Australia: PPSA Focus: Construction Industry

1. Introduction

The Personal Property Securities Act 2009 (Cth) (PPSA) affects the giving and taking of security interests over assets (other than land and certain leases). It has been in force in Australia since January 2012. However, many businesses remain unaware of the PPSA or are not clear how it affects their business.

In February, we looked at the effect of the PPSA on equipment hire arrangements. Whilst there may be elements of overlap between equipment hire and construction contract arrangements, we feel that construction issues deserve specific attention and we outline some common scenarios and consider the implications.

This briefing paper seeks to answer some key PPSA related questions that may be pertinent to the Australian construction industry.

2. Q&A

Assume that ABC Pty Ltd (ABC) is a company offering civil construction, earthmoving and mining contracting services in Western Australia. ABC has been engaged by XYZ Ltd (XYZ) to provide forward earthworks at XYZ's proposed railroad site.

2.1. XYZ has given ABC a construction contract detailing the services ABC is to perform. How does the PPSA affect the contract and what do the parties need to be aware of?

The PPSA may be relevant to the construction contract in a number of ways, including:

  • "Security agreement". The principal will want to ensure that it can protect itself by registering one or more security interests against the contractor (here, ABC). Accordingly, it would be usual for a construction contract to have a clause referring to the contract as a "security agreement" for the purposes of the PPSA.
  • Principal's rights on take out. Such rights should be registered as a security interest by XYZ. See paragraph 2.2 below for further details.
  • Contractor's rights over its temporary works. Temporary works may be registrable as a security interest by ABC. See paragraph 2.3 below for further details.
  • Retention of title. If ABC only gets paid for its works after each stage has been completed or, possibly, following practical completion, ABC will be exposed in the event that XYZ goes into administration or insolvency prior to making payment. ABC may want to register a security interest over installations it has carried out under the construction contract to secure the deferred payments. It is likely that XYZ will not consent to such security. This then comes down to a risk assessment by ABC and if necessary, a negotiation exercise with XYZ.
  • Confidentiality. Section 275 of the PPSA provides that certain "interested persons" may require the secured party to send to the "interested person, or any other person" a copy of the construction contract and/or other specified information. Therefore, a third party may be able to obtain potentially sensitive information. However, section 275(6) allows the parties to agree not to disclose such information. This is usually achieved through an additional confidentiality provision in the construction contract. XYZ and ABC should ensure that they are protected in this regard.
  • Waiver of PPSA obligations. Chapter 4 of the PPSA provides numerous procedures for notices and enforcement on default. It is usual for parties to vary or contract out of these procedures, for administrative purposes, to the extent permitted by the PPSA. If the construction contract doesn't have a contracting out provision, both ABC and XYZ will need to understand their statutory rights and obligations to avoid being in breach of the PPSA.

2.2 The construction contract grants take out rights to XYZ. What should ABC be aware of?

A principal will usually require their contractor to grant them take out rights. Such rights enable the principal to take over the contract works in, for example, an insolvency event affecting the contractor. In this regard, AS 4000-1997 states at clause 39.4 that:

"If the Contractor fails to show reasonable cause by the stated date and time, the Principal may by written notice to the Contractor:

  1. take out of the Contractor's hands the whole or part of the work remaining to be completed and suspend payment...".

Further, at clause 39.5:

"The principal shall complete work taken out of the Contractor's hands and may...:

  1. without payment of compensation to the Contractor:
  1. take possession of, and use such of the construction plant and other things on or in the vicinity of the site as were used by the contractor".

In 2013, a New Zealand court [1] held that take out rights are a security interest for the purposes of the PPSA. It is likely that this decision will be followed in Australia.

Here, if XYZ fails to register a security interest on the Personal Property Securities Register (PPSR), it may be prevented from enforcing these rights.

Any proposed registration by XYZ may impact on any security interests granted by ABC to a third party (eg a financier) in the same equipment. For example, it could be a term of a financing arrangement for the purchase of heavy equipment by ABC that ABC does not grant any other security interest in the equipment. ABC will need to be aware of all such arrangements and restrictions affecting its equipment.

2.3 ABC will erect a significant amount of scaffolding on XYZ's site. What should ABC be aware of?

Leaving equipment on a principal's site is called "bailment". Prior to the PPSA, ABC could simply rely on its ownership of temporary works, such as scaffolding, and remove such items at the end of the contract or on a contractual default by the principal. Now, with the PPSA, a bailment may be a security interest requiring registration to protect ABC.

Whether the bailment is a security interest (a PPS lease) will require careful consideration and application of section 13 of the PPSA, specifically:

  • whether the temporary works consists of "serial-numbered goods";
  • how long the temporary works is bailed for;
  • whether ABC is "regularly engaged in the business of bailing goods" (PPSA section 13(2)); and
  • whether XYZ (as bailee) has provided "value" for the bailment itself (PPSA section 13(3)).

If ABC has a PPS lease, its interest over the bailed goods will be a purchase money security interest (PMSI). A valid PMSI ranks in priority to all other non-PMSI's granted by XYZ.

2.4 What if ABC has a PPS lease in temporary works but does not register the PMSI?

Section 19(5) of the PPSA provides that a grantor (here, XYZ) has rights in goods that are leased to it (the temporary works). This means that XYZ can grant to a third party a security interest in the equipment owned by ABC which has been bailed to XYZ.


  • the temporary works is a PPS lease;
  • ABC does not register a security interest to secure the temporary works;
  • XYZ obtains finance and the financier registers a security interest against all the present and after acquired assets of XYZ to secure the facility made available to XYZ; and
  • XYZ defaults under its arrangements with the financier,

the financier may be able to assert a greater claim to the temporary works than ABC. If ABC's leased equipment was significant in terms of ABC's overall asset base then the loss could greatly impact ABC's cash flow and balance sheet. It may also open up the directors of ABC for a claim by the company for breach of fiduciary duties (i.e. by not acting in the best interests of the company in not registering a security interest).

2.5 ABC leases some of its equipment to be used on XYZ's site from LeaseCo. What should ABC be aware of?

ABC should carefully check LeaseCo's terms and conditions or other document binding on ABC in relation to LeaseCo's equipment. These will probably give LeaseCo the right to register a PMSI in its equipment. ABC will be granting this security interest. In addition:

  • the documentation may require ABC to register a security interest if ABC sub-leases the equipment or, as here, where ABC bails the equipment to XYZ. ABC will need to turn its mind to whether a security interest exists requiring registration (see paragraph 2.3 above).
  • If a security interest in the equipment is registrable by ABC but ABC fails to register or registers late (in breach of contract) and XYZ enters into administration or insolvency, LeaseCo's equipment may be lost to a third party with a higher ranking security in the same equipment (see paragraph 2.3 above). LeaseCo may then have a claim against ABC for breach of contract.
  • ABC should check the terms of any pre-existing financing documentation it has entered into. Such documentation will usually prohibit the grant by the borrower of a security interest ranking in priority to that of the lender. In this regard, LeaseCo's PMSI would rank ahead of the lender's security interest and ABC would be in technical breach of its financing covenants.

2.6 When must ABC register a security interest on the PPSR?

Assuming ABC is entitled to register a security interest, it should do so within 15 business days of, for example, the bailment of the temporary works.

2.7 What does registration on the PPSR cost?

This depends on the length of registration. The online fees payable are currently:

  • $8 for a registration of 7 years or less;
  • $40 for a registration of more than 7 years but less than or equal to 25 years; and
  • $140 for a registration with no stated end time.


1 McCloy v Manukau Institute of Technology [2013] NZHC 936 (1 May 2013)

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.

Kott Gunning is a proud member of

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Louis van Aardt (previously with Kott Gunning)
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions