"Before the PPSA came into
operation, if a company was placed into administration, liquidation
or receivership, suppliers of goods had significant rights if the
terms of sale included an effective retention of title clause. In
the case of liquidation and receivership, those rights often
included the right to retake possession of the goods supplied. It
was not necessary for sale agreements including a retention of
title clause to be registered."1
The recent decision in Central
Cleaning Supplies (Aust) Pty Ltd v Elkerton  VSC 61
provides a reminder as to how differently retention of title
(ROT) clauses are dealt with under the Personal
Property Securities Act 2009 (PPSA) compared to
the pre-PPSA system.
The effect of the decision was that the supplier, Central
Cleaning Supplies (Aust) Pty Ltd (Central
Cleaning), was not entitled to the benefit of the
transitional protection provisions of the PPSA and lost its ROT
claim because it did not register its security interest on the
Personal Property Securities Register (PPSR).
Central Cleaning supplied cleaning equipment and products to
Swan Services Pty Ltd (Swan Services).
In September 2009, Swan Services signed a credit application
which provided for 30 days' credit to be afforded to Swan
Services. The credit application also included a statement that the
supply of goods was governed by Central Cleaning's
'Standard Terms and Conditions'.
Central Cleaning then supplied Swan Services with cleaning
equipment and products. Printed at the bottom of the relevant
invoices was a ROT clause:
CONDITION OF SALE: Goods the
subject of this sale remain the property of Central Cleaning...
until the whole of purchase price has been paid by the Purchaser to
Central Cleaning in full.
Central Cleaning failed to register its interest on the PPSR and
in May 2013 administrators were appointed to Swan Services. Those
administrators became liquidators in June 2013.
The liquidators rejected Central's Cleaning's ROT claim
on the basis that Central Cleaning was not registered on the PPSR
and therefore its unperfected security interest vested in the
grantor on the appointment of an administrator under section 267 of
The key issue
The key issue was whether Central Cleaning had a transitional
security interest. That would depend on whether its ROT clause was
provided for in the credit application entered pre-PPSA, giving it
a transitional security interest, or in each invoice. If Central
Cleaning's ROT clause was in each invoice, it would not have a
transitional security interest in the goods (and therefore would
have an unperfected security interest).
What did the Court decide?
The Court found that the ROT clause was not part of the credit
application (ie. as part of an over-arching supply
Rather, the ROT clause was included in each invoice sent. The
words "goods the subject of this sale" contained in each
invoice were interpreted to infer that the parties intended each
invoice to create a separate contract of sale (and a
separate security agreement) for the goods supplied under
that invoice (Contract).
Each contract entered into post 30 January 2012 was held not to
be a transitional security agreement. Central Clearing's
interests within them were therefore unperfected security interests
that should have been registered.
Those interests therefore vested when Swan Services went into
administration pursuant to section 267 of the PPSA.
The Court distinguished this case from other reported Court
decisions where the ROT clause was clearly contained in the credit
application terms and the later invoices did not indicate a
separate and distinct sale by sale arrangement.
Lessons going forward
Suppliers on ROT or credit terms can avoid similar difficulties
enforcing their commercial arrangements by simply registering their
resulting security interest on the PPSR.
Suppliers should be careful as to how they:
draft their ROT clauses into contractual arrangements with
describe their resulting security interest on the financing
statement to effect a registration, especially if they intend that
registration to cover future supplies of goods.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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