A recent Victorian Supreme Court decision considered whether a supplier retained a security interest in goods bought by a retailer from the supplier under a retention of title agreement where the goods were then on-sold to consumers and other retailers. The decision demonstrates that goods sold in the ordinary course of business will be taken by the buyer free of any security interest.

In Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd & Ors [2014] VSC 644, a retailer bought goods from a supplier on credit under an agreement where the supplier retained title. Some of the goods were sold by the retailer to consumers outright, some to consumers on layby, and some to a related retailer. The retailer went into liquidation, and the liquidators sought advice from the court as to whether the supplier had a security interest in any of the goods under the Personal Property Securities Act 2009 (Cth) (the PPSA).

The court determined that the goods sold to consumers outright and sold to the related retailer were free of the security interest. In this regard, the court made the following observations:

  • Section 46(1) of the PPSA allows a buyer to take goods sold in the ordinary course of the seller's business free of any security interest. In determining whether goods have been sold, other sources of law such as the Goods Act 1958 (Vic) may be used. A consumer who buys goods and pays partly or in full takes the goods free of security. A consumer who buys the goods on layby is still subject to the security interest.
  • In determining whether goods are sold in the ordinary course of the seller's business, the focus is on the individual seller's way of doing business. Factors to be taken into account include the parties, the type of goods sold, the frequency and regularity of the transactions, and the price paid. The security holder's awareness of the seller's way of doing business and the extent of departure from the seller's main business are irrelevant.

The question of whether the supplier's security interest extended to any proceeds of sale of the goods in the retailer's hands did not arise in this case, but would ordinarily be a relevant consideration under the PPSA.