The first decision is Graham v Portacom New Zealand Limited [2004] 2 NZLR 528. In that case, the debtor, NDG Pine Limited gave a general security interest (in the form of a pre-PPSA debenture) over all of its property, in favour of HSBC, to secure loan advances and banking accommodation provided by HSBC. HSBC registered its interest on the PPSR. Portacom New Zealand Limited leased five portacabins to NDG, but did not register on the PPSR. Portacom retained legal ownership of the portacabins.

NDG fell into default and HSBC appointed a receiver and took possession of NDG's property, including the portacabins, pursuant to its security agreement. The Receiver asserted the right under the PPSA to take possession of and sell the portacabins.

The Court held that "all assets" of NDG charged pursuant to the security agreement included the leased portacabins, as it is possible to grant a security interest in leased property. HSBC was therefore entitled to enforce its security interest in the portacabins in preference to Portacom, notwithstanding Portacom's legal ownership of them.

The second decision is Waller & Others v New Zealand Bloodstock Limited & Anor. The facts are very similar. Put simply, the debtor, Glenmorgan Farm Limited gave a general security interest (also in the form of a pre-PPSA debenture) over all of its property, in favour of S H Lock (NZ) Limited. S H Lock registered its interest on the PPSR.

New Zealand Bloodstock Limited leased a racehorse to Glenmorgan, but retained legal ownership. NZBL did not register its interest on the PPSR.Glenmorgan defaulted under the lease and NZBL terminated the lease and repossessed the horse. Glenmorgan defaulted under its finance arrangements with S H Lock and a receiver was appointed. The Receiver asserted the right under the PPSA to take possession of and sell the horse in priority to the claims of NZBL.

The Court applied the Graham case to hold that the leased horse was included in the collateral charged to S H Lock, and that Glenmorgan could pass good title to the leased horse notwithstanding that it does not have title itself. The Court further held that termination of the lease and repossession of the horse by NZBL did not improve its legal position. Taking possession by way of seizure does not perfect the security interest in the collateral.

The Court was therefore required to determine the priority of competing security interests in the same collateral. S H Lock had a security interest in the horse by virtue of the security agreement and had perfected that interest by registration on the PPSR. NZBL had a security interest in the horse by virtue of a lease for a term of more than one year, but had not perfected that interest by registration on the PPSR or by having possession of the horse (otherwise than by seizure). Perfected security interests take priority over unperfected security interests.

Lessons

These two cases are a warning to lessors and suppliers of goods that they are at risk of losing their property to the claims of third parties who have a security interest in the personal property of the lessee or recipient of those goods.

In many cases a lessor will already have goods out on lease or a supplier will have already supplied goods and it is too late to register a PMSI and thereby obtain this "super priority". However, in these circumstances it is still wise to register on the PPSR - this will give the lessor or supplier priority over other secured parties who register later in time.

It is also possible for a lessor or supplier to contract with the other secured parties to order the priority of competing security interests in the same collateral.

This article is intended to provide general advice only. If this is an issue which effects your business and you require specific advise and guidance, we would be happy to assist.