Federal Court clarifies meaning of “apparent possession”

The recent decision of the Full Court of the Federal Court of Australia in Kirkalocka Gold SPV Pty Ltd (Receivers and Managers Appointed) v Zenith Pacific (KLK) Pty Ltd [2025] FCAFC 62 provides useful guidance on the meaning of “apparent possession” for the purposes of the Personal Properties Securities Act 2009 (PPSA).  

Amongst other things, the case illustrates the importance of contractors ensuring that their plant and equipment is readily identifiable as being in their possession and not in anyone else’s possession.  Further, if there is any doubt about whether an agreement creates a security interest, then the potential interest should be registered on the Personal Property Securities Register.

Thomson Geer acted for Perth-based mining contractor Zenith Pacific (KLK) Pty Ltd (Zenith). Zenith entered into a contract with Kirkalocka Gold SPV Pty Ltd (Kirkalocka) pursuant to which Zenith agreed to design, construct, operate and maintain a power plant at Kirkalocka’s remote mine site.

Kirkalocka went into administration and, subsequently, receivership.

The receivers of Kirkalocka contended that the contract created a security interest within the meaning of s12(1), PPSA and that because Zenith had failed to register its security interest, upon Kirkalocka entering into administration, title to the power plant vested in Kirkalocka.

At first instance, the contract was found to have created a security interest but Kirkalocka’s case was dismissed because Zenith was found to have perfected its security interest by being in actual and apparent possession of the power plant.  

Kirkalocka appealed the finding that Zenith was in apparent possession and contended that it and not Zenith was in apparent possession of the power plant.  Kirkalocka advanced arguments to the effect that:

• the concept of “apparent possession” is intended to serve the purpose of giving public notice of security interests to third parties and, therefore, “apparent possession” should be evaluated by reference to what would be apparent to a member of the general public, which in the case of a power plant located deep within a remote mine site with restricted access, was not very much; or
• alternatively, if the concept of “apparent possession” was to be evaluated from the perspective of a member of the public located within the mine site, then they would not necessarily have been aware of the various indicia of Zenith’s possession such as a sign bearing Zenith’s logo on one wall of the engine hall in which the generators were located.

The Court rejected those arguments and held that the question of apparent possession does not require any investigation into the actual state of knowledge or belief of either creditors or 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. For that purpose, all relevant facts and matters which are “apparent” (that is, capable of being known upon inquiry) should be taken into account (at [90]).

Applying that test, the Court held that the trial judge had not erred in relying upon undisputed evidence that: personnel wearing Zenith uniforms staffed the power plant,  locked the doors to components of the power plant and required visitors to sign a visitors book to gain access to it and that there was external signage saying “Zenith Pacific” on one wall of the building and on the floor of another building, being matters which were capable of being learned by someone making inquiry on the subject. This illustrates the importance for contractors of ensuring that their plant and equipment is readily identifiable as being in their possession and not in anyone else’s possession.  That can be done through means such as signage with the company’s business name, having staff wear uniforms bearing the name of the business and, where possible, ensuring that the plant and equipment is stored when not in use in a yard or compound to which the contractor controls access.

Further, if there is any doubt about whether an agreement creates a security interest, then the potential interest should be registered on the Personal Property Securities Register.

Although it was not strictly necessary to decide the appeal, Zenith also succeeded in relation to its contention that the trial judge erred in finding that the contract created security interest.  

In that regard, Kirkalocka had contended and the trial judge found that the contract created something analogous to a conditional sale or hire purchase agreement because it provided for the power plant to be located on Kirkalocka’s mine site and provided in cl 3.5 for Zenith to retain title to it, which clause was in the nature of a retention of title clause.

The Court rejected those arguments and found that the contract did not provide for the retention of Kirkalocka’s title because there was no separation of the title to and the possession of the Zenith Power Plant and, consequently, the contract did not give rise to any reversionary interest.

If you have any questions about this case or rights under the PPSA, please contact the Thomson Geer Litigation and Dispute Resolution team.

Author

Darren Pratt | Barrister | Francis Burt Chambers

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