Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd & Ors [2014] VSCA 326

While courts have long wrestled with the proper characterisation of parties’ interests in money paid into court, the journey of judicial interpretation of the PPSA has only just begun. In Dura the Victorian Court of Appeal considered whether payments into court gave rise to security interests for the purposes of the Personal Property Securities Act 2009 (Cth) (PPSA).

Dura (Australia) Constructions Pty Ltd (Dura) was engaged by Hue Boutique Living Pty Ltd (Hue) to build a four-level apartment block in Lord Street, Richmond. The project descended into dispute and, following a trial in the Supreme Court, judgment was entered against Dura in favour of Hue for approximately $6.2m.

Dura appealed, and subsequently sought a stay of execution of the trial judgment pending its appeal. The stay was granted on conditions by the Court of Appeal, including that:

… the appellant [Dura] pays the sum of $1m into an interest-bearing trust account in the joint names of the solicitors for the parties pending the hearing and determination of the appeal or further order and to abide the outcome of the appeal, there be a stay of execution on the judgment herein dated 16 April 2012…

$1m was paid into the joint account as per the order.

Subsequently (and separately) Dura entered into secured loan arrangements with a related party, which then registered its security interest on the Personal Property Securities Register.

Dura’s appeal was dismissed. Dura then entered liquidation before the money in the joint account was disbursed. The Court of Appeal was asked to identify the nature of Dura’s and Hue’s respective interests in the joint account funds, but of particular relevance was whether Hue’s interest was a ‘security interest’ under the PPSA. If it was, then Hue had taken no action to perfect that security interest and it would vest in Dura as grantor under s.267(2) of the PPSA.

Santamaria JA (Maxwell P and Whelan JA agreeing) determined that:

  • (Hue had an interest in the joint account fund as equitable chargee) on payment of money into the account in satisfaction of the stay condition, Hue gained an interest in the fund as equitable chargee. The conceptual basis for such a charge might be said to be that Dura’s payment into court was an appropriation of its property on terms such that, as between Hue and Dura at least, Hue was entitled as of right against Dura to have that money paid to it on favourable resolution of the appeal;
  • (Dura did not have a legal interest in the joint account fund) Due to the terms of the stay condition – in particular the exclusive control of the Court over the fund pending the appeal outcome and the express requirement that the fund abide the appeal outcome – Dura parted with its legal interest in the money it paid into the joint account. It retained only a right to enforce due administration of the account and an equity to redeem amounts unnecessary to satisfy Hue’s entitlement to the money after the appeal decision;
  • (Hue’s interest was not a PPSA ‘security interest’ as it did not arise from a consensual transaction) Hue’s interest in the money was not a ‘security interest’ under the PPSA – the definition of ‘security interest’ in s.12(1) of the PPSA requires an interest in personal property to be ‘provided for by a transaction’, but, properly construed, that must be a ‘consensual transaction’ (some form of agreement). Unilateral compliance with a court order by Dura was not a consensual transaction; and
  • (Hue’s interest was one to which the PPSA does not (for the most part) apply in any event) Hue’s equitable charge was outside the scope of the PPSA (with some limited, presently irrelevant exceptions) as, arising as it did due to compliance with a court order, it was ‘a lien, charge or any other interest in personal property, that is created, arises or is provided for by operation of law’ (s.8(1)(c)).

The net effect of the findings was that Hue’s interest in the fund was not capable of being perfected under the PPSA and did not vest by statutory command of s.267(2) of the PPSA.

His Honour also engaged more generally with the question of what interests parties might hold in funds paid into court in a variety of circumstances, albeit with a caution as to the need to nonetheless analyse individual cases and individual court orders when applying general principles. It was immaterial to that analysis whether funds are actually paid into court or instead are paid into an account in the names of the parties’ solicitors.

Comment

Every superior court decision on key provisions of the PPSA builds upon our knowledge of legislation that is both new to this jurisdiction and that is in everyday use by Australian business.

From a PPSA perspective, the primary point of the case is the appellate recognition that a PPSA security interest needs to arise from a consensual transaction, despite the s.12(1) definition not expressly saying that. It also affirms, perhaps unsurprisingly, that a court order for payment into court satisfies the epithet ‘by operation of law’ for the purposes of s.8(1)(c) of the PPSA.