Purchasers and mortgagees of ships in New Zealand should be aware that New Zealand has two registers in which security interests over ships can be registered: one under the Ship Registration Act 1992 and one under the Personal Property Securities Act 1999.
The Ship Registration Act specifically deals with the registration of New Zealand ships (of any size) and mortgages over ships registered in New Zealand. Mortgages over a ship or any share in a ship are registered in the New Zealand Register of Ships.(1) The term 'ship' is defined in Section 2 of the Ship Registration Act to cover:
"every description of boat or craft used in navigation, whether or not it has any means of propulsion, [including]:
(a) a barge, lighter or other like vessel;
(b) a hovercraft or other thing deriving full or partial support in the atmosphere from the reaction of air against the surface of the water over which it operates; [and]
(c) a submarine or other submersible."
The Personal Property Securities Act applies (i) to property situated in or intended to be moved to New Zealand, or (ii) when New Zealand law applies. Under the Personal Property Securities Act, security interests in personal property can be registered in the Personal Property Securities Register. The term 'security interest' is defined to mean:
"an interest in personal property created or provided for by a transaction that in substance secures payment or performance of an obligation, without regard to the form of the transaction and the identity of the person who has title to the collateral."
This definition includes leases of longer than a year and mortgages. Ships (including ships under construction that do not yet fall within the definition of 'ship' under the Ship Registration Act) are personal property and so will be covered by the Personal Property Securities Act. Ships are not excluded from the act. However, Section 23(xi) provides that the act does not apply to:
"a transfer, assignment, mortgage or assignment of a mortgage of a ship (within the meaning of the Ship Registration Act 1992) that exceeds 24 metres register length (within the meaning of that act), or any share of such a ship."
Accordingly, purchasers of ships in New Zealand would be well advised to search both registers in order to ensure that their intended purchase is unencumbered. Searching the New Zealand Register of Ships by ship name will reveal whether the ship is registered and encumbered by registered mortgages. Unfortunately, the Personal Property Securities Register cannot be searched by ship name, so it may be difficult to conduct a conclusive search.
The position of a ship's mortgagee was helpfully clarified by the High Court in Keybank National Association v The Ship Blaze [2007] 2 NZLR 271.
The court was required to determine the priority between (i) a foreign registered mortgage over a yacht (under 24 metres long) in New Zealand, and (ii) a claim by the New Zealand purchaser to unencumbered title in the vessel, which was supported by a security interest over the yacht as collateral, registered by the purchaser in the Personal Property Securities Register.
The purchaser argued that he had taken the vessel free from security interests pursuant to Section 52 of the Personal Property Securities Act, which provides that a buyer takes collateral free of an unperfected security interest in the collateral. The purchaser argued that the mortgagee had not perfected its security interest in the vessel, as the foreign mortgage had not been registered in the Personal Property Securities Register before his purchase and the registration of his security interest. He further argued that Section 70 of the Ship Registration Act did not govern the enforceability of the mortgage.
The mortgagee relied on Section 70 of the Ship Registration Act, which provides that:
"Where a question arises in New Zealand as to the priority of instruments creating securities or charges in respect of a ship registered under the law of a foreign country, instruments creating securities or charges in respect of the ship and duly registered in respect of the ship under that law shall:
(a) have the same effect as a mortgage registered in respect of a ship under this act; and
(b) be accorded the priority that they would have been accorded if they had been registered under this act."
It was common ground that ships over 24 metres long, whether registered or not, fall outside the scope of the Personal Property Securities Act with respect to transfers, assignments and mortgages.
In construing the Personal Property Securities Act and the Ship Registration Act, the court held that the Ship Registration Act must be treated as remaining fully in force in relation to all New Zealand registered vessels, including those under 24 metres. It held that the Personal Property Securities Act has no application to securities that fall either directly or indirectly within the Ship Registration Act. The foreign mortgagee's interest was held to have priority in this case because its interest fell indirectly within the Ship Registration Act through the operation of Section 70.
Foreign mortgagees may find some comfort in this decision. However, the interrelation between the Ship Registration Act and the Personal Property Securities Act in respect of security over ships remains unsatisfactory and may need to be addressed by amending the legislation - for example, by removing all security interests over ships from the application of the Personal Property Securities Act.
(1) For further details please see http://www.maritimenz.govt.nz/Commercial/Ship-registration/Ship-registration-in-New-Zealand.asp.
(2) For further details please see www.med.govt.nz/templates/Page____177.aspx.