Ownership is no longer king: The consequences of failing to register an ownership interest in goods

On 27 June 2013, the first major decision in Australia in regard to the Personal Property Securities Act 2009 (Cth) was handed down in the New South Wales Supreme Court.  The decision in the case of Maiden Civil v QES [2013] NSWSC 852 is a powerful illustration that possession can trump ownership if you do not register your interest in goods on the Personal Property Securities Register (PPS Register).

The Facts

The case involved a dispute over the entitlement to 3 pieces of Caterpillar construction machinery.

In 2010, Queensland Excavation Services (QES) purchased the Caterpillar equipment, which was then leased to Maiden Civil (P&E) Ptd Ltd (Maiden). Importantly, QES did not register its interest in the Caterpillar equipment:

• on the relevant Northern Territory Register prior to the commencement of the PPS Register; or
• on the PPS Register once it came into operation on 30 January 2012.

Maiden subsequently borrowed money from Fast Financial Solutions Pty Ltd (Fast Financial).  Fast Financial did use the PPS Register to protect its position – it registered a security interest over all of Maiden’s assets, including the Caterpillar equipment. When Maiden subsequently defaulted under the loan agreement with Fast Financial, receivers were appointed and sought to take possession of the Caterpillar equipment to discharge the debt owed to Fast Financial.

As QES owned the Caterpillar equipment, the question was whether Fast Financial’s registered security interest took priority over QES’ unregistered ownership interest. The short answer was – YES.

The Decision

The court held that it was irrelevant that QES owned the Caterpillar equipment as QES had failed to register that interest on the PPS Register.  By comparison, Fast Financial had a registered security interest over the Caterpillar equipment which could be utilised to discharge Maiden’s debt to Fast Financial.

Consequently, the receivers were able to re-possess the Caterpillar equipment and QES lost its entitlement to retake possession of that equipment.

Lessons for businesses

This case is a stark reminder that it is essential that businesses understand the significance of the PPS regime and use it to their advantage or ignore it at their peril.

At its most basic this new regime means that ownership is no longer king:

• mere ownership of goods may not protect the owner’s right to those goods
• where an owner of goods parts with possession of those goods, failure to register their interest in the goods on the PPS Register may result in a creditor’s right to those goods or their proceeds having priority over the rights of the true owner

We encourage businesses to:

• seek legal advice on the operation and effect of the PPS regime
• reconsider and revise their terms of trade
• register their security interests when they can and as soon as they can

The consequences of failing to do so are potentially very extreme.

For more information contact:

Joanne D'Andrea
Principal
Harwood Andrews
T: 03 5226 8567
E: jdandrea@harwoodandrews.com.au