Australia: Agistment of horses: common law liens, contractual liens and the Personal Property Securities Act

In brief - Legal mechanisms exist to protect the rights of all parties to an agistment agreement

Both the owners of horses and the proprietors of properties where horses are agisted should be aware of how to make use of liens and the Personal Property Securities Register to safeguard their interests.

All parties to agistment agreements can take steps to protect their position

This article is a continuation of last month's article, Agistment of horses: written agreements have benefits for all parties. This article examines the issues of liens and the Personal Property Securities Act 2009 (Cth) (PPSA). These are important issues and very relevant to property owners and horse owners alike, especially in the context of agistment.

To refresh your memory, agistment is a situation where the owner of a horse sends it to the property of another person ("the proprietor") to be fed and cared for. This type of agreement creates a relationship whereby the proprietor has certain duties to maintain the horse and the owner has an obligation to make the payment agreed between the parties in exchange for the benefit of having their horse fed and cared for.

This relationship can make both the proprietor and owner vulnerable when the other party refuses to carry out their side of the agreement. This article outlines some ways both parties can protect their interests.

Common law liens in the context of agistment

A person may claim a lien if they are in possession of a good owned by another party, they have improved the good or added value to the good and the other party has not extended payment relating to that good.

For instance, if the owner of a car sent it to a mechanic for the purpose of fixing the radiator, the mechanic may claim a lien over the car, and lawfully detain it, if the person fails to pay their bill. This is known as a common law lien.

Generally, common law liens do not apply to the recovery of agistment expenses. This is predominantly because no improvement is made to the horse whilst it is being agisted. The horse is simply maintained by the proprietor. The terms of agistment agreements will vary between parties and so it may be that a proprietor causes a horse to be improved or its value increased whilst it is on agistment with the proprietor.

If the proprietor can establish that there has been an improvement or the horse's value has increased as a result of the agistment, then the proprietor may be able to exercise a common law lien over the horse in the event that the owner fails to pay the agistment expenses.

Contractual lien can protect proprietor if agistment fees not paid

This position can be altered by agreement. If the owner and the proprietor enter into a written agistment agreement, it is possible for that agreement to contain an express provision which allows for the proprietor to exercise a lien over the horse, in the event that the owner does not pay the agistment expenses. This is called a contractual lien.

In some circumstances, having a common law or contractual lien over the horse will allow the proprietor to sell the horse in order to recover the amount owed to them by the owner. However, circumstances in which the power of sale can be exercised on the basis of a lien will be different in each state of Australia and in some circumstances will depend on the terms of any agistment agreement in place.

Because each circumstance will be different, we strongly recommend that you obtain independent legal advice before enforcing any type of lien and selling an owner's horse in an attempt to recover outstanding agistment fees.

Registering your interest in the Personal Property Securities Register

Where a proprietor and an owner enter into an agistment agreement (whether by formal documentation or by handshake), the owner must consider whether the agistment creates a security interest under the PPSA. (We stress that we strongly recommend written agistment agreements.)

Put simply, a security interest means a financial interest in an item of property. If a security interest is created by an agistment, in order to preserve the owner's claim to the horse, the owner should register their security interest in the horse on the Personal Property Securities Register (PPSR) .

The PPSR acts as an electronic notice board to the public at large, showing all security interests granted by a particular entity or individual. It is often used, for example, by lenders to assess creditworthiness of applicants.

When is an agistment agreement a Person Property Security Lease?

In some circumstances, an agistment agreement may be considered a Personal Property Security Lease ("PPS lease") for the purposes of the PPSA. An agistment agreement will generally be considered a PPS lease where it exhibits the following characteristics:

• the agreement is for a term of more than one year, has options exercisable by one party which may extend the agreement beyond one year, the term is unspecified, or the horse has been grazing for one year or more;
• the owner of the horse is regularly engaged in the business of bailing goods – that is, grazing horses (or livestock); and
• the proprietor provides value to the owner in exchange for the bailment of the goods. This will generally be the opportunity to graze stock on their land.

If an agistment agreement appears to meet all of the above requirements, the owner should register their security interest in the horse on the PPSR.

Risks to horse owners who do not register their interest on the PPSR

In the event that an owner fails to register their interest on the PPSR, and the proprietor becomes insolvent, there is a risk that title to the horse may vest in a proprietor's administrator and the owner can potentially lose title to the horse.

Further, if the proprietor unlawfully sells the horse and the owner has not registered their security interest in the PPSR, the owner may have no avenue to recover the horse from its new owner.

Owners should also consider whether there is any plant or equipment which they own and which is on the proprietor's land, in addition to the horse, such as a horse float. Items such as a horse float may also be subject to the operation of the PPSA and the risks referred to above.

Contractual liens safeguard the interests of proprietors

A proprietor can rely upon a contractual lien to secure the payment outlined in the agistment agreement, despite any registered security interest.

A proprietor may also register the agistment agreement as a security interest on the PPSR to notify third parties of the interest they have in the horse by virtue of the agistment agreement (i.e. the contractual lien), although this is not a requirement.

Obtain independent legal advice before you act

Liens and security interests can be complex and confusing, especially in the context of agisting horses. Ultimately, if you come across a circumstance where you feel compelled to exercise a lien over a horse, or your horse is being held on the basis of a lien, or you would like further advice about security interests or the PPSA, we recommend that you obtain independent legal advice.