The PPSR is Ripe for abuse
One of the weaknesses of the Personal Property Security Register (PPSR) is that anyone can go online and lodge a registration for a few dollars in fees by claiming to hold a “security interest” in respect of the personal property of another, with very few immediate consequences.
The victim of the sham registration can suffer real prejudice: searches of the register will show apparent security interests over the victim’s personal property. The impression given can lead to delays in completing other transactions involving the giving of real security over the affected assets or other transactions involving them, whilst time and money is required to remove the registration.
Jurisdiction to Remove and Restrain Sham Registrations
In 2014 as Counsel for the plaintiff I appeared in Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd  VSC 217 where the plaintiff obtained an interlocutory and then final injunction to restrain the repeated registration of a sham “security interest” on the PPSR on the basis that it was an abuse of process. I published a blog post about the case here.
The case has since attracted some attention, being reported at (2014) 285 FLR 267.
It has now also been followed in Victoria as a precedent establishing the Court’s inherent jurisdiction to grant injunctive relief of the type and on certain other points, in National Australia Bank Ltd v Garrett  FCA 714.
The facts in National are a great illustration of the ease of registration on the PPSR.
Mr Garrett had been a customer of the Bank through various entities he controlled in the wine industry. It is apparent from reading the judgment that the relationship between bank and customer had deteriorated markedly over time. It appears again from the judgment that Mr Garrett had been subject of at least one vexatious litigant order and there was a history of applications involving him and the bank.
A financing statement was registered by the “Trustee for The Andrew Garrett Family Trust No. 4” on 24 April 2016 on the PPSR claiming a security interest in respect of the property of NAB and Treasury Wine Estates Vintners Ltd. The collateral was said to be “All present and after-acquired property – No exceptions”.
The basis of the registration appears to have been a purported charge of which NAB gained notice in these circumstances (at para 12 of the judgment):
The registration of the financing statement followed NAB’s receipt of an email from Mr Garrett on 24 April 2016 in which Mr Garrett stated that he intended to register a charge on the PPSR over NAB’s property. Attached to the 24 April 2016 email was a copy of a Security Deed (titled “Distributor License Purchase Vendor Finance Performance Security Deed”) which purported to be a charge granted by NAB in favour of OenoViva and Mr Garrett as trustee for the Andrew Garrett Family Trust ABN 78 761 760 976. The Security Deed relevantly stated that: “This Charge is registered pursuant to the undertaking as to loss costs and damage given by the Chargee in SCI-2004-127; Andrew Garrett Wines Resorts Pty Ltd & Anor v National Australia Bank Limited”. The Security Deed has not been signed or otherwise executed by NAB. It is a creation of Mr Garrett’s and built upon the misconceived foundation that an undertaking as to damages given in a prior proceeding could somehow give rise to a security interest; I will return to the undertaking later.
The Bank made application to remove the registration after Mr Garrett refused to remove it in response to an amendment demand, being the administrative process provided by section 178 of the PPSA.
Beach J followed and confirmed the broad finding of Robson J’s decision in Sandhurst to the effect that a security interest under the PPSA does not include an interest in property that is said to arise by operation of equity, including an equitable remedial constructive trust or charge. Accordingly it cannot be registered. Specifically, Beach J found [see National at paragraphs 27 to 33]:
- A “security interest” under the PPSA is one that is provided for by a transaction where one is dealing with consensual arrangements. A transaction therefore does not include a claim based on obtaining equitable relief from a court of equity, such as a remedial constructive trust or charge.
- In identifying the transaction one must look to the substance and not the form.
- Further, certain interests in personal property arising at law are specifically carved out of the definition of security interest by section 8(1)(c) of the PPSA.
Beach J also followed Robson J’s finding in relation to the Court’s inherent jurisdiction under s37 of the Supreme Court Act 1986 to restrain registration as an abuse of process. Robson J accepted that the circumstances were similar to those that existed in abuses of the caveat system, where the Court already had exercised its inherent jurisdiction to remove caveats legally placed but in an abusive manner [see Sandhurst paragraphs 108 to 118, National at paragraph 50].
Procedural Points on Judicial Process under s182 of the PPSA
In Sandhurst it was unnecessary for the Court to consider the procedure under the PPSA for removing contested registrations. In National Beach J gave some indications of procedural points that ought to be followed.
In order to remove the an erroneous registration an applicant gives an amendment demand to the secured party under s178(1) of the PPSA. The demand can only be given where authorized under the section. Making an amendment demand is authorized by the section where either all of the collateral referred to in the registration, or part of it, does not secure the claimed obligation.
Assuming the amendment demand is refused, a judicial process established under s182 of the PPSA can be invoked within 5 business days of giving the demand. The process provides for a hearing to determine if the amendment demand is authorized.
Beach J made the following comments about that process:
- The Court should treat an application made to sustain a contested registration in a similar manner to the defence of a Caveat application;
- The onus is on the putative secured party (in this case Garrett) to satisfy the Court that its registration ought remain;
- Some caution needs to be exercised in comparing the procedures, since s182(4) of the Act requires the applicant (in this case the National) to discharge a legal onus to establish that the amendment demand that initiates the process is itself authorized under s178(1) by prima facie evidence. So the applicant would need to satisfy the Court by prima facie evidence that part or some of the collateral did not secure the obligation claimed. That requirement was met in this case.
Looking forward, I expect these sorts of applications to become quite common, owing to the ease of abuse. it is probably unlikely that the process for lodging a registration on the PPSR will be changed much as it is intended to be an easy system to use. It is a question of competing policy imperatives which will not be resolved without some thought by regulators and stakeholders.