Personal Property Securities Act 1999 – still misunderstood!!
The Personal Property Securities Act 1999 (“PPSA”) has been in force since 2002 but many people remain unaware of the changes it has made to traditional concepts of rights in personal property.
Any business that supplies goods on trade credit or deferred payment arrangement should be familiar with the PPSA and the Personal Property Securities Register (“PPSR”) and how the system operates. Surprisingly, many businesses are not aware of the PPSA or the PPSR.
For some businesses their first experience of the law relating to the PPSR will often be when they are refused the return of goods they have supplied to a debtor that has gone into liquidation or receivership. In this context, ownership and non-payment of goods alone are irrelevant. Proper documentation and the right procedures having been followed are what counts.
While Terms of Trade may include a Retention of Title clause which is enforceable against the other party it does not provide you with priority over other security interests in the same goods sold eg. a bank. In order to have priority over other security interests you need to register the security interest on the PPSR.
The general priority rule under the PPSA is that priority between competing security interests in the same goods/collateral goes to the first security party to register its interest.
Registering on the PPSR is simple but is probably not practical if your transaction with the purchaser of your goods is a “one off” and is for a nominal amount of money. Where you enter into a contract to supply goods for larger amounts of money, or, you will have repeat business with the purchaser then it is highly recommended that you register your interest in your goods on the PPSR.
For example, a contractor is engaged by a developer to install windows in a new commercial building and is not paid. They have tried unsuccessfully to recover the money from the developer. Their contract with the building developer included a term that stated that the “property in the windows and fittings would pass only when payment was rendered”. Someone suggested to the contractor that if he was not paid he should go to the site and remove the windows from the building. Can he do this?
In short – probably not!
This type of clause in the contract preserving the contractor’s ownership of the windows and fittings is common in the sale of goods. However, the effectiveness of such a clause has been eroded by the PPSA because it falls within the meaning of a security interest. To be fully enforceable against other parties, registration is necessary to “perfect” the security.
Although an unregistered security over the windows won’t be void the contractor’s interest in the windows will be defeated by anyone who has a registered prior security on the PPSR over them. Even if the contractor subsequently registers the security any earlier registration will take priority.
For example, if the developer has borrowed money against the development and if the lender has registered their interest on the PPSR the lender will have priority over any claims made by the contractor.
Also, assuming the windows have been installed they then become part of the building and therefore “fixtures”. Presuming a lender (eg. a bank) has registered a mortgage over the land/buildings in the development, removing the windows would likely diminish the value of the lender’s mortgage security. A mortgage generally attaches not only to the land but everything that becomes part of or is affixed to the land. Consequently the bank’s mortgage would prevail over the contractor’s contractual right to remove and recover the windows. This applies whether or not the contractor has registered his security on the PPSR.
If the contractor attempts to remove the windows he could be charged with a criminal offence or sued in tort by the developer for conversion, or both.
Some possible remedies for the contractor if he does not have a PPSR registration could be either; initiating any dispute resolution procedures in the contract; or serving a statutory demand on the developer; or recovering the money under the Construction Contracts Act 2002.
By Barbara Delaney, Solicitor, SCHNAUER and CO, Email: firstname.lastname@example.org