Personal Properties Securities 15 hours
Donken
19bPPSPGSession1.pptxCopyright Notice
Copyright Regulations 1969
WARNING
This material has been reproduced and communicated to you by or on behalf of the University of Sydney pursuant to Part VB of the Copyright Act 1968 (the Act).
The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act.
The University of Sydney
Page ‹#›
Personal Property Securities LAWS 6956 Session 1
Presented by
Professor Sheelagh McCracken
University of Sydney Law School
Friday 11 October 2019
Identifying a security interest
The University of Sydney
Page ‹#›
2
Structure of Session 1
Introduction to the unit and background
Security regime’s relationship with ‘general law’ and statutory concepts
* preliminary issue: drawing diagrams to represent ‘security’
* integration into the Australian commercial law framework
* understanding general law security concepts assumed by the PPSA
* recognising security transactions
Classification of personal property under the PPSA
* underlying meaning of ‘property’
* meaning and categories of ‘personal property’
4. Analysing the concept of a security interest
* In substance security interests
* Deemed security interests
* Exclusions
The University of Sydney
Page ‹#›
1. Introduction to the Unit and Background “Secured Transactions”
What is a secured transaction?
Typical example?
Key feature? – the ”proprietary interest”
“The proprietary interest is sufficient to remove the assets in which it exists from the pool of assets available to the general body of the creditors of the grantor for the exclusive benefit of the secured party to the extent required to satisfy the secured obligation” (Hamersley [320])
When is it most useful?
Who does it impact?
Why does it matter?
As between the parties?
More generally?
The University of Sydney
Page ‹#›
Justification for secured transactions law? (UNCITRAL, Legislative Guide on Secured Transactions, Introduction [46])
Contemporary economies involve the manufacture and sale of movable assets and the provision of services, both domestically and internationally. …., many businesses typically are not able to meet all their ongoing financial requirements in cash. The availability of credit and especially the availability of credit at the lowest possible cost are, consequently, fundamental to the growth of the economy. Lenders and other providers of credit are able to bridge the gap between needs and available resources most effectively when the risk of non-repayment of the credit they extend is reduced as much as possible. A security right in movable assets (as well as in immovable property) of a debtor can be a key element in reducing this risk. This is because a security right enables a provider of credit to rely on the value inherent in the encumbered assets as an alternative source of repayment of the credit. In other words, the grant of a security right permits businesses and individuals to gain access to credit in situations where unsecured credit would not be available at a reasonable cost or would not be available at all. The fundamental justification for secured transactions law lies in the premise that the total net wealth of an economy will increase if more secured credit is available as a complement to unsecured credit. [emphasis added]
The University of Sydney
Page ‹#›
UNCITRAL Legislative Guide on Secured Transactions Rationale for legislation (pp 20-21; headings)
To promote low-cost credit by enhancing the availability of secured credit
To allow debtors to use the full value inherent in their assets to support credit
To enable parties to obtain security rights in a simple and efficient manner
To provide for equal treatment of diverse sources of credit and of diverse forms of secured transactions
To validate non-possessory security rights in all types of asset
To enhance certainty and transparency by providing for registration of a notice in a general security rights registry
To establish clear and predictable priority rules
To facilitate efficient enforcement of a secured creditor’s rights
To allow parties maximum flexibility to negotiate the terms of their security agreement
To balance the interests of persons affected by a secured transaction
To harmonize secured transactions laws, including conflict-of-laws rules
The University of Sydney
Page ‹#›
How does the unit “fit”?
Unit introduced in 2010 pre-implementation of PPSA on 30/1/2012
Change to secured transactions law and commercial law generally
Challenge of ‘new learning’
Comparative context
Rationale for course
Theory: Objectives (unit outline p 5) : content and skills
Practice: It matters!
Where does the course sit?
Assumes eg:
Contract law – effective “transactions” and “security agreements”
Some Corporations law – legal entity; impact of insolvency (receivers; administrators; liquidators)
Some equity – interests; doctrines
Builds on property law – nature of property; interests in property; property dealings: eg bailments; sale of goods; assignments of choses in action; trusts
The University of Sydney
Page ‹#›
Unit administration matters
Materials
Act; Regulations: Replacement Explanatory Memorandum (Outline p 9)
Cases: Australian; Canadian; New Zealand (Outline: pp 5-8)
Prescribed text (Outline: p 9)
Publisher’s link: https://legal.thomsonreuters.com.au/security-interests-commentary-and-cases-ebk/productdetail/127420
Journal articles (Outline: pp 5-8; e-reserve)
Other useful materials (Outline: p 9)
Websites eg
www.ag.gov.au : PPSA Statutory Review; Final Report; Submissions
www.ppsr.gov.au: register; business resources – case studies etc
Websites of major law firms
Assessment (Outline: p 12)
Unit Schedule (Outline: p 11)
Discussion Board (Outline: p 4)
No recordings
The University of Sydney
Page ‹#›
Overview of legislative framework
Personal Property Securities Act 2009 (Cth) (as amended) (‘PPSA’)
Based largely on:
US Uniform Commercial Code Article 9
Canadian provincial legislation: Saskatchewan; Ontario
New Zealand legislation
Rationale for the legislation? Eg
General: see UNCITRAL Guide extract
PPS style: certainty; consistency; simplicity; accessibility; transparency; reduction in transaction costs
Guide to the the Act (PPSA s 3; see Davidson)
Contribution of practitioners
Conformity with further international developments?
See eg
Convention on International Interests in Mobile Equipment (‘Cape Town Convention)
UNCITRAL Model Law 2016
UK? Other countries?
‘Education’ of community
The University of Sydney
Page ‹#›
Typical PPSA scenario causing ‘angst’
Lessor leases goods – doesn’t register a financing statement
Lessee has made a ‘GSA’ (general security agreement) with its bank
Bank, which has registered a financing statement, seeks to enforce GSA
Discussion Problem
In February 2018, a leasing company (L), leased a portable building to G Pty Ltd (‘G’) for a term of 3 years. Under the lease terms, if G defaulted in payment of any installment, L could repossess the portable.
In March 2019, G had cash-flow difficulties, causing it to default in repayment of a loan made by its bank (B) in April 2015. That loan is secured over all of G’s assets under a GSA and a financing statement was registered by B.
G is also now unable to make payment under its lease and L decides to repossess. B however wants to enforce its GSA and claims to sell the portable.
Consider what questions should be asked to begin to determine the outcome
The University of Sydney
Page ‹#›
Developing an analytical framework in a rules based system
Does a SI exist?
Threshold question (s 12; assuming s 6; subject to s 8)
When is a SI effective?
Central concepts
Attachment (s 19)
Enforceability against 3rd parties (s 20)
Perfection (s 21) – notion of ‘optimal protection’
What is the ranking of a SI?
Default priority rules (s 55)
‘Special priority rules: eg
Super-priority’ (ss 62, 63)
Control trumps all (s 57)
Other
What is the reach of a SI?
Continues after goods become an accession or commingled (Pts 3.3;3.4)
Buyer or lessee may take free (Pt 2.5)
Proceeds (s 32)
What remedies does a SI confer?
Seizure (ss 123; 125); Disposal (ss 128; s 129); Retention (s 134)
The University of Sydney
Page ‹#›
Reminder: techniques of statutory interpretation
General principles
text, context and purpose (see Spigelman CJ: refocus on text)
Acts Interpretation Act 1901(Cth), but note PPSA s 11
Particular issues with PPSA
General: “intimidating; idiosyncratic; convoluted; repetitive; prolix”( Davies)
Relevance of overseas legislation? (Re Maiden Civil (P&E) Pty Ltd, [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.’
Use of overseas case law
‘guided by the approach taken by the courts in Canada and New Zealand’
‘I appreciate that the various statutes are not identical, but the underlying policy is the same and the same broad structure and concepts are employed’ (Hamersley [89])
Cf Samwise Holdings Pty Ltd [2018] SASCFC 95, [39]: ‘..the Act is ultimately something of an amalgam of the legislative experiences in these jurisdictions…It cannot be assumed that they will have direct application’
The University of Sydney
Page ‹#›
2. Relationship with general law and other statutory concepts Preliminary issues: Drawing diagrams to represent ‘security’ (a) Position under general law
Diagram representing “security” under general law?
security - quasi – security - other
security
Interests/rights arising:
by operation of law
consensually
property
contractual
The University of Sydney
Page ‹#›
Drawing diagrams (continued) (b) Position under PPSA
Diagram representing ‘security interests’ under PPSA? *
Security Interests (s 12)
in substance security interests
definition (s 12(1))
examples of transactions (s 12(2))
broad categories?
traditional ‘security’
‘quasi-security’
any legal difference between the categories?
deemed security interests (s 12(3))
* This assumes relevant ‘connection with Australia’ under PPSA s 6
The University of Sydney
Page ‹#›
Integration into the Australian commercial law framework Extent of application of general law security and other concepts under PPSA?
2 ‘schools of thought’ in context of security
Impact of statutory references and usage within PPSA
PPSA s 12(2)
PPSA s 254(1)
Notion of general law as a ‘concurrent law’
particular points of controversy?
Interaction of general law concepts and PPSA?
Example: i-Trade Finance v Bank of Montreal
The University of Sydney
Page ‹#›
Understanding general law concepts assumed by PPSA s 12(2): (a) Mortgage (b) Charge
Mortgage (general law)
transfer of title
equity of redemption
types?
Legal
Equitable
powers of mortgagee?
Charge
appropriation of property for the satisfaction of an obligation
equitable
differences between fixed and floating charges
concept of crystallisation
powers of chargee?
The University of Sydney
Page ‹#›
Understanding general law concepts assumed by PPSA s 12(2): (c) Pledge (d) Lien
Pledge
transfer of possession
consequence for property over which security can be taken?
compare i-Trade
powers of pledgee?
Lien
common law possessory lien
compare equitable lien; statutory lien; contractual ‘lien’
right to detain possession
powers of lienee?
Palgo Holdings: ‘Time has not dulled these distinctions’ [19]
impact of PPSA s 12(1), (2)?
The University of Sydney
Page ‹#›
| Legal mortgage | Equitable mortgage | Equitable charge | Pledge | Common law lien | |
| Transfer of legal title | |||||
| Transfer of eq interest | |||||
| Power to take/ retain possession | |||||
| Power to foreclose | |||||
| Power to sell | |||||
| Power to appoint a receiver | |||||
Summary of general law consensual security interests
The University of Sydney
Page ‹#›
Notes to Table
Inapplicable to Torrens title mortgage
Although possession (itself a legal interest) passes, no legal title is transferred
Provided that there is an agreement to that effect. Otherwise there is no such power.
Subject to anomaly in mortgage over Torrens title land, which functions as if it were a charge.
Either (a) on application to the court; (b)if applicable, State and Territory legislation eg Conveyancing Act 1919 (NSW) s 109; or (c) under the terms of the agreement.
Except under statute.
This table and notes are a modified version of Figure 14.1 ‘Comparison of Available Remedies’ in Everett & McCracken’s Banking and Financial Institutions Law, Thomson Reuters Australia (9th ed) 2017 p 554; Text [3.260].
The University of Sydney
Page ‹#›
Regimes governing consensual security interests? (Everett & McCracken’s Banking & Financial Institutions Law, 9th ed, p 479; Text [1.10])
| Nature of property | Legal Regime | Types of security |
| Real property | Real property legislation + Common law | Legal (statutory) mortgage Equitable mortgage Charge |
| Personal property within the definition of PPSA, where the interest in that property is not excluded | PPSA | Interests regulated as ‘security interests’ under PPSA s 12 |
| Personal property within the definition of PPSA, where the interest in that property is excluded + Personal property outside the definition of PPSA | Common law, as supplemented by statute | Legal mortgage Equitable mortgage Charge Pledge |
The University of Sydney
Page ‹#›
Terminology under PPSA
‘The reader will already have become aware that Article 9 uses its own terminology, which may occasionally grate on the unfamiliar ear. The choice of a new vocabulary was deliberate…
Thus one of the initial difficulties which a beginning student of Article 9 confronts is that of mastering a foreign language without constantly having to translate back into his own everyday speech. The student may consider himself a proficient linguist when he can read the following exercise without having to resort to the dictionary….
[in equivalent Australian terms] A “secured party” and a “grantor” by entering into a “security agreement” create a “security interest” in “collateral”. The “collateral” may consist of “goods”, “financial property”, “an Intermediated security”” or “intangible property”.’
Gilmore, Security Interests in Personal Property, Vol 1 pp 301-302
Dictionary under PPSA s 10
The University of Sydney
Page ‹#›
Recognising “security” transactions
Discuss the effectiveness of the following clause:*
“By way of security for the payment of sums advanced and to be advanced by Creditor, Debtor agrees:
(1) that he shall not dispose of or part with possession of his motor car without Creditor’s consent;
(2) that Creditor shall be at liberty to follow the said motor car into the hands of any third party to whom Debtor transfers it in breach of this agreement; and
(3) that Creditor shall have a preferential right to the proceeds of any such transfer in priority to Debtor’s other creditors”
“Security” transactions:
Legal understanding?
Commercial understanding?
* Goode, “Security: A Pragmatic Conceptualist’s Response” (1989) 15 Monash University Law Review 361, 365)
The University of Sydney
Page ‹#›
Recognising security transactions Discussion Problem
Facts
In February 2018 Winco Pty Ltd, a small winery in the Hunter Valley, entered into a five-year general loan facility with its bank, Northpoc Bank Ltd, to fund further expansion. It was a term of the Northpoc facility that Winco would create security over all its present and future property. Winco duly executed a deed, securing all its property to Northpoc. Northpoc, having registered a financing statement in respect of the security, advanced the funds.
In December 2018 Winco needed to purchase 3 new vats for storing its wine and requested Northpoc to increase its loan facility. Northpoc, concerned about some cash flow difficulties that Winco had been experiencing, refused to make any further advances.
As a result, Winco then approached another bank, Quickcash Bank Ltd. By contract dated 12 December 2018 Quickcash agreed to lend Winco $1m for the purchase of 2 vats and Winco agreed to transfer title to those vats by way of security. Winco purchased the vats on 15 December 2018 and took delivery of them on 18 December. In January 2019 Winco purchased a third vat from Manco Ltd, taking possession of the vat on terms that title to that vat would pass to Winco after payment of 5 instalments of $100,000.
The University of Sydney
Page ‹#›
Discussion Problem (continued)
Questions
Last week Robert, a corporate loans manager at Quickcash, heard speculation about Winco being in financial difficulty and learnt that Winco had defaulted in repayments to Northpoc. Robert now seeks your advice as to who will be entitled to sell the vats in the event of Winco defaulting in repayments to Quickcash and particularly if Winco goes into liquidation.
Robert also seeks your advice as to whether Quickcash would in that event have a claim against Winco’s parent company, Parentco Ltd:
(i) under a letter of undertaking it obtained from Parentco on 12 December 2018 which states that it is Parentco’s policy to ensure that Winco is in a position to meet its liabilities to Quickcash;
(ii) in respect of a deposit of $100,000 made by Parentco with Quickcash on that same day.
The University of Sydney
Page ‹#›
3. Classification of personal property under the PPSA
Significance of the term ‘personal property’
Commercial understanding?
Legal importance in the context of PPSA?
‘security interest means “an interest in personal property” (s 12)
‘law about security interests in personal property’ (s 3 Guide)
different rules may apply to different categories of property
impacts on completion of financing statement (s 153(1) Table: Item 4)
Classification of ‘personal property’ under PPSA
Extent of difference to general law ?
Language
Categories
Conceptual change?
The University of Sydney
Page ‹#›
Underlying meaning of ‘property’
General law meaning
Shifting usage at common law and under statute
Statute
Common law
Descriptions
Traditional areas of difficulty: licence; bank deposit; technology?
Meaning under the PPSA?
‘Property’ not expressly defined
Is it the same meaning as general law?
Clarification: licence (s 10); bank deposit (s 12(3A); (4))
Role of s 254?
Whittaker Report, [4.4] Recommendation 25
definition of ‘property’ should not be included
Meaning is left to the general law
Impact of Saulnier v Royal Bank of Canada?
The University of Sydney
Page ‹#›
Statute and Common Law: Meaning of ‘property’?
Conveyancing Act 1919 (NSW) s 7
“Property” includes real and personal property, and any estate or interest in any property real or personal, and any debt, and any thing in action, and any other right or interest”
Bankruptcy Act 1966 (Cth) s 5
“property” means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any real or personal property
Yanner v Eaton [1999] HCA 53, [ ] (Gleeson CJ, Gaudron, Kirby and Hayne JJ)
’The word ‘property’ is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, ’property’ does not refer to a thing; it is a description of a legal relationship with a thing. It refers to a degree of power that is recognised in law as power permissibly exercised over the thing.’
National Provincial Bank Ltd v Ainsworth [1965] AC 1175, 1247-1248
‘Before a right or 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.’
The University of Sydney
Page ‹#›
Meaning of ‘property’? A pragmatic approach
Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed: [4.015])
‘… It may be possible in abstract jurisprudence to confine ‘property’ to legal rights in respect of objects, to the exclusion of other objects and to reject all other usages. However, that is effectively impossible in the legal system as it is currently known. Countless legal doctrines, legal instruments, legislation, judgments and other legal material use “property” to mean either the rights someone has over an object or the object itself. Or they use ”property” in both senses, or even in a blended sense – sometimes unthinkingly, sometimes deliberately so. In all cases, the word “property” takes its meaning from its context. It is unrealistic to think that one or another usage could be stamped out, and it cannot be assumed that it would be desirable to do so.’
The University of Sydney
Page ‹#›
General law classification of property : A reminder
The University of Sydney
Page ‹#›
Property
Real Property
Personal Property
Chattels real
Chattels personal
Choses in possession (legal)
Choses in action
‘document-ary
(legal)
‘pure’
(legal/equitable)
Meaning of ‘personal property’ under PPSA
Examples: see Guide s 3
Definition: see s 10
ie property (including a licence) other than land or statutory right declared not to be personal property
Note: definition of “land” to exclude “fixtures”
Categories of PPSA personal property
4 major categories: see s 10
…
…
…
…
Starting point?
The University of Sydney
Page ‹#›
PPSA Classification of personal property
The University of Sydney
Page ‹#›
Property?
Land
Personal property outside PPSA
Personal property within PPSA
Goods
Financial property
Intermediated security
Intangible property
Category: Goods
Definition in s 10
Personal property that is tangible property
Specific inclusions
Specific exclusions
Interesting choice of term
Other possibilities?
19th century concept
used still eg in Sale of Goods Act 1923 (NSW) s 5 where it is defined as including “all chattels personal other than things in action and money’
updated for some purposes eg Competition and Consumer Act 2010 s 4
Commercial overtone
The University of Sydney
Page ‹#›
Category: Financial Property
Used as heading to cover categories that are set at same level in other jurisdictions
S 10 definition
5 categories
…..
…..
……
……
……
Note
new terms
Chattel paper; investment instrument
change of meaning in terms
Document of title; negotiable instrument
The University of Sydney
Page ‹#›
PPSA classification of personal property - showing sub-set of financial property
The University of Sydney
Page ‹#›
Property?
Land
Personal property outside PPSA
Personal property within PPSA
Goods
Financial property
Intermediated security
Intangible property
Chattel paper
Currency
A document of title
An investment instrument
A negotiable instrument
Category: Intermediated Security
Definition: s 15
“rights of a person in whose name an intermediary maintains a securities account”
BUT
s 15(2)(b)
The University of Sydney
Page ‹#›
Category: Intangible property
Often described as a ‘residual’ category
Definition in s 10
Exclusions
Examples of what would fall within this category?
The University of Sydney
Page ‹#›
Other important terms at this preliminary stage?
S 10 eg
Collateral
After acquired property
Consumer
Commercial
Inventory
Other sections? eg
Circulating asset (s 340)
Proceeds (s 31)
The University of Sydney
Page ‹#›
Discussion Problem Classify assets under PPSA categories of personal property
Portable buildings
Oysters
Registered trade mark
Minerals
Wool on a sheep’s back
Debt
Satellites
Share certificates
Shares
Yen
Licence
Confidential information
Lease agreement
Computer software
Term deposit at bank
The University of Sydney
Page ‹#›
4. Analysing the concept of a security interest
Concept of “security interest” under the PPSA (s 12)
Definition in s 12 (see s 10)
Exclusions in ss 12, 8
Classifications of security interest (s 12)
in substance or deemed?
(in substance (s 12(1))
‘almost anything which serves the function of a security interest’: (Bank of Montreal v Innovation Credit Union);
see also i- Trade ‘pervasive’)
deemed (s 12(3)
categories are not mutually exclusive: see s 12(3)
PMSI or non-PMSI? (s 14)
Terminology (s 10)
Secured party
Grantor cf Debtor (cf Canadian and NZ usage – ‘debtor’)
The University of Sydney
Page ‹#›
‘in substance’ security interests (a) Preliminary points
Examples (s 12(2))
criteria? (s 12(1)) ‘The definition…is fundamental’: Dura ([17])
Transaction
Interest in personal property
Secures payment or performance of an obligation
Relevance of form and title? (Note also s 273)
A ‘functional’ definition’: Dura ([17])
Factual scenario? See Case Study
The University of Sydney
Page ‹#›
(b) Approach to statutory interpretation by Victorian Court of Appeal: (Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd)
Cites (at [111-[113]])
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47]:
‘The Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied upon to displace the clear meaning of the text. The language which has actually been employed in the text of 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. ‘
Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at [34] ‘the meaning of a provision “is to be answered by having regard in the first place, to the text of [the provision] and the provisions with which it interacts”.
Emphasises (at [108], [111] giving words their ‘natural and ordinary meaning.’: eg ‘interest’; ‘transaction’
The University of Sydney
Page ‹#›
(c) Working out whether there is a security interest (i) Is there a ‘transaction’?
Consensual arrangement?
Case law
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd
(VSCA, 2014: focus on paras 87; 96-130)
I-Trade
Other ‘pointers’, as a matter of statutory construction? (s 12(2) examples)
Valid enforceable agreement?
Required?
Ellingsen v Hallmark Ford Sales Ltd (BC CA, 2000)
Impact of unfulfilled condition precedent
‘subject to credit approval’
Security agreement? Dura (ss 10, 18, 19 – see Session 2)
Significance of “provided for”?
The University of Sydney
Page ‹#›
(ii) Is there an ‘interest in personal property’?
Personal property (see Session 3)
Interest?
S 10 definition (Whittaker Recommendation, 2 to delete definition)
See also Dura, [108]
What interest is sufficient?
See s 12(2)
Property right
Legal – title, possession
Equitable
Contractual right?
Impact of inclusion of “flawed asset” arrangement?
Caisse Populaire
Characterisation of the security interest?
See subsequent discussion
The University of Sydney
Page ‹#›
(iii) Does [it?] ‘in substance, secure… payment or performance of an obligation’?
Meaning?
Existence of present or future obligation
Right to ‘look to’ collateral for satisfaction
Type of right?
Property
Cf ‘right of access’
Interpretation of contractual arrangements
JS Brooksbank & Co v EXFTX
Key features of arrangement? Cf Seagard Masurel
Re Arcabi Pty Ltd: bailment; consignment
Other? See Discussion Problem (“step in rights”)
Trusts?
Nature of relationship between persons
Cf Skybridge with North Shore City Council
The University of Sydney
Page ‹#›
Discussion Problem
Arrangement
M finances its operations through a bank loan, secured over all its present and after-acquired property. The bank has registered a financing statement.
In February 2019 M (a construction company) entered into a contract with HG Ltd to carry out remedial work on an apartment complex. The contract provides that HG can terminate the contract if M goes into receivership and if the receivers fail within 10 working days to take over the contract work. The contract also provides that on termination by HG, HG is:
…deemed to be in possession of the contract works. M’s interest in the contract works and in the materials, fittings and construction machinery on the site is transferred to HG. HG is entitled to:
(a) complete the contract work; use the materials, fittings, construction machinery for that purpose; and employ any other person;
(b) recover from M any reasonable costs incurred in completing the contract works as certified by the architect;
(c) sell by public auction or in some other way agreed to by M any surplus materials or fittings, and HG’s interest in the construction machinery. The net proceeds are to be deducted from M’s liability to HG. HG must pay any balance to M.
The University of Sydney
Page ‹#›
Discussion Problem continued (Facts, simplified and with dates changed, are taken (verbatim or paraphrased) from McCloy v Manukau Institute of Technology [13]-[16])
What happens?
On commencing work, M placed two hoists onto the exterior of the building to enable construction material and personnel to be hoisted to higher levels of the building.
Last month the bank appointed receivers to M and notified HG that they would not continue the construction work. HG gave notice that the contract was terminated and claimed to be in possession of the hoists.
Discuss:
Is HG’s interest in the hoists a security interest?
The University of Sydney
Page ‹#›
Deemed security interests
Criteria (s 12(3))
Specified interest
Specified property
Rationale for inclusion?
at least two reasons:
‘pragmatic’
policy
goods: ‘evil of apparent wealth’
accounts: historical/deception/ priority issues
Different rules to in substance security interests may apply eg
Enforcement (s 109(1): see Session 4)
Vesting on insolvency
(but only to some interests: ss 267, 268: see Session 4).
The University of Sydney
Page ‹#›
Types of interest
Interest of a transferEE under:
A “transfer” of an “account”
Meaning? (s10 for account; see also Hamersley: [245]-[250])
Examples?
A “transfer” of “chattel paper”
Interest of a consignOR delivering goods under a commercial consignment
Meaning of commercial consignment (s 10; see also Arcabi: [50]-[59])
Examples?
Interest of a lessOR or bailOR of goods under a PPS lease
Meaning of PPS lease (s 13)
Essential criteria?
Length of time: critical date of change in s 13(1) – 20 May 2017
Regular engagement in the business of leasing/bailing goods (Rabobank; Arcabi; Forge [51]-[54])
Where it is a bailment, bailee must provide value (s 10; Arcabi: [26]; Welldog [146]-[150])
The University of Sydney
Page ‹#›
The PPS lease: case law
Outline of typical scenario (see next slide)
Early New Zealand cases
Graham v Portacom New Zealand
Waller v New Zealand Bloodstock Ltd
Rabobank New Zealand Ltd v McAnulty
Australian cases
Re Maiden Civil (P&E) Pty Ltd
Re Arcabi Pty Ltd
Forge Group Power Pty Ltd v General Electric International Inc
Re Welldog
2 separate issues
is lessor’s (or bailor’s) interest a security interest?
does lessee (bailee) have sufficient rights to enable a security interest to attach to the goods? (See Session 2)
The University of Sydney
Page ‹#›
Typical leasing scenario (see earlier slide)
Lessor leases goods – doesn’t register a financing statement
Lessee has made a ‘GSA’ (general security agreement) with its bank
Bank, which has registered a financing statement, seeks to enforce GSA
Discussion Problem
In February 2017, a leasing company (L), leased a portable building to G Pty Ltd (‘G’) for a term of 3 years. Under the lease terms, if G defaulted in payment of any installment, L could repossess the portable.
In March 2018, G had cash-flow difficulties, causing it to default in repayment of a loan made by its bank (B) in April 2015. That loan is secured over all of G’s assets under a GSA and a financing statement was registered by B.
G is also now unable to make payment under its lease and L decides to repossess. B however wants to enforce its GSA and claims to sell the portable.
Session 1 - What questions should be asked to begin to determine the outcome
Now - Does a security interest exist?
The University of Sydney
Page ‹#›
Characterisation of a security interest (whether a deemed interest or an in substance interest)
Notion of ‘unitary’ approach
At least two meanings
Juridical nature of interest
Legal (statutory) ? Bank of Montreal v Innovation Credit Union
Fixed: Hamersley Iron
Form of charging clause?
Grant a security interest?
Grant a security interest by way of [charge]?
See Hamersley Iron at [24]-[34]
The University of Sydney
Page ‹#›
One academic interpretation for discussion - Duggan & Brown, [3.2]- [3.4]
Indirectly…the PPSA abolishes the old forms [of security] and substitutes a generic security interest, the incidents of which are shaped by the rules the statute enacts for the various stages of the transaction.
The PPSA security interest most closely resembles the pre-PPSA hypothecation. The security interest may be possessory (as in the case of the pre-PPSA pledge) or non-possessory (as in the case of the pre-PPSA charge), but, in contrast to the mortgage, it does not depend on transfer of title…
The upshot is that a PPSA security interest gives the secured party a right of access to the collateral in the event of default, but, subject to this, title to the collateral remains in the grantor – even if the security agreement is in the form of a mortgage.
See Hamersley CA
The University of Sydney
Page ‹#›
Impact of Duggan & Brown analysis on reservation of title arrangements? [3.4]
The same is true if the security agreement is in the form of a conditional sale agreement.
The University of Sydney
Page ‹#›
Exclusions from the PPSA
Source of exclusions
S 12(5), (6)
S 8(1)
But note s 8(2), 8(3)
Examples for the purposes of this course
a lien, charge or other interest arising under general law (s 8(1)(c))
any right of set-off or combination (s 8(1)(d))
Quistclose trust (s 8(1)(h))
an interest in a fixture (s 8(1)(j)): Forge (NSW CA)
The University of Sydney
Page ‹#›
