Smith v Quasar Constructions Pty Ltd

Local Court of NSW|2016-02-12

Solicitors: Gavin Parsons & Associates (for the applicant) Sewell & Kettle (for the respondent) File Number(s): 2015/47996

Background

Following a judgment entered in this court on 19 November 2014, Mr Luke Smith, as judgment creditor, became entitled to the sum of $50,786.06 from the judgment debtor Quasar Constructions Pty Limited (herein after referred to as Construction).
The proceedings now before this court for determination were initiated by the registration of the Certificate of Judgment which was filed on the 4 February 2015. There have been a number of Notices of Motion filed but two are of importance in relation to the bringing of the issues for determination before the court. They are as follows: 1. The first Notice of Motion was issued by AAI Limited wherein this entity sought certain orders. This company had received two demands in respect of monies it owed to the judgment debtor, Constructions. The first of these was in the form of a garnishee order issued in the interest of Mr Luke Smith, so that he could at least obtain part payment of the judgment debt. The second was a letter from Quasar Constructions (Commercial) Pty Ltd (hereinafter referred to as "Commercial") in which it notified AAI of its secured interest in respect of monies advanced to Constructions. In the Notice of Motion it sought orders, inter alia, in the following terms: 1. $25,003.37 being paid into court within fourteen days; and 2. $20,180.94 being paid into court on or before the 26 June 2015. Both these sums were in respect of monies AAI owed to Construction for work Construction had done for AAI. On 4 June 2015 this Notice of Motion was listed before a registrar of the court and the orders sought were made, and monies were duly paid into court pursuant to those orders. 1. The second Notice of Motion, in its amended form, is left to be determined by the court. This motion was filed by Commercial on 9 July 2015. It sought in its final form, the following orders. 1. The sum of $25,003.37 and the sum of $20,180.94 be paid out to the applicant, Quasar Construction (Commercial) Pty Ltd; and 2. Costs.

Power

The applicant, pursuant to rule 43.2 of the Uniform Civil Procedure Rules 2005, is a person (i.e. as an interpleader) who has an interest in the attached debt, this caused by the issuing of a garnishee order to AAI Limited by Smith.
Rule 43.7 gives ample power to the court to deal with the situation where two parties are disputing entitlement to a particular sum of money. In particular, rule 43.7(2) says that the court may do, inter alia, relevantly, either of the following: (e) on request by any party, it may summarily determine any or all questions of fact or law in which the requesting party is interested arising on the application, … (g) it may make such other order, or give such other judgment, as the nature of the case requires.
There is no issue between the parties that the court indeed has the power to make the orders that are being sought by the applicant.
There is a further preliminary matter which is not in dispute between the parties. The garnishee order was made by the court on 24 April 2015 and was issued on AAI Limited on 27 April 2015. It was served on 29 April 2015.
Section 117 of the Civil Procedure Act says relevantly that "a garnishee order operates to attach, to the extent of the amount outstanding under the judgment, all debts due or accruing from the garnishee to the judgment debtor at the time of the service of the order". Therefore when served it creates a lien over all debts of AAI Limited due to Construction, to the extent of the quantum of the judgment.

Chronology

A chronology of the events is of assistance in understanding the history of the relationship between the parties which lead to this dispute and these matters are not in contest between the parties. 1. 22 May 2014 - Commercial and Construction execute a Deed of Loan. 2. 22 May 2014 - Both Commercial and Construction execute a Security Deed. 3. 22 May 2014 - A meeting of directors of Construction approved the Deed of Loan. 4. 28 May 2014 - A Verification Statement pursuant to s 156 of the Personal Property Securities Act 2009 (hereinafter referred to as the PPS Act) issued. This document sets out a number of relevant matters. They are as follows: 1. The grantor was Constructions. 2. The secured party was Commercial. 3. The collateral is referred to as "all present and after acquired property - no exceptions, this property being the property of Constructions". 4. The registration took place on 28 May 2014 at 13.34. 1. 19 November 2014 - An Order of this court was made, entering judgment in favour of Mr Smith in the sum of $50,786.06, this being against Construction. 2. 3 February 2015 - A certificate issued out of this court in relation to the judgment. 3. 16 February 2015 - The certificate of the Order was registered in this court with a view to enforcement. 4. 9 April 2015 - Notice of Motion was filed in this court for the issue of a Garnishee Order. 5. 20 April 2015 - A notice was sent from Commercial to Construction that the security interest had become enforceable and that Commercial was entering into possession of the property the subject of the Security Deed, namely all the book debts and accounts recoverable by the grantor, Construction. 6. 24 April 2015 - This court made a garnishee order upon AAI Limited (the third party) in respect of a debt owed by that corporation to Construction. 7. 27 April 2015 - The garnishee order was issued on AAI Limited. 8. 29 April 2015 - Garnishee order served on AAI Limited. 9. 1 May 2015 - Commercial gave notice to Suncorp Limited (accepted by all parties as in effect to AAI Limited) that it was a secured party in respect of property owed by Construction and that monies owed to Construction should be forwarded to Commercial. 10. 8 May 2015 - AAI, through Suncorp, advised Commercial that it had been served with the garnishee order of 24 April 2015 and in the circumstances of conflicting interests, AAI had decided to pay $25,003.37 into this court. It paid a further sum into court in June 2015, this being in the sum of $20,180.94. Together these sums total $45,184.31. On the evidence this sum covered a number of outstanding invoices owed by AAI to construction, details of which were as follows: 1. invoice totalling $14,266.07, which had fallen due for payment by 29 April 2015. 2. a further number of invoices totalling $10,737.30 that fell due for payment on 30 April 2015. 3. a further number of invoices totalling $20,180.94 that fell due between 22 May 2015 and 12 June 2015.

The security deed

The Security Deed referred to in 2 above attracts duty under the Duties Act 1997 (NSW). This duty was not paid until 22 October 2015.
In the Security Deed, clause 4 states as follows: Grant of Security Interest 4.1 To secure the punctual payment in full of the security obligation, the grantor grants to the secured party: a) The Security Interest (as defined in the PPS Act) over all PPS Act property; and b) A fixed charge over all non-PPS Act property.
There is no issue that this covered book debts of Construction. In relation to Construction and Commercial there is no issue in relation to the following matters associated with those corporations:- 1. Construction was incorporated on the 15 June 1995. 2. Current company officers of Construction are Timothy Perrignon (appointed 1 July 2001) and James Crawford (appointed 22 May 2014). The Respondent, Lukanus Keran Smith, was previously a director of this entity, Construction, being appointed 15 June 1996. He ceased to be a director on 22 May 2014. 3. The current sole shareholder is Veni Vindi Vici Pty Limited. 4. Crawford has been controller of Construction since 22 April 2015, and is controller in respect of property described in the notification of appointment lodged with ASIC on 15 May 2015 as "the debtors" of the company. 5. Commercial was incorporated on 20 January 2012. The sole director was James Crawford. It was incorporated as Quasar Construction Commercial Pty Ltd but on 7 March 2013 the name was changed to Quasar Constructions (Commercial) Pty Ltd. 6. The current sole shareholder of Commercial is Crawford 6 Pty Limited.
It is in these circumstances that the issues as I have said have arisen between the parties namely Mr Smith and Commercial.

Dispute between the parties and the provisions of the Personal Property Security Act (PPS Act)

The applicant, Commercial, says that its interests in the money paid into court have priority over that of Mr Smith. It says this priority arises under the provisions of the PPS Act. This Act commenced operation on 31 January 2012 and given the chronology that I have set out above, was operative during the entirety of the events as set out therein. An overview of the Act and its purpose is set out in section 3 but for brevity I am not dealing with that in any detailed way. Suffice it to say the Act introduces new terminology and concepts not previously used in Australia in this area of the law.
There is no issue that the provisions of the legislation apply to the circumstances of the dispute between the parties as allowed for in section 6(1). There is no issue that the Security Deed purports to relate to a Security Interest as defined in section 12. The deed purports to secure a loan of money advance by Commercial (the lender) to Construction (the borrower). The advance is for the sum of $3,617,778.00 together with further advances from time to time. Section 18 of the PPS Act allows for a security agreement to be effective according to its terms and such an agreement may include after acquired property. The dictionary attached to the deed allows property to mean "all present and after acquired property".
Section 19 of the Act states as follows: Attachment required for enforceability (1) A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral. Attachment rule (2) A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) either: (i) value is given for the security interest; or (ii) the grantor does an act by which the security interest arises.
Section 20 allows for the follows: General rule (1) A security interest is enforceable against a third party in respect of particular collateral only if: (a) the security interest is attached to the collateral; and (b) one of the following applies: (i) the secured party possesses the collateral; (ii) the secured party has perfected the security interest by control; (iii) a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).
Subsections (2) (4) and (5) set out requirements associated with written security agreements. There is no issue these requirements are satisfied in the particular circumstances of this case.
Section 21 is headed "Perfection - main rule". This section states that a security interest is perfected, inter-alia, in circumstances where all of the following apply: 1. The security interest is attached to the collateral; 2. The Security interest is enforceable against a third party; 3. A registration is effective with respect to the collateral.

Relevant clauses of the security deed

The registered security deed imposes obligations upon the Grantor. Clause 8 states that the grantor must comply with a number of provisions. Inter-alia, these include clauses 8.3 and 8.11: 8.3: "Pay on their due date any rates, taxes, charges, outgoings and assessment in respect of the security property and provide evidence of payment on demand by the Secured Party."
8.11: "Duly comply with and observe the provisions of all legislation and the requirements or directions of any Government Agency in relation to the grantor and in relation to the secured property."
Clause 14 sets out Events of Default and these relevantly are as follows:- 14.2: "The Grantor or any other person does not comply with any obligation (other than a payment obligation) under any agreement to which it is a party with the secured party (including this Deed)." 14.4: "Distress is levied or judgment, order or Security Interest is enforced or becomes enforceable, against any property of the Grantor or any of its subsidiaries." 14.18: "Any proceeding is commenced in any court, tribunal or other body capable of making a binding award, by any director or shareholder of the Grantor or any subsidiary, against the Grantor or any subsidiary and such proceedings are not withdrawn within seven (7) days."
Clause 19 of the Deed sets out the Secured Party's power on default. Inter-alia, this clause allows for the following: 19.1: "If and when an Event of Default occurs, any Security Money becomes immediately due and payable by the Grantor to the Secured Party, without any notice or demand." 19.2(f): "Exercise or the powers of a receiver." 19.2(i): "Convert, liquidate and reduce the whole or any part of the Secured Property into money." 19.2(x): "Do everything in respect of the Secured Property without limitation, as the Secured Party deems expedient."
Clause 20 allows for the Secured Party, on default, to "sue any PPSA Property".
In addition to these, Commercial also relies upon Clause 5.3 of the Loan Agreement which says that interest was to be payable on or before the last day of the financial year. In respect of the financial year, ending 30 June 2014, this had not been paid. (Deposed to in paragraph 13 of the Affidavit of Greg Ross of the 17 June 2015). This is not in dispute on the evidence and I note that Mr Ross was not called to be cross examined on his Affidavit. I accept this therefore to be a fact.
It is apparent from the section that I have referred to, there are a number of matters to be established before the provisions of the PPSA can apply to the benefit of a corporation in the position of Commercial. There are as follows: 1. Commercial must establish that it has a security interest in the property of Construction. 2. That for this security interest to be enforced against another party (i.e., AAI) it has to become "attached" to collateral, the subject of the security interest. 3. The security interest in collateral must be "perfected" before it can be enforced.

Was there a security interest as understood by section 12 of the PPS Act

As I understand the submissions by Mr Rose, on behalf of Mr Smith, he says that in fact there was not sufficient evidence before the court to allow it to be satisfied that there is a debt owed by Construction to Commercial, such as to establish a security interest.
It is important to note certain matters in this regard: 1. On 12 February, when this matter was first before the court, a substantial body of evidence, including bank records, was tendered, together with affidavit evidence. In relation to the affidavit evidence, certain objections were taken and the affidavits duly amended. However in relation to the bundle of bank records and other material which is exhibited and marked "2", there was no objection to this material going into evidence. 2. None of the deponents to the affidavits that were tendered in evidence were called for cross-examination, although as I've said certain parts of the various affidavits were excluded for a variety of reasons which were addressed at the time by the court.
Given this, I am of the view that the bank records, in particular, and evidence relating to these, should be accepted as evidence of what they purport to be. I appreciate that in particular there is a hand written alteration to the name of the entity that held a Commonwealth Bank account. This was held at the Baulkham Hills branch of the Bank, and the name of the account is changed in hand writing to read "Trust Account for Quasar Constructions". This was never objected to, as I have noted, and I accept what the change does by so designating the account and I will accept this to be in fact the correct name of the account and the entity to which it relates, namely, Quasar Constructions.
A ledger for both Construction and Commercial was in evidence, and this ledger reflects the financial transactions between the two companies, as reflected in the bank statements that I have referred to. The bank statements, and the ledgers, cover the period January 2014 to June 2014.
Further, in the second affidavit of Greg Ross (10 September 2015), this gentleman being a construction manager of Commercial, he states that as at 22 May 2014, Commercial had advanced the sum of $3,617,778. A further transaction ledger is attached to this affidavit, which goes back to October 2012 i.e. before the Security Deed was executed. When all these documents are examined the following is apparent: 1. Advances of money from Commercial to Construction have been going on since October 2012. 2. When the Deed of Loan dated 22 May 2014 was executed the monies already advanced by Commercial to Construction totalled approximately $3,600,000.00. 3. Substantial further monies continued to be advanced beyond this date, that is, the date of the Loan Deed.
I appreciate Mr Smith, who was a director of Construction up until 22 May 2014, says he knew nothing of these advances. However it is an agreed fact that Mr Smith did not involve himself in the day to day managerial operations of Construction from 2012 and that as at 19 May 2012 he had a mental illness (see Exhibit 5).
Further he says that he has had various other health issues, additional to his mental health issues, since 2008. I accept these matters. However, they are consistent with Mr Smith not having been fully aware of all the transactions between the two corporations and his recall in relation to these may be somewhat compromised for the reasons that he himself has deposed to. I accept on the evidence that substantial sums of money were advanced from Commercial to Construction since October 2012 and I accept this as a matter of fact.
These advances do not appear to have been formally secured when the Deed was executed on 22 May 2014. The Deed secures the debt created by the past advances of the monies, securing the debt up until that time, and also allowed for further advances to be secured as they occurred from time to time into the future. For these reasons, I have concluded that there was a debt owed by Construction to Commercial and as such, this satisfies the provisions of section 12 of the PPS Act. This security interest created, inter alia, an interest in the book debts of Construction. This interest is to the benefit of Commercial.
As can be seen from the chronology I have set out earlier, there is no issue that the security interest, and the documentation associated with that, was allowed for under the provisions of the PPS Act, this being done on 28 May 2014.

Was there attachment?

The attachment has to be to the collateral, which, in the circumstances relevant to dispute between the parties in this case, was to the book debts.
Section 19 sets out the attachment rule. Section 19(2) says relevantly as follows:- (2) A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) either: … (ii) the grantor does an act by which the security interest arises.
There is no issue that section 19(2) (a) is established, i.e. Construction had rights over the book debts, the collateral. The matter in dispute is whether the grantor (Construction) has done something by which the security interest arises.
The applicant (Commercial) relies upon a number of events that constitute a breach of the covenants set out in Clause 8 of the Security Deed: 1. In paragraph 13 of the affidavit of Mr Greg Ross (17 June 2015), as has already been referred to, Construction failed to pay interest that was due to Commercial on 30 June 2014, thereby breaching Clause 8.1 of the Security Deed, which was an obligation also under clause 5.3 of the Deed of Loan. This failure also breaches Clause 2.8 of the Deed, in that there was a failure to comply with the express terms of the Deed. 2. A breach of Clause 8.11, which requires the Grantor to comply with all legislation. There is evidence (Annexure E of the Affidavit of Ross of 17 June 2015) that Construction failed to lodge tax returns for the financial year 2012. 3. A breach of Clause 8.16. There is no evidence that Construction advised Commercial, in writing, of the judgment entered in this court on 19 November 2014, which was in favour of Mr Smith against Construction.
The applicant is also alleged to have breached clause 8.3. I accept what the Respondent says in relation to this matter namely, that the failure to pay taxes refers to that which accrues in respect of the secured property. There is secured property, i.e. the book debts. There is no evidence contained in the material before me that this breach has occurred.
The above are said, in turn, to constitute Events of Defaults set out in Clause 14: 1. The breach of Clause 8.1 (failure to pay interest when due) breaches Clause 14.1 that makes this failure a default under the deed. 2. The failure under Clause 8.11 creates default under Clause 14.3 in that it is a present monetary obligation of the grantor of more than $10,000 (the judgment debt was in fact in the sum of $50,786.00) which was not satisfied. 3. The issue of the garnishee order creates a default under Clause 14.4 in that its issue constitutes enforcement of a judgment that has become enforceable against the property of the grantor, namely, its debts that were due, inter alia, from AAI Limited.
Under the Security Deed, Clause 14 set outs the powers that Commercial (the secured party) has on default. I have set these out but I will refer to them again. They are relevantly: 1. 19.1 - If and when an event of default occurs, any secured money becomes immediately due and payable by the Grantor (Construction) to the Secured Party (Commercial) without any notice or demand. 2. Once default has occurred the powers are as set out above under Clause 19.2(f), 19.2(i) and 19.2(x).
As a result of all of the above events, I am satisfied that these acts have caused the security interest to arise. Therefore, attachment to the secured collateral has been effected.

Is the security interest enforceable?

Section 20 requires a number of matters to be established before there can be enforcement.
Firstly under section 20(1)(a) the interest must be attached to the collateral. For the reasons that I have just set out, I have concluded that this indeed has occurred, i.e. there is attachment.
Secondly to be enforceable in respect of the particular collateral, section 20 (1)(b) applies and requires one of the following:- 1. The secured party possess the collateral; 2. The secured party has perfected the security interest by control; 3. The security agreement that provides for the security interest covers the collateral in accordance with subsection (2).
In relation to (i), this does not apply to the circumstances of this case.
Item (ii) does apply to the circumstances of this case.
In relation to (iii), this is satisfied as the registered security interest (i.e., the Deed registered on 28 May 2014) was a written security agreement that was signed by the grantor and it contained a statement that the security interest is taken over all the grantor's present and after acquired property. Clause 4.1 of the Deed, as already mentioned, states as follows: To secure the punctual payment in full of the secured monies, and punctual performances of the Secured's Obligations, the Grantor grants to the Secured Party: a) The Security Interest (as defined by the PPS Act) over all PPSA property; and b) A fixed charge over all non-PPSA property.
There is no issue that this wording covers all book debts of Construction.
For these reasons I would conclude that the security interest is enforceable against a third party in respect of the book debts (the collateral) but subject to one further matter, namely, that Commercial has "perfected" the security interest.

Is the security interest the particular collateral perfected?

Section 21 is the main rule associated with perfection. Relevant are the following provisions: (1) A security interest in particular collateral is perfected if: … (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;
In relation to s 21(1)(b)(i), I have set out my reasons as to being satisfied attachment has occurred, as I have also done as to enforceability against a third party.
Section 21(2) is satisfied by the registration that took place on 28 May 2014.
For these reasons I would conclude that the security interest has been perfected.

Priority

The issue now for the court to decide is the priority of Commercial and its interests established under the PPS Act, on the one hand, and the judgment debt secured by Mr Smith in this court, on the other. Before reaching a conclusion as to priority, however, there is a further matter that must be dealt with that has the potential to affect the priority issue.

Duties Act 1997 (NSW))

There is no issue that the Security Deed was a document that attracts duty under the Duties Act 1997 (NSW). There is no issue that the duty was payable (in fact in the sum of $14,413.00) and it was not paid until 22 October 2015. The chronology that I have set out earlier shows that the security interest created by a Deed at the 22 May 2014 was registered pursuant to the provisions of the PPS Act on the 28 May 2014. Judgment of this court did not occur until 19 November 2014. The duty as I have said on the registered deed was not paid until 22 October 2015.
Section 254(1) of the PPS Act states as follows: (1) This Act is not intended to exclude or limit the operation of any of the following laws (a concurrent law ), to the extent that the law is capable of operating concurrently with this Act: … (b) a law of a State or Territory;
Section 254(2) states relevantly as follows: (2) Without limiting subsection (1), this Act is not intended to exclude or limit the concurrent operation of a concurrent law, to the extent that the law has the effect of: … (c) without limiting paragraph (b): … (ii) imposing limitations or additional obligations or requirements in relation to the enforcement of a security interest in personal property...
The Duties Act does impose "additional obligations or requirements", namely, the payment of duty on the Deed. The issue is whether the payment of the duty on 22 October 2015 means that until that date, the Deed, even though registered under the PPS Act, had no effect until the duty was paid, but when it was paid, whether the payment took affect ab initio, that is, from the date of execution (22 May 2014) or only from the date of payment (22 October 2015). If the former, then the Deed was in effect and registered well before the date of judgment and subsequent orders associated with the execution of the judgment. If the later, the judgment and the issue of the Garnishee order was in effect well before the date duty was paid. The resolution of this issue has a direct bearing upon the issue of priority in the circumstances of this case.

Does the payment of late stamp duty have retrospective effect?

Section 211 of the Duties Act states as follows:- A mortgage on which duty is required by this Chapter to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid.
Further section 304 says that: (1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless: (a) it is duly stamped…
There is no issue between the parties that the Deed of Security is covered by each of these provisions.
It is submitted by Commercial that the late stamping has retrospective effect and takes effect, once paid, from the date of the execution of the document. The Respondent, Mr Smith opposes this proposition.
The authorities regarding whether retrospect effect is to be given to late stamping (or "up stamping") are in conflict. Arnautovic and Sutherland t/as Jirsch Sutherland and Co v Cviteanovic [2011] FCA 809 is a decision of Katzman J. After analysing the authorities, her Honour concludes at [53] as follows: I am therefore inclined to follow the approach in McCallum [McCallum (aka Hain) v The National Australia Bank [2000] NSWCA 218] and to hold that s 211 operates retrospectively to make the charge enforceable from the time it was executed.
McCallum was a decision of the New South Wales Court of Appeal that was delivered by Heydon JA (as he then was), with whom Sheller and Fitzgerald JJA agreed. His Honour considered various prior authorities, including the High Court decision of Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, and concluded, that the effect of stamping was indeed such as to operate ab initio.
In In the matters of Beechwood Land Estates Pty Ltd (admin apt) and Griffith Estates Pty Ltd (admin apt) No 2 [2015] NSWSC 336, Rob J considers the issue of retrospective effect of the paying of stamp duty. It was submitted that to the extent he does deal with this issue it was obiter. However, he says the following at [95]-[96]: [95] On the view that I have taken of the legal issues raised by the questions that I am now considering, the validity of this submission by the administrators does not strictly arise [i.e. the issue of the retrospective effect of the payment of stamp duty]. However, the question has been fully argued by the parties. Furthermore, for the reasons that I have explained above, the administrators are entitled to pursue their claim for a validating order under s 447A of the Act. For the purpose of the application of that provision, it may be material to the administrators' prospects of success whether or not, for the purposes of s 211 - if not for the purposes of s 436C - the late payment of the mortgage duty had the effect of retrospectively curing any defect in the validity or enforceability of the general security deed. [96] In these circumstances I have concluded that it will be appropriate for me to decide the question, for the purposes of these proceedings. That means that I will decide whether the general security deed became valid and enforceable from the date of its execution, when the mortgage duty was finally paid. In the course of dealing with this question it will be necessary for me to consider a line of cases decided by judges of this court, sitting in the Duty List, that have considered the consequences of mortgage duty not being paid on mortgages in the context of applications by the mortgagees for an order for the continuation of a caveat lodged against the title to land that is claimed to be subject to the mortgage. While it will be necessary for me to consider the reasoning in these cases, it will not be appropriate for me to form any conclusion as to whether those cases were correctly decided.
Although the considerations on this issue cannot be regarded, given the words that his Honour has used, as being strictly binding, it is highly persuasive as he deals with the matters in a very thorough way, particularly when considering the applicable authorities.
In his decision, his Honour takes into account and considers the decision of Katzman J in Arnautovic and concluded (at [150]) that "In my view it [i.e. the decision of Katzman J] is [correct]".
He goes on to consider a list of authorities involved in the effect of late payment of duty in what he refers to as the "caveat cases" and the fact that these cases suggest no retrospective effect on late payment. However, whilst acknowledging that there may be an inconsistency between his conclusion in the circumstances of the case that was before him and these "caveat cases", he does set out circumstances that may lead them to be distinguished (see paragraphs [153]-[159]). He does say that this "is an issue in any event, which should be left for further consideration in a case in which it arises".
Kunc J, sitting in the Equity Division of the Supreme Court of New South Wales, considered this issue in two recent decisions.
Firstly, In the application of Roderick McKay Sutherland and Sule Arnautovic [2014] NSWSC 821 is a matter in which his Honour considers the effect of "upstamping" in paragraphs [120]-[124]. His Honour considers many of the authorities that were considered by Katzman J and reaches a similar conclusion. In particular, his Honour refers to a decision subsequent to that of Arnautovic, namely a decision of Ward J in Re C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises Pty Ltd; AF Gazzana v Nadalan Enterprises Pty Ltd [2012] NSWSC 676. Kunc J states that Ward J correctly expresses the current state of the law, which in turn is consistent with the decision of Katzman J.
In Celestial Finance Australia Pty Ltd v Bhaus Pty Ltd and Anor [2015] NSWSC 1509, a decision handed down on 17 October 2015, whilst acknowledging that the question of retrospective effect was not free from doubt, his Honour held that "upon the requisite duty being paid, the unenforceability of upstamped charges pursuant to section 211 of the Act was cured retrospectively". This meant that the documents that attracted duty "would be enforceable retrospectively to the time of their execution" (at [14]).
The applicant submits that I should follow the line of authority referred to as "caveat cases". The caveat cases referred to start with Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344, a decision of Young CJ in Equity. They continue with Boral Recycling Pty Ltd v Wake [2009] NSWSC 712 (a decision of McDougall J) and Vellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260, a decision of White J. This followed the decision in Boral. There was the decision of ACN 075 911 410 Pty Ltd (t/as Acuity Funding) v Almaty Pty Ltd [2011] NSWSC 333 (Barrett J) a decision which also followed Boral.
There is a further decision that I was referred to on Schibaia v Elias [2013] NSWSC 1485. This was another decision of McDougall J. His Honour in this particular case does briefly consider Arnautovic and whilst conceding confusion on the issue of retrospectivity in various first instant authorities, he had reservations about this decision because he did not consider her Honour to have addressed the issue with sufficient precision (at [32]).
Finally I was referred to the decision in Awadallah v Hymix Australia Pty Ltd [2015] NSWSC 117, a further decision of McDougall J. In this decision his Honour follows his earlier decision in Boral.
The thing that all these judgments have in common is that they are ex-tempore and, understandably, do not go into a full analysis and consideration of all the authorities historically.
In contradistinction, both Katzman J in Arnautovic and Robb J in Beechworth analyse in considerable detail the authorities and further, their decisions were not ex-tempore and were reserved. The same can be said about the decision of Kunc J in Roderick McKay Sutherland. Although there are conflicting authorities on the issue, for the reason I have just indicated, that is the more thorough consideration of the historical authority, I am persuaded to follow the more detailed decisions of Katzman J and Robb J, rather than the cases that have been cited which I have collectively called the "caveat cases" and the line of authority that they represent.
I therefore conclude that once the duty was paid on 12 October 2015, it had retrospective effect, such that the Security Deed had effect from the date of execution, that is, 22 May 2014. It therefore can be relied upon in the circumstances of this particular case.

Returning to the issue of priority

For reasons I have set out, I have concluded that the applicant has a Perfected security interest. This is effected by the Security Deed which was registered on 28 May 2014. Given my conclusion that as a result of payment of duty on the document, albeit late, the effect is to take the Deed as valid ab initio. Therefore, the Deed created a security interest that was an enforceable perfected security interest, this predating the issue of the garnishee order on 27 April 2015. In Secure Funding Pty Ltd v Bettini [2011] NSWSC 557, Harrison J accepted the proposition that a garnishee order did not render a garnishor a secured creditor in relation to an attached debt (at [20]).
Section 74(1) of the PPS Act states as follows: (1) The interest of an execution creditor in collateral has priority over any security interest in the same collateral that is not perfected at the time covered by subsection (4) (even if such a security interest is later perfected).
Section 74(4) relevantly defines that time as when the garnishee order was made in relation to the execution creditor. This was on the 27 April 2015. But I have found that as at that time, the applicant had in fact a perfected security interest, and it follows that this will take priority over that of the respondent, Mr Smith.

Other considerations

For completion, I should deal with two further matters.
Firstly I note the contents of Exhibit 4 and the factual concession made by the Respondent, Mr Smith. This was in the following terms: Commercial has given notice of these proceedings to all those secured parties disclosed on the PPSR Grantor search of Constructions where their interest was said to be a purchase money security interest and those parties are not appearing today.
Secondly, I have set out the details of the corporate entities and note the commonality of directors in Construction and Commercial. From this it was submitted, as I understand it, that I should look at the evidence very carefully to ensure that the dealings between the two are at arm's length. It was submitted that, because of the possibility of something untoward or indeed fraud occurring, I should look at the evidence very closely utilising the test in Briginshaw v Briginshaw (1938) 60 CLR 336. I am not sure how this is to be applied. Before it becomes relevant as a way of looking at the evidence, there must be a factual basis upon which the level of comfortable satisfaction is arrived at with care, given the seriousness of the allegation. There is no evidence of such an allegation on the evidence in this matter. I have looked carefully at the documentary material. There is certainly nothing that suggests that there is something untoward or fraudulent in relation to the way in which the two corporations related to each other, at least, as I have viewed the evidence.

Orders

For the above reasons I have concluded that the applicant should have the orders that it seeks in relation to the monies that have been paid into court. I therefore order that the two sums of money paid by AAI Pty Limited into court in June 2015, namely, $20,118.94 and $25,003.37 be paid out to the applicant, Quasar Constructions (Commercial) Pty Ltd. Further I intend ordering the Respondent to the application, Luke Smith, to pay the applicant's costs as agreed or assessed. However, as I indicated on the last day this matter was before the court, I will hear the parties should they seek a different costs order to that which I propose to make. Magistrate G B Curran Downing Centre Local Court 1 April 2016

Note: 6 April 2016 - order of 1 April 2016 amended under r 36.17 "slip rule". Amount of order amended to $45,144.31. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 May 2016

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