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Anderson, S --- "Personal Property Securities New Zealand" [2003] OtaLawRw 9; (2003) 10 Otago Law Review 445

Personal Property Securities New Zealand

(by Michael Gedye, Ronald C C Cuming QC, and Roderick J Wood, Brookers Ltd. 2002. lxxiii and 642 pages.)

It will be a great relief to all students, practitioners and judges interested in personal property securities law that New Zealand’s newly imported Canadian statute comes with such an impressive operator’s manual. There is a Cuming and Wood for most if not all Canadian provinces, each of which has a slightly different PPSA, and now, with Michael Gedye as local author, and a short introduction from Justice Blanchard, there is a New Zealand version suitable for the rather more modified PPSA that has recently come into force here. Of course, much of the New Zealand PPSA is taken verbatim from its Saskatchewan model, or is a very close paraphrase, so much of Gedye, Cuming and Wood can be found more or less verbatim in any of the more recent Canadian equivalents, giving New Zealand the advantage of a text that has been revised and polished through many editions. It is perhaps this obvious feature of the book that inspired the publisher’s otherwise premature boast that it is ‘authoritative’, an epithet which, while perhaps reassuring to readers, may do the authors a disservice. For this is no bland statement of the law as it is, pretending to a magisterial, dispassionate and neutral exposition, disguising difficulties and ignoring alternatives. It is instead opinionated, argumentative, critical of all and sundry, and, above all, reasoned at every step. The reader can be in no doubt that what is being offered is an opinion about how best the Act should be interpreted, but always with detail enough to indicate the counter arguments, weak and misguided though they might be. In addition there is a useful introductory chapter, written specifically for New Zealand, putting the PPSA in context and demonstrating its boundaries, and showing in passing how unnecessary it was for the PPSA to include the so-called ‘outline’ in Part 1. That, like the ‘examples’ appended to many sections, and which the authors on many occasions rightly criticise for being inapposite or misleading, seems meant to perform an educative function which, as this book shows, is best left to those who are good at it. There is much good practical advice also, on matters such as how to interpret results of a search, for example, or what detail to include in a security agreement, numerous criticisms of the Act’s drafting, and sometimes of its policy, and some stern exhortations to judges not to let outmoded concepts distort their interpretation.

Is one such outmoded concept legal title? Within the boundaries of the PPSA its location makes no difference. Section 24 says so explicitly: a security interest is a security interest no matter whether the security agreement casts it as legal or equitable. But Gedye, Cuming and Wood would like to take the next step, arguing that even in disputes involving issues outside the PPSA a security interest created under it should be regarded as (just) a legal charge, even where the documentation transfers or reserves legal title to the secured party.[1] The advantage would be uniformity of approach, leading to simpler analysis, whereas the disadvantage would be that security agreements purporting to secure legal title to the creditor would now be wholly misleading instead of only mostly misleading. But is such an analysis open on the Act? Section 24 seems to leave legal title where it lies, but to make it irrelevant to disputes under the Act. It does not transfer it or restore it to one who does not have it. As the authors themselves point out, in the United States explicit legislation was needed for the purpose.

A different outmoded concept is constructive notice, in this context the constructive notice acquired through registration. Its abolition by section 20 is duly noted by the authors. But old ideas die hard, and some of the gist of constructive notice reappears later, albeit in a different vocabulary, with some different attributes, but with some of its old difficulties. The issue arises where there is an error in the registered financing statement, which a third party argues is so seriously misleading that the financing statement is invalid. The overlap with constructive notice is only partial, for invalidity is a status that attaches irrespective of the state of mind of any actual searcher.[2] However, one plausible scenario the authors discuss arises when a searcher fails to locate the relevant financing statement, but is met by the argument that she would have found it if her search had been ‘properly formatted’.[3] Where do we find criteria for such a search? The authors’ preference is for rules over principles[4], indeed they argue strongly against adoption of a ‘reasonable searcher’ test. One rule they find in clause 16 of Schedule 1 of the PPS Regulations which, with perhaps some reluctance, they interpret to mean that a serial number search for a motor vehicle will be properly formatted only if all three possible numbers are entered in the search: registration number, VIN and chassis number. Others they distil from Canadian case law, particularly Kelln (Trustee of) v Strasbourg Credit Union Ltd.[5] But here is a curiosity, for in Kelln both judgments do adopt a ‘reasonable person searching the register’ standard, Bayda C.J.S. from the beginning and Vancise J.A. when he finally reaches the point.[6] The difference between Kelln and Gold Key Pontiac (1984) Ltd v 464750 BC Ltd (Trustee of)[7] is not that one adopted a reasonable searcher test and the other did not, but that they disagreed over how a reasonable searcher should be taken to have acted. That surely is the point that must be addressed head on, for it demands that courts formulate attributes for this hypothetical person. Is she a professional searcher, accustomed to all the register’s possibilities, or is she, say, a one-off purchaser of a family car, battling through the register in its capacity as successor to the Motor Vehicle Securities Register? If we adopt a reasonable searcher test, and say that she is not a professional, then perhaps the seemingly mandatory terms tucked away in a schedule to Regulations can give way to asking how our searcher would react to the screen on which she has to search. The rest becomes easy, for Registry practice does not accord with the mandatory terms of the Regulations, but explicitly allows searchers to search against a single serial number. But whether we reach this point through employing a reasonable searcher test, or through free-floating rules, or by an ‘objective’ test, in the result some searchers who did not find a financing statement will be told that they are bound by it all the same, because they ought to have conducted a better search, which is the same function constructive notice performed.

This example, the invalidity of a financing statement which contains an error, raises another test for a book such as this, structured as a section-by-section commentary: is it consistent? Generally the answer is yes, but there are exceptions, and this is one of them. The authors’ discussion of what counts as a properly formatted search comes in their analysis of section 150, where, to repeat, they incline to the view that a serial number searcher for an interest in a motor vehicle must enter all three types of number. If they are right, then some reasonable searchers will actually be misled, because they will not do that, but will be unable to claim that the registration is invalid. But in that case the authors must accord section 55 much more importance than they do, for it is a section dealing with the same subject matter, but employing different criteria. It assumes a valid but incorrect registration, as the authors on their own argument must too, but then allows an innocent buyer to take free of the security interest. Instead the authors rubbish section 55, saying that only in the most outlandish circumstances does it have any work to do at all, which cannot be right, unless their argument about section 150 is wrong. There is another instance of inconsistency, in quite a different context save that both have arisen because New Zealand has departed from Canadian orthodoxy. This time it is section 36, which requires that to be enforceable against a third party, a security agreement must (as one option) contain ‘an adequate description of the collateral by item or kind that enables the collateral to be identified’. The italicized words are the novelty, and the question is exactly what they require when the collateral is an ‘item’. The authors strive mightily to make the words simply disappear, even resorting to Ontario legislative history as an aid, and that even though an Ontario judge disagrees with them. As it happens, I disagree with their reading, believing that as section 36 exists only to help third parties, the natural reading, which would enable third party identification of the collateral, should be given. That would seem to be New Zealand policy.[8] But here is the inconsistency, for when discussing the purpose of security agreements in the context of section 177 the authors agree that it is ‘to enable the inquirer to verify that the security agreement covers the collateral claimed by the secured party[9]. Surely that does mean that the words in section 36 should mean what they say.

These examples suggest that New Zealand eccentricities have not been as seamlessly integrated into the Canadian text as the authors hoped. Another example might be section 53, concerning the ambit of ordinary course sales of secured goods, where the late addition of the words ‘or that arise under section 45’ unsettles an interpretation where policy and syntax ran happily together, but which is scarcely noticed in the analysis. None the less, given the complexity of this Act and the numerous small changes introduced by the New Zealand version, these instances are the exception. Though the book is difficult to read as a whole, structured as it is, it repays the effort. Jacob Ziegel once wrote somewhere that replacing traditional security law with a PPSA did not abolish all problems, rather it introduced a better sort of problem. Gedye, Cuming and Wood is at once a stimulating guide, indispensable reference, and source of constructive solutions.

Stuart Anderson,
Faculty of Law,
University of Otago.

[1] Pp 73-4, and see also the analysis of sections 87 and 88, especially at pp 322 and 326.

[2] Section 151.

[3] One enviable skill the authors demonstrate is an ability to write over 600 pages without even once (I think) using gendered language, without its seeming artificial.

[4] This is apparent also in the authors’ analysis of ‘proceeds’, where they would prefer a rule-based approach to what is meant by ‘identifiable or traceable’ and thus have to struggle to accommodate the principle-based approach of Agricultural Credit Corporation of Saskatchewan v Pettyjohn [1991] 3 WWR 689: pp 182-8.

[5] (1992) 89 DLR (4th) 427.

[6] Ibid., 430, 442-3.

[7] (1994) 119 DLR (4th) 93.

[8] The reference to this issue on page 171, in particular, is taken directly from the Canadian Cuming and Wood and makes no allowance for the different New Zealand text.

[9] Page 537.