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.