The recent Victorian Court of Appeal decision in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in His Capacity as Joint and Several Liquidator of Swan Services Pty Ltd (in Liq))  VSCA 92 considered the application of the transitional provisions of the Personal Property Securities Act 2009 (Cth) (PPSA) to retention of title clauses where the goods were supplied after the commencement of the PPSA.
Between 2009 and 2013, Central Cleaning Supplies (Aust) Pty Ltd (Central) supplied cleaning equipment to Swan Services Pty Ltd (Swan). Swan subsequently went into liquidation in 2013, at which time invoices for supply of equipment since November 2012 remained unpaid.
Central sought to enforce a retention of title clause in each of the invoices issued to Swan and sought to reclaim the equipment. Importantly, Central had not registered its security interest on the Personal Property Securities Register (PPSR).
A key issue was when and how Central and Swan entered into the relevant security agreement. In September 2009, Swan completed and lodged with Central a credit application requesting the supply of equipment on 30 day credit (Credit Application). The supply was expressed to be subject to Central’s standard terms.
Following each supply of equipment, Central issued an invoice which contained a retention of title clause which provided that the equipment remained Central’s property until full payment of the purchase price.
Both Central and the liquidators of Swan submitted that a contract came into existence upon lodgement of the Credit Application. However, the Court of Appeal considered the Credit Application to simply be a unilateral offer by Swan to acquire equipment from Central on an ongoing basis subject to Central’s standard terms.
The Court of Appeal found that the terms in the Credit Application did not become binding until the first supply of equipment by Central. It was conduct that established a supply contract between the parties which governed all future supplies of equipment, and the contract was subject to Central’s standard terms (including the retention of title clause).
TRANSITIONAL PROVISIONS OF THE PPSA
Ordinarily, a retention of title clause pertaining to goods supplied after the commencement of the PPSA will be unenforceable unless it is perfected by registration.
As Central had failed to register its interest, its claim could only succeed if the equipment was covered by the transitional provisions of the PPSA, designed to protect security interests created, arising or provided for before the commencement of the PPSA on 30 January 2012. Here, the equipment in question was supplied after this date, and each retention of title clause only applied to the equipment the subject of that particular invoice.
Central would only be able to enforce the clause if the agreement between the parties was a “transitional security agreement”, being an agreement made before the commencement date which “provided for the granting of” a security interest that arose after the commencement date. The relevant agreement would constitute a transitional security agreement if it made provision for the grant of future security interests in the equipment supplied. At first instance, the trial judge found each invoice to be a separate and distinct contract entered into after the commencement date, the transitional provisions did not serve to perfect Central’s security interest.
In reversing the trial judge’s decision, the Court of Appeal found that:
- Swan’s Credit Application included an undertaking to be bound by Central’s standard terms in respect of every supply of equipment;
- the retention of title clause was in existence, as a standard term of supply, on the date the Credit Agreement became binding (i.e. when Swan received the first invoice); and
- under the Credit Agreement, Swan accepted that all future supplies of equipment would be governed by that standard term.
The Court held that the Credit Agreement was a “transitional security agreement” under the PPSA as it:
- came into force prior to commencement of the PPSA;
- related to a security interest arising after the commencement date of the PPSA; and
- “provided for the granting of a security interest” in relation to future supplies of equipment.
As a result, Central was able to enforce the retention of title clauses.
This decision highlights the importance of registering security interests arising from retention of title clauses on the PPSR to ensure perfection of the security interest.
Had it not been for the application of the transitional provisions of the PPSA, Central would not have been able to enforce its retention of title clauses.
For the transitional provisions to apply, it must be established that the relevant clause was incorporated into the security agreement prior to the commencement of the PPSA, and that it applied to the future supply of goods.