A supplier of goods, including petrol products, may seek to protect its position by including a retention of title (RoT) clause in the underlying supply contract. An RoT clause provides that the supplier retains legal title to the goods until the buyer fulfils certain obligations, usually payment of the purchase price.

Before the introduction of Personal Property Securities Act 2009 (Cth) (PPSA) on 30 January 2012, where a company became insolvent, a supplier of goods to that company could frequently repossess any unpaid goods if the underlying supply contract included an effective RoT clause.

Following the introduction of the  PPSA, a supplier’s position and RoT arrangements have become more complex. The PPSA provides that a supplier who retains title to goods pending payment of the purchase price is deemed to have a security interest in those goods and their proceeds. This means the supplier must perfect its security interest under the PPSA. It cannot simply rely on its title to the goods. Perfection is achieved by the supplier making a registration on the Personal Property Securities Register (PPSR). Failure to perfect may (among other things) result in the supplier losing title to the goods or someone else’s interest in the goods taking priority over the interest of the supplier.

RoT is one of a number of interests which is classified by the PPSA as a “purchase money security interest” (PMSI). The interest of a person who holds a PMSI and makes an appropriate registration on the PPSR within applicable time limits is given priority over competing security interests in the relevant goods and their proceeds (to the extent that the PMSI secures unpaid purchase monies).[1] Where a supplier’s goods are ‘commingled’ with other goods, the supplier’s security interest continues in the end mass and will retain any PMSI status.[2]

As a practical matter, it is not necessary for a supplier to make a registration in respect of each supply. Instead, one set of registrations[3] can be made against a purchaser to cover all goods supplied to that purchaser during the trading relationship (provided the ambit of the registrations is sufficiently broad).

A supplier of petrol products on RoT terms should be aware that to obtain the best possible protection in respect of goods that are subject to RoT, the supplier should make appropriate registrations on the PPSR within applicable time limits against each of its purchasers.

[This article was written by Chris Redden, Partner at Norton Rose Fulbright. Chris is a leading banking and finance lawyer and frequently advises clients on PPSA-related issues.  chris.redden@nortonrosefulbright.com.]

[1] Proceeds must be identifiable or traceable and a supplier’s priority position in respect of proceeds can be lost in some circumstances.

[2] The PPSA priority rules for competing interests in a mass may adversely impact on a supplier’s interest in some circumstances.

[3] It is often necessary to make more than one registration to perfect a security interest.

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