The Personal Property Securities Act 2009 (Cth) (the ‘PPSA’) came into full force just over 3 years ago, on 30 January 2012. It significantly reformed the law of taking security over goods and almost all other kinds of property, other than land, in Australia, and established a new registration system for security transactions.
Three years of operation have given the courts time to start to consider the PPSA. Perhaps surprisingly, there are around 50 reported cases where the courts have made some kind of comment on the PPSA, though in many cases these comments are brief.
I have compiled a digest of the cases so far, which is available at PPSA cases and news. I plan to update it from time to time, so please check back regularly. More information about each of the cases mentioned below, and others, can be found in the digest.
Not really. There have certainly been unhappy outcomes for parties taking security without being aware of the scheme of the Act and, in particular, who have not realised that security interests have to be perfected, usually by registration. But these outcomes reflect the PPSA operating as it is intended. For example:
- Lessors who don’t register their security interests over equipment they own will lose their ownership interests to other secured financiers who do register: Re Maiden Civil (P&E) Pty Ltd.
- Suppliers who sell on retention of title terms, with title not passing until payment, lose their ownership if the customer goes into liquidation without a registration being made: Central Cleaning Supplies (Aust) Pty Ltd v Elkerton
- Registrations against company grantors must be made within the 20 day time limit, or the security interest is lost if the company goes into liquidation within 6 months: Pozzebon v Australian Gaming and Entertainment Limited.
Possibly the most unexpected result so far has been a case on a technical point about the register, SFS Project Australia Pty Ltd v Registrar of Personal Property Securities, where a company mistakenly removed a registration and then wanted the Registrar to reinstate it with its original priority time, as if never removed. Some commentators were surprised that the court found s186 of the PPSA allowed the Registrar to do this, and ordered it done.
Extensions of time
The most common issue, and the subject of around 20% of the reported cases so far, has been parties seeking an extension of time to make registrations against companies where the 20 day time limit has been missed, exposing the secured party to the risk of loss of the security interest if the company goes into liquidation or administration within the next six months.
In most of the cases the extension order has been granted. But it is usually subject to a condition which allows a liquidator or administrator to ask the court to reconsider, if liquidation or administration does occur within the 6 month period. Only rarely has this condition been avoided, by bringing strong evidence of the financial strength of the grantor company, as in Re Barclays Bank plc.
What is a security interest – some views from the courts
The definition of ‘security interest’ in the PPSA is in two parts:
- the in substance definition – an interest in personal property, provided for by a transaction that in substance secures payment or performance of an obligation
- the three deemed security interests – interests which constitute security interests even if they don’t secure payment or performance of an obligation –
- transfer of an account or chattel paper (eg debt factoring or securitisation)
- commercial consignments
- ‘PPS leases’ – leases, or some bailments, exceeding a defined minimum term or for an indefinite period.
The elements of the definition have already resulted in some court decisions, and can be expected to produce more.
Questions about whether bailments and consignments are security interests have already been tested a couple of times. Following New Zealand leads, the courts are not adopting an overly expansive interpretation of ‘security interest’ here. So rare coins and notes left with a coin dealer for sale (Re Arcabi Pty Ltd) and consignments of wine owned by investors (Re Wine National Pty Ltd) have both been said not to give rise to security interests.
In other cases, courts have followed the Canadian lead in drawing the conclusion, not expressly stated in the PPSA, that ‘security interests’ have to arise from consensual transactions: Sandhurst Gold Estates Pty Ltd v Coppersmith Pty Ltd, and Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd.
Most hopeless case award
This probably goes to Pozzebon v Australian Gaming and Entertainment Ltd, where the plaintiff argued that a security interest had not been ‘perfected by registration, and by no other means’ as contemplated by s588FL of the Corporations Act: rather, it had been perfected by a combination of attachment, enforceability and effective registration.
The success of the argument would have resulted in s588FL – the rule which requires security interests granted by companies to be registered within 20 business days – being rendered completely ineffective. This might have been a victory for those who think that the 20 business day rule (tucked away as it is in the Corporations Act, an untidy excrescence on the neatness of the PPSA), but the court said it was ‘obviously misconceived’.
The High Court, and the Constitution
Unfortunately, as far as I can discover, the High Court has not yet had the opportunity to comment in any detail on the PPSA. Indeed, the only reported High Court case I have found which mentions it is the criminal law case of Momcilovic v The Queen. In the very long judgments in that case, a reference to the PPSA can be found in footnote no 708, where French CJ discusses a provision in the Criminal Code 1995 (Cth) that deals with the interaction between Commonwealth and State laws, and lists s254 of the PPSA as one of many statutory provisions which follow the same structure as the Criminal Code provision he is looking at.
The Commonwealth Constitution did get a mention, though, in White v Spiers Earthworks Pty Ltd. The defendant, who had failed to perfect a security interest granted by a company which then went into administration, argued that loss of the security interest under the vesting provisions was an acquisition of property other than on just terms, contrary to s51(xxxi) of the Constitution. This was the same provision that Dale Kerrigan had relied on to save his house in The Castle but, unlike the High Court in that film, the Western Australian Supreme Court in White v Spiers was not persuaded.
Any underlying themes?
If I had to draw one conclusion from the cases, it is that the groundbreaking reform of security law effected in Australia by the PPSA has been thoroughly accepted by our courts, without lingering attempts to cling to the old law that it was intended to – and has – replaced.
Please go to PPSA cases and news for a link to the digest.