“Before the PPSA came into operation, if a company was placed into administration, liquidation or receivership, suppliers of goods had significant rights if the terms of sale included an effective retention of title clause. In the case of liquidation and receivership, those rights often included the right to retake possession of the goods supplied. It was not necessary for sale agreements including a retention of title clause to be registered.”[1]

The recent decision in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61 provides a reminder as to how differently retention of title (ROT) clauses are dealt with under the Personal Property Securities Act 2009 (PPSA) compared to the pre-PPSA system.

The effect of the decision was that the supplier, Central Cleaning Supplies (Aust) Pty Ltd (Central Cleaning), was not entitled to the benefit of the transitional protection provisions of the PPSA and lost its ROT claim because it did not register its security interest on the Personal Property Securities Register (PPSR). 

The Background

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

In September 2009, Swan Services signed a credit application which provided for 30 days’ credit to be afforded 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’.

Central Cleaning then supplied Swan Services with cleaning equipment and products. Printed at the bottom of the relevant invoices was a ROT clause:

CONDITION OF SALE: Goods the subject of this sale remain the property of Central Cleaning… until the whole of purchase price has been paid by the Purchaser to Central Cleaning in full.

Central Cleaning failed to register its interest on the PPSR and in May 2013 administrators were appointed to Swan Services. Those administrators became liquidators in June 2013.

The liquidators rejected Central’s Cleaning’s ROT claim on the basis that Central Cleaning was not registered on the PPSR and therefore its unperfected security interest vested in the grantor on the appointment of an administrator under section 267 of the PPSA.

The key issue

The key issue was whether Central Cleaning had a transitional security interest. That would depend on whether its ROT clause was provided for in the credit application entered pre-PPSA, giving it a transitional security interest, or in each invoice. If Central Cleaning's ROT clause was in each invoice, it would not have a transitional security interest in the goods (and therefore would have an unperfected security interest).

What did the Court decide?

The Court found that the ROT clause was not part of the credit application (ie. as part of an over-arching supply arrangement).

Rather, the ROT clause was included in each invoice sent. The words "goods the subject of this sale" contained in each invoice were interpreted to infer that the parties intended each invoice to create a separate contract of sale (and a separate security agreement) for the goods supplied under that invoice (Contract).

Each Contract entered into post 30 January 2012 was held not to be a transitional security agreement. Central Clearing's interests within them were therefore unperfected security interests that should have been registered.

Those interests therefore vested when Swan Services went into administration pursuant to section 267 of the PPSA.

The Court distinguished this case from other reported Court decisions where the ROT clause was clearly contained in the credit application terms and the later invoices did not indicate a separate and distinct sale by sale arrangement.

Lessons going forward

Suppliers on ROT or credit terms can avoid similar difficulties enforcing their commercial arrangements by simply registering their resulting security interest on the PPSR.

Suppliers should be careful as to how they:

  • draft their ROT clauses into contractual arrangements with customers; and
  • describe their resulting security interest on the financing statement to effect a registration, especially if they intend that registration to cover future supplies of goods.