Navmost Pty Limited v Forwood and Ors

[2003] NSWSC 32

CITATION:

NAVMOST PTY LIMITED v FORWOOD & ORS [2003] NSWSC 32 revised - 26/02/2003

HEARING DATE(S):

6 August 2002

JUDGMENT DATE:

10 February 2003

JURISDICTION:

Common Law

JUDGMENT OF:

Adams J at 1

DECISION:

Judgment for second claimant with costs.

CATCHWORDS:

Bill of Sale - mortgage over boat - registered under Registration of Interests in Goods Act 1986 - wrong prime identifier - boat otherwise identifiable - whether registration void

LEGISLATION CITED:

Bills of Sale Act 1898
Registration of Interests in Goods Act 1986
Registration of Interest in Goods Regulation 1999
Water Traffic Regulations - NSW

PARTIES :

Navmost Pty Limited (Plaintiff)

v

John Robert Forwood (First Defendant)
Shelley Ann Forwood (Second Defendant and First Claimant)
Australian Guarantee Corporation Limited (Second Claimant)
The Sheriff of NSW (Interpleader)

FILE NUMBER(S):

SC 10403/01

COUNSEL:

Mr S Burchett (Plaintiff)
Mr M R Tyson (Second Claimant)
Ms H Roberts (Interpleader)

SOLICITORS:

Conway Maccallum (Plaintiff)
LMG Solicitors & Attorneys (First & Second Defendant)
Henry Davis York (Second Claimant)
Kalmath & McGhee (First Claimant)
I V Knight (Interpleader)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ADAMS J

MONDAY 10 FEBRUARY 2003

10403/01

NAVMOST PTY LIMITED v FORWOOD & ANOR

JUDGMENT

1 HIS HONOUR: This dispute arises between the plaintiff, Navmost Pty Limited (Navmost) and the second claimant, Australian Guarantee Corporation Limited (AGC) out of the seizure by the Sheriff of New South Wales (interpleading) of a Bayliner Ciera 2855 Sportscruiser (the boat). Both Navmost and AGC are creditors of the owners of the boat, Mr and Mrs Forwood (the owners). On 25 June 1997, the owners entered into a “Fixed Rate Loan Contract and Mortgage” (the agreement) with AGC under which a loan of about $180,000 was obtained. AGC claims that payment of the loan is secured by mortgage over the boat. The boat is identified in the agreement by a description and numbers stated as HIN BLIB27STHH899, and an engine number OL312968. AGC contends that the part of the agreement creating the security is contained in a document entitled “Fixed Rate Loan Contract Conditions” (the conditions). This document has been exhibited in the affidavit of Mr Mark A Thorne, a manager employed by AGC, sworn 14 March 2002. Although Mr Thorne deposes that that the agreement was executed by the Forwoods, the conditions are contained in a distinct document, which is unsigned and is not otherwise identified as being part of the agreement. The Forwoods’ signatures appear on another discrete document described as “the personal loan schedule”, referred to in the following commencing clause of the agreement –

“We…the customer(s)…offer to borrow the amount of credit from the Credit Provider and enter into a loan contract and mortgage with the Credit Provider on the terms and conditions set out in this document.
This document is in 2 parts. They are:

· the personal loan schedule,

· the conditions.”

I feel bound to say that it is scarcely good practice to identify the conditions of an agreement such as this by reference to a generic document which is not uniquely described or acknowledged by the signature of any party.

2 It is submitted on behalf of Navmost that the agreement does not create a mortgage or secure the payment of any amount owed under the agreement on the boat. In substance, it is submitted that there is no evidence that the document entitled “Fixed Rate Loan Contract Conditions” is in any way a part of the agreement between the owners and AGC. However, the affidavit of Mr Thorne, a responsible officer of AGC, deposes –

“2. I have checked the records of the second claimant which show that the first defendant and the second defendant executed a fixed rate loan contract and mortgage (“the Security Document ”) with the second claimant dated 25 June 1999. Annexed and marked “ MT1 ” is a true copy of the Security Document.”

MT1 comprises eight pages consisting of the agreement and the “Fixed Rate Loan Contract”. It was not sought to cross-examine Mr Thorne as to his identification of the generic document as the “conditions” to which I have referred above. I note that the generic document contains a clause in the following terms –

“3. THIS CONTRACT
This contract is made up of 2 parts. They are:

· these conditions, and

· the personal loan schedule.”

This clause and its counterpart commencing clause of the agreement, which is set out above, together with the failure to cross-examine Mr Thorne on this point, lead me to conclude that both documents are indeed part of the one agreement between the owners and AGC.

3 The conditions include the following clauses –

“12.1. We, as the beneficial owner of the property, assign to the Credit Provider all our rights in the property as security for our obligations under this contract.
12.2. If we have paid all amounts we owe under this contract and we are not in default under this contract, the Credit Provider will release the property from this mortgage when we ask the Credit Provider to. Any release will not, by itself, release us from our obligations under this contract.
12.3. If we do not have legal title to the property on the date we sign this offer, we will acquire that legal title and it will vest in the Credit Provider on the happening of the first of the following events:

· our acquisition of the property,

· the delivery of the property to us,

· our use of the property,

· our making any payment under this contract.

12.4. The Credit Provider’s interest as mortgagee of the property is a legal interest.”

It seems to me that the effect of these clauses is to convey legal title to the boat to AGC.

4 The conditions implicitly require AGC to leave the boat in the possession of the mortgagors, since it is only entitled to take possession of it in the event of default, which also entitles it to sell the property and “do anything which the owner of the property could do, as if the credit provider owned the property”. It would have been, I think, better practice to make express provision as to possession of the boat but, in the circumstances, nothing turns on this. Nor do I think that the concluding words quoted above limit the extent of the assignment by the owners to AGC of their beneficial ownership in the property.

5 On 22 May 2001, Navmost obtained judgment by default against the owners in an amount in excess of $5.6 million. On 8 June 2001, a Writ for Levy of Property was issued out of this Court and the boat was seized on 10 July 2001. The Writ is in the conventional form and authorises the Sheriff to “levy on the property of…[the Forwoods] which is authorised by law to be taken in execution” for the amount payable under the judgment. It is submitted by AGC that the boat was its property and not that of the owners and, accordingly, in the absence of any statutory provision affecting the validity of the agreement, was not liable to be seized under the Writ. The judgment against Mrs Forwood was set aside on 1 August 2001 and she was granted leave to defend AGC’s claim.

6 Navmost submits that the agreement is a bill of sale as defined by s3 of the Bills of Sale Act 1898 and that s4 of that Act therefore applies to the mortgage which is (relevantly) null and void unless, within the prescribed time, it was registered in the General Register of Deeds after it was entered into or otherwise under the Registration of Interests in Goods Act 1986 (the Registration Act). It is submitted that no such registration occurred. AGC submits, on the other hand, that s3A of the Act applies to the agreement so that registration under the Registration Act – which, it is claimed, was validly effected – suffices to exclude the mortgage from the operation of s4. This registration is effective only if the mortgage relates to “special goods” which are defined in the Bills of Sale Act as “goods of a class specified in an order in force under s9 of the Registration of Interests in Goods Act 1986”. This section provides –

“9. Purchase of Goods that are subject to registrable interest
(i) The Minister may, by order published in the Gazette, notify that, on and from a specified day, this section has effect in relation to prescribed goods of a specified class.”

Boats are prescribed goods: clause 11, Registration of Interest in Goods Regulation 1999 (the Regulation). On 4 June 1996 the responsible Minister made the following order –

“…In pursuance of s9 of [the Registration Act] notify that, on and from 22 June 1996, that section has effect in relation to a boat specified in the schedule.
…
SCHEDULE
A boat as defined in the…Regulation…that has a hull identification number as defined in that Regulation affixed to it and that:
(a) it is currently registered under the Water Traffic Regulations – NSW, and
(b) is not more than 24 metres in length.”

By clause 9 of the Regulation “hull identification number” [the HIN] has the same meaning as in the Water Traffic Regulations - NSW [the Water Traffic Regulations ]”. Those regulations define the term as follows -

“2. Definitions
Hull identification number means:
(a) a number, in a form and of a size, specified…by the International Organisation for Standardisation… permanently affixed to, and located in the positions on, the hull of a vessel specified by that Standard, or
(b) any other number, approved by the Minister, that is permanently affixed to the hull of a vessel in a form and manner approved by the Minister.”

7 AGC tendered a certificate of registered interests by the Director General of the Department of Fair Trading, the responsible Department. It states that on 5 July 1999, AGC’s mortgage interest was registered, expiring on 30 June 2004. The engine number is given as OL312968, which is the same as specified in the schedule to the agreement and the HIN as AUBL1B27STHH99, which differs from the number in the loan schedule, set out above. The boat’s registration number is not specified in the loan schedule but the Department’s certificate specifies it as IAD009N. The boat was registered, as required by the Water Traffic Regulations, on 25 June 1999 but registration was cancelled on 1 October 2001 for non-renewal. The registration certificate for the boat registered number IAD009N specifies an HIN of BLIB27STH899, which differs both from the HIN specified in the schedule and the HIN specified in the certificate of registered interests. Furthermore, the registration certificate shows the length of the boat as 9.23 (presumably metres), although the certificate of registered interests gives it length as 4.4 (presumably metres). The boat’s name, Catseye, is specified on the loans schedule and on the registration certificate but is absent from the certificate of registered interests. The boat was registered in the name of Mr Forwood.

8 In order to escape the effect of s4 of the Bills of Sale Act, the interest of AGC must be registered under the Registration Act. Section 3 of that Act defines “registered” as “recorded in the register…” Section 5 of the Registration Act permits application for registration of the registrable interest in prescribed goods, such as the boat in question here, and further provides –

“1(A) Such an application is not properly made unless:
(a) [Irrelevant] …and
(b) it specifies the prime identifier of the goods concerned and such other information relating to the goods and the interest concerned as may be described…”

For the purposes of the Registration Act, Reg 12 specifies “the prime identifier for a boat is the Hull Identification Number”. Inspection of the boat seized by the Sheriff confirms that its HIN is, indeed, BLIB27STH899 and it is not disputed that it complies with the definition of such a number in the Water traffic Regulations.

9 Navmost submits that the interest of AGC was not validly registered under the Registration Act because it is a condition that an application for registration must specify the prime identifier and this was not done since the prime identifier is, in fact, BLIB27STH899 whereas the prime identifier specified in the certificate of registration provided by the Director General shows an HIN of AUBLIB27STHH99. It is indisputable that the boat which is subject to the agreement, which specifies HIN BLIB27STHH899 is the same boat as that registered under the Water Traffic Regulations number IAD009N although the latter certificate specifies the HIN as BLIB27STH899, the number actually imprinted on the boat. It is also indisputable that the boat described in the agreement is the same as that described in the certificate of registration. The overwhelming likelihood is that the difference in the numbers has resulted from careless transcription. Navmost submits, however, that the agreement was not validly registered.

10 It is important to note that the crucial question is whether the agreement “is a registered interest under the [Registration Act]” (s3A(1) of the Bills of Sale Act 1898) since, if it is so registered, it is not necessary to be registered under the latter Act and escapes the invalidity otherwise prescribed by s4 of that Act. In my view, even if the application by AGC for registration under the Registration Act was not properly made, because of the incorrect specification of the prime identifier of the boat, the fact is that the Director General did record AGC’s interest in the boat in the Register. It follows that that interest was “registered” as defined in s3 of the Act.

11 It is argued by Navmost that the legislative intention that the failure to supply, even inadvertently, the correct HIN would invalidate, not merely application but registration, since s13 of the Registration Act provides for compensation to the creditor under the registrable interest where a purchaser does not obtain notice of the registrable interest after a search, but not if “that loss results from the prime identifier being incorrectly specified in the application”: subs13(2)(a). Thus, the incoming purchaser acquires free of the registrable interest but only where a search of the register has given no notice to the purchaser of the registrable interest. However, if the loss is caused by the owner of the registrable interest specifying the wrong prime identifier, no compensation is paid. This does not suggest, to my mind, that a registration of goods wrongly specified is void. To the contrary, it implies that the registration is valid but, if the purchaser is misled by the failure on the part of the owner of the registrable interest to correctly specify the prime identifier, compensation is not payable to the owner. To have provided that registration is void and ineffectual against an incoming purchaser if the correct prime identifier is not specified would have been simple. Section 13 is, clearly enough, directed to providing compensation where an owner of a registrable interest is divested of that interest in favour of an incoming purchaser or creditor through no fault of their own. Even if the prime identifier is wrongly specified, however, compensation will not be denied as long as the wrong specification has not caused the loss. This could only be so if the registration is valid notwithstanding the error. In my view, s13 of the Registration Act does not assist the contention made on Navmost’s behalf. In the circumstances here, the identification of the boat on the notice of registration is, as I have said, indisputable and no creditor who received such a certificate on a search could claim priority upon the basis that there was no notice of AGC’s registrable interest. Otherwise the Act would become the occasion for fraud rather than a tool for its avoidance.

12 Navmost argues also that the incorrect HIN means that there is no record of AGC’s interest in the sense meant by the definition of “registered”, mentioned above. The crucial question seems to me to be whether what is “recorded in the Register” is AGC’s interest in the boat. For the reasons that I have given, this can have but one answer.

13 Accordingly, AGC’s mortgage over the boat was registered under the Registration Act within the relevant time limit and accordingly, is valid against the Sheriff.

**********

Last Modified: 02/27/2003