A vexed case - court reigns in vexatious litigant to protect bank - Court Procedure

This week's TGIF considers the Federal Court decision of National Australia Bank Ltd v Garrett [2016] FCA 714 in which the Court stepped in to invalidate and restrain an improper registration on the PPSR

BACKGROUND

An undischarged bankrupt, and serial vexatious litigant, registered a financing statement on the Personal Property Securities Register (PPSR) claiming a security interest over all the property of the Bank. The security interest was said to arise from a charge granted by the Bank to secure an undertaking as to damages provided by the Bank in an earlier proceeding, even though the Bank was never required to provide security in support of that undertaking.

The Bank served an amendment demand on the bankrupt requiring him to submit a financing change statement to remove the registration of the security interest from the PPSR. The bankrupt refused and, instead, purported to appoint himself as the managing controller of the Bank in respect of all of its property the subject of the purported security interest.

PROCEEDING

The Bank brought an application seeking orders, amongst other things:

That the registration of the purported security interest be removed from the PPSR;
For an injunction restraining the bankrupt from registering any further financing statements on the PPSR in respect of any purported security interests in the property of the Bank; and
For a declaration that the purported appointment of the trustee as 'managing controller' of the Bank was invalid.

The bankrupt attempted to file, and in some cases did file, a "plethora" of what he described as "interlocutory applications", affidavits and submissions running to thousands of pages.

DECISION

In making the orders sought by the Bank, Beach J held that apart from the fact that the bankrupt had no standing to pursue any claims in relation to the purported security interest (as any right, if any, had vested in his trustee in bankruptcy):

Under the Personal Property Securities Act (PPSA), a security interest is defined as being an interest in personal property provided for by a transaction that secures payment or performance of an obligation.
The word 'transaction' indicates that in relation to security interests, the PPSA is concerned with consensual arrangements.
The PPSA specifically excludes a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law. Accordingly, a security interest based on obtaining equitable relief from a court does not arise from any consensual transaction and is not a security interest for the purposes of the PPSA.
For that reason, an undertaking as to damages cannot be a security interest for the purposes of the PPSA and cannot be registrable.
The Court has jurisdiction to restrain a person from registering a security interest in another person's personal property where the first person is found to have no such security interest.
The PPSA provides that a person must not apply to register a financing statement unless they believe on reasonable grounds that the person described as the secured party is, or will become, a secured party in relation to the secured property.

COMMENT

This decision represents one of only a handful of occasions where the Court has been asked to resolve a dispute as to the validity of a PPSR registration. Even though the facts of the case are at the extreme end of the spectrum, the decision demonstrates the Court's willingness to step in and prevent abuses of the registration process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.