Fixed once and for all
The GE TM2500 GTG gas turbine generator is big machine. It’s 24 metres long and 7 metres wide, weighs over 100 metric tonnes, and can generate net 34 MW of power.
Forge Power rented two of them from GE for its temporary power station in Port Hedland, Western Australia. The rental for two years was more than US$28 million. GE failed to register its security interest in the turbines on the Personal Property Securities Register (PPSR). Then GE sold the leases to Power Rental.
A few months later Forge Power went bust and voluntary administrators were appointed. A dispute arose about the competing claims of Power Rental and Forge Power over the turbines. The dispute ended up in the Supreme Court of New South Wales.
A key issue in the case was whether the turbines had become “fixtures” to the land. The Personal Property Securities Act (PPSA), which governs security interests over personal property, does not apply to an interest in a “fixture”. Fixtures are defined in the PPSA as “goods, other than crops, that are affixed to land.”
If you applied that definition literally, any goods “affixed to land” (other than crops) would fall outside the PPSA. That would be a real problem for suppliers of goods like solar panels which are fixed to a building or land but never intended to become fixtures.
Before the PPSA, the common law said that whether or not an item became a fixture was determined by the objective intention when the item was put there. This would depend on the facts of each case, and the courts would consider factors such as:
Was the item attached to the land for the benefit of the item (e.g. so it could operate properly) or for the benefit of the land or buildings it was attached to?
Were the goods there temporarily or permanently?
The common law test also considered the degree and object of annexation. This involved factors such as whether the goods would be destroyed or damaged if they were removed.
The PPSA definition of fixtures makes no mention of the intention of the parties or the degree of annexation. It just says “affixed to land”.
According to the installation manual for the turbines, they had to be placed on a concrete foundation or levelled and compacted earth. An air intake filter and exhaust hatch were bolted on to the machines and then the turbines were connected to external fuel sources, electrical connections and plumbing.
Because Port Hedland is in cyclone territory, to further secure the turbines Forge Power used an optional extra which included 8 heavy steel cables attached to concrete blocks in the ground.
Installation of the two turbines took a total of 16 days.
In the original decision in 2016 (Forge Group Power Pty Limited (in liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52), the judge found that the common law principles applied when deciding if an item had become affixed to the land.
That decision was appealed, and the Court of Appeal handed down its decision on 6 February 2017 (Power Rental Op Co Australia, LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2017] NSWCA 8).
Power Rental argued that the common law concepts should not be imported into the term “affixed to land”, and so the court looked closely at the principles about how legislation should be interpreted by the courts.
The court said that while the meaning of “affixed” was not unclear (it was a form of attachment), what was uncertain was the nature and degree of attachment that was required. The court held that Parliament did not intend that personal property which was affixed to the land, but not part of the land at common law, should fall outside the PPSA; Parliament intended that the common law concept of fixtures should be imported.
Applying those common law concepts, the turbines were not fixtures, and so the interests in the turbines were governed by the PPSA.
This decision has fixed once and for all that the common law concept of fixtures applies under the PPSA.
Patrick Dwyer
Legal Director