Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61.

Appeal from liquidators’ decision to reject claim for the return of cleaning equipment subject to retention of title. Consideration of retention of title clauses and the application of the transitional security agreements under Personal Property Securities Act 2009 (Cth).

Prior to the introduction of the PPSAunder the common law, retention of title (ROT) arrangements were not seen to create security interests.

However, by its operation the PPSA disregards retention of title arrangements, instead treating the ROT claim as a security interest, subject to the perfection requirements of the PPSA.

The main method of perfecting a security interest is to register the interest on the Personal Property Securities Register (PPSR) established under the PPSA. However, transitional provisions of the legislation enabled automatic perfection of ‘transitional security interests’ as at 30 January 2012.

Section 322(1) of the PPSA provides that ‘a transitional security interest’ in collateral is perfected from immediately before the registration commencement time.

Section 267 of the PPSA, provides that unless a security interest in property that is supplied subject to an ROT is registered on the PPSR that security interest will vest in the purchaser (grantor) upon an insolvency event.

Background

Central Cleaning Supplies (Aust) Pty Ltd (Central Cleaning) supplied cleaning equipment and products to Swan Services Pty Ltd (Swan Services).

In September 2009, the financial controller of Swan Services signed a credit application with Central Cleaning. Amongst other things, the credit application provided for 30 days’ credit to be afforded by Central Cleaning to Swan Services. The credit application also included a statement that the supply of goods was governed by Central Cleaning’s ‘Standard Terms and Conditions’.

Thereafter, from time to time Central Cleaning supplied Swan Services with cleaning equipment and products. Printed at the bottom of the relevant invoices was a ROT ‘condition of sale’. It stated that the goods the subject of the particular invoice remained the property of Central Cleaning until the whole of the purchase price had been paid by Swan Services in full for those goods.

In mid 2012, Swan Services went into liquidation. Central Cleaning claimed the return of the cleaning equipment which it supplied to Swan Services from the Liquidators.

The Liquidators rejected the claim on the basis that the cleaning equipment has vested in Swan Services by reason of the effect of the provisions of the PPSA.

Central Cleaning appealed the decision and sought declaration that as at 22 May 2013 (that being the date of administration which preceded the liquidation) it had a perfected transitional security interest under the PPSA in the goods supplied by it from 9 November 2012 to 5 April 2013.

As Central Cleaning had credit application agreement that predated the PPSA, it sought to infer that the credit application agreement was a security agreement under the PPSA and it could rely upon the transitional provisions. However, the credit application agreement did not have a ROT clause.

The items disputed by the Central Cleaning claimed to be outstanding relating to the supply of goods in the period after 30 January 2012 listed cleaning equipment which was identified by way of a serial number. The invoices attached to the items claimed a ROT.

Central Cleaning did not have a registered security interest on the PPSR or any other register.

Decision

The Court held:

  • The credit application agreement did not include a term in which title in goods is retained until payment for them has been made.
  • The credit application agreement was not a transitional security agreement because it did not provide for the granting of a security interest. Therefore, Central Cleaning did not have the benefit of the transitional provisions of the PPSA that would have resulted in perfection of its security interests without the need to take any step.
  • The security interests which Central Cleaning had, were only provided for in contracts entered into after 30 January 2012.
  • However, as the security interests post 30 January 2012 had not been registered on the PPSR, they were not perfected and had vested with Swan Services.

Commentary

Post 30 January 2012, the temporary protection transitional provisions of the PPSA no longer applicable. If a supplier’s claimed security interest has not been perfected and the purchaser against whom a security interest is asserted is placed into administration or liquidation, the security interest will “vest” in the purchaser and will be an asset available to the administrator or liquidator.

Registration on the PPSR does not create a security interest, merely a notification. It is important to determine whether or not a commercial relationship does in fact create a security interest. Failure to do so could mean that sections 588K to 588FO of theCorporations Act 2001 (Cth) may apply upon an insolvency event.