Turkalert court rules against supplier with 2009 credit application

Central Cleaning Supplies (Aust) Pty Limited v Elkerton and Young as liquidators of Swan Services Pty Limited (in Liquidation) [2014] VSC 61 Daniel Turk | March 2014 | Commercial Disputes & Transactions

The Supreme Court of Victoria has held that a trade supplier’s retention of title claim was void despite having a 2009 credit application referring to the suppliers standard terms. The Court found the retention of title arrangement was not part of the credit application terms rather a sale by sale arrangement.

The effect of the decision was that the supplier was not entitled to the benefit of the transitional protection provisions of the Personal Property Securities Act 2009 (“the Act”) and lost its retention of title claim because it was not registered on the Personal Property Securities Register (“the Register”).

Background facts Note the following relevant background facts • Swan Services Pty Limited (In Liquidation) (“Swan Services”) signed a credit application with Central Cleaning Supplies (Aust) Pty Limited (‘Central Cleaning’) in September 2009.

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Court rules against supplier with 2009 credit application

• The credit application provided that: “the supply of goods is governed by [Central Cleanings] Standard Terms and Conditions as in force from time to time. The Standard Terms and Conditions override any terms and conditions of purchase used by [Swan Services]”.

• Invoices issued by Central Cleaning to Swan Services after the provision of goods had the following retention of title clause: “Conditions of Sale: goods subject to this sale remain the property of Central Cleaning until the whole of purchase price has been paid by the purchaser to Central Cleaning in full”.

• Central Cleaning did not register its interest on the Register against Swan Services.

• On 22 May 2013 administrators were appointed to Swan Services who later became liquidators on 27 June 2013.

• The liquidators rejected Central’s Cleanings retention of title claim on the basis that Central Cleaning Services was not registered on the Register and therefore its interest vested in the administrators under s267 of the Act.

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Issue The main issue for the Court to consider was whether Central Cleaning’s retention of title arrangement with Swan Services was provided for under the terms of its 2009 credit application or alternatively was a later agreement.

The Decision Under the Act retention of title security interests provided under a transitional security agreement are deemed perfected for two years from the commencement of the PPSA (30 January 2012) and can be enforced without a registration. A transitional security agreement is an agreement in force immediately before 30 January 2012 and provides for the granting of a security interest.

The Court had to decide whether or not the Central Cleaning credit application entered in 2009 by Swan Services was a transitional security agreement providing for retention of title in relation to goods supplied by Central Cleaning to Swan Services.

The Court found that the retention of title provisions were not incorporated into the credit application terms signed in 2009. The “standard terms” did not include retention of title. The retention of title provisions were detailed on the foot of all invoices issued by Central Cleaning.

The Court noted the wording on the invoices which was consistent with a sale by sale arrangement.

Central Cleaning’s retention of title interest contained on the invoices was therefore not in existence before 30 January 2012 and could not be regarded a transitional agreement. The interest vested in the liquidator and could not be enforced.

Importantly the Court indicated that even if the retention of title clause was contained in the credit application terms that the credit application was not an overarching supply agreement to apply to future orders (a necessity for a transitional agreement). The reason for this was that the invoice wording indicated that they were a separate contract.

The Court distinguished the case from other reported Court decisions where the retention of title clause was clearly contained in the credit application terms and the later invoices did not indicate a sale by sale arrangement.

Implications Credit applications will not be categorised as transitional agreements unless the retention of title terms is contained in the document and it is clear the provision relates to ongoing sales.

If terms written on subsequent invoices indicate a sale by sale arrangement as to retention of title then the transitional provisions of the Act may not apply.

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Court rules against supplier with 2009 credit application Daniel Turk | March 2014

Suppliers can avoid difficulties enforcing retention of title by simply registering their interest on the PPS register.

Suppliers who have registered their interests on the PPS register as “transitional” and do not strictly supply under a transitional agreement may encounter difficulties with liquidators who are of the view that such a registration is defective.

For more information, please contact: Daniel Turk Partner T: 02 8257 5727 M: 0408 667 220 daniel.turk@turkslegal.com.au

www.turkslegal.com.au Syd | Lvl 44, 2 Park St, NSW 2000 T: 02 8257 5700 | F: 02 9264 5600 Melb | Lvl 10 North Tower, 459 Collins St, VIC 3000 T: 03 8600 5000 | F: 03 8600 5099

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