Monday, 6 March 2017

Can I rely on the transitional provisions of the Personal Property Securities Act 2009 to enforce an unregistered security interest?

The transitional provisions of the Personal Property Securities Act 2009 (Cth) (PPSA) and their application to retention of title clauses were considered by the Victorian Court of Appeal in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in His Capacity as Joint and Several Liquidator of Swan Services Pty Ltd (in Liq)) [2015] VSCA 92. 

Central Cleaning Supplies (Aust) Pty Ltd ("Central") supplied cleaning equipment to Swan Services Pty Ltd ("Swan") from around 2009. Each supply of equipment included a retention of title clause ("ROT") in the invoice. 

Swan went into liquidation owing Central a sum of money for unpaid invoices for the period from November 2012 to May 2013. 

Central sought to enforce the ROT clause and reclaim its equipment. 

As readers will know, the PPSA covers a wide range of security interests, including rights under a ROT clause. The legislation makes it clear that a security interest will only be enforceable against a liquidator if that security interest is perfected. That would normally require the security interest holder to register its interest on the Personal Property Securities Register ("PPSR"). 

Central did not register its security interest on the PPSR. Instead it sought to rely on the transitional provisions of the PPSA, which were designed to protect security interests which had been created, or provided for, before 30 January 2012. 

The issue in the appeal was whether Central’s security interest in the equipment supplied after 30 January 2012 was ‘provided for’ by an arrangement entered into between Central and Swan in September 2009 for the supply of equipment on 30 day credit. 

Central claim could only succeed if it could show that this credit arrangement was a ‘security agreement [which] provided for the granting of’ a security interest in equipment supplied in the future.

Justice Ferguson at first instance rejected Central’s claim, holding that the credit arrangement did not ‘provide for’ the granting of the security interests in the future. 

The Court of Appeal decided that the terms on which Central agreed to provide credit to Swan included provision for the ROT clause as a standard term of each future supply of equipment. 

Accordingly, they allowed the appeal. 

In analysing the transitional arrangements, the Court of Appeal noted at paragraph 20: 

Plainly enough, what this provision contemplates is:
  • a security agreement in force before the commencement time (although continuing thereafter);
  • a security interest arising after the commencement time; and
  • the qualifying relationship between the agreement and the interest being that the agreement ‘provides for the granting of the security interest’.
Thus understood, a security agreement — in this case, a transitional security agreement — will ‘provide for’ a security interest if it ‘provides for the granting of’ the security interest at some time in the future.
The Court went on to note that on this analysis, the relevant definitions will be satisfied if the agreement or act said to constitute the transitional security agreement makes provision for the grant of future security interests in goods supplied. It is of critical importance, therefore, to determine when and how the agreement between Swan and Central was made, in order to determine whether or not it made such provision. 

In a relatively short judgment, Maxwell P and Tate and Beach JA unanimously concluded at paragraph 39: 

It is clear that, in its terms, each ROT clause had application only to the invoiced goods the subject of the particular supply. The result of the contractual analysis, however, is that:
  • Swan’s application for credit included an undertaking to be bound, in respect of every supply of equipment, by Central’s standard terms of supply;
  • the ROT clause was in existence, as a standard term of supply, at the date on which the credit agreement became binding on Swan, being the date on which Swan received the first invoice for equipment supplied; and
  • under that agreement, Swan accepted that all future supplies of equipment would be governed by that standard term (which would be expressed in each case to relate to the particular equipment supplied).

In those circumstances, the Court of Appeal allowed the appeal and decided that an agreement came into force — at the time of the first supply of equipment — which did ‘provide for the grant of’ a security interest in relation to all future supplies of equipment. That agreement was a ‘transitional security agreement’, and each of the security interests granted in respect of equipment supplied subsequently was a ‘transitional security interest’. 

Central was therefore able to enforce the ROT clauses notwithstanding the absence of registration.

Although this decision allowed Central to enforce its ROT, it still highlights the importance of registering security interests arising from retention of title clauses on the PPSR to perfect that security interest.

Without the transitional provisions of the PPSA, Central would not have been able to enforce its ROT clause.

It should also be noted that the transitional provisions under the PPSA have now expired, so it is now unlikely that there will be further successful claims under those provisions.

WG Stark 
Hayden Starke Chambers

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