Medical Equipment: A fixture and part of the land or goods available as a security interest under The Personal Property Securities Act?
A recent case considered the competing claims to valuable medical equipment comprising linear accelerators for the treatment of cancer. On the appointment of an administrator to the tenant the landlord claimed the equipment as a fixture.
The tenant occupied the medical centre as a tenant at will without a written lease. It had common shareholders to the company that owned and developed the medical centre. The tenant bought two linear accelerators for almost $9 million from Varian Medical Systems Australasia Pty Ltd. Varian held a purchase money security interest in the linear accelerators which was registered on the Personal Property Securities Register. Subsequently, an administrator was appointed to the tenant company and the administrator sought declarations from the Court as to the ownership of the linear accelerators.
It was common ground that the linear accelerators were installed on steel base frames grouted into the floor. The steel base frames were installed several days prior to the delivery of the linear accelerators. The linear accelerators were attached by six removable steel bolts to the base frames. Varian gave evidence that it installed approximately 61 new linear accelerators and arranged for the removal and deinstallation of another 30 and it commonly relocated linear accelerators. It would take 2 days to prepare the premises for removal and 1½ days to remove the linear accelerators. The landlord provided evidence that the premises had been developed to accommodate the Linear Accelerators as part of the medical clinic.
The landlord argued that the base frame and the linear accelerators were part of the one “machine” that was affixed to the land. The base frame was fixed and could not be removed without damage to the building and the base frame. However, Black J held that the base frame was a separate item from the linear accelerators. Accordingly, the linear accelerators could be removed by taking out the six steel bolts. Further, even the base frame could be removed as it was not structurally affixed to the premises.
The decision of whether the linear accelerators were affixed to the land turned on the objective intention of the tenant when it installed the linear accelerators as shown by the manner the equipment was attached and the purpose of attaching it to the premises. In this case the following factors were relevant:
- Although the premises were developed with a view to housing medical equipment for the treatment of cancer, they could be used for equipment other than linear accelerators.
- The linear accelerators could be relocated without damage to the equipment and the premises.
- The tenant was unlikely to have intended the linear accelerators to become part of the premises where it had no secure tenure.
- The linear accelerators were fixed on the metal base so that they could operate for the treatment of cancer.
- The equipment was purchased on credit with a security interest given to Varian which was inconsistent with an intention to affix the equipment to the land.
The case considered the competing claims of:
- the landlord – the linear accelerators were installed as part of the medical centre and affixed to the land; and
- the holder of the purchase money registered on the Personal Properties Securities Act – the linear accelerators remained goods and were not intended to be affixed to the land by the tenant.
If the claim of the landlord was successful, the security interested granted to Varian would have been defeated. However, the Court considered that the tenant did not intend to affix the linear accelerators to the land and one of the factors that confirmed that intention was the granting of a security interest registered under the Personal Properties Securities Act.
Christopher Conolly, Partner