What Is a Lien Under Australian Law?

What is a Lien?

At its core, a lien is a right — which can arise at common law, in equity, or by statute — that allows a party (the ‘lien holder’) to retain possession or control over another person's property until a debt or obligation owed by that person is satisfied. Unlike a mortgage or a charge, which typically grant a right to sell the property to satisfy the debt, a traditional common law lien is primarily a right of retention. It exerts pressure on the debtor to pay by denying them the use of their property.

While the right of retention is the defining characteristic for many liens, certain equitable and statutory liens can confer a right of sale. The specific nature and extent of the rights conferred by a lien depend entirely on its origin and terms.

Categories of Liens in Australia

Liens are generally categorised by their source and the nature of the right they confer. The main types encountered in Australian law include:

Possessory Liens (Common Law Liens)

These are the most traditional form of lien, arising by operation of common law. A possessory lien grants the lien holder the right to retain physical possession of goods belonging to another until charges for work done on or in connection with those goods are paid. Key characteristics include:

• Possession is paramount: The lien only exists while the lien holder maintains continuous, uninterrupted, and lawful possession of the goods. Voluntarily parting with possession generally extinguishes the lien.
• Services or expenditure: The debt must relate to work performed on the specific goods, or expenses incurred in relation to them, in the ordinary course of business. Examples include motor mechanics, dry cleaners, warehouse operators, and carriers.
• No right of sale: Historically, a common law possessory lien did not confer a right to sell the goods. However, this has been modified by statute in some jurisdictions. For instance, in New South Wales, the Disposal of Uncollected Goods Act 1966 (NSW) provides a mechanism for certain lien holders to sell uncollected goods after a specified period and notice. Similar legislation exists in other states and territories.
• Specific vs. General Liens: Most common law possessory liens are specific, meaning they only secure the debt relating to the particular goods retained. A general lien, which secures all debts owed by the property owner to the lien holder, is rare and typically arises only by express agreement, established custom, or statute (e.g., solicitor's general lien).

Solicitors' Liens

Solicitors hold two distinct types of liens:

• Retaining Lien (Possessory): This is a general possessory lien over all documents, papers, and other movable property (e.g., money, title deeds) belonging to a client that have come into the solicitor's possession in their professional capacity, until all outstanding legal fees and disbursements are paid. Like other possessory liens, it depends on continued possession.
• Charging Lien (Equitable/Statutory): More akin to a charge, this lien attaches to property recovered or preserved by a solicitor's efforts in litigation. It gives the solicitor a right to apply to the court for an order for payment out of that property, even if they no longer possess it. This is partly an equitable lien and partly statutory, often reflected in legal profession legislation across Australian states and territories.

Equitable Liens

Equitable liens arise by operation of equity, regardless of possession, to prevent an unconscionable outcome. They do not depend on agreement but are imposed by the courts where justice requires. Key features include:

• No possession required: Unlike possessory liens, an equitable lien can exist without the lien holder having possession of the property.
• Right of sale: Equitable liens typically carry an implied right to apply to a court for an order of sale of the property to satisfy the debt.
• Examples:
  • Vendor's lien: A classic example is a vendor's lien over property for unpaid purchase money, even after possession has passed to the purchaser.
  • Purchaser's lien: Conversely, a purchaser who has paid a deposit for property may have an equitable lien over the property if the sale falls through due to the vendor's default.
  • Trustee's lien: A trustee has an equitable lien over trust property for expenses properly incurred in the administration of the trust.
• Registration: While arising by equity, if an equitable lien relates to personal property, its priority may be affected by registration on the Personal Property Securities Register (PPSR), especially if it can be characterised as a security interest for the purposes of the PPSA.

Statutory Liens

These liens are created solely by specific Acts of Parliament, rather than common law or equity. The scope, conditions, and remedies associated with a statutory lien are entirely defined by the relevant statute. Examples include:

• Maritime liens: Created by admiralty law, these attach to a vessel for certain claims (e.g., salvage, crew wages, damage caused by the vessel) and can be enforced against the vessel even if ownership changes. The Admiralty Act 1988 (Cth) is the key Commonwealth legislation in Australia for maritime claims.
• Workers' compensation liens: Some state legislation provides for liens over compensation payable to a worker in certain circumstances.
• Body corporate liens: Strata or community titles legislation often grants a body corporate a statutory charge or lien over a lot for unpaid levies. For instance, the Strata Schemes Management Act 2015 (NSW) allows for recovery of unpaid levies as a debt and provides a charge over the lot.

Liens and the Personal Property Securities Act 2009 (Cth)

The Personal Property Securities Act 2009 (Cth) (PPSA) fundamentally changed the landscape for security interests in personal property in Australia. The interaction between liens and the PPSA is complex and critical for many businesses, particularly those granting or taking security interests.

Section 8(1)(b) of the PPSA generally excludes certain liens, charges, or other interests arising by operation of law from the Act's scope. This means that a common law possessory lien, for example, is typically not a PPSA security interest and does not need to be registered on the PPSR.

However, the PPSA specifically addresses priority disputes involving certain possessory liens. Section 73 of the PPSA states that a common law lien (or a lien created by a state or territory law that provides for goods or documents to be retained), for services or materials provided in respect of the goods, generally takes priority over a registered PPSA security interest in the same goods, provided that the lien holder acquired the lien in the ordinary course of business and did not know that the grant of the security interest was a breach of the security agreement. This is a significant protection for service providers.

It is important to determine whether a particular interest is truly an "interest arising by operation of law" or if it might fall within the broad definition of a "security interest" under the PPSA, requiring registration for perfection and priority. For example, an equitable lien that is not dependent on possession might, in some circumstances, be deemed a security interest under the PPSA, and its priority could be lost if not registered.

Creating, Enforcing, and Losing a Lien

The method of creating, enforcing, and losing a lien varies based on its type:

• Creation: Possessory liens arise automatically when work is done on goods for which payment is due, and the lien holder retains possession. Equitable liens are imposed by courts. Statutory liens are created by the specific terms of legislation.
• Enforcement: For possessory liens, enforcement is primarily through continued retention. As mentioned, some statutes provide a right of sale for uncollected goods. Equitable liens typically require a court order for sale. Statutory liens follow the enforcement mechanisms specified in their creating legislation.
• Loss: A possessory lien is generally lost if the lien holder voluntarily parts with possession of the goods. It can also be lost if the debt is paid, if the lien holder takes alternative security for the debt (inconsistent with retaining the lien), or by waiver or abandonment. Equitable liens are not lost by a lack of possession but can be lost by waiver, payment, or merger.

Navigating Liens in Practice

For businesses, understanding liens is crucial. For service providers, a common law possessory lien can offer significant leverage in securing payment for work performed. However, they must be vigilant in maintaining possession. For those granting security interests or acquiring property, it is vital to recognise that a lien may take priority over their interest, even if unregistered.

The nuances of lien law, particularly in its interaction with the PPSA, require careful consideration. Whether asserting a lien, defending against one, or assessing the risk of a lien on property, expert legal advice is essential.

This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances. For enquiries, contact Envision Legal.