Forge PPSR Decision Yields No Surprises

The NSW Supreme Court has confirmed what we expected would be the result in Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc – the failure by General Electric to register on the PPSR has cost them their very expensive generator turbines.

The case relates to a written contract for Rental of Power Generation Equipment and Supply of Associated Services (“Lease”) between Forge Power and General Electric International Inc (GE) under which GE agreed to rent some Turbines to Forge Power for a fixed term.

It was common ground that the PPSA establishes a Register of Personal Property Securities on which security interests may be “perfected” by registering an instrument called a financing statement, and that primacy is given to the Register.  In this case no financing statement for the Lease had been registered by GE.

The key issues to be determined by the Court was whether the PPSA is engaged in regard to the Lease of the turbines based on the given facts and focused on 2 possible exceptions.  The Court held that the PPSA will be engaged if the Lease is a PPS lease. The Lease will be a PPS lease unless GE was not regularly engaged in the business of leasing goods within the meaning of s 13(2)(a) or if the Turbines became fixtures within the meaning of s 10.

The Court found that GE was in fact regularly engaged in the business of leasing goods, and that the turbines were not fixtures, and accordingly the PPSA was engaged in this instance and that by operation of s 267(2), the interests of GE in the Turbines vested in Forge Power immediately before the appointment of voluntary administrators on 11 February 2014 and Forge Power’s right or title to, or interest in the Turbines, is superior to that of GE.

The case highlights the risks of not registering on the PPSR but also reminds that there are exceptions.  The Court commented (at 135) on General Electric’s desperate attempt to activate the exception of the leased items becoming a fixture stating that “one feature of these proceedings worthy of mention and brought about by the way the PPSA operates is that GE was impelled (counter intuitively one might think) to argue that objectively viewed, it intended to lose its own very valuable property” (sic. by arguing it was a fixture).

Read the full Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc decision

Read more PPSA articles here

For more information please contact partner Greg Mohen on (08) 9321 3755

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.