Priority against other security interests or other interests in the same collateral depends on various factors, principally:
-
type of security interest: for example, is the security interest a PMSI which has (limited) super priority, or an ordinary security interest?
-
class of collateral: does the collateral type require or permit a special form of perfection, such as registration of PMSIs over collateral which will be inventory in the hands of the grantor? Another example is registration against the serial numbers of serial-numbered property. Failure to register against serial numbers generally makes the registration defective for consumer serial numbered property and commercial aircraft, and exposes the security interest to a greater risk of extinguishment upon transfers of collateral in relation to all serial numbered property
-
method of perfection: does the collateral class permit perfection by control. Security interests perfected by control defeat most other security interests, regardless of when taken and whether there is knowledge of prior security interests1, except transitional security interests2?
The traffic light symbol below represents the priority that security interests attain under the PPSA by being perfected. Either security interests will need to “give way” to other security interests in the same collateral which have priority, or will be “given way to” if they have priority.
Broadly, a summary priority waterfall showing the strength of the differing methods of perfection and various types of security interests over the different classes of collateral is as listed below in paragraph 13.2.1, and shown in the "priority waterfall" diagram which follows. There is a more detailed priority waterfall, with additional commentary and priority diagrams, commencing at paragraph 18.4.1 of Chapter 18 (Priority).
The idea of the waterfall is to follow it down until relevant parts apply to the transaction under consideration. Not all parts of the waterfall will apply to every transaction.
The waterfall is not exhaustive of all priority matters. It is intended to give a broad indication of the priority hierarchy for security and other interests under the PPSA.
Certain priority matters are discussed outside the waterfall in the paragraphs that follow the waterfall. These include:
- priority contests that may arise when collateral is transferred without extinguishment of existing security interests, and
- priority disputes that arise when collateral is comingled, processed or manufactured into other goods.
The priority of security interests over agricultural interests also is not discussed in the waterfall.
