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Australia has followed Canada's lead in introducing legislation governing the creation and operation of security interests over personal property. Indeed, Australia's legislation explicitly draws on that of Canadian common law provinces. (1) In force since 30lh January 2012, the Personal Property Securities Act 2009 (Cth) ('PPSA') has transformed the previous common law landscape, bringing within its scope a range of interests in personal property that are now characterised as security interests. Like its Canadian counterparts, the PPSA also deems certain property interests to be security interests even where they do not actually perform a security function. It subjects those interests, as well as the other interests that do have that function, to the application of statutory rules for determining their enforceability and priority. Failure to take specified steps to protect the interest can lead, in a worst-case scenario, to its loss. Where that interest is ownership, the impact is severe.

The PPSA's extensive reach seemingly took a number of industries, businesses and other groups unawares, not least the artistic community. Newspaper reports in the first twelve months of its operation highlighted concern. (2) The Australian Financial Security Authority, which now operates the electronic Personal Property Securities Register ('PPSR') in which financing statements can be registered to protect interests regarded as security interests, has produced a fact sheet specifically targeted at artists. (3) It alerts them to their vulnerability where, for example, they deliver their artwork to galleries or dealers for sale to third parties or themselves sell under arrangements in which buyers take possession of the artwork but only acquire ownership upon full payment. It stresses that it may no longer be sufficient legally for such artists to rely on their ownership of the work in disputes with certain third parties. If they have not taken a further step to protect their interest, typically by making an effective registration on the PPSR, they may lose their work (4) to secured creditors of a gallery, dealer or other person with whom they have dealt. (5) In some circumstances, they may lose that work to a liquidator or trustee in bankruptcy if the gallery, dealer or other person becomes insolvent. (6)

This article explores how the PPSA reshapes the manner in which individuals and organisations in Australia conceive of their legal relationship with artwork. Traditionally under a common law regime of secured transactions, such individuals and organisations would be familiar primarily with one role; that of a 'grantor' of a mortgage (or charge or pledge) (7) over assets they owned as security for a loan. Other transactions such as sales under which they might allow a buyer to take possession of a work but reserve title to the work until they receive payment from the buyer were not regarded at common law as giving rise to a security interest, but rather classified as 'quasi-security'. (8) Operating leases and more general bailments, (9) such as the loan of an artwork for the purposes of exhibition, fell into neither category, lacking any security function.

The introduction of PPSA, with its emphasis on function of an interest rather than its form and its express inclusion of the interests of certain bailors, lessors and consignors, now expands the range of transactions in which artists and art organisations encounter rules pertaining to secured transactions. As will be explained, in addition to acting as a grantor of a security interest over artwork in one transaction, they may, for example, find themselves in another transaction acting as a secured party and thus as the person in whose favour a security interest over the artwork arises; or as a buyer or lessee seeking to take artwork free of an existing security interest conferred on a third party. While necessarily traversing similar legislative ground to its Canadian companion article in this journal, (10) this article focuses on how a person or organisation may be characterised differently according to the particular transactions in which they engage and become subject to varying sets of complex rules.


Recognition that a person--whether an individual such as an artist or an organisation such as a gallery or a museum--is a secured party under the PPSA and thus must take steps to protect their interest in an artwork is not always as self-evident as might be commonly thought. Nor is the fact that a person is a secured party under one arrangement necessarily determinative of being a secured party under another. All depends on the particular transaction. Moreover, security arrangements are no longer generally the province of banks seeking protection for loans they have advanced to borrowers; common preconceptions of the identity of a 'secured party' as necessarily a bank (or other financier) have to be set aside.

Under the PPSA, a secured party is primarily defined (11)--perhaps not surprisingly--as 'a person who holds a security interest'. The definition of a security interest is key to understanding who may be a secured party. The starting point (12) is section 12(1), which sets out three criteria:

* an interest in personal property provided for by

* a transaction that

* in substance secures payment or performance of an obligation.

It is, however, when attention is turned to section 12(2), which sets out examples of relevant transactions, that the possibility of a museum or gallery or indeed an artist or a dealer being regarded as a secured party becomes more apparent. Included in the examples are retention of title arrangements and finance leases. Disposals of artworks under these types of arrangements may thus give rise to a security interest, with the vendor's or lessor's interest of ownership constituting the relevant interest and in substance performing the function of securing moneys payable under the terms of the sale or lease.

Yet the more common basis for their characterisation as a secured party comes from a further category of transactions, which are set out in section 12(3). Of particular relevance are certain types of leases and other bailments which are given the legislative descriptors of 'PPS lease' and 'commercial consignment'. These transactions are not restricted to circumstances in which the arrangement in substance performs a security function. Getting to grips with the scope of what are often described as 'deemed security interests' is critical and not necessarily intuitive.

Typically, artists have found themselves classified by the PPSA as consignors under commercial consignments through common arrangements under which they deliver their art to another person such as a gallery or dealer for sale or other disposal where they 'both deal in goods of that kind in the ordinary course of business'. (13) Assuming that the other person is not receiving the goods as an auctioneer, the transaction is excluded from the PPSA only where that person (the consignee) is 'generally known to the creditors of the consignee to be selling or leasing goods of others'. If that cannot be shown, the artist is a secured party.

In 2015 a report reviewing the PPSA acknowledged (14) that for artists who lose their work through failing to protect their interest as secured party under the PPSA 'the loss is not just a financial one, but a personal one as well.' In an attempt to remove these transactions between artist and gallery or dealer from the reach of the PPSA, the report has recommended (15) that the wording of the exclusion be modified to make the test objective, reasoning that commercial art galleries at least should generally be known to sell on this basis. (16)

Likely to be of particular concern to museums, galleries and dealers is an assessment that a particular transaction under which they own artwork is characterised as a 'PPS lease'. This term is defined in section 13 as encompassing certain leases or bailments of goods and thus potentially covers loans of artwork as they fall within the legal understanding of 'bailment', that legal institution arising when a person voluntarily receives into their possession the goods of another. (17) To qualify as a PPS lease, the term of the lease or bailment must be of a specified duration. Currently, that term is essentially one of more than two years, or an indefinite term where two years have already elapsed. (18) That period was, however, set very recently and applies only to leases or bailments entered into on or after 20th May 2017. (19) Leases and bailments entered into prior to that date are within the meaning of a PPS lease if they were of more than one year, or simply indefinite. While the lengthening of the period may serve to remove some transactions that would otherwise have been security interests, indefinite art loans made prior to the cut-off date still in the short-term leave lenders at risk of being regarded as secured parties.

It is not all leases or bailments of the relevant duration which are caught. Section 13(2) excludes leases or bailments where the lessor or bailor' is not regularly engaged in the business of [leasing or] bailing goods' respectively. Might the art loan be covered by this exclusion? Case law in Australia indicates that the leasing or bailing must be a proper component of the particular business (20) and suggests that the lessor or bailor should be engaged as such in a profit-making activity. (21) Where the transaction is a bailment, the bailee in addition must provide value. (22) While 'value' is a defined term and includes consideration sufficient to support a contract, (23) it remains open to question whether in this context something more than the technical notion of consideration is required. (24) Hence there is no ready general answer to the categorisation of the art loan and an examination of the particular facts in any situation is required.


It may be of course that the museum, gallery or dealer does not own the particular artwork, but rather seeks to acquire it, whether by purchasing it or leasing it. Here the issue is whether in making the acquisition the acquirer is impacted by an existing security interest over the artwork. Has the individual or organisation become a 'buyer' or 'lessee' and hence potentially protected from the operation of that security interest?

Working out how to resolve this issue can prove complex, involving a number of questions. The first--and most fundamental--is whether the existing security interest actually continues in the artwork after it has been dealt with. Under PPSA section 32 a security interest continues in collateral if the dealing gives rise to 'proceeds'. This clearly occurs when a person purchases or leases the artwork, making a payment or at least a promise to pay, both of which fall within the statutory definition of 'proceeds'. (25) If, however, the secured party had authorised the grantor as vendor or lessor to dispose of the artwork, or had agreed that the dealing would extinguish the security interest, the security interest would not continue in the artwork and hence the acquirer would not be affected.

Where a security interest does continue in the artwork, then the second question is whether the acquirer can bring itself within the scope of what are described as the 'taking free rules'. As the description suggests, these enable a person as a buyer or lessee to take free of a security interest.26 Most commonly, this will occur where either the secured party has not been diligent in protecting its security interest and has failed to perfect it (27) or where the buyer or lessee can show that the artwork was 'sold or leased in the ordinary course of the seller's or lessor's business of selling or leasing personal property of that kind'. (28)

Problems arise in working out when a person qualifies as a 'buyer' for the purposes of these rules. 'Buyer' is not a defined term. The issue is whether sale of goods legislation must be complied with and title to the property passed under that legislation to the person seeking to take free. Initial litigation in Australia suggests that title should indeed pass. (29) This intersection between the PPSA and other existing commercial law legislation can produce some tension and the experience of other jurisdictions suggests it may take some time for it to be fully resolved, whether by statutory amendments or by the courts. (30)


With the exception of circumstances in which an art organisation expressly grants a security interest over property to a bank for a loan or other form of financial accommodation, that organisation will not typically see itself as a 'grantor'.

Yet under the PPSA the term 'grantor' is not confined to those who expressly 'grant' an interest. Rather, it is defined (31) more broadly as meaning 'a person who has the interest in the personal property to which a security interest is attached'. One of the criteria for attachment (32) is that the grantor has 'rights in the collateral'. Those rights need not necessarily be ownership. They may in fact include legal possession. Hence an organisation which takes legal possession of artwork under a transaction such as a retention of title arrangement, a PPS lease or a commercial consignment may be regarded as a grantor. (33) In fact, the statutory definition of 'grantor' expressly includes a person receiving goods under a commercial consignment and a lessee under a PPS lease. Thus, a loan of artwork to a gallery for the purposes of exhibition which falls within the scope of a PPS lease results at law in the gallery being regarded as the grantor of a security interest in that artwork to the lender.

Recognition that legal possession is sufficient to enable a security interest to attach to the artwork has implications beyond the actual transaction between the organisation as 'grantor' and the owner, whether under a retention of title arrangement or a PPS lease or a commercial consignment. That possession may also be sufficient to enable a further security interest to attach to that same artwork, thus bringing the owner as vendor, lessor or consignor into a priority dispute with another party, being for example a bank to whom the organisation has given a security interest over all its present and future property. In the example above, financing provided to the gallery by a bank which is secured over all the gallery's present and future assets, may result in the bank having a security interest in the artwork on loan to the gallery. The gallery is grantor of both security interests, each of which has attached simply through its possession of the artwork. Such a dispute is resolved through the operation of statutory priority rules. (34)


These various roles--secured party; buyer or lessee; grantor--assume, and of course depend upon, the effectiveness of the particular security interest. Under the PPSA a security interest should attach to the collateral under section 19, be enforceable against third parties under section 20 and perfected under section 21.

Attachment requires the satisfaction of two criteria, each of which can be satisfied in two ways. (35) On the one hand, either value for the security interest must be given or the grantor must do an act by which the security interest arises. The former is typically achieved through the secured party making a loan or delivering possession of goods under a lease or bailment; the latter, through the grantor executing a security agreement. On the other hand, the grantor must have 'rights in the collateral' or 'the power to transfer rights in the collateral to the secured party'. In the example of the loan of artwork to a gallery which is a PPS lease, delivery of the artwork to the grantor represents value given by the secured party, while the gallery's possession of the artwork may constitute sufficient rights on the part of the grantor for the security interest to attach to the artwork. (36)

For a security interest to be enforceable against third parties, not only must the security interest be attached, but there must be some form of corroboration. This generally takes the form of a security agreement which is in writing (37) (or at least evidenced in writing), with that writing signed or adopted by the grantor. (38) A documented art loan agreement adequately identifying the secured party and properly describing the collateral (39) may suffice. Alternatively, the secured party may take possession or, where it is a particular type of property, 'control'. The latter is unlikely in the context of artwork, given the limited nature of property capable of control. (40)

Perfection offers a secured party what is often described as the 'optimal protection'. (41) It reduces the circumstances in which a third party may take free of a security interest (42) and precludes the security interest from vesting in the grantor on the grantor's insolvency. (43) It also assists in a priority dispute conferring priority where the competing security interest is unperfected. (44) Nonetheless, perfection of itself cannot ensure priority, as the PPSA may for policy reasons afford priority to another perfected security interest. This may happen where, for example, the other perfected interest has an earlier priority time, (45) or falls within the category of a 'PMSI' and has complied with procedural rules. (46) Under PPSA section 14 PMSIs include the interest of a vendor under a retention of title arrangement and those of a lessor or bailor under a PPS lease and of a consignor under a commercial consignment. (47) In the example of the loan of artwork to a gallery for the purposes of exhibition which falls within the scope of the PPS lease, the lender's interest of ownership gives rise to a security interest that is a PMSI. If the lender perfects that interest within a specified time frame and complies with other procedural requirements, then its security interest over that artwork has priority over any other secured party claiming an interest in that artwork. This is so, even if that secured party has registered a financing statement with respect to its security interest over all the gallery's present and future property at an earlier date

Application of some of the PPSA rules may change according to the PPSA classification of the artwork as property. Where it is tangible as in the form of a painting, a sculpture, a physical installation or the like, it is classified as 'goods'. (48) If it were rather a representation in an electronic medium it is more likely to fall within the category of'intangible property', (49) assuming that it in fact constitutes property (50) within the scope of the PPSA. Perfection by possession, for example, would appear to be possible only where the particular item has a physical manifestation, in the absence of contrary statutory direction. (51)

In working out whether a security interest is effective, and indeed whether there is a security interest, Australian courts have drawn on case law from other jurisdictions with this style of legislation, in particular the common law provinces of Canada and New Zealand. Clearly these cases can offer useful guidance as to interpretation. Nonetheless, structural variances and divergent provisions in the legislation as well as differing judicial constructions and of course local circumstances may render particular interpretations reached in those jurisdictions of little assistance on some issues.


While the PPSA is intended ultimately to simplify and clarify the field of secured transactions law, a first encounter with it is often daunting.

This article suggests that this is due, at least in part, to the fact that the expansion of what amounts to a security interest means that no-one can any longer afford (financially or otherwise) to understand a secured transaction narrowly as one in which they play the limited role of grantor of a mortgage, charge or pledge over assets they own to support a loan from a financial institution. It has become critical now to acknowledge that they potentially play other roles, such as that of a secured party or that of a buyer or lessee of property subject to a security interest. Such roles emerge from the way in which the PPSA treats the range of transactions in which they engage. Even in the familiar role of grantor, they must recognise that the circumstances in which they are regarded as having sufficient rights to enable a security interest to attach to the property are broadened.

If this change in thinking is challenging for lawyers, it is all the more so for those without legal training. For those involved in the art world, it requires them to examine the transactions in which they deal with artwork afresh. Australian experience of those engaged in PPS leases in other industries, which has led to the recent change in the definition of a PPS lease, (52) suggests that artists and art organisations are particularly vulnerable where they fail to recognise that their own interest in an artwork constitutes a security interest, renders them a secured party and requires them to protect themselves through the making of an effective registration on the PPSR. Art loans offer a typical scenario, revealing different rules governing secured parties and grantors. As individuals and organisations enter into these transactions, sometimes as lenders and in other cases as borrowers, these shifting roles require them to become familiar with the full gamut of the PPSA.

Professor Sheelagh McCracken and Professor Greg Tolhurst *

* University of Sydney Law School, Australia.

(1) Replacement Explanatory Memorandum to the Personal Property Securities Bill 2009, Outline. It also cites as a model New Zealand and US legislation, as well as the work at an international level of UNCITRAL and UNIDROIT. Unlike Canada, Australia has enacted its PPSA at federal rather than state level.

(2) See, for example, Wendy Frew, 'Register or Regret: Artists Alerted to New Ownership Law', Sydney Morning Herald, 9 March 2012.

(3) 'Artists: What you should know about the PPS Register', available at <> under 'Business', 'Industry information'. The sub-heading written in capitals reads strikingly 'Your art, your property, your dealer, your gallery, your income, your risk, your protection.'

(4) See section 5 in the text below.

(5) For the application of the PPSA priority rules, see PPSA Part 2.6.

(6) PPSA s. 267, subject to s. 268.

(7) While a mortgage involves a transfer of title by way of security, a charge is traditionally defined as an appropriation of property for the satisfaction of an obligation and a pledge as a transfer of possession by way of security: see generally Beconwood Securities Pty Ltd v. Australia and New Zealand Banking Group Ltd (2008) 246 A.L.R. 361 at 370; Palgo Holdings Pty Ltd v. Gowans (2005) 221 C.L.R. 249 at 257-258.

(8) This description recognises the security function of the arrangements (commonly described as 'retention of title arrangements'). They nonetheless fall outside the common law concept of security, as common law requires a security transaction to take the form of a grant, rather than a reservation, of a property interest.

(9) This excludes bailments which took the specific form of a pledge and operated by way of security.

(10) Elisa Durante, 'Art-Secured Lending and Related Considerations: An Overview of the Canadian Legal Framework' at p. 213 of this issue.

(11) PPSA s. 10.

(12) This assumes that there is a relevant connection with Australia under PPSA s. 6--for example, the work is located in Australia and the grantor is an Australian entity.

(13) PPSA s. 10 'commercial consignment' (c). The requirement of 'ordinary course of business' becomes problematic where local artists display their work in local restaurants or shops. Could such businesses be said to 'deal in goods of that kind in the ordinary course of business'?

(14) See Review of the Personal Property Securities Act 2009, Final Report, Commonwealth of Australia, 2015 conducted by Mr Bruce Whittaker ('the Whittaker Report'). The review was required by PPSA s. 343 to take place within three years of the Act's commencement of operation. As at the date of writing, the Government has not yet formally responded.

(15) Whittaker Report, Recommendation 17. See discussion at [] and in particular at [],

(16) Whittaker Report, [],

(17) The Pioneer Container [1994] 2 A.C. 324 at 337.

(18) PPSAs. 13(1).

(19) Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth). See Personal Property Securities Act 2009 (Cth), Schedule 1, Part 2.

(20) Forge Group Power Pty Ltd (in liq.) (recs & mgrs apptd) v. General Electric International Inc (2016) 305 F.L.R. 101 (not appealed on this point sub nomine Power Rental Op. Co. Australia, LLC v. Forge Group Power Pty Ltd (in liq.) (recs & mgrs apptd) [2017] NSWCA 8).

(21) Re Arcabi Pty Ltd (recs & mgrs apptd) (in liq.); ex parte Theobold (Arcabi) (2014) 288 F.L.R. 236 at 243.

(22) PPSAs. 13(3).

(23) PPSAs. 10.

(24) Arcabi (2014) 288 F.L.R. 236 at 243-244.

(25) PPSAs. 31.

(26) PPSA Part 2.5.

(27) PPSA s. 43. For 'perfection', see section 5 in text below.

(28) PPSA s. 46. See s. 46(2) for exceptions to the rule.

(29) Re Renovation Boys Pty Ltd (admin, apptd) [2014] NSWSC 340; Lewis v. LG Electronics Australia Pty Ltd(2014) 291 F.L.R. 407.

(30) Sheelagh McCracken, 'When is a "Buyer" a "Buyer"? Solving Riddles When New Legislation Confronts Established Concepts', in Shelley Griffiths, Sheelagh McCracken and Ann Wardrop (eds), Exploring Tensions in Finance Law--Trans Tasman Insights, (Thomson Reuters, 2014), Ch. 8. See also Whittaker Report, [7.6.3].

(31) PPSA s. 10.

(32) See section 5 in text below.

(33) PPSA s. 19(5) and section 5 in text below.

(34) PPSA Part 2.6.

(35) PPSAs. 19(2).

(36) See Re Maiden Civil (P&E) Pty Ltd; Albarran v. Queensland Excavation Services Pty Ltd (2013) 277 FLR 337 at 345-348 where the court characterised the grantor's rights under the PPS lease not only as possessory but as proprietary, in the sense of 'ownership'. Cf. Sheelagh McCracken, 'Construing the Personal Property Securities Act 2009 (Cth): interpretation or interpolation?' (2014) 27(4) Commercial Law Quarterly 3.

(37) 'Writing' includes electronic recording: PPSA s. 10.

(38) PPSA s. 20(1)(b), s. 20(2)(a). Attachment is a pre-requisite: s. 20(1)(a).

(39) PPSA s. 20(2)(b).

(40) PPSA s. 21(2)(c). There are six kinds of collateral capable of control: an ADI account; an intermediated security; an investment instrument; a negotiable instrument not evidenced by a certificate; a right evidenced by certain letters of credit; and space objects. Nonetheless, while clearly not dealing with artwork, the provision would cover a gallery's deposit account at a bank. That is an ADI account and thus susceptible to that bank perfecting a security interest over that deposit by control: see PPSA ss. 10, 25.

(41) See Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq.) (recs & mgrs apptd) [2017] WASC 152 at [108]; Graham v Portacom New Zealand Ltd (2004) 2 N.Z.L.R. 528 at [12],

(42) PPSA s. 43 under which buyers or lessees can take free of an unperfected security interest.

(43) PPSA s. 267, subject to s. 268.

(44) PPSA s. 55(3).

(45) PPSA s. 55(4),(5),(6).

(46) PMSI is a common abbreviation for a purchase money security interest: PPSA s. 14. The procedural rules are set-out in ss. 62, 63.

(47) For discussion of the underlying policy rationale for the 'super-priority' attributed to a duly perfected PMSI, see Anthony Duggan and David Brown, Australian Personal Property Securities Law, (LexisNexis Butterworths, 2nd edn, 2016), Ch 8.

(48) PPSA s. 10.

(49) PPSA s. 10, where intangible property is defined as a residual category of personal property which is not goods, financial property or an intermediated security.

(50) This term is not defined in PPSA s. 10.

(51) PPSA s. 21 (2)(b), despite the reference to 'any collateral'. See PPSA s. 24(5), (6) for examples of statutory direction.

(52) See Explanatory Memorandum to the Personal Property Securities Amendment (PPS Leases) Bill 2017 and the Minister's 2nd Reading Speech, Hansard, House of Representatives, 1 March 2017, pp. 1883-1884.
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Author:McCracken, Sheelagh; Tolhurst, Professor Greg
Publication:Art Antiquity & Law
Date:Oct 1, 2017

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