A lesson for suppliers of goods

In this case¹, wool was supplied to Feltex shortly before it went into receivership. The terms of the supply agreement were that supplies were only to be made following receipt of payment, but the supplier mistakenly made the supply before payment was received.

When Feltex went into receivership, the supplier argued that continued retention of the wool amounted to conversion. The receivers argued that the supply agreement was a conditional sale agreement within the meaning of the definition of "security interest" in the Personal Property Securities Act 1999 (the PPSA).

The High Court agreed with the receivers, concluding that the supply agreement was in fact a conditional sale agreement that created a security interest under the PPSA. Rejecting the supplier's claim that a conversion had occurred, the court pointed out that possession of the wool was voluntarily transferred by the supplier.

The supplier's failure to register its security interest in the wool within the time frame required under the PPSA to achieve a purchase money security interest resulted in the supplier losing priority in the wool to ANZ National Bank, which had a first registered general security agreement.

¹ JS Brooksbank & Co. (Australasia) Limited v EXFTX Limited (in receivership and liquidation), High Court, 21 November 2007

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