Beware the lurking dangers of the Personal Property Securities Act (PPSA).
The first major Australian decision under the Personal Property Securities Act 2009 (“PPSA”) has been handed down. In Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors  NSWSC 852 Brereton J has followed Canadian and New Zealand decisions and confirmed that the PPSA has significantly eroded the primacy of ownership in Australian law.
The case involved a fact pattern similar to those found in Canadian and New Zealand decisions on the PPSA – the owner of a leased asset under a lease which has not been perfected under the PPSA and a secured party with security over all the assets of the lessee, each asserting rights to the leased asset.In this case, the assets were Caterpillar excavators and loaders. Queensland Excavation Services Pty Ltd (“QES”) had leased these to Maiden Civil (P&E) Pty Ltd (“Maiden”). There were no written leases, but the equipment had been in Maiden’s possession for over a year and QES periodically invoiced Maiden for the use of the equipment. The leases were not perfected by registration under the PPSA or by any other means.
Maiden had separately granted security over all of its assets to Fast Financial Solutions Pty Ltd (“Fast”) under a general security agreement (“GSA”). Fast perfected its security interest under the GSA by registration under the PPSA.
Maiden fell into financial difficulty and Fast appointed receivers under its GSA. QES terminated the leases and asserted primary rights to the equipment as owners. Fast’s receivers asserted primary rights to the equipment as sole perfected security interest holder.
Brereton J decided for the receivers on the following basis:
1. Each QES lease was a PPS lease and so was a security interest under the PPSA (the lease did not in substance secure any obligation, but was a deemed security interest under PPSA s12(3)(c)).
2. Under PPSA s19(5), Maiden had proprietary rights in the equipment under each lease even though it was not the owner of the equipment. Because of these rights, Fast’s GSA could also attach to the equipment.
3. Accordingly, QES and Fast each had security interests which attached to the equipment. This meant the dispute between them was a PPSA priority dispute, not an ownership dispute.
4. Since each QES lease was not perfected, and the Fast GSA was perfected, the solution to the priority dispute was simple. A perfected security interest has priority over an unperfected security interest under PPSA s55(3).
5. The fact that Maiden no longer had any right to possession under the leases which were now terminated did not affect this outcome. First, as an unperfected security interest, each lease vested in Maiden on commencement of administration under PPSA s267. Secondly, on the reasoning in point 2, Fast had an interest in the equipment that was not dependent on the lease continuing.
6. The QES leases were entered into before 31 January 2012, and so were transitional security interests. Most transitional security interests are temporarily perfected without registration until 31 January 2014. However, in this case, the leases did not have the benefit of temporary perfection. This is because they were interests capable of registration under the Northern Territory Registration of Interests in Motor Vehicle and Other Goods Act 2008 but they were not registered. The PPSA regulations provide that temporary perfection without registration is not given to security interests which were registrable on a pre-PPSA register but unregistered on that register before the PPSA commenced operation.
Accordingly, the receivers were entitled to possession of the equipment.
Was this expected?
This result is well established in other PPSA jurisdictions, and would not be a surprise to those familiar with the PPSA.
However, it is not a result that is clearly obvious from the text of the PPSA. It is a conclusion that must be drawn out from analysing the purpose of the Act and the inter-relationship of various sections. In light of this, there has been some (perhaps hopeful) speculation that Australian courts in carrying out this process of reasoning might reject the more drastic changes to the rights of owners under Canadian and New Zealand PPSA case law, and instead craft a narrower interpretation of the Australian PPSA which is more consistent with pre-PPSA law.
Brereton J has clearly and correctly demonstrated that this was a naïve hope. In so doing, Brereton J also provided valuable insights into how to construe some of the more complex provisions of the PPSA. Brereton J referred to several New Zealand and Canadian cases in detail, and quoted extensively from those cases to support his decision. In concluding this part of the judgment, Brereton noted that:
“The Commonwealth Parliament, in enacting legislation that was modelled on the New Zealand and Canadian legislation, should be taken to have intended the same approach, which was by then well established in Canada and New Zealand, to apply.” (at para 32)
In other words, the Australian Courts will look to the Canadian and New Zealand courts for guidance in interpreting the Australian PPSA. Policy concerns with the extreme changes the PPSA has introduced will need to be resolved primarily by Parliament, rather than the courts.
The case is also a reminder that transitional security interests in motor vehicle leases will be denied temporary perfection under the PPSA if they were registrable on pre-PPSA state-based bills of sale registers or chattel/motor vehicle registers but were not registered. While this is not a controversial result, it demonstrates a twist in the transitional arrangements that many may not have appreciated. There are likely to be many lessors who did not bother to register their motor vehicle leases pre-PPSA who have not realised that this has resulted in them being unperfected under the PPSA.