North Sydney Commercial Lawyers

PPSA and the Arcabi case – bailments and consignmentsPrint This Post

PPSA and the Arcabi case – bailments and consignments

The practical operation of this Act continues to be clarified by the Courts.

Take for example Re Arcabi Pty Ltd; ex parte Theobald [2014] WASC 310, a decision handed down 4 September 2014.

The business of Arcabi included the storage and sale of rare coins and bank notes (Goods). The Goods were stored in Albany WA (the Premises). Many of the Goods were owned by third parties (Investors).

Arcabi defaulted on its loan from Westpac (the Bank) which had a perfected general security interest over all Arcabi’s present and after acquired property. Could the Bank’s receiver take the Investor’s Goods and sell them and apply the proceeds to reduce the indebtedness of Arcabi to the Bank?

The Goods were broadly of two types. Firstly “Mixed Storage Goods”: the arrangement here was that these Goods were stored only and the Investors who owned the Mixed Storage Goods were just charged a storage fee and issued with an invoice.

The second type was “Consignment only Goods”. These Goods were part of an arrangement between Arcabi and some Investors whereby the Investor in each instance requested Arcabi to sell the Goods on consignment (to either third parties or Arcabi itself, if it chose to buy them). These Goods had not been sold at the time of the appointment of the liquidators and remained at the Premises at that time.

Bailment

The Court noted that the arrangement in relation to the Mixed Storage Goods was a bailment. [By the way, a bailment is where a bailor delivers goods to a bailee upon a promise, express or implied, that they will be delivered back to the bailor or dealt with in a stipulated way – Hobbs case [1971] HCA 26]. If the bailment secured payment of performance of an obligation, then it gave rise to a security interest as defined in s 12 of the PPSA and enlivened the operation of the priority provisions of the Act.

But the Court held the bailment did not give rise to a security interest because amongst other things, there was no suggestion that Arcabi would have an option or obligation (at any time) to purchase the Goods.

But was the bailment a PPS lease under s13? If so, it would be deemed to give rise to a security interest and therefore enliven the operation of the priority provisions of the PPSA.

One of the requirements for a bailment to be a deemed PPS lease is that the bailor must be regularly engaged in the business of bailing goods.

The Court found that there was no evidence that the Investors were regularly engaged in the business of bailing goods. They were in the business of profiting from the exchange of rare coins and bank notes. The issue of the bailment was merely incidental to this main purpose.

Consignment

The Court then turned to the Consignment Only Goods.

Generally, consignments are to be distinguished from retention of title arrangements which provide for title to pass only when full payment has been received. Retention of title arrangements do secure payment or performance of an obligation. Generally, consignments do not.

Nevertheless, if the consignments did secure payment or performance of an obligation, then s 12 (2)(h) provides that the priority provisions of the PPSA are enlivened.

The Court was satisfied that the facts gave rise to a consignment.

But the Court held that  it did not in substance secure payment or performance of an  obligation because the Goods were not held as security for a debt as no moneys were payable by Arcabi unless or until it sold the Goods, but title by that time would have passed to the third party purchaser.

So if you are selling goods on consignment or a bailment otherwise applies ensure you have correctly worded terms and if a security interest applies, ensure it is perfected.