A recent decision of the New South Wales Court of Appeal serves as a timely reminder of the costly consequences of failing to register a PPSR security interest in leased goods.

Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] NSWCA 8

In March 2013 General Electric International Inc (GE), the appellant’s predecessor in title, agreed to lease turbines to Forge Group Power Pty Ltd (Forge Group).

The lease commenced on 1 January 2014, but little over one month later Forge Group’s fortunes turned, and voluntary administrators were appointed followed closely by liquidators the next month. Somehow, no one had thought to register GE’s interest in its turbines on the Personal Property Securities Register and, at the time of the VAs’ appointment, it remained unperfected.

So what is a liquidator to do on discovering that mess? Proceedings were swiftly commenced seeking declarations that GE’s interest in the wind turbines had vested in Forge Group, defeating GE’s claims over the turbines. The relief sought depended on the operation of s 267(2) of the Personal Property Securities Act 2009 (Cth) (PPSA) which relevantly provides for the automatic vesting of unperfected security interests upon the appointment of administrators.

However, that provision is only engaged if the lease in question is a “PPS lease”. And how do you make a PPS lease? Simply by:

  1. being regularly engaged in the business of leasing goods;[1] and
  2. leasing goods which are not fixtures within the meaning of s 10 of the PPSA.[2]

The judge at first instance found that GE was regularly engaged in the business of leasing goods, and that the s 10 PPSA terminology of being “affixed to land” accorded with common law concepts, which depend upon the objective intention with which the item was put in place and ordinarily require some permanency.[3] Hammerschlag J’s conclusion that the turbines were not fixtures, and therefore subject to the PPSA, was challenged on appeal.

However, the doomsday bell tolled once again for the appellant, with the Court of Appeal’s unanimous decision delivered on 6 February 2017 upholding Hammerschlag J’s findings that:

  1. there is nothing in the PPSA that suggests there should be any departure from common law concepts when interpreting the defined term ‘fixtures’; and
  2. the ‘temporary’ nature of affixation of the turbines[4] indicated that they did not constitute fixtures for the purpose of the PPSA.

The appellant’s protestations that Forge Group would benefit from a windfall gain – to the tune of USD44 million – did not distract the Court of Appeal from a strict interpretation of the relevant section of the PPSA, and a plain reading in accordance with common law concepts. As such, the case will stand as a costly warning to lessors, and an important precedent for liquidators dealing with unregistered security interests.