The Supreme Court of Victoria has recently found that a supplier of commercial cleaning equipment on retention of title terms was not able to rely on the 'transitional security interest' provisions of the Personal Property Securities Act 2009 (Cth), ( PPSA ) where the credit application signed by the customer did not contain the retention of title terms.

The case clarifies what was required under 322(1) of the PPSA in order to satisfy the perfection requirements relating to transitional security interests.

Key points to note

• While registration is essential to protect a supplier's interests under retention of title clauses, registration will not protect the supplier if the underlying transaction documents are ineffective.
• Best practice is to ensure either that the standard terms and conditions are incorporated into the credit application or properly identified and provided with the credit application when it is given to potential customers.
• Although the transitional security interest protections available during the two year transitional period have come to an end, the case clarifies where transitional security interests may have arisen in title retention cases and what was required for perfection of those interests to occur.
• The case may be useful for existing disputes where claims have arisen for repossession of goods under title retention provisions that relate to the period prior to the end of the transitional period.
• The case also highlights the importance of ensuring that documentation provided to customers clearly contains retention of title wording, rather than relying on general references to 'Standard Terms and Conditions'.

The facts

In September 2009, Swan Services signed a credit application with Central Cleaning Services (Central Cleaning) for the supply by Central Cleaning of cleaning products on 30 day credit terms. The credit application also included a statement that goods supplied were governed by Central Cleaning’s 'Standard Terms and Conditions as in force from time to time' (although the standard terms and conditions were not attached to the credit application or supplied to Swan Services).

Between the relevant period of November 2012 and May 2013, Central Cleaning supplied Swan Services with cleaning equipment and products. On each supply of the equipment and products, Central Cleaning issued an invoice to Swan Services which included a retention of title clause at the bottom of the invoice stating that the goods supplied remained the property of Central Cleaning until the full purchase price had been paid by Swan Services.

On 22 May 2013, Swan Services went into administration and then liquidation.

Central Cleaning sought to collect the equipment supplied in relation to unpaid invoices outstanding up to the commencement of administration in May 2013, on the basis that it was entitled to do so because it had a perfected transitional security interest under the Personal Property Securities Act 2009 (Cth) (PPSA).

On 7 March 2014, Ferguson J in the Supreme Court rejected Central Cleaning’s claim that it had a perfected transitional security interest under the PPSA and confirmed the Liquidator's decision that the equipment and goods provided by Cleaning Services had vested in Swan Services.

The PPSA and transitional security interests

Before the PPSA came into operation, it was not necessary for retention of title supply agreements to be registered as the supplier normally had the right to retake possession of the good supplied if the customer became insolvent.

However, the PPSA altered this position. A supplier is now only entitled to reclaim goods if the supplier’s interest in them has been ‘perfected’. A security interest for the purposes of the PPSA includes an agreement to sell, subject to a retention of title clause if the transaction, in substance, secures payment or performance of an obligation.

The main method of perfecting a security interest is to register the interest on the PPSR. However, transitional provisions of the PPSA enabled automatic perfection of ‘transitional security interests’.

A ‘transitional security interest’ included a security interest provided for by a ‘transitional security agreement’ which was in force immediately before 30 January 2012 (and continued to be in force after that time) and which provided for the granting of a security interest.

In order for the credit application completed by Swan Services to constitute a transitional security agreement, it needed to be in force immediately before 30 January 2012 and provide for the granting of a security interest.

It was the latter point that was the primary issue for consideration by the Court.

Findings

The Court found that the credit application, in force prior to 30 January 2012, was not a transitional security agreement because it did not provide for the granting of a security interest.

The Court rejected Central Cleaning's arguments that the retention of title clauses were sufficiently incorporated into the credit application, either by reference, by signature or by notice or course of dealing, to satisfy the requirements for them to constitute transitional security interests.

Ferguson J treated each sale of cleaning equipment as a separate contract (with the retention of title clause forming part of that contract) meaning that the credit application did not have the benefit of the transitional provisions.

Further, since the retention of title clause was incorporated into each invoice and each invoice evidenced a separate contract, as they came into effect after 30 January 2012, Central Cleaning could not have the benefit of the transitional provisions.

The Court relied on the following key facts in reaching this conclusion:

• the Court distinguished the present case from cases relied upon by Cleaning Services because in each of those cases the relevant supply terms were clearly identifiable at the time the agreement was formed – either by being sent to the customer or by being printed on the back of the credit application, or were easily identifiable by other means
• the fact that the terms of the invoice referred to retention of title to goods the subject of 'this' sale was persuasive to the argument that separate contracts for each sale were created
• there was no evidence of what Central Cleaning's 'Standard Terms and Conditions' actually were at the time the credit application was signed.

Further information

Even if you have previously had success enforcing your retention of title terms, the rules have changed substantially under the PPSA - you need to review your documentation and now ensure your interests are validly registered.

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1. Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61