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[2025] NSWCA 97
respondent. Appeal dismissed. The appellant was ordered to pay the respondent’s costs of the appeal: [131].
Metal Manufactures had registered a security interest over panels it supplied to SES, but its sale terms permitted SES to dispose of them in the ordinary course of business. SES delivered the panels for the solar project and acquired a contractual right to payment from Verdia. The Court treated that right, and the later money paid by WesTrac to Verdia, as proceeds of dealings with the panels. The original security interest therefore did not continue in the panels, although it attached to proceeds. The Court also held that PPSA s 46 can apply even where the seller’s title has not yet passed under a retention-of-title clause. It dismissed Metal Manufactures’ appeal.
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Metal Manufactures supplied 3,030 solar panels to Symmetry Electrical Services Pty Ltd (SES) for $753,424.65. Its standard terms retained title until SES paid the invoiced amount and restricted SES from selling or disposing of the goods except in the ordinary course of business. The terms also expressly retained a purchase money security interest in the panels and their proceeds: [1], [42]-[43]. Metal Manufactures had registered its security interest on the Personal Property Securities Register in 2020, and perfection of that interest was common ground: [5].
14 cited instruments linked from this judgment.
The panels were intended for a solar installation at WesTrac’s Tomago site. Verdia contracted with WesTrac to design, supply and install the system, then subcontracted part of the work to SES. SES’s subcontract required it to supply and deliver the equipment, including the panels, and contained a retention-of-title term under which title passed to WesTrac on Verdia paying SES’s relevant invoice: [2], [44]-[49].
At SES’s written direction, Metal Manufactures arranged delivery of the panels to the site on 25 and 26 October 2022. SES obtained possession and transferred it to WesTrac. WesTrac paid Verdia $700,202.91 for the panels delivered to site. Verdia did not pay SES’s relevant milestone invoice of $306,269.23, and SES did not pay Metal Manufactures. Verdia entered voluntary administration on 11 November 2022 and liquidation on 15 December 2022: [3], [57].
At first instance, Metal Manufactures sought a declaration that WesTrac’s interest was subject to its security interest, delivery of the panels or, alternatively, damages. The primary judge found that Metal Manufactures had authorised disposal and that its security interest no longer continued in the panels under PPSA s 32. The judge identified the $700,202.91 paid by WesTrac to Verdia as proceeds. The primary judge rejected WesTrac’s s 46 argument, reasoning that “sold” required a sale in the sense used in sale-of-goods legislation, which required transfer of title: [9]-[10].
On appeal, the Court upheld the result on two alternative grounds advanced by WesTrac. SES’s right to payment from Verdia was itself proceeds under s 32, and s 46 applied notwithstanding the retention-of-title terms. The appeal was dismissed, with Metal Manufactures ordered to pay WesTrac’s appeal costs: [91], [127], [131].
The proceeds analysis turned on how the Act defines proceeds, not on whether title to the panels had passed. Under s 31(1)(a), proceeds include identifiable or traceable personal property derived directly or indirectly from a dealing with collateral. Section 31(3)(a) limits proceeds to property in which the grantor has an interest, or in which the grantor has the relevant power to transfer rights: [60].
SES acquired an enforceable right to payment when it performed the milestone requiring supply and delivery of all panels onsite. The Court described this right as a chose in action: a right enforceable by action and therefore personal property. SES had an interest in it because SES could sue Verdia to recover the amount due: [71]-[79]. The fact that the right arose under a contract did not prevent it from being personal property or proceeds.
The Court rejected the contention that there had been no relevant dealing because title had not transferred. It said “dealing” in s 31(1)(a) is best understood as an exchange of the collateral for other property, which may be possessory or proprietary rights: [84]. SES supplied and delivered the panels in exchange for its right to payment. That was the necessary dealing, and its right to payment was derived from it: [88]. The Court did not accept the alternative argument that SES’s unperformed promise to transfer title was itself the relevant exchange. Before Verdia paid, that executory promise had not produced other property in exchange: [89].
Section 32 then determined what happened to the security interest. Metal Manufactures had expressly authorised disposal in the ordinary course of business under its terms: [42], [90]. Consequently, its interest did not continue in the panels under s 32(1)(a). But s 32(1)(b) attached the security interest to proceeds automatically. The Court held there was no need for a further attachment step under s 19: [80]-[81].
The Court also addressed the $700,202.91 payment from WesTrac. Verdia had an obligation to deliver the panels at the site, which SES fulfilled by transferring possession to WesTrac. In exchange for that performance, Verdia acquired a contractual right to the milestone payment. The right was first-generation proceeds. When WesTrac paid it, the money deposited in Verdia’s account was second-generation proceeds: [96]-[100]. Metal Manufactures’ proceeds security interest attached to those proceeds through the statutory chain, although insolvency later made the proceeds interest practically worthless: [101], [103].
For s 46, the interpretive question was whether “sold” meant that title must have passed under sale-of-goods legislation. The Court began with s 46’s purpose, expressed in its title as taking personal property free of security interests in the ordinary course of business: [113]-[114]. The provision deals with personal property generally, not just goods. It can apply to tangible and intangible property, including choses in action. It also expressly refers to security interests arising under s 32, which may attach to proceeds such as a right to payment: [116]-[117].
The Court reasoned that requiring title to have passed would undermine s 46’s function. The section operates where a seller holds property subject to a security interest, including a supplier’s retention-of-title interest. It addresses when a buyer takes free of that interest: [115]. The text did not refer to a “sale of goods”, and the Court considered that importing State rules about title transfer would confuse the PPSA’s priority function with a separate title regime: [119], [125]. SES was selling panels in the ordinary course of its business, so the transaction with Verdia was a sale for s 46 purposes. The exceptions in s 46(2) were not relied on: [106], [119], [127].
Before this decision, a single-judge Victorian decision, Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd, had treated the meaning of “sold” in the PPSA’s ordinary-course provision as informed by sale-of-goods legislation. The primary judge in this case followed that approach, considering that a retention-of-title transaction was only an agreement to sell until title passed: [108].
The Court of Appeal rejected that construction of s 46. It held that the provision’s language, context and purpose did not support limiting it to a completed transfer of title. The reasoning emphasises that the PPSA establishes a priority scheme for security interests and that s 46 must be read as part of that scheme: [114]-[125]. The Court did not follow Warehouse Sales on the meaning of “sold”: [125].
The judgment also clarified the proceeds analysis. A contractual right to payment can itself be proceeds, rather than proceeds arising only when the debt is paid. The Court treated SES’s contractual claim against Verdia as first-generation proceeds, then treated the payment of that claim as second-generation proceeds. It explained that the statutory reference to dealings with proceeds accommodates successive generations: [62], [71]-[74], [99]-[101].
The judgment does not abolish the relevance of sale-of-goods legislation for questions that legislation governs. Its point is narrower: the Court would not import the State statutory meaning of a completed “sale” into PPSA s 46, a provision directed to priority and taking free of security interests. It also did not decide the separate Sale of Goods Act buyer-in-possession issue, because that issue could not affect the outcome once the PPSA grounds were resolved: [128]-[129].
At [84], the Court said: “The preferable approach is that ‘dealing’ is used in s 31(1)(a) in the sense of an exchange of the collateral for other property.” In plain English, a dealing need not involve transfer of ownership. Giving up possession or supplying goods in return for a payment right can qualify.
At [81], the Court said: “There is no need for a further step of attachment under s 19(2).” The point is that once collateral gives rise to proceeds, s 32 itself attaches the security interest to those proceeds, unless the security agreement provides otherwise.
At [115], the Court observed: “If the term ‘sold’ requires a transfer of title, the evident purpose of the section will be undermined.” The reasoning is that s 46 is designed to address buyers purchasing property that is subject to another party’s security interest. A requirement that the seller first have unencumbered title would risk defeating the protection the provision is intended to provide.
At [119], the Court stated: “To restrict the operation of s 46 to circumstances where there is a ‘sale of goods’ is to disregard the text.” In other words, Parliament used the broader term “personal property”, and the Court would not insert a limitation based on State rules about when ownership of goods passes.
At [125], the Court said: “The PPSA is not concerned with sale of goods in the sense of transfer of title to goods.” This summarises the distinction central to the statutory interpretation: the PPSA determines the effect and priority of security interests, while title-transfer rules answer a different question.
The s 32 reasoning is relevant where a secured party has authorised a grantor to dispose of collateral, and the grantor receives a payment right or other personal property in exchange. The judgment indicates that the proceeds analysis is not restricted to cash already received. A chose in action may be first-generation proceeds if it is enforceable, belongs to the grantor in the required statutory sense, and derives from a dealing with the collateral: [71]-[79], [84]-[88].
The reasoning may also matter where payment is made later to a different party in a contractual chain. Here, Verdia obtained a payment right against WesTrac because the panels were delivered to the site, and WesTrac’s later payment was treated as second-generation proceeds. The Court’s analysis depended on identifying each link: delivery, the resulting payment right, and the payment discharging that right: [96]-[101].
The s 46 interpretation is relevant to ordinary-course transactions involving personal property subject to a security interest, including retention-of-title arrangements where title has not yet passed. The seller must be dealing with personal property “of that kind” in the ordinary course of its business. Section 46(2) contains exceptions, including where the buyer has actual knowledge that the sale or lease breaches the security agreement: [105]-[106]. The decision does not mean those statutory conditions or exceptions can be disregarded.
The outcome arose in a particular contractual setting: SES’s business included supplying solar panels, the transaction with Verdia was accepted as ordinary-course business, and the relevant exceptions were not relied on. The judgment therefore does not resolve every possible question about what counts as ordinary-course dealing or the effect of actual knowledge in a different factual setting.
The judgment was delivered on 8 May 2025. The supplied judgment contains no decisions by later courts applying, distinguishing or otherwise treating this decision. It would therefore be inaccurate to describe any later judicial treatment on the basis of this source alone.
The Court itself considered earlier authority. It relied on Loxton v Moir for the character of a chose in action as an enforceable proprietary right: [71]. It discussed Gold Valley Iron in relation to the breadth of “interest” in personal property, while concluding that it was unnecessary to rely on that broad meaning to decide whether SES had an interest in its enforceable payment right: [77]-[79].
For s 46, the Court rejected the approach taken in Warehouse Sales and explained why it considered that decision’s reliance on sale-of-goods concepts did not fit the PPSA’s text and purpose: [124]-[125]. It also mentioned conflicting Canadian authorities, including Royal Bank and Calidon, but expressly declined to analyse their respective merits because s 46 was not determinative of the appeal’s outcome: [126]. The judgment does not adopt a detailed rule from either Canadian decision.
The Court did not determine the buyer-in-possession exception in s 28(2) of the Sale of Goods Act. It recorded that the issue concerned title, but held that no decision was required because either PPSA s 32 or s 46 resolved the dispute: [128]-[129]. The judgment therefore supplies no appellate answer on how that exception would apply to these facts.
The Court’s s 46 conclusion turned on the text, purpose and circumstances before it. The judgment does not determine how the statutory exceptions in s 46(2) would apply in other cases, including a case where a buyer has actual knowledge that the sale breaches a security agreement: [105]-[106]. Nor does it resolve every possible question about whether a particular transaction occurred in the ordinary course of the seller’s business of dealing with personal property “of that kind”.
The proceeds reasoning depended on the findings that SES had an enforceable payment right, that the right arose in exchange for supplying and delivering the panels, and that the relevant property was identifiable or traceable. The Court expressly noted that there was no challenge to the finding that the $700,202.91 in Verdia’s bank account was traceable personal property, and no issue arose about tracing through a mixed fund: [66], [100]. The judgment therefore does not decide how tracing would operate where those facts are disputed or where the money has been mixed with other funds.
Finally, the Court noted that SES’s security interest under its contract with Verdia was unperfected and vested in Verdia on administration under s 267(2). It held that this did not change the result for Metal Manufactures’ interest in the original panels: [102]-[103]. The judgment does not decide broader questions about the effect of vesting on different proceeds structures or different insolvency facts.
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Metal Manufactures Pty Limited t/as TLE Electrical v WesTrac Pty Limited [2025] NSWCA 97
Hearing dates: 29 August 2024
Date of orders: 8 May 2025
Decision date: 08 May 2025
Before: Gleeson JA at [1]
Mitchelmore JA at [132]
Basten AJA at [133]
Decision: (1) Appeal dismissed.
(2) Appellant to pay the respondent’s costs of the appeal.
Catchwords: MORTGAGES AND SECURITIES – Personal Property and Securities Act 2009 (Cth) – security interest – goods (solar panels) sold subject to retention of title – seller perfected purchase money security interest (PMSI) – buyer authorised to sell or dispose of goods in ordinary course of business – where buyer agreed under subcontract with contractor to design, supply and install solar photovoltaic equipment at principal’s premises – buyer supplied and delivered goods to site of works subject to retention of title – buyer transferred possession of goods to principal – whether dealing with collateral (panels) gives rise to proceeds – whether proceeds constituted buyer’s chose in action against contractor for milestone payment for delivery of goods – whether proceeds constituted monies paid by principal to contractor for delivery of goods by contractor to site – whether buyer has an interest in the proceeds – s 32, PPSA
MORTGAGES AND SECURITIES – Personal Property and Securities Act 2009 (Cth) – taking free – grantor of security interest disposes of goods – where goods delivered to site of works under terms of subcontract – no transfer of title until seller paid in full invoice relevant to goods – ordinary course of seller’s business of selling goods of that kind – meaning of “sold” – whether “sold” requires a transfer of title – whether ordinary course buyer includes buyer under an agreement for sale – s 46, PPSA
STATUTORY INTERPRETATION – Commonwealth and state legislation – meaning of “sold” in s 46, PPSA – whether “sale” as referred to in Sale of Goods Act 1923 (NSW) restricts the operation of ordinary course buyer protection in s 46, PPSA
Legislation Cited: Commonwealth Constitution, s 109
Goods Act 1958 (Vic), s 6
Personal Property Securities Act 2009 (Cth), ss 10, 12, 14, 19, 20, 21, 31, 32, 46, 62, 64, 123, 254, 267, 268
Personal Property and Security Act 1993 SS, s 30
Sale of Goods Act 1923 (NSW), ss 5, 6, 10, 12, 14, 21, 22, 23, 26, 28
Personal Property Securities Regulations 2010 (Cth), Sch 1
Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited: Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1946] HCA 25
Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49
Calidon Financial Services Inc – Calidon Equipment Leasing v Magnes [2021] SKCA 106; [2021] 461 DLR (4th) 278
DZY (A pseudonym) v Trustees for the Christian Brothers [2025] HCA 16
Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd (2022) 59 WAR 232; [2022] WASCA 134
Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26
Loxton v Moir (1914) 18 CLR 360; [1914] HCA 89
Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (2017) 93 NSWLR 765; [2017] NSWCA 8
Royal Bank v 216200 Alberta Ltd (1986) 51 Sask R 146 (CA); [1986] 33 DLR (4th) 80
Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644
Texts Cited: RCC Cuming, C Walsh, RJ Wood, Personal Property Security Law (3rd ed, 2022, Irwin Law Inc)
A Duggan, Australian Personal Property Securities Law (4th Ed, 2024, LexisNexis)
Category: Principal judgment
Parties: Metal Manufactures Pty Limited t/as TLE Electrical (Appellant)
WesTrac Pty Limited (Respondent)
Representation: Counsel:
N Mirzai / R Harvey (Appellant / Cross-respondent)
MA Izzo SC / EL Beechey (Respondent / Cross-appellant)
Solicitors:
Kinneally Miley Law (Appellant / Cross-respondent)
HWL Ebsworth Lawyers (Respondent / Cross-appellant)
File Number(s): 2024/96419
[This headnote is not to be read as part of the judgment]
The appellant, Metal Manufactures, sold 3,030 solar panels to Symmetry Electrical Services Pty Ltd (SES) on terms which included retention of title until payment of the purchase price and a restriction on selling or disposing of the goods, except in the ordinary course of business (MM-SES contract). SES was a subcontractor to Verdia Pty Ltd (Verdia) in respect of all or part of the design, supply and installation of solar photovoltaic equipment at the Tomago premises of the respondent, WesTrac (Verdia-SES contract), and Verdia was the contractor to WesTrac for the design, supply and installation of a solar photovoltaic system at the Tomago site (Verdia-WesTrac contract).
Under the Verdia-SES contract, SES agreed to supply and deliver the panels to Verdia at the site of the works, subject to retention of title until payment of the invoice relevant to the panels. On the instructions of SES, Metal Manufactures delivered the panels to the Tomago site in October 2022. It was common ground that SES obtained possession of the panels and transferred possession of the panels to WesTrac. WesTrac paid milestone payments to Verdia, including the third milestone payment of $700,202.91 on 10 November 2022 for the panels delivered to site. Verdia failed to pay any milestone payments to SES, including $306,269.23, being the third milestone payment, less retention monies, for the supply and delivery of all panels onsite. SES failed to pay the purchase price of the panels to Metal Manufactures. On 11 November 2022, Verdia entered into voluntary administration and Verdia entered into a creditors’ voluntary liquidation on 15 December 2022.
It was common ground that the panels provided to SES by Metal Manufactures were the subject of a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) granted by SES in favour of Metal Manufactures. It was also common ground that Metal Manufactures’ purchase money security interest in the panels was perfected, by registration of a financing statement on the Personal Property Securities Register on 16 July 2020.
In the underlying proceedings, Metal Manufactures sought (1) a declaration that any interest held by WesTrac in the panels was subject to the first ranking security interest of Metal Manufactures, and (2) an order that WesTrac deliver up the panels, or (3) alternatively, damages of $753,424.65 for the conversion or detainment of the panels. Metal Manufactures’ claim failed at trial.
The primary judge found that by force of PPSA, s 32(1) Metal Manufactures no longer had a security interest in the panels as it had expressly or impliedly authorised SES to dispose of the panels (s 32(1)(a)), and only had a security interest in the “proceeds” to which the panels had given rise (s 32(1)(b)), being the amount of $700,202.91 paid by WesTrac to Verdia on 10 November 2022.
Although not necessary to determine, the primary judge rejected WesTrac’s defence that it took the panels free from Metal Manufactures’ security interest because (i) Verdia was an ordinary course buyer of personal property (the panels) that was “sold” for the purpose of PPSA, s 46(1), and (ii) Verdia had sold the panels free of that security interest to WesTrac. The primary judge found that s 46 did not apply because “sold” in PPSA, s 46(1) means “sold” in the sense described in the Sale of Goods Act, and the panels were not “sold” by SES to Verdia in that sense; there was merely an agreement to sell given the retention of title clause in the Verdia-SES contract.
The issues on appeal included:
Metal Manufactures’ challenge to the primary judge’s finding on the s 32 “proceeds” issue, and WesTrac’s notice of contention seeking to affirm the primary judge’s decision on the ground that SES’s right to payment of $306,269.23 under the Verdia-SES contract is “proceeds” to which PPSA, s 32 applies;
WesTrac’s notice of contention seeking to affirm the primary judge’s decision on the ground that the “taking free” defence under s 46 had been established as between Verdia and SES.
The Court held (Gleeson JA, Mitchelmore JA and Basten AJA agreeing), dismissing the appeal:
Section 32 – “proceeds” issue
As to WesTrac’s notice of contention:
Loxton v Moir (1914) 18 CLR 360 at 379; [1914] HCA 89, applied.
The word “dealing” in s 31(1)(a) is used in the sense of an exchange of collateral (the panels) for other property. SES acquired a chose in action against Verdia for $306,269.23 in exchange for the supply and delivery of all panels onsite. That was a dealing with the panels in the relevant sense in s 31(1)(a) as personal property in the form of SES’s chose in action against Verdia was derived directly or indirectly from a dealing with the panels: at [84], [88].
By force of s 32(1)(a), the security interest of Metal Manufactures in the panels was cut off or effectively extinguished, as Metal Manufactures had expressly authorised the disposal of the panels by SES. By force of s 32(1)(b), the proceeds security interest of Metal Manufactures in SES’s chose in action against Verdia automatically attached to those proceeds. There is no need for a further step of attachment under s 19(2): at [80], [81].
WesTrac’s notice of contention (ground 3) is upheld: at [91].
As to Metal Manufactures’ challenge to the finding that the payment of $700,202.91 made by WesTrac to Verdia is “proceeds” to which s 32 applies:
In exchange for the performance of Verdia’s obligation to deliver the panels onsite, which was satisfied by SES transferring possession of the panels to WesTrac, Verdia acquired a right to payment of $700,202.91, being the third milestone payment under the Verdia-WesTrac contract. That was a dealing with the panels in the relevant sense in s 31(1)(a) as personal property in the form of Verdia’s chose in action against WesTrac was derived directly or indirectly from a dealing with the collateral (the panels): at [97].
Given SES’s own security interest in the panels arising from the retention of title in cl 12.1(b) of the Verdia-SES contract (PPSA, s 12(2)(d)), SES had an “interest” for the purpose of s 31(3)(a)(i) in the “proceeds” of a dealing with the panels. Relevantly, by force of s 32(1)(b) SES had a proceeds security interest in (i) Verdia’s chose in action against WesTrac for $700,202.91, being first generation proceeds of a dealing to which the panels had given rise, and (ii) the monies paid by WesTrac to Verdia on 10 November 2022 in discharge of that chose in action, being second generation proceeds: at [99].
No issue arises as to tracing into a mixed fund as there was no challenge to the finding that the $700,202.91 in Verdia’s bank account is traceable personal property: at [100].
As the secured party under the MM-SES contract, by force of s 32(1)(b) Metal Manufactures had a proceeds security interest which automatically attached to proceeds of a dealing with the panels in which SES had an “interest” being (i) Verdia’s chose in action against WesTrac for $700,202.91, and (ii) subsequently, the monies of $700,202.91 paid to Verdia’s bank account which were second generation proceeds. There was no error by the primary judge in finding that the payment made by WesTrac to Verdia of $700,202.91 is traceable personal property that was derived directly or indirectly from a dealing with the collateral (the panels) to which s 32 applies: at [101].
Section 46 – ordinary course buyer
DZY (A pseudonym) v Trustees for the Christian Brothers [2025] HCA 16, referred to.
(1) the protection of s 46 is only engaged where the seller holds the property subject to a security interest, such as a retention of title by the seller’s supplier. The section provides when the buyer will take free of the security interest which attaches to the seller’s title. If the term “sold” requires a transfer of title, the evident purpose of the section will be undermined: at [115];
(2) personal property, as defined in s 10, includes tangible and intangible property (other than real property) and extends beyond goods to business inventory, intellectual property, company shares, and choses in action: at [116]; and
(3) even in respect of goods, the concept of personal property in s 46(1) is not limited to title to physical goods, but expressly includes a security interest which arises under s 32 where the collateral (the property to which the security interest is attached) gives rise to proceeds. Thus, s 46(1) expressly includes a security interest created by the seller, which would include a right to payment under the contract of sale: at [117].
To restrict the operation of s 46 to circumstances where there is a “sale of goods” is to disregard the text. There is no reference in the text to “a sale of goods”; rather the section deals with personal property generally, and not goods: at [119].
There was no dispute that SES was a seller, and that the transaction with Verdia was in the ordinary course of its business as a seller. The contract it entered into with Verdia was aptly described, for the purposes of s 46, as a sale. The subject matter of the contract was the goods which were thereby “sold”. The section makes perfect sense without importing a constraint from State legislation which deals with transfer of title, not priority of security interest: at [119].
The PPSA is not concerned with the sale of goods in the sense of transfer of title to goods: at [125].
Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644, not followed.
GLEESON JA: The appellant (Metal Manufactures) is an importer and supplier of solar panels. One of its customers was Symmetry Electrical Services Pty Ltd (SES). On 16 May 2018 SES signed a Credit Application for the supply of goods from Metal Manufactures on credit terms which included Metal Manufactures’ “terms and conditions of sale as … may be varied from time to time”. On 20 July 2022 Metal Manufactures entered into a contract with SES to supply 3,030 solar panels to SES for $753,424.65 subject to Metal Manufactures’ Standard Terms of Sale which included retention of title until payment of the invoiced amount of the goods and a restriction on selling or disposing of the goods except in the ordinary course of business (the Metal Manufactures-SES contract).
The respondent (WesTrac) is an equipment dealer in the construction, mining and agricultural industries. It operates a number of branches including from leased premises at Tomago, north of Newcastle (the Tomago site). On 8 July 2022, Verdia Pty Ltd (Verdia) entered into a contract with WesTrac to design, supply and install a “1,663 kW Solar Photovoltaic System” at the Tomago site for a sum of $2.120 million (ex GST) (the Verdia-WesTrac contract). On 9 August 2022 Verdia sub-contracted to SES part of these works being all or part of the design, supply and installation of solar photovoltaic equipment at the Tomago site for a sum of $2.062 million (the Verdia-SES contract). The Verdia-SES contract contained a retention of title clause.
On the written instructions of SES given in its purchase order dated 20 July 2022, Metal Manufactures engaged a delivery service to deliver and the panels were delivered to the Tomago site on 25 and 26 October 2022. WesTrac paid milestone payments to Verdia under the Verdia-WesTrac contract, including an amount of $700,202.91 paid on 10 November 2022 (being $636,484.10 plus GST) for the “panels delivered to site” in October 2022. However, Verdia failed to make any milestone payments to SES under the Verdia-SES contract, including the third milestone payment for the supply and delivery of all panels onsite. After deduction of retention monies, this was an amount of $306,269.23 the subject of an invoice issued by SES to Verdia dated 27 October 2022. In turn, SES failed to pay the purchase price of the panels to Metal Manufactures. Following the appointment of voluntary administrators on 11 November 2022, Verdia entered into a creditor’s voluntary liquidation on 15 December 2022. WesTrac terminated the Verdia-WesTrac contract on 17 January 2023.
It is common ground that the panels provided to SES pursuant to the Metal Manufactures-SES contract were the subject of a “security interest” under the Personal Property Securities Act 2009 (Cth) (PPSA) granted by SES in favour of Metal Manufactures pursuant to the terms and conditions applicable to the Credit Application, regardless of which version of the terms and conditions containing retention of title terms were applicable at the relevant time, as they had been amended since the date of the Credit Application.
1 If A sells goods to B subject to a retention of title clause registered as a security interest under the Personal Property Securities Act 2009 (Cth) (the ‘PPSA’); then B sells the goods to C; C sells the goods to D; and D pays C for the goods without notice of the prior transactions or the security interest, can A assert its security interest in the goods against D?
2 Alternatively, can A assert a title in the goods against D?
At J[2], his Honour equated Metal Manufactures to party A and WesTrac to party D, and by implication equated SES to party B and Verdia to party C. His Honour answered both questions “no” and dismissed the summons with costs: at J[4]-[6].
With respect to the first question, his Honour accepted WesTrac’s “proceeds” argument relying on PPSA, s 32 that Metal Manufactures no longer had a security interest in the panels as it had expressly or impliedly authorised a disposal of the panels by SES. His Honour found that Metal Manufactures only had a security interest in the “proceeds” which the panels had given rise to, which his Honour held was the amount of $700,202.91 paid by WesTrac to Verdia on 10 November 2022 (at J[41]-[44]).
Although not necessary to decide, his Honour rejected WesTrac’s “taking free” defence under PPSA, s 46 that WesTrac took the panels free from Metal Manufactures’ security interest because (i) SES had “sold” the panels to Verdia in the ordinary course of SES’s business, and as an ordinary course buyer Verdia took the panels free of Metal Manufactures’ security interest under PPSA, s 46, and (ii) Verdia then sold the panels, already free of the security interest, to WesTrac. His Honour found that s 46 was not engaged because “sold” in PPSA, s 46(1) is to be construed by reference to the meaning of “sold” in the sense described in the Sale of Goods Ac**t 1923 (NSW), and that the panels were not “sold” by SES to Verdia in that sense; rather, there was merely an agreement to sell, given the retention of title terms in the Verdia-SES contract: at J[65] and [66].
On the second question, which his Honour said was of no moment given his conclusion that Metal Manufactures’ security interest was confined to the proceeds to which the panels had given rise, his Honour accepted WesTrac’s additional argument relying on the “buyer in possession” exception in s 28(2) of the Sale of Goods Act to the nemo dat rule. His Honour found that SES was a buyer in possession for the purpose of s 28(2); that the sale by SES to Verdia was effective to transfer title to Verdia as it was in good faith and without notice of Metal Manufactures’ interest in the panels; and Verdia was able to transfer title in the panels to WesTrac: at J[95], [98] and [99].
3 A declaration that the interest held by the Respondent in the Panels, if any, is subject to the first ranking security interest of the Appellant.
4 An order, pursuant to section 123 of the PPSA, or otherwise, that the Respondent deliver up the Panels to the Appellant forthwith.
5 In the alternative to prayer 4, an order that the Respondent, forthwith, make the Panels available to the Appellant, or its agent, for collection.
6 In the alternative to prayers 4 and 5, an order that the Respondent pay the Appellant the sum of $753,424.65, or some other sum as the Court deems fit, in damages as compensation for the wrongful conversion or detainment of the Panels.
As to the relief sought in pars 5 and 6 of the notice of appeal, it was common ground at trial that the panels had not been installed at the Tomago site. There was no evidence on appeal that the position had changed since the trial, and WesTrac did not suggest otherwise.
WesTrac seeks to uphold his Honour’s decision on the proceeds issue and the buyer in possession exception, and also relies on a notice of contention which contends that his Honour’s decision of the proceeds issue should be affirmed on the grounds that (1) in the alternative to his Honour’s finding, the “proceeds” which the panels had given rise to was SES’s right to payment by Verdia of the third milestone payment under the Verdia-SES contract and, that (2) his Honour erred in rejecting the PPSA, s 46 “taking free” defence.
For the reasons that follow the appeal should be dismissed.
6 Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. There may be a contract of sale between one part owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions in are fulfilled, subject to which the property in the goods is to be transferred.
The general rule is that property under a contract for the sale of specific or ascertained goods passes to the buyer when the parties intend it to (s 22); the Sale of Goods Act provides rules for ascertaining the parties’ intention in that regard (s 23). Where goods are unascertained (s 21), as a general rule, property passes when the goods are appropriated to the contract (s 23).
The Sale of Goods Act recognises certain exceptions to the nemo dat rule. Relevantly, the “buyer in possession” exception in s 28(2) provides:
28 Seller or buyer in possession after sale
(1) …
(2) Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for that person of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer were a mercantile agent intrusted by the owner with the goods or documents of title.
(3) In this section the term mercantile agent means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.
26 Sale by person not the owner
…
(2) Nothing in this Act shall affect:
(a) the provisions of the Factors (Mercantile Agents) Act 1923 or of the Personal Property Securities Act 2009 of the Commonwealth,
…
[41] … the PPSA, [is] an Act that has been recognised as radically changing the definition or conceptualisation of security interests (see JGH Stumbles, ‘The PPSA: The extended reach of the definition of the PPSA security interest’ (2011) 34(2) UNSW Law Journal 448). As Professor Stumbles explains, the need for a reconceptualisation of security interests in relation to personal property arose because of the disparate and illogical technicality associated with the creation and recording of security interests over personal property, together with the gaps produced by that technicality: Stumbles at 449.
[42] The PPSA provides default rules for the creation, priority and enforcement of security interests in personal property (as explained when the Bill was before the House of Representatives in 2009; see Commonwealth, Parliamentary Debates (Hansard), House of Representatives, 24 June 2009). Once the provisions of the PPSA are engaged, priority is determined by reference to those rules without regard to title (Stumbles at 453, there referring to the observations of the Canadian Supreme Court in Bank of Montreal v Innovation Credit Union [2010] 3 SCR 3 at [19] in this regard).
254 Concurrent operation—general rule
(1) This Act is not intended to exclude or limit the operation of any of the following laws (a concurrent law), to the extent that the law is capable of operating concurrently with this Act:
(a) a law of the Commonwealth (other than this Act);
(b) a law of a State or Territory;
(c) the general law.
The PPSA is concerned with security interests in personal property which fall into four main categories, one of which is “goods” which is defined broadly in s 10 to include different kinds of tangible property. It is common ground that the solar panels are personal property, as they are “goods” within s 10.
If goods are affixed to land, they cease to have separate existence, and the PPSA no longer applies: PPSA, s 8(1)(j), s 10 (definition of “fixtures”). Neither party suggested that the panels have been affixed to the land at the Tomago site.
A “security interest” under the PPSA is defined in functional terms as an interest in personal property provided for by a transaction that, in substance, secures payment or the performance of an obligation: s 12(1).
Section 12(2) specifies particular transactions that ordinarily provide for an interest in personal property. These include a conditional sale agreement (including an agreement to sell subject to retention of title) (s 12(2)(d)), thereby equating retention of title which secures payment, with other forms of security interest because they are functionally equivalent. Under the PPSA, the seller who has retained their property rights in the goods and let the buyer have possession becomes a “secured party” and has a “security interest” in the goods, and the buyer as the possessor of the goods is the “grantor” of the security interest.
Personal property that is subject to a security interest is referred to as “collateral” when the security interest is attached. In relation to a registration with respect to a security interest, “collateral” includes personal property described by the registration (whether or not a security interest is attached to the property): s 10 (definition of “collateral”).
A security interest in collateral that secures all or part of its purchase price is called a “purchase money security interest” (PMSI): s 14(1)(a). It is common ground that Metal Manufactures’ security interest in the panels is a PMSI as it secured the purchase price of the panels owing by SES to Metal Manufactures. A secured party who holds a PMSI enjoys certain priority benefits: ss 62, 63, 64. None of these provisions is relied on by Metal Manufactures.
A security interest in collateral is enforceable against a grantor when it has “attached” to collateral: s 19(1). A security interest attaches to collateral when, among others, the grantor has rights in the collateral: s 19(2). Where goods are sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title), the grantor has rights in the collateral when the grantor obtains possession of the goods: s 19(5). It is not in dispute that SES obtained possession of the panels on 25 and 26 October 2022 when the panels were delivered to the Tomago site.
A security interest in collateral is “enforceable” against third parties when it has “attached” to the collateral, and either the secured party has possession or control of the collateral, or a security agreement covers the collateral: s 20(1). The Metal Manufactures-SES contract is a security agreement which covers collateral that answers the requirements in s 20(2) as it is evidenced in writing, is signed by the grantor, and contains a description of the particular collateral.
[37] The PPSA provides for a priority regime, not a title regime. Under s 273 of the PPSA ownership or title to personal property is not determinative and as a consequence a retention of title (“ROT“) financier’s ownership interest is replaced by a simple security interest [New Zealand Bloodstock Ltd v Waller [2006] 3 NZLR 629; Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528]. A ROT supplier must protect that ‘security interest’ by taking possession of the personal property (e.g. a pledge under pre-PPSA law) or by obtaining a signed security agreement that covers (describes the collateral) and perfecting [see PPSA, ss 20 and 21] that security interest by registration of a financing statement on the PPSR [PPSA, s 153]. The consequences of non-perfection are that the security interest is ineffective against third parties [PPSA, s 21], and on insolvency a security interest (title) vests in an administrator or liquidator [PPSA, s 267]. In other words, it is ineffective in the event of insolvency.
[38] Because the ownership or title interest is merely a security interest, non-perfection also results in loss of priority because of PPSA, s 55. A further consequence is that a transferee or buyer can take free of the security interest such as under s 43 because of non-registration and, also, under s 46 which provides that a buyer (transferee) takes free of a security interest given by the seller who sells personal property (mainly inventory) in the ordinary course of business of selling personal property of that kind. …
[39] A buyer can also take free of a security interest given by a seller in circumstances where the ROT supplier’s security agreement (supply agreement) authorises the sale of inventory in the ordinary course of the buyer’s business: s 32(1) PPSA. This authorisation is equivalent to the concept of the floating charge whereby the chargor could, until crystallization, sell inventory in the ordinary course of business free of the charge.
123 Secured party may seize collateral
(1) A secured party may seize collateral, by any method permitted by law, if the debtor is in default under the security agreement.
…
It is convenient to address the issues on appeal in the following order:
the s 32 proceeds issue (grounds 3 and 4; notice of contention ground 3),
the s 46 taking free defence (notice of contention grounds 1 and 2), and
the operation of the “buyer in possession” exception in the Sale of Goods Act, s 28(2) (grounds 1 and 2).
It is common ground that if either PPSA, s 32 or s 46 applies, no question of the applicability of the Sale of Goods Act, s 28(2) arises.
9. Title and Security Interests
9.1 Ownership of, and title in, the Goods will not pass to the Customer until the Customer has paid to the Company the Invoiced Amount payable in respect of those Goods.
9.2 Until title in the Goods passes to the Customer in accordance with 9.1:
a) the Company has the right to call for or recover the Goods at its option and the Customer must deliver up the Goods if so directed by the Company;
b) the Customer must hold the Goods as bailee for the Company and must store the Goods on its premises separately from other Goods held by the Customer;
c) the Customer must maintain proper records of any sale or disposal of the Goods;
d) the Customer must keep the Goods fully insured;
e) the Customer must hold the Goods in a fiduciary capacity for the Company;
f) the Customer must not sell or dispose of the Goods except in the ordinary course of business;
g) the Customer will hold the proceeds of any sale or disposal of the Goods (whether tangible or intangible, direct or indirect) to the extent of the amount due to the Company in respect of the Goods on trust for the Company, and will hold such proceeds in a separate account for the Company’s benefit and promptly pay that amount to the Company;
h) the Company retains a purchase money security interest in the Goods (‘PMSI’) and the proceeds of sale of the Goods (including any accounts and accessions by virtue of these Terms) under the PPSA;
i) the Customer consents to the Company registering a security interest under the PPSA and agrees to do all things reasonably required by the Company to effect such registration;
j) the Customer waives any right the Customer has under PPSA to receive notice in relation to registration of the Company’s interest in the Goods under the PPSA; and
k) the Customer will immediately advise the Company of any changes which may affect the Company’s security interest.
Verdia has decided to engage [SES] under this agreement to perform part of the works under the [Verdia-WesTrac Contract], including the design, supply and install[ation] of solar PV equipment ….
By cl 2.1(a) SES agreed to deliver the Works (which included the installation and commissioning of the Equipment) in accordance with Schedule 2 and otherwise on the terms of the agreement. By cl 2.3 SES agreed that it was responsible for the design, supply and installation of the Equipment and to supply and install the Equipment at the Tomago site in accordance with the Project installation timeline set out in Schedule 4, and the terms of the Agreement (cl 2.3(b)(i) and (ii)).
Paragraph 2(a) of Schedule 2 headed “Programme delivery” provided that during the Program Delivery Phase, SES will supply, install and commission the Equipment in accordance with industry-best practice. The definition of Equipment included the “Solar PV Equipment” being the solar photovoltaic system to be installed at the Tomago site. It is not in dispute that the “Solar PV Equipment” included the panels which were delivered to the Tomago site in October 2022.
By cl 6.1 Verdia agreed to pay SES the Fees specified in item 9 of Schedule 1 in accordance with and upon the attainment of each Milestone referred to in the Milestone Payment Table, being Table 1 of Schedule 3. Table 1 specified the milestone payment for the “Delivery of Panels” as 15 per cent of the Fee of $2.062 million, being an amount of $309,362.85 (exclusive of GST).
Clause 6.4 dealt with the invoicing of payment claims, and relevantly provided that SES would issue a tax invoice to Verdia for the Fees following attainment of a Milestone. Verdia agreed by cl 6.4(a) to pay the Fees within 30 days of the date of a tax invoice, subject to confirmation and evidence that the Milestone has been compliantly and entirely completed. Clause 6.5 dealt with retention monies, and relevantly provided in cl 6.5(b) that Verdia may deduct or allow from each payment claim retention money in an amount of 10 per cent of the amount due to SES up to a total of 5 per cent of the Fee. As indicated, SES issued an invoice to Verdia dated 27 October 2022 for $306,269.23 in respect of the third milestone payment (less retention money) for the supply and delivery of all panels onsite: see [3] above.
Clause 12 provided for retention of title until Verdia paid SES in full the invoice(s) relevant for that Equipment (with references to the “Vendor” being to SES and the “Customer” being to WesTrac):
12. Liability & indemnity
12.1 Title and risk in Equipment
(a) The Vendor acknowledges and agrees that risk in the Equipment passes to the Customer on the Date of Practical Completion.
(b) Title in the Equipment passes to the Customer on Verdia paying in full the invoice or invoices relevant for that Equipment.
The Verdia-WesTrac contract described WesTrac as the Principal and Verdia as the Supplier and recited that WesTrac intended to procure the supply and installation of certain equipment and Verdia has agreed to perform the “Work under the Contract”. That expression was defined in cl 1.1 to include all things Verdia was to supply or perform under the Contract including the Work Scope, Variations, rectification, Supplier’s Plant and the Goods. “Goods” are defined in cl 1.1 to mean the items to be supplied, delivered and installed by Verdia in accordance with the contract as described in the Contract Details and Work Scope.
Schedule 1 (“Contract Details”) identified the place of delivery of the Work as WesTrac’s Tomago site and contained a Milestone Payment Schedule for payment of the Contract Sum by WesTrac to Verdia. The third milestone payment for “Panels Delivered to Site” was 30 per cent of the total contract sum.
Schedule 2 (“Work Scope”) specified that Verdia would design, supply and install a 1,663 kW solar PV system, and that the “Work under Contract” was inclusive of the “Supply of Equipment” with specified performance criteria for the “Photo Voltaic (PV) Modules”, which included the “Panels” (par 2.1). The Photo Voltaic (PV) Modules were listed as part of the Equipment Inclusions (par 2.2.1(a)).
Clause 22.1(a) provided that Verdia must comply with the Program at Schedule 4, which specified the total duration for the installation of the solar PV system as 161 days, with the duration for the “Delivery of Panels to Site” as 56 days. Counsel for Metal Manufactures accepted that the Verdia-WesTrac contract included the supply of goods, relevantly, the panels, which was part of Verdia’s obligation to design, supply, install and commission the solar PV system for WesTrac.
Clause 25(a) provided that subject to the Supplier’s compliance with certain provisions relating to administrative and insurance matters, the Principal would grant the Supplier access to the Tomago site from the Site Access Date, which was defined as 1 August 2022.
Clause 25(e) provided that risk and title in all Goods would transfer to the Principal upon “Delivery”, which term is defined relevantly in cl 1.1 to mean:
that stage in the performance of the Work under the Contract when:
(a) the Goods have been delivered and accepted by the Principal at the Place for Delivery and are complete except for minor Defects:
(i) which do not prevent the Goods from being used for their intended purpose;
(ii) the rectification of which, individually or collectively, will not prejudice the work of the Principal or other contractors; and
(iii) in relation to which, the Principal determines that immediate rectification by the Supplier is not practical and that the Supplier has reasonable grounds for not performing the rectification work immediately;
…
and where there is more than one Date for Delivery, paragraphs (a) to (f) apply separately to those Goods relevant to each Date for Delivery;
It is common ground that:
Metal Manufactures expressly or impliedly authorised SES to dispose of the panels in the ordinary course of SES’s business: at J[35];
SES entered into the Verdia-SES contract “in the ordinary course of its business”: at J[49];
SES “took possession” of the panels “and then transferred possession to WesTrac”: at J[96].
WesTrac took the panels in good faith and without notice of any interest of Metal Manufactures, as WesTrac first became aware of Metal Manufactures’ role in relation to the supply of the panels on 11 November 2022, after the voluntary administrators were appointed to Verdia: at J[17]; and
if Verdia had paid SES for the panels, the payment would have constituted “proceeds” under the PPSA, s 32: at J[39].
Nor is it in dispute that Metal Manufactures knew when it sold the panels to SES in July 2022 that the panels were for installation at the Tomago site pursuant to an agreement between Verdia and WesTrac, and that SES was the intended subcontractor. That is plain from the content of emails passing between representatives of Metal Manufactures, Verdia and SES in late June 2022.
32 Proceeds**—attachment**
Continuation of security interest in collateral, and attachment to proceeds
(1) Subject to this Act, if collateral gives rise to proceeds (by being dealt with or otherwise), the security interest:
(a) continues in the collateral, unless:
(i) the secured party expressly or impliedly authorised a disposal giving rise to the proceeds; or
(ii) the secured party expressly or impliedly agreed that a dealing giving rise to the proceeds would extinguish the security interest; and
(b) attaches to the proceeds, unless the security agreement provides otherwise.
Note 1: The effect of paragraph (a) is to extinguish the security interest in the collateral if the secured party expressly or impliedly authorised the dealing mentioned.
Note 2: A transferee can also take the collateral free of the security interest because of the operation of another provision of this Act (for example, under Part 2.5).
…
31 Meaning of proceeds
(1) In this Act:
Proceeds of collateral to which a security interest is (or is to be) attached means identifiable or traceable personal property of the following types, subject to subsections (2) and (3):
(a) personal property that is derived directly or indirectly from a dealing with the collateral (or proceeds of the collateral);
…
Whether proceeds are traceable
(2) Proceeds are traceable whether or not there is a fiduciary relationship between the person who has a security interest in the proceeds, as provided in section 32, and the person who has rights in or has dealt with the proceeds.
Restriction to proceeds in which grantor has a transferable interest
(3) However, personal property is proceeds only if:
(a) either:
(i) the grantor has an interest in the proceeds; or
(ii) the grantor has the power to transfer rights in the proceeds to the secured party (or to a person nominated by the secured party); and
(b) the interest in the proceeds does not arise because of the operation of paragraph 140(2)(f).
…
The introductory words in parenthesis in s 32(1) “by being dealt with or otherwise” reflect that there are some limited exceptions to the dealing requirement in s 31(1)(a). For example, an insurance payout is proceeds even though the payment is not referable to any dealing with the collateral (s 31(1)(b)), payments received by a grantor for licensing its intellectual property are proceeds (s 31(1)(d)), and income in the form of dividends earned on shares and interest earned on investment instruments, such as debentures and derivatives are proceeds (s 31(1)(e)): see A Duggan, Australian Personal Property Securities Law (4th ed, 2024, LexisNexis) at [11.10].
The reference in s 31(1)(a) to a dealing with “proceeds of the collateral” makes plain that “proceeds” includes not just first generation proceeds but also second and subsequent generation proceeds: Australian Personal Property Securities Law at [11.9].
To qualify as proceeds, the proceeds must be “identifiable or traceable personal property”. The preferable view is that “identifiable” refers to the ability to point to particular property obtained by the grantor of the security interest as a result of the dealing with the collateral (or proceeds), while “traceable” refers to the situation where the proceeds are mixed with other property so that their identity is lost, for example, where cash or the proceeds of a cheque become mixed with other funds in a bank account (an “ADI account”, in PPSA terminology): Australian Personal Property Securities Law at [11.15]. In the case of tracing, the PPSA dispenses with the need for a fiduciary relationship, by providing that the proceeds are traceable whether or not there is a fiduciary relationship between the person who has a security interest in the proceeds and the person who has rights in or has dealt with the proceeds: s 31(2).
The primary judge found that:
cl 12.1 of the Verdia-SES contract had the effect that title would pass to Verdia, and through Verdia to WesTrac, on the happening of the events set out in that clause: at J[31];
the Verdia-SES contract is not merely a contract for the supply of services but, like the Verdia-WesTrac contract, is also a contract for the supply of goods, relevantly, the panels: at J[32];
the “collateral” in this case is the panels: at J[34];
Metal Manufactures had expressly or impliedly authorised SES to dispose of the panels: at J[35]. This was common ground between the parties; and
the panels had “give[n] rise to proceeds” within the meaning of PPSA, s 32, being the payment made by WesTrac to Verdia of $700,202.91 which represented “identifiable or traceable personal property” that was “derived directly or indirectly” from a dealing with the panels: at J[41].
The primary judge continued:
[42] That is because the $700,202.91:
(1) is “identifiable” (and indeed “traceable”) personal property; and
(2) was derived, directly or indirectly, from a dealing with the collateral, the Panels; namely Verdia’s purported sale of the Panels pursuant to the Verdia-WesTrac Contract, and the physical delivery of the Panels to WesTrac’s Tomago premises by Metal Manufactures pursuant to SES’s Purchase Order ….
[43] I do not think it matters whether or not there was, in fact, a “sale” between Verdia and WesTrac.
[44] The result is that Metal Manufactures no longer has a security interest in the Panels.
WesTrac’s primary argument under its notice of contention relied on the following essential propositions:
the panels gave rise to “proceeds” for the purposes of PPSA, s 32 because, under the Verdia-SES contract, SES acquired a right to payment from Verdia upon delivery of the panels under cl 6.1 of that contract;
that right to payment is a chose in action which is (a) personal property, and (b) derived directly from a dealing with the panels, within the meaning of PPSA, s 31(1)(a);
there was a “dealing” because SES acquired its right to payment in exchange for delivery of the panels. Alternatively, the dealing comprised SES’s agreement to transfer title to the Equipment (which includes the panels) under clause 12.1(b) of the Verdia-SES contract;
SES as grantor had an interest in the right to payment for the purposes of PPSA, s 31(3)(a)(i): PPSA, s 10; cf Gold Valley Iron Pty Ltd (in liq*) v OPS Screening & Crushing Equipment Pty Ltd* (2022) 59 WAR 232; [2022] WASCA 134 at [206]-[208]. Contrary to Metal Manufactures’ submission, it is not to the point that the right to payment is contractual; it remains personal property; and
where Metal Manufactures expressly authorised SES to dispose of the panels by clause 9.2(f) of the Metal Manufactures-SES contract, it follows that Metal Manufactures’ security interest does not continue in the panels: PPSA, s 32(1)(a)(i).
Three arguments were advanced by Metal Manufactures that SES’s right to payment is not proceeds to which s 32 applies. These were: (1) the right to payment cannot be “proceeds” for the purposes of s 32(1) because it reflects the primary obligation between SES and Verdia, (2) SES does not have an “interest” in the proceeds in the relevant sense in s 31(3)(a)(i), and (3) SES’s right to payment does not satisfy the dealing requirement in s 31(1)(a).
The parties’ obligations under the Verdia-SES contract were dependent obligations: Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465 (Dixon J); [1946] HCA 25. Relevantly, Verdia’s obligation to make milestone payments to SES under cl 6.1 and Schedule 3 was dependent on performance by SES of each milestone as referenced in the Milestone Payment Table in Schedule 3. The effect of cl 6.1 is that upon attainment of each milestone, SES was entitled to payment of the relevant part of the Fee specified in Schedule 3, subject to allowable deductions and withholdings set out in cl 6.5 of the contract.
The performance on 25 and 26 October 2022 of SES’s primary obligation to supply and deliver all panels onsite, generated a monetary obligation owed by Verdia to SES under cl 6.1 and Schedule 3 in the amount of the third milestone payment, less retention monies, being an amount of $306,269.23 inclusive of GST. That right to payment is a “chose in action” in the primary sense of that phrase, as explained by Rich J in Loxton v Moir (1914) 18 CLR 360 at 379; [1914] HCA 89:
The phrase ‘chose in action’ is used in different senses, but its primary sense is that of a right enforceable by an action. It may also be used to describe the right of action itself, when considered as part of the property of the person entitled to sue. A right to sue for a sum of money is a chose in action, and it is a proprietary right.
A chose in action is personal property. It is a personal right of property which can only be claimed or enforced by action, as distinct from taking physical possession. A chose in action is discharged by payment.
If a dealing with collateral gives rise to proceeds in the form of a chose in action, the proceeds are referred to as first generation proceeds. If a dealing with the proceeds gives rise to further proceeds (as referred to in s 31(1)(a)), such as when a chose in action is discharged by payment as in the case of a bank transfer, the monies received are proceeds of the proceeds and referred to as second generation proceeds.
The tension in Metal Manufactures’ argument that SES’s right to payment is not personal property for the purpose of the definition of proceeds in s 31(1) is its acceptance that had Verdia paid SES for the panels, that payment would have constituted “proceeds” for the purpose of s 31(1): at J[39]. In terms of “proceeds” for the purpose of s 31(1), the asserted distinction between a chose in action against Verdia and any monies paid in discharge of the chose of action is illusory. The first generation proceeds of collateral, being a chose of action, is personal property just as much as second generation proceeds being the monies paid in discharge of a chose in action is personal property. SES’s chose in action against Verdia is personal property to which the definition of proceeds in s 31(1) may apply, relevantly, in this case, if (i) SES had an “interest” in that chose in action in the sense of s 31(3)(a)(i), and (ii) SES’s chose in action derived directly or indirectly from a dealing with collateral.
Nothing turns on whether SES’s right to payment is an “account”, in PPSA terminology, a matter to which WesTrac referred to in passing in oral argument: see Australian Personal Property Securities Law at [11.9]. There is no issue in this case concerning the transfer (assignment) of an account, or the rights of a transferee of an account: see PPSA, ss 12(3)(a), 80, 81.
Two arguments were advanced by Metal Manufactures that SES did not have an “interest” in the “proceeds” of the collateral (the panels) for the purpose of the limitation in s 31(3)(a)(i). These were: (1) that SES’s right to payment is no more than a contractual right to payment, and (2) there needs to be an “attachment” of the security interest to the “proceeds” of the original collateral within the meaning of s 19, and at no time did any “interest” that SES had “attach” to any “Milestone Payment” under the Verdia-SES contract.
The first argument directs attention to the meaning of an “interest” in personal property, which is defined in s 10 as including “a right in” the personal property. The term “interest” in personal property, as defined in s 10, has a broad meaning. In Gold Valley Iron Pty Ltd (in liq*) v OPS Screening & Crushing Equipment Pty Ltd* at [207], Buss P and Murphy JA said:
It is significant, in our opinion, that the phrase refers to ‘a right in’ the personal property as distinct from ‘an interest in’ the personal property. This indicates that the term ‘interest’, in personal property, as defined in s 10, was intended to have a broad meaning. The attribution of a broad meaning reflects the relevant context and purpose, namely the functional approach of the PPSA and its focus upon the substance of transactions.
But it is not necessary in this case to rely on the broad meaning of the term “interest” to determine whether SES has an “interest” in the proceeds of the collateral. A person has an “interest” in a chose in action if they are entitled to enforce the right by action. It is no answer to the “interest” limitation in s 31(3)(a)(i) for Metal Manufactures to say that SES’s right to payment is no more than a contractual right to payment. The grantor of a security interest has an “interest” in the proceeds of collateral if a dealing with the collateral gives rise to proceeds in the form of a chose which the grantor is entitled to enforce by action.
SES acquired “a right in” a chose in action upon the supply and delivery of all panels onsite, being a right enforceable by action against Verdia to recover the amount of the third milestone payment, less retention monies. SES had an “interest” in that chose in action against Verdia in the sense referred to in s 31(3)(a)(i).
The second argument concerning attachment to proceeds of a dealing with collateral conflates the subject matter of PPSA, s 19, with that of s 32. Section 19 deals with the concept of attachment to collateral, whilst s 32(1) deals with what happens when collateral gives rise to proceeds. Relevantly, s 32(1)(b) states that if the collateral gives rise to proceeds, the security interest attaches to the proceeds of collateral, unless the security agreement provides otherwise. The purpose of the statutory attachment under s 32(1)(b) is to give a secured party an automatic proceeds claim, which avoids the need for an express proceeds clause in the security agreement: Australian Personal Property Securities Law at [11.31]. Here, the security agreement did not provide otherwise; rather, the Metal Manufactures-SES contract contained an express proceeds clause in cl 9.2(h) of the Standard Terms which covers the proceeds of the panels: see [42] above.
The effect of s 32(1)(b) is that the attachment of proceeds happens automatically when the collateral gives rise to proceeds. There is no need for a further step of attachment under s 19(2). For completeness, s 33(1) is also relevant as it has the effect that the security interest of Metal Manufactures was automatically registered against the proceeds, given that the financing statement which Metal Manufactures lodged on the Register covered “all present and after-acquired property”: see [33] above.
Metal Manufactures advanced two arguments why no monies or payment obligation arose from a “dealing” with the panels for the purposes of s 31(1)(a). These were: (1) there was no transfer of title of the panels from SES to Verdia, given the retention of title in cl 12.1(b) of the Verdia-SES contract, and (2) the Verdia-SES contract was a contract for the provision of services, not for the sale of goods.
The definition of “proceeds” in s 31(1)(a) requires that the personal property in which a proceeds security interest is claimed must be derived directly or indirectly from a “dealing” with the collateral. The word “dealing” is not defined in the PPSA. Neither party suggested that assistance could be gained as to the ordinary meaning of “dealing” by resort to a dictionary definition. The question is the natural and ordinary meaning of “dealing” in s 31(1)(a).
There is no contextual or purposive reason to constrain the meaning of “dealing” to a sale or transfer of title to the collateral, as Metal Manufactures suggested was necessary in this case. The preferable approach is that “dealing” is used in s 31(1)(a) in the sense of an exchange of the collateral for other property. The exchange may be either for possessory rights or proprietary rights in the collateral. As Metal Manufactures accepted, a lease of collateral for a fee is a dealing, and the fee would be proceeds from the original collateral.
That a dealing with collateral encompasses the exchange of collateral for other property is consistent with the concept of a proceeds security interest in s 32(1)(b). The effect of s 32(1)(b) is that a secured party is given a surrogate security interest in the proceeds of collateral, and that proceeds security interest is to the exclusion of the security interest in the original collateral, if the secured party expressly or impliedly authorised a disposal giving rise to proceeds.
That a dealing encompasses an exchange is consistent with the views of leading commentators: see RCC Cuming, C Walsh, RJ Wood, Personal Property Security Law (3rd ed, 2022, Irwin Law Inc) at 621, in relation to the equivalent provision in the Canadian PPSA; and A Duggan in Australian Personal Property Securities Law at [11.12]. For example, if the grantor deals with inventory by exchanging it for the customer’s promise to pay money, there is a dealing in the relevant sense. By contrast, if the grantor earns money (income) from using its truck to transport goods, the use of the truck is not a dealing in the relevant sense.
The characterisation of the Verdia-SES contract as a contract for services (more accurately, for the provision of work and services) is not determinative of whether there was a “dealing” with the panels for the purpose of s 31(1)(a). That characterisation ignored that the Verdia-SES contract included an agreement in cl 12(1)(b) to transfer title to the panels to WesTrac upon payment in full by Verdia of the invoice relevant to the panels, being the amount of the third milestone under the Verdia-SES contract. That was an agreement to transfer title to the panels on satisfaction of a future condition as to payment: see also cl 2.1(a), 2.3(b), Schedule 2 (Works), par 2(a) and Schedule 3 (Fees and Milestone Payments), Table 1, and Milestone Schedule, item 3. The dealing requirement directs attention, relevantly for present purposes, to whether SES as the grantor of the original collateral obtained other property in exchange for the supply and delivery of the panels onsite.
WesTrac’s alternative argument seeking to uphold the primary judge’s “proceeds” finding, relied on the following essential propositions:
there was a dealing because WesTrac obtained possession of the panels upon delivery to it (J[67]) and/or it contracted for a transfer of title under clause 25(e) of the Verdia-WesTrac contract (J[42(2)]);
SES had an interest in the $700,202.91 for the purposes of PPSA, s 31(3)(a)(i) because clause 12.1(b) of the Verdia-SES contract gave rise to a security interest (PPSA, s 12(2); cf J[78]). By force of PPSA, s 32, that interest attached to the $700,202.91 (albeit it later vested in Verdia under PPSA, s 267);
contrary to Metal Manufactures’ submissions, PPSA, s 19 is irrelevant. That provision deals with attachment to collateral; the attachment here occurs under s 32.
Three arguments were advanced by Metal Manufactures as to why the payment of $700,202.91 made by WesTrac to Verdia is not proceeds to which s 32 applies. These were: (1) that the payment of any monies from WesTrac to Verdia does not and cannot constitute “proceeds” as understood by s 32, (2) there must be a sale in order for proceeds to arise under s 32, and (3) SES did not have any “interest” in the $700,202.91 paid by WesTrac to Verdia for the purpose of s 31(3)(a)(i), and neither did Metal Manufactures.
It is convenient to address these arguments as directed to raising the issues of (i) the dealing requirement, and (ii) the grantor’s interest limitation.
Verdia’s obligation under the Verdia-WesTrac contract was to deliver the panels onsite. This obligation was satisfied by SES transferring possession of the panels to WesTrac. The inference that SES did so on behalf of Verdia is readily available from Verdia’s invoice to WesTrac dated 27 October 2022 which claimed the third milestone payment for delivery of panels to the site. Metal Manufactures did not contend otherwise. Nor did Metal Manufactures dispute that it expressly or impliedly authorised the disposal of the panels by SES transferring possession to WesTrac. There are unchallenged findings that (i) SES “took possession” of the panels “and then transferred possession to WesTrac”: at J[78] and [96], and (ii) WesTrac came into possession of the panels on or around 25 October 2022: at J[67].
That WesTrac obtained possession of the panels upon delivery to it in October 2022 satisfies the dealing requirement in relation to the collateral (the panels). In exchange for performance of Verdia’s obligation to deliver the panels onsite, which was satisfied by SES transferring possession of the panels to WesTrac, Verdia acquired a right to payment of the third milestone payment of $700,202.91. That chose in action is personal property which answers the description of “proceeds” of the collateral (the panels) in the relevant sense in s 31(1)(a). And by force of s 32(1)(a), the security interest of Metal Manufactures in the panels was cut off or effectively extinguished because Metal Manufactures expressly or impliedly authorised a disposal of the panels by SES giving rise to the proceeds.
Metal Manufactures correctly accepted that SES had its own security interest in the panels by force of PPSA, s 12(2)(d) given the retention of title in cl 12.1(b) of the Verdia-SES contract. The relevant obligation secured by cl 12.1(b) was the payment of the third milestone payment by Verdia to SES for the supply and delivery of all panels onsite.
The present question is whether SES had an “interest” in the proceeds for the purpose of s 31(3)(a)(i), relevantly, Verdia’s right to payment under the Verdia-WesTrac contract of the third milestone payment of $700,202.91. As the secured party under the Verdia-SES contract, SES had an “interest” in these proceeds because SES had a proceeds security interest in Verdia’s chose in action for $700,202.91, being first generation proceeds derived from a dealing with the panels: s 31(1)(a). By force of s 32(1)(b), SES’s proceeds security interest automatically attached to Verdia’s chose in action for $700,202.91 no later than 27 October 2022, the date of Verdia’s invoice to WesTrac for the panels delivered to site. Verdia’s chose in action is identifiable personal property that was derived directly or indirectly from a dealing with the panels to which s 32 applies. PPSA, s 19 is irrelevant for the reasons given at [80]-[81] above.
The actual payment of $700,202.91 made by WesTrac to Verdia on 10 November 2022 is second generation proceeds of the original collateral (the panels), being a dealing with the first generation proceeds. The effect of payment by WesTrac was to discharge Verdia’s chose in action against WesTrac for $700,202.91 in exchange for the monies in that amount paid by Westrac to Verdia’s bank account. That was a dealing. SES had an “interest” in those monies in Verdia’s bank account for the purpose of s 31(3)(a)(i) being SES’s proceeds security interest which automatically attached to those monies by operation of s 32(1)(b). No issue arises as to tracing into a mixed fund. As noted, there is no challenge to the finding at J[42(1)] that the $700,202.91 in Verdia’s bank account is traceable personal property.
As the secured party under the Metal Manufactures-SES contract, by force of s 32(1)(b), Metal Manufactures had a proceeds security interest in personal property answering the description in s 31(1)(a) of “proceeds” that is derived directly or indirectly from a dealing with the collateral (or proceeds of collateral). Here, the personal property answering that description in which SES had an “interest” was initially Verdia’s chose in action against WesTrac for $700,202.91, being first generation proceeds of a dealing with the panels. As a consequence of the discharge of that chose in action by WesTrac’s payment of $700,202.91 to Verdia’s bank account, being a dealing with “proceeds of the collateral” as referred to in s 31(1)(a), the personal property in which SES had an “interest” was the monies of $700,202.91 paid to Verdia’s bank account, being second generation proceeds of the panels, that is, proceeds of the first generation proceeds. By force of s 32(1)(b), Metal Manufactures’ proceeds security interest automatically attached to those monies in Verdia’s bank account. There was no error by the primary judge in finding that the payment made by WesTrac to Verdia of $700,202.91 is traceable personal property that was derived directly or indirectly from a dealing with the collateral (the panels) to which s 32 applies.
Neither party drew the primary judge’s attention to PPSA, s 267(2) which provides that any security interest granted by a corporation that is unperfected at the commencement of its administration or winding up vests in the corporation. In this Court, WesTrac correctly accepted that SES’s security interest in the panels, being a PMSI granted by Verdia by the terms of cl 12.1(b) of the Verdia-SES contract, was unperfected at the time of the appointment of voluntary administrators to Verdia on 11 November 2022: see proposition (2) at [93] above. That follows from the absence of registration by SES of a financing statement in relation to the retention of title term in the Verdia-SES contract: PPSA, ss 21(1) and 33(1).
WesTrac also correctly accepted that the effect of s 267(2) is that SES’s unperfected security interest vested in Verdia immediately before the appointment of administrators on 11 November 2022. That SES lost its security interest in the second generation proceeds of the panels by force of s 267(2), does not alter the effect of s 32(1)(a)(i) for Metal Manufactures’ security interest in the original collateral (the panels). As indicated, by force of s 32(1)(a)(i) that security interest in the panels did not continue as Metal Manufactures had expressly authorised a disposal of the panels by SES which gave rise to the first generation proceeds in the form of Verdia’s chose in action against WesTrac for $700,202.91, and upon payment of that chose in action by WesTrac, gave rise to the second generation proceeds in the form of the monies of $700,202.91 paid by WesTrac to Verdia’s bank account on 10 November 2022. Again, that the proceeds security interest was rendered worthless by Verdia’s insolvency is not to the point.
Grounds 3 and 4 of the appeal are not made out.
46 Taking personal property free of security interest in ordinary course of business
Main rule
(1) A buyer or lessee of personal property takes the personal property free of a security interest given by the seller or lessor, or that arises under section 32 (proceeds—attachment), if the personal property was sold or leased in the ordinary course of the seller’s or lessor’s business of selling or leasing personal property of that kind.
Exceptions
(2) Subsection (1) does not apply if:
(a) in a case in which personal property of that kind may, or must, be described by serial number—the buyer or lessee holds the personal property:
(i) as inventory; or
(ii) on behalf of a person who would hold the collateral as inventory; or
(b) in any case—the buyer or lessee buys or leases the personal property with actual knowledge that the sale or lease constitutes a breach of the security agreement that provides for the security interest.
(Emphasis added.)
The protection in s 46 for the ordinary course buyer or lessee applies where the personal property is “sold” or “leased” in the ordinary course of the seller’s business of selling personal property “of that kind”. It is common ground that SES entered into the Verdia-SES contract “in the ordinary course” of its business: at J[49]. It is not in dispute that the business of SES involved the supply of solar panels. Metal Manufactures did not rely on either of the exceptions in s 46(2).
The parties diverged at trial, and again in this Court, as to whether Verdia was a “buyer” of personal property (the panels) that was “sold” for the purpose of PPSA, s 46. The essential issue is whether the ordinary course buyer protection in s 46 applies (a) as soon as a contract of sale is made, and therefore protects a buyer under an agreement to sell subject to retention of title, as WesTrac contended, or, (b) to a “sale” in the sense described in the sale of goods legislation where a “sale” means the transfer of property in the goods from seller to the buyer, as Metal Manufactures contended.
The reasoning of the primary judge leading to the conclusion (at J[66]) that s 46 was not engaged in this case, can be summarised as follows:
Sifris J, in Warehouse Sales, considering a layby “sale”, held that it was appropriate to have regard to the definition of “sale” in the Victorian sale of goods legislation in construing s 46 of the PPSA and that it followed that the relevant goods in that case had not been “sold” for the purposes of s 46: at J[56];
there was conflicting Canadian authority on the meaning of “sold” in the equivalent ordinary course buyer protection provision in the Saskatchewan PPSA. Although the Saskatchewan Court of Appeal in Calidon Financial Services Inc – Calidon Equipment Leasing v Magnus [2021] SKCA 106; [2021] 461 DLR (4th) 278 departed from the earlier decision of that Court in Royal Bank v 216200 Alberta Ltd (1986) 51 Sask R 146 (CA); [1986] 33 DLR (4th) 80, a layby sale case, and said that the ordinary course buyer protection in the Saskatchewan PPSA applied to conditional sales, Royal Bank was a decision that Sifris J found persuasive in Warehouse Sales: at J[59];
in circumstances where his Honour was being invited to depart from a construction of Commonwealth legislation adopted by a trial judge (exercising federal jurisdiction), his Honour was not persuaded that Sifris J was “plainly wrong”, and considered that the reasoning of Sifris J was careful and persuasive: at J[63]; and
the fact that the Victorian Goods Act contains no provision equivalent to s 26(2) of the NSW Sale of Goods Act, which states that “[n]othing in this Act shall affect” the PPSA, did not mean that the provisions of the NSW Sale of Goods Act were not available as an aid in the construction of the PPSA: at J[64].
WesTrac’s preferred construction of s 46(1) relied on the following essential propositions:
the word “sold” in s 46 encompasses an agreement to sell because (a) “buyer” can include a person who has agreed to sell: cf Sale of Goods Act, s 5(1), and (b) “sold”, where used as a verb in PPSA, s 46(1), is remote from the context of s 6 of the Sale of Goods Act which is concerned with types of “contract[s] of sale”. The purpose of the definition in s 6 of the Sale of Goods Act is limited: see Sale of Goods Act, ss 10(3), 12, 14;
this construction is consistent with the policy of the PPSA which is said to treat a buyer of goods under a retention of title clause as if they were the owner; and
the decision to the contrary in Warehouse Sales should not be followed, because (a) the point appears not to have been contested: see Warehouse Sales [64], (b) the essential reasoning in Warehouse Sales at [72]-[73] is open to question, (c) the Canadian authority relied upon by the primary judge of Royal Bank has since been departed from in Canada in Calidon, and (d) there is no Victorian equivalent to s 26(2)(a) of the Sale of Goods Act.
In seeking to uphold the primary judge’s construction of s 46, Metal Manufactures relied on the following essential propositions:
the context the court is to have regard to when construing a statutory provision includes the existing state of the law, and accordingly the primary judge was correct to have regard to the meaning of the word “sale” in the Sale of Goods Act;
there is no reason for the PPSA to define the term “sold” in circumstances where the PPSA regulates what occurs to security interests as a consequence of a sale – not whether a sale occurs or not;
one looks to the relevant sale of goods legislation the Sale of Goods Act to ascertain whether or not a sale has occurred, and if a sale has occurred, one then looks to the PPSA to ascertain whether that the buyer in that sale took the property free or subject to existing encumbrances. There ought not be any circumstance where there is a sale for the purpose of one statute, but not the other;
the PPSA is not intended to exclude or limit the operation of any State law – to the extent that the law is capable of operating concurrently with the PPSA – which is made clear by PPSA, s 254; and
s 26(2) of the Sale of Goods Act is no more than a familiar drafting device to avoid any direct inconsistency with Commonwealth legislation for the purpose of s 109 of the Commonwealth Constitution.
It is of assistance to briefly refer to the principles of statutory construction which are of present relevance.
As Gageler CJ, Gordon, Edelman and Gleeson JJ recently observed in DZY (A pseudonym) v Trustees of the Christian Brothers [2025] HCA 16 at [23] (footnotes omitted):
The language which has actually been used in the text, in light of its context and purpose, is the surest guide to legislative intention. One reason that the context and purpose of a provision are important to its proper construction is that an object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. Or, as was explained in Project Blue Sky Inc v Australian Broadcasting Authority, statutory construction requires deciding what the legal meaning of the relevant provision is "by reference to the language of the instrument viewed as a whole". Further, the purpose of the legislation is not to be derived from any a priori assumption about the desired reach or operation of the relevant provisions.
It is necessary therefore to construe the language used in s 46(1) having regard to its purpose. That purpose is summarised in the title, namely “taking personal property free of security interests in the ordinary course of business”. A number of features of the provision give content to that purpose.
First, leaving to one side for the moment the reference to a lease, the ordinary course of business refers to the seller’s business. The section assumes that the “seller” will hold the personal property for sale and that there will be a sale to a “buyer”. However, s 46 is only engaged where the seller holds the property subject to a security interest, such as a retention of title by the seller’s supplier. The section provides when the buyer will take free of the security interest which attaches to the seller’s title. If the term “sold” requires a transfer of title, the evident purpose of the section will be undermined.
Secondly, the property to which the section refers is not limited to goods, but extends to all forms of “personal property”, as defined in s 10, which excludes from the operation of the PPSA land and rights granted under statute. (There are additional exclusions in s 8 with respect of particular interests.) Personal property thus includes tangible and intangible property (other than real property) and extends beyond goods to business inventory, intellectual property, company shares, and choses in action.
Thirdly, even in respect of goods, the concept of personal property in s 46(1) is not limited to title to physical goods, but expressly includes a security interest which arises under s 32 where the collateral (the property to which the security interest is attached) gives rise to proceeds. Thus, s 46(1) expressly includes a security interest created by the seller, which would include a right to payment under the contract of sale.
In considering whether Verdia obtained the goods from SES free of the security interests granted by SES to Metal Manufactures, the focus of attention in the Court below was whether the panels were “sold” by SES to Verdia. It was common ground that there was an agreement to sell, but Metal Manufactures contended that for the panels to be sold, there must be a “sale of goods” for the purposes of the Sale of Goods Act, meaning there had to be a transfer of title. The primary judge accepted the proposition that the panels were not “sold” in that sense and that s 46 was therefore not engaged.
To restrict the operation of s 46 to circumstances where there is a “sale of goods” is to disregard the text. There is no refence in the text to “a sale of goods”; rather the section deals with personal property generally, and not goods. The section does, however, refer to the ordinary course of the seller’s business. There was no dispute that SES was a seller, and that the transaction with Verdia was in the ordinary course of its business as a seller. The contract it entered into with Verdia was therefore aptly described, for the purposes of s 46, as a sale. The subject matter of the contract was the goods which were thereby “sold”. The section makes perfect sense without importing a constraint from State legislation which deals with transfer of title, not priority of security interest.
There are a number of reasons why that approach should be adopted. First, the importation of a constraint existing under state law into a national scheme created by a Commonwealth Act is apt to destroy the uniformity of the national scheme. Whilst that result is not impossible, clear words might be expected to give effect to such a result, particularly in circumstances where the Commonwealth legislation has resulted from a referral of powers by the states pursuant to s 51(xxxvii) of the Constitution for the very purpose of creating a uniform scheme.
Secondly, the focus of the judgment below (and the submissions in this Court) was on the operation of s 46(1) with respect to goods, for the sole reason that the case dealt with goods. However, the PPSA generally (and s 46 in particular) deals with “personal property” which, as noted above, includes tangible and intangible property including choses in action. The risk that importation of the special rule taken from an Act restricted to goods (defined as “chattels personal other than things in action and money”) will cause disharmony with other circumstances in which the Act operates should not be accepted without full consideration of that issue. Yet it was not addressed.
Thirdly, s 46(1) applies to a lease of goods subject to a security interest. There is no basis to think that the term “leased” contains some implicit constraint on its operation derived from State law, as found with respect to “sold”. Why a lessee should be in a better position than a buyer was not explained.
The primary judge was correct to follow the reasoning of a single judge in the Supreme Court of Victoria unless comfortably satisfied that it was wrong. In Warehouse Sales at [47] Sifris J observed that the PPSA “discloses no intention to displace the existing law relating to the sale of property (as opposed to the operation of security interests over property)”. So much may be accepted, but the sole purpose of the PPSA is to set up a novel and uniform scheme for creating priorities to security interests over personal property.
Sifris J continued, stating that “[w]hen the PPSA refers to existing concepts, such as the sale of property, … there is no reason to suppose that the Parliament intended anything other than the reference to the accepted meaning of familiar concepts”. However, s 46 does not use the term “sale of property”; and, in any event, because the judge proceeded immediately to discuss the operation of the Goods Act 1958 (Vic) it is clear that by “sale of property” he was referring to sale of goods. As already noted, the PPSA is not concerned with sale of goods in the sense of transfer of title to goods. Further, in Warehouse Sales there was no discussion of the Constitutional background to the Act, nor to the principles of interpretation noted above.
Finally, the primary judge placed some reliance upon Canadian authority dealing with similar legislation. Those cases do not bind this Court any more than they bound the primary judge. Further, to rely on Canadian provincial authority when construing Australian federal legislation is to ignore the constitutional context in which each arises. Because the operation of s 46(1) is not determinative of the outcome of the appeal, there is no purpose in discussing the respective merits or otherwise of the Canadian approaches to this issue, there being two cases in which contrary approaches were adopted.
Properly construed, s 46(1) was engaged. Verdia therefore took free of the security interest enjoyed by Metal Manufactures over the panels in the hands of SES. WesTrac’s contention should be upheld.
Issue 3 concerns the challenge in grounds 1 and 2 to the primary judge’s findings as to the operation of Sale of Goods Act, s 28(2). These grounds concern the question of title to the panels.
I have considered in accordance with Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] and Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [8] whether this issue should be resolved, although it cannot affect the outcome of the appeal. As indicated, it is common ground that if either PPSA, s 32 or s 46 applies, no question of the buyer in possession exception in s 28(2) of the Sale of Goods Act arises. In these circumstances I am satisfied that good reason exists not to deal with this issue.
The appeal has failed. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
I propose the following orders:
Appeal dismissed.
Appellant to pay the respondent’s costs of the appeal.
MITCHELMORE JA: I agree with Gleeson JA.
BASTEN AJA: I agree with Gleeson JA.
**********
Metal Manufactures Pty Limited t/as TLE Electrical
WesTrac Pty Limited [2025] NSWCA 97
(1946) 72 CLR 435
(2019) 268 CLR 593
(2022) 59 WAR 232
(2008) 236 CLR 1
(1914) 18 CLR 360
(2017) 93 NSWLR 765
(2014) 291 FLR 407
Appeal dismissed. The appellant was ordered to pay the respondent’s costs of the appeal: [131].
It is also common ground that Metal Manufactures’ purchase money security interest in the panels was perfected because it had registered on the Personal Property Securities Register (the Register) a financing statement on 16 July 2020 in respect of any security interest arising from any dealing pursuant to the Credit Application. The financing statement described the collateral as “collateral supplied by the secured party, including but not limited to electrical goods and related products” and the proceeds as “[a]ll present and after acquired property”.
In the underlying proceedings, Metal Manufactures sought (1) a declaration that any interest held by WesTrac in the panels was subject to the first ranking security interest of Metal Manufactures, and (2) an order that WesTrac deliver up the panels relying on the rights of a secured party under PPSA, s 123 to seize “collateral” if the debtor (SES) is in default under a security agreement, or (3) alternatively, damages of $753,424.65 for the conversion or detainment of the panels. Metal Manufactures’ claim failed at trial: Metal Manufactures Pty Limited t/as TLE Electrical v WesTrac Pty Limited [2024] NSWSC 144.
A security interest in “proceeds” is enforceable against a third party whether or not the security agreement providing for the security interest contains a description of the proceeds: s 20(6). The Standard Terms in the Metal Manufactures-SES contract expressly provided in cl 9.2(h) that Metal Manufactures retains a PMSI in the proceeds of sale of the goods: see [42] below.
A security interest in collateral is “perfected” if it is attached to the collateral, is enforceable against third parties, and is effective against third parties by registration, possession or control of the collateral by the secured party: s 21(1)(b) and (2). In this case, possession or control (which only applies to some forms of collateral (s 21(2)(c)) are not relevant. As noted, the registration of Metal Manufactures’ security interest in respect to the goods on 16 July 2020, perfected its PMSI over SES.
The PPSA provides for automatic perfection (or in some cases temporary protection) over the proceeds of collateral. Relevantly, if a security interest in collateral is perfected by registration and the security attaches to the proceeds of that collateral, the security interest will be automatically perfected against the proceeds (s 33(1)) if the registration describes the proceeds in one of the ways referred to in paragraph 2.4 in Schedule 1 to the Personal Property Securities Regulations 2010 (Cth), including, as in this case, “as all present and after acquired property”: see [5] above.
Security interests in the “proceeds” of collateral, and in collateral after it is transferred, are dealt with in PPSA, Division 2 of Part 2.4. “Proceeds” is defined in s 31. What happens when collateral gives rise to “proceeds”, and whether the security interest continues in collateral after it is transferred, is dealt with in s 32. The terms of these provisions are set out at [59] and [60] below. The effect of s 32 is that if the collateral gives rise to proceeds (by being dealt with or otherwise), the security interest (a) continues in the collateral, unless the secured party expressly or impliedly authorised a disposal giving rise to the proceeds or the dealing extinguishing the security interest, and (b) attaches to the proceeds, unless the security agreement provides otherwise.
The transfer of personal property free of security interests and the rules for when personal property may be bought or leased free of a security interest are dealt with in Part 2.5. The “taking free” rule for ordinary course buyers or lessors is contained in s 46, the terms of which are set out at [105] below. The effect of s 46 is that a sale or lease of the collateral by the grantor in the ordinary course of business results in the security interest being, in effect, cut off or extinguished unless the buyer or lessee has actual knowledge that the sale or lease is in breach of the security agreement. The sale or lease must be in the ordinary course of the seller’s or lessor’s business of dealing with personal property “of that kind”, rather than the ordinary course of the seller’s or lessor’s business generally. This will be a question of fact in each case. It is common ground that SES entered into the Verdia-SES contract in the ordinary course of its business. It is not in dispute that the business of SES included the supply of solar panels.
The position of a retention of title supplier under the priority regime in the PPSA was summarised by Sifris J in Warehouse Sales Pty Ltd (in liq*)* & Lewis and Templeton v LG Electronics Australia Pty Ltd (2014) 291 FLR 407; [2014] VSC 644 (footnotes included):
The dealing requirement was satisfied in this case by the performance by SES of its obligation to supply and deliver all panels onsite which generated a chose in action against Verdia in respect to the third milestone payment, less retention monies. SES acquired a chose in action against Verdia in exchange for the supply and delivery of all panels onsite. That was a dealing with the panels in the relevant sense in s 31(1)(a) as personal property in the form of a chose in action was derived directly or indirectly from delivery of the panels.
In light of the above conclusion, WesTrac’s alternative argument that the “dealing” with the collateral comprised SES’s agreement to transfer title to the Equipment (which includes the panels) under clause 12.1(b) of the Verdia-SES contract, can be dealt with briefly. The difficulty with this argument is that prior to performance of the executory promise to transfer title to the panels, the promisor (SES) did not obtain any other property in exchange for that executory promise. Whilst SES had the benefit of a promise by Verdia of performance of a payment obligation, the unperformed executory promise of SES to transfer title to the panels did not give rise to a relevant exchange of property until performance of Verdia’s payment obligation, which did not occur.
The final matter is WesTrac’s proposition (5) (see [68] above). It is not in dispute that Metal Manufactures expressly authorised SES to dispose of the panels. That is the effect of cl 9.2(f) of the Standard Terms of the Metal Manufactures-SES contract. By force of s 32(1)(a)(i), having expressly authorised SES to dispose of the panels, the effect of the dealing with the panels by SES giving rise to proceeds, was that the security interest of Metal Manufactures in the panels was cut off or effectively extinguished. The corresponding effect of s 32(1)(b) is that the security interest of Metal Manufactures automatically attached to the proceeds of the panels being SES’s chose in action against Verdia. That this proceeds security interest was rendered worthless by Verdia’s insolvency is not to the point.
Ground 3 of the notice of contention should be upheld. It follows, although for reasons different to those of the primary judge, that there was no error in his Honour’s finding that Metal Manufactures’ security interest did not continue in the panels by force of s 32(1)(a)(i). This conclusion is sufficient to dispose of the appeal.
Against the possibility that the above analysis is wrong, I will consider grounds 3 and 4 of the appeal which challenge the primary judge’s finding concerning the proceeds to which s 32 applies.
Alternatively, Metal Manufactures said that even if the word “sale” in PPSA, s 46(1) is not used as in the sense of a “sale” in s 6 of the Sale of Goods Act, in this case there was no sale by SES to Verdia, or by Verdia to WesTrac.
Fourthly, the express statement in s 26(2) of the Sale of Goods Act that “nothing in this Act shall affect … the provisions of… [the PPSA]” is contradicted where the operation of the PPSA is held to depend upon a principle established by the Sale of Goods Act. The primary judge stated that s 26(2) did not have “the effect that the provisions of the SGA are not available to aid in a construction of PPSA”: at [64]. The phrase “aid in a construction” obscures the fact that the State Act was relied upon to affect the operation of the PPSA. Indeed, it is not easy to think of any other manifestation of s 26(2): in the event of inconsistency, the Commonwealth Act would prevail in any event by operation of s 109 of the Constitution, as recognised by s 254(3) of the PPSA.