Reel Action Sports Fishing Pty Ltd (CAN 092 732 888) v Marine Engineering Consultants Pty Ltd (in Liq) & Anor [2022] QSC 271

When a company goes into liquidation, the prioritisation for who gets an asset (that has numerous claimants) can come down to who has first priority under the Personal Property Security Register (PPSR). To ensure you have the best possible claim, it is important to well identify the assets so that any interests in that property can be perfected. Recently the Supreme Court of Queensland addressed some of these issues in Reel Action Sports Fishing Pty Ltd (CAN 092 732 888) v Marine Engineering Consultants Pty Ltd (in Liq) & Anor [2022] QSC 271.

Reel Action Sports Fishing Pty Ltd (plaintiff) entered into a contract with Marine Engineering Consultants Pty Ltd (first defendant) for the construction of a 17m catamaran for the plaintiff. A dispute arose which resulted in the build stalling, and the parties entering into a Deed of Settlement whereby the first defendant would sell the incomplete hull to a third party with the proceeds going to the plaintiff. Following this a Court appointed liquidator, C Baskerville (second defendant) began liquidating the first defendant company. The plaintiff instituted proceedings in the Supreme Court of Queensland seeking possession of the vessel.

The plaintiff claimed it owned the vessel under the original agreement, while the defendants maintained that the proprietary rights to the vessel ended with the entering into of the Deed of Settlement. The defendants further contended that the terms of the build contract created a security interest which was unperfected when the first defendant was wound up. Throughout this period of exchange, the second defendant moved the vessel from its secure shed into a location in the open, which led to damage through exposure. Eventually the vessel was fold for $530,000, with the funds held on trust pending resolution of the dispute. The second defendant argued that with an unperfected security interest title in the vessel had vested in the first defendant, and so they claimed a lien over it. It fell to the Court to determine which party was entitled to the proceeds of sale, among a number of associated issues.

The Court found the plaintiff’s ownership was not altered by entry into the Deed of Settlement, something that would have only have changed if the first defendant had sold the vessel (and have thus been obliged to provide the proceeds to the plaintiff from the sale). The Court further found that the second defendant had not been misled by the interest registered by the plaintiff on the PPSR, which the second defendant had characterised as defective.

The basis for the second defendant maintaining the plaintiff’s registration of a security interest in the vessel was ineffective was because it was seriously misleading. The plaintiff had registered an interest on the PPSR which described the vessel in terms of its hull type, number (MECY20), and all equipment in respect of the vessel whether supplied by the buyer or builder and any other arrangement under or contemplated by the agreement. The defendants suggested this was too broad as to be effective, and that there were no goods on the premises that featured MECY20, as opposed to MEC Robson 525 which was the descriptor used in the plans for the original build contract.

Notwithstanding this, the Court held that due to the other specifying aspects of the security registration, such as the date from which the agreement under which the vessel was built and the fact of the hull only being partially constructed. The absence of MECY20 was not sufficient to make the description seriously misleading as the matrix of factors formed by the agreement served as identifying factors for the vessel. In other words, that the hull lacked a specific marking in the circumstances was not enough to make it misleading as a myriad of other descriptors were available to describe the particular vessel.

While this is an Australian case it has some value in a New Zealand context, and the same principles apply. This finding speaks to the importance of using as many descriptors as possible when registering a security interest under the PPSR. Reference to the agreement under which a vessel is built, hull material, potential state, model, and reference number/s can all be of major value when it comes to ensuring you have a perfected security interest in relation to identified property.

If you have any specific legal questions relating to registering security interests under the PPSR, or perfecting those interests, please contact Peter Dawson by email peter@maritimelaw.co.nz ; phone +64 27 229 9624.