The law states that if you don’t own something then you can’t transfer ownership of it to anyone else. Thus, if you buy something from someone who has stolen it, you cannot become the rightful owner. This is commonly known as the “nemo dat” rule – which is short for “nemo dat quod non habet”, a Latin phrase meaning "no one gives what he or she doesn't have”.
The PPSA
Like most legal rules, there are exceptions to the nemo dat rule. One of those exceptions can be found in the Personal Property Securities Act 1999 (the PPSA).
The PPSA provides a system for the registration and priority of security interests over personal property (In very general terms, personal property is all types of property except land e.g. chattels, vehicles, livestock, company shares, money in bank accounts, patents, trademarks and accounts receivable. The PPSA does not cover interests in land). Examples of security interests covered by the PPSA include:
- A hire purchase agreement for a TV
- A lease or bailment of livestock for more than one year where the lessor is engaged in the business of leasing or bailing livestock (This was the case in Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629 mentioned below)
- An agreement for the supply of building materials where the supplier keeps ownership of the building materials until the supplier has been paid
- A loan from a bank where the bank takes security over all of the borrower’s personal property.
The holder of the security interest mentioned above (i.e. the seller of the TV, the owner of the livestock, the supplier of the building materials and the bank) can register notice of the security interest on the Personal Property Securities Register (the PPSR). The rights of anyone purchasing that property or taking it as security will be subject to the registered interest.
New Zealand Bloodstock loses Generous
The consequences of a failure to register a security interest on the PPSR can mean a loss of ownership. New Zealand Bloodstock leased the stallion 'Generous' to Glenmorgan Farm Limited for more than one year. New Zealand Bloodstock did not register its security interest in Generous on the PPSR. S H Lock Limited had a debenture over all the assets of Glenmorgan. Lock registered its security interest on the PPSR. Glenmorgan fell behind with its payments under the lease so New Zealand Bloodstock terminated the lease and took possession of Generous. Lock appointed a receiver and applied to the Court for possession of Generous. Lock was successful. Even though New Zealand Bloodstock had at all times been the owner of Generous and Glenmorgan had never become the owner, Lock became entitled to possession and ownership by virtue of the registered security interest given by Glenmorgan. Ownership of Generous had been transferred to Lock – but not from the rightful owner. As the judge said in that case, “the nemo dat rule is ousted” by the PPSA.
Take the right advice
The fact that a lease or bailment of property for more than one year is a security interest under the PPSA has caught many unaware, sometimes resulting in substantial financial loss. The PPSA is complex legislation which is not well understood, even by many lawyers. If you wish to secure your rights in any personal property then you should take specialist legal advice before entering into any arrangement affecting that property.
Please email me at [email protected] with your ideas for future articles. Keep an eye out for next month’s column, where I will discuss another relevant rural legal issue.
Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters. Find out more about us at www.nwm.co.nz