It is funny to think that it wasn’t so very long ago that
PPSA experts were trying their hardest to expand everyone’s thinking when it
came to security interests – it wasn’t just charges, liens and guarantees, it
was also Retentions of Title and Leases.
Well, perhaps the message has been getting home because we’re now seeing
requests for advice regarding the registration of collateral whenever it may
spend time out of its owner’s possession.
Scenario
LUMBERJACKS have legal title of recently felled trees, they
then transfer possession (but not ownership) of those trees to PLANKERS who saw
the trees into usable planks of wood and then transfer possession of the wood back
to LUMBERJACKS.
LUMBERJACKS have a contractual obligation to make payment to
PLANKERS for their value added services.
While it is likely, depending upon the Terms &
Conditions agreed to by both parties, that PLANKERS may have a valid security
interest in the wood to protect themselves against the possibility that LUMBERJACKS
default on their obligation to make payment for PLANKERS’ value added services
the question arises as to whether LUMBERJACKS have a PPSA security interest in
the wood to protect themselves from the possibility of the wood, while in the
possession of PLANKERS, being swept up by a receiver/liquidator appointed to PLANKERS.
In addressing this issue it is useful to set the context by reminding
ourselves that the PPSA was established, in large part, to ensure an equitable
treatment of security interests. An applicable security interest under the
PPSA is one that uses personal property to secure a payment obligation.
While, for example, a Retention of Title clause included in
a supply agreement technically constitutes a statement of ownership, because
its effect is to secure a payment obligation it is treated as a security
interest and is brought under the auspices of the PPSA. Similar inclusions have been made for leasing
arrangements where a lessor has the right to recover goods in the possession of
a lessee in the event of default of the lessee’s payment obligations.
However, in the scenario defined above there is no payment
obligation on the part of PLANKERS to LUMBERJACKS and, whilst the goods may be
in the possession of PLANKERS their recovery by LUMBERJACKS would be conducted
purely on the grounds of ownership rather than as collateral under a security
interest and therefore outside the bounds of the PPSA.
A more typical day to day example might be to think of
having to lodge a PPSA registration every time you park your car in a car park
against the possibility that the car park owners go bust while you are doing
your shopping and the liquidators sweep up your car in the process.
Similarly, because the wood in question cannot be deemed a
security interest under the terms of the PPSA, any receiver/liquidator
appointed to PLANKERS would be unable to use the PPSA to harvest that
collateral for the benefit of other creditors.
LUMBERJACKS should thus be able to rely on common law to repossess their
own property just as they would have been able to do in a pre-PPSA environment.
Having stated the above, there is provision under the PPSA
for a security interest to be created in the case of Bailments.
A Bailment is formed by delivery of personal property
without transfer of title by a bailor
to a bailee for a particular purpose
giving rise to a duty of care. Upon
completion of the particular purpose the bailee
is obliged to return the bailed property (or deal with it as directed).
It could be argued that the arrangement between LUMBERJACKS
and PLANKERS constitutes just such an arrangement.
Bailments are included in the PPSA under Section 13 of the
act wherein it describes the meaning of a PPS
Lease. I’ve included the relevant
section at the end of this article for reference.
In summary, PPS Leases are covered
under the PPSA so long as the lease (or bailment) exceeds a defined length of
time or, if for a shorter time, can be optionally extended to exceed that
defined length of time.
In the case of serial numbered goods
(motor vehicles, watercraft, aircraft etc) that defined length of time is 90
days and in all other cases (such as coil steel) is 12 months.
Where the lease or bailment is for a
shorter period of time the PPSA does not apply.
Thus, it would appear that in the
event of LUMBERJACKS common law rights being
challenged in this regard there is
the additional fall-back position of the PPSA’s applicability being ruled out
by the length of the LUMBERJACKS/PLANKERS bailment (presuming PLANKERS take
significantly less than 12 months to add their value).
Extract from the Personal Property
Securities Act 2009, Chapter 1, Part 1.3, Division 3.
(1) A PPS lease means a lease or bailment
of goods:
(a) for a term of more than one year; or
(b) for an indefinite term (even if the lease or bailment
is determinable by any party within a year of entering into the lease or
bailment); or
(c) for a term of up to one year that is
automatically renewable, or that is renewable at the option of one of the
parties, for one or more terms if the total of all the terms might exceed one
year; or
(d) for a term of up to one year, in a case in
which the lessee or bailee, with the consent of the lessor or bailor, retains
uninterrupted (or substantially uninterrupted) possession of the leased or
bailed property for a period of more than one year after the day the lessee or
bailee first acquired possession of the property (but not until the lessee’s or
bailee’s possession extends for more than one year); or
(e) for goods that may or must be described by
serial number in accordance with the regulations, if the lease or bailment is:
(i) for a term of 90 days or more; or
(ii) for a term of less than 90 days, but is
automatically renewable, or is renewable at the option of one of the parties,
for one or more terms if the total of all the terms might be 90 days or more;
or
(iii) for a term of less than 90 days, in a case in
which the lessee or bailee, with the consent of the lessor or bailor, retains
uninterrupted (or substantially uninterrupted) possession of the leased or
bailed property for a period of 90 days or more after the day the lessee or
bailee first acquired possession of the property, (but not until the lessee’s
or bailee’s possession extends for 90 days or more).
(2) However, a PPS lease does not
include:
(a) a lease by a lessor who is not regularly
engaged in the business of leasing goods; or
(b) a bailment by a bailor who is not regularly
engaged in the business of bailing goods; or
(c) a lease of consumer property as part of a
lease of land where the use of the property is incidental to the use and
enjoyment of the land; or
(d) a lease or bailment of personal
property prescribed by the regulations for the purposes of this definition,
regardless of the length of the term of the lease or bailment.
Bailments for value only
(3) This section only applies to a bailment for which the bailee
provides value.
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