First Major PPSA Decision
At the end of June, the New South Wales Supreme Court handed down the first major decision in Australia regarding a priority dispute under the Personal Property Securities Act (the PPSA).
There has been a certain amount of speculation amongst both the legal and wider community regarding the operation of the PPSA since its introduction in Australia at the start of 2012 and thankfully, the decision in Maiden Civil (P&E) Pty Ltd (Maiden) v Queensland Excavation Services Pty Ltd (QES) (link to decision here) has comprehensively confirmed what many in the legal profession consider to be the fundamental basis of the PPSA in relation to the lease of goods.
QES leased a number of Caterpillar excavators and loaders to Maiden - QES failed to register their interest in the equipment on the Personal Property Securities Register (the Register).
Meanwhile, Maiden granted security over all of its assets under a General Security Agreement with its financier, Fast Financial Solutions Pty Ltd (Fast). Fast diligently registered their security interest under the General Security Agreement over Maiden’s record on the Register.
Maiden subsequently fell into financial difficulty and receivers were appointed under the General Security Agreement. A priority dispute arose between QES, who asserted they had the right to recover the Caterpillars because ‘they owned them’ and Fast who asserted they had the right to the Caterpillars as they had registered a security interest in them on the Register.
The Court found that the lease of the Caterpillars to Maiden constituted a ‘PPS Lease’ under the PPSA. This meant that both QES and Fast had legitimate competing security interests in the Caterpillars - QES under the PPS Lease and Fast under the General Security Agreement. As Fast’s interest was registered on the Register and QES’s interest was not, Fast’s interest took priority over QES’s. Consequently, although QES owned the Caterpillars, their interest was ‘beaten’ by Fast’s.
This decision confirms what most legal professionals expected, particularly as the decision reflects those made in New Zealand and Canada under their similar legislation. The decision has been welcomed by those businesses who have spent considerable time and money seeking advice and developing procedures to protect their security interests, as they can now breathe a sigh of relief that their efforts have not been in vain.
On the other hand, if you have just read this article and are feeling alarmed that ‘ownership is no longer king’, we strongly recommend that you contact our Business Services Team to obtain advice regarding the application of the PPSA to your business and what you should do to ensure that your interests are protected. Our team possesses an extensive knowledge of the PPSA and provides advice with a commercial approach, recognising the imperfect world in which business operates.