The Personal Property Securities Act 2009 (Cth) (PPS Act) and associated Personal Property Securities Regulations 2010 (Cth) (PPS Regulations) make a distinction between certain types of serial numbered personal property. Under the PPS Regulations, certain types of 'serial numbered' personal property must be described by its serial number while other personal property simply maybe described by its serial number when registering a security interest over that property on the Personal Property Securities Register (PPSR).
Recent case law: don't be Hastie
The Federal Court of Australia has recently made the first significant decision concerning the PPS law in Australia1 which may have a significant bearing on whether to describe personal property by its relevant serial number when making a registration on the PPSR. In the Hastie case, the administrators of Hastie successfully obtained court orders allowing equipment belonging to Hastie to be sold by the administrators, even though the PPSR indicated that the relevant equipment may have been encumbered or owned by third parties. This is because the administrators were unable to determine (despite searching the PPSR and attempting to contact potentially secured parties) which specific assets of the Hastie Group were encumbered, and in favour of whom. Accordingly a lesson to be learned is that, in order to preserve priority and effectiveness, descriptions of secured property on the PPSR should always be as accurate and as descriptive as possible…and one probably can't be any more descriptive than an accurately described serial number.
Consumer property must be described by serial number
Part 2.2(1)(a) of Schedule 1 of the PPS Regulations provides that each of the following types of 'serial numbered' personal property, when described as 'consumer property', must be described by serial number in a registration on the PPSR:
intangible property that is:
- a design; or
- a patent; or
- a plant breeder's right; or
- a trade mark; or
- a licence over any intangible property mentioned in (A) to (D);
- motor vehicles; and
The policy behind this is to protect the privacy of individual grantors (who own 'consumer property'). Accordingly, a search of the PPSR need only be made by reference to the serial number of that property and not also by reference to the individual grantor's personal details.
Commercial property and serial number descriptions
In relation to 'commercial property', only 'aircraft that is an aircraft engine, airframe, helicopter or small aircraft' must be described by serial number in a registration on the PPSR (PPS Regulations, Schedule 1, Part 2.2(1)(b)). Motor vehicles, watercraft and the various types of intangible property described above may be described by serial number (PPS Regulations Schedule 1, Part 2.2(1)(c)).
Given the privacy concerns in relation to individual grantors do not apply to commercial entity grantors, the obvious questions in respect of commercial property become:
- 'Why is there a distinction between aircraft and other types of serial numbered property for the purposes of making a registration on the PPSR?'
- 'What are the consequences if a secured party chooses not to describe commercial property that is a motor vehicle, watercraft or intellectual property by its serial number in a registration on the PPSR?'
The reason aircraft engines, airframes, helicopters and small aircraft must be described by serial number, regardless of whether they are consumer or commercial property, is because Australia is considering acceding to the ‘Cape Town Convention’2, under which various types of aircraft are required to be registered by their serial number. Accordingly, the current PPS Regulations distinction serves to ease the transition to the Cape Town Convention regime, should Australia choose to sign up in the future.
In relation to the second question above, regardless of whether a registration of a security interest over the above-mentioned types of commercial property is made by serial number, the standard rules of attachment, perfection and priority under the PPS Act will apply to each such registration.
Where the commercial property may be, but is not described by serial number, a purchaser of such property for value who searches the PPSR by the serial number of that property alone will take free of the security interest if there are no registered security interests against the serial number of that property on the PPSR3. This will also be the case where a registration is made against a particular serial number and that serial number is subsequently changed (e.g. if a patent application number becomes a patent number).
The legislature has recognised that "it will not always be reasonable to separately register each [serial numbered] property covered by a security interest on the register". However, where a particular motor vehicle, watercraft or item of intellectual property is of importance to a secured party, a registration should be made against the serial number of that property to ensure the security interest of the secured party in respect of that property is protected as against third parties.4