In what is being described as a landmark decision and one of the first to consider the effect of the Personal Property Securities Act 2009 (Cth) in Australia, a recent NSW Supreme Court decision held that a perfected security interest granted to a financier over construction vehicles by a lessee was effective to defeat a competing claim by the owner of the vehicles.

Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852

Background

Between May and August 2010, three caterpillar excavators and loaders were purchased by Queensland Excavation Services Pty Ltd (QES) and were subsequently leased to Maiden Civil (P&E) Pty Ltd (Maiden). There were no written lease agreements, however the caterpillars were in Maiden’s possession for over a year and Maiden was invoiced by QES periodically. QES did not register its security interest in the caterpillars on the Personal Property Securities Register (PPSR) after the PPSR commencement date of 30 January 2012.

In May 2012, Maiden obtained finance from Fast Financial Solutions Pty Ltd (Fast), secured against Maiden’s property (including the three caterpillars) under a general security deed (GSD). Fast perfected its security interest under the GSD by registration on the PPSR. In July 2012, Maiden defaulted under the GSD and Fast appointed receivers and managers (Receivers) over all of the Maiden’s assets, including the caterpillars. Maiden subsequently entered into voluntary administration and then liquidation.

The Receivers argued that Fast had a security interest in the caterpillars which had priority over the interests of QES under the Personal Property Securities Act 2009 (Cth) (PPSA).

QES argued that it had a prior security interest over the caterpillars that was perfected by the transitional provisions of the PPSA and that any claims by Maiden, Fast and the Receivers and Managers were secondary to those of QES.

Decision

Who had a security interest?

The leases from QES to Maiden were deemed to be PPS Leases pursuant to PPSA section 12(3)(c).

Maiden, as a PPS Lessee in possession of the caterpillars, had rights in the caterpillars to which a security interest could attach: PPSA section 19(5).

Pursuant to PPSA section 19(2), Fast’s security interest created by the GSD attached to the caterpillars when Fast advanced funds to Maiden under its loan agreement. Once Fast’s security interest had attached to the caterpillars, it was enforceable against Maiden pursuant to PPSA section 19(1).

Which security interest had priority?

The court needed to resolve the dispute by applying the priority rules of the PPSA. The PPSA does not concern itself with title or legal ownership but rather priority between competing security interests.

The court held:

  • Fast’s security interest had been perfected by registration on the PPSR: PPSA section 21(1).
  • QES had not perfected its security interest by registration on the PPSR.
  • Fast’s perfected security interest in the caterpillars had priority over QES’s unperfected security interest in them: PPSA section 55(3). It was irrelevant that QES in fact owned the caterpillars.

Did QES have a transitional security interest?

The PPSA provides for protection of “transitional security interests” by way of temporary perfection for up to 24 months after the commencement of the PPSA: section 322. QES argued that, by virtue of these transitional provisions, its security interest would have priority over Fast’s security interest in the caterpillars, even though it was not registered on the PPSR.

Notably however, if an interest was registrable on a register prior to the PPSA coming into effect and was not registered, the benefit afforded by the transitional provisions does not apply: PPSA section 322(3). As QES’s interest was registrable on the Northern Territory Register of Interests in Motor Vehicles and Other Goods (NT Register) prior to the PPSA, and QES had not registered its interest on the NT Register prior to the PPSA coming into effect, the court held that QES could not rely on the benefit of the transitional provisions of the PPSA.

Therefore, Fast’s security interest maintained priority.

Was there an enforceable right to possession?

It was contended by QES that the Receivers had no enforceable right to possession as QES had terminated the Lease with Maiden and the Receivers had no greater right to deal with the caterpillars than Maiden.

The court considered PPSA section 267(2) which provides that any security interest granted by a corporation that is unperfected at the commencement of its administration or winding up vests in the corporation.

The court decided that the effect of this provision was that, upon commencement of the administration and/or winding up of Maiden, QES’s unperfected security interests in the caterpillars vested in Maiden. The practical effect was that QES’s security interest was extinguished and Maiden held the caterpillars subject only to the perfected security interest of Fast. Accordingly, the Receivers were entitled to possession of the caterpillars and could use them to satisfy the debt owed to QES.

Comment

This decision is consistent with the intended operation of the PPSA and previous decisions from New Zealand and Canada which consider priorities under the PPSA, and shows the Australian courts’ willingness to consider decisions in those jurisdictions in their interpretation of the PPSA.

This decision highlights the importance for owners who part with possession of their personal property to be diligent in:

  • Identifying whether their arrangements give rise to a security interest under the PPSA, including a PPS Lease.
  • Registering any such security interests on the PPSR.

It also serves as a timely reminder that: • It is no longer enough to rely on title in protecting interests in personal property.

  • There are dangers associated with relying on the transitional provisions of the PPSA.
  • Secured parties with transitional security interests should ensure that their security interests are registered on the PPSR prior to 31 January 2014 to ensure the continued perfection of their security interests (to the extent that it is available), following the expiry of the transitional period.