The recent decision of Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) v General Electric International Inc  NSWSC 52 is important for its exploration of two notable issues under the Personal Property Securities Act 2009(Cth) (PPSA). The first is what is required for a company to be “regularly engaged in business” and the second is when an object will be considered a fixture.
The Supreme Court of NSW held that when looking at whether a company is regularly engaged in business, the company’s overseas business activities can be taken into account. The Supreme Court also confirmed that when ascertaining if an object is a fixture, the common law principles of the object’s intention and degree of annexation were to be used.
The plaintiff was a company responsible for establishing, supplying and maintaining a temporary power station in Western Australia. The plaintiff entered into a lease with the defendant to lease mobile turbine engines. Soon after, the plaintiff appointed voluntary administrators and went into liquidation.
The plaintiff sought an application for declaratory relief before the court, to have the lease classified as a Personal Property Securities (PPS) lease under the PPSA. This would allow the plaintiff to establish a superior interest in the engines to the defendant’s interest under the PPSA. In order to do so the plaintiff needed to show that the defendant “regularly engaged in business” at the time the lease was entered into and that the turbine engines were not fixtures.
The plaintiff was successful in their application in having the lease classified as a PPS lease under the PPSA.
The Supreme Court found that when looking at whether a company was “regularly engaged in business” for the purposes of the PPSA, it was possible to look at business activity outside Australia as well as within Australia. The PPSA did not place any geographic restriction on the activity. The defendant was held to have been “regularly engaged in business” under the PPSA.
The Supreme Court also held that when ascertaining if an attachment was a “fixture” under the PPSA, it was necessary to apply the common law test of “purpose and degree of annexation” of the object. This included looking at several factors such as the nature of the object affixed, whether the item was to be in position either permanently or whether removal would cause damage to the land or buildings to which the item is attached. The Supreme Court found that the turbine engines were not fixtures.
The common law factors which the court used to determine the purpose or object and degree of annexation were:
- Whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land. The attachment of the turbines to the land was for the better enjoyment of the turbines as turbines and not for the better enjoyment of the land.
- The nature of the property which was the subject of affixation. The turbines were on a temporary power station site, for a rental term of two years.
- Whether the item was to be in position either permanently or temporarily, the turbines were designed to be demobilised and moved easily. It was significant that the trailers, on which the turbines were mounted, kept their wheels throughout.
- The function to be served by the annexation of the item.
- Whether removal would cause damage to the land or buildings to which the item is attached, removal of the turbines would cause no damage to the land.
- Whether removal would destroy or damage the attached item of property. A design feature was that removal would not destroy or damage the turbines.
- Whether the cost of removal would exceed the value of the attached property. The cost of the removal of the turbines from the site would not exceed the value of the turbines, and would be modest in comparison.
- Forge Power was contractually obliged to return the turbines at the end of the rental term.
- General Electric prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land.
Editorial Comment: This decision makes it clear that the NSW Supreme Court is prepared to look at the international business activity of a company instead of solely focusing on national business activity, when assessing whether they are “regularly engaged in business”. This will widen the number of potential parties under the jurisdiction of the PPSA. In disputing whether an object is a “fixture” under the PPSA practitioners will be advised to look to the common law to determine the purpose and degree of annexation of the object. There are several and varied factors to be considered, and while the Supreme Court’s listing of the factors was not exhaustive, it can be used as a reference point when advising a client in relation to a PPS lease.