A recent judgment in the New South Wales Supreme Court is likely to be one of the last superior court decisions concerning the registration of security interests in boats in the Australian Register of Ships and the ASIC Register of Company Charges. The registers will be replaced by the new national Personal Property Securities Register.

Key points

  • registration of security interests will be simplified in the Personal Property Securities Register as illustrated in the recent Supreme Court decision, The Elusive
  • as of next year, the Personal Property Securities Register will be the sole register for the registration of mortgages and other security interests in ships.

Outcome

The Elusive is an example of how the PPSA will serve to simplify the registration of security interests in ships and other personal property. The plaintiffs were successful in showing that their interest was a chattel mortgage at common law to the extent that the bank acquired the legal title to the vessel as security and thus retained the right to redeem the mortgage. Orders were made for vacant possession of the Elusive so it could be delivered into the bank’s possession.

Background

A recent judgment of His Honour Justice Rein of the New South Wales Supreme Court, The Elusive [2010] NSWSC 525, will no doubt be one of the last superior court decisions concerning the registration of security interests in boats in the Australian Register of Ships and the ASIC Register of Company Charges. Those registers will soon be replaced by the national Personal Property Securities Register, established by the Personal Property Securities Act 2009 (Cth) (PPSA) and expected to commence in May 2011. The Elusive is an example of how the PPSA will serve to simplify the registration of security interests in ships and other personal property.

The facts of the case are not particularly remarkable. The case was an action by a bank to repossess the recreational vessel MV Elusive. The vessel had been purchased in early 2009 by Trelat Pty Ltd (Trelat) with funds loaned to it by the bank, and was secured as collateral for those funds by both a chattel mortgage and a ship’s mortgage. The chattel mortgage was registered as a company charge with ASIC in the ASIC Register of Company Charges, established by the Corporations Act 2001 (Cth). The ship’s mortgage could have been, but was not, registered in the Australian Register of Shipping, established by the Shipping Registration Act 1981 (Cth). The bank commenced repossession proceedings when Trelat defaulted under the chattel mortgage by entering into administration.

The Defendant, Mr Druce, was a director of Trelat. He asserted in pleadings that he, rather than Trelat, was the real owner of the vessel and thus entitled to retain possession of it, notwithstanding the bank’s security interest. The Court’s decision on this issue was not surprising (and Mr Druce did not help his case by failing to show up at trial): on the facts, Trelat was the proper owner of the vessel and thus the bank’s securities had been given in the name of the correct party.

Enforceability of the ship’s mortgage

On the issue of the non-registration of the ship’s mortgage, His Honour noted that the Shipping Registration Act 1981 (Cth) permits, but does not mandate, the registration of ships used for recreational purposes (only ships greater than 24 metres long and used for commercial purposes must be registered). Consequently the absence of registration had no effect on the enforceability of the ship’s mortgage. The chattel mortgage, having been registered as a charge, was enforceable against the ship and the bank was entitled to exercise its power of sale.

A single online register

Currently, there are around 70 registers in the country dealing with personal property security interests. The different registries give rise to inconsistent priority rules and differing registration requirements between different assets and between different states. The purpose of the PPSA is to replace those registers with a single online register to be operated by the Insolvency and Trustee Service Australia (ITSA). The Elusive, for example, concerned two different types of security and two different security registers for one asset. As of next year, the Personal Property Securities Register will be the sole register for the registration of mortgages and other security interests in ships.