The Court of Appeal of the Supreme Court of Victoria has upheld the security interest of Central Cleaning Supplies ('the Supplier') over the supplies of cleaning products and equipment ('goods') to Swan Services ('the Customer').

Summary of facts
- The customer in 2009 completed and signed 'An Application for Commercial Credit Facilities' which was required before the supplier would supply goods on 30 day terms. 
- Clause 2 of the Credit Application provided 'The supply of goods by the seller is governed by the seller's Standard Terms and Conditions as in force from time to time'. 
- The Supplier's Terms and Conditions of Supply were printed on the invoices issued by the Supplier which included a standard ROT clause. The Terms and Conditions of Supply were not attached nor did they form part of the Credit Application. 
- The Supplier supplied to the customer from September 2008 to May 2013 when an administrator was appointed to the Customer. 
- The Supplier did not register its security interest over the goods supplied and the subject of the case. 
- The Supplier was unsuccessful at trial. The Trial Judge determined that each invoice for supply was a separate contract. The relevant separate contracts came into effect after 30 January 2012, and the transitional provisions of the Personal Property Securities Act ('the Act') did not perfect the contracts.

Summary of the decision of the Court of Appeal
- The Court of Appeal overturned the Trial Judge's decision. z The Credit Application did not create a contract between the Supplier and the customer. However the contract between them was formed when the supply took place. The customer did not become bound by the Credit Application Terms until the first supply of goods after the Credit Application was made. 
- The Supplier's supply of goods was acceptance of the customer's application for credit by conduct. The delivery of the goods which the customer had ordered and the sending of the invoice confirmed that the supply was on 30 day credit and this was the conduct through which 'the supplier signified its acceptance of the customer as an account customer'. The sending of the invoice was the critical step which confirmed that credit was being provided.

Commentary 
- The PPSA requires a formal security agreement to be in place before supply of goods. 
- The Court considered that a formal agreement for all future supplies of goods existed. In this case the formal agreement consisted of the Credit Application and the invoices which contained the Terms and Conditions of the Sale. 
- Usually the Terms and Conditions of Supply would form part of the Credit Application and the Terms and Conditions of Sale would either be included in or be attached to the Credit Application at the time the customer signed the Credit Application. z This decision may provide some comfort to suppliers where they rely on Credit Applications similar to those in this case and also possibly where the Credit Application cannot be found but there are documents such as emails and invoices which contain terms which can be inferred as constituting a formal security agreement.

*Frank Gambera is Director for McMahon Fearnley Lawyers www.mcmahonfearnley.com.au

Download full article