FEDERAL COURT OF AUSTRALIA
Norddeutsche Landesbank Girozentrale v The Ship “Beluga Notification” (No 2)[2011] FCA 665
IN THE FEDERAL COURT OF AUSTRALIA | |
IN ADMIRALTY | |
NORDDEUTSCHE LANDESBANK GIROZENTRALE Plaintiff | |
AND: | THE SHIP "BELUGA NOTIFICATION" Defendant |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. Judgment be entered for the plaintiff against the defendant in the sum of EUR 11,471,537.13.
2. Interest be payable on the judgment sum in Order 1 at the rate of EUR 1,590.55 per day.
3. The Marshal have the defendant ship “Beluga Notification” (“the Ship”) valued in writing.
4. The Marshal sell the Ship under the Admiralty Rules 1988 (Cth).
5. The method of sale be determined by the Court.
6. The Marshal engage a shipbroker to value the Ship in writing and advise as to the method of sale.
7. The Marshal retain a solicitor experienced in the judicial sale of ships to act on the sale of the Ship.
8. Pending further order, the Marshal and the shipbroker not disclose the valuation referred to in Order 3 to the parties or anyone else apart from the Marshal’s delegates.
9. The defendant pay the plaintiff’s costs.
THE COURT DIRECTS THAT:
10. The Marshal would be justified, subject to being satisfied as to the terms of any proposed engagement, to engage John Bonsor of Australian Independent Shipbrokers as shipbroker for the purpose of these orders.
11. On or before 15 June 2011, the Marshal ascertain from the shipbroker appointed for the purposes of these orders, when he or she will be able to advise as to the method of sale so that the Court may make an order to the following effect:
“Prior to the close of business on (insert date) the Marshal give notice of the shipbroker’s recommendations as to the method of selling the Ship to the solicitors for the plaintiff, and to the Ship.”
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
IN ADMIRALTY | |
QUEENSLAND DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 432 of 2011 |
BETWEEN: | NORDDEUTSCHE LANDESBANK GIROZENTRALE Plaintiff
|
AND: | THE SHIP "BELUGA NOTIFICATION" Defendant
|
JUDGE: | RARES J |
DATE: | 10 JUNE 2011 |
PLACE: | SYDNEY (VIA VIDEO LINK TO BRISBANE) |
REASONS FOR JUDGMENT
1 Norddeutsche Landesbank Girozentrale (the Bank) commenced these proceedings in rem against the ship “Beluga Notification” by filing a writ on 12 April 2011. The ship was arrested in the Port of Townsville the next day and has since been moved to an anchorage in the Port of Brisbane. The Bank has applied by motion for judgment in default of appearance by the ship or the relevant person and an order for valuation and sale.
The basis of the bank’s claim
2 The Bank seeks to enforce a ship mortgage over “Beluga Notification” given to it on 19 November 2010 in Germany by her owners, MS “Dutch Katja” Shipping GmbH & Co KG, the relevant person named in the writ. The mortgage acknowledged that the owners owed the Bank €13,500,000 and contained an agreed interest rate of 15% per annum payable quarterly commencing on 25 March 2011. Maren Brandes, an expert in German shipping law, whose evidence I accept, explained that the ship mortgage is contained in an abstract promise to pay and ship mortgage deed that secures the owners’ liabilities under a loan agreement. Ms Brandes said that this form of mortgaging a ship is standard practice in Germany. The mortgage was executed by Niels Stolberg, as executive director of Nedfriends Project GmbH, in its capacity as the general partner with sole representation for the owners.
3 On 22 November 2010, the owners entered into a loan agreement with the Bank to borrow €11,200,000 to be secured by the mortgage. The loan agreement recited that:
the newbuild ship was expected to be delivered by a Chinese shipyard in late November 2010;
the owners had entered into a 5 year time charter with Beluga Chartering GmbH;
a ship management agreement was, or would be, executed with Beluga Fleet Management GmbH & Co KG;
the owners would operate the ship under the flag of Antigua and Barbuda and enter into a bareboat charter with Dutch N-Type Ltd, an Antiguan corporation.
4 The loan agreement incorporated the Bank’s general terms and conditions for loans on seagoing and inland vessels as well as ship construction projects. The loan had to be drawn down by 31 December 2010 and was to be redeemed by three equal quarterly instalments of €186,000 and a final payment of €10,642,000. Interest of 2% per annum plus the Euro Interbank offered rate plus a liquidity premium of 0.35% per annum was payable in arrears on the amount of the loan. The owners agreed that the mortgage would be security for the loan and that the nominal value of the mortgage, €13,500,000, was the amount of the loan plus 20% per annum. The owners also agreed to provide the Bank with assignments of the bareboat charter and its insurances, together with a limited guarantee by Mr Stolberg for €4,800,000.
5 Importantly, the Bank’s general terms and conditions provided the following in section IV “Events of Default”:
“1. The Bank may refuse to disburse the loan and demand the immediate repayment of any loan balance outstanding should there be an important reason to do so. Such important reason shall in particular be deemed given if:
…
(c) the borrower or the shipowner enters into liquidation proceedings or suspends payments, settlement or insolvency proceedings in regard of the borrower’s or the shipowner’s assets are instigated, or the borrower or the shipowner ceases operating vessels or operating the financed vessel, or the vessel is laid up for more than three months without the Bank’s approval.
…
(e) the financial situation of the borrower or shipowner or, in the case of one or both of them being partnerships, of any of the general partners, or, in the case of a shipowning partnership, of one of the partners therein, deteriorates substantially, or when changes with respect to such general partner of a partnership or partner in a shipowning partnership occur, (e.g. as a result of a partner’s withdrawal by agreement, resignation or death), or when there is a risk of substantial deterioration in the financial situation of the borrower or the shipowner due to its relationship with another company to which it is affiliated within a group or related in a manner similar to an affiliation within a group.
…
(t) the events mentioned in sub-sections 1(c), (d), (e) occur in regard of a third person being wholly or partly liable for the loan or having guaranteed the loan or being responsible for the payment of the loan in any other way.
…
and if due to any of the cases mentioned in the fore-going sub-sections 1(a)-(v), which shall serve as examples only, the fulfilment of the borrower’s payment obligations or the enforceability of the Bank’s claims is endangered.” (emphasis added)
6 Section IX.1 of the Bank’s general terms and conditions provided that the borrower must bear all costs, expenses and taxes arising in connection with, among others, enforcing the mortgage. Ms Brandes said that this provision was an undertaking by the borrower to pay and reimburse or indemnify the bank for and against all costs reasonably incurred or sustained by it in connection with, among others, the enforcement of the loan agreement and mortgage.
7 On 22 November 2010, Mr Stolberg also executed an absolute suretyship, promising to pay the bank up to €4,800,000 in respect of the owners’ liability under the ship mortgage and loan agreement. That is a guarantee, as Ms Brandes explained.
8 On 2 December 2010, the owners drew down the full amount of the loan of €11,200,000 and elected to pay fixed interest for three months. On the same day, the Bank registered the mortgage as securing €13,500,000 and interest at 15% per annum in the Bremen County Court’s Register of Sea-going Vessels. Ms Brandes stated that, as a matter of German law, an entry in such a Register creates a universal presumption that the registered information is correct and can be relied on by any interested party who acts on it in good faith. She opined that the Bank is presently entitled to enforce the mortgage as a first ranking security over the ship.
9 Also on 2 December 2010, a bareboat charter of the ship was made by the owners to Dutch N-Type Ltd and this was registered on that day in the bareboat charter registry of Antigua and Barbuda. The certificate of that registration recorded that any mortgages or encumbrances of “Beluga Notification” had to be entered at the Registry in Bremen, Germany.
10 On 12 January 2011, the Bank received a valuation of “Beluga Notification” in the sum of USD 15,800,000. The Bank’s solicitor, Stuart Hetherington has obtained exchange rate information from the Reserve Bank of Australia that indicates that in the period between 4 April and 7 June 2011 USD 15,800,000 was worth in the order of between €11,100,000 and €10,810,000.
Events of default
11 As is now well known, the Beluga group encountered financial difficulties earlier this year. The owners did not pay the instalment of €186,000 and interest of €96,937.89 that was due on 2 March 2011.
12 On 16 March 2011, the Bremen County Court made an order for preliminary administration of the assets of, and appointed a preliminary insolvency receiver and administrator to, Beluga Chartering. On 22 March 2011, that Court made similar orders in respect of Beluga Fleet Management. On 31 March 2011, the Bank wrote to the owners advising them that the insolvency application of Beluga Chartering amounted to a major change to the loan relationship. The letter claimed interest that was due on the unpaid interest from 2 March 2011 at the default rate of 5.12% per annum pursuant to ss 247 and 288 of the German Civil Code. Ms Brandes explained that those sections provided that any monetary debt must bear interest during the time it is in default.
13 On 4 April 2011, the Aurich County Court made an order for preliminary administration of Mr Stolberg’s assets and appointed a preliminary insolvency receiver and administrator in respect of his estate.
14 Next, on 11 April 2011, the Bank wrote to the owners “cancelling” (scil: terminating) the loan agreement and the abstract acknowledgment of debt and accelerated, with immediate effect, the time for payment of the whole of the principal and interest which it then claimed to be €11,562,104.13. The sum due and payable on 11 April 2011 was corrected by the Bank in its letter to the owners dated 5 May 2011 by reducing it to €11,376,104.13 and it now seeks judgment in that amount. However, by then, the arrest of the ship had occurred and the Bank had incurred substantial bunkering, crew salary, port disbursement and other costs in respect of the arrest.
15 Willy Idler, a senior director in the ship and aircraft finance department of the Bank, swore an affidavit of 19 May 2011 in support of the Bank’s motion. He deposed that the owners had failed to make any payment at all in respect of the amount outstanding as at 11 April 2011 of €11,376,104.13 or of any interest or other sums that have been accruing under the mortgage since. He swore that he did not believe that, first, there is any arguable defence to the Bank’s claim to payment of the full amount due and, secondly, there was any prospect of the owners paying that debt. I accept his evidence.
16 Ms Brandes opined that the Bank’s letter of 11 April 2011 and its correction letter of 5 May 2011 were all that German law required it to do to enforce its rights under the loan agreement and mortgage. She explained that the events of default identified in the first and last paragraphs in section IV.1 of the Bank’s general terms and conditions were not unusual in German law. She said that those paragraphs mirrored the applicable provisions of the German law of obligations in ss 314, 323(2) and 490(1) of the German Civil Code. In substance, Ms Brandes’ opinion was that, consistently with German law, section IV.1 of the Bank’s general terms and conditions permitted it to terminate the loan agreement, thereby making the whole of the unpaid loan and interest due and payable immediately, if:
(1) there was an important reason to do so (s 314 of the German Civil Code and the chapeau to section IV.1);
(2) that reason caused a risk that the borrower will not meet its payment obligations or endangered the lender’s ability to enforce its claims (s 490(1) of the German Civil Code and the concluding clause of section IV.1).
17 Ms Brandes noted that the list of examples in section IV.1 of the Bank’s general terms and conditions was not exhaustive of the matters on which the Bank could rely to exercise its rights of termination of the loan agreement and to accelerate obligation of the owners to repay the loan and all outstanding interest and other moneys secured. She opined that s 323(2) of the German Civil Code permits termination of a contract without prior notice in certain circumstances, including where the obligor seriously and definitively refuses performance and where there are special circumstances justifying immediate termination, after weighing the interests of both parties.
18 Ms Brandes opined that the event of default prescribed in section IV.1(t) had been satisfied. This was because Mr Stolberg had given a partial guarantee of the loan and subsequently had entered into insolvency proceedings on 4 April 2011 within the meaning of section IV.1(c). She reasoned that Mr Stolberg’s insolvency was itself sufficient to constitute an important reason to justify the Bank terminating the loan agreement. And, she said that these matters entitled the Bank to terminate the loan agreement when taken in conjunction with the fact that the market value of the ship, based on the valuation of USD 15,800,000 was less than the total amount of the debt. I accept her evidence.
Formal requirements
19 I am satisfied by the evidence of the Marshal that he served the writ personally on “Beluga Notification” on 13 April 2011 by affixing it to the window in the bridge of the ship: r 30(1)(a) of the Admiralty Rules 1988 (Cth). The Marshal also served the arrest warrant and affidavit in support of Mr Hetherington sworn 12 April 2011 at the same time. The Bank filed a statement of claim dated 21 April 2011 on 27 April 2011. No appearance has been filed by the ship or any relevant person including the owners. The Marshal caused a copy of the statement of claim to be delivered to the master of the ship on 11 May 2011 by Cameron Bartlett who was delivering provisions to her. Mr Idler also caused a copy of the statement of claim to be delivered to the owners’ offices in Germany on 12 May 2011. The Marshal served the ship with the Bank’s motion and all the affidavits in support on 6 June 2011.
20 I heard the motion by video link to Brisbane on 8 June 2011. When the matter was called outside the Court in both Brisbane and Sydney there was no appearance by any party other than the Bank.
Consideration
21 The time by which an appearance must be entered by a party in a proceeding commenced, as this was, as an action in rem, is 21 days after service of the initiating process on the defendant ship on 13 April 2011: r 23(1) of the Admiralty Rules. Since no appearance has been filed, the Bank is entitled to proceed on its motion for judgment. The Bank was not required to serve the statement of claim on the owners because they had not entered an appearance: r 22(3)(a). However, the statement of claim has been brought to the owners’ notice.
22 The Court has jurisdiction to determine these proceedings in rem under s 16 of the Admiralty Act 1988 (Cth) because they are on a proprietary maritime claim concerning ship. That is, a claim relating to a mortgage of a ship and for interest in respect of it within the meaning of ss 4(2)(a)(iii) and (d) of the Act.
23 I am satisfied on the evidence that the mortgage is valid and enforceable, and that the Bank has established that it was entitled to demand repayment in full of the amounts of the outstanding loan and interest as at 11 April 2011. That sum was the revised amount of €11,376,104.13 that the Bank notified to the owners in its letter of 5 May 2011. Ms Brandes’ evidence satisfies me that the Bank is entitled to judgment with interest on that foreign currency sum at 5.12% per annum as from 11 April 2011. The evidence also established that the Bank will be entitled to recover all costs reasonably incurred or sustained by it in connection with the enforcement of the mortgage and loan agreement. Those costs include the Bank’s costs in these proceedings.
Application for valuation and sale
24 The Bank seeks an order under r 69(1) of the Admiralty Rules that “Beluga Notification” be valued and sold. The Bank also sought orders that:
the sale need not be by public auction;
the Marshal engage a nominated shipbroker to conduct the valuation and advise as to the method of sale;
any valuation not be disclosed by the broker or the Marshal until further order;
the Marshal be entitled to retain a solicitor experienced in the judicial sale of ships to act for him;
the suggested conditions of sale in annexure 15 to the Court’s publicly available version of its Marshal’s Manual be varied by providing that:
(a) the Marshal have a discretion to accept an irrevocable guarantee, draft or letter of credit in lieu of a cash transfer as a means of payment;
(b) the Bank be permitted to submit a credit bid to the extent of its judgment debt and relieving it of any obligation to pay that sum to the Marshal if it be the successful bidder together with consequential amendments.
Valuation and sale consideration
25 The principle on which the Court will order a valuation (or appraisement) and sale of a ship under arrest before final judgment was explained by Brandon J in The “Myrto” [1977] 2 Lloyd’s Rep 243 at 260 (in a passage approved by Ryan J in Marinis Ship Suppliers (Pty) Ltd v The Ship “Ionian Mariner” (1995) 59 FCR 245 at 249B-C, 250C-D):
“The question whether an order for the appraisement and sale of a ship under arrest in an action in rem should be made pendente lite arises normally only in a case where there is a default of appearance or defence. In such a case it has been a common practice for the Court to make such an order on the application of the plaintiffs on the ground that, unless such order is made, the security for their claim will be diminished by the continuing costs of maintaining the arrest, to the disadvantage of all those interested in the ship, including, if they have any residual interest, the defendants themselves.”
26 It is now nearly two months since the arrest of “Beluga Notification”. There is no apparent prospect that the owners or any one else will pay or provide security to obtain the ship’s release from arrest. The expenses of maintaining her, including her crew, and keeping her under arrest are mounting. The Bank has signed the Form 26 in which it made this application and thus provided the undertaking to pay all associated costs and expenses of the Marshal in carrying out an order for valuation and sale required by r 69(4) of the Admiralty Rules. The Bank is now a judgment creditor for a significant debt. No useful purpose will be served by prolonging the period of the arrest beyond what is reasonably necessary to arrange and complete a sale of “Beluga Notification” by the Marshal.
27 In those circumstances, the Bank’s application for the ship to be valued and sold is compelling and should be granted. Unless a sale is ordered, significant charges will continue to be incurred in maintaining “Beluga Notification” under arrest in circumstances where she appears to be worth less than the judgment debt: “Ionian Reefer” 59 FCR at 250C-D per Ryan J.
Manner of sale
28 Rule 70 of the Admiralty Rules provides:
“70 Sale
(1) The sale of a ship or other property ordered to be sold under rule 69 must be conducted by the Marshal.
(2) The court may direct that the sale be by auction, public tender or any other method.”
29 I am not prepared to make an order at this time under r 70(2) directing the manner of sale or whether it be by public auction. That would pre-empt the advice that the shipbroker will give to the Marshal. And it will be open to the shipbroker to advise the Marshal that the sale not be by public auction. There is no evidence before me that an order for any particular manner of sale would be appropriate. Once the shipbroker has advised the Marshal on this issue, the Marshal can apply for directions as to how the sale ought be conducted under rr 48(1), 50 and 70 so that the Court can make orders or give directions as is necessary.
30 Because it is the duty of the Marshal to conduct the sale and in so doing to realise the highest price (The “Silia” [1981] 2 Lloyd’s Rep 534 at 535 per Sheen J; see too: Den Norske Bank ASA v Owners of the ship “Margo L” [1998] 1 HKC 217 at 218-220 per Waung J), it is preferable to allow the Marshal to undertake that function in the manner best calculated to achieve it. “Beluga Notification” is a very new ship and is therefore likely to be in almost new condition. It is not clear at present whether there are other creditors with maritime claims relating to the ship who may have an interest if the sale realises more than is owed to the Bank and the attendant costs of the arrest and sale.
31 Here, the only party that has appeared is the Bank. Not only does it seek an order for sale, but it is also seeking the appointment of a shipbroker and valuer that, because it is the only party, it has had to nominate in circumstances where it also seeks to bid or participate in the sale as a prospective purchaser. These features emphasise the need for the Marshal, as the responsible officer of the Court, to be able to act independently in forming his or her own view as to whom he or she considers, after an independent investigation, to be an appropriate valuer and the best method of effecting a sale at the best price.
32 The Bank has suggested that John Bonsor of Australian Independent Shipbrokers be appointed to conduct the valuation and sale. The Deputy Registrar (Admiralty and Maritime) had shown the Bank’s solicitor a copy of Mr Bonsor’s curriculum vitae in early May 2011. From the material that I have seen in evidence, including an affidavit by the Marshal as to his enquiries, I am satisfied that Mr Bonsor would be a person qualified to perform this role. No enquiries appear to have been made about the commercial terms on which Mr Bonsor, or anyone else, would act if appointed. I will give a direction that the Marshal would be justified to engage Mr Bonsor if he or she is satisfied as to those terms and still wishes to do so. I will also give a direction that ensures that the Marshal ascertains from the shipbroker who is engaged a date by which the proposed method of sale can be notified to the parties so that appropriate orders can be made further to progress the matter.
Whether the mortgagee can purchase
33 The consequence of the Court ordering that a ship or other property be sold is that a mortgagee is no longer affected in its ability to purchase in the way it would be when exercising a power of sale under the mortgage. In principle, in a judicial sale, the Bank should be able to participate in the sale by the Marshal and purchase the ship if it is the highest bidder or offeror. This is because the Marshal will have the independent conduct of the sale, subject to the directions of the Court. I am of opinion that a mortgagee can participate as a prospective purchaser and buy a ship in a sale process conducted by the Marshal pursuant to an order of the Court. As Sir Donald Nicholls V-C, with whom Butler-Sloss LJ and Sir Michael Kerr agreed, said of a mortgagee seeking to purchase real property in a sale under a Court order in Palk v Mortgage Services Funding Plc [1993] Ch 330 at 340E (see too: G Bowtle and K McGuinness: The Law of Ship Mortgages (2001 Lloyds Shipping Law Library) at [7.56]):
“The mortgagee can buy the property. A mortgagee cannot buy property from itself, but here the sale is directed by the court; it is not a sale by a mortgagee in exercise of its own power of sale.”
34 For these reasons, the Bank should be permitted to make a bid or offer and participate in the sale by the Marshal. It has given the undertaking to pay all the expenses of the Marshal required by r 69(4) and the Marshal can require it to make whatever payments, including payments on account of future anticipated expenses, that he or she considers appropriate for the conduct of the arrest and sale. Since the Bank holds a first mortgage over the ship, on the material now in evidence, it appears to be appropriate to allow it to bid up to the amount of its judgment debt and accrued interest without having to pay that to the Marshal. However, there should be a power for the Marshal and the Court to vary the terms on which the Marshal may permit the Bank to have the benefit of the judgment debt in relieving it of the obligation to make a payment for the ship if it is the purchaser. This is because, first, the sale process may cause other creditors to come forward with competing claims to those of the Bank and, secondly, some other circumstance may arise to justify such a variation. The precise terms on which the Bank may purchase using the amount owed to it should be considered by the solicitor whom I shall order the Marshal to engage for the purpose of the sale.
Conclusion
35 For these reasons, I will order judgment in favour of the Bank in the sum claimed as at 11 April 2011 together with 60 days interest of €95,433. I will provide in the orders for interest to accrue on the principal debt at the rate of €1,590.55 per day. I will make orders for the valuation and sale of “Beluga Notification” subject to the Court determining the method of sale after the Marshal has been advised by the shipbroker on this issue. I will also give directions so that the Marshal can progress the sale process.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. |
Associate:
