Retention of title and the trans-Tasman supply of goods

Juliet Taylor, New Zealand Business Quarterly, volume 12, March 2006

This article considers the effect of the different security regimes in New Zealand and Australia on supplies of goods on retention of title terms.

Sales on retention of title terms are a commercial law development allowing the seller/supplier of goods to employ "quasi-security" devices to secure repayment and allow them to take back goods that have not been paid for if the buyer becomes insolvent.  Generally, the supplier will have priority over other creditors in respect of those goods.

The Australian High Court has directly applied the principles of Romalpa 1, the case that gave retention of title suppliers the rights described above.

In New Zealand, the enactment of the Personal Property Securities Act (PPSA) has resulted in an entirely distinct regime for retention of title clauses.

The author of this article identifies a number of implications arising from this divergence in regimes.

Australia

In essence, Australia's sale of goods legislation provides for property to pass when the contracting parties intend for the property to pass.  The focus is on the intention of the parties in determining the conditions and at what point property is to pass between the buyer and the seller.

Therefore it is only when the goods have been paid for that there is a clear intention for ownership of the property to pass to the buyer.

New Zealand

The PPSA refocuses attention on the substance of the security interest taken in the personal property and not the form of the agreement that created the security interest. In addition, priority of a security interest now depends on the registration of a financing statement.

Conflicts rules in the PPSA

The PPSA sets out a regime for determining conflict of law issues.  Section 26 contains the residual rule:

(1) "Validity, perfection and the effect of perfection or non-perfection of a security interest in goods is governed by the law of New Zealand if, -

(a)   at the time the security interest attached to the collateral, the collateral is situated in New Zealand; or

(b)   at the time the security interest attached to the collateral, the collateral is situated outside New Zealand but the Secured Party has knowledge that it is intended to move the collateral to New Zealand"

Application of conflict rules

As a general rule, proprietary concerns are almost always referable to lex situs (the country in which the goods are located for the time being) and, therefore, contractual propriety aspects are considered by the law of the same jurisdiction.

Goods sold to a New Zealand buyer but then remain in Australia

The law of lex situs is likely to govern whether the reservation of title by the seller is valid and whether the title has passed to the buyer in any particular case.  Once it is ascertained where title lies pursuant to lex situs, the question becomes whether removal to another jurisdiction, pursuant to the law of the subsequent jurisdiction, would override the prior reservation of title in the original lex situs. 

The provisions of the PPSA generally respect these established principles.  Thus, New Zealand courts would have to recognise that title to goods remained with the Australian seller. 

This rule must continue to be recognised despite an intention on the part of the buyer prior to its insolvency that the goods be moved to New Zealand (as referred to in section 26(1)(b)).

Goods delivered directly to the buyer in NZ

In this case, the foreign seller who retains title must register its security interest in its goods at the Personal Property Securities Register (PPSR).

Goods delivered to the buyer and subsequently moved to NZ

The traditional position has changed with implementation of the PPSA.  Section 27(1) requires registration of the seller's interest at the PPSR if the seller's retention of title is to be effective against other secured party claiming an interest in the goods. 

If the seller does not register its interest within the specified timeframes, the seller's unperfected interest becomes subordinate to a perfected interest.

Conclusions

The author concludes that the PPSA has enhanced commercial certainty for sellers that retention of title clauses will be upheld in the New Zealand courts.

However, this certainty comes at a price - sellers must enter into an enforceable security agreement and they must also register their interest at the PPSR.  In all but a few cases, Australian suppliers of goods to New Zealand buyers will have to register their retention of title arrangements. 

It remains to be seen, however, how the New Zealand courts will interpret the rules set out in the PPSA to afford foreign secured parties the presumed protection under the PPSA.

1 Aluminium Industrie Vassan B.V. v Romalpa Aluminium Ltd [1976] All ER 552

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