In Albarran and Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors,  NSWSC 852, BC201310524 the New South Wales Supreme Court had to determine a priority dispute between an equipment financier and a general finance company.
In this case, the finance company (“Fast Financial Solutions”) had an agreement which provided it with security over all of the assets of a civil engineering company (“Maiden”). The equipment owner, Queensland Excavation Services Pty Ltd (“QES”), leased that equipment to Maiden under an oral agreement.
After default by Maiden, Fast Financial Solutions appointed receivers over Maiden’s assets, including the equipment owned by QES. QES demanded the release of its equipment.
Brereton J determined:
1. Maiden, as lessee, had an interest in the equipment sufficient to allow it to grant a security interest to Fast Financial Solutions. Section 19(5) of the Personal Property Securities Act (PPSA) provides that a grantor of a security interest has rights in goods that are leased to it under a PPS lease when it obtains possession of those goods. Brereton J confirmed that those rights of a lessee are not limited to possessory rights under the PPS lease, but include proprietary rights. In reaching this conclusion, His Honour relied on New Zealand and Canadian case law.
2. While QES was the owner of some of the equipment it also held a security interest (the lease agreements) in the equipment in accordance with the provisions of the PPSA.
Having determined that both QES and Fast Financial Solutions had security interests in the equipment, the court had to determine which interest took priority? In considering that question, the court noted that the fact that QES was the lawful owner of some of the equipment was of no significance. In essence, the decision confirmed that the nemo dat rule – that no one can give what they do not own – is no longer relevant.
The only facts of significance in determining the dispute were whether and when each security interest was perfected. In the case of the security interest of QES, the fact that QES had not registered its interest on the Northern Territory motor vehicle registry (which is a 'transitional register' within the provisions of the PPSA) meant that it did not obtain the benefit of deemed perfection otherwise applicable to transitional security interests. This aspect of the decision highlights a gap in the transitional arrangements.
As a result, the court found that the perfected security interest of Fast Financial Solutions had priority over the unperfected security interest of QES.
The failure by QES to register its security interest under the PPSA also meant that the security interest was not perfected when Maiden went into administration. As a consequence, by virtue of section 267(2) of the PPSA, the security interest of QES vested in Maiden upon it entering into administration. The practical effect is that QES no longer had any interest in the equipment and Maiden held it subject only to the perfected interest of Fast Financial Solutions.
In those circumstances, the perfected security interest of Fast Financial Solutions had priority over the unperfected security interest of QES in the equipment.
Whilst the decision was not unexpected, in view of the game-changing nature of the PPSA provisions, it highlights the need for anyone who wishes to retain their existing security to take appropriate steps to register their interest on the PPS Register before the expiry of the transitional arrangements in January 2014.
The judgment also highlights the fundamental rule changes brought about by the PPSA: It can operate to deprive a lessor of their ownership of goods where the lease gives rise to a PPSA security interest and the owner fails to perfect that interest in accordance with the PPSA. The PPSA vesting rules are vastly different to the personal property laws that previously applied.