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The Central Cleaning Supplies case, and the PPSAPrint This Post

The Central Cleaning Supplies case, and the PPSA

Ferguson J heard this case (Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] VSC 61) on 7 March 2014.

Central Cleaning supplied cleaning equipment. Its dealings with Swan Services began in September 2009 when Swan Services signed a 30 day credit application of Central Cleaning. That credit application included a statement that the supply of goods was governed by Central Cleaning’s “standard terms and conditions as in force from time to time.”

Central Cleaning thereafter began supplying cleaning equipment to Swan Services and at the bottom of each invoice that it rendered was a clause, commonly known as a “retention of title” clause, as follows: Condition of Sale Goods the subject of this sale remain the property of Central Cleaning Supplies (Aust) Pty Ltd until the whole of the purchase price has been paid by the purchaser to Central Cleaning Supplies (Aust) Pty Ltd.

An Administrator was appointed to Swan Services on 22 May 2013 and it subsequently passed into liquidation.

Central Cleaning sought a declaration from the Victorian Supreme Court that at the beginning of the liquidation (which under the Corporation Act is taken to be 22 May 2013) it had a perfected security interest in respect of goods supplied to Swan Services between 9 November 2012 and 5 April 2013.

The question for determination in the case was whether Central Cleaning had a “transitional security interest” (under s322 of the Personal Property Securities Act [PPSA]) in the goods it supplied to Swan Services throughout the above period.

To answer the question positively, Central Cleaning had to show that it had a transitional security agreement which provided for ongoing supplies and therefore resulted in a series of security interests and that it was in force immediately before 30 January 2012 (the date of commencement of the PPSA), and which continued in force after that time.

The process between November 2012 and May 2013 was that:

(i) Swan Services ordered goods by sending a purchase order to Central Cleaning.

(ii) Each purchase order set out the delivery address, the type, number and price of equipment required, the date of the purchase order and the purchase order number.

(iii) Central Cleaning then delivered the goods and rendered an invoice with containing words referred to earlier in this article.

Central Cleaning sought to rely on that clause and to collect the equipment on the basis that it had a transitional security interest. The liquidator disagreed and Central Cleaning sought an order under s1321 of the Corporations Act reversing the liquidator’s decision.

Was Central Cleaning’s “security interest” provided for by the credit application?

Central Cleaning argued that its security interest in the goods was provided for by the credit application which constituted a security agreement because:

(a) the credit application, once signed by Swan Securities and accepted by Central Cleaning, implicitly contemplated that there would be ongoing supplies which would be made on its standard terms and conditions; and

(b) The retention of title clause was incorporated into the credit application form by reference.

However, the Court noted that whilst Central Cleaning’s credit application form referred to its “standard terms and conditions”, those standard terms and conditions were never put into evidence (if they ever existed) and so the Court did not know what they were. However, the clause on the reverse of the invoice was a “Condition of Sale”, and referred to goods the subject of this sale.

Therefore, the Court concluded on the evidence that there could be no way that the credit application form was the “agreement” under which all future supplies were made. Each supply was a separate contract, the contracts in question were made after the commencement of the 2 year transitional period (30 January 2012) and as the security agreements pursuant to which they were supplied had not been perfected, the liquidator’s decision was affirmed.