In Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) the New South Wales Court of Appeal recently considered the 'fixtures' exclusion in Australia's Personal Property Securities Act (PPSA).

Power Rental agreed to lease turbines to Forge Group for two years.  Shortly after the lease began, Forge Group entered voluntary administration.

In Australia, when a grantor enters administration, any security interests that have not been perfected vest in the grantor, with the result that the security holder or lessor is left to claim as an unsecured creditor.  As Power Rental had not perfected its interest in the turbines by registering a financing statement, a dispute arose as to whether the lease was deemed to be a security interest for the purposes of the PPSA.

At trial, it was held that the lease was a security interest, because:

  • The lessor was "regularly engaged in the business of leasing goods", as is required in order for a lease to be a 'PPS lease' under the PPSA and therefore a deemed security interest.  In arriving at this conclusion, the Court rejected the New Zealand approach (Rabobank New Zealand Ltd v McAnulty [2011] NZCA 212) which equates regularity with frequency or repetitiveness.  The test was to be determined at the time the lease was entered into, not at a later point in time
  • Whether goods are 'fixtures' is not determinable solely by reference to physical affixation to land.  Rather, the purpose and degree of affixation must be considered. 

The first issue was not challenged on appeal.  As to the second, the Court agreed with the trial judge, and held that the turbines were not fixtures due to the temporary nature of their installation and because their affixation had been effected to enhance their use, rather than the use of the land upon which they were installed.  In doing so, the Court held that the ordinary common law meaning of what constitutes a "fixture" will similarly apply for the purposes of that term under the PPSA.

A copy of the decision can be found here.