In
Albarran and Pleash as receivers and
managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation
Services Pty Ltd & Ors, [2013] NSWSC 852, BC201310524 the New South
Wales Supreme Court had to determine a priority dispute between an equipment
financier and a general finance company.
Background
In
this case, the finance company (“Fast Financial Solutions”) had an agreement which provided it with security over all of the assets of a civil engineering
company (“Maiden”). The equipment owner, Queensland Excavation Services
Pty Ltd (“QES”), leased that equipment to Maiden under an oral agreement.
After default by Maiden, Fast
Financial Solutions appointed receivers over Maiden’s assets,
including the equipment owned by QES. QES demanded the release of its
equipment.
Brereton
J determined:
1.
Maiden, as lessee, had an interest in the equipment sufficient to allow it to grant a
security interest to Fast Financial Solutions. Section 19(5) of the Personal Property Securities Act (PPSA)
provides that a grantor of a security interest has rights in goods that are
leased to it under a PPS lease when it obtains possession of those goods.
Brereton J confirmed that those rights of a lessee
are not limited to possessory rights under the PPS lease, but include
proprietary rights. In reaching this conclusion, His Honour relied on New
Zealand and Canadian case law.
2.
While QES was the owner of some of the equipment it also held a security interest (the
lease agreements) in the equipment in accordance with the provisions of the PPSA.
Having
determined that both QES and Fast Financial Solutions had security interests in
the equipment, the court had to determine which interest took priority? In considering that question,
the court noted that the fact that QES was the lawful owner of some of the equipment was of no
significance. In essence, the decision confirmed that the nemo dat rule – that no one can give
what they do not own – is no longer relevant.
The only facts of significance in determining the dispute were whether and when each security interest was perfected.
In the case of the security interest of QES, the fact that QES had not registered its
interest on the Northern Territory motor vehicle registry (which is a
'transitional register' within the provisions of the PPSA) meant that it did not obtain the benefit
of deemed perfection otherwise applicable to transitional security interests. This
aspect of the decision highlights a gap in the transitional arrangements.
As a result, the court found that the perfected security interest of Fast Financial Solutions had priority over the unperfected security interest of QES.
The failure by QES to register its security interest under the PPSA also meant that the
security interest was not perfected when Maiden went into administration.
As a consequence, by virtue of section 267(2) of the PPSA, the security
interest of QES vested in Maiden upon it entering into administration. The practical effect is that QES no longer had any
interest in the equipment and Maiden held it subject only to the perfected
interest of Fast Financial Solutions.
In
those circumstances, the perfected security interest of Fast Financial Solutions had
priority over the unperfected security interest of QES in the equipment.
Conclusion
Whilst
the decision was not unexpected, in view of the game-changing nature of the
PPSA provisions, it highlights the need for anyone who wishes to retain their
existing security to take appropriate steps to register their interest on the
PPS Register before the expiry of the transitional arrangements in
January 2014.
The
judgment also highlights the fundamental rule changes brought about by the
PPSA: It can operate to deprive a lessor of their
ownership of goods where the lease gives rise to a PPSA security interest and the owner
fails to perfect that interest in accordance with the PPSA. The PPSA vesting
rules are vastly different to the personal property laws that previously
applied.
W
G Stark
Hayden Starke Chambers
