In Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3)  NSWSC 1926 Brereton J delivered an ex tempore judgment, the judge continued an injunction until the final hearing. The parties were in dispute regarding the ownership of scaffolding following a liquidation. The scaffolding was allegedly subject to a retention of title interest which was registered on the Personal Property Securities Register (PPSR).
Three secured creditors had registered a security interest in relation to the 900 tonnes of scaffolding. Two of the secured creditors failed to register their interests as a Personal Money Security Interest (PMSI) and therefore were unable to claim the superior priority afforded to PMSI creditors. Receivers were appointed by CML Payroll Pty Limited (CML) and proceeded to attempt to sell the scaffolding pursuant to their deed of appointment.
There were two substantive disputes on foot; one initiated by Citadel Finance Corporation Pty Ltd (Citadel) seeking that the scaffolding be delivered up to them and one initiated by Skyline Apartments Pty Ltd and Pacific Hoardings Pty Limited (Skyline) for the same order. Both disputes relate to which of the creditors has the priority interest in the scaffolding. One of the secured creditors applied to the court for an order restraining the receivers from dealing with the scaffolding in any way until the dispute was resolved. The application before Brereton J was seeking an extension of the restraining orders. Although the judge was not required to determine the substantive issue in dispute between the parties, in deciding whether to continue the restraining order he did need to consider the strengths and weaknesses of the various claims for priority being made and if there was a serious argument to be made.
At para – the judge sets out a useful analysis of how one should consider a priority issue under the Personal Property Securities Act 2009 (PPSA):
“9. For a security interest to have priority over another registered security interest, there must be a security agreement within Personal Property Securities Act, s 10. I accept that such an agreement need not, for the purposes of s 10, be in writing.
10. Secondly, the security interest must have attached to the collateral in accordance with PPSA, s 19. A security interest attaches when the grantor has rights in the collateral or the power to transfer rights in the collateral to the secured party and either gives value or does an act by which the interest arises. I accept that insofar as the scaffolding has been delivered to Elite, then it has acquired possessory and proprietary rights in it [see In the matter of Maiden Civil (P&E) Pty Ltd  NSWSC 852 (at )]. And that value has been given for the security interest by delivery of the goods.
11. Thirdly, it is necessary that the security interest have been perfected, in accordance with PPSA, s 21. A security interest is perfected if it is attached to the collateral and is enforceable against a third party and a registration is effective with respect to the collateral: see s 21(1)(b), (2)(a). A security interest is enforceable against a third party in respect of particular collateral only if it is attached to the collateral and either
(i) the secured party possesses the collateral, or
(ii) the secured party has perfected the security interest by control, or
(iii) the security agreement that provides for the security interest covers the collateral in accordance with subsection (2).
The first and second of those do not apply, as the secured party does not possess the collateral, nor has taken control of it. Accordingly, Citadel must rely on subparagraph (iii). Subsection (2) provides that a security agreement covers collateral if it is evidenced by writing that is signed by the grantor, or if it is evidenced in writing that is adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing.”
The underlying security agreement being relied on by Citadel, was oral but supported by an invoice. The judge did not accept that the requirements of s 20(2) PPSA could be met by an exchange of emails two months before the relevant writing occurred. Nor was there any evidence that the grantor had adopted the invoice. The judge did not accept that Citadel had a serous argument which could be sustained that it had a security interest entitled to priority over CML. Interestingly the judge went on to state that:
“16. I have not overlooked the argument that retention of the scaffolding after receipt of the invoice was a relevant acknowledgement or adopting but I do not see how such retention acknowledges or adopts the writing in an invoice created months after the sale and delivery of the subject matter.”
Next the judge considered the claim made by Skyline. Again there was no formal security agreement between Skyline and the grantor company however the judge stated that:
“22. It seems to me that from the chain of correspondence and documents to which I have referred, although there is at times confusion between the parties (in that reference is sometimes made to Elite Group as distinct from Elite Highrise), it is seriously arguable that the intention was that Elite Highrise be the purchaser and the party giving security if it were to purchase the scaffolding equipment. And, although the cheque was drawn on another company, the context in which it was provided makes it seriously arguable that, and notwithstanding it was a few days late, that it was an act in purported acceptance of the offer contained in the 5 April letter to which I have referred. In that way, it constituted an acknowledgment or adoption of the writing contained in the 5 April letter. That letter, read with the chain of correspondence that preceded it, also identified the 900 tonnes of scaffolding equipment sold by Skyline and Pacific to Elite.
23. Accordingly, in my view, although the matter is not by any means beyond argument, it is very seriously arguable that Skyline and Pacific have a security interest enforceable against third parties effected by registration and entitled to priority over CML’s security interest.”
Having decided there was a serious matter to be argued Brereton J then considered the balance of convenience in maintaining the restraining order. On balance the judge decided that “on the balance of convenience there is less risk of prejudice in wrongly granting an injunction than in wrongly refusing one” (at ). Orders were made accordingly.
This was written by Anne Wardell. The case will be reported in the Australian Personal Property Securities Reporter at (2015) APPSR ¶701-030. Maiden Civil (P&E) Pty Ltd has been reported at (2013) APPSR ¶701-008.