FEDERAL COURT OF AUSTRALIA

Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) [2017] FCA 1065

ORDERS

THE COURT ORDERS THAT:

1.    The Originating Application filed on 14 August 2017 be dismissed.

2.    In the event the parties are unable to agree on costs, the Defendant file and serve written submissions in respect of costs of and incidental to this proceeding and proceeding WAD 416/2017 by 4.00pm on Tuesday, 12 September 2017.

3.    The Plaintiff file and serve written submissions in respect of costs of both proceedings in response by 4.00pm on Thursday, 14 September 2017.

4.    The Defendant file and serve any further written submissions in respect of costs of both proceedings by 4.00pm on Friday, 15 September 2017.

5.    The Court will determine the question of costs, if necessary, on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    A declaration is hereby made, pursuant to s 21 and s 22 of the Federal Court of Australia Act 1976 (Cth), that the Plaintiff is entitled to possession of each and all of the various items of equipment detailed in the letter from HopgoodGanim Lawyers to the Defendant dated 12 July 2017 (Equipment) which is annexed as Annexure “JRS-03” to the Affidavit of Jonathan Rex Shepherd filed in proceeding WAD 401/2017.

2.    The Defendant forthwith deliver up possession of the Equipment to the Plaintiff.

3.    The question of costs be dealt with in the same manner as ordered in orders (2) to (5) of the orders made 7 September 2017 in WAD 401/2017.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BARKER J:

1    These two proceedings concern the question whether Gas Sensing Technology Corporation (GSTC), a Wyoming company, or the receivers of Welldog Pty Ltd (in liquidation) (receivers and managers appointed) ACN 147 697 845 (the company) are entitled to the possession of four categories of equipment identified as the GSTC Tools, GSTC Fibre Optic Tools, GTI equipment and GSTC IT equipment.

2    The Court has agreed to determine this question urgently because GSTC has advised the receivers, and the receivers accept, as does the Court, that there are pending works, outside Australia, which GSTC has tendered for in relation to which the relevant equipment is of some importance.

3    The answer to the question depends on whether or not the relevant equipment is deemed to be subject to a PPS lease under the Personal Property Securities Act 2009 (Cth) (PPSA) as it applied at 20 March 2017. Section 13 of the PPSA, which is central to the determination of the question, was later amended by the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) as of 20 May 2017.

4    In WAD401/2017, the receivers seek directions and declarations as to the ownership of the “personal property” in question so that the relevant equipment can either be released to GSTC or, alternatively, disposed of by the receivers as an asset in the receivership.

5    In WAD416/2017, GSTC seeks relief on the basis that it owns the equipment and the receivers are not entitled to dispose of the personal property as an asset in the receivership.

6    The receivers say that, in bringing their application, they are advancing a neutral position and are simply seeking to assist the Court in reaching a decision so they can act according to law. GSTC takes some issue with this statement. The company’s liquidators (formerly the administrators) have been served with the originating process, but have chosen not to enter an appearance or otherwise be heard on the question.

Operation of the PPSA

7    It may generally be said that, under the PPSA, the rights of the parties to a transaction that falls within the meaning of “security interest” in s 12 are explicitly not dependent on either the form of the transaction or upon common law notions of title. Rather, the PPSA provides a completely new regime for determination of priorities to collateral following an insolvency event.

8    The general position under the PPSA is that an unperfected security interest is subordinated to the interest of:

(1)    a person who has perfected a security interest or is entitled to priority under the PPSA; and

(2)    the grantor of a security interest to which an external controller has been appointed following a relevant insolvency event, such as an administrator or liquidator.

9    Prior to the introduction of the PPSA, an administrator appointed under the Corporations Act 2001 (Cth) traditionally stepped into the shoes of the relevant person or entity he or she was appointed to, and acquired no higher right in that person’s or entity’s property than that person or entity enjoyed. The PPSA has changed that position. The PPSA confers certain rights in addition to those held by the person or entity, and is directed at ranking those interests.

10    Accordingly, the PPSA replaces the traditional ranking of interests according to who is the true owner and who is the ostensible owner through possession or other rights in that property. In that respect, the PPSA has effected far reaching changes to the law. In Forge Group Power Pty Ltd (in liq) (receivers and mangers appointed) v General Electric International Inc (2016) 305 FLR 101; [2016] NSWSC 52 Hammerschlag J said, at [5], that the PPSA “introduced an innovative (some might say, revolutionary) new national code for determining priorities between parties holding security interests in personal property”.

11    The extent to which its provisions prove this observation has been the subject of much discussion in the legal literature and publications considering the operation of the PPSA since its commencement, but not often in decided cases in the Courts – as is revealed below.

12    By virtue of the deeming provisions under s 267(2) of the PPSA, upon the appointment of a controller to a grantor under s 267(1), the grantor may have rights superior to those enjoyed by the grantor prior to that appointment (see also s 588FL of the Corporations Act). Relevantly, an unperfected PPS lease may result in those goods being completely vested in the grantor, even though, prior to the appointment the grantor only had a possessory right in those goods. That vesting may be said to reflect a policy choice by the legislature, and needs to be borne in mind when considering the interaction of different provisions within the PPSA, as well as a claim by a putative legal owner of personal property following a vesting event (for example, as here, on the appointment of the administrator).

13    Under the PPSA, a security interest arises in either of two ways:

    First, under s 12(1), a security interest in personal property may arise where it is provided for by a transaction that, in substance, secures payment or performance of an obligation.

    Secondly, an interest in personal property may be deemed to be a security interest for the purposes of the PPSA. Relevantly for this application, by s 12(3)(c) and s 13(1), a PPS lease is deemed to be a security interest, whether or not the transaction concerned, in substance, secures payment or performance of an obligation.

14    Section 10 of the PPSA defines “personal property” to mean property other than:

    land; or

    a right, entitlement or authority that is granted by or under a law of the Commonwealth, a State or a Territory and declared by that law not to be personal property for the purposes of the PPSA.

15    There is no argument here that the equipment is “personal property” for PPSA purposes, as it plainly is.

16    The real question is whether the relevant equipment is the subject of a deemed PPS lease, which was defined by s 13 as of 20 March 2017 in the following terms:

13 Meaning of PPS lease

(1)     A PPS lease means a lease or bailment of goods:

(a)     for a term of more than one year; or

(b)     for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or

(c)     for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or

(d)     for a term of up to one year in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property (but not until the lessee’s or bailee’s possession extends for more than one year).

(2)     However, a PPS lease does not include:

(a)     a lease by a lessor who is not regularly engaged in the business of leasing goods; or

(b)     a bailment by a bailor who is not regularly engaged in the business of bailing goods; or

(c)     a lease of consumer property as part of a lease of land where the use of the property is incidental to the use and enjoyment of the land; or

(d)     a lease or bailment of personal property prescribed by the regulations for the purposes of this definition, regardless of the length of the term of the lease or bailment.

Bailments for value only

(3)     This section only applies to a bailment for which the bailee provides value.

17    The receivers observe that in order for a person’s security interest to be protected under the PPSA as against third parties and to prevent that security interest vesting in a third party in the event of the grantor of that security interest entering into insolvency, it is necessary for a grantee to protect its security interest. For the purpose of this application, the relevant type of perfection indicated is that of perfection by registration on the Personal Properties Securities Register (PPSR) under s 20 and s 21 of the PPSA.

18    Ordinarily, the most significant consequence of failing to perfect a security interest that arises under the PPSA is that upon a grantor entering into insolvency, the unperfected security interest that a grantee holds is vested in the grantor under s 267 of the PPSA and s 588FL of the Corporations Act.

19    Section 267 of the PPSA, in this regard, provides:

267 Vesting of unperfected security interests in the grantor upon the grantor’s winding up or bankruptcy etc.

Scope

(1)     This section applies if:

(a)     any of the following events occurs:

(i)     an order is made, or a resolution is passed, for the winding up of a company or a body corporate;

(ii)     an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise);

(iii)     a company or a body corporate executes a deed of company arrangement (whether under Division 10 of Part 5.3A of the Corporations Act 2001, under that Division as it is applied by force of a law of a State or Territory, or otherwise);

(iv)     a sequestration order is made against a person (the bankrupt) under the Bankruptcy Act 1966;

(v)     a person (the bankrupt) becomes a bankrupt by force of section 55, 56E or 57 of the Bankruptcy Act 1966; and

(b)     a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies:

(i)     in the case of a company or body corporate that is being wound up—when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day (whether under section 513A or 513B of the Corporations Act 2001, under either section as applied by force of a law of a State or Territory, or otherwise);

(ii)     in the case of any other company or body corporate—when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise);

(iii)     in the case of a bankrupt—when a sequestration order is made against the bankrupt under the Bankruptcy Act 1966, or when he or she becomes a bankrupt by force of section 55, 56E or 57 of that Act.

Note 1: For the meaning of company, see section 10.

Note 2: See also Division 2A of Part 5.7B of the Corporations Act 2001.

Security interest vested in grantor

(2)     The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs.

Note: This subsection does not apply to certain security interests (see section 268).

Title of person acquired for new value without knowledge

(3)     Subsection (2) does not affect the title of a person to personal property if:

(a)     the person acquires the personal property for new value from a secured party, from a person on behalf of a secured party, or from a receiver in the exercise of powers:

(i)     conferred by the security agreement that provides for the security interest; or

(ii)     implied by the general law; and

(b)     at the time the person acquires the property, the person has no actual or constructive knowledge of the following (as the case requires):

(i)     the filing of an application for an order to wind up the company;

(ii)     the passing of a resolution to wind up the company;

(iii)     the appointment of an administrator of the company under section 436A, 436B or 436C of the Corporations Act 2001;

(iv)     the execution of a deed of company arrangement by the company.

Note: Section 296 deals with the onus of proving matters under this subsection.

Background

20    On or about 1 August 2016, ProX Pty Ltd and the company executed a General Security Agreement (GSA) by which the company granted ProX a security interest over all of its PPSA personal property and a fixed charge over all other property to secure, amongst other things, the payment of the secured money (as that term is defined in the GSA).

21    The GSA was registered on the PPSR under the PPSA on 2 August 2016.

22    On 20 March 2017, the directors of the company appointed administrators to the company, giving rise to an insolvency event for the purposes of the GSA and thereby rendering the GSA enforceable. Later that same day, ProX appointed receivers and managers over the assets of the company pursuant to cl 13 of the GSA.

Issues

23    The receivers contend that the relevant equipment was the subject of a bailment that met all of the features of a deemed PPS lease as at 20 March 2017, the date the receivers were appointed, and that none of the relevant “exceptions” referred to in s 13(2) or (3) applies.

24    GSTC considers the main issue concerns the question of bailment. It says that there were no bailments, but even if some form of bailment were to be found in relation to any category of equipment, it is not of a kind that attracts the operation of the PPSA.

25    The critical issues between the parties may, therefore, be stated as follows:

(1)    Is there a “bailment” for the purposes of s 13 of the PPSA in the circumstances relating to any of the four categories of equipment?

(2)    If so, were the goods, for the purposes of s 13(1), held under a bailment for an indefinite term?

(3)    If so, was GSTC regularly engaged in the business of bailing goods?

(4)    If so, was the bailment one for which the company provided value?

26    As will be seen below, these issues, and the facts and circumstances relevant to them, tend to overlap.

27    If the receivers fail to establish the propositions for which they primarily contend, GSTC will be entitled to the order that it seeks.

28    If the receivers succeed in establishing the contentions they have set up, in circumstances where GSTC plainly has not perfected its security interest under the PPSA, it will follow that the relevant equipment has vested in the company as at the date of the administrators’ appointment; and the receivers will be entitled to the relief that that they seek in the alternative.

Evidence led at hearing

29    The following affidavits were formally read at the hearing, namely, those made by: Mr Ewan Meldrum dated 9 August 2017 (filed by the receivers); Mr Jonathan Shepherd dated 9 August 2017 (filed by the receivers); Mr Shepherd dated 22 August 2017 (second Shepherd affidavit); Dr John Pope dated 15 August 2017 (first Pope affidavit) (filed by GSTC); Dr Pope dated 28 August 2017 (second Pope affidavit); and Mr Gregory Quinn dated 15 August 2017 (filed by GSTC).

30    The parties chose not to cross-examine any deponent on the content of their affidavit or affidavits.

31    The key evidence is to be found in the affidavits of Mr Meldrum and Dr Pope.

Mr Meldrum’s evidence

32    From April 2015 to 26 September 2016, Mr Meldrum was employed as Region Manager Asia Pacific by the company.

33    On 26 September 2016, he was suspended with full pay pending the conclusion of allegations that he had engaged in conduct that breached my employment contract.

34    Between 26 September 2016 and 2 January 2017, he had no involvement in the running of the company’s business. On 3 January 2017, he formally resigned from the company.

35    On 20 March 2017, however, he was employed by the receivers of the company as General Manager.

36    In his affidavit, Mr Meldrum noted as follows:

    The company operates a technical services business in the oil, gas, coal seam gas and hydrogeology market sectors.

    It is a wholly owned subsidiary of GSTC.

    In his time at the company, he considered the two companies “were treated as the one company” with the GSTC executive team providing significant functions including executive business and financial management; product line management; research & development resources; and commercialisation stewardship.

    In his time it was standard practice for the company to store equipment shipped from GSTC for work in Australia. He says all historical Raman spectroscopy jobs that were done in Australia were completed on this basis. Raman spectroscopy is a chemical analysis tool that can be used in the coal seam gas industry.

    All the GSTC Tools are related to running the Raman spectroscopy tools.

    At the time that the GSTC Tools were shipped to Australia, Mr Peter Ramsey was employed as the Manager – Data Services at the company and had been assigned additional duties by the GSTC Chief Operating Officer, Mr James Walker. They included project managing the consolidation of the GSTC Tools and the company’s equipment for mobilisation to China.

    The GSTC Tools were shipped to the company’s Toowoomba base to be used with the company’s Drill Stem Testing equipment.

    The company was required to prepare commercial invoices to determine import taxes.

    The company was also exploring job opportunities in China which would have required the use of a combination of the company’s Drill Stem Testing tools and the GSTC Tools.

    Senex were developing a coal seam gas field and the company’s role would have been to use the GSTC Tools along with the Drill Stem Testing Tools to test the gas field.

    The Senex job did not proceed as Senex had budget constraints.

    Following that job falling through, the GSTC Tools were stored at the company’s base in Toowoomba in anticipation of work becoming available in China.

    The GSTC Tools were stored in Toowoomba as they would be easier to ship to China if work did become available.

    As to an assertion that the company’s employees were not authorised to use the GSTC Tools, he is informed by Mr Ramsey and believes it to be true that the tools were prepared and tested by the company’s personnel in Australia, along with GSTC personnel who travelled over from America. (An objection to the hearsay nature of this evidence was later withdrawn).

    As to the GSTC FibreOptic Tools, he was contacted by Mr Cameron Manifold in respect of a gas storage project in Western Australia, as to whether the company would be able to install electronic gauges, fibre optics, Drill Stem Testing tools and services and completion tool supplies for the DBP project.

    He said that they could and he was provided with tender documents for the project.

    In mid-August 2016, he was informed that the company had been awarded the work to install electronic gauges, fibre optics and completion tool supplies.

    It was intended that the equipment required for the DBP project would be stored in the company’s base in Toowoomba to ensure it had the capability to do fibre optic work in Australia for the DBP project and for future work.

    Following the winning of the tender, he assigned Mr Michael Siefert as the lead engineer on it. At this time, he was liaising with the Permanent Monitoring Product Line Manager at GSTC, Mr Bob Rees, who agreed with that assignment.

    He was informed by Mr Siefert, and believes it to be true, that in November 2016, GSTC purchased the GSTC Fibre Optic Tools on behalf of the company for the DBP project (while there was an objection to the hearsay nature of this evidence, that objection was withdrawn).

    He refers to an email in which Mr John Sullivan confirms to Mr Bob Rees and Mr Siefert that he has hand carried the GSTC Fibre Optic Tools to Australia.

    The company employees commenced work on the DBP project and the work continued until April or May 2017 (an objection to the speculative or hearsay nature of this evidence was later withdrawn).

    The company finished the work on the DBP project in May 2017 and all the GSTC Fibre Optic tools were returned to the Toowoomba base to be stored for future use.

    When the DBP project was concluded in May 2017, the company had invoiced a total of $1,246,677.43.

    The GSTC Fibre Optic Tools were again used by the company’s employees to commission a DAS fibre optic installation for QGC Pty Ltd in Queensland in July 2017, which is now complete, and the tools are back in storage in Toowoomba.

    The company invoiced a total of $72,285.56 for the QGC contract.

    As to the GTI Equipment, in around July 2016, GTI began working with the company employees to undertake noise testing at coal seam gas wells in Queensland.

    Invoices in relation to these tests were invoiced under the company’s purchase orders and the company funded the cost of performing those works.

    No income was generated in relation to these trials.

    The GTI Equipment is not supplied by GSTC or owned by GSTC and GTI had never requested the return of the equipment from the company.

    As to the GSTC IT Equipment, all of it was purchased prior to his employment with the company and was being used by the company’s staff at the Toowoomba base when he started employment with the company.

    He was informed by Mr Ramsey and believes it to be true that the two Dell Latitude 7000 series laptops were given to Mr James Walker or Mr Jeff Parkins, Engineer Manager at GSTC, in mid-December 2016.

    GSTC IT Equipment was never used by GSTC nor intended to be used by it as it was needed by the company to operate its business.

    There were no formal written arrangements between the company and GSTC in respect to the GSTC Tools and GSTC Fibre Optic Tools, under which there was to be a specific amount paid or a hire charge. However, the company was required to ensure that the GSTC Tools and GSTC Fibre Optic Tools were stored safely and would be in good working order for use in any future projects, whether by the company or GSTC in its own right.

Dr Pope’s evidence

37    In the first Pope affidavit, on behalf of GSTC, Dr Pope of Wyoming, a director of GSTC, gave evidence to the following effect:

    He holds a PhD in Physical Chemistry. He is an entrepreneur and has established and developed a number of businesses, including a small coal seam gas operator in Wyoming.

    In or about 1999, he founded a business under the name of “WellDog”, which he refers to as the “WellDog Business” in his evidence. That business was a means to commercialise a particular technology that he had developed for use in the oil and gas industries.

    Between 2000 and 2007, the WellDog Business was operated through a company by the name of WellDog Inc.

    In or about 2007, the board of directors of WellDog Inc moved to restructure the WellDog Business, as a result of which GSTC was incorporated to purchase, hold and operate the WellDog Business and continues to do so.

    In or about 2010, GSTC decided to expand the WellDog Business into Australia. It initially looked to enter into a joint venture with an established Australian company. Later in 2010, it made a decision to incorporate an Australian subsidiary company as a result of which on 3 December 2010, WellDog Pty Ltd ACN 147 697 845 – the company - was incorporated.

    Following its incorporation, the company commenced carrying on a business in Australia, with headquarters in Brisbane, of providing a limited range of products and services to its customers around Australia in the coal mining and unconventional oil and gas sectors; and leased and occupied the premises in Toowoomba.

    The WellDog Business centred on the development and commercialisation of Raman spectroscopy technology, which uses chemical sensing systems to geochemically analyse and characterise the underground conditions in oil and gas reservoirs and coal fields (which he refers to in his evidence as the “core technology”).

    The WellDog Business involved the use of the core technology by customers around the world in a number of industries, including coal seam gas, shale oil and coal production.

    In carrying on the WellDog Business, GSTC designs and arranges the manufacture of specialised Raman spectroscopy systems suitable for the hot and high pressure environments involved.

    The “Australian Business”, as Dr Pope refers to it, of the company, is not focused on the development of the core technology, but on the marketing, sale and supply of the core technology to customers in the Australian marketplace.

    GSTC owns the intellectual property rights in and to the core technology, not the company.

    Since 1999, the WellDog Business has geochemically characterised hundreds of oil and gas wells around the world using its core technology. He describes the products and services provided by both the WellDog Business and the Australian Business.

    GSTC employs a wide range of specialised and highly qualified personnel which allows it to develop and provide to its customers, products and services of a sophisticated and technical nature; which he itemises.

    The company, on the other hand, employed only limited personnel concerned with commercial management, finance management, customer and technical support, operations management; and field operations.

    The company, thus, could only provide to its customers a limited range of products and services in its own capacity. If more was required, GSTC would provide them directly through appropriately skilled and qualified employees. For such projects, the company would retain GSTC (on a “cost plus” basis) to provide specialised products and services for the benefit of the customer. It was essentially a subcontract arrangement between the two companies.

    By 2016, the Australian Business was supplying products and services to the four major participants in the Australian coal seam gas industry.

    The Australian Business was always heavily reliant on financial, technical and management support from GSTC for its local activities.

    GSTC has provided a series of unsecured loans to the company through an informal intercompany loan arrangement.

    GSTC has also made available to the company its own directors and employees.

    He accounts for disputes with Australian investors and the appointment of administrators and receivers to the company.

    He deals with the four categories of property now in dispute.

    As to the GSTC Tools, he says that in February 2016 GSTC became aware of opportunities to tender for projects involving its Raman spectrometry technology in China and Australia. If GSTC was to be successful in tendering, the GSTC Tools would have been required on short notice to be put to use in China or Australia for those projects.

    The GSTC Tools were delivered to the company’s Toowoomba premises on or before 7 April 2016.

    The project in China did not eventuate and the GSTC Tools were not required to be shipped to China.

    At the time, GSTC decided not to return the GSTC Tools to the USA because it would not be efficient or cost effective to do so but stored them at the Toowoomba premises in the event another job might come up.

    The storage arrangement was an informal one without a formal agreement or fees, and the storage was done for convenience. There was no timeframe and only employees of GSTC were able to use them. The company and its employees were not authorised to use the tools or deal with them. At no time did the company or its employees actually use the GSTC Tools and they remained in storage.

    GSTC is not regularly engaged in the business of entering into transactions of this nature. It was a convenient arrangement that came about through the circumstances deposed to.

    GSTC does not presently have any other available USDT-1 and USDT-2 tools in its fleet. It requires them for the field testing in upcoming jobs in China and the USA. Replacement items cannot be bought.

    As to the GSTC Fibre Optic Tools, they are specific tools that were shipped from the USA to Australia for use by GSTC employees to install a Silixa fibre optic system for a customer on the DBP project.

    GSTC and the company had entered into an agreement with Silixa in August 2015.

    The GSTC Fibre Optic Tools were provided to the company for the DBP project on the condition that they would be returned to the USA after that project had been completed.

    At the time of the appointment of the receivers, GSTC was in the process of cooperating with the company to complete the installation of the Silixa fibre optic system for DBP. To that end, GSTC arranged for the GSTC Fibre Optic Tools to be shipped from the USA to Australia for use in installing the system; GSTC personnel to come to Australia to install the system; and the GSTC Fibre Optic Tools to be used by the GSTC personnel for the period of time that it took to complete the installation works – about four weeks.

    Mr Sullivan, an employee of GSTC, was involved in the installation but the company’s employees assisted him.

    At the time of the appointment of the receivers, GSTC personnel were approximately half way through the installation, at which point GSTC personnel ceased work on the installation and returned to the USA, but for practical reasons were unable to take the GSTC Fibre Optic Tools with them and so they were left at the Toowoomba premises.

    They were brought to Australia for use on a specific job and were to be returned to the USA once that job was complete.

    As to the GTI Equipment, GTI is an independent Canadian based company that specialises in underwater acoustic transducers and systems.

    In July 2016, GSTC engaged GTI to assist with designing and building a wireless gauge system for the Australian coal seam gas market and Mr Jeff Parkins of GSTC worked with GTI.

    Prior to the appointment of the receivers, GSTC and GTI had been periodically undertaking testing at certain coal seam gas wells in Queensland.

    The initial project was expected to take one month, however the project was delayed by a month. Mr Andrew Clemence of the company supported completion of the project.

    The GTI Equipment was loaned by GTI to GSTC for use on this project.

    When not actually undertaking the testing, the GTI equipment was to be stored at the Toowoomba premises.

    Again, there was no formal agreement, fees or arrangements for the storage.

    As to the GSTC IT equipment, that was acquired by GSTC in the USA and brought to Australia for use by the company’s and GSTC’s employees.

    At the time of the receivers’ appointment, the GSTC IT equipment had been in use by the company’s employees for some time.

    Again, there was no formal agreement, fee or arrangement in respect of that use.

    He says that Mr Meldrum’s statement, that the company was exploring job opportunities in China using the GSTC Tools is untrue.

    He also says that Mr Meldrum’s statement that the company would have used the GSTC Tools for the Senex job is untrue.

    As to the advice that the GSTC Tools had been prepared and tested by the company’s personnel, he says no employees of the company have the skills or training to use them.

    He also says he believes Mr Meldrum’s statement that Mr Siefert had been assigned by him, Mr Meldrum, was untrue, as Mr Rees made the assignment.

    He also says it is untrue that GSTC purchased the GSTC Fibre Optic Tools on behalf of the company for the DBP project.

    He says if the GSTC Fibre Optics Tools were again used by the company’s employees they would be in breach of the agreement between GSTC and Silixa.

    He says it is also untrue that GTI began working with the company’s employees to undertake noise testing and that the project was led by GSTC employees only.

    As to the invoices that were issued by GTI to the company and the statement that the company funded the cost of performing the GTI testing, Dr Pope says he confirms that these invoices were paid to GTI by the company at the direction of GSTC.

    He confirms the Dell computers had been returned; and without them it is not possible to operate the GSTC Tools

38    In the second Pope affidavit, Dr Pope said:

    At the time the GSTC Tools were delivered to the company’s premises in April 2016, he expected they would be shipped to China within two or three months. In addition, GSTC was negotiating to continue a project in Australia that it had started in March 2016, using other GSTC tools.

    The GSTC Tools are highly technical and require periodic calibration and maintenance that can only be done at GSTC’s premises in the USA.

    By February or March 2017, he had formed the view that the dispute with ProX would not resolve quickly and the GSTC Tools would have been required to be returned to the USA to be maintained and calibrated before being used on any other job.

    He also gave evidence about negotiations for another USA project and the need for the GSTC Tools.

    He also provided materials from the GSTC website concerning the nature of the GSTC business.

Issue 1 – was there a “bailment”?

39    The term “bailment” used in s 13 is not defined by the PPSA. The receivers refer to Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] WASC 152 where, at [329], Tottle J said that where a word is used in an Act which has an established legal meaning it is assumed that it is used with that meaning unless the context requires otherwise. They contend that the term “bailment” therefore carries the legal meaning established in Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 238, namely, that:

A bailment comes into existence upon a delivery of goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be re-delivered to the bailor or dealt with in a stipulated way.

40    On this basis, the receivers contend that each of the four categories of equipment was bailed by GSTC to the company at relevant times.

41    Applying those criteria to the above evidence of Mr Meldrum and relevantly, Dr Pope, they say a bailment arises because:

(1)    it is admitted that the company had possession of each of the four items of equipment, and that the provision of the four categories of equipment by GSTC was to enable the company to trade;

(2)    the company was entitled to use the GSTC IT equipment for its ongoing business operations;

(3)    the company’s staff prepared commercial invoices to determine import taxes and took delivery the GSTC Tools at Toowoomba; and

(4)    the company’s staff used the GSTC Fibre Optic Tools and the GTI tools.

42    GSTC begs to differ and submits that in order for there to be a bailment, the purported bailee must have exclusive possession of the relevant property, as discussed in Midland Silicones Ltd v Scruttons Ltd [1959] 2 QB 171 at 189. Possession, in this sense, it says, means more than the property of one person being stored at the premises of another, as it says has occurred here. A distinction, it notes, is drawn between a mere licence to leave property on premises where possession is retained by the person leaving it there, and a bailment where the bailee has exclusive possession. For example, it says where the owner of a car leaves the car at a parking station and retains the key, there is a licence to do so from, and not a bailment to, the parking station operator. There is no bailment because the person leaving the property on the premises of another in such circumstances retains control over the property. GSTC relies on Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 3] [2009] WASC 52, at [211], which cites Ashby v Tolhurst [1937] 2 KB 242; [1937] 2 All ER 837 and Halbauer v Brighton Corporation [1954] 2 All ER 707, in pressing this submission.

43    It adds that in order for there to be a bailment, the purported bailee must enjoy “both the means and mentality of some immediate control”, as stated in Palmer N, Palmer on Bailment, (3rd ed, Sweet & Maxwell, 2009) p 136. A necessary element of a bailment therefore, contends GSTC, is the handing over of control to the putative bailee, and the assumption of control by the putative bailee, as in WD & HO Wills (Aust) Ltd v State Rail Authority (1998) 43 NSWLR 338, 353F. GSTC submits the necessary degree of control will not exist where the “bailor” can, at any moment, demand the return of the object “bailed”. In such a circumstance, the “bailor” still has possession. It relies also on Perpetual Trustees & National Executors of Tasmania Ltd v Perkins (1989) Aust Torts Reports 80-295 to support its position.

44    GSTC acknowledges that such arrangements are sometimes referred to as a “gratuitous bailments”, but contends gratuitous bailments are not within the concept of bailment contemplated by Hobbs.

45    Alternatively, GSTC submits the PPSA does not pick up gratuitous bailments.

46    GSTC notes that, at [36.1]–[36.4] of the receivers’ written submissions, the facts relied on by the receivers to establish the existence of a bailment are set out. The receivers there refer to paragraphs of the affidavits filed in these proceedings and adduced in evidence as establishing the facts on which they rely. In respect of some matters, GSTC does not accept the receivers’ statement of the facts shown by the evidence as being accurate.

47    As to the assertions made in [36.1] of the receivers’ submission, GSTC says there is no dispute that, as at the date of the appointment of the administrators, the equipment was located at the company’s premises. But it says there is a dispute about whether the equipment was in the exclusive possession of the company. Dr Pope, whose affidavit GSTC relies upon, it says, does not establish that the provision of the four categories of equipment by GSTC to the company was to enable the company to trade. Rather, Dr Pope’s evidence establishes that when services offered by GSTC were required by a client of the company, GSTC provided those services with its own employees and its own equipment.

48    As to the assertions made in [36.2] of the receivers’ submissions, GSTC says the evidence establishes that GSTC acquired the GSTC IT equipment in the United States and arranged for it to be brought to Australia for use by the company’s and GSTC’s employees.

49    As to the assertions made in [36.3], it says the evidence establishes that an employee of GSTC took delivery of the GSTC Tools. As a result, it says, the evidence of Mr Meldrum relied on by the receivers, rises no higher than establishing that the place to which the GSTC Tools were being delivered was the company’s premises in Toowoomba.

50    As to the assertions at [36.4], GSTC says the evidence of Mr Meldrum on which the receivers rely merely establishes that the company used the GSTC Fibre Optic Tools after the appointment of administrators and the purported appointment of receivers, and while under the (purported) control of the receivers. Dr Pope’s evidence, rather, is that the circumstances in which the receivers used the GSTC Fibre Optic Tools amounted to a breach of the contract between GSTC and Silixa (the supplier of the fibre optic system that the GSTC Fibre Optic Tools are used to install). There is no evidence, it says, that employees of the company used the GSTC Fibre Optic Tools other than to provide assistance to employees of GSTC who were using those tools.

51    GSTC observes that the receivers bear the onus of establishing a bailment. But, in any event, it says, the evidence shows that GSTC retained possessory title to, and control of, the equipment.

52    As to the GSTC Tools, GSTC submits the evidence discloses that:

(1)    GSTC could collect the equipment from the company at any time.

(2)    The company and its employees were not authorised to use the GSTC Tools or to otherwise deal with them.

(3)    The GSTC Tools were merely being left at the company’s premises until GSTC secured a new project that required them – in which circumstance GSTC would collect the GSTC Tools from the company premises and ship them to the location of the new project.

53    It says the evidence does not establish that GSTC ever ceased to have possession of the GSTC Tools. It left them at the company’s premises, but retained possessory title to them. The evidence establishes that the company did not have exclusive possession of the GSTC Tools.

54    As to the GSTC Fibre Optic Tools, GSTC says the evidence shows that:

(1)    The GSTC Fibre Optic Tools were shipped to Australia by GSTC and, while in Australia, were kept in the possession of employees of GSTC.

(2)    The GSTC Fibre Optic Tools were in the possession of GSTC when administrators were appointed to the company.

(3)    If administrators had not been appointed to the company, GSTC would have finished the works requiring the GSTC Fibre Optic Tools within about two weeks of the date of the appointment of administrators (that is, by about 3 April 2017) and the GSTC Fibre Optic Tools would then have been shipped back to GSTC in the United States.

55    It says this evidence establishes that the company did not even have possession of the GSTC Fibre Optic Tools on 20 March 2017, when administrators were appointed, let alone exclusive possession of a kind that would provide a basis for an allegation of bailment.

56    As to the GTI equipment, GSTC says the evidence shows that:

(1)    GTI could collect the GTI equipment from the company at any time.

(2)    The company and its employees were not authorised to use the GTI equipment or to otherwise deal with them.

(3)    The GTI equipment was to stay in Australia until March or April 2017, and then would be removed from the company premises and, presumably, returned to Canada where GTI is based.

57    It says the evidence does not establish that GTI ever ceased to have possession of the GTI equipment. It left them at the company premises, but retained possessory title to them.

58    As to the GSTC IT equipment, GSTC says the evidence shows that:

(1)    GSTC acquired the GSTC IT equipment for use by its employees and the company’s employees in Australia; and

(2)    GSTC could take back the GSTC IT equipment at any time.

59    It says the evidence does not establish that GSTC ever ceased to have possession of the GSTC IT equipment. It left them at the company premises, but retained possessory title to them.

60    GSTC says it maintained control of the GSTC Tools, the GSTC Fibre Optic Tools and the GSTC IT equipment at all times. At any time, it could take back that equipment.

61    It says there is no evidence that GSTC required any permission or access from the company in order to take back the equipment, which is consistent with the fact that the company is the wholly owned subsidiary of GSTC and that Dr Pope is a director of both GSTC and the company. GSTC was, in the ordinary course, in a position to exercise control over the company.

62    GSTC adds that, at any time, GTI could take back the GTI equipment. There is no evidence that GTI required any permission or access from the company in order to take back the equipment.

63    In these circumstances, GSTC submits the receivers have not established that, as at 20 March 2017, when administrators were appointed to the company, the company had exclusive possession of the equipment. On the contrary, the evidence shows that the company did not have control over the equipment, or exclusive possession of it. Thus, the relationship between GSTC and GTI, on the one hand, and the company, on the other, was not one of bailor and bailee, and this is sufficient to dispose of the receivers’ application.

64    In my view, it is not necessary for the receivers to establish that GSTC did not have exclusive possession, at least in the terms in which GSTC advances that proposition, in order to prove there was a bailment under the general law of the relevant equipment at material times in this case. The simple fact of the matter is that the relevant equipment, which in a proprietary sense prior to the act of the insolvency belonged to GSTC, was left in the care, custody and control of the company and to varying extents were or had been used in connection not only with GSTC’s business but also the company’s Australian Business. The evidence before the Court is not disputed, that GSTC could demand the return of the equipment to it, or its servants and agents, at any time that it liked. The company did not have any contractual arrangements, for example, by which it could insist on its retention of the equipment. The evidence of Dr Pope, and indeed Mr Meldrum, confirms this view.

65    The factual circumstances are such that not only GSTC did deliver the equipment into the possession of the company, but that the company should be taken to have made the implied promise that it would redeliver the relevant equipment to GSTC or otherwise deal with the equipment as required by GSTC.

66    In those circumstances, I consider a bailment, by the Hobbs criteria – which I accept to be the relevant description of a bailment at law for the purposes of this case – came into existence in relation to each category of equipment upon its storage or placement with the company by GSTC.

67    The next question is whether the more precise definition of what types of bailment are deemed to be a PPS lease under the PPSA applies to these bailments.

Issue 2 - Was the equipment held under a bailment for an indefinite term?

68    This question arises because of the terms of s 13(1)(b) at the material time of 20 March 2017:

for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or

This paragraph was repealed by the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) as of 20 May 2017.

69    The receivers says the evidence establishes that:

(1)    equipment in each of the four categories of equipment was being used by/stored at the company’s Toowoomba premises for an indefinite term; and

(2)    there was no formal written agreement as to how that equipment was to be used by/stored at the company’s Toowoomba premises.

70    The receivers contend that once it is established that there is a bailment it is not relevant to consider whether that interest was possessory or proprietary, because that right is simply deemed for the purposes of the PPSA. See Langdon, in the matter of Forge Group Limited (Receivers and Managers Appointed) (in liq) [2017] FCA 170 at [36], [156]; Hamersley at [313], [320], [335], [394]; Personal Property Securities in Australia, LexisNexis, online, [2.5100]). They note s 10 defines an interest in personal property as including a “right” in the personal property.

71    The receivers say, once a bailee has possession of the goods, that is, a “right”, it can grant a security interest in those goods. In the context of a PPS lease, that security interest will be deemed to be created regardless of the identity of the person who has title to the collateral. The bailment is considered to be the security agreement and, for the purposes of the PPSA, the bailee is treated as the owner of the goods for registration and priority purposes.

72    They contend that if there is no definite term of the bailment, it must be considered to be one for an indefinite term.

73    GSTC submits that in order to identify the “term” of the alleged bailments, it is necessary to identify the point in time when GSTC (or GTI) delivered exclusive possession of the relevant equipment to the company (that being the commencement of the term of the bailment) and to then identify when that period of exclusive possession ended, or was intended by the bailor to end.

74    As noted above, GSTC’s primary position is that the question of a term never arises, because GSTC or GTI did not ever deliver exclusive possession of the equipment to the company.

75    But it also submits that, if the alleged bailments exist, none of them had terms that were indefinite.

76    It says the only date on which the “bailment” for which the receivers contend may be understood as commencing is when the GSTC Tools were received (by an employee of GSTC) in Australia in about April 2016. That alleged bailment was not for an indefinite term. The GSTC Tools were brought to Australia for the purpose of then being on-shipped to project sites. The only reason the term of the bailment has not ended is the position adopted by the receivers.

77    It says the “bailment” of the GSTC Fibre Optic Tools was for no longer than the duration of the installation of fibre optic systems for the DBP Project. The evidence is that this work was to take about four weeks. After that, the GSTC Fibre Optic Tools were to return to the United States. The “bailment” of the GSTC Fibre Optic Tools was then for a term of less than a year.

78    GSTC says the “bailment” of the GTI equipment was for multiple short periods. The GTI equipment was only left at the company premises when it was not being used for testing. The testing began no earlier than July 2016. It was expected to take one month, but was subject to delays. The testing was to conclude in March or April 2017. So the total period during which the testing was to take place was from July 2016 to about March or April 2017, a period of less than a year. But in that period, GTI and GSTC periodically undertook testing, during which time the GTI equipment was in the possession of GTI or GSTC. Therefore, if there was a bailment of the GTI equipment, it was for multiple short terms during the period from July 2016 to March or April 2017.

79    The “bailment” of the GSTC IT equipment, GSCTC says, was also for multiple short periods. It says the evidence is that the GSTC IT equipment was used by the company’s employees and GSTC’s employees. When the GSTC IT equipment was being used by GSTC employees, it was no longer under the control of, or in the exclusive possession of, the company. So, if the receivers’ case is that exclusive possession of the GSTC IT equipment was delivered to the company at a point in time, the term of that bailment would end on the next occasion when the GSTC IT equipment was in use by an employee of GSTC. If GSTC then delivered exclusive possession of the equipment to the company again, then a new term of bailment would begin. The evidence shows that, if there was a “bailment” in respect of the GSTC IT equipment, it was not indefinite, and was for multiple short periods.

80    In my view, it must be concluded that the bailments that I have found to exist in answering the first issue, were in each case bailments usually described at general law as “gratuitous bailments” because they could be terminated on demand, and so for an indefinite term.

81    I consider the submission made by the receivers to the effect that if the bailments were not for a definite term then, at least in the circumstances of this case, they should be treated as bailments for an indefinite term, to be correct.

82    I do not accept the submissions, made on the facts identified on behalf of GSTC, that the bailments of the equipment are to be characterised as ones for a certain period or a period that could be defined by reference to the happening of certain events.

83    In my view, the degree of speculation and uncertainty as to when each bailment would end does not enable it to be said that the bailment was for a definite term. For example, accepting GSTC’s contention concerning the GSTC Tools, namely, that they were brought to Australia for the purpose of being on-shipped to project sites, does not, in my view, support a conclusion that the bailment was for a definite term. Rather it was for an indefinite term. It was being held until on-shipping was ordered by GSTC.

84    Further, I do not consider that the nature of the bailment of the GTI Equipment or the GSTC IT equipment was for multiple short periods. At material times, the company remained the bailee of such materials and to characterise the relevant bailments as multiple short ones, by implication for short definite periods, is artificial to say the least. The company remained in control at material times and, in my view, when the company held the equipment it did so pursuant to a continuing bailment was an indefinite term.

85    I conclude therefore, that the bailments of the relevant equipment at the material time were for indefinite terms for the purposes of s 13(1)(b) of the PPSA as it applied at the material time.

Issue 3 – Was GSTC regularly engaged in the business of bailing personal property?

86    This question arises because of the terms of s 13(2)(b), namely:

a bailment by a bailor who is not regularly engaged in the business of bailing goods; or

87    GSTC denies that it was regularly engaged in the business of bailing goods.

88    The receivers say that denial does not take matters very far, because what those denials fail to do is consider the aggregation of GSTC’s conduct in bailing the four categories of equipment at the company’s premises. That is, there has been a course of conduct whereby, on at least four occasions, commencing at the latest in April 2015, on which GSTC has bailed personal property at the Toowoomba premises.

89    As to the question of whether a company was regularly engaged in business for the purposes of s 13(2)(a), the receivers refer to Forge where, they contend, Hammerschlag J held:

    at [40], the point in time for considering whether someone is regularly engaged in the business of leasing goods is at the time that the lease (here, by analogy at the time of bailment) was entered into;

    at [50], the exclusion is directed to activity which constitutes engaging in the business of leasing (by analogy, bailing), not to engaging in the activity of entering into leases (bailments);

    at [30]-[39], in testing whether a person is (or is not) regularly engaged in the business of leasing goods, regard is to be had to activity wherever it occurs, and not only to activity in Australia. In that sense, the receiver contends, the definition of PPS lease places no geographic limitation on applying the “regularly engaged in business” test. Conduct in leasing of goods in markets outside Australia is relevant to the determination of whether a company is regularly engaged in the business of leasing goods and the same should be said about bailing; and

    at [41] - [53], the expression “regularly engaged in business” is to be given a meaning that is not abnormal in the context of the lessor’s (by analogy bailor’s) business. The first transaction can support a finding that an entity had regularly engaged in business.

90    The receivers submit that Forge is consistent with how the equivalent New Zealand provisions were interpreted in Rabobank New Zealand v McAnulty [2011] NZCA 212.

91    The receivers point to the following facts to establish that GSTC regularly engaged in the business of bailing goods.

92    First, as to the first bailment that arose in respect of the GSTC IT equipment, they acknowledge there is no specific evidence as to when that bailment started, but the facts are that:

(1)    GSTC incorporated the company in 2010;

(2)    the GSTC IT equipment was located at the company’s Toowoomba premises when Mr Meldrum was appointed Region Manager Asia Pacific in April 2015; and

(3)    the GSTC IT equipment was used by the company’s staff located at Toowoomba.

93    The receivers say that the subsequent bailments in February 2016 of the GSTC Tools; in June 2016 of the GSTC Fibre Optic Tools; and in July 2016 of the GTI equipment, were continuations of GSTC’s regular business of bailing goods to the company for the company to use in its ongoing operations. The Court should not consider each of the bailment arrangements separately, but in totality. There have been at least four bailments of equipment by GSTC to the company that have occurred in the period 2015 to 2017.

94    The receivers also contend that the uncontested evidence of Mr Meldrum is that there were other instances where GSTC stored equipment at the company’s premises.

95    The receivers submit that GSTC have led no evidence as to whether it was regularly engaged in bailing goods elsewhere in the world. They say such evidence would be relevant to whether GSTC regularly engaged in such a bailment business, relying on Forge at [30]-[39].

96    In construing s 13(2)(b), GSTC refers to Rabobank. It says it is relevant because the Commonwealth Parliament, in enacting legislation that was modelled on New Zealand and Canadian legislation, should be taken to have intended the approach found in that precedent legislation. See Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852, [32]. It notes there is no concept of a PPS lease in the New Zealand or Canadian legislation. The equivalent concept is a “lease for more than one year”. The Canadian versions of the legislation do not refer to “bailment” at all in the definition of “lease for more than one year”, but the New Zealand equivalent does refer to “bailment” to an extent.

97    GSTC note that in Rabobank, a syndicate put a race horse out to stud and entered into a standing arrangement with a stud farm. The farm agreed to manage and stable the horse. A bank had loaned money to the farm and claimed the horse as part of its collateral. The Court of Appeal stated, at [40]:

In our view, the words ‘in the business of leasing goods’ should be read as importing a requirement that the owner actually be intending to profit from the bailment or lease. This would exclude gratuitous bailments where the bailor was not receiving any payment for the use of the goods and bailments where the bailee is in the business of bailments, not the bailor. We see this as best reflecting the Parliamentary intention of treating some lease and bailment transactions as security interests, and requiring the bailor to perfect its interest in order to ensure its interest defeats that of any secured creditors of the bailee. The reason for the deeming provision is to ensure that lease/bailment transactions that are not easily distinguishable from finance leases are treated as if they are finance leases. Bailment transactions that could not possibly be confused for finance leases do not need to be drawn into that net, and there is nothing to indicate that Parliament intended that they should be.

98    GSTC notes the Court of Appeal held that the syndicate “was not in the business of bailing goods, it was in the business of maintaining and profiting from its stallion”. At [41], it said that the cost of standing the horse was “an incidental expense to that business, and not the business itself”. The Court of Appeal went on to find that this interpretation had the effect of excluding from the operation of the New Zealand Act all bailments “in respect of which the bailor is not receiving (or intending to receive) consideration with a view to making a profit”. The Court referred to the fact that the New Zealand PPSA contains “express statutory language to yield that outcome”. GSTC says s 13(3) of the PPSA should be given a similar characterisation.

99    Secondly, GSTC notes Rabobank was considered and applied in Re Arcabi Pty Ltd (Receivers and Managers Appointed) (in liq) [2014] WASC 310, a decision of Master Sanderson in the Supreme Court of Western Australia. There, the company in receivership carried on a business of storing and selling rare coins and bank notes. The operation of the business involved responding to requests for the return of such goods, dealing with goods on consignment and storing and selling items belonging to Arcabi. Some items were owned by Arcabi. Others were the property of third party investors. The Master found, at [18], that the storage arrangements between investors and Arcabi was arguably a bailment arrangement.

100    Assuming a bailment, the Master turned his attention to the question whether the bailment was a PPS lease, and whether the bailor was “regularly engaged in the business of bailing goods”. He held, at [27], by analogy with the circumstances of Rabobank, that the investors were in the business of profiting from the exchange of rare coins and bank notes, and not in the business of profiting from the bailment itself.

101    In the present case, by analogy, GSTC says it profits from supplying services to clients using its skilled personnel and its equipment. It does not profit from bailing property to the company’s clients. Even if GSTC were to pay the company a fee for the alleged bailment (which it does not), that fee would merely be an incidental expense to the business and would not be the business itself.

102    Noting the receivers’ assertion that s 13(2)(b) of the PPSA is satisfied because bailments of the kind it alleges have occurred on at least four occasions, and that the bailments formed part of “GSTC’s regular business of bailing goods to [the company] for the [company] to use in its ongoing operations”, GSTC says it is based on a wrong assertion about the facts proved by the evidence. It says GSTC does not bail goods to the company for the company’s use. The evidence establishes that, save for the GSTC IT equipment, the company does not use, and is not permitted to use, the equipment.

103    It also says the receivers’ submission fails to address the words of the legislation. Section 13(2)(b) refers to a bailor who is not regularly engaged in the business of bailing goods. It is not sufficient that bailment is something that occurs incidentally in the course of a business. In order to be “in the business” of bailing goods; a “bailor” must do more than, for example, store goods while they are in transit between projects.

104    GSTC also refers to Forge and Hammerschlag J’s point, at [46], that the question posed by s 13(2)(b) is whether or not, at the material time, leasing (or bailing) goods was “a proper component” of the bailor’s business. At [52], his Honour held that “frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular”.

105    So, submits GSTC, it is first necessary, in the present case, to identify a “bailment business” that is a proper component of GSTC’s business. It contends, clearly GSTC does not carry on a bailment business. Indeed, it says, it is clear that the bailments as contended for by the receivers only occur when GSTC is not in fact carrying on its business, but rather is between projects or tasks. This being the case, the question whether the bailment business being engaged in is “regular” does not arise. But even if attention were to turn to the question of regularity, it may be seen that “bailment” arises in an ad hoc fashion. It is not a normal part of GSTC’s business. Dr Pope’s evidence is that “the Welldog Business” (which pre-dates the incorporation of GSTC) has geochemically characterised hundreds of oil and gas wells around the world. It is not clear how many oil and gas wells have been so characterised since the incorporation of GSTC, but it may be inferred that it is significantly more than four. The bailment arrangement of the type contended for by the receivers is therefore not a normal part of GSTC’s business.

106    As to the facts of Forge, GSTC says it was common cause there that the bailor was in the business of leasing goods. The matter for determination by the Court was whether leasing activity outside Australia was relevant to the question of whether it was “regularly” engaged in the business of leasing goods for the purposes of s 13(2)(b). The present case, it contends, is very different. GSTC’s business bears no resemblance to the business in issue in that case.

107    I have considerable difficulty in accepting the receivers’ submission that the evidence here supports the conclusion that GSTC was regularly engaged in the business of bailing goods.

108    Even if it were open to contend that the placement or storage of goods by GSTC with the company, and the use or occasional use or exploitation of the equipment by the company derived income for the company, which revenue might result in payments to and thus some profit being made by GSTC as a result of such placement or storage, I have considerable difficulty in concluding that GSTC, simply by reason of that conduct, was regularly engaged in the business of bailing goods. The evidence before me does not satisfy me that there is some “business model” whereby GSTC makes it money by placing the relevant equipment with the company. While the company is the Australian subsidiary of GSTC, the evidence of Dr Pope strongly supports the view that GSTC conducts its own operations in Australia, often alongside the company. There is no evidence to suggest it has bailed any goods other than the relevant equipment with the company.

109    To the extent that the overall business model described by Dr Pope – whose evidence I consider should be accepted as it provides appropriate detail of the arrangements between GSTC and the company, rather than the incomplete account of the arrangements provided by Mr Meldrum – I do not consider that it characterises a bailment business. Rather, I consider there is force in the submission made on behalf of GSTC, by reference to the Rabobank analysis, that the provision of relevant equipment enables the conduct of aspects of the Australian Business conducted by the company, which produces potentially positive financial outcomes for the parent company. It is more appropriate to describe the financial outcomes as arising pursuant to a service provision arrangement whereby the parent assists its subsidiary, rather than an indication that the parent company has bailed goods with the company as part of a bailment business.

110    Whether or not that is a precise analysis of the arrangements there still appears to me to be a deficiency in the evidence to establish, on the balance of probabilities, having regard to the evidence available, that GSTC was, at material times, in the regular business of bailing goods. One way or another, GSTC, in the terms described by Dr Pope, supplied GSTC equipment to Australia for use by its subsidiary, or for use by GSTC with the assistance of employees of its subsidiary, for Australian projects. That included the GSTC IT equipment. While I have little doubt it may be concluded, and should be, that the relevant equipment was the subject of a bailment, I do not consider any of the equipment was bailed in the course of the conduct of a regular bailment business by GSTC.

111    Nor do I consider that any significance is to be placed on the absence of any evidence led by GSTC as to how it “trades” in other parts of the world outside Australia. I do not consider that any material facts have been led in evidence, upon which a reasonable inference can be drawn, that GSTC regularly engages in the business of bailing goods in other parts of the world, in which context the conduct in Australia can be better assessed. In the result, in the course of argument during the hearing, counsel for the receivers did not contend that any such inference could be drawn on facts adduced in evidence.

112    In the result, I am not satisfied that the evidence supports the conclusion that GSTC was regularly engaged in the business of bailing goods – in particular the relevant equipment – to the company.

113    It follows that the s 13(2)(b) is not satisfied in this case because a PPS lease does not include a bailment by a bailor who is not regularly engaged in the business of goods.

Issue 4 –were the bailments ones for which the company provided value?

114    In the event I am wrong about the answer to the s 13(2)(b) question, I should consider this question.

115    This question arises because of s 13(3), which provides that:

This section only applies to a bailment for which the bailee provides value.

116    The word “value”, used in s 13(3), is defined by s 10 and:

(a)     means consideration that is sufficient to support a contract; and

(b)     includes an antecedent debt or liability; and

(c)     in relation to the definition of purchase money security interest—has a meaning affected by section 14.

117    The receivers contend that the para (a) meaning is relevant and met here.

118    Applying the same approach to the construction referred to in Hamersley at [329], the receivers say “consideration” is to be given its legal meaning. They acknowledge that its definition has proved elusive in the authorities, but for the reasons expressed by the learned editors of Carter JW, Contract Law in Australia (6th ed, LexisNexis, 2013) at [6-11], submit that it covers the meaning there suggested, namely:

Some act or forbearance involving legal detriment to the promisee, or the promise of such an act of forbearance, furnished by the promisee as the agreed price of the promise.

119    The receivers note that the question of “value” in the context of a PPS lease was also considered in Re Arcabi, and has also been considered in the legal literature, for example in Duggan, A, Brown, D, Australian Personal Property Securities Law, (2nd ed, LexisNexis, 2016) at [3.39].

120    The receivers note that in Re Arcabi, two potential “value” meanings were identified in the course of argument:

    first, that any bailment under a contract for which the bailee provides consideration (including a promise to provide particular services) is potentially a PPS lease, even though the bailment aspect of the contract is incidental to its performance; and

    secondly, and alternatively, that s 13(3) requires specific consideration to be given by the bailee for the bailment.

121    Re Arcabi did not, however, need to resolve that question because the Master found the s 13(2)(b) exception applied.

122    The receivers note that Duggan, at [3.39], comments on Re Arcabi to the following effect:

    if s 13(3) is read as referring to value provided by the bailee at large, it has the effect of bringing all bailments within the scope of the definition because the bailee always provides value in one sense or another; and

    section 13(3) is clearly intended to limit the meaning of PPS lease, but on the above construction it imposes no limitation at all.

123    It is suggested by the receivers that this Duggan commentary must be read in conjunction with the commentary at [4.13], which discusses value in the context of attachment for the purposes of s 19(2), at which point it is observed that the reason for the value requirement is that, without value, there is no consideration for the security interest and a valid security interest depends upon consideration. The receivers suggest, however, that the value requirement in s 13(3) is more confined than that contained in s 19(2), because in s 13(3) there is an absence of the dispensation of the value requirement where the “grantor does an act by which the security interest arises”, which appears in s 19(2).

124    The receivers say that there is nothing in s 13(3) which provides any indication that “value” should be given a different meaning to how that term is to be applied where it is used elsewhere in the PPSA (for example, the use of the term in s 19). That is, consistent with ordinary statutory construction principles, the defined term, “value”, should be given the same meaning wherever it is used in the PPSA. That is, the focus of the inquiry should be on whether “consideration” for that bailment arrangement has been given.

125    In addressing the issue raised by Duggan as to the consequences of reading s 13(3) as being for value at large, the receivers contend the concern is not well justified because there are examples of where a bailment that falls within the PPSA may not come within a deemed PPS lease because there has been no “value” for that bailment. The receivers proffer the following example:

A carpenter is subcontracted by a builder to carry out works at an owner’s premises. The owner doesn’t know that the subcontractor is performing works at the premises. The carpenter leaves his tools of trade at the premises. The owner appoints an administrator, and a claim is made by the administrator that those tools have vested in the owner because there had been an unperfected security interest arising from a deemed bailment under s 13(1). In that circumstance where the owner had no contractual relationship with the carpenter, did not know the carpenter was performing any works or that the carpenter had left tools at the premises, there is no consideration provided by the owner as bailee for that bailment. As such, the carpenter’s tools would not be a deemed PPS lease and therefore would not have vested in the owner upon appointment of an administrator.

126    The receivers submit that, in circumstances where there is an example of how a bailment arrangement could fall outside a deemed “PPS lease” by reason of a lack of provision of value, there is no justification for giving a narrow reading to the meaning of “value” for the purposes of s 13(3) so that it is confined to specific consideration to be given by the bailee for the bailment. However, for the purposes of this application, the receivers submit that there has been “consideration” provided by the company for the bailments whether a broad or narrow view as to “value” is adopted.

127    The receivers approach the question of value given on the basis that “consideration” for the bailments was provided by the company as bailee to GSTC as bailor in the following circumstances:

(1)    The company was to ensure that the four categories of equipment were safely and securely stored in the company’s secured premises. They observe Dr Pope specifically responds to this at [103] of his affidavit, and does not deny that the company had this obligation.

(2)    GSTC charged the company a management fee for the assistance provided by GSTC. That management fee arrangement is discussed at page 15 of the administrators’ s 439A report as to the affairs of the company dated 26 April 2017.

(3)    The company issued invoices for the completion of works (as Mr Meldrum explained) using the:

(a)    GTI equipment (although no income was actually generated because the works were for trials); and

(b)    Fibre Optic equipment.

128    In respect to the management fee arrangements described in the s 439A report, the receivers say there is no suggestion in GSTC’s evidence that such a management arrangement was not in place. Dr Pope’s evidence at [28] of his affidavit is that, where there were projects in Australia (or the region), the company would retain GSTC on a “cost plus” basis to provide specialised products and services for the benefit of the customer. It was essentially a “subcontract agreement” between the two companies. The company was established as GSTC’s wholly owned subsidiary to exploit commercial opportunities within Australia using the core technology, which would see GSTC hopefully obtain a return on its investment. Those “cost plus” payments by the company were, the receivers say, the “consideration” for the arrangement, and for the purposes of the PPSA should be taken to be the value provided by the company as “bailee” for the PPS lease.

129    The receivers further contend there is no suggestion by GSTC that it was providing the four categories of equipment to the company on the basis that the company had those items free of charge. GSTC always expected to receive a reward for its provision of the relevant equipment whether under the “cost plus” arrangement, or as part of the management fees payable.

130    They also say there was additional value given in respect to certain items of the equipment in the following ways.

131    First, the company’s staff prepared commercial invoices to determine import taxes and took delivery of the GSTC Tools at Toowoomba, and the GSTC tools remained at that location.

132    Secondly, GSTC accepts that, following delivery of the Fibre Optic Tools and at the time of the administrators’ appointment, the company and GSTC were cooperating to complete the installation of the Silixa fibre optic system for DBP, and the company’s employees had been engaged in installation of the fibre optic system for DBP. They say Dr Pope implicitly accepts that the company’s employees had the right to use the GSTC Fibre Optic Tools because, in the second sentence of [103] of his affidavit, he only refers to the GSTC Tools as not being allowed to be used by the company.

133    Thirdly, Mr Clemence, an employee of the company, was involved in the completion of the project using the GTI equipment to undertake testing at certain coal seam gas wells in Queensland.

134    The receivers contend that the fact that no specific fee was paid by GSTC to the company for the bailment of the four categories of equipment is not to the point: the relevant issue is whether, looking at the entire nature of the bailment relationship, value was given by the company as bailee. For the reasons advanced, the receivers say such value was provided.

135    GSTC notes s 13(3) provides that s 13 only applies “to a bailment for which the bailee provides value”. Section 10 relevantly defines “value” to mean consideration that is sufficient to support a contract. It says s 13(3) should therefore be read as excluding gratuitous bailments. In this it also relies on the reasoning of the New Zealand Court of Appeal in Rabobank at [40]. Parliament’s intention, it contends, was to deem certain lease/bailment transactions to be PPS leases where they were not easily distinguishable from finance leases. Parliament did not intend for bailment transactions that could not be confused with finance leases, to be brought within the operation of the PPSA.

136    GSTC observe that in the Second Reading Speech of the Personal Properties Securities Bill 2009 (Commonwealth, Parliamentary Debates, House of Representatives, 24 June 2009), the Hon R McLelland stated that the purpose of the bill was to reform the law on secured financing using personal property. The Honourable Member stated that the bill would reduce complexity and introduce greater consistency “among the different kinds of secured finance”.

137    GSTC submits that if the deeming provisions in s 12(3) and s 13 of the PPSA are read as being directed at ensuring that lease/bailment transactions that are not easily distinguishable from finance leases are treated as if they are finance leases, then this is consistent with the purpose or object of the PPSA. On the other hand, if the deeming provisions in s 12(3) and s 13 are read as being directed at gratuitous bailments that could not possibly be confused with finance leases, this is not consistent with the purpose or object of the PPSA.

138    It also refers to Re Arcabi and notes the two possible interpretations of the requirement in s 13(3) read with the definition of “value” in s 10. GSTC says I do not need to resolve the question for (at least) the same reason it was left open by the Master, namely, that s 13(2)(b) applies here. But it accepts that, on the receivers’ case, I will have to resolve it, because I must find, on that case, that the bailment does not fall within the s 13(3) exclusion.

139    GSTC also refers to Duggan, which, as noted above, expresses the view that the preferred reading of s 13(3) is that it means value provided by the bailee specifically for the bailment, and not value provided by the bailee at large. This is on the basis that Parliament clearly intended s 13(3) to operate as a limitation. If it is read as referring to consideration at large then it is no limitation at all. It is also on the basis that this reading is more consistent with the policy objectives of the Act.

140    In the present case, GSTC submits the company did not provide any “value” to GSTC in any event in respect of the bailment, or in the context of some larger contractual arrangement.

141    In respect of the GSTC Tools, it says the evidence is that these were only to be used by GSTC. The only entity that stood to benefit from their use was GSTC. The only relevant “service” that was provided in respect of the GSTC Tools was that of storage. To the extent that it was provided, it was provided by the company to GSTC. So, if the bailment were to be for reward, it would be GSTC (the bailor) who would provide the “value” rather than the company. The bailee (the company) did not provide any value.

142    GSTC says the position in respect of the GSTC Fibre Optic Tools is the same. Those tools were used by GSTC to install fibre optic systems on the DBP Project. The company did not provide any value to GSTC. There would be no reason for it to do so.

143    As to the GTI equipment, GSTC says it was used by GSTC and GTI for testing. The testing concerned the development of a new wireless gauge system. No income was generated by the testing. The company did not provide any value to GSTC or to GTI. There would be no reason for it to do so.

144    GSTC says, however, it is accepted that the company used the GSTC IT equipment. This is a circumstance where the company derived a benefit by reason of the equipment being at the company premises. But the company did not provide any value to GSTC for the alleged bailment. As to the receivers asserting that the company stored the GSTC IT equipment safely and maintained it in good working order, GSTC says this is not evidence of value being provided by the company for the bailment. A subsidiary may be expected to keep safe the equipment of its parent even if it is not a bailee.

145    GSTC submits that, on a proper analysis, if there are bailments, they are gratuitous bailments, and that the provisions of s 13 should be read in a way that excludes such alleged bailments in furtherance of the purpose or objects of the PPSA.

146    Broadly, I accept the submissions made on behalf of GSTC that “value” sufficient to support a contract was not provided in respect of the bailments of the relevant equipment. At what might be referred to as the “global level”, the provision of the relevant equipment by GSTC to the company was to enable the company to conduct the Australian Business, as described by Dr Pope. While that was intended to be a profitable business, with financial benefit potentially flowing to GSTC, I find it difficult to conclude that value of that indirect nature, including the management fee, in the circumstances of this case, should be seen as satisfying the statutory concept of “value” appearing in s 10.

147    I am inclined to adopt the view expressed in Duggan and relied on by GSTC, that the relevant value must be more specific than a global financial or business arrangement such as that described by Dr Pope in his evidence. Without intending to suggest that some business arrangements, which might involve some quid pro quo of a nature not involving direct payment for goods supplied on bailment, may never constitute “value” as defined in s10, I have real difficulty in concluding that the financial benefits identified here should be considered consideration sufficient to support a contract. The “consideration” is, in my view, quite uncertain. It is also too indirectly related to the provision of the goods to support the ready conclusion that the goods were bailed for such benefits.

148    While the analogy with the factual circumstances of Rabobank and Re Arcabi, as relied on by GSTC, may not be entirely apt, because of the different factual circumstances from this case, in each case some value, in the general sense of a financial benefit, was intended to be gained by the bailors in placing the goods with the bailee. But that value did not involve a direct payment of some fee, or a sufficiently connected financial benefit made by the bailee to the bailor to constitute consideration sufficient to support a contract, in my view.

149    Similarly, in my view, in this instance the lack of any sufficiently connected financial benefit for the bailing of the equipment by GSTC with the company militates against there being relevant “value” as defined by s 10 by reference to the consideration factor. As I have said, while not meaning to suggest that a more indirect financial benefit is never capable of supplying the relevant notion of contractual consideration, and thus “value” as defined in s 10, for a bailment the more diffuse nature of the business model employed by GSTC with its Australian subsidiary, the company, leads me to the conclusion that, on the facts of this case, the financial arrangements do not constitute such consideration; and so, by virtue of s 13(3) there can be no deemed PPS lease in this case.

150    I should add that I do not find the hypothetical example proferred by the receivers at [125] above as to why a broad view of value should be adopted to be compelling. I doubt that goods inadvertently left at premises in such a situation would ever constitute a “bailment” at law. See Rabobank at [17].

Conclusion

151    Because I have found that s 13(2)(b) is not satisfied, or alternatively because I consider that s 13(3) affords an exception, in the circumstances of this case, I also find that the bailment arrangements relied on by the receivers, which I have found exist, do not constitute a PPS lease in any case for the purpose of the PPSA. It follows that s 267 of the PPSA has no application in the circumstances of this case to effect a vesting of the relevant equipment in the company in receivership.

152    In those circumstances it follows GSTC is entitled to the primary relief that it seeks in its application (WAD416/2017).

153    I will hear from the parties as to the final terms of the relief to be granted and on the question of costs.

Associate:

Dated:    7 September 2017