedial or beneficial provision": cf Nilant v Macchia (2000) 104 FCR 238 at [39] (Weinberg J). In that case, his Honour said, concerning s 306(1) of the Bankruptcy Act 1966 (Cth) which deals with formal defects and irregularities in proceedings under that Act: [40] The orthodox view of the approach to be adopted in relation to the interpretation of remedial legislation is that reflected in the dissenting judgment of Issacs J in Bull v Attorney-General (NSW) (1913) 17 CLR 370. His Honour said at 384: "In the first place, this is a remedial Act, and therefore, if any ambiguity existed, like all such Acts should be construed beneficially ... This means, of course, not that the true signification of the provisions should be strained or exceeded, but that it should be construed so as to give the fullest relief which the fair meaning of its language will allow." (Emphasis added.) [41] In D C Pearce and R S Geddes, Statutory Interpretation in Australia (4th ed, 1996) the learned authors observe at par 9.3: "If an Act is intended to benefit a particular person or class of persons, it is preferable for any ambiguity to be resolved in favour of the intended beneficiary. However, it must be clear that the provision is intended to achieve the beneficial purpose claimed." [42] A provision such as s 306(1) of the Act should be construed beneficially, and as generously as the language of the section allows. It should certainly not be construed in a narrow or pedantic manner. 72 The PPS Act is plainly intended to benefit, among others, security holders by providing for the perfection of security interests in order to establish priority among security holders. 73 In this case, the removal of the data was only correct in the narrow sense that it conformed to the financing change statement that the Registrar was obliged to register. 74 However, the data was "incorrectly removed" from the register in the sense that the removal resulted from the lodgement of an application which did not correctly reflect the intentions of the person making the application. In my view, the language of s 186, read in the context of the whole of the PPS Act does not require the narrow construction contended for by the Registrar. To the contrary, having particular regard to the provision in s 188 for the correction of errors and omissions and the beneficial nature of the provision, s 186 should be construed to permit the restoration of data incorrectly removed in this wider sense. 75 Of course, the Registrar must be satisfied that data has been incorrectly removed before the power under s 186 may be exercised. But the mere fact that the data has been removed in conformity with a financing change statement will not necessarily mean that the data has been correctly removed. If the application to register a financing change statement is found to have been submitted in error or found to have contained data different from that which was intended to be included by the person making the application, then the Registrar may be satisfied that relevant data has been incorrectly removed from the register.

Conclusion 76 The Registrar has power to register a financing change statement to restore data comprising the original end times to the register if it appears to the Registrar that the data was incorrectly removed from the register under the PPS Act. 77 Data may be incorrectly removed from the register under the PPS Act if it is removed for the purpose of including amended data in accordance with s 150(3) where the financing change statement contains an error as a result of a mistake by a person submitting the application to register financing change statement. I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.