Taxi owners and operators in NSW will be familiar with the State government’s Register of Encumbered Vehicles (REVS). This register was established in 1986 to record the interest in a motor vehicle of a lender to the owner of the vehicle, a lessor of the vehicle to another person, and the rights of the owner under a hire purchase agreement. These REVS interests are called “security interests”.

The intention of REVS is that a motor vehicle which is the subject of a security interest will need to be released from that interest before someone else can obtain clear title to the vehicle. The registration system is voluntary, but failure by a lender, lessor or owner (each a “secured party”) to register its interest on REVS means that the secured party risks losing its rights in favour of a genuine purchaser or lessee who does not (and cannot) be aware of the secured party’s interest in the vehicle.

From 31 January 2012 the Commonwealth Government will be implementing a national REVS-type system for the registration of a wide range of security interests over not just motor vehicles but all kinds of property except land – so-called “personal property”. The law embodying the new system will be called the Personal Properties Securities Act (PPSA), and the register will be called the Personal Property Securities Register (PPSR).

The PPSR will go much further than REVS. Apart from being national in scope, internet-based and available for the registration and checking of security interests 24 hours of every day, the law which brings the register into being, the PPSA, will greatly change how all kinds of security interests will be created, interpreted and enforced. A security interest under the PPSA will include not only the usual (although renamed) mortgages, charges and bills of sale, but also (like REVS) long term leases, as well as commercial consignments, retention of title clauses in supply contracts, and factoring transactions.

Where the PPSA differs from REVS, however is that when an item of personal property such as motor vehicle becomes subject to a security interest, it will be necessary for the owner to register that interest on the PPSR in order to fully protect its usual ownership rights. Title to goods will no longer be enough. This represents a radical change to the current legal position concerning ownership rights. Failure to register could, for example, jeopardise the owner’s right to claim back its property if the person who is holding it becomes insolvent or defaults under a security agreement with a prior PPSR-registered security holder (such as that person’s bank).

In addition, taxi owners and operators will be concerned about the position of their licences under the PPSA. The new law defines personal property to included licences, whether private contractual licences, or statutory authorities like taxi licences. The PPSA permits all State governments and Territories to exclude their various kinds of licences from the ambit of the new law. With regard to taxi licences the NSW government has not at the time of writing chosen to do so.

Although classed as personal property, a taxi licence does not of itself comprise a security interest. The owner of a “plate” is in fact a licensee from the issuing authority, in this case the Director-General of Transport NSW as delegate for the State Government. When a licence owner “leases a plate” to another operator or driver, as a legal matter what is happening is the licensee (plate holder) is sub-licensing to the other party. Neither of these transactions, or for that matter any subsequent sub-lease (sub-sub-licence), comprises a security interest under the PPSA. There should therefore be no change to existing procedures or documentation, as no PPSR registration is required.

In the case of an operator bailing a vehicle to a driver, if the bailment agreement is not sufficiently “long term” it is not registrable on the PPSR as a security interest. This is because it does not fall within the PPSA’s definition of a “PPS Lease”. The reasoning begins with the fact that a motor vehicle is specified in the PPSA Regulations as a class of “serial numbered goods” (the other such goods are aircraft and watercraft). A PPS Lease of serial numbered goods must be at least 90 days in length, unlike leases of non-serial numbered personal property which, basically, must be for a term of at least a year.

Assuming the bailment agreement is a shift-by-shift proposition – in that the owner/operator is not contractually obligated to make a vehicle available to the same driver every time he or she wants to drive – the bailment agreement fails to qualify as a PPS Lease. Accordingly it is not registrable as a security interest and the PPSA does not apply.

Irrespective of one’s view on the changes being introduced by the PPSA, when it commences there will be a 2 year transition period to allow affected persons to get used to the new rules. This will include allowing them to bring any existing but newly deemed security interests onto the PPS Register.

What is clear though is that the PPSA will present a number of challenges to current commercial practices. Its proponents insist that the PPSA will assist credit creation and bring greater certainty to business dealings. Whilst these advantages may in time be borne out, there is no doubt that a period of adjustment will be necessary. The taxi industry too will be required to adjust, although the PPSA’s impact on it should not be as great as for other industries.

For more information contact partners@pigott.com.au.

This article is intended to provide general information in summary form on a legal topic, current at the time of publication.  The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.