“Trade-in” of Luxury Yacht Goes Wrong – Court considers jurisdiction to determine dispute over alleged sham trade-in deal of vessel
Burrows v The Ship ‘Merlion’ [2024] FCA 220
Background
In 2022, Mr Terence Burrows, the plaintiff, contracted with Pacific Motor Yachts Pty Ltd (PMY) to arrange the construction of The Merlion, a 2023 Clipper Hudson Bay 540 sedan. The vessel was duly delivered in December 2022.
In early 2023, Mr Burrows desired to purchase a new 2024 Clipper Hudson Bay 540-S01, for which he would trade in The Merlion and pay some cash, and he made an agreement with PMY to this end.
On 7 July 2023, Mr Burrows and Mr Thurley, the sole director of PMY, executed a document that transferred the ownership of The Merlion to Mr Thurley (not PMY), although these documents were not filed and the vessel remained registered to Mr Burrows. The following day Mr Burrows gave physical possession of the vessel to Mr Thurley. Mr Thurley subsequently transferred ownership of the vessel to Mr Glenn Thurlow, the first defendant, in July 2023 in lieu of moneys owed to Mr Thurlow and on the basis that Mr Thurley would try and sell the vessel, with all proceeds going to Mr Thurlow.
In August 2023, PMY entered voluntary administration and in September The Merlion was moved from the business address of PMY to a private jetty at Mr Thurlow’s residence. PMY went into liquidation in October 2023.
Mr Burrows caused the ship to be arrested and brought proceedings in personam against Mr Thurlow and in rem against The Merlion in the Admiralty Division of the Federal Court of Australia seeking a declaration that he was the sole beneficial owner of the vessel. There were five causes of action pleaded in the proceeding, namely that:
The vessel was held on trust for Mr Burrows by Mr Thurley or PMY, and the transfer to Mr Thurlow was done in knowing breach of trust;
The transfer documents executed in July 2023 were a sham intended to give the impression that Mr Thurley was the owner of the vessel;
The transfer of ownership to Mr Thurley and from Mr Thurley to Mr Thurlow were voidable under s 228 of the Property Law Act 1974 (Qld) on the basis that they were intended to defraud creditors of PMY;
PMY and Mr Thurley made a number of misleading or deceptive representations in breach of s 18 of the Australian Consumer Law (ACL), and Mr Thurlow was a knowing participant in those breaches; and
Mr Burrows had a right to immediate possession of the vessel in conversion or detinue.
Mr Thurlow sought dismissal of the proceeding on the basis that the Court did not have jurisdiction.
Judgment
The application turned on whether the causes of action were claims relating to possession of, or title to or ownership of a ship within the meaning of s 4(2)(a) of the Admiralty Act 1988 (Cth) (the Act). The Court dealt with the issue of jurisdiction in respect of each claim as follows:
If it was found that the vessel was held on an express trust for the benefit of Mr Burrows, this was a claim for beneficial ownership which fell within the meaning of s 4(2)(a) of the Act;
If it was found that the transfer documents were a sham, the vessel would therefore be held by Mr Thurley on a constructive trust and that PMNY held the rights in possession for Mr Burrows by way of trust or bailment, therefore this was also a claim for beneficial ownership which fell within the meaning of s 4(2)(a) of the Act;
Likewise, if the transfers were void under s 228 of the Property Law Act, the vessel would be held on trust and the claim related to the beneficial ownership of the vessel within the meaning of s4(2)(a) of the Act;
The claims under the ACL related to misleading or deceptive representations regarding PMY’s capacity to construct the new vessel and the failure to disclose PMY’s financial difficulty and, although Mr Burrow’s loss and damage arising by reason of the representations included the delivery of the vessel to Mr Thurlow, this was not sufficient connection to the ownership of the vessel to bring the claim within s 4(2)(a) of the Act; and
The torts of conversion and detinue are proprietary in substance and therefore fall within the meaning of s 4(2)(a) of the Act.
In the judgment of Derrington J, the Court:
struck out the claim under the ACL on the basis of no jurisdiction under the Act, but noted that Mr Burrows was not prevented from bringing a separate proceeding against PMY, Mr Thurley and Mr Thurlow for misleading and deceptive conduct under the ACL;
summarily dismissed the claim that the transfer documents were a sham or that the transfers of ownership were voidable under s 228 of the Property Law Act on the basis Mr Burrows had retained possession of the transfer documents and the vessel remained registered to Mr Burrows, therefore it was not arguable that the execution of the transfer documents was capable of creating the appearance of giving legal rights over the vessel to Mr Thurley; and
allowed the claims for breach of trust and conversion or detinue to proceed.
The ship remains in the custody of the Admiralty Marshal as at the date of judgement pending the determination of the outstanding claims.
Key Points
Retain possession of transfer documents: The case illustrates the importance of vessel owners protecting their rights when selling or trading in their vessel by retaining possession of transfer documents and ensuring the vessel remains registered in their name until completion of the transaction.
Register a security interest on the PPSR: Where it is anticipated that the bailment will be a long-term arrangement (more than 24 months) it is recommended that a security interest be registered on the Personal Property Securities Register (PPSR). Depending on the type of security interest, very strict time periods for registration of the security interest on the PPSR may apply. Information about strict time periods to register certain security interests in a vessel on the PPSR at the following link: https://www.ppsr.gov.au/registering/you-create-registration/ppsr-timing-rules-when-you-need-take-action
Contacts
Solicitor
T: + 61 2 9230 9445
Address: Level 4, 66 Hunter Street, Sydney NSW 2000
Joanna Neil
Solicitor
T: + 61 2 9230 9406
E: joanna.neil@nortonwhite.com
Address: Level 4, 66 Hunter Street, Sydney NSW 2000