Case note: PPSA lease rules apply to $50 million turbines

In Forge Group Power Pty Limited (in liquidation)(receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52 Justice Hammerschlag of the Supreme Court of NSW decided that mobile gas turbine generator sets installed by GE as part of a temporary power station at Port Hedland, Western Australia were subject to a lease to Forge Power regulated by the Personal Property Securities Act 2009 (Cth) (“the PPSA”).

As GE had not registered a financing statement for the Lease before the appointment of voluntary administrators on 11 February 2014 the company (now in liquidation) gained superior title to the turbines.

The turbines were reportedly worth $50 million. The price for a 2 year rental was $28,662,706.00 plus service fees. The total weight of each turbine was 102 metric tonnes.

The seizure of the turbines generated considerable publicity in the USA.

GE raised two issues in an attempt to avoid the application of the PPSA: firstly that GE was not regularly engaged in the business of leasing goods within the meaning of s 13(2)(a) of the PPSA and that the PPSA did not apply because the Turbines were fixtures within the meaning of s 10.

What is the business of leasing goods?
The first issue was whether, in determining if a lessor is or is not regularly engaged in the business of leasing goods for the purpose of s 13(2)(a), regard may be had to activity outside of Australia.

Justice Hammerschlag concluded that:
(1) in testing whether a person is (or is not) regularly engaged in the business of leasing goods, regard is to be had to activity wherever it occurs, and not only to activity in Australia.
(2) the test applies at the time the Lease was entered into;
(3) when the Lease was entered into, and at all material times thereafter, GE was regularly engaged in the business of leasing goods within Australia.

Did the turbines become fixtures?
The PPSA does not apply to fixtures to land.

Justice Hammerschlag held that:
(1) the words “affixed to land” in the definition of fixtures in s 10 means affixed according to common law concepts; and
(2) the Turbines did not become fixtures.

The factors which supported the judge’s conclusion that the objective intention with which the Turbines were put in place was that they should not become fixtures included:
“(1) the Turbines were designed to be demobilised and moved to another site easily and in a short time. Significantly, the trailers keep their wheels throughout;
(2) the Turbines were only intended to be in position on the site, which was a temporary power station site, for a rental term of two years subject to limited optional extensions;
(3) Forge Power was contractually obliged to return the Turbines at the end of the rental term;…
(6) removal of the Turbines would cause no damage to the land;
(7) a design feature is that removal will not destroy or damage the Turbines;
(8) the cost of the removal of the Turbines from the site would not exceed the value of the Turbines – it would be modest in comparison;
(9) the Head Contract includes an express term that property in the Turbines will not pass to the owner of the land;
(10) the Lease includes a term that the Turbines will remain at all times personal property notwithstanding that they may in any manner be affixed or attached to any other personal or real property;…
(12) GE prescribed the mechanism for attachment and plainly did not intend the units to become the property of the owner of the land.”

Print Friendly, PDF & Email

Your Compliance Support Plan

We understand you need a cost-effective way to keep up to date with regulatory changes. Talk to us about our fixed price plans.