We have in previous additions of our newsletter, highlighted the critical importance of registration in relation to the Personal Property Securities Act (PPSA) and the Personal Properties Security Register (PPSR). With the PPSR approaching its second birthday, there has been limited case law decided in relation to the legislation.
One recent decision in the New South Wales Supreme Court, in the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852 (“the Maiden Civil Case”), has gone a long way in confirming previous decisions in New Zealand and Canada. The decision reinforces to all practitioners and those in the business of hiring goods, plant and equipment that registration (AKA perfection) of the security interest trumps having retention of title.
Retention of title is a provision previously commonly found in a supply agreement, contract for sale of goods or lease of goods which states that the title to the goods remain with the seller or supplier until such time as the seller or supplier receives payment for the goods (or the buyer fulfils certain other obligations). The main purpose of these clauses was to ensure that where goods are supplied on credit, if the buyer subsequently goes into liquidation or bankruptcy, the seller can repossess the goods.
FACTS OF THE CASE
Hastings Deering sold Caterpillar equipment to Queensland Excavation Services Pty Ltd (“QES”) in mid-2010, prior to the commencement of the PPSA and the PPSR on chattel finance arrangement through both Esanda and Westpac. QES then leased the equipment it purchased to Maiden Civil without any formal written lease agreement between the parties.
QES invoiced Maiden Civil on a regular basis for this hire fee and such fee represented the finance repayments QES was required to make to Esanda and Westpac plus the sum of 10% being a profit component. Maiden used the Caterpillars in construction work in the Northern Territory and made part payments to QES under the lease and maintained possession and use of the vehicles.
Maiden started running low on funds and in March 2012 arranged a short term loan with Fast Financial. Upon executing the loan agreement from Fast Finance Solutions, Maiden Civil agreed that in exchange for a $250,000 three month loan Maiden Civil would give Fast Finance Solutions a General Security Agreement and General Security Interest over all of the assets that Maiden Civil owned including the three pieces of Caterpillar equipment owned by QES. Fast Financial Solutions took appropriate steps and registered their General Security Interest over Maiden Civil on the PPSR.
In July 2012 Fast Financial Solutions became aware that Maiden Civil had defaulted under the terms of its loan agreement and general security agreement. Fast Financial Solutions took steps against Maiden Civil and receivers and managers were appointed to Maiden Civil in late July. QES then terminated the leases & asserted its legal title to the vehicles. Maiden Civil subsequently entered into voluntary administration in late August and one (1) month later was placed into liquidation.
The issue before the Court in this matter was not who the owner of the Caterpillar construction equipment was, but rather who had rights to the Caterpillars.
OUTCOME
QES in 2010 had failed to register their interest in the equipment against Maiden Civil on the Northern Territory Register of Interest for Motor Vehicles. Fast Financial Solutions on the other hand were prudent and did register their interest on the PPSR after it commenced on 30 January 2012.
QES claimed that it was the true and rightful owner of the equipment and that although the lease it had in place with Maiden Civil from 2010 was not in writing QES should have been afforded protection by the transitional security arrangements under the PPSA. The transitional provisions set out that for a period of two years after the commencement of the PPSA, transitional interests were temporarily perfected. The Receivers and Managers for Maiden Civil argued in the alternative, that the security interest granted by Maiden Civil to Fast Financial Services was in writing, was registered on the PPSR and was consequently perfected and that any security interest for QES held in the equipment was “transferred” to Maiden Civil immediately prior to Maiden Civil being entered into administration.
The Court weighed the competing claims in relation to the equipment and found in favour of Maiden Civil. As such, the Receivers and Managers of Maiden Civil were entitled to retain possession of the three items of earthmoving equipment and were able to dispose of them in order to satisfy the debt owed by Maiden Civil to Fast Financial Solutions. The Court said that QES’s failure to register their interest on the Northern Territory register in 2010 prevented them from relying on the protection afforded under the transitional registration provisions of the PPSA.
The outcome of the case confirmed that its decision was consistent with the legislative intent and express order of priority stipulated by the PPSA. That is, even though you have legal title to the goods, you must register your interest on the PPSR. The dispute cannot be resolved through the determination of who has ‘title’ to the collateral, because the dispute is one of priority, not ownership.
It is clear then that the transitional provisions of the PPSA are not full and final protection of those security interests in place prior to the commencement of the Act. This case also again highlights the importance of leases or security agreements being in writing and the security interest granted under those leases or agreements being registered on the PPSR.
If you are in the business of hiring any personal property and do not have adequate security agreements in place or security interests registered on the PPSR we would urge you to contact one of our professional members of staff to ensure you are adequately protected in relation to the application of the PPSR.
DID YOU KNOW?
As long as you have reasonable grounds for believing you will become a secured party, you can register your interest on the PPSR – even whilst negotiations in respect of a security document are in advanced stages.1
1 Personal Property Securities Act 2009 (Cth) S 151.
