Federal Court of Australia

StockCo Agricapital Pty Ltd v Tucki Hills Pty Ltd [2022] FCA 929

ORDERS

BY CONSENT, THE COURT DECLARES THAT:

1.    The plaintiff, through its servants and agents, is entitled to take possession of the Livestock (as identified by the RFID tag designations specified in Schedule A of these orders) in accordance with s 138C of the Personal Property Securities Act 2009.

AND, BY CONSENT, THE COURT ORDERS THAT:

2.    The defendant do all things reasonably necessary to provide the plaintiff with unimpeded access to the Livestock, including for the purpose of taking possession.

3.    The defendant pay the plaintiff’s costs of and incidental to this application, save that the question of whether the costs should be reduced under r 40.08(b) of the Federal Court Rules 2011 be reserved for determination as set out below.

4.    By noon on 11 August 2022 the parties file, serve and provide by email to the Associate to Stewart J brief written submissions, if any, on the question reserved under order 3, whereafter that question be determined on the papers.

AND, NOTING THE PLAINTIFF’S EXTENDED UNDERTAKING BY ITS COUNSEL AS TO DAMAGES, THE COURT ORDERS THAT:

5.    The injunction in order 3 of the orders made on 1 August 2022 be extended until the plaintiff takes possession of the Livestock under these orders, or the plaintiff consents in writing to the release of the defendant from the injunction or further order, whichever occurs first.

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

SCHEDULE A

ORDERS

THE COURT ORDERS THAT:

1.    Orders 3 and 4 of the orders made on 10 August 2022 be vacated and in their place order that the defendant pay the plaintiff’s costs of the application as agreed or assessed.

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

REASONS FOR JUDGMENT

STEWART J:

Background

1    The plaintiff is a livestock financier. By this proceeding it seeks orders enabling it to take possession of livestock that it financed for the defendant.

2    The defendant is the trustee of certain family trusts that appear to carry on business farming livestock.

3    On or about 18 November 2019, the plaintiff and the defendant concluded a contract on the terms of a Master Livestock Agreement (MLA). The effect of the MLA is that under supplementary agreements, the defendant as the plaintiff’s agent would from time to time purchase livestock for the use of the defendant and the defendant would pay the plaintiff for the livestock over an agreed period of time ending on the “delivery date”, or the defendant could deliver the livestock up by that date to a processor or selling agent for sale. In that event, the sale proceeds would be paid to the plaintiff to offset any arrears and the balance refunded to the defendant.

4    On repayment of the principal and interest, ownership of the livestock would pass to the defendant or subsequent purchaser, as the case may be, but in the meanwhile title to and property in the livestock would remain with the plaintiff. If the defendant defaulted in its repayment obligations, the plaintiff would be entitled to repossess the livestock. The defendant agreed to grant the plaintiff a security interest registerable under the Personal Property Securities Act 2009 (Cth) (PPSA) over the livestock and other property of the defendant.

5    On or about 14 November 2019, the plaintiff made a registration over the defendant on the Personal Property Securities Register (PPSR) covering the livestock, amongst other property, in respect of any monies owed under any livestock agreement.

6    On or about 27 April 2020, the plaintiff and the defendant entered into a first supplementary agreement in respect of what is described as “lots 1 to 5” of livestock. These lots amounted to 43 head of stock for which the plaintiff paid the vendor the total sum of $60,997.96. The livestock was delivered to the defendant.

7    Under the first supplementary agreement, the delivery date for lots 1 to 3 was 24 October 2020, and for lots 4 and 5 it was 18 October 2020. None of the livestock the subject of those lots was paid for, or otherwise delivered up for sale, by the defendant in accordance with the first supplementary agreement.

8    On or about 26 October 2020, the plaintiff and the defendant entered into a second supplementary agreement in respect of what is described as “lots 6 and 7”. These lots amounted to 62 head of stock for which the plaintiff paid the vendor $78,600. The livestock was delivered to the defendant.

9    Under the second supplementary agreement, the delivery date for lots 6 and 7 was 24 April 2021. None of the livestock that is the subject of those lots was paid for, or otherwise delivered up for sale, by the defendant in accordance with the second supplementary agreement.

10    At the request of the defendant, the plaintiff approved certain extensions of time on the delivery dates from time to time. The last payment received by the plaintiff was on 28 June 2022 in the amount of $20,653.10.

11    On 13 July 2022, the plaintiff sent a letter of demand to the defendant for repayment of the full amount then outstanding, being $154,620.08, by 20 July 2022 (ie, within seven days). The defendant failed to pay that amount or to deliver up the livestock for sale under the terms of the agreements.

The proceeding

12    This proceeding was commenced urgently before me as the Commercial and Corporations Duty Judge. On 1 August 2022, I made interim orders for service and an interim injunction restraining the defendant from disposing of, transferring, realising, appropriating or otherwise dealing with any of the livestock that are the subject of the first and second supplementary agreements. The livestock were identified in a schedule by their radio frequency identification (RFID) numbers. The orders provided for the matter to come back before me yesterday (ie, 10 August 2022) for final hearing if appropriate.

13    By its originating process, the plaintiff seeks the following final orders:

5.     A declaration that the Plaintiff its servants and agents, are entitled to take possession of the Livestock, including by any means - including unlawful means if necessary, in accordance with section 138C of the PPSA.

6.     In the alternative to prayer 5, an order that the Plaintiff, its servants and agents, are entitled, forthwith, to take possession of the Livestock.

7.     An order that the Defendant is to do all things reasonably necessary to provide the Plaintiff with unimpeded access to the Livestock.

8.     An order that the Defendant pay the Plaintiff’s costs of and incidental to this Originating Process.

9.     Any further or other order as this Honourable Court deems fit.

14    At the commencement of yesterday’s hearing, I gave leave to Ms Ardelean, a qualified lawyer who is not on any relevant roll of solicitors, to appear by telephone for the defendant. She works in the employ of Craig Stevenson, an admitted solicitor, who is a principal of Ace Solicitors, the defendant’s solicitors (although they are not formally on the record). Ms Ardelean confirmed that the defendant consents to prayers 5 to 8.

15    For reasons that will become apparent, I was satisfied to make orders substantially, but not wholly, as the parties had agreed.

Seizure of livestock collateral

16    A security interest for the purposes of the PPSA is a dealing which satisfies s 12(1), namely:

12    Meaning of security interest

(1)     A security interest means 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).

17    I accept the plaintiff’s submission that although under the contractual arrangements the plaintiff takes legal ownership of the livestock that it finances, the substance of the relationship is one of security. It is the plaintiff’s business to finance the purchase of livestock for the use by others, it having no interest itself in owning the livestock. Its business is to profit from the finance charges, not from breeding or trading livestock. Thus, an examination of the substance of the transaction, without regard to its form as required by the part of the statutory text in parenthesis, leads to the conclusion that the plaintiff’s ownership interest in the livestock is that it secures payment or performance of the defendant’s obligations.

18    On that basis, I accept that the relevant dealing is a security interest within the meaning of s 12(1) of the PPSA.

19    There is also the possibility that the bailment by the plaintiff of its livestock to the defendant amounts to a PPS lease within the meaning of s 13(1)(d). Such a lease is a security interest under s 12(3)(c). However, in view of my conclusion with regard to s 12(1) it is not necessary to reach any definitive view with regard s 13(1)(d).

20    Also, the interests of the plaintiff in the livestock for which it provided purchase funding is a “purchase money security interest” within the meaning of s 14 of the PPSA.

21    For those reasons, even though the plaintiff owns the livestock in question, under the PPSA it has a security interest in the livestock.

22    Chapter 4 of the PPSA deals with the enforcement of security interests. Part 4.3 deals with seizure and disposal or retention of collateral. Within that Part, in Div 2, s 123 relevantly provides as follows:

123     Secured party may seize collateral

(1)     A secured party may seize collateral, by any method permitted by law, if the debtor is in default under the security agreement.

Note: For seizure of accessions, see sections 95 to 97.

23    Within the same Part, Div 6 deals specifically with seizure and disposal or retention of crops and livestock. Section 138C then deals more specifically with livestock as follows:

138C     Seizure and disposal or retention of livestock

(1)     Without limiting section 123 (secured party may seize collateral), for the purposes of seizing collateral under that section that is livestock, or the proceeds of livestock, the secured party may:

(a)     take possession of the livestock or proceeds wherever it is located; or

(b)     slaughter the livestock wherever it is located; or

(c)     take livestock that is fish; or

(d)     extract products from livestock (for example, by shearing sheep to extract wool).

Note: A security interest may attach to a livestock product (for example, the wool of a sheep) as original collateral as mentioned in subsection 84A(2), or as proceeds.

(2)     The secured party may dispose of, or retain, collateral that is livestock, or the proceeds of livestock, after it has been taken, slaughtered or extracted, subject to Divisions 2, 3, 4 and 5 (seizure, disposal or retention of collateral and objections).

(3)     For the purposes of exercising a power under subsection (1) or (2), or performing any related function under Division 2, 3 or 4, the secured party may enter the land on which, or the water source in which, the livestock or proceeds is located.

24    The scheme appears to be that s 123 permits a secured party to enforce a security interest by seizing or taking possession of the collateral underlying the security interest, but only “by any method permitted by law”. In contrast, in respect of livestock (and crops under s 138B) no such limitation is expressly provided for, and the power of seizure is said to be without limiting s 123.

25    The plaintiff submits that the consequence is that the enforcement of a security interest over livestock under the PPSA can include by way of what would otherwise be unlawful trespass on the land upon which the livestock is located. It submits that that is reinforced by s 138C(3) which expressly provides that a secured party may “enter the land on which, or the water source in which, the livestock or proceeds is located” without qualifying such entry with the requirement that it be lawful.

26    The plaintiff submits that the nature of the collateral, and its potential perishability, in contrast to other forms of conventional collateral governed by s 123, makes the broader powers of enforcement provided for by s 138C (and, by analogy, s 138B) necessary. In that regard it refers to the Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2010 (Cth) by which s 138C in its present form was introduced. That relevantly provides as follows:

Amendment of sections 138A-138C

Item 78

9.119     Under the PPS Act, a secured party is able to seize collateral and exercise various rights to recover the outstanding amount due if the debtor is in default under the security agreement. An amendment to the enforcement provisions would ensure the PPS Act maintains secured parties’ rights where the security interest is held in crops of livestock.

9.120     The proposed amendments would ensure that a secured party enforcing a security interest in crops, livestock or fish has a right to do what is necessary to recover the collateral, including entering the land where the collateral is located and dealing with the crops or livestock as necessary.

…

9.123     Proposed section 138C would provide that a secured party seizing livestock could take possession of the livestock or its proceeds. It would also allow the secured party to slaughter the livestock or extract the proceeds, such as by shearing the wool on the livestock.”

(Emphasis added.)

27    That forms the basis on which the plaintiff submits that the wording of prayer 5 of the relief sought, specifically “including unlawful means if necessary”, is appropriate. The plaintiff also says that it may, by force of s 138C and without court order, enter upon the defendant’s (or some other third party’s) land in circumstances that would otherwise amount to unlawful trespass. Indeed, at yesterday’s hearing, counsel for the plaintiff said that the proceeding was brought out of an abundance of caution to establish that it will not have to approach the court for orders in similar circumstances in the future. It is for that reason that the plaintiff requested that reasons be given even though the orders were ultimately consented to.

28    It seems to me that there are a number of problems with the latter aspects of the plaintiff’s case.

29    First, a form of order in terms of prayer 5 involves an inherent contradiction. That is because, if it were made, although the order would legally permit that which might otherwise be unlawful, that action could not itself be described as unlawful, it having been sanctioned by curial declaration.

30    Secondly, I am not persuaded that the plaintiff’s approach to construing s 138C is correct. The plaintiff starts with the premise that the relevant question in the present case is:

whether enforcement in accordance with section 138C requires that which enforcement in accordance with section 123 requires – or something else.

31    It submits that the answer to that question is “something else” and calls in aid the absence of the phrase “by any method permitted by law” and the existence of the phrase “without limiting section 123” in s 138C. Self-evidently, the plaintiff seeks to draw a dichotomy between what actions are authorised by seizure under the different sections.

32    However, the plaintiff glosses over the fact that the powers granted by s 138C are, as stated in the opening words of sub-s (1), “for the purposes of seizing collateral under that section” – ie, under s 123. Section 138C therefore sets out the ways in which a secured party may seize particular types of collateral under s 123 itself without limiting that section. In my view, s 138C thereby gives content to some of the methods that are “permitted by law” under s 123.

33    Thirdly, and more fundamentally, the issue which the plaintiff seeks to be the subject of judicial determination simply does not arise. Because the plaintiff has, commendably, come to the court for declarations and orders rather than having engaged in self-help, it is not necessary to decide whether s 138C gives the plaintiff the legal right to enter upon the land where the cattle are and repossess them without a court order and, if it does, what the limits to that right are.

34    A similar situation to the present arose in Bank of Queensland Ltd v Star Trek Pty Ltd [2019] NSWSC 1712, albeit only in respect of s 123 of the PPSA. Like the present proceeding, that proceeding was commenced by the plaintiff bank out of caution “to ensure that both its entry onto [a property] and its seizure of the Secured Property are lawful”: at [11]. Justice Adamson did not consider it necessary to consider whether, but for the orders and declarations her Honour made, the bank would have been entitled to enter the property it sought to enter and seize the secured property: at [19].

35    If the plaintiff had resorted to self-help, the defendant or a third party might have brought an action in trespass which the plaintiff could then seek to defend in reliance on s 138C. Those circumstances would provide the occasion for determining the impact of s 138C on the law of trespass.

36    It may be that the law with regard to recaption, which is somewhat uncertain, limits the right to self-help under s 123 (and ss 138B and 138C) of the PPSA given that seizure of collateral under that provision is limited to “any method permitted by law”. The uncertainty of the law with regard to recaption is demonstrated by the divergent judgments in Toyota Finance Australia Ltd v Dennis [2002] NSWCA 369; 58 NSWLR 101, a case in which the appellant sought to exercise self-help in seizing a vehicle leased by it to the respondent who was in arrears. The differing emphases in approach in different common law systems is discussed in Hawes C, “Recaption of Chattels: The Use of Force against the Person” (2006) 12 Canta LR 253. There are few Australian cases on recaption, but there is some valuable scholarship to which reference can be made: Aitken L, “The Abandonment and Recaption of Chattels” (1994) 68 ALJ 263; Young PW, “Recaption of Chattels” (2003) 74 ALJ 223; Aitken L, “Recovery of Chattels in the Common and Civil Law: Possession, Bailment and Spoliation Suits” (2008) ALJ 379; O’Hara J, “The Nature of Recaption” (2019) 93 ALJ 866.

37    Hawes observes (at 254) that the common law is more tolerant of self-help than are Continental (ie, civilian) legal systems. That much is reflected in the Roman Dutch law remedy mandament van spolie which appears to be more restrictive of self-help than recaption. It is a possessory remedy available to a person whose peaceful possession of a thing has been disturbed and is not concerned with the underlying rights to claim possession of the property – it seeks only to restore the status quo ante irrespective of the merits of any underlying dispute. Its essential rationale is that the rule of law does not countenance resort to self-help. See Monteiro and Another v Diedricks [2021] ZASCA 15; 2021 (3) SA 482 (SCA) at [14].

38    In respect of the limited circumstances that attract the aid of ss 138B and 138C, it may be that those provisions provide for a broader basis for self-help than what the law otherwise allows. However, as mentioned, it is unnecessary to decide the question given the defendant’s consent and the circumstances in which the proceeding was brought.

39    In the result, I was satisfied that the plain wording of s 138C justified a declaration that the plaintiff by its servants and agents is entitled to take possession of the livestock, and an injunction that the defendant do all things reasonably necessary to provide the plaintiff with unimpeded access to the livestock including for the purpose of taking possession. For the reasons I have given, it is inappropriate to include in the declaration that the plaintiff is entitled to take possession of the livestock “by any means, including unlawful means if necessary”. In any event, s 138C(3) provides that it can do so by entering the land on which the livestock is located. The inevitable implication of that provision is that the plaintiff, having obtained the declaration in order 1 of the orders I made yesterday, can enter the land to take possession of the livestock even if entry upon the land would otherwise have constituted trespass.

Disposition

40    For those reasons I made the orders that were sought and agreed, subject to some amendments. The only one of significance is that in view of making the declaration sought by prayer 5, the relief sought by prayer 6 was unnecessary. The plaintiff accepted that.

41    Given the relatively low value of the plaintiff’s claim, I raised with the parties the question whether the costs that the defendant agreed to pay should not be limited or reduced on the basis that the proceeding could more suitably have been brought in Division 2 of the Federal Circuit and Family Court of Australia. That is with reference to r 40.08(b) of the Federal Court Rules 2011. I gave the parties the opportunity to address me briefly in writing on that question.

42    In the absence of any submission by the defendant that the costs should be so reduced, I am satisfied that the ordinary provision for costs is appropriate, namely, that the defendant pay the plaintiff’s costs as agreed or assessed.

Associate:

Dated:    11 August 2022