The Personal Property Securities Act has changed the effect of “retention of title” clauses.
A common feature of certain Sale of Goods contracts (eg. supply contracts for manufacturers) or related terms & conditions is a retention of title (ROT) clause, the purpose of which is to delay the transfer of ownership of the goods in order to provide the seller/supplier with security for the payment of the goods.
Essentially, a ROT clause provides that where goods are delivered from the Seller to the Buyer, title in those goods is retained by the Seller until the Buyer has paid for those goods in full. ROT clauses may also include conditions or limitations in relation to the goods supplied until they have been paid for.
Following the introduction of the Personal Property Securities Act 2009 (Cth) (PPSA) the nature and effect of ROT clauses has changed, such that if the PPSA is not taken into account in both the drafting and operation of these clauses, then their effectiveness may be lost.
Notwithstanding the use of ROT clauses in contracts, it is now the case that it is possible for a seller/supplier to lose title to the goods they supply if they fail to take appropriate steps under the PPSA to secure their interest, where other creditors have existing or subsequent interests registered. This includes having the appropriate clauses in your Contract in the first place. The same situation may arise in the context of a business that hires or leases out equipment or vehicles.
A number of recent decisions have also highlighted the importance of registration of security interests on the Personal Property Securities Register (PPSR). Situations have arisen in which a Supplier of goods has lost title to the goods they supplied because they either failed to register their security interest in the goods on the PPSR, or they failed to do so in the required timeframe under the PPSA.
So, do you need to update your Terms & Conditions or Supply Contract?
If your business uses ROT clauses in its contracts or terms & conditions, and you have not reviewed them in light of the PPSA, then it is vitally important that they be reviewed by a Lawyer well versed in the operation of the PPSA to ensure that you are adequately protected under the PPSA.
In addition to ensuring that your Contracts or Terms & Conditions are up to date, it is also vitally important that any security interests that arise under the ROT clauses are registered on the PPSR, in a correct and timely manner.