Lenders should carefully consider the effects of releasing security interests, as the recent case of Capital Finance Australia Limited v Elana Claire Clough [2015] NSWSC 1327 demonstrates.
Capital Finance Australia Limited (Capital) entered into a financial contract with C&J Concrete Pty Ltd (CJC) in connection with a vehicle (the vehicle).
Capital registered its interests in the vehicle in 2011 and subsequently the registration was transferred to the Personal Properties Securities Register (PPSR) in October of 2013. CJC defaulted under the terms of the agreement in September of 2013 and Capital repossessed the vehicle.
Shortly after, the vehicle was sold at public auction. In a bid to effectuate the sale Capital removed its security interest.
However, unknown to Capital, Mrs Clough had registered an interest in the vehicle that was to be sold by Capital in September of 2013. Due to this security interest being on title the sale of the vehicle fell through.
Capital then wrote to Mrs Clough and asked that she remove the encumbrance. When this proved ineffective, Capital served a notice in accordance with s178 of the Personal Property Securities Act 2009 (Cth) (the Act); after no response was received the Registrar removed the encumbrance. On the day that the Registrar removed the encumbrance Mrs Clough lodged another registration.
It is that registration which became the subject of the proceedings.
Mrs Clough claimed to have purchased the vehicle from CJC prior to the default, however, her evidence failed to adequately prove this. Rein J noted that there was no evidence of an agreement between Mrs Clough and CJC creating an interest in favour of Mrs Clough. His Honour held that, at best, Mrs Clough held a purchaser’s lien over the vehicle and was excluded from registering a security interest under s8(1)(c) of the Act. Accordingly, her interest was removed from the register.
It is essential to ensure that all proper processes are followed prior to commencing proceedings to remove an encumbrance from the PPSR. His Honour noted that in such circumstances as above, Capital had no alternative but to commence proceedings for the removal of the second registration.
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