Transitional Rules Revisited

It’s been over a year now since I described what I saw as the intent behind the PPSA’s Transitional arrangements and how a number of insolvency practitioners were seeking to negate that intent with their far more restrictive interpretations (click here for my original piece).

Since that time we have remained without any legal precedent that could be used to determine the issue once and for all.  However, as the 17^th month of the PPSR’s operation drew to a close (the end of June 2013 for those not wanting to count), Justice Beech and the Supreme Court of Western Australia stepped up to the crease and took a pretty healthy swing at the issue.

The Case

In 1998, Supplier Pty Ltd and Buyer Pty Ltd entered into a credit agreement containing a Retention of Title clause intended to provide terms and conditions applicable to future deliveries made by Supplier to Buyer.  Supplier was also the beneficiary of a guarantee from Mr Guarantor committing Mr Guarantor to making good any shortfall in monies owing to Supplier in the event of Buyer’s non-payment.

Back to the present day and the issue being considered is the extent to which Supplier Pty Ltd is able to maintain a caveat over real estate property held by Mr Guarantor by way of protecting the effectiveness of his guarantee.  Mr Guarantor has argued that Supplier’s failure to register their ROT security interest against Buyer Pty Ltd increases the likelihood of a higher value claim against Mr Guarantor’s property and thus maintaining the caveat would be unfair.

Supplier Pty Ltd argues that their ROT interest over Buyer Pty Ltd has been perfected by the PPSA’s Transitional provisions and does not need to be specifically registered in order to be effective.

The Judgement

Unfortunately for us, Justice Beech was not required to rule on whether Supplier’s ROT security interest was, in fact, perfected under the Transitional rules but merely to adjudge whether Supplier Pty Ltd had a ‘seriously arguable’ case.  

Fortunately for us, His Honour considered that Supplier had indeed demonstrated a seriously arguable case that:

• The 1998 document constituted an agreement that would govern future deliveries;
• The 1998 agreement gives retention of title rights in respect of each delivery;
• The 1998 agreement is a security agreement as defined in the PPSA;
• As the 1998 agreement was in force and ‘active’ at the time the PPSR went live, it constitutes a transitional security agreement (s307); and
• As the 1998 agreement provides for the granting of security interests, any security interest associated with deliveries made subject to the terms of that agreement will be transitional security interests (s308).

So while WA’s Supreme Court decision may not have been decisive for our purposes it gives a clear indication that our views as to the intention of the PPSA’s Transitional arrangements are likely to be upheld should they be presented in court and must seriously dent the confidence of those IPs attempting to argue differently.

Remember, however, that all terms & conditions, all credit agreements and all ROT clauses are not created equal and much will depend upon how each have been drafted and to what extent and in what manner they may have been amended or updated since the PPSA came into effect. 

For those who want to investigate this particular case more closely, the decision to which I refer was in relation to Industrial Progress v Wilson and others.  Don’t bother trying to look up Supplier Pty Ltd v Mr Guarantor.