The Personal Property Securities Legislation - Experiences from Australia and New Zealand
Personal Property Securities Act Workshop, Papua New Guinea
*Supreme Court of Papua New Guinea and the Federal Court of Australia
Introduction – similarities and differences
Like Papua New Guinea, both Australia and New Zealand have adopted a personal property securities regime based on North American models, in particular the Saskatchewan Personal Property Security Act 1993 (which itself derived concepts from Article 9 of the US Uniform Commercial Code. New Zealand's legislation – the Personal Property Securities Act 1999 (NZ) (PPSA NZ) – pre-dated the Australian reforms enacted in the Personal Property Securities Act 2009 (Cth) (PPSA Aus) by ten years, in part because of the complexities in Australian law-making inherent in a federal system where often-conflicting laws dealing with securities over personal property were spread across six states, two territories, and more than one hundred years of legislation.
In each jurisdiction the policy rationale for the implementation of the PPSA reform has been substantially the same. This was succinctly described by the Court of Appeal of New Zealand in New Zealand Bloodstock Ltd v Waller  NZCA 254;  3 NZLR 629 at  as :
… the adoption of a unitary concept of security (under which the legal forms by which security is obtained become largely irrelevant) and establishment of priority rules which depend primarily on time of registration save for the super priority accorded to registered purchase money security interests (i.e. in favour of unpaid vendors) over prior general securities.
There are significant similarities between the Personal Property Security Act 2011 (PNG) (PPSA PNG) and the Australian and New Zealand Acts. These similarities are clearly deliberate. As explained in the Explanatory Memorandum, Bill for an Act entitled Personal Property Security Act 2011 (PNG) :
The PPSA of Saskatchewan, Canada was used as the primary model for the bill. The Saskatchewan PPSA served as the basis for the PPSAs of all Canadian provinces except Ontario and Quebec. The Saskatchewan PPSA was also the basis for drafters of the New Zealand PPSA, which in turn served as a pattern for Vanuatu. The drafters of the Australian PPSA… also relied greatly on the Saskatchewan PPSA. The use of a common model will lower transition costs.
It is tempting to assume that, because of the derivative commonality of all three statutes, Courts in Papua New Guinea can simply look to Australian and New Zealand case law for guidance in interpreting the PNG PPSA. This assumption should however be drawn with caution.
First, the PPSA statutes in each of the jurisdictions have been inevitably drafted by reference to financial services and consumer laws as well as commercial practices in each jurisdiction, with concomitant regulations, and those conditions may not be replicated in the other jurisdictions. As the Explanatory Memorandum warns "The bill is not, however, a copy of Canadian legislation." The Explanatory Memorandum goes on to note that special circumstances in Papua New Guinea required drafters to add, delete, or modify provisions to fit PNG circumstances.
Second, a cursory examination of the PPSA Acts reveals a number of key differences. A good example is the definition of security interest in section 2 (2) PNG PPSA as meaning (inter alia) a legal interest in personal property that secures payment or performance of an obligation. The reference to "legal" interest" is not replicated in Australia or New Zealand, both of which refer only to an interest in personal property. Further in Part 6.3 of the PPSA Aus there are extensive provisions dealing with civil penalties for contravention, which casts a very different complexion on compliance and proof under the Act.
Third, it is inevitable that, with reforms gradually effected to legislation in each jurisdiction, the statutes could diverge further. In Australia, for example, 349 recommendations to reform and simplify the Australian PPSA were suggested by the 542 page Review of the Personal Property Securities Act 2009 : Final Report (provided to the Commonwealth Attorney-General in February 2015). Further, and perhaps ominously, a glance at the Austlii website reveals that the PPSA NZ has been subject to seven amendment Acts since its introduction in 1999 (and perhaps other ancillary amendments).
Finally, Australia and New Zealand are in the process of developing their own jurisprudence referable to their own Acts. Courts in Australia and New Zealand have been alive to the differences between the personal property securities legislation in their own jurisdiction compared with others : see for example observations in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed)  WASC 152 at ; Marac Finance Ltd v Greer  NZCA 45,  2 NZLR 497 at ; New Zealand Bloodstock Ltd v Waller  NZCA 254;  3 NZLR 629 at . As the High Court of Australia said in respect of an unrelated matter in Marshall v Director General Department of Transport  HCA 37; 205 CLR 603:
62…The language of s 63 is not readily distinguishable from that of s 20(1)(b). But that does not mean that the courts of Queensland, when construing the legislation of that State, should slavishly follow judicial decisions of the courts of another jurisdiction in respect of similar or even identical legislation. The duty of courts, when construing legislation, is to give effect to the purpose of the legislation. The primary guide to understanding that purpose is the natural and ordinary meaning of the words of the legislation. Judicial decisions on similar or identical legislation in other jurisdictions are guides to, but cannot control, the meaning of legislation in the court's jurisdiction. Judicial decisions are not substitutes for the text of legislation although, by reason of the doctrine of precedent and the hierarchical nature of our court system, particular courts may be bound to apply the decision of a particular court as to the meaning of legislation…
However, having commenced with these cautionary words, Courts in Papua New Guinea should not be hasty to dismiss foreign jurisprudence developed in Australia and New Zealand (and Canada for that matter) as irrelevant to local conditions and the PPSA PNG. There are a number of reasons why, notwithstanding local statutory variations, it is appropriate to consider case law from those jurisdictions.
First, Parliament clearly anticipated that the interpretation of the PPSA PNG would be facilitated by that jurisprudence. Importantly, the Explanatory Memorandum makes the point that, because of the commonality subsisting between the PPSA statutes across national borders, there will be a greater supply of secondary legal resources (court cases, teaching materials, law review articles, practice manuals) to support businesses and legal practitioners in Papua New Guinea. Indeed it would be inefficient for the superior Courts of Papua New Guinea to ignore relevant authorities from Australia and New Zealand in appropriate circumstances.
Second, an even casual glance at the three statutes shows the replication of approach of the respective legislatures. This is illustrated by a selection of sections taken from the Outline of the PPSA NZ in Part 1 of that Act, namely :
7 Part 3 (Principles relating to enforceability of security interests)
8 Part 4 (Attachment and perfection of security interests in particular kinds of personal property)
9 Part 5 (When buyers or lessees of goods or other collateral take goods or other collateral free of security interest)
9A Part 6 (Additional provisions relating to when buyers or lessees of motor vehicles take motor vehicles free of security interest)
10 Part 7 (Priority between security interests)
11 Part 8 (Priority of other interests in collateral)
12 Part 9 (Enforcement of security interests)
13 Part 10 (Personal property securities register)
14 Part 11 (Miscellaneous)
15 Part 12 (Transitional provisions)
In comparison, in the PPSA Aus:
- Chapter 2 deals with general rules relating to security interests (including possession, control, attachment, perfection, priority and transfer)
- Chapter 3 provides specific rules for certain types of security interests
- Chapter 4 deals with enforcement of security interests
- Chapter 5 deals with the Personal Property Securities Register
- Chapter 9 deals with transitional provisions
It is trite to observe that concepts of security interests, collateral, attachment, perfection, priority, registration and enforcement of those interests are core concepts in the PPSA PNG.
Third, and notwithstanding the caution of Courts of both Australia and New Zealand in avoiding the "slavish" adoption of jurisprudence across national borders, there has been extensive judicial recognition of the similarities in the PPSA Acts which, in appropriate circumstances, validate inter-jurisdictional reference. In this context see, for example, discussions in Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd  VSC 217; Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc  NSWSC 52; Stockco Ltd v Gibson  NZCA 330; Fisk v Attorney-General on behalf of the Comptroller of Customs  NZHC 479; Burns v Commissioner of Inland Revenue  NZHC 1363; Polymers International Limited v Toon  NZHC 1897. The discussion (and application) of Canadian and New Zealand jurisprudence in the context of personal property securities by Robson J in Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd at - is an illustration of the usefulness of foreign authorities in this area.
Keeping in mind the need for caution, but appreciating the potential usefulness of jurisprudence from Australia and New Zealand, it is helpful to briefly note four cases which may provide some insight into interpretation of aspects of the PNG PPSA. These cases are :
- In the matter of Elite Sydney Pty Ltd  NSWSC 1934
- National Australia Bank Ltd v Garrett  FCA 714; 340 ALR 532
- Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd  VSC 217 and
- Graham v Portacom New Zealand Ltd  2 NZLR 528
In the matter of Elite Sydney Pty Ltd  NSWSC 1934
In Elite Sydney the company Elite Sydney Pty Ltd had gone into liquidation. The liquidator sought directions from the Supreme Court of New South Wales about whether relevant taxi plates had vested in the company by operation of s 267 of the Personal Property Securities Act 2009 (Cth), and whether he was entitled to take possession of them. The trial Judge noted that the concept of a "Taxi Plate" referred, not to a physical taxi plate, being the sheet metal that is attached to the front and rear of the taxi, but also to the right to operate a taxi as provided by New South Wales legislation.
The company had entered into agreements with a respondent to the application, Elizabeth Street Taxi Management Pty Ltd ("ESTM"). ESTM had agreed to "lease" to the company "Taxi Plates". Clause 3.19 of those agreements comprised an acknowledgment by the company that it had no right, title or interest in the "Taxi Plate" and should not in any way charge, mortgage, or in any way encumber or pledge the "Taxi Plate" or provide it as security for any loans. By another agreement ESTM agreed to grant to the company a right to use and a right to operate the taxi plates. Under the Australian PPSA a "PPS lease" extended, inter alia, to a lease or bailment of goods for a term of up to one year (or longer with the consent of the lessor or bailor).
The Judge concluded that the taxi plates themselves did not confer an authority to operate a vehicle as a taxi, which is only derived from the licensing regime under the relevant legislation.
When the company went into liquidation it had possession of the relevant vehicles which carried the relevant taxi plates at the time of the winding up, and the liquidator subsequently disclaimed the Company's interest in the relevant vehicles, but not in the taxi plates that had been attached to those vehicles.
The respondents had not lodged financing statements under the PPSA in respect of the relevant agreements or taxi plates.
The Australian PPSA (like the PNG PPSA) in respect of leases contemplates leases of goods as defined by the Act. Black J held that the lease agreements did not fall within that concept. The leases were not drafted with the physical number plates specifically in mind; instead, they contemplated the "right to operate the taxi which was conferred by the licensing regime". After all, "nothing would be achieved by [having] a taxi plate itself … which did not carry with it a right to operate the taxi" (at )/
The right to operate the taxi was not tangible and was "therefore not within the definition of 'goods' … and were therefore not 'PPS leases'".
National Australia Bank Ltd v Garrett  FCA 714; 340 ALR 532
In Garrett the National Australia Bank provided an undertaking as to damages in favour of Mr Garrett during proceedings against him in the Federal Court of Australia. The primary proceedings concerned steps taken by the bank to enforce its rights with respect to two registered mortgages granted by a company and another party associated with Mr Garrett.
Mr Garrett claimed that the undertaking as to damages was a security interest under the PPSA and it was unenforceable (as presumably were the rights of the Bank to enforce its rights under the mortgages) because the security interest had not been registered. The Court rejected this claim. An undertaking as to damages is given to the court and not to an enjoined party. Further a "security interest" for the purposes of the PPSA must arise from a transaction that is consensual, and the undertaking as to damages did not arise from any consensual transaction, and it is not a chose in action.
Sandhurst Golf Estates Pty Ltd v Coppersmith Pty Ltd  VSC 217
In this case Mr William Popplestone entered into a joint venture with Mr Peter Hamilton to purchase and develop land to build a golf course and housing in Victoria. The vehicle for this venture was a company, Novafield Pty Ltd.
The first defendant, Coppersmith Pty Ltd, was a company of which Mr Popplestone's wife was sold director and his son a shareholder.
Later Mr Popplestone agreed to cease his interest in the joint venture. In exchange, Mr Popplestone agreed to take shares in another company, Coad-87 Pty Ltd. This company was controlled by Mr Hamilton. Coad-87 Pty Ltd held an interest in Sandhurst Golf Estates Pty Ltd (SGE).
Subsequently SGE undertook the joint venture in respect of the purchase and development of the land with a third party.
Mr Popplestone claimed that he did not receive the shares in Coad-87 Pty Ltd. He also claimed that, as a result, he had been wrongly excluded from the joint venture and not compensated accordingly. He threatened to lodge multiple financing statements on the personal property securities register for the registration of a security interest based on this, in order to cause inconvenience or damage to SGE.
SGE sought an injunction to prevent Mr Popplestone registering financing statements.
The Court held that the claims of Mr Popplestone did not arise out of a consensual transaction between the plaintiffs and him, or the plaintiffs and Coppersmith, and any claims they had did not give rise to a security interest. Rather, the interest, if any, could arise under the principles of equity if so held by a court. The rights of Mr Popplestone and Coppersmith (if so held by a court to exist) did not secure payment of any sum or the performance of any obligation.
Graham v Portacom New Zealand Ltd  2 NZLR 528
The defendant, Portacom New Zealand Ltd, owned portable toilet blocks and leased them to another company, NDG Pine Ltd, over a four year period. NDG granted a security interest by way of debenture to a bank, which was registered in accordance with the PPSA NZ. Portacom did not register its interest in the portable blocks.
NDG defaulted on its loan from the bank and the bank appointed receivers and managers over assets of NDG pursuant to the debenture. The receivers claimed that they were entitled to sell the portable blocks, and applied to Court for directions.
The High Court of New Zealand held that the receivers were entitled to sell the portable blocks. Rodney Hansen J found that, under the Act, the lessee had rights in leased goods, sufficient to permit a secured creditor of the lessee to acquire rights in priority to those of the lessor. It followed that NDG could grant a security interest in the portable blocks themselves. Further the interest of the bank was registrable under the PPSA NZ, and the bank had registered that security interest. The security interest of the bank over all personal property of NDG extended to the portable blocks it leased from Portacom. Because the bank had registered its security interest, that interest took priority to the unregistered interest of Portacom in the portable blocks. It followed that the receivers appointed by the bank could take possession of, and sell, the portable blocks.
In Australia, unlike in New Zealand, it is still relatively early days in the development of jurisprudence in respect of the PPSA Act. Certainly practitioners in Australia remain wary of the legislation – type in "minefield" in connection with PPSA in the Google search bar and you will receive a significant number of results! However experiences in Australia and New Zealand, as exemplified by the cases summarised above, suggest that the following issues may be worth keeping in mind as legal practitioners and the business community come to grips with the PPSA PNG:
- There must at least be a commercial relationship of some kind before the PPSA is invoked.
- Not every commercial relationship involving personal property gives rise to a security interest capable of registration under the Act. It can be difficult to identify whether a security interest does exist on the facts of a particular case.
- Dire consequences can follow where a security interest is not registered as required by the Act. The erstwhile owner of personal property may find itself divested of that ownership in favour of another creditor if the relationship between the owner and debtor in respect of that property can properly be classed as a security agreement and the interest of the owner is not registered.