The Personal Property Security Act 2009 (Cth) (PPSA) provides for registration of security interests that are commonly created in a range of business transactions every day in Australia. In Central Cleaning Supplies (Aust) Pty Ltd v Elkerton  VSC 61 the Court of Appeal in Victoria considered security interests created by credit applications in this context.
- Central Cleaning Supplies (CCS), supplied cleaning equipment on 30-day credit terms to Swan Services;
- Swan Services completed a credit application and gave CCS a copy of the signed credit application;
- CCS’ credit application provided that goods will be supplied pursuant to CCS’ “Standard Terms and Conditions”;
- The Standard Terms and Conditions included a retention of title (ROT) clause in favour of CCS for equipment suppled on credit;
- CCS supplied cleaning equipment to Swan Services and Swan Services subsequently went into liquidation;
- CCS sought to recover cleaning equipment supplied, but not paid for by Swan;
While this case considered the application of transitional security agreements it also illustrates how security interests may be created even unknowingly and when the time starts running to register the relevant security interest.
Retention of Title Clauses in Standard Terms and Conditions
The Court found that Swan’s act of returning the signed credit application to CCS did not result in the creation of any security interests. However, once CCS supplied the first cleaning equipment on credit to Swan a supply agreement was created between the parties on the terms provided in the credit application.
Importantly it was immaterial that the Standard Terms and Conditions were not attached to the Credit Application. The Court of Appeal commented in this regard that it follows from “ordinary principles” that by signing the credit application Swan was bound to accept the Standard Terms and Conditions (including the ROT clause) for all future supplies of equipment. Swan took a commercial risk by accepting the terms and conditions without requesting a copy of the terms and CCS had every right to rely on the terms and conditions.
Lessons for Suppliers
Suppliers’ security interests in goods supplied on credit and subject to ROT clauses must be perfected by registration on the Personal Property Securities Register (PPSR). In a similar factual scenario to the Central Cleaning case it is possible that a credit application may give rise to a Purchase Money Security Interest (PMSI) that requires registration within 15 business days after delivery of the goods to achieve perfection. Timely registration will protect the supplier’s right to recover the goods in case of liquidation, but failure to register will render the ROT clause useless in case of liquidation of your customer.
The Personal Property Security Act 2009 (Cth) (PPSA) provides for registration of security interests that are commonly created in a range of business transactions every day in Australia. In Central Cleaning Supplies ((Aust) Pty Ltd v Elkerton  VSC 61 the Court of Appeal in Victoria considered security interests created by credit applications in this context.
As a Supplier, goods secured as a credit application will need advice, contact us
Call our Business Development Team on (07) 3252 0011 and make an appointment with one of our Brisbane PPSR lawyers today.