Journal of
Corporate
Renewal
Sept
2016
2 At what point in time is Section 13( 2)(a) triggered
when considering the scope of an
alleged security interest holder’s
business activity?
Hammerschlag held that if Section 13( 2)(a)
is construed according to its plain and
ordinary meaning, there is no express
or implied direction that the section
should be confined to the business
activity of security interest holders in
Australia. According to the justice, it
is clear that Section 6 of the Personal
Property Securities Act stipulates that
the operation of the act is not limited to
property or dealings in property located
within Australia. Section 6 provides
that the act’s provisions apply when:
1 The location of the subject goods or property is in Australia
2 The grantor is an Australian entity
Accordingly, given that the turbines
were located in Australia and Forge
was an Australian entity, the Personal
Property Securities Act clearly applied.
GE contended that its limited
interpretation of the scope of Section
13( 2)(a) was in line with Section 21( 1)(b)
of the Acts Interpretation Act 1901
(Cth), which provides that:
( 1) In any Act:
...
(b) references to localities,
jurisdictions and other matters
and things shall be construed
as references to such localities,
jurisdictions and other matters and
things in and of the Commonwealth.
The court dismissed that contention and
maintained that Section 13( 2)(a) of the
Personal Property Securities Act was not
limited in scope as to the geographic
location of the business of leasing
goods. Hammerschlag determined that
the intention behind the section was
contrary to the limitation expressed in
Section 21 of the Interpretation Act.
There are three key sections of the
Personal Property Securities Act that
assist in determining the point in
time at which Section 13( 2)(a) applies.
First, Section 12( 3) provides that the
interest of a lessor under a lease is, for
purposes of the act, a security interest.
Secondly, Section 13( 1) clarifies that
a lease includes a lease for a term
of more than one year. These two
provisions, as well as Section 13( 2)(a)
itself, determine when a lessor will be
considered as not regularly engaged
in the business of leasing goods.
GE argued that only Australian-based
lessors should be captured by the
legislation and that, in any event, it
did not regularly engage in the leasing
business in Australia, even though
it did so worldwide. GE also argued
that given that it had sold a significant
portion of its leasing business after
entering into the lease with Forge, the
court should determine whether it was
engaged in the business of leasing goods
by reference to the time when Forge
obtained possession of the turbines,
which was after the sale of GE’s business,
and not when the lease was signed.
The court rejected that argument and
held that in determining whether a
company is engaged in the business
of leasing goods, the court must
assess factors at the time the subject
lease was entered into and not at
some future point. It also held that
this was all academic in any event,
given that the court considered that
GE was, at all material times, engaged
in the business of leasing goods.
The court considered the following
factors relevant to its finding that
GE was, at the time it entered into
the lease with Forge and at all other
material times, regularly engaged
in the business of leasing:
1 GE advertised and promoted its desire to lease turbines
2 GE was engaged in numerous leases with other Australian
entities before the sale of a
substantial part of its leasing
business within Australia
3 GE continued to provide replacement turbines to a
number of customers following the
sale of part of its leasing business in
October 2013
Turbines as Fixtures?
Section 8 of the Personal Property
Securities Act sets out interests to which
the act does not apply. GE contended
that Section 8( 1)(j), which precludes
fixtures from the act, applied to the
turbines. If that argument were accepted,
GE would not have been required
to register its security interest in the
turbines and, importantly, title to the
turbines would not have vested in Forge.
Under Section 10 of the Personal
Property Securities Act, a fixture is
defined as goods, other than crops, that
are affixed to land. GE argued that the
turbines did not fall within the scope
of the act as they had become fixtures
on the land. The court rejected that
argument and found that the lease
was drafted in such a manner that its
objective intention was that the turbines
should not become fixtures. In rejecting
GE’s fixture argument, the court offered
numerous examples that showed a
contrary intention to that contended
by GE in court. The matters raised by
the court included the following:
1 The design of the turbines was uch that they could be
demobilized and relocated easily in a
short amount of time
2 The intention set out by the lease was that the turbines were to
remain on the site temporarily, namely
for the duration of the two-year period
and were to be returned by Forge at the
end of that term
The court decided that given the
intentions of the parties and the
effect of the provisions in the lease,
it was evident that the turbines were
not fixtures and therefore were not
excluded from the purview of the
Personal Property Securities Act.
Harsh Lesson
The court ultimately found in favor of
Forge and its liquidators. GE had clearly
failed to protect its title to and security
interest in the turbines by neglecting
to record the lease on the Securities
Register, and the lease fell within the
scope of the Personal Property Securities
Act. Consequently, GE’s failure to register
its security interest meant that title to the
$60 million turbines vested in Forge and
ultimately passed on to its liquidators
for realization in the ordinary course.
In the course of an Australian
government-commissioned review
of the Personal Property Securities
Act in 2015, more than 20 U.S.-based
entities, organizations, and individuals,
including members of Congress,
made submissions outlining their
objections to the effect of the legislation
on the interests of U.S.-based leasing
companies, including GE. Despite those
concerns, the Australian legislature has
not taken any steps to limit the scope
