Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd, in the matter of Kirkalocka Gold SPV Pty Ltd [2024] FCA 428 (Besanko K)
Determining whether an agreement ‘provides’ for a security interest to secure payment or compliance with an obligation in the context of the Personal Property Securities Act 2009 (Cth) (PPSA) is not always easy, as Besanko J of the Federal Court of Australia explains in this case. This case is an example of the complex legal arguments being conducted in litigation concerning the PPSA.
Facts
A mining contractor, Zenith Pacific (KLK) Pty Ltd (Zenith) built a power plant on property owned by Kirkalocka Gold SPV Pty Ltd (Kirkalocka) in Western Australia. Kirkalocka subsequently went into voluntary administration.
As Zenith had not registered any interest in the Personal Property Securities Register (PPSR) until after the commencement of the voluntary administration, its security interest would vest in Kirkalocka under s267 of the PPSA unless Zenith could prove that it was the owner of the power plant and that no security was ‘provided’ for by the transaction requiring perfection.
Alternatively, if a security interest was provided for by the transaction, Zenith had to prove that it achieved perfection by possession. Under s21(2) of the PPSA, perfection by possession is a means of achieving perfection provided possession was not obtained as a result of seizure or repossession.
The parties conceded that under the terms of the Power Purchase Agreement (PP Agreement), the power plant was personal property and not fixtures. Much of the case involved the interpretation and analysis of the PP Agreement to determine if ownership remained with Zenith, or if Kirkalocka became the owner.
There were various stages for Zenith to compete under the PP Agreement to build the power plant and to maintain it over the life of the arrangement (which was several years). The PP Agreement allowed for Kirkalocka to buy the plant at various sliding scale rates over the life of the arrangement, which is not unusual in such arrangements.
Ultimately, it was found that Zenith was the owner of the power plant under the PP Agreement.
Did the PP Agreement provide for a security interest?
The next issue was to determine if the PP Agreement provided for a security interest to secure payment or performance (being the test in s12(1) of the PPSA). If so, Zenith would need to have maintained perfection to ensure its security interest (and indeed its ownership interest) did not vest as a result of s267 of the PPSA.
Besanko J found that various terms in the PP Agreement did ‘provide’ for a security interest in Zenith. While Kirkalocka argued that the security interest was similar to that under a hire purchase agreement or conditional sale or retention of title agreement,¹ his Honour rejected these comparisons. Unlike a retention of title agreement, there was no obligation upon Kirkalocka to purchase the power plant (it had an option) and Zenith retained possession.² The issue of ‘possession’ was complex and is explored below.
After ‘anxious consideration’ of what his Honour described as ‘unusual circumstances’, he defined the security interest of Zenith as a legal interest with a retention of title that may be engaged should Kirklocka not perform its obligations under the PP Agreement.3 Accordingly, the security interest was required to be perfected.
Was Zenith Perfected?
As the registration in the PPSR occurred after the commencement of the voluntary administration of Kirkalocka, Zenith had to prove that it maintained perfection by possession under s21(2) of the PPSA. This section stipulates that perfection by possession could not be gained by enforcement. The other perfunctory requirements in s 19(2) had clearly been established of attachment of the collateral and Krikalocka having rights in the power plant (being the right to purchase).
The key issue was s24 of the PPSA governing possession in the context of perfection. Section 24(1) stipulated that a secured party cannot have possession of personal property if it is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor. The dictionary in the PPSA defined ‘possession’ as having the meaning given in s24, with Besanko J noting that possession may mean different things in other common law contexts.
The key issue was whether Kirkalocka was in actual possession or apparent possession. This involved an analysis of the PP Agreement and consideration of old case law on the concept of ‘apparent possession’. Kirkalocka submitted that it had apparent possession of the power plant as a stranger walking past the site immediately before the voluntary administration would have concluded that Kirkalocka had apparent possession.4 Zenith asserted that the ‘observer test’ was inappropriate, and that in any event, an observer would have seen Zenith security warning signs and if they sought to enter the plant, they would be required to satisfy the Zenith visitor conditions (including signing the visitor book).5
After some consideration of the concept of ‘apparent possession’, his Honour found that Zenith was in actual possession under the terms of the PP Agreement, and also in apparent possession.6
Take Home
Had Zenith thought to have earlier registered its security interest in the PPSR, it would have avoided a substantive argument in Court.
¹ At [60] and [63].
² At [72].
³ At [73], [75] and [76].
4 At [82], relying on Flown Pty Ltd (Administrators Appointed) v Goldrange Pty Ltd [2016] WASC 149; (2016) 316 FLR 81.
5 At [84].
6 At [85] – [95].
