Stockco Ltd v Brendon James Gibson and Michael Peter Stiassny Coa

• Jurisdiction: New Zealand
• Judge: O'Regan P
• Judgment Date: 26 July 2012
• Neutral Citation: [2012] NZCA 330
• Docket Number: CA58/2011
• Court: Court of Appeal
• Date: 26 July 2012

BETWEEN

Stockco Limited

Appellant

and

Brendon James Gibson and Michael Peter Stiassny

First Respondents

and

Nugen Farms Limited

Second Respondent

[2012] NZCA 330

Court:

O'Regan P, Randerson and Asher JJ

CA58/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against High Court decision determining application of Personal Property Securities Act 1999 (“PPSA”) to arrangements involving the financing of livestock – competing security interest holders were consortium of financial institutions (collectively “Banks”) and a livestock trading and finance company (“StockCo”) – financing provided to four dairy farming companies (collectively “Security Group”) – Banks held security interest over personal property of the Security Group, including livestock – first priority dispute related to sale by Security Group company of 4,000 rising one year heifers to StockCo who then leased them back to another company (“Nugen”) – second priority dispute related to 750 cows gifted by the Security Group to Nugen who sold them to StockCo – (1) whether sale of heifers occurred in the ordinary course of business and StockCo took heifers free of Banks’ security interest under s53 PPSA (buyer or lessee of goods sold or leased in ordinary course of business takes goods free of certain security interests) – (2) whether s88 PPSA (general priority of security interest in transferred collateral over security interest granted by transferee) was engaged because Nugen as debtor transferred interest in heifers to Security Group by means of bailment/lease agreement – (3) whether Nugen had any property rights in cows at the time sold to StockCo.

Counsel:

F M R Cooke QC and M H L Morrison for Appellant

R B Stewart QC, S C D A Gollin, A E Simkiss and N R Frith for First Respondents

No appearance for Second Respondent

• A The appeal is dismissed.

• B The cross-appeal is allowed.

• C Costs are reserved. Counsel may file memoranda if agreement cannot be reached.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by O'Regan P)

Table of Contents

	Para No
Introduction	[1]
Issues	[7]
Ordinary course of business: s 53	[8]
Subordination: s 88	[10]
Ascertainment	[14]
Adequacy of description: s 36	[18]
Ordinary course of business: s 53	[21]
Facts	[22]
Relevant law	[40]
What was the ordinary course of business of Plateau?	[52]
Was the sale of 4,000 heifers in the ordinary course of the business of Plateau?	[72]
Was StockCo's security interest subordinated under s 88?	[80]
Did the 20 April 2009 letter give notice to StockCo?	[90]
Was the bailment/lease agreement a transfer of Nugen's rights in the collateral?	[104]
Ascertainment	[112]
Did the Security Group transfer property rights to 750 cows to Nugen?	[114]
Does this matter?	[123]
Adequacy of description: s 36	[129]
Issues not dealt with	[141]
Commingling	[142]
Application of s 53 to the 750 cows	[145]
Result	[154]
Costs	[155]

Introduction

1 This appeal and cross-appeal raise a number of issues about the application of the Personal Property Securities Act 1999 (PPSA) to arrangements involving the financing of livestock.

2 There are two different priority disputes, one relating to 4,000 rising one year heifers (R1 heifers) and the other relating to 750 cows. The competing security interest holders are a consortium of financial institutions comprising Westpac New Zealand Limited, Rabobank Limited, PGG Wrightson Limited and PGG Wrightson Finance Limited on the one hand, and the appellant, StockCo Limited, on the other. The first respondents are receivers appointed by the consortium (we will, as did the trial Judge, refer to this consortium collectively as “the Banks” and we will call the first respondents “the Receivers”).

3 Both the Banks and StockCo had provided financing in various ways to four dairy farming companies owned by interests associated with Allan Crafar, namely Plateau Farms Limited (Plateau), Hillside Limited, Taharua Limited and Ferry View Farms Limited. We will call these four companies “the Security Group”. The Banks held a security interest over the personal property of the Security Group, including livestock.

4 StockCo is a livestock trading and finance company. In 2008, it entered into a number of sale and leaseback transactions involving the Security Group and another company, Nugen Farms Limited (Nugen). Nugen is owned by interests associated with Allan Crafar's son, Robert Crafar, and is not part of the Security Group.

5 The dispute in relation to the 4,000 R1 heifers arises from a transaction between Plateau and StockCo, under which Plateau sold the 4,000 heifers to StockCo, and StockCo thereupon leased those heifers to Nugen. The dispute in relation to the 750 cows involved a transaction under which Nugen sold the 750 cows to StockCo, and leased those cows back from StockCo.

6 In the judgment under appeal, White J dealt with an application by the Receivers for directions and, in relation to the matters in issue in the appeal, made orders that were broadly in the form sought by the Receivers. 1

Issues

7 There are four substantive issues that arise on the appeal and cross-appeal.

Ordinary course of business: s 53

8 The first issue relates to the sale of the 4,000 R1 heifers by Plateau to StockCo. The 4,000 heifers were subject to the Banks' security interest. StockCo argues that the sale of the 4,000 heifers to it was a sale made in the ordinary course of Plateau's (or the Security Group's) business, and it therefore took the 4,000 heifers free of the Banks' security interest under s 53 of the PPSA. The trial Judge, White J, found against StockCo on this issue. It appeals against that decision.

9 So the first issue is, was the sale of the 4,000 heifers by Plateau to Nugen in the ordinary course of Plateau's business?

Subordination: s 88

10 The second issue also relates to the 4,000 R1 heifers, and arises only if we find that the sale of those heifers to StockCo was in the ordinary course of Plateau's business, in which case StockCo's security interest would prevail over that of the Banks. The 4,000 heifers that were the subject of the StockCo transaction remained on farms owned by the Security Group notwithstanding the sale of the heifers to StockCo and the immediate leasing of those heifers by StockCo to Nugen. So the Security Group companies were bailees of those heifers.

11 Some months after the Plateau/StockCo/Nugen sale and lease transaction, Nugen and Plateau entered into a bailment agreement. Plateau's lawyers sent a letter to StockCo enclosing this agreement. The terms of the letter and agreement were oblique. The Receivers argue that s 88 of the PPSA was engaged because Nugen as debtor had transferred an interest in the heifers to the Security Group. Under s 88, a secured party has 15 days from the date on which it first had knowledge of a transfer to register a financing change statement showing the transferee as the new debtor. As StockCo did not register a financing change statement until six months after receiving the letter, the Receivers say StockCo's security interest became subordinated to that of the Banks in relation to advances made by the Banks after the 15 day period had elapsed.

12 So the second issue is, was StockCo's security interest in the 4,000 heifers subordinated to that of the Banks under s 88?

13 We need to address two questions to decide that issue. The first is whether the entry into the bailment agreement by Nugen was a transfer of an interest in StockCo's collateral (the 4,000 heifers) for the purpose of s 88(1). The second is whether the letter sent to StockCo meant that StockCo had knowledge of the information required to register a financing change statement. If it did, then the 15 day period commenced at the time StockCo received the letter and, therefore, acquired the requisite knowledge.

Ascertainment

14 The third issue relates to the 750 cows that were the subject of a sale and leaseback transaction between Nugen and StockCo. Those cows had previously belonged to members of the Security Group and were subject to the security interest given by the Security Group in favour of the Banks. StockCo says that the cows were transferred from the Security Group to Nugen prior to the Nugen/StockCo transaction being entered into. However, there was no documentation relating to the transfer and the cows remained on farms owned by the Security Group.

15 In the High Court, the argument focused on whether there was ascertainment of the cows subject to the transaction for the purposes of the Sale of Goods Act 1908. However, in this Court it was acknowledged that the only evidence about the transfer of the cows from the Security Group to Nugen was to the effect that they had been gifted, so the focus of the argument in this Court was on the requirements for an effective gift. The Receivers argued that, in the absence of a deed of gift, a gift is ineffective unless the property subject to the gift is actually delivered to the donee. They say this did not happen, and therefore Nugen did not get any property right in the cows. Thus the cows remained in the ownership of the Security Group and subject to the Banks' security interest.

16 StockCo disputes this. It also says that, even if the gift was not effective because the cows were not delivered to Nugen, Nugen still had the right to call for delivery of the cows, and this was a sufficient interest in the cows for PPSA purposes.

17 So the third issue is: did Nugen have any property rights in the 750 cows at the time it entered into the sale and leaseback arrangement with StockCo? A consequential issue is: if not, does that matter?

Adequacy of description: s 36

18 The fourth issue also concerns the 750 cows. It arises only...