A lien-holder (lienee) would have the requisite actual knowledge if, for example, an existing security agreement contained a negative pledge clause that prohibited the creation of liens arising in the ordinary course of business, and the lienee knew of the restrictive covenant before their lien arose. This should be rare indeed².

This priority rule is set out in section 73(1), and where it applies it gives general law liens and statutory liens and charges “super priority” over PPSA security interests.

General law liens can be either common law (possesory) liens, or equitable (non-posessory) liens. Common law liens depend on the continued possession of the collateral by the secured party for their existence. Examples of common law possessory liens include liens of solicitors, bankers and stock brokers over property they hold for their clients or customers to secure amounts owing to them. Common law liens also arise where a person has repaired or improved property by performing services in relation to it, such as a mechanic's lien over a car for unpaid repair costs.

Equitable liens commonly arise for the benefit of buyers and sellers of real estate, to secure payment of the balance of the purchase price (seller's lien), or for repayment of the purchase price if the sale is rescinded (buyer's lien). Equivalent equitable liens may also apply to buyers and sellers of personal property in general³, and possibly goods to the extent not inconsistent with the Sale of Goods legislation in each Australian State⁴. Further, a trustee has a lien over trust assets for amounts owing associated with the provision of trustee services, or the incurrence of liabilities on behalf of the trust.

There are also many examples of statutory liens and charges which arise under specific State and Commonwealth legislation to secure amounts owing from the provision of services in the ordinary course of business.

General law liens and statutory liens or charges are not security interests under the PPSA. They do not need to be registered or otherwise perfected. However, section 73(1) of the PPSA regulates the priority of general law liens, and statutory liens and charges, and accords them super priority over PPSA security interests, unless the lien or charge is excluded from section 73(1) by the legislation under which the statutory lien or charge arises⁵, or by legislative instrument (in the case of general law liens)⁶.  In these cases, the priority of the lien or charge in question would be regulated under the legislation under which the statutory lien or charge arises, or presumably under the legislative instrument passed in respect of a general law lien.

A reasonably comprehensive (but not exhaustive) summary of statutory charges and liens that arise under State and Commonwealth legislation and the priority of which is declared not to be regulated by section 73(1) of the PPSA is as follows. This means that the following statutory liens and charges are excluded from section 73(1) “super priority”. In some cases these statutory liens and charges are accorded even stronger priority, and in other cases weaker priority, as explained below.

New South Wales: statutory liens or charges that arise in New South Wales and which are excluded from section 73(1) of the PPSA include:

1. 1. warehouseman's liens arising under section 3 of the Warehousemen's Liens Act 1935 (NSW). Warehouseman’s liens are declared to have priority over any other interest in the property subject to the lien, under section 3 of that Act. This is a stronger position than section 73(1) of the PPSA accords because knowledge is irrelevant; 
   2. liens arising under section 11(3) of the Building and Construction Industry Security of Payment Act 1999 (NSW). These liens arise over unfixed plant and materials, and any other interest in plant and materials. The rules and principles of the common law and equity are declared to apply to determine the priority between liens arising under section 11(3) and any other competing interest - section 11(6) of that Act;

Victoria: statutory liens or charges that arise in Victoria and which are excluded from section 73(1) of the PPSA are listed below. The Personal Property Securities (Statute Law Revision and Implementation) Act 2010 (Vic) provides (in Part 7) that section 73(2) of the PPSA applies to the below statutory liens and charges, which means that the priority of these statutory liens and charges is determined under the legislation under which they arise (not under section 73(1) of the PPSA):

Western Australia: the following statutory liens and charges are declared not to be subject to super priority under section 73(1) of the PPSA. In most cases, the priority of the statutory liens or charges excluded from section 73(1) is not provided for under Western Australian legislation, which means that general common law principles would apply to determine the priority of these excluded statutory liens and charges:

South Australia: Section 73(2) is declared to apply to liens or charges that arise under the Criminal Assets Confiscation Act 2005 (SA) and the Worker's Liens Act 1983 (SA);

Northern Territory: no statutory liens or charges appear to be excluded from section 73(1) “super priority” in the Northern Territory;

Tasmania: no statutory liens or charges appear to be excluded from section 73(1) “super priority” in Tasmania;

Australian Capital Territory: statutory liens or charges that arise in the Australian Capital Territory and which are excluded from section 73(1) of the PPSA are listed below. The priority of these statutory liens and charges is determined in accordance with the legislation under which they arise, because section 73(2) of the PPSA is declared to apply to them:

i.  dealings in statutory fishing rights options under section 31F of the Fisheries Management Act 1991 (Cth), and dealings in fishing rights under section 46 of the same Act, are declared not to be regulated by section 73(1) of the PPSA¹³.  

Section 31FA of that Act regulates the priority of dealings in statutory fishing rights options registered under section 31F, and section 46A regulates the priority of dealings in fishing rights registered under section 46 of that Act, as against PPSA security interests. Broadly, dealings in both statutory fishing rights options, and fishing rights, have priority to unperfected PPSA security interests, and otherwise take priority over perfected PPSA security interests only if registered under section 31F or section 46 (respectively) before the priority time of a PPSA security interest¹⁴.  

For completeness, following the commencement of the PPSA there is no longer any need to register dealings in statutory fishing rights options under section 31F, or dealings in fishing rights under section 46, under the Fisheries Management Act 1991 (Cth)¹⁵ where these dealings are PPSA security interests – they would instead be registered under the PPSA;

ii.  liens for seamen’s wages that arise under section 83 of the Navigation Act 1912 (Cth) are declared not to be regulated by section 73(1) of the PPSA¹⁶. These liens are declared by section 83(2) of that Act to have priority over all other liens and all PPSA security interests over a ship¹⁷;

iii  statutory charges that arise under section 298(2) of the Navigation Act 1912 (Cth) are declared not to be regulated by section 73(1) of the PPSA¹⁸. Statutory charges that arise under section 298(2) are (interestingly) over ships and shipwrecks for damage occasioned in passing over land to save the ship or shipwrecked persons. Statutory charges under section 298(2) are declared to have priority over all PPSA security interests over a ship under section 298(2A) of the Navigation Act 1912 (Cth)¹⁹;

iv.  statutory liens over aircraft (for unpaid service charges) that arise under section 59 of the Air Services Act 1995 (Cth) are declared not to be regulated by section 73(1) of the PPSA²⁰. Statutory liens for unpaid service charges have priority to PPSA security interests that attach to aircraft as circulating assets, and also other security interests that attach after the statutory lien is registered in the public register of statutory liens maintained under section 64 of the Airservices Act 1995 (Cth)²¹. Aircraft are unlikely to be circulating assets, except to the extent that aircraft are held as inventory or similar; and

v.  statutory charges arising under section 62S(2) of the Insurance Act 1973 (Cth) are declared not to be regulated by section 73(1) of the PPSA²². The priority of statutory charges arising under section 62S(2) is regulated under the Insurance Act 1973 (Cth) because section 73(2) of the PPSA is declared to apply to them.

Returning to the standard PPS priority diagram (diagram 1) opposite, the debtor/grantor D owns a car. D has granted a security interest to D’s lender Bank A over all present and after-acquired property (a fixed and floating charge) on 1 January 2010 – number 3 in the diagram. This security interest would attach to D’s car.

Roll forward to July 2012, following the commencement of the PPSA. Assume that D puts the car in to servicing with his mechanic, the mechanic does his usual good job, but D is short on cash and does not pay the mechanic. The mechanic is savvy and thinks that possession is nine-tenths of the law, and holds on to D’s car in his workshop pending payment.

The mechanic’s lien would be a lien arising at general law (not statute), and would be a common law lien, which requires the mechanic to retain possession of the car, otherwise the lien would be lost. General law liens are not regulated by the PPSA as security interests, so they do not have to be perfected under the PPSA by registration or otherwise. The general law will govern how liens arise and their validity. However, section 73(1) of the PPSA governs the priority of general law liens as against other PPSA security interests, and accords them “super priority”. Legislative instrument made pursuant to section 73(7) of the PPSA can exclude general law liens from the super priority accorded under section 73(1), but assume for present purposes that liens held by mechanics for unpaid repair costs benefit from section 73(1) super priority.

If the mechanic retains possession of the car, the mechanic can clearly continue to assert a common law lien for unpaid repair costs. If the mechanic gives the car back to D, the mechanic forfeits his lien because common law liens rely on continued possession for their existence. The mechanic may be able to argue for a non-possessory equitable lien, but that is not conclusive and may not succeed.

Assume next that Bank A gets tired of supporting D, and following a default appoints a receiver to all of D’s assets, including the car, albeit the car is still in the mechanic’s workshop, being withheld by the mechanic pending payment of the repair bill by D. The receiver writes to the mechanic asking for the car back. The mechanic smiles, and does nothing, continuing to hold on to D’s car pending payment.

The mechanic wins, despite the fact that Bank A’s security interest pre-dates the mechanic’s lien, and is duly perfected. The only circumstance in which the mechanic would lose to Bank A is if the mechanic had actual knowledge that his lien arising for unpaid car servicing costs breached a restrictive covenant in the security agreement that D granted to Bank A prohibiting liens in the ordinary course of business arising over D’s assets. This is unlikely, especially because even if the mechanic searched the PPS Register and found Bank A’s security interest, the mechanic would not gain access to the security agreement (security agreements cannot be obtained by searching the PPS Register). The mechanic would probably never know whether his lien breached the terms of Bank A’s security agreement, and if so the mechanic is safe.