Retention of title clauses under the Personal Property Securities Act

In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSC 92, the Victorian Court of Appeal upheld an appeal and confirmed that a supplier was protected by the transitional provisions under the Personal Property Securities Act 2009 (Cth) (PPSA).

The matter highlights the need to review supply agreements and register any security interests under the PPSA.

Security interests created by retention of title clauses must be reviewed to ensure they cover all goods supplied, even where separate sale transactions follow.

Case summary

Central supplied equipment to Swan under a 30-day Credit Arrangement signed in 2009, governed by its ‘Standard Terms and Conditions’. Central argued that these terms included a ‘Condition of Sale’ printed on each invoice provided after delivery. This Condition stated that Central retained title over the goods the subject of that invoice until the entire purchase price had been paid.  Swan went into liquidation in 2013. Central then claimed that it was entitled to the equipment it had provided to Swan that had not yet been paid for.

Issue

If the security agreement providing for the security interest existed only after 30 January 2012, and so was not transitional, registration was required for priority.  Central argued that the retention of title clause was incorporated into the Credit Agreement (which was signed in 2009) by reference, by signature, or by notice or course of dealing. This would mean the Credit Arrangement was a transitional security agreement, whereby Central’s interest in the equipment was transitional and therefore it could be enforced despite the lack of registration.

What did the Court below decide?

The Supreme Court held that Central did not have a transitional security interest and it had not been perfected by registration.  Therefore, Swan’s liquidator’s decision to deny priority to the claim was upheld.

The Court below made this decision on the following basis:

  • Central’s retention of title clause was not incorporated (by reference, signature, notice or course of dealing) into the Credit Arrangement, so as to form a single security agreement;
  • Therefore, each sale was contemplated to operate and did operate as a separate contract, a condition of which was the retention of title by Central;
  • The sales completed after 30 January 2012 were not ‘transitional security agreements’ under the PPSA; and
  • The security interests were imperfect for failure of registration.

Importantly, if Central had established that the credit arrangement, initially signed by Swan in 2009, had incorporated the retention of title clause, it would be an agreement providing for the granting of a security interest that existed immediately before 30 January 2012 and would therefore qualify as a transitional security interest.

On appeal, the Court held that there was a security agreement in existence, which was created when Swan signed the initial credit application, and goods were supplied and invoices issued.

The Court of Appeal held that the security agreement was a transitional security agreement.

Central was able to rely on its retention of title clause in its Credit Agreement.

What action should you take to protect your interest?

  • Review and amend your contractual arrangements and documentation– Are they compliant with the PPSA?  If they give rise to several security interests, consider developing an overarching security agreement with individuals or businesses that purchase on credit; and
  • Register your security interests– Review whether you have any goods on lease or subject to any other security agreement and ensure these agreements are registered, to maintain your priority if the other party becomes insolvent or fraudulently deals with the property.

Businesses that supply goods on credit and rely on retention of title clauses to protect their interests must now register their interests.  This may mean reviewing supply contracts to ensure any retention of title clauses give rise to a security interest over all supplied goods and thus only require registration once.

Please feel free to contact SRM Lawyers if you have any questions about the PPSA or its application to your business.

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