Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

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A PURCHASE MONEY SECURITY INTEREST IN UK LAW?

Robert Boadle*

An area of the law of personal property securities that has caused much confusion is the interaction between a security interest over future assets and what is commonly labelled a “purchase money security interest” over the same assets in the event of a priority dispute. Although there is a line of real property cases that suggests the purchase money security interest should receive priority, it is submitted that these cases do not provide a coherent principle that can be applied in the law of personal property securities. However, there is a strong normative argument in favour of reforming the law of personal property securities to ensure that the purchase money security interest is recognised and receives priority in well-defined circumstances. UK companies and their financiers appear to be circumventing the confusion using a number of techniques, including priority agreements and reservation of title devices. In relation to the former, it is suggested that these agreements are an economically inefficient means of achieving a priority outcome. In relation to the latter, reservation of title devices achieve an efficient priority outcome in relation to tangible property. However, in relation to intangible property, these devices do not appear to be commonly employed. Accordingly, reform of this area might afford small and medium-sized business a greater range of financing alternatives. In the light of the stagnant UK economy, reform of this area might be one way to facilitate growth in UK small and medium-sized businesses, which would arguably bolster the UK economy as a whole. It is suggested that any reform proposals should be considered as part of the broader reform considerations that will inevitably arise again in the law of personal property securities.

* Lawyer, Clayton Utz. The author would like to thank Professor Louise Gullifer for her guidance, and Professor Hugh Beale and Dr Thomas Krebs for their comments on an earlier draft.

The following abbreviations are used:

BBGL: Hugh Beale, Michael Bridge, Louise Gullifer and Eva Lomnicka, The Law of Security and Title-Based Financing, 2nd edn (Oxford University Press, Oxford, 2012);

Fisher & Lightwood: Wayne Clark (ed.), Fisher and Lightwood's Law of Mortgage, 13th edn (LexisNexis Butterworths, London, 2010);

FLC: Financial Law Committee of the City of London Law Society;

Gullifer: Louise Gullifer (ed.), Goode on Legal Problems of Credit and Security, 4th edn (Sweet & Maxwell, London, 2008);

Megarry & Wade: Charles Harpum, Stuart Bridge and Martin Dixon, Megarry & Wade: The Law of Real Property, 8th edn (Sweet & Maxwell, London, 2012);

PMSI: purchase money security interest;

ROT: reservation of title;

SMEs: small and medium-sized enterprises.

A PURCHASE MONEY SECURITY INTEREST IN UK LAW?

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