New South Wales Supreme Court CITATION : Rachel Ann LYNCH v The Vessel "Bryanna" [1999] NSWSC 955 CURRENT JURISDICTION : Equity Division Admiralty List FILE NUMBER(S) : No. 3 of 1999 HEARING DATE(S) : 02.08.99, 03.08.99, 26.08.99 JUDGMENT DATE : 23 September 1999 PARTIES : Rachel Ann LYNCH v The Vessel "Bryanna" JUDGMENT OF : Foster AJ COUNSEL : Mr R. J. Weber for the plaintiff Mr M. B. Duncan for the defendant. SOLICITORS : Messrs Ebsworth & Ebsworth for the plaintiff Messrs Davidsons for the defendant CATCHWORDS : Shipping and navigation - Enforcement of mortgage over whole of vessel - Preferred Mortgage registered with U.S. Coast Guard within definition of "mortgage" Admiralty Act 1988 (Cth) s.3 - Preferred Mortgage valid - Defendant took ownership of vessel subject to the Preferred Mortgage - Equity - No equitable defences proved to prevent enforcement of mortgage - to extent acts of third party may be contrary to equity not attributable to plaintiff - Admiralty Act 1988 (Cth) ss. 3, 4(2)(a)(iii), 16. ACTS CITED : Admiralty Act 1988 (Cth) ss. 3, 4(2)(a)(iii), 16 DECISION : Refer Paragraph 55 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ADMIRALTY LIST FOSTER AJ THURSDAY, 23 September, 1999 No. 3 of 1999 Rachel Ann LYNCH v The Vessel "BRYANNA" JUDGMENT 1 HIS HONOUR: These proceedings are brought in the Admiralty List of the Equity Division of this Court. The plaintiff, Rachel Ann Lynch (Rachel), is a citizen of the United States of America. The defendant, the vessel "Bryanna" (Bryanna), is a sea-going yacht registered in the United States of America with the United States Coast Guard and bears the official number 645565. Bryanna was arrested on 18 February 1999 under a warrant issued by this Court pursuant to a writ of the same date, filed on behalf of Rachel, claiming damages in the sum of US $40,651.00 or, alternatively, US$40,000.00 together with interest and costs. The amount is claimed as owing under a mortgage of Bryanna, the mortgagor being Loretta Dawn Reed Lynch (Loretta) who is named as the "relevant person" in the writ. The statement of claim accompanying the writ sets out the circumstances in which the mortgage debt is alleged to have arisen. I shall refer to these later. 2 By her defence, Loretta seeks to impugn the validity of the mortgage and denies her indebtedness under it. She also asserts that she has an unencumbered title to Bryanna. Again, I shall refer to these matters later. It is convenient, at this stage, to set out, by way of background, facts which are not in contention between the parties, or which I find to be established. 3 Background On 18 February 1995 Loretta married Matthew John Lynch (Matthew), Rachel's son, at Morro Bay, California in the United States of America. Both were interested in yachts and yachting, as was Rachel. At the time of the marriage, Loretta owned a yacht "Gitana". Matthew owned a yacht "Rubicon". Rachel, also, owned a yacht "Lucky Day". Matthew was contemplating a round-the-world trip in Rubicon and was taking steps to prepare the boat for this purpose. Rachel's boat was constructed of timber and she was having difficulty in maintaining it without help from Matthew. Accordingly, she sold the boat and had available to her the purchase money. 4 After their marriage Matthew and Loretta decided to circumnavigate the world in Matthew's boat Rubicon. They set about further preparing the boat. However, towards September 1995 Rachel, Matthew and Loretta became aware that there was a larger vessel, the "Mona", for sale at an anchorage some 350 miles away. It was generally agreed that this boat would be a better one for the purpose and that the price appeared to be reasonable. Matthew and Loretta did not have funds sufficient to enable purchase of this vessel. Rachel offered to provide the money to enable the purchase to be made, if the boat was regarded as suitable on inspection and a purchase price was agreed upon. The offer was accepted. 5 I am satisfied that there were some difficulties in the marriage at this time and that Rachel was concerned as to its stability. However, Matthew told her that, even if the marriage broke down, he would still wish to purchase Mona for the purpose of the circumnavigation. Loretta was not a United States citizen and it appears that this fact was accepted as producing some difficulties in relation to her being registered as an owner of the boat. In any event, I am satisfied that Rachel was prepared to lend the money only to Matthew and that, having regard to the loan being of a substantial size, US$30,000.00, she wished that some form of security be provided. 6 Accordingly, prior to advancing the money, without the knowledge of Loretta, Rachel and Matthew entered into an agreement (the first promissory note). Rachel was an accountant with some commercial experience. She drew up the document herself, which was signed by her and Matthew on 5 September 1995. The document provided as follows: "Sept. 5, 1995 I agree to loan to Matthew J. Lynch, my son, $30,000 (thirty thousand dollars) which are proceeds received from sale of my boat, 'Lucky Day' as an initially interest-free loan so that he can purchase a 38' sail boat, documented name, MONA, in Moss Landing, CA if his offer to purchase said boat is accepted under the following terms. 1. If offer not accepted & boat not purchased by Sept. 30, 1995, the $30,000 is to be returned to me. 2. Interest begins to accrue on loan on Nov. 4, 1995 at Wells Fargo Prime Rates or 7%, whichever is lower. 3. The loan is a demand loan & is callable at any time by me, Rachel A. Lynch, or assignee 10 days after notice of demand for repayment. 4. If I call the loan & Matt does not have cash to repay me I have the following options. 1. put lien on the 38' sail boat which was purchased with the loan proceeds 2. Take physical possession of the 38' sail boat which was purchased with the loan proceeds & have title transferred to me / have boat, a documented vessel documented in my name. 3. If 2. occurs, Matt agrees to deliver (or have delivered) this boat to a Calif. port of my choice. 5. Both parties agree that this loan is the sole & separate liability of Matthew J. Lynch and not a gift. Agreed upon this 5th day of September, 1995 By: Rachel A. Lynch Matthew J. Lynch" 7 On 8 September 1995 Matthew and Loretta inspected the Mona and agreed to purchase her for US$32,000.00. They paid a 10% deposit, which came from Matthew's own funds. They received a receipt in the following terms: "SEPT 8/1995. Matt & Loretta Lynch agree to purchase the vessel "Mona" for $32,000. Jenise Whelan/Vanderworp accepts a 10% deposit for $3,200. Jenise is responsible for obtaining a clear abstract of title. If for any reason she is unable to do this the deposit will be refunded. Vessel must be in same condition (as of Sept. 8, 1995) when final paperwork is signed. Loretta Lynch 9/8/95 Matt Lynch 9/8/95 Jenise Whelan 9/8/95" There is no evidence that Rachel knew of this document, or its terms. 8 On 2 October 1995 Matthew, utilising the money provided by Rachel, completed the purchase of the vessel Mona, which was thereafter renamed "Bryanna". On 16 October 1995 the vessel Bryanna was registered with the United States Coast Guard, being given the official number 645565. Matthew was recorded as being the owner of the vessel. It is clear that Bryanna required restoration and refitting work, to put her in an appropriate state of readiness for the projected trip. 9 Between October 1995 and May 1996 Matthew and Loretta worked on the preparation of Bryanna. They also worked on Matthew's boat, Rubicon, and Loretta's boat, Gitana, with a view to these boats being sold. Loretta had a debt of $15,500 by way of a student loan. Matthew paid this debt for her. When Gitana was sold for US$14,000, Loretta gave him this money, which Matthew accepted in full satisfaction of the amount he had paid on her behalf. Rubicon was not sold before they left on the world trip in May 1996. Matthew provided Rachel with a power of attorney which would enable her to sell the boat on his behalf in his absence and, also, make payments on his behalf. It appears that the same power of attorney, or a similar one, was given to Rachel to enable her to make payments on behalf of Loretta. 10 The work on Bryanna was not completed until May 1996. Matthew and Loretta had largely exhausted their funds in the doing of this work. The boat had been moved to the Port of San Pedro near Los Angeles for the work to be done. In late April 1996 Rachel drove from Monterey, where she was then living, to San Pedro to assist the young people in their final preparations. She offered to lend them a further US$5,000 for the purchase of travellers' cheques and to increase the amount in their bank account in case of an emergency. This offer was accepted and the money provided. Prior to the departure, agreement was reached that Rachel would join Matthew and Loretta in Tonga and sail with them from Tonga to Australia. She was to take six weeks leave from her work, beginning in October 1996 and return to Los Angeles from Sydney, by a flight leaving on 6 December 1996. Matthew and Loretta sailed from San Pedro on 6 May 1996. 11 Before flying to Tonga in October, Rachel made certain payments on behalf of Matthew and Loretta, under power of attorney. These will be referred to later. 12 The voyage from California to Tonga was not a success. Loretta suffered considerably from seasickness. She was not, unlike Matthew, an experienced sailor in the open seas. As well as being ill, she was apprehensive at sea. There were strains on the marriage. When Rachel joined them in Tonga, Loretta made it known that she would probably not continue on the voyage after they had reached Australia. Departure from Tonga for New Caledonia, the next landfall, was delayed until weather conditions were favourable for Loretta. 13 On arrival in New Caledonia, a stop of several days was made. On resumption of the voyage, approximately an hour out of the port, Loretta was upset by unfavourable weather conditions and, at her request, Matthew brought Bryanna back into port. The party then remained in New Caledonia for a period of time, during which it became obvious to Rachel that they could not reach Sydney in time for her return flight to Los Angeles. Accordingly, she flew out of New Caledonia to Sydney so that she could catch the return flight in time. 14 During the period that the party remained in New Caledonia, I am satisfied, Rachel became increasingly aware of problems in the marriage. It was plain that the voyage would not continue beyond Australia. She decided that she would obtain a second promissory note from Matthew to cover the amount of US$5,000 which had been advanced in California. She drew up the document herself and it was signed by her and Matthew on 17 November 1996. It appears that Loretta was not aware of the signing of this document (the second promissory note). The document read as follows: "New Caledonia November 17, 1996 Aboard Bryanna I, Matthew J. Lynch promise to repay Rachel A. Lynch the $5000 she loaned us (Loretta & myself) in April 1996 in San Pedro CA to purchase travelers checks & have cash for trip. I also promise to pay interest on loan at 7% per annum if this loan is not repaid in full in six months. Matthew J. Lynch I agree to the above terms. Rachel A. Lynch" 15 Whilst the three people were in New Caledonia, there was a heated discussion between Matthew and Loretta, in which Rachel played a part. Rachel made a note of the main features of this discussion shortly after it took place. There is some conflict of testimony in relation to it. This is understandable, the discussion having been heated, with the result that the participants tended to remember those aspects of it which registered most forcibly with each of them. In view of the fact that she made the note referred to, I am prepared to accept, broadly, Rachel's version. This was to the effect that Matthew asked Loretta what was to be done about Bryanna and all the money that was owed to his mother from her and that Loretta responded that she didn't know that Matthew had two boats and she had nothing. At this point Rachel intervened saying "No Loretta, Matt only has "Rubicon". I paid for most of "Bryanna" and I can either take possession or put a lien to force her sale in order to get my money back. It's in the promissory note." She also referred to the various amounts that she had provided including the loan of US$5,000 and expenditures she had made. Whilst I accept that Rachel made these comments or something similar, I am of the view that references to the lien and the first promissory note made no significant impact upon Loretta at the time, in the heat of the discussion. It is apparent that she was not shown any document. She denies having been told of either the lien or the note. I think the probabilities are that she was told but that in the circumstances, the remarks did not register with her. Further argument occurred at this time between Matthew and Loretta as to the appropriateness of her being paid for work done on Rubicon and Bryanna. A figure of US$5,000 was mentioned by Matthew as an appropriate payment to her. This was rejected by Loretta. She asserted that Bryanna was her home and that she should receive something for that. The discussion went nowhere and ended with Loretta, in an emotional condition, isolating herself in the foreward cabin of Bryanna and refusing to speak to either Matthew or Rachel. 16 It is clear that, by the time Matthew and Loretta arrived in Sydney in late December 1996, the marriage had broken down. Bryanna was berthed at a marina at Cammeray, in Sydney, where Matthew and Loretta held inconclusive discussions about their future, what to do with Bryanna and the debts relating to her and what financial arrangements should be made between them. I am satisfied that these discussions were conducted in an air of mounting hostility. Some documents were signed but, in the ultimate, no significance appears to have been attributed to them. Accordingly, I do not set them out in these reasons. 17 Despite the failure of Loretta and Matthew to reach any overall agreement, I am satisfied that by the time Matthew left Australia to return to California in January 1997, there was at least an understanding between them that Bryanna should be sold and that Rachel should be paid, from the proceeds of sale, the money that she had advanced for the boat and the trip. There was no agreement between them, however, as to how any balance from the proceeds of sale should be divided between them. Matthew returned to California in January 1997, leaving Loretta in charge of and living on Bryanna. On his return, he visited Rachel where she was living in Carmel, California. He told her that Bryanna was up for sale with a broker in Sydney and that he and Loretta had agreed that, after it was sold, Rachel would get her money back first. He said he was going to get a job and start paying back some of the money that was owed. He then left Carmel and returned to San Pedro where he lived upon the Rubicon, which had not been sold. He proceeded to do work upon it to enhance its sale prospects. It was sold in late March 1997. 18 There appears to have been fairly desultory communication between Matthew and Loretta in the first seven months of 1997. There were telephone conversations and e-mails which produced no agreement between them. In late May 1997 he sent a long and involved e-mail to her, in which he mentioned (inter alia) a proposed split of the "profit" from the sale of the Rubicon, this being the difference between the US$42,000, the cost of the original investment, and the US$52,000 for which it was sold. He suggested that each of them should receive US$5,000 from this profit, her share being "in recognition of the time, effort and money that you contributed to Rubicon in making her ready to go cruising." There were some complicated suggestions as to the splitting of any balance from the sale of Bryanna in Australia after payment of debts including the debt to Rachel. He said: "I see it as imperative that we pay of (sic) my Mom as quickly as possible if for no other reason than to eliminat (sic) the interest payments due her. The interest payments on Bryanna are cureently (sic) around 240 dollars a month." 19 He admitted in cross-examination that this statement was partly untrue. There was no interest currently being paid to his mother. Moreover, I am satisfied that this was the first time that any specific mention was made to Loretta that interest was payable to Rachel on the amount of her loans. However, I am also satisfied, having regard to the size of the loans, that she would have expected that reasonable interest would have been payable. 20 I am satisfied that after receiving this e-mail, Loretta took legal advice in Sydney from the solicitors who act for her in these proceedings. Those solicitors wrote to Matthew on 31 July 1997 setting out proposals for the settlement of differences between them. Inter alia, the letter acknowledged that "Brynna (sic) was purchased from money borrowed from your mother US$32,000" and asserted that "Each party is jointly responsible to repay your mother a sum of about AUS$21,000". 21 It does not appear that Matthew responded to this letter. However, he decided that nothing could be achieved by the continuance of the marriage and that he should take proceedings for divorce in California. I am satisfied that he did not acquaint Loretta with his intentions. Before taking the proceedings, he had discussions with his mother about the outstanding debt to her. This was in the context that her understanding had been that the boat was up for sale in Australia and that she would be paid from the proceeds. I should add that I am satisfied that, at least partly because they were living at a very considerable distance from each other, there was no regular communication between Matthew and Rachel. The discussion was confined to taking steps to further protect her interests in respect of the loan. He told her that she should register her lien on Bryanna with the U.S. Coast Guard. After discussing the matter with Matthew she decided to take this course. Matthew obtained a registration form from the U.S. Coast Guard Documentation Centre. It was called "Application for Filing". She read it and considered that the instructions that came with it were not very informative. However, Matthew prepared a document which he headed "Security for Promissory Notes Documented Vessel 'Bryanna'." He signed the document as "Grantor" and had it notarised by Ms Ellen Quinn, a Notary Public. The document was dated 5 August 1997. It made reference to three promissory notes, two of which I have already mentioned, the third being one dated 9 January 1997 for amounts that had been paid under power of attorney by Rachel and which had been drawn up and signed after his return from Australia. This document (the fourth promissory note) provided as follows: "1. This is an agreement between grantor, Matthew J. Lynch, residing at 6817 Roanoak Pl., Riverside, CA 92506 and grantee Rachel A. Lynch, residing at 2556 Santa Lucia, Carmel, CA 93923. 2. Grantor hereby places the entire value of the vessel "Bryanna", US documentation number 645565, as security for debts accrued to grantee. 3. As of 8-1-97, the value of the debt secured by this agreement is $40,651. 4. Grantor's liability arises from three promissory notes. 1) Promissory note dated Sept. 5, 1995 for $30,000 towards purchase price of "Bryanna." Interest accruing at an annual rate of 7%. B) Promissory note dated November 17, 1996 for $5000 used to purchase American Express travelers checks. Interest accruing at an annual rate of 7%. C) Promissory note dated January 9, 1997 for $1174 for debts paid while acting with power of attorney. Interest accruing at an annual rate of 7%. 5. Grantor acknowledges that grantee has the right to collect promissory notes on demand. Grantor agrees to relinquish title to "Bryanna" if he is unable to cover the full amount of the promissory notes. 5. Certification and Attestation: I hereby certify that the preceding information is true and correct. I attest that I understand that the US. Coast Guard will rely on these recitations in securing grantor's debts with the title on the vessel "Bryanna." Signature of Grantor Matthew J. Lynch STATE: California COUNTRY: Riverside SUBSCRIBED AND SWORN BEFORE ME ON: Aug. 5, 1997 Ellen H. Quinn NOTARY PUBLIC MY COMMISSION EXPIRES: Jan. 24, 00 DATE" 22 Having executed this document on 5 August 1997 he posted it along with the "Optional Application For Filing" document to the U.S. Coast Guard office. He then attended the Superior Court of California at Riverside(the Californian Court), where he was then living, and filed the necessary papers to commence divorce proceedings against Loretta. He did not engage a lawyer to assist him in the proceedings. I am satisfied that he took these two steps, in the order that he did, to prevent getting himself into difficulties under Californian law which would have restricted him in encumbering Bryanna after the commencement of proceedings. I am also satisfied that his mother was unaware that he was undertaking this course. 23 After commencing the proceedings, Matthew returned to Australia. He took with him "the Californian divorce papers" for service upon Loretta. There is conflict in the evidence as to the circumstances surrounding the service. In my view, nothing turns on this. Service was, in fact, effected. There were then discussions as to some settlement of the divorce. Again there is conflict in the testimony. However, I am satisfied that at some stage Matthew told Loretta that "the lien on Bryanna has been sent to the Coast Guard". This statement obviously upset her. It brought the discussions to an end, as she wished to seek the advice of her solicitor. She did so and, in the result, she commenced proceedings in the Family Court of Australia for dissolution and property settlement, which proceedings were served upon Matthew whilst he was in Sydney. He engaged the services of a Sydney solicitor before returning to California. Again there is a dispute in the evidence as to his intentions in relation to the Californian proceedings. I consider that, whatever words were used, Loretta was left with the impression that negotiations for the ultimate settlement of their problems would be conducted in the context of the Australian proceedings and that the Californian proceedings would be, at least, placed temporarily on hold. 24 It appears that, on 25 August 1997, Matthew's solicitor filed on his behalf in the Australian proceedings an affidavit sworn 21 August 1997 and pleadings described as responses. After that, unspecified negotiations occurred between the solicitors, one result of which was the filing of certain consent orders on 13 November 1997 with the Family Court of Australia, one of which provided that neither party was to sell, mortgage or otherwise encumber or deal with the Bryanna without the consent of the other. 25 Matthew returned to California later in August 1997. Thereafter he did in fact continue with the proceedings he had instituted in California. In his affidavit he speaks of preparing the necessary papers and filing them. He maintained contact with his solicitor in Sydney and was appraised of the course of settlement negotiations. However, it appears that he did not inform his solicitor as to steps he was taking in the Californian Court. Before any hearing date was reached in California, he received on 10 September 1997 notification from the U.S. Coast Guard that "the Optional Application For Filing" which he had forwarded attaching the fourth promissory note was "deficient in the fact that promissory notes are not recordable" and had been rejected. He was advised that the deficiency could be corrected in accordance with the Regulations and that an application to correct would have to be accompanied by an instrument which was eligible for filing. He was further advised that such an instrument included a Chattel Mortgage or Preferred Mortgage. Ninety days were allowed for the correction of this deficiency after which "in the absence of correction" the original application would be cancelled. 26 He discussed this matter with his mother and the view was formed that it would be better to obtain the services of a professional person to prepare the appropriate documents for lodging. Rachel made contact with Ms Donna Jenkins of an organisation known as Maritime Document Service Incorporated, which operated a business of preparing such documents for registration with the U.S. Coast Guard. On 21 November 1997 Ms Jenkins forwarded to Matthew a form of Preferred Mortgage over Bryanna. This was a standard form document containing standard terms to be found in a mortgage. The document referred to Matthew as the mortgagor and Rachel as the mortgagee. Bryanna was referred to as the vessel the subject of the mortgage. The amount of indebtedness was stated to be US$40,651.00. The mortgage required the payment by the mortgagor of the principal sum together with interest in accordance with the terms of the attached promissory note (the fourth promissory note). That promissory note was attached to the mortgage. Matthew executed the mortgage on 25 November 1997 and it was forwarded to Ms Jenkins' organisation for the purpose of its being registered. Registration was effected with the U.S. Coast Guard on 1 December 1997 giving it the status of a Preferred Mortgage under U.S. law (the Preferred Mortgage). It is apparent that Loretta was not advised of the execution or registration of this mortgage. 27 On 17 March 1998 Matthew attended the first hearing in the Californian Court. He represented himself. There was no appearance by Loretta. The transcript of the proceedings is annexed to his affidavit of 28 April 1999. He was asked by the presiding judge whether he had made contact with Loretta. He said "I have made telephone calls". This fact is denied by Loretta. Matthew advised the Court of the existence of the Australian proceedings, but this topic was not explored. The Court then embarked upon the question of "property division". The judge was apparently relying upon documents which had been previously filed by Matthew. She referred to "the community property declaration" as indicating "money loaned by Rachel Lynch". He was asked whether he had any written documents showing the debt. He responded that he had "a lien that my mother placed on the boat." The judge asked to see the document and enquired how the value of the boat had been established. Having regard to the fact that the Preferred Mortgage had been registered and that it incorporated the promissory note given in August 1997 (the fourth promissory note) I assume that the document which Matthew handed up and referred to as "a lien" was a copy of the Preferred Mortgage. The proceedings became somewhat confused. The Court proceeded to make orders but was interrupted from time to time by Matthew on the basis that the Court appeared to be under a misunderstanding as to the facts. He was advised by the Court that "the general presumption is that everything acquired during marriage is community property of the parties." At a later point the judge said "the general rule is that if you acquired it during marriage I have to assume it's community property until you prove to me otherwise." These comments were made in relation to an assertion made by Matthew that equipment on the boat had been purchased by him with money that he had before the marriage and that it was separate property. He did not have documents with him to establish this matter and, on that basis, the hearing was "continued" to give him the opportunity of producing such evidence. He was told to advise Loretta of "the continuance". There was, however, a "tentative finding that Matthew would be awarded the boat as well as the debt." 28 Although Loretta complains that she was not advised of the continuance, it is clear that Matthew spoke to her about the result because a conversation occurred, by telephone, in which he advised her that the Californian Court had awarded him the boat and that she could buy it from him. I find the evidence as to communications on this topic confusing. 29 Matthew was to return to the Californian Court on 7 April 1998. Before that he was in contact with Mr Bell, Matthew's Sydney solicitor, who advised him that settlement negotiations were still proceeding in Sydney. Matthew says that he was told that "terms of settlement" had been agreed in principle and that they provided that Bryanna was to be given to Loretta in exchange for her repaying the debt to Rachel of US$38,864.00. This information accords with a document, in fact dated 7 April 1998, headed "Terms of Settlement" and forwarded by Loretta's solicitors to Matthew's solicitors in Sydney. It is not clear whether a copy of this document had been received by Matthew before he returned to Court on 7 April 1998. Whether it was or not, I am satisfied that he had received the information as to the offer of settlement and that he was agreeable to it. When he appeared, again without a lawyer, on 7 April 1998 he told the judge "[t]here has been some changes based on the Court proceedings in Australia and I would like to ask you today to change the way that I asked you to decide. Loretta is going to keep the boat and I would ask that she be responsible for the debts and she's agreed to do that." The hearing then continued, rather as it had before, with questions being addressed to Matthew based apparently upon documents that had been filed. The transcript indicates, in my view, that there was some confusion between Matthew and the judge as to the nett value of Bryanna, the judge having misunderstood what Matthew was putting. She considered, at one stage, that the boat had a nett value of US$42,500 and that is after the loan had been subtracted from its value. Matthew corrected this misapprehension by saying "No, the vessel is worth approximately $45,000. The loan I think is worth about $40,000." This led to a re-calculation. In the result, when a Minute of the Order of the 7 April 1998 issued, Bryanna was awarded to Loretta but there was no reference to the US$40,000 debt on the boat. I am satisfied that as a result of Court procedures this order was transmitted to Loretta in Sydney by the Californian Court. Quite simply, the order was incorrect. Although the matter of Loretta's receiving the boat plus the obligation to pay the debt on it had been clearly raised and the Californian Court had been told that there was an agreement to that effect, this was not reflected in that Court's order. 30 Unfortunately, this led to problems. Loretta was obviously quite satisfied with this order of the Californian Court, when notified of it. On her instructions her proceedings for a property settlement in the Family Court in Sydney were discontinued. Indeed, she has maintained in these proceedings that she has an entitlement to Bryanna unencumbered by any debt to Rachel, purely as a consequence of this order of the Californian Court. 31 It is difficult, from the evidence, to obtain a clear picture of the course of events in 1998, in Australia, after Loretta and her solicitor were made aware of the Californian Court order of 23 June 1998. Not only were Loretta's proceedings for a property settlement in the Family Court discontinued but an order was also sought and obtained, on her behalf, that Matthew be "estopped" from taking proceedings in relation to property settlement in the Family Court. Presumably this order was obtained on the basis that he had taken proceedings in the Californian Court, which had resulted in an order in relation to the matrimonial property. It appears that a hearing had been arranged in Sydney for a date in December 1998. It appears that, in all the circumstances, this hearing was abandoned and Matthew was ordered to pay Loretta's costs. That appears to be the final position so far as Family Court proceedings in Australia are concerned. However, the solicitors remained ready to negotiate. 32 It is necessary, now, to consider Rachel's position in 1997 and 1998. I should indicate that I found Rachel to be an impressive witness. I accept her evidence as to her knowledge of matters relating to Bryanna in these years. I have already referred to the circumstances surrounding the provision to her by Matthew of the fourth promissory note and subsequently of the Preferred Mortgage. She was aware of the registration of this mortgage with the U.S. Coast Guard by December 1997 and had, indeed, made arrangements for its preparation by Ms Jenkins. Apart from entering into these arrangements with Matthew, however, she was not kept informed in any precise way as to what was occurring between Matthew and Loretta. In 1997 she was not living with Matthew. Indeed, she was residing at Carmel, some considerable distance from him, and was not in regular contact. When he returned from Australia in January 1997 he had advised her that Bryanna was up for sale and that she would be repaid the moneys owing to her when the sale occurred. On occasions he told her that he was looking after the matter and would fix everything up. At some later stage she was informed by Matthew that the boat was now not to be sold and that Loretta was going to buy it and pay out the loan. This did not eventuate. However, she continued to leave matters in Matthew's hands. As indicated, in August 1997 she followed his advice in relation to the registration of her security. 33 I am completely satisfied that she was unaware that Matthew had taken proceedings in the Californian Court in August 1997. He did not tell her. They were taken in the Court at Riverside, where he was residing, so that it is quite reasonable that she would have had no means of knowing of them, except from him. Furthermore, I accept her evidence that she did not become aware of the proceedings until May 1998. It was in that month that she came to Riverside. She was in the process of changing her abode from Carmel and moving to the eastern states. She called in at Riverside to see Matthew. She suffered a disabling accident which resulted in her remaining in Riverside. Whilst she was recovering from the effects of the accident, it appears, she was made aware by Matthew of the proceedings he had taken in the Californian Court. She then knew that the Court had awarded Bryanna to Loretta. She was not aware of the absence from the Court's order of any reference to the debt owing to her although later in the year, at a time she cannot clearly remember, she became aware of this. When she did so she, or her attorney, Mr Swift, on her behalf, sought that Matthew arrange for the order to be corrected. I shall refer to this later. I am also satisfied that, at the time she arranged for the preparation and filing of the Preferred Mortgage, she was unaware of the Australian proceedings. She only became aware of these proceedings some time in 1998 while she was living in Riverside. Matthew had told her nothing about them, whilst she was living in Carmel. 34 Rachel clearly relied upon her Preferred Mortgage on Bryanna, after seeing the order of the Californian Court. Obviously she spoke to her attorney, Mr Swift, about it and received advice that it would remain enforceable against the boat, even though the boat had been awarded to Loretta. It also appears that she obtained some information that the Customs Department in Australia was planning to seize the boat on 1 September 1998, because of unpaid duties. She wrote to Loretta, enclosing a copy of the Preferred Mortgage. The letter is a lengthy one and is annexure A to her affidavit of 21 July 1999. I shall not set it out in these reasons. It indicated that she had "retained a maritime attorney to protect [her] interest in Bryanna". It contains the following paragraph: "As you knew, there was a preferred mortgage on Bryanna. It was my understanding that you were going to pay the custom's duty and send me a check for $39,500 to release the preferred mortgage so that you could keep Bryanna, which is why you changed your mind about selling her even though the broker had a deposit, etc. This is why the final divorce decree awarded you the boat. Loretta, since the preferred mortgage was attached to Bryanna, it has become your responsibility. I am enclosing a copy of the Coast Guard abstract of title and the filed preferred mortgage. As my attorney assures me after seeing the above information as well as a copy of the divorce papers, I have a valid claim on Bryanna. He has contacted a maritime attorney in Sydney to begin the process there and all I see is more $$$ going out to the lawyers, so I am hoping we can solve this ourselves." 35 The reference to the divorce decree awarding Loretta the boat clearly relates to the information which Matthew had conveyed to the judge as to the new arrangements in Australia. This letter with the accompanying copy of the Preferred Mortgage was received by Loretta only shortly after the copy of the Californian Court order of 23 June 1998 would have been received by her. She would, thus, have been aware at the time her proceedings in Australia were discontinued, that Rachel was claiming to have a mortgage over Bryanna of about US$40,000. 36 In the letter Rachel made an offer for Loretta to pay the amount of the secured debt by instalments and to have, at Rachel's expense, an agreement drawn up by a lawyer "so that there would be no misunderstandings about the terms." Other suggestions were made in the letter as to steps that could be taken to prevent seizure. The final paragraph of the letter reads as follows: "You can reach me at Uncle Mike's address in Riverside or at the following phone number. where I am staying (909) 683-3527. You can call me collect. I am no longer in Monterey as I had an accident in May and am now on disability, until/if I get movement back in my hand and fingers(nerve damage)." 37 It does not appear that Loretta responded to this letter. She, apparently, took the view that the Californian Court had awarded her the boat free of the debt. Indeed, this view has been advanced on her behalf in these proceedings. 38 On 16 November 1998 Rachel's attorney, Mr Swift, wrote to the solicitors acting for Loretta and for Matthew in Australia making demand "that the principle obligation of $40,651.00 (U.S) under the ship mortgage, together with all interest due thereon, be satisfied immediately." The suggestion was made that the vessel be sold under order of the Australian Court and that the proceeds be used "to satisfy all liens and obligations so as to provide the purchaser with clear title; and any balance paid into the registry of your court." It was indicated that Rachel would co-operate in such arrangements and that "if such an approach is unacceptable, we will have no option but to pursue other legal remedies." It appears that no response was made to this demand. 39 After a period of what he described as "procrastination," Matthew approached the Californian Court in relation to the order of 23 June 1998. He had been advised by his Sydney solicitor that negotiations in Sydney were affected by confusion over the fact that the Californian Court order made no mention of the debt on Bryanna. Eventually, he retained an attorney on 12 January 1999 who filed papers in the Californian Court drawing to the Court's attention that the transcript of the earlier hearing had indicated that the boat and the debt had been awarded to Loretta. There does not appear to have been any hearing involved. The Court ruled on "The Court's Own Motion" that "[d]ue to a clerical inadvertence" the previous order was "amended Nunc Pro Tunc" to delete the reference to "Bryanne (sic) boat" and add, in substitution, "Bryane (sic) boat and debt thereon". When the Californian Court's order issued on 22 January 1999 the award made to Loretta was shown as "BRYANNA boat, subject to debt in the amount of $40,000.00 with Rachel Lynch". 40 It is clear that Loretta was not informed of this approach to the Californian Court in January 1999. She was, however, aware of Rachel's intention to take proceedings in relation to her security over Bryanna. 41 Against this background, I turn to consider the cases presented by the parties. The plaintiff's case The plaintiff relies upon the promissory notes and the Preferred Mortgage as giving her security over Bryanna. It is acknowledged that the first promissory note could not have this effect until demand was made. This demand occurred, as a result of Mr Swift's letter, on 18 November 1998. In my view, there is no need for the plaintiff to rely this document. She does not, in fact, do so in the writ in these proceedings. There, reliance is placed upon the Preferred Mortgage. As has been seen, this security attaches the less formal security prepared and executed by Matthew in favour of his mother over Bryanna in August 1997. I am satisfied, that it is the security in this form which is the subject of the order of the Californian Court when that order speaks of transfer of the debt with Rachel Lynch of US$40,000 to Loretta. It is convenient in the resolution of these proceedings, to regard the Preferred Mortgage as constituting the security relied upon. 42 I am satisfied that the relevant Californian law should be regarded as the governing law of this security. I have been taken to relevant sections of the Californian Commercial Code and am satisfied that it is a valid security in accordance with Californian law. Indeed, I do not understand the defendant to assert any formal invalidity on the part of the Preferred Mortgage based upon any failure to comply with relevant sections of the Code or US Federal Maritime laws. The defences go to other matters. 43 The plaintiff seeks orders, giving effect to the security and for repayment of the debt. She relies correctly, in my view, upon s. 16 and s. 4(2)(a)(iii) of the Admiralty Act 1988 (Cth) to found her claim against Bryanna and upon the definition of "mortgage" in s. 3 of that Act. 44 The defendant's case A number of matters have been raised by way of defence. I deal with them in the following paragraphs. Loretta alleges that there was a firm agreement between herself, Matthew and Rachel that Rachel's loans should be repaid to her from the proceeds of sale of the Rubicon. Conversely, Loretta alleges there was no agreement that Bryanna should be subject to the plaintiff's debt. She gave evidence of conversations which she asserts produce this result. I was not particularly impressed with Loretta's evidence. I do not consider that she was seeking to mislead the Court, but I formed the opinion that her recollection of events has been distorted by some fixed ideas as to what the justice of the situation requires, as she sees it. Her memory is, in my view, coloured, to a significant extent, by wishful thinking. I prefer the evidence of Rachel where there is conflict. I am satisfied that there was some discussion, at an early stage, as to Rachel selling the Rubicon, under power of attorney and, perhaps, using those funds to repay herself. I am equally satisfied that no legally binding agreement arose as a result of those discussions. I am fortified in this view by the simple fact that Rachel, even before Bryanna was purchased, sought to give herself security over it, in the event of the loan not being repaid. Furthermore, the loan was expressly advanced, to the knowlege of Loretta, for the purpose of enabling the purchase of Bryanna. I am also satisfied that Rachel endeavoured to make this clear to Loretta during the discussion in New Caledonia although, as I have indicated, I entertain some doubt as to whether Loretta fully comprehended what was being said. Moreover, it appears from Rachel's evidence that, to a significant extent, Rubicon had been purchased with money provided by her and also the refitting of the vessel had been largely financed by her. As she said, if she had accepted that Rubicon was an ultimate source of repayment to her of the money she was advancing for the purchase of Bryanna she would, in effect, be repaying herself with her own money. This defence must fail. 45 It is also claimed, by way of defence, that Loretta became entitled to Bryanna free of any debt, as a result of the Californian Court order of 23 June 1998. As part of this claim, it appears to be asserted that the alteration of that Court order was a fraud upon her, the Court having been misled into making the alteration. I do not accept this. The evidence makes it quite clear that the Court, no doubt because of Matthew's appearing without a lawyer, made a simple mistake in its orders. When this was drawn to its attention, it corrected the judgment of its own motion and made an order "nunc pro tunc" transferring the debt, along with the boat, to Loretta. It is regrettable that Matthew took so long to obtain the correction of the order. It appears that Loretta may have altered her position in relation to the Australian proceedings, on the faith of the original order. As to that, however, I am inclined to the view that she felt that some mistake might have been made, especially in light of the offer that had been made, shortly before, by her solicitor, that she should receive the Bryanna and pay out the debt to Rachel. Moreover, as I have already indicated, she received Rachel's letter shortly after receiving the copy of the order. The letter made it quite plain that Rachel regarded Bryanna as being subject to her mortgage debt and that, if matters could not be resolved, proceedings would be taken. 46 Even if it could be asserted that some estoppel might arise in relation to Matthew's failure to take timely steps to have the Californian Court order corrected, this would, in my view, only affect Matthew. Loretta would have been fully aware of Rachel's position in relation to the mortgage, as a result of her letter in August 1998 and Mr Swift's letter in November of that year. 47 In all the circumstances, I am satisfied that Loretta cannot rely upon the Californian Court order of 23 June 1998 as giving her an unencumbered title to the vessel. This defence must fail. 48 It is not clear to me whether, or to what extent, Loretta makes a claim based upon the Californian law as to community property in marriage. This is, of course, foreign law. It has not been proved before me by the calling of expert evidence or the tendering of the Statute itself. It is clear that Rachel did not regard Bryanna as being the community property of Matthew and Loretta at the time she entered into the first promissory note. I accept her evidence that she was of the view that because the vessel could clearly be traced to funds advanced by her to Matthew for the purpose of the purchase of the vessel in his name only, the boat when so purchased and registered did not become community property of the marriage. I am satisfied that she held this view up until the time she was advised that the Californian Court had, apparently, treated it as community property and made orders accordingly. No argument was put to me that, as a matter of Californian law, Matthew could not have created a mortgage interest in favour of Rachel over the vessel. What is put, as I understand it, is that some unconscionability attended the creation of the mortgage, resulting in Loretta's being able to assert that Rachel was bound, in equity, not to seek to enforce the mortgage against Bryanna. I shall deal with that submission shortly but, before doing so, indicate that there is nothing shown in the case, which, in my opinion, would indicate that Matthew could not, in law, grant the mortgage interest to his mother. 49 I am also satisfied that, in so far as it may be alleged (and I am not certain that it is) that Rachel took the mortgage over Bryanna knowing that the boat was community property and was therefore bound in equity not to take steps which might prejudice Loretta's community interest, there is no factual basis for this submission. I am satisfied, as I have already said, that Rachel took the mortgage, in circumstances where she was of the opinion that the boat was not community property. Also, I do not accept the submission that Matthew was Rachel's agent in executing and registering the mortgage so that his knowledge should be imputed to her. 50 It appears to be asserted that reliance cannot be placed by Rachel upon the mortgage because, at the time it was given, Matthew was bound by a rule of the Californian Family Code that, once proceedings had been commenced in the Court, no community property of the marriage could be encumbered or otherwise dealt with by either party to the marriage. A warning to this effect appears upon the Court originating process which is in evidence before me. The parties appear to accept that this, indeed, is a rule of Californian law and, accordingly, I accept that it is so for present purposes. In any event, an order in similar terms had been made in the proceedings in the Australian Court. It may be ( I express no concluded view) that Matthew in granting the Preferred Mortgage after the commencement of the Californian proceedings and the making of the order in Australia was in contempt of both Courts. I am quite satisfied, however, that Rachel had no knowledge of the Court proceedings in either jurisdiction at the time the mortgage was given. If Matthew's behaviour could give rise to any equities in favour of Loretta, those equities would not effect Rachel. In the circumstances her conscience would not be bound. No evidence was adduced before me sufficient to prove that Californian or United States Federal law contains principles which could found a contrary conclusion. 51 As I understand it, a final broad defence is sought to be raised, namely that Matthew and Rachel entered into a conspiracy to prevent Loretta obtaining anything from the break-up of the marriage. It is put that the giving of the mortgage in respect of Bryanna was not bona fide but was entered into with the intent of preventing Loretta from establishing her just claims to the vessel. The facts simply do not support any assertion of this kind. It is clear that from the very first Rachel regarded the loan which she was providing, with some hesitation, as being repayable, at her option, from the sale of Bryanna. The addition to the original amount loaned of the other amounts advanced to Matthew and Loretta for the purpose of the circumnavigation and also for relatively small payments on their behalf in California, were seen as debts that could be added to the security. In the result they were all incorporated within the security of the Preferred Mortgage. There was a suggestion that the mortgage was given without consideration. However, it asserts in its terms the giving and receipt of consideration and no evidence was given to contradict this. In the result, I am satisfied that Rachel, at all times, wished to have security over Bryanna for the substantial sums that she had advanced and that it was to Bryanna that she always looked for the repayment of the debt in the event that Matthew did not answer the demand for repayment. 52 I am of the opinion that Rachel has established her claim to realise the security given by way of the Preferred Mortgage over Bryanna. 53 I consider that all the defendant's defences fail and that appropriate orders should be made in favour of the plaintiff. 54 It follows from what I have said that I am not prepared to make any of the orders sought by Loretta in her cross-claim. This cross-claim must be dismissed with costs. 55 In respect of the plaintiff's claim, it has been submitted that I should make orders which would have the effect of enabling the plaintiff to take possession of the vessel Bryanna and exercise her rights under the Preferred Mortgage. It is put, I think correctly, that this approach would expedite the realisation of the security and improve the prospects of obtaining a satisfactory sale price. Accordingly, I make the following declarations and orders based upon those proposed by the plaintiff: The Court declares that: 1. The Preferred Mortgage executed on 25 November 1997 is valid. 2. The plaintiff is entitled to take possession of the vessel "Bryanna", registered in the United States of America and bearing US Coast Guard No. 645565, and its equipment and exercise her rights under the Preferred Mortgage executed on 25 November 1997. The Court orders that: 1. The defendant give possession of the vessel "Bryanna", registered in the United States of America and bearing US Coast Guard No. 645565, and its equipment to the plaintiff. 2. The cross-claim be dismissed. 3. The defendant pay the plaintiff's costs of the claim and cross-claim. The Court directs: 1. The Admiralty Marshal to deliver to the plaintiff or her legal advisers in Sydney the vessel "Bryanna", registered in the United States of America and bearing US Coast Guard No. 645565, and its equipment. Last Modified: 01/04/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.