The recent decision of Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217 in the Supreme Court of Victoria confirmed by way of granting an injunction restraining the registration of a financing statement that:
Background
The dispute concerned the construction of a golf course and the development of the surrounding land for housing in Carrum Downs, Victoria (Estate).
William Popplestone (a defendant in this matter) entered into a joint venture to purchase and develop the Estate with Peter Hamilton and formed the company Novafield Pty Ltd.
Mr Popplestone subsequently agreed to vary his interest to cease to be a party in the joint venture in exchange for 10% of the shares in Coad-87 Pty Ltd, a company controlled by Mr Hamilton that held an interest in Sandhurst Golf Estates Pty Ltd (SGE).
SGE thereafter undertook the joint venture at the Estate with another party.
The claim
Mr Popplestone claimed that he did not receive the shares in Coad-87 Pty Ltd that had been promised to him and complains that he has, therefore, been wrongly excluded from the joint venture at the Estate and not compensated accordingly.
Mr Popplestone threatened to lodge multiple financing statements on the PPSR for the registration of a security interest based on this so as to inconvenience or damage SGE.
SGE contended that:
SGE sought to prevent the threatened registration of the financing statements by Mr Popplestone by way of an injunction.
The nature of a security interest under the PPSA
A security interest is defined in section 12(1) of the PPSA as:
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).
Examples of transactions where a security interest may arise include (but are not limited to):
A security interest must be created by a consensual transaction.
The consensual transaction must, in substance, secure payment or performance of an obligation. It is the substance, not the form, which counts. If the general intention and overall effect of the transaction is to secure payment or performance of an obligation, then the transaction creates a security interest.
The prohibition on registering baseless financing statements under the PPSA
Under section 151 of the PPSA, a person must not apply to register a financing statement that describes collateral unless the person believes, upon reasonable grounds, that the person described in the financing statement as the secured party is, or will become, a secured party in relation to the collateral. A breach of this section is dealt with by way of a civil penalty.
Notwithstanding this prohibition, given the ease of registering sham financing statements, sham registrations are frequently performed (particular in other jurisdictions).
Did Mr Popplestone, therefore, have a security interest capable of supporting a financing statement?
The Court found that:
The Court, therefore, granted the injunction to restrain Mr Popplestone from registering a financing statement.
Lavan Legal comment
Given how easy it is to register a financing statement, this case not only shows the court’s lack of tolerance for the registration of sham financing statements, but also of the fundamental elements of what constitutes a security interest.
Whilst these points may be seen as obvious (given section 12 of the PPSA), it is important to note the court’s intolerance for the lodgement, or threatened lodgement, of vexatious registrations or financing statements based on claimed interests which are not “security interests”, as defined for the purposes of the PPSA.
