Supreme Court New South Wales Medium Neutral Citation: In the matter of Qenos Pty Ltd (administrators appointed) [2024] NSWSC 483 Hearing dates: 29 April 2024 Date of orders: 30 April 2024 Decision date: 30 April 2024 Jurisdiction: Equity - Corporations List Before: McGrath J Decision: See [129] Catchwords: BAILMENT — Personal Property Securities Act 2009 (Cth) — where administrators of corporation contend there is a "PPS lease" pursuant to s 13(1)(b) (repealed) — where administrators contend the PPS lease is an unperfected security interest that vested in the corporation pursuant to ss 267(1)(a)(ii) and (2) PPSA — where the time at which the bailment arose is material — application of ss 13(2)(b) and (3) PPSA — HELD — the bailment is not a PPS lease CORPORATIONS — voluntary administration — third party property in possession of company — whether s 441F of the Corporations Act 2001 (Cth) applies — where the third party has exercised a power in relation to the property — HELD — s 441F applies and leave under s 440(2)(b) of the Corporations Act would otherwise be granted Legislation Cited: Corporations Act 2001 (Cth) Personal Property Securities Act 2009 (Cth) Cases Cited: Big Top Hereford Pty Ltd v Gavin Thomas as Trustee of the Bankrupt Estate of Douglas Keith Tyler [2006] NSWSC 1159 Brambles Security Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts Reports 81–161 Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) [2017] FCA 1065 Canberra International Airport Pty Ltd v Ansett Australia Ltd (2002) 41 ACSR 309; [2002] FCA 329 Forge Group Power Pty Ltd (in liq) v General Electric International, Inc (2016) 305 FLR 101 Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220; 45 ALJR 356 Topaloglu v UPS SCS (Australia) Pty Ltd [2011] QSC 217 Category: Principal judgment Parties: Indorama Ventures Oxides Australia Pty Ltd (ACN 083 984 187) (Plaintiff) Jason Ireland, Matthew Caddy, Damien Pasfield and Jason Preston in their capacity as joint and several administrators of Qenos Pty Ltd (First Defendants) Qenos Pty Ltd (administrators appointed) (ACN 054 196 771) (Second Defendant) Representation: Counsel: J Giles SC and C Winnett (Plaintiff) A Leopold SC and C Tam (Defendants) Solicitors: Norton Rose Fulbright Australia (Plaintiff) Corrs Chambers Westgarth (Defendants) File Number(s): 2024/00150780 Publication restriction: Nil JUDGMENT INTRODUCTION 1. This case concerns a contest over about 2,800 metric tonnes of ethylene (Remaining Ethylene), a volatile and highly flammable hydrocarbon which is a primary product used in the petrochemical industry. The Remaining Ethylene is currently being held in a storage tank (Ethylene Storage Tank) located at a port facility at Friendship Road, Port Botany, New South Wales. 2. The plaintiff, Indorama Ventures Oxides Australia Pty Ltd, has brought the proceedings against each of the first defendants, Jason Ireland, Matthew Caddy, Damien Pasfield and Jason Preston in their capacity as joint and several administrators of Qenos Pty Ltd (Administrators), and the second defendant, Qenos Pty Ltd (administrators appointed). 3. Indorama alleges that it "owns" the Remaining Ethylene contained in the Ethylene Storage Tank. Qenos sub-sub leases the Ethylene Storage Tank in which the Remaining Ethylene is currently being held. The Administrators have control over the affairs of Qenos and have asserted that the Remaining Ethylene vested in Qenos upon the appointment of the Administrators on 17 April 2024. 4. The proceedings are before me for an urgent final hearing because it is alleged by Indorama that the Administrators are threatening to sell the Remaining Ethylene in violation of its rights as "owner" of the Remaining Ethylene. An undertaking given to the court by the Administrators on 23 April 2024 only preserves the position until today, 30 April 2024. 5. Mr J Giles SC with Ms C Winnett appeared as counsel for Indorama, instructed by Norton Rose Fulbright Australia. Mr A Leopold SC with Mr C Tam appeared as counsel for the Administrators and Qenos, instructed by Corrs Chambers Westgarth. SALIENT FACTS Ethylene 1. Ethylene is the main product of the steam cracking of hydrocarbons (such as naphtha and gasoil), which involves feedstock molecules being cracked at high temperatures in the presence of steam to produce, amongst other things, hydrogen, ethylene, propylene, butadiene, benzene and toluene. Indorama 1. Indorama operates a chemical manufacturing business at 16 – 20 Beauchamp Road, Banksmeadow, New South Wales within the Botany Industrial Park (BIP). Indorama manufactures ethylene oxide and derivatives, including surfactants, glycols and ether solvents, which it sells to its customers. Ethylene is a major input into the chemicals manufactured by Indorama. 2. Indorama was previously called Huntsman Corporation Australia Pty Ltd, with the name change occurring on 6 January 2020. Qenos 1. By intercompany service arrangement, Qenos is the operating company in a group of companies comprising Qenos Holdings Pty Ltd as the parent and seven subsidiaries, all of which have now had the Administrators appointed to them (Qenos Companies). The business conducted by the Qenos Companies involves the manufacture of high-quality polyethylene, ethylene and related products from ethane gas and liquified petroleum gas (Qenos Business). 2. The Qenos Business is the largest plastics and chemical manufacturing business in Australia. Polyethylene products from the Qenos Business are delivered to customers through a national distribution network providing next day delivery through Toll Logistics. Qenos delivers ethylene to customers through a series of pipelines and storage facilities, including a hydrocarbon terminal (which is referred to in more detail below). BIP and facilities 1. The BIP is situated 17km south of the Sydney central business district and comprises an area of around 60 hectares adjacent to Botany Bay and its shipping terminal and the Botany rail freight line. The BIP was once an integrated chemical manufacturing site owned and operated by ICI Australia (later called Orica Australia Pty Ltd). In around 1998, the BIP was subdivided and parts of the BIP became owned by different entities. There are now four main tenants of the BIP under lease: Qenos, Indorama, Orica Australia and Ixom Pty Ltd. 2. Qenos' operations at the BIP comprise four plants known as Olefines, Alkatuff, Alkathene and Site Utilities, which are situated on about 37 hectares across the BIP. 3. The Olefines plant processes ethane feedstock sourced from the Cooper Basin in South Australia into around 250 kilotonnes of gaseous ethylene per year for the two downstream polyethylene plants, Alkatuff and Alkathene, and other domestic and export customers, including Indorama. 4. The Alkathene plant uses a high-pressure polymerisation process and is currently producing about 70 kilotonnes of low-density polyethylene per year. The Alkatuff plant requires only low pressure for production and currently produces around 100 kilotonnes of a tougher, lighter polymer called linear low-density polyethylene. 5. Site Utilities provides steam and power to all BIP tenants and also the neighbouring Orica Chlorine and Indorama Surfactants plants. Site Utilities is operated under a utilities agreement between the tenants of the BIP. 6. The hydrocarbon terminal is located on about 3 hectares of land within the BIP adjoining the Port of Botany and is used as both a terminal and for the storage of hydrocarbons, including ethylene (Hydrocarbon Terminal). The Hydrocarbon Terminal is operated by Qenos and sub-leased by Qenos from New South Wales Ports Botany Property Co Pty Ltd. Hydrocarbons are taken from and sent to ships which berth at the Hydrocarbon Terminal using underground pipelines which are linked to the Ethylene Storage Tank, where it is held in liquid form. Ethylene Storage Tank 1. The Ethylene Storage Tank is a specialised tank with a total capacity of approximately 4,000 metric tonnes that allows for ethylene to be stored in its liquid form at a temperature of around minus 103°C, which keeps it at an extremely low pressure (approximately 20kpa). The ethylene enters the Ethylene Storage Tank by a series of valves and connected pipelines. 2. The ethylene held in the Ethylene Storage Tank can be stored for an extended period, subject to compliance with various regulatory and maintenance requirements. 3. The Ethylene Storage Tank is used to store ethylene which is processed within the Olefines plant in gas form, then converted into liquid form and moved into the Ethylene Storage Tank via underground pipelines. The Ethylene Storage Tank also stores ethylene which has arrived in liquid form on a ship at the Hydrocarbon Terminal and is then moved via underground pipeline into the Ethylene Storage Tank. 4. The ethylene held in the Ethylene Storage Tank can also be conveyed by underground pipelines to and from the Hydrocarbon Terminal (including for export to purchasers) to a vaporising facility where the liquid is converted into a gaseous ethylene and pressurised at 3,600kpa and then into an underground mains ring pipeline (Mains Pipeline) that runs through the BIP or to a liquefication facility from the Mains Pipeline. 5. It is not possible to completely empty the Ethylene Storage Tank. A residual amount of approximately 300 metric tonnes (known as the "heel") cannot be removed because the extraction process requires sufficient pressure to operate, which is not possible when the volume falls below 300 metric tonnes. 6. When the liquid form ethylene arrives in the Ethylene Storage Tank it directly mixes with any existing ethylene held in that form, including the "heel". 7. The movement of ethylene into and out of the Ethylene Storage Tank, the regular maintenance of the Ethylene Storage Tank and the ethylene held in the Ethylene Storage Tank is managed and controlled by Qenos because it is volatile and highly flammable, with many safety, environmental, occupational, licensing and other regulatory requirements to be followed by Qenos. This includes the checking and monitoring of the "dip tape" that floats on the surface of the liquid ethylene in the Ethylene Storage Tank and which sends an electric signal to the Qenos-staffed control room in the vaporising facility on a regular basis over each 24-hour period and is recorded in Qenos' systems. 8. There is natural loss from the Ethylene Storage Tank due to vaporisation which can range between 3 to 5 metric tonnes per day depending on the ambient temperature, although processes are in place to mitigate that loss which involve re-liquefying the naturally vaporised gas and returning it into the Ethylene Storage Tank. 9. The maintenance of the Ethylene Storage Tank requires Qenos to undertake the venting or flaring of ethylene into the atmosphere in a controlled release, sometimes in quantities of about 200 metric tonnes. During maintenance periods the standard operations of the Ethylene Storage Tank can be suspended along with the supply to downstream users, such as Indorama. Mains Pipeline 1. To enable the ethylene to be conveyed along the Mains Pipeline, it must be converted from its liquid form in the Ethylene Storage Tank into a pressured gas, which is achieved at a vaporisation facility located next to the Ethylene Storage Tank. The vaporisation facility is used to maintain pressure in the Mains Pipeline, which operates on user demands, not user requests. The process is similar to how a domestic consumer might access natural gas in their home, such that the user would turn on the "tap" to facilitate their demand for ethylene rather than making a specific request of Qenos for the supply of ethylene. 2. The vaporisation facility is staffed on a 24-hour basis by a two-person crew on shifts who are provided by Terminals Pty Ltd (trading as Quantem) under a services agreement with Qenos. 3. The Mains Pipeline runs underground from the site of the Ethylene Storage Tank to the Indorama plant located in the BIP and to the Alkatuff and Alkathene plants of Qenos. The Mains Pipeline is approximately 6 inches in diameter and runs for approximately 5km. When the ethylene arrives at the Indorama plant at the point of entry, the ethylene passes through a "custody control meter" used by Indorama to provide information to Qenos for ethylene balance. Previous contractual arrangements between Qenos and Indorama 1. The formal contractual arrangements between Qenos and Indorama for the supply of ethylene by Qenos to Indorama are comprised in the following documents: 1. Ethylene Supply Agreement dated 23 December 1998 between Orica Australia and Indorama; 2. Ethylene Supply Agreement Novation Deed dated 30 June 1999 between Orica Australia, Indorama, Qenos and Olefines; 3. Deed of Variation between Indorama and Qenos with effective date 1 July 2011 (2011 Variation); 4. Deed of Variation between Indorama and Qenos with effective date 1 July 2014; 5. Deed of Variation dated 27 December 2019 between Indorama and Qenos with effective date 1 January 2020 (2019 Variation), (collectively Qenos Supply Agreement). 1. The principal obligations under the Qenos Supply Agreement are contained in cl 2.1 – for Qenos to supply and Indorama to purchase ethylene for the Purchase Price at the Delivery Point (which is the Pay Meter identified in Schedule 2 to the Qenos Supply Agreement, described in the evidence as the "custody control meter" at the point of entry to the Indorama plant). 2. By the 2019 Variation, the obligations under cl 2.1 of the Qenos Supply Agreement were extended until 31 December 2025. 3. Under cl 7 of the Qenos Supply Agreement, title to the ethylene supplied passes to Indorama at the Delivery Point. 4. Under cl 2.3 there is no obligation for Qenos to supply ethylene to Indorama during a Shutdown unless it has stores of ethylene available and Indorama is not required to take or pay for ethylene during a Shutdown. A Shutdown is defined in cl 1.1 to be a shutdown by Qenos under cl 8.3 or a shutdown by Indorama under cl 8.4. 5. Clause 8.3 provides that Qenos may interrupt the supply of ethylene without breach of the Qenos Supply Agreement for a planned shutdown for the purposes of repairs, maintenance, inspection or expansion; a planned shutdown for compliance with mandatory legal requirements; an unplanned shutdown to control a site emergency, unsafe situation or environmental incident; and if required to shut down at the direction of a relevant regulator. Clause 8.4 provides that Indorama may interrupt the acquisition of ethylene without breach of the Qenos Supply Agreement upon any of the same events as those in cl 8.3 that apply to Qenos. 6. Clauses 8.1 and 8.2 set out the obligations of Qenos and Indorama during Shutdowns. 7. Clauses 8.5 to 8.7 of the Qenos Supply Agreement are contained in the 2011 Variation and provide as follows: 8.5 Subject to clause 8.7, if: (a) during a period of a shutdown of the Botany Ethylene Plant; or (b) after Qenos has permanently ceased operations at the Botany Ethylene Plant other than as a pilot plant for experimental purposes, [Indorama] has provided written notice to Qenos that it requires Ethylene to be imported then Qenos and [Indorama] will use their reasonable endeavours to agree on the terms that will apply for the supply of imported ethylene to [Indorama]. 8.6 If clause 8.5(b) applies then, subject to clause 8.7, Qenos will use its reasonable endeavours to provide [Indorama] with access to terminalling and storage facilities for ethylene as may be necessary for [Indorama] to continue to operate the Surfactants Plant. 8.7 Clauses 8.5 and 8.6 will only apply in circumstances where Qenos retains a lease of the land (currently owned by Sydney Ports Corporation) under the ethylene storage tank and retains access to associated terminalling facilities. 1. Clause 1.1 of the Qenos Supply Agreement defines Force Majeure Event as covering a range of different circumstances, including: (g) for reasons not reasonably within the control of the relevant party, failure of either party's facilities, breakdown of plant or equipment, or failure of a supplier of either party to provide goods or services; 1. Clause 11.1 relevantly states: Where a party is unable, wholly or in part, by reason of a Force Majeure Event, to carry out any obligation under this agreement, other than an obligation to pay money, and that party: (a) gives the other party prompt notice of that Force Majeure Event with reasonably full particulars and, in so far as known, the probable extent to which it will be unable to perform or be delayed in performing that obligation; and (b) uses all reasonable endeavours to remove that Force Majeure Event as quickly as possible, that obligation is suspended so far as it is affected by the continuance of that Force Majeure Event. For the avoidance of doubt, if [Qenos] ceases to deliver Ethylene under this agreement by reasons of a Force Majeure Event, [Indorama's] payment obligations in respect of the period of cessation… will also cease. Shutdown of ethylene production by Qenos 1. On the morning of 28 February 2023 there was a major incident involving a failure of a length of cooling water pipe at the Olefines plant which damaged the cooling water tower, caused that plant to be shutdown and resulted in Qenos being unable to produce any ethylene (Qenos Shutdown). The result of the Qenos Shutdown was that Qenos was unable to supply any ethylene to Indorama under the Qenos Supply Agreement. 2. On 2 March 2023, Qenos informed Indorama of the Qenos Shutdown in writing, stated that it relied on cll 8.3(c) and (d) of the Qenos Supply Agreement to interrupt the supply of ethylene without breach of the Qenos Supply Agreement, except to the extent that Qenos had stores of ethylene available from which it could supply Indorama in accordance with clause 8.1. In the same letter, Qenos stated that it was notifying Indorama of a Force Majeure Event as defined in cl 1.1(c), (g) and/or (h). Qenos stated that by reason of the Qenos Shutdown it was unable to carry out its obligations under the Qenos Supply Agreement to provide the maximum daily quantity of ethylene to Indorama in accordance with cll 2.1 and 5.5. 3. To enable Indorama to continue to manufacture chemicals at its plant for supply to its customers, Indorama then had to make arrangements to purchase ethylene from other sources to be offloaded from ships arriving at the Hydrocarbon Terminal and then conveyed to the Ethylene Storage Tank, where it was stored and delivered via the Mains Pipeline to Indorama's plant as required by it. 4. Those discharge, storage and delivery arrangements are said by Indorama to rest in an email string dated 2 – 8 March 2023 between Campbell Thomas and Justin James of Qenos and Stuart Harris of Indorama and an email chain dated 17 March 2023 between Campbell Thomas and Stuart Harris (March 2023 Emails), the effect of which was that: 1. Qenos would provide access for Indorama to use the Hydrocarbon Terminal, pipelines and Ethylene Storage Tank to unload, store and use ethylene to which Indorama has title; 2. Qenos would undertake tank and product testing of the ethylene on arrival at the Hydrocarbon Terminal; 3. Qenos would charge port/handling/terminal charges for each ethylene shipment import consistent with clause 8.5 of the Qenos Supply Agreement, comprising loading/unloading charges of about $15,000-20,000, port charges of about $4,000-5,000, survey and testing fees of about $3,000-4,000 and berth fees of $1,000 (totalling between about $23,000 - 30,000); and 4. Indorama agreed and accepted that it would be liable for and indemnify Qenos against any loss or damage that Qenos may incur arising from these activities. 1. Indorama asserts that none of the charges agreed relate to the storage of the imported ethylene in the Ethylene Storage Tank. 2. On 27 February 2024, Ms Tasdelen (a director of Indorama and the Regional Business Director ANZ of Indorama) had a telephone conversation with Stephen Bell (the Chief Executive Officer and then a director of Qenos) who informed her that Qenos no longer intended to recommence ethylene production and delivery under the Qenos Supply Agreement in March 2024 and was pausing work towards recommissioning ethylene production due to financial constraints and pending a review by Qenos' shareholders. 3. Between 28 February 2024 and 15 April 2024, attempts by the solicitors for Indorama to clarify the plans of Qenos and to engage Qenos in relation to Indorama's intention to import ethylene were unsuccessful. Imports of ethylene by Indorama 1. Since the Qenos Shutdown in February 2023, Indorama has imported five shipments of ethylene ranging between 2,900 and 3,400 metric tonnes, costing between $4.3 million and $7 million. 2. Each imported shipment of ethylene takes around 8 – 13 weeks to be used in Indorama's manufacturing process, with Indorama drawing ethylene from the Ethylene Storage Tank progressively as it is needed. Indorama does not have any alternative capacity to store the ethylene before it is used. 3. Qenos has only charged Indorama for the incremental costs of each import of around $25,000 – $35,000 for the wharfage, discharge and related costs. April 2024 Shipment 1. On 5 March 2024, Indorama received confirmation from Qenos regarding the acceptability of the vessel and specifications for a fifth shipment of ethylene to arrive between 2 and 10 April 2024. On that date, Indorama Ventures Oxides LLC (a related company of Indorama) confirmed a transaction to purchase approximately 3,400 metric tonnes of ethylene from Marubeni American Corporation on terms of US$1,305 per metric tonne, with title and risk passing from Marubeni to Indorama at the loading port as the material passed the ship's rail (April 2024 Shipment). The consignee under the bill of lading dated 18 March 2024 is Indorama, with Indorama Ventures having transferred its interest in the April 2024 Shipment to Indorama on 18 March 2024. 2. On 7 April 2024, the April 2024 Shipment of approximately 3,400 metric tonnes of ethylene valued at about $6.81 million was discharged at the Hydrocarbon Terminal. The ship carrying the April 2024 Shipment tied up to the berth at the Hydrocarbon Terminal, the ethylene on board the ship was tested and then a loading arm and pipes were used to transfer the April 2024 Shipment from the ship to the Ethylene Storage Tank. 3. Throughout the week commencing Monday, 15 April 2024, Qenos was using a pumping mechanism operating 24 hours per day to transfer ethylene from the Ethylene Storage Tank through the Mains Pipeline to Indorama's plant. If the ethylene is not taken by Indorama at the custody control meter, it is automatically returned to the Ethylene Storage Tank. Administrators appointed to Qenos 1. On 17 April 2024, the Administrators were appointed to Qenos. 2. On 18 April 2024, the Administrators attended a meeting with Samir Rawal (Indorama's Regional Vice President), Chad Anderson (Indorama's Chief Technology Officer) and Ms Tasdelen. At that meeting the Administrators stated, amongst other things, that: 1. Qenos would not recommence ethylene production and the Olefines plant would be shut down; 2. the Administrators had preliminary advice that the Remaining Ethylene had vested in the Administrators under the Personal Property Securities Act 2009 (Cth) (PPSA); 3. the administrators would make the Remaining Ethylene available for sale to Indorama; 4. if Indorama bought the Remaining Ethylene it would also need to fund the operations at the Hydrocarbon Terminal and Ethylene Storage Tank, the monthly costs of which totalled about $750,000; and 5. if Indorama did not elect to purchase the Remaining Ethylene, the Administrators may take action to sell it to another party. 1. On 19 April 2024, the solicitors for the Administrators sent a letter to Indorama stating that title to the Remaining Ethylene had vested in Qenos under s 267 of the PPSA and the Administrators invited Qenos to put forward a proposal for the purchase of the Remaining Ethylene, including meeting the costs of maintaining the Hydrocarbon Terminal and Ethylene Storage Tank. 2. On 19 April 2024, the solicitors for Indorama sent a letter to the solicitors for the Administrators indicating that Indorama was willing to discuss an arrangement where Indorama made an appropriate contribution to the costs of delivery of the Remaining Ethylene and suggested that the parties have a further meeting on 23 April 2024 to discuss those arrangements. 3. The respective solicitors then engaged in further correspondence which crystallised but did not resolve the dispute between the parties concerning the Remaining Ethylene, which is now before me for determination. Remaining Ethylene 1. On 24 March 2024, the records of Qenos evidence that the amount of 2477.622 metric tonnes of ethylene in the Ethylene Storage Tank are labelled as "Indorama stock". 2. The records of Qenos also show that: 1. on 6 April 2024 there was 575.00 metric tonnes of ethylene in the Ethylene Storage Tank; 2. on 7 April 2024 there was 860.71 metric tonnes of ethylene in the Ethylene Storage Tank; 3. on 8 April 2024 there was 3482.61 metric tonnes of ethylene in the Ethylene Storage Tank; and 4. on 9 April 2024 there was 3992.52 metric tonnes of ethylene in the Ethylene Storage Tank. 1. These amounts demonstrate the progressive unloading of the April 2024 Shipment into the Ethylene Storage Tank. 2. Since 9 April 2024, the amount of ethylene stored in the Ethylene Storage Tank has continued to fall as it has been progressively used by Indorama. 3. Indorama calculated that as at 19 April 2024, there was 2,803,853.908kg of ethylene with a value of a $5,215,168.27 comprising the Remaining Ethylene in the Ethylene Storage Tank. This amount is asserted to be ethylene to which Indorama has title or "owns". Indorama says that this means that Indorama has drawn about 600 metric tonnes of ethylene from the Ethylene Storage Tank since the April 2024 Shipment was discharged into it. 4. Before the Administrators were appointed to Qenos, Indorama estimated that it would take its manufacturing process until late June 2024 to use the Remaining Ethylene. 5. Since the appointment of the Administrators, Qenos has continued to supply the Remaining Ethylene to Indorama. Indorama's manufacturing processes are currently operating and drawing ethylene from the Ethylene Storage Tank at a rate of 60 – 65 metric tonnes per day on each operating day, which is then pumped through the Mains Pipeline to Indorama's plant. Costs of Qenos 1. The Administrators say that the current monthly costs of running the Hydrocarbon Terminal and the Ethylene Storage Tank total about $1,030,000 excluding GST, which monthly costs include: 1. rent of $357,008.90; 2. wages of $16,469; 3. subcontractor costs of $275,000; and 4. energy costs of $214,678.63. ISSUE 1: IS INDORAMA THE "OWNER" OF THE REMAINING ETHYLENE? Submissions 1. Indorama submits that by no later than 7 April 2024, when the ethylene from the April 2024 Shipment passed the ship's rail, Indorama obtained title to that ethylene which was then discharged into the Ethylene Storage Tank. Indorama submits that there was a bailment of the ethylene to Qenos pursuant to an ad hoc arrangement evidenced by the delivery of the ethylene from the April 2024 Shipment into the possession of Qenos, the terms of which were contained in the March 2023 Emails. Indorama says that it has title to the Remaining Ethylene in the Ethylene Storage Tank, and while Qenos has possession of the Remaining Ethylene, there was no PPS lease as defined in s 13 of the PPSA and therefore no security interest under s 12 of the PPSA. Indorama says that as a result, s 267(2) of the PPSA does not operate – meaning that title to the Remaining Ethylene did not vest in Qenos immediately before the appointment of the Administrators under s 436A of the Corporations Act 2001 (Cth). 2. Indorama reasons that the various provisions of the PPSA operate in the following way: 1. The bailment of the Remaining Ethylene from Indorama to Qenos does not come within the definition of a PPS lease in s 13(1) because none of the conditions of that provision are met, as the bailment was not for: 1. a term of more than 2 years (s 13(1)(a)); 2. a term of up to 2 years that is automatically renewable or renewable at the option of one of the parties (s 13(1)(c)); 3. a term of up to 2 years or for an indefinite term, where Qenos, with the consent of Indorama, retains uninterrupted or substantially uninterrupted possession of the Remaining Ethylene for a period of more than two years after the date Qenos first acquired possession of the Remaining Ethylene (s 13(1)(d)). 1. The bailment of the Remaining Ethylene from Indorama to Qenos is specifically excluded from the definition of PPS lease by operation of s 13(2) because it was a bailment by Indorama who is not regularly engaged in the business of bailing goods. 2. By operation of s 13(3) the definition of PPS lease only applies to a bailment for which the bailee provides a value, which Qenos did not. 1. The Administrators submit that the Remaining Ethylene vested in Qenos on the appointment of the Administrators because: 1. The Remaining Ethylene comes within the definition of "goods" in s 10 of the PPSA. 2. There was a PPS lease as defined in the now repealed s 13(1)(b) of the PPSA because there was a bailment of ethylene for an indefinite term under cll 8.5 and 8.7 of the Qenos Supply Agreement when the 2011 Variation came into effect in 2011. 3. When the Administrators were appointed on 17 April 2024 under s 436A of the Corporations Act, Indorama held a security interest in the Remaining Ethylene granted by Qenos under s 12(3)(c) of the PPSA by virtue of Qenos being a bailee of the Remaining Ethylene in the Ethylene Storage Tank under a PPS lease. 4. The security interest of Indorama in the Remaining Ethylene was unperfected at the time that the Administrators were appointed within the meaning of s 267(1)(b)(ii) of the PPSA. 5. By operation of s 267(2) of the PPSA, the security interest of Indorama vested in Qenos immediately before the appointment of the Administrators. 1. It is common ground that if there is a security interest in the present case, it was not "perfected" under the PPSA. I need not, therefore, dwell on the myriad provisions in the PPSA concerning the perfection of a security interest. 2. The Administrators originally submitted that the arrangements made in the March 2023 Emails could not result in any amendment to the 2011 Variation because they were not contained in a deed. They also relied on the fact that the March 2023 Emails could not be said to constitute an agreement because it was formed informally by an exchange of emails in which a non-director employee participated. During the course of the hearing, the position of the Administrators appeared to change with them fully embracing the March 2023 Emails as evidence of an agreement formed pursuant to clause 8.5 of the 2011 Variation. 3. The crux of the issue between the parties really depends on the characterisation of the factual circumstances in which the ethylene came into the possession of Qenos and the manner in which the 2011 Variation does or does not operate on that characterisation. Statutory provisions 1. The dispute between the parties is to be primarily determined by consideration of the application of the PPSA to the facts. 2. The introductory observations about the effect of the PPSA on the determination of the priority of interests in Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) [2017] FCA 1065, by Barker J at [7]–[13] are apposite: 7 It may generally be said that, under the PPSA, the rights of the parties to a transaction that falls within the meaning of "security interest" in s 12 are explicitly not dependent on either the form of the transaction or upon common law notions of title. Rather, the PPSA provides a completely new regime for determination of priorities to collateral following an insolvency event. 8 The general position under the PPSA is that an unperfected security interest is subordinated to the interest of: (1) a person who has perfected a security interest or is entitled to priority under the PPSA; and (2) the grantor of a security interest to which an external controller has been appointed following a relevant insolvency event, such as an administrator or liquidator. 9 Prior to the introduction of the PPSA, an administrator appointed under the Corporations Act 2001 (Cth) traditionally stepped into the shoes of the relevant person or entity he or she was appointed to, and acquired no higher right in that person's or entity's property than that person or entity enjoyed. The PPSA has changed that position. The PPSA confers certain rights in addition to those held by the person or entity, and is directed at ranking those interests. 10 Accordingly, the PPSA replaces the traditional ranking of interests according to who is the true owner and who is the ostensible owner through possession or other rights in that property. In that respect, the PPSA has effected far reaching changes to the law. In Forge Group Power Pty Ltd (in liq) (receivers and mangers appointed) v General Electric International Inc (2016) 305 FLR 101; [2016] NSWSC 52 Hammerschlag J said, at [5], that the PPSA "introduced an innovative (some might say, revolutionary) new national code for determining priorities between parties holding security interests in personal property". 11 The extent to which its provisions prove this observation has been the subject of much discussion in the legal literature and publications considering the operation of the PPSA since its commencement, but not often in decided cases in the Courts – as is revealed below. 12 By virtue of the deeming provisions under s 267(2) of the PPSA, upon the appointment of a controller to a grantor under s 267(1), the grantor may have rights superior to those enjoyed by the grantor prior to that appointment (see also s 588FL of the Corporations Act). Relevantly, an unperfected PPS lease may result in those goods being completely vested in the grantor, even though, prior to the appointment the grantor only had a possessory right in those goods. That vesting may be said to reflect a policy choice by the legislature, and needs to be borne in mind when considering the interaction of different provisions within the PPSA, as well as a claim by a putative legal owner of personal property following a vesting event (for example, as here, on the appointment of the administrator). 13 Under the PPSA, a security interest arises in either of two ways: · First, under s 12(1), a security interest in personal property may arise where it is provided for by a transaction that, in substance, secures payment or performance of an obligation. · Secondly, an interest in personal property may be deemed to be a security interest for the purposes of the PPSA. Relevantly for this application, by s 12(3)(c) and s 13(1), a PPS lease is deemed to be a security interest, whether or not the transaction concerned, in substance, secures payment or performance of an obligation. 1. I will now turn to consider the relevant provisions of the PPSA. 2. The definition of "goods" in s 10 of the PPSA is as follows: goods means personal property that is tangible property, including the following: … (d) minerals that have been extracted (including hydrocarbons) in any form, whether solid, liquid or gaseous and whether organic or inorganic; 1. It was agreed that the Remaining Ethylene falls within the definition of "goods". 2. "PPS lease" is defined in s 13(1) of the PPSA as: … a lease or bailment of goods: (a) for a term of more than 2 years; or (c) for a term of up to 2 years that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed 2 years; or (d) for a term of up to 2 years, or a lease for an indefinite term, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than 2 years after the day the lessee or bailee first acquired possession of the property (but not until the lessee's or bailee's possession extends for more than 2 years). 1. It was common ground that only s 13(1)(d) is relevant to the determination of the first issue in the proceedings, subject to the operation of s 13(1)(b) before its repeal on 20 May 2017. The Administrators expressly conceded that if s 13(1)(b) did not apply before its repeal to the bailment of the Remaining Ethylene to Qenos then the current form of s 13(1) did not result in that bailment being a PPS lease. 2. Section 13(1)(b) as it was before it was repealed is relevant in the present case because the Administrators say that the bailment of the Remaining Ethylene to Qenos arose in 2011 as a result of the 2011 Variation which introduced cll 8.5 to 8.7 of the Qenos Supply Agreement. The form of s 13(1) before it was amended was as follows: A PPS lease means a lease or bailment of goods: (a) for a term of more than one year; or (b) for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or (c) for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or (d) for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property (but not until the lessee's or bailee's possession extends for more than one year). 1. The Administrators rely on the now repealed s 13(1)(b) by asserting that the bailment of the Remaining Ethylene to Qenos arose in 2011 and was for an indefinite term, which therefore makes it a PPS lease. 2. Section 13(2)(b) relevantly states that a PPS lease does not include: a bailment by a bailor who is not regularly engaged in the business of bailing goods. 1. Section 13(3), meanwhile, states that: This section only applies to a bailment for which the bailee provides value. 1. In section 10 of the PPSA, "value" is relevantly defined to mean: (a) consideration that is sufficient to support a contract; … 1. Indorama relies on the operation of both ss 13(2)(b) and (3) in their argument. 2. If the bailment of the Remaining Ethylene to Qenos is a PPS lease, then regard must be had to whether it is a "security interest". 3. Section 12(1) of the PPSA gives the following definition of security interest: A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). 1. Section 12(3) of the PPSA describes interests that constitute security interests notwithstanding they do not operate to secure payment or performance of an obligation. Relevantly, for present purposes, that subsection provides: (3) A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation: … (c) the interest of a lessor or bailor of goods under a PPS lease. 1. If the bailment is regarded as a security interest, s 267 of the PPSA deals with the vesting of unperfected security interests in the grantor (in this case Qenos) upon the appointment of an administrator to the grantor. That section is in the following terms: Scope (1) This section applies if: (a) any of the following events occurs: (i) … (ii) an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise); … (b) a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies: (i) … (ii) in the case of a company or a body corporate to which subparagraph (a)(ii) or (iii) applies—when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise); … Security interest vested in grantor (2) The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs. Legal principles — bailment 1. The term "bailment" is not defined in the PPSA. That being so, it is necessary to look to the way the concept has been defined at common law. 2. A classic definition was given by Windeyer J in Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220; 45 ALJR 356, where his Honour stated at 238 that a bailment of goods: … comes into existence upon a delivery of goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be re-delivered to the bailor or dealt with in a stipulated way. A carrier to whom goods are delivered for carriage is a bailee. But a person who undertakes that he will carry goods is not a bailee of them unless they be actually delivered to and received by him. 1. According to this traditional formulation, reduced to its basal elements, a bailment consists of (i) delivery of goods; (ii) possession of those goods; and (iii) a promise, explicit or implicit, by the person into whose possession the goods have been delivered to either re-deliver the goods to the delivering party or to deal with them in a particular manner. More contemporary accounts have tended to emphasise, in addition to these three foundational components, (iv) voluntary and knowing receipt and possession of the goods: see Brambles Security Services Ltd v Bi-Lo Pty Ltd (1992) Aust Torts Reports 81–161, Clarke JA at 61, 268–61, 269. 2. On the legal definition of a bailment, the parties directed me to several authorities, including Bredenkamp where Barker J at [39] cited Windeyer J's formulation in Hobbs. 3. The Administrators also referred me to Topaloglu v UPS SCS (Australia) Pty Ltd [2011] QSC 217, where Applegarth J said at [124] (emphasis added): … To constitute a bailment there must be actual or constructive possession of specific chattels. A bailment comes into existence upon a delivery of the goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be redelivered to the bailor or dealt with in a stipulated way. Possession need not involve immediate physical custody. A party may be characterised as a bailee if it has the right or duty to take possession. Legal principles — regularly engaged in the business of bailing goods 1. Both parties referred me to Forge Group Power Pty Ltd (in liq) v General Electric International, Inc (2016) 305 FLR 101, in which Hammerschlag J (as his Honour the CJ in Eq then was) set out a lengthy analysis comparing the positions taken in Canada and New Zealand in relation to provisions similar to s 13(2)(a) of the PPSA which refers to the expression "a lease by a lessor who is not regularly engaged in the business of leasing goods". The conclusions from this analysis were set out in [49] – [53] in the following terms: 49 The word "regular" can in one of its meanings connote periodic or a recurrence at fixed times. However it can also, and in this case in my view does, mean, as the Canadian authorities consider, normal, that is, not abnormal in the context of the lessor's business, but a proper component of it: see Macquarie Concise Dictionary (4th ed 2006, Macquarie Dictionary Publishers Pty Ltd) at 1025. 50 The New Zealand approach does not, I respectfully suggest, sufficiently recognise that the exclusion is directed to activity which constitutes engaging in the business of leasing, not to engaging in the activity of entering into leases. 51 Engaging in the business of leasing is clearly a concept of wider reach than merely entering into leases. For example, a person who sets up a significant infrastructure, including, say, acquiring significant capital equipment for lease and then advertises its ability and willingness to lease that equipment would be engaged in the business of leasing, and may be doing so regularly, before any particular transaction is concluded and in my opinion, even if none ever is. 52 In my opinion, the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular. But it is not to be equated with it, as the New Zealand approach appears to require. 53 The New Zealand approach would not, incorrectly, in my opinion, permit a conclusion of regularity where an initial transaction was intended to be followed by others, but no more transactions of the type concerned actually eventuated, despite the best intentions, advertised willingness over a significant period of time and ability of the lessor to enter into more. In my opinion, in considering frequency or repetitiveness as an element of regularity of business, account may be taken of more than simply actual transactions entered into. 1. I propose to take a similar approach to the interpretation of the expression "a bailment by a bailor who is not regularly engaged in the business of bailing goods" in s 13(2)(b) of the PPSA. Legal principles — bailment for which the bailee provides value 1. In the context of the application of s 13(3) of the PPSA, in Bredenkamp, Barker J said at [148] that for there to be "value" for the bailment there must be: …a direct payment of some fee, or a sufficiently connected financial benefit made by the bailee to the bailor to constitute consideration sufficient to support a contract. 1. I agree with this statement. Consideration When did the bailment arise? 1. The parties are in agreement that there has been a bailment of ethylene by Indorama to Qenos in respect of each of the five importations of ethylene since April 2023, including the April 2024 Shipment. The crucial issue is when did the bailment arise. 2. I reject the argument made by the Administrators that the bailment arose in 2011 pursuant to the 2011 Variation. I accept the argument of Indorama that the bailment arose on the delivery of each importation of ethylene to the Ethylene Storage Tank, including the April 2024 Shipment. Once Qenos took possession of the ethylene in the Ethylene Storage Tank in relation to each importation, all of the essential requirements of a bailment as described in Hobbs were met. 3. Clauses 8.5, 8.6 and 8.7 of the Qenos Supply Agreement were inserted by the parties pursuant to the 2011 Variation. But they say absolutely nothing about a bailment of ethylene by Indorama to Qenos. Instead they provide a set of contingent obligations for the parties to use reasonable endeavours to agree on terms that will apply for the supply of imported ethylene if a Shutdown occurred. Those terms might have involved Qenos importing ethylene into the Ethylene Storage Tank and then supplying it to Indorama, which would not involve a bailment. They might also have involved Indorama importing ethylene into the Ethylene Storage Tank and directing that it be supplied to it, thereby giving rise to a bailment. 4. The phrasing in cl 8.7 does not support one possibility over another because it is expressed to apply to cll 8.5 and 8.6 only in circumstances where Qenos retains the lease of the land under the Ethylene Storage Tank and retains access to the Hydrocarbon Terminal. Both of those circumstances would have to exist whether it was Qenos importing the ethylene (which involves no bailment) or Indorama importing the ethylene (which does involve a bailment). 5. In my view the bailment arose when Qenos took possession of the ethylene from each of the five importations to be retained in the Ethylene Storage Tank on terms that Indorama would draw the ethylene in the manner in which it had always done by having it supplied through the Mains Pipeline to the adjoining Indorama plant. The March 2023 Emails contain some but not all of the terms of the bailment. For example, the parties appear to have agreed by their conduct that Indorama could draw ethylene from the Ethylene Storage Tank by continuing to use it through the custody control meter and not by having to make any specific request to be supplied with it. 6. I do not find it necessary to apply the reasoning in Topaloglu that Qenos could be characterised as a bailee because it had a duty to take possession under the 2011 Variation. In my view, it is not correct to characterise any part of cll 8.5 to 8.7 as giving rise to a duty on the part of Qenos to take possession of the ethylene delivered to it pursuant to the April 2024 Shipment. There was no PPS lease 1. As a bailment arose on each importation of ethylene by Indorama from April 2023 to April 2024, the form of s 13 of the PPSA before its repeal in May 2017 is irrelevant to the determination of the issues in the proceedings. Instead, only the application of s 13 in its current form is relevant. 2. I agree with Indorama that none of the conditions in the present form of s 13(1) of the PPSA are met in the present case. The Administrators agreed with that analysis if s 13(1)(b) as it existed before May 2017 did not apply. As a result the bailment of the ethylene to Qenos from the April 2024 Shipment is not a PPS lease. 3. In case I am wrong about this conclusion, I also consider that s 13(2)(b) operates to prevent the bailment to Qenos from being a PPS lease because the bailment was by Indorama who is not regularly engaged in the business of bailing goods. Applying the principles expressed in Forge, there was nothing regular or normal about the circumstances in which Indorama found itself importing ethylene to be stored in the Ethylene Storage Tank by Qenos. They were highly abnormal, brought about by the Qenos Shutdown. The evidence of Ms Tasdelen that Indorama planned to import ethylene in case of a shutdown, had arrangements in place in case that eventuated and it was a normal part of Indorama's business to undertake such planning does not mean that such importation was a regular engagement of Indorama's business. There was no evidence that Indorama had even done this before and nor was there any evidence that Indorama planned to make it a regular part of its business in the future. Each bailment of the imported ethylene only arose to deal with the exigencies of the unusual circumstances of the Qenos Shutdown. 4. It appears to me that the present case involves a straightforward application of the exception contained in s 13(2)(b) of the PPSA. There is no evidence that Indorama (the purported bailor of the Remaining Ethylene) is or was, at any time, in the business of bailing goods. As a result, in my determination, there is no PPS lease. Therefore there is no security interest under the PPSA which is unperfected. As a result, the Remaining Ethylene did not vest in Qenos pursuant to s 267(2) of the PPSA. 5. Further, I am also of the view that by operation of s 13(3) of the PPSA, there was no PPS lease because s 13 of the PPSA did not apply as the bailment of the imported ethylene was not a bailment for which Qenos provided value. There was no payment made by Qenos to Indorama for the bailment, nor was there any sufficiently connected financial benefit made by Qenos to Indorama to constitute consideration to support a contract (applying the words used in Bredenkamp at [148]). 6. I agree with the submissions made by Indorama that the bailment itself cannot provide value for the purposes of s 13(3) of the PPSA because if it could the exception could never be engaged and, in a circular manner, every bailment would be for "value". This would also make the word "value" superfluous in the provision. I do not understand the Administrators to disagree with this submission. 7. The Administrators submitted, however, that Qenos provided value by processing the liquid form of ethylene and converting it into its gaseous form. I do not agree. I consider that the processing and conversion is simply performance of the bailment because to be stored in the Ethylene Storage Tank, the ethylene must be in liquid form and then it must be converted into a gas form to be delivered. ISSUE 2: DOES S 441F OF THE CORPORATIONS ACT APPLY? Submissions 1. Indorama submits that s 441F of the Corporations Act applies in that before Qenos entered into administration, Indorama assumed control of property in the form of the Remaining Ethylene in the possession of Qenos or exercised a power in relation to that property for the purposes of enforcing a right of Indorama as the owner of that property to take possession of the Remaining Ethylene or otherwise recover it. Indorama says that as a consequence, nothing in s 440B of the Corporations Act prevents Indorama from exercising a power in relation to the Remaining Ethylene. 2. Indorama asserts that between 15 and 17 April 2024, Indorama at least exercised a power in relation to, if it did not also assume control of, the ethylene contained in the Ethylene Storage Tank by taking and continuing to take up to 600 metric tonnes of ethylene using the Mains Pipeline connecting the Ethylene Storage Tank to Indorama's plant. Indorama says that s 441F applies and Indorama is lawfully entitled to continue to take the Remaining Ethylene from the Ethylene Storage Tank without requiring leave from the court to do so under s 440(2)(b) of the Corporations Act. Indorama says that the consequence of the operation of s 441F is, assuming the Remaining Ethylene has not vested in Qenos, Indorama is entitled to continue to take the Remaining Ethylene. 3. The Administrators submit that s 441F of the Corporations Act does not apply because nothing done by Indorama before the commencement of the administration of Qenos amounted to Indorama entering into possession of the Remaining Ethylene or exercising a power in relation to the Remaining Ethylene for the purpose of enforcing any alleged right to take possession of it or otherwise recover it. The Administrators say that: 1. All processes and dealings involving the Ethylene Storage Tank and the movement of ethylene in and out of it are closely managed and controlled by Qenos exclusively. 2. Ethylene is a volatile and highly flammable hydrocarbon and that there are myriad safety, environmental, occupational, licensing and other regulatory requirements and obligations that Qenos must follow which means that for Indorama to seek to access the Remaining Ethylene would contravene those requirements. 3. Qenos does not and cannot permit third parties to manage or control the processes or dealings with the Remaining Ethylene. 4. There is no evidence that the Remaining Ethylene has ever been relevantly accessed in any way by Indorama, and the taking and continuing to take up to 600 metric tonnes of ethylene in the period from 15 to 17 April 2024 by Indorama is not relevant. Legal principles 1. Section 440B of the Corporations Act relevantly provides: General rule (1) During the administration of a company, the restrictions set out in the table at the end of this section apply in relation to the exercise of the rights of a person (the third party) in property of the company, or other property used or occupied by, or in the possession of, the company, as set out in the table. Note: The property of the company includes any PPSA retention of title property of the company (see section 435B). Exception—consent of administrator or leave of court (2) The restrictions set out in the table at the end of this section do not apply in relation to the exercise of a third party's rights in property if the rights are exercised: (a) with the administrator's written consent; or (b) with the leave of the Court. … 1. Absent some other provision, s 440B(1) (by virtue of item 4 in the table) would operate on its terms to prevent Indorama as a third-party owner of the Remaining Ethylene in the possession of Qenos from taking possession or otherwise recovering it without the Administrators' written consent or with leave of the court under s 440B(2). 2. Section 441F relevantly provides: (1) This section applies if, before the beginning of the administration of a company, a receiver or other person: (a) entered into possession, or assumed control, of property used or occupied by, or in the possession of, the company; or (b) exercised any other power in relation to such property; for the purpose of enforcing a right of the owner or lessor of the property to take possession of the property or otherwise recover it. (2) Nothing in section 198G or 440B prevents the receiver or other person from performing a function, or exercising a power, in relation to the property. 1. This means that if the terms of s 441F(1) are made out, then by operation of s 441F(2) the restrictions in s 440B do not apply. 2. I was informed by the parties that there were no relevant authorities to guide me in the application of s 441F. Consideration 1. In my view, Indorama has exercised a power in relation to the Remaining Ethylene by continuing to draw up to 600 metric tonnes of it from the Ethylene Storage Tank through the Mains Pipeline to Indorama's plant on a daily basis between 15 and 17 April 2024 when it was in the possession of Qenos. I consider that it has done so for the purpose of enforcing its right as the owner of the Remaining Ethylene to take possession of it or otherwise recover it. 2. Whatever control Qenos has over the Remaining Ethylene does not prevent and has not prevented Indorama exercising its power in relation to it. To exercise that power, Indorama simply needs to switch on the valve at the boundary of its plant and draw ethylene from the Ethylene Storage Tank via the Mains Pipeline to its plant. It has repeatedly done so. 3. As a result, s 441F(1)(b) applies and by operation of s 441F(2), nothing in s 440B prevents Indorama from exercising a power in relation to the Remaining Ethylene. 4. In doing so, I reject the argument made by the Administrators that Indorama has not exercised a power in respect of the Remaining Ethylene because it is still in the Ethylene Storage Tank. In my view this argument fails to recognise that the ethylene contained in the Ethylene Storage Tank is part of mixed property, a notion which is well known to the law. For example, in Big Top Hereford Pty Ltd v Gavin Thomas as Trustee of the Bankrupt Estate of Douglas Keith Tyler [2006] NSWSC 1159, Brereton J at [62] said: Where goods are intermixed or confused so as to become indistinguishable, the mixture belongs to the former proprietors in common in proportion to their respective contributions [Sandeman & Sons v Tyzack and Branfoot Steamship Co Ltd [1913] AC 680, 694-5; Indian Oil Corp Ltd v Greenstone Shipping SA (Panama) (The Ypatianna) [1988] QB 345; Coleman v Harvey [1989] 1 NZLR 723]. If the intermixing is the fault of one owner, then it must bear any cost associated with separation of the shares [Buckley v Gross (1863) 2 B&S 566, 575; 122 ER 213; Jones v Moore (1841) 4 Y&C Ex 351; 160 ER 1041], and the innocent proprietor will be awarded the largest proportion consistent with the evidence, and if there is no evidence as to its share, even the whole of the goods [Indian Oil Corp v Greenstone]. 1. Whatever amount of the Remaining Ethylene might constitute the property of Qenos (such as the "heel") does not affect Indorama's exercise of power in relation to the Remaining Ethylene. ISSUE 3: SHOULD LEAVE BE GIVEN UNDER S 440(2)(b) OF THE CORPORATIONS ACT FOR INDORAMA TO TAKE POSSESSION OF OR OTHERWISE RECOVER THE REMAINING ETHYLENE? 1. In my consideration, in light of my determinations in respect of issues 1 and 2, issue 3 does not arise. In light of the severely compressed time in which I have had to deliver this judgment I will very briefly express my reasons for determining that, if I had not decided issue 2 in favour of Indorama, I would have also determined issue 3 in its favour. 2. As indicated above, s 440B(2)(b) of the Corporations Act provides that the restrictions on Indorama's right to take possession or otherwise recover the Remaining Ethylene set out in the table at the end of s 440B do not apply in relation to the exercise of its rights in property if the rights are exercised by leave of the court. 3. The considerations relevant to the exercise of this power to grant leave are those set out in Canberra International Airport Pty Ltd v Ansett Australia Ltd (2002) 41 ACSR 309; [2002] FCA 329, by Kenny J at [21] – [23] (in relation to s 440B as it was previously numbered, s 440C, citations omitted): 21 …The purpose of the restraint imposed on a lessor by s 440C is to assist the company, in administration, to meet the objects of the administration, as set out in s 435A, always providing that the lessor may be released from the restraint if the administrator consents or the court considers a grant of leave appropriate. Plainly enough, in considering an application for leave, the court must consider the objects of Pt 5.3A, as set out in s 435A. 22 It is for the applicant for leave under s 440C to satisfy the court that leave should be given… 23 Besides the objects set out in s 435A, the court will necessarily consider the interests of the parties in the circumstances of the case. If the lessor establishes that, in the circumstances of the case, a grant of leave to repossess is unlikely to inhibit the company in meeting the objects of the administration, then leave may very well be given. 1. I consider that had it been necessary for me to decide the issue, leave ought to have been granted to Indorama in the present case for the following reasons: 1. The Administrators have expressly stated that they do not intend to continue Qenos' Business but instead to sell the assets of Qenos other than the land it owns and therefore the object in Part 5.3 A of preserving an operating business has no application. 2. There is no benefit to Qenos' creditors in Qenos holding Indorama's property. 3. As I have determined under issue 1, Indorama owns the Remaining Ethylene and there is no reason to restrict Indorama's proprietary rights. 1. I do not think that any suggested prejudice to the creditors of Qenos inhibits me from making this order. The Administrators cannot ignore that Qenos holds property on bailment for Indorama. 2. Finally, I do not consider that the costs that have been alleged by the Administrators as the suggested prejudice to the creditors of Qenos arises from them holding the Remaining Ethylene. There is no evidence that the lease has been terminated by Qenos, and there is no evidence that it has otherwise sought to reduce any of its other recurrent costs. To my mind, those costs are not directly referable to the holding of the Remaining Ethylene. ORDERS 1. For the reasons expressed above, in summary I have concluded that: 1. The bailment of ethylene by Indorama to Qenos was not a PPS lease under the PPSA, there was no unperfected security interest in respect of the Remaining Ethylene and title to it did not vest in Qenos immediately before the Administrators were appointed. 2. Before the appointment of the Administrators, Indorama exercised a power in relation to the Remaining Ethylene within the meaning of s 441F of the Corporations Act, such that nothing in s 440B of the Corporations Act prevents Indorama exercising a power in relation to it. 3. If it had been necessary to decide, I would have granted leave under s 440(2)(b) of the Corporations Act to Indorama to take possession of or otherwise recover the Remaining Ethylene. 1. Indorama has therefore been wholly successful in the proceedings. I direct the parties to consult and provide me with agreed short minutes reflecting these reasons, failing which I will make orders in chambers. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2024