Snowy Valleys Council v Anthony William Evans & Anor

The Council, Mr Evans and his Overdue Rates

1. As at 10 June 2020, the Council claimed overdue rates of $50,520.53 from Mr Evans on the Tumbarumba property, which comprised a number of different allotments of land. On that date the Council issued overdue instalment notices for rates upon each of the allotments comprising the Tumbarumba property. In none of the correspondence before the Court has Mr Evans disputed his ownership of the Tumbarumba properties. Any owner of land on which rates are levied by a local council administering the relevant local government area is liable to pay rates to that council by the force of Local Government Act 1993, ss 494, 550 and 560.
2. Mr Evans' response to these rate notices provides his claimed foundation for the registration of a security interest against the Council on the PPS Register. The Council argues that Mr Evan's claim to a security interest is without foundation. The Court has difficulty understanding the basis of Mr Evans' claim for a security interest and concludes that it is wholly without substance. But it is set out below in summary.
3. Mr Evans has unilaterally brought into existence documents that reflect an artificial arrangement that is said to create an obligation in the Council to him to match exactly his overdue rates. He does this misusing two forms published by the Internal Revenue Service ("IRS") of the United States of America, namely Form 1099-A and Form 1099-IOD.
4. IRS Form 1099-A is an IRS form headed, "Acquisition or Abandonment of Secured Property". The purpose of the Form can be gleaned from the instructions for the borrower on the Form, which are as follows: "Instructions for Borrower Certain lenders who acquire an interest in property that was security for a loan or who have reason to know that such property has been abandoned must provide you with this statement. You may have reportable income or loss because of such acquisition or abandonment. Gain or loss from an acquisition generally is measured by the difference between your adjusted basis in the property and the amount of your debt cancelled in exchange for the property, or, if greater, the sale proceeds. If you abandoned the property, you may have income from the discharge of indebtedness in the amount of the unpaid balance of your cancelled debt. The tax consequences of abandoning property depend on whether or not you were personally liable for the debt. Losses on acquisitions or abandonments of property held for personal use are not deductible. See Pub. 4681 for information about your tax consequences. Property means any real property (such as a personal residence); any intangible property; and tangible personal property that is held for investment or used in a trade or business. If you borrowed money on this property with someone else, each of you should receive this statement."
5. Mr Evans has filled out the Form 1099-A, nominating himself and another party (J. G. Evans) as the lender, and the Council as the borrower. He also filled out the form showing the property subject of the form as a "RATE ACCOUNT" with an assessment number the same as the instalment notices issued by the Council. Mr Evans appears to be constructing an arrangement whereby he will be treated as a lender under the rate notice and the Council as a borrower.
6. That arrangement is wholly artificial. It does not represent the real relationship between the Council and Mr Evans, who is the registered proprietor of real property who is in default to the Council on a statutory debt under the Local Government Act. Mr Evans filling out and propounding an IRS Form 1099-A in this manner does not alter the true relationship between himself and the Council. Mr Evans' device in using Form 1099-A was to treat the statutory debt owing by Mr Evans as if it were some type of instrument creating an equivalent liability of the Council to Mr Evans. The equality of the two liabilities seems designed on his part to cancel one another out so nothing is owing by Mr Evans to the Council.
7. But this is all Mr Evans' work. Mr Evans' crafting of an instrument such as this neither cancels nor modifies his actual existing statutory obligations to pay rates to the Council under the Local Government Act. It does not possess the indicia of a real transaction and certainly not one to which the Council has ever consented.
8. Mr Evans' use of the other IRS Form, Form 1099-I0D is equally artificial. Form 1099-10D appears to have relevance to the taxation functions of the US IRS to define tax liability where a gain is made from the purchase price of a bond at face value as opposed to its value at maturity. Mr Evans has filled out Form 1099-10D to show the face value of the Council's rate instalment notices as representing federal income tax withheld and treats the Council as the "payer" and Mr Evans and J.G. Evans as the "recipient" under the form. But again, there is no evidence that the Council consensually participated in the creation of or in the characterisation of its relationship with Mr Evans in the manner represented by this form.
9. Mr Evans then apparently seeks to argue that the US Internal Revenue Code, Title 26 US Code s 1272 applies to whatever arrangement he has unilaterally created.
10. How the Internal Revenue Code could possibly affect a statutory debt created under the Local Government Act by virtue of Mr Evans' ownership of land in Australia is never explained by Mr Evans and it is not obvious to the Court. US Internal Review Code, Title 26 US Code s 1272 promulgates a general rule as follows: "(1) For purposes of this title, there shall be included in the gross income of the holder of any debt instrument having original issue discount, an amount equal to the sum of the daily portions of the original issue discount for each day during the taxable year on which such holder held such debt instrument."
11. Mr Evans' creation of these documents does not convert the statutory debt he owes to the Council to a liability owed by the Council to him. Other difficulties exist. Even if Mr Evans had created some kind of negotiable instrument, it could not be evidence of a debt owed by the Council to Mr Evans. It is not a consensual instrument with the Council. Nor does a rate notice fit within the class of debt instruments to which the US Code Title 26 applies: 26 USC s 2726(C).
12. Deeper analysis of the flaws in Mr Evans' use of these forms is not required. To attempt to make more sense of his artificially created documents is a fruitless exercise. The transactions they purport to represent are wholly fictitious.

The Council Claims Relief under the PPSA

1. Mr Evans uses the "instruments" he has created to found registration of a security interest in the PPS Register. The Council seeks pursuant to PPSA, s 184 to remove that entire registration from the PPS Register. These reasons only require a limited account of the operation of the PPSA to the extent that it allows for the removal of data from the PPS Register that does not represent a real transaction.
2. On 2 October 2020, under the power provided by PPSA, s 150 Mr Evans applied as a secured party to register a financing statement with respect to a security interest in the PPS Register (PPS Registration No. 202010020035431). In the entry the Council is nominated as the grantor. The collateral type is "commercial property". The commercial class is "negotiable instrument". The description in the entry is "debt securities issued 10 June 2020" with a reference number being the same as the rate instalment notices.
3. The PPSA, s 12(1), (2) and (3) defines "security interest" as follows: 12 Meaning of security interest (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). Note: For the application of this Act to interests, see section 8. (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) a fixed charge; (b) a floating charge; (c) a chattel mortgage; (d) a conditional sale agreement (including an agreement to sell subject to retention of title); (e) a hire purchase agreement; (f) a pledge; (g) a trust receipt; (h) a consignment (whether or not a commercial consignment); (i) a lease of goods (whether or not a PPS lease); (j) an assignment; (k) a transfer of title; (l) a flawed asset arrangement. (3) A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation: (a) the interest of a transferee under a transfer of an account or chattel paper; (b) the interest of a consignor who delivers goods to a consignee under a commercial consignment; (c) the interest of a lessor or bailor of goods under a PPS lease. …"
4. The s 12 definition of "security interest" was discussed by Beach J in National Australia Bank Ltd v Garrett (2016) 340 ALR 532; [2016] FCA 714 ("Garrett") at [28] and [29] in terms that are of present relevance, as follows: "[28] First, s 12(1) stipulates that a "security interest" is one that is "provided for by a transaction". The concept of a "transaction" is exemplified by the instances in s 12(2). One can readily appreciate that a transaction is not for example a remedial constructive trust or remedial equitable charge that may be imposed by a court of equity. Moreover, one can appreciate from the use of the word "transaction", the examples given in s 12(2) and the use of the phrase "provided for …" in s 12(1) that one is in essence dealing with consensual arrangements. But it must be emphasised that the focus in s 12 is on a "transaction" rather than an instrument per se. Accordingly, nothing in s 12 necessarily requires there to be an instrument as such, although each of the paradigm examples of transactions referred to in s 12(2) would normally be constituted by an instrument; other provisions (e.g. s 20(2)) do, for example, make reference to writing. [29] Second, s 12(1) provides that the "security interest" be "… 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)". So, one considers matters of substance rather than form. The instances set out in s 12(2) would usually satisfy that requirement. The only exceptions, by way of addition, are those set out in s 12(3)."
5. Here there is nothing in the evidence that resembles a "transaction" among the documents relied upon by Mr Evans that "in substance secures" the "payment or performance of an obligation" by the Council. All the Court is presented with is a series of artificial documents that Mr Evans has created for his own purposes without engaging with the Council. No greater analysis is required here to establish that Mr Evans is not the "secured party" in respect of any "security interest" as defined within the PPSA.
6. The PPSA provides for this situation. A person such as the Council that has an interest in collateral in the PPS Register, may require changes to registration in the PPS Register under PPSA, Part 5.6. A person with an interest "in collateral described in a registration with respect to a security interest" may give a demand in writing, an "amendment demand" to the secured party to amend the registration by way of a "financing change statement": PPSA, s 178. Where a party in the position of the Council says that "no collateral described in a registration secures any obligation…owed by a debtor to the secured party" such as Mr Evans, s 178 authorises that party to give an amendment demand to "end effective registration" of the security interest in question: s 178(1).
7. The Council does not submit that its rate notices could qualify as "collateral" under the PPSA. But the relevant threshold for the application of s 178 is that the person seeking to give the amendment demand has an interest "in collateral described in a registration" (emphasis added). To the extent that the collateral here is "described in a registration", the Council is described as the relevant interested party and it may therefore make an amendment demand.
8. The Council served on Mr Evans an amendment demand under PPSA, s 178 on 15 October 2020. Under PPSA, s 182, a person who has made an amendment demand may commence proceedings after the expiration of 5 business days after the day the demand was given to the secured party. As at 23 October 2020, the registration remained in place and the Council commenced these proceedings.
9. If the Court considers an amendment demand to be authorised under s 178, the Court may make an order to require the Registrar to register a financing change statement to remove the registration: PPSA, s 182(4)(a). The Council now seeks this relief.
10. In the Court's opinion, the amendment demand is authorised under s 178 and the Court will order the Registrar to register a financing change statement to remove the registration.
11. This is not a case where fine questions of onus of proof need be considered. There is debate in the authorities as to who bears the onus in establishing whether an amendment demand is authorised under s 178: Macquarie Leasing Pty Ltd v Deqmo Pty Ltd [2014] NSWSC 1466 ("Deqmo") (Rein J) at [27]; Garrett at [33]; Wickham Hill Investment Pty Limited v Ding [2019] NSWSC 631 (Parker J) at [131] to [166].
12. But here, the Council has not entered into any transaction granting Mr Evans any security interest. Mr Mathew Hyde, the Council's Chief Executive Officer, has deposed to a search of the Council's records and he can find no record of the Council having ever entered into an agreement or other arrangement with Mr Evans whereby the Council granted Mr Evans a security interest over any of its personal properties. That evidence, together with the absence of any credible documentation which would create such an interest, puts the matter beyond debate. Mr Evans has not participated in the proceedings and has not sought to lead any evidence to contradict Mr Hyde's account.
13. The Court will make orders substantially in accordance with prayer for relief 1 of the Amended Summons.
14. As a result of the commencement of these proceedings, Mr Evans registered another financing statement with respect to a claim to a security interest related to these proceedings. On 11 December 2020, Mr Evans applied to the Registrar to register a financing statement in respect of security interest 202012110006496. This financing statement described the grantor of the security interest as the Council, the secured party as Mr Evans, the collateral type as "commercial property", the collateral class as "financial property - negotiable instrument". And the description of the collateral was: "Summons/Amended Summons, NSW Supreme Court Case Number 2020/00310527 1099A Acquisition of Secured Property Form filed with the Internal Revenue Service 11 December 2020".
15. This financing statement is another iteration of the fictitious transactions upon which Mr Evans relies to register claimed security interests. But the Council does not seek any relief in respect of this financing statement. Under PPSA, s 184 the Registrar has the power to "remove data (including an entire registration) from the Register if the registrar is satisfied, among other options, that the application to register the data was 'frivolous or vexatious'": PPSA, s 184(1)(a). In apparent exercise of this power on 23 April 2021, the Deputy Registrar decided to remove PPSA registration, 202012110006496.

Should an Injunction be Granted?

1. The Court has jurisdiction to restrain a person from registering a security interest in another person's personal property in circumstances where the first person has been found to have no such interest: Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd (2014) 285 FLR 267; [2014] 285 VSC 217 ("Sandhurst"). Mr Evans' litigious history establishes a likelihood that unless he is restrained, he is likely to take steps to lodge further unsubstantiated financing statements: Garrett at [49] - [64]; Deqmo at [30].
2. The PPSA contains a number of provisions to protect the PPS Register from vexatious, manipulative, erroneous and false registrations. PPSA, Part 5.6 - Amendment Demands [ss 127 - 182] is one example of this. Another is Part 5.7 - Removal of Data and Correction of Registration Errors [ss 183 - 188]. Yet another is the prohibition under PPSA, s 151(1) against a person applying to register a financing statement or a financing change statement describing collateral "unless the person believes on reasonable grounds that the person described in the statement as the secured party is or will become a secured party in relation to the collateral (otherwise then by virtue of the registration itself)".
3. Mr Evans has not taken any step to identify that he has reasonable grounds for applying to register the finance statements claiming the security interests that are the subject of these proceedings. The objective evidence shows that he could not hold any such reasonable belief. The Court can conclude that his application to register the financing statements in question here probably contravenes s 151(1). But the jurisdiction to restrain the registration of further security interests exists whether or not a contravention of s 151 is established: Sandhurst at [108].
4. Strong considerations favour the grant of an injunction against Mr Evans to prevent his further registration of any security interest involving the Council. He has shown a general willingness to document fictitious transactions. In previous attempts by the Council and its predecessor in title, the Tumbarumba Shire Council, he has engaged in other artificial conduct to impede Tumbarumba Shire Council from enforcing the recovery of rates from him in the Local Court.
5. Moreover, as indicated above, two days after he was served with the Amended Summons, he lodged a further financing statement against the Council, which has since been dealt with administratively by the Registrar. Mr Evans has served the Council with additional IRS forms this year, similar to the ones that are said to be the foundation of his previous financing statements. And Mr Evans' pre-trial communications with this Court show that he has little proper regard for the independent role of Courts and public authorities.
6. But the question arises as to the width of such an injunction. The Council proposed orders in the following terms: "2. An injunction restraining the first defendant from registering or causing to be registered on the PPSR any further Financing Statement in respect of any security interest or purported security interest in the personal property of the Plaintiff. 3. An Order that if a registration is made on the PPSR in breach of the above Order, the Registrar, upon notification by the Plaintiff of the registration number of a registration made in breach of the relevant restraint, is required to remove that registration forthwith."
7. There are two difficulties with granting relief in these terms. First, proposed order 3 would delegate the enforcement of the breach of the injunction to the Registrar and the Council. That is not satisfactory. The Registrar has independent powers to rectify the PPS Register under PPSA, s 184.
8. The second difficulty with such relief is that it is expressed in very broad terms. It should be limited to security interests related to Mr Evans' rate notices. If Mr Evans were to engage in any further conduct outside that restraint, the Court may consider widening the restraint in the future.
9. The Court will retain involvement in this matter for a further short period. The Council will be granted liberty to apply during that period, should any breach of the injunction occur.
10. The Court will also make a costs order in the Council's favour against Mr Evans. This is the kind of case in which the normal procedures of an assessment for costs may be likely to provoke Mr Evans into the creation of further artificial documents representing fictitious transactions for deployment on the PPS Register. For that reason, the Court is ready to exercise its jurisdiction under Civil Procedure Act 2005, s 98(4)(c) to fix a specified gross sum instead of assessed costs.
11. The circumstances in which the Court will take that course are not confined but not uncommonly occur when a costs assessment may itself become an occasion for delay or for vexatious conduct by one of the parties for assessment: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (Giles JA (at [21] - [22]; Hamod v New South Wales [2011] NSWCA 375 at [819]; Zepinic v Chateau Constructions (Aust) Ltd (No. 2) [2014] NSWCA 99 at [28]. This is such a situation.
12. If the Council wishes to take advantage of s 98(4)(c), it may file a motion seeking a specified gross sum costs order instead of assessed costs. This may be returnable before the Court on 17 June 2021.

Conclusions and Orders

1. The Court makes the following orders: 1. Order the Second Defendant to register a financing change statement removing the registration of the first defendant's claimed security interest with registration number 202010020035431. 2. Order that the First Defendant, by his servants or agents, is restrained from registering or causing to be registered on the Personal Property Securities Register any further financing statements claiming a security interest based on rate notices issued by the Plaintiff, or based on the 1099-A or 1099-OID forms promulgated by the Internal Revenue Service of the United States of America. 3. Order the First Defendant to pay the Plaintiff's costs of these proceedings. 4. Grant leave to the plaintiff to make a Motion returnable before Slattery J at 9.30am on Thursday, 17 June 2021 for the fixing of a gross sum instead of assessed costs pursuant to Civil Procedure Act 2005, s 98(4)(c). 5. Grant liberty to apply.

Amendments 30 April 2021 - Small typographical errors corrected in Orders 2 and 3 30 April 2021 - Catchwords - "Financing Change Statement" made lower case 03 May 2021 - [31] Quote indented 04 May 2021 - [29], [42] - Registration Numbers corrected 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: 04 May 2021