Retention of Title – do those words still mean anything?

The Personal Property Securities Act 2009 (Cth) (PPSA) introduced the concept of the purchase money security interest, commonly known as the PMSI, the effect of which was to effectively eliminate the words “Romalpa” or “Retention of Title” (ROT) from our vocabulary, or was it?

By way of background, before the PPSA, suppliers could rely on a “Romalpa” or “Retention of Title” clause in their terms of trade to ensure that in an external administration they could retain title in the goods they had supplied, without the need to effect any registration.

After the PPSA, in order to be adequately protected, suppliers were required to register their interest as a PMSI on the Personal Property Securities Register, or risk title to the goods that they had supplied vesting in the company upon the appointment of a liquidator. Thus the words “Romalpa” or “Retention of Title” were lost to the annals of history.

That is until recently, when the consideration of the “Romalpa” or “Retention of Title” clause became relevant to ascertaining whether a liquidator could substantiate a preference claim against a creditor. Transactions are only voidable as unfair preferences pursuant to section 588FA of the Corporations Act 2001 (Cth) (Corporations Act) if they are in respect of an unsecured debt.

Prior to the introduction of the PPSA, by reason of the application of the High Court’s reasoning in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq)[3], a retention of title clause did not afford security in the context of the voidable transaction provisions of the Corporations Act and its precursors.

The issue was considered by the Federal Court in the case of Hussain v CSR Building Products Limited, in the matter of FPJ Group Pty Ltd (In Liq)[1], per Edelman J and shortly after by the Supreme Court of Victoria in Blakeley v Yamaha Music Australia Pty Ltd [2], per Gardiner AsJ.

In Hussain, Edelman J considered that as a result of the PPSA, a retention of title clause did confer security as:

  • there was no definition of “unsecured debt” in the Corporations Act, and the introduction of the PPSA suggested that retention of title could be security interests;
  • treating a retention of title clause as security was consistent with the 2010 amendments to the Corporations Act; and
  • in his view, section 442CC set out that a retention of title clause has the effected that the debt is not an unsecured debt.

The views expressed by Edelman J were in respect of a retention of title clause that was entered into in the transitional period of the PPSA, and as such, his view on a retention of title clause that was entered into after the transition period lapsed (which it now has) may be different.

The decision in Blakeley was handed down shortly after Hussain and it does not appear that Gardiner AsJ considered that decision in expressing his view that the position with respect to whether a retention of title clause was security or not, was not, as a result of the introduction of the PPSA settled law.

What is clear is that the words retention of title still have some legal relevance, at least for the foreseeable future. We at Lavan will continue to monitor this area of law and keep you abreast of any new developments.

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    [1] [2016] FCA 392

    [2] [2016] VSC 231

    [3] (2000) 202 CLR 588

    Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.