The recent decision of the New South Wales Supreme Court in Forge Group Power Pty Limited (in liquidation) (receivers and managers appointed) v General Electric International Inc.  NSWSC 52 is a reminder of the importance of registering (or perfecting in another way) your interest in personal property.
The case is a harsh reminder for businesses to comply with the registration requirements of the Personal Property Securities Act 2009 (Cth) (“PPSA”), in order to protect their business’s interests.
Setting The Scene
Horizon Power and Forge Group Pty Ltd (“Forge Group”) entered into a head contract in 2013 (“Head Contract”).
Subsequent to the Head Contract, Forge Group entered into another contract with General Electric International (“GE”) pursuant to which GE agreed to lease four mobile gas turbine generators (“Turbines”) to Forge Group for a fixed term (“Lease”). GE also agreed to provide Forge Group with additional services, such as installation, commissioning and demobilisation of the Turbines for the duration of the Lease.
On 11 February 2014, not long after the Turbines had been installed, Forge Group appointed voluntary administrators. Forge Group went into liquidation on 18 March 2014.
The Issues At Hand
At the time of Forge Group’s liquidation, GE had not registered its interest in the Turbines on the Personal Property Security Register (“PPSR”).
Forge Group sought declarations from the court that the interests of GE (and other parties who were assigned rights in the Turbines by GE) vested in Forge Group immediately before the appointment of the administrators.
With GE facing the prospect of having no rights to the $60 million Turbines, GE argued that the PPSA did not apply to the Lease on the basis that:
- GE was not regularly engaged in the business of leasing goods; and
- In the alternative, the Turbines were fixtures.
Was GE Regularly Engaged In The Business Of Leasing Goods?
The PPSA provides that, if the lessor of the goods is not “regularly engaged in the business”, then the PPSA does not apply (section 13(2)(a) of PPSA).
GE argued that it had not regularly engaged in the business of leasing, and that only its Australian operations should be taken into consideration. This was due to the fact that GE had sold all leasing components of its power generation rental business on 22 October 2013 (after the parties entered into the Lease), and was no longer engaged in the business of leasing goods in Australia.
Forge Group argued that GE’s international operations should be taken into account.
The New South Wales Supreme Court found that:
- The activities outside of Australia should be taken into account, wherever in the world those activities occur;
- The test applies to the time the Lease was entered into (May 2013), meaning that GE was engaged in the business of leasing goods at that time;
- GE was regularly engaged in the business of leasing goods at all relevant times.
What Does “Regularly” Really Mean?
The case raised interesting commentary on the interpretation of the word “regularly” under section 13(2)(a) of the PPSA.
Across the world, there have been different interpretations of the word “regularly” by the courts when it comes to each country’s respective personal property securities legislation. The courts in Canada have found “regularly” engaged in the business of leasing to refer to an established part of the business, regardless of frequency, yet the courts in New Zealand have decided that “regularly” engaged in the business of leasing means a series of transactions.
The court in this case held that consideration must be given to whether a party is “regularly” engaged in the business of leasing, not whether they are engaged in the activity of “entering into leases”.
Are Turbines Fixtures?
The PPSA provides that security interests do not apply to a “fixture” (section 10 of PPSA).
GE argued that the Turbines were fixtures and that section 10 of the PPSA introduced a specific meaning of “affixed to the land”, namely “a non-trivial attachment”.
Forge argued that the common law test applied, which took into account the intention of the person affixing the goods to the land and the degree of annexation. For example:
- The Turbines were designed to be demobilised and moved to another site easily, and in a short time-frame.
- The Turbines were only to be in position at the site for a period of two years.
- Forge Power were contractually required to return the Turbines at the end of the Lease.
- The attachment of the Turbines to the land was for the better enjoyment of the land.
- The removal of the Turbines would cause no damage to the land.
- The cost of removal of the Turbines would not exceed the value of the Turbines.
- Forge Group was not the owner of the land and it plainly did not intend to make a gift of the Turbines to Horizon Power.
- GE prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land.
The court decided that the Turbines did not become fixtures.
The court found that GE had lost its rights to the $60 million Turbines because the Lease was subject to the PPSA.
As the security interest was not registered, it was determined that GE’s interest in the Turbines vested in Forge Group immediately prior to the appointment of voluntary administrators, and Forge Group’s rights to the Turbines were superior to GE’s.
How We Can Help
In order to avoid losing rights to your own goods, it is recommended that you contact Quinn & Scattini Lawyers to discuss the process of registration and to obtain clear legal advice regarding your rights and responsibilities under the PPSA, and to ensure that all documentation is kept up to date.
We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.
This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.