is an unperfected ppsa interest an encumbrance?

Auburn Shopping Village v Nelmeer Hoteliers [2017] NSWSC concerned an agreement by Nelmeer Hoteliers to provide Auburn Shopping Village with poker machines. Upon searching the Personal Property Security Register, Auburn Shopping Village found there was a registered security interest by a party called Druin against Nelmeer, potentially attaching to the poker machines. Auburn Shopping Village alleged there was a contractual term that Nelmeer Holdings would transfer the Poker Machine permits free of all encumbrances or security interests, and that this had been breached.

Nelmeer submitted that the Druin encumbrance did not affect the poker machines. On the evidence, the Court found that there was an error in the registration of the encumbrance, and as such the security interest was not perfected. Based on this finding, the Court accepted Nelmeer’s argument that the mere presence of the unperfected interest will not make it an encumbrance.  The PPSR is a notice based system, the purpose of which is to provide enough information to permit Auburn Village to make enquiries. Even if there was an obligation to transfer the permits without an encumbrance, this could not be breached solely by an entry on the register which wrongly claimed that a security interest existed.

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