PPS lesson: register your leases or risk your interest being surpassed

By Karen Lee | Legal Know-How, May 10, 2016

You’ve heard that in the recent decision of Forge Group (in liq) v GE, the Supreme Court of NSW considered 2 important issues under the Personal Property Securities (PPS) Act – what does “regularly engaged in business” mean and how to determine whether something is a fixture. Before diving into them, let's look at the story behind this litigation.

Essentially, Forge was commissioned to establish and maintain a temporary power station in WA, including supplying and testing the on-site equipment. Forge entered into a lease with GE to rent 4 gas turbine generator sets. Later, Forge appointed voluntary administrators and went into liquidation. Forge (by its liquidators) sort a declaration from the Court that the lease is a PPS lease under the Act as this would mean Forge has a superior interest in the engines to GE's interest. Forge's said its interest was superior as GE's interest was unperfected when administrators were appointed and, under the Act, the interest in the engines vested in it upon the administrators' appointment.

For Forge to succeed, it has to show that GE “regularly engaged in the business of leasing goods” when the lease was entered into and that the engines were not fixtures.

What happened? Forge won. GE lost its interest in the engines.

The Court held that when determining whether a company is regularly engaged in business in the context of the PPS regime, its activities overseas can be taken into account. In other words, the Act does not impose geographic or locality restriction in this regard. In this case, the Court found that GE has been regularly engaged in the business of leasing goods for the purposes of the Act.

The Court also held that when determining whether something is a fixture under the Act, the common law test of “purpose or object and degree of annexation” applies. The Court found that the engines were not fixtures having considered matters such as whether they were to be in position permanently, and whether their removal would cause damage to the land to which they were attached. In this case, (among other things) the engines were on a temporary site and were for lease for 2 years, and Forge was obliged to return them to GE at the end of the term. Also, the removal of the engines would not damage the land; in fact, the engines were designed in such a way (on wheels!) that their removal would not cause them damage. 

This decision contains useful guidance from the Court. Now we know: the Court would consider international business activities of a company when assessing whether they are regularly engaged in business, and common law concepts are relevant when determining whether an object is a fixture. Perhaps more importantly, what we have learnt is that GE should have registered its security interest as perfection means its interest would not vest in Forge when administrators were appointed. 

Watch a 30 minutes webinar with industry expert Karen Lee to understand the importance of registering a security interest on the PPS register.

Speak to us about how we can help you to better understand the importance of registering a security interest on the PPS register and the potentially serious consequences of not doing so.

1. Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52