Possession and the PPSA Revisited: Kirkalocka Gold SPV Pty Ltd v Zenith Pacific (KLK) Pty Ltd [2025] FCAFC 62

This case arose from a dispute over the ownership and security interests in a power plant constructed and operated by Zenith Pacific (Zenith) for Kirkalocka Gold SPV Pty Ltd (Kirkalocka) under a Power Purchase Agreement (PPA).

Background

Kirkalocka operated a gold mine in Western Australia and entered into a PPA with Zenith in 2019. Under the PPA, Zenith agreed to design, construct, operate and maintain a power plant to supply electricity to the mine. The PPA had a 10-year term, with provisions for Kirkalocka to purchase the plant at the end of the term or upon early termination. Zenith did not lodge a financing statement on the Personal Property Securities Register against Kirkalocka. On 1 May 2021, Kirkalocka entered voluntary administration, prompting a dispute over whether Zenith's interest in the power plant constituted a security interest under the PPSA and whether that interest had been perfected by possession.

Issues

The key issues before the Court were:

1. Whether Zenith's interest in the power plant constituted a security interest under s 12(1) of the Personal Property Securities Act 2009 (Cth) (PPSA).
2. Whether Zenith had perfected its security interest by possession before Kirkalocka entered administration.

Decision

The Full Federal Court dismissed Kirkalocka's appeal and upheld Zenith's notice of contention, affirming the primary judge's ruling that the power plant had not vested in Kirkalocka.

The key holdings were these:

1. Zenith's interest in the power plant did not constitute a security interest under s 12(1) of the PPSA. Zenith's ownership interest was not in the nature of a conditional sale agreement, a hire purchase agreement, or an in-substance security interest. The Court noted that the PPA allowed Zenith to retain title to the power plant and remove it if Kirkalocka defaulted on its payment obligations, but this was not a security interest because there was no separation of title and possession. Additionally, the PPA itself did not provide Zenith with a reversionary interest in the plant to secure obligations owed to it by Kirkalocka.
2. Even if there was a security interest, Zenith had perfected its security interest by possession. The Court found that Zenith was in actual and apparent possession of the power plant, as evidenced by signage, access controls and operational practices. These factors demonstrated to a hypothetical observer that Zenith, not Kirkalocka, was in possession of the plant.
3. Apparent possession should be assessed by reference to all matters that could be discerned by those with an interest in the subject matter. 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.

Key Learnings

1. Broad Scope of Security Interests under the PPSA: The decision underscores the wide ambit of s 12(1) of the PPSA, which can encompass arrangements where a party retains title to personal property as security for payment or performance obligations. However, if there is no separation of ownership and possession, analogies with conditional sale agreements, leases and hire purchase agreements may not be compelling. Ownership interests themselves are not necessarily security interests unless they secure payment or performance obligations.
2. Difficulties in applying the in-substance test for security interest: The key difference between the Court at first instance and on appeal was whether the PPA gave rise to an in-substance security interest . Commercial parties should exercise caution when attempting to anticipate whether a commercial arrangement involving high value plant and equipment may be treated as providing for a security interest. Reasonable minds will differ.
3. Perfection by Possession: The case highlights the importance of possession as a strategy in perfecting a security interest as an alternative to lodging a financing statement on the Personal Property Securities Register (PPSR). Actual and apparent possession can be established through physical control, signage, and operational practices, even in complex commercial arrangements. If property is in the actual or apparent possession of a grantor, it cannot at the same time be in the possession of the secured party. Accordingly, a potential secured party should make every effort to ensure it can prove actual or apparent possession through admissible evidence, and that this possession is visible and recognisable by third parties.
4. High value plant and equipment: This case serves as a critical reminder for businesses and legal practitioners to carefully structure and document commercial arrangements involving high value plant and equipment and to take proactive steps to perfect potential security interests under the PPSA to avoid potential costly disputes down the track.

Please get in touch if you wish to discuss what these key learnings may mean for you.