Allied Distribution Finance Pty Ltd v Samwise Holdings Pty Ltd - [2017] SASC 163

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ALLIED DISTRIBUTION FINANCE PTY LTD v SAMWISE HOLDINGS PTY LTD
[2017] SASC 163
Judgment of The Honourable Justice Blue
15 November 2017
PERSONAL PROPERTY - OWNERSHIP AND POSSESSION - POSSESSION
MORTGAGES - REGISTRATION OF SECURITY INTERESTS IN CHATTELS OR GOODS - REGISTRATION OF SECURITY INTERESTS IN PARTICULAR OR SPECIAL GOODS
Action for declaration that plaintiff’s purchase money security interest has priority over other security interests with respect to 40 motorcycles.
Samwise Pty Ltd trading as Bill’s Motorcycles granted a security interest under the Personal Property Securities Act 2009 (Cth) over motorcycles the subject of floorplan finance in favour of Commercial Distribution Finance Pty Ltd. Bill’s Motorcycles subsequently granted an all property security interest in favour of the fifth defendant Samwise Holdings Pty Ltd, which registered its interest.
On 12 April 2016 Bill’s Motorcycles granted a purchase money security interest in favour of the plaintiff Allied Distribution Finance Pty Ltd and on 14 April 2016 Allied Distribution registered its security interest. On 15 April 2016 Allied Distribution acquired ownership of 40 motorcycles previously owned by Commercial Distribution Finance in the possession of Bill’s Motorcycles. On 18 April 2016 Allied Distribution issued to Bill’s Motorcycles bailed goods notices in respect of the motorcycles.
The action involves a priority contest between Allied Distribution and Samwise Holdings. The priority issue turns primarily on the question whether the reference in s 62(2)(b)(i) of the Act to the grantor obtaining possession is a reference to the grantor obtaining possession of the inventory in question as grantor of the purchase money security interest or to the grantor obtaining possession simpliciter.
Held:
1. On its proper construction, the reference in s 62(2)(b)(i) to a grantor obtaining possession is a reference to the grantor obtaining possession as grantor (at [106]).
2. On its proper construction, the reference in s 62(2)(b)(i) to a grantor obtaining possession is a reference to the grantor of the purchase money security interest (at [109]).
3. On its proper construction, the reference in s 62(2)(b)(i) to a grantor obtaining possession is a reference to the grantor obtaining possession of the inventory in question as grantor (at [115]).
4. Allied Distribution is entitled to a declaration that its security interest has priority over Samwise Holdings’ security interest (at [116]).
Corporations Act 2001 (Cth) s 436A; Personal Property Securities Act 2009 (Cth) 8, 10, 12, 13, 14, 15, 18, 19, 20, 21, 24, 55, 56, 62, 63, 110, 147, 148, 150, 153, 310, 306(2) and Parts 4.2, 4.3 and 4.4, referred to.
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355, discussed.

ALLIED DISTRIBUTION FINANCE PTY LTD v SAMWISE HOLDINGS PTY LTD
[2017] SASC 163
Civil:
BLUE J:

This is an action for a declaration that the plaintiff’s perfected purchase money security interest under the Personal Property Securities Act 2009 (Cth) (the Act) has priority over all other registered security interests with respect to 40 motorcycles.
In 2012 Commercial Distribution Finance Pty Ltd (CDF), as the provider of floorplan finance to Samwise Pty Ltd trading as Bill’s Motorcycles (Bill’s Motorcycles), registered a personal property security interest (security interest) under the Act.
In 2014 Bill’s Motorcycles granted a security interest in all of its present and after-acquired personal property in favour of the fifth defendant Samwise Holdings Pty Ltd (Samwise), which registered its security interest under the Act.
On 12 April 2016 the plaintiff Allied Distribution Finance Pty Ltd (Allied Distribution) and Bill’s Motorcycles entered into a bailment agreement for Allied Distribution to provide floorplan finance to Bill’s Motorcycles. On 14 April 2016 Allied Distribution registered its purchase money security interest under the Act.
On 15 April 2016 Allied Distribution acquired ownership of 40 motorcycles previously owned by CDF in the possession of Bill’s Motorcycles under floor plan finance granted by CDF. On 18 April 2016 Allied Distribution issued to Bill’s Motorcycles 40 bailed goods notices in respect of the 40 motorcycles.
Allied Distribution claims that its security interest is entitled to priority over Samwise’s security interest pursuant to section 62 of the Act, a claim which Samwise contests. Section 62(2)(b)(i) provides that a purchase money security interest in inventory has priority if amongst other things it is perfected by registration at the time the grantor obtains possession of the inventory.
The priority issue turns primarily on the question whether the reference to a grantor obtaining possession is a reference to the grantor obtaining possession of the inventory in question as grantor of the purchase money security interest or to the grantor obtaining possession simpliciter.
Allied Distribution contends that the grantor did not have possession of the Motorcycles as grantor before 14 April 2016 because Bill’s Motorcycles held possession as bailee from CDF before that date and hence the condition contained in section 62(2)(b)(i) is satisfied.
Samwise contends that Bill’s Motorcycles had already obtained possession of the Motorcycles when they were bailed to it by CDF well before Allied Distribution’s security interest was created and hence the condition contained in section 62(2)(b)(i) is not satisfied.
Samwise contends in the alternative that, if Bill’s Motorcycles’ possession of the Motorcycles was required to be as grantor, it was a grantor from June 2014 when it granted the Samwise security interest to Samwise or alternatively from 12 April 2016 when it executed the Allied Distribution bailment agreement.
Background
Bill’s Motorcycles carried on business as a motorcycle dealer selling and servicing Kawasaki motorcycles.
Bill’s Motorcycles’ floor plan financier was CDF. On 30 January 2012 on the commencement of the Personal Property Security Register (the Register) CDF registered a security interest in relation to motor vehicles in respect of Bill’s Motorcycles under the Act.[1]
[1] CDF registered additional or substituted security interests over motor vehicles in and after January 2012 but as all of its security interests over motor vehicles predated the security interests of Allied Distribution and Samwise, there is no need to make a distinction between CDF’s security interests or registrations.
Bill’s Motorcycles’ banker was the third defendant Australia and New Zealand Banking Group Ltd (ANZ). ANZ extended credit facilities to Bill’s Motorcycles. Bill’s Motorcycles granted a fixed and floating debenture charge over its property in favour of ANZ. In August 2012 ANZ registered a security interest in all present and after-acquired property (all property) in respect of Bill’s Motorcycles.
Samwise gave a guarantee in favour of ANZ in respect of Bill’s Motorcycles’ liability under those credit facilities (the ANZ guarantee). In turn Bill’s Motorcycles gave a guarantee in favour of Samwise in respect of its liability under the ANZ guarantee (the Samwise guarantee) and executed a General Security Deed granting a security interest in its personal property to secure its liability under the Samwise guarantee (the Security Deed).
In June 2014 Samwise registered an all property security interest in respect of Bill’s Motorcycles (the Samwise security interest).
In October 2014 the fourth defendant BOQ Credit Pty Ltd registered an all property security interest in respect of Bill’s Motorcycles.
In April 2015 Kawasaki Motors Pty Ltd (Kawasaki) and Allied Credit Pty Limited (Allied Credit) entered into a distribution agreement. In March 2016 Kawasaki, Allied Credit and Allied Distribution (a wholly owned subsidiary of Allied Credit) entered into a deed pursuant to which Allied Distribution assumed the rights and obligations of Allied Credit under the distribution agreement. I refer to the distribution agreement as novated by the deed as the Kawasaki agreement.
The Kawasaki agreement contemplated that Allied Distribution would enter into bailment agreements with Kawasaki dealers under which it would provide floorplan facilities for the bailment of new and demonstrator goods. It provided for Kawasaki to sell to Allied Distribution goods intended by Allied Distribution to be provided to a dealer under a bailment agreement when a dealer places with Kawasaki an order to purchase the goods. Title to the goods was to be transferred from Kawasaki to Allied Distribution on the issue of an invoice from Kawasaki to Allied Distribution for the sale of the goods.
On 31 March 2016 Allied Distribution sent by email to Bill’s Motorcycles a signed Letter of Offer (the Letter of Offer), an attached Bailment Agreement executed by Allied Distribution and an attached Offer Schedule (the Offer Schedule). The Letter of Offer offered to provide floorplan facilities to Bill’s Motorcycles on the terms and conditions set out in the documents.
On 12 April 2016 Bill’s Motorcycles executed the Bailment Agreement and returned it to Allied Distribution. The parties thereby entered into an agreement on the terms and conditions set out in the Bailment Agreement and Offer Schedule (the Bailment Agreement).
On 14 April 2016 Allied Distribution registered the Bailment Agreement on the Register as a purchase money security interest over all motor vehicles bailed from time to time under the Bailment Agreement (number 201604140062113) and other goods bailed from time to time under the Bailment Agreement (number 201604140062121).
Two separate purchase money security interests were registered because the Act distinguishes between the class of motor vehicles (which are identifiable by serial number) and the class of other goods. The issue in relation to the two security interests is identical. In any event the motorcycles the subject of this action all comprise motor vehicles. For ease of reference, I refer only to the motor vehicle security interest (which I call the Allied Distribution security interest) hereafter.
As at 15 April 2016 Bill’s Motorcycles was the bailee of 40 new Kawasaki motorcycles owned by CDF (the Motorcycles). The Motorcycles had been in the possession of Bill’s Motorcycles for varying periods of up to several months. On 15 April 2016 Kawasaki paid to CDF $846,180[2] by way of purchase of the 40 Motorcycles situated at Bill’s Motorcycles together with 64 motorcycles situated at dealers in Mildura, Lilydale and South Lismore.
[2] All dollar figures referred to herein are rounded to the nearest whole dollar.
On 15 April 2016 Kawasaki issued to Allied Distribution an invoice for the sale of the same 40 Motorcycles situated at Bill’s Motorcycles and 64 motorcycles situated at the interstate dealers for $846,180 (the Kawasaki invoice). Pursuant to the Kawasaki agreement, title in the motorcycles passed to Allied Distribution upon issue of the invoice. On 18 April 2016 Allied Distribution paid to Kawasaki $846,180 in payment of the Kawasaki invoice.
On 18 April 2016 Allied Distribution issued to Bill’s Motorcycles 40 bailed goods notices in respect of the Motorcycles that Allied Distribution had purchased from Kawasaki (the bailed goods notices). The notices provided that the price of the asset was due in full on, or by ten per cent monthly instalments commencing on, dates ranging from 13 January 2017 to 9 November 2017.
Between 18 April and 16 June 2016 additional motorcycles were bailed by Allied Distribution to Bill’s Motorcycles but there is no dispute that Allied Distribution is entitled to priority in respect of them and they are not the subject of this action.
On 16 June 2016 the first and second defendants Michael Basedow and Leigh Prior (the administrators) were appointed administrators of Bill’s Motorcycles pursuant to section 436A of the Corporations Act 2001 (Cth).
ANZ called on Samwise to pay Bill’s Motorcycles’ indebtedness under the ANZ guarantee. Samwise paid approximately $130,000 to ANZ and in turn that amount is secured under the Security Deed and is the subject of the Samwise security interest.
On 7 October 2016 Allied Distribution instituted this action against the administrators, ANZ, BOQ, Samwise and Wells Fargo International Finance LLC (which had acquired CDF) seeking declarations that the Allied Distribution security interests are perfected purchase money security interests and have priority over all other registered security interests with respect to the Motorcycles.
All defendants except Samwise have informed the Court that they will abide the event and they did not appear at the trial.
The bailment agreement
Clause 1.1 of the Bailment Agreement provides that Allied Distribution agrees to bail and sell Goods to Bill’s Motorcycles on the terms and conditions set out in the agreement and in each notice identifying Goods delivered to or held by Bill’s Motorcycles subject to a credit limit of $600,000.
Clauses 2.1, 2.2 and 2.5 provide that, unless the agreement is terminated, Allied Distribution will remain the owner and Bill’s Motorcycles will remain the bailee of the Goods until Bill’s Motorcycles buys them.
Clause 2.6 provides that Allied Distribution’s interest in the Goods is a security interest and the Bailment Agreement is a security agreement within the meaning of the Act and Bill’s Motorcycles consents to Allied Distribution registering its security interest on the Register.
Clause 10.2(a) requires Bill’s Motorcycles to pay to Allied Distribution the bailment fee for displaying goods. The bailment fee is set out in the Offer Schedule. It is payable monthly in arrears and is calculated by reference to CBA’s corporate overdraft reference rate plus a margin. Clause 10.3 provides for bailment fee free periods.
Clause 10.2(b) requires Bill’s Motorcycles to pay to Allied Distribution curtailment instalments if Goods are held for longer periods than specified by Allied Distribution. The curtailment instalments are set out in the Offer Schedule. They are payable monthly in arrears by ten equal instalments of ten per cent each calculated from the due in full date specified in the Bailed Goods Notice in respect of the specific Goods.
The bailed goods notices were in a standard form. Each identified a specific motorcycle by model, VIN and engine number; the price of the asset; the date of commencement of the bailment; the period (if any) of free bailment; and the due in full date on which curtailment was to start.
The personal property security regime
The Act commenced on 15 December 2009. Those provisions of the Act not involving the Register commenced operation on that date.
Under Chapter 9 the Register was to commence on the “registration commencement time” being the start of 30 January 2012.[3] In broad terms those provisions of the Act involving the Register commenced operation on that date. There were complex transitional provisions in respect of security interests created before 30 January 2012 but they need not be considered as the competing security interests of Allied Distribution and Samwise were both created after that date.
[3] Personal Property Securities Act 2009 (Cth) section 310 and section 306(2) definition of “registration commencement time”. The registration commencement time was defined by section 306(2)(a) to be the start of the first day of the month 26 months after the month in which the Act is given the Royal Assent (ie 1 February 2012) but the Minister determined 30 January 2012 under section 306(2)(b) instead.
Subject matter of the Act
The principal subject matter of the Act is security interests in personal property.
Personal property
The term “personal property” is defined to mean all property (tangible or intangible) other than an interest in land or statutory property exempted from the Act.[4]
[4] Personal Property Securities Act 2009 (Cth) section 10 definitions of “personal property” and “land”.
In turn personal property comprises and is divided between:
1       goods being tangible property other than financial property and intermediated securities;[5]
2       financial property being essentially financial assets comprising currency; negotiable instruments (including cheques, bills of exchange and promissory notes); investment instruments (including shares, bonds and debentures); documents of title (instructions to a bailee to deliver goods to order); and chattel paper (documents evidencing a monetary obligation and security interest in goods or intellectual property);[6]
3       intermediated securities being the rights of a holder of a securities account maintained by an intermediary;[7] and
4       intangible property being all other forms of personal property.[8]
[5]    Personal Property Securities Act 2009 (Cth) section 10 definition of “goods”.
[6]    Personal Property Securities Act 2009 (Cth) section 10 definition of “personal property” and “financial property”, “currency”, “negotiable instrument”, “investment instrument”, “document of title” and “chattel paper”.
[7]    Personal Property Securities Act 2009 (Cth) section 10 definition of “personal property” and section 15 definition of “intermediated security”, “securities account”, and “intermediary”.
[8]    Personal Property Securities Act 2009 (Cth) section 10 definition of “personal property” and section 15 definition of “intangible property”.
The Act differentiates between these four major types of personal property and between sub-types for various purposes.
Personal property is also divided between:
1.   inventory being goods or intangible property held by an ABN-registered enterprise for sale or lease, as raw materials or work in progress or materials or for provision under a contract for services; or leased to another, provided under a contract for services or used or consumed as materials by an ABN-registered enterprise in the course or furtherance of the enterprise;[9] and
2.   all other personal property (non-inventory).
[9]    Personal Property Securities Act 2009 (Cth) section 10 definition of “inventory”.
The Act differentiates between inventory and non-inventory for various purposes including in section 62 defining when a purchase money security interest has priority over a non-purchase money security interest.
Security interest
The term “security interest” is principally defined prima facie to mean an interest in personal property provided for by a transaction that in substance secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).[10]
[10] Personal Property Securities Act 2009 (Cth) section 12(1).
Regard is to be had to the substance rather than the legal form of a transaction. Historically many financing transactions have been structured as having a legal form that preserves ownership in the financier, such as hire purchase, bailment or finance leases, when the hirer, bailee or lessee would otherwise be the owner and the financier would hold a security interest. The general purpose of the Act is to treat such transactions as if the property were owned by the person having possession of the goods and the financier held a security interest in the property for the purpose of determining priority as between competing security interests in the property. However, the Act does not deem the property to be owned by the person having possession and hence the financier retains legal ownership of the property for the purpose of enforcing rights at general law against the person having possession and against strangers (persons other than those having competing security interests in the property).

The definition of “security interest” includes various examples of transactions provided that they fall within the general definition, including fixed and floating charges, chattel mortgages, hire purchase agreements, pledges and leases.[11]
[11] Personal Property Securities Act 2009 (Cth) section 12(2).
The definition of “security interest” also includes, amongst others, the interest of a lessor or bailor of goods under a PPS lease.[12] A “PPS lease” was at relevant times[13] defined prima facie to mean a lease or bailment of goods for more than one year (whether by original term, the accumulation of rights of renewal or actual uninterrupted consensual possession) or for an indefinite term for which the bailee provides value.[14] There are defined exclusions from the definition of “PPS lease”,[15] but none of these are applicable in the present case.
[12] Personal Property Securities Act 2009 (Cth) section 12(3).
[13] The definition was amended with effect on 20 May 2017 by the Personal Property Securities Amendment (PPS Leases) Act 2017 to increase the period from one year to two years and remove the reference to an indefinite term but it is common ground in this action that the definition as at 2016 is the relevant definition.
[14] Personal Property Securities Act 2009 (Cth) section 13(1) and (3)
[15] Personal Property Securities Act 2009 (Cth) section 13(2).
It is common ground that the bailment of the Motorcyles comprised a PPS lease.
There are exclusions from the definition of “security interest”[16] and exclusions from the operation of the Act,[17] but these are not applicable in the present case and can be ignored.
[16] Personal Property Securities Act 2009 (Cth) section 12(5) and (6).
[17] Personal Property Securities Act 2009 (Cth) section 8.
The inclusive components of the definitions of “security interest” and “PPS lease” are as follows:
12 Meaning of security interest
(1)A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).
Note:    For the application of this Act to interests, see section 8.
(2)For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:
(a)     a fixed charge;
(b)     a floating charge;
(c)     a chattel mortgage;
(d)     a conditional sale agreement (including an agreement to sell subject to retention of title);
(e)     a hire purchase agreement;
(f)     a pledge;
(g)     a trust receipt;
(h)     a consignment (whether or not a commercial consignment);
(i)    a lease of goods (whether or not a PPS lease);
(j)    an assignment;
(k)     a transfer of title;
(l)    a flawed asset arrangement.
(3)A security interest also includes the following interests, whether or not the transaction concerned, in substance, secures payment or performance of an obligation:
(a)     the interest of a transferee under a transfer of an account or chattel paper;
(b)     the interest of a consignor who delivers goods to a consignee under a commercial consignment;
(c)     the interest of a lessor or bailor of goods under a PPS lease.
(3A)A person who owes payment or performance of an obligation to another person may take a security interest in the other person’s right to require the payment or the performance of the obligation.
(4)     Without limiting subsection (3A):
(a)     an account debtor, in relation to an account or chattel paper, may take a security interest in the account or chattel paper; and
(b)     an ADI may take a security interest in an ADI account that is kept with the ADI.
…
13 Meaning of PPS lease
(1)A PPS lease means a lease or bailment of goods:
(a)     for a term of more than one year; or
(b)     for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or
(c)     for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or
(d)     for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property (but not until the lessee's or bailee's possession extends for more than one year).
The Act uses the term “debtor” to mean the person owing payment or performance of the obligation secured by the security interest;[18] the term “grantor” to refer to the person having the interest in the personal property to which the security interest is attached (including a lessee under a PPS lease),[19] the term “secured party” to refer to the person who holds the security interest[20] and the term “collateral” to refer to the personal property to which a security interest is attached.[21]
[18] Personal Property Securities Act 2009 (Cth) section 10 definition of “debtor”.
[19] Personal Property Securities Act 2009 (Cth) section 10 definition of “grantor”.
[20] Personal Property Securities Act 2009 (Cth) section 10 definition of “secured party”.
[21] Personal Property Securities Act 2009 (Cth) section 10 definition of “collateral”.
Subject matter of security interest
A security interest can be granted over specific personal property (a specific security interest) or over all present and after-acquired personal property of the grantor (a general security interest).
A specific security interest can be a purchase money security interest securing the money or other means by which the grantor acquires the grantor’s interest in the property or a non-purchase money security interest.
A purchase money security interest is defined by section 14 prima facie to mean a security interest:
1. to the extent that it secures the purchase price of the collateral or to the extent that value is given by the security holder to enable the grantor to acquire rights in the collateral and that value is so applied; or
2. the interest of a consignor who delivers goods to a consignee under a commercial consignment or the interest of a lessor or bailor of goods under a PPS lease.
Section 14 relevantly provides:
14 Meaning of purchase money security interest
General definition
(1)A purchase money security interest means any of the following:
(a)     a security interest taken in collateral, to the extent that it secures all or part of its purchase price;
(b)     a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights;
(c)the interest of a lessor or bailor of goods under a PPS lease;
(d)     the interest of a consignor who delivers goods to a consignee under a commercial consignment.
Exceptions
(2)However, a purchase money security interest does not include:
(a)    an interest acquired under a transaction of sale and lease back to the seller; or
(b)     an interest in collateral (as original collateral) that is chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument; or
(c)     a security interest in collateral that (at the time the interest attaches to the collateral) the grantor intends to use predominantly for personal, domestic or household purposes.
(2A)Despite paragraph (2)(c), a purchase money security interest includes an interest if:
(a)the interest is covered by subsection (1); and
(b)     the interest is in collateral that (at the time the interest attaches to the collateral) the grantor intends to use predominantly for personal, domestic or household purposes; and
(c)     the collateral is of a kind that is required or permitted by the regulations to be described by serial number.
Mixed securities
(3)If a security interest in collateral secures obligations covered by subsection (7) (purchase money obligations) and other obligations, the security interest is a purchase money security interest only to the extent that it secures the purchase money obligations.
(4)If a security interest is granted in personal property (purchase money collateral) that secures a purchase money obligation, together with other collateral, the security interest is a purchase money security interest only to the extent that it is granted in the purchase money collateral.
Renewal etc.
(5)A purchase money security interest does not lose its status as such only because the purchase money obligation is renewed, refinanced, consolidated or restructured (whether or not by the same secured party).
…
Purchase money obligations
(7)This subsection covers an obligation of a debtor incurred:
(a)as all or part of the purchase price of the collateral; or
(b)     for value given to enable the grantor to acquire or use the collateral (provided the collateral is so acquired or used).
Rights and obligations as between secured party and debtor/grantor
In a case in which the debtor and grantor are the same person (Bill’s Motorcycles in the present case), the rights of the parties in relation to a default by the debtor will generally be governed by the security agreement and the general law without derogation by the Act.[22] A secured party can enforce such rights against the debtor regardless of attachment, registration or perfection.
[22] Personal Property Securities Act 2009 (Cth) sections 18 and 110.
In addition, Part 4.3 confers statutory rights on secured parties to seize and dispose of or retain collateral subject to limitations and the imposition of obligations.[23] A security interest is enforceable against the grantor in respect of collateral only if it has attached to the collateral.[24]
[23] Personal Property Securities Act 2009 (Cth) Parts 4.2 to 4.4.
[24] Personal Property Securities Act 2009 (Cth) Parts 4.2 to 4.4.
In general terms, a security interest attaches to collateral when the grantor has rights in it and either value is given for the security interest or the grantor does an act by which the security interest arises.[25]
[25] Personal Property Securities Act 2009 (Cth) section 19.
Section 19 provides:
19 Enforceability of security interests against grantors—attachment
Attachment required for enforceability
(1)A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral.
Attachment rule
(2)A security interest attaches to collateral when:
(a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and
(b)either:
(i)value is given for the security interest; or
(ii)the grantor does an act by which the security interest arises.
Time of attachment
(3)Subsection (2) does not apply if the parties to a security agreement have agreed that a security interest attaches at a later time, in which case the security interest attaches at the time specified in the agreement.
(4)To avoid doubt, a reference in a security agreement to a floating charge is not a reference to an agreement that the security interest created by the floating charge attaches at a time later than provided under subsection (2).
Goods leased, bailed, consigned or sold under a conditional sale agreement.
(5)For the purposes of paragraph (2)(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.
(6)Subsection (5) does not limit any other rights the grantor may have in the goods.
Note: A security interest may attach to crops while they are growing, and to the products of livestock, before they become proceeds of the crops or livestock (for example, wool before it is shorn). See subsections 31(4) and (5) (meaning of proceeds) and section 84A (security interests in crops and livestock).
Rights and obligations as between secured party and third parties
A secured party having a security interest in collateral has rights under the general law to sue third parties who have no interest in the collateral under the Act under general law causes of action such as conversion, detinue and restitution.
However, a secured party having a security interest in collateral seeking to enforce rights under the Act against third parties or seeking to enforce rights against third parties also having a security interest in the collateral under the Act can only enforce the security interest in respect of goods if:
1.the security interest is attached to the collateral; and
2.either:
(a) the secured party possesses the collateral; or
(b) a security agreement evidenced by writing signed, adopted or accepted by the grantor contains a description of the particular collateral or a statement that a security interest is taken in the grantor’s present and after acquired property generally.[26]
[26] Personal Property Securities Act 2009 (Cth) section 20.
Section 20 provides:
20 Enforceability of security interests against third parties
General rule
(1)A security interest is enforceable against a third party in respect of particular collateral only if:
(a)the security interest is attached to the collateral; and
(b)one of the following applies:
(i)the secured party possesses the collateral;
(ii)the secured party has perfected the security interest by control;
(iii)a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).
Note:    For possession and control of collateral, see Part 2.3.
Written security agreements
(2)A security agreement covers collateral in accordance with this subsection if:
(a)the security agreement is evidenced by writing that is:
(i)signed by the grantor (see subsection (3)); or
(ii)adopted or accepted by the grantor by an act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing; and
(b)the writing evidencing the agreement contains:
(i)a description of the particular collateral, subject to subsections (4) and (5); or
(ii)a statement that a security interest is taken in all of the grantor’s present and after‑acquired property; or
(iii)a statement that a security interest is taken in all of the grantor’s present and after‑acquired property except specified items or classes of personal property.
Methods of signing writing
(3)Without limiting subparagraph (2)(a)(i), for the purposes of that subparagraph a grantor is taken to sign writing if, with the intention of identifying the grantor and adopting, or accepting, the writing, the person applies:
(a)writing (including a symbol) executed or otherwise adopted by the person; or
(b)writing wholly or partly encrypted, or otherwise processed, by the person.
Note:    For the meaning of writing, see section 10.
Personal property descriptions—consumer property, equipment and inventory
(4)If particular personal property is described using the term “consumer property” or “commercial property” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only if the personal property is more particularly described, in addition, by reference to item or class.
(5)If particular personal property is described using the term “inventory” in the writing evidencing a security agreement, subparagraph (2)(b)(i) is satisfied only while the personal property is held or leased by the grantor as inventory.
Proceeds
(6)A security interest in proceeds is enforceable against a third party whether or not the security agreement providing for the security interest contains a description of the proceeds.
Note:    Section 32 deals with whether a security interest in collateral attaches to proceeds of the collateral.
It is common ground in the present case that by 12 April 2016 the Samwise security interest had attached to the Motorcycles and by 18 April 2016 the Allied Distribution security interest had attached to the Motorcycles.
It is also common ground that the condition referred to in item 2(a) of paragraph [62] above was satisfied in respect of both sets of security interests which were therefore enforceable against third parties having security interests in the Motorcycles.
Possession and control
The Act gives significance in a variety of ways to possession of terrestrial tangible property and certain types of semi-tangible (hybrid) property (goods, non-electronic negotiable instruments, chattel paper, investment instruments) and to control of non-terrestrial tangible property and certain types of hybrid property (ADI accounts, intermediated securities, letters of credit, negotiable instruments and space objects not evidenced by a certificate).[27]
[27] Personal Property Securities Act 2009 (Cth) sections 24 to 29.
Subsections 24(1) and (2) exclude the secured party and the grantor/debtor both being regarded as being in possession of personal property. Subject to this qualification, in the case of goods “possession” has its general law meaning.
Subsections 24(1) to (3) provide:
24 Possession
Possession by one party exclusive of possession by others
(1)A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor.
(2)A grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured party.
Timing rule for possession of goods transported by common carrier
(3)A grantor or debtor to whom goods are transported by a common carrier acquires possession of the goods only when the earlier of the following occurs:
(a) the grantor or debtor, or another person at the request of the grantor or debtor, actually acquires possession of the goods;
(b) the grantor or debtor, or another person at the request of the grantor or debtor, acquires possession of a document of title to the goods.
Registration
The Registrar of Personal Property Securities is required to establish and maintain the Register, which in turn is to contain amongst other things data in registered financing statements with respect to security interests.[28]
[28] Personal Property Securities Act 2009 (Cth) sections 147 and 148.
A financing statement with respect to a security interest consists of data containing the required details of the secured party, the grantor and the collateral and an address for the giving of notices. It may also contain a time for registration, an indication as to subordination and an indication as to whether it is a purchase money security interest.[29]
[29] Personal Property Securities Act 2009 (Cth) section 153.
The Registrar is required to register a financing statement with respect to a security interest if amongst other things the application is in the approved form.[30]
[30] Personal Property Securities Act 2009 (Cth) sections 150.
Perfection
The Act gives very significant priority advantages to security interests that are “perfected” at the relevant time (usually the time of enforcement or competition) and as between perfected interests to those that have been continuously “perfected” for the longest period. Perfection is therefore a temporal concept: it encompasses not only status at a given time but also status over a continuous historical period up to that given time.

Leaving aside temporary perfection and special cases, a security interest in goods is perfected if:
1.it is attached to the collateral (see [59] above);
2.it is enforceable against a third party (see [62] above); and
3.it is registered with respect to the collateral or the secured party has possession of the collateral.[31]
[31] Personal Property Securities Act 2009 (Cth) section 21.
Sections 21 and 56 provide:
21 Perfection—main rule
(1)A security interest in particular collateral is perfected if:
(a)     the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or
(b)all of the following apply:
(i)the security interest is attached to the collateral;
(ii)the security interest is enforceable against a third party;
(iii)subsection (2) applies.
(2)This subsection applies if:
(a)for any collateral, a registration is effective with respect to the collateral; or
(b)     for any collateral, the secured party has possession of the collateral (other than possession as a result of seizure or repossession); or
(c)     for the following kinds of collateral, the secured party has control of the collateral:
(i)an ADI account;
(ii)an intermediated security;
(iii)an investment instrument;
(iv)a negotiable instrument that is not evidenced by a certificate;
(v)a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation;
(vi)satellites and other space objects.
Note:    For what constitutes possession and control of collateral, see Part 2.3.
(3)A security interest may be perfected regardless of the order in which attachment and any step mentioned in subsection (2) occur.
(4)A single registration may perfect one or more security interests.
…
56 How a security interest is continuously perfected
(1)For the purposes of this Act, a security interest is continuously perfected after a particular time if the security interest is, after that time, perfected under this Act at all times.
(2)A security interest may be continuously perfected after a particular time even if, after that time, it is perfected in 2 or more different ways:
(a)at any particular time; or
(b)at different times.
Examples:     A security interest could be perfected in 2 or more different ways as follows:
(a)     by possession and by a registration;
(b)     by 2 different registrations.
Priority rules
Part 2.6 of the Act creates a series of rules to govern priority between security interests in the same collateral.
In general terms, in the case of goods security interests in the same collateral rank in priority in the following descending order:
1. a perfected purchase money security interest granted to a seller, lessor or consignor of the collateral;[32]
2.     another perfected purchase money security interest;[33]
3.     a perfected security interest;[34]
4.     an unperfected security interest.[35]
[32] Personal Property Securities Act 2009 (Cth) section 63.
[33] Personal Property Securities Act 2009 (Cth) section 62.
[34] Personal Property Securities Act 2009 (Cth) section 55(3).
[35] Personal Property Securities Act 2009 (Cth) section 55(3).
The priority of security interests at the same level is determined by reference to time, being:
1.the time of the start of continuous perfection for perfected security interests;[36]
2. the time of attachment for unperfected security interests.[37]
[36] Personal Property Securities Act 2009 (Cth) section 55(4) to (6).
[37] Personal Property Securities Act 2009 (Cth) section 55(2).
Section 55 provides:
55 Default priority rules
(1)This section sets out the priority between security interests in the same collateral if this Act provides no other way of determining that priority.
Note:    For other rules about priorities, see the following:
(a)    the remaining provisions of this Part;
(b)    Chapter 3 (agricultural interests, accessions and commingling);
(c)    Part 9.4 (transitional application of this Act).
Priority between unperfected security interests
(2)Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests.
Perfected security interest has priority over unperfected security interest
(3)A perfected security interest in collateral has priority over an unperfected security interest in the same collateral.
Priority for perfection in other ways
(4)Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs.
(5)For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest:
(a)the registration time for the collateral;
(b)     the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral;
(c)     the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act.
(6)A time is a priority time for a security interest only if, once the security interest is perfected at or after that time, the security interest remains continuously perfected.
Note:    A security interest in the proceeds of original collateral has the same default priority as the security interest in the original collateral (see subsection 32(5)).
Section 62 addresses the priority of perfected purchase money security interests vis a vis perfected non-purchase money security interests. The outcome of this action turns on the proper construction of section 62. It is set out below.
The trial
Allied Distribution tendered an affidavit by its director and chief executive officer Matthew Stevens and business records exhibited to his affidavit relating to the parties, the security interests and the transactions.
Samwise tendered an affidavit by its director William Norman and business records exhibited to his affidavit relating to the parties, the security interests and the transactions.
Neither witness was cross-examined on his affidavit and there are no factual issues to resolve.
It is common ground that Allied Distribution’s security interest is a purchase money security interest, is in inventory, was perfected by registration on 14 April 2016 and that the registration stated in accordance with item 7 of the table in section 153 that the interest was a purchase money security interest.
Accordingly, it is common ground that, if (which is in dispute) Allied Distribution’s security interest was perfected by registration at the time that the grantor obtained possession of the Motorcycles, it has priority over Samwise’s security interest.
Possession as grantor or possession simpliciter
The construction of section 62 is to be determined by reference to its text, context and evident purpose.
In Project Blue Sky Inc v Australian Broadcasting Authority,[38] McHugh, Gummow, Kirby and Hayne JJ said:
The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.[39]
[38] [1998] HCA 28; 194 CLR 355.
[39] At [69]. (Footnotes omitted)
Section 62 provides:
62 When purchase money security interests take priority over other security interests
Scope
(1)This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest.
Note:    This section is subject to section 57 (perfection by control).
Inventory
(2)The purchase money security interest has priority if:
(a)the purchase money security interest is in inventory or its proceeds; and
(b)the purchase money security interest is perfected by registration at the time:
(i)for inventory that is goods—the grantor, or another person at the request of the grantor, obtains possession of the inventory; or
(ii)for any other kind of inventory—the purchase money security interest attaches to the inventory; and
(c)     the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest.
Note:    This subsection is subject to sections 64 (non‑purchase money security interest in accounts) and 71 (chattel paper).
Personal property other than inventory
(3)The purchase money security interest has priority if:
(a)the interest is in personal property, or its proceeds, other than inventory; and
(b)     the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies:
(i)for goods—the day the grantor, or another person at the request of the grantor, obtains possession of the property;
(ii)for any other property—the day the interest attaches to the property; and
(c)     the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest.
Note:    The period mentioned in paragraph (b) may be extended by a court under section 293.
Section 62(2)(b)(i) provides that a purchase money security interest in inventory has priority if amongst other things it is perfected by registration at the time the grantor obtains possession of the inventory.
The text of section 62(2)(b)(i), considered in isolation, can be equally read as referring to the grantor obtaining possession of the inventory in question as grantor of the purchase money security interest or to the grantor obtaining possession simpliciter.
Section 62 as a whole affords priority to security holders who provide to the grantor the money or other means of acquiring the grantor’s interest in the personal property over other security holders. The rationale for such a scheme is evident. Persons providing the money or other means of acquiring the grantor’s interest in the property who require security are likely to require security in priority over non-purchase money security holders. It is equitable to afford priority to the former over pre-existing non-purchase money security holders because without their contribution and without their being afforded priority the grantor would not acquire its interest in the property and pre-existing non-purchase money security holders would have no security over that property. Pre-existing non-purchase money security holders are regarded as being no worse off after the transaction because the grantor now has an interest in the property exchanged for the consideration provided by the grantor for the interest.
On the other hand future non-purchase money security holders would potentially be prejudiced if their security interest were subrogated to the interest of a purchase money security holder who had not registered its interest and thereby notified potential future security holders of its interest. It was therefore necessary to include in section 62 a temporal limitation by reference to registration of the purchase money security holder’s interest.
Consideration of the evident purpose of section 62(2)(b)(i) and of section 62 as a whole supports a construction that section 62(2)(b)(i) refers to the grantor obtaining possession as grantor of the purchase money security interest in the property in question. This is because it is only at the time of grant of the security interest that registration is required to protect persons subsequently advancing money or providing other value to the grantor in consideration for the grant of a subsequent security interest. The mere fact that the person who becomes the grantor of the security interest to the purchase money security interest holder might have had possession of the property in some other capacity is irrelevant in this context.
Consideration of the context of section 62(2)(b)(i) within section 62 as a whole also supports a construction that section 62(2)(b)(i) refers to the grantor obtaining possession as grantor of the purchase money security interest in the property in question. Section 62 addresses both goods (section 62(2)(b)(i) and 62(3)(b)(i)) and other property (section 62(2)(b)(ii) and 62(3)(b)(ii)). In respect of other property, the temporal requirement is that the purchase money security interest is perfected by registration at the time it attaches to the property. This can only occur when not only the grantor has rights in or power to transfer to the secured party rights in the property but also value is given for the security interest or the grantor does an act by which the security interest arises.[40] The mere fact that the person who becomes the grantor of the security interest to the purchase money security interest holder might have had control of the property (the equivalent for other property of possession for goods) in some other capacity is irrelevant in this context.
[40] Personal Property Securities Act 2009 (Cth) section 19. See [59] above.
Section 62(2)(b)(i) requires a purchase money security interest in inventory to be perfected by registration at the time the grantor obtains possession of the inventory. Obviously a purchase money security interest cannot be registered until it is granted by the grantor. It would be a strange construction of section 62(2)(b)(i) if in a case in which the person who becomes the grantor happens to have pre-existing possession of the inventory it requires the impossible, namely that the security interest be registered before it has been granted and come into existence and before the advance of money or other consideration provided by the security interest holder.
Section 62(3)(b)(i) requires a purchase money security interest in non-inventory goods to be perfected by registration within three weeks after the grantor obtains possession of the inventory. In a case in which the person who becomes the grantor happens to have pre-existing possession of the inventory, it would be arbitrary and hence capricious whether that possession happened to have been obtained within three weeks before the grant of the purchase money security interest or a longer period beforehand. The evident purpose of section 62(3)(b)(i) is to give three weeks grace to a purchase money security interest holder to register the security interest after the grantor has taken possession of the goods as grantor.
The paradigm case addressed by section 62 is one in which the security holder provides the money to the grantor to acquire the property, either by way of mortgagee finance or vendor finance. In this paradigm case normally the grantor will not obtain possession of the property until the security holder provides the money and the grantor grants a security interest. If the security holder provides the money in return for the grant of the security interest but allows the security holder to take possession of the property before registering the security interest, subsequent lenders to the grantor in return for the grant of a security interest would be potentially prejudiced because they would be unaware of the existence of the purchase money security interest and possession of the property by the grantor would indicate to them that the grantor has rights over the property unencumbered by a purchase money security interest.
By contrast, the person who subsequently becomes the grantor of a purchase money security interest might hold possession of the property before acquiring ownership of the property financed by mortgage finance. For example, the person might simply be hiring goods on a weekly basis. That person might later negotiate with the owner to purchase the goods and obtain mortgage finance to finance the purchase. Lenders to the hirer who become security holders during the period in which the hirer is hiring the goods do not obtain a security interest over the ownership of the goods because the ownership is retained by the owner. Such lenders would not be prejudiced by the subsequent grant of a security interest to the mortgagee lender providing the finance to the hirer to acquire ownership of the goods. Such lenders would not be misled by the hirer’s possession of the goods.
Section 62 also encompasses non-paradigm cases in which the finance is structured as a finance lease or as a bailment under a PPS lease. In this case the security holder retains legal ownership of the goods and the grantor does not acquire any legal ownership of the goods but the Act determines the priorities of security interests as if the grantor had acquired legal ownership of the goods. Again, if the person who subsequently becomes the grantor had possession of the goods in a different capacity, such as a simple hirer, lenders to the hirer who become security holders while the hirer is hiring the goods would not be prejudiced by the subsequent grant of a security interest to the finance lessor or bailor providing the finance to the hirer to acquire the commercial ownership of the goods.
On the construction advanced by Samwise, non-purchase money security interest holders would obtain a windfall benefit at the expense of purchase money security holders merely because the person who subsequently became the grantor of the purchase money security interest happened to have possession of the property in a different capacity. It is an unlikely intention to attribute to the legislature to provide such a windfall benefit at the expense of the purchase money security holder.
Section 62 only applies to perfected security interests. In general, a security interest in goods can only be perfected if it has attached to the collateral and it is enforceable against a third party and in general it will only be enforceable against a third party if a security agreement has been executed. Section 62 therefore contemplates that in a temporal sense the security interest will only be registered and the relevant possession by the grantor will only be obtained after execution of the security agreement and grant of the security interest.
It is true, as Samwise submits, that the Act gives force to possession of property because a security interest can be enforceable against a third party by reason amongst other requirements of the security holder having possession of the property and a security interest can be perfected by the security holder amongst other requirements having possession of the property. However the Act does not give force in this way to possession by the person who becomes the grantor of a security interest. Moreover the fact that the person who becomes the grantor of a purchase money security interest might have earlier had possession of the property in a different capacity does not give rise to any prejudice to other security holders for the reasons given above.
Samwise submits that a key purpose of the regime created by the Act is to provide certainty to potential secured lenders by publicly recording what personal property is subject to security and determining the priorities between different security interests and that the construction advanced by Samwise is necessary to ensure that this is achieved. However the construction advanced by Allied Distribution does not lead to any lack of certainty nor does it detract from the purpose of the regime for the reasons given above.

Samwise submits that Allied Distribution could have structured the transaction in different ways to achieve priority for its security interest. The transaction could have been structured as an assignment of CDF’s rights and interests under CDF’s security interest which had pre-existing priority or structured as a refinance as between Bills Motorcycle’s, CDF and Allied Distribution. The transaction could have been structured between Bills Motorcycle’s and Allied Distribution as a financing limited to future delivered motorcycles leaving the existing CDF floorplan facility in place for existing motorcycles. As Allied Distribution points out, these alternative structures would have required the agreement of Bills Motorcycle’s and CDF which may or may not have been forthcoming. In any event the mere fact that the transaction might have been structured in a different manner in which Allied Distribution would have received priority does not entail that on the proper construction of section 62 Allied Distribution did not receive priority as a result of the manner in which the transaction was in fact structured.
Samwise submits that the construction advanced by Allied Distribution would mean that possession in many circumstances would become irrelevant in circumstances in which the legislature chose to make obtaining possession a criterion for the requirement of registration by a purchase money security interest holder to obtain priority. It is true that possession of the property by the person who subsequently becomes the grantor of the purchase money security interest would be irrelevant but that is because it truly is irrelevant. Possession of the property by the grantor once that person has become the grantor would still be relevant and a critical criterion.
Samwise submits that the construction advanced by Allied Distribution does not accord with the ordinary meaning of the text of section 62(2)(b)(i) or fit with the language or structure of other provisions of section 62. However, as observed above the text of section 62(2)(b)(i) is consistent with the constructions advanced by both parties and the language and structure of section 62 considered as a whole supports the construction advanced by Allied Distribution.
On its proper construction section 62(2)(b)(i) refers to the grantor obtaining possession as grantor of the purchase money security interest in the inventory in question.
Possession as grantor
Samwise contends that, if Bill’s Motorcycles’ possession of the Motorcycles was required to be as grantor of a purchase money security interest, it was a grantor from June 2014 when it granted the Samwise security interest to Samwise.
Samwise points to the fact that subsection 62(1) refers to a perfected purchase money security interest granted by a grantor in collateral or its proceeds having priority over a perfected security interest granted by the same grantor in the same collateral that is not a purchase money security interest. Subsection 62(1) refers to the same person as a grantor in respect of both the purchase money security interest and the non-purchase money security interest. Bill’s Motorcycles was the grantor in respect of the non-purchase money security interest since June 2014.
I reject Samwise’s contention. Subsections 62(2) and (3) in referring to the grantor obtaining possession of the goods refer to the grantor obtaining such possession as grantor of the purchase money security interest and not merely at a time when that person happens to be the grantor of some other security interest.
Samwise contends in the alternative that, if Bill’s Motorcycles’ possession of the Motorcycles was required to be as grantor, it was a grantor with respect to Allied Distribution from 12 April 2016 when it executed the Bailment Agreement.
Samwise refers to the definition in the Act of “grantor” which includes a lessee under a PPS lease and submits that Bills Motorcycles became a lessee under a PPS lease when the bailment agreement was executed. Samwise refers to the definition in the Act of “security interest” to mean an interest in personal property provided for by a transaction that in substance secures payment or performance of an obligation and submits that this is done by the bailment agreement. Samwise refers to the definition in the Act of attachment as occurring when the grantor has rights in the collateral and for a PPS lease this occurs when the grantor obtains possession of the goods and submits that this occurred on 12 April 2016.
I reject Samwise’s contention. Subsections 62(2) and (3) in referring to the grantor obtaining possession of the inventory or other goods refer to the grantor obtaining such possession as grantor of the purchase money security interest in specific goods.
Upon execution of the Bailment Agreement on 12 April 2016 there were no specific goods allocated to the agreement or the subject of any bailment by Allied Distribution to Bill’s Motorcycles. There was merely a contemplation by the parties that motorcycles would in future become the subject of the Bailment Agreement and of bailment. Although the Bailment Agreement does not refer to the 40 Motorcycles that were as at its execution subject of bailment by CDF to Bill’s Motorcycles, it may be accepted that it was contemplated that these motorcycles were to become subject of the Bailment Agreement after Allied Distribution had acquired ownership of them and upon bailed goods notices being issued in respect of them.
As at 14 April 2016 when Allied Distribution’s security interest was registered, the Motorcycles were still owned by CDF and were incapable of being the subject of a bailment pursuant to the Bailment Agreement by Allied Distribution to Bill’s Motorcycles. It was not until 15 April 2016 that ownership was transferred by CDF to Kawasaki and in turn by Kawasaki to Allied Distribution. It was not until 18 April 2016 that the Motorcycles were allocated to the Bailment Agreement or the bailment of them commenced. It was not until the bailed goods notices were issued that the bailment commencement or end dates were identified or the price that formed the basis of the calculation of the bailment fees and curtailment instalments was identified. It was only on 18 April 2016 that Allied Distribution obtained a security interest in the Motorcycles.
If Samwise’s contention were correct, it would apply equally to future motorcycles ordered by Bill’s Motorcycles from Kawasaki such that Allied Distribution did not receive priority pursuant to section 62 in respect of such motorcycles. Subsections 62(2) and (3) in referring to the grantor obtaining possession of the inventory or other goods refer to the grantor obtaining such possession as grantor of the purchase money security interest in specific goods.
Conclusion
Allied Distribution’s security interest is entitled to priority over non-purchase money security interests in respect of the Motorcycles.
I will hear the parties as to the terms of the appropriate relief to be granted in light of my reasons for judgment.