Battle over boat leaves Baskerville to foot bill

Bailments. Security interests. Deeds of settlement and insolvency. It’s a formula liquidator Chris Baskerville has found can leave a bitter aftertaste.

So good luck to those currently coming before Labor senator Deb O’Neill and others of her species as they hear submissions as part of the Parliamentary Joint Committee on Corporations and Financial Services review of Corporate Insolvency in Australia.

As demonstrated by a recent judgment of the Supreme Court of Queensland, luck and more is needed if the politicians are to be brought to a proper understanding of how ludicrously complex our laws have become, and how much courage will be required to instigate and undertake a root and branch review that will return the practical expression of the laws relating to insolvency to something closer to first principles. But back to Baskerville.

I accept the plaintiff’s argument that the VCA was in the nature of a sale agreement where ownership of a chattel passed upon initial payment and thereafter was in the nature of a contract for the supply of boatbuilding services, which were paid for as each stage was completed.” Justice Sue Brown.

In the case of Reel Action Sports Fishing Pty Ltd V Marine Engineering Consultant Pty Ltd (In Liquidation) Reel Action sought and this week obtained a grant of leave to proceed against the second defendant, which in this case was Marine Engineering’s court-appointed liquidator, Chris Baskerville of Jirsch Sutherland.

Reel Action sought the leave because after being appointed liquidator of Marine Engineering in late 2020, Baskerville disputed Reel Action’s entitlement to the proceeds of sale of a boat that Reel Action had ordered from Marine Engineering in 2017.

The failure of Marine Engineering to supply a vessel of the type agreed to in the Vessel Construction Agreement (VCA) led the parties to enter into a Deed of Settlement whereby Marine Engineering was to sell the boat to a third party so it could repay the funds it had received from Reel Action before the VCA was terminated.

Marine Engineering however failed to find a buyer and as some form of olive branch perhaps, its director Murray Owen agreed to keep the vessel inside a secure shed at the Gold Coast Marina, pursuant to what the court later described as a “gratuitous bailment” between Reel Action and Marine Engineering.

Reel Action then commenced proceedings to recover more than $1.5 million owing under the unfulfilled deed.

As a consequence Marine Engineering was ordered to be wound up by court order and Baskerville was appointed liquidator. But as the judgment reveals, if Reel Action thought this would facilitate recovery, it was soon disappointed.

“There was an exchange of correspondence between the plaintiff’s solicitors and the solicitors acting on behalf of the defendants between December 2020 and March 2021 where the plaintiff asserted primarily that it held title to the Vessel under the terms of the VCA, and in any event held a valid PPSR security interest. The defendants’ solicitors disputed that the plaintiff had an effective security interest, claimed it had vested in the first defendant and claimed a lien over the Vessel.”

During the period of this exchange Baskerville had the vessel moved from the secure shed and placed in the open. As it was no more than a shell with incomplete internal fit out the exposure led to damage.

As Reel Action regarded itself as the owner of the vessel it next applied for leave to commence proceedings against Baskerville and Marine Engineering for damages.

Marine Engineering and Baskerville’s defence was predicated on the argument that the rights of ownership Reel Action had via the VCA had been superseded by the term of the Deed of Settlement.

But in examining the terms of the deed her honour found that Reel Action’s ownership wasn’t altered by entry into the deed. That would have only come about if Marine Engineering had held up its end of the bargain by finding a buyer.

The other element of Baskerville’s defence was to argue that Reel Action’s interest in the vessel is a security interest under the PPSA and therefore the plaintiff takes the security interest subject to the provisions of the PPSA.

Baskerville also failed to persuade the court that he’d been mislead by a defective interest Reel Action registered on the PPSR on March 13, 2019, but the judgment reveals that the efforts undertaken by his staff to identify the company’s assets on Marine Engineering’s site couldn’t be characterised as over-zealous.

“Mr (Philip) Ascher did not see any markings on the outside of the Vessel which I accept, given that is corroborated by other evidence,” the judge said.

“He gave evidence that he had carried out an inspection inside of the Vessel but did not see any plans on the Vessel. His evidence in this respect was inconsistent and not compelling. He originally said he personally had not inspected the inside of the Vessel but had an agent do it, but then changed when directed to his affidavit where he stated he did a thorough check.

“When shown the photo of the inside of the Vessel, he could not recall any of the features, including any plans taped inside.

“While I accept that he had a cursory look inside the Vessel, I find his evidence that he carried out a thorough inspection of the Vessel to be somewhat exaggerated and unreliable.

“While Mr (Amit) Ghumber had stated in his affidavit that he had carried out a thorough inspection of the Vessel and could not find any markings on it, he agreed in cross-examination he did not inspect the inside of the Vessel.

“He was told the vessel was being built for a customer. He agreed the vessel under construction was one of the largest assets at Shed H60 and potentially the most valuable. He also stated it was not until a month after their appointment that he was asked by the second defendant (Baskerville) to see if he could locate drawings for “MECY20”, contrary to the second defendant’s (Baskerville’s) evidence.

“Mr Ghumber gave his evidence in a straightforward and candid way, and I generally accept his evidence in light of the concessions he made.”

The judge was also somewhat ambivalent about the calibre of some of Baskerville’s testimony in cross-examination.

“While the second defendant was defensive and sometimes evasive in his evidence and on occasion, I found had reconstructed some events in the most favourable way to his case such as saying he directed Mr Ascher to look for markings “MECY20” on the Vessel when he was going to Shed H60, I accept his evidence to the extent I have set out.”

As well as granting Reel Action leave to proceed against Baskerville it also found that the defendants are liable for $20,000 in damages via conversion.

Given we don’t yet know if Baskerville will appeal and that the parties were instructed to make submissions on costs, this matter could have more to run.

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