By Richard Winter -
Snapshot
- The recent decision of the Federal Court in Lobux v Willshaun Pty Ltd extends consumer protection under the Personal Property Securities Act 2009 (Cth) (‘PPSA’), making general security given by small businesses potentially unfair and unenforceable.
- The decision extends the protection to the very heart of the PPSA – the substance test, by determining that in substance general security arrangements may be unfair and unenforceable in circumstances where ‘sufficient’ alternative remedies are available.
- The decision is significant as it strips away key security protections used by businesses (including small businesses). The decision may force some small businesses to limit their operations (to non-consumers/small businesses) or even stop trading due to the increased risks they now face.
In the recent decision of Lobux Pty Ltd v Willshaun Pty Ltd [2022] FCA 204, handed down on 11 March 2022, (‘the Lobux case’), the Federal Court of Australia found that a general security clause contained within a standard form contract was unfair under the Australian Consumer Law (Schedule 2 Competition and Consumer Act 2010 (Cth)) (‘ACL’) and accordingly void and unenforceable.
In this case, Lobux (‘the Secured Party’) had partially completed manufacture of a ‘Hooklift Backdoor Vacuum Tank’ (‘the Item’) for Willshaun (’the Small Business’). The item was to be used for waste transport purposes by the small business. Prior to completing the item, the small business removed it from the secured party’s possession to have some works done to it, but the item was never returned and the balance of the purchase price was unpaid. The small business proceeded to use the item in its business operations.
The secured party and the small business entered into a standard form contract for the supply of the item (‘Contract’), under which the secured party was granted a general security by the small business over all of its present and future assets as well as agreeing to the secured party retaining title until payment was fully made. These security interests were registered by the secured party on the Personal Property Securities Register.
The small business sought a declaration from the Court that the secured party should be prevented from enforcing its security interest on the basis that the relevant clause in the Contract was unfair and therefore void in accordance with section 250 of the ACL. The Court agreed.
