PPSA appeal succeeds: Central Cleaning Supplies v Elkerton

This case is about the common situation where supplies are made on retention of title (ROT) terms, and the contracts consist of an initial master agreement plus subsequent separate contracts for each supply.  The ROT is a security interest, and a PPSA registration is required.  But if the master agreement was made before the PPSA commenced, and the separate supply contracts after, it can be difficult to work out whether the security interest arises from:

  • the master agreement (in which case it is ‘transitional’, and was temporarily perfected without registration for 2 years), or
  • the separate supply contracts (in which case, if made after the PPSA commenced, the security interest is not transitional.)

The different results in the case at first instance and on appeal demonstrate the difficulty of working out which contract provides for the security interest.  It is prudent to register both as ‘transitional’ and ‘not transitional’.

Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSCA 92

Central Cleaning supplied cleaning equipment on retention of title terms to Swan Services.

Central Cleaning and Swan Services had entered into a master agreement in the form of a credit application before the commencement of the PPSA.  Goods were supplied after the commencement of the PPSA under separate purchase orders, and when delivered were accompanied by invoices containing the retention of title terms.  Central Cleaning had not made a PPSA registration.  Swan Services went into liquidation (with Elkerton appointed as liquidator).

Even though there had been no PPSA registration, Central Cleaning would be able to enforce its ROT terms as a security interest if it could establish that the security interest was a ‘transitional security interest’ – that is, that it was provided for by a security agreement made before the commencement of the PPSA.

Central Cleaning had lost before Ferguson J at first instance.  Ferguson J considered that the credit application was an agreement, but that it did not include the ROT terms as they had not been provided at the time the agreement was formed.  The credit application said that Central Cleaning’s standard terms and conditions applied to all supplies, but the ROT terms (which formed part of the standard terms and conditions) were not made known until supplies were made and invoices bearing the terms were provided.  So Ferguson J found that the ROT terms formed part of separate agreements made at the time of each supply; and as the relevant supplies were made after the commencement date and no registrations had been made, the security interests created by the separate supply agreements were not perfected.

The Court of Appeal reversed Ferguson J’s decision, holding that Central Cleaning’s security interests were transitional security interests, and accordingly benefited from temporary perfection.

The appeal court took a different view about the way in which the master agreement governing the supplies had been formed.  The court said the credit application was not an agreement.  Rather, it was an application, which only became an agreement when accepted by Central Cleaning making its first supply and providing its invoice.  This happened a day after the credit application was signed (well before the registration commencement date).  So at the point the agreement was formed, the ROT terms had been made known and were incorporated in the agreement.  The agreement constituted by acceptance of the credit application was therefore a security agreement which provided for future security interests (by way of ROT) that arose each time a supply was made.  Accordingly they were temporarily perfected as transitional security interests, and Central Cleaning was entitled to enforce them.

Digest of PPSA cases

I have added the case to my digest of reported Australian cases – please go to PPS cases for a link to the digest.

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