The lessons to be drawn from the Crafar receivership in relation to the Personal Properties Securities Act (PPSA) have now been distilled by the Court of Appeal, which has largely confirmed the High Court’s reasoning.

We discuss the implications of the litigation.

Our earlier commentaries on the case are available here, here and here.

Key points of clarification

The key rules established by the Court of Appeal in Gibson & Stiassny v StockCo & Ors are:

  • whether a sale was made in the ordinary course of business is an objective assessment based on all of the circumstances (the Court set out a checklist of factors)
  • a “statement of fact”, not an equivocal or ambiguous statement, is needed to put a secured party on notice that it needs to amend its registration on the PPSR
  • in the context of attachment of security interests, the debtor does not have “rights in the collateral” merely because it is the beneficiary of an incomplete, or intended, gift, and
  • the adequacy of description of collateral in a security agreement depends on the circumstances.

Ordinary course of business test looks at all circumstances

A Crafar company, Plateau Farms Limited, owned 4,000 cows.  While Plateau owned them, the cows were clearly subject to the General Security Agreement (GSA) that Plateau and others in the Crafar charging group had given to the banks. 

Plateau sold the cows to Stockco, a rural financier, for Stockco to then lease them to another Crafar company, Nugen Farms Limited.  Nugen sat outside the banks’ charging group. 

In the dispute between Stockco and the receivers, Stockco argued that it had purchased the 4,000 cows in the ordinary course of Plateau’s business.  That business was farming. 

The Court of Appeal agreed with the High Court that determining a seller’s ordinary course of business required a factual assessment of the particular circumstances of the case and adopted a two step process toward this test:

  1. identify the ordinary course of business of the seller, and
  2. determine whether the sale was made in the ordinary course of that business.

The Court of Appeal agreed that the ordinary course of business of Plateau at the relevant time was large scale dairy farming, which involved production of milk solids and buying and selling of livestock. 

But it said that did not mean that any sale of livestock was in the ordinary course.  And it rejected StockCo’s argument that the Crafars were “entrepreneurial” and that the ordinary course of Plateau’s business included any commercial deal making in the dairy sector decided on by Allan Crafar.

The checklist of factors the Court relied upon in coming to this conclusion were:

  • where the agreement was made
  • the parties to the sale
  • the quantity of the goods
  • the price charged
  • the nature and significance of the transaction
  • the reason for the transaction
  • the frequency of the transaction, and
  • whether the transaction was at arm’s length.

A clear statement of fact is required for knowledge

The receivers also argued that, if the sale had been in the ordinary course of Plateau’s business, Stockco had since lost any priority it had obtained, by failing to update its registration on the PPSR.  This argument was not necessary, the Court having already concluded that the sale was outside Stockco’s ordinary course of business, but the Court commented on it anyway.

When the banks appointed receivers, the livestock leased to Nugen was being grazed on land owned by companies within the charging group, under grazing arrangements between Nugen and those other companies.  The receivers said that StockCo knew that because it had been told in a letter.  If that had been true, the banks would have gained priority for further advances, under section 88 of the PPSA.

The Court said that StockCo did not have sufficient knowledge to amend its financing statement.  StockCo did not receive sufficient notice that it had to take action to protect its position and therefore section 88 of the PPSA was not engaged. 

The Court clarified that, in order to satisfy the knowledge requirements of section 19(1)(b)(ii) of the PPSA, a party must be able to point to a “statement of fact”, not an equivocal, ambiguous and arguably misleading statement.  The letter sent to StockCo advising it of a potential transfer of an interest by the debtor was ambiguous.

An incomplete gift will not transfer rights in collateral

In addition to the 4,000 cows discussed already, Nugen had also sold 750 cows to StockCo which had leased them back to Nugen.  As with the other transaction, the purpose was to raise cash for the Crafar group.  Stockco claimed those cows from the receivers but, as the Court pointed out, “the problem with the transaction was that Nugen did not have 750 cows to sell”. 

Nugen had obtained the cows from the charging group companies.  There had been no sale, so the Court analysed the transfer as an oral gift to Nugen.  (The High Court had treated the transfer as a sale).   The Court took the view that the gift was incomplete, so no sale to Stockco could have led to Stockco having rights in the cows. 

Not only were the cows not delivered to Nugen (they remained with the charging group), they were not identified in any way that could be described as constructive delivery.  The gift was, therefore, incomplete.

Collateral must be described in a security agreement

While the above conclusion rendered the receivers’ alternative argument academic, the Court went on to consider it.  It agreed with the receivers that the lease from Stockco to Nugen failed to describe adequately the cows that were subject to it.  In doing so, it adopted a tougher approach than the High Court.  It did, however, point out that adequacy of description depends on the particular circumstances.

The lease agreement (a deemed security agreement) described the cows as:

Click here to view table. 

That is, 750 mixed-aged cows.  The 750 cows had never been identified, moved, separated or otherwise distinguished from the rest of the herd.  The High Court had accepted that Mr Crafar could have identified the cows, if called upon.  The description was therefore adequate. 

The Court of Appeal disagreed and said that, because no one had ever identified the cows to be included in the security agreement, the description of the collateral was insufficient to satisfy PPSA requirements. 

The Court did emphasise the “highly unusual facts”.  It saw the adequacy of description for section 36 as a very much depending on the circumstances.  If, for example, there were only ever 750 mixed age cows, the description clearly would have been adequate. 


The Court of Appeal’s decision highlights the key messages from the StockCo litigation:

  • check the PPSR before making large purchases
  • update your PPSR registration immediately you have any reason to believe that your secured property might not be in the debtor’s possession, and
  • clearly identify any property to be bought, sold or charged.