Australia: The meaning of "regularly engaged in the business of leasing goods" and "fixture" under the Personal Property Securities Act 2009

Introduction

The New South Wales Supreme Court's decision in the case of Forge Group Power Pty Limited (In Liquidation)(Receivers and Managers Appointed) v General Electric International Inc [2016] NSWSC 52 was handed down earlier this year.

This case is a striking example of the dangers of ignoring the registration requirements of the Personal Property Securities Act 2009 (PPSA).

The the value of the assets foregone by the lessor was approximately $50 million due to its failure to register its interest on the Personal Property Security Register (PPSR).

Importantly, the Court's decision also provides important clarification on two provisions relating to the application of the PPSA. In particular, the Court considered:

  • The requirement for a lessor to be "regularly engaged in the business of leasing goods" in order to fall within the definition of a PPS Lease.
  • What constitutes a "fixture" for the purposes of the PPSA.

In this article, we consider the meaning of "regularly engaged in the business of leasing goods" and "fixture" under the PPSA.

Factual background

On 5 March 2013, Forge Group Power entered into a written lease with GE under which GE agreed to rent mobile gas turbine generator sets to Forge Group Power for a fixed term, and provide to Forge Group Power certain services including the installation, commissioning and demobilisation of the turbines.

On 11 February 2014, not long after the turbines had been installed, Forge Group Power appointed voluntary administrators. On 18 March 2014, Forge Group Power went into liquidation.

GE did not register its interest in the turbines as a security interest on the PPSR. It was common ground between the parties that if the PPSA applied to the lease of the turbines, GE's interest in the turbines would vest in Forge Group Power immediately before the appointment of the administrators.

GE argued that it was "not regularly engaged in the business of leasing goods" and, as such, the lease of the turbines was not a PPS lease within the meaning of section 13 of the PPSA. GE also argued that the turbines were fixtures and therefore not subject to the PPSA.

Was GE regularly engaged in the business of leasing goods?

Provided a transaction satisfies the criteria for a PPS lease under section 13 of the PPSA, a lease of personal property gives rise to a deemed security interest requiring registration on the PPSR. If GE was not regularly engaged in the business of leasing goods, the lease of the turbines would have fallen outside of the definition of PPS lease in section 13 of the PPSA.

GE argued that its business activities in Australia were limited and that its business activities outside of Australia should be excluded from consideration.

The Court dismissed this argument and held that regard is to be had to activity where it occurs and not only to activity in Australia. The Court took the view that "regular" did not connote periodic or a recurrence at fixed times. Rather, "regular" was equated with "normal". That is, not abnormal in the context of the lessor's business, but a proper component of it.

The Court also held that the relevant time for the application of the test was at the time the lease was entered into.

GE's argument regarding the turbines as fixtures

GE also argued that the turbines were fixtures and therefore, its interest in the turbines was not subject to the provisions of the PPSA.

GE's argument was curious because under common law, a fixture belongs to the owner of the land to which the fixture is attached. It seems that GE was asserting that the turbines were a fixture for the purposes of the PPSA (so as to escape the application of the PPSA) but not fixtures under the common law (so as to avoid ownership of the turbines passing to the owner of the land).

What is a fixture?

The common law provides that goods may, by virtue of the circumstances surrounding their annexation to land, change character from personal property to real property. Whether the annexation is sufficient to cause an object to become a fixture depends on the intention of the parties, the relationship of the party making the annexation to the owner of the land, the mode of annexation, the nature of the object and the purpose for which the object was affixed.

In contrast, section 10 of the PPSA defines fixtures to mean "goods, other than crops, that are affixed to the land".

Were the turbines fixtures?

The liquidators of Forge Group Power contended that the common law test applied. GE contended that the PPSA definition of fixtures introduces a bespoke meaning of "affixed to land" being a "non-trivial attachment".

The Court held that:

  • the words "affixed to land" in the definition of fixtures in section 10 of the PPSA means affixed according to common law concepts; and
  • the turbines did not become fixtures.

The Court's reasons for determining that the turbines were not fixtures included:

  • the turbines were designed to be demobilised and moved to another site easily and in a short time;
  • the turbines were only intended to be in position on the site, which was a temporary power station site, for a rental term of two years subject to limited optional extensions;
  • Forge Group Power was contractually obliged to return the Turbines at the end of the rental term;
  • the attachment of the turbines to the land (including connection to utilities) was for the better enjoyment of the turbines as turbines, and not for the better enjoyment of the land;
  • removal of the turbines would cause no damage to the land;
  • the cost of the removal of the turbines from the site would not exceed the value of the turbines – it would be modest in comparison;
  • the lease includes a term that the turbines will remain at all times personal property notwithstanding that they may in any manner be affixed or attached to any other personal or real property; and
  • GE prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land.

Lessons for Lessors

The Court preferred a narrow interpretation of the exemption from registration in section 13 of the PPSA. The exemption is only available for genuine ad hoc lessors. Given the consequences of failing to register a lease on the PPSR and the minimal costs of doing so, lessors are well advised to always register their interest in leased goods.

This includes circumstances where the lessor and lessee are related parties. For example, it is common to have plant and equipment owned by an asset holding entity and for these goods to be leased to a related trading entity. The asset protection advantages of this structure are lost if the lessor's interests are not registered. Even though the assets are owned by the lessor, unregistered interests may vest in the liquidator of the lessee.

The case deals with the leasing of goods but there are also similar provisions in section 13 of the PPSA regarding bailment of goods. The concept of a bailor "regularly engaged in the business of bailing goods" is likely to be interpreted similarly. As such, these arrangements should also be examined to ensure that any registration requirement is satisfied.

The Court's decision also maintains the established dichotomy between fixtures and chattels. The PPSA has not changed what will be regarded as a fixture. As such, parties with an interest in goods, whether they be lessors or secured creditors, should be mindful of the registration requirements created by the PPSA.

Likewise, mortgagor's who intend to obtain security over goods located on land should ensure that the items are fixtures in order to be secured by a real property mortgage. If the items are not fixtures it will be necessary to take a security interest over the items and register that interest on the PPSR.

Examples of items that have previously been the source of disputes between parties have included cold rooms, air conditioning plant, transportable accommodation units and large items of plant.

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.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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

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

Authors
 
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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 by clicking here .

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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