The 11th February saw a decision handed down in
the NSW Supreme Court in the battle between the receivers of the Forge Group
(KordaMentha) and the US-based, General Electric International Inc over
KordaMentha’s claim to gas turbines totalling $50 million.
I've already written here concerning the outcry from US business and politics regarding the matter, now we get to hear the court's view.
In case you haven’t already read elsewhere, I won’t keep you
on tenterhooks, the decision represented a victory for KordaMentha.
Justice Hammerschlag ruled that the absence of a PPSA
registration in respect of turbines leased by GE to Forge Group under an
agreement in March 2013 meant that title to those turbines vested in Forge
Group upon their insolvency the following March. Put simply, a win for the receivers, who get an extra $50 million in assets to play with, and a loss for the American company that actual holds (held) title to the property.
While there will no doubt be more than a few headlines
hailing this as a ‘victory for the PPSA’, the legal argument was a little more
nuanced.
The issue before the court concerned some technicalities of
the PPSA, and the right provided by the Act for PPSA security interests to be
vested in the insolvent company was never actually in dispute.
GE instead chose a two-pronged argument:
- That the goods represented fixtures (the PPSA explicitly does not apply to fixtures); and
- That GE, while having leased the turbines, was a company not regularly engaged in the business of leasing goods (the PPSA also does not apply to leases in such circumstances).
On the matter of fixtures, J Hammerschlag found that the
weight of evidence made it clear that, not only was there no intention that the
turbines become fixtures but, their very nature (designed to be demobilised and
moved to another site, quickly and in a short time, there was an obligation for
the turbines to be returned at the end of the lease period, that the turbines
could be removed at a relatively low cost without damage to either the land or
the turbines themselves etc) meant that they should not be deemed fixtures for
the purposes of the Act.
As to whether GE was regularly engaged in the business of
leasing, this was relatively easily confirmed by a simple review of GE’s
leasing history. This confirmed that
from 2003 to the present time GE had been no stranger to leasing its equipment,
that it was a “proper component” of their business and conducted with
sufficient repetitiveness to satisfy the court that their leasing arrangement
with Forge fell under the auspices of the PPSA.
Therefore, not so much a victory for the PPSA as much as it
is a victory for the PPSA’s definitions.
Those wanting to read up on the case in detail can find the full judgement at this link.
