In a judgement delivered on 24 December 2013, the Federal Court determined that a possessory lien in Victoria will take priority over a migrated registration in a priority dispute between transitional security interests under the Personal Property Securities Act 2009(Cth) (“PPSA”).
Possessory liens are commonly used by carriers, repairers and many other businesses as a means of security.
In April 2009, St George Finance Ltd advanced $21,383.80 to Ms Susan Ann Bessalem for the purchase of a 2007 Holden Astra Hatchback. In April 2011, St George issued a default notice to Ms Bessalem and following her subsequent failure to pay the outstanding sum of $18,520.43, St George assigned the debt to NCO Finance Australia Pty Ltd (“NCO”).
Ms Bessalem failed to pay the debt to NCO. In late September 2011, she abandoned the vehicle in the short term car park at the Melbourne Airport, owned by Australian Pacific Airports Melbourne Pty Ltd (“APAM”). Melbourne Airport staff deemed the vehicle abandoned on 14 December 2011 and transferred the vehicle to APAM’s long term car park. Over $6,000 in car parking fees and $400 in towing fees accrued for the vehicle. A dispute arose between NCO and APAM as to who had the right to possession of the vehicle. NCO made an application to the Federal Court for delivery of the vehicle under provisions of the National Consumer Credit Code, or alternatively the right to enter APAM’s long term car park to take possession of the vehicle.
APAM claimed it had the right to possess the vehicle through a possessory lien until all outstanding parking fees had been paid because of Clause 7 in its terms and conditions:
“Without limiting the general and/or particular lien we have over the vehicle left in the car park (which liens are expressly preserved), we reserve the right to retain possession of the vehicle until all parking fees and other costs incurred by us in respect of the vehicle have been paid. Parking fees will continue to accrue during the period that we retain the vehicle until we recover all fees and costs.”
Did APAM have a security interest?
O’Dwyer J found that APAM held a “repairer’s lien” under the Chattel Securities Act 1987 (Vic).
A repairer’s lien was defined within the Chattel Securities Act as “a lien on goods in the possession of a person as security for payment for services or materials furnished in respect of those goods by that person in the ordinary course of business.”
O’Dwyer J held that the parking of the vehicle in APAM’s car park for a fee was a transaction under the PPSA. This created a possessory lien. APAM had a security agreement and consequentially a security interest in the vehicle.
Who had Superior Priority?
Both parties held security interests in the vehicle for the purposes of the PPSA. NCO’s security interest was perfected by its registration on the Queensland Register of Encumbered Vehicles on 12 August 2011, and migrated into the Personal Property Securities Register (“PPSR”) on 27 November 2011.
APAM’s security interest derived from the possessory lien in Clause 7. Although APAM’s security interest had not been registered, it was perfected because APAM took possession of the vehicle on 21 September 2011.
NCO argued, because of section 55 of the PPSA, that priority should be determined by reference to which security interest had been perfected earlier. NCO argued the applicable date was 12 August 2011, when its interest was registered on the Queensland Register of Encumbered Vehicles; while for APAM it was from 21 September 2011, when possession was taken of the vehicle.
APAM argued that the requisite attachment of the security interest to the vehicle for both NCO and APAM was immediately before the PPSA registration commencement time of 30 January 2012. Although APAM had not registered its security interest in the PPSR, the PPSA allowed it to be registered up until 1 February 2014 without loss of priority. O’Dwyer J held that both parties had continuously perfected security interests in the same collateral (the vehicle), with the same registration time, being the commencement time of the PPSA Act.
Section 323 of the PPSA provided the solution:
“If the priority between two transitional security interests is not otherwise able to be determined under this Act, they have the priority between themselves that they would have had under the law that applied to such priority immediately before the registration commencement time, and as if this Act had not been enacted.”
O’Dwyer J then referred to Section 10(4) of the Chattel Securities Act which at the relevant time provided:
“A repairer’s lien on goods, whether or not registered under Part 3, ranks in priority to any registered security interest in respect of those goods irrespective of the date and time of the registration of that registered security interest.”
As a result, APAM was entitled to rely on section 10(4) of the Chattel Securities Act and held a superior security interest to NCO’s security interest.
Impact of the decision
- The decision confirms that a possessory lien can be a security interest and be perfected by possession.
- Section 10(4) and the definition of “repairer’s lien” of the Chattel Securities Act have been repealed and the transitional period under the PPSA ends on 1 February 2014. Businesses that use contractual liens in their terms and conditions may not have the same rights as they had prior to the PPSA’s commencement and during the transitional period.
Any business which includes contractual liens (as opposed to common law liens) in its terms and conditions should seek our advice as to their effectiveness and priority.