PPSA Update for September
Litigants often use the Personal Property Securities Act 2009 (Cth) (PPSA) as a potential source for windfalls. There is justification for that given the case law has reported significant losses of assets caused by PPSA issues (including failures to register).[1]
In the second half of this year there have been two cases so far where litigants have invoked the PPSA to try and recover money. In both cases, the bids were unsuccessful.
Classics for a Cause Pty Ltd v Grays Ecommerce Group Ltd [2023] NSWSC 967
An auctioneer held an online auction of classic cars. The “jewel in the crown” was a 1976 Ford Falcon XC Coupe which had been restored and modified into an award-winning show car. Classics for a Cause Pty Ltd (Classics) and Xclusive were keen to acquire the car so that their respective businesses could ‘raffle’ it for profit.
The auction closed prematurely due to a technological error. Classics was recorded as the highest bidder. The auctioneer immediately detected the error and informed Classics that it wished to re-open the auction. However, swayed by vehement objections, the auctioneer proceeded with the sale to Classics. In a likely effort to secure the car for a ‘steal’, Classics rushed to pay for the car. After further consultation and under a User Agreement that governed the auction, the auctioneer cancelled the first auction and conducted a second auction. Xclusive was the highest bidder at the second auction.
Classics registered on the Personal Property Securities Register (PPSR). This was on the basis title in the car had already passed to Classics and the auctioneer was obliged to deliver it under the User Agreement. While Classics removed its registration seven weeks later, the registration stopped Xclusive from dealing with the car. Accordingly, Xclusive sought damages against Classics under section 271 of the PPSA.
The PPSA issues were whether Classics had a security interest as defined by section 12(1) of the PPSA and whether Xclusive was entitled to damages.
The Court held that Classics didn’t have a security interest for two reasons. The first was that there was no outstanding obligation as required by section 12(1). Classics had considered that title had already passed to it when it registered. Therefore, there was no outstanding obligation to transfer title.
The second reason was that Classic’s interest in the car and the auctioneer’s obligation for delivery were insufficient to claim a security interest. The User Agreement didn’t connect the interest granted to Classic and the delivery obligation owed such that the interest could be said to have secured ‘in substance’ the obligation. Classics did not have recourse to an interest in the car if the auctioneer failed to deliver. There was also no consensual transaction between Classics and the auctioneer giving rise to a ‘security interest’.
However, the Court rejected Xclusive’s claim for damages. There was no evidence of loss during the seven-week period. While Xclusive estimated holding costs per month at 3.5% interest, the basis for that rate was not known. There was also no evidence as to whether Xclusive purchased the car with funds which it already had or had to borrow for the purchase.
Laurus Group Pty Ltd (Admins Apptd) v Mitsui & Co (Australia) Ltd (No 2) [2023] VSC 412
Australian Pipe and Tube () sued Mitsui & Co (Australia) Ltd (Mitsui) over a contractual dispute. During the litigation the Court ordered that APT provide security for costs and pay money into Court (First SFC Orders). Following mediation, APT and Mitsui agreed on APT providing further security in the amount of $100,000. Subsequently the Court made orders by consent that APT provide $100,000 security by paying these funds into Court (Second SFC Orders). APT paid this money as ordered.
At trial judgment was granted in favour of Mitsui and APT was ordered to pay Mitsui’s costs. APT was then placed into voluntary administration.
The PPSA issue was whether the amount paid into Court under the Second SFC Orders gave rise to a security interest under section 12(1) of the PPSA.
Under the general law, Mitsui acquired security in the moneys paid into Court in the form of an equitable lien or charge. However, a previous court decision (Dura)[2] had held that the PPSA doesn’t apply to these interests because there is no contract or agreement between the parties and section 8(1)(c) of the PPSA carves them out.
However the administrator contended that there was a security interest under section 12(1) because, unlike in Dura, the Second SFC Orders arose from private agreement between the parties and were made by consent. If correct, that contention meant $100,000 would be paid to the administrator as Mitsui hadn’t registered on the PPSR.
The Court held that there was no security interest under section 12(1) in the funds paid into Court under the Second SFC Orders. The interest Mitsui acquired still fell within the scope of section 8(1)(c) of the PPSA and the PPSA did not apply.
Further, the private agreement between APT and Mitsui and their proposed consent orders didn’t provide for a security interest. Rather, it was the Court’s making of the orders that imposed an obligation on APT, giving Mitsui its equitable lien or charge. In the private agreement the parties had only agreed to seek orders by consent from the Court. They fully discharged that agreement by providing the consent orders to the Court. Therefore, the private agreement and the consent orders weren’t a transaction under section 12(1).
Find out more about the PPSA
Read our Plain English Guide to the PPSA and PPSR for a succinct overview of the legislation and its implications.
If you have queries or challenges relating to the PPSA, please contact Coleman Greig’s experienced Commercial Advice lawyers.
[1] Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852; Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) [2017] NSWCA 8; NFT Specialized in Tower Cranes LLC v Machforce Pty Ltd (in liq) [2017] WASC 95; Gold Valley Iron Pty Ltd (In Liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134.
[2] Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326.
