New Zealand: Lessons from the Crafar receivership - Part Three: identifying personal property

Brief Counsel
Last Updated: 17 June 2011
Article by Michael Arthur, Matthew Yarnell and Geoff Carter
This article is part of a series: Click Lessons from the Crafar receivership: Part Two for the previous article.

The Gibson & Stiassny v StockCo & Ors litigation in relation to the Crafar receivership has clarified important aspects of the Personal Property Securities Act 1999 (PPSA).

The procedures seem obvious in the abstract but, as the case demonstrates, can be less obvious on the ground:

  • check the Personal Property Securities Register (PPSR) before making a large purchase
  • update your PPSR registration immediately you have reason to suspect your secured property may not be in your debtor's possession, and
  • clearly identify any property to be bought, sold or charged.

This is the third of three Brief Counsels exploring each of these take-outs.

If you've just joined us...

A Crafar group company, Nugen Farms Limited, leased around 5,600 cows from StockCo Limited, a rural financier. Of those cows, 4,000 heifers had been purchased by StockCo from another Crafar company, Plateau Farms Limited. Plateau, in common with other Crafar group companies, had granted general security over all of its assets to the banks who funded the Crafar group business and who ultimately appointed the receivers.

At the time the receivers were appointed, the livestock leased to Nugen was being grazed on land owned by other Crafar-related companies, under grazing arrangements between Nugen and those other companies.

The main issues were:

  • whether the heifers Plateau sold to StockCo were sold in the ordinary course of Plateau's business, in which case StockCo would take the heifers free of the banks' security interest (Chapman Tripp commentary available here)
  • how to deal with the fact that under the PPSA the livestock could be considered to be the assets of both Nugen and of the companies on whose land the cows were being grazed (Chapman Tripp commentary available here), and
  • how to deal with the problem that certain cows claimed by StockCo could not be clearly identified as having been sold to StockCo by Plateau due to the fact that they had never been distinguished from the main Crafar group herd.

Problems with livestock identification

There were a number of difficulties in identifying the livestock claimed by StockCo as much of it had been born into the wider Crafar herd and had never been tagged. The evidence at trial was that Allan Crafar managed the Crafar companies' livestock (including Nugen's) effectively as a single herd.

The confusion was not helped by attempts to classify cattle after the receivers were appointed. StockCo had sought to tag some livestock, and the receivers responded by removing some animals from Crafar land. They also got court orders preventing StockCo from entering the land and 'interfering' with stock, arguing that StockCo had attempted to cherry-pick the best heifers from the broader herd. It took several court applications and negotiations before the parties agreed to interim arrangements pending the outcome of the case.

One of the main issues related to 648 cows that were owned by StockCo and had been leased to Nugen, but had since become unidentifiable due to intermingling with other livestock on Crafar group land; livestock to which the banks had priority.

The other major issue concerned identifying 750 cows originally owned by other Crafar companies, which had initially been transferred to Nugen from other Crafar interests without separation from the main herd, and were therefore difficult to identify as the subject of a subsequent sale and leaseback arrangement with StockCo.

The 648 intermingled cows

The PPSA has special rules relating to comingled or processed goods, but these are only applicable where the products become part of a single product or mass (the PPSA example is sugar and cream being mixed to become ice-cream).

The Judge relied on old English law that states where goods owned by two people are mixed-up by a third party (for whom neither owner is responsible) the owners take a proportionate share of the resulting mix. However, if one of the owners is more to blame than the other for the mix-up, there is a presumption in favour of the innocent owner in the event of any shortfall.

The Judge found that it was Nugen which was primarily obliged to keep the livestock separate, and while neither StockCo nor the banks were entirely innocent in the mix-up as both could have seen to identification at various points, their responsibility was in roughly equal proportions.

Accordingly, StockCo and the receivers of the group could take a share of the herd in proportion to their respective shares of the property.1

The 750 unascertained cows

The major identification debate related to the sale and leaseback between StockCo and Nugen of 750 cows that had originally been owned by other Crafar companies before being essentially gifted to Nugen in consideration of "many years of hard work" by Robert Crafar, the principal shareholder of Nugen.

The Judge accepted the receivers' evidence that the 750 cows had never been distinguished from the rest of the Crafar herd. Thus, Nugen could never have obtained good title from the other Crafar companies, and StockCo could never have obtained good title from Nugen in order to leaseback this livestock.

However, the Judge also accepted StockCo's submission that if title had passed, the lease had identified these 750 animals with the specificity required by the PPSA, because Allan Crafar could, if called upon, identify the "750 mixed aged cows" referred to in the lease agreement.2

Section 18 of the Sale of Goods Act 1908 provides that goods must be ascertained before ownership can pass under a contract of sale. But the Judge considered the PPSA identification requirements were less rigorous than those in the Sale of Goods Act on the basis that:

  • section 36 of the PPSA merely requires the description of the item by 'kind', and
  • the scheme of the PPSA allows for further information to be obtained from a secured party.3

We think the Judge's view on this point is questionable. While section 36 permits the description of collateral by kind, it must also be an adequate description. The Judge's interpretation could create problems in practice because it provides no fixed and objective reference point, instead relying on the willing assistance of someone whose memory and motivations may change over time.

It would, therefore, be unwise for any secured party to rely on the prospect of supplementing their security agreement with the knowledge of individuals as a means of satisfying the requirements of section 36.

Our thanks to Richard May, Solicitor, for writing this Brief Counsel.

For further information, please contact the lawyers featured.

Footnotes

1. It appears that the parties agreed their pro rata proportions by reference to the value of secured property claimed by each, rather than by the amount of indebtedness; this approach seems appropriate in cases where one secured party claims as owner to the collateral.

2. Under s36(1)(b)(i) a security agreement is not enforceable against third parties (anyone other than the debtor) unless it is in writing, and contains a description of the collateral that is adequate to enable its identification; a receiver is a third party for s36 purposes, because receivers are appointed by a secured party, but a liquidator is not a third party, Dunphy v Sleepyhead [2007] NZCA 241.

3. PPSA s 177 note, however, that in this case Alan Crafar was not one of (or related to) the secured parties.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click Lessons from the Crafar receivership: Part Two for the previous article.
Authors
Michael Arthur
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions