Beware the creditor who is not fully aware of the application and effect of the PPSA

In this case1, a company (the vendor) sold or leased four logging trucks and trailers to another company (the purchaser), which subsequently defaulted in its payments. The High Court already found that the vendor was in effect an unpaid unsecured creditor of the purchaser and the purchaser's secured creditor had a prior claim on the assets.

Another company (the secured party) was the secured party under a General Security Agreement (GSA) granted by the purchaser and was also owed money.  The secured party claimed that its security interest extended to the trucks and trailers, and that it was therefore entitled to repossess and sell them.  However, it was the vendor (apparently unaware of the secured party's security interest) that repossessed and sold them.

In addition to findings that the vendor was in effect an unpaid unsecured creditor of the purchaser, the High Court also found that the secured party (having established that the Purchaser was in default under the GSA and having served on the purchaser a notice under section 109 of the PPSA) had an immediate right to possession of the vehicles.

The secured party was granted summary judgment against the vendor for damages for conversion (the right to sue in conversion at common law being available to anyone entitled at the time of conversion to the immediate possession of the goods where another person interferes with that right of possession).

The vendor submitted that the secured party should not be able to succeed in its claim on the basis that it took no action for 18 months in breach of the good faith requirement in section 25 of the PPSA.  However, the High Court noted that "the function of the PPSA register is to enable parties in the position of the defendant to find out if there are any extant charges over property … It would be contrary to the objectives of the legislation to conclude that before a security holder can enforce its rights, it must seek out affected persons and tell them of its intentions."

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