Advertising Department Pty Ltd v The Ship “MV Port Phillip”

[2004] FCA 1762

FEDERAL COURT OF AUSTRALIA

Advertising Department Pty Ltd v The Ship “MV PORT PHILLIP” [2004] FCA 1762

ADMIRALTY – registration – procured by fraud – grant of mortgage – indefeasibility of title

Judiciary Act 1903 (Cth) s 39B(1A)(c)
Shipping Registration Act 1981 (Cth)

Barclay & Co, Limited v Poole [1907] 2 Ch 284 applied
Black v Williams [1895] 1 Ch 408 applied
Bray v McDonald [1867] SALR 2 not followed
Curtis v Perry (1802) 6 Ves Jun 739 [31 ER 1285] cited
Devine Shipping Pty Ltd v “BP Melbourne”, The Owner of the Ship (1994) 3 Tas R 456 cited
“Empress”, The (1856) Swab 160 [166 ER 1073] cited
Follett v Delany (1848) 2 De G & Sm 235 [64 ER 106] cited
General Credits (Finance) Pty Ltd v Registrar of Ships (1982) 44 ALR 571 cited
Hibbert v Rolleston (1792) 3 Bro CC 571 [29 ER 705] cited
Holderness v Lamport (1861) 29 Beav 129 [54 ER 576] cited
Horlock, The (1877) 2 PD 243 applied
Household Financial Services Ltd v Island River Trading Pty Ltd (1993) 6 BPR 13,312 cited
Keith v Burrows (1876) 1 CPD 722 cited
Lacon v Liffen (1862) 32 LJ Ch 25 cited
Liverpool Borough Bank v Turner (1860) 1 J&H 159 [70 ER 703] and on appeal (1860) 2 De G F&J 500 [45 ER 715] discussed
Lombard North Central Ltd v Lord Advocate [1983] SLT 361 applied
Mestaer v Gillespie (1805) 11 Ves Jun 622 [32 ER 1230] referred to
Orr v Dickinson (1858) Johns 1 [70 ER 315] cited
“Shizelle”, The [1992] 2 Lloyd’s Rep 444 cited
Stapleton v Haymen (1864) 2 H & C 918 [159 ER 380]; (1864) 9 LT 655 applied
Yallop, Ex Parte (1808) 15 Ves Jun 60 [33 ER 677] cited

Australia, House of Representatives, Debates, vol. 121, 1981

THE ADVERTISING DEPARTMENT PTY LTD v THE SHIP “MV PORT PHILLIP” Registration No 857100, BMW FINANCE AUSTRALIA LTD and REGISTRAR OF SHIPPING

V 966 of 2004

FINKELSTEIN J
21 DECEMBER 2004
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 996 of 2004

BETWEEN:

THE ADVERTISING DEPARTMENT PTY LTD
Plaintiff

AND:

THE SHIP "MV PORT PHILLIP", Registration
No 857100
First Defendant

BMW FINANCE AUSTRALIA LTD
Second Defendant

REGISTRAR OF SHIPPING
Third Defendant

JUDGE:	FINKELSTEIN J
DATE:	21 DECEMBER 2004
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. The question which has been argued before me is of some importance and its resolution is not free from difficulty.  The difficulty arises because there are conflicting decisions on the question, including a decision of an appellate court, and I must choose between them.  The point in issue is whether the true owner or unregistered mortgagee of a ship can impeach the title of a registered mortgagee who took his mortgage from a person who by fraud became registered as the owner.

2. The facts of this case lie in a narrow compass.  In January 2002 the plaintiff and Ray Evans entered into a partnership to purchase and, under the management of Evans, operate as a pleasure craft the Lady Bijou, a 22 metre motor yacht built in 1984 by San Lorenzo of Italy.  The partnership agreement provided for the yacht to be held in Evans’ name (it was in fact purchased by him in Hong Kong by bill of sale dated 1 February 2002) but was to be “owned” by the partners as tenants in common in the proportions in which they contributed the partnership capital.  The plaintiff promised to contribute at least $500,000 (it in fact contributed more) and Evans at least $300,000.  Upon dissolution of the partnership the plaintiff was entitled to the return of its capital and payment of any accrued profit in priority to any amount due to Evans.  With one exception each partner covenanted not to sell or encumber his or its interest in the partnership.  The exception was a goods mortgage over the yacht which the partners agreed to grant to the plaintiff and which, through Evans, was granted on 15 March 2002.  According to the recitals, the mortgage was to protect the plaintiff’s “right and interests under [the partnership agreement] conferring upon [the plaintiff] certain preferences and priorities in respect of the [yacht]”.  By the mortgage the parties “[agreed] that legal title in the [yacht] is vested in the [plaintiff]” and that the plaintiff “holds the [yacht] absolutely subject to the provision for redemption set out in [the mortgage]”.  In other words the plaintiff acquired the legal title to the yacht as security and Evans, or Evans and the plaintiff as partners, retained the right to redeem the mortgage.  This right would remain equitable until the time for discharge:  Keith v Burrows (1876) 1 CPD 722, 733; The “Shizelle” [1992] 2 Lloyd’s Rep 444, 447.

3. The yacht arrived in Australia probably in April 2002 where it was repaired and refurbished. Later that month, in fraud of the plaintiff, Evans applied for the registration of the yacht, by then renamed the Port Phillip, in the Australian Register of Ships declaring himself to be the sole owner of all 64 shares. According to s 13 of the Shipping Registration Act1981 (Cth), as the yacht was less than 24 metres in tonnage length and a pleasure craft, it was exempt from the requirement of registration under s 12. However, being an Australian-owned ship it could be registered: s 14. In the event, registration was affected on 13 August 2002. In September 2002 Evans approached the second defendant, BMW, a finance company, to borrow $195,756 on the security of the yacht. BMW agreed to make the loan and took a ship’s mortgage in statutory form over the 64 shares as security. The mortgage was registered on 4 October 2002. In March 2003 BMW made a further advance of $296,155 to Evans which was also secured by the mortgage. Evans defaulted under both loans and BMW now wishes to sell the yacht to recover its debt.

4. Following several disputes the plaintiff and Evans agreed to dissolve their partnership.  By the dissolution agreement which is dated 12 January 2004 Evans assumed responsibility for the repayment to the plaintiff of its contribution to the capital, fixed at $590,000.  In consideration the dissolution agreement provided that the plaintiff would “transfer sole ownership of the [Port Phillip] to Ray Evans”.  The parties also agreed that the goods mortgage held by the plaintiff “shall remain in full force”, presumably until Evans had satisfied his obligation to pay his debt to the plaintiff.

5. In March 2004 the plaintiff discovered that Evans had become registered as the owner of the 64 shares and that he had mortgaged the shares to BMW.  It immediately procured the issue of a warrant of arrest for the Port Phillip as well as another ship owned by Evans.  The ships were arrested on 5 April.  Evans obtained their release by executing a bill of sale of the Port Phillip in favour of the plaintiff.  The plaintiff then lodged a caveat forbidding the entry on the register of any dealing with the yacht.

6. This brings me to the contest between the plaintiff and BMW. The plaintiff seeks declarations to the effect that its unregistered goods mortgage has priority over BMW’s registered mortgage and that, in any event, BMW’s mortgage only charges Evans’ equitable interest in the right of redemption as security for the repayment of Evans’ debt. It asks for an order that the register be rectified by the removal of BMW’s mortgage, relief which can be granted under s 39B(1A)(c) of the Judiciary Act 1903 (Cth). Whether the plaintiff is entitled to that relief depends upon the consequences of Evans’ registration as owner of the Port Phillip and the subsequent registration of BMW as mortgagee. That, in turn, depends upon the proper construction to be placed upon a number of important provisions in the Shipping Registration Act.

7. The starting point for an understanding of the relevant provisions (which I will identify in a moment) requires an examination of their history and the case law which has considered their effect.  The history is relevant because when the Australian colonies were established the British Merchant Shipping Acts applied to them.  In particular the Merchant Shipping Act 1894 (UK) applied in Australia until its application was relevantly repealed by s 4 of the Shipping Registration Act. To that point ships were registered under the 1894 Act as “British ships” rather than Australian ships. The 1981 Australian Act was enacted in part as a step in the development of Australia as an independent nation: Australia, House of Representatives, Debates, vol. 121, 1981 at 250.  As at 1981 Australia was the only major independent country in the Commonwealth that still operated under the British Act:  ibid at  250.  None the less, the 1981 Australian Act followed substantially the provisions of the 1894 English Act.  In particular, the procedure for registration, issuing of certificates of registration and the naming and marking of ships for the most part followed the English model.  The same is true of the procedure for dealing with the transfer and transmission of title, as well as the registration and priority of mortgages.  For this reason the cases that have considered the effect of the English statutes are of direct relevance to their Australian counterpart.  This view has been taken in a number of Australian cases:  see General Credits (Finance) Pty Ltd v Registrar of Ships (1982) 44 ALR 571, 575; Household Financial Services Ltd v Island River Trading Pty Ltd (1993) 6 BPR 13,312, 13,316; Devine Shipping Pty Ltd v “BP Melbourne”, The Owner of the Ship (1994) 3 Tas R 456.

8. The origin of the registration of ships is 12 Car II c 18, enacted in 1660 and entitled:  “An act for the encouraging and increasing of shipping and navigation”.  The statute restricted entry into English and dominion ports to ships “as do truly and without fraud belong only to [the English]” and to those owned by people from the dominions whose master and three-quarters of the crew were English.  That is, the 1660 Act implemented English mercantilist economic policy by excluding foreigners from having access to British markets.  Section 10 established a register of ships, in which was recorded the name of the owner of the ship “together with the names of the person or persons from whom such ship was bought and the sum of money which was paid for her”.  Penalties (including forfeiture and fines) were imposed for false statements made to obtain registration.  The production to customs of a certificate of registration was sufficient to be accorded the privileges which attached to a British owned ship:  s 11.  Further reforms were made by 7 & 8 Will 3 c 22 to avoid “great abuses [that] are daily being committed to the prejudice of the English navigation”.  In particular, section 10 addressed the practice of false and counterfeit certificates of registration being used by non-British (principally Scottish) traders.

9. Two statutes passed in England during the reign of George III made extensive revision to the early system:  26 George 3 c 60 (1786) and 34 George 3 c 68 (1794).  Section 3 of the 1786 statute extended the requirement of registration to British owned vessels which where 15 tonnes or more.  The section also provided for a form of certificate of registration.  Section 17 required the certificate to be recited in all instruments that transferred property in the ship otherwise the instrument would be “utterly null and void, to all intents and purposes”.  The precise effect of this provision was unclear:  Hibbert v Rolleston (1792) 3 Bro CC 571, 577 [29 ER 705, 708]. The uncertainty was clarified by s 14 of the 1794 Act which provided that “no transfer, contract or agreement for transfer, of property, in any ship or vessel, made, or intended to be made, after [1 Jan 1795], shall be valid or effectual for any purpose whatsoever, either in law or in equity, unless such transfer, or contract or agreement for transfer, of property, in such ship or vessel, shall be made by bill of sale or instrument in writing, containing such recital as prescribed by the said recited act”.

10. The policy of these statutes was to ensure that the register was the record of title to property in British ships.  So strict was this policy that Lord Eldon said that a court of equity would not recognise any trust over a registered ship which accrued by any act of the parties, other than a transfer made in accordance with the Merchant Shipping Acts:  Ex ParteYallop (1808) 15 Ves Jun 60, 66-67 [33 ER 677, 680]. The only exception was a trust that arose by operation of law: Curtis v Perry (1802) 6 Ves Jun 739, 746 [31 ER 1285, 1288].

11. While equitable rights over a registered ship were denied, the question whether the court would grant relief against a registered owner in the case of fraud was raised from time to time, but not resolved:  eg Follett v Delany (1848) 2 De G & Sm 235, 241 [64 ER 106, 108]. In Mestaer v Gillespie (1805) 11 Ves Jun 622 [32 ER 1230], Sir William Grant MR expressed doubt about relief being granted in the case of fraud. He said (11 Ves Jun at 644 [32 ER at 1237-1238]): “It is to be considered, that this [Merchant Shipping] act was framed, not for the purpose of ascertaining the rights of the parties against each other, or protecting them from fraud, but with the view to a great purpose of public policy … The harshness therefore in particular instances is not to be taken into consideration: the object being, not to provide for the interests of parties, as against each other, but at all events to attain that great object of public policy; to which it might be thought right to sacrifice individual convenience and justice, according to ordinary rules”.

12. In 1823, the statute 4 George 4 c 41 entitled:  “An act for the registering of vessels” was enacted as a consolidating statute but it also contained new provisions.  Section 29 restated s 17 of the 1786 Act and s 14 of the 1794 Act with revisions:  “when and so often as the Property in any Ship or Vessel, or and Part thereof, belonging to any of His Majesty’s Subjects, shall, after Registry thereof, be sold to any other or others of His Majesty’s Subjects, the same shall be transferred by Bill of Sale, or other Instrument in Writing, containing a Recital of the Certificate of Registry of such Ship or Vessel, or the principal Contents thereof, otherwise such Transfer shall not be valid or effectual for any Purpose whatsoever, either in Law or in Equity:  Provided always, that no Bill of Sale shall be deemed void by reason of any Error in such Recital, or by the Recital of any former Certificate of Registry instead of the existing Certificate, provided the Identity of the Ship or Vessel therein intended be effectually proved thereby”.  Section 31 provided that a maximum of 32 persons could own the shares in a ship at any one time but that requirement did not limit or destroy the equitable title of “minors, heirs, legatees and creditors” or others duly represented by or holding from any of the persons within the 32 persons registered as legal owners.  Section 35 provided that “no Bill of Sale or other Instrument in Writing shall be valid and effectual to pass the Property in any Ship or Vessel or any Share thereof, or for any other Purpose, until such Bill of Sale or other Instrument in Writing shall have been produced” to the registering officer and until the registering officer enters the details of the transaction in the register.  Section 36 provided that “so soon as the Particulars of any Bill of Sale or other Instrument, by which any Ship or Vessel, or any Share or Shares thereof, shall be transferred, shall have been so entered in the Book of Registry … the said Bill of Sale or other Instrument shall be valid and effectual to pass the Property thereby intended to be transferred, as against all and every Person and Persons whatsoever, and to all Intents and Purposes  …”.

13. A number of amending and consolidating statutes were enacted between 1833 and 1853 that need not be described for they made no significant changes.  We then come to the The Merchant Shipping Act 1854, 17 & 18 Vict c 104, the first of the modern statutes.  Most of the important provisions in this statute are all but identical to the provisions in the 1894 English statute and the 1981 Australian statute.  The 1854 Act was the first wide-ranging consolidation of all (or almost all) of English maritime law, spanning topics such as registration, customs, master’s and seamen’s industrial relations, carriage of goods, safety and salvage.  The registration system underpins this regulation.  Here we are only concerned with those parts of the statute that deal with the registration of ownership and mortgages.  The 1854 Act made two key changes which are relevant for present purposes.  First, the enforceability in equity of certain unregistered interests was expressly recognised.  Second, the statutory ship’s mortgage took its present form.

14. The 1854 statute omitted those provisions in the former statutes which stated that only upon registration would a bill of sale be valid and effectual to pass an interest in a ship. Thus, s 42 (in Australia see ss 36(3) and 37(2)) provided that once the purchaser had completed the necessary declarations, the following relevant details would be entered in the register: the name of the ship and the port to which she belongs; her tonnage, build and description as certified by the surveyor; and the name and description of the registered owner.

15. As regards the enforcement of equitable interests, s 43 (in Australia, s 46) is an important provision.  It provided that:  “No Notice of any Trust, express, implied or constructive shall be entered in the Register Book, or receivable by the Registrar; and, subject to any Rights and Powers appearing by the Register Book to be vested in any other Party, the registered Owner of any Ship or Share therein shall have Power absolutely to dispose of any manner herein-after mentioned of such Ship or Share, and to give effectual Receipts for any Money paid or advanced by way of Consideration”.  Section 55 (in Australia, s 36(1)) provided that:  “A registered Ship or any Share therein, when disposed of to Persons qualified to be Owners of British Ships, shall be transferred by Bill of Sale; and such Bill of Sale shall contain such Description of the Ship as is contained in the Certificate of the surveyor”.  The principal difference from the former provisions is that the 1854 statute no longer explicitly excluded any equitable enforcement of contractual rights prior to the execution and registration of the Bill of Sale.  Sections 58 and 59 (in Australia, s 37(1)) recognised transmissions of property in ships in consequence of death, bankruptcy or insolvency, following the marriage of any female registered owner or by any other lawful means other than a transfer.

16. Section 66 was the first in a series of provisions which made significant changes to the form of the statutory mortgage.  The section (in Australia, ss 38(1) and (2)) provided that:  “A registered Ship or any Share therein may be made a Security for a Loan or other valuable Consideration; and the Instrument creating such Security, herein – after termed a “Mortgage” shall be in [the prescribed form]”.  Section 67 (in Australia, s 38(3)) provided that:  “Every such Mortgage shall be recorded by the Registrar in the Order of Time in which the same is produced to him for that Purpose; and the Registrar shall, by Memorandum under his Hand, notify on the Instrument of Mortgage that the same had been recorded by him”.  Section 68 (in Australia, s 44(2)) provided for the Registrar to record the discharge of a registered mortgage “[w]henever any registered Mortgage has been discharged  …  and upon such Entry being made the Estate, if any, would pass to the Mortgagee shall vest in the same Person or Persons in whom the same would  …  have vested” if there had been no such mortgage.

17. As regards the priority of mortgages, s 69 (in Australia, s 39) provided:  “If there is more than One Mortgage registered of the same Ship or Share therein, the Mortgagees, shall, notwithstanding any express, implied or constructive Notice, be entitled in Priority one over the other according to the Date at which each Instrument is recorded in the Register Books, and not according to the Date of each Instrument itself”.  Section 70 (in Australia, s 40) provided that a mortgagee is not deemed to be “the Owner of a Ship or any Share therein, nor shall the Mortgagor be deemed to have ceased to be the Owner  …  except  …  so far as may be necessary for making such Ship or Share available as a Security for the Mortgage Debt”.  Section 71 (in Australia s 41(1)) provided that:  “Every registered Mortgagee shall have Power absolutely to dispose of the Ship or Share in respect of which he is registered and to give effectual Receipts for the Purchase Money…”.

1. The 1854 Act did not alter the law concerning the non-recognition of equitable interest arising otherwise than by operation of law.  This was decided in Liverpool Borough Bank v Turner (1860) 1 J&H 159 [70 ER 703]. There the owners of a steamship had given a written undertaking to assign their interest in the steamship to the plaintiffs in consideration of them continuing credit and making further advances to a third person, but not in the statutory form of mortgage nor in any other form which could be registered. The owners became bankrupt and shortly thereafter the mortgagees brought a bill in equity to enforce their claim against the proceeds of the ship. The Vice Chancellor, Sir W Page Wood, found the contract to be void. He said (at 1 J&H at 168 [70 ER at 707]): “I apprehend the true construction of the statutes [the Merchant Shipping Acts] to be that no contract can be valid unless it complies with the conditions prescribed in those Acts”. He explained (1 J&H at 169 [70 ER at 708]) that: “There are two objects of public policy at which these statutes are directed. One, which may be termed a national policy, relates to the interests of the nation at large, and is carried out by prescribing the conditions which shall entitle any ship to the privileges of the British flag. The other concerns the rights of individuals, and is effected by provisions specifying what shall and what shall not be deemed proper evidence of title, as between persons who may deal with property of this description”. And later (1 J&H at 170 [70 ER at 708]): “It is clear that many of these directions [in the Merchant Shipping Act] are introduced from considerations of public policy; and if a non-registered ownership were allowed to run parallel to the registered ownership, a ship might be transferred by a series of equitable instruments in a manner different from that directed, and contrary … to the policy of the statutes”. The Vice Chancellor’s decision was affirmed on appeal: (1860) 2 De G F&J 500 [45 ER 715]. In delivering judgment on the appeal the Lord Chancellor, Lord Campbell, said: (2 De G F&J at 508; [45 ER at 718]): “To acknowledge the title of a totally different set of owners from that represented in the register would, I think, be at variance with the policy, and a violation of the enactments of the Legislature”.

2. Thus while the 1854 statute was different from its predecessors the position still remained that no transfer or mortgage had effect in law or equity until registration:  Keith v Burrows (1876) 1 CPD 722, 731-732. On the other hand, the title of the registered owner could be impeached if the plaintiff, in a personal action against the owner, did not require the assistance of a court of equity: see by way of example Orr v Dickinson (1858) John 1 [70 ER 315] (where the register was rectified because the transfer had been by an invalid bill of sale); Holderness v Lamport (1861) 29 Beav 129 [54 ER 576] (where ownership of the ship had been registered by mistake); The “Empress” (1856) Swab 160 [166 ER 1073] (where registration following a sale effected by fraud and forgery did not create a good title).

3. The failure of the statute to recognise equitable interests was regarded as unsatisfactory and the law was altered by s 3 of The Merchant Shipping Amendment Act 1862, 25 & 26 Vict c 63.  Section 3, (in Australia, s 47) was a declaratory provision which provided that equities may be enforced against owners and mortgagees of ships in respect of their interest in the same way as equities may be enforced against them in respect of other personal property.  As a consequence the registered owner of a ship was bound by any equitable interest created by him or which came into existence by reason of his conduct.  For example, in Lacon v Liffen (1862) 32 LJ Ch 25, 28 an equitable lien created by the deposit of a mortgage was recognised and in Stapleton v Haymen (1864) 2 H & C 918 [159 ER 380]; (1864) 9 LT 655 equitable rights under bill of sale which had not been registered were recognised.

4. Although it was now possible, as between the immediate parties to an equitable interest, to impeach the title of the registered owner, it was generally accepted that the registered title of a bona fide purchaser for value could not be impeached.  This was established in a series of cases.  They begin with dicta in Stapleton v Haymen (1864) 2 H & C 918 [159 ER 380].  The plaintiff had purchased a ship from one Attwater but because of the plaintiff’s infancy he could not be registered as owner.  Attwater became a bankrupt and the plaintiff claimed the ship from his assignees.  In the course of finding that the plaintiff’s equity could be enforced against the assignees, following the change in the legislation after Liverpool Borough Bank v Turner, Martin B observed that the position might be different in the case of a sale.  He said (at 925):  “It is possible that the bankrupt, or his assignees when registered, might, if they had been disposed to act dishonestly, have conferred a valid title on a bona fide purchaser”.  In the Law Times (at 656) this part of the judgment is more fully reported.  There the passage reads:  “The Act is precise that the transfer shall be by a bill of sale (sect. 55), and the moment that instrument was executed, the property in the barge vested, and he became the legal owner of it, although until something else was done he could not have transferred it.  He had a lawful title in the ship against all persons having no better title.  I apprehend the bankrupt and his assignees, as appearing as owners of the register, might have been entitled, if dealing with a bona fide purchaser for value, to have given a title, subject only to the operation of the recent Act, recognising equitable rights.”

5. In The Horlock (1877) 2 PD 243 the plaintiff, who claimed to be the owner of the ship, alleged that the defendant had by bill of sale transferred his 32 shares to one Worraker who then sold the shares to the plaintiff. The defendant pleaded that the bill of sale to Worraker was a forgery. On the demurrer, Sir Robert Phillimore dismissed this defence. He explained (at 249) that: “a purchaser purchasing from an owner of registered property for a valuable consideration without any notice of fraud, and combining therefore a legal and equitable title, is not liable to have such title impeached on the ground of fraud to which he was not a party; such fraud being between the person who at the time of the purchase appeared on the register as owner and another person.” Later (at 249-250) he said: “[I]t is if I may so express myself, a fortiori applicable to a case arising under the 43^rd section of the Act in question; because of the object of the section, as it appears to me, was to give evidence of title by the name of the owner appearing upon the register.  It is not necessary that I should say that in no case would the Court inquire into the question whether a bill of sale, as alleged in this case, transferring shares in a vessel, had been registered in fraud.  It is not necessary that I should decide that question; but the question which I have to decide, and which I desire to be understood alone to decide is that, assuming the purchaser in this case to have purchased without notice of fraud for a valuable consideration under this bill of sale and to have so become possessed of these shares, and also, which is a point that should not be omitted, to have got his name upon the register, in such a case it is not competent to the Court (to use the phrase used in the argument of this case) to look behind the register for the purpose of dispossessing an innocent purchaser whose name is on the register”.

6. In Black v Williams [1895] 1 Ch 408 it was held that the registered owner of a mortgage had priority over the prior equitable title of a debenture-holder. Vaughan Williams J said (at 421) that although the Merchant Shipping Acts did not ignore equitable titles “it nevertheless did intend that all the provisions of the Act of 1854 with regard to the registration of titles and the priority of unregistered titles should have effect given to them”. On the same page he went on to say: “I recognise, as I am bound to do the equitable title of the debenture-holders; but I say that that equitable title is controlled by the plain words of that part of the Act of 1854 which relates to mortgages, beginning with sect 66 and ending with sect 75. I hold, therefore, that the title of the Applicants, who have got a mortgage in the statutory form which has been registered, is to be preferred to the title of the debenture-holders, who, having a prior equitable title, and being entitled to get that converted into a legal title in the statutory form and registered, chose not to do so. There is no hardship what ever in such a decision. The Act of Parliament was passed for the benefit of commerce and in order that English ships might be easily dealt with by English shipowners”.

7. In Barclay & Co, Limited v Poole [1907] 2 Ch 284, the bank took a mortgage from the registered owner over 20 shares in a ship but was asked not to register the mortgage. The registered owner then sold the shares to the defendant. After the contract but before the purchase money was paid, the purchasers received notice of the bank’s unregistered mortgage. It was in these circumstances that the bank claimed priority over the purchasers’ interest. Swinfen Eady J found for the purchasers. He said (at 289): “[It] cannot be disputed that the purchasers acquired a valid title to the shares. They took an absolute bill of sale without notice of any prior charge, and their title to the shares is absolute”. Later he said (at 290): “The purchasers were entitled to deal with the vendor on the footing that he was absolute owner of the shares, and absolute owner and master of the purchase-money, and competent to give a good receipt in discharge for it. If he could give a valid discharge for the purchase-money he could validly contract as to the way in which it was to be applied”.

8. The effect of these decisions is clear.  The register of ships is evidence of title.  If a person in good faith acquires an interest in a ship from the registered owner he will obtain an indefeasible title that will defeat any prior unregistered right or interest, regardless of whether the prior right or interest is legal or equitable.  It makes no difference that the owner obtained his registration by fraud, provided the person who acquired the interest was not party to, or did not know of, the fraud.

9. The only case the plaintiff can call in aid is Bray v McDonald [1867] SALR 20, a decision of the Full Court of South Australia. There the plaintiff had engaged McDonald to build a ship and paid part of the purchase price. McDonald registered the ship in his own name under the 1854 statute, which was the statute then in force in the colony, and granted mortgages over the ship to secure a number of loans. The plaintiff applied for the registration to be declared to have been obtained by fraud and to be void. He also sought a declaration that the ship be fully discharged from the mortgages. The judgment of the Full Court was delivered by Hanson CJ. He found in favour of the plaintiff. This was despite an argument that under the 1854 Act a person who appeared upon the register as owner, even by fraud, could deal absolutely with the ship. Hanson CJ said of this argument (at 25-26): “It would require very precise language in the Act, or very conclusive authority, to induce us to put such a construction upon its provisions; and it appears to us that there is neither”.

10. In my respectful opinion, the decision of the Full Court is in error and should not be followed.  The authorities to which I have referred, being authorities which conform to the policy of the Merchant Shipping Acts, show that the Australian register is the record of title to a ship.  The register serves only one other purpose, which is to indicate that the ship is entitled to fly the Australian flag.  That it was not necessary for the Port Phillip to be registered does not affect the result, as is made clear by Lombard North Central Ltd v Lord Advocate [1983] SLT 361, a case which is indistinguishable on the facts.

11. It follows that the plaintiff’s action must be dismissed with costs.

I certify that the preceding twenty eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:

Dated:             14 January 2005

Counsel for the Plaintiff:	Mr M Bevan-John
Solicitor for the Plaintiff:	Wantrup & Associates
Counsel for the 2nd Defendant:	Mr P Cawthorn
Solicitor for the 2nd Defendant:	Minter Ellison
Date of Hearing:	20 & 26 August 2004 4 & 29 October 2004 17 December 2004
Date of Judgment:	21 December 2004