And it is not good news for owners. It may seem counter-intuitive for lawyers and insolvency practitioners who were taught long-standing rules of property law, and have until now advised and operated in that context. However when it comes to personal property it is clear now that in Australia, to put it simply, ownership is no longer king.

Just over a week ago, on 27 June 2013, the first major PPSA decision in Australia was handed down by Brereton J in the New South Wales Supreme Court:  In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd [2013] NSWSC 852.

The case involved three civil construction vehicles located in the Northern Territory, identified by their VINs; a caterpillar wheel loader (the 930), a 30 tonne caterpillar excavator (the 330), and a 20 tonne caterpillar excavator (the 320).

A company Maiden Civil (P&E) Pty Ltd (Maiden) had been engaged between 2010 and May 2012 to undertake civil construction work in the Northern Territory. It had acquired possession of the Caterpillars with the assistance of Queensland Excavation Services Pty Ltd (QES), under a hire-purchase type of facility used in many industries. Broadly, QES purchased the Caterpillars chosen by Maiden and then leased them to Maiden at a premium. Pre-PPSA, by gaining title to the Caterpillars pending the paying out of the lease term, this arrangement was considered to give the finance-provider the best security possible. However post-PPSA, as we are learning, ownership is no longer king. Without registering what is deemed under the Act to be a “security interest”, priority in the particular personal property can be lost, even for the owner of the personal property.

To break the financing arrangement employed here down into its elements –

• The vendor sold the Caterpillars to QES in 2010
• QES paid the deposits to the vendor, and the balances were financed by Esanda (for the 320) and Westpac (for the 330 and 930), secured against the home of QES’s principal Mr Callum Rutherford and guaranteed by Mr Rutherford and a related  company
• Concurrently (more or less) with the payment of the deposits to the vendor, QES received from Maiden funds that corresponded with the amounts of the deposits
• Maiden took possession of the Caterpillars
• Thereafter, QES invoiced Maiden on a periodical basis for amounts that corresponded to finance charges payable by QES to Esanda and Westpac, plus ten percent, which Maiden paid
• In March 2011, Maiden provided to QES the funds required to pay out the Esanda finance in respect of the 320, and QES thereupon discharged that finance
• After 23 March 2011, QES rendered no further invoices to Maiden in respect of the hire of the 320
• QES continued to render invoices in respect of the 330 and 930, and Maiden continued to pay them, if irregularly.

In about March 2012, Maiden sought short-term finance from a third party, Fast Financial Solutions Pty Ltd (Fast). Fast’s solicitors prepared the documentation, including a Loan Agreement for a three-month loan of $250,000 and a General Security Deed. The Deed attached schedules listing Maiden’s property, including the Caterpillars, and sent these to Maiden’s lawyer on 2 May 2012.The General Security Deed purported to grant to Fast a “security interest” in, inter alia, the Caterpillars. The documents were executed by Maiden and by Fast on 31 May 2012. Fast transferred funds into an account as directed by Maiden.

Already by July 2012 there were a number of events of default under clause 11.1 of the General Security Deed, and on 27 July 2012 Fast appointed receivers and managers.

Following their appointment, the receivers claimed possession of the Caterpillars. Maiden entered into voluntary administration on 27 August 2012 and then liquidation on 24 September 2012.

The contest as to the superior interest in the Caterpillars was between –

1. QES, who claimed to be the owner of the 330 and 930 Caterpillars, and of the 320,

2. The financier and secured creditor, Fast, and

3. The parties claiming a lien over the 320 (it was unclear if this was a company called Central Plant Hire (NT) Pty Ltd or a Mr Cullenane).

His Honour Brereton J addressed the key issues in turn.

1. Who was the “true owner”?

QES claimed to be what his Honour referred to as the “true owner” of the Caterpillars, having purchased them and hired them to Maiden. This was disputed.

His Honour held that the arrangements between QES and Maiden included that upon payout of the relevant financier from whom QES had obtained funding for a particular Caterpillar, title to the Caterpillar would be transferred to Maiden. The arrangement was not a mere lease, but included an agreement to transfer title upon discharge of the finance (see [17]). In the meantime, QES was the legal owner of the Caterpillars, having acquired title from the vendor and being the sole recourse for Esanda and Westpac.

His Honour concluded (at [18]) that Maiden was the “true owner” of the 320, having paid out its finance. However QES was the “true owner” of the 330 and 930, and thus had a claim in competition with Fast as to the 330 and 930. His Honour observed that while the case ultimately fell to be resolved according to the system of priorities established by the PPSA, “the notion of title – or ‘true ownership’ – is not irrelevant”.

Brereton J does not explain this last remark further. I suggest that, as the rest of the judgment demonstrates, its relevance is not to the resolution of the competing claims, but is confined to determining whether an asserted “true owner” retains an interest in the asset in question at all. In this case, his Honour held that this issue resolved the question as to QES’ claim to an interest in the 320 in the negative, such that as to that Caterpillar, there was no competition at all. As to the the other two Caterpillars, the 330 and 930, QES’ claim to ownership held good. For those Caterpillars, then, the analysis proceeded to the next stage – the competition between claimed interests in those Caterpillars.

2. The security interests in the Caterpillars

(a) Meaning of “security interest” 

Section 12(1) of the PPSA defines “security “interest in this way –

“A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).”

Section 12(2) lists examples of such transactions which may provide a security interests in personal property.

Importantly, section 12(3) then provides –

“A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation:

(a) the interest of a transferee under a transfer of an account or chattel paper,

(b) the interest of a consignor who delivers goods to a consignee under a commercial consignment, 

(c) the interest of a lessor or bailor of goods under a PPS lease.”

I pause there to note that section 12(3) is the provision which makes it clear that ownership or title to goods is deemed a “security interest” under the PPSA, and is subject to its provisions.

A “PPS lease” is defined in section 13 to mean a lease or bailment of goods –

(a) for a term of more than one year,

(b) for an indefinite term (even if determinable by either party within a year),

(c) for a term of up to a year that is automatically renewable if the total of all the terms might exceed one year,

(d) a term of up to a year, where the lessee or bailee consensually retains substantially  uninterrupted possession of the property for at least a year from the day they took possession, or

(e) for goods that may or must be described by serial number, for a term of more than 90 days in certain circumstances, or less than 90 days in certain circumstances.

There are certain exclusions from the definition of a “PPS lease” in sub-sections 13(2) and (3). Relevantly, sub-section 13(2)(a) excludes a lease by a lessor who is not regularly engaged in the business of leasing goods.

(b) QES’s interest

It was common ground that if QES was the owner of any of the Caterpillars, this was a “security interest” within the meaning of the PPSA. Although the lease of the Caterpillars from QES to Maiden was not in writing, and there was no evidence of any agreed term, his Honour found that the hire was continuous, was for a period of more than a year, and that Maiden retained uninterrupted possession of the Caterpillars for more than a year. On this basis, his Honour held (at [24]) that sub-sections 13(1)(b) and/or 13(1)(d) of the PPSA were satisfied, such that the agreement between QES and Maiden was a PPS lease. His Honour also held that sub-section 13(1)(e)(ii) and/or (iii) was also satisfied, as the Caterpillars were goods that may or must be described by serial numbers and were in Maiden’s possession for more than 90 days.

The exclusions from the definition of “PPS lease” in sub-section 13(2) did not apply. His Honour accepted that the income from hiring the three machines was QES’s only income, and that it was Mr Rutherford’s intention to continue to let the Caterpillars for hire on short-term rentals. His Honour held that on that basis it was not established that QES was not regularly engaged in the business of leasing goods (at [24]).

I pause here to note respectfully that I harbour some doubt as to the correctness of that conclusion. Whether what would appear to have been a one-off transaction coupled with an intention to continue to hire those vehicles is sufficient to denote a regular engagement in the business of leasing goods may be, I suggest, open to question.

In any event, Brereton J held that as the leases of the Caterpillars by QES to Maiden were PPS leases within the meaning of s 13 of the PPSA, it followed that QES’ interest in the Caterpillars, as lessor, was a “security interest” within PPSA s 12(3)(c).

(c) Enforceability of security interests against grantors – “attachment”

(In this case, the relevant “grantor” as that term is used by the PPSA was Maiden, the lessee of the Caterpillars.)

Section 19 is the key provision here. Subsection 19(1) provides that attachment is required before a security interest is enforceable. Subsection 19(2) provides that a security interest attaches to the relevant personal property (“collateral”), relevantly, where the grantor has rights in the collateral, or power to transfer rights in it to the secured party (at (a)).

Subsection 19(5) provides –

“For the purposes of paragraph 2(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (inlcuding an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.”

Brereton J observed that here, pursuant to s 19(5), Maiden – as PPS lessee in possession of the Caterpillars – had rights in them to which a security interest could attach. His Honour noted that these rights are not limited to possessory rights, but can also be proprietary rights. He noted there are equivalent provisions in the New Zealand and Canadian PPS legislation, and at [26] quoted the following remark of Iacobucci J of the Supreme Court of Canada in Re Giffen [1998] 1 SCR 91; (1998) 155 DLR (4th) 332:

“Thus, upon delivery of the car to the bankrupt, the lessor had a valid security interest in the car that could be asserted against the lessee and against a third party claiming a right in the car. However, the lessor’s security interest remained vulnerable to the claims of third parties who obtain an interest in the car through the lessee including trustees in bankruptcy. In order to protect its secuirty interest from such claims, the lessor must therefore perfect its interest through registration of its interest…, or repossession of the collateral… The lessor did not have possession of the car, and it did not register its security interest. Thus, prior to the bankruptcy, the lessor held an unperfected security interest in the car.”

At [27]-[29], his Honour considers key provisions of the New Zealand PPSA and certain New Zealand judgments, discussing conceptually how the rights of a lessee in leased goods are not merely possessory but are also proprietary, such as to permit a secured creditor to acquire rights in priority to those of the lessor (or, as Brereton J puts it, the “true owner”).

At [29] of Brereton J’s judgment, there is a quote from a Canadian article by Bridge, Macdonald, Simmonds and Walsh, “Formalism, Functionalism and Understanding the law of Secured Transactions” (1999) 44 McGill LJ 567 at pp 602-603, where the authors suggest that under the US Uniform Commercial Code and the Canadian legislation:

“The internal logic of the Article 9 and PPSA priority regime is premised on a rejection of derivative title theory in favour of registration as the principal mechanism for ranking priority both among secured creditors and as between the secured creditor and the debtor’s general creditors including the trustee in bankruptcy….On this interpretation, ostensible ownership – in the radical sense of bare possession or control of the collateral – has effectively replaced derivative title for the purposes of determining the scope of the secured debtor’s estate at the priority level.” 

At [30]-[31] Brereton J refers to a  2005 decision of the New Zealand Court of Appeal which, as the enactment of the PPSA in Australia subsequently approached, was the case which certainly caught the attention of those of us in Australia coming to grips with the concepts and potential effects of the new regime. The case was that of Waller v New Zealand Bloodstock Ltd [2005] NZCA 254; [2006] 3 NZLR 629.

In brief summary, in 1999 a financier took a debenture over the assets of a farming company which it registered on 1 May 2002, the day the PPSA commenced in New Zealand. In 2001, the farming company had leased a stallion named Generous from the stallion’s owner for a term of more than one year. The owner did not register its interest as owner/lessor. In 2004, the owner/lessor terminated the lease and repossessed Generous. Shortly thereafter, the financier appointed receivers to the farming company, under its debenture. The receivers sued the stallion’s owner for possession, claiming that the financier was entitled to priority under the PPSA. The New Zealand Court of Appeal held that the lease ammounted to a “PPS lease”, that the owner/lessor’s interest amounted to a “security interest” under the PPSA, that the financier had given value for its security interest under the debenture, that the farming company had rights in the stallion under the PPS lease, and that the financier’s security was enforceable against the stallion’s owner/lessor. As the financier’s security interest had been perfected by registration, it took priority over the competing security interest of the stallion’s owner/lessor, as with respect to priority of competing security interest, the principle nemo dat quod non habet was ousted by the PPSA.

Robertson and Baragwanath JJ of the NZ Court of Appeal observed (at [54]) that because the lease was for a term of more than one year, then for the limited purpose of priority of securities, the contracutal language of the agreement to lease (which provided that title to Generous would remain with the owner/lessor) was overridden by statute, and instead of its previously inviolable title to the stallion, the owner/lessor was deemed to have a statutory “security interest”, which was liable to be overridden by a competing security interest. A salient lesson indeed.

(d) Fast’s Interest

Here Fast, the financier, under its General Security Deed with Maiden, was granted a “security interest” in the “personal property” to secure the due payment of the “secured moneys”. Clause 1.1 of the Deed defined “personal property” to mean all of Maiden’s assets, including all personal property in which Maiden had rights, whether then or in the future, including the serial numbered “collaterals” listed in schedules, which included the Caterpillars.

His Honour held that the General Security Deed was a “security agreement”, and the interest created in Fast’s favour was  a “security interest” within the meaning of the PPSA (at [34]). Pursuant to s 19(2), Fast’s security interest had attached to the Caterpillars when it gave value for its security interest by advancing the funds referred to in the Loan Agreement and General Security Deed. Once it had attached, it was enforceable by Fast against Maiden the grantor, pursuant to s 19(1).

(e) Priority between competing security interests – the key provisions

Both QES and Fast held “security interests” in Caterpillars 330 and 930. The competition between the two interests was to be resolved not by title, but by priority under the rules laid down in the PPSA.

Section 55 sets out the default priority rules. Broadly –

• Where two security interests in the same collateral are both unperfected, the first in time takes priority (in terms of the order of attachment) – s 55(2)
• Where one security interest is perfected and another in the same collateral is not, the former has priority – s 55(3)
• Where two security interests in the same collateral are both perfected, the first in time takes priority (in terms of the order of perfection, and so long as perfection has remained continuous) – s 55(4), (5) and (6).

Section 21 sets out the main rule for perfection. In broad terms and all other things being equal, registration will in many cases achieve perfection. However, it is more complicated than that.

Under subsection 21(1), a security interest in a particular collateral is perfected if either –

(a) it is perfected or temporarily perfected by force of the PPSA; or

(b) all of the following three things apply –

(i) the security interest is attached to the collateral,

(ii) it is enforceable against a third party, and

(iii) sub-section (2) applies.

Subsection 21(2) applies if –

(a) the security interest has been registered and its registration remains in effect, or

(b) the secured party has possession of the collateral (not by seizure or repossession), or

(c) the secured party has control of the collateral, for certain specified kinds of collateral (These are not relevant here. They include certain types of credit instruments, but curiously, (vi) is “satellites and other space objects”).

Note that subsection 21(1)(b)(ii) above directs attention to whether a security interest is enforceable against a third party. For the answer to this, regard must be had to section 20.

Section 20 governs the enforceability of security interests against third parties. Subsection 20(1) relevantly provides that a security interest is enforceable against a third party only if it –

(a) is attached to the collateral, and

(b) either –

(i) the secured party has possession,

(ii) the secured party has perfected the security interest by control, or

(iii) a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).

Section 20(2) provides, relevantly, that a “security agreement” must be evidenced in writing with certain details addressed, and either signed or adopted by the grantor.

(f) Competition between the security interests of QES and Fast 

For Fast, in terms of enforceability against third parties, Brereton J concluded that s 20(1)(a) was satisfied, as Fast’s security interest had attached to the Caterpillars. The General Security Deed was a security agreement evidenced in writing signed by Maiden as grantor within s 20(2)(a)(i), contained a description of the particular collateral (s 20(2)(b)(i)), and contained a statement that a security interest was taken in all of the grantor’s present and after-acquired prorperty (s 20(2)(b)(ii)). Accordingly, the security agreement “covered the collateral” for the purposes of s 20(1)(b)(iii), and Fast’s security interest in the Caterpillars was therefore enforceable against a third party, including QES.

In terms of the perfection of Fast’s security interest, his Honour noted that as it had attached to the Caterpillars, this meant that s 21(1)(b)(i) was also satisfied. As it was enforceable against a third party s 21(1)(b)(ii) was satisfied. And as it had been registered and the registration remained effective within the meaning of s 21(2)(a), s 21(1)(b)(iii) was satisfied. It followed that Fast’s security interest in the Caterpillars was perfected under the PPSA. That was all common ground. (See [39]-[40])

However, his Honour observed at [41] that for QES – it had not registered its security interest in respect of any of the Caterpillars, and they were therefore not perfected (subject to what appears below). Section 55(3) therefore applied, so that Fast’s perfected security interest in the Caterpillars had priority over QES’s unperfected security interest in them. His Honour also observed that QES’s security interest was vulnerable on the grounds that it was not enforceable against third parties under s 20, because there was no security agreement that covered the collateral for the purposes of s 20(1)(b)(iii). While the PPS leases were “security agreements”, they were not evidenced in writing as required by s 20(2), thus s 20(1)(b) was not satisfied (see [41]).

(g) Transitional security interests – deemed perfection?

QES contended that its security interest in the Caterpillars had priority as “transitional security interests” which were, it argued, perfected by force of the Act immediately before the registration commencement time (see [42]).

Chapter 9 of the PPSA sets out the transitional rules.

Section 308 defines “transitional security interest” to mean –

“a security interest provided for by a transitional security agreement, if –

(a) in the case of a security interest arising before the registration commencement time – this Act would have applied in relation to the security interest immediately before the registration commencement time, but for section 310 [which provides the Act only starts to apply to security interests at the registration commencement time]; or

(b) in the case of a security interest arising at or after the registration commencement time:

(i) the the transitional security agreement is in force immediately before the registration commencement time provides for the granting of the security interest; and

(ii) this Act applies in relation to the security interest.”

Section 311 provides for the enforceability of transitional security interests against third parties, by applying the law that applied immediately before the registration commencement of the PPSA (which was 1 February 2012):

“Despite section 20, a transitional security interest is enforceable against a third party in respect of particular personal property if it would have been so enforceable under the law that applied to the enforceability of security interests immediately before the registration commencement time, and as if this Act had not been enacted (whether the secuity interest arises before, at or after the registration commencement time).”

Section 320 provides a guide to priority rules for transitional security interests, relevantly –

• A perfected transitional secuirty interest has priority over an unperfected security interest (whether transitional or not), because of s 55(3)
• A perfected transitional security interest has priority over a perfected non-transitional security interest, because of ss 55(5), 322 and 322A
• An unperfected transitional security interest has priority over an unperfected non-transitional security interest, because of sections 55(2) and 321
• A perfected security interest (whether transitional or not) has priority over an unperfected transitional security interest, because of section 55(3).

Section 322 provides for the deemed perfection of transitional security interests. I note that this provision is likely to be crucial for many transitional security interest holders, although not for the unfortunate QES.

The main rule as to the perfection of transitional security interests, set out at s 322(1) is this –

“A transitional secuity interest in collateral is perfected from immediately before the registration commencement time, whether the security interest arises before, at or after the registration time (including a transitional security interest that arises after the end of the month that is 24 months after the registration commencement time).

Note 1: As a result of this subsection, the priority time for a transitional security interest under subsection 55(4) will be immediately before the registration commencement time, as long as the security interest remains continuously perfected.”

Subsection 322(2) then provides for when a transitional security interest stops being perfected under s 322(1), which is at the earliest of the following times –

(a) when the security interest is perfected by registration under Division 6 (by migration),

(b) when the security interest is perfected by preparatory registration under Divison 7,

(c) when a registration under Division 6 or 7 is amended so that the registration perfects the security interest,

(d) when the security interest is otherwise perfected by registration, or is perfected by possession or control,

(e) when the security interest is otherwise perfected (but not temporarily perfected) by this Act, other than under this section,

(f) the end of the month that is 24 months after the registration commencement time [so after 31 January 2014].

Subsection 322(3) then provides for an exception – that subsections 322(1) and (2) do not apply to a transitional security interest in collateral if the interest is of a class prescribed by regulations made for the purposes of this subsection.

Brereton J explains at [47] that s 322 interacts with s 55 through s 21(1)(a), which provides that a security interest in particular collateral is perfected if the security interest is temporarily perfected, or otherwise perfected, by force of the Act.

Here, Fast and the receivers of Maiden accepted that any security interest of QES in the Caterpillars was a “transitional security interest” within s 308 and that, but for s 322(3), the effect of ss 322(1) and (2) would be to give QES’s security interest priority over Fast’s security interest, even though it was not registered on the PPS register. However, Fast and the receivers contended that s 322(3) applied so as to exclude QES’s interest from protection under s 322.

Regulation 9.2 of the Personal Property Securities Regulations 2010 provides that a transitional security interest is prescribed for the purposes of s 322(3) where it is registrable on a transitional register and where it was not registered on the relevant register prior to the registration commencement time.

Under section 10, “transitional register” has the meaning given it by s 330, which is contained in Division 6 (Migration of personal property interests).

Section 330 provides as follows –

“This Division applies if, at or after the migration time, and before the registration commencement time:

(a) an officer or agency of the Commonwealth, a State or a Territory gives the Registrar data, in relation to personal property, that is held by the officer or agency in a register (a transitional register) maintained under a law of the Commonwealth, a State or Territory; and

(b) the data is given in the approved form; and

(c) the Registrar accepts the data.”

The Northern Territory Register of Interests in Motor Vehicles and Other Goods was a register existing prior to the PPSA, data from which was migrated to the PPS Register within the meaning of s 330. Accordingly, it was a “transitional register” within the meaning of the PPSA.

The Caterpillars, being wholly propelled by a volatile spirit and not used on a railway or tramway, had qualified as “motor vehicles” and thus also of “prescribed goods”, for the purposes of the relevant NT Register Act. A “registrable interest” under the NT Act included a lessor of the prescribed goods, and QES’s interest in the Caterpillars was a registrable interest.

Accordingly, QES’s interest in the Caterpillars as lessor was registrable on a transitional register within the meaning of the PPSA (being the NT Register), but they had not been so registered prior to the registration commencement time. His Honour held at [55] that in those circumstances, the exception in s 322(3) of the PPSA applied, and the protection otherwise afforded to transitional security interests by subsections 322(1) and (2) did not avail QES.

(h) Further arguments by QES

QES ran another argument, to the effect that perfection of its security interest pre-PPSA fell to be determined according to the law of Queensland, not the Northern Territory, and that if the Caterpillars were not registrable on a transitional register in Queensland, then the exception in s 322(3) was not attracted. His Honour at [57]-[68] discussed this argument and the provisions of the PPSA dealing with governing laws for goods, noteably ss 233-238, in particular s 238, and rejected it.

QES ran a further, quite interesting argument that Fast and the receivers had no enforceable right to possession, as Maiden no longer had a right to possession of the Caterpillars (QES having terminated the leases), the receivers’ rights to deal with the Caterpillars deriving from, and being no greater than, those of Maiden. As His Honour observed at [69], the first limb of this submission was, in substance, that the grantor Maiden had a mere right to possession under the leases, that Maiden (and its receivers) have repudiated the lease by denying QES’s title and failing to pay rent, that QES has accepted the repudiation, terminated the lease and re-assumed possession; and accordingly, that neither Maiden nor its receivers nor Fast could have any further right to possession under the lease. The second limb invoked s 112(1) of the PPSA, which provides that in exercising rights and remedies provided by PPSA Chapter 4, a secured party may deal with collateral only to the same extent as the grantor would be entitled to so deal with the collateral.

In rejecting the first limb of this argument, his Honour noted the following –

• s 267(2) of the PPSA provides that any security interest granted by a corporation that is unperfected at the commencement of its administration or winding up vests in the corporation (at [70]),
• Thus upon commencement of the administration and/or the winding up of Maiden, QES’s unperfected security interests in the Caterpillars vested in Maiden. There is an exception in s 268(1)(ii) in respect of PPS leases of serial numbered goods, but it did not apply because one or more of s 13(1)(a) to (d) applied, as Maiden as lessee retained possession under the lease for more than a year (at [72]),
• The practical effect was that QES’s security interest was extinguished; QES had no further interest in the Caterpillars, and Maiden held them subject only to the perfected security interest of Fast (at [72]).

Moreover, his Honour noted that Maiden did not have a mere right to possession under the QES leases, but also proprietary rights to the extent that it could grant security interests to third parties. The PPSA sees such a transaction as, in substance, a security transaction, even though in form it is a lease. Thus it treats the lessee under a PPS lease as the grantor of a security interest with rights in the collateral (the personal property), and the lessor as a security party. His Honour noted that as the Canadian and New Zealand cases show, the PPSA recognises that a lessee may validly and effectively grant security interests in the collateral to third parties, that can take priority over the lessor’s unperfected interest, because the lessee is regarded for that purpose as having rights in the collateral (see [73]). Maiden acquired possessory and proprietary rights in the Caterpillars upon taking possession of them, and granted a security interest in them to Fast under the General Security Deed.

As to the second limb of QES’ argument, invoking s 112 of the PPSA and effectively arguing the nemo dat rule, his Honour dismissed this also and concluded that Fast’s priority entitled it to possession of the Caterpillars, either under the General Security Deed or pusuant to Chapter 4 of the PPSA. He also noted that s 116 of the PPSA provides that Chapter 4 does not apply in relation to property while a person is a controller of the property as a receiver or receiver and manager. His Honour also expressed the view that this was not affected by s 51F of the Corporations Act 2001 (Cth). (See [75]-[82].)

(i) The lien claim of Central or Mr Cullenane

It seemed that one of either Central or Mr Cullenane was in possession of the 320 Caterpillar and claimed a lien, arising from an oral agreement with a Maiden director that Central/Mr Cullenane would have security over unspecified equipment of Maiden for work done by him “said to be” to the value of $60,000. His Honour mildly observed that Mr Cullenane had exercised this purported right to take the 320 as it was the only machine left on the job site that was not locked.

His Honour noted there was no admissible evidence of these matters, and there was nothing to suggest any such interest could prevail against Fast. In particular, s 21(2) did not apply as there was nothing to suggest the interest had been registered, and his seizure of the 320 had not amounted to perfection. Moreover any such security interest being unperfected, it too would have vested in Maiden upon the commencement of its administration and/or winding up, pursuant to s 267 of the PPSA. (See [83]-[85].)

Conclusions

His Honour concluded at [86]-[95] that –

1. Maiden was the true owner of the 320, although QES was the true owner of the 330 and 930.

2. Fast had a security interst in all three Caterpillars pursuant to the General Security Deed, which attached to the Caterpillars, was enforceable against third parties, and perfected by registration.

3. QES had a security interest in the 330 and the 930 as a lessor under a PPS lease. QES had not registered is security interest on the PPS Register. While it was a transitional security interest, it had been registrable on a transitional security register (the NT motor vehicle Register). QES had failed to so register at the relevant time, thus the exception in s 322(3) applied and the protection (of “deemed perfection”) otherwise afforded to transitional security interests in ss 322(1) and (2) did not avail QES.

4. Accordingly, QES’s security intertest was unperfected. In those circumstances s 55(3) applied, such that Fast’s perfected security interest in the Caterpillars had priority over QES’s unperfected security interest in the 330 and 930.

5. Moreover, upon Maiden going into administration and/or liquidaiton, Maiden became entitled to the Caterpillars – subject to the perfected security interest of Fast – because QES’s (and Central’s or Mr Cullenane’s, if any) unperfected secuity interest thereupon vested in Maiden.

6. The Receivers and Fast had enforceable rights of possession of the Caterpillars against those defendants who presently possessed them, flowing from events of default under the General Security Deed having occurred, s 112 not affecting Fast’s entitlements and Chapter 4 not applying.

It will be interesting to see if this decision is appealed. In the meantime, aside from my query mentioned above as to his Honour’s finding that the QES-Maiden lease was a “PPS lease”, as it did not fall within the exclusion in s 13(2)(a), I would anticipate that this judgment by his Honour Brereton J will be relied upon and applied as authoritative. It ought be closely considered by any practitioner advising upon the operation of the PPSA in such circumstances.

This case serves as a stark illustration for any who were not already aware, that the PPSA has changed the playing field significantly when it comes to personal property; particurly as to long-held notions of the primacy of the rights of the owner of personal property leased or bailed to a third party. Where that third party subsequently fails, the rules have been changed fundamentally, when it comes to a competition between a prior, unregistered owner/lessor, and a subsequent registered secured creditor. As I observed at the outset: to put it simply, ownership is no longer king.