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Carruthers, Re [1963] PGLawRp 294; [1964] PNGLR 62 (22 August 1963)

Papua New Guinea Law Reports - 1964

[1964] PNGLR 62 - Carruthers, Re

[1964] PNGLR 62

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

RE CARRUTHERS

EX PARTE SHAND

Rabaul

Smithers J

23-24 July 1963

22 August 1963

INSOLVENCY - Liquidation by arrangement - Property divisible among creditors - Reputed ownership - Sale or disposition as owner - Petitioning debtor in possession of ship subject to Bill of Sale - Insolvency Ordinances 1951, ss. 15, 60, 72 (6), 113 (1), (2), 186 (1), (4), (5), (7): - Instruments Ordinances 1953, s. 20 - Coastal Shipping Ports and Harbours Regulations 1938, Regulation 48 (1), (3), 53.

Section 72 (6) of the Insolvency Ordinance 1951 provides, inter alia, as follows:

“The property of the insolvent divisible among his creditors...shall comprise the following particulars...

N2>(6) All goods and chattels being at the commencement of the insolvency in the possession, order or disposition of the insolvent by the consent and permission of the true owner of which goods and chattels the insolvent is reputed owner or of which he has taken upon himself the sale or disposition as owner.”

Held:

N1>(1) That the circumstances relevant to the inquiry whether “the insolvent is reputed owner” are facts relating to the possession of the chattels and comprise the nature of the chattels and the character of the activities carried on by the insolvent in the course of which the chattels are in his possession. The relevant circumstances do not include statements made by third parties or the insolvent as to the ownership of the chattels or particular transactions of the insolvent of which some individuals may have knowledge.

Re Couston ex Parte Watkins, [1873] UKLawRpCh 33; (1873) 8 Ch. App. 520, Danby v. Colonial Bank of Australasia, [1893] VicLawRp 91; (1893) 19 V.L.R. 586, Maxwell v. Official Receiver, [1909] HCA 19; 8 C.L.R. 553, Re Fox, (1948) 1 All E.R. 849, considered.

N1>(2) That “disposition” means carrying out some transaction involving a transfer or the encumbering of all or some of the rights comprehended in the notion of ownership.

C. who at all material times traded in the name of Gona Shipping Company, was a carrier of goods and passengers by ship between Rabaul and other island ports in the Territory. From time to time during the two years prior to 14th December, 1962, he traded with up to four ships and there was nothing in the observable manner of the conduct of the business which would distinguish it from a business of which he was the beneficial owner. From at latest 1st July, 1962, Gona Shipping Company was registered as a firm under the Business Names Ordinance 1951-1952, and the Business Names Register showed C as the sole member of the firm. On 1st November, 1961, C. as Grantor, entered into a Bill of Sale with W.Y., as Grantee, which purported to transfer to W.Y. a ship called the m.v. “De Goede Hoop” with all its appurtenances, then being purchased by C. The Bill recited that the Grantee had agreed to advance £12,500 to the Grantor to enable him to acquire the ship and the Bill contemplated that the ship was to remain in the possession of C. until default in payment of principal or interest or in observance of the covenants. Though effective to pass property in the ship to W.Y. the Bill of Sale was not registered or registerable under the Instruments Ordinances 1953. Shortly after the acquisition of the ship C. of Gona Shipping Company had pledged his or its credit for work or materials in respect of an extensive refitment. In the issue of the New Guinea Times Courier of 29th November, 1961 (a newspaper which circulated fairly widely among the commercial community of Rabaul), there appeared a news item which indicated that Gona Shipping Company, of which C. was a “Company Director” had recently “purchased” the ship. The ship, renamed the “Kavieng Trader”, was used in C.’s business and at all material times it remained in his possession. The Gona Shipping Company was shown as its “present owner” in the Certificate of Registration issued on 21st March, 1962, under the Coastal Shipping Ports and Harbours Regulations 1938.

On the 14th December, 1962, C. presented a Petition to the Supreme Court for liquidation of his affairs by arrangement with creditors. At the time of presentation of the petition he was in default under the Bill of Sale.

During the course of the liquidation by arrangement the trustee applied for the direction of the Court as to whether by reason of the operation of 72 (b) of the Insolvency Ordinances 1951 the ship was property divisible among C.’s creditors.

Held:

That the Bill of Sale took effect according to its terms and the ship was not divisible among C.’s creditors.

Motion:

The nature of this application and the relevant facts and arguments of Counsel appear in the judgment.

Counsel:

K. Smith, for the Trustee.

Chan, for Woo You (the secured creditor).

Kelliher, for the Administration of the Territory of Papua and New Guinea (an unsecured creditor).

Noble, for the other unsecured creditors.

C.A.V.

SMITHERS J: William Francis Carruthers of Rabaul in the Territory of New Guinea filed a Petition in this Court on 14th December, 1962, that proceedings for the liquidation of his affairs by arrangement with creditors be instituted. The Petition was signed by the Petitioner and contained a statement that he was unable to pay his debts which he estimated to amount to £42,060 11s. 7d.

Thereafter on 7th January, 1963, at a General Meeting of his creditors, summoned by him under section 186 (1) of the Insolvency Ordinance, the creditors declared by a Special Resolution under section 186 that the affairs of the debtor were to be liquidated by arrangement and not in insolvency. At the same meeting Mr. Warner Shand was appointed Trustee. A Committee of Inspection of four people was also appointed. That Resolution was presented to the Registrar together with a statement of assets and debts of the debtor and the Resolution was duly registered under section 186 (4).

Section 186 (5) of the Ordinance provides that all such property of the debtor as would if he were made insolvent be divisible among his creditors shall from and after the date of the appointment of the Trustee vest in such Trustee under the liquidation by arrangement and be divisible among the creditors.

With reference to cases of insolvency section 72 (6) provides that the property of the insolvent divisible amongst his creditors shall comprise all goods and chattels being at the commencement of the insolvency in the possession order or disposition of the insolvent, by the consent of the true owner of which goods and chattels the insolvent is reputed owner or of which he has taken upon himself the sale or disposition as owner.

The Petitioner Carruthers was at all material times in possession of a ship originally called m.v. “De Goede Hoop” but later called the “Kavieng Trader”. In 1961 he had borrowed some £12,500 from one Woo You and on 1st November, 1961, he, as Grantor, had entered into a Bill of Sale with Woo You as Grantee which was under Seal and which purported to assign and transfer to Woo You the m.v. “De Goede Hoop” of 78 gross tons being purchased by the Grantor from the Government of Netherlands New Guinea together with the machinery, gear, implements, anchors, cables, spare parts, tools and appurtenances whatsoever on or belonging to the said vessel.

The Bill recited that the Grantee had agreed to advance to the Grantor the sum of £12,500 to enable him to acquire the vessel and that the assignment was made for the purpose of securing repayment of that sum and interest thereon.

The terms of the Bill contemplated that the ship was to remain in the possession of the Grantor until default in payment of the principal sum or interest thereon or in the observance or performance of any of the covenants therein. The Grantor agreed that the ship was not to be removed from the Territory without the Grantee’s consent. Upon default all moneys secured should forthwith become due and payable and the Grantee should be at liberty to exercise all or any of the powers of sale or other powers and remedies provided for or implied by the Instruments Ordinance and the Fourth and Fifth Schedules thereto. It was a further term of the Bill that the powers implied by the said Ordinance should be deemed to include the power to take possession of the goods and chattels or any of them and to manage and control the same and to let or hire or charter the same upon such conditions and for such purpose as the Grantee might deem fit.

It is conceded by all parties before me that before the presentation of the Petition the Grantor was in default. Also it is not disputed that at all material times the legal ownership of the ship was in the Grantee. It is also not in dispute that the Grantor was at all material times in possession of the ship. The argument before me has proceeded on the basis that unless the ship became property divisible amongst the creditors by virtue of section 72 (6) it does not form part of that property.

The Bill of Sale was obviously entered into upon the assumption that it was registerable as such under the terms of the Instruments Ordinance. Although it is clear that the Instruments Ordinance has no application to a Bill of Sale of a ship it seems that such Bills have on occasions been accepted by the Supreme Court for registration in purported implementation of that Ordinance and so “registered”. However when this Bill of Sale was presented for registration it was rejected and it has never been registered. No action was taken by the Grantee to challenge this rejection. This is easily understood because such action could have achieved nothing. The result is that the Bill suffers no invalidity for non-registration but at the same time it does not get immunity from section 72 (6) which it would have had had it been registrable under the Ordinance and had been so registered. The Bill stands therefore on its own feet. The parties have taken the view that the non-registration does not embarrass the Grantee in the exercise of the powers which are incorporated by reference to the Schedules of the Instruments Ordinance, and in this I think they are right.

Section 72 (6) becomes relevant because of the terms of section 186 (5) set out above. If the debtor were insolvent, the date of the commencement of the insolvency would be the date of the act of insolvency being completed on which the Order was made adjudging him to be insolvent, or if more than one act of insolvency is proved, the time of the first of such acts committed by him within six months next preceding the presentation of the Petition whereon the adjudication is founded. See section 60.

Section 186 (7) provides that for the purposes of the application to a liquidation by arrangement of those provisions of the Ordinance which are applicable to such a liquidation, the appointment of a Trustee shall, according to circumstances, be deemed to be equivalent to and a substitute for the presentation of a Petition in insolvency or the service of such Petition or an Order of adjudication in insolvency. Treating the appointment of the Trustee as an adjudication of insolvency the relevant act of insolvency was the filing by the debtor of the Petition on 14th December, 1962, containing a declaration of his inability to pay his debts.

(His Honour then considered and rejected a suggestion that the material date with respect to the determination of the issues caused by section 72 (6) was the date of the appointment of the Trustee (7th January, 1963) not the date of the presentation of the Petition. His Honour continued:)

The proceedings arise on the motion of the Trustee pursuant to section 113 (1) which provides that the Trustee may upon a statement in writing verified by affidavit apply to the Court for and obtain its opinion, advice or direction on any question respecting the management of the insolvent estate or his duty in connection therewith.

Section 113 (2) provides for notice to the interested persons. It appears that when this matter came before the Chief Justice, Mr. Chan appeared for Woo You, but there was no appearance for the unsecured creditors, and that His Honour intimated that the unsecured creditors, having a distinct interest in the question at stake, should be separately represented. His Honour adjourned the matter to ascertain if that could be arranged. As a result there has appeared before me Mr. Smith for the Trustee, Mr. Chan for Woo You, Mr. Kelliher for the Administration of the Territory of Papua and New Guinea, which has a small interest in respect of an unsecured debt, and Mr. Noble on behalf of the other unsecured creditors.

All parties have agreed that the issue to be decided by me is whether, by reason of the operation of section 72 (6), the ship is property divisible among the creditors of the bankrupt. The matter has been conducted as an issue inter parties, and both Mr. Chan and Mr. Noble have called evidence relevant to this issue. I think therefore that the Court on these proceedings is seized of the issue for the purpose of making an order, not only under section 113 but also under section 15 of the Ordinance, and the Order I make in this matter is one which I think I should and I do so make. I say this as some question arose in the closing moments of the hearing as to whether or not the Order made by me would, subject to appeal, bind the parties. There was a tentative willingness to concede such a binding force, but when faced with making specific agreement, certain of the parties did not feel able to bind themselves on this point.

It is established that in 1961 Mr. Carruthers, who has at all material times traded in the name of “Gona Shipping Company”, borrowed money from Woo You to purchase the ship. From time to time during the two years prior to the liquidation he traded with up to four ships, and did all such trading as Gona Shipping Company. From at latest the 1st day of July, 1962, onwards, Gona Shipping Company was registered as a firm under the Business Names Ordinance at the Registrar-General’s Office at Port Moresby. It does not appear whether it was so registered before the 1st July, 1962. The Business Names Register showed the debtor as sole member of the Gona Shipping Company. Gona Shipping Company, in using this and other ships, traded in its own name and there was nothing in the manner of carrying on its business with this or any of its ships which would distinguish it from a business carried on by a person with ships of which he was the beneficial owner. The business was that of a carrier of goods and passengers between Rabaul and other island ports in the Territory. The “Kavieng Trader’s” trading life was relatively short, as time was taken up by its refitment soon after its purchase, and it was put out of action by fire in September, 1962. The ship was registered at all material times under the Coastal Shipping Ports and Harbours Regulations.

There is no evidence that any creditor or potential creditor of Carruthers searched the Business Names Register or the Ship Register, and I think it most unlikely that any did.

At the material date the ship was in the possession of the debtor and it was in his possession by the consent and permission of the true owner. The questions are:

N2>(a) Whether the debtor had taken upon himself the sale or disposition of it as owner.

N2>(b) Whether the debtor was its reputed owner on the 14th December, 1962.

As to (a) I consider, contrary to Mr. Noble’s argument, that the debtor had not taken upon himself the sale or disposition of the ship as owner. Mr. Noble found it difficult to argue that he had taken upon himself the sale of the ship but he did contend that by re-fitting it on his own promise to pay and by asserting as between himself and Mr. Stoboe and possibly others that he was the owner of the ship when negotiating for finance and credit and by himself engaging and paying the crew and deciding where the ship would trade, he had taken upon himself the disposition of the ship. However, Mr. Chan contended, and I think correctly, that a disposition referred to in this part of section 72 (6) means carrying out some transaction involving a transfer or the encumbering of all or some of the rights comprehended in the notion of ownership. He relied on the totality of the phrase “sale or disposition as owner” and said that in such a phrase “disposition” indicates a transfer of property or some interest therein.

The matters relied on by Mr. Noble are apt to establish that the ship was in the possession, order or disposition of the debtor but in my opinion they do not establish that he took upon himself the sale or disposition of it as owner. If disposition in the latter sense were constituted by the matters on which Mr. Noble relied, then it would be hard to see that the taking upon himself of the disposition of the chattel as owner added anything to that possession, order or disposition, which is the preliminary state of affairs upon which the phrase in question has to operate. It seems clear that something must be done to or with the goods by the person in whose possession, order or disposition goods are before they can be said to have been the subject of acts constituting the debtor’s taking upon himself the disposition thereof as owner. The guide to what this something is is to be found in my opinion in the juxtaposition in the phrase of the words “sale” and “as owner”. They convey a clear idea of parting with or encumbering of all or some portion of that property in goods which an owner has. Carruthers did not purport to do that.

As to (b) (reported ownership). It was said by Jenkins J. in giving the judgment of the Court of Appeal in Re Fox[lii]¹ that although mere proof of possession, in given circumstances, may raise a case of reputed ownership only to be rebutted by proof, or judicial notice, of a custom negativing that view, the primary question must always be whether in the circumstances the possession of the goods by the bankrupt involved the inference that he was the reputed owner. If the answer to that question be “no” then cadit quaestio. It is only if the answer is “yes” that a question of custom arises at all.

In order to answer the primary question the Court of Appeal endeavoured to ascertain what knowledge a person, designated a “hypothetical enquirer” would have if he acquired the degree of knowledge described by Lord Selborne in the oft quoted passage in Re Couston, Ex parte Watkins[liii]², which is as follows:

“The doctrine of reputed ownership does not require any investigation into the actual state of knowledge or belief, either of all creditors, or of particular creditors, and still less of the outside world, who are no creditors at all, as to the position of particular goods. It is enough for the doctrine if those goods are in such a situation as to convey to the minds of those who know their situation the reputation of ownership, that reputation arising by the legitimate exercise of reason and judgment on the knowledge of those facts which are capable of being generally known to those who choose to make inquiry on the subject. It is not at all necessary to examine into the degree of actual knowledge which is possessed, but the Court must judge from the situation of the goods what inference as to the ownership might be legitimately drawn by those who knew the facts. I do not mean the facts that are only known to the parties dealing with the goods, but such facts as are capable of being, and naturally would be, the subject of general knowledge to those who take any means to inform themselves on the subject. So, on the other hand, it is not at all necessary, in order to exclude the doctrine of reputed ownership, to show that every creditor, or any particular creditor, or the outside world who are not creditors, knew anything whatsoever about particular goods, one way or the other. It is quite enough, in my judgment, if the situation of the goods was such as to exclude all legitimate ground from which those who knew anything about that situation could infer the ownership to be in the person having actual possession.”

In Re Fox[liv]³ which concerned building materials in the possession of a builder, the class of knowledge imputed to the hypothetical enquirer comprised knowledge of the various possible transactions which might have been entered into by the builder with reference to the materials in question within the range of transactions which builders are known to carry out in the ordinary course of their business. Thus knowledge was imputed that a builder sometimes builds for himself for speculation, having in view a subsequent sale of the building, and sometimes he builds as a contractor for a building owner. It was considered that the hypothetical enquirer would ascertain what kind of clauses might be found in various building contracts and what terms might be found in those contracts about the passing of property in building materials at various stages of the contract.

Both in Re Fox[lv]⁴ and Re Couston[lvi]⁵ the knowledge gained by the hypothetical enquirer equipped him with knowledge of what transactions and situations might exist within the range of transactions and situations which occur from time to time in the ordinary conduct of the class of business concerned, but it did not extend to knowledge of what transactions had actually been made with respect to particular goods in the particular business. It extended to the knowledge of a person described by Griffith C.J. and O’Connor J. as “conversant with the business” (see Maxwell v. Official Receiver[lvii]⁶) but not to knowledge of the actual business transactions of the debtor.

In my opinion the hypothetical enquirer relevant in this case would certainly have discovered:

N2>(i) That Gona Shipping Company was a business entity carrying on business with the “Kavieng Trader”, and possibly from time to time, other ships under its own name and control as a carrier of goods and passengers between Rabaul and Territory Islands and that there was nothing in the observable manner of the carrying on of the business which would distinguish it from a business which an owner of the ship or ships might have carried on with them.

N2>(ii) That the class of business is commonly carried on by persons who do not own the ship or ships they use and with all the outward appearances which would exist in the case of an owner trading with a ship or ships of which he was the absolute owner, and that ships used by persons carrying on business in that way were commonly the subject of chartering or agency agreements.

N2>(iii) That ships had to be registered under the Coastal and Ports and Harbours Regulations.

He probably would also have discovered:

N2>(iv) That owners of ships rarely but sometimes entered into mortgage or Bills of Sale with respect to them.

N2>(v) That there was doubt as to the efficacy of the mortgages and Bills of Sale as there were no provisions for their registration.

N2>(vi) That ships of the “Kavieng Trader” class were rarely but sometimes the subject of Hire Purchase agreements.

N2>(vii) That ships under charter or agency agreements were usually registered in the name of the owner rather than the charterer or agent.

It is, in my opinion, clear that on these facts or any selection or combination of any of them there was no reputation of ownership in Gona Shipping Company in respect of the “Kavieng Trader”. On such facts it is obviously uncertain whether or not Gona Shipping Company owned the “Kavieng Trader”. In my opinion, therefore, the answer to the primary question referred to above must be in the negative and cadit quaestio that is an end of this case.

But Mr. Noble says that the hypothetical enquirer would have discovered much more than I have indicated above. According to his contention he would have discovered:

N2>(a) That in the issue of the “New Guinea Times Courier” of 29th November, 1961, a news item stated that a handsome addition to Rabaul’s busy fleet of small trading ships which arrived in Simpson Harbour recently from Hollandia was the “Goeda Hoop” and that the vessel was purchased by a Rabaul Company from the Dutch New Guinea Government for conversion into a handy seaworthy trader. The item stated further that Company Director, Mr. Bill Carruthers, who flew to Hollandia to bring the vessel to Rabaul, said, “We hope to have new hatchways fitted and the vessel ready for work within a week.” The article also said that the ship had been bought by the Gona Shipping Company as a replacement for the ill-fated “Veilamani...”

N2>(b) That there was another news item concerning the ship in the same newspaper on 19th September, 1962.

N2>(c) That Carruthers or Gona Shipping Company had pledged his or its credit for work or materials in respect of extensive refitment of the ship carried out soon after it had been brought to Rabaul.

N2>(d) The Gona Shipping Company was shown as “present owner” in the Certificate of Registration of the ship issued on 21st March, 1962, the Master being shown as W. F. Carruthers.

N2>(e) That Carruthers was registered as from the 1st July, 1962, as the sole person using the business name “Gona Shipping Company”.

There was satisfactory evidence of each of these items.

As to item (e) I think I should say at once that in my opinion the secured creditor cannot gain any comfort from the fact that the business in question was carried on in the name of Gona Shipping Company and that the composition of that business entity was only to be discovered by search at the Office of the Registrar-General at Port Moresby.

Goods in the possession of a firm and belonging to it, are not, if a partner becomes bankrupt, within the reputed ownership clause because, inter alia, the situation of the goods is consistent with their being the property of all the partners. See Williams Bankruptcy 16th Ed. p. 317, Reynolds v. Bowley[lviii]⁷, Ex parte Hayman[lix]⁸, Re Dorman[lx]⁹ and Re Bainbridge[lxi]¹⁰. Hence it might be thought that there cannot be a reputation of ownership in any one person of goods which ostensibly belong to a firm which may consist of a number of partners. Until the fact emerges that the firm is really one person there is ambiguity as to the ownership of an item apparently belonging to it. I think however that where the ostensible ownership is in a business entity trading in a business name from which it is not possible to say whether the entity consists of one or more persons, the reputed ownership, if there is reputed ownership, will be in the entity. If in fact the entity comprises more than one person then the items in the apparent possession of the entity cannot be said to have been in the sole possession of any one of those persons, and on the insolvency of one of them, the authorities indicate that the reputed ownership provisions would not avail the Trustees in insolvency.

Where however the entity is in fact one person, although the business community may be ignorant of that fact, I think that on the words of the statute and the principles disclosed in the authorities the position is no different from the case of a person in possession of goods who trades in his own name. When the day of reckoning comes, justice is done by translating the business name into the name or names of the real person or persons it represents, and if it turns out to represent one man and he is insolvent, the reputed ownership provisions can take effect quite naturally and properly with reference to the goods in his possession.

Accordingly in this case I think the secured creditor can gain no advantage by reason of the fact that the debtor traded in the name Gona Shipping Company and that, as I think was the fact, most people concerned were unaware of the actual constitution of the business entity using that name.

Mr. Noble contended that items (a) to (d) would have been ascertained by the hypothetical enquirer because they are within the scope of the knowledge indicated by Lord Selborne as facts known or capable of being generally known and naturally the subject of general knowledge to those who take any means to inform themselves on the subject.

It is of course quite true that an enquirer who carried his enquiries far enough might have discovered all these things. It is just as true however, that, if he had enquired with sufficient diligence, he could have ascertained the actual facts concerning the ship.

To what extent therefore does the hypothetical enquirer carry his enquiries?

I think the answer to this is to be found in the distinction between the class of facts which I have indicated as relevant to the primary question and which I now call the observable facts, and the class of facts comprised in items (a) to (d). The distinction is that the observable facts indicate the class of dealings and events which might and ought to occur in carrying on the business concerned, whereas items (a) to (d) purport to say what particular dealings and events have occurred in the carrying on of the business within the range of possible dealings and events in the ordinary carrying on of that class of business.

Lord Selborne’s description of the relevant knowledge, for the purposes of deciding the issue of reputation of ownership, led to the designation of the informed person, in Re Fox[lxii]¹¹, as a “hypothetical enquirer” who satisfied his curiosity.

In Re Fox[lxiii]¹², however, really throws one back to Lord Selborne for the definition of the limits within which the enquirer’s curiosity may roam.

a’Beckett J. said in Danby v. Colonial Bank of Australasia[lxiv]¹³ - “All these questions of custom assume the existence of persons who are in the probability of dealing with hotelkeepers are interested in knowing their position, their general means of paying and the mode in which the business is ordinarily conducted.” Later in his judgment he says-“According to the authorities, it is not intended that the reputation of ownership is such a repute as would prevail amongst persons making inquiries, but such a repute as would prevail amongst persons using ordinary intelligence and observation and drawing their conclusions therefrom. If particular inquiries were made it might be found . . . that there was no ownership at all . . . you are to go by the general impression in the minds of persons, not by what those persons might find out if they made inquiries.” In Maxwell v. Official Receiver[lxv]¹⁴ Griffith C.J. and O’Connor J. refer to the relevant persons as persons “conversant with the industry”.

How is a’Beckett J.’s person who makes no inquiries to be reconciled with the notion of a hypothetical enquirer?

I think that when the subject is approached from the standpoint of the hypothetical enquirer, one is assuming an enquirer not fully informed of the manner in which the particular class of business in question is normally carried on. When he has made his enquiries he will have qualified as a person “conversant with the industry”. The person in contemplation by a’Beckett J. makes no enquiries because to him the learned Judge has already attributed the appropriate degree of knowledge of the industry.

The hypothetical enquirer extends his enquiries until he can be said to be conversant with the industry and no further. If to his knowledge of the industry acquired to this extent there is added the evidence of his eyes, namely, the ship in the possession of the Gona Shipping Company and being used in its carrying business, the stage has been reached at which the test is to be made as to whether the inference of ownership of the ship does arise or is yet uncertain.

At that stage he has the knowledge referred to by Lord Selborne, he is a person described by a’Beckett J. and the person described by Griffith C.J. and O’Connor J.

To suggest that he should go further is to misread Lord Selborne’s remarks, to fail to give due weight to the indication that the knowledge in question is that capable of general knowledge and not that of particular persons or merely capable of being ascertained by particular persons. It fails to look at the facts against which Lord Selborne’s remarks were made.

In Re Couston[lxvi]¹⁵ the enquiries went no further than enquiries as to the character of the business and what kind of dealings might be carried out in the ordinary course of carrying on a business of that character. The same is to be said of those indicated in Re Fox[lxvii]¹⁶. For instance, no suggestion appears that the enquirer would ascertain what particular clauses were in fact in any contract made by the builder. If the enquirer had extended his questions to what dealing or act was actually carried out in this particular business he would have left the ranks of the hypothetical enquirer and begun an investigation into the actual state of the business. Any impression or inference based on knowledge so gained is not reputation of ownership from the situation of goods in the possession of some person but an inference based on special knowledge. It would reach progressive degrees of certainty according to the extent of the diligence of the enquirer.

Mr. Noble was unable to suggest any criterion by which the limits of the relevant enquiries should be fixed. It was essential for him to reject that which I have adopted but having done that he was without an alternative. I can see none.

The reputed ownership provisions assume that possession of chattels in certain circumstances may give rise to an inference of ownership. The circumstances contemplated are facts relating to the possession.

These comprise the nature of the chattels and the character of the activities carried on by the person in the course of which the chattels are in his possession. But I do not think that such circumstances extend to include statements made by third parties or the person in possession himself as to the ownership of the chattels. Such statements are not circumstances of possession. They are outside those circumstances and people who rely on them are relying on their informants and not on mere circumstances of possession.

The same is true I think of particular transactions of the debtor of which some persons may have knowledge whether for instance the person in possession has pledged his credit for repairs or refitment of the ship is a fact known presumably only to the persons who supply the work and materials for which credit has been pledged and a few others. But in any event it is something outside the circumstances of possession and carries with it its own ambiguities and possibilities. Once it is sought to call in aid such statements and particular transactions of the debtor and to draw conclusions therefrom then investigation has commenced, and the general circumstances, the reputation from which may defeat the true owner, have been left behind.

At that stage if the investigation draws inference of ownership which turns out to be wrong that is because he did not sufficiently regard the possibilities. He is entitled to defeat the true owner if he acts on the circumstances of the possession properly so called but not on an inference which he wrongly draws from particular transactions or what he is told by others.

I therefore consider that items (a) to (d) are beyond the knowledge of the hypothetical enquirer and therefore do not assist the unsecured creditors on the primary issue.

As stated above the judgment in Re Fox[lxviii]¹⁷ refers to what is called the primary question, and implies an ultimate question, if the hypothetical enquirer is fixed with knowledge of some custom in the absence of which an inference of ownership would arise. In determining the primary question the Court called on the hypothetical enquirer and credited him with knowledge of practices which it is not easy to distinguish in nature from what it regarded as “custom”.

I have treated all the proved observable facts as relevant to the primary question, as was the case in Re Fox[lxix]¹⁸. But when, as at this stage of this case the parties have called all their evidence of circumstances, practices and customs, so called, the ultimate question is necessarily poised, namely, whether on the totality of knowledge imputed to the hypothetical enquirer as to the relevant circumstances, practices and customs established by the evidence, the inference of ownership arises or ownership remains in doubt.

The observable facts are clearly relevant to this question whatever it be called, and the same finding against an inference of ownership is to be made on it.

The exclusion of items (a) to (d) has nothing to do with the distinction between the primary and ultimate question. They are excluded because they are not relevant to either because of their nature discussed above.

Before discussing these items further, I would point out that the kind of ownership which is the subject of reputed ownership referred to in section 72 (6) of the Insolvency Ordinance is beneficial ownership and that this means ownership not encumbered by mortgage. A beneficial owner for the purpose of section 72 (6) is one who has not mortgaged his property.

As was said by a’Beckett J. in Danby v. The Colonial Bank of Australasia[lxx]¹⁹ “ownership in question in relation to the issue of reputed ownership is not ownership at law but of ownership in its ordinary sense; the mere supposition as to where the legal estate is has nothing to do with it. It is no satisfaction to a man to know that a person to whom he is going to sell goods on credit has got the legal property in his chattels unless he has the beneficial interest. The state of things represented by a man having mortgaged all his property does not indicate that kind of ownership as to which repute might create injurious consequences.” This decision has stood for seventy years.

As to item (a). No evidence was given as to the circulation of the paper but I think I should take judicial notice that it circulated fairly widely amongst the commercial community of Rabaul. The item would create in the mind of an ordinary business man an impression that Gona Shipping Company, of which one Carruthers was a “Director”, had “purchased” the ship. The item is obviously imprecise in some respects. Either the purchaser is a company and Mr. Carruthers is a Director of it or if it is a firm, Mr. Carruthers may well be but an agent of it. In addition, the reference to the purchase in such a report obviously leaves open the terms of purchase and does not exclude a hire-purchase transaction or a purchase incomplete as to the passing of property. However, whatever impression it created, that impression did not constitute reputation based on possession of the ship in the circumstances of the business. It was an impression based on a gratuitous statement made by a third person or the debtor himself as to the nature of a particular transaction of the debtor. As such it was outside the limits of inquiry of the hypothetical inquirer or the knowledge of the person conversant with the industry but not acquainted with the particular transactions of the debtor in that business.

Mr. Noble appeared to argue at one stage as though the item constituted a statement which if not contradicted by the secured creditor operated to estop him from denying it in these proceedings. As to this it is to be observed that there is no evidence before me that the secured creditor had knowledge of the statement, or that any creditor was misled by it as to his detriment.

As to those witnesses who had read the item:

N2>(i) Mr. Wood at all times had knowledge which induced the belief in his mind that Mr. Carruthers must have borrowed money to purchase the ship and he thought that the most reasonable inference to be made by him was that if it were true that Gona Shipping Company had purchased the ship, then a Bill of Sale had been created over it to secure the money borrowed. Mr. Wood could not therefore be said to have been led to infer that Gona Shipping Company was the beneficial owner.

N2>(ii) Mr. Stephenson said that he took it from the article that the Gona Shipping Company had purchased the ship but he also knew that Mr. Carruthers could not have paid the price without substantial borrowing and he said he would not have been in the least surprised if a Bill of Sale had been created over the ship. It would also be correct the draw the inference from his evidence that he would not have been surprised if Carruthers had obtained the ship on the terms of a Hire Purchase Agreement.

N2>(iii) Mr. Stoboe said that he knew before Carruthers bought the ship that he was trying to borrow money for the purpose. Carruthers had sought a loan from him for the purpose. Mr. Stoboe refused to lend but recommended other possible lenders. Mr. Stoboe said that had he lent the money he would have insisted upon becoming a partner or taking over the business. Mr. Stoboe knew therefore when he saw the news item that Carruthers had been financed by some other person and he could not, without further inquiry, have inferred either that Carruthers had not taken a partner or partners or that he had not given a security of some sort over the ship and thus was not the sole beneficial owner. Although Mr. Stoboe felt doubts as to the efficacy of a mortgage or Bill of Sale of a ship, he was too experienced a business man not to infer that if there had been a loan, then, in all probability, a security of some kind had been created.

As to Item (b) the statements in the second newspaper article seems to me to add nothing to the observable facts.

As to Item (c) Mr. Stoboe said that one of the matters tending to create in his mind a belief in the Carruthers’ ownership of the ship was the fact that Carruthers had sought and obtained from him and from other persons credit on his own account for materials and work carried out in an extensive refitment of the ship when it was first brought to Rabaul. He said that refitment, to an extent of some thousands, possible about £6,000, was carried out and that the ship had originally cost Carruthers about £12,000 and that he did not think a man would have carried out repairs to this extent on another man’s ship. These matters do not seem to me to lead to an inference that Carruthers was the sole beneficial owner of the ship. If Carruthers had arranged finance, as Mr. Stoboe must have believed he did, it was likely the finance arranged would provide for the refitment. If, as Mr. Stoboe would think probable, the lender had become a partner or taken some form of security for money lent, the obtaining of credit by Carruthers for the repairs would not be significant. It would reflect a desire by Carruthers to keep his former borrowings, no doubt at interest, to a minimum, and in those circumstances would not constitute refitting another man’s ship. It seems to me therefore that in the state of Mr. Stoboe’s knowledge, he could not infer that Carruthers was the sole beneficial owner of the ship.

There is no evidence of the number of persons who had knowledge of this pledging of credit or what was the state of their knowledge of Mr. Carruthers’ affairs. In any event, however, the matter was one of those particular transactions mentioned above and not one of the circumstances of possession properly so called.

As to Item (d) so far as reputation of ownership depends on the contents of the Register, it must be remembered that there is no evidence that anybody save the debtor and the Harbour Master had knowledge of those contents at any material time. I think it most unlikely that any other person did have it.

It is an odd notion that the law should presume a reputation of ownership to exist when that reputation depends on knowledge of a fact which is in fact unknown to the persons amongst whom the reputation is supposed to persist.

The Coastal Shipping Ports and Harbours Regulations 1938 require that all Territory vessels or vessels owned and trading in the Territory shall, if not registered under the Imperial Act known as the Merchant Shipping Act 1894, be registered in accordance with the provisions of those Regulations at the Port of Rabaul. (Regulation 47.)

The Regulations further provide that before any vessel not registered under the Merchant Shipping Act 1894 is employed in navigation in the waters of the Territory, the owner or Master shall report to the Harbour Master the intention so to do. (Regulation 48 (1).)

When such a report is made the Harbour Master is to measure the ship and conduct a survey and when all his directions and orders have been carried out, he is to issue a Certificate of Registration and a Certificate of Survey in accordance with Forms 2 and 3 of the Schedule to the Regulations. (Regulation 48 (III).)

These Certificates are to be kept safely on board the vessel and must on demand be produced to the Harbour Master or a Port Authority. (Regulation 49.)

The vessel is to be surveyed annually and when the Harbour Master is satisfied that the vessel has complied with the requirements of Part VI of the Regulations he shall issue to the Master or owner a Certificate in accordance with Form 3 of the Schedule to the Regulations, but if on the expiry of a Certificate of Survey the vessel is laid up, the annual survey is not required. (Regulation 53.)

Form 2 contains a space to be filled in opposite the words “Present Owner” and Form 3 contains a space to be filled in opposite the word “Owner”.

The definition section provides that “Owner” includes “the Owner’s agent in the Territory”.

There is no provision in the Regulations for any verification of the ownership of the vessel.

The Harbour Master apparently adopts what his informant states.

There is no provision for recording or registering any change of ownership between annual surveys or for the amendment of the Certificate of Registration.

There is no provision for the registration of mortgages or charges affecting the ship. There is no provision for inspection of the Register or any Certificate or any of the forms by private persons. There is no suggestion in the Regulations that the statements in the Register or the Certificates have any particular evidentiary value.

Reference to the subject matter of the Regulations would suggest that they are concerned to ensure that there is notified to the Harbour Master the persons who are to assume the responsibilities under the regulations as Master and owner respectively. Those responsibilities relate to pollution of ports, explosives, survey, safety equipment, load limits, wharf obstructions, and a host of practical matters. Nowhere in the Regulations is there a hint that registration has anything to do with a system of establishing title to ships. Nevertheless Mr. Strange said that in the case of a number of people who run ships he would not know whether they owned any particular ship or not unless he looked at the registration of the ship.

Mr. Stoboe said that he regarded the Harbour Master as responsible to certify to the ownership of ships as a matter of title. He also said that a business person seeing a ship being run in the name of a particular person would be satisfied that he was the owner if he ascertained that the man was registered as owner. He also said that such a man would be prepared to buy the ship or lend substantial sums thereon on that evidence. He did add that the actual business would be transacted through a lawyer.

Mr. Wood said also that if he wanted to find out who owned a ship he would go to the Harbour Master’s Register.

Mr. Clarke, the Bank Manager, said that he would have regarded the debtor as owner of the ship if he had ascertained that he was registered as owner although if he was asked to lend on or buy the ship, he would have had to take into consideration the possibility that there was an outstanding mortgage or Bill of Sale.

None of these witnesses had ever attempted to inspect the Register, save that Mr. Wood had done so three weeks before the hearing, no doubt for the purposes of this case.

My impression was that the witnesses did not suggest that business men paid regard to the registration in their day-to-day dealings with shipping firms and that the witnesses had no real experience in the matter of drawing inferences from the Register concerning beneficial ownership of ships. I think that in grappling with the problem of resolving ownership doubts in connection with this litigation they were attracted to the notion that the registration procedure was a technical feature of importance and they were inclined to overstate its significance.

I do not accept the suggestion that the register or any certificate under the Regulations constitute anything in the nature of a certificate of title, but I accept the evidence as establishing that in cases in which a question of ownership of a ship arises and a man having possession and management of a ship asserts that he has unencumbered ownership thereof, the registration of the ship in his name would represent a useful item of corroboration.

I think also from this evidence and that given by witnesses called by the secured creditor that a man conversant with the industry who searched the register and found that Gona Shipping Company appeared therein as owner would draw the inference that Gona Shipping Company was neither charterer nor agent in respect of the vessel.

If I had to decide this question on the basis that the hypothetical enquirer had knowledge of item (a) or item (d) I think the conclusion on the evidence would be that there was a reputation of ownership. The information under these items would make it unlikely that there was a charter or agency agreement because in the one case a person who has purchased a ship on any terms would not be a charterer or an agent in respect of it, and in the other knowledge of registration would indicate to an ordinary man that Carruthers was not a charterer or agent.

The evidence as to the likelihood of a hire purchase agreement does not support the view that there is anything in the nature of a practice of dealing with ships on hire purchase terms. The possibility of a mortgage or other security over the ship would remain but the evidence does not suggest that degree of frequency of such occurrences in this class of business which a’Beckett J. seemed to regard as necessary in Danby v. Colonial Bank[lxxi]²⁰ or the degree of practice of which the majority of the High Court sought evidence in Maxwell v. Official Receiver[lxxii]²¹. Although it must always be theoretically possible that a trader has borrowed or leased or obtained on hire purchase a chattel or is otherwise minus beneficial ownership, the doctrine of reputed ownership assumes that possession in a framework of right circumstances may sufficiently indicate beneficial ownership.

N1>In this case the matter appears to me to proceed in this way.

The secured creditor has proved that a man who runs ships apparently as owner may not be the owner because the state of affairs is equivocal. The ship may be on charter or the person apparently in possession may be an agent of the owner. His evidence does not suggest that the terms on which a trader may have possession of a ship include hire purchase terms or that there is a practice of borrowing upon the security of ships.

The evidence of the unsecured creditors does not assist the secured creditor in this respect. If with respect to the ship in question the hypothetical owner has knowledge that it is not on charter and it is not run under agency agreement and has no knowledge of anything in the nature of a practice of buying ships on hire purchase or of borrowing money on them I think the correct finding is that he is in a state of mind which would reasonably cause him to infer that the beneficial ownership was in the trader and available in case of need to the general creditors.

The only escape from this, for the secured creditor, would be for the Court to take judicial notice of the fact that hire purchase agreements or borrowing on the security of a ship are so common that nobody is entitled to assume that a ship which has been “purchased” is not the subject of such an agreement, or if purchased outright has not been mortgaged. I have a good deal of sympathy with this point of view. This aspect was probed with some of the witnesses. It is surprising that nothing emerged to suggest that the notoriety of hire purchase transactions in other fields had spread to the shipping business in New Britain.

This matter and the possibility of a security over the ship arose after the case for the secured creditor had closed but no application was made on behalf of the Trustee or the secured creditor to amplify evidence on these points.

Although it is true that one of Carruthers’ ships had been the subject of a hire purchase agreement the evidence of Mr. Stoboe was that hire purchase agreements were out of favour in recent years in this class of business because of possible burdens on the “vendor” in consequence of the registration of his ownership under the Coastal Shipping Ports and Harbours Regulations. This seems reasonable.

The Bank Manager seemed genuinely surprised at the notion of a hire purchase agreement with regard to a ship. He had never heard of one.

So far as a security over the ship is concerned there is no provision for registration of such securities. If would be reasonable that such a state of affairs would make such securities unattractive.

It is not surprising that there is no evidence that such securities are common or even to be reasonably anticipated. So far as witnesses conceded the possibility of a mortgage or Bill of Sale, they did so grudgingly. Unless like Mr. Stoboe and the others particularly experienced in the field and knowing that Carruthers had had to borrow money to buy the ship, the hypothetical enquirer is to be treated as an expert and credited with that knowledge I do not think he would take into account the matter of security.

For the same reasons as have led to the exclusion from the knowledge of the hypothetical enquirer of items (a) to (d), so I think he does not have knowledge of the state of Mr. Carruthers’ finances.

The Instruments Ordinances 1953, section 20, gives express protection to holders of registered Bills of Sale from section 72 (6). The Ordinance therefore assumes that there are cases in which a reputation of ownership might exist notwithstanding the known possibility of there being a security over a chattel and the availability to potential creditors of knowledge of the security should they care to make a search.

This tends to support the view that before one would deny reputed ownership on the ground of the possible existence of a security the possibility should at least be raised by evidence not to a probability but to something more compelling than a mere possibility.

However, I am firmly of the opinion that on the issue of reputed ownership items (a) to (d) are not to be considered alongside the observable facts. The information contained in those items is outside the knowledge of the hypothetical enquirer who has satisfied the limited curiosity permitted to him for the purposes of the issue of reputed ownership.

Mr. Noble also relied on the fact that there was evidence that Mr. Wood, Mr. Stephenson, Mr. Stoboe and Mr. Mathies thought that Carruthers was the owner of the ship.

Lord Selborne indicated that what any particular person may think as to ownership is not to the point. This must especially be so when his thinking is influenced by special knowledge. In addition the evidence of all save Mr. Mathies is subject to the comments made earlier in this judgment. I do not think the evidence of Mr. Mathies adds anything of significance on the issue.

Accordingly, in my opinion, the Trustee should be advised that the Bill of Sale takes effect according to its terms, and the ship is not properly divisible among the creditors by reason of section 72 (6). I advise and declare to that effect and order that the Trustee proceed with the liquidation by arrangement on that basis.

As to costs, for reasons given at the hearing, I think that the costs of each of the parties should be paid by the Trustee out of the property of the insolvent in his hands.

Although it is reasonable to assume that a man owns the dog in his possession and the petrol in the tank of his car, it does seem surprising to me that in these days anyone should be entitled to assume that any chattel used in commerce and of substantial value is beneficially owned by the person in possession. However, the evidence in this case does not support the validity of this attitude with regard to local ships.

It seems to me that there is a case to be made for the provision by the legislature of machinery whereby by mortgage or Bill of Sale a man can grant a security over his ship not subject to be defeated under the doctrine of reputed ownership.

Advise and declare ship not divisible among creditors; Trustee to proceed with liquidation by arrangement on that basis; Costs of each party to be paid out of property of debtor.

Solicitor for the Trustee: F. N. Warner Shand.

Solicitor for Woo You (the secured creditor): Dudley Jones.

Solicitor for the Administration of the Territory of Papua and New Guinea: S. H. Johnson, Crown Solicitor.

Solicitor for the other unsecured creditors: J. Irwin Cromie.

[lii](1948) 1 All E.R. 849.

[liii][1873] UKLawRpCh 33; (1873) 8 Ch. App. 520 at p. 528.

[liv](1948) 1 All E.R. 849.

[lv](1948) 1 All E.R. 849.

[lvi][1873] UKLawRpCh 33; (1873) 8 Ch. App. 520 at p. 528.

[lvii]8 C.L.R. p. 553.

[lviii]L.R. 2 Q.B. 474.

[lix](1879) 8 Ch. D. 11.