The Personal Property Securities Act 2009 (Cth) (PPSA) contains a complicated set of rules regarding the registration of security interests, as well as the extinguishment and priority of such interests, that will trip up the uninformed and the unprepared.  This paper seeks to highlight some of the grey areas and pitfalls within the PPSA facing a typical mining services provider with regard to the concepts of attachment and perfection. A fictional mining services provider, ABC Mining Services Pty Ltd (ABC), will be used in this paper to highlight the issues[1].    

For the purposes of this paper, assume that ABC has been awarded a tender by XYZ Limited (XYZ) to provide drilling and blasting services at XYZ’s mine site.  ABC has been in business for a couple of years and has tendered for and been awarded similar contracts with other principals.  ABC typically transports trucks, drilling and blasting equipment, fencing, fuels, power supply and sewerage disposal units to a principal’s site for the purpose of performing the services.  ABC owns some of its equipment outright but leases others from third parties.  ABC’s MD has heard of the PPSA and, before signing the services contract with XYZ, wants to know how ABC can protect its equipment whilst such equipment on site, particularly given that XYZ is in the middle of some protracted and potentially damaging litigation with a third party over an outstanding debt.

1. Issues

  • Does the PPSA apply to ABC’s equipment?
  • Is ABC regularly engaged in the business of bailing goods?
  • Is the bailment of goods a gratuitous bailment?
  • What about when ABC demobilises and moves equipment from one site to another?
  • Director’s duties.
  • Principal’s step in rights.
  • Registration.

2. Does the PPSA apply to ABC’s equipment?


Prior to the PPSA, owners of property, such as ABC, who bail equipment to miners (such as XYZ) were protected in the event of an insolvency or in a priority dispute by reason of the fact that they own that property.  Therefore, on the appointment of a receiver or administrator, the owner of the property had a prima facie right to simply collect its own equipment back from the insolvent company.


The PPSA has changed the landscape in terms of the taking and giving of security so that reserving title to property or bailing certain goods, without registration on the PPSR, is no longer sufficient to safeguard an interest in such property where the PPSA applies.

The question of whether or not the PPSA applies to an arrangement characterised as a security interest is important in terms of priority of those interests.

Does ABC have a lien?

Although contractual liens are security interests under the PPSA, ABC is unlikely to have a lien over its own equipment.  A possessory lien allows a creditor to keep possession of the encumbered property until the debt is satisfied. This is not the case here as there is no creditor in the relevant sense.  In any event, a lien that arises by operation of the general law is excluded from PPSA by section 8(1)(c).

Bailments as PPS leases?

Bailment is an important concept for the purposes of this paper.  Bailment is a much broader concept than lease.  Basically, bailment is a delivery of personal property by one person (the bailor) to another (the bailee) who holds the property for a certain purpose under an express or implied contract.

The PPSA recognises that certain bailments are, functionally, security agreements and, therefore, under the PPSA’s functional approach to security, such arrangements are “security interests”.  As a consequence, in order to obtain protection under the PPSA, such owners will need to register their security interest on the PPS Register.

Under section 13 of the PPSA, ABC could have a PPS lease where there is a bailment of:

  • serial-numbered goods for more than 90 days; or
  • other personal property for more than 1 year; or
  • other personal property for an indefinite period; or
  • other personal property for a period that could last for more than one year.

However, it will only be a PPS lease if:

  • ABC as bailor is regularly engaged in the business of bailing goods (section 13(2) PPSA) (discussed later in the context of how the courts may interpret this phrase); and
  • XYZ as bailee provides value for the bailment itself (section 13(3) PPSA).

If ABC has a PPS lease, ABC’s interest over the bailed goods will be a purchase money security interest (PMSI).  A PMSI, if properly registered, will generally give ABC’s security interest priority over non-PMSI’s granted by XYZ to third parties.  On the other hand, if the bailment (as a valid security interest under section 13) is not registered or is improperly registered, the priority of the security interest as against competing security interests in the same collateral will be defeated.

Is ABC regularly engaged in the business of bailing goods (for the purposes of section 13(2))?

This is a question of fact and law. There are 2 parts to the question which would likely be analysed by any court in coming to a conclusion on the facts: (a) is ABC engaged in the business of bailing goods and (b) does it do so regularly?  There is of course no decided case on section 13 in Australia but there have been some interesting decisions in Canada and New Zealand which will be considered later in this paper.

Is the bailment of goods a gratuitous bailment?

Section 13(3) of the PPSA is important for ABC if it wants to register a PPS lease as a security interest to protect its goods. This section states that:

“This section only applies to a bailment if the bailee provides value for the bailment to the bailor.” [2]

On the face of it, it would seem that section 13(3) will prevent many bailments from being registrable as PPS leases.  The logic is simple:  if no value is given there can be no attachment and so no perfection.  Whether value has been given is a mixed question of fact and law and has to be established (in so far as the question is one of fact) on a balance of probabilities if litigated.

For any other bailment (i.e. to which section 13 does not apply), it would, as stated above, be a question as to whether it was intended otherwise to operate as a security interest under section 12: i.e. is it “an interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property”?  However, is ABC’s bailment a section 12 security interest?  This is unlikely as the transaction is not, in substance, a consensual transaction that secures payment or performance of an obligation.  It is likely that the transport of equipment on site by ABC is merely incidental to the provision of its services.  Therefore it is unlikely a security interest would be created because mere possession would not be sufficient to satisfy section 19(2) of the PPSA.

See part 4 of this paper for further analysis of this issue.

Movement of equipment from site to site

If ABC had to move equipment from one site to another (eg on completion of services at the first site) then practically it would need to file a financing change statement and register a further security against the principal of the new site, subject to the terms of the contract for services.

Directors duties

If ABC failed to register a security interest in its equipment and subsequently ABC loses out in an insolvency situation, the directors of ABC could be in breach of their fiduciary to act in the best interests of the company as a whole and of the statutory duty in section 180 of the Corporations Act 2001 (Cth) to act to act with due care and diligence.

Principal’s step in rights on event of default/termination

Typically a principal will be at risk in any early termination of a mining services contract if the contractor is able to leave with its equipment.  Therefore the principal usually requires a right to use the equipment in order to finish the services that the contractor was to perform. This right may no longer be contractually enforceable without registration of such an interest in the property of the contractor. However, what happens where, as with ABC, a contractor’s equipment is on hire purchase or leased from third parties?  If such third parties have registered a PMSI against the equipment then they will likely have priority over any later PMSI registration by a principal. The principal may require additional protections such as requiring the contractor to give undertakings that it will do certain things to enable the principal to protect itself in this regard. The contractor should carefully review the terms of any such clause to avoid a breach.  


Issues to be aware of regarding the registration of security interests are dealt with at part 5 of this paper.

3. Section 13(2)(b) PPSA – how will the courts approach “regularly engaged”?

NZ/Canadian cases as persuasive?

Section 13(2) of the PPSA states that:

“a PPS lease does not include:

  1.    a lease by a lessor who is not regularly engaged in the business of leasing goods; or
  2.    a bailment by a bailor who is not regularly engaged in the business of bailing goods”.

Although the Australian PPSA differs from the various Canadian PPSA’s in that the latter do not use the words “bailment”, “bail”, “bailor” or “bailee” and do not provide for a system for recording bailments, the Canadian PPSA’s contain the phrase “regularly engaged in the business” of leasing goods. 

The Ontario PPSA (for example) defines “a lease for a term of more than one year” to exclude “a lease involving a lessor who is not regularly engaged in the business of leasing goods…”[3]

The NZ PPSA, similarly, defines a “lease for a term of more than one year” as excluding “a lease by a lessor who is not regularly engaged in the business of leasing goods”[4].

Accordingly, given the similarity in the wording of what is not a PPS lease in Australia, Canada and New Zealand, we may turn to Canadian and New Zealand case law for guidance.

However, the applicable case law in Canada is of limited assistance given (as above) the lack of any reference to “bailment” and the fact that the Canadian cases do not address the question of what it means to be engaged in the business of leasing goods in a context relevant to mining services industry.  Nevertheless, they do address what the term “regularly” has been interpreted to mean. In the New Zealand case of Rabobank New Zealand Limited v McAnulty[5] (discussed in detail below), it was stated that that the Canadian cases “reflect their very unusual facts and we hesitate to draw from them any generic principle.  Each case will depend on its facts”[6].

There has also, to date, been only one relevant case in New Zealand (the Rabobank case) which, although not on point, is helpful in terms of clarifying the terms “engaged in the business of leasing goods” and “regularly”.  

Canadian cases – against the occasional bailor

Planwest Consultants Ltd v Milltimber Holdings Ltd[7] Planwest was in the business of owning real properties and managing financial investments.  The case concerned a mortgagee who became the owner of land after the mortgagor defaulted.  Due to a depressed real estate market, the mortgagee in possession rented out the premises, fixtures and chattels.  The lessee went into liquidation and the creditors sought priority over the fixtures and chattels.  The mortgagee had not registered a financing statement in respect of the fixtures and chattels.  The Court found that the PPSA did not apply.  The owner was not in the business of leasing real property; its business was the sale and financing of commercial properties.  The business of leasing chattels was merely incidental to and not a regular part of the business of the lessor.

In Planwest, the emphasis of the Court was on the frequency of the business.  The word “regularly” was interpreted as meaning a common or frequent part of the business.

Canadian cases – in support of  the occasional bailor

Paccar Financial Services Ltd v Sinco Trucking Ltd[8] also supports the proposition that [section 13(2)(b)] is designed to exempt bailors who occasionally bail goods but could not be described as having made it their business.  In Paccar it was the first time the business had ever leased trucks. It operated its business by selling the trucks or entering into lease to buy agreements.  Presumably due to market conditions, it decided to lease the trucks. The Court found that the PPSA applied.  The emphasis of the Court was on the nature of the business rather than the frequency of the leasing element (as in Planwest).

David Morris Fine Cars v North Sky Trading (Inc) (Trustee of)[9] supports the proposition that a bailment can be a PPS lease even though the bailment is only a small part of the bailor’s business. In that case a dealer (Morris) had been in the business of buying and selling cars for a number of years.  As part of the business Morris also leased cars, but infrequently (usually one per year).  A car was leased to North Sky directly (rather than by way of a sale to the manufacturer and then a lease to the customer by the manufacturer).  The 46 month lease was not registered at the Alberta Personal Property Register.  During the term of the lease Morris assigned to a bank, as security for loans, its used vehicles and other products and also gave a chattel mortgage to the bank.   The chattel mortgage was registered by the bank.  North Sky went into bankruptcy.   Section 20(1)(b) of the Alberta PPSA provides that a security interest in collateral is not effective against a trustee in bankruptcy if the security interest is unperfected at the date of bankruptcy.  As with section 13 of the Australian PPSA, Section 1(1)(qq)(ii)(C) of the Alberta PPSA defines a security interest to include a lease of more than one year.  Section 1(1)(y) excludes from that definition a lease involving a lessor who is “not regularly engaged in the business of leasing goods”.  The Court held that so long as leasing was a proper component of the business, it can correctly be said that leasing was regularly engaged. Although the exemption in section 1(1)(y) applied, Morris did not perfect its security interest by registration.  Therefore it was not effective against the trustee in bankruptcy.

New Zealand -The Rabobank case

Rabobank New Zealand Ltd v McAnulty[10] was decided on 23 May 2011 in the Court of Appeal in Wellington.  It was the first case in New Zealand to address the issue of what was meant by “regularly engaged”.  The judge who delivered the judgment (O’Regan) is one of New Zealand’s leading PPSA jurists.

The case concerned the bailment of a horse (called “St Reims”) by a syndicate of owners (Syndicate) for 3 years to Stoney Bridge Limited (SBL) which operated a stud farm. The Syndicate did not receive any rent from SBL for St Reims.  On the contrary, a portion of the service fees he earned were paid to SBL.  SBL was required to stable and feed St Reims, provide all his gear and veterinary services.  Rabobank provided finance to SBL and SBL entered into a general security agreement with Rabobank.  Rabobank perfected this by registering a financing statement.  The Syndicate did not register its interest in St Reims.  SBL defaulted and Rabobank appointed receivers.

Rabobank claimed priority over the interest of the Syndicate given that Rabobank had a perfected security interest. The Syndicate claimed that its interest was not a security interest and the priority rules of the PPSA did not therefore apply.

“Engaged in the business of leasing goods”

The Court found that these words should be read as importing a requirement that the Syndicate actually be intending to profit from the bailment or lease.  This would exclude gratuitous bailments where the bailor was not receiving any payment for the use of the goods.  Importantly, the Court stated that the reason for the profit requirement “is to ensure that lease/bailment transactions that are not easily distinguishable from finance leases are treated as if they are finance leases.  Bailment transactions that could not possibly be confused for finance leases do not need to be drawn into that net, and there is nothing to indicate that Parliament intended that they should be”[11].  The Court also noted that section 13(3) of the Australian PPSA yields the same outcome.

Accordingly, the Court held that the Syndicate was not in the business of bailing goods.  Rather it was “in the business of maintaining and profiting from its stallion.  The cost of standing the horse was an incidental expense to that business, not the business itself…We conclude, therefore, that … the bailment of St Reims was not a lease for a term of more than 1 year…”[12].      


Given the finding that the arrangement was not a security interest, the Court did not find it necessary to deal with the meaning of “regularly”.  However, there is some useful guidance at paragraphs 46, 47 and 48 of the judgement which is replicated below:

  • “it requires some straining of the concept “regular” to say it includes a single, isolated transaction”[13];
  • “a single, isolated transaction in circumstances where it can be established that the transaction was a one-off would not be ‘regular’”[14]; and
  • “where a transaction was the first but has been followed by others, a good case can be made for the proposition that even the first was ‘regular’ because it was the start of the regular engagement in the business.  That will be a factual issue in the particular case.”[15]

The Court stated that it would have found that the bailment of St Reims, which was the sole transaction of its kind entered into by the owners and which the owners intended to be its sole transaction of that kind, would not have involved a regular engagement in the business of leasing/bailing goods[16].

The Court held therefore that even though the bailment was for 3 years it was not a “lease for a term of more than 1 year” as defined in section 16 of the New Zealand PPSA.  Accordingly, the registered security interest held by Rabobank did not attach to the stallion.

4. Drafting issues

Consideration for the bailment?

Section 13 then deems a lease/bailment for a term of more than 1 year to be a security interest even if it is not a lease/bailment which would otherwise meet the requirements of the definition of security interest in section 12 i.e. it does not in substance secure the payment of money or the performance of an obligation.  Even if an arrangement is a lease/bailment for more than 1 year, in order to have a section 13 security interest, value must be given by the bailee to meet the requirement of section 13(3).

Should mining service contracts stipulate the need for the bailee to provide consideration (nominal?) for the bailment of the bailor’s goods on site?  Unless there are fixed prices for wet/dry hires, consideration for a bailment (as in ABC’s case) would seem to get around the section 13(3) issue. The agreement could either recite that at least a nominal amount of consideration has been given by the principal as bailee for the supply of the bailed goods (although a mere recital that consideration has been given can be challenged) or have it clearly stated in the agreement that one of the things that the principal/bailee is paying for is the supply of the equipment/bailed goods to the site.

It would of course be open to argue that it is implausible to think that the real agreement between the parties is that the tools are in any way leased or bailed to the principal.  However, it is plausible to say that a principal in some sense gets the use of such tools/fence while it is in place on the site. Caution dictates against trying to depict an arrangement as a lease/bailment, so that it will neatly come within the PPSA, as this may not succeed if the purported form of the transaction is contradicted by the substance.

Furthermore, it would seem unlikely that a BHP/RIO principal will amend its services/EPCM contracts to permit a contractor to register a security interest in bailed goods.  There would also seem little risk to the contractor in not registering a security interest when dealing with BHP/RIO! It may be different with regard to smaller bailee’s and respective negotiating powers and risk assessments.

Assuming an arrangement complies with section 13(1), (2) and (3), in order to work the agreement creating the security interest must describe the collateral sufficiently to enable it to be identified.  A schedule would be one way to cover this off but if, for example, the agreement relates to all fencing on the site, or to all equipment of a certain type of types on the site, a simple statement of that fact can suffice (since the underlying goal is that the collateral can be distinguished from goods that are not part of the collateral).

Drafting issues affecting the security agreement

Lawyers should pay particular attention to sections 20(1)(b)(iii), 20(2)(b) and 20(4) of the PPSA.

Section 20(1) provides that:

“A security interest is enforceable against a third party in respect of particular collateral only if:

(a) the security interest is attached to the collateral; and

(b) one of the following applies:

…(iii) a security agreement that provides for the security interest covers the collateral in
accordance with subsection (2).”

Section 20(2)(a) and (b) provides that:

“A security agreement covers collateral in accordance with this subsection if:

(a) the security agreement is evidenced in writing that is…; and

(b) the writing evidencing the agreement contains:

(i) a description of the particular collateral, subject to subsections (4)…”

Section 20 (4) provides that:

“If particular personal property is described using the term “consumer property”, “commercial property” or “equipment” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only if the personal property is more particularly described, in addition, by reference to item or class.”

5. Registration

Completing the financing statement

Assuming ABC can satisfy the various hurdles to register a valid security interest over its equipment it will need to accurately complete the financing statement. As the collateral is commercial property, serial numbered goods may (and should) be registered by serial number.  As to other goods, the financing statement would tick (or click) “other goods” and a brief description should be provided in the free text field: eg “mining equipment” or “drilling equipment” etc.

As stated above, section 20 (4) provides that:

“If particular personal property is described using the term “consumer property”, “commercial property” or “equipment” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only if the personal property is more particularly described, in addition, by reference to item or class.”

Therefore, collateral in the form of commercial property would be more particularly described in the financing statement by reference to an item or class in accordance with section 20(4) if it were described as “mining equipment” or drilling equipment” etc.     

Collateral should not be described as all the present and after acquired property of the grantor.  If it was then the secured party may be inundated with requests under section 275 for information about the security interest.  It may not thereby assist in the fostering of a good relationship between contractor and principal! Note also section 164(1)(a) – see below. 

The double filter rule

The so called double filter rule will also need to be noted: the description of the collateral in the financing statement must not be broader than the description of the collateral in the security agreement.  Conversely, a narrow description of collateral in the financing statement may not protect all the collateral described in the security agreement.  Also, the discrepancy may be seen as a seriously misleading defect in the registration under section 164(1)(a) of the PPSA.

6. Summary

As can be seen, there are a number of grey areas and consequent pitfalls facing lawyers and their mining services industry (and other) clients in determining whether (a) an interest in bailed goods is a security interest under the PPSA and therefore (b) whether common law or PPSA applies to determine priority. However, it is likely that, irrespective of whether or not a contractor, such as ABC, has a PPSA security interest requiring registration, we will see such contractors register their interests in any event, particularly in the early years of the PPSA until we see Australian case law on point.  In this regard, the registration fee of $7.40 (for a registration of up to 7 years) would seem to be a small price to pay for a “just in case/piece of mind” step in the right direction.