A recent Supreme Court decision has highlighted that the Personal Properties Security register (PPSR) is merely a “notice board”, and that registration on the PPSR is not of itself an encumbrance over property.
Auburn Shopping Village Pty Limited (“ASV”) entered into an agreement to purchase poker machine licenses from Nelmeer Hoteliers Pty Limited (“NH”). ASV maintained that it was a term of the agreement that NH would transfer the licenses free of all encumbrances. On the day of settlement ASV conducted a PPSR search of NH and found numerous entries against the company, including a Purchase Monies Security Interest (PSMI) lodged over “all present and after acquired property” of NH. ASV refused to complete the Sale Agreement and maintained it was not obliged to complete the sale while the PSMI registration was still on the PPSR.
Upon examining the actual security document that the PSMI registration related to, the Court concluded that it was defective and could not have supported a valid security interest. The Court went on to say that it was not enough for ASV to stop its enquiries once it found a registration on the PPSR – rather it was ASVs obligation, once prompted by the entry on the PPSR, to make enquiries about the security that the entry related to. The Court observed that:
“(NH) characterises the PPSR…as a “notice-based system”, putting the world at large on notice of actual or potential competing security interests, which prospective security holders can, and are expected to, investigate. That submission must be accepted.”
The Court went on to find that, even if it was a term of the agreement that the transfer of the licenses would be free of encumbrances, the mere existence of a PPS registration alone was not an encumbrance. ASV therefore had no right to refuse to complete the agreement.
The practical implications
It is always advisable for a potential purchaser to conduct a PPS search of a vendor to ensure that the property being sold is free from encumbrances. However whilst a registration on the PPS might lead you to a third-party interest that is an encumbrance, the registration alone is not enough. It is only a pointer, which may or may not lead to an encumbrance on free title. The onus is on the potential purchaser to go beyond the PPSR in those circumstances.
Click here for a link to the decision itself: https://www.caselaw.nsw.gov.au/decision/59b8848fe4b074a7c6e18965
At Matthews Folbigg Lawyers we are regularly called upon to apply our expertise in PPS issues. Please contact us if you have any questions or concerns about the PPSR.
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org.