FEDERAL COURT OF AUSTRALIA

Bank of China Limited v The Ship “Hai Shi” [2013] FCA 224

FEDERAL COURT OF AUSTRALIA

Bank of China Limited v The Ship “Hai Shi” [2013] FCA 224

CORRIGENDUM

1    In paragraph 1 of the Reasons for Judgment, in the fourth line the word “capsize” should read “capesize”.

Associate:

Dated:    15 March 2013

THE COURT ORDERS THAT:

1.    On or before 8 February 2013, the plaintiff deliver to the relevant person, Yuan Sheng Shipping (Singapore) Pte Ltd, at its physical addresses, Flat 6510 65F, The Center, 99 Queens Road, Central, Hong Kong, and in Singapore at 80 Raffles Place, #47-03 UOB Plaza, Singapore, 048624, as set out in the Facility Agreements between it and the plaintiff, all documents filed in these proceedings.

2.    The Marshal have the defendant ship Hai Shi (the ship) valued in writing.

3.    The Marshal engage a ship broker to value the ship in writing and advise as to the method of sale.

4.    Pending further order, the Marshal and ship broker not disclose the valuation referred to in Order 3 to the parties or anyone else apart from the Marshal’s delegates.

5.    Stand the proceedings and the interlocutory application over to 22 February 2013, at 9:00 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1     This is an application by the plaintiff in these proceedings, Bank of China Limited Singapore Branch, for the valuation and sale of the defendant ship, Hai Shi. On 14 January 2013, International Bunker Services KK filed a writ and an application for an arrest warrant against the ship. The ship is a capsize bulk carrier built in 1997, registered in Singapore to Yuan Sheng Shipping Singapore Pte Limited. She was arrested at anchor 10 nautical miles off Hay Point, near Mackay, in Queensland on 15 January 2013. Those proceedings involved a claim made by International Bunker for approximately $610,000 in respect of unpaid bunkers.

2    On 17 January 2013, the bank filed a caveat against release in International Bunker’s proceedings claiming a debt of approximately USD71.7 million. The bank’s mortgage had been registered against the ship in the Singapore Register of Ships on 10 July 2008. On 23 January 2013, International Bunker and the defendant consented to the ship’s release in the proceedings between them. I made orders on 25 January 2013 allowing the bank to file its writ in these proceedings in court and directing the registrar to issue an arrest warrant for her that was to be executed immediately upon the ship being released from arrest in International Bunker’s proceedings. Due to the intervention of Cyclone Oswald, the marshal was not able to effect the release and the new arrest until 31 January 2013.

Background

3    The bank’s proceedings came before me on 1 February 2013. I ordered that the bank file and serve any application for orders for the valuation and sale of the ship by 5 February 2013 and granted leave to effect service upon her and the registered owner by email, using email addresses known to the bank.

4    The application for valuation and sale and the affidavit of Danella Wilmshurst, the bank’s solicitor, were filed and served on the ship’s master by email on 5 February 2013. Service on the master was effected in a number of emails that were sent because his capacity to receive bulky emails was limited. He acknowledged receipt of all 21 emails containing the material in support of the application for valuation and sale at 10.37 pm on 5 February 2013. Singapore solicitors for the bank served the owners at an email address they had for them but did not effect service at the physical offices of the owners at that time.

5    This morning, STX Pan Ocean Shipping appeared by counsel to give notice that it was a time charterer of the ship for a voyage intended to occur from Australia to China. STX claimed that it had an interest in bunkers on board, worth approximately USD500,000, pursuant to the terms of its time charter that it would wish to protect in the event that the ship were ordered to be sold. There has been no appearance by anyone on behalf of the ship or the relevant person at any point in these or the other proceedings.

The bank’s application

6    The bank seeks an order for valuation and sale today notwithstanding that the time under r 23(1) of the Admiralty Rules 1988 (Cth) before which the relevant person can appear is 21 days after service of the initiating process on the ship on 31 January 2013. Ordinarily, such an order will only be made after the time for filing an appearance has expired or there has been default in filing a defence as Brandon J pointed out in The “Myrto” [1977] 2 Lloyd’s Rep 243 at 260 in a passage approved by Ryan J in Marinas Ship Suppliers (Pty) Limited v The Ship “Ionian Mariner” (1995) 59 FCR 245 at 249B-C, 250 C-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.”

7    I do not consider that it is appropriate to make an immediate order for sale because the time for the relevant person to file an appearance has not expired. Nonetheless, the ship has been under arrest since 15 January 2013, albeit for most of the time up to now that arrest was in International Bunker’s proceedings. However, its continuing to remain arrested after 25 January 2013 in those proceedings was due to the fact that her release was conditional on her being re-arrested in these proceedings.

8    The background commercial situation is that the Yuan Sheng entered into a facility agreement with the bank on 8 July 2008 for a term loan of USD90,650,000. On 10 July 2008, Yuan Sheng and the bank entered into a security deed and a mortgage over the ship securing the total indebtedness of Yuan Sheng under the facility. Clause 16 of the security deed provided that a certificate in writing signed by a manager or duly authorised officer for the time being of the bank certifying the amount due at any time in respect of moneys owing repayable by Yuan Sheng to the bank for liabilities incurred by the bank and payable by Yuan Sheng to it under or by virtue of any terms or conditions of the facility agreement or related documents, in the absence of manifest error, would be final and conclusive of the matters so certified and binding upon Yuan Sheng.

9    One condition precedent in the facility agreement that appears somewhat curious was contained in cl 2(1)(k). That required a valuation report to be issued by an independent valuer acceptable to the bank confirming that the ship then had a fair market value not less than USD129,500,000. For the purposes of International Bunker’s proceedings the value that appeared to have been agreed for the ship was USD30 million. The bank and Yuan Sheng negotiated supplementary facility agreements on 13 January 2009 and 1 April 2011.

10    On 4 February 2013, the general manager of the bank’s Singapore branch signed a certificate of indebtedness that certified the amount outstanding at that date was USD71,741,564.53 and that an amount outstanding and due to the bank at that date was $35,000. It follows that the bank has a proprietary maritime claim based on its mortgage interest for the purposes of ss 16 and 4(2)(a)(iii) of the Admiralty Act 1988 (Cth) in a sum that appears considerably to exceed the present value of the ship.

11    Ms Wilmshurst’s evidence, on information and belief, suggested that Yuan Sheng has not put in issue that it is in default under the terms of its arrangements with the bank. She gave some vague evidence (because of the nature of her instructions) that Yuan Sheng and the guarantor of the facility are unable to make any proposals to reduce the claim the bank has.

12    Currently there is a crew of 25 on board the ship, the majority, if not all, of whom are nationals of the People’s Republic of China. The Maritime Port Authority of Singapore’s minimum safe manning document for the ship issued on 9 February 2010 required that Hai Shi have a crew of 14 plus the number of radio operators specified in a safety radio certificate. Ms Wilmhurst did not have available the safety radio certificate, so it is not now clear how many crew will constitute the minimum number needed to man the ship. The bank has not yet made any decision whether it intends to ask for the Court to make arrangements to permit the repatriation of any of the crew to save costs. However, Ms Wilmshurst is concerned that the Australian Maritime Safety Authority will not permit the ship to remain in Australian waters with a crew less than the number required by the minimum safe manning document current for her, even while she remains under arrest. Indeed, I would not allow that to occur in circumstances where it is likely that the ship will have to be moved to a port for the purposes of having her valued and sold.

13    Ms Wilmshurst estimated that the likely cost of crew wages, expenses and victualling for the minimum number of crew would be in the order of USD63,000 per month, and that there would be likely to be an additional monthly management fee in the order of $4500 per month. If the current complement remained on board for the duration of the arrest, those costs would obviously be higher. In addition, while the ship remains under arrest, the Marshal’s marine liability insurance for the ship is in the order of $19,500 per month.

Consideration

14    Based on the material currently before me, I am satisfied that the master received the application for the valuation and sale in the emails on 5 February 2013. The ship is security under the bank’s mortgage for a significant debt quantified in the certificate. Yuan Sheng is the relevant person and owes that debt to the bank. Yuan Sheng is in default under the mortgage. Nonetheless, it would not be appropriate at this stage to hear and determine the bank’s application for valuation and sale or to enter judgment in its favour. That should not occur until the time for Yuan Sheng or any other person claiming to be a relevant person, to enter an appearance expires, on 21 February 2013.

15    On the other hand, the ship has been under arrest for a considerable time and that Yuan Sheng has not taken any step to appear in these or International Bunker’s proceedings. Now that the new arrest has occurred, it would be appropriate to order that the vessel be valued and, if no appearance is entered, that the orders for sale then take effect. The marshal will be ordered to engage a ship broker. That will need to be preceded by a public tender process. I will order that broker will value the ship and advise on the method of sale. In the event no appearance is entered by a relevant person on or before 21 February 2013, the order will permit a sale process to proceed thereafter: The “Beluga Notification” (No 2) [2011] FCA 665 at [28]-[30].

16    It is likely that the marshal will need to apply to move the ship to an appropriate port. I anticipate that process will occur only after the broker has been appointed. The broker can then advise as to the port most likely to be suitable for undertaking the valuation and, if need be, the sale processes. Lest Yuan Sheng has not been physically served, I will also direct that the bank deliver the application for valuation and sale and all the evidence in support on Yuan Sheng, as the relevant person, at its physical office premises forthwith.

17    I am satisfied that service on the ship of the arrest warrant and other material, in accordance with r 43, occurred on 31 January 2013. Time ought to run for the entry of an appearance by the relevant person from 31 January 2013 when that happened. The master received the application for valuation and sale with the evidence in support. In the ordinary course, such service should be sufficient to enable the relevant person to decide whether or not to appear within the time limited by r 23(1).

Associate:

Dated:    14 March 2013