HAILING LEGAL REFORM - Uber and our legal system

The rollercoaster that is the legal status of Uber has taken another turn[1]. Since its inception and rapid paced growth, Uber has existed in a somewhat legal limbo. Due to the characteristics of our system (elaborated on below), the taxi alternative has, like a number of relatively current online services[2], been forging a new raft of issues for our legal system to consider.

For those not aware, Uber is an online service that through the use of a smart device and free app gives people the ability to easily become taxi drivers, a service which has hit the market with such success that it’s now worth some $18 billion. The issue is it’s not exactly legal per say. Uber is considered illegal as taxis require specific licenses in order to carry on their business in NSW, licenses which are above and beyond those necessary for standard drivers. Not to mention the potential insurance and tax implications too, many of which have little to no legal precedent or consideration.   

Clearly this isn’t the first time that an activity has been undertaken that may technically fall fowl of the law, historically the law steps in and through its proper application, halts the illegal activity. Which is precisely what is occurring[3]. Why should this be any different?

To understand the problem, the following needs to be considered: one of the characteristics of our legal system is it has to hold the seemingly incompatible position of being a solid foundation, a steadfast pillar of society, but to also be amenable and adaptable to the ever changing landscape of society.

The solidity ensures consistency which fosters predictability and in turn reliability. Yet the fluidity ensures that as the moral fibre of society develops or discovers different approaches to social interactions (depending on your take on morality), the law is there to provide the backing necessary to peg down the advancements to ensure constant positive steps are made. This is by all means an oversimplification of both characteristics, regardless both are vital to a prospering society.

The obvious question raised is, how do the two discordant tenets coexist? Historically, the ‘slow and steady’ approach has been the most effective tactic, the legal system generally hits an acceptable compromise between maintaining consistency in the law and keeping up with social movement, it simply means one needs to always check the current state of the law before advising anyone and that it’s commonly accepted that the law will lag behind society by (hopefully) no more than a few years. Any changes would generally either be slow enough to allow the law to adapt accordingly or small enough that they could be extinguished if deemed socially undesirable. Again a simplistic overview.

How this all relates back to the aforementioned problem in that now the speed of technology has enabled multi-billion dollar companies to set up, establish and grow to the point where they can contest the dominant players, before the law even has time to react or adequately acknowledge the shift or change. It’s problematic because the proper application of the current law would suggest the activities of Uber are illegal and the position should always be - enforce the laws as they stand. Further, the huge social shifts result in commercial ventures operating in sparse legal voids, making advising a precarious exercise. Also, various slippery slope, floodgate styled arguments crop up, some with legitimate foundation. Especially when one considers the potential liability arising out of billions of dollars in possibly uninsured transactions. Yet, the undisputable acceptance of this service by consumers would certainly have the free market advocates urging the continuation of such an enterprise and whist the industries of old complain about the intrusion of such online services, the fact that Uber now employee people, who in turn count on it for their livelihood and that many more rely on the services it provides, restricting or banning them outright could be just as problematic. Not to mention Uber are exposing the potential overcharging and or price gouging nature of the former taxi industry.

A side point to consider, whilst seeing technology reinvigorate an industry is not especially new, just consider what Netflix and Spotify did through their online streaming services for the television/movie and music industries. Netflix and Spotify, who were cognisant of the drain that piracy was having on the industry, bridged the gap between, ensuring creators and contributors received reimbursement for their material whilst offering consumers a cheap easily accessible viewing format. In this instance though, through the power of technology Uber injects competition into the taxi industry, the likes of which has not been seen before. Thereby where Netflix and Spotify mostly work alongside the established paradigm, Uber seems to usurp it[4].

One of the crucial aspects of the issue is that on paper Uber may be facilitating illegal operations but perhaps such operations should no longer be deemed illegal. A view that has been adopted by the Harper Review, a review into competition policy in Australia[5], and is to be put into practice in Canberra[6]. The difficulty is that the inherent nature of the technological movement that is behind Uber raises the stakes when it comes to legal reform and application, as on one hand the complaints have validity, they may not necessarily apply in the current situation, but there is little to suggest they couldn’t in future or in different industry shifts. On the other hand the benefits derived from the service are undeniable, stifling such progress should surely be avoided without sufficient cause to justify it. Perhaps the legal system’s slow and steady approach needs a shake up to better cater to, or in some respects simply keep up with a progressing (technologically drenched) society.

No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance. 

[1] http://thenewdaily.com.au/news/2015/09/30/uberx-now-legal-australian-city/.

[2] Such as Airbnb, Netflix and Spotify.

[3] http://www.abc.net.au/news/2015-09-28/uber-drivers-face-suspension/6808582.

[4] That is not to suggest that Netflix and Spotify faced no opposition from the former industry leaders, rather their approach worked more in line with the industry’s overall goals, more so than Uber.

[5] http://competitionpolicyreview.gov.au/final-report/.

[6] http://thenewdaily.com.au/news/2015/09/30/uberx-now-legal-australian-city/.

IT’S ON THE INTERNET - IT MUST BE TRUE

A short thought on the status of defamation law in this technological age.

Internet trolling is a term people are becoming more acquainted with as more of society migrate to an internet-based lifestyle. For those still unaware, a troll or trolling behaviour as defined by the internet’s go-to resource Wikipedia is ‘a person who sows discord on the internet by starting arguments or upsetting people, by posting inflammatory, extraneous, or off-topic messages in an online community’.[1]

The reason for bringing this up is that it is not uncommon for trolling behaviour to fall foul of our defamation laws – posting on social media can be deemed a publication and damages can flow if the material is defamatory in nature.[2] However, it would be safe to assume many published defamatory remarks go by unchecked.

Google Trends would suggest, the term internet troll/trolling has only really been in the public sphere since about 2005 with a major spike in early 2012,[3] and if media reports are anything to judge by, it’s still a persistent behaviour rife throughout the internet community.[4] It’s this increasing encroachment of trolling on the public consciousness that ignited my thought.

A crucial limb of any successful defamation claim, is that the published material must be defamatory in nature. The High Court has determined this to be any material that is likely to lead an ordinary reasonable person to think less of the plaintiff.[5]  Concentrating on this aspect, the crux of my thought is that as we live in a world where trolling is an ever-present unfortunate aspect of an internet lifestyle, could one hypothetically argue that defamatory material was published during a spate of trolling, an act that may have been recognised by all at the time of publication (google ‘don’t feed the trolls’ for context) and that as such any reasonable person would not take the material as serious, thereby preserving the reputation of the plaintiff and dispersing any grounds for defamation?

This notion is somewhat akin to the concept of satire, no one takes satirical material seriously, hence reputations are maintained and no defamation occurs. Noting of course that there are numerous permutations in which the above scenario could play out which may bring it in line with such authorities that protect satire, or distinguish it from them. Amusingly enough though, the above situation runs counter to the adage that this piece is named after – it’s on the internet, it must be true, but I digress.

Evidently the pioneering cases in online defamation had to demonstrate reliance on internet publication in order to substantiate their claims. But, could an increasingly sceptical society cognisant of an online troll presence whittle away the reliance and influence internet publications have? If so could this impact the foundations of online defamation law?

Probably not, but as societies interactions with and within the internet are a continuing evolution, aspects of the situation illustrated above may become clearer or possibly resolved. Of course any claim of defamation requires a proper consideration of the law and present authorities. Still it’s an interesting thought.   

No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance. 

[1] Internet troll (26 August 2015) Wikipedia < https://en.wikipedia.org/wiki/Internet_troll>.

[2] Mickle v Farley [2013] NSWDC 295.

[3] Google trends (26 August 2015) Google < https://www.google.com.au/trends/explore#q=troll%2C%20trolling%2C%20internet%20troll&geo=AU&cmpt=q&tz=Etc%2FGMT-10>.

[4] Peter Munro, Everyday sadists: Inside the mind of an online troll (7 December 2014) Sydney Morning Herald <http://www.smh.com.au/national/everyday-sadists-inside-the-mind-of-an-online-troll-20141201-11xo7u.html#ixzz3jscBnGiQ>.

[5] Radio 2UE Sydney Pty Ltd v Chesterton (2009) 238 CLR 460; 254 ALR 606; [2009] HCA 16 at [5].

Uncapping the new data retention laws

As of 26 March 2015 the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014 (the Bill) passed both houses of Parliament and will in due course be enacted into Australian law.  

MEETING THE NEW BILL

First a quick look into some of the jargon used in the Bill: ‘telecommunication data’ or ‘data’ is a whole topic dealt with later on, ‘service providers’ and ‘relevant services’ are effectively the telecommunication corporations and their various phone and data networks respectfully but not broadcast and a ‘telecommunication device’ would of course be a phone or smartphone device. 

As the Bill’s name plainly suggests it revolves around the collecting and storage of people’s telecommunication data. Fans of Orwell may have raised eyebrows at this point as it is easy to see why people may be apprehensive or concerned with the idea that the Government is actively seeking methods to amass their data history.  

This article will provide a quick overview of what the changes to the telecommunications law actually involve and will attempt to dispel common concerns, but at the same time draw attention some aspects you may be unaware of. 

THE BILL’S OBJECTIVE

First of all, the whole thrust of the Bill is standardisation. Previously there were no statutory guidelines or requirements as to what information service providers should retain and for how long. The Bill now stipulates that applicable service providers must maintain telecommunication data for a minimum of two years. The overall purpose of having retained data is for the protection of society from various criminal activities and, believe it or not, the protection of individuals’ right to privacy.  

How does collecting vast amounts of telecommunication data assist in protecting the rights of people’s privacy? To answer, one evokes the notion of a cop movie drama, the cops are conducting investigations into those who may have criminal organisation connections. The name of a potential suspect comes up, they employee the classic cop movie trope of wiretapping the suspect’s phones to gather potential condemning evidence against them - highly effective but incredibly invasive. The theory behind the Bill’s initiatives is that by having a standard baseline of basic recorded data, police and crime investigators could effectively and efficiently rule out those unlikely to be suspects by comparing the already retained data with indicators or characteristics of those they are looking for. So back to the cop movie example, if the cops could have access to basic historical data they could determine whether or not there had been calls, emails or other forms of correspondence made between the known criminal organisations and the suspect. If the suspect comes up clean it’s far easier for police to rule them out from further investigations. Not only does this increase efficiency, helps fight crime but it protects privacy by avoiding the need to subject what may be a perfectly innocent person to a police wiretap or further surveillance.    

WHAT IS DATA?

Now to deal with what most likely has the biggest question mark over it: what does the Bill consider data and what specifically is going to be retained? Going back to the above situation and looking at it in the extreme, surely the police would be better served if service providers were required to maintain records of every word spoken over a phone, the content of every text message sent and information of any website accessed; as the police would only have to search said databases to find the exact evidence they were looking for. Many criminal investigations could be opened and closed without effectively leaving a computer and despite the obvious major breach of the public’s privacy and the huge potential for misuse, the improved efficiency of police investigations would be impressive. However, the Bill does not allow such levels of data retention; rather, whether cognisant of such issues or not, those responsible for drafting the Bill and its explanatory memorandum have expressly mentioned numerous times that the definition of data, whilst not exhaustive, does not and will not include content. This means one’s web browsing history, email body text or phone conversations will not be retained. In saying that, the Bill introduces s187AA which sets out the kind of things service providers will retain from service users in relation to the relevant services:

• Names;
• Usernames;
• Address information;
•  Other identification information;
•  Billing and payment information;
•  Contact information;
•   Email addresses;
•  Phone numbers;
• Phone numbers called and received;
•  IP addresses, and
•  Quantitative information about a relevant service such as talk minutes and upload/download volumes.

Note: passwords, PINs and secret answers are not required to be retained nor is GPS data or real time tracking data.

WHO HAS ACCESS TO THE DATA RETAINED?

Previously any authority or body that enforces a criminal law, a law imposing a pecuniary penalty or a law protecting the public revenue could effectively seek access to telecommunication data. Fortunately, the Bill now seeks to limit those who have access to it. The Bill requires that bodies that are not criminal law enforcement agencies must be authorised by the Minister before access can be obtained. That access is determined on a consideration of the necessity of the intrusion, that procedures are in place to minimise any intrusion and that it is in the interest of the public to allow such an intrusion; though one would like to think that in the past any access to telecommunication data satisfied those requirements outright. Nevertheless, The Bill, through its introduction of s151 and 186A-186J, establishes the Ombudsman as the oversight authority, power is granted to the Ombudsman to review and inspect the records of those seeking access to telecommunication data and weight is given to such powers by incorporating criminal sanctions for failure to abide by the Ombudsman’s requests.     

Despite the fact that there are costs associated with these new requirements which will have to be worn by the service providers, in brief that is what we can expect from the introduction of the Bill.

FURTHER PROTECTION?

Unsurprisingly, attitudes to the Bill are varied, ranging from indifference to outrage. But whether one is comfortable with the data that will be retained by the Bill or not it is important to consider what does happen to one’s data content, for example who does have access to your website browsing history. At present there are a number of other statutes that dictate the use of and access to data and personal information, namely the Privacy Act 1988 (Cth) and the Privacy and Personal Information Protection Act 1999 (NSW). This article won’t go into depth on what specifically can and cannot be collected and to what extent one’s privacy can be protected legally from both public and private entities. The best rule of thumb is to simply be aware of your actions on the internet, where and what you browse and who and how you interact with people. If you have further issues or concerns with privacy do seek professional legal advice.

 No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance.  

Copyright Amendment (Online Infringement) Bill 2015 – tackling overseas pirates

The Federal Government recently passed the Copyright Amendment (Online Infringement) Bill 2015 which, unsurprisingly deals with copyright violations on the internet. Click HERE for the wording of the Bill and HERE for the explanatory memorandum.

The intent with this new amendment is to combat the problem of overseas online copyright infringement, emphasis on the overseas aspect. This issues has been plaguing copyright law for years because as one would expect the overseas nature presents two main problems:

1. Jurisdictional limits, and
2. Excessive costs..

There are limitations on Australia’s jurisdiction overseas which hamper its ability to enforce any domestic orders; and even if those can be overcome, the expense associated with tracking down such infringing activity has been too high in the past. Consequently, overseas copyright pirates have been effectively free to do as they wish.

How does the amendment deal with these issues? By firstly acknowledging that those are the hurdles before it (as stated in explanatory memorandum). The jurisdictional obstacle is navigated but using no fault injunctions against CSP’s a stand-alone remedy that would not affect existing laws. Nor would it carry any presumptions that the CSP infringed copyright and/or authorised infringing copyright.

The expense impediment is dealt with by ensuring only, as the amendment puts it, flagrant breaches of copyright (along other criteria) will be considered before granting an injunction, in other words significant breaches of copyright must be demonstrated in order to surpass the high threshold. One must also demonstrate that the overseas location is used primarily for copyright infringement so sites such as YouTube.com will be exempt.

The amendment is intended to ensure there are procedures for a fair trial and due process for all those implicated by an injunction even rights to those in the allegedly offending overseas locations.

The amendment in attempting to grapple with the aforementioned problem areas also strives to ensure that technology and technological change is not chilled or targeted, rather creativity is to be fostered. But acknowledges there is a significant financial burden on those whose copyright material is being infringed and they are entitled to protection.    

On it's face the amendment's approach appears to strike a balance between the protection of property and freedom of information/creativity whilst providing a fair and just platform for issues to be dealt with. Whether or not it will curb overseas copyright infringement is another thing, one will have to wait to see if it's effective or not.

No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance. 

SOPA – Safeguarding Subcontractors

A look into the recent developments in the word of building and construction with regard to security of payments. Dealing with head contractors, subcontractors and the Building and Construction Industry Security of Payment Act 1999 (SOPA).

Introduction 

In simplistic terms building and construction projects follow the model where:

1. A principle would hire a head contractor to oversee a project;
2. The head contractor would engage subcontractors for specific areas of the project (plumbing for example);
3. The subcontractors would do the work requested of them;
4. The principle would pay the head contractor for said work, and
5. The head contractor would pass the payment on to the subcontractors.

In theory a system that works both efficiently and effectively.

Arising Problems

Step 5, the final step, has been a cause of concern because for a number of projects it doesn't occur. Without a doubt there would be many instances where such shortcomings have a perfectly justified explanation. Regardless, aside from the personal impact the inability to receive payments has on subcontractor it also has a far reaching negative effect on society in general. Consequently, in an attempt to confront the problem the NSW State Government commissioned a report to look into this issues and provide recommendations to address it.

In November 2012 the Independent Inquiry into Construction Industry Insolvency in NSW Report (Report) lead by Bruce Collins QC was published (CLICK HERE for the full report). The Report was based on two position statements:

1. There needs to be support and protection of subcontractors, and  
2. Payments intended for the project leaking outside to other areas to the extent that they jeopardise the head contractor’s ability of to fully pay subcontractor for their work, is unacceptable.

The Report provided 44 recommendations aimed at addressing the two tier objectives; these recommendations are summarised below.

 Recommendations

The Commission

First, the Report stressed the need to bring all business under one roof (akin to NCAT). As such it encouraged the creation of the NSW Building and Construction Commission.This commission would then be responsible for the licensing, financial health check, discipline, complaints and standards for the building and construction sector.

Trust Accounting 

One of the major recommendations was to implement procedures to allow trusts to be created for projects over $1 million. The intention behind such trusts would be ensure subcontractors were paid before head contractors were. The trust would have the following terms:

• The head contractors would be the trustees
• Bank authorisation would be required prior to payment out of the trust, but
• Once funds are placed in trust by the principle, the head contractor can put said funds into a desired authorised investment vehicle;
• Any interest derived from invested trust monies would be retained by the head contractor, once all subcontractors had be fully paid. This mean interest can be used to pay subcontractor if need be;
• If the trustee/head contractor becomes insolvent the affected subcontractors can elect a new trustee;
• Whilst the trustee/ head contractor must maintain the trust account, all affected subcontractors have a right to information regarding the trust accounting and have access to inspect the trust books.

Breaches and Reporting

The Report briefly mentions breaches, stating that no breach occurs if the action is made in accordance with a SOPA adjudication. However if a breach transpires, 3rd parties with knowledge of a breach will be liable.

Further recommendations urged transparency by having head contractors provide statutory declarations to the principle setting out that all subcontractors have been paid properly, prior to being paid themselves. To ensure the statutory declarations had some weight behind them it was recommended that the NSW Department of Finance and Service should be given prosecution power under the Oaths Act and that offences pertaining to attempting to circumvent the Oaths Act with respect to these declarations should be established.

Implications for Principals

Firstly progress payments should be statutorily implemented. Such progress payments should be made enforceable with contractual terms stipulating that if terms increase the period before payment falls due they are to be deemed void. Further, penalties apply to late payment (unless there is a dispute surrounding the amount paid). Also, any dispute arising from an issues relating to how much has been paid is to be settled by application to SOPA.

Implications for Head contractors and Subcontractors

The Report recommends that the aforementioned statutory requirements should also be put in place between head contractors and subcontractors. Such statutory requirements would entitle subcontractors to suspend work if payment is not made by its due date. Also, section 13(2)(c) of SOPA which requires a specific inclusion of words with respect to subcontractors’ progress payment claims should be abolished.

The Government Role

The Report made the following remarks concerning the Government: Government contracts above $10 million should have a dispute resolution procedures included. SOPA jurisdiction should be extended, to entail the further training of SOPA adjudicators. IN order to ensure the free flow of cash, the Government should legislate to ensure that dispute claims about money owing to sub-contractors or even sub-subcontractors should be made in first instance to SOPA. The Government needs to reassess its tender procedure, it must not contribute to driving business contractors down to unacceptable low margins. Education initiatives need to be undertaken (the NSW Building and Construction Commission may be an effective vehicle for this to be achieved). Finally, any reforms should be appropriately transitioned into the current law.  

So what has been implemented?

The Governments approach to implementing the Report’s recommendations is through a 4 phase reform. It began in 21 April 2014 with the Building and Construction Industry Security of Payment Amendment Act 2013 (NSW). Which among other things introduced:

• Ss11(1A) (1B), which set out the statutory support for progress payments between principle and head contractor and head contractor and subcontractor respectively.
• S12A opens it up for regulations to be implemented for the purpose of creating a trust account. Which as of May 2015, Division 2 and 3 of the regulations reflect the report’s recommendations with respect to trust accounting. 
• S13(7) and (9) address the report’s requirement for head contractors to submit statements attesting that all subcontractors had been paid in full, before they themselves receive payment, and
• The s13(2)(c) requirements have been relaxed.

Has this been effective in achieving the Reports objective?

It is difficult to make a fully informed determination because there simply hasn't been sufficient time to acquire robust data, especially from the more recent changes to the legislation. However, annual reports from the building and construction industry for the years 2013 and 2014 do suggest payments are making their way to subcontractors, the goals of the report are being achieved, whether this will continue or improve with current and future phases of the Report will have to be seen to be believed.  But it does appear to be making step in progressing the rights and protections of subcontractors.

No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance. 

Case Summary: Maiden Civil (P&E) Pty Ltd and Ors v Queensland Excavation Services Pty Ltd & Ors

Introduction

The Maiden case is one of the first major cases to deal with the Personal Property Securities Act 2009 legislation (PPSA) since its inception. The judgement by Brereton J is one of importance as it provides judicial opinion on a number of key aspects of the PPSA and their application.

This paper will effectively be a case summary for educational purposes. But, one should read the complete judgment to gain the full understanding of the issues. For convenience I have CLICK HERE for the full judgment.

Matter Information

Listed below is the critical information one requires to understand the judgment. First the parties for the plaintiff:

1. Receivers and Managers of Maiden Civil (P&E) Pty Ltd (Maiden), and  
2. Fast Financial Solutions Pty Ltd (Fast)

For the defendant there is:

1. Queensland Excavation Services Pty Ltd (QES)
2. Central Plant Hire (NT) Pty Ltd (Central)
3. Sitzler Pty Ltd
4. Laing O'Rourke Australia Construction Pty Ltd
5. McMahon Services Australia Pty Ltd
6. Wayne Cullenane

The matter concerns who has the prime interest in the following assets (collectively referred to as the Caterpillars):

• Caterpillar Wheel Loader VIN number CAT0930HLDHC00407 (930)
• Caterpillar Excavator VIN number CAT0330DTFFK00181 (330)
• Caterpillar 320D Excavator, VIN number CAT0320DTDH01035 (320)

More specifically the question at trial is does an interest granted under the PPSA trump an interest by the alleged owners who hold a lien over the assets?

The judgment was broken into the following headings:

1. Judgment
2. Background
3. Who is the true owner
4. The security interests in the Caterpillars
5. Priority between competing interests
6. Transitional security interests
7. Enforceable rights to possession
8. Maiden’s right to the Caterpillars
9. Section 112
10. 2nd and 6th defendants
11. Conclusion

Below is a summary of what is found under those headings.

Judgment

The information referred to above is set out in more detail under this heading.

Background

Between 2010 and 2012 Maiden commenced construction work in the Northern Territory. Hastings Deering sold the Caterpillars to QES in 2010, the deposits for the Caterpillars was paid by QES but financed by separate entities, Esanda (for the 320) and Westpac (for the 330 and 930) with various securities and guarantees provided.      

Maiden paid QES the deposit amounts for all Caterpillars, took possession of and used them for the construction work. From then on QES invoiced Maiden on a periodical basis for the finance expenses incurred by QES from Esanda and Westpac.

In 2011 Maiden had provided funds to QES sufficient to payout Esanda for the 320, QES no longer invoiced Maiden with respect to Esanda and the 320, the loans with Westpac for the 330 and 930 still remained, invoices and payments for them continued.

In 2012 Maiden acquired financing from Fast, via a general security deed, a requirement for the funds under the deed was that Maiden was to provide Fast with a list of assets, this included the Caterpillars.

Maiden defaulted on that loan and as per the general security deed Fast had a contractual right to action with respect to secured property (this included the Caterpillars). Effectively Maiden’s default resulted in Fast having a security interest over the Caterpillars. Later in 2012 Maiden went into voluntary administration. 

Four main issues were outlined:
 

1. Is QES or Maiden the true owner of the Caterpillars?            
2. If QES is the true owner, is its security interest superior to that of Fast?
3. Whether, Maiden having been a lessee under a lease that has been terminated, do the plaintiffs have a currently enforceable right to possession of the Caterpillars, and in particular whether PPSA, s 112 means that Fast could deal with the 930 and 330 only to the extent that Maiden was entitled to do so in conformity with the QES leases.     
4. Does Central or Mr Cullenane have a claim superior to Fast's in respect of the 320?      

Answers (which are elaborated further on in the judgment)

1. Maiden owns the 320 and QES owns the 330 and 930
2. No, Fast’s perfected security interest is superior to QES’s unperfected security interest, even though QES interest was a ‘transitional security interest’; because, whilst protection under s322(3) PPSA may have applied, the failure to have the interest registered on the transitional register prevented that.
3. S112 does not have that effect
4. No such claim has been established

Who is the true owner

Based on other purchase arrangement, the manner in which the 320 was dealt with and Maiden’s claim that once paid out they owned the vehicle, it was found that Maiden had ownership of the 320; but QES maintained legal ownership of the 330 and 390 because those vehicles had not been paid in full by Maiden.

The security interests in the Caterpillars

Fast has a security interest in the Caterpillars under the PPSA arising out of the general security deed, meaning that even if QES are the owners of the Caterpillars, the PPSA dictates that Fast’s interest is superior. The superiority of interests is discussed under headings further down, however at this point the judgment elaborates how such a security interest arises:

• With reference to the dictionary set out in s10 PPSA, s12 sets out what the meaning of a security interest is.
• In this case s12(3)(c) is most applicable, stating that a security interest also includes the interest of a lessor or bailor of goods under a PPS lease (which is set out in s13).
• Despite not being in writing and there being no evidence of agreed terms, the lease of the Caterpillars by QES to Maiden was a PPS lease because:
• The hire was continuous for a period over a year: s13(1)(b)
• Maiden retain uninterrupted possession of the Cat for more than 1 year: s13(1)(d)
• The Caterpillars are goods that may or must be described by serial numbers: 13(1)(e)(ii) and
• Were in Maiden's possession for more than 90 days: s13(1)(e)(iii)
• There were no applicable exclusions (s13(2))
• Rather it could not be shown that there was no intention to continue in a business of leasing the Caterpillars

Because there was a PPS lease, a security interest exists over Caterpillars (as per s19(5)) and flowing from this s19 allows for the enforcement of that security interest.

It should be noted in that coming to the conclusion with respect to the application of s19(5) parallels are drawn between the Australian PPSA s19(5) and the New Zealand and Canadian PPS legislation from which the Australian PPSA is derived from, it is stated with reference to the cases listed below that the Commonwealth Parliament should take the same approach as New Zealand.

The following international cases are referred to:

• Re Giffen [1998] 1 SCR 91; (1998) 155 DLR (4th) 332.
• Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528
• Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629

Priority between competing interests

From international common law we get the following principles:

• In the event of a debtor defaulting, a perfected title enables one to look at the property ahead of all others to satisfy their claim[i]
• Vice versa, an unperfected interest, even one rooted in title, may be susceptible to other interests taking priority, because
• Determination of title is not sufficient as it’s an issue of priority.[ii]

The PPSA under s55 sets out a system of priorities to resolve competing interests, emphasis is placed on whether an interest has been ‘perfected’ a notion dealt with in s21.

QES does not have a perfected interest because it had not registered its security interest in respect of any of the Caterpillars. Whereas Fast had a perfected interest. As such, in keeping with the common law stance, s 55(3) dictates that Fast's perfected security interest in the Caterpillars has priority over QES unperfected security interest.

Whilst not argued it is noted that that QES's security interest is vulnerable not only because it was not perfected by registration, but also on the ground that it was not enforceable against third parties under s 20, because there was no security agreement that covered the collateral for the purposes of s 20(1)(b)(iii).

Transitional security interests

Facing Fast’s potentially superior interest, QES contended its interest had priority as it was a ‘transitional security interest’, which was perfected by force of the PPSA immediately before the registration commencement time.

What is a ‘transitional security interest’ and how does it impact other interests in the way QES submit, the judgment sets out the process for determining this:

• First, s308 sets out what is a ‘transitional security interest’
• Note that s311 established enforcement provisions for transitional security interests.
• Next, s320 provides a table outlining the hierarchy of transitional security interests
• Which activates s55 (the section mentioned above, responsible for resolving competing interests)

Essentially QES tried to establish they had a ‘transitional security interest’ and that under the s320 table and with the assistance of s55 it had priority over Fast’s interest. The problem was s322(3) excluded such an outcome, despite QES submission that s238 overcomes the s322(3) exclusion. Overall, this line of submission was not accepted.

Enforceable rights to possession

This section of the judgment is effectively a summary of QES submission stating that the plaintiffs have no enforceable right to possession, the submission was by a two limbed approach, stating that:

1. Once lease had been terminated and rent had stopped being paid right to possession was gone
2. S112(1) – a secured party may only  deal with property to the extent the grantor was allowed

The next two headings deal with this submission one limb at a time.

Maiden’s right to the Caterpillars

In this judgment it has been previously mentioned that the Australian PPSA was based on and should follow the approach adopted in the New Zealand and Canadian PPSA. However, In this case s267(2) comes into play and whilst still analogous to, it moves beyond the Canadian statute 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.

As a result, due to winding up of Maiden, the interest in the Caterpillars is vested in Maiden, which in practical terms completely extinguishes QES interests in the Caterpillars.

Section 112

The second limb of QES’s submission invokes s112, QES does so because under s112 QES claims that accepting that Fast had a perfected security interest in the Caterpillars that had priority over that of QES, when it came to enforcement action, Fast was in no better a position than Maiden - in effect, nemo dat quod non habet. Ultimately this was not found to be the case, the reasons are extracted from paragraph 78 of the judgment:

“Accordingly, the purpose of s 112 is to confirm that limitations and restrictions imposed by law on a grantor's ability to deal with collateral apply also to the secured party in enforcement action under Chapter 4. But it does not detract from the effect of PPSA in treating ostensible ownership, through possession, as a sufficient right in collateral for a PPS lessee to deal with it, to the extent of creating in a third party a valid security interest which, on perfection, prevails over the lessor's unperfected interest.”

Further even if s112 meant that Fast could only deal with the Caterpillars to the extent Maiden was entitled to under the QES leases, this would not disentitle Fast from taking possession, as Fast is not seeking to exercise rights and remedies given it under Chapter 4, but those that it has under the general security deed.

2nd and 6th defendant’s claim

The 2nd and 6th defendant appeared unrepresented at the hearing and asserted that a lien on the 320, arising from an oral agreement with Maiden. There was no admissible evidence of these matters. Moreover, even if it was established there was nothing to suggest it would have priority over Fast’s interest.

Conclusion

As one would expect this heading contains a reiteration of the findings found in the issues discussed above.  Effectively, what one can take from this decision is that when dealing with transactions and assets it is always important to consider what is the nature of your interest, is it protected and can someone else lay claim to it that would have priority over you.

[i] International Harvester Credit Corp of Canada v Touche Ross Ltd (1986) 30 DLR (4TH) 387.

[ii] Re Giffen [1998] 1 SCR 91; (1998) 155 DLR (4th) 332.

No part of this post is to be considered or constitutes legal advice in any way, any opinions or information provided is for either entertainment or educational purposes only, contact Alex via phone, email or through the CONTACT page if you require legal assistance.