PPSA "apparent possession" perfected by Full Federal Court

Perfection of a security interest in collateral requires an element of actual or apparent possession to be satisfied. However, the Personal Property Securities Act 2009 (Cth) (the PPSA) does not define "apparent possession", and the concept has had only sparing academic consideration in other jurisdictions with similar PPSA regimes. This uncertainty has caused problems for secured parties which may not have registered within the critical time.

The Full Federal Court has now brought more certainty to what will constitute "'apparent possession" for the purposes of perfecting a security interest for the first time in Australia (Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd [2025] FCAFC 62; Clayton Utz acted for the receivers in its partial win at first instance).

The Zenith power plant on Kirkalocka's land

The receivers and managers of Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) (Administrators Appointed) commenced proceedings against Zenith Pacific (KLK) Pty Ltd seeking declaration of its ownership over a power plant located on Kirkalocka's mine site in rural Western Australia.

Zenith built, owned and operated the power plant, pursuant to a Power Purchase Agreement, but had not registered its interest on the Personal Property Security Register (PPSR) until after Kirkalocka entered administration.

Kirkalocka argued that by virtue of the Agreement, a registrable security interest had arisen over the power plant which Zenith had failed to perfect at critical time (before the voluntary administrators were appointed), resulting in the interest vesting in the company by virtue of section 267 of the PPSA.

Zenith disputed that the Agreement provided for a security interest and said further that, even if a security interest was created, Zenith had perfected that security interest by either actual or apparent possession of the power plant.

The critical issue was whether the power plant was in "apparent possession" of Kirkalocka or Zenith.

By the time the case got to the Full Federal Court, Kirkalocka advanced two principal contentions:

• first, apparent possession must be evaluated from the vantage point of a member of the general public – being along the boundary of the site – and not by a hypothetical observer placed inside the Kirkalocka mine site; and

• second, even if the correct vantage point was that of the hypothetical observer inside the site, that hypothetical observer would have held that Kirkalocka was in apparent possession of the power plant, given the collateral's geographical location on the site, and the mine's isolation and security. Additionally, a mere logo on a building does not necessarily signify ownership of possession, particularly if located on another party's private land.

What amounts to "'apparent possession" under the PPSA

In determining the meaning and standard of "'apparent possession", the trial judge, Justice Besanko, rejected both parties' contentions that "'apparent possession" means possession in fact or possession determined by reference to a hypothetical observer driving or walking past the relevant area. Instead, his Honour imported the concept of a "hypothetical observer" located "at least [in a position to] be able to see the personal property in issue."

Justice Besanko noted that the power plant was not viewable from the site's entrance or boundaries, as it was located "deep into" Kirkalocka's land which is enclosed by a fence and vegetation running around the perimeter of the site. It therefore was appropriate to place the hypothetical observer inside the site and able to see the power plant "from a reasonable distance". From there, the observer would see a "large Zenith Pacific sign on the building" and conclude that Zenith was at least in the apparent possession of the power plant.

First, the Full Court considered sections 24(1)-(2), which say:

• a secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor; and

• the grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party.

It said these subsections operate independently of each other, requiring both subsections to be satisfied.

The Full Court then emphasised that perfection of a security interest requires the secured party to provide public notice to third parties of its security interest. It found:

1. the relevant inquiry is directed to an interested creditor seeking to inform themselves about the personal property in question. For collateral on mine sites, this means placing the hypothetical observer within viewing distance of the personal property; and

2. the trial judge's findings by the hypothetical observer were correct, with particular weight being placed on signs displaying Zenith's name and "No Unauthorised Personnel", and the requirements for visitor registration and wearing of Zenith uniforms.

The Full Court however overturned the trial judge's finding that a security interest had arisen by virtue of the PPSA. It said the Agreement did not provide for a security interest in the power plant as there was no separation of the title to and possession of the power plant, and the Agreement did not give rise to any reversionary interest.