August 14, 2013

Personal Property: Register It or Risk Losing It – Owners Beware

Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSW SC 852 (the Maiden Civil Case)

The Supreme Court of NSW sends a clear message to owners of personal property to register their interest in the property or risk losing priority.

EXECUTIVE SUMMARY:

The Maiden Civil Case has considered the implications of perfecting an interest in personal property through registration, and not perfecting an interest in personal property.

In summary the case is authority for the following principles:

  1. The principle that ownership is the most secure form of interest in personal property is no longer as certain with the inception of the Personal Property Securities Act 2009 (Cth) (PPSA). The PPSA requires anyone wanting to properly protect their interest in personal property to perfect their interest by registering their interest on the Personal Property Securities Register (PPS Register). This includes true owners of personal property who may have otherwise understood that they had priority over all other interests.
  2. Where the owner of personal property fails to perfect their interest in personal property by registering on the PPS Register, perfected security interests in that may property may displace any priority interest that the true owner may otherwise have had.
  3. Parties who may have been able to rely on the 24-month transitional provisions of the PPSA may not be able to rely on the benefit or protection of those provisions where there is a transitional register for the registration of their class or type of goods (such as the transitional register for Motor Vehicles), and where they have failed to register that interest on the transitional register.
  4. To ensure that your personal property interests are adequately protected and not at risk of being superseded by interests that may otherwise have been secondary, you should:
  5. ensure that you have perfected your interest in any personal property by registering the interest on the PPS Register – this includes interests granted by any agreement, security deed or other arrangement;
  6. if seeking to rely on the 24 month transitional provisions, conduct comprehensive searches to ensure that there isn’t a transitional register that relates to the class or type of personal property you have an interest in; and where there is a transitional register dealing with your class or type of personal property, perfecting your interest by registering that interest on the PPS Register and/or the transitional register;
  7. ensure that, if you acquire an interest in personal property that is otherwise secondary to an owners interest, you have promptly perfected your interest by registering your interest on the PPS Register – registering your interest promptly may ensure that your interest ranks above that of the true owners if the true owner has failed to register their own interest in the personal property; and
  8. ensure that you have policies and procedures in place for reviewing your personal property and contracts/agreements to ensure that all of your interests in personal property are protected.

THE CASE

In the first major decision since the commencement of the Personal Property Securities Act 2009 (Cth) (PPSA), the Supreme Court of New South Wales has applied the priority principles established under the PPSA. The Maiden Civil Case concerned competing claims to three civil construction vehicles located in the Northern Territory (the Caterpillars).

BACKGROUND

The First Defendant, Queensland Excavation Services (QES) obtained finance to purchase the Caterpillars from Westpac and Esanda.

Between about May and August 2010, the Caterpillars were leased by QES to Maiden Civil (P&E) Pty Ltd (Maiden), a company that was engaged in civil construction work in the Northern Territory.

QES did not register its interest in the Caterpillars on the Northern Territory register of motor vehicles (NT Register). It also failed to register its interests in the Caterpillars on the PPS Register.

In May 2012, Maiden obtained finance from Fast Financial Solutions Pty Ltd (Fast) and executed a General Security Deed (GSD) in favour of Fast. The GSD granted Fast a security interest over all of Maiden’s current and future assets, including Maiden’s interest in the Caterpillars.

In accordance with the interest it obtained in the Caterpillars under the GSD, Fast perfected its security interest in the Caterpillars by registering its interest on the PPS Register.

In July 2012, Fast became aware of default events by Maiden and pursuant to its rights as a secured creditor under the GSD, appointed receivers and managers in respect of Maiden’s assets (which included the Caterpillars). Maiden subsequently went into voluntary administration and liquidation.

One of the central questions for the Court was: who had priority interest over the Caterpillars? Was it QES who was the true owner of the Caterpillars, or Maiden who held a security interest in the Caterpillars?

THE DECISION

In the considered judgment of His Honour Justice Brereton, His Honour relevantly held that:

  1. QES was the owner of the Caterpillars.
  2. QES did not perfect its ownership interest in the Caterpillars in failing to register QES’s interest on the PPS Register.
  3. QES did not register its interest in the Caterpillars on the transitional register, which for vehicles at the time was the motor vehicles register in Western Australia.
  4. The lease of the Caterpillars from QES to Maiden was a PPS lease pursuant to section 13 of the PPSA.
  5. Accordingly, the priority of interests fell to be determined subject to the PPSA priorities.
  6. As part of the lease, pursuant to section 12(3)(c) of the PPSA, Maiden had acquired security interest in the Caterpillars.
  7. By entering into the GSD with Fast, Maiden granted Fast a security interest in the Caterpillars, and constituted a security interest pursuant to section 19(2) of the PPSA.
  8. Pursuant to section 19(1), Fast’s security interest in the Caterpillars acquired from Maiden under the GSD was perfected by registration and as a result was enforceable against QES.
  9. For the purposes of section 21(1) of the PPSA, Fast had perfected its security interest in the Caterpillars by registering its security interest on the PSS Register.
  10. By perfecting its security interest in the Caterpillars, Fast’s security interest took priority over QES’s unperfected ownership interest.
  11. QES’s ownership interest in the Caterpillars was not saved by the transitional provisions of the PPSA because QES had failed to register its interest on the transitional register for vehicles as required by section 322(3) of the PPSA and which was available prior to the PPSA coming into effect.
  12. As a result Fast’s perfected security interest in the Caterpillars maintained priority, and QES’s unperfected ownership interest was subordinate to Fast’s security interest.
  13. All other unperfected interests in the Caterpillars were subordinate to Fast’s perfected security interest in the Caterpillars.

IMPLICATIONS OF THE MAIDEN CIVIL CASE

The main points to take from the Maiden Civil Case are:

For true owners of property: Perfect, Perfect, Perfect

Perfect your interest in your personal property by registering on the PPS Register.

If you are unsure about whether your personal property interests are adequately protected and/or whether there has been an interest registered against your personal property please seek legal advice, contact Rouse Lawyers on (07) 3648 9900.

For persons with a valid and effective interest in personal property, other than true ownership: Perfect, Perfect, Perfect

Perfect your interest in personal property by registering your interest on the PPS Register. If you are unsure about whether your personal property interests are adequately protected and/or whether there has been an interest registered against your personal property please seek legal advice, contact Rouse Lawyers on (07) 3648 9900.

For all entities:

Rouse Lawyers is able to assist you in ensuring that your interest in personal property is protected and that any risks of another interest gaining priority are avoided. For any questions related to this article, or for any legal assistance in relation to your personal, business or professional needs please contact Rouse Lawyers on (07) 3648 9900.