Warehouse Sales Pty Ltd V LG Electronics Australia Pty Ltd

CITATION [2014] VSC 644

LG and other suppliers sold goods to WHS on retention of title terms. Their security interests were perfected by registration. WHS on-sold some of the goods to a subsidiary, WHS2. Both WHS and WHS2 had sold some of the goods to customers. WHS and WHS2 went into liquidation. The liquidators sought directions as to whether the goods sold to WHS2, and to customers, had passed free of the suppliers’ security interests under s32 and/or s46. The court resolved the issues as follows:-

Sales by WHS to customers

  • Where paid for in full – suppliers do not retain a security interest, because the disposal was authorised by the suppliers: s32.
  • Where sold on lay-by and not yet collected – having regard to the Goods Act 1958 (Vic), no sale had occurred, and suppliers retained their security interest.
  • Where sold on instalment terms – having regard to the Goods Act, a sale had occurred, and the buyer took free under s46; also, the same result would apply because the disposal had been authorised under s32.

In reaching the above conclusions, the court emphasised that the Goods Act was to be used to determine interpretation of ‘sale’ and ‘buyer’, noting that these terms were not defined in the PPSA, and that use of the sale of goods definitions was consistent with Canadian and NZ authority. 

Sales by WHS to its subsidiary WHS2 

  • Suppliers other than Panasonic did not retain a security interest, both (1) under s32, because their terms authorised sales in the ordinary course of business, and this was such a sale (there being evidence that WHS regularly on-sold to WHS2); and (2) because it was a sale in the ordinary course of business under s46.
  • Panasonic, whose terms only authorised sales to ‘bona fide consumers for value’, did retain a security interest. It had not authorised the sale so s32 did not apply; and s46(2)(b) (knowledge of breach) precluded WHS2 taking free under s46.

Sales by WHS2 to customers

  • Customers of suppliers other than Panasonic took free, because the goods had not been subject to a security interest in WHS2’s hands.
  • Customers of Panasonic took free under s46 (though the court was willing to hear further argument on this point if the parties wished to offer it).

The summary of the pertinent points in this legal case update has been provided by Steve Pemberton, Lawyer and Consultant, as an extract from his digest of PPSA cases.