The Maiden Civil¹ case is a seminal case that establishes the concept that both title-based security interests such as leases, and non-title-based security interests such as general security interests, compete for priority with each other on equal terms under the PPSA priority rules, regardless of where title to the underlying collateral lies.

In In Re Maiden Civil (P&E) Pty Ltd [2013] NSWSC 852 (Maiden), Queensland Excavation Services Pty Ltd (QES) purchased three caterpillar excavation vehicles (Vehicles) in 2010, on behalf of Maiden Civil (P&E) Pty Ltd (Maiden) which could not afford them. The structure was that QES “fronted” the purchase by acquiring the Vehicles new from the dealership and borrowed finance from Esanda and Westpac to fund the purchase. Maiden “sat behind” QES, paid to QES the deposit amounts required for the finance, and paid the monthly finance charges to QES (for QES to pay to Westpac and Esanda) plus a 10% margin for QES to keep for QES’s trouble. Maiden then took possession of the Vehicles and used them in its business to earn income. 

The court found that not only had QES leased the Vehicles to Maiden, but in addition the arrangement between them included that QES would transfer title to the Vehicles to Maiden once the finance had been paid out. At the time of the dispute finance was outstanding for two of the Vehicles.

After Maiden leased the Vehicles from QES, Maiden later borrowed approximately $250,000 from a third-party financier Fast Financial Solutions Pty Ltd (Fast), and Fast took a general security deed over all of Maiden’s assets (GSD). Fast registered its GSD by making a registration on PPSR against all of Maiden’s assets.

Fast later appointed receivers under the GSD following a default by QES (Receivers). A competition arose between QES and Fast as to who was entitled to the Vehicles. Maiden also entered voluntary administration (Administration), creating a “vesting event” for unperfected security interests under PPSA section 267 - this is discussed below.

Interestingly, QES then terminated the leases of the Vehicles to Maiden, and re-leased the Vehicles to another (Lease Termination)- the impact of the Lease Termination is also discussed below.

QES argued that it owned title to the Vehicles and Maiden merely leased the Vehicles, and that title should carry the day, as it did before the introduction of the PPSA - how can Maiden grant security to Fast over something that Maiden does not own (Maiden was just leasing the Vehicles), argued QES.

Against this, Fast argued that the scheme of the PPSA and its priority rules do not look to title, rather they look to “rights in the collateral” sufficient to permit a security interest to attach (see section 19 of the PPSA and its attachment rules). Fast argued that the lease of the Vehicles from QES to Maiden was a “PPS Lease” and so regulated by the PPSA and subject to PPSA priority rules to determine competitions between competing security interests. Fast argued that Maiden, as the lessee of collateral and being in possession of the collateral under leases from QES, had sufficient rights in the Vehicles to grant a security interest in the Vehicles to Fast.

The court in Maiden confirmed that the lease of the Vehicles from QES to Maiden was a PPS Lease, and pointed to section 19(5) of the PPSA, which provides that a grantor under a PPS Lease has sufficient rights to the collateral (the Vehicles) to support attachment of a security interest when the grantor has possession of the collateral - Maiden certainly had possession of the Vehicles².

The result was that Fast’s perfected (registered) security interest that attached to the Vehicles, prevailed over QES’s security interest in the Vehicles (a PPS Lease) because although QES’ interest arose earlier in time, QES had not registered its PPS Lease, meaning it was unperfected. The general priority rule under the PPSA is that perfected security interests prevail over unperfected security interests³.

QES argued that the Lease Termination meant that Maiden, and the Receivers appointed to Maiden, no longer had any right to possession of the Vehicles. The Court met this argument is two ways. First, by holding that the Administration of Maiden vested QES’ unperfected PPS Lease security interest, thereby extinguishing QES’ PPS Lease security interest, and vesting the Vehicles in Maiden, meaning that Maiden held the Vehicles subject only to Fast’s GSD and no longer subject to QES’ PPS Lease. Second, the court held that Maiden had more than a mere right to possess the Vehicles under the PPS Lease, rather Maiden had a proprietary right to grant security in the Vehicles, and this could not be and was not removed by the Lease Termination⁴.

QES lastly argued that PPSA section 112 preserved the so-called “nemo dat” rule, being that title to property is respected and one without title cannot transfer title to another. Section 112 sits within Chapter 4 of the PPSA which deals with enforcement of PPSA security interests, and provides that, in exercising rights and remedies under the PPSA a secured party may deal with collateral only to the same extent as the grantor would be able to deal with collateral. The court rejected this argument and held that section 112 is not concerned with title, priority or nemo dat, but rather relates to underlying restrictions that may exist in collateral such as restrictions on assignment in licences, as highlighted in section 112(3).

Maiden was quickly followed by White v Spiers Earthworks Pty Ltd [2014] WASC 139, which dealt with very similar circumstances and essentially followed Maiden and arrived that the same result.