Polymers International Ltd v Toon

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 30 July 2013
• Neutral Citation: [2013] NZHC 1897
• Docket Number: CIV-2013-404-001437
• Court: High Court
• Date: 30 July 2013

Under the Personal Property Securities Act 1999, and the Companies Act 1993

Between

Polymers International Limited

Applicant

and

Victoria Toon and Dennis Wood

First Respondents

Interworld Plastics N Z Limited (in liquidation)

Second Respondent

[2013] NZHC 1897

CIV-2013-404-001437

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application for declaration that registration of the financing statement under the Personal Property Securities Act 1999 (“PPSA”) was valid — financing statement failed to comply with PPSA as it: (1) did not include the debtor company's incorporation number; (2) did not classify the debtor company as a company; and (3) misspelled the debtor name by omitting a gap — the liquidators of the debtor company could not find the statement when searching the register and did not recognise the applicant as a secured creditor — whether the errors were seriously misleading and invalidated the statement — what test should be applied to determine “seriously misleading”.

Counsel:

P Moodley for Applicant

G Blanchard for Respondents

JUDGMENT OF Asher J

Introduction

1 This originating application concerns whether the registration of a financing statement under the Personal Property Securities Act 1999 was invalid because of errors and omissions in the statement that was filed.

2 Polymers International Ltd (Polymers) supplied polymer products to Interworld Plastics N Z Ltd (in liquidation). On 30 July 2002, Polymers and Interworld Plastics N Z Ltd (Interworld) entered into a credit arrangement on the basis that Polymers would supply material to Interworld, and as security for payment for that material under each contract for sale and purchase of goods, Interworld granted Polymers a security interest.

3 Polymers registered a financing statement under the Personal Property Securities Act 1999 (PPSA) against Interworld as debtor on 14 September 2007. It is accepted that the financing statement failed to comply with the requirements of the PPSA and the Personal Properties Securities Regulations 2001 (the Regulations) in three respects.

• (a) It did not include the debtor company's unique incorporation number.

• (b) It did not correctly classify the debtor company as a “Company”.

• (c) It misspelled the debtor name of Interworld Plastics N Z Limited without a gap so it read “Interworld Plastics NZ Limited”, with no gap between the “N” and the “Z”, rather than “Interworld Plastics N Z Limited”.

4 On 30 August 2012, Interworld went into liquidation. The first respondents Victoria Toon and Dennis Wood were appointed liquidators.

5 Between March and May 2012, Polymers had supplied goods and services to the value of $751,925.04 to Interworld. Following the liquidation, Polymers lodged a proof of debt claim form with supporting documentation with the liquidators for $751,925.05. The liquidators in their first report did not recognise Polymers as secured creditor, listing it with the unsecured creditors. The liquidators, having conducted a search of the securities register, did not discover any security interest in favour of Polymers. Following Polymers' notification of its claim and assertion of priority, the liquidators identified the three registration errors referred to and continued to refuse to recognise that Polymers had a validly registered security.

6 Of the three errors and omissions the last can be put to one side. While there is undoubtedly a mistake in not putting a space between the letters “NZ” in the name of Interworld, the liquidators accept that this defect was not seriously misleading. Indeed, it is common ground that a search for debtor names automatically excludes all spaces and abbreviations in the words “NZ” in the searching process. Thus, even if the space had been included, it automatically would have been removed by the search algorithm. Polymers' error in the way it set out Interworld's name could not therefore mislead a searcher, and was not seriously misleading.

7 However, it is submitted by Mr Blanchard on behalf of the liquidators that the other two omissions or errors were seriously misleading. Mr Moodley for Polymers accepts that these two omissions or errors were made, but submits they were not seriously misleading in terms of the PPSA.

The statutory framework

8 The three key provisions in the PPSA that relate to errors in financial statements are ss 149–151. They provide:

149 Registration of financing statement invalid only if seriously misleading

The validity of the registration of a financing statement is not affected by any defect, irregularity, omission, or error in the financing statement unless the defect, irregularity, omission, or error is seriously misleading.

150 When financing statement seriously misleading

Without limiting the circumstances in which a registration is invalid, a registration is invalid if there is a seriously misleading defect, irregularity, omission, or error in-

• (a) The name of any of the debtors required by section 142 to be included in the financing statement other than a debtor who does not own or have rights in the collateral; or

• (b) The serial number of the collateral if the collateral is consumer goods, or equipment, of a kind that is required by the regulations to be described by serial number in a financing statement.

151 Proof that person actually misled not necessary

In order to establish that a defect, irregularity, omission, or error is seriously misleading, it is not necessary to prove that any person was actually misled by it.

9 What is required for a registration to be seriously misleading turns on the effectiveness or otherwise of information provided in the statement, which allows an effective search using the PPSA's search criteria. Those criteria are set out in s 172:

172 Search criteria

The register may be searched only by reference to the following criteria:

• (a) The name of the debtor:

• (b) the name and address of the debtor or, if the debtor is an organisation, the name and address of the organisation and the name or job title, and contact details, of the person acting on its behalf:

• (c) The name and date of birth of the debtor:

• (d) If the debtor is a company, the unique number assigned to the company by the Registrar of Companies on the registration of the company under the Companies Act 1993:

• (e) If collateral is required … by this Act or by the regulations to be described by serial number in a financing statement, the serial number of the collateral:

• (f) The registration number assigned to the registration under section 144:

• (g) Any other criteria specified in the regulations.

• (emphasis added)

10 The PPSA in 1999 turned the previous chattels security system, which had been accurately described as a “quagmire”, 1 into a modern centralised register that is fully accessible online with no physical office and no paper-based records. 2 Creditors file an electronic record of their interest called a financing statement.

Priority is measured from the time of registration. Commensurate with what is contained in the financing statement, a search responds to the entry of the name of the debtor, and reveals by general description the specified property, and gives notice that parties will enter into a transaction in respect of that property. Details of particular security transactions are not provided. It was observed of the Canadian system in Saskatoon in Royal Bank of Canada v Touche Ross Ltd by Tallis JA: 3

The most characteristic difference between notice filing and traditional systems of registration is that notice filing is party-specific rather than transaction-specific. What is filed are not the details of a particular security but notice that certain parties have entered into, or may in future enter into, a secured transaction in relation to specified property.

11 Unsurprisingly, therefore, the name of the debtor is a critical element of the financing statement. It is the indexing point for all searches, and an error in the debtor's name will mean that the security interest will not be discovered by a searching creditor.

12 Contrary to the old system, there is now no gateway through which registrants must pass in which they have to show...