PPSA Clauses in Terms & Conditions

Firstly, it needs to be said that you do not need specific PPSA clauses in your Terms & Conditions of trade in order to lodge a registration on the PPSR, only the presence of a security right.  For most trade credit suppliers, this security right will be a Retention of Title clause – if you have one of these in your T&Cs and those T&Cs have been accepted by your customer, you can go ahead and register that security right on the PPSR.

This often prompts the question, if all that is needed is a one-sentence Retention of Title clause, why have multiple paragraphs of PPSA related text been included in the T&Cs?

Although not an unreasonable question, this is a little like hearing that you only need to drink water to avoid dying of thirst, and then asking, why bother with beer, wine and coffee?

So, in what way do PPSA specific clauses help us survive our mundane existences and allow us a temporary respite from the ever-present agonies of life?  Or, to put it another way, how do PPSA specific clauses make things a little easier for us?

Their first purpose is one of transparency and understanding.  Clauses will often start off by saying something along the lines of:

“You hereby acknowledge that these Terms and Conditions of Trade constitute a Security Agreement which creates a Security Interest in favour of [the supplier]…”

It has only been since the introduction of the PPSA that Retention of Title rights have been properly deemed to represent a form of security and it is helpful to draw a customer’s attention to this, particularly when the supplier goes on to add that, as a security right, they intend registering it on the PPSR.

A lot of terms then go on to suggest that the buyer/customer should sign documents or pay costs facilitating the supplier’s PPSR registration.  I don’t know if I’ve led an unduly sheltered life, but I’ve not come across any instance where any action has been required of a trade credit buyer in this regard and certainly haven’t heard of any additional fees being passed on, but, apparently lawyers think suppliers will feel comforted by having that option.

While there might be a little more repetition, the next purpose of the PPSA specific clauses will be the ‘waivers’.

The PPSA places a surprisingly large number of obligations on the ‘secured party’ to keep their customers advised of any actions they take.  I have this idea that the drafters of the Act had a visual image of the supplier being a huge unfeeling multinational bureaucracy and their customer being a little old lady with cats. 

In its vanilla form, the Act requires the supplier to keep their customer advised of anything and everything relating to the security interest – letting them know of the registration (and any amendments to it), giving notice of any intention to recover unpaid-for goods, advising of plans to dispose of any recovered goods, sending statements detailing whatever payments they might have received from on-selling the recovered goods, sending statements for anything they’ve recovered that hasn’t been disposed of, and providing the customer with an opportunity to object (!).

Fortunately, most obligations of this nature can be contracted out of and including clauses in T&Cs is probably the most effective way for a supplier to dodge these administrative bullets.  Hence clauses along the following lines:

“The Purchaser and the Supplier agree that the following provisions of the PPSA do not apply to the enforcement by the Supplier of its security interest in the Goods: sections 95, 118, 121(4), 130, 132(3)(d), 132(4), 135, 142 and 143.”

While I won’t go into each potential waiver/exclusion in detail (and can’t guarantee that I’ve spotted them all), the following table should help as a quick guide to what aspects of the Act are addressed in each of the ‘avoidable’ or ‘enhanceable’ sections of the Act.

Section	Issue addressed	Comment
95	Secured party must give notice of removal of accession	http://ppsr-blog.blogspot.com/2014/06/ppsa-accessions.html
118	Enforcing security interests in accordance with land law decisions	A waiver of the Secured Party’s obligations to provide notice to the grantor.
121	Enforcement of security interests in liquid assets	A waiver of the Secured Party’s obligations to give notice to the grantor of their intention to enforce their security interest.
123	Secured party may seize collateral	There’s a requirement here for the Secured Party to give notice to the grantor of their intention to seize.
129/130	Notice of disposal of collateral	Waiver of the Secured Party’s obligations to advise the grantor of their plans to dispose of collateral in their possession if a default has occurred.
132	Secured party to give statement of account	Waiver of the Secured Party’s obligation to provide a statement regarding any collateral they have disposed of as a result of default.
135	Notice of retention of collateral	Waiver of the Secured Party’s obligation to notify the grantor that they will be retaining collateral in their possession.
137	Persons entitled to notice may object to proposal	Removing the grantor’s right to object to any intended disposal of recovered collateral.
142	Entitled persons may redeem collateral	Waiver of the grantor’s right to priority when it comes to redeeming recovered collateral from the Secured Party.
143	Entitled persons may reinstate security agreement	Withdrawal of the grantor’s rights to reinstate a ‘broken’ security agreement.
157	Verification statements—secured parties to give notice to grantors	Removal of the Secured Party’s obligations to send the grantor a copy of the PPSR Verification Statement every time a registration event occurs.  See also http://ppsr-blog.blogspot.com/2014/05/notifying-grantor-what-are-your.html
275	Secured party to provide certain information relating to a security interest	The ‘vanilla’ PPSA requires the Secured Party to divulge relevant information about their security interest to any interested 3rd party unless the Secured Party and grantor have agreed they will keep such matters confidential.

A long-standing credit agreement is not enough to determine Transitional status

The 7^th March 2014 saw a little bit of clarity being brought to one of the PPSA’s notorious grey areas.  

The clarity came in the form of a judgment in the Supreme Court of Victoria and the grey area concerned the applicability of the PPSA’s transitional rules to Retention of Title clauses enshrined in long-standing Terms & Conditions.

The case concerned the May 2013 collapse of the cleaning company, Swan Services Pty Ltd and a claim by one of its creditors, Central Cleaning Supplies (Aust) Pty Ltd, that they should be able to rely on their Retention of Title clause to recover unpaid for equipment.

 

The liquidators argued that, since the introduction of the Personal Property Securities Act (PPSA), any goods subject to an ‘unperfected’ security interest would vest with them and, as Central Cleaning Supplies had not perfected their Retention of Title security interest on the Personal Property Securities Register (PPSR), the equipment they had supplied would be subject to the liquidators’ control.

Central Cleaning Supplies countered with reference to the PPSA’s Transitional Arrangements – a means by which security interests arising from long-standing agreements could be effectively ‘grandfathered’ into being ‘perfected’, without need for formal registration, for up to 2 years.  While the 2 year Transitional Period has now ended it was certainly applicable at the time Central Cleaning Services was challenging the liquidators for return of their equipment.

The case was put before Justice Ferguson to find the correct interpretation.

In her deliberations it was determined that, although Swan Services had entered into a credit agreement with Central Cleaning Services before the PPSA came into effect, the security represented by Central Cleaning Services’ Retention of Title clause was not actually incorporated into either the credit agreement or the standard terms & conditions embraced by that credit agreement.  Rather, the Retention of Title clause appeared in a Conditions of Sale document that formed part of individual invoices issued as and when deliveries were made.

Therefore, the initial credit agreement did not act as an overarching agreement out of which individual security interests were created (as would be necessary for the transitional arrangements to apply) but instead each invoice was held to create its own security agreement and security interest.  In order to perfect its Retention of Title clause, Central Cleaning Services could not, therefore rely on the PPSA’s transitional arrangements and should have registered their security on the PPSR as a non-transitional interest.

While it might often be convenient to refer to the date of a credit application in order to decide if subsequent dealings create transitional or non-transitional interests suppliers must not lose sight of the fact that it is the acceptance date of the actual document that imposes the security condition that will be the determining factor.

Where there is any doubt I would strongly recommend a non-transitional registration.

Central Cleaning Supplies (Aust) Pty Limited v Elkerton and Young as liquidators of Swan Services Pty Limited (in Liquidation) [2014] VSC 61