Federal Court of Australia

Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd [2025] FCAFC 62

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondent’s costs, as agreed or to be taxed in default of agreement.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    The appellant (Kirkalocka) conducted the Kirkalocka Gold Mine within the area of Mining Lease M59/234 (Site). The Site is located 70 kilometres south of Mount Magnet, Western Australia.

2    On 11 February 2019, Kirkalocka and the respondent (Zenith) entered into a Power Purchase Agreement (PPA) under which Zenith agreed to design, construct, operate and maintain electricity supply generating facilities and associated energy infrastructure (Zenith Power Plant) at the Site in order to generate and supply electricity to Kirkalocka at the Site. The PPA had a term of 10 years.

3    On 1 May 2021, Kirkalocka entered into administration.

4    On 9 November 2023, Kirkalocka commenced a proceeding seeking a declaration that it is the legal and beneficial owner of the Zenith Power Plant by reason that Zenith held a security interest in the Zenith Power Plant under the PPA which vested in Kirkalocka upon entering administration by operation of s 267(2) of the Personal Property Securities Act 2009 (Cth) (PPSA).

5    The issues before the primary judge were whether, under the PPA, Zenith had a security interest in the Zenith Power Plant within the meaning of ss 12(1) or 12(3) of the PPSA and, if so, whether that interest was perfected by Zenith before Kirkalocka went into administration.

6    It was common ground that the plant and equipment comprising the Zenith Power Plant were not fixtures and were therefore personal property within the meaning of the PPSA. It was also common ground that Zenith had not perfected its interest in the Zenith Power Plant by registering a security interest under the PPSA before Kirkalocka went into administration. It followed that, if Zenith had a security interest in the Zenith Power Plant that was granted by Kirkalocka, the security interest would have vested in Kirkalocka upon entering administration by operation of s 267(2) of the PPSA unless Zenith had perfected its security interest by possession before Kirkalocka entered administration.

7    The primary judge dismissed Kirkalocka’s application: Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd, in the matter of Kirkalocka Gold SPV Pty Ltd [2024] FCA 428 (PJ). While his Honour found that Zenith had a security interest in the Zenith Power Plant within the meaning of s 12(1) of the PPSA, his Honour found that Zenith had perfected its interest by being in actual and apparent possession of the Zenith Power Plant.

8    By its notice of appeal, Kirkalocka contends that the primary judge erred in finding that Zenith was in apparent possession of the Zenith Power Plant and had thereby perfected its security interest in the Zenith Power Plant before Kirkalocka went into administration. By its notice of contention in Kirkalocka’s appeal, Zenith contends that the primary judge’s decision should be affirmed on the additional basis that, as Zenith was in actual possession of the Zenith Power Plant, Kirkalocka could not be regarded as being in possession by virtue of the operation of s 24(2) of the PPSA.

9    Zenith also filed a notice of cross-appeal, but the notice did not seek to set aside or vary the orders of the primary judge. The issues raised by the notice of cross-appeal were therefore in the nature of contentions and the parties agreed that the Court should treat the notice of cross-appeal as if it were a notice of contention in Kirkalocka’s appeal. By that document, Zenith contends that the primary judge’s decision should be affirmed on the additional basis that a security interest in favour of Zenith did not arise under the PPA within the meaning of s 12(1) of the PPSA.

10    For the reasons that follow, Kirkalocka’s appeal should be dismissed. The primary judge was correct to find that Zenith was in apparent possession of the Zenith Power Plant. It is therefore unnecessary to determine the contention advanced by Zenith with respect to security interest. Nevertheless, in case the matter proceeds further, Zenith’s contention that the primary judge erred in concluding that a security interest in the Zenith Power Plant arose in favour of Zenith under the PPA should be upheld.

The statutory provisions

Overview

11    Section 3 of the PPSA provides an overview of the Act. As there stated, the PPSA is a law about security interests in personal property. The overview in section 3 explains that:

A security interest is an interest in personal property provided for by a transaction that secures payment or the performance of an obligation. The form of the transaction and the identity of the person who has title to the property do not affect whether an interest is a security interest.

Personal property includes many different kinds of tangible and intangible property, other than real property. Examples include motor vehicles, household goods, business inventory, intellectual property and company shares. Personal property is known as collateral if it is (or is anticipated to be) the subject of a security interest.

…

If a security interest in collateral is perfected, it takes priority over another security interest that is unperfected when the security interest comes to be enforced. A security interest is perfected if:

(a)     it has attached to collateral; and

(b)     it is enforceable against third parties; and

(c)     certain extra steps (possession or control of the collateral, or registration on the Register of Personal Property Securities) have been taken to protect the interest.

…

Chapter 8 deals with the following:

(a)     rules about the vesting of certain unperfected interests (Part 8.2);

…

12    The collateral in the present case was the Zenith Power Plant.

Vesting of certain unperfected security interests

13    Kirkalocka’s application is based on s 267(2) of the PPSA which is located within Part 8.2, titled “Vesting of certain unperfected security interests”.

14    Subsection 267(1) relevantly stipulates as follows:

(1)     This section applies if:

(a)     any of the following events occurs:

(i)     … ;

(ii)     an administrator of a company or a body corporate is appointed (whether under section 436A, 436B or 436C of the Corporations Act 2001, under that section as it is applied by force of a law of a State or Territory, or otherwise);

…

(b)    a security interest granted by the body corporate, company or bankrupt is unperfected at whichever of the following times applies:

(i)     … ;

(ii)     in the case of a company or a body corporate to which subparagraph (a)(ii) or (iii) applies—when, on a day, the event occurs by virtue of which the day is the section 513C day for the company or body, within the meaning of the Corporations Act 2001 (including that Act as it is applied by force of a law of a State or Territory, or otherwise);

…

15    Subsection 267(2) relevantly stipulates that:

(2)    The security interest held by the secured party vests in the grantor immediately before the event mentioned in paragraph (1)(a) occurs.

16    The security interest referred to in s 267(2) is the security interest defined by s 267(1)(b). Relevantly for the purposes of this proceeding, it is a security interest granted by the company or body corporate that entered administration that is unperfected on the day defined in s 267(1)(b)(ii). Likewise, the grantor referred to in s 267(2) is the entity that granted the security interest as described in s 267(1)(b). Relevantly for the purposes of this proceeding, it is the company or body corporate that entered administration as referred to in both ss 267(1)(a)(ii) and (b)(ii).

17    It can be seen that Kirkalocka’s cause of action under s 267(2) required proof of three things:

(a)    that the secured party (here, Zenith) held a security interest;

(b)    that the security interest had been granted to Zenith by the company that entered administration (here, Kirkalocka); and

(c)    that the security interest was unperfected on the day defined in s 267(1)(b)(ii).

18    If those three things were established, s 267(2) would operate to vest the security interest in the grantor (here, Kirkalocka).

19    So far as appears from the primary judgment, the issues in dispute at trial were the issues identified in paragraphs (a) and (c) above: that is, whether Zenith held a security interest and whether the security interest was unperfected when Kirkalocka went into administration on 1 May 2021 (PJ at [3]). The primary judgment does not discuss the issue identified in paragraph (b), whether the putative security interest had been granted to Zenith by Kirkalocka, and that issue did not arise and was not addressed on the appeal. That is unfortunate because there is an obvious connection between the question whether Zenith held a security interest and whether the security interest had been granted to it by Kirkalocka, and a question arises concerning the interaction of the definition of “grantor” in s 10 of the PPSA with s 267. Nevertheless, in circumstances where the issue did not arise at trial and was not addressed on appeal, it is both unnecessary and inappropriate for this Court to consider this issue further. The Court will resolve the issues as raised by the parties on the appeal.

The meaning of security interest

20    Section 12 of the PPSA deals with the meaning of “security interest” and relevantly provides:

12    Meaning of security interest

(1)    A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).

Note:    For the application of this Act to interests, see section 8.

(2)    For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:

…

(d)    a conditional sale agreement (including an agreement to sell subject to retention of title);

(e)    a hire purchase agreement;

…

21    The expression “provides” is defined in s 10 as follows:

provides: a security agreement provides for a security interest if the interest arises under the agreement.

22    The word “interest” is defined in s 10 in an inclusive manner as follows:

interest, in personal property, includes a right in the personal property.

23    Section 12 must be read with s 8 of the PPSA, which provides that certain interests are not covered by the PPSA. Relevantly for the purposes of this appeal, s 8(1)(c) of the PPSA provides:

8    Interests to which this Act does not apply

(1)     This Act does not apply to any of the following interests (except as provided by subsection (2) or (3)):

…

(c)    a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law;

24    As already noted, one of the issues that arises on the appeal (by way of contention) is whether the primary judge was correct to conclude that the terms of the PPA provided for a security interest in favour of Zenith within the meaning of s 12(1).

Perfecting a security interest

25    Part 2.2 of the PPSA describes how a security interest is attached to personal property and perfected. Zenith contends that the security interest was perfected within the meaning of ss 21(1) and 21(2)(b). As can be seen below, those provisions require reference to the meaning of “attaches” in s 19(2), that the security interest is enforceable against third parties under s 20 and that the secured party has “possession” of the collateral.

26    Section 19 deals with the attachment of a security interest to collateral and relevantly provides:

19    Enforceability of security interests against grantors—attachment

Attachment required for enforceability

(1)     A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral.

Attachment rule

(2)     A security interest attaches to collateral when:

(a)    the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and

(b)     either:

(i)     value is given for the security interest; or

(ii)     the grantor does an act by which the security interest arises.

…

27    Section 20 deals with the enforceability of security interests against third parties, and relevantly provides:

20    Enforceability of security interests against third parties

General rule

(1)     A security interest is enforceable against a third party in respect of particular collateral only if:

(a)     the security interest is attached to the collateral; and

(b)     one of the following applies:

(i)     the secured party possesses the collateral;

(ii)     the secured party has perfected the security interest by control;

(iii)    a security agreement that provides for the security interest covers the collateral in accordance with subsection (2).

Note:     For possession and control of collateral, see Part 2.3.

…

28    Section 21 of the PPSA, which concerns the perfection of a security interest, provides as follows:

21    Perfection—main rule

(1)    A security interest in particular collateral is perfected if:

(a)    the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or

(b)    all of the following apply:

(i)    the security interest is attached to the collateral;

(ii)    the security interest is enforceable against a third party;

(iii)    subsection (2) applies.

(2)    This subsection applies if:

(a)    for any collateral, a registration is effective with respect to the collateral; or

(b)    for any collateral, the secured party has possession of the collateral (other than possession as a result of seizure or repossession); or

(c)    for the following kinds of collateral, the secured party has control of the collateral:

(i)    an ADI account;

(ii)    an intermediated security;

(iii)    an investment instrument;

(iv)    a negotiable instrument that is not evidenced by a certificate;

(v)    a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation;

(vi)    satellites and other space objects.

Note:    For what constitutes possession and control of collateral, see Part 2.3.

(3)    A security interest may be perfected regardless of the order in which attachment and any step mentioned in subsection (2) occur.

(4)    A single registration may perfect one or more security interests.

29    Section 10 states that “possession” has a meaning affected by s 24. Section 24 provides:

24    Possession

Possession by one party exclusive of possession by others

(1)    A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor.

(2)    A grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured party.

…

30    The principal issue that arises on the appeal concerns the question whether Zenith was in possession of the Zenith Power Plant within the meaning of s 21(2)(b), as affected by s 24(1), when Kirkalocka went into administration. There is no challenge to the primary judge’s finding that Zenith was in actual possession of the Zenith Power Plant. Kirkalocka challenges the finding that Zenith was in apparent possession of the Zenith Power Plant and contends that, if it (Kirkalocka) was in apparent possession, the effect of s 24(1) is that Zenith cannot have possession. Zenith contends that the primary judge was correct with respect to apparent possession but that, even if Kirkalocka was in apparent possession, the effect of s 24(2) is that Kirkalocka cannot be regarded as being in possession at the relevant time because Zenith was in actual possession.

The Power Purchase Agreement

31    The dispute between the parties concerns the ownership of the plant and equipment comprising the Zenith Power Plant which was designed and constructed by Zenith pursuant to the terms of the PPA.

32    The nature and purpose of the PPA can be discerned from its title, its recitals and its terms. The agreement was titled “Power Purchase Agreement” and, in the agreement, Kirkalocka is described as the “Buyer”, being the buyer of electricity from Zenith pursuant to the terms of the agreement. The recitals to the agreement stated as follows:

A.    The Buyer requires external support to supply, install build and operate a gas and diesel fired power station as part of the Kirkalocka Gold Project, located in the mid-west of Western Australia, approximately 70kms South of Mount Magnet ("Project").

B.    Zenith conducts a business of designing, owning, constructing, operating and maintaining electricity supply generating facilities and associated energy infrastructure.

C.    Zenith has agreed to perform the Works to design, construct, install and commission the Zenith Power Plant comprising power generation equipment and other plant and equipment at the Buyer's Site.

D.    Using the Zenith Power Plant, Zenith shall produce and supply the Buyer with Buyer Electricity on the terms and conditions contained within this Agreement.

E.    The Buyer shall supply the whole of the fuel requirements to Zenith for use in generating the Buyer Electricity from the Zenith Power Plant.

F.    Zenith and the Buyer undertake to deliver upon their respective obligations on the terms set out in this Agreement.

33    Similarly, cl 3.1 provided an overview of the obligations assumed by both parties under the agreement and stipulated as follows:

3.1     Subject Matter of this Agreement

This Agreement provides for the following matters:

(a)     the performance of the Works by Zenith at the Power Station Site;

(b)     the operation and maintenance of the Zenith Power Plant by Zenith for the efficient generation of the Buyer Electricity from the Zenith Power Plant;

(c)    the payment by the Buyer of the Charges to Zenith in consideration for the performance by Zenith of its obligations under this Agreement, including the supply of the Buyer Electricity; and

(d)     the provision at the Fuel Supply Points and free issue and supply by the Buyer to Zenith, of all natural gas (being re-gasified LNG) and diesel fuel required for the Zenith Power Plant to produce the Buyer Electricity.

34    The “Works” which Zenith agreed to perform under the agreement were “the design, construction, installation and commissioning of the power generation equipment and other plant and equipment comprising the Zenith Power Plant … as described in the Scope of Works”. The Scope of Works were specified in Schedule 2 to the agreement. Schedule 2 contemplated two stages for the Works being the Stage 1 Development and the Stage 2 Development which were defined as follows:

“Stage 1 Development” means the supply and installation of two Jenbacher J620-J101 gas generators and two MTU 20V4000G62 diesel generators, with a total site installed rating of 11,120 kW and all associated plant and equipment at the Power Station Site, as fully described in Schedule Two.

“Stage 2 Development” means the supply and installation of either (as determined by Zenith in its sole discretion):

(a)     one Jenbacher J620-J101 gas generator with a total site installed rating of 3,360 kW; or

(b)     two Siemens SGE-86EM gas generators with a total site installed rating of 4,022 kW,

and all associated plant and equipment at the Power Station Site, as fully described in Schedule Two.

35    The “Power Station Site” was depicted on a map attached to the agreement and was located within the Site. The “Zenith Power Plant” was defined to mean “all those generators and items of plant and equipment to be supplied by Zenith for the purpose of this Agreement, including the Stage 1 Development and the Stage 2 Development, the particulars of which are set out in Attachment B”. Attachment B was a drawing of the power plant.

36    Clause 3.3(a) of the agreement recorded that Kirkalocka “is the owner of the Site or has the right to occupy the same pursuant to a mining lease”. Under cl 3.3(b), Kirkalocka granted to Zenith and its personnel “a non-exclusive and non-assignable licence to occupy the Site and roadways required to access the Site during the Term, to enable Zenith to perform the Works, operate and maintain the power plant and produce [electricity]”. Zenith was required to observe all Site safety and security procedures and practices as Kirkalocka may require. By cl 21.1, Zenith agreed to indemnify Kirkalocka against all damages, costs and expenses arising from or caused by, amongst other things, Zenith’s use or occupancy of the Power Station Site.

37    Clause 3.5, which was central to the dispute, stipulated as follows:

3.5    Title to Power Station

(a)     Nothing in this Agreement shall operate to transfer title to, or grant any interest in any Buyer Infrastructure to Zenith.

(b)     Except as provided in Clause 7, nothing in this Agreement shall operate to transfer title to, or grant any interest in, the Works or the Zenith Power Plant to the Buyer.

38    The “Buyer Infrastructure” was defined to mean the whole and any part of Kirkalocka’s mining and processing plant, including water production, HV-LV Distribution System and all related infrastructure, plant and equipment at the Site. Clause 7, discussed further below, gave Kirkalocka the option to purchase the Zenith Power Plant in certain circumstances.

39    Clause 4 specified the term of the agreement, the target dates for completion of the Stage 1 Development and the Stage 2 Development, and the date on which electricity supply was to commence under the agreement. The term of the agreement was 10 years, but Kirkalocka was also granted an option to request a 12 month extension of the term, whereupon the parties were required to negotiate the applicable terms for the extension period. The clause specified the basis upon which liquidated damages would become payable if Zenith did not complete the Stage 1 Development by the specified completion date. The date on which electricity supply was to commence under the agreement was the “Stage 1 Commencement Date”, which was defined as the later of the target date of 15 September 2019 and the date of completion of the Stage 1 Development.

40    The PPA contained the usual provisions governing the supply of electricity by Zenith to Kirkalocka including:

(a)    clause 8, governing the supply of electricity, including obligations associated with an increase or decrease in the maximum capacity able to be supplied;

(b)    clause 9, governing the circumstances in which the supply of electricity may be interrupted;

(c)    clause 15, governing the specification of the electricity supply including voltage and frequency;

(d)    clause 16, governing the metering of the electricity supply; and

(e)    clause 17, governing outages.

41    By cl 13, Zenith was required to give Kirkalocka reasonable access to the Power Station Site for such purposes and at such times as may be agreed between the parties. Zenith also agreed to grant Kirkalocka effective control of and access to the circuit breakers and associated isolators of any supply feeder in the Zenith Power Plant for the purposes of enabling Kirkalocka to respond to emergencies in the “Buyer Infrastructure” operations.

42    The charges payable by Kirkalocka were specified in cl 5. Different charges were specified for the period from the Stage 1 Commencement Date until the day prior to the Stage 2 Commencement Date (being the Stage 1 Charges), and from the Stage 2 Commencement Date (being the Stage 2 Charges), reflecting the different capacity of the Zenith Power Plant in each period. In both periods, the charges were levied on a monthly basis and had two components: a “Capacity Charge” and an “Energy Charge”. The charges were as follows:

(a)    in respect of the Stage 1 Charges, a Capacity Charge of $89,058 per month and an Energy Charge of 2.05 cents/kWh of electricity supplied in the relevant month; and

(b)    in respect of the Stage 2 Charges, a Capacity Charge of $141,882 per month and an Energy Charge of 2.05 cents/kWh of electricity supplied in the relevant month.

43    Under cl 6, Kirkalocka was entitled to terminate the agreement at any time prior to the expiration of the Term upon giving 6 months’ notice to Zenith. If Kirkalocka exercised that right, and did not elect to purchase the Zenith Power Plant under cl 7, Kirkalocka agreed to pay Zenith, as “full, final and complete compensation for the early termination” of the agreement, the “Termination Payment”, the “Demobilisation Payment” and “all break costs properly and reasonably incurred by Zenith associated with any contracts entered into by Zenith with any third parties in connection with exercising its rights and performing its obligations under this Agreement”.

44    The Termination Payment required to be paid under cl 6 was specified in Item 12 of Schedule 1 to the agreement by reference to the contract month in which the termination became effective. Item 12 contained a table that stipulated the payment amount for each contract month during the 10 year term of the agreement (from month 1 to month 120). The payment amount in month 1 was $7,260,000 and it decreased each month (in varying amounts) to $6,772,726 in month 12. In month 13, it increased to $8,926,976 which, it can be inferred, related to the completion of the Stage 2 Development. The payment for each subsequent month decreased again, with the payment amount in month 120 being $108,806.

45    The Demobilisation Payment required to be paid under cl 6 was specified as the quantum equal to the reasonable and proper charges to be incurred by Zenith in (i) de-commissioning and removing the Zenith Power Plant and its transport to a facility in Perth plus an amount equal to 10% thereof (being to remunerate Zenith for the management and supervision of such demobilisation) and (ii) rehabilitating the Power Station Site to the condition reasonably requested by Kirkalocka.

46    By cl 7, Kirkalocka was granted an option to purchase the assets constituting the Zenith Power Plant in the following circumstances:

(a)    if it gave notice of early termination of the agreement under cl 6;

(b)    if it became entitled to terminate the agreement for a default by Zenith under cl 22.2;

(c)    if the PPA was terminated for force majeure under cl 25.2(e); or

(d)    at the expiry of the term of the agreement.

47    The option was to be exercised by Kirkalocka giving a notice to Zenith specifying the date for completion of the purchase being not less than 30 business days after the date of the notice. The purchase price required to be paid for the Zenith Power Plant upon exercise of the option was specified in Item 13 of Schedule 1 to the agreement by reference to the contract month in which the purchase was to be completed. Item 13 was in a similar form to Item 12 in that it contained a table that stipulated the payment amount for each contract month during the 10 year term of the agreement (from month 1 to month 120). However, the payment amounts differed. In item 13, the payment amount in month 1 was $8,217,000 and decreased each month (in varying amounts) to $7,799,730 in month 12. In month 13, it increased to $10,250,552 which, it can be inferred, related to the completion of the Stage 2 Development. The payment for each subsequent month decreased again, with the payment amount in month 120 being $2,594,468.

48    The primary judge found that, by the end of the term of the agreement, Kirkalocka could purchase the Zenith Power Plant for nothing (at PJ [23]). That conclusion appears to arise from the fact that, in Item 13 of Schedule 1, the payment amount specified for month 121, and every month after that (the table continues to month 168, being 4 years after the 10 year term), is nil. There was no challenge to that factual finding on the appeal. However, a peculiar feature of the table in Item 13 is that the purchase payment in each month generally decreases by about $100,000 per month with the purchase price in month 120 being $2,594,468, but in month 121 (that is, the month following the expiry of the 10 year term) the purchase price reduces to nil (a decrease of the full amount of $2,594,468). If Kirkalocka was entitled to complete the purchase of the Zenith Power Plant in month 121 for nil, there would have been a very large disincentive to exercise the option to purchase the plant in the preceding months. That raises the question of the circumstances in which Kirkalocka would have been entitled to complete the purchase in month 121 and the months following. In that regard, cl 7.1(a)(iv) specified that Kirkalocka was entitled to elect to purchase the Zenith Power Plant “at the expiry of the Term”, and cl 7.1(b) stipulated that Kirkalocka could exercise that right by giving notice promptly after becoming entitled, but also stipulated that Kirkalocka could not give the notice after the expiry of the agreement. There is a degree of incoherence in those provisions, casting some doubt on whether the agreement was intended to require a purchase payment at the end of the term of the agreement. Nevertheless, as no challenge was made to the primary judge’s finding, these reasons proceed on the basis that, at the expiry of the term of the agreement, Kirkalocka could purchase the Zenith Power Plant for nil.

49    Clause 7.4 stipulated that, if the PPA expired or was terminated and Kirkalocka did not exercise its purchase right under cl 7:

(a)    Zenith was required to demobilise the Zenith Power Plant and remove its equipment from the Power Station Site and rehabilitate the Power Station Site to the condition reasonably requested by Kirkalocka; and

(b)    Kirkalocka was required to pay Zenith the Demobilisation Payment in accordance with cl 6.3, unless the termination was due to Zenith’s default.

50    Clause 22 of the PPA gave each party the right to terminate the agreement in certain events, including events of default and insolvency. Clause 22.5 stipulated that, if Zenith terminated the PPA on the basis of Kirkalocka’s default or insolvency and Kirkalocka did not elect to purchase the Zenith Power Plant under cl 7 (where it was entitled to do so), then Kirkalocka was required to pay Zenith the Termination Payment and Demobilisation Payment as per cl 6.

51    Clause 23 of the PPA gave Kirkalocka a “Step-in Right” if Zenith was in default under the agreement. The “Step-in Right” was defined to mean “the right of the Buyer to enter into possession of, operate and maintain the Zenith Power Plant and to undertake the Step-in Works in accordance with Clause 23”. Relevantly, cl 23.3(a) stipulated that, upon exercising the Step-in Right, Kirkalocka will assume, and Zenith will give Kirkalocka, possession of the Zenith Power Plant to the extent reasonably necessary to enable Kirkalocka to exercise the Step-in Right.

52    Fundamentally, the PPA constituted an agreement for the supply of electricity by Zenith to Kirkalocka during the term of the agreement, being 10 years with provision for the parties to seek to agree terms for the continued supply of electricity beyond that date. In order to supply electricity at the Site, Zenith agreed to design and construct the power plant which would be located within the Site at the Power Plant Site as defined in the PPA. To fulfil that obligation, it was necessary for Zenith to procure all of the assets that were the components of the power plant. As noted earlier, the “Zenith Power Plant” was defined to mean “all those generators and items of plant and equipment to be supplied by Zenith for the purpose of this Agreement” (emphasis added).

53    Kirkalocka argued at trial that the PPA was closely akin to a hire purchase agreement (PJ at [8]). However, it is immediately apparent that the PPA had a different commercial character to a lease or hire agreement. The assets comprising the Zenith Power Plant were not leased or hired to Kirkalocka, and Kirkalocka had no operational control or possession of the Zenith Power Plant. The PPA recognised that Zenith retained full operational control and possession of the Zenith Power Plant because Zenith was required to generate electricity using the plant and supply the electricity to Kirkalocka. The effect of cl 3.3(b) was to give Zenith a licence to occupy the Power Station Site and cl 21.1 required Zenith to indemnify Kirkalocka against all damages, costs and expenses arising from or caused by Zenith’s use or occupancy of the Power Station Site.

54    As found by the primary judge (at [72]), the provisions of the PPA did not give rise to a hire purchase agreement because it cannot be said that in a real sense Kirkalocka was using the Zenith Power Plant. In every sense, Zenith was a supplier or contractor which agreed to construct and operate an electricity power plant at the Site to supply electricity to Kirkalocka.

55    The foregoing characterisation of the PPA is consistent with the structure of the charges that Kirkalocka was required to pay for the supply of electricity. Electricity supply agreements commonly involve a two part pricing structure, the first part being a capacity charge which is a fixed amount and the second part being an energy charge which is a variable amount based on the quantity of energy consumed. From a commercial and economic perspective, a two part pricing structure typically reflects the fact that the supplier of electricity has fixed and variable costs which are most efficiently recovered through the capacity and energy charges.

56    The fact that a supplier of electricity recovers part or all of its fixed costs (including capital costs) through a capacity charge does not support a characterisation of an electricity supply agreement as an agreement for the deferred sale of the power plant. It is commercially necessary for the supplier to charge an amount that, over the life of the power plant, will recover the capital cost of the plant plus a return on the capital invested. Nor does the fact that the electricity purchaser is granted an option to purchase the power plant in certain circumstances require the electricity supply agreement to be characterised as an agreement for the deferred sale of the power plant. An overall assessment of the agreement may lead to the conclusion that the option is an adjunct to the electricity supply agreement, providing the purchaser with the commercial flexibility to change its electricity supply arrangements in the future by acquiring the power plant.

57    As summarised above, the PPA granted Kirkalocka an option to purchase the Zenith Power Plant in certain circumstances, and specified the purchase price in those circumstances. The purchase price decreased over time. It can be inferred that the decreasing price reflected the depreciation of the asset over time. It can be accepted that there is a commercial or financial relationship between the charges payable by Kirkalocka for the supply of electricity over time and the decreasing price payable by Kirkalocka upon exercise of an option to purchase the Zenith Power Plant over time. As noted above, the charges payable by Kirkalocka for the supply of electricity over time included a capacity charge which, it can be inferred, enabled Zenith to recover its capital costs and a return on capital. In financial terms, the recovery of capital costs is recognised through depreciation. Commercial and financial logic dictate that, over time, the Zenith Power Plant would depreciate in value and the depreciation would be recovered by Zenith through the charges imposed for the supply of electricity, including the capacity charge. Commercial and financial logic also dictate that the price payable for the Zenith Power Plant at a given point in time will reflect, to some extent, its depreciated value. But that commercial or financial relationship between the charges payable by Kirkalocka for the supply of electricity over time and the decreasing price payable by Kirkalocka upon exercise of an option to purchase the Zenith Power Plant over time does not lead to a conclusion that the PPA was, in substance, a form of deferred sale agreement. The most significant factor that negatives such a conclusion is the fact that Zenith was obligated to supply electricity for the term of the agreement and, if Kirkalocka did not exercise an option to purchase the Zenith Power Plant, Zenith was required to remove the plant from the Site (as per cl 7.4).

58    There is no reason to characterise the PPA other than in accordance with its title, recitals and terms. Fundamentally, it was an agreement for the supply of electricity by Zenith to Kirkalocka, which obligation would be performed by Zenith constructing and operating a power plant at the Site. At the end of the agreement, Zenith was obligated to remove the power plant from the Site. As part of the commercial arrangements, Kirkalocka was granted the option to purchase the power plant in certain circumstances. Undoubtedly, the right to purchase the power plant afforded Kirkalocka commercial flexibility, and might also be regarded as providing it with commercial security with respect to the supply of electricity (if for any reason it was dissatisfied with Zenith’s performance under the PPA or Zenith defaulted in its performance). But the PPA cannot be characterised as a form of deferred sale agreement, and was not “closely akin to a hire purchase agreement” as submitted by Kirkalocka.

59    For completeness, reference should also be made to cl 28.4 of the PPA, titled “PPSA Provisions”, which provided as follows:

To the extent the law permits:

(a)     for the purposes of sections 115(1) and 115(7) of the PPSA:

(i)     Zenith need not comply with sections 95, 118, 121(4), 125, 130, 132(3)(d) or 132(4); and

(ii)     sections 142 and 143 are excluded;

(b)     for the purposes of section 115(7) of the PPSA, Zenith need not comply with sections 132 and 137(3);

(c)     if the PPSA is amended after the date of this Agreement to permit the Buyer and Zenith to agree to not comply with or to exclude other provisions of the PPSA, Zenith may notify the Buyer that any of these provisions are excluded, or that Zenith need not comply with any of these provisions, as notified to the Buyer by Zenith; and

(d)     the Buyer agrees not to exercise its rights to make any request of Zenith under section 275 of the PPSA, to authorise the disclosure of any information under that section or to waive any duty of confidence that would otherwise permit non-disclosure under that section.

60    Clause 28.4 indicates that, at the date the PPA was executed, the parties contemplated that the PPSA might be applicable to the agreement. Section 115 of the PPSA, which is referred to in cl 28.4, permits the parties to a security agreement (that provides for a security interest in collateral that is not used predominantly for personal, domestic or household purposes) to contract out of certain provisions of the PPSA in relation to the collateral. However, cl 28.4 does not assist in the resolution of the issues that arise on the appeal. The question whether the PPA provided for a security interest in favour of Zenith is an objective question which is not resolved by reference to the subjective beliefs of the parties to the agreement. Kirkalocka placed no reliance on cl 28.4 in its arguments on the appeal.

Reasons of the primary judge

61    The following section summarises the findings and reasoning of the primary judge in so far as they are relevant to the issues raised on the appeal.

Actual possession of the Zenith Power Plant

62    The first question considered by the primary judge was: which party had actual possession of the Zenith Power Plant whilst the PPA was in place? On this question, the primary judge concluded that Zenith had possession, by reason of the terms of the PPA and the manner in which the Zenith Power Plant was operated (PJ [40]-[41]). In that regard, his Honour referred to:

(a)    clause 3.1 by which Zenith was to supply, install, operate and maintain the Zenith Power Plant on the Power Station Site;

(b)    clause 3.4(a) which granted Zenith access to the Site and cl 3.3(b) which granted Zenith a non-exclusive and non-assignable licence to occupy the Site during the term of the PPA;

(c)    clause 3.5 which stated that nothing in the PPA “shall operate to transfer title to, or grant any interest in, the Works or the Zenith Power Plant to… [Kirkalocka]” except as provided by the option to purchase clause;

(d)    clause 13(a) which gave Kirkalocka reasonable access to the Power Station Site for such purposes and at such times as may be agreed between the parties;

(e)    clause 13(b) by which, in the case of emergencies, Zenith granted Kirkalocka effective control of and access to the circuit breakers and associated isolators of any supply feeder to such personnel of Kirkalocka who were duly trained and authorised by Zenith in such switching procedures; and

(f)    clause 23 which gave Kirkalocka a Step-In Right in the case of default by Zenith, which was a right to take possession of the Zenith Power Plant to the extent reasonably necessary to enable Kirkalocka to exercise the Step-In Right.

63    His Honour also referred to the way in which the Zenith Power Plant was operated as deposed by Mr Vaughan and Mr Cooper, including locking the doors to the Zenith Power Plant, requiring visitors to the Zenith Power Plant to sign in and the wearing of Zenith uniforms.

64    There was no appeal from that finding.

A security interest within the meaning of s 12(1) of the PPSA

65    The second question considered by the primary judge was whether the PPA provided for a security interest in favour of Zenith.

66    The primary judge noted (at [58]) that Kirkalocka did not contend that the provisions of the PPA fell within any of the examples in s 12(2) and, in particular, a conditional sale agreement (including an agreement to sell subject to retention of title) or a hire purchase agreement; rather, Kirkalocka argued that the PPA operated in a very similar fashion to a hire purchase agreement.

67    However, his Honour noted that (at [72]):

(a)    the provisions of the PPA did not give rise to a conditional sale because Kirkalocka did not agree to purchase the Zenith Power Plant, it only had an option to purchase the plant; and

(b)    nor did the provisions of the PPA give rise to a hire purchase agreement because it could not be said that in a real sense that Kirkalocka was using the Zenith Power Plant for the term of the PPA and Kirkalocka never had possession of the Zenith Power Plant.

68    There is no appeal from those findings.

69    His Honour observed (at [73]) that the case involved unusual circumstances, explaining:

… Had the Zenith Power Plant been in the possession of Kirkalocka, then subject to one matter, the case would have been relatively straightforward. There would have been a security interest in personal property being Zenith’s legal title in the Zenith Power Plant and its ability to reclaim the plant on default by Kirkalocka in the performance of its obligations under the PPA or the exercise by Kirkalocka of its option to purchase.

70    The “one matter” referred to in the preceding paragraph was Zenith’s contention that the PPSA did not apply because its interest in the Zenith Power Plant was “created, arises or is provided for by operation of the general law” within the meaning of s 8(1)(c) of the PPSA. The primary judge rejected that argument (at [74]), reasoning that there was no Zenith Power Plant prior to the PPA and that it was the terms of the PPA which provided that the Zenith Power Plant was not to be considered a fixture on the Site (thus vesting possession in Zenith rather than Kirkalocka).

71    The primary judge concluded that Zenith had a security interest in the Zenith Power Plant by reason of s 12(1) for the following reasons:

75    The question then comes down to whether the fact that at all times Zenith retained possession of the Zenith Power Plant means that it did not have a security interest within s 12(1) of the PPSA. I have given this matter anxious consideration. I was not referred to any authority directly on the point. I have concluded that possession or not, s 12(1) is wide enough to cover a situation such as the present, particularly where Kirkalocka by the end of the term, and assuming no early termination, would have paid off a substantial proportion of the value of the Zenith Power Plant and possibly more.

76    Zenith’s interest in personal property is the legal interest with a retention of title clause which can be engaged should Kirkalocka not perform its obligations under the PPA, including its obligation to make payment of the Capacity Charges and the Energy Charges. …

72    That conclusion is challenged by Zenith.

Perfection of the security interest

73    As noted earlier, it was common ground that Zenith had not perfected its security interest by registration prior to Kirkalocka entering administration on 1 May 2021 (PJ [78]).

74    Zenith submitted at trial that its security interest in the Zenith Power Plant was perfected pursuant to s 21(1)(b) because:

(a)    the security interest was attached to the collateral (the Zenith Power Plant);

(b)    the security interest was enforceable against a third party; and

(c)    subsection 21(2)(b) applied, in that Zenith had possession of the collateral (the Zenith Power Plant), other than possession as a result of seizure or repossession.

75    Kirkalocka did not contest that paragraphs (a) and (b) in the preceding paragraph were satisfied, and the dispute at trial was limited to paragraph (c). In respect of paragraph (c), Kirkalocka argued that, by virtue of s 24(1), Zenith “cannot have possession” of the Zenith Power Plant because it (Kirkalocka) had apparent possession. The primary judge observed (at [81]) that, having found that Zenith was in actual possession of the Zenith Power Plant, the critical issue was whether the Zenith Power Plant was in the apparent possession of Zenith, or in the apparent possession of Kirkalocka.

76    The primary judge reasoned that the word “apparent” is an ordinary English word which, in this context, means “seeming; ostensible: the apparent motion of the sun” (Macquarie Dictionary, 6th ed) (PJ [85]). His Honour further observed that the word “possession” is defined in the Dictionary in the PPSA to have “a meaning affected by section 24”, but that there is no definition in the Dictionary or s 24 of either “actual possession” or of “apparent possession”.

77    The primary judge referred (at [87]) to a passage in Tyler ELG, Young PW and Croft CE, Fisher & Lightwood’s Law of Mortgage (3rd Australian ed, LexisNexis Butterworths, 2014) at [5.43] which commented that “apparent possession” is a concept employed in the context of bills of sale, and suggests an objective standard; that is, who would a bystander believe to be in possession. The learned authors further observed that the main purpose of s 24(1) appears to be to ensure that secured parties disabuse others of the illusion of the grantor/debtor’s apparent ownership. His Honour noted that a number of the cases referred to by the learned authors deal with the Bills of Sale Act 1878 (UK) and the doctrine of reputed ownership. In that same context, his Honour also referred (at [88]) to the following passage from the judgment of Lord Selborne LC in Re Couston, Ex parte Watkins (1873) LR 8 Ch 520 (Re Couston) at 528–529:

The doctrine of reputed ownership does not require any investigation into the actual state of knowledge or belief, either of all creditors, or of particular creditors, and still less of the outside world, who are no creditors at all, as to the position of particular goods. It is enough for the doctrine if those goods are in such a situation as to convey to the minds of those who know their situation the reputation of ownership, that reputation arising by the legitimate exercise of reason and judgment on the knowledge of those facts which are capable of being generally known to those who choose to make inquiry on the subject. It is not at all necessary to examine into the degree of actual knowledge which is possessed, but the Court must judge from the situation of the goods what inference as to the ownership might be legitimately drawn by those who knew the facts. I do not mean the facts that are only known to the parties dealing with the goods, but such facts as are capable of being, and naturally would be, the subject of general knowledge to those who take any means to inform themselves on the subject.

78    However, his Honour concluded (at [89]) that the cases concerning reputed ownership are of limited assistance because they were decided in a different context.

79    Ultimately, the primary judge concluded (at [95]) that Zenith was in apparent possession of the Zenith Power Plant. In so concluding, his Honour took into account the nature of the personal property, its location within the Site, signage that was attached and procedures for accessing it. With respect to the nature of the personal property, his Honour observed that the case was unusual because it consisted of buildings and associated equipment (at [93]). With respect to location, his Honour took into account the fact that the Kirkalocka property was a mining site of some 2,000 acres and the Zenith Power Plant was deep into the mining site which was not visible from the entrance to the Site (at [93]). With respect to signage, his Honour found that an observer viewing the Zenith Power Plant from a reasonable distance would have seen a large “Zenith Pacific” sign on the building, and an observer in one of the buildings comprising the Zenith Power Plant would see in large letters “Zenith Pacific” on the floor of the building and various other indications that Zenith was in possession (at [94]). With respect to procedures to access the Power Plant Site, a visitor was required to sign a visitor’s book before gaining access and there were a number of “No Unauthorised Personnel” signs (at [93]).

Kirkalocka’s appeal

Kirkalocka’s contentions

80    Although Kirkalocka’s notice of appeal states three grounds, the effect of the notice is to raise a single ground: that the primary judge erred in concluding that Zenith was in apparent possession of the Zenith Power Plant. In support of that ground, Kirkalocka advanced two principal contentions.

81    The first contention was that the primary judge erred in determining the question of apparent possession by reference to a hypothetical observer placed inside Kirkalocka’s mine site or, alternatively, in one of the buildings comprising the Zenith Power Plant. In support of that contention, Kirkalocka submitted that the concept of “apparent” possession should be construed in a manner that best achieves the purpose of giving public notice of security interests to third parties, citing Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (in liquidation) (2017) 254 FCR 559; [2017] FCA 866 (Markovic J) (Knauf) at [172] and McCloy v Manukau Institute of Technology [2013] 3 NZLR 390; [2013] NZHC 9936 (Collins J) at [71]. Therefore, Kirkalocka submitted, apparent possession must be evaluated from the vantage point of a member of the general public. On that basis, Kirkalocka argued that it is inappropriate to consider what a member of the public might observe from within the Site, because that cannot be regarded as giving public notice of Zenith’s security interest. Absent any other notice, it would appear to a member of the public that any personal property on the Site are in Kirkalocka’s possession. That conclusion would be reinforced in the circumstances of this case because a member of the public who tried to access the Site would be met with a gate and fence and signs that indicated that Kirkalocka was in control of the site.

82    The second contention was that, even if the primary judge was correct to determine the question of apparent possession by reference to a hypothetical observer placed inside the Site or, alternatively, in one of the buildings comprising the Zenith Power Plant, his Honour erred in finding that the hypothetical observer would have concluded that Zenith was in apparent possession of the Zenith Power Plant. In support of that contention, Kirkalocka placed reliance on aspects of the evidence before the primary judge concerning the layout of the Zenith Power Plant and its signage, but which were not the subject of specific findings made by the primary judge. The evidence was largely descriptive, or consisted of photographs, and did not involve matters of credit. On that basis, this Court is in the same position as the primary judge in assessing the evidence and drawing any necessary inferences from the evidence. On the basis of that evidence, Kirkalocka submitted that:

(a)    The entrance to the Site is located around two kilometres off the Great Northern Highway. The entrance to the Site has a closed gate. Beyond this closed gate, the Site can only be accessed by a single private access road that includes signs reading “Kirkalocka Gold Project” and “Private Road – Mining In Progress – No Unauthorised Entry”. There is a perimeter fence running across the majority of the Site. As the primary judge found (at [92]), a visitor to the Site must sign in before further proceeding.

(b)    Various parts of the Zenith Power Plant (including the switchroom, the engine hall, the oil storage tanks and the gas engine radiators) sit alongside Kirkalocka’s mining processing plant and administration building.

(c)    One of the exterior walls of the switchroom includes a sign reading “Zenith Pacific”. The sign could be seen if one was facing that particular side of the switchroom. But it is apparent from the photographs tendered in evidence that the sign was not visible depending on where one was standing when looking at the Zenith Power Plant and the switchroom.

(d)    The photographs tendered in evidence do not show any other signs identifying Zenith on the exterior of other parts of the Zenith Power Plant, including the engine hall, the sea containers, the oil storage tanks, the gas engine radiators, or the diesel day tank.

83    The evidence to which the Court was taken is largely consistent with the foregoing submissions. However, it should be added that the evidence shows that the Site is located some 400 kilometres west of Geraldton in Western Australia. The site appears as dry country with limited vegetation. The Zenith Power Station is located “alongside” Kirkalocka’s mining processing plant and administration building in the sense that the buildings are within the same general vicinity on the Site. That is understandable, as the Zenith Power Station supplies electricity to Kirkalocka for its operations at the Site. Nevertheless, the site map, which forms Attachment C to the PPA, shows that the Zenith Power Plant is located separately to Kirkalocka’s buildings.

84    Kirkalocka argued that, even if a hypothetical observer was in a position to see the “Zenith Pacific” sign on the switchroom building, the sign would not have led the person to think that Zenith was in apparent possession of the Zenith Power Plant. It argued that a mere sign or logo does not necessarily signify ownership or possession, especially where, as in this case, the sign or logo appears on the side of a building that is located at the private site of someone else’s commercial operations. Further, the Power Plant comprised different pieces of plant and equipment and the presence of the sign on one part of the plant, the switchroom building, does not permit a finding that Zenith was in apparent possession of each and every piece of plant and equipment comprising the Zenith Power Plant.

Consideration

85    Ultimately, there was no real dispute between the parties on the appeal as to the intended purpose and meaning of the concept of “apparent possession” in the PPSA. The dispute largely related to the application of the concept in the context of the PPA, being an agreement for the construction of an electricity power plant at a mine site in a remote location of Western Australia and the supply of electricity from the power plant to the owner of the mine site. However, Zenith’s contention raised a question about the interaction of subsections (1) and (2) of s 24.

86    Beginning with the intended purpose of the concept of “apparent possession” in the PPSA, the Replacement Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) at [2.19] states (emphasis added):

A security interest would be perfected once the security interest attaches to the collateral (clause 21(1)) and the secured party provides public notice of its security interest by either:

•    registering an interest in any collateral;

•    taking possession of goods;

…

87    Later, at [2.32], the Replacement Explanatory Memorandum states (emphasis added):

Possession under the Bill would not equate to the common law meaning of possession. Possession would include both apparent and actual control of the property (clause 24(2)). Even if a secured party has actual possession of collateral, if it appears to be in the possession of the grantor (or another person on behalf of the grantor), the secured party would not have possession of the collateral (clause 24(1)). It follows that when goods in the secured party’s possession are transferred to the grantor’s possession, the security interest becomes unperfected (unless perfected by another means, such as by registration or through temporary perfection of returned collateral (clause 36).

88    We respectfully agree with the statement of the learned authors of Fisher & Lightwood’s Law of Mortgage, referred to by the primary judge at [87], that s 24(1) stipulates that possession by the secured party of personal property that is in the actual or apparent possession of the grantor or debtor does not amount to “possession” within the Act, and that the main purpose of s 24(1) is to ensure that a secured party disabuses others of the illusion of the grantor/debtor’s apparent ownership. Later in the same paragraph, the learned authors state:

In Australia, this interpretation must be implied, if at all, by the role possession plays within the Act. It seems clear that the purpose of taking possession is to give third parties notice of a security interest. Quaere whether the possession must be such as to give notice that a specific secured party claims an interest, as would a registered financing statement, or whether it suffices that the possession indicates the debtor is not free to deal with the subject property. In any case, there may be circumstances outside s 22(1)(b) where the secured party need not take physical possession, provided that the grantor is deprived of actual or apparent possession. …

89    Justice Markovic expressed the same conclusion in Knauf at [172]:

The methods for perfecting a security interest under the PPS Act are all directed to the objective of a secured party giving public notice of its security interest. One available method is for the secured party to take possession of the collateral and, in that way, notify third parties of its interest in the collateral. .... One of the principal, if not the principal, purposes of the PPS Act is to give notice of security interests in personal property to third parties. To allow a secured party to avoid the consequences of failing to publicise its security interest before a grantor’s default, at which time a secured party may have a right to seize or repossess the collateral pursuant to the terms of its security agreement, runs contrary to that purpose.

90    Although the primary judge expressed caution with respect to the statement of Lord Selborne LC in Re Couston in relation to the doctrine of reputed ownership (set out above), both parties placed reliance on the statement. Having regard to the purpose of the concept of apparent possession in the PPSA, similar principles are applicable. In particular, the question of apparent possession does not require any investigation into the actual state of knowledge or belief, either of all creditors, or of particular creditors, and still less the general public, as to who has possession of the personal property. The question concerns what is conveyed with respect to possession by the situation of the personal property to the minds of those who have an interest in the subject, and having regard to all facts and matters which are capable of being generally known to those who choose to make inquiry on the subject. All relevant facts and matters which are “apparent” (that is, capable of being known upon inquiry) should be taken into account.

91    It is convenient at this point to address Zenith’s contention that the effect of s 24(2) is that Kirkalocka cannot be regarded as being in possession of the Zenith Power Plant at the relevant time because Zenith was in actual possession. Zenith’s contention draws attention to what might appear to be circularity in the manner in which ss 24(1) and (2) have been framed. The heading to those subsections suggests that they are intended to have the effect that possession by one party operates to the exclusion of possession by the other party. Section 24(1) then states that a secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor (or another person on behalf of the grantor or debtor). Section 24(2) states that a grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured party. Relying upon s 24(2), Zenith submitted that Kirkalocka cannot be taken to have actual or apparent possession of the Zenith Power Plant because Zenith has actual possession.

92    Having regard to the extrinsic materials and the apparent purpose of the concept of “apparent possession” in the PPSA, Zenith’s contention must be rejected. The Revised Explanatory Statement states in clear terms that, even if a secured party has actual possession of collateral, if it appears to be in the possession of the grantor (or another person on behalf of the grantor), the secured party would not have possession of the collateral for the purposes of the PPSA by virtue of s 24(1). The appearance of circularity in ss 24(1) and (2) is resolved by understanding that each subsection operates independently of each other. Section 24(1) operates when the relevant statutory question is whether the secured party has possession of the personal property, such as under s 21(2)(b). Section 24(2) is not intended to be “read into” or otherwise affect s 24(1). In other words, when considering whether the personal property is in the actual or apparent possession of the grantor or debtor for the purpose of s 24(1), s 24(2) has no application. To conclude otherwise would render ss 24(1) and (2) circular and meaningless.

93    Having reviewed the evidence that was before the primary judge, we are not persuaded that his Honour erred in concluding that the Zenith Power Plant was in the apparent possession of Zenith before Kirkalocka went into administration.

94    First, we do not accept Kirkalocka’s submission that apparent possession must be evaluated from the vantage point of a member of the general public and, in the circumstances of this case, the hypothetical observer is to be located on the boundary of the Site. As stated earlier, the relevant enquiry concerns what is conveyed, by the situation of the personal property, to the minds of those who have an interest in the subject, and having regard to all facts and matters which are capable of being generally known to those who choose to make inquiry on the subject. In other words, the relevant inquiry is directed to an interested creditor seeking to inform themselves about the personal property in question. In this case, the personal property is located within a mine site in a remote location of Western Australia. An interested creditor located on the boundary of the Site could have no knowledge of any assets in the possession of Kirkalocka. In a case involving personal property located at a mine site in a remote region, the relevant inquiry must place the hypothetical observer within viewing distance of the personal property.

95    Second, we do not accept Kirkalocka’s submission that the situation of the Zenith Power Plant within the Site would have conveyed to an interested creditor that the relevant assets were in the possession of Kirkalocka. It is correct, as emphasised by Kirkalocka, that the Zenith Power Plant was located within the Site and that Kirkalocka held the mining lease. However, it is commonplace within the mining industry for different facilities and services at a mine to be supplied by independent contractors to the principal mining company. That circumstance can be taken to be generally known to those transacting with mining companies. Therefore, the fact that the Zenith Power Plant was located within the Site is a relevant circumstance, but it does not bear the overwhelming weight that Kirkalocka sought to attribute to it. The countervailing facts referred to by the primary judge are highly significant. His Honour referred to the evidence of Mr Vaughan and Mr Cooper with respect to the way in which the Zenith Power Plant was operated, including locking the doors to components of the Zenith Power Plant, the display of “No Unauthorised Personnel” signs, requiring visitors to the Power Plant Site to sign a visitor book before gaining access and the wearing of Zenith uniforms (at [34], [41] and [93]). His Honour also referred to signage on the exterior and interior of the Zenith Power Plant, and found that an observer viewing the Zenith Power Plant from a reasonable distance would have seen a large “Zenith Pacific” sign on the building, and an observer in one of the buildings comprising the Zenith Power Plant would see in large letters “Zenith Pacific” on the floor of the building and various other indications that Zenith was in possession (at [94]).

96    Having regard to those matters, no error has been shown in the primary judge’s conclusion that Zenith was in apparent possession of the Zenith Power Plant before Kirkalocka went into administration and that it had therefore perfected its security before that time. Accordingly, Kirkalocka’s appeal should be dismissed.

Zenith’s contention with respect to security interest

97    As Kirkalocka’s appeal should be dismissed, it is not strictly necessary to determine Zenith’s contention that the primary judge erred in finding that the PPA provided for a “security interest” within the meaning of s 12(1) of the PPSA. However, as the issues were fully argued, and in case the matter goes further, it is appropriate to express our conclusion on the issues raised.

98    Again, there was no significant dispute between the parties as to the applicable principles. The dispute concerned the application of the principles to the circumstances of this case, the principal focus being the terms of the PPA.

99    It is convenient to set out again the definition of security interest in s 12(1) of the PPSA:

A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).

100    In applying the definition, it is necessary to identify:

(a)    the interest in personal property that is alleged to be the security interest;

(b)    the transaction that is alleged to have provided for the interest in personal property; and

(c)    the obligation the payment or performance of which is alleged to be, in substance, secured by the interest in personal property.

101    The elements of the definition of security interest were considered by the Western Australia Court of Appeal in Gold Valley Iron Pty Ltd (in liq) v OPS Screening and Crushing Equipment Pty Ltd (2022) 59 WAR 232; [2022] WASCA 134 (Buss P, Murphy and Vaughan JJA) (Gold Valley) in the context of an agreement to hire mining equipment with a reversionary interest in the event of default. Separate judgments were given by Buss P and Murphy JA on the one hand and Vaughan JA on the other. The Court of Appeal unanimously concluded that the reversionary interest was a security interest within the meaning of the PPSA (at [212] per Buss P and Murphy JA, [308] per Vaughan J). The following principles emerge from the judgments:

(a)    A “security interest” for the purposes of the PPSA must arise from a transaction that is consensual. An interest that arises by operation of law or from the granting of equitable relief is not a “security interest” within the PPSA. The transaction in question must itself give rise to the “security interest”: at [195] per Buss P and Murphy JA; [264] per Vaughan JA.

(b)    The PPSA adopts a functional approach and focuses on the substance of the transaction in determining whether an interest is a “security interest”: at [196] per Buss P and Murphy JA; [255]-[256] per Vaughan J.

(c)    The statutory direction in s 12(1) that regard must be had to what the transaction does “in substance”, and “without regard to the form of the transaction or the identity of the person who has title to the property”, indicates that close attention must be given to what the transaction purports to do. The relevant substance of the transaction is its business or economic substance: at [197] per Buss P and Murphy JA; [257] per Vaughan JA.

(d)    Whether a transaction that provides for an interest in personal property, in substance, secures payment or performance of an obligation is a question of characterisation of the transaction to which the parties have agreed: at [198] per Buss P and Murphy JA; [320] per Vaughan J.

102    None of the foregoing principles were in dispute between the parties.

103    Turning to the facts of this case, the primary judge concluded that the definition of “security interest” was met in this case: his Honour found that the PPA provided for an interest in the Zenith Power Plant which, in substance, secured the payment of the charges under the PPA. The three steps in reaching that conclusion were as follows.

104    First, his Honour identified the security interest as “the legal interest with a retention of title clause which can be engaged should Kirkalocka not perform its obligations under the PPA” (at [76]). The “retention of title clause” is a reference to cl 3.5(b) of the PPA which, relevantly, contained the negative stipulation that “nothing in this Agreement shall operate to transfer title to, or grant any interest in, the Works or the Zenith Power Plant to [Kirkalocka]” (see Kirkalocka’s submission to that effect at [64] of the PJ and the primary judge’s reference to cl 3.5 at [74]).

105    Second, his Honour concluded (at [74]) that the PPA provided for Zenith’s security interest in the Zenith Power Plant because the Zenith Power Plant did not exist prior to the PPA and it was the PPA which provided that the Zenith Power Plant was not to be considered a fixture on the Site and that there was to be demobilisation of the Zenith Power Plant and its return to Perth should Kirkalocka not exercise the right to purchase.

106    Third, his Honour concluded (at [73] and [76]) that Kirkalocka’s obligation to pay the charges under the PPA were secured by the interest because Zenith was able to remove the Zenith Power Plant if Kirkalocka defaulted on its obligation to pay the charges under the PPA.

107    Zenith principally challenged the second step in the reasoning of the primary judge. However, in considering one element of the definition of security interest (as is required on this appeal), it is important not to lose sight of the definition as a whole. The three elements of the definition of security interest are interrelated and must be construed and applied in a coherent manner having regard to the substance of the relevant transaction rather than its form.

108    In relation to the second step, Zenith submitted that the PPA did not provide for Zenith’s legal interest in the Zenith Power Plant; rather, Zenith’s legal interest was a consequence of Zenith acquiring the components of the power plant and then constructing the power plant. Further, Zenith submitted that the primary judge erred in concluding that it was the PPA which provided that the Zenith Power Plant was not to be considered a fixture on the Site. The Site was the subject of a mining lease under the Mining Act 1978 (WA) and the common law doctrine of fixtures does not apply to mining tenements under that Act (referring to TEC Desert Pty Ltd v Commissioner of State Revenue (WA) (2010) 241 CLR 576; [2010] HCA 49 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) at [27], [36] and [38]). Zenith further argued that Zenith’s legal interest in the Zenith Power Plant is excluded from the PPSA by operation of s 8(1)(c) which stipulates that the PPSA does not apply to an interest in personal property that is created, arises or is provided for by operation of the general law.

109    Kirkalocka did not dispute that Zenith acquired the components for the power plant and held legal title to the assets through their purchase, and did not dispute that the doctrine of fixtures does not apply to mining tenements under the Mining Act. It submitted that the primary judge’s reasons should not be understood as a finding that cl 3.5 of the PPA operated to prevent the Zenith Power Plant from becoming a fixture; rather, the primary judge’s reasons should be understood as a finding that the PPA provided for Zenith to retain title in the Zenith Power Plant.

110    As noted earlier, in applying the definition of “security interest” in the PPSA, it is necessary, indeed essential, to identify clearly the interest in personal property that is alleged to be the security interest. In so far as the primary judge concluded that Zenith’s legal title to the Zenith Power Plant constituted the security interest, we respectfully consider that his Honour erred. The reasons given by the primary judge do not support the conclusion.

111    First, the primary judge appeared to place some weight on the fact that the Zenith Power Plant did not exist prior to the PPA, and that Zenith constructed the power plant for the purposes of the PPA (at [74]). However, those facts do not affect the analysis. An agreement under which a person agrees to construct an industrial asset or facility and supply a service to a second person using that asset or facility does not confer legal ownership in the asset or facility on the first person, or relevantly “provide for” the legal ownership held by the first person. Legal ownership arises from the acquisition of the components which are constructed into the industrial asset or facility. Zenith held the legal title to the personal property comprising the Zenith Power Plant by virtue of the fact that it acquired all of the components and constructed the plant from those components. Zenith’s legal title to the Zenith Power Plant did not arise under the PPA, and it follows that the PPA did not “provide for” the legal title.

112    Second, the primary judge accepted Kirkalocka’s submission that cl 3.5 of the PPA was a “retention of title” clause. Respectfully, that description of the effect of the clause is not apt. Contrary to the conclusion expressed by the primary judge (at [74]), neither cl 3.5 nor any other provisions of the PPA operated to prevent the Zenith Power Plant from becoming a fixture on the Site. It was common ground between the parties that, as the Zenith Power Plant was constructed on land which was the subject of a mining lease under the Mining Act , the power plant did not become a fixture and no title to the power plant was conferred upon Kirkalocka by operation of law. Recognising that general law background, cl 3.5 did not provide for legal title to the facility to be “retained” by Zenith. The clause is merely a negative stipulation that the PPA did not operate to transfer title to, or grant any interest in, the facility to Kirkalocka.

113    Third, the primary judge also appeared to place some weight on the fact that the PPA provided for the Zenith Power Plant to be demobilised and removed from the Site upon the expiry of the agreement (at [74]). Respectfully, the provisions of the PPA governing demobilisation of the Zenith Power Plant cannot be characterised as giving rise to an interest in the nature of a retention of title. To the contrary, cl 7.4 imposed an obligation on Zenith: if the agreement was terminated or expired and Kirkalocka did not exercise its option to purchase the Zenith Power Plant, Zenith was obligated to demobilise to Zenith Power Plant and remove its equipment from the Power Station Site and to rehabilitate the Power Station Site to the condition reasonably requested by Kirkalocka.

114    By using the phrase “retention of title”, Kirkalocka sought to draw an analogy with conditional sale and hire purchase agreements, and also with the reasoning in Gold Valley, on which it placed considerable reliance. The primary judge concluded, with respect correctly, that the PPA did not give rise to a conditional sale or a hire purchase agreement (at [72]), and there is no appeal from that conclusion, and the facts and circumstances of this case are not analogous to those in Gold Valley. As noted above, Gold Valley concerned agreements for the hire of mining equipment which also contained an option to purchase the equipment. During the term of the hire, physical control, possession and use of the equipment passed to the hirer (at [210] per Buss P and Murphy JA and [307] per Vaughan JA), while the hiree held the legal title and a reversionary interest in the equipment (at [209], [212] per Buss P and Murphy JA and [308] per Vaughan JA). The hire agreement was accompanied by an option to purchase, and the Court of Appeal concluded that the substance of the transaction was a hire purchase (at [219] per Buss P and Murphy JA and [363] per Vaughan J). It was common ground in that case that the hiree’s legal title to the equipment was not a security interest. As explained by Vaughan J, the hiree’s legal title to the equipment did not arise under the hire agreements because the hiree held legal title before entry into the agreements (at [305]). Rather, the security interest was the reversionary interest, being the hiree’s right to repossess the mining equipment in the event of default (at [212] per Buss P and Murphy JA and [306]-[309] per Vaughan J).

115    In the present case, there was no separation of the title to and the possession of the Zenith Power Plant, and the PPA did not give rise to any reversionary interest. As there was no separation of title and possession, it is not possible to construe the PPA as providing for the “retention of title” in the Zenith Power Plant. Zenith owned the facility at all times (by virtue of acquiring the components and constructing it) and retained possession of it at all times in order to generate and supply electricity to Kirkalocka. The commercial substance of the PPA was that Zenith, as an independent contractor, undertook obligations to construct and operate the Zenith Power Plant at the Site in order to supply electricity to Kirkalocka during the term of the agreement, and to remove the facility at the end of the agreement unless Kirkalocka exercised an option to purchase it. The PPA did not provide for an interest in the Zenith Power Plant in favour of Zenith that secured Kirkalocka’s obligation. Zenith’s contention to that effect should be accepted and the appeal dismissed on that additional basis.

Conclusion

116    In conclusion, the appeal should be dismissed with costs.

Associate:

Dated:    5 May 2025