Implications of PPSA issues affecting mining services contracts
20 February 2012
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012. The PPSA is broad in its application and will impact on the mining industry. It is important that contracts contain comprehensive provisions dealing with the PPSA to ensure that a party who may have a security interest is adequately protected.
It is common for mining services contracts to contain provisions dealing with plant and equipment. In some instances the Contractor will be responsible for the provision of plant and equipment to be used to perform the mining services, such equipment may be owned by the Contractor or leased or hired by the Contractor. The Principal will want the right to use the Contractor-supplied plant and equipment in the event the contract is terminated, so as to enable it to continue with the mining services. In other cases, the Principal may provide the plant and equipment for the Contractor’s use. In either event, the parties will need to consider whether there are any security interests in that plant and equipment and the PPSA implications of the particular arrangement.
By way of example, version 3 of the AMPLA Model Mining Services Contract (MSC) contains a clause dealing with the PPSA. Clause 22.3 of the MSC provides that:
- The Contractor must not assign all or any of its rights under this agreement or create any Security Interest or allow any Security Interest to subsist over this agreement without the prior written approval of the Principal.
- The Principal may assign all or any of its rights under this agreement or create any Security Interest at any time, provided that the Principal procures a covenant from the assignee in favour of the Contractor before doing so that the assignee will be bound by the terms of this agreement.
The first paragraph of the definition of “Security Interest” in the MSC provides that “in relation to any Personal Property”, Security Interest “has the same meaning as in the PPSA”. “Personal Property” is then, in turn defined as having the meaning given in the PPSA.
However, to adequately address the PPSA implications for the mining industry, users of the MSC may wish to amend the MSC to deal with the following issues:
- Given that Clause 13 envisages that the Contractor may use hired Plant and Equipment to provide the Mining Services, principals should be aware that, because of the PPSA, the Principal’s contractual right (under clause 13.6) to use that Plant and Equipment after termination may no longer be enforceable. Accordingly, Principals should consider their options, including strengthen their rights (eg: by taking a security interest over such property) or as a minimum, requiring the Contractor to give an assurance that it will do certain things to enable the Principal to enforce its rights under clause 13.6.
- Given that there are special PPSA rules relating to goods that are required to be or may be described by serial number (as defined in the PPS Regulations), Principals may wish to amend clause 13.2 and Schedule 7 to require the Contractor to specify the relevant serial number of such Plant and Equipment.
- The PPSA requires disclosure of certain information relating to a security interest (including the agreement which gives rise to the security interest) to certain interested persons on request. There are certain exceptions, including if a confidentiality agreement exists at the time the agreement was entered into. Clause 20.2 of the MSC does not provide any protection as it expressly allows disclosure where required by Law (which would include the PPSA). Accordingly, users of the MSC may wish to include a comprehensive confidentiality arrangement to prevent the MSC or other information having to be disclosed.
- Users of the MSC who believe that a security interest arises under it should consider amending the MSC to require the other party to provide such information and take such other steps as required to enable the secured party to register its security interest. The secured party may also wish to include provisions whereby certain enforcement provisions and notice provisions of the PPSA are contracted out of.
- It would be in both parties' interest to require the other party to notify it if it believes that a security interest arises under the MSC.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.