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5 Jul 13
PPSA - Ownership is not enough: itís a matter of priority

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Since its commencement some 18 months ago, many familiar with the Personal Property Securities Act 2009 (Cth) (PPSA), have been waiting with eager anticipation for guidance from the Australian Courts on the PPSA and its provisions, particularly in relation to leases of equipment.

The wait is over with the recent decision handed down by Brereton J of the Supreme Court of NSW in the matter of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852.  The decision is of particular significance as it confirms the relatively drastic changes to the rights of owners brought about by the PPSA.  Ownership will not always prevail in disputes arising under the PPSA.

Whilst the result is not unexpected given the approach taken in other PPSA jurisdictions, the decision is also instructive on how the Australian Courts will look to decisions of the Canadian and New Zealand Courts to interpret the Australian PPSA and determine its intended operation.

Background

Queensland Excavation Services Pty Ltd (QES) purchased Caterpillar excavators and loaders and subsequently leased this equipment to Maiden Civil (P&E) Pty Ltd (Maiden).  Whilst the parties had not entered into written lease agreements in respect of the arrangements, Maiden had used and had possession of the equipment for a period of over one year.  For that period QES received periodic payments from Maiden for use of the equipment. 

Maiden separately obtained finance from Fast Financial Solutions Pty Ltd (Fast).  Fast required and Maiden granted an ‘all assets’ security interest in favour of Fast pursuant to a general security deed (GSD).  The GSD expressly included the Caterpillar excavators and loaders ‘owned’ by QES.  Maiden was unable to comply with its obligations under the funding arrangements with Fast and as a result Fast appointed receivers under its GSD.  QES terminated the leases and administrators were subsequently appointed pursuant to a creditors’ voluntary winding up.

QES’s interest as lessor or owner in the equipment was not perfected by registration under the PPSA or by any other means.

Fast did perfect its security interest under the GSD by registration under the PPSA.

What followed was a dispute between Fast’s receivers, asserting priority rights to the equipment as sole perfected security interest holder and QES asserting priority rights to the equipment as the owner. 

Decision

The Court found in favour of the receivers for the following reasons:

  • QES as the lessor of the equipment had a ‘deemed’ security interest in the equipment (as the leasing arrangements constituted a PPS Lease under s 13 PPSA) capable of registration (and protection) under the PPSA.  QES failed to document the lease arrangements and failed to register its security interest.
  • Maiden as the lessee of the equipment had both possessory and proprietary rights in the equipment under the lease arrangements (s 19(5) PPSA) (i.e. not just a leasehold interest in the equipment).  Maiden could therefore grant ‘rights’ in the equipment, such as a security interest, to any other person.  Maiden did grant a security interest to Fast pursuant to the GSD.  Fast perfected that security interest by registration on the Personal Property Securities Register (PPSR).
  • The competition between QES and Maiden and their respective interests in the equipment was to be resolved in accordance with the PPSA priority regime.  The regime does not concern itself with title or ownership but rather priority between competing security interests.
  • The general rule is that a perfected security interest has priority over an unperfected security interest (s 55(3)).  Accordingly as QES failed to register (and perfect) its security interest on the PPSR, its security interest remained unperfected.  Conversely, Fast’s security prevailed as it had registered and thus perfected its security interest arising under the GSD.
  • QES’s argument, that the general priority rules did not apply because its security interest was a transitional security interest, failed.  Transitional security interests are temporarily perfected for a period of two years from the commencement of the PPSA (i.e. until 31 January 2014).  However they only benefit from this protection if they have met the requirements that were in place prior to the commencement of the PPSA.  In this case QES’s interest in the equipment was registrable on the ‘Northern Territory Register of Interests in Motor Vehicles and Other Goods’.  QES’s interest had not been registered despite that requirement to do so.
  • The effect of the commencement of administration of Maiden on QES’s unperfected security interest was that QES’s interest vested in Maiden (s 267 PPSA).  Maiden therefore became entitled to the equipment subject to any perfected security interests. 
  • Fast held a perfected security interest (neither dependent on the lease arrangements continuing nor subject to any security interest with a higher priority) and was accordingly entitled to possession of the equipment.

What does it mean?

The facts of this case are not dissimilar to cases considered in Canadian and New Zealand Courts.  Indeed the outcome is extremely similar to some existing cases in those jurisdictions.  This is not surprising as Brereton J in setting out his process of reasoning extensively referenced judgments from his Canadian and New Zealand counterparts.  For example, in the matter of Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 the New Zealand Court was faced with a similar factual scenario and reached the same outcome.  Brereton J’s approach to this case demonstrates a strong inclination of Australian Courts to look to decisions in other PPSA jurisdictions to assist with interpretation of the Australia PPSA.

The decision is an instructive and timely reminder of the vulnerability of owners of property when leasing or hiring out their property to third parties or generally parting with possession of personal property.  The decision highlights that under Australian law the primacy of ownership for better or worse no longer provides superiority of interest.  Accordingly, it is prudent for owners of property who part with possession of personal property (including under a lease or bailment) to take steps to protect their interests in that property.  This includes having written agreements in place and undertaking the necessary registrations on the PPSR. 

We can assist you or your business with identifying how best to protect your interests in property or equipment under the PPSA, undertake PPSA audits of your business and prepare and assist you with PPSA implementation plans, particularly as the transitional period comes to a close in January 2014.


Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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