An Expensive Mistake – the Importance of Avoiding Incorrect PPSR Registrations

The case of In the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 demonstrates the crucial importance of ensuring that registrations on the Personal Properties Securities Register (PPSR) are correct if you are the lessor of plant and equipment and other goods.

Alleasing Pty Ltd leased a crusher and spare parts to OneSteet Manufacturing Pty Ltd (OneSeel) – which were PPS leases within the meaning of the Personal Property Securities Act 2008 (PPSA). However, the registrations were against OneSteel’s ABN number and not its ACN number, as prescribed by the Regulations.

Hence when OneSteel appointed administrators, the administrators informed Alleasing that the registrations were void. The Court was asked to consider whether the registrations were indeed invalid, and if they were, whether Alleasing should be entitled to an extension of time to allow the registrations registered after OneSteels administrators were appointed to be declared effective, and whether the vesting of the crusher was unconstitutional as an acquisition of property on unjust terms.

Ultimately the court found the registrations to be ineffective, and denied Alleasing an extension of time. The Court also found that the vesting provisions of the PPSA did not result in an ‘acquisition of property,’ so Alleasing’s constitutional argument failed as well. This case showcases the serious financial consequences that arise from an administrative mistake when registering a security interest on the PPSR and not amending it promptly.

Summary Judgement Against Director for Insolvent Trading

In the matter of Squirrel Limited (In Liquidation) [2021] NSWSC 1658, the Court considered an application for summary judgement against a director for Insolvent trading under the Corporations Act 2001 (NSW). The plaintiffs, being joint liquidators of the company, commenced proceedings against the directors and sought declarations that the Company’s directors had contravened s 588G(2) and orders pursuant to section 588M of the Corporations Act, which requires the directors to pay the Company the same amount of damage suffered by creditors as a result of the contravention of the Act.

Settlements were reached between the plaintiffs and some of the directors, but the remaining defendant failed to file a Notice of Appearance or a Defence, so the plaintiffs applied for summary dismissal against him pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005 (NSW). This action requires the Court to be satisfied that there is no underlying defence or that any such defence had no more than a fanciful prospect of success, such that the outcome was so certain that it would be an abuse of process to allow the action to proceed in the Courts.

The Court found that there was a high degree of certainty that a reasonable person in the defendant director’s position would have been aware of the Company’s limited revenue, its net losses during 2018 and prior financial years, and its inability to pay a significant proportion of its trade creditors within 90 days. The Court was thereby satisfied that the defendant director had no defence to the claim of insolvent trading. This case demonstrates the strict director obligations in relation to insolvent trading.

First Home Buyers Tax Reform

From 16 January 2023, the First Home Buyer Property Tax Option will enable first home buyers to choose between paying upfront stamp duty on the land transfer or a small annual property tax. The property tax is part of a Budget housing policy which included trialing a shared equity scheme for singles and key public servants.

Those who opt into the property tax will be charged at a rate of $400 plus 0.3% of the unimproved land value of the property in each year of ownership. However, if a property is subsequently used as a residential investment, the annual rate of property tax is $1500 plus 1.1% of the property’s unimproved value in 2022-23. First home buyers of land worth up to $1.5 million will be able to claim the tax option. These buyers can still choose to pay stamp duty, which may appeal to first-home buyers intending to hold the land for a significant period. Additionally, those who have executed contracts in the period between enactment of the legislation and 15 January can obtain refunds of stamp duty already paid. Further details of the changes to NSW State taxes are in the 2022-23 Budget No. 1.

Protecting Your Valuable Side Boundary View

The NSW Land and Environment Court’s decision in Furlong v Northern Beaches Council [2022] NSWLEC 1208promotes the protection of side boundary views of high value when considering the impacts of developments on neighbouring properties. This case is important for homeowners to understand how the law may affect their renovation plans.

Mr Furlong applied for a development consent to renovate his three-storey home at Dee Why, which was refused by Northern Beaches Council because of the potential view loss impacts for a neighbouring property. The case before the Land and Environment Court was an appeal of that decision.

The Commissioner of the LEC upheld the Council’s decision on the basis that the development could bring about ‘severe view loss impacts’ to neighbours, in circumstances where there was a reasonable design alternative which would significantly moderate the impact. The Commissioner found that the view loss to the neighbour would be ‘devastating’ and ‘severe’ because of the loss of ‘panoramic’ and ‘iconic’ views of North Head, Curl Curl Beach, the ocean and horizon.

The case shows that the assessment of the reasonableness of a development considers both compliance with the local planning controls and any reasonable design alternatives which would reduce the impact on view loss. This case is important because it offers stronger protection to neighbours for view losses.

Relief Refused Due to Plaintiff’s ‘Unclean Hands’

In the recent Supreme Court case of Meng v Wang [2022] NSWSC 833, the parties, Meng and Wang were former business partners involved in the provision of skin and beauty treatment services -which was operated through two companies, Comfortzone Clinic Pty Ltd and Comfortzone Spa Pty Ltd. Wang held 55% of the shares and Meng held the remainder. Ms Meng, the Plaintiff sought to enforce a contractual obligation under which Ms Wang was to pay her $378 000 for her shares in the companies.

Ms Wang opposed an order for specific performance and contended that the claim should be dismissed. The agreement in question provided for Ms Wang to buy Ms Meng out of the Confortzone business by purchasing the her shares in the Comfortzone companies, but Ms Wang contended that the agreement only gave her an option to purchase the shares and did not oblige her to do so. Hence, the first issue was whether the share sale agreement obliged Ms Wang to buy the shares, and the second issue was whether a reasonable time to buy them was within six months.

Clauses 1 and 4 of the agreement specified that there was an obligation to purchase the shares, but Clause 2, which Ms Wang relied on, indicated that the purchase was optional. The clauses were thereby inconsistent. In those circumstances the Court decided to exclude Clause 2 from the contract on the basis that it was ‘repugnant to the main thrust of the agreement’, so Ms Wang was obliged to purchase the shares. The Court also determined that a reasonable time to purchase the shares was 12 months not six.

However, despite these findings the Court refused to grant specific performance of the agreement because Ms Wang had ‘unclean hands’ as she had pressured Ms Wang to obtain payment by removing machinery and assets from the company premise, which amounted to a form of economic duress and prevented Ms Wang from being able to source the money to comply with her obligations to purchase the shares.

Instead, Ms Mang was only permitted to claim damages for breach of contract.

Annual NSW Strata Hub Reporting Requirements Reminder

As of 30 June this year, strata schemes must file a return within 3 months of each annual general meeting and pay annual fee of $3.00 per lot, as per the Strata Schemes Management Act 2015The aim of the Strata Hub is to provide greater transparency, accountability and better regulation and more engagement for owners and residents of strata schemes in NSW.

Information required to be disclosed includes, amongst other things:

  • The strata plan number for the strata scheme
  • The date of registration of the strata plan for the strata scheme and the number of the community plan
  • The address of the parcel of the strata scheme
  • The number of lots in the strata scheme used for:
    • Residential purposes
    • The purpose of a retirement village
    • Commercial purposes
    • Purposes of a utility lot; and/or
    • Other purposes
  • The date of the most recent annual general meeting of the owners corporation
  • For a class 2 building within the meaning of the Building Code of Australia of the strata scheme – the number of storeys above ground level of the building
  • If the Owners Corporation is required to insure the building or part of the building of the strata scheme under the Act – the replacement value of the building or part of the building.

This information, and the additional information in s 43A of the Strata Schemes Management Amendment (Information) Regulation 2021 is to be provided to the Officers of the owners corporation and will be available to anyone searching the Strata Hub. All schemes must be registered on the Strata Hub by 30 September 2022.

Building Prohibition Orders – Damage Beyond Delay

The NSW Building Commissioner recently issued a prohibition order against a development in Parramatta which prohibited the issue of an occupation certificate until the order was revoked. The order was issued because rectification work had not adequately addressed the serious defects identified in inspections carried out by officers of the NSW Department of Customer Service in 2020.

The order has been in force for over 10 months and is causing significant issues for the project and the developer, and represents a prime example of the consequences of non-compliance with the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act).

Aside from delays, prohibition orders can have many financial implications on builders, developers and their financiers such as causing them to breach the covenants and cause additional costs, trigger liability of builders for liquidated damages under building contracts, allow purchasers of off-the-plan apartments to rescind their sale contracts if the occupation certificate hasn’t been issued by the sunset date under those contracts, and perhaps most importantly, can affect the reputation of the developer and the project itself.

Directors and individuals involved in management can be penalised up to $330 000 for corporations and $110 000 for individuals for each breach under various Acts such as the DBP Act, the Home Building Act 1989 (NSW) and the Building Product Safety Act 2017 (NSW).

Duty of Care to Any ‘Building’ in NSW

The NSW Supreme Court has recently clarified that the duty of care part 4 of the Design and Building Practitioners Act 2020 (NSW) (DPB Act) applies to ‘any building’ in NSW within the meaning of the Environmental Planning and Assessment Act 1979 (NSW), not just ‘class 2 buildings, or buildings containing a class 2 part, or ‘dwellings’ within the meaning of the Home Building Act 1989 (NSW).

The decision in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624, clarifies that the duty of care is not confined to residential apartment buildings and that builders (and other building professionals who fall under the duty) cannot contract out of the duty to exercise reasonable care to avoid economic loss.

In this case, Goodwin Street Developments Pty Ltd contracted with DSD Builders Pty Ltd to construct boarding houses on property owned by Goodwin. Defects and delays in construction caused Goodwin to terminate the contract, and commence proceedings against DSD. Goodwin also sued Mr Roberts (DSD’s representative) for breach of the statutory duty of case in 37 to avoid economic loss to Goodwin when carrying out ‘construction work.’ The Court upheld both of Goodwin’s claims and found DSD and Mr Roberts in breach of their duty of care.

This case demonstrates that the scope of the duty of care in the DPB Act is considerably wide.

Mortgagee Obtains Indefeasible Title After Loan Default

The recent case of Yang Bai v Watson Elite Pty Ltd [2022] NSWSC 318considered whether a mortgagee had validly exercised an option to purchase land. The plaintiff, Mr Bai sought relief from multiple defendants, and the property in question was the subject of a residential development being undertaken by Watson Elite Pty Ltd (Watson Elite) which involved a strata subdivision of the land.

Watson Elite had entered into a $700 000 Loan agreement with Brick International Pty Ltd (Brick) which was to be repaid within a month with ‘time strictly of the essence.’ The loan agreement contained an option for Brick to purchase the Lot for the price of $700 000

When Watson Elite failed to repay the loan, Brick exercised the option to purchase and took steps to have the transfer registered. Mr. Bai sought to impugn their title on the basis that it constituted a ‘clog’ on the equity of redemption. Brick sold the property for $900 000 6 months after becoming the registered proprietor, and the Court ultimately held that the option was a permissible on the equity of redemption. In the circumstances the option price was adequate and properly referable to the property’s value, so the equity of redemption could not apply to impeach Brick’s registered title. As such, Brick was entitled to the entirety of the proceeds of sale, as they had obtained an indefeasible title as proprietor of the fee simple in the Lot.

Extension of Amendment of Strata Schemes Management Regulation

Last year, a new Part 11 was added to the Strata Schemes Management Regulation 2016 as part of the COVID-19 response in NSW. These reforms were due to be repealed on the 31 May 2022 but will now continue to have effect until 30 September 2022 under the Strata Schemes Management Amendment (COVID-19) Regulation 2022.

The initiatives allow for altered arrangements for voting at strata meetings, including voting via audio visual link. A person who has voted or intends to vote via a means other that an in-person vote is taken to be present for the purposes of determining whether there is a quorum for the motion or election. However, it does not permit pre-meeting electronic voting to be used in elections.

Additionally, instead of affixing the seal of an owners corporation to a document, each person required to be present may sign the document and witness the signature of each other person required to be present.