Getting paid: exercising a lien over goods in priority to a PPSA security interest

Getting paid: exercising a lien over goods in priority to a PPSA security interest

09 June 2020 Authored by: Graham Roberts, Oliver Caine   |   Topics: Litigation and dispute resolution, Insolvency and restructuring

It is not uncommon for a repairer or the provider of storage facilities who is in possession of goods (a bailee) to be owed costs for work or storage services. Naturally, the bailee will want payment of the outstanding costs before releasing possession of the goods.

If you are a bailee in possession of the goods and are owed costs, do not give up possession without obtaining advice.

In a recent Victorian decision, the Court held that the bailee in possession of the goods was entitled to payment in priority to the registered PPSA security interests over the goods.

The decision in Tasman Logistics

In Tasman Logistics Services Pty Ltd v Seaco Global Australia Pty Ltd [2020] VSC 100:

  • SKM provided shipping containers to Tasman who had carried out waste disposal services for SKM
  • SKM was placed in liquidation
  • Tasman was owed $3M for unpaid storage fees for the containers in its possession
  • SKM was not the owner of the containers
  • the owners had registered their security interests in the containers on the PPSR
  • SKM sought orders for the disposal of the containers and payment of its outstanding costs
  • the owners, relying on their registered PPSA security interests, claimed priority over Tasman.

Tasman’s court application

Tasman’s application was brought under Part 2D of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (ACLFTA), which provides a mechanism for the disposal of uncollected goods. Similar legislation exists in other states and territories.

The relevant provisions of the ACLFTA allow the bailee of uncollected goods to seek orders for their disposal when, among other things:

  • the goods are ready to be collected but the provider of the goods has not taken delivery or given directions for delivery
  • the provider of the goods has not paid the relevant charge owing to the bailee within a reasonable time of being informed that the goods are ready for delivery.

The provisions of the ACLFTA do not apply where a term of the relevant contract deals with disposal of the goods and the costs of doing so.

A bailee’s options for disposal under the ACLFTA depend on the value of the goods. For medium to high value uncollected goods, the goods must generally be disposed of by public auction or private sale.

When the goods are sold, the bailee is entitled to be paid its outstanding charges in relation to the goods (e.g. storage costs).

A bailee may also apply to court for orders that authorise the disposal of the uncollected goods (for example, where there is a dispute as to the bailee’s ability to dispose of the goods).

PPSA priority issues

An issue for the Court’s determination was whether Tasman had priority over the owners’ registered PPSA security interests in the containers created by the Personal Property Securities Act 2009 (Cth) (PPSA).

The Court noted that sections 8(1)(b)-(c) of the PPSA provide that the PPSA does not apply to, among other things:

  • a lien, charge or any other interest in personal property, that is created, arises or is provided for under a law of the Commonwealth (other than the PPSA), a state or a territory, unless the person who owns the property in which the interest is granted agrees to the interest
  • a lien, charge or any other interest in personal property, that is created, arises or is provided for by operation of the general law.

Priority between interests of these kinds and PPSA security interests are dealt with by section 73 of the PPSA.

The effect of section 73 is to give priority to an interest of the kind mentioned in sections 8(1)(b)-(c) (called the priority interest) over a security interest under the PPSA if:

  • the priority interest arises in relation to providing goods or services in the ordinary course of business
  • the person who holds the priority interest provided those goods or services
  • there is no other law that deals with the priority between the priority interest and the security interest (for example, the Queensland equivalent of the ACLFTA has an express provision dealing with priority)
  • the person who holds the priority interest acquired the interest without actual knowledge that the acquisition constitutes a breach of the security agreement that created the other security interest.

The Court’s decision

The Court found Tasman was a bailee with a lien over the containers under the general law as modified by the provisions of the ACLFTA. Tasman had met the criteria in section 73 of the PPSA.

This meant that Tasman’s interest in the containers (by reason of its unpaid fees) had priority over the security interests of the owners.

If the containers were sold, Tasman was entitled to be paid its costs in priority to the owners.

Implications of decision

The Court’s decision demonstrates that a party in possession of uncollected goods the subject of unpaid fees can, in appropriate circumstances:

  • obtain orders for the disposal of the goods by sale
  • recover the outstanding fees from the proceeds of sale in priority to other creditors with PPSA security interests in the goods.

Ordinarily, a lien only entitles a person to withhold possession of the goods to secure payment. For example, a repairer with unpaid fees would only be entitled to withhold possession of the goods, rather than sell them.

However, with the assistance of the uncollected goods legislation, the repairer may be able to obtain orders for sale and have priority of payment of the proceeds.

The decision in Tasman highlights the difficulty for the holder of a PPSA security interest to establish that a bailee had actual notice that the bailee’s lien is in breach of the a security interest registered on the PPSA. That is because, as the Court noted, knowledge of the existence of a security interest alone is insufficient to establish actual knowledge of the terms of the security agreement constituting the security interest.

However, persons in possession of goods need to consider the nature of their lien and the costs or charges it secures before any attempt to dispose of the goods under the provisions of the relevant uncollected goods legislation.

That is because:

  • the lien will usually only secure costs or charges in relation to the goods themselves
  • depending on the nature of the goods or the lien, there may be specific legislation that applies (such as the Storage Liens Act 1973 (Qld)).

If you would like further information about these issues, please contact Graham Roberts on +61 7 3231 2404, Ben Williams on +61 7 3231 2939 or another member of our litigation and dispute resolution team.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.