The annotated Personal Property Securities Act 2009 (Cth) [4th edition.] 9781922347091, 1922347094

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Foreword to Third Edition The third edition of this work is a worthy successor to the earlier editions and addresses the developing body of Australian case law concerning the Personal Property Securities Act 2009 (Cth) (“PPSA”). The Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) ([5.1]ff) noted the benefit of a register of personal property securities that would provide greater transparency and certainty as to the status of security interests over third party property. The purpose of the PPSA was also noted by Ward JA (with whom Bathurst CJ and Beazley P agreed) in the Court of Appeal of the Supreme Court of New South Wales in Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8 at [83] as follows:   “… the ‘mischief’ that the PPSA was intended to address was the uncertainty and complexity of the various statutory and common law regimes applicable to security interests in personal property. The legislature sought to ameliorate this by providing a new national system of registration of interests of that kind and introducing a system of default rules to determine, among other things, priorities in respect of interests in personal property”.

The avoidance of uncertainty and complexity is, of course, a desirable objective. The case law addressed in this edition nonetheless highlights the range of practical challenges that the introduction of the PPSA has posed for the systems of lenders, suppliers of goods and other parties that take security over personal property. The authors address (in their commentary to PPSA s 8) questions that are now emerging as to whether particular forms of security (using that term broadly) such as a maritime lien, a constructive trust, a fund created under a deed of company arrangement or a creditor’s right of subrogation to a trustee’s right of indemnity can constitute a security interest within the scope of the PPSA. The authors also address (in their commentary to PPSA s 12) significant Court decisions that have considered the policy underlying the PPSA and its application in a range of factual settings: see for example Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8 (dealing with the concept of a fixture adopted in the PPSA) and Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (2014) 98 ACSR 52; [2014] VSC 61, rev’d (2015) 321 ALR 181; (2015) 296 FLR 25; [2015] VSCA 92 (dealing with temporary perfection of a retention of title arrangement). The authors also discuss (in their commentary to PPSA s 13) the amendments dealing with the concept of a “PPS Lease” made by the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth), which commenced on 20 May 2017, applying to contracts entered into from that date. This edition contains a useful discussion (in the commentary to PPSA s 153, 165 and 267) of the issues that have arisen in recent case law in respect of incorrect or incomplete information in financing statements, particularly the failure to record the Australian company number of the grantor, and of the vesting provisions in s 267 of the PPSA: see for example Re OneSteel Manufacturing Pty Ltd (admins apptd) (2017) 93 NSWLR 611; (2017) 344 ALR 657; (2017) 316 FLR 402; (2017) 118 ACSR 307; [2017] NSWSC 21. The authors also address the Review of the Personal Property Securities Act Final Report (Whittaker review) tabled in Parliament in March 2015. These matters raise questions as to whether there is scope for simplification of aspects of the registration process, so as to reduce the risk of the numerous errors in registration that have been addressed in recent case law. The authors’ ambitions are not limited to their comprehensive commentary as to the PPSA, and they provide a detailed and helpful commentary on provisions of the Corporations Act 2001 (Cth), including s 588FL–588FO, that interact with the PPSA. The interaction of the PPSA and the Corporations Act is of real practical significance, where much litigation involving the PPSA has arisen in the context of corporate insolvency and the vesting provisions that may apply in that context. This edition, like earlier editions, continues to provide comprehensive references to international case law dealing with comparable Canadian and New Zealand legislation that cast light on the PPSA. This edition has all the virtues of annotations to complex legislation, promoting a close focus upon the text and operation of the relevant sections. The authors should be congratulated on the new edition of this valuable work. Justice Ashley Black Supreme Court of New South Wales 5 March 2018

Foreword to Second Edition The enactment of the Personal Property Securities Act 2009 (Cth) (the “PPSA”) heralded a new beginning for laws governing title to and securities over personal property. The significant reforms promised to replace existing complex, inconsistent and ad hoc common law and legislation with a single national law, creating a uniform and functional approach to personal property securities. The area was ripe for change. The Act was introduced to increase consistency in the arrangements for creating, dealing with and enforcing security interests in personal property. To facilitate this, a single national online register of personal property securities replaced the then existing confusing array of electronic and paper-based national, state and territory registers.

The PPSA commenced operation in January 2012. The transitional period has come to an end as of January this year and the PPSA is now in full force and effect. The question then becomes how successful has the PPSA been thus far in conquering the difficulties and achieving the goals it was implemented to achieve? The second edition of this book goes a long way in answering that question. Authors Jason Harris and Nicholas Mirzai, in updating and expanding their discussion of the Act, both in light of case law developments and legislative amendments in the last two years, have thoughtfully analysed changes to the Act and its application since commencement. They identify common pitfalls, clarify grey areas and seek to inform readers of pertinent issues this legislation covers. Recognising that the Act was born as a product of the legislature drawing on experiences of international jurisdictions, mainly Canada and New Zealand, this edition continues to provide useful insight and commentary of recent cases from those other jurisdictions, which further assist in delivering a clearer picture of the aims, and informing the interpretation, of the PPSA in Australia. Additionally, the authors have updated the “further reading” headings at the end of each provision, ensuring that this book continues to be a comprehensive and exhaustive statement on the current state of the law, providing readers with a single go-to source on the PPSA. In the current climate of increasingly online transactions relating to personal property, and with the transitional provisions having ceased operation, there is no doubt that this consolidated guide remains, even more so in its updated form, a crucial resource for the business community, the legal profession and the banking and finance sectors. Justice Stephen Gageler High Court of Australia 6 June 2014

Foreword to First Edition The law relating to securities over personal property is about to experience revolutionary change. When the Personal Properties Securities Act 2009 (Cth) (familiarly known as the “PPSA”) comes into force, there will be an entirely new national system for the regulation of such securities. Hitherto, the law governing title to and securities over personal property had evolved in a haphazard way from diverse sources. First, there was the common law, replete with strange Latin tags and archaic Norman French expressions. Then there came waves of statutory regulation, undertaken (in Australia) principalIy on a state by state (and territory by territory) basis, at least until the national legislative schemes for regulating corporations imposed some order on securities given by corporations. All that has been swept away by the PPSA. The change is radical, not incremental. There is much to learn. Australia was not the first nation to introduce PPS legislation. Wisely, the legislature awaited, and observed the effects of, changes in other jurisdictions: specifically, Canada and New Zealand. The drafters of the PPSA were able to draw on overseas experience, and to benefit from the lessons learnt, often the hard way, elsewhere. The hotch potch of legal sources and regulatory arrangements that will be replaced by the PPSA has many disadvantages. At a practical level: registration requirements vary from jurisdiction to jurisdiction. In a federation such as Australia, there is the obvious, highly inconvenient and expensive problem of multiple registration where security is taken over personal property that is located throughout the federation. That problem is exacerbated because the registration requirements are not uniform. It is exacerbated further because the registers themselves have become cumbersome and unwieldy. Variations in the applicable legislative schemes have meant that defects in or failure to observe matters of form may vary in their consequences. Under the Corporations Act 2001 (Cth), defects of form may be overcome. For state legislation, the validity of registration is usually criticalIy dependant on form. That is unsatisfactory.

The focus on form rather than substance can be seen in other ways. By way of example only, a chattel mortgage may be registered (and, for perfection of the security interest thereby granted, should be registered). A retention of title provision in a contract is incapable of registration, but is, under the existing regulatory system, effective despite registration. Yet the substance of each is the same. Someone who is owed money has the right to have recourse to personal property to satisfy the debt. Again, that is unsatisfactory. Much of this inconvenience and expense will be swept away on commencement of the PPSA. The benefits to business, and thus to consumers, are obvious. But equally, there will be, at least at the outset, a significant compliance burden cast on business. How are lawyers, lenders, and others who have a vital commercial interest in the regulation of securities over personal property to come to grips with this change? Jason Harris and Nicholas Mirzai provide an answer to this question. The labour that Harris and Mirzai have undertaken is huge. That is obvious on even a brief perusal of this book. Their labours have made the PPSA accessible to those whose operations will be affected by it. They have drawn together, to illustrate the operation of the PPSA, pre-existing case law in Australia and elsewhere (to the extent that it is relevant), legislative material from overseas jurisdictions and case law dealing with those legislative regimes. Thus, for each provision of the PPSA, Harris and Mirzai have laid out analogous provisions in other jurisdictions, an outline of the section and the way in which it relates to other key provisions of the PPSA, and an explanation of the key concepts that are found in the section. But they go further. They give detailed commentary, supported by overseas case law where relevant. And they provide further reading references. This book does far more than provide a primer to the operation of the PPSA. The depth of the research, and the erudition which is displayed, are sure to make it the first point of reference for all those who need to understand, and consider or advise upon, the operation and impact of the PPSA. Harris and Mirzai deserve both thanks and congratulations for their labours in producing this book. I have no doubt that it will become an indispensable reference tool for all those concerned with the operation of the PPSA. The Honourable Justice Robert McDougall Chambers, Supreme Court of New South Wales 28 September 2011

Preface With a materially changed global landscape as a consequence of the COVID-19 pandemic, the government’s response to the Review of the Personal Property Securities Act 2009 (Cth), conducted by Mr Bruce Whittaker — the Final Report of which was published in March 2015 — is expected to experience further delay. That said, jurisprudential development of the law concerning personal property securities has, and will, continue. As readers may have come to expect, that case law, both domestic and foreign, forms the basis of the revised commentary to this fourth edition of the Annotated Personal Property Securities Act. By way of illustration, and at the risk of being unduly selective, the analysis of the priority conferred on a purchase money security interest — and when — in Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163 (and on appeal in Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd [2018] SASCFC 95) has improved the commentary at s 62 of this publication. The analysis of the judicial process involving s 182 of the Act in Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 has, in a similar vein, improved the commentary to s 182. Of course, the important cases of Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20 and Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liq) (R&M Appt) [2018] WASCA 163 are also addressed, where appropriate, by this edition.

However, in addition to bringing the substance up to speed with the last two years of case law, the aim of this edition was to carefully review and refine the existing analysis to ensure the currency of the annotations in light of that jurisprudential and academic analysis and the overarching thinking of the authors. This process involved, in some instance, re-writing certain parts of the commentary entirely and re-shaping other parts. We trust that this process of revision and refinement has resulted in a clearer articulation of statements of principle — particularly, although not limited to, the fundamental concepts and definitions which can be found towards the earlier parts of the Personal Property Securities Act 2009 (Cth). We remain grateful to the reception of the professionals who use this publication and that of students and academics in the teaching of Commercial Law across Australia in various capacities. The vitality of this text is, of course, in its use in the study and practice of law. It pleases us both greatly to see heavily tabbed copies of the Annotated Personal Property Securities Act occupying precious real estate on our colleagues’ shelves. We can only hope that the fourth edition, whether in hardcopy or electronically, will receive at least as much use as its predecessors. The authors thank Adam Waldman for this excellent research assistance in preparing this edition. Nicholas Mirzai Jason Harris

Wolters Kluwer Acknowledgments Wolters Kluwer wishes to thank the following who contributed to and supported this publication: Director, General Manger, Research & Learning, Wolters Kluwer Asia Pacific Lauren Ma Head of Legal Content, Wolters Kluwer Australia Carol Louw Books Coordinator, Wolters Kluwer Asia Pacific Alexandra Gonzalez

About the Authors Nicholas has practiced as a Barrister since March 2013 and is a member of Level 22 Chambers in Sydney, New South Wales. He has appeared across Australia in largely corporate, commercial, securities and insolvency related matters and maintains a specialist advisory practice which extends to large institutions, insolvency practitioners and litigation funders. Prior to being called to the Bar, Nicholas was an Associate at the High Court of Australia, Tipstaff at the Supreme Court of New South Wales and Law Clerk at King & Wood Mallesons (formerly Mallesons Stephen Jaques) in banking and finance. He holds a LLB (with First Class Honours and the University Medal)/B Business (Finance) (with Distinction) from the University of Technology, Sydney. He can be contacted at [email protected]. Jason is a Professor of Corporate Law at the University of Sydney Law School where he teaches and researches in the areas of Corporate Law, Insolvency Law, Commercial Law and Contracts. Jason has published widely in these areas with 13 books and over 90 papers in scholarly and professional journals. Jason’s research is frequently cited in Australian courts, including in the High Court of Australia as well as in Commonwealth parliamentary committees and by academic works in Australia and internationally. Jason is an active participant in law reform initiatives through his policy work with the Governance Institute of Australia, the Australian Institute of Company Directors and the Corporations and Insolvency Committees of the Law Council of Australia. Jason is a former President of the Corporate Law Teachers’ Association and a former chair of the academic committee of the Banking and Financial Services Law Association. Jason has previously held academic positions at UNSW, the ANU and UTS and has held visiting positions in Canada, England and the United States. He can be contacted at [email protected].

Author Acknowledgments

Nicholas is ever grateful to the profession for entrusting several of the matters which now populate the pages of this text to his carriage — and equally to those who have appeared against him and tested his thinking on the PPSA (and other matters) from time to time. In particular, and as always, Nicholas thanks Professor John Stumbles, Christopher Athanassios and his co-author, Professor Jason Harris, for their patience and persistence when asked (sometimes with less than gentle, intellectual stubbornness) to engage with particular propositions — some of which have found their way into the commentary. The staff at Level 22 Chambers, under the guidance of its Clerk, Jackie Charles, are owed particular thanks for their editorial assistance of this fourth edition — which went well beyond their typical line of duty. Finally, the patience of Bernadette and young Marcus must be recognised, not only in respect of this publication but also the temporary migration of Nicholas’ practice to his home during the course of the 2020 pandemic. Jason thanks Kathy, Ciaran, Erin and Kate for their love and support. He also thanks Professor Stumbles for his encouragement to start reading about the PPSA back in 2009, and Professor Sheelagh McCracken and Associate Professor David Brown for their thoughts on issues covered by the book over many years. Jason also thanks the many practitioners and current and former students who have shared thoughts on issued discussed in the book. Lastly, Jason thanks his co-author Nicholas for his insight, support and friendship over the past 10 years. The authors thank Adam Waldman for this excellent research assistance in preparing this edition.

How to Use This Book As with the first edition of this text, the structure, format and layout of this edition have been maintained to help direct readers quickly to the information they require. This summary outlines the various techniques adopted by the authors in this regard and presents a guide to each of the headings incorporated in the annotations. Introductory comments For those approaching the Personal Property Securities Act 2009 (Cth) for the first time or for those seeking a broader understanding of the rationale behind it, the introductory sections of this text aim to put the PPSA reform into context and discuss elements of the regime at a conceptual and policy level. While a concise overview, the introductory comments are referred to throughout the substantive commentary of this book as many of the provisions can only be fully appreciated in light of the overarching framework of the regime when taken as a whole. In that regard, the introductions are not strictly confined to explaining elementary concepts of securities law although they also seek to facilitate this purpose. Annotations Each substantive provision of the PPSA has a corresponding annotation. With the exception of several administrative parts of the Act (which are dealt with as whole Parts as opposed to conducting a sectionby-section analysis) the sections of the Act have been commentated upon using the following heading structure: [x.1] Comparable provisions in foreign regimes [x.2] Outline [x.3] Cross-references [x.4] Concepts [x.5] Commentary [x.6] Further reading For convenient and quick access, each heading appears at the same decimal place for each annotation whereby the section number itself determines the first number. Using s 20 as an example, the annotations to s 20 have the following headings:

[20.1] Comparable provisions in foreign regimes [20.2] Outline [20.3] Cross-references [20.4] Concepts [20.5] Commentary [20.6] Further reading Similarly, all subheadings follow a linear pattern of subsequent decimal values. For example, if the commentary to s 20 has four different sub-parts they would appear as follows: [20.5.1] Introduction [20.5.2] Attachment requirement [20.5.3] Writing requirements for perfection by registration [20.5.4] Written security agreements Heading Contents The six heading levels focus on providing answers or guidance for the benefit of different users. Comparable provisions in foreign regimes — x.1 As discussed in Intro.VII, the Australian PPSA conceptually derives from the US, Saskatchewan, Ontario and New Zealand regimes. Structurally, however, the various statutes differ considerably — particularly with respect to drafting style. This part of the annotations provides readers with parallels between the Australian PPSA and the four foreign systems identified — to the extent that a direct parallel can be drawn. This is designed to quickly direct readers to the relevant foreign provisions for the purposes of further research. For the purpose of clarity, where this symbol appears, [–], it means that no relevant cross-reference exists. Outline — x.2 The outline section is aimed to provide a concise description of the relevant section whereby readers can quickly ascertain whether or not the particular section is of relevance to them. Typically no more than a few sentences, the outline aims to cut through the detail and provide a general overview of the effect of the provision. Cross-references — x.3 The cross-references section aims to provide a checklist or series of flags to other provisions of the Australian PPSA which may affect the operation of the particular provision being discussed. While elaborated upon throughout the commentary to the section, the cross-reference list clearly highlights the interconnected nature of certain provisions and helps readers navigate through the Act. The cross-references also comprehensively refer readers to specific PPS Regulations relevant to the section discussed. Concepts — x.4 The concepts section provides definitions for terms used throughout the section which impact on its scope, operation and overall effect. The terms addressed are not restricted to those defined by s 10, although these are included where relevant. At a fundamental level of statutory interpretation, an understanding of the concepts is imperative to understanding the scope and effect of the relevant provision.

That said, it should be noted that where a concept forms the heart of an operative provision it is often addressed in the commentary itself and not in the concepts section. It should also be noted that the concepts of the security interest, the grantor and the secured party are relevant for almost every section of the Act and so reference has not been made to them specifically in the “Concepts” section. Commentary — x.5 The commentary section comprises the detailed analysis of the section drawing on foreign case law, leading texts, academic articles, the explanatory memorandum, ALRC reports and other PPS publications to provide insight into the mechanics of the PPSA. It is in this part where the intricacies of each provision and sub-provision are explained and expanded upon. While a vast body of foreign resources exist in relation to PPS-type regimes, the authors have endeavoured to be selective in presenting only those authorities relevant to the operation of the Australian Act — either through parallel legislative provisions or conceptual similarities. Further reading — x.6 Recognising that the magnitude and scope of the PPSA is impossible to exhaustively canvass in one handbook, the “Further reading” section provides references to all relevant explanatory memorandum paragraphs, ALRC Report 64 concepts and academic articles which further discuss the particular provision being addressed. Again the authors have been selective to present only the most relevant resources to focus points of discussion as opposed to provide a cursory overview.

PRELIMINARY DISCUSSION ¶Preliminary Discussion Preliminary Discussion Intro. I — What is the Personal Property Securities Act 2009 (Cth)? Fundamentally, the Personal Property Securities Act 2009 (Cth) (PPSA) is a statutory regime which resolves priority disputes between parties who take security interests over personal property in Australia. It is based on a referral of powers from the Australian States to the Commonwealth and largely replaces existing State and Federal registers for security interests in different types of personal property such as motor vehicles. The PPSA also replaces the State-based bills of sale legislation. The PPSA commenced operation on 31 January 2012 and the transitional provisions pursuant to Ch 9 ceased to have operative effect on or about 31 January 2014. Importantly, despite its arguably lengthy transitional period, the PPSA applies to all security interests which arose on or after 31 January 2012. In order to alleviate the effect of the PPSA and its significant changes, the transitional provisions, contained largely in Ch 9 of the PPSA, sought to provide deemed compliance for existing security agreements (called “transitional security agreements”) and the security they conferred (called “transitional security interests”). Whether or not the transitional provisions were effective in their conferral of temporary perfection upon transitional security interests (see particularly s 322 of the PPSA) remains to be seen. However, what is now clear is that the temporary perfection status afforded by Ch 9 has ceased and all security interests taken over personal property to which the PPSA applies will need to comply with the requirements imposed by the legislation (or risk losing priority should such an interest require enforcement). The PPSA represents both a confirmation of existing secured transactions law in some areas and a significant departure from existing principles in others. Elements of the pre-PPSA law confirmed by the PPSA include notice-based registration requirements, unenforceability of security interests that are not properly perfected upon insolvency and a system of priorities based largely (though not entirely) on temporal priority — whereby, “first in time” prevails. This is because the PPSA is focused on regulating the priority and enforcement of competing security interests. However, and perhaps most notably, the nemo dat quod non habet (no one [can] give what one does not have) principle is watered down materially in respect of transactions which fall within the scope of the PPSA. This is because competitions in priority under the PPSA are not (unlike the pre-PPSA law) based on who has superior “title”. The PPSA no doubt came as a shock to lessors and suppliers with retention of title agreements who may be deemed to be secured parties under the regime. Furthermore, certain transactions (such as long-term leases, commercial consignments and transfers of book debts) are deemed to be security interests (see s 12(3), 13) whether they secure payment or performance of any obligation or not. The failure to perfect a security interest can result in mandatory subordination of one’s interest under the PPSA, regardless of who has legal title or ownership of the underlying property, the subject of the security interest. While a change to existing commercial law principles, the PPSA largely builds upon the Common Law and commercial practices as they have developed in Australia. For instance, the PPSA is not concerned with the form or scope of commercial transactions but rather with their substance and effect. The very definition of a security interest in s 12(1) is explicitly based on the substance of the transaction and not on its form. This has meant that the use of long-standing terms such as “floating charges” have become obsolete (see Pt 9.5). Although some provisions set out what matters must be addressed in security agreements, the PPSA largely operates on the basis that the commercial dealings between two or more contracting parties is to be regulated by non-PPSA laws. The PPSA has and will continue to affect many commercial transactions and the transition to the statutory system has been, and will continue to be, a challenge for many commercial parties, consumers and those who advise them. Participants are required to adapt to a new commercial law lexicon, with terms such as “charges” and “chattel mortgages” giving way to the general security agreement, security interest, chattel

paper and purchase money security interest (PMSI). While it will no doubt present some difficulty to abandon or reconceptualise long standing principles such as the nemo dat rule and the “crystallisation” of a floating charge, the PPSA provides significant benefits by reformulating the ambiguities of secured transactions which arose at Common Law into a new comprehensive system. Intro. II — Why was the PPSA 2009 (Cth) introduced? — Legislative History The process of law reform The process of law reform that led to the introduction of the PPSA (Cth) (PPSA) was gradual. In 1972, the Law Council of Australia (known as the Molomby Committee) recommended a substantial reform of consumer credit laws: see Law Council of Australia, Report on Fair Consumer Credit Laws (1972). As part of that proposal, the Committee Report noted “the need for reform of the whole area of goods securities”. While this eventually led to the reform of consumer finance laws, the process of reform of commercial securities laws entered a prolonged period of debate and review. In the early 1990s, several State law reform bodies and the Australian Law Reform Commission (ALRC) began investigating personal property securities (PPS) reform which culminated in the release of ALRC Report 64 Personal Property Securities (1993). This was followed by a discussion paper published by the Commonwealth Attorney-General’s Department in 1995 which led to several conferences convened by Professor David Allen of Bond University. This process resulted in the creation of a draft bill which became known as the Bond Bill (2002). Professor Allen was instrumental in pushing for law reform which led the Standing Committee of Attorneys-General to release an options paper in 2006 canvassing the law reform. This was followed by the formulation of the Personal Property Securities Bill 2008 which underwent extensive consultation. Upon submission to the Commonwealth Parliament, the Senate Legal and Constitutional Affairs Committee considered the Bill, and several related Bills (namely, the Personal Property Securities (Consequential Amendments) Bill and the Personal Property Securities (Corporations and Other Amendments) Bill) in 2009 and 2010, leading to further revisions before the Acts were passed by the Parliament. Since that time further amendments have been made; see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth). Pursuant to s 343(1) of the PPSA, the Minister must cause a review of the operation of the Act within three years after the registration commencement time. In accordance with this section, on 4 April 2014, the Hon George Brandis QC announced that the PPSA will be reviewed under the lead of Ashurst partner Mr Bruce Whittaker. An interim report from this review is due 31 July 2014 with a final report due on 30 January 2015. The focus of the review is on the impact of the PPSA on small business and the simplification of the Act and its provisions (although the review is not restricted exclusively to these purposes). Why reform PPS law? The need to reform PPS law was based on a number of factors. Most importantly, technological change in financing techniques and structures led to the traditional classifications of security devices becoming quickly outdated. Much as the Financial Services Reform Act 2001 (Cth) led to a “substance” over “form” approach to financial product regulation, the PPSA adopted this rationale moving away from the form of the security device to focus on the substance of the transaction. This provides the benefit of regulating many common transactions that are aimed at providing security but avoid the notification and registration requirements of traditional bills of sale and company charges (such as retention of title clauses). The prePPSA regulatory framework was filled with overlapping legal regimes and produced a number of inconsistencies in the treatment of substantially similar transactions. The aim of introducing the PPSA was to simplify commercial and securities law by providing a consistent regime to deal with priority disputes over PPS. As the Court of Appeal for British Columbia said in 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) 290 at [1], the PPSA: “swept away various statutory, common law and equitable rules dealing with secured transactions involving personal property … This patchwork of rules relating to constructive and actual knowledge, title, registration, crystallization, realization and priorities had developed over many years in response to changing exigencies and without any overall rationale. The new unified statutory scheme (‘PPSA’) applies to all interests that ‘in substance’ create security interests on personal property”.

In New Zealand, in the first major case on the PPSA (NZ) (Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528), Justice Hansen noted that the PPSA replaced a “confusing hotchpotch of rules and regulations under common law and statute with a comprehensive system for registering security interest in chattels and other personal property”. One key purpose of the PPSA was to recognise that the core concept of a security interest under the Act overrode certain conventional legal rules so as to introduce a consistent and comprehensive system for resolving disputes over PPS: Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629 at [27] (CA). As the Supreme Court of Canada said in i Trade Finance Inc v Bank of Montreal [2011] SCC 26 at [27], where the PPSA applies “it renders irrelevant the distinctions between the wide variety of instruments which existed at common law and in equity for taking a security interest in another person’s property”. That the jurisprudence which has developed abroad remains important to the interpretation of the PPSA domestically was confirmed in the first Australian case to substantively consider the operation and effect of the regime, Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 at [32]. Intro. III — Pre-PPSA law with respect to security interests In understanding how the PPSA alters the existing position at common law with respect to security interests, it is worth briefly examining the law as it stood before the Act took force. Before engaging in this task, the following caution ought to be observed. The PPSA is a Commonwealth statute that is meant to represent a change from the previous regime, and it is, in the authors’ view, erroneous to commence interpretation of its provisions by starting with pre-PPSA notions. In some instances, as will be discussed in turn throughout this book, the legal position is the opposite of what once governed. In other cases, the PPSA introduces a totally new concept altogether (such as chattel paper). This brief account has only been included as an introduction to securities law for those unfamiliar with its workings. A. What is security? The term security can be defined as “a transaction whereby a person to whom an obligation is owed by another person called the ‘debtor’ is afforded, in addition to the personal promise of the debtor to discharge the obligation, rights exercisable against some property of the debtor in order to enforce discharge of the obligation”: Edward I Sykes and Sally Walker, The Law of Securities (5th ed, 1993) 3. “Taking security” is thus the creation of an ancillary or additional right — a right which accompanies and provides an avenue of recourse for the secured party in the case of a failure of the debtor to meet some primary obligation. While a security interest is ancillary, this should not cause its effects to be trivialised as it is often the case that the security interest provides better recourse for the secured party than enforcing the promise against the debtor’s primary obligation(s). Consider the following example:

Debtor A borrows money from Bank B in exchange for both the promise from Debtor A to repay the loan, typically inclusive of an interest component, and the ability for Bank B to seize and sell Debtor A’s computer, motor vehicle and dining set should they not meet their obligation to repay.

The first right so described, namely the promise to repay, comprises the primary obligation and is enforceable as a right in personam, that is, a right against the person — in this case Debtor A. Should Debtor A go bankrupt or fail to meet the obligations set out in the agreement between Debtor A and Bank B, Bank B is forced to put in a proof of debt of some description against Debtor A’s estate or sue Debtor A in an action regarding the debt to recover the amount owed to it. The second right so described, namely the right to seize and sell particular items of Debtor A’s property, constitutes the ancillary right — the security — which operates as a right in rem, that is, a right against the world at large. Note the irrelevance of this secondary right where Debtor A simply complies with the terms of the agreement between Bank B and themselves — such is the nature of taking security. In the

converse, note the critical importance of the right where Debtor A, for whatever reason, is unable to meet the primary obligation(s) owing to Bank B. Assuming Debtor A is forced into bankruptcy/insolvency and is hence unable to meet the relevant obligation(s), Bank B can then point to particular items of property encumbered by Debtor A for its benefit. Indeed, Bank B, assuming validity of the underlying agreement, can exercise powers of seizure and sale to recover the primary obligation owed. Any shortfall can additionally be recovered from Debtor A’s estate through the same proof of debt mechanisms outlined above. As with pre-PPSA law, enforcing a security interest does not circumvent a right to recover in personam (against the person). What the security interest does is offer priority to Bank B who need not wait to be reimbursed from Debtor A’s estate and need not share with other creditors of Debtor A in respect of what is able to be recovered — a sum which is often substantially less than the obligation owing based on the pool of assets available from Debtor A’s remaining estate. The reason for this substantial reduction in return to creditors is based typically on the simple fact that in a bankruptcy/insolvency scenario, the money owed to creditors is typically greater than the asset pool available as part of Debtor A’s estate (and in a highly debt-leveraged economy — that disparity is exacerbated). In the absence of enforceable security, distribution of the bankrupt’s estate occurs on a pari passu basis (meaning “with equal step”) such that all creditors of a particular class are paid in full before moving to the next class of creditors until either all creditors are paid or the asset pool is depleted. Where the asset pool is insufficient to meet all debts owing and admitted by the administrator of the estate (as is often the case) a percentage is paid based on the size of the obligation owing which could range anywhere between 0 and 100 cents in the dollar. “Taking security” thus provides a key method of addressing default risk. B. The legal position While the concept of security appears to be somewhat straightforward in application, ensuring that an interest is properly secured contains the potential for many validity and subsequent priority issues to arise. The ramifications of failing to hold a valid security interest or a security interest which benefits from priority as against other such interests could mean the difference between complete recovery and recovery of nothing at all. Indeed, so fundamental is the effectiveness of taking security to commercial business that in recent times more abstract commercial applications of the concept have developed including “securitisation” and “security lending”: eg see Beconwood Securities v ANZ (2008) 26 ACLC 512. While much time and effort has been spent attempting to implement ways and means of improving the framework as it stood prior to the PPSA, so fragmented were the various principles that each layer of reform added new complexity and inconsistency to the existing model. The most evident example of this is the distinction made between a mortgage and a retention of title arrangement. Both instruments operate such that the holder of legal title surrenders possession of the underlying property in favour of the debtor. In substance, both instruments grant the holder of the legal title to the property an interest akin to security. However, under pre-PPSA law, only the mortgage is characterised as a security interest and is duly registrable — the retention of title arrangement is not a security interest and no register existed for such instruments. Unlike under the PPSA, both legal title and the form of the instrument comprise the focus of this analysis. The proliferation of instruments seeking to circumvent or distort registration requirements for taxation and other such purposes have thus arisen where clever drafting has resulted in a large degree of complexity and inconsistency. What was recognisable as a security interest under pre-PPSA law was thus limited to the following four instruments: (i) mortgages; (ii) charges; (iii) liens; and (iv) pledges.

(i) Mortgages The term “mortgage” is commonly associated with the creation of an encumbrance over real property and which arises typically when a person seeks to purchase real estate. While common for dealings with land, mortgages are not limited in such a way and may apply to secure dealings with personal property. Conventional mortgages over land are commonly “equitable” mortgages as opposed to “legal” mortgages — as discussed below. By definition, a legal mortgage is “a security created by agreement for the payment of a debt, or a future advance, which involves an actual or executory conveyance of real or personal property”: See further Tyler, Young and Croft, Fisher & Lightwood’s Law of Mortgage, (3rd ed, 2013). A legal mortgage thus constitutes the assignment or transfer of the legal interest in property to the mortgagee (Santley v Wilde [1899] 2 Ch 474), as distinct from the concept of an equitable charge. The mortgagee holds the legal title for the benefit of the holder of the equitable title, that is, the mortgagor. Upon satisfaction of the underlying obligation (typically the complete repayment of a debt owed plus interest and related costs), legal title is transferred back from the mortgagee to the mortgagor and the property subject to the mortgage becomes unencumbered. As this interest comprised one of the recognised classes of securities in Australia, the interest created traditionally required registration in order to be recognised at law: Rose v Inland Revenue Commissioner [1952] 1 Ch D 499 at 510–511. Over the course of the legal mortgage, the mortgagor retains the “equity of redemption”, that is, the right to have the property transferred back to them upon satisfaction of obligations owing to the mortgagee: see Salt v the Marquess of Northampton [1892] AC 1 at 18–19. This mortgage is called a “legal” mortgage because it is recognised by a court exercising common law jurisdiction. The rules regarding legal mortgages were strictly enforced including the doctrine of forfeiture and the imposition of formal requirements by way of writing and statutory compliance. This did not, however, fetter the imposition of equitable notions and over time the equitable mortgage developed along the lines of preventing unconscionability and giving effect to the intention of the parties regardless of form. Thus, by contrast, an equitable mortgage does not purport to transfer title from the mortgagor to the mortgagee at the outset of a security arrangement. The reverse thus applies in the instance of default, that is, where the mortgagor fails to satisfy the obligations owed to the mortgagee, the security is triggered and legal title is to be transferred to the mortgagee. (ii) Charges For the purposes of analysing how charges operate, the concept of an equitable charge will be explored. An equitable charge bestows proprietary rights upon the chargee (that is, the party benefiting from the security interest) to appropriate an asset or class of assets should the chargor (that is, the party owing the obligations) default on obligations owing to the party owed the primary obligation — most often the chargee. Like a mortgage, taking security under a charge does not require the transfer of possession of the property from the chargor to the chargee at the outset of the arrangement and indeed typically possession will not be transferred unless and until enforcement action is taken upon execution of the instrument. Charges can arise by operation of law or by agreement and have been used widely in a commercial sense in either “fixed” or “floating” vicinities. A fixed charge attaches to specific property at the outset of the charge’s operation whereby the chargor can no longer deal with such property in the ordinary course of business without the direct consent of the chargee. A fixed charge thus commonly attaches to property which is not typically subject to day-to-day dealing and/or transfer, such as plant and equipment. A floating charge on the other hand does not attach to any specific item of property at the outset of the charge’s operation but rather attaches to the property owned by the chargor at the moment of default. Upon default, a process known as “crystallisation” occurs, encompassing all property held by the chargor at that particular point in time. Until this point, however, the chargor is free to use the assets in the ordinary course of business: see Agnew v IRC [2001] 2 AC 710; Re Spectrum Plus Ltd (in liq) [2005] 2 AC 680; Fire Nymph Products Ltd v The Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365. Floating charges thus became popular instruments for taking security over assets which are typically subject to transferability, such as inventory. Taking both a fixed and floating charge has thus become a commercially acceptable means of taking “all-assets” security. Again, like mortgages, charges required

registration in particular circumstances in order to be enforceable.1 As will be discussed in due course, the PPSA makes the distinction between a fixed and floating charge and the concept of crystallisation largely irrelevant (see Pt 9.5). See the discussion on circulating assets or non-circulating assets in particular at s 340. (iii) Liens A contractual lien can be defined as an instrument that entitles a party to retain possession of encumbered property until a debt incurred with respect to such property has been paid: see for example Stapley v Towing Masters Pty Ltd (trading as Dynamic Towing) [2009] NSWCA 382. In essence, a lien is a security interest which arises by possession of the underlying collateral. There are several types of lien including possessory, equitable and non-statutory maritime liens. A common example of a possessory lien is one held by a legal practitioner over client files and information with respect to work done on a relevant matter. While the holder of a contractual lien does not possess an express right of sale, they may withhold possession. (iv) Pledges A pledge is a possessory security, otherwise referred to as a “pawn”. Using a pledge to take security operates through use of a bailment whereby the pledgor leaves property with the pledgee. A pledge and a lien share many attributes at law. One distinguishing feature is that the secured party, the pledgee, has a right of sale if certain conditions are not met (namely, the repayment of funds plus interest/costs within the specified life of the security interest does not occur). The beneficiary of a lien has no such automatic right. C. General comments As can be seen from the above brief analysis, the approach to the concept of a security interest at common law was largely a case-by-case task of ascertaining whether or not a particular interest fits within one of the above four definitions so defined. While effective and operative up until the PPSA, the common law approach to securities law became ill-equipped to account for instruments used in contemporary commerce. Contractual set-off agreements, hire purchase instruments, flawed assets, subordination agreements, retention of title clauses and even certain classes of lease arrangements have each attracted varying determinations from different courts over the years. This has reduced the precedential value of judicial decisions and resulted in unnecessary variations of drafting techniques to reach different practical ends while further confusing and hindering the principled development of the law. The ambiguity which has arisen has had an obvious and direct result on obtaining credit — as risk and uncertainty goes up, so does the price. As previously stated, the Court, when asked to resolve a priority dispute, was to be led generally from the form of the transaction and the holder of particular classes of title in the underlying property, in order to determine whether the agreement contemplated an attachment of a security interest, resulting in valid recourse, or conclude that the agreement should be properly characterised as one providing mere rights in personam (against the person). The absence of comprehensive legislative intervention has been criticised for years prior to the development of the PPSA and it indeed provides a long-standing and invited change to securities law with respect to personal property. Intro. IV — Principles of the PPSA (Cth) The PPSA is founded on several core principles and rationales which are seminal to an understanding of how it operates and functions. These principles duly form part of an introduction to the PPSA and resonate strongly throughout the commentary of this book and the text of the statute itself and should be well understood as the contextual backdrop upon which the PPSA was drafted. It should also be noted at the outset that no one rationale takes preference to any other and the intention of the legislature should be generally appreciated as a collective amalgamation of founding principles as encapsulated in the statutory language itself and, where appropriate, the relevant extrinsic material behind the legislation. That being said the principles can largely be dealt with in a piecemeal fashion as follows: (a) “irrelevance” of title; (b) substance as opposed to form;

(c) preservation of commercial realities; (d) primacy and predictability of the register; (e) consumer protection; and (f) preservation of the existing law where the Act does not apply. A. “Irrelevance” of title As discussed in Intro.III, under the pre-PPSA law, determining who held title was critical to the determination of who took priority in a dispute over particular collateral. “Title” refers to the legal or equitable rights in property which determined who was recognised as the “owner” of the property at law. The owner of property, strictly speaking, is the holder of the legal title. It is possible however to be the legal owner of property subject to an equitable interest — the creation of a trust is premised on this fact. The trustee retains legal ownership of the property while the beneficiary holds the beneficial or equitable interest. The PPSA is an active departure from the determination of priority based on title/ownership as under the Act’s rules for determining priority, title is merely one of many considerations and is not in and of itself determinative of who prevails in a priority dispute. That is to say, the holder of legal title who fails to comply with the PPSA may surrender their interest or hold it in subordination to the interest of another (irrespective of whether or not the subsequent interest holds any legal or equitable title to the underlying property) by virtue of the Act. Indeed, s 273 of the PPSA provides that: “The fact that title to collateral is in a secured party rather than a grantor does not affect the application of any provision of this Act relating to rights, duties, obligations and remedies.” This distinction was discussed by Sifris J in Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644, where his Honour held (at [37]–[38]): “The PPSA provides for a priority regime, not a title regime. Under s 273 of the PPSA ownership or title to personal property is not determinative and as a consequence a retention of title (‘ROT’) financier’s ownership interest is replaced by a simple security interest. A ROT supplier must protect that ‘security interest’ by taking possession of the personal property (eg a pledge under pre-PPSA law) or by obtaining a signed security agreement that covers (describes the collateral) and perfecting that security interest by registration of a financing statement on the PPSR. The consequences of non-perfection are that the security interest is ineffective against third parties, and on insolvency a security interest (title) vests in an administrator or liquidator. In other words, it is ineffective in the event of insolvency. Because the ownership or title interest is merely a security interest, non-perfection also results in loss of priority because of PPSA s 55. A further consequence is that a transferee or buyer can take free of the security interest such as under s 43 because of non-registration and, also, under s 46 which provides that a buyer (transferee) takes free of a security interest given by the seller who sells personal property (mainly inventory) in the ordinary course of business of selling personal property of that kind.” (citations omitted). Title, and the nature of how title is passed according to a particular instrument, should be used as a factor indicating whether or not a security interest has arisen under the Act and is to be granted no greater weight than any number of other factors in light of the circumstances of each individual transaction. While the PPSA aims to be comprehensive by way of prescribing particular interests and provides a legal test better equipped for contemporary commercial practice, analysis of factors on a case-by-case basis is still essentially due to varying perspectives and degrees of interpretation from the judiciary. In conclusion, as a factor among many (see the commentary to s 12 and 13 for more detail), how title is conveyed (if at all) carries less weight under the PPSA than it did at Common Law. However, it is worth reiterating that where the PPSA does not apply (due to s 8, failure to meet s 12(1), applying Pt 2.5 or for some other reason) the Common Law approach to resolving priorities retains its residual operation (see s 254). Understanding how title is dealt with therefore remains important under the PPSA despite not being determinative of a priority outcome.

B. Substance as opposed to form The PPSA makes clear that the “form” of the instrument giving effect to the agreement between the parties is largely irrelevant under the PPSA. What is meant by this is that the PPSA does not look to the form of the transaction or how it has been labelled or defined by the parties in order to determine priority disputes. Like title, the form of the instrument is one of many factors to be considered in deriving whether or not a security interest has arisen. Security interests arise under the PPSA pursuant to an “in substance” test. The “in substance” analysis directs examination to the substance of the transaction in order to determine whether or not the payment or performance of an obligation is secured by some proprietary interest (see further s 12). Irrespective of how the parties seek to characterise their agreement, where a security interest arises in substance, the PPSA takes jurisdiction over the enforceability of that interest against third parties. The PPSA also imposes requirements on the parties who wish to preserve the priority of their interest. Holding title or declaring that a particular transaction takes a certain form outside the jurisdiction of the PPSA will not prevent the Act from applying — to the contrary the Act will very likely apply. Additionally, particular interests are defined by the PPSA to constitute security interests even where they do not secure payment or performance of an obligation in substance (see s 12 and 13). The purpose of this is explored further in item C regarding the preservation of commercial realities. C. Preservation of commercial realities The PPSA is deliberately drafted to preserve the commercial realities of Australian business and trade. Nothing in the PPSA seeks to alter the way by which certain transactions arise in a commercial sense nor are the provisions provided to interfere with commercial decision-making or general business sense. The fundamental notion that parties are free to contract as and how they please in accordance with the general law of contract principles has remained after the PPSA took force. From analysis of the US, Canadian and New Zealand models, this intention is consistent among the various PPS regimes. It is worth noting, for example, that particular care has been taken by the Australian PPSA to prescribe modified rules for “investment type” collateral (where “investment” has been used here in its general sense) including negotiable instruments and documents of title. In appreciating the transferability of such instruments, the Act operates in different ways when assessing priority than is afforded for other types of personal property, such as goods. While each collateral class will be addressed in turn throughout the commentary of this book, it is useful from the outset to understand the commercial nature and purpose of particular instruments to better understand how the perfection requirements and priority rules have been shaped around the practicalities of such instruments and their various uses. D. Primacy and predictability of the register At the heart of the PPSA is the Personal Property Securities Register (PPSR). Although the Act provides for different methods of “perfecting” a security interest, including possession of the collateral and control (for limited types of intangible property and space objects only), perfection by registration is the most common way of perfecting a security interest. Further, security interests may be perfected by multiple methods which means that even if secured parties have possession or control of the collateral, they may still perfect by registering their security interest(s). This process is known as registering or lodging a “financing statement” which will provide information to be included on the PPSR that gives notice of an actual or potential security interest with respect to a particular grantor’s personal property. In a break from some pre-PPSA registers, the PPSR adopts a notice-based filing system which does not require the complete security documents to be registered — and indeed, there is no functionality to register the security agreement even if the secured party wished to do that. The PPSA provides mechanisms which allow limited parties to seek copies of security agreements where necessary. The purpose of notice-based filing is simply to put potential secured parties on notice of a potential existing security interest. The notice may relate to a potential future security interest as a financing statement may be registered even before the parties have concluded their security agreement (s 151(1) and 161). This is permitted under the PPSA to encourage secured parties to be diligent in filing notice of their pending security interests over personal property. As the Supreme Court of Canada said in Bank of Montreal v Innovation Credit Union (2010) 605 17 PPSAC (3d) 1; 325 DLR (4th) at [56]:

“the existence of a registered financing statement does not mean that a PPSA security interest necessarily exists. It only provides notice that one may exist or may be acquired in the future. As such, the notice registration adopted under the PPSA differs from the pre-PPSA registries or other title registers which provide prima facie proof of the security interest.” In Australia, Ward CJ in Eq in, Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378; [2017] NSWSC 1230 relevantly held (at [63]–[65]): “As I have noted elsewhere, the passage of the PPSA radically changed the definition or conceptualisation of personal property security interests by providing ‘default rules’ for the creation, priority and enforcement of such security interests (see Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] NSWCA 8 at [41]–[42]). The PPSA has simplified and streamlined the multi-jurisdictional approach to finance law, by removing arbitrary distinctions around the form of security, nature of collateral and personality of the grantor, and has reoriented Australia’s personal property security framework ‘around the rights of parties to enforce their interests’ (see Revised Commentary to the Personal Property Security Bill 2008, December 2008 at 18). Relevantly, it is important to recognise that the PPSA (unlike the Torrens system in relation to land) is a ‘notice-based’ system. In Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852 (at [32]) Brereton J took note of the fact that the PPSA was modelled on Canadian legislation and considered that the Commonwealth government should be taken to have intended the same approach. The Court of Appeal of Ontario, in Re Lambert (1994) 20 OR (3d) 108, said this of the Canadian legislation (at [32]–[33]): The purpose of the registration system is to provide enough information to enable a person searching the system to know whom to contact to obtain information regarding a secured transaction. It is for this reason that the registration system is referred to as a notice-filing system.” Under the PPSA, primacy is afforded to the PPSR and secured parties should thus ensure that the register contains an accurate and contemporaneous account of their security interest(s). Over the course of discussing the priority rules under the PPSA it will quickly become apparent that where a security interest has been perfected by registration, the PPSA affords priority based on what is readily available on the PPSR. Take the simple “first in time” default priority rule for example. The PPSA holds that where there are two perfected security interests in dispute (assume both are perfected by registration) that the interest registered first in time prevails. The rationale here is that the subsequent secured party could have searched the register prior to taking their own security interest and discovered the existing interest (for more information see the annotated commentary for s 55). It should be noted, however, that information included on the PPSR will not form constructive notice for secured parties and potential secured parties (see s 300). When seeking to understand how the priority rules apply, it is helpful to consider the position of the “hypothetical third-party searcher” who consults the PPSR, in good faith, to obtain notice of what security interests have or will be granted by the grantor or that which arise in respect of particular personal property (such as a motor vehicle). What information is available on the PPSR, what time the information became available and the means by which the information can be accessed is critical to any determination of when particular interests have arisen and their respective priorities. The rationale here is that the PPSA does not arbitrarily favour the grantor, the secured party or any competing secured party, rather the Act gives primacy to those parties who have ensured that a hypothetical third party searcher acting in good faith is able to take notice of their relevant interest. In applying the provisions of the PPSA, as harsh as they may appear at first blush, it is important that the abovementioned rationales are appreciated to give consistent, predictable and reliable outcomes. It is important to remind practitioners and parties that the statute is based on its own founding principles and need not have unconscionability or fairness superimposed. Such concepts should not impugn the proper application of its provisions. Two qualifications to this principle are to be made in this regard. First, in granting primacy to the PPSR, principles of commercial practicability should not be forgotten, and second, where parties take property free from security interests (see Pt 2.5), there is an underlying consumer

protection rationale which should be further considered (see further s 254). E. Consumer protection Commentators of foreign PPS regimes have referred to the legislation as having “consumer protection” qualities. This is consistent with the Australian PPSA which, when taken as a whole, contains certain components which are intended to provide consumer protection. These provisions largely centre around the “taking free” provisions (see Pt 2.5) and “enforcement” rules (see Ch 4). The “taking free” or “extinguishment” provisions of the PPSA (see Pt 2.5) operate to allow a third party to take an interest in personal property free from any encumbrances over personal property. Particular provisions in Pt 2.5 of the PPSA operate to the benefit of holders of property acquired predominately for personal, domestic or household use (namely, where the property is purchased by a consumer for a consumer purpose in the general sense — see s 47). In such circumstances, primacy is given to the consumer, that is, any security interest over the property is extinguished where certain conditions under the Act are met. The PPSA is not designed to cause consumers to purchasing or otherwise take an interest in personal property which is encumbered and again in accordance with the commercial realities of contemporary business it is not the intention of the Act to require consumers to search the PPSR every time they go shopping for low value goods (again see s 47). The enforcement provisions of the PPSA (see Ch 4) specifically provide, at s 119, that the provisions of the PPSA are to be read in conjunction with the provisions of the National Consumer Credit Protection Act 2009 (Cth) which encompasses the National Credit Code (NCC) found in Sch 1 (both defined by the Act as the “National Credit Code” pursuant to s 10). This amalgamated legislative approach includes a consumer protection focus consistent with the former Uniform Credit Code in light of the Australian Consumer Law movement which gave rise to the Competition and Consumer Law 2010 (Cth) — formerly the Trade Practices Act 1974 (Cth) and associated State-based legislative regimes. Each of these legislative models seeks to alleviate the disparity between sophisticated businesses and consumers providing avenues for redress and a broad range of remedial assistance. The PPSA, in this regard, borrows concepts from these statutes such as the phrase “personal, domestic or household use” and indeed where specifically alluded to or where implied by the terms used in the statutory provisions, the PPSA should be read with consumer protection principles in mind: See further, Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644 at [64]–[73]. F. Preservation of the existing law where the Act does not apply The PPSA operates by way of inclusion. Section 8 of the PPSA prescribes express exclusions from the statute, that is, where the Act expressly excludes certain circumstances and no applicable test is met for the interest’s inclusion. Where this is the case, the law as it applied pre-PPSA applies to resolve any disputes which may arise — the PPSA simply does not apply to such matters. Additionally, the PPSA does not operate to distort existing rights at law or in equity. While the holder of legal title of particular property may hold their interest subject to the priority of a secured party, the PPSA does not purport to transfer ownership or affect title in any way. Put another way, if there is to be any change in title/ownership caused by the PPSA, it is as a consequence of certain events occurring after the entering of a security agreement and not as a consequence of entering a security agreement. Where such rights are in issue, parties are to look beyond the provisions of the PPSA. Take the finder of property for example. The PPSA does not define the term “find” or “finder” nor do any provisions operate with respect to security interests taken over goods found. It is nonetheless reasonable to envisage a person finding property and obtaining funds, subject to an interest over such property. Should the true owner discover their property subsequently, who prevails in a priority dispute between true owner and perfected security interest holder? The PPSA does not provide an answer to this priority contest as the interest arises from concepts beyond the Act. Going back to first principles however, what rights can the finder convey? The rights a finder can convey at law can be no greater than the rights they hold and those rights are rights in rem against all except the true owner of the property. The PPSA, in the authors’ view, thus does not apply against the true owner and the true owner should prevail in accordance with the nemo dat quad non habet, that is, “no one [can] give what one does not have”. For more information see, Roy Goode, Goode on Commercial Law (4th Ed, 2009) 450–478.

Notwithstanding that, as with all legislation, there is room to amend the statute, it is essential to an understanding of the PPSA that its parameters are well understood. The PPSA therefore applies to security interests taken over personal property and not to unencumbered personal property in its own right. While caution should therefore be exercised with reference to the pre-PPSA position, it is no doubt beneficial to understand the law as it applied pre-PPSA for circumstances where the Act simply does not apply (see above at Intro.III or more information on the pre-PPSA position). Notwithstanding that, as with all legislation, there is room to amend the statute, it is essential to an understanding of the PPSA that its parameters are well understood. The PPSA therefore applies to security interests taken over personal property and not to unencumbered personal property in its own right. While caution should therefore be exercised with reference to the pre-PPSA position, it is no doubt beneficial to understand the law as it applied pre-PPSA for circumstances where the Act simply does not apply (see above at Intro.III or more information on the pre-PPSA position). Intro. V — Structure of the PPSA and drafting stylistics A. Structure of the PPSA 2009 The PPSA is a well-structured addition to Australia’s body of statute law. Unlike other pieces of legislation, the PPSA incorporates a number of helpful legislative aids to assist the interpretation of the statute, including notes corresponding to other areas of the Act relevant to particular concepts. Many primary terms are defined in their own section of the PPSA and all substantive parts and divisions contain explanatory guides and application sections giving context to each set of provisions as part of the whole. While this book does not seek to comment on the guidance provisions as a general rule, the authors advise that these should not be overlooked. The guidance material couples with a lengthy consultation process, thoroughly exploring points of ambiguity and inconsistency with elements of the various foreign PPS regimes, the result of which has developed a more comprehensive and intuitive statute. Whether intentional or not, the Australian PPSA is considerably longer than any of its foreign counterparts stemming in excess of 343 independent sections and occupying over 310 pages. While the underlying rationale of the Australian regime is consistent with foreign initiatives (from a reading of the PPSA itself and explanatory material) the detail included is unparalleled. Again, for such reasons, this commentary has focused on discussing the substantive provisions in depth rather than addressing points of form. B. Drafting stylistics The following example offers a guide to approaching the PPSA provisions generally: Text of s 20 • Headings: The PPSA is divided into chapters, parts, divisions, sections and subsections — each intuitively labelled. Each chapter contains a part comprising one section of the Act which provides a “Guide to this part” — in addition most parts and some divisions contain their own guiding sections as well as sections ascertaining the “Application” of the chapter, part or division. The headings themselves do not form part of the operative provisions of the PPSA, however, guide the reader through the various concepts and principles the Act addresses. • Italicised subheadings: The italicised subheadings, such as the terms “General rule” above, are included within sections of the PPSA as a heading for different concepts. Like headings, the italicised terms are inoperative and are only to be used as a guidance mechanism to easily locate particular provisions — such as the main rule or the exceptions to a particular rule. • Section provisions: The sections of the PPSA are detailed and contain the bracketed number, letter and roman numeral formatting typical of Australian legislation. By way of comparison, the foreign provisions, while substantively achieving the same effect, are generally shorter than the Australian provisions and are denser. The Australian Act, in accordance with plain English initiatives, provides longer provisions which are relatively simpler to read — separating out elements of each provision where relevant. • Notes: Where applicable, notes accompany the operative provisions of the PPSA which link the reader to other relevant provisions of the Act. Typically this is done to flag exceptions to the rule

provided in the particular provision or flag particular provisions that the provision in question is subject to. In all cases, the notes are inoperative in and of themselves and like italicised subheadings and the heading structure of the PPSA should be used only as an aid in interpretation. Intro. VI — Foreign regimes The foreign regimes that the Australian PPSA is based on, to varying degrees, include, the US Article 9 provisions, various PPS legislation across the Canadian provinces and the New Zealand legislation. Each is briefly described here for the purposes of determining the degree to which the intention and effect of the Australian provisions should include considering such foreign law. A. Article 9 of the Uniform Commercial Code — United States Model The US Article 9 provisions comprise the first readily identifiable PPS-type framework. The idea of a uniform commercial code (UCC) was first endorsed in 1940 when the first UCC text was published as the “1952 Official Text”. The UCC has been adopted by all 50 of the United States with Article 9 forming one of the most innovative and successful components. Revised in 1999, the Article 9 provisions are responsible for the first “substance based” approach to securities law. The authors have used the revised formulation for the purposes of the annotated commentary. While substantially different by way of structure, Article 9 (in its original manifestations) formed the basis upon which the Canadian provinces developed the PPS regime. All provisions of the Australian PPSA which represent the equivalent of the Revised Article 9 (1999 text) have been included for each operative section in this commentary. B. Personal Property Security Act, SS 1993, c P-6.2 — Saskatchewan Model While each of the Canadian provinces harness PPS regimes that contain different provisions, all but the Ontario regime are largely based on the Saskatchewan model. This model was enacted in 1982 through an initiative undertaken by the Canadian Bar Association regarding a Uniform Personal Property Security Act in 1969. By 1982 a revised uniform approach was conducted and in 1984 the Western Canada Personal Property Security Act Committee formed in the absence of agreement from Ontario. The Article 9 provisions form the substantive basis of the Saskatchewan Personal Property Security Act (PPSA), however, the language adopted in the Saskatchewan regime is substantially closer to the language used in Australian legislation. The proliferation of cases stemming from the Canadian provinces forms the basis of many of the guiding principles of interpretation and application in this commentary. All provisions of the Australian PPSA (PPSA (Cth)) which represent the equivalent of the Saskatchewan PPS regime have been included for each operative section in this commentary. C. Personal Property Security Act, RSO 1990, c P.10 — Ontario Model The Ontario statute comprised the first Canadian PPS regime; passing in 1967, however, did not come into force until 1976. While there are differences among the various Canadian provinces who have elected to adopt the uniform Western PPS model, in substance the regimes operate to achieve a common goal. The Ontario regime is substantially different in some important respects and judicial determinations from the Ontario courts likewise possess traits of fundamentally different rationales — the detail of which forms the basis of comment throughout this book. In essence, the Ontario model is more principled, presenting broader protections for secured parties through different priority rules and methods of defining security interests (“deemed security interests” not forming part of the Ontario regime for instance). While the focus of this book is on the Australian provisions (which are closer to the Saskatchewan model), where relevant, discussion of the Ontario provisions has been included. In addition, all provisions of the Australian PPSA which represent the equivalent of the Ontario regime have been included for each operative section in this commentary. D. Personal Property Securities Act 1999 (NZ) Both the US and Canadian regimes form the foundation of the New Zealand legislation, albeit with some important differences particularly regarding treatment of insolvency and unperfected security interests. The importance of the New Zealand Personal Property Securities Act in terms of the Australian Act is that it presents the closest legislative style from a drafting perspective. While the body of case law is substantially smaller than that among the US and the Canadian provinces, the New Zealand regime has further developed certain concepts introduced by PPS-type regimes and is more detailed piece of legislation on the whole when compared to its Canadian counterparts. As a consequence, the Australian

PPSA most closely resembles the New Zealand regime, in some instances mirroring the provisions of the New Zealand PPSA. That said, significant departures or provisions independent to the Australian regime do exist and where this is the case the relevant commentary has derived mainly from domestic case law, domestic statutory aids including the PPS Regulations, the Act’s Explanatory Memorandum and the Personal Property Securities Australian Law Reform Commission (ALRC) Report No 64. All provisions of the Australian PPSA which represent the equivalent of the New Zealand regime have thus been included for each operative section in this commentary alongside references to the PPS Regulations, Explanatory Memorandum and ALRC Report No 64. Intro. VII — Forms and practice statements Forms Specific forms have been developed for the PPSR. On 19 August 2013, the Registrar released the Personal Property Securities (Approved Form) Instrument 2013 which contains details of the current approved forms. The forms are interactive forms designed to be used online. The PPSR website has a “Forms” webpage, at www.ppsr.gov.au/AsktheRegistrar/forms/Pages/default.aspx. The following forms are available: • amendment statement (in relation to an amendment demand, PPSA (Cth) (PPSA), s 180(3)); • application to restrict access to data; • B2G account application (business to government); • application for government agency account for security interests with concessional fees; • application for account for registering prescribed property (other registration kinds); • notice of intention to dispose of collateral (PPSA s 130); • notice of intention to remove accession (PPSA s 95); • notice of proposal to retain collateral (PPSA s 135); and • request to remove data or correct errors made by the Registrar (PPSA Pt 5.7). Practice statements The Personal Property Securities Registrar (PPS Registrar) has developed a set of Practice Statements, laying out how the PPS Registrar will perform his functions and exercise his powers, under the PPSA and the Personal Property Securities Regulations 2010. The Practice Statements are available at www.ppsr.gov.au/AsktheRegistrar/PracticeStatements/Pages/default.aspx. They deal with the following topics: 1. access to the PPSR by government agencies at the Commonwealth, state and territory level — fee remission 2. application to the PPS Registrar, where a person seeks to register a financing statement in respect of a court order 3. investigations, s 195A Notices (requiring a person to give information if the Registrar believes on reasonable grounds that the person has information relevant to an investigation), civil penalties, enforceable undertakings and court costs 4. amendment demand process

5. removal, correction and restoration of data in the PPSR, under Pt 5.7 of the PPSA 6. restriction of access to data in the PPSR 7. judicial proceedings under s 218 and 219 of the PPSA — the PPS Registrar’s discretion to intervene in judicial proceedings, and to begin or carry on judicial proceedings in a person’s name to recover damages, with respect to a PPS matter. Introduction to practice statements In 2008, the Commonwealth of Australia and the Australian states and territories entered the Personal Property Securities Law Agreement (Agreement) which, among other purposes, facilitated the development of the PPSA. The Agreement is made available by the Council of Australian Governments and can be found at: www.coag.gov.au/sites/default/files/personal_property_securities_IGA.pdf. Clause 4.4 of the Agreement stipulates the maintenance of ongoing cooperative arrangements between the PPS Registrar and the Australian states and territories mainly with respect to access to the PPSR. In addition to the forms and conditions of use available on the PPSR website (see www.ppsr.gov.au/AsktheRegistrar/forms/Pages/default.aspx) there are a series of Practice Statements which, among other functions, detail the Registrar’s initiatives in facilitating this ongoing relationship. The Practice Statements are available at: www.ppsr.gov.au/AsktheRegistrar/PracticeStatements/Pages/default.aspx. There is no reference to the creation or maintenance of “Practice Statements” in the PPSA or the Personal Property Securities Regulations 2010 (Cth) (PPS Regs), however, s 195(2) of the PPSA confers on the PPS Registrar the “power to do all things necessary or convenient to be done for or in connection with the performance of his or her functions”. Section 195 is found within Pt 5.9 (Registrar of Personal Property Securities) of the PPSA which is included in Ch 5 (Personal Property Securities Register). Chapter 5 concerns the PPSR; while the power conferred by s 195 is broad, it must be therefore read in this context. As the Practice Statements are not part of the PPSA, a failure to observe them, where relevant, is not a breach of the Act. However, it should be recalled that a party seeking to lodge a financing statement on the PPSR can only do so by request to the PPS Registrar: s 150. Subsection 150(3)(a) permits the Registrar to refuse the registration of a relevant interest for failure to meet a prescribed form. What is readily apparent is that the administrative integrity of the register intersect with legislative rights and obligations under the PPSA. Understanding and complying with Practice Statements where relevant is thus important as even if the Registrar should have registered a particular interest but fails to do so for want of compliance, there is no recourse to be had against the Registrar: see PPSA s 272. The Registrar has updated the Practice Statements from time to time so you should ensure that you are referring to the most recent version. Practice statement No 1: Access to PPSR for government agencies The Personal Property Securities Registrar’s Practice Statement No 1 (PS No 1) gives effect to clause 4.4 of the Personal Property Securities Law Agreement (the Agreement), discussed above. Government agencies are able to record interests in particular collateral which are not security interests for the primary purpose of avoiding bona fide dealings with parties unable to participate in such arrangements. The creation of separate interest classes falls within the rubric of “prescribed property” and is referred to as different “registration kinds”. Clause 4 of PS No 1 lists such property classes as including: • Proceeds of Crime; • Hoon Liens; • Court Orders; and • Other Prescribed Property. Clause 7 of PS No 1 highlights that searches will review all registrations of prescribed property

irrespective of registration kinds where the searching party is merely looking for security interests. Thus government agencies and other regulatory bodies (where relevant) can prevent impecunious dealings through vigilant maintenance of the PPSR. Government agencies (or other parties wishing to make ad hoc registrations: see clauses 26 and 27 of PS No 1) must apply for an account: clause 9 of PS No 1. The PPSA does not differentiate between the registration of a security interest or prescribed property of a particular registration kind for the purposes of administration fees. Clauses 20 and 21 of PS No 1 interestingly leave to the Registrar’s discretion the issue of waiving fees for particular registrations. This may run contrary to the Agreement which stipulated free access. To date, there has been no public complaint brought by governmental agencies with respect to the applicability of administrative fees. Practice Statement 1 was updated by the Registrar on 22 August 2013. At the time of writing this book the most current version was 2.1. Practice statement No 2: Application to register a financing statement — court orders While actions in court are generally unassignable, that is, aggrieved parties cannot give to someone else their bare right to litigate (not for consideration, nor voluntarily), the fruits of litigation by way of a court order or judgment debt is recognised at law as separate and assignable property thus capable of registration on the PPSR. The PPSR facilitates registrations of the kind “court order” via the “Request to Register a Court Order” forms (see www.ppsr.gov.au/AsktheRegistrar/forms/Pages/ default.aspx). The electronic form provided by the PPSR is intuitive and guides users through the registration process. The purpose of the Personal Property Securities Registrar’s Practice Statement No 2 is to consolidate the various statutory provisions and legislative instrument provisions concerning the obtaining and registration of court orders. Practice Statement No 2 was amended by the PPS Registrar on 1 July 2013 and updated on 22 August 2013. At the time of writing this book the most current version was 3.1. The main amendment was to the following note: “Process The process to register a court order on the PPSR involves three main steps: 1. The applicant sends a request to the Registrar, via the contact details below, which attaches a sealed copy of the court order and addresses the following: a. the reasons the court order satisfies the requirements of regulation 5.3(1)(c) to the PPS Regulations; b. the reasons the applicant satisfies the requirements of regulation 5.4(1)(c) to the PPS Regulations; and c. identifying the person who will be identified in the registration as the ‘grantor’ (generally the person against whom the order was made) and the person who will be identified in the registration as the ‘secured party’ (generally the person in whose favour the order was made). 2. The Registrar’s delegate reviews the request and if appropriate grants the applicant temporary access to a court order account to allow the applicant to create the registration. 3. The applicant creates the registration. Upon registration the address for service of the person listed as the secured party will receive verification statement and a token. This information will allow that person to discharge the registration when it is no longer required.” The amendment clarifies the need to insert details on the application to register as to why the court order is relevant to the PPS regime. Regulation 5.3(1)(c) refers to what type of court order is prescribed for the purposes of s 148(c) of the PPSA and provides: “(c) personal property that is subject to an order of a court or tribunal (however described) that: (i) prevents or restricts a person dealing with the property; or

(ii) enforces another court order (however described); or (iii) orders the sale or other disposal of all or part of the property.” Regulation 5.4(1)(c) refers to what type of registrations are prohibited for the purposes of s 150(3)(d) of the PPSA and provides: “(c) a registration of a financing statement or a financing change statement for personal property that is subject to an order of a court or tribunal (however described) mentioned in paragraph 5.3(1)(c), if the application for registration is made by a person other than: (i) the person who applied for the order; or (ii) if the order was made on the court’s own initiative — the person in whose favour the order is made.” Practice statement No 3: Investigations, civil penalties and enforceable undertakings The Personal Property Securities Registrar’s Practice Statement No 3 (PS No 3) provides guidance on how the Registrar will exercise his/her powers to ensure that the PPSR is being used for the purposes intended by the legislature as espoused by the PPSA. It is the Registrar who makes decisions of a regulatory nature concerning investigations, civil penalties and enforcement of undertakings (see Pt 6.3 of the PPSA). Investigations Service of a notice of investigation pursuant to s 195A of the PPSA need not be personal service: PS No 3, p 3. Notions of the concept of service under the Uniform Civil Procedure Rules, while applicable, are not strictly necessary under the PPS framework. Interestingly, email notice is sufficient: PS No 3, p 3. A failure to comply with the notices constitutes a civil penalty under the PPSA: s 195A(4). Civil penalty provisions For judicial enforcement or to compel an order from the court, the Registrar may approach the Federal Court of Australia. The civil penalty provisions under the PPSA are listed in PS No 3 at p 3, as reproduced here: “1. Subsection 151(1) — Application to register a financing statement or financing change statement without the belief, based on reasonable grounds, that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral. 2. Subsection 151(2) — Failure to apply for the withdrawal of a registration where the person described in the statement is, or there are reasonable grounds to believe, not a secured party. 3. Subsection 172(3) — Unlawful access of the PPSR or the unlawful use of PPSR data. 4. Subsection 195A(4) — Failure to comply with a 195A Notice issued pursuant to subsection 195A(2) of the Act.” In addition, actions outside of the PPSA (such as privacy breaches or breaches of the Commonwealth Criminal Code) may also be pursued by the Registrar, eg by referring the matter to the Office of the Commonwealth Director of Public Prosecutions. Enforceable undertakings — to pay money to Commonwealth Acceptance of enforceable undertakings for a contravention of the PPSA is at the discretion of the Registrar and will be evaluated in light of the breach and the conduct of the violating party. It should be noted that the phrase “enforceable undertaking” has a narrower meaning in the PPSA than it has in some other Acts. In s 230 of the PPSA, enforceable undertakings are specifically focused on an undertaking to pay a specified amount of money to the Commonwealth within a specified time. This is in contrast to enforceable undertakings under s 87B of the Competition and Consumer Act 2010 (Cth) which are much broader — they can be in connection with almost any matter where the Australian Competition and Consumer Commission (ACCC) has a power or function. They might include undertakings to implement a

compliance program, issue corrective notices or letters, and to refrain from specified actions which would contravene the law. Nothing prevents the Registrar from approaching the court at any stage to compel more coercive remedies, however, there are no doubt circumstances where undertakings are appropriate and expeditious. PS No 3 is designed to inform parties dealing with the PPSR, and indeed the PPSA more generally, of the methods by which the Registrar will conduct their regulatory function rather than prescribing for participants requirements of form or substance. It also contains the following three annexures: 1. Attachment A — PPS Enforcement Referral Letter 2. Attachment B — Template 195A Notice 3. Attachment C — Template Enforceable Undertaking Practice Statement 3 was updated by the Registrar on 22 August 2013. At the time of writing this book the most current version was 1.2. Practice statement No 4: Amendment demand process The Personal Property Securities Registrar’s Practice Statement No 4 (PS No 4) is arguably the most relevant Practice Statement for the majority of users of the PPSR (in conjunction perhaps with Practice Statement No 5, which deals with the removal, correction and restoration of data on the PPSR, see below). It concerns the lodging of requests for amendments, defined as “amendment demands”. Page 3 of PS No 4 recommends 10 items for inclusion in any amendment demand, as follows: “1. This statement: ‘This is amendment demand which is provided under section 178 of the Personal Property Securities Act 2009 (Cth).’ 2. Date. 3. The secured party’s name. 4. The secured party’s address for service. 5. The PPSR registration number. 6. The Giving of Notice Identifier (if applicable). 7. The amendment that is demanded and the reason it is authorised, with reference to section 178 of the PPS Act. For example: 7.1. an amendment to end effective registration (including an amendment to remove the registration), because no collateral described in the registration secures any obligation (including a payment) owed by a debtor to the secured party; or 7.2. an amendment to omit the following collateral [state the collateral], because the person has an interest in that collateral and it does not secure any obligation (including a payment) owed by a debtor to the secured party. 8. Any evidence which supports the statement made in paragraph 7. 9. The name of the person who is making the amendment demand. If the amendment demand is made by a company, the full legal name of the company and the name, position and the capacity in which the person acts on behalf of the company. 10. A return address to which the secured party may send any response to the amendment demand.”

The examples provided by item seven in the above list derive from s 178(1) of the PPSA. Amendment demands are dealt with by Pt 5.6. The process of amendment is explained in a series of four steps: 1. A demand in a form which includes the 10 elements in the above list is issued to the secured party requesting the secured party to lodge a financing change statement on the PPSR. The secured party then has five business days to register a financing change statement, as demanded, or apply to the court for an order, if they wish: PPSA s 179(1) and 182. 2. If the secured party does not take either of these options, the issuer of the demand can then issue an amendment statement to the Registrar: PPSA s 180(3). 3. The Registrar, upon receipt of this amendment statement, then issues an amendment notice to the secured party. A further period of five business days is afforded to the secured party to respond. 4. The Registrar, in light of all available information, makes a determination as to whether the amendment should be made or not and informs the relevant parties. There are two fundamental points to be noted here. • First, it is at all times the secured party who benefits from registration and thus the secured party, and the secured party alone, who serves to forfeit rights pursuant to the amendment. While other parties may be affected, perfection under the PPSA preserves a position of priority with respect to the party who perfects. It is thus the secured party who is entitled to notice and an opportunity to challenge the demand.2 • If the underlying security interest is void, or asserted to be such by an external party (perhaps the grantor) then this is an issue of contract and not one necessarily concerning the PPSR. The amendment demand process is split into an administrative process and a judicial process. The administrative process is designed to achieve an amendment on the PPSR. If there is contention, it is best that the matter be litigated — a judicial function which is quite independent from the administrative process made available under Pt 5.6, Div 2, Subdiv A of the PPSA. • Second, amendments need not only occur as a consequence of an amendment statement. The Registrar, pursuant to the PPSA and in accordance with Practice Statement No 3 (Investigations, civil penalties and enforceable undertakings), has investigative and regulatory powers which may reveal the need to issue amendment notices independent of an external request. PS No 4 includes a reference to how the Registrar would go about this process. As mentioned above, it is the secured party who stands to lose due to the intervention of the Registrar and thus the administrative nature of the function of the Registrar is not to be misunderstood as any less coercive than that of a consequential court order. The entire process can, however, be avoided. If the secured party agrees with the demand as issued then they can simply lodge their own financing change statement. Indeed a failure to do so, particularly with notice of any inaccuracy, could lead to a finding that the existing registration contained a seriously misleading defect — an outcome which could render the entire registered interest void in any event. The administrative process prevents the clogging of the judicial arm with PPSR related concerns (although the use of the courts is not prohibited and where the application for amendments is contentious it may be necessary). The remainder of PS No 4 stipulates logistically how one should go about utilising the amendment demand process made available by Pt 5.6. For more information on amendment demands generally see s 179–182 of the PPSA and the annotated commentary to these sections. Page 8 of PS No 4 details pragmatic issues with amendment demands in relation to migrated data. It concerns the registration of security interests as “all present and after acquired property” by the Registrar over the period of transition pursuant to Ch 9. Where such interests exist, they cannot be amended and must simply be removed and a new entry registered. The perusal of the PPSR over the period of transition for such defects is highly advised: see also N Mirzai, “A period of transition: Ch 9 of the

Personal Property Securities Act 2009” (2012) 20 APLJ 193. Practice Statement 4 was updated by the Registrar on 22 August 2013. At the time of writing this book the most current version was 2.1. Practice statement No 5: Removal, correction and restoration of data on the PPSR The Personal Property Securities Registrar’s Practice Statement No 5 (PS No 5) relates to Practice Statement No 4 (PS No 4) (Amendment Demand Process). The distinctions between the process of amendment and the process of removal or correction should be well understood prior to utilising either process. The removal or correction process is aimed towards a public interest and the removal of errors or omissions as made by the Registrar (see s 183 of the Personal Property Securities Act (Cth) (PPSA)). It is not designed to help protect or enforce private rights or to alter entries on the PPSR which were once accurate but have since become inaccurate due to a change in circumstances. In such a case the Pt 5.6 amendment demand process is more appropriate. However unlike Pt 5.6, Pt 5.7 of the PPSA concerning removal of data and correction of errors is likely to be a process initiated by the Registrar in the majority of cases. This is not to say that persons seeking data removal, restoration or correction are precluded from doing so, rather that such persons should consider whether an amendment is more appropriate (whereby an amendment can include removal). An application to remove data must be made in the appropriate form which can be obtained from the “Forms” section of the PPSR website: “Application to Remove Data or Correct Registration Errors” at www. ppsr.gov.au/AsktheRegistrar/forms/Pages/default.aspx. The remainder of PS No 5 details the enquiry conducted by the Registrar prior to removing or correcting existing data on the PPSR. As stated with respect to PS No 4 above, the rights of the secured party which the relevant registration pertains to may be adversely affected by this process and thus such data is stored externally should it need to be restored (see p 9 of PS No 5). Attachments A and B to PS No 5 contain template notices with respect to removal and correction respectively as a secured party could expect to be issued by the Registrar. Practice Statement 5 was updated by the Registrar on 22 August 2013. At the time of writing this book the most current version was 2.1. Practice statement No 6: Restrict access to data The Personal Property Securities Registrar’s Practice Statement No 6 (PS No 6) addresses some of the primary concerns raised by the transparency of information on the PPSR. Accessing or searching the PPSR is dealt with under Pt 5.5 of the PPSA (Cth) (PPSA). Under the Personal Property Securities Regulations 2010, reg 5.7, the Registrar must restrict public access to particular entries on the PPSR pursuant to court order or if restriction would be in the public interest. The public interest criteria establishes a discretion. The Registrar can thus restrict particular access on their own volition, however, it is likely that the party who is facing a potential breach of privacy will seek to compel the Registrar to exercise this discretion. There is an appropriate form which can be accessed from the “Forms” section of the PPSR website (see www.ppsr.gov.au/AsktheRegistrar/ forms/Pages/default.aspx). The relevant form is titled: “Application to Restrict Access to Data”. On pp 3–4 of PS No 6, the Registrar has sought to highlight that the applicant should have regard to the following when providing reasons in support of their application: “1. evidence that an individual’s safety may be at risk (for example a restraining order or a police report) 2. whether the information in the PPSR is sufficient to locate the individual; and 3. whether that information is available from other publicly available source (for example the Australian Securities and Investments Commission’s Companies Register or the white pages).” This process is separate and distinct from amendment and removal or correction, as the data remains valid and operative, that is, the security interest is still registered in the conventional fashion and thus perfection follows. What is prevented is searchability of particular elements of the registration such as

particular party names. Restricting access to data should be perceived as an exception to the general rule that information on the PPSR should be publicly accessible. It is hence unlikely that an application would get up without sufficient reasons. If the reasons are complex or do not satisfy the Registrar prima facie then judicial processes can and should be sought. Regulation 5.7(2) stipulates what the Registrar is to consider when asked to apply their discretion. This is extracted here: “(a) whether it is necessary to prevent or lessen a serious and imminent threat to the life or health of the individual whose personal details are recorded in the financing statement or of another person; (b) the interests of a person undertaking a search authorised by section 171 or 172 of the Act; (c) the interests of the secured party in ensuring that notice of the security interest is accessible by authorised searchers; and (d) … the public interest in protecting the privacy of the individual grantor’s information …”. Practice Statement 6 was updated by the Registrar on 22 August 2013. Practice statement No 7: Judicial proceedings sections 218 and 219 The Personal Property Securities Registrar’s Practice Statement No 7 (PS No 7) details the position taken by the Registrar with respect to initiation of (s 219 of the PPSA (Cth) (PPSA)) or intervention in (s 218) judicial proceedings. While the Registrar cannot be made liable for damages, nor can their staff among other particularised offices (see s 272), this does not prevent their involvement in individual disputes much like the prosecution of breaches of civil penalty provisions pursuant to Pt 6.3. Like many of the Registrar’s functions, intervention or commencement of proceedings can be made without the consent or prompt of any specific party. There is no duty imposed on parties to inform the Registrar that proceedings are on foot. Any party can, however, contact the Registrar for such purposes and p 4 of PS No 7 details the Registrar’s request for documents in such cases to meet the following minimum standard: “1. a copy of all pleadings filed in the proceedings; 2. legal advice prepared by a solicitor or counsel which addresses the following: a. the likelihood of success in those proceedings; b. the reason(s) the proceedings are in respect of a PPS matter; and c. the matters in which the Registrar’s intervention could assist the court; and 3. a summary of the matters which would recommend the Registrar’s intervention, in view of the matters stated below under the heading ‘Policy Considerations’.” The Registrar as an intervening party will bear their own costs and have their own legal team even if the submissions to be made are in support of one party. PS No 7 also makes clear that while the Registrar can and will consider requests by parties to bring proceedings on their behalf, this will not happen as a matter of course and will be restricted to exceptional circumstances. The Registrar will only intervene in proceedings where the relevant party agrees to pay costs and fees properly incurred. Financial difficulty, while considered, does not force the Registrar to bring proceedings to assert individual rights. As a general principle, the Registrar will consider it appropriate from a public interest perspective to commence or intervene in judicial proceedings primarily in the following circumstances: 1. Matters concerning the construction of the PPSA, that is, the interpretation of specific PPSA provisions. 2. Matters of general significance which would potentially affect the public confidence in the PPSR or security interests taken over personal property generally.

The dual regulatory and administrative function of the PPS Registrar justifies the nature of the broad powers bestowed upon that office. The continual need to prescribe and keep up-to-date methods of practice in accordance with commercial activity means that these Practice Statements are subject to continuous and ongoing review and update. Irrespective of which Practice Statement is being considered, the source of power or duty exercised by the Registrar should be considered. It is this context which governs the interpretation of the “form-based” or formal requirements stipulated by the statements, the substance of which remains either a product of the PPSA or principles of freedom of contract. Practice Statement 7 was updated by the Registrar on 22 August 2013. At the time of writing this book the most current version was 1.2. Intro. VIII — The cessation of the transitional period Within Ch 9, s 306 of the PPSA provides that the “registration commencement time” is the critical date upon which the PPSA takes operative effect in Australia — which, by force of a determination of the Minister, occurred on 30 January 2012. The “transitional period”, being the period between the registration commencement time and the expiration of the transitional period — which is the end of 24 months after the registration commencement time, marked, among other things, a 24-month “grace period” whereby transitional security interests (see s 308) obtained the dual benefit of recognition under the PPSA and were temporarily perfected (see s 21(1)(a)). While a number of exceptions, qualifications and limitations operate with respect to temporarily perfected security interests, the common position — as interpolated from the lack of decided cases — appeared to be that temporarily perfected secured parties were entitled to enforce their security interest as against relevant underlying collateral. This typically arose in the context of an insolvent debtor/grantor whereby demands were issued and dealt with by insolvency practitioners who, if and when satisfied that a particular interest was validly constituted, would allow the “secured party” to recover the encumbered property or proceeds resulting from such property. As of 30 January 2014, the transitional provisions of the PPSA ceased operation. Since that time, it has been critical that those affected by the PPSA maintain a working understanding of the Act either in creating and/or dealing with security interests and the PPSR (see www. ppsr.gov.au) or in properly advising parties who do so. Failing this there are considerable difficulties and exposures as has manifested in the growing body of decided foreign case law and scholarly articles concerning many of the Act’s provisions. To those who are familiar with the PPSA and its workings, the following general analysis isolates three classes of broad circumstances that one should avert their mind to in appreciating the end of the transitional period. The first circumstance concerns the party who has the benefit of a security interest which arose prior to the PPSA taking force (namely, prior to the registration commencement time) and who is still relying on the validity and priority of that interest to secure obligations present and existing after the expiration of the transitional period. In such a case, provided that no other subsection pursuant to s 322(2) is applicable, the secured party would have had the important benefit of s 322(2)(f) over the course of the transitional period — which essentially provides for temporary perfection of the security interest for 24 months after the registration commencement time. However, as the name would inherently suggest, temporary perfection is contingent upon a subsequent active step in taking perfection by the secured party and before the expiration of the 24-month temporary perfection period. The note to s 322(2) is instructive and is reproduced in whole in this regard: Text of s 322(2) Element (b) of the note highlights the consequences of failing to perfect within the 24-month temporary perfection period (or prior to any of the subparagraphs pursuant to s 322(2)) — namely that the security interest “becomes unperfected”. It is therefore important to consider what these words actually mean in terms of the protection conferred to secured parties. There are two hypotheses, first, the term “becomes unperfected” means that at the expiration of the transitional period the security interest is taken to be unperfected (namely, as of 31 January 2014). The second hypothesis is that the security interest, upon

becoming unperfected, is taken to have never been perfected as at the first point it was conferred perfection — that is to say, the security interest is and has been unperfected from the registration commencement time to the present point. The distinction in interpretation may produce vastly different results and exposures from the perspective of the secured party. While the second reading may appear to be anomalous with s 56 of the PPSA and the requirements of “continuous perfection”, the second hypothesis appears to be consistent with the overall understanding of temporary perfection under the PPSA and should be preferred in the authors’ view. Further, the concept of continuous perfection is clearly relevant and a requirement of preserving perfected status as referred to specifically in element (a) of the note. Thus, to suggest that s 322(2) confers a particular type of temporary perfection immune from consideration of s 56 appears to put too broad a reading on the application of Ch 9. The practical effect of this would be such that if a security interest was created during the transitional period (as opposed to before) and was perfected at some time prior (assuming the interest is validly perfected), then applying the second hypothesis for s 322(2), a transitional security interest which was not subsequently perfected would lose in a priority contest as against the security interest created and perfected later in time. This is so notwithstanding the fact that had the priority contest occurred during the transitional period, the transitional security interest would have prevailed (see s 320). While this may appear to give rise to a harsh result, the transitional provisions were designed, again — as the name suggests, to transition secured parties from the former position at common law to the statutory position. To that it can be said that with the expiration of the “grace period” such seemingly harsh results must occur should the PPSA apply the way it was intended. That is to say, the failure to appreciate a need to otherwise perfect during the 24 months warrants, at least on one view, the security interest perfected later in time to prevail. The above circumstance gives rise to consideration of the second general circumstance which involves a secured party who perfects by registration prior to the expiry of the transitional provisions but is involved in a priority dispute which arises concerning a point in time during the transitional period. In such a case, the transitional provisions pursuant to Ch 9 of the PPSA remain relevant and operative in the authors’ view. The law as it stood at the time of the relevant dispute is to be necessarily applied as would traditionally be the case. The PPSA offers little reason for departure from this approach. If one is misrepresented today, one might bring a claim for misleading and deceptive conduct pursuant to s 18 of the Australian Consumer Law. However, if one were to bring a claim for such conduct which occurred in 2008 (limitations aside), one would be seeking recourse either pursuant to s 52 of the Trade Practices Act 1974 (Cth) or a state-based variant, for example, s 42 of the Fair Trading Act 1987 (NSW). A working understanding of Ch 9 and the transitional operation of the PPSA will therefore continue to play an important role in the domestic commercial landscape for many years to come — be it through full scale litigation or advice as to the position at law settled prior to a hearing of the relevant matter. The third circumstance does not require a considerable shift from the transitional position and concerns security interests created after the expiration of the transitional period. Indeed, such interests are subject to the full operative effect of the PPSA without the benefit of the Ch 9 provisions — but this does not depart from the position of a secured party whose security interest arose after the registration commencement time in any event. Put simply, it would make little difference for the purposes of applying the PPSA whether the security interest was created on 2 February 2012 or 2 February 2014. In both circumstances Ch 9 has little, if any, application as what has been created cannot be characterised as a transitional or migrated security interest. That said, an inherent part of the difficulty with applying the PPSA where relevant is not only understanding one’s own interest in the underlying collateral, but any other interest which might be taken and where such an interest stands with respect to one’s interest. Having a perfected security interest, for example, as described in this third circumstance, says nothing about priority contests which may arise between this particular interest and an interest with characteristics similar to the two former circumstances discussed. An ongoing appreciation for the interaction between the PPSA and its transitional effect therefore remains useful where such interests are likely to continue to exist. This may be for many years after the cessation of the transitional provisions. In terms of the practical experience, it is anticipated that many of the difficulties and complexities which have arisen as a consequence of the PPSA will continue to be dealt with in the bankruptcy/insolvency

space. It is almost certainly the case that the relevance of a valid security interest where the debtor is able to satisfy the amount secured in full upon bankruptcy/insolvency is dubious in all but very limited exceptions. Thus, at the proverbial front lines of an understanding of this regime is the trustee in bankruptcy or the insolvency practitioner (and those that advise them). For parties engaged with insolvency specialists, and those who advise them, concerning questions of construction of the PPS regime, it goes without saying that receiving prompt and accurate advice is key to ensuring your, or your client’s, rights are best protected. Intro. IX — The Whittaker review On 4 April 2014, a review of the PPSA was announced in accordance with s 343. The review was divided generally into four components: 1. The reach of the Act 2. Creation and perfection of security interests; taking free rules; priority rules and other dealings in collateral 3. Enforcement of security interests; vesting of security interests on a grantor’s insolvency; interaction with other legislation; governing law rules; other provisions in the Act and the layout of the Act and related matters, 4. The Register. Consultation papers were released between 22 September 2014 and 10 November 2014 and comments were due between 3 November 2014 and 19 December 2014 respectively. Submissions for issues particular to small business were due on 6 June 2014 and submissions regarding general issues with the legislation were due by 25 July 2014. An Interim Report prepared by the reviewer Mr Bruce Whittaker was delivered to the Attorney-General and Parliamentary Secretary to the Prime Minister on 31 July 2014. The Final Report on the review was tabled before Parliament on 18 March 2015. At the time of writing, information in respect of the review process, the consultation papers, the Interim Report and the Final Report are accessible at: www.ag.gov.au/consultations/pages/StatutoryreviewofthePersonalPropertySecuritiesAct2009.aspx. The Final Report considers: • the effect of the reforms introduced by the Act • the level of awareness and understanding of the Act • the incidence and causes of non-compliance with the Act • opportunities for minimising regulatory and administrative burdens including cost • opportunities for further efficiencies. In looking at these matters, the Final Report also considers: • the scope and definitions of personal property • the desirability of introducing thresholds • the interaction of the Act with other legislation • other relevant matters. The Final Report makes a number of recommendations (totalling 394 in number) in respect of various aspects of the PPSA. A list of recommendations has been tabled at Annexure E of the Final Report commencing on page 502 of the Final Report.

The substantive recommendations to the text of the PPSA legislation itself commence at Chapter 4 of the Final Report — the contents page of which begins on page 37 of the Final Report. Without seeking to gloss over the substance or merit of any aspect of the detailed and considered review of Mr Whittaker in the Final Report there are certain issues addressed by the Final Report which deal with substantive difficulties which have arisen from the present language of the PPSA and which are addressed in summary here. One such issue is that of sub-leasing or sub-hiring particularly in circumstances where the sublease or sub-hire occurs without the consent of the original lessor/bailor. This is dealt with at [7.3.3] of the Final Report. The analysis set out thereto builds on the analysis of whether a lease should be the subject of the vesting provisions of the PPSA (and associated Corporations Act provisions) in the first instance: See s 588FL(4) of the Corporations Act; discussed at [7.3.2], see also [7.3] generally in respect of discussion concerning “Leases”. The Final Report considers, at [7.3.11], a shift from a “possession model” which underpins many of the operative provisions of the PPSA to a “unitary model”. Annexure C of the Final Report sets out an explanation of the unitary model and a reconceptualization of the creation of particular security interests in particular circumstances. Many of the recommendations relevant to leases and subleases refer to recommendation 51 of the Final Report which seeks a further consultation process to deal specifically with issues raised in respect when the grantor obtains “rights in the collateral” capable of conferring a security interest. Until the recommendations are squarely dealt with, s 34 imposes continued requirements on the original secured party to ensure that any security interest taken over transferred collateral is validly perfected as against the proper grantor (ie the person/entity ultimately in possession of the relevant property). In respect of the difficulty with not having a security agreement with the transferee (and the writing requirements contained in s 20 of the PPSA), the Final Report recommends that s 20(2) of the PPSA be amended to make clear that no such requirement is to impede the original secured party from complying with s 34: See [5.2.3.3] and recommendation 59. At [6.2], the Final Report considers the introductory data fields contained in the electronic financing statement form as part of the AFSA PPS Register interface. At [6.5], the Final Report recommends the deletion of the proceeds field and the deletion of cl 2.4 of Sch 1 of the PPS Regulations: See recommendation 98. At [6.7], the Final Report discusses the AML/CTF Act requirements in respect of describing a natural person grantor and recommends that such a requirement be removed from the PPS Regulations: See recommendation 1077. At [6.7.4], the Final Report considers the requirement to register a security interest against the ABN of a trust and recommends that a registration against the trustee (the individual/entity with legal title to the trust assets) ought to be sufficient without needing to register against the ABN of the trust: See, recommendation 110. On issues of lodging a financing statement on the PPS Register, no recommendation was made in the Final Report about the use of a body corporate grantor’s ABN or name to identify it in addition to, or in lieu of, its ACN. At [6.10.1], the Final Report considers the impact of strict deficiencies with particulars contained within financing statements and the consequential difficulty a secured party will face not only with provisions which render ineffective registrations which contain such deficiencies (see s 164 and 165 of the PPSA) but also that the secured party is not, in fact, registered at all in accordance with s 153(1) of the PPSA. The Final Report recommends an amendment to the legislation such that if the field required to be populated is populated then s 153(1) is deemed to be satisfied — leaving defective registrations to be dealt with by other provisions of the PPSA (for example, s 164 and 165 as discussed above): See recommendation 124. At [6.10.2], the Final Report considers s 337A of the PPSA and does not recommend its deletion, notwithstanding the passing of the temporary perfection period conferred by s 322 of the PPSA, in respect of transitional security interests. The Final Report does, however, recommend that the “PMSI box” as contained in the template electronic financing statement made available by AFSA be removed: See, recommendation 241. This change is consistent with the recommendation that s 165(c) of the PPSA be consequentially deleted: See, recommendation 127. In a similar vein, recommendation 239 of the Final Report advocates for a uniform 15-day period to perfect a PMSI in respect of inventory and non-inventory PMSIs: See further [7.7.8.10]. However, the Final Report does not go further to say that inventory PMSIs should equally benefit from the

potential for the PMSI holder to extend time to comply with the 15-day period mandated by s 62 of the PPSA by application to the Court under s 293 of the PPSA: For consideration of s 293 of the PPSA see Re Accolade Wines Australia Ltd [2016] NSWSC 1023. At [6.11.9], the Final Report considers the functionality of the AFSA operated PPS Register interface and considers whether the interface should include the technical support functionality recommended by private parties. Recommendations 150 and 151 respectively advocate for further communication between AFSA and those private parties to improve the functionality of the AFSA operated PPS Register interface and recommends an incorporation of those features if possible. At [6.11.13], the Final Report considers whether the PPSA ought to contain a provision whereby a Court has the power to render effective otherwise ineffective registrations (presumably in any circumstance) and recommends against such a power being included in the PPSA: See recommendation 158. At [7.7.1], the final Report considers when a priority contest actually arises (ie the proper point in time to apply the priority rules pursuant to Pt 2.6 of the PPSA) and recommends that the PPSA be amended to reflect that the time of the inquiry is when the priority contest first arises: See recommendation 220. At [7.8], the Final Report considers trustee liens and the conflict they may potentially have with security interests granted under the PPSA. The Final Report does not recommend any further clarification in respect of such rights, noting s 73 of the PPSA: See recommendation 256. At [7.10.1], the Final Report considers issues concerning accessions and commingled goods. Recommendation 263 provides a pragmatic approach to tracing a security interest taken over discrete goods into a bulk or a final good or goods and how to continue to recognise and account for such interests. This discussion is continued through [7.10] of the Final Report and includes a working example at [7.10.3.2.1]. Recommendation 268 should be read with recommendation 263 as it builds on that analysis. In circumstances where the PPSA does not prescribe how to trace a security interest through mixed goods (see s 31 of the PPSA), the guidance from the Final Report is likely to be of assistance whether the recommendations are adopted or not. At [8.7], the Final Report considers the vesting provisions under the PPSA and recommends that the vesting provisions be retained: See, recommendation 328. At [8.7.3], the terminology “vests in the grantor” is considered and again the recommendation is that the language should be retained: See, recommendation 329. Given the outcome of the vesting provisions, the Final Report considers whether any registration, defective or otherwise, ought to prevent the operation of the vesting provisions (as distinct from priority contests between two competing security interests pursuant to Pt 2.6 of the PPSA) and recommends against this course: See recommendation 321. At Chapter 10 of the Final Report, Mr Whittaker makes some general recommendations about the Final Report and how the recommendations, like the PPSA, should be read together with an overarching goal in mind (rather than as a collection of piecemeal suggestions responding to discrete issues with the legislation). Many of the points raised are similar to those considered when the legislation was first introduced, namely, the need to consider a more collaborative drafting process (including the concerns of the private sector), the need for a fresh education campaign and the need to carefully manage transitional issues if the recommendations are adopted. Whether the recommendations contained in the Final Report are adopted, either wholly or in part, remains to be seen. Footnotes 1

See for example, Corporations Act 2001 (Cth) s 262; Registration of Interests in Goods Act 1986 (NSW).

2

However, compare this with s 182(3) of the PPSA. If the parties choose to use the judicial process for considering an amendment demand, then other persons with an interest in the collateral have the right to appear before the court.

PERSONAL PROPERTY SECURITIES ACT PERSONAL PROPERTY SECURITIES ACT 2009

¶1 CHAPTER 1 — INTRODUCTION

¶1.1 PART 1.1 — PRELIMINARY

¶1 SECTION 1 SHORT TITLE ¶1-005 SECTION 1 SHORT TITLE Text of s 1

¶2 SECTION 2 COMMENCEMENT ¶1-010 SECTION 2 COMMENCEMENT Text of s 2

¶Renumberable SECTION 2A SCHEDULE 1 ¶1-015 SECTION 2A SCHEDULE 1 Text of s 2A

¶3 SECTION 3 GUIDE TO THIS ACT ¶1-020 SECTION 3 GUIDE TO THIS ACT Text of s 3

¶1.2 PART 1.2 — GENERAL APPLICATION OF THIS ACT

¶4 SECTION 4 GUIDE TO THIS PART ¶1-025 SECTION 4 GUIDE TO THIS PART Text of s 4

¶5 SECTION 5 CROWN TO BE BOUND ¶1-030 SECTION 5 CROWN TO BE BOUND Text of s 5

¶6 SECTION 6 CONNECTION WITH AUSTRALIA ¶1-035 SECTION 6 CONNECTION WITH AUSTRALIA Text of s 6

¶7 SECTION 7 APPLICATION IN THE EXTERNAL TERRITORIES ¶1-040 SECTION 7 APPLICATION IN THE EXTERNAL TERRITORIES Text of s 7

¶8 SECTION 8 INTERESTS TO WHICH THIS ACT DOES NOT APPLY ¶1-045 SECTION 8 INTERESTS TO WHICH THIS ACT DOES NOT APPLY Text of s 8 [8.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 23

Saskatchewan

PPSA 1993

s4

Ontario

PPSA 1990

s4

USA

UCC Article 9 (rev) § 9-109(d)

[8.2] Outline Despite being recognised as a “codification” of securities law, the PPSA is not designed to provide a complete code for all forms of dealings with personal property in Australia. As noted in s 12, the PPSA is concerned exclusively with consensual security interests. Section 8 sets out a number of different types of arrangements which are specifically excluded from the operation of the Act, unless s (2) or (3) apply. These exclusions reflect a mix of public policy concerns (for example, wage assignments), nonconsensual arrangements (such as statutory interests) and arrangements that have little to do with commercial finance (for example, general law liens). The justification for excluding the arrangements covered by s 8(1) is that either there are existing registration regimes (such as those covering interests in real property) or because the relevantly excluded arrangements would not otherwise mislead a third party dealing with the grantor (for example where there is no issue of apparent possession). The list of exclusions in this section are similar (but not identical) to those that are found in foreign PPSA regimes. Additionally, consistent with the relatively greater degree of detail incorporated by the Australian statute, not all of the exclusions appear in each of those regimes. [8.3] Cross-references • Personal Property Securities Regulations 2010 (Cth) reg 1.4 prescribes rights or interests in personal property covered by Sch 1 s 260-5 of the Taxation Administration Act 1953 (Cth). Regulation 1.4 also clarifies the extension of s 74 to paragraphs 8(1)(b), (c) and (1)(f)(ii) and (1)(f)(iv): see s 8(2). • Regulation 1.5 prescribes that the Act applies to mortgage-backed securities (MBS) and real property mortgages where they are transferred to a person in connection with the issue of an MBS. • Section 73 provides priority rules for interests arising under law and declared statutory interests. [8.4] Concepts • Any right of set-off or right of combination of accounts A bank has a common law right to set-off amounts owed to the bank by use of funds held by the customer (in that capacity) in an account with the bank. The bank may achieve this set-off by combining two or more accounts held with it. The bank’s right arises by operation of law and does not depend upon express agreement with the customer. In this context, the term set-off means the same thing as the right to combine accounts: see generally Garnett v M’Kewan (1872) LR 8 Ex 10; National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785. • Chattel paper Chattel paper is a new concept created by the PPSA which is defined as one or more writings that evidence a monetary obligation and a security interest in (or lease of) specific goods. This is discussed in [12.5.3].

• Lien, charge or other interest that is created, arises or is provided for under law A lien is a form of security device that may arise by operation of the common law or equity (see Intro.III). Liens are generally “possessory” security interests, that is, the secured party takes possession of the underlying collateral until the primary obligation is satisfied in full. For an example of a case concerning a contractual lien, which was covered by the PPSA (as it arose by consent), albeit applying the transitional provisions: see NCO Finance Aust Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274. This case is discussed further in Ch 9 at [321.5], [322.5.2] and [323.5]. A lien may also arise under statute. The PPSA does not apply to liens which arise by statute, however, as these do not constitute security interests for the purposes of s 12 due to a lack of a consensual agreement between the parties. • Negotiable bill of lading A bill of lading is evidence of title to goods which are subject to a contract of carriage. A negotiable bill involves the owner of the goods (either the party shipping the goods, or the consignee who is due to receive the goods) covered by the bill transferring title to the goods by endorsing the bill (known as negotiation). A bill of lading is not ordinarily negotiable, and is not classified as a negotiable instrument. A bill of lading will only be negotiable if transferability is indicated on its face. See generally BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211. A bill of lading fits within the scope of the concept of a “document of title”: see s 10. • Negotiable instrument This is defined in s 10. • Transfer of an account See s 12(3) for further commentary. [8.5] Commentary [8.5.1] Negotiable bills of lading — s 8(1)(a) ....................................XX [8.5.2] Liens, charges or other interests that are created, arise or are provided for under statute — s 8(1)(b) ....................................XX [8.5.3] Liens, charges or other interests provided by general law — s 8(1)(c) ....................................XX [8.5.4] Any right of set-off or right of combination of accounts — s 8(1)(d) ....................................XX [8.5.5] Arrangements under the Payment Systems and Netting Act — s 8(1)(e) ....................................XX [8.5.6] Dealings in relation to land — s 8(1)(f)(i), (ii) ....................................XX [8.5.7] Transfers of unearned rights to payment — s 8(1)(f)(iii) ....................................XX [8.5.8] Transfers of future rights of remuneration — s 8(1)(f)(iv) ....................................XX [8.5.9] Transfers of interests in contracts of annuity or policies of insurance — s 8(1)(f)(v) ....................................XX [8.5.10] Certain transfers of accounts — s 8(1)(f)(vi)–(ix) ....................................XX [8.5.11] Certain transfers in beneficial interests in monetary obligations — s 8(1)(f)(x) ....................................XX [8.5.12] Interests or charges arising under particular statutes — s 8(1)(g), (jc) ....................................XX

[8.5.13] Financial accommodation trusts — s 8(1)(h) ....................................XX [8.5.14] Water rights — s 8(1)(i) ....................................XX [8.5.15] Interests in fixtures — s 8(1)(j)....................................XX [8.5.16] Interests held by pawnbrokers — s 8(1)(ja), (6) ....................................XX [8.5.17] Interests in relation to superannuation, retirement savings accounts and approved deposit accounts — s 8(1)(jb) ....................................XX [8.5.18] Declared statutory licenses — s 8(1)(k) ....................................XX [8.5.19] Declared interests — s 8(1)(l) ....................................XX [8.5.1] Negotiable bills of lading — s 8(1)(a) This exclusion does not appear in the revised Uniform Commercial Code (UCC) Article 9, although UCC Article 2, § 2-505 provides a statutory security interest in certain circumstances. Section 2(1)(qq) of the Saskatchewan Personal Property Security Act, SS 1993, c P-6.2 excludes negotiable bills of lading from the definition of security interest. Section 4(2) of the Ontario PPSA (Personal Property Security Act, RSO 1990, c P.10) states that the rights of buyers and sellers under the Ontario Sale of Goods Act (which includes the rights of a seller under a bill of lading) are not affected by the PPSA. Note that similar powers appear in the sale of goods legislation in Australia: see for example s 24 of the Sale of Goods Act 1923 (NSW). Of course, the rights arising under that section and its equivalent provisions in other states would also fit within the exception in s 8(1)(b) (an interest in personal property arising under a law of a state or territory). See further, Barclays Business Credit Inc v Fletcher Challenge Canada Ltd (1993) 5 PPSAC (2d) 105, 13 OR (3d) 118. Section 23(a) of the New Zealand PPSA (Personal Property Securities Act 1999 (NZ)) contains the same wording to s 8(1)(a). It should be noted that a bill of lading is a document that denotes title to the goods being shipped and is not, in and of itself, a security device. Fundamentally, an outright transfer of title or ownership, absent more, does not create a security interest — such an interest may be created when consideration does not flow at the time of transfer (for example, payment in exchange for title or ownership is on 30-day terms). Of course, the drafting of the contracts involved in the arrangement may include a security device. Cuming, Walsh and Wood note that part of the rationale for this exclusion is so parties to a negotiable bill of lading do not have to comply with the requirements of the enforcement provisions of the PPSA.3 This is consistent with the preservation of commercial realities, a policy initiative the PPSA is structured upon. It should be noted however that an exclusion under s 8(1) does not mean that the terms of the PPSA are irrelevant to the transaction or instrument in question for the following reasons: • Firstly, the terms of the exclusion are subject to the parties intending to create or provide for a security interest in the goods. Thus, the seller may rely upon a retention of title clause in the contract which can constitute an “in substance” security interest under s 12(1). • Secondly, a bill of lading can constitute personal property which can be used as collateral. The exclusion merely provides that a negotiable bill of lading is not, without more, a security interest to which the PPSA rules of perfection and priority apply. Furthermore, s 72 provides that the holder of a negotiable document of title can have priority over a perfected security interest in the document of title provided that two conditions (in s 72(a) and (b)) are satisfied. Other rules that apply to negotiable bills of lading include: • s 22 (possession rule for a bailee who issues a negotiable document of title) — See also, s 65 regarding priorities

• s 35 (temporary perfection rules in returned collateral where the bailee issues a negotiable document of title) • s 52 (buyer or lessee for new value in a negotiable document of title takes free of a security interest in the document in certain circumstances). [8.5.2] Liens, charges or other interests that are created, arise or are provided for under statute — s 8(1)(b) As previously stated, security devices that arise pursuant to statutory provisions are excluded from the operation of the PPSA because they are not consensual security devices. Furthermore, the policy underpinning this exception is that the statutory security devices serve particular policy purposes and are best regulated by the respective terms of the statutes from which they derive. There are many examples of specific statutory security devices: see for example Air Services Act 1995 (Cth), s 59; Corporations Act 2001 (Cth), s 443F; Partnership Act 1892 (NSW), s 41(a); Sale of Goods Act 1923 (NSW), s 42. A trust over property imposed by statute has been held in Canada to constitute a lien under this exception: Royal Bank v Sparrow Electric Corp [1997] 1 SCR 411; 2 PPSAC (2d) 68. What is less clear is the extent of this exception to security devices that are “provided for under statute”. Many security devices that are provided for under statutory provisions will be excluded under s 8 regardless as they arise under general law (s 8(1)(c)): see for example maritime liens. The phrasing of s 8(1)(b) raises questions as to what extent a statute can address a security device before it can be said that the lien, charge or other interest is “provided for under statute”. Canadian cases on the issue of a landlord’s general law right of distress for rent have found that such rights are caught by this exception despite the fact that the exception only applies to liens, charges or other interests “given by” statute (which is synonymous with interests created or arising under statute): Commercial Credit Corp v Harry D Shields Ltd (1981) 1 PPSAC 301; 122 DLR (3d) 736 (Ont HCJ); Dube v Bank of Montreal (1986) 7 PPSAC 223 (Sask CA). Thus, the provision for enforcement rights under a statute should be sufficient to exclude the right under this provision. While a statutory mechanism that regulates the enforcement of a security device can be said to be “provided for under statute”, it is doubtful that the parliament’s intention is to exclude any security device that is merely mentioned. In the authors’ view, the purpose of this exclusion is satisfied where the competing statute deals with the priority rights of the security interest but not simply by mentioning the security device. This analysis is favoured by Cuming, Walsh and Wood, 2nd ed pp 164– 165. See further, Pt 7.4 regarding conflicts between the PPSA and other Australian legislation. At first instance, a fund created under a deed of company arrangement arises under law and hence was held as being excluded from being a security interest (that is, Pt 5.3A of the Corporations Act): Re Pluton Resources Ltd (in liq) (recs & mgrs apptd) [2017] WASC 142. However, on appeal in Hughes v Pluton Resources Ltd [2017] WASCA 213, the Western Australian Court of Appeal (Buss P, Murphy and Beech JJA) held: “. . . the master erred, with respect, in considering, and holding, in effect, that in relation to s 8(1)(b) of the PPSA, the Fund was created, arose or was provided for under a Commonwealth law. He should, with respect, have held that the Fund was ‘collateral’ to which the ‘security interest’ attached, and that s 8(1)(b) is concerned with a ‘security interest’ and not ‘collateral’. For the purposes of s 8(1) (b), the question was not, as the master asked, whether the Fund was created, arose or was provided for under a Commonwealth law. Section 8(1)(b) directs attention to an interest in personal property, not to the personal property itself. As we have said, GNR’s interest in the Fund was created by and arose under the Security Deed, so s 8(1)(b) had no application. Similarly, in relation to ground 2, the master, with respect, erred in considering whether the Fund arose as a result of a consensual transaction for the purposes of the application of s 12(1) of the PPSA. The question raised by s 12(1) is whether GNR’s interest in the Fund was an interest in personal property ‘provided for by a transaction’, the ‘transaction’ being, relevantly, the Security Deed. The master, with respect, misdirected himself as to, and misapplied, s 12(1) of the PPSA. The decision in Dura, on which the master seems to have relied, provided no relevant assistance in the determination of the dispute between the receivers and the liquidators in this matter. Dura decided, in

effect, that the payment made by a judgment debtor in order to secure the stay of execution of a judgment debt pending the determination of its appeal, gave the judgment creditor, by operation of law, an equitable charge over the money the subject of the payment. The equitable interest so created arose or was provided for by the operation of the general law within the meaning of s 8(1)(c) of the PPSA, and hence was an excluded interest for the purposes of the PPSA. Also, there was no ‘security interest’ in the money within the meaning of s 12(1) of the PPSA because the judgment creditor’s interest did not arise out of a consensual transaction, but arose when the money was paid into the account in connection with a court order. Dura was not concerned with a ‘security interest’ arising under a ‘transaction’ or ‘security agreement’ such as the Security Deed in this case.” Regarding priority disputes, the Canadian courts have ruled that any competition between a statutory security device and PPSA security interest is to be determined in accordance with the rules of the statute that gave rise to the security interest, or otherwise to the common law rules (including the “first in time” rule): see generally Leavere v Port Colborne (City) (1995) 122 DLR (4th) 200 (Ont CA); See also, Bank of Montreal v Innovation Credit Union [2010] SCC 47; (2010) 17 PPSAC (3d) 1. This position appears to be consistent with the Australian PPSA whereby s 73 of the PPSA provides rules for determining this priority contest. However, as is discussed further in s 73, this approach may pose challenges for priority contests involving garnishee notices by the ATO. [8.5.3] Liens, charges or other interests provided by general law — s 8(1)(c) Section 10 defines the term “general law” as the “principles and rules of the common law and equity”. Liens, charges and other interests provided by general law would not come under the PPSA regardless of this specific exclusion because they arise automatically based on particular circumstances rather than because of the entering into a security agreement. Thus, the requirement in s 12(1) that the security interest be “provided for” by a transaction would not be satisfied by an equitable lien that arises automatically rather than by specific agreement between the parties. The rationale behind this exception again looks towards the preservation of commercial realities and practices. As such landlords, innkeepers, mechanics, etc, operating in their ordinary course, do not have to comply with the perfection rules of the PPSA: Bank of Montreal v 414031 Ontario Ltd (1983) 2 PPSAC 248; 45 CBR (NS) 77 (Ont DC). Maritime liens arise by operation of law rather than by a consensual transaction and are excluded from the concept of a security interest: The Ship “Sam Hawk” v Reiter Petroleum Inc [2016] FCAFC 26. Consensual liens that arise under contract will not necessarily be excluded by the provision and may come within the s 12(1) definition of security interest where the parties intend for the lien to operate as a security device: see for example, NCO Finance Aust Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274 (contractual lien over a motor vehicle for non-payment of parking fees). If a party who benefits from an interest provided for by general law elects to take further security over other property, for example, then it is unlikely that this separate arrangement would benefit from the exclusion provided for by s 8(1)(c). An example may be a lawyer who elects to take a specific security interest over certain property of their client notwithstanding an equitable “fruits of the action” lien. The phrase “other interests” has been interpreted ejusdem generis (of the same kind) with the terms liens and charges: Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2002) 5 PPSAC (3d) 1; 218 DLR (4th) 86 (Sask CA). In Canada, this exception has been held to apply to a constructive trust: Ellingsen (Trustee of) v Hallmark Ford Sales Ltd (2000) 1 PPSAC (3d) 307; 190 DLR (4th) 47 (BC CA); Bank of Montreal v iTrade Finance Inc (2011) 17 PPSAC (3d) 250; 332 DLR (4th) 193. For a discussion of the interaction between the remedy of a constructive trust and the PPSA priority provisions see Caterpillar Financial Services Ltd v 360networks Corp (2007) 10 PPSAC (3d) 311; 27 CBR (5th) 115 (BC CA). In National Australia Bank Ltd v Garrett [2016] FCA 714 at [28], it was held that a remedial constructive trust is not a security interest because it does not involve a transaction. See also, Re O'Keeffe Heneghan Pty Ltd (in liq) (No 2) [2018] NSWSC 1958, where Black J discussed competing security interests in a fund that had been misappropriated from a partnership. While the fund was held in a constructive trust that was not required to be perfected under the PPSA, the interests of the competing secured creditors in the fund were security interests that needed perfection. His Honour held (at [36]):

“It may be accepted that the constructive trust under which the Receivers contend that RNC holds the relevant monies for the Partnership need not be registered under the PPSA, in order to give effect to that trust. However, when effect is given to that trust, and those monies are treated as property of the Partnership, each of IFG and the CBA would need to rely on their security rights in order to assert an interest in those monies, which would otherwise be treated as Partnership property and applied to meet claims of unsecured creditors of the Partnership and for the distribution of any surplus, after meeting such claims, to the Companies as partners in the Partnership. It seems to me that s 8 of the PPSA does not exclude the application of the PPSA at the time at which the CBA or IFG rely on their relevant securities.” The Supreme Court of British Columbia in Re Cliffs Over Maple Bay (2010) 16 PPSAC (3d) 237; 65 CBR (5th) 241 questioned whether a resulting trust would fit within this exception, although decided the issue on other grounds (the underlying judgment and the analysis of the trust arrangement as a resulting trust were overturned on appeal: Re Cliffs Over Maple Bay [2011] BCCA 180). The interests of a beneficiary under a trust has been held not to constitute a security interest as it does not secure any obligation independent of those arising pursuant to the trust: Stiassny v The North Shore City Council [2009] 1 NZLR 342 at [29] (NZ CA). For further discussion of the status of trust arrangements as security interests see the commentary for s 12(2)(g). The establishment of a consensual trust fund pending the outcome of a private commercial arbitration was found not to come within this exclusion in Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132 at [170]. A creditor’s right of subrogation to the right of indemnity held by a trustee arises by operation of law and hence is not a security interest: Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [134]. A right of subrogation is excluded under this: Re N’Amerix Logistix Inc (2001) 57 OR (3d) 248 (Ont SCJ). For a discussion of the right of subrogation see s 53. In respect of monies paid into a joint account as a condition imposed by an intermediate appellate court (following an application for security for costs), the Victorian Court of Appeal held that the party applying for security for costs, if granted, acquired an equitable charge in the monies in the joint account when ultimately paid and that this charge arose by operation of the law: See Dura (Aust) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) [2014] VSCA 326 at [130]. In this regard, Santamaria JA (with whom Maxwell P and Whelan JA agreed) held (at [109]): “It was not in contention that the funds in the joint account were ‘personal property’ for the purposes of the PPSA. It will be noticed that an equitable charge, such as that acquired by Hue over the moneys paid into the joint account, naturally falls under the description of ‘a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law’ found in s 8(1)(c) of the PPSA. Such interests are not covered by the PPSA.” In Treasury Wine Estates Vintners Ltd v Garrett [2016] FCA 715, Beach J considered whether a contractual indemnity constituted a “security interest” for the purposes of the PPSA. In this regard, his Honour held (at [21]): “But an indemnity is not a security interest for the purposes of the PPSA. An indemnity is contractual. It is a promise by one party that it will keep the other harmless against loss that may arise as a result of entering into a transaction. Moreover, the contractual promise was only made by the first plaintiff.” His Honour followed that: “to the extent that the first to third defendants contend that the security interests arise ‘as a matter of equity and law’, any such interests cannot be registered (s 8(1)(c))”. [8.5.4] Any right of set-off or right of combination of accounts — s 8(1)(d) A right of set-off, in a general sense, allows one party which owes a debt to another party to “set-off” a counter claim they have against the debt. Set-off may arise at general law, in equity or under statute (eg Corporations Act 2001 (Cth) s 553C): See further Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd

(In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. A bank also has a right of set-off by combining two or more accounts held by an account-holder who owes it money. Neither a right of set-off nor a right to combine accounts is a security interest as it operates over mutual contractual obligations rather than attaching to particular personal property: see Gullifer L (ed), Goode on Legal Problems of Credit and Security (2008, Sweet & Maxwell) at [7–14]. Furthermore, these rights typically arise automatically under general law and so would be excluded regardless under s 8(1)(a). This exclusion clarifies that even where the parties agree to a contractual right of set-off or combination over particular funds this will be excluded. Professor Gilmore (who co-authored the initial draft of UCC Article 9) noted that this exception was “hopelessly irrelevant. Of course, a right of set-off is not a security interest and has never been confused with one: the statute might as appropriately exclude fan dancing”: at pp 316–317. It is possible that a right to set-off may be combined with further rights over personal property which may take the arrangement outside of this exclusion. Of course, in that case it is the other arrangements (such as flawed asset arrangements) which will render the arrangement a security interest not the mere set-off right. See further, the commentary for s 12(1). [8.5.5] Arrangements under the Payment Systems and Netting Act — s 8(1)(e) The Payment Systems and Netting Act 1998 (Cth) provides certainty for the clearing and settlement of payments by allowing the Reserve Bank to approve certain payment systems. The PSNA also provides certainty for netting arrangements, including multilateral, market and close-out netting arrangements, upon the insolvency of one of the parties involved. For a discussion of close out netting see, Re Lindholm; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) (2008) 171 FCR 473; [2008] FCA 1425. [8.5.6] Dealings in relation to land — s 8(1)(f)(i), (ii) Interests in land are covered by detailed legislation around Australia including the Torrens system of land title. There is thus no need for the PPSA to cover interests in land. Although the s 12(1) definition of a security interest already excludes interests in land because it applies only to interests in personal property (see the definition of personal property in s 10), these exclusions are included for clarification purposes. There is of course a distinction between land (as real property) and personal property, but there are items of property which can fall between these two categories. For example, the right to payment under a mortgage covering real property would fit within the definition of an account in s 10 [See further, s 12], but this would fall within s 8(1)(f)(ii). Furthermore, the use of real property mortgages as collateral for a security agreement is the use of personal property. Under the PPSA the real property mortgage document may itself constitute chattel paper — See further, the commentary to s 12(3)(a). The proceeds generated from the transfer of land have been found to be excluded to a prior security interest in Canada: 5198837 Manitoba Ltd v Ozirny (2007) 12 PPSAC (3d) 121; 221 Man R (2d) 211 (MB QB). It should be noted that the enforcement of security interests covering both land and personal property is addressed at s 117. The definition of land in s 10 “includes all estates and interests in land, whether freehold, leasehold or chattel, but does not include fixtures”. Fixtures are defined in s 10 as “goods, other than crops, that are affixed to land”. The Australian PPSA differs from the Canadian statutes as it also excludes fixtures whereas the Canadian statutes do not. This has led to judicial consideration of whether items are fixtures or not. These will be considered at [8.5.15]. The phrase “in connection with an interest in land” also appears in the NZ PPSA (Personal Property Securities Act 1999 (NZ), s 23(e)(ii)) and has been interpreted as including a guarantee (secured by a mortgage) related to a debt arising from the purchase of land: Blue Water Resort Ltd v Marac Finance Ltd [2008] NZHC 1307. The New Zealand Court of Appeal has held that the phrase should not be construed narrowly: Marac Finance Ltd v Greer [2012] 2 NZLR 497; [2012] NZCA 45. In that case, the court held that there was no distinction between the terms transfer and assignment for the purposes of this exclusion (rejecting an argument that only absolute transfers of legal title would be caught by the exclusion). That case involved transferring the right to collect rent on a property being transferred from the mortgagor to

the mortgagee, which the court found was covered by the exception. The court explained the policy underpinning the exclusion as follows (at [50]): “we consider that there is sense in giving the land mortgagee the better right to rents than the personal property mortgagee. The ability of a mortgagee to get the rent in the event of a default by the mortgagor is an important aspect of the funding of tenanted properties. If the land mortgagee does not have a first ranking PPSA security interest it will have to enter into a complex priority arrangement with the prior PPSA security interest holder. All that adds complexity to the transaction which, in turn, may lead to an increased cost of funds for the debtor”. It should be noted that the PPSA applies to mortgage backed securities (and transfers in connection with mortgage backed securities) which are prescribed under the Personal Property Securities Regulations 2010 (Cth) reg 1.5. The Canadian PPSA statutes differ markedly on this exception. For a review of the case law see McLaren R, Secured Transactions in Personal Property in Canada, Carswell (looseleaf) at (3.02)[6]. There is a considerable body of case law in the United States on whether a security interest taken over hotel room receipts is rent for the purposes of this exclusion in UCC Article 9 (which, under s 9-109(11), specifically includes leases and rent as an interest in real property, whereas the Australian provision merely states an interest in a right to payment in connection with an interest in land): see the review of the authorities in Re Old Colony LLC (2012) 476 BR 1, 18ff (Bankr Dist Mass). [8.5.7] Transfers of unearned rights to payment — s 8(1)(f)(iii) This exclusion is founded on the policy that compliance with the PPSA is unnecessary because no third party would be misled by this transaction as the transferee is obliged to perform the obligation in exchange for payment. The US courts have held that this exception is included “because such a transaction has nothing to do with commercial financing transactions”: District of Columbia v Thomas Funding Corp (1991) 593 A.2d 1030, 1034 (DC CA); Marandola v Marandola Mechanical Inc (2004) 53 UCC Rep.Serv.2d 1057 (RI Superior Court). A similar exclusion applies under Uniform Commercial Code (UCC) Article 9, where the courts have held that the transferor must completely extricate themselves from the obligation. In Petron Trading Co Inc v Hydrocarbon Trading and Transport Co Inc (1986) 663 F Supp 1153 (US DC, ED Pennsylvania), the Court held that a transferor who continued to have involvement in performing the obligation did not satisfy the terms of the exclusion (then UCC Art 9-104(f) — see now (Rev) UCC Art 9 § 9-109(d)(6)). [8.5.8] Transfers of future rights of remuneration — s 8(1)(f)(iv) The assignment of future remuneration has been recognised as potentially infringing public policy (at least for public servants): see Field v Battye [1939] SASR 235. Section 324 of the Fair Work Act 2009 (Cth) allows employees to direct their employers to make deductions from their wages, but this direction can be withdrawn by the employee at any time. [8.5.9] Transfers of interests in contracts of annuity or policies of insurance — s 8(1)(f)(v) In GE Canada Equipment Financing GP v ING Insurance Co of Canada (2009) 14 PPSAC (3d) 49; 308 DLR (4th) 127 (Ont CA) Cronk JA stated (at [29]) that the policy underpinning this exclusion is based on the fact that insurance companies maintain their own records for insurance policies and therefore there is no need to maintain a separate Personal Property Securities (PPS) register to cover their priority. His Honour, quoting from Smith J in Re Rektor (1983) 3 PPSAC 32; 47 CBR (NS) 267 (Ont SC), concluded that this exception avoids: “the unnecessary duplication of notice systems concerning transfers that create interests or claims in or under insurance policies. This is achieved by excluding such interests or claims from the PPSA notice and registration scheme. Simply put, notice under the PPSA is not required to perfect a security interest falling within the ambit of [this exception]”. For a discussion of competing priorities in insurance policies see, Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 3 All ER 987. For assignment of interests in life insurance policies see, Life Insurance Act 1995 (Cth) s 200.

This exception applies to rights under insurance policies only and does not extend to all insurance-related transactions: Commercial National Bank v Seubert & Associates Inc (2002) 807 A 2d 297 (the assignment of rights to insurance files by a broker) (Superior Court of Pennsylvania). In American Bank FSB v Cornerstone Community Bank (2012) 903 F.Supp.2d 568 at 575 (US DC-ED Tennessee) it was noted that: “the vast majority of courts which have addressed whether the insurance exclusion provision of Article 9 applies to transactions in the premium finance insurance company context have found the insurance exclusion provision prohibits the application of Article 9 to any transaction stemming from a premium financing company insurance transaction or any transaction involving collateral consisting of unearned insurance premiums within that context”. The mere taking out of a policy does not fit within this exception: Re Paul (1986) 53 OR (2d) 225; 5 PPSAC 86. The phrase “an interest or claim in or under” has been interpreted in Canada as referring only to interests enforceable by the courts: 436399 Ontario Inc v Bank of Nova Scotia (1983) 3 PPSAC 187; 49 CBR (NS) 142 (a car repairer was paid directly by its customers’ insurance companies but the car repairer had no legal right or claim over these monies as it was owed money by its customers who in turn had a claim against the insurer, the direct payments were matters of convenience only). A security interest in unearned insurance premiums has been held in the United States to fit within the similar exception under UCC Art 9: see the review of the authorities in Re JII Liquidating Inc (2006) 344 BR 875 (Bankruptcy Court-ND Illinois). A similar position exists in Canada: See the Ontario Court of Appeal case Re Stelco (2005) 7 PPSAC (3d) 281; 253 DLR (4th) 524. The US courts have also held that this exception does not apply to rights to settlement funds arising from litigation where the rights are assigned and the settlement funds are paid out of the defendant’s insurance policy: Advocate Financial LLC v Longenecker & Associates Ltd (2008) 2008 La App LEXIS 1538 (Louisiana Court of Appeal). Payments under contracts of insurance are proceeds within the definition in s 31(1)(b). [8.5.10] Certain transfers of accounts — s 8(1)(f)(vi)–(ix) The range of transactions listed in s 8(1)(f)(vi)–(ix) are included as they are unlikely to mislead third parties regarding the status of the transaction. The equivalent to s 8(1)(f)(vi) has been interpreted in Canada as not involving a factoring arrangement where the transfer of the account is absolute: see Royal Bank v Canadian Commercial Corp (2001) 3 PPSAC (3d) 81; 243 NBR (2d) 122. A similar exclusion exists under the UCC Article 9: see The Supreme Court of Wyoming’s decision in Daly v Shrimplin (1980) 610 P 2d 397 at 401 (“This exclusion applies only to assignments of a non-commercial nature and not to those which are financing in nature”). In Daly, the court also held that a “collection only” assignment does not involve an advance of money, rather the money is paid only if the collection is made (at 401). In People ex rel, Franchise Tax Board v Credit Managers Assn (1977) 76 Cal App 3d 344 (Cal CA), the Court held that the assignment of an account which was for the purpose of collection and also (on the facts) to facilitate the resolution of a dispute between the parties did not fit within this exception. See also, Gold Coast Leasing Co v California Carrots Inc (1979) 93 Cal App 3d 274 (Cal CA). [8.5.11] Certain transfers in beneficial interests in monetary obligations — s 8(1)(f)(x) This exception does not appear in the Canadian or New Zealand PPSA statutes (Personal Property Security Act, SS 1993, c P-6.2 (Saskatchewan), Personal Property Security Act, RSO 1990, c P.10 (Ontario), Personal Property Securities Act 1999 (NZ)) or under Uniform Commercial Code (UCC) Art 9 and was included after a request from the securitisation industry. It refers to trust back arrangements which commonly occur in securitisation transactions. These arrangements apply in relation to surplus amounts arising from the receivables held by the special purpose vehicle. Third parties are unlikely to be misled regarding the status of the transaction as the originator of the receivables retains a beneficial interest in the surplus to the Special Purpose Vehicle’s (SPV’s) interest. [8.5.12] Interests or charges arising under particular statutes — s 8(1)(g), (jc)

These exclusions all relate to security interests that arise under the listed statutes and seem to have been only included for clarification purposes given s 8(1)(b). [8.5.13] Financial accommodation trusts — s 8(1)(h) This exception catches a “quistclose” trust arrangement where funds are provided for a specific purpose which fails and a resulting trust is recognised: Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567. This exception does not appear in the Canadian or New Zealand PPSA statutes (Personal Property Security Act, SS 1993, c P-6.2 (Saskatchewan), Personal Property Security Act, RSO 1990, c P.10 (Ontario), Personal Property Securities Act 1999 (NZ)) or in Uniform Commercial Code (UCC) Art 9. In Canada, the courts have found that resulting trusts are caught within the exception for interests under general law: see Re Skybridge Holidays Inc (1999) 15 PPSAC (2d) 24 (BC CA). See also, Re Cliffs Over Maple Bay [2011] BCCA 180; Carevest Capital Inc v 1262459 Alberta Ltd [2011] ABQB 148. This is one of many examples where the Australian PPSA includes legislative provisions for particular circumstances which have raised questions in foreign litigation. For an example of a failed Quistclose trust argument with respect to the PPSA, see Gas Sensing Technology Corp v ProX Pty Ltd [2019] WASC 10. [8.5.14] Water rights — s 8(1)(i) This exception is clarified by s 8(5) to include a right that a person has against another person to receive (or otherwise gain access to) water. Concerns have been raised regarding this exclusion as there is no standard register for interests in water rights that can be relied upon in place of the Personal Property Securities Register (PPSR). The state and territory rules regarding water rights are also not uniform. The exclusion appears to be based on political expediency rather than economic or commercial reasons. [8.5.15] Interests in fixtures — s 8(1)(j) The term “fixtures” is defined under s 10 as meaning goods that are affixed to land, not including crops. At common law, a fixture is a chattel that has become part of the land through attachment: see Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700. The reference to the term fixtures must mean fixtures according to common law: Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8 at [94]. Initially, the consultation PPS Bill did not include this exception, however, a decision was subsequently made to exclude fixtures (unlike other PPSA statutes in Canada or New Zealand [Personal Property Security Act, SS 1993, c P-6.2 (Saskatchewan), Personal Property Security Act, RSO 1990, c P.10 (Ontario), Personal Property Securities Act 1999 (NZ)] or in Uniform Commercial Code (UCC) Art 9) and leave issues with their priority and enforcement to state and territory laws. In determining whether a chattel has become a fixture or remains as a discrete personal property in its own right (and therefore subject to the PPSA unless another exception applies), the courts must determine the objective intention of the parties. This will take into account the degree of annexation of the item as well as the purpose served by the annexation at the time the property became affixed. See the summary of the law on point in National Australia Bank Ltd v Blacker (2000) 104 FCR 288. While a tenant may have a right to remove fixtures, the fixtures remain part of the land until they are removed: North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52. It should be noted that the definition of land in s 10 excludes fixtures and thus breaks from the position at general law. Query whether a fixture could be classified as an “interest in land” and otherwise excluded under s 8(1)(f)(i), although this exclusion makes that question unnecessary. The door of course remains open to include fixtures in the PPSA by repealing this paragraph. In the leading decision involving the collapse of the Forge Power group, the courts at both first instance and on appeal applied the exposition of principles in the Blacker case (National Australia Bank Ltd v Blacker (2000) 104 FCR 288; [2000] FCA 1458 at [10]): “There is a variety of general principles which should be considered in assessing whether an item of personal property has become attached to land in a manner designed to achieve a specific objective or a variety of objectives, such as to become a part of the realty and therefore, a fixture. Whether an item has become a fixture depends essentially upon the objective intention with which the item was put in place. The two considerations which are commonly regarded as relevant to determining the

intention with which an item has been fixed to the land are first, the degree of annexation, and secondly, the object of annexation.” In Blacker, Conti J relied on the following frequently cited passage from the judgment of Sir Frederick Jordan in Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at [712]: “The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period, or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose. In the former case, it is a fixture, whether it has been fixed for the better enjoyment of the land or building, or fixed merely to steady the thing itself, for the better use or enjoyment of the thing fixed. If it is proved to have been fixed merely for a temporary purpose it is not a fixture. The intention of the person fixing it must be gathered from the purpose for which and the time during which the user in the fixed position is contemplated. If a thing has been securely fixed, and in particular if it has been so fixed that it cannot be detached without substantial injury to the thing itself or to that to which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intended. On the other hand, the fact that the fixing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts.” Justice Conti went on (at [13]) to identify relevant factors that the courts generally take into account in determining the purpose or object and degree of annexation: “whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached; • the nature of the property the subject of affixation; • whether the item was to be in position either permanently or temporarily; • the function to be served by the annexation of the item. At [14] Conti J identified the factors that the courts generally ought to take into account in determining the purpose or object and degree of annexation as follows: • whether removal would cause damage to the land or buildings to which the item is attached; • the mode and structure of annexation; • whether removal would destroy or damage the attached item of property; • whether the cost of renewal would exceed the value of the attached property”. In Forge Power, the relevant property consisted of large gas turbines that were operated on trailers and could be removed and hence were not fixtures. The turbines were attached to the land by cables but this was to protect them from high winds (the area could be affected by cyclones). The Court of Appeal stated (at [96]): “There is nothing in the PPSA to support the suggestion that Parliament intended personal property that is affixed to land, but not in such a way as to become part of the land at common law, to be a species of property not governed by the PPSA.” [8.5.16] Interests held by pawnbrokers — s 8(1)(ja), (6) This exclusion is justified on the basis that pawnbrokers are heavily regulated by state and territory statutes. The exception only applies where the collateral is valued at less than $5,000 and the interest arises in the ordinary course of a licensed pawnbroker business and would not apply to serial numbered property (such as motor vehicles). It should be noted that the $5,000 figure is arbitrary (as discussed at [47.5.1]) based primarily on the Australian legislature’s perception of what constitutes “low value” or “consumer” type property. This exclusion appears in the Ontario PPSA (Personal Property Security Act, RSO 1990, c P.10) but not

in other Canadian provinces, nor in New Zealand or in Uniform Commercial Code (UCC) Art 9. While the Australian PPSA (Personal Property Securities Act 2009 (Cth)) is modelled on these regimes, provisions like this one highlight the varying perspectives among Personal Property Securities (PPS) jurisdictions. The exclusion also provides comfort for parties who acquire personal property from pawnbrokers and is consistent with the s 47 of the PPSA which allows a purchaser or lessee of personal property worth less than $5,000 to take free from existing security interests in any event if the buyer or lessee intends to use the personal property predominantly for personal, domestic or household purposes. [8.5.17] Interests in relation to superannuation, retirement savings accounts and approved deposit accounts — s 8(1)(jb) This exclusion was inserted by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth). The Explanatory Memorandum explains that (Sch 2 at [20]): “The exclusion implements the Government’s retirement income policy, which prevents holders of interests in superannuation funds from using those interests as security for loans and other obligations not related to retirement income.” [8.5.18] Declared statutory licenses — s 8(1)(k) A license, as defined by s 10, must be transferable by the licensee (whether or not the right, entitlement, authority or licence is exclusive, and whether or not a transfer is restricted or requires consent). See s 10 for a definition of licence. A list of licenses have been declared by state and territory legislation as being outside of the scope of the PPSA, see: • (ACT) Personal Property Securities Act 2010 • (NT) Personal Property Securities (National Uniform Implementation) Act 2010 • (NSW) Personal Property Securities Legislation Amendment Act 2010 • (Qld) Personal Property Securities (Ancillary Provisions) Act 2010 • (SA) Statutes Amendment (Personal Property Securities) Act 2011 • (Tas) Personal Property Securities (National Uniform Legislation) Implementation Act 2010 • (Vic) Personal Property Securities (Statute Law Revision and Implementation) Act 2010 • (WA) Personal Property Securities (Consequential Repeals and Amendments) Act 2011. There is a broader question of whether a license is personal property. The definition of personal property in s 10 includes a reference to licenses. The characteristics of property and interests in property were described by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1,247–8 who stated: “Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.” See also, R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327. For a discussion of the Canadian law see Saulnier v Royal Bank of Canada [2008] 3 SCR 166; 298 DLR (4th) 193. Section 12(5) states that a license is not a security interest in itself. However, it is clear that a license may constitute collateral to support a security interest provided that the license is transferable and not declared by state or territory legislation to be excluded. See further, Exclusions to security interests discussed in the commentary to s 12 at [12.5.3]. [8.5.19] Declared interests — s 8(1)(l) At the time of writing, the Personal Property Securities Regulations 2010 have declared that “the Act does

not apply to a right or interest in personal property mentioned in s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth)”. [8.6] Further reading • Explanatory Memorandum [1.13–1.14, 2.13]. • ALRC Report No 64 [3.8, 3.12, 3.15; See also, 5.11–5.50]. • Whittaker Report [4.3], [4.5], [5.1], [7.8]. • Roderick Wood and Michael Wylie, “Non-consensual security interests in personal property” (1992) 30 Alberta Law Review 1055. • John Stumbles, “The PPSA: The Extended Reach of the Definition of the PPSA Security Interest” (2011) 34(2) UNSWLJ 448. • Nicholas Mirzai and Samuel Kang, “Systems of registration: Synergies between Torrens and the Personal Property Securities regime” (2012) 21 Australian Property Law Journal 32. • Christopher Pearce, “Fixtures and forge” (2019) 93 Australian Law Journal 438. Footnotes 3

Cuming R, Walsh C and Wood R, Personal Property Securities Law, 2005 Irwin Law at p 108.

¶1.3 PART 1.3 — DEFINITIONS ¶1 Division 1 — Introduction

¶9 SECTION 9 GUIDE TO THIS PART ¶1-050 SECTION 9 GUIDE TO THIS PART Text of s 9

¶2 Division 2 — The Dictionary

¶10 SECTION 10 THE DICTIONARY ¶1-055 SECTION 10 THE DICTIONARY Text of s 10

¶11 SECTION 11 APPLICATION OF THE ACTS INTERPRETATION ACT 1901 ¶1-060 SECTION 11 APPLICATION OF THE ACTS INTERPRETATION ACT 1901 Text of s 11

¶3 Division 3 — Concepts relating to security interests and personal property

¶12 SECTION 12 MEANING OF SECURITY INTEREST ¶1-065 SECTION 12 MEANING OF SECURITY INTEREST Text of s 12 [12.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 17

Saskatchewan

PPSA 1993

s 2(1)(qq), 3(1)

Ontario

PPSA 1990

s 1(1), (2)

USA

UCC Article 9 (rev)

§ 1-201(35), 9109

[12.2] Outline Section 10 provides a general definitions and interpretation provision for the purposes of the PPSA, however, some terms are of such critical importance that they have been defined pursuant to their own section under the PPSA. The term “security interest” is one such term and is central to the workings of the PPSA. Section 12 has been included to prescribe the appropriate test and standard as to which transactions or dealings will fall within the scope of the PPSA and which will not. If an instrument cannot be defined as a “security interest” pursuant to s 12, then the PPSA will not generally apply to it, although there may be sections of the PPSA that extend beyond the concept of a consensual security interest as defined by s 12(1) (see s 8(2), 12(3), 13 for details). Further, even if an arrangement would otherwise fall within the concept of a security interest under s 12 it may be excluded by the operation of s 8 (see [8.5]). While the definition provided here is not dissimilar to what has been discussed above at Intro.III, the focus of analysis is different — that is, parties look to the substance of the transaction as opposed to its form. Title, by reference to its legal and equitable notions as developed under general law, is not determinative under the “in substance” approach to security interests prescribed by s 12(1). That is, for the purposes of defining when security interests arise under the PPSA, title, and the concept of nemo dat quod non habet (no one [can] give what one does not have), is but one of several factors relevant to a proper analysis of the instrument giving rise to the interest. It is no longer determinative of the secured party’s rights or the priority of their interests. [12.3] Cross-references • Section 12 provides the definition for the foundation concept underpinning the PPSA — the concept of a security interest. It is mentioned in almost every section of the PPSA. • Section 8 excludes certain arrangements from the operation of the PPSA even where they would constitute a security interest under this section. Personal Property Securities Regulations 2010 (Cth) reg 1.8. [12.4] Concepts • Account This is defined in s 10. See also, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. See further, Strategic Finance Ltd v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357 (which considered the equivalent, though not identical definition of “accounts receivable” in the NZ PPSA, s 16). A right to receive a tax refund due to the closure of a business is not an account: Re Langdon; Forge Group Ltd (recs and mgrs apptd) (in liq) (2017) 118 ACSR 434; [2017] FCA 170. Rights in surplus proceeds of a performance bond not called until after the company had entered voluntary administration did not constitute an account at the time of the administrator’s appointment: Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC

735. • ADI account This is defined by s 10 as “an account, within the ordinary meaning of that term, kept by a person (whether alone or jointly with one or more other persons) with an authorised deposit taking institution (ADI) that is payable on demand or at some time in the future (as agreed between the ADI and the person or persons)”. This concept is discussed in more detail in s 25. • Chattel paper This is defined by s 10. See further, [12.5.3]. • Licence This is defined by s 10. See further, Exclusions to security interests discussed in the commentary at [12.5.5]. See also, Declared statutory licenses discussed at [8.5.18] for a list of licences excluded from the Act. • Personal property This is defined by s 10 means property (including a licence) other than: “(a) land; or (b) right, entitlement or authority that is: (i) granted by or under a law of the Commonwealth, a State or a Territory; and (ii) declared by that law not to be personal property for the purposes of this Act”. See further, Exclusions to security interests discussed in the commentary at [12.5.3]. • PPS Lease This important concept (which is a deemed security interest) is discussed in detail under s 13. • Security interest This foundational concept that underpins the PPSA regime is discussed below. • Transaction The focus of s 12(1) is on transactions rather than on any particular instrument: National Australia Bank Ltd v Garrett [2016] FCA 714 at [28]. [12.5] Commentary [12.5.1] The security interest — s 12(1) ....................................XX [12.5.1.1] Consent ....................................XX [12.5.1.2] Relationship to personal property ....................................XX [12.5.1.3] Proprietary rights ....................................XX [12.5.1.4] Payment or performance of an obligation ....................................XX [12.5.1.5] What is the source of the security interest? ....................................XX [12.5.1.6] Trust arrangements as security devices ....................................XX [12.5.2] Scope of security interests, examples and illustrations — s 12(2) ....................................XX [12.5.2.1] Fixed charges — s 12(2)(a) ....................................XX

[12.5.2.2] Floating charges — s 12(2)(b) ....................................XX [12.5.2.3] Chattel mortgages — s 12(2)(c) ....................................XX [12.5.2.4] Conditional sale agreements — s 12(2)(d) ....................................XX [12.5.2.5] Hire purchase agreements — s 12(2)(e) ....................................XX [12.5.2.6] Pledges — s 12(2)(f) ....................................XX [12.5.2.7] Trust receipts — s 12(2)(g) ....................................XX [12.5.2.8] Consignments — s 12(2)(h) ....................................XX [12.5.2.9] Leases — s 12(2)(i) ....................................XX [12.5.2.10] Assignments — s 12(2)(j) ....................................XX [12.5.2.11] Transfers of title — s 12(2)(k) ....................................XX [12.5.2.12] Flawed asset arrangements — s 12(2)(l) ....................................XX [12.5.2.13] Other miscellaneous examples ....................................XX [12.5.3] Deemed security interests — s 12(3) ....................................XX [12.5.3.1] Transfers of accounts and chattel paper — s 12(3)(a) ....................................XX [12.5.3.2] Commercial consignments — s 12(3)(b) ....................................XX [12.5.3.3] PPS leases — s 12(3)(c) ....................................XX [12.5.4] Charge-backs permitted — s 12(3A), (4) ....................................XX [12.5.5] Exclusions to security interests — s 12(5) ....................................XX [12.5.6] Subordination agreements excluded by the PPSA — s 12(6) ....................................XX [12.5.1] The security interest — s 12(1) Section 12 is one of, if not, the most important section of the PPSA. As the learned authors Ziegel J and Denomme D state:4 “its [the equivalent Ontario PPSA provision] purpose is to collapse the multiplicity of consensual security devices available at common law or in equity, or sanctioned by state, and to replace them with the generic concept of a security agreement creating a security interest”. In the New South Wales Court of Appeal decision, Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8, Ward JA stated (Bathurst CJ and Beazley P agreeing) (at [83]): “the ‘mischief’ that the PPSA was intended to address was the uncertainty and complexity of the various statutory and common law regimes applicable to security interests in personal property. The legislature sought to ameliorate this by providing a new national system of registration of interests of that kind and introducing a system of default rules to determine, among other things, priorities in respect of interests in personal property”. Despite its central importance, if s 12(1) is compared to the definition of “security” found in Intro III, there is little difference between the underlying concept of security at common law and the approach taken by the PPSA. The PPSA goes no further by way of establishing statutory requirements or guidelines to distinguish a security interest from other instruments. A court interpreting s 12(1) is instructed to look to

the substance of the transaction as opposed to its form. The conceptual vagueness employed by the statutory definition of a security interest in s 12 is, as a matter of construction, quite deliberate. The PPSA is not designed to establish specific forms of security interests which fall within the scope of the Act — to do so would run contrary to the point of the reform. Instead, the very purpose of the examination of the substance of a transaction under the PPSA is to move away from the pre-PPSA law that was based largely on the form of the security device adopted. As the Supreme Court of Canada said in Bank of Montreal v Innovation Credit Union [2010] SCC 47; (2010) 17 PPSAC (3d) 1 at [18], the PPSA extends “to almost anything which serves the function of a security interest”. The scheme of the legislation was summarised in Gas Sensing Technology Corp v ProX Pty Ltd [2019] WASC 10 at [265] as follows: “For the PPSA to apply, the ‘interest’ must be a ‘security interest’ as described in s 12, it must be ‘personal property’ under s 10 and must not be excluded by s 8.” The PPS legislation enacted overseas has adopted similar terminology in defining the security interest. The case law that has developed throughout Canada and New Zealand has drawn support from the following four principles enunciated by Cuming R, Walsh C and Wood R5 which assist in establishing a security interest for the purposes of this section: • the security interest must be consensual; • the security interest must relate to personal property; • the security interest must bestow some form of “proprietary right”; and • the security interest must secure the payment or performance of an obligation or obligations. It should be noted that the four requirements discussed here operate, like s 12(2), as guidelines rather than strict requirements necessary to satisfy the primary test for a security interest pursuant to s 12(1). The approach taken to the legislation abroad is to read the section broadly in light of the overarching rationale and policy of the PPSA: see the Supreme Court of Canada’s decision in Canada Trustco Mortgage Corp v Port O’Call Hotel Inc (1996) 11 PPSAC (2d) 1; 133 DLR (4th) 609. This approach is inherently sensible and has been adopted in interpretation of the Australian PPSA: See Dura (Aust) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) [2014] VSCA 326 at [107] (discussed below at [12.5.1.1]); Davidson v Registrar of Personal Property Securities [2015] AATA 549 at [21]–[22]. [12.5.1.1] Consent A security interest will not arise under the PPSA unless the grantor consensually provides for or grants it in favour of the secured party. In circumstances where the secured party seeks to perfect their security interest by registration, i.e. lodging a financing statement on the PPSR, the security interest must be included in a security agreement (see s 20 of the PPSA): See Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926 at [9]. It is worth noting that the relevant consent of the grantor is what is in issue and not the consent of the debtor. The debtor is the person to whom the primary obligation(s) attach, most often being the requirement to repay a said sum of money borrowed. The grantor is the party who bestows upon the secured party a security interest over particular personal property (see s 10 of the PPSA; “debtor” and “grantor”) to secure the debtor’s payment or performance of the obligation(s) being secured. Given the commercial nature of such dealings, the debtor is often the same party as the grantor. However, importantly, this need not be the case. A common example of this would be where a third party allows for the creation of a security interest over their own personal property to support the payment obligation owed by another. While this is commonly referred to as going “guarantor” or guaranteeing the obligation owed by another, a guarantee, by definition, is not a security interest because it takes the form of a contractual promise. A contractual promise is not, absent more, personal property capable of conferring a security interest. What would make a guarantee a security interest for the purposes of the PPSA is a separate promise from the guarantor which encumbers personal property in favour of the secured party.

The consent of the grantor is typically in issue where a security interest might arise automatically by operation of law. Where the security interest does not depend on the voluntary consent and will of the grantor, it is not a consensual security agreement which is regulated by the PPSA. An interest that arises because of a court order (such as an award of equitable relief) does not arise from a consensual transaction and hence is not a PPSA security interest under s 12(1): Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217. Section 8(1)(c) expressly excludes interests which arise or are provided for by operation of the law. Consent to create a security interest may be found in a written document, in oral agreements or a combination of both: Haliburton Broadcasting Group Inc v Van Duyn (2008) 14 PPSAC (3d) 77 (Ont Superior Court of Justice); Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926 at [9]. It should be noted, however, that there may be writing requirements in certain circumstances if the secured party wishes to enforce the security interest against third parties, for instance in circumstances where the secured party does not possess or control the underlying collateral: see s 20. While perhaps self-evident, it is worth further noting that the consent requirement for the creation of a security interest is focused on the circumstances giving rise to the dealing rather than as to the proper form of that dealing. Whether the parties intend to create a security interest or is not irrelevant if the transaction or dealing gives rise to one as a matter of construing s 12(1) of the PPSA: Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132 at [215]. For example, in circumstances where a PPS lease is created (which constitutes a security interest by force of s 12(3) of the PPSA) it is entirely likely that the lessee never consents to the taking of a security interest by the lessor over the underlying property. Nevertheless, consent occurs — and therefore must be examine — upon the taking of possession of the underlying personal property. In Dura (Aust) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) [2014] VSCA 326, Santamaria JA (with whom Maxwell P and Whelan JA agreed) held (at [110]–[111], [115], [121] and [126]–[127]: “Section 12 uses the word ‘transaction’. The PPSA does not itself proffer a definition of this central concept. It does not qualify the use of the word ‘transaction’ in the phrase ‘provided for by a transaction’ with any epithet. The word itself is one of considerable generality; it covers a broad range of activities. The Shorter Oxford English Dictionary provides several meanings of transaction including ‘3. The action of transacting or fact of being transacted … 4. That which is or has been transacted, esp. a piece of business; a deal. A physical operation, action, or process.’: See, Shorter Oxford English Dictionary (Oxford University Press, 6th ed, 2007) 3320. The word is apt to describe conduct giving rise to rights, where the creation of those rights may be said to be consensual as between parties, as well as conduct as a result of which rights arise by operation of law, notwithstanding the absence of any consent inter partes. It is itself apt to describe a payment into a joint account such as occurred in the present case: the payment (like all payments) involved an action in which something passed from one person to another. The word ‘transaction’ is an ordinary English word and should be given its ‘natural and ordinary meaning’: See, Alcan (NT) Alumina Pty Ltd v Cmr of Territory Revenue (Northern Territory) (2009) 239 CLR 27, 47 [48] (Hayne, Heydon, Crennan and Kiefel JJ). … The exclusion from the application of the Act, by operation of s 8, of interests in personal property which arise by operation of law, notwithstanding that they may be said to arise from transactions (using that term in its broadest possible sense), strongly suggests that the use of the term ‘transaction’ in s 12 is confined to consensual transactions inter partes [Noting that: The suggestion appears to be reinforced by the proviso in s 8(1)(b): ‘unless the person who owns the property in which the interest is granted agrees to the interest’.] … Authority from other jurisdictions also supports the proposition that the ‘transaction’ giving rise to such an interest has to be ‘consensual’. In iTrade Finance [2011] 2 SCR 360 the Supreme Court of Canada considered the meaning of a ‘security interest’ under s 2 of the Personal Property Security

Act 1990 Ontario. It held that the ‘transaction’ giving rise to such an interest had to be ‘consensual’. … In my opinion, because the interest of Hue in the moneys paid into court did not arise out of a consensual transaction between it and Dura, its interest in the funds was not a ‘security interest’ within s 12 of the PPSA. It follows that Dura was not the ‘grantor’ of a security interest, nor was Hue a ‘secured party’ under the PPSA. Further, in so far as Hue acquired an equitable charge over the moneys paid into court, the PPSA did not apply as that charge answered the description of ‘a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law’, within the meaning of s 8(1)(c) of the PPSA. Its interest arose as a result of Dura complying with the condition imposed by the Court of Appeal. There was no contractual or any other transaction or arrangement between the parties. Hue did not agree to the Order and did not agree to a stay of its judgment in exchange for the payment into the joint account: See also, [8.5.3].” See also, National Australia Bank Ltd v Garrett [2016] FCA 714 at [28]–[33] per Beach J; Gas Sensing Technology Corp v ProX Pty Ltd [2019] WASC 10. As to examining the objective intentions of the parties to an agreement for the purposes of whether or not there has been consent to create an agreement and on what terms, the ordinary principles pertaining to the proper construction of contracts — particularly commercial contracts — there is no reason to treat agreements for the purposes of the PPSA any differently to any other contract, as to which: See, Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37. [12.5.1.2] Relationship to personal property A security interest consists of an “interest in personal property” as collateral to secure the payment or performance of an obligation. Mere contractual rights, such as those undertaken by a surety without including an interest in property, are not security interests as they do not attach to rights which are proprietary in nature so as to allow for a security interest to be taken over such personal property. It is the relationship between the obligation and a right against personal property that generates the security interest (cf commentary to s 12(2) below). Furthermore, the collateral forming the subject matter of the security agreement must be “personal property” for the purposes of s 12(1). Section 10 defines property as anything that is not land or a statutory right that is declared not to be personal property. The characteristics of property and interests in property were described by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1,247–8 who stated: “Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.” See also, R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327. For a discussion of the position under Canadian law, see, Saulnier v Royal Bank of Canada [2008] 3 SCR 166; 298 DLR (4th) 193. A mere expectancy is not personal property for the purposes of the PPSA: Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735 at [70]. Interests in both legal and equitable property may be included as collateral for a security interest: see for example 356447 BC Ltd v Canadian Imperial Bank of Commerce (1998) 13 PPSAC (2d) 155; 157 DLR (4th) 682 (BC CA) (assignment of equitable interest in business to secure repayment of a loan). For a further discussion of trusts as security devices see 12(2)(g) (below). In Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132 at [210], the court considered that the residual interest of a party to a commercial arbitration who set aside funds in a solicitor’s trust account pending the outcome of the proceedings was equitable property that could be collateral of a PPSA security interest. It should be reiterated that s 8(1)(j) excludes fixtures from the operation of the PPSA. For the purposes of attending to perfecting by registration in accordance with the PPSA, the PPSA requires personal property to be classified under one, and only one, of the available classes of collateral

at any given point in time (see, PPSA s 21; PPS Regulations Sch 1, cl 2.3 — See also, s 153). By way of encouraging a degree of uniformity for the purpose of perfection by registration and priority under the PPSA, each property class is defined by the Act (see s 10). In practice, it is important to correctly characterise the personal property over which the security interest has or will be taken in order to ascertain and adopt the best method of perfection for that particular property class. [12.5.1.3] Proprietary rights “Proprietary rights” refer to rights the party granting the security interests holds in the particular item(s) of property or the rights the granting party will, in the future, hold over such property. The grantor must have “proprietary rights” in the relevant personal property as a consequence of the inclusion of the words “an interest in personal property” in the definition of a security interest in s 12(1). The term “interest in personal property” is defined by s 10 of the PPSA as “includes a right in the personal property”. The phrase “right in the personal property” is not defined by s 10, however s 19(2)(a) of the PPSA makes reference to a security interest “attaching” at the point in time when the grantor has “rights in the collateral”. In this regard, s 19(5) of the PPSA provides that: “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 (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.” (emphasis added) Thus, “rights in the collateral” and therefore “an interest in personal property”, extends beyond a grantor holding title or owning the underlying collateral. Put another way, while ownership of the property is certainly a proprietary right, a right to possession is also a proprietary right notwithstanding that the possessing party may have no claim to the legal title or ownership of the subject property: see Re Maiden Civil [2013] NSWSC 852 at [26] per Brereton J; See also, [19.5.2.1]. The distinction is of critical importance as owners of property who grant possession to a different party may subject themselves to a competing security interest entered on behalf of the possessing party. A simple lease arrangement demonstrates the point:

Assume Party A (lessor) leases a motor vehicle to Party B (lessee). Party B wishes to obtain finance and grants an “all present and after-acquired security interest” to Party C. In such circumstances, Party C would take an interest in the motor vehicle owned by Party A regardless of the fact that Party B does not own or have good title to the motor vehicle.

As s 12(1) specifically directs, the identity of who holds title is irrelevant for determining whether or not a security interest exists. The nature and extent of proprietary rights required to grant a security interest are discussed under s 19. The central concept underpinning s 12 is the granting of an interest in the collateral. As the US Court of Appeals for the 11th Circuit said: “a security interest is not a promise to pay a debt; it is an interest in some collateral that a lender can take if a debtor does not fulfil a payment obligation”: See, Reese v Ellis, Painter, Ratterree & Adams LLP (2012) 678 F.3d 1211 (USCA 11th Circ), in the context of a discussion of the difference between a promissory note and a security interest. It was held that a mother who purchased a truck for her son considered that it was a loan, and her son intended to repay it, but neither of these points were sufficient to involve the granting of a security interest in the truck: Director under the Seizure of Criminal Property Act 2009 v Kaytor [2012] SKQB 346 (the mother claimed an interest in the truck when it was seized by police for its use in cocaine trafficking). The Supreme Court of Canada in iTrade Finance Inc v Bank of Montreal (2011) FPPSR ¶700-125; 2011 SCC 26; [2011] 2 SCR 360 at [27], noted that the Ontario PPSA does not prescribe how a security interest may be granted in personal property, because where it applies “it renders irrelevant the

distinctions between the wide variety of instruments which existed at common law and in equity for taking a security interest in another person’s property”. This reasoning is applicable to the proper construction of s 12(1) in the authors’ view. The US courts have held that the underlying security agreement does need to include a security interest clause, with a mere listing of collateral in the agreement not being sufficient to grant the security interest in the collateral: Gateway Hotel Partners LLC v C.I.R. (2014) T.C. Memo. 2014-5, 2014 WL 92027 (US Tax Court). Equitable interests that satisfy the definition of s 12(1) may be properly perfected by registration under the PPSA: Re Production Enhancement Group Inc (2011) 18 PPSAC (3d) 6; 79 CBR (5th) 33 (Alta QB). [12.5.1.4] Payment or performance of an obligation A security interest will only exist where there is a current and active obligation or obligations extending from the party subject to the secured obligation (typically a debtor) to the secured party. Once the underlying obligation(s) is/are extinguished or satisfied, the security interest is incapable of existing further — being a purely secondary or derivative right: see for example, Hughes v Fea [2013] NZHC 2863 (lease of goods with an obligation to replace goods as and when they were disposed of, obligation was discharged at the instant that the goods were replaced hence no security interest in the replaced goods). As stated above, while the terms “debtor” and “grantor” may be considered synonymously in most instances (that is, the grantor will also be the debtor and vice versa), technically the person owing the obligation to the secured party is called the “debtor” and the person granting the security interest is termed the “grantor”. There is no requirement under the PPSA that these two roles be held by the same person, although in most cases they will be. Additionally, while the taking of a security interest is typically associated with the repayment of a facility or line of credit, the PPSA also applies to security agreements entered for the performance of an obligation so long as the obligation is validly enforceable at law (See further, the definition of “grantor” pursuant to s 10). No particular form of words is needed to give rise to a security interest, provided that the arrangement grants an interest in personal property which “in substance” secures the payment or performance of an obligation: Re Miller (1977) 545 F 2d 916 (US CA 5th Circ); 356447 B.C. Ltd v Canadian Imperial Bank of Commerce (1998) 13 PPSAC (2d) 155; 157 DLR (4th) 682 (BC CA). The court will apply an objective test in assessing whether the parties consented to a transaction that secures the payment or performance of an obligation in substance: Kaak v Bank of Montreal (2003) 5 PPSAC (3d) 187 (Ont Superior Court of Justice) affirmed (2003) 6 PPSAC (3d) 13 (Ont CA). The objective test looks to the terms of the security interest itself (where a security agreement exists) or the nature of the relationship between the parties (for oral security interests). The New Zealand Court of Appeal, in JS Brooksbank and Co (Australasia) Ltd v EXFTX Ltd (in rec and liq) (2009) 10 NZCLC 264,520; [2009] NZCA 122 at [51] (referring to Widdup L and Mayne L, Personal Property Securities Act: a conceptual approach, 2002 revised ed, LexisNexis at [2.9]) noted that: “The direction to have regard to what a transaction does ‘in substance’ suggests that the focus should be on what the transaction purports to do.” A mere investment in a business will not constitute a security interest as it does not secure the payment or performance of an obligation, even if the parties seek to clothe the investment as a secured loan: Dapper Apper Holdings Ltd v 895453 Ontario Ltd (1996) 11 PPSAC (2d) 57; 38 CBR (3d) 284 (Ontario CJ). The point in time at which an analysis of whether or not a security interest has been created is at the time the dealing or transaction is entered and not at some later stage. If there is a subsequent agreement to provide some form of security, care must be given to consider whether or not consideration has followed for the additional secured obligations. [12.5.1.5] What is the source of the security interest? The source of the security interest is typically the agreement, contract or document signed between two contracting parties and referred to, thereafter, as the “security agreement”: See, s 10 “security

agreement”. However, consistent with s 12 focusing on substance over form, the source of the security interest need not take a particular form. Thus, a security interest may be found in a written document, in oral agreements or a combination of both: Haliburton Broadcasting Group Inc v Van Duyn (2008) 14 PPSAC (3d) 77 (Ont Superior Court of Justice); Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926 at [9]. Prior to the commencement of the PPSA, a supplier would typically supply goods to a purchaser subject to a “retention of title” clause which was either included in the trade agreement between the supplier and purchaser or provided on each and every invoice sent from the supplier to the purchaser in respect of each bundle of goods. Leaving aside whether including terms on an invoice is capable of binding the purchaser to such terms, given that retaining title did not, at common law, constitute the creation of a security interest which required registration, there was little, if any, significance in creating multiple quasisecurity interests upon each and every individual supply of goods. As is discussed further below at [12.5.2.4], retention of title arrangements or selling goods conditionally very likely constitutes a security interest for the purposes of the PPSA. As the secured party bears the onus of perfecting any such interest, the source of the security interest(s) is therefore of significance. In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61, Central Cleaning Supplies (Aust) Pty Ltd supplied cleaning equipment and products to Swan Services Pty Ltd. In September 2009, Swan Services signed a credit application. Among other things, the credit application provided for 30 days’ credit to be afforded to Swan Services. The credit application also included a statement that the supply of goods was governed by Central Cleaning’s “Standard Terms and Conditions”. Thereafter, from time to time Central Cleaning supplied Swan Services with cleaning equipment and products. Printed at the bottom of the relevant invoices was a retention of title “condition of sale” which stated that the goods, the subject of the particular invoice, remained the property of Central Cleaning until the whole of the purchase price had been paid by Swan Services in full for those goods. Justice Ferguson of the Supreme Court of Victoria held that each individual invoice containing the retention of title clause gave rise to separate security interest for the purposes of the PPSA (at [33]). As these invoices were all issued after 30 January 2012, the corresponding security interest was not a transitional security interest (at [34]) which was fatal to Central Cleaning’s claim against the liquidators of Swan Services. Central cleaning appealed. On appeal, the Court held in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in his capacity as joint and several liquidator of Swan Services Pty Ltd (in liq)) [2015] VSCA 92, at [17]–[18], that: “Although ‘security interest’ is defined by reference to transactions, ‘security agreement’ is not. Instead, the latter definition speaks of ‘an agreement’ or ‘an act’ by which a security interest ‘is created, arises or is provided for’. On ordinary principles of interpretation, the legislature must have intended that each of these alternatives — ‘is created’, ‘arises’ and ‘is provided for’ — has its own work to do. The legislature has thus specified three types of relationships between the ‘agreement or act’, on the one hand, and the security interest, on the other. The existence of any one of those relationships will qualify the agreement or act as a ‘security agreement’. The three alternatives would seem to connote differing degrees of directness of that relationship. To take the two extremes (and converting the passive voice of the statutory language into the active voice), there is an obvious difference between an agreement or act ‘which creates’ a security interest and an agreement or act ‘which provides for’ a security interest.” On this basis the Court went further, at [23], to provide that: “On this analysis, the relevant definitions will be satisfied if the agreement or act said to constitute the transitional security agreement makes provision for the grant of future security interests in goods supplied.” Turning to the factual matrix before the Court, the Court held (at [30]–[34], [36], [39]–[40]) that: “In our view, Swan’s credit application was simply that — an application. The signing and lodgment of the application was a unilateral act by Swan, a request to Central that any future supply of equipment be on terms that payment was not due for 30 days. Swan thereby signified its intention to create legal

relations with Central on those terms but until Swan’s offer was accepted, no such relations would come into existence. On ordinary principles, therefore, the mere signing of the credit application did not create a contract, and its lodgment with Central did not impose on Central a contractual obligation to do anything. Swan had simply made an offer to acquire equipment from Central on the terms set out in the application. More particularly, Swan was offering to purchase equipment from Central on an ongoing basis, and to do so subject to Central’s ‘Standard Terms and Conditions as in force from time to time’, in return for Central agreeing to provide 30 day credit. The credit application ‘was in substance an application [by Swan] to become an account customer, and it was to cover all future dealings’ with Central. In the absence of any other communication by Central of its acceptance, the terms in the application would not become binding on either party unless and until Central supplied equipment to Swan and extended the 30 day credit which Swan had requested. As a matter of contract, therefore, Swan did not become bound by the ‘Credit Application Terms’ until the first supply of equipment after the credit application was made. (That was the supply in respect of which Central issued the invoice dated 4 September.) Central’s acceptance of Swan’s application for credit was an acceptance by conduct. The relevant conduct was the delivery of the equipment which Swan had ordered, and the sending of the invoice confirming that the supply was on 30 day credit. By that conduct, Central signified its acceptance of Swan as an account customer. The sending of the invoice was the critical step, of course, as it was the first communication confirming that credit was being provided. … It is immaterial that the credit application form did not set out Central’s ‘Standard Terms and Conditions’. On ordinary principles, Swan’s signing of the credit application bound it to accept those terms and conditions for all future supplies of equipment. Clause 2 of the ‘Credit Application Terms’ (set out above) could not have been clearer in that regard. … It is clear that, in its terms, each ROT clause had application only to the invoiced goods the subject of the particular supply. The result of the contractual analysis, however, is that: • Swan’s application for credit included an undertaking to be bound, in respect of every supply of equipment, by Central’s standard terms of supply; • the ROT clause was in existence, as a standard term of supply, at the date on which the credit agreement became binding on Swan, being the date on which Swan received the first invoice for equipment supplied; and • under that agreement, Swan accepted that all future supplies of equipment would be governed by that standard term (which would be expressed in each case to relate to the particular equipment supplied). On this view, an agreement came into force — at the time of the first supply of equipment — which did ‘provide for the grant of’ a security interest in relation to all future supplies of equipment. That agreement was a ‘transitional security agreement’, and each of the security interests granted in respect of equipment supplied subsequently was a ‘transitional security interest’. Central is therefore able to enforce the ROT clauses notwithstanding the absence of registration.” The Victorian Court of Appeal decision emphasises the need to look closely at the contractual relationship between the parties when considering the source of the security interest: See also, N Mirzai, “The master agreement, terms of trade or the invoices: What is the source of the security interest?” (2015) 24 APLJ 335. In Re Gelpack Enterprises Pty Ltd (in liq) [2015] NSWSC 1558, the Supreme Court of New South Wales was required to determine what, if anything, gave rise to a security interest asserted by the Plaintiff, Primaplas Pty Ltd, in resins it supplied to the Defendant, Gelpack Enterprises Pty Ltd, which was in

liquidation. In this regard, Brereton J held (at [20], [22]): “Under the 2007 contract, Primaplas reserved the right unilaterally to change the terms and conditions. While undertaking to give notice of its intention to do so, where possible, such notice — let alone consent — was not a pre-condition to a change. The 2007 contract authorised Primaplas to change the terms and conditions from whenever it chose to do so. … The fact that the covering letter requested signing and return of the terms and conditions did not make such signing and returning a pre-condition to the new terms taking effect. That is made clear enough in the letter itself, emphasising that the new terms apply to any orders accepted after that notification. Nor does the fact that the terms and conditions themselves provide for acceptance have that consequence. The terms and conditions of 2012 are a generic document intended to apply both to new accounts and to existing customers, and if they operated — as they did in this case — by virtue of the authority conferred in the 2007 contract, no further act of acceptance was required.” As the terms and conditions in this matter had been altered by a notification in August 2012, and Primaplas had perfected its security interest by registration in respect of the August 2012 notification, the Court held that it need not strictly go further and that a security interest was founded (at [23]). However, Primaplas had also included a “retention of title” type clause on each invoice connected with each supply of goods. In respect of this, Brereton J held (at [26]–[28]): “Moreover, as I have said, each of the invoices and other related documentation contained references to Primaplas’s terms of trade, and the invoices in particular drew attention to the retention of title clause. The better view, I think, is that, at least in this case, the note at the foot of each invoice did not amount to a new contractual term but reminded the recipient that the retention of title clause contained in the terms and conditions of trade that were incorporated in every purchase included such a clause. By continuing to pay those invoices and re-order further goods, knowing that the terms and conditions included such a clause, Gelpack either ratified Mr Hone’s entry into the 2012 terms and conditions or, by the repeated course of dealing, incorporated into each separate contract between them the retention of title clause. Accordingly, in my view, Gelpack did agree in a binding way to grant a security interest at least in the nature of a retention of title clause in respect of goods supplied to it by Primaplas. Moreover, the conclusion I have reached concerning the effect of the 1 August 2012 letter means that it also agreed to grant a security interest in all present and after-acquired property in the terms of the 2012 terms and conditions.” Notwithstanding the overall conclusions reached by the Court in the above cases, in the authors’ view, given that retention of title arrangements are, for all intents and purposes, simply security interests for the purposes of the PPSA — their continued use is of limited utility and suppliers should revisit their standard terms of trade with a view to avoiding the creation of multiple security interests in circumstances where this may be fatal to the priority and/or enforceability of any such interests. The better approach, without seeking to imply that any one approach must be used or is appropriate to be used in all cases, is for the supplier to expressly specify in any such agreement that they take a “PMSI” (within the meaning of s 14 of the PPSA: See the commentary to s 14) over the goods it may/will supply to the purchaser in the master agreement or terms of trade annexed to the agreement that it enters with the purchaser at the outset of the commercial relationship. If any wording is to then appear on invoices rendered by the supplier to the purchaser in respect of individual supplies, that wording may simply remind the purchaser that the goods supplied on the invoice are and remain subject to the master agreement or terms of trade annexed to that agreement. Prior to the first supply of goods, the supplier should then attend to the “perfection” (see s 21 of the PPSA) of their PMSI by lodging a financing statement (ie registering) on the PPSR as appropriate and as relevant: Consider Re Gelpack Enterprises Pty Ltd (in liq) [2015] NSWSC 1558 at [34] per Brereton J. However, in respect of taking steps to perfect a PMSI, note also s 44 and 45 of the PPSA regarding collateral which may or must be described by serial number; Note also, in all circumstances, independent

legal advice should be sought by the supplier when looking to amend its terms of trade to appropriately isolate and deal with circumstances specific to that supplier and/or the goods it supplies. The above approach is recommended particularly due to difficulties which have emerged where a purported secured party has sought to rely on credit application or terms and conditions contained in invoices as to the creation of a security interest. These difficulties were squarely considered in Trenfield & Ors v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107 where McHill SC, DCJ held (at [25]– [26]): “I have particular difficulty identifying any consideration provided by the defendant. I find it impossible to characterise a mere supply of goods after receipt of this document as amounting to an agreement on the part of the defendant to provide any particular credit to the applicant in the future. I cannot characterise what happened here as even amounting to a promise to continue to extend credit, or to extend credit on any particular occasion, or on any particular terms.6 Indeed that is made express in clause 2.2 of the 2011 and the 2013 terms and conditions. Clause 1 of the terms and conditions also makes it clear that there is only to be an agreement for the sale and purchase of particular goods if those particular goods are delivered or supplied to the customer, whereupon the incorporation of the terms into that contract is accepted by receiving delivery or supply. Overall it appears to me that the arrangements put in place by the defendant have so carefully excluded any commitment at all by it to a person in the position of the company that I am unable to identify any consideration given for any implied promise in the credit agreement application by the company that goods to be supplied to it will be on the standard terms and conditions in force from time to time. On that basis the situation here was factually distinct from that in Central Cleaning Supplies (supra).7” Of course, whether or not a security interest exists and the source of that interest are factual inquiries which must be considered on a case-by-case basis. What the Central Cleaning, Gelpack and Trenfield cases remind both secured parties and grantors is that there is little substitute for proper, clear and unambiguous drafting of the agreement at the commencement of a commercial relationship: See also, Cardtronics Australasia Pty Ltd v FX Investments Australia Pty Ltd [2020] FCA 218. [12.5.1.6] Trust arrangements as security devices While the creation of trust itself is not necessarily caught by the PPSA, where the trust requires elements of taking security the PPSA may apply. Attempting to guise a security interest within a trust instrument will not prevent the PPSA from applying. The purpose of a trust, determined largely from analysis of the underlying trust deed, should guide the court in ascertaining whether or not a security interest has arisen. Trusts may come within the concept of a security interest under the PPSA but only where the trust secures payment or performance of an obligation in substance. See further, Re Skybridge Holidays Inc (1999) 15 PPSAC (2d) 24 (BC CA); Ogden v Award Realty Inc (1999) 14 PPSAC (2d) 99; Ellingsen (Trustee of) v Hallmark Ford Sales Ltd (2000) 1 PPSAC (3d) 307; 190 DLR (4th) 47 (BC CA); North Shore City Council v Stiassny [2009] 1 NZLR 342 (NZ CA); Re Cliffs Over Maple Bay [2011] BCCA 180. See also, Jonathan Orpin, “The Personal Property Securities Act 1999 and Trusts — When Is an Interest under a Trust a Security Interest?” (2008) 14 New Zealand Business Law Quarterly 109; James Glister, “The Role of Trusts in the PPSA” (2011) 34 UNSWLJ 628. [12.5.2] Scope of security interests, examples and illustrations — s 12(2) Since the publication of the first edition of this text, there have been some noteworthy academic examinations as to the scope, application and effect of s 12(2) of the PPSA. The initial view taken by the authors was that s 12(2) offered no more than a list of examples and did not add to or subtract from the operative effect of s 12(1). The basis for this view is that s 12(2), read literally, is prefaced with the opening words “For example”. On the other hand, the specific inclusion of particular “examples” within s 12(2) has led to the emergence of the view that the notion of a “security interest” goes further than applying strictly to the conferral of an

interest in a proprietary right. Tolhurst, Colburn and Peckham in their article “Security interests at the margins” (2012) 40 ABLR 241 point specifically (at 245) to the “flawed asset arrangement” which is included within s 12(2) at subparagraph (l). The inclusion of this instrument, among other instruments, lead the learned authors to suggest that the proper construction of s 12(1) is to read that section in light of s 12(2). Informed by s 12(2), s 12(1) goes further than securing the discharge of primary obligations (despite including such instruments) and looks additionally to ensuring the specific performance of such obligations (at 250). The learned authors then suggest that, on this basis, an appropriate definition for “security interest” under the PPSA is: “Where a transaction is intended to enhance a promisee’s prospect of receipt or discharge of some promised performance and the transaction transfers or provides access to some personal property to ensure or discharge that promised performance then that transaction gives rise to a security interest.” This view is not without its support throughout the commentary. The primary support for the view stems from the fact that, as a matter of construction, the provisions of the Act should be read in support of one another, that is to say, s 12(2) informs the proper reading of s 12(1) — parliament’s intention could not be that the legislation is inconsistent with itself: See Stumbles, “The PPSA: The extended reach of the definition of the PPSA security interest” (2011) 34(2) UNSWLJ 448, 451–452. While the authors appreciate the availability of the argument that mere contractual rights are sufficient to give rise to a security interest for the purposes of s 12(1) of the PPSA, the argument is not without its difficulties. Absent judicial consideration of the point, the authors are of the view that the proper construction of s 12(1) is that unless and until an interest in a proprietary right is conferred — a security interest does not arise. To take a security interest requires recourse to property, namely — rights in rem, as a fundamental proposition. In this light, to the extent that the examples provided for by way of s 12(2) do not meet the requirements of s 12(1) (and the authors do not suggest that this is the case) the relevant instrument is not a security interest. That is to say, in circumstances where a court is satisfied that an instrument constitutes one of the categories under s 12(2) but is not satisfied that s 12(1) is met — the court should find that the instrument is not a security interest. This view is supported, in the authors’ view, by the language of s 12(2) which, importantly, only applies “if the transaction, in substance, secures payment or performance of an obligation”. Further, an “interest in personal property” which confers less than an interest in proprietary rights faces difficulties when applying the principles of attachment (discussed at s 19). The relevant “rights” in the collateral capable of conferring an interest which attaches, in the authors’ view, are, by necessity, proprietary rights. For these reasons, the authors prefer not to endorse the proposed definition put forward by the learned authors but readily recognise the availability of such an argument should an appropriate case arise. [12.5.2.1] Fixed charges — s 12(2)(a) A fixed charge is defined in Intro III as an instrument encumbering specified items of a grantor’s property for the benefit of a secured party. Possession does not transfer to the secured party in the absence of enforcement action on the instrument but the grantor cannot freely deal with the property in the ordinary course of business subject to the charge. A fixed charge is thus inappropriate for many property types that require regular use and transferability, such as inventory. There is a degree of obsolesce in discussing fixed and floating charges under the PPSA as the Act fundamentally changes how such instruments are characterised. The concept of the floating charge has been largely replaced by the more holistic term a security interest over “circulating assets” (or circulating security interest), while the concept of a fixed charge has been replaced by the PPSA concept of a security interest in non-circulating assets (or non-circulating security interest). These concepts are dealt with under Pt 9.5 of the PPSA. The term “circulating security interest” also attracts definition in the Corporations Act 2001 (Cth), s 51C. The issue of how to treat fixed charges under the PPSA was discussed in some depth in the Supreme Court of Canada case, Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385. The case concerned a fixed charge with a licence to deal with inventory (including sale of inventory)

and the interaction of this instrument with the PPSA. The Court found that all instruments seeking definition as a “floating charge” under the PPSA were in fact no more than fixed charges. For the purposes of the PPSA the nomenclature should be abandoned, in the authors’ view, to avoid this issue altogether (See also, Pt 9.5). One of the founding principles of the PPSA is to treat security interests in equal step unless modified by an issue of substance (for example, in the case of purchase money security interests, see s 14). The Supreme Court noted (at [63]): “[Under the PPSA] a fixed charge over all present and future inventory represents a proprietary interest over a dynamic collective of present and future assets. To this extent, as stated above, this form of security interest challenges our traditional conception of a fixed charge; to the same extent, in my opinion, our conception of this form of charge must change to meet the modern realities of commercial law, and in particular the legislative provisions which have been brought to bear in this appeal.” While the PPSA on this point is reasonably clear, in the authors’ view, it will take some time for the fixed and floating charge terminology to phase out of commercial dealings — as was the case among the Canadian provinces: See further, Roderick Wood, “The Floating Charge in Canada” (1989) 27 Alberta Law Review 191. [12.5.2.2] Floating charges — s 12(2)(b) The nature of a floating charge was discussed in Intro III. It attaches to no specific items of property, however, hovers above all the relevant assets of the granting party until enforced where it “crystallises” and attaches to all the relevant property capable of being charged by the grantor at the point of crystallisation. Like a fixed charge, the essence of a floating charge is largely altered by the PPSA provisions. Prior to the PPSA, a floating charge was a popular security instrument whereby the grantor could deal with the encumbered property in the ordinary course of business (see Pt 9.5 for more information on fixed and floating charges and circulating assets). See further Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. The Supreme Court of Canada case of Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385 (discussed above) again relevantly discusses the remaining effect (if any) of the floating charge under the PPSA. In that case the Court noted that essentially all security interests under the PPSA were in the nature of fixed charges, although the Act leaves the door open for the parties to agree as to how the grantor may use the collateral during the term of the security agreement. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [136]–[137], the Court explained: “the provisions of the PPSA . . . accommodate a security agreement providing for a grantor to retain the right to use a circulating asset to which a security interest has attached for its own benefit. Any proprietary right in the circulating asset which a security holder gains once its security interest attaches to that collateral allows for that use . . . Even if the PPSA creates a statutory propriety interest in collateral which is . . . akin to a fixed charge, there is at least one significant difference between a security interest and a fixed charge. The PPSA accommodates payments received in discharge of a debt owed to the security grantor, which is collateral, being used for the benefit of the security grantor. A fixed charge under the general law does not.” Indeed, the floating charge and its resilience even after the PPSA took force evidences the dangers of seeking to parallel the law as it applied prior to the PPSA, with an understanding of how the PPSA functions. As the Ontario Court of Appeal held in Credit Suisse Canada v 1133 Yonge Street Holdings Ltd (1998) 14 PPSAC (2d) 61; 5 CBR (4th) 174 at [20]: “The purpose of the PPSA is to establish and clarify priorities and notions of attachment and perfection which relate to the registration and operation of security instruments … attempts to interpret the PPSA and the regime it establishes in terms of the old forms of security are not helpful, and that those old forms and their concepts do not govern how the PPSA regime should unfold.” In New Zealand, the Court of Appeal in IRC v Stiassny [2013] NZLR 140; [2012] NZCA 93 at [55] has said that “issues relating to the crystallisation of floating charges and title to the funds in dispute have little or no bearing on priority issues under the PPSA. Care should be taken not to import pre-PPSA language and concepts into the interpretation of the PPSA”.

The concept of crystallisation of a floating charge has no relevance for the application and interpretation of the PPSA: Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) [2017] WASC 152 (this was assumed as being correct without being decided on appeal: Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [136]); Re Amerind Pty Ltd (recs and mgrs apptd) (in liq) [2017] VSC 127 at [453] (“the concept of crystallisation is now redundant under the PPSA”; not affected by the appeal: [2018] VSCA 41; [2019] HCA 19); Langdon, Re Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170 at [40]. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [60], the court explained that: “the PPSA recognises that [references to fixed and floating charges] in instruments are likely to have less relevance over time. That is because the PPSA has its own rules for the enforcement of security agreements against grantors of security and third parties. Thus, at least in general terms, there is no need to characterise the instrument as either a fixed or a floating charge for the purpose of determining priority disputes under the PPSA. The PPSA evidently seeks, amongst other things, to provide a ‘rational resolution’ to priority disputes whilst avoiding the entanglements of the theories under the general law as to the nature of a chargee's interest under a floating charge prior to crystallisation.” It should be noted, however, that Pt 9.5 of the Australian PPSA requires that references to fixed and floating charges be read as references to security interests in non-circulating assets and security interests in circulating assets (respectively) at least in certain circumstances. This is discussed further in the annotations to Pt 9.5. The distinction between these two forms of security interests is also important for the application of the insolvency provisions of the Corporations Act 2001 (Cth) which rely upon this distinction for making priority payments to employees during receivership and liquidation. See further, Lionel Meehan, “Circulating Security Interests under the Personal Property Securities Act 2009 (Cth) Compared to Floating Charges” (2011) 22 Journal of Banking and Finance Law and Practice 322; Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3. See also, Commonwealth v Byrne (2018) 54 VR 230; [2018] VSCA 41. [12.5.2.3] Chattel mortgages — s 12(2)(c) The term “chattel mortgage” should not be a source of confusion, it is simply a mortgage (as traditionally defined in Intro III) with respect to personal property or “chattels”. As mortgages were recognised as valid security interests prior to the PPSA, and as the PPSA does not alter how a mortgage is created, it is likely that the law as it stood prior to the PPSA will be relevant in determining whether or not a valid mortgage exists. It should be noted, however, that a mortgage, by definition, deals with transfers of title. Mere reliance on legal title will not protect the secured party from the application of the PPSA. A mortgage should thus be treated like any other security interest and duly perfected in order to retain priority. [12.5.2.4] Conditional sale agreements — s 12(2)(d) Conditional sale agreements, including retention of title or “Romalpa clause” arrangements,8 refer to instruments which purport to convey title only after the primary obligation(s) owing to the relevant creditor has been met in full. Referred to as “quasi-securities” due to their effectiveness at securing payment without being caught by the common law securities regime, they will now typically constitute security interests under the PPSA and the provisions of the PPSA thus regulate priority disputes involving them. The fact that title is expressly retained by one party to an agreement concerning collateral has no relevance to the system of priorities under the PPSA and compliance with the PPSA is required in addition to any retention of title: Royal Bank v Moosomin Credit Union (2003) 7 PPSAC (3d) 118; 241 Sask R 1 (Sask CA). Like the concept of a floating charge, it is arguable that conditional sale agreements are a convoluted way of achieving a simple result which is now addressed by the PPSA. This is because in the absence of a title-based priorities regime, holding title until the obligation owing is satisfied will not, of itself, protect the interest of the party seeking to essentially secure their interest. Recognising title retention devices as security interests may also be justified on the basis of ostensible ownership. That is, to an external third party the grantor who has possession seems to own the property.

Secured parties may be able to protect their interests by obtaining the super priority granted to security interests that are “purchase money security interests” which are discussed in s 14 and 62. Of course, an arrangement where there is no enforceable contract until payment is made in full is not a security device and would not fit within this category: JS Brooksbank and Co (Australasia) Ltd v EXFTX Ltd (in rec and liq) (2009) 10 NZCLC 264,520; [2009] NZCA 122 (where goods were delivered by mistake to the debtor prior to payment being received — there was no intention to create an interest to secure a payment or performance of an obligation). See also, Ellingsen (Trustee of) v Hallmark Ford Sales Ltd (2000) 1 PPSAC (3d) 307; 190 DLR (4th) 47 (BC CA) (purported sale of a motor vehicle failed due to lack of finance and hence conferred no security interest). One practical issue for suppliers with retention of title arrangements concerns whether the supply contract includes an enforceable title retention clause. It is common for supply arrangements to be governed by a variety of documents that pass between the parties. These may include credit applications, master supply agreements, standard terms and conditions, purchase orders, delivery dockets and invoices. It is possible for a supplier to believe that they have an enforceable retention of title clause but for that provision to not form part of the enforceable contract between the parties. This occurred in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61, where a credit application and standard terms and conditions were held not to include a retention of title provision that was supplied to purchasers on an invoice. In Central Cleaning, the supplier claimed to have a transitional security interest in supplied goods, which, if correct, would mean that registration on the PPSR during the transition period would not be required (see s 322). The supplier demanded the return of the unsold goods when the purchaser entered liquidation. The liquidator rejected the claim based on the vesting rule for unperfected security interests upon liquidation (see s 267), and this decision was challenged by the supplier in a court application. The court agreed with the liquidator that the retention of title clause was not part of the original contract, and hence was not part of a transitional security agreement. Each supply constituted a separate contract (albeit one whose terms included provisions in the standard terms and conditions), and hence any security interest in supplies made under contracts after the commencement of the PPSA involved an unperfected security interest that vested in the purchaser upon liquidation. The supplier therefore had no rights to demand the return of the supplies and could only prove in the liquidation as an unsecured creditor. For a contrasting decision where a prior credit application was found to be a transitional security agreement that included subsequent supplies after the commencement of the PPSA, see: Industrial Progress Corporation Pty Ltd v Wilson [2013] WASC 225 (the standard terms and conditions included a retention of title clause, whereas in Central Cleaning the retention of title clause was included on later invoices): Note Central Cleaning was overturned on appeal in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSCA 92 — see above at [12.5.1.5]. Among the various Canadian provinces, the use of conditional sale agreements has continued despite the effect of the PPSA and interpretation has followed that of lease arrangements: see for example Newcourt Credit Group Inc v GA Finance Inc (1998) 13 PPSAC (2d) 372; Re Gauntlet Energy Corp (2003) 5 PPSAC (3d) 236; 20 Alta LR (4th) 314 (Alta QB). A distinction is to be drawn here between conditional sale agreements, hire purchase agreements and true leases. While attempting to label particular instruments under one of these heads offers little benefit in determining whether or not the PPSA applies to a particular instrument, in the authors’ view, the drafting mechanics of each independent agreement must still be relied on for this purpose (see s 12(2)(i)). See further, Bruce Whittaker, “Retention of title clauses under the Personal Property Securities Act 2009 (Cth)” (2010) 21 Journal of Banking and Finance Law and Practice 273. [12.5.2.5] Hire purchase agreements — s 12(2)(e) The term “hire purchase” is uncommon among foreign PPSA jurisdictions perhaps due to its closeness in definition to conditional sale agreements and financing leases (discussed at ss 12(2)(d) and 12(2)(i) respectively). Under a hire purchase agreement, the hiring party is more readily accepted as a holder of a mere possessory interest (similar to that of a lessee) while under conditional sale agreements ownership, that is, legal title, is more readily accepted to be conveyed at the creation of the agreement. The distinction is overly technical and largely unnecessary pursuant to the PPSA as Blair J emphasised in the Ontario Superior Court of Justice case, Re 1153496 Ontario Ltd (1996) 11 PPSAC (2d) 149; 25 BLR (2d) 285:

“At common law, however, and under the pre-PPSA statutory regime, there was a certain amount of confusion as a result of the inconsistencies in remedies available to a creditor who held security on personal property in the event of a default by the debtor. The remedies available depended upon how the agreement in question was characterized. Was it a conditional sale, a hire-purchase, a chattel leasing agreement, an equitable charge, or some other form of personal property security? The rights and duties of creditors and debtors varied, depending upon the answer … the PPSA is designed to clarify and simplify this situation.” The subtleties of security interests in the context of purported lease arrangements are discussed further below at s 12(2)(i). In White v Spiers Earthworks Pty Ltd (2014) 99 ACSR 214; [2014] WASC 139, a hire purchase agreement covering equipment used in a business that had been sold to the hirer was found to be an “in substance” security interest and a PPS lease. See also, StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd [2020] NSWSC 318 at [101]– [108] per Parker J. [12.5.2.6] Pledges — s 12(2)(f) Like mortgages, pledges were recognised security interests prior to the PPSA and continue to be so under the Act. They are sufficiently defined in Intro III and provide security by allowing the secured party to take possession of the relevant collateral which effectively prevents any potential improper or unauthorised dealings by the grantor. For the purposes of complying with the PPSA, however, pledge holders are largely unaffected. Perfection by possession is a valid form of perfection under the PPSA and no additional steps to perfect by registration are necessary to retain priority over the underlying collateral: see John Deere Ltd v Firdale Farms Ltd (Receiver of) (1987) 8 PPSAC 52; 45 DLR (4th) 641 at [75]–[76] (Man CA). [12.5.2.7] Trust receipts — s 12(2)(g) The term “trust receipt” is not defined by the PPSA. At general law a trust receipt is also referred to as a letter of trust, letter of lien, letter of pledge or letter of hypothecation and is used by banks as a security device for dealings with goods covered by a documentary letter of credit. Trust receipts were carved out from the registration requirements for company charges under Corporations Act 2001 (Cth), s 262(2)(c) (now repealed).9 [12.5.2.8] Consignments — s 12(2)(h) A consignment of property operates much like a retention of title arrangement by way of securing payment or performance of an underlying obligation. It has become a popular mechanism for suppliers of inventory in particular although it is not strictly limited to such applications. Under a consignment, title to the property consigned never passes to the consignee, however, the consignee has the right to deal with the property in the ordinary course of business. The proceeds of sale (or a percentage of them) flow to the consignor and in return the consignee need not pay for the property up front (that is, a consignment is a form of inventory finance). While commercial in orientation, the PPSA expressly provides that consignments that are not commercial also come within the scope of the PPSA. Like many of the other agreements addressed by s 12(2), consignments take many forms — some “true” and some as “security.” True consignments allow consignees to send property back to the consignor without obligation and thus it can be said that the consignee never possesses proprietary rights in the collateral as to form a security interest. Rather the consignee is acting as the agent of the consignor: see Weiner v Harris [1910] 1 KB 285. Where a consignment is commercial in nature, the PPSA applies regardless of whether or not the consignment constitutes a true or security function (pursuant to s 12(3) (b)). Where a consignment is non-commercial however, the PPSA will not apply to true consignments. The determination of the court will be required here in accordance with the facts and circumstances of each particular case. In the Ontario Superior Court of Justice case, Access Cash International Inc v Elliot Lake & North Shore Corp for Business Development (2000) 1 PPSAC (3d) 209 at [21], Molloy J held: “In deciding whether an arrangement between parties is a consignment, the court will consider the

presence or absence of certain indicia found to be characteristic of a consignment. In the list that follows, ‘supplier’ refers to the consignor or vendor (depending on whether the arrangement is a consignment or sale) and ‘merchant’ refers to the consignee or purchaser. The following are indicia of consignment: • The merchant is the agent of the supplier. • Title in the goods remains in the supplier. • Title passes directly from the supplier to the ultimate retail purchaser and does not pass through the merchant. • The merchant has no obligation to pay for the goods until they are sold to a third party. • The supplier has the right to demand the return of the goods at any time. • The merchant has the right to return unsold goods to the supplier. • The merchant is required to segregate the supplier’s goods from his own. • The merchant is required to maintain separate books and records in respect of the supplier’s goods. • The merchant is required to hold sale proceeds in trust for the supplier; • The supplier has the right to stipulate a fixed price or a price floor for the goods. • The merchant has the right to inspect the goods and the premises in which they are stored. • The goods are shown as an asset in the books and records of the supplier and are not shown as an asset in the books and records of the merchant. • The shipping documents refer to the goods as consigned. • The supplier maintains insurance on the goods after they are delivered to the merchant. • It is apparent from the merchant’s dealings with others that the goods belong to the supplier rather than the merchant.” Where these factors are prevalent it is likely the court will determine the instrument constitutes a true consignment as opposed to a security interest. His Honour noted (at [22]) that the most important criteria were the agency relationship; the right of the merchant to return the goods; and the stipulation that no payment is due to the supplier until the goods have been sold to a third party. The Access Cash criteria were applied by the court in Re Arcabi Pty Ltd (in liq) (recs & mgrs apptd) (2014) 288 FLR 236; [2014] WASC 310. In Arcabi, the court emphasised that it is important to focus on the substance rather than the form of the transaction. The court held that notes and coins held on consignment by Arcabi on behalf of clients were not an “in substance” security interest because the title retained by the clients was not retained to secure the payment or performance of an obligation owed by Arcabi to them. [12.5.2.9] Leases — s 12(2)(i) Leases which constitute “deemed security interests” for the purposes of the PPSA are discussed under the commentary for s 13. However, where a lease is outside of the scope of s 13, for example a lease with term of less than two years, the PPSA will only apply where the instrument, in substance, secures payment or performance of an obligation. Like conditional sale agreements, hire purchase agreements and consignments, the line between

operating or “true” instruments and financing or security instruments has proven to be difficult to discern in every given case.10 Nonetheless, the task must be undertaken on a case by case basis in determining whether or not the PPSA applies to the particular transaction and thus guiding factors have emerged from foreign jurisprudence. The factors are compiled by Cuming R, Walsh C and Wood R and can be summarised as follows: • an automatic vesting of ownership upon completion of the lease term • an obligation to purchase • the term of the lease itself (a longer term leans towards a security as opposed to true lease) • commercially useful life of the subject matter (where a lease covers the entire viable period, or close to the useful life of the property, a court is more inclined to find that the lease is a security lease) • the payment obligations imposed on the lessee (if the lessee is required to pay close to the commercial value of the underlying property, a security lease is more readily inferred than otherwise) • the price of an option to purchase (where this is a nominal figure relative to the value of the lease repayments and the commercial value of the property it is likely that the arrangement constitutes a security lease) • the price to renew the lease or availability of renewal (can work both in favour of a finding for a security lease and against. More likely to trigger the effect of s 13 also) • whether the lease is “open-ended” (the concept of which will be discussed below) • the role of the parties (for instance, who bears the onus of repairs and maintenance to the property if so required? Where the lessee bears the burden as though they are the true owner of the property a security lease is more readily inferred) • the nature of contractual remedies available (if there is an accelerated payment clause or a sudden increase in “rents” owed this reflects a financial remedy inconsistent with the existence of a true lease). For a useful review of the authorities, with a discussion of the range of factors that may be used by the court: see Royal Bank v Cow Harbour Construction Ltd (2012) 19 PPSAC (3d) 31, 59 Alta LR (5th) 215 (Alta QB). The question of whether a lease constituted a security interest came under judicial consideration in the Ontario Court of Justice case, Adelaide Capital Corporation v Integrated Transportation Finance Incorporated (1994) 6 PPSAC (2d) 267; 111 DLR (4th) 493. The facts of the case involved 87 trailers or vans subject to four lease agreements entered into between GL Inc and ITFI between December 1986 and August 1990. The lease agreements were perfected by registration. The registrations in January and December 1987 variously described the collateral in question as being “equipment”, “book debts” and “other”. The collateral was not described as “inventory”, which in fact it was (the problems of which arise as a separate issue under the PPSA — see Pt 5.3 in particular). A trust company provided finance to ITFI, taking security by way of what can be described as a fixed charge debenture. The trust company registered or lodged a subsequent financing statement in February 1990.11 That registration was for a period of one year and was allowed to expire without being renewed. The registration additionally contained, in the optional collateral description field of the financing statement, a description that identified the collateral as “50 new cube vans”. Blair J noted (at [21]) that “a lease agreement between parties may have all the appearances of being a ‘true’ lease, and may, indeed, be such an arrangement, but still be caught by the registration requirements of the PPSA if it also serves, in the overall transaction, to secure payment or performance of an obligation”. His Honour continued (at [41]): “If the financing markets are to achieve the kind of stability and predictability, in terms of priority,

which the PPSA envisages, creditors who are truly in the business of financing transactions should be required to indicate the collateral over which they are claiming a security interest, and not leave matters to guesswork as to whether they have truly leased the property to the debtor/lessee or not.” The view taken by his Honour is not without its criticisms: see for example GMAC Commercial Credit Corp Canada v TCT Logistics Inc (2004) 238 DLR (4th) 487; 6 PPSAC (3d) 163 (Ont CA). However, in the authors’ view, where attributes of both an operating and a financing lease are present, the interest should be caught by the PPSA on grounds of consistency of interpretation of the PPSA. In any event, secured parties (in this case, including lessors) who recognise the potential for the lease to be characterised as a security interest for the purposes of the PPSA should comply with the regime to avoid exposure. In DaimlerChrysler Services Canada Inc v Cameron (2007) 11 PPSAC (3d) 19; [2007] BCCA 144 at [31], Kirkpatrick JA (on behalf of the Court of Appeal for British Columbia, and in considering the guiding factors outlined in this commentary) followed the approach taken by the Ontario Supreme Court in the case of Re Ontario Equipment (1976) Ltd (1981) 1 PPSAC 303; 125 DLR (3d) 321 at [7]–[9]:12 “It is of the essence of a lease intended as security within the meaning of the Personal Property Security Act that the property in the subject of the lease is to pass ultimately to the lessee, who is obliged to pay the lessor what might be reasonably regarded as the purchase price with interest and carrying charges over the life of the lease. In such a case the transaction is not unlike a conditional sale agreement or hire purchase agreement. What I consider to be a practical definition of the distinction between a true lease and a lease by way of security was adopted in Re Crown Cartridge Corp., Debtor (1962), 220 F. Supp. 914, by Croake D.J. from the decision of Referee Asa S. Herzog: The test in determining whether an agreement is a true lease or a conditional sale is whether the option to purchase at the end of the lease term is for a substantial sum or a nominal amount … If the purchase price bears a resemblance to the fair market price of the property, then the rental payments were in fact designated to be in compensation for the use of the property and the option is recognized as a real one. On the other hand, where the price of the option to purchase is substantially less than the fair market value of the leased equipment, the lease will be construed as a mere cover for an agreement of conditional sale. The critical issue in every case is the intention of the parties and this depends upon the facts of the case. In Re Speedrack Ltd. (1980), 1 PPSAC 109, 33 CBR (NS) 209, 11 BLR 220, for example, the facts led to the conclusion that the lease was a security for the financing of the ultimate purchase of the subject-matter, and the failure to register a financing statement left the security interest unperfected and subordinate to the interest of the trustee in bankruptcy.” “Of significance also is the relevant weight placed on particular factors over and above others. The factor analysed in this case was the remedy upon default. Her Honour continued in DaimlerChrysler Services at [45]–[46] (quoting from Professor Cuming’s article “True Leases and Security Leases under Canadian Personal Property Acts” (1983) 7 Can Bus LJ 251 at 278–279): ‘Default remedies cannot, by themselves, be a determinant because most lessees do not default; consequently, the other provisions in the leases are the ones which in practice govern the relationship of the parties. As is the case with other peripheral indicia of security agreements, default rights and remedies have corroborative value and are relevant to the extent that they help to tip the balance.’ [Emphasis added.] In the instant case, it appears that the learned chambers judge accorded more than ‘corroborative value’ to the default provisions. They did more than ‘tip the balance’. Instead, the default provisions played a determinative role in her decision that the impugned transaction was a security lease. It is important to bear in mind that the other factors considered by the chambers judge were classified as either equivocal or indicative of a true lease.” Importantly, this process of “weighing of factors” is not an exercise which should be restricted to the proper characterisation of lease arrangements and hence it has been considered in some detail in this commentary. A weighing up of appropriate factors when analysing any given instrument is the process of

characterisation necessitated by the “in substance” test espoused by s 12(1). In the authors’ view, it is the preferred approach in determining the existence of any security interest, where they relevantly arise, irrespective of the form the underlying interest takes. While the factors no doubt vary between different instruments and as such, the significance of particular factors will also vary (compare leases and consignments for instance), the proper consideration and analysis of the following factors commonly arises: • methods of enforcement • length of time purported to bind the parties • options to purchase (or obligations to purchase) — if any • value of the underlying property, its commercial life and the aggregate sum of all obligations owing from the debtor. It is further worth noting that while title or ownership is a factor, and more particularly if/when title or ownership flows under the transaction, its weight will be affected by the nature of the underlying collateral, the context of the transaction and the terms of the instrument itself. It is true to say that in many circumstances, factors outside of the flow of title will determine whether or not a security interest has arisen and will be determinative of rights under the Act. Title is not irrelevant under the Act, but it is no longer determinative of rights and priorities as it once was. [12.5.2.10] Assignments — s 12(2)(j) An assignment, put simply, refers to a transfer of property from one party to another. An assignment is absolute in essence, that is, there remains behind no interest held by the assignor. Where it can be said that an interest remains, the purported instrument is rarely an assignment at all. This principle of assigning property applies equally at common law and in equity and the way in which property is assigned is not distorted by the PPSA: see Canada Trustco Mortgage Corp v Port O’Call Hotel Inc (1996) 11 PPSAC (2d) 1; 133 DLR (4th) 609 at [44] (SCC). Issues commonly arise in a commercial sense where there is an assignment of book debt or accounts receivable: see Fairbanx Corp v Royal Bank (2010) 16 PPSAC (3d) 96; 68 CBR (5th) 102; Radius Credit Union Ltd v Royal Bank (2009) 14 PPSAC (3d) 124; 306 DLR (4th) 444; Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385. It should be noted that transfers of accounts or chattel paper will be deemed as security interests under s 12(3)(a), however, they may still satisfy the requirements of an “in substance” security interest under s 12(1). A valid equitable assignment of a chose in action can constitute a security interest: 356447 BC Ltd v Canadian Imperial Bank of Commerce (1998) 13 PPSAC (2d) 155; 157 DLR (4th) 682 at [11] (BC CA). That said, a purported assignment can carry with it certain conditions, such as payment obligations in exchange for the transfer, and it is those conditions that may constitute the creation of a security interest. As with the balance of the dealings the subject of s 12(2) of the PPSA, the form of the transaction does not determine whether or not the underlying transaction “in substance” gives rise to a security interest. Parties referring to an arrangement as an “assignment”, while perhaps reflective of what they might have hoped a particular dealing to achieve is ultimately inconclusive. This is not to say that all assignments, at law or in equity, will now require compliance with the PPSA (see for example s 8(1)(f)). Rather where parties attempt to mask a security interest behind the veil of an assignment, this will not prevent the PPSA from applying to the transaction pursuant to the “in substance” test (see s 12(1)). The proper characterisation of an instrument purporting to be an assignment arose in AAD Services Pty Ltd (in liq) v ALD Wholesale Pty Ltd and Ors (No 3) [2019] VSC 564 where Lansdowne AsJ held (at [43]– [45], [48],[49]: “The Assignment is not an entirely internally consistent document. However, on balance I consider that the preferable construction is that which gives effect to the words of paragraph 1 i.e. an assignment in substance, as well as in style. This is the construction that gives it efficacy, and is most

consistent with the organisation of the document itself, on the basis that it is the opening paragraph that sets out its primary intention. On this construction, the Assignment provides for the purchase by CCS of the interest (to a cap of $40,000) of Mr Tahiri Snr in the proceeds of judgment, i.e. the Funds, interest and costs, with provision for various possible outcomes, some of which may require supplementation by payment by Mr Tahiri Snr to CCS in addition to what is received from the judgment. It follows that I do not accept the submission of the Trustee that in substance the Assignment confers a security interest in Mr Tahiri Snr’s interest in the proceeds of judgment, which would vest in the Trustee following his bankruptcy. The competing construction advanced by the Trustee requires that the security interest granted by the Assignment secures the performance or payment of an obligation. The relevant obligation is said by the Trustee to be an obligation to repay a loan for payment of legal fees. The Assignment does not, however, acknowledge or recite any such obligation in clear terms. Nor does it include the usual aspects of a loan secured by the granting of an interest in property, such as terms as to time of repayment of the loan, terms as to the payment of interest, or provision for enforcement of the security on default in repayment. … The only aspect of paragraph 4 which raises real doubt is the first limb of sub-paragraph (b). The denial of the conferral of an interest in ‘the subject matter of the Dispute’ appears to be directly inconsistent with the transfer of the ‘proceeds of any settlement, judgment or verdict’ purportedly made by paragraph 1. Counsel for Mr Tahiri Snr and CCS submits that the objective intention of paragraph 4 read as a whole is to provide that CCS is not brought into the litigation. I accept this submission. In addition to being in accordance with sub-paragraphs 4(a), (c) and (d), that construction accords with the second limb of sub-paragraph 4(b) (‘or make them a party to the Dispute’). I consider that the first limb of sub-paragraph 4(b) should also be read in that light. This is the preferred construction that reads the Assignment as a whole, and gives it commercial efficacy. As I conclude that the Assignment is in substance a transfer of the interest of Mr Tahiri Snr in the proceeds of judgment on certain conditions rather than the conferral of a security interest in those proceeds, it is not necessary to consider the Trustee’s submissions as to the effect of s 267 or s 267A of the PPSA.” Rather than being important for its factual content, the AAD Services case is a reminder that ambiguity in drafting an agreement favours no party and that the attempted use of an assignment to create a security interest is not merely theoretically problematic. [12.5.2.11] Transfers of title — s 12(2)(k) Intro IV makes clear that title is largely irrelevant for the purposes of determining priority under the PPSA. The movement of title however retains utility as a contributing factor to be used when determining whether or not a security interest has arisen on a particular set of facts. Like an assignment, the transfer of title will not, in and of itself, create a security interest. When consumers purchase goods from a retail store for instance, the transfer of good title from retailer to consumer does not create a security interest. Where the goods themselves are not paid for immediately however, and in the absence of the taking free provisions, the transfer of title in these circumstances could create a security interest. The issue arose in the British Columbia Court of Appeal case, Re Ellingsen (2000) FPPSR ¶700-115; 2000 BCCA 458; (2000) 1 PPSAC (3d) 307, where the sale of a truck was held at trial to constitute a security agreement while on appeal the decision was overturned. Justice Donald held at [18]: “With respect, I do not think the evidence reasonably supports the finding that this was a sale and that Hallmark retained a security interest after it released the truck. The deal was subject to financing by a third party which never materialized. There was no enforceable instrument on which Hallmark could sue Ellingsen for the purchase price. As Hallmark did not sign the Motor Vehicle Purchase Agreement it was never brought into effect. Ellingsen did not agree to pay cash for the new truck and at no time did Hallmark agree to finance the deal itself. The documents make it plain that credit was to be approved by a lending institution.”

Indeed, the term “transfer of title” like the reference to an “assignment” is somewhat misleading as without additional conditions imposed a mere transfer can never amount to a security interest. In the authors’ view, this category of interest was included under s 12(2) to prevent attempts to circumvent the statutory requirements where applicable much like the above category of assignments (see s 12(2)(j)): see Ford Motor Co of Canada Ltd v Manning Mercury Sales Ltd (Trustee of) (1997) 12 PPSAC (2d) 1; 140 DLR (4th) 344 at [57]. Transfers of title also encapsulate sale and lease back arrangements of which further discussion arises at s 14(2)(a). [12.5.2.12] Flawed asset arrangements — s 12(2)(l) The “flawed asset” comprises the final example encompassed by s 12(2) and can be defined as the conditions imposed on an asset (typically an account) which trigger before other interests arise (such as competing security interest). It is commonly used in a commercial sense with respect to an account held with a bank whereby the bank will not authorise the instruction to pay at the request of the account holder until the rights owing to the bank are duly met. The concept arose in the case of Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 and has been the cause of substantial comment since.13 The concern, in summary, is recognising a security interest taken over an obligation to repay (which the bank owes to the debtor). While arrangements of this kind are thus often complex, it is plain that in practical terms, a flawed asset facilitates a securing role from the perspective of the bank (hence inclusion under the PPSA). It is interesting to note that the PPSA expressly excludes rights of set-off, netting and the combination of accounts pursuant to section 8(1)(d) and (e), however flawed asset arrangements are caught by the Act. Typically, in a commercial sense, the flawed asset is simply the mechanism by which these rights are effectuated, however the point may prove to be an entirely academic one as no case law among the relevant US, New Zealand or Canadian provinces addresses this point. Indeed in the authors’ view, wherever issues of flawed assets arise, triggering events on accounts, the Payment Systems and Netting Act 1998 (Cth) should be consulted in conjunction with the PPSA (See also, s 8 regarding exclusions to the PPSA). See further, Diccon Loxton, “One flaw over the cuckoo’s nest: making sense of the ‘flawed asset arrangement’ example, security interest definition and set-off exclusion in the PPSA” (2011) 34(2) UNSWLJ 472. In that article the learned author argues that a simple flawed asset arrangement is unlikely to constitute a security interest, although extra rights conferred under particular arrangements may constitute a security interest, depending on what the extra rights purported to do in relation to personal property. [12.5.2.13] Other miscellaneous examples Contractual step-in rights, which allow a party to a contract to take over work by taking possession of goods (often used in construction contracts and commodities supply contracts)are likely to involve the creation of a security interest and hence will need to be perfected under the Act: See, Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2019] WASC 438; McCloy v Manukau Institute of Technology [2013] NZHC 936. [12.5.3] Deemed security interests — s 12(3) The “deeming” of particular interests as security interests for the purposes of the PPSA without necessarily having regard to satisfaction of the “in substance” test prescribed by s 12(1) reflects a policy decision made by the Australian legislature to give primacy to commercial practice which is discussed in more detail under s 13 below in respect of the PPS lease statutory construct (see s 13). The position is not unique to the Australian PPSA and similar legislative initiatives form part of foreign PPS regimes. To “deem” is to, in essence, impose compliance with the PPSA in circumstances where an objective third party who is not privy to the relationship or dealing between the parties could potentially act to their detriment by assuming that a party other than the true owner of particular property was indeed the owner of such collateral. A simple lease example demonstrates the point:

Party A leases a motor vehicle to Party B for a one year period. Some time after, Party B seeks to borrow funds and approaches Party C. Party C would be forgiven in their assessment of Party B’s assets to assume that Party B owned the motor vehicle and could otherwise encumber it. It is on this basis that the PPSA deems such an interest to constitute a security interest irrespective of whether or not the lease would otherwise satisfy s 12(1).

For the purposes of completeness, and in conjunction with s 13, transfers of chattel paper or an account and the formulation of a commercial consignment have been included as security interests largely in concordance with the New Zealand and Canadian provisions and in light of the commercial applicability of such instruments. Note also however that the original Ontario statute did not include provision for “deemed” security interests. This reflects varying policy perspectives between the uniform Canadian provinces and the Ontario regime. The Australian position appears to be more pragmatic than principled, broadening the scope of the PPSA where commercially necessary as opposed to reading provisions in a strict fashion. It should also be noted that the enforcement provisions in Pt 4 of the PPSA do not apply to deemed security interests unless they secure the payment or performance of an obligation: s 109. [12.5.3.1] Transfers of accounts and chattel paper — s 12(3)(a) An account is defined by s 10 as meaning: “a monetary obligation (whether or not earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia) that arises from: (a) disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); or (b) granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided); but does not include any of the following: (a) an ADI account; (b) chattel paper; (c) an intermediated security; (d) an investment instrument; (e) a negotiable instrument.” The simplest example of an account is a book debt. The concept of an account was considered by the New Zealand Court of Appeal in 2013 in Strategic Finance Ltd v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357. That case considered the meaning of the term “accounts receivable” in s 16 of the NZ PPSA, which is defined in similar terms to the s 10 definition of account, although it is broader: “NZ PPSA s 16(1) account receivable means a monetary obligation that is not evidenced by chattel paper, an investment security, or by a negotiable instrument, whether or not that obligation has been earned by performance.” In that case, the Court explained the concept as follows (at [55]–[59]): “‘monetary obligation’ in the context of the PPSA means an existing obligation imposed on, or assumed by, one party to pay a certain sum of money to the other party on a specific or ascertainable future date. An obligation of this nature will involve an existing liability on the part of the

first party which is legally enforceable by the second party … When ‘monetary’ and ‘obligation’ are read together, it is also clear that the liability must be to pay an identifiable sum on an ascertainable date. This will include a claim of that nature based on debt statute or money had and received. A possible liability to pay an unidentifiable sum at an unascertainable future date will not suffice. The fact that in terms of the definition the monetary obligation ‘need not have been earned by performance’ confirms that existing monetary obligations that are not earned by performance under a contract are within the definition. Such obligations will include those that exist under deed, statute or by virtue of a court order, independently of any need for performance. Recognition of obligations which are not dependent on the need for performance does not mean, however, that an obligation that requires performance in order to come into existence will be recognised. The absence of performance in that case will simply mean that there is no obligation in existence.” Strategic Finance was applied in Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735 at [78]–[80], where rights to surplus proceeds in a performance bond were not held (in obiter) to be an account at the time of the administration commencing as they were mere expectancies. See also Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [205]. An account may be contrasted with the concept of chattel paper, which involves both a monetary obligation and a security interest. As noted in the s 10 definition of an account, the concepts of accounts and chattel paper are mutually exclusive. If collateral is chattel paper it cannot be an account, and a monetary interest without a security interest in property cannot be chattel paper. Chattel paper is defined by s 10 as meaning one or more writings that evidence a monetary obligation and either or both of the following: (a) a security interest in, or lease of, specific goods, or specific goods and accessions to the specific goods (even if the description of the goods (and accessions) is taken to include a description of intellectual property, or an intellectual property licence, under s 105) (b) a security interest in specific intellectual property or a specific intellectual property licence but does not include any of the following: (a) a document of title (b) an intermediated security (c) an investment instrument (d) a negotiable instrument. Chattel paper is a new type of personal property that is created by the PPSA. It is simply the combination of what constituted two separate items of personal property prior to the PPSA: • a chose in action (a debt), and • a security interest in specific goods. “Specific goods” is defined in the Sale of Goods Act 1923 (NSW) s 5 as “goods identified and agreed upon at the time a contract of sale is made”. This term is used to denote particular items (such as a motor vehicle with a specific vehicle identification number (VIN)) rather than generic described goods (such as 100 tonnes of wheat). See further, Ch 26 of Widdup L and Mayne L’s book [12.5.3.1], which gives a detailed argument as to why the concept of specific goods in the PPSA should not be based on the Sale of Goods Act definition. Prior to the PPSA the methods for transferring the two items of personal property that make up chattel paper came under different legal regimes. The PPSA makes the assignment of both items easier through

the recognition of the chattel paper as a discrete class of personal property. Common examples of chattel paper are the documents giving rise to hire purchase and leasing agreements. Chattel paper is also common for manufacturing businesses that may face cash-flow timing problems where customers pay over time (and the manufacturer retains title until full payment is made) and need to use their receivables as collateral. Thus, an equipment leasing company will hold choses in action (property rights in something intangible, or which is not in one’s possession, but enforceable through legal or court action) with respect to the lease of their goods which can be classified as accounts. Where the chose in action is combined (through one or more connected documents) with a security interest in particular goods (ie the leased property) then the writings (which include both interests) form chattel paper. The leasing company may then use its accumulated chattel paper as collateral for financing purposes by assigning the chattel paper to a finance company. A useful explanation of chattel paper financing is given in Joseph Levie, “Security Interests in Chattel Paper” (1969) 78 Yale Law Journal 935. See also, the detailed examination given in Thomas Jackson, “Embodiment of Rights in Goods and the Concept of Chattel Paper” (1983) 50 University of Chicago Law Review 1051 and with respect to the Australian PPSA: Anthony Duggan, “Chattel paper” (2013) 41 ABLR 214. See generally Chapter 26 of Widdup L and Mayne L’s book at [12.5.3.1]). Professor Gilmore (one of the co-drafters of the UCC Art 9), noted that: “[c]hattel paper, despite the novelty of the nomenclature, is … an exclusively professional preserve: the people who deal with it know what they are dealing with and know the rules of the game. No classification difficulty need be anticipated …”. It should be noted that the secured party with a security interest in chattel paper does not obtain the same security interest in the underlying specific goods that are the subject matter of the transaction that gave rise to the chattel paper. As Widdup L and Mayne L note, at [12.5.3.1], the secured party in this circumstance has in reality two security interests: 1. a security interest in the monetary obligation owed from the transferee of the goods to the seller (under a conditional sale or hire purchase) or lessor, and 2. a security interest in the seller/lessor’s security interest in the underlying goods. Under the PPSA, both accounts and chattel paper may be used as collateral for a secured transaction. Both forms of personal property may also be transferred as part of a commercial transaction. Section 12(3)(a) deems the transfer of an account or chattel paper to be a security interest even if it does not secure the payment or performance of an obligation. These deemed security interests are common features of overseas PPSA statutes, however interestingly the ALRC recommended against including deemed security interests in favour of relying only on the “insubstance” approach: ALRC Report No 64 at [5.17]. Transfers of accounts and chattel paper are popular in both the factoring and the securitisation markets, with a broad variety of arrangements including both recourse and non-recourse loans. Where the transferee has recourse against the transferor the arrangement is similar (in substance) to a secured loan using book debt as collateral. Emphasising the rationale set out above, the justification for including transfers of accounts and chattel paper as deemed security interests is based on simplicity and on the concept of ostensible ownership. The simplicity argument is premised on the difficulties that may be associated with ascertaining whether a transfer of accounts or chattel paper is in substance a security device given the range of transactional structures used for these types of arrangements. The ostensible ownership argument is founded on the notion that third parties may find it difficult to determine whether particular arrangements are genuine transfers or are really disguised security devices. Given these arrangements are largely used by finance companies a policy decision was made to deem the arrangements to be security interests so as to bring them within the scope of the PPSA regime. The Ontario Court of Appeal considered transfers of accounts and factoring arrangements in Fairbanx Corp v Royal Bank (2010) 16 PPSAC (3d) 96; 68 CBR (5th) 102 and noted (at [11]): “The concept of the PPSA applying to a transfer of accounts where the transfer does not secure the performance of an obligation, i.e. an absolute transfer, is difficult to reconcile conceptually with the purpose of the Act, which is to provide a priority system for lenders who take security over the

borrower’s assets. However, application of the Act to a transfer of accounts is in fact necessary for the effective operation of the PPSA to ensure that one system of priorities based on notice through registration and searches, applies to all transactions that affect entitlement to a borrower’s assets. The effect is that anyone who intends to lend money and to take security on the assets of a debtor, including on its accounts receivable, will be able to ascertain, by searching under the PPSA, whether and to what extent those assets have already been encumbered in any way.” See also, TCE Capital Corp v Kolenc (Trustee of) (1999) 14 PPSAC (2d) 257; 172 DLR (4th) 186 (Ont SC). It should be noted that several forms of transferring accounts and chattel paper that do not serve any security functions and that would not mislead third parties are excluded from the operation of the PPSA by s 8(f)(vi)–(ix). Reference should be made to the commentary for s 8. The PPSA includes several specific rules related to transfers of accounts or chattel paper: see s 38, 71 (chattel paper only), 80, 81, 268, 339. See further, John Stumbles, “The Impact of the Personal Property Securities Act on Assignments of Accounts” (2013) 37(2) Melbourne University Law Review 415; Widdup L and Mayne L, Personal Property Securities Act: a conceptual approach, 2002 revised ed, LexisNexis, Chapter 26; N Mirzai and P Richter, “Why the Australian Finance Industry Should Pay Closer Attention to Chattel Paper” (2014) 25(4) JBFLP 228. [12.5.3.2] Commercial consignments — s 12(3)(b) Commercial consignments are defined in s 10 as meaning a consignment if: “(a) the consignor retains an interest in goods that the consignor delivers to the consignee, and (b) the consignor delivers the goods to the consignee for the purpose of sale, lease or other disposal, and (c) the consignor and the consignee both deal in goods of that kind in the ordinary course of business but does not include an agreement under which goods are delivered to: (d) an auctioneer for the purpose of sale, or (e) a consignee for sale, lease or other disposal if the consignee is generally known to the creditors of the consignee to be selling or leasing goods of others.” The wording of this definition suggests that the inclusion of commercial consignments irrespective of whether or not the instrument satisfies s 12(1) is aimed at addressing the ostensible ownership problem outlined above and the potential confusion that may be felt by third parties who are not otherwise made aware that the consignee in possession of the goods is not the owner. In determining whether or not a consignment satisfies s 12(1) or not, a similar analysis is contained in 12.5.2 above. The Ch 4 enforcement provisions only apply if the consignment satisfies the test pursuant to s 12(1). The distinction between “true” consignments and “commercial” consignments arose in the Saskatchewan Court of Queen’s Bench decision, Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2001) 3 PPSAC (3d) 26; 211 Sask R 222.14 The facts of the case concern a breeder who entered into an agreement with the producers’ co-operative under which the co-operative obtained a loan from a bank for the purpose of purchasing cattle in the name of the co-operative but which were used for the benefit of the breeder. The test applied in relation to the Breeders Agreement between the parties focused on determining whether or not a principal/agency relationship had arisen (a strong indicator that the consignment was a “true” consignment). Justice Klebuc held, in this regard (at [26]–[28]), that: “Whether a consignment is subject to the provisions of the PPSA is dependent on the contractual relationship between the consignor and the consignee. If the relationship can be characterized as one between a principal and an agent, then it may be a true consignment. If in substance the

relationship is one of a seller and buyer and not principal and agent, then it constitutes a commercial consignment to which the PPSA applies. It is generally accepted that if the consignee has a legal right to return to the consignor any or all of the consigned goods without obligation, then the arrangement is likely a true consignment. Conversely, if the right to return goods is simply one for a credit against the obligation to pay for the goods, then it is likely a commercial assignment: Stephanian’s Persian Carpets Ltd Re (1980), 34 C.B.R. (N.S.) 35 (Ont. Bktcy.). I would add that in a true principal and agent relationship, the agent consignee is obligated to recognize the consignor’s right to the proceeds of disposition.” His Honour continued (at [29]), citing Cuming R and Wood R, Saskatchewan and Manitoba Personal Property Security Acts Handbook, 1994, Carswell at p 48: “[A]dditional factors that tend to characterize a relationship of seller and buyer and not principal and agent: (i) freedom given to the consignee to set the sale price of the goods at any level above that set by the consignor, accompanied by a right to retain as remuneration the difference between the sale price and the set price; (ii) contractual assumption by the consignee of the risk of loss of or damage to the consigned goods; and (iii) a right given to the consignee to buy the consigned goods and then sell them on his own account.” See also, Glengarry AET Inc (Trustee of) v Manhattan Electric Cable Corp (1986) 6 PPSAC 112 (Ont SC); Access Cash International Inc v Elliot Lake & North Shore Corp for Business Development (2000) 1 PPSAC (3d) 209 (Ont SCJ). In Re Arcabi Pty Ltd (in liq) (recs & mgrs apptd) (2014) 288 FLR 236; [2014] WASC 310, the Court held that notes and coins held on consignment by a dealer were not covered by a commercial consignment because there was insufficient evidence that the clients dealt in goods of that kind in the ordinary course of business and because most of the creditors of the consignor believed that Arcabi sold goods of others. The result of this analysis is that where a court is satisfied that a consignment is in fact a commercial consignment, the rules of the PPSA apply and a failure to perfect renders the secured party’s interest vulnerable to subsequent perfected creditors over the same collateral, that is, the consigned property. In the authors’ view a conservative approach is justified by way of recognising the potential for a consignor to lose first ranking priority over the consigned property. Where such interests arise or it is uncertain whether the consignment is a true consignment or a commercial consignment, perfection should duly follow by the consignor: see Community Futures Development Corp of Howe Sound v Spargo (2000) 1 PPSAC (3d) 274; 2000 BCSC 1471; Community Futures Development Corp of Howe Sound v Spargo (2000) 1 PPSAC (3d) 263; 76 BCLR (3d) 190 (BC SC). [12.5.3.3] PPS leases — s 12(3)(c) See discussion at s 13. [12.5.4] Charge-backs permitted — s 12(3A), (4) These sections clarify the uncertainty that existed prior to the PPSA as to the validity of charge-backs. Charge-backs allow a party who owes an obligation to take security over that obligation. For example, a bank may take a security interest over an account held by one of its customers. See further, Peter Ward, “Personal property securities reform and the Conceptual Impossibility Doctrine” (2009) 20 Journal of Banking and Finance Law and Practice 106. Reference should also be made to s 25 and 75 which consider the perfection and priority of security interests in authorised deposit taking institution accounts (ADI accounts). [12.5.5] Exclusions to security interests — s 12(5) Section 12(5) provides express exclusions from the PPSA of particular interests irrespective of whether the “in substance” test is satisfied.

Section 12(5) thus operates in conjunction with s 8. To date, the PPS Regulations specify that the extinguishment of a beneficial interest in an account or chattel paper is not a security interest: Personal Property Securities Regulations 2010 (Cth) Reg 1.8. With regards to licences pursuant to s 12(5)(a), s 10 of the PPSA defines the term “licence” as: “either of the following, if it is transferable by the licencee (whether or not the right, entitlement, authority or licence is exclusive, and whether or not a transfer is restricted or requires consent): (a) a right, entitlement or authority to do one or more of the following: (i) to manufacture, produce, sell, transport or otherwise deal with personal property; (ii) to provide services; (iii) to explore for, exploit or use a resource; (b) an intellectual property licence; but does not include a right, entitlement or authority that is: (c) granted by or under a law of the Commonwealth, a State or a Territory; and (d) declared by that law not to be personal property for the purposes of this Act.” See Declared statutory licenses discussed at [8.5.18]. Section 12(5) makes it clear that while a licence is not itself a security interest (and generally does not confer proprietary rights in any personal property) a licence can however constitute an item of personal property, but only if it has the characteristics of transferability (even if that right is limited). Licences which satisfy transferability requirements can thus be used as collateral for the purpose of creating a security interest. See further, Re Elite Sydney Pty Ltd [2016] NSWSC 1934. In the authors’ view, a licence can be distinguished from any of the instruments described under s 12(2) on the grounds that it generally does not confer proprietary rights in any personal property. This is so even where a licence purports to secure payment or performance of an obligation, in substance. It is likely, however, that if what is occurring is the securing of payment or performance of an obligation, then the instrument is not truly a licence and it should be prudently remembered that the form of the instrument is irrelevant in considering whether or not a security interest arises. Where properly described, characterised and constituted, a licence does not give rise to a security interest pursuant to s 12(5)(a). In practical terms, a licensor need not comply with the PPSA by way of perfecting their interest, and the law relating to the scope and extent of the licence agreement stem beyond the PPSA. The exclusion can be confused as while a licence is not a security interest itself, it can be subject to a security interest under the PPSA, that is, the licence can be personal property capable of being used to secure payment or performance of other obligations. This is particularly important with respect to intellectual property licences which have been expressly included in the definition of “licence” pursuant to s 10. Part 3.5 of the PPSA operates in this regard due to the growing commercial value associated with intellectual property and its increased use as a form of collateral. How far one can go by way of characterising a particular instrument as a “licence” is not strictly defined and like with respect to consignments and leases, judicial interpretation is required. The use of licences as forms of collateral is particularly important with respect to intellectual property licences which have been expressly included in the definition of “licence” pursuant to s 10. Part 3.5 of the PPSA operates in this regard due to the growing commercial value associated with intellectual property and its increased use as a form of collateral. [12.5.6] Subordination agreements excluded by the PPSA — s 12(6) Subordination agreements can be understood as any arrangement whereby a party who may enjoy firstranking PPSA priority voluntarily and contractually surrenders that priority in favour of another. As such, subordination agreements are generally beyond the scope of the PPSA’s application. While recognised by the Act as an important mechanism of contractually altering priorities (pursuant to s

61), no formal requirements are imposed by the PPSA on such agreements (unless the subordination gives rise to a security interest in its own regard — in which case query whether or not the underlying agreement is capable of being properly characterised as a subordination agreement). Section 12(6) expressly excludes subordination agreements from the definition of a security interest. To “subordinate”, in essence, means to render an interest held in priority subject to some other interest. Under the PPSA, and indeed under the law prior to the PPSA, a secured party can effectively postpone or render: • all or any part of their rights with respect to the primary obligation (that is, as between the secured party and the debtor) owed by the debtor to a third party (pursuant to s 12(6)(a)), or • all or any part of their rights with respect to the security agreement (that is, as against third parties) to a third party (pursuant to s 12(6)(b)). While no additional requirements pursuant to the PPSA are necessary for parties seeking to enter into a subordination agreement, all the protections associated with the Act similarly do not apply and thus the principles of contract law should be sought in enforcing rights beyond those conferred by s 61 (see s 61). Without seeking to embark upon the interaction between the concepts of subordination and the purchase money security interest discussed at s 14 of the PPSA, the introduction of the concept of a purchase money security interest, in effect, overcomes the difficulty of one party approaching another party for express subordination. Like the “deeming” provisions of the PPSA (see s 12(3) and 13) where one is able to satisfy s 14 such that the relevant security interest is, as a matter of fact, a purchase money security interest, then one need not concern oneself with express subordination as priority over the collateral to which the purchase money relates is afforded priority in any event (assuming the holder of the purchase money security interest otherwise meets the perfection requirements under the PPSA). For more information on purchase money security interests see s 14 of the PPSA. The PPSA recognises subordination agreements on the following two-fold rationale: First, while the agreement effects a third party (who can duly enforce the benefit pursuant to s 61(2)(b)) subordination agreements can only be used as a mechanism to alter the priorities between those parties who agree to be bound by the agreement and thus the interest obtained by the beneficiary of a subordination agreement is no higher than that of the original secured party. Secondly, the commercial reality of many transactions will require the alteration of priorities which cannot be effectuated by the PPSA default priority regime. Take the following example:

Debtor A borrows funds from Secured Party B who takes an “all present and after acquired property” security interest (or a “General Security Agreement” as it is commonly referred to among the Canadian provinces) over Debtor A’s personal property. Debtor A, among other personal property, has proprietary rights in a motor vehicle. Creditor C wishes to take first priority in the motor vehicle and arranges for Secured Party B to subordinate their interest over the motor vehicle for the benefit of Creditor C (who also registers an interest). Creditor C in return satisfies Debtor A’s obligations to Secured Party B, that is, Creditor C pays the amount owing to Secured Party B in accordance with the market value of the motor vehicle.

Secured Party B cannot retain first priority against all the remaining collateral (recognised at the time the original security interest was perfected) without the use of a subordination agreement. Subordination agreements are thus particularly useful in facilitating carve outs from larger security interests. In the converse, Creditor C cannot obtain first priority in a discrete item of Debtor A’s personal property without the subordination of Secured Party B and thus both parties benefit from the availability of subordination. Note also that this final payment is as agreed between the parties. The value of the motor vehicle will not

necessarily reflect the complete obligation owing by Debtor A to Secured Party B (as will often be the case). As these agreements are not bound by PPSA principles the negotiating power of the secured party and interested creditor will determine the terms of the agreement entered. The concept of subordination was discussed in considerable depth in the Newfoundland and Labrador Court of Appeal case, Re Hickman Equipment (1985) Ltd (2006) 10 PPSAC (3d) 206; 274 DLR (4th) 372. In this case, the effect of a subordination agreement was analysed particularly the scope of the agreement to go beyond the priorities of those parties bound (see s 61 for a more detailed discussion). [12.6] Further reading • Explanatory Memorandum [2.10–2.13]. • ALRC Report No 64 [5.3–5.29]. • Whittaker Report [4.1], [4.2], [4.3], [5.1], [7.1], [7.7], [8.7], [9.3]. • Michael Bridge, Roderick Macdonald, Ralph Simmonds and Catherine Walsh, “Formalism, functionalism and understanding the law of secured transactions” (1998) 44 McGill Law Journal 567. • Matthew Broderick, “PPSA and construction law” (2013) 29 Building and Construction Law Journal 298. • Cheyne Clarke, “The threshold requirements of the PPSA: Does s 12 require an interest in rem in order to create a security interest?” (2016) 27 Journal of Banking and Finance Law and Practice 6. • Brian Coburn, “Consignment sales and the PPSA” (1981) 6 Canada Business Law Journal 40. • Anthony Duggan, “Chattel paper” (2013) 41 Australian Business Law Review 214. • James Glister, “The Role of Trusts in the PPSA” (2011) 34 UNSWLJ 628. • Diccon Loxton, “One flaw over the cuckoo’s nest: making sense of the ‘flawed asset arrangement’ example, security interest definition and set-off exclusion in the PPSA” (2011) 34(2) UNSWLJ 472. • Diccon Loxton, “New bottle for old wine? The characterisation of PPSA security interests” (2012) 23 Journal of Banking and Finance Law and Practice 163. • Diccon Loxton, “In with the Old, Out with the New? The Rights of a Replaced Trustee Against its Successor, and the Characterisation of Trustees’ Proprietary Rights of Indemnity” (2017) 45 Australian Business Law Review 285. • Sheelagh McCracken, “Conceptualising the Rights of a Lessee under the Personal Property Securities Regime: the Challenge of ‘New Learning’ for Australian Lawyers” (2011) 34(2) UNSWLJ 547. • Nicholas Mirzai, “The persistence of equitable doctrine with respect to the law relating to personal property securities: assessing the impact of the Personal Properties Securities Act 2009 (Cth)” (2013) 24 Journal of Banking and Finance Law and Practice 3. • Chris Pearce, “Retention of old titles: Pre-PPSA retention of title agreements and unfair preferences” (2016) 44 Australian Business Law Review 397. • John Stumbles, “The PPSA: The Extended Reach of the Definition of the PPSA Security Interest” (2011) 34(2) UNSWLJ 448. • See also, the series of four articles by Professors McCracken, Stumbles and Tolhurst in (2015) 33 Journal of Contract Law on the topic of “Title Transfer Collateral Arrangements” under the PPSA. • John Stumbles, “The Impact of the Personal Property Securities Act on Assignments of Accounts”

(2013) 37(2) Melbourne University Law Review 415. • Gregory Tolhurst, Tony Coburn and Alan Peckham, “Security interests at the margins” (2012) 40 Australian Business Law Review 241. • Roderick Wood, “The Floating Charge in Canada” (1989) 27 Alberta Law Review 191. • Bruce Whittaker, “Retention of title clauses under the Personal Property Securities Act 2009 (Cth)” (2010) 21 Journal of Banking and Finance Law and Practice 273. Footnotes 4

Ziegel J and Dennome D, The Ontario Personal Property Security Act Commentary and Materials, 2nd ed 2000 Butterworths at p 48.

5

Cuming R, Walsh C and Wood R, Personal Property Securities Law, 2005 Irwin Law.

6

If a party has an unfettered discretion as to performance, there is no consideration provided, and no contract: Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 361, 370.

7

To the extent that the decision in Re Gelpack Enterprises Pty Ltd [2015] NSWSC 1558 is inconsistent with this reasoning, I decline to follow it. That decision did not consider the question of consideration if one party to a “contract” reserves a right unilaterally to vary its terms without limitation.

8

See generally, Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25; Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676.

9

For a discussion of the role of the trust receipt in the formulation of UCC Art 9 see Grant Gilmore, Security Interests in Personal Property, (Little Brown & Co, 1965) Ch 4.

10

For an in-depth examination of the PPSA and its application to lease arrangements see, Nicholas Mirzai, “The Personal Property Securities Act and commercial lease arrangements: A practitioner’s guide” (2011) 22 JBFLP 3.

11

A “financing statement” is the document which is filed to register a security interest under the PPSA. Under the Act, there is no longer a need to register the security agreement itself. For more information on the distinction between financing statements and security agreements generally, see s 10, 20 and Pt 5.3.

12

Affirmed on appeal, Re Ontario Equipment (1976) Ltd (1982) 141 DLR (3d) 766; 35 OR (2d) 194.

13

See, Peter Ward, “Personal property securities reform and the Conceptual Impossibility Doctrine” (2009) 20 JBFLP 106.

14

Note: While the decision was partially overturned on appeal, the proper characterisation of a commercial consignment was dealt with at first instance. For the appeal decision see, Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2002) 5 PPSAC (3d) 1; 218 DLR (4th) 86.

¶13 SECTION 13 MEANING OF PPS LEASE ¶1-070 SECTION 13 MEANING OF PPS LEASE Text of s 13 [13.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 16(1)

Saskatchewan

PPSA 1993

s 2(1)(y)

Ontario

PPSA 1990

s 1(1)

USA

UCC Article 9 (rev)

no equivalent, but for a discussion of leases generally see UCC § 1-201(35), 1-203 and UCC Art 2A

[13.2] Outline Unlike its foreign counterparts, the Australian PPSA provides a separate section for defining the PPS lease (typically the term is provided for under the Act’s relevant definitions or interpretation section). The intuitive reasoning behind this approach is to emphasise the different nature with which a lease interest is regarded under the PPSA relative to prior law. Under the PPSA, a lease, even where it does not secure payment or performance of an obligation, may be defined as a security interest for the purposes of the Act subject to the requirements of s 13. Termed “deemed security interests” abroad (particularly in New Zealand), the PPSA expressly incorporates certain instruments not typically associated with the creation of a security interest in (specifically, leases and bailments in this section) in order to facilitate and enforce a consistent priority regime for all interests that may give rise to security arrangements. This is a section that has been the subject of law reform since the last edition, with the removal of the 90day deeming rule for serial numbered property in 2015 and the removal of indefinite terms (s 13(1)(b)) and changes from one year to two years in 2016. Further discussion appears at [13.5.6]. [13.3] Cross-references • Section 12 includes PPS leases as deemed security interests. • Section 14 includes a PPS lease within the concept of a PMSI. • Section 19(5) provides for attachment under a PPS lease when the grantor obtains possession of the goods. • Section 109 excludes deemed security interests from the Ch 4 enforcement rules. [13.4] Concepts The “PPS Lease” is itself a concept which will form the focus of the following commentary. Other concepts arising from this section include: • Bailment See Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (In liq) (rec and man apptd) [2017] FCA 1065; Re Arcabi Pty Ltd (in liq) (recs & mgrs apptd) (2014) 288 FLR 236; [2014] WASC 310. • Consumer property This is defined by s 10.

• For a term In Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (In liq) (recs and mgrs apptd) [2017] FCA 1065, it was held that a uncertainty regarding when a bailment relationship would end meant that the bailment was not “for a definite term” but rather was for an indefinite term (which was previously relevant under s 13(1)(b) — now-repealed). • Possession See s 24. • Regularly engaged in the business of leasing goods This is discussed below. • Serial numbered goods Certain collateral may or must be described in a financing statement by serial number. This is discussed in s 153. • Value The concept of value is defined by s 10. See also, Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (In liq) (recs and mgrs apptd) [2017] FCA 1065; Re Arcabi Pty Ltd (in liq) (recs & mgrs apptd) (2014) 288 FLR 236; [2014] WASC 310. See further, [19.5.2]ff, especially [19.5.2.2]. [13.5] Commentary [13.5.1] Concept of a lease generally ....................................xx [13.5.2] The PPS lease — default application — s 13(1) ....................................xx [13.5.3] Application and scope of the PPS lease — s 13(1) ....................................xx [13.5.3.1] Priorities ....................................xx [13.5.3.2] Limitations to the ambit of the PPSA ....................................xx [13.5.3.3] Enforcement provisions ....................................xx [13.5.4] Exceptions — s 13(2) ....................................xx [13.5.4.1] Regularly engaged in the business of leasing/bailing goods: s 13(2)(a) and (b) ....................................xx [13.5.4.2] Consumer property incidental to use of land: s 13(2)(c) ....................................xx [13.5.4.3] Pooling arrangements: s 13(2)(d), reg 1.9 ....................................xx [13.5.5] Bailments for value — s 13(3) ....................................xx [13.5.6] The Personal Property Securities Amendment (PPS Leases) Act 2017 ....................................xx [13.5.1] Concept of a lease generally The term “lease” is generally understood as an agreement whereby a leasehold interest or possessory interest in property (compare a mere licence to use which confers no proprietary interest in the underlying property) is conveyed to another usually in exchange for consideration of rent or other periodical payment. At law, a lessor (the owner of the property who provides the lease to the lessee), retains reversionary legal title to the property leased and can thus enforce their ownership interest over the property should

the lessee breach the lease agreement. The lease agreement will also usually confer on the lessor various rights (such as the right to periodic inspections). Although a lessee has a proprietary interest in the leased property, being the exclusive right to possession of that property, the lessee’s use and enjoyment of the property will be restricted by the terms of the lease and by the lessor’s reversionary interest. Strictly speaking, a lessee therefore cannot sell, transfer or otherwise deal with the leased property as though it were their own property, unless the lease so provides (in which case, query whether the instrument creates a lease or some other type of transaction). The common law rule in respect of who should have first entitlement to the leased property followed the latin maxim nemo dat quad non habet, that is, “no one [can] give what one does not have”. That is to say, under pre-PPSA law, a lessee cannot pass better title to a third party than that which they have themselves and therefore any subsequent interest created by the lessee in leased property took subject to the ownership interest of the lessor at common law. Over time the concept of a lease and its varying applications and uses resulted in a divide between what is commonly understood to be an “operating” or “true” lease as distinct from a “financing” or “security” lease. • A “financing” or “security” lease, typically involves a transfer of title from the lessor to the lessee when the period of possession enjoyed by the lessee ends. • In the alternative, an “operating” or “true” lease functions in the absence of any intention at the outset to transfer title from the lessor to the lessee at any stage. How the PPSA applies to leases appears to be obvious from these simplistic definitions such that the first instrument, the financing lease, would be caught by the PPSA as the entire lease operates much like a simple mortgage with possession enjoyed by the lessee and ultimately the transfer of title, whereas the second instrument, the operating lease, would not be caught. However, as the body of case law in Australia and abroad illustrates, the distinction is often not clear and it is not uncommon for leases to contain both financing and operating characteristics. It is this ambiguity that s 13 aims to address. The failure of owners and lessors to appreciate the limits of the protection provided by the transitional provisions where their arrangements constitute a PPS lease is further illustrated in the decision in White v Spiers Earthworks Pty Ltd [2014] WASC 139 (16 April 2014). In that case a lessor under a pre-PPSA hire purchase arrangement covering vehicles used in the mining industry failed to perfect its interest under pre-PPSA law involve chattel securities (in this case motor vehicles). As in the case of Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852, the owner was not protected by the deemed perfection provisions in s 322 because of the operation of PPS Reg 9.2. This meant that the transitional security interest was unperfected when the grantor entered voluntary administration and hence the vesting rule in PPSA s 267 applied. One further interesting aspect of the White v Spiers case is the approach that the Court took to assessing the nature of the owner’s security interest in the vehicles under the hire purchase arrangement. Although the arrangement fit within s 13 as a PPS lease, the Court held that this issue did not need to be decided as the relationship was an “in substance” security interest under s 12(1). [13.5.2] The PPS lease — default application — s 13(1) There are two methods the PPSA utilises in addressing whether a lease is an operating or financing lease. • The first involves the application of the “in substance” test as discussed above at s 12(1). • The second is a blanket operation of the Act for perfection and priority purposes for instruments which satisfy one of the following classifications, regardless of whether or not s 12(1) is also satisfied — namely: • A lease or bailment of goods for more than two years — s 13(1)(a) • A lease or bailment where a combination of all options to renew (automatic or at the request of either party), if any, would extend the aggregate term of possession beyond two years — s 13(1)

(c) • A lease or bailment where the lessee or bailee enjoys uninterrupted or substantially uninterrupted possession of the property for two years or more — but the section only applies where the lessee or bailee has had possession for at least two years — s 13(1)(d)

The definitions pursuant to s 13(1) should not present conceptual difficulty and should be applied in a literal way. Take the following example:

Lessor A arranges six-month lease over their computer system in favour of Lessee B. The lease contains an agreement that the lease may be extended for three additional months with the consent of both parties. This provision operates in perpetuity such that so long as both the lessor and lessee consent to extend the lease, the underlying agreement will continue to bind both parties. Is this a PPS Lease?

Pursuant to s 13(1)(c) this is a PPS Lease. In the interests of not being caught by s 13, for whatever reason, parties should be careful and precise when preparing their leasing arrangements. Alternatively, and in the preferred view of the authors’, parties should seek advice in order to comply with the perfection requirements of the Act where there is doubt about whether or not these provisions apply. More importantly, the inclusion of this provision at all has been subject to debate particularly in Ontario. As previously stated, originally the Ontario PPS regime did not include special provision for “leases for a term of more than one year” as the PPSA was never intended to operate beyond instruments that create security interests over personal property. There is some theoretical accuracy to this proposition however in practice, the operating/financing lease dichotomy would continue detracting from the objective of the Act to provide a clear and consistent approach to securities law. In the authors’ view, the inclusion of s 13 in the Australian Act is a valuable one (note, however, the exceptions below at [13.5.3], especially [13.5.3.2]). A mere non-exclusive license to use personal property will not constitute a lease for the purposes of the PPSA: Stoke Resources & Consulting Inc v Auto Body Services Red Deer Ltd [2011] ABCA 370. In the context of the former s 13(1)(b) of the PPSA, now-repealed, consideration of whether a lease, which was anticipated to be for a period for less than one year but which did not provide for fixed period of time, constituted a “PPS lease” within the meaning of s 13(1)(b) was the subject of Carrafa (as liquidatiors of Relux Commercial Pty Ltd (ACN 155 749 438) (in liq) v Doka Formwork Pty Ltd (2014) 104 ACSR 163; [2014] VSC 570, where Relux Commercial Pty Ltd leased formwork and associated equipment (formwork equipment) from Doka Formwork Pty Ltd. The relevant clause of the agreement was as follows: “The duration of any rental period commences on the date which the ordered material leaves the Doka warehouse. Any rental period will end on the date the rented material is returned to the Doka warehouse. Any partial return and/or delivery of material shall be deducted pro-rata according to agreed rental rates.” In interpreting this clause, Sifris J held (at [26]): “the Doka terms indicate that the lease was for an indefinite period only ending when the formwork equipment was returned to Doka”. Whether the parties anticipated that the period of the lease would, in actual fact, be less than one year in total did not alter the plain language of the agreement and did not prevent the lease from being characterised as a “PPS lease” for the purposes of the PPSA. In Doka Formwork, the consequence of constituting a PPS lease which was not perfected (for a particular period) led the Court to find (at [59]–[60]) that: “As noted by courts who have previously considered these and similar provisions of the Act, the effect of these provisions is to extinguish the lessor’s interest in the property where it is not registered within time: See, Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337 at 359; White v Spiers Earthworks Pty Ltd (2014) 99 ACSR 214 at 221.

This can lead to seemingly draconian outcomes, particularly where the property is valuable such as in this case where the Formwork Equipment was valued at over a million dollars. The impact of these provisions is compounded by the broad scope of the PPSA and the large number of interests covered by it: See, s 12 of the Personal Property Securities Act 2009 (Cth). Despite these consequences, as noted in the Explanatory Memorandum, these provisions are needed ‘to prevent security interests being granted fraudulently with knowledge of an imminent administration, liquidation or deed of company arrangement’: Explanatory Memorandum, Personal Property Securities (Corporations and other Amendments) Bill 2010 (Cth) 13. Moreover, in order to avoid these consequences, security interest holders can simply ensure they register their interests as soon as possible after they are granted.” This is consistent with the approach taken by Matheson J in Gelowitz v Garcon Enterprises Ltd (1995) 132 Sask R 273, who held (at [19]–[21]): “Section 2(y) [see now s. 2(1)(g) of the 1993 Act] defines ‘a lease for a term of more than one year’ as including ‘a lease for an indefinite term, including a lease for an indefinite term that is determinable by one or both of the parties not later than one year after the day of its execution’. The wholesale rental agreement does not contain any time limit. Although clause 5.1 states that either Holdco or Garcon was entitled to terminate the agreement without cause at the end of any month upon one month’s clear notice, the evidence is clear that the agreement was still in existence on April 24, 1995, when Holdco caused the inventory and other personal property of Garcon to be seized. The wholesale rental agreement clearly falls within the extended definition of a ‘lease for a term of more than one year’, and is therefore a security agreement encompassed by the Personal Property Security Act.” In the authors’ view, consistent with the authorities referred to above, the preferred approach to the interpretation of s 13(1)(b) of the PPSA (now repealed) was to consider whether the relevant contract or agreement has a definitive or defined term or period without regard to whether this term or period is then referrable to more than one year or any other date. The bracketed words in s 13(1)(b) made clear, as a matter of construction, that the determinability of the lease prior to one year is an irrelevant consideration. While s 13(1)(b) of the PPSA has been repealed, the applicable principles as a matter of statutory construction remain accurate and applicable to the balance of s 13. In the authors’ view, for avoidance of doubt, lessors of personal property ought to revise their lease terms to include a fixed or defined term or period or adopt an internal practice of assuming that the lease constitutes a PPS lease and complying with the requirements of the PPSA (which is likely s 21 of the PPSA among other sections). Lessors ought to seek independent legal advice in respect of their particular position and circumstances. [13.5.3] Application and scope of the PPS lease — s 13(1) In further support of a separate section for establishing the PPS lease, several foreign cases have turned directly on point. For further discussion, see: • [13.5.3.1] Priorities • [13.5.3.2] Limitations to the ambit of the PPSA • [13.5.3.3] Enforcement provisions. [13.5.3.1] Priorities As the PPS lease is a deemed security interest (see s 12(3)(c)) it will fall within the system of priorities set out by the PPSA. This is perhaps the most striking difference between the PPSA and the prior position at common law and it provides a clear example of the reduced role of the nemo dat (“no one [can] give what one does not have”) rule under the PPSA. Where one considered that what one is dealing with can be appropriately characterised as a PPS lease, the words of the Supreme Court of Canada are instructive.

In Re Giffen (1998) 13 PPSAC (2d) 255; 155 DLR (4th) 332 the Supreme Court of Canada considered a dispute as to priority over a car that was leased by a bankrupt for more than one year and where the lessor failed to perfect its security interest. Arguments were raised regarding the superior title of the lessor, but the Court responded (at [28]): “this dispute cannot be resolved through the determination of who has title to the car because the dispute is one of priority to the car and not ownership in it. It is in this context that the PPSA must be given its intended effect …”. The effect of deeming PPS leases to be security interests can be seen in the first major case that applied the PPSA in Australia: Re Maiden Civil (P&E) Pty Ltd; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852. In Re Maiden Civil, Maiden Civil took possession of three large Caterpillar vehicles for use in its construction business during the period between 2010–2012. The vehicles were leased from Queensland Excavation Services (QES), although the precise terms of the lease were not fully recorded in writing. QES has acquired the vehicles using finance from both Westpac (for two vehicles) and Esanda (for the third vehicle). The contract between Maiden Civil and QES provided for Maiden Civil to pay QES’s finance costs plus an additional fee to QES. When finance on the third vehicle (financed by Esanda) was fully paid Maiden Civil stopped making payments in relation to it, but kept paying for the other two vehicles until it became insolvent and entered voluntary administration. QES did not register a security interest on the PPSR to cover its interest in the vehicles as it relied upon its status as owner and because the lease contracts were transitional security interests that did not require registration. Maiden Civil obtained finance from Fast Financial, during 2012, which was provided under a secured loan that was fully in writing and listed the three vehicles as collateral. Fast Financial perfected its interest in the vehicles with an effective registration on the PPSR. When Maiden Civil experienced financial difficulties it entered voluntary administration, and Fast Financial appointed a receiver. QES claimed priority over the three vehicles as owner/lessor. Another company, Central Plant Hire, had seized one of the vehicles as security for an undocumented loan it said was outstanding from Maiden Civil. The receiver appointed by Fast Financial claimed priority over all three vehicles on the basis that Fast Financial had a perfected security interest in them which took priority over the unperfected interests of QES and Central Plant Hire. The Supreme Court of New South Wales held that the contract over the vehicles between Maiden Civil and QES was in the nature of a finance lease for a period of more than one year, which meant that it was PPS lease under s 13 and hence a deemed security interest under s 12(2). The Court also held that Maiden Civil had paid off the vehicle financed by Esanda and therefore owned it, while it was merely leasing the remaining two vehicles that were subject to finance from Westpac. With respect to the vehicles subject to financing, QES had a transitional security interest as its contract pre-dated the PPSA but it was not entitled to the protection of deemed perfection under s 322 as it had not complied with registration laws prior to the PPSA that applied in the Northern Territory (where the vehicles were used, compared with Queensland, which had different registration laws, where QES was based): s 322(3) and PPS Regulations 2010 (Cth) reg 9.2. The Court further held that Fast Financial’s security interest satisfied the attachment requirement in s 19 and the writing requirements of s 20, but noted that QES’s contract did not satisfy s 20 as it was not in writing and did not cover the required elements of s 20(2). The Court, therefore, determined that Fast Financial’s perfected security interest had a higher priority to QES’s unperfected security interest and that there was insufficient evidence to verify the claims of Central Plant Hire to the vehicle, and even if sufficiently proved it would have also been unperfected and been subordinate to Fast Financial’s perfected security interest. One point of particular importance in respect of the operation of s 13 is that the Court confirmed (as discussed in overseas PPSA cases) that a lessee could grant a security interest in the leased property and that security interest would not be limited to the lessee’s rights where there was a priority contest involving the collateral. QES had argued that Maiden could not grant a security interest that was any greater than its rights as lessee and hence when the lease was terminated for non-payment there was nothing left to support the security interest. The Court relied upon both Canadian (Re Giffen [1998] 1 SCR 91; (1998) 155 DLR (4th) 332) and New Zealand case law (Graham and Gibson v Portacom New Zealand

Ltd (2004) FPPSR ¶700-001; [2004] 2 NZLR 528 and New Zealand Bloodstock Ltd v Waller and Agnew (2005) FPPSR ¶700-002; [2006] 3 NZLR 629) in rejecting this argument. The court drew support from s 19(5) and noted (at [26], [35], [73]): “Thus pursuant to s 19(5), Maiden — as a PPS lessee in possession of the Caterpillars — had rights in the Caterpillars, to which a security interest could attach. These rights are not limited to possessory rights, but include proprietary rights … … … a person with an interest rooted in title to property in the possession of another, once perfected, can, in the event of default by the debtor, look to the property ahead of all others to satisfy his claim; but if that interest is not perfected, it is vulnerable, even though rooted in title to the goods, because a third party may derive an interest in the same goods by virtue of some dealing with the person in possession of them, and may become entitled to priority, ahead of the person holding the unperfected security interest, to look to the goods to satisfy a claim … … Maiden did not have only a mere right to possession under the QES leases. The Canadian and New Zealand cases already mentioned demonstrate that a PPS lessee on taking possession of the collateral acquires not only a possessory right but also proprietary rights to the extent that it can grant security interests to third parties, so that the lessor’s interest if unregistered is vulnerable to being defeated by security interests so granted to such third parties. The PPSA treats the lessee under a PPS lease as the grantor of a security interest with rights in the collateral, and the lessor as a secured party, because it sees the transaction as, in substance, a security transaction, though in form it is a lease. As the cases mentioned show, it recognises that the lessee may validly and effectively grant security interests in the collateral to third parties, that can take priority of the lessor’s unperfected interest, because the lessee is regarded for that purpose as having rights in the collateral. 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.” The Court also held that s 267 (vesting rules) applied to render QES’s security interest vested in Maiden Civil as grantor upon Maiden Civil’s voluntary administration commencing. It should be noted that one significant point made in the Re Maiden Civil case is that overseas cases may be used to assist with interpreting the Australian PPSA where there are similarities: see Re Maiden Civil at [32] (“The Commonwealth Parliament, in enacting legislation that was modelled on the New Zealand and Canadian legislation, should be taken to have intended the same approach, which was by then well established in Canada and New Zealand, to apply”). In Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631, Parker J held (at [146]): “because the PPSA is modelled on the New Zealand provisions, the Court should generally follow the approach that has been taken in New Zealand and Canada in construing the PPSA… But of course this general approach must give way if there are material differences in the statutory context.” In Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd [2018] SASCFC 95; (2018) 131 SASR 506, the Court explained (at [39]): “While many of the key concepts in the PPS Act are drawn from, and reflect, the legislation in these jurisdictions, and in particular the legislation in New Zealand and Canada, the PPS Act is ultimately something of an amalgam of the legislative experience in these jurisdictions rather than a direct transportation of any particular legislative regime into Australia. There are differences of expression and detail between the PPS Act and each of the other legislative regimes. Thus, while authorities from these jurisdictions are of some assistance in understanding the operation of the PPS Act, it cannot be assumed that they will have direct application.” Justice Black warned of the dangers in relying on selective foreign cases in Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735 at [34]: “I bear in mind the real risk of dealing with foreign case law in this respect, including the difficulty which may arise where one or several cases are selected from a wider body of authority, the possibility that there may be divergences of approach within a particular jurisdiction and the real risk

that international authority may be ‘cherry-picked’ to support a preferred view.” It is worth making short mention of two decisions that were central to the reasoning in Re Maiden Civil: Graham and Gibson v Portacom New Zealand Limited (2004) FPPSR ¶700-001; [2004] 2 NZLR 528 (Portacom) and New Zealand Bloodstock Limited v Waller and Agnew (2005) FPPSR ¶700-002; [2006] 3 NZLR 629 (Waller). In Portacom, the manufacturer of portable buildings leased five buildings to NDG over a four-year period (which covered the period before and after the commencement of the PPSA in New Zealand). The lease agreement prohibited the lessee from alienating the buildings and recognised that Portacom had a security interest in the buildings for the purposes of the PPSA. NDG (the lesee) had granted a secured debenture to a bank, which registered a financing statement to perfect its security interest. Portacom (the lessor) did not however perfect its security interest (either by possession or by registering a financing statement). When the bank appointed receivers Portacom challenged their right to sell the leased buildings. The court accepted that the leases extended beyond one year and therefore the lessor’s position was deemed to be a security interest (at [10]). The court held that the PPSA recognises that a lessee may grant a security interest in the leased property (referring to the New Zealand equivalent of s 19(5)): at [18]. Hansen J held (at [19]): “the lease [for more than one year] is treated as a security agreement and the lessee is treated as the owner of the leased goods for registration and priority purposes. If the lessor fails to register its interests, it loses priority to a perfected security interest over the leased goods”. The court found that as the bank’s security agreement covered all of NDG’s assets, this included its rights over the leased buildings (at [31]). As the bank had a perfected security interest it was entitled to priority and the receiver could thus sell the buildings. The Portacom decision was considered in the leading decision on the New Zealand PPSA: the Waller case. In Waller, a company, Glenmorgan, had issued a secured debenture (which contained a fixed and floating charge) to another company Lock in 1999 (before the PPSA commenced in New Zealand) which was subsequently the subject of a registration on the PPSR on the first day of operation of the New Zealand PPSA on 1 May 2002. In 2001, Glenmorgan executed a finance lease over a horse with New Zealand Bloodstock who retained title for the duration of the lease (which extended beyond one year). New Zealand Bloodstock did not perfect their security interest. Glenmorgan then allowed the horse to be used in England and New Zealand Bloodstock’s lease was varied to require all income from England to be applied to reduce debt owed to New Zealand Bloodstock. The English operations were actually managed by a company related to Glenmorgan. Approximately £175,000 was paid to New Zealand Bloodstock under this arrangement. New Zealand Bloodstock then terminated the lease after Glenmorgan defaulted and repossessed the horse. Lock then appointed receivers over Glenmorgan, under its secured debenture and the receivers applied to the court to recover possession of the horse that had been leased. The Court of Appeal (by majority) found that the New Zealand equivalent to s 19(5) allowed Glenmorgan to have rights in the collateral to grant a security interest to Lock (which was perfected). This created a priority contest as New Zealand Bloodstock’s lease for more than one year was also a security interest which was resolved by the PPSA in favour of Lock (a perfected interest defeats an unperfected security interest: see s 55(3)). The majority of the Court found that Lock’s charge attached to the horse as after-acquired property upon the commencement of the PPSA (see further, s 18(3)). Baragwanath (for the majority) stated clearly the stark change that the PPS lease concept had brought upon personal property law (at [74]–[75]): “[the conclusion that Lock takes priority over the lessor] means that with respect to priority of competing security interests under the PPSA the nemo dat principle is ousted. The consequence is to empower Glenmorgan to add to the security passing to Lock under Lock’s debenture a proprietary interest in the stallion, even though the agreement between New Zealand Bloodstock and Glenmorgan had provided to the contrary … The result follows Parliament’s decision that the kind of leasehold interest retained by New Zealand Bloodstock should, as a matter of policy, be treated as a mere security interest which requires registration to be perfected. Since that did not occur, Lock’s competing security interest which was

duly registered and so perfected took priority. The major lessons of the case are twofold: the statutory altering of the proprietary rights of a lessor; and the crucial importance of registration. These are policy choices which have been made and significantly alter what would otherwise have been the position.” See also, Dunphy v Sleepyhead Manufacturing Co Ltd [2007] 3 NZLR 602 at [37]; Paccar Financial Services v Sinco Trucking Ltd (Trustee of) (1989) 9 PPSAC 7; International Harvester Credit Corp of Canada v Bell’s Dairy Ltd (1986) 6 PPSAC 138; 30 DLR (4th) 387. [13.5.3.2] Limitations to the ambit of the PPSA In the British Columbia Supreme Court case of Re Western Express Air Lines Inc (2005) PPSAC (3d) 229; 10 CBR (5th) 154 the concept of a “deemed security interest” was again subject to judicial consideration. The property in question was a number of aircraft leases whereby WAE Inc sought protection under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 from having to pay out funds to its creditors. The creditors asserted that as the PPSA created a deemed security interest on the facts, that certain aircraft hence constituted “assets” for the purpose of the company’s existing charges and that the lessors should be required to pay a portion of these charges to the creditors in accordance with the co-existing Federal statute. Due to the breadth of the PPSA, in both scope and ambit, there will often be situations such as this one where multiple pieces of legislation apply. In analysing the relationship between the PPSA definitions and other statutes the court held (at [12]–[17]): “[W]hile the interest of a lessee under such a ‘pure’ lease is deemed to be a security interest for these purposes it is clear that (quoting from Cumming and Wood at p. 114) this does not mean that a secured creditor who takes a security interest in leased goods can claim priority over the lessor. The security interest attaches only to the interest of the lessee. What a deemed security interest (such as a lease for more than one year) does is to treat the lease as a security agreement and treat the lessee as the owner, but only for registration and priority purposes. If one applies this principle of the ‘limited purpose’ nature of the security interest, i.e. for only registration and priority, the aircraft lessors in this case with their properly registered leases take priority as against any of the secured creditors holding general security agreements … the Existing Charges cannot attach to the perfected interests of the aircraft lessors in the aircraft assets, only to the interest of Westex under the leases.” Like any statute, the operative definitions under the PPSA are confined to the Act itself and in particular, when regarding interests the Act deems to be security interests as opposed to those interests which satisfy the requirements of s 12, only for the purposes of perfection and priority. This is an important point: the PPSA covers registration and priority between PPSA security interests, it is not a complete code to regulate dealings with personal property in Australia. Thus, while deemed security interests must comply with the PPSA in order to protect their priority if a priority contest arises under the PPSA, the title held by an owner/lessor/consignor/bailor is not otherwise affected for non-PPSA affairs — save as in one respect dealing with the vesting of unperfected security interests: See s 267. [13.5.3.3] Enforcement provisions Important also are the exclusion provisions under Ch 4 of the PPSA with respect to PPS leases. The enforcement provisions pursuant to Ch 4 do not apply to PPS leases (see Ch 4 for more detail). In the British Columbia Supreme Court case, Accent Leasing & Sales Ltd v Babic (2007) 12 PPSAC (3d) 1; 62 RPR (4th) 269, the application of enforcement provisions to deemed security interests was considered. The facts of the case concern the lease of a vehicle for 36 months. Upon the default of the lessee, the lessor took possession of the property and brought an action for damages under the lease. One of the issues the Court was asked to consider was whether the enforcement provisions of the British Columbia PPSA applied. The Court held (at [24]) “the characterization [was] of a true lease, not a security lease, and hence Part 5 of the PPSA [the equivalent of the Australian Ch 4] is inapplicable”. The Australian PPSA operates in the same respect, however, where the instrument also secures payment or performance of an obligation the enforcement provisions will apply (See further, s 109). [13.5.4] Exceptions — s 13(2)

The strength of the criticisms, particularly with respect to the Ontario statute, in imposing a class of “deemed” security interest where particular instruments would not otherwise be caught by the PPSA has been recognised through the inclusion of exceptions. The exceptions are designed to ensure operating leases, where the lessor does not typically engage in leasing on a regular basis, are not subject to s 13(1) of the PPSA. A PPS lease thus does not arise where, although a lease or bailment satisfies the requirements of s 13(1), the following additional conditions apply: • the lessor is not regularly engaged in the business of leasing goods — s 13(2)(a) • the bailor is not regularly engaged in the business of bailing goods — s 13(2)(b) • the lease is over consumer property which is part of or incidental to the use and enjoyment of land — s 13(2)(c). • the lease or bailment is part of a pooling arrangement — s 13(2)(d), Personal Property Securities Regulations 2010, reg 1.9. In White v Spiers Earthworks Pty Ltd [2014] WASC 139 (16 April 2014) a vendor of an earthmoving business which agreed to sell its equipment as part of selling its business was held (at [24]) to have regularly engaged in the business of leasing its equipment following the court’s acceptance of affidavit evidence by the secured party that stated that it had regularly engaged in the business of leasing equipment. [13.5.4.1] Regularly engaged in the business of leasing/ bailing goods: s 13(2)(a) and (b) With regards to the first exception (and by way of extension, the second exception), the interpretation of the phrase “regularly engaged in the business of leasing goods” was subject to judicial consideration in the Alberta Court of Appeal case of David Morris Fine Cars Ltd v North Sky Trading Inc (1996) 11 PPSAC (2d) 14. In the David Morris case, a car dealer which had advertised the provision of buying, selling and leasing services with respect to motor vehicles. This was so despite only actually arranging one or two leases every year. The standard practice of the car dealer was to refer the leasing arrangements onto an associated credit company of the manufacturer. A deal had been entered for the provision of a 46-month lease with the lessee (who subsequently went bankrupt). The lease arrangement was not perfected by registration and not otherwise perfected. The Court was asked to analyse the effect of the PPSA in light of the definition for a “lease for more than one year”. The Court held, with respect to what constitutes “regularly engaged in the business of”: “We agree that the clause ‘regularly engaged in business’ in s. 1(1)(y) of the PPSA means something quite different than the clause ‘in the ordinary course of business’ found in s. 30(2). The former pertains to whether the lessor is in the business of leasing. The focus is the business practice of that lessor. The latter pertains to whether the particular transaction was made in the course of conducting that business. The focus is whether other persons in that type of business engage in similar transactions.” The conclusion was thus that the equivalent to s 13(2)(a) applied. A finance company that occasionally uses leases as part of its financing arrangements was found to be regularly engaged in the business of leasing: Paccar Financial Services v Sinco Trucking Ltd (Trustee of) (1989) 9 PPSAC 7; 74 Sask R 181 (Sask CA). It is not the number or frequency of leases entered into by the lessor that matters: Karkoulas v Farm Credit Canada (2005) 8 PPSAC (3d) 249; 270 Sask R 291 (Sask QB). For a case where the lessor was not found to be regularly engaged in the business of leasing see Planwest Consultants Ltd v Milltimber Holdings Ltd (1995) 10 PPSAC (2d) 116; 32 Alta. L.R. (3d) 397 (Alta QB — appeal dismissed (1997) 54 Alta LR (3d) 256). In Rabobank New Zealand Ltd v McAnulty [2011] 3 NZLR 192; [2011] NZCA 212 at [46], it was noted that “it requires some straining of the concept ‘regular’ to say it includes a single, isolated transaction”. The

court went on to say that (at [47]): “We doubt that that is what Parliament intended. It is clear that a course of business involving a series of leasing transactions will involve regular engagement in the business of leasing. We think it is equally clear that a single transaction in circumstances where it can be established that the transaction was a one-off would not be ‘regular’. Where a transaction was the first but has been followed by others, a good case can be made for the proposition that even the first was ‘regular’ because it was the start of the regular engagement in the business. That will be a factual issue in the particular case.” In the McAnulty case, the one-off transaction involved a bailment where an owners’ syndicate for a horse paid for agistment services for the horse. As that was the only bailment transaction involving the horse, and the syndicate paid for it (rather than the bailee paying for it), it could not be said that the syndicate was regularly engaged in the business of bailing or leasing the horse. See also, Hughes v Fea [2013] NZHC 2863 (one off leasing transaction did not make lessor regularly engaged in the business of leasing). It is for the party asserting that a PPS lease exists to put on evidence that the lessor was regularly engaged in the business of leasing (or bailing) goods: see Rabobank New Zealand Ltd v McAnulty [2011] 3 NZLR 192; [2011] NZCA 212; Air Liquide New Zealand Ltd v Supagas 2009 Ltd [2012] NZHC 2583. In Forge Group Power Pty Limited (In liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52, Hammerschlag J held that the phrase “regularly engaged in the business of leasing” was not confined to engaging in such conduct in the jurisdiction to which the PPSA applied (at [30]–[35]): “There are a number of considerations which, in my view, make it clear that s 13(2)(a) does not restrict business activity to be regarded to that which solely occurs within Australia. First, the plain words of s 13(2)(a) place no such geographic limitation or restriction on the activity to be assessed, and there is no warrant to read them as so doing: see Thompson v Goold & Co [1910] AC 409 at 420; Bermingham v Corrective Services Commissioner of NSW (1988) 15 NSWLR 292 at 302. Indeed, the general operation of the PPSA is not confined to goods or property in Australia. By s 6, it applies to a security interest in goods or financial property (even if they are outside Australia) if the grantor is an Australian entity. Secondly, the restriction would not serve the policy underlying the s 13(2)(a) exclusion. The evident (perhaps self-evident) purpose of the exclusion was referred to in the Review of the Personal Property Securities Act 2009 — Final Report (27 February 2015) commissioned by the AttorneyGeneral as required by s 343 of the PPSA, and tabled in Parliament on 18 March 2015, in the following terms: 4.3.5.7.1 … Any lease that satisfies the term requirements in s 13 has the capacity to mislead outsiders. It could also be unclear for such a lease whether it is also an in-substance security interest under s 12(1). The thinking behind s 13 accepts however that it would not be fair to impose the implications of s 13 and the Act on ad hoc lessors, and that it should only apply to lessors that are in the business of leasing and so should be expected to have investigated the content of the laws that affect their business, including the Act. There is no need in this context to limit the application of the section to leases of goods of the particular type that the lessor regularly leases out. A leasing transaction within Australia, by an entity regularly engaged in such business internationally, cannot fairly be described as ad hoc. Such an entity has no less an incentive to investigate local law requirements when it engages in business activity in this jurisdiction, than does an entity regularly carrying on such business only within Australia. Concomitantly, such an entity wishing to conduct business within Australia would not get the benefit of being able to register its lease. Thirdly, components of a transaction may involve cross-border activity. The limitation which the defendants suggest raises the uninviting spectre of lengthy and detailed examination of such activity in a quest to determine whether activity outside of Australia is part of carrying on business within it.”

In respect of the use of the term “regularly” and what constitutes “regularly” for the purposes of s 13(2)(a) of the PPSA, Hammerschlag J preferred the Canadian approach in David Morris to the New Zealand approach in Rabobank New Zealand in holding that (at [49]–[53]): “The word ‘regular’ can in one of its meanings connote periodic or a recurrence at fixed times. However it can also, and in this case in my view does, mean, as the Canadian authorities consider, normal, that is, not abnormal in the context of the lessor’s business, but a proper component of it: see Macquarie Concise Dictionary (4th ed 2006, Macquarie Dictionary Publishers Pty Ltd) at 1025. The New Zealand approach does not, I respectfully suggest, sufficiently recognise that the exclusion is directed to activity which constitutes engaging in the business of leasing, not to engaging in the activity of entering into leases. Engaging in the business of leasing is clearly a concept of wider reach than merely entering into leases. For example, a person who sets up a significant infrastructure, including, say, acquiring significant capital equipment for lease and then advertises its ability and willingness to lease that equipment would be engaged in the business of leasing, and may be doing so regularly, before any particular transaction is concluded and in my opinion, even if none ever is. In my opinion, the correct approach is to recognise that frequency or repetitiveness of transactions is a factor relevant to, and in an appropriate case may be the critical factor in, the assessment of whether the leasing business being engaged in is regular. But it is not to be equated with it, as the New Zealand approach appears to require. The New Zealand approach would not, incorrectly, in my opinion, permit a conclusion of regularity where an initial transaction was intended to be followed by others, but no more transactions of the type concerned actually eventuated, despite the best intentions, advertised willingness over a significant period of time and ability of the lessor to enter into more. In my opinion, in considering frequency or repetitiveness as an element of regularity of business, account may be taken of more than simply actual transactions entered into.” The decision of Hammerschlag J on this issue was not challenged on appeal: Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 93 NSWLR 765; [2017] NSWCA 8 which otherwise affirmed the primary judgment. If a business only occasionally does something, and that conduct is merely incidental to its business and is not part of its standard business model then it is less likely to be regularly engaged in the business of leasing or bailing goods: Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (in liq) (recs and mgrs apptd) [2017] FCA 1065. [13.5.4.2] Consumer property incidental to use of land: s 13(2)(c) As to the third exception with respect to the use and enjoyment of land — the PPSA does not apply to land and there is thus no reason why it should apply to goods related to the use and enjoyment of land where a security interest, pursuant to the s 12 “in substance” test, does not arise. The issue has been raised abroad with respect to land fixtures (See also, ALRC Report No. 64: 5.42–5.45). Pursuant to s 8(1) (j), the Australian PPSA does not apply to interests in fixtures. This picks up on an omission in the New Zealand PPSA to address fixtures and the law that applies in Australia for defining and dealing with fixtures is thus real property law. Once goods no longer constitute fixtures, that is, they have been removed from the land — a security interest arising over such goods will be governed by the PPSA. In determining whether or not a fixture should be removed from real property, the principles regarding removal of accessions under the PPSA (see Pt 3.3) will provide assistance. It is, however, worth reiterating that the PPSA is not applicable to real property interests and thus the law to be applied should be the law of real property. [13.5.4.3] Pooling arrangements: s 13(2)(d), reg 1.9 A “pooling arrangement” is one or more hire, lease or bailment arrangements in which interchangeable goods are pooled for collective use, passed between multiple users and equivalent goods can be ultimately returned in place of the original goods, in circumstances where none of the arrangements have the substantive effect of securing payment or performance of an obligation: Personal Property Securities Regulations 2010, reg 1.9(2).

An example of a pooling arrangement is the “lease and subsequent sub lease of pallets as part of the transportation of goods stored on the pallets”: Personal Property Securities Register, Fact Sheet, Leases and Bailments under the Personal Property Securities Act 2009 (Cth), p 1. [13.5.5] Bailments for value — s 13(3) The concept of a bailment was put simply by Windeyer J in Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 238, that is, “the delivery of goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be redelivered to the bailor or dealt with in a stipulated way”. Bailments can be granted for value or gratuitously and sub-bailments (where the bailee bails the goods to a subsequent bailee) can arise at common law: Mason v Westside Cemeteries Ltd (1996) 29 CCLT (2d) 125 at 135; Westpac Banking Corporation v Royal Tongan Airlines (1996) Aust Torts Reports ¶81-403.15 Section 13 will only apply to a bailment where the bailee provides value for possession of the underlying collateral. The term “value” means consideration that is sufficient to support a contract, including an antecedent debt or liability (see s 10). The rationale being that the form of the instrument is irrelevant, if a bailment extends beyond one year it carries characteristics of permanency in the same fashion as a longterm lease and thus the PPSA defines the arrangement as a PPS Lease and the Act applies. The value does need to be sufficiently certain so as to constitute valid consideration: Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (In liq) (rec and man apptd) [2017] FCA 1065. In the Bredenkamp case, the Court expressly did not discount the possibility of indirect consideration constituting value, but in that case, it was too remote to constitute value. Bailments provide an iconic example of how the PPSA differs from the common law “title based” system of priority. In the leading PPSA decision of the Saskatchewan Court of Appeal, International Harvester Credit Corp of Canada v Bell’s Dairy Ltd (Trustee of) (1986) 6 PPSAC 138; 30 DLR (4th) 387, the distinction was made out. The Court of Appeal analysed the application of the Act in the following way (at [19]–[22]): “[A]s a matter of common law, that under a contract of bailment the bailee derives a right to possession only, with title remaining in the bailor … The law has long been concerned with security transactions under which title to goods rests with one person (the true owner), while their possession is enjoyed by another (the ostensible owner). The potential for mischief in such arrangements is obvious … as a general rule the common law did not allow the lessor’s title to leased goods to be defeated through some dealing of the lessee. However, the Personal Property Security Act has effected far- reaching changes to the law. The object of this Act is to modernize and consolidate the law of personal property as security for debts. The scope of the statute includes all transactions, regardless of their form and irrespective of the intention of the parties, that either create or are deemed to create a security interest in personal property and fixtures. For the first time, both consignments of goods and true leases of goods are treated by the law as though the parties had intended the property to serve as security for the amounts owing by the consignee or lessee as the case may be. This is a singularly important departure from the law as it existed before this Act came into being.” In understanding bailments reference has also been made to their likeness to operating leases and the similarities between the two instruments persists under the PPSA: see Re Winnipeg Motor Express Inc (2009) 15 PPSAC (3d) 24; 56 CBR (5th) 265. One area where the concept of a “bailment for value” is of seminal importance (which, on the authors’ research, has not been the subject of any Australian authority) is the storage circumstance. Consider a scenario whereby Party A stores goods to the value of $100,000 with Party B on a week to week basis, namely, Party A continues to incur storage charges on a week to week basis unless and until the goods are removed from Party B’s storage facility. The question is, does this constitute or create a security interest for the purposes of the PPSA particularly in light of s 13(1)(b) and 12(3)? On a plain reading of the term “value”, there appears to be little reason why the above storage arrangement would not, at a minimum, constitute or fall within the scope of a bailment for an indefinite

period (within the meaning of s 13(1)(b) of the PPSA). If this is correct, does every party who stores goods with a storage provider need to perfect their security interest or face the potential for their property vesting in the storage facility pursuant to s 267 of the PPSA? In the authors’ view, the safe answer to this question is “yes”, if the PPSA applies, perfecting the resulting security interest in accordance with s 21 of the PPSA would avoid the operation of s 267. One argument against construing a storage arrangement as a “PPS lease”, an argument which has the support of the authors on the basis that it produces a commercially sensible result, is that a storage arrangement of the kind being considered here does not, absent more, constitute a “bailment for value” within the meaning of s 13(3) of the PPSA and therefore it is not a security interest which would otherwise need to be perfected by the party storing its goods. This is because in a traditional bailment for value, possession of the underlying collateral flows one way which payment or “value” flows the other way. In the above example, Party A would provide possession to Party B and Party B would pay Party A for that possession. Such is the case with an orthodox lease — the lessee is the one providing value to the lessor in exchange for possession. A storage scenario is fundamentally different in that possession and payment each flow in one direction. However, if storage does not involve any direct payment or benefit it may not be sufficiently certain to constitute value: Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (In liq) (rec and man apptd) [2017] FCA 1065. The inherent limitation of the above argument is that it is predicated on the basis that storing another’s goods is incapable of itself constituting “value” as that term is defined by s 10 of the PPSA. Respectfully, storing another’s goods needs to constitute no more than “consideration that is sufficient to support a contract” to meet the definition of “value” under s 10 of the PPSA. The authors are of the view that, on a plain reading, there is little room to construe the plain language of the definition of value so as to remove storage as a form of consideration — notwithstanding the commercially sensible result this construction would produce. As stated, the position remains unconsidered in Australian jurisprudence. [13.5.6] The Personal Property Securities Amendment (PPS Leases) Act 2017 On 19 May 2017, the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (the Amending Act) received royal assent. The Amending Act made two important changes to s 13 of the PPSA: 1. References to leases or bailments for “more than one year” changed to “more than 2 years”, and 2. The repeal of s 13(1)(b) of the PPSA replaced with an amendment to s 13(1)(d) to include consideration of an “indefinite term”. Put simply, rather than this consideration arising from the outset of the lease or bailment, as a matter of contractual construction, the consideration now only arises after the grantor has had two years of uninterrupted possession of the relevant collateral. Importantly, the amendments only apply to leases entered after the commencement of the Amending Act: See, Personal Property Securities Amendment (PPS Leases) Bill 2017 Explanatory Memorandum at Item 6. For this reason, in the authors’ view, an appreciation of s 13 without amendment will still likely be of significant value unless and until all leases or bailments being considered have been created after 19 May 2017. [13.6] Further reading • Explanatory Memorandum [2.140]. • ALRC Report No 64 [5.29–5.43]. • Whittaker Report [4.3], [4.5], [5.1], [6.2], [7.3], [8.7], [9.2]. • Douglas Baird and Thomas Jackson, “Possession and ownership: an examination of the scope of Article 9” (1983) 35 Stanford Law Review 175.

• Nicholas Mirzai, “The Personal Property Securities Act and commercial lease arrangements: A practitioner’s guide” (2011) 22 Journal of Banking and Finance Law and Practice 3. • Sheelagh McCracken, “Conceptualising the Rights of a Lessee under the Personal Property Securities Regime: the Challenge of ‘New Learning’ for Australian Lawyers” (2011) 34(2) UNSWLJ 547. Footnotes 15

See further, Neil Palmer, Palmer on Bailment (3rd ed, Sweet & Maxwell 2009).

¶14 SECTION 14 MEANING OF PURCHASE MONEY SECURITY INTEREST ¶1-075 SECTION 14 MEANING OF PURCHASE MONEY SECURITY INTEREST Text of s 14 [14.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 16(1)

Saskatchewan

PPSA 1993

s 2(1)(jj)

Ontario

PPSA 1990

s 1(1)

USA

UCC Article 9 (rev) § 9-103

[14.2] Outline Purchase money security interests present a special class of interest which rank in priority to perfected security interests and arise in particular circumstances. This “super” priority category is a creation unique to the PPSA and like other important concepts which are central to a proper understanding of the Act, is defined in its own section (unlike its foreign counterparts). As PMSIs relate primarily to the rules of perfection, priority and enforcement, they are largely irrelevant as between the secured party and the debtor regarding payment or performance of a primary obligation or obligations. Notwithstanding this fact, as many of the PPSA disputes concern priority contests with third parties, PMSIs have attracted considerable judicial and academic attention abroad. [14.3] Cross-references • Sections 62–65 provide priority rules for PMSIs. • Section 153 requires a financing statement to indicate whether the security interest is a PMSI. [14.4] Concepts The PMSI is a concept which derives from the PPSA, however, its definitional utility will be discussed in the balance of the commentary. Other concepts which arise in this section include: • Chattel paper This is defined by s 10. See further, s 12. • Commercial consignment This is defined by s 10. See further, s 12. • Intermediated security This is defined by s 10. See further, s 26. • Investment instrument This is defined by s 10. See further, [27.4], which discusses the meaning of “investment instrument” as part of the commentary on s 27 (Control of Investment Instruments). • Monetary obligation This is not specifically defined in the PPSA. However, an account is defined as a monetary obligation (whether or not earned by performance) arising from disposing of property, granting a right or providing a service in the ordinary course of granting rights or providing services of that kind. The term monetary obligation seems to refer to the concept of a debt although as a matter of statutory

construction the terms surrounding it are all forms of instruments (either physical or electronic in nature). Viewed in that context it may be possible to consider a monetary obligation as referring to a written undertaking to pay a sum of money such as a promissory note-however that is already caught by the term negotiable instrument; or a debenture-but that is already caught by the term investment instrument. A letter of credit is also caught by the definition of a negotiable instrument. In the authors’ view, a monetary obligation will include an account (as the former is part of the definition of the latter) but not every monetary obligation will necessarily be an account as the monetary obligation may arise otherwise than from disposing of property or granting a right or providing a service in the ordinary course of a business of granting rights or providing services of that kind. Monetary obligation was defined by the New Zealand Court of Appeal in Strategic Finance Ltd v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357. The Court explained the concept as follows (at [55]–[57]): “‘monetary obligation’ in the context of the PPSA means an existing obligation imposed on, or assumed by, one party to pay a certain sum of money to the other party on a specific or ascertainable future date. An obligation of this nature will involve an existing liability on the part of the first party which is legally enforceable by the second party … When ‘monetary’ and ‘obligation’ are read together, it is also clear that the liability must be to pay an identifiable sum on an ascertainable date. This will include a claim of that nature based on debt statute or money had and received. A possible liability to pay an unidentifiable sum at an unascertainable future date will not suffice”. The approach in Strategic Finance was applied in Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163, the Court of Appeal held that the obligation to repay money under performance guarantee that had been improperly called upon would be a monetary obligation and an account under the PPSA. • Negotiable instrument This is defined by s 10. See further, s 29. • Predominantly for personal, domestic or household use This is defined by s 10. See further, [47.5]. • Renewed, Refinanced, Consolidated or Restructured This is discussed below at [14.5.7]. • Sale and lease back This is discussed below at [14.5.3]. • Serial numbered property This is discussed below in [14.5.4]. See further, s 153. • Value This is defined in s 10. See also, Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 (Sask CA) (approval of loan constituted value even where funds not provided until after the purchase which used interim bridging finance PMSI still recognised). See further, [19.5.2]ff. [14.5] Commentary [14.5.1] Rationale ....................................XX [14.5.2] Definition — s 14(1) ....................................XX [14.5.2.1] All or part of the purchase price — the substantive test ....................................XX

[14.5.2.2] Value to acquire rights ....................................XX [14.5.2.3] Lessors and bailors of PPS leases — s 14(1)(c) ....................................XX [14.5.2.4] Commercial consignments — s 14(1)(d) ....................................XX [14.5.3] Exceptions — s 14(2) ....................................XX [14.5.3.1] Sale and lease backs — s 14(2)(a) ....................................XX [14.5.3.2] Chattel paper, investment instruments, intermediated securities, monetary obligations and negotiable instruments — s 14(2)(b) ....................................XX [14.5.3.3] Predominately for personal, domestic or household use — s 14(2)(c) ....................................XX [14.5.4] Exceptions to the exception — serial numbered collateral — s 14(2A) ....................................XX [14.5.5] PMSI secures only purchase money obligations — s 14(3).................................... XX [14.5.6] Collateral covered — s 14(4).................................... XX [14.5.7] Refinancing, renewing, consolidating and restructuring — s 14(5).................................... XX [14.5.8] Determining which obligations are satisfied and in what order — s 14(6).................................... XX [14.5.9] Purchase money obligations — s 14(7)....................................XX [14.5.10] Purchase price and value — s 14(8).................................... XX [14.5.1] Rationale A PMSI is defined by s 14(1) of the PPSA subject to the exceptions in s 14(2). It arises as a statutory construct under the PPSA due to the potentially inherent unfairness of the default priority regime in certain circumstances to which we now turn. As Professor Goode notes:16 “What establishes the priority for the purchase-money security interest is … the inequity that would result in allowing the prior chargee a windfall increase in his security brought about not with the debtor’s money or new funds injected by the prior chargee but with the financing provided by the later incumbrancer.” As a starting proposition, if the grantor already owns the collateral that it seeks to confer a security interest over, then no PMSI can arise: North Platte State Bank v Production Credit Association of North Platte (1972) 200 NW 2d 1 (Neb SC). However, if the grantor is merely testing out the property in order to determine whether or not they want to purchase it with the loan funds then a loan made to allow them to subsequently purchase the property can still be a PMSI: Re Hooks (1984) 40 BR 715 (Bankr Ct MD Georgia). Take the following example:

Grantor A secures funds borrowed from Secured Party B who takes an “all present and afteracquired property” security interest over Grantor A’s personal property. Secured Party B perfects their interest by registration. Subsequent to the interest becoming perfected, Creditor C leases goods to Grantor A and perfects a security interest over such goods. Grantor A defaults and both Secured Party B and Creditor C seek to enforce their security interest.

Under the default priority rules (see s 55), Secured Party B prevails against Creditor C as they perfected their interest first in time. Despite Creditor C’s prudence in perfecting their interest, and despite being the holder of good title, pursuant to the default priority rules, Creditor C can never prevail against Secured Party B’s interest who will always be perfected first in time. In the absence of the PMSI construct, any grantor who has subjected their personal property to an “all present and after-acquired property” security interest could never convey separate perfected interest to other parties but for the secured party expressly agreeing to subordinate its general security interest in favour of the new secured party. Put simply, were there no PMSI construct, there would be a substantial alteration in commercial dealings which have become commonplace in Australia and this would, among other things, be inconsistent with the overarching objectives of the PPSA. The essential effect of the PMSI super priority is therefore the alteration of the default priority rules pursuant to Pt 2.6. The fundamental rule is that a PMSI perfected later in time prevails over an earlier perfected security interest that is not a PMSI (see s 62–65). As the decision in Re Hickman Equipment (1985) Ltd (2004) 7 PPSAC (3d) 56; 239 Nfld & PEIR 312 (N&L CA) at [25] (sub nom Canadian Imperial Bank of Commerce v John Deere Ltd) noted: “With the coming into force of the PPSA, new means were established to secure priority over other interests. In particular … holders of a purchase money security interest can perfect that interest by registration and thereby achieve ‘super priority’, including priority over holders of charges such as that under the GSA.” Further, in Re DCD Industries (1995) Ltd (2005) 7 PPSAC (3d) 251, 253 DLR (4th) 171 at [9] (sub-nom Kubota Canada Ltd v Case Credit Ltd), the Alberta Court of Appeal stated: “vendors remain prepared to sell inventory and equipment to a business which has granted a general security agreement, because the business is nonetheless able to grant priority to those vendors in relation to the goods which are the subject of the sale. The lender holding the general security agreement is not able to assert priority over the vendor, even though the wording of that agreement purports to grant priority to the lender over all after-acquired property”. Where a PMSI is unperfected however, and in the absence of express subordination with the first-ranking secured party, the PMSI will not receive priority to a perfected security interest (see s 62 for more detail): See also, Re DCD Industries (1995) Ltd (2005) 7 PPSAC (3d) 251 (Alta CA). The carve-out for express subordination is important to recognise as the PMSI operates to effectively provide the same effect as express subordination. For a discussion on the effects of subordination agreements generally under the PPSA see [12.5.6]. [14.5.2] Definition — s 14(1) A PMSI may arise in four ways under the PPSA pursuant to s 14(1): • subsections 14(1)(a) and (b) require a substantive assessment of the underlying transaction; and • subsections 14(1)(c) and (d) by virtue of the deemed security interest provisions. A PMSI can be created where a creditor provides funds that enable an existing debt covered by a PMSI to be bought out: Battlefords Credit Union Ltd v Ilnicki (1991) 82 DLR (4th) 69; 93 Sask R 7 (Sask CA). Of course, merely providing funds that happen to be used to pay out an existing secured loan will not (of itself) create a PMSI: Unger v Royal Bank of Canada (1983) 30 Sask R 183; 51 CBR (NS) 145 (Sask QB). In this regard, the party asserting that a PMSI arises is required to provide that such funds were provided for the exact purpose of giving rise to a PMSI and those funds, as a matter of fact, were applied by the grantor for that purpose. A PMSI may form part of a broader security facility as part of a general security agreement which covers all current and future property of the grantor: Re Paradise Valley Marine Ltd (1997) 7 CBR (4th) 252 (BC SC). The PMSI super priority will only apply to the extent that the security interest qualifies as a PMSI.

As a PMSI is concerned with the priority position of the relevant interest, no particular words are required in the security agreement in order to create a PMSI. Further, the words used by the parties are not conclusive of PMSI status as it is the substance of the arrangement which must fit within the statutory definition: See, Instant Auto Loans Inc v Spak (2000) 15 PPSAC (2d) 287 at [15] (BC SC); Money in a Minute Auto Loans Ltd v Price (2002) 4 PPSAC (3d) 99 (BC SC); Royal Bank v Moosomin Credit Union (2003) 7 PPSAC (3d) 118; 241 Sask R 1 (Sask CA). [14.5.2.1] All or part of the purchase price — the substantive test Section 14(1)(a) refers, essentially, to the provision of personal property on credit terms. Under such circumstances, the Grantor would not obtain a proprietary interest (typically possession) in the relevant property “but for” the provision of the property from the creditor. As title is irrelevant for the purposes of the PPSA, the supplier is recognised as the secured party with a PMSI over the relevant collateral. This is the nature of the substantive test. Take the above example reiterated here for convenience:

Grantor A secures funds borrowed from Secured Party B who takes an “all present and afteracquired property” security interest over Grantor A’s personal property. Secured Party B perfects their interest by registration. Subsequent to the interest becoming perfected, Creditor C leases goods to Grantor A and perfects a security interest over such goods. Grantor A defaults and both Secured Party B and Creditor C seek to enforce their security interest.

Applying the substantive test, it can be said that “but for” the provision of the leased goods from Creditor C, Grantor A would never have obtained proprietary rights in the relevant collateral capable of attaching Secured Party B’s secured interest. Put simply, Secured Party B requires the provision of the property from Creditor C before they have any interest such property at all. The costs of insurance and obtaining an extended warranty on property are not part of the purchase price and hence do not come within the scope of the PMSI: Re White (2006) 352 BR 633 (Bankr Ct ED Louisiana). [14.5.2.2] Value to acquire rights A similar “but for” test is applied pursuant to s 14(1)(b), that is, but for the value supplied by the secured party, the grantor would not be able to acquire proprietary rights in the underlying collateral. The PMSI status thus extends not only to particular personal property which forms the subject of a security agreement but also to any funds used to acquire such property for this purpose. Of course, a PMSI only arises where it can be shown that the value was provided to go towards acquiring rights in the specified collateral and that the value actually does go toward this purpose. As the US Court of Appeals for the 3rd Circuit said in Pristas v Landaus of Plymouth Inc (1984) 742 F2d 797 at 800: a “purchase-money security interest exists if the collateral is the item purchased and it secures its own price”. Mere intention and authorisation is not sufficient. Where the funds are misappropriated, the secured party will not benefit from a PMSI, if any security interest were to arise at all. The best way to overcome this in a practical sense, in the authors’ view, is to provide funds directly to the vendor of the relevant goods with whom the relevant collateral lies. The situation is much like a mortgage over real property, the funds typically flow from the mortgagee/bank directly to the vendor and never pass through the mortgagor. In the Saskatchewan Court of Queen’s Bench decision, Farm Credit Corp v Valley Beef Producers Cooperative Ltd (2001) 3 PPSAC (3d) 23; 211 Sask R 222, money was leant by a secured party for the purpose of providing the purchase price for particular cattle. The court held that this constituted a PMSI and the secured party retained priority with respect to the proceeds of sale of the cattle (for a discussion of how proceeds are treated under the PPSA see Pt 2.4, Div 2). While the judgment went on appeal, the appeal did not raise issues concerning the characterisation of the PMSI: Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2002) 5 PPSAC (3d) 1; 218 DLR (4th) 86.

The creation of a PMSI was approved in Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 (Sask CA) even where the debtor had obtained interim bridging finance to acquire the collateral. See also, the decision of the Privy Council upholding the abovementioned decision in Federal Republic of Brazil v Durant International Corporation [2015] UKPC 35 (particularly at [37]). In StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd [2020] NSWSC 318, Parker J considered the concept of “value” within the meaning of ss 14(1)(b) of the PPSA and held that (at [128]– [131]): “But although an undertaking to meet the costs of maintaining the cattle was part of the consideration provided by DLS, that does not necessarily mean that it satisfied s 14(1)(b). In my opinion the natural meaning of “to enable the grantor to acquire” collateral is to provide financial means to the grantor sufficient for the grantor to carry out the acquisition. On this view the “value” which is supplied is money or some other benefit which is capable of being applied to the acquisition. It does not include every obligation that the lender undertakes to the grantor which constitutes valuable consideration under the law of contract. In applying s 14(1)(b) it is important to bear in mind exactly what DLS’ obligation was. DLS was undertaking to meet maintenance costs. But there was no obligation on Reid Agricultural to fund such costs through DLS; it was open to Reid to fund them in some other way if it chose (on the evidence, Mr Reid undertook some of the transport of the cattle himself (presumably to have money). DLS’ obligation under the Maintenance Agreement was to meet maintenance costs if called upon to do so. In my view DLS’ undertaking in the Maintenance Agreement to fund the maintenance of the cattle was not the provision of “value” enabling Reid to acquire the cattle. The undertaking in no way helped Reid to pay the purchase costs. Reid was not even obliged, by entering into the Agreement, to use DLS’ funding to maintain the cattle after purchase. It also must be remembered that it is not enough for value to be provided by the lender which enables the collateral to be acquired. That value must actually be applied to the acquisition of the collateral.” Parker J stated further (at [137]): “Because of the way subs (1) is framed, for a lender to obtain a PMSI requires that the lender fund the initial acquisition of the collateral. A lender who only funds the later use of the collateral cannot obtain PMSI protection. But on a literal reading of paragraph (7)(b), a lender who initially obtains a PMSI by funding the acquisition of collateral may be able to tack onto the PMSI purchase money obligations attributable to the ‘use’ of that collateral.” [14.5.2.3] Lessors and bailors of PPS leases — s 14(1)(c) PPS leases are defined extensively under s 13 (see s 13). By virtue, interests arising from PPS leases are PMSIs. This is because a lessor or bailor effectively arms the debtor with a proprietary interest in the underlying collateral, namely possession, without which any other security interest over that particular collateral cannot attach and thus cannot be perfected (for more information on perfection particulars see s 21). [14.5.2.4] Commercial consignments — s 14(1)(d) Commercial consignments are discussed under s 12(3) (see s 12). Like PPS leases, by virtue of the instrument itself, commercial consignments constitute purchase money security interests (PMSIs). [14.5.3] Exceptions — s 14(2) Due to the super priority status afforded by purchase money security interests (PMSIs) it is important to understand the scope of the provisions to prevent rogue use of this unique priority class. The exceptions contained in s 14(2) are designed to prevent attempts at utilising PMSI priority where the underlying interest is not a PMSI. [14.5.3.1] Sale and lease backs — s 14(2)(a) The term “sale and lease back” refers to transactions that are typically financing arrangements. The

original seller (often the owner of the collateral — although not necessarily always the case) requires funds however does not wish to sell the collateral outright as the property retains utility to them. The property is thus sold and leased back from the purchaser (who provides the purchase price) often with an intention to repurchase — again however this is not necessary and a sale and lease back arrangement can arise where no binding option to purchase is provided. While this relationship creates a security interest in substance, pursuant to s 12(1), it was not characterised as such under pre-PPSA law which had many priority and taxation ramifications: See further, Margaret Young, “Floating charge restrictive clauses and unsecured negative pledge covenants in Australian corporate debt financing” (1999) 10 JBFLP 205. This type of agreement raises finance without losing possession of the underlying collateral. One of the reasons this is not characterised as a PMSI is that it does not enhance the assets of the debtor. The justification for recognising PMSI priority over existing general security agreements is to reward a creditor who facilitates the debtor acquiring further assets: Wheatland Industries (1990) Ltd v Baschuk (1994) 8 PPSAC (2d) 247; 127 Sask R 178 (Sask QB). See also, Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112; 43 BLR (2d) 226 (appeal dismissed (2000) 15 PPSAC (2d) 95), which considered the issue of proceeds of a PMSI. The Australian PPSA makes it clear that sale and lease back agreements cannot constitute PMSIs. For a discussion of the difference between a repurchase arrangement and a secured loan see: In re Palmdale Hills Property LLC (2011) 457 BR 29 (US Bankr Appeal Panel 9th Circ). [14.5.3.2] Chattel paper, investment instruments, intermediated securities, monetary obligations and negotiable instruments — s 14(2)(b) As a collective class, this exception can be understood as the non-application of the PMSI priority status to “documentary” type property or rights arising from such documents in a commercial sense. The rationale here is again to protect the integrity and operation of such instruments in accordance with principles of commercial practicality. The Australian provisions are not unlike their foreign counterparts in this regard. [14.5.3.3] Predominately for personal, domestic or household use — s 14(2)(c) The terms “predominately for personal, domestic or household use” arise several times throughout the PPSA. The terms are defined under s 10 of the Act (see s 10) and derive from Australia’s consumer protection legislation — Sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law), formerly the Trade Practices Act 1974 (Cth) and associated state Fair Trading statutes. The terms have no precise equivalent in foreign PPS regimes. For more information on what constitutes predominately personal, domestic or household use see s 47. While property predominately used in a personal, domestic or household fashion is commonly regarded as synonymous with “consumer” property, this is not technically accurate in the PPSA context. The difference is important with respect to purchase money security interests (PMSIs). Under the PPSA, property must first be defined as personal property or land. Once property is characterised as “personal” it can be further identified as “consumer” or “commercial” property. “Consumer” property in this sense is a broad classification and encompasses more than what is recognised by the PPSA as property predominately acquired for personal, domestic or household use. The reverse, however, is true, that is, property predominately acquired for personal, domestic or household use constitutes consumer property for the purposes of the PPSA. The “predominance” test or classification should thus be thought of as a sub-set or sub-class of the broader “consumer property” classification. A PMSI therefore cannot arise over property acquired predominately for personal, domestic or household use, however can arise over all remaining property which forms part of the category of “consumer” property (See also, [47.5]). [14.5.4] Exceptions to the exception — serial numbered collateral — s 14(2A) Unlike the majority of the PPSA provisions (which aim to be somewhat intuitive) s 14(2A) appears, prima facie, to be an over complication of a relatively simple point. The essence of the section is to exclude from the general exception for property predominately acquired for personal, domestic or household use — property that may or must be described by serial number. Serial numbers are an important part of the PPSA, as will be seen when discussing the registration requirements in particular (see s 153). With registration being the most popular method of perfection under the PPSA and registration being an

essential element of the PMSI super-priority under s 62, the iterative detail of s 14(2A) is potentially justified to prevent participants from misinterpretation. The term “serial number” is defined under s 10 (also s 44). In order to identify what type of personal property attracts consideration of serial number description the Regulations must also be consulted. The Personal Property Securities Regulations 2010 (Cth) Sch 1, reg 2.2(1)(a) prescribes that aircraft, intangible property (namely specific types of intellectual property), motor vehicles and watercraft may or must be described by serial number depending on the nature for which these goods were acquired. If acquired for consumer purposes, the property must be described by serial number and if acquired for commercial purposes the property may be described by serial number. The flexibility in the severity of the requirement is arguably arbitrary, however, for the purposes of s 14(2A) these considerations are largely irrelevant (for further discussion see s 44). It is difficult to see how any of the prescribed collateral classes can be used predominately for personal, domestic or household use to which the exception under s 14(2A) applies, except for motor vehicles. While the regulations are subject to change, PMSIs can thus, at present, be taken over motor vehicles irrespective of the purpose for which they are acquired. The superior priority as between secured parties conferred by the PMSI must, however, be considered in light of the “taking free” or “extinguishment” provisions of the PPSA pursuant to Pt 2.5 — of which all security interests exist subject to. Section 45 specifically discusses the taking free provisions with respect to motor vehicles and thus the exception provided for by s 14(2A) is limited in the authors’ view (see s 45 for further information). [14.5.5] PMSI secures only purchase money obligations — s 14(3) Different obligations may arise under the same security agreement and similarly different security interests may apply to the same collateral (which is how priority disputes arise in the first place). A PMSI, however, will only apply to property securing the purchase money itself and not other monies. Once this money is repaid the PMSI is equally extinguished (this point is further discussed at 14.5.6). Take the following example:

Debtor A wishes to borrow money from Secured Party B. Secured Party B lends one aggregate sum to Debtor A, however, this sum comprises two separate purposes as stipulated by the security agreement, that is, the money has a specific direction with respect to purchasing particular goods and the balance of the money leant is on general terms. Debtor A uses the funds advanced for the purposes described. The direct purpose funds are used to purchase goods subject to an “all present and after-acquired property” security interest, perfected earlier in time and held by Creditor C. Creditors D, E and F hold different interests against Debtor A for various items of property (acquired with use of the general funds). Secured Party B, recognising the PMSI interest arising with respect to the claim against Creditor C registers a financing statement and indicates that the entire sum leant is under PMSI conditions. Debtor A subsequently defaults and Secured Party B seeks to enforce their perfected PMSI against all creditors.

Pursuant to s 14(3), Secured Party B holds a PMSI only with respect to goods held by Debtor A over which Creditor C has an interest. Secured Party B thus holds, at best, a mere security interest with respect to claims against Creditors D, E and F. The interest is tentative as Secured Party B’s registered financing statement may be held to contain a seriously misleading defect by indicating that it is a PMSI when the interest is in fact only a PMSI with respect to funds lent for the specific purpose (for more information on seriously misleading defects see s 164–166). The convenience of registering one financing statement to encompass multiple security interests should thus, in the authors’ view, be preserved for like interests, that is, one financing statement should be lodged or registered for all security interests and a separate financing statement for all PMSIs. While this may increase the cost of compliance it avoids this issue arising. Further, as a matter of pragmatism, the PPSR is not equipped to facilitate a single registration which indicates that the underlying security interest is both a PMSI and a non-PMSI. A similar issue has arisen

with respect to interests that are transitional attempting to be coupled with interests that are not transitional (namely, arising after the commencement of the PPSA). In the authors’ view, there is some force to the argument that it is seriously misleading (see s 164) to describe an interest as a PMSI when it is a mere security interest. It is also a defined fatal defect if this occurs (see s 165(c)). For this reason, commercial parties or their legal advisors should be careful when considering the question of whether or not any/all of the collateral securing payment or performance of an obligation constitutes a PMSI. [14.5.6] Collateral covered — s 14(4) In reference to the example in [14.5.5], the scope of the PMSI additionally only attaches to the amount secured for that particular purpose. If Secured Party B lent $500,000 in total to Debtor A, with only $50,000 secured by way of a PMSI, in a priority dispute between Creditor C and Secured Party B, pursuant to s 14(4) the PMSI would only operate with respect to the collateral purchased for the $50,000 and indeed may be an amount less than $50,000 (taking into account depreciation, amortisation etc). For more information, see s 62. [14.5.7] Refinancing, renewing, consolidating and restructuring — s 14(5) A PMSI ceases to be effective when the underlying obligation over which the PMSI has been taken is satisfied in full. While the terms “refinancing,” “renewing”, “consolidating” and “restructuring” are not defined by the PPSA the priority afforded by the PMSI is not dependent on the holder of the interest and thus methods used in achieving a refinancing are largely irrelevant. Rights under a PMSI are duly transferable and will be effective in accordance with the register such that lodging a financing change statement may be a necessary course to amending the existing register entry (that is, by way of substituting secured parties — See further, at s 150). Additionally, in order to obtain the benefit of the earlier registration date it is worth assigning or transferring an existing PMSI as opposed to creating and registering a new security interest. [14.5.8] Determining which obligations are satisfied and in what order — s 14(6) By default, where there are multiple obligations owing by a debtor to a creditor in various capacities (including on an unsecured, secured or PMSI basis), pursuant to s 14(6), the debtor satisfies the unsecured obligations first, followed by the secured obligations and finally the PMSI obligations last. This can be illustrated by way of example.

Assume Secured Party A agrees to lend $100,000 to Grantor B. As part of the security agreement it is expressly stipulated that $50,000 will go towards the acquisition of inventory, $30,000 will be perfected by Grantor B’s general pool of personal property and $20,000 will be unsecured. Grantor B repays $60,000 before defaulting. In the absense of an express intention as to which obligation is paid in what order, Grantor B satisfies the $20,000 unsecured debt first, the $30,000 secured debt second and only $10,000 towards the PMSI debt over inventory. Secured Party A can thus enforce their PMSI against the inventory.

This default position is, however, subject to the intentions of the debtor and not the secured party absent any express terms upon which the parties agree. In the preparation of a security agreement where the potential for multiple obligations arise, the authors’ thus advise the inclusion of an express provision stipulating the order in which the obligations are satisfied. This subsection sets out the order in which obligations are to be satisfied where there are both PMSI and non-PMSI interests in the collateral. This issue was considered in the Canadian case of Nicholson Leasing 1994 Ltd v Saskatchewan Government Growth Fund II Ltd (1999) 14 PPSAC (2d) 285 (Alta QB). In Nicholson Leasing, assets were purchased from a creditor under what was perceived to be a PMSI. The debtor was advised by the creditor that a certain obligation was outstanding and the debtor proceeded to satisfy the obligation owing. There was an express understanding that the registrations

would discharge upon receipt of the funds. The creditor subsequently found GST amounts owing in addition to the outstanding amount quoted and refused to discharge the obligation. The creditor sought to attach PMSI status to the GST owing. The Court held, with the satisfaction of the debt in full, no additional obligation was owing and in any event that the PMSI provisions would not come to the aid of the creditor should a priority dispute arise. The position in Australia should follow the same course. The authors thus advise that secured parties holistically appreciate the nature of the obligations owing under a PMSI. Over the course of the transitional period, there have been a series of questions as to whether or not standard terms of trade dictate the order in which payments are made. For example, if a part payment is made with respect to a secured party who holds a PMSI and an AllPAP security interest’’ which obligations are satisfied first? The PPSA position is clear, but the contractual position — namely, the intention of the order of payments between the parties, is not. For example, if a payment is made pursuant to an invoice rendered, and that payment is referable by some invoice identifier, then can it be said that the payment was first made with respect to the ALLPAP? By reference to s 14(6), the answer would be yes. However, while it is not conclusive, and there has been no Australian case law to test the point, there is some force to the argument, in the authors’ view, that any payment made pursuant to an invoice satisfies that particular invoice and any security interest — be it a PMSI or otherwise — attaching to such obligations is extinguished. Any general monies owing between debtor and creditor (perhaps for other invoices or for the provision of property or monies generally), and any security interest(s) attaching to such monies, continue without being affected by the payment of the invoice. [14.5.9] Purchase money obligations — s 14(7) The term “purchase money obligations” has been used in discussing the existence of a PMSI throughout this commentary. Section 14(7) explicitly defines the concept in the nature discussed, that is, the PMSI only exists insofar as the obligations owing are “purchase money obligations”. Collateral or ancillary obligations flowing from the primary right, such as maintenance and reasonable repair costs perhaps not encompassed in the original security agreement, should therefore be duly considered when creating a PMSI. It is also important to recognise that the value of the collateral securing the obligation need not directly correlate with the funds advanced at the time the PMSI is created (and indeed this will often be the case). The PMSI attaches to particular collateral, not to the value of the obligation itself however the PMSI survives and bestows priority on the holder unless and until the entire obligation is satisfied by the debtor. The following example illustrates this point:

Debtor A borrows $100,000 from Secured Party B. Debtor A purchases a $100,000 motor vehicle in accordance with the purpose of the security agreement and a PMSI is duly perfected by registration. The motor vehicle depreciates over time to $50,000 and the debtor defaults on the advance with $80,000 still owing.

In these circumstances, Secured Party B cannot rely on their PMSI status to receive more than the value of the underlying collateral, that is, the $50,000, even where Debtor A has property in excess of the collateral. At the same time, however, Debtor A cannot argue that because the collateral is only worth $50,000 that their obligation to Secured Party B should be reduced to this amount. In such circumstances, Secured Party B retains a right in personam (against the person) against Debtor A for the shortfall. If a surplus were to arise upon enforcement of the security interest, the surplus is also to flow back to the debtor unless otherwise specified by the security agreement. [14.5.10] Purchase price and value — s 14(8) The term “purchase price” is not defined under the PPSA, however, it is used synonymously with the term “value” pursuant to s 14(8). The term “value” is defined under s 10, however, specific reference is made to a modified definition pursuant to s 14 (see section (c) of the definition at s 10). Value, in the general sense, refers to consideration that is capable of supporting a contract. For the purposes of the PPSA, this

refers to consideration which facilitates the creation of a valid security agreement. There is little mysticism to the term and indeed the concept of consideration under general contract law principles should apply. Value, pursuant to s 14(8), also includes credit charges and interest payable on the PMSI. The PMSI, thus, not only attaches to the primary obligation but further to any credit charges or interest on the primary obligation. The following example illustrates how this provision works:

Debtor A borrows $10,000 from Secured Party B in order to purchase specific goods. The goods are purchased for the purpose described in the security agreement and Secured Party B perfects their PMSI. Debtor A repays $8,000, however, defaults before the remaining $2,000 is paid. Debtor A has also granted a security interest perfected prior to Secured Party B’s interest over “all present and after-acquired property” — the benefit of which is held by Creditor C. Secured Party B and Creditor C seek to enforce their interests. Credit charges and interest payable to date on Secured Party B’s advance add up to $700. Secured Party B seizes and sells the collateral for $3000. Creditor C’s claim at the time of seizure and sale amounts to $2,000.

Pursuant to s 14(8), Secured Party B recovers $2,700 in priority to Creditor C’s claim for $2,000. In the absence of this provision, Secured Party B would recover $2,000 in priority, however, would be forced to rely on the default priority rules with respect to further credit charges and interest payable. Creditor C would prevail in this regard with a “first in time” security interest (see s 55 for more information on priorities). [14.6] Further reading • Explanatory Memorandum [2.140, 2.145–2.149]. • ALRC Report No 64 [7.2–7.6]. • Whittaker Report [7.7]. • Adrian Drinkwater, “The rise and fall of purchase money security interests at general law and under Article 9 regimes” (2010) 21 Journal of Banking and Finance Law and Practice 5. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645. • Sheelagh McCracken, “Conceptualising the Rights of a Lessee under the Personal Property Securities Regime: the Challenge of ‘New Learning’ for Australian Lawyers” (2011) 34(2) UNSWLJ 547. • Bruce Whittaker, “Retention of title clauses under the PPSA” (2010) 21 Journal of Banking and Finance Law and Practice 273. Footnotes 16

Gullifer L (ed), Goode on Legal Problems of Credit and Security, 4th ed, 2008, Sweet and Maxwell at [5–63].

¶15 SECTION 15 MEANING OF INTERMEDIATED SECURITY AND RELATED TERMS ¶1-080 SECTION 15 MEANING OF INTERMEDIATED SECURITY AND RELATED TERMS Text of s 15 [15.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 16

Saskatchewan

PPSA 1993

s 2(1) (See also, the Securities Transfer Act 2007)

Ontario

PPSA 1990

s 1(1) (See also, the Securities Transfer Act 2006)

USA

UCC Article 9 (rev)

§ 9-102 (See also, UCC Art 8)

[15.2] Outline The PPSA applies to security interests taken over intermediated securities as collateral where the intermediary or the grantor are located in Australia: s 6(1A). There are various specific rules in the PPSA that apply to security interests in intermediated securities which are outlined below, under the heading “Cross-references”. [15.3] Cross-references • Section 14(2)(b) provides that a PMSI cannot be taken over intermediated securities. See [14.5.2.1]ff. • Section 26 provides the rules for taking control of intermediated securities. • Section 31 provides specific rules related to the identification of proceeds generated by dealings in intermediated securities. • Section 49 and 51 provide specific taking free rules for intermediated securities. • Section 109(3)(b) provides that the enforcement rules in Ch 4 do not generally apply to security interests in intermediated securities where the secured party has perfected their interest by control over the collateral. • Personal Property Securities Regulations 2010 Sch 1 item 2.1 states that intermediated securities are classified as financial property for the purposes of information required to be included in a financing statement. [15.4] Concepts • Financial products This central concept is discussed at [15.5.3]. • Intermediated security This is defined under s 15(1) as the rights of a person in whose name an intermediary maintains a securities account. • Intermediary This is defined under s 15(2) and is discussed below at [15.5.2].

• Securities account This is defined under s 15(7). The term “account” has a specific meaning for the purposes of the PPSA and is defined by s 10. This definition would however severely limit the application of s 15 and it seems likely that the term account in relation to securities accounts is meant to have its general meaning. [15.5] Commentary [15.5.1] Introduction....................................XX [15.5.2] Intermediary — s 15(2)....................................XX [15.5.3] Financial products....................................XX [15.5.4] Particular issues for intermediated securities....................................XX [15.5.1] Introduction Section 15 is a definitional provision which involves several important concepts that are discussed below. The statutory regimes for defining intermediated securities and then taking security interests in them in New Zealand, Canada and the United States is different from the Australian PPSA so the foreign cases are unlikely to provide much direct guidance. [15.5.2] Intermediary — s 15(2) The main concept under s 15 is that of an intermediary in relation to intermediated securities. An intermediary is defined in s 15(2) as an Australian financial services licence (AFSL) holder who is permitted by the AFSL to maintain securities accounts on behalf of others (or a person authorised under foreign law to maintain securities accounts) or a clearing and settlement facility with a Clearing and settlement (CS) facility license (other than a person prescribed by the regulations. At the time of writing there were no persons prescribed). The application of s 15(2) to licensed CS facilities would bring Austraclear and the Australian Securities Exchange (ASX) Settlement and Transfer Corporation within the scope of the provision. Amendments were made in 2011 to clarify that s 15(2) is intended to apply to the ASX Settlement and Transfer Corporation Pty Ltd (ASTC): see the Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) at [24]–[26]. Section 15(3) excludes a central bank from being an intermediary. Section 15(5) and (6) clarify the extent of the concept of an intermediary. The temporal requirement in s 15(4) should also be noted. [15.5.3] Financial products The term “financial products” has a specific meaning under the PPSA. For investment instruments (see [27.5]; s 10 and reg 1.10) it has the same meaning as in the Corporations Act 2001 (Cth) (see Pt 7.1 Div 3 of that Act). For intermediated securities however s 10 of the PPSA defines financial products as shares, bonds and any other financial instruments or financial assets (and any interests in those classes) other than cash. This definition was included to ensure consistency with the UNIDROIT Convention on Substantive Rule for Intermediated Securities (2009). The phrase “other financial instruments or other financial assets” is unclear. At its broadest it could include a large range of investment instruments. However, the definition of investment instrument in s 10 specifically excludes intermediated securities. The definitions for both “securities account” and “investment instruments” include a reference to “financial products” and both the Corporations Act 2001 (Cth) definition and the PPSA definition (for purposes other than investment instruments) include references to shares. The definition of financial products in s 10 of the PPSA also includes bonds. Bonds issued by governments or government instrumentalities are included as financial products for the purposes of the Corporations Act (s 764A of that Act). However, given the categories of “any other financial instrument” and “any other financial asset” in the s 10 definition of financial product in the PPSA (which applies for any purpose other than for investment instruments) it would seem that the use of the term “bonds” without the limitation to government securities as used in the Corporations Act refers to the

general use of the term as simply meaning debt instruments. If this is correct then the term “bonds” when used as a category of financial products includes debentures (ie bonds issued by corporations). This is consistent with the UNIDROIT convention which uses the term bonds rather than debentures. Defining the scope of financial products becomes important when seeking to perfect a security interest by registration where what purports to be a financial product forms the underlying collateral of the arrangement. While perfection by registration remains available and is important with respect to financial products, parties dealing with such property should also be aware of the ability to perfect by control (see s 25–29). [15.5.4] Particular issues for intermediated securities Where a security interest arises in intermediated securities the secured party need not rely on registration of a financing statement as a step to perfecting their security interest as they may perfect by taking control of the collateral: see s 21, 26. Where the secured party in relation to collateral that consists of intermediated securities wishes to register a financing statement, they will need to ensure that the written security agreement includes a sufficient description of the collateral: s 20(2) and 20(4) or (5). As noted above, the PPS Regulations state that intermediated securities fit within the class of collateral designated as financial property: see Personal Property Securities Regulations 2010 Sch 1 item 2.3. See further, [20.5.4]; Pt 5.3 with respect to perfection by registration. [15.6] Further reading • Explanatory Memorandum [–]. • ALRC Report No 64 [–]. • Whittaker Report [5.3].

¶2 CHAPTER 2 — GENERAL RULES RELATING TO SECURITY INTERESTS

¶2.1 PART 2.1 — GUIDE TO THIS CHAPTER

¶16 SECTION 16 GUIDE TO THIS CHAPTER ¶2-005 SECTION 16 GUIDE TO THIS CHAPTER Text of s 16

¶2.2 PART 2.2 — SECURITY INTERESTS: GENERAL PRINCIPLES

¶17 SECTION 17 GUIDE TO THIS PART ¶2-010 SECTION 17 GUIDE TO THIS PART Text of s 17

¶18 SECTION 18 GENERAL RULES ABOUT SECURITY AGREEMENTS AND SECURITY INTERESTS ¶2-015 SECTION 18 GENERAL RULES ABOUT SECURITY AGREEMENTS AND SECURITY INTERESTS Text of s 18 [18.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 35, 43, 44

Saskatchewan

PPSA 1993

ss 9(1), 13

Ontario

PPSA 1990

ss 9, 12

USA

UCC Article 9 (rev) §§ 9-201, 9-204

[18.2] Outline Section 18 provides a list of general provisions which aid the central concepts of Pt 2.2 of the PPSA. While miscellaneous in nature, the provisions are essential as they define the scope and breadth of the PPSA. It is perhaps useful to refer to the balance of Pt 2.2 before referring to s 18 as the importance of each subsection is made apparent in the context of the surrounding sections. [18.3] Cross-references Section 20 provides requirements for security agreements. [18.4] Concepts • Attachment This is defined by s 19. • After-acquired property This is defined by s 10 as meaning personal property acquired by the grantor after a security agreement is made. • Future advance This is defined by s 10. See further, below. • Reasonable expenses See s 127. See also, Re Jensen & Jensen[2015] FCCA 2721. [18.5] Commentary [18.5.1] Effective according to terms — s 18(1) ....................................XX [18.5.2] After-acquired property — s 18(2) ....................................XX [18.5.3] Attachment without specific appropriation — s 18(3) ....................................XX [18.5.4] Future advances — s 18(4) ....................................XX [18.5.5] Reasonable expenses — s 18(5) ....................................XX [18.5.1] Effective according to terms — s 18(1) At its core, a security agreement is a contractual arrangement between two or more parties. As between

those parties, s 18(1) provides that the agreement is effective according to its terms. Principles of contract law thus prevail in respect of the relevant rights and responsibilities between the parties. The Victorian Court of Appeal stated in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86; [2014] VSCA 326 at [117] that “s 18 reflects the basic principle of freedom of contract: security agreements are effective according to their terms”. To the extent that the PPSA also applies to the dealing or arrangement, it is largely concerned with any security interest which may arise by operation of the agreement as opposed to satisfaction of the primary obligation. For enforcement remedies in personam (against the person), namely, against the debtor, the secured party should consult general contract principles or other legislation which may assist where relevant. For enforcement remedies in rem (against a thing), namely, against the underlying collateral, the secured party should consult the PPSA as well as the terms and limitations (such as subordination provisions) in the underlying security agreement. The underlying principle of the PPSA is that the Act does not establish the relevant relationship that formulates the security interest. The law of contract continues to apply to the relationship between the secured creditor(s) and its debtor(s). This section (together with s 254) recognises the continuing role that contract law will play in regulating the creditor/debtor relationship and the rights of secured parties in relation to the collateral: 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) 290 at [5] (BC CA). In the Saskatchewan Court of Appeal decision in CPC Networks Corp v Eagle Eye Investments Inc (2012) 405 Sask R 86; 95 CBR (5th) 76 at [30], Jackson JA said: “A security agreement must be construed as a specialized form of contract, but the principles of contract law are also in play. The overarching principle of contract interpretation is to give effect to the intention of the parties— keeping in mind, as may be necessary, the nature of the contract as a security agreement and having regard for commercial reasonableness, good faith and the priority structure both inside and outside of bankruptcy.” [18.5.2] After-acquired property — s 18(2) A security agreement may be pre-drafted in anticipation of the grantor obtaining proprietary rights over such property at some foreseeable future time. While any security interest purporting to attach to collateral will not do so unless and until the actual rights are acquired in the collateral there are two interconnected benefits with pre-drafting agreements: • first, the pre-drafted security agreement can facilitate the registration of a financing statement (see s 153) although a potential security interest may be the subject of a financing statement lodged or registered on the Personal Property Securities Register (PPSR) even without an executed security agreement (s 161) as the process of registration merely provides notice that a security agreement exists as opposed to requiring registration of a copy of the security agreement itself; and • second, assuming actual rights over the underlying collateral are obtained at some stage prior to the seeking of enforcement, the perfected interest will be recognised as at the date of registration (that is, the earlier date) rather than the date the rights actually attached (see further, s 19, 21, 55). It should be noted, however, that the purported secured party must have a belief on reasonable grounds that the relevant security interest will actually arise. Abusing the registration process by lodging financing statements without belief on reasonable grounds is subject to penalty under the PPSA (see further, s 151). Parties who suffer loss as a result of a breach of this obligation may seek compensation from the perfected secured party under s 271. Further, the description used to describe collateral for the purposes of lodging a financing statement should clearly enunciate an intention to attach to after-acquired property: See further, s 153. In the Saskatchewan Court of Queen’s Bench decision, Redi-Mix Ltd v Hub Dairy & Barn Systems Ltd (1987) 7 PPSAC 165; 41 DLR (4th) 360, this issue came under consideration. The facts concerned a security interest taken over “all debts, accounts, choses in action, claims, demands, and moneys now due or owing or accruing due or which may hereafter before due or owing to the Assignor”. The financing statement recorded this interest as an “assignment of accounts” with no additional description. Justice

McLellan held that the onus was on the grantor to demonstrate an intention contrary to the assignment of all accounts both presently existing and after-acquired, that is, the secured party benefits from a broad interpretation of the Act. Deriving the intention of the parties at the time the agreement was entered is thus critical to determining whether or not the security interest extends to after-acquired property. [18.5.3] Attachment without specific appropriation — s 18(3) There is no need, pursuant to s 18(3), for the grantor or the secured party to take any additional steps to validate the attachment of a security interest where the security agreement stipulates that the interest will be taken in after-acquired property. The interest arises as soon as the grantor receives proprietary rights in the relevant collateral: Re Langdon; Forge Group Ltd (recs and mgrs apptd) (In liq) (2017) 118 ACSR 434; [2017] FCA 170. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 320 FLR 259; [2017] WASC 152 at [326], it was held that attachment under s 18(3) “connotes the creation of an interest of a proprietary nature”. This was assumed as being correct without the Court deciding the issue on appeal in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [136]. For a discussion of what constitutes proprietary rights see [12.4.1(C)]. This is consistent with the equitable principle in Holroyd v Marshall [1861–1873] All ER Rep 414. [18.5.4] Future advances — s 18(4) A “future advance” is defined under s 10. The term refers to advances made after the security agreement has arisen. A security interest can encompass such advances giving rise to statutory recognition of the concept of “tacking” to some degree. The PPSA arguably goes one step further to prescribe that notice does not vitiate the secured party’s right to claim future advances as part of their priority interest. Such is the position under the common law rule in Hopkinson v Rolt (1861) 9 HL Cas 514, which is now rendered somewhat obsolete. This does not however extend to third ranking securities by way of assigning a first ranking security interest, that is, the doctrine of tabula in naufragio (a plank in a shipwreck)17 is not directly applicable: Willoughby v Willoughby (1756) 99 ER 1366. This is to say that the assignment of a security interest with first priority to the holder of a security interest with third priority does not make the later advance a “future advance” of the first interest (which would otherwise prevail against the holder of a security interest in second priority). Although in CPC Networks Corp v Eagle Eye Investments Inc (2012) 405 Sask R 86; 95 CBR (5th) 76 at [31], the Saskatchewan Court of Appeal noted that could be done via specific contracting, assuming that there was not otherwise a disruption of the system of priorities or on insolvency law. In that case, it was held that there was no contractual intention to extend the priority of the first loan to advances made under the assignee’s (otherwise unsecured) loan. In the Ontario Court of Justice decision, Canamsucco Road House Food Co v LNGAS Ltd (1991) 2 PPSAC (2d) 203, a dispute arose as to whether a third-party advance could ever constitute a “future advance”. The facts of the case concern a bank holding an “all present and after-acquired property” security interest over the debtor’s property. The assets were subsequently sold to a third party and a security interest arose over the purchase price in second priority to that held by the bank. Money was borrowed against the property creating a third security interest. The funds borrowed were used by the debtor to satisfy the obligation owing to the bank in first priority on the condition that the bank’s security interest was assigned to the third priority security interest holder. The third priority security interest holder asserted, upon seeking to enforce the instrument, that their subsequent security interest was a “future advance” in light of the assigned first priority under the PPSA. Justice Mercier held (and the point was not challenged on appeal): Canamsucco Road House Food Co v LNGAS Ltd (1997) 12 PPSAC (2d) 227) at [6]: “The respondents claim that as a result of C.I.B.C.’s G.S.A. being assigned to 936 and because that G.S.A. contained clauses to the effect that future purchasers would become part of its security, the first G.S.A. (in favour of C.I.B.C. and now assigned to 936) and the third G.S.A. (in favour of 936), merged together through some ‘tacking’ principle to give 936 priority for the full indebtedness guaranteed under both G.S.A.’s over C’s G.S.A. I cannot ascribe to that theory. That would mean a person with a third charge could gain priority over one with a second charge simply by paying off the

first charge and obtaining an assignment of same. The fact the owner of the second charge was, in this instance, the person responsible for satisfying the first charge and defaulted in that obligation does not alter the fact that it would be inequitable to allow a third charge to take precedence over a second charge by obtaining an assignment of the first charge. It is true that the first charge in this case attaches to after acquired property, and it continues to do so when assigned, but only to the extent of the amount owing under that first charge.” See also, Near Horbay Inc v Great West Golf & Industrial Inc (2000) 2 PPSAC (3d) 179; 87 Alta LR (3d) 98 (Alta QB); CPC Networks Corp v Eagle Eye Investments Inc (2012) 405 Sask R 86; 95 CBR (5th) 76 (Sask CA). The rationale behind recognition of future advances follows the underlying rationale of primacy of the register under the PPSA, that is, any subsequent secured party has the ability to discover a previous security interest by virtue of the original registration. Subsequent secured parties should thus, by default, be aware that future advances may arise in priority to any interest they may wish to take over the same collateral. From a pragmatic perspective, in the authors’ view, all secured parties should include a provision for future advances and all subsequent secured parties should assume such provisions have been made and seek to subordinate the senior secured party’s interest to the extent that any future advances have arisen or may arise. This does not eliminate the effectiveness of factoring of accounts receivable and other debt factoring, see s 64. [18.5.5] Reasonable expenses — s 18(5) “Future advances” under the PPSA include reasonable expenses incurred in the enforcement of the security interest. The overlap is somewhat unnecessary as even without the incorporation of this provision, reasonable expenses in the enforcement of a security interest arise by default, that is, s 18(5) is to be read with s 140(2)(b). It is in the interest of the secured party to preserve the operation of this provision by expressly providing for it in the security agreement. The grantor stands neither to gain nor to lose from the inclusion of this provision. Notwithstanding this fact, the security agreement can provide for different terms including that the security interest does not include the recovery of enforcement costs. For more information about enforcement of security interests generally, see Ch 4. The inclusion of reasonable expenses within the security interest is an interesting aspect to the PPSA, consideration of which might arise with respect to the rights of a respective secured party as against an insolvency practitioner or trustee should the grantor enter into liquidation or bankruptcy respectively. Where an insolvency practitioner is appointed to a grantor company, it is the assets of the company which form the relevant pool of assets from which the insolvency practitioner and not the assets which are otherwise subject to a security interest. The entire objective of taking a security interest is to avoid the pari passu distribution of assets which governs distributions to unsecured creditors (see s 555 and 556 of the Corporations Act 2001 (Cth)). To take security effectively removes the encumbered assets from the relevant pool unless and until the secured obligations are satisfied in full. Thus, where an insolvency practitioner elects to deal with secured property, the expenses incurred in dealing with such assets are to be recovered from the assets of the company and not the personal property being dealt with. This is so unless it can be said that an “incontrovertible benefit” is conveyed to the secured party as a result of actions taken by the insolvency practitioner. In Monks v Poynice Pty Ltd (1987) 8 NSWLR 662 at 663–664, Young J held: “It seems to me that equity, if not the common law, finds that a person is liable to pay a reasonable sum for services provided to it in at least four circumstances, notwithstanding that there is no contract. First, it does so where there is a request expressed or implied for the performance of the service … The second situation is where the party benefited, accepted or acquiesced in the provision of the service under circumstances where it must have known that the service was not being rendered gratuitously … The third class of case, and it may indeed be that these are overlapping categories, and many cases in this third class fall into classes one and two, is where the service that is provided is necessary to

be carried out for the protection of the defendant’s personal property … Fourthly, there is a class of case where the service conferred incontrovertible benefit on the defendant and it would be unconscionable for the defendant to keep the benefit of the service without paying a reasonable sum (sic) therefore.” The onus is on the party asserting the conveying of an incontrovertible benefit (namely, the insolvency practitioner) to establish that such a benefit flowed: See Dean-Willcocks v Nothintoohard Pty Ltd (2005) 53 ACSR 587 per Barrett J; Affirmed on appeal in Dean-Willcocks v Nothintoohard Pty Ltd (in liq) (2007) 25 ACLC 109. It has otherwise been asserted by insolvency practitioners that the recovery or realisation of proceeds payable on account of collateral which would otherwise be the subject of a PMSI, for example, falls within the “salvage principle” such that the costs associated with such recovery are properly payable from the recovered assets/funds. The salvage principle derives from Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171; See also, Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15; Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144; [2011] VSC 380 at [42] per Davies J. In practice, this scenario has arisen in the context of personal property the subject of a valid retention of title clause. A secured party is often a manufacturer or supplier of stock to a retailer who, at some subsequent stage, enters administration, receivership or liquidation. The insolvency practitioner, dealing with the business in an attempt to provide the best result for creditors as a collective class, deals with the underlying assets of the company (including the stock subject to retention of title terms). The insolvency practitioner has two options, they can make the stock available for the collection of the relevant secured party or they can trade on the business, sell the stock and recover the proceeds. It is in the interests of the company, assuming the stock can be sold, for the stock to be sold as the value of the stock (at cost) plus the profit margin provides a benefit to the company. To the secured creditor, however, whether the stock is sold or not they are entitled exclusively to the cost price of the stock. In the view of the authors — it is in the interests of the secured creditor to either demand that the stock be returned or obtain an undertaking from the insolvency practitioner that the proceeds from the sale of the stock are being held in a separate account, on trust, for the benefit of the secured creditor very early in the appointment of the external administrator. Should the secured creditor not adopt one of these courses and the stock the subject of their security is sold and proceeds deposited into the company’s general bank account, the secured creditor (supplier) runs the risk of the funds being commingled with other funds such that any security interest would need to be traced (see s 32). While there are mechanisms under the PPSA for the recovery of proceeds, should the funds not be readily identifiable (funds being a fungible) it is for the secured party to make good a tracing claim involving a court application and the application of the PPSA and principles at general law. Like many aspects of the PPSA, preserving rights is easier and more efficient than seeking to enforce or deal with personal property after the fact. [18.6] Further reading • Explanatory Memorandum [2.1–2.2, 2.74, 2.138]. • ALRC Report No 64 [8.4–8.10]. • Whittaker Report [5.2]. • Roderick Wood, “Turning lead into gold: the uncertain alchemy of ‘all obligations’ clauses” (2003) 41 Alberta Law Review 801. Footnotes 17

This is a phrase used in law to describe the power subsisting in a third (or subsequent) mortgagee, who took the third mortgage without notice of the second mortgage, and then acquired the first mortgage.

¶19 SECTION 19 ENFORCEABILITY OF SECURITY INTERESTS AGAINST GRANTORS — ATTACHMENT ¶2-020 SECTION 19 ENFORCEABILITY OF SECURITY INTERESTS AGAINST GRANTORS — ATTACHMENT Text of s 19 [19.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 40

Saskatchewan

PPSA 1993

s 12

Ontario

PPSA 1990

s 11

USA

UCC Article 9 (rev) § 9-203

[19.2] Outline “Attachment”, as a concept, is not unique to the PPSA, however, it is central to the Act and represents an active departure from the pre-PPSA approach to securities law. Section 19 details the rules of attachment which apply to all security interests including the definition of the term for the purposes of the PPSA. [19.3] Cross-references • Sections 84–86 deal with the issue of attachment of security interests over agricultural products. [19.4] Concepts • Consigned See s 10, 12(2)(h). • Possession See s 24. Section 19(5) uses the term “obtains possession”, which should be contrasted with merely having possession: C Dixon Fuels Ltd v SWS Fuels Ltd(2011) 17 PPSAC (3d) 175; [2011] NSCA 35 (Nova Scotia CA). A similar wording is used in s 62. • PPS lease This is defined by s 13. • Value This is defined by s 10. See further, [19.5.2]ff, especially [19.5.2.2]. [19.5] Commentary [19.5.1] Enforceability — s 19(1) ....................................XX [19.5.2] When a security interest attaches — s 19(2) ....................................XX [19.5.2.1] Rights in the collateral — s 19(2)(a) ....................................XX [19.5.2.2] “Value” or “an act” — s 19(2)(b) ....................................XX [19.5.3] Time of attachment — s 19(3), (4) ....................................XX [19.5.4] Leases, bailments, consignments and conditional sale agreements — s 19(5), (6) ....................................XX

[19.5.1] Enforceability — s 19(1) Section 19(1) imposes an essential requirement that a security interest attach to property before it can be enforced. Attachment involves the creation of an interest of a proprietary nature: see Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2017) 320 FLR 259; [2017] WASC 152. This was assumed as being correct without the court deciding the issue on appeal in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [136]. Section 19(2) defines the term “attaches”, which is not otherwise defined by the Act (as s 10 refers back to s 19(2)). Attachment refers to the moment where a security interest is recognised against particular personal property defined by the security agreement. As noted in s 12, the substance of the transaction must give rise to a security interest in personal property in order to secure the payment or performance of an obligation. Importantly, where no security interest has or will attach to personal property there is fundamentally no security interest. This may occur for a number of reasons, each of which is a matter of contractual interpretation and outside of the scope of the PPSA. For instance, a contract may fail to facilitate the attachment of a security interest because there is a condition precedent to the contract coming into effect that has not yet been satisfied. Furthermore, even if the contract is effective, it may not, on its terms, confer any rights in personal property. The concept of attachment should not be confused with the pre-PPSA concept of crystallisation of a floating charge: Re Langdon; Forge Group Ltd (recs and mgrs apptd) (In liq) (2017) 118 ACSR 434; [2017] FCA 170 at [36]–[37] (“there is no role for crystallization … [a]ll security interests under the PPSA, are, employing traditional language, ‘fixed’”). The crystallisation of a floating charge involved the automatic attachment of the security to the collateral as specified in the security agreement, which converted the floating charge into a fixed charge. This process of crystallisation had important consequences for legal priority contests, however, these issues are no longer relevant as priority is determined by the PPSA rules, rather than how the security interest is characterised. See also, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. Where there has been no attachment of a security interest to particular collateral, the purported security interest is unenforceable and the PPSA provisions are largely irrelevant. If the secured party has registered a financing statement without the attachment of a security interest they may be required by the grantor to register a financing change statement to end the registration against the grantor. This process involves serving an amendment demand and using either the courts or the PPS Registrar to enforce the amendment of the entry on the PPSR. This is discussed further in s 178–182. [19.5.2] When a security interest attaches — s 19(2) Section 19(2) is critical to effectuating one of the underlying policies of the PPSA, that priority contests are not to be determined by the form of the transaction or by who has a claim in title. While it is not correct that say that title is irrelevant, it is no longer solely responsible for determining priority contests. Under the PPSA the first step to establishing priority when dealing with a PPSA security interest is to establish that the security interest has attached to the collateral under s 19. This step is essential because it verifies that the secured party has rights in the collateral that may be enforced against the grantor of the security interest. The attachment step is primarily directed to the relationship between the grantor and the secured party. The relationship between the secured party and competing interests in the collateral held by third parties is dealt with under s 20 (perfection). A security interest arises from a security agreement, which must be a consensual transaction: Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86; [2014] VSCA 326. Section 19 defines what it means for a security interest to “attach” to personal property. The starting position is that a security interest may attach to collateral that the grantor does not own. This marks a break from the pre-PPSA law which applied (subject to certain exceptions) the nemo dat (“no one [can] give what one does not have”) principle. The ability of a security interest to attach to personal property over which the grantor does not have title is a conceptual hurdle participants and practitioners will need to face particularly when dealing with deemed security interests (such as PPS leases and commercial consignments) and suppliers with retention of title claims who have traditionally relied on the strength of their title without needing to register notice of a security interest.

As the cases of Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 (a case concerning the construction vehicles) and Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629 (a case concerning the lease of a horse: see s 13) demonstrate, the owner of personal property who has a deemed security interest and who fails to perfect their security interest can be subordinated where the debtor grants a further security interest that attaches to the property and is properly perfected. The timing of attachment under s 19 does not limit or alter the operation of the default priority rule in s 55: The Healy Holmberg Trading Partnership v Grant [2012] NZCA 451. While the process of attachment is not, strictly speaking, a “prerequisite” to perfection, that is to say the order of attachment and taking steps to perfect is irrelevant (see s 21(3)), attachment must occur prior to seeking enforcement of a security interest. The simple question being, how can one enforce one’s interest over property which the grantor has no proprietary rights over which it can properly convey? The ability of the secured party to have a fully perfected security interest requires, at its most basic element, that the security interest attach to some collateral, which in turn requires that the grantor have had some rights to grant the interest in the collateral to the secured party. The definition of attachment can be broken into component parts as follows. [19.5.2.1] Rights in the collateral — s 19(2)(a) The concept of rights in the collateral eludes precise definition. The provision of security over the grantor’s collateral in a valid and enforceable security agreement creates “rights in the collateral”. The legal owner of personal property will clearly have rights in the collateral and may grant a security interest that attaches to that collateral. However, what rights short of ownership will constitute sufficient “rights in the collateral” for the purposes of s 19 is imprecise. The Supreme Court of Canada held in iTrade Finance Inc v Bank of Montreal (2011) FPPSR ¶700-125; [2011] 2 SCR 360 at [44]: “What is considered as ‘rights’ in the collateral encompasses a range of interests beyond legal and equitable title.” The Supreme Court further held that without rights in the collateral the nemo dat rule would continue to apply and no security interest could be granted that would be enforceable against third parties: at [44]. The Supreme Court of Canada noted in an earlier case (Re Giffen (1998) 13 PPSAC (2d) 255; 155 DLR (4th) 332 at [26]) that: “The rights of parties to a transaction that creates a security interest are explicitly not dependent upon either the form of the transaction or upon traditional questions of title. Rather they are defined by the Act itself.” The US courts have held that a grantor need not have legal ownership in order to grant a security interest in collateral: Merchants Bank v Atchison (In re Atchison) (1987) 832 F.2d 1236 (US CA 11th Cir); Foothill Capital Corp. v Clare’s Food Market, Inc. (In re Coupon Clearing Serv., Inc.) (1997) 113 F.3d 1091 (USCA 9th Cir); In re Ferandos (2005)402 F.3d 147 (US CA 3rd Cir). It should be noted that s 19(5) (discussed below) provides that possession of collateral in certain circumstances is sufficient to provide rights in the collateral. The US courts have held that mere possession is not sufficient, it must be combined with some element of use and control of the collateral by the purported grantor: Merchants Bank v. Atchison (In re Atchison) (1987) 832 F.2d 1236 (US CA 11th Cir). For example in Caterpillar Financial Services Corp v Peoples National Bank NA (2013) 710 F.3d 691 (US CA 7th Cir) it was held that the owner of equipment that had been legally transferred to a special purpose vehicle in order to ring fence the assets from creditors of the transferor had sufficient rights in the collateral to grant a security interest in the transferred collateral because it maintained possession and use of the collateral and had not disclosed the transfer to third parties (hence it had apparent ownership). The ability of a lessee to grant a security interest in leased property under s 19(5) was applied in the decision of Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852. That case concerned the construction vehicles leased on a long-term basis by Maiden Civil from QES, although QES did not

perfect its security interest as a PPS lessor. Maiden Civil had also granted a security interest in the vehicles to another financier (Fast Financial) who had perfected their interest. When Maiden Civil stopped paying its lease fee to QES and entered voluntary administration the lease (albeit an oral lease) was terminated by QES but this did not mean that it’s interest as lessor took priority over the vehicles because Maiden Civil was able to grant a security interest to Fast Financial that, in a PPSA priority contest, went beyond the duration of its lease. The court said (at [73]): “Maiden did not have only a mere right to possession under the QES leases. The Canadian and New Zealand cases already mentioned [i.e. Re Giffen and the Portacom and NZ Bloodstock cases] demonstrate that a PPS lessee on taking possession of the collateral acquires not only a possessory right but also proprietary rights to the extent that it can grant security interests to third parties, so that the lessor’s interest if unregistered is vulnerable to being defeated by security interests so granted to such third parties. The PPSA treats the lessee under a PPS lease as the grantor of a security interest with rights in the collateral, and the lessor as a secured party, because it sees the transaction as, in substance, a security transaction, though in form it is a lease. As the cases mentioned show, it recognises that the lessee may validly and effectively grant security interests in the collateral to third parties, that can take priority of the lessor’s unperfected interest, because the lessee is regarded for that purpose as having rights in the collateral. 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.” Of course, a security interest can only bestow an interest over the rights that are available to the relevant grantor. If the grantor does not have any rights with respect to the personal property in question then any security interest purportedly granted in such property could never conceivably attach. For example, a person cannot grant a security interest in the property of a stranger and thereby seek to bind the stranger, as they have no rights in that property to grant to the secured party. In Scott Auto Sales Ltd v Becker (2012) 19 PPSAC (3d) 329; 99 CBR (5th) 148 (BCSC), the Court found that the purported grant of a security interest in a motor vehicle failed because the secured party (the car dealership that sold the vehicle) had transferred ownership of the vehicle to a Ms Haz, on the instructions of Mr Becker. Mr Becker had purchased the vehicle for Ms Haz as a deposit for the payment of the purchase price of a larger acquisition of property from Ms Haz. The car dealership lodged a financing statement on the PPSR in respect of its purported security interest against the car, but the court found that as ownership had properly passed to Ms Haz, and she was a stranger to the contract between the dealership and Mr Becker, the security interest could not attach to the car. Put simply, Mr Becker had no rights in the car to grant to the dealership. Also, where an agreement is made subject to a condition precedent which is not satisfied there can be no rights in the collateral arising from the agreement to allow the attachment of a security interest: 994814 Ontario Inc v RSL Canada Inc (2006) 9 PPSAC (3d) 240; 20 CBR (5th) 163 (Ont CA) (machines delivered under contract that specified they had to receive safety approval before contract binding, the PPSA did not apply as approval had not occurred so there was no binding contract). However, it would be mistake to think that, for the purposes of a priority contest between security interests in the PPSA, a grantor is limited to granting a security interest to the rights they hold. Such a view would be consistent with the pre-PPSA nemo dat (“no one [can] give what one does not have”) rule, but one of the central points of the PPSA is the introduction of a new code for resolving priority disputes (and as s 12 notes) without regard to title. The ability of a lessee or bailee to grant a security interest is not limited to their possessory rights. As noted in the well-known New Zealand High Court decision Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 at [28]: “As against the lessee’s secured creditors, the lessee has rights of ownership in the goods sufficient to permit a secured creditor to acquire rights in priority to those of the lessor.” This was applied in the first Australian PPSA case on PPS leases: Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 at [26]–[34], [70]–[81]. This gives rise to the question of what protection is given, if any, to owners of personal property under the PPSA. For example, would a thief have rights in the collateral sufficient to facilitate the attachment of a security interest that could defeat the title of the true owner? The short answer is “no”. The reason is that

while a thief possesses the stolen property their possessory title is defeasible to that of the true owner. If the thief purported to grant a security interest in the stolen property the competition between the purported secured party and the true owner (if they came forward) would not be a priority competition for the purposes of the PPSA. This may be contrasted with the position of a lessor with a PPS lease deemed as a security interest. Although a PPS lessor may be the owner of the collateral, it is also a secured party for the PPSA purposes and hence must comply with the PPSA, despite the lessee or bailee only having a limited interest in the collateral. A lessor (who has the reversionary title) who grants a long-term lease (see s 13) is deemed to be a secured party pursuant to s 12(3). The lease might also be an “in substance” security interest under s 12(1) if it satisfies the “in substance” test. If the lessor fails to perfect their security interest their interest in the underlying collateral will be vulnerable to competing security interests that are perfected (s 55(3)) or to third parties who may take the collateral free from the lessor’s “security interest” (see Pt 2.5). The lessor cannot rely on their title to defeat a subsequent security interest as their PPS lease deems their ownership interest to be a security interest for the purposes of the PPSA. Therefore, any priority competition will be determined according to the rules of the PPSA and not under common law principles of nemo dat quod non habet (“no one [can] give what one does not have”). This was confirmed in Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852. Where a thief grants a security interest in stolen property to a secured party who perfects their security interest, the true owner is not relying upon a security interest or a deemed security interest. Therefore, there is no PPSA priority contest between the secured party (who took the security from the thief) and the owner. The owner would prevail, as the PPSA priority rules would not apply: See further, Gray v Royal Bank of Canada (1997) 12 PPSAC (2d) 126; 143 DLR (4th) 179 (BC SC). The notion of “rights in the collateral” is interrelated with the s 12(1) definition of an “interest in personal property”. An “interest” can only arise if the party conveying the interest has sufficient “rights”. By definition, in the view of the authors, the term “rights in the collateral” requires the conveying of proprietary rights and not mere or personal equities. While the creation of mere or personal equities are enforceable interests as matters of general law and equity, they do not, in and of themselves, create security interests. However, this view is not universally adopted and there is scope for debate, see s 12(1). For a discussion of the attachment of security interests over partnership property see: Silver Spoon Developments Ltd v Botham Holdings (Trustee of) (2008) 13 PPSAC (3d) 257; 299 DLR (4th) 519 (BC SC). For a detailed review of the law and policy of “rights in the collateral” see: Bruce Whittaker, “The scope of ‘rights in the collateral’ in subsection 19(2) of the PPSA — can bare possession support attachment of a security interest?” (2011) 34 UNSWLJ 524; Sheelagh McCracken, “Conceptualising the rights of a lessee under the personal property securities regime: the challenge of ‘new learning’ for Australian lawyers” (2011) 34 UNSWLR 547. [19.5.2.2] “Value” or “an act” — s 19(2)(b) “Value” is a term defined by s 10 of the PPSA as meaning consideration that is sufficient to support a contract and includes an antecedent debt or liability which takes the meaning. The Court does not inquire as to the adequacy of the consideration as long as it represents real legal value: Erjo Investments Ltd v Michener Allen Auctioneering Ltd (2004) 6 PPSAC (3d) 220; 241 Sask R 228 (Sask CA). The value provided need not be provided to the debtor or grantor: Re Terminal Moving and Storage Co Inc (1980) 631 F 2d 547 (USCA 8th Circ); Re Reliable Manufacturing Corp (1983) 703 F 2d 996 (USCA 7th Circ). The agreement to provide loan funds will represent value even where the funds are not provided until a later date: Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 90 Sask R 206 (Sask CA). “An act” refers simply to a form of consideration in lieu of payment. Not all contracts which provide a security interest will be in the form of a loan arrangement (although this will commonly be the case), other

obligations may be the subject of a security interest as agreed between the parties. The act which, in the authors’ view, is anticipated by this section, is the grantor obtaining rights in the underlying collateral after the agreement has been drafted. On the whole, the attachment requirements are practical, and no additional formal or administrative steps need to be taken in order for attachment to arise. [19.5.3] Time of attachment — s 19(3), (4) Section 19(3) permits the parties to a security agreement to determine the time at which a security interest arises (and expires where necessary). In the absence of such an express provision in the security agreement itself, a security interest will arise where the grantor obtains rights in the relevant collateral (where “rights” refers to the rights of a proprietary nature as discussed above). As with many elements of the PPSA, mere intention is insufficient, that is, if at the time expressly incorporated by the security agreement the grantor does not in fact have the necessary rights in the relevant collateral then irrespective of what is stated in the security agreement, attachment will not occur and a security interest will thus not arise. Similarly, pursuant to s 19(4) merely describing the interest as a “floating charge”, for instance, will not necessarily give legal force to an underlying intention that a security interest will attach at some later stage. While a security interest is effective according to its terms, pursuant to s 18(1), the terms of the agreement are interpreted in accordance with the PPSA principles such that the form of the transaction is largely irrelevant. If a security agreement seeks to delay attachment, it should express this intention in clear terms. Section 19(4) provides statutory recognition of the view of the court in Re G M Homes Inc (1984) 4 PPSAC 116; 10 DLR (4th) 439 (Sask CA) where notwithstanding the form of the security agreement as a floating charge the court declined to read into the terms of the agreement that a security interest would attach at a later stage into such terms: See also, Innovation Credit Union v Bank of Montreal (2010) 17 PPSAC (3d) 1; 235 DLR (4th) 605 (SCC); Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385 (SCC). For more information on the legal status of the concept of a “floating charge” under the PPSA see Pt 9.5. [19.5.4] Leases, bailments, consignments and conditional sale agreements — s 19(5), (6) For the purposes of providing clarity, s 19(5) of the Australian PPSA expressly prescribes that possession of personal property by the grantor is sufficient for the purposes of ascertaining “rights” over the collateral, where goods are: • leased or bailed to the grantor under a PPS lease (see s 13), or • consigned to the grantor (see s 12), or • sold to the grantor pursuant to a conditional sale agreement (including sale subject to retention of title) (see s 12). Section 19(5) should, however, also be read together with s 19(6) which holds that the right to possession does not limit any other rights in the collateral. This provision operates in two respects: • first, it ensures that mere possession will not give rise to a security interest in every respect (noting that s 19(5) is carefully drafted to encapsulate deemed security interests pursuant to s 12 and 13), and; • second, it clarifies the misconception that proprietary rights equate solely to ownership rights. The purpose of these subsections again addresses the central issue of what can constitute a security interest under the Act. In Pioneer Finance Ltd v Green Cars Ltd [2017] NZHC 2782, the Court held (at [42]) that “there is nothing in the PPSA . . . that requires a lessee to have a contingent proprietary interest in the goods vis-à-vis the lessor, in order for a security interest to attach.” Section 19 concludes with a note regarding the principles of attachment with regards to specific collateral

types. In the interests of consolidating the commentary to particular collateral types, discussion of particular attachment principles with respect to such collateral is included where such collateral is discussed (for instance, with respect to crops and motor vehicles). [19.6] Further reading • Explanatory Memorandum [2.16–2.17, 2.21–2.23]. • ALRC Report No 64 [8.30–8.37]. • Whittaker Report [5.1], [7.4]. • Sheelagh McCracken, “Conceptualising the rights of a lessee under the personal property securities regime: the challenge of ‘new learning’ for Australian lawyers” (2011) 34 UNSWLR 547. • Struan Scott, “The PPSA: the continued relevance of conventional legal principles in determining the existence of a security interest” (2009) 15 New Zealand Business Law Quarterly 203. • John Stumbles, “The PPSA: The Extended Reach of the Definition of the PPSA Security Interest” (2011) 34(2) UNSWLJ 448. • Gregory Tolhurst, Tony Coburn and Alan Peckham, “Security interests at the margins” (2012) 40 Australian Business Law Review 241. • Bruce Whittaker, “The scope of ‘rights in the collateral’ in subsection 19(2) of the PPSA — can bare possession support attachment of a security interest?” (2011) 34 UNSWLJ 524. • Diccon Loxton, Sheelagh McCracken and Andrew Boxall, “PPSA: A Minimalist Approach” (2018) 32(1) Commercial Law Quarterly 3. • Diccon Loxton, Sheelagh McCracken and Andrew Boxall, “Chains of leases: Aligning PPSA models with commercial expectations” (2018) 32(2) Commercial Law Quarterly 3. • Diccon Loxton, Sheelagh McCracken and Andrew Boxall, “PPSA models: easy as ABCD?” (2018) 32(3) Commercial Law Quarterly 52. • Craig Wappett and Anthony Duggan, “Rights in Collateral under the PPSA: Rebutting the Minimalist Approach” (2019) 30 Journal of Banking and Finance Law and Practice 169. • Diccon Loxton, Sheelagh McCracken and Andrew Boxall, “Rights in the Collateral under the PPSA: A Minimalist Response” (2019) 30 Journal of Banking and Finance Law and Practice 355. • Linda Widdup, “Function, Form, Fixed, Floating and Forge: Filtering Out Pre-PPSA Concepts in a Post-PPSA World’ (2019) 47 Australian Business Law Review 405. • Sheelagh McCracken, “The Floating Charge under the PPSA: The Current State of Play” (2019) 46 Australian Business Law Review 418.

¶20 SECTION 20 ENFORCEABILITY OF SECURITY INTERESTS AGAINST THIRD PARTIES ¶2-025 SECTION 20 ENFORCEABILITY OF SECURITY INTERESTS AGAINST THIRD PARTIES Text of s 20 [20.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 36, 37, 38, 39

Saskatchewan

PPSA 1993

ss 10, 12(1)(c)

Ontario

PPSA 1990

s 11

USA

UCC Article 9 (rev) § 9-203

[20.2] Outline Section 20 prescribes the PPSA requirements in order for a security interest to be enforceable against third parties, namely the formal requirements concerning the security agreement. While the introduction of a third party typically gives rise to the perfection rules under the PPSA, s 20 provides an overview of the enforceability requirements before the particular methods of perfection under the PPSA are specified pursuant to s 21. By way of conceptualising the various operative provisions of the PPSA, s 19 focuses on the underlying collateral and whether or not a security interest attaches (which affects the rights between the secured party and the grantor), s 20 focuses specifically on the particulars of the security agreement (which affects the rights in the collateral as between the secured party and third parties) and s 21 focuses on the methods of perfection (with perfection being necessary to achieve priority between PPSA security interests). Where a secured party can satisfy the required elements of s 19, 20 and 21 it can be said to have a perfected security interest in the collateral. [20.3] Cross-references The concept of enforceability against third parties is an essential step to perfection which arises under many provisions in the PPSA. • Section 311 provides that s 20 does not apply to certain transitional security interests. • Note the distinction between the security agreement (discussed at s 20) and the financing statement (discussed at s 150). [20.4] Concepts • Attachment See s 19. • Commercial property See s 10. • Consumer property See s 10. • Control See s 25–29.

• Description of collateral See s 10 for the definition of “description”. See further, s 153. • Encrypted This term is not defined by the PPSA. Encryption refers to the process of converting data into a language which is unintelligible in order to prevent improper use of the data from unauthorised parties. The data, however, must be retrievable from this state for the purposes of the PPSA. • Equipment See [20.5.6]. • Evidenced by writing See the definition of writing in s 10. • Inventory See s 10. • Perfection See s 21. • Possession See s 24. • Proceeds See s 31. [20.5] Commentary [20.5.1] Introduction ....................................XX [20.5.2] Attachment requirement — s 20(1)(a) ....................................XX [20.5.3] Writing requirement for perfection by registration — s 20(1)(b) ....................................XX [20.5.4] Written security agreements — s 20(2) ....................................XX [20.5.5] Signature — s 20(3) ....................................XX [20.5.6] Particulars relating to personal property — s 20(4), (5) ....................................XX [20.5.7] Proceeds — s 20(6) ....................................XX [20.5.1] Introduction The term “security agreement” is defined by s 10 of the PPSA. The definition refers to an agreement or act creating a security interest (whether in writing or otherwise). The words “or act” are important as they confirm that like any simply contract, a security agreement need not be in writing to be enforceable as between the parties to the agreement: See, Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926 at [10] per Brereton J. However, while a security interest can arise from an oral agreement, s 20 predominately imposes a writing requirement in respect of security agreements which are necessary if a secured party wishes to perfect their security interest by registration (See s 21). Section 20 relates exclusively to the enforceability of a security agreement as against third parties (parties not subject to the terms of the security agreement). For PPSA purposes, that is with respect to perfection and priority (see s 21 and 55 respectively), a security agreement will usually involve one or more written

instruments documenting the creation of a security interest between the parties to whom it is binding upon. It is in this context that a security agreement is discussed throughout this commentary, however, the fundamental position of the security agreement as a simple contract should not be overlooked (see particularly with respect to Ch 9 regarding the PPSA’s transition). [20.5.2] Attachment requirement — s 20(1)(a) Section 20(1)(a) of the PPSA prescribes the “attachment” requirement. As discussed above (see the commentary to s 19) a security interest cannot become perfected unless it has first attached to the underlying collateral specified in the security agreement. This does not mean that steps to achieve perfection cannot be undertaken prior to attachment in order to preserve an earlier priority date (the particulars of which are discussed below at the commentary to s 21). In short, a security interest the subject of a registration on the PPSR prior to attachment will hold priority at the point in time of the registration and not at the time the interest attaches, that is, at an earlier time (s 55(4),(5)). This occurs so long as the security interest does in fact attach at some point after registration but before the benefiting party seeks to enforce the interest. There are of course exceptions to the first to perfect rule — including perfection by control, which are discussed further at the commentary to Pt 2.6. [20.5.3] Writing requirement for perfection by registration — s 20(1)(b) Where a secured party seeks to perfect their security interest by registration, the PPSA requires that the security agreement be in writing. While possession or control of the underlying collateral suffices without a security agreement being reduced to writing (for discussion of these concepts in more detail see the commentary to s 21) it is beneficial, in the author’s view, that all interests creating a security interest be reduced to writing under general principles of prudent practice pursuant to the law of contract. This avoids ambiguity of intention as between the parties and allows both the grantor and the secured party to include terms which best reflect their intentions. In addition, while possession and control may be temporal and subject to unfortunate circumstances, such as theft or misappropriation, a valid contract in writing can be duplicated and presents a sense of permanency not otherwise enjoyed. As a further point of commercial pragmatism, due to the large number of commercial scenarios whereby attempting to perfect by possession or control is unavailable (due to the very nature of the agreement or the underlying collateral in question) perfection by registration is anticipated to be the most popular method of perfection: see, Re 1231640 Ontario Inc (2007) 13 PPSAC (3d) 57; 289 DLR (4th) 684 at [4]. There is the potential for some confusion between complying with s 20 and complying with s 21. While both sections require some formal step to be taken in the instance of perfection by registration, the steps are fundamentally distinct as are the direct purposes of each step. In satisfying s 20(1)(b)(iii) (which in effect means complying with s 20(2)), by reducing the security agreement to writing, the parties do no more than arm the secured party with the potential to register a financing statement and achieve perfection by registration. While perfection is ultimately unnecessary regarding the enforceability of the underlying agreement between the parties (s 19), it is critical to the enforceability of the security interest against third parties. The PPSR is described as a “notice-based” system of registration in this regard. The secured party must take the additional step of lodging a financing statement, that is, a separate document, in order to register their interest on the PPSR (see Pt 5.3). The security agreement never appears on the register, merely the details giving notice of the security interest arising pursuant to the fields of the financing statement. For more information on the registration process see s 21 below. [20.5.4] Written security agreements — s 20(2) Section 20(2) expressly prescribes the requirement that enforceable security agreements must be evidenced in writing. The agreement must be signed by the grantor (discussed further at s 20(3) below), demonstrate a consensual adoption or acceptance by the grantor of the security agreement and the writing must contain a description of the collateral or a statement which covers either “all present and after-acquired property” of the grantor or “all present and after-acquired property except” of the grantor and any exceptions to this exhaustive coverage. No specific words in the security agreement are needed to create a security interest: 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) (BCCA) (although in that

case it was found that the security agreement indicated that a security interest would not arise until a future date): See also, Re Numeric Corp (1973) 485 F 2d 1328 (USCA 1st Circ); Re Amex-Protein Development Corp (1974) 504 F 2d 1056 (USCA 9th Circ). For a decision where a solicitor was found to be negligent in failing to ensure that the security agreement properly created a security interest in the collateral: see Duckett v McKinnon [2012] BCSC 2147. The prescribed inclusion of a “collateral description” again provides a point of difference between a security agreement and a financing statement. This is because a financing statement, for the purposes of perfecting an interest by registration, contains a requirement that the collateral be adequately described. The PPS Regulations (Sch 1, reg 2.3) prescribe certain terms which must be used when describing collateral. Such rules apply to financing statements. While helpful when describing collateral for the purpose of a security agreement, the terms are, in the authors’ view, general and would not of themselves allow a reasonable party to discern particular items of personal property from other property, potentially unencumbered, on the face of the agreement. When describing collateral for the purposes of the security agreement, general contract law principles should apply with the aim of reducing to writing the fullest intentions of both the grantor and the secured party. Where specific collateral forms the subject of the security agreement, a detailed account of such collateral should follow in the terms of the agreement: see Re Laminated Veneers Co Inc (1973) 471 F 2d 1124 (USCA 2nd Circ). However, merely listing collateral is not enough to create a security interest in them: Gateway Hotel Partners LLC v C.I.R. (2014) T.C. Memo 2014-5; 2014 WL 92027 (US Tax Court). In Brant Avenue Manor Limited Partnership v Transamerica Life Insurance Co of Canada (2000) 1 PPSAC (3d) 73 (Ont SCJ), it was held that where a secured party disposed of the business held as collateral under the security agreement it had committed conversion because the sale of goodwill was not covered in the various security agreements that were involved. In that case, there was no overarching general security agreement. In Citadel Financial Corporation Pty Limited v Elite Highrise Services Pty Limited (No 3) [2014] NSWSC 1926, Brereton J held, in respect of s 20(2) of the PPSA (at [14]–[16]): “What s 20(2) requires, in respect of the evidence by writing of the security agreement, is that the writing be adopted or accepted by the grantor, not that the security agreement be adopted or accepted by the grantor. I cannot see … how an exchange of emails two months before the relevant writing can amount to an adoption or acceptance of the writing in question. Accordingly, I cannot see how the invoice satisfies s 20(2). Citadel also argued that the exchange of emails of 12 June, either alone or together with the subsequent invoice, amounted to an acknowledgment or acceptance in writing, but conceded that the emails without the invoice did not contain a description of the particular collateral as required by s 20(2)(b)(i). As that would then necessarily require that the emails be read with the invoice, and as there is no acknowledgment of the invoice, I do not see how on that basis it can be said that there has been compliance with s 20(2). In my view it is not seriously arguable that Citadel has a security interest entitled to priority over that of CML. I have not overlooked the argument that retention of the scaffolding after receipt of the invoice was a relevant acknowledgement or adopting but I do not see how such retention acknowledges or adopts the writing in an invoice created months after the sale and delivery of the subject matter.” In Re Gelpack Enterprises Pty Ltd (in liq) [2015] NSWSC 1558, Brereton J held (at [32]–[33]): “… In this case, the security agreement can be seen to be evidenced in writing in the 2012 terms and conditions. For the reasons I have given, I would find that Mr Hone’s signature is a signature by the grantor but, even if it were not, the conduct of Gelpack in continuing to place orders after receipt of the 2012 terms and conditions is conduct that, in the light of the terms of the letter, reasonably appears to have been done with the intention of adopting or accepting the writing. The ongoing placement of orders and payment of invoices with knowledge of the note at the foot of each invoice is further such conduct. In any of those ways, there was writing adopted or accepted by Gelpack which identified goods supplied by Primaplas as the collateral caught by the security interest. The

requirements of s 20(2) are therefore satisfied. Although there was some debate as to whether the reference in s 20(2)(a)(ii) to ‘reasonably appears’ is from the position of the bystander or a person in the position of the grantee, probably little turns on that difference. The bystander would at least be taken to be aware of what had preceded the relevant act between the parties and in particular of the relevant writing. In circumstances where the 2012 terms and conditions had been supplied in August 2012 and had been referred to repeatedly on delivery notes and invoices thereafter, it would have appeared to the reasonable bystander that in placing further orders, Gelpack was intending to accept what was in those terms and conditions.” A security agreement may be constituted by several documents read together: Hongkong Bank of Canada v National Bank of Canada (1990) 1 PPSAC (2d) 73; 72 DLR (4th) 372; Re Miller (1977) 545 F 2d 916 (USCA 5th Circ). This has also been an issue in several Australian cases that have considered the PPSA (albeit briefly): see the review of the authorities in Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61 (retention of title supply arrangement involving multiple documents, retention clause contained on invoices meant that each invoice made up a separate security agreement) — See also, Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (2015) 321 ACSR 181; [2015] VSCA 92; Industrial Progress Corporation Pty Ltd v Wilson [2013] WASC 225 (credit application together with separate purchase orders and invoices, retention clause included in standard terms and conditions provided with credit application). [20.5.5] Signature — s 20(3) The term “writing” is defined by the PPSA pursuant to s 10. All elements of a security agreement required to be in writing can thus be expressed in accordance with how the term is defined. Writing includes traditional methods of recording, that is, handwritten signatures of natural persons, or equivalent typescript where accepted, usually on the document itself in hard copy in the general sense. The PPSA, however, defines writing in a broader sense such that it includes the electronic recording of words or data which can be subsequently retrieved. In determining which form of signature in writing is most appropriate for a particular security agreement, the purpose of the signature should be examined. A signature is a recognised mark that the party who executes the signature agrees or accepts the terms of the agreement to which they seek to be bound by. It includes the providing of a symbol, wholly or partially in the form of encrypted data. A signature is only valid where it evidences the intention of the party subject to the agreement (or an authorised agent in this regard). While digital signatures are accepted by the PPSA, the authenticity of such a signature should be subject to the same scrutiny a handwritten signature faces such as ease or ability to fraudulently duplicate the mark, symbol or series of symbols. In the authors’ view, a digital signature of the type described here should only be used where it readily evidences an intention to be bound without questions arising as to the quality of the writing itself. Signatures should additionally be sufficiently encrypted where stored digitally. While the PPSA recognises the growing use of technology among commercial affairs, the integrity of giving effect to the will of the parties as an element of contract law continues to be of critical importance. The importance of a formal signature as indicating consent to the security agreement was emphasised in the Ontario Court of Appeal case in Astral Communications Inc v 825536 Ontario Inc (Trustee of) (2000) 15 PPSAC (2d) 256; 183 DLR (4th) 455. In P Twin Holdings Pty Ltd v SG Old Pty Ltd [2017] WADC 77, it was held that a solicitor who failed to require a written acknowledgement for a security agreement, so as to ensure compliance with s 20, was negligent and liable to compensate their client for loss of the security interest. The solicitor also failed to register on the PPSR. The signature must be a properly authorised signature: Atlas Industries v Federal Business Development Bank (1983) 3 PPSAC 39 (Sask QB) (signature by employee of the debtor was not authorised); Toronto Dominion Bank v Flexi-Coil Ltd (1993) 4 PPSAC (2d) 288; 107 Sask R 221 (Sask QB) (shareholder and manager signed in personal capacity). In Flexi-Coil, the fact that the signature was in the wrong place also contributed to the court refusing to accept the documents as a signed security agreement. See also, Re Gelpack Enterprises Pty Ltd (in liq) [2015] NSWSC 1558 (signature of the grantor’s operations manager; the court held that continuing to order and pay for goods under the security agreement was

sufficient assent). The person signing must be alerted to the fact that they are signing a security agreement (or a document that is incorporated in a security agreement): Universal Handling Equipment Co v Redipac Recycling Inc (1992) 4 PPSAC (2d) 15 (Ont Court of Justice) (signing a purchase order was not sufficient where no notice that it was connected with a security agreement). In circumstances where the parties have not entered into a formal agreement or particulars of the agreement are missing, the principles of contract law (subject to any statutory regime such as the Australian Consumer Law or relevant Sale of Goods legislation) is applicable. The Court will try to discern the true intention of the parties on the face of the contract (whereby a series of emails back and forth can, in certain circumstances, constitute a contract). There is and remains, of course, a distinction between an agreement and an agreement to agree. This text does not attempt to go into the detail of contractual construction when considering the sufficiency of the writing requirement. [20.5.6] Particulars relating to personal property — s 20(4), (5) Sections 20(4) and (5) expressly address the point made at [20.5.4], that is, while the use of descriptive classes in the form of the PPS Regulations is sufficient for financing statements, security agreements often require a higher degree of particularisation. Section 20(4) previously applied where the descriptor “consumer property”, “commercial property” or “equipment” was used in relation to the underlying collateral. This has since been reduced to circumstances where the property has been described as “consumer property” or “commercial property”: see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) s 10. The rationale for this change recognises that “equipment” is reasonably specific, particularly where it relates to a general class of personal property. A definition of “equipment” has not been added elsewhere in the PPSA or the PPS Regulations. The importance of a collateral description in the security agreement was considered in the Saskatchewan Court of Appeal case Re Apollo Fitness Academy Inc (1984) 3 PPSAC 280; 6 DLR (4th) 654. In the authors’ view, the detail parties wish to include in a security agreement is a question of commerciality. Where equipment involves hundreds of items of personal property, each at a relatively low value, it may be sufficient to record a security interest over such collateral as simply “equipment”. Where equipment, however, encompasses a small number of readily identifiable items, such as expensive machinery, more detail may be required. It follows that the higher the degree of detail included in the description of collateral the less ambiguous the overall agreement will be. This is premised on the commercial viability of compiling such detail and will need to be assessed on a case-by-case basis. What is important from the perspective of the PPSA is that the written security agreement accurately reflects the nature of the agreement between the grantor and the secured party. The PPSA also appreciates that any one piece of collateral may change categories over its life, however, collateral can only be defined as one class of category at one point in time. Inventory can become equipment or consumer goods for instance. A financing change statement should be lodged to amend the register where a collateral changes category (See further, Pt 5.3). Section 20(5) holds, with respect to inventory in particular, that the writing requirement under s 20(2) is only met where the property is held as inventory and not when it subsequently changes class: see Community Futures Development Corp of Howe Sound v Spargo (2000) 1 PPSAC (3d) 263; 76 BCLR (3d) 190 at [33] (BCSC). While a temporary perfection or “grace” period protects the secured party from losing their interest the moment the class change occurs, secured parties ought to be prudently aware of parties engaged in high turnover collateral in order to best protect their interests. [20.5.7] Proceeds — s 20(6) As is discussed further pursuant to s 32, s 20(6) provides that an enforceable security interest with respect to specific items of personal property continues to be enforceable as against the identifiable or traceable proceeds of such property — irrespective of whether or not the security agreement itself specifies this. What should be remembered, however, is that s 20(6) does not, however, address the issue of describing collateral for the purposes of a registering a financing statement and achieving perfection by registration. Proceeds should be recorded on a financing statement by adding to the end of the relevant collateral description the words “and any proceeds” or words to that effect. The same applies for any of the tier 4 suffixes provided above. See further, s 153.

[20.6] Further reading • Explanatory Memorandum [2.2, 2.9, 2.18, 2.20, 2.26]. • ALRC Report No 64 [5.50, 6.3–6.8, 7.10–7.13]. • Whittaker Report [5.2], [5.3], [7.2]. • Bruce Whittaker, “Dealings in collateral under the PPSA — in search of a harmonious whole” (2013) 24 Journal of Banking and Finance Law and Practice 203.

¶21 SECTION 21 PERFECTION — MAIN RULE ¶2-030 SECTION 21 PERFECTION — MAIN RULE Text of s 21 [21.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 41, 42

Saskatchewan

PPSA 1993

ss 19, 19.2, 23.1, 24, 24.1, 24.2, 25, 26

Ontario

PPSA 1990

ss 19, 19.2, 21, 22, 2.1, 22.2, 23, 24

USA

UCC Article 9 (rev)

§ 9-301, 9-308–9-316

[21.2] Outline Section 21 of the PPSA addresses the four ways a security interest can be perfected. Three of the four methods place an active onus on the holder of the security interest (termed the “secured party” as defined by s 10) while the fourth operates by virtue of the Act itself. Like the attachment principles, the Australian PPSA incorporates extended rules for goods possessed by a bailee (comprising s 22 of the Act). For all other interests, perfection must occur in accordance with s 21. [21.3] Cross-references • Section 22 provides rules for perfection by possession of goods by a bailee. [21.4] Concepts • Attachment See s 19. • Control See s 25–29. • Enforceability against a third party See s 20. • Registration (of a financing statement) See s 153. • Possession See s 24. See further, Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In liq) (rec and man apptd) [2017] FCA 866 (“the word possession in the PPS Act has its common law meaning, modified to the extent provided for in s 24 of the PPS Act”). • Temporary Perfection Temporary perfection refers to a period of grace provided by the PPSA whereby creditors become secured parties temporarily to facilitate some commercial imperative of the PPSA. Due to the broad variety of instruments under which a security interest may arise, the temporary perfection period varies and should be applied as is specified by the PPSA in each relevant circumstance. By way of characterisation, temporary perfection arises in two respects: – to provide a transitional buffer between the pre-PPSA law and the PPSA (provisions largely with

a maximum life of two years after the Act takes force — See further, Ch 9); – to preserve the commercial realities which follow certain transactions and certain collateral. [21.5] Commentary [21.5.1] The nature of perfection ....................................XX [21.5.2] Temporary perfection — s 21(1)(a) ....................................XX [21.5.3] Perfection pre-requisites — s 21(1)(b) ....................................XX [21.5.4] How to perfect — requirements for secured parties — s 21(2) ....................................XX [21.5.4.1] Registration — s 21(2)(a) ....................................XX [21.5.4.2] Possession — s 21(2)(b) ....................................XX [21.5.4.3] Control — s 21(2)(c) ....................................XX [21.5.5] Order of attachment and steps to perfect are irrelevant — s 21(3) ....................................XX [21.5.6] Single registration, multiple interests — s 21(4) ....................................XX [21.5.1] The nature of perfection Perfection of a security interest is relevant for determining priority contests between competing interests in collateral. For example, an unperfected security interest may be vulnerable to a purchaser or lessee “taking free” of the security interest under s 43, or may be subordinated to another secured party who has a perfected security interest under s 55(3). Perfection does not, however, affect the nature or validity of the underlying security interest: Bank of Montreal v Innovation Credit Union [2010] SCC 47; (2010) 17 PPSAC (3d) 1 at [49]. Nor does perfection mean that the security interest is indefeasible — unlike the Torrens system of title by registration with respect to real property. The purpose of perfection is to put third parties on notice: In Re Bucala (2012) 464 BR 626 (Bankr SD NY). In Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230, Ward CJ in Eq held (at [64]–[66]): “Relevantly, it is important to recognise that the PPSA (unlike the Torrens system in relation to land) is a ‘notice-based’ system. In Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852 (at [32]) Brereton J took note of the fact that the PPSA was modelled on Canadian legislation and considered that the Commonwealth government should be taken to have intended the same approach. The Court of Appeal of Ontario, in Re Lambert (1994) 20 OR (3d) 108, said this of the Canadian legislation (at [32]–[33]): The purpose of the registration system is to provide enough information to enable a person searching the system to know whom to contact to obtain information regarding a secured transaction. It is for this reason that the registration system is referred to as a notice-filing system. [my emphasis] Similarly, in Future Revelation v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741 at [6] described ‘the purpose of registration’ as being “to enable the existence of the security interest in the collateral to be searched and ascertained” (my emphasis). Thus, as Auburn Village accepts, registration of a claimed security interest on the PPSR puts someone searching the register on notice of potential encumbrances. However, as Nelmeer correctly points out, under the PPSA registration does not of itself create a security interest nor does registration constitute an encumbrance. Whether personal property is in fact encumbered by a claimed security interest as registered on the PPSR must be determined by reference to the underlying transaction claimed to have given rise to the security interest in question.”

The PPSA is concerned with priority contests between security interests rather than with determining who is the ultimate owner of collateral. Justice Hansen in Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 at [12] described perfection as “the process by which the holder of a security interest obtains the optimal level of protection offered by the Act”. A security interest is only enforceable under the Act against third parties where it is perfected: see Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2015] VSCA 92. As will be seen below, the form of perfection, and the type of collateral covered by the security interest, can influence the level of priority offered by perfecting the security interest. It does not necessarily follow that an unperfected security interest renders the security agreement void. The point was made in Trenfield & Ors v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107 at [36]: “. . . The PPSA does not make an unregistered security void. Registration has certain consequences in the case of a contest between the holders of competing securities, and it also prevents the security from vesting in a liquidator or administrator if the company goes into external administration.18 Relevantly in the present case, upon the appointment of the administrators of the company, because the security interest granted by the company in respect of each parcel of goods supplied was unperfected, it ‘vests in the grantor immediately before the’ appointment of the administrators: PPSA s 267. Subject to that however broadly speaking an unperfected security is still effective as between the parties to the security agreement.” [21.5.2] Temporary perfection — s 21(1)(a) Like the notion of the “deemed” security interest, see s 12(3) and 13, temporary perfection (or perfection by force of the Act) is a statutory concept which provides perfection to a secured party (or deemed secured party) without requiring compliance with the PPSA generally (see s 19 and 20). That said, each circumstance where temporary perfection is bestowed by the PPSA prescribes its own requirements depending on the nature of the interest held. What s 21(1)(a) provides is that where the PPSA grants temporary perfection to a secured party, the party is deemed to be perfected until the end of the temporary period of perfection. However, temporary perfection — as perhaps self-evident from the name — has a finite duration and will often consist of its own separate requirements. By way of rationale, temporary perfection can be thought of as a “grace period” or period of time in which a secured party might be unable to perfect in the ordinary way. Personal property in transit provides one such example (see s 22(2), (3), (4)), personal property which is transferred provides another (see s 34). Importantly, over the course of the first two years in operation, the PPSA provided a transitional period of temporary perfection essentially with respect to arrangements which would, one, be caught by the PPSA had the PPSA applied at the time the arrangement was entered into (for example, a retention of title arrangement), and two, the “secured party” has complied with the law as it stood prior to the PPSA (for retention of title arrangements, no formal requirements were necessary). For many, temporary perfection provided the solution to disputes concerning priority interests in personal property over the course of the transitional period pursuant to Ch 9 of the PPSA. The lack of wide spread litigation in Australia during the first two years of operation of the PPSA indicates that many of the questions arising from the Act, as matters of construction, were dealt with by the commercial parties subject to the dispute or the insolvency practitioner/trustee appointed to an estate. Notwithstanding this important application of temporary perfection, the cessation of the transitional provisions does not mean that the notion of temporary perfection is now obsolete. See also, s 52 which provides a taking free rule for temporarily perfected security interests in certain types of collateral. [21.5.3] Perfection pre-requisites — s 21(1)(b) Section 21(1)(b) expressly requires that a security interest attaches to the relevant collateral (see s 19) and that the interest is enforceable against third parties (see s 20). While s 19 and 20 operate in their own right, in the absence of s 21(1)(b) there would be no consequence under the PPSA for failing to comply

with the statutory requirements. Section `21(1)(b)(iii) provides that in addition to compliance with s 19 and 20, a final requirement that s 21(2) be complied with is necessary in order for a secured party to benefit from a perfected security interest. [21.5.4] How to perfect — requirements for secured parties — s 21(2) Section 21(2) establishes the three methods available to a secured party seeking to perfect their security interest. The PPSA discusses, in detail, the various requirements and technicalities associated with satisfying the act of perfecting by registration or possession or control, s 21(2) establishes that only where one of these methods is satisfied in full does a security interest achieve perfected status. Section 21 can thus be thought of as the operative provision to which other provisions of the PPSA give rise to by virtue of prescribing the relevant requirements. It should be noted that while the various methods of perfection are discussed as “availabilities” to the secured party in this commentary, it is often a combination of the underlying instrument and the relevant collateral that determine which method of perfection is most appropriate and the secured party thus often has very little discretion in this regard. [21.5.4.1] Registration — s 21(2)(a) A secured party can perfect a securioty interest by registering a financing statement on the PPSR. A financing statement is defined by s 10 and, as discussed above at the commentary to s 20, is distinct from a security agreement. The particulars and logistics of registration are addressed by Pt 5.3 of the PPSA, however, attention should also be paid to the PPS Regulations when seeking to register an interest (see s 153 for more information). The registration option is available for any collateral class. Importantly, while there is no time limitation contained within s 21 of the PPSA regarding registration (and indeed similarly no such restriction exists under Pt 5.3) commercial parties and their legal representatives are directed to the Corporations Act 2001 (Cth), s 588FL which was introduced by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth). Section 588FL essentially provides that, in the general case of corporate grantors, secured parties have until the end of 20 business days to register their relevant security interest. This likely includes corporate grantors who act as a trustee of a trust: See, Re Psyche Holdings Pty Limited [2018] NSWSC 1254 at [20]. Failure to do so may trigger s 588FL(4) which provides, similar to s 267 of the PPSA, that the security interest vests in the grantor company. This is a departure from the former s 263 of the Corporations Act with respect to company charges under the former Ch 2K of that Act which provided that the charge would be void as against the liquidator. Under the PPSA, the vesting of the interest has the effect that not only is the instrument unenforceable as against an external administrator but also, if the relevant secured party is the appointing party, then the appointment may become invalid upon the dissipation of the interest. Such a question has not, to date, been dealt with squarely although the potential consequences of an automatic vesting for agreements entered by external administrators appointed to a grantor company were considered in Mentha, Re Arrium Limited (administrators appointed) [2016] FCA 972 where Davies J held (at [20]–[21]): “… Concern was expressed that it is arguable on a strict construction of s 588FL of the Act that the security interest granted in favour of EFIC under the EFIC Loan [a contract entered by the administrators appointed to Arrium Limited] will immediately and automatically vest in the OneWhyalla Mining Entities because the security will be granted after the ‘critical date’. For this reason, EFIC requested, and the administrators sought, an order under s 588FM extending the time for the security interests in favour of EFIC to be registered under the PPSA. The registration time can be extended by order of the Court: s 588FL(2)(b)(iv) and s 588FM of the Act. … It is appropriate to make an order under s 588FM extending the registration time to put beyond doubt that s 588FL will not, in this case, operate to vest the security interest in the OneWhyalla Mining Entities automatically because the ‘critical time’, being the commencement of a voluntary administration, has already passed.” Pursuant to s 588FM, the secured party who becomes aware of falling outside this time frame may apply to the Court to have the registration time fixed at a date later than the 20 business days. Such was the

case before Black J, in Re Cardinia Nominees Pty Ltd (2013) APPSR ¶701-005; [2013] NSWSC 32, where his Honour granted such orders on the condition that liberty to any insolvency practitioner appointment or unsecured creditor be reserved to discharge or vary the orders where they could establish that they were unduly prejudiced. This restriction on the order was made relevant by the lack of financial information about the grantor company. Re Barclays Bank plc (2012) APPSR ¶701-003; [2012] NSWSC 1095, similarly an application before Black J, did not contain the same liberty where the applicant company was able to establish that it, as grantor, was not in financial difficulty. Justice Hammerschlag also granted similar relief in the case of Re Apex Gold Pty Ltd ACN 124 893 778 (2013) APPSR ¶701009; [2013] NSWSC 881 despite evidence that the grantor company was in financial difficulty. His Honour did so by including the relevant liberty to apply. Both Black J and Hammerschlag J recognised the concept of “inadvertence” from pre-PPSA law with respect to company charges in the above cases. In particular, their Honours make reference to the well-known decision of McLelland J in Re Application of Guardian Securities Limited (1984) 1 NSWLR 95 and its continued relevance. For more information on the operation of s 588FL and 588FM of the Corporations Act see [588FL.2] Outline and [588FM.2] Outline. [21.5.4.2] Possession — s 21(2)(b) A secured party can alternatively, or in addition to seeking to perfecting by registration, perfect by possession (see for example Re MC United Masonry Ltd (1983) 2 PPSAC 237; 142 DLR (3d) 470 — possession of share certificates). Possession is defined, and the requirements enunciated, by s 24. Section 24 goes beyond the general use of the term, that is, “actual” possession or having literal possession of the underlying collateral, although actual possession satisfies the PPSA requirements. In Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In liquidation) (receivers and managers appointed) [2017] FCA 866, it was accepted by the Court that possession can exist for both tangible and intangible assets, though not necessarily all forms of intangibles due to the definition of possession in s 24. The Court held that merely appointing a receiver over a corporate grantor was not sufficient to constitute perfection by possession (at [144]): “The receiver upon his or her appointment has the authority to deal with the assets to which he or she is appointed, to the exclusion of the directors of the company, defined by his or her contractual and/or statutory rights to deal with those assets, but that does not amount to actual or apparent possession.” Possession by enforcement does not constitute possession for perfection purposes under the PPSA, that is, a party cannot seize or repossess the underlying collateral and claim perfection by possession. This outcome is undesirable in any event as perfection by possession applies only when the collateral is possessed by the secured party (whereby the term “possession” is defined under s 24). In Flown Pty Ltd v Goldrange Pty Ltd (2016) 316 FLR 81; [2016] WASC 419, it was held that a landlord who invalidly re-entered leased premises did not thereby obtain perfection by possession of the collateral (equipment on site). When the landlord failed to comply with the termination provisions of the lease and invalidly re-entered the property, the grantor appointed administrators which caused the security interest in the equipment to vest under s 267 of the PPSA. The later possession occurs, the later the priority period afforded to the secured party and any interest perfected before possession is taken would take priority to the repossessing party in any event (see s 55 for more information with respect to priorities). Like registration, perfection by possession can be taken over any collateral that is capable of being possessed. While the PPSA imposes no restriction, certain instruments are premised on the very fact that possession of the collateral will reside with the grantor/debtor and not the secured party (such as leases, consignments or mortgages). While the PPSA does not limit the security interests to which perfection by possession may apply, commercial realities offer a more appropriate guide as to the scope of perfection by possession. It is additionally worth noting here that a security interest can be perfected by more than one mechanism and as long as it is “continuously perfected” (a concept discussed at s 56) it will retain priority from the

time at which perfection first arose. In the authors’ view, it is thus beneficial for parties perfecting by possession to also perfect by registration. This is especially so where parties may anticipate even brief or temporary loss of possession over the underlying collateral. This is because the effect of a break in the chain of perfection may have the effect of postponing priority. The PPSR thus offers a more permanent form of perfection. [21.5.4.3] Control — s 21(2)(c) The concept of perfection by control is somewhat more complex relative to registration and possession. This is partially due to it being a limited form of perfection restricted to certain security interests but also because its application differs even among the defined categories to which it is available. The concept of control is addressed by the PPSA at s 25–29. [21.5.5] Order of attachment and steps to perfect are irrelevant — s 21(3) As previously stated in the commentary to s 19, steps to perfect can occur prior to the attachment of a security interest to the relevant collateral without affecting the validity of the perfected instrument once the grantor obtains rights in the relevant collateral (for a discussion of the appropriate “rights” see s 19). Section 21(3) provides explicit recognition of this as in the usual course parties would expect that a grantor could only convey a security interest once they had rights over the collateral in question. See also, s 161. The ability to, in essence, “pre-perfect” or “pre-register” a security interest is not merely academic and is encouraged by the authors as the secured party preserves their priority when pre-perfected, not at the time the security interest attaches but rather at the time the interest is perfected by registration (noting that registration is the only possible form of perfection which can benefit from this element of the PPSA in practice as perfection by possession and control give rise to the attachment of a security interest). This is so, as long as the security interest actually attaches prior to a point in time where the security interest is sought to be enforced. The following example demonstrates the point: “On 1 May 2011, Grantor A seeks to borrow funds from Creditor B. Creditor B wishes to take security over the personal property of Grantor A, however, Grantor A presently does not have enough collateral to secure the obligations owing. Grantor A informs Creditor B that they will be receiving a piece of sophisticated machinery in two months’ time. On 7 May 2011 Creditor B registers a security interest specifying each item of Grantor A’s personal property. Grantor A subsequently borrows additional funds from Creditor C. On 1 July 2011 a security interest is created over ‘all present and after-acquired property’ and perfected the same day. Grantor A has rights in the sophisticated machinery by this point. Grantor A defaults such that obligations remain outstanding as to both Creditor B and Creditor C. Creditor C argues that the security interest held by creditor B against the sophisticated machinery is invalid as the interest had not yet attached.”

Pursuant to s 20(3), Creditor C’s argument fails. In the British Columbia Court of Appeal decision, 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) 290 at [3], this element of the PPSA was considered: “the Act expressly permits the registration of a financing statement (not the security agreement itself) ‘before a security agreement is made and before a security interest attaches’. Thus a lender, or prospective lender, may effect a registration, which does not require the signature (or even the knowledge) of the customer or borrower, and at a later date, obtain the latter’s written assent to the granting of a security interest. According to Professors R.C. Cuming and R.J. Wood (British Columbia Personal Property Security Act Handbook (4th ed., 1998) at 313), this feature of the PPSA was designed to facilitate commercial financing by enabling a lender to file a financing statement in the registry, confirm its priority position via a search, and then advance funds immediately upon the borrower’s execution of a security agreement. The authors note that although there is ‘potential for abuse of this right’, the Act contains an ‘elaborate system of checks and balances’. (Presumably, one of these checks is the non-enforceability against third parties of any security interest (e.g., one granted orally) until the debtor has signed a security agreement that complies with s. 10.).” There is no reason in the view of the authors why the same rationale would not apply to the Australian provision. [21.5.6] Single registration, multiple interests — s 21(4) Section 21(4) prescribes that a single financing statement may perfect multiple security interests. This position is the same among the Canadian provinces, see Re Hickman Equipment (1985) Ltd (2003) 4 PPSAC (3d) 252; 41 CBR (4th) 101, as accepted on appeal in Re Hickman Equipment (1985) Ltd (2003) 7 PPSAC (3d) 37; 2 CBR (5th) 226; Royal Bank v Agricultural Credit Corp of Saskatchewan (1994) 7 PPSAC (2d) 1; 115 DLR (4th) 569; Prince Edward Island Potato Board v Cardigan Feed Services Ltd (2006) 10 PPSAC (3d) 135; 262 Nfld & PEIR 91. While commercially convenient as the lodgement fee only has to be paid once, the provision, in the authors’ respectful view, is deceptive to some degree. Section 21(4) should read, or include a note to the effect, that security interests of the same type may be perfected by the same registration and not security interests generally. This is because two types of security interests exist under the PPSA, standard security interests or “general security agreement” (otherwise termed “GSAs”, a term common among the Canadian case law on point) and purchase money security interests (PMSIs). Without seeking to go into exhaustive depth (the discussion for which is better addressed at s 153), as part of the Australian registration requirements, a field is available on financing statements to indicate whether the security interest is a PMSI. This can only be done once for each financing statement and thus where there is a mixture of both standard security and PMSI collateral in one financing statement it may be misleading to indicate one way or another what interests are held by the secured party, and in what various capacities (see s 164 regarding misleading defects). The logistics of perfecting by registration thus effect the application of s 21(4). It is for this reason that the in the authors’ view one financing statement be lodged for all standard security interests and another be lodged with respect to PMSIs. The policy objective of minimising cost is not substantially altered by requiring two financing statements to be registered and compared to the cost of failing to hold a perfected security interest such compliance is advisable. In Re Carpenter International Pty Ltd [2016] VSC 118 at [70], it was stated that: “just because s 21(4) of the PPSA allows for multiple security interests to be perfected in a single registration, does not mean that it is reasonable or even possible for the [secured parties] to register their respective interests in a single registration”. [21.6] Further reading • Explanatory Memorandum [2.19, 2.25, 2.27, 2.30–2.33, 2.122]. • ALRC Report No 64 [–]. • Whittaker Report [5.3], [6.10], [7.2], [7.7], [9.1], [9.3]. Footnotes

Footnotes 18

Duggan and Brown “Australian Personal Property Securities Law” (2nd Ed 2016) para 5.59, 5.60.

¶22 SECTION 22 PERFECTION — GOODS POSSESSED BY A BAILEE ¶2-035 SECTION 22 PERFECTION — GOODS POSSESSED BY A BAILEE Text of s 22 [22.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 50

Saskatchewan

PPSA 1993

s 27

Ontario

PPSA 1990

s 26

USA

UCC Article 9 (rev) § 9-312(d)

[22.2] Outline The perfection avenues prescribed by s 22 operate in addition to the existing requirements under s 21. Section 22 should thus be read as a supplement to, and not in lieu of, s 21. Section 22 recognises the commercial nature of bailment transactions as a discrete class of security interest and aims to facilitate the various stages of transferring possession by providing the secured party with a method of preserving their interest while still maintaining the ability of the bailee to deal with the underlying personal property in a commercial sense. The provision also incorporates the use of documents of title which adds an extended dimension to the PPSA and should be understood prior to approaching the section. [22.3] Cross-references • Section 21 provides the main perfection rule. • Section 153 provides for the registration of financing statements. [22.4] Concepts • Document of title This is defined in s 10. See also, s 8. • Negotiable document of title This is discussed below. See also, s 8. • Possession This is defined in s 24. • Temporary perfection See s 21. [22.5] Commentary [22.5.1] Additional perfection considerations for goods possessed by bailee — s 22(1) ....................................XX [22.5.2] Temporary perfection for documents in transit — s 22(2), (3), (4) ....................................XX [22.5.3] Application ....................................XX [22.5.4] Priorities ....................................XX [22.5.1] Additional perfection considerations for goods possessed by bailee — s 22(1)

The term “bailment” is not defined by the PPSA, however, is a concept well entrenched in at law and is thus widely understood and applied. The authors see no reason why the introduction of the PPSA would alter the general definition of a bailment. A bailment can be described as the temporary transfer of possession of goods from one (the bailor) to another (the bailee) on the condition that the goods will be returned to the bailor at the end of the bailment or dealt with according to the bailor’s instructions. Pursuant to s 12, a bailment constitutes a security interest where it secures payment or performance of an obligation in substance. Pursuant to s 13, a bailment may be a deemed security interest even where it does not secure payment or performance of an obligation. Bailments may therefore also constitute purchase money security interests (PMSIs) pursuant to s 14. As the substance over form approach dictates, merely labelling an interest as a bailment does not, however, automatically create a security interest. Some bailments are purely gratuitous for instance and the underlying effect of the transaction will need to be analysed on a case-by-case basis. See also, s 13(3) which excludes gratuitous bailments from the concept of a PPS lease. A security interest can be perfected where the goods are in the possession of a bailee who is neither the grantor nor the debtor (for example, where the goods are in transit) which is what this section is concerned with. Section 22(1) prescribes that a security interest can be perfected by registration or possession like any other form of security interest (see s 22(1)(a) and 22(1)(b) respectively). This includes if the goods are in the possession of an agent of the secured party. However, if the secured party does not register a financing statement or take possession of the goods then this section allows the secured party to perfect their security interest by obtaining a document of title from the bailee who possesses the goods. It should be noted that unless the bailee is the agent of the secured party the secured party cannot possess the goods if the bailee possesses them (see s 24). The secured party may also perfect their security interest in the goods possessed by the bailee indirectly by perfecting a security interest in a negotiable document of title that has been issued by the bailee. [22.5.2] Temporary perfection for documents in transit — s 22(2), (3), (4) Where a security interest is granted such that possession of the bailed property lies with a party other than the grantor or debtor, the interest will be temporarily perfected from the time the negotiable document of title is issued until the secured party takes possession of the document (pursuant to s 22(2)). The security interest then becomes unperfected unless one of the other three forms of perfection occurs (see s 21). The grace period extends for five business days and thus operates by way of interim perfection to ensure the secured party has time to duly obtain possession or perfect by some other means. If the secured party over the document of title fails to perfect within this time — the temporary perfection period is forfeited and the security interest in the document is treated as unperfected at all material times — including over the five business day “temporary perfection” period. “Temporary perfection” is a class of perfection bestowed by the PPSA and discussed in more detail under s 21. [22.5.3] Application An example of how this section operates is provided in the Explanatory Memorandum (at [2.21]) to the PPSA, extracted in whole as follows:

Bank A finances Debt A’s purchase of portable steel toilets manufactured in Melbourne. Debt A is located in Sydney, so Debt A arranges for the toilets to be freighted to Sydney. The carrier issues a negotiable document of title and forwards this to Bank A. Once Bank A receives possession of the negotiable document of title, it has a perfected security interest in the toilets. Where the secured party is able to take possession of the document of title within five business days of its issue, the security interest would be deemed to be perfected from the moment the document of title was issued.

The ability to perfect a security interest without having actual possession of the underlying personal property is important to prevent misappropriation as perfection by possession requires actual possession of the collateral (see s 65; See also, s 24 regarding possession). The issue arose in the Saskatchewan Court of Queen’s Bench decision, National Bank of Canada v Makin Metals Ltd (1992) 4 PPSAC (2d) 167; 106 Sask R 266. While overruled on appeal regarding whether or not the doctrine of marshalling could apply under the PPSA (see National Bank of Canada v Makin Metals Ltd (1994) 6 PPSAC (2d) 164; 116 Sask R 237), Scheibel J held, with regards to the temporary perfection issue at trial, that the result of a failure of the secured party to obtain an interest in a document of title (as no document was issued on the facts) was that the secured party could only obtain perfection by registration. On the facts, registration did not occur and, as a broader point, registration would only be an effective form of perfection when the security interest duly attached, that is, after the personal property was itself in the hands of the grantor. [22.5.4] Priorities The commercial point to be made here is that priority extends to the perfected security interest in a document of title over a security interest in the underlying collateral which can be rendered unperfected by s 22(3). Parties engaged in the business of bailing collateral should thus be mindful of the legal effect of documents of title under the PPSA. For more information regarding the priority of documents of title see Pt 2.6, Div 5. [22.6] Further reading • Explanatory Memorandum [2.27, 2.107]. • ALRC Report No 64 [–]. • Whittaker Report [5.3].

¶2.3 PART 2.3 — POSSESSION AND CONTROL OF PERSONAL PROPERTY

¶23 SECTION 23 GUIDE TO THIS PART ¶2-040 SECTION 23 GUIDE TO THIS PART Text of s 23

¶24 SECTION 24 POSSESSION ¶2-045 SECTION 24 POSSESSION Text of s 24 [24.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 18

Saskatchewan

PPSA 1993

ss 10(2), 24(2)

Ontario

PPSA 1990

no equivalent

USA

UCC Article 9 (rev) § 9-313(h)

[24.2] Outline This section clarifies when possession will occur for the purposes of the PPSA. Identifying possession of particular collateral is a foundational concept under the PPSA. The ability to take possession of collateral provides a method of perfecting a security interest over collateral that is capable of being possessed. Possession of the collateral may also offer protection against some of the taking free rules essentially by removing the ability of the grantor to misappropriate the property. The concept of possession is also important for taking priority in respect of purchase money security interests (PMSIs). [24.3] Cross-references • There are no references in the PPS Regulations to possession. Possession is however a central concept under the PPSA and appears in over 40 sections of the Act. [24.4] Concepts • Actual or apparent possession The Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) states that “possession under the Bill would not equate to the common law meaning of possession”: at [2.32]. Nonetheless, the PPSA offers no definition of possession beyond s 24 and so the application of the term at general law remains useful. Possession at general law has been most notably explained by Pollock F and Wright R, An Essay on Possession in the Common Law (1888, Clarendon Press). They discussed three categories of possession: de facto possession (an actual relation between a person and a thing, a matter of fact), legal possession (the state of being a possessor in the eye of the law) and the right to possess or have legal possession (eg the right of an owner of stolen goods). The basis of possession was explained by Pollock and Wright as the occupation or control over property with an intention to exclude strangers from interfering with the occupier’s use. See generally Parker v British Airways Board[1982] QB 1004. The concept of “apparent possession” originally derives from the bills of sale law where it has been determined according to an objective standard as to who a third party would believe to be in possession of the property: see Robinson v Briggs(1870) LR 6 Exch 1; Koppel v Koppel[1966] 2 All ER 187. • Chattel paper See [12.5.3]ff, especially [12.5.3.1]. • Common carrier The common carrier is one who “holds himself out as ready without discrimination to carry the goods of all persons who may choose to employ him or send him goods to be carried”: see James v Cth(1939) 62 CLR 339. • Constructive possession

See Flown Pty Ltd v Goldrange Pty Ltd[2016] WASC 419. • Investment instrument This is defined under s 10 by reference to the definition of financial products in the Corporations Act 2001 (Cth) (see Pt 7.1, Div 3 of that Act). • Negotiable instrument This is defined under s 10 to include traditional negotiable instruments such as bills of exchange, promissory notes and cheques but also includes further instruments (such as particular letters of credit). [24.5] Commentary [24.5.1] Possession as a concept ....................................XX [24.5.2] Perfection by possession ....................................XX [24.5.3] Repossession does not constitute perfection by possession ....................................XX [24.5.1] Possession as a concept Possession operates differently for the various forms of collateral and instruments governed by the PPSA to best reflect existing commercial practices. The underlying policy of the PPSA is to give notice of security interests through perfection. There are various methods for giving notice to third parties, through registration of a financing statement, through control of the collateral (only for limited types of collateral) and through taking possession of the collateral. This section clarifies that the PPSA does not operate on the basis of constructive possession. Pursuant to s 24(1) and (2), possession is a mutually exclusive concept, that is, where one party has possession another cannot and thus only one party can have possession of the underlying collateral at any point in time. Like the PPSR, possession of the underlying collateral is a permitted form of perfection under the PPSA as it put a third party on notice of an existing security interest. In Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In liq) (recs and mgrs apptd) [2017] FCA 866, Markovic J held (at [126]–[128]): “The meaning that would otherwise be applicable to the word possession in s 21(2)(b) is, in my opinion, the meaning of that term at common law. In Gamer’s at 243 [Gamer’s Motor Centre (Newcastle) Pty Ltd v NatWest Wholesale Australia Pty Ltd [1987] HCA 30; (1987) 163 CLR 236], Mason CJ rejected a submission that the word ‘possession’, as used in the definition of ‘delivery’ under the Sale of Goods Act 1923 (NSW), would be given its common or ordinary meaning of ‘actual physical custody’. His Honour noted that ‘“possession” is an established legal concept, particularly in its application to goods and chattels’. The same must be said of ‘possession’ in its application to articles of personal property covered by the PPS Act. Thus, the word possession in the PPS Act has its common law meaning, modified to the extent provided for in s 24 of the PPS Act. As set out at [100] above, subss 24(1) and (2) limit the meaning of ‘possession’ by reference to the party who has the ‘actual or apparent possession’ of the personal property. That is, as between a secured party and a grantor or debtor, a secured party cannot have ‘possession’ if the grantor or debtor, or someone on their behalf, has actual or apparent possession: s 24(1). Similarly, a grantor or debtor cannot have ‘possession’ of personal property if the secured party, or someone on their behalf, has actual or apparent possession: s 24(2). It is at least clear from the terms of subss 24(1) and (2) that constructive possession is not sufficient. The result is that ‘possession’ in s 21(2)(b) has its common law meaning but limited, relevantly, for the purposes of the issue before me, by the terms of ss 24(1) and (2) to exclude constructive possession. It follows, contrary to Knauf’s submission, that the right to possess does not equate to possession for the purposes of the PPS Act.” See also Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd (2018) 131 SASR 506; [2018] SASCFC 95.

In Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132, the Court held that a beneficiary’s residual interest in a trust fund pending the outcome of commercial arbitration was perfected by the “possession” of the funds (under s 21(2)(b)). With respect, this appears to misconstrue the meaning of possession within the meaning of s 24 of the PPSA which, as Knauf Plasterboard demonstrates, refers back to the common law meaning of the term (as to which see generally Sir F Pollock and Sir RS Wright, An Essay on Possession in the Common Law, Clarendon Press, Oxford, (1888)) in reference to possession of tangible property. Subsection 24(5) recognises an exception to this for chattel paper that is in electronic form, but for other forms of intangible property the PPSA recognises the concept of control as a means of perfection (see s 21(2)(c), 25-29). Of course, registration is also available as a means of perfection. [24.5.2] Perfection by possession A secured party who possesses the underlying collateral over which their interest arises perfects by possession pursuant to s 21(2)(b) (see [21.5.3]). Perfection is achieved for the purposes of the PPSA at the time the secured party obtains actual or apparent possession of the underlying collateral without any additional formal requirements: See Transamerica Commercial Finance Corp Canada v Royal Bank (1990) 1 PPSAC (2d) 61; 70 DLR (4th) 627 at [19] (Sask CA). The time a security interest is first perfected is important when considering priority of competing interests pursuant to Pt 2.6. A security interest will remain perfected by possession as long as it is continuously perfected in accordance with the principles of s 56. The consequences of perfecting by possession and subsequently losing possession can result in the security interest becoming subordinated to other security interests arising later in time (irrespective of the fact that the subsequent interests took with notice of the possessing secured party); see [21.5.3]; See also, Paccar Financial Services v Sinco Trucking Ltd (Trustee of) (1989) 9 PPSAC 7. Possession is also important for determining whether a PMSI has super priority under s 62: See further, C Dixon Fuels Ltd v SWS Fuels Ltd (2011) 17 PPSAC (3d) 175; [2011] NSCA 35. Possession is also the preferred method of perfection for some forms of collateral such as share certificates: see Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 at [24] (Alta CA). The Australian PPSA provides particular rules of possession for goods transported by common carrier, certain negotiable instruments, chattel paper evidenced electronically and investment instruments — all of which benefit from perfection by possession by virtue of the taking free provisions pursuant to Pt 2.5 or priority rules pursuant to Pt 2.6. This does not alter the general rule that perfection by possession is available for all forms of collateral, however, it is commercially unfeasible in certain circumstances (for example, a leasing arrangement). It was held in the Ontario Supreme Court of Justice case, Fairbanx Corp v Royal Bank (2009) 15 PPSAC (3d) 265; 57 CBR (5th) 310 at [5], that intangibles could not be perfected by possession which gives rise to the concept of possession by control discussed over the balance of Pt 2.3. The point of perfecting a security interest generally must be kept in mind when considering perfection by possession. To perfect is essentially to put the world at large on notice of an existing security interest. As s 21 (and the commentary thereto) provides, the onus is predominately on the secured party to ensure their interest is perfected in order to retain particular priorities pursuant to Pt 2.6. That being said, with regards to perfection by possession, what constitutes sufficient possession for the purposes of “apparent” possession is not necessarily a question which can be assessed from the perspective of an unrelated third party looking in on the transaction. The point was made in McCloy v Manukau Institute of Technology (2013) FPPSR ¶700-013; [2013] NZHC 936 at [71] where Collins J held: “Possession is recognised as a form of perfection because it gives publicity to the existence of that party’s security interest. In determining what is meant by ‘perfection by possession’, regard must be had to that underlying policy rationale. In this case, Hobson Gardens were not in possession of the hoists prior to Mainzeal’s default. Mainzeal had apparent control of the hoists up until that point, even though they were on Hobson Gardens’ building. Hobson Gardens then secured apparent control or

possession upon Mainzeal’s default. That amounts to seizure. Section 41(1)(b)(ii) of the Act excludes seizures or repossessions from actions which constitute acquiring possession of collateral” (see s 21(2)(b) of the Personal Property Securities Act 2009 (Cth)). Some context may assist. Mainzeal was contracted by Hobson Gardens to perform remedial construction work, part of which required the two hoists in question to be placed on the land of Hobson Gardens. The findings of Collins J above are such that even where personal property (here, the hoists) is on the land of the party asserting possession, possession may not automatically follow. Here, possession remained with Mainzeal and was only conferred upon default (and even then subject to the exclusions for repossession). Bank of New Zealand, who asserted priority over the relevant hoists, were in any event perfected earlier in time and thus prevailed. Whether or not his Honour’s analysis is applied in Australia, there is no doubt something to be said about the concept of “apparent” possession and notions of who “controls” the underlying asset even where prima facie possession of the relevant property is with a particular party. An example of this could be property in the form discussed in McCloy v Manukau Institute of Technology where particular machines are located on land owned by a different person or entity but exhibit some characteristic of ownership elsewhere (for instance advertising decals). The ability of a third party to be misled by possession should also be considered. For instance, if a crane or piece of construction equipment is located on a worksite of an entity unrelated to construction then it may well follow that the machinery is not in the possession of the party contracting the services of the constructor. If, however, the crane is otherwise located on a construction site for a construction industry, it may be quite reasonable to conclude that the site owner owns the crane. What this discussion demonstrates is the further appeal of perfecting by registration which, in effect, circumvents these potential complications. [24.5.3] Repossession does not constitute perfection by possession While a security interest is perfected upon the taking of actual or apparent possession, s 21(2)(b) provides that repossession (for breach of contract perhaps) does not constitute the taking of possession sufficient to perfect a security interest. Fundamentally, repossession constitutes a step to enforce a security interest. In most cases, unless the security interest is otherwise perfected it is not likely that the repossessing party would have ability to repossess (or if they did repossess, they would not have authority to retain possession of the underlying collateral: see Ch 4). This is because an unperfected security interest is subject to the priority of any other perfected security interest in the same collateral (see s 55). Further, even if there are no competing security interests in the same collateral, repossession extinguishes the security interest such that on and from the time of repossession there is no security interest which could be perfected. Put another way, the right to enforce which is sought to be preserved by a perfected security interest is already effectuated upon repossession. All that is left in such circumstances is a residual claim against the debtor for breach of contract (namely, one in damages) should the repossession not satisfy all obligations outstanding. [24.6] Further reading • Explanatory Memorandum [2.32–2.38]. • ALRC Report No 64 [3.6]. • Whittaker Report [5.3].

¶25 SECTION 25 CONTROL OF AN ADI ACCOUNT ¶2-050 SECTION 25 CONTROL OF AN ADI ACCOUNT Text of s 25 [25.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-104

[25.2] Outline This section makes it clear that perfection by control over an authorised deposit taking institution account (ADI account) can only occur if the secured party is the authorised deposit taking institution (ADI). The current wording of the section was inserted by amendments made in 2011; see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth), Sch 2, s 12. An ADI will have control over ADI accounts held with it pursuant to the terms of a security agreement. [25.3] Cross-references • The concept of control of an ADI account arises under several areas of the PPSA. Control of an ADI over an ADI account perfects any security interest held by the ADI over that account (s 21(2)(c)). • It is particularly important under the priority rules (see s 75) where control over an ADI account is given priority even as against the “super priority” purchase money security interest; see s 75; see s 14 regarding the definition of a purchase money security interest. See also, s 57 which confers priority on security interests perfected by control as against security interests perfected by other methods. • Control of an ADI account is also relevant in relation to all asset general security agreements (the PPSA equivalent of floating charges), which is discussed below (See also, s 340–341A). [25.4] Concepts • ADI This refers to a body authorised under the Banking Act 1959 (Cth) to accept deposits (authorised deposit taking institution). • ADI Account This term is defined under s 10 as “an account, within the ordinary meaning of that term, kept by a person (whether alone or jointly with one or more other persons) with an ADI that is payable on demand or at some time in the future (as agreed between the ADI and the person or persons)”. This is clearly referring to a bank account, including a deposit account and a loan account. • Control Control is not generally defined by the PPSA but rather is given specific meanings for particular types of collateral through s 25–29. For a general description of what control constitutes and why it is included as a class of perfection under the PPSA see [21.5.4.3]. [25.5] Commentary Perfection by control is a relatively new concept under the foreign PPS regimes, as discussed in a general sense at [21.5.4.3]. The legislative mechanics of perfecting by control amongst the Canadian

provinces derives from the various Securities Transfer statutes (where enacted), as opposed to the equivalent PPS legislation directly: see Re 1231640 Ontario Inc (2007) 13 PPSAC (3d) 57; 289 DLR (4th) 684 at [4] (Ont CA). For a discussion of the various Securities Transfer Acts see [26.5] below. In Australia, the concept of control over an authorised deposit taking institution account (ADI account) is particularly important for security interests in the nature of floating charges. Perfection by control over personal property generally confers the highest priority where there is a dispute between multiple secured parties. If the authorised deposit taking institution (ADI) does not have control over the ADI account then it could lose out in a priority contest. Where an ADI has a general security agreement over a grantor’s property this will usually include a requirement that the debtor establish an account with the ADI in which funds generated by the grantor’s trading activities are to be paid. This serves to provide the commercial equivalent of a pre-PPSA “all assets fixed and floating charge”. Section 339(3) states that a reference to a charge over property is taken to be a reference to a security interest that has attached to either a circulating asset or to personal property that is a non-circulating asset. Sections 339(4) and (5) state that a fixed charge is taken to refer to a security interest that has attached to personal property that is not a circulating asset and floating charges refer to security interests that have attached to circulating assets. The distinction between circulating and non-circulating assets will be relevant for security interests granted by corporations as the pre-PPSA priority of employee entitlements over floating charge claims will persist in respect of charges over circulating assets; See further, Pt 9.5. The concept of a circulating asset is then defined in s 340. Section 340(1) defines a circulating asset as being either personal property covered by s 340(5), or pursuant to s 340(1)(b): “in any other case — the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor’s business, free of the security interest”. Section 340(5) covers the following types of personal property: (a) an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided) (b) an account that is the proceeds of inventory (c) an ADI account (other than a term deposit) (d) currency (e) inventory (f) a negotiable instrument. However, these categories of personal property will not be circulating assets if s 340(2) or (3) apply. Only s 340(2) is relevant for ADI accounts and it states that personal property listed under s 340(5) will not be a circulating asset if an effective registration with respect to the property occurs whereby the grantor discloses that the secured party has control of the personal property and the secured party actually has control of the personal property. This means that although an ADI may perfect its security interest by taking control over an ADI account, if it wishes to exclude that account from the “circulating assets” of the grantor then it will also need to register a financing statement which gives public notice of its control over the account. The rationale here is the primacy of the PPSR which seeks to introduce a level of certainty and predictability with regards to security interests taken over personal property. The 2011 amendments, namely the Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth), Sch 2, s 64, saw the inclusion of s 341A which seeks to clarify how an ADI can control an ADI account for the purposes of s 340(2). Section 341A allows the ADI who is the secured party to avoid the ADI account being classified as a circulating asset of the grantor in whose name the account is held. This new section has a similar wording to the previous wording of s 25. Section 341A(1)(a) makes it clear that merely being the ADI as a secured party will be sufficient to prove control over the ADI account. Section 341A(2) states that the mere fact that a debtor is permitted by the ADI to direct the disposition of

funds from the ADI account will not cause the ADI to lose its control over the ADI account. The Explanatory Memorandum to the 2011 changes makes it clear that only the ADI with which the ADI account is held is permitted to exercise control over an ADI account for the purposes of perfection: at [79] and [86]. It should be noted that s 340(1)(d) also specifies that a secured party may have control over an ADI account within the ordinary meaning of the term control (see s 340(1)(a)). However, this does not apply for the purposes of ascertaining perfection as s 25 states that control over an ADI account for the purposes of s 21 can only occur if the secured party is the ADI with which the ADI account is held. For more information on fixed charges, floating charges and circulating assets see Pt 9.5. It should also be noted that not all rights a bank has over accounts held in its customer’s names will constitute a security interest. As noted in the commentary to s 8 (see [8.5.4]), the right of a bank to combine accounts or exercise rights of set-off are excluded from the PPSA. [25.6] Further reading • Explanatory Memorandum [2.39–2.48]. • ALRC Report No 64 [2.17]. • A Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 JBFLP 3.

¶26 SECTION 26 CONTROL OF INTERMEDIATED SECURITIES ¶2-055 SECTION 26 CONTROL OF INTERMEDIATED SECURITIES Text of s 26 [26.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 2(1) (See also, the Securities Transfer Act 2006)

Ontario

PPSA 1990

s 1(1) (See also, the Securities Transfer Act 2007)

USA

UCC Article 9 (rev)

§ 9-106 (See also, UCC Article 8)

[26.2] Outline This section explains how a secured party may take control of intermediated securities. [26.3] Cross-references • Section 14 provides that a security interest in intermediated securities cannot be a purchase money security interest. • Section 21 notes that security interests in intermediated securities may be perfected by control. • Section 31 provides rules for proceeds arising out of intermediated securities. • Section 49 provides a taking free rule for intermediated securities. • Section 57 provides priority rules if more than one secured party has perfected their interest by control. • Section 109 provides that Ch 4 has a limited application to security interests in intermediated securities that are perfected by control. [26.4] Concepts The key concepts of intermediated securities and securities accounts were discussed in the annotations to s 15. [26.5] Commentary This provision is similar to various provisions in the Securities Transfer Acts in force amongst the Canadian provinces from 2006 (including Ontario and Saskatchewan) and also pursuant to the UCC Article 8 in the United States. The Official Comment to the relevant provision in the UCC Article 8 (§ 8106) states that “Obtaining ‘control’ means that the purchaser has taken whatever steps are necessary, given the manner in which the securities are held, to place itself in a position where it can have the securities sold, without further action by the owner”. The Official Comment goes on to contrast the concept of control with the concept of possession: “A principal purpose of the ‘control’ concept is to eliminate the uncertainty and confusion that results from attempting to apply common law possession concepts to modern securities holding practices”. To “control” thus goes beyond mere possession, that is, to have what can be describes as “quasiownership” capacity when dealing with the underlying collateral — in this case, the intermediated security. This elevated status thus justifies the PPSA position that security interests perfected by control take priority to all other perfected interests pursuant to s 57. This provision was amended in 2011 to clarify that it applies to security interests over CHESS (Clearing

House Electronic Subregister System) intermediated securities; see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth), Sch 2, s 13 and 14. As the Explanatory Memorandum to the amending legislation states (at [32]): “a secured party would have control of an intermediated security if there is an agreement under which the secured party is able to control electronic communications for dealing with the intermediated security”. [26.6] Further reading • Explanatory Memorandum [2.39–2.48]. • ALRC Report No 64 [2.17]. • Whittaker Report [5.3].

¶26 SECTION 27 CONTROL OF INVESTMENT INSTRUMENTS ¶2-060 SECTION 27 CONTROL OF INVESTMENT INSTRUMENTS Text of s 27 [27.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 2 (See also, the Securities Transfer Act 2006)

Ontario

PPSA 1990

s 1 (See also, the Securities Transfer Act 2007)

USA

UCC Article 9 (rev)

§ 9-106 (See also, UCC Art 8)

[27.2] Outline This section sets out a series of rules that allow for control over investment instruments. [27.3] Cross-references • Section 14 provides that a security interest in investment instruments cannot be a purchase money security interest. • Section 21 notes that security interests in investment instruments may be perfected by control. • Section 24 provides rules for possession of investment instruments. • Section 31 provides rules for proceeds arising out of investment instruments. • Section 36 provides for the temporary perfection of security interests in investment instruments. • Sections 49 and 50 provide taking free rules for investment instruments. • Section 57 provides priority rules if more than one secured party has perfected their interest by control. • Section 109 provides that Ch 4 has a limited application to security interests over investment instruments that are perfected by control. [27.4] Concepts • Ability to transfer or otherwise deal (s 27(3)(b)) This subsection can be read in different ways. On one view it is possible that the terms of a security agreement that allow the secured party to transfer the securities may be sufficient to satisfy this subsection. Another view is that this will only be satisfied if the secured party has signed transfer instruments. It should be noted that the equivalent US provision requires an indorsement of the security instrument to the secured party (UCC Art 9 § 8-106(b)). • Investment instruments This term is defined under s 10 as any of the following: – shares or debentures in a body corporate – debentures, stocks or bonds issued by government – derivatives

– foreign exchange contracts that are not derivatives – assignable options to have an allotment of an investment instrument made to the holder of the option – interests or units in a managed investment scheme – units in shares – financial products traded on a licensed financial market – financial products prescribed by the regulations (specifically, reg 1.10), namely: i) Australian carbon credit units ii) carbon units iii) certain eligible international emissions units – any financial product consisting of two or more financial products as listed above These terms have the same meaning as they do in the Corporations Act 2001 (Cth) (see Ch 7 of that Act). Australian carbon credit units, carbon units and eligible international emissions units have specific meanings under their respective legislation (see reg 1.10). The definition of investment instruments in s 10 excludes, however, the creation or transfer of a right to payment in connection with interests in land, unless the writing evidencing the creation or transfer does not specifically identify the land; a document of title (see [8.5.1]); and intermediated security (see s 15, 26) or a negotiable instrument (See further, s 29). [27.5] Commentary This section provides several rules that allow for control to be taken over “investment instruments” which constitutes a broader category of collateral than “intermediated securities”. The general rule, pursuant to s 27(2), allows the registered owner to perfect by control (where the registered owner is not the debtor or grantor), although the wording does not include nominees of the secured party to be registered. Section 27(5), however, specifies that an uncertificated investment instrument may be subject to control where the issuer of the instrument registers a person (other than the grantor or the debtor) as the owner on behalf of the person asserting control or where the registered owner gives a written acknowledgement that they hold it on behalf of the controller. The second rule (s 27(3)) allows for control over certificated investment instruments which imposes an active requirement upon the person claiming control to firstly, have possession of the instruments (see s 24), and secondly, be able to (either personally or through a nominee) transfer the relevant instruments or otherwise deal with them. Section 27(6) provides flexibility regarding the rights of the registered owner of the instrument. Where available, investment instruments should thus be perfected by control in the authors’ view. This is the case not only due to the significant grant of priority conferred by s 57, but also due to the exclusion of such property from attracting PMSI status pursuant to s 14(2). [27.6] Further reading • Explanatory Memorandum [2.39–2.48]. • ALRC Report No 64 [2.17]. • Whittaker Report [5.3].

¶28 SECTION 28 CONTROL OF A LETTER OF CREDIT ¶2-065 SECTION 28 CONTROL OF A LETTER OF CREDIT Text of s 28 [28.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

§ 9-107 (See also, UCC Art 5)

[28.2] Outline This section provides a rule regarding perfection by control over letters of credit by secured parties. It should be noted that letters of credit can fall within the definition of negotiable instruments under s 10 and therefore reference should also be made to s 29. [28.3] Cross-references • Section 21 notes that security interests in letters of credit may be perfected by control. • Sections 239 and 240 contain rules relating to the governing law for different types of letters of credit. [28.4] Concepts • Letter of credit A letter of credit is an instrument under which a bank agrees to make a payment once certain criteria are met. This is different from a bank guarantee which only obliges the bank to make a payment if the principal obligor defaults. Letters of credit are frequently used as instruments to finance trade in the construction industry and are covered by the Uniform Customs and Practice for Documentary Credits 2008 Revision published by the International Chamber of Commerce. A letter of credit that must be presented for payment is expressly included in the concept of negotiable instruments under s 10. Thus, in the authors’ view, where a letter of credit is also a negotiable instrument parties should treat the instrument as a negotiable instrument for all PPSA purposes (including perfection, priority and enforcement). Letters of credit may additionally derive from or be characterised as proceeds of a primary security interest (such as substituting the payment or performance of a particular obligation for an irrevocable letter of credit) which has been recognised under the Saskatchewan PPSA: see National Bank of Canada v Makin Metals Ltd (1994) 6 PPSAC (2d) 164; 116 Sask R 237 (Sask CA). This is a useful way of providing security for the release of already encumbered collateral: see SR Télécom & Co v Apex — Micro Manufacturing Corp (2008) 15 PPSAC (3d) 136; 52 CBR (5th) 204 at [10] (BC SC); See also, Sperry Inc v Canadian Imperial Bank of Commerce (1985) 4 PPSAC 314; 17 DLR (4th) 236 (Ont CA). [28.5] Commentary This provision is similar to the US UCC Article 9 which also makes specific provision for control over letters of credit. While the New Zealand PPSA does not provide for control as a means of perfection it does allow for possession of a letter of credit (which is included as a negotiable instrument). The Canadian PPSA statutes classify letters of credit as “instruments” which may be perfected by possession. [28.6] Further reading • Explanatory Memorandum [2.39–2.48].

• ALRC Report No 64 [2.17]. • Whittaker Report [5.3], [9.3].

¶29 SECTION 29 CONTROL OF NEGOTIABLE INSTRUMENTS THAT ARE NOT EVIDENCED BY A CERTIFICATE ¶2-070 SECTION 29 CONTROL OF NEGOTIABLE INSTRUMENTS THAT ARE NOT EVIDENCED BY A CERTIFICATE Text of s 29 [29.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[29.2] Outline This section provides for a secured party to control uncertificated negotiable instruments. [29.3] Cross-references • Section 21 notes that security interests in negotiable instruments may be perfected by control. • Section 31 provides proceeds rules for the discharge of negotiable instruments. • Section 36 provides for the temporary perfection of security interests in negotiable instruments. • Sections 69 and 70 provide special priority rules for security interests in negotiable instruments. • Section 120 provides enforcement rules for negotiable instruments. • Section 240 contains rules relating to the governing law for negotiable instruments. [29.4] Concepts • Negotiable instruments This is defined in s 10. See also, s 8. [29.5] Commentary This section provides recognition for a secured party to perfect security interests over uncertificated negotiable instruments by control through the use of a clearing and settlement facility. Where the instrument is certificated, it will constitute an investment instrument (see s 10) and s 27 will thus apply. Section 29 is similar to the rules in relation to intermediated securities: see s 26. It is also common for security interests in negotiable instruments to be perfected by possession (see above at s 24). The reason why perfection by possession or control is critical in relation to negotiable instruments in particular is due to the effects of the taking free provisions pursuant to Pt 2.5 of the PPSA and the commercial reality that a “holder in due course” of such an instrument may be able to convey an interest higher than what they are legally be entitled to. This was discussed in the Saskatchewan Court of Appeal decision, Camco Inc v Frances Olson Realty (1979) Ltd (1986) 6 PPSAC 167; 50 Sask R 161, where it was held (at [18]) that “the secured party who permits a businessman to have possession of the goods runs the risk that the buyer taking from the businessman may qualify as a ‘buyer of goods sold in the ordinary course of business of the seller’”. Negotiable instruments fall within the class of “current assets” for the purposes of ascertaining circulating assets under s 340(5). Note that s 340(2) will exclude a security interest in a negotiable instrument where

the secured party has registered a financing statement in relation to the grantor that covers the collateral and discloses that it has control over the collateral — provided the secured party actually controls the relevant collateral. Section 341 provides rules for determining control for the purposes of s 340 (to ascertain circulating assets). Section 341 also allows a secured party to control negotiable instruments by exercising control in the ordinary meaning of that term (s 341(1A)(a)) or under s 29 (s 341(1A)(b)). [29.6] Further reading • Explanatory Memorandum [2.39–2.48]. • ALRC Report No 64 [2.17]. • Whittaker Report [5.3], [9.1].

¶2.4 PART 2.4 — ATTACHMENT AND PERFECTION: SPECIFIC RULES ¶1 Division 1 — Introduction

¶30 SECTION 30 GUIDE TO THIS PART ¶2-075 SECTION 30 GUIDE TO THIS PART Text of s 30

¶2 Division 2 — Proceeds and transfer

¶31 SECTION 31 MEANING OF PROCEEDS ¶2-080 SECTION 31 MEANING OF PROCEEDS Text of s 31 [31.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 16(1) for the definition

Saskatchewan

PPSA 1993

s 2(1)(hh), s 2(4)

Ontario

PPSA 1990

s 1(1)

USA

UCC Article 9 (rev)

§ 9-102(64)

[31.2] Outline Section 31 defines “proceeds” for the purpose of the PPSA, above and beyond the ordinary definition of the term (which otherwise applies with respect to s 140). The Australian PPSA adopts the US Article 9 approach to proceeds by providing a separate provision for the definition of the term as opposed to incorporating the definition under s 10 of the PPSA. Substantively, the definition draws on elements found in the various foreign regimes outlined in the table above and s 31 prescribes an exhaustive list of circumstances where proceeds will arise under the PPSA. As will be discussed with respect to s 32, a security interest over particular collateral may extend to proceeds of such collateral and it is thus important to isolate the precise extent of such proceeds where they arise. See further, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. [31.3] Cross-references • The concept of proceeds of collateral is a fundamental one in the PPSA and is mentioned in over 40 sections of the Act. [31.4] Concepts • Chattel paper This is defined by s 10. See further, s 12. • Identifiable or traceable See below. • Intellectual property This is defined by s 10. See also, s 105. • Intermediated security This is defined by s 15. See further, s 26. • Investment instrument This is defined by s 10. See further, s 27. [31.5] Commentary [31.5.1] Introduction, requirements and rationale — s 31(1)(a) ....................................XX [31.5.2] “Traceable” ....................................XX [31.5.3] Various applications of tracing principles ....................................XX

[31.5.3.1] Re Hallet’s Estate presumption ....................................XX [31.5.3.2] “Lowest Intermediate Balance” rule ....................................XX [31.5.3.3] Cases of “New” collateral ....................................XX [31.5.3.4] Equitable notions and concepts beyond the PPSA ....................................XX [31.5.3.5] Recourse for the original secured party ....................................XX [31.5.4] Insurance payments — s 31(1)(b) ....................................XX [31.5.5] Redemption of collateral — s 31(1)(c) ....................................XX [31.5.6] Proceeds of intellectual property — s 31(1)(d) ....................................XX [31.5.7] Scope of proceeds — s 31(1)(e) ....................................XX [31.5.8] Fiduciary relationships — s 31(2) ....................................XX [31.5.9] Interest in the proceeds — s 31(3) ....................................XX [31.5.10] Crops and livestock — s 31(4), (5), (6) ....................................XX [31.5.1] Introduction, requirements and rationale — s 31(1)(a) “Proceeds,” in the ordinary sense of the term, refers to a return, be it in cash or otherwise, derived through the utilisation of a particular asset or consideration flowing in relation to a transfer of the asset to a new party. A proceed is a by-product or derivative of a primary asset, it cannot exist without being tied to some primary source. Take the simple example of a motor vehicle. A motor vehicle can be driven to provide enjoyment or utility, it can be leased to someone else for a fee and it can also be sold. A motor vehicle can also be driven to a place of employment, however, note that in the first and final uses described here any consideration which may flow (such as wages) does not necessarily derive from the asset itself and should not therefore automatically be taken to constitute a proceed of the motor vehicle. Collateral can give rise to more than one set of proceeds: Bank of Nova Scotia v IPS Invoice Payment System Corporations (2010) 17 PPSAC (3d) 99; 101 OR (3d) 352 (Ont SCJ). Under the PPSA, in order for proceeds to follow the security interest they must first be “identifiable” or “traceable”. Like a security interest taken over original collateral, the grantor must obtain rights in the collateral (for more information as to how this arises see s 12) and the proceeds themselves must not be excluded by the PPSA pursuant to s 8. The terms “identifiable” or “traceable” were subject to judicial consideration in the Ontario Court of Appeal case, Toronto Dominion Bank v Co-Pac Ltd (1999) 15 PPSAC (2d) 52; 178 DLR (4th) 149. The facts of the case involve a debtor who defaulted on a bank loan over which the bank held a valid security interest. The bank exercised what it believed was an “all assets and undertakings” security interest over the debtor’s property. Unbeknownst to the bank, a lawsuit was settled in favour of the debtor and the proceeds of this suit were initially placed in a principal deposit account and then transferred to the principal’s daughter’s account. Section 1(1) of the Ontario PPSA reads: “‘proceeds’ means identifiable or traceable personal property in any form derived directly or indirectly from any dealing with collateral or the proceeds therefrom, and includes any payment representing indemnity or compensation for loss of or damage to the collateral or proceeds therefrom”. His Honour, Goudge JA, in dismissing the appellant’s argument (at [24]), found that the funds were clearly identifiable and traceable and that the bank was entitled to the proceeds under the PPSA. His Honour analysed and applied the reasoning of the Ontario Court of Appeal in General Motors Acceptance Corp of Canada v Bank of Nova Scotia (1986) 6 PPSAC 53; 55 OR (2d) 438 which held: “Proceeds are identifiable when they continue to exist in their original form. They are traceable if they are converted to a substituted form which can be located and determined to be the substitution of the

original proceeds.” The Saskatchewan Court of Appeal decision in Transamerica Commercial Finance Corp Canada v Royal Bank (1990) 1 PPSAC (2d) 61; 70 DLR (4th) 627 at [25] provides an alternative view, that is: “‘identifiable’ refers to the ability to point to the particular property obtained by the debtor as a result of the dealing with the collateral, while ‘traceable’ refers to the situation where the collateral is commingled with other property so that its identity is lost”. The Australian PPSA provisions lean toward the Saskatchewan interpretation, in the authors’ view, bypassing reference to the form of the collateral. This is for two reasons, first, the statutory definition of proceeds pursuant to s 31(1) makes no reference to form and thus the latter interpretation better fits the statutory definition, and secondly (and more importantly), under the Ontario definition, only proceeds stemming directly from the collateral subject to a security interest appear to be caught. This is not so under the PPSA. Under s 31, proceeds of proceeds are also caught by a security interest provided that such proceeds of proceeds are sufficiently “identifiable” or “traceable”. An example of this can again be seen in relation to a motor vehicle:

Where one motor vehicle (Car A), subject to a security interest, is traded in for another motor vehicle (Car B), should the subsequent sale of the second motor vehicle (Car B) occur, the resulting proceeds of sale — provided they are sufficiently identifiable or traceable — would be encumbered by the security interest.

While the process of identification of proceeds is a relatively simple issue of fact, that is, where particular property or funds can be specifically pointed to as a derivation of collateral subject to a security interest, the security interest will extend to such proceeds, traceability on the other hand requires further consideration. [31.5.2] “Traceable” The term “tracing” has jurisprudential roots in both common law and equity and is of relevance in relation to PPSA proceeds where funds are commingled in an account such that the specific identify of such funds is lost among the broader pool. With regards to tracing into a mixed fund, the relevant principles stem from the doctrine of tracing in equity discussed in Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321 and further summarised and clarified in Re Diplock [1948] Ch 465. In Re Diplock, it was held that equitable tracing could occur where three elements were satisfied, first, that there is a fiduciary relationship between the claimant and the recipient of the funds in the first instance,19 secondly, the money must be identifiable, and thirdly, the making of the tracing order must not provide an injustice.20 Unfortunately, despite appearing in s 31, the term “tracing” is not otherwise defined by the PPSA and how it is to be applied is therefore uncertain. What is made clear however is that like its foreign counterparts, the Australian PPSA expressly removes the requirement that a fiduciary relationship exists. This interpretation can be attributed to the underlying rationale of the PPSA in presenting a consistent approach to priority disputes at law. The tracing principles under the PPSA are thus statutory and while guided by common law and equitable concepts are not bound by such precedent. This view has been endorsed by the Saskatchewan Court of Appeal in Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22: “[I]n defining the notion of tracing under the PPSA we must have reference to the notion of tracing in the common law and equity. However, certain changes in the concept of tracing will be required in the context of the PPSA.” In the same case (at [60]), the process for executing tracing principles under the PPSA was enunciated:

“Tracing at common law and equity is a proprietary remedy. It involves following an item of property either as it is transformed into other forms of property, or as it passes into other hands, so that the rights of a person in the original property may extend to the new property. In establishing that one piece of property may be traced into another, it is necessary to establish a close and substantial connection between the two pieces of property, so that it is appropriate to allow the rights in the original property to flow through to the new property.” In Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41, the Court held that reserve amounts on book debts sold to a bank under a debtor finance facility were proceeds under s 31(1)(a). This issue was not specifically addressed in the High Court appeal: Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20. Going back to the concept of proceeds deriving from other proceeds, a security interest will continue where the proceeds can be traced and a close and substantial connection to the collateral is found on the given facts. Importantly, unlike equitable tracing, the underlying consideration here should not be one of fairness or equality rather primacy is given to effectuating the purpose of the PPSA, that is, providing a consistent and predictable application of the statute. [31.5.3] Various applications of tracing principles Tracing has historically arisen in a number of different contexts now covered by the PPSA. Whether or not the PPSA alters the various applications of tracing principles at common law and in equity has not been tested in Australia. A common example of where tracing principles may be relevant is the consideration of retention of title arrangements. Stock subject to retention of title terms is sold and money paid for that stock from independent third parties is deposited in an account. As is commonly the case, upon payment for the stock, the independent third party takes free such that the secured party (the supplier) can only have recourse to the money proceeds of sale. The difficulty arises when the money is commingled with other monies concerning stock sold from other suppliers and the grantor’s general funds. The onus is on the secured party in such circumstances to identify or trace the relevant funds. The difficulty of the task, the likely cost of litigation and uncertain result has prevented s 31 of the PPSA from being tested in Australia. In the authors’ view, even sophisticated retention of title arrangements — including those which positively covenant that upon the sale of the personal property the monies are to be held on trust for the benefit of the secured party — are of limited utility for want of enforceability. A breach of such a condition might result in a claim for damages against the breaching party, namely the grantor, but this can do no better than the security interest itself and is a right in personam or a mere equity. Thus, should the grantor be insolvent, any such covenant would not prevent the secured party from having to trace proceeds. Ensuring that accounts receivable for such stock sold are collected regularly and monitored prudently for deviations in payment are some ways of mitigating this exposure. Additionally, should an insolvency practitioner/trustee be appointed to the grantor or the grantor’s estate, respectively, unlike above — there is some utility, in the authors’ view, in obtaining an undertaking from that practitioner that any relevant proceeds derived from the encumbered personal property are to be held on trust for the benefit of the secured party. A claim for damages against an insolvency practitioner/trustee for breach of their duty to account and undertakings enjoys better prospects of protecting one’s interest than as against the grantor itself/themselves. As the above highlights, the difficulties with tracing proceeds means it is often more commercially sensible to avoid commingling of funds such that identifying monies in an account is simple — namely, all the monies in the account are held on trust for the secured party. Notwithstanding these difficulties, the need to trace a particular interest is not unique to security interests and has arisen in a number of context where the relevantly applicable principles and approaches (set out below) have been considered and applied. A particular case of importance in this respect is Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117. In that case, the issue of tracing various interests in a mixed monies account arose, not in the context of competing security interest claims, but rather in respect of the interests of various investors in what turned out to be a Ponzi scheme. The following bases for tracing,

and the rationales in favour of and against the applicability of each approach in particular contexts, was considered in detail by Bell P between [63] and [115] (Bathurst CJ and Macfarlan JA concurring). [31.5.3.1] Re Hallet’s Estate presumption The presumption deriving from the case of Re Hallet’s Estate (1880) 13 Ch D 696 should continue in operation under the PPSA, in the authors’ view. The case holds that where a debtor mixes funds subject to a security interest (either as primary collateral or as proceeds of previously encumbered collateral) with funds the debtor possesses outside of the security interest (either in their own right or subject to a separate security interest) — and the debtor then proceeds to withdraw funds from the commingled account — a presumption exists that the debtor withdraws their own money first, that is, money free from the security interest. By way of example assume the following:

Debtor A owns a motor vehicle subject to a security interest in favour of Bank B for the sum of $20,000 (assume that Bank B cannot pursue the collateral itself however has a validly perfected security interest in the motor vehicle). Debtor A holds $10,000 on account (ignoring the significance of the account as a distinct type of security for the time being). Debtor A sells the motor vehicle for $20,000 and deposits the funds into the existing account, totalling $30,000. Debtor A then withdraws $5,000. Under such circumstances, Bank B benefits from a presumption that the $5,000 withdrawn is sourced outside of the security interest and thus the security remains over the $20,000 on account.

There is no reason why a debtor should serve to deplete a secured party’s interest simply by drawing down an account and thus it is likely that the presumption will apply under the PPSA. [31.5.3.2] “Lowest Intermediate Balance” rule Continuing with the presumption established in Re Hallet’s Estate where a debtor draws down the pooled amount beyond the value of the pre-existing security, the value of the interest secured is reduced even if the pool of funds is subsequently increased beyond the secured amount at a later stage. Such is the doctrine of the “Lowest Intermediate Balance” rule deriving from the case of James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 and as applied in Australia: Re Laughton [1962] Tas SR 300; See also, ASIC v Letten (No 7) (2010) 80 ACSR 401; [2010] FCA 1231 and Commonwealth Bank of Australia v Saleh [2007] NSWSC 903. Building on the previous example involving parties A and B: Rather than withdrawing $5,000 from the account, Debtor A instead withdraws $25,000 from the account leaving a balance of $5,000. Later still, $50,000 is deposited into the account, bringing the balance up to $55,000. Bank B seeks to enforce its security against debtor A at this point. Notwithstanding the $55,000 existing at the time the security interest is enforced, Bank B’s security interest has been reduced to $5,000 from its original $20,000 and the court should only recognise the interest as such. While it is true that Debtor A spends their own money before interfering with encumbered funds, it is also true that where the security amount falls below the level secured, that a subsequent credit entry on account will not automatically restore the secured party’s original interest. There are three interconnected reasons for this conclusion: • first, and by way of iterating what has been previously stated, the principles of tracing under the PPSA operate to give efficacy to the underlying rationale of the Act itself and not to notions of fairness or good conscience which form the basis of the process in equity • secondly, the tracing principles operate only with respect to proceeds which are traceable in the definitive sense. Once the origin of the funds (or their subsequent direction) is lost, so too is the recourse of the secured party whose rights attach only to the specific collateral (including its proceeds) • thirdly, the PPSA does not render itself to speculation. Returning briefly to the above example, the

source of the subsequent $50,000 in the example given is ultimately unknown and may also be the subject of an additional security interest held by a third party. While it may seem prima facie unfair that the secured party losses the benefit of their entire interest to the misappropriation on behalf of the debtor, it presents greater difficulty however to remove the consistency and predictability of the PPSA with respect to a subsequent secured party. Primacy in such circumstances must be given to the underlying objectives of the statute and as will be discussed below, Bank B’s recourse is not strictly limited to the traceability of proceeds against Debtor A. The lowest intermediate balance rule was applied by the Ontario Superior Court of Justice in New Solutions Financial Corp v 952339 Ontario Ltd (2007) 10 PPSAC (3d) 246; 29 CBR (5th) 222 where a priorities dispute had arisen between a putative trust claimant and a secured creditor, as opposed to competing trust claims: See also, Re Graphicshoppe Ltd (2005) 78 OR (3d) 401 (Ont CA). Note also however the importance of the security interest itself and the nature of how the collateral has been appropriated when regarding how the rule will be interpreted and applied. In General Motors Acceptance Corp of Canada v Bank of Nova Scotia (1986) 6 PPSAC 53; 55 OR (2d) 438 at [15], the Ontario Court of Appeal held (with respect to funds held in an account with the secured party): “The appellants submitted on the basis of various American authorities that we should apply the ‘lowest intermediate balance’ rule the effect of which is that where proceeds are co-mingled with other funds in a bank account, the proceeds are deemed to be the last out of the account for purposes of determining the whereabouts of the proceeds. We are of the view that the rule is not applicable where the deposits into an account and withdrawals are made in the ordinary course of business and where, as in this case, the amount withdrawn by the Bank from the dealer’s current account was done in the ordinary course of its business with the dealer.” Where the secured party is also the controller of the account over which the security is held, the provisions with respect to proceeds thus apply subject to the principles with respect to accounts and control over such accounts under the PPSA. How one rationalises the operation of the Act where multiple facets of it are raised will depend largely on what was acceptable commercial practice prior to the PPSA taking force: See further, s 69. This perspective was put forward by the Saskatchewan Court of Appeal in Agricultural Credit Corp of Saskatchewan v Pettyjohn (at [52]): “The purpose of the P.P.S.A. as a whole is to simplify commercial transactions and to make the law governing them accord with practical commercial realities.” See further, Flexi-coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192; 107 DLR (4th) 12 (Sask CA). [31.5.3.3] Cases of “New” collateral In the example above, the new $50,000 credit entry into Debtor A’s account appears to be immune from incorporation into Bank B’s security interest. In examining the tracing principles strictly speaking this is true, however, in the absence of the new collateral being otherwise encumbered upon which a priority dispute will arise (for priority disputes see Pt 2.6 below), it has been held that it is for the court to decide whether the new collateral possesses the requisite “closeness” and “substantial connection” to the original collateral. Where the new collateral is held to be equivalent to the old collateral based on its functionality the original security interest may continue over the new collateral. As the Saskatchewan Court of Appeal held in Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 at [75]: “The appropriate principle of tracing in such a case is that where a set of chattels is replaced by another of like function in the affairs of the debtor, it shall be open to the court to find that the proceeds from the first were used to acquire the second, whatever the formalities of the transactions in question. It should be noted in passing that the formalities of the transactions will have some bearing, however, on whether the transactions can be characterized as a ‘replacement’.” Where the new collateral thus constitutes non-cash property, and a sufficient connection and closeness can be established, tracing principles should apply. The rationale is simply the application of the proceeds of a proceed principle and thus the secured party is entitled to the continuation of their security interest.

Where the new collateral takes the form of cash however (the $50,000 credit entry in the above example for instance) the resulting ability to trace does not arise. It cannot be said that the new funds have a sufficient closeness and connection with the original collateral (particularly where the origin of the funds is largely unknown) and thus the security interest should not extend in the authors’ view. A similar result arises where new cash is used to fund the purchase of collateral which is functionally different to the original collateral. Under such circumstances, it can be equally held that a sufficient connection and closeness cannot be established and thus a security interest cannot extend. Despite the PPSA’s efforts at consistency and predictability, in some cases the answer will not be readily available and the court is relied on for its role of interpretation in this regard. Going back to the running example, if Debtor A went on to purchase a high performance computer system for $20,000 using part of the $55,000 held on account it cannot be said that the computer package was a direct proceed of the sale of the motor vehicle even where the consideration spent is identical. How far a court is required to go in evaluating a “substantial connection and closeness” is dependant largely on the given facts and circumstances of each independent case. If Debtor A, for instance, went on to purchase a subsequent motor vehicle of different make, model and type it is unclear whether this would satisfy the continuation of proceeds (in the author’s opinion it is likely to considering the same function of the new collateral). This analysis changes again if Debtor A purchases a truck or watercraft with the relevant funds. The circumstances are further complicated when the new collateral is subject to a security interest of its own. Priorities between competing security interest of this kind are discussed below at Pt 2.6. [31.5.3.4] Equitable notions and concepts beyond the PPSA As has been discussed above, the appropriateness of equitable tracing in applying tracing principles under the PPSA is more conclusive in some circumstances as opposed to others. The existence of a trust presents one such circumstance where the associated equitable principles of tracing should not be employed under the PPSA. There are two reasons for this: • First, a trust, in and of itself, is not a security interest dealt with under the PPSA and the Act operates exclusively with respect to security interests; and • Secondly, even where a trust contains elements dealing with a security interest or is established for the purpose of dealing with security interests, only the interests themselves are regulated by the PPSA and to the extent that there is an inconsistency between trust principles and the operation of the PPSA — the PPSA should prevail. Recall that this was the outcome in the case of Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 — the secured party prevailing over the putative trust claimant. This is not to say that the utility of trusts in a commercial capacity is rendered obsolete. There are, and will continue to be, many uses of trust constructs in various capacities however the instrument should not be used to circumvent the overriding objectives of the PPSA where it applies. It should also be remembered that where the PPSA does not apply, the law as it stood prior to the operation of the PPSA is to continue in effect and is left unaltered by the PPSA. [31.5.3.5] Recourse for the original secured party Independent of a priorities contest (which will be addressed below at Pt 2.6), it has been demonstrated by the rules of tracing under the PPSA that a security interest may be subsequently lost where a claim for proceeds is also lost. In such circumstances, it is important to note that security, by virtue, is a secondary source of recourse for the secured party and at no point does the PPSA seek to remove a secured party’s ability to pursue the debtor personally for the amount secured. In the running example between Grantor A and Bank B, even where Grantor A has moved to deal with the $50,000 beyond what a court is inclined to trace — Bank B can still bring an action against Grantor A personally for the recovery of $20,000 [Note: Grantor here has been used assuming the grantor is also the debtor, this need not be the case under the PPSA]. For more information see s 10 regarding “debtor” and “grantor”. There are several reasons why this claim is weaker than pursuing the security interest however: • first, Grantor A may be insolvent by the time Bank B seeks to bring its action in personam against

Grantor A; • secondly, there is often considerable delay and expense combined with uncertainty of success in pursuing litigation. The pool of assets which Grantor A would need to use to resist such claims also serves to be reduced by the litigation process. While these issues may additionally arise should Bank B have a valid security interest and seek to enforce it against Grantor A — the security allows Bank B to point to particular property and thus better protect their interest; • thirdly, in accordance with the above point, the entire purpose of taking security is to avoid having to rely on a personal right against the Grantor; and • fourthly, it has been assumed here that no subsequent security interests have arisen and thus there is no priority dispute, in commercial reality it is highly unlikely that new funds will become available to the Grantor in the absence of a subsequent security interest. With an effectively unsecured claim, Bank B is rendered vulnerable to the secured position of any subsequent interest — the result often being that the unsecured party is unable to recover their entitlement either in whole or in part. It has also been assumed up until this point that the secured party cannot pursue the original collateral (as opposed to proceeds of such collateral) for whatever reason. The PPSA does not force the secured party to elect whether to pursue an interest in the proceeds or attempt to assert a priority claim over the underlying collateral (subject to both the priority and the taking free provisions which are relevantly discussed under their associated parts). The PPSA will not however allow a secured party to recover more than the value secured. Recourse to the original collateral is typically available where the grantor converts the underlying collateral without authority. This was the case in the Saskatchewan Court of Appeal decision Lanson v Saskatchewan Valley Credit Union Limited (1998) 14 PPSAC (2d) 71; 172 Sask R 106 where the Court found that where the secured party has not authorised the dealing of the original collateral either expressly or by implication, then recourse to both the underlying collateral and its proceeds is recognised by the PPSA (for further discussion on this point see s 32). [31.5.4] Insurance payments — s 31(1)(b) The Australian PPSA explicitly incorporates “insurance payments” as “proceeds” pursuant to s 31(1)(b). Insurance proceeds were discussed in the Alberta case of Agriculture Financial Services Corp v Bar XH Sales Inc (2009) 16 PPSAC (3d) 1; 20 Alta LR (5th) 43. In the Agriculture Financial Services case, a debtor leased an aircraft and the interests created by the lease were not perfected by registration. A subsequent creditor lent money to the debtor under an “all assets and undertakings” arrangement. The aircraft crashed. The subsequent creditor then brought an action with respect to the insurance proceeds against the lessor who asserted a priority claim to such payments. Master LA Smart, in analysing the relevant s 1(jj) provision of the Alberta PPSA, dealt with the exclusion of insurance payments from the PPSA under s 4 of the Alberta PPSA, which also arises under the Australian PPSA at s 8(1)(f)(v). The court found that insurance proceeds are “an exception to an exception”. That is, insurance payments themselves are excluded from being subject to a security interest however as proceeds of the damage or destruction of underlying collateral they are expressly provided for by the PPSA. In a priority dispute between the unsecured lessor and the secured subsequent creditor, the subsequent creditor thus prevailed (see discussion under s 55 for more on priorities). Illustrating this point by extension of the running example, where Bank B is able to identify the location of the original motor vehicle — Bank B is able to enforce its security interest over the collateral in addition to the proceeds claim against Debtor A but not beyond the $20,000 originally secured. The authors are of the opinion that s 31(1)(b) expressly gives rise to this approach to insurance proceeds under the Australian PPSA. [31.5.5] Redemption of collateral — s 31(1)(c) Redemption of collateral refers to payments made, in whole or in part, to the debtor in exchange for rights held under the instruments listed in s 31(1)(c). Each category is commercial in nature relating largely to

documents of title, such as shares in a company. Consistent with the commercial reality of how such instruments are transferred and exchanged, a security interest over such collateral will extend to its proceeds — noting that the principles of perfection with respect to such instruments are often distinct when compared to other collateral classes under the PPSA (see Pt 2.2). [31.5.6] Proceeds of intellectual property — s 31(1)(d) Despite the incorporation of the “intangible property” class under s 31(1)(c) — of which intellectual property would be duly caught — s 31(1)(d) expressly includes the rights of a licensor under an intellectual property licence. One reason for this inclusion is the inherent complexity of defining intellectual property rights as distinct from proprietary rights to the underlying collateral — and then further defining the rights of the licence holder as opposed to the owner of the intellectual property itself. It is clear that a security interest may be granted over a licence to use intellectual property under the PPSA (see s 106 and its discussion). The proceeds of such a licence are thus also recognised by the Act through s 31(1) (d): See further, Royal Bank v Body Blue Inc (2008) 13 PPSAC (3d) 176; 42 CBR (5th) 125 (Ont SCJ). Note that when coming to a conclusion as to who should benefit from the purported proceeds, the underlying collateral itself must be examined in light of the facts and circumstances of each case. In the view of the authors, explicit reference to proceeds of an intellectual property licence under s 31(1)(d) grants the relevant licence the required propriety under the Act (read in conjunction with the power to grant a security interest over an intellectual property licence pursuant to section 106). Any proceeds of such should thus be apportioned to the licensor or a party secured to such an amount. This view is consistent with the Saskatchewan Court of Queen’s Bench decision, McWinn Air Filter Cleaning Systems Ltd v 604859 Saskatchewan Ltd (1999) 15 PPSAC (2d) 19; 181 Sask R 185, where Gunn J held that the holder of a security interest over a licence was entitled to recover the proceeds of such a licence. By way of example: Grantor A grants an exclusive licence to Producer B. The licence extends to a particular technique employed in producing special purpose widgets. The end product (the widgets themselves) is subject to a separate security interest in favour of Creditor C. Producer B agrees to pay Grantor A $10,000 per annum under the intellectual property licence agreement. Grantor A then borrows money from Bank D, which takes security over all of Grantor A’s assets and undertakings. Bank D, in attempting to enforce its security, has an interest in the $10,000 licence fee (assuming both the security interest and the underlying intellectual property are effective at law). The end product is subject to a separate interest however beyond the scope of the security capable of being conferred by Grantor A. [31.5.7] Scope of proceeds — s 31(1)(e) Section 31(1)(e) extends the definition of proceeds to ancillary rights arising from the collateral, where the underlying collateral constitutes an investment or intermediated security (for a discussion of what investment instruments or intermediated securities are see s 10). As discussed above, such rights can comprise intellectual property rights. The inclusion of this provision is to again seek to preserve commercial practices which were in operation prior to the commencement of the PPSA. An example of how the provision may operate is given in the explanatory memorandum to the Act (at [2.53]): “Grantor A is the owner of a patent and has granted a security interest in the patent to Bank A. Grantor A has also granted a licence of the patent to Manufacturer A, under which Manufacturer A is obliged to make payments to Grantor A. Bank A has a security interest in the patent as original collateral, and in the licence payments as proceeds.” The authors flag caution with relying exclusively on the underlying collateral to protect ancillary rights where the rights are of value to the secured party despite s 31(1)(e) however. Where such rights carry value independent of the collateral itself, consideration should be given either to incorporate such rights expressly when perfecting the security interest or to create a subsequent security interest for such rights. This avoids any complications arising and is a relatively simple task for secured parties. Including the words “and all intellectual property” after the collateral description of a discrete class of personal property, for instance, is a viable option (assuming also that registration is the appropriate mode of perfection —

see s 153 for more information on registration particulars. [31.5.8] Fiduciary relationships — s 31(2) As previously stated, there is no requirement under the PPSA that a fiduciary relationship between creditor and debtor exists before the statutory tracing principles can be invoked. This is clarified pursuant to s 31(2). There may still be a benefit in characterising the relationship as fiduciary in nature however in order to bring into play the range of equitable remedies which operate outside of the PPSA. [31.5.9] Interest in the proceeds — s 31(3) Section 31(3) expressly incorporates the requirement that the grantor of the security interest holds a propriety interest in the proceeds before such rights can attach under the security interest. It is a common requirement of attachment under the PPSA that the grantor possesses a proprietary interest in the relevant personal property (see commentary at [12.5.1]ff, especially [12.5.1.3], and s 19). [31.5.10] Crops and livestock — s 31(4), (5), (6) Sections 31(4), (5) and (6) deal with the unique category of agricultural property. The category is unique due to its reproductive nature, for instance, new wheat fields can be sewn and new sheep can be bred. A financing statement specifying an interest in the grantor’s sheep or wheat fields is thus not entirely helpful. Security interests taken over agricultural property extend to products of the property such as wool, meat or harvested crops under the PPSA provisions. An automatic extension does not arise however with respect to unborn young. Where necessary, the authors recommend that secured parties provide for this by including in the description of the collateral data along the lines of “all after-acquired livestock” (which was the case in the Saskatchewan Court of Appeal case, Farm Credit Corp v Valley Beef Producers Cooperative Ltd (2002) 5 PPSAC (3d) 1; 218 DLR (4th) 86). The rationale for this additional requirement is that crops and livestock are not treated as fungibles under the PPSA, that is, a particular cow or sheep is recognised as an independent and unique class of property not merely replaceable with a different cow or sheep in the same way that a fifty-dollar note is replaceable for instance. In the absence of a provision dealing with the reproducibility of agricultural products a security interest may become lost when the original collateral ceases. This issue was considered in Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 (Sask CA) where the grantor sold all of their existing cattle and purchased new cattle. While caught by the proceeds provisions, this case illustrates the independent and uniquely identifiable nature of agricultural products under the PPSA. [31.6] Further reading • Explanatory Memorandum [2.50–2.54, 2.58]. • ALRC Report [8.38–8.41]. • Whittaker Report [7.2], [7.4]. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645. • Nicholas Mirzai, “The persistence of equitable doctrines with respect to the law relating to personal property securities: Assessing the impact of the Personal Property Securities Act 2009 (Cth)” (2013) 24 Journal of Banking and Finance Law and Practice 3. Footnotes 19

Although the stringency of this requirement was discussed in Chase Manhattan Bank NA v Israel British Bank (London) Ltd [1981] 1 Ch 105 (where a tracing order was made available where claimant had paid money by mistake) and, Bankers Trust Co v Shapira [1980] 3 All ER 353 (where the funds were obtained fraudulently).

20

The principles have been applied in Australia in the New South Wales Court of Appeal decision, Evans v European Bank Ltd [2004] NSWCA 82.

¶32 SECTION 32 PROCEEDS — ATTACHMENT ¶2-085 SECTION 32 PROCEEDS — ATTACHMENT Text of s 32 [32.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 45

Saskatchewan

PPSA 1993

ss 28(1), 35(3)

Ontario

PPSA 1990

ss 25(1), 30(5)

USA

UCC Article 9 (rev) § 9-315

[32.2] Outline Unlike its foreign counterparts, the Australian PPSA provides separate sections for attachment and perfection of proceeds. The effective terms and provisions which constitute s 31 are, however, substantively similar and despite a distinction in form, the Australian provisions more closely follow the New Zealand model than the Canadian or Article 9 equivalents. Section 31 focuses on how a security interest attaches to proceeds. In Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd [2014] VSC 644, Sifris J held (at [39]): “A buyer can also take free of a security interest given by a seller in circumstances where the ROT supplier’s security agreement (supply agreement) authorises the sale of inventory in the ordinary course of the buyer’s business: s 32(1) PPSA. This authorisation is equivalent to the concept of the floating charge whereby the chargor could, until crystallization, sell inventory in the ordinary course of business free of the charge.” [32.3] Cross-references • Sections 18 and 20 set out rules for security agreements. • Section 20(6) provides for enforceability of security interest in proceeds against third parties. [32.4] Concepts • Attachment See s 19. • Investment instruments This is defined by s 10. See further, s 27. • Intermediated securities This is defined by s 15. See further, s 26. • Knowledge See s 297. • Proceeds See s 31. [32.5] Commentary [32.5.1] “Continuous attachment” as opposed to “continuous perfection” — s 32(1)

....................................XX [32.5.1.1] Provision in the security agreement — s 32(1)(b) ....................................XX [32.5.1.2] Express or implied authorisation — s 32(1)(a) ....................................XX [32.5.1.3] Taking free provisions ....................................XX [32.5.2] Enforcement with respect to both original collateral and proceeds — s 32(2) ....................................XX [32.5.2.1] Mutual enforcement ....................................XX [32.5.2.2] “Market value” ....................................XX [32.5.2.3] Investment and intermediated instruments ....................................XX [32.5.3] Knowledge ....................................XX [32.5.3.1] Actual knowledge ....................................XX [32.5.3.2] Constructive knowledge ....................................XX [32.5.4] Persisting rights in personam — s 32(4) ....................................XX [32.5.5] Priority of proceeds — s 32(5) ....................................XX [32.5.6] Anomalies when considering priority of proceeds ....................................XX [32.5.6.1] Proceeds of two competing security interests in a mixed account ....................................XX [32.5.6.2] Proceeds on account — v — ADI perfection by control over account ....................................XX [32.5.6.3] PMSI proceeds on account — v — ADI perfection by control over account ....................................XX [32.5.6.4] Recognising interests in proceeds — v — good faith purchaser for value ....................................XX [32.5.6.5] PMSI proceeds on account — v — purchaser of accounts receivable for new value ....................................XX [32.5.6.6] Proceeds on account — v — rights of set-off ....................................XX [32.5.1] “Continuous attachment” as opposed to “continuous perfection” — s 32(1) The concept of “continuous perfection” under the PPSA is of significance with respect to priority disputes, that is, where a party other than the original grantor and secured party asserts a claim to the underlying personal property. To be “continuously perfected” takes meaning from s 56 of the PPSA which, in essence, prescribes that the secured party must ensure they maintain perfection of their security interest at all times. A failure to retain continuous perfection has the effect of resetting the time upon which the security interest takes priority from — an undesirable outcome in a priorities dispute (for more information on continuous perfection see s 56). Where a security interest is unperfected, however, all rights and obligations stipulated in the security agreement remain valid and effective as between the secured party and the grantor. The security agreement, put simply, is a contract and provided the security interest “attaches” to the underlying collateral its terms apply to the parties to the contractual arrangement. Nothing in the PPSA operates to distort this position with respect to proceeds of original collateral and indeed where a security interest

validly attaches to proceeds of the original collateral, the security agreement between the grantor and the secured party remains in force. Pursuant to s 32(1), a security interest over particular collateral automatically extends to proceeds of that collateral provided the proceeds meet the requirements of s 31 (discussed above). That is to say, the Act itself provides for “continuous attachment” of the security agreement even where the original collateral has been converted into proceeds subject to three existing exceptions: • where the security agreement otherwise provides (s 32(1)(b)) • where the secured party expressly or impliedly authorises a dealing giving rise to the proceeds (s 32(1)(a)) • where the taking free provisions in Pt 2.5 operate to defeat the secured party’s interest. In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [63], the Court summarised the effect of s 32(1) as follows: “In broad terms, the effect of s 32(1) of the PPSA is that (subject to the provisions of the PPSA) if collateral gives rise to proceeds, the security interest continues in the collateral itself in the hands of a transferee unless the secured party expressly or impliedly authorised the disposal of the collateral or agreed that the dealing would extinguish the security interest, and the security interest attaches to the proceeds unless the security agreement provides otherwise.” [32.5.1.1] Provision in the security agreement — s 32(1)(b) Where the security agreement expressly provides that proceeds will be dealt with in some fashion other than by way of automatically extending from the original collateral to the proceeds then pursuant to s 32(1)(b) the court will recognise and give effect to such a clause. Like the enforcement provisions pursuant to Ch 4 of the PPSA, there are areas that the PPSA expressly permits the contracting out of through the underlying security agreement. [32.5.1.2] Express or implied authorisation — s 32(1)(a) The express authorisation to deal with collateral found within a security agreement in a way to remove the security interest will be effective according to its terms (see s 18(1)). In construing the terms of an express authorisation, ordinary principles of contract law apply: see Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385 (SCC). The case of Lanson v Saskatchewan Valley Credit Union Limited (1998) 14 PPSAC (2d) 71; 172 Sask R 106 (Sask CA) (discussed at [31.5.3]) illustrates the effect of express authority. The facts involved a lender (also the seller) who lodged a financing statement in respect of a security interest over a mobile home (the underlying collateral). The grantor (also the purchaser) signed a promissory note that on resale of the home the entire amount loaned became repayable to the lender. The resale occurred, without the grantor notifying the secured party, and the resale was financed by a subsequent creditor. The security agreement contained the following clause: “I will look after the property and keep it in good repair. I will not sell it nor grant another security interest in it, without repaying in full my indebtedness to the secured party.” The issue of whether the grantor had a right to sell the underlying collateral was not in issue, it was agreed that the grantor had a right to sell. At trial, it was held that knowledge of the potential sale of the collateral did not amount to authorisation, the result being that no authority was given by the presence of the above clause. On appeal, it was held that the lender knew that the grantor was purchasing the collateral for the purpose of sale or rent. Justice of Appeal Vancise concluded that the knowledge of the potential for sale was necessarily pre-empted by the authority to sell deriving from the lender. His Honour held (at [9]): “In our opinion, that interpretation [held by the trial judge] is incorrect. The authorization to sell must be given before the sale. Lanson [the secured party] clearly gave Nickel [the grantor] express authority to deal with the security. That dealing would include resale. The fact the debtor failed to pay the secured creditor does not invalidate the sale to the buyer.”

By way of extension, implied authority or authority to deal or dispose with the collateral by implication should also extend where the effect of the relationship between the secured party and the grantor is such that a disposition or dealing is postulated by the secured creditor and in the absence of an express provision to the contrary, authority would extend. The onus is duly on the secured party to ensure that either authority to deal with or dispose of collateral as to remove the underlying security interest is not given, or that the agreement itself is clear that the security interest over the proceeds is to continue. The authority to dispose of an asset free from an existing encumbrance is the first form of “taking free” or “extinguishment” provision, notwithstanding that s 32 does not appear in Pt 2.5 headed “Taking personal property free of security interests”. This point was made by Sifris J in Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644, where his Honour held (at [43]) that s 32 is “the first relevant buyer protection provision”. One issue that has arisen in foreign PPSA jurisdictions is whether the secured party may give actual or implied consent on a conditional basis, for example by allowing disposal of the collateral provided that the proceeds are paid into a controlled account and whether such consent is sufficient to extinguish the security interest in the collateral if the condition is not satisfied. The North American cases that have considered the issue have drawn a distinction between a condition precedent and a condition subsequent (with payment into a controlled account being an example of the latter). The authorities were reviewed in Lloydminster Credit Union Ltd v 324007 Alberta Ltd (2011) 18 PPSAC (3d) 267 (Sask CA), where it was held (in applying the Lanson case, discussed above) that approval subject to a post-sale condition is sufficient authorisation to extinguish the security interest in the collateral even if the condition (such as paying into a controlled account) is not satisfied. The security interest would attach the proceeds. The issue also arose in the New Zealand case of Bank of New Zealand v Waewaepa Station 2002 Ltd [2013] NZHC 3321 where the court noted (in obiter at [79]–[81]) that conditional authorisations could impose an unfair liability on good faith purchasers, who would in effect be acting as insurers for acts outside of their knowledge and control. Such a position would run contrary to the taking free provisions (see particularly s 46). In that case, the purchaser designed the transaction with full knowledge of the secured party’s position and the scope of the security agreement in a deliberate attempt to circumvent the application of the security interest to the proceeds of the sale, and hence was not acting in good faith. The issue of authority was considered in the New Zealand case of Gibson v Stockco Ltd [2010] NZHC 2398 which concerned the sale of several thousand head of breeding cattle between related party companies. The security agreement contained a clause that limited asset disposals to the ordinary course of business. The court found that the sale did not give rise to the taking free provision dealing with sales in the ordinary course of business (see s 46 in the Australian PPSA, and s 53 in the NZ PPSA).21 The relevant issue was whether the secured party authorised the sale so that the secured party’s security interest would not continue in the cattle owned by the purchaser (ie the related party). In the High Court of New Zealand, the following principles were set out (at [165]): • The purpose of the provision is to enact the common law principle that no one can give a better title than he/she has (nemo dat quod non habet). • The focus is on the dealings between the secured party and the grantor/debtor. • In order to “authorise” a dealing, whether expressly or impliedly, the secured party would need to be aware of the specific “dealing” or, at least, previous dealings of the same type, and either have expressly authorised the dealing or by its conduct be taken as having done so impliedly. • Whether in a particular case the secured party did “expressly or impliedly” authorise the dealing will be a question of fact in that case. • As the use of the word “authorised” in NZ PPSA s 45(1)(a) [Aust PPSA s 32(1)(a)] indicates, the authorisation of the dealing needs to be given before the relevant dealing has taken place. The court held that as the secured party banks were not aware of the transaction, they did not authorise it.

The failure to prevent the debtor from disposing of the collateral when the secured party has actual knowledge of the proposed sale can amount to an implied authorisation: See Re Maksteel Inc (2002) 4 PPSAC (3d) 77 (Ont SCJ). Describing collateral as inventory in a financing statement however is not of itself proof of an implied authority to deal with the collateral: See, GE Canada Equipment Financing GP v ING Insurance Company of Canada (2009) 14 PPSAC (3d) 49 (Ont CA). While the above result may appear harsh with respect to the secured party, only those parties to the security agreement have the freedom to determine the nature by which their rights and obligations arise at the time the agreement is created and thus a subsequent creditor is able to rely on the agreement (expressly and by implication) as they find it. [32.5.1.3] Taking free provisions As referred to above, the taking free provisions under Pt 2.5 of the PPSA are not directly incorporated by way of express provision under s 32, however, it is noted that the application of the part applies. The taking free provisions serve to alter the default priority position under the PPSA and will thus be discussed in turn when analysing Pt 2.5 of the Act. [32.5.2] Enforcement with respect to both original collateral and proceeds — s 32(2) As previously stated (see the discussion for s 31), an enforceable interest with respect to proceeds does not exclude a claim by the secured party against the original collateral and vice versa. The limitation on what can be recovered is dependent on three factors: • first, the value of the security interest (whereby a secured party who lends $20,000 and takes security over a motor vehicle for instance, cannot go on to enforce their security beyond the $20,000 secured — assuming $20,000 is still owed by the debtor — with respect to both the original collateral an any subsequent proceeds); • secondly, the amount secured is limited to the market value of the collateral immediately before the collateral gave rise to the proceeds. That is to say, the secured party cannot obtain a higher return with respect to proceeds than they would have originally had with respect to the underlying collateral had the grantor not disposed of it or otherwise dealt with it; and • thirdly, in relation to investment or intermediated instruments, these provisions do not apply. [32.5.2.1] Mutual enforcement An enforceable right over proceeds will additionally only extend where the security interest attaches to the proceeds (that is, where none of the defeating elements discussed under s 32(1) apply) and, in the instance of a priority dispute with an additional third party, the perfection and priority rules under the PPSA are relevantly read and recognised. Of benefit to the secured party with regards to perfection and priority is the application of s 20(6) which holds that an interest over proceeds is enforceable against a third party whether or not the underlying security agreement contains a description of the proceeds (for more information see s 20). For an example of a claim against both proceeds and the original collateral see: Transamerica Commercial Finance Corp Canada v Karpes (1994) 8 PPSAC (2d) 86 (BC SC). [32.5.2.2] “Market value” The term “market value” is not defined under the PPSA, however, it appears at s 131 with regards to the disposal of security interest by way of the enforcement provisions under Ch 4. Put simply, “market value” refers to the consideration which is payable on property of like form and function. Where property is readily ascertainable or replaceable, determining the market value is not a difficult task. In the alternative, where property is of significant value (such as a piece of art or technical machinery) property valuations and specialists are likely to know the relevant market value of the underlying collateral. There will, nonetheless, be circumstances where the market value of particularly specific collateral will not be ascertainable. In such circumstances, s 131(b) provides that the “best price that is reasonably obtainable at the time of disposal, having regard to the circumstances at that time” will be the

value taken. There appears to be little reason why this will not also be the case here. It should also be remembered that in the absence of any other information there is always the actual disposal price as an indicative factor as proceeds cannot arise without the disposition and thus this should also form part of the Court’s consideration should an issue arise. [32.5.2.3] Investment and intermediated instruments Investment and intermediated instruments enjoy separate treatment under the PPSA due to the commercial practices surrounding dealings and dispositions of such property. An investment instrument is defined under s 10 of the PPSA. Put simply, it refers to a financial product traded over the counter or on an exchange. Intermediated securities are defined under s 15 and, in short, they refer to a financial account which is maintained by an intermediary as a security account on behalf of another party. In understanding the necessity of the relevant exclusion from general treatment as proceeds of collateral (even where the instruments are disposed of and funds are obtained) the ordinary course of commercial business with respect to such instruments should be understood and this is best addressed as part of the taking free provisions under Pt 2.5 (see Pt 2.5). [32.5.3] Knowledge Like many of the taking free provisions pursuant to Pt 2.5 of the PPSA, where a third party (termed the “transferee”, which can be understood as the recipient of the encumbered collateral) takes their interest over the collateral with actual or constructive knowledge that the transfer was in breach of the underlying security agreement — the provisions under s 32(2), discussed above, no longer apply. The effect of this is to remove the market value restriction or qualification on the recovery potential of the secured party. [32.5.3.1] Actual knowledge What constitutes “actual knowledge” is not defined by the PPSA. It is the authors’ opinion that the concept will apply pursuant to its pre-PPSA connotation, namely, that the relevant party knew on the facts that the security interest existed. The onus in such circumstances would inevitably fall on the secured party to prove that actual knowledge had arisen on the balance of probabilities in light of the facts and circumstances of each independent case. [32.5.3.2] Constructive knowledge The term “constructive knowledge” is defined under the PPSA pursuant to s 297. Put simply, it refers to knowledge that the relevant party would have had at the time of dealing with the collateral had honest and prudent inquiries been made. There are differing views as to how constructive knowledge fits within the securities regime and what onus that then put on parties when dealing with personal property — the proper scope of which will be considered in commentary on s 297. [32.5.4] Persisting rights in personam — s 32(4) As previously stated (see commentary for s 31) rights in personam (against the person) between the debtor and the secured party continue beyond the security interest. Taking security is, in all circumstances, an ancillary step providing an alternative source of recourse — a mechanism of managing exposure or risk. While it is often the stronger action as enforceable proprietary rights operate in rem (against a thing), (particularly where the debtor is in default or insolvent), a secured interest cannot be elevated beyond a secondary source of protection further to which exists a primary obligation. When discussing this primary obligation, it is necessary to speak of the party owing the obligation as the debtor and not the grantor. It is the debtor who is to satisfy the primary obligation owing to the secured party. The grantor is the party within which rights over collateral are possessed and thus a security interest can attach. While the debtor and grantor are often the same person this need not always be the case. The primary obligation itself arises out of principles of contract, namely, consideration for monies lent. Section 32(4) clarifies that the PPSA does not remove any right of enforcement outside the security interest. [32.5.5] Priority of proceeds — s 32(5) Section 32(5) addresses the priority of proceeds where the security interest is perfected by registration or

possession. Essentially, the provision clarifies that a disposition or dealing with underlying collateral does not remove the priority that is afforded to the original collateral at the time at which perfection of these two types is obtained. The following example helps illustrate the point: Secured Party A registers an interest over a sophisticated computer system for $10,000 lent to Debtor B on 1 July 2012. On 1 September 2010, Debtor B obtains funds from Bank C who registers an interest over Debtor B’s account on the same day. Debtor B sells the computer system and deposits the funds in the common account (over which Bank C holds an interest). In a priority dispute between Secured Party A and Bank C — Secured Party A would benefit from the earlier priority on 1 July 2012 to prevail over Bank C for $10,000 secured. All principles relating to proceeds on account would additionally apply, however the time of perfection for Secured Party A’s interest remains at 1 July 2012. [32.5.6] Anomalies when considering priority of proceeds As proceeds operate by way of extension from original collateral there are particular circumstances addressed at various points throughout the PPSA which address who will prevail should a priority dispute arise. In addressing some of the following circumstances it is convenient to consider the full extent of the PPSA under the appropriate provision and such categories are raised here for completeness. [32.5.6.1] Proceeds of two competing security interests in a mixed account All previous rules regarding identity and tracing apply equally here as they do to proceeds where there is no priority dispute. A priority dispute adds complexity beyond whether or not priority exists and who holds the higher interest. When considering mixed accounts, the amount secured need also be considered and where the priorities are equal — how such funds are to be distributed, of which varying approaches have been enunciated in applying foreign PPSA regimes. The following example helps illustrate how these issues arise: Bank B holds a valid security interest over Debtor A for $10,000, which now constitute proceeds from the sale of a motor vehicle (the original collateral over which the security agreement arose). Creditor C holds a valid security interest over sophisticated machinery held by Debtor A for $40,000. The machinery is sold and $40,000 mixed in the common fund with the original $10,000 — no other money is held on account. Debtor A then spends $20,000 from the account and the direction of the funds is unidentifiable and untraceable. The existing balance on account is $42,000. Assume no other money is held by Debtor A and no other recourse is available to the secured parties. Both Bank B and Creditor C seek to fully recover the money owed to them (a combined $50,000). The first way this dispute can be resolved is enunciated by the rule in Devaynes v Noble (1816) 1 Mer 772; 35 ER 781, commonly referred to as the rule in Clayton’s case. The rule can be stated simply as an application of the “first in, first out” principle, that is, the first funds to enter the fund are the first to be spent by the account holder (the debtor). Under this rule Bank B’s interest would be entirely subsumed by the actions of Debtor A and Creditor C would have the full benefit of the remaining $20,000. There is no objective or policy reason under the PPSA for favouring a subsequent secured party above a former secured party. The application of the rule in Clayton’s case in the opinions of Gedye M, Cuming R and Wood R22 continues where funds have not yet been commingled, that is, where a mixed fund does not yet exist. The authors support this conclusion. The second approach could simply follow the default priority rules pursuant to the PPSA pursuant to s 55. Assuming that both security interests are validly perfected, and nothing further in the Act operates to distort the default priority rule, then the first in time security prevails. From the above example, the first secured party perfected in time (Bank B) would prevail to the fullest extent of their interest. As applied to the example, Bank B would recover $10,000 and Creditor C (and any subsequent creditor for that matter) would recover the balance. What should be remembered in this example is that the amounts are arbitrary. Under the rule in Clayton’s case the first secured party prevails outright and ahead of other creditors; under the default priority rules the second secured party enjoys the same outright benefit. Neither approach adequately reflects the objectives and/or policy of the PPSA and thus a third preferred view is now discussed. The third approach involves a “pro rata” distribution based on the applicable percentage value of

recognised security held against the value of the funds in the mixed account. Several cases have endorsed this view but only to the extent that the funds are mixed and no efforts of either secured party to preserve their priority is able to prevent the debtor from misappropriating funds to the detriment of each of those parties secured: see Ontario Dairy Cow Leasing Ltd v Ontario (Milk Marketing Board) (1993) 4 PPSAC (2d) 269 (Ont CA); Re McKeown (Horseman’s Haven) (1984) 4 PPSAC 209; 35 Sask R 211 (Sask QB). In the above example, this would mean that Bank B would be entitled to 20% of the existing fund and Creditor C to the remaining 80%. Bank B should thus prevail to the extent of $4,000 — the remaining $16,000 extending to Creditor C. It should be stressed that these methods of apportionment only apply where the security interests are equal in a mixed account as an anomalous consequence to the PPSA’s application, as opposed to any general rule which should be followed. The following cases emphasise that “pro rata” distribution does not replace the PPSA priority rules in other instances, Re Winnipeg Motor Express Inc (2009) 15 PPSAC (3d) 242; 56 CBR (5th) 265 (MB CA); Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112; 43 BLR (2d) 226 (Ont Court of Justice — varied on appeal on matters not affecting this point — (2000) 15 PPSAC (2d) 95); General Electric Capital Canada Inc v Interlink Freight Systems Inc (1998) 14 PPSAC (2d) 198; 7 CBR (4th) 173. [32.5.6.2] Proceeds on account — v — ADI perfection by control over account This circumstance can arise where an all assets and undertakings security interest exists including an account where proceeds enter the account. In such circumstances, the perfection by control principles are readily applicable (see s 25; See also, s 75 pertaining to the priority of security interests held by an authorised deposit taking institution (ADI)). [32.5.6.3] PMSI proceeds on account — v — ADI perfection by control over account Proceeds which benefit from PMSI status are treated separately to ordinary proceeds arising from nonPMSI collateral. The rules pertaining to priority are at s 62 (See also, s 64). [32.5.6.4] Recognising interests in proceeds — v — good faith purchaser for value Regarding good faith purchasers for value, the PPSA incorporates the concept of the innocent third party purchaser through application of Pt 2.5. Absent rights under Pt 2.5 equitable principles preventing property being traced against a third party purchaser should not apply — the PPSA rules themselves should be referred to under such circumstances. [32.5.6.5] PMSI proceeds on account — v — purchaser of accounts receivable for new value Purchasers of accounts receivable may have competing claims against PMSI proceeds. The relevant priority position is discussed at s 64. [32.5.6.6] Proceeds on account — v — rights of set-off While rights of set-off are expressly excluded from the PPSA (see s 8(1)(d)) there is potential for priority disputes between inventory suppliers and proceeds deposited on account. What occurs in the instance of such disputes is subject to speculation, comment on set-off has been discussed under s 8, See also, Pt 7.4 regarding conflicts of law. [32.6] Further reading • Explanatory Memorandum [2.49, 2.52, 2.55–2.57, 2.61]. • ALRC Report No 64 [8.38–8.41]. • Whittaker Report [6.10], [7.4], [7.6]. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645. • Bruce Whittaker, “Dealings in collateral under the PPSA-in search of a harmonious whole” (2013) 24 Journal of Banking and Finance Law and Practice 203.

• Nicholas Mirzai, “The persistence of equitable doctrine with respect to the law relating to personal property securities: assessing the impact of the Personal Properties Securities Act 2009 (Cth)” (2013) 24 Journal of Banking and Finance Law and Practice 3. • Sheelagh McCracken, “Personal Property Securities Legislation: Analysing the New Lexicon” (2014) 35 Adelaide Law Review 71. Footnotes 21

This was confirmed by the Court of Appeal in Stockco Ltd v Gibson [2012] NZCA 330, which is discussed below in relation to s 46. The discussion regarding authorisation under NZ PPSA s 45 was not discussed in detail in the Court of Appeal (appeal dismissed).

22

Gedye M, Cuming R and Wood R, Personal Property Securities in New Zealand, 2002 Thomson Brookers at 188–190.

¶33 SECTION 33 PROCEEDS — PERFECTION AND TEMPORARY PERFECTION ¶2-090 SECTION 33 PROCEEDS — PERFECTION AND TEMPORARY PERFECTION Text of s 33 [33.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 46, 47

Saskatchewan

PPSA 1993

s 28(2), (3)

Ontario

PPSA 1990

s 25(2), (3), (4)

USA

UCC Article 9 (rev) § 9-315(c)–(e)

[33.2] Outline Section 33 is the final section of the PPSA which operates exclusively with respect to proceeds. It prescribes an automatic satisfaction or continuation of the Act’s perfection requirements (see s 20) under particular circumstances. Section 33 also provides temporary perfection for a period of five business days, allowing time for the secured party to recognise and amend existing registration particulars (or produce a new financing statement) in order to maintain continuous perfection. Perfection is important as perfected instruments take priority to unperfected instruments. [33.3] Cross-references • Section 32 provides for the attachment of a security interest in proceeds of collateral. • Section 153 provides for registration of a financing statement and a financing change statement. [33.4] Concepts • ADI account This is defined by s 10. See further, s 25. • Temporary perfection See s 34. [33.5] Commentary [33.5.1] Perfection by registration in original collateral extends to proceeds — s 33(1) ....................................XX [33.5.2] Temporary perfection with respect to proceeds — s 33(2), (3) ....................................XX [33.5.1] Perfection by registration in original collateral extends to proceeds — s 33(1) Registering a financing statement is one approach the PPSA recognises as perfecting a security interest (provided that attachment has occurred and the security interest is enforceable against third parties: see s 19–21). The particulars required when registering a financing statement is discussed in s 153. A financing statement is distinct from the underlying security agreement. The security agreement is the contract between the secured party and the debtor, while the financing statement is a form filed with the PPSR giving notice of an existing security interest. Understanding the distinction is important in rationalising the relationship between s 33 and s 20(6). Pursuant to s 20(6) the security agreement need not contain a description of proceeds in order for the security interest to attach to such proceeds (see s 32 regarding attachment to proceeds). Where this is the case however the financing statement must describe the proceeds pursuant to s 33(1)(a) in

compliance with any regulations operating with respect to paragraph (d) of item 4 of the table in s 153 — of which Sch 1 Pt 2 reg 2.4 applies. Where the security agreement expressly includes within the description of original collateral the extension of the interest to proceeds, the financing statement need not expressly describe the collateral pursuant to 33(1)(b). Like the above specifics in relation to investment securities, intermediated securities and negotiable instruments, s 33(1)(c) additionally provides that the security interest continues without the need to describe the proceeds in the financing statement if the proceeds take the form of currency, cheques, an authorised deposit-taking institution account (ADI account) or a right to an insurance payment or any other compensation for loss or damage to the underlying collateral. While this appears to work in favour of the secured party, all the relevant rules regarding mixed funds and tracing apply to proceeds which take the form of such collateral classes. [33.5.2] Temporary perfection with respect to proceeds — s 33(2), (3) The term “temporary perfection” refers to a period of time after a security interest has arisen which the PPSA will recognise as validly perfected in the absence of perfection by registration, possession or control. The rationale behind temporary perfection is the preservation of commercial arrangements and allowing secured parties a window of time to amend the register reflecting the relevant change in their interest. Temporary perfection was particularly significant with respect to the Act’s transitional operation (see Ch 9) although its utility did not end with the cessation of the transitional period. Pursuant to s 33(2) a secured party with a validly perfected security interest over collateral benefits from temporary perfection in the proceeds of such collateral until the end of five business days after the interest attaches to the proceeds. Section 33(2) is only relevant where the security interest is not perfected by virtue of s 20(6) or 33(1). That is to say, if the proceeds are not a substitute form of collateral over which a security interest is taken (such as if the proceeds simply constitute money) then subsequent perfection need not be taken. The secured party benefiting from temporary perfection can, and indeed should, lodge a financial change statement (see Pt 5.3 and 5.6) within the five business days to maintain continual perfection and their priority. The following example illustrates where this provision applies and how. Secured Party A holds a perfected security interest (by registration) over Debtor B’s motor vehicle. Debtor B sells the motor vehicle to Party C. The security agreement between Secured Party A and Debtor B does not specify anything in relation to proceeds of the original collateral. Additionally, the relevant financing statement contains no description of the proceeds. Debtor B borrows money from Bank D and uses all of the funds (including the proceeds of sale from the motor vehicle) to purchase an expensive computer system. This all occurs two days after the motor vehicle was sold. Bank D registers an “all assets and undertakings” security interest over Debtor B’s property. Secured Party A becomes aware of all that has occurred and lodges a financial change statement to update their interest four days after the motor vehicle is sold. Bank D now claims priority to the entire computer system. In the above scenario, Secured Party A would prevail over Bank D to the extent of the security over the original collateral. Section 33(2) would apply over the course of the five business days after which the motor vehicle was sold and the subsequent amendment of the register pursuant to s 33(3) would preserve the priority of Secured Party A assuming both Secured Party A and Bank D held equal security interests, that is, the first interest in time prevails (see s 55). It is clear that in the absence of an active step taken by the secured party to perfect their security interest, their interest will become unperfected at the end of the five-day grace period. Additionally, the use of five business days under the Australian PPSA appears to be arbitrarily selected by parliament based on an analysis of domestic commercial realities, with periods of 10–20 business days adopted in other PPSA jurisdictions. [33.6] Further reading • Explanatory Memorandum [2.28, 2.58–2.60].

• ALRC Report No 64 [8.38–8.41]. • Whittaker Report [7.4], [7.5]. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645.

¶34 SECTION 34 TRANSFERRED COLLATERAL — TEMPORARY PERFECTION AFTER TRANSFER ¶2-095 SECTION 34 TRANSFERRED COLLATERAL — TEMPORARY PERFECTION AFTER TRANSFER Text of s 34 [34.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 88, 89, 90, 91

Saskatchewan

PPSA 1993

s 51

Ontario

PPSA 1990

s 48

USA

UCC Article 9 (rev) § 9-310(c)

[34.2] Outline Section 34 sets a broad compass for the temporary perfection of collateral subject to a transfer under the PPSA. The term “transfer” is not defined under the PPSA, except where applied to the transferring of judicial proceedings when administering the PPSA (of which the definitions are unhelpful for interpretation of this provision). With respect to the New Zealand PPSA and US Article 9 — transferability is of particular importance when considering negotiable instruments and associated documents of title (including chattel paper, investment securities and some intermediated securities). No such limitation exists under the Australian provisions and perfection pursuant to s 34 offers temporary perfection in the absence of more specific rules for these collateral classes. [34.3] Cross-references • Section 52 provides a taking free rule for temporarily perfected security interests. • Section 153 provides for the registration of a financing statement. [34.4] Concepts • Actual or constructive knowledge See s 297. • Transfer While central to s 34, the term “transfer” is not defined by the PPSA. Transferring, in the general sense, involves the movement from one status to another. The movement of funds from one account to another is commonly referred to as a transfer. The assignment of collateral from one secured party to another is also a transfer. The note accompanying s 34(1) aids in identifying the connotation within which the term applies, that is, the transfer of collateral from one grantor (the transferor) to another grantor (the transferee). [34.5] Commentary [34.5.1] Scope of temporary perfection — s 34(1) ....................................XX [34.5.1.1] 24 months — maximum period of temporary perfection ....................................XX [34.5.1.2] Period of registration — between five days and 24 months ....................................XX [34.5.1.3] Five business days — challenges to priority ....................................XX [34.5.2] Expiry of temporary perfection — s 34(2), (3) ....................................XX

[34.5.1] Scope of temporary perfection — s 34(1) The Australian PPSA, prima facie, presents the least generous grant of time by way of temporary perfection to the secured party with respect to transferred collateral compared with other PPSA regimes overseas. Notwithstanding the transfer occurring at the request of the grantor (that is, it is the grantor that executes the transfer of the relevant collateral), it is the secured party who is vulnerable as they are the party that will ultimately need to update or amend the register to reflect the new grantor or will lose priority. Section 34(1) applies a shortest in time test granting temporary perfection from anywhere between five business days to 24 months depending on the facts and circumstances applicable to the parties involved. [34.5.1.1] 24 months — maximum period of temporary perfection Section 34(1)(a) grants a secured party approximately 24 months temporary perfection (ending at the end of the 24th month) over the underlying collateral despite a transfer to the grantor. The length of this period is undoubtedly substantial. In understanding that perfection is only relevant in face of a priority dispute, however, a secured party who benefits from 24 months of temporary perfection, that is, no other rule under s 34(1) applies, would not require a perfected interest and thus being temporarily perfected offers no more comfort than being unperfected. The reason for this is straight-forward — as soon as a priority dispute arises, that is, another security interest attaches to the collateral, s 31(1)(c) applies removing the application of s 34(1)(b). [34.5.1.2] Period of registration — between five days and 24 months Section 34(1)(b) grants temporary perfection up to the end time of registration where the security interest is perfected by registration. The “end time of registration” refers to a sunset clause included in security agreement which prescribes when the security interest will end. Where the prescribed date is shorter than 24 months, this will be the end date of the temporary perfection. Where the prescribed date is longer than 24 months, the 24-month rule will apply pursuant to s 34(1)(a) as this will be the shorter option between the two. [34.5.1.3] Five business days — challenges to priority The most commonly used provision in the authors’ opinion will be s 34(1)(c) where a transfer of the underlying collateral occurs. Section 34(1)(c) arises where another security interest attaches to the underlying collateral at or after the time of transfer. Where the original secured party consents to the transfer, the “end of 5 business days after the transfer” rule applies pursuant to s 34(1)(c)(i). Alternatively, where the original secured party acquires actual or constructive knowledge of the transfer (for commentary on what constitutes knowledge see s 297, See also, s 31), the “end of 5 business days after the knowledge is acquired” rule will apply, provided five business days is shorter than 24 months after the collateral is transferred or the interest perfected by registration does not cease prior to the end of five business days. The ramifications with respect to priority was considered by the Saskatchewan Court of Queen’s Bench case Canadian Imperial Bank of Commerce v Tux & Tails Ltd (2006) 9 PPSAC (3d) 115; 20 CBR (5th) 316 where Rothery J noted (at [23]–[24]) that once the secured party has knowledge of the transfer they must register a financing change statement or risk having their security interest subordinated to an intervening secured party who perfects their security interest. In that case, it was held that the failure by the debtor to disclose the precise collateral transferred does not relieve the secured party of its obligation to register a financing change statement if it wishes to protect its position. Under the Australian PPSA, a secured party will thus benefit from temporary perfection for five business days after discovering a transfer of the underlying collateral, whether authorised or not. During this period, the secured party must perfect their security interest by some other means, typically by registering a financing statement or a financing change statement (if the security interest was perfected by registration prior to the transfer. For more on the priority of transferred collateral see s 66–68. [34.5.2] Expiry of temporary perfection — s 34(2), (3) Section 34(2) holds that where the temporary perfection period ends and no other form of perfection has been obtained by the secured party, the secured party immediately losses their perfected interest. The secured party can regain a perfected interest by obtaining perfection (the PPSA does not prevent parties

who lose perfection from registering a new financing statement for instance), however, the subsequent perfected interest takes priority at the time the subsequent perfection is achieved and will not benefit from the original time of perfection. Any interests perfected after the initial perfection of the original secured party but before the subsequent perfection will thus take priority over the original secured party’s interest. Section 34(3) provides that nothing in s 34 defeats the operation of the PPSA’s taking free provisions pursuant to Pt 2.5. This is consistent with the rationale of the Act as no perfected interest can defeat a valid interest arising from Pt 2.5 — there is no reason why temporary perfected interests would provide an exception to this rule. [34.6] Further reading • Explanatory Memorandum [2.28, 2.62–2.63]. • ALRC [7.10–7.13]. • Whittaker Report [7.2], [7.3], [7.4], [7.5], [7.6].

¶3 Division 3 — Collateral returned to grantor or debtor

¶35 SECTION 35 RETURNED COLLATERAL — FROM BAILEE ¶2-100 SECTION 35 RETURNED COLLATERAL — FROM BAILEE Text of s 35 [35.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 49

Saskatchewan

PPSA 1993

s 26

Ontario

PPSA 1990

s 24

USA

UCC Article 9 (rev) § 9-312(f)

[35.2] Outline This section allows for a five-business-day period of temporary perfection where a secured party that has perfected its security interest in goods or a document of title has allowed the grantor to have possession for the purposes of sale or exchange. This effectively limits the use of the goods by the grantor for inventory as the goods cannot be held for extended use. The security interest will become unperfected five business days after the transfer of the collateral unless it is perfected in another way (ie by registration or retaking possession). [35.3] Cross-references • Section 22 provides for perfection of security interests in goods in the possession of a bailee. • Section 52 provides a taking free rule for temporarily perfected security interests. [35.4] Concepts • Goods This is defined in s 10. See further, Personal Property Securities Regulations 2010 (Cth) Sch 1 item 2.3 (which includes “other goods” as a collateral classification for the purposes of financing statements under s 153). • Negotiable document of title Document of title is defined in s 10. • Possession See s 24. • Temporary perfection See s 34. [35.5] Commentary Section 35 applies to collateral returned to the grantor or debtor in light of a bailment. It is important to characterise the nature of the relationship between the parties as different provisions under Pt 2.4, Div 3 apply depending on the underlying relationship. This is consistent with the Canadian position where the Alberta Court of Queen’s Bench in Discount Auto Sales v Cash Store Inc (2005) 7 PPSAC (3d) 356 at [22] declined to read the relevant agreement as a bailment but rather characterised it as a sales agreement (which had ramifications on how the PPSA applied). The ability to perfect a security interest by possession of the collateral is based on the underlying

rationale of the PPSA that a third party would not believe that the grantor owns collateral that is in the possession of the secured party. Where possession or control of the collateral is impossible or not commercially feasible (such as with PPS Leases) perfection by registration can occur. The registration of a financing statement which provides public notice of a security interest in the grantor’s personal property is thus unnecessary as the act of perfecting by possession or control implicitly puts third parties on notice. However, if the secured party allows the grantor to retake possession (even if only temporarily) the need for public notice becomes important. Section 35 thus bestows upon the secured party five business days (termed “temporary perfection”; see s 21) to perfect their security interest over the collateral using another method recognised by the PPSA (see s 21), which will typically be the registration of a financing statement. The ability to enjoy temporary perfection is important as the priority rules require the secured party to maintain continuously perfection of the underlying security interest (see s 56). Where the secured party has only perfected by possession they would otherwise lose their perfected status if they allowed the grantor to retake possession of the goods for the purposes of sale. While the secured party might have a perfected security interest in any proceeds generated by the grantor retaking possession and selling the collateral, this protection might also only benefit from temporary perfection unless the secured party has registered a financing statement that covers the collateral: See further, s 31. A failure of the secured party to perfect other than by possession when actual or apparent possession is in the hands of the grantor or debtor can render the interest unperfected. This situation arose in the Alberta Court of Queen’s Bench case, Stoke Resources & Consulting Inc v Auto Body Services Red Deer Ltd (2009) 15 PPSAC (3d) 329; 59 CBR (5th) 290, where the Court held that leaving the collateral with the debtor without otherwise perfecting their security interest allowed a subsequent security interest taken over the collateral (two tanks) to take priority. On appeal, the Court held that one of the tanks was not subject to a security interest because the purported lease was actually a license: (2011) 18 PPSAC (3d) 287 (Alta CA). It should be noted that a secured party who wishes to rely upon registration of a financing statement to ensure continuous perfection will also need to ensure that their security agreement complies with the requirements of s 20 (enforceability against third parties). The Official Comment to the equivalent UCC Article 9 provision states that “no useful purpose would be served by cluttering the files with records [for] short term transactions”. Note that the UCC provision allows for temporary perfection for 20 days. [35.6] Further reading • Explanatory Memorandum [2.64]. • ALRC Report No 64 [8.24–8.29]. • Whittaker Report [5.3].

¶36 SECTION 36 RETURNED COLLATERAL — NEGOTIABLE INSTRUMENTS AND INVESTMENT INSTRUMENTS ¶2-105 SECTION 36 RETURNED COLLATERAL — NEGOTIABLE INSTRUMENTS AND INVESTMENT INSTRUMENTS Text of s 36 [36.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 48

Saskatchewan

PPSA 1993

s 26

Ontario

PPSA 1990

s 24

USA

UCC Article 9 (rev) § 9-312(g)

[36.2] Outline This section provides a similar rule to s 35 for negotiable instruments and investment instruments. [36.3] Cross-references • Section 31 provides rules for including investment instruments and negotiable instruments as proceeds of collateral. • Sections 49 and 50 provide taking free rules for investment instruments. • Sections 69 and 70 provide priority rules for transactions involving negotiable instruments. [36.4] Concepts • Negotiable instrument See s 8. See also, the discussion regarding the characterisation of negotiable instruments as circulating assets under s 340 and 341 which is discussed in the annotations to s 29. • Investment instrument See [27.5], which discusses the meaning of “investment instrument” as part of the commentary on s 27 (Control of Investment Instruments). [36.5] Commentary From time-to-time a secured party (such as a bank) will need to release negotiable instruments or investment instruments (such as debentures) to the grantor or debtor for a particular purpose that is relevant to the security arrangement. This section allows the secured party to rely on possession as the means of temporary perfection for a period of five business days after possession is lost or forfeited or otherwise to register a financing statement or seek to take control over the collateral to ensure a continuously perfected security interest. For more information on temporary perfection see s 21. For information on registration under the PPSA see Pt 5.3. [36.6] Further reading • Explanatory Memorandum [2.65]. • ALRC Report No 64 [8.24–8.29]. • Whittaker Report [5.3].

¶37 SECTION 37 RETURNED COLLATERAL — FOLLOWING SALE OR LEASE ¶2-110 SECTION 37 RETURNED COLLATERAL — FOLLOWING SALE OR LEASE Text of s 37 [37.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 29

Ontario

PPSA 1990

s 27

USA

UCC Article 9 (rev) No equivalent

[37.2] Outline This provision provides for the reattachment of a prior security interest where goods that had been leased or sold (and where the transferee takes free from existing security interests) are returned to the grantor or debtor. This section should be read together with s 38 which provides similar rules for sales or leases that create an account or chattel paper where the account or chattel paper is further transferred. [37.3] Cross-references • The taking free provisions are discussed under Pt 2.5. • Section 76 provides a priority rule in relation to returned goods. [37.4] Concepts • Chattel paper See [12.5.3]ff, especially [12.5.3.1]. • Enforcing a security agreement Rules regarding the enforceability of security agreements are discussed under s 18–20 and in Ch 4. • Registration is effective at the repossession time The effectiveness of registration of a financing statement is determined in accordance with s 163. [37.5] Commentary This section applies to inventory financing arrangements where the transaction creates chattel paper that is transferred to an inventory financier. It is also possible for the transferee of the goods to grant a further security interest in the collateral which may be perfected either before or after the original grantor repossesses the goods. These issues require s 38 and 76 to be considered for determination of the priority position and will be discussed in the annotations to s 76. Where this section applies, the secured party has the benefit of having their security interest treated as if the goods were never leased or sold, provided that their security interest was perfected by the effective registration of a financing statement immediately before the sale or lease occurred (s 37(2)). See Discount Auto Sales v Cash Store Inc [2005] ABQB 212; (2005) 7 PPSAC (3d) 356 discussed above at s 35. [37.6] Further reading • Explanatory Memorandum [2.66–2.67]. • ALRC Report No 64 [8.24–8.29].

• Whittaker Report [7.6], [7.7]. • Antony Duggan, “Chattel paper” (2013) 41 Australian Business Law Review 214.

¶38 SECTION 38 RETURNED COLLATERAL — ACCOUNTS AND CHATTEL PAPER ¶2-115 SECTION 38 RETURNED COLLATERAL — ACCOUNTS AND CHATTEL PAPER Text of s 38 [38.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 29

Ontario

PPSA 1990

s 27

USA

UCC Article 9 (rev) No equivalent

[38.2] Outline This section provides for a security interest to arise in favour of the transferee of an account or chattel paper that is generated from a sale or lease of goods. It should be read with s 37 and 76. [38.3] Cross-references • See s 37 and 76. [38.4] Concepts • Account This is defined in s 10. See further, [12.5.3.1]. • Chattel paper This is defined in s 10. See further, [12.5.3.1]. [38.5] Commentary This section provides for a deemed security interest in goods that are returned to a grantor or debtor who obtained finance over the goods from an inventory financier by transferring an account or chattel paper to them. This could create a priority contest between the inventory financier and a secured party with an interest over the underlying collateral held by the original transferee or lessee of the goods. For further discussion, see s 76 and the commentary set out thereto. Provisions of this kind additionally exist under the PPSA as the Act is not intended to be a coercive or punitive piece of legislation. Provided an innocent third party is not unduly prejudiced by the return of collateral, a security interest deemed to arise by statute preserves the relevant interests of the transferee. [38.6] Further reading • Explanatory Memorandum [2.68–2.69]. • ALRC Report No 64 [8.24–8.29]. • Whittaker Report [5.3], [7.6], [7.7].

¶4 Division 4 — Relocation of collateral or grantor to Australia etc.

¶39 SECTION 39 RELOCATION — MAIN RULE ¶2-120 SECTION 39 RELOCATION — MAIN RULE Text of s 39 [39.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 27, 28

Saskatchewan

PPSA 1993

s 5–7

Ontario

PPSA 1990

s 5–7

USA

UCC Article 9 (rev) § 9-301, 9-316

[39.2] Outline This section provides for the recognition of security interests that are enforceable under laws operating outside of Australia for a limited period when the collateral is brought into Australia. [39.3] Cross-references • Sections 6 and 7 provide the necessary territorial connection with collateral and grantors to ground the application of the PPSA. • PPS Regulations 2010 (Cth), reg 1.3 extends the operation of the PPSA to certain external territories. • Section 40 provides a similar rule for intangible and financial property. • Section 52 provides a taking free rule for temporarily perfected security interests. • Section 77 provides a priority rule for certain categories of collateral where there is no foreign register or public notice system. • Sections 238–241 provide rules regarding how to determine the governing law for different types of collateral. [39.4] Concepts • Actual knowledge This is discussed under s 297. • Continuously perfected See s 56. • Located Section 235 provides the definition for the term “located” for PPS purposes, which essentially means where the personal property is situated. Special rules are then included for determining the location of different types of investment instruments, negotiable instruments and chattel paper and for different types of entities (a body corporate or individual — place of incorporation and principal place of residence respectively). For a corporation registered under the Corporations Act 2001 (Cth), the jurisdiction is the whole of Australia: Corporations Act 2001 (Cth) s 5. This was discussed in Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 at [63] (rejecting an argument that the location of collateral should be the state where the lessor of the collateral was registered as a company — noting that the company’s jurisdiction was the whole of Australia). • Security interest was effective

As this provision is designed to recognise foreign security interests and allow for a quick transition to enforcement under the PPSA, once the collateral becomes located in Australia it is suggested that the instrument must be “effective” which refers to the requirement of the law of the foreign jurisdiction rather than the requirements of the PPSA: s 39(1)(a). Of course, if the collateral is located in Australia from the outset of the arrangement the requirements of the PPSA will apply (including enforceability against third parties and the required scope of security agreements). • Temporary perfection See s 21 and 34. [39.5] Commentary This section appears to serve two functions: • First, to recognise perfection rights over collateral situated in foreign jurisdictions under the law of that jurisdiction for the purposes of maintaining a “continuously perfected” status which is crucial in priority contests (see s 56); and • Secondly, to provide for a limited period of temporary perfection when the collateral is relocated to Australia; see s 21 for a discussion of temporary perfection. The length of the period of temporary perfection depends upon whether the secured party has actual knowledge that the collateral has become located in Australia. For a discussion on what constitutes “actual knowledge” for the purposes of the PPSA see s 297. The maximum time for temporary perfection under this provision, irrespective of knowledge of the relocation of collateral, is five days (note, not business days). With actual knowledge, the secured party has five business days to otherwise perfect. The Saskatchewan regime is more lenient in terms of time frames providing 60 days without knowledge and 15 business days with knowledge of the relocation. An issue that has consistently arisen in this domain is the conflict of laws between the location where the security interest is originally constituted and recognised and the location where the collateral is relocated to; see Gimli Auto Ltd v Canada Campers Inc (Trustee of) (1998) 13 PPSAC (2d) 378; (sub nom Gimli Auto Ltd v BDO Dunwoody Ltd) 160 DLR (4th) 373 (Ont CA); Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 (Alta CA). The Australian PPSA addresses the operation of laws at Ch 7. A failure to perfect the security interest within the period of temporary perfection will cause the security interest to have never been perfected in Australia (s 39(4)). That is to say, not only will the relevant interest lose any benefit of perfection after the expiration of the temporary perfection people, but also it will be taken to be unperfected as at the start of the temporary perfection period; see [34.5.2]. In this regard, registration of a financing statement may be made prior to the collateral being relocated to Australia (s 161) in the authors’ view. It should also be noted that while this section applies to the relocation of collateral generally, s 40 applies to situations where either the grantor or the collateral becomes located in Australia. Section 40, however, only applies to intangible property, and financial property. This provision differs from the overseas PPSA legislation as it applies generally to “collateral” whereas the overseas statutes tend to focus mostly on the relocation of goods. [39.6] Further reading • Explanatory Memorandum [2.70–2.71]. • ALRC Report No 64 [8.24–8.29]. • Whittaker Report [5.3], [9.1].

¶40 SECTION 40 RELOCATION — INTANGIBLE PROPERTY AND FINANCIAL PROPERTY ¶2-125 SECTION 40 RELOCATION — INTANGIBLE PROPERTY AND FINANCIAL PROPERTY Text of s 40 [40.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 20-33

Saskatchewan

PPSA 1993

ss 5, 7 7.1

Ontario

PPSA 1990

ss 5, 7, 7.1

USA

UCC Article 9 (rev) §§ 9-301, 9-316

[40.2] Outline This section provides for the recognition of perfection under the law of a foreign jurisdiction and for temporary perfection of that security interest if the grantor or the collateral is relocated to Australia. This section only applies to intangible property and financial property. See s 39 for the general relocation rule. [40.3] Cross-references • Sections 6 and 7 provide the necessary territorial connection with collateral and grantors to ground the application of the PPSA. • PPS Regulations 2010 (Cth), reg 1.3 extends the operation of the PPSA to certain external territories. • Section 52 provides a taking free rule for temporarily perfected security interests. • Section 77 provides a priority rule for certain categories of collateral where there is no foreign register or public notice system. • Sections 238–241 provide rules regarding how to determine the governing law for different types of collateral. [40.4] Concepts • Actual knowledge This is discussed under s 297. • ADI account See s 25. • Continuously perfected See s 56. • Financial property This is defined by s 10 as chattel paper, currency, a document of title, an investment instrument or a negotiable instrument. It should be noted that s 40(5)(b) specifically carves out negotiable instruments. Investment instruments were discussed in [27.5] (s 27). • Intangible property Intangible property is defined by s 10 as being personal property (including a license) that is not

financial property, goods or an intermediated security. Intermediated securities were discussed in s 26. • Intellectual property and intellectual property license See s 105–106. • Located See s 235. [40.5] Commentary See the commentary for s 39. In addition, it should be noted that this section does not apply to intellectual property, intellectual property licenses, authorised deposit-taking institution accounts (ADI accounts) or negotiable instruments. However, s 39 does not exclude these and so the general relocation rule under that section could apply. [40.6] Further reading • Explanatory Memorandum [2.72–2.73]. • ALRC Report No 64 [8.24–8.29]. • Whittaker Report [5.3], [9.1], [9.3].

¶2.5 PART 2.5 — TAKING PERSONAL PROPERTY FREE OF SECURITY INTERESTS

¶41 SECTION 41 GUIDE TO THIS PART ¶2-130 SECTION 41 GUIDE TO THIS PART Text of s 41

¶42 SECTION 42 APPLICATION OF THIS PART ¶2-135 SECTION 42 APPLICATION OF THIS PART Text of s 42

¶43 SECTION 43 TAKING PERSONAL PROPERTY FREE OF UNPERFECTED SECURITY INTEREST ¶2-140 SECTION 43 TAKING PERSONAL PROPERTY FREE OF UNPERFECTED SECURITY INTEREST Text of s 43 [43.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 52

Saskatchewan

PPSA 1993

s 20(3)

Ontario

PPSA 1990

s 20(1)(c), (d)

USA

UCC Article 9 (rev) § 9-317(b), (c), (d)

[43.2] Outline Section 43 marks the first substantive “taking free” provision of the PPSA under Pt 2.5 which, read collectively, prescribe the circumstances where a third party can take collateral free from a security interest. As stated in Intro IV, the taking free provisions should be read in light of two interconnected principles or rationales. First, the pragmatic consequences of the PPSR and whether or not it is reasonable to expect particular parties to consult the PPSR (and what would be found if the PPSR was, as a matter of fact, consulted), and secondly, with consumer protection motivations in mind. Section 43 itself provides the fundamental position from which the subsequent provisions of this part of the PPSA derive to varying degrees. [43.3] Cross-references • Sections 20 and 21 set out rules for perfecting security interests. • Sections 33, 34, 39 and 40 deal with temporary perfection. • Section 42 limits the operation of this section. [43.4] Concepts • Buyer See [43.5.1]. • Lessee See further, s 13. • Taking free See [43.5.1] and [43.5.2]. • Value This is defined in s 10. See further, [19.5.2.2]. [43.5] Commentary [43.5.1] Main rule — s 43(1) ....................................XX [43.5.2] Exceptions — s 43(2) ....................................XX [43.5.1] Main rule — s 43(1)

This section allows buyers and lessees of collateral to take free from a pre-existing security interest. This provision provides a further important motivation for secured parties to ensure that they perfect their security interest. The purpose of the provision is “to avoid disruption to commerce and injustice to unsuspecting ordinary course buyers which would otherwise result if such buyers were required in every case to conduct a search of the Personal Property Registry before buying goods”: See, Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101 at [14] (Alta CA). The term “buyer”, while a recurring term under the PPSA, is not formally defined by the Act, nor does it comprise a defined term under the foreign PPS regimes. The term has, however, been the subject of judicial interpretation and should be read in light of the PPSA’s reference to lessees in the same capacity under Pt 2.5. See further, Mike Gedye, “A Hoary Chestnut Resurrected: The Meaning of ‘Ordinary Course of Business’ in Secured Transactions Law” (2013) 37(1) Melbourne University Law Review 1. Should a dispute arise, there may be live questions of fact as to whether or not a third party constitutes a “buyer” and further, at what point do they become a buyer. Take the lay-by position as an example. Does taking out a lay-by make the party a “buyer” at the time the lay-by is taken out, at the time the final payment is made or at some interim point in time? No doubt such questions will be influenced by the specific terms of the particular lay-by (as the substance of the transaction takes precedent over its form): see Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644 at [60], [62]; See further, s 46. In the Saskatchewan Court of Appeal decision, Royal Bank of Canada v 216200 Alberta Ltd (1986) 6 PPSAC 277; 33 DLR (4th) 80, the Court applied the concept of a sale under the Sale of Goods legislation to determine who a buyer is. In particular, the Court recognised that a person may be a buyer even where the full purchase price has not been paid. Compare Spittlehouse v Northshore Manne Inc (1994) 7 PPSAC (2d) 67; 114 DLR (4th) 500 (Ont CA) where the Sale of Goods Act was held to be inapplicable (See also, obiter comments in Willi v Don Shearer Ltd (1993) 5 PPSAC (2d) 179; 107 DLR (4th) 121 (BC CA). In the authors’ view, the Saskatchewan approach should be preferred on the basis that the Sale of Goods Act, and not the PPSA, should determine what a sale is. In the New Zealand case of Orix New Zealand Ltd v Milne [2007] 3 NZLR 637 it was held that the Sale of Goods legislation was relevant in determining who a seller was, but that was in the context of an argument based on s 53 of the NZ PPSA, on which s 46 of the Australian PPSA is based, although the New Zealand provision is limited to goods while the Australian provision extends to all personal property. Another important element of s 43 is the concept of taking free of the security interest. The term “taking free” is not defined by the PPSA, however, its meaning is readily ascertainable from the term itself. By way of context, a security interest is an encumbrance upon the free ownership or leasehold interest in particular property. While encumbered, property is held subject to conditions imposed by those parties benefiting from the imposition of such encumbrances to the extent that an underlying obligation or obligations are fulfilled in full. With respect to real property by way of illustration, an easement over an estate, such as a right of way, interferes with the free enjoyment of an estate. A similar burden exists where security is granted, although the burden is usually one of right and operates ethereally rather than by way of physical interference (unless perfected by possession). While the term “defeating” often suffices to describe the pragmatic outcome of a party taking free from existing security interests, it is not a technically correct way of describing the outcome of the taking free provisions under the PPSA (see particularly s 53). Taking free should be more accurately conceptualised as the taking of personal property without encumbrances, that is, once the agreement between the transferor (the party who sells or leases the relevant property) and the transferee (the buyer or lessee respectively) is completed in full (usually where the purchase price is paid in full) the secured party has no recourse against the transferee and thus the transferee duly “takes free” from the security interest. Having regard to the above, it is important for the secured party to consider taking a security interest over any proceeds to avoid losing all recourse to any asset at all. Simply attempting to prevent misappropriation by providing contractual conditions preventing the sale or disposition of the underlying asset(s) is insufficient as such rights and responsibilities cannot extend beyond those parties to that specific contract (namely, between the grantor and the secured party). An independent third party who

takes free is, of course, not so bound. [43.5.2] Exceptions — s 43(2) Section 43(2) provides an exception to the general rule, the ambit of which is largely to prevent abuse of the PPSA provisions. The exception prevents buyers or lessees who are a party to the security interest from taking free from such an interest. While seeming like an implicit knowledge requirement, that is, the buyer or lessee cannot take their interest free from encumbrances where they have knowledge of the secured party, such an inference should not be drawn in light of subsequent provisions under Pt 2.5. Section 43 is written and is so aimed to be a broad taking free provision to further encourage parties who seek to benefit from holding a security interest to perfect such an interest. Failing to do so renders their interest vulnerable not only to subsequent perfected parties but also to those who seek to take free from the security interest entirely. At the time of writing there are no regulations prescribed for this provision. [43.6] Further reading • Explanatory Memorandum [2.80–2.81]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6], [7.10].

¶44 SECTION 44 TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST IF SERIAL NUMBER INCORRECT OR MISSING ¶2-145 SECTION 44 TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST IF SERIAL NUMBER INCORRECT OR MISSING Text of s 44 [44.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 55

Saskatchewan

PPSA 1993

s 30(6), (7)

Ontario

PPSA 1990

s 28(5)

USA

UCC Article 9 (rev) No equivalent

[44.2] Outline Section 44 demonstrates some of the rigidity of the PPSA with respect to inaccurate registration. The provision is one of several which aim to deter the negligent lodgement of financing statements. As such, even mere typographical errors can result in a buyer or lessee taking their interest free of existing security interests despite being duly perfected. It should be reiterated in this regard that the taking free provisions operate with consumer protection objectives in mind. [44.3] Cross-references • Section 42 limits the operation of this section. • Section 153 provides for the registration of a financing statement. • Part 5.5 provides rules for searching the Personal Property Securities Register (PPSR). • Personal Property Securities Regulations 2010 (Cth), Sch 1, cl 2.2 prescribes what property may or must be described by serial number in a financing statement. [44.4] Concepts • Buyer or lessee See further, s 43. • Inventory This is defined in s 10 as meaning: personal property (whether goods or intangible property) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated: 1. is held by the person for sale or lease, or has been leased by the person as lessor, or 2. is held by the person to be provided under a contract for services, or has been so provided, or 3. is held by the person as raw materials or as work in progress, or 4. is held, used or consumed by the person, as materials. • Migrated security interest See s 332. • Serial number The term “serial number” has an important use and meaning under the PPSA. While defined by s 10 as an identifying series of numbers in relation to particular collateral, the PPS Regulations alter the definition based on the type of collateral in issue. Schedule 1, reg 2.2 of the PPS Regulations prescribes the types of collateral which may or must be described by serial number. Regulation 2.2(3) isolates the relevant number required in relation to each collateral type. While technical in essence, it is thus essential that where the collateral may or must be described by serial number — that such numbers are entered correctly. Failing to do so renders the interest vulnerable to the taking free provisions under Pt 2.5 of the Act and can also result in a loss of priority as against other perfected interests (see s 164). • Taking free See further, s 43. • Transitional security interest See s 308.

[44.5] Commentary [44.5.1] Main rule — s 44(1) ....................................XX [44.5.2] Exceptions — s 44(2) ....................................XX [44.5.1] Main rule — s 44(1) Section 44(1) provides, in essence, that where a security interest may or must be described by serial number and a search of the register immediately before the time of sale or lease fails to reveal the perfected security interest (when searching by serial number) then the buyer or lessee takes the underlying personal property free from the security interest. This provision is in accordance with the rationale that Pt 2.5 relies on the primacy of the register, that is, parties are protected from buying or leasing encumbered property where the required information could not be found on the register. The implications of this rule are significant as the security, in a practical sense, is forfeited by the secured party’s error in providing an incorrect serial number or failing to provide a serial number at all. It is also important to note here that a distinction exists between the taking free provisions and the priority rules, that is, different rationales apply to bona fide third party purchasers or lessees from competing security interest holders. The taking free provisions benefit from consumer protection policy objectives while the priority rules do not. Thus, while it is readily accepted that an omission or error in a serial number collateral description will allow third party purchasers or lessees to take free of the security (with motor vehicles when described as consumer property comprising one common example of collateral that must be described by serial number) — the same does not automatically apply for competing priority claims. Defects of this nature are inconclusive as between competing secured parties. This notion is discussed further when considering seriously misleading defects on the PPSR — see s 164. [44.5.2] Exceptions — s 44(2) Section 44(2) provides that if the buyer or lessee purchases or leases personal property which may or must be described by serial number as inventory, that the taking free provisions do not apply to such collateral. This exception exists to prevent parties who intend to on sell the collateral from extinguishing existing security interests. While the capacity by which the collateral is purchased or leased is somewhat arbitrary, the taking free provisions operate by way of consumer protection and holding the property as inventory indicates a commercial purpose. In addition, and similar to s 43(2), where the buyer or lessee is a party to the security interest (irrespective of the capacity with which they take an interest in the relevant property, be it consumer or otherwise) the taking free provisions do not apply. Again, this exception is narrower than imposing a knowledge-based requirement which exists under subsequent taking free provisions. Section 44(3) provides that the taking free rule in s 44(1) does not apply to certain transitional security interests for 24 months after the registration commencement time. See further, Ch 9 regarding the transitional provisions of the PPSA. Note: The transitional provisions pursuant to Ch 9 of the PPSA ceased operation at the expiration of two years after the registration commencement time, see s 306. [44.6] Further reading • Explanatory Memorandum [2.2.83–2.86]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [6.2], [6.6] , [7.6], [9.3].

¶45 SECTION 45 TAKING MOTOR VEHICLES FREE OF SECURITY INTEREST ¶2-150 SECTION 45 TAKING MOTOR VEHICLES FREE OF SECURITY INTEREST Text of s 45 [45.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 58

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[45.2] Outline While motor vehicles are, by definition, a class of personal property which may or must be described by serial number, s 45 exists as a separate provision for the taking of motor vehicles free from encumbrances. The reason for this is not clear from the working of the PPSA itself, however, the explanatory memorandum explains the additional elements of s 45 that are relevant to motor vehicles, as distinct from other collateral which may or must be described by serial number, warranting a separate section. Section 45 derives from s 8(3)(b) of the Interest in Goods Act 1986 (NSW) and Chattel Securities Act 1987 (Vic), however, it should not be interpreted as an exact equivalent as elements of the PPSA s 45 differ in some respects. [45.3] Cross-references • Section 42 limits the operation of this section. • The Personal Property Securities Regulations 2010 (Cth), reg 1.7, 2.1 and 2.2 provide rules for this section. Note: The Personal Property Securities Regulations 2010 (Cth) have been amended by the Personal Property Securities Amendment (Motor Vehicles) Regulation 2014 which will commence on 1 July 2014. [45.4] Concepts • Actual or constructive knowledge See s 297–299. • Inventory This is defined in s 10. • Execution creditor This is defined in s 10. See further, s 74. • New value This is defined in s 10 as meaning “means value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value”. • Prescribed person This is prescribed by the Personal Property Securities Regulations 2010 (Cth, reg 2.2 as a seller or

lessor of a motor vehicle who: (a) holds a licence (however described) to deal or trade in that kind of motor vehicle, and (b) the licence is issued by a licensing authority in the state or territory where the sale or lease of the motor vehicle happens. • Possession See s 24. • Taking free See [43.5.1]. [45.5] Commentary [45.5.1] Main rule — s 45(1) ....................................XX [45.5.2] Exceptions — s 45(2) ....................................XX [45.5.3] Prescribed persons — s 45(3), (4) ....................................XX [45.5.1] Main rule — s 45(1) Like s 44, a buyer or lessee, for new value, takes a motor vehicle free from existing security interests where it may or must be described by serial number and a search of the register using the serial number would not reveal an existing interest. Consideration of what constitutes a “motor vehicle” must be taken into account: see for example Saskatchewan Economic Development Corp v Pryor (1992) 3 PPSAC (2d) 235; 103 Sask R 55 (Sask CA). Additionally, unlike s 44, the time at which the search must be conducted extends back to the start of the previous day prior to the sale or lease (pursuant to s 45(1)). The seller or lessor must be the grantor or another person in possession of the motor vehicle — as possession to the ordinary purchaser/lessee presents the prima facie inference that property can be sold or leased. Like the above taking free provisions, primacy is given to protecting the consumer by this provision however the commercial process involved when dealing with a motor vehicle is also preserved by the PPSA. Under pre-PPSA law, a prudent purchaser or lessee of a motor vehicle would ensure the vehicle was not otherwise encumbered or stolen by conducting a search of the various state-based registers commonly known as the Register of Encumbered Vehicles or “REVS” service. Under the PPSA, instead of consulting the REVS database, the purchaser or lessee would search the PPSR. In a practical sense, little changes with respect to dealings with motor vehicles. [45.5.2] Exceptions — s 45(2) Due to the significant effect of s 45(1) of the PPSA, there are a series of exceptions to the taking free rule designed to prevent misuse of the section. The taking free provisions are not designed to present an arbitrary benefit to certain parties or to provide mechanisms to circumvent the perfection and priority regime. Where the secured party, and not the grantor, possesses the motor vehicle immediately before the sale or lease — the buyer or lessee should be put on notice that the vehicle is encumbered and thus they will not take the interest free. A similar exception applies where the vehicle is held by an execution creditor immediately before the sale or lease, for the same reasons and applying the same logic. Holding the motor vehicle as inventory after purchasing or leasing it additionally removes the application of s 45(1). Finally, knowledge of the security interest will also defeat the purchaser or lessee. Knowledge here including “actual” or “constructive” knowledge however these terms carry a special meaning under the PPSA (see Pt 8.6; see in particular s 297). Peculiarly, constructive knowledge does not include knowledge of what would have been on the register had the purchaser or lessee inquired (see s 300). Pursuant to s 45(2) in particular, constructive knowledge is perhaps defined as such as the only active requirement of the purchaser/lessee is that the serial number of the motor vehicle is checked within the

relevant time frame provided by the PPSA. It would be contradictory if this check was duly undertaken but the exception required more from the purchaser/lessee. In the New Zealand High Court decision, Nichibo Trading Company New Zealand Ltd v Lucich [2011] NZHC 722; (2011) 9 NZBLC 103,253, Toogood J held that just because the relevant party in that case was an employee of a business which carried on motor vehicle trading did not automatically make the employee a party excluded from taking free. The inquiry is one with respect to the knowledge of the relevant party, whereby certain types of employees may have knowledge of existing encumbrances. The question is one of fact to be determined on a case by case basis. In Nichibo it was held that the employee was not prevented from taking free. [45.5.3] Prescribed persons — s 45(3), (4) Prescribed persons refer to a class of sellers or lessors prescribed by the PPS Regulations. A motor vehicle is defined for the purposes of the PPSA under reg 1.7 (pursuant to reg 2.1). Pursuant to s 45(3) (b), a “prescribed seller or lessor” constitutes a seller or lessor who holds a licence to deal or trade in the particular kind of motor vehicle (see reg 2.1) relevant to the security interest, and, the licence is issued by a licensing authority of the relevant state or territory. For transactions that do not fit within this section, See also s 44. [45.6] Further reading • Explanatory Memorandum [2.87–2.95]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6].

¶46 SECTION 46 TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST IN ORDINARY COURSE OF BUSINESS ¶2-155 SECTION 46 TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST IN ORDINARY COURSE OF BUSINESS Text of s 46 [46.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 53

Saskatchewan

PPSA 1993

s 30(2)

Ontario

PPSA 1990

s 28(1), (2.3)

USA

UCC Article 9 (rev) §§ 1-201(9), 9-320

[46.2] Outline Section 46 provides the taking free provision for personal property purchased or leased in the “ordinary course of business”. In line with preserving commercial processes, as the taking free provisions as a whole are, the PPSA does not require purchasers’ lessees to continuously search the register for existing encumbrances where the seller or lessor sells or leases such property in the ordinary course of business. Like s 44 and 45, exceptions apply to prevent abuse of this provision. [46.3] Cross-references • Section 42 limits the operation of this section. [46.4] Concepts • Actual or constructive knowledge See s 297–299. • Buyer or lessee See s 43. • Inventory See s 10. • Ordinary course of business This central concept is discussed below in [46.5.2]. • Taking free See [43.5.1]. [46.5] Commentary [46.5.1] Overview of s 46 — taking personal property free of security interest in ordinary course of business ....................................XX [46.5.2] What is in the ordinary course of business? ....................................XX [46.5.3] Exceptions — s 46(2) ....................................XX [46.5.1] Overview of s 46 — taking personal property free of security interest in ordinary course of business

Pursuant to s 46(1), where a buyer or lessee, buys/leases personal property from a seller/lessor who is engaged in the sale or leasing of such goods, the buyer/lessee takes the property free from security interests including those extending to proceeds. While the provision centres around the concept of what constitutes the “ordinary course of business” the term does not have a definite meaning and is highly fact specific. The phrase has also been differentiated from the phrase “regularly engaged in the business of” which arises with respect to PPS leases (see s 13). In Stockco Ltd v Gibson [2012] NZCA 330; (2012) 10 NZBLC 99-709 at [48], the New Zealand Court of Appeal said that while the purpose of this provision (NZ PPSA equivalent s 53) is “to provide protection for buyers in the ordinary course of business of the seller, the necessary corollary is that a secured party is protected against a purported sale of goods subject to a security interest in circumstances other than in the ordinary course of the seller’s business”. [46.5.2] What is in the ordinary course of business? The phrase “ordinary course of business” is not defined by the PPSA. In Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644, Sifris J considered this phrase along with other critical terms used in s 46 but not otherwise defined by the PPSA, such as “buyer”, “seller” and “sold”, and held (at [47], [72]–[73]): “… the PPSA is not a code. Accordingly, in my opinion, and for reasons referred to below, there is no reason why sale of goods legislation should not be considered in determining whether a person is a ‘buyer’ of personal property that has been ‘sold’ under PPSA s 46. The PPSA discloses no intention to displace the existing law relating to the sale of property (as opposed to the operation of security interests over property). When the PPSA refers to existing concepts such as the sale of property, and those concepts are not necessarily affected by the PPSA’s reconfiguration of personal property securities law, there is no reason to suppose that the Parliament intended anything other than a reference to the accepted meaning of familiar concepts. … When the PPSA refers to existing concepts such as the sale of property, and those concepts are not necessarily affected by the PPSA’s reconfiguration of personal property securities law, there is no reason to suppose that Parliament intended anything other than a reference to the accepted meaning of familiar concepts. That logic is consistent with orthodox principles of statutory construction. When used in legislation, words that have a well-known legal meaning are presumed to carry that meaning unless a contrary intention clearly appears. ‘Sale’, ‘seller’ and ‘buyer’ have longstanding meanings under the Goods Act and the substantially-uniform cognate legislation throughout Australia. No contrary intention being found in the PPSA, the question of whether a person is a ‘buyer’ of property that has been ‘sold’ should be determined by reference to the relevant sale of goods legislation.” (citations omitted). The phrase “ordinary course of business” is also a phrase that has been extensively considered in foreign PPSA statutes. In the bankruptcy case of Downs Distributing Company Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463 at 477 Rich J said: “the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation”. However, the consideration of this phrase in the context of bankruptcy is centred on whether a transaction should be avoided because the transferee should have had notice of the transferor’s insolvency by reason of the unusual nature of the transaction. The phrase is also used in partnership law where it has been held that the court must ascertain the nature and scope of the individual business and then determine whether the conduct fits within the scope of that business: Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1. In the context of floating charges, the ordinary course of business refers to circumstances where chargors were able to deal with secured assets without the prior permission of the chargee.

In the NSW Court of Appeal decision, Fire Nymph Products Pty Ltd v Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365 at 370, Gleeson CJ relied upon the following passage from Palmer’s Company Precedents: “What, then, is in the ‘ordinary course of business? The answer to this depends on the nature of the particular company’s business, but as a general rule the words include sales, leases, mortgages, charges, payment of debts, discharge of liabilities, and other transactions with a view to carrying on the concern’.” See also, Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422; Re Canada North Group Inc [2019] ABQB 307. In the leading Ontario case, Fairline Boats Ltd v Leger (1980) 1 PPSAC 218 at [12]–[17], Linden J listed a number of relevant factors to be used in determining whether the transaction was in the ordinary course of business (See also, Alberta Pacific Leasing Inc v Petro Equipment Sales Ltd (1995) 10 PPSAC (2d) 69; 34 Alta LR (3d) 66). These included whether the transaction occurred in a commercial setting, the identity of the buyer, the price paid and the quantity of goods disposed of. See further, Hunter Helicopters Inc v Islands Timberlands Ltd Partnership [2019] BCSC 832 (and the cases cited therein). His Honour also provided the following rationale for the provision (at [8]): “The objective of this section, as I understand it, is to permit commerce to proceed expeditiously without the need for purchasers of goods to check into the titles of sellers in the ordinary course of their business. Purchasers are allowed by our law to rely on sellers using the proceeds of sales to repay any liens on the property sold. In these days inventory is almost invariably financed, and as a result is almost invariably subject to liens of one kind or another. To require searches and other measures to protect lenders in every transaction would stultify commercial dealings, and so the Legislature exempts buyers in the ordinary course of business from these onerous provisions, even where they know that a lien is in existence. The risk is placed on lenders of an occasional dishonest dealer who may sell some of his goods in the ordinary course of business and then fail to repay the debt because ‘he is in a much better position than the buyer to weigh the risks’ … Some protection is given to security holders by denying reliance on this section to those who do not buy in the ordinary course of business.” The phrase should be interpreted liberally: Camco Inc v Frances Olson Realty (1979) Ltd (1986) 6 PPSAC 167; 50 Sask R 161 (Sask CA); Nichibo Trading Company New Zealand Ltd v Lucich [2011] NZHC 722. The New Zealand Court of Appeal has said in Stockco Ltd v Gibson [2012] NZCA 330; (2012) 10 NZBLC 99-709 at [49], that the provision: “must be interpreted in a way which meets the commercial objective of facilitating commerce without undermining the equally important commercial objective of ensuring that those who provide credit on the security of the debtor’s goods are not unfairly deprived of the benefit of that security”. In Stockco, the Court of Appeal held (at [69]) that the equivalent New Zealand provision should not be interpreted to allow a sudden change of business strategy, as that would narrow the protection offered to secured parties by the provision and would expose them to undue risk. The court stated that a sudden change is “contrary to the concept of the ‘course’ of business”. In Nichibo, the New Zealand High Court noted (at [58]) that the “adjective ‘ordinary’ qualifies the noun ‘course’, suggesting that the manner in which the transaction was conducted should be considered, as well its nature”. See also, Royal Bank of Canada v 216200 Alberta Ltd (1986) 6 PPSAC 277; 33 DLR (4th) 80 (Sask CA); 369413 Alberta Ltd. v Pocklington (2000) 194 DLR (4th) 109; 271 AR 280 (Alta CA); Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 (Alta CA); GE Canada Equipment Financing GP v ING Insurance Co of Canada (2009) 14 PPSAC (3d) 49; 94 OR (3d) 321 (Ont CA). The Canadian cases were applied in ORIX New Zealand Ltd v Milne [2007] 3 NZLR 637 at [66] (NZ HC) where the court said that a two-step process can be used: “The first is to determine the business of the seller. The second is to inquire whether the sale was made in the ordinary course of that business”. The fact that sales were made infrequently and were only a small part of the business does not mean they were not in the ordinary course of business: ORIX New Zealand Ltd v Milne [2007] 3 NZLR 637 at [70] (NZ HC). This was further developed by the New Zealand Court of Appeal in Stockco Ltd v Gibson [2012]

NZCA 330; (2012) 10 NZBLC 99-709 at [51], which held that the first step should be reformulated to identifying the “ordinary course of the business of the seller”. The decision in Fairline Boats Ltd v Leger (1980) 1 PPSAC 218 provides a range of factors that may be useful to determine whether the taking free provision applies: • here the agreement was made • arties to the sale • quantity of goods • price charged • the nature and significance of the transaction • the reason for the transaction • the frequency of the transaction, and • the arms-length nature of the transaction. These were applied by the New Zealand Court of Appeal in Stockco Ltd v Gibson [2012] NZCA 330; (2012) 10 NZBLC 99-709. Although it was noted in Bank of New Zealand v Waewaepa Station 2002 Ltd [2013] NZHC 3321 at [60] that the list of factors should not be interpreted as a mandatory checklist. The fact that the purchaser is buying for a business purpose does not render the sale or lease not in the ordinary course of business: see for example, Associates Discount Corp v Rattan Chevrolet Inc (1970) 462 SW 2d 546 (Texas SC) (sale to a wholesale car dealer); Tanbro Fabrics Corp v Deering Milliken Inc (1976) 350 NE 2d 590 (NY CA) (sale of excess fabric from one textile firm to another textile firm was common in the industry). The fact that the seller does not have legal title to the property does not limit the operation of this provision: ORIX New Zealand Ltd v Milne [2007] 3 NZLR 637 at [37] (NZ HC); Re Renovation Boys Pty Ltd (admins apptd) [2014] NSWSC 340 (sale of bathroom fittings to retail customers where goods subject to retention of title). The fact that the sale is in breach of the security agreement also does not affect the operation of this provision: Stockco Ltd v Gibson [2012] NZCA 330; (2012) 10 NZBLC 99-709 at [47]. Note also Re Renovation Boys Pty Ltd (admins apptd) [2014] NSWSC 340 at [28] where bathroom fittings were held to be sold to customers in the ordinary course of business based on affidavit evidence from staff from the voluntary administrator of a retailer. In the New Zealand Court of Appeal decision Tubbs v Ruby 2005 Ltd [2010] NZCA 353 at [58] it was noted that “it is difficult to see how a sale below market value could be in the ordinary course of business”. In Bank of New Zealand v Waewaepa Station 2002 Ltd [2013] NZHC 3321, the failure to charge GST on the sale to a related party was relevant in finding the sale to be outside the ordinary course of business. A sale to an associated party will attract further scrutiny from the courts but will not automatically render the sale outside of the ordinary course of business: Nichibo Trading Company New Zealand Ltd v Lucich [2011] NZHC 722; (2011) 9 NZBLC 103, 253; Swindle v Matakana Estate Limited (in liq) [2011] NZHC 1345. In David Morris Fine Cars Ltd v North Sky Trading Inc (Trustee of) (1996) 11 PPSAC (2d) 142; 39 CBR (3d) 284, the Alberta Court of Appeal compared the terms “ordinary course of business” with “regularly engaged in the course of business” to find that: “We agree that the clause ‘regularly engaged in business’ in s. l(1)(y) of the PPSA means something quite different than the clause ‘in the ordinary course of business’ found in s. 30(2). The former pertains to whether the lessor is in the business of leasing. The focus is the business practice of that lessor. The latter pertains to whether the particular transaction was made in the course of conducting

that business. The focus is whether other persons in that type of business engage in similar transactions.” There is little reason why a departure from this approach would occur in Australia. While interpretation may derive from other domestic statutes, the approach presented by the various Canadian courts is not inconsistent with the Australian PPSA or how the phrase “ordinary course of business” applies. The fact that the purchaser is buying for a business purpose does not render the sale or lease not in the ordinary course of business: see, for example, Associates Discount Corp v Rattan Chevrolet Inc (1970) 462 SW 2d 546 (Texas SC) (sale to a wholesale car dealer); Tanbro Fabrics Corp v Deering Milliken Inc (1976) 350 NE 2d 590 (NY CA) (sale of excess fabric from one textile firm to another textile firm was common in the industry). In Re Renovation Boys Pty Ltd [2014] NSWSC 340 (25 March 2014), the Court accepted that bathroom fittings that had been sold to customers who had paid in full were sold in the ordinary course of business based on affidavit evidence of the administrator and the fact that secured creditors had been notified about the court application and had not sought to dispute the contention: see at [28]. [46.5.3] Exceptions — s 46(2) Peculiarly, the first exception to the rule applies only to property which may or must be described by serial number. The exception applies where the property is held as inventory in a similar fashion to the exception discussed at s 44 and 45 above. Section 46(2)(b), however, applies to all collateral and imposes a knowledge-based element whereby knowledge removes the application of main operative provision under s 46(1). Again it is somewhat peculiar that the test for knowledge only comprises actual knowledge pursuant to s 46 however constructive knowledge is sufficient with respect to s 45. For more information on the particulars concerning knowledge under the PPSA see Pt 8.6. [46.6] Further reading • Explanatory Memorandum [2.96–2.98]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [4.3], [7.6]. • Mike Gedye, “A Hoary Chestnut Resurrected: The Meaning of ‘Ordinary Course of Business’ in Secured Transactions Law” (2013) 37(1) Melbourne University Law Review 1. • Nicholas Mirzai, “The Consumer and the Personal Property Securities Act 2009: Does the Regime Protect Consumers?” — (2013) 87(1) Australian Law Journal 59.

¶47 SECTION 47 TAKING PERSONAL, DOMESTIC OR HOUSEHOLD PROPERTY FREE OF SECURITY INTEREST ¶2-160 SECTION 47 TAKING PERSONAL, DOMESTIC OR HOUSEHOLD PROPERTY FREE OF SECURITY INTEREST Text of s 47 [47.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 54

Saskatchewan

PPSA 1993

s 30(3), (4)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-320(b), (e)

[47.2] Outline Section 47 prescribes a broad taking free provision with respect to low value personal property. The scope of the provision excludes use of the property in a commercial capacity reiterating a consumer protection rationality underpinning Pt 2.5 generally. Despite this exclusion, it is likely that the majority of property purchased or leased by consumers on a daily basis will be governed by s 47. Further, while the phrase “predominately for personal, domestic or household use” is defined by the PPSA (see s 10), the interpretation of this definition will likely extend beyond the PPSA itself. [47.3] Cross-references • Section 42 limits the operation of this section. [47.4] Concepts • Actual or constructive knowledge See s 297–299. • New value This is defined in s 10. • Predominately for personal, domestic or household use Section 10 defines the phrase “predominately for personal, domestic or household use.” In short, personal property will fall within this category where the property is not acquired for an investment purpose and where it is intended to be used mostly for personal, domestic or household purposes — if not always for such purposes. The definition thus incorporates a threshold question of what constitutes “mostly” personal, domestic or household use, and one which must be assessed in light of the facts and circumstances of each particular case. The phrase forms an integral part of the Competition and Consumer Act 2010 (Cth), formerly the Trade Practices Act 1974 (Cth). The cases decided under those statutes are likely to be influential in interpreting the scope of this provision: see Carpet Call Pty Ltd v Chan (1987) ATPR (Digest) ¶46-025; Crago v Multiquip (1998) ATPR ¶41-620; Bunnings Group Ltd v Laminex Group Ltd (2006) 153 FCR 479. Note also Re Renovation Boys Pty Ltd (admins apptd) [2014] NSWSC 340 at [28] where bathroom fittings were held to be sold to customers for personal, domestic or household use based on affidavit evidence from staff from the voluntary administrator of a retailer. The threshold test pursuant to this phrase is set at a low threshold. Such is the case that even where property has a commercial or business use it may still fit within the scope of the phrase. Reluctance should be placed on setting the threshold too highly and the capacity of both the purchaser/lessee and the potential uses for such property should be duly considered when assessing the purpose for

which the property was acquired and how it has subsequently been used. Additionally, the concept of “consumer” under the Competition and Consumer Act 2010 (Cth) impacts on the way in which the phrase “personal, domestic or household use” is interpreted and applied. Consumers under the PPSA are identified in a fundamentally different fashion to the Competition and Consumer Act and it would thus be erroneous to treat the definitions of the terms between the statutes in an identical fashion. For more information on how the term “consumer” interacts with the concept of “personal, domestic and household use” see [14.5.3]ff, especially [14.5.3.3]. The threshold test pursuant to this phrase is set at a low threshold. Such is the case that even where property has a commercial or business use it may still fit within the scope of the phrase. Reluctance should be placed on setting the threshold too highly and the capacity of both the purchaser/lessee and the potential uses for such property should be duly considered when assessing the purpose for which the property was acquired and how it has subsequently been used. In Re Renovation Boys Pty Ltd [2014] NSWSC 340 the court accepted that bathroom fittings that had been sold to customers who were buying predominantly for personal domestic or household use based on affidavit evidence of the administrator and the fact that secured creditors had been notified about the court application and had not sought to dispute the contention: see at [28]. • Serial number See [44.4]. • Taking free See [43.5.1]. [47.5] Commentary [47.5.1] Main rule — s 47(1) ....................................XX [47.5.2] Exceptions — s 47(2) ....................................XX [47.5.3] Practical consequences ....................................XX [47.5.1] Main rule — s 47(1) Section 47(1) holds that a buyer or lessee who acquires for new value and for property predominately for personal, domestic or household use — where the property has a market value of less than $5,000 (or a greater amount as prescribed by the PPS Regulations — of which no such amount exists at the time of writing) takes such property free from existing security interests. The amount of $5,000 has been identified in Australia as the limit to which property can be defined as “low value”. The figure is arbitrary, and like the “grace period” afforded by way of temporary perfection (see [21.5]ff), is based solely on the perspective of the legislature in light of the commercial realities in any given country. In New Zealand, by way of distinction, the equivalent provision (s 54) prescribed a $2,000 limit, while under the Saskatchewan regime (s 30(4)) the limit is $1,000. Like all statutory provisions, this is subject to change if and where appropriate. As stated, the rationale here is predominately consumer protection however it also embodies the preservation of commercial consistency, that is, a consumer should not have to search the register for an existing interest over each item of property they purchase or lease. While this is so, a potential risk arises for suppliers who seek security over low-value, high turn-over stock (such as where goods are sold by way of consignment or on certain terms of sale). This issue is addressed at [47.5.3] below. [47.5.2] Exceptions — s 47(2) Section 47(2) prescribes three exceptions to the operative provision under s 47(1). The first exception relates to property which may or must be described by serial number, over which separate taking free provisions exist (see s 44 and 45). The second exception provides for a “knowledge-based” exclusion, that is, s 47(1) does not apply where the buyer/lessee takes the personal property with actual or

constructive knowledge (see Pt 8.6 regarding the concept of knowledge under the PPSA). The third and final exception concerns the concept of “market value”, that is, where the buyer or lessee believes, and it is the case, that the personal property is worth more than $5,000 or an amount prescribed by the PPS Regulations — of which none exist at the time of writing. The concept of market value is discussed more fully at s 131. [47.5.3] Practical consequences Notwithstanding several exceptions to the rule, there are potentially significant ramifications of such a broad taking free provision. Put simply, a secured party can never confidently have a protected interest where the property is worth less than $5,000 irrespective of their prudence in complying with the PPSA. This is because the PPSA facilitates security interests in two respects, firstly, against competing creditors — whether they are perfected or unperfected, secured or unsecured (governed by the priority rules pursuant to Pt 2.6 of the Act), and secondly, against third parties or parties who can take property free of existing security interests (governed by the taking free rules pursuant to Pt 2.5 of the Act). One practical solution, in the authors’ view, is to require retailers or on-sellers to inform the end purchaser or lessee that the property is subject to a security interest, where available. This relies on the prudence of the retailer however and may be undesirable. An alternative, is to mark the property itself to put a third party on notice of an existing security interest (by way of sticker or other adhesive). One should also remember the scope, ambit and effect of the PPSA as a commercial instrument. It is impractical and against the fundamental rationale of the regime to impose searching requirements on third party purchasers for “low value” personal property. Were this taking free rule not available, all personal property — including common groceries, would be the subject of the PPSA making any form of acquiring personal property the subject of PPS analysis (including one’s weekly shopping). It is clear, when reading the Act as a whole, that this is not the intended effect of the PPSA. [47.6] Further reading • Explanatory Memorandum [2.99–2.101]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6]. • Nicholas Mirzai, “The Consumer and the Personal Property Securities Act 2009: Does the Regime Protect Consumers?” — (2013) 87(1) Australian Law Journal 59.

¶48 SECTION 48 TAKING CURRENCY FREE OF SECURITY INTEREST ¶2-165 SECTION 48 TAKING CURRENCY FREE OF SECURITY INTEREST Text of s 48 [48.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[48.2] Outline Section 48 is a new addition to the PPS regime with no direct foreign equivalent. As money or “currency” is a class of personal property recognised by the PPSA, a security interest in money can duly arise. Pursuant to the rule in this section, money should only form part of a security agreement where it is under the possession or control of the secured party. [48.3] Cross-references • Section 42 limits the scope of this section. [48.4] Concepts • Actual or constructive knowledge See s 297–299. • Currency This is defined in s 10. • Taking free See [43.5.1] and [43.5.2]. [48.5] Commentary Section 48 simply holds that a holder of currency takes the currency free from a security interest unless they have actual or constructive knowledge that a security interest exists (see Pt 8.6). This prevents the improper appropriation of encumbered funds from parties who are bound by the security agreement or any such related party, however, in a practical sense does little to protect the secured party beyond these persons or entities. The rationale here is one of commercial imperatives. Currency is meant to be freely exchangeable and common commercial practice is such that the holder of legal tender is assumed to have the capacity to deal with it as they choose subject to any information to the contrary (such as notice of a security interest). [48.6] Further reading • Explanatory Memorandum [2.102–2.103]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6].

¶49 SECTION 49 TAKING INVESTMENT INSTRUMENT OR INTERMEDIATED SECURITY FREE OF SECURITY INTEREST IN THE ORDINARY COURSE OF TRADING ¶2-170 SECTION 49 TAKING INVESTMENT INSTRUMENT OR INTERMEDIATED SECURITY FREE OF SECURITY INTEREST IN THE ORDINARY COURSE OF TRADING Text of s 49 [49.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[49.2] Outline Investment instruments and intermediated securities operate much like currency does under the PPSA, when dealt with in the ordinary course of trading. Section 49 thus establishes similar taking free provisions in this regard. [49.3] Cross-references • Section 42 limits the scope of this section. [49.4] Concepts • Intermediated security This is defined by s 15. See further, s 26. • Investment instrument This is defined by s 10 and reg 1.10. See [27.5], which discusses the meaning of “investment instrument” as part of the commentary on s 27 (Control of Investment Instruments). • Ordinary course of trading in a prescribed financial market See s 46 regarding “ordinary course of business”. In the authors’ view, similar principles apply here in accordance with the rules and protocols of the relevant financial market in issue. • Taking free See [43.5.1] and [43.5.2]. [49.5] Commentary As investment instruments and intermediated securities comprise contractual terms in their own rights, the commerciality surrounding trade of such securities requires parties to take interests free from any existing security interest. Typically, such instruments are perfected by possession or control and thus for the regime to require registration and a searching of the register would be inconsistent with the PPSA’s overriding policy objective to preserve existing commercial practices. Should a secured party wish to allow for the tradability of an investment instrument or intermediated security whilst still preserving their security over such instruments there are few options available under the PPSA. In the authors’ view, even where notice is given to the party acquiring the instrument, such that they have

knowledge of the existing security, s 49 does not provide an exception based on a knowledge element unlike other provisions under Pt 2.5. While perfection by registration may provide protection against competing interests, the only adequate form of protection where investment instruments or intermediated securities form the underlying collateral is thus perfection by possession or control (see s 24–26). [49.6] Further reading • Explanatory Memorandum [2.104]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6].

¶50 SECTION 50 TAKING INVESTMENT INSTRUMENT FREE OF SECURITY INTEREST ¶2-175 SECTION 50 TAKING INVESTMENT INSTRUMENT FREE OF SECURITY INTEREST Text of s 50 [50.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

s 28(4)

USA

UCC Article 9 (rev) No equivalent

[50.2] Outline Section 50 applies where an investment instrument is acquired by a third party while not in the ordinary course of trading. In such circumstances, more protections are afforded to the secured party, however, the opinion expressed in the commentary to s 49 still stands by way of avoiding the issue of vulnerability to a party taking free from a security interest. [50.3] Cross-references • Sections 24 and 27 provide rules for the possession and control of investment instruments. [50.4] Concepts • Actual or constructive knowledge See s 297–299. • Investment instrument This is defined in s 10 and reg 1.10. See [27.5], which discusses this term as part of the commentary on s 27 (Control of Investment Instruments). • Possession See s 24. • Taking free See [43.5.1] and [43.5.2]. • Value This is defined by s 10. See also, [19.5.2.2]. [50.5] Commentary [50.5.1] Main rule — s 50(1) ....................................xx [50.5.2] Exception — s 50(2) ....................................xx [50.5.3] Practical considerations ....................................xx [50.5.1] Main rule — s 50(1) Section 50(1) holds that a purchaser (so defined by s 50(3)) takes an investment instrument free from a

security interest where they provide value for the instrument and take possession or control. The section gives rise to the reality that possession or control defeats registration with regards to investment instruments. [50.5.2] Exception — s 50(2) Section 50(2) provides that a purchaser will not take free if they have actual or constructive knowledge of the security interest (see Pt 8.6 regarding knowledge under the PPSA). [50.5.3] Practical considerations Unlike s 49 above, a secured party can prevent the taking free provisions from applying to their security interest by attaching to the investment instrument a notice that a security interest exists over such property. The effectiveness of this method remains to be seen, however, presents a practical method of ensuring that a third party purchaser takes with actual knowledge of the security interest. [50.6] Further reading • Explanatory Memorandum [2.105]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6], [9.2].

¶51 SECTION 51 TAKING INTERMEDIATED SECURITY FREE OF SECURITY INTEREST ¶2-180 SECTION 51 TAKING INTERMEDIATED SECURITY FREE OF SECURITY INTEREST Text of s 51 [51.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

s 28(6)

USA

UCC Article 9 (rev) No equivalent

[51.2] Outline Section 51 relies on the definition of an intermediated security interest pursuant to s 15, however is, in substance and operative effect, very similar to s 50. As such it comes as little surprise that the exceptions to the rule are also identical to those available under s 50. [51.3] Cross-references • See s 15 regarding the definition of intermediated security. [51.4] Concepts • Actual or constructive knowledge See s 297–299. • Consensual transaction See [12.5.1] and [12.5.1.1]. • Intermediated security This is defined in s 15. See further, s 26. • Taking free See [43.5.1] and [43.5.2]. • Value This is defined in s 10. See further, [19.5.2.2]. [51.5] Commentary [51.5.1] Main rule — s 51(1) ....................................XX [51.5.2] Exception — s 51(2) ....................................XX [51.5.1] Main rule — s 51(1) A transferee of an interest in an intermediated security (not itself constituting a security interest) who has provided value for the interest, takes that interest free of a prior security interest in the intermediated security where the credit of the interest in the financial product with which the interest arises is made by consent between the relevant parties. It should be noted that a purchaser in the ordinary course of business over a prescribed financial market will also take free of a prior security interest.

[51.5.2] Exception — s 51(2) The same exception applies with respect to intermediated securities as s 50(2) applies with respect to investment instruments (see s 50(2)). [51.6] Further reading • Explanatory Memorandum [2.106]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6].

¶52 SECTION 52 TAKING PERSONAL PROPERTY FREE OF TEMPORARILY PERFECTED SECURITY INTEREST ¶2-185 SECTION 52 TAKING PERSONAL PROPERTY FREE OF TEMPORARILY PERFECTED SECURITY INTEREST Text of s 52 [52.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 56

Saskatchewan

PPSA 1993

s 30(5)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[52.2] Outline The previous taking free provisions pursuant to Pt 2.5 refer to specifics regarding the collateral itself or the nature of the security interest which arises — rather than the method of perfection adopted by the secured party. Section 52 is distinct in this regard as it applies irrespective of the interest or underlying collateral, where the security interest has been perfected by temporary perfection, that is, by operation of the statute. [52.3] Cross-references • Sections 33, 34, 39 and 40 deal with temporary perfection. • Section 42 limits the scope of this section. [52.4] Concepts • Actual knowledge See s 297. • Buyer See s 43. • New value This is defined by s 10. • Negotiable document of title See s 8 and 72. • Predominately for personal, domestic or household use See [14.5.3.3] and [47.5]. [52.5] Commentary [52.5.1] Main rule — s 52(1) ....................................XX [52.5.2] Exceptions — s 52(2) ....................................XX [52.5.1] Main rule — s 52(1) Temporary perfection operates by way of the statute itself and the security interest is treated as perfected,

in the ordinary sense of the term under the PPSA (see s 21), within the temporary perfection period. Just as a perfected security interest in the traditional sense is vulnerable to the taking free provisions of Pt 2.5, so too are temporarily perfected security interests, such that a buyer or lessee takes their interest free where the interest is not otherwise perfected immediately before the sale or lease occurs (regardless of the class of collateral or security interest in question). While some protections are afforded to security interests perfected by temporary perfection, better protections exist for interests perfected by other means. The following hierarchy thus exists by way of the taking free provisions: Secured party protections under Pt 2.5

TIER 3

UNPERFECTED SECURITY INTEREST

s 43

– No knowledge-based exception – Only a party to the security interest is excluded from taking free TIER 2

TEMPORARILY PERFECTED SECURITY INTEREST

s 52

– Knowledge-based exception (actual knowledge) TIER 1

PERFECTED SECURITY INTEREST

s 44–51

– Specific exceptions – Broadest protections available depending on the class of collateral and/or the nature of the underlying instrument This position reinforces the view that temporary perfection should only be relied on during the transitory stages of a security interest arising. Once a secured party is able to perfect by traditional means under the Act the authors are of the view that this should occur sooner rather than later. [52.5.2] Exceptions — s 52(2) Actual knowledge defeats the buyer or lessee seeking to take free from a temporarily perfected security interest where: 1. if the property is acquired predominately for personal, domestic or household use — the time when new value is given, or 2. in a case other than where the property is acquired predominately for personal, domestic or household use — at the time of sale or entry (that is, at the time the contract was formed rather than when the contract was executed). The extension of time for property acquired predominately for personal, domestic or household use again emphasises the consumer protection ambit of Pt 2.5. [52.6] Further reading • Explanatory Memorandum [2.107–2.109]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6], [8.7].

¶53 SECTION 53 RIGHTS OF SECURED PARTY AND TRANSFEREE ON TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST ¶2-190 SECTION 53 RIGHTS OF SECURED PARTY AND TRANSFEREE ON TAKING PERSONAL PROPERTY FREE OF SECURITY INTEREST Text of s 53 [53.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 65

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[53.2] Outline The rights of the secured party are not lost or forfeited by virtue of the Pt 2.5 taking free provisions of the PPSA. A secured party duly retains a personal right as against the debtor to enforce the underlying obligation. Section 53 additionally establishes some limited rights under the PPSA with respect to the security interest itself. It is not the intention of the PPSA that a secured party loses their interest however when faced with a third party purchaser or lessee who satisfies one of the taking free provisions, the third party’s gain is often the secured party’s loss. [53.3] Cross-references • Sections 42–52 provide taking free rules. [53.4] Concepts • Accession See s 10 and also Pt 3.3. • Subrogated The right of subrogation operates by law and does not thus create a security interest in and of itself (see s 12 regarding security interests and how they arise for the purposes of the PPSA). Subrogation involves the secured party taking the shoes of the transferor by way of any right to receive payments still owing. While this offers some consolation to the secured party it will operate only when obligations remain outstanding as between transferor and transferee, which then expire if the transferee has paid the full purchase price, and only attach to the amount outstanding which could range anywhere between 0 and 100% of the security value. [53.5] Commentary [53.5.1] Scope — s 53(1) ....................................xx [52.5.2] Exceptions — s 52(2) ....................................XX [53.5.2] Rights and ramifications for the secured party — s 53(2) ....................................XX [53.5.3] Rights of the transferee — s 53(3) ....................................XX [53.5.1] Scope — s 53(1)

Section 53(1) prescribes that s 53 applies in essence where one of the taking free provisions under Pt 2.5 has arisen to the benefit of the purchaser or lessee and to the detriment of a secured party. [53.5.2] Rights and ramifications for the secured party — s 53(2) The secured party does not lose their security interest per se by virtue of the Pt 2.5 taking free provisions. The security interest remains valid in a technical sense, however, the rights the secured party holds are subrogated to the transferee’s interest. This includes the right to be paid the purchase price, where this has not occurred in full, noting that the secured party retains recourse against the debtor personally — noting that often the debtor will also be the grantor. Enforcement action to isolate such funds (if any) relies heavily on the prudence of the secured party and the ability to enforce or otherwise have the matter heard before the funds are misappropriated, become untraceable or are exhausted. The secured party has little claim over the third party buyer or lessee, however, and thus awareness of the taking free provisions and how to duly protect one’s security is as essential to understanding the PPSA as the perfection and priority rules. Despite the existence of s 53, the practical effect of a party “taking free” is that the security interest is “extinguished”. For this reason Pt 2.5 is often referred to synonymously as the “taking free” rules or the “extinguishment” rules under the PPSA despite the continued subsistence of a security interest pursuant to s 53. [53.5.3] Rights of the transferee — s 53(3) Section 53(3) ensures that a secured party cannot, in essence, “double-dip” to coerce the transferee into satisfying the obligation owing twice, once to the transferor and then again to the secured party. Primacy is afforded to the transferee and while a right of subrogation may arise, once the obligations owing by the transferee are satisfied there will remain no outstanding duty. The dispute becomes one duly between the secured party and the transferor as to who may retain the funds paid. This must be so as any interference with the rights of the transferee would be contrary to taking free provisions and objectives of the PPSA under Pt 2.5. [53.6] Further reading • Explanatory Memorandum [2.110]. • ALRC Report No 64 [9.1–9.12]. • Whittaker Report [7.6].

¶2.6 PART 2.6 — PRIORITY BETWEEN SECURITY INTERESTS ¶1 Division 1 — Introduction

¶54 SECTION 54 GUIDE TO THIS PART ¶2-195 SECTION 54 GUIDE TO THIS PART Text of s 54

¶2 Division 2 — Priority of security interests generally

¶55 SECTION 55 DEFAULT PRIORITY RULES ¶2-200 SECTION 55 DEFAULT PRIORITY RULES Text of s 55 [55.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 66, 68

Saskatchewan

PPSA 1993

s 35(1)

Ontario

PPSA 1990

s 30(1)

USA

UCC Article 9 (rev) § 9-322(a), (b)

[55.2] Outline The priority rules pursuant to Pt 2.6 of the PPSA prescribe the prevailing position where two or more security interests are competing for priority over the same underlying collateral. The term “priority” is not defined under the PPSA however it simply refers to the security interest which will have first right of enforcement against the underlying collateral — as against other security interests. Where multiple security interests exist, the priority rules thus determine the order in which such interests are satisfied should the debtor default in payment or performance of their obligation(s). [55.3] Cross-references • This section is one of the central provisions of the PPSA and will be relevant in almost every type of priority dispute. [55.4] Concepts • Attachment See s 19. • Continuous perfections See s 56. • Control See s 25–29. • Perfected and unperfected See s 21. • Possession See s 24. • Registration See Pt 5.3. • Temporary perfection See [21.5]ff. [55.5] Commentary [55.5.1] Default position — s 55(1) ....................................XX

[55.5.2] Priority between unperfected security interests — s 55(2) ....................................XX [55.5.3] Perfected security interests vs unperfected security interests — s 55(3) ....................................XX [55.5.4] Priority between two perfected security interests — s 55(4) ....................................XX [55.5.5] Priority time — s 55(5), (6) ....................................XX [55.5.1] Default position — s 55(1) Section 55(1) of the PPSA expressly prescribes that the rules under s 55 operate only in default of other provisions under the PPSA. This does not mean that s 55 is to be regarded as subordinated to the wills of the parties pursuant to their security agreement or the position which may have resolved the priority conflict at common law. What it means is that the whole of Pt 2.6 is to be read for more specific priority rules regarding the particular underlying collateral and resulting interest/instrument which may be applicable —absent which s 55 will apply. Conveniently, the notes to s 55(1) identify other areas of the PPSA which are relevant to determining whether s 55 or some more specific provision applies. That said, whilst any number of security interest permutations are available under the PPSA, it is likely that many commercial priority disputes will be determined in accordance with s 55, particularly in the absence of one of the interests the subject of the priority dispute being perfection by control. When determining a priority dispute the relevant point in time at which the inquiry is conducted is the time of conflict between security interests. This is typically upon the occurrence of an event of default which entitles or empowers the secured party (subject to the express contractual stipulations governing the relationship between secured party and grantor) to enforce its security interest — and the secured party purports to exercise such rights. Noting creditor indulgence in respect of late payment vis-à-vis the cost and effort of enforcing a security interest, it is not uncommon, in a commercial sense, for security interests to remain unenforced by any one secured party. In this circumstance, the priority provisions become very important upon the grantor entering external control, that is, bankruptcy, in the case of the individual, and insolvency, in the case of the corporation. In Gibbston Downs Wines Ltd v Perpetual Trust Limited (2012) FPPSR ¶700-007; [2012] NZHC 1022, the event of default was the appointment of receivers. This makes sense having regard to what occurs upon default — which is prescribed in certain instances under the PPSA. Take s 267 of the PPSA as an example. It provides that where a security interest is unperfected it is taken to vest in the grantor immediately before the event mentioned in para 1(a) of that section (authors’ emphasis). The timing of the para 1(a) even is thus the critical time for the purposes of ascertaining priority. When examining two competing interests at the critical time, the interests are compared in light of the following two matters: • the nature of each interest (perfected, unperfected, transitional, PMSI or otherwise); and • the time at which the relevant nature of the interest first arose, that is: – for perfected interests — the time when the interest was perfected; and – for unperfected interests — the time when the interest attached. Importantly, it is only where the result of the first examination yields “like” interests, that is, perfected v perfected or unperfected v unperfected, that the second examination with respect to timing is required. This is because the default priority provisions and other more specific provisions with respect to priority pursuant to the remainder of Pt 2.6 (considering also Ch 9) of the PPSA stipulate a prevailing interest where the interests are not alike often irrespective of the time that the interests arose. The order of the abovementioned inquiry is thus important and should be conducted in the fashion outlined above: See also, Sperry Inc v Canadian Imperial Bank of Commerce and Throne Riddle Inc (1985) 17 DLR (4th) 236.

[55.5.2] Priority between unperfected security interests — s 55(2) Where both secured parties hold an unperfected security interest over the same underlying collateral, s 55(2) of the PPSA prescribes that the first interest to attach in time takes priority (see s 19). That said, the failure to perfect does not affect the binding obligations as between the parties subject to the security agreement. A failure to comply with formal perfection requirements only effects priority between competing secured parties (unless the taking free provisions apply, particularly s 43). Section 55(2) is consistent with foreign PPS legislation in this regard: see generally Innovation Credit Union v Bank of Montreal (2009) 14 PPSAC (3d) 149; 306 DLR (4th) 407 at [59]; Radius Credit Union Ltd v Royal Bank (2009) 14 PPSAC (3d) 124; 306 DLR (4th) 444 at [33]; Re 1231640 Ontario Inc (2007) 13 PPSAC (3d) 57; 289 DLR (4th) 684 at [60]. While the above statements are true, they demonstrate the dangers with referring exclusively to s 55 when looking to determine priority under the PPSA. Section 55(1) makes it clear that the default rules are subject to the remainder of Pt 2.6. Worth mentioning are the more specific priority rules particularly with respect to perfection by control (dealt with under s 57) and temporary perfection (see Ch 9) which diverge significantly from the default position (although given the expiration of the transitional period, Ch 9 is of limited relevance going forward). The priority summary table, which is contained in the CCH Australian Personal Property Securities Law Reporter at ¶60-500, is a useful illustration of which rules prevail over which others and in what particular order. It is worth noting that, in a practical sense, a priority dispute between two unperfected security interests should rarely arise as there is no time limitation imposed by the PPSA as to when a secured party can perfect their interest. That said, there are time limitations imposed by other statutes (see Corporations Act 2001 (Cth), s 588FL). Absent such statutory limitations, it makes commercial sense that even where attachment of a security interest has occurred some time prior (and even if the prior period of time is considerable) to any notice of a pending priority dispute, that upon the discovery of such a dispute, steps to perfect are taken. In the authors’ view, the prudent creditor should always take steps to perfect their security interest as soon as practicable after obtaining knowledge of taking a security interest, even if this is quite some after attachment has occurred or the security interest was formed. The flexibility of the PPSA perfection regime is useful in this regard. Time extensions pursuant to s 588FM of the Corporations Act 2001 (Cth) may be relevantly considered in circumstances where the secured party has fallen outside of the prescribed time period to perfect their relevant security interest. Failing to obtain an order pursuant to s 588FM in circumstances where s 588FL applies will mean that the security interest is likely to be treated as unperfected for all practical purposes. [55.5.3] Perfected security interests vs unperfected security interests — s 55(3) It should come as little surprise that a perfected security interest takes priority over an unperfected security interest over the same collateral pursuant to s 55(3). This is the case even where the perfected security interest is created or attaches later in time than the unperfected interest. The rationale behind this priority rule is to afford primacy to those secured parties who comply with the provision of notice to third parties which the PPSA was designed to address. In circumstances where the most common means of perfection is by registration, this also affords primacy to the PPSR where, in the absence of possession or control of the collateral to otherwise put creditors on notice of a security interest, new creditors would have no means of discovering the earlier-in-time unperfected interest. The timing of perfection (namely when perfection occurs) is irrelevant where a priority dispute arises between a perfected and an unperfected interest, provided that the perfected interest is duly perfected when the secured party seeks to enforce their interest (which may also involve maintaining continuous perfection, see s 56). There are a multitude of foreign cases where an earlier unsecured party has failed in a priority dispute against a subsequent perfected interest, a select few have been included in this commentary to help isolate the central points of this provision. The first case is the well-known New Zealand decision, Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528. In this case, a number of portable buildings became the subject of a leasing agreement over an indefinite period of time. The lessor failed to perfect their interest which, whilst potentially not a security interest in substance (see s 12), constituted a PPS lease or “deemed security interest” pursuant to the

New Zealand equivalent of s 13(1)(b) (see s 13). Subsequent to entering the lease, the lessee proceeded to borrow money from a bank which took an “all present and after-acquired property” security interest over the lessee’s personal property, and duly perfected its interest by registration in accordance with the PPSA. Upon the default of the lessee, the bank sought to enforce its security interest including within the scope of its security the portable buildings. The lessor disputed this act holding that the lessee was not the owner of the property and thus a security interest could not be granted over it as freeholder of the property. As noted in the commentary to s 13, the court found that the interest was a deemed security interest and as it was unperfected it was subordinated to the perfected security interest. A similar outcome occurred in Waller v New Zealand Bloodstock Ltd [2005] 3 NZLR 629, where a “leaseto-purchase” type agreement was entered over a horse. The lessor did not register their interest or perfect by other means in accordance with the PPS regime. A bank subsequently lent funds to the lessee taking an “all present and after-acquired property” security interest over the lessee’s personal property. The lessee defaulted and again the bank took priority as against the lessor’s ownership interest. While in effect circumventing the ownership interest of the lessor, the PPSA operates by the founding principles that title is irrelevant and that primacy must be given to the register to promote consistent and predictable outcomes of priority. The New Zealand Court of Appeal embraced the authority stemming from the Canadian provinces to find this conclusion commenting that (at [75]): “The result follows Parliament’s decision that the kind of leasehold interest retained by New Zealand Bloodstock should, as a matter of policy, be treated as a mere security interest which requires registration to be perfected. Since that did not occur, Lock’s competing security interest which was duly registered and so perfected took priority. The major lessons of the case are twofold: the statutory altering of the proprietary rights of a lessor; and the crucial importance of registration. These are policy choices which have been made and significantly alter what would otherwise have been the position.” It is thus a misconception to think that s 55(3) arises only where the unperfected party has been imprudent, often the underlying interest itself will not take the form of a traditional security interest and thus parties may erroneously assume that the PPSA does not apply. To facilitate the transitional phases of the PPSA, Ch 9 aimed to alleviate the impact of this priority rule (see Ch 9, particularly ss 323–324). The cessation of Ch 9 means that such protection does not exist going forward. Holders of transitional security interests received only temporary perfection under the transitional rules and will be unperfected if they failed to perfect their transitional security interest in another way prior to the end of the transition period. The New Zealand decisions in Portacom and Waller were applied in the first major Australian PPSA case: Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852 (discussed in s 13). In that case, the lessor of several large construction vehicles (QES) failed to perfect its security interest in the vehicles leased to Maiden Civil and lost its priority interest in the vehicles when Maiden Civil obtained operating finance from another secured party (Fast Financial) who properly perfected its interest with an all present and after acquired property financing statement that was lodged or registered on the PPSR. QES had a transitional security agreement but had failed to properly perfect its interest under pre-PPSA law and hence was precluded from the protection offered by the deemed perfect in the transitional rules. It thus held an unperfected security interest that was subordinated in priority to that of the later created (but perfected) security interest of Fast Financial. Furthermore, QES lost its priority interest because of the operation of the vesting rule in s 267 when Maiden Civil entered voluntary administration. QES lost its priority interest because of the operation of the vesting rule in s 267 when Maiden Civil entered voluntary administration. See also, White v Spiers Earthworks Pty Ltd [2014] WASC 139, where a failure to comply with pre-PPSA registration requirements meant that deemed perfection under s 322 did not apply because of the operation of PPS reg 9.2. In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61, a supplier with a retention of title arrangement failed to perfect its interest in supplied goods by registering a financing statement on the PPSR. It did so on the basis that it believed it was protected by transitional rules. However, the Supreme Court of Victoria held that although the credit agreement and standard terms pre-dated the

commencement of the PPSA, each new supply was a separate contract and hence were not transitional security interests and thus the supplier’s security interest was unperfected and vested in the company when it entered liquidation. The ROT clause was not included in the standard terms and conditions but rather operated as a condition on each invoice, which contributed to each order being a separate contract. It is worth noting that the decision of the Victorian Supreme Court in respect of the source of the security interest was reversed on appeal, see Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (2015) 296 FLR 25; [2015] VSCA 92. While an unperfected security interest remains enforceable as against the grantor in respect of the underlying collateral, it is held to be “subordinated” to such an interest (consider the effect and practical implications of this provision in light of s 53 concerning parties who take free). Like with the effect of s 53, the practical reality is often that the unperfected secured party will be left with little to no collateral against which their security interest may be duly enforced. There is no overarching notice or knowledge-based exception to the application of the priority rules (which is unlike many of the taking free provisions pursuant to Pt 2.5), that is, a perfected security interest will not fail as against an unperfected security interest even where the subsequent perfected party takes with actual knowledge of the prior unperfected security interest. The rationale here is that primacy is given to the means of perfection, most often the PPSR, and parties seeking to preserve priority must conform with the provisions of the PPSA. This notion was reinforced in the New Brunswick Court of Appeal case, GMAC Leaseco Ltd v Moncton Motor Home & Sales Inc (Trustee of) (2003) 4 PPSAC (3d) 211; 227 DLR (4th) 154 at [22], where Robinson JA held that: “Knowledge of the existence of a competing security interest in collateral is far less relevant to establishing priority in a PPSA regime than it was under the prior law. The general scheme of the legislation is that the knowledge possessed by competing secured creditors and other third parties is irrelevant to establishing priority unless the NBPPSA states otherwise. For example, s. 35(1)(b) states that a perfected (registered) security interest has priority over an unperfected security interest. This remains true even if the creditor with the perfected security interest took with notice of the unperfected interest.” It should also be noted that in order for the PPSA to apply, the security interests which are in a priority dispute must both be governed by the PPSA. This is particularly important where interests arise or incorporate rights and responsibilities above and beyond the PPSA itself, such as those conferred by other statutes. See further, s 8 and 73. An unperfected security interest does not become an interest perfected by possession if enforcement action is taken in accordance with the security interest, pursuant to s 21(2)(b): See for example Bank of Nova Scotia v Royal Bank (1987) 8 PPSAC 17; 42 DLR (4th) 636 (Sask CA). Subsection 123(4) of the PPSA makes this clear. [55.5.4] Priority between two perfected security interests — s 55(4) Section 55(4) of the PPSA provides that the default priority rule between two perfected security interests is that the first in time will prevail. The section refers to the concept of “priority time” discussed in s 55(5) and (6). While the Act, for the purposes of s 55, does not discriminate between the methods of perfection adopted by the secured party, certain of the more specific priority rules only operate with regard to particular modes of perfection and take primacy as against the default priority rules pursuant to s 55. See also, Bulut v Brampton (City) (2000) 15 PPSAC (2d) 213; 185 DLR (4th) 278 at [74]–[80]. Section 55(4) also provides a valid reason why the pre-perfection steps permitted by the PPSA are beneficial to secured parties including the registration of a financing statement prior to a security interest attaching to particular collateral (see [21.4.4]). Where the “first in time” rule applies it is important that secured parties prudently perfect their interest as soon as practicable — including prior to a security agreement, where possible (and specifically where one can perfect by registration), particularly where all of the particulars necessary to lodge a financing statement on the PPSR become known to the secured party.

This feature of the PPSA was addressed in the British Columbia Court of Appeal case, 674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) 290 at [14], where Newbury JA noted that the: “‘Residual Priority Rules’, provide a set of ‘default’ rules to be applied in contests between security interests. Importantly for this case, priority between perfected security interests in the same collateral is generally determined according to the order of the registration of financing statements, ‘without regard to the date of attachment of the security interest’. Thus as Cuming and Wood observe, although the ‘perfection of a security interest is an essential feature of priority, priority is not based on the time of perfection. A security interest may have priority even though it was not the first security interest to be perfected. Time of attachment is also not a factor in determining priorities between two secured parties (except in the unlikely event that both secured parties have failed to perfect their security interests).’” The rationale behind the “first in time” rule is again predominately to give primacy to the register and those who are prudent about the provision of notice to third parties in respect of an underlying interest: See also, The Healy Holmberg Trading Partnership v Grant [2012] NZCA 451 (discussion of the first to register rule). Where property is not in the possession or control of the secured party, the PPSR provides the only other recognised method of putting subsequent secured parties on notice of a prior perfected security interest for Pt 2.6 purposes. As the Ontario case BMP & Daughters Investment Corp v 941242 Ontario Ltd (1992) 4 PPSAC (2d) 220; 96 DLR (4th) 741 at [19] (Ont Court of Justice) notes: “There is merit in having a clear-cut rule of priority. Parties will perfect promptly in order to ensure that the ‘greatest bundle of rights’ has been secured. Accordingly, where a secured party hesitates or fails to perfect, then he runs the risk of subordination to later and more diligent secured interests. In short, the integrity of the P.P.S.A. must be maintained at the expense of the equitable doctrine of actual notice.” The requirements of perfection must be fully constituted in order for the priority rule pursuant to s 55(4) to apply. For example, certain property must be described by serial number in a financing statement (see s 153) and if this does not occur, the interest is unperfected and s 55(3) applies by default. Pre-perfection The issue of “pre-perfection” (i.e. registering on the PPSR prior to the other steps of perfection being completed) was addressed in the New Zealand Court of Appeal decision, The Healy Holmberg Trading Partnership v Grant and Khov as liquidators of LBD Civil Limited (in liq) (2012) FPPSR ¶700-011; [2012] NZCA 451. In The Healy Holmberg, the Court of Appeal was required to ultimately consider whether a security interest perfected by registration later in time prevails over a security interest perfected by registration earlier in time where the interest did not actually become fully perfected until after the subsequent interest arose and was perfected. The Court of Appeal decided that the security interest perfected by registration earlier in time prevailed. [55.5.5] Priority time — s 55(5), (6) Section 55(5) prescribes the time at which a period of priority commences, subject to s 55(6). As previously stated, the default priority provisions pursuant to s 55 do not discriminate between the methods of perfection. As such, the earliest of registration, possession, control or temporary perfection will take priority against subsequent interests, irrespective of the method of perfection adopted, in the absence of more specific priority rules, pursuant to s 55(4). Section 55(6) prescribes that the earliest of the four registration methods only prevails against subsequently perfected interests where the perfected interest is “continuously perfected”. The concept of continuous perfection is discussed at s 56 below. [55.6] Further reading

• Explanatory Memorandum [2.114–2.118]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.4], [7.7]. • Roderick Wood, “Circular priorities in secured transactions law” (2009) 47 Alberta Law Review 823. • Nicholas Mirzai, “The Personal Property Securities Act 2009 — A personal property Torrens register? An analysis of the priority afforded to interests perfected by registration” (2012) 20 Australian Property Law Journal 102.

¶56 SECTION 56 HOW A SECURITY INTEREST IS CONTINUOUSLY PERFECTED ¶2-205 SECTION 56 HOW A SECURITY INTEREST IS CONTINUOUSLY PERFECTED Text of s 56 [56.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 42

Saskatchewan

PPSA 1993

s 23(1)

Ontario

PPSA 1990

s 21(1)

USA

UCC Article 9 (rev) § 9-308(c)

[56.2] Outline Pursuant to s 55(6), a security interest must be “continuously perfected”. Section 56 prescribes how a security interest can achieve continuous perfection. [56.3] Cross-references • The concept of continuous perfection is integral to the priority conferred on perfected security interests and appears in more than a dozen times in the PPSA. [56.4] Concepts • Perfected See s 21. • Perfected by possession See s 22 and 24. • Perfected by registration See s 21 and 153. [56.5] Commentary Pursuant to s 56(1) a security interest is continuously perfected where it is perfected under the PPSA at all times. The PPSA, pursuant to s 56(2), allows for multiple forms of concurrent perfection, that is, a secured party is not prevented or excluded from registering a financing statement simply because they have possession or control of the underlying collateral — and the reverse applies. It is recommended that all secured parties (where possible) register a financing statement as a precaution against losing perfection by control or possession. It is clear that continuous perfection is not limited to perfection by the same method: see Adelaide Capital Corp v Integrated Transportation Finance Inc (1994) 6 PPSAC (2d) 267; 111 DLR (4th) 493 at [68] (Ont Court of Justice). In the authors’ view, where there is any risk of losing a perfected interest, perfection by registration should be sought in addition to other forms of perfection. While perfection by registration does not create indefeasible priority (see the balance of Pt 2.6 below — specifically s 57(1)) for the purposes of maintaining continuous perfection under the PPSA it is certainly an avenue worth considering (as exposure to other priority interest [consider those perfected by control or PMSIs], where relevant, applies whether or not the underlying security interest is perfected by registration or not). Perfecting by registration does not replace the method of perfection first relied on for the purposes of enforcement. This view was adopted in Lisec America Inc v Barber Suffolk Ltd (2012) FPPSR ¶700-128;

[2012] ONCA 37; (2012) 18 PPSAC (3d) 252, where RA Blair J (HS LaForme JA and ML Benotto J agreeing) held (at [38]): “There is nothing in the PPSA that precludes a secured creditor from having a perfected security interest in collateral in more than one way or through registration against more than one entity.” The benefits of perfection by registration in light of the requirement for continuous perfection even where the secured party has possession of the underlying collateral can be demonstrated by way of example. Consider the following: Party A agrees to provide Party B with a short-term loan of $10,000 repayable in three months’ time plus interest in return for a security interest over Party B’s truck. Party B agrees to surrender possession of the truck to Party A until the money is repaid. Two weeks later Party B requires a further advance of monies and approaches Party C. Party C agrees to provide $5,000 for three months and takes an “all present and after-acquired” security interest over Party B’s personal property for the duration of the loan. After one month, Party A losses possession of the truck for one week and then regains possession. Two weeks prior to the repayment owing to Party A, Party B enters bankruptcy. Party A and Party C enter a priority dispute over the truck. The default priority rule pursuant to s 55 would be applicable in this case. The contest is one between like interests, namely, two perfected security interests. The prevailing party is the one perfected first in time pursuant to s 55(4) of the PPSA. Party A would have prevailed but for failing to maintain continuous perfection. Should Party C be aware of the one-week loss of possession, Party C could rely on s 56 to prevail against Party A. Party A could have prevented the risk of misappropriation by additionally registering a financing statement at the time of entering the security interest. [56.6] Further reading • Explanatory Memorandum [2.119]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [5.3].

¶57 SECTION 57 PRIORITY OF SECURITY INTERESTS PERFECTED BY CONTROL ¶2-210 SECTION 57 PRIORITY OF SECURITY INTERESTS PERFECTED BY CONTROL Text of s 57 [57.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 35.1

Ontario

PPSA 1990

s 30.1

USA

UCC Article 9 (rev) § 9-328

[57.2] Outline While the PPSA does not discriminate between methods of perfection pursuant to the default priority rules this can be deceptive as security interests perfected by way of control take priority over other security interests pursuant to s 57. In understanding s 57 and the rationale behind priority of collateral perfected by control it is necessary to understand the commerciality of the instruments and interests which can be perfected by control under the Act (see s 21(2)(c)). [57.3] Cross-references • Sections 21 and 22 provide for perfection of security interests. • The concept of control is central to the PPSA and is referred to over 30 times in the Act. [57.4] Concepts • Continuous perfection See s 56. • Control See s 25–29. • Original collateral See s 31. • Proceeds See s 31–34. [57.5] Commentary [57.5.1] Control primacy — s 57(1) ....................................XX [57.5.2] Perfection by control vs perfection by control — s 57(2) ....................................XX [57.5.3] Perfection by control and proceeds — s 57(2A) ....................................XX [57.5.4] Commercial realities — s 57(3) ....................................XX [57.5.1] Control primacy — s 57(1) Section 57(1) prescribes that where a security interest perfected by control is in a priority dispute with a security interest perfected by some other means (irrespective of the time at which the security interest is

taken) the interest perfected by control will prevail. This provision requires that the interest perfected by control be validly constituted at the time the secured party seeks to enforce their interest. The concept of perfection by control, while of critical importance where it is available, has not specifically formed the subject matter of case law amongst the Canadian provinces. This position is similar to that in New Zealand. The very nature of investment type personal property is that other legislation and financial market rules will often cater for priority disputes without requiring recourse to the PPSA. The Securities Transfer Act, R.S.O. 2006, c. 8 is one such example which operates in Ontario. [57.5.2] Perfection by control vs perfection by control — s 57(2) Section 57(2) prescribes that where two or more security interests perfected by control are in a priority dispute, the first in time perfected by control prevails. A condition of this priority rule is that the interests are continuously perfected. For this purpose, the commentary at s 56 is equally relevant here. This is somewhat of a misnomer as to perfect by control is to, in effect, remove control from other secured parties such that the true position will almost inevitably be that where one party has perfection by control — no other party can have perfection by control. This is similar to the mutual exclusivity which inherently follows perfection by actual possession (see s 24). [57.5.3] Perfection by control and proceeds — s 57(2A) Section 57(2A) addresses who takes priority to proceeds which derive from original collateral over which security interests perfected by control are held. Proceeds under the PPSA take the meaning prescribed at s 31. Perfection by control provides no exception to the application of this definition and thus where proceeds are not identifiable or traceable, a security interest over the original collateral will not extend regardless of the method of perfection utilised. Section 57(2A) prescribes that a security interest over original collateral, which gives rise to proceeds and perfected by control, takes priority over such proceeds as against other security interests perfected by other means taken in the same collateral. As with any other type of personal property, a security interest can however also be granted over the subsequent proceeds as original collateral. Where this is the case, if the subsequent security interest in proceeds as original collateral is perfected by control but the proceeds are not and the security interest over the proceeds as original collateral are perfected by control — then the subsequent interest in the proceeds as original collateral will take priority. The following example illustrates this technical point: Debtor A borrows money from Secured Party B, granting a security interest over an investment instrument which Secured Party B perfects by control. Debtor A also grants a security interest over “all present and after-acquired personal property” in favour of Secured Party C, a bank who lends funds to Debtor A. The investment instrument falls into the hands of Debtor A who sells the instrument and deposits the proceeds in a general account which is jointly held by Secured Party C and which Secured Party C’s security interest extends to. The proceeds of sale of the investment instrument can be classed as proceeds of Secured Party B’s interest however would constitute original collateral of Secured Party C’s interest. By virtue of s 57(2A), Secured Party C will prevail. This makes commercial sense as there is little reason why a party perfecting by control should not be exposed to the vulnerability of a secured party controlling the proceeds as original collateral. [57.5.4] Commercial realities — s 57(3) Section 57(3) not only provides that s 57 is to be read in preference to s 55 but that s 57 is to prevail over any competing section pursuant to Pt 2.6. While s 57 is thus the most senior priority rule under the PPSA it should not be read out of context. The instruments and interests which s 57 operates with respect to are few and selectively prescribed in order to preserve commercial pragmatism and practices which have developed over time in Australia. The PPSA is designed deliberately to minimise unnecessary disturbance of market practices which existed prior to the implementation of the PPSA. While perfection by control should thus be a preferred choice of perfection where available, in light of the potential to lose control it is, in the authors’ view, wise to additionally perfect by registration to satisfy the continuous perfection requirements should a temporary break in control occur. This will not preserve

status as perfected by control perpetually, however, where the break in control is temporary, registration will serve to continuously perfect the underlying interest. There is further little harm in the authors’ mind with putting the world on notice of an existing security interest by way of lodging a financing statement on the PPSR — and, indeed, there is a field of a financing statement which allows a secured party to indicate that their interest is perfected by control. [57.6] Further reading • Explanatory Memorandum [2.120–2.125]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.7].

¶58 SECTION 58 PRIORITY OF ADVANCES ¶2-215 SECTION 58 PRIORITY OF ADVANCES Text of s 58 [58.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 71, 72

Saskatchewan

PPSA 1993

s 14(1), 35(5)

Ontario

PPSA 1990

s 13, 30(3), (4)

USA

UCC Article 9 (rev) § 9-323

[58.2] Outline Section 58 provides an express priority rule with respect to advances made under the PPSA. This includes provision for future advances under the PPSA pursuant to s 18(4) (see [18.5.4]). “Advances” is a term defined by the Act under s 10. [58.3] Cross-references • Section 18(4) allows for security agreements to include advances. [58.4] Concepts • Advance This is defined in s 10 as: (a) means the payment of currency, the provision of credit or the giving of value, and (b) includes any liability of a debtor to pay interest, credit costs and other charges or costs payable by the debtor in connection with the advance or the enforcement of a security interest securing the advance. • Security agreement This is defined by s 10. See further, s 18 and 20. [58.5] Commentary Priority of advances follows the priority afforded to funds lent at the commencement of a security agreement. See the discussion of s 18(4) in [18.5.4]. The note to the provision additionally prescribes that this section applies subject to s 68 (namely s 68(2) and (3)). See s 68 for further commentary. [58.6] Further reading • Explanatory Memorandum [2.138, 2.164]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.7]. • Roderick Wood, “Turning lead into gold: the uncertain alchemy of ‘all obligations’ clauses” (2003) 41 Alberta Law Review 801.

¶59 SECTION 59 PRIORITY RULES AND INTERVENING SECURITY INTERESTS ¶2-220 SECTION 59 PRIORITY RULES AND INTERVENING SECURITY INTERESTS Text of s 59 [59.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[59.2] Outline This section provides clarity regarding priority contests between three or more security interests. [59.3] Cross-references Nil. [59.4] Concepts Nil. [59.5] Commentary This section deals with the circularity problem that can possibly arise where a secured party has priority over a second security interest and the second interest has priority over a third security interest. This section ensures that the first security interest will have priority over the last security interest. [59.6] Further reading • Explanatory Memorandum [2.130]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.7].

¶60 SECTION 60 TRANSFER OF SECURITY INTERESTS DOES NOT AFFECT PRIORITY ¶2-225 SECTION 60 TRANSFER OF SECURITY INTERESTS DOES NOT AFFECT PRIORITY Text of s 60 [60.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 69

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[60.2] Outline The transfer of collateral is discussed further at Pt 2.6, Div 4. Section 60 expressly prescribes the effect of a transfer of a security interest with respect to its priority. [60.3] Cross-references • Sections 68–70 provide rules for the transfer of collateral. [60.4] Concepts Nil. [60.5] Commentary A security interest which is transferred maintains the same priority before the transfer as it does after the transfer, pursuant to s 60. The priority of a security interest is thus dependent on the instrument itself rather than on the capacity of the holder. Where the secured party assigns the debt and security interest, the security interest is not removed merely because the assignee fails to register a financing change statement to include their name on the register as the secured party: Biondo v Baycorp Collections PDL (Australia) Pty Ltd [2018] FCCA 1853 at [113]–[115]. There is a distinction between the secured parties for the purposes of future advances. As discussed under s 18(4) (see [18.5.4]) the transfer of a security interest to a holder of a subsequent security interest does not, by definition, make the advance of funds pursuant to the subsequent interest a “future advance” of the earlier interest as to grant superior priority. See also, Re Carpenter International Pty Ltd [2016] VSC 118 at [83]. By virtue of s 60 there is a sense of propriety in the security interest itself, that is, enforceability of the interest does not depend on the secured party rather on the security interest in its own right. See further, Dixon Fuels Ltd v SWS Fuels Ltd (2011) FPPSR ¶700-127; (2011) 17 PPSAC (3d) 175; [2011] NSCA 35. The inherent limitation of s 60 is a plain operation of the nemo dat quod non habet rule, namely, the assignor of a security interest can only confer upon the assignee that which they hold. What is meant by this is that if the assignor holds a security interest perfected by registration be no more than an unperfected security interest due to some defect in the registration, the assignee cannot seek to benefit from the priority conferred upon the initial financing statement by making good the defect upon the transfer. The due diligence of a potential assignee of a security interest is therefore critical as it is often the case that the assignee cannot simply re-perfect or correct the anomaly to obtain a suitable position of priority. [60.6] Further reading • Explanatory Memorandum [2.133].

• ALRC Report No 64 [6.1–6.20].

¶61 SECTION 61 VOLUNTARY SUBORDINATION OF SECURITY INTERESTS ¶2-230 SECTION 61 VOLUNTARY SUBORDINATION OF SECURITY INTERESTS Text of s 61 [61.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 70

Saskatchewan

PPSA 1993

s 40

Ontario

PPSA 1990

s 38

USA

UCC Article 9 (rev) § 9-339

[61.2] Outline The concept of subordination, while recognised and facilitated by the PPSA, operates by way of agreement between the parties rather than by force of the statute. Section 61 provides for the priority of voluntary subordination agreements (See also, [12.5.6] Subordination agreements excluded by the PPSA — s 12(6)). [61.3] Cross-references • Section 12(6) provides that a subordination agreement is not a security interest. • Section 153 provides the option to indicate on a financing statement whether or not the security interest is subject to a subordination agreement, but this is not mandatory. The subordination agreement will operate according to its terms rather than according to the registration: Gibbston Downs Wines Ltd v Perpetual Trust Ltd [2013] NZCA 506. [61.4] Concepts • Effective according to terms See s 18. • Enforced by a third party See s 20. [61.5] Commentary Section 61(1) expressly provides for the priority position of a particular secured party to be affected by a subordination agreement to which they are a party. It should be noted that a subordination agreement is not itself a security interest: s 12(6) but rather can effect the scope, priority and effect of a security interest. Furthermore, s 61 merely recognises that subordination agreements may operate, it does not of itself govern those agreements: Gibbston Downs Wines Ltd v Perpetual Trust Ltd [2013] NZCA 506 at [30]. Although no particular words are needed, the intention of the secured party to subordinate its interest must be clear from the agreement: Re Gauntlet Energy Corp (2003) 5 PPSAC (3d) 236; 20 Alta LR (4th) 314 (Alta QB). See also, Re DCD Industries (1995) Ltd (2005) 7 PPSAC (3d) 251; 253 DLR (4th) 171 (sub nom Kubota Canada Ltd v Case Credit Ltd) (Alta CA). The statutory recognition that voluntary subordination may occur, and that this may occur expressly or on an implied basis does not mean that the parole evidence rule is circumvented: CFI Trust v Royal Bank of Canada [2013] BCSC 1715. Subordination may be established from the express words used in the security agreement, but they may also be implied from the terms of the agreement provided that later security interests are acknowledged in some way: Re DCD Industries (1995) Ltd (2005) 7 PPSAC (3d) 251; 253 DLR (4th) 171 (sub nom Kubota

Canada Ltd v Case Credit Ltd). In that case, the Alberta Court of Appeal reviewed several Canadian appellate decisions and found that wording in a security agreement that prohibits the grantor from granting further security interests “other than a PMSI or equivalent” could give rise to an implication of subordination over an unperfected PMSI (although in that case there was no such phrase and thus no implication). See also, Flexi-Coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192; 113 Sask R 298 (Sask CA); Engel Canada Inc v TCE Capital Corp (2002) 4 PPSAC (3d) 124; 34 CBR (4th) 169 (Ont SC). A letter from the senior secured party to the debtor directing them to pay the senior lender after paying a particular junior lender was found to be a subordination agreement in Toronto Dominion Bank v Royal Bank (1998) 15 PPSAC (2d) 16 (Ont CA). Subordination agreements may additionally be relied on by third parties who benefit from the agreement, pursuant to s 61(2). The beneficiary of the subordination need not have a perfected security interest: Chiips Inc v Skyview Hotels Ltd (1994) 7 PPSAC (2d) 23; 116 DLR (4th) 385 (Alta CA). See further, Euroclean Canada Inc v Forest Glade Investments Ltd (1984) 4 PPSAC 271; 16 DLR (4th) 289 (Ont CA). Subordination by a secured party will be binding on successors of the subordinated interest: 1662254 Ontario Inc v Coby’s Cookies Inc (2008) 12 PPSAC (3d) 150; 40 CBR (5th) 134 (Ont SCJ). A secured party can thus provide funds to a debtor on the condition that certain property over which a security interest is already existing be the subject of a subordination agreement in favour of some other party (including themselves). In the absence of subordination agreements, alterations to the existing priority rules would be difficult to achieve however the authors’ would advise that caution is exercised when constructing subordination agreements to ensure the desired effect is plainly available from the language of the agreement (See further, [62.5.4.2] below). [61.6] Further reading • Explanatory Memorandum [2.134–2.135]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.7], [8.3].

¶3 Division 3 — Priority of purchase money security interests

¶62 SECTION 62 WHEN PURCHASE MONEY SECURITY INTERESTS TAKE PRIORITY OVER OTHER SECURITY INTERESTS ¶2-235 SECTION 62 WHEN PURCHASE MONEY SECURITY INTERESTS TAKE PRIORITY OVER OTHER SECURITY INTERESTS Text of s 62 [62.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 73, 74, 75

Saskatchewan

PPSA 1993

s 34(2)

Ontario

PPSA 1990

s 33(1), (2)

USA

UCC Article 9 (rev) § 9-324

[62.2] Outline Section 62 provides the mechanics by which a PMSI achieves a “super priority” class over and above ordinary security interests under the PPSA: Greenlight Asset Pty Ltd v WBK Ricetti Pty Ltd [2017] WASC 278 at [9]. PMSIs are defined under s 14 (see s 14) and arise, in essence, to alleviate the strict nature of the default priority rules pursuant to s 55 — which fail to cater for the commercial nature of the particular interests identified (see [14.5] and [14.5.2.1]ff). [62.3] Cross-references • Sections 63–64, 86 and 103 provide further priority rules affecting PMSIs. • Section 153 requires that a PMSI security interest be indicated on the financing statement. • Section 165 specifies that indicating that a security interest is a PMSI on a financing statement when it is not will render the financing statement ineffective with respect to the collateral described as being subject to a PMSI. • Section 293 allows for an extension of time to register in order to obtain super priority under s 62. [62.4] Concepts • Attachment See s 19. • Inventory This is defined in s 10 as meaning personal property (whether goods or intangible property) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated: – is held by the person for sale or lease, or has been leased by the person as lessor, or – is held by the person to be provided under a contract for services, or has been so provided, or – is held by the person as raw materials or as work in progress, or – is held, used or consumed by the person, as materials. See further Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd (2018) 131 SASR 506; [2018] SASCFC 95. • Possession

See s 24. In the context of PMSI super-priority, the term “obtains possession” used in s 62 is to be contrasted with merely having possession. See Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd (2018) 131 SASR 506; [2018] SASCFC 95. • Proceeds See s 31. • Purchase money security interests This is defined in s 14. • Registration This refers to registering a financing statement under s 153. [62.5] Commentary [62.5.1] Scope — s 62(1) ....................................XX [62.5.2] PMSIs taken over inventory — s 62(2) ....................................XX [62.5.3] PMSIs taken over non-inventory ....................................XX [62.5.4] When is possession conferred? ....................................XX [62.5.5] Application of the PMSI priority as against ordinary security interests — foreign case analysis ....................................XX [62.5.5.1] Scope of PMSIs limited to s 14 purpose ....................................XX [62.5.5.2] Perfection necessary or express subordination required ....................................XX [62.5.5.3] Formal requirements apply to PMSIs such that a defect when perfecting by registration may render the interest ineffective ....................................XX [62.5.5.4] PMSIs are a discrete class of interest and cannot be held in a capacity beyond what the PPSA prescribes — “no abuse of process” ....................................XX [62.5.5.5] PMSI arises as soon as elements of the PPSA are satisfied and ceases when the obligations owing are fulfilled ....................................XX [62.5.6] Time limitations ....................................XX [62.5.6.1] Erroneous mischaracterisations ....................................XX [62.5.6.2] Changes in circumstance ....................................XX [62.5.7] Failing to tick the “PMSI box” ....................................XX [62.5.1] Scope — s 62(1) Section 62(1) prescribes that a PMSI takes priority over other security interests (termed “ordinary” or “general” security interests for the purposes of this commentary) taken over the same collateral. The rules apply differently depending on whether the collateral is held as inventory or not. By way of summary, the following table isolates which provisions apply in what circumstances and the resulting outcome if s 62 is complied with:

Goods

Inventory

Property that is not Inventory

By the time the grantor, or a person at the grantor’s request, takes possession (possession

By the end of 15 business days after the time possession is taken.

time). Property other than goods

By the time the security interest attaches to the collateral.

By the end of 15 business days after the time attachment occurs.

[62.5.2] PMSIs taken over inventory — s 62(2) Section 62(2) prescribes that PMSI priority will arise if the underlying collateral, or proceeds of such collateral (where the finance statement which gives rise to the PMSI encompasses proceeds) is being held as inventory and the PMSI is perfected by registration in accordance with s 62(2). Inventory is defined by s 10 of the PPSA and carries this meaning for the purposes of s 62. The financing statement must further indicate that the interest is a PMSI (upon registration, see s 153). Perfection must occur when the grantor obtains possession of the property (where the collateral is goods), or when a security interest attaches to the property (where the collateral is not goods). The rules with respect to collateral held as inventory requires prompt perfection as the very capacity with which the property is held indicates further dealings and transfers. Primacy is to be given to the PPSR. It is unclear what the status of a PMSI perfected outside of the time requirements provided by s 62 would have the benefit of by way of priority. In the authors’ view, while non-compliance with s 62(2) would disallow the PMSI holder to rely on s 62 priority, such an interest would likely have the benefit of an ordinary perfected security interest (likely pursuant to s 55), but would go no further. Priority conferred by the PPSA is conditional upon the active step of the secured party (typically perfection, although in this case, perfection by registration within an allotted time period and with the indication that the underlying interest is a PMSI). Exceptions to the general priority of the PMSI in this regard are made as against non-purchase money security interests in accounts (see s 64) and as against chattel paper (see s 71). Note also that the exceptions apply only where the collateral is held as inventory and not for other purposes. [62.5.3] PMSIs taken over non-inventory Section 62(3) prescribes that a PMSI arises where the interest is held over original collateral, other than as inventory, and the interest is perfected by registration. As with inventory PMSIs, the financing statement must also indicate that the interest is a PMSI. The perfection must occur before the end of 15 business days after the grantor possesses the property (for goods), or a security interest attaches to the property (for non-goods). The concept of possession is addressed by the PPSA (albeit in the context of perfection) at s 24. The use of 15 business days is an arbitrary figure selected by the legislature to reflect commercial practices. Specific provision is made for a court to extend this period pursuant to s 293 (see s 293). [62.5.4] When is possession conferred? Below, at [62.5.6.2], is an example of where a party in possession of personal property can go from being a short-term bailee to a grantor for the purposes of the PPSA without a break in the chain of their possession of the underlying property (and regardless of whether there is a break in that chain). The difficulty this creates rests with the owner who becomes a secured party, who holds a PMSI and the literal impossibility, in certain circumstances, of their compliance with the timing stipulations provided in s 62 of the PPSA. This issue arise in Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163. In Allied Distribution, a party who initially leased certain property under a short-term lease later wished to acquire the underlying collateral with the benefit of vendor finance. As the lessee already had possession of the underlying collateral any registration made by the lessor on the PPSR would have fallen outside of the “15 business days” set out in s 62(3)(b) of the PPSA. By the time the lessor discovered the issue, it was not possible for a registration to be made by the lessor on the PPSR. The upshot was that the Court had to determine who prevailed between the interests of the intervening party and the lessor.

On a literal reading of s 62, it was simply not possible for the vendor to lodge a financing statement on the PPSR to comply with s 62 of the PPSA in any circumstance. On a purposive construction, it was argued that possession meant possession as a grantor, and not otherwise, such that the time prescribed by s 62 only commenced when the party took possession “as a grantor” and not before. At first instance, Blue J held (at [93]–[95]) that: “Consideration of the context of section 62(2)(b)(i) within section 62 as a whole also supports a construction that section 62(2)(b)(i) refers to the grantor obtaining possession as grantor of the purchase money security interest in the property in question. Section 62 addresses both goods (section 62(2)(b)(i) and 62(3)(b)(i)) and other property (section 62(2)(b)(ii) and 62(3)(b)(ii)). In respect of other property, the temporal requirement is that the purchase money security interest is perfected by registration at the time it attaches to the property. This can only occur when not only the grantor has rights in or power to transfer to the secured party rights in the property but also value is given for the security interest or the grantor does an act by which the security interest arises. The mere fact that the person who becomes the grantor of the security interest to the purchase money security interest holder might have had control of the property (the equivalent for other property of possession for goods) in some other capacity is irrelevant in this context. Section 62(2)(b)(i) requires a purchase money security interest in inventory to be perfected by registration at the time the grantor obtains possession of the inventory. Obviously a purchase money security interest cannot be registered until it is granted by the grantor. It would be a strange construction of section 62(2)(b)(i) if in a case in which the person who becomes the grantor happens to have pre-existing possession of the inventory it requires the impossible, namely that the security interest be registered before it has been granted and come into existence and before the advance of money or other consideration provided by the security interest holder. Section 62(3)(b)(i) requires a purchase money security interest in non-inventory goods to be perfected by registration within three weeks after the grantor obtains possession of the inventory. In a case in which the person who becomes the grantor happens to have pre-existing possession of the inventory, it would be arbitrary and hence capricious whether that possession happened to have been obtained within three weeks before the grant of the purchase money security interest or a longer period beforehand. The evident purpose of section 62(3)(b)(i) is to give three weeks grace to a purchase money security interest holder to register the security interest after the grantor has taken possession of the goods as grantor.” This led his Honour to conclude that (at [109], [112], [115]): “. . . Subsections 62(2) and (3) in referring to the grantor obtaining possession of the goods refer to the grantor obtaining such possession as grantor of the purchase money security interest and not merely at a time when that person happens to be the grantor of some other security interest. … … Subsections 62(2) and (3) in referring to the grantor obtaining possession of the inventory or other goods refer to the grantor obtaining such possession as grantor of the purchase money security interest in specific goods … Subsections 62(2) and (3) in referring to the grantor obtaining possession of the inventory or other goods refer to the grantor obtaining such possession as grantor of the purchase money security interest in specific goods.” The analysis of Blue J was upheld on appeal in Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd (2018) 131 SASR 506; [2018] SASCFC 95 per Kourakis CJ, Parker and Doyle JJA (see, specifically, [64]–[75], [84]–[87], [106]–[134]). The above analysis was applied, with approval, in StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd [2020] NSWSC 318 (see particularly at [115]–[117]). [62.5.5] Application of the PMSI priority as against ordinary security interests — foreign case analysis The effect of PMSI priority is such that, as a general rule, a PMSI over particular collateral will take priority

over an ordinary security interest taken over the same collateral. However, importantly, the PMSI does not prevent the application of the taking free provisions pursuant to Pt 2.5 of the PPSA nor does it take preference to the application of s 57 for interests perfected by control. The following issues have arisen abroad regarding the use and misuse of PMSIs. [62.5.5.1] Scope of PMSIs limited to s 14 purpose This rule is best understood by reference to the leading Canadian decision in Chrysler Credit Canada Ltd v Royal Bank (1986) 6 PPSAC 153; 30 DLR (4th) 616 (Sask CA). In that case, a car dealer sought a line of credit from the respondent secured by a general security agreement giving rise to an “all present and after-acquired property” security interest. The car dealer also borrowed funds from the applicant for the roll-over purchase of inventory, including new and traded-in vehicles. Five days after the bank perfected its security interest by registration, the applicant lodged a registration on the PPSR indicating that it held a PMSI. The car dealer went into receivership and the applicant sought to enforce its purported PMSI as against the vehicles. The receiver agreed that the new vehicles were bound, however, would not transfer the used vehicles. The collateral fell into three categories: • trades on the sale of new cars, the loan for which was repaid to the applicant • trades on the sale of new cars, the loan for which was not repaid to the applicant, and • used cars which could not be linked to the new cars. At trial, only the first collateral class fell within the scope of the PMSI. The applicant appealed. On appeal, Cameron JA held (at [20]): “Having regard generally for the breadth of the security agreement in issue, and more specifically to the highlighted portions of it, I believe both parties to the agreement intended Chrysler Credit’s security interest to attach to the whole of the new and used car inventory, as well as to the component parts thereof … As between Chrysler Credit and White, then, each of the trades in the second category secured not only one advance — the one relating to the new car to which that trade was traceable — but all of the advances, or, in other words, the whole of the indebtedness from time to time outstanding. The trades must be seen as forming part of a class of property, namely, inventory; and it was that class which was used to secure the grant of credit on an ongoing or revolving basis.” With regards to the rationale of the PMSI, his Honour continued (at [24]): “There are two things here which I think merit particular emphasis. The first is the primacy, under the new regime proposed by the commission, of function over form — a purchase money security interest, whether or not it arises out of conventional forms of contract (conditional sale, chattel mortgage, or whatever) enjoys special priority status. The second is the nature of the security interest in property such as inventory: the secured party enjoys a continuing general lien, fixed rather than floating.” [62.5.5.2] Perfection necessary or express subordination required A PMSI operates much like a subordination agreement vis-à-vis secured parties who have taken a security interest over the same collateral. In this regard, parties may choose to subordinate rather than rely on a PMSI. That said, an unperfected PMSI does not take priority to a perfected security interest, irrespective of whether or not the holder of the ordinary security interest knew of the PMSI. A subordination agreement will be required in the absence of a perfected interest. While, theoretically, there should be no difference between methods of perfecting a PMSI as opposed to an ordinary security interest — in practice — only perfection by registration is available to the PMSI holder (see s 21; See also, Pt 5.3). The issue arose in the Alberta Court of Appeal decision, Re DCD Industries (1995) Ltd (2005) 7 PPSAC (3d) 251, 253 DLR (4th) 171 where the court held: “The Appellant argued against this statement, maintaining that commercial reality dictates that whenever a PMSI is granted, that PMSI should, perfected or not, have an implied priority over any

general security … If these PMSIs did not have priority over the general security vendors would not sell on credit, no such further acquisitions could be made, businesses would struggle, and general loans would then go into default … However [in his Honour’s view] commercial reality stops short of requiring that these PMSIs should have priority in all circumstances. There is no commercial reality which would dictate against requiring the subsequent PMSIs to be registered or otherwise perfected for the priority to arise or continue.” [62.5.5.3] Formal requirements apply to PMSIs such that a defect when perfecting by registration may render the interest ineffective Formal requirements for the purposes of a PMSI relate not only to accurate collateral descriptions and indicating that the interest is a PMSI on a financing statement — but also as to the promptness of registration depending on the capacity with which the collateral is held: see Business Development Bank of Canada v ABN Amro Leasing (2003) 5 PPSAC (3d) 76 (PEI SC (Appeal Div)). [62.5.5.4] PMSIs are a discrete class of interest and cannot be held in a capacity beyond what the PPSA prescribes — “no abuse of process” This point was discussed in the commentary for s 14. [62.5.5.5] PMSI arises as soon as elements of the PPSA are satisfied and ceases when the obligations owing are fulfilled This point was also raised at the commentary to s 14. The implications for the purposes of a priority dispute are that the PMSI may arise earlier than where registration occurs and may cease prior to the satisfaction of ancillary obligations: see Agricultural Credit Corporation of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 (Sask CA). Any ancillary obligations, such as maintaining proper use and repair, will form part of an ordinary security interest and not a PMSI where the PMSI obligations have been met. [62.5.6] Time limitations It is important to note that both the inventory PMSI and the non-inventory PMSI depend on compliance with the relevant part of s 62 to obtain their position of priority vis-à-vis general perfected security interests. The point here is that an interest may constitute a PMSI, within the meaning of s 14 of the PPSA, but may, nonetheless, hold a position of priority no greater than that of a perfected general security interest if s 62 has not been complied with. Thus, for abundant caution — in the authors’ view, if a secured party is not able to discern whether or not a PMSI taken by them is in relation to inventory or non-inventory collateral, two financing statements should be lodged on the PPSR indicating both the PMSI status and the non-PMSI status of the security interest prior to the secured party relinquishing possession of the underlying collateral. [62.5.6.1] Erroneous mischaracterisations An issue may arise where a secured party erroneously misconceives the interest held by it as a non-PMSI when in fact the security interest is a PMSI (or erroneously fails to indicate that the interest is a PMSI on a financing statement lodged on the PPSR). Upon becoming aware of the error, it is likely that the secured party will be out of time to perfect or re-perfect the relevant PMSI in accordance with the timings imposed by s 62(2)(b) and 62(3)(b) (where relevant). If the PMSI relates to non-inventory collateral then the PMSI holder may apply for relief pursuant to s 293(1)(a) of the PPSA: see s 293; See also, Re Accolade Wines Australia Ltd [2016] NSWSC 1023. Please note, s 293 of the PPSA, on a plain reading of the provision, does not appear to be applicable to inventory PMSIs. Further, at a practical level, assuming that the grantor either consents to, or the agreement between the parties otherwise permits, the PMSI holder could repossess the relevant collateral and resupply it with a view to resetting the timing requirement for the purposes of s 62. However, in the authors’ view, the resulting security interest, while potentially compliant with s 62 of the PPSA, could no longer be said to fall squarely within the definition of a PMSI as set out by s 14. This is because “resupplying” collateral does

not constitute or represent the provision of “new value” to the grantor. Indeed, any existing “AllPAP” would have attached to the collateral at the time of the initial supply (see s 19(5) and not upon the resupply. A counter-argument may be that at the time the collateral was repossessed any security interest in the collateral was extinguished on the basis that the PMSI holder had a first ranking right to the collateral — however, this is likely to be flawed as the holder of the PMSI, having failed to meet the requirements of s 62 in the first instance, would not be able to repossess ahead of an existing competing security interest which was properly perfected in any event. Thus, there is a real risk a PMSI holder who elects to repossess and resupply the relevant collateral will entrench themselves in a difficult legal position. The preferred view, if available, is for the PMSI holder to consider their position vis-à-vis other secured parties who have indicated that they hold an interest over the same collateral (for example, any ALLPAP security interest holder) and to see if there is an ability to enter into some form of subordination agreement in respect of the collateral which has, mistakenly, failed to fall within the scope of a perfected PMSI. Where this is not available, the PMSI holder ought to at least properly perfect their PMSI for supplies going forward to avoid further the abovementioned difficulty and legal advice ought to be obtained as to how to address existing supplies. [62.5.6.2] Changes in circumstance A similar difficulty to that mentioned in the preceding section arises not only when the secured party has erred in respect of their relevant rights but also where the character of the arrangement changes from a non-security interest to a PMSI without the bailee relinquishing possession of the underlying collateral. Consider the circumstance where Party A leases a motor vehicle to Party B for three months such that the resulting lease, on proper analysis, does not satisfy s 12(1) of the PPSA and is not otherwise a “security interest”. Towards the end of the three-month period, Party B informs Party A that it wishes to purchase the motor vehicle and Party A agrees to vendor finance it over a period of one year. Party A and Party B enter a written agreement to that effect. Noting that the timing requirements in s 62(2)(b) and 62(3)(b) turn on the time the grantor (ie Party B) obtains actual possession of the underlying collateral, and not when the new agreement was entered into, it would appear that Part A could not perfect the resulting interest taken pursuant to the new agreement as a PMSI capable of attracting the priority conferred by s 62 absent also seeking an order pursuant to s 293 (in the case of a non-inventory PMSI). Alternatively, the PMSI holder should refrain from entering into such an arrangement unless any conflicting security interest holder (such as an AllPAP security interest holder) provides an express subordination deed or letter in respect of the relevant collateral in favour of the PMSI holder. [62.5.7] Failing to tick the “PMSI box” Sections 62(2)(c) and 62(3)(c) require, in addition to the timing requirements, that the PMSI holder to indicate that the interest taken by it is a PMSI on the PPSR. A generally accepted method of so indicating this has been to “tick” the “PMSI box” on the PPSR (or to otherwise indicate “yes” when asked if the interest taken is a purchase money security interest). Item 7 of s 153(1) of the PPSA (which deals with the required particulars to be included in a financing statement) provides that a financing statement must indicate whether it is a PMSI or not. The onus is therefore on the secured party to ensure that the PPSR accurately reflects the actual position between the parties to the security agreement. The issue is important when considering whether PMSI priority pursuant to s 62 is contingent on, among other things, the PMSI box being ticked or responded to in the affirmative. Conversely, if a financing statement does not respond to the PMSI inquiry in the affirmative, does this mean that the resulting registration does not and cannot have the benefit of s 62 priority? As is discussed further at s 153, there is some danger with ascribing too high a value to certain data contained in a financing statement. The PMSI box or query is one such area. As a matter of statutory construction, there is no legislative requirement that a secured party must make an indication that the interest is a PMSI through the PMSI box or query. The only legislative requirement is that a secured party indicate that the interest is a PMSI with no mention as to how to give effect to this requirement. While the PMSI box or query is convenient, to treat it as prescribed or mandatory would be to allow the

computer database behind the PPSR to dictate the legislative requirements of the PPSA. In the authors’ view, a common sense approach to the PPSR is required. For instance, if the PMSI box is not ticked or the PMSI inquiry is answered “no” but the collateral description on the financing statement includes words to the effect that the interest behind the financing statement is a PMSI then it may be that the requirement of s 62(2)(c) or 62(3)(c) (as relevant) are met in that specific instance. Similar arguments could be raised in respect of collateral descriptions which make clear that the security agreement is a PPS lease — given that a PPS lease is a prescribed class of PMSI pursuant to s 14(1)(c). The above construction is consistent with the “notice based” system of registration which underpins the PPSA: See Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378; [2017] NSWSC 1230 at [62] and following. However, if the PMSI box or query is not ultimately determinative of a PMSI then difficult questions will need to be addressed as to whether one is to draw the line with how defective a registration can be without being fatal to the secured party’s priority position. An alternative policy behind the PPSA is that primacy should be afforded to the PPSR. Given the above circumstances, if a secured party has failed to indicate on the PPSR that a security interest is a PMSI in circumstances where the interest held may constitute a PMSI, then the secured party should seek legal advice on how best to put itself in the position it sought to be in at the time the security interest was taken in the first instance. [62.6] Further reading • Explanatory Memorandum [2.140–2.144, 2.160]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [4.3], [6.2], [7.7], [7.10]. • Bruce Whittaker, “Retention of title clauses under the PPSA” (2010) 21 Journal of Banking and Finance Law and Practice 273. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645. • Nicholas Mirzai, “The PMSI predicament” (2016) 25 APLJ 76. • Anthony Duggan, “Refinancing purchase money security interests: A note on Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd” (2018) 36 Company and Securities Law Journal 74.

¶63 SECTION 63 PRIORITY BETWEEN COMPETING PURCHASE MONEY SECURITY INTERESTS IN COLLATERAL ¶2-240 SECTION 63 PRIORITY BETWEEN COMPETING PURCHASE MONEY SECURITY INTERESTS IN COLLATERAL Text of s 63 [63.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 76, 77

Saskatchewan

PPSA 1993

s 34(5)

Ontario

PPSA 1990

s 33(3)

USA

UCC Article 9 (rev) § 9-324(g)

[63.2] Outline Section 63 provides the priority position under the PPSA for competing PMSIs. [63.3] Cross-references • Sections 62, 64, 86 and 103 provide further priority rules affecting PMSIs. • Section 153 requires that a PMSI be indicated on the financing statement. • Section 165 specifies that indicating that a security interest is a PMSI on a financing statement when it is not will render the financing statement ineffective with respect to the collateral described as being subject to a PMSI. [63.4] Concepts • Attachment See s 19. • Goods This is defined by s 10. • Inventory See s 10. • Possession See s 24. For a discussion of “obtains possession” see s 62. • Proceeds See s 31. • Purchase money security interests This is defined in s 14. • Registration This refers to registering a financing statement under s 153. • Seller, lessor or consignor

See the discussion in s 12, 13. [63.5] Commentary While the default “first in time” priority position applies to competing purchase money security interests (PMSIs), it is the prevailing approach only after considering the capacity with which the PMSI arises. Where one secured party is a seller, lessor or consignor and the other PMSI holder is not — the seller, lessor or consignor prevails should a priority dispute arise between two such parties. Money advanced to lease collateral for instance (satisfying the PMSI requirements pursuant to s 14) takes PMSI status subject to a lessor who actually leases the property to the grantor. Sections (a) through (d) of s 63 reiterate the time periods relevant for registering collateral held in different capacities. [63.6] Further reading • Explanatory Memorandum [2.156, 2.158]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [7.7], [7.10]. • Bruce Whittaker, “Retention of title clauses under the PPSA” (2010) 21 Journal of Banking and Finance Law and Practice 273. • Anthony Duggan, “Romalpa agreements post-PPSA” (2011) 33 Sydney Law Review 645.

¶64 SECTION 64 NON-PURCHASE MONEY SECURITY INTERESTS IN ACCOUNTS ¶2-245 SECTION 64 NON-PURCHASE MONEY SECURITY INTERESTS IN ACCOUNTS Text of s 64 [64.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 75A

Saskatchewan

PPSA 1993

s 34(6)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[64.2] Outline Section 64 applies specifically to accounts as a class of collateral. While some accounts are capable of being perfected by control (and as such s 57 would apply — see s 25) this is not always commercially available and does not arise until actual control occurs. Section 64 thus applies subject to s 57. [64.3] Cross-references • Sections 62, 63, 86 and 103 provide further priority rules affecting PMSIs. • Section 153 requires that a PMSI be indicated on the financing statement. • Section 165 specifies that indicating that a security interest is a PMSI on a financing statement when it is not will render the financing statement ineffective with respect to the collateral described as being subject to a PMSI. • Section 293 allows for an extension of time for the purposes of this section. [64.4] Concepts • Accounts This is defined by s 10 as a monetary obligation (whether or not earned by performance, and if payable in Australia whether or not the person who owes the money is located in Australia) that arises from disposing of property or granting a right or providing services in the ordinary course of granting rights or providing services of that kind. Authorised deposit taking institution accounts (ADI accounts), chattel paper, intermediated securities, investment instruments and negotiable instruments are all excluded from the term accounts. • Approved form See s 302. • Attachment See s 19. • Inventory See s 10. • New value This is defined by s 10.

• Proceeds See s 31. • Purchase money security interests This is defined in s 14. • Registration This refers to registering a financing statement under s 153. [64.5] Commentary [64.5.1] Non-PMSI trumps PMSI — s 64(1) ....................................XX [64.5.2] Notice — s 64(2) ....................................XX [64.5.3] Proceeds and new value — s 64(3) ....................................XX [64.5.1] Non-PMSI trumps PMSI — s 64(1) Pursuant to s 64(1) of the PPSA, a non-PMSI over an account, irrespective of the method of perfection, takes priority as against a PMSI where the non-PMSI is perfected before the PMSI and the collateral over which the non-PMSI arises is proceeds from the sale of inventory as original collateral. In the absence of notice before the PMSI is perfected, the holder of the security interest in the account also prevails where notice is given to the PMSI holder at least 15 business days prior to the registering of the interest over the account or the time at which the interest attaches to the underlying collateral (that is, the proceeds of the inventory) — whichever is earlier. The concept of notice under the PPSA is discussed at Pt 8.6 and arises frequently for the purposes of the enforcement provisions under Ch 4. The priority issue addressed by s 64 and the relevant definition of account upon which the application of the provision relies was dealt with in Transamerica Commercial Finance Corp Canada v Royal Bank (1990) 1 PPSAC (2d) 61; (1990) FPPSR ¶700-104, at 420,508: “In my opinion, s. 34(4) is intended to preserve the priority of an account financer over that of a purchase money financer. The rationale is that accounts financing ought not to be jeopardized by the creation of purchase money financing. … The Bank is asserting a priority with respect to a deposit account in its bank which is not an account given to secure the financing provided by the Bank. In this case, the money from the sale of the goods subject to the purchase money security interest was ‘identifiable or traceable personal property … derived directly from any dealing with the collateral …’ which includes a deposit account in a bank which is in turn defined as a cash proceed. Thus it is a ‘cash proceed’ and not an ‘account’ as defined in the Act, given for new value. There is no evidence that the moneys were deposited in the Bank in other than the ordinary course of business. There was no ‘new value’ given to the debtor in relation to the deposits and s 34(4) does not take away the priority of the purchase money security interest of Transamerica to the proceeds realizable from the sale of the inventory.” The commercial effect of this provision is to limit the ability of the accounts financier to take an auxiliary interest in all proceeds of inventory sales with the effect of taking priority against an inventory financier without express notice and due registration. The debtor, upon receiving new value, has created an interest in the account as original collateral which takes priority to the PMSI proceeds. While s 64 prima facie appears to operate to the detriment of the PMSI holder, the notice requirements therefore serve to provide time for the holder to take steps to preserve their interest. What is achieved by s 64 is statutory recognition and the affordance of priority to debt financiers, an affordance that pre-dates the implementation of the PPSA in Australia. This is because the commercial reality is that many businesses rely on debt financing and the ability to factor debt. Factoring effectively transfers the risk of recovering a debt to the funding financier. The financier is then the party who benefits from the recovery of otherwise bad debt. If the process of recovering accounts receivable would permit

the purchase money financiers to obtain a position of priority over the recovered funds, the entire process of factoring would be unfeasible and that avenue of debt financing would decline if not cease to exist. This is inconsistent with the preservation of pre-existing commercial realities upon which the PPSA is based. [64.5.2] Notice — s 64(2) Notice under the PPSA is discussed at Pt 8.5 (see Pt 8.5). Section 64(2) (a) requires the notice provided by the purported secured party with respect to an account to the PMSI holder to be in the approved form pursuant to this part of the PPSA (where the term “approved form” is defined by s 302). The onus is on the non-PMSI holder to ensure that the notice is specific as to the particular items of inventory covered by the non-PMSI. PMSI holders who receive notices of the kind provided for by s 64(2)(a) should consider whether or not the notice goes to or affects the priority position of the underlying collateral or is looking to attach to some other kind of collateral. That is to say, it is not uncommon in debt factoring arrangements that the “account” over which the non-PMSI is taken will seek to attach to proceeds from the underlying collateral (such as rent) and not the underlying collateral itself. The exposure of the PMSI holder in such circumstances is limited to such proceeds and not the underlying collateral itself. If the underlying collateral is misappropriated (namely, sold) then the party who purchases the collateral takes subject to the security interest. Misappropriation where the collateral and purchasing party go missing is a different scenario although misappropriation (for instance, by way of theft) is an exposure relevant to all security interests, and indeed all owners, and not only those the subject of a PMSI. [64.5.3] Proceeds and new value — s 64(3) Where s 64(1) applies, s 64(3) prescribes that the new value provided by the non-PMSI holder is also subject to the PMSI. No additional steps need to be taken by the PMSI holder and the new value is to be characterised as an account — unless it would be an account by virtue of how the new value is held on its own, in which case s 12(3)(a) applies. The PMSI holder thus benefits from the introduction of new value to potentially alleviate the effects of subordination pursuant to s 64(1). [64.6] Further reading • Explanatory Memorandum [2.144]. • ALRC Report No 64 [6.1–6.20]. • Whittaker Report [4.3], [7.7].

¶65 SECTION 65 POSSESSION OF GOODS SHIPPED BY A COMMON CARRIER ¶2-250 SECTION 65 POSSESSION OF GOODS SHIPPED BY A COMMON CARRIER Text of s 65 [65.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 21.1(2)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[65.2] Outline Section 65 provides a qualification to the concept of possession for goods shipped by common carrier for the purposes of Pt 2.6, Div 3. [65.3] Cross-references • Sections 62–64 provide priority rules that are relevant for this section. [65.4] Concepts • Common carrier See s 24. • Document of title This is defined by s 10. See also, s 22. • Possession See s 24. [65.5] Commentary With respect to the priority provisions of the PPSA relevant to PMSIs, a grantor does not obtain possession (for the purposes of attachment and perfection pursuant to s 24) until they have actual possession of the underlying collateral or a document of title. While s 24(3) provides that another person at the request of the debtor/grantor can take possession, no such extension exists under s 65 and thus for the purposes of PMSIs, the grantor/debtor must themselves take actual possession of the collateral or document of title. [65.6] Further reading • Explanatory Memorandum [2.142]. • ALRC Report No 64 [6.1–6.20].

¶4 Division 4 — Priority of security interests in transferred collateral

¶66 SECTION 66 APPLICATION OF THIS DIVISION ¶2-255 SECTION 66 APPLICATION OF THIS DIVISION Text of s 66

¶67 SECTION 67 PRIORITY WHEN TRANSFEROR-GRANTED INTEREST HAS BEEN CONTINUOUSLY PERFECTED ¶2-260 SECTION 67 PRIORITY WHEN TRANSFEROR-GRANTED INTEREST HAS BEEN CONTINUOUSLY PERFECTED Text of s 67 [67.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 88–91

Saskatchewan

PPSA 1993

ss 35(8), (9), 51

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

§§ 9-325, 9-507, 9508

[67.2] Outline Section 67 provides the priority rules where collateral has been transferred. The provision applies where immediately before the transfer, a security interest existed with respect to the underlying collateral and the transferee purports to create a security interest over the collateral (see s 66). [67.3] Cross-references • Section 66 limits the scope of this section. [67.4] Concepts • Continuous perfection See s 56. • Perfected See s 21. • Transferor-granted interest This refers to a security interest attaching to collateral which is subsequently transferred to a new grantor: see s 66. • Transferee-granted interest This refers to an interest created by the new grantor with respect to collateral subject to a transfer: see s 66. [67.5] Commentary Where a transferor-granted interest is in a priority dispute with a transferee-granted interest, the transferor-granted interest prevails if it has been continuously perfected after the transfer and was valid immediately before the transfer. Transferring title thus does not affect the enforceability of the underlying security interest although a transfer of an account or of chattel paper creates a deemed security interest (see s 12(3)). Like s 60, s 67 envisages a sense of propriety in enforcing the transferor-granted interest itself, that is, the interest does not rely on the grantor. For more on transferred collateral and periods of temporary perfection which extend see s 34. [67.6] Further reading

• Explanatory Memorandum [2.161–2.162]. • ALRC Report No 64 [7.10–7.13].

¶68 SECTION 68 PRIORITY WHEN THERE IS A BREAK IN THE PERFECTION OF THE TRANSFEROR-GRANTED INTEREST ¶2-265 SECTION 68 PRIORITY WHEN THERE IS A BREAK IN THE PERFECTION OF THE TRANSFEROR-GRANTED INTEREST Text of s 68 [68.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 88–91

Saskatchewan

PPSA 1993

s 35(8), (9), 51

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

§ 9-325, 9-507, 9508

[68.2] Outline Section 68 prescribes the priority rules where there has been a break in the perfection of a transferorgranted security interest. The rules are somewhat complex, however, in essence a break in continuous perfection such that other security interests arise without knowledge of the transferor’s interest is often fatal to the earlier priority of such an interest — although not necessarily fatal to priority overall. [68.3] Cross-references • Section 66 limits the scope of this section. • Section 67 provides a further priority rule for transferred collateral. [68.4] Concepts • Actual or constructive knowledge See s 297. • Continuous perfection See s 56. • Perfected See s 21. See also, s 153. • Serial number This refers to collateral that may or must be described by serial number. See further, s 153. • Transferor-granted interest This refers to a security interest attaching to collateral which is subsequently transferred to a new grantor: see s 66. • Transferee-granted interest This refers to an interest created by the new grantor with respect to collateral subject to a transfer: see s 66. [68.5] Commentary [68.5.1] Transferor-granted interest prevails — s 68(1) ....................................XX

[68.5.2] Transferee-granted interest prevails — s 68(2) ....................................XX [68.5.3] Particulars — s 68(3), (4), (5) ....................................XX [68.5.1] Transferor-granted interest prevails — s 68(1) A transferor-granted interest prevails against subsequent security interests even where a break in perfection occurs if the interest has since been re-perfected (and is continuously perfected) and notice is given to all other secured parties in accordance with s 68(5). This interest, however, is subject to s 68(2). [68.5.2] Transferee-granted interest prevails — s 68(2) Despite what is set out at s 68(1), the transferee-granted interest will prevail where it is perfected prior to the re-perfection of the original interest and the transferee takes their interest without actual or constructive knowledge of the former interest. The notice given by the transferor thus prevents the transferee from taking an interest in priority even where the transferor-granted interest is, at the time the notice is received, unperfected. This issue arose in the Saskatchewan Court of Queen’s Bench case, Canadian Imperial Bank of Commerce v Tux & Tails Ltd (2006) 9 PPSAC (3d) 115; 20 CBR (5th) 316. In this case, assets (comprising the underlying collateral) were transferred between grantors and the respondent, who held a security interest against the assets, failed to update the register to give rise to the new grantor. A subsequent interest arose without knowledge of the original interest and the court held the transferee’s interest prevailed as against the respondent. See also, Re Hickman Equipment (1985) Ltd (2003) 4 PPSAC (3d) 252; 40 CBR (4th) 58 at [23]–[27] (Newfoundland and Labrador SC). [68.5.3] Particulars — s 68(3), (4), (5) Sections 68(1) and 68(2) apply irrespective of s 58 (regarding the priority of notices). The rationale behind the provisions again goes towards the primacy of the PPSR. Section 34 also applies to transferred collateral and offers further protections to the transferor. It is thus commercially reasonable that s 68(2) creates a priority position in favour of the transferee. In addition, collateral secured by serial number description only refers to collateral which would reveal a security interest by searching for the serial number. Defects on the register thus expose the transferor to s 68 among other provisions of the PPSA. Regarding notice requirements, the expectancy of a security interest in the relevant collateral and a description of the specific collateral itself is required by s 68(5). Full notice requirements and particulars can be found at Pt 8.5. [68.6] Further reading • Explanatory Memorandum [2.163–2.164]. • ALRC Report No 64 [7.10–7.13]. • Whittaker Report [7.3].

¶5 Division 5 — Priority of creditors, and purchasers of negotiable instruments, chattel paper and negotiable documents of title

¶69 SECTION 69 PRIORITY OF CREDITOR WHO RECEIVES PAYMENT OF DEBT ¶2-270 SECTION 69 PRIORITY OF CREDITOR WHO RECEIVES PAYMENT OF DEBT Text of s 69 [69.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 95

Saskatchewan

PPSA 1993

s 31

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-332

[69.2] Outline This section provides creditors who receive payment from their debtors by way of a written or electronic payment mechanism certainty that the funds will not be claimed by a secured party of the debtor. [69.3] Cross-references Section 48 provides a taking free rule for certain holders of currency although it is narrower than this section. [69.4] Concepts • Actual knowledge This is discussed under s 297. Mere knowledge by the recipient of the payment that there was one or more secured parties with claims over the funds is not actual knowledge that the payment is in breach of the security agreement(s): Stiassny v Commissioner of Inland Revenue [2013] 1 NZLR 453; [2012] NZSC 106 at [57]–[58]. • Debt A debt is a legal obligation to pay a sum of money, either presently or in the future. Debts may be due and payable, contingent on a future event (may arise in the future) or prospective (will arise in the future). See The King v Brown (1912) 14 CLR 17; Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455. • Debtor The term “debtor” under the PPSA has a very important meaning. It defines the party who must pay or perform the primary obligation(s) owing to the creditor or party making the relevant advances. While a security interest is not enforced (where enforcement only occurs if the debtor defaults), it is the debtor and the secured party who are bound to one another by the security agreement. That said, the debtor need not be the party who provides collateral for the purposes of creating a security interest under the PPSA (although this is often the case). Only when a security interest is enforced does the focus shift from the secured party and the debtor to the secured party and the grantor. The term grantor is defined later under s 10. • Negotiable instrument This is defined in s 10. See further, s 8 and 29. [69.5] Commentary This section provides priority to creditors who receive payment of a debt (not a claim). Note that the wording states that the creditor must actually receive the payment. Thus, even though s 69(1)(b)

mentions the intangible that was the source of the payment (such as a bank account), if the payment is not received by the creditor then this rule will not apply. The policy underpinning this provision is that creditors should be able to receive ordinary payments without having to check if there is a security interest attached to the funds used to make such payments. In line with the Canadian regimes, the purpose of this section is “to leave money and cheques largely free from security interests to preserve the integrity of the payment system”: Flexi-Coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192; 107 DLR (4th) 129 at [50] (Sask CA). The equivalent provision in New Zealand was considered in Stiassny v Commissioner of Inland Revenue [2013] 1 NZLR 453; [2012] NZSC 106. In Stiassny, GST payments were made by receivers based on advice that they had personal liability to make the payments. The secured party sought to recover the amounts (which were in excess of $120m) and the Commissioner claimed priority under s 95 of the Personal Property Securities Act 1999 (NZ) (equivalent to s 69 of the PPSA). It should be noted that the NZ provision requires that the payment be “debtor initiated” which is not an element of the Australian PPSA, although it defines that term by reference (in NZ PPSA s 95(3)) to the same terms listed in the Australian PPSA s 69(3). The court stated (at [53]) that the provision is necessary “so as to ensure that a person who has given a charge over their assets is able to carry on business and pay the creditors of the business … if this were not the case … many debtors would be unable to pay their creditors and it would cause security interests in all present and after-acquired property to have a suffocating effect on the ability of a debtor to conduct its business”. The court held that the Commission was entitled to priority over the funds paid. As noted by Lowden,23 while this rule is stated to be a priority rule it is more accurately characterised as one of the taking free rules although one which is only open to creditors. This section does not apply to exchanges of physical currency and is likely to encourage creditors to seek payment by electronic transfer. This is because the section provides a more flexible rule than the taking free provisions which applies under s 48 as that rule has a carve out for actual or constructive knowledge whereas this provision only carves out actual knowledge. For a discussion of actual and constructive knowledge see s 297–299. [69.6] Further reading • Explanatory Memorandum [2.159–2.160]. • ALRC Report No 64 [–]. • Whittaker Report [7.6]. Footnotes 23

Wappett C, Whittaker B and Edwards S, Personal Property Securities in Australia, LexisNexis (looseleaf) at [4.10.2650].

¶70 SECTION 70 PRIORITY OF PERSON WHO ACQUIRES A NEGOTIABLE INSTRUMENT OR AN INTEREST IN A NEGOTIABLE INSTRUMENT ¶2-275 SECTION 70 PRIORITY OF PERSON WHO ACQUIRES A NEGOTIABLE INSTRUMENT OR AN INTEREST IN A NEGOTIABLE INSTRUMENT

Text of s 70 [70.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 96

Saskatchewan

PPSA 1993

s 31

Ontario

PPSA 1990

s 28(4)

USA

UCC Article 9 (rev) § 9-331

[70.2] Outline This section provides persons who acquire negotiable instruments with certainty regarding their rights over the instruments against competing security interests. [70.3] Cross-references • Section 24 defines possession of a negotiable instrument. • Section 29 defines control of a negotiable instrument. • Section 256 provides that the Bills of Exchange Act 1909 (Cth) and Cheques Act 1986 (Cth) prevail over the PPSA to the extent of any inconsistency. [70.4] Concepts • Actual or constructive knowledge This is discussed under s 297. For a Canadian case on knowledge in the context of s 70 see Belarus Equipment of Canada Ltd v C & M Equipment (Brooks) Ltd (Receiver of) (1994) 8 PPSAC (2d) 32 (Alta QB), where mere knowledge of the security interest by a finance company was not sufficient knowledge to prevent the operation of this rule. Knowledge that the transaction was a breach of a non-security agreement is also not sufficient, although it could take the transaction outside of the scope of the ordinary course of business: OM Scott Credit Corp v Apex Inc (1964) 198 A 2d 673 (RI Supreme Court). • Negotiable instrument This is defined in s 10. See further, s 8 and 29. • Ordinary course of business See [46.5.2]. • Value This is defined in s 10. The Saskatchewan Court of Appeal considered the equivalent Saskatchewan provision in Flexi-Coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192 where a debtor deposited cheques in an account with the credit union which reduced an overdraft facility with the creditor union and allowed the debtor to draw further funds. The debtor had previously granted a security interest to an inventory supplier which extended to proceeds. The Court of Appeal found that by reducing the overdraft balance after receiving the deposited cheques the credit union had given value and had “purchased” the cheques so as to come within the rule and defeat the inventory financier’s security interest. Although the Saskatchewan provision requires the acquirer to “purchase” the instrument it is suggested that this reasoning is applicable to the Australian PPSA because to acquire rights in negotiable instruments is broader than the requirement to purchase in Saskatchewan; See also, GE Capital Canada Equipment Financing Inc v HSBC Bank Canada, (2002) 4 PPSAC (3d) 145 (Sask QB) (which applied the Flexi-Coil decision). See further, [19.5.2.2]. [70.5] Commentary This section applies to consensual transactions that allow a person (compare s 69 which only applies to

payment transactions involving creditors) to acquire an interest that is either a negotiable instrument or is an interest in a negotiable instrument. This may be contrasted with s 12 which defines a security interest over personal property by reference to consensual transactions. A non-consensual interest (such as one which arises automatically under general law or statute) would be excluded from the operation of the PPSA under s 8. The rationale underpinning this provision is that commercial transactions require certainty regarding the negotiability of negotiable instruments which could be reduced if this rule did not exist, although, as noted above, s 256 provides that legislation giving rise to the negotiable instrument directly will prevail over PPSA security interests to the extent of any inconsistency. With reference particularly to large commercial financiers (such as banks), it goes against commercial practicality to require such parties to conduct a search of the PPSR before accepting negotiable instruments such as cheques for payment. That said, the PPSA does not fail to recognise and provide an opportunity for the holder of a security interest in a negotiable instrument or associated interest to protect their entitlements. A secured party of this nature can, and in the authors’ view should, perfect their interest by possession of the instrument or by maintaining control over its transferability to prevent the debtor from negotiating the instrument to a third party who can take the benefit of this rule. The primacy of commercial certainty in payment systems was emphasised in the Alberta decision in Belarus Equipment of Canada Ltd v C & M Equipment (Brooks) Ltd (Receiver of) (1994) 8 PPSAC (2d) 32 (Alta QB). Note that s 70 imposes a less stringent knowledge test for persons engaged in the ordinary business of acquiring negotiable instruments which is triggered only if they have actual or constructive knowledge that the acquisition constitutes a breach of the security agreement compared with others (which derives from actual or constructive knowledge of the security interest itself). Perhaps this is recognition that other parties may have difficulty getting access to the security agreement or (in the case of the consumer for example) may typically be unaware of the existence of security interests over negotiable instruments in such circumstances whereas parties ordinarily engaged in the business of acquiring negotiable instruments presumably have the commercial knowledge and leverage to not only be aware of the existence of relevant security agreements but also to access the relevant security agreements before acquisition and hence knowledge of a breach is the threshold for the carve out. In relation to the nemo dat quod non habet (“no one [can] give what one does not have”) rule, the Canadian courts have held that the equivalent to s 70 governs negotiable instruments and that the rule has no place in the application or interpretation of this provision: see Alberta (Minister of Justice) v Letawsky (2009) 15 PPSAC (3d) 303; 13 Alta LR (5th) 234 at [47]–[50] (Alta QB); See also, Camco Inc v Frances Olson Realty (1979) Ltd (1986) 6 PPSAC 167; 50 Sask R 161 at [18] (Sask CA). The authors are of the view that this interpretation is consistent with the Australian PPSA. [70.6] Further reading • Explanatory Memorandum [2.161]. • ALRC Report No 64 [–]. • Whittaker Report [7.6].

¶71 SECTION 71 PRIORITY OF PERSON WHO ACQUIRES CHATTEL PAPER OR AN INTEREST IN CHATTEL PAPER ¶2-280 SECTION 71 PRIORITY OF PERSON WHO ACQUIRES CHATTEL PAPER OR AN INTEREST IN CHATTEL PAPER Text of s 71 [71.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 98

Saskatchewan

PPSA 1993

s 31(9)

Ontario

PPSA 1990

s 28(3)

USA

UCC Article 9 (rev) § 9-330

[71.2] Outline This section provides certainty for particular acquirers of chattel paper or interests in chattel paper for value. [71.3] Cross-references There are more than 25 references to chattel paper in the PPSA. Two that are particularly relevant for this section are s 80 and 81 which provide priority rules for transfers of chattel paper. [71.4] Concepts • Chattel paper This is defined by s 10. See also, [12.5.3.1]. • New value This is defined in s 10. • Ordinary course of business See [46.5.2]. • Possession See s 24. [71.5] Commentary Section 71 importantly presents a priority rule which usurps the PMSI priority status against perfected security interests pursuant to s 62–64. In order to understand why the holder of chattel paper prevails as against secured parties with an interest in the underlying collateral itself, the concept of chattel paper must first be understood (see [12.5.3.1]). Section 71 only applies where the secured party perfects their interest in the chattel paper by possession — unlike the application of the PPSA to the majority of collateral classes (where the choice between possession or registration is irrelevant) for chattel paper, possession trumps registration. The case of In re the Bennet Funding Group Inc (1996) 230 BR 30 (US Bankruptcy Court, ND New York), the Court required the secured party to possess an “ink-signed” original of the chattel paper. This is difficult to reconcile with the Australian PPSA considering the definition of writing pursuant to s 10 and growing recognition of electronic instruments in Australia. In Glosser v Colonial Pacific Leasing Co (in re Equitable Financial Management Inc) (1994) 164 BR 53 (Bankr WD Pa), the Court held that the holder of chattel paper must exercise absolute dominion and

control over the instrument. For the purposes of the Australian PPSA, in the authors’ view, it is consistent with the significant level of priority enjoyed by a party with a security interest over chattel paper to possess, and to readily appear to possess, the relevant chattel paper. As a practical step, where possession of the chattel paper is impossible or against the commercial realities of the relevant transaction, secured parties seeking to benefit from s 71 should stamp the chattel paper with the relevant details describing their security interest. In such circumstances, even if the chattel paper is subsequently misappropriated, the party in receipt of the chattel paper will not take without notice of the former interest. It should also be noted that while s 70 and 72 only require value to be given by the acquirer (which can include past consideration), this section requires new value to be given. [71.6] Further reading • Explanatory Memorandum [2.162]. • ALRC Report No 64 [–]. • Whittaker Report [4.3], [7.6]. • Antony Duggan, “Chattel paper” (2013) 41 Australian Business Law Review 214.

¶72 SECTION 72 PRIORITY OF HOLDER OF NEGOTIABLE DOCUMENT OF TITLE ¶2-285 SECTION 72 PRIORITY OF HOLDER OF NEGOTIABLE DOCUMENT OF TITLE Text of s 72 [72.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 99

Saskatchewan

PPSA 1993

s 31(7), (8)

Ontario

PPSA 1990

s 28(4)

USA

UCC Article 9 (rev) § 9-331

[72.2] Outline This provision provides certainty for holders of negotiable documents to accept the instruments without having to search the Personal Property Securities Register (PPSR) beforehand. [72.3] Cross-references • Section 22 provides a rule for perfection by a bailee who issues a negotiable document of title. • Section 52 provides a taking free rule that applies to temporarily perfect security interests in negotiable documents of title. [72.4] Concepts • Actual or constructive knowledge This is discussed under s 297. • Negotiable document of title Document of title is defined by s 10. See also, the discussion in s 8. • Ordinary course of business See [46.5.2]. • Value This is defined in s 10. See further, [19.5.2.2]. [72.5] Commentary This section provides a similar rule to s 70 and reference should be made to that section. [72.6] Further reading • Explanatory Memorandum [2.163]. • ALRC Report No 64 [–]. • Whittaker Report [7.6].

¶6 Division 6 — Priority of other interests

¶73 SECTION 73 PRIORITY BETWEEN SECURITY INTERESTS AND DECLARED STATUTORY INTERESTS ¶2-290 SECTION 73 PRIORITY BETWEEN SECURITY INTERESTS AND DECLARED STATUTORY INTERESTS Text of s 73 [73.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 93

Saskatchewan

PPSA 1993

s 32

Ontario

PPSA 1990

s 31

USA

UCC Article 9 (rev) § 9-333

[73.2] Outline This section provides a priority rule for competitions between interests that would otherwise fall outside of the PPSA and security interests under the PPSA. [73.3] Cross-references • Section 8 excludes interests arising under law from the PPSA. • Section 312 provides for the commencement of the operation of this section. [73.4] Concepts • Actual knowledge This is discussed under s 297. • Ordinary course of business See [46.5.2]. In relation to s 73, see for example Stockco Ltd v Walker [2011] NZHC 601. • Registration commencement time See s 306. [73.5] Commentary This section provides priority rules for competitions between PPSA security interests and interests that sit outside the scope of the PPSA. While the foreign PPSA statutes do not appear to have directly equivalent provisions to s 73 there are rules in those jurisdictions that address priority issues for similar competitions involving liens arising by operation of the law and PPSA security interests. The foreign provisions all require the lien to arise in relation to goods, whereas s 73 contains no such limitation (the concept of “goods” as opposed to other tangible personal property will no doubt carry a nuanced meaning in each respective jurisdiction). In addition to s 73, the interaction between the PPSA and foreign laws and the PPSA and other Australian laws is discussed at Pt 7.2 and 7.4 respectively In the New Zealand case of Toll Logistics (NZ) Limited v McKay [2011] NZCA 188, the Court of Appeal interpreted the equivalent New Zealand provision narrowly, holding that (at [60]): “Section 93 of the PPSA may be viewed as a limited exception to the broad intention to codify the law of security interests in personal property. While the existence of common law liens was accepted by s 93 as an exception to this general intention, anything other than a cautious approach to the recognition of common law liens is not justified.”

The Court was considering arguments to support a general packer’s lien. The Canadian courts have ruled that a competition between a statutory security device and a PPSA security interest is to be determined in accordance with the rules of the statute that gave rise to the security interest, or otherwise to the common law rules (including the first in time rule): see generally Leavere v Port Colborne (City) (1995) 122 DLR (4th) 200 (Ont CA). See also, Bank of Montreal v Innovation Credit Union [2010] SCC 47; (2010) 17 PPSAC (3d) 1. In Tasman Logistics Services Pty Ltd v Seaco Global Aust Pty Ltd [2020] VSC 100, a case concerning potential priority contests in respect of uncollected goods in the context of a receivership, Garde J held (at [119]–[124]): “Tasman referred to enactments in New South Wales and Queensland as examples where a State legislature had sought to override the operation of the PPSA. Section 3(2) of the Storage Liens Act 1935 (NSW) expressly declares that s 73(2) of the PPSA applies, while s 4A of the Disposal of Uncollected Goods Act 1967 (Qld) declares that the charges of the bailee in question are statutory interests to which s 73(2) of the PPSA applies, and have priority over all security interests in relation to the goods.” Conclusion as to s 73(1)(d) I accept Tasman’s submissions and find that s 73(1)(d) is satisfied. Although s 59 of the [Australian Consumer Law and Fair Trading Act 2012 (Vic)] ACLFTA extends and strengthens the right of a provider, owner or interested person to recover the goods at any time before disposal provided that the outstanding charges are paid, it does not purport to ascribe any priority as between the interest of the receiver and the security interest of the owner. Moreover, it is plain that the ACLFTA contains no provision of the type required by s 73(2) of the PPSA. The requirement in s 73(2) that the operative statute must declare that s 73(2) applies to statutory interests of the kind dealt with in the statute is intended to give certainty, and avoid doubt as to whether a statute overrides the operation of s 73(1) by implication derived from its provisions. The ACLFTA does not declare that s 73(2) is a provision that applies to interests of the kind created by s 59 of the ACLFTA. As a result, s 59 of the ACLFTA does not displace s 73(1) of the PPSA. Effect of s 73(1) of the PPSA Section 73(1) is intended to give priority to persons who have received goods or provided services in the ordinary course of business provided certain conditions are met. If the conditions in s 73(1) are met, the provision takes effect to determine priority in the collateral. It operates to give the receiver’s interest priority over the prior security interest. The same conclusion was reached by Burchell JR in CBA v MTC Diesel Pty Ltd & Ors: “Section 73(1) of the PPSA provides that a lien created by operation of general law or under statute arising out of providing goods or services in the ordinary course of business has priority over a security interest registered under the Act if the person who provided the goods or services did not know that the agreement that created the security interest prohibited the establishment of a lien by the debtor. For example, a warehouseman who stores goods as a bailee for hire or reward in the ordinary course of business might be aware that the asset has a registered security interest to a financier, but is not aware of the terms of the security agreement which might prevent the asset owner from creating other interests in the asset. As a result of section 73(1) of the PPSA, the warehousemen’s lien over the asset will have priority over the financier’s interest in the asset. I hold that if the containers are sold, the proceeds of sale are held first for Tasman and then for the holders of security interests in the containers. It is only in the unlikely event that the proceeds of sale exceed the outstanding storage charges that holders of security interests will receive any part of the proceeds of sale of the containers.” The reference to the CBA v MTC Diesel case in the abovementioned case is a reference to CBA v MTC Diesel Pty Ltd [2019] VCC 439 at [125]–[126]. That case concerned a warehouseman’s lien and the Warehousemen’s Lien Act 1958 (Vic) where the issue of priorities did not ultimately arise but were

commented on in obiter for completeness, Burchell JR holding (at [129]–[130]) that: “I prefer the interpretation given by Duggan & Brown in relation to section 73(2) that it provides an extended reach for priorities to apply. Sub-section 73(2) enables legislature to explicitly provide for interests that do not fall within the purview of section 73(1), being an interest arising in relation to providing goods or services in the ordinary course of business, to contain a declaration in the relevant statute to explicitly provide for priority over a security interest, for example, a government lien for unpaid taxes. I do not accept the CBA’s contention that if section 73(1) applies to warehousemen liens then there would be no need for a section 73(2) mechanism to apply, such as in the equivalent NSW, Queensland and WA Acts. The express provision contained in those Acts pursuant to section 73(2) overcomes the potential risks involved in a warehouseman not satisfying the conditions contained in section 73(1)(a) to (e). If the Act expressly provided that a valid warehousemen’s lien took priority over a security interest pursuant to section 73(2) then the warehouseman would only need satisfy the requirements under section 6 of the Act in order to override a financier or bank’s secured interest, without having to additionally satisfy the further conditions required under section 73(1) of the PPSA.” As to warehousemen’s liens generally, see Re Plantation Outdoor Kitchens Pty Ltd (In liq) [2019] NSWSC 925. One aspect not argued in the Tasman Logistics case (having been conceded (see, at [114])) is the significance of the language of s 73(1)(a) of the Act and the “non-consensual” nature of the source of the security interest. The language used by s 73(1)(a) is similar in form to s 8(1)(c). As to the significance of a dealing being consensual see, Dura (Aust) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) [2014] VSCA 326. In Tasman Logistics, while the statutory regime no doubt altered or modified the underlying security interest — the source of the interest was, at least on one view, contractual (see at [115]). If that characterisation is correct then it would appear to be at least arguable that the requirement that the “priority interest arises (by being created, arising or being provided for” is not satisfied — as s 73(1)(a) requires.) For a list of statutory provisions that have declared s 73(2) to apply see the Australian Personal Property Securities Law Reporter (CCH). For a discussion of the application of s 73 to maritime liens see: The Ship “Sam Hawk” v Reiter Petroleum Inc [2016] FCAFC 26. [73.6] Further reading • Explanatory Memorandum [2.164–2.166]. • ALRC Report No 64 [–]. • Whittaker Report [7.7], [7.8].

¶74 SECTION 74 EXECUTION CREDITOR HAS PRIORITY OVER UNPERFECTED SECURITY INTEREST ¶2-295 SECTION 74 EXECUTION CREDITOR HAS PRIORITY OVER UNPERFECTED SECURITY INTEREST Text of s 74 [74.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 103

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

s 20(1)(a)(ii)

USA

UCC Article 9 (rev) § 9-317(a)(2)(A)

[74.2] Outline This section provides execution creditors who seize the underlying collateral with priority over unperfected security interests over such collateral. [74.3] Cross-references • Section 45 contains a taking free rule for motor vehicles which contains an exception for sales by or on behalf of an execution creditor. • Section 275 includes execution creditors in the class of interested persons who may request information regarding the security agreement from the secured party. [74.4] Concepts • Collateral This is defined in s 10 as meaning personal property to which a security interest has attached (see s 19) including personal property described by a financing statement. • Execution creditor This is defined in s 10 as meaning a creditor who has recovered judgment and issued execution against a grantor. This refers to the creditor who has obtained judgment obtaining a writ of execution. • Execution order The court rules provide for orders to enforce judgments. In NSW, see Uniform Civil Procedure Rules 2005 (NSW), Pt 39 (“UCPR”). • Garnishee order A garnishee order allows a judgment creditor to recover funds owed to them under the judgment directly from the grantor’s bank account. The court rules provide for garnishee orders. In NSW, see UCPR, Pt 39 Div 4. • Landlord’s right of distress See s 8. • Seizure It is likely that s 74 only applies to personal property that can properly be seized, and would not therefore apply to a chose in action held by the debtor. Furthermore, the use of the term “execution

creditor” suggests that seizure should be read as resulting from a court action and not merely seizure pursuant to a security agreement. [74.5] Commentary This section provides an execution creditor with priority over an unperfected security interest from the time of seizure by or on behalf of the execution creditor or from the time when the court makes an order in respect of a judgment in relation to the execution creditor or from the time that a garnishee order is made. In the Saskatchewan Court of Appeal case, Erjo Investments Ltd v Michener Allen Auctioneering Ltd (2004) 6 PPSAC (3d) 220; 238 DLR (4th) 32, the scope of the execution creditor’s priority was examined. The Court held (at [21]–[24]) that where an execution creditor does not have a perfected security interest, the judgment writ enables them to take priority only as against other unperfected security interests at the time of seizure. An unperfected secured party can thus perfect prior to seizure and prevail as against the execution creditor: See also, SM Construction v Folmar Electric Ltd (2000) 1 PPSAC (3d) 150; 188 DLR (4th) 494 (Newfoundland CA). Section 74 was recommended by the ALRC Report No 64 which stated (at [10.10]) that this priority rule would further encourage secured parties to perfect their security interests. It is also justifiable on the basis of the time and expense incurred by the execution creditor obtaining the order during a time when they could not have ascertained the existence of the security interest because it was unperfected — remembering that primacy is given to what can be found on the PPSR. Furthermore, an execution creditor who searched the PPSR could be encouraged to obtain the order or seek seizure based on the absence of a recorded interest against the grantor’s collateral. [74.6] Further reading • Explanatory Memorandum [2.168]. • ALRC Report No 64 [–]. • Whittaker Report [7.8].

¶75 SECTION 75 PRIORITY OF SECURITY INTERESTS HELD BY ADIs ¶2-300 SECTION 75 PRIORITY OF SECURITY INTERESTS HELD BY ADIs Text of s 75 [75.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-327

[75.2] Outline This section provides for authorised deposit taking institutions (ADIs) holding security interests in ADI accounts to have the highest priority over such accounts. [75.3] Cross-references • Section 21 provides for perfection by control. • Section 25 defines control of an ADI account. • Section 341A defines control of an ADI account for the purposes of s 340 only. [75.4] Concepts • ADI See s 10. • ADI account See s 10. See further, s 25. [75.5] Commentary The ability of an authorised deposit taking institution (ADI) to have the highest priority over security interests taken over ADI accounts held by them through perfecting by control (see s 25) is consistent with rights held by banks at general law to exercise set-off, netting and combination of accounts (see s 8). Perfection by control occurs where an ADI takes a security interest over an account held with it despite the fact that money in a general ADI account (from the perspective of the ADI) is a liability to pay the account holder rather than an asset (which gives rise to the commonly referred to “conceptual impossibility” doctrine): see SM Construction v Folmar Electric Ltd (2000) 1 PPSAC (3d) 150; 188 DLR (4th) 494 (Newfoundland CA). See also generally Peter Ward, “Personal property securities reform and the Conceptual Impossibility Doctrine” (2009) 20 Journal of Banking and Finance Law and Practice 106. This section was amended in 2011 to clarify that perfection by control of an ADI account is only possible if the secured party is the ADI with which the account is held: See Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth), Sch 2, s 17–19; See also, Explanatory Memorandum to the amending statute at [79]. This section should be read in conjunction with s 25. [75.6] Further reading • Explanatory Memorandum [2.120]. • ALRC Report No 64 [–].

¶76 SECTION 76 PRIORITY OF SECURITY INTERESTS IN RETURNED GOODS ¶2-305 SECTION 76 PRIORITY OF SECURITY INTERESTS IN RETURNED GOODS Text of s 76 [76.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 29(5)–(7)

Ontario

PPSA 1990

s 27(6)

USA

UCC Article 9 (rev) No equivalent

[76.2] Outline This section provides priority rules where security interests are competing over collateral that was taken free under a sale or lease from the grantor but have since been returned (for example because of rescission of contract). [76.3] Cross-references • This section should be read in conjunction with s 37 and 38. [76.4] Concepts • Goods These are defined in s 10. • Possession This is defined by s 24. • Transfer of an account This is discussed in [12.5.3.1]. • Transfer of chattel paper This is discussed in [12.5.3.1]. [76.5] Commentary This section contains three priority rules that address situations where there are competing security interests over goods that were subject to a security interest but nonetheless were sold or leased by the original grantor (that is, the debtor who obtained secured finance to acquire the goods prior to on-selling or leasing them to a third party) in a manner that allowed the transferee to take free of the prior security interest. It is easiest to consider the section by examining s (3) first. Section 76(3) provides that a person who acquires an interest in goods free from a prior security interest because of a sale or lease that they took from the original grantor/debtor will take priority over the original security interest (that is, the security interest that was taken free by the person prior to repossession) or over a security interest recognised by s 38 (for transferees of accounts or chattel paper generated by the sale or lease transaction) provided: • that the person’s security interest attaches while the goods were in their possession (see s 24), and • they perfected their security interest (for example by possession or registration of a financing

statement) before the goods were repossessed. Sections 76(1) and (2) provide priority rules for persons who received a transfer of an account or chattel paper. Section 76(1) grants priority to a perfected security interest that has reattached under s 37 over a security interest that is recognised by s 38 as being held by a transferee of an account that was generated by the original sale or lease of goods that allowed a person to take free of the original security interest. That is, the original secured party’s perfected interest trumps a subsequent security interest held by the transferee of an account generated through the sale or lease that originally broke free of the first security interest. The following example illustrates the point:

Secured Party A supplies equipment to Debtor B and perfects their security interest. Debtor B then sells the equipment to Party C who takes free by reason of Pt 2.5. The sale from Debtor B to Party C generates an account which Debtor B transfers to Secured Party D. The sale contract is then rescinded (perhaps because Party C fails to pay the full purchase price) and the equipment is returned to Debtor B. Assuming the elements of s 38 are satisfied Secured Party D would have a security interest in the equipment which creates a priority contest with Secured Party A. Section 76(1) gives priority to Secured Party A.

While the position is difficult, as both S1 and S2 have seemingly done all they could pursuant to the PPSA, the reality of securities law is such that a security interest is only as strong as the collateral securing the relevant obligation(s). In the above example, upon rescission, the account becomes essentially worthless. It should be noted that the security interest of S2 is not lost, but is subordinated to the complete fulfilment of the interest held by S1. In the authors’ view, all secured parties or potential secured parties should thus search the PPSR to reveal the credit history of particular collateral (where available) in addition to prior security interests engaged by particular grantors. Section 76(2) provides priority to the security interest in goods held by a transferee of chattel paper who has received the security interest by reason of s 38(2) once the goods were repossessed by the original debtor/grantor (who subsequently sold or leased them which generated the chattel paper which was then transferred to the relevant transferee who takes priority under this rule). The chattel paper transferee’s priority trumps a security interest held by an account transferee whose interest was also created by the sale or lease transaction. This contemplates that the sale or lease of goods by the original grantor/debtor produced two forms of collateral — one an account (see s 10) and another being chattel paper (see s 10). This is interesting given that these categories of collateral are mutually exclusive (see s 10 definition of account). Chattel paper comprises both a debt obligation as well as a security interest, while an account is merely a monetary obligation. The chattel paper transferee also has priority under s 76(2) where: • they took possession of the chattel paper in the ordinary course of business of acquiring chattel paper of that kind, and • they provided new value for the transfer of chattel paper. This priority exists over a security interest in goods that has reattached on the goods being returned to the original grantor/debtor under s 37(1) and over a secured party who has a perfected security interest over the returned goods as after-acquired property. [76.6] Further reading • Explanatory Memorandum [2.171]. • ALRC Report No 64 [8.24–8.29].

• Whittaker Report [7.7]. • Antony Duggan, “Chattel paper” (2013) 41 Australian Business Law Review 214.

¶77 SECTION 77 PRIORITY OF CERTAIN SECURITY INTERESTS IF THERE IS NO FOREIGN REGISTER ¶2-310 SECTION 77 PRIORITY OF CERTAIN SECURITY INTERESTS IF THERE IS NO FOREIGN REGISTER Text of s 77 [77.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[77.2] Outline This section provides a priority rule where certain types of collateral are perfected under the law of a foreign jurisdiction that does not provide for a public notice or registration system. [77.3] Cross-references • Section 235 determines when personal property is located in a particular jurisdiction. • Sections 239 and 240 determine what governing law applies. However, s 77(4) provides that the priority rules apply to Australian court proceedings even if foreign law applies in the proceedings. [77.4] Concepts • Account This is defined by s 10. See further, [12.5.3.1]. • Financial property This is defined by s 10. See further, s 27. • Intermediated security This is defined by s 10. See further, s 26. [77.5] Commentary This section provides two priority rules where there is a competition involving security interests in accounts, financial property or an intermediated security and where the law of a foreign jurisdiction covers perfection, non-perfection or the effect of perfection but does not provide for public notice or public registration. Both priority rules require the secured party to register their security interest in Australia before the competing interest (whether a security interest or not) attaches to the collateral. Both priority rules are expressed to apply only to proceedings in an Australian court and would not therefore apply to a case in a foreign court applying Australian law. This provision is unique to the Australian PPSA and seeks to minimise the complexities between foreign security regimes and the PPSA. [77.6] Further reading • Explanatory Memorandum [2.172–2.174].

• ALRC Report No 64 [–].

¶2.7 PART 2.7 — TRANSFER OF INTERESTS IN COLLATERAL

¶78 SECTION 78 GUIDE TO THIS PART ¶2-315 SECTION 78 GUIDE TO THIS PART Text of s 78

¶79 SECTION 79 TRANSFER OF COLLATERAL DESPITE PROHIBITION IN SECURITY AGREEMENT ¶2-320 SECTION 79 TRANSFER OF COLLATERAL DESPITE PROHIBITION IN SECURITY AGREEMENT Text of s 79 [79.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 87

Saskatchewan

PPSA 1993

s 33

Ontario

PPSA 1990

s 39

USA

UCC Article 9 (rev) § 9-401

[79.2] Outline This section clarifies that a grantor may transfer collateral despite a contrary provision in the security agreement. [79.3] Cross-references • Section 12(3) deems transfers of certain types of collateral (accounts and chattel paper) as security interests. [79.4] Concepts • Security agreement This is defined in s 10. See further, s 18 and 20. [79.5] Commentary This provision provides an example of the PPSA moving away from the general law concepts of priority based on legal title recognising that the grantor may transfer the collateral with the agreement of the transferee or by operation of law — even if this transfer amounts to a misappropriation of the underlying property. The ability to transfer is also not dependant on whether the transferee had knowledge of the prohibition in the security agreement, although this may be relevant pursuant to the taking free rules in Pt 2.5. While the PPSA includes several protections to prevent fraudulent behaviour, the validity of a security interest is largely independent of this: see iTrade Finance Inc v Bank of Montreal (2011) FPPSR ¶700-125; [2011] 2 SCR 360. If the transfer generates proceeds they will automatically attach to the secured party’s security interest and come within the perfected security interest at least on a temporary basis, where time is granted for the secured party to perfect their interest by the registration of a financing statement that sufficiently describes the proceeds (see s 31–33). As noted by Professor Grant Gilmore in his classic treatise on the UCC Article 9 (Security Interests in Personal Property, 1965, Lawbook Exchange at 936), this provision allows a debtor to obtain further finance by granting subsequent security interests in their personal property. The Official Comment to the pre 1999 UCC provision notes that the purpose of the provision is “To make clear that in all security transactions under this Article, the debtor has an interest (whether legal title or an equity) which he can dispose of and which his creditors can reach”. Upon the original secured party obtaining knowledge of the transfer (irrespective of whether they consent to it or not), the original secured party should be mindful of the requirements imposed by s 34 of the PPSA (see s 34) whereby the onus appears to remain with the original secured party to amend an

existing financing statement or lodge a new financing statement to ensure the PPSR reflects that the original secured party continues to have an interest in the underlying collateral. Section 79(2) notes that the ability to transfer does not affect the secured party’s rights, including the ability to treat the transfer as a default which could give rise to enforcement powers under Ch 4. Additionally, nothing in the PPSA purports to prevent the enforcement of the primary obligation between the secured party and the debtor, that is, the enforcement of rights in personam (against the person) which survives even an improper transfer of collateral or loss of security interest; see [14.5.9]. For an example where the New Zealand equivalent provision to s 79 was applied, see Alf No 9 Pty Ltd v Ellis [2009] NZHC 1416. [79.6] Further reading • Explanatory Memorandum [2.175–2.176]. • ALRC Report No 64 [7.10–7.13]. • Whittaker Report [7.11].

¶80 SECTION 80 RIGHTS ON TRANSFER OF ACCOUNT OR CHATTEL PAPER — RIGHTS OF TRANSFEREE AND ACCOUNT DEBTOR ¶2-325 SECTION 80 RIGHTS ON TRANSFER OF ACCOUNT OR CHATTEL PAPER — RIGHTS OF TRANSFEREE AND ACCOUNT DEBTOR Text of s 80 [80.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 102

Saskatchewan

PPSA 1993

s 41

Ontario

PPSA 1990

s 40

USA

UCC Article 9 (rev) § 9-404–9-406

[80.2] Outline This section clarifies what rights the transferee of an account or chattel may exercise against the account debtor. [80.3] Cross-references • Section 12(3) deems the transfer of an account or chattel paper to be security interests. See further, [12.5.3.1]. [80.4] Concepts • Account This is defined in s 10. See further, [12.5.3.1]. • Account debtor This is defined in s 10 as a person who is obligated under an account or chattel paper. See also, In re Doctors Hospital of Hyde Park Inc (2003) 337 F.3d 951 (US CA 7th Circ). • Chattel paper This is defined in s 10. See further, [12.5.3.1]. • Modification This is defined in s 10 as including an addition, omission and substitution. • Transferee The equivalent term used in the US under UCC Article 9 (assignee) was discussed in In re Printz (2012) 478 BR 876 (US Bankr Court for CD Ill). [80.5] Commentary Section 80 ensures that an account debtor is in no worse a position by reason of the account or chattel paper being transferred: see, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [177]. In that case, it was held that if statutory set off in Corporations Act s 553C did not apply, then it would not prevent the operation of s 80 (or general law rights of set off). The provision allows the account debtor to limit what rights they can set up against the transferee of the account or chattel paper (s 80(2)).

In Systran Financial Services Corp v Giant Cement Holding (2003) 252 F Supp 2d 500 (USDC, Nth Dist of Ohio), the court held that the equivalent provision in UCC Article 9 bound an assignee to an arbitration clause in the contract between the transferor and the account debtor. This is consistent with s 18(1) of the Australian PPSA. Section 80(3) allows for the contract between the account debtor and the transferor of the account or chattel paper to be varied or substituted (prior to complete performance) provided that it does not have a material adverse effect on the transferee’s rights under the contract or the transferor’s ability to perform the contract. This rule applies even if there has been notice of the transfer to the account debtor (s 80(4)) although the account debtor could limit this by prior agreement (see s 18(1). Such conduct could still constitute a breach of the contractual obligations of the transferor (s 80(6)). The ability to modify the contract could pose problems to securitisation programs although these concerns could be addressed by the limitations imposed on the power to modify. The transferor and the account debtor can only make a variation to or a substitution of the contract honestly and in a manner that is commercially reasonable (s 80(3)). The Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) states (at [2.180]) that: “If a transferor initially agrees with the transferee not to modify or substitute a contract but then later agrees with the account debtor to modify or substitute the contract, contrary to the agreement with the transferee, the transferor would be acting dishonestly.” There have been very few cases that have considered the equivalent power in the US (and none in Canada). In Re Sycom Enterprises LP (2004) 310 BR 669 (US Bankr Court NJ) the court held that a failure by the transferor to include the assignee in negotiations to vary the contract did not amount to bad faith. Bad faith was found in Producers Cotton Oil Co v Amstar Corp (1988) 197 Cal App 3d 638 (Cal CA) (deliberate breach of contract). Section 80(7) provides circumstances when the account debtor will be permitted to continue making payments to the transferor. Payments made by an account debtor prior to receiving notice of the transfer will discharge the obligation of the account debtor to the extent of the payment (s 80(8)). The US courts have held that until the account debtor receives notice of the assignment the assignee remains subject to any set-off rights that accrue to the third-party debtor: Timothy Dean’s Inc v White (2006) 342 BR 1 (US Bankr Court for DC). See also, Puritan Finance Corp v Bechstein Construction Corp (2012) 980 NE 2d 135 (Illinois Ap Ct). As to setoff rights and UCC Art 9 § 9-404 see US Aeroteam Inc v Delphi Automotive Systems LLC (2005) 327 BR 852 (US Bankr Court for Sth Dist of Ohio); In re Printz (2012) 478 BR 876 (US Bankr Court for CD Ill). As to the detail required for notice under the UCC equivalent provision see: In re Communication Dynamics Inc (2003) 300 BR 220 (US Bankr Court for Dist of Delaware). [80.6] Further reading • Explanatory Memorandum [2.177–2.182]. • ALRC Report No 64 [5.14–5.17]. • Whittaker Report [4.3], [7.11], [8.2].

¶81 SECTION 81 RIGHTS ON TRANSFER OF ACCOUNT OR CHATTEL PAPER — CONTRACTUAL RESTRICTIONS AND PROHIBITIONS ON TRANSFER ¶2-330 SECTION 81 RIGHTS ON TRANSFER OF ACCOUNT OR CHATTEL PAPER — CONTRACTUAL RESTRICTIONS AND PROHIBITIONS ON TRANSFER Text of s 81 [81.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 41(9)

Ontario

PPSA 1990

s 40(4)

USA

UCC Article 9 (rev) § 9-406

[81.2] Outline This provision limits the ability of contractual clauses to prohibit assignments of accounts or chattel paper. [81.3] Cross-references • Sections 31–33 provide rules relating to proceeds. [81.4] Concepts • Account This is defined by s 10. See [12.5.3.1]. • Chattel paper This is defined by s 10. See [12.5.3.1]. • Currency This is defined by s 10 to include both Australian and foreign currency. • Ordinary course of business See [46.5.2]. • Proceeds This is defined by s 31, See also, s 32–33. [81.5] Commentary This section promotes the assignability of accounts and chattel paper by rendering certain clauses that restrict assignability unenforceable (though not void). Although the section restricts absolute prohibitions it does not prevent clauses that limit an assignment of less than the whole of an account. The general law with respect to the assignment of part of a debt will continue to be relevant here: see s 254. Ziegel J and Dennome D have commented that in Canada, this provision can be easily avoided through the use of powers of attorney conferred on the assignee, trust arrangements for the benefit of the assignee or (somewhat more left field) to require the obligor to make payment to the assignor at a designated post office box which is in fact an alias of the assignee.24 Whether or not Australian courts are equally inclined to give effect to the deviations mentioned remains to be seen.

[81.6] Further reading • Explanatory Memorandum [2.183–2.184]. • ALRC Report No 64 [5.15–5.17]. • Whittaker Report [7.11]. • William Kim, “Receivables financing: A comparative study of s 81 of the PPSA and other legislative overrides to anti-assignment clauses” (2019) 30 Journal of Banking and Finance Law and Practice 126. Footnotes 24

Ziegel J and Dennome D, The Ontario Personal Property Security Act Commentary and Materials, 2nd ed 2000 Butterworths at 334–335.

¶3 CHAPTER 3 — SPECIFIC RULES FOR CERTAIN SECURITY INTERESTS

¶3.1 PART 3.1 — GUIDE TO THIS CHAPTER

¶82 SECTION 82 GUIDE TO THIS CHAPTER ¶3-005 SECTION 82 GUIDE TO THIS CHAPTER Text of s 82

¶3.2 PART 3.2 — AGRICULTURAL INTERESTS

¶83 SECTION 83 GUIDE TO THIS PART ¶3-010 SECTION 83 GUIDE TO THIS PART Text of s 83

¶84 SECTION 84 RELATIONSHIP BETWEEN SECURITY INTEREST IN CROPS AND INTEREST IN LAND ¶3-015 SECTION 84 RELATIONSHIP BETWEEN SECURITY INTEREST IN CROPS AND INTEREST IN LAND Text of s 84 [84.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 100, 101

Saskatchewan

PPSA 1993

s 37

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-334(i)

[84.2] Outline This section provides that perfected security interests in crops are not prejudicially affected by the sale, lease or mortgage of land on which the crops are growing. [84.3] Cross-references • Section 8 excludes interests in land from the PPSA. • Section 31(4) provides for proceeds for collateral that is crops. • Section 84A clarifies when security interests attach to crops. • Section 85 provides priority rules for security interests in crops. • Section 115 allows the enforcement provisions relating to crops to be contracted out of where the crops are not used predominantly for personal, domestic or household purposes. • Section 117 provides an enforcement rule for obligations that are secured by interests in personal property and land. • Section 138B provides a specific rule for seizure and retention of crops. [84.4] Concepts • Crops This is defined in s 10 as meaning: “crops (whether matured or not and whether naturally grown or planted) that have not been harvested, including: (a) the products of agriculture or aquaculture, if the products have not been harvested and (b) trees (but only if they are personal property), if the trees have not been harvested.” [84.5] Commentary This section clarifies the relationship between security interests in crops which are growing on land and security interests in the land itself. Once the crops are harvested they may become proceeds (s 31). Interests in land are generally excluded from the PPSA (see s 8) but crops are connected to the land. Section 84(1) provides that a security interest in crops will only prejudicially affect the rights of a lessor or mortgagee of land on which the crops are growing if the lessor or mortgagee’s rights arose after the time

the security interest in the crops was created or the lessor or mortgagee consented to the creation of the security interest in the crops. Section 84(2) provides that perfected interests are not prejudicially affected by the sale, lease or mortgage of land on which the crops are growing. This provision largely reflects the recommendations of the ALRC Report No 64 at [5.49] which stated that crops should be classified as personal property “independently of the land on which they are growing.” [84.6] Further reading • Explanatory Memorandum [3.1–3.4, 4.32]. • ALRC Report No 64 [5.46–5.49].

¶84A SECTION 84A ATTACHMENT OF SECURITY INTERESTS TO CROPS WHILE THEY ARE GROWING AND TO THE PRODUCTS OF LIVESTOCK ¶3-020 SECTION 84A ATTACHMENT OF SECURITY INTERESTS TO CROPS WHILE THEY ARE GROWING AND TO THE PRODUCTS OF LIVESTOCK Text of s 84A [84A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 51

Saskatchewan

PPSA 1993

s 12(3)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[84A.2] Outline This section clarifies when security interests in crops and livestock attach. [84A.3] Cross-references • Section 8 excludes interests in land from the PPSA. • Section 31(4) provides for proceeds for collateral that is crops or livestock. • Section 84 clarifies the relationship between security interests in crops and the land on which they are growing. • Section 85 provides priority rules for security interests in crops or livestock. • Section 115 allows the enforcement provisions relating to crops and livestock to be contracted out of where the collateral is not used predominantly for personal, domestic or household purposes. • Section 117 provides an enforcement rule for obligations that are secured by interests in personal property and land. • Sections 138B and 138C provide a specific rule for seizure and retention of crops and livestock. [84A.4] Concepts • Attachment See s 19. • Crops This is defined by s 10, See also, s 84. • Livestock This is defined by s 10 as including alpacas, cattle, fish, goats, horses, llamas, ostriches, poultry, sheep, swine and other animals while they are alive. The s 10 definition also include the unborn young of those animals and the products of livestock before they become proceeds (eg the wool on a sheep’s back before the sheep is shorn). Fish also have a specific meaning under s 10. • Proceeds

See s 31. [84A.5] Commentary This section was inserted by amendments in 2010 for the purposes of clarifying that security interests in crops can attach while they are growing and to the products of livestock before they become proceeds. This amendment was included to allow financiers to take security interests over the products which derive from agricultural affairs, such as wool, without the need to take an interest in the product from which the collateral derived (which would be livestock in the case of wool): see Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth), Sch 2, s 66; See also, Explanatory Memorandum to the amending legislation at [9.100]–[9.103]. It should be noted that crops, livestock and wool are all expressly designated as goods under s 10. [84A.6] Further reading • Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) 2010 Bill (Cth) [100]–[103]. • ALRC Report No 64 [5.46]–[5.49].

¶85 SECTION 85 PRIORITY OF CROPS ¶3-025 SECTION 85 PRIORITY OF CROPS Text of s 85 [85.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 34(11)

Ontario

PPSA 1990

s 32

USA

UCC Article 9 (rev) No equivalent

[85.2] Outline This section provides a priority rule for assessing security interests in crops and the proceeds of crops. [85.3] Cross-references • Section 31(4) provides for proceeds for collateral that is crops or livestock. • Section 84 clarifies the relationship between security interests in crops and the land on which they are growing. • Section 84A provides rules relating to the attachment of security interests in crops or livestock. • Section 115 allows the enforcement provisions relating to crops and livestock to be contracted out of where the collateral is not used predominantly for personal, domestic or household purposes. • Section 117 provides an enforcement rule for obligations that are secured by interests in personal property and land. • Sections 138B and 138C provide a specific rule for seizure and retention of crops and livestock. [85.4] Concepts • Crops This is defined in s 10. Seeds are used to grow crops and so are not crops themselves until they are planted in the ground and germinate. Prior to becoming crops seeds would be classified as goods as the definition in s 10 is non-exclusive. • Proceeds of crops See s 31, [31.5.10] in particular. • Security agreement See s 18 and 20. • To enable the crops to be produced This would include fertilizer and equipment used in growing the crops: see Leu v NM Paterson & Sons Ltd (1997) 13 PPSAC (2d) 27 156 Sask R 36; (Sask QB). In that case, the security interest was expressed to cover “all crops and proceeds product with seed and/or chemical purchased by the Farmer using financing from the secured party”. • Value This is defined in s 10. See further, [19.5.2.2].

[85.5] Commentary This section (and s 86 for livestock) were intended to provide an “agricultural PMSI” as stated in the Explanatory Memorandum at [3.2]. However, these two sections do not work in the same way as the PMSI provision in the general sense and are not PMSIs simply because of this section (see s 14 for the definition of a PMSI). Nor do they clearly convey the same super priority that PMSIs have (see s 62). What both s 85 and 86 do is attempt to clarify the priority rules that apply where security interests are taken in crops and livestock (respectively). Unfortunately, the rules are not as clear as they could be. The wording of s 85 states that a perfected security interest that complies with the section “has priority over any other security interest that is granted by the same grantor in the same crops or proceeds”. This would seem to confer priority over a general PMSI. One complicating factor is that a security interest in crops that complies with s 85 could also be a general PMSI under the terms of s 14 where the agricultural supplier or financier’s security interest secured all or part of the purchase price of the materials that will enable the crops to grow (such as fertilizer or farm equipment) or where the value provided by the supplier or financier enables the grantor to acquire the rights in the collateral (see s 14 and Poss v Melfort Credit Union Ltd (1993) 5 PPSAC (2d) 72 (Sask QB) where a loan was used for general farming operations rather than to buy seeds which prevented security interest being a PMSI). However, to take advantage of the priority conferred on general PMSIs under s 62, the secured party would need to register a financing statement which covers the collateral and indicates that the security interest is a PMSI within the specified time (s 62(2)). Section 85 does not have similar requirements (thus perfection may be obtained by possession, although this is unlikely given the nature and uses of agricultural products). The Explanatory Memorandum also expressly notes (what it calls an agricultural PMSI) that security interests covered by s 85 would have lower priority than a general PMSI over the same collateral: at [3.2]. It is suggested that s 85 does not render a security interest in crops a PMSI and its terms allow for a security interest in crops to take priority over a PMSI (provided the requirements under s 85 are satisfied). It is notable that s 86 provides a similar rule for security interests in livestock and makes an express statement that priority under s 86 does not give priority over a PMSI. Furthermore, s 85 also does not provide rules for competing priorities for multiple security interests that comply with the section, in which case the default priority rules pursuant to s 55 should operate (ie because compliance with s 85 will not of itself confer PMSI super-priority). In such a case, the registration time will be the appropriate rule under s 55(5) unless the rules for temporary perfection may apply. As set out above, possession is unlikely to be commonly used for perfection of security interests in crops given the need for the grantor to use the collateral. Like any finding of fact, there may be cases where one agricultural security interest over goods or finance will be classified as a PMSI despite both potentially satisfying the requirements of s 85. This may arise simply where one secured party does not indicate the PMSI status on a registered financing statement. In such a case, the PMSI super priority rule in s 62 will apply. In cases where multiple suppliers have perfected PMSIs, the competing PMSI priority rule in s 63 will apply. As noted by Lhuede and Dewhurst,25 it will be beneficial for supplier and financiers to enter into subordination agreements with other suppliers and financiers to protect themselves against the uncertainties of s 85. For a discussion as to the validity of express subordination in lieu of taking a PMSI interest under the PPSA see [14.5.1]. [85.6] Further reading • Explanatory Memorandum [3.5–3.6]. • ALRC Report No 64 [5.46–5.49]. • Whittaker Report [7.7]. Footnotes

25

Wappett C, Whittaker B and Edwards S, Personal Property Securities in Australia, LexisNexis (looseleaf) at [4.7.1050].

¶86 SECTION 86 PRIORITY OF LIVESTOCK ¶3-030 SECTION 86 PRIORITY OF LIVESTOCK Text of s 86 [86.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 34(12)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[86.2] Outline This section provides a priority rule for security interests in livestock. [86.3] Cross-references • Subsection 31(4) provides for proceeds for collateral that is crops or livestock. • Section 115 allows the enforcement provisions relating to crops and livestock to be contracted out of where the collateral is not used predominantly for personal, domestic or household purposes. • Section 117 provides an enforcement rule for obligations that are secured by interests in personal property and land. • Sections 138B and 138C provides a specific rule for seizure and retention of crops and livestock. [86.4] Concepts • Livestock This is defined in s 10 as including alpacas, cattle, fish, goats, horses, llamas, ostriches, poultry, sheep, swine and other animals while they are alive. The s 10 definition also includes the unborn young of those animals and the products of livestock before they become proceeds (eg the wool on a sheep’s back before the sheep is shorn). Fish also have a specific meaning in s 10. • Security agreement See s 18 and 20. • Value This is defined in s 10. See further, [19.5.2.2]. [86.5] Commentary This section provides a similar position to that under s 85 (which applies to crops) and reference should be made to the commentary for that section. It should again be noted that s 86 expressly provides that security interests with priority under this section do not have priority over a PMSI. Consideration of s 86 of the PPSA arose in StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd [2020] NSWSC 318, where Parker J needed to consider the proper construction of the phrase “to enable the grantor to . . . use the collateral” in PPSA s 14(7)(b) (see at [139]). In respect of s 86, his Honour held (at [144]–[146]): “This section creates a separate level of priority, coming after a PMSI but before a general security, for a creditor funding the purchase of supplies and services necessary to sustain livestock. It speaks

of enabling the livestock to be ‘fed and developed’ rather than ‘used’. It seems to me that by s 86 the legislature has recognised that creditors who fund such supplies and services should not be assimilated either to creditors who fund the initial purchase of the livestock, or to general creditors. Instead they are treated sui generis. This point can be expressed in another way. If DLS’ argument in the present case were correct, an anomaly would arise. The holder of an ‘all monies’ PMSI who finances the purchase of livestock, is paid out for the price, but later provides further funds to enable the livestock to be fed and developed would have absolute priority. But a new creditor providing funds for exactly the same purpose would only have a more limited priority interest under s 86. For these reasons, I do not think that Reid Agricultural’s liabilities to DLS under the Maintenance Agreement fell within the definition of ‘purchase money obligations’ in PPSA s 14(7). Accordingly, they were not covered by DLS’ PMSI.” [86.6] Further reading • Explanatory Memorandum [3.7]. • ALRC Report No 64 [–]. • Whittaker Report [7.7].

¶3.3 PART 3.3 — ACCESSIONS

¶87 SECTION 87 GUIDE TO THIS PART ¶3-035 SECTION 87 GUIDE TO THIS PART Text of s 87

¶88 SECTION 88 CONTINUATION OF SECURITY INTERESTS IN ACCESSIONS ¶3-040 SECTION 88 CONTINUATION OF SECURITY INTERESTS IN ACCESSIONS Text of s 88 [88.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 78

Saskatchewan

PPSA 1993

s 38(2)

Ontario

PPSA 1990

s 35(1)(a)

USA

UCC Article 9 (rev)

§ 9-335(a)

[88.2] Outline Section 88 provides for security interests in accessions. An accession is defined for the purposes of the PPSA pursuant to s 10, however, the term is also discussed in detail below. [88.3] Cross-references • Part 3.3 provides rules for assessing the priority (s 89–91) of security interests in accessions. Sections 92–95 and 97 deal with the removal of accessions. Section 96 provides where a person may retain an accession. [88.4] Concepts • Accession See commentary below. [88.5] Commentary [88.5.1] What is an accession ..................................................................11 [88.5.2] What does “continue” mean? ..................................................................13 [88.5.1] What is an accession The term “accession” is defined by s 10 as meaning goods that are installed or affixed to other goods which are readily identifiable and can be removed from the goods which they are installed or affixed to. Security interests can thus be taken in: • the original collateral or collateral without a particular accession attached • the accession itself as an independent piece of personal property • the amalgamation of the two or more goods, otherwise referred to as the “whole” throughout Pt 3.3. The term “accessions” in the PPSA is clearly not confined to its common law meaning: Kulchyski v Shuswap Ventures Corp (1994) 7 PPSAC (2d) 216 (BC SC). In Roy Foss Motors Ltd v Auto Service Finance Centre [2005] CarswellOnt 4074 (Ont SCJ), it was held that tyres and wheel rims were essential for the operation of the car and hence their installation constituted a repair, despite their high cost, while an alarm system was not essential and its installation was of an accession. The Ontario Superior Court of Justice case, GMAC Leaseco Ltd v Tomax Credit Corp (2001) 3 PPSAC (3d) 15, provides a good example of what constitutes an accession under the PPSA. In the GMAC Leaseco case, an issue arose as to what constituted an accession to goods as distinct from ordinary repairs and maintenance of the underlying collateral. The radio and speakers of a motor vehicle

were the subject of a priority dispute between a lien holder with an interest in the radio and speakers and a financier with an interest in the vehicle as a whole. Cameron J held (at [9]–[12]): “A radio is not an integral part of a vehicle. Many new vehicles do not contain a radio. A radio installed in a vehicle is not a repair under the RSLA [Ontario repair statute]. It does not alter, improve or restore the properties of the vehicle. It is different from tires, windows, brakes, transmission, exhaust system, dented fenders, scraped paint, etc. A vehicle continues to operate as a vehicle, a safe, efficient and presentable means of transportation when the radio is removed. A radio merely increases the user’s pleasure while occupying the vehicle. A radio can exist and operate separate from the vehicle. It is an addition to the vehicle, not an alteration, improvement or restoration of the properties of the vehicle. On the other hand I find the electronic door locking system and security system to be an improvement to the properties of the vehicle. A locking system is a part of every new vehicle and is useless except as part of a vehicle. These costs are secured by the RSLA lien in priority to GMAC’s claim I find this amount, including GST and PST, to be 31.5% of the total conditional sales amount of $5,988.52 or $1,886.00. As a matter of commercial expediency, vehicle owners benefit from repairs. However they cannot protect their interests from the addition and removal of accessions. Those who deal in accessions and seek a non-possessory security interest therein must accept the priorities of PPSA s.35 or search title and security interests to ensure they obtain the priority they seek in the asset to which the accession is attached.” The lien holder thus prevailed in relation to the radio and speakers. Whether a purported accession arises must be decided on a case-by-case basis whereby the relevant question is whether the accession has value and utility as a separate component from the whole (in light of the underlying collateral, facts and surrounding circumstances): NAV Canada v Wilmington Trust Co (2006) 10 PPSAC (3d) 66; 269 DLR (4th) 79 (SCC); GMAC Leaseco Ltd v Best Audio Design Inc (2004) 6 PPSAC (3d) 385 (Ont SCJ). [88.5.2] What does “continue” mean? Section 88 provides that a security interest over goods which become accessions to other goods continues in the goods acceded to the extent that payment or performance of an obligation remains outstanding. The priority afforded to the security interest over the accession as against any subsequent security interest taken over the amalgamated product (or whole) will depend on whether or not the security interest in the accession was perfected, attached or otherwise at the time the goods become an accession (discussed over the balance of Pt 3.3). [88.6] Further reading • Explanatory Memorandum [3.8–3.10]. • ALRC Report No 64 [8.11–8.23].

¶89 SECTION 89 DEFAULT RULE — INTEREST IN ACCESSION HAS PRIORITY ¶3-045 SECTION 89 DEFAULT RULE — INTEREST IN ACCESSION HAS PRIORITY Text of s 89 [89.1] Comparable provisions in foreign regimes Note: The New Zealand PPSA appears to be the only jurisdiction where the provisions regarding accessions have been separated in the Act. Among the US, Canadian provinces and Australian regime, accessions and commingled goods are addressed in consolidated parts.

New Zealand

PPSA 1999

s 79

Saskatchewan

PPSA 1993

s 38(2)

Ontario

PPSA 1990

s 35(1)(a)

USA

UCC Article 9 (rev) § 9-335(b),(c)

[89.2] Outline Section 89 provides the default priority rule regarding perfected security interests in accessions. [89.3] Cross-references • Sections 90–91 provide further priority rules for accessions. [89.4] Concepts • Accession This is defined in s 10. See further, s 88. • Attachment See s 19. • Goods This is defined in s 10. [89.5] Commentary Section 89 provides that the default priority position between a perfected security interest in an accession (perfected prior to the goods becoming an accession) and a perfected security interest in the whole is that the security interest over the accession is to prevail (subject to s 90). The principle being that the perfected security interest over the original goods puts the party taking a security interest over the whole on notice of the existing security interest with respect to the accession, and where such an interest is the subject of a registration on the PPSR (as will often be the case) primacy is to be given to the PPSR under the PPSA. Section 89 may not, however, prevent the operation of the taking free provisions (see Pt 2.5) or PMSI priority rules (see Pt 2.6, Div 3). On a practical note, parties dealing with complex goods made up of many component parts should be on notice of the potential for existing security interests in each individual component. [89.6] Further reading • Explanatory Memorandum [3.12]. • ALRC Report No 64 [8.11–8.23].

¶90 SECTION 90 PRIORITY INTEREST IN WHOLE — BEFORE SECURITY INTEREST IN ACCESSION IS PERFECTED ¶3-050 SECTION 90 PRIORITY INTEREST IN WHOLE — BEFORE SECURITY INTEREST IN ACCESSION IS PERFECTED Text of s 90 [90.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 80

Saskatchewan

PPSA 1993

s 38(3)

Ontario

PPSA 1990

s 35(2)

USA

UCC Article 9 (rev) § 9-335(b),(c)

[90.2] Outline Section 90 applies where the secured party with an interest in the accession has failed to perfect prior to the goods becoming an accession at the time when a security interest in over the whole has attached. [90.3] Cross-references • Sections 89 and 91 provide further priority rules for accessions. [90.4] Concepts • Accession This is defined by s 10. See further, s 88. • Advance This is defined by s 10. See further, s 58. • Perfected See s 21. • Value This is defined in s 10. See further, [19.5.2.2]. [90.5] Commentary Pursuant to s 90, priority is afforded to a perfected interest over the whole as against an interest which has attached to an accession where the interest in the accession is not perfected at the time the goods were acceded. This applies to perfected security interests for value, assignees for value, perfected security interests over advances made and perfected security interests providing rights to retain the whole. In the British Columbia Supreme Court case, Pratt & Whitney Canada Leasing Inc v Ellis Air Inc (2002) 6 PPSAC (3d) 84; 3 CBR (5th) 81, the issue of whether the secured party with an interest in the whole prevailed over the holder of an unperfected security interest in the accession came under judicial consideration. The amalgamated property comprised a helicopter, the accession being the engine to it. The engine formed part of a lease arrangement such that a security interest had arisen, however, the lessor failed to perfect this interest. Nonetheless, the secured party over the whole knew at all material times of the interest existing with respect to the accession. The secured party with an interest in the whole obtained an order from the court granting the retaking of possession of the helicopter. Regarding whether or not this order encompassed the taking of the helicopter including the engine, Smith J held (at [21]):

“Although the December 20, 2000 order states that the respondents may repossess the helicopters together with the engines, it is silent on the subject of priorities among competing security interests. It does not state that the respondents will take the helicopters and engines free of all encumbrances. It does not use the language of vesting regarding the helicopters or engines. It does not use the wording of s. 38(3)(b)(ii) and state that the respondents are to retain the whole in satisfaction of the obligation secured by their lease, nor does it use words to that effect. The wording of the order is consistent with the contention of the petitioner, that the order gave the respondents permission to retake possession of the helicopter as their contract permitted, but only in the place of Northern Mountain. Their priority vis-à-vis Pratt & Whitney was not advanced by the December 20, 2000 order.” This position highlights an important difference with the Australian PPSA pursuant to s 90. The British Columbian PPSA requires that the secured party with an interest over the whole take their interest without knowledge (a more onerous requirement) of the interest in the accession in order to prevail.26 In the authors’ view, the Australian PPSA requires perfection (and nothing less than perfection) of the security interest in the goods prior to the process of accession, which will protect the secured party with an interest in the accession from prevailing against a perfected security interest over the whole. That is to say, unless a knowledge-based requirement forms part of the express language of the PPSA, a court should be reluctant to imply such a requirement. [90.6] Further reading • Explanatory Memorandum [3.13–3.18]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [9.9]. Footnotes 26

Personal Property Security Act RSBC 1996, c 569, 38(2)(b)(ii).

¶91 SECTION 91 PRIORITY INTEREST IN WHOLE — SECURITY INTEREST IN ACCESSION ATTACHES AFTER GOODS BECOME ACCESSION ¶3-055 SECTION 91 PRIORITY INTEREST IN WHOLE — SECURITY INTEREST IN ACCESSION ATTACHES AFTER GOODS BECOME ACCESSION Text of s 91 [91.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 81

Saskatchewan

PPSA 1993

s 38(4)

Ontario

PPSA 1990

s 35(1)(b), (2)

USA

UCC Article 9 (rev) No equivalent

[91.2] Outline Section 91 applies where attachment of the security interest in the accession has not occurred at the time the goods become accessions. The position of the purported creditor in relation to the accession is thus two stages removed from the point of priority as neither perfection nor attachment has occurred. [91.3] Cross-references • Sections 89 and 90 provide further priority rules for accessions. [91.4] Concepts • Accession This is defined by s 10. See further, s 88. • Attaches See s 19. • Consent See s 12. [91.5] Commentary Section 91 applies where a creditor derives an interest in the accession after the accession becomes part of the whole. By virtue of the PPSA, a security interest arising in the accession must therefore take with notice of the perfected security interest existing over the whole and is thus rendered subject to any such interests. Of course, taking an interest in property already encumbered is ill-advised in the absence of an express subordination agreement (see [12.4.6]) in favour of the creditor seeking an interest in the accession from the secured party with an interest over the whole. [91.6] Further reading • Explanatory Memorandum [3.17–3.18]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.7].

¶92 SECTION 92 SECURED PARTY MUST NOT DAMAGE GOODS WHEN REMOVING ACCESSION ¶3-060 SECTION 92 SECURED PARTY MUST NOT DAMAGE GOODS WHEN REMOVING ACCESSION Text of s 92 [92.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 125

Saskatchewan

PPSA 1993

s 38(7)

Ontario

PPSA 1990

s 35(4)

USA

UCC Article 9 (rev) § 9-335(e), (f)

[92.2] Outline Accessions may be removed where the security interest over the accessions prevails as against the security interest over the whole, however, the party removing the accessions must not damage the whole or provide an inconvenience greater than is necessary pursuant to s 92 (See also, s 123). [92.3] Cross-references • Sections 93–95 and 97 provide further rules relating to removal of accessions. • Section 123 provides rules related to the seizure of collateral by a secured party. See also, s 111 for the obligation to act honestly and in a commercially reasonable manner. [92.4] Concepts • Accessions This is defined by s 10. See further, s 88. • Goods This is defined by s 10. • Possession See s 24. [92.5] Commentary Section 92 should be read in conjunction with the provision for compensation or reimbursement pursuant to s 93. This section highlights the commercial perspective of the PPSA, whereby enforcing a security interest does not grant the prevailing secured party the right to interfere with any other existing interests. [92.6] Further reading • Explanatory Memorandum [3.19]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [8.3].

¶93 SECTION 93 REIMBURSEMENT FOR DAMAGE CAUSED IN REMOVING ACCESSIONS ¶3-065 SECTION 93 REIMBURSEMENT FOR DAMAGE CAUSED IN REMOVING ACCESSIONS Text of s 93 [93.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 126

Saskatchewan

PPSA 1993

s 38(8)

Ontario

PPSA 1990

s 35(4)

USA

UCC Article 9 (rev) § 9-335(e), (f)

[93.2] Outline Section 93 applies where a secured party fails to comply with s 92 regarding the removal of accessions. [93.3] Cross-references • Sections 92–95 and 97 provide further rules relating to removal of accessions. • Section 123 provides rules related to the seizure of collateral by a secured party. See also, s 111 for the obligation to act honestly and in a commercially reasonable manner. [93.4] Concepts • Accessions This is defined by s 10. See further, s 88. • Goods This is defined by s 10. [93.5] Commentary While s 93 does not define how reimbursement for damage to the whole or other accessions is to be assessed, it is, in the authors’ view, readily inferable that a reasonable standard would follow in line with the principles of tort law, that is, to put the aggrieved party in the position they would have been in had s 92 been complied with. [93.6] Further reading • Explanatory Memorandum [3.19–3.22]. • ALRC Report No 64 [8.11–8.23].

¶94 SECTION 94 REFUSAL OF PERMISSION TO REMOVE ACCESSION ¶3-070 SECTION 94 REFUSAL OF PERMISSION TO REMOVE ACCESSION Text of s 94 [94.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 127

Saskatchewan

PPSA 1993

s 38(9)

Ontario

PPSA 1990

s 35(5)

USA

UCC Article 9 (rev) § 9-335(f)

[94.2] Outline Section 94 provides rights to the secured party with an interest in the whole to ensure the diligence of the security party over the accession in removing the relevant accession. [94.3] Cross-references • Sections 92, 93, 95 and 97 provide further rules relating to removal of accessions. • Section 111 obliges secured parties exercising powers under Ch 4 (enforcement) to act honestly and in a commercially reasonable manner. [94.4] Concepts • Accession This is defined by s 10. See further, s 88. [94.5] Commentary All secured parties with an interest over the whole should, in the authors’ view, utilise s 94 if ever the circumstance arises. Much like requiring an undertaking as to damages with respect to seeking an injunction in equity — a secured party with an interest over the whole (or other interested party capable of receiving s 93 reimbursement) should not allow the removal of the accession until security is provided: See, Beecham Group Ltd v Bristol Laboratories (1968) 118 CLR 618 at 623; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 at 318–19. This ensures that even if the removal causes damage to the whole or other accessions that the relevant compensation can be duly paid — if no damage is ultimately caused, then there will be no issue. [94.6] Further reading • Explanatory Memorandum [3.19–3.22]. • ALRC Report No 64 [8.11–8.23].

¶95 SECTION 95 SECURED PARTY MUST GIVE NOTICE OF REMOVAL OF ACCESSION ¶3-075 SECTION 95 SECURED PARTY MUST GIVE NOTICE OF REMOVAL OF ACCESSION Text of s 95 [95.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 129

Saskatchewan

PPSA 1993

s 38(12), (13)

Ontario

PPSA 1990

s 35(6), (7)

USA

UCC Article 9 (rev) No equivalent

[95.2] Outline The concept of providing notice when seeking to enforce a security interest is important under the PPSA and is provided for under Pt 8.5. Section 95 includes provisions as to when notice is required and when it is not required with regards to removing accessions. This provision should be read in conjunction with Pt 8.5. [95.3] Cross-references • Sections 92–94 and 97 provide further rules relating to removal of accessions. • Section 111 obliges secured parties exercising powers under Ch 4 (enforcement) to act honestly and in a commercially reasonable manner. • Section 302 provides rules for approved forms. [95.4] Concepts • Accessions This is defined by s 10. See further, s 88. • Collateral description See Pt 5.3. • Notice See further, Pt 8.5. • Value This is defined in s 10. See further, [19.5.2.2]. [95.5] Commentary A secured party with an interest in an accession must provide notice to interested parties, pursuant to s 95(1), as to the intention to remove the relevant accession from the whole. The policy objective behind this requirement is to grant the secured party with an interest over the whole, time to invoke s 94 or s 96 where relevant. As a commercial point, a party seeking to remove the accession should always be prepared to provide security for damage caused by the removal process even where notice is not required pursuant to s 95(5), (6) and (7). Unlike the notice requirements with respect to PMSIs (see Pt 2.6, Div 3), the notice under s 95 need not

be in the approved form (pursuant to s 302) and the time prior to the removal is a mandatory 10 business days (subject to the security agreement specifying a smaller amount of days) as opposed to 15 business days (as relevant to PMSIs; see Pt 2.6). The enforcement of formality is hence dispensed with to some degree illustrating the sense of urgency which may often attach to the removal of accessions and the flexibility of the PPSA in this regard. Additionally, pursuant to s 115, parties to a security agreement can contract out of the right to receive notice of the removal of an accession (see s 115). [95.6] Further reading • Explanatory Memorandum [3.19–3.22]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [8.1].

¶96 SECTION 96 WHEN PERSON WITH AN INTEREST IN THE WHOLE MAY RETAIN ACCESSION ¶3-080 SECTION 96 WHEN PERSON WITH AN INTEREST IN THE WHOLE MAY RETAIN ACCESSION Text of s 96 [96.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 130

Saskatchewan

PPSA 1993

s 38(11)

Ontario

PPSA 1990

s 35(8)

USA

UCC Article 9 (rev) No equivalent

[96.2] Outline Section 96 provides recourse for the secured party with an interest over the whole to retain the accession where the elements of the provision are satisfied. [96.3] Cross-references • Sections 92–95, and 97 provide rules relating to removal of accessions. • Section 111 obliges secured parties exercising powers under Ch 4 (enforcement) to act honestly and in a commercially reasonable manner. [96.4] Concepts • Accessions This is defined by s 10. See further, s 88. • Value This is defined by s 10. See further, [19.5.2.2]. [96.5] Commentary Section 96 provides secured parties with an interest over the whole with a commercial option to preserve the collateral, the subject of their security interest. Assuming the security interest over the accession was perfected prior to the goods becoming an accession, such that s 88 applies in a priority dispute, in the absence of s 96 a secured party would have little recourse beyond an entitlement to notice and security for the proper removal of the accession — irrespective of how this removal may affect the remaining value of the whole. While the default priority position prescribes that the secured party with an interest in the accession prevails in such circumstances, the outcome is against commercial imperatives in circumstances where the value of the accession and the value of the whole both decline after the removal of the accession. Section 96 provides that a secured party with an interest in the whole may retain the accession where the obligation owing to the secured party with an interest in the accession is met in full (in essence, the secured party with a security interest in the accession can be bought out) — or, the value of the accession is paid at the time the removal of the accession is sought. The onus lies with the secured party with an interest over the whole and does not rely on the consent of the secured party with an interest in the accession. Commercially, where the value of the whole (comprising the original collateral and the accession) is worth more than the value of the accession, the secured party with an interest in the whole should move to pay

the value to the secured party with an interest in the accession. There are no doubt commercial considerations which need to be considered however the importance of s 96 is that the option rests with the secured party with an interest over the whole irrespective of the intention of the secured party with an interest in the accession. If there is a dispute about the value payable to the party who holds the benefit of a security interest in the accession then an application can be made to the court pursuant to s 97. Due to the potential consequences of this provision, the secured party with an interest in the accession can, pursuant to s 115, contract out of s 96 applying. [96.6] Further reading • Explanatory Memorandum [3.19–3.22]. • ALRC Report No 64 [8.11–8.23].

¶97 SECTION 97 COURT ORDER ABOUT REMOVAL OF ACCESSION ¶3-085 SECTION 97 COURT ORDER ABOUT REMOVAL OF ACCESSION Text of s 97 [97.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 131, note also s 128

Saskatchewan

PPSA 1993

s 38(10), (15)

Ontario

PPSA 1990

s 67

USA

UCC Article 9 (rev)

§ 9-625

[97.2] Outline Section 97 expressly includes provision for court orders in relation to notices and the removal of accessions. [97.3] Cross-references • Sections 92–96 provide rules relating to removal of accessions. [97.4] Concepts • Accessions This is defined by s 10. See further, s 88. [97.5] Commentary As discussed in the commentary to the previous sections of Pt 3.3, the removal of accessions and their value at the time of removal is to be determined on a case-by-case basis and may require independent expert assessment depending on the nature of the underlying collateral. Section 97 expressly grants the court jurisdiction to make orders in relation to these provisions. [97.6] Further reading • Explanatory Memorandum [3.21–3.22]. • ALRC Report No 64 [8.11–8.23].

¶3.4 PART 3.4 — PROCESSED OR COMMINGLED GOODS

¶98 SECTION 98 GUIDE TO THIS PART ¶3-090 SECTION 98 GUIDE TO THIS PART Text of s 98

¶99 SECTION 99 CONTINUATION OF SECURITY INTERESTS IN GOODS THAT BECOME PROCESSED OR COMMINGLED ¶3-095 SECTION 99 CONTINUATION OF SECURITY INTERESTS IN GOODS THAT BECOME PROCESSED OR COMMINGLED Text of s 99 [99.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 82

Saskatchewan

PPSA 1993

s 39(1)

Ontario

PPSA 1990

s 37

USA

UCC Article 9 (rev) § 9-336(a), (b), (c)

[99.2] Outline The concept of “commingling” under Pt 3.4 of the PPSA is defined by s 10 and discussed below. Section 99 operates with respect to commingled goods in a similar fashion to s 88 with respect to accessions. [99.3] Cross-references • Section 100 provides for the perfection of a security interest in goods that have been processed or commingled. • Section 101 imposes a limit on the value of the priority of a security interest in goods that have been processed or commingled. • Section 102 deals with multiple security interests in goods that have become processed or commingled. • Section 103 deals with purchase money security interests (PMSIs) in processed or commingled goods. [99.4] Concepts • Commercially practical The concept of commercial practicality is largely to be determined on a “cost v benefit” basis, in the authors’ view, in light of the facts and circumstances in each individual case. The example of a chemical compound derived from mixing two discrete substances illustrates the point. That is, where the process of separation would cost more by way of time, effort and monetary expense than the combined value of the security interest over the independent substances, it would not be commercially practical to require the parties to restore the goods to their original state. Where the line is drawn as to commercial practicality is a matter for the court to decide on a case-by-case basis. • Commingled The term “commingled” is related to the concept of an accession by way of combining discrete items of property to make an amalgamated whole, however, where goods are commingled their original form is irretrievable either through physical impossibility or where it is commercially impractical to do so. The extension for commercial impracticality is a concept expressly included in the Australian PPSA which does not arise among the foreign regimes. See further, Swindle v Matakana Estate Ltd (in liq) [2011] NZHC 1345; [2012] 1 NZLR 806 (grape juice blended from different producers). Commingling and accessions can also be understood in relation to proceeds, as the terms often arise in this context under the PPSA. Where proceeds can be readily identified, they metaphorically take

the form of an accession, conversely the need to invoke tracing principles means the property has been commingled (see Pt 2.4, Div 2). See generally, New Zealand Associated Refrigerated Food Distributors Ltd v Simpson [2008] NZHC 951 (goods supplied were not used to make anything further — held, not commingled as it was possible to identify individual product lines); and the comments in Massey-Ferguson Industries Ltd v Melfort Credit Union Ltd (1987) 8 PPSAC 1; 62 Sask R 293 (Sask CA) “This section implies … that it applies to a commingling of inventory of this type, a mixing of at least two separate types of goods”. For similar comments on the US position see In re Jamail (1980) 609 F.2d 1387 (USCA 5th Circ). This may be contrasted with the statements by the New Zealand Court of Appeal (in obiter) that it is possible to have goods of the same kinds commingled: Stockco Ltd v Gibson [2012] NZCA 330 at [142]–[144] (in that case cattle). Additionally, property used in the course of maintenance or repair, or consumables, like food or fuels, generally do not create subsisting interests in the collateral they are consumed by (such as vehicles and agricultural goods): see for example First National Bank of Brush v Bostron (1977) 564 P.2d 964 (Colo CA) (feed supplied to cattle). [99.5] Commentary Section 99 prescribes that, like s 88, a security interest over discrete goods continues in any commingled product of the goods with other goods, provided it is physically impossible or commercially impractical to restore the goods to their original state. [99.6] Further reading • Andrew Boxall and Diccon Loxton, “Commodity transactions and Pt 3.4 of the Personal Property Securities Act 2009: an anomalous outcome” (2013) 27 Commercial Law Quarterly 3. • Explanatory Memorandum [3.23–3.25]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.10].

¶100 SECTION 100 PERFECTION OF SECURITY INTEREST IN GOODS THAT BECOME PROCESSED OR COMMINGLED APPLIES TO PRODUCT OR MASS ¶3-100 SECTION 100 PERFECTION OF SECURITY INTEREST IN GOODS THAT BECOME PROCESSED OR COMMINGLED APPLIES TO PRODUCT OR MASS Text of s 100 [100.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 83

Saskatchewan

PPSA 1993

s 39(3)

Ontario

PPSA 1990

s 37

USA

UCC Article 9 (rev) § 9-336(d)

[100.2] Outline Section 100 prescribes the default priority position with respect to commingled goods. [100.3] Cross-references • Section 99 provides for the continuation of a security interest in goods that have been processed or commingled. • Section 101 imposes a limit on the value of the priority of a security interest in goods that have been processed or commingled. • Section 102 deals with multiple security interests in goods that have become processed or commingled. • Section 103 deals with purchase money security interests (PMSIs) in processed or commingled goods. [100.4] Concepts • Perfection See s 21. [100.5] Commentary Section 100 applies, as a default rule, where a security interest is perfected prior to the commingling process. Pursuant to s 100, a security interest in goods which subsequently become commingled, continues in the combined product and priority is granted to such interests as against security interests taken in the combined collateral (as original collateral) — subject, however, to the provisions of s 101. In the Ontario Court of Justice case, Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112 (varied in part, though not affecting this point: Unisource Canada Inc v Hongkong Bank of Canada (2000) 15 PPSAC (2d) 95), the nature of the continuing interest formed the subject of judicial analysis. On the facts of the case, a common sense approach to commingling was taken by Reilly J who held (at [169]): “I conclude first that the paper supplied by Unisource to Johanns did indeed become ‘part of a product’ (commingled goods). In my view, the goods were ‘so processed … that their identity was lost in the product’. I come to this conclusion as a matter of common sense. Unisource supplied blank paper to Johanns. Putting aside any ‘change’ in identity as a result of cutting, Johanns then ‘processed’ the paper by printing on it, adding graphics, et cetera, and then binding it into an

advertising brochure, a pamphlet, or whatever. It had lost its identity as blank paper stock. If one holds up a magazine and asks a friend, ‘What is this?’, the answer will be, ‘It’s a magazine’, or, upon closer inspection, ‘It’s a copy of MacLeans’. The answer will not be, ‘It’s a number of blank pieces of paper on which words and pictures have been printed and then the pages were stapled together’. Such an answer would be completely ridiculous, because the original identity (blank paper) has been lost forever (subject to recycling).” [100.6] Further reading • Explanatory Memorandum [3.25–3.26]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.10]. • Andrew Boxall and Diccon Loxton, “Commodity transactions and Part 3.4 of the Personal Property Securities Act 2009: an anomalous outcome” (2013) 27 Commercial Law Quarterly 3.

¶101 SECTION 101 LIMIT ON VALUE OF PRIORITY OF GOODS THAT BECOME PART OF PROCESSED OR COMMINGLED GOODS ¶3-105 SECTION 101 LIMIT ON VALUE OF PRIORITY OF GOODS THAT BECOME PART OF PROCESSED OR COMMINGLED GOODS Text of s 101 [101.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 84

Saskatchewan

PPSA 1993

s 39(5)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[101.2] Outline Section 101 is not a rule of priorities in relation to commingled goods. It instead imposes value limitations on the security interest the ambit of which is to prevent arbitrarily increasing the value of a security interest simply by virtue of the commingling process. [101.3] Cross-references • Section 99 provides for the continuation of a security interest in goods that have been processed or commingled. • Section 100 provides for the perfection of a security interest in goods that have been processed or commingled. • Section 102 deals with multiple security interests in goods that have become processed or commingled. • Section 103 deals with purchase money security interests (PMSIs) in processed or commingled goods. [101.4] Concepts • Value This is defined in s 10. See further, [19.5.2.2]. [101.5] Commentary Section 101 is premised on the fact that the commingling of different goods will more likely than not improve the value of the sum of the constituent parts. Were this not the case it would be most unlikely that the parts would have been aggregated in the first instance. Section 101 provides that a secured party’s claim in the finished goods, while recognised as continuing in accordance with s 99 of the PPSA, is limited to the value of the goods as supplied on the day that they are commingled. The following example illustrates the restriction imposed by s 101 of the PPSA: Debtor A owes $200 to Secured Party B who holds an interest in goods worth $100 at the time the goods are commingled to form a product worth $1,000 (with the other $100 worth of goods not forming part of that which went into the final goods). Secured Party B can only enforce their security interests against the commingled product to the sum of $100. This does not, however, prevent Secured Party B from pursuing Debtor A personally for the remaining $100 as an unsecured creditor. While a useful rule in theory, the inherent difficulty with the applicability and enforceability of s 101 of the

PPSA is that it will often be challenging (if possible at all) to ascertain the value of the goods on the day they became a part of the product or mass. This is due to a number of factors, the main one of which is that control of the grantor (who is responsible for the commingling of the parts in the first instance) is likely to have changed from the directors of the grantor company (or the grantor themselves in the case of the individual) to some external controller such as a liquidator, administrator or trustee. The external controller, absent assistance from the grantor entity or individual (which might not be forthcoming if proper books and records have not been kept) will likely not be able to ascertain the value of the parts that have been used to produce the finished goods in the hand of the grantor at the time of their appointment. The difficulty is exacerbated where there are multiple different types of commingled goods which have been used to create a variety of finished products the sales of which have been pooled together in a trading account in the name of the grantor. In such circumstances, the external controller has little more information absent proper books and records in respect of the contents of the proceeds sitting in a mixed monies account. It is not clear, on the face of the legislation or case law, how the external controller is to apply s 101 and to what extent (if any) the secured parties are bound by the determination of any external controller in respect of determinations in respect of value. It is peculiar that s 97 of the PPSA is not reiterated in respect of determining the value of the secured party with an interest in commingled goods — nevertheless the lack of an express provision is not likely determinative of a secured party’s ability to challenge any decision of an external controller in respect of the value of the interest. [101.6] Further reading • Explanatory Memorandum [3.27]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.10]. • Andrew Boxall and Diccon Loxton, “Commodity transactions and Part 3.4 of the Personal Property Securities Act 2009: an anomalous outcome” (2013) 27 Commercial Law Quarterly 3.

¶102 SECTION 102 PRIORITY WHERE MORE THAN ONE SECURITY INTEREST CONTINUES IN PROCESSED OR COMMINGLED GOODS ¶3-110 SECTION 102 PRIORITY WHERE MORE THAN ONE SECURITY INTEREST CONTINUES IN PROCESSED OR COMMINGLED GOODS Text of s 102 [102.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 85

Saskatchewan

PPSA 1993

s 39(2), (4)

Ontario

PPSA 1990

s 37

USA

UCC Article 9 (rev) § 9-336(f)

[102.2] Outline Section 102 addresses priority disputes which may arise in relation to multiple security interests perfected over different property items which become components of one commingled product or mass. It should also be noted that s 101 applies to each individual secured party by virtue of s 102(4). [102.3] Cross-references • Section 99 provides for the continuation of a security interest in goods that have been processed or commingled. • Section 100 provides for the perfection of a security interest in goods that have been processed or commingled. • Section 101 limits the value given to the priority of a security interest in goods that have become processed or commingled. • Section 103 deals with purchase money security interests (PMSIs) in processed or commingled goods. [102.4] Concepts • Perfected and unperfected security interest See s 21. • Security interests continuing in a product or mass See s 99. [102.5] Commentary Like s 55(2) and 55(4) respectively, the priority rule between two or more unperfected security interests and two or more perfected security interests as components of the same commingled whole is the same. The difficulty with commingled goods is that the primacy of the register by way of putting external parties on notice of existing security interests does not aid the creation of a commercially acceptable outcome where the security interests in question have arisen over discrete items of collateral. The “first in time” default position is thus largely ineffective. Section 102(3) therefore prescribes that where priority disputes of this nature arise — each perfected interests is entitled to priority with respect to the ratio of the obligation secured relative to the combined pool of obligations secured by the commingled product. Unlike s 101, the value of the individual collateral at the time the commingling occurs is not used here rather the contributing value is assessed. The

following example illustrates the point: A commingled product comprises the combination of components over which a security interest is held by Secured Parties A, B and C. Secured Party A is secured for $1,000, Secured Party B for $2,000 and Secured Party C for $8,000. The resulting priority between the parties should a priority dispute arise is that 10% of the commingled product should flow in favour of Secured Party A, 20% in favour of Secured Party B and 80% in favour of Secured Party C. If all parties were unperfected, the same priority split would arise pursuant to s 102(3). However, if only Secured Party C was unperfected, Secured Party A would hold priority over 33.3% of the commingled product and Secured Party B would hold priority over 66.7% pursuant to s 102(1). The issue of priority in accordance with a ratio distribution arose in Massey-Ferguson Industries Ltd v Melfort Credit Union Ltd (1987) 8 PPSAC 1; 62 Sask R 293 (Sask CA), however, the applicant failed to establish a commingling and thus the matter was left undecided. [102.6] Further reading • Explanatory Memorandum [3.28]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.10]. • Andrew Boxall and Diccon Loxton, “Commodity transactions and Part 3.4 of the Personal Property Securities Act 2009: an anomalous outcome” (2013) 27 Commercial Law Quarterly 3.

¶103 SECTION 103 PRIORITY OF PURCHASE MONEY SECURITY INTEREST IN PROCESSED OR COMMINGLED GOODS ¶3-115 SECTION 103 PRIORITY OF PURCHASE MONEY SECURITY INTEREST IN PROCESSED OR COMMINGLED GOODS Text of s 103 [103.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 86

Saskatchewan

PPSA 1993

s 39(6), (7)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[103.2] Outline Section 103 addresses the concept of a PMSI in relation to goods which subsequently become commingled. [103.3] Cross-references • Section 99 provides for the continuation of a security interest in goods that have been processed or commingled. • Section 100 provides for the perfection of a security interest in goods that have been processed or commingled. • Section 101 limits the value given to the priority of a security interest in goods that have become processed or commingled. • Section 102 deals with multiple security interests in processed or commingled goods. [103.4] Concepts • PMSIs See s 14. See also, Pt 2.6. • Security interests continuing in a product or mass See s 99. [103.5] Commentary Section 103 holds that, as would be expected in light of Pt 2.6, a PMSI over commingled goods takes priority to a non-PMSI, similar to the way a perfected interest takes priority over an unperfected one. See also, Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112 (largely affirmed on appeal (2000) 15 PPSAC (2d) 95). [103.6] Further reading • Explanatory Memorandum [3.26–3.28]. • ALRC Report No 64 [8.11–8.23]. • Whittaker Report [7.7], [7.10]. • Andrew Boxall and Diccon Loxton, “Commodity transactions and Part 3.4 of the Personal Property

Securities Act 2009: an anomalous outcome” (2013) 27 Commercial Law Quarterly 3.

¶3.5 PART 3.5 — INTELLECTUAL PROPERTY

¶104 SECTION 104 GUIDE TO THIS PART ¶3-120 SECTION 104 GUIDE TO THIS PART Text of s 104

¶105 SECTION 105 IMPLIED REFERENCES TO INTELLECTUAL PROPERTY RIGHTS ¶3-125 SECTION 105 IMPLIED REFERENCES TO INTELLECTUAL PROPERTY RIGHTS Text of s 105 [105.1] Comparable provisions in foreign regimes Note: Intellectual property does not attract specific provisions under the foreign regimes, however, the following provisions provide consideration of the concept (under the head “intangible” property):

New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[105.2] Outline Part 5.3 expressly prescribes particular PPS rules with respect to intellectual property (IP). Under the equivalent foreign regimes, IP is treated as a class of intangible personal property with little to no direct provisions for IP as a discrete class of property. Section 105 is therefore unique in recognising implied IP rights over collateral which form part of a security interest. [105.3] Cross-references • Section 106 provides for the transfer of intellectual property and its effect on a security interest in a licence of that intellectual property. [105.4] Concepts • Description This refers to the collateral description contained in a financing statement included on the PPSR: see s 153. • Intellectual property This is defined by s 10. • Intellectual property licence This is defined by s 10. See also, [12.5.3.5] regarding licences generally under the PPSA. • Intellectual property rights See [12.5.3.5]. • Security agreement This is defined by s 10. See further, s 18 and 20. [105.5] Commentary Section 105 prescribes how implied rights to intellectual property may subsist in tangible personal property such that a security interest over the tangible property will also attach to the relevant IP. The provision addresses the general rule at common law — that the acquisition of a chattel does not automatically give rise to the acquisition of IP in relation to that chattel in the absence of an express intention between the parties.27 The Australian courts have generally been reluctant to imply a licence to deal with the IP associated with

tangible property, enforcing the view that such rights are separate and distinctive: see R and A Bailey and Co v Boccaccio Pty Ltd (1986) 77 ALR 117; Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534. Pursuant to s 105, the PPSA, for the purposes of a security interest, recognises the attachment of IP rights to underlying collateral where the security agreement “necessarily involves an exercise of the intellectual property rights” — unless a contrary intention arises on the face of the security agreement. To attract an interest over such rights, a secured party must include a collateral description encompassing the relevant IP rights, including the serial number of such IP, where relevant: see s 153 and Personal Property Securities Regulations 2010 (Cth), Sch 1, Pt 3, s 3.1(1)(c)(b), 3.2(2)(e)–(h). The validity of such instruments will turn on the judicial interpretation of the term “necessarily involves” which effectively reverses the evidential onus from the position at common law, that is, a secured party need not include an express intention to take an interest over the IP rather the grantor must expressly exclude intellectual property from the security agreement. In the authors’ view, the PPSA thus relaxes the previous common law requirements and therefore better facilitates the taking of security over IP. [105.6] Further reading • Explanatory Memorandum [3.30]. • ALRC Report No 64 [–]. • Whittaker Report [9.3]. • John Swinson and Patrick Gunning, “The Personal Property Securities Act 2009 (Cth) and its impact on intellectual property” (2012) 91 Intellectual Property Forum 37. Footnotes 27

See, Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347 per Mason J; Moorhead v Brennan (1991) 20 IPR 161 at 165; Beck v Montana Constructions Pty Ltd (1963) 5 FLR 298; Kervan Trading Pty Ltd v Aktas (1987) 8 IPR 583.

¶106 SECTION 106 INTELLECTUAL PROPERTY LICENCES AND TRANSFERS OF INTELLECTUAL PROPERTY ¶3-130 SECTION 106 INTELLECTUAL PROPERTY LICENCES AND TRANSFERS OF INTELLECTUAL PROPERTY Text of s 106 [106.1] Comparable provisions in foreign regimes Note: As discussed under s 105, intellectual property does not attract specific provisions under the foreign regime, however, the following provisions provide consideration of the concept:

New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[106.2] Outline Section 106 operates with respect to the transfer of intellectual property (IP). [106.3] Cross-references • Section 105 deals with security interests in intellectual property rights. [106.4] Concepts • Intellectual property This is defined in s 10. • Intellectual property licence This is defined in s 10. See also, [12.5.3.5] regarding licences generally under the PPSA. • Security agreement This is defined by s 10. See further, s 18 and 20. • Transfer See s 34. [106.5] Commentary Section 106 significantly improves the legal recognition of security interests taken over IP licences and transfers of IP. Under the common law approach to securities law, securing credit advances with IP presented considerable risk for the lender due to the degree of uncertainty involved and the potential to circumvent the existing interest. The following example illustrates this point: Party A transfers intellectual property to Party B, Party A then creates a security interest over that same IP in favour of Party C. In a priority dispute between Party A and Party C, Party A prevails at common law despite Party C having no way of knowing about Party A’s prior interest. Similarly, where Party A grants a licence to Party B and then creates a security interest in favour of Party C, Party C takes their interest subject to Party B’s licence. If the licence is an exclusive licence, Party C would effectively receive a security interest over nothing despite the absence of any notice of Party B’s interest.28 Under the PPSA, interests of this kind would constitute security interests pursuant to s 12. Perfection by registration (which presents the only commercially viable avenue of perfecting an interest in IP in the

authors’ view) ensures that parties searching the register become aware of particular transfers of the interest. Section 106 operates in a similar fashion with respect to sub-licencing. Primacy of the register and a consistent priority regime substantially improves the legal framework in recognising and enforcing security interests taken over intellectual property. [106.6] Further reading • Explanatory Memorandum [3.31]. • ALRC Report No 64 [–]. • Whittaker Report [9.3]. • John Swinson and Patrick Gunning, “The Personal Property Securities Act 2009 (Cth) and its impact on intellectual property” (2012) 91 Intellectual Property Forum 37. Footnotes 28

See, John Swinson, “Security Investments in Intellectual Property in Australia” (2002) 14(1) Bond Law Review 9.

¶4 CHAPTER 4 — ENFORCEMENT OF SECURITY INTERESTS

¶4.1 PART 4.1 — GUIDE TO THIS CHAPTER

¶107 SECTION 107 GUIDE TO THIS CHAPTER ¶4-005 SECTION 107 GUIDE TO THIS CHAPTER Text of s 107

¶4.2 PART 4.2 — GENERAL RULES

¶108 SECTION 108 GUIDE TO THIS PART ¶4-010 SECTION 108 GUIDE TO THIS PART Text of s 108

¶109 SECTION 109 APPLICATION OF THIS CHAPTER ¶4-015 SECTION 109 APPLICATION OF THIS CHAPTER Text of s 109 [109.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 105

Saskatchewan

PPSA 1993

s 55(2)(a)

Ontario

PPSA 1990

s 57.1

USA

UCC Article 9 (rev) No equivalent

[109.2] Outline This section sets out the scope for the application of the enforcement provisions in Ch 4. [109.3] Cross-references • This section provides a gateway between the enforcement provisions in Ch 4 and the rest of the PPSA. It contains references to many other provisions of the Act. [109.4] Concepts • Commercial consignment This is defined by s 10. See further, [12.5.3.2]. • Intermediated securities This is defined by s 10. See further, s 15 and 26. • Investment instruments This is defined by s 10. See further, s 27. • Location of goods This is defined by s 235. • Perfection by possession or control Perfection for possession or control is discussed under s 21. See also, s 24 for a discussion of possession and s 25–29 for definitions of control over different types of collateral. • PPS lease This is defined by s 13. See further, s 12 and 13 regarding “deemed” security interests. • Predominantly for personal, domestic or household purposes This is defined by s 10. See further, [47.5]. • Transfer of account or chattel paper See definitions of “account” and “chattel paper” in s 10. See further, [12.5.3.1]. [109.5] Commentary This section sets out when the enforcement provisions in Ch 4 will not apply. Deemed security interests (PPS leases, transfers of accounts and chattel paper and commercial consignments) are not enforced through Ch 4 at all (s 109(1)). Where a deemed security interest satisfied s 12, however, (by way of

securing payment or performance of an obligation) Ch 4 will apply regardless of the fact that the interest is also a deemed security interest. The same exclusion applies for security interests in goods located outside of Australia (s 109(2)). The section provides a limited application of Ch 4 to intermediated securities and investment instruments that are perfected by possession or control, with s 110, 111, 113 and 140 applying. Other provisions (as listed in s 109(5)) do not apply where the collateral is used by a grantor predominantly for personal, domestic or household purposes. The enforcement provisions pursuant to Ch 4 should thus be read with a consumer protection objective (like Pt 2.5) where the underlying property is used predominately for personal, domestic or household use. Additionally, nothing in the PPSA operates to prevent the operation of any contractual provisions provided by the underlying security agreement as the PPSA will give effect to the terms of the security agreement (see s 18(1)). While the Ch 4 provisions prevail to the extent of any inconsistency between a security agreement and Ch 4 (such that parties cannot contract out of the general honesty and commercially reasonable standards — see s 111), the security agreement itself is often more prescriptive in terms of how the secured party can enforce than the base provisions of the PPSA. The Ontario Supreme Court case, GATX Corporate Leasing Inc v William Day Constructions Ltd (1986) 6 PPSAC 118; 60 CBR (NS) 319, highlights (at [117]) the integral importance of the security agreement itself when considering the validity of enforcement under the PPSA. [109.6] Further reading • Explanatory Memorandum [2.9, 4.4–4.5, 4.79]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [4.2.3], [8.1].

¶110 SECTION 110 RIGHTS AND REMEDIES ¶4-020 SECTION 110 RIGHTS AND REMEDIES Text of s 110 [110.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 1

No equivalent

[110.2] Outline This section clarifies that the PPSA is not intended to take away any rights or remedies that the parties may otherwise have arising from a default of the debtor. [110.3] Cross-references • Section 114 notes that rights and remedies under Ch 4 are cumulative. • Section 254 provides for the concurrent operation of other laws with the PPSA. [110.4] Concepts • Debtor This is defined by s 10. • Grantor This is defined by s 10. • Secured party This is defined by s 10. [110.5] Commentary Nil. [110.6] Further reading • Explanatory Memorandum [4.6]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.1], [8.1.5].

¶111 SECTION 111 RIGHTS AND DUTIES TO BE EXERCISED HONESTLY AND IN A COMMERCIALLY REASONABLE MANNER ¶4-025 SECTION 111 RIGHTS AND DUTIES TO BE EXERCISED HONESTLY AND IN A COMMERCIALLY REASONABLE MANNER Text of s 111 [111.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 25

Saskatchewan

PPSA 1993

s 65(3), (4)

Ontario

PPSA 1990

s 16, 61(2), 63

USA

UCC Article 9 (rev)

§ 9-607(c), 9-610, 9627

[111.2] Outline This section imposes an overarching obligation on parties exercising rights, duties and obligations under Ch 4 to do so in an honest and commercially reasonable manner. [111.3] Cross-references • Section 80 provides that the concept of honesty is also relevant for variations of the contract between an account debtor and the transferor of the account or chattel paper. • Section 140 provides that a secured party who acts honestly in distributing proceeds and in a commercially reasonable manner is not liable to an action, suit or proceeding. • Section 271 provides a right to damages for breaches of obligations under the Act. [111.4] Concepts • Actual knowledge This is discussed under s 297. [111.5] Commentary This section imposes an obligation to exercise powers, comply with duties and fulfil obligations under Ch 4 in a manner that is honest and commercially reasonable. These are amorphous terms that are shaped by the facts and circumstances in each case. The learned authors Cuming R and Wood R note that the use of the word “and” between (1)(a) and (b) means that commercially reasonable conduct must be something more than mere honesty, “It demands a standard of conduct that rises above a mere absence of fraud or lack of wilful and reckless conduct.”29 This is also consistent with what the Alberta Court of Appeal said in Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 at [56] (technical compliance will not suffice if the result is not commercially reasonable, judged by what can reasonably be expected of participants in the market in which the particular transaction took place). “Honesty” is a term frequently used in the law. One of the frequently cited definitions is that it means to act without moral turpitude (Commercial Bank of Australia v Friedrich (1991) 5 ACSR 115). See also, Hall v Poolman (2007) 65 ACSR 123. While the North American cases on equivalent provisions have focused on a subjective assessment of the defendant’s conduct.30Australian courts have interpreted requirements to act honestly (for example in assessing conduct of company directors) as involving an objective assessment of the circumstances. This is not a test of what a reasonable person would have done, but rather whether a reasonable observer

would believe that the defendant was acting honestly. There is no need to establish that the defendant acted in a deliberately dishonest or misleading way. The statement in s 111(2) makes it clear that mere knowledge of a prior interest will not establish a lack of honesty, rather some positive conduct is required: see 518718 Alberta Ltd v Canadian Forest Products Ltd [1999] 3 WWR 672; 63 Alta LR (3d) 371 (Alta QB). This was applied in the New Zealand decision of Gibson v Stockco Ltd [2010] NZHC 2398, where the Court considered the application of s 25 of the Personal Property Securities Act 1999 (NZ) which uses the term good faith rather than honesty, and said (at [203]): “bad faith requires some form of positive action such as a representation amounting to a waiver or leading to an estoppel, and mere action with knowledge will not suffice”. The appeal decision in this case did not address this point: see [2012] NZCA 330. The obligation to act in a commercially reasonable manner has received extensive consideration in Canada and the United States. These cases are discussed in respect of each of the powers, duties and obligations below. However, the concept has been discussed generally as follows. In Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14, the Alberta Court of Appeal said (at [56], quoting Cuming R, Walsh C and Wood R, Personal Property Securities Law, 2005 Irwin Law) that technical compliance with the enforcement provisions of the PPSA will not suffice if the result is not what is commercially reasonable “judged by what can reasonably be expected of participants in the market in which the particular transaction took place”. A secured party is not a trustee for the grantor, and what might be commercially reasonable for the secured party is not necessarily synonymous with what might be commercially optimal for the grantor. The secured party has its own interests to look after and these come first. This of course is supplemented by the express statutory duties that the secured party is under, such as the duty relating to sale under s 131. Additionally, what constitutes commercially reasonable behaviour does not always necessitate positive acts to be undertaken. In Andrews v Mack Financial (Can) Ltd (1987) 8 PPSAC 110; 46 DLR (4th) 731, the Saskatchewan Court of Appeal stated that the underlying purpose of the enforcement provisions is to provide a regime that is fair to both sides of the transaction. The obligation to act in a commercially reasonable manner does not require that a secured party void its security rights merely because a term of the contract is void: Alberta (Minister of Justice) v Letawsky (2009) 13 Alta LR (5th) 234; 15 PPSAC (3d) 303 (in that case an illegally high rate of interest was charged) (Alta QB). Refraining from appointing a receiver can for instance be commercially reasonable: Canadian Imperial Bank of Commerce v McGhie (2005) 9 PPSAC (3d) 108 (Ont SCJ). The onus of proving a breach of s 111 lies on the party seeking to impugn the conduct due to the breach: Powers v Mesaros (2007) 12 PPSAC (3d) 128 (BC SC). In New Zealand the courts have held that the decision of a secured party to appoint a receiver comes under the scope of this section, even though once appointed the enforcement provisions do not apply (see s 116): Taylor v Bank of New Zealand [2010] NZHC 2256 at [34]; Compass Capital Ltd v The New Zealand Guardian Trust Co Ltd [2009] NZHC 344. However, in the authors’ view, these authorities are not persuasive regarding the operation of the Australian provision as s 111 imposes the obligation on rights, duties and obligations that arise under Ch 4, whereas the New Zealand provision (s 25) imposes the duty on rights, duties and obligations that arise “under a security agreement or this Act”. The court cannot simply rewrite contractual clauses even where it would generate a more commercially reasonable result, nor does the PPSA suggest that this should occur: PricewaterhouseCoopers LLP v Cranewood Financial Corp (2000) 5 PPSAC (3d) 47 (BC SC). [111.6] Further reading • Explanatory Memorandum [4.7]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1], [8.4.2].

• Susan Colley, “Enforcing rights under the PPSA: Honestly and in a commercially reasonable manner” (2013) 21 Insolvency Law Journal 109. Footnotes 29

Cuming R and Wood R, Saskatchewan and Manitoba Personal Property Security Acts Handbook, 1994 Carswell at p 427.

30

See the discussion in Gedye M, Cuming R and Wood R, Personal Property Securities in New Zealand, 2002 Thomson Brookers at [25.1].

¶112 SECTION 112 RIGHTS AND REMEDIES UNDER THIS CHAPTER ¶4-030 SECTION 112 RIGHTS AND REMEDIES UNDER THIS CHAPTER Text of s 112 [112.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[112.2] Outline This section clarifies the scope of a secured party’s powers in enforcing a security interest under the PPSA by generally limiting such powers to those available to the grantor in relation to the underlying collateral. [112.3] Cross-references • Section 79 recognises that collateral may be transferred despite a provision in a security agreement that prohibits transfer as a default. [112.4] Concepts • License This is defined in s 10. [112.5] Commentary This section limits the ability of a secured party to deal with collateral to the same extent as the grantor would be entitled to do so, unless the secured party had title immediately prior to exercising rights or remedies under Ch 4. A secured party is also able to deal with the collateral to a greater extent than the grantor would have been able to where the grantor dealing with the collateral would have defaulted under the security agreement (s 112(2)(b)). Section 112 also qualifies the ability of a secured party to deal with a license (s 112(3)). This section seems to be concerned with the effect of the PPSA moving away from (but not removing) the nemo dat (“no one [can] give what one does not have”) rule (see Intro.IVff). While the PPSA ignores title for the purposes of recognising security interests and dealing with priority disputes (for example deeming long term leases as security interests), this provision aims to ensure that this does not mean that the enforcement rules of the PPSA will enlarge the rights conferred on secured parties. The PPSA is aimed at managing priority disputes involving security interests, not with altering or enlarging the rights that parties have in relation to the collateral itself. Parties are free to bargain for as many or as little rights as they wish, as evidenced by the underlying security agreement and these are largely respected by the PPSA, unless such provisions would hinder enforcement following default: See further, s 18(1). The distinction between the application of the PPSA in determining rights and the consequential enforcement of such rights should not be confused. The position was made clear in Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852 at [78] per Brereton J: “In my view, the purpose of s 112 is illuminated by sub-section (3). While expressed to be ‘without limiting subsection (1)’, it provides illustrations of what the draftsperson had in mind. The concern was not with the nemo dat principle, title or priority, which were otherwise addressed; but with other limitations or restrictions imposed by law on a grantor’s ability to deal with the collateral. A

requirement in a licence that it not be assigned without the consent of the licensor is an example. So would be a law that imposed pre-conditions to the grantor dealing with the collateral. Accordingly, the purpose of s 112 is to confirm that limitations and restrictions imposed by law on a grantor’s ability to deal with collateral apply also to the secured party in enforcement action under Chapter 4. But it does not detract from the effect of PPSA in treating ostensible ownership, through possession, as a sufficient right in collateral for a PPS lessee to deal with it, to the extent of creating in a third party a valid security interest which, on perfection, prevails over the lessor’s unperfected interest. This construction is fortified by the circumstance that s 112 is expressed to apply only to enforcement under Chapter 4, and not otherwise, indicating that it is no more than a restriction on the remedies given by Chapter 4, rather than a general limitation on the rights of a party holding a perfected security interest.” In short, s 112 cannot otherwise make good that which would not flow from the proper application of provisions external to Ch 4. To do so would put an artificial gloss on the regime inconsistent with the intention of the legislature. However, as the Re Maiden Civil case demonstrates, many enforcement situations will be regulated under the terms of the security agreement and under the supervision of a receiver where Ch 4 will not apply. [112.6] Further reading • Explanatory Memorandum [4.8]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.8].

¶113 SECTION 113 RECOVERING JUDGMENT OR ISSUING EXECUTION DOES NOT EXTINGUISH A SECURITY INTEREST IN COLLATERAL ¶4-035 SECTION 113 RECOVERING JUDGMENT OR ISSUING EXECUTION DOES NOT EXTINGUISH A SECURITY INTEREST IN COLLATERAL Text of s 113 [113.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 55(7)

Ontario

PPSA 1990

s 59(7)

USA

UCC Article 9 (rev) § 9-601, 9615(d)

[113.2] Outline This section clarifies the effect of taking enforcement action on the underlying security interest. [113.3] Cross-references • Section 74 provides a priority rule concerning execution creditors. [113.4] Concepts • Grantor This is defined in s 10. • Secured party This is defined in s 10. [113.5] Commentary This section clarifies that the doctrine of merger does not apply to enforcement action taken by a secured party, thus a secured party may seek to enforce a judgment (that is, to exercise a right in personam) (against the person) and still take action against the secured collateral (that is, to exercise a right in rem (against a thing)). [113.6] Further reading • Explanatory Memorandum [4.9]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.5].

¶114 SECTION 114 RIGHTS AND REMEDIES UNDER THIS CHAPTER ARE CUMULATIVE ¶4-040 SECTION 114 RIGHTS AND REMEDIES UNDER THIS CHAPTER ARE CUMULATIVE Text of s 114 [114.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 55(3)

Ontario

PPSA 1990

s 58

USA

UCC Article 9 (rev) § 9-601(c)

[114.2] Outline This section makes it clear that rights and remedies under Ch 4 are cumulative to those existing at general law, rather than a substitution of legal and equitable enforcement principles. [114.3] Cross-references Nil. [114.4] Concepts Nil. [114.5] Commentary The New Zealand High Court decision, Thorn v RFD Finance Ltd (2012) FPPSR ¶700-010; [2012] NZHC 1959, addressed the perceived conflict between the enforcement regime under the Property Law Act 2007 (NZ) and the Personal Property Securities Act 1999 (NZ) (NZ PPSA). The court held that the plaintiffs were not prevented from enforcing their redemption of a mortgage under the Property Law Act by virtue of s 132 of the NZ PPSA — which, according to the applicant, stipulated the codification of the enforcement mechanisms with respect to the NZ PPSA (an argument which was rejected by his Honour). Section 114 of the PPSA in Australia makes clear that the rights and remedies provided by Ch 4 are to work in conjunction with, as opposed to in lieu of, other available rights and remedies. As s 115, and the commentary in [115.5], highlight — the Ch 4 enforcement provisions are intended to have a consumer protection focus and not to subvert the rights of secured parties opting to utilise regimes beyond the PPSA.

Further, and most importantly, the rights and remedies contained within Ch 4 of the PPSA are unlikely to be appropriate in many cases and should thus not be the first point of call when ascertaining available enforcement mechanisms in a number of commercial circumstances. What constitutes “default” and how one might enforce is inherently subject to the relevant arrangement and hence a question to be answered by each individual contract or security agreement and the freedom of election between the parties in that regard. [114.6] Further reading • Explanatory Memorandum [4.6]. • ALRC Report No 64 [10.1–10.19].

¶115 SECTION 115 CONTRACTING OUT OF ENFORCEMENT PROVISIONS ¶4-045 SECTION 115 CONTRACTING OUT OF ENFORCEMENT PROVISIONS Text of s 115 [115.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 107

Saskatchewan

PPSA 1993

s 56(3)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-602

[115.2] Outline This section allows parties to a security agreement to contract out of a number of enforcement rules under the PPSA. [115.3] Cross-references • Section 109 provides when Ch 4 does not apply. [115.4] Concepts • Controllers This is defined in the Corporations Act 2001 (Cth) s 9 as meaning in relation to property of a corporation: (a) a receiver, or receiver and manager, of that property; or (b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest. Section 115 was amended in 2011 to allow s 116(2) to be contracted out of: see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, s 22. See also, s 116 for further details. • Predominantly for personal, domestic or household purposes This is defined by s 10. See further, [47.5]. The use of this phrase rather than consumer property was intended to bring the enforcement provisions in line with the National Credit Code (NCC). • Security agreement This is defined in s 10. See further, s 18 and 20. [115.5] Commentary This section allows parties to a security agreement to contract out of one or more of a number of provisions in Ch 4 (and also s 95 and 96). Parties may wish to craft their own enforcement processes and, at least where the collateral is not property used predominantly for personal, household or domestic purposes, may do so by excluding the provisions listed in this section. The prohibition on allowing contracting out for collateral used for personal, household or domestic purposes is justified on the basis that credit arrangements involving such collateral would be likely to fall within the National Credit Code (NCC) which provides similar rights and obligations and would apply even if contracting out of Ch 4 were permitted.

In Andrews v Mack Financial (Can) Ltd (1987) 8 PPSAC 110; 46 DLR (4th) 731, the Saskatchewan Court of Appeal considered the question of what is needed in a contract to effectively waive rights arising under the PPSA (to the extent permitted). The court said: “To the extent that the contractual right of possession does not coincide with the statutory right of possession, the former must be read and treated as varying the statutory right … Unless the two rights are read this way, [the statutory right], in an important respect, would be waived by the simple device of including a separate right of possession in the contract, thus enabling the security holder to rely upon the contractual right to the exclusion of the statutory right.” It is important to note that the ability to contract out of the enforcement provisions in Ch 4 does not apply where the collateral is used predominantly for personal, domestic or household purposes. The rationale here is that a standard of commercial good faith and diligence should be recognised as part of the consumer protection imperatives of the PPSA (where applicable). Furthermore, the variation or exclusion of the statutory enforcement regime does not affect rights given to, or obligations imposed on, third parties (s 115(2)) with the exception of the ability to contract out of the redemption of collateral provision (s 142). Although security arrangements do not generally require a written security agreement, as many security interests can be perfected by possession (and some by control), this section provides an incentive to have a written agreement so that the enforcement provisions can be more clearly shaped to suit the needs of the parties. See further, the commentary to s 110 regarding the importance of the security agreement itself when interpreting rights and responsibilities of enforcement. [115.6] Further reading • Explanatory Memorandum [4.14–4.17, 4.94]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.1], [8.1.6], [8.1.9].

¶116 SECTION 116 APPLICATION WHILE THERE IS A RECEIVER OR ANOTHER CONTROLLER OF PROPERTY ¶4-050 SECTION 116 APPLICATION WHILE THERE IS A RECEIVER OR ANOTHER CONTROLLER OF PROPERTY Text of s 116 [116.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 106

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[116.2] Outline This section provides that Ch 4 does not apply to receiverships. [116.3] Cross-references Nil. [116.4] Concepts • Controllers This is defined in the Corporations Act 2001 (Cth) s 9 as meaning in relation to property of a corporation: (a) a receiver, or receiver and manager, of that property; or (b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest. • Receiver A receiver includes a receiver and manager: Corporations Act 2001 (Cth) s 416. A receiver and manager is defined as “A receiver of property of a body corporate is also a manager if the receiver manages, or has under the terms of the receiver’s appointment power to manage, affairs of the body”: Corporations Act 2001 (Cth) s 90. [116.5] Commentary This provision is based on the view that the law of corporate receiverships works reasonably well and the enforcement provisions in the PPSA are not necessary where a corporate receiver is in place: Agnew v Pardington [2006] 2 NZLR 520. This section was replaced in whole in 2011 to make it clear that the enforcement provisions in Ch 4 do not apply to receiverships but do apply to controllers who are not receivers: See Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, s 23. The intention of the original provision was that Pt 5.2 of the Corporations Act 2001 (Cth) would provide enforcement provisions, however, not all of the provisions of that Part apply to controllers who are not receivers. Therefore, the 2011 replacement of this section allows receivers to work through the Corporations Act provisions while non-receiver controllers will work under Ch 4 of the PPSA. The Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) suggests that this may benefit small businesses by allowing their security agreements to rely upon the provisions of Ch 4 rather than drafting their own enforcement provisions by contracting out of the provisions listed in s 115. This again evidences the distinction in commercial sophistication the PPSA recognises through such provisions.

In Canada, the operation of the insolvency provisions are subject to the Bankruptcy and Insolvency Act RSC 1985, c B-3, s 2 (BIA). The Supreme Court of Canada in Saulnier (Receiver of) v Saulnier [2008] SCC 58; (2008) 3 SCR 166 (SCC), held that the BIA and PPSA should be interpreted in a way best suited to enable them to accomplish their respective commercial purposes. This view was endorsed in Kasten Energy Inc v Shamrock Oil & Gas Ltd (2013) 20 PPSAC (3d) 128; 2013 ABQB 63 at [29]–[30]. This view is consistent with the Australian regime, namely, the Corporations Act 2001 (Cth) and the PPSA should be interpreted and applied as to best enable each statutory regime to have its intended effect (the intended effect often being a commercially sensible outcome). Receivers appointed over the assets of an individual do fall within the Ch 4 enforcement provisions (s 116(3)). [116.6] Further reading • Explanatory Memorandum [4.18–4.19]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.10]. • Amanda-Jayne Bull, “Receivership and the PPSA: why distinctions remain relevant” (2013) 21 Insolvency Law Journal 5.

¶117 SECTION 117 OBLIGATIONS SECURED BY INTERESTS IN PERSONAL PROPERTY AND LAND ¶4-055 SECTION 117 OBLIGATIONS SECURED BY INTERESTS IN PERSONAL PROPERTY AND LAND Text of s 117 [117.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 55(4)

Ontario

PPSA 1990

s 59(6)

USA

UCC Article 9 (rev) § 9-604(a)

[117.2] Outline This section allows a secured party with a security interest covering both real and personal property securing the same obligation to elect to use either land law or the PPSA enforcement provisions against the personal property. [117.3] Cross-references • Section 8 excludes interests in land and fixtures from the PPSA. • Section 109(5) provides that this section does not apply where the collateral is used predominantly for personal, domestic or household purposes. • Section 118 sets out how a secured party may enforce their security interest against personal property under this section under land law. In particular s 118(6) provides that enforcement action under land law by a secured party under this section and s 118 will render Ch 4 inoperative to the enforcement of the security interest (s 118(6)). [117.4] Concepts • Land This is defined by s 10. • Personal property This is defined by s 10 as meaning property (including a license) other than land or a right, entitlement or authority granted under statute and declared by that statute not to be personal property for the purposes of the PPSA. [117.5] Commentary This section is designed to streamline the enforcement process for security interests that cover both land and personal property. Under pre-PPSA law security interests that covered both land and personal property had to be enforced under different legal regimes. This section aims to reduce the time and cost of enforcement by treating the land law enforcement processes as if they were part of the PPSA. In the Ontario decision Re 1153496 Ontario Ltd (1996) 11 PPSAC (2d) 149 (sub nom. Re Dor-O-Matic of Canada Inc (1996) 28 OR (3d) 125), Blair J stated (at [11]) that the equivalent Ontario provision: “provides for what, in my view, is tantamount to a statutory fusion of the personal property and the real property in question, permitting the secured party to proceed against both as if they formed a single piece of property and as if that single property were realty”.

The options of the secured party are limited if they are not the highest ranking secured party in relation to the personal property as they will need to obtain the permission of higher ranking secured parties (which also implicitly gives notice) before they take action (s 117(1)(b)(ii)). Of course, the secured party’s election under this provision must be made honestly and in a commercially reasonable manner as required by s 111. [117.6] Further reading • Explanatory Memorandum [4.12, 4.20, 4.22]. • ALRC Report No 64 [10.1–10.19].

¶118 SECTION 118 ENFORCING SECURITY INTERESTS IN ACCORDANCE WITH LAND LAW DECISIONS ¶4-060 SECTION 118 ENFORCING SECURITY INTERESTS IN ACCORDANCE WITH LAND LAW DECISIONS Text of s 118 [118.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 55(4), (5), (6)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[118.2] Outline This section sets out the procedure for enforcing security interests against personal property using land law as permitted by s 117. [118.3] Cross-references • Section 140 sets out the rules for distributing proceeds obtained by taking enforcement action under s 117 and 118 (see s 118(6)). • Section 144 sets out when notices are not required to be sent by a secured party. • Pt 8.5 provides rules regarding notices under the PPSA. [118.4] Concepts • Approved form See s 302. • Courts See s 207. • Land law This is defined in s 117(5). • With any necessary modification The term “modification” is defined by s 10 as including addition, omission and substitution. The Ontario decision in Re 1153496 Ontario Ltd (1996) 11 PPSAC (2d) 149 (sub nom. Re Dor-O-Matic of Canada Inc (1996) 28 OR (3d) 125) discussed the relationship between the PPSA and land law enforcement procedures and how modifications may be appropriate (at [24]): “In the commercial world, creditors commonly advance credit against the pledge of both real and personal property … as security for that credit. Debtors willingly provide such security in exchange for the granting of the credit. It is a reasonable expectation, in such circumstances (absent some form of agreement to the contrary), that the creditor will be able, in the event of default, to exercise its remedies against both types of property in order to recover on the debt. In attempting to harmonize the statutory regime relating to personal property security and the land regime relating to real property, the court should strive to give effect to these reasonable expectations, to the extent that the language of the statute in question will reasonably permit.”

[118.5] Commentary This provision provides the administrative machinery to allow for a secured party to take a security interest covering both land and personal property as security for the same obligation(s). The section allows for regulations to be made to modify land law to facilitate the enforcement process and for the Minister to make agreements with State and Territory ministers regarding the role of state authorities to further facilitate enforcement under s 117 and 118. At the time of writing there were no such agreements or regulations in place. It should be noted that notice under this section is required to be given to more than simply the grantor and other secured parties with a perfected security interest immediately before the decision to enforce is made. Any person claiming an interest in the personal property may notify the secured party of their interest and will then be entitled to notice under s 118(1)(b)(iii). The concept of notice under the PPSA is discussed in more detail at Pt 8.5. [118.6] Further reading • Explanatory Memorandum [4.12, 4.20, 4.23, 4.34, 8.14]. • ALRC Report No 64 [10.1–10.19].

¶119 SECTION 119 RELATIONSHIP WITH CONSUMER CREDIT LEGISLATION ¶4-065 SECTION 119 RELATIONSHIP WITH CONSUMER CREDIT LEGISLATION Text of s 119 [119.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[119.2] Outline This section seeks to harmonise the enforcement and notification requirements between the National Credit Code (NCC) and the PPSA. [119.3] Cross-references • Sections 117 and 118 allow for security interests covering both land and personal property to be enforced (against the personal property) under either land law or under Ch 4 of the PPSA. • PPS Regulations 2010 (Cth) reg 4.1 sets out what provisions of the NCC are incorporated into the compliance regime for Ch 4 of the PPSA. [119.4] Concepts • National Credit Code The NCC is contained in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) which replaced the previously state-based uniform consumer credit legislation. For a detailed discussion of the NCC see Pearson and Batten, Understanding Australian Consumer Credit Law, 2010, CCH and the Australian Consumer Credit Law Reporter, CCH. [119.5] Commentary This section seeks to harmonise the enforcement provisions between the National Credit Code (NCC) and the PPSA by providing that Ch 4 of the PPSA applies in relation to security interests in collateral to which the NCC applies. Section 5 of the NCC sets out what credit arrangements fit under the NCC (generally speaking credit provided to individuals or strata corporations for personal, domestic or household purposes or in relation to residential property for investment purposes). Note the excluded forms of credit under s 6 of the NCC. Mortgages over real or personal property are defined under Pt 13 of the NCC as including any interest in, or power over, property (further defined as any legal or equitable estate or interest in real or personal property of any description) securing obligations of a debtor or guarantor. Mortgages are subject to the NCC where they secure obligations under a credit contract and the mortgagor is a natural person or a strata corporation (s 7 of the NCC). Section 119(2) facilitates the relationship between the two regimes by allowing compliance with the NCC enforcement provisions to be deemed as compliance with the requirements of Ch 4 of the PPSA. This is specified in the Personal Property Securities Regulations 2010 (Cth) reg 4.1 as follows: “4.1 Relationship with consumer credit legislation For section 119(2) of the Act, a provision in Chapter 4 of the Act mentioned in an item of the table is taken to have been complied with, in the circumstances for the Act mentioned in the item, if a provision of the National Credit Code (the NCC) mentioned in the item has been complied with, in the circumstances for the NCC mentioned in the item.

Item

Provision of Act

Circumstances for Act

Provision of NCC

Circumstances for NCC

1

Section 130

At least 10 business days before collateral is to be disposed of, the secured party gives notice to the grantor and to any secured party with a higher priority

Section 102

Within 14 days after taking possession of collateral under a mortgage, the secured party provides a notice to the debtor, and does not sell the goods within 21 days after providing the notice

2

Sections 128 and 131

After seizing collateral, a Section 104 secured party disposes of the collateral by sale, lease or licence, having first obtained the market value or, if the collateral does not have a market value, the best price reasonably available

An outstanding obligation has not been paid within 21 days after receiving a notice under s 102 of the National Credit Code and the secured party sells the goods, in accordance with s 103, for at least the estimated value, to a nominated person or to another person for the best price reasonably available

3

Section 132

After the sale of mortgaged Section goods, a secured party, on 104(3) request by the grantor, higher secured parties and the debtor, gives a notice that contains the following information:

After the sale of mortgaged goods, a secured party gives the mortgagor a notice that contains the following information: (a)

the gross amount realised;

(a)

the total amount received from the sale;

(b)

the net proceeds of the sale;

(b)

the enforcement expenses, amounts paid to other secured parties;

(c)

the amount required to pay out the credit contract;

(c)

amounts paid to other secured parties;

(d)

any further recovery action that the secured party intends to take against the grantor;

(d)

the balance owing to the grantor or by the debtor to the secured party

(e)

any other information prescribed by these Regulations

4

Section 140

A secured party distributes funds received in the following order:

Section 105

A secured party deducts the following amounts from any money received from a sale:

(a)

interests with a higher priority;

(a)

the secured amount that is outstanding;

(b)

enforcement costs;

(b)

the amount payable to discharge any prior mortgage;

(c)

higher ranking security interests;

(c)

the amounts payable to discharge any

(d)

the secured interests of the enforcing party;

(e)

lower priority security interests;

(f)

the grantor

subsequent mortgages of which the secured party has notice; (d)

the secured party’s reasonable enforcement expenses”

Personal Property Securities Bill 2009 Replacement Explanatory Memorandum “4.32 The following Table lists the respective rights, duties and obligations contained in the Code and the Bill and details how the Bill and Code would operate when there are concurrent or conflicting duties.” Interaction between the Code and the Bill The Code

The Bill

After default, the credit provider would have to provide notice to the debtor specifying the action required to remedy the default. The credit provider would have to wait at least 30 days before taking enforcement action (s 80).

The Bill doesn’t specify the formal requirements for after default and before seizure of the collateral. Therefore the Bill would not prevent the operation of the Code (a secured party enforcing against collateral used as a consumer good would therefore have to send a notice prior to seizure as required in the Code).

A secured party cannot enforce a security interest against a guarantor (a person who executed the security agreement but is not the debtor) unless:

The Bill does not provide any pre-seizure conditions where the grantor is not the debtor. Accordingly, the requirements in s 82 of the Code would have to be satisfied before a secured party could enforce against a guarantor.

•

judgment has been obtained against the debtor and remains unsatisfied; or

•

the court has relieved the credit provider from obtaining judgment against the debtor; or

•

the debtor cannot be located (s 82).

A secured party must seek the consent of a court to seize goods where the amount outstanding is less than 25% of the credit provided or $10,000 whichever is the lesser amount (s 83).

The Bill does not contain any minimum amount that would have to be outstanding before enforcement action could take place. The restrictions in s 83 of the Code would apply.

An acceleration clause in a contract or mortgage may only be applied in certain circumstances (s 84–85). Postponement of enforcement action could be negotiated between the parties or ordered by a court (s 86–89).

The Bill is silent on the issue of postponement of enforcement action and where a debtor, mortgagor or grantor sought a postponement, the provisions in the Code relating to postponement would apply.

A secured party may seek details of the whereabouts of collateral from a debtor (s 90).

Nothing would prevent a secured party from seeking information under s 90 of the Code.

The concurrent application of the Code and the Bill • means that a secured party may, under the Bill seize collateral used predominantly for personal, • domestic or household purposes if any applicable preconditions in the Code have been complied with.

A secured party could seize collateral if the debtor is in default (clause 123). A secured party with possession or control could seize the collateral by serving a notice on the grantor, or where the collateral is a

licence, the licensor (clause 124). •

A secured party with a higher ranking could seize the collateral from the possession of a lower ranking party (clause 127A).

A secured party cannot enter residential premises to take possession of collateral without the permission of the occupier or an order from court (s 91–93). The Code is silent on apparent possession and accordingly parties could seize by apparent possession under clause 164 of the Bill unless the parties have contracted out of this provision.

The Bill provides that a secured party could seize the collateral by any method permitted by law. As a result, a secured party would have to comply with the Code’s regulation of seizure. If collateral cannot be readily moved from a grantor’s premises or adequate storage facilities are not available a secured party may seize the collateral by taking apparent possession of the collateral (clause 123 and clause 126).

Within 14 days of taking possession under a mortgage a secured party must provide notice to the mortgagor with all relevant details and must not sell the goods within 21 days of providing the notice (s 94).

A secured party would have to give notice to the grantor and to any secured party with a higher priority at least 10 business days before the collateral is to be disposed of (clause 130).

Example of Possible Regulation: The regulations could provide that the requirement in clause 130 would be taken to have been complied with, if a notice to the mortgagor is provided as required by section 94 of the Code. A debtor may nominate a person who is prepared to purchase the goods (s 95).

The Bill would not prevent the application of s 95 of the Code.

If the outstanding obligation has not been paid within 21 days after receiving the notice under section 94 the secured party must sell the goods, either for the estimated value or a higher price to a nominated buyer or to another person for the best price reasonably obtainable (s 96).

After seizing collateral, a secured party would have to dispose of the collateral by sale and must obtain the market value or, if the collateral does not have a market value, the best price reasonably obtainable (Clause 128).

Example of Possible Regulation: The regulations could provide that the requirement in clause 128 and clause 130 of the Bill would be taken to have been complied with if the secured party complied with s 96 of the Code. After the sale of mortgaged goods a secured party must give the mortgagor a notice stating the gross amount realised, the net proceeds of the sale, the amount required to pay out the credit contract and any further action the secured party intends on taking (s 96(3)).

A secured party would have to give the grantor, higher secured parties and the debtor a notice with the total amount received from the sale, the enforcement expenses, amounts paid to other secured parties and the balance owing to the grantor or by the debtor to the secured party (Clause 132).

Example of Possible Regulation: The regulations could provide that clause 132 of the Bill would be taken to have been complied with if a notice is given to the mortgagor (grantor) in terms of s 96(3) of the Code. A secured party is entitled to deduct the following amounts from the money received from the sale:

A secured party would have to distribute funds received in the following order: •

interests with a higher priority;

•

the secured amount outstanding;

•

enforcement costs;

•

the amount payable to discharge any prior mortgage;

•

higher ranking security interests;

•

lower priority interests and security interest;

•

the amounts payable to discharge subsequent mortgages of which the secured party had notice (s 97).

•

grantor (Clause 140).

Example of Possible Regulation: “While it is arguable that s 97 does not provide an order for distribution, it limits the amounts that may be deducted to secured amounts. The regulations could provide that clause 140 of the Bill would be taken to have been complied with s 97 of the Code has been complied with.” [119.6] Further reading • Explanatory Memorandum [4.29–4.32]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.11].

¶120 SECTION 120 ENFORCEMENT OF SECURITY INTERESTS IN LIQUID ASSETS — GENERAL ¶4-070 SECTION 120 ENFORCEMENT OF SECURITY INTERESTS IN LIQUID ASSETS — GENERAL Text of s 120 [120.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[120.2] Outline This section allows a secured party with a security interest in collateral consisting of an account, chattel paper or a negotiable instrument to serve a garnishee notice on a third party who owes money to the grantor on the collateral once the grantor defaults on its obligation to the secured party. This does not apply where the collateral is used predominantly for personal, domestic or household purposes. [120.3] Cross-references • Section 109(5) excludes the operation of this section for collateral used predominantly for personal, domestic or household use. • Section 121 sets out the procedure for implementing action under this section. • Section 140 provides rules for distributing funds where payment under this section is made in currency. • Part 8.5 provides rules regarding notices under the PPSA. • Section 293 allows the court to extend the time within which payment must be made under this section. [120.4] Concepts • Approved form See s 302. • Predominantly for personal, domestic or household purposes This is defined by s 10. See further, [47.5]. • Proceeds This is defined by s 31. • Seize collateral See Pt 4.3, Div 2 (particularly s 123–127). [120.5] Commentary This section allows the secured party to serve a garnishee notice and/or to seize proceeds of the collateral to which the secured party is entitled (see s 32).

The section requires that payment by currency must be applied in accordance with the distribution rules in s 140 (s 120(5)), but makes no similar requirement for electronic transfers which seems anomalous, although is consistent with other provisions that confer advantages on electronic transfers rather than payments of physical currency (see s 69). The procedure for implementing the garnishee power in this section is set out in s 121 and this section should be read with that provision. [120.6] Further reading • Explanatory Memorandum [4.12, 4.39, 4.88, 8.28]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.2], [8.4.5].

¶121 SECTION 121 ENFORCEMENT OF SECURITY INTERESTS IN LIQUID ASSETS — NOTICE TO HIGHER PRIORITY PARTIES AND GRANTOR ¶4-075 SECTION 121 ENFORCEMENT OF SECURITY INTERESTS IN LIQUID ASSETS — NOTICE TO HIGHER PRIORITY PARTIES AND GRANTOR Text of s 121 [121.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[121.2] Outline This section provides the machinery that allows the garnishee notice under s 120 to be implemented. It also allows a secured party with higher priority than the enforcing party to take action before the enforcing party. [121.3] Cross-references • Section 120 allows a secured party to serve a garnishee notice in respect of a default of a security interest over a liquid asset. • Section 293 allows the court to extend the time within notice must be given under this section. • Part 8.5 provides rules regarding notices under the PPSA. [121.4] Concepts Nil. [121.5] Commentary This section sets out how a garnishee notice may be served by a secured party with a security interest in liquid assets (accounts, chattel paper and negotiable instruments). The section details what information must be provided in the relevant notice and when the notice must be served. Notice must also be given to the grantor (s 121(4),(5)). [121.6] Further reading • Explanatory Memorandum [4.34, 4.39, 8.28]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.2].

¶4.3 PART 4.3 — SEIZURE AND DISPOSAL OR RETENTION OF COLLATERAL ¶1 Division 1 — Introduction

¶122 SECTION 122 GUIDE TO THIS PART ¶4-080 SECTION 122 GUIDE TO THIS PART Text of s 122

¶2 Division 2 — Seizing collateral

¶123 SECTION 123 SECURED PARTY MAY SEIZE COLLATERAL ¶4-085 SECTION 123 SECURED PARTY MAY SEIZE COLLATERAL Text of s 123 [123.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 109

Saskatchewan

PPSA 1993

s 58

Ontario

PPSA 1990

s 62

USA

UCC Article 9 (rev) § 9-609

[123.2] Outline Section 123 sets out the rules under the PPSA with respect to seizure of collateral. The provision applies to security interests perfected by registration. For interests perfected by possession or control, s 124 applies. [123.3] Cross-references • The concept of a secured party seizing collateral is central to the enforcement of a security interest and is discussed in over 25 sections of the PPSA. • Section 111 requires the secured party to act honestly and in a commercially reasonable manner. • Section 115 allows the parties to contract out of this provision where the collateral is not used predominantly for personal, domestic or household purposes. • Section 125 obliges a secured party who seizes collateral to take action as specified in that section. [123.4] Concepts • Default The term “default” is not defined by the PPSA however it is central to Ch 4 of the Act as enforcement only arises where the debtor is in default on the payment or performance of an obligation as stipulated by the security agreement. Default, in the general sense, refers to a circumstance whereby the debtor fails to meet obligations (usually financial) owing to the secured party. The nature of commercial affairs in contemporary times has however lead to the development of the practice of including many other contingencies within the default provisions of a security agreement. Where the debtor enters bankruptcy/insolvency for instance, this will usually trigger a default clause. The parties can largely agree on any number of default contingencies, pursuant to freedom of contract principles, and the role of the court is to interpret and give effect to the underlying security agreement in this regard (and in accordance with s 18(1)). • Intangible property This is defined in s 10. • Licence This is defined by s 10. See further, s 105 and the commentary at [12.5.3.5]. • Notice See Pt 8.5. • Security agreement

This is defined by s 10. See further, s 18 and 20. • Perfect See s 21. • Seize The terms “seize” or “seizure” are not defined by the PPSA, but are essential to the enforcement of a security interest irrespective of whether the collateral is eventually retained or disposed of. In the general sense, the term means to take possession of the underlying collateral or to remove control of the collateral from the hands of the grantor (or a party acting on behalf of the grantor, such as a licensee or sub-licensee). See also, Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In liq) (rec and man apptd) [2017] FCA 866; Fin One Pty Ltd v Kucharski [2017] QMC 17. [123.5] Commentary The enforcement provisions pursuant to Ch 4 of the PPSA look beyond the Act itself, operating in addition to rather than in lieu of the existing principles of enforcement at law. Section 123 expressly gives rise to this, providing for the seizure of collateral subject to a security interest by any method permitted by law. For intangible property, the giving of a notice containing words to the effect that the property is being seized suffices (see s 123(2) and (3)). The Canadian cases on the point of seizure and enforcement of security interests refer to various “Execution Acts” among the provinces, which do not arise under Australian law. The value of the decisions is therefore limited, however, certain points remain relevant with respect to the PPSA. One such point is the analysis of the time at which perfected interests are considered. Perfected interests, for the purposes of enforcement, are analysed at the time the enforcement action commences and not earlier or later than this point: Erjo Investments Ltd v Michener Allen Auctioneering Ltd (2004) 6 PPSAC (3d) 220; 238 DLR (4th) 32 (Sask CA). See also, Gibbston Downs Wines Ltd v Perpetual Trust Ltd [2013] NZCA 506 at [66]–[70] (discussing the date of receivership as being the relevant date, but not specifically deciding that point). The power to seize must not be used in order to incur costs to punish the debtor: Poplar Properties Ltd v Cranewood Financial Corp (2002) 5 PPSAC (3d) 53; 38 CBR (4th) 43 (BC SC). Such conduct would be likely to infringe s 111. Another important point is the utility of the underlying security agreement in prescribing its own enforcement provisions. Pursuant to section 18(1), the court is to give effect to the terms of the security agreement where they are not inconsistent with the enforcement provisions of the PPSA. Chapter 4 does not seek to codify the rules of enforcement as between the secured party and the grantor and the terms of the security agreement should be read and given effect in addition to the PPSA provisions: see s 18(1). See further: Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852 at [80]; Royal Bank v Moosomin Credit Union (2003) 7 PPSAC (3d) 118; 241 Sask R 1 at [69] (Sask CA). Where the security agreement and the enforcement provisions conflict, primacy must be given to the enforcement provisions unless the PPSA explicitly specifies that such provisions may be contracted out of pursuant to s 115. This issue arose in the Saskatchewan Court of Appeal case, Andrews v Mack Financial (Can) Ltd (1987) 8 PPSAC 110; 46 DLR (4th) 731 at [69], where it was held: “In my view, to the extent that any contractual right of possession coincides with the statutory right of possession under s. 58, the two rights must be read and treated as one and the same right. The contractual right must be read and treated as an affirmation of the statutory right and not as an independent and separate right. To the extent that the contractual right of possession does not coincide with the statutory right of possession, the former must be read and treated as varying the statutory right (given the words ‘unless otherwise agreed’ contained in s. 58(a), a variation is permissible). The statutory right so varied persists. Unless the two rights are read this way, s. 63, in an important respect, would be waived by the simple device of including a separate right of possession in the contract, thus enabling the security holder to rely upon the contractual right to the

exclusion of the statutory right.” For an application of s 123 of the PPSA and the form of pleading adopted by the party seeking to enforce, see Porter Equipment Australia Pty Ltd v Barton Ventures Pty Ltd [2018] QDC 87. [123.6] Further reading • Explanatory Memorandum [4.32]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.3].

¶124 SECTION 124 SECURED PARTY WHO HAS PERFECTED A SECURITY INTEREST IN COLLATERAL BY POSSESSION OR CONTROL ¶4-090 SECTION 124 SECURED PARTY WHO HAS PERFECTED A SECURITY INTEREST IN COLLATERAL BY POSSESSION OR CONTROL Text of s 124 [124.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 109

Saskatchewan

PPSA 1993

s 58

Ontario

PPSA 1990

s 62

USA

UCC Article 9 (rev) § 9-609

[124.2] Outline Section 124 prescribes how a secured party with an interest perfected by possession or control can seize the underlying collateral for the purposes of enforcing their interest under Ch 4 of the PPSA. For seizure of interests perfected by registration, see above at s 123. See further, Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In liq) (rec and man apptd) [2017] FCA 866. [124.3] Cross-references • Section 111 requires the secured party to act honestly and in a commercially reasonable manner. • Section 115 does not allow for this provision to be contracted out of by the parties. • Section 123 provides for the seizure of collateral. [124.4] Concepts • Control See s 25–29. • Licence This is defined in s 10. See further, s 105 and the commentary at [12.5.3.5]. • Notice See Pt 8.5. • Security agreement This is defined by s 10. See further, s 18 and 20. • Perfect See s 21. • Possession See s 24. • Seize See s 123.

[124.5] Commentary Like intangible property, seizure of collateral perfected by possession or control does not involve the physical taking of possession of the collateral either because possession of the collateral is already in the hands of the secured party, or, the collateral is intangible and cannot be physically possessed. Section 124 operates to change the capacity with which the property is held when notice is given to the grantor (or a person who holds the property on behalf on the grantor such as a licensee or sub-licensee). The notice requirements under the PPSA are discussed at Pt 8.5. The secured party, after giving the notice, becomes the enforcing party. [124.6] Further reading • Explanatory Memorandum [4.32]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.3.1], [8.3.2].

¶125 SECTION 125 OBLIGATION TO DISPOSE OF OR RETAIN COLLATERAL ¶4-095 SECTION 125 OBLIGATION TO DISPOSE OF OR RETAIN COLLATERAL Text of s 125 [125.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 109

Saskatchewan

PPSA 1993

s 59

Ontario

PPSA 1990

s 63

USA

UCC Article 9 (rev) § 9-610

[125.2] Outline Section 125 prescribes the responsibilities imposed on a secured party who seizes collateral pursuant to s 123. [125.3] Cross-references • Section 111 requires the secured party to act honestly and in a commercially reasonable manner. • Section 115 allows the parties to contract out of this provision where the collateral is not used predominantly for personal, domestic or household purposes. • Section 123 provides the power to seize collateral. [125.4] Concepts • Dispose of collateral See Pt 4.3 Div 3. • Reasonable period The term “reasonable period” is not defined by the PPSA, however, in accordance with general principles of law, it implies an objective assessment of time. A “reasonable period” to secure, store and value collateral will depend on the perishability of the underlying collateral and the relevant market on which it trades. A court is to make an assessment of a reasonable period objectively in light of the facts and circumstances of each case. • Retain the collateral See Pt 4.3, Div 4. • Security agreement This is defined by s 10. See further, s 18 and 20. • Seize See s 123. [125.5] Commentary Section 125 requires the seizing secured party to secure, store and value the collateral (whereby valuation occurs at the time the property is seized and not at the commencement time of the security agreement). The purpose of seizing collateral is not to punish the debtor/grantor for failing to meet their obligations, nor is it to remove the use and enjoyment of such property from the grantor. The purpose of

seizure is to allow the enforcing secured party to recover, as much as possible, the outstanding obligation still owing by the debtor. In this regard, any delay postulated between the parties with respect to the retention or disposal of the underlying collateral should form part of the security agreement. A failure of the secured party to account for such circumstances may reduce the amount recoverable. In addition, the secured party is essentially indemnified against the reasonable expenses incurred in enforcing their security interest (see 18(5)), however, all unreasonably incurred expenses (to be determined objectively) will be the responsibility of the secured party. [125.6] Further reading • Explanatory Memorandum [4.34]. • ALRC Report No 64 [10.1–10.19].

¶126 SECTION 126 APPARENT POSSESSION OF COLLATERAL ¶4-100 SECTION 126 APPARENT POSSESSION OF COLLATERAL Text of s 126 [126.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 111

Saskatchewan

PPSA 1993

s 58(2)(b), (c)

Ontario

PPSA 1990

s 62(b), (c)

USA

UCC Article 9 (rev) § 9-609

[126.2] Outline Section 126 aids an enforcing secured party where compliance with s 125 cannot be achieved. [126.3] Cross-references • Section 109 provides that this section does not apply where the collateral is used by a grantor predominantly for personal, domestic or household purposes. • Section 115 allows the parties to contract out of this provision. [126.4] Concepts • Apparent possession See s 24. • Dispose of collateral See Pt 4.3 Div 3. • Perfect See s 21. • Seize See s 123. [126.5] Commentary Section 126 only applies where the underlying collateral is not used predominately for personal, domestic or household purposes (see s 109(5)). A number of the enforcement provisions under the PPSA are of a similar fashion. The enforcement provisions under the PPSA make a distinction between property used in a commercial as opposed to a personal, domestic or household capacity on grounds of consumer protection. Section 126 provides that where the taking of actual possession cannot be readily achieved, a secured party can take apparent possession to satisfy the seizure requirements pursuant to s 123. The concept of actual possession is discussed at s 24. With regards to consumer protection imperatives, while actual possession clearly demonstrates a change in the control of collateral, individuals are less likely to recognise enforcement through apparent possession and thus the PPSA does not permit secured parties to capitalise on this vulnerability. [126.6] Further reading • Explanatory Memorandum [4.32, 4.46, 4.48].

• ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.3.4].

¶127 SECTION 127 SEIZURE BY HIGHER PRIORITY PARTIES — NOTICE ¶4-105 SECTION 127 SEIZURE BY HIGHER PRIORITY PARTIES — NOTICE Text of s 127 [127.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[127.2] Outline This section requires a secured party who seizes collateral to notify secured parties with a higher priority. This allows the higher ranking secured party to take possession of the collateral (if they choose), in which case they must compensate the seizing party for reasonable expenses. [127.3] Cross-references • Section 115 allows secured parties to contract out of their rights under this section. • Section 123 provides for the seizure of collateral. [127.4] Concepts • Dispose of collateral See Pt 4.3 Div 3. • Notice See Pt 8.5. • Possession See s 24. • Reasonable period See s 125. • Reasonable expenses The term “reasonable expenses” incorporates an objective standard in determining the costs incurred when enforcing a security interest. The term is not defined by the PPSA and will depend on a number of factors including the nature of the encumbered collateral, the market rate for storage and transportation costs (among other collateral-specific costs). A secured party who seizes and deals with the collateral by way of enforcement should keep all documentation in relation to enforcement should a dispute arise as to the reasonableness of such expenses (See also, s 132): see Aurora Mines Inc v Mariah Mining Corp (2004) 7 PPSAC (3d) 185; 5 CBR (5th) 163 (Yukon SC). In Aurora Mines Inc, the court stated that in assessing whether the secured party had acted in a commercially reasonable manner, the secured party was not required to assess every possible course of conduct to find the cheapest method of seizure. In that case, the court said that the mere fact that seizure costs were almost as high as the debt in default did not automatically render the secured party’s conduct commercially unreasonable. However, transporting the collateral more than

250 miles rather than the closest town was commercially unreasonable and the transport costs were disallowed. • Seize See s 123. Note, however, that this provision applies, however, the seizure occurs. [127.5] Commentary The general notice requirements under the PPSA are discussed at Pt 8.5. Providing notice pursuant to s 127 must comply with s 127 in addition to Pt 8.5. Section 127 provides recourse for the holder of a higher priority security interest to take possession of collateral seized by a lower ranking security interest. The lower ranking security interest holder is to be reimbursed for reasonable expenses incurred (the amount constituting a debt pursuant to s 127(10) and (11)). Section 127 is not mandatory and a higher priority security interest does not lose their priority interest by virtue of enforcement action taken by a lower priority security interest (see s 133). [127.6] Further reading • Explanatory Memorandum [4.49, 8.28]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.3].

¶3 Division 3 — Disposing of collateral (including by purchasing collateral)

¶128 SECTION 128 SECURED PARTY MAY DISPOSE OF COLLATERAL ¶4-110 SECTION 128 SECURED PARTY MAY DISPOSE OF COLLATERAL Text of s 128 [128.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 109

Saskatchewan

PPSA 1993

s 59

Ontario

PPSA 1990

s 63

USA

UCC Article 9 (rev) § 9-610

[128.2] Outline Section 128 prescribes the methods of disposing of collateral which has been seized pursuant to Pt 4.3, Div 2. [128.3] Cross-references • Section 115 allows the parties to contract out of this provision provided that the collateral is not used predominantly for personal, domestic or household purposes. • Section 123 provides for the seizure of collateral. • Section 129 provides for disposal by purchase. • Sections 130–132 impose obligations on the secured party who disposes of the collateral. • Section 133 provides for the purchaser to take free of security interests in certain circumstances. • Section 137 allows for a notice of objection to be served. • Section 140 provides for the distribution of proceeds received by a secured party. [128.4] Concepts • Dispose of collateral The term “dispose of collateral” is not defined by the PPSA. Disposal of collateral, in the ordinary sense of the words, implies a process of discarding without care — this is not how the phrase is used for PPS purposes. Under the PPSA, disposal refers to the process of exchanging the collateral in order to recover, as much as possible, the underlying obligation still outstanding. Section 128 prescribes the various ways in which this can occur. • Intellectual property This is defined in s 10. See also, Pt 3.5. [128.5] Commentary The disposal processes pursuant to s 128 are broad and do not require much beyond what is commercially practicable. Any disposal must occur in accordance with the general enforcement provision to act honestly and in a commercially reasonable manner (see particularly s 111). This is discussed further in s 131. In addition, the secured party must obtain the market value or best price reasonably obtainable for the collateral (see s 131). Section 140 imposes an obligation on secured parties to distribute the proceeds of

an enforcement action in a particular order. [128.6] Further reading • Explanatory Memorandum [4.12, 4.32, 4.55, 4.57–4.59]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.2], [8.4], [9.3.4].

¶129 SECTION 129 DISPOSAL BY PURCHASE ¶4-115 SECTION 129 DISPOSAL BY PURCHASE Text of s 129 [129.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 109

Saskatchewan

PPSA 1993

s 59

Ontario

PPSA 1990

s 63

USA

UCC Article 9 (rev) § 9-610

[129.2] Outline Section 129 prescribes the mechanics for the disposal of collateral by purchase from the party who has seized the collateral. Note, this process is different to retaining collateral which is discussed at Pt 4.3, Div 4. [129.3] Cross-references • Section 109 excludes this section where the collateral is used by the grantor predominantly for personal, domestic or household purposes. • Section 111 requires a secured party to act honestly and in a commercially reasonable manner. • Section 115 allows the parties to contract out of this provision provided that the collateral is not used by the grantor for a personal, domestic or household purpose. • Section 128 allows a secured party to dispose of collateral. • Section 131 imposes a duty on the secured party when disposing of collateral. [129.4] Concepts • Disposal of collateral See s 128. • Market value See s 131. • Public sale This is not defined in the PPSA. The term public auction was considered in the Canadian PPSA case of CNH Capital Canada Ltd v Diamond4 Holdings Ltd (2012) 19 PPSAC (3d) 262; 92 CBR (5th) 167 (BC SC), which held that a sale using an online auction website was a public sale, although it was noted that some online auction websites may have characteristics that would make them a private not a public sale. In Bayview Credit Union v Doucette (2012) 19 PPSAC (3d) 224; [2012] NBQB 200, the court held the secured party should have listed the collateral (a car) on a popular online auction website which did not charge a fee rather than leaving a car on the street with a for sale sign. [129.5] Commentary Secured parties who seek to dispose of collateral by purchasing it must provide notice to the grantor and any other security interest with a higher priority to the collateral. The rationale behind this provision being the prevention of improper sales. The PPSA achieves this purpose by requiring, firstly, that the sale is a public sale with an opportunity for other interested parties to purchase the collateral, and secondly, that

the market value for the collateral is obtained. The ability of the secured party to dispose of the collateral in favour of itself by purchasing the property is of course an inherent conflict of interest which warrants the greatest caution. It may be that this provision is rarely used given that s 116 excludes Ch 4 where a corporate receiver is appointed. Additional protections exist for property used predominately for personal, domestic or household purposes as s 129 is unavailable in such instances (see 109(5); See also, s 126). In a practical sense, it is recommended that where an enforcing secured party seeks to purchase the collateral that the following steps be taken: • the collateral be valued by more than one independent valuer (depending on the commerciality of obtaining more than one valuation) • the reasonable expenses incurred in enforcing the security interest are accurately documented • that any impropriety or conflicts of interest are sufficiently disclosed in accordance with the s 130 notice requirements (see below). [129.6] Further reading • Explanatory Memorandum [4.61–4.67]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4.2].

¶130 SECTION 130 NOTICE OF DISPOSAL OF COLLATERAL ¶4-120 SECTION 130 NOTICE OF DISPOSAL OF COLLATERAL Text of s 130 [130.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 114

Saskatchewan

PPSA 1993

s 59(6)–(12), (16), (17)

Ontario

PPSA 1990

s 63(4) – (7)

USA

UCC Article 9 (rev)

§§ 9-611–9-614, 9624

[130.2] Outline Section 130 prescribes the notice requirements in relation to secured parties who seek to dispose of collateral by purchasing it. [130.3] Cross-references • Section 111 requires a secured party to act honestly and in a commercially reasonable manner. • Section 115 allows the parties to contract out of this provision provided that the collateral is not used by the grantor for a personal, domestic or household purpose. • Section 128 allows a secured party to dispose of collateral. • Section 131 imposes a duty on the secured party when disposing of collateral. • Section 144 provides for notices not to be served in certain circumstances. [130.4] Concepts • Approved form See s 302. • Description of the collateral See s 20 and 153. • Dispose of collateral See s 128. • Notice See Pt 8.5. [130.5] Commentary The formal notice requirements which form part of s 130 operate in addition to the general requirements of notice under the PPSA pursuant to Pt 8.5. The elements to be included pursuant to s 130 are extensive and seek to disclose the potential for a conflict of interest discussed under s 129. A secured party must additionally be mindful of any objections arising pursuant to s 137. An issue regarding the adequacy of notice arose in the British Columbia Supreme Court case, Inland Kenworth Inc v Laboucane (2004) 11 PPSAC (3d) 50; 26 BCLR (4th) 108 at [44]. Melnick J held: “I do not agree that where the secured party uses a different name this affects the validity of the

notice. The purpose of the notice is to inform the debtor and others entitled to receive notice that the secured party intends to dispose of the collateral; it is not to notify the debtor of the secured party’s identity. The notice clearly fulfils its primary purpose here.” A failure to comply with the notice requirements with regards to disposing of collateral has also been held to be more than mere “technical non-compliance” with the statute: 241301 Alberta Ltd v 482176 BC Ltd (2003) 6 PPSAC (3d) 32; 46 CBR (4th) 156 at [18]. A contravention of this section may give rise to an action for damages under s 271: Bank of Montreal v Featherstone (1989) 9 PPSAC 139; 58 DLR (4th) 567 (Ont CA). Note that the giving of notice may be avoided if s 144 applies. [130.6] Further reading • Explanatory Memorandum [4.32, 4.62, 8.28]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4].

¶131 SECTION 131 DUTY OF SECURED PARTY DISPOSING OF COLLATERAL TO OBTAIN MARKET VALUE ¶4-125 SECTION 131 DUTY OF SECURED PARTY DISPOSING OF COLLATERAL TO OBTAIN MARKET VALUE Text of s 131 [131.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 110

Saskatchewan

PPSA 1993

no direct parallel but see s 65(3)

Ontario

PPSA 1990

s 63(2)

USA

UCC Article 9 (rev)

§ 9-610(b), 6-627

[131.2] Outline Section 131 prescribes an additional requirement imposed on secured parties over and above the general requirement to act honestly and in a commercially reasonable manner when enforcing a security interest pursuant to s 111. This obligation is similar to the duty imposed on receivers when exercising a power of sale under the Corporations Act 2001 (Cth) s 420A. [131.3] Cross-references • Section 111 requires a secured party to act honestly and in a commercially reasonable manner. • Section 128 allows a secured party to dispose of collateral. • Sections 130 and 132 impose duties of disclosure on the secured party when disposing of collateral. [131.4] Concepts • Best price reasonable obtainable The term “best price reasonable obtainable” is not defined by the PPSA, however, the term refers to an objective standard of effort required by the PPSA, in the authors’ view, and imposes on the secured party a requirement to achieve the best or highest sale price for collateral where there is no readily available market value. At a practical level, the evidential burden rests with the enforcing secured party in order to prove reasonable steps were taken to obtain the best price. All documentation regarding efforts invested in satisfying this requirement should be retained for such purposes. • Disposes of collateral See s 28. • Market value The concept of “market value” is not defined by the PPSA, however, in essence, it refers to the rate or price at which comparable collateral is readily obtainable from the market: see Spencer v Cth (1907) 5 CLR 418. There is a distinction between the market value of an asset and the best price that could be obtained if an optimal sales process had been used: Fortson Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162 (SASC Full Ct). The market value is a fluctuating figure which should be ascertained independently should the

secured party wish to instigate a private sale, and can also serve as a reserve price for public auctions or closed tenders. While the market value is a significant indicator, it relies on the uniformity, transferability and liquidity of the market within which the collateral trades or is otherwise dealt with. Unique collateral such as custom-made property thus may not have a readily obtainable market value. In such circumstances, the best price reasonably obtainable must be sought. The failure to obtain a particular value (such as a prior market valuation) as a result of a sale process does not necessarily mean that the secured party has failed to exercise all reasonable care to obtain at least the market value. However, a defective sale process may be indicated by failing to obtain an appropriate sale value: see Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617 (VSCA). In Copp v Medi-Dent Services (1991) 2 PPSAC (2d) 114; 30 OR (3d) 370 (Ont Court of Justice), it was held that an assessment of whether disposal of the collateral is commercially reasonable is a question of fact. In that case, the court held that a sale to a party in dispute with the debtor at an amount calculated by reference to the debt owed without an independent valuation or advertisement offering the collateral for sale was not commercially reasonable. [131.5] Commentary Section 131 seeks to prevent, as far as possible, the deterioration of value of the underlying collateral in the hands of the seizing secured party. The secured party, in disposing of collateral, must take reasonable steps to obtain the value that the underlying collateral is worth. Where there is an ascertainable value, the task is to act reasonably to achieve this value or greater. Where there is no ascertainable value, the best price reasonably obtainable should be obtained. The duty under s 111 to act in an honest and commercially reasonable manner has been interpreted in Canada as requiring the secured party selling the collateral to obtain the best price reasonable obtainable: Inland Kenworth Inc v Laboucane (2004) 11 PPSAC (3d) 50; 26 BCLR (4th) 108 (BC SC). There is no obligation on a secured party to dispose of the collateral to a junior secured party: Loeb Canada Inc v Caisse Populaire Alexandria Ltée (2004) 7 PPSAC (3d) 194 (Ont SCJ). As to the relationship between secured parties see generally Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295. What constitutes the “reasonableness” of the secured party’s efforts in obtaining the best price is to be determined on a case-by-case basis in light of the surrounding facts and circumstances. It is likely that judicial consideration of s 420A of the Corporations Act 2001 (Cth) (which imposes a similar duty on receivers when exercising a power of sale) will be instructive. In the leading decision on that provision Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54 at [443], Dodds-Streeton J explained: “[T]he process of evaluating and balancing the competing costs and benefits and associated risks of various methods of sale will not, in every case, require a formal comparative analysis or documented calculations. All will depend on the circumstances of the individual case, including the scale of the receivership, the value and nature of the property involved, the receiver’s expertise in relation to the type of property, relevant expert advice, the advice or input of proprietors and staff, the trading history and marketing of the company, including during the receivership, and other relevant variables in a realistic commercial context.” These comments should apply equally to the interpretation of s 131 of the PPSA. See also, Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617 (VSCA). See similar comments in Case Credit Ltd v Rhodan Contracting Ltd (2004) 7 PPSAC (3d) 346 at [12] (BCSC). In the US case of Thomas v Price (1992) 975 F.2d 231 (USCA 5th Cir) it was held that a private sale by a secured party will be more closely scrutinised using the commercial reasonableness standard than a public sale. Where the collateral is of a highly specialised nature it is reasonable to expect the secured party to advertise in specialist publications: Liberty National Bank & Trust Co of Oklahoma City v Acme Tool Division of the Rucker Co (1976) 540 F2d 1375 (USCA 10th Circ). That case also held that dishonesty is not required to be shown in cases involving allegations that the sale process adopted by the secured party was not commercially reasonable. In Bank of Montreal v Judges (1991) 1 PPSAC (2d) 240 (Ont Court of Justice), it was held that a public auction for highly specialised scientific equipment was not commercially reasonable. Section 420A of the Corporations Act 2001 (Cth) also has the disjunctive “or” between paragraph (a) and

(b) of its provision (s 420A(1)) as well as having “otherwise” at the start of s 420A(1)(b). The courts have held that paragraphs (a) and (b) are mutually exclusive-either collateral has market value (in which case (a) applies) or it does not (in which case (b) applies): Skinner v Jeogla Pty Ltd (2001) 19 ACLC 1,163 (NSWCA). The onus is on the party seeking to challenge the secured party’s sale to prove a breach of this provision: HSBC Bank Canada v Kupritz [2011] BCSC 788. It should be noted that where the grantor is a corporation and the secured party has appointed a receiver this section (and indeed Ch 4 as a whole) will not apply and the Corporations Act 2001 (Cth) Pt 5.3 will apply: s 116. [131.6] Further reading • Explanatory Memorandum [4.68–4.72]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.10], [8.4.2].

¶132 SECTION 132 SECURED PARTY TO GIVE STATEMENT OF ACCOUNT ¶4-130 SECTION 132 SECURED PARTY TO GIVE STATEMENT OF ACCOUNT Text of s 132 [132.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 116

Saskatchewan

PPSA 1993

s 60(3)

Ontario

PPSA 1990

s 64(1)

USA

UCC Article 9 (rev) § 9-615(d)

[132.2] Outline Section 132 prescribes disclosure requirements in relation to the disposal of collateral. [132.3] Cross-references • Section 111 requires a secured party to act honestly and in a commercially reasonable manner. • Section 115 allows the parties to contract out of some aspects of this provision provided that the collateral is not used by the grantor for a personal, domestic or household purpose. • Section 128 allows a secured party to dispose of collateral. • Sections 130 and 131 impose duties on the secured party when disposing of collateral. • Section 144 allows for notice under this section not to be given in certain circumstances. [132.4] Concepts • Disposes of collateral See s 28. • Seize See s 123. [132.5] Commentary While the term “statement of accounts” is not explicitly defined by the PPSA, what must be included in such a statement is discussed in detail under s 132. The purpose of a written statement of accounts is to ascertain the reasonableness of expenses incurred, the reasonableness of the value raised upon disposal and the conditions upon which the collateral was disposed of. A statement of accounts is to be prepared at the request of the grantor or a secured party and in the absence of such request is not required. [132.6] Further reading • Explanatory Memorandum [4.73–4.75]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4.4].

¶133 SECTION 133 DISPOSING OF COLLATERAL FREE OF INTERESTS ¶4-135 SECTION 133 DISPOSING OF COLLATERAL FREE OF INTERESTS Text of s 133 [133.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 115

Saskatchewan

PPSA 1993

s 59(14)

Ontario

PPSA 1990

s 63(9), (10)

USA

UCC Article 9 (rev) § 9-617

[133.2] Outline Section 133 prescribes the legal position in relation to existing security interests over disposed collateral. [133.3] Cross-references • Section 123 provides for the seizure of collateral by a secured party. • Section 128 provides for the disposal of collateral by a secured party. [133.4] Concepts • Disposing of collateral See s 128. • Interests of the grantor See s 19. • Taking free See further, Pt 2.5. [133.5] Commentary Disposing of collateral pursuant to s 128 will allow the purchasing party to take the collateral free from all existing security interests which the enforcing secured party ranks in priority to. Interests which hold a higher priority, however, remain as against the collateral on the grounds of primacy of the register. Failure of the secured party to lodge a s 127 notice does not affect their underlying security interest. A disposal of collateral in such circumstances operates much like an assignment or transfer of an interest to oneself (see s 12(2)(j), (k) respectively). See generally Inland Contracting Ltd v Bakken (2010) 16 PPSAC (3d) 282; 354 Sask R 54 (Sask QB). [133.6] Further reading • Explanatory Memorandum [4.77–4.78]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4.4], [8.5].

¶4 Division 4 — Retaining collateral

¶134 SECTION 134 PROPOSAL OF SECURED PARTY TO RETAIN COLLATERAL ¶4-140 SECTION 134 PROPOSAL OF SECURED PARTY TO RETAIN COLLATERAL Text of s 134 [134.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 120

Saskatchewan

PPSA 1993

s 61(1)

Ontario

PPSA 1990

s 65(2)

USA

UCC Article 9 (rev) § 9-620

[134.2] Outline Section 134 applies in relation to retaining collateral as distinct from purchasing it. [134.3] Cross-references • Section 125 requires the secured party to either dispose or retain the collateral. • Section 109 provides that this section does not apply if the collateral is used by the grantor predominantly for personal, domestic or houshold purposes. • Section 115 allows the parties to contract out of this section provided that the collateral is not used by the grantor predominantly for personal, domestic or houshold purposes. • Section 135 requires notice for a proposed retention of collateral. • Section 137 allows for a notice of objection to be served. [134.4] Concepts • Notice See Pt 8.5. See also, s 135. • Notice of objection See s 137. • Seize See s 123. Note, however, that this provision applies regardless of whether the seizure has taken place through s 123. [134.5] Commentary Retention of collateral, on the face of the legislation, appears to present a remedy of little practical difference to the disposal of collateral to the secured party as purchaser. Retention of collateral, however, operates to effectively provide a statutory rendition of the remedy of foreclosure. The practical result is that a secured party retains the collateral, however, all rights to recourse against the debtor in personam (against the person) are removed. The decision between disposing of collateral by purchasing it or retaining the collateral is largely a commercial one, take the following example:

Debtor A borrows $10,000 from Secured Party B and a perfected security interest over the debtor’s

computer system (worth $6,000) secures the loan. Debtor A makes repayments over the term of the loan, however, defaults with $3,000 outstanding. Secured Party B values the computer system independently, and the valuation records the value of the computer at approximately $4,000.

In such circumstances, it is in Secured Party B’s interest to retain the collateral. In doing so, Secured Party B must, however, comply with the notice requirements pursuant to s 134 and any objections arising pursuant to s 137. [134.6] Further reading • Explanatory Memorandum [4.12, 4.79]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.5.1].

¶135 SECTION 135 NOTICE OF RETENTION OF COLLATERAL ¶4-145 SECTION 135 NOTICE OF RETENTION OF COLLATERAL Text of s 135 [135.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 120, note also s 114

Saskatchewan

PPSA 1993

s 61

Ontario

PPSA 1990

s 65(2), note also s 63

USA

UCC Article 9 (rev)

§ 9-621

[135.2] Outline Section 135 provides the particulars of notice operating in conjunction with the general notice provisions of Pt 8.5 for the purposes of collateral retention by an enforcing secured party. [135.3] Cross-references • Sections 130 and 135 require a secured party to give notice of its proposed disposal or retention of seized collateral. • Section 137 allows for a notice of objection to be served. • Section 144 allows for notices under this section not to be given in certain circumstances. [135.4] Concepts • Notice See Pt 8.5. [135.5] Commentary Due to the potential for a windfall gain made by retention of collateral, as illustrated in the example at s 134, any defect in the notice may limit the rights available to the secured party if there is a deficiency in recovery: Yuan v Mah Investments Ltd (2001) 2 PPSAC (3d) 159; 205 Sask R 22 (Sask QB). The notice must be clear and unequivocal: Klein v Lemore Investments Ltd (1983) 2 PPSAC 252 (Ont HC); Angelkovski v Trans-Canada Foods Ltd (1986) 6 PPSAC 1 (Man QB). As stated in the commentary to s 134, a failure to comply with the notice requirements with regards to disposing of collateral has also been held to be more than mere “technical non-compliance” with the statute which can be remedied by court order: 241301 Alberta Ltd v 482176 BC Ltd (2003) 6 PPSAC (3d) 32; 46 CBR (4th) 156 at [18] (Alta QB). Additionally, while time limitations may be extended by the court pursuant to s 293, such extension operates by way of judicial discretion and not by way of right. [135.6] Further reading • Explanatory Memorandum [4.84]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.5.1], [8.5.2].

¶136 SECTION 136 RETAINING COLLATERAL FREE OF INTERESTS ¶4-150 SECTION 136 RETAINING COLLATERAL FREE OF INTERESTS Text of s 136 [136.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 123, 124

Saskatchewan

PPSA 1993

s 61(3)

Ontario

PPSA 1990

s 65(6), (6.1), (7)

USA

UCC Article 9 (rev) § 9-622

[136.2] Outline This section provides for collateral retained under s 134 to be taken free of the security interests of the secured party who retains the collateral and all junior secured parties. The ability to take free of security interests depends upon providing notice of proposed retention under s 135 and the absence of an objection to the proposed retention. [136.3] Cross-references • Section 134 allows for the enforcing secured party to dispose of the collateral by retaining it. • Section 135 requires notice of a proposed retention to be given by the secured party. • Section 137 allows for an objection to the proposed retention. [136.4] Concepts • Actual knowledge See s 297. • New value This is defined by s 10. • Notice See s 135. See further, Pt 8.5. • Registration that is effective See s 163. • Taking free See Pt 2.5. [136.5] Commentary Similar to s 133, s 136 holds that the interest of the grantor, the enforcing secured party and any lower ranking secured parties cease to encumber the retained collateral. Interestingly, where the notice requirements pursuant to s 135 are not complied with, a secured party can still convey an interest that takes the retained collateral free where the acquiring party takes such an interest without actual knowledge of the security interest. For more information on elements of knowledge under the PPSA see Pt 8.6. [136.6] Further reading

• Explanatory Memorandum [4.85–4.87]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.5.1], [8.5.3].

¶5 Division 5 — Objection to purchase or retention

¶137 SECTION 137 PERSONS ENTITLED TO NOTICE MAY OBJECT TO PROPOSAL ¶4-155 SECTION 137 PERSONS ENTITLED TO NOTICE MAY OBJECT TO PROPOSAL Text of s 137 [137.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 121

Saskatchewan

PPSA 1993

s 61(2)

Ontario

PPSA 1990

s 65(3)

USA

UCC Article 9 (rev) § 9-620(a)–(d)

[137.2] Outline Due to the ability of an enforcing secured party to dispose of collateral by way of purchasing it or by retaining the collateral under Ch 4, any of the parties entitled to notice pursuant to s 130 and 135 are also entitled to invoke s 137 in objecting to the intended actions of the enforcing secured party. [137.3] Cross-references • Section 128 provides for the disposal of seized collateral. • Section 130 requires a secured party who proposes to dispose of seized collateral to give notice to certain persons. • Section 134 allows the secured party to dispose of seized collateral by retaining it. • Section 135 requires a secured party who proposes to retain seized collateral to give notice to certain persons. [137.4] Concepts • Notice of objection The term “notice of objection” has the meaning given to it pursuant to s 137. Section 137 does not prescribe an exhaustive definition and a notice of objection thus presumably adopts the general form requirements of Pt 8.5. A notice of objection must simply describe disagreement with the enforcing secured party’s intention to purchase the collateral or retain it after seizure. [137.5] Commentary The effect of a notice of objection, pursuant to s 137, is that the enforcing secured party is prevented from purchasing or retaining the collateral. The enforcing secured party may request the legitimacy of the objecting party’s claim to the underlying collateral pursuant to s 138, however, where this provision is satisfied (and the notice does not constitute a “nuisance notice” or an abuse of process), the objection should be upheld: 101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2004) 7 PPSAC (3d) 365; 265 Sask R 153 (Sask QB — appeal dimissed: 101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2005) 8 PPSAC (3d) 25). While strict, the PPSA validly provides recourse for interested parties in light of the potential conflicts of interest. The obligations of a party opposing the retention to act honestly and in a commercially reasonable manner were discussed in the Canadian case of 101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2004) 7 PPSAC (3d) 365; 265 Sask R 153 (Sask QB — appeal dimissed: 101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2005) 8 PPSAC (3d) 25). In that case, the court said (at [21]) that a person objecting to a proposed retention of the collateral as opposed to a sale must have:

“more than a suspicion that a sale of the collateral might yield more than the amount owing to the proposing party by the debtor after reasonable expenses, or, that under the guidance and management of the proposing party the value of the collateral may materially increase. The objecting party’s evidence should also provide some guidance regarding the manner in which the collateral should be sold, the anticipated costs of conducting the proposed sale and the time span involved in consummating a sale in order that the court may determine whether it would be commercially reasonable and practical to expose the proposing party to the cost of a sale and the risk of losing its capital pending a sale. Factors such as the nature of the assets comprising the collateral, and the possibility that they may diminish in value with the passage of time must be taken into account. An inventory of conventional durable goods, e.g. conventional passenger cars may be readily appraised and quickly sold, but it may take considerable time and expertise to dispose of shares in foreign corporations whose technology may become obsolete or non-competitive”. The court went on to hold that the failure of the opposing party to purchase the collateral from the secured party or to fund a market evaluation did not (of themselves) constitute bad faith. The failure of an interested party to provide a notice of objection can be fatal to any claim subsequently raised. [137.6] Further reading • Explanatory Memorandum [4.81–4.82]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4.2], [8.5.4].

¶138 SECTION 138 PERSON MAKING OBJECTION MAY BE REQUESTED BY SECURED PARTY TO PROVE INTEREST ¶4-160 SECTION 138 PERSON MAKING OBJECTION MAY BE REQUESTED BY SECURED PARTY TO PROVE INTEREST Text of s 138 [138.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 122

Saskatchewan

PPSA 1993

s 61(5)

Ontario

PPSA 1990

s 65(4)

USA

UCC Article 9 (rev) No equivalent

[138.2] Outline Section 138 outlines the requirements on a party who produces a notice of objection under s 137. [138.3] Cross-references • Section 130 requires a secured party who proposes to dispose of seized collateral to give notice to certain persons. • Section 135 requires a secured party who proposes to retain seized collateral to give notice to certain persons. • Section 137 allows a person who receives notice under s 130 or s 135 to object to the proposed action. [138.4] Concepts • Notice of objection This refers to a notice under s 137 objecting to the proposed disposal or retention (foreclosure) of the collateral by a secured party who has seized collateral. [138.5] Commentary Section 138 does not present an onerous requirement, a party seeking to rely on a notice of objection simply has to establish that they are an interested party, that is, a party who must be given a notice under s 130 or s 135 (depending on whether the collateral is purchased by the enforcing secured party or retained). [138.6] Further reading • Explanatory Memorandum [4.81, 8.28]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.5].

¶6 Division 6 — Seizure and disposal or retention of crops and livestock

¶138A SECTION 138A MEANING OF TAKE AND WATER SOURCE ¶4-165 SECTION 138A MEANING OF TAKE AND WATER SOURCE Text of s 138A [138A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[138A.2] Outline Section 138A is a definitional provision. [138A.3] Cross-references • Section 138C provides for the seizure and disposal or retention of livestock. [138A.4] Concepts • Fish This is defined by s 10. Fish are included as a subcategory of livestock also defined by s 10. [138A.5] Commentary This section provides the definitions of the terms “take” and “water source” with respect to the enforcement provisions which are used in s 138C. [138A.6] Further reading • Explanatory Memorandum [3.6–3.7]. • ALRC Report No 64 [10.1–10.19].

¶138B SECTION 138B SEIZURE AND DISPOSAL OR RETENTION OF CROPS ¶4-170 SECTION 138B SEIZURE AND DISPOSAL OR RETENTION OF CROPS Text of s 138B [138B.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 36(9)–(17), 37(7)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[138B.2] Outline Section 138B provides additional particulars in relation to the seizure, disposal and retention of crops. [138B.3] Cross-references • Sections 84, 84A and 85 provide rules relating to security interests in crops. • Section 123 provides for the seizure of collateral by a secured party. • Section 128 provides for the disposal of seized collateral. • Section 134 provides for the retention of the collateral. [138B.4] Concepts • Crops This is defined in s 10. • Dispose of collateral See s 128. • Possession See s 24. • Proceeds See s 31. • Retain collateral See s 134. • Water source See s 138A. [138B.5] Commentary This provision was inserted by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) for the purpose of ensuring that secured parties have the power to take necessary action to enforce their security rights against agricultural products.

[138B.6] Further reading • Explanatory Memorandum [3.6–3.7]. • ALRC Report No 64 [10.1–10.19].

¶138C SECTION 138C SEIZURE AND DISPOSAL OR RETENTION OF LIVESTOCK ¶4-175 SECTION 138C SEIZURE AND DISPOSAL OR RETENTION OF LIVESTOCK Text of s 138C [138C.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[138C.2] Outline Section 138C provides additional particulars in relation to the seizure, disposal and retention of livestock. [138C.3] Cross-references • Section 86 provides rules relating to security interests in livestock. • Section 123 provides for the seizure of collateral by a secured party. • Section 128 provides for the disposal of seized collateral. • Section 134 provides for the retention of the collateral. [138C.4] Concepts • Dispose of collateral See s 128. • Fish This is defined by s 10. • Livestock This is defined by s 10 (and includes fish). • Possession See s 24. • Proceeds See s 31. • Retain collateral See s 134. • Water source See s 138A. [138C.5] Commentary This provision was inserted by the Personal Property Securities (Corporations and Other Amendments)

Act 2010 (Cth) for the purpose of ensuring that secured parties have the power to take necessary action to enforce their security rights against agricultural products. [138C.6] Further reading • Explanatory Memorandum [3.6–3.7]. • ALRC Report No 64 [10.1–10.19].

¶4.4 PART 4.4 — RULES APPLYING AFTER ENFORCEMENT

¶139 SECTION 139 GUIDE TO THIS PART ¶4-180 SECTION 139 GUIDE TO THIS PART Text of s 139

¶140 SECTION 140 DISTRIBUTION OF PROCEEDS RECEIVED BY SECURED PARTY ¶4-185 SECTION 140 DISTRIBUTION OF PROCEEDS RECEIVED BY SECURED PARTY Text of s 140 [140.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 116A, 117

Saskatchewan

PPSA 1993

s 60

Ontario

PPSA 1990

s 64

USA

UCC Article 9 (rev) § 9-615, 9-616

[140.2] Outline This section sets out how funds generated from enforcement activity by a secured party are to be distributed between competing interests. [140.3] Cross-references • Section 115 allows for contracting out of the enforcement provisions for collateral not used predominantly for personal, domestic or household purposes. Section 140 is not one of the provisions that may be contracted out of. [140.4] Concepts • Enforcing a security interest Section 140(1) makes it clear that this phrase is not limited to enforcement under Ch 4. This raises a question as to when funds received by a secured party will constitute enforcement action. For example, would funds received by a secured party in settlement of a dispute with the debtor constitute proceeds of enforcement action? The concept of taking steps in the enforcement of a security interest is something that has received judicial consideration under s 267 of the Corporations Act 2001 (Cth) (related party charges), which is to be repealed on the commencement of the PPSA and replaced with a new s 588FP which also contains the phrase “step in the enforcement of a security interest”. Judicial consideration of s 267 has found that serving notices of proposed action does not constitute a step in the enforcement of a charge: Re Scandees Danish Home Ice Creem Pty Ltd [1995] 2 Qd R 678. Secured parties will need to clarify what will constitute enforcement action in their security agreements. • Persons holding interests (other than security interests) in the collateral that have a higher priority This would include statutory and equitable liens. As these liens arise under general law and under statute they are excluded from the operation of the PPSA, that is, they are not consensual and therefore would not satisfy the definition of a security interest under s 12. For the purposes of clarity, this is also noted in s 8(2). • Proceeds Note that s 140(1) states that this term should have its ordinary or general meaning as opposed to the defined meaning under s 31 (see s 31). • Reasonable expenses These are automatically included in security interests under s 18(5). [140.5] Commentary

This section imposes mandatory rules for distributing the proceeds of enforcement action. These rules apply to all secured parties (subject to the exclusions in s 109) and may surprise some parties such as suppliers with retention of title arrangements who will need to comply with the distribution waterfall (subject to being able to retain the collateral: see s 134). One of the reasons that this section requires the payment of any surplus to junior secured parties is that their security interests are discharged by the sale of the collateral: s 133. The section makes it clear that the rules for distribution set out in this section are subject to other laws that provide for priority distributions. See for example, Corporations Act 2001 (Cth) s 561 which gives certain employee entitlements priority over secured parties with a security interest over circulating assets. Section 140(7) provides the enforcing party with protection from liability where they distribute proceeds under this section honestly and in a commercially reasonable manner (See further, s 111). [140.6] Further reading • Explanatory Memorandum [2.105, 4.23, 4.32, 4.40, 4.55, 4.88]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report Ch 8.

¶141 SECTION 141 SECURED PARTY MAY TAKE STEPS TO REFLECT TRANSFER OF TITLE ¶4-190 SECTION 141 SECURED PARTY MAY TAKE STEPS TO REFLECT TRANSFER OF TITLE Text of s 141 [141.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[141.2] Outline This section allows a secured party to take steps to reflect the transfer in title that has resulted from a disposition or retention of collateral under Ch 4. [141.3] Cross-references • Section 128 allows for the sale of collateral. • Section 134 allows the secured party to retain collateral in certain circumstances. [141.4] Concepts Nil. [141.5] Commentary Nil. [141.6] Further reading • Explanatory Memorandum [–]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.5.3].

¶142 SECTION 142 ENTITLED PERSONS MAY REDEEM COLLATERAL ¶4-195 SECTION 142 ENTITLED PERSONS MAY REDEEM COLLATERAL Text of s 142 [142.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 132

Saskatchewan

PPSA 1993

s 62(1)(a)

Ontario

PPSA 1990

s 66(1)

USA

UCC Article 9 (rev) § 9-623, 9624(c)

[142.2] Outline This section allows a secured party or the grantor to redeem the collateral from a secured party who has seized the collateral after default but has not yet disposed of it under s 128. [142.3] Cross-references • Section 115 allows for the redemption power to be contracted out of in cases where the collateral is not used predominantly for personal, domestic or household purposes. • Section 128 provides for a secured party to dispose of the collateral after seizing it due to default. • Section 143 provides for the reinstatement of the security agreement. [142.4] Concepts • Default See [123.4]. • Secured party This is defined by s 10. [142.5] Commentary This section provides both the grantor and any other secured party the right to redeem the encumbered collateral by either paying out or performing the obligations owed to the secured party who seized the collateral in full. The grantor retains its right of redemption until disposal, mere repossession by the secured party is not sufficient to extinguish this right: McMillen v Drive Financial Services LP (2005) 57 UCC Rep Serv 2d (Callaghan) 517 (US DC Kansas). Additionally, the right to redemption does not depend upon the ownership of the collateral: In re Moffett (2004) 356 F 3d 518 (US CA 4th Cir). The grantor generally retains the highest priority to redeem the collateral (s 142(3)). The PPSA gives flexibility in relation to the redemption right by allowing the redemption right to be contracted out of either before (s 115 — for collateral not used predominantly for personal, domestic or household purposes) or after default (s 142(2) — for any collateral). In the Canadian case of Wawanesa Mutual Insurance Co v Rosario Enterprises Ltd (2000) 15 PPSAC (2d) 270; 146 Man R (2d) 236 (MB QB), the court cautioned that the notice waiving the right of redemption should be given as close to default as possible. An agreement by the grantor not to interfere with foreclosure rights cannot be a waiver of the right of redemption under this provision if it pre-dates default: see the decision of the Southern District court of New York in: Royal Palm Senior Investors LLC v Carbon Capital II Inc 2009 U.S. Dist. LEXIS 57452. The right to redeem under this provision is the exercise of a statutory right rather than being based on the equity of redemption: Ford v Petford (1996) 11 PPSAC (2d) 227 (BC SC) — compare G Slocombe &

Associates Inc v Gold River Lodges Ltd (2001) 2 PPSAC (3d) 324; 24 CBR (4th) 32 (where Edwards J noted that the court had an equitable discretion to refuse the right of redemption) (BC SC). It should be noted that the right to redeem exists prior to the exercise of the secured party’s right of disposal specifically under s 128. A failure to comply with s 128 could mean that the right of redemption remains on foot until compliance with s 128 occurs. Secured parties may wish to contract out of s 128 and 142 to limit redemption rights when the secured party wishes to sell under a power of sale rather than following the procedure in Ch 4. [142.6] Further reading • Explanatory Memorandum [4.90–4.94]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.1.9], [8.6.2].

¶143 SECTION 143 ENTITLED PERSONS MAY REINSTATE SECURITY AGREEMENT ¶4-200 SECTION 143 ENTITLED PERSONS MAY REINSTATE SECURITY AGREEMENT Text of s 143 [143.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 133

Saskatchewan

PPSA 1993

s 62(1)(b), (2)

Ontario

PPSA 1990

s 66(2), (3)

USA

UCC Article 9 (rev) No equivalent

[143.2] Outline This section provides for the reinstatement of the security agreement. [143.3] Cross-references • Section 115 allows for the redemption power to be contracted out of in cases where the collateral is not used predominantly for personal, domestic or household purposes. • Section 128 allows a secured party to dispose of seized collateral. • Section 134 allows a secured party to dispose of seized collateral by retaining it. • Section 142 allows for the redemption of the collateral. [143.4] Concepts • Default See [123.4]. [143.5] Commentary The Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) states (at [4.96]) that the purpose of this section is to “protect grantors and debtors where their default is minor, temporary and atypical”. This power is similar to s 142 which allows for the redemption of the collateral. One difference is that s 143 allows for disposal by the secured party under any means rather than only through the use of s 128. This section also allows any person to reinstate the security agreement by complying with the terms of s 143 whereas s 142 only applies to secured parties and the grantor. There are several protection measures available against the abuse of this provision. Firstly, the party seeking to reinstate the agreement must remedy defaults which would allow the secured party to dispose of or retain the collateral (s 143(1)(b)). This will make identification of the events of default which will allow enforcement by disposal or retention of the collateral in security agreements particularly important. Secondly, this section imposes a limit of one reinstatement during the life of the agreement. [143.6] Further reading • Explanatory Memorandum [4.95–4.97]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.6.3].

¶144 SECTION 144 WHEN CERTAIN ENFORCEMENT NOTICES ARE NOT REQUIRED ¶4-205 SECTION 144 WHEN CERTAIN ENFORCEMENT NOTICES ARE NOT REQUIRED Text of s 144 [144.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[144.2] Outline This section outlines when certain notices are not required. [144.3] Cross-references • Section 95 requires a secured party to give notice prior to removing an accession. • Section 118 requires notice where enforcement taken against personal property will apply under land law. • Section 121 requires notice for disposition of liquid assets (accounts, chattel paper or negotiable instruments). • Section 130 requires notice where a secured party wishes to dispose of the collateral. • Section 132 requires a secured party who has disposed of the collateral to provide an account where requested to do so by another secured party or the grantor. • Section 135 requires notice where a secured party wishes to retain collateral. • Section 207 sets out which courts have jurisdiction. • See also, Pt 8.5 which outlines further rules regarding the giving of notices under the PPSA. [144.4] Concepts • Default See [123.4]. [144.5] Commentary Nil. [144.6] Further reading • Explanatory Memorandum [–]. • ALRC Report No 64 [10.1–10.19]. • Whittaker Report [8.4.3], [8.6.4].

¶5 CHAPTER 5 — PERSONAL PROPERTY SECURITIES REGISTER

¶5.1 PART 5.1 — GUIDE TO THIS CHAPTER

¶145 SECTION 145 GUIDE TO THIS CHAPTER ¶5-005 SECTION 145 GUIDE TO THIS CHAPTER Text of s 145

¶5.2 PART 5.2 — ESTABLISHMENT OF THE REGISTER

¶146 SECTION 146 GUIDE TO THIS PART ¶5-010 SECTION 146 GUIDE TO THIS PART Text of s 146

¶147 SECTION 147 PERSONAL PROPERTY SECURITIES REGISTER ¶5-015 SECTION 147 PERSONAL PROPERTY SECURITIES REGISTER Text of s 147 [147.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 139

Saskatchewan

PPSA 1993

s 42–42.4

Ontario

PPSA 1990

s 42

USA

UCC Article 9 (rev) § 9-501

[147.2] Outline This section requires the establishment of the Personal Property Securities Register (PPSR). [147.3] Cross-references • Part 5.9 sets out the role and powers of the PPS Registrar. • Personal Property Securities Regulations 2010 (Cth) reg 5.1 and 5.2 outline how the Registrar may suspend access to the PPSR. Regulation 5.7 sets out when access to the register is prohibited. [147.4] Concepts Nil. [147.5] Commentary This section mandates the establishment of the Personal Property Securities Register (PPSR). It provides for the PPSR to be kept in any form appropriate, as such the register has been established in an electronic form (see www.ppsr.gov.au). The PPSR was designed to be technology neutral so that the Registrar would have the flexibility to accept registrations in any appropriate form. The PPSR is the responsibility of the Registrar (at the time of writing the Registrar was Mr David Bergman) with operational responsibility, including the customer service function, undertaken by the Australian Financial Security Authority (AFSA) (formerly the Insolvency Trustee Service Australia (ITSA)). The PPSR will operate on a continuous basis, although the Registrar has the option to refuse access if needed. [147.6] Further reading • Explanatory Memorandum [5.9–5.11]. • ALRC Report No 64 [–].

¶148 SECTION 148 WHAT THE REGISTER CONTAINS ¶5-020 SECTION 148 WHAT THE REGISTER CONTAINS Text of s 148 [148.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 140

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[148.2] Outline This section sets out what information may be placed on the register. [148.3] Cross-references • Personal Property Securities Regulations 2010 (Cth) reg 5.3 sets out the prescribed property for the purposes of this section. [148.4] Concepts • Data (if any) prescribed by regulations At the time of writing no data had been prescribed for the purposes of s 148(b). • Personal property prescribed by the regulations The Personal Property Securities Regulations 2010 (Cth) reg 5.3 prescribes the following types of personal property for the purposes of this section: “(a) a motor vehicle that has been impounded, immobilised or forfeited, or is subject to an impoundment, immobilisation or forfeiture application, under a law that provides for impoundment, immobilisation or forfeiture of a motor vehicle because it is being used, or has been used, in the commission of certain offences; (b) personal property that is subject to a notice or an order, or is confiscated or forfeited, under a provision of a proceeds of crime law; (c) personal property that is subject to an order of a court or tribunal (however described) that: (i) prevents or restricts a person dealing with the property; or (ii) enforces another court order (however described); or (iii) orders the sale or other disposal of all or part of the property; (d) personal property that: (i) is not mentioned in paragraph (a), (b) or (c); and (ii) immediately before the registration commencement time, could have been registered on a transitional register maintained under a law of the Commonwealth, a State or a Territory”. The list of transitional registers (see s 330) is contained on the Personal Property Securities Register (PPSR) website and includes the Australian Securities and Investments Commission’s (ASIC’s) Register of Company Charges, the vehicle securities registers (such as the Registry of Encumbered

Vehicles in NSW, Qld, ACT and NT) and the bills of sale registries in each state and territory. • Registered financing statement A financing statement (see s 153 or s 154 for the content of financing statements) may be registered under s 150. • Registered financing change statement A financing change statement is a registered statement that changes an existing registered financing statement. A financing change statement is also registered under s 150. [148.5] Commentary This section sets out what information may be contained on the PPSR established under s 147 of the PPSA. The data referred to in s 148 is put into context when read with s 153 or s 154 (depending on the type of property involved) and the Personal Property Securities Regulations 2010 (Cth), Sch 1 or Sch 2 (depending on whether s 153 or s 154 applies). Interestingly, while the Personal Property Securities Register must contain the data set out in s 148 and must, in accordance with s 147(4) of the PPSA, be operational and (when read with s 147(5)–(6)) accessible — the form of access to the PPSR is not prescribed by the PPSA. The PPSR contains data included in financing statements and financing change statements registered with the PPSR, “As a matter of logic and ordinary English, data that has been replaced, and which no longer appears on the register, has been removed from the register”: SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities [2014] FCA 846 at [61]. For more information regarding accessing and searching the PPSR see s 170–174. [148.6] Further reading • Explanatory Memorandum [5.12–5.13]. • ALRC Report No 64 [10.1–10.19].

¶5.3 PART 5.3 — REGISTRATION

¶149 SECTION 149 GUIDE TO THIS PART ¶5-025 SECTION 149 GUIDE TO THIS PART Text of s 149

¶150 SECTION 150 REGISTRATION — ON APPLICATION ¶5-030 SECTION 150 REGISTRATION — ON APPLICATION Text of s 150 [150.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 141

Saskatchewan

PPSA 1993

s 43

Ontario

PPSA 1990

s 45

USA

UCC Article 9 (rev) § 9-509

[150.2] Outline This section allows for an application to register a financing statement or a financing change statement to be made. [150.3] Cross-references • Section 21 provides for the perfection of security interests by registration of a financing statement. • Section 55 directs attention to the time of registration of a financing statement as one method of determining priority between competing perfected security interests. • Section 151 imposes obligations on persons who seek to register financing statements or financing change statements. • Section 161 authorises the registration of a financing statement before or after a security agreement is made covering the property described in the financing statement or before or after the security interest attaches to the property covered by the financing statement. • Section 163 sets out the duration of the effectiveness of the registration for financing statements and financing change statements. • Section 190 allows the Minister to determine registration fees. • Section 191 allows the Administrative Appeals Tribunal (AAT) to review a decision of the Register to refuse to register a financing statement or a financing change statement, or to register a financing change statement to end the effect of a prior registration. • Personal Property Securities Regulations 2010 (Cth) reg 5.4 prohibits financing statements from being registered in particular circumstances. [150.4] Concepts • Approved form See s 302. • Financing statement This is defined by s 10 as meaning data registered (or that is to be registered) pursuant to an application for registration under s 150(1). • Financing change statement This is defined by s 10 as meaning data amending a registered financing statement.

• Personal property prescribed by the regulations See [148.4]. • Prohibited registrations This is covered by Personal Property Securities Regulations 2010 (Cth) reg 5.4. [150.5] Commentary [150.5.1] The role of registration....................................XX [150.5.2] Timing of registration....................................XX [150.5.3] Registration of pre-PPSA security interests....................................XX [150.5.4] Access to information on the PPSR....................................XX [150.5.1] The role of registration This section allows for the registration of financing statements and financing change statements. A financing statement is the required form that (when registered on the Personal Property Securities Register (PPSR)) provides notice of a security interest in the grantor’s collateral as described in the statement (in a manner prescribed by the Act and the Regulations). A financing change statement is a registered statement that changes an existing registered financing statement. Both statements may be registered at any time. It should be noted that s 151 imposes duties on secured parties in relation to financing statements and financing change statements and this section should thus be read together with s 151. A security interest that is non-consensual and/or does not secure the payment or performance of an obligation is not registrable under s 150: Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217 at [106]. The court may grant an injunction to stop a person from registering a financing statement in respect of an interest that is not registrable: Sandhurst at [108], [117]. The PPSR relies upon “notice-based filing” (through financing statements) rather than requiring the lodgement of entire security agreements. That is to say, the purpose of registering a financing statement is merely to provide notice of the existence of a security interest over the grantor’s collateral. It is not intended that the financing statement provide complete details regarding the nature and extent of the security interest(s) held in the grantor’s personal property (see s 20 for more information on the distinction between a security agreement and a financing statement). An interested person may seek further information from the grantor regarding the nature of the security interests over the grantor’s property. It should be noted that a potential creditor is not given the statutory authority to request a copy of the relevant security agreement from a secured party with a security interest in the grantor’s collateral (see s 275(9)), although the grantor may request such information (and indeed would be likely to have a copy of the security agreement themselves) so an interested party may pursue further information from the grantor. Professor McLaren notes in his treatise (Secured Transactions in Personal Property in Canada, 2d ed, looseleaf (Carswell, 1989) at 30.01) that: “The purpose of the registration system is to provide enough information to enable a person searching the system to know who to contact to obtain information regarding a secured transaction.” This has been discussed in many cases in Canada, see for example Re Lambert (1994) 7 PPSAC (2d) 240; 119 DLR (4th) 93 (Ont CA). See similar comments in relation to the US UCC Article 9 procedures: ProGrowth Bank Inc v Wells Fargo Bank NA (2009) 558 F 3d 809, 812 (US CA 8th Cir). In the Saskatchewan Court of Appeal decision, Royal Bank v Touche Ross (1984) 31 Sask R 131, the Court held (at [135]): “a search of the registry would disclose sufficient information to permit the person searching to determine the existence and basic nature of the underlying agreement … Thereafter, additional detailed information can be obtained directly from the secured party who is under a legal obligation to respond to the inquiry”. A later decision of the same court in Agricultural Credit Corporation of Saskatchewan v Royal Bank of Canada (1994) 7 PPSAC (2d) 1; 115 DLR (4th) 569 held that (at [35]): “Functionality, practicality and

versatility are the foundation stones of a notice filing system.” The content of financing statements, including the description of collateral covered by the security interest, is covered by either s 153 or s 154 and Sch 1 or Sch 2 (respectively) of the Personal Property Securities Regulations 2010 (Cth) depending upon the type of property covered. The registration of financing statements and financing change statements is of paramount importance as they comprise one of the three available methods that may be used to perfect security interests. The other two methods are possession of the collateral (see s 24) or (for some forms of collateral only) control of the collateral (see s 25–29). A financing statement may be registered either before or after a security agreement has been finalised and before or after the security interest has attached to collateral covered by the financing statement. Although the registration time can confer priority when a competition arises between two or more perfected security interests (see s 55), the mere registration of a further financing statement does not perfect the security interest, as perfected status requires attachment and enforceability of the security interest against third parties (see s 21). A single registered financing statement may cover one or more security interests: s 21(4). However, note the commentary to s 21 in this regard. [150.5.2] Timing of registration Registration of a financing statement or a financing change statement may only be made at or after the registration commencement time (see s 315). The registration commencement time was 30 January 2012 (s 5 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination, see [306.5.2]). The effective registration time for a financing statement or a financing change statement is the time when the description of collateral is available for search on the Personal Property Securities Register (PPSR) (s 160). The registration time will end as specified in the financing statement (no longer than seven years for consumer property or property described by serial number or 25 years for commercial property that is not described by serial number — see s 153(5)). The Registrar issues a verification statement to the secured parties involved in the registration of a financing statement and financing change statement (s 156). The secured party who receives a verification statement must then notify the grantor of the verification (s 157). The Registrar has the option of publishing a single verification statement in relation to a number of registrations in which case the individual notifications to the secured party and the grantor do not apply (s 158). The Registrar may require a secured party who has perfected by registration to pay a maintenance fee as determined by the Minister under s 190 (see s 168). On 20 June 2013, the Personal Property Securities (Fees) Determination 2013 was made under s 190(1) of the Personal Property Securities Act 2009 by the Attorney-General and registered on the Federal Register of Legislative Instruments. At the time of writing this book the fee to register a financing statement was $140 where there is no stated end time and $40 where the duration is more than seven years but less than or equal to 25 years. The fees are available on the PPSR at www.ppsr.gov.au/AbouttheRegister/AboutFees/Pages/default.aspx. To date the Registrar has not imposed a maintenance fee, however, a failure to pay the maintenance fee within 28 days allows the Registrar to register a financing change statement to end the effect of the registration (s 168). [150.5.3] Registration of pre-PPSA security interests Chapter 9 sets out detailed rules for dealing with transitional security interests which are essentially security interests that arise under pre-PPSA security agreements (see s 308). Not all security interests arising under the pre-PPSA laws are automatically included on the Personal Property Securities Register (PPSR) at the registration commencement date. Security interests that are automatically included on the PPSR at commencement date are called “migrated security interests” (see s 332). While the PPSA reforms initially considered migration information from some 70 registers across Australia, the actual registers to be migrated (at the time of writing) were fewer, with the most important being the Australian Securities and Investments Commission (ASIC) Register of Company Charges, registries for security interests in motor vehicles, ship mortgages and bills of sale (see the full list on www.ppsr.gov.au). Nonmigrated security interests had a two-year transitional period in which to achieve perfected status which ended at the end of January 2014. The transitional provisions are discussed further in the annotations to Ch 9.

[150.5.4] Access to information on the PPSR The provisions relating to searches of the Personal Property Securities Register (PPSR) are covered in Pt 5.5. See in particular s 175 which allows for copies of financing statements to be obtained. The form for access to information on the PPSR may contain conditions of use (see s 176B). Access to the information contained on the PPSR may be restricted by the court or by the Registrar (in the public interest): s 170, Personal Property Securities Regulations 2010 (Cth) Pt 5.7. It should also be noted that Pt 8.4 provides rights for certain parties to request information from a secured party with a security interest in collateral. Those parties are (s 275(9)): • the grantor (or their auditor if the grantor is a body corporate) • another secured party with a security interest in the same collateral • an execution creditor with an interest in the collateral, or • an authorised representative of any of the above. [150.6] Further reading • Explanatory Memorandum [5.14–5.16, 5.142]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.10.1], [6.12.1].

¶151 SECTION 151 REGISTRATION — BELIEF ABOUT SECURITY INTEREST ¶5-035 SECTION 151 REGISTRATION — BELIEF ABOUT SECURITY INTEREST Text of s 151 [151.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[151.2] Outline This section prohibits a person from applying for registration of a financing statement or a financing change statement unless the person reasonably believes that they are, or will become, a secured party in relation to the collateral. Furthermore, this section requires the registered secured party to register a financing change statement to end the registration in limited circumstances. [151.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Part 6.3 sets out the civil penalty regime for contraventions of the PPSA (including this provision). • Section 271 provides a right to recover reasonably foreseeable damages where there is a failure to comply with the obligations of this section. [151.4] Concepts • Financing statement and financing change statement These are both defined in s 10 and are discussed in s 150 and 153. [151.5] Commentary This section is designed to discourage frivolous registrations by prohibiting a person from registering a financing statement unless the person reasonably believes that the person described in the financing statement as the secured party is or will become a secured party in relation to the collateral. A contravention of this provision may give rise to a civil penalty order being imposed (see Pt 6.3). This provision is needed because a financing statement or financing change statement can be registered before the relevant security agreement is finalised. Frivolous registrations could make it more difficult for the grantor to obtain genuine finance. Erroneous registrations are also misleading and detract from the predictability which is sought to derive from the PPS regime. If a person does register a financing statement or financing change statement and they fail to become a secured party in relation to the collateral described in the statement such a person has an obligation to register a financing change statement to end the registration with respect to the collateral as soon as practicable, or at least five business days after becoming aware that there were no reasonable grounds to believe that they would become a secured party in relation to the collateral. These provisions were amended in 2011 to clarify that they apply both to “in substance” security interests and also to deemed security interests (pursuant to s 12 and 13), which is why s 151(2)(a) focuses the belief of the status as a secured party rather than on the security interest actually securing an obligation (as deemed security interests do not secure obligations): see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, s 31–33.

There have been several examples of the Court finding that a financing statement failed to meet the threshold requirement of a belief on reasonable grounds that a security interest had either arisen or would arise in accordance with s 151(1) and making consequential orders for the removal of the registration and granting injunctive relief restraining the purported secured party from lodging a new registration on the same grounds. In Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217, Robson J held: “There is a line of authority relating to the lodging of caveats in which the court has enjoined a party from lodging a caveat where such restraint is necessary to protect the rights of another party, despite the caveator’s conduct otherwise being lawful: Halaga Developments Pty Ltd v Grime; Milne Feeds Pty Ltd v Bride; and Gangemi v Gangemi. In Halaga, the defendant had lodged a caveat over the plaintiff’s land. The Real Property Act 1900 (NSW) provided that such a caveat would lapse after the expiration of three months unless certain steps were taken. The steps were not taken. The defendant lodged a further caveat one day before the date on which the first caveat lapsed. The defendant lodged a third and then a fourth caveat claiming the same interest similarly just before the prior caveat lapsed. The plaintiff applied for an order that the defendant be restrained from lodging further caveats. Waddell CJ in Equity said that it was an abuse of the caveat provisions of the Real Property Act to lodge a series of identical caveats which would indefinitely prevent consideration of the initial objection raised by the first caveat. His Honour held that by virtue of the ordinary consideration of the court to protect rights of property and s 23 of the Supreme Court Act 1970 (NSW) which provided: ‘The Court shall have all jurisdiction which may be necessary for the administration of justice in New South Wales’, the Court had jurisdiction to grant an injunction to restrain a party where such restraint was necessary to protect the rights of another party, even though the restrained conduct was lawful. Also, in Gangemi Murphy J of the Supreme Court of Western Australia enjoined the defendant from lodging further caveats over certain properties owned by the plaintiff where the defendant had previously lodged caveats and it had been found that he had no caveatable interest over the properties. Murphy J cited the decision of Murray J in Milne Feeds as authority for the court making such a restraining order. Murray J said: “It is clear that it lies within the jurisdiction of the court effectively to grant an injunction restraining a party from conduct which is lawful, such as the lodgement of the caveat, upon the ground that such restraint is necessary in the interests of justice to protect a particular litigant from a multiplicity of actions and to order the business of the court.” In my opinion, the statutory procedure that enables a person to register a financing statement claiming a security interest over personal property under the PPSR is for relevant purposes not dissimilar to the statutory procedure for lodging caveats over Torrens land. Under s 37(1) of the Supreme Court Act 1986 (Vic) the Court may by order, whether interlocutory of final, grant an injunction or appoint a receiver if it is just and convenient to do so. In my opinion, the same considerations that led the court in Helga and Gangemi to issue an injunction, lead me to conclude that the court does have jurisdiction to restrain the Popplestones from seeking to register a financing statement claiming a security interest in the plaintiffs’ personal property in circumstances where the Popplestones have been found to have no such interest but nevertheless threaten to seek to register a security interest that would inconvenience and damage the plaintiffs.” (citations omitted). In Macquarie Leasing Proprietary Ltd v DEQMO Proprietary Ltd [2014] NSWSC 1466, Rein J applied the Sandhurst decision in the context of financing statement lodged by a lessee of a motor vehicle against that vehicle in circumstances where the lessee included his details as grantor and as secured party. In this regard, Rein J held: “There are a number of reasons why DEQMO’s claimed interest can be seen not to be a valid claim:

(1) The claimed interest is one given by DEQMO to DEQMO. A person or company cannot give a security interest to itself: s 12 which defines security interest as means an interest for personal property provided for by a transaction that in substance secures payment or performance of an obligation. (With regard to the former transaction or the identity or person who has title to the property); also subsection 3 which provides: (3) 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. None of these requirements can be satisfied by a claimed interest by DEQMO given to itself. (2) There is no evidence before the court of any agreement by which Elite gave a charge to DEQMO. There is no evidence of any value having been given by DEQMO to Elite for a security interest nor how DEQMO might have any other interest in the truck. Once the liquidator was appointed Mr Culleton had no authority to act on behalf of Elite: see s 417A of the Corporations Act 2001 and he could not grant an interest to DEQMO on behalf of Elite. (3) Also for a security interest to be enforceable against a third party s 20 of the PPSA provides that either the secured party possesses or controls the collateral or there is a security agreement governing the collateral. Any agreement governing the collateral must be evidenced in writing and signed by the grantor. Again, there is no evidence of such an agreement. (4) Pursuant to the charge Elite could not encumber the truck or lease or transfer (see Clauses 6.4 and 6.5 at p 40 of Exhibit A, and also see pp 13 and 14 of the charge which indicate the powers given to Macquarie on default). In addition to the above not only has DEQMO not provided any evidence in support of its claim by filing evidence in these proceedings, it did not respond to the amendment demand given by Macquarie pursuant to 178 of the PPSA.” See also, Macquarie Leasing Pty Ltd v The Registrar of the Personal Property Securities Register [2014] NSWSC 1677 per Stevenson J; Macquarie Leasing v The Registrar of the Personal Property Securities Register [2015] NSWSC 94 per McDougall J; National Australia Bank Ltd v Garrett [2016] FCA 714 per Beach J. For a decision where the court endorsed the approach of registering before the agreement was concluded (based on the nature and history of the contracts between the parties): see Re Carpenter International Pty Ltd (2016) 111 ACSR 477; [2016] VSC 118. Part of the difficulty with s 151 of the PPSA in the authors’ view is that there does not appear to be sufficient resources to police the financing statement which are making their way onto the PPSR in the first instance. What is meant by this is that notwithstanding that s 151(1) is itself a civil penalty provision, there have been no impositions of any civil penalties under the PPSA at the time of writing. This may be because civil penalties, dealt with by Pt 6.3 of the PPSA, can only be pursued by the Registrar of Personal Property Securities on application to the Federal Court of Australia — see s 222(1) — in circumstances where any pecuniary penalty is payable to the Commonwealth — see s 225. Thus, it appears as though the interested party is limited to the making of a cost order against the party perfected by registration if that party has failed to meet the requirements of s 151 of the PPSA. A contravention of this provision does not affect the validity of the registration (s 151(6)). [151.6] Further reading • Explanatory Memorandum [5.18–5.22]. • ALRC Report No 64 [13.1–13.24].

• Whittaker Report [4.3.5], [6.4.3], [6.10.4].

¶152 SECTION 152 REGISTRATION — LOCATION OF PERSONAL PROPERTY AND INTERESTED PERSONS OUTSIDE AUSTRALIA ¶5-040 SECTION 152 REGISTRATION — LOCATION OF PERSONAL PROPERTY AND INTERESTED PERSONS OUTSIDE AUSTRALIA Text of s 152 [152.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[152.2] Outline This section clarifies that financing statements may be registered even where the collateral or the grantor are not located in Australia. [152.3] Cross-references • Sections 39 and 40 provide rules for the temporary perfection of collateral that is relocated to Australia. • Section 235 sets out the rules for identifying location. [152.4] Concepts • Financing statement and financing change statement These are both defined by s 10 and are discussed in the commentary to s 150, 153. [152.5] Commentary This section provides that the ability to register a financing statement is not limited to circumstances where the collateral or the grantor is located in Australia. Despite this, s 6 requires a territorial connection with Australia in order for the PPSA to apply. This may take the form of the collateral being located in Australia or the grantor being an Australian entity. An Australian entity is defined in s 10 as being either: • an individual located in Australia (see s 235), or • a company or registrable body under the Corporations Act 2001 (Cth), or • a corporation solely established under a Commonwealth, State or Territory law, or • a public authority, agency or instrumentality of the Crown in right of the Commonwealth, or • one of the states or territories. This means that s 152 would allow a financing statement to be registered in respect of collateral that was located outside of Australia as long as the grantor was an Australian entity. [152.6] Further reading • Explanatory Memorandum [5.23]. • ALRC Report No 64 [13.1–13.24].

¶153 SECTION 153 FINANCING STATEMENTS WITH RESPECT TO SECURITY INTERESTS ¶5-045 SECTION 153 FINANCING STATEMENTS WITH RESPECT TO SECURITY INTERESTS Text of s 153 [153.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 142

PPS Regulations 2001

Sch 1

Saskatchewan

PPS Regulations 1995

reg 6–19

Ontario

Minister’s Order under the PPSA s 3

USA

UCC Article 9 (rev)

§ 9-502

[153.2] Outline This section sets out what information must be included in a financing statement and a financing change statement. This section should be read in conjunction with Sch 1 of the PPS Regulations 2010 (Cth). [153.3] Cross-references • Section 150 provides for the registration of a financing statement. • The Personal Property Securities Regulations 2010 (Cth) reg 5.5(1) and Sch 1 prescribe information that must be included for each item in the table of this section. [153.4] Concepts • Commercial property This is defined by s 10 as meaning personal property other than consumer property. • Consumer property This is defined by s 10 as meaning “personal property held by an individual, other than personal property held in the course or furtherance, to any degree, of carrying on an enterprise to which an ABN has been allocated”. • Description of proceeds Proceeds are defined by s 31. [153.5] Commentary [153.5.1] Item 1 of s 153(1) — the secured party....................................XX [153.5.2] Item 2 of s 153(1) — the grantor....................................XX [153.5.3] Item 3 of s 153(1) — giving of notices....................................XX [153.5.4] Item 4 of s 153(1) — the collateral and proceeds....................................XX [153.5.5] Item 5 of s 153(1) — the end time for registration....................................XX [153.5.6] Item 6 of s 153(1) — subordination....................................XX

[153.5.7] Item 7 of s 153(1) — security interest (whether it is a PMSI)....................................XX [153.5.8] Item 8 of s 153(1) — any matter prescribed by the regulations....................................XX This section details what information is required to be included on a financing statement (including one amended by a financing change statement). The table included in s 153(1) will be discussed with respect to each item and each item should thus be duly considered when seeking to register a financing statement. It should be noted that a defective description of collateral in a financing statement or financing change statement may render the registration ineffective depending upon the nature and seriousness of the defect: see s 164–166. [153.5.1] Item 1 of s 153(1) — the secured party Schedule 1 of the PPS Regulations prescribes the inclusion of various pieces of information for the secured party depending upon what type of entity the secured party is. For individuals, Sch 1 cl 1.2 contains a table that sets out information required (the individual’s surname and given names) and the source of that information. Subclause 1.2(3) provides that the lowest item number applicable to the individual is the relevant item that sets out the required personal information. An individual defined for this purpose excludes a partner in a partnership that has an ABN for which the security interest is held, or a trustee of a trust that has an ABN for which the security interest is held (for these entities, see below). The term individual does, however, include a sole trader with an ABN for the enterprise for which the security interest is held (see Sch 1 cl 1.1). For a body corporate, Sch 1 cl 1.3 requires either the name of the body corporate, or the registered number (Australian Registered Scheme Number (ARSN), Australian Company Number (ACN) or Australian Registered Business Number (ARBN)), depending upon what type of body corporate is involved and whether that body corporate’s details were recorded on a transitional register for a migrated security interest (such as the Australian Securities and Investments Commission’s (ASIC’s) Register of Company Charges). The term body corporate includes a trustee that has an ARSN. See further, Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741. For a partner, Sch 1 cl 1.4 requires the ABN unless the partner’s details were recorded on a transitional register for a migrated security interest. If the partnership does not have an ABN, then the partner’s details are as required for individuals (see above). For trustees which do not have an ARSN and are included on a transitional register for a migrated security interest, the trustee’s details (ABN, ACN or ARBN, or the name of the trust or the trustee) must be included. For trustees that do not have an ARSN and hold the interest in collateral as part of a enterprise that has been granted an ABN, the ABN is prescribed as required information. For any other trustee (provided it does not have an ARSN) the same details that are required for individuals must be provided (Sch 1 cl 1.5). Where a body politic is a secured party, the details that are prescribed are either the ABN (where it holds the interest in the course of an enterprise that has an ABN) or the name of the body politic in accordance with its constitution. Where the security interest was included in a transitional register for migrated security interests, then the details recorded on the transitional register are prescribed (Sch 1 cl 1.6). [153.5.2] Item 2 of s 153(1) — the grantor Item 2 does not require the grantor’s details to be recorded if the collateral is consumer property and is required by the regulations to be described by serial number. Sch 1 cl 2.2 of the Regulations requires aircraft, intellectual property rights, watercraft and most importantly motor vehicles to be described by serial number when described as consumer property on a financing statement or financing change statement. Where the collateral is consumer property but is not required by the regulations to be described by serial number then the grantor’s name and date of birth is required but no other details. For commercial property, the regulations prescribe information as follows: • Schedule 1 of the PPS Regulations prescribes a similar range of information for grantors as it does for

secured parties (see Item 1). • For individual grantors, Sch 1 also prescribes their date of birth. Note that the term individual for the purposes of this item includes a sole trader with an ABN for the enterprise for which the security interest is held but not a partner or a trustee which has an ABN for an enterprise for which the security interest is granted (see Sch 1 cl 1.1). For a body corporate grantor, Sch 1 cl 1.3 requires the same information as is discussed above for Item 1. The same applies for partners (Sch 1 cl 1.4), trustees (Sch 1 cl 1.5) and a body politic (Sch 1 cl 1.6). The need to correctly identify the grantor of a security interest cannot be emphasised enough as it is likely to be the one element of a financing statement that is searched for in circumstances of a priority dispute or upon the appointment of an external administrator to the grantor (such as a trustee or liquidator). In this regard, the PPS Regulations provide that when dealing with a body corporate, for example, a specific identifier needs to be used and it will not likely be sufficient to include a different identifier to that prescribed. What might not be appreciated at first blush is that cl 1.3 of Sch 1 of the PPS Regulations does not provide an inclusive list of identifiers — that is to say, it is an error to assume that a secured party can choose any of the identifiers set out in the table which appears at cl 1.3(4) of the PPS Regulations. Instead, the secured party must include the first identifier which appears, ie the list is hierarchical. Consequentially, it is often the Australian Company Number or ACN which will need to be provided in the case of a body corporate grantor — however, if that body corporate is also the trustee of a trust, then the ABN of the trust will need to be used to comply with cl 1.3(1) of Sch 1 of the PPS Regulations. The consequences of making an error when identifying the grantor of a security interest can be that a reasonable third party searcher will not be able to find the relevant financing statement upon conducting a reasonable search of the PPSR. To prevent any prejudice to a reasonable third party searcher, the PPSA provides that a registration which is not disclosed upon a search of the grantor’s identifier (in accordance with this s 153 and the PPS Regulations) is ineffective: See, s 165(b). If, for whatever reason, s 165(b) does not apply, then s 164(1)(a) may nevertheless apply if the defect is one which is “seriously misleading”. An ineffective registration is taken to be unperfected: see, s 163. As a consequence of the interaction of the provisions set out about, had the grantor’s details (and not the secured party’s details) been incorrect in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741, a different outcome may have been reached. As Brereton J said in Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21 at [6]: “where the grantor’s details required by s 153 are its ACN, if the financing statement does not include the ACN, a search of the register by reference only to the grantor’s ACN would not disclose the registration, and accordingly the registration would be ineffective”. In that case, it was held that the mere fact that the ACN was included in the 11-digit ABN did not meet the requirements of s 153. For cases involving ACN issues see for example, Re Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505; Re 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407; Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21; Re Accolade Wines Australia Ltd [2016] NSWSC 1023. [153.5.3] Item 3 of s 153(1) — giving of notices This item requires contact details and an identifier (if one has been approved by the Registrar for that type of notice or document: see s 289). [153.5.4] Item 4 of s 153(1) — the collateral and proceeds This item contains four rules. Firstly, that all collateral be described as either consumer property or commercial property. The collateral may fall into one of the categories that is required to be described by serial number (depending upon whether it is described as consumer or commercial property) or one of the categories that may be described by serial number (also depending upon whether it is described as consumer or commercial property): see PPS Regulations Sch 1 cl 2.2.

Secondly, Sch 1 cl 2.2(3) provides the serial number details that are needed where collateral is to be described by serial number (eg VIN for motor vehicles). Thirdly, all collateral must belong to a single class of collateral as prescribed by the regulations. Schedule 1 cl 2.3 prescribes the following classes of collateral: (a) agriculture (b) aircraft (defined in reg 1.6) (c) all present and after-acquired property (d) all present and after-acquired property, except (e) financial property (f) intangible property (g) motor vehicles (defined in reg 1.7) (h) other goods (which are defined as personal property that is goods, other than agriculture, aircraft, motor vehicles and watercraft); (i) watercraft (defined in reg 1.6). Fourthly, where the security interest includes proceeds, the proceeds must be described as (under Sch 1 item 2.4): (a) as all present and after-acquired property, or (b) for a particular item of personal property — in a way that identifies the item, including identifying a class to which the item belongs, or (c) for a class of personal property — in a way that identifies the class, including identifying the class by identifying a larger class of personal property that wholly includes the class. The equivalent US provision was discussed in In re Payless Cashways Inc (2002) 273 BR 789 (US Bankr Ct for WD Missouri) as follows (referring to the UCC Article 9 Official Comments): “the financing statement is effective to encompass transactions under a security agreement not in existence and not contemplated at the time the notice was filed, if the description of collateral in the financing statement is broad enough to encompass them”. See also, Frank v James Talcott Inc (1982) 692 F 2d 734 (US CA 11th Cir). [153.5.5] Item 5 of s 153(1) — the end time for registration This item requires the end time for the registration to be specified. The permitted length of the registration differs between consumer property and serial numbered property on the one hand and commercial property on the other. Financing statements registering security interests taken over commercial property that is not described by serial number may be registered for up to 25 years. An amendment may extend the registration for up to a further 25 years. Where no end time is stated then the default period of 25 years will apply as the registration end time (s 153(2)). Where a specified end time does not comply with s 153 (such as when it is earlier than the registration or amendment time) the default period will apply (s 153(3)). For consumer property and property that is described by serial number, the maximum registration period is seven years. An amendment may similarly not extend the registration by more than a further seven years. Where no end time is stated or the stated end time does not comply then the default period of seven years will apply (s 153(2), (3)). The registration period begins when the information is capable of being found by a search on the Personal Property Securities Register (PPSR) (s 160).

[153.5.6] Item 6 of s 153(1) — subordination Item 6 allows the choice of indicating whether the security interest is (or will be) subject to subordination. Voluntary subordination is recognised under s 61. This item is thus optional. [153.5.7] Item 7 of s 153(1) — security interest (whether it is a PMSI) The Personal Property Securities Regulations 2010 (Cth) Sch 1 cl 3.1 prescribes all collateral which is capable of being subject to a PMSI under s 14. The importance of indicating that a security interest is a PMSI is imperative (where appropriate) in order to attract the priority status conferred by the PPSA: See s 14, 62–65. It is worth noting that erroneously indicating that a security interest is a PMSI when it does not constitute a prescribed defect pursuant to s 165(c) of the PPSA, the consequence of which is that s 164(1)(b) renders the relevant registration ineffective (that is to say, as though the security interest is unperfected). In the above circumstances, if a secured party is unsure about whether the underlying interest constitutes a PMSI or not the secured party should seek legal advice. While the secured party may also remove the risk of s 165(c) by lodging two financing statements in respect of the same security interest (one indicating that the interest is a PMSI and the other indicating that the interest is not a PMSI), this approach runs the risk of falling foul of s 151 of the PPSA on the basis that the secured party cannot have a belief on reasonable grounds that the interest is both a PMSI and not a PMSI. [153.5.8] Item 8 of s 153(1) — any matter prescribed by the regulations The following matters are prescribed for item 8. PART 4 — MATTERS FOR ITEM 8 4.1 PRESCRIBED MATTERS — FINANCING STATEMENT For item 8 of the table in s 153(1) of the Act, for collateral, the details mentioned in each item of the table, about the subject mentioned for the item, for the purpose mentioned in the item. Item

Subject

Purpose

Details

1

Inventory

Determining whether collateral may include inventory, for Part 9.5 of the Act

For collateral that is commercial property — whether or not the collateral may include inventory

2

Control

Determining whether collateral may be subject to control, for Part 9.5 of the Act

For collateral that is commercial property — whether or not the collateral may be subject to control

3

Transitional security interest

Indicating whether a security interest is a transitional security interest

If a security interest is a transitional security interest for section 308 of the Act — a statement that the security interest is a transitional security interest

4

Migrated security interest

Indicating whether a registration is a migrated registration

If collateral is subject to a migrated security interest: (a)

a statement that the security interest is a migrated security interest; and

5

Data from Australian Business Register or National Names Index

Recording details from Australian Business Register or National Names Index

Note For the application of item 4, section 333 of the Act. [153.6] Further reading • Explanatory Memorandum [5.25–5.72, 8.25–8.26, 9.50]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report Ch 6 (s 153 is referred to extensively in this chapter).

(b)

the name of the transitional register in which the data about the transitional security interest was held; and

(c)

when the migrated data was registered in the transitional register

If an ABN, ACN, ARSN or ARBN is entered in a financing statement and a verification of these numbers is undertaken with the Australian Business Register or the National Names Index — the entity name or other data attached to those identifier numbers obtained from the Australian Business Register or the National Names Index

¶154 SECTION 154 FINANCING STATEMENTS WITH RESPECT TO PRESCRIBED PROPERTY ¶5-050 SECTION 154 FINANCING STATEMENTS WITH RESPECT TO PRESCRIBED PROPERTY Text of s 154 [154.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[154.2] Outline This section sets out the required content for financing statements made in respect of prescribed property. [154.3] Cross-references • Section 148 provides for the Personal Property Securities Register (PPSR) to contain data in registered financing statements in respect of personal property prescribed by the regulations. • Section 150 provides for the registration of financing statements and financing change statements. • Personal Property Securities Regulations 2010 (Cth) reg 5.3 sets out the prescribed property for the purposes of s 148. [154.4] Concepts • Attachment See s 19. • Security agreement This is defined in s 10. See further, s 18 and 20. [154.5] Commentary This section imposes specific rules for financing statements that relate to collateral that is prescribed by the regulations. Regulation 5.3 specifies the list of prescribed personal property which includes impounded motor vehicles, personal property confiscated under proceeds of crime laws and dealings in personal property limited by court order. Regulation 5.3 also prescribes personal property that could have been included on a transitional register. The information required to be included on financing statements in respect of prescribed property includes the details of the person who owns or has an interest in the property, which is the same identification information required for financing statements under s 153 and reference should be made to that section. The description of property is made up of a statement regarding the class of collateral (see [153.5.4]) and a statement as to why the property is subject to the registration of a financing statement. Prescribed information must also be included, however, at the time of writing no further information had been included in the PPS Regulations. [154.6] Further reading • Explanatory Memorandum [5.31, 5.52].

• ALRC Report No 64 [13.1–13.24].

¶155 SECTION 155 MEANINGS OF VERIFICATION STATEMENT AND REGISTRATION EVENT ¶5-055 SECTION 155 MEANINGS OF VERIFICATION STATEMENT AND REGISTRATION EVENT Text of s 155 [155.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 135

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[155.2] Outline This section defines what a verification statement is. [155.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Sections 156 and 157 provide for verification statements to be given. • Section 176C allows for the Registrar to include third party data in verification statements. [155.4] Concepts • Approved forms See s 302. • Financing statement and financing change statement These are both defined by s 10 and are discussed under s 150, 153. [155.5] Commentary This section defines what a verification statement is. Verification statements are given by the Registrar to the person that a registration indicates is the secured party in the financing statement or financing statement both before and after the registration occurs (see s 156). [155.6] Further reading • Explanatory Memorandum [5.54, 5.83]. • ALRC Report No. 64 [13.1–13.24]. • Whittaker Report [6.11.10].

¶156 SECTION 156 VERIFICATION STATEMENTS — REGISTRAR TO GIVE TO SECURED PARTIES ¶5-060 SECTION 156 VERIFICATION STATEMENTS — REGISTRAR TO GIVE TO SECURED PARTIES Text of s 156 [156.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 145

Saskatchewan

PPS Regulations 1995

reg 20, 20.1, 20.3

Ontario

Minister’s Order under the PPSA s 22

USA

UCC Article 9 (rev)

§ 9-523

[156.2] Outline This section provides for a verification statement to be given by the Registrar once a financing statement or financing change statement is registered. [156.3] Cross-references • Section 158 allows the Registrar to publish a public notice rather than giving an individual verification statement. • Sections 160–162 provide rules for determining the registration time. [156.4] Concepts • Financing statement and financing change statement These are both defined in s 10 and are discussed in s 150. • Verification statement This is defined in s 155. [156.5] Commentary This section requires the Registrar to issue a verification statement to the person(s) identified as the secured party in a registered financing statement both before and after the registration takes place. The secured party then has an obligation under s 157 to give a notice of the verification statement to the grantor(s) both before and after the registration. For the consequences of failing to discharge this obligation see s 271. [156.6] Further reading • Explanatory Memorandum [5.55, 5.83, 5.123, 5.133]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.11.10].

¶157 SECTION 157 VERIFICATION STATEMENTS — SECURED PARTIES TO GIVE NOTICE TO GRANTORS ¶5-065 SECTION 157 VERIFICATION STATEMENTS — SECURED PARTIES TO GIVE NOTICE TO GRANTORS Text of s 157 [157.1] Comparable provisions in foreign regimes New Zealand

PPS Regulations 2001

reg 9 and 12

Saskatchewan

PPSA 1993

s 43(12)

Ontario

PPSA 1990

s 46(6), (7)

USA

UCC Article 9 (rev)

No equivalent

[157.2] Outline This section requires a person who receives a verification statement to provide notice to the grantor(s) of the security interest of that verification statement. [157.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Section 178 allows for a person with an interest in collateral described in a registration with respect to a security interest to serve an amendment demand on a secured party that requires a financing change statement to be registered to amend the registration to end the registration or omit particular collateral from the registration. [157.4] Concepts • Verification statement This is defined by s 155. [157.5] Commentary This section gives the grantor a right to receive notification of a verification statement with regard to the registration of a financing statement or financing change statement in respect of their personal property. The grantor entitled to receive notice of the verification statement under this section may waive that right under s 157(3). Contravention of s 157 may constitute an interference with the privacy of an individual for the purposes of s 13 of the Privacy Act 1988 (Cth): TLK Transport Pty Ltd v Thornthwaite Pty Ltd t/as Yass Valley Mobile Mechanic [2014] NSWCATCD 147. [157.6] Further reading • Explanatory Memorandum [5.58–5.61, 5.83]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.2.1], [6.11.10].

¶158 SECTION 158 VERIFICATION STATEMENTS — PUBLICATION AS ALTERNATIVE ¶5-070 SECTION 158 VERIFICATION STATEMENTS — PUBLICATION AS ALTERNATIVE Text of s 158 [158.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPS Regulations 1995

reg 20–20.3

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[158.2] Outline This section gives the Registrar the option to publish a verification statement that covers a number of registrations rather than giving individual verification statements to each secured party. [158.3] Cross-references • Sections 156 and 157 set out the obligations of the Registrar and secured parties in relation to verification statements. [158.4] Concepts • Registration event A registration event refers to the registration of a financing statement or a financing change statement under s 150. • Verification statement A verification statement is defined in s 155. [158.5] Commentary This section allows for the Registrar to publish a verification statement covering a number of registrations where the registrations affect a number of persons noted as secured parties in a registration on the PPSR (either before or after the registration events). Where the Registrar publishes a verification statement in this way there is no requirement to give an individual verification statement to each of the secured parties and also no requirement for the secured parties to pass on the verification statement to the grantor(s). This section provides flexibility particularly during the migration process when large numbers of existing registrations were being transferred onto the Personal Property Securities Register (PPSR). The Personal Property Securities Regulations 2010 (Cth) reg 5.6 allows the Registrar to make a group verification statement under this section by publishing a statement on a website maintained by the Registrar (which, at the time of writing, is accessible at: www.ppsr.gov.au). [158.6] Further reading • Explanatory Memorandum [5.60]. • ALRC Report No 64 [13.1–13.24].

¶5.4 PART 5.4 — WHEN A REGISTRATION IS EFFECTIVE

¶159 SECTION 159 GUIDE TO THIS PART ¶5-075 SECTION 159 GUIDE TO THIS PART Text of s 159

¶160 SECTION 160 REGISTRATION TIME — GENERAL ¶5-080 SECTION 160 REGISTRATION TIME — GENERAL Text of s 160 [160.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 144

Saskatchewan

PPSA 1993

s 43(2)

Ontario

Minister’s Order under the PPSA s 24

USA

UCC Article 9 (rev)

No equivalent

[160.2] Outline This section sets out the commencement time for registrations of financing statements and financing change statements. [160.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Section 163 sets out when registration ends with respect to a description of collateral in a financing statement. • Sections 164–166 provide for a registration to become ineffective due to a defect. • Sections 170–175 provide for searching the Personal Property Securities Register (PPSR). [160.4] Concepts • Description of collateral See s 153 or s 154 and PPS Regulations Sch 1 or Sch 2 (depending upon the type of property covered by the financing statement). [160.5] Commentary This section provides for the effective registration time for financing statements and financing change statements. The registration time is important because of the priority given to perfection by registration (see s 55). It is important to note that this provision covers both an original registration of a financing statement and an amendment made to a financing statement through the registration of a financing change statement. Note that s 160(2) provides that the registration commencement of an amendment occurs from the time when the information contained in the amendment can be searched on the Personal Property Securities Register (PPSR). [160.6] Further reading • Explanatory Memorandum [5.45, 5.62–5.63]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.11.12].

¶161 SECTION 161 REGISTRATION TIME — SECURITY AGREEMENTS AND INTERESTS ¶5-085 SECTION 161 REGISTRATION TIME — SECURITY AGREEMENTS AND INTERESTS Text of s 161 [161.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 146

Saskatchewan

PPSA 1993

s 43(4)

Ontario

PPSA 1990

s 45(3)

USA

UCC Article 9 (rev) § 9-502(d)

[161.2] Outline This section provides that a financing statement may be registered before or after a security agreement is finalised or the security interest has attached. [161.3] Cross-references • Sections 18 and 20 provide rules for security agreements. • Section 150 provides for the registration of financing statements and financing change statements. [161.4] Concepts • Attachment This is covered by s 19. [161.5] Commentary This section is designed to encourage secured parties to register financing statements as soon as possible in order to protect their priority. While perfection through registration will not always take priority (particularly against perfected PMSI interests (s 62), and an earlier perfection by possession or control — see s 55, or by control over an authorised deposit taking institution account (ADI account) — see s 75) the time of registration is one of the events that may confer priority (see s 55(4),(5)) provided that all of the steps of perfection are also followed (ie attachment and enforceability against third parties — see s 21). Allowing the secured party to register a financing statement before the security agreement is finalised or the security interest has attached also promotes efficiency in financing transactions as there is no delay after completion of the agreement while waiting for registration to occur. The practice of pre-perfecting an expected security interest by registration occurs reasonably frequently: See, for example, Connelly v Commonwealth of Australia, Re Australian Road Express Pty Ltd (in liq) (recs and mgrs apptd) [2018] FCA 1429 at [9]. The Supplementary Explanatory Memorandum to the 2009 Bill noted (at [5.65]): “Advance registration would inform secured parties of the order of registration (and potentially the order of priority) while still negotiating the transaction. This would improve certainty in commercial negotiations as parties could ascertain their rights to priority over other security interests in personal property.” The ability to register a financing statement can open the door to oppressive or frivolous registrations, but these issues are addressed by s 150(3) and 151. [161.6] Further reading

• Explanatory Memorandum [5.61]. • ALRC Report No 64 [13.1–13.24].

¶162 SECTION 162 REGISTRATION TIME — TRANSFERS ¶5-090 SECTION 162 REGISTRATION TIME — TRANSFERS Text of s 162 [162.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[162.2] Outline This section provides that a financing statement may be registered before or after the transfer of a security interest or of collateral. [162.3] Cross-references • Section 150 allows for the registration of a financing statement or a financing change statement. [162.4] Concepts • Financing statement and financing change statement See s 150. [162.5] Commentary This section provides a rule to clarify that the registration may occur prior to the transfer of a security interest or collateral; See also, [20.5.2] and [21.5.3]. This would seem implicit in s 161, however, this rule provides certainty for that outcome. See also, Re Carpenter International Pty Ltd [2016] VSC 118. [162.6] Further reading • Explanatory Memorandum [5.64]. • ALRC Report No 64 [13.1–13.24].

¶163 SECTION 163 EFFECTIVE REGISTRATION ¶5-095 SECTION 163 EFFECTIVE REGISTRATION Text of s 163 [163.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 153

Saskatchewan

PPSA 1993

s 44(1)

Ontario

PPSA 1990

s 51

USA

UCC Article 9 (rev) § 9-515

[163.2] Outline This section provides for the duration of the effectiveness of a registered financing statement. [163.3] Cross-references • Section 153 requires a financing statement to state an end time. • Section 160(2) provides for the commencement of an amendment to a financing statement. • Sections 164–166 provide for registration to become ineffective if there is a defect in the financing statement. [163.4] Concepts • Description of collateral See s 153 or s 154 and PPS Regulations Sch 1 or Sch 2 (depending upon the type of property covered by the financing statement). [163.5] Commentary This section establishes the duration of the effectiveness of a registration of a financing statement. This is important as priority is determined by the period in which the security interest is continuously perfected (see s 56). If the description of collateral in a financing statement becomes ineffective for some reason then the security interest will not be perfected by registration for that period and may lose priority (unless perfected by some other means such as by possession or control of the collateral). It is clear that a registration can become irregular after its initial registration: Re Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505 at [23]. Of course, the registration end time may be amended by changing the end time stated on the financing statement by registration of a financing change statement (see s 150). [163.6] Further reading • Explanatory Memorandum [5.45, 5.68]. • ALRC Report No 64 [13.1–13.24].

¶164 SECTION 164 DEFECTS IN REGISTRATION — GENERAL RULE ¶5-100 SECTION 164 DEFECTS IN REGISTRATION — GENERAL RULE Text of s 164 [164.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 149, 151, 152

Saskatchewan

PPSA 1993

s 43(6), (8), (9)

Ontario

PPSA 1990

s 46(4)

USA

UCC Article 9 (rev) § 9-506(a)

[164.2] Outline This section sets out a general rule to render the registration of defective financing statements ineffective. This section should be read in conjunction with s 165 and 166. [164.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Sections 153 and 154 and PPS Regulations Sch 1 and 2 (respectively) set out the content required to enable financing statements to be registered. • Sections 165 and 166 provide further rules for defective financing statements. [164.4] Concepts • Defect This is defined by s 10 as an irregularity, omission or error in the registration. • Seriously misleading This important concept is discussed below. [164.5] Commentary [164.5.1] Overview of s 164 — defects in registration — general rule....................................XX [164.5.2] Seriously misleading....................................XX [164.5.3] Seriously misleading defects....................................XX [164.5.4] Defects that were not seriously misleading....................................XX [164.5.1] Overview of s 164 — defects in registration — general rule This section is important as it provides that the registration of a financing statement may be rendered ineffective (in whole or in part) if it contains one or more defects of a particular kind. It should be noted that rendering the registration ineffective does not affect the validity or enforcement of the underlying security agreement, but may affect the priority position of the secured party if another secured party perfects their security interest unless the secured party has also perfected their original security interest by possession or control (depending on the type of collateral involved). The kinds of defects that may render the registration of the financing statement ineffectual are those set out in s 165 and those are defects that are “seriously misleading” (see below at [164.5.2]). A defect that is seriously misleading will not, however, render the registration ineffective if it is prescribed by the regulations. At the time of writing there were no seriously misleading defects prescribed in the regulations.

It is important to note that s 164(3) provides that a defect that renders a registration ineffective with respect to the description of particular collateral covered by the financing statement will not thereby invalidate the registration covering descriptions of other collateral that are not defective. This stems from the fact that a single financing statement may be registered to cover multiple transactions and multiple security agreements which may cover various classes of collateral. This is in accordance with the overriding purpose of the PPSA. When interpreting this rule it is useful to consider the comments of Gedye M, Cuming R and Wood R31 “One of the Act’s goals is to promote certainty in commercial dealing. This is achieved through the creation of clear substantive and procedural rules that at times might be perceived to work an injustice on particular facts. This is the cost of promoting certainty but is deemed justified … protecting the register’s integrity and promoting the accuracy of the information contained in it is necessary for the proper function of the personal property securities regime. Courts need to bear this in mind when considering the degree of latitude that will be allowed to registering parties who make errors or omissions in financing statements.” See similar comments in Re Hoskins (2014) 8 CBR (6th) 98 (NL SC Trial Division) at [32]–[33]. Recording the security interest as a PMSI when it is not (to any extent) is a defect: Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 at [77]. Describing a security interest as transitional when it is not is also a type of defect recognised by the Court: Re 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407. [164.5.2] Seriously misleading The concept of seriously misleading defects is used in other PPS systems, including New Zealand and most of the Canadian provinces. It should be noted that the Ontario PPSA does not use the same term but rather focuses on whether a reasonable person is likely to be misled. When considering overseas authorities on this issue it is also important to note that the systems for searching the PPSRs in each jurisdiction are not the same. While The UCC Article 9, Ontario and New Zealand systems use the same “exact match” search system that the Australian Personal Property Securities Register (PPSR) has adopted, most of Canada (including Saskatchewan) uses a “near match” system. Different search systems may also allow differing search criteria to be used. For example, the Australian PPSR allows a search to be conducted according to the grantor’s details or a serial number for the collateral or by using the unique number assigned to a registered financing statement. These differences mean that what is misleading for one type of search system will not necessarily be misleading in another system and have resulted in significant differences in the lines of authority. These differences have arisen in cases where multiple search criteria are used, particularly with collateral described by serial number. In the leading case in Ontario (which uses an exact match searching system), the Court of Appeal in Re Lambert (1994) 7 PPSAC (2d) 240; 119 DLR (4th) 93 found that a registered financing statement was not misleading because it contained an error in the grantor’s name where the serial number (VIN) was correctly entered. In that case, the grantor had used his middle name as his first name and that was recorded on the financing statement when the information on his birth certificate was different. The searching party only searched for the name and not the serial number. The Court reasoned that a reasonable searcher for a security interest in a motor vehicle would request the serial number and would search using those details in addition to searching under the grantor’s name. Given that the serial number search retrieved the record, it was not misleading (note: the Ontario PPSA only requires that the record be misleading). Re Lambert was applied by the Court of Appeal in British Columbia in Gold Key Pontiac Buick (1984) Ltd v 464750 BC Ltd (Trustee of) (2000) 77 BCLR (3d) 185; 189 DLR (4th) 668, but has not been generally followed elsewhere outside of Ontario: see further Re Bankruptcy of Rosa Argentina Gonzalez, [2017] MBQB 178. For more information on searching the PPSR see Pt 5.5. The dual search approach has not been followed in other Canadian provinces as the Ontario legislation requires a reasonable person to be misled (s 46(4) Ontario PPSA). This objective requirement does not appear in the PPSA in most other provinces. The New Zealand High Court relied upon this distinguishing feature of the Ontario law to refuse to use the Re Lambert test: Polymers International Ltd v Toon (2013) FPPSR ¶700-015; [2013] NZHC 1897 at [23] (applied in Partners Finance and Lease Ltd v Richmond [2019] NZHC 34). Thus, an error in either the grantor’s name or serial number of the collateral will be

seriously misleading if it fails to produce a record: see Robie Financial Inc v Pye (2009) 16 PPSAC (3d) 66 (NS SC); Stevenson v GMAC Leaseco Ltd (2003) 257 NBR (2d) 141; 227 DLR (4th) 154 (NB CA) (sub nom GMAC Lease Co Ltd v Moncton Motor Home & Sales Inc (Trustee of) (2003) 4 PPSAC (3d) 211); Kelln (Trustee of) v Strasbourg Credit Union Ltd (1992) 3 PPSAC (2d) 44; 89 DLR (4th) 427 (Sask CA). It should be noted that the capacity for grantor name errors during registration in Australia is limited because when the grantor has an ACN, ARSN or ARBN (or for partnerships or trusts, an ABN), the PPSR registration system (as at July 2020) will autogenerate name details from ASIC’s registers once the relevant number identifier is entered. While this leaves open errors in recording individual grantor names for natural persons, the scope for natural person grantors is most likely found in relation to motor vehicles and when motor vehicles are registered as consumer property no grantor name details are recorded: s 153 (table item 2(a)). Whether the dual search approach of Re Lambert should be applied in Australia is an open question. Section 164(1)(b) notes that s 165 renders the registration automatically ineffective for both errors in serial numbers and grantor details. However, the wording of s 165 states that a defect in the serial number will render the registration ineffective under s 164(1)(b) where “the collateral is required by the regulations to be described by serial number” (s 165(a)) while errors in naming the grantor will render the registration ineffective under s 164(1)(b) where “the collateral is not required by the regulations to be described by serial number” (s 165(b)). In the authors’ view, where the registration of a financing statement in relation to motor vehicles as collateral includes a mistake in the serial number, this would render the registration ineffective if the motor vehicles are described as consumer property (because the regulations require such collateral to be described by serial number) but not if the collateral was described as commercial property (as description by serial number is merely optional in that case). Of course, outside of the scope of s 165, a mistake in either the serial number or the grantor’s details could still be seriously misleading under s 164(1)(a). This leaves the door open to either the dual search approach favoured in Re Lambert or the single search approach favoured in most of the rest of Canada. The courts in other PPSA jurisdictions have interpreted the term “seriously misleading” as requiring an objective test, that is, whether a searcher would have found the financing statement by searching the register: Re Hoskins (2014) 8 CBR (6th) 98 (NL SC Trial Division); Stevenson v GMAC Leaseco Ltd (2003) 257 NBR (2d) 141; 227 DLR (4th) 154 (NB CA) (sub nom GMAC Lease Co Ltd v Moncton Motor Home & Sales Inc (Trustee of) (2003) 4 PPSAC (3d) 211); Re Lambert (1994) 20 OR (3d) 108; 119 DLR (4th) 93 (Ont CA); Kelln (Trustee of) v Strasbourg Credit Union Ltd (1992) 3 PPSAC (2d) 44; 89 DLR (4th) 427 (Sask CA). This is confirmed by s 164(2) and the Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) (PPS Bill) (at [5.71]). The objective approach has been applied in Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741 (defect in secured party details (ABN instead of ACN used) was not seriously misleading because there was no search facility for secured party details). The differences in approach mentioned above relate to whether an objective searcher should be required to search multiple fields (ie name and serial number). In Rabobank New Zealand Ltd v Stockco Ltd [2010] NZHC 271 it was noted that an error in a field which is not specifically searchable (such as the collateral description) is less likely to be seriously misleading than an error in a searchable field (ie the grantor’s details or serial number for collateral). In that case the court stated (at [56]) that: “it is not at all clear that the burden of [difficulties associated with incorrect details contained on a financing statement] should necessarily fall on a searcher of the PPSR rather than a registering party”. The Supplementary Explanatory Memorandum to the PPS Bill notes (at [5.70]): “This policy approach has been adopted to promote the reliability of PPSR data. This rule would not necessarily make a registration defective on the basis of a simple mistake, such as a typographical error in a free text field. Nor would it be likely to capture errors of a more substantive kind that do not seriously mislead a person. For example, the omission of the name of one secured party in a consortium would not be seriously misleading whereas an incomplete or inaccurate collateral description would be likely to be misleading.”

The Rabobank decision was distinguished in Polymers International Ltd v Toon (2013) FPPSR ¶700-015; [2013] NZHC 1897 on the basis that a failure to include the incorporation number for a corporate grantor, where that number was required for a financing statement, rendered the registration defective. This is consistent with Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741. The Stockco decision was approved by Brereton J in Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21 at [38]–[39]. His Honour held: “[39] … Such a construction furthers the purpose of the PPSA in ensuring the integrity and reliability of the PPSR, and visiting upon secured parties the obligation to ensure — if they are to enjoy the benefits of registration — that their registration be discoverable on search against the grantor’s details required to be included in a financing statement under s 153. The facilitation of ascertaining whether there are prior registrations is a fundamental purpose of the PPSA. [40] It does not avail Alleasing that the administrators, apparently using a B2G interface, discovered the original registrations; it is unnecessary, for a defect to be misleading, to establish that anyone was in fact actually misled.[23] It is the capacity or potential to mislead that is crucial. Here, the defect was such that searchers using one of the two authorised modes of search would not discover the registration. The circumstance that a searcher using one of the authorised means of search would not discover the registration renders the defect misleading, and seriously so — even if, as is suggested, most searchers (the evidence indicates 80%) use B2G platforms which, in the way that has been described, would reveal it.” [164.5.3] Seriously misleading defects The following cases provide examples where the courts have found that defects were seriously misleading: • failure to include the incorporation number of a corporate grantor (Polymers International Ltd v Toon (2013) FPPSR ¶700-015; [2013] NZHC 1897). It should be noted that the PPSR system for registering in Australia will request an ACN when entering the grantor’s details and then automatically record the name of the grantor under ASIC’s registers name index corresponding with the ACN entered • failing to include a serial number where required to do so (Kelln (Trustee of) v Strasbourg Credit Union Ltd (1992) 3 PPSAC (2d) 44; 89 DLR (4th) 427 (Sask CA)) — See also, s 165(a) • recording a partnership’s name as that of an individual partner rather than the firm name (Rabobank New Zealand Ltd v Stockco Ltd (2010) FPPSR ¶700-004; [2010] NZHC 271) • recording collateral description simply as reference to date of general security agreement (Re Noriega (2003) 15 Alta LR (4th) 79; 42 CBR (4th) 274 (Alta QB)) • failing to indicate that collateral covers inventory (Adelaide Capital Corp v Integrated Transportation Finance Inc (1994) 6 PPSAC (2d) 267; 111 DLR (4th) 493 (Ont CJ GD)). [164.5.4] Defects that were not seriously misleading The following cases provide examples where the courts have found that defects were not seriously misleading: • describing collateral as “all present and after-acquired property” when the security interest was narrower (Service Foods Manawatu Ltd (in rec and liq) v NZ Associated Refrigerated Food Distributors Ltd (2006) 9 NZCLC 263,979 — appeal dismissed Simpson v New Zealand Associated Refrigerated Food Distributors Ltd [2007] 2 NZLR 130) • describing some vehicles as trucks but not others (when they were) but where all vehicle details were correct including the VIN (International Harvester Credit Corp of Canada Ltd v Bell’s Dairy Ltd (Trustee of) (1986) 50 Sask R 177; 6 PPSAC 138 (Sask CA))

• failing to specify the type of serial numbered goods where serial number correctly recorded and names of items made their identification obvious (Valley Vista Golf Course Ltd (Receiver of) v Maxium Financial Services Inc (2003) 6 PPSAC (3d) 128; 214 NSR (2d) 91 (NS SC)) • Stating the secured party’s ABN rather than the ACN as required by s 153 (Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741). [164.6] Further reading • Explanatory Memorandum [4.32, 5.29, 5.69–5.73, 9.54]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.4.2], [6.10.1], [6.10.2], [6.10.3], [6.11.15], [7.2.1]. • Andrew Berriman, “Curing defective registrations in the personal property securities register” (2018) 46 Australian Business Law Review 119. • Martin Lovell and Oliver Radan, “Registration errors under the PPSA: A case law inventory and analysis” (2019) 47 Australian Business Law Review 442. Footnotes 31

Gedye M, Cuming R and Wood R, Personal Property Securities in New Zealand, 2002 Thomson Brookers at p 472.

¶165 SECTION 165 DEFECTS IN REGISTRATION — PARTICULAR DEFECTS ¶5-105 SECTION 165 DEFECTS IN REGISTRATION — PARTICULAR DEFECTS Text of s 165 [165.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 150

Saskatchewan

PPSA 1993

s 43(7)–(7.2)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-506(b)

[165.2] Outline This section sets out when (for the purposes of s 164(1)(b)) particular defects will render the registration of a financing statement ineffective. It should be read together with s 164. [165.3] Cross-references • Section 150 provides for the registration of financing statements and financing change statements. • Sections 153 and 154 and PPS Regulations Sch 1 and 2 (respectively) set out the content required to enable financing statements to be registered. • Section 166 provides further rules for defective financing statements. [165.4] Concepts • Defect This is defined by s 10 as an irregularity, omission or error in the registration. [165.5] Commentary [165.5.1] Deemed defects....................................XX [165.5.2] Serial number defects....................................XX [165.5.3] Grantor identification defects....................................XX [165.5.4] PMSI defects....................................XX [165.5.5] Further prescribed defects....................................XX [165.5.6] Transitional defects....................................XX [165.5.1] Deemed defects Section 165 of the PPSA sets out specific categories of defects which, even if they are not “seriously misleading” within the meaning of s 164(1)(a) of the PPSA, nevertheless render a registration ineffective by force of s 164(1)(b) of the PPSA. By rendering ineffective particular registrations, the PPSA mandates strict compliance with particular details included on financing statements with a view to promoting the primacy and transparency of the PPSR. [165.5.2] Serial number defects

Section 165(a) provides that an error in the serial number of a financing statement in respect of a security interest taken over collateral which the PPSA requires to be the subject of a registration which includes the serial number of the relevant personal property will render the registration ineffective. In the authors’ view, on a plain reading, s 165(a) only applies where the PPS Regulations mandate the inclusion of the serial number of collateral the subject of the relevant security interest. Clause 2.2 of Sch 1 of the PPS Regulations provides that the certain types of property set-out thereto (including motor vehicles for the most part) must be described by serial number when describes as “consumer property” as opposed to “commercial property”. Section 10 of the PPSA defines “consumer property” as: “personal property held by an individual, other than personal property held in the course or furtherance, to any degree, of carrying on an enterprise to which an ABN has been allocated”. Section 165(a) is consistent with the consumer protection focus of Pt 2.5 of the PPSA in respect of third party purchasers/lessees taking free from existing encumbrances. [165.5.3] Grantor identification defects Section 165(b) of the PPSA applies where a search of the PPSR using only the grantor’s details as prescribed by the PPS Regulations (see section 153(1) of the PPSA; Sch 1, cl 1.2–1.6 of the PPS Regulations) is not capable of disclosing the relevant registration. See for example, Re Accolade Wines Australia Ltd [2016] NSWSC 1023. Consistent with the general focus of this provision, s 165(b) appears to be premised on the view that a secured party ought not benefit from perfected status (and the priority ramifications which follow) in circumstances where they have not, through their defective registration, ensured that the PPSR accurately and transparently reflects the encumbered position of a particular grantor. In such circumstances, the primacy of the PPSR is preferred to the individual rights of the relevant secured party. There is some force, in the authors’ view, to the argument that the strictness of interpretation advocated above is context specific. That is to say, it is not appropriate to prejudice the rights of the affected secured party (who will often be left with an entirely ineffective security interest) in circumstances where it is an external administrator and not a reasonable third party searcher who is dealing with the PPSR to determine the respective rights of creditors of a particular grantor. The argument is such that to give effect to a windfall gain to unsecured creditors (who may or may not have changed their position had the defective registration been correctly registered) as a consequence of rendering ineffective a particular security interest is to treat the PPSA as opportunistic legislation. In the authors’ view, while consideration of the commercial context is important when interpreting the PPSA, as a commercial piece of legislation, the fact that s 165 exists expressly outside the confines of the defect being “seriously misleading” and therefore outside the scope of any inquiry as to the effect of the defect on a reasonable third party, leads to the conclusion that a strict reading of s 165 (and therefore s 165(b)) is the preferred approach. To deal with the above argument squarely, one simply does not get to the inquiry of whether or not it is a reasonable third party purchaser, a competing secured party or an insolvency practitioner who is on the other side of the PPSR. See for example, Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21. [165.5.4] PMSI defects Section 165(c) provides that a financing statement which indicates that the underlying security interest is a PMSI (when it is, in fact, not a PMSI) is ineffective. The rationale behind this s 165(c) is that it is materially misleading (irrespective of whether anyone is actually misled or not) for a secured party to put the world at large on notice that they have a first ranking priority interest over particular collateral (by force of s 62 of the PPSA and subject to the remainder of Pt 2.6) when they do not have any such interest. There has been some argument that a financing statement which triggers s 165(c) of the PPSA should not be deemed entirely ineffective but rather the relevant interest should be afforded priority as a perfected security interest and not as perfected PMSI. For reasons similar to that discussed at 165.5.3, such an argument deviates from the intended strictness of s 165 and is not likely to be preferred in the

authors’ view as it would encourage or facilitate the deliberate indication of a security interest constituting a PMSI as the worst that could happen (if the above approach is accepted) is that priorities will be allocated as they would have been had the relevant interest been perfected correctly in the first instance, ie as a perfected security interest with priority from the time of registration. This is in direct conflict with promoting the accuracy and transparency of the PPSR. See for example, Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd [2017] NSWSC 1230 (PMSI). [165.5.5] Further prescribed defects At the time of writing no prescribed errors have been specified in the PPS Regulations. [165.5.6] Transitional defects Notwithstanding that there have been no further prescribed defects in the PPS Regulations in accordance with s 165(d) of the PPSA, regard should be had to s 337A of the PPSA in circumstances where a financing statement indicates that a security interest is “transitional” when it is not transitional. See for example, Re 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407. The commentary at [165.5.4] in respect of indicating that a security interest is a PMSI is likely, in the authors’ view, to inform the proper construction of s 337A of the PPSA. [165.6] Further reading • Explanatory Memorandum [5.72, 9.54]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report Ch 6, [7.7.8].

¶166 SECTION 166 DEFECTS IN REGISTRATION — TEMPORARY EFFECTIVENESS ¶5-110 SECTION 166 DEFECTS IN REGISTRATION — TEMPORARY EFFECTIVENESS Text of s 166 [166.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) § 9-507

[166.2] Outline This section clarifies that a defect in a registration that does not arise because of an irregularity, omission or error in a financing statement or financing change statement will allow the secured party temporary perfection for a particular period. [166.3] Cross-references • Section 52 provides a taking free rule for temporarily perfected security interests. • Sections 164 and 165 provide for certain defects in registrations to render the registration ineffective. [166.4] Concepts • Actual or constructive knowledge See s 297. • Defect This is defined in s 10 as an irregularity, omission or error in the registration. See also, Re Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505 at [28]. • Defect arising This does not refer to a defect that existed from the creation of the instrument, but rather one that arose after the instrument was created: Re Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505 at [21]. [166.5] Commentary This section recognises that defects in registration can arise in circumstances that are not the fault of the secured party and therefore deserve temporary perfection. One example given by the Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) was where an individual grantor changed her name following marriage. The EM explains at [5.76]: “This rule is not intended to give secured parties the opportunity to correct defects of their own creation, but to provide a grace period for secured parties to correct registrations where events beyond their control have led to a previously effective registration becoming defective.” In the limited circumstances where this section applies the secured party has temporary perfection until the earliest time set out in s 166(2). For further discussion as to the rationale and effect of temporary perfection see s 21, 33 and 34. [166.6] Further reading

• Explanatory Memorandum [5.45, 5.74, 8.28]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report Ch 6, [7.2.1].

¶167 SECTION 167 SECURITY INTEREST IN CERTAIN PROPERTY BECOMES UNPERFECTED ¶5-115 SECTION 167 SECURITY INTEREST IN CERTAIN PROPERTY BECOMES UNPERFECTED Text of s 167 [167.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[167.2] Outline This section requires a secured party to register a financing change statement to end the registration where the security interest becomes unperfected. The section only applies to security interests over collateral used or intended to be used predominantly for personal, domestic or household purposes or to serial numbered property. [167.3] Cross-references • Section 56 explains how a security interest is continuously perfected. • Section 150 provides for the registration of a financing change statement. • Section 153 and PPS Regulations 2010 (Cth) Sch 1 cl 2.2 require certain types of collateral to be described by serial number. • Part 5.6 allows for amendment demands to be made. • Section 271 provides a right to seek compensation for a contravention of the Act. [167.4] Concepts • Predominantly for personal, domestic or household purposes See [47.4]. [167.5] Commentary This provision is aimed at ensuring that grantors of security interests over certain types of collateral will not be prejudiced by outdated registrations. Note that the obligation to end the registration time does not apply to general commercial financing arrangements. This was explained in the Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) (at [5.79]): “commercial financing is typically a medium to long term arrangement, often involving a fluctuating line of credit rather than a lump sum loan, and a series of security agreements rather than a one-time loan or credit transaction. In many commercial arrangements, it would be contrary to the interests and intentions of both parties to require the secured party to end a registration every time there was a short break in their financing relationship”. [167.6] Further reading • Explanatory Memorandum [5.78, 8.28]. • ALRC Report No 64 [13.1–13.24].

• Whittaker Report [6.2.1], [6.10.4].

¶168 SECTION 168 MAINTENANCE FEES ¶5-120 SECTION 168 MAINTENANCE FEES Text of s 168 [168.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[168.2] Outline This section allows the Registrar to charge maintenance fees in respect of registered financing statements and to register a financing change statement to end the effect of the registration if the fees are not paid on time. [168.3] Cross-references • Section 190 provides for fees. At the time of writing the fees under this provision had not yet been set: see www.ppsr.gov.au. Personal Property Securities (Fees) Determination 2013 (Cth) sets the fees for searching and registering documents on the PPSR but does not include maintenance fees. At the time of writing this book the fee to register a financing statement was $140 where there is no stated end time and $40 where the duration is more than seven years but less than or equal to 25 years. The fees are available on the PPSR at www.ppsr.gov.au/AbouttheRegister/AboutFees/Pages/default.aspx. • Section 195 provides the Registrar with the power to do anything necessary or convenient for the performance of his/her functions under the PPSA. [168.4] Concepts • Financing statement and financing change statement These are defined by s 10. See also, s 150, 153. [168.5] Commentary This section allows the Registrar to charge fees and end the registration if the fees are not paid. Note that the Registrar must give a verification statement if they register a financing change statement to end the registration: see s 156. [168.6] Further reading • Explanatory Memorandum [5.68, 5.81–5.82]. • ALRC Report No 64 [13.1–13.24].

¶5.5 PART 5.5 — ACCESSING THE REGISTER TO SEARCH FOR DATA

¶169 SECTION 169 GUIDE TO THIS PART ¶5-125 SECTION 169 GUIDE TO THIS PART Text of s 169

¶170 SECTION 170 SEARCH — GENERAL ¶5-130 SECTION 170 SEARCH — GENERAL Text of s 170 [170.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 171

Saskatchewan

PPSA 1993

s 48

Ontario

PPSA 1990

s 43

USA

UCC Article 9 (rev) § 9-523

[170.2] Outline Section 170 outlines the procedure by which interested third parties (or “searchers”) can search the PPSR for existing interests. [170.3] Cross-references • Sections 176B and 176C provide for conditions to be attached to grants of access to the data included in the Personal Property Securities Register (PPSR). • Section 191 allows for the AAT to review decisions under this section. • Part 5.9 provides for the PPS Registrar to be established. [170.4] Concepts • Access prohibited by the regulations The Personal Property Securities Regulations 2010 (Cth) reg 5.7 allows for access to information on the PPSR to be refused because of a court order or because the Registrar considers that it is in the public interest that access to the data should not be permitted. • Approved form See s 302. • PPSR See s 147 and 148. [170.5] Commentary [170.5.1] Commentary on s 170 — search — general....................................XX [170.5.2] Failing to search....................................XX [170.5.3] Access to PPSR prohibited by court or registrar....................................XX [170.5.1] Commentary on s 170 — search — general Section 170 of the PPSA expressly provides for the ability to search the Personal Property Securities Register (PPSR) in accordance with the balance of the provisions under Pt 5.5. While misuse of the ability to search can constitute a civil penalty under the PPSA (see s 173; See also, s 271), qualifying as an “interested party” for the purposes of conducting a search does not require the satisfaction of onerous requirements. The rationale throughout the PPSA is that primacy is to be given to the PPSR and that the register is to be transparent insofar as it is not used to breach the privacy of complying parties. That is to say searching parties must not conduct searches or use the data obtained from PPS searches for

anything other than defined PPS purposes (see s 172). [170.5.2] Failing to search While there is no requirement on third parties to conduct a search under the PPSA, failing to search and reveal existing interests operates to the detriment of the party taking an interest over collateral without searching the PPSR. Such was the case in the Ontario Court of Appeal decision, Charter Financial Co v Royal Bank (2002) 4 PPSAC (3d) 4; 32 CBR (4th) 212. The court held that if the bank in this case had conducted the usual searches, such searches would have revealed the existing interest which the court held the bank took their interest subject to. There is thus no unfair prejudice imposed on a party who does not conduct the relevant searches when seeking to take an interest over personal property under the PPSA (at [9]). The authors support the position taken by the Ontario Court of Appeal in this regard. The New Zealand Court of Appeal addressed the issue of parties failing to search the New Zealand PPSR in, The Healy Holmberg Trading Partnership v Grant and Khov as liquidators of LBD Civil Ltd (in liq) (2012) FPPSR ¶700-011; [2012] NZCA 451. In that case the ultimate question was whether a perfected security interest later in time prevailed as against a security interest perfected by registration earlier in time — where the security agreement of the earlier interest was not signed until after the later interest had arisen and been perfected (see ¶61-000). In such circumstances, the earlier interest was said to prevail, correctly in the authors’ view. Priority rules aside, the rationale for this position was addressed by the Court of Appeal (at [59]): “The present case is a good example. The Riga parties ought to have searched the PPSA register before making their advances to LBD, and if they had done so they would have realised that they could not claim a prior ranking security interest over the items of equipment referred to in the financing statement that had been filed earlier by the Partnership. If they then went ahead and made the advance in those circumstances, they could not complain about the outcome of the application of the first to register rule. If they did not search the register, they could not complain either, as that is a basic due diligence step that all providers of secured finance can be expected to take. The first to register rule gives certainty and clarity and allows parties to determine their relative priority positions before they commit themselves to the provision of finance.” This position is consistent with s 170 and indeed lends support for the view that it is the secured party that must maintain the accuracy of what appears on the PPSR and not the searching party who bears the onus for second-guessing the results of a relevant search. [170.5.3] Access to PPSR prohibited by court or registrar Regulation 5.7 of the PPS Regulations specifies that access to the PPSR is prohibited where a court determines that access should be prohibited or where the Registrar considers that it is in the public interest that access should be prohibited. This regulation exists to prevent the abuse of the information contained on the PPSR. The Registrar must take into account threats to the life or health of those parties who have information recorded on the PPSR, the interests of the person undertaking the search, the interests of the secured party in providing notice and the overarching public interest in exercising their discretion. Due to the nature of the information on the PPSR, the role of the Registrar in this regard should be taken seriously with consequences imposed for misuse of information obtained from the register pursuant to s 172 (specifically s 172(3)). [170.6] Further reading • Explanatory Memorandum [5.86–5.88]. • ALRC Report No 64 [13.19–13.24].

¶171 SECTION 171 SEARCH — CRITERIA ¶5-135 SECTION 171 SEARCH — CRITERIA Text of s 171 [171.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 172

Saskatchewan

PPSA 1993

s 48(1)

Ontario

PPSA 1990

s 43(1)

USA

UCC Article 9 (rev) no parallel

[171.2] Outline Section 171 prescribes the methods of searching available to a searcher for the purposes of identifying the existence of security interests under the PPSA. [171.3] Cross-references • Sections 171–174 provide further provisions related to searching the Personal Property Securities Register (PPSR). • Section 175 provides for access to copies of financing statements and verification statements. • Sections 176B and 176C provide for conditions to be attached to the access to data on the PPSR. [171.4] Concepts • Registered financing statement This refers to a financing statement (see s 10) that is registered on the PPSR. See also, Pt 5.3, in particular s 153. • Serial number This refers to an identification number given to certain types of property (such as motor vehicles and watercraft). See s 153. • Unique identifier This refers to a number assigned by the Registrar to each registered financing statement in accordance with s 171(1)(da). [171.5] Commentary While a series of searching particulars may be used pursuant to s 171(1), it is often the nature of the underlying collateral or the instrument creating the security interest which will determine how a search is to be most appropriately conducted (as opposed to the discretion or choice of the searching party). Property which may or must be described by serial number for instance, should be searched by serial number. Section 171(2) expressly provides that s 171 operates subject to the PPS Regulations. While a searcher can search for interests over collateral through the grantor’s name, where the property may or must be described by serial number (and the searcher elects to search exclusively by serial number) — it is possible that the searcher will benefit from the position that the financing statement contains a “seriously misleading defect” (see s 164–166) and thus the searcher will take any subsequent interest free from the defective interest. Additionally, the PPS Regulations prescribe that the results of a search must allow for case-insensitive searching pursuant to reg 5.8.

The judiciary in response to the adequacy of searches and the accuracy of the register has produced differing opinions across the Canadian provinces. In giving effect to the transitional provisions of the PPSA, a line of authority has emerged placing a “dual search” requirement on searchers, that is, a search must be conducted as against at least two of the criteria equivalent to those found under s 171(1). As noted in the commentary to s 164 the leading decision on the dual search requirement is the Ontario Court of Appeal case, Re Lambert (1994) 7 PPSAC (2d) 240; 119 DLR (4th) 93 where the court stressed that search requirements must uphold the integrity of the registration system. The Court stated: “The section is designed to preserve the integrity of the registration system provided by the P.P.S.A. That system has two constituencies: those who register financing statements; and those who search the system for prior registrations. The integrity of the overall system must address the interests of both groups. [the Ontario equivalent to s 164 dealing with seriously misleading errors] seeks to maintain the system’s integrity by distributing the impact of errors, no matter how unavoidable, made in financing statements between the two groups. An interpretation … which is too forgiving of such errors places too much of the burden on prospective creditors and purchasers (searchers). An interpretation which is too unforgiving of those errors places too much of the burden on creditors (registrants). In either event, the integrity of the registration system suffers. [The section] should be interpreted, to the extent that its language permits, so as to assign the burden of the error in a manner which best promotes the overall integrity of the system.” Re Lambert was applied by the Court of Appeal in British Columbia in Gold Key Pontiac Buick (1984) Ltd v 464750 BC Ltd (Trustee of) (2000) 77 BCLR (3d) 185; 189 DLR (4th) 668, but has not been generally followed elsewhere outside of Ontario. For further discussion of the dual search requirement see [164.5.2]. In the authors’ view, where a searcher is given the choice as to which of the criteria they can search under, the registered financing statement must be accurate with respect to all fields. Where a searcher is, however, confined to one specific field, such as the serial number where the property in question must be described as such, it makes little pragmatic difference whether or not the other fields are completely accurate insofar as they do not detract from the accuracy of the relevant field (see s 164–166 regarding “seriously misleading defects”). The onus must ultimately lie with the party perfecting by registration to ensure the PPSR reflects, as accurately as possible, the existing interest. The standard required of the searcher is thus one in the usual course depending on the collateral in question. The number of criteria searched, while relevant, should not be decisive. That said, where commercially feasible, a searching party should make full use of the available search options to reveal the most complete picture as to how the property is encumbered and to what extent. The “usual standard” upholds principles of commerciality and should be assessed on an objective basis. This position was endorsed by the British Columbia Court of Appeal in the case of, Gold Key Pontiac Buick (1984) Ltd v 464750 BC Ltd (Trustee of) (2000) 2 PPSAC (3d) 206; 189 DLR (4th) 668, where the Court held that a reasonable person would search for a serial number where available (the collateral in question were leased vehicles). Searchers should, however, be aware that whatever is uncovered from searching the PPSR will arm them with actual knowledge of the facts found. Such was the case in Alberta Court of Queen’s Bench decision, Harder (Trustee of) v Alberta Treasury Branches (2004) 6 PPSAC (3d) 346; 36 Alta LR (4th) 118 at [50]– [51], where the Court held: “The results of this argument, if accepted, would mean that a cautious purchaser or lender who does more than the minimal required searches in advance of purchasing/taking security on a chattel is disadvantaged because any information thereupon resulting will bind him. It will mean a purchaser from or lender to an honest vendor/debtor who volunteers the fact of the existence of a prior security is disadvantaged over one who purchases from or lends to someone who is less forthcoming. However, there is nothing inherently illogical in concluding that a party who learns extra information from voluntary searching should be bound by the results of that information; that is one reason the Personal Property Securities Register exists, to allow various searches to ensure that one obtains good title or a good interest in a chattel which is being sold/offered as security. Similarly it would be difficult to see the prejudice in holding someone bound by the results of accurate volunteered information in a business transaction.”

In Re Accolade Wines Australia Ltd [2016] NSWSC 1023, it was accepted that it is standard market practice to conduct a triple search using ABN, ACN and company name for corporate grantors. While this may be reasonable prudent practice, it is not mandated by the Act and a defect in any of the grantors details that are required to be included in a financing statement will be sufficient to render the registration defective and hence ineffective: Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21. [171.6] Further reading • Explanatory Memorandum [5.87–5.91]. • ALRC Report No 64 [13.19–13.24].

¶172 SECTION 172 SEARCH — BY REFERENCE TO DETAILS OF GRANTOR WHO IS AN INDIVIDUAL ¶5-140 SECTION 172 SEARCH — BY REFERENCE TO DETAILS OF GRANTOR WHO IS AN INDIVIDUAL Text of s 172 [172.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 173

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[172.2] Outline Section 172 establishes the purposes for which searchers can be conducted under the PPSA. [172.3] Cross-references • Section 170 provides for searching the Personal Property Securities Register (PPSR). • Section 171 provides criteria for use in searching the PPSR. • Section 173 deals with privacy issues and searching the PPSR. • Section 174 provides for the use of PPSR search results as evidence. [172.4] Concepts • Control See s 25–29. • Described in a registration This refers to the information provided in a financing statement which is registered on the PPSR: see s 153. • Evidential burden This is defined in s 10 as meaning (in relation to a matter) “the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist”. • Individual This refers to a natural person rather than a body corporate: Acts Interpretation Act 1901 (Cth) s 22(1)(aa). • Personal property This is defined in s 10. [172.5] Commentary The table pursuant to s 172(2) prescribes an exhaustive list with respect to parties who can conduct searches on the Personal Property Securities Register (PPSR) and for what purposes. Analysing the purposes themselves, the ambit of each varies, however, all searches satisfy the notice based function of the PPSR. The reason for an exclusive list is to prevent threats to the privacy of the information stored on

the register. The PPSR, while publically available, exists to support the operation of the Act and not to disclose private information concerning the credit status of particular persons or corporations. A common sense approach should guide the courts in ascertaining whether or not a search was conducted for PPS purposes or for some arbitrary purpose. Failing to establish one of the prescribed purposes constitutes a civil penalty under the PPSA, unless the data obtained through the search could be lawfully collected from another source. The evidential burden rests with the searching party to satisfy the court that their search was in accordance with s 172(2). Enforcement of s 172 is at the discretion of the Registrar (see Pt 5.9) and an aggrieved party who suffers as a consequence of an unauthorised search retains an action for the recovery of damages pursuant to s 172(6) (See also, s 271). [172.6] Further reading • Explanatory Memorandum [5.92–5.96]. • ALRC Report No 64 [13.19–13.24]. • Whittaker Report [6.2.1].

¶173 SECTION 173 SEARCH — INTERFERENCE WITH PRIVACY ¶5-145 SECTION 173 SEARCH — INTERFERENCE WITH PRIVACY Text of s 173 [173.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 174

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[173.2] Outline Section 173 extends the ramifications of conducting an unauthorised search. [173.3] Cross-references • Sections 170–172 provide for searching the Personal Property Securities Register (PPSR). [173.4] Concepts • Personal information This is defined in the Privacy Act 1988 (Cth) s 6 as meaning: “information or an opinion (including information or an opinion forming part of a database), whether true or not, and whether recorded in a material form or not, about an individual whose identity is apparent, or can reasonably be ascertained, from the information or opinion”. [173.5] Commentary Section 173 prescribes that the unauthorised searching or use of data obtained by such a search can also constitute a breach of s 13 of the Privacy Act 1988 (Cth). Violations of this kind are thus actionable under the Privacy Act in addition to s 172 of the PPSA. While protecting the privacy of register participants is important in encouraging the use and familiarity of the Personal Property Securities Register (PPSR), the concept is restricted to the Australian and New Zealand PPSA models — with no reported cases among the Canadian provinces or the US on point. [173.6] Further reading • Explanatory Memorandum [5.97–5.99]. • ALRC Report No 64 [13.19–13.24, 14.9–14.19].

¶174 SECTION 174 SEARCH — WRITTEN SEARCH RESULTS AND EVIDENCE ETC. ¶5-150 SECTION 174 SEARCH — WRITTEN SEARCH RESULTS AND EVIDENCE ETC. Text of s 174 [174.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 175

Saskatchewan

PPSA 1993

s 48(2)

Ontario

PPSA 1990

s 43(2), (3), (4)

USA

UCC Article 9 (rev) No equivalent

[174.2] Outline Section 174 outlines what written search results, obtainable under s 170, can be used for. [174.3] Cross-references • Sections 170–172 provide for searching the Personal Property Securities Register (PPSR). • Chapter 6 provides rules for judicial proceedings under the PPSA. [174.4] Concepts • Financing statement This is defined in s 10 as data registered (or that is to be registered) pursuant to an application for registration under s 150. See also, s 153. • Financing change statement This is an application to amend data included on the PPSR by a financing statement: See further, s 153. • Registered description of collateral This refers to the description of collateral included in a financing statement that is registered on the PPSR: see s 153. [174.5] Commentary Section 174 prescribes that written search results comprise evidence of the PPSR for the purpose of litigation. The form of the written search results is relevant as it conveys authenticity. That being said, s 174 of the PPSA does not speak to the admissibility or otherwise of searches of the PPSR conducted via platforms not approved by the Registrar or not issued by a Commonwealth, State or Territory agency but rather a third party platform or interface. At the time of writing, the PPSR itself provides for interacting with the PPSR through a “Business to government (B2G) platform” which, essentially, allows high volume users to create their own interface for interacting with (ie searching and registering) the PPSR: see www.ppsr.gov.au/b2g. At a practical level, while the PPSR can be searched as it stood at particular dates, deletion of data can occur from time to time pursuant to resource constraints and thus the authors advise that upon notice of litigation proceedings, parties relying on searchers should, as soon as practicable, obtain the relevant written copies of the data on the PPSR at all material points in time: See SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities (No 2) [2014] FCA 987.

In Maroni v Reid [2016] WADC 88, the evidentiary value of a search of the PPSR was in issue. Principal Registrar Melville held (at [14], [18]–[19]): “The Personal Property Security register is a register establish by Commonwealth legislation under the PPSA for the purpose of enabling persons to register security over the property of others for the payment of monies that are owing to them. This has the benefit of enabling third persons who may be considering purchasing that property to be aware that the owner of the property does not have a clear title to sell to them. Upon payment of what is owing the party who has registered his security interest is required file documentation putting an end to the registration of the security interest. … In my opinion the document ‘purports’ to be issued by the Registrar. In 2020 Construction Systems Pty Ltd v Dryka & Associates Pty Ltd [2010] WASC 22 the court when discussing whether a document ‘purports’ to be a statutory demand said the expression ‘purports to be’ means ‘professes or claims to be’, citing Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd [1994] FCA 1059; (1994) 51 FCR 446, 452. In my view there is no reason to depart from that definition of ‘purports’ as found in the PPSA and when the document is considered as a whole, including the fact it represents itself as being issued under s 174 of the PPSA, it purports to be issued by the Registrar in the approved form. There being no evidence to the contrary, the certificate stands as proof that the CBH and Elders have an interest that is secured by the crop. It necessarily follows from that premise that the Reids have not satisfied all obligations to CBH or Elders namely that they would firstly ‘satisfy the obligations to CBH Grain Pty Ltd and Elders Rural …’ and that they are, therefore, in breach of the agreement.” [174.6] Further reading • Explanatory Memorandum [5.100–5.104]. • ALRC Report No 64 [13.19–13.24].

¶175 SECTION 175 COPIES OF FINANCING STATEMENTS AND VERIFICATION STATEMENTS ¶5-155 SECTION 175 COPIES OF FINANCING STATEMENTS AND VERIFICATION STATEMENTS Text of s 175 [175.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[175.2] Outline Section 175 addresses the duplication of financing statements for the benefit of searching parties. [175.3] Cross-references • Section 153 provides for financing statements. • Sections 155–158 provide for verification statements. • Section 191 allows for the AAT to review a decision by the Registrar under this section. [175.4] Concepts • Approved form See s 302. • Financing statement This is defined in s 10 as data registered (or that is to be registered) pursuant to an application for registration under s 150. See also, s 153. • Registrar See Pt 5.9. • Verification statement This is defined in s 155. A verification statement is given by the Registrar after a registration event has occurred (ie a change has been made to the information recorded in the PPSR against a particular grantor, such as change to the name of a secured party or a change to the description of collateral). See further, s 155–158. [175.5] Commentary Pursuant to s 175, a searching party can apply to the Registrar for an official copy of a financing statement or verification statement. A searching party may wish to retain a copy of such documents for evidentiary purposes. Whether or not the copies are produced is at the discretion of the Registrar. The financing statement will not include a copy of the underlying security agreement, however, the prospective creditor will need to obtain a copy of that from the debtor. [175.6] Further reading • Explanatory Memorandum [5.105–5.106].

• ALRC Report No 64 [13.19–13.24].

¶176 SECTION 176 REPORTS BY REGISTRAR ¶5-160 SECTION 176 REPORTS BY REGISTRAR Text of s 176 [176.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[176.2] Outline Section 176 concerns reports from the Registrar. [176.3] Cross-references • Section 191 allows the AAT to review decisions of the Registrar under this section. [176.4] Concepts • Registrar See Pt 5.9. [176.5] Commentary The role of the Registrar under the PPSA is discussed in Pt 5.9. In administering the PPSR, the Registrar may prepare reports on particular grantors. The effect of such reports is purely administrative, however, may be useful as to evidence of particular conduct. As such, s 176 grants the searching party the ability to request any reports from the Registrar with respect to particular grantors. Whether or not the reports are produced is at the discretion of the Registrar. [176.6] Further reading • Explanatory Memorandum [5.107–5.108]. • ALRC Report No 64 [13.19–13.24].

¶5.5A PART 5.5A — CONDITIONS ON DATA ACCESS

¶176A SECTION 176A GUIDE TO THIS PART ¶5-165 SECTION 176A GUIDE TO THIS PART Text of s 176A

¶176B SECTION 176B ACCESS TO REGISTERED DATA — CONDITIONS ¶5-170 SECTION 176B ACCESS TO REGISTERED DATA — CONDITIONS Text of s 176B [176B.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[176B.2] Outline This section allows for conditions to be imposed on the use to be made of the information obtained on the Personal Property Securities Register (PPSR). [176B.3] Cross-references • Section 271 provides for a right to seek compensation for breach of the obligations under the PPSA. [176B.4] Concepts • Approved forms See s 302. [176B.5] Commentary This section was inserted by amendments made in 2011 and was designed to limit the ability of searchers (particularly commercial enterprises) to on-sell prior search information which could jeopardise the Commonwealths ability to recover its costs in implementing and operating the Personal Property Securities Register (PPSR): see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, s 52, and the Explanatory Memorandum at [61]. See also, PPS Registrar’s Practice Statement No 6: Restrict Access to Data (22 August 2013). [176B.6] Further reading • Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) [61]. • ALRC Report No 64 [13.1–13.24].

¶176C SECTION 176C ACCESS TO THIRD PARTY DATA ¶5-175 SECTION 176C ACCESS TO THIRD PARTY DATA Text of s 176C [176C.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[176C.2] Outline This section allows for conditions to be imposed on the use of 3rd party data obtained from the Personal Property Securities Register (PPSR). [176C.3] Cross-references • Section 271 provides for a right to seek compensation for breach of the obligations under the PPSA. [176C.4] Concepts • Approved forms See s 302. [176C.5] Commentary This section was inserted by amendments made in 2011 and was designed to protect the use of 3rd party information that may be contained on the Personal Property Securities Register (PPSR) (such as information regarding stolen vehicles provided by the National Exchange of Vehicle and Driver Information System (NEVDIS)): see Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, s 55 and the Explanatory Memorandum at [63]–[64]. [176C.6] Further reading • Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) [63–64]. • ALRC Report No 64 [13.1–13.24].

¶5.6 PART 5.6 — AMENDMENT DEMANDS ¶1 Division 1 — Introduction

¶177 SECTION 177 GUIDE TO THIS PART ¶5-180 SECTION 177 GUIDE TO THIS PART Text of s 177 General commentary The Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process lists the three ways that amendments can be made to the Personal Property Securities Register (PPSR), the order of which is important. These methods are as follows: “1. the parties reach a resolution reached between themselves through the exchange of an amendment demand; 2. the administrative process for an amendment demand; and 3. the judicial process for an amendment demand.” The amendment demand process contained within Pt 5.6 of the PPSA is thus somewhat misleading as both the administrative process, pursuant to Div 2, Subdiv A, and the judicial process pursuant to, Div 2 Subdiv B, are alternatives to the first available method which is relatively cheaper, quicker and less coercive than the other approaches. In the authors’ view, the agreement between the lodging party and the secured party need not even extend from the issuing of a formal amendment demand (the concept of which will be discussed below), rather from informal communication seeking to effect the amendment. It is only when this method does not achieve the desired result that one needs to consult the other approaches, otherwise the secured party can simply lodge a financing change statement and effect the relevant change. Note that the secured party is entitled to recover administrative fees from the parties seeking the amendment. Practice Statement No 4 also usefully breaks down the logistical requirements necessary to satisfy Pt 5.6, including what should be contained within the amendment demand and amendment statement and what to expect by way of amendment notice from the Registrar. The following flowchart illustrates the administrative process for an amendment demand:

¶178 SECTION 178 HOW AMENDMENT DEMANDS ARE GIVEN ¶5-185 SECTION 178 HOW AMENDMENT DEMANDS ARE GIVEN Text of s 178 [178.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 162

Saskatchewan

PPSA 1993

s 50

Ontario

PPSA 1990

s 56

USA

UCC Article 9 (rev)

§ 9-513

[178.2] Outline This section allows for amendment demands to be served in particular circumstances. [178.3] Cross-references • Section 150 provides for the registration of financing change statements. • Sections 180–182 provide for administrative and enforcement processes for achieving amendments to registered financing statements. • Section 191 allows the AAT to review a decision of the Registrar under this section. [178.4] Concepts • Amendment demand An amendment demand is a request flowing from a party interested in amending the PPSR (typically the grantor or a third party with a potential dealing in the underlying collateral) to the secured party. It provides formal notice of a request and begins the five-business-day period of time relevant to s 179 of the PPSA. • Interest This is defined by s 10 as including a right in personal property. • Predominantly for personal, domestic or household purposes See [47.4]. [178.5] Commentary [178.5.1] How amendment demands are given?....................................XX [178.5.2] What should be included in the amendment demand?....................................XX [178.5.3] Five business days....................................XX [178.5.4] Who pays for the amendment?....................................XX [178.5.1] How amendment demands are given? Section 178 of the PPSA provides for a person with an interest in collateral (which may include a security interest) described by a registration, to give an amendment demand to the secured party indicated in a financing statement that requires them to register a financing change statement to amend the registration as shown in the table in the section. As the Supplementary Explanatory Memorandum to the Personal

Property Securities Bill 2009 (Cth) states (at [5.109]–[5.110]), this section applies where a “secured party is unwilling or neglects to omit property from, or end, a registration … This process would be important as a mere registration could limit the person’s ability to deal with the registered property”. The person issuing an amendment demand must be properly authorised under s 178(1). In Re Cirillo and Registrar of Personal Property Securities (2013) APPSR ¶701-011; [2013] AATA 733, the grantor/debtor served an amendment demand to the secured party indicated in the relevant registration after that party had taken an assignment (properly notified) of the original secured party’s debt. Mr Cirillo pursued the administrative process after the secured party refused to end the PPSR registration, and appealed to the AAT when the PPS Registrar refused to end the registration after the secured party provided evidence of the continued existence of the security interest in the collateral (in this case a motor vehicle). Thus, the amendment demand was not properly authorised and the AAT upheld the PPS Registrar’s decision. If a demand served under this section fails to achieve the relevant amendment, that is, if the secured party does not lodge a financing change statement to amend the registration, then the party who made the demand may seek assistance from the Registrar via the administrative process (see s 179–181) or the court via the judicial process (s 182). [178.5.2] What should be included in the amendment demand? Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process provides a list of 10 elements which should be included in every amendment demand. These elements are as follows: “1. This statement: ‘This is amendment demand which is provided under section 178 of the Personal Property Securities Act 2009’. 2. Date. 3. The secured party’s name. 4. The secured party’s address for service. 5. The PPSR registration number. 6. The Giving of Notice Identifier (if applicable). 7. The amendment that is demanded and the reason it is authorised, with reference to section 178 of the PPS Act. For example: 7.1. an amendment to end effective registration (including an amendment to remove the registration), because no collateral described in the registration secures any obligation (including a payment) owed by a debtor to the secured party; or 7.2. an amendment to omit the following collateral [state the collateral], because the person has an interest in that collateral and it does not secure any obligation (including a payment) owed by a debtor to the secured party. 8. Any evidence which supports the statement made in paragraph 7. 9. The name of the person who is making the amendment demand. If the amendment demand is made by a company, the full legal name of the company and the name, position and the capacity in which the person acts on behalf of the company. 10. A return address to which the secured party may send any response to the amendment demand.” [178.5.3] Five business days Section 179(1)(b) requires five business days before the party who issued the amendment demand can proceed with the administrative process. While the metric, five business days, is arbitrary — it does provide for an important notice period where the secured party can object to or otherwise query the

amendment demand. It is the secured party, and only the secured party, who stands to have their interest perfected by registration altered and thus all notice requirements are extended to the secured party for the purposes Pt 5.6, Div 2, Subdiv A (Administrative process) of the PPSA. [178.5.4] Who pays for the amendment? There is also an interesting balance between who bears responsibility for the accuracy of the PPSR, is it the secured party or is it the party seeking the amendment? Under the PPSA, in all cases it must be the secured party — that is the party benefiting from perfection by registration. However, if the underlying collateral is not being used for personal, domestic or household purposes (in circumstances where it was intended to be used as such when the security interest was entered into) a secured party can require payment from the party seeking the amendment in order to lodge the relevant financing change statement: s 178(3). This appears to shift the onus, at least financially, to an independent third party. The practical reality is that the encumbrance affects the party seeking the amendment and not the secured party, thus there is an administrative shift in cost but not a principle shift in burden. Put simply, the secured party remains responsible for the accuracy of the PPSR such that in the event that there is a seriously misleading defect it is the secured party who must bear the consequences. There may be a potential issue where the secured party has notice of a defect on the register but fails to comply with a request for a relevant amendment for want of payment of the administrative costs. The issue has not been considered either in Australia or abroad, however, given the nature of the amendment process, the secured party appears to be entitled to hold off until administration costs are covered provided what appears on the PPSR would not otherwise amount to a seriously misleading defect (see s 164). [178.6] Further reading • Explanatory Memorandum [5.109–5.13, 5.143]. • ALRC Report No 64 [13.1–13.24]. • Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process. • Whittaker Report [6.10.5]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295. • Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶2 Division 2 — Amendment demands: administrative and judicial process ¶A Subdivision A — Administrative process

¶179 SECTION 179 SCOPE OF SUBDIVISION ¶5-190 SECTION 179 SCOPE OF SUBDIVISION Text of s 179 [179.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 164

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[179.2] Outline This section sets out when s 180–181 (which allows the Registrar to serve an amendment notice on a secured party indicated in a financing statement and to register a financing change statement) apply. [179.3] Cross-references • Section 150 provides for the registration of a financing change statement. • Section 182 provides for court determination of an amendment demand. [179.4] Concepts • Amendment demand See s 178. • Amendment notice See s 180–181. • Approved form See s 302. [179.5] Commentary [179.5.1] Excluding security trust instruments....................................XX [179.5.2] Nature of administrative process....................................XX [179.5.3] Flow chart....................................XX Section 179 of the PPSA clarifies when s 180 (Amendment notices) and s 181 (Registration amendments) apply. [179.5.1] Excluding security trust instruments The reason for excluding security trust instruments is that the beneficiaries should not be penalised for the negligence or omission of the trustee: Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) at [5.117]. [179.5.2] Nature of administrative process While s 179 merely outlines jurisdiction, something more should be said about the administrative process generally when considering its scope. Subdivision A of Div 2 of Pt 5.6 of the PPSA provides an intermediary process for the resolution of discrepancies regarding what appears on the PPSR without the mandatory need to approach the court. Indeed, when judicial proceedings are commenced or continued

at any stage in the administrative process, the administrative process ends: s 179(1)(c), 179(2)(b). There are several further elements within the administrative approach which should be appreciated: • Coercive: The result of a successful administrative application on the part of the party who issued the amendment demand is no less coercive than a court order compelling the Personal Property Securities (PPS) Registrar to make the amendment. • Secured party may object: Perfection by registration is no more than the preservation of a priority position to the benefit of a secured party. It is thus the secured party who risks losing their interest pursuant to the amendment. As such the secured party is entitled to notice and an opportunity to query or object to the amendment. The PPS Registrar must consider any response made by the secured party. Where there is an objection it may be necessary for the dispute to take the form of judicial proceedings (see s 182). For an example of an objection see Re Cirillo and Registrar of Personal Property Securities [2013] AATA 733. • Extension of time limits is discretionary: The administrative process is a formal step and thus the provision of notice and the associated timing requirements are important. While the PPS Registrar can extend the relevant time periods, this requires the exercise of their discretion and is not available as a matter of course. [179.5.3] Flow chart The flow chart depicted in [177.5] should be read in conjunction with the above three points and is relevant to the application of s 179. [179.6] Further reading • Explanatory Memorandum [5.114–5.118]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.10.5]. • Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295. • Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶180 SECTION 180 ADMINISTRATIVE PROCESS — AMENDMENT NOTICES ¶5-195 SECTION 180 ADMINISTRATIVE PROCESS — AMENDMENT NOTICES Text of s 180 [180.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[180.2] Outline Section 180 of the PPSA allows for an administrative process to pursue an amendment of the Personal Property Securities Register (PPSR), either by the party seeking the amendment or at the initiative of the Registrar. [180.3] Cross-references • Section 179 sets out the scope of the application of this section. • Section 181 provides for an amendment to be implemented by the Registrar. • Personal Property Securities Regulations 2010 (Cth) reg 5.9 provides the prescribed information that is required to be included by a person giving a statement to the Registrar under this section. [180.4] Concepts • Amendment demand See s 178. • Amendment statement While described within s 180(3) simply as a “statement,” the amendment statement differs from the amendment demand. The demand is issued to the secured party. After a failure of that party to comply within five business days, an amendment statement may be given to the Personal Property Securities (PPS) Registrar. PPS Registrar’s Practice Statement No 4: Amendment Demand Process states that an amendment statement can either be emailed to: [email protected] or sent via post to: Personal Property Securities Insolvency and Trustee Services National Service Centre GPO Box 1944 Adelaide SA 5001. Unlike the amendment demand (for which there is no prescribed form, although there are recommended elements (see [178.5]), the template amendment statement form can be obtained from the Forms section of the PPSR website: see www.ppsr.gov.au/AsktheRegistrar/forms/Pages/default.aspx. • Amendment notices

An amendment notice is a further notification by the PPS Registrar to the secured party informing that party that the Registrar is considering making an amendment to the PPSR. Typically an amendment notice will follow from an amendment statement, although the Registrar can notify secured parties of the need for rectification of his/her own volition. Practice Statement No 4 provides that an amendment notice will: “1. State the amendment demanded. 2. Invite the secured party to respond before the end of: 2.1. five business days after the notice is given; or 2.2. a longer period approved by the Registrar, (the ‘response period’). 3. Set out the effect of section 181 of the PPS Act; that is at the end of the response period the Registrar must register a financing change statement amending the registration in accordance with the amendment demand, unless the Registrar suspects on reasonable grounds that the amendment is not authorised under section 178 of the PPS Act. 4. If the amendment notice is in response to an amendment statement, attach a copy of the amendment statement. If the amendment statement enclosed the amendment demand, the amendment demand will also be attached to the amendment notice. However, if the amendment statement did not enclose the amendment demand, the amendment notice will contain a statement to that effect. 5. Provide details of any other matter that the Registrar considers relevant.” • Approved form See s 302. [180.5] Commentary This section allows the Registrar to serve an amendment notice on the secured party indicated in a financing statement, who has five business days to respond (s 180(5)). This is effectively a “show cause” notice, and the Registrar is bound to take into account any response from the secured party (see s 181(4)). The Registrar may act on his/her own initiative or after being given a statement under s 180(3). Unless the secured party satisfies the Registrar that the grounds for serving an amendment notice under s 178 are not satisfied within five business days of the Registrar’s amendment notice being given, the Registrar must register a financing change statement making the necessary amendment to the financing statement (s 181). In Denbride Pty Ltd v Registrar of Personal Property Securities, Eagle Boys Dial-a-pizza Australia Pty Ltd [2015] AATA 938, the Administrative Appeals Tribunal affirmed the decision of the Registrar of Personal Property Securities not to remove a registration from the PPSR and provided the scope of the administrative review mechanism provided for by s 180 (at [16]): “My role, and the role of the Registrar, is narrower. We are not in a position to resolve the larger commercial dispute between the parties. It is enough that I am satisfied the obligations appear to be real; unless and until those obligations are set aside or varied in subsequent proceedings in another place, I am not in a position to order an amendment to the register.” [180.6] Further reading • Explanatory Memorandum [5.119–5.120, 5.147, 8.13]. • ALRC Report No 64 [13.1–13.24].

• Whittaker Report [6.10.5]. • Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295. • Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶181 SECTION 181 ADMINISTRATIVE PROCESS — REGISTRATION AMENDMENTS ¶5-200 SECTION 181 ADMINISTRATIVE PROCESS — REGISTRATION AMENDMENTS Text of s 181 [181.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 165

Saskatchewan

PPSA 1993

s 50(5)

Ontario

PPSA 1990

s 56

USA

UCC Article 9 (rev) § 9-518

[181.2] Outline This section provides for the Registrar to register a financing change statement to implement an amendment notice. [181.3] Cross-references • Section 179 sets out the scope of the application of this section. • Section 182 provides for a court order in relation to an amendment demand. • Section 191 allows for review by the AAT from a decision of the Registrar under this section. [181.4] Concepts • Amendment demand See s 178. • Amendment notice See s 180. [181.5] Commentary This section allows the Registrar to register a financing change statement to reflect an amendment demand. The Registrar must make the changes if an amendment notice was given under s 180 unless satisfied that the amendment is not authorised under s 178 (s 181(1)). Although the listed secured party has five business days to respond to a demand notice from the Registrar, that period may be extended by the Registrar under s 181(3). The Registrar’s ability to register the financing change statement is stopped if court proceedings under s 182 are brought (s 179(1)(c)). [181.6] Further reading • Explanatory Memorandum [5.120–5.121, 5.142]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.10.5]. • Personal Property Securities Registrar’s Practice Statement No 4: Amendment Demand Process. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295.

• Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶B Subdivision B — Judicial process

¶182 SECTION 182 JUDICIAL PROCESS FOR CONSIDERING AMENDMENT DEMAND ¶5-205 SECTION 182 JUDICIAL PROCESS FOR CONSIDERING AMENDMENT DEMAND Text of s 182 [182.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 166–168

Saskatchewan

PPSA 1993

s 50(7)

Ontario

PPSA 1990

s 56(5)

USA

UCC Article 9 (rev) No equivalent

[182.2] Outline This section allows the court to make a range of orders in relation to amendment demands. [182.3] Cross-references • Sections 206 and 207 define jurisdiction of the court with respect to PPS matters. See further Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631. • Section 293 allows for extensions of time. [182.4] Concepts • Amendment demand See s 178. [182.5] Commentary [182.5.1] Similar approach as used for caveats....................................XX [182.5.2] Serious or arguable case....................................XX It is important to note that a person who gave an amendment demand must wait five business days before commencing an application under this provision. An application under this provision has the effect of suspending access to the administrative show cause procedure under s 180–181 (an amendment notice): see s 179 of the PPSA. There is no obligation to undertake the administrative process in s 180– 181 before commencing court action under this section. As Parker J noted in Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 at [142]: “In no sense is the judicial process a continuation, or review, of the administrative one. It is quite independent . . . There is nothing in the Act which suggests that the fact that the outcome of the administrative process has any significance for the outcome of the judicial process. In my opinion the state of the Register is a neutral factor.” Justice Parker went on to note (at [148]ff) that the jurisdiction of the court in s 182 matters is limited and does not generally involve power to determine title, although this may arise in other federal jurisdictional matters. [182.5.1] Similar approach as used for caveats In New Zealand, the courts have held that a court should approach applications under the equivalent provision in a similar manner to applications to maintain caveats: Asset Traders Ltd v Favas Sportscar World Ltd [2006] NZHC 903 at [13]; Toyota Finance New Zealand Ltd v Christie [2009] NZHC 827 at [16].

As Asher J held in Toyota Finance at [17], the short timeframe in which a dispute concerning an amendment demand arises is not apt to finally determine the dispute between the parties. The court in Toyota Finance set out the following guidelines (at [18]): “(a) The person seeking to maintain their registration has the onus of establishing a sufficient interest (b) The test is whether the person seeking to maintain the registration can establish a seriously arguable case that a security agreement exists between the relevant parties (c) Such a summary procedure is unsuitable for the determination of disputed questions of fact (d) The balance of convenience can be of relevance in exceptional cases, but does not have the same significance as it does in relation to an interim injunction hearing (e) In relation to caveats the court has the discretion to require an undertaking as a condition of an order … Where, as here, the undertaking is filed with the application, it can be a relevant factor” (citations omitted). This approach was endorsed in Capital Finance Australia Ltd v Clough [2015] NSWSC 1327 at [12]. However, in National Australia Bank Ltd v Garrett [2016] FCA 714 at [33] Beach J said: “caution has to be exercised in aligning the procedure under s 182 with the procedure for removing or maintaining a caveat over real property and the suggestion of some reverse onus mechanism”. Most recently, in Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 at [154]–[157], Parker J noted that the position in New Zealand was not uniform or clear. Justice Parker went on to reject the application of the Toyota Finance approach in Australia (at [162]) and applied the decision in Garrett to find that “the onus lies on a grantor seeking removal of the registration to demonstrate that no security interest exists”, but also acknowledging (at [164]) that: “A party who bears the legal onus on an issue may present sufficient material to the Court for the evidentiary onus to shift to the opposing party. In a s 182 application, generally speaking it is the secured party who is best placed to lead evidence which would sustain the security interest claimed. In such circumstances, little evidence may be required from an owner of the collateral who is disputing the security for an evidentiary onus to shift to the secured party to prove that the claimed interest exists.” [182.5.2] Serious or arguable case The New Zealand High Court decision, Vegar-Fitzgerald v Noyce, Mawdsley and Matakana Estate Ltd (2012) FPPSR ¶700-008; [2012] NZHC 1311, applied a “seriously arguable case” approach to requests to maintain the registration. That is, the secured party need only show that there is a seriously arguable case that the interest purportedly perfected by registration accurately reflects the position notified on the PPSR. If there is a dispute with respect to the validity or otherwise of the underlying security interest, the amendment demand procedure is not equipped to address such matters which should be prepared for full hearing. This approach to the amendment demand process is not uniform in New Zealand as there may be cases where the evidence in favour of removing or compelling the removal or amendment of the relevant registered interest is stronger than in other cases. Such circumstances were considered by Mallon J in Universal Trucks and Equipment Ltd v Reynolds [2012] NZHC 483. His Honour held, at [36]–[39]: “The enquiry of the Court on a s 167 application is a narrow one. The Court is considering only whether: (a) All the obligations under the security agreement have been performed (effectively whether the debtor has paid the debt); and/or (b) The security party has agreed to release the collateral; and/or (c) The financing statement refers to property which is not collateral under the security agreement; and/or (d) There is no security agreement between the parties; and/or

(e) The security agreement is ‘extinguished in accordance with the Act’. It is not concerned with the validity of the security interest nor necessarily its enforceability although the Court’s decision may affect the priority of the security interest. Validity, enforcement and priority are matters which may arise at another time, in a different proceeding and with other parties (for example, the party claiming a competing security interest). The first four grounds the Court may need to consider on a s 167 application are all matters which ordinarily ought to be capable of ready proof by, for example, presenting proof of the debt or the security agreement. The last ground appears to contemplate that some other action has already been taken under the Act. If that has occurred, that too ordinarily ought to be capable of ready proof. If, however, there are disputed facts the originating application procedure enables evidence to be taken orally and for cross-examination to take place. If there are affected parties then a judge may give directions as to who is to be joined. Although there are time constraints for obtaining an order maintaining the registration, an interim order can be obtained to preserve the position (as was done here). I approach the application on the basis that the Court is required to evaluate the material put forward and determine on the basis of that material whether the asserted ground has not been made out.” Thus, in clear-cut cases such as where there is no evidence to support the secured party’s application to maintain the registration, the court may make the appropriate order. As to the issue of the appropriate test to be applied, the authors are of the view that the “seriously arguable case” approach should be adopted in Australia. In National Australia Bank Ltd v Garrett [2016] FCA 714, the court adopted the standard of requiring the secured party to adduce prima facie evidence to satisfy the provision, at which point the onus shifts the applicant to refute that evidence. See also, Jorgenson v ASL Paving Ltd (2007) 12 PPSAC (3d) 90; 302 Sask R 281 (Sask CA); Daniel Smith Industries Ltd v Cranes International NZ Ltd [2009] NZHC 2589. [182.6] Further reading • Explanatory Memorandum [5.126–5.128, 8.28]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.10.5]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295. • Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶5.7 PART 5.7 — REMOVAL OF DATA AND CORRECTION OF REGISTRATION ERRORS

¶183 SECTION 183 GUIDE TO THIS PART ¶5-210 SECTION 183 GUIDE TO THIS PART Text of s 183

¶184 SECTION 184 REMOVAL OF DATA — GENERAL GROUNDS ¶5-215 SECTION 184 REMOVAL OF DATA — GENERAL GROUNDS Text of s 184 [184.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 170

Saskatchewan

PPSA 1993

ss 43.1, 46(2)

Ontario

PPSA 1990

s 71(2),(3)

USA

UCC Article 9 (rev) No equivalent

[184.2] Outline This provision allows the Registrar to remove data from the Personal Property Securities Register (PPSR). [184.3] Cross-references • Section 150 provides for the registration of financing change statements. • Section 156 requires the Registrar to issue a verification statement upon a registration event occurring. • Section 185 allows the Registrar to remove data that has been ineffective for seven years. • Section 186 provides for the restoration of incorrectly removed data. • Section 191 allows the AAT to review a decision of the Registrar. • Personal Property Securities Regulations 2010 (Cth) reg 5.10 prescribes the removal of data from the PPSR by the Registrar acting under a court order. [184.4] Concepts • Financing change statement See the commentary at s 150. [184.5] Commentary This section allows the Registrar to remove information from the Personal Property Securities Register (PPSR) that is contrary to the public interest, such as frivolous registrations and prohibited information. The verification statement sent by the Registrar would serve as notice of the removal to the secured party listed in the financing statement, who may then seek review of the Registrar’s decision by the AAT. The section gives the Registrar the option to remove all record of the data so that it could not be retrieved even in a “point in time” search, in which case the information is treated as never having been included in the register. This should not pose any problems as the categories of information that can be removed under this section are unlikely to adversely affect the perfection of any enforceable security interest. Given the pre-conditions upon which the Registrar may register a financing statement or financing change statement under s 150(3) (which do not allow frivolous, vexatious, offensive registrations or those that are contrary to the public interest), this provision is largely a safety net to catch improper registrations. See for example, NFT Specialized in Tower Cranes LLC v MacHforce Pty Ltd (in liq) [2017] WASC 95; Macquarie Leasing Pty Ltd v The Registrar of the Personal Property Securities Register [2014] NSWSC 1677. [184.6] Further reading

• Explanatory Memorandum [5.130, 5.134, 5.142]. • ALRC Report No 64 [13.1–13.24]. • Whittaker Report [6.11.14], [6.12.2]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295. • Nicholas Mirzai, “Pollution on the PPSR — and what to do about it” (2015) 33 Company and Securities Law Journal 30. • Christopher Pearce, “A Broken Record: Amending and Removing Registrations on the PPSA” (2016) 25 Australian Property Law Journal 173.

¶185 SECTION 185 REMOVAL OF DATA — REGISTRATION INEFFECTIVE FOR 7 YEARS OR MORE ¶5-220 SECTION 185 REMOVAL OF DATA — REGISTRATION INEFFECTIVE FOR 7 YEARS OR MORE Text of s 185 [185.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 170(1)(a)

Saskatchewan

PPSA 1993

s 46(2)(a)

Ontario

PPSA 1990

s 71(2)(a)

USA

UCC Article 9 (rev) § 9-522

[185.2] Outline This section allows the registrar to remove data from the Personal Property Securities Register (PPSR) where the registration has been ineffective for seven years. [185.3] Cross-references • Section 150 provides for the registration of a financing change statement. • Section 156 requires the Registrar to issue a verification statement after a registration event. [185.4] Concepts • Ineffective registration See s 163. [185.5] Commentary Nil. [185.6] Further reading • Explanatory Memorandum [5.135]. • ALRC Report No 64 [–]. • Whittaker Report [6.11.14]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295.

¶186 SECTION 186 INCORRECTLY REMOVED DATA — RESTORATION ¶5-225 SECTION 186 INCORRECTLY REMOVED DATA — RESTORATION Text of s 186 [186.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 169A

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[186.2] Outline This section allows the Registrar to restore information that has been incorrectly removed from the PPSR. [186.3] Cross-references • Section 150 provides for the registration of a financing change statement. • Section 156 requires the Registrar to issue a verification statement after a registration event. • Section 188 allows the Registrar to register a financing change statement to correct errors or omissions. [186.4] Concepts Nil. [186.5] Commentary The Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) notes that the Registrar should consider the impact of restoration on the rights of third parties as s 186(2) provides that the information will be deemed to have never been removed. Deeming restored information to never having been removed will allow for continuous perfection of a security interest validly covering collateral in the registered financing statement. In SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities [2014] FCA 846, the court held that the Registrar has power to alter the Register to correct an error made by a secured party and that s 186 powers are not limited to errors created by the Registrar. Notwithstanding the views in SFS Projects, the Whittaker Report, recommends amending s 186 to make it clear that it is limited to information removed by error by the Registrar (Recommendation 159). In the authors’ view, the interpretation of s 186 as remedial, while broad, is consistent with the court’s approach to deficiencies on the PPSR elsewhere under the PPSA (see for example in respect of s 293 applications and applications pursuant to s 588FM of the Corporations Act 2001 (Cth)). [186.6] Further reading • Explanatory Memorandum [4.78, 5.136, 5.142]. • ALRC Report No 64 [–]. • Whittaker Report [6.11.14]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295.

¶187 SECTION 187 RECORDS OF REMOVED DATA ¶5-230 SECTION 187 RECORDS OF REMOVED DATA Text of s 187 [187.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[187.2] Outline This section provides for the retention of records of information contained (or previously contained) on the Personal Property Securities Register (PPSR). [187.3] Cross-references • Sections 184 and 185 provide for information recorded on the PPSR to be removed. [187.4] Concepts Nil. [187.5] Commentary This section is for clarification purposes to ensure that removed data may be retained by the Registrar. This is necessary to allow the information to be restored. [187.6] Further reading • Explanatory Memorandum [5.137]. • ALRC Report No 64 [–]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295.

¶188 SECTION 188 CORRECTION OF REGISTRATION ERRORS ¶5-235 SECTION 188 CORRECTION OF REGISTRATION ERRORS Text of s 188 [188.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 170A

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[188.2] Outline This section allows the Registrar to register a financing change statement to correct a registration to rectify errors or omissions by the Registrar. [188.3] Cross-references • Section 150 provides for the registration of financing change statements. • Section 156 requires the Registrar to issue a verification statement. • Section 191 allows for the AAT to review a decision of the Registrar. [188.4] Concepts Nil. [188.5] Commentary Nil. [188.6] Further reading • Explanatory Memorandum [5.138, 5.142]. • ALRC Report No 64 [–]. • Nicholas Mirzai, “A year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, amendment demands and judicial proceedings” (2013) 31 Company and Securities Law Journal 295.

¶5.8 PART 5.8 — FEES, ADMINISTRATIVE REVIEW AND ANNUAL REPORTS

¶189 SECTION 189 GUIDE TO THIS PART ¶5-240 SECTION 189 GUIDE TO THIS PART Text of s 189 General commentary Part 5.8 provides for the determination of fees for registration and search functions. At the time of writing these fees had not yet been determined by the Minister, although the fees are to be assessed on a cost recovery basis (s 190(5)) so as not to amount to taxation by the Commonwealth. Section 190 allows for the payment arrangements to be determined, which the Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) notes could include pay per service or a periodic account with the Registrar. Section 191 and 192 provide accountability for the conduct of the Registrar. Section 191 allows for certain specified decisions by the Registrar to be reviewed by the AAT. Section 192 requires the Registrar to prepare annual reports.

¶190 SECTION 190 REGISTRATION AND SEARCH FEES ¶5-245 SECTION 190 REGISTRATION AND SEARCH FEES Text of s 190

¶191 SECTION 191 REVIEW OF DECISIONS ¶5-250 SECTION 191 REVIEW OF DECISIONS Text of s 191

¶192 SECTION 192 ANNUAL REPORTS ¶5-255 SECTION 192 ANNUAL REPORTS Text of s 192

¶5.9 PART 5.9 — REGISTRAR OF PERSONAL PROPERTY SECURITIES

¶193 SECTION 193 GUIDE TO THIS PART ¶5-260 SECTION 193 GUIDE TO THIS PART Text of s 193 General commentary Part 5.9 establishes the Registrar of Personal Property Securities as well as a Deputy Registrar. The Registrar’s website is www.ppsr.gov.au. Section 195(2) confers powers on the Registrar to do all things necessary or convenient to be done for or in connection with the performance of his/her functions. The Registrar is given other specific express powers throughout the PPSA. The Registrar may delegate some or all of his/her powers under s 197. Section 195A was inserted by amendments made to the Act in 2011 in order to support the functions and powers of the Registrar: Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) at [54]–[57].

¶194 SECTION 194 REGISTRAR — ESTABLISHMENT OF OFFICE ¶5-265 SECTION 194 REGISTRAR — ESTABLISHMENT OF OFFICE Text of s 194

¶195 SECTION 195 REGISTRAR — FUNCTIONS AND POWERS ¶5-270 SECTION 195 REGISTRAR — FUNCTIONS AND POWERS Text of s 195

¶195A SECTION 195A REGISTRAR — INVESTIGATIONS ¶5-275 SECTION 195A REGISTRAR — INVESTIGATIONS Text of s 195A

¶196 SECTION 196 REGISTRAR — ACTING APPOINTMENTS ¶5-280 SECTION 196 REGISTRAR — ACTING APPOINTMENTS Text of s 196

¶197 SECTION 197 REGISTRAR — DELEGATION ¶5-285 SECTION 197 REGISTRAR — DELEGATION Text of s 197

¶198 SECTION 198 REGISTRAR — RESIGNATION ¶5-290 SECTION 198 REGISTRAR — RESIGNATION Text of s 198

¶199 SECTION 199 REGISTRAR — TERMINATION ¶5-295 SECTION 199 REGISTRAR — TERMINATION Text of s 199

¶200 SECTION 200 DEPUTY REGISTRAR — ESTABLISHMENT OF OFFICE ¶5-300 SECTION 200 DEPUTY REGISTRAR — ESTABLISHMENT OF OFFICE Text of s 200

¶201 SECTION 201 DEPUTY REGISTRAR — FUNCTIONS AND POWERS ¶5-305 SECTION 201 DEPUTY REGISTRAR — FUNCTIONS AND POWERS Text of s 201

¶202 SECTION 202 DEPUTY REGISTRAR — RESIGNATION ¶5-310 SECTION 202 DEPUTY REGISTRAR — RESIGNATION Text of s 202

¶203 SECTION 203 DEPUTY REGISTRAR — TERMINATION ¶5-315 SECTION 203 DEPUTY REGISTRAR — TERMINATION Text of s 203

¶6 CHAPTER 6 — JUDICIAL PROCEEDINGS

¶6.1 PART 6.1 — GUIDE TO THIS CHAPTER

¶204 SECTION 204 GUIDE TO THIS CHAPTER ¶6-005 SECTION 204 GUIDE TO THIS CHAPTER Text of s 204

¶6.2 PART 6.2 — JUDICIAL PROCEEDINGS GENERALLY ¶1 Division 1 — Introduction

¶205 SECTION 205 GUIDE TO THIS PART ¶6-010 SECTION 205 GUIDE TO THIS PART Text of s 205 General commentary Part 6.2 provides the jurisdictional basis for specified courts to consider “PPS matters”. These are defined by s 206 as matters arising under a provision of the PPSA that authorises an application to be made to a court (such as s 182) or that otherwise arise relating to a security agreement (See further, s 18) or a security interest (See further, s 12). Section 206 specifies however that this Part does not apply to matters for which the Federal Court or Federal Circuit Court has jurisdiction under the Administrative Decisions (Judicial Review) Act 1977 (Cth). As this Part provides rules for transferring PPS matters between courts it operates to the exclusion of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). Matters arising under the Judiciary Act 1903 (Cth) s 39B (such as prerogative writs) are also excluded from the operation of this Part by s 206. Furthermore, civil penalty proceedings are dealt within Pt 6.3 and do not come within the scope of Pt 6.2. Section 207 sets out a table of which courts have jurisdiction in respect of PPS matters, namely the Federal Court of Australia and Federal Circuit Court, the Family Court of Australia and state and territory courts (specified as superior courts — ie the Supreme Courts of each state and territory and a state family court, and lower courts — any other court that is not a superior court). Section 208 sets out how matters may be transferred between courts, and s 210–217 provide the administrative machinery to assist with transfers. Section 209 specifies that courts with jurisdiction under the PPSA are to assist each other. Section 218 gives the Registrar the right to intervene in a court proceeding involving a PPS matter. Section 219 allows the Registrar to commence court proceedings with respect to a PPS matter as long as it is in the public interest to do so. Reference should also be made to Pt 7.2.

¶206 SECTION 206 SCOPE OF THIS PART ¶6-015 SECTION 206 SCOPE OF THIS PART Text of s 206 General commentary The jurisdiction of the Court to determine matters concerning the operation of the PPSA is, as a general proposition, broadly conferred on superior courts of record. General statutory restrictions regarding quantum in lower courts, as a general proposition, follows under the PPSA. Where there are several means by which a party may effect a particular result, a party looking to apply a section of the PPSA ought not be constrained, as a matter of jurisdiction, to any one of those ways even if one way would give rise to the most orderly process. This would be a matter of administration rather than jurisdiction. The issue arose in SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities (2014) 226 FCR 188; [2014] FCA 846 where Gleeson J considered whether or not the Federal Court of Australia had jurisdiction to make orders pursuant to s 186 of the PPSA (compelling the Registrar to exercise discretion in accordance with orders of the Court) notwithstanding the availability of s 191(k) to review decisions of the Registrar of Personal Property Securities under s 186 (see s 191(k) of the PPSA). In this respect, Gleeson J held (at [10]–[12]): “The applicants contend that this is a PPS matter falling within either s 206(1)(b) or (c). It is clear that the matter is a matter ‘arising in relation to’ the PPS Act. The ultimate issue is whether the Registrar has power under s 186 of the Act to restore data to the register that was incorrectly removed as a result of an error on the part of the person who made an application for its removal. The Registrar submitted that, if the court has jurisdiction under the ADJR Act, then the court may not have jurisdiction ‘otherwise arising in relation to [the PPS Act]’ within s 206(1)(b). The solicitor for the Registrar, Mr Markus, did not put a positive submission that the court has jurisdiction under the ADJR Act in this case. However, he submitted that, if the court finds in favour of the applicants, then it will be necessary to determine whether the court’s jurisdiction is derived from the ADJR Act or the PSS Act, in order to identify the relief available to be granted. In the absence of an application under the ADJR Act, my provisional view is that the matter is a ‘PPS matter’ within s 206 and, accordingly, that this court has jurisdiction to determine the matter under s 207.” In the authors’ view, if the jurisdiction of the Federal Court of Australia is only enlivened under the Administrative Decisions (Judicial Review) Act 1977 (Cth) by an application under that Act then where there is no such application of that nature does not deny the jurisdiction of the Court. Ultimately, it may be that a Court would decline, in its discretion, to entertain an application purporting to be made pursuant to s 186 of the PPSA in circumstances where an alternative avenue may be available pursuant to s 191 — but this would be a question of discretion and not jurisdiction. Compare with Scottish Pacific (BFS) Pty Ltd v Registrar of Personal Property Securities [2017] FCA 1378.

¶2 Division 2 — Conferral of jurisdiction

¶207 SECTION 207 JURISDICTION OF COURTS ¶6-020 SECTION 207 JURISDICTION OF COURTS Text of s 207

¶208 SECTION 208 CROSS-JURISDICTIONAL APPEALS ¶6-025 SECTION 208 CROSS-JURISDICTIONAL APPEALS Text of s 208

¶209 SECTION 209 COURTS TO ACT IN AID OF EACH OTHER ¶6-030 SECTION 209 COURTS TO ACT IN AID OF EACH OTHER Text of s 209

¶3 Division 3 — Transfers between courts

¶210 SECTION 210 APPLICATION OF THIS DIVISION ¶6-035 SECTION 210 APPLICATION OF THIS DIVISION Text of s 210

¶211 SECTION 211 EXERCISE OF TRANSFER POWER ¶6-040 SECTION 211 EXERCISE OF TRANSFER POWER Text of s 211

¶212 SECTION 212 CRITERIA FOR TRANSFERS BETWEEN COURTS ¶6-045 SECTION 212 CRITERIA FOR TRANSFERS BETWEEN COURTS Text of s 212

¶213 SECTION 213 INITIATING TRANSFERS BETWEEN COURTS ¶6-050 SECTION 213 INITIATING TRANSFERS BETWEEN COURTS Text of s 213

¶214 SECTION 214 DOCUMENTS AND PROCEDURE ¶6-055 SECTION 214 DOCUMENTS AND PROCEDURE Text of s 214

¶215 SECTION 215 CONDUCT OF TRANSFERRED PROCEEDINGS ¶6-060 SECTION 215 CONDUCT OF TRANSFERRED PROCEEDINGS Text of s 215

¶216 SECTION 216 ENTITLEMENT TO PRACTISE AS BARRISTER OR SOLICITOR ¶6-065 SECTION 216 ENTITLEMENT TO PRACTISE AS BARRISTER OR SOLICITOR Text of s 216

¶217 SECTION 217 LIMITATION ON APPEALS ¶6-070 SECTION 217 LIMITATION ON APPEALS Text of s 217

¶4 Division 4 — Registrar’s role in judicial proceedings

¶218 SECTION 218 INTERVENTION IN JUDICIAL PROCEEDINGS ¶6-075 SECTION 218 INTERVENTION IN JUDICIAL PROCEEDINGS Text of s 218

¶219 SECTION 219 INITIATION OF JUDICIAL PROCEEDINGS ¶6-080 SECTION 219 INITIATION OF JUDICIAL PROCEEDINGS Text of s 219

¶6.3 PART 6.3 — CIVIL PENALTY PROCEEDINGS ¶1 Division 1 — Introduction

¶220 SECTION 220 GUIDE TO THIS PART ¶6-085 SECTION 220 GUIDE TO THIS PART Text of s 220 General commentary Part 6.3 sets out rules for dealing with contraventions of civil penalty provisions under the PPSA. A civil penalty provision is expressly designated in the relevant sections which (at the time of writing) are: • s 151 — belief about security interest • s 172 — unauthorised access or use of Personal Property Securities Register (PPSR) data • s 195A — failing to comply with Registrar’s investigation. The phrase “civil penalty provision” is defined in s 221. A penalty unit, at the time of writing, is $170 (Crimes Act 1914 (Cth) s 4AA). Since 1997, a penalty unit had been $110, but from 28 December 2012, the amount increased to $170. The increased penalty applies to offences committed on or after this date. In the future, increases in the value of a penalty unit may become more regular. Section 4AA(1A) of the Crimes Act provides that a review of the amount of a penalty unit must be conducted as soon as possible after each third anniversary of the day an alteration of the amount of a penalty unit last came into force. The penalty may be recovered by the Commonwealth under s 225. It should be noted that the contravention of a civil penalty provision is not a criminal offence (s 223). Section 222 provides for the Federal Court to order a person to pay a pecuniary penalty for contravening a civil penalty provision. A person involved in the contravention of a civil penalty provision is caught by this provision (s 224). Sections 226–228 provide for overlapping civil and criminal proceedings in respect of conduct allegedly in contravention of a civil penalty provision that is substantially similar to conduct allegedly in contravention of a criminal law. Section 229 imposes limitations on evidence obtained during civil penalty proceedings for subsequent criminal proceedings. The High Court of Australia in Rich v ASIC (2004) 220 CLR 129 found that civil penalty proceedings could give rise to equitable protection against penalties in respect of disclosure by the individual defendant. The High Court ruled that the defendant did not have to give complete discovery. In subsequent cases, it has been held that information required to be disclosed by defendants in civil penalty cases may be more limited than in non-penalty cases. The Corporations Act 2001 (Cth) was amended in 2007 to insert s 1349 to limit the operation of the privilege against penalties. However, there is no similar provision in the PPSA. While this may give rise to procedural issues for the Registrar, the number of civil penalty provisions in the PPSA is much more limited than under the Corporations Act and any adverse effect of the privilege is likely to be minimal. See further, Middleton T, “The privilege against self-incrimination, the penalty privilege and legal professional privilege under the laws governing ASIC, APRA, the ACCC and the ATO — suggested reforms” (2008) 30 Australian Bar Review 282; Harris J and Siow W, “Uncertainty regarding civil penalties and privilege against penalties” (2008) 60 Keeping Good Companies 68. Section 230 allows the Registrar to accept enforceable undertakings in respect of potential contraventions of civil penalty provisions. Undertakings are enforced in the Federal Court under s 231 of the PPSA.

¶221 SECTION 221 WHAT IS A CIVIL PENALTY PROVISION? ¶6-090 SECTION 221 WHAT IS A CIVIL PENALTY PROVISION? Text of s 221

¶2 Division 2 — Obtaining an order for a civil penalty

¶222 SECTION 222 FEDERAL COURT MAY ORDER PERSON TO PAY PECUNIARY PENALTY FOR CONTRAVENING CIVIL PENALTY PROVISION ¶6-095 SECTION 222 FEDERAL COURT MAY ORDER PERSON TO PAY PECUNIARY PENALTY FOR CONTRAVENING CIVIL PENALTY PROVISION Text of s 222

¶223 SECTION 223 CONTRAVENING A CIVIL PENALTY PROVISION IS NOT AN OFFENCE ¶6-100 SECTION 223 CONTRAVENING A CIVIL PENALTY PROVISION IS NOT AN OFFENCE Text of s 223

¶224 SECTION 224 PERSONS INVOLVED IN CONTRAVENING CIVIL PENALTY PROVISION ¶6-105 SECTION 224 PERSONS INVOLVED IN CONTRAVENING CIVIL PENALTY PROVISION Text of s 224

¶225 SECTION 225 RECOVERY OF A PECUNIARY PENALTY ¶6-110 SECTION 225 RECOVERY OF A PECUNIARY PENALTY Text of s 225

¶3 Division 3 — Civil penalty proceedings and criminal proceedings

¶226 SECTION 226 CIVIL PROCEEDINGS AFTER CRIMINAL PROCEEDINGS ¶6-115 SECTION 226 CIVIL PROCEEDINGS AFTER CRIMINAL PROCEEDINGS Text of s 226

¶227 SECTION 227 CRIMINAL PROCEEDINGS DURING CIVIL PROCEEDINGS ¶6-120 SECTION 227 CRIMINAL PROCEEDINGS DURING CIVIL PROCEEDINGS Text of s 227

¶228 SECTION 228 CRIMINAL PROCEEDINGS AFTER CIVIL PROCEEDINGS ¶6-125 SECTION 228 CRIMINAL PROCEEDINGS AFTER CIVIL PROCEEDINGS Text of s 228

¶229 SECTION 229 EVIDENCE GIVEN IN PROCEEDINGS FOR PENALTY NOT ADMISSIBLE IN CRIMINAL PROCEEDINGS ¶6-130 SECTION 229 EVIDENCE GIVEN IN PROCEEDINGS FOR PENALTY NOT ADMISSIBLE IN CRIMINAL PROCEEDINGS Text of s 229

¶4 Division 4 — Enforceable undertakings relating to contraventions of civil penalty provisions

¶230 SECTION 230 ACCEPTANCE OF UNDERTAKINGS RELATING TO CONTRAVENTIONS OF CIVIL PENALTY PROVISIONS ¶6-135 SECTION 230 ACCEPTANCE OF UNDERTAKINGS RELATING TO CONTRAVENTIONS OF CIVIL PENALTY PROVISIONS Text of s 230

¶231 SECTION 231 ENFORCEMENT OF UNDERTAKINGS ¶6-140 SECTION 231 ENFORCEMENT OF UNDERTAKINGS Text of s 231

¶7 CHAPTER 7 — OPERATION OF LAWS

¶7.1 PART 7.1 — GUIDE TO THIS CHAPTER

¶232 SECTION 232 GUIDE TO THIS CHAPTER ¶7-005 SECTION 232 GUIDE TO THIS CHAPTER Text of s 232

¶7.2 PART 7.2 — AUSTRALIAN LAWS AND THOSE OF OTHER JURISDICTIONS

¶233 SECTION 233 GUIDE TO THIS PART ¶7-010 SECTION 233 GUIDE TO THIS PART Text of s 233

¶234 SECTION 234 SCOPE OF THIS PART ¶7-015 SECTION 234 SCOPE OF THIS PART Text of s 234 [234.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 26

Saskatchewan

PPSA 1993

ss 5–7.3

Ontario

PPSA 1990

ss 5–7.3

USA

UCC Article 9 (rev)

§§ 9-301, 9-303–9307

[234.2] Outline Section 234 of the PPSA prescribes the scope of Pt 7.2. [234.3] Cross-references • Section 235 determine location under the PPSA. • Sections 236–241 provide rules for determining the governing law for Australian court proceedings in relation to security interests. [234.4] Concepts • The law that governs See s 236–241. [234.5] Commentary Section 234 of the Personal Property Securities Act 2009 (Cth) states that by default, the law of the jurisdiction specified by the various provisions which comprise Pt 7.2 governs the validity, perfection and effect of perfection or non-perfection of a security interest. The contractual obligations between the parties themselves thus operates beyond Pt 7.2 and may be effective irrespective of the law of the jurisdiction. While the term “attachment” is not specifically used in this provision, attachment is one of the essential steps to perfection (see s 21) and is therefore included by implication. Additionally, a distinction between the location of the personal property and the location of the grantor arises and is of seminal importance pursuant to Pt 7.2. While the security interest operates in its own right irrespective of the grantor (for instance, the transfer of a security interest does not affect its validity or priority — see s 60), as a general principle, it is often the location of the grantor which will determine which law applied at the time the security interest was created. [234.6] Further reading • Explanatory Memorandum [7.2–7.8]. • ALRC Report No 64 [11.3–11.15].

¶235 SECTION 235 MEANING OF LOCATED ¶7-020 SECTION 235 MEANING OF LOCATED Text of s 235 [235.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 29

Saskatchewan

PPSA 1993

ss 7–7.3

Ontario

PPSA 1990

ss 7–7.3

USA

UCC Article 9 (rev) § 9-307

[235.2] Outline Section 235 of the PPSA provides the definition of the term “located” under the PPSA. The definition is central to the correct determination of which regime will apply to which interest. As s 233 isolates, Pt 7.2 is concerned with cross-jurisdiction issues and thus in an overarching sense, the Australian PPSA is analysed against foreign securities regimes to establish which will apply and in what circumstances. Whether the particular foreign regime in question is a PPS variant or not is an irrelevant consideration. [235.3] Cross-references • The concept of location is central to the PPSA, particularly in relation to governing law provisions (s 236–241) and the relocation provisions s 39 and 40. [235.4] Concepts • Chattel paper This is defined by s 10. See further, [12.5.3.1]. • Investment instrument This is defined by s 10. See further, s 27. • Located See below. • Negotiable instrument This is defined by s 10. See further, s 29. • Principal place of residence The term “principal place of residence” is not defined by the PPSA but is well known to the law, particularly in tax and succession matters. See for example, Re Will and Estate of Hood [2004] VSC 328; Deane v CSD (Qld) (No 2) [1996] 2 Qd R 557. [235.5] Commentary [235.5.1] Electronic data — s 235(1), (2)....................................XX [235.5.2] Located — s 235(3), (4), (5), (6), (7)....................................XX [235.5.1] Electronic data — s 235(1), (2) The recognition of electronic data under the PPSA, while beneficial in terms of addressing issues of increased reliance on internet-based transactions, introduces issues concerning the Australian PPSA’s governance over particular instruments which exist purely electronically. In the general sense, with

respect to tangibles and pursuant to s 235(1), personal property is located where it is physically situated at the time an issue arises. Evidence can be adduced to trace the movement of such property in the physical sense. Electronically recorded data, pursuant to s 235(2), is located where the law under which the instrument is governed is located. The implications with respect to chattel paper pursuant to s 235(2)(c) are significant as a perfected interest over chattel paper takes priority as against a perfected interest in the underlying collateral (see s 71). If the underlying collateral is located outside of Australia, that is, the physical existence of the personal property in question is situated abroad, but chattel paper over the collateral was created and exists under Australian law, then the PPSA applies to the chattel paper and the resulting priority will likely extend to the holder of the highest priority interest over the chattel paper (for information about priorities under the PPSA see Pt 2.6). [235.5.2] Located — s 235(3), (4), (5), (6), (7) The consideration of the concept of “location” under the PPSA is important in two respects, firstly, in relation to the underlying collateral, and secondly, in relation to the place of the grantor (as stated above at s 234). The provisions of the PPSA are specific as to the prevailing location, that is, under some provisions the location of the grantor is seminal while in others the location of the underlying collateral is of decisive importance (depending largely on the commerciality of the circumstances and the overarching rationales of the PPSA). In the decision of Re Maiden Civil (P&E) Pty Ltd; Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852, the court considered s 235 and held that motor vehicles (large construction vehicles) were covered by the law of the Northern Territory (where they had long been used and where it was intended that they remain) rather than the law of the grantor (a leasing company based in Queensland). This was important because the vehicles were covered by transitional security agreements but could not take advantage of the protection granted to transitional security interests as the law of the Northern Territory required the vehicles to be the subject of a registration prior to the commencement of the PPSA and the grantor did not register them on the migrated register: see PPS Regulations 2010 (Cth) reg 9.2. Section 235 provides that the physical situation of the property or the grantor is the “location” where the property is tangible (see [235.5.1] for treatment of intangible property). Section 235(6) prescribes that if the place where the underlying property or the grantor is situated in an Australian state or territory (each provision, where relevant, will address whether it is the collateral or the grantor which is to be assessed) then the PPSA applies. Section 235(7) prescribes that if the location of the underlying collateral or the grantor lies beyond Australia, where relevant, then the rules of the relevant jurisdiction apply to such interests. [235.6] Further reading • Explanatory Memorandum [7.10–7.13]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.5].

¶236 SECTION 236 COMMONWEALTH LAWS MAY PROVIDE FOR GOVERNING LAW ¶7-025 SECTION 236 COMMONWEALTH LAWS MAY PROVIDE FOR GOVERNING LAW Text of s 236 [236.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[236.2] Outline Section 236 of the PPSA prescribes the impact of Commonwealth laws outside of the PPSA on the remaining provisions of Pt 7.2. [236.3] Cross-references • Sections 237–241 provide further rules for determining the governing law for Australian court proceedings in relation to security interests. [236.4] Concepts • Security interest See s 12. [236.5] Commentary Section 236 of the PPSA expressly provides for the primacy of Commonwealth laws in relation to security interests created or otherwise governed by such legislation. Section 8 of the PPSA additionally excludes the PPSA from applying to security interests created by statute as opposed to consent between the parties involved (See also, s 12). For the priority rules with respect to interests created by Commonwealth legislation beyond the PPSA see Pt 2.6, Div 6. [236.6] Further reading • Explanatory Memorandum [7.14–7.19]. • ALRC Report No 64 [11.3–11.15].

¶237 SECTION 237 EXPRESS AGREEMENT ¶7-030 SECTION 237 EXPRESS AGREEMENT Text of s 237 [237.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 26(c)

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[237.2] Outline Section 237 of the PPSA addresses the implications of the security agreement itself, that is, the contract between the parties, in relation to the application of the Australian PPSA. [237.3] Cross-references • Section 6 requires a territorial connection to Australia. • Sections 236 and 238–241 provide further rules regarding the governing laws in relation to security interests under the PPSA. [237.4] Concepts • Account This is defined by s 10. See further, s 12. • Attaches See s 19. • Chattel paper This is defined by s 10. See further, s 12. • Intangible property This is defined by s 10. • Intellectual property or an intellectual property license These are defined by s 10. See further, s 105 and 106 and [12.5.3.5]. • Security agreement See s 18 and 20. [237.5] Commentary A security agreement can, pursuant to s 237, provide for the Personal Property Securities Act 2009 (Cth) (Australian PPSA) to govern the transaction where the grantor is an Australian entity at the time the interest attaches to the underlying collateral. Certain intangible items are excluded from this section as they are alternatively covered by s 239. In order to reduce ambiguity all security agreements should include a clause regarding the governing jurisdiction. Note also that, while effect is given to the terms of the agreement (see s 18(1)), such terms cannot oust the application of other Commonwealth laws which prevail where relevant pursuant to s 236.

The interpretation of this section is consistent with foreign authorities on point: JPM Express Inc v 2092889 Ontario Inc (2010) 16 PPSAC (3d) 337 (Ont SCJ); Re Fairmont Resort Properties Ltd (2009) 15 PPSAC (3d) 161; 56 CBR (5th) 235 (Alta QB). [237.6] Further reading • Explanatory Memorandum [7.14–7.19]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.6].

¶238 SECTION 238 GOVERNING LAWS — GOODS ¶7-035 SECTION 238 GOVERNING LAWS — GOODS Text of s 238 [238.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 26(a)

Saskatchewan

PPSA 1993

ss 5(1),(2), 7

Ontario

PPSA 1990

ss 5(1),(2), 7

USA

UCC Article 9 (rev) § 9-301, 9-303

[238.2] Outline Section 238 of the PPSA relates to the movement of goods and the law which applies in this regard. The section prescribes that separate and distinct PPSA provisions may apply over the course of the security interest as such goods move between jurisdictions. Different rules may also apply as a security interest takes different manifestations (mainly between attachment and perfection). Note, however, while the importance of perfection cannot be stressed enough with respect to domestic PPSA priority, often it is the attachment of a security interest which forms the focus of consideration pursuant to Pt 7.2 as the effect of perfection or non-perfection is limited in application to the jurisdiction where the Australian PPSA applies (namely Australia). Attachment of a security interest is not limited in such respects. [238.3] Cross-references • Sections 236, 237 and 239–241 provide further rules regarding the governing law of security interests. [238.4] Concepts • Attaches See s 19. • Goods This is defined in s 10. • Located See s 235. • Perfection See s 21. • Personal, domestic or household purposes See [47.5]. [238.5] Commentary [238.5.1] Main rule — s 238(1), (1A) ....................................XX [238.5.2] Moved goods — s 238(2), (2A) ....................................XX [238.5.3] Moved between jurisdictions — in the normal course — s 238(3) ....................................XX [238.5.4] Registers of ships — s 238(4) ....................................XX

[238.5.1] Main rule — s 238(1), (1A) The default position under the PPSA is that the validity of a security interest in goods is governed by the law of the jurisdiction where the goods were located when the security interest attached to them. Section 237, however, allows parties to determine that the Australian PPSA applies (irrespective of where the collateral was located at the time the security interest attached) where, the grantor is an Australian entity at the time of attachment. Justice Brereton considered the application of s 238 in Re Maiden Civil (P&E) Pty Ltd; Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852 with respect to moveable goods (Caterpillar vehicles). The plaintiff in this proceeding made submissions that as the Caterpillars were goods “of a kind that is normally used in more than one jurisdiction”, that the relevant jurisdiction was the state within which the grantor was located (Queensland in this case, as opposed to the Northern Territory where the collateral was being used). His Honour rejected this argument and in doing so provided six cogent reasons as to how s 238 applies (at [60]–[67]), the authors respectfully adopt such analysis: “First, there is no requirement to resort to s 238, because no question of choice of law arises. The issue raised by PPSR, regulation 9.2, is whether the collateral was registrable on a transitional register. For this purpose, it suffices that the relevant interest could have been registered on a Register. QES’s interests in the Caterpillars could have been registered on the NT Register, whether or not they could have been registered on a Queensland register. Secondly, even if there were a choice of law issue, s 238 has no application or relevance in this situation. It is in Part 7.2 (Australian laws and those of other jurisdictions) of the PPSA. As s 233 (Guide to this Part) explains, that part is about how Australian laws interact with foreign laws — not about internal private international issues as between jurisdictions within Australia. It is concerned with choice of law between Australia and foreign countries; not within Australia. In the absence of statutory provision, the general law would refer such questions to the lex situs, being the law of the Northern Territory [see Douglas Financial Consultants Pty Ltd v Price [1992] 1 Qd R 243, 251–253]. Thirdly, in any event, s 238(3) does not apply. I do not accept that the Caterpillars are goods are of a kind normally used in more than one jurisdiction. No doubt it is possible that some such equipment will be used in more than one jurisdiction, but there is nothing to show that that is ‘normally’ the case. In my view, the provision is intended to deal with goods of a kind that are characterised by their interjurisdictional character — for example, shipping containers. If (contrary to my opinion) Part 7.2 applied to interstate conflicts within Australia, then arguably heavy transport vehicles of the kind used in interstate trade might be within the concept. But it has not been shown to be characteristic of earth moving equipment that it will be moved from one jurisdiction to another, even within, let alone out of, Australia. Accordingly, if s 238 applied at all, sub-section 238(1A) and (2) would both refer the issue to the law of the Northern Territory. Fourthly, while s 235(3) specifies as the location of a ‘body corporate’ the jurisdiction in which it is incorporated, there is no provision in respect of corporations equivalent to that in s 235(6), which makes provision that in the application of the section in relation to Australia, the jurisdiction in which property or an individual is located is the jurisdiction of the state or territory in which the property, or the individual’s principal place of residence, is located. This is because nowadays, although corporations may be registered in a particular state, they are incorporated in Australia. Thus s 235(3) would not have the consequence, even if s 238(3) applied, that the relevant jurisdiction was Queensland. Fifthly — unlike sub-section (1), (1A) and (2) — s 238(3) includes the laws of the jurisdiction relating to conflict of laws. Under the rules of private international law applicable in Queensland, the lex situs governs the validity and effect of the assignment of chattels, and where there are multiple assignments, the lex situs of the later transaction [Douglas v Price, 251–253]. Accordingly, application of s 238(3) would result in the application, to the question of the validity and perfection of QES’ security interest, of the laws of the Northern Territory. Sixthly, even if the law of Queensland were applicable, at least the 930 was registrable, but was not registered, in a transitional register in Queensland. Under the (QLD) Motor Vehicles and Boats

Securities Act 1986, s 2: security interest means an interest in a motor vehicle, boat or outboard motor by way of security for or in respect of a liability, whether present, contingent or future created or otherwise arising in or under or in connection with a bill of sale, mortgage, charge, lien, hire-purchase agreement, lease or instrument having a like effect to any of them and includes the interest of— (a) an owner within the meaning of the Hire-purchase Act 1959 in respect of the liability of the hirer within the meaning of that Act; and (b) a lessor in respect of the liability of a lessee. Under s 3: (1) Motor vehicle means a land vehicle that moves on wheels and is propelled by a motor that is part of the vehicle. (2) Motor vehicle also includes a caravan or trailer designed to be attached to, or drawn by, a motor vehicle of a type mentioned in subsection (1). (3) Motor vehicle does not include the following— (a) a vehicle designed for use primarily in the mining industry; (b) farm machinery; (c) a vehicle designed for use on a railway or tramway. The 930 is admittedly a wheeled vehicle. (The plaintiffs accepted that the 320 and 330, being tracked vehicles, were not). Although QES suggested that the 930 was designed for use primarily in the mining industry, there is no evidence, nor any other basis, on which I could reach that conclusion. Accordingly, the 930 was a motor vehicle within the meaning of the Queensland Act and registrable under it, but not registered. (It may be — as argued by the plaintiffs — but is unnecessary to decide, that the 320 and 330 were registrable under the (QLD) Bills of Sale and Other Instruments Act 1955).” [238.5.2] Moved goods — s 238(2), (2A) The default position discussed in [238.5.1], however, does not apply if, at the time the security interest attached, it was reasonable to believe that the goods would be moved to a particular jurisdiction and at the time the issue arose the goods were actually in that jurisdiction. The element of “reasonable belief ” comprises a question of fact to be determined objectively in light of the surrounding facts and circumstances. Further, if the goods are of a type normally moved between jurisdictions (without reference to the specific facts and circumstances of the case in question) then s 238(3) of the PPSA applies. See for example, Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 (Alta CA). [238.5.3] Moved between jurisdictions — in the normal course — s 238(3) Where the goods are normally moved between jurisdictions, the position is the same as under the main rule, that is, the location of the grantor, rather than the collateral, is the determinant of which body of law will apply to the arising interest. This provision only applies, however, if the grantor is located where the security interest attaches. Section 238(3) of the PPSA, however, does not apply if the goods are used predominately for personal, domestic or household purposes (for more information on the phrase “personal, domestic or household purposes” see [47.4]). In such circumstances, the PPSA is silent as to the governing law. In the authors’ view, where the goods are used for such purposes any security interest that attaches will be governed by the securities law regime of the location of the underlying collateral, and not the grantor. This is consistent with the consumer protection imperatives of the PPSA in circumstances where property is used predominately for such purposes (see Pt 2.5, particularly s 47), as it is no doubt reasonable to expect that where collateral is found in a particular jurisdiction, the laws of the jurisdiction should apply to it. See for example, GMAC Commercial Credit Corp Canada v TCT Logistics Inc (2004) 6

PPSAC (3d) 163; 238 DLR (4th) 487 (Ont CA). [238.5.4] Registers of ships — s 238(4) Where the goods forming part of a security interest are entered on a “register of ships” — as maintained by particular jurisdictions — the law of the jurisdiction containing the register governs any resulting security interests over such collateral pursuant to s 238(4) of the PPSA. For a discussion of s 238 and the application of the PPSA to maritime liens and s 73, see The Ship “Sam Hawk” v Reiter Petroleum Inc (2016) 246 FCR 337; [2016] FCAFC 26. [238.6] Further reading • Explanatory Memorandum [7.20–7.27]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.7].

¶239 SECTION 239 GOVERNING LAWS — INTANGIBLE PROPERTY ¶7-040 SECTION 239 GOVERNING LAWS — INTANGIBLE PROPERTY Text of s 239 [239.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 30

Saskatchewan

PPSA 1993

s7

Ontario

PPSA 1990

s7

USA

UCC Article 9 (rev) § 9-301

[239.2] Outline Section 239 of the PPSA outlines the governing laws with respect to intangible property. Different rules regarding the location of such property apply pursuant to s 235. [239.3] Cross-references • Sections 236–238, 240 and 241 provide further rules regarding the governing law of security interests. [239.4] Concepts • ADI account This is defined by s 10. See further, s 25. • Attaches See s 19. • Intangible property This is defined by s 10. • Intellectual property or an intellectual property license These are defined by s 10. See further, s 105 and 106 and [12.5.3.5]. • Located See s 235. • Letter of credit A letter of credit is an instrument under which a bank agrees to make a payment once certain criteria are met. This is different from a bank guarantee which only obliges the bank to make a payment if the principal obligor defaults. Letters of credit are frequently used as instruments to finance trade and also in the construction industry and are covered by the Uniform Customs and Practice for Documentary Credits 2008 Revision published by the International Chamber of Commerce. A letter of credit that must be presented for payment is expressly included in the concept of negotiable instruments under s 10. See further, s 28. • Perfection See s 21. • Security agreement This is defined by s 10. See further, s 18 and 20.

[239.5] Commentary [239.5.1] Main rule — s 239(1), (2) ....................................XX [239.5.2] Intellectual property — s 239(3) ....................................XX [239.5.3] ADI accounts — s 239(4), (5) ....................................XX [239.5.4] Letters of credit — s 239(6) ....................................XX [239.5.1] Main rule — s 239(1), (2) The main rule, pursuant to s 239(1) and (2) of the PPSA, is the same as the rule with respect to goods pursuant to s 238(1) and (1A) (see s 238). [239.5.2] Intellectual property — s 239(3) The main rule discussed in [239.5.1] applies to intellectual property where the attachment of a security interest occurs in the relevant jurisdiction and, at the time the interest is brought into issue, the grantor is located in the law of the jurisdiction the interest is perfected in. This is also the position where the law of the jurisdiction provides for public registration or recording of the interest including available notices where the interest is taken free and as to the validity of the security interest. (see Personal Property Securities Act 2009 (Cth), s 239(3)). [239.5.3] ADI accounts — s 239(4), (5) By default, the law governing the authorised deposit-taking institution account (ADI account) is that of the jurisdiction which governs such an account. The parties can, however, agree to a different jurisdiction unless this is manifestly against public policy. The assessment of public policy in these circumstances seeks to deter parties from utilizing foreign jurisdictions for the purpose of circumventing critical policy objections of the Personal Property Securities Act 2009 (Cth) (Australian PPSA) (such as consumer protection ideals). The policy initiatives of the Australian PPSA are discussed further at Intro.IVff. [239.5.4] Letters of credit — s 239(6) The rights evidenced by letters of credit are dealt with under s 240 of the PPSA. [239.6] Further reading • Explanatory Memorandum [7.28–7.36]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.9].

¶240 SECTION 240 GOVERNING LAWS — FINANCIAL PROPERTY AND RIGHTS EVIDENCED BY LETTERS OF CREDIT ¶7-045 SECTION 240 GOVERNING LAWS — FINANCIAL PROPERTY AND RIGHTS EVIDENCED BY LETTERS OF CREDIT Text of s 240 [240.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 30

Saskatchewan

PPSA 1993

s 7.1

Ontario

PPSA 1990

s 7.1

USA

UCC Article 9 (rev)

§§ 9-301, 9-305, 9306

[240.2] Outline Section 240 of the PPSA addresses governing rules in relation to financing property and rights evidenced by letters of credit. [240.3] Cross-references • Sections 236–239 and 241 provide further rules regarding the governing law of security interests. [240.4] Concepts • Attaches See s 19. • Document of title This is defined in s 10. • Financial property This is defined in s 10. • Located See s 235. • Letter of credit A letter of credit is an instrument under which a bank agrees to make a payment once certain criteria are met. This is different from a bank guarantee which only obliges the bank to make a payment if the principal obligor defaults. Letters of credit are frequently used as instruments to finance trade and also in the construction industry and are covered by the Uniform Customs and Practice for Documentary Credits 2008 Revision published by the International Chamber of Commerce. A letter of credit that must be presented for payment is expressly included in the concept of negotiable instruments under s 10. See further, s 28. • Negotiable instruments These are defined in s 10. See further, s 29. • Perfection See s 21.

• Possession See s 24. • Security agreement This is defined by s 10. See further, s 18 and 20. [240.5] Commentary [240.5.1] Attachment — s 240(1), (2), (3) ....................................XX [240.5.2] Perfection — s 240(4), (5) ....................................XX [240.5.1] Attachment — s 240(1), (2), (3) The position under s 240 of the PPSA with respect to the validity of a security interest over financial property derives from the law of the jurisdiction where the grantor is located at the time of attachment. This position also applies in relation to rights evidenced by letters of credit. With respect to financial property, an exception applies where the property is in Australia at the time of attachment and the secured party perfects by possession or control. The commerciality of such property takes precedence over the main rule and thus the possessing or controlling party prevails. This position is consistent with the underlying principles of the PPSA pursuant to s 24–29, 57 and Pt 2.6, Div 5. [240.5.2] Perfection — s 240(4), (5) The law with respect to perfection applies similarly to financial property as it does to goods and intangibles (see s 238(2) and 240(2) of the PPSA respectively). The same exception, however, applies to perfected interests, that is, property located in Australia where the security interest is perfected by possession or control will be governed by Australian law, that is, the PPSA. [240.6] Further reading • Explanatory Memorandum [7.37–7.38]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.9].

¶241 SECTION 241 GOVERNING LAWS — PROCEEDS ¶7-050 SECTION 241 GOVERNING LAWS — PROCEEDS Text of s 241 [241.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 26, 33

Saskatchewan

PPSA 1993

s 5–7.3

Ontario

PPSA 1990

s 5–7.3

USA

UCC Article 9 (rev) § 9-301–9-307

[241.2] Outline Section 241 of the PPSA creates a specific rule in relation to proceeds of valid security interests. Section 241(3) additionally prescribes that the section applies irrespective of the remainder of Pt 7.2. [241.3] Cross-references • Sections 234–236 provide further rules regarding the governing law of security interests. [241.4] Concepts • Account This is defined by s 10. See further, s 12. • Perfection See s 21. • Proceeds See s 31. [241.5] Commentary Section 241 of the PPSA prescribes that the proceeds of a valid security interest are governed by the law of the jurisdiction that governed the original security interest. Effects of perfection similarly follow their application with respect to the underlying security interest. Exceptions apply in relation to accounts (see s 239(4), (5)). On a general note, the Personal Property Securities Regulations 2010 have been left open as a source of amendment once the ramifications of the PPSA are better understood, that is, after the Act takes force. Considering the complexity of the regime and difficulties abroad, this is beneficial for the Australian regime, however, there may be some constitutional ramifications (see Pt 7.3). [241.6] Further reading • Explanatory Memorandum [7.39–7.40]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.1.10].

¶7.3 PART 7.3 — CONSTITUTIONAL OPERATION ¶1 Division 1 — Introduction

¶242 SECTION 242 GUIDE TO THIS PART ¶7-055 SECTION 242 GUIDE TO THIS PART Text of s 242 General commentary The PPSA relies upon a referral of powers from each state under s 51(xxxvii) of the Commonwealth of Australia Constitution Act 1900 (the Constitution). A referral of powers is necessary as the Commonwealth has a number of limitations on its legislative power, including the inability to acquire property otherwise than on just terms (Constitution s 51(xxxi)). Section 252B provides that the provisions of the PPSA are not to apply to the extent that they involve the acquisition of property otherwise than on just terms. This Part sets out rules for addressing constitutional issues with the implementation and application of the PPSA. It should be read in conjunction with Pt 7.4, Pt 9.2–9.4 and s 5–7. Part 7.3 draws a distinction between referring states and non-referring states. Given the status of territories as distinct from states under s 122 of the Constitution, the PPSA applies to the territories. Sections 246–250 set out circumstances where the PPSA will apply in non-referring states. All states referred their powers to the Commonwealth to allow for the PPSA.

¶2 Division 2 — Constitutional basis

¶243 SECTION 243 CONSTITUTIONAL BASIS FOR THIS ACT ¶7-060 SECTION 243 CONSTITUTIONAL BASIS FOR THIS ACT Text of s 243 [243.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[243.2] Outline Nil. [243.3] Cross-references Nil. [243.4] Concepts Nil. [243.5] Commentary [243.5.1] Overview ....................................XX [243.5.2] Non-referring states — s 243(2) ....................................XX [243.5.3] Operation outside Australia — s 243(5) ....................................XX [243.5.1] Overview The single Commonwealth statute which comprises the PPSA may be taken for granted now that the legislation is in operative force in Australia, however, the validity of each individual provision of the Act is dependent upon an express grant of power under the Constitution or a referral of state power from the Australian states. At the time of drafting, three viable options were considered to introduce the personal property securities (PPS) reform in Australia. 1. The single Commonwealth statute (which was ultimately adopted) would be enacted following a referral of power from the states. 2. The enactment of Commonwealth legislation to establish the Personal Property Securities Register (PPSR), with all substantive provisions of the PPS reform to be embodied in state-based legislation mirrored throughout the Australian states. 3. The use of Commonwealth legislation to create the PPSR including substantive provisions which would exhaust the balance of federal legislative power under the heads of s 51 of the Constitution. The difficulties with adopting approaches 2 or 3 above related primarily to an inability to ensure a fundamental objective of the PPSA, namely, uniformity across Australia. In addition, each state would need to expressly adopt any amending legislation — a significant pragmatic deficiency with multiple amendments occurring even prior to the regime commencing in Australia. Further, while a referring state can choose to prevent particular components of the PPSA from applying in that state, express revocation of a referral of power is unlikely — a process distinct from amending state-based legislation. Evidence of this can be seen with respect to the referrals of power necessary to enact the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

[243.5.2] Non-referring states — s 243(2) A “referring State” is defined by the PPSA under s 244. By process of deduction, a non-referring state is one which does not satisfy s 244, namely, a state which does not refer power necessary to give force to those provisions of the PPSA which require a referral of power in that relevant state. At the time of writing, no state had elected not to refer power and thus the provisions with respect to non-referring states are rendered largely moot. It should, however, be kept in mind that a referring state can revoke a referral. Should a referring state ever become a non-referring state, s 243(2) provides that a non-referring state is bound by the PPSA to the extent that the federal parliament has the power to legislate, namely, if the relevant provision can be properly characterised as one which falls under a head of power pursuant to s 51 of the Constitution, then the provision is applicable in a non-referring state. The utility of revoking a referral of power is thus limited. [243.5.3] Operation outside Australia — s 243(5) The extension of the PPSA to interests outside of Australia is subject to conflict of law questions. Section 243(5) states the Commonwealth parliament’s intention that the PPSA should operate outside Australia to the extent that it can under s 51 of the Constitution. However, whether the purported extended application of the regime is effective is a separate question. [243.6] Further reading • DE Allan, P Quirk, N Martin “Final Report — Workshop on Personal Property Security Reform” (2002) 14 Bond LR 8. • D Rose, “Uniform Personal Property Security Legislation for Australia — Constitutional Issues” (2002) 14 Bond LR 26. • M Hetherington, “The Constitutional Mechanism for Personal Property Security Legislation in Australia” (2002) 14 Bond LR 47.

¶244 SECTION 244 MEANING OF REFERRING STATE ¶7-065 SECTION 244 MEANING OF REFERRING STATE Text of s 244 [244.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[244.2] Outline Nil. [244.3] Cross-references Nil. [244.4] Concepts Nil. [244.5] Commentary The referral of state power can be seen in the following legislation: • Personal Property Securities (Commonwealth Powers) Act 2009 (NSW) • Personal Property Securities (Commonwealth Powers) Act 2009 (Vic) • Personal Property Securities (Commonwealth Powers) Act 2009 (Qld) • Personal Property Securities (Commonwealth Powers) Act 2009 (SA) • Personal Property Securities (Commonwealth Laws) Act 2011 (WA) • Personal Property Securities (Commonwealth Powers) Act 2010 (Tas). The legislation in all states bar Western Australia adopts predominately the same form. There was some contention expressed by Western Australia prior to the registration commencement time (30 January 2012, see s 306 of the PPSA, [306.5.2]) regarding an absolute and irrevocable grant of power. The consequential referring legislation is thus more involved whereby Western Australia preserves its right to prevent particular parts of the PPSA from operating within Western Australia (subject to s 243(2)). The following amendment legislation should be read in conjunction with the referring legislation: • Personal Property Securities (Commonwealth Powers) Amendment Act 2009 (NSW) • Personal Property Securities Legislation Amendment Act 2010 (NSW) • Personal Property Securities (Statute Law Revision and Implementation) Act 2010 (Vic) • Personal Property Securities (Ancillary Provisions) Act 2010 (Qld) • Personal Property Securities (National Uniform Legislation) Implementation Act 2011 (Tas).

¶245 SECTION 245 MEANING OF REFERRED PPS MATTERS ¶7-070 SECTION 245 MEANING OF REFERRED PPS MATTERS Text of s 245 General commentary Section 245 of the PPSA attempts to limit the scope of the referral of power or otherwise expressly define it. It constitutes an “abundance of caution” type provision likely to give some comfort to state parliaments who made a decision to refer power. For practitioners, s 245 highlights dealings with personal property which are beyond the scope of the regime and thus s 245 should be read with s 8.

¶246 SECTION 246 NON-REFERRING STATE OPERATION — OVERVIEW ¶7-075 SECTION 246 NON-REFERRING STATE OPERATION — OVERVIEW Text of s 246

¶247 SECTION 247 NON-REFERRING STATE OPERATION — PERSONS ¶7-080 SECTION 247 NON-REFERRING STATE OPERATION — PERSONS Text of s 247

¶248 SECTION 248 NON-REFERRING STATE OPERATION — ACTIVITIES ¶7-085 SECTION 248 NON-REFERRING STATE OPERATION — ACTIVITIES Text of s 248

¶249 SECTION 249 NON-REFERRING STATE OPERATION — INTERESTS ¶7-090 SECTION 249 NON-REFERRING STATE OPERATION — INTERESTS Text of s 249

¶250 SECTION 250 NON-REFERRING STATE OPERATION — INCLUSION OF DATA IN REGISTER ¶7-095 SECTION 250 NON-REFERRING STATE OPERATION — INCLUSION OF DATA IN REGISTER Text of s 250 General commentary The implementation of a nationwide register was not left open to the states. Section 250 of the PPSA prescribes that regardless of whether or not the PPSA was adopted, the Personal Property Securities Register (PPSR) operates in all Australian states. This is important as, despite the existing referral of power, the PPSR is central to the regime and drafting of this nature is reflective of the emphasis placed upon it.

¶251 SECTION 251 PERSONAL PROPERTY TAKEN FREE OF SECURITY INTEREST WHEN ACT BEGINS TO OPERATE ¶7-100 SECTION 251 PERSONAL PROPERTY TAKEN FREE OF SECURITY INTEREST WHEN ACT BEGINS TO OPERATE Text of s 251 General commentary A specific taking free provision under s 251 facilitates the ability of a non-referring state to refer power to the Commonwealth without risking a conflict of law.

¶252 SECTION 252 PRIORITY BETWEEN CONSTITUTIONAL AND NON-CONSTITUTIONAL SECURITY INTERESTS ¶7-105 SECTION 252 PRIORITY BETWEEN CONSTITUTIONAL AND NONCONSTITUTIONAL SECURITY INTERESTS Text of s 252 General commentary Federal laws are subject to the Constitution regarding validity. A law which can not be characterised as one with respect to a relevant head of power is invalid. Whether or not Div 3 of Pt 7.3 of the PPSA is included, the interpretation of each provision is subject to the Constitution. It is inherent with all laws passed by the federal parliament that they seek to comply with the Constitution, that is in this case, that no provision discriminates between the states and no provision provides for an acquisition of property on unjust terms. The work done by s 252A and 252B is thus precautionary at best.

¶3 Division 3 — Constitutional guarantees

¶252A SECTION 252A NO CONSTITUTIONAL PREFERENCE TO ONE STATE OVER ANOTHER ¶7-110 SECTION 252A NO CONSTITUTIONAL PREFERENCE TO ONE STATE OVER ANOTHER Text of s 252A

¶252B SECTION 252B NO UNJUST ACQUISITION OF PROPERTY ¶7-115 SECTION 252B NO UNJUST ACQUISITION OF PROPERTY Text of s 252B General commentary The validity of the vesting provision pursuant to s 267(2) of the PPSA (and therefore s 588FL(4) of the Corporations Act 2001 (Cth)) was considered in White v Spiers Earthworks Pty Ltd (2014) 99 ACSR 214; [2014] WASC 139, a case concerning a hire purchase arrangement where the defendants (the hirers) failed to perfect any interest held over the underlying collateral on the PPSR nor did they register any interest under the Chattel Securities Act 1987 (WA). The defendants argued, among other things, that s 267(2) of the PPSA constituted an acquisition of property on otherwise than just terms in breach of s 51(xxxi) and s 252B of the PPSA would disentitle s 267(2) to be read this way (at 221 [34]). In rejecting this contention, Le Miere J held (at 223 [40]): “Section 267(2) of the PPSA does not effect an acquisition of property within the meaning of ‘acquisition of property’ in s 51(xxxi) of the Constitution. The operation of s 267 to vest the defendants’ interest in the hire assets does not result in an acquisition of property within the meaning of ‘acquisition of property’ in s 51(xxxi) of the Constitution, and hence s 252B of the PPSA does not apply to the circumstances of this case. The result is that s 267(2) of the PPSA applies and the interests of the defendants in the hire assets are vested in the company by reason of s 267 of the PPSA notwithstanding s 252B of the PPSA.” In reaching this conclusion, his Honour relied on dictum set out in Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480, where Mason CJ, Brennan, Deane and Gaudron JJ held (at 509–510): “The answer to the question whether a legislative imposition of an obligation to pay money involves an ‘acquisition of property’ for the purposes of s 51(xxxi) of the Constitution must depend upon the context in which the obligation is imposed. … In a case where an obligation to make a payment is imposed as genuine taxation, as a penalty for proscribed conduct, as compensation for a wrong done or damages for an injury inflicted, or as a genuine adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity, it is unlikely that there will be any question of an ‘acquisition of property’ within s 51(xxxi) of the Constitution. On the other hand, the mere fact that what is imposed is an obligation to make a payment or to hand over property will not suffice to avoid s 51(xxxi)’s guarantee of ‘just terms’ if the direct expropriation of the money or other property itself would have been within the terms of the subsection. Were it otherwise, the guarantee of the section would be reduced to a hollow facade.” (emphasis added). This was expanded upon in Georgiadis v Australian and Overseas Telecommunications Corp (1994) 179 CLR 297 where Mason CJ, Deane and Gaudron JJ held (at 307): “Not every Commonwealth law with respect to the acquisition of property falls within s 51(xxxi) of the Constitution. It may be outside that paragraph because, although it effects an acquisition of property, it is a law of a kind that is clearly within some other head of legislative power. That is the case with a law imposing taxation or a law providing for the sequestration of the estate of a bankrupt. Or it may be outside s 51(xxxi) because it effects an acquisition of a kind that does not permit of just terms, as in the case of a law imposing a penalty by way of forfeiture. And, it may fall outside s 51(xxxi) because it cannot fairly be characterised as a law for the acquisition of property for a purpose in respect of which the parliament has power to make laws. That will generally be the case with laws directed to resolving competing claims or providing for ‘the

creation, modification, extinguishment or transfer of rights and liabilities as an incident of, or a means for enforcing, some general regulation of the conduct, rights and obligations of citizens in relationships or areas which need to be regulated in the common interest’.” (emphasis added) And further in Mutual Pools & Staff Pty Ltd v Commonwealth (1994) 179 CLR 155 where Mason CJ held (at 169–170): “[I]t is a well-accepted principle of interpretation that, when a power is conferred and some qualification or restriction is attached to its exercise, other powers should be construed, absent any indication of contrary intention, so as not to authorise an exercise of the power free from the qualification or restriction. Hence, the effect of s 51(xxxi) when read in conjunction with the other legislative powers of the parliament is that, subject to any contrary intention, it forbids the making of laws with respect to the acquisition of property from any State or person for a relevant purpose on terms that are not just. Consequently, a law with respect to the acquisition of property must comply prima facie with the requirement of just terms. An indication of contrary intention may be provided by the express terms in which a specific power is conferred or by the very nature of the subject matter of a specific power or what is included within it. Thus, the very terms of s 51(xxxiii), which confers power to make laws with respect to the acquisition of State railways ‘on terms arranged between the Commonwealth and the State’, indicate that an acquisition of State railways stands outside s 51(xxxi). And, so does s 85 which makes special provision with respect to compensation payable by the Commonwealth for property passing from a State under that section. Likewise, a law made in the exercise of the power with respect to bankruptcy and insolvency, which provides for the sequestration of the property of a bankrupt and its vesting in the Official Receiver, is not a law with respect to the acquisition of property within s 51(xxxi). It is no more and no less than a law which regulates the incidents and effects of bankruptcy, the provision for the vesting of title to the bankrupt’s property in the Official Receiver being subordinate to sequestration. That element in the law would not enable one to describe it with any semblance of accuracy as a law for the acquisition of property.” (emphasis added). In the subsequent decision Brereton J held that vesting under s 267 is not an acquisition at all (at [45]): “The section does not effect a taking of property which the PPS lessor held prior to its becoming subject to the PPSA; rather, it prescribes a consequence, in certain circumstances, of a lease entered into subject to the PPSA. It is an incident of any PPS lease entered into after the commencement of the PPSA that the lessor’s interest is liable to vest in the lessee in certain events, if it has not been perfected.” His Honour also held (at [52]) that s 267 was not a law directed at acquiring property “applied for any purpose in respect of which the Commonwealth has power to make laws, but for the grantor’s own purposes: to enlarge the grantor’s assets and the property that will be divisible among its creditors. As such an acquisition is not for a relevant Commonwealth purpose …”. Rather, the vesting provisions are directed at adjusting competing rights and so do not come within the scope of s 51(xxxi): at [53]. The authors respectfully agree with the analysis of Le Miere and Brereton JJ.

¶7.4 PART 7.4 — RELATIONSHIP BETWEEN AUSTRALIAN LAWS ¶1 Division 1 — Introduction

¶253 SECTION 253 GUIDE TO THIS PART ¶7-120 SECTION 253 GUIDE TO THIS PART Text of s 253

¶2 Division 2 — Concurrent operation

¶254 SECTION 254 CONCURRENT OPERATION — GENERAL RULE ¶7-125 SECTION 254 CONCURRENT OPERATION — GENERAL RULE Text of s 254 [254.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 65(2)

Ontario

PPSA 1990

s 73

USA

UCC Article 9 (rev) No equivalent

[254.2] Outline While Pt 7.2 of the PPSA examines the relationship between the Australian PPSA and foreign laws, Pt 7.4 analyses the interaction between the PPSA and other Australian laws (including Commonwealth, state, territory and general laws). Section 254 provides the general position while the balance of Pt 7.4 discusses the specific rules and where they apply. [254.3] Cross-references • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 256–259 set out where other laws prevail over the PPSA. • Sections 261–264 set out where the PPSA prevails over other laws. [254.4] Concepts • Personal property This is defined by s 10. [254.5] Commentary The general rule pursuant to s 254(1) is that the PPSA will not circumvent the operation of any of the other laws of Australia (including Commonwealth, state, territory and general law principles) to the extent that concurrent operation is available. Section 254(2) outlines several areas explicitly providing for the concurrent operation of Australian laws and the PPSA, however, s 254(1) is not to be limited by s 254(2). The court should thus aim to facilitate the concurrent operation of the laws where available. The PPSA is not a complete commercial “code”: Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644 at [35]. If a particular outcome or circumstance is not contemplated by the PPSA then there is nothing to suggest that existing statutory law or the general law (namely, principles of common law and equity) would not apply to such a scenario. The following example demonstrates the point:

Assume Party A owns a motor vehicle which is stolen by Party B. Party B then seeks to raise finance from Party C who agrees to provide such finance on the basis that Party B grants it a security interest over the motor vehicle. Party C does so and Party B perfects their interest by registration. Subsequently, Party B defaults on their loan obligations owed to Party C and Party C seeks to enforce their security against the motor vehicle as a consequence. However, upon seizing the motor vehicle, Party A discovers their motor vehicle and asserts their ownership as against Party C.

When looking to ascertain who should prevail in the above scenario it is critical to appreciate that the outcome is not PPSA dependent. Part 2.6 of the PPSA, which would ordinarily be consulted if a priority dispute (as the above appears to be) were to arise, resolves priority disputes between competing security interests. The theft of the motor vehicle did not create a security interest in favour of Party A from Party B and thus any dispute regarding the motor vehicle cannot, as a matter of proper characterisation, be one with respect to priority. As the PPSA does not otherwise resolve the dispute (with Pt 2.5 equally being inapplicable in the circumstances), s 254 provides that resort can be to the general law and presumably the principle of nemo dat quod non-habet would apply. That being said, and particularly with the expiration of the transitional provisions under Ch 9, it does not necessarily follow that the general law will apply in circumstances where the PPSA does operate but would produce a seemingly unfair result. Section 254(1) provides that the general law, inter alia, is relevant and applicable only where it is capable of “operating concurrently” with the PPSA. The point is further made clear by s 254(3). It is particularly crucial to observe this provision, and its scope, effect and limit, in the context of a priority dispute arising squarely under the PPSA. Speaking generally, it would be an error, in the authors’ view, to assume that Equity or restitution principles would have any place in coming to the aid of a party who is adversely affected by the proper application of any such provision of the PPSA. In KBA Canada Inc v Supreme Graphics Ltd [2014] BC CA 117, the court considered whether the British Columbia equivalent provision in the PPSA (BC PPSA s 68) allowed the court to use equitable principles to determine priority instead of applying the PPSA priority rules. The Court of Appeal rejected this argument and stated (at [26]–[27]): “As I read s. 68, it allows principles of common law, equity, and the law merchant to be applied only to fill interstices in the statute, or to cover areas that are beyond the scope of the legislation. It does not allow the court to apply such principles instead of the clear statutory precepts. It is difficult to conceive of a situation in which principles of common law, equity, or the law merchant will be applicable to a priorities dispute, because the PPSA deals with priorities comprehensively.” This issue was addressed in the case of Re Pacific Shores Resort & Spa Ltd (2013) 1 PPSAC (4th) 131; [2013] BCSC 480, where Fitzpatrick J considered whether or not a strata corporation took priority with respect to strata fees despite the fact that such fees could be properly characterised as receivables over which competing creditors held perfected security interests. The strata corporation brought its case on the doctrine of unjust enrichment with a claim for equitable relief in the alternative. His Honour held (at [32]– [33]): “The application of equitable principles in the context of a statutory priority regime inevitably gives rise to the suggestion that the fundamental purpose of the legislation will be undermined if equity is wielded to defeat statutory priorities. After all, commercial law rests on the bedrock principles of certainty and predictability. Mr. Justice Kelleher recently commented on the importance of these principles in KBA Canada, Inc. v. 3S Printers Inc., 2012 BCSC 1078 (CanLII), 2012 BCSC 1078: [43] The importance of certainty and predictability was underlined by the Supreme Court in Royal Bank of Canada v. Sparrow Electric Corp., 1997 CanLII 377 (SCC), [1997] 1 S.C.R. 411, where Mr. Justice Gonthier said in a dissenting opinion, at para. 21: More recently, provincial legislatures have moved to protect secured creditors generally through the enactment of personal property security legislation … these statutory regimes have been implemented to increase certainty and predictability in secured transactions through the creation of a coherent system of priorities … the benefits of such certainty in commercial transactions on basic economic principles, are intended to accrue to the health of the economy in general. As such, courts have indeed held that introducing equitable principles into such a priority regime can have the effect of defeating the priority scheme. In the context of the priority scheme under the

Personal Property Security Act, R.S.B.C. 1996, c. 359 (the ‘PPSA’), Master Hyslop, as she then was, in Bankruptcy of Canadian Auto Lease Corp., 2006 BCSC 849 (CanLII), 2006 BCSC 849 at para. 26, quoted with approval the comments of Mr. Justice Killeen in Canadian Imperial Bank of Commerce v. Melnitzer (Trustee of), [1993] O.J. No. 3021 (C. J. (Gen. Div.)) at para. 138: … the drafters of the PPSA did not intend to have its perfection-of-interests system overridden or emasculated by an endless serious of ad hoc rulings in individualized settings. Respect must be maintained for the perfection system no matter how harsh its application may appear to be in a given isolated case.” In this regard, his Honour also noted (at [56]–[58]) that: “… there are usually two bases upon which the court will disregard the statutory priority provisions at the first stage of the Garland test and go on to consider whether the enriched party can establish a juristic reason at the second stage of that test. First, where a secured party has mistakenly discharged its security and subsequent charge holders have not been prejudiced, the court may impose a constructive trust rather than allow the later charge holder, who had no expectation of gaining priority, to reap a windfall … [and] Second, a constructive trust may be imposed in accordance with the reasonable expectations of the parties and ‘good commercial conscience’.” His Honour concluded (at [75]–[76]): “In the second stage of the juristic reason analysis, public policy concerns may be raised and addressed. I have already mentioned the concepts of certainty and predictability which are so important to commercial law. The priority regimes under the Act, the PPSA and the LTA rely on these concepts so as to provide clear rules upon which commercial players can operate, particularly within the context of potential or ongoing insolvency proceedings. It is beyond question that violence would be done to commercial law if established priority regimes could be regularly altered or circumvented on an ad hoc basis and based on individual notions of fairness. Such an approach was especially decried by the court in Melnitzer and by Chief Justice McEachern in Ellingsen. Having said that, there will no doubt continue to be cases where the application of equitable principles is appropriate. The court in KBA Canada found the facts there to support the relief, but even there, the court noted that the constructive trust was imposed in what was described as ‘limited circumstances’: para. 80. No such ‘limited’ circumstances exist here. I have decided that the strata corporation should not be entitled to assert a priority on the basis of what it could ― or, more appropriately, should ― have done. Creditors make credit decisions all the time, some of which turn out, in retrospect, to have been made in error. Imposing a constructive trust in these circumstances would only invite those types of creditors, having then had the benefit of hindsight, to ask the court to revisit and remedy those decisions. I consider that allowing such applications would detract from, rather than enhance, the efficacy of statutory priority regimes and the public policy objectives that were intended to be achieved under those statutes.” The authors respectfully agree with the analysis of Fitzpatrick J. [254.6] Further reading • Explanatory Memorandum [7.52]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [9.2.3]. • Sheelagh McCracken, “Personal Property Securities Legislation: Analysing the New Lexicon” (2014) 35 Adelaide Law Review 71. • Sheelagh McCracken, “When is a ‘Buyer’ a ‘Buyer’? Solving Riddles When New Legislation Confronts Established Concepts” in S. Griffiths, S. McCracken, A. Wardrop (Eds.), Exploring Tensions in

Finance Law: Trans-Tasman Insights, Thomson Reuters NZ, 2014. • Christopher Pearce, “The problem of perfection: can equity provide a solution?” (2018) Australian Property Law Journal 26.

¶255 SECTION 255 CONCURRENT OPERATION — REGULATIONS MAY RESOLVE INCONSISTENCY ¶7-130 SECTION 255 CONCURRENT OPERATION — REGULATIONS MAY RESOLVE INCONSISTENCY Text of s 255 [255.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 71

Ontario

PPSA 1990

s 74

USA

UCC Article 9 (rev) No equivalent

[255.2] Outline Section 255 of the PPSA expressly provides for the imposition of the Personal Property Securities Regulations 2010 to determine the outcome of a conflict between law applicable in Australia and the PPSA where necessary. [255.3] Cross-references • Section 254 provides the general rule regarding the relationship between the PPSA and other laws. [255.4] Concepts • Licence This is defined by s 10. See also, s 105 and [12.5.3.5]. • Personal property This is defined by s 10. [255.5] Commentary The purpose of s 255 of the PPSA, in substance, is to expressly provide for the intervention of the PPS Regulations to resolve inconsistencies between the PPSA and the general body of Australian law where appropriate. The PPSA can arguably be amended in the absence of s 255, however, utilising the PPS Regulations may be quicker and more efficient. While no specific regulations have emerged to date as a result of this provision, as the Act continues in operation the need may subsequently arise. [255.6] Further reading • Explanatory Memorandum [7.53–7.55]. • ALRC Report No 64 [11.3–11.15].

¶3 Division 3 — When other laws prevail

¶256 SECTION 256 WHEN OTHER LAWS PREVAIL — CERTAIN OTHER COMMONWEALTH ACTS ¶7-135 SECTION 256 WHEN OTHER LAWS PREVAIL — CERTAIN OTHER COMMONWEALTH ACTS Text of s 256 [256.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 69

Ontario

PPSA 1990

s 73

USA

UCC Article 9 (rev) No equivalent

[256.2] Outline Section 256 of the PPSA outlines specific legislation which takes precedence to the PPSA. The provision is the first operative section under Pt 7.4, Div 3 — a division which specifies and particularizes when other Australian laws will prevail over the PPSA. [256.3] Cross-references • Section 255 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257–259 set out further rules where other laws prevail over the PPSA. • Sections 261–264 set out where the PPSA prevails over other laws. [256.4] Concepts Nil. [256.5] Commentary The express provision for the three Commonwealth Acts under s 256 of the PPSA indicates the continued application of these statutory regimes with respect to personal property securities. While subsections (b) and (c) of s 256 relate mainly to issues of construction and formality regarding particular instruments, the Payment Systems and Netting Act 1998 (Cth) preserves the position in Australia with respect to statutory set-off rights and netting arrangements — the commerciality of which is integral to the Australian derivatives and banking market. In the authors’ view, this may lead to some complexity whereby security is taken by way of a set-off right, however, the recognition of commercial affairs in Australia means that such arrangements are best governed by the Payment Systems and Netting regime (See also, s 8). [256.6] Further reading • Explanatory Memorandum [7.57]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [7.6.13].

¶257 SECTION 257 WHEN OTHER LAWS PREVAIL — SECURITY AGREEMENTS ¶7-140 SECTION 257 WHEN OTHER LAWS PREVAIL — SECURITY AGREEMENTS Text of s 257 [257.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[257.2] Outline While a security agreement is effective according to its terms pursuant to s 18(1) of the PPSA, s 257 reigns in the scope of the agreement with respect to the general body of law in Australia. [257.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 256, 258 and 259 set out further rules where other laws prevail over the PPSA. • Sections 261–264 set out where the PPSA prevails over other laws. [257.4] Concepts • Security agreement This is defined by s 10. See further, s 18 and 20. [257.5] Commentary The freedom of contract principles pursuant to s 18(1) allow the parties to a security agreement to essentially become bound by any such term as they see fit. Parties are, however, unable to contract out of the provisions of the PPSA (unless explicitly authorised to do so, for example pursuant to s 115) and where an agreement conflicts with the PPSA, the PPSA prevails to the extent of the inconsistency (see s 236 and 237). Pursuant to s 257, the same rule applies for the general body of law as against a security agreement, that is, the provisions of other governing laws of Australia prevail against a security agreement to the extent that they are inconsistent. This must be the case in order to give primacy to the legislature’s intentions. This rule does not apply where the provisions of Pt 7.4, Div 4 apply, whereby Div 4 articulates where the PPSA prevails against other laws of Australia. Additionally, the PPSA prescribes circumstances where a security agreement prevails against other laws for PPS purposes (see s 257(3)). [257.6] Further reading • Explanatory Memorandum [2.1]. • ALRC Report No 64 [11.3–11.15]. • Whittaker Report [8.1.2].

¶258 SECTION 258 WHEN OTHER LAWS PREVAIL — PERSONAL PROPERTY, SECURITY INTERESTS AND MATTERS EXCLUDED FROM STATE AMENDMENT REFERRALS ¶7-145 SECTION 258 WHEN OTHER LAWS PREVAIL — PERSONAL PROPERTY, SECURITY INTERESTS AND MATTERS EXCLUDED FROM STATE AMENDMENT REFERRALS Text of s 258 [258.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[258.2] Outline Section 258 of the PPSA specifies when other laws applicable in Australia prevail as against the PPSA. [258.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257 and 259 set out further rules where other laws prevail over the PPSA. • Sections 261–264 set out where the PPSA prevails over other laws. [258.4] Concepts • Personal property This is defined by s 10. [258.5] Commentary The PPSA, pursuant to s 258, grants primacy to other laws of Australia (including those Commonwealth, state, territory and general law provisions and principles) above that of the PPSA concerning the creation, acquiring or dealing with personal property or a security interest taken in such property to the extent of any inconsistency. This approach is in line with the rationale and objective of the PPSA, that is, the PPSA is predominately concerned with regulating security interests after they arise and has little if any influence over the commercial circumstances giving rise to the such interests. Additionally, in the absence of a security interest, the PPSA has little application and thus other laws duly prevail with the dealing of personal property. Further, nothing in the PPSA operates to remove the application of the laws of a referring state (See also, s 259). The legislation responsible for referring the power of the state to the Commonwealth with respect to the PPSA takes primacy against the PPSA (for reasons as to why a reference of power is necessary see Pt 7.3 of the PPSA). [258.6] Further reading • Explanatory Memorandum [7.60].

• ALRC Report No 64 [11.3–11.15].

¶259 SECTION 259 WHEN OTHER LAWS PREVAIL — EXCLUSION BY REFERRING STATE LAW OR TERRITORY LAW ¶7-150 SECTION 259 WHEN OTHER LAWS PREVAIL — EXCLUSION BY REFERRING STATE LAW OR TERRITORY LAW Text of s 259 [259.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[259.2] Outline Section 259 of the PPSA prescribes what is to occur where a state or territory law excludes the operation of a particular PPSA provision. [259.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257 and 258 set out further rules where other laws prevail over the PPSA. • Sections 261–264 set out where the PPSA prevails over other laws. [259.4] Concepts Nil. [259.5] Commentary Section 259 of the PPSA simply holds that where the PPSA is excluded, in whole or in part, other laws, where applicable, will prevail to the extent of the PPSA’s non-application. While there is no substantive deviation from the PPSA from any state or territory at the time of writing, the opportunity to exclude particular provisions is preserved. [259.6] Further reading • Explanatory Memorandum [7.62–7.63]. • ALRC Report No 64 [11.3–11.15]. CCH Note: S 260 repealed by No 96 of 2010, s 3, Sch 2, Pt 1, item 106, effective 6 July 2010.

¶4 Division 4 — When this Act prevails

¶261 SECTION 261 WHEN THIS ACT PREVAILS — REGISTRATION REQUIREMENTS ¶7-155 SECTION 261 WHEN THIS ACT PREVAILS — REGISTRATION REQUIREMENTS Text of s 261 [261.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[261.2] Outline Section 261 of the PPSA provides that a failure to register a security interest under a non-PPSA law does not affect the validity of the security interest. [261.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257–259 set out rules where other laws prevail over the PPSA. • Sections 262–264 set out further where the PPSA prevails over other laws. [261.4] Concepts • Security agreement This is defined by s 10. See further, s 18 and 20. [261.5] Commentary Section 261 of the PPSA prescribes, in essence, that any failure to register a security interest pursuant to a regime outside of the PPSA will not affect the validity, enforceability or priority of a security interest if it conforms with the requirements of the PPSA. While this may interfere with the existence of the underlying collateral itself (for instance, see particular requirements with respect to recognising intellectual property), for the purposes of the PPSA, a security interest is valid regardless of registration requirements which form part of the general body of Australian law. [261.6] Further reading • Explanatory Memorandum [7.64]. • ALRC Report No 64 [11.3–11.15].

¶262 SECTION 262 WHEN THIS ACT PREVAILS — ASSIGNMENT REQUIREMENTS ¶7-160 SECTION 262 WHEN THIS ACT PREVAILS — ASSIGNMENT REQUIREMENTS Text of s 262 [262.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[262.2] Outline Section 262 of the PPSA addresses the prescribed rules in relation to registering an assignment. [262.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257–259 set out rules where other laws prevail over the PPSA. • Sections 261, 263 and 264 set out further rules where the PPSA prevails over other laws. [262.4] Concepts • Security agreement This is defined by s 10. See further, s 18 and 20. [262.5] Commentary Like s 261 of the PPSA, s 262 prescribes that where an assignment of property requires registration by law in Australia outside of the PPSA, and the relevant party fails to comply with such requirements, such an occurrence does not affect the validity, enforceability or priority of the security interest provided the requisite elements of the PPSA are complied with. Section 262 applies where the assignment also constitutes a security interest and while failing to satisfy the requirements of any statute is ill-advised in the authors’ view, it will not affect the assignment for the purposes of the PPSA. [262.6] Further reading • Explanatory Memorandum [7.64–7.65]. • ALRC Report No 64 [11.3–11.15].

¶262 SECTION 263 WHEN THIS ACT PREVAILS — FORMAL REQUIREMENTS RELATING TO AGREEMENTS ¶7-165 SECTION 263 WHEN THIS ACT PREVAILS — FORMAL REQUIREMENTS RELATING TO AGREEMENTS Text of s 263 [263.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[263.2] Outline Section 263 of the PPSA applies to any formal requirements as specified by other laws which affect PPSA-related interests. [263.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257–259 set out rules where other laws prevail over the PPSA. • Sections 261, 262 and 264 set out further rules where the PPSA prevails over other laws. • Personal Property Securities Regulations 2010 (Cth) Reg 7.1. [263.4] Concepts • Security agreement This is defined by s 10. See further, s 18 and 20. [263.5] Commentary Like s 261 and 262 of the PPSA, where other Australian laws require formal elements to be complied with, and the relevant party has not complied, this will not affect the validity, enforceability or priority of the security interest if the interest has accorded with the requirements of the PPSA. The only formal requirements the PPSA requires are to be found in the Act itself and take preference to other requirements pursuant to general Australian laws in the event of any inconsistency. In addition, reg 7.1 prescribes a series of statutes for the purposes of s 263(1)(c). [263.6] Further reading • Explanatory Memorandum [7.64]. • ALRC Report No 64 [11.3–11.15].

¶264 SECTION 264 WHEN THIS ACT PREVAILS — ATTACHMENT AND PERFECTION OF SECURITY INTERESTS ¶7-170 SECTION 264 WHEN THIS ACT PREVAILS — ATTACHMENT AND PERFECTION OF SECURITY INTERESTS Text of s 264 [264.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[264.2] Outline Section 264 of the PPSA expressly prescribes what the balance of Div 4 makes reference to, that is, PPSA concepts prevail against other CONCEPTS at law with respect to security interests should any inconsistency arise — but should generally not prevail against issues which do not relate to the regulation of security interests taken over personal property. [264.3] Cross-references • Section 254 provides the main rule for the concurrent operation of the PPSA with other laws. • Section 255 allows for regulations to resolve inconsistencies between the operation of the PPSA and concurrent laws. • Sections 257–259 set out rules where other laws prevail over the PPSA. • Sections 261–263 set out further rules where the PPSA prevails over other laws. [264.4] Concepts Nil. [264.5] Commentary Attachment and perfection are concepts defined and focused upon by the PPSA. Where the terms arise pursuant to other laws of Australia in relation to security interests taken over personal property, the PPSA prevails to the extent of any inconsistency between the laws. No additional requirements over and above those required by the PPSA thus apply in relation to attachment or perfection of a security interest in personal property. See VW Credit Canada Inc v Roberts (2001) 2 PPSAC (3d) 124; 197 DLR (4th) 274 (NS CA) and more generally Re Giffen (1998) 13 PPSAC (2d) 255; 155 DLR (4th) 332 (SCC). [264.6] Further reading • Explanatory Memorandum [7.64–7.65]. • ALRC Report No 64 [11.3–11.15].

¶8 CHAPTER 8 — MISCELLANEOUS

¶8.1 PART 8.1 — GUIDE TO THIS CHAPTER

¶265 SECTION 265 GUIDE TO THIS CHAPTER ¶8-005 SECTION 265 GUIDE TO THIS CHAPTER Text of s 265

¶8.2 PART 8.2 — VESTING OF CERTAIN UNPERFECTED SECURITY INTERESTS

¶266 SECTION 266 GUIDE TO THIS PART ¶8-010 SECTION 266 GUIDE TO THIS PART Text of s 266

¶267 SECTION 267 VESTING OF UNPERFECTED SECURITY INTERESTS IN THE GRANTOR UPON THE GRANTOR’S WINDING UP OR BANKRUPTCY ETC. ¶8-015 SECTION 267 VESTING OF UNPERFECTED SECURITY INTERESTS IN THE GRANTOR UPON THE GRANTOR’S WINDING UP OR BANKRUPTCY ETC. Text of s 267 [267.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

s 20

Ontario

PPSA 1990

s 20(1),(2)

USA

UCC Article 9 (rev)

§ 9-317(a) — note definition of lien creditor in § 9-102(52)(c)

[267.2] Outline Section 267 of the PPSA provides that a security interest will vest in the grantor if it is unperfected at the time that the grantor enters formal insolvency proceedings. [267.3] Cross-references • Sections 21 and 22 of the PPSA provide for the perfection of security interests. • Section 268 provides that the vesting rule in this section does not apply to certain security interests. • Section 269 provides for damages to be paid in certain circumstances where the vesting rules apply. • Section 296 provides rules for the onus of proof under this section. • Corporations Act 2001 (Cth), s 588FK–588FO provide further vesting rules. [267.4] Concepts • Actual or constructive knowledge See s 297–299 of the PPSA. • Company This is defined in s 10. • On a day The calculation of time was discussed in detail in Re Carpenter International Pty Ltd [2016] VSC 118. In that case, the question was whether registration at any time on the day that the administrator was appointed was sufficient. The court held that the relevant time was the actual appointment of the administrators as a precise event, not merely anytime on that day or necessarily on the day before the appointment. [267.5] Commentary Section 267 of the Personal Property Securities Act 2009 (Cth) provides that an unperfected security interest will vest in a grantor immediately before the grantor enters formal insolvency proceedings. These include winding up, voluntary administration or a deed of company arrangement for corporate grantors and a sequestration order or debtor’s petition for individual bankruptcy. In Bredenkamp v Gas Sensing

Technology Corporation, Re Welldog Pty Ltd (In liq) (rec and man apptd) [2017] FCA 1065 at [12], it was noted: “That vesting may be said to reflect a policy choice by the legislature, and needs to be borne in mind when considering the interaction of different provisions within the PPSA, as well as a claim by a putative legal owner of personal property following a vesting event (for example, as here, on the appointment of the administrator).” A security interest can be unperfected for a number of reasons including, but not limited to: 1. A secured party failing to lodge a financing statement on the PPSR. 2. A financing statement containing a defect or defects which render the financing statement ineffective: See s 164, 165 and 337A of the PPSA. 3. A secured party lodging a valid financing statement on the PPSR but doing so out of time (noting that this requirement relates only to corporate grantors in which case the appropriate vesting provision is not found in the PPSA but rather at s 588FL of the Corporations Act 2001 (Cth): see [588FL.2] Outline. In respect of point 3 above, unlike s 588FL of the Corporations Act, which contains a provision for the secured party to apply to the court to extend time to comply with the timing requirements imposed by s 588FL; see, s 588FM of the Corporations Act, the PPSA does not contain any such provision. The holder of an unperfected security interest does not appear to have any ability to extend time to comply with the perfection requirements imposed by the PPSA after an event referred to in s 267(1) has occurred: Re OneSteel Manufacturing Pty Ltd [2017] NSWSC 21; Re Production Printing (Aust) Pty Ltd (in liq) [2017] NSWSC 505. In the Canadian case of Central Refrigeration & Restaurant Services Inc (Trustee of) v Canadian Imperial Bank of Commerce (1986) 5 PPSAC 262; 47 Sask R 124 (Sask CA) it was held that temporary perfection at the commencement of bankruptcy was sufficient to maintain priority against the trustee in bankruptcy even where the security interest became unperfected after the end of the period of temporary perfection. A person who acquires the collateral for new value from a secured party (or their agent) or a receiver is not affected by the vesting where they had no actual or constructive knowledge of the initiation of formal insolvency proceedings (s 267(3)). There has been some contention regarding exactly what property vests in the trustee pursuant to this section (and its equivalents), as the trustee effectively obtains rights greater than the bankrupt/insolvent party under this section. In Re Giffen (1996) 10 PPSAC (2d) 277; 131 DLR (4th) 453 (BC CA), Finch JA held that the PPSA cannot add to the bankrupt’s estate (at [49]–[53]). The Supreme Court of Canada (on appeal) considered the vesting rules in Re Giffen (1998) 13 PPSAC (2d) 255; 155 DLR (4th) 332 and noted that it was the function of the PPSA to determine who a secured creditor was and failing to perfect a security interest prior to bankruptcy meant that the lessor became merely an unsecured creditor with a subordinate right to the bankruptcy trustee over the leased collateral. The rationale of the Supreme Court follows that of the Saskatchewan Court of Appeal in International Harvester Credit Corp of Canada v Bell’s Dairy Ltd (Trustee of) (1986) 6 PPSAC 138 (sub nom, International Harvester Credit Corp of Canada v Touche Ross Ltd (1986) 30 DLR (4th) 387) (at [35]): “I fail to see any legitimate basis for confining him to no greater claim upon the goods than that which the bankrupt enjoyed. That would require resort to traditional common law concepts, to form over substance, to a technical construction of the term ‘interest’, and to the defeat of the policy choice made by the legislature in choosing, as it did, to include within the scope of the Act a true lease of goods. It would render the section largely, if not wholly, ineffective in this instance.” As noted by Master Caldwell in Re Kuzilla (2009) 13 PPSAC (2d) 255; 50 CBR (5th) 144 (at [5]) (BC SC) “the provisions of the PPSA do not allow the exercise of discretion”. Of course, s 267 of the PPSA in Australia is even stronger in its wording than the Canadian PPSA statutes because it states that the security interest vests in the grantor, while the Canadian provisions hold that the unperfected security interest is merely ineffective against a trustee in bankruptcy or a

liquidator. This was confirmed in Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; (2013) 277 FLR 337; [2013] NSWSC 852 at [71]. In that case, Brereton J explained the effect of vesting under this section as follows: “The practical effect is that QES’s security interest is extinguished; QES has no further interest in the Caterpillars; and Maiden holds them subject only to the perfected security interest of Fast.” The factual matrix concerned QES, a lessor of vehicles, who leased certain vehicles to Maiden Civil but had failed to perfect any resulting security interest in the vehicles at a time when Maiden had obtained further secured finance from Fast Financial, using the same vehicles as collateral. Fast had perfected its security interest and QES’s security interest vested when Maiden entered voluntary administration at the same time as Fast appointed a receiver. In White v Spiers Earthworks Pty Ltd [2014] WASC 139 (16 April 2014), the court held (at [39]) that: “the vesting of the security interest in the grantor adjusts the competing rights of the secured party on the one hand and the unsecured creditors of the grantor on the other hand in relation to the personal property in relation to which the secured party has a security interest”. This was raised in response to an argument by the unperfected secured party that the vesting of its security interest was an acquisition of property otherwise than on just terms in breach of the Commonwealth Constitution s 51(xxxi). The court applied the High Court’s decision in Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 which held that an adjustment of rights between competing parties is not an acquisition of property for the purposes of s 51(xxxi). However, the statement that the vesting of security rights in the grantor debtor represents a mere adjustment of rights as between the secured and unsecured creditors in the collateral is questionable given that unsecured creditors have no rights in the grantor’s property, but rather a mere interest in the due administration of the insolvency arising out of their debt or claim against the debtor. If the application of the vesting rule was an acquisition of property for constitutional purposes then s 252B would provide that the vesting rule would not be operational to the extent that it represented an acquisition of property otherwise than on just terms. In White v Spiers, the court held that there was no acquisition of property and hence s 252B did not apply. In the authors’ view the vesting rule is unlikely to infringe s 51(xxxi) of the Constitution because the power to enact the PPSA regime is supported by the referral of state powers under s 51(xxxvii) and the PPSA cannot be characterised as a law for the acquisition of property, hence, s 51(xxxi) would not be engaged: see for example Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134; Mutual Pools & Staff Pty Ltd v Commonwealth (1994) 179 CLR 155. Law making power referred under s 51(xxxvii) should be given it’s full scope: see for example Pauls Ltd v Dwyer [2002] 2 Qd R 176; [2002] QCA 545 at [37]– [39]. There is also support for the view that the extinguishment of rights is not necessarily an acquisition of property for the purposes of s 51(xxxi): Health Insurance Commission v Peverill (1994) 179 CLR 226. Following from White v Spiers, it would seem that s 252B will have a very limited operation as a safety net only. This view is consistent with the decision in Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21, where Brereton J held that vesting under s 267 is not an acquisition at all (at [45]): “The section does not effect a taking of property which the PPS lessor held prior to its becoming subject to the PPSA; rather, it prescribes a consequence, in certain circumstances, of a lease entered into subject to the PPSA. It is an incident of any PPS lease entered into after the commencement of the PPSA that the lessor’s interest is liable to vest in the lessee in certain events, if it has not been perfected.” His Honour also held (at [52]) that s 267 was not a law directed at acquiring property “applied for any purpose in respect of which the Commonwealth has power to make laws, but for the grantor’s own purposes: to enlarge the grantor’s assets and the property that will be divisible among its creditors. As such an acquisition is not for a relevant Commonwealth purpose …”. Rather, the vesting provisions are directed at adjusting competing rights and so do not come within the scope of s 51(xxxi): at [53]. [267.6] Further reading • Explanatory Memorandum [8.1–8.11, 8.31].

• ALRC Report No 64 [10.8–10.11]. • Whittaker Report [4.2.2], [4.5.14], [5.1.4], [7.2.1], [7.3.2], [7.10.2], [8.7], [9.2.2]. • Linda Widdup, “Registration errors, priority rules and the policy behind the PPSA: In pursuit of certainty or fairness?” (2016) 44 Australian Business Law Review 175.

¶267A SECTION 267A VESTING IN GRANTOR OF SECURITY INTEREST THAT ATTACHES AFTER WINDING UP ETC. ¶8-020 SECTION 267A VESTING IN GRANTOR OF SECURITY INTEREST THAT ATTACHES AFTER WINDING UP ETC. Text of s 267A [267A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[267A.2] Outline Section 267A of the PPSA provides a further vesting rule to clarify that security interests granted in between the commencement of formal insolvency proceedings and the relevant court order or conduct which triggers the insolvency proceedings will vest in the grantor if they are not perfected by the time the insolvency proceedings are triggered. [267A.3] Cross-references • Section 266 provides a vesting rule for unperfected security interests where the grantor enters formal insolvency proceedings. [267A.4] Concepts • Actual or constructive knowledge See s 297–299. • New value This is defined by s 10 as meaning “means value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value”. [267A.5] Commentary Section 267A of the PPSA clarifies that a security interest granted after the time deemed to be the commencement of formal insolvency (such as the date an application for winding up is filed) but before the actual order that installs the formal insolvency proceedings (eg the winding up order issued by the court) can still vest in the grantor if the security interest is unperfected (or perfected only by registration that came after the deemed commencement of the insolvency) at the time of the commencement of the proceedings. This provision should be read in conjunction with s 266. It contains a similar rule for third parties for new value without notice of the commencement of insolvency proceedings (s 267A(3)). [267A.6] Further reading • Explanatory Memorandum [–]. • ALRC Report No 64 [10.8–10.11]. • Whittaker Report [8.7].

¶268 SECTION 268 SECURITY INTERESTS UNAFFECTED BY SECTION 267 ¶8-025 SECTION 268 SECURITY INTERESTS UNAFFECTED BY SECTION 267 Text of s 268 [268.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[268.2] Outline Section 268 of the PPSA provides that certain security interests do not come within the vesting rules in s 266 and 267A. [268.3] Cross-references • Sections 267 and 267A provide rules for unperfected security interests to vest in the grantor upon the commencement of formal insolvency proceedings. [268.4] Concepts • Commercial consignment See s 12. • PPS Lease See s 12, 13. • Transfer of an account or chattel paper See s 12. [268.5] Commentary Section 268 of the PPSA provides that a limited range of security interests do not fall within the scope of vesting rule pursuant to s 267. These security interests include certain deemed security interests that do not secure the payment or performance of an obligation (see s 12(3) — namely transfers of accounts and chattel paper and commercial consignments. The range of security interests covered by this section also includes foreign security interests and security interests involving debt subordination arrangements that involve turnover trusts. The Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) explained that the arrangements excluded are all common methods of commercial finance and are often short term in nature which would create commercial inconvenience to require registration in order to avoid vesting on insolvency. [268.6] Further reading • Explanatory Memorandum [8.6]. • ALRC Report No 64 [10.8–10.11]. • Whittaker Report [4.2.3], [4.5.14], [8.7].

¶269 SECTION 269 CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES ¶8-030 SECTION 269 CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES Text of s 269 [269.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

s 21

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[269.2] Outline Section 269 of the PPSA provides that certain secured parties will be entitled to damages if their security interest becomes vested in the grantor as a result of s 267 or s 267A. [269.3] Cross-references • Sections 267 and 267A provide vesting rules. [269.4] Concepts • Bailment See also, Bredenkamp v Gas Sensing Technology Corporation, Re Welldog Pty Ltd (In liq) (rec and man apptd) [2017] FCA 1065; Re Arcabi Pty Ltd (Rec and Man Apptd) (in liq) [2014] WASC 310. • Commercial consignment See s 12. • PPS lease See s 13. [269.5] Commentary Section 269 of the PPSA allows certain secured parties to obtain compensation from the grantor where their security interest vests in the grantor pursuant to s 267 or s 267A. As deemed security interests that do not secure the payment or performance of an obligation are excluded from the vesting rules by s 268, this rule will only apply to deemed security interests (namely commercial consignments and PPS leases) that secure the payment or performance of an obligation. The policy of this section was explained by Cuming R and Wood R32 who note that deemed lessors and bailors may have difficulty in proving for damages in an insolvency where the loss of the collateral was caused by the failure to perfect the security interest rather than a breach of the contract by the grantor. In the Alberta Court of Queen’s Bench case, Donaghy v CSN Vehicle Leasing (1992) 4 PPSAC (2d) 37; 14 CBR (3d) 256, it was held (at [16]): “I would point out that under s. 21 of the Alberta P. P. S. A., a lessor who has failed to register its lease and consequently loses its interest in the leased property to the trustee in bankruptcy is deemed to have a claim in damages against the bankrupt’s estate equal to the value of the leased goods and any loss resulting from the termination of the lease.” See also, Southern Property Rentals Ltd v Deloitte & Touche Inc (1998) 14 PPSAC (2d) 335; 6 CBR (4th)

141 (Alta QB); Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112; 43 BLR (2d) 226 (Ont SC GD) (varied in (2000) 15 PSSAC (2d) 95 (Ont CA)). [269.6] Further reading • Explanatory Memorandum [8.1–8.11]. • ALRC Report No 64 [10.8–10.11]. • Whittaker Report [8.7.3]. Footnotes 32

Cuming R and Wood R, Saskatchewan and Manitoba Personal Property Security Acts Handbook, 1994 Carswell at pp 171–172.

¶8.3 PART 8.3 — EXERCISE AND DISCHARGE OF RIGHTS, DUTIES AND OBLIGATIONS

¶270 SECTION 270 GUIDE TO THIS PART ¶8-035 SECTION 270 GUIDE TO THIS PART Text of s 270

¶271 SECTION 271 ENTITLEMENT TO DAMAGES FOR BREACH OF DUTIES OR OBLIGATIONS ¶8-040 SECTION 271 ENTITLEMENT TO DAMAGES FOR BREACH OF DUTIES OR OBLIGATIONS Text of s 271 [271.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 176

Saskatchewan PPSA 1993

s 65(5)

Ontario

PPSA 1990

s 67(2)

USA

UCC Article 9 (rev)

§ 9-625

[271.2] Outline Section 271 of the PPSA provides a right to seek compensation for a failure to comply with a duty or obligation imposed by the PPSA. [271.3] Cross-references • Section 111 obliges parties taking enforcement action to act in an honest and commercially reasonable manner. • Section 272 restricts the right to seek damages against the Commonwealth, the Minister, the Registrar or a delegate. [271.4] Concepts • Loss or damage that was reasonably foreseeable as like to result from the failure This wording seems to exclude the ability to award aggravated or exemplary damages for a breach of the statutory obligation as these damages are not based strictly on the loss suffered by the injured party. However, given that s 271(2) allows the general law remedies to operate concurrently, it is possible to obtain aggravated or exemplary damages based on a tortious cause of action: see for example, Loewen v Superior Acceptance Corp (1997) 12 PPSAC (2d) 230; 33 BCLR (3d) 72 (BC SC) where punitive damages were awarded where a secured party deliberately deprived the grantor of any opportunity to redeem their collateral. [271.5] Commentary Section 271 of the PPSA has a broad application although it is tempered by the requirements to prove that the person claiming compensation had a reasonable expectation to rely upon the performance of the duty or obligation and to establish that the harm was reasonably foreseeable. As noted in Canada Permanent Trust Co v Thomas (1983) 3 PPSAC 66; 149 DLR (3d) 338 (Sask QB), a debtor is not entitled to a windfall simply because a secured party failed to comply with a required step in the enforcement process (in that case serving notice); cf National Bank of Canada v Lasalle Excavating of Sudbury Ltd (1986) 5 PPSAC 279 (Ont DC) (where the importance of giving notice prior to disposal of seized collateral was stressed). While certain obligations clearly create an expectation of compliance, such as complying with an amendment notice to amend the registration of a financing statement or selling collateral at below market value, it is unclear whether other obligations such as the requirements to describe collateral could give rise to the reasonable expectation of compliance. For example, if a secured party enters an overly broad description of the collateral (such as all current and future property) when the security agreement is over a narrower class of property, would this allow a grantor to seek compensation from the secured party

under this section (based on an alleged reasonable expectation to comply with the obligations to accurately describe the collateral) if the grantor finds it more difficult or more expensive to obtain credit? Of course the grantor could serve an amendment demand on the secured party and pursue administrative action through the Registrar or court action to rectify the registered financing statement. Presumably a failure by the grantor to mitigate their losses will come within the scope of the reasonable forseeability and reasonable expectation requirements. The right to seek damages will frequently derive from defective enforcement action taken under Ch 4 of the PPSA, which contains the obligation to act honestly and in a commercially reasonable manner (s 111). That is an obligation that cannot be contracted out (s 115) although it will not apply in all cases of enforcement action as Ch 4 does not apply where the grantor is a company and a receiver is appointed to enforce the secured party’s rights. In such a case, the receiver is an officer of the grantor company (s 9 of the Corporations Act 2001 (Cth)) and must conduct themselves with due care and diligence and act properly and in good faith (s 180, 181 of the Corporations Act). The issue of causation of harm was considered in the Ontario case of Coward v Rich (1995) 9 PPSAC (2d) 236 (Ont CJ). In that case, damages were awarded to a junior secured creditor who lost money on the sale of a mobile home when a senior secured creditor put temporary tenants in possession and refused to allow inspections as part of the sale process. While the senior creditor failed to act in a commercially reasonable manner, the main reason the creditor suffered harm was because of the depressed market and so the damages were minimal. The court also has the power to alter awards of damages pursuant to the facts of each case. In the British Columbia Supreme Court decision, Hornby Equipment Ltd v Andrushko (2000) 1 PPSAC (3d) 98, an award of $74,000 was reduced to $64,000 on the finding that there was a failure to comply with the notice and sale provisions — making the sale improvident but not invalid. Damages for failure to comply with the enforcement provisions of the PPSA (see Ch 4) can thus also serve to set-off claims made by the enforcing party; See also, Lease Truck Inc v 375603 Ontario Ltd (1996) 11 PPSAC (2d) 351 (Ont CJ); Donnelly v International Harvester Credit Corp of Canada (1983) 2 PPSAC 290; 22 BLR 66 (Ont SCJ). [271.6] Further reading • Explanatory Memorandum [5.21, 5.61, 5.78, 8.12]. • ALRC Report No 64 [10.8–10.11].

¶272 SECTION 272 LIABILITY FOR DAMAGES ¶8-045 SECTION 272 LIABILITY FOR DAMAGES Text of s 272 [272.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

ss 52–54

Ontario

PPSA 1990

s 42(5)

USA

UCC Article 9 (rev)

No equivalent

[272.2] Outline Section 272 of the PPSA limits the liability for damages of certain persons. [272.3] Cross-references • Section 271 creates a right to seek damages for failing to comply with an obligation or a duty imposed by the Act. [272.4] Concepts Nil. [272.5] Commentary Although individuals cannot seek damages against any of the named parties in this section unless they failed to act honestly, persons who suffer harm as a result of defective administration may come within the scope of the Scheme for Compensation for Detriment caused by Defective Administration (the CDDA Scheme) administered by the Commonwealth Department of Finance and Deregulation. [272.6] Further reading • Explanatory Memorandum [8.14]. • ALRC Report No 64 [10.8–10.11].

¶273 SECTION 273 APPLICATION OF ACT NOT AFFECTED BY SECURED PARTY HAVING TITLE TO COLLATERAL ¶8-050 SECTION 273 APPLICATION OF ACT NOT AFFECTED BY SECURED PARTY HAVING TITLE TO COLLATERAL Text of s 273 [273.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 24

Saskatchewan PPSA 1993

s 3(1)

Ontario

PPSA 1990

s 2(a)

USA

UCC Article 9 (rev)

§ 9-202

[273.2] Outline Section 273 of the PPSA clarifies that the issue of who holds title over collateral does not affect the operation of the Act relating to rights, duties, obligations and remedies. [273.3] Cross-references • Section 12(1) also states that recognition of a security interest is to be determined without regard to who holds title to the property. • Section 112 provides that the rights and remedies that may be exercised by secured parties under Ch 4 of the PPSA are limited to the same extent as the grantor’s right to deal with the collateral: see Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852. [273.4] Concepts Nil. [273.5] Commentary One of the common misconceptions regarding the operation of the PPSA regime is that title is now irrelevant. This misunderstands what the PPSA does and does not do. It does not purport to be a complete code for regulating security interests in personal property. In Warehouse Sales Pty Ltd (in liq) v LG Electronics Australia Pty Ltd [2014] VSC 644 at [37] Sifris J stated: “The PPSA provides for a priority regime, not a title regime. Under s 273 of the PPSA ownership or title to personal property is not determinative and as a consequence a retention of title (‘ROT’) financier’s ownership interest is replaced by a simple security interest.” A better way to think of this is that title is no longer determinative. As discussed in the commentary to s 12, and 18–21, the PPSA regime depends upon the security agreement between the parties which will regulate what interests arise, when they arise and what rights and liabilities the parties to the agreement will have. The PPSA operates once these matters are determined by the parties themselves. Title is only irrelevant under the PPSA where there is a priority contest between interests regulated by the PPSA. Thus, the taking free provisions in Pt 2.5 apply despite the fact that the secured party may have legal title to the collateral (as in the case of a lease or supply under retention of title). Similarly, the priority rules in Pt 2.6 will apply regardless of which contesting secured party has title to the collateral. The existence of title is relevant for non-PPSA issues, such as disputes involving thieves and transferees who take from them and the true owners of goods (where neither party is relying upon their rights as holders of PPSA security interests).

Title may also be relevant for determining how other laws may treat PPSA security interests: see for example the concept of “PPSA retention of title property” under the Corporations Act 2001 (Cth), s 51F. [273.6] Further reading • Explanatory Memorandum [8.16]. • ALRC Report No 64 [10.8–10.11].

¶8.4 PART 8.4 — PROVISION OF INFORMATION BY SECURED PARTIES

¶274 SECTION 274 GUIDE TO THIS PART ¶8-055 SECTION 274 GUIDE TO THIS PART Text of s 274

¶275 SECTION 275 SECURED PARTY TO PROVIDE CERTAIN INFORMATION RELATING TO SECURITY INTEREST ¶8-060 SECTION 275 SECURED PARTY TO PROVIDE CERTAIN INFORMATION RELATING TO SECURITY INTEREST Text of s 275 [275.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 177

Saskatchewan PPSA 1993

s 18

Ontario

PPSA 1990

s 18

USA

UCC Article 9 (rev)

§ 9-210

[275.2] Outline Section 275 of the PPSA allows access to information regarding the nature of the security agreement, covered collateral and the amount outstanding. [275.3] Cross-references • Section 276 requires a secured party to disclose successor details. • Section 277 imposes a 10 business day timeframe for responding to a request. • Section 278 allows the court to extend the time for complying with a request or to exempt a person in whole or in part from complying with the request. • Section 279 allows for fees to be charged. • Sections 280 and 281 deal with court applications under this Part. • Section 282 provides for the consequences of non-compliance. • Section 283 provides for an estoppel against those who respond to a request. • Section 293 allows the court to extend time. [275.4] Concepts • After acquired property This is defined by s 10 as “personal property acquired by the grantor after a security agreement is made”. • Copy of the security agreement In Spir-l-ok Industries Canada Ltd v Bank of Montreal (1985) 41 Sask R 128 (Sask QB), the court held that the party applying for information was not entitled to copies of all security agreements between the secured party and the grantor but only the particular security agreement that involved the collateral in which the requestor had an interest. • Execution creditor A person may be an execution creditor for the purposes of this section even if the enforcement is stayed pending an appeal: Kotarba Technologies Ltd v Process Group Inc (1997) 12 PPSAC (2d) 144 (Ont CJ).

• Interested person This is defined by s 275(9). • Security agreement This is defined in s 10. See also, s 18 and 20. [275.5] Commentary Section 275 of the PPSA is an important section of the PPSA because the Act adopts a “notice-based” filing regime which does not involve the security agreement being lodged with the Registrar (see s 150). The Personal Property Securities Register (PPSR) contains only basic information provided in financing statements. This is designed to give mere notice of a security interest over a particular grantor’s personal property. This section therefore allows for interested parties to obtain further details from secured creditors. It should be noted that access is not available to any person with an actual or potential interest in the grantor’s personal property. Access is only granted to “interested persons” which is defined in s 175(9) as the grantor (or an auditor of a corporate grantor), an execution creditor with an interest in the collateral or a person with another security interest in the grantor’s personal property (or a representative of any of the above. This means that a potential creditor cannot require information regarding the security agreement to be disclosed using this section. Of course, a potential creditor of the grantor can require details from the grantor before extending credit. The general timeframe for responding to a request for information is 10 business days after the request is received (s 277) although the period may be varied by the court (s 278). An interested party can additionally pre-empt changes to the register and specify the day at which the request for information is to occur, but no later than 20 business days after the request is made (s 275(3)). The secured party is obliged to respond under s 275(4), unless s 275(5) or (s 275(6)) applies. The ability to protect confidential information under s 275(6) is particularly important. Further action may be taken under s 280 to enforce compliance. A secured party who receives a notice under this section may apply to the court for an exemption under s 278. [275.6] Further reading • Explanatory Memorandum [8.17–8.19, 8.28]. • ALRC Report No 64 [13.23–13.24]. • Kenton Steicke and Michael Spurritt, “Preventing the release of commercially-sensitive information under the Personal Property Securities Act 2009 (Cth)” (2012) 23 Journal of Banking and Finance Law and Practice 99.

¶276 SECTION 276 OBLIGATION TO DISCLOSE SUCCESSOR IN SECURITY INTEREST WHEN REQUEST MADE ¶8-065 SECTION 276 OBLIGATION TO DISCLOSE SUCCESSOR IN SECURITY INTEREST WHEN REQUEST MADE Text of s 276 [276.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 183

Saskatchewan PPSA 1993

s 18(9)

Ontario

PPSA 1990

s 18(6)

USA

UCC Article 9 (rev)

§ 9-210(d), (e)

[276.2] Outline Section 276 of the PPSA requires a person who receives a request under s 275 to provide details of their successor if they no longer have an interest in the collateral. This section should be read in conjunction with s 275. [276.3] Cross-references • Section 277 imposes a 10 business day timeframe for responding to a request. • Section 278 allows the court to extend the time for complying with a request or to exempt a person in whole or in part from complying with the request. • Section 279 allows for fees to be charged. • Section 293 allows the court to extend time. [276.4] Concepts Nil. [276.5] Commentary See the commentary for s 275 of the PPSA at [275.1ff]. [276.6] Further reading • Explanatory Memorandum [8.23]. • ALRC Report No 64 [13.23–13.24].

¶277 SECTION 277 TIME FOR RESPONDING TO A REQUEST ¶8-070 SECTION 277 TIME FOR RESPONDING TO A REQUEST Text of s 277 [277.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 178

Saskatchewan PPSA 1993

s 18(6), (7)

Ontario

PPSA 1990

s 18(5)

USA

UCC Article 9 (rev)

§ 9-210

[277.2] Outline Section 277 of the PPSA provides a default time limit of 10 days for complying with requests under s 275 and 276. [277.3] Cross-references • Sections 278 and 293 allow the court to extend time. [277.4] Concepts • The request is received For service of documents see Acts Interpretation Act 1901 (Cth), s 28A; Corporations Act 2001 (Cth), s 109X (for service of documents on corporations). Persons seeking to serve a request can obtain contact information from a copy of the financing statements registered on the Personal Property Securities Register (PPSR) (see s 153(1) item 3). [277.5] Commentary Section 277 of the PPSA provides a default timeframe of 10 business days after receipt of a request for information under s 275 and 276. A failure to comply may lead to court action under s 280. A secured party who receives such a request may apply to the court for a full or partial exemption or for an extension of time in which to comply (s 278). [277.6] Further reading • Explanatory Memorandum [8.19]. • ALRC Report No 64 [13.23–13.24].

¶278 SECTION 278 APPLICATION TO COURT FOR EXEMPTION OR EXTENSION OF TIME TO RESPOND TO REQUESTS ¶8-075 SECTION 278 APPLICATION TO COURT FOR EXEMPTION OR EXTENSION OF TIME TO RESPOND TO REQUESTS Text of s 278 [278.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 179

Saskatchewan PPSA 1993

s 18(13)

Ontario

PPSA 1990

s 18(8)

USA

UCC Article 9 (rev)

No equivalent

[278.2] Outline Section 278 of the PPSA allows the court to extend time for compliance with a request for information or to grant an exemption in whole or in part from the obligation to respond to the request. [278.3] Cross-references • Sections 275 and 276 provide for requests for information to be made. • Section 277 specifies the time for compliance for a request for information. [278.4] Concepts • Court Courts with jurisdiction over PPSA matters are set out in Pt 6.2 (see s 207 in particular). [278.5] Commentary Section 278 of the PPSA is based on the New Zealand PPSA equivalent. Although Canadian PPSA statutes also have a court exemption power, only the New Zealand provision contains the standard of unreasonableness that is present in s 278(2). There do not appear to have been any cases on point in New Zealand or in Canada. The learned authors, Gedye M, Cuming R and Wood R, note in their commentary on the New Zealand legislation that relevant factors would include: • the relevance of the information for the requestor • whether the requestor is acting in good faith • the difficulty and cost faced by the secured party in complying with the request. [278.6] Further reading • Explanatory Memorandum [8.28]. • ALRC Report No 64 [13.23–13.24].

¶279 SECTION 279 PERSONS MAY RECOVER COSTS ARISING FROM REQUEST ¶8-080 SECTION 279 PERSONS MAY RECOVER COSTS ARISING FROM REQUEST Text of s 279 [279.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 180

Saskatchewan PPSA 1993

s 18(17)

Ontario

PPSA 1990

s 18(7)

USA

UCC Article 9 (rev)

§ 9-210(f)

[279.2] Outline Section 279 of the PPSA allows a secured party to charge fees for providing information requested under s 275 and 276. [279.3] Cross-references • Sections 275 and 276 provide for requests for information to be made. • Section 278 allows a secured party to apply for an exemption from the requirement to respond to a request for information. • Section 281 allows a person requesting information to obtain a court order regarding the cost for obtaining the information. • Section 296 provides rules regarding the onus of proof. [279.4] Concepts • Reasonable marginal costs For a discussion of calculating reasonable marginal costs see AXA Asia Pacific Holdings Ltd v Direct Share Purchasing Corp Pty Ltd (2009) 173 FCR 434; [2009] FCAFC 15 (reasonable marginal costs for copy of share register to be provided). [279.5] Commentary Section 279 of the PPSA provides for the secured party who receives a request for information under s 275 or s 276 to charge a reasonable marginal cost for the provision of the information, although the grantor is not to be subject to the fee unless s 279(3) applies. Failing to pay the fee allows the secured party to refuse the provision of the information. [279.6] Further reading • Explanatory Memorandum [8.19, 8.21, 8.31]. • ALRC Report No 64 [13.23–13.24].

¶280 SECTION 280 APPLICATION TO COURT FOR RESPONSE TO REQUEST ETC. ¶8-085 SECTION 280 APPLICATION TO COURT FOR RESPONSE TO REQUEST ETC. Text of s 280 [280.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 181

Saskatchewan PPSA 1993

s 18(8), (10), (11)

Ontario

PPSA 1990

s 18(8)

USA

UCC Article 9 (rev)

No equivalent

[280.2] Outline Section 280 of the PPSA allows the court to make an order enforcing compliance with a request for information under s 275 or s 276. [280.3] Cross-references • Sections 275 and 276 allow for a person to request information from a secured party. • Section 277 provides the time for complying with a request for information. • Section 181 allows the court to set a reasonable fee for the provision of information. • Section 182 provides consequences for failing to comply with a court order regarding the provision of information. [280.4] Concepts • Court Courts with jurisdiction over PPSA matters are set out in Pt 6.2 (see s 207 in particular). [280.5] Commentary Section 280 of the PPSA provides that the court may order compliance with a request to provide information under s 275 or s 276. The court may make an order with respect to both a total failure to comply as well as a failure to provide complete information. An application to the court for this purpose cannot be made prior to the request being made under s 275: see Mac Property Finance Ltd v Hanover Finance Ltd [2009] NZHC 50. A failure to comply with an order of the court may lead to the security interest being extinguished (s 282). [280.6] Further reading • Explanatory Memorandum [8.20]. • ALRC Report No 64 [13.23–13.24].

¶281 SECTION 281 APPLICATION TO COURT IN RELATION TO COSTS CHARGED ¶8-090 SECTION 281 APPLICATION TO COURT IN RELATION TO COSTS CHARGED Text of s 281 [281.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[281.2] Outline Section 281 of the PPSA allows a person to obtain a court order in relation to the fee that is to be charged for the provision of information requested under s 275 or s 276. [281.3] Cross-references • Section 275 and 276 provide for a request to be made for access to information from a secured party. • Section 279 allows the secured party to charge a fee for the provision of information. • Section 182 provides consequences for failing to comply with a court order regarding the provision of information. • Section 296 provides rules regarding the onus of proof. [281.4] Concepts • Reasonable marginal costs For a discussion of calculating reasonable marginal costs see AXA Asia Pacific Holdings Ltd v Direct Share Purchasing Corp Pty Ltd (2009) 173 FCR 434; [2009] FCAFC 15 (reasonable marginal costs for copy of share register to be provided). [281.5] Commentary Section 281 of the PPSA provides for a court determination regarding the cost of access to information pursuant to a request under s 275 or s 276. Section 279 allows the secured party who receives a request for information to charge a fee for providing the information. However, this fee must not amount to taxation, nor may it exceed the reasonable marginal costs of providing the information (s 279(2)). Furthermore, the grantor is not obliged to pay the fee where the information should have already been provided under a prior request within the previous six months (and was not) or where information previously provided has changed in a material way. A failure to comply with an order of the court may lead to the security interest being extinguished (s 282). The analysis of the court is largely fact oriented in this regard and will turn on what information is or is not relevantly included (see s 281(2), (3))). [281.6] Further reading • Explanatory Memorandum [8.21, 8.31]. • ALRC Report No 64 [13.23–13.24].

¶282 SECTION 282 CONSEQUENCES OF NOT COMPLYING WITH COURT ORDER ¶8-095 SECTION 282 CONSEQUENCES OF NOT COMPLYING WITH COURT ORDER Text of s 282 [282.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 182

Saskatchewan PPSA 1993

s 18(12)

Ontario

PPSA 1990

s 18(8)

USA

UCC Article 9 (rev)

No equivalent

[282.2] Outline Section 282 of the PPSA provides for the consequences of failing to comply with a court order under s 280 or s 281. [282.3] Cross-references • Sections 275 and 276 provide for a request to be made for access to information from a secured party. • Sections 280 and 281 provide the court with the power to make orders with respect to the provision of information. [282.4] Concepts • Financing change statement See s 150. [282.5] Commentary Section 282 of the PPSA allows the court to extinguish the security interest for a failure to comply with a court order to provide information. The section also allows the court to make such orders as it thinks appropriate to ensure compliance. The extinguishment of the security interest would be a severe order, although this section only arises when the secured party has failed to comply with a prior court order to provide information under s 280 or s 281. The court could additionally or alternatively hold the secured party in contempt for failing to comply or could subordinate the secured party’s priority position to that of the applicant under s 282(2) until the required information is obtained. [282.6] Further reading • Explanatory Memorandum [8.22]. • ALRC Report No 64 [13.23–13.24].

¶283 SECTION 283 ESTOPPELS AGAINST PERSONS WHO RESPOND TO A REQUEST ¶8-100 SECTION 283 ESTOPPELS AGAINST PERSONS WHO RESPOND TO A REQUEST Text of s 283 [283.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

s 18(14), (15), (16)

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

No equivalent

[283.2] Outline Section 283 of the PPSA provides that a secured party who provides information pursuant to a request under s 275 or s 276 is estopped from denying the accuracy of certain information provided. [283.3] Cross-references • Section 275 provides for a request for information to be provided by a secured party. [283.4] Concepts • Actual knowledge See s 297. • Security agreement This is defined in s 10. See further, s 18 and 20. [283.5] Commentary Section 283 of the PPSA provides for an estoppel to be raised against a secured party that provides a copy of the security agreement under s 275 or who corrects information that was previously provided under s 275(1)(b)–(d) (which deal with details of the secured collateral and the amounts outstanding). Therefore, where information that has been provided has changed, the secured party should update that information with the person who requested the information and any person who the secured party actually knows will rely on the information. [283.6] Further reading • Explanatory Memorandum [8.18]. • ALRC Report No 64 [13.23–13.24].

¶8.5 PART 8.5 — NOTICES AND TIMING

¶284 SECTION 284 GUIDE TO THIS PART ¶8-105 SECTION 284 GUIDE TO THIS PART Text of s 284 General commentary Part 8.5 of the PPSA provides rules relating to the giving of notices under the PPSA. Section 285 excludes the operation of these rules to notices given in court proceedings and notices given in accordance with a notice procedure specified in a security agreement. Section 286 requires notices under the PPSA to be given in writing (note that some notices must be in an approved form and the PPSA will specify where this is the case — see s 302 regarding what constitutes an “approved form”). Section 287 provides a mandatory rule for serving notices on secured parties listed in a registration. Section 288 deals with notices to multiple secured parties. Section 289 requires an identification number included by the Registrar in a document to be included in the notice. For example, the registrar may include an identification number for a verification statement which then must be included in notices relating to that statement. A person required to give notice under the PPSA may apply to the court for orders specifying how the notice is to be given or to dispense with the requirement to give notice under s 291. Section 292 gives the court a dispensation power to cure formal defects or an irregularity in a notice given under the PPSA provided that no substantial injustice would be caused. This is similar to the wording of s 1322 of the Corporations Act 2001 (Cth), although that provision uses the term “procedural irregularity”. The courts have interpreted the term “substantial injustice” as meaning “real, and not merely insubstantial or theoretical prejudice. A degree of prejudice to a person or persons may be outweighed if the overwhelming weight of justice is in favour of making the order” (Elderslie Finance Corp Ltd v Australian Securities Commission (1993) 11 ACLC 787 at 790 per Owen J). Substantial injustice is more than mere detriment or harm: Super John Pty Ltd v Futuris Rural Pty Ltd (1999) 17 ACLC 1,242. In the Super John case, Santow J held that the interests of all persons who may be directly affected by the proposed dispensation should be considered by the court before making an order. A failure to comply with the obligations to give notice may lead to proceeds for damages under s 271. For a discussion of the Canadian cases on this issue see: Royal Bank v J Segreto Construction Ltd (1986) 6 PPSAC 37; 59 CBR (NS) 190 (Ont DC); Commercial Credit Corp v Long (1971) 4 NBR (2d) 127 (NB QB); 391720 BC Ltd v Daser (2008) 12 PPSAC (3d) 261 (BC SC); Yuan v Mah Investments Ltd (2001) 2 PPSAC (3d) 159; 205 Sask R 22 at [56] (Sask QB). The extent to which notice will have a bearing on proceedings in Australia will depend on the factual matrix surrounding the importance of the notice and the resulting detriment caused. Section 293 allows the court to extend timeframes required under specific provisions of the PPSA Section 294 sets out clarification rules for the calculation of time.

¶285 SECTION 285 APPLICATION OF THIS PART — NOTICES ETC. ¶8-110 SECTION 285 APPLICATION OF THIS PART — NOTICES ETC. Text of s 285

¶286 SECTION 286 NOTICES — WRITING ¶8-115 SECTION 286 NOTICES — WRITING Text of s 286

¶287 SECTION 287 NOTICES — REGISTERED SECURED PARTIES ¶8-120 SECTION 287 NOTICES — REGISTERED SECURED PARTIES Text of s 287

¶288 SECTION 288 NOTICES — MORE THAN ONE REGISTERED SECURED PARTY ¶8-125 SECTION 288 NOTICES — MORE THAN ONE REGISTERED SECURED PARTY Text of s 288

¶289 SECTION 289 NOTICES ETC MUST BE GIVEN TO PERSONS REGISTERED AS SECURED PARTIES USING IDENTIFIER ¶8-130 SECTION 289 NOTICES ETC MUST BE GIVEN TO PERSONS REGISTERED AS SECURED PARTIES USING IDENTIFIER Text of s 289

¶290 SECTION 290 NOTICES — DECEASED PERSONS ¶8-135 SECTION 290 NOTICES — DECEASED PERSONS Text of s 290

¶291 SECTION 291 NOTICES — COURT ORDERS ¶8-140 SECTION 291 NOTICES — COURT ORDERS Text of s 291

¶292 SECTION 292 NOTICES — FORMAL DEFECTS ¶8-145 SECTION 292 NOTICES — FORMAL DEFECTS Text of s 292

¶293 SECTION 293 TIMING — APPLICATIONS FOR EXTENSION OF TIME ¶8-150 SECTION 293 TIMING — APPLICATIONS FOR EXTENSION OF TIME Text of s 293

¶294 SECTION 294 TIMING — REFERENCES TO TIME IN THIS ACT ¶8-155 SECTION 294 TIMING — REFERENCES TO TIME IN THIS ACT Text of s 294

¶8.6 PART 8.6 — ONUS OF PROOF AND KNOWLEDGE

¶295 SECTION 295 GUIDE TO THIS PART ¶8-160 SECTION 295 GUIDE TO THIS PART Text of s 295

¶296 SECTION 296 ONUS OF PROOF ¶8-165 SECTION 296 ONUS OF PROOF Text of s 296 [296.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan PPSA 1993

s 65(9), (10)

Ontario

PPSA 1990

s 65(4)

USA

UCC Article 9 (rev)

§ 1-201

[296.2] Outline Section 296 of the PPSA is a miscellaneous provision which explicitly covers who bears the onus of establishing various facts under the PPSA. [296.3] Cross-references • Sections 297–299 deal with actual and constructive knowledge. [296.4] Concepts • Attachment See s 19. • Market value See s 131. • Perfected See s 21. • Registration See Pt 5.3. • Taking free See Pt 2.5. [296.5] Commentary The onus of proving facts generally lies on the party seeking to rely on such facts. Certain facts are listed under s 296 of the PPSA, however, these sub-provisions operate in aid of the general rule rather than seeking to exhaustively define it. Section 296 additionally provides cross-references where relevant to the specific provisions where such an onus arises. [296.6] Further reading • Explanatory Memorandum [8.30–8.33]. • ALRC Report No 64 [–].

¶297 SECTION 297 MEANING OF CONSTRUCTIVE KNOWLEDGE ¶8-170 SECTION 297 MEANING OF CONSTRUCTIVE KNOWLEDGE Text of s 297 [297.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 19

Saskatchewan PPSA 1993

s 2(2)

Ontario

PPSA 1990

s 69

USA

UCC Article 9 (rev)

§ 1-202

[297.2] Outline Section 297 of the PPSA defines constructive knowledge for the purposes of the PPSA. While the definition is not substantially different from the principle at common law, there are some qualifications under the PPSA which must be considered. In examining constructive knowledge, it is also convenient to address “actual knowledge”. [297.3] Cross-references • Constructive knowledge is an important concept in the PPSA and is referred to in over 20 provisions of the Act. • Sections 298–300 provide further rules for determining constructive knowledge. [297.4] Concepts • Actual knowledge Like actual possession, pursuant to s 24, actual knowledge refers to the existence of knowledge subjectively in the mind of the relevant party on the facts, that is, the relevant party knew (not ought to have known — but actually knew) of the circumstances in issue. Under the PPSA, actual knowledge typically refers to knowledge of a security interest and in all instances where constructive knowledge satisfies a legislative requirement under the PPSA, actual knowledge will also satisfy the requirement (the reverse is not, however, always the case). • Constructive knowledge This is discussed below. [297.5] Commentary In essence, constructive knowledge is an objectively assessed element of knowledge which asks what the relevant party would have known at the relevant time had they made inquiries that an honest and prudent person would have made. The definition also extends to subsequent inquiries which would have been made by the hypothetical honest and prudent person if actual knowledge in the first instance existed. A finding of constructive knowledge will usually defeat the party to which it attaches, or subject their interest to an existing security interest. Constructive knowledge is a relatively lower requirement to satisfy when compared to proving actual knowledge on the facts and is thus only available in some circumstances under the PPSA while in others only actual knowledge will suffice. Section 297 of the PPSA is peculiar, however, as the most obvious situation where constructive knowledge could be readily inferred is from knowledge of what is available on the PPSR. Section 300, however, explicitly removes knowledge of the register from consideration of constructive knowledge, that is, only actual knowledge of what is contained on the PPSR can ever be found on the facts of a PPSA

dispute. See for example Bank of Nova Scotia v Steffens (2002) 4 PPSAC (3d) 197 at [21] (NS SC); Flexi-Coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192 at [14] (Sask CA). Knowledge is also important in determining the consequence of a defective registration under the PPSA. The issue arose in the Alberta Court of Queen’s Bench decision, Harder (Trustee of) v Alberta Treasury Branches (2004) 6 PPSAC (3d) 346; 36 Alta LR (4th) 118 where the Court held that actual knowledge of the relevant fact could be used to offset what would otherwise constitute a seriously misleading financing statement. [297.6] Further reading • Explanatory Memorandum [8.34–8.40]. • ALRC Report No 64 [6.13–6.17].

¶298 SECTION 298 ACTUAL OR CONSTRUCTIVE KNOWLEDGE BY BODIES CORPORATE AND OTHER ENTITIES ¶8-175 SECTION 298 ACTUAL OR CONSTRUCTIVE KNOWLEDGE BY BODIES CORPORATE AND OTHER ENTITIES Text of s 298 [298.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 19(1)(b)

Saskatchewan PPSA 1993

s 2(2)(c), (d)

Ontario

PPSA 1990

s 69(c)

USA

UCC Article 9 (rev)

§ 1-202(f)

[298.2] Outline Section 298 of the PPSA addresses how actual or constructive knowledge can arise with respect to body corporates. [298.3] Cross-references • Constructive knowledge is an important concept in the PPSA and is referred to in over 20 provisions of the Act. • Sections 297, 299 and 300 provide further rules for determining constructive knowledge. [298.4] Concepts • Actual or constructive knowledge See s 297. [298.5] Commentary Actual or constructive knowledge forms part of a body corporate where directors, employees or agents possess the relevant knowledge and are responsible, in their capacities as engaged by the body corporate, or when acting on behalf of the entity: see for example Bank of New Zealand v Waewaepa Station 2002 Ltd [2013] NZHC 3321 (director’s knowledge of the effect of a transaction on the secured party was attributed to his company, where director was on the boards of both transferor and transferee). The PPSA is thus not concerned with the knowledge held by such parties in their personal or individual capacity but only in their appointed role with respect to the body corporate. For parties without direct decision-making power, only knowledge obtained in line with regular duties conducted by such parties will bind the entity. [298.6] Further reading • Explanatory Memorandum [8.34–8.40]. • ALRC Report No 64 [6.13–6.17].

¶299 SECTION 299 ACTUAL OR CONSTRUCTIVE KNOWLEDGE IN RELATION TO CERTAIN PROPERTY TRANSFERS ¶8-180 SECTION 299 ACTUAL OR CONSTRUCTIVE KNOWLEDGE IN RELATION TO CERTAIN PROPERTY TRANSFERS Text of s 299 [299.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 19

Saskatchewan PPSA 1993

s 2(2)

Ontario

PPSA 1990

s 69

USA

UCC Article 9 (rev)

§ 1-202

[299.2] Outline Section 299 of the PPSA infers knowledge in certain relationships of close proximity. The purpose of this provision is to avoid improper transfers of property which may seek to circumvent the commercial rationale of the PPSA. [299.3] Cross-references • Constructive knowledge is an important concept in the PPSA and is referred to in over 20 provisions of the Act. • Sections 297–300 provide further rules for determining constructive knowledge. [299.4] Concepts • Actual or constructive knowledge See s 297. • Security agreement This is defined by s 10. See further, s 18 and 20. • Value This is defined in s 10. See further, [19.5.2.2]. [299.5] Commentary Section 299 of the PPSA imposes a presumption of knowledge on the transferee in certain capacities which prevents the operation of the taking free and some priority positions pursuant to Pt 2.5 and 2.6 respectively. While conflicts of interests do not always arise between parties in such close proximity, as is addressed by s 299, the existing presumption benefits sound commerciality through mandatory disclosure and knowledge requirements. The onus effectively shifts to the party seeking to take free or take priority, to prove that such an interest was not taken with actual or constructive knowledge of an existing security interest. The provisions operate much like the presumptions against related parties under Ch 2E of the Corporations Act 2001 (Cth). [299.6] Further reading • Explanatory Memorandum [8.34–8.40]. • ALRC Report No 64 [6.13–6.17].

¶300 SECTION 300 REGISTRATION OF DATA DOES NOT CONSTITUTE CONSTRUCTIVE NOTICE ¶8-185 SECTION 300 REGISTRATION OF DATA DOES NOT CONSTITUTE CONSTRUCTIVE NOTICE Text of s 300 [300.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 20

Saskatchewan PPSA 1993

s 47

Ontario

PPSA 1990

s 46(5)(a)

USA

UCC Article 9 (rev)

§ 9-331(c)

[300.2] Outline Section 300 of the PPSA operates to remove the information which appears on the PPSR from the assessment of constructive knowledge under the PPSA pursuant to s 297. [300.3] Cross-references • Constructive knowledge is an important concept in the PPSA and is referred to in over 20 provisions of the Act. • Sections 297–299 provide further rules for determining constructive knowledge. [300.4] Concepts • Actual or constructive knowledge See s 297. • Register See Pt 5.3. [300.5] Commentary As stated under s 297 of the PPSA at [297.5], s 300 is peculiar as it renders the most self-evident application of constructive knowledge inapplicable. The rationale here is uncertain as primacy of the register principles work in support of s 297 in the absence of s 300, as opposed to with the said exclusion. Section 300 should not be confused in its application, however, as somehow permitting the taking of an interest over personal property previously encumbered. Section 300 only applies where constructive knowledge is a relevant consideration. There is some premise behind giving effect to the consumer protection rationale of the PPSA through s 300 by seeking to prevent secured parties from bringing actions against those who take property predominately for personal, domestic or household purposes free from security interests in the absence of knowledge. The drafters of the PPSA could have alternatively removed the constructive knowledge requirement in this regard (see s 47), however, other elements of constructive knowledge would then also need to be removed. While this does not prove a complete conclusion, the Australian PPSA is clear that constructive knowledge cannot constitute knowledge as to what information was/is on the PPSR. As a matter of practice, a secured party (or other interested party) seeking to prove that a particular party seeking to take free or assert that they did not have knowledge of a particular security interest can make a request with the Registrar of Personal Property Securities for all searches conducted in respect to particular data (for example, a grantor’s ACN in the case of a corporate grantor) over a particular time

period. Given the technological basis of the PPSR, this may provide a secured party (or other interested party) with a means of addressing the statutory presumption set out in s 300. [300.6] Further reading • Explanatory Memorandum [8.34–8.40]. • ALRC Report No 64 [6.13–6.17].

¶8.7 PART 8.7 — FORMS AND REGULATIONS

¶301 SECTION 301 GUIDE TO THIS PART ¶8-190 SECTION 301 GUIDE TO THIS PART Text of s 301 General commentary Section 302 of the PPSA provides for the Registrar to create and maintain approved forms. Various provisions of the Act require approved forms to be used (such as s 150 — applying for registration; s 157 — registered party to give notice of verification statement to grantors; s 180 — amendment demands). At the time of writing no forms had been approved. See further, Re OneSteel Manufacturing Pty Ltd (admin apptd) [2017] NSWSC 21. Section 303 provides a power to make regulations. At the time of writing, the only regulations produced under this power were the Personal Property Securities Regulations 2010 (Cth).

¶302 SECTION 302 APPROVED FORMS ¶8-195 SECTION 302 APPROVED FORMS Text of s 302

¶303 SECTION 303 REGULATIONS ¶8-200 SECTION 303 REGULATIONS Text of s 303

¶9 CHAPTER 9 — TRANSITIONAL PROVISIONS

¶9.1 PART 9.1 — GUIDE TO THIS CHAPTER

¶304 SECTION 304 GUIDE TO THIS CHAPTER ¶9-005 SECTION 304 GUIDE TO THIS CHAPTER Text of s 304 General commentary The effect of Ch 9 of the PPSA is confined to those interests which arose because of security agreements that were enforceable prior to 30 January 2012 and which would, were the Act in force at the time, constitute a security interest for personal property securities (PPS) purposes. Put simply, Ch 9 does not affect security interests which were created or arise after 30 January 2012, however, such instruments would be caught by the PPSA generally. Chapter 9 thus broadly serves two purposes, a “logistics” based purpose and an “alleviation” based purpose or function. In a logistical sense, Ch 9 helped facilitate the process of transition and migration which comprised the largely administrative and technologically demanding task of moving registered entries of those interests existing on various Commonwealth and state based registers across Australia to the Personal Property Securities Register (PPSR) (see www.ppsr.gov.au). The logistics based function concluded at the end of the migration process (see s 306 regarding “migration time,” [306.5.1]). The alleviation function, a term coined to characterise those provisions which alter the effect of the PPSA in favour of a particular party over the period of transition, however, continued to operate until the expiration of the two-year transition period (see s 306(2) regarding “registration commencement time” at [306.5.2]; Pt 9.4 Div 2 regarding the end of the transitional period at [320.1]ff). Importantly, Ch 9 should not be read as a comprehensive regime in its own right. It is, at best, an adjunct to the PPSA as a whole, as can be seen from both: (a) its reliance on terms defined by the PPSA generally, and (b) its location at the end of the PPSA. It is thus recommended that one understands the operation of the PPSA generally before one seeks to interpret and apply those provisions contained within Ch 9. Below is a summary as to what interests arise under Ch 9 of the PPSA. The summary chart illustrates a downward hierarchy of interests which will become relevant throughout the commentary to Ch 9. Additionally, while the US, Canadian and New Zealand legislation includes provisions for transition, the Australian provisions are considerably more detailed on the whole and cover a broader range of issues than their foreign counterparts. For these reasons the utility of foreign case law across the transitional provisions is limited. Despite the cessation of the Ch 9 transitional provisions from 30 January 2014 onwards, priority disputes and other questions of interpretation which may have arisen between the registration commencement time and the cessation of the transitional period will still require one to analyse the effect of Ch 9. Like all law, the law as it applied at the relevant time at which the dispute arose is the applicable law — the PPSA offers no reason to deviate from this general rule.

¶9.2 PART 9.2 — KEY CONCEPTS

¶305 SECTION 305 GUIDE TO THIS PART ¶9-010 SECTION 305 GUIDE TO THIS PART Text of s 305

¶306 SECTION 306 MEANING OF MIGRATION TIME AND REGISTRATION COMMENCEMENT TIME ¶9-015 SECTION 306 MEANING OF MIGRATION TIME AND REGISTRATION COMMENCEMENT TIME Text of s 306 [306.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 193

Saskatchewan PPSA 1993

s 73–74.2

Ontario

PPSA 1990

s 75, 76

USA

UCC Article 9 (rev) § 9-701

[306.2] Outline Section 306 provides definitions specific to the operation of the transitional provisions of the PPSA pursuant to Ch 9. [306.3] Cross-references • Section 333 deals with registration of migrated data. • Section 336 allows for preparatory registration at or after the migration time. • The “registration commencement time” concept is central to the PPSA and appears in over 30 provisions in the Act. • Personal Property Securities Regulations 2010 (Cth) reg 9.1. [306.4] Concepts • Migration time See below. • Registered commencement time See below. • Watercraft This has a special definition in Pt 9 by PPS Regulations 2010 (Cth) reg 9.1. [306.5] Commentary [306.5.1] Migration time — s 306(1) ....................................XX [306.5.2] Registration commencement time — s 306(2) ....................................XX [306.5.1] Migration time — s 306(1) The migration time was 21 November 2011 (s 4 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination, available at www.comlaw.gov.au/Details/F2011L02397). This date was determined pursuant to s 306(1)(b) of the PPSA. Note, the default period of migration was anticipated to be a period of one month (namely, no less than 28 days: s 306(3)). The migration time, as formally declared in accordance with the above instrument, entailed slightly over double this time.

The real difficulties with migration stemmed from the creation and maintenance of the Personal Property Securities Register (PPSR) (see www.ppsr.gov.au) — a task which remains subject to ongoing monitoring and maintenance. While some delay in the process of migration was helpful by way of assisting further consultation between the Commonwealth Attorney-General’s department and various market participants and legal professionals (which resulted in several useful amendments to the underlying PPSA), the vast majority of the issues with implementation have been unanticipated and unhelpful, creating a number of concerns for both registering and searching parties. The term “migration time” refers to the logistics period where the data present on previously existing Australian registers was transferred to or recreated under the Personal Property Securities Register (PPSR) (a task undertaken by the Registrar — see Pt 5.9). According to s 306(1) of the PPSA, the migration time was to be the: (a) start of the first day of the month that was 25 months after the month of Royal Assent (which occurred on 14 December 2009), that is, 1 January 2012, or (b) another time set by the Minister. For the purposes of s 306(1)(b) of the PPSA, the migration time was the start of 21 November 2011 (s 4 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination). The extent of the continued technological interference with the operation of the PPSA can be appreciated in light of the Personal Property Securities Amendment (Registration Commencement) Act 2011 (Cth), which received Royal Assent on 29 November 2011. The amendment empowered the Attorney-General to provide a date for the registration commencement time beyond the date mandated in the PPSA, namely, 1 February 2012. While the amendment proved to be ultimately unnecessary, there is some merit in the body of criticism surrounding the PPSR which suggested further delays in commencement, particularly, in light of the complications announced at: www.ppsr.gov.au/EventUpdates/Announcements/Pages/default.aspx. See also, Carson, Re Hastie Group Limited (No 3) (2012) APPSR ¶701-001 [2012] FCA 719. [306.5.2] Registration commencement time — s 306(2) The registration commencement time was 30 January 2012 (s 5 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination, available at www.comlaw.gov.au/Details/F2011L02397). The term “registration commencement time” refers to the time at which the Personal Property Securities Register (PPSR) began operation and effect. Section 306(2) of the PPSA prescribed that the PPSR had to commence: (a) on the start of the first day of the month that was 26 months after Royal Assent (which occurred on 14 December 2009), that is, 1 February 2012, or (b) at another time set by the Minister, provided that the Minister allows at least 28 days prior to the registration commencement time for the migration period (due to s 306(3)). For the purposes of s 306(2)(b) of the PPSA, the registration commencement time was the start of 30 January 2012 (s 5 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination). The words “registration commencement” are useful in interpreting how the relevant period of transition should be understood. In essence, parties have only been able to perfect their security interests by registration since 30 January 2012. While the PPSA provides for, and the authors encouraged, “preregistration” of security interests if and when the opportunity was available, the benefit of pre-registration is first realised as at the registration commencement time. The following example illustrates this point:

Party A pre-registered a financing statement in respect of an anticipated security interest taken over Grantor B’s truck on 20 December 2011. On 30 January 2012, Party C also lodged a financing statement concerning a security interest it purported to hold over Grantor B’s truck as soon as the PPSR became available. Leaving issues of transitional priority aside, Party A would prevail over Party C, however, this would not be because Party A was registered first in time. Under the PPSA, Party A could only benefit from registration as at the registration commencement time and thus both parties are perfected equally in time. Party A would prevail due to earlier attachment of a security interest.

Pre-registering a security interest, however, had the benefit of preventing a secured party from acquiescing or forgetting to perfect. Given the effect of the priority rules discussed under Pt 2.6 of the PPSA, and the complexities that the PPSR experienced as it went live, pre-registering presented a viable option for ensuring priority status. [306.6] Further reading • Explanatory Memorandum [9.9–9.15]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶307 SECTION 307 MEANING OF TRANSITIONAL SECURITY AGREEMENT ¶9-020 SECTION 307 MEANING OF TRANSITIONAL SECURITY AGREEMENT Text of s 307 [307.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 193

Saskatchewan PPSA 1993

s 73–74.2

Ontario

PPSA 1990

s 75, 76

USA

UCC Article 9 (rev) § 9-701

[307.2] Outline Section 307 defines the term “transitional security agreement” for the purposes of the PPSA. [307.3] Cross-references • The term transitional security agreement is central to the transitional provisions and is mentioned in over 10 sections. [307.4] Concepts • Registration commencement time See s 306. • Security agreement This is defined in s 10 as meaning: (a) an agreement or act by which a security interest is created, arises or is provided for, or (b) writing evidencing such an agreement or act. See further, s 18 and 20. • Transitional security agreement See below. [307.5] Commentary The concept of a transitional security agreement applies in relation to security agreements created (and in force) prior to the registration commencement time for the PPSA which continues to have effect after that time. The term “security agreement” as part of this definition takes its meaning from s 10 of the PPSA as opposed to s 20 (see [20.5.1]), that is, s 307 applies to agreements or acts which create security interests. This much is made clear when one refers to s 311 which applies despite what is set out in s 20. The rationale behind the PPSA transitional provisions is to encapsulate and preserve the integrity of interests existing prior to the PPSA in accordance with the commercial realities and pre-PPSA rules which would govern such interests had the PPSA not taken force. In the authors’ view, where there is doubt regarding whether or not an interest constitutes a transitional security interest, the question should be asked whether the relevant agreement would be recognised under pre-PPSA law. If such an agreement would be recognised had the PPSA not taken force, s 307 should apply to it regardless of whether or not the agreement in issue validly meets the s 12 requirements regarding what constitutes a security interest. This should especially occur where interests which would

not commonly constitute security arrangements under pre-PPSA law become security interests under the PPSA (see s 12 and 13). For interests which are excluded from the application of the PPSA, however, such exclusions should also apply to transitional securities (see s 8). The question is one of fact to be established by the party seeking to rely on the pre-PPSA security interest. The following scenario may help in illustrating some of the complexity which may arise with respect to this provision:

In January 2009, Party A enters into an agreement with Party B whereby Party A agrees to supply Party B with widgets on payment terms. No formal terms of agreement are drafted, however, Party A and Party B transact in this fashion for some time. Party A also includes a term on all invoices issued by it to Party B that title is retained by Party A unless and until payment is received in full. In January 2010, Party C lends money to Party B and takes an “all present and after acquired personal property” security interest (AllPAP) over Party B’s assets. In January 2011, Party B defaults on obligations owing to Party A and Party C.

If Party A can establish they have a security interest, they will be entitled to collect any widgets held by Party B at the time Party B went into default as against Party C. The onus is on Party A to establish an existing security interest which would have been recognised prior to the position under the PPSA. It is clear that under the PPSA, a lack of an agreement in writing would prevent Party A from perfecting by registration by force of s 20. However, the combined effect of s 307 and 311 open the question of an existing transitional security interest for Party A to prove as a matter of fact and in light of the evidence. The further question which should be considered is whether the individual supplies pursuant to each invoiced amount create a new security interest between the parties on the basis that each invoice contains retention of title terms or alternatively that such supplies are mere instances of a central agreement between the parties. While the subsequent view is to be preferred ordinarily, there is some doubt cast when there is no central agreement at the outset of the relationship of the parties — any terms of which must be implied by conduct. As a matter of general contractual interpretation, ambiguity cannot favour the person who benefits from the terms (retaining title being the benefit of the purported secured party) and thus, in the authors’ view, there are reasonable prospects to the view that each invoiced supply creates a new security interest. The position is of course avoided by having clear and certain terms defined and entered into at the commencement of a relationship of supply between the parties. It should also be noted that while there is no active requirement imposed on secured parties to have their pre-PPSA interests recognised as transitional security agreements under the PPSA, more can be said about whether or not the transitional interests retain the necessary protections conferred by the PPSA as elaborated upon under s 320 (see [320.1]ff). [307.6] Further reading • Explanatory Memorandum [9.9–9.15]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶308 SECTION 308 MEANING OF TRANSITIONAL SECURITY INTEREST ¶9-025 SECTION 308 MEANING OF TRANSITIONAL SECURITY INTEREST Text of s 308 [308.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 193

Saskatchewan PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 75, 76

USA

UCC Article 9 (rev) § 9-701

[308.2] Outline Section 308 defines the term “transitional security interests”. [308.3] Cross-references The concept of a transitional security interest is central to Pt 9 of the PPSA and is mentioned in over 20 sections in the Act. [308.4] Concepts • Transitional security interest See below. • Transitional security agreement See s 307. • Registration commencement time See s 306. [308.5] Commentary Section 308 applies only to interests which satisfy s 307. Like s 307, s 308 operates to alleviate any prejudice suffered by parties complying with pre-PPSA law merely upon the Act taking force. Examples of such interests include, retention of title clauses, leases and commercial consignments (see s 12 and 13 in this regard) in addition to the recognised security classes of mortgages, charges, liens and pledges. See for example, Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (2015) 296 FLR 25; [2015] VSCA 92. [308.6] Further reading • Explanatory Memorandum [9.9–9.15]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶9.3 PART 9.3 — INITIAL APPLICATION OF THIS ACT

¶309 SECTION 309 GUIDE TO THIS PART ¶9-030 SECTION 309 GUIDE TO THIS PART Text of s 309 General commentary Something should be said about Pt 9.3 of the PPSA generally, as its existence is, in the authors’ view, purely for abundant caution. Much, if not all, of what is included in Pt 9.3 operates by force of the PPSA, properly interpreted, in any event. While provisions such as those outlined here provide initial comfort, there is an inherent danger that they may, on some interpretations, conflict with the general operation of the PPSA. In such circumstances, the authors take the view that the transitional provisions must apply over the period of transition despite this being an undesirable result. As far as can be seen, there are no conflicting provisions; however, this style of drafting is unfavourable as it adds an unnecessary level of confusion and provides additional operative provisions for practitioners to interpret and understand.

¶310 SECTION 310 WHEN THIS ACT STARTS TO APPLY, AND IN RELATION TO WHICH MATTERS ¶9-035 SECTION 310 WHEN THIS ACT STARTS TO APPLY, AND IN RELATION TO WHICH MATTERS Text of s 310 [310.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev)

§ 9-703, 9-704, 9705

[310.2] Outline This section prescribes when the PPSA will begin to apply to the specified matters. [310.3] Cross-references Nil. [310.4] Concepts • Personal property This is defined by s 10. • Registration commencement time See s 306. • Security agreement This is defined by s 10. See further, s 18 and 20. • Transitional register This refers to a pre-PPSA register which has data given in an approved form to the PPS Registrar who accepts the data. See further, s 330. • Transitional security interest See s 308. • Transitional security agreement See s 307. [310.5] Commentary This section specifies when the PPSA commences operation with respect to the matters listed. Compare this provision with s 2 which specifies that the Act commences on the day after it receives Royal Assent. Essentially, what this section means is that the provisions of the PPSA do not apply until the registration commencement time. The matters listed in the section will catch all forms of security interests under both PPSA and pre-PPSA regimes as well as other interests in personal property that would not constitute security interests under pre-PPSA law, however, arise at or after the registration commencement time. [310.6] Further reading

• Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶311 SECTION 311 ENFORCEABILITY OF TRANSITIONAL SECURITY INTERESTS AGAINST THIRD PARTIES ¶9-040 SECTION 311 ENFORCEABILITY OF TRANSITIONAL SECURITY INTERESTS AGAINST THIRD PARTIES Text of s 311 [311.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 195

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev)

§ 9-703, 9-704, 9-705

[311.2] Outline Section 311 provides an exception to the general application of the PPSA provisions for the purpose of recognising transitional security interests. [311.3] Cross-references • Section 310 sets out when the PPSA begins to operate with respect to transitional security interests. [311.4] Concepts • Registration commencement time See s 306. • Transitional security interest See s 308. [311.5] Commentary Section 20 of the PPSA requires a valid security agreement to exist before a security interest can be enforced against a third party. The PPSA does not, however, seek to act retrospectively and thus interests that were valid as against third parties prior to the PPSA taking force continue to be effective as though the PPSA was never enacted. [311.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶312 SECTION 312 DECLARED STATUTORY SECURITY INTERESTS ¶9-045 SECTION 312 DECLARED STATUTORY SECURITY INTERESTS Text of s 312 [312.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 196

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev) No equivalent

[312.2] Outline Section 312 prescribes the time at which statutory security interests are recognised. [312.3] Cross-references Nil. [312.4] Concepts • Declared security interests See s 73. [312.5] Commentary Section 312 prescribes that s 73 only operates at or after the date the PPSA takes force, that is, the registration commencement time. The provision provides little more than certainty on the position as presumably all of the priority rules pursuant to Pt 2.6 apply only after the registration commencement time, particularly given the wording of s 310. [312.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶313 SECTION 313 ENFORCEMENT OF SECURITY INTERESTS IN INTELLECTUAL PROPERTY LICENCES ¶9-050 SECTION 313 ENFORCEMENT OF SECURITY INTERESTS IN INTELLECTUAL PROPERTY LICENCES Text of s 313 [313.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[313.2] Outline Section 313 prescribes a modification to the operation of s 106 over the PPSA transitional period. [313.3] Cross-references • Sections 105 and 106 provide for security interests in intellectual property and intellectual property licenses. [313.4] Concepts • Intellectual property licence See s 10 and 105. See further, 12.5.5. • Registration commencement time See s 306. • Security agreement This is defined by s 10. See further, s 18 and 20. [313.5] Commentary Section 313 provides that s 106 (which addresses the binding effect of security agreements in relation to security interests in intellectual property licenses where the intellectual property is transferred) will bind successors of the licensor who transferred the intellectual property only where the security agreement was made at or after the registration commencement time. That is, s 106 will not apply to transitional security interests and will only bind successive licence holders of intellectual property under security agreements made after the PPSA takes force. [313.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶314 SECTION 314 ENFORCEMENT OF SECURITY INTERESTS PROVIDED FOR BY SECURITY AGREEMENTS ¶9-055 SECTION 314 ENFORCEMENT OF SECURITY INTERESTS PROVIDED FOR BY SECURITY AGREEMENTS Text of s 314 [314.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[314.2] Outline This section provides that the Ch 4 enforcement provisions do not apply to security agreements made before the registration commencement time. [314.3] Cross-references • Section 310 specifies when the PPSA applies to transitional security interests but is subject to provisions in Pt 9 and therefore is subordinate to this section in that regard. [314.4] Concepts • Registration commencement time See s 306. [314.5] Commentary Section 314 prescribes that the PPSA enforcement provisions apply at or after the registration commencement time. The Ch 4 enforcement provisions of the PPSA are, however, influenced by, and indeed should be read in conjunction with, the security agreement itself. There is nothing to stop the proper application of enforcement procedures arising from the security agreement even where these merely parallel the active provisions of the PPSA. That is to say, where parties, familiar with the PPSA provisions prior to them taking force, draft their agreements in accordance with the enforcement provisions of the PPSA, such provisions will bind the relevant parties accordingly. [314.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶315 SECTION 315 STARTING TIME FOR REGISTRATIONS ¶9-060 SECTION 315 STARTING TIME FOR REGISTRATIONS Text of s 315 [315.1] Comparable provisions in foreign regimes Note: See also, s 322(2). New Zealand

PPSA 1999

s 197

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev) § 9-706

[315.2] Outline Section 315 outlines the commencement of the registration process. [315.3] Cross-references • Section 333 provides for the Registrar to register migrated security interests on the Personal Property Securities Register (PPSR). • Section 336 deals with preparatory registrations. [315.4] Concepts • Financing statement and financing change statement These are defined in s 10. See also, s 153. • Registration commencement time See s 306. [315.5] Commentary Section 306 prescribes that the PPSR opens to the public for registration at the registration commencement time. Pursuant to s 315, parties can therefore only lodge a financing statement or financial change statement at or after this time. The Registrar may have, however, registered transitional interests prior to this point, however, no new interests were to be the subject of a registration until the registration commencement time. [315.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶316 SECTION 316 GOVERNING LAWS ¶9-065 SECTION 316 GOVERNING LAWS Text of s 316 [316.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[316.2] Outline Section 316 concerns the conflict of laws provisions pursuant to Pt 7.2. [316.3] Cross-references • Part 7.2 provides rules that set out what laws will govern the operation of security interests over particular forms of personal property. [316.4] Concepts • Registration commencement time See s 306. • Transitional security interests See s 308. [316.5] Commentary This section provides that the rules pursuant to Pt 7.2 only apply after the registration commencement time. [316.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶317 SECTION 317 CONSTITUTIONAL AND NON-CONSTITUTIONAL INTERESTS ¶9-070 SECTION 317 CONSTITUTIONAL AND NON-CONSTITUTIONAL INTERESTS Text of s 317 [317.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[317.2] Outline Section 317 concerns constitutional and non-constitutional interests under the PPSA pursuant to s 251 and 252. [317.3] Cross-references • Section 310 provides when the PPSA operates. [317.4] Concepts • Constitutional security interests See s 251. • Non-constitutional security interest See s 252. • Registration commencement time See s 306. • Transitional security interest See s 308. [317.5] Commentary This section prescribes that the rules in relation to property taken free when the Act takes force and priority between constitutional and non-constitutional security interests only apply at or after the registration commencement time. [317.6] Further reading • Explanatory Memorandum [9.16–9.17]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶318 SECTION 318 REFERENCES TO CHARGES AND FIXED AND FLOATING CHARGES ¶9-075 SECTION 318 REFERENCES TO CHARGES AND FIXED AND FLOATING CHARGES Text of s 318 [318.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[318.2] Outline This section sets out when Pt 9.5 (which regulates how to describe under the PPSA, security interests described as fixed or floating charges) will apply. [318.3] Cross-references • Section 339 provides for the naming of fixed and floating charges under the PPSA. • Sections 340–341A define key terms (circulating assets, control and inventory) that are used in identifying the correct label for fixed and floating charges under the PPSA. [318.4] Concepts • Registration commencement time See s 306. • Security agreement This is defined by s 10. See further, s 18 and 20. • Transitional security interest See s 308. [318.5] Commentary Prior to the PPSA taking force, the terms “fixed charge” and “floating charge” carried significant legal and commercial ramifications by way of conferring a security interest recognised at common law (see Intro.III and Pt 9.5 for more information). While the underlying concept of a “charge” remains after the registration commencement time, s 318, in essence, prescribes that the provisions pursuant to Pt 9.5 will apply at and after this point. From a practical perspective, as is discussed further at Pt 9.5, it is unrealistic to expect the terms “fixed charge” and “floating charge” to disappear in legal and commercial contexts immediately after the registration commencement time, however, as the PPSA removes the utility of form it is expected that over time drafting techniques will change to better facilitate the operation of the Act. [318.6] Further reading • Explanatory Memorandum [–]. • ALRC Report No 64 [11.1–11.15].

• Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3. • Jason Harris, “Assessing the effect of the PPSA on the Corporations Act and corporate law teaching” (2012) 27 Australian Journal of Corporate Law 72. • Lionel Meehan, “Circulating Security Interests under the Personal Property Securities Act 2009 (Cth) Compared to Floating Charges” (2011) 22 Journal of Banking and Finance Law and Practice 322. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶9.4 PART 9.4 — TRANSITIONAL APPLICATION OF THIS ACT ¶1 Division 1 — Introduction

¶319 SECTION 319 GUIDE TO THIS PART ¶9-080 SECTION 319 GUIDE TO THIS PART Text of s 319

¶2 Division 2 — Attachment, perfection and priority of transitional security interests

¶320 SECTION 320 GUIDE TO PRIORITY RULES FOR TRANSITIONAL SECURITY INTERESTS ¶9-085 SECTION 320 GUIDE TO PRIORITY RULES FOR TRANSITIONAL SECURITY INTERESTS Text of s 320 [320.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 200, 201

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev)

§ 9-709

[320.2] Outline Part 9.4 of the PPSA provides the rules with respect to transitional security interests in terms of temporarily perfected security interests over the first 24 months after the PPSA takes force. Part 9.4 is mainly relevant where interests are to be perfected by registration as interests perfected by possession or control continue to be possessed or controlled by the secured party and are thus largely unaffected by the transitional period (unless possession or control is lost prior to registering a financing statement). Section 320 outlines the default priority rules for transitional security interests under the PPSA. The creation of transitional security interests adds a new dimension to the PPSA whereby common law and equitable interests may be characterised as “transitional security interests” (see s 308) which in turn may compete for priority with PPSA security interests pursuant to s 12 and 13. [320.3] Cross-references • Section 55 provides the default priority rules. • Section 321 provides for attachment of transitional security interests. • Section 322 provides for perfection of transitional security interests. • Sections 322A–324 provide further priority rules for transitional security interests. [320.4] Concepts • Continuous perfection See s 56. • Perfected See s 21. • Transitional security interest See s 308. [320.5] Commentary Section 320 of the PPSA prescribes the default priority rules in relation to transitional security interests. The provision should thus be read where at least one of the competing priority interests constitutes a transitional security interest. The table of priorities pursuant to s 320(1) addresses how transitional

security interests interact with PPSA interests (where the term “PPSA interest” has been used to describe interests created under security agreements that arise at or after the registration commencement time). In essence, the PPSA default priority regime also provides the default rules with respect to transitional security interests. Importantly, transitional security interests neither suffer prejudice nor are they treated favorably as against PPSA security interests with respect to priority. The general rule, pursuant to the default priority regime established under s 55 thus prevails, that is, a perfected security interest of either description takes priority as against an unperfected interest. Where a transitional security interest is in dispute with a PPSA interest and both interests are either perfected or unperfected — the “first in time” rule, as discussed under s 55, will prevail. By definition, the transitional security interest will prevail as it must have existed prior to the PPSA taking force and therefore even the earliest perfected PPSA interest will be later in time. Section 320, however, does not provide the mechanics for resolving every priority dispute and must be read in accordance with the remaining provisions under Pt 9.4, Div 5. In addition, the PPSA is silent as to the existence of super priority interests such as purchase money security interests (PMSIs) (see s 14). In the authors’ view, where specific provisions of the PPSA provide for priority modifications, such modifications prevail as against transitional security interests in the same way as they prevail against perfected security interests. The rationale here is that the PMSI is given super priority in recognition of the increase in assets of the debtor that the PMSI financier has facilitated. This view is supported by the following reasoning. The transitional security interest is recognised as a perfected security interest for PPSA purposes. The “alleviation” or aid provided to parties relying on the transitional interests is one of timeliness, namely, a transitional security interest is recognised as being perfected immediately before the registration commencement time (30 January 2012). Should a priority contest arise between notionally equal interests (that is, between a transitional security interest and a perfected security interest), the transitional interest thus prevails as a perfected security interest can never achieve perfection before the time when a transitional security interest is deemed to be perfected. Note, however, that the PMSI is not a time dependent instrument with respect to priority. Under the PPSA, a PMSI prevails over a perfected security interest irrespective of the point in time at which the PMSI is perfected (s 62). The same reasoning is applicable when faced with a competing PMSI and transitional security interest. Further, one must understand what it is the PMSI is designed to achieve (see s 14), that is, it is an instrument relevant to new collateral and new value. Whether or not the PMSI is in conflict with existing interests of the grantor is thus rendered largely moot. Further, where both interests are transitional and one could be characterised as a PMSI, were the PPSA applicable at the time, then consistent with the pre-PPSA position, priority will likely follow the PMSI holder as against a competing general security agreement. The point is better understood with reference to an example, consider the following:

Party A has a general security agreement (an AllPAP) as against Party B whereby Party A agrees to loan Party B funds. Party C agrees to provide widgets to Party B on retention of title terms subsequent to Party B engaging with Party A. Party B defaults against both Party A and Party C.

In a priority dispute between Party A and Party C with respect to the widgets, as Party C retained title to the widgets they would have never formed part of Party B’s pool of assets and therefore Party C would prevail over Party A. Under the PPSA, Party C would be treated as having a PMSI and would prevail against Party A. Thus, while the rationale is different the result is the same. In contrast to what is said above regarding PMSIs, it should be noted that super priority is also commonly given to perfection by control, however, s 322A provides that a perfected transitional security interest will take priority over a non-transitional security interest perfected by control. Given what is said about transitional security interests and their priority status with respect to perfected security interests under the PPSA generally, there may be a view that parties should seek to retain for as

long as possible temporary rather than generally perfected status. This misconception suffers two important flaws. • First, perfecting an interest which is perfected by another means does not reset the priority time (provided the interest has been continuously perfected: see s 56 of the PPSA). Thus, if a transitional security interest is subsequently perfected by registration, this would not reset the point in time at which priority is to be determined. • If there is a misdescription in the collateral, a transitional security interest might lose its priority. The term misdescription is used with respect to the foreign case law, and covers both incorrect and inadequate description of collateral. An inadequate description may result in the same consequences as an incorrect description. The second, and perhaps more important, flaw is the error in the arbitrary reliance of secured parties on transitional or migrated security interests where they are aware of and have the means to perfect by an alternative method (in most cases, perfection by registration). The case of Carson, Re Hastie Group Ltd (No 3) (2012) APPSR ¶701-001; [2012] FCA 719, the first of its kind with respect to the PPSA, although taking the form of a directions hearing as opposed to a final determination of a party’s rights, demonstrates the dangers with misdescription as has been increasingly prevalent in the transition process. It is no excuse that the Registrar, or the Registrar’s staff, have misdescribed collateral by way of migration. All parties aware of the PPSA and its effects should be directed to Pt 8.3, particularly s 272 of the PPSA, and the immunity conferred upon those who administer the Personal Property Securities Register (PPSR). The PPSR itself contains a general condition of use that parties must take the register “as is” and “as available”: cl 24, see www.ppsr.gov.au/AbouttheRegister/PPSRConditionsofUse/Pages/GeneralConditionsofUse.aspx. The conclusion, while perhaps prima facie unfair, is that the PPSA imposes an onus on the party ultimately benefiting from a priority position to take steps to preserve that priority. Upon a more complete understanding of what it is that Ch 9 confers, it is thus recommended that parties perfect by alternate means (in most instances, appropriately by perfecting by registration) or by amending existing entries on the PPSR to reflect, as particularly as possible, the true position between the parties. [320.6] Further reading • Explanatory Memorandum [9.24–9.26]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶321 SECTION 321 ATTACHMENT RULE ¶9-090 SECTION 321 ATTACHMENT RULE Text of s 321 [321.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 200, 201

Saskatchewan PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev) § 9-709

[321.2] Outline Section 321 prescribes when attachment occurs in relation to transitional security interests for the purposes of the PPSA. [321.3] Cross-references • Section 55 provides the default priority rules. [321.4] Concepts • Attached See s 19. • Registration commencement time See s 306. • Transitional security interest See s 308. [321.5] Commentary Pursuant to s 321, a transitional security interest is deemed to attach at a time immediately before the registration commencement time. The practical reason for this overarching provision is that often establishing when a security interest attached under pre-PPSA law was irrelevant or immaterial and thus seeking to impose PPSA sensitive rules retrospectively is against the PPSA’s fundamental policy position of preserving commercial realities. See for example, NCO Finance Australia Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274 (two competing secured parties with transitional security interests that were deemed to have attached and been perfected at the same time. Priority was determined by pre-PPSA law). Section 321, while commercially convenient, presents a complication of its own, however, by reason of the priority rules under the PPSA. The issue arises where two unperfected transitional security interests are in a priority dispute with one another. The general rule, pursuant to s 320, holds that the first interest to attach in time will prevail. In the present circumstances, however, neither security interest can be said to attach earlier in time — they attach at the same time pursuant to s 321. Note 2 of s 321 prescribes that in such circumstances, the pre-PPSA priority position will determine the dispute. In the authors’ view, a dispute of this fashion should never arise in practice. Under the PPSA, there is no restriction as to when perfection of a security interest can occur and thus either party, upon notice of the dispute, should simply perfect their interest. This view is much the same as the view expressed in the commentary to s 55(2). With the expiry of the transition period such interests should have been perfected otherwise than pursuant to the provisions of Pt 9.4 or they risk being subject to perfected secured parties or taking free rules.

Further, where attachment occurs some time in the future pursuant to an agreement created prior to the PPSA taking force (under a “floating charge” for instance — see Pt 9.5), in the authors’ view, s 321 applies. This is consistent with the view expressed under s 307 and 308. [321.6] Further reading • Explanatory Memorandum [9.25]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶322 SECTION 322 PERFECTION RULE ¶9-095 SECTION 322 PERFECTION RULE Text of s 322 [322.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

s 200, 201, 198

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev)

§ 9-709

[322.2] Outline Section 322 prescribes when perfection occurs for transitional security interests. [322.3] Cross-references • Section 320 provides default priority rules for transitional security interests. • Sections 322A–324 provide specific priority rules for transitional security interests. • Personal Property Securities Regulations 2010 (Cth) reg 9.2. [322.4] Concepts • Continuous perfection See s 56. • Perfected See s 21. • Registration commencement time See s 306. • Transitional security interest See s 308. [322.5] Commentary [322.5.1] Main rule — s 322(1) ....................................XX [322.5.2] Exceptions and replacement rules — s 322(2) ....................................XX [322.5.3] Imposition of regulations — s 322(3) ....................................XX [322.5.1] Main rule — s 322(1) Transitional security interests, pursuant to s 322(1), achieve perfection at a time immediately prior to the registration commencement time. The priority disputes that can arise from this are dealt with in s 322A– 324. [322.5.2] Exceptions and replacement rules — s 322(2) Due to the broad compass of this rule, deemed perfection under this section ceases to have operative effect 24 months after the registration commencement date. Interests arising after this time which would be classified as “transitional security interests” additionally benefit from s 322(1) provided that s 322(2)

does not end the application of s 322(1): see for example, NCO Finance Australia Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274. Section 322, in essence, establishes a two-year transition period after which the PPSA applies unencumbered by concepts of transitional interests. This gives secured parties whose security interest extends beyond the two-year transition period time to perfect their interest so as to maintain continuous perfection after the end of the transition period. It should be understood that, in essence, the transitional provisions of the PPSA provide a period of temporary perfection (see s 21(1)(a)) and the onus is on holders of transitional security interests to comply with the PPSA after this point (and prior to the expiration of the transitional period). Where a transitional security interest is continuously perfected after this 24-month period, however, (see s 56 regarding the concept of continuous perfection), the interest retains perfection as at a time immediately before the registration commencement time: see Holland v Chrysler Credit Canada Ltd (1992) 4 PPSAC (2d) 250; 5 Alta LR (3d) 258 (Alta QB); See also, Advance Diamond Drilling (Receiver of) v National Bank Leasing Inc (1992) 3 PPSAC (2d) 154; 67 BCLR (2d) 173 (BC SC). Section 322(2) lists six prevailing conditions which end the operation of s 322(1). The conditions establish a series of steps available to a holder of a transitional security interest such that the holder can achieve a more permanent means of perfection. Section 322(2)(a) provides for perfection by registration under Pt 9.4, Div 6 — establishing a “migrated” security interest. Interests transferred from one of the various previously existing registers to the PPSR thus do not constitute transitional security interests rather they comprise “migrated security interests” pursuant to s 332. If a transitional security interest becomes a migrated security interest through its own registration, the rules with respect to migrated security interests under Div 6 govern the interest. In a hierarchical sense, a migrated security interest presents more permanency than a transitional security interest. Section 322(b) provides for preparatory perfection by registration whereby during the period between the migration time and the registration commencement time (see s 306) a person can apply to the Registrar (see Pt 5.9) to pre-register an interest. Pre-registration allows a PPSA interest to arise as soon as the PPSA commences force (for more information, see Pt 9.4, Div 7). Importantly, preparatory perfection is not available under the PPSA merely for transitional security interests but to any party anticipating the creation of a security interest at any point pending the commencement of the PPSA. Section 322(c) provides for perfection by registration under the PPSA, that is, where interests pursuant to Div 6 or Div 7 are amended to eliminate their transitional effect. Such interests become PPSA security interests and are bound by the provisions of the Act. Section 322(d) provides for perfection by registration, possession or control in the ordinary sense under the PPSA (see s 21–29). An interest perfected under the PPSA need not rely on the temporary perfection granted by the Act with respect to transitional security interests although, provided it was continuously perfected (see s 56), such an interest would retain priority from the point in time immediately before the registration commencement time (see s 306). Section 322(e) provides for other forms of perfection by the PPSA but not temporary perfection. This section relates to specific forms of perfection for specific collateral classes through the PPSA. Section 322(f) provides for the default position discussed above, that is, 24 months after the registration commencement time. Again, while s 322(1) provides that an interest arising after this time benefits from the transitional security interest provisions, it will only do so for the purposes of continuous perfection (see s 56) in the authors’ view, that is, such an interest, where perfected by some other means before the expiry of the transitional period, will retain perfection from the point in time immediately before the PPSA took force. The note to s 322(2) is instructive and should be further considered. Element (b) of the note highlights the consequences of failing to perfect within the 24-month temporary perfection period (or prior to any of the subparagraphs pursuant to s 322(2)) — namely that the security interest “becomes unperfected”. It is therefore important to consider what these words actually mean to which there are two hypotheses, first, the term “becomes unperfected” means that at the expiration of the transitional period the security interest is taken to be unperfected (namely, as of 31 January 2014). However, the second hypothesis is that the security interest, upon becoming unperfected, is taken to

have never been perfected as at the first point it was conferred perfection — that is to say, the security interest is and has been unperfected from the registration commencement time to the present point. The distinction in interpretation produces vastly different results and exposures from the perspective of the secured party. While the second reading may appear to be anomalous, when one reads s 56 of the PPSA and the requirements of “continuous perfection”, the second hypothesis appears to be consistent with the overall understanding of temporary perfection under the PPSA and should be preferred. Further, the concept of continuous perfection is clearly relevant and a requirement of preserving perfected status as referred to specifically in element (a) of the note. Thus, to suggest that s 322(2) confers a particular type of temporary perfection immune from consideration of s 56 appears to put too broad a reading on the application of Ch 9. The practical effect of this would be such that if a security interest was created during the transitional period (as opposed to before) and was perfected at some time prior (assuming the interest is validly perfected), then applying the second hypothesis for s 322(2), a transitional security interest which was not subsequently perfected would lose in a priority contest as against the security interest created and perfected later in time. This is so notwithstanding the fact that had the priority contest occurred during the transitional period, the transitional security interest would have prevailed (see s 320). While this may appear to be a harsh result, the transitional provisions were designed, again — as the name suggests, merely to transition secured parties from the former position at common law to the statutory position. To that, it can be said that with the expiration of the “grace period” such seemingly harsh results must occur should the PPSA apply the way it was intended. That is to say, the failure to appreciate a need to otherwise perfect during the 24 months warrants, at least on one view, the security interest perfected later in time to prevail. [322.5.3] Imposition of regulations — s 322(3) The PPS Regulations stipulate, at reg 9.2, 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 the subject of a registration on the relevant register prior to the registration commencement time, that is, such interests will not benefit from s 322(1) and (2). Regulation 9.2(1), however, does not apply to charges which must be have been the subject of a registration in accordance with the Corporations Act 2001 (Cth) s 262 which are deemed unregistered pursuant to Corporations Act 2001 (Cth) s 265(9) (which deals with charges that only have provisional registration in the Australian Securities and Investment Commission (ASIC’s) Australian Register of Company Charges). Several recent cases have found that a failure to register motor vehicles under prePPSA chattel security laws (where registration was required under the prior law) come within this subsection: see Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337; [2013] NSWSC 852; White v Spiers Earthworks Pty Ltd [2014] WASC 139. [322.6] Further reading • Explanatory Memorandum [9.22]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶322A SECTION 322A PRIORITY RULE — PRIORITY BETWEEN TRANSITIONAL SECURITY INTEREST AND SECURITY INTEREST PERFECTED BY CONTROL ¶9-100 SECTION 322A PRIORITY RULE — PRIORITY BETWEEN TRANSITIONAL SECURITY INTEREST AND SECURITY INTEREST PERFECTED BY CONTROL Text of s 322A [322A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[322A.2] Outline This section provides clarification regarding priority contests between a perfected transitional security interest and a non-transitional security interest in the same collateral that is perfected by control. [322A.3] Cross-references • Sections 320, 323 and 324 provide further priority rules for transitional security interests. [322A.4] Concepts • Registration commencement time See s 306. • Transitional security interest See s 308. [322A.5] Commentary This section was inserted by the Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2, item 58 in order to ensure that perfected transitional security interests take priority over non-transitional security interests that are perfected by control. As noted in the commentary for s 320, while a non-transitional security interest that is a PMSI provides new value to the debtor and can therefore have its super priority justified, a non-transitional security interest that is perfected by control (or possession) provides no such justification. [322A.6] Further reading • Explanatory Memorandum 2011 [70–74]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶323 SECTION 323 PRIORITY RULE — PRIORITY OTHERWISE UNDETERMINED ¶9-105 SECTION 323 PRIORITY RULE — PRIORITY OTHERWISE UNDETERMINED Text of s 323 [323.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

ss 200, 201

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev)

§ 9-709

[323.2] Outline Section 323 expressly prescribes the priority position where the PPSA provisions are unable to resolve a priority dispute. [323.3] Cross-references • Sections 320, 322A and 324 provide further priority rules for transitional security interests. [323.4] Concepts • Registration commencement time See s 306. • Transitional security interest See s 308. [323.5] Commentary Section 323 seeks to confirm the position comprising the notes to s 321 and 322. The provision makes it clear that if no alternative provision of the PPSA can determine a priority dispute between two perfected or two unperfected transitional security interests, then the law as it stood prior to the PPSA will be used to determine the dispute. In the authors’ view, the PPSA would operate to the same effect in the absence of s 323, however, due to the significance of this rule, a separate section is not unwarranted. Such a dispute arose in NCO Finance Australia Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274. In that case, the priority competition was between the financier of a motor vehicle, which was properly perfected under the pre-PPSA law, and the company running Melbourne Airport’s carparks which had a contractual lien over the vehicle for unpaid parking fees of several thousand dollars. Both security agreements were transitional. The vehicle had been abandoned in the car park by the registered owner and a dispute arose as to who had priority. The court held that the car park operator had priority under pre-PPSA law by reason of the Chattel Securities Act 1987 (Vic) which provided priority for a repairer’s lien (which the court held the car park operator had) over any interest the subject of a registration (ie the finance company’s interest registered on the REVS in Queensland). While the date of perfection, pursuant to s 322(1), is thus important, where the date of attachment or registration under pre-PPSA regimes is available, such information should be included in the registration of any transitional security interest (by way of preparatory registration pursuant to s 337 in the authors’ view). The Newfoundland and Labrador Court of Appeal case, Re Hickman Equipment (1985) Ltd (2004) 7 PPSAC (3d) 37; 239 Nfld& PEIR 296 at [34], discusses the importance of this inclusion, the Court holding

that: “The reason for the date of the registration being included in the information provided in the transition financing statement is obvious. It is critical to the question of priorities since priorities created by prior security interests operate not from the date of the registration of the transition financing statement but from an earlier date — the date of registration of a document under a prior law (section 75(1)).” See also, Assiniboine Credit Union Ltd v Canadian Imperial Bank of Commerce (1984) 4 PPSAC 96; 11 DLR (4th) 744 (MB CA). It is fortunate, or perhaps somewhat unfortunate, that the “catch-all” or fall-back position under s 323 of the PPSA is the position at law as it stood prior to the enactment of the personal property securities (PPS) regime. Section 254 has a similar effect under the PPSA generally, namely, absent express provision (as would be the case should an irreconcilable priority dispute arise) the general law remains applicable. The fortunate aspect is that there can be no priority contest ultimately unresolvable by force of the PPSA. The unfortunate aspect is the reliance on mechanics that the PPSA was largely designed to replace. Ideally, there will be a limited number of cases which will demand the invocation of common law and equitable priority principles (although the general law retains critical importance with respect to characterisation of security interests in the first instance (see s 12 in particular)), however, this outlook is purely a speculative. In any event, secured parties and commercial participants generally are encouraged to comply with the PPSA provisions. [323.6] Further reading • Explanatory Memorandum [9.18–9.20]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶324 SECTION 324 PRIORITY RULE — CERTAIN SECURITY INTERESTS UPON INSOLVENCY OR BANKRUPTCY ¶9-110 SECTION 324 PRIORITY RULE — CERTAIN SECURITY INTERESTS UPON INSOLVENCY OR BANKRUPTCY Text of s 324 [324.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent but see s 200

Saskatchewan

PPSA 1993

ss 73–74.2

Ontario

PPSA 1990

s 77, 78

USA

UCC Article 9 (rev)

§ 9-709

[324.2] Outline Section 324 addresses the position of insolvency practitioners or bankruptcy trustees in dealing with transitional security interests (termed collectively as “Bankruptcy Practitioners” in this commentary for convenience). The PPSA provisions in relation to Bankruptcy Practitioners appears at Pt 8.2. [324.3] Cross-references • Section 322 provides for deemed perfection of transitional security interests. [324.4] Concepts • Registration commencement time See s 306. • Transitional security interest See s 308. [324.5] Commentary Section 324 prescribes that a Bankruptcy Practitioner is to apply the rules of the PPSA if, after the month ending 24 months after the PPSA commences force, a priority dispute arises involving at least one transitional security interests. By way of implication, this means that a Bankruptcy Practitioner is bound by the transitional provisions in the same respect as other competing secured parties, that is, a Bankruptcy Practitioner must determine priorities in accordance with Ch 9. Deeming s 322 not to have effect in this context means that one or more of the competing transitional security interests will not be perfected. Part 8.2 of the PPSA provides for the vesting of unperfected security interests in the grantor upon the occurrence of certain insolvency events in relation to the grantor. A Bankruptcy Practitioner should be encouraged to understand the priority regime of the PPSA before determining whether or not a security interest validly meets the PPSA requirements. The case of Carson, Re Hastie Group Limited (No 3) (2012) APPSR ¶701-001; [2012] FCA 719 demonstrates some of the concerns which have arisen as a consequence of misdescription (which includes a failure to properly particularise one’s security interest, as well as incorrect description). It is also an example of one of the options available to a Bankruptcy Practitioner when facing PPSA issues, namely, the ability to seek judicial directions. Fellow Bankruptcy Practitioners would be well advised to maintain an awareness of proceedings concerning judicial directions in this space, particularly over the period of transition, to benefit from the perspective of the court in interpreting some of the more complex PPSA provisions. [324.6] Further reading

• Explanatory Memorandum [9.31–9.33]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193. NOTE: Sections 325 to 329 inclusive repealed by No 96 of 2010, s 3, Sch 2, Pt 1, item 121, effective 6 July 2010.

¶6 Division 6 — Migration of personal property interests

¶330 SECTION 330 SCOPE OF DIVISION ¶9-115 SECTION 330 SCOPE OF DIVISION Text of s 330

¶331 SECTION 331 REQUIREMENT FOR COMMONWEALTH OFFICERS ETC. TO PROVIDE DATA ¶9-120 SECTION 331 REQUIREMENT FOR COMMONWEALTH OFFICERS ETC. TO PROVIDE DATA Text of s 331 [331.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[331.2] Outline Part 9.4, Div 6 addresses the logistics of migration of data from pre-PPSA registers to the PPSR at the migration time. Migrated security interests (see s 332) emerging from this process are classed as such and while all transitional security interests are migrated security interests, the reverse is not always the case. Where an interest constitutes both a transitional security interest and a migrated security interest, pursuant to s 322(2), it will be classed as a migrated security interest. Section 331 addresses the ability of the Registrar to request and receive relevant data on pre-PPSA registers. [331.3] Cross-references • Section 333 provides for data to be migrated onto the Personal Property Securities Register (PPSR). • Section 334 deals with errors in the migration process. [331.4] Concepts • Approved form See s 302. • Registrar See Pt 5.9. • Migrated security interest See s 332. [331.5] Commentary Section 331 requires officers of the Commonwealth to present all data to the Registrar at their request for PPSA purposes. This provision thus activates at the migration time pursuant to s 306 and provides at least one month for the transition of existing data to the PPSR. The practical translation of interests to the PPSR has demonstrated the constraints on resources in Australia. As such, one month comprises a potential miscalculation for the migration period, a process which has taken much longer and delayed the implementation of the PPSA throughout the course of 2010 and 2011. While technical deficiencies constituted widely publicised problems with the PPSA, problems with the technical accuracy of the PPSR have also arisen and should be of concern to both secured and potentially secured parties (see below, particularly at s 334). [331.6] Further reading

• Explanatory Memorandum [9.42–9.50]. • ALRC Report No 64 [11.1–11.15]. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶332 SECTION 332 MEANING OF MIGRATED SECURITY INTEREST ¶9-125 SECTION 332 MEANING OF MIGRATED SECURITY INTEREST Text of s 332 [332.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[332.2] Outline Section 332 defines the term “migrated security interest”. [332.3] Cross-references • Section 44 provides a taking free rule that includes migrated security interests. • Section 333 provides for data migration to occur. [332.4] Concepts • Approved form See s 302. • Migrated security interest See below. • Registrar See Pt 5.9. • Transitional security interest See s 308. [332.5] Commentary A migrated security interest constitutes a transitional security interest which has been successfully “migrated” to the PPSA and is thus reflected on the PPSR. Perfection by registration is distinct from the registration of a migrated security interest as it is the Registrar and not the secured party who registers the migrated security interest. This is achieved in accordance with s 330 and 331. As previously stated, all migrated security interests constitute transitional security interests and thus benefit from attachment and perfection immediately prior to the PPSA taking force pursuant to s 321 and 322 respectively. A migrated security interest also benefits from the existence of the relevant entry on the PPSR. While this arguably adds little to the priority of the security interest as against a transitional security interest, notice of the register may serve to prevent a priority dispute ever arising in a practical sense. Additionally, where a security interest is successfully migrated it adopts a form distinct from transitional security interests (see s 322(2)(a)) and may outlive the 24-month transition period in accordance with what exists of the PPSR. Secured parties will need to review, with or without the help of professional assistance, the financing statements that they have made or that have been made on their behalf to ensure that the details are correct, particularly serial numbers, grantor details and collateral descriptions.

[332.6] Further reading • Explanatory Memorandum [9.42–9.50]. • ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶333 SECTION 333 REGISTRATION WITH RESPECT TO MIGRATED DATA ¶9-130 SECTION 333 REGISTRATION WITH RESPECT TO MIGRATED DATA Text of s 333 [333.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[333.2] Outline Section 333 provides the particulars with which a migration security interest can arise under the PPSA. While informative, the provision is applicable to the Registrar and generally not to secured parties. [333.3] Cross-references • Section 331 provides for the data to be migrated to be provided to the Registrar. • Section 335 provides that a secured party does not need to give a copy of a verification statement. [333.4] Concepts • Financing statement See s 10. See further, s 153. • Migrated security interest See s 332. • Migration time See s 306. • Registration commencement time See s 306. • Registrar See Pt 5.9. • Transitional register The term “transitional register” is defined under s 330 of the PPSA. It refers to a register which holds data to be transitioned to the PPSR maintained by a law of the Commonwealth, state or territory, and constitutes data in the approved form (where the term “approved form” is defined by s 302). A transitional register may exist for as long as is necessary at the discretion of the Registrar in migrating data to the PPSA. • Transitional register end time By way of extension from the above definition, the “transitional register end time” refers to a time upon which the transitional register ends, to be determined by the Registrar, in accordance with the law under which the register was maintained. All security interests benefiting from migration thus go

through the transitional register and once the PPSR takes force all transitional registers should cease to function. • Transitional security agreement See s 307. • Transitional security interest See s 308. [333.5] Commentary The Registrar utilises s 333 to perform the migration process from transitional registers, where data in the approved form is held, to the PPSR — over the migration time and before the registration commencement time. Only interests validly operative and existing at the time migration is to occur (and continuing in force after the registration commencement time) are to be transitioned to the PPSR. The concept of a PPSA security interest requires the filing of a fully particularised financing statement in accordance with Pt 5.3. Many of the registers existing prior to the PPSA did not require such detail and thus in transitioning existing interests the discretion of the Registrar as to what class certain property constitutes (for a discussion on the different classes of personal property see Pt 5.3) can be exercised for the purposes of registration pursuant to s 333(2). The Registrar must also include particulars as to the nature of the interest the subject of a registration, namely, that the registered financing statement comprises a transitional security interest that is a migrated security interest. Additionally, the Registrar’s opinion as to the life of the interest must be included in accordance with its life on the transitional register. Where it is not included, the migrated security interest operates much like a perfected security interest with permanent application until removed or the primary obligation is satisfied (assuming the accuracy and validity of the particulars contained within a financing statement). While the particulars included within a registration by the Registrar govern the security interest, such details can be changed by way of amendment by the relevant secured party through lodging a financial change statement (see s 10). A new financing statement can also be lodged in order to perfect by registration, and the presently existing migrated security interest can be removed. In the authors’ view, where holders of security interests are aware of their interest existing by way of a migrated security interest, the particulars of such interests should be carefully reviewed in order to isolate and eliminate any inaccuracies (see s 334; See also, Pt 9.4, Div 8). [333.6] Further reading • Explanatory Memorandum [9.42–9.50]. • ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶334 SECTION 334 INCORRECTLY REGISTERED MIGRATED DATA ¶9-135 SECTION 334 INCORRECTLY REGISTERED MIGRATED DATA Text of s 334 [334.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[334.2] Outline Section 334 outlines the consequences of errors in migrated security interests. [334.3] Cross-references • Section 186 allows the Registrar to restore incorrectly removed data. • Section 191 allows the AAT to review a decision of the Registrar under this section. • Section 333 provides for the Registrar to include data on the Personal Property Securities Register (PPSR) relating to migrated security interests. [334.4] Concepts • Determined class This refers to a class of collateral in accordance with PPS Regulations Sch 1, Pt 2, reg 2.3. • Financing statement See s 10 and 153. • Financial change statement See s 10 and 153. • Registered This refers to data included in a financing statement made in accordance with s 333 by the Registrar with respect to migrated security interests. [334.5] Commentary Incorrectly describing collateral as one class when it in fact constitutes a separate class removes the registered entry as though it had never been included under the PPSA. A migrated security interest, thus, becomes a transitional security interest without the benefit of the registered entry. While the error of the Registrar should not be imposed on the secured party relying on the security interest in the authors’ view, a deficiency on the PPSR is undesirable and may constitute a seriously misleading defect when left unaddressed (see s 164–166). The secured party should, in the authors’ view, take responsibility for the accuracy of the PPSR once knowledge of the deficiency occurs (see Pt 9.4, Div 8). The Registrar may additionally remove such data by way of financial change statement. [334.6] Further reading • Explanatory Memorandum [9.48].

• ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶335 SECTION 335 NO REQUIREMENT FOR NOTICE OF VERIFICATION STATEMENT ¶9-140 SECTION 335 NO REQUIREMENT FOR NOTICE OF VERIFICATION STATEMENT Text of s 335 [335.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[335.2] Outline Section 335 addresses the use of verification statements in relation to financing statements or financing change statements lodged by the Registrar in creating migrated security interests. [335.3] Cross-references • Section 333 allows the Registrar to include migrated data on the Personal Property Securities Register (PPSR) by registering a financing statement. • Section 334 allows the Registrar to amend information on the PPSR that has been incorrectly migrated by registering a financing change statement. [335.4] Concepts • Financing statement and financing change statement See s 10 and 153. • Verification statement See s 155. [335.5] Commentary Section 335 does away with the formal registration requirement that a copy of a verification statement be provided by a secured party for every financing statement and financing change statement in relation to Registrar or transitional registrations. [335.6] Further reading • Explanatory Memorandum [9.49]. • ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶7 Division 7 — Preparatory registration relating to transitional security interests

¶336 SECTION 336 PREPARATORY REGISTRATION — TRANSITIONAL SECURITY INTERESTS ¶9-145 SECTION 336 PREPARATORY REGISTRATION — TRANSITIONAL SECURITY INTERESTS Text of s 336 [336.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[336.2] Outline Part 9.4, Div 7 comprises one section and that is s 336. Section 336 addresses the ability for secured parties to proactively pre-register or conduct “preparatory registration” in order to secure priority under the PPSA. [336.3] Cross-references • Section 310 provides for when the PPSA begins to operate in relation to security interests. • Section 315 provides that applications to the Registrar for registration of a financing statement or a financing change statement may only be made at or after the registration commencement time. [336.4] Concepts • Financing statement See s 10 and 153. • Financial change statement See s 10 and 153. • Migration time See s 306. • Registration commencement time See s 306. • Registrar See Pt 5.9. • Transitional security interest See s 308. • Transitional security agreement See s 307. [336.5] Commentary Section 336 provides secured parties with the opportunity to conduct preparatory registration from the

time the migration period commences to the time of the registration commencement date in relation to transitional security interests. A preparatory financing statement lodged in respect of a potential interest stops being automatically perfected under s 322 when it is perfected by preparatory perfection under this section (s 322(2)(b)). The discretion remains with the Registrar as to whether the interest will be validly perfected by registration in a preparatory sense on the grounds that the interest will continue as a transitional security interest and that it is operationally practicable for the Registrar to accept this course. The benefits for the secured party include control over the registration process, an element missing from migrated security interests which are transferred by the Registrar. Financing change statements can be lodged in a similar fashion. A preparatory interest must additionally specify that the interest the subject of the registration is a transitional security interest and the application should conform with Ch 5 of the PPSA. Following the cessation of the transitional period, the notion of pre-registering should be thought of exclusively in the capacity of a security interest which has been created but not yet attached. [336.6] Further reading • Explanatory Memorandum [9.51–9.52]. • ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶8 Division 8 — Transitional security interests: registration defects

¶337 SECTION 337 REGISTRATION EFFECTIVE DESPITE CERTAIN DEFECTS ¶9-150 SECTION 337 REGISTRATION EFFECTIVE DESPITE CERTAIN DEFECTS Text of s 337 [337.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[337.2] Outline Part 9.4, Div 8 of the PPSA concerns the validity of transitional security interests upon defects on the PPSR. Unlike the general PPSA provisions for defects on the register, Ch 5, Div 8 provides a degree of leniency over the transitional period for the purposes of priority. Section 337 provides for the effectiveness of registration despite errors in certain circumstances. [337.3] Cross-references • Part 5.4 provides when registration is effective and ineffective. • Section 320 provides when the PPSA begins to apply to transitional security interests. [337.4] Concepts • Registration describes collateral This refers to the collateral description in a financing statement: see s 153. • Transitional security agreement See s 307. • Transitional security interest See s 308. [337.5] Commentary Section 337 prescribes that the Registrar can, by legislative instrument, determine that some defects in the registration of particular transitional security interests do not invalidate a registration which would otherwise render the financing statement ineffective by virtue of the PPSA’s general provisions. The PPSA provides a period of 60 months, or five years, after the registration commencement time unless the particulars of the relevant financing statement specify a time earlier than this (which would appear on the relevant registered entry). Presumably, the Registrar would not exercise the power conferred by s 337(2) for general defects. In the authors’ view, the Registrar should reserve the use of legislative power for defects made in their capacity when migrating particular security interests. The Registrar is thus given broad power with regards to the PPSR for the purposes of transitional security interests. Section 337 additionally applies irrespective of s 164 and 165 concerning the effects of defects to the PPSR. While this may seem to disturb the proper function of the PPSA, ensuring the integrity of the PPSR over the transitional period is essential to the policy position granting primacy to the Register.

Additionally, and in accordance with the authors’ view, the errors of the Registrar by way of defective migrated security interests should not impinge on secured parties seeking to rely on such interests. [337.6] Further reading • Explanatory Memorandum [9.53–9.55]. • ALRC Report No 64 [11.1–11.15]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶337A SECTION 337A REGISTRATION DEFECTIVE IF COLLATERAL IS NOT COVERED BY TRANSITIONAL SECURITY AGREEMENT ¶9-155 SECTION 337A REGISTRATION DEFECTIVE IF COLLATERAL IS NOT COVERED BY TRANSITIONAL SECURITY AGREEMENT Text of s 337A [337A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[337A.2] Outline Section 337A concerns the scope of registration with regards to a transitional security interest. [337A.3] Cross-references • Section 164 provides for defects in registration. [337A.4] Concepts • Registration See Pt 5.3. • Transitional security agreement See s 307. [337A.5] Commentary Section 337A confines the scope of defective registration with regards to the subject matter of a transitional security interest. While the transitional provisions seek to alleviate the complexities of the PPSA in favour of the secured party over the course of the transitional period (as has been discussed in the commentary above), where a transitional security interest the subject of a registration made on the PPSR purports to cover collateral not a part of the transitional security agreement, the registration will be ineffective as against such collateral. While s 337 exists with respect to defects on the register, in seeking to maintain an accurate PPSR, such registrations should be avoided and amended where discovered. It should be noted that s 337A is not designed to extinguish legitimate security interests and in this regard it presents a low threshold test. Looking beyond the Ch 9 transitional provisions, it is difficult to envisage circumstances whereby a perfected security interest would cover collateral which the security interest does not attach to (as attachment is a necessary precondition to perfection: see s 21) and thus the issue of a failure to note collateral in the security agreement is likely confined to transitional interests. There is some conflict between the operation of s 337A and 164 of the PPSA. The prefacing words of s 337A lead the reader to believe that s 337A is to operate in addition to s 164 (the words “without limiting”) while the operation of s 337A appears to be more coercive on a plain reading. By way of illustration, a security interest which indicates that it is transitional and which covers property which is not a part of a transitional interest but some subsequent interest may not constitute a “seriously misleading defect” (see s 164), however, would seemingly trigger the effects of s 337A. As a matter of construction, the question appears to be, did the legislature intend for s 337A to be read in light of s 164, that is to say, is it possible for one to breach s 337A without also breaching s 164 or is s 337A, despite its opening words, meant to be read and applied according to its terms. In addressing this question, one should also refer to the

expanded definition of a transitional security agreement pursuant to s 307, 308 and 311. The issue remains unresolved in Australia, although in Re 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407, the court accepted that describing a security interest as transitional when the security agreement was not (to any extent) transitional would render the PPSR registration wholly ineffective. In that case, an amendment was made to the registration to correct the error and an order extending the time for registration under Corporations Act 2001 (Cth), s 588FM was made. [337A.6] Further reading • Explanatory Memorandum [9.51–9.52]. • ALRC Report No 64 [11.1–11.15]. • Whittaker Review [6.10.2.2]. • Rebecca Hope, “Migrated Security Interests: Lost in Transition” (2011) 34 University of New South Wales Law Journal 646. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶9.5 PART 9.5 — CHARGES AND FIXED AND FLOATING CHARGES

¶338 SECTION 338 GUIDE TO THIS PART ¶9-160 SECTION 338 GUIDE TO THIS PART Text of s 338

¶339 SECTION 339 REFERENCES TO CHARGES AND FIXED AND FLOATING CHARGES ¶9-165 SECTION 339 REFERENCES TO CHARGES AND FIXED AND FLOATING CHARGES Text of s 339 [339.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[339.2] Outline This section provides that references to fixed and floating charges are to be read consistently with PPSA terminology. Section 318 limits the application of this section to references to charges in security agreements made after the commencement of the PPSA. [339.3] Cross-references Sections 340–341A provide rules for determining what are circulating assets in particular contexts. [339.4] Concepts • Attached to personal property See s 19. • Circulating assets These are defined by s 340. Also note the concept of a “circulating security interest” under the Corporations Act 2001 (Cth), s 51C. • Fixed and floating charges See Intro.III and 12.5.2. [339.5] Commentary Section 339 of the PPSA provides that the use of the term “charge” over property is taken to be a reference to a security interest that has attached either to circulating or non-circulating assets. A floating charge is to be referred to as a security interest that has attached to personal property that is a circulating asset, while a fixed charge is a secured interest attached to personal property that is not a circulating asset (s 339(4), (5)). The deemed references implemented by this section do not apply to other references to fixed and floating charges in the PPSA (see s 12(2) and 19(4)) or to references to charges that arise in perfected security interests in transfers of accounts or chattel paper (s 339(2)(b)). As noted by Loxton,33 excluding transfers of accounts and chattel paper is curious as such obligations would not ordinarily be classified as a charge. This change in terminology is necessary because of the functional approach to recognising security interests taken by the PPSA as opposed to the form-based approach under pre-PPSA security law. The nature of this change was discussed at Intro.IV. This section only applies where the charge has attached to personal property in which the grantor has title and the charge is a security interest to which the PPSA applies. Thus, references to charges would not be

changed under this section where they are used in circumstances where the grantor does not have title, such as retention of title and leasing arrangements: see Supplementary Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) at [9.59]. However, title can have a variety of meanings. A lessee has a form of legal title, although not a complete title as it is subject to the terms of the lease and the rights of the lessor. These issues are discussed further in the commentary to s 19. Determining whether the charge is a security interest to which the PPSA applies will involve a number of other provisions of the Act. Firstly, assuming that Western Australia refers its powers to the Commonwealth to allow the complete national implementation of the PPSA (otherwise s 243–252 will need to be referred to), it must be determined whether the charge is exempt from the PPSA under s 8 and whether there is a sufficient territorial connection to Australia (see s 6). Secondly, it must be determined whether the charge would satisfy the test for a security interest in s 12, which is likely. Even where the concepts of fixed and floating charges persist, to the extent that the PPSA applies to the security arrangement the distinction is of little import as the notion of crystallisation has no application to the enforcement of security interests: See further, s 19; Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163; Re Amerind Pty Ltd (in liq) (recs and mgrs apptd) [2017] VSC 127 at [453] (“the concept of crystallization is now redundant under the PPSA” — not affected by comments on appeal [2018] VSCA 41; [2019] HCA 19); Langdon, Re Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170 at [40]; Credit Suisse Canada v 1133 Yonge St Holdings Ltd (1998) 14 PPSAC (2d) 61 (Ont CA). The concepts of security interests over circulating assets and assets that are not circulating assets is, however, important in the context of the Corporations Act 2001 (Cth), where issues of priority payments in insolvency often depend upon the status of the charge. Identifying whether a security interest covers circulating or non-circulating assets is most relevant when the grantor is subject to receivership or liquidation, because under the Corporations Act, s 433 (for receivership) and 561 (for liquidation), certain payments to secured creditors with a circulating security interest are subordinated to statutory priority entitlements payable to employees: See further, Commonwealth v Byrnes [2018] VSCA 41 and on appeal Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20. It is in the authors’ view that over time the use of the term “fixed” and “floating” charge will fade from commercial use as there is no longer any legal significance of using such terminology. See also, IRC v Stiassny [2013] 1 NZLR 140 at [55] (“care should be taken not to import pre-PPSA language and concepts into the interpretation of the PPSA” (NZ CA) (appeal dismissed [2012] NZSC 106). See further, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163; Langdon, Re Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170. Specifically, in Hamersley Iron Pty Ltd v Forge Group Pty Ltd (in liq) (recs and mgrs apptd) [2017] WASC 152 at [343] per Tottle J: “I do not accept Hamersley’s submissions that the references to floating charges in various provisions of the PPSA are indicative of a statutory intention that floating charges are to be of continued relevance in taking security over personal property. That is reading too much into those references which are necessary because of the widespread use of floating charges as a method of taking security over personal property prior to the PPSA. As s 338 of the PPSA states, the rules governing the references are expected to have less relevance over time because the scheme provides an alternative to reliance on fixed and floating charges for security interest transactions.” The authors respectfully agree with this analysis. The decision on appeal is also consistent with the reasoning on appeal: Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163. As to the effect of the foreign authority concerning the concept of the “floating charge”, his Honour reached certain conclusions as to how the PPSA alters the pre-PPS position in respect of fixed and floating charges (at [377]–[384]): “The following propositions may be derived from the Canadian and New Zealand authorities in relation to security interests created under the legislation enacted in those jurisdictions. First, the security interest is fixed in nature and upon satisfaction of the statutory requirements

governing attachment, the secured party acquires a proprietary interest in the collateral. Second, the concept of crystallisation is no longer relevant. Third, the secured party’s statutory interest in collateral acquired on attachment is recognised not only for the purposes of determining priority between interests regulated by the legislation, but because it is a statutory interest, it is recognised at law for the purposes of determining disputes between security interests covered by the personal property security legislation and interests that exist outside of the legislation. Fourth, parties can make security agreements that operate in a manner that achieves a similar commercial outcome as that achieved by a floating charge. … Parliament may be taken to have intended the attachment rule in s 19 of the PPSA to operate in the same manner as the attachment rule in equivalent legislation in Canada and New Zealand has been held to operate: on satisfaction of the statutory conditions for attachment, the secured party acquires a statutory interest that is proprietary in nature; the security interest has this characteristic for all purposes; and, the requirement for a crystallising event is no longer relevant.” It is worth clarifying that while s 339 appears in Ch 9, which is dedicated to the period of transition, the redundancy of the terms “fixed” and “floating” charge as a commercial instrument is a permanent feature under the PPSA. Recall under the introductory comments to Ch 9, that the transitional provisions are divided into a “logistics” or an “alleviation” role. Section 339 operates by way of alleviation, recognising the existence of fixed and floating charge terminology and characterising the interest in line with the effect it would have had under the pre-PPSA position. By virtue of s 339, and particularly its temporary application, it can be deduced that security interests entered after the registration commencement time (30 January 2012) will not benefit from s 339 and indeed, use of the term fixed and/or floating should not be assumed to convey the intention of the parties to the security agreement. The form adopted is no longer decisive (it if ever was). The substance of the interest is subject to the requirements of s 12. [339.6] Further reading • Explanatory Memorandum [9.58–9.60]. • ALRC Report No 64 [8.30–8.37]. • Whittaker Review [9.3.2]. • Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3. • Jason Harris, “Assessing the effect of the PPSA on the Corporations Act and corporate law teaching” (2012) 27 Australian Journal of Corporate Law 72. • Lionel Meehan, “Circulating security interests under the Personal Property Securities Act 2009 (Cth) compared to floating charges” (2011) 22 Journal of Banking and Finance Law and Practice 322. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193. Footnotes 33

In Wappett C, Whittaker B and Edwards S, Personal Property Securities in Australia, LexisNexis (looseleaf).

¶340 SECTION 340 MEANING OF CIRCULATING ASSET ¶9-170 SECTION 340 MEANING OF CIRCULATING ASSET Text of s 340 [340.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[340.2] Outline This section defines what a circulating asset is. This section should be read in conjunction with s 339, 341 and 341A. [340.3] Cross-references • Section 318 limits the application of this section to references to charges in security agreements made after the commencement of the PPSA. • Section 339 provides that references to fixed and floating charges are to be deemed to be references to security interests over personal property that is not a circulating asset or is a circulating asset (respectively). [340.4] Concepts • Account In Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735 at [33], the court explained that the term account: “has several elements namely (i) a monetary obligation (I interpolate, ‘whether or not earned by performance’) that (ii) arises from (iii) either (a) a disposing of property or (b) granting a right or providing services (iv) in the ordinary course of a business of granting rights or providing services of that kind.” • Control It should be noted that control, for the purposes of fixed and floating charges, has a meaning outside perfection by control defined and discussed pursuant to s 25–29. The term is defined by s 341. For control over authorised deposit-taking institution accounts (ADI accounts) see s 341A. See further, Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41; Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; (2018) 337 FLR 420; (2018) 130 ACSR 262; [2018] WASCA 163. • Effective registration See Pt 5.4. • Inventory Like control, the term “inventory” has a specific meaning with respect to Pt 9.5. This is defined in s 341. The definition of inventory under s 10 thus does not apply for this section. In Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735, at [97], it was held that intangible work in progress in the nature of unfinished services is not inventory according to its ordinary meaning.

• Monetary obligation See Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735, at [77], [107] (contingent claims in the nature of a mere expectancy are not a monetary obligations). In that case, work in progress that was completed before the appointment of an administrator but which had not yet been invoiced was held (at [88]–[90]) to be a monetary obligation. Work in progress that had stated before appointment but was only completed during the administration was not a monetary obligation at the time of the administrator’s appointment (at [92]–[93]). • Ordinary course of business See [46.3]. See also, Langdon, Re Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170. [340.5] Commentary Section 340 of the PPSA provides the definition of circulating assets. In Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735 at [31], Black J explained that the scope of s 340: “is directed to two groups of assets, being those specified in s 340(1)(a) and s 340(1)(b), and that the assets falling under s 340(1)(a) are the “Current Assets” listed in s 340(5), subject to the exclusions in s 340(2)-(3). Paragraph 340(5)(a) provides, as an instance of those Current Assets, an account that (i) arises from (ii) granting a right or providing services (iii) in the ordinary course of a business of granting rights or providing services of that kind.” In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (recs and mgrs apptd) (2018) 53 WAR 325; [2018] WASCA 163 at [61], the court summarised s 340 as follows: “Under the PPSA, circulating assets are defined to include specified types of current assets. These include ‘accounts’ which, in general terms, include, relevantly, monetary obligations arising from the provision of services in the ordinary course of the business of providing services of that kind. An exception to this, which in broad terms is consistent with the pre-PPSA law, is that an account is not a circulating asset if the secured party has ‘control’ of the account.” The “circulating asset” is one which carries qualities, by way of comparison, similar to that under a floating charge. All security interests under the PPSA should thus be thought of as fixed charges which may contain circulating assets, that is, it is the underlying asset itself and not the overall instrument which may confer dealings in the ordinary course. Circulating assets are defined as personal property covered by s 340(5) or personal property over which the secured party has given the grantor express or implied authority for any transfer of the personal property to be made free of the security interest provided it is in the ordinary course of the grantor’s business. Permission to transfer a specific item of personal property, or a specific class of personal property, will not however of itself be sufficient to create a circulating asset under s 340(1)(b): s 340(4). For a discussion of authority to transfer in the ordinary course of business see [46.5.1]. A trustee’s right of indemnity over trust assets was held not to be a circulating security interest in Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20. In the lower court decision (Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41 at [368], [371], [377]), a five-member bench of the Victorian Court of Appeal explained the relationship between s 340(1) (a) and (b) as follows: “para (b) is to be considered if, after applying para (a), the property in question is not a circulating asset. In other words, property is a circulating asset if it satisfies either para (a) or para (b). Read in that way, the words ‘in any other case’ effectively emphasise the word ‘or’ which links the two paragraphs. This would mean that, even where property was excluded from the definition by sub-s (2), that would not be the end of the matter because it could still be included by operation of sub-s (1) (b).”

An examination of s 25–29 of the PPSA reveals that much of the property within s 340(5) can also be perfected by control. Importantly, however, despite s 340(5), personal property is not defined as a circulating asset if it is covered by a registered financing statement which discloses that the secured party has control of the property and the secured party actually has control of the property (s 340(4)). Control in this context is defined in s 341 as either: • control in the ordinary meaning of the term • control under Pt 2.3 of the PPSA • control of an account or in inventory (in the ordinary meaning of the word) — as explained in s 341(1)– (4) • control of an ADI account by the ADI (See further, s 341A). See further, Re Kimberley Diamond Company Pty Ltd (in liq) [2017] NSWSC 538. Furthermore, collateral which comprise “goods” (see s 10) that are perfected by possession by the secured party are not circulating assets under s 340(3). See further, s 24 and Re Kimberley Diamond Company Pty Ltd (in liq) [2017] NSWSC 538. A security interest in a transfer of an account or chattel will not render the account or chattel paper circulating assets: s 340(4A). As set out above, a circulating asset, in effect, resembles a floating charge, however, preserves the commercial reality surrounding many historical issues with charges by avoiding the need to distinguish between fixed and floating interests. The PPSA thus removes the relevance of a fundamental issue under pre-PPSA law, that parties who encumbered their property through fixed charge would be unable to deal with such property in the ordinary course of business without the express consent from the secured party each and every time this was to occur. Fixed and floating charges have significant legal effect with reference to the Corporations Act 2001 (Cth) and changes have been duly incorporated in that regime: see s 433 and 561 of the Corporations Act: See further, Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20. As to the specifics of factual matters before the court in the Amerind appeal (Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20), Amerind Trade Accounts (which constituted cash at bank) were held to be circulating assets (and the bank gave authorisation to deal with the funds); funds advances to the company to purchase accounts were held to be circulating assets (on the basis that the characterisation of an asset occurs on the appointment date and not after); stock realisations were held to be circulating assets; tax refunds and sundry receipts were held to be circulating assets (notwithstanding that they were realised post-appointment in circumstances where they were identifiable at appointment). [340.6] Further reading • Explanatory Memorandum [9.61]. • ALRC Report No 64 [8.30–8.37]. • Whittaker Review [9.2.1]. • Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3. • Jason Harris, “Assessing the effect of the PPSA on the Corporations Act and corporate law teaching” (2012) 27 Australian Journal of Corporate Law 72. • Lionel Meehan, “Circulating security interests under the Personal Property Securities Act 2009 (Cth) compared to floating charges” (2011) 22 Journal of Banking and Finance Law and Practice 322.

• Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193.

¶341 SECTION 341 MEANING OF CONTROL AND INVENTORY ¶9-175 SECTION 341 MEANING OF CONTROL AND INVENTORY Text of s 341 [341.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[341.2] Outline This section defines control of personal property and inventory for the purposes of determining what is a circulating asset under s 340. [341.3] Cross-references • Section 318 limits the application of this section to references to charges in security agreements made after the commencement of the PPSA. • Section 341A provides a definition of control of an authorised deposit-taking institution account (ADI account) for the purposes of s 340(2). This is different from the concept of control of an ADI account for the purposes of perfection of a security interest in the ADI account by control (as to which see s 25). [341.4] Concepts • Account See s 12. • ADI account See s 25 and 341A. • Inventory In this section inventory is not given the definition under s 10 but rather has its ordinary meaning. The Encyclopaedic Australian Legal Dictionary defines inventory as “the amount or value of a company’s current assets that consist of plant and equipment, raw materials, work in progress, stock and finished goods, or such goods individually”. This is consistent with the definition given by Australian Accounting Standards Board 102 which is (at [6]): “assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.” • Proceeds See s 31. [341.5] Commentary

[341.5.1] Overview ....................................XX [341.5.2] General rules ....................................XX [341.5.3] Control of inventory ....................................XX [341.5.4] Control of accounts ....................................XX [341.5.1] Overview This section gives meaning to the terms “control” of personal property and “inventory” for the purposes of s 340 (which uses these terms in defining a circulating asset). Inventory is explained at [341.4]. The meaning of control under this section is divided into three categories: general rules, control of inventory and control of accounts. [341.5.2] General rules The general rules are set out in s 341(1) as control within the ordinary meaning of the term, control within the meaning of Pt 2.3 (as to which see s 25–29) or control of an authorised deposit-taking institution account (ADI account, see s 341A). The general rules also recognise the specific rules for control of inventory or accounts (s 341(1)–(4)), s 341(1A)(c). Control within the ordinary meaning is defined in the Encyclopaedic Australian Legal Dictionary as “physical or legal possession or the power of direction and command which is indicative of possession”. [341.5.3] Control of inventory Control of inventory (for the purposes of determining what is a circulating asset under s 340(2) by way of exclusion) is determined by an agreement between the secured party and the grantor that appropriates the inventory to the security interest and restricts its removal without the secured party’s consent: s 341(1) (a). Note: the grantor must adopt the usual practice of complying with such an agreement (s 341(1)(b)). This is included to address issues such as supply agreements with retention of title clauses that require segregation of property and proceeds but where the grantor rarely complies with such requirements. Where assets are specifically appropriated for a secured party and are not removed without prior consent of the secured party it is more difficult for third parties to believe that those assets are part of the circulating assets of the grantor. Note also, in order to fall outside of the circulating asset concept under s 340(2) the secured party must not only control the personal property but must also have an effective registration (see Pt 5.4). [341.5.4] Control of accounts Control of accounts, for the purposes of s 340(2) by way of exclusion, is determined under s 341(2)–(4). These subsections cover accounts that: • arise from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided), or • are proceeds of inventory (see s 31). Section 341(3) recognises control of one of these two types of account where each of the elements are satisfied. There is also a special rule for transferees of accounts under s 341(4) which operates if s 80(8) would apply. However, this would seem to have only limited practical relevance: see Loxton in Wappett C, Whittaker B and Edwards S.34 It should be noted that perfected security interests in a transfer of an account are excluded from the deemed references to circulating security interests under s 339(2)(b). In order to fall outside of the circulating asset concept under s 340(2) it should be noted that the secured party must not only control the personal property but must also have an effective registration (see Pt 5.4). [341.6] Further reading

• Explanatory Memorandum [9.63–9.67]. • ALRC Report No 64 [8.30–8.37]. • Whittaker Review [9.2.1]. • Lionel Meehan, “Circulating security interests under the Personal Property Securities Act 2009 (Cth) compared to floating charges” (2011) 22 Journal of Banking and Finance Law and Practice 322. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193. • Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3. Footnotes 34

Wappett C, Whittaker B and Edwards S, Personal Property Securities in Australia, LexisNexis (looseleaf) at [4.6.2850].

¶341A SECTION 341A CONTROL OF AN ADI ACCOUNT ¶9-180 SECTION 341A CONTROL OF AN ADI ACCOUNT Text of s 341A [341A.1] Comparable provisions in foreign regimes New Zealand

PPSA 1999

No equivalent

Saskatchewan

PPSA 1993

No equivalent

Ontario

PPSA 1990

No equivalent

USA

UCC Article 9 (rev) No equivalent

[341A.2] Outline This section provides rules for determining control of an authorised deposit-taking institution account (ADI account) for the purposes of s 340(2) (that is, an exception to the definition of circulating assets). [341A.3] Cross-references • Section 318 limits the application of this section to references to charges in security agreements made after the commencement of the PPSA. • Section 339 provides for references to fixed and floating charges to be read as references to security interests in personal property that is a non-circulating asset or a circulating asset (respectively). [341A.4] Concepts • ADI account See s 25. • Circulating assets See s 340. • Inventory See s 340. [341A.5] Commentary Section 341A was inserted into the PPSA in 2011 by the Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Sch 2 item 62 to clarify when control of an authorised deposit-taking institution account (ADI account) is sufficient for determining whether the ADI account can be classified as a circulating asset under s 340(2). The provision does not extend to general questions of control over ADI accounts for the purposes of perfection, as to which: see s 25; See also, Re O'Keeffe Heneghan Pty Ltd (in liq) (No 2) [2018] NSWSC 1958 at [29]. In essence, a secured party seeking to perfect by control in this regard must itself be the relevant authorised deposit-taking institution (ADI) with which the account is held. The notion of control is not altered by s 341A, namely, for one to “control” collateral, another cannot. Bearing in mind this mutual exclusivity, the concept of control of an ADI account for the purposes of perfection by control is defined separately under s 25. [341A.6] Further reading • Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) [86]. • ALRC Report No 64 [8.30–8.37].

• Whittaker Review [9.2.1]. • Lionel Meehan, “Circulating security interests under the Personal Property Securities Act 2009 (Cth) compared to floating charges” (2011) 22 Journal of Banking and Finance Law and Practice 322. • Nicholas Mirzai, “A period of transition: Ch 9 of the Personal Property Securities Act 2009” (2012) 20 Australian Property Law Journal 193. • Alice Tranter-Wilson, “The Circulating Security Interest in Review: Architectures of Certainty, Flexibility and Control” (2017) 28 Journal of Banking and Finance Law and Practice 3.

¶9.6 PART 9.6 — REVIEW OF OPERATION OF ACT

¶342 SECTION 342 GUIDE TO THIS PART ¶9-185 SECTION 342 GUIDE TO THIS PART Text of s 342 General commentary Part 9.6 of the PPSA contains one operative provision, namely, s 343. Section 343 provides for the mandatory review of the PPSA within three years after the registration commencement time (30 January 2012). On 4 April 2014 the Commonwealth Attorney-General announced the terms of reference for the review of the PPSA, to be chaired by Bruce Whittaker. The terms of reference require the Committee to consider the following: a. the effects of the reforms introduced by the PPS Act on: i. Australian businesses, particularly small business ii. Australian consumers iii. the market for business finance in Australia, and iv. the market for consumer finance in Australia b. the level of awareness and understanding of the PPS Act at all levels of business, particularly small business c. the incidence and, where applicable, causes of non-compliance with the requirements of the PPS Act particularly among small businesses d. opportunities for minimising regulatory and administrative burdens, including costs, on businesses, particularly small business, and consumers e. opportunities for further efficiencies in the PPS Act regime including (but not limited to) simplification of the Personal Property Securities Register and its use f. the scope and definitions of personal property covered by the PPS Act g. the desirability of specifying thresholds for the operation of the PPS Act regime in respect of particular types of personal property h. the interaction of the PPS Act with other legislation including the Corporations Act 2001, and i. any other relevant matters. The Review (undertaken by Mr Bruce Whittaker) was completed in 2015 and tabled before parliament on 18 March 2015. A copy of the report can be found at: www.ag.gov.au/Consultations/Pages/StatutoryreviewofthePersonalPropertySecuritiesAct2009.aspx. At the time of writing the government had not yet responded to the report.

¶343 SECTION 343 REVIEW OF OPERATION OF ACT ¶9-190 SECTION 343 REVIEW OF OPERATION OF ACT Text of s 343

CORPORATIONS ACT TABLE OF SECTIONS

CORPORATIONS ACT 2001

¶1 CHAPTER 1 — INTRODUCTORY

¶1.2 PART 1.2 — INTERPRETATION ¶6A Division 6A — Security interests ¶10-005 Commentary Division 6A of the Corporations Act 2001 (Cth) (Corporations Act) contains definitional sections which seek to address the change in language from the terms used prior to the commencement of the Personal Property Securities Act 2009 (Cth) (PPSA) to the PPSA lexicon. The term “PPSA security interest”, defined by s 51 of the Corporations Act, essentially means a “security interest” as defined by s 12 of the PPSA (including interests which fall within the scope of s 12(1) and interest that are otherwise deemed to constitute security interest pursuant to s 12(3) of the PPSA): see [12.5]. On the other hand, the term “security interest” when used in the Corporations Act, as defined by s 51A, is intended to include the concept of the PPSA security interest (defined by s 51 of the Corporations Act) in addition to “charges, liens and pledges” (as recognised forms of security prior to the implementation of the PPSA). Respectfully, it is difficult to see how charges, liens or pledges, by definition, would ever not fall within the definition of a “PPSA security interest” in any event but nevertheless s 51A exists for abundant caution. The term “secured party”, defined by s 51B of the Corporations Act, is otherwise defined by s 10 of the PPSA. Similarly, the term “circulating security interest”, defined by s 51C of the Corporations Act, is otherwise referred to by Ch 9 of the PPSA, specifically Pt 9.5. The term “circulating asset” is defined by s 340 and should be read with s 51C of the Corporations Act. The definition is applied specifically in Ch 5 of the Corporations Act: see s 442B of the Corporations Act. The term “possessory security interest” is defined by s 51D of the Corporations Act as a security interest which is perfected by possession: see further, s 24 of the PPSA and the commentary thereto. The definition of “secured creditor” is defined by s 51E of the Corporations Act. It is an interesting definition as it does not make reference to a “perfection” requirement within the meaning of s 21 of the PPSA — which is consistent also with the view that a secured party can be secured notwithstanding being unperfected: see s 19 and 20 of the PPSA and the commentary thereto. The distinction between a secured creditor and a perfected secured creditor is of significance and has arisen for consideration, albeit not producing a definitive view one way or the other, in the context of s 588FA of the Corporations Act claims: see Hussain v CSR Building Products Limited, Re FPJ Group Pty Ltd (in liq) [2016] FCA 392; Matthews v The Tap Inn Pty Ltd [2015] SADC 108; The Tapp Inn Pty Ltd v Matthews [2015] SASCFC 188. Finally, separately to the definition of a “PPSA security interest”, the Corporations Act defines the term “PPSA retention of title property” pursuant to s 51F. The term “retention of title” is a reference to a contractual stipulation which preserved title to the collateral in favour of the seller unless and until payment for the relevant collateral was made in full by the purchaser: see s 12(2)(d) and the commentary thereto. Subsection 51F(1) of the Corporations Act encapsulates the essence of the concept by way of statutory definition. The definition has significance in respect of Ch 5 of the Corporations Act specifically: see s 442C, 442CB, 442CC of the Corporations Act.

¶Renumberable SECTION 51 MEANING OF PPSA SECURITY INTEREST ¶10-010 SECTION 51 MEANING OF PPSA SECURITY INTEREST Text of s 51

¶Renumberable SECTION 51A MEANING OF SECURITY INTEREST ¶10-015 SECTION 51A MEANING OF SECURITY INTEREST Text of s 51A

¶Renumberable SECTION 51B MEANING OF SECURED PARTY ¶10-020 SECTION 51B MEANING OF SECURED PARTY Text of s 51B

¶Renumberable SECTION 51C MEANING OF CIRCULATING SECURITY INTEREST ¶10-025 SECTION 51C MEANING OF CIRCULATING SECURITY INTEREST Text of s 51C Circulating security interest is defined in s 340 of the PPSA. See also: Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20; Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735; Langdon, Re Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170.

¶Renumberable SECTION 51D MEANING OF POSSESSORY SECURITY INTEREST ¶10-030 SECTION 51D MEANING OF POSSESSORY SECURITY INTEREST Text of s 51D

¶Renumberable SECTION 51E MEANING OF SECURED CREDITOR ¶10-035 SECTION 51E MEANING OF SECURED CREDITOR Text of s 51E [51E.5] Commentary In Re Azmac Pty Limited (in liq) [2020] NSWSC 204, the granting of an equitable charge under a contract was found to be a “charge” under s 9 which itself then satisfied the definition of security interest under s 51A. This made the party who was granted the charge a “secured creditor”.

¶Renumberable SECTION 51F MEANING OF PPSA RETENTION OF TITLE PROPERTY ¶10-040 SECTION 51F MEANING OF PPSA RETENTION OF TITLE PROPERTY Text of s 51F

¶5 CHAPTER 5 — EXTERNAL ADMINISTRATION

¶5.7B PART 5.7B — RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY ¶2 Division 2 — Voidable transactions

¶Renumberable SECTION 588FJ CIRCULATING SECURITY INTEREST CREATED WITHIN 6 MONTHS BEFORE RELATION-BACK DAY ¶10-045 SECTION 588FJ CIRCULATING SECURITY INTEREST CREATED WITHIN 6 MONTHS BEFORE RELATION-BACK DAY Text of s 588FJ

¶2A Division 2A — Vesting of PPSA security interests if not continuously perfected

¶Renumberable SECTION 588FK INTERPRETATION AND APPLICATION ¶10-050 SECTION 588FK INTERPRETATION AND APPLICATION Text of s 588FK

¶588FL SECTION 588FL VESTING OF PPSA SECURITY INTERESTS IF COLLATERAL NOT REGISTERED WITHIN TIME ¶10-055 SECTION 588FL VESTING OF PPSA SECURITY INTERESTS IF COLLATERAL NOT REGISTERED WITHIN TIME Text of s 588FL [588FL.2] Outline Section 588FL of the Corporations Act is similar in its operation and effect to s 267 of the PPSA. The upshot of the section is that property, the subject of a security interest, is vested in the grantor if a secured party fails to perfect that security interest in accordance with the timing requirements stipulated by the section. Prior to the repeal of Ch 2K of the Corporations Act, s 263 provided that a charge had 45 days to lodge the charge from the time of the creation of the charge. Section 588FL on the other hand imposes a timing requirement of 20 business days after the security agreement that gave rise to the security interest came into force. In Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Co Pty Ltd [2019] WASC 438 at [32], the Court summarised the effect of the section as being “where security interests are not registered within 20 business days, there is a six month hardening period unless the court orders that there be a later time for registration and there is then registration within that additional time”. [588FL.3] Cross-references • Sections 513A, 513B and 513C of the Corporations Act. • Sections 436A, 436B and 436C of the Corporations Act. [588FL.4] Concepts • Security interest – See s 12 of the PPSA. • The company – As to where the company is acting as trustee, see Re Psyche Holdings Pty Ltd [2018] NSWSC 1254. • Critical time – See s 588FL(7) of the Corporations Act. • Enforceable against third parties – See s 20 of the PPSA. • Perfected by registration – See s 21 of the PPSA. • Possession – See s 21 and 24 of the PPSA. • Control – See s 21 and 25–29 of the PPSA. • Vests – See s 267 and 267A of the PPSA; See also Re Production Printing (Aust) Pty Ltd (in liquidation) [2017] NSWSC 505.

• New value – See s 10 of the PPSA. • Knowledge – See s 297 and 298 of the PPSA. [588FL.5] Commentary [588FL.5.1] Application and operation..................................................................XX [588FL.5.2] Why is the distinction important, if at all?..................................................................XX [588FL.5.3] The timing requirements of s 588FL..................................................................XX [588FL.5.3.1] The PPSA requirements..................................................................XX [588FL.5.3.2] External administrator..................................................................XX [588FL.5.3.3] Timings..................................................................XX [588FL.5.4] “Vesting” of the security interest..................................................................XX [588FL.5.5] “Vesting” as opposed to “void against”..................................................................XX [588FL.5.1] Application and operation As a prima facie question, one must consider whether s 267 of the PPSA or s 588FL of the Corporations Act is applicable to a particular factual circumstance. The provisions are different and govern different positions. Expressed simply: 1. Section 267 of the PPSA applies where the secured party has failed to perfect their security interest at all prior to the appointment of an external party to the grantor within the meaning of s 267(1) 2. Section 588FL of the Corporations Act applies where the secured party has perfected their security interest by registration of a financing statement on the PPSR but the relevant registration falls foul of the timing stipulations provided for by s 588FL(2)(b) of the Corporations Act. [588FL.5.2] Why is the distinction important, if at all? If s 267 of the PPSA applies to a particular factual circumstance (or s 267A of the PPSA for that matter) there is no recourse available to the secured party, on the face of the PPSA, which otherwise provides for a possible extension of time to perfect a security interest by registration. To the contrary, in circumstances where s 588FL is applicable, or potentially applicable, recourse may be had to s 588FM of the Corporations Act and the ability to extend the time for registration so as to fall within s 588FL(2)(b)(iv). For more information on s 588FM see the commentary to s 588FM. [588FL.5.3] The timing requirements of s 588FL The mechanics behind the operation of s 588FL are contained within s 588FL(1) and (2). [588FL.5.3.1] The PPSA requirements Pursuant to s 588FL(2)(a), s 588FL only applies to security interests which are: 1. Enforceable against third parties — to which see s 20 of the PPSA and the commentary thereto, and 2. Perfected by registration, and by no other means — to which see s 21 of the PPSA and the commentary thereto. [588FL.5.3.2] External administrator

The appointment of an external administrator to the grantor company is dealt with by s 588FL(1). The events mentioned in s 588FL(1)(a) include a corporate grantor going into liquidation, voluntary administration or being subject to a deed of company arrangement. The lack of reference to the appointment of a receiver or a receiver and manager, pursuant to Pt 5.2 of the Corporations Act, is consistent with s 116 of the PPSA which, in essence, provides that Ch 4 of the PPSA does not apply to a receiver or a receiver and manager. The timing stipulations behind which an event pursuant to s 588FL(1) (a) has occurred centres around the “critical time” which is dealt with by s 588FL(7) and which generally follows the timings provided for by s 513A, 513B and 513C of the Corporations Act: See K.J. Renfrey Nominees Pty Ltd (Trustee), Re OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; Hill, Re Flow Systems Pty Ltd (Admin Apptd) [2019] FCA 35. If the members’ resolution to appoint a voluntary liquidator is invalid then s 588FL will not apply: Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (in liq) (recs and mgrs apptd) [2017] FCA 866. [588FL.5.3.3] Timings Once the above requirements are met, the external practitioner appointed to the grantor company will evaluate the security interests registered against the company over which they are appointed (which can be done by performing a search of the ACN of the company on the PPSR). From there, any security interest which does not have a financing statement lodged in respect of it: 1. within 20 business days after the day the security agreement that gave rise to the security agreement came into force, and 2. is within six months from the “critical time”, and 3. to which no order pursuant to s 588FM of the Corporations Act has been made, will fall within the operation of s 588FL(4) of the Corporations Act. A separate rule applies for security agreements governed by the law of a foreign jurisdiction, whereby s 588FL(2)(b)(iii) allows 56 days from the date the interest became enforceable in Australia (as opposed to 20 business days for security agreements governed by Australian law). Importantly, for the purposes of the six-month aspect contained in s 588FL(2)(b)(i), the event which must occur outside of six months from the critical time is the lodgement of the financing statement to perfect by registration and not merely the creation of the security agreement. In respect of security interests governed by a security agreement dated within six months of the critical time, s 588FJ may apply. For further detail in respect of the potential application of s 588FJ see the commentary to s 588FJ. The calculation of the 20 business day period is from the creation of the security agreement, not merely from the date of the latest purchase order or invoice: Re Amerind Pty Ltd (in liq) (recs and mgrs apptd) [2017] VSC 127. If a security interest is granted after the company enters voluntary administration or liquidation it must come after the critical time, even where it was registered within 20 business days after the creation of the security agreement, and hence will need an extension under s 588FM in order to avoid vesting: Korda, Re Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; K.J. Renfrey Nominees Pty Ltd (Trustee), Re OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; Hill, Re Flow Systems Pty Ltd (Admin Apptd) [2019] FCA 35; Dickerson, Re McWilliam’s Wines Group Ltd (Admin Apptd) (No 2) [2020] FCA 417. The calculation of the period six months before the critical time does not include the critical day itself (ie the appointment date), and will go back as calculated as follows. In Overflow FNQ Pty Ltd (in liq); Kelly v Austwide Consumer Products Pty Ltd [2017] QSC 76, Henry J held (at [18]): “The calculation of six ‘months before the critical time’ therefore requires identification of a period commencing at ‘the beginning’ of a day of a month and ending ‘immediately before the beginning’ of the corresponding day of the month six months subsequent thereto.” In that case, the Court also raised the possibility that the registration time should be calculated at a particular time, although in that case it was still after the corresponding time of the administrators’ appointment.

[588FL.5.4] “Vesting” of the security interest The operative provision responsible for the vesting of the security interest is s 588FL(4). Typically, the operation of s 588FL will occur by force of s 588FL(4)(a) (as opposed to s 588FL(4)(b)) noting that a security interest which becomes enforceable after the critical time is commercially unlikely. Importantly, s 588FL(4)(a) applies “immediately before” the appointment event discussed above at s 588FL(1)(a). The reference to the point in time at which the property “vests” has raised a significant and unresolved issue about termination of agreements which are not otherwise perfected or which are perfected but which fail to otherwise comply with s 588FL(2)(b). The issue, or argument, is essentially that unless and until an event set out at s 588FL(1)(a) actually occurs, a secured party (irrespective of whether they are validly perfected or not) retains the ability to terminate the security agreement and thus bring to an end the security interest prior to “immediately before” the appointment event such that s 588FL(4) has no application as there is no security interest which s 588FL(4) would otherwise vest. If the above argument reflects the position at law, this does not sit well with the primacy of the PPSR upon which a large part of the PPSA is fundamentally premised. It also effectively permits avoidance of the requirement that a secured party is required to perfect one’s security interest in the first place. Even if the above position accurately reflects the intention of parliament through the use of the words “immediately before” (which the authors do not agree with), it remains difficult to reconcile the effect of termination with s 588FA of the Corporations Act should the grantor company go into liquidation at any material time. The argument here is that the termination of the security interest falls within the definition of a “transaction” which results in the secured party receiving an unfair preference in circumstances where the secured party has the benefit of a security interest which either is unperfected or would be unperfected as a consequence of s 588FL. Again, the timing of the inquiry as to when s 588FA applies is a question which remains unresolved in Australia. On the one hand, Pt 5.7B of the Corporations Act (to which s 588FA is a part) only becomes applicable upon a corporation entering liquidation — whereby, s 588FF orders can only be sought be a liquidator — and as such, there is an argument available that the appropriate time for assessing the existence or value of the security is as at the critical time and not earlier. However, on the other hand, to assess the existence or value of the security interest at the critical time is again inconsistent with the counter argument that one is to consider what position the secured party would be in should the transaction be set aside and a liquidator appointed at the time of the transaction (in this case, the termination). While the appropriate point in time when applying s 588FA of the Corporation Act was considered in the case of Hussain v CSR Building Products Limited, Re FPJ Group Pty Ltd (in liq) [2016] FCA 392, the question was not ultimately decided: see [2016] FCA 392 at [169]–[179]. It is also worth noting in this regard that the analysis set out in Matthews v The Tap Inn [2015] SADC 108 was overturned in The Tapp Inn Pty Ltd v Matthews [2015] SASCFC 188 such that there remains no judicial consideration or opinion in favour of one argument as against the other on this issue. In the respectful view of the authors, the High Court of Australia has again provided comment on the proper approach to statutory construction in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47] (see also Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]): “This Court has stated on many occasions that the task of statutory construction must begin with consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of the legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.” Bearing in mind the rationale behind the PPSA, which, in large part, involved ascribing primacy to the PPSR, and the rateable distribution of assets in accordance with pari passu principles upon the insolvency of a corporation, it is difficult to see how a Court would allow an opportunistic secured party

from escaping the operation of the PPSA and Corporations Act by terminating the relevant security agreement prior to a s 588FL(1)(a) event occurring. [588FL.5.5] “Vesting” as opposed to “void against” The distinction, if any, between the use of the term “vests” in s 588FL(4) of the Corporations Act as separate and distinct from the use of the phrase “void against” when considering company charges under the former s 266 of the Corporations Act is discussed in the commentary to s 588FM. [588FL.6] Further resources • N Mirzai, “Vesting in the Insolvency Practitioner” July–September 2013 Australian Insolvency Journal 26. • J Harris, “Giving security after insolvency and PPSR extensions of time” (2020) 34(1) Commercial Law Quarterly 18. • A Staninovski, “Cut me some slack: An analysis into the extension of time provisions for registering security interests under the Corporations Act” (2019) 30 Journal of Banking and Finance Law and Practice 240. • R P Austin and A Black, Australian Corporations Legislation 2017 — supplement (LexisNexis, 2017).

¶588FM SECTION 588FM EXTENSION OF TIME FOR REGISTRATION ¶10-060 SECTION 588FM EXTENSION OF TIME FOR REGISTRATION Text of 588FM [588FM.2] Outline Section 588FM allows a secured party who has failed to comply with s 588FL of the Corporations Act 2001 (Cth) (Corporations Act), specifically s 588FL(2)(b), to fix a later time for the registration of a financing statement in respect of a security interest which would allow that interest to fall within s 588FL(2)(b)(iv). The purpose of an order under s 588FM was explained by the Court in Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Co Pty Ltd [2019] WASC 438 at [33] as follows: “The purpose and effect of such an order under s 588FM is to avoid the vesting of the security interest in a company if it goes into administration or liquidation within six months after the actual date of registration, there not having been registration within the 20 business days. The order thus preserves the secured creditor's security to the detriment of the unsecured creditors. The only utility of such an order is in the event that the company does goes into administration or liquidation within the six months.” The authorities on s 588FM were summarised in Squadron Resources Pty Ltd v Highlake Resources Pty Ltd [2018] FCA 1292 at [35]. It is possible to grant an extension on an ex parte application under this section: see for example, Re Appleyard Capital Pty Ltd [2014] NSWSC 782 at [34] per Brereton J; Re Accolade Wines Australia Ltd [2016] NSWSC 1023; Re Amotran Pty Ltd [2017] VSC 637, although this approach has attracted criticism by the Court and all parties whose rights might be affected by the grant of relief ought to be parties to any such application: see Re Accolade Wines Australia Ltd [2016] NSWSC 1023 at [6]–[10] per Brereton J. See also, Re Psyche Holdings Pty Ltd [2018] NSWSC 1254. Extensions of time under s 588FM are not available where the security interest has already vested under PPSA s 267: Re OneSteel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21; NFT Specialized in Tower Cranes LLC v MacHforce Pty Ltd (in liq) [2017] WASC 95; Kaizen Global Investments Limited, Re Australia New Agribusiness & Chemical Group Limited (in liq) v Australia New Agribusiness & Chemical Group Limited (in liq) [2017] FCA 431. [588FM.3] Cross-references • Section 58AA of the Corporations Act — meaning of “Court” • Section 588FL of the Corporations Act • PPSA. [588FM.4] Concepts • PPSA Security Interest – See s 51 of the Corporations Act; s 12 of the PPSA. • Vest – See s 588FL(4) of the Corporations Act; s 267 and 267A of the PPSA. • Register – See s 21 of the PPSA. [588FM.5] Commentary [588FM.5.1] “Vests” as opposed to “void against” — s 588FM(1) ....................................xx

[588FM.5.2] Discretionary factors — s 588FM(2) ....................................xx [588FM.5.2.1] “Accidental” or “due to inadvertence” — s 588FM(2)(a)(i) ....................................xx [588FM.5.2.2] “Some other sufficient cause” — s 588FM(2)(a)(i) ....................................xx [588FM.5.2.3] Prejudice to creditors or shareholders — s 588FM(2)(a)(ii) ....................................xx [588FM.5.2.4] Just and equitable — s 588FM(2)(b) ....................................xx [588FM.5.3] Terms and Conditions — Guardian Securities — s 588FM(3) ....................................xx [588FM.5.1] “Vests” as opposed to “void against” — s 588FM(1) A preliminary question which has been the subject of domestic judicial consideration is whether or not s 588FM empowers the Court to grant relief to a secured party even where an event set out in s 588FL(1) (a) has occurred. To date, the view of the Court has been that the occurrence of a s 588FL(1)(a) event, namely — the appointment of an external administrator, does not act as a threshold bar to the application and operation of s 588FM and a secured party can still seek to enliven the jurisdiction of the Court for such relief: Re Quality Blended Liquor Pty Ltd [2014] QSC 234; (2014) 102 ACSR 451 at [83]; Re Carpenter International Pty Ltd [2016] VSC 118 at [127]. In such a case, see the summary of principles set out in Kaizen Global Investments Limited, Re Australia New Agribusiness & Chemical Group Ltd (in liq) v Australia New Agribusiness & Chemical Group Ltd (in liq) [2017] FCA 431 at [87]. This approach appears to be premised on the overarching view that s 588FM of the Corporations Act was enacted to operate in a similar fashion to the former s 266 of the Corporations Act (prior to the repeal of Ch 2K): see Re Apex Gold Pty Ltd [2013] NSWSC 881 at [12]; Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [14]–[15]; Re Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 at [7]. The basis for the ability to consider the making of orders pursuant to s 588FM, notwithstanding the occurrence of an event set out in s 588FL(1)(a), is explained by Brereton J in Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd (2014) 101 ACSR 629; [2014] NSWSC 782, where his Honour held (at [22]–[24]): “In Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 256; (2003) 135 FCR 206; 47 ACSR 589, the Full Federal Court by majority (Branson and Allsop JJ; Whitlam J dissenting) upheld an order made after the company had gone into administration, where the failure to register was attributable to inadvertence, notwithstanding that this would be to the detriment of unsecured creditors. The majority held that an extension order could be made even after the company went into liquidation or administration, although an extension would almost invariably be refused, and would be granted only in exceptional circumstances, after the commencement of a winding up. Branson J, observing that a rule of practice or guide to the exercise of the discretion that had evolved over the years should not lightly be disregarded, continued: One such rule of practice or guide is that an extension of time ‘will almost invariably be refused after the commencement of a winding up and will only be granted in exceptional circumstances’: see Douglas-Brown (as liq of De Barros Nominees Pty Ltd (in liq)) v Standard Chartered Finance Ltd (1990) 2 ACSR 737; 8 ACLC 993 at 998 per Malcolm CJ and Rowland J; see also Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd [1998] 2 VR 340 per Batt J; Morris v Woodings (1997) 25 ACSR 636 per Wheeler J; Re Lloyd Anthony Furniture Pty Ltd; Ex parte Walker (1996) 19 ACSR 478 per Branson J. This rule of practice reflects the fact that the validation of a charge that would otherwise be void against the liquidator will reduce the assets available to satisfy the claims of unsecured creditors. The chargee will thus be assisted by the court at the expense of the unsecured creditors. However, as Allsop J explains, ‘exceptional circumstances’ in the above context are simply circumstances sufficient to justify defeating the rights of unsecured creditors, which they acquired when the liquidation commenced, in the assets the subject of the charge: see Re Anglo-Oriental Carpet Manufacturing Co [1903] 1 Ch 914 at 918. To put the matter another way, ‘exceptional circumstances’ are simply

circumstances sufficient to render it just and equitable to grant relief notwithstanding that the grant of relief will defeat rights of unsecured creditors. The requirement that the court be satisfied that it is just and equitable to grant relief has, as it seems to me, the following practical consequences. If an application for an extension of time within which to lodge notice of a charge is made where none of the events referred to in s 266(1) (a), (b) or (ba) has occurred, the starting position is that the security is valid but could be rendered void if, in the events that happen, the notice is not lodged within the time frame specified by s 266(1)(c). For this reason, as it seems to me, consideration should ordinarily be given to the financial position of the company. If the financial position of the company is apparently secure, in the sense that the company is solvent and no threat to its solvency can be identified, the court will readily be satisfied that it is just and equitable to grant relief. The financial position of the company means that a ‘critical day’ is unlikely to arise in the foreseeable future. The chargee would therefore face little risk of losing its security if, without approaching the court, it were to obtain a fresh charge and lodge it within the relevant period, or alternatively, if it were to lodge a notice in relation to the existing charge outside the relevant period. Consequently the grant of relief would be unlikely to affect any person adversely. However, if the financial position of the company is insecure, the court will ordinarily assess the extent of the risk that a grant of relief might adversely affect a person with an interest in the assets of the company in the course of determining whether the court is satisfied that it is just and equitable to grant relief. If liquidation, or an administration founded on insolvency, seems imminent, the risk that, for example, unsecured creditors could be adversely affected by a grant of relief would be high. Where insolvency is a remote and distant possibility only, that risk would be low.” Thus an order can be made, even after liquidation, so long as the circumstances are such as to render it just and equitable to grant relief, notwithstanding that the grant of relief will defeat rights of unsecured creditors. In Bevillesta Pty Ltd v Imagine UN Ltd [2009] VSC 50; 69 ACSR 574, Robson J summarised many of the considerations that emerge from the cases (at [28]), and referred with approval to remarks of Sangster J at first instance in Re Flinders Trading Co (1978) 3 ACLR 218 to the effect that the court’s concern for the position of the unsecured creditors varied according to a scale whereby, at one end, where the position had been crystallized by a winding up order, the court would generally not extend time; approaching that end, the court would be reluctant to extend time if a winding up appeared to be imminent; at the other end, the court would grant an extension if satisfied that the company was solvent. But between those points, the course was less clear (at [31]).” The rationale behind s 588FM was then discussed by his Honour (at [29]): “The purpose of giving the court a discretion to fix a later time is to relieve a secured creditor from the consequences of accident or inadvertence. In the event of insolvency this necessarily involves detriment to unsecured creditors who would otherwise benefit from the vesting of the security in the company. It would be contrary to the purpose of the section to treat the risk that unsecured creditors could be adversely affected by making an order as a dominant consideration. The fact that absence of prejudice to creditors is an alternative ground for relief [s 588FM(2)(a)(ii)] indicates that it was not intended that relief from accident or inadvertence be granted only where there is no prejudice to creditors, as Bray CJ observed in Re Flinders Trading Co (1978) 3 ACLR 218 (at 220). The cases to which I have referred show that, despite the majority view in Re Flinders Trading Co, courts have not infrequently been prepared to grant extensions of time, even in a context where liquidation or administration is in contemplation, though reserving leave to any liquidator or administrator to apply to set the order aside.” An order under “has no effect on the priority of a security interest; but rather merely avoids the consequence that in the event of administration or liquidation within six months after registration the security interest vests in the grantor”: Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Co Pty Ltd [2019] WASC 438 at [36].

In Re Enviro Pallets (NSW) Pty Ltd [2013] QSC 220 (a case where a liquidator had been appointed to the grantor by the time s 588FM relief was sought from the secured party), Philippides J, in making the orders sought, held (at p 5, [24–39]): “The terms of section 588FM(2) are similar to the circumstances which previously pertained to the extension of time for lodgement of a notice of charge under section 266(4) of the Act (see In the matter of Cardinia Nominees Pty Ltd [2013 NSWSC 32 at [10]; see also In re Apex Gold Pty Ltd [2013] NSWSC 881). The grounds for relief, in section 588FM(2)(a)(i) and (a)(ii) and 588FM(2)(b), are alternative and any one of the three separate grounds, if established, is sufficient to allow the court to extend the time for registration; see National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1 at [45]. In the present case, the applicant relies upon the ground, in section 588FM(2)(a)(i), that the failure to register the security documents within the time required was ‘due to inadvertence’. There is an ancillary submission, made in the alternative, that the applicant is able to rely on the fact that ‘it is just and equitable to grant relief’, as provided by section 588FM(2)(b). In my view, there is no need to deal with the alternate basis, as the first and primary basis is satisfied.” A similar position was reached in Re Quality Blended Liquor Pty Ltd (2014) 2 Qd R 381; [2014] QSC 234 (a case where a provisional liquidator has been appointed by the time the s 588FM application came before the Court) where Alan Wilson J held (at [79]–[84]): “It is argued for the applicant that the discretion under s 588FM only arises for purposes associated with s 588FL, and that the latter section only applies if an order has been made to wind up the company or an administrator has been appointed, or it is entered into a deed of company arrangement. (The appointment of provisional liquidators, as occurred here at the end of the hearing, is not an insolvency event and does not operate to enliven s 588FM.) Conversely it is said for Toyco that the court’s power to make an order under s 588FM is not contingent on s 588FL already being engaged, because there is nothing in the wording of the latter provision suggesting such a limitation. Section 588FL commences with a sub-section stating that the section itself applies if the company is wound up, etc, and a security interest is in place. Under subs (2), certain time limits attach to security interest to which subs (1), and the balance of s 588FL, apply. Section 588FM provides that a company or an interested person may apply to the court for an order fixing a ‘later time’ for the purposes of subs 588FL(2)(b)(iv). The latter says that subs 588FL(2) covers a security interest if it is registered at a later time (ie, later than the 20 business days allowed under s 588FL(2)(b)(ii)) ordered by the court under s 588FM. The opening limitation on the operation of s 588FL(1) is not repeated in s 588FM and, in my view, the latter can operate independently of the former and the discretion is not contingent on s 588FL being engaged. It follows that Toyco’s application can proceed even though QBL has not been wound up, etc. Section 588FM replaced s 266 in preceding legislation, and cases decided under that provision are relevant to the present application. The discretion may be exercised if the court is satisfied that the failure to register the security was accidental, or due to inadvertence, or some other sufficient cause.” See also Re Southern Engineering Services Pty Ltd (in liq) ACN 000 091 716 [2014] NSWSC 1882 (where relief pursuant to s 588FM of the Corporations Act was sought notwithstanding that an administrator had been appointed to the grantor company). Noting the authorities set out above, some broad comments were made in respect of the operation and application of s 588FM of the Corporations Act in Re Carpenter International Pty Limited [2016] VSC 118 by Cameron J at [217], [236]: “It appears that s 588FM has been applied liberally. One of the cases under s 588FM involved an application for extension filed after a liquidator had been appointed to the company [noting Re Enviro Pallets (NSW) Pty Ltd]. In another case, an administrator had already been appointed [noting Re Southern Engineering Services Pty Ltd]. In Re Quality Blend Liquor Pty Ltd a provisional liquidator had been appointed by the time Wilson J granted an extension. In yet another case, an extension

was granted even though the plaintiff intended to appoint a voluntary administrator and receivers to the grantor company [noting Re Apex Gold Pty Ltd]. In Appleyard an extension was granted despite the high degree of likelihood that the grantor was insolvent and would go into liquidation or administration within six months. As CS submitted, the fact that administrators have been appointed to Carpenter is not a bar to relief under s 588FM. … As Brereton J explained in Appleyard, the only utility of an extension order is in the event that the company does go into liquidation or administration within six months after the actual date of registration. Section 588FM therefore contemplates that within six months of the actual date of registration, the company will go into administration or liquidation, and the unsecured creditors will receive less dividend if an extension is granted. The fact that administrators have been appointed to Carpenter does not mean an extension should not be granted. If some prejudice to unsecured creditors other than a reduced dividend can be shown, the Court may decline to exercise its discretion under s 588FM. The prejudice that must be shown is prejudice from the failure to register in time, not prejudice from the granting of an extension.” However, while consideration of case law which applied s 266 of the Corporations Act prior to the repeal of Ch 2K is of utility in circumstances where the factors listed in s 588FM(2) of the Corporations Act require the exercise of the Court’s discretion — the case law cannot, respectfully, speak to the threshold issue of whether a Court can fix a later time for registration of a security interest after s 588FL(4) of the Corporations Act has been triggered. The proper approach to statutory construction has been the subject of considerable analysis of the High Court of Australia. Without seeking to traverse the scope and detail of that analysis, in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, the High Court held, at [69], that the essence of interpreting statutory provisions “is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute”. This approach was expanded upon by Hayne, Heydon, Crennan and Kiefel JJ in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47]: “This Court has stated on many occasions that the task of statutory construction must begin with consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of the legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.” Applying the above to s 588FL and 588FM of the Corporations Act, once s 588FL(4) triggers it is arguable, on a plain reading of the sections themselves, that there is no work to be done by s 588FM. That is to say, fixing a later time for the registration of a security interest which has already vested in the grantor does not, and in the authors’ respectful view, cannot, undo the vesting of the security interest in the grantor — at least not without further order of the Court — to which there does not appear to be any provision in the PPSA or the Corporations Act which empowers the Court to undo the operation of s 588FL(4) by way of granting declaratory relief or otherwise. The reason why the above conclusion would not arise under the former s 266 of the Corporations Act is because s 266(1) provided that: “a registrable charge on property of the company is void as a security on that property as against the liquidator, the administrator of the company, or the deed’s administrator, as the case may be”. The statutory use of the operative word “void” in s 266(1) carries with it a different meaning to the use of the term “vests” which now appears in s 588FL(4). “Void”, as a concept is also distinct from the concept of “void ab initio” at law. Something which becomes “void” on and from the occurrence of an event is taken to be void on and from that event. To the contrary, something which, by force of an event or circumstance, is taken to be or otherwise rendered “void ab initio” is taken never to have existed — not just from the occurrence of the event, but at all. Where parliament has intended that the occurrence of a particular event or circumstance has the

consequence of rendering something “void ab initio” the term has been used in the statutory provision: see Competition and Consumer Act 2010 (Cth), s 243. Further, at law, an interest which is rendered “void” continues to exist albeit being unenforceable to the extent that it is void (in the s 266 case, as against the liquidator, administrator or deed administrator of the relevant company). Consequentially, if the element rendering the interest void is removed by force of Court order — namely, the application of s 266(4) of the Corporations Act (now repealed), then the interest could be enforced even after the event voiding the interest had occurred. In the authors’ view, primacy must be given to the express terms of the legislation in the circumstances. In respect of the argument that the term “vests” does not carry with it a meaning separate and distinct from “void” it is, with respect, unlikely that the departure from the use of the term “vests” as opposed to “void” in s 588FM was accidental, particularly in circumstances where s 588FJ and 588FP retain the use of the word “void”. If the above is accepted, then contrary to the emerging body of case law applying s 588FM of the Corporations Act, the proper operation of s 588FM is limited to circumstances prior to a s 588FL(1)(a) event occurring. This construction is consistent with the lack of an extension of time mechanism for security interests which vest as a consequence of s 267 of the PPSA (as opposed to s 588FL of the Corporations Act): for the distinction between s 267 of the PPSA and s 588FL of the Corporations Act, see [588FL.5.1]. If the above is not accepted, there appears to be little to prevent a secured party whose interest in the underlying collateral would or has vested in accordance with s 267 of the PPSA from seeking to perfect its already vested security interest after a s 267(1)(a) event has occurred and to then seek appropriate relief pursuant to s 588FM of the Corporations Act (noting the limitations on the priority of such an interest). In the case of Mentha, Re Arrium Limited (administrators appointed) [2016] FCA 972, both the registration and the extension application occurred after the appointment of external administrators. However, importantly, the agreement that created the security interest in that matter was entered by the grantor company under the control of external administrators (ie after the company was in external administration) arguably not triggering s 588FL of the Corporations Act unless and until a further s 588FL(2)(b) event in any event. That said, the Court was comfortable to grant relief pursuant to s 588FM for abundant caution: see Mentha, Re Arrium Limited (administrators appointed) [2016] FCA 972 at [20]–[21]. [588FM.5.2] Discretionary factors — s 588FM(2) On application from a secured party pursuant to s 588FM(1), the Court may grant the relief sought if any of the three criteria set out in s 588FM(2) are made out. [588FM.5.2.1] “Accidental” or “due to inadvertence” — s 588FM(2)(a)(i) Earlier applications applying for relief pursuant to s 588FM of the Corporations Act, particularly those brought within the transitional period (namely, two years after the registration commencement time: see PPSA, s 306) took into account the commencement of the PPSA and its complexities when considering the question of a failure to register within time by accident or inadvertence: see Re Barclays Bank Plc [2012] NSWSC 1095; Re Cardinia Nominees Pty Ltd [2013] NSWSC 32; Re Apex Gold Pty Ltd [2013] NSWSC 881. On the issue of what constitutes “inadvertence”, in Re Appleyard Brereton J held, at [10]: “For the purpose of s 588FM(2)(a)(i), ‘inadvertence’ includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so [Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; (1990) 2 ACSR 692; Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109; Freightlines Northern Territory Pty Ltd (1999) 32 ACSR 573, 576; In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, [14]–[16]].” In Re Cardinia Nominees Pty Ltd, Black J held, at [14]–[16]: “The concept of ‘inadvertence’ has been considered in the case law dealing with s 266 of the Corporations Act. In the present case, there seems to me to have been a least a lack of clarity as to

who was responsible for registration of the security interest and, if clause 6.1 of the Secured Convertible Bond Deed was intended to confer that responsibility on Inika, a lack of action by Inika to discharge that responsibility. However, I do not consider that lack of clarity gave rise to an actual misunderstanding as to who was responsible for registration, of the kind considered in Re Kris Cruisers Ltd [1949] 1 Ch 138; [1948] 2 All ER 1105 or Queensland Company Credit Union v NaKuraga Ltd [2005] QSC 149; (2005) 55 ACSR 219. The parties appear to have proceeded on the (possibly mistaken) basis that Cardinia should attend to registration of the security interest in the collateral on the PPS Register, albeit that it ultimately did so by giving instructions to Inika’s solicitors in that regard. However, ‘inadvertence’ may also be established where a party operates under a mistake as to the consequences of failing to register a security interest: Sanwa Australia Finance Ltd v GroundBreakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; (1990) 2 ACSR 692 at 695; National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [8]. The approach adopted in the case law of treating a matter of that kind as amounting to inadvertence is consistent with the emphasis placed in the case law upon the benevolent operation of predecessor sections, at least where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of its statutory obligations: Re Kris Cruisers Ltd above at 142; National Australia Bank v Davis & Waddell above at [67]. In the present case, Inika’s solicitor had informed Mr McGilvray of the time within which registration was required, but the potentially significant consequences of a failure to register had not been communicated to Mr McGilvray. In my view, Cardinia, through Mr McGilvray, was plainly operating under a mistake as to that matter. Cardinia has therefore established that the failure to register the security interest in the collateral earlier in this case was at least due to inadvertence, and that is sufficient to establish the basis for the Court to make the order which Cardinia seeks under s 588FM of the Corporations Act.” See also Re Quality Blended Liquor Pty Ltd [2014] QSC 234 at [84]; Re Allied Master Chemists of Australia Ltd [2020] NSWSC 291 (failing to register by reference to the ACN can involve inadvertence). In Re Carpenter, Cameron J held at [227]–[229]: “I find that the reason CS failed to register in time was a belief that Carpenter could and would pay CS. CS knew of the requirement to register. It decided to register because it learnt that Carpenter might not be able to pay, not because 20 business days from 4 or 10 March 2015 was fast approaching. Put another way, I am not satisfied that had CS’ mistaken belief been corrected on the day the individual contracts were executed, it would have registered in time. The reason CS failed to register in time, namely a belief that Carpenter could and would pay in time, does not amount to inadvertence within the meaning of s 588FM(2)(a)(i). Given my finding as to the reason CS did not register its security interests in time, I also find that the failure to register in time does not amount to an accident or ‘some other sufficient cause’ within the meaning of s 588FM(2)(a)(i), and that CS has failed to establish that on other grounds, it is just and equitable to grant relief, within the meaning of s 588FM(2)(b). This means the Court’s discretion under s 588FM is not enlivened. I will now consider whether the Court would have exercised its discretion to grant an extension, had the discretion been enlivened.” See also Re NFT Specialized in Tower Cranes LLC v Machforce Pty Ltd (in liq) [2017] WASC 95. In Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Co Pty Ltd [2019] WASC 438, the failure to register in relation to step in rights was based on the secured party being unaware of the New Zealand decision in McCloy v Manukau Institute of Technology [2013] NZHC 936; [2013] 3 NZLR 390, which held that contractual step in rights could involve a security interest. The Court in Bluewaters held that this was due to inadvertence. In respect of whether the accident or inadvertence must be one in respect of the requirement to perfect by registration at all as opposed to the requirements to register or perfect on time (in accordance with s 588FL of the Corporations Act), it is likely that the later view prevails: see Re Transurban CCT Pty Ltd (in its own capacity and as trustee for the Transurban CCT Trust) [2014] NSWSC 1909 at [8] per Brereton J; see also Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 at [11].

[588FM.5.2.2] “Some other sufficient cause” — s 588FM(2)(a)(i) The term “some other sufficient cause” has not been the subject of direct judicial comment. In Re Transurban, the finding of Brereton J in favour of granting relief pursuant to s 588FM of the Corporations Act was that the failure to register fell within the whole of s 588FM(2)(a)(i) without differentiating accident from inadvertence or from some other sufficient cause. Given the placement of the phrase within s 588FM(2)(b), the scope of the words is likely to limited to expanding the notions of accidence or inadvertence in accordance with how the provision was applied in Re Transurban in the authors’ respectful view. [588FM.5.2.3] Prejudice to creditors or shareholders — s 588FM(2)(a)(ii) The preservation of the position of creditors and shareholders has formed the subject of analysis in Australia in respect of applications brought pursuant to s 588FM. The consideration was also relevantly a part of the former s 266(4) of the Corporations Act from which the present analysis derives. In Re Appleyard, Brereton J held, at [15]: “Notwithstanding the historic practice of sometimes imposing a so-called ‘Joplin condition’, to the effect that the extension is without prejudice to the rights of parties acquired prior to the time of actual registration [see Re Joplin Brewery Co Ltd [1902] 1 Ch 79; explained in Re Ehrmann Bros Ltd [1906] 2 Ch 697; and see Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483], an s 588FM order has no effect on the priority of security interests registered before the plaintiff’s charge inter se, as their priorities are established under Pt 2K.3. Under the present legislation, making the order sought will not afford 123 Sweden’s security interest any priority over other security interests already registered before 29 April 2014, including those registered since February 2013. As the secured creditors will not be affected, there is no need to make an order or impose a condition in that respect, nor any utility in doing so [Re Guardian Securities Ltd [1984] 1 NSWLR 95 at 97; Douglas-Brown v Standard Chartered Finance Ltd (1990) 2 ACSR 737, 740; Bevillesta Pty Ltd v Imagine UN Ltd [2009] VSC 50; 69 ACSR 574, 581 [28]].” Justice Brereton then considered, in depth, the authorities considering the extent to which prejudice to creditors or shareholders is to be considered (and what weight is to be applied to the consideration in applications of this nature) in paragraphs [16]–[27] of his Honour’s reasons: See also, Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 at [15]; Re Psyche Holdings Pty Ltd [2018] NSWSC 1254. The upshot of the analysis appears to be where there is evidence of solvency concerns for the grantor company at the time the application pursuant to s 588FM is made, prejudice to creditors and shareholders is a more significant factor given that their position in respect of the grantor company may more readily be compromised should the grantor company actually be the subject of a s 588FL(1)(a) event. At [31], Brereton J held: “[W]hile the interests of unsecured creditors are relevant, the mere fact that if the extension is granted they will be deprived of the benefit of the security interest vesting in the company, and thus receive a lesser dividend, is no objection to making an order. It would be otherwise if the position of the unsecured creditors was detrimentally affected by the delay in registration, for example if they traded with the company on the faith of a register that showed no security interest.” The relevant inquiry in respect of prejudice is therefore one which leans towards considering whether any such creditor or shareholder would have acted differently had the PPSR accurately reflected the interest the secured party now wishes to have put onto the PPSR by force of order pursuant to s 588FM of the Corporations Act. If the creditor or shareholder would have acted differently (noting that they would bear the onus of establishing this proposition) then it is likely that an order pursuant to s 588FM would not be granted or would be granted on terms and conditions which alleviate or otherwise address that prejudice (see s 588FM(3) of the Corporations Act). See also, Findlay v Jones [2015] NSWSC 277 at [6]; Re Southern Engineering Services Pty Ltd [2014] NSWSC 1882; Re Barclays Bank Plc [2012] NSWSC 1095 at [18]. If the grantor is in voluntary administration or liquidation, the administrator’s or liquidator’s view that the

extension is in the best interests of creditors is a relevant consideration for the court in determining whether to grant an extension: Mentha, Re Arrium Finance Ltd v National Australia Bank Ltd [2017] FCA 818 at [23]. [588FM.5.2.4] Just and equitable — s 588FM(2)(b) The making of orders pursuant to s 588FM on the basis that it is “just and equitable” to do so is not a concept foreign to other legislative provisions. Perhaps most closely, as it is contained in the same act, is s 461(1)(k) of the Corporations Act which empowers a Court to wind up a corporation on the basis that it is just and equitable to do so. As a matter of law, consideration of what constitutes “just and equitable” grounds is not limited to a prescribed list of circumstances nor is it restricted to particular factual categories: see Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [20]. In Re Appleyard, the term “just and equitable” was considered through the analysis of Branson and Allsop JJ; Whitlam J dissenting in Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 256 (see above at [588FM.5.3.1]). See also the summary of the pre-PPSA law (which contained the same term) in Re Imagine UN Ltd [2009] VSC 50. Delay in seeking an order under s 588FM is a relevant factor in determining whether it is just and equitable to grant an extension of time: Korda, Re Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; Alleasing Pty Ltd, Re OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 656; Re Appleyard Capital Pty Ltd [2014] NSWSC 782 at [30]. Mere delay will not of itself require that an application for an extension be refused: Re Appleyard Capital Pty Ltd [2014] NSWSC 782. In Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267, the delay was 18 months and an extension was granted. It is also relevant whether creditors have been notified and if so, whether any wish to object (noting the scope of creditor prejudice as a relevant factor above): Korda, Re Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144. The upshot of the analysis set out in respect of s 588FM(2)(b) appears to be that the Court is required to consider not only the situation facing the applicant/plaintiff on an application under s 588FM for the purposes of discerning what is just and equitable but rather the Court is to have regard to other creditors and shareholders of the grantor company, the financial position of the grantor company and the factual matrix of the particular case before the Court, taken as a whole. It should also be said that s 588FM(2)(b) appears to be a “catch-all” provision included for abundant caution as it is more likely than not that the circumstances for which relief pursuant to s 588FM would assist falls within one of the categories provided for in s 588FM(2)(a): see Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [17]; Re Appleyard at [23]. [588FM.5.3] Terms and Conditions — Guardian Securities — s 588FM(3) Orders pursuant to s 588FM of the Corporations Act are often made subject to a carve out for interested persons (typically creditors or shareholders) who may seek to vary or set aside the orders provided that sufficient notice of any such application is given to the original applicant/plaintiff and to the Court. The making of orders on terms and conditions like this is permissible as a consequence of s 588FM(3). In respect of s 588FM(3), in Re Appleyard, Brereton J held at [28]: “In practice, the strictures of Re Flinders Trading Co have not been applied, and it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a ‘Guardian Securities condition’ reserving leave to any liquidator or administrator appointed within six months to apply to set the order aside. This course, or one similar to it, was taken in Re a Ltd Co (Long Innes J), where solvency was dubious; in Re L H Charles (Clauson J), where liquidation was in contemplation; in Re Cinema Art Films (Myers CJ); in Re Guardian Securities (McLelland J), where there was ‘no evidence whatsoever as to the solvency or otherwise of the company creating the charge’ (at 98); and in Bevillesta (Robson J), where the evidence of solvency was inconclusive. In recent times in this court, such orders have

been made in Cardinia Nominees (Black J), where again the evidence of solvency was inconclusive; in In the matter of Apex Gold Pty Ltd [2013] NSWSC 881 (Hammerschlag J), where administration was imminent; and in Black Opal IP (Brereton J), where there was some but less than comprehensive evidence of solvency.” For the purposes of s 588FM(3), the relevant form of order adopted in that case (noting the similar forms of order in the cases referred to by his Honour in the above passage) is set out at [35] of his Honour’s reasons: “The court orders that: … (4) Pursuant to Corporations Act, s 588FM, 29 April 2014 be fixed as the later time for the purposes of subparagraph 588FL(2)(b)(iv) in respect of the collateral being all of the present and after-acquired property of the defendant referred to in registration number 201404290045242 in the Register established under the (Cth) Personal Property Securities Act 2009. (5) In the event that within 6 months of 29 April 2014 a winding up of the defendant commences, or an administrator of the defendant is appointed under Corporations Act s 436A, 436B or 436C, or the defendant executes a deed of company arrangement, the liquidator, administrator, deed administrator and any unsecured creditor of the defendant has liberty to apply to discharge or vary order 4; (6) The defendant has liberty to apply within seven days of service on it of this order to discharge or vary order 4.” In Re Psyche Holdings Pty Limited [2018] NSWSC 1254, Ward CJ in Eq went further than previous cases in the imposition of a Guardian Securities type condition holding that (at [44]): “On reflection since then, I consider that order 2 of the orders made should be amended to grant liberty also to an unsecured creditor of the defendant to make such an application in the events there specified. This is consistent with previous Guardian Securities conditions and with the purpose of such a condition being to protect the interests of unsecured creditors. It does not seem to me to be inconsistent with the position for which the plaintiff advocated at the ex parte hearing of the application for relief. However, if the plaintiff wishes to make any submissions as to that amendment then I give leave for the plaintiff’s legal representatives to forward any such brief submissions to my Associate within 7 days”. See also Re Allied Master Chemists of Australia Ltd [2020] NSWSC 291 (discussing Guardian Securities conditions and the possibility of obtaining s 588FM orders without the need for the Court to impose a Guardian Securities type condition). [588FM.6] Further resources • N Mirzai, “Vesting in the Insolvency Practitioner” July–September 2013 Australian Insolvency Journal 26. • J Harris, “Giving security after insolvency and PPSR extensions of time” (2020) 34(1) Commercial Law Quarterly 18. • A Staninovski, “Cut me some slack: An analysis into the extension of time provisions for registering security interests under the Corporations Act” (2019) 30 Journal of Banking and Finance Law and Practice 240.

¶588FN SECTION 588FN PPSA SECURITY INTERESTS UNAFFECTED BY SECTION 588FL ¶10-065 SECTION 588FN PPSA SECURITY INTERESTS UNAFFECTED BY SECTION 588FL Text of s 588FN [588FN.2] Outline Section 588FN of the Corporations Act limits the scope of s 588FL of the Corporations Act (particularly s 588FL(4)) by carving out particular types of transactions from the operation of that provision. [588FN.3] Cross-references • Section 13 of the PPSA. • Section 297 of the PPSA. • Section 298 of the PPSA. • Section 588FL of the Corporations Act. [588FN.4] Concepts • PPSA security interest – See s 51 of the Corporations Act, s 12 of the PPSA. • Chattel paper – See s 10 of the PPSA. • Account – See s 10 of the PPSA. • PPS lease – See s 13 of the PPSA. • Commercial consignment – See s 10 of the PPSA. • Critical time – See s 588FL(7) of the Corporations Act. • Actual or constructive knowledge – See s 297 and 298 of the PPSA. [588FN.5] Commentary Since the amendments to the Corporations Act were implemented, the PPSA has been amended by the Personal Property Securities Amendment (Deregulatory Measures) Act 2015 (Cth), which took effect on and from 1 October 2015. The amending legislation repealed s 13(1)(e) of the PPSA such that s 588FN(1)(b) has little, if any, further application. Subsections 588FN(1)(a) and (c) remain relevant exclusions which correlate with s 12(3)(a) and (b) of the PPSA respectively. As the commentary to s 12 of the PPSA provides, certain interests/transactions are deemed by the PPSA to constitute a “security interest” even where they do not satisfy s 12(1) of the

PPSA. These “deemed” security interests fall within the scope of the PPSA unless carved out (as is the case with the Ch 4 requirements under the PPSA and to the extent that s 588FN is applicable). Subsection 588FN(2) likewise provides for a carve out from the vesting provision debt arrangements which are the subject of subordination. Subsections 588FN(3) and (4) cross-refer to s 34 of the PPSA and the timing stipulations provided for in respect of transfers of collateral in that section are mirrored in s 588FN. Importantly, nothing in s 588FN seeks to prevent or qualify the application of s 267 of the PPSA such that the underlying interest may still vest for failure to perfect by registration (where required) prior to a s 267(1)(a) event in any event. At the time of writing, there have been no domestic cases which have considered the application and operation of s 588FN of the Corporations Act. [588FN.6] Further resources Nil.

¶588FO SECTION 588FO CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES ¶10-070 SECTION 588FO CERTAIN LESSORS, BAILORS AND CONSIGNORS ENTITLED TO DAMAGES Text of s 588FO [588FO.2] Outline Section 588FO seeks to preserve a statutory right to recover damages from the corporate grantor in favour of a lessor, bailor or consignor who has suffered loss as a consequence of the operation of s 588FL(4) of the Corporations Act. [588FO.3] Cross-references • Section 588FL of the Corporations Act. [588FO.4] Concepts • PPSA security interest – See s 51 of the Corporations Act; s 12 of the PPSR. • Commercial consignment – See s 10 and 12(3) of the PPSA. • PPS lease – See s 13 of the PPSA. • Vested – See s 588FL of the Corporations Act; s 267 of the PPSA. [588FO.5] Commentary Section 588FO allows a lessor, bailor or consignor who is adversely affected by the operation of s 588FL(4) to seek damages not only in respect of amounts due and owing under the agreement with the corporate grantor (which would likely arise by way of contractual liability in any event) but also for the market value of the property leased, bailed or consigned. The preservation of a right to damages under the Corporations Act is consistent with s 271 of the PPSA which similarly allows for the recovery of damages in particular circumstances. However, the inherent limitation on any damages claim, and the pursuit of any such claim, is not the legal threshold for establishing loss and damage suffered but rather the often impecuniosity of the defendant company. This is particularly so when looking to apply s 588FO as if a s 588FL(1)(a) event has occurred such that s 588FL(4) has been triggered, it is very likely that the solvency of the potential corporate defendant is a considerable issue and perhaps an overwhelming consideration against pursuing relief pursuant to s 588FO. What s 588FO of the Corporations Act does do is give the relevant creditor (who is unsecured as a consequence of the operation of s 588FL(4)) a potentially larger claim in the insolvency of the corporate grantor such that any dividend would result in a larger portion in favour of the unsecured creditor as a consequence of being able to claim the market value of the property itself in addition to monies owing under the lease, bailment or consignment (if any). [588FO.6] Further resources Nil.

¶2B Division 2B — Security interests in favour of company officers

etc.

¶Renumberable SECTION 588FP SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF A COMPANY ETC. VOID ¶10-075 SECTION 588FP SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF A COMPANY ETC. VOID Text of s 588FP

¶10 CHAPTER 10 — TRANSITIONAL PROVISIONS

¶10.13 PART 10.13 — TRANSITIONAL PROVISIONS RELATING TO THE PERSONAL PROPERTY SECURITIES (CORPORATIONS AND OTHER AMENDMENTS) ACT 2009

¶Renumberable SECTION 1499 DEFINITIONS ¶10-080 SECTION 1499 DEFINITIONS Text of s 1499

¶Renumberable SECTION 1500 CHARGES, LIENS AND PLEDGES — CONTINUATION OF RESTRICTION OF REFERENCES ¶10-085 SECTION 1500 CHARGES, LIENS AND PLEDGES — CONTINUATION OF RESTRICTION OF REFERENCES Text of s 1500

¶Renumberable SECTION 1501 CHARGES, LIENS, PLEDGES AND THIRD PARTY PROPERTY — APPLICATION ¶10-090 SECTION 1501 CHARGES, LIENS, PLEDGES AND THIRD PARTY PROPERTY — APPLICATION Text of s 1501

¶Renumberable SECTION 1501A REFERENCES TO THE WHOLE OR SUBSTANTIALLY THE WHOLE OF A COMPANY’S PROPERTY ¶10-095 SECTION 1501A REFERENCES TO THE WHOLE OR SUBSTANTIALLY THE WHOLE OF A COMPANY’S PROPERTY Text of s 1501A

¶Renumberable SECTION 1501B CONSTRUCTIVE NOTICE OF REGISTRABLE CHARGES ¶10-100 SECTION 1501B CONSTRUCTIVE NOTICE OF REGISTRABLE CHARGES Text of s 1501B

¶Renumberable SECTION 1502 REPEAL OF CHAPTER 2K (CHARGES) — GENERAL ¶10-105 SECTION 1502 REPEAL OF CHAPTER 2K (CHARGES) — GENERAL Text of s 1502

¶Renumberable SECTION 1503 REPEAL OF CHAPTER 2K (CHARGES) — CESSATION OF REQUIREMENTS IN RELATION TO DOCUMENTS OR NOTICES ¶10-110 SECTION 1503 REPEAL OF CHAPTER 2K (CHARGES) — CESSATION OF REQUIREMENTS IN RELATION TO DOCUMENTS OR NOTICES Text of s 1503

¶Renumberable SECTION 1504 REPEAL OF CHAPTER 2K (CHARGES) — APPLICATION OF SECTION 266 ¶10-115 SECTION 1504 REPEAL OF CHAPTER 2K (CHARGES) — APPLICATION OF SECTION 266 Text of s 1504

¶Renumberable SECTION 1505 REPEAL OF CHAPTER 2K (CHARGES) — CESSATION OF COMPANY REGISTRATION REQUIREMENTS ¶10-120 SECTION 1505 REPEAL OF CHAPTER 2K (CHARGES) — CESSATION OF COMPANY REGISTRATION REQUIREMENTS Text of s 1505

¶Renumberable SECTION 1506 REPEAL OF CHAPTER 2K (CHARGES) — PRIORITY BETWEEN REGISTRABLE CHARGES ¶10-125 SECTION 1506 REPEAL OF CHAPTER 2K (CHARGES) — PRIORITY BETWEEN REGISTRABLE CHARGES Text of s 1506

¶Renumberable SECTION 1507 NEW SECTION 440B (RESTRICTIONS ON THIRD PARTY PROPERTY RIGHTS) ¶15-130 SECTION 1507 NEW SECTION 440B (RESTRICTIONS ON THIRD PARTY PROPERTY RIGHTS) Text of s 1507

¶Renumberable SECTION 1508 NEW SUBSECTION 442CB(1) (ADMINISTRATOR’S DUTY OF CARE) ¶10-135 SECTION 1508 NEW SUBSECTION 442CB(1) (ADMINISTRATOR’S DUTY OF CARE) Text of s 1508

¶Renumberable SECTION 1509 NEW SECTION 588FP (SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF A COMPANY ETC. VOID) ¶10-140 SECTION 1509 NEW SECTION 588FP (SECURITY INTERESTS IN FAVOUR OF AN OFFICER OF A COMPANY ETC. VOID) Text of s 1509

¶Renumberable SECTION 1510 WINDING UP APPLIED FOR BEFORE THE COMMENCEMENT TIME ¶10-145 SECTION 1510 WINDING UP APPLIED FOR BEFORE THE COMMENCEMENT TIME Text of s 1510

PERSONAL PROPERTY SECURITIES REGULATIONS Select Legislative Instrument 2010 No 291 CONTENTS

PERSONAL PROPERTY SECURITIES REGULATIONS 2010

¶1 PART 1 — PRELIMINARY ¶1 Division 1 — Preliminary ¶1.1 REG 1.1 NAME OF REGULATIONS ¶11-005 REG 1.1 NAME OF REGULATIONS Text of reg 1.1

¶1.2 REG 1.2 COMMENCEMENT ¶11-010 REG 1.2 COMMENCEMENT Text of reg 1.2

¶2 Division 2 — General application of the Act ¶1.3 REG 1.3 APPLICATION OF THE ACT TO EXTERNAL TERRITORIES ¶11-015 REG 1.3 APPLICATION OF THE ACT TO EXTERNAL TERRITORIES Text of reg 1.3

¶1.4 REG 1.4 INTERESTS TO WHICH THE ACT DOES NOT APPLY ¶11-020 REG 1.4 INTERESTS TO WHICH THE ACT DOES NOT APPLY Text of reg 1.4

¶1.5 REG 1.5 INTERESTS TO WHICH THE ACT APPLIES ¶11-025 REG 1.5 INTERESTS TO WHICH THE ACT APPLIES Text of reg 1.5

¶3 Division 3 — Definitions ¶1.6 REG 1.6 DEFINITIONS ¶11-030 REG 1.6 DEFINITIONS Text of reg 1.6

¶1.7 REG 1.7 MEANING OF MOTOR VEHICLE ¶11-035 REG 1.7 MEANING OF MOTOR VEHICLE

Text of reg 1.7

¶1.8 REG 1.8 MEANING OF SECURITY INTEREST ¶11-040 REG 1.8 MEANING OF SECURITY INTEREST Text of reg 1.8

¶1.9 REG 1.9 MEANING OF PPS LEASE ¶11-045 REG 1.9 MEANING OF PPS LEASE Text of reg 1.9

¶1.10 REG 1.10 MEANING OF INVESTMENT INSTRUMENT ¶11-050 REG 1.10 MEANING OF INVESTMENT INSTRUMENT Text of reg 1.10

¶2 PART 2 — GENERAL RULES FOR SECURITY INTERESTS ¶2.1 REG 2.1 TAKING MOTOR VEHICLES FREE OF SECURITY INTERESTS ¶11-055 REG 2.1 TAKING MOTOR VEHICLES FREE OF SECURITY INTERESTS Text of reg 2.1

¶2.2 REG 2.2 TAKING MOTOR VEHICLES FROM PRESCRIBED PERSONS ¶11-060 REG 2.2 TAKING MOTOR VEHICLES FROM PRESCRIBED PERSONS Text of reg 2.2

¶3 PART 3 — SPECIFIC RULES FOR CERTAIN SECURITY INTERESTS ¶11-065 PART 3 — SPECIFIC RULES FOR CERTAIN SECURITY INTERESTS Text of Pt 3

¶4 PART 4 — ENFORCEMENT OF SECURITY INTERESTS ¶4.1 REG 4.1 RELATIONSHIP WITH CONSUMER CREDIT LEGISLATION ¶11-070 REG 4.1 RELATIONSHIP WITH CONSUMER CREDIT LEGISLATION Text of reg 4.1

¶5 PART 5 — PERSONAL PROPERTY SECURITIES REGISTER ¶5.1 REG 5.1 ACCESS TO REGISTER ¶11-075 REG 5.1 ACCESS TO REGISTER Text of reg 5.1

¶5.2 REG 5.2 NOTIFICATION OF SUSPENSION OF ACCESS TO REGISTER ¶11-080 REG 5.2 NOTIFICATION OF SUSPENSION OF ACCESS TO REGISTER Text of reg 5.2

¶5.3 REG 5.3 WHAT THE REGISTER CONTAINS ¶11-085 REG 5.3 WHAT THE REGISTER CONTAINS Text of reg 5.3

¶5.4 REG 5.4 PROHIBITED REGISTRATION ¶11-090 REG 5.4 PROHIBITED REGISTRATION Text of reg 5.4

¶5.5 REG 5.5 FINANCING STATEMENTS ¶11-095 REG 5.5 FINANCING STATEMENTS Text of reg 5.5

¶5.6 REG 5.6 VERIFICATION STATEMENTS — PUBLICATION AS ALTERNATIVE ¶11-100 REG 5.6 VERIFICATION STATEMENTS — PUBLICATION AS ALTERNATIVE Text of reg 5.6

¶5.7 REG 5.7 ACCESS TO THE REGISTER PROHIBITED ¶11-105 REG 5.7 ACCESS TO THE REGISTER PROHIBITED text of reg 5.7

¶5.8 REG 5.8 SEARCH — CRITERIA

¶11-110 REG 5.8 SEARCH — CRITERIA Text of reg 5.8

¶5.8A REG 5.8A ACCESS TO THIRD PARTY DATA — THIRD PARTY ¶11-115 REG 5.8A ACCESS TO THIRD PARTY DATA — THIRD PARTY Text of reg 5.8A

¶5.9 REG 5.9 ADMINISTRATIVE PROCESS — STATEMENTS IN RELATION TO AMENDMENT DEMAND ¶11-120 REG 5.9 ADMINISTRATIVE PROCESS — STATEMENTS IN RELATION TO AMENDMENT DEMAND Text of reg 5.9

¶5.10 REG 5.10 REMOVAL OF DATA ¶11-125 REG 5.10 REMOVAL OF DATA Text of reg 5.10

¶6 PART 6 — JUDICIAL PROCEEDINGS ¶11-130 Note This Part heading is reserved for future use.

¶7 PART 7 — OPERATION OF LAWS ¶7.1 REG 7.1 CONCURRENT OPERATION OF PROVISIONS OF CORPORATIONS ACT 2001 — RESOLUTION OF INCONSISTENCY ¶11-135 REG 7.1 CONCURRENT OPERATION OF PROVISIONS OF CORPORATIONS ACT 2001 — RESOLUTION OF INCONSISTENCY Text of reg 7.1

¶8 PART 8 — MISCELLANEOUS ¶11-140 Note This Part heading is reserved for future use.

¶9 PART 9 — TRANSITIONAL PROVISIONS ¶9.1 REG 9.1 TRANSITIONAL MEANING OF WATERCRAFT ¶11-145 REG 9.1 TRANSITIONAL MEANING OF WATERCRAFT Text of reg 9.1

¶9.2 REG 9.2 TEMPORARY PERFECTION RULE — EXCEPTION ¶11-150 REG 9.2 TEMPORARY PERFECTION RULE — EXCEPTION Text of reg 9.2

¶9.3 REG 9.3 SUNSET OF PART 9 ¶11-155 REG 9.3 SUNSET OF PART 9 Text of reg 9.3

SCHEDULE 1 — FINANCING STATEMENT MATTERS FOR ITEMS OF TABLE IN SUBSECTION 153(1) OF ACT ¶11-160 SCHEDULE 1 — FINANCING STATEMENT MATTERS FOR ITEMS OF TABLE IN SUBSECTION 153(1) OF ACT Text of Sch 1

SCHEDULE 2 — FINANCING STATEMENT MATTERS FOR TABLE IN SECTION 154 OF ACT ¶11-165 SCHEDULE 2 — FINANCING STATEMENT MATTERS FOR TABLE IN SECTION 154 OF ACT Text of Sch 2

References The following references have been used by the authors in the preparation of the commentary in this book. The reference will be referred to in the commentary by the name contained within the brackets. Australian PPSA • Cseti D, Understanding Personal Property Securities Law, 2010 CCH (Cseti D) • O’Donovan J, Personal Property Securities, Thomson Reuters (looseleaf) (O’Donovan J) • Wappett C, Whittaker B and Edwards S, Personal Property Securities in Australia, LexisNexis (looseleaf) (Wappett C, Whittaker B and Edwards S) New Zealand PPSA • Allen B, Personal Property Securities Act 1999: Act and Analysis, 2010 Thomson Reuters (Allen B) • Fenton R, Garrow and Fenton’s Law of Personal Property in New Zealand, 2010 LexisNexis (Fenton R) • Gedye M, Cuming R and Wood R, Personal Property Securities in New Zealand, 2002 Thomson Brookers (Gedye M, Cuming R and Wood R) • Widdup L and Mayne L, Personal Property Securities Act: a conceptual approach, 2002 revised ed, LexisNexis (Widdup L and Mayne L) Canadian PPSA • Cuming R, Walsh C and Wood R, Personal Property Securities Law, 2005 Irwin Law (Cuming R, Walsh C and Wood R) • Cuming R and Wood R, British Columbia Personal Property Security Act Handbook, 1998 Carswell (Cuming R and Wood R, BC) • Cuming R and Wood R, Saskatchewan and Manitoba Personal Property Security Acts Handbook, 1994 Carswell (Cuming R and Wood R, Sask) • Duggan A and Ziegel J, Secured Transactions in Personal Property, 5th ed 2009 Emond Montgomery (Duggan A and Ziegel J) • McLaren R, Secured Transactions in Personal Property in Canada, Carswell (looseleaf) (McLaren R) • Ziegel J and Dennome D, The Ontario Personal Property Security Act Commentary and Materials, 2nd ed 2000 Butterworths (Ziegel J and Dennome D) US Article 9 • Gilmore G, Security Interests in Personal Property, 1965 Lawbook Exchange (Gilmore G) • Miller F (ed), Hawkland’s Uniform Commercial Code Series, Westlaw (looseleaf) (Miller F (ed)) • White J and Summers R, Uniform Commercial Code, 2010 Thomson Reuters (White J and Summers R)

Abbreviations AASB

Australian Accounting Standards Board

ACN

Australian Company Number

ADI

Authorised deposit taking institution

AML-CTF

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

ARBN

Australian Registered Business Number

ARSN

Australian Registered Scheme Number

ASIC

Australian Securities and Investment Commission

NCC

National Credit Code

NEVDIS

National Exchange of Vehicle and Driver Information System

PMSI

Purchase money security interest

PPS

Personal Property Securities

PPSA

Personal Property Securities Act 2009 (Cth)

PPSR

Personal Property Securities Register

ROT

Retention of title

Glossary of Terms References are to paragraph numbers. Accession

Goods that are installed or affixed to other goods which are readily identifiable and can be removed from the goods they are installed or affixed to.

3-040

Account debtor

A person who is obligated under an account or chattel paper.

2-325

Accounts

A monetary obligation that arises from disposing of property or granting a right or providing services. An example is a book debt. The concepts of accounts and chattel paper are mutually exclusive.

1-065

An act

A form of consideration in lieu of payment. An example is the grantor obtaining underlying collateral after the agreement has been drafted.

2-020

Actual knowledge Existence of knowledge subjectively in the mind of the relevant party on the facts, that is, the relevant party actually knew of the circumstances in issue.

8-170

ADI

A body authorised under the Banking Act 1959 (Cth) to accept deposits (authorised deposit taking institution).

2-050

ADI account

An account kept by a person or persons with an ADI that is payable on demand or at some time in the future.

1-065

Advance

The payment of currency, the provision of credit or the giving of value.

2-215

After acquired property

Personal property acquired by the grantor after a security agreement is made.

8-060

Assignment

A transfer of property from one party to another. An assignment is absolute in essence, that is, there remains behind no interest held by the assignor.

1-065

Attachment

The moment where a security interest is recognised against particular personal property defined by the security agreement.

2-020

Bailment

The temporary transfer of possession of goods from one (the bailor) to another (the bailee) on the condition that the goods will be returned to the bailor at the end of the bailment or dealt with according to the bailor’s instructions.

2-035

Best price reasonable obtainable

The best or highest sale price for collateral where there is no readily available market value.

4-125

Bill of lading

Evidence of title to goods which are subject to a contract of carriage.

1-045

Charge

A security interest that has attached either to circulating or non-circulating assets.

9-165

Chattel mortgage

A mortgage with respect to personal property or ‘chattels’.

1-065

Chattel paper

One or more writings that evidence a monetary obligation and 1-065

either or both of a security interest in specific goods and a security interest in specific intellectual property. A new type of personal property that is created by the PPSA. Common examples are hire purchase and leasing agreements. Circulating asset

Personal property over which the secured party has given the 9-170 grantor express or implied authority for any transfer to be made free of the security interest provided it is in the ordinary course of the grantor’s business.

Commercial consignments

A consignment where the consignor retains an interest in 1-065 goods that he or she delivers to the consignee, the consignor delivers the goods to the consignee for the purpose of sale, lease or other disposal, and the consignor and the consignee both deal in goods of that kind in the ordinary course of business.

Commercial property

Personal property other than consumer property.

5-045

Common carrier

A carrier who holds himself or herself out as ready without discrimination to carry the goods of all persons who may choose to employ them or send them goods to be carried.

2-045

Conditional sale agreement

Instruments which purport to convey title only after the primary obligation(s) owing to the relevant creditor has been met in full.

1-065

Constructive knowledge

An objectively assessed element of knowledge which asks what the relevant party would have known at the relevant time had they made inquiries that an honest and prudent person would have made.

8-170

Consumer property

Personal property held by an individual, other than property held in the course or furtherance of carrying on an enterprise to which an ABN has been allocated.

5-045

Continuous perfection

A requirement that the secured party ensure they maintain perfection at all times.

2-085

Controller

A receiver, or receiver and manager, of the property of a corporation, or anyone else who is in possession of that property for the purpose of enforcing a security interest.

4-045

Debt

A legal obligation to pay a sum of money, either at present or in the future.

2-270

Debtor

The party who must pay or perform the primary obligation(s) owing to the creditor or party making the relevant advances.

2-270

Default

A circumstance whereby the debtor fails to meet obligations (usually financial) owing to the secured party.

4-085

Defect

An irregularity, omission or error in the registration.

5-100

Disposal of collateral

The process of exchanging the collateral in order to recover, as much as possible, the underlying obligation still outstanding.

4-110

Encryption

The process of converting data into a language which is 2-025 unintelligible in order to prevent improper use of the data from unauthorised parties.

Evidential burden

In relation to a matter, the burden of adducing or pointing to

5-140

evidence that suggests a reasonable possibility that the matter exists or does not exist. Execution creditor A creditor who has recovered judgment and issued execution 2-295 against a grantor. Financing change Data amending a registered financing statement. statement

5-030

Financing statement

Data registered pursuant to an application for registration.

5-030

Fixed charge

A secured interest attached to personal property that is not a circulating asset.

9-165

Fixtures

Goods that are affixed to land, excluding crops.

1-045

Flawed asset arrangements

The conditions imposed on an asset (typically an account) which trigger before other interests arise.

1-065

Floating charge

A security interest that has attached to personal property that 9-165 is a circulating asset.

Future advance

An advance made after the security agreement has arisen.

2-015

Garnishee order

An order allowing a judgment creditor to recover funds owed to them under the judgment directly from the debtor’s bank account.

2-295

General law

The principles and rules of the common law and equity.

1-045

Grantor

The person granting the security interest.

1-065

Individual

A natural person rather than a body corporate.

5-140

Intermediated securities

A financial account which is maintained by an intermediary as 2-085 a security account on behalf of another party.

Intermediary

An Australian financial services licence (AFSL) holder who is permitted by the AFSL to maintain securities accounts on behalf of others or a clearing and settlement facility.

Inventory

Personal property that is held for sale or lease, to be provided 2-145 under a contract for services, as raw materials or work in progress, or used or consumed as materials.

Investment instrument

A financial product traded over the counter or on an exchange.

2-085

Lease

An agreement whereby a leasehold interest in property is conveyed to another usually in exchange for consideration of rent or other periodical payment.

1-070

Letter of credit

An instrument under which a bank agrees to make a payment 2-065 once certain criteria are met.

Lien

An instrument that entitles a party to retain possession of encumbered property until a debt incurred with respect to such property has been paid.

Intro. IIIB(iii)

Location

The place where the personal property is situated.

2-120

Market value

The rate or price at which comparable collateral is readily obtainable from the market.

4-125

Migrated security

A transitional security interest which has been successfully

9-125

1-080

interest

transitioned to the PPSA and is thus reflected on the PPS Register.

Migration time

The logistics period where the data present on previously existing Australian registers are transferred to or recreated under the PPS Register.

9-015

Modification

An addition, omission or substitution.

2-325

Monetary obligation

A written undertaking to pay a sum of money.

1-075

Mortgage

A security created by agreement for the payment of a debt, or Intro. IIIB(i) a future advance, which involves an actual or executor conveyance of real or personal property.

Negotiable instrument

A traditional instrument such as a bill of exchange, promissory note or cheque, but also includes further instruments such as particular letters of credit.

New value

Value other than value provided to reduce or discharge an 2-150 earlier debt or liability owed to the person providing the value.

Ordinary course of business

Transactions with a view to carrying on the business concern, 2-155 such as sales, leases and mortgages.

Personal information

Information or an opinion about an individual whose identity is 5-145 apparent or can reasonably be ascertained from the information or opinion.

2-045

Personal property Property (including a licence) other than land or a right, entitlement or authority that is granted under statute and declared by that statute not to be personal property for the purposes of the PPSA.

1-065

Pledge

A possessory security, otherwise referred to as a ‘pawn’.

Intro. IIIB(iv)

Possession

A mutually exclusive concept, that is, where one party has possession another cannot and therefore only one party can have possession of the underlying collateral at any point in time.

2-045

Proceeds

A return, be it in cash or otherwise, derived through the utilization of a particular asset or consideration flowing in relation of a transfer of the asset to a new party.

2-080

Proprietary rights

Rights the party granting the security interests holds in the particular item(s) of property or the rights the granting party will in future hold over such property.

1-065

Receiver

A receiver of property of a body corporate and also a manager if the receiver manages, or has under the terms of appointment power to manage, affairs of the body.

4-050

Reasonable expenses

An objective standard in determining the costs incurred when 4-105 enforcing a security interest.

Registered description of collateral

The description of collateral included in a financing statement 5-150 that is registered on the PPSR.

Registered financing

A financing statement that is registered on the PPSR.

5-135

statement Registration commencement time

The time at which the PPS Register begins operation and effect.

9-015

Secured party

The holder of the security interest.

2-030

Security

A transaction whereby a person to whom an obligation is Intro. IIIA owed by another person called the ‘debtor’ is afforded, in addition to the personal promise of the debtor to discharge the obligation, rights exercisable against some property of the debtor in order to enforce discharge of the obligation.

Security agreement

An agreement or act by which a security interest is created, arises or is provided for or writing evidencing such an agreement or act.

9-020

Security interest

An interest in personal property provided for by a transaction that in substance secures payment or performance of an obligation.

1-065

Seize

To take possession of the underlying collateral or remove control of the collateral from the hands of the grantor.

4-085

Serial number

An identification number given to certain types of property, such as motor vehicles and watercraft.

5-135

Specific goods

An agreement where an interest held in priority is rendered subject to some other interest.

1-065

Subordination agreement

The secured party taking the shoes of the transferor by way of any right to receive payments still owing.

1-065

Subrogation

The secured party taking the shoes of the transferor by way of any right to receive payments still owing.

2-190

Temporary perfection

A period of time after a security interest has arisen which the PPSA will recognise as validly perfected in the absence of perfection by registration, possession or control.

2-090

Title

The legal or equitable rights in property which determined who was recognised as the ‘owner’ of the property at law.

Intro. IVA

Transfer

The transfer of collateral from one grantor (the transferor) to another grantor (the transferee).

2-095

Transitional register

A register which holds data to be transitioned to the PPS Register maintained by a law of the Commonwealth, State or Territory, and constitutes data in the approved form.

9-130

Unique identifier

A number assigned by the Registrar to each registered financing statement.

5-135

Value

Consideration that is sufficient to support a contract. Includes 2-020 an antecedent debt or liability which takes the meaning.

Verification statement

A written statement in the approved form verifying the registration of a financing statement or financing change statement with respect to a security interest.

5-055

List of Citations The following citations have been used in this book. We have provided a list of Canadian and US citations for ease of reference. We have not included Australian or New Zealand citations in this list. A Alta LR Alberta Law Reports (CAN) B BR Bankruptcy Reporter BCLR British Columbia Law Reports (CAN) BCSC British Columbia Supreme Court, Neutral Citation (CAN) BLR Business Law Reports (CAN) C Cal App 3d California (CA) Appellate Reports, Third Series CBR Canadian (CAN) Bankruptcy Reports CBR (5th) Canadian (CAN) Bankruptcy Reports, Fifth Series CCLT (2d) Canadian (CAN) Cases on the Law of Torts, Second Series D DLR Dominion Law Reports (CAN) DLR (4th) Dominion Law Reports, Fourth Series (CAN) F F2d Federal Reporter, Second Series F Supp 2d Federal Supplement, Second Series M Man R Manitoba Reports (CAN) N Nfd & PEIR Newfoundland & Prince Edward Island Reports Unedited (CAN) NBR New Brunswick Reports (CAN) NW 2d North Western Reporter, Second Series NSSC Nova Scotia Supreme Court, Neutral Citation (CAN) NSR (2d) Nova Scotia Reports (CAN) O ONCA Ontario Court of Appeal OR (2d) Ontario Reports, Second Series (CAN) P P.2d Pacific Reporter, Second Series PPSAC Personal Property Security Act Cases (CAN) PPSAC (2d) Personal Property Security Act Cases, Second Series (CAN) PPSAC (3d) Personal Property Security Act Cases, Third Series (CAN)

R RPR Real Property Reports (CAN) S Sask R Saskatchewan Reports (CAN) U UCC Rep Serv Uniform Commercial Code Reporting Service (Callaghan) W WWR Western Weekly Reports (CAN)

CASE TABLE References are to paragraph numbers.

A Paragraph AAD Services Pty Ltd (in liq) v ALD Wholesale Pty Ltd and Ors (No 3) [2019] VSC 564

¶1-065

ASIC v Letten (No 7) [2010] FCA 1231; (2010) 80 ACSR 401

¶2-080

AXA Asia Pacific Holdings Ltd v Direct Share Purchasing Corp Pty Ltd [2009] FCAFC 15; (2009) 173 FCR 434

¶8-080; ¶8-090

Accent Leasing & Sales Ltd v Babic (2007) 12 PPSAC (3d) 1; 62 RPR (4th) 269

¶1-070

Access Cash International Inc v Elliot Lake & North Shore Corp for Business Development (2000) 1 PPSAC (3d) 209

¶1-065

Accolade Wines Australia Ltd; Re [2016] NSWSC 1023

¶2-235; ¶5-045; ¶5105; ¶5-135; ¶10060

Adelaide Capital Corp v Integrated Transportation Finance Inc (1994) 6 PPSAC (2d) 267; 111 DLR (4th) 493 (Ont CJ GD)

¶1-065; ¶2-205; ¶5100

Advance Diamond Drilling (Receiver of) v National Bank Leasing Inc (1992) 3 PPSAC (2d) 154; 67 BCLR (2d) 173 (BC SC)

¶9-095

Advocate Financial LLC v Longenecker & Associates Ltd (2008) 2008 La App LEXIS 1538 (Louisiana CA)

¶1-045

Agnew v Pardington [2006] 2 NZLR 520

¶4-050

Agricultural Credit Corp of Saskatchewan v Pettyjohn 90 Sask R 206 (Sask CA)

¶2-020

Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22 (Sask CA)

¶1-075; ¶2-020; ¶2080; ¶2-235

Agricultural Credit Corp of Saskatchewan v Royal Bank of Canada (1994) 7 PPSAC (2d) 1; 115 DLR (4th) 569

¶5-030

Agriculture Financial Services Corp v Bar XH Sales Inc (2009) 16 PPSAC (3d) 1; 20 Alta LR (5th) 43

¶2-080

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR ¶3-070 249 Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852; (2013) 277 FLR 337

¶2-200; ¶8-015; ¶8050; ¶9-095

Albarran and Pleash (as recs and mgrs) of Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd [2013] NSWSC 852; (2013) APPSR ¶701-008; 277 FLR 337

¶2-120; ¶4-030; ¶4085

Alberta (Minister of Justice) v Letawsky (2009) 15 PPSAC (3d) 303; 13 Alta LR (5th) 234

¶2-275; ¶4-025

Alberta Pacific Leasing Inc v Petro Equipment Sales Ltd (1995) 10 PPSAC (2d) 69; ¶2-155 34 Alta LR (3d) 66

Alcan (NT) Alumina Pty Ltd v Commr of Territory Revenue (NT) (2009) 239 CLR 27

¶1-065; ¶10-055; ¶10-060

Alleasing Pty Ltd, In re OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 656

¶10-060

Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd [2017] SASC 163

¶2-235

Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd (2018) 36

¶2-235

Allied Master Chemists of Australia Ltd; Re [2020] NSWSC 291

¶10-060

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676

¶1-065

American Bank FSB v Cornerstone Community Bank (2012) 903 F Supp 2d 568 (US DC-ED Tennessee)

¶1-045

Amerind Pty Ltd (in liq) (recs and mgrs apptd); Re (2017) 121 ACSR 206; [2017] VSC 127

¶1-065; ¶9-165; ¶9170; ¶10-055

Amex-Protein Development Corp; Re (1974) 504 F 2d 1056 (USCA 9th Circ)

¶2-025

Amotran Pty Ltd; Re [2017] VSC 637

¶10-060

Andrews v Mack Financial (Can) Ltd (1987) 8 PPSAC 110; 46 DLR (4th) 731

¶4-025; ¶4-045; ¶4085

Angelkovski v Trans-Canada Foods Ltd (1986) 6 PPSAC 1

¶4-145

Anglo-Oriental Carpet Manufacturing Co; Re [1903] 1 Ch 914

¶10-060

Apex Gold Pty Ltd ACN 124 893 778; Re [2013] NSWSC 881; (2013) APPSR ¶701-009

¶2-030; ¶10-060

Apollo Fitness Academy Inc; Re (1984) 3 PPSAC 280; 6 DLR (4th) 654

¶2-025

Appleyard Capital Pty Ltd; Re; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629

¶10-060

Application of Guardian Securities Ltd; Re (1984) 1 NSWLR 95

¶2-030

Arcabi Pty Ltd (in liq) (recs & mgrs apptd); Re (2014) 288 FLR 236; [2014] WASC 310

¶1-065; ¶1-070; ¶8030

Asset Traders Ltd v Favas Sportscar World Ltd [2006] NZHC 903

¶5-205

Assiniboine Credit Union Ltd v Canadian Imperial Bank of Commerce (1984) 4 PPSAC 96; 11 DLR (4th) 744 (MB CA)

¶9-105

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25

¶1-065

Associates Discount Corp v Rattan Chevrolet Inc (1970) 462 SW 2d 546

¶2-155

Astral Communications Inc v 825536 Ontario Inc (Trustee of) (2000) 15 PPSAC (2d) 256; 183 DLR (4th) 455

¶2-025

Atlas Industries v Federal Business Development Bank (1983) 3 PPSAC 39 (Sask QB)

¶2-025

Auburn Shopping Village Pty Ltd v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378; ¶2-030; ¶2-235; ¶5[2017] NSWSC 1230 100; ¶5-105 Aurora Mines Inc v Mariah Mining Corp (2004) 7 PPSAC (3d) 185; 5 CBR (5th) 163

¶4-105

Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700

¶1-045

Australian Road Express Pty Ltd (in liq) (recs and mgrs apptd); Re [2018] FCA

¶5-085

1429 Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480

¶8-015

Auto Sales v Cash Store Inc [2005] ABQB 212; (2005) 7 PPSAC (3d) 356

¶2-110

Azmac Pty Ltd (in liq); Re [2020] NSWSC 204

¶10-035

B Paragraph BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211

¶1-045

BMP & Daughters Investment Corp v 941242 Ontario Ltd (1992) 4 PPSAC (2d) 220

¶2-200

Bank of Credit and Commerce International SA (No 8); Re [1998] AC 214

¶1-065

Bank of Montreal v 414031 Ontario Ltd (1983) 2 PPSAC 248; 45 CBR (NS) 77 (Ont DC)

¶1-045

Bank of Montreal v Featherstone (1989) 9 PPSAC 139; 58 DLR (4th) 567

¶4-120

Bank of Montreal v i Trade Finance Inc (2011) 17 PPSAC (3d) 250; 332 DLR (4th) 193

¶1-045

Bank of Montreal v Innovation Credit Union [2010] SCC 47; (2010) 17 PPSAC (3d) ¶1-045; ¶1-065; ¶21 030; ¶2-290 Bank of Montreal v Judges (1991) 1 PPSAC (2d) 240

¶4-125

Bank of New Zealand v Waewaepa Station 2002 Ltd [2013] NZHC 3321

¶2-085; ¶2-155; ¶8175

Bank of Nova Scotia v IPS Invoice Payment System Corporations (2010) 17 PPSAC (3d) 99; 101 OR (3d) 352 (Ont SCJ)

¶2-080

Bank of Nova Scotia v Royal Bank (1987) 8 PPSAC 17; 42 DLR (4th) 636 (Sask CA)

¶2-200

Bank of Nova Scotia v Steffens (2002) 4 PPSAC (3d) 197

¶8-170

Bankers Trust Co v Shapira [1980] 3 All ER 353

¶2-080

Bankruptcy of Canadian Auto Lease Corp 2006 BCSC 849 (CanLII)

¶7-125

Bankruptcy of Rosa Argentina Gonzalez; Re [2017] MBQB 178

¶5-100

Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321

¶2-080

Barclays Bank Plc; Re [2012] NSWSC 1095; (2012) APPSR ¶701-003

¶2-030; ¶10-060

Barclays Business Credit Inc v Fletcher Challenge Canada Ltd (1993) 5 PPSAC (2d) 105; 13 OR (3d) 118

¶1-045

Battlefords Credit Union Ltd v Ilnicki (1991) 82 DLR (4th) 69; 93 Sask R 7 (Sask CA)

¶1-075

Bayview Credit Union v Doucette (2012) 19 PPSAC (3d) 224; [2012] NBQB 200

¶4-115

Beck v Montana Constructions Pty Ltd (1963) 5 FLR 298

¶3-125

Beecham Group Ltd v Bristol Laboratories (1968) 118 CLR 618

¶3-070

Belarus Equipment of Canada Ltd v C & M Equipment (Brooks) Ltd (Receiver of)

¶2-275

(1994) 8 PPSAC (2d) 32 Bennet Funding Group Inc, In re (1996) 230 BR 30

¶2-280

Bermingham v Corrective Services Commr of NSW (1988) 15 NSWLR 292

¶1-070

Bevillesta Pty Ltd v Imagine UN Ltd [2009] VSC 50; 69 ACSR 574

¶10-060

Biondo v Baycorp Collections PDL (Australia) Pty Ltd [2018] FCCA 1853

¶2-225

Blue Water Resort Ltd v Marac Finance Ltd [2008] NZHC 1307

¶1-045

Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Co Pty Ltd [2019] WASC 438

¶1-065; ¶10-055; ¶10-060

Brant Avenue Manor Ltd Partnership v Transamerica Life Insurance Co of Canada ¶2-025 (2000) 1 PPSAC (3d) 73 (Ont SCJ) Bredenkamp v Gas Sensing Technology Corp; Re Welldog Pty Ltd (in liq) (recs & mgrs apptd) [2017] FCA 1065

¶1-070; ¶8-015; ¶8030

Bucala, In re (2012) 464 BR 626 (Bankr SD NY)

¶2-030

Bulut v Brampton (City) (2000) 15 PPSAC (2d) 213; 185 DLR (4th) 278

¶2-200

Bunnings Group Ltd v Laminex Group Ltd (2006) 153 FCR 479

¶2-160

Business Development Bank of Canada v ABN Amro Leasing (2003) 5 PPSAC (3d) 76

¶2-235

C Paragraph CBA v MTC Diesel Pty Ltd [2019] VCC 439

¶2-290

CNH Capital Canada Ltd v Diamond4 Holdings Ltd (2012) 19 PPSAC (3d) 262; 92 ¶4-115 CBR (5th) 167 CPC Networks Corp v Eagle Eye Investments Inc (2012) 405 Sask R 86; 95 CBR (5th) 76 (Sask CA)

¶2-015

C Dixon Fuels Ltd v SWS Fuels Ltd (2011) 17 PPSAC (3d) 175; [2011] NSCA 35 (Nova Scotia CA)

¶2-020; ¶2-045

Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267

¶10-060

Camco Inc v Frances Olson Realty (1979) Ltd (1986) 6 PPSAC 167; 50 Sask R 161

¶2-070; ¶2-155; ¶2275

Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109

¶10-060

Canada North Group Inc; Re [2019] ABQB 730

¶2-155

Canada Permanent Trust Co v Thomas (1983) 3 PPSAC 66; 149 DLR (3d) 338

¶8-040

Canada Trustco Mortgage Corp v Port O’Call Hotel Inc (1996) 11 PPSAC (2d) 1; 133 DLR (4th) 609

¶1-065

Canadian case of Central Refrigeration & Restaurant Services Inc (Trustee of) v Canadian Imperial Bank of Commerce (1986) 5 PPSAC 262; 47 Sask R 124

¶8-015

Canadian Imperial Bank of Commerce v McGhie (2005) 9 PPSAC (3d) 108

¶4-025

Canadian Imperial Bank of Commerce v Tux & Tails Ltd (2006) 9 PPSAC (3d) 115; ¶2-095; ¶2-265 20 CBR (5th) 316

Canadian Imperial Bank of Commerce v Melnitzer (Trustee of) [1993] OJ No 3021

¶7-125

Canamsucco Road House Food Co v LNGAS Ltd (1991) 2 PPSAC (2d) 203

¶2-015

Canamsucco Road House Food Co v LNGAS Ltd (1997) 12 PPSAC (2d) 227

¶2-015

Capital Finance Australia Ltd v Clough [2015] NSWSC 1327

¶5-205

Cardinia Nominees Pty Ltd, In re (2013) APPSR ¶701-005; [2013] NSWSC 32

¶2-030; ¶10-060

Cardtronics Australasia Pty Ltd v FX Investments Australia Pty Ltd [2020] FCA 218 ¶1-065 Carevest Capital Inc v 1262459 Alberta Ltd [2011] ABQB 148

¶1-045

Carpenter International Pty Ltd; Re [2016] VSC 118; (2016) 111 ACSR 477

¶2-030; ¶2-225; ¶5035; ¶5-090; ¶8015; ¶10-060

Carpet Call Pty Ltd v Chan (1987) ATPR (Digest) ¶46-025

¶2-160

Carrafa (as liq) of Relux Commercial Pty Ltd (ACN 155 749 438) (in liq) v Doka Formwork Pty Ltd [2014] VSC 570; (2014) 104 ACSR 163

¶1-070

Carson; Re Hastie Group Ltd (No 3) [2012] FCA 719; (2012) APPSR ¶701-001

¶9-015; ¶9-015; ¶9085; ¶9-110

Carter Holt Harvey Woodproducts Australia Pty Ltd v Cth (2019) 368 ALR 390; [2019] HCA 20

¶2-080; ¶9-160; ¶9170; ¶10-025

Case Credit Ltd v Rhodan Contracting Ltd (2004) 7 PPSAC (3d) 346

¶4-125

Caterpillar Financial Services Corp v Peoples National Bank NA (2013) 710 F 3d 691 (US CA 7th Cir)

¶2-020

Caterpillar Financial Services Ltd v 360networks Corp (2007) 10 PPSAC (3d) 311; 27 CBR (5th) 115 (BC CA)

¶1-045

Catombal Investments Pty Ltd; Re [2012] NSWSC 775

¶10-060

Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61

¶1-065; ¶2-025; ¶2200

Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (in his capacity as joint and several liquidator of Swan Services Pty Ltd (in liq)) [2015] VSCA 92; (2015) 321 ACSR 181

¶1-065; ¶2-025; ¶2200; ¶9-025

Charter Financial Co v Royal Bank (2002) 4 PPSAC (3d) 4; 32 CBR (4th) 212

¶5-130

Chase Manhattan Bank NA v Israel British Bank (London) Ltd [1981] 1 Ch 105

¶2-080

Chiips Inc v Skyview Hotels Ltd (1994) 7 PPSAC (2d) 23; 116 DLR (4th) 385

¶2-230

Chrysler Credit Canada Ltd v Royal Bank (1986) 6 PPSAC 153; 30 DLR (4th) 616 (Sask CA)

¶2-235

Cirillo and Registrar of Personal Property Securities; Re [2013] AATA 733; (2013) APPSR ¶701-011

¶5-185; ¶5-190

Citadel Financial Corporation Pty Ltd v Elite Highrise Services Pty Ltd (No 3) [2014] NSWSC 1926

¶1-065; ¶2-025

Cliffs Over Maple Bay; Re (2010) 16 PPSAC (3d) 237; 65 CBR (5th) 241

¶1-045

Cliffs Over Maple Bay; Re [2011] BCCA 180

¶1-045

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

¶3-125

Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand)

¶1-045

Ltd [1995] 3 All ER 987 Commercial Bank of Australia v Friedrich (1991) 5 ACSR 115

¶4-025

Commercial Credit Corp v Harry D Shields Ltd (1981) 1 PPSAC 301; 122 DLR (3d) ¶1-045 736 (Ont HCJ) Commercial National Bank v Seubert & Associates Inc (2002) 807 A 2d 297

¶1-045

Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41; [2019] HCA 19

¶1-065; ¶2-080; ¶9160; ¶9-170

Commonwealth Bank of Australia v Saleh [2007] NSWSC 903

¶2-080

Communication Dynamics Inc, In re (2003) 300 BR 220

¶2-325

Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 ¶2-270 Community Futures Development Corp of Howe Sound v Spargo (2000) 1 PPSAC ¶1-065; ¶2-025 (3d) 263; 76 BCLR (3d) 190 (BC SC); 2000 BCSC 1471 Compass Capital Ltd v The New Zealand Guardian Trust Co Ltd [2009] NZHC 344 ¶4-025 Construction Systems Pty Ltd v Dryka & Associates Pty Ltd [2010] WASC 22

¶5-150

Copp v Medi-Dent Services (1991) 2 PPSAC (2d) 114; 30 OR (3d) 370

¶4-125

Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd ¶2-080 (in liq) (No 2) [2020] NSWCA 117HCA 20 Coward v Rich (1995) 9 PPSAC (2d) 236 (Ont CJ)

¶8-040

Crago v Multiquip (1998) ATPR ¶41-620

¶2-160

Credit Suisse Canada v 1133 Yonge Street Holdings Ltd (1998) 14 PPSAC (2d) 61; 5 CBR (4th) 174

¶1-065; ¶9-165

D Paragraph DCD Industries (1995) Ltd; Re (2005) 7 PPSAC (3d) 251; 253 DLR (4th) 171 (Alta CA)

¶1-075; ¶2-230; ¶2235

DaimlerChrysler Services Canada Inc v Cameron [2007] BCCA 144; (2007) 11 PPSAC (3d) 19

¶1-065

Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a ¶1-045; ¶1-065; ¶2firm) [2020] WASC 132 045 Daly v Shrimplin (1980) 610 P 2d 397

¶1-045

Daniel Smith Industries Ltd v Cranes International NZ Ltd [2009] NZHC 2589

¶5-205

Dapper Apper Holdings Ltd v 895453 Ontario Ltd (1996) 11 PPSAC (2d) 57; 38 CBR (3d) 284 (Ontario CJ)

¶1-065

David Morris Fine Cars Ltd v North Sky Trading Inc (Trustee of) (1996) 11 PPSAC (2d) 142; 39 CBR (3d) 284

¶1-070; ¶2-155

Davidson v Registrar of Personal Property Securities [2015] AATA 549

¶1-065

Dean-Willcocks v Nothintoohard Pty Ltd (2005) 53 ACSR 587

¶2-015

Dean-Willcocks v Nothintoohard Pty Ltd (2007) 25 ACLC 109

¶2-015

Deane v CSD (Qld) (No 2) [1996] 2 Qd R 557

¶7-020

Denbride Pty Ltd v Registrar of Personal Property Securities, Eagle Boys Dial-apizza Australia Pty Ltd [2015] AATA 938

¶5-195

Devaynes v Noble (1816) 1 Mer 772; 35 ER 871

¶2-085

Dickerson; Re McWilliam’s Wines Group Ltd (Admin Apptd) (No 2) [2020] FCA 417 ¶10-055 Diplock; Re [1948] Ch 465

¶2-080

Director under the Seizure of Criminal Property Act 2009 v Kaytor [2012] SKQB 346

¶1-065

Discount Auto Sales v Cash Store Inc (2005) 7 PPSAC (3d) 356

¶2-100

District of Columbia v Thomas Funding Corp (1991) 593 A 2d 1030, 1034 (DC CA) ¶1-045 Dixon Fuels Ltd v SWS Fuels Ltd (2011) FPPSR ¶700-127; (2011) 17 PPSAC (3d) ¶2-225 175; [2011] NSCA 35 Doctors Hospital of Hyde Park Inc, In re (2003) 337 F 3d 951

¶2-325

Donaghy v CSN Vehicle Leasing (1992) 4 PPSAC (2d) 37; 14 CBR (3d) 256

¶8-030

Donnelly v International Harvester Credit Corp of Canada (1983) 2 PPSAC 290; 22 ¶8-040 BLR 66 (Ont CJ) Dor-O-Matic of Canada Inc; Re (1996) 28 OR (3d) 125

¶4-055; ¶4-060

Douglas-Brown (as liq of De Barros Nominees Pty Ltd (in liq)) v Standard Chartered Finance Ltd (1990) 2 ACSR 737; 8 ACLC 993

¶10-060; ¶10-060

Douglas Financial Consultants Pty Ltd v Price [1992] 1 Qd R 243, 251–253

¶7-035

Downs Distributing Company Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) ¶2-155 76 CLR 463 Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295

¶4-125

Dube v Bank of Montreal (1986) 7 PPSAC 223 (Sask CA)

¶1-045

Duckett v McKinnon [2012] BCSC 2147

¶2-025

Dudley Engineering Pty Ltd; Re [1968] 1 NSWR 483

¶10-060

Dura (Aust) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) (2014) 49 VR 86; [2014] VSCA 326

¶1-045; ¶1-065; ¶2015; ¶2-020; ¶2290

E Paragraph Ehrmann Bros Ltd; Re [1906] 2 Ch 697

¶10-060

Elite Sydney Pty Ltd; Re [2016] NSWSC 1934

¶1-065

Ellingsen (Trustee of) v Hallmark Ford Sales Ltd (2000) 1 PPSAC (3d) 307; 190 DLR (4th) 47 (BC CA)

¶1-045; ¶1-065

Ellingsen; Re (2000) FPPSR ¶700-115; 2000 BCCA 458; (2000) 1 PPSAC (3d) 307

¶1-065

Engel Canada Inc v TCE Capital Corp (2002) 4 PPSAC (3d) 124; 34 CBR (4th) 169

¶2-230

Enviro Pallets; Re (NSW) Pty Ltd [2013] QSC 220

¶10-060

Erjo Investments Ltd v Michener Allen Auctioneering Ltd (2004) 6 PPSAC (3d) 220; 238 DLR (4th) 32; 241 Sask R 228 (Sask CA)

¶2-020; ¶2-295; ¶4085

Euroclean Canada Inc v Forest Glade Investments Ltd (1984) 4 PPSAC 271

¶2-230

Evans v European Bank Ltd [2004] NSWCA 82

¶2-080

F Paragraph Fairbanx Corp v Royal Bank (2009) 15 PPSAC (3d) 265; 57 CBR (5th) 310

¶2-045

Fairbanx Corp v Royal Bank (2010) 16 PPSAC (3d) 96; 68 CBR (5th) 102

¶1-065

Fairline Boats Ltd v Leger (1980) 1 PPSAC 218

¶2-155

Fairmont Resort Properties Ltd; Re (2009) 15 PPSAC (3d) 161

¶7-030

Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2001) 3 PPSAC (3d) 23; 211 Sask R 222

¶1-065; ¶1-075

Farm Credit Corp v Valley Beef Producers Co-operative Ltd (2002) 5 PPSAC (3d) 1; 218 DLR (4th) 86 (Sask CA)

¶1-045; ¶1-065; ¶1075; ¶2-080

Federal Republic of Brazil v Durant International Corporation [2015] UKPC 35

¶1-075

Ferandos; Re (2005) 402 F 3d 147 (US CA 3rd Cir)

¶2-020

Field v Battye [1939] SASR 235

¶1-045

Fin One Pty Ltd v Kucharski [2017] QMC 17

¶4-085

Findlay v Jones [2015] NSWSC 277

¶10-060

Fire Nymph Products Pty Ltd v Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365

¶2-155

First National Bank of Brush v Bostron (1977) 564 P.2d 964

¶3-095

518718 Alberta Ltd v Canadian Forest Products Ltd [1999] 3 WWR 672; 63 Alta LR (3d) 371

¶4-025

5198837 Manitoba Ltd v Ozirny (2007) 12 PPSAC (3d) 121; 221 Man R (2d) 211 (MB QB)

¶1-045

Flexi-Coil Ltd v Kindersley District Credit Union Ltd (1993) 5 PPSAC (2d) 192; 113 Sask R 298; 107 DLR (4th) 129 (Sask CA)

¶2-080; ¶2-230; ¶2270; ¶2-275; ¶8170

Flinders Trading Co; Re (1978) 3 ACLR 218

¶10-060

Florgale Uniforms Pty Ltd v Orders (2004) 11 VR 54

¶4-125

Flown Pty Ltd v Goldrange Pty Ltd [2016] WASC 419; (2016) 316 FLR 81

¶2-030; ¶2-045

Foothill Capital Corp v Clare’s Food Market, Inc (In re Coupon Clearing Serv Inc) (1997) 113 F 3d 1091 (USCA 9th Cir)

¶2-020

Ford v Petford (1996) 11 PPSAC (2d) 227 (BC SC)

¶4-195

Ford Motor Co of Canada Ltd v Manning Mercury Sales Ltd (Trustee of) (1997) 12 PPSAC (2d) 1; 140 DLR (4th) 344

¶1-065

Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) v General Electric International Inc [2016] NSWSC 52

¶1-070

Fortson Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162

¶4-125

4 in 1 Wyoming Pty Ltd; Re [2017] NSWSC 407

¶5-045; ¶5-100; ¶5105; ¶9-155

436399 Ontario Inc v Bank of Nova Scotia (1983) 3 PPSAC 187; 49 CBR (NS) 142 ¶1-045 Frank v James Talcott Inc (1982) 692 F 2d 734

¶5-045

Freightlines Northern Territory Pty Ltd (1999) 32 ACSR 573

¶10-060

Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd [2013] NSWSC 1741

¶2-030; ¶5-045; ¶5100

G Paragraph GATX Corporate Leasing Inc v William Day Constructions Ltd (1986) 6 PPSAC 118; 60 CBR (NS) 319

¶4-015

GE Canada Equipment Financing GP v ING Insurance Co of Canada (2009) 14 PPSAC (3d) 49; 308 DLR (4th) 127; 94 OR (3d) 321 (Ont CA)

¶1-045; ¶2-085; ¶2155

GE Capital Canada Equipment Financing Inc v HSBC Bank Canada (2002) 4 PPSAC (3d) 145

¶2-275

GMAC Commercial Credit Corp Canada v TCT Logistics Inc (2004) 238 DLR (4th) 487; 6 PPSAC (3d) 163 (Ont CA)

¶1-065; ¶7-035

GMAC Lease Co Ltd v Best Audio Design Inc (2004) 6 PPSAC (3d) 385

¶3-040

GMAC Lease Co Ltd v Moncton Motor Home & Sales Inc (Trustee of) (2003) 4 PPSAC (3d) 211; 227 DLR (4th) 154

¶2-200; ¶5-100; ¶5100

GMAC Lease Co Ltd v Tomax Credit Corp (2001) 3 PPSAC (3d) 15

¶3-040

G M Homes Inc; Re (1984) 4 PPSAC 116; 10 DLR (4th) 439 (Sask CA)

¶2-020

G Slocombe & Associates Inc v Gold River Lodges Ltd (2001) 2 PPSAC (3d) 324; 24 CBR (4th) 32

¶4-195

Gamer’s Motor Centre (Newcastle) Pty Ltd v NatWest Wholesale Australia Pty Ltd [1987] HCA 30; (1987) 163 CLR 236

¶2-045

Garnett v M’Kewan (1872) LR 8 Ex 10

¶1-045

Gas Sensing Technology Corp v ProX Pty Ltd [2019] WASC 10

¶1-045; ¶1-065

Gateway Hotel Partners LLC v CIR (2014) TC Memo 2014-5; 2014 WL 92027 (US ¶1-065; ¶2-025 Tax Court) Gauntlet Energy Corp; Re (2003) 5 PPSAC (3d) 236; 20 Alta LR (4th) 314 (Alta QB)

¶1-065; ¶2-230

Gelowitz v Garcon Enterprises Ltd (1995) 132 Sask R 273

¶1-070

Gelpack Enterprises Pty Ltd (in liq); Re [2015] NSWSC 1558

¶1-065; ¶2-025

General Electric Capital Canada Inc v Interlink Freight Systems Inc (1998) 14 PPSAC (2d) 198; 7 CBR (4th) 173

¶2-085

General Motors Acceptance Corp of Canada v Bank of Nova Scotia (1986) 6 PPSAC 53; 55 OR (2d) 438

¶2-080

Gibbston Downs Wines Ltd v Perpetual Trust Ltd [2012] NZHC 1022; (2012) FPPSR ¶700-007

¶2-200

Gibbston Downs Wines Ltd v Perpetual Trust Ltd [2013] NZCA 506

¶2-230; ¶4-085

Gibson v Stockco Ltd [2010] NZHC 2398

¶2-085; ¶4-025

Giffen; Re (1996) 10 PPSAC (2d) 277; 131 DLR (4th) 453

¶8-015

Giffen; Re [1998] 1 SCR 91; (1998) 13 PPSAC (2d) 255; 155 DLR (4th) 332 (SCC) ¶1-070; ¶2-020; ¶7170; ¶8-015 Gimli Auto Ltd v BDO Dunwoody Ltd 160 DLR (4th) 373

¶2-120

Gimli Auto Ltd v Canada Campers Inc (Trustee of) (1998) 13 PPSAC (2d) 378

¶2-120

Glengarry AET Inc (Trustee of) v Manhattan Electric Cable Corp (1986) 6 PPSAC 112 (Ont SC)

¶1-065

Glosser v Colonial Pacific Leasing Co (In re Equitable Financial Management Inc) (1994) 164 BR 53

¶2-280

Gold Coast Leasing Co v California Carrots Inc (1979) 93 Cal App 3d 274 (Cal CA) ¶1-045 Gold Key Pontiac Buick (1984) Ltd v 464750 BC Ltd (Trustee of) (2000) 77 BCLR (3d) 185; 2 PPSAC (3d) 206; 189 DLR (4th) 668

¶5-100; ¶5-135

Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528

¶2-020; ¶2-030; ¶2200

Graham and Gibson v Portacom New Zealand Ltd [2004] 2 NZLR 528; (2004) FPPSR ¶700-001

¶1-070

Gray v Royal Bank of Canada (1997) 12 PPSAC (2d) 126; 143 DLR (4th) 179 (BC SC)

¶2-020

Greenlight Asset Pty Ltd v WBK Ricetti Pty Ltd [2017] WASC 278

¶2-235

Guardian Securities Ltd; Re [1984] 1 NSWLR 95

¶10-060

H Paragraph HSBC Bank Canada v Kupritz [2011] BCSC 788

¶4-125

Haliburton Broadcasting Group Inc v Van Duyn (2008) 14 PPSAC (3d) 77 (Ont Superior Court of Justice)

¶1-065

Hall v Poolman (2007) 65 ACSR 123

¶4-025

Hallet’s Estate; Re (1880) 13 Ch D 696

¶2-080

Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (recs and mgrs apptd) ¶1-045; ¶1-065; ¶1(2018) 53 WAR 325; (2018) 337 FLR 420; (2018) 130 ACSR 262; [2018] WASCA 075; ¶2-015; ¶2163 020; ¶2-080; ¶2085; ¶2-325; ¶9165; ¶9-170 Harder (Trustee of) v Alberta Treasury Branches (2004) 6 PPSAC (3d) 346; 36 Alta LR (4th) 118

¶5-135; ¶8-170

Health Insurance Commission v Peverill (1994) 179 CLR 226

¶8-015

Healy Holmberg Trading Partnership v Grant and Khov as liq of LBD Civil Ltd (in liq) [2012] NZCA 451; (2012) FPPSR ¶700-011

¶2-020; ¶2-200; ¶5130

Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 256; (2003) 135 FCR 206; 47 ACSR 589

¶10-060

Hickman Equipment (1985) Ltd; Re (2003) 4 PPSAC (3d) 252; 40 CBR (4th) 58;

¶2-030; ¶2-265

41 CBR (4th) 101 Hickman Equipment (1985) Ltd; Re (2003) 7 PPSAC (3d) 37; 2 CBR (5th) 226

¶2-030

Hickman Equipment (1985) Ltd; Re (2004) 7 PPSAC (3d) 56; 239 Nfld & PEIR 312 ¶1-075; ¶9-105 (N& CA) Hickman Equipment (1985) Ltd; Re (2006) 10 PPSAC (3d) 206; 274 DLR (4th) 372 ¶1-065 Hill; Re Flow Systems Pty Ltd (Admin Apptd) [2019] FCA 35

¶10-055

Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220

¶1-070

Holland v Chrysler Credit Canada Ltd (1992) 4 PPSAC (2d) 250; 5 Alta LR (3d) 258 (Alta QB)

¶9-095

Holroyd v Marshall [1861–1873] All ER Rep 414

¶2-015

Hongkong Bank of Canada v National Bank of Canada (1990) 1 PPSAC (2d) 73; 72 DLR (4th) 372

¶2-025

Hooks; Re (1984) 40 BR 715

¶1-075

Hopkinson v Rolt (1861) 9 HL Cas 514

¶2-015

Horbay Inc v Great West Golf & Industrial Inc (2000) 2 PPSAC (3d) 179; 87 Alta LR (3d) 98 (Alta QB)

¶2-015

Hornby Equipment Ltd v Andrushko (2000) 1 PPSAC (3d) 98

¶8-040

Hoskins; Re (2014) 8 CBR (6th) 98 (NL SC Trial Division)

¶5-100

Hughes v Fea [2013] NZHC 2863

¶1-065; ¶1-070

Hughes v Pluton Resources Ltd [2017] WASCA 213

¶1-045

Hunter Helicopters Inc v Islands Timberlands Ltd Partnership [2019] BCSC 832

¶2-155

Hussain v CSR Building Products Ltd, Re FPJ Group Pty Ltd (in liq) [2016] FCA 392

¶10-055

I Paragraph IRC v Stiassny [2013] 1 NZLR 140; [2012] NZCA 93

¶1-065; ¶9-165

i Trade Finance Inc v Bank of Montreal [2011] 2 SCR 360; (2011) FPPSR ¶700125; 2011 SCC 26

¶1-065; ¶2-020; ¶2320

Imagine UN Ltd; Re [2009] VSC 50

¶10-060

Industrial Progress Corp Pty Ltd v Wilson [2013] WASC 225

¶1-065; ¶2-025

Inland Contracting Ltd v Bakken (2010) 16 PPSAC (3d) 282; 354 Sask R 54

¶4-135

Inland Kenworth Inc v Laboucane (2004) 11 PPSAC (3d) 50; 26 BCLR (4th) 108

¶4-120; ¶4-125

Innovation Credit Union v Bank of Montreal (2009) 14 PPSAC (3d) 149; 306 DLR (4th) 407

¶2-200

Innovation Credit Union v Bank of Montreal (2010) 17 PPSAC (3d) 1; 235 DLR (4th) 605 (SCC)

¶2-020

Instant Auto Loans Inc v Spak (2000) 15 PPSAC (2d) 287

¶1-075

International Harvester Credit Corp of Canada v Bell’s Dairy Ltd (Trustee of) (1986) ¶1-070; ¶5-100; ¶86 PPSAC 138; 30 DLR (4th) 387; 50 Sask R 177 015

International Harvester Credit Corp of Canada v Touche Ross Ltd (1986) 30 DLR (4th) 387

¶8-015

Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534

¶3-125

Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617 (VSCA)

¶4-125

J Paragraph JII Liquidating Inc; Re (2006) 344 BR 875 (Bankruptcy Court-ND Illinois)

¶1-045

JPM Express Inc v 2092889 Ontario Inc (2010) 16 PPSAC (3d) 337 (Ont SCJ)

¶7-030

JS Brooksbank and Co (Australasia) Ltd v EXFTX Ltd (in rec and liq) [2009] NZCA ¶1-065 122; (2009) 10 NZCLC 264,520 Jamail, In re (1980) 609 F.2d 1387 (USCA 5th Circ)

¶3-095

James v Cth (1939) 62 CLR 339

¶2-045

James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62

¶2-080

Jensen & Jensen; Re [2015] FCCA 2721

¶2-015

John Deere Ltd v Firdale Farms Ltd (Receiver of) (1987) 8 PPSAC 52; 45 DLR (4th) 641

¶1-065

Joplin Brewery Co Ltd; Re [1902] 1 Ch 79

¶10-060

Jorgenson v ASL Paving Ltd (2007) 12 PPSAC (3d) 90; 302 Sask R 281 (Sask CA)

¶5-205

K Paragraph KBA Canada Inc v 3S Printers Inc 2012 BCSC 1078 (CanLII); 2012 BCSC 1078

¶7-125

KBA Canada Inc v Supreme Graphics Ltd [2014] BC CA 117

¶7-125

Kaak v Bank of Montreal (2003) 5 PPSAC (3d) 187 (Ont SCJ); (2003) 6 PPSAC (3d) 13 (Ont CA)

¶1-065

Kaizen Global Investments Ltd; Re Australia New Agribusiness & Chemical Group Ltd (in liq) v Australia New Agribusiness & Chemical Group Ltd (in liq) [2017] FCA 431

¶10-060

Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd [1994] FCA 1059; (1994) 51 FCR 446

¶5-150

Karkoulas v Farm Credit Canada (2005) 8 PPSAC (3d) 249; 270 Sask R 291 (Sask QB)

¶1-070

Kasten Energy Inc v Shamrock Oil & Gas Ltd (2013) 20 PPSAC (3d) 128; 2013 ABQB 63

¶4-050

Kelln (Trustee of) v Strasbourg Credit Union Ltd (1992) 3 PPSAC (2d) 44; 89 DLR (4th) 427 (Sask CA)

¶5-100

Kervan Trading Pty Ltd v Aktas (1987) 8 IPR 583

¶3-125

Kimberley Diamond Company Pty Ltd; Re (in liq) [2017] NSWSC 538

¶9-170

The King v Brown (1912) 14 CLR 17

¶2-270

K.J. Renfrey Nominees Pty Ltd (Trustee); Re OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325

¶10-055

Klein v Lemore Investments Ltd (1983) 2 PPSAC 252

¶4-145

Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (in liq) (recs and mgrs apptd) [2017] FCA 866

¶2-030; ¶2-045; ¶4085; ¶4-090; ¶10055

Koppel v Koppel [1966] 2 All ER 187

¶2-045

Korda, ReTen Network Holdings Ltd (admin apptd) (recs and mgrs apptd) [2017] FCA 1144

¶10-055; ¶10-060

Kotarba Technologies Ltd v Process Group Inc (1997) 12 PPSAC (2d) 144 (Ont CJ)

¶8-060

Kris Cruisers Ltd; Re [1949] 1 Ch 138; [1948] 2 All ER 1105

¶10-060

Kulchyski v Shuswap Ventures Corp (1994) 7 PPSAC (2d) 216

¶3-040

Kuzilla; Re (2009) 13 PPSAC (2d) 255; 50 CBR (5th) 144

¶8-015

L Paragraph Lambert; Re (1994) 7 PPSAC (2d) 240; 119 DLR (4th) 93; 20 OR (3d) 108

¶2-030; ¶5-030; ¶5135; ¶5-100

Laminated Veneers Co Inc; Re (1973) 471 F 2d 1124 (USCA 2nd Circ)

¶2-025

Langdon; Re; Forge Group Ltd (in liq) (recs and mgrs apptd) [2017] FCA 170; (2017) 118 ACSR 434

¶1-065; ¶2-015; ¶9165; ¶9-170; ¶10025

Lanson v Saskatchewan Valley Credit Union Ltd (1998) 14 PPSAC (2d) 71; 172 Sask R 106 (Sask CA)

¶2-080; ¶2-085

Laughton; Re [1962] Tas SR 300

¶2-080

Lease Truck Inc v 375603 Ontario Ltd (1996) 11 PPSAC (2d) 351 (Ont CJ)

¶8-040

Leavere v Port Colborne (City) (1995) 122 DLR (4th) 200 (Ont CA)

¶1-045; ¶2-290

Loewen v Superior Acceptance Corp (1997) 12 PPSAC (2d) 230; 33 BCLR (3d) 72 ¶8-040 Leu v NM Paterson & Sons Ltd (1997) 13 PPSAC (2d) 27 156 Sask R 36

¶3-025

Liberty National Bank & Trust Co of Oklahoma City v Acme Tool Division of the Rucker Co (1976) 540 F2d 1375

¶4-125

Lindholm; Re; Opes Prime Stockbroking Ltd (admin apptd) (recs and mgrs apptd) [2008] FCA 1425; (2008) 171 FCR 473

¶1-045

Lisec America Inc v Barber Suffolk Ltd [2012] ONCA 37; (2012) FPPSR ¶700-128; ¶2-205 18 PPSAC (3d) 252 Lloyd Anthony Furniture Pty Ltd; Re; Ex parte Walker (1996) 19 ACSR 478

¶10-060

Lloydminster Credit Union Ltd v 324007 Alberta Ltd (2011) 18 PPSAC (3d) 267

¶2-085

Loeb Canada Inc v Caisse Populaire Alexandria Ltée (2004) 7 PPSAC (3d) 194

¶4-125

M Paragraph MC United Masonry Ltd; Re (1983) 2 PPSAC 237; 142 DLR (3d) 470

¶2-030

McCloy v Manukau Institute of Technology [2013] NZHC 936; (2013) FPPSR ¶700-013; [2013] 3 NZLR 390

¶1-065; ¶2-045; ¶10-060

McKeown (Horseman’s Haven) (1984) 4 PPSAC 209; 35 Sask R 211

¶2-085

McMillen v Drive Financial Services LP (2005) 57 UCC Rep Serv 2d (Callaghan) 517

¶4-195

McWinn Air Filter Cleaning Systems Ltd v 604859 Saskatchewan Ltd (1999) 15 PPSAC (2d) 19; 181 Sask R 185

¶2-080

Mac Property Finance Ltd v Hanover Finance Ltd [2009] NZHC 50

¶8-085

Macquarie Leasing v The Registrar of the Personal Property Securities Register [2015] NSWSC 94

¶5-035

Macquarie Leasing Pty Ltd v DEQMO Proprietary Ltd [2014] NSWSC 1466

¶5-035

Macquarie Leasing Pty Ltd v The Registrar of the Personal Property Securities Register [2014] NSWSC 1677

¶5-035; ¶5-215

Maiden Civil (P&E) Pty Ltd; Re; Albarran v Queensland Excavation Services Pty Ltd [2013] NSWSC 852; (2013) APPSR ¶701-008; 277 FLR 337

¶1-065; ¶1-070; ¶2020; ¶2-030; ¶2120; ¶2-200; ¶4030; ¶4-085; ¶7020; ¶7-035; ¶8015; ¶8-050; ¶9095

Maksteel Inc; Re (2002) 4 PPSAC (3d) 77

¶2-085

Marac Finance Ltd v Greer [2012] 2 NZLR 497; [2012] NZCA 45

¶1-045

Marandola v Marandola Mechanical Inc (2004) 53 UCC Rep.Serv.2d 1057 (RI Superior Court)

¶1-045

Maroni v Reid [2016] WADC 88

¶5-150

Mason v Westside Cemeteries Ltd (1996) 29 CCLT (2d) 125

¶1-070

Mason J; Moorhead v Brennan (1991) 20 IPR 161

¶3-125

Massey-Ferguson Industries Ltd v Melfort Credit Union Ltd (1987) 8 PPSAC 1; 62 Sask R 293

¶3-095; ¶3-110

Matthews v The Tap Inn Pty Ltd [2015] SADC 108

¶10-055

Mentha; Re Arrium Ltd (admin apptd) [2016] FCA 972

¶2-030; ¶10-060

Mentha, In re Arrium Finance Ltd v National Australia Bank Ltd [2017] FCA 818

¶10-060

Merchants Bank v Atchison (In re Atchison) (1987) 832 F.2d 1236 (US CA 11th Cir)

¶2-020

Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400

¶10-060

Miller; Re (1977) 545 F 2d 916 (US CA 5th Circ)

¶1-065; ¶2-025

Moffett, In re (2004) 356 F 3d 518 (US CA 4th Cir)

¶4-195

Money in a Minute Auto Loans Ltd v Price (2002) 4 PPSAC (3d) 99 (BC SC)

¶1-075

Monks v Poynice Pty Ltd (1987) 8 NSWLR 662

¶2-015

Morris v Woodings (1997) 25 ACSR 636

¶10-060

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

¶1-065

Mutual Pools & Staff Pty Ltd v Commonwealth (1994) 179 CLR 155

¶8-015

N Paragraph NAV Canada v Wilmington Trust Co (2006) 10 PPSAC (3d) 66; 269 DLR (4th) 79

¶3-040

NCO Finance Australia Pty Ltd v Australian Pacific Airports (Melbourne) Pty Ltd [2013] FCCA 2274

¶1-045; ¶9-090; ¶9095; ¶9-105

NFT Specialized in Tower Cranes LLC v Machforce Pty Ltd (in liq); Re [2017] WASC 95

¶5-215; ¶10-060

N’Amerix Logistix Inc; Re (2001) 57 OR (3d) 248 (Ont SCJ)

¶1-045

National Australia Bank Ltd v Blacker (2000) 104 FCR 288; [2000] FCA 1458

¶1-045

National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296

¶10-060

National Australia Bank Ltd v Garrett [2016] FCA 714

¶1-045; ¶1-065; ¶5035; ¶5-205

National Bank of Canada v Lasalle Excavating of Sudbury Ltd (1986) 5 PPSAC 279

¶8-040

National Bank of Canada v Makin Metals Ltd (1992) 4 PPSAC (2d) 167; 106 Sask R 266

¶2-035

National Bank of Canada v Makin Metals Ltd (1994) 6 PPSAC (2d) 164; 116 Sask R 237 (Sask CA)

¶2-035; ¶2-065

National Provincial Bank Ltd v Ainsworth [1965] AC 1175

¶1-045; ¶1-065

National Westminster Bank Ltd v Halesowen Presswork & Assemblies Ltd [1972] AC 785

¶1-045

New Solutions Financial Corp v 952339 Ontario Ltd (2007) 10 PPSAC (3d) 246; 29 ¶2-080 CBR (5th) 222 New Zealand Associated Refrigerated Food Distributors Ltd v Simpson [2008] NZHC 951

¶3-095

New Zealand Bloodstock Ltd v Waller and Agnew (2005) FPPSR ¶700-002; [2006] ¶1-070; ¶2-020 3 NZLR 629 Newcourt Credit Group Inc v GA Finance Inc (1998) 13 PPSAC (2d) 372

¶1-065

Nichibo Trading Company New Zealand Ltd v Lucich [2011] NZHC 722; (2011) 9 NZBLC 103,253

¶2-150; ¶2-155

Nicholson Leasing 1994 Ltd v Saskatchewan Government Growth Fund II Ltd (1999) 14 PPSAC (2d) 285 (Alta QB)

¶1-075

994814 Ontario Inc v RSL Canada Inc (2006) 9 PPSAC (3d) 240; 20 CBR (5th) 163 (Ont CA)

¶2-020

Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134

¶8-015

Noriega; Re (2003) 15 Alta LR (4th) 79; 42 CBR (4th) 274

¶5-100

North Platte State Bank v Production Credit Association of North Platte (1972) 200 ¶1-075 NW 2d 1 (Neb SC) North Shore City Council v Stiassny [2009] 1 NZLR 342 (NZ CA)

¶1-065

North Shore Gas Co Ltd v Commissioner of Stamp Duties (NSW) (1940) 63 CLR 52

¶1-045

Northwest Equipment Inc v Daewoo Heavy Industries America Corp (2002) 3 PPSAC (3d) 101; 1 Alta LR (4th) 14 (Alta CA)

¶2-045; ¶2-120; ¶2140; ¶2-155; ¶4025; ¶7-035

Numeric Corp; Re (1973) 485 F 2d 1328 (USCA 1st Circ)

¶2-025

O Paragraph OM Scott Credit Corp v Apex Inc (1964) 198 A 2d 673

¶2-275

ORIX New Zealand Ltd v Milne [2007] 3 NZLR 637

¶2-140; ¶2-155

Ogden v Award Realty Inc (1999) 14 PPSAC (2d) 99

¶1-065

O'Keeffe Heneghan Pty Ltd (in liq); Re (No 2) [2018] NSWSC 1958

¶1-045; ¶9-180

Old Colony LLC; Re (2012) 476 BR 1, 18ff (Bankr Dist Mass)

¶1-045

1153496 Ontario Ltd; Re (1996) 11 PPSAC (2d) 149; 25 BLR (2d) 285

¶1-065; ¶4-055; ¶4060

1662254 Ontario Inc v Coby’s Cookies Inc (2008) 12 PPSAC (3d) 150

¶2-230

OneSteel Manufacturing Pty Ltd (admin apptd); Re [2017] NSWSC 21

¶5-045; ¶5-100; ¶5105; ¶5-135; ¶8015; ¶10-060

OneSteel Manufacturing Pty Ltd; In re OneSteel Manufacturing Pty Ltd v [2017] FCA 325

¶10-055

1231640 Ontario Inc; Re (2007) 13 PPSAC (3d) 57; 289 DLR (4th) 684

¶2-025; ¶2-050; ¶2200

101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2004) 7 PPSAC (3d) 365; 265 Sask R 153

¶4-155

101056998 Saskatchewan Ltd v Kipp & Zonen Inc (2005) 8 PPSAC (3d) 25

¶4-155

Ontario Dairy Cow Leasing Ltd v Ontario (Milk Marketing Board) (1993) 4 PPSAC (2d) 269

¶2-085

Ontario Equipment; Re (1976) Ltd (1981) 1 PPSAC 303; 33 OR (2d) 648

¶1-065

Ontario Equipment; Re (1982) 141 DLR (3d) 766; 35 OR (2d) 194

¶1-065

Overflow FNQ Pty Ltd (in liq); Kelly v Austwide Consumer Products Pty Ltd [2017] QSC 76

¶10-055

P Paragraph P Twin Holdings Pty Ltd v SG Old Pty Ltd [2017] WADC 77

¶2-025

Paccar Financial Services v Sinco Trucking Ltd (Trustee of) (1989) 9 PPSAC 7; 74 ¶1-070; ¶2-045 Sask R 181 (Sask CA) Pacific Shores Resort & Spa Ltd; Re (2013) 1 PPSAC (4th) 131; [2013] BCSC 480 ¶7-125 Palmdale Hills Property LLC, In re (2011) 457 BR 29 (US Bankr Appeal Panel 9th Circ)

¶1-075

Paradise Valley Marine Ltd; Re (1997) 7 CBR (4th) 252 (BC SC)

¶1-075

Parker v British Airways Board [1982] QB 1004

¶2-045

Partners Finance and Lease Ltd v Richmond [2019] NZHC 34

¶5-100

Paul; Re (1986) 53 OR (2d) 225; 5 PPSAC 86

¶1-045

Pauls Ltd v Dwyer [2002] 2 Qd R 176; [2002] QCA 545

¶8-015

Payless Cashways Inc, In re (2002) 273 BR 789

¶5-045

People ex rel, Franchise Tax Board v Credit Managers Assn (1977) 76 Cal App 3d ¶1-045 344 (Cal CA) Petron Trading Co Inc v Hydrocarbon Trading and Transport Co Inc (1986) 663 F Supp 1153 (US DC, ED Pennsylvania)

¶1-045

Pioneer Finance Ltd v Green Cars Ltd [2017] NZHC 2782

¶2-020

Placer Development Ltd v The Commonwealth (1969) 121 CLR 353

¶1-065

Plantation Outdoor Kitchens Pty Ltd (in liq); Re [2019] NSWSC 925

¶2-290

Planwest Consultants Ltd v Milltimber Holdings Ltd (1995) 10 PPSAC (2d) 116; 32 ¶1-070 Alta. LR (3d) 397; (1997) 54 Alta LR (3d) 256 Pluton Resources Ltd (Rec & Man Appt) (in liq); Re [2017] WASC 142

¶1-045

Polymers International Ltd v Toon (2013) FPPSR ¶700-015; [2013] NZHC 1897

¶5-100

Poplar Properties Ltd v Cranewood Financial Corp (2002) 5 PPSAC (3d) 53; 38 CBR (4th) 43

¶4-085

Porter Equipment Australia Pty Ltd v Barton Ventures Pty Ltd [2018] QDC 87

¶4-085

Poss v Melfort Credit Union Ltd (1993) 5 PPSAC (2d) 72

¶3-025

Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (recs and ¶1-045; ¶1-065; ¶1mgrs apptd) [2017] NSWCA 8; (2017) 93 NSWLR 765 070 Powers v Mesaros (2007) 12 PPSAC (3d) 128 (BC SC)

¶4-025

Pratt & Whitney Canada Leasing Inc v Ellis Air Inc (2002) 6 PPSAC (3d) 84; 3 CBR (5th) 81

¶3-050

PricewaterhouseCoopers LLP v Cranewood Financial Corp (2000) 5 PPSAC (3d) 47

¶4-025

Prince Edward Island Potato Board v Cardigan Feed Services Ltd (2006) 10 PPSAC (3d) 135; 262 Nfld & PEIR 91

¶2-030

Printz, In re (2012) 478 BR 876 (US Bankr Court for CD Ill)

¶2-325

Pristas v Landaus of Plymouth Inc (1984) 742 F2d 797

¶1-075

Producers Cotton Oil Co v Amstar Corp (1988) 197 Cal App 3d 638

¶2-325

Production Enhancement Group Inc; Re (2011) 18 PPSAC (3d) 6; 79 CBR (5th) 33 ¶1-065 (Alta QB)

Production Printing (Aust) Pty Ltd (in liq); Re [2017] NSWSC 505

¶5-045; ¶5-095; ¶5110; ¶8-015; ¶10055

ProGrowth Bank Inc v Wells Fargo Bank NA (2009) 558 F 3d 809, 812

¶5-030

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

¶10-055; ¶10-060

Psyche Holdings Pty Ltd; Re [2018] NSWSC 1254

¶2-030; ¶10-055; ¶10-060

Puritan Finance Corp v Bechstein Construction Corp (2012) 980 NE 2d 135

¶2-325

Q Paragraph Quality Blended Liquor Pty Ltd; Re [2014] QSC 234; (2014) 102 ACSR 451; 2 Qd R 381

¶10-060

Queensland Company Credit Union v Na-Kuraga Ltd [2005] QSC 149; (2005) 55 ACSR 219

¶10-060

Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567

¶1-045

R Paragraph RCR Tomlinson Ltd (admin apptd); Re [2020] NSWSC 735

¶1-065; ¶1-070; ¶1075; ¶9-170; ¶10025

R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327

¶1-045; ¶1-065

R and A Bailey and Co v Boccaccio Pty Ltd (1986) 77 ALR 117

¶3-125

Rabobank New Zealand Ltd v McAnulty [2011] 3 NZLR 192; [2011] NZCA 212

¶1-070

Rabobank New Zealand Ltd v Stockco Ltd [2010] NZHC 271; (2010) FPPSR ¶700- ¶5-100 004 Radius Credit Union Ltd v Royal Bank (2009) 14 PPSAC (3d) 124; 306 DLR (4th) 444

¶1-065; ¶2-200

Redi-Mix Ltd v Hub Dairy & Barn Systems Ltd (1987) 7 PPSAC 165; 41 DLR (4th) 360

¶2-015

Reese v Ellis, Painter, Ratterree & Adams LLP (2012) 678 F 3d 1211

¶1-065

Rektor; Re (1983) 3 PPSAC 32; 47 CBR (NS) 267 (Ont SC)

¶1-045

Reliable Manufacturing Corp; Re (1983) 703 F 2d 996 (USCA 7th Circ)

¶2-020

Renovation Boys Pty Ltd; Re (admins apptd) [2014] NSWSC 340

¶2-155; ¶2-160

Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422

¶2-155

Robie Financial Inc v Pye (2009) 16 PPSAC (3d) 66 (NS SC)

¶5-100

Robinson v Briggs (1870) LR 6 Exch 1

¶2-045

Roy Foss Motors Ltd v Auto Service Finance Centre [2005] CarswellOnt 4074

¶3-040

Royal Bank v Agricultural Credit Corp of Saskatchewan (1994) 7 PPSAC (2d) 1;

¶2-030

115 DLR (4th) 569 Royal Bank v Body Blue Inc (2008) 13 PPSAC (3d) 176; 42 CBR (5th) 125 (Ont SCJ)

¶2-080

Royal Bank v Canadian Commercial Corp (2001) 3 PPSAC (3d) 81; 243 NBR (2d) 122

¶1-045

Royal Bank v Cow Harbour Construction Ltd (2012) 19 PPSAC (3d) 31, 59 Alta LR ¶1-065 (5th) 215 (Alta QB) Royal Bank v Moosomin Credit Union (2003) 7 PPSAC (3d) 118; 241 Sask R 1 (Sask CA)

¶1-065; ¶1-075; ¶4085

Royal Bank v Sparrow Electric Corp [1997] 1 SCR 411; 2 PPSAC (2d) 68; (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385 (SCC)

¶1-045; ¶1-065; ¶2020; ¶2-085

Royal Bank v Touche Ross (1984) 31 Sask R 131

¶5-030

Royal Bank of Canada v Sparrow Electric Corp 1997 CanLII 377 (SCC)

¶7-125

Royal Bank of Canada v 216200 Alberta Ltd (1986) 6 PPSAC 277; 33 DLR (4th) 80 (Sask CA)

¶2-140; ¶2-155

Royal Palm Senior Investors LLC v Carbon Capital II Inc 2009 US Dist LEXIS 57452

¶4-195

S Paragraph SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities [2014] FCA 846; (2014) 226 FCR 188

¶5-020; ¶5-225

SFS Projects Australia Pty Ltd v Registrar of Personal Property Securities (No 2) [2014] FCA 987

¶5-150

SM Construction v Folmar Electric Ltd (2000) 1 PPSAC (3d) 150; 188 DLR (4th) 494

¶2-295; ¶2-300

SR Télécom & Co v Apex — Micro Manufacturing Corp (2008) 15 PPSAC (3d) 136; 52 CBR (5th) 204 (BC SC)

¶2-065

Samwise Holdings Pty Ltd v Allied Distribution Finance Pty Ltd [2018] SASCFC 95; ¶1-070; ¶2-045; ¶2(2018) 131 SASR 506 235 Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd [2014] VSC 217

¶1-0651; ¶5-030; ¶5-035

Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; ¶10-060 (1990) 2 ACSR 692 Saskatchewan Economic Development Corp v Pryor (1992) 3 PPSAC (2d) 235

¶2-150

Saulnier v Royal Bank of Canada [2008] 3 SCR 166; 298 DLR (4th) 193

¶1-045; ¶1-065

Saulnier (Receiver of) v Saulnier [2008] SCC 58; (2008) 3 SCR 166 (SCC)

¶4-050

Scandees Danish Home Ice Creem Pty Ltd; Re [1995] 2 Qd R 678

¶4-185

Scott Auto Sales Ltd v Becker (2012) 19 PPSAC (3d) 329; 99 CBR (5th) 148 (BCSC)

¶2-020

Service Foods Manawatu Ltd (in rec and liq) v NZ Associated Refrigerated Food Distributors Ltd (2006) 9 NZCLC 263,979

¶5-100

The Ship “Sam Hawk” v Reiter Petroleum Inc (2016) 246 FCR 337; [2016] FCAFC 26

¶1-045; ¶2-290; ¶7035

Silver Spoon Developments Ltd v Botham Holdings (Trustee of) (2008) 13 PPSAC ¶2-020 (3d) 257; 299 DLR (4th) 519 (BC SC) Simpson v New Zealand Associated Refrigerated Food Distributors Ltd [2007] 2 NZLR 130

¶5-100

674921 BC Ltd v Advanced Wing Technologies Corp (2006) 9 PPSAC (3d) 43; 263 DLR (4th) 290 (BC CA)

¶2-015; ¶2-025; ¶2030; ¶2-200

Skinner v Jeogla Pty Ltd (2001) 19 ACLC 1,163

¶4-125

Skybridge Holidays Inc; Re (1999) 15 PPSAC (2d) 24 (BC CA)

¶1-045; ¶1-065

Southern Engineering Services Pty Ltd (in liq) ACN 000 091 716; Re [2014] NSWSC 1882

¶10-060

Southern Property Rentals Ltd v Deloitte & Touche Inc (1998) 14 PPSAC (2d) 335; ¶8-030 6 CBR (4th) 141 (Alta QB) Spencer v Cth (1907) 5 CLR 418

¶4-125

Sperry Inc v Canadian Imperial Bank of Commerce and Throne Riddle Inc (1985) 4 ¶2-065; ¶2-200 PPSAC 314; 17 DLR (4th) 236 (Ont CA) Spir-l-ok Industries Canada Ltd v Bank of Montreal (1985) 41 Sask R 128

¶8-060

Spittlehouse v Northshore Manne Inc (1994) 7 PPSAC (2d) 67; 114 DLR (4th) 500 ¶2-140 (Ont CA) Squadron Resources Pty Ltd v Highlake Resources Pty Ltd [2018] FCA 1292

¶10-060

Stelco; Re (2005) 7 PPSAC (3d) 281; 253 DLR (4th) 524

¶1-045

Stephanian’s Persian Carpets Ltd; Re (1980) 34 CBR (NS) 35 (Ont Bktcy)

¶1-065

Stevenson v GMAC Lease Co Ltd (2003) 257 NBR (2d) 141; 227 DLR (4th) 154

¶5-100

Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307

¶2-015

Stiassny v Commr of IR [2013] 1 NZLR 453; [2012] NZSC 106

¶2-270

Stiassny v The North Shore City Council [2009] 1 NZLR 342 (NZ CA)

¶1-045

StockCo Agricapital Pty Ltd v Dairy Livestock Services Pty Ltd [2020] NSWSC 318 ¶1-065; ¶1-075; ¶2235; ¶3-030 Stockco Ltd v Gibson [2012] NZCA 330; (2012) 10 NZBLC ¶99-709

¶2-085; ¶2-155; ¶3095; ¶4-025

Stockco Ltd v Walker [2011] NZHC 601

¶2-290

Stoke Resources & Consulting Inc v Auto Body Services Red Deer Ltd (2009) 15 PPSAC (3d) 329; 59 CBR (5th) 290

¶2-100

Stoke Resources & Consulting Inc v Auto Body Services Red Deer Ltd [2011] ABCA 370

¶1-070

Strategic Finance Ltd v Bridgman [2013] 3 NZLR 650; [2013] NZCA 357

¶1-065; ¶1-075

Swindle v Matakana Estate Ltd (in liq) [2011] NZHC 1345; [2012] 1 NZLR 806

¶2-155; ¶3-095

Sycom Enterprises LP, In re (2004) 310 BR 669

¶2-325

Systran Financial Services Corp v Giant Cement Holding (2003) 252 F Supp 2d 500

¶2-325

T Paragraph TCE Capital Corp v Kolenc (Trustee of) (1999) 14 PPSAC (2d) 257; 172 DLR (4th) ¶1-065 186 (Ont SC) TLK Transport Pty Ltd v Thornthwaite Pty Ltd t/a Yass Valley Mobile Mechanic [2014] NSWCATCD 147

¶5-065

Tanbro Fabrics Corp v Deering Milliken Inc (1976) 350 NE 2d 590

¶2-155

The Tapp Inn Pty Ltd v Matthews [2015] SASCFC 188

¶10-055

Tasman Logistics Services Pty Ltd v Seaco Global Aust Pty Ltd [2020] VSC 100

¶2-290

Taylor v Bank of New Zealand [2010] NZHC 2256

¶4-025

Terminal Moving and Storage Co Inc; Re (1980) 631 F 2d 547 (USCA 8th Circ)

¶2-020

Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144

¶2-015

Thomas v Price (1992) 975 F 2d 231 (USCA 5th Cir)

¶4-125

Thompson v Goold & Co [1910] AC 409

¶1-070

Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929

¶1-045

Thorn v RFD Finance Ltd [2012] NZHC 1959; (2012) FPPSR ¶700-010

¶4-040

Timothy Dean’s Inc v White (2006) 342 BR 1

¶2-325

Toll Logistics (NZ) Ltd v McKay [2011] NZCA 188

¶2-290

Toronto Dominion Bank v Co-Pac Ltd (1999) 15 PPSAC (2d) 52; 178 DLR (4th) 149

¶2-080

Toronto Dominion Bank v Flexi-Coil Ltd (1993) 4 PPSAC (2d) 288; 107 Sask R 221 (Sask QB)

¶2-025

Toronto Dominion Bank v Royal Bank (1998) 15 PPSAC (2d) 16

¶2-230

Toyota Finance New Zealand Ltd v Christie [2009] NZHC 827

¶5-205

Transurban CCT Pty Ltd (in its own capacity and as trustee for the Transurban CCT Trust); Re [2014] NSWSC 1909

¶10-060

Transamerica Commercial Finance Corp Canada v Karpes (1994) 8 PPSAC (2d) 86

¶2-085

Transamerica Commercial Finance Corp Canada v Royal Bank (1990) 1 PPSAC (2d) 61; 70 DLR (4th) 627; (1990) FPPSR ¶700-104

¶2-045; ¶2-080; ¶2245

Treasury Wine Estates Vintners Ltd v Garrett [2016] FCA 715

¶1-045

Trenfield & Ors v HAG Import Corporation (Australia) Pty Ltd [2018] QDC 107

¶1-065; ¶2-030

Tubbs v Ruby 2005 Ltd [2010] NZCA 353

¶2-155

241301 Alberta Ltd v 482176 BC Ltd (2003) 6 PPSAC (3d) 32; 46 CBR (4th) 156

¶4-120; ¶4-145

356447 BC Ltd v Canadian Imperial Bank of Commerce (1998) 13 PPSAC (2d) 155; 157 DLR (4th) 682 (BC CA)

¶1-065

369413 Alberta Ltd. v Pocklington (2000) 194 DLR (4th) 109; 271 AR 280 (Alta CA)

¶2-155

U

Paragraph US Aeroteam Inc v Delphi Automotive Systems LLC (2005) 327 BR 852

¶2-325

Unger v Royal Bank of Canada (1983) 30 Sask R 183; 51 CBR (NS) 145 (Sask QB)

¶1-075

Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112; 43 BLR (2d) 226 (Ont SC GD)

¶1-075; ¶2-085; ¶3100; ¶3-115

Unisource Canada Inc v Hongkong Bank of Canada (2000) 15 PPSAC (2d) 95

¶3-100

Universal Distributing Co Ltd (in liq); Re (1933) 48 CLR 171

¶2-015

Universal Handling Equipment Co v Redipac Recycling Inc (1992) 4 PPSAC (2d) 15 (Ont Court of Justice)

¶2-025

Universal Trucks and Equipment Ltd v Reynolds [2012] NZHC 483

¶5-205

Unisource Canada Inc v Hongkong Bank of Canada (1998) 14 PPSAC (2d) 112; 43 BLR (2d) 226; (Ont SC GD) (varied in (2000) 15 PSSAC (2d) 95 (Ont CA))

¶1-075; ¶2-085; ¶3100; ¶3-115; ¶8030

V Paragraph VW Credit Canada Inc v Roberts (2001) 2 PPSAC (3d) 124; 197 DLR (4th) 274 (NS CA)

¶7-170

Valley Vista Golf Course Ltd (Receiver of) v Maxium Financial Services Inc (2003) 6 PPSAC (3d) 128; 214 NSR (2d) 91

¶5-100

Vegar-Fitzgerald v Noyce, Mawdsley and Matakana Estate Ltd [2012] NZHC 1311; ¶5-205 (2012) FPPSR ¶700-008

W Paragraph Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1

¶2-155

Waller v New Zealand Bloodstock Ltd [2005] 3 NZLR 629

¶2-200

Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd [2014] VSC 644; (2014) 291 FLR 407

¶2-085; ¶2-140; ¶2155; ¶7-125; ¶8050

Wawanesa Mutual Insurance Co v Rosario Enterprises Ltd (2000) 15 PPSAC (2d) 270; 146 Man R (2d) 236 (MB QB)

¶4-195

Weiner v Harris [1910] 1 KB 285

¶1-065

Western Express Air Lines Inc; Re (2005) PPSAC (3d) 229; 10 CBR (5th) 154

¶1-070

Westpac Banking Corp v Royal Tongan Airlines (1996) Aust Torts Reports ¶81403

¶1-070

Wheatland Industries (1990) Ltd v Baschuk (1994) 8 PPSAC (2d) 247; 127 Sask R ¶1-075 178 (Sask QB) White; Re (2006) 352 BR 633

¶1-075

White v Spiers Earthworks Pty Ltd (2014) 99 ACSR 214; [2014] WASC 139

¶1-065; ¶1-070; ¶2-

200; ¶8-015; ¶9095 Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631

¶1-070; ¶5-205

Will and Estate of Hood; Re [2004] VSC 328

¶7-020

Willi v Don Shearer Ltd (1993) 5 PPSAC (2d) 179; 107 DLR (4th) 121 (BC CA)

¶2-140

Willoughby v Willoughby (1756) 99 ER 1366

¶2-015

Winnipeg Motor Express Inc; Re (2009) 15 PPSAC (3d) 242; 56 CBR (5th) 265 (MB CA)

¶1-065; ¶2-085

Y Paragraph Yuan v Mah Investments Ltd (2001) 2 PPSAC (3d) 159; 205 Sask R 22 ¶4-145

SECTION FINDING LIST References are to paragraph numbers.

AUSTRALIAN LEGISLATION Acts Interpretation Act 1901 (Cth) Section

Paragraph

22(1)(aa) ¶5-140 28A

¶8-070

Air Services Act 1995 (Cth) Section Paragraph 59

¶1-045

Australian Consumer Law and Fair Trading Act 2012 (Vic) Section Paragraph 59

¶2-290

Banking Act 1959 (Cth) Section

Paragraph

Generally ¶2-050 Bills of Exchange Act 1909 (Cth) Section

Paragraph

Generally ¶2-275 Chattel Securities Act 1987 (Vic) Section

Paragraph

Generally ¶2-150 Cheques Act 1986 (Cth) Section

Paragraph

Generally ¶2-275 Commonwealth of Australia Constitution Act 1900 (Commonwealth Constitution) Section Paragraph 51

¶7-060

Competition and Consumer Act 2010 (Cth) Section

Paragraph

47

¶1-075

Sch 2

¶1-075

Generally ¶2-160 Corporations Act 2001 (Cth) Section

Paragraph

1

¶10-060

2

¶10-060

9

¶4-045; ¶4-050; ¶8-040; ¶10-035

34(1)

¶10-055

51

¶10-060; ¶10-065; ¶10-070

51A

¶10-035

51C

¶1-065; ¶9-165

51F

¶8-050

58AA

¶10-060

90

¶4-050

109X

¶8-070

180

¶8-040

181

¶8-040

Ch 2E

¶8-180

262

¶9-095

262(2)(c)

¶1-065

263

l¶2-030; ¶10-055

265(9)

¶9-095

266

¶10-055; ¶10-060

266(1)

¶10-060

266(4)

¶10-060

267

¶4-185

416

¶4-050

420A

¶4-125

433

¶9-165; ¶9-170

Pt 5.3A (435A–451D)

¶1-045

436A

¶10-055; ¶10-060

436B

¶10-055; ¶10-060

436C

¶10-055; ¶10-060

443F

¶1-045

461(1)

¶10-060

513A

¶10-055

513B

¶10-055

513C

¶10-055

553C

¶1-045; ¶2-325

555

¶2-015

556

¶2-015

561

¶4-185; ¶9-170; ¶9-165

588FA

¶10-055

588FF

¶10-055

588FJ

¶10-055; ¶10-060

588FK–588FO

¶8-015

588FL

¶2-030; ¶2-200; ¶8-015; ¶10-055; ¶10-060; ¶10-065; ¶10070

588FL(1)

¶10-055; ¶10-060; ¶10-070

588FL(2)

¶10-055; ¶10-060

588FL(2)(b)(iv)

¶2-030

588FL(4)

¶2-030; ¶10-055; ¶10-060; ¶10-065; ¶10-070

588FL(7)

¶10-055; ¶10-065

588FL(17)

¶10-055

588FM

¶2-030; ¶2-200; ¶9-155; ¶10-055; ¶10-060

588FM(1)

¶10-060

588FM(2)

¶10-060

588FM(3)

¶10-060

588FN

¶10-065

588FN(1)

¶10-065

588FN(2)

¶10-065

588FN(3)

¶10-065

588FO

¶10-070

588FP

¶10-060; ¶10-075

588M

¶2-030

Ch 7

¶2-060

Pt 7.1 Div 3

¶1-080; ¶2-045

1499

¶10-080

1500

¶10-085

1501

¶10-090

1501A

¶10-095

1501B

¶10-100

1502

¶10-105

1503

¶10-110

1504

¶10-115

1505

¶10-120

1506

¶10-125

1507

¶15-130

1508

¶10-135

1509

¶10-140

1510

¶10-145

Generally

¶1-065

Disposal of Uncollected Goods Act 1967 (Qld) Section Paragraph 4A

¶2-290

Fair Work Act 2009 (Cth) Section Paragraph 324

¶1-045

Goods Act 1986 (NSW) Section

Paragraph

Generally ¶2-150 Life Insurance Act 1995 (Cth) Section Paragraph 200

¶1-045

National Consumer Credit Protection Act 2009 (Cth) Section

Paragraph

Sch 1

¶4-065

Sch 1 cl 5-7 ¶4-065 Sch 1 Pt 13 ¶4-065 Partnership Act 1892 (NSW) Section Paragraph 41(a)

¶1-045

Payment Systems and Netting Act 1998 (Cth) Section

Paragraph

Generally

¶1-045; ¶1-065; ¶4100

Personal Property Securities Act 2009 (Cth) Section

Paragraph

1(1)(y)

¶1-070

2

¶9-035

3

¶7-150

4

¶9-015

5

¶1-070; ¶4-065; ¶9-015

6

¶2-120; ¶2-125; ¶4-065; ¶5-040; ¶7-030; ¶9-165

6(1A)

¶1-080

7

¶2-120; ¶2-125; ¶4-065

8

¶1-045; ¶1-065; ¶2-035; ¶2-050; ¶2-070; ¶2-080; ¶2-105; ¶2185; ¶2-200; ¶2-270; ¶2-275; ¶2-285; ¶2-290; ¶2-295; ¶2300; ¶3-015; ¶3-020; ¶4-055; ¶7-025; ¶7-135; ¶9-020; ¶9-165

8(1)

¶1-045; ¶1-045; ¶1-065

8(1)(a)

¶1-045

8(1)(b)

¶1-045; ¶1-065

8(1)(c)

¶1-045; ¶1-065; ¶2-290

8(1)(d)

¶1-045; ¶1-065; ¶2-085

8(1)(e)

¶1-045; ¶1-065

8(1)(f)

¶1-045; ¶1-065; ¶2-015; ¶2-080

8(1)(f)(i)

¶1-045

8(1)(f)(ii)

¶1-045

8(1)(f)(iv)

¶1-045

8(1)(f)(v)

¶1-045

8(1)(f)(vi)–(ix)

¶1-045; ¶1-065

8(1)(f)(x)

¶1-045

8(1)(h)

¶1-045

8(1)(i)

¶1-045

8(1)(j)

¶1-045; ¶1-065; ¶1-070

8(1)(ja)

¶1-045

8(1)(jb)

¶1-045

8(1)(jc)

¶1-045

8(1)(k)

¶1-045

8(1)(l)

¶1-045

8(2)

¶1-045; ¶1-065

8(3)(b)

¶2-150

8(5)

¶1-045

10 definitions — “accession”

¶2-190; ¶3-040; ¶3-045; ¶3-050; ¶3-055; ¶3-060; ¶3-065; ¶3070; ¶3-075; ¶3-080; ¶3-085

— “account”

¶1-045; ¶1-065; ¶1-080; ¶2-115; ¶2-245; ¶2-305; ¶2-310; ¶2325; ¶2-330; ¶7-030; ¶7-040; ¶7-050

— “account dector”

¶2-325

— “ADI”

¶2-300

— “ADI account”

¶1-065; ¶2-050; ¶2-090; ¶2-300; ¶7-040

— “advance”

¶2-215; ¶3-050

— “after-acquired property”

¶2-015; ¶8-060

— “attaches”

¶2-020

— “Australian entity”

¶5-040

— “chattel paper”

¶1-065; ¶1-075; ¶2-080; ¶2-115; ¶2-280; ¶2-305; ¶2-325; ¶2330; ¶7-020; ¶7-030

— “collateral”

¶2-295

— “commercial consignment”

¶1-065; ¶1-075; ¶4-015

— “commercial property”

¶2-025; ¶5-045

— “commingling”

¶3-095

— “company”

¶8-015

— “consigned”

¶2-020

— “consumer property”

¶1-070; ¶2-025; ¶5-045

— “crops”

¶3-015; ¶3-020; ¶3-025; ¶4-170

— “currency”

¶2-020; ¶2-165; ¶2-330

— “debtor”

¶1-065; ¶4-020

— “defect”

¶5-100; ¶5-105; ¶5-110

— “description”

¶2-025

— “document of title”

¶1-045; ¶2-035; ¶2-250; ¶7-045

— “equipment”

¶2-025

— “evidential burden”

¶5-140

— “execution creditor”

¶2-150; ¶2-295

— “financial products”

¶1-080

— “financial property”

¶2-125; ¶2-310; ¶7-045

— “financial change statement”

¶9-135; ¶9-145

— “financing change statement”

¶5-030; ¶5-035; ¶5-040; ¶5-055; ¶5-060; ¶5-090; ¶5-120; ¶9060; ¶9-140

— “financing statement”

¶1-065; ¶2-030; ¶5-030; ¶5-035; ¶5-040; ¶5-055; ¶5-060; ¶5090; ¶5-120; ¶5-135; ¶5-150; ¶5-155; ¶9-060; ¶9-130; ¶9135; ¶9-140; ¶9-145

— “fish”

¶3-020; ¶3-030

— “fixtures”

¶1-045

— “future advance”

¶2-015

— “general law”

¶1-045

— “goods”

¶2-100; ¶2-240; ¶2-305; ¶3-020; ¶3-045; ¶3-060; ¶3-065; ¶7035; ¶8-025

— “grantor”

¶1-065; ¶4-020; ¶4-035

— “intangible property”

¶2-125; ¶4-085; ¶7-030; ¶7-040

— “intellectual property”

¶2-080; ¶3-125; ¶3-130; ¶4-110; ¶7-030; ¶7-040

— “intellectual property licence”

¶3-125; ¶3-130; ¶7-030; ¶7-040; ¶9-050

— “interest”

¶5-185

— “intermediated security”

¶1-075; ¶2-080; ¶2-310; ¶4-015

— “inventory”

¶2-025; ¶2-145; ¶2-150; ¶2-155; ¶2-235; ¶2-240; ¶2-245; ¶9170; ¶9-175

— “investment instrument”

¶1-075; ¶1-080; ¶2-045; ¶2-060; ¶2-080; ¶2-085; ¶2-170; ¶2175; ¶4-015; ¶7-020

— “land”

¶1-045; ¶4-055

— “licence”

¶1-045; ¶1-065; ¶4-030; ¶4-085; ¶4-090; ¶7-130

— “livestock”

¶3-020; ¶3-030; ¶4-165; ¶4-175

— “modification”

¶2-325; ¶4-060

— “negotiable document of title”

¶2-100; ¶2-285

— “negotiable instrument”

¶1-045; ¶1-075; ¶2-045; ¶2-065; ¶2-070; ¶2-275; ¶7-020; ¶7040; ¶7-045

— “new value”

¶2-150; ¶2-160; ¶2-185; ¶2-245; ¶2-280; ¶4-150; ¶8-020

— “other financial instruments or other financial assets”

¶1-080

— ‘personal property”

¶1-045; ¶1-065; ¶4-055; ¶5-140; ¶7-125; ¶7-130; ¶7-145; ¶9035

— “predominantly for personal, domestic ¶1-075; ¶2-160; ¶4-015; ¶4-045; ¶4-065; ¶5-185 or household use” — “property”

¶1-065

— “secured party”

¶2-030; ¶4-020; ¶4-035; ¶4-195

— “security agreement”

¶1-065; ¶2-025; ¶2-215; ¶2-320; ¶3-125; ¶3-130; ¶4-045; ¶4085; ¶4-090; ¶4-095; ¶5-050; ¶7-040; ¶7-045; ¶7-140; ¶7155; ¶7-160; ¶8-060; ¶8-100; ¶8-180; ¶9-020; ¶9-035; ¶9050; ¶9-075

— “security interest”

¶1-065

— “serial number”

¶1-075; ¶2-145; ¶5-135

— “transfer of an account”

¶1-045

— “transfer of account or chattel paper”

¶4-015

— “value”

¶1-070; ¶1-075; ¶2-020; ¶2-140; ¶2-175; ¶2-180; ¶2-275; ¶2285; ¶3-025; ¶3-030; ¶3-050; ¶3-075; ¶3-080; ¶3-105; ¶8-180

— “writing”

¶2-025

12–14

¶2-035

12

¶1-045; ¶1-065; ¶1-070; ¶1-075; ¶2-020; ¶2-035; ¶2-080; ¶2190; ¶2-200; ¶2-240; ¶2-275; ¶3-055; ¶3-130; ¶4-015; ¶5035; ¶7-025; ¶7-030; ¶7-050; ¶8-025; ¶8-030; ¶8-050; ¶9020; ¶9-025; ¶9-085; ¶9-105; ¶9-165; ¶9-175; ¶10-055

12(1)

¶1-045; ¶1-065; ¶1-070; ¶1-075; ¶2-020; ¶2-235; ¶8-050

12(1)(k)

¶2-260

12(2)

¶1-065; ¶1-070; ¶9-165

12(2)(a)

¶1-065

12(2)(b)

¶1-065

12(2)(c)

¶1-065

12(2)(d)–(f)

¶1-065

12(2)(g)

¶1-045; ¶1-065

12(2)(h)

¶1-065; ¶2-020

12(2)(i)

¶1-065

12(2)(j)

¶1-065

12(2)(k)

¶1-065

12(2)(l)

¶1-065

12(3)

¶1-045; ¶1-065; ¶2-020; ¶2-030; ¶2-260; ¶2-320; ¶2-325

12(3)(a)

¶1-045; ¶1-065; ¶2-245

12(3)(b)

¶1-065

12(3)(c)

¶1-065

12(3A)

¶1-065

12(4)

¶1-065

12(5)

¶1-045; ¶1-065

12(5)(a)

¶1-065

12(6)

¶1-065; ¶2-230

12(6)(a)

¶1-065

12(6)(b)

¶1-065

13

¶1-065; ¶1-070; ¶1-075; ¶2-020; ¶2-030; ¶2-035; ¶2-140; ¶2200; ¶2-240; ¶4-015; ¶5-035; ¶8-025; ¶8-030; ¶9-020; ¶9025; ¶9-085

13(1)

¶1-070

13(1)(a)

¶1-070

13(1)(b)

¶1-070; ¶2-200

13(1)(c)

¶1-070

13(1)(d)

¶1-070

13(2)

¶1-070

13(2)(a)

¶1-070

13(2)(b)

¶1-070

13(2)(c)

¶1-070

13(2)(d)

¶1-070

13(3)

¶1-070; ¶2-035

14

¶1-065; ¶1-070; ¶1-075; ¶2-035; ¶2-050; ¶2-055; ¶2-060; ¶2235; ¶2-240; ¶2-245; ¶3-025; ¶3-115; ¶5-045; ¶9-085

14(1)

¶1-075

14(1)(a)

¶1-075

14(1)(b)

¶1-075

14(1)(c)

¶1-075; ¶2-235

14(1)(d)

¶1-075

14(2)

¶1-075; ¶2-060

14(2)(a)

¶1-075

14(2)(b)

¶1-0752; ¶1-080

14(2)(c)

¶1-075

14(2A)

¶1-075

14(3)

¶1-075

14(4)

¶1-075

14(5)

¶1-075

14(6)

¶1-075

14(7)

¶1-075; ¶3-030

14(7)(b)

¶3-030

14(8)

¶1-075

15

¶1-080; ¶2-055; ¶2-060; ¶2-085; ¶2-180; ¶4-015

— “intermediated security”

¶2-080; ¶2-170; ¶2-180

15(1)–(7)

¶1-080

Pt 2.2

¶2-015

18–20

¶2-110

18–21

¶8-050

18

¶2-015; ¶2-085; ¶2-215; ¶2-230; ¶2-320; ¶3-025; ¶3-030; ¶3125; ¶3-130; ¶4-045; ¶4-085; ¶4-090; ¶4-095; ¶5-085; ¶7030; ¶7-040; ¶7-140; ¶7-155; ¶7-160; ¶7-165; ¶8-060; ¶8100; ¶8-180; ¶9-020; ¶9-035; ¶9-050; ¶9-075

18(1)

¶2-015; ¶2-020; ¶2-325; ¶4-015; ¶4-030; ¶4-085; ¶7-030; ¶7140

18(2)

¶2-015

18(3)

¶1-070; ¶2-015

18(4)

¶2-015; ¶2-215; ¶2-225

18(5)

¶2-015; ¶4-095; ¶4-185

19–21

¶2-025; ¶2-090

19

¶1-065; ¶1-070; ¶2-015; ¶2-020; ¶2-025; ¶2-030; ¶2-025; ¶2030; ¶2-085; ¶2-200; ¶2-235; ¶2-240; ¶2-245; ¶2-295; ¶3020; ¶3-045; ¶3-055; ¶4-135; ¶5-050; ¶5-085; ¶7-030; ¶7035; ¶7-045; ¶8-165; ¶9-090; ¶9-165

19(1)

¶2-020

19(2)

¶2-020

19(2)(a)

¶2-020

19(2)(b)

¶2-020

19(3)

¶2-020

19(4)

¶2-020; ¶9-165

19(5)

¶1-070; ¶2-020; ¶2-235

19(6)

¶2-020

20

¶1-065; ¶1-070; ¶2-015; ¶2-020; ¶2-025; ¶2-030; ¶2-085; ¶2090; ¶2-140; ¶2-215; ¶2-230; ¶2-320; ¶3-025; ¶3-030; ¶3125; ¶3-130; ¶4-045; ¶4-085; ¶4-090; ¶4-095; ¶4-120; ¶5030; ¶5-050; ¶5-085; ¶7-030; ¶7-140; ¶7-155; ¶7-160; ¶7165; ¶8-060; ¶8-100; ¶8-180; ¶9-020; ¶9-035; ¶9-040; ¶9050; ¶9-075; ¶10-055

20(1)(a)

¶2-025

20(1)(b)

¶2-025

20(1)(b)(i)

¶2-025

20(1)(b)(iii)

¶2-025

20(2)

¶1-070; ¶1-080; ¶2-025

20(2)(a)(ii)

¶2-025

20(3)

¶2-025

20(4)

¶1-080; ¶2-025

20(5)

¶1-080; ¶2-025

20(6)

¶2-025; ¶2-085; ¶2-090

21

¶1-065; ¶1-070; ¶1-080; ¶2-015; ¶2-025; ¶2-030; ¶2-035; ¶2045; ¶2-050; ¶2-055; ¶2-060; ¶2-065; ¶2-070; ¶2-100; ¶2105; ¶2-120; ¶2-140; ¶2-185; ¶2-200; ¶2-205; ¶2-210; ¶2235; ¶2-260; ¶2-265; ¶2-300; ¶3-050; ¶3-110; ¶4-015; ¶4085; ¶4-090; ¶4-100; ¶5-030; ¶5-085; ¶7-015; ¶7-035; ¶7040; ¶7-045; ¶8-015; ¶8-165; ¶9-085; ¶9-095; ¶9-155; ¶10055

21(1)

¶9-095

21(1)(a)

¶2-030; ¶9-095

21(1)(b)

¶2-030; ¶2-045

21(1)(b)(iii)

¶2-030

21(2)

¶2-030

21(2)(a)

¶2-030

21(2)(b)

¶2-030; ¶2-045

21(2)(c)

¶2-030; ¶2-045; ¶2-050; ¶2-210

21(3)

¶2-020; ¶2-030

21(4)

¶2-030

22

¶1-045; ¶2-030; ¶2-035; ¶2-100; ¶2-205; ¶2-210; ¶2-250; ¶2285; ¶8-015

22(1)

¶2-035

22(1)(a)

¶2-035

22(1)(b)

¶2-035; ¶2-045

22(2)

¶2-030; ¶2-035

22(3)

¶2-030; ¶2-035

22(4)

¶2-035

Pt 2.3

¶2-045; ¶9-135; ¶9-175

24–26

¶2-170

24–29

¶4-015; ¶5-030; ¶7-045

24

¶1-070; ¶2-020; ¶2-025; ¶2-030; ¶2-035; ¶2-045; ¶2-060; ¶2070; ¶2-100; ¶2-150; ¶2-175; ¶2-200; ¶2-205; ¶2-210; ¶2235; ¶2-240; ¶2-250; ¶2-275; ¶2-280; ¶2-305; ¶3-060; ¶4090; ¶4-100; ¶4-105; ¶4-170; ¶4-175; ¶7-045; ¶8-170; ¶10055

24(1)

¶2-045

24(2)

¶2-045

24(3)

¶2-250

24(5)

¶2-045

25–29

¶1-080; ¶2-025; ¶2-030; ¶2-045; ¶2-050; ¶2-200; ¶9-170

25

¶1-065; ¶2-050; ¶2-085; ¶2-090; ¶2-125; ¶2-245; ¶2-300; ¶4085; ¶7-040; ¶9-175; ¶9-180; ¶10-055

26

¶1-075; ¶1-080; ¶2-060; ¶2-070; ¶2-080; ¶2-085; ¶2-125; ¶2170; ¶2-310; ¶4-015

27

¶1-075; ¶2-070; ¶2-080; ¶2-085; ¶2-105; ¶2-175; ¶2-310; ¶4015; ¶7-020

27(2)

¶2-060

27(3)

¶2-060

27(5)

¶2-060

27(6)

¶2-060

27(3)(b)

¶2-060

28

¶4-125; ¶4-130

29

¶1-075; ¶2-025; ¶2-060; ¶2-065; ¶2-070; ¶2-275; ¶7-020; ¶7045; ¶9-095; ¶10-055

Div 1

¶1-075

30(2)

¶1-070

Div 2

¶3-095

31–33

¶2-320; ¶2-330

31–34

¶2-210

31

¶1-080; ¶2-025; ¶2-055; ¶2-060; ¶2-070; ¶2-080; ¶2-085; ¶2095; ¶2-105; ¶2-210; ¶2-235; ¶2-240; ¶2-245; ¶3-015; ¶3025; ¶4-065; ¶4-170; ¶4-175; ¶4-185; ¶5-045; ¶7-050; ¶9175; ¶9-175

— “proceeds”

¶2-080; ¶2-330

31(1)(a)

¶2-080

31(1)(b)

¶1-045; ¶2-080

31(1)(c)

¶2-080

31(1)(d)

¶2-080

31(1)(e)

¶2-080

31(2)

¶2-080

31(3)

¶2-080

31(4)

¶2-080; ¶3-015; ¶3-020; ¶3-025; ¶3-030

31(6)

¶2-080

32

¶2-080; ¶2-085; ¶2-090; ¶2-330; ¶4-065

32(1)

¶2-085

32(1)(a)

¶2-020; ¶2-085

32(1)(b)

¶2-085

32(2)

¶2-020; ¶2-085

32(4)

¶2-085

32(5)

¶2-085

33

¶2-090; ¶2-140; ¶2-185; ¶2-330

33(1)

¶2-090

33(2)

¶2-090

33(3)

¶2-090

34

¶2-030; ¶2-090; ¶2-095; ¶2-120; ¶2-140; ¶2-185; ¶2-260; ¶2265; ¶2-320; ¶3-130

34(1)

¶2-095

34(1)(a)

¶2-095

34(1)(b)

¶2-095

34(1)(c)

¶2-095

34(2)

¶2-095

34(3)

¶2-095

Div 3

¶2-100

35

¶1-045; ¶2-100; ¶2-105; ¶2-110; ¶3-040

35(1)(b)

¶2-200

36

¶2-060; ¶2-070

37

¶2-115; ¶2-305

37(1)

¶2-110

38

¶1-065; ¶2-110; ¶2-110; ¶2-305

38(2)

¶2-110; ¶2-305

38(3)(b)(ii)

¶3-050

39

¶2-125; ¶2-140; ¶2-185; ¶5-040; ¶7-020

39(1)(a)

¶2-120

39(4)

¶2-120

40

¶2-120; ¶2-140; ¶2-185; ¶5-040; ¶7-020

40(5)(b)

¶2-125

Pt 2.5

¶1-075; ¶2-045; ¶2-070; ¶2-095; ¶2-110; ¶2-140; ¶2-160; ¶2170; ¶2-185; ¶2-190; ¶2-235; ¶2-320; ¶3-045; ¶7-035; ¶7125; ¶8-050; ¶8-165; ¶8-180

42–52

¶2-190

42

¶2-140; ¶2-145; ¶2-150; ¶2-155; ¶2-160; ¶2-165; ¶2-170; ¶2185

43

¶2-030; ¶2-140; ¶2-145; ¶2-155; ¶2-185; ¶2-200

43(2)

¶2-140; ¶2-145

44–51

¶2-185

44

¶1-075; ¶2-145; ¶2-150; ¶2-155; ¶2-160; ¶9-125

44(1)

¶2-145

44(2)

¶2-145

44(3)

¶2-145

45

¶1-075; ¶2-150; ¶2-155; ¶2-160; ¶2-295

45(1)

¶2-150

45(2)

¶2-150

45(3)

¶2-150

45(3)(b)

¶2-150

45(4)

¶2-150

46

¶2-085; ¶2-140; ¶2-155; ¶2-170

46(1)

¶2-155

46(2)

¶2-155

46(2)(b)

¶2-155

47

¶1-045; ¶1-075; ¶2-160; ¶7-035; ¶8-185

47(1)

¶2-160

47(2)

¶2-160

48

¶2-165; ¶2-270

49

¶1-080; ¶2-055; ¶2-060; ¶2-105; ¶2-170; ¶2-175

50

¶2-060; ¶2-105; ¶2-175; ¶2-180

50(1)

¶2-175

50(2)

¶2-175; ¶2-180

50(3)

¶2-175

51

¶1-080; ¶2-180; ¶8-015

51(1)

¶2-180

51(2)

¶2-180

52

¶1-045; ¶2-030; ¶2-095; ¶2-100; ¶2-120; ¶2-125; ¶2-185; ¶2285; ¶5-110

52(1)

¶2-185

52(2)

¶2-185

53

¶2-140; ¶2-190; ¶2-200

53(1)

¶2-190

53(2)

¶2-190

53(3)

¶2-190

Pt 2.6

¶1-075; ¶2-025; ¶2-035; ¶2-045; ¶2-160; ¶2-205; ¶2-210; ¶7020; ¶7-025; ¶7-045; ¶7-125; ¶8-050; ¶8-180; ¶9-015; ¶9-045

54

¶2-160

55

¶1-075; ¶2-015; ¶2-020; ¶2-025; ¶2-030; ¶2-045; ¶2-080; ¶2200; ¶2-235; ¶3-025; ¶5-030; ¶5-080; ¶5-085; ¶9-085; ¶9-090

55(1)–(6)

¶2-200

55(2)

¶3-110; ¶9-090

55(3)

¶1-070; ¶2-030; ¶2-200

55(4)

¶2-025; ¶3-110

55(5)

¶2-025

55(6)

¶2-030; ¶2-045; ¶2-205

56

¶2-030; ¶2-045; ¶2-100; ¶2-120; ¶2-125; ¶2-200; ¶2-205; ¶2210; ¶2-260; ¶2-265; ¶5-095; ¶5-115; ¶9-085; ¶9-095

56(1)

¶2-205

56(2)

¶2-205

57

¶2-050; ¶2-055; ¶2-060; ¶2-200; ¶2-210; ¶2-235; ¶2-245; ¶7045

57(1)

¶2-205; ¶2-210

57(2)

¶2-210

57(2A)

¶2-210

57(3)

¶2-210

58

¶2-215; ¶2-265; ¶3-050

60

¶2-225; ¶2-260; ¶7-015

61

¶1-065; ¶2-230

61(1)

¶2-230

61(1)(b)

¶1-065

Div 3

¶2-250; ¶3-045; ¶3-075

62–64

¶2-250; ¶2-280

62–65

¶1-075; ¶5-045

62

¶1-065; ¶1-075; ¶2-020; ¶2-045; ¶2-085; ¶2-235; ¶2-240; ¶2245; ¶3-025; ¶5-085; ¶9-085

62(1)

¶2-235

62(2)

¶2-235; ¶3-025

62(2)(b)

¶2-235

62(2)(b)(i)

¶2-235

62(2)(b)(ii)

¶2-235

62(2)(c)

¶2-235

62(3)

¶2-235

62(3)(b)

¶2-235

62(3)(b)(i)

¶2-235

62(3)(b)(ii)

¶2-235

62(3)(c)

¶2-235

63

¶2-235; ¶2-240; ¶2-245; ¶3-025

64

¶2-015; ¶2-085; ¶2-235; ¶2-240; ¶2-245

64(1)

¶2-245

64(2)

¶2-245

64(2)(a)

¶2-245

64(3)

¶2-245

65

¶2-035; ¶2-250

Div 4

¶2-225

66–68

¶2-095

66

¶2-260; ¶2-265

67

¶2-260; ¶2-265

68–70

¶2-225

68

¶2-215; ¶2-265; ¶7-125

68(1)–(5)

¶2-265

68(2)

¶2-215; ¶2-265

68(3)

¶2-215

68(5)

¶2-265

Div 5

¶2-035

69

¶2-070; ¶2-080; ¶2-105; ¶2-270; ¶2-275; ¶4-065

69(1)(b)

¶2-270

69(3)

¶2-270

70

¶2-070; ¶2-105; ¶2-275; ¶2-280; ¶2-285

71

¶1-065; ¶2-235; ¶2-280

72

¶1-045; ¶2-185; ¶2-280

72(a)

¶1-045

Div 6

¶7-025

73

¶1-045; ¶2-200; ¶2-290; ¶9-045

73(1)

¶2-290

73(1)(a)

¶2-290

73(1)(b)

¶2-290

73(1)(c)

¶2-290

73(1)(d)

¶2-290

73(1)(e)

¶2-290

73(2)

¶2-290

74

¶1-045; ¶2-150; ¶2-295; ¶4-035

75

¶1-065; ¶2-050; ¶2-085; ¶5-085

76

¶2-110; ¶2-115

76(1)–(3)

¶2-305

77

¶2-120; ¶2-125

77(4)

¶2-310

79

¶2-320; ¶4-030

79(2)

¶2-320

80

¶1-065; ¶2-280; ¶4-025

80(2)–(4)

¶2-325

80(6)–(8)

¶2-325

80(8)

¶9-175

81

¶1-065; ¶2-280

84–86

¶2-020

84

¶3-020; ¶3-025; ¶4-170

84(1)

¶3-015

84(2)

¶3-015

84A

¶3-015; ¶3-025; ¶4-170

85

¶3-015; ¶3-020; ¶3-030; ¶4-170

86

¶2-235; ¶2-240; ¶2-245; ¶3-025; ¶3-030; ¶4-175

Pt 3.3

¶1-070; ¶2-190; ¶3-040; ¶3-085

88

¶3-040; ¶3-045; ¶3-050; ¶3-055; ¶3-060; ¶3-065; ¶3-070; ¶3075; ¶3-080; ¶3-085; ¶3-095

89–91

¶3-040

89

¶3-045; ¶3-050; ¶3-055

90–91

¶3-040; ¶3-045

90

¶3-045; ¶3-050; ¶3-055

91

¶3-050; ¶3-055

92–94

¶3-075

92–95

¶3-040; ¶3-065; ¶3-080

92–96

¶3-085

92

¶3-060; ¶3-060; ¶3-065; ¶3-070

93–95

¶3-060

93

¶2-290; ¶3-060; ¶3-065; ¶3-070

94

¶3-070; ¶3-075

95

¶3-040; ¶3-060; ¶3-070; ¶3-075

95(1)

¶3-075

95(5)–(7)

¶3-075

96

¶3-040; ¶3-080; ¶4-045

97

¶3-040; ¶3-060; ¶3-065; ¶3-070; ¶3-080; ¶3-085; ¶3-105

Pt 3.4

¶3-095; ¶3-100; ¶3-105; ¶3-110

99–102

¶3-115

99

¶3-095; ¶3-100; ¶3-105; ¶3-110; ¶3-115

100–103

¶3-095

100

¶3-100; ¶3-105; ¶3-110

101

¶3-100; ¶3-105; ¶3-110

102

¶3-100; ¶3-105; ¶3-110

102(1)

¶3-110

102(3)

¶3-110

102(4)

¶3-110

103

¶2-235; ¶2-240; ¶2-245; ¶3-100; ¶3-105; ¶3-110; ¶3-115

Pt 3.5

¶1-065; ¶4-110

105

¶1-065; ¶2-080; ¶3-125; ¶3-130; ¶4-090; ¶7-030; ¶7-040; ¶7130; ¶9-050

106–106

¶2-125

106

¶3-125; ¶3-130; ¶7-030; ¶7-040; ¶9-050

Ch 4

¶1-065; ¶1-070; ¶1-080; ¶2-015; ¶2-045; ¶2-055; ¶2-110; ¶2320; ¶3-070; ¶3-075; ¶3-080; ¶8-050; ¶9-055

109

¶1-065; ¶1-070; ¶2-055; ¶2-060; ¶4-045; ¶4-100; ¶4-115; ¶4140; ¶4-185

109(1)

¶4-015

109(2)

¶4-015

109(3)(b)

¶1-080

109(5)

¶4-015; ¶4-055; ¶4-065; ¶4-100; ¶4-115

110

¶4-015; ¶4-045

111

¶3-060; ¶3-065; ¶3-070; ¶3-075; ¶3-080; ¶4-015; ¶4-055; ¶4085; ¶4-090; ¶4-095; ¶4-110; ¶4-115; ¶4-120; ¶4-125; ¶4130; ¶4-185; ¶8-040

111(2)

¶4-025

112

¶8-050

112(2)

¶4-030

112(3)

¶4-030

113

¶4-015

114

¶4-020; ¶4-040

115

¶3-015; ¶3-020; ¶3-025; ¶3-030; ¶3-075; ¶3-080; ¶4-040; ¶4045; ¶4-085; ¶4-090; ¶4-095; ¶4-100; ¶4-105; ¶4-110; ¶4115; ¶4-120; ¶4-130; ¶4-140; ¶4-185; ¶4-195; ¶4-200; ¶7140; ¶8-040

115(2)

¶4-045

116

¶4-115

116(2)

¶4-115

117

¶1-045; ¶3-015; ¶3-020; ¶3-025; ¶3-030; ¶4-060; ¶4-065

117(1)(b)

¶4-055

117(5)

¶4-060

118

¶4-205

118(1)(b)

¶4-060

118(6)

¶4-055; ¶4-060

120

¶2-070; ¶4-075

120(5)

¶4-065

121(4)

¶4-075

121(5)

¶4-075

Pt 4.3 Div 2

¶4-110

123–127

¶4-065

123

¶3-060; ¶3-065; ¶4-085; ¶4-090; ¶4-095; ¶4-100; ¶4-105; ¶4-

110; ¶4-130; ¶4-135; ¶4-140; ¶4-170; ¶4-175 123(2)

¶4-085

123(3)

¶4-085

123(4)

¶2-200

124

¶4-085; ¶4-090

125

¶4-085; ¶4-095; ¶4-100; ¶4-105; ¶4-140

126

¶4-100; ¶4-115

127

¶2-015; ¶4-135

127(10)

¶4-105

127(11)

¶4-105

Pt 4.3 Div 3

¶4-095; ¶4-100; ¶4-105

128

¶4-110; ¶4-115; ¶4-120; ¶4-125; ¶4-130; ¶4-135; ¶4-155; ¶4170; ¶4-175; ¶4-190; ¶4-195; ¶4-200

129

¶4-110; ¶4-115; ¶4-120

130–132

¶4-110

130

¶4-120; ¶4-125; ¶4-130; ¶4-145; ¶4-155; ¶4-160; ¶4-160; ¶4205

131

¶2-085; ¶2-160; ¶4-115; ¶4-120; ¶4-125; ¶4-130; ¶8-165

132

¶4-125; ¶4-130; ¶4-205

133

¶4-105; ¶4-110; ¶4-135; ¶4-150; ¶4-185

Pt 4.3 Div 4

¶4-115

134

¶4-140; ¶4-145; ¶4-150; ¶4-155; ¶4-170; ¶4-175; ¶4-185; ¶4190; ¶4-200

135

¶4-140; ¶4-145; ¶4-150; ¶4-155; ¶4-160; ¶4-205

137

¶4-110; ¶4-120; ¶4-140; ¶4-145; ¶4-150; ¶4-155; ¶4-160

138

¶4-155; ¶4-160

138B

¶3-015; ¶3-020; ¶3-025; ¶3-030; ¶4-170

138C

¶3-020; ¶3-025; ¶3-030; ¶4-165; ¶4-175

140

¶2-080; ¶4-015; ¶4-025; ¶4-060; ¶4-065; ¶4-110; ¶4-185

140(1)

¶4-185

140(2)(b)

¶2-015

140(7)

¶4-185

142

¶4-045; ¶4-200

142(2)

¶4-195

142(3)

¶4-195

143

¶1-070; ¶4-195; ¶4-200

144

¶4-060; ¶4-120; ¶4-130; ¶4-145

Ch 5

¶9-145; ¶9-150

147

¶5-130

148

¶5-050; ¶5-130

148(b)

¶5-020

Pt 5.3

¶1-065; ¶1-080; ¶2-025; ¶2-030; ¶2-105; ¶2-200; ¶2-235; ¶3075; ¶8-165; ¶9-130; ¶9-155

150

¶1-075; ¶2-025; ¶5-020; ¶5-030; ¶5-035; ¶5-040; ¶5-045; ¶5050; ¶5-055; ¶5-065; ¶5-070; ¶5-080; ¶5-085; ¶5-090; ¶5095; ¶5-100; ¶5-105; ¶5-115; ¶5-120; ¶5-150; ¶5-185; ¶5190; ¶5-215; ¶5-220; ¶5-225; ¶5-235; ¶8-060; ¶8-095

150(1)

¶5-030

150(3)

¶5-215

151

¶2-015; ¶5-030

151(2)(a)

¶5-035

152

¶5-040

153

¶1-065; ¶1-075; ¶2-015; ¶2-025; ¶2-030; ¶2-035; ¶2-090; ¶2095; ¶2-145; ¶2-200; ¶2-205; ¶2-230; ¶2-235; ¶2-240; ¶2245; ¶2-265; ¶3-125; ¶4-120; ¶5-020; ¶5-030; ¶5-040; ¶5050; ¶5-055; ¶5-080; ¶5-095; ¶5-100; ¶5-105; ¶5-115; ¶5120; ¶5-140; ¶5-150; ¶5-155; ¶9-060; ¶9-130; ¶9-135; ¶9140; ¶9-145; ¶9-150

153(1)

¶2-235; ¶5-045; ¶8-070

153(2)

¶5-045

153(3)

¶5-045

153(5)

¶5-030

154

¶5-020; ¶5-030; ¶5-095; ¶5-100; ¶5-105

155–158

¶5-155

155

¶5-065; ¶5-070; ¶9-140

156–158

¶5-030

156

¶5-055; ¶5-070; ¶5-120; ¶5-215; ¶5-220; ¶5-225; ¶5-235

157

¶5-055; ¶5-070

157(3)

¶5-065

Pt 5.4

¶9-150; ¶9-170; ¶9-175

160

¶5-030; ¶5-045

160(2)

¶5-080; ¶5-095

161

¶2-015; ¶2-030; ¶2-120; ¶5-030

163

¶2-110; ¶4-150; ¶5-030; ¶5-220

164–166

¶1-075; ¶5-080; ¶5-095; ¶5-135

164

¶1-075; ¶2-030; ¶2-145; ¶5-105; ¶5-110; ¶5-185; ¶8-015; ¶9150; ¶9-155

164(1)(a)

¶5-100

164(1)(b)

¶5-100; ¶5-105

165

¶2-235; ¶2-240; ¶2-245; ¶5-030; ¶5-130; ¶5-110; ¶8-015; ¶9150

165(c)

¶1-075

166

¶5-100; ¶5-105

166(2)

¶5-110

168

¶5-030

Pt 5.5

¶2-145

170

¶5-030; ¶5-130; ¶5-140

170–172

¶5-145; ¶5-150

170–175

¶5-080

171

¶5-135; ¶5-140

171(1)

¶5-135

171(1)(da)

¶5-135

171(5)

¶5-135

172

¶5-130; ¶5-140; ¶5-145

172(2)

¶5-140

172(3)

¶5-130

172(6)

¶5-140

173

¶5-130; ¶5-140; ¶5-145

174

¶5-140; ¶5-150

175

¶5-155

176

¶5-160

176B

¶5-065; ¶5-190; ¶5-195; ¶5-200; ¶5-205

Pt 5.6

¶5-115

178–182

¶2-020; ¶5-185

178(3)

¶5-185

179–181

¶5-205

179

¶5-185; ¶5-190; ¶5-195; ¶5-200

179(1)(b)

¶5-185

179(1)(c)

¶5-190; ¶5-200

179(2)

¶5-190

180–182

¶5-185

180

¶5-190; ¶5-195; ¶5-200

180(3)

¶5-195

180(5)

¶5-195

181

¶5-190; ¶5-195; ¶8-085

181(1)

¶5-200

181(3)

¶5-200

181(4)

¶5-195

182

¶5-190; ¶5-200; ¶5-205; ¶8-085; ¶8-090

184

¶5-230

185

¶5-215; ¶5-230

186

¶5-215; ¶9-135

186(2)

¶5-225

188

¶5-225

190

¶5-030; ¶5-120

191

¶5-030; ¶5-130; ¶5-155; ¶5-160; ¶5-185; ¶5-200; ¶5-215; ¶5235; ¶9-135

Pt 5.9

¶9-015; ¶9-095; ¶9-120; ¶9-125; ¶9-130; ¶9-145

195

¶5-120

Pt 6.2

¶8-075; ¶8-085

Pt 6.3

¶5-035

3-075

¶4-060; ¶4-065; ¶4-075; ¶4-085; ¶4-090; ¶4-105; ¶4-120; ¶4140; ¶4-145; ¶4-150; ¶4-155; ¶4-205

206

¶5-205

207

¶4-060; ¶4-205; ¶5-185; ¶5-205; ¶8-075; ¶8-085

Pt 7.2

¶2-290; ¶7-015; ¶7-020; ¶7-035; ¶7-050; ¶9-065

233

¶7-020; ¶7-035

234–236

¶7-050

234

¶7-015; ¶4-145

235–241

¶7-015

235

¶2-120; ¶2-310; ¶4-015; ¶5-040; ¶7-020; ¶7-035; ¶7-040; ¶7045

235(1)

¶7-020

235(2)

¶7-020

235(2)(c)

¶7-020

235(3)

¶7-020

235(4)

¶7-020

235(5)

¶7-020

235(6)

¶7-020

235(7)

¶7-020

236–239

¶7-045

236–241

¶7-015; ¶7-020

236

¶7-025; ¶7-030; ¶7-035; ¶7-040; ¶7-140

237–241

¶7-025

237

¶7-030; ¶7-035; ¶7-140

238–241

¶2-120; ¶2-125; ¶7-030

238

¶7-035; ¶7-040

238(1)

¶7-035; ¶7-040

238(1A)

¶7-035; ¶7-040

238(2)

¶7-035; ¶7-045

238(2A)

¶7-035

238(3)

¶7-035

238(4)

¶7-035

239–241

¶7-035

239

¶2-065; ¶2-310; ¶7-030; ¶7-040

239(1)

¶7-040

239(2)

¶7-040

239(3)

¶7-040

239(4)

¶7-050

239(5)

¶7-040; ¶7-050

240

¶2-065; ¶2-070; ¶2-310; ¶7-040; ¶7-045

240(1)–(5)

¶7-045

241

¶7-040; ¶7-045; ¶7-050

241(3)

¶7-050

Pt 7.3

¶7-050

243(2)

¶7-060; ¶7-065

243(5)

¶7-060

244

¶7-060

251

¶9-070

252

¶9-070

252B

¶8-015

Pt 7.4

¶7-125; ¶7-140

254–256

¶7-140

254

¶2-015; ¶2-330; ¶4-020; ¶7-125; ¶7-130; ¶7-140; ¶7-145; ¶7150; ¶7-155; ¶7-160; ¶7-165; ¶7-170; ¶9-105

254(1)–(3)

¶7-125

255

¶7-125; ¶7-130; ¶7-135; ¶7-140; ¶7-145; ¶7-150; ¶7-155; ¶7160; ¶7-165; ¶7-170

256–259

¶7-125

256

¶2-275; ¶7-135; ¶7-140

257–259

¶7-135; ¶7-155; ¶7-160; ¶7-165; ¶7-170

257

¶7-140; ¶7-145; ¶7-150

257(3)

¶7-140

258

¶7-140; ¶7-145; ¶7-150

259

¶7-140; ¶7-145

260

¶7-150

261–263

¶7-170

261–264

¶7-125; ¶7-135; ¶7-140; ¶7-145; ¶7-150

261

¶7-155; ¶7-160; ¶7-165

262–264

¶7-155

262

¶7-160; ¶7-165

263

¶2-030; ¶7-160; ¶7-165

263(1)(c)

¶7-165

264

¶7-160; ¶7-165; ¶7-170

Pt 8.2

¶9-110

266

¶8-020; ¶8-025

267

¶1-065; ¶1-070; ¶2-030; ¶2-200; ¶8-015; ¶8-025; ¶8-030; ¶10-055

267A

¶1-065

267(1)

¶8-015

267(3)

¶8-015

267A

¶8-020; ¶8-025; ¶8-030

268

¶1-065; ¶8-015; ¶8-025; ¶8-030

269

¶8-015; ¶8-030

Pt 8.3

¶9-085

271

¶2-015; ¶4-025; ¶5-035; ¶5-115; ¶5-130; ¶5-170; ¶5-175; ¶8040; ¶8-045

271(2)

¶8-040

272

¶8-040; ¶8-045; ¶9-085

273

¶8-050

275–277

¶8-070; ¶8-075; ¶8-085

275–278

¶8-070

275

¶2-295; ¶8-060; ¶8-065; ¶8-080; ¶8-085; ¶8-090; ¶8-095; ¶8100

275(1)(b)–(d)

¶8-100

275(3)–(6)

¶8-060

275(9)

¶5-030

— “interested person”

¶8-060

276–283

¶8-060

276

¶8-065; ¶8-080; ¶8-085; ¶8-090; ¶8-095; ¶8-100

277–279

¶8-065

277

¶8-060

278

¶8-060; ¶8-070; ¶8-075; ¶8-080

278(2)

¶8-075

279

¶8-080; ¶8-090

279(2)

¶8-090

279(3)

¶8-080

280

¶8-060; ¶8-070; ¶8-085; ¶8-095

281

¶8-080; ¶8-090; ¶8-095

281(2)

¶8-090

281(3)

¶8-090

282

¶8-085; ¶8-090; ¶8-095

283

¶8-100

Pt 8.5

¶2-265; ¶3-075

293

¶2-235; ¶2-245; ¶4-065; ¶4-075; ¶4-145; ¶5-205; ¶8-060; ¶8065; ¶8-070

293(1)(a)

¶2-235

Pt 8.6

¶2-150; ¶2-155; ¶2-160; ¶2-165; ¶4-150

296

¶8-015; ¶8-080; ¶8-090; ¶8-165

297–299

¶2-155; ¶2-160; ¶2-165; ¶2-175; ¶2-180; ¶2-270; ¶8-015; ¶8020; ¶8-165; ¶8-185

297–300

¶8-180

297

¶2-085; ¶2-095; ¶2-120; ¶2-125; ¶2-150; ¶2-185; ¶2-265; ¶2270; ¶2-275; ¶2-285; ¶2-290; ¶4-025; ¶4-150; ¶5-110; ¶8100; ¶8-170; ¶8-175; ¶8-180; ¶8-185

298–300

¶8-170

298

¶8-175

299

¶8-175; ¶8-180

300

¶2-150; ¶8-170; ¶8-175; ¶8-185

302

¶2-245; ¶3-075; ¶4-060; ¶4-065; ¶4-120; ¶5-030; ¶5-055; ¶5130; ¶5-155; ¶5-170; ¶5-175; ¶5-190; ¶5-195; ¶9-120; ¶9125; ¶9-130

Ch 9

¶2-025; ¶2-030; ¶2-145; ¶2-200; ¶9-015; ¶9-025; ¶9-055; ¶9085; ¶9-095; ¶9-165; ¶9-110; ¶9-155

Pt 9.2

¶7-020; ¶7-035; ¶9-095

306

¶2-290; ¶7-065; ¶9-015; ¶9-020; ¶9-025; ¶9-035; ¶9-040; ¶9050; ¶9-055; ¶9-060; ¶9-065; ¶9-070; ¶9-090; ¶9-095; ¶9100; ¶9-105; ¶9-110; ¶9-120; ¶9-130; ¶9-145

306(1)

¶9-015

306(1)(b)

¶9-015

306(2)

¶9-015

306(2)(b)

¶9-015

306(3)

¶9-015

307

¶9-020; ¶9-025; ¶9-035; ¶9-090; ¶9-130; ¶9-150; ¶9-155

308

¶2-145; ¶5-030; ¶9-025; ¶9-035; ¶9-040; ¶9-065; ¶9-070; ¶9075; ¶9-085; ¶9-090; ¶9-095; ¶9-100; ¶9-105; ¶9-110; ¶9125; ¶9-130; ¶9-145; ¶9-150; ¶9-155

— “transitional security interests”

¶9-025

310

¶9-040; ¶9-045; ¶9-055; ¶9-070; ¶9-145

311

¶2-025; ¶9-020; ¶9-040; ¶9-155

312

¶2-290; ¶9-045

313

¶9-050

314

¶9-055

315

¶5-030; ¶9-060; ¶9-145

316

¶9-065

317

¶9-070

318

¶9-075; ¶9-165; ¶9-170; ¶9-175; ¶9-180

Pt 9.4

¶9-085; ¶9-095; ¶9-120; ¶9-130; ¶9-135; ¶9-145; ¶9-150

320

¶9-020; ¶9-085; ¶9-090; ¶9-095; ¶9-100; ¶9-105; ¶9-150

320(1)

¶9-085

321

¶9-085; ¶9-090; ¶9-105; ¶9-125

322

¶1-065; ¶1-070; ¶2-200; ¶9-085; ¶9-095; ¶9-105; ¶9-110; ¶9110; ¶9-125; ¶9-145

322(1)

¶9-095; ¶9-105

322(2)

¶9-095; ¶9-120

322(2)(a)

¶9-095; ¶9-125

322(2)(b)–(f)

¶9-095

322(2)(b)

¶9-145

322(3)

¶1-070; ¶9-095

322A

¶9-085; ¶9-105

322A–324

¶9-085; ¶9-095

323–324

¶2-200

323

¶9-100; ¶9-105

324

¶9-100; ¶9-105; ¶9-110

Div 6

¶9-120

330

¶5-020; ¶9-035; ¶9-125

331

¶9-120; ¶9-125; ¶9-130

332

¶5-030; ¶9-120; ¶9-125; ¶9-130

333

¶2-090; ¶9-015; ¶9-060; ¶9-120; ¶9-125; ¶9-130; ¶9-135; ¶9140

333(2)

¶9-130

334

¶9-120; ¶9-130; ¶9-135; ¶9-140

335

¶9-130; ¶9-140

Div 7

¶9-145

336

¶9-015; ¶9-060; ¶9-145

Div 8

¶9-130; ¶9-135; ¶9-150

337

¶9-105; ¶9-150

337(2)

¶9-150

337A

¶9-155

Pt 9.5

¶2-020; ¶1-065; ¶2-050; ¶9-075; ¶9-170

338

¶9-165

339–341A

¶9-075

339

¶1-065; ¶9-170; ¶9-180

339(2)

¶9-165

339(2)(b)

¶9-165; ¶9-175

339(3)

¶2-050

339(4)

¶2-050

339(5)

¶2-050

340–341A

¶2-050; ¶9-165

340

¶2-050; ¶2-070; ¶2-105; ¶2-300; ¶9-165; ¶9-170; ¶9-175; ¶9-

180 340(1)

¶9-170

340(1)(a)

¶9-170

340(1)(b)

¶9-170

340(2)

¶2-050; ¶2-070; ¶9-170; ¶9-175; ¶9-180

340(3)

¶2-050; ¶9-170

340(4)

¶9-170

340(4A)

¶9-170

340(5)

¶2-050; ¶2-070; ¶9-170

340(5)(a)

¶9-170

341

¶2-070; ¶2-105; ¶9-170

341(1)

¶2-050; ¶9-175

341(1)(a)

¶2-050; ¶9-175

341(1)(b)

¶2-050; ¶9-175

341(1)(d)

¶2-050

341(1A)(c)

¶9-175

341(2)–(4)

¶9-175

341(5)

¶2-050

341A

¶2-050; ¶2-300; ¶9-170; ¶9-175; ¶9-180

341A(1)(a)

¶2-050; ¶2-070

341A(1)(b)

¶2-070

341A(2)

¶2-050

Sch 2

¶9-100

Generally

¶1-045; ¶1-065

Personal Property Securities Act 2010 (ACT) Section

Paragraph

Generally ¶1-045 Personal Property Securities Amendment (PPS Leases) Act 2017 Section

Paragraph

Generally ¶1-070 Personal Property Securities (Ancillary Provisions) Act 2010 (Qld) Section

Paragraph

Generally ¶1-045; ¶7065 Personal Property Securities (Commonwealth Powers) Act 2009 (NSW) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Act 2009 (Vic) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Act 2009 (Qld) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Act 2009 (SA) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Act 2009 (WA) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Act 2009 (Tas) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Commonwealth Powers) Amendment Act 2009 (NSW) Section

Paragraph

Generally ¶7-065 Personal Property Securities (Consequential Repeals and Amendments) Act 2011 (WA) Section

Paragraph

Generally ¶1-045 Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) Section Paragraph Sch 2

¶1-045

Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) Section

Paragraph

Sch 2, s 10

¶2-025

Sch 2, s 12

¶2-050

Sch 2, s 13

¶2-055

Sch 2, s 14

¶2-055

Sch 2, s 17-19

¶2-300

Sch 2, s 22

¶4-045

Sch 2, s 23

¶4-050

Sch 2, s 31-33

¶5-035

Sch 2, s 52

¶5-170

Sch 2, s 55

¶5-175

Sch 2, s 64

¶2-050

Sch 2, s 66

¶3-020

Generally

¶1-045; ¶1-080; ¶4-170; ¶4-175

Personal Property Securities Legislation Amendment Act 2010 (NSW) Section

Paragraph

Generally ¶1-045; ¶7065 Personal Property Securities (National Uniform Implementation) Act 2010 (NT) Section

Paragraph

Generally ¶1-045 Personal Property Securities (National Uniform Legislation) Implementation Act 2010 (Tas) Section

Paragraph

Generally ¶1-045 Personal Property Securities (National Uniform Legislation) Implementation Act 2011 (Tas) Section

Paragraph

Generally ¶7-065 Personal Property Securities Regulation 2010 (Cth) Regulation

Paragraph

1.1

¶5-045; ¶11-005

1.2

¶5-045; ¶11-010

1.3

¶2-120; ¶2-125; ¶11-015

1.4

¶1-045; ¶5-045; ¶11-020

1.5

¶1-045; ¶5-045; ¶11-025

1.6

¶5-045; ¶11-030

1.7

¶2-150; ¶11-035

1.8

¶1-065; ¶11-040

1.9

¶1-070; ¶11-045

1.9(2)

¶1-070

1.10

¶1-080; ¶2-060; ¶2-150; ¶2-170; ¶2-175; ¶11-050; ¶11055

2.1

¶1-080

2.2

¶2-145; ¶2-150; ¶5-045; ¶5-115; ¶11-060

2.2(1)(a)

¶1-075

2.3

¶1-065; ¶1-080; ¶2-025; ¶5-045; ¶9-135

3.1

¶3-125; ¶5-045

3.2

¶3-125

4.1

¶4-065; ¶11-070

5.1

¶5-015; ¶11-075

5.2

¶5-015; ¶11-080

5.3

¶5-020; ¶5-050; ¶11-085

5.4

¶5-030; ¶11-090

5.5

¶11-095

5.5(1)

¶5-045

5.6

¶5-070; ¶11-100

5.7

¶5-015; ¶5-030; ¶5-130; ¶11-105

5.8

¶5-135; ¶11-110

5.8A

¶11-115

5.9

¶5-195; ¶11-120

5.10

¶5-215; ¶11-125

7.1

¶7-165; ¶11-135

9.1

¶9-015; ¶11-145

9.2

¶1-070; ¶7-020; ¶9-095; ¶11-150

9.3

¶11-155

Sch 1

¶1-075; ¶2-025; ¶2-145; ¶5-045; ¶11-160; ¶11-160

Sch 2

¶11-165

Sch 1, cl 2.3

¶1-065; ¶1-080

Sch 2, cl 2.1

¶1-080

Personal Property Securities (Statute Law Revision and Implementation) Act 2010 (Vic) Section

Paragraph

Generally ¶1-045; ¶7065 Privacy Act 1988 (Cth) Section Paragraph 6

¶5-145

13

¶5-145

Sale of Goods Act 1923 (NSW) Section Paragraph 5

¶1-065

24

¶1-045

42

¶1-045

Statutes Amendment (Personal Property Securities) Act 2011 (SA) Section

Paragraph

Generally ¶1-045 Taxation Administration Act 1953 (Cth) Section

Paragraph

Sch 1 s 260-5 ¶1-045

INTERNATIONAL LEGISLATION Companies’ Creditors Arrangement Act, RSOC 1985 c C-36 (British Columbia, Canada) Section

Paragraph

Generally ¶1-070 Minister’s Order under the PPSA (Ontario, Canada) Section Paragraph 22

¶5-060

24

¶5-080

Personal Property Securities Act 1999 (NZ) Section

Paragraph

16

¶1-065; ¶1-070; ¶1-075; ¶1-080; ¶2-080

16(1)

¶1-065

17

¶1-065; ¶3-125; ¶3-130

18

¶2-045

18(3)

¶1-0801

19

¶8-170; ¶8-180

19(1)(b)

¶8-175

19(5)

¶1-070

20

¶8-185

21

¶3-100

23

¶1-045

23(a)

¶1-045

23(e)(ii)

¶1-045

24

¶8-050

25

¶4-025

26

¶7-015

27

¶2-120; ¶7-035; ¶7-050

28

¶2-120

29

¶7-020

30

¶2-125; ¶7-040; ¶7-045; ¶7-050

31

¶7-030

35

¶2-015

37

¶2-025

38

¶2-025

39

¶2-025

40

¶2-020

41

¶2-025

42

¶2-205

43

¶2-030

44

¶2-030

45

¶2-085

46

¶2-090

47

¶2-090; ¶2-095

48

¶2-105

49

¶2-100

50

¶2-035

51

¶3-020

52

¶2-140

53

¶2-085; ¶2-155

54

¶2-160

55

¶2-145

55(3)

¶1-070

56

¶2-185

58

¶2-150

60

¶2-225

65

¶2-190

66

¶2-200

68

¶2-200

70

¶2-230

71

¶2-215

72

¶2-215

73-75

¶2-235

76

¶2-240

77

¶2-240

78

¶3-040

79

¶3-045

80

¶3-050

81

¶3-055

82

¶3-095

83

¶3-100

84

¶3-105

85

¶3-110

86

¶3-115

87

¶2-260; ¶2-320

88–91

¶2-095; ¶2-265

93

¶2-290

95

¶2-270

96

¶2-275

98

¶2-280

99

¶2-285

100

¶3-015

101

¶3-015; ¶4-170; ¶4-175

102

¶2-325

103

¶2-295

105

¶4-015

106

¶4-050

107

¶4-045

109

¶4-085; ¶4-090; ¶4-095; ¶4-105; ¶4-110; ¶4115

110

¶4-125

111

¶4-100

114

¶4-120; ¶4-145

115

¶4-135

116

¶4-130

116A

¶4-185

117

¶4-185

120

¶4-140; ¶4-145

121

¶4-155

122

¶4-160

123

¶4-150

125

¶3-060

126

¶3-065

127

¶3-070

128

¶3-085

129

¶3-075

130

¶3-080

131

¶3-085

132

¶4-040; ¶4-195

133

¶4-200

139

¶5-015

140

¶5-020

141

¶5-030

142

¶5-045

144

¶5-080

145

¶5-060

146

¶5-085

149

¶5-100

150

¶5-105

151

¶5-100

152

¶5-100

153

¶5-095

162

¶5-185

164

¶5-190

165

¶5-200

166–168

¶5-205

169A

¶5-225

170

¶5-215

170(1)

¶5-220

170A

¶5-130; ¶5-235

172

¶5-135

173

¶5-140

174

¶5-145

175

¶5-150

176

¶8-040

177

¶8-060

178

¶8-070

179

¶8-075

180

¶8-080

181

¶8-085

182

¶8-095

183

¶8-065

193

¶9-015; ¶9-020; ¶9-025

195

¶9-040

196

¶9-045

197

¶9-060

198

¶9-095

199

¶9-105

200

¶9-085; ¶9-090; ¶9-095; ¶9-105

201

¶9-090; ¶9-095

Generally

¶1-045; ¶1-065; ¶2-050; ¶2-055; ¶2-060; ¶2065

Personal Property Securities Regulations 2001 (NZ) Regulation Paragraph 9

¶5-065

12

¶5-065

Sch 1

¶5-045

Personal Property Security Act, RSO 1990 c P-10 (Ontario, Canada) Section

Paragraph

1

¶1-080; ¶2-055; ¶2-060; ¶3-125

1(1)

¶1-065; ¶1-070; ¶1-075; ¶2-080; ¶2-085

1(2)

¶1-065

2

¶1-065

4

¶1-045; ¶7-020

4(2)

¶1-045

5

¶2-125

5(1)

¶7-015

5(2)

¶7-035

5(3)

¶7-035

5–7

¶2-120

6

¶7-015

7

¶2-125

7(1)

¶7-040; ¶7-045

7(2)

¶7-030

9

¶2-015

11(2)

¶2-020

12

¶2-030

13

¶2-215

16

¶4-025

18

¶8-060

18(5)

¶8-070

18(6)

¶8-065

18(7)

¶8-080

18(8)

¶8-075; ¶8-085; ¶8-095

19

¶2-025

20(1)

¶8-015

20(1)(a)(ii)

¶2-295

20(1)(c)

¶2-140

20(1)(d)

¶2-140

20(2)

¶8-015

21(1)

¶2-205

22

¶2-025

23

¶2-025

24

¶2-100; ¶2-105

25(2)–(4)

¶2-090; ¶2-095

26

¶2-035

27

¶2-110

27(3)

¶2-115

27(6)

¶2-305

28

¶2-275; ¶2-285

28(1)

¶2-155

28(2)

¶2-155

28(3)

¶2-280

28(4)

¶2-175

28(5)

¶2-145

28(6)

¶2-180

30.1

¶2-210

30(1)

¶2-200

30(5)

¶2-200

31

¶2-290

32

¶3-025; ¶4-170

33(1)

¶2-235

33(1)(b)

¶2-245

33(2)

¶2-235

33(3)

¶2-240

35(1)(a)

¶3-040; ¶3-045

35(1)(b)

¶3-055

35(2)

¶3-050; ¶3-055

35(4)

¶3-060; ¶3-065

35(5)

¶3-070

35(6)

¶3-075

35(7)

¶3-075

35(8)

¶3-080

37

¶3-095; ¶3-100; ¶3-110; ¶3-115

38

¶2-230

39

¶2-260; ¶2-320

40

¶2-325

40(4)

¶2-330

42

¶5-015

43

¶5-130

43(1)

¶5-135; ¶5-140

43(2)–(5)

¶5-150

45

¶5-030

45(3)

¶5-085

46(4)

¶5-100

46(5)

¶8-185

46(6)

¶5-065

48

¶2-265

51

¶5-095

56

¶5-185; ¶5-200

56(5)

¶5-205

57

¶4-015

58

¶4-040

59(6)

¶4-055

59(7)

¶4-035

61(2)

¶4-025

62

¶1-045; ¶4-090; ¶4-105

62(b), (c)

¶4-100

63

¶4-025; ¶4-095; ¶4-110; ¶4-115; ¶4-120

63(2)

¶4-125

63(9)

¶4-135

63(10)

¶4-135

64

¶4-185

64(1)

¶4-130

65(2)

¶4-140

65(3)

¶4-155

65(4)

¶4-160; ¶8-165

65(6.1)

¶4-150

66

¶4-145

66(1)

¶4-195

66(2)

¶4-200

67

¶3-085

67(2)

¶8-040

69

¶8-170

69(c)

¶8-175

71

¶5-215

71(2)

¶5-220

72

¶4-020

73

¶7-135; ¶7-140; ¶7-145; ¶7-150; ¶7-155; ¶7-160; ¶7-165; ¶7170

74

¶7-130

75

¶9-015; ¶9-020; ¶9-025

76

¶9-015; ¶9-020; ¶9-025

77

¶9-040; ¶9-045; ¶9-060; ¶9-085; ¶9-090; ¶9-095; ¶9-105; ¶9110

78

¶9-040; ¶9-045; ¶9-060; ¶9-085; ¶9-090; ¶9-095; ¶9-105; ¶9110

Generally

¶1-045; ¶2-050; ¶2-065

Personal Property Security Act 1993 P-6.2 (Saskatchewan, Canada) Section

Paragraph

2

¶1-080; ¶2-055; ¶2-060; ¶3-125; ¶3-130

2(1)(hh)

¶2-080

2(1)(jj)

¶1-075

2(1)(qq)

¶1-045; ¶1-065

2(1)(y)

¶1-070

2(2)

¶8-170; ¶8-180

2(2)(d)

¶8-175

2(2)(4)

¶2-080

2(5)

¶2-045

3(1)

¶1-065; ¶8-050

4

¶1-045

5

¶2-125

5(1)

¶7-015

5(2)

¶7-015

5(3)

¶7-035; ¶7-050

5(4)

¶7-035; ¶7-050

5–7

¶2-120

7

¶2-125

7.1

¶2-125

7(1)

¶7-020

7(2)

¶7-040; ¶7-045; ¶7-050

7(3)

¶7-030

7(4)

¶7-050

9(1)

¶2-015

10(2)

¶2-045

10(3)

¶2-025

10(4)

¶2-025

10(5)

¶2-025

12(1)

¶2-020

12(3)

¶3-020

13

¶2-030

14(1)

¶2-215

18

¶8-060

18(6), (7)

¶8-070

18(8)

¶8-085

18(9)

¶8-065

18(10)

¶8-085

18(12)

¶8-085; ¶8-095

18(13)

¶8-075

18(14)–(16)

¶8-100

18(17)

¶8-080

19

¶2-025

20(1)

¶2-295

20(2)

¶8-015

20(3)

¶2-140

20(4)

¶2-175; ¶2-180

21

¶8-030

22(2)

¶2-250

23(1)

¶2-205

24(1)

¶2-025

24(2)

¶2-045

25

¶2-025

26

¶2-100; ¶2-105

27

¶2-035

28(1)

¶2-085

28(2)

¶2-090

28(3)

¶2-090; ¶2-095

29

¶2-110

29(3)

¶2-115

29(5)–(7)

¶2-305

30(2)

¶2-155

30(3)

¶2-160; ¶2-215

30(4)

¶2-160

30(5)

¶2-185

30(6)

¶2-145; ¶2-270; ¶2-275

31

¶2-285

31(7)

¶2-145; ¶2-270; ¶2-275; ¶2-280

32

¶2-290

33

¶2-260; ¶2-320

34(2)

¶2-235

34(5)

¶2-240

34(11)

¶3-025

34(12)

¶3-030

35(1)

¶2-200

35(2)

¶2-205

35(3)

¶2-200

35(5)

¶2-215; ¶2-225; ¶4-170; ¶4-175

35(7)

¶2-225; ¶4-170; ¶4-175

35(8)

¶2-265

35(9)

¶2-265

37

¶3-015

38(2)

¶3-040; ¶3-045

38(3)

¶3-050

38(4)

¶3-055

38(7)

¶3-060

38(8)

¶3-065

38(9)

¶3-070

38(10)

¶3-085

38(11)

¶3-080

38(12)

¶3-075

38(13)

¶3-075

38(15)

¶3-085

39(1)

¶3-095

39(2)

¶3-110

39(3)

¶3-100

39(4)

¶3-110

39(5)

¶3-105

39(6)

¶3-115

40

¶2-230

41

¶2-325

41(9)

¶2-330

42

¶5-015

42.1

¶5-015

43

¶5-030

43(2)

¶5-080

43(4)

¶5-085

43(6)

¶5-100

43(7)

¶5-105

43(8)

¶5-100

43(9)

¶5-100

43(12)

¶5-065

44(1)

¶5-095

46(2)

¶5-215

46(2)(a)

¶5-220

47

¶8-185

48

¶5-130

48(1)

¶5-135

48(1)(a)

¶5-140

48(2)

¶5-150

50

¶5-185

50(5)

¶5-200

50(7)

¶5-205

50(8)

¶5-190

51

¶2-265

55(2)(a)

¶4-015

55(3)

¶4-040

55(4)

¶4-055

55(5)

¶4-060

55(6)

¶4-060

55(7)

¶4-035

56(3)

¶4-045

58

¶4-085; ¶4-090; ¶4-105

58(2)(b)

¶4-100

59

¶4-095; ¶4-110; ¶4-115

59(6)

¶4-120

59(7)

¶4-120

59(14)

¶4-135

59(16)

¶4-120

60

¶4-185

60(3)

¶4-130

61

¶4-145

61(1)

¶4-140

61(2)

¶4-155

61(3)

¶4-150

61(5)

¶4-160

62(1)(a)

¶4-195

62(1)(b)

¶4-200

65

¶8-040

65(2)

¶4-020

65(3)

¶4-125

65(9)

¶8-165

65(10)

¶8-165

73

¶7-125; ¶9-015; ¶9-020; ¶9-025; ¶9-040; ¶9-045; ¶9-060; ¶9085; ¶9-090; ¶9-095; ¶9-105; ¶9-110

74

¶1-045; ¶9-015; ¶9-020; ¶9-025; ¶9-040; ¶9-045; ¶9-085; ¶9090; ¶9-095; ¶9-105; ¶9-110

Generally

¶1-045; ¶2-050; ¶2-065

Personal Property Security Regulations 1995 (Saskatchewan, Canada) Section

Paragraph

6-19

¶5-045

20-20.3

¶5-070

Generally ¶1-045 Sale of Goods Act (Ontario, Canada) Section

Paragraph

Generally ¶1-045 Securities Transfer Act, RSO 2006, c 8 (Ontario, Canada) Section

Paragraph

Generally

¶1-080; ¶2-055; ¶2060

Securities Transfer Act, RSO 2007, (Saskatchewan, Canada) Section

Paragraph

Generally

¶1-080; ¶2-055; ¶2060

Storage Liens Act 1935 (NSW) Section Paragraph 3(2)

¶2-290

Uniform Commercial Code Article 1 (US) Section

Paragraph

1-103(b)

¶4-020

1-201

¶8-165; ¶8-170; ¶8175

1-201(35)

¶1-070

1-203

¶1-070

Uniform Commercial Code Article 2A (US) Section Paragraph 1-203

¶1-070

Uniform Commercial Code Article 2 (US) Section Paragraph

2-505

¶1-045

Uniform Commercial Code Article 5 (US) Section

Paragraph

Generally ¶2-065 Uniform Commercial Code Article 8 (US) Section

Paragraph

8-106

¶2-055; ¶2060

Generally ¶1-080; ¶2060 Uniform Commercial Code Article 9 (US) Section

Paragraph

1-201(35)

¶1-065; ¶1-070

1-209(9)

¶2-155

8-106(b)

¶2-060

9-101

¶2-260

9-102

¶1-080

9-102(52)(c)

¶8-015

9-102(64)

¶2-080

9-103

¶1-075

9-104

¶2-050

9-104(f)

¶1-045

9-106

¶2-055; ¶2-060

9-107

¶2-065

9-109

¶1-045; ¶1-065; ¶5-110

9-109(d)(6)

¶1-045

9-109(11)

¶1-045

9-136(f)

¶3-110

9-201

¶2-015

9-202

¶8-050

9-203

¶2-020

9-204(a)

¶2-030

9-204(b)

¶2-030

9-210

¶8-060; ¶8-070

9-210(d)

¶8-065

9-210(e)

¶8-065

9-210(f)

¶8-080

9-301

¶2-120; ¶2-125; ¶7-015; ¶7-035; ¶7-040; ¶7050

9-305

¶7-015

9-307

¶7-020; ¶7-030

9-308–9-314

¶2-025

9-308(c)

¶2-205

9-312(c)

¶2-035

9-312(d)

¶2-035

9-312(f)

¶2-100

9-312(g)

¶2-105

9-315

¶2-085

9-315(c)–(e)

¶2-090

9-316

¶2-120; ¶2-125; ¶7-030; ¶7-035; ¶7-050

9-317

¶2-295

9-317(a)

¶8-015

9-317(b)–(d)

¶2-140

9-320

¶2-155

9-322(a)

¶2-200

9-322(b)

¶2-200

9-323

¶2-215

9-324

¶2-235; ¶2-240

9-325

¶2-225; ¶2-265

9-327

¶2-245; ¶2-300

9-328

¶2-210

9-330

¶2-280

9-331

¶2-275; ¶2-285

9-331(c)

¶8-185

9-332

¶2-270

9-333

¶2-290

9-334

¶4-175

9-334(i)

¶3-015

9-335(a)

¶3-040

9-335(b)

¶3-075

9-335(c)

¶3-045; ¶3-050

9-335(e)

¶3-055; ¶3-060; ¶3-065

9-335(f)

¶3-055; ¶3-060; ¶3-065; ¶3-070

9-336

¶3-115

9-336(a)–(c)

¶3-095

9-336(d)

¶3-100

9-339

¶2-230

9-401

¶2-320

9-404–9-406

¶2-325

9-501

¶5-015

9-502

¶5-045

9-502(d)

¶5-085

9-506(b)

¶5-105

9-507

¶2-265

9-508

¶2-265

9-509

¶5-030

9-513

¶5-185

9-515

¶5-095

9-518

¶5-200

9-522

¶5-220

9-523

¶5-130

9-601

¶4-035

9-601

¶4-035

9-601(c)

¶4-040

9-607(c)

¶4-025

9-602

¶4-045

9-604(a)

¶4-055

9-609

¶4-085; ¶4-090; ¶4-100

9-610

¶4-025; ¶4-110; ¶4-115; ¶4-125

9-611

¶4-105; ¶4-120

9-612

¶4-105; ¶4-120

9-615

¶4-185

9-615(d)

¶4-035; ¶4-130

9-616

¶4-185

9-617

¶4-140

9-620

¶4-135; ¶4-150

9-621

¶4-135; ¶4-145

9-622

¶4-150

9-623

¶4-195

9-624

¶4-105; ¶4-120; ¶4-195

9-625

¶3-085; ¶8-040

9-627

¶4-025; ¶4-125

9-701

¶9-020; ¶9-025

9-703–9-705

¶9-035; ¶9-040

9-706

¶9-060

9-709

¶9-090; ¶9-095; ¶9-105; ¶9-110

Generally

¶1-045; ¶2-045

INDEX A Ability to transfer or otherwise deal concept

¶2-060

Access prohibited by the regulations

¶5-130

Accessions — see also Processed or commingled goods concept

¶2-190; ¶3-040; ¶3-045; ¶3-050; ¶3-055; ¶3-060; ¶3-065; ¶3070; ¶3-075; ¶3-080; ¶3-085

continuation of security interests — commentary

¶3-040

— concepts

¶3-040

— continue

¶3-040

— cross-references

¶3-040

— foreign regimes comparable provisions

¶3-040

— further reading

¶3-040

— outline

¶3-040

Court order about removal — commentary

¶3-085

— concepts

¶3-085

— cross-references

¶3-085

— foreign regimes comparable provisions

¶3-085

— further reading

¶3-085

— outline

¶3-085

interest has priority — commentary

¶3-045

— concepts

¶3-045

— cross-references

¶3-045

— foreign regimes comparable provisions

¶3-045

— further reading

¶3-045

— outline

¶3-045

priority before security interest is perfected — commentary

¶3-050

— concepts

¶3-050

— cross-references

¶3-050

— foreign regimes comparable provisions

¶3-050

— further reading

¶3-050

— outline

¶3-050

refusal of permission to remove — commentary

¶3-070

— concepts

¶3-070

— cross-references

¶3-070

— foreign regimes comparable provisions

¶3-070

— further reading

¶3-070

— outline

¶3-070

reimbursement for damages in removal — commentary

¶3-065

— concepts

¶3-065

— cross-references

¶3-065

— foreign regimes comparable provisions

¶3-065

— further reading

¶3-065

— outline

¶3-065

secured party must give notice of removal — commentary

¶3-075

— concepts

¶3-075

— cross-references

¶3-075

— foreign regimes, comparable provisions

¶3-075

— further reading

¶3-075

— outline

¶3-075

secured party must not damage goods when removing — commentary

¶3-060

— concepts

¶3-060

— cross-references

¶3-060

— foreign regimes, comparable provisions

¶3-060

— further reading

¶3-060

— outline

¶3-060

security interest attaches after goods become accession — commentary

¶3-055

— concepts

¶3-055

— cross-references

¶3-055

— foreign regimes, comparable provisions

¶3-055

— further reading

¶3-055

— outline

¶3-055

when person with interest in whole may retain — commentary

¶3-080

— concepts

¶3-080

— cross-references

¶3-080

— foreign regimes, comparable provisions

¶3-080

— further reading

¶3-080

— outline

¶3-080

Account debtors concept

¶2-325

Accounts certain transfers

¶1-045

concepts

¶1-065; ¶1-075; ¶1-080; ¶2-115; ¶2-245; ¶2-310; ¶2-325; ¶2-330; ¶7-030; ¶7-050; ¶9175

Acquired property concept

¶8-060

Actual knowledge certain property transfers — commentary

¶8-180

— concepts

¶8-180

— crossreferences

¶8-180

— foreign regimes, comparable provisions

¶8-180

— further reading

¶8-180

— outline

¶8-180

concept

¶2-085; ¶2-095; ¶2-120; ¶2-125; ¶2-150; ¶2-155; ¶2-160; ¶2-165; ¶2-175; ¶2-180; ¶2185; ¶2-265; ¶2-270; ¶2-275; ¶2-285; ¶2-290; ¶4-025; ¶4-150; ¶8-015; ¶8-020; ¶8100; ¶8-170; ¶8-175; ¶8-180; ¶8-185

proceeds with attachment

¶2-085

Actual or apparent possession concept

¶2-045

Actual or constructive knowledge concept

¶2-275

ADI accounts concept

¶1-065; ¶2-050; ¶2-090; ¶2-125; ¶2-300; ¶7-040; ¶9-175

control — commentary

¶9-180

— concepts

¶9-180

— cross-references

¶9-180

— further reading

¶9-180

— outline

¶9-180

Advances priority

¶2-215

— commentary

¶2-215

— concepts

¶2-215

— cross-references

¶2-215

— foreign regimes, comparable provisions

¶2-215

— further reading

¶2-215

— outline

¶2-215

After-acquired property concept

¶2-015

Agricultural interests attachment to crops and livestock — commentary

¶3-020

— concepts

¶3-020

— cross-references

¶3-020

— foreign regimes, comparable provisions

¶3-020

— further reading

¶3-020

— outline

¶3-020

commentary

¶3-015

concepts

¶3-015

cross-references

¶3-015

foreign regimes, comparable provisions

¶3-015

further reading

¶3-015

outline

¶3-015

priority of crops — commentary

¶3-025

— concepts

¶3-025

— cross-references

¶3-025

— foreign regimes, comparable provisions

¶3-025

— further reading

¶3-025

— outline

¶3-025

priority of livestock — commentary

¶3-030

— concepts

¶3-030

— cross-references

¶3-030

— foreign regimes, comparable provisions

¶3-030

— further reading

¶3-030

— outline

¶3-030

All or part of the purchase price purchase money security interest

¶1-075

Amendment demand concept

¶5-185

Amendment statement concept

¶5-195

An act concept

¶2-020

Any right of set-off or right of combination of accounts

¶1-045

concept

¶1-045

Approved deposit accounts interests

¶1-045

Approved forms concept

¶2-245; ¶4-060; ¶4-070; ¶5-030; ¶5-055; ¶5-130; ¶5-155; ¶5-170; ¶5-175; ¶5-190; ¶5195; ¶9-120; ¶9-125

Assignments security interests

¶1-065

Attachment — see also Proceeds; Relocation; Transfers concept

¶2-020; ¶2-025; ¶2-030; ¶2-085; ¶2-200; ¶2-235; ¶2-240; ¶2-245; ¶3-020; ¶3-045; ¶5-050; ¶5-085; ¶7-045; ¶8-165

continuous — express or implied authorisation

¶2-085

— provision in security agreement

¶2-085

— taking free provisions

¶2-085

cross-references

¶2-020

enforceability

¶2-020

foreign regimes, comparable provisions

¶2-020

further reading

¶2-020

leases, bailments, consignments and conditional sale agreements

¶2-020

outline

¶2-020

security interest attaches — rights in the collateral

¶2-020

— value or an act

¶2-020

time of attachment

¶2-020

Attachment rule commentary

¶9-090

concepts

¶9-090

cross-references

¶9-090

foreign regimes, comparable provisions

¶9-090

further reading

¶9-090

outline

¶9-090

Authorisation express or implied

B

¶2-085

Bailments concept

¶2-035

PPS leases

¶1-070

security interests

¶2-020

Bailors damages

¶8-030

purchase money security interests

¶1-075

Bankruptcy — see Insolvency Beneficial interests in monetary obligations certain transfers

¶1-045

Best price reasonable obtainable concept

¶4-125

Bodies corporate constructive knowledge — commentary

¶8-175

— concepts

¶8-175

— cross-references

¶8-175

— foreign regimes, comparable provisions

¶8-175

— further reading

¶8-175

— outline

¶8-175

Bonds financial products

¶1-080

Buyer taking free provisions

¶2-140

C Charge backs security interests

¶1-065

Charges circulating asset, meaning — commentary

¶9-170

— concepts

¶9-170

— cross-references

¶9-170

— foreign regimes, comparable provisions

¶9-170

— further reading

¶9-170

— outline

¶9-170

control and inventory, meaning

¶9-175

— concepts

¶9-175

— control of accounts

¶9-175

— control of inventory

¶9-175

— cross-references

¶9-175

— foreign regimes, comparable provisions

¶9-175

— further reading

¶9-175

— general rules

¶9-175

— outline

¶9-175

control of ADI account — commentary

¶9-180

— concepts

¶9-180

— cross-references

¶9-180

— foreign regimes, comparable provisions

¶9-180

— further reading

¶9-180

— outline

¶9-180

created under statute

¶1-045

provided by general law

¶1-045

references to charges, fixed and floating charges — commentary

¶9-165

— concepts

¶9-165

— cross-references

¶9-165

— foreign regimes, comparable provisions

¶9-165

— further reading

¶9-165

— outline

¶9-165

Chattel mortgages security interests

¶1-065

Chattel paper concept

¶1-045; ¶1-065; ¶1-075; ¶2-045; ¶2-080; ¶2-110; ¶2-115; ¶2-280; ¶2-325; ¶2-330; ¶7-020; ¶7-030

contractual restrictions and prohibitions

¶2-330

deemed security interests

¶1-065

person who acquires, priority

¶2-280

purchase money security

¶1-075

interests returned collateral

¶2-115

rights of transferee and account debtor

¶2-325

Circulating assets control of ADI account

¶2-050

Collateral — see also Disposal of collateral; Return of collateral; Seizure concept

¶2-295

proceeds, redemption

¶2-080

Commercial consignments concept

¶1-075; ¶4-015; ¶8-025; ¶8-030

deemed security interests

¶1-065

purchase money security interests

¶1-075

Commercial property concept

¶5-045

Commercially practical concept

¶3-095

Commingled goods — see Processed or commingled goods Common carrier concept possession of goods shipped by

¶2-045; ¶2-250 ¶2-250

Commonwealth legislation — see Laws and jurisdictions Conditional sale agreements security interests — attachment

¶2-020

— scope

¶1-065

Consensual transaction

¶2-180

Consent

¶3-055

security interests

¶1-065

Consignments security interests attachment

¶2-020

— scope

¶1-065

Consignors, damages

¶8-030

Consolidation purchase money security interests

¶1-075

Constitutional security interests commentary

¶9-070

concepts

¶9-070

foreign regimes, comparable provisions

¶9-070

further reading

¶9-070

outline

¶9-070

Constructive knowledge bodies corporate — commentary

¶8-175

— concepts

¶8-175

— cross-references

¶8-175

— foreign regimes, comparable provisions

¶8-175

— further reading

¶8-175

— outline

¶8-175

certain property transfers — commentary

¶8-180

— concepts

¶8-180

— cross-references

¶8-180

— foreign regimes, comparable provisions

¶8-180

— further reading

¶8-180

— outline

¶8-180

commentary

¶8-170

concepts

¶8-170

cross-references

¶8-170

foreign regimes, comparable provisions

¶8-170

further reading

¶8-170

outline

¶8-170

proceeds with attachment

¶2-085

registration of data does not constitute constructive notice — commentary

¶8-185

— concepts

¶8-185

— cross-references

¶8-185

— foreign regimes, comparable provisions

¶8-185

— further reading

¶8-185

— outline

¶8-185

Consumer property concept

¶5-045

Continuous attachment

¶2-085

Continuous perfection concept

¶2-085; ¶2-120; ¶2-125; ¶2-200; ¶2-210; ¶2-260; ¶2-265; ¶9-085; ¶9095

manner

¶2-205

transferor-granted interests, priority

¶2-260

Contracts of annuity transfers of interests

¶1-045

Contractual restrictions and prohibitions

¶2-330

Control ADI account

¶2-050

— concept

¶2-050

— cross-references

¶2-050

— foreign regimes, comparable provisions

¶2-050

— further reading

¶2-050

— outline

¶2-050

concept

¶2-025; ¶2-030; ¶2-050; ¶2-200; ¶2-210; ¶5-140; ¶9-170

perfection

¶2-030

seizure of collateral

¶4-090

Controllers concept

¶4-045; ¶4-050

Copy of the security agreement concept

¶8-060

Correction of registration errors commentary

¶5-235

concepts

¶5-235

cross-references

¶5-235

foreign regimes, comparable provisions

¶5-235

further reading

¶5-235

outline

¶5-235

Costs application in relation to costs charged

¶8-090

recovery of costs arising from request

¶8-080

Court information requests — see Information requests non-compliance with order, consequences

¶8-095

order about removal of accession

¶3-085

Creditors execution, over unperfected security interest

¶2-295

receives payment of debt

¶2-270

Crops concept

¶3-015

priority — commentary

¶3-025

— concepts

¶3-025

— cross-references

¶3-025

— foreign regimes, comparable provisions

¶3-025

— further reading

¶3-025

— outline

¶3-025

proceeds

¶2-080

Currency taking free of interests

¶2-165

— concepts

¶2-165

— cross-references

¶2-165

— foreign regimes, comparable provisions

¶2-165

— further reading

¶2-165

— outline

¶2-165

D Damages for breaches of rights, duties and obligations

¶8-040

liability — commentary

¶8-045

— concepts

¶8-045

— cross-references

¶8-045

— foreign regimes, comparable provisions

¶8-045

— further reading

¶8-045

— outline

¶8-045

Debtors concept

¶2-270

Debts concept

¶2-270

Declared interests

¶1-045

Declared statutory licences

¶1-045

Deemed security interests

¶1-045

Default concept

¶4-085

Defect concept

¶5-100; ¶5-105; ¶5-110

Defective registration collateral not covered — commentary

¶9-155

— concept

¶9-155

— cross-references

¶9-155

— foreign regimes, comparable provisions

¶9-155

— further reading

¶9-155

— outline

¶9-155

commentary

¶9-150

concepts

¶9-150

cross-references

¶9-150

foreign regimes, comparable provisions

¶9-150

further reading

¶9-150

outline

¶9-150

Definitions access prohibited by the regulations

¶5-130

accession

¶3-040

account

¶1-065

account debtor

¶2-325

accounts

¶2-245

ACN

¶11-030

Act

¶11-030

actual knowledge

¶8-170

actual or constructive knowledge

¶2-275

ADI account

¶1-065

after-acquired property

¶2-015; ¶8-060

agriculture

¶11-030

aircraft

¶11-030

aircraft engine

¶11-030

Aircraft Protocol

¶11-030

airframe

¶11-030

all present and after-acquired property

¶11-030

all present and after-acquired property, except

¶11-030

amendment demand

¶5-185

amendment statement

¶5-195

AML-CTF Act

¶11-030

an act

¶2-020

any right of set-off or right of combination of accounts

¶1-045

ARBN

¶11-030

ARSN

¶11-030

ASIC

¶11-030

assignments attachment Australian Business Register bailment

¶1-065 ¶2-015; ¶2-020 ¶11-030 ¶1-070; ¶2-035

best price reasonably obtainable

¶4-125

buyer

¶2-140

chattel mortgages

¶1-065

chattel paper Chicago Convention collateral commercial consignments

¶1-045; ¶1-065; ¶1-075; ¶7020 ¶11-030 ¶2-295 ¶1-065; ¶1-075

commercial property

¶5-045

commercially practical

¶3-095

commingled

¶3-095

conditional sale agreements

¶1-065

consignments consumer property

¶1-065 ¶1-070; ¶5-045

continuous perfection

¶2-085

control

¶9-170

controllers

¶4-045; ¶4-050

court order

¶11-090

crops

¶3-015; ¶3-025

debt

¶2-270

debtor

¶2-270

deemed security interests

¶1-065

default

¶4-085

defect

¶5-100; ¶5-105; ¶5-110

described in a registration

¶5-140

dispose of collateral

¶4-110

encrypted

¶2-025

enforcing a security interest

¶4-185

equipment

¶2-025

evidential burden

¶5-140

execution creditor

¶2-295

financial products

¶1-080

financial property

¶2-125

financing change statement

¶5-150

financing statement

¶5-030; ¶5-150; ¶5-155

fixtures

¶1-045

flawed asset

¶1-065

future advances

¶2-015

garnishee order

¶2-295

general law

¶1-045

helicopter

¶11-030

hire purchase agreement

¶1-065

honesty

¶4-025

hull identification number

¶11-030

identifiable

¶2-080

individual

¶5-140

intangible property

¶2-125

interested person

¶8-060

intermediary

¶1-080

intermediated security

¶1-075; ¶1-080

inventory

¶2-145; ¶2-235; ¶9-170; ¶9175

investment instrument

¶1-075; ¶2-060; ¶2-170; ¶2175; ¶7-020

land

¶1-045

lease

¶1-070

letter of credit licence livestock manufacturer’s number market value migrated security interest modification National Names Index negotiable bills of lading negotiable instrument

¶2-065; ¶7-045 ¶1-065 ¶3-020; ¶3-030 ¶11-030 ¶4-125 ¶11-030 ¶2-325; ¶4-060 ¶11-030 ¶1-045 ¶1-075; ¶2-045; ¶7-020

new value

¶2-150

notice of objection

¶4-155

ordinary course of business

¶2-155

ordinary course of trading in a prescribed financial market

¶2-170

original registration time other financial instruments or other financial assets outboard motor personal information personal property

¶11-030 ¶1-080 ¶11-030 ¶5-145 ¶1-065; ¶4-055

personal property prescribed by regulations

¶5-020

persons holding interests (other than security interests) in the collateral that have a higher priority

¶4-185

police commissioner

¶11-090

pooling arrangements

¶1-070

possession

¶2-020

pre-perfection

¶2-200

predominantly for personal, domestic or household use prescribed property proceeds

¶1-075; ¶2-160 ¶11-030 ¶2-080; ¶4-185

proceeds of crime authorised person

¶11-090

proceeds of crime law

¶11-090

proprietary rights

¶1-065

public auction

¶4-115

purchase money security interests

¶1-075

reasonable expenses

¶4-105

reasonable period

¶4-095

receiver

¶4-050

registered description of collateral

¶5-150

registered financing statement

¶5-135

registered scheme

¶11-030

registration event

¶5-070

registration time

¶11-030

relevant agency

¶11-090

responsible entity

¶11-030

securities account

¶1-080

security agreement

¶2-025; ¶8-060; ¶8-100; ¶9020

seize

¶4-085

seizure

¶2-295

serial number

¶1-075; ¶2-145; ¶5-135

small aircraft

¶11-030

specific goods

¶1-065

subordination

¶1-065

traceable

¶2-080

transitional register

¶9-130

transitional register end time

¶9-130

trust receipts

¶1-065

unique identifier

¶5-135

value

¶1-070; ¶1-075; ¶2-020; ¶2275

vehicle identification number

¶11-030

watercraft

¶11-030

writing

¶2-025

Described in a registration concept Disposal of collateral — see also Collateral; Return of collateral; Seizure free of interests

¶5-140

— commentary

¶4-135

— concepts

¶4-135

— cross-references

¶4-135

— foreign regimes, comparable provisions

¶4-135

— further reading

¶4-135

— outline

¶4-135

market value, duty to obtain — commentary

¶4-125

— concepts

¶4-125

— cross-references

¶4-125

— foreign regimes, comparable provisions

¶4-125

— further reading

¶4-125

— outline

¶4-125

notice — commentary

¶4-120

— concepts

¶4-120

— cross-references

¶4-120

— foreign regimes, comparable provisions

¶4-120

— further reading

¶4-120

— outline

¶4-120

objection to purchase or retention, persons entitled — commentary

¶4-155

— concepts

¶4-155

— cross-references

¶4-155

— foreign regimes, comparable provisions

¶4-155

— further reading

¶4-155

— outline

¶4-155

objection to purchase or retention, request to prove interest — commentary

¶4-160

— concepts

¶4-160

— cross-references

¶4-160

— foreign regimes, comparable provisions

¶4-160

— further reading

¶4-160

— outline

¶4-160

process — commentary

¶4-110

— concepts

¶4-110

— cross-references

¶4-110

— foreign regimes, comparable provisions

¶4-110

— further reading

¶4-110

— outline

¶4-110

purchase — commentary

¶4-115

— concepts

¶4-115

— cross-references

¶4-115

— foreign regimes, comparable provisions

¶4-115

— further reading

¶4-115

— outline

¶4-115

retention free of interests — commentary

¶4-150

— concepts

¶4-150

— cross-references

¶4-150

— foreign regimes, comparable provisions

¶4-150

— further reading

¶4-150

— outline

¶4-150

retention, notice — commentary

¶4-145

— concepts

¶4-145

— cross-references

¶4-145

— foreign regimes, comparable provisions

¶4-145

— further reading

¶4-145

— outline

¶4-145

retention, proposal of secured party — commentary

¶4-140

— concepts

¶4-140

— cross-references

¶4-140

— foreign regimes, comparable provisions

¶4-140

— further reading

¶4-140

— outline

¶4-140

statement of account, duty to give — commentary

¶4-130

— concepts

¶4-130

— cross-references

¶4-130

— foreign regimes, comparable provisions

¶4-130

— further reading

¶4-130

— outline

¶4-130

E Effective registration commentary

¶5-095

concepts

¶5-095

cross-references

¶5-095

foreign regimes, comparable provisions

¶5-095

further reading

¶5-095

outline

¶5-095

Electronic data

¶7-020

Encryption

¶2-025

Enforcement — see also Rights, duties and obligations; Seizure commentary

¶4-015

concept

¶4-015

consumer credit legislation, relationship — commentary

¶4-065

— concepts

¶4-065

— cross-references

¶4-065

— foreign regimes, comparable provisions

¶4-065

— further reading

¶4-065

— outline

¶4-065

contracting out — commentary

¶4-045

— concepts

¶4-045

— cross-references

¶4-045

— foreign regimes, comparable provisions

¶4-045

— further reading

¶4-045

— outline

¶4-045

cross-references

¶4-015

distribution of proceeds received by secured party — commentary

¶4-185

— concepts

¶4-185

— cross-references

¶4-185

— foreign regimes, comparable provisions

¶4-185

— further reading

¶4-185

— outline

¶4-185

foreign regimes, comparable provisions

¶4-015

further reading

¶4-015

judgment or execution does not extinguish security interest in collateral — commentary

¶4-035

— concepts

¶4-035

— cross-references

¶4-035

— foreign regimes, comparable provisions

¶4-035

— further reading

¶4-035

— outline

¶4-035

land and property, interests covering — commentary

¶4-055

— concepts

¶4-055

— cross-references

¶4-055

— foreign regimes, comparable provisions

¶4-055

— further reading

¶4-055

— outline

¶4-055

notices, time when not required — commentary

¶4-205

— concepts

¶4-205

— cross-references

¶4-205

— foreign regimes, comparable provisions

¶4-205

— further reading

¶4-205

— outline

¶4-205

outline

¶4-015

PPS leases

¶1-070

redemption of collateral, entitled persons — commentary

¶4-195

— concepts

¶4-195

— cross-references

¶4-195

— foreign regimes, comparable provisions

¶4-195

— further reading

¶4-195

— outline

¶4-195

reinstatement of security agreement

— commentary

¶4-200

— concepts

¶4-200

— cross-references

¶4-200

— foreign regimes, comparable provisions

¶4-200

— further reading

¶4-200

— outline

¶4-200

rights and duties, honest and commercially reasonable manner — commentary

¶4-025

— concepts

¶4-025

— cross-references

¶4-025

— foreign regimes, comparable provisions

¶4-025

— further reading

¶4-025

— outline

¶4-025

rights and remedies — commentary

¶4-020; ¶4-030

— concepts

¶4-020; ¶4-030

— cross-references

¶4-020; ¶4-030

— foreign regimes, comparable provisions

¶4-020; ¶4-030

— further reading

¶4-020; ¶4-030

— outline

¶4-020; ¶4-030

rights and remedies, cumulative — commentary

¶4-040

— concepts

¶4-040

— cross-references

¶4-040

— foreign regimes, comparable provisions

¶4-040

— further reading

¶4-040

— outline

¶4-040

security interests in intellectual property licences — commentary

¶9-050

— concepts

¶9-050

— cross-references

¶9-050

— foreign regimes, comparable provisions

¶9-050

— further reading

¶9-050

— outline

¶9-050

security interests provided for by security agreements — commentary

¶9-055

— concepts

¶9-055

— cross-references

¶9-055

— foreign regimes, comparable provisions

¶9-055

— further reading

¶9-055

— outline

¶9-055

transfer in title, secured party’s steps to reflect — commentary

¶4-190

— concepts

¶4-190

— cross-references

¶4-190

— foreign regimes, comparable provisions

¶4-190

— further reading

¶4-190

— outline

¶4-190

Enforcing a security interest concept

¶4-185

Equipment

¶2-025

Equitable tracing

¶2-080

Evidential burden

¶5-140

concept

¶5-140

Exceptions application where there is receiver or another controller of property — commentary

¶4-050

— concepts

¶4-050

— cross-references

¶4-050

— foreign regimes, comparable provisions

¶4-050

— further reading

¶4-050

— outline

¶4-050

land law, use — commentary

¶4-060

— concepts

¶4-060

— cross-references

¶4-060

— foreign regimes, comparable provisions

¶4-060

— further reading

¶4-060

— outline

¶4-060

liquid assets — commentary

¶4-070

— concepts

¶4-070

— cross-references

¶4-070

— foreign regimes, comparable provisions

¶4-070

— further reading

¶4-070

— outline

¶4-070

liquid assets, notice to higher priority parties — commentary

¶4-075

— concepts

¶4-075

— cross-references

¶4-075

— foreign regimes, comparable provisions

¶4-075

— further reading

¶4-075

— outline

¶4-075

PPS leases

¶1-070

purchase money security interests

¶1-075

Execution creditor concept

¶2-295; ¶8-060

Execution order

¶2-295

Express or implied authorisation proceeds with attachment

¶2-085

Extinguishment — see Taking free of interest

F Fiduciary relationships proceeds

¶2-080

Financial accommodation trusts

¶1-045

Financial products Intermediated securities

¶1-080

Financial property concept

¶2-125

Financing change statements concept

¶5-030; ¶5-035; ¶5-040; ¶5-055; ¶5-060; ¶5-090; ¶5-120; ¶5-150; ¶5-155; ¶9050; ¶9-060; ¶9-135; ¶9-140; ¶9-145

Financing statements commentary

¶5-155

concept

¶5-030; ¶5-035; ¶5-040; ¶5-055; ¶5-060; ¶5-090; ¶5-120; ¶5-150; ¶5-155; ¶9-060; ¶9-130; ¶9-140; ¶9-145

concepts

¶5-155

cross-references

¶5-155

foreign regimes, comparable provisions

¶5-155

further reading

¶5-155

outline

¶5-155

Fixed charges commentary

¶9-075

concepts

¶9-075

cross-references

¶9-075

foreign regimes, comparable provisions

¶9-075

further reading

¶9-075

outline

¶9-075

security interests

¶1-065

Fixtures definition

¶1-045

Flawed asset arrangements security interests

¶1-065

Floating charges commentary

¶9-075

concepts

¶9-075

cross-references

¶9-075

foreign regimes, comparable provisions

¶9-075

further reading

¶9-075

outline

¶9-075

security interests

¶1-065

Future rights of remuneration transfers

¶1-045

G Garnishee order concept General application of Act

¶2-295

any right of set-off or right of combination of accounts

¶1-045

charges arising under particular statutes

¶1-045

commentary

¶1-045

concepts

¶1-045

cross-references

¶1-045

dealings in relation to land

¶1-045

declared interests

¶1-045

declared statutory licenses

¶1-045

financial accommodation trusts

¶1-045

foreign regimes, comparable provisions

¶1-045

further reading

¶1-045

interests — arising under particular statutes

¶1-045

— fixtures

¶1-045

— held by pawnbrokers

¶1-045

— superannuation, retirement savings accounts and approved deposit accounts

¶1-045

liens, charges or other interests — concept

¶1-045

— provided by general law

¶1-045

— under statute

¶1-045

negotiable bills of lading

¶1-045

outline

¶1-045

Payment Systems and Netting Act, arrangements under

¶1-045

transfer — accounts

¶1-045

— beneficial interest in monetary obligations

¶1-045

— future rights of remuneration

¶1-045

— interests in contracts of annuity or insurance policies

¶1-045

— unearned rights to payment

¶1-045

water rights

¶1-045

Goods concept

¶2-100; ¶2-240; ¶2-305; ¶3-045; ¶3-060; ¶3-065; ¶7-035

Governing laws — see Laws and jursidictions; Personal Property Securities Act 2009 (Cth) Grantors vesting of unperfected security interests — attachment after winding up

¶8-020

— winding up after bankruptcy

¶8-015

H Hire purchase agreements security interests

¶1-065

Honesty definition

¶4-025

I Identifiable or traceable proceeds

¶2-080

Individuals concept

¶5-140

financing statement, information required

¶5-045

Ineffective registration 7 years or more — commentary

¶5-220

— concepts

¶5-220

— cross-references

¶5-220

— foreign regimes, comparable provisions

¶5-220

— further reading

¶5-220

— outline

¶5-220

Information application to Court for exemption or extension of time to respond to requests — commentary

¶8-075

— concepts

¶8-075

— cross-references

¶8-075

— foreign regimes, comparable provisions

¶8-075

— further reading

¶8-075

— outline

¶8-075

application to Court for response to request — commentary

¶8-085

— concepts

¶8-085

— cross-references

¶8-085

— foreign regimes, comparable provisions

¶8-085

— further reading

¶8-085

— outline

¶8-085

application to Court in relation to costs charged — commentary

¶8-090

— concepts

¶8-090

— cross-references

¶8-090

— foreign regimes, comparable provisions

¶8-090

— further reading

¶8-090

— outline

¶8-090

estoppels against persons who respond to request — commentary

¶8-100

— concepts

¶8-100

— cross-references

¶8-100

— foreign regimes, comparable provisions

¶8-100

— further reading

¶8-100

— outline

¶8-100

non-compliance with Court order — concepts

¶8-095

— cross-references

¶8-095

— foreign regimes, comparable provisions

¶8-095

— further reading

¶8-095

— outline

¶8-095

obligation to disclose successor when request made — commentary

¶8-065

— concepts

¶8-065

— cross-references

¶8-065

— foreign regimes, comparable provisions

¶8-065

— further reading

¶8-065

— outline

¶8-065

recovery of costs arising from request — commentary

¶8-080

— concepts

¶8-080

— cross-references

¶8-080

— foreign regimes, comparable provisions

¶8-080

— further reading

¶8-080

— outline

¶8-080

secured party to provide — commentary

¶8-060

— concepts

¶8-060

— cross-references

¶8-060

— foreign regimes, comparable provisions

¶8-060

— further reading

¶8-060

— outline

¶8-060

time for responding to request — commentary

¶8-070

— concepts

¶8-070

— cross-references

¶8-070

— foreign regimes, comparable provisions

¶8-070

— further reading

¶8-070

— outline

¶8-070

Insolvency transitional security interests — commentary

¶9-110

— concepts

¶9-110

— cross-references

¶9-110

— foreign regimes, comparable provisions

¶9-110

— further reading

¶9-110

— outline

¶9-110

Insurance payments proceeds

¶2-080

Insurance policies transfers of interest

¶1-045

Intangible property ADI accounts concepts

¶7-040 ¶2-125; ¶7-040

cross-references

¶7-040

foreign regimes, comparable provisions

¶7-040

further reading

¶7-040

intellectual property

¶7-040

letters of credit

¶7-040

main rule

¶7-040

outline

¶7-040

Intellectual property — see also Licences

concept

¶2-080; ¶2-125; ¶3-125; ¶4-110; ¶7-030; ¶7-040

implied references — commentary

¶3-125

— concepts

¶3-125

— cross-references

¶3-125

— foreign regimes, comparable provisions

¶3-125

— further reading

¶3-125

— outline

¶3-125

licences and transfers — commentary

¶3-130

— concepts

¶3-130

— cross-references

¶3-130

— foreign regimes, comparable provisions

¶3-130

— further reading

¶3-130

— outline

¶3-130

proceeds

¶2-080

Intellectual property rights — see Intellectual property Interests fixtures

¶1-045

held by pawnbrokers

¶1-045

land

¶1-045

superannuation, retirement savings accounts and approved deposit accounts

¶1-045

Interference with privacy commentary

¶5-145

concepts

¶5-145

cross-references

¶5-145

foreign regimes, comparable provisions

¶5-145

further reading

¶5-145

outline

¶5-145

Intermediary concept

¶1-080

Intermediated instruments proceeds with attachment

¶2-085

Intermediated securities

¶1-080

commentary

¶2-055

concepts

¶1-075; ¶1-080; ¶2-055; ¶2-080; ¶2-085; ¶2-170; ¶2-180; ¶2-310; ¶4-015

cross-references

¶1-080; ¶2-055

financial products

¶1-080

foreign regimes, comparable provisions

¶1-080; ¶2-055

further reading

¶1-080; ¶2-055

intermediary

¶1-080

outline

¶1-080; ¶2-055

particular issues

¶1-080

purchase money security interests

¶1-075

Intervening security interests priority — commentary

¶2-220

— concepts

¶2-220

— cross-references

¶2-220

— foreign regimes, comparable provisions

¶2-220

— further reading

¶2-220

— outline

¶2-220

Inventory concept

¶2-025; ¶2-145; ¶2-150; ¶2-155; ¶2-235; ¶2-240; ¶2-245; ¶9-170; ¶9-175; ¶9-180

Investment proceeds with attachment

¶2-085

Investment instruments

¶2-060

concepts

¶1-075; ¶2-060; ¶2-080; ¶2-085; ¶2-170; ¶2-180; ¶2-310; ¶4-015; ¶7-020

cross-references

¶2-060

foreign regimes, comparable provisions

¶2-060

further reading

¶2-060

outline

¶2-060

purchase money security interests

¶1-075

J Jurisdiction — see Laws and jurisdictions

K

Knowledge proceeds with attachment — actual

¶2-085

— constructive

¶2-085

L Land dealings in relation to

¶1-045

PPS leases

¶1-070

Laws and jurisdictions assignment requirements, PPSA prevails — commentary

¶7-160

— concepts

¶7-160

— cross-references

¶7-160

— foreign regimes, comparable provisions

¶7-160

— outline

¶7-160

attachment and perfection of security interests — commentary

¶7-170

— concepts

¶7-170

— cross-references

¶7-170

— foreign regimes, comparable provisions

¶7-170

— further reading

¶7-170

— outline

¶7-170

concurrent operation of Australian laws — commentary

¶7-125

— concepts

¶7-125

— cross-references

¶7-125

— foreign regimes, comparable provisions

¶7-125

— further reading

¶7-125

— outline

¶7-125

concurrent operation, regulations may revolve inconsistency — commentary

¶7-130

— concepts

¶7-130

— cross-references

¶7-130

— foreign regimes, comparable provisions

¶7-130

— further reading

¶7-130

— outline

¶7-130

exclusion by referring State law or Territory law — commentary

¶7-150

— concepts

¶7-150

— cross-references

¶7-150

— foreign regimes, comparable provisions

¶7-150

— further reading

¶7-150

— outline

¶7-150

express agreement — commentary

¶7-030

— concepts

¶7-030

— cross-references

¶7-030

— foreign regimes, comparable provisions

¶7-030

— further reading

¶7-030

— outline

¶7-030

financial property and rights attachment

¶7-045

— concepts

¶7-045

— cross-references

¶7-045

— foreign regimes, comparable provisions

¶7-045

— further reading

¶7-045

— outline

¶7-045

— perfection

¶7-045

goods — concepts

¶7-035

— cross-references

¶7-035

— foreign regimes, comparable provisions

¶7-035

— further reading

¶7-035

— main rule

¶7-035

— moved between jurisdictions

¶7-035

— moved goods

¶7-035

— outline

¶7-035

— Registers of ships

¶7-035

governing law, Commonwealth — commentary

¶7-025

— concepts

¶7-025

— cross-references

¶7-025

— foreign regimes, comparable provisions

¶7-025

— further reading

¶7-025

— outline

¶7-025

intangible property — ADI accounts

¶7-040

— concepts

¶7-040

— cross-references

¶7-040

— foreign regimes, comparable provisions

¶7-040

— further reading

¶7-040

— intellectual property

¶7-040

— letters of credit

¶7-040

— main rule

¶7-040

— outline

¶7-040

legislation that takes precedence over PPSA — commentary

¶7-135

— concepts

¶7-135

— cross-references

¶7-135

— foreign regimes, comparable provisions

¶7-135

— further reading

¶7-135

— outline

¶7-135

located, meaning — concepts

¶7-020

— cross-references

¶7-020

— electronic data

¶7-020

— foreign regimes, comparable provisions

¶7-020

— further reading

¶7-020

— located

¶7-020

— outline

¶7-020

personal property, security interests and matters excluded from State amendment referrals — commentary

¶7-145

— concepts

¶7-145

— cross-references

¶7-145

— foreign regimes, comparable provisions

¶7-145

— further reading

¶7-145

— outline

¶7-145

proceeds — commentary

¶7-050

— concepts

¶7-050

— cross-references

¶7-050

— foreign regimes, comparable provisions

¶7-050

— further reading

¶7-050

— outline

¶7-050

registration requirements, PPSA prevails — commentary

¶7-155

— concepts

¶7-155

— cross-references

¶7-155

— foreign regimes, comparable provisions

¶7-155

— further reading

¶7-155

— outline

¶7-155

scope of provisions — commentary

¶7-015

— concepts

¶7-015

— cross-references

¶7-015

— foreign regimes, comparable provisions

¶7-015

— further reading

¶7-015

— outline

¶7-015

security agreements, formal requirements — commentary

¶7-165

— concepts

¶7-165

— cross-references

¶7-165

— foreign regimes, comparable provisions

¶7-165

— further reading

¶7-165

— outline

¶7-165

security agreements, interaction — see also Personal Property Securities Act 2009 (Cth) — commentary

¶7-140

— concepts

¶7-140

— cross-references

¶7-140

— foreign regimes, comparable provisions

¶7-140

— further reading

¶7-140

— outline

¶7-140

Leases security interests

¶1-065; ¶2-020

Lessors purchase money security interests

¶1-075

Lessors, damages

¶8-030

Letters of credit

¶2-065

commentary

¶2-065

concept

¶2-065; ¶7-045

cross-references

¶2-065

foreign regimes, comparable provisions

¶2-065

further reading

¶2-065

outline

¶2-065

Licences — see also Intellectual property concept definition

¶1-065; ¶4-030; ¶4-085; ¶7-130 ¶1-045; ¶1-065

Liens created under statute

¶1-045

provided by general law

¶1-045

Liquid assets commentary

¶4-070

concepts

¶4-070

cross-references

¶4-070

foreign regimes, comparable provisions

¶4-070

further reading

¶4-070

outline

¶4-070

Livestock commentary concepts

¶3-020 ¶3-020; ¶3-030

cross-references

¶3-020

foreign regimes, comparable provisions

¶3-020

further reading

¶3-020

outline

¶3-020

priority — commentary

¶3-030

— concepts

¶3-030

— cross-references

¶3-030

— foreign regimes, comparable provisions

¶3-030

— further reading

¶3-030

— outline

¶3-030

proceeds

¶2-080

Location concept Lowest Intermediate Balance rule

¶2-120; ¶2-125; ¶7-020; ¶7-035; ¶7-040; ¶7-045 ¶2-080

M Market value concept proceeds with attachment

¶4-115; ¶4-125; ¶8-165 ¶2-085

Migrated data Commonwealth officer to provide — commentary

¶9-120

— concepts

¶9-120

— cross-references

¶9-120

— foreign regimes, comparable provisions

¶9-120

— further reading

¶9-120

— outline

¶9-120

incorrectly registered migrated data — commentary

¶9-135

— concepts

¶9-135

— cross-references

¶9-135

— foreign regimes, comparable provisions

¶9-135

— further reading

¶9-135

— outline

¶9-135

no requirement for notice of verification statement — commentary

¶9-140

— concepts

¶9-140

— cross-references

¶9-140

— foreign regimes, comparable provisions

¶9-140

— further reading

¶9-140

— outline

¶9-140

registration — commentary

¶9-130

— concepts

¶9-130

— cross-references

¶9-130

— foreign regimes, comparable provisions

¶9-130

— further reading

¶9-130

— outline

¶9-130

Migrated security interest commentary

¶9-125

concept

¶2-145; ¶9-120; ¶9-125; ¶9-130

cross-references

¶9-125

foreign regimes, comparable provisions

¶9-125

further reading

¶9-125

outline

¶9-125

Migration time

¶9-015

Modification concept

¶2-325; ¶4-060

Monetary obligations purchase money security interests

¶1-075

Motor vehicle taking free of interests — concepts

¶2-150

— exceptions

¶2-150

— main rule

¶2-150

— prescribed persons

¶2-150

Mutual enforcement proceeds with attachment

¶2-085

N National Credit Code concept

¶4-065

Negotiable bills of lading

¶1-045

concept

¶1-045

Negotiable instruments concept

¶1-045; ¶1-075; ¶2-045; ¶2-070; ¶2-105; ¶2-270; ¶2-275; ¶7-020; ¶7045

person who acquires, priority

¶2-275

purchase money security

¶1-075

interests returned collateral

¶2-105

uncertificated

¶2-070

New value concept

¶2-150; ¶2-160; ¶2-185; ¶2-245; ¶2-280; ¶4-150; ¶8-020

Non-circulating asset control of ADI account

¶2-050

Non-constitutional interests commentary

¶9-070

concepts

¶9-070

foreign regimes, comparable provisions

¶9-070

further reading

¶9-070

outline

¶9-070

Non-purchase money security interests cross-references

¶2-245

foreign regimes, comparable provisions

¶2-245

outline

¶2-245

Notice concept

¶3-075; ¶4-085; ¶4-105; ¶4-120; ¶4-140; ¶4-145; ¶4150; ¶4-155

disposal of collateral

¶4-120

non-purchase money security interests

¶2-245

notice of objectionl

¶4-140; ¶4-155; ¶4-160

objection to purchase or retention

¶4-155

removal of accession

¶3-075

retention of collateral

¶4-145

secured parties, notice to grantors

¶5-065

seizure by higher priority parties

¶4-105

time when not required

¶4-205

verification statement Registrar, notice to secured parties

¶5-060

O Obligations — see Rights, duties and obligations Onus of proof

rights, duties and obligations — commentary

¶8-165

— concepts

¶8-165

— cross-references

¶8-165

— foreign regimes, comparable provisions

¶8-165

— further reading

¶8-165

— outline

¶8-165

Ordinary course of business concept

¶2-155; ¶2-275; ¶2-280; ¶2-285; ¶2-290; ¶2-330; ¶9170

definition

¶2-155

taking personal property free of security interest

¶2-155

Ordinary course of trading in a prescribed financial market

¶2-170

P Particulars relating to personal property security interests against third parties

¶2-025

Partners financing statement, information required

¶5-045

Pawnbrokers interests held by

¶1-045

Payment or performance of obligation security interests

¶1-065

Payment Systems and Netting Act 1998 (Cth) arrangements under

¶1-045

Perfection — see also Return of collateral; Temporary perfection; Transfers by possession concept

¶2-045 ¶2-025; ¶2-030; ¶3-100; ¶7-035; ¶7-040; ¶7-045; ¶7-050

continous — express or implied authorisation

¶2-085

— provision in security agreement

¶2-085

— taking free provisions

¶2-085

cross-references

¶2-030

foreign regimes, comparable provisions

¶2-030

further reading

¶2-030

goods possessed by bailee — additional considerations

¶2-035

— application

¶2-035

— concepts

¶2-035

— cross-references

¶2-035

— foreign regimes, comparable provisions

¶2-035

— further reading

¶2-035

— outline

¶2-035

— priorities

¶2-035

— temporary for documents in transit

¶2-035

nature of

¶2-030

order of attachment and steps to perfect are irrelevant

¶2-030

outline

¶2-030

pre-requisites

¶2-030

requirements for secured parties

¶2-030

— control

¶2-030

— possession

¶2-030

— registration

¶2-030

single registration, multiple interests

¶2-030

temporary

¶2-030

Perfection and temporary perfection proceeds by registration in original collateral

¶2-090

— temporary with respect to

¶2-090

Personal information concept

¶5-145

Personal property — see also Security interests concept

¶1-065; ¶4-055; ¶5-140; ¶7-125; ¶7-130; ¶7-145; ¶9035

interests also covering land

¶4-055

particulars relating to

¶2-025

relationship to security interests

¶1-065

Personal property prescribed by regulations

concept

¶5-020

Personal Property Securities Act 2009 (Cth) — see also Laws and jurisdictions constitutional basis — concepts

¶7-060

— cross-references

¶7-060

— foreign regimes, comparable provisions

¶7-060

— further reading

¶7-060

— non-referring states

¶7-060.

— operation outside Australia

¶7-060

— outline

¶7-060

— overview

¶7-060

general application — see General application of Act meaning of referring state — commentary

¶7-065

— concepts

¶7-065

— cross-references

¶7-065

— foreign regimes, comparable provisions

¶7-065

— outline

¶7-065

special requirements for security interests — collateral not registered within time

¶10-055

— entitlement to damages and compensation

¶10-070

— extension of time for registration

¶10-060

— unaffected by vesting of PPSA

¶10-065

Personal Property Securities Register (PPSR) — see also Registration; Searching the register access to registered data

¶5-170

— commentary

¶5-170

— concepts

¶5-170

— cross-references

¶5-170

— foreign regimes, comparable provisions

¶5-170

— further reading

¶5-170

— outline

¶5-170

access to third party data — commentary

¶5-175

— concepts

¶5-175

— cross-references

¶5-175

— foreign regimes, comparable provisions

¶5-175

— further reading

¶5-175

— outline

¶5-175

amendment demands, administrative and judicial process — concepts

¶5-190

— cross-references

¶5-190

— excluding security trust instruments

¶5-190

— flow chart

¶5-190

— foreign regimes, comparable provisions

¶5-190

— further reading

¶5-190

— nature of administrative process

¶5-190

— outline

¶5-190

amendment demands, how given

¶5-185

— concept

¶5-185

— cross-references

¶5-185

— 5 business days

¶5-185

— foreign regimes, comparable provisions

¶5-185

— further reading

¶5-185

— outline

¶5-185

— what should be included

¶5-185

— who should pay

¶5-185

amendment demands, judicial process for consideration — concepts

¶5-205

— cross-references

¶5-205

— foreign regimes, comparable provisions

¶5-205

— further reading

¶5-205

— outline

¶5-205

— serious or arguable case

¶5-205

— similar approach used for caveats

¶5-205

amendment notices — commentary

¶5-195

— concepts

¶5-195

— cross-references

¶5-195

— foreign regimes, comparable provisions

¶5-195

— further reading

¶5-195

— outline

¶5-195

contents — commentary

¶5-020

— concepts

¶5-020

— cross-references

¶5-020

— foreign regimes, comparable provisions

¶5-020

— further reading

¶5-020

— outline

¶5-020

correction of registration errors — commentary

¶5-235

— concepts

¶5-235

— cross-references

¶5-235

— foreign regimes, comparable provisions

¶5-235

— further reading

¶5-235

— outline

¶5-235

establishment — commentary

¶5-015

— concepts

¶5-015

— cross-references

¶5-015

— foreign regimes, comparable provisions

¶5-015

— further reading

¶5-015

— outline

¶5-015

Personal Property Securities Regulation (Cth) — access

¶11075

— access prohibited

¶11105

— administrative process — statements in relation to amendment demand

¶11120

— contents

¶11085

— financing statements

¶11095

— notification of suspension of access

¶11080

— prohibited registration

¶11090

— removal of data

¶11125

— search criteria

¶11110

— third party data access

¶11115

— verification statements — publication as alternative

¶11100

registration amerndments — commentary

¶5-200

— concepts

¶5-200

— cross-references

¶5-200

— foreign regimes, comparable provisions

¶5-200

— further reading

¶5-200

— outline

¶5-200

removal of data, general grounds — commentary

¶5-215

— concepts

¶5-215

— cross-references

¶5-215

— foreign regimes, comparable provisions

¶5-215

— outline

¶5-215

removal of data, registration inneffective for 7 years or more — commentary

¶5-220

— concepts

¶5-220

— cross-references

¶5-220

— foreign regimes, comparable provisions

¶5-220

— further reading

¶5-220

— outline

¶5-220

removal of data, restoration of incorrectly removed data — commentary

¶5-225

— concepts

¶5-225

— cross-references

¶5-225

— foreign regimes, comparable provisions

¶5-225

— further reading

¶5-225

— outline

¶5-225

removed data, records — commentary

¶5-230

— concepts

¶5-230

— cross-references

¶5-230

— foreign regimes, comparable provisions

¶5-230

— further reading

¶5-230

— outline

¶5-230

Personal Property Securities Regulation (Cth)

application of Act — external Territories

¶11-015

— interests

¶11-025

— not to certain Acts

¶11-020

definitions

¶11-030

financing statement matters for items of table in subsection 153(1) of Act

¶11-160

financing statement matters for table in section 154 of Act

¶11-165

investment instrument — definition

¶11-050

motor vehicle

¶11-035

Personal Property Securities Register — access

¶11-075

— access prohibited

¶11-105

— administrative process — statements in relation to amendment demand

¶11-120

— contents

¶11-085

— financing statements

¶11-095

— notification of suspension of access

¶11-080

— prohibited registration

¶11-090

— removal of data

¶11-125

— search criteria

¶11-110

— third party data access

¶11-115

— verification statements - publication as alternative

¶11-100

PPS lease — definition

¶11-045

resolution of inconsistency

¶11-135

security interests — definition

¶11-040

— relationship with consumer credit legislation

¶11-070

— taking motor vehicles free of interests

¶11-055

— taking motor vehicles from prescribed persons

¶11-060

temporary perfection rule — exception

¶11-150

watercraft — definition

¶11-145

Persons holding interests (other than security interests) in the collateral that have a higher priority concept

¶4185

Pledges security interests

¶1-065

Pooling arrangements PPS leases

¶1-070

Possession concept

¶1-070; ¶2-025; ¶2-030; ¶2-045; ¶2-100; ¶2-150; ¶2-175; ¶2-200; ¶2-235; ¶2240; ¶2-250; ¶2-280; ¶2-305; ¶3-060; ¶4-105; ¶4-170; ¶4-175; ¶7-045

cross-references

¶2-045

foreign regimes, comparable provisions

¶2-045

further reading

¶2-045

outline

¶2-045

perfection

¶2-030

perfection by possession

¶2-045

Possession of goods shipped by common carrier — commentary

¶2-250

— concepts

¶2-250

— cross-references

¶2-250

— foreign regimes, comparable provisions

¶2-250

— further reading

¶2-250

— outline

¶2-250

PPS leases application and scope

¶1-070

— enforcement provisions

¶1-070

— limitations to ambit of Act

¶1-070

— priorities

¶1-070

bailments for value

¶1-070

concept

¶1-065; ¶1-070; ¶2-020; ¶4-015; ¶8-025; ¶8030

concept of lease generally

¶1-070

concepts

¶1-070

cross-references

¶1-070

default application

¶1-070

exceptions

¶1-070

— consumer property incidental to use of land

¶1-070

— pooling arrangements

¶1-070

— regularly engaged in business of leasing/bailing goods

¶1-070

foreign regimes, comparable provisions

¶1-070

further reading

¶1-070

outline

¶1-070

PPS Register — see Personal Property Securities Register (PPSR) Pre-perfection concept

¶2-200

Predominately for personal, domestic or household use concept

¶2-160

Prescribed person concept

¶2-150

Principal place of residence concept

¶7-020

Priority advances

¶2-215

— commentary

¶2-215

— concepts

¶2-215

— cross-references

¶2-215

— foreign regimes, comparable provisions

¶2-215

— further reading

¶2-215

— outline

¶2-215

between security interests and declared statutory interests — commentary

¶2-290

— concepts

¶2-290

— cross-references

¶2-290

— foreign regimes, comparable provisions

¶2-290

— further reading

¶2-290

— outline

¶2-290

break in perfection of transferor-granted interest — concepts

¶2-265

— cross-references

¶2-265

— foreign regimes, comparable provisions

¶2-265

— further reading

¶2-265

— outline

¶2-265

— particulars

¶2-265

— transferee-granted interest prevails

¶2-265

— transferor-granted interest prevails

¶2-265

certain security interests with no foreign register — commentary

¶2-310

— concepts

¶2-310

— cross-references

¶2-310

— foreign regimes, comparable provisions

¶2-310

— further reading

¶2-310

— outline

¶2-310

creditor who receives payment of debt — commentary

¶2-270

— concepts

¶2-270

— cross-references

¶2-270

— foreign regimes, comparable provisions

¶2-270

— further reading

¶2-270

— outline

¶2-270

execution creditor over unperfected security interest — commentary

¶2-295

— concepts

¶2-295

— cross-references

¶2-295

— foreign regimes, comparable provisions

¶2-295

— further reading

¶2-295

— outline

¶2-295

holder of negotiable document of title — commentary

¶2-270; ¶2-285

— concepts

¶2-270; ¶2-285

— cross-references

¶2-270; ¶2-285

— foreign regimes, comparable provisions

¶2-270; ¶2-285

— further reading

¶2-270; ¶2-285

— outline

¶2-270; ¶2-285

non-purchase money security interests — concepts

¶2-245

— further reading

¶2-245

— notice

¶2-245

— proceeds and new value

¶2-245

— trumps purchase security interests

¶2-245

person who acquires chattel paper or interest in — commentary

¶2-280

— concepts

¶2-280

— cross-references

¶2-280

— foreign regimes, comparable provisions

¶2-280

— further reading

¶2-280

— outline

¶2-280

person who acquires negotiable instrument or interest in instrument — commentary

¶2-275

— concepts

¶2-275

— cross-references

¶2-275

— foreign regimes, comparable provisions

¶2-275

— further reading

¶2-275

— outline

¶2-275

possession of goods shipped by common carrier — commentary

¶2-250

— concepts

¶2-250

— cross-references

¶2-250

— foreign regimes, comparable provisions

¶2-250

— further reading

¶2-250

— outline

¶2-250

rules and intervening security interests — commentary

¶2-220

— concepts

¶2-220

— cross-references

¶2-220

— foreign regimes, comparable provisions

¶2-220

— further reading

¶2-220

— outline

¶2-220

security interest, continuously perfected — commentary

¶2-205

— concepts

¶2-205

— cross-references

¶2-205

— foreign regimes, comparable provisions

¶2-205

— further reading

¶2-205

— outline

¶2-205

security interest, protected by control — commercial realities

¶2-210

— concepts

¶2-210

— cross-references

¶2-210

— foreign regimes, comparable provisions

¶2-210

— further reading

¶2-210

— outline

¶2-210

— perfection by control and proceeds

¶2-210

— perfection by control v perfection by control

¶2-210

— primacy

¶2-210

security interests — between two perfected security interests

¶2-200

— concepts

¶2-200

— cross-references

¶2-200

— default provision

¶2-200

— foreign regimes, comparable provisions

¶2-200

— further reading

¶2-200

— outline

¶2-200

— perfected security interests v unperfected security interests

¶2-200

— priority between unperfected interests

¶2-200

— time

¶2-200

security interests, collateral — commentary

¶2-240

— concepts

¶2-240

— foreign regimes, comparable provisions

¶2-240

— further reading

¶2-240

— outline

¶2-240

security interests, held by ADIs — commentary

¶2-300

— concepts

¶2-300

— cross-references

¶2-300

— foreign regimes, comparable provisions

¶2-300

— further reading

¶2-300

— outline

¶2-300

security interests, purchase money interests — application against ordinary security interests - foreign case analysis

¶2-235

— concepts

¶2-235

— cross-references

¶2-235

— foreign regimes, comparable provisions

¶2-235

— further reading

¶2-235

— outline

¶2-235

— possession conferred

¶2-235

— scope

¶2-235

— taken over inventory

¶2-235

— taken over non-inventory

¶2-235

security interests, returned goods — commentary

¶2-305

— concepts

¶2-305

— cross-references

¶2-305

— foreign regimes, comparable provisions

¶2-305

— further reading

¶2-305

— outline

¶2-305

security interests, transfer does not affect — commentary

¶2-225

— concepts

¶2-225

— cross-references

¶2-225

— foreign regimes, comparable provisions

¶2-225

— further reading

¶2-225

— outline

¶2-225

security interests, voluntary subordination — commentary

¶2-230

— concept

¶2-230

— cross-references

¶2-230

— foreign regimes, comparable provisions

¶2-230

— further reading

¶2-230

— outline

¶2-230

when transferor-granted interest has been continuously perfected — commentary

¶2-260

— concepts

¶2-260

— cross-references

¶2-260

— foreign regimes, comparable provisions

¶2-260

— further reading

¶2-260

— outline

¶2-260

Proceeds — see also Attachment; Relocation; Transfers attachment — anomalies when considering priority of proceeds

¶2-085

— concepts

¶2-085

— continuous attachment as opposed to continuous perfection

¶2-085

— cross-reference

¶2-085

— enforcement with respect to both original collateral and proceeds

¶2-085

— foreign regimes, comparable provisions

¶2-085

— further reading

¶2-085

— knowledge

¶2-085

— outline

¶2-085

— persisting rights in personam

¶2-085

— priority of proceeds

¶2-085

concept

¶2-025; ¶2-080; ¶2-085; ¶2-210; ¶2-235; ¶2-240; ¶2-245; ¶2330; ¶3-020; ¶4-070; ¶4-170; ¶4-175; ¶4-185; ¶7-050

crops and livestock

¶2-080

cross-reference

¶2-080

fiduciary relationships

¶2-080

foreign regimes, comparable provisions

¶2-080

further reading

¶2-080

insurance payments

¶2-080

intellectual property

¶2-080

interest in

¶2-080

outline

¶2-080

perfection and temporary perfection — by registration in original collateral

¶2-090

— concepts

¶2-090

— cross-references

¶2-090

— foreign regimes, comparable provisions

¶2-090

— further reading

¶2-090

— outline

¶2-090

— temporary with respect to proceeds

¶2-090

redemption of collateral

¶2-080

requirements and rationale

¶2-080

scope of

¶2-080

traceable

¶2-080

various applications of tracing principles

¶2-080

— cases of new collateral

¶2-080

— equitable notions and concepts

¶2-080

— Lowest Intermediate Balance rule

¶2-080

Lowest Intermediate Balance rulepresumption

¶2-080

— recourse for original secured party

¶2-080

Processed or commingled goods — see also Accessions continuation of security interests — commentary

¶3-095

— concepts

¶3-095

— cross-references

¶3-095

— foreign regimes, comparable provisions

¶3-095

— further reading

¶3-095

— outline

¶3-095

limit on value of priority of goods — commentary

¶3-105

— concepts

¶3-105

— cross-references

¶3-105

— foreign regimes, comparable provisions

¶3-105

— further reading

¶3-105

— outline

¶3-105

perfection of security interest applies to product or mass — commentary

¶3-100

— concepts

¶3-100

— cross-references

¶3-100

— foreign regimes, comparable provisions

¶3-100

— further reading

¶3-100

— outline

¶3-100

priority of purchase money security interest — commentary

¶3-115

— concepts

¶3-115

— cross-references

¶3-115

— foreign regimes, comparable provisions

¶3-115

— further reading

¶3-115

— outline

¶3-115

priority where more than one security interest continues — commentary

¶3-110

— concepts

¶3-110

— cross-references

¶3-110

— foreign regimes, comparable provisions

¶3-110

— further reading

¶3-110

— outline

¶3-110

Property transfers — see Transfer of collateral; Transfers Proprietary rights security interests

¶1-065

Public auction concept

¶4-115

Purchase money obligations

¶1-075

Purchase money security interests

¶2-030

all or part of the purchase price

¶1-075

collateral covered

¶1-075

commercial consignments

¶1-075

concept

¶1-075; ¶2-235; ¶2-240; ¶2-245; ¶3-110

cross-references

¶1-075

definition

¶1-075

exceptions

¶1-075

— chattel paper

¶1-075

— for personal, domestic or household use

¶1-075

— intermediated securities

¶1-075

— investment instruments

¶1-075

— monetary obligations

¶1-075

— negotiable instruments

¶1-075

— sale and lease backs

¶1-075

foreign regimes, comparable provisions commentary

¶1-075

further reading

¶1-075

lessors and bailors of PPS — leases

¶1-075

outline

¶1-075

purchase money obligations

¶1-075

purchase price and value

¶1-075

rationale

¶1-075

refinancing, renewing, consolidating and restructuring

¶1-075

satisfaction and ordering of obligations

¶1-075

secures only purchase money obligations

¶1-075

serial numbered collateral

¶1-075

substantive test

¶1-075

value to acquire rights

¶1-075

R Reasonable expenses concept

¶4-105

security interests

¶2-015

Reasonable marginal costs concept

¶8-080; ¶8-090

Reasonable period concept

¶4-095

Receiver concept

¶4-050

Refinancing purchase money security interests

¶1-075

Register — see also Personal Property Securities Register (PPSR); Registration Registered description of collateral concept

¶5150

Registered financing change statement concept

¶5-020

Registered financing statement concept

¶5-020; ¶5-135

Registrar concept

¶5-155; ¶5-160; ¶9-120; ¶9-125; ¶9-130; ¶9-145

reports

¶5-160

restoration of incorrectly removed data

¶5-225

verification statement to secured parties

¶5-060

Registration — see also Personal Property Securities Register (PPSR); Searching the register belief that collateral secures obligation — commentary

¶5035

— concepts

¶5035

— cross-references

¶5035

— foreign regimes, comparable provisions

¶5035

— further reading

¶5035

— outline

¶5035

defects, general rule — concepts

¶5100

— cross-references

¶5100

— defects that were not seriously misleading

¶5100

— foreign regimes, comparable provisions

¶5100

— further reading

¶5100

— outline

¶5100

— overview of sec 164

¶5100

— seriously misleading

¶5100

— seriously misleading defects

¶5100

defects, particular — commentary

¶5105

— concepts

¶5105

— cross-references

¶5105

— foreign regimes, comparable provisions

¶5105

— further reading

¶5105

— outline

¶5105

defects, temporary effectiveness — commentary

¶5110

— concepts

¶5110

— cross-references

¶5-

110 — foreign regimes, comparable provisions

¶5110

— further reading

¶5110

— outline

¶5110

effective registration — commentary

¶5095

— concepts

¶5095

— cross-references

¶5095

— foreign regimes, comparable provisions

¶5095

— further reading

¶5095

— outline

¶5095

financing statements, prescribed property — commentary

¶5050

— concepts

¶5050

— cross-references

¶5050

— foreign regimes, comparable provisions

¶5050

— further reading

¶5050

— outline

¶5050

financing statements, security interests — any matter prescribed by regulations

¶5045

— collateral and proceeds

¶5045

— concepts

¶5045

— cross-references

¶5045

— end time for registration

¶5045

— foreign regimes, comparable provisions

¶5045

— further reading

¶5045

— giving of notices

¶5045

— grantor

¶5045

— outline

¶5045

— secured party

¶5045

— security interest (whether it is a PMSI)

¶5045

— subordination

¶5045

location of personal property and interested persons outside Australia — commentary

¶5040

— concepts

¶5040

— cross-references

¶5040

— foreign regimes, comparable provisions

¶5040

— further reading

¶5040

— outline

¶5040

maintenance fees — commentary

¶5120

— concepts

¶5120

— cross-references

¶5120

— foreign regimes, comparable provisions

¶5120

— further reading

¶5120

— outline

¶5120

meanings of “verification statement” and “registration event”

— commentary

¶5055

— concepts

¶5055

— cross-references

¶5055

— foreign regimes, comparable provisions

¶5055

— further reading

¶5055

— outline

¶5055

on application — access to information on PPSR

¶5030

— concepts

¶5030

— cross-references

¶5030

— foreign regimes, comparable provisions

¶5030

— further reading

¶5030

— outline

¶5030

— pre-PPSA security interests

¶5030

— role of

¶5030

— timing of

¶5030

perfection

¶2030

perfection, single with multiple interests

¶2030

Registrar to give verification statements to secured parties — commentary

¶5060

— concepts

¶5060

— cross-references

¶5060

— foreign regimes, comparable provisions

¶5060

— further reading

¶5060

— outline

¶5060

registration time, generally — commentary

¶5080

— concepts

¶5080

— cross-references

¶5080

— foreign regimes, comparable provisions

¶5080

— further reading

¶5080

— outline

¶5080

registration time, security agreements and interests — commentary

¶5085

— concepts

¶5085

— cross-references

¶5085

— foreign regimes, comparable provisions

¶5085

— further reading

¶5085

— outline

¶5085

registration time, transfers — commentary

¶5090

— concepts

¶5090

— cross-references

¶5090

— foreign regimes, comparable provisions

¶5090

— further reading

¶5090

— outline

¶5090

security interest becomes unperfected

— commentary

¶5115

— concepts

¶5115

— cross-references

¶5115

— foreign regimes, comparable provisions

¶5115

— further reading

¶5115

— outline

¶5115

security interests against third parties

¶2025

starting times — commentary

¶9060

— concepts

¶9060

— cross-references

¶9060

— foreign regimes, comparable provisions

¶9060

— further reading

¶9060

— outline

¶9060

verification statement, publication as alternative — commentary

¶5070

— concepts

¶5070

— cross-references

¶5070

— foreign regimes, comparable provisions

¶5070

— further reading

¶5070

— outline

¶5070

verification statements, secured parties to give notice to grantors — commentary

¶5065

— concepts

¶5-

065 — cross-references

¶5065

— foreign regimes, comparable provisions

¶5065

— further reading

¶5065

— outline

¶5065

Registration commencement time concept

¶2-290; ¶9-015; ¶9-020; ¶9-025; ¶9-035; ¶9-040; ¶9-050; ¶9-055; ¶9-060; ¶9-065; ¶9-070; ¶9-075; ¶9-090; ¶9-095; ¶9-100; ¶9-105; ¶9-110; ¶9-130; ¶9-145

Registration event concept

¶5-070

Reimbursement for damages removal of accession — commentary

¶3-065

Relocation — see also Attachment; Proceeds; Transfers commentary

¶2-120

concepts

¶2-120

cross-references

¶2-120

foreign regimes, comparable provisions

¶2-120

further reading

¶2-120

intangible/financial property

¶2-125

— concepts

¶2-125

— cross-references

¶2-125

— foreign regimes, comparable provisions

¶2-125

— further reading

¶2-125

— outline

¶2-125

outline

¶2-120

Remedies — see Enforcement Removal of accession — see also Accessions Renewing purchase money security interests

¶1-075

Restructuring purchase money security interests

¶1-075

Returned collateral — see also Collateral; Disposal of collateral; Seizure accounts and chattel paper — commentary

¶2-115

— concepts

¶2-115

— cross-references

¶2-115

— foreign regimes, comparable provisions

¶2-115

— further reading

¶2-115

— outline

¶2-115

commentary

¶2-100

concepts

¶2-100

cross-references

¶2-100

following sale or lease

¶2-110

— concepts

¶2-110

— cross-references

¶2-110

— foreign regimes, comparable provisions

¶2-110

— further reading

¶2-110

— outline

¶2-110

foreign regimes, comparable provisions

¶2-100

further reading

¶2-100

negotiable/investment instruments — commentary

¶2-105

— concepts

¶2-105

— cross-references

¶2-105

— foreign regimes, comparable provisions

¶2-105

— further reading

¶2-105

— outline

¶2-105

outline

¶2-100

Rights, duties and obligations — see also Enforcement concepts

¶8-040

cross-references

¶8-040

foreign regimes, comparable provisions

¶8-040

further reading

¶8-040

liability for damages — commentary

¶8-045

— concepts

¶8-045

— cross-references

¶8-045

— foreign regimes, comparable provisions

¶8-045

— further reading

¶8-045

— outline

¶8-045

onus of proof — commentary

¶8-165

— concepts

¶8-165

— cross-references

¶8-165

— foreign regimes, comparable provisions

¶8-165

— further reading

¶8-165

— outline

¶8-165

outline

¶8-040

purchase money security interests

¶1-075

security interests

¶1-065

title to collateral — commentary

¶8-050

— concepts

¶8-050

— cross-references

¶8-050

— foreign regimes, comparable provisions

¶8-050

— further reading

¶8-050

— outline

¶8-050

Rights in personam security interest

¶2-020

entitlement to damages for breaches of commentary

¶8-040

S Sale and lease backs purchase money security interests

¶1-075

Searching the register — see also Personal Property Securities Register (PPSR); Registration copies of financing and verification statements — commentary

¶5155

— concepts

¶5155

— cross-references

¶5155

— foreign regimes, comparable provisions

¶5155

— further reading

¶5155

— outline

¶5155

details of grantor who is individual — commentary

¶5140

— concepts

¶5140

— cross-references

¶5140

— foreign regimes, comparable provisions

¶5140

— further reading

¶5140

— outline

¶5140

general provisions — access to PPSR prohibited by court or register

¶5130

— concepts

¶5130

— cross-references

¶5130

— failing to search

¶5130

— foreign regimes, comparable provisions

¶5130

— further reading

¶5130

— outline

¶5130

— sec 170

¶5130

interference with privacy — commentary

¶5145

— concepts

¶5145

— cross-references

¶5145

— foreign regimes, comparable provisions

¶5145

— further reading

¶5145

— outline

¶5145

reports by Registrar — commentary

¶5160

— concepts

¶5160

— cross-references

¶5160

— foreign regimes, comparable provisions

¶5160

— further reading

¶5160

— outline

¶5160

search criteria — commentary

¶5135

— concepts

¶5135

— cross-references

¶5135

— foreign regimes, comparable provisions

¶5135

— further reading

¶5135

— outline

¶5135

written search results and evidence — commentary

¶5150

— concepts

¶5150

— cross-references

¶5150

— foreign regimes, comparable provisions

¶5150

— further reading

¶5150

— outline

¶5150

Security agreements concept

¶2-215; ¶2-320; ¶3-025; ¶3-030; ¶3-125; ¶3-130; ¶4-045; ¶4-085; ¶4-095; ¶5050; ¶7-030; ¶7-040; ¶7-045; ¶7-140; ¶7-155; ¶7-160; ¶7-165; ¶8-060; ¶8-100; ¶8-180; ¶9-020; ¶9-035; ¶9-050; ¶9-075

continuous attachment or continuous perfection

¶2-085

enforcement of interests provided for by

¶9-055

estoppels against persons noncompliance, consequences

¶8-095

— who respond to request

¶8-100

express agreement

¶7-030

express or implied authorisation

¶2-085

recovery of costs arising from request

¶8-080

reinstatement — commentary

¶4-200

— concepts

¶4-200

— cross-references

¶4-200

— foreign regimes, comparable provisions

¶4-200

— further reading

¶4-200

— outline

¶4-200

time for responding to request

¶8-070

Security interests after-acquired property

¶2-015

against third parties

¶2-025

— attachment requirement

¶2-025

— concepts

¶2-025

— cross-references

¶2-025

— foreign regimes, comparable provisions

¶2-025

— further reading

¶2-025

— outline

¶2-025

— particulars relating to personal property

¶2-025

— proceeds

¶2-025

— signature

¶2-025

— writing requirement for perfection by registration

¶2-025

— written security agreements

¶2-025

attachment — rights in the collateral

¶2-020

— value or an act

¶2-020

attachment without specific appropriation

¶2-015

charge-backs permitted

¶1-065

concept

¶1-065; ¶2-015

consent

¶1-065

cross-references

¶1-065; ¶2-015

deemed

¶1-065

— commercial consignments

¶1-065

— PPS leases

¶1-065

— transfers of accounts and chattel paper

¶1-065

effective

¶2-120

effective according to terms

¶2-015

exclusions

¶1-065

foreign regimes, comparable provisions

¶1-065; ¶2-015

further reading

¶1-065; ¶2-015

future advances

¶2-015

other miscellaneous

¶1-065

outline payment or performance of obligation

¶1-065; ¶2-015 ¶1-065

Personal Property Securities Regulation (Cth) — definition

¶11-040

— relationship with consumer credit legislation

¶11-070

— taking motor vehicles free of interests

¶11-055

— taking motor vehicles from prescribed persons

¶11-060

proprietary rights

¶1-065

reasonable expenses

¶2-015

relationship to personal property

¶1-065

scope, examples and illustrations

¶1-065

— assignments

¶1-065

— chattel mortgages

¶1-065

— conditional sale agreements

¶1-065

— consignments

¶1-065

— fixed charges

¶1-065

— flawed asset arrangements

¶1-065

— floating charges

¶1-065

— hire purchase agreements

¶1-065

— leases

¶1-065

— pledges

¶1-065

— transfers of title

¶1-065

— trust receipts

¶1-065

subordination agreements excluded by Act

¶1-065

trust arrangements as

¶1-065

Seizure — see also Enforcement apparent possession of collateral — commentary

¶4-100

— concepts

¶4-100

— cross-references

¶4-100

— foreign regimes, comparable provisions

¶4-100

— further reading

¶4-100

— outline

¶4-100

concept

¶2-295; ¶4-085

crops — commentary

¶4-170

— concepts

¶4-170

— cross-references

¶4-170

— foreign regimes, comparable provisions

¶4-170

— further reading

¶4-170

— outline

¶4-170

higher priority parties, notice — commentary

¶4-105

— concepts

¶4-105

— cross-references

¶4-105

— foreign regimes, comparable provisions

¶4-105

— further reading

¶4-105

— outline

¶4-105

livestock — commentary

¶4-175

— concepts

¶4-175

— cross-references

¶4-175

— foreign regimes, comparable provisions

¶4-175

— further reading

¶4-175

— outline

¶4-175

meaning of “take” and “water source” — commentary

¶4-165

— concepts

¶4-165

— cross-references

¶4-165

— foreign regimes, comparable provisions

¶4-165

— further reading

¶4-165

— outline

¶4-165

obligation to dispose of or retain collateral — commentary

¶4-095

— concepts

¶4-095

— cross-references

¶4-095

— foreign regimes, comparable provisions

¶4-095

— further reading

¶4-095

— outline

¶4-095

secured party may seize collateral — commentary

¶4-085

— concepts

¶4-085

— cross-references

¶4-085

— foreign regimes, comparable provisions

¶4-085

— further reading

¶4-085

— outline

¶4-085

secured party who has perfected interest by possession and control — commentary

¶4-090

— concepts

¶4-090

— cross-references

¶4-090

— foreign regimes, comparable provisions

¶4-090

— further reading

¶4-090

— outline

¶4-090

Serial number concept Serial numbered collateral

¶2-145; ¶5-135

purchase money security interests

¶1-075

Seriously misleading defects

¶5-100

Shipping goods by common carrier — see Common carrier Signature definition

¶2-025

Specific goods definition

¶1-065

Statement of account secured party’s duty to give

¶4-130

Subordination agreements excluded by Act

¶1-065

exclusion by PPSA

¶1-065

purchase money security interests

¶2-235

voluntary subordination of security interests

¶2-230

Substantive test purchase money security interests

¶1-075

Superannuation interests

¶1-045

T Taking free of interests commentary concept

¶2-140 ¶2-140; ¶2-145; ¶2-150; ¶2-155; ¶2-160; ¶2-165; ¶2-170; ¶2-175; ¶2180; ¶4-135; ¶4-150; ¶8-165

cross-references

¶2-140

currency

¶2-165

— concepts

¶2-165

— cross-references

¶2-165

— foreign regimes, comparable provisions

¶2-165

— further reading

¶2-165

— outline

¶2-165

exceptions

¶2-140

foreign regimes, comparable provisions

¶2-140

further reading

¶2-140

incorrect or missing — commentary

¶2-145

— concepts

¶2-145

— coss-references

¶2-145

— foreign regimes, comparable provisions

¶2-145

— further reading

¶2-145

— outline

¶2-145

intermediated security — commentary

¶2-170

— concepts

¶2-170; ¶2-180

— cross-references

¶2-170; ¶2-180

— exception

¶2-180

— foreign regimes, comparable provisions

¶2-170; ¶2-180

— further reading

¶2-170; ¶2-180

— main rule — outline

¶2-180 ¶2-170; ¶2-180

investment instrument — commentary

¶2-170

— concepts

¶2-170; ¶2-175

— cross-references

¶2-170; ¶2-175

— exception

¶2-175

— foreign regimes, comparable provisions

¶2-170; ¶2-175

— further reading

¶2-170; ¶2-175

— main rule — outline

¶2-175 ¶2-170; ¶2-175

— practical considerations

¶2-175

main rule

¶2-140

motor vehicle — concepts

¶2-150

— cross-references

¶2-150

— exceptions

¶2-150

— foreign regimes, comparable provisions

¶2-150

— further reading

¶2-150

— main rule

¶2-150

— outline

¶2-150

— prescribed persons

¶2-150

ordinary course of business

¶2-155

— concepts

¶2-155

— cross-references

¶2-155

— definition

¶2-155

— exceptions

¶2-155

— foreign regimes, comparable provisions

¶2-155

— further reading

¶2-155

— outline

¶2-155

outline

¶2-140

personal/household property — concepts

¶2-160

— cross references

¶2-160

— exceptions

¶2-160

— foreign regimes, comparable provisions

¶2-160

— further reading

¶2-160

— main rule

¶2-160

— outline

¶2-160

— practical consequences

¶2-160

secured party and transferee — concepts

¶2-190

— cross-references

¶2-190

— foreign regimes, comparable provisions

¶2-190

— further reading

¶2-190

— outline

¶2-190

— rights and ramifications for secured party

¶2-190

— rights of transferee

¶2-190

— scope

¶2-190

temporarily perfected — concepts

¶2-185

— cross-references

¶2-185

— exceptions

¶2-185

— foreign regimes, comparable provisions

¶2-185

— further reading

¶2-185

— main rule

¶2-185

— outline

¶2-185

Temporary perfection

¶2-030

concept

¶2-030; ¶2-035; ¶2-090; ¶2-100; ¶2-120; ¶2-200

transfer of collateral

¶2-095

— between 5 days and 24 months

¶2-095

— expiry

¶2-095

— 5 business days

¶2-095

— 24 months–maximum period

¶2-095

Time priority, security interests

¶2-200

Tracing

¶2-080

cases of new collateral

¶2-080

equitable notions and concepts

¶2-080

Lowest Intermediate — Balance rule

¶2-080

Re Hallet’s Estate — presumption

¶2-080

recourse for original secured party

¶2-080

Transfer of collateral accounts

¶1-045

chattel paper — contractual restrictions and prohibitions

¶2-330

concepts

¶2-095

cross-references

¶2-095

deemed security interests

¶1-065

despite prohibition in security — agreement

¶2-320

— concepts

¶2-320

— cross-references

¶2-320

— foreign regimes, comparable provisions

¶2-320

— further reading

¶2-320

— outline

¶2-320

foreign regimes, comparable provisions

¶2-095

further reading

¶2-095

outline

¶2-095

scope of temporary perfection

¶2-095

— between 5 days and 24 months

¶2-095

— expiry

¶2-095

— 5 business days

¶2-095

— 24 months - maximum period

¶2-095

Transferee-granted interest break in perfection, priority

¶2-265

Transferor-granted interests

¶2-260

break in perfection

¶2-265

break in perfection, priority

¶2-265

Transfers — see also Attachment; Perfection; Proceeds; Relocation; Return of collateral account or chattel paper, contractual restrictions and prohibitions — commentary

¶2-330

— concepts

¶2-330

— cross-references

¶2-330

— foreign regimes, comparable provisions

¶2-330

— further reading

¶2-330

— outline

¶2-330

account or chattel paper, rights of transferee and account debtor — commentary

¶2-325

— concepts

¶2-325

— cross-references

¶2-325

— foreign regimes, comparable provisions

¶2-325

— further reading

¶2-325

— outline

¶2-325

accounts

¶1-045

beneficial interest in monetary obligations

¶1-045

concepts

¶2-095

future rights of remuneration

¶1-045

interests in contracts of annuity or insurance policies

¶1-045

unearned rights to payment

¶1-045

Transfers of accounts

deemed security interests

¶1-065

Transfers of title security interests

¶1-065

Transitional provisions attachment rule — commentary

¶9-090

— concepts

¶9-090

— cross-references

¶9-090

— foreign regimes, comparable provisions

¶9-090

— further reading

¶9-090

— outline

¶9-090

charges and fixed and floating charges, references to — commentary

¶9-075

— concepts

¶9-075

— cross-references

¶9-075

— foreign regimes, comparable provisions

¶9-075

— further reading

¶9-075

— outline

¶9-075

constitutional and non-constitutional interests — commentary

¶9-070

— concepts

¶9-070

— cross-references

¶9-070

— foreign regimes, comparable provisions

¶9-070

— further reading

¶9-070

— outline

¶9-070

declared statutory security interests — commentary

¶9-045

— concepts

¶9-045

— cross-references

¶9-045

— foreign regimes, comparable provisions

¶9-045

— further reading

¶9-045

— outline

¶9-045

governing laws — commentary

¶9-065

— concepts

¶9-065

— cross-references

¶9-065

— foreign regimes, comparable provisions

¶9-065

— further reading

¶9-065

— outline

¶9-065

migrated data, Commonwealth officer to provide — commentary

¶9-120

— concepts

¶9-120

— cross-references

¶9-120

— foreign regimes, comparable provisions

¶9-120

— further reading

¶9-120

— outline

¶9-120

migrated data, no requirement for notice of verification statement — commentary

¶9-140

— concepts

¶9-140

— cross-references

¶9-140

— foreign regimes, comparable provisions

¶9-140

— further reading

¶9-140

— outline

¶9-140

migrated data, registration — commentary

¶9-130

— concepts

¶9-130

— cross-references

¶9-130

— foreign regimes, comparable provisions

¶9-130

— further reading

¶9-130

— outline

¶9-130

migrated security interest — commentary

¶9-125

— concepts

¶9-125

— cross-references

¶9-125

— foreign regimes, comparable provisions

¶9-125

— further reading

¶9-125

— outline

¶9-125

migration time and registration commencement time — concepts

¶9-015

— cross-references

¶9-015

— foreign regimes, comparable provisions

¶9-015

— further reading

¶9-015

— migration time

¶9-015

— outline registration commencement time

¶9-015 ¶9-015.2

registrations, starting times — commentary

¶9-060

— concepts

¶9-060

— cross-references

¶9-060

— foreign regimes, comparable provisions

¶9-060

— further reading

¶9-060

— outline

¶9-060

security interests in intellectual property licences, enforcement — commentary

¶9-050

— concepts

¶9-050

— cross-references

¶9-050

— foreign regimes, comparable provisions

¶9-050

— further reading

¶9-050

— outline

¶9-050

security interests provided for by security agreements, enforcement — commentary

¶9-055

— concepts

¶9-055

— cross-references

¶9-055

— foreign regimes, comparable provisions

¶9-055

— further reading

¶9-055

— outline

¶9-055

timing of commencement and applicable matters — commentary

¶9-035

— concepts

¶9-035

— cross-references

¶9-035

— foreign regimes, comparable provisions

¶9-035

— further reading

¶9-035

— outline

¶9-035

transitional security agreement — commentary

¶9-020

— concepts

¶9-020

— cross-references

¶9-020

— foreign regimes, comparable provisions

¶9-020

— further reading

¶9-020

— outline

¶9-020

transitional security agreement, registration defective — commentary

¶9-155

— concepts

¶9-155

— cross-references

¶9-155

— foreign regimes, comparable provisions

¶9-155

— further reading

¶9-155

— outline

¶9-155

transitional security interests — commentary

¶9-025

— concepts

¶9-025

— cross-references

¶9-025

— foreign regimes, comparable provisions

¶9-025

— further reading

¶9-025

— outline

¶9-025

transitional security interests and interests perfected by control, priority — commentary

¶9-100

— concepts

¶9-100

— cross-references

¶9-100

— foreign regimes, comparable provisions

¶9-100

— further reading

¶9-100

— outline

¶9-100

transitional security interests, enforceability against third parties — commentary

¶9-040

— concepts

¶9-040

— cross-references

¶9-040

— foreign regimes, comparable provisions

¶9-040

— further reading

¶9-040

— outline

¶9-040

transitional security interests, perfection rules

¶9-095

— concepts

¶9-095

— cross-references

¶9-095

— exception and replacement rules

¶9-095

— foreign regimes, comparable provisions

¶9-095

— imposition of regulations

¶9-095

— outline

¶9-095

transitional security interests, preparatory registration

— commentary

¶9-145

— concepts

¶9-145

— cross-references

¶9-145

— foreign regimes, comparable provisions

¶9-145

— further reading

¶9-145

— outline

¶9-145

transitional security interests, priority otherwise undetermined — commentary

¶9-105

— concepts

¶9-105

— cross-references

¶9-105

— foreign regimes, comparable provisions

¶9-105

— further reading

¶9-105

— outline

¶9-105

transitional security interests, priority rules — commentary

¶9-085

— concepts

¶9-085

— cross-references

¶9-085

— foreign regimes, comparable provisions

¶9-085

— further reading

¶9-085

— outline

¶9-085

transitional security interests, priority rules on insolvency or bankruptcy — commentary

¶9-110

— concepts

¶9-110

— cross-references

¶9-110

— foreign regimes, comparable provisions

¶9-110

— further reading

¶9-110

— outline

¶9-110

transitional security interests, registration effective despite certain defects — commentary

¶9-150

— concepts

¶9-150

— cross-references

¶9-150

— foreign regimes, comparable provisions

¶9-150

— further reading

¶9-150

— outline

¶9-150

Transitional register concept

¶9-130

Transitional register end time concept

¶9-130

Transitional security agreements

¶9-020

concept defective registration

¶9-020; ¶9-025; ¶9-035; ¶9-130; ¶9-145; ¶9-150; ¶9-155 ¶9-155

Transitional security interests enforceability against third parties — commentary

¶9-040

— concepts

¶9-040

— cross-references

¶9-040

— foreign regimes, comparable provisions

¶9-040

— outline

¶9-040

perfection rules

¶9-095

— concepts

¶9-095

— cross-references

¶9-095

— exception and replacement rules

¶9-095

— foreign regimes, comparable provisions

¶9-095

— further reading

¶9-095

— imposition of regulations

¶9-095

— outline

¶9-095

priority rules — commentary

¶9-085

— concepts

¶9-085

— cross-references

¶9-085

— foreign regimes, comparable provisions

¶9-085

— further reading

¶9-085

— outline

¶9-085

Trust arrangements security interests

¶1-065

Trust receipts security interests

¶1-065

U Uncertificated negotiable instruments commentary

¶2-070

concepts

¶2-070

cross-references

¶2-070

foreign regimes, comparable provisions

¶2-070

further reading

¶2-070

outline

¶2-070

Unearned rights to payment transfers

¶1-045

Unique identifier concept

¶5-135

Unperfected security interests execution creditor — commentary

¶2-295

— concepts

¶2-295

— cross-references

¶2-295

— foreign regimes, comparable provisions

¶2-295

— further reading

¶2-295

— outline

¶2-295

V Value concept

¶1-070; ¶1-075; ¶2-020; ¶2-140; ¶2-175; ¶2-180; ¶2-275; ¶2-285; ¶3025; ¶3-030; ¶3-050; ¶3-075; ¶3-080; ¶3-105

processed or commingled goods, limit on priority

¶3-105

purchase money security interests

¶1-075

Verification statements commentary concepts

¶5-155 ¶5-060; ¶5-065; ¶5-070; ¶5-155; ¶9-140

cross-references

¶5-155

foreign regimes, comparable provisions

¶5-155

further reading

¶5-155

outline

¶5-155

Vesting of unperfected security interests attachment after winding up — commentary

¶8-020

— concepts

¶8-020

— cross-references

¶8-020

— foreign regimes, comparable provisions

¶8-020

— further reading

¶8-020

— outline

¶8-020

grantor’s winding up after bankruptcy — commentary

¶8-015

— concepts

¶8-015

— cross-references

¶8-015

— foreign regimes, comparable provisions

¶8-015

— further reading

¶8-015

— outline

¶8-015

lessors, bailors and consignors entitled to damages — commentary

¶8-030

— concepts

¶8-030

— cross-references

¶8-030

— foreign regimes, comparable provisions

¶8-030

— further reading

¶8-030

— outline

¶8-030

unaffected security interests — commentary

¶8-025

— concepts

¶8-025

— cross-references

¶8-025

— foreign regimes, comparable provisions

¶8-025

— further reading

¶8-025

— outline

¶8-025

W Water rights

¶1-045

Water source

¶4-165

Winding up — see Insolvency Writing concept

¶2-025

written security agreements — perfection by registration

¶2-025

— security interests against third parties

¶2-025

— writing, definition

¶2-025