FEDERAL COURT OF AUSTRALIA

 

 The Ship “Gem of Safaga” v Euroceanica (UK) Ltd [2010] FCAFC 14

Citation:		The Ship “Gem of Safaga” v Euroceanica (UK) Ltd [2010] FCAFC 14
Appeal from:		Euroceanica (UK) Ltd v The Ship “Gem of Safaga”  [2009] FCA 1467
Parties:		THE SHIP “GEM OF SAFAGA” v EUROCEANICA (UK) LTD
File number:		NSD 1440 of 2009
Judges:		RYAN, BESANKO AND JAGOT JJ
Date of judgment:		26 February 2010
Catchwords:		ADMIRALTY – appeal against decision refusing to set aside writ in rem issued against surrogate ship under s 19 of Admiralty Act 1988 (Cth) – where Memorandum of Agreement for purchase of surrogate ship originally included “relevant person” under s 19(a) as sole purchaser, but Addendum to Memorandum of Agreement included relevant person as nine-tenth purchaser and third party as one-tenth purchaser – where purchase price for surrogate ship paid by loan for which both purchasers were jointly and severally liable – whether third party was legal and beneficial owner of one-tenth of surrogate ship – whether definition of “owner” in s 19(b) includes part owner – whether relevant person was “owner” under s 19(b) by reason of law of country in which ship was registered, or by reason of ownership rights conferred on relevant person by Co-ownership Agreement, or by reason of estoppel Held: appeal allowed – definition of “owner” in s 19(b) does not include part owner – Addendum to Memorandum of Agreement created a new agreement whereby legal and equitable title to one-tenth of surrogate ship passed to third party – no resulting trust in favour of relevant person over one-tenth interest in surrogate ship because both purchasers provided purchase moneys – relevant person does not have power to dispose of its share under Co-ownership Agreement without the consent in writing of the other party.
Legislation:		Acts Interpretation Act 1901 (Cth) s 15AB, s 23 Admiralty Act 1988 (Cth) s 19 Shipping Registration Act 1981, (Cth) s 11, s 77 Shipping Registration Regulations, reg 34   Admiralty Act 1973 (NZ) s 5 Admiralty Jurisdiction Regulation Act 105 of 1993 (SA)    Merchant Shipping Act 1958 (India)s 3, s 25 Supreme Court Act 1981 c.54 (UK) s 21
Cases cited:		Calverley v Green (1984) 155 CLR 242 followed Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 discussed CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 followed Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Limited (2000) 201 CLR 520 cited Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 referred to Euroceanica (UK) Ltd v The Ship “Gem of Safaga” [2009] FCA 1467 cited Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 cited Hibbs v Ross (1866) 1 LR QB 534 cited Jones v Dunkel (1959) 101 CLR 298 referred to Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12 followed Laemthong International Lines Co Ltd v BPS Shipping Limited (1997) 190 CLR 181 cited Luke v Lyde [1759] 2 Burr 882 referred to Malaysia Shipyard and Engineering Sdn Bhd v The “Iron Shortland” as the Surrogate for the Ship “Newcastle Pride” (1995) 59 FCR 535 followed MV “Elisabeth” (AIR 1993 SC 1014) referred to MV “Sea Success 1” v Liverpool and London Steamship Protection and Indemnity Association Ltd (AIR 2002 Bombay 151) discussed Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 followed Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 followed Olsson v Dyson (1969) 120 CLR 365 followed Salter v Gilbertson (2003) 6 VR 466 cited Scarf v Jardine (1882) 7 App Cas. 345 followed The Baumwoll Manufactur von Carl Scheibler v Christopher Furness [1893] AC 8 discussed The Looiersgracht [1995] 2 Lloyds Rep 411 discussed The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 cited The Spirit of the Ocean (1865) 12 LT 239 cited The Tolten [1946] P. 135 referred to The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 cited The Venture [1908] P. 218 cited Tisand Pty Ltd v The Owners of the Ship MV Cape Moreton (Ex Freya) (2005) 143 FCR 43 followed
Date of hearing:	21 December 2009
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	115
Counsel for the Appellant:	Mr G Nell SC and Ms C Gleeson
Counsel for the Respondent:	Mr A W Street SC and Ms B K Nolan
Solicitor for the Appellant:	James Neill Solicitor
Solicitor for the Respondent:	Blake Dawson Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1440 of 2009

 

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

 

BETWEEN:	THE SHIP "GEM OF SAFAGA" Appellant
AND:	EUROCEANICA (UK) LTD Respondent

 

JUDGES:	RYAN, BESANKO AND JAGOT JJ
DATE OF ORDER:	26 FEBRUARY 2010
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.                  Appeal be allowed.

2.                  The appellant is to file and serve within 7 days proposed minutes of further orders reflecting these reasons together with short written submissions in support of such proposed orders.

3.                  The respondent (if so advised) is to file and serve within 14 days short written submissions in response to the appellant’s submissions.

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 THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1440 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

 

BETWEEN:	THE SHIP "GEM OF SAFAGA" Appellant
AND:	EUROCEANICA (UK) LTD Respondent

 

JUDGES:	RYAN, BESANKO AND JAGOT JJ
DATE:	26 FEBRUARY 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

RYAN J:

1                                             I have had the advantage of reading in draft form the reasons of Besanko J.  I agree with those reasons and with the orders which his Honour has proposed.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:         26 February 2010

 

IN THE FEDERAL COURT OF AUSTRALIA
in admiralty
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	nsd 1440 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

 

BETWEEN:	THE SHIP "GEM OF SAFAGA" Appellant
AND:	EUROCEANICA (UK) LTD Respondent

 

JUDGES:	RYAN, BESANKO AND JAGOT JJ
DATE:	26 FEBRUARY 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

BESANKO J:

Introduction

2                                             This appeal raises issues concerning the application and proper construction of s 19 of the Admiralty Act 1988 (Cth) (“the Act”). That section concerns an action in rem in relation to a surrogate ship and is in the following terms:

A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:

(a)        a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first mentioned ship; and

(b)        that person is, when the proceeding is commenced, the owner of the second mentioned ship.

3                                             On 3 November 2009, the plaintiff issued a writ in rem against the ship “Gem of Safaga” as surrogate for the ships “JBU Onyx” and “JBU Opal”. The relevant person named in the writ was West Asia Maritime Ltd (“West Asia”) and it was alleged to be in control of “JBU Onyx” and “JBU Opal” at the time the cause of action arose and was the owner of “Gem of Safaga” at the time the writ was issued. On 5 November 2009, West Asia filed a conditional appearance, and, on 9 November 2009, it issued a notice of motion seeking orders that the writ in rem be set aside for want of jurisdiction, or, in the alternative, that the proceeding be dismissed for want of jurisdiction. West Asia also sought an order that the arrest of the ship “Gem of Safaga” be set aside, or, in the alternative, that the ship “Gem of Safaga” be released from arrest. On 9 December 2009, the primary judge dismissed the notice of motion: Euroceanica (UK) Ltd v The Ship “Gem of Safaga” [2009] FCA 1467. West Asia appeals against that order of dismissal.

4                                             Section 19 of the Act contains a number of elements and the primary judge found that each element was satisfied. Only one of the elements in s 19 is in issue on the appeal and that is the element contained in paragraph (b). In other words, West Asia challenges only the primary judge’s conclusion that it was “the owner” of the “Gem of Safaga” within s 19(b) at the time the proceeding was commenced.

5                                             At the time of its arrest, the “Gem of Safaga” sailed under the flag of India. Under s 25 of the Indian Merchant Shipping Act 1958 (“Indian MSA”), a register book is maintained and it records the ownership interests of ships registered under the Act. The certificate of registration for the “Gem of Safaga” records that the property in the ship is divided into ten shares and that West Asia is the owner of nine shares and a company called Four M Maritime Private Limited (“Four M”) is the owner of the remaining share.

6                                             Mr Abdul Qadir is the managing director of West Asia. He and his wife are shareholders of Four M and the primary judge found that Four M is a company controlled by or associated with Mr Qadir. Four M is not a subsidiary of West Asia; in fact it holds a small parcel of shares in West Asia. No question of lifting the corporate veil arises in this case.

7                                             The primary judge found that Four M held its one share in the “Gem of Safaga” on a resulting trust in favour of West Asia and that, therefore, West Asia was the beneficial owner of all the shares in the “Gem of Safaga”. In those circumstances, it was “the owner” of the “Gem of Safaga” within s 19(b) of the Act. It is that conclusion which West Asia challenges on the appeal and which the plaintiff seeks to uphold.

8                                             Four M is not a relevant person within s 19(a) of the Act. It did not seek to appear in the proceeding below or on the appeal.

9                                             Before the primary judge, the plaintiff also opposed the orders sought by West Asia on a number of other grounds, and each of these grounds was put forward on the assumption (contrary to its earlier argument) that Four M was indeed the holder of the legal and beneficial interest in one share in the “Gem of Safaga”. Because of his principal conclusion, the primary judge did not need to deal with these other grounds, although he did discuss them.

10                                          I have reached the conclusion that the primary judge erred in concluding that Four M was not the holder of the beneficial interest of one share in the “Gem of Safaga” and it is therefore necessary for this Court to consider the other grounds which are raised by the plaintiff on the appeal by way of a notice of contention. The other grounds may be summarised as follows. First, the plaintiff contends that West Asia was the owner within s 19(b) of the Act because it was a part owner of the “Gem of Safaga” and that is sufficient. Secondly, the plaintiff contends that West Asia was the owner of the “Gem of Safaga” within s 19(b) of the Act because, under a Co-ownership Agreement between West Asia and Four M, West Asia had all the ownership rights with respect to the “Gem of Safaga”. Thirdly, the plaintiff contends that West Asia was the owner of the “Gem of Safaga” within s 19(b) of the Act because, under Indian law, it would be held to be the owner of the ship and an Australian Court should recognise and apply that conclusion in its application of s 19(b). Fourthly, the plaintiff contends that West Asia is the owner of the “Gem of Safaga” within s 19(b) of the Act because Four M holds less than one share in the ship and the Indian MSA does not recognise fractional parts of a share in a ship (s 25(c)). In those circumstances, the plaintiff contends that West Asia must be considered the owner of the “Gem of Safaga”. Four M holds less than one share in the ship because of an obligation on it to pay commission in relation to the operation of the ship and on its sale. Finally, the plaintiff contends that West Asia was the owner of the “Gem of Safaga” within s 19(b) of the Act because, by its conduct, it is estopped from denying it is the owner. The conduct relied on by the plaintiff is the registration of the “Gem of Safaga” in the name of West Asia by the Indian Register of Shipping which is a classification society.

11                                          I have reached the conclusion that all of these other grounds must be rejected. In the circumstances, the appeal, which is brought by leave granted by the primary judge, must be allowed.

12                                          It is convenient to begin with West Asia’s challenge to the primary judge’s conclusion that West Asia, at the relevant time, was the equitable owner of Four M’s share in the “Gem of Safaga”. After I have dealt with that challenge, I will address the matters raised by the plaintiff in its notice of contention.

Ownership of the Gem of Safaga

13                                          The primary judge held that West Asia was the equitable owner of the ten shares in the “Gem of Safaga” and therefore of the ship itself. There was no dispute between the parties that West Asia was the owner, at law and in equity, of nine of the ten shares in the “Gem of Safaga”. The dispute between the parties concerned whether Four M was no more than the legal owner of the one share in respect of which it was registered (as contended by the plaintiff and held by the primary judge) or whether it was the owner at law and in equity of the one share (as contended by West Asia).

14                                          The “Gem of Safaga” is registered under the Indian MSA and the relevant provisions of that Act are as follows:

3.         Definitions.- In this Act, unless the context otherwise requires,

(23)     “owner” means-

(a) in relation to a ship, the person to whom the ship or a share in the ship belongs;

25.       Register book.- Every registrar shall keep a book to be called the register book and entries in that book shall be made in accordance with the following provisions:-

(a) the property in a ship shall be divided into ten shares;

…

(c) a person shall not be entitled to be registered as owner of a fractional part of a share in a ship; but any number of persons not exceeding five may be registered as joint owners of a ship or of any share or shares therein;

(d) joint owners shall be considered as constituting one person and shall not be entitled to dispose in severalty of any interest in a ship or any share therein in respect of which they are registered;

…”

15                                          The concept of ownership in terms of the Act (that is, the Admiralty Act) has been considered in the authorities. In Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12 (“Maria Luisa”), Tamberlin and Hely JJ said (at 33):

The word “owner” cannot be given any general description. But ordinarily the incidents of ownership of a chattel include the right to make physical use of the chattel, the right to the income from it, the power of management, and the right of alienation: Lawson & Rudden, at p 8. In the “Iron Shortland” (at 544) Sheppard J quoted from the decision of the Singapore Court of Appeal in The “Ohm Mariana”; Ex “Peony” [1993] 2 SLR 698 that the term “owner” means any person who is vested with such ownership as to have the right to sell, dispose of or alienate the ship, and that a beneficial owner of the ship comes within that term. See also to similar effect The “Permina 3001” [1979] 1 Lloyd’s Rep 327 at 329.

The notion of “ownership” carries a connotation of dominance, ultimate control and of ultimate title against the whole world: cf O W Holmes, The Common Law (1882) pp 242-246; Blackstone's Commentaries, (18^th ed, 1829) Vol 2, p 389; and Holdsworth, A History of English Law (1925) vol VII, p 449.

16                                          In Tisand Pty Ltd v The Owners of the Ship MV Cape Moreton (Ex Freya) (2005) 143 FCR 43 (“Cape Moreton”), Ryan and Allsop JJ said (at 73 [119]):

As is clear from Yanner v Eaton and The Maria Luisa, notions of “property” and “ownership” are not amenable to crisp, comprehensive definition in the abstract. The context, here is the possession and enjoyment of, dominion over and power or right to dispose of, a chattel of a kind that is usually engaged in commercial enterprise. In that context, the word “ownership” or “owner” connotes the right or power to have and dispose of dominion, possession and enjoyment of the ship, subject, of course, to intervening interests: Yanner v Eaton at [25]; The Maria Luisa at [61]-[66]; The Ohm Mariana (ex Peony) at 711; The Permina 3001 at 329; The Andres Bonifacio [1993] 3 SLR 521; and The St Merriel at 258.

17                                          A trust may arise in the case of a ship as with any other chattel. The trust may arise by reason of a contract of sale and purchase if the contract is one in respect of which specific performance would be ordered. A resulting trust may arise in the same way as it may arise in relation to land. For example, a resulting trust may arise where one party provides the purchase moneys for a ship: The Venture [1908] P. 218. For the purposes of s 19(b) of the Act, the beneficial owner is the owner: Malaysia Shipyard and Engineering Sdn Bhd v The “Iron Shortland” as the Surrogate for the Ship “Newcastle Pride” (1995) 59 FCR 535. It may be that not all forms of beneficial interest will be sufficient to constitute a person an owner within s 19(b) and that there is a difference between an equitable interest and equitable ownership: see, for example, Maria Luisa at 33-34 [63]-[66] per Tamberlin and Hely JJ. West Asia submitted in this case that, even if a resulting trust had arisen with respect to Four M’s one share, the nature of West Asia’s interest under it was not such as to constitute equitable ownership. For reasons I will give, I do not think a resulting trust had arisen and therefore I do not need to consider this particular submission.

18                                          Under Australian law, registration is not proof of title. The system is one of registration of title not title by registration: The Spirit of the Ocean (1865) 12 LT 239. Whether legal ownership depends on registration or some other act is not settled by the authorities. I refer to the authorities identified by Ryan and Allsop JJ in Cape Moretonat 81-82 [154] and the discussion in Davies M and Dickey A, Shipping Law (3^rd ed, Thomson Lawbook Co) at 79-80. Registration is no doubt evidence of title (Hibbs v Ross (1866) 1 LR QB 534) and in fact may give rise to a rebuttable presumption of ownership (Shipping Registration Act 1981, (Cth) s 77(1) and Shipping Registration Regulations, reg 34).

19                                          The primary judge held that West Asia held the equitable interest in Four M’s share by reason of a resulting trust of the type identified by the High Court in Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 (at 363-364 per Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ):

We are in the presence of the familiar problem that arises whenever a person purchases and pays for property, real or personal, whatever its description may be, the legal title to which is transferred by his direction into the name of another person. If that person is a stranger, the presumption of a resulting trust arises and he holds the property on trust for the purchaser.

20                                          The evidence which is admissible on the question of whether there is a resulting trust is evidence of the acts and declarations of the parties before or at the time of the purchase or so immediately thereafter as to constitute part of the transaction, subsequent admissions against interest and evidence of facts as to subsequent dealings and of the surrounding circumstances of the transaction: The Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at 300 [65].

21                                          As far as I can see, West Asia challenges only one finding of primary fact made by the primary judge. Otherwise, West Asia accepts the findings of primary fact made below but submits that he erred in the conclusions he drew from the primary facts.

22                                          I turn now to summarise the facts relevant to the question of whether West Asia or Four M was the equitable owner of the one share in the “Gem of Safaga” in respect of which Four M was registered.

23                                          The “Gem of Safaga” is a Panamax size bulk carrier which was built in 1982. It is of 227m LOA and 65,163 deadweight tonnes.  Negotiations for the purchase of the ship were initially undertaken by brokers acting for the vendor, Tedross Navigation SA, and brokers acting for West Asia. At that point, the ship was registered in Panama although the precise details were not established by the evidence.

24                                          At the relevant time, Mr Subhash Joshi was the chief operating officer of West Asia, and he was responsible for the acquisition and financing of its fleet. He was called by West Asia as a witness at the hearing before the primary judge.

25                                          On 2 February 2007, Tedross Navigation SA as “the Sellers” entered into a Memorandum of Agreement with West Asia as “the Buyers” to purchase the “Gem of Safaga” (then named “MV Konkar Lydia”) for a purchase price of US$13,600,000. Mr Joshi signed the Memorandum of Agreement on behalf of West Asia. The parties to the agreement were described in the following terms:

Tedross Navigation SA, 80 Broad Street, Monrovia, Liberia

 

hereinafter called the Sellers, have agreed to sell, and West Asia Maritime Ltd Chennai or its nominee, West Asia Maritime Ltd to remain fully responsible for the correct and proper fulfilment of all the buyers’ responsibilities, undertakings and liabilities under this agreement.

hereinafter called the Buyers, have agreed to buy …

Clause 5 b) of the Memorandum of Agreement dealt with the place of delivery of the ship and clause 21 defined and dealt with the delivery documents which were to be provided under the agreement.

26                                          Mr Joshi gave evidence that he had not heard of Four M at this time and that he understood that only West Asia was the purchaser under the Memorandum of Agreement.

27                                          On 16 February 2007, Tedross Navigation SA, West Asia and Four M entered into an agreement entitled Addendum No 1 to the Memorandum of Agreement. There was an amendment to the description of the parties so that it now reads as follows:

Tedross Navigation S.A. of Monrovia Liberia

 

hereinafter called the Sellers, have agreed to sell and jointly (1) West Asia Maritime Limited, of Buhari Towers, 6^th Floor, No 4, Moores Road, Chennai 600006, India and (2) Four M Maritime Private Limited of Buhari Towers, 6^th Floor, No 4, Moores Road, Chennai 600006, India, West Asia Maritime Limited to remain fully responsible for the correct and proper fulfillment of all responsibilities undertakings and liabilities under this agreement of both companies mentioned in (1) and (2) hereinabove.

hereinafter called the Buyers, have agreed to buy …

There was an amendment to clause 5 b) to change the place of delivery specified in the Memorandum of Agreement. There was a reference to clause 21 and a direction that the parties were to take into account that there were now two “Buyers” of the ship. Clause 4 of Addendum No 1 is in the following terms:

It is further mutually hereby agreed that reference to “Buyer” and/or “Buyers” in the subject MOA shall be construed as reference to each of the above named parties jointly and severally, provided always that West Asia Maritime Limited remains fully responsible as per line 1 of the MOA.

28                                          Addendum No 1 concludes with a statement that all other terms of the Memorandum of Agreement remain unaltered and in full force and effect.

29                                          Mr Joshi signed Addendum No 1 on behalf of West Asia, and Mr Abdul Qadir signed the addendum on behalf of Four M.

30                                          At the time Addendum No 1 was executed, most of the obligations of each party under the Memorandum of Agreement were yet to be performed.

31                                          An Addendum No 2 to the Memorandum of Agreement was also executed, but the terms of that agreement are not material for present purposes.

32                                          On 20 February 2007, West Asia and Four M entered into an agreement called a Co-ownership Agreement. The agreement was signed by Mr Joshi’s superior, Mr R Srinivasan, who was an executive director of West Asia, and by Mr Qadir for Four M.

33                                          The parties to the Co-ownership Agreement acknowledged that West Asia was to “absolutely own” nine shares in the “Gem of Safaga” and Four M was to “absolutely own” one share. The parties to the Co-ownership Agreement agreed that it would not constitute them partners and neither had the power to bind the other co-owner in any way except as provided in the agreement (clause 1a). The co-ownership arrangement was to continue unless a new co-ownership arrangement was agreed or the arrangement otherwise determined (clause 1b and c). Both parties were subject to an identical restriction in terms of the sale, transfer or other disposition of their ownership interest in the ship (clause 2b) and both were subject to the same term as to the purchase of the other’s share or shares (clause 2c). West Asia was appointed the borrowers’ agent for the purposes of financing the purchase of the ship and that was done to ensure the “smooth and efficient compliance with the terms, conditions and obligations contained in the loan agreement, to be entered into with the Bank” (clause 3a).

34                                          I reject a submission made by the plaintiff that clause 3i authorised West Asia to use the ship as security for its own purposes and for purposes unrelated to the purchase and use of the ship.

35                                          The Co-ownership Agreement appointed West Asia the commercial manager of the vessel, but the fact that co-owners appoint an agent and that the agent is one of them is neither surprising, nor indicative of an assumption of exclusive rights of ownership by the owner/agent. Four M was entitled to its share of the profits and was required to bear its share of the liabilities. Clause 7d of the Co-ownership Agreement provides as follows:

7d.       It is hereby understood that each of the Co-owners, being independent owners of a defined proportion of the Vessel, shall individually share all the assets and liabilities, income and expenditure in proportion to their respective share holding in the Vessel and maintain their books, accounts and records accordingly.

36                                          Under the Co-ownership Agreement, Four M had rights in relation to the disbursement of funds and the provision of accounts. Clause 6 provides:

6.         The Co-owners agree that WAM [West Asia] shall:

            …

f.          Provide to the Boards of the Co-owners as promptly as practicable with such MIS financial and operating reports, but not more frequently than quarterly, as may be reasonably required and to follow instruction of the Board of the Co-owners in relation to the disbursal of available funds and other requirements, if required to do so.

g          In any event furnish to the Boards of Co-owners with six monthly bank statements, accounts, balance sheet and profit and loss statement (unaudited) for each half year of every financial year, within 45 days of expiry of such half year.

h          Co-ordinate and provide information to the Statutory and other audits that may be contemplated by the Co-owners. …

37                                          The Co-ownership Agreement includes an undertaking in the following terms:

We the Co-owners hereby acknowledge the Guarantee provided by WEST ASIA MARITIME LIMITED for their periodical repayment obligations to ICICI BANK LIMITED in connection with the proposed acquisition of M.V. Konkar Lydia to be renamed as m v Gem of Safaga. The loan amount shall be US$14 million. The proportion of co-ownership owning is given separately below. The co-owners hereby, individually and severally, agree that in the event of any payment or interest default pertaining to this loan with ICICI and if WAM is called upon by ICICI to make good any default or if the guarantee is enforced by ICICI for breach of covenant, default or any other reasons, then upon the demand by WAM, Chennai, shares held by co-owners in the Vessel shall be transferred to it, at a price respectively arrived so, as given in Para 2 ( c ) of the mutual agreements entered into by WAM with the other Co-owner.

Shares in Bulk Carrier – M.T. Gem of Safaga:

West Asia Maritime Limited                                                      90%

Four M Maritime Private Limited                                               10%

38                                          Clause 2c, which is referred to in the undertaking, is in the following terms:

2c         Subject to Bank’s prior written consent, a Co-owner may purchase the other Co-owner’s shares in the Vessel based on an average fair market value which is the average of valuations made by two internationally recognized auditing firms, one appointed by each Party hereto.

39                                          On 20 February 2007, the directors of West Asia met and passed the resolutions necessary to effect the purchase of the “Gem of Safaga”. The minutes of the board meeting contain the following:

As Mr Abdul Qadir is interested in this transaction, in the capacity of director of Four M Maritime P Limited, the details of the transaction were recorded in the Register of Contracts maintained under section 297, 299 and 301 of the Companies Act, 1956, and the same was signed by the directors present at the meeting.

40                                          Two of the resolutions are in the following terms:

Resolved that the company do accept the offer of ICICI Bank to provide to the company a syndicated loan facility of up to US$14,000,000 on a joint and several basis with FMMP [Four M].

…

Further resolved that the company do borrow from ICICI Bank and other syndicate members, a syndication loan facility of up to US$14,000,000 (USD14 million) on a joint and several basis with FMMP, in the manner and to the extent set out above on the terms and conditions as may be stipulated by ICICI Bank and the other syndicate members as stipulated in the Letter of Intent and in the Draft Facility Agreement and also avail of interim disbursement(s) from time to time as may be allowed by ICICI Bank and/or the other syndicate members.

41                                          On 1 March 2007, ICICI Bank wrote to West Asia setting out the terms upon which it was prepared to provide term loans of US$19,000,000 (for the acquisition of MT “Gem of Dahej” under the Indian flag subject to applicable regulations), and US$14,000,000 for the acquisition of the “Gem of Safaga”. The letter from the bank contains the note “accepted” and was signed by West Asia and Four M. Four M was also involved in the purchase of the “Gem of Dahej”. Completion of the purchase of the “Gem of Safaga” took place on 21 March 2007. There was a protocol of delivery and acceptance and a bill of sale. Also on 21 March 2007, an officer of an Indian ship classification society, The Indian Register of Shipping, acting with the authority of the Indian Government, issued a provisional registration certificate under the Indian MSA. This certificate recorded West Asia as the owner of nine shares and Four M as the owner of one share. The Indian Register of Shipping is unrelated to the Statutory Register of Indian Ships kept pursuant to the Indian MSA. On about 20 April 2007, the respective shares of West Asia and Four M in the “Gem of Safaga” were recorded by the Registrar of Indian Shipping under the Indian MSA.

42                                          On 29 May 2007, West Asia and Four M executed jointly and severally an Indenture of Mortgage over the ship, securing the loan from the ICICI Bank in favour of a security trustee, namely, IDBI Trustee Services Ltd. The mortgagee also registered its mortgage against the shares of each of West Asia and Four M.

43                                          Various books of West Asia were tendered in evidence. The primary judge described the effect of the records in the following way:

19.       West Asia’s accounting records contain a ledger for an ICICI loan account in respect of the ship.  This records receipt of USD13.6 million into a joint account of West Asia and Four M and then payment of that sum on 21 March 2007.  Journal entries then record a transfer of 10% or USD1.36 million to a ledger account in the name of Four M.  The Four M ledger account, in West Asia’s books, reflects the corresponding journal entry together with other entries relating to the “Gem of Dahej”.  All subsequent accounting entries crediting and debiting Four M’s ledger accounts in West Asia’s accounting records in evidence are made by journal entries.  These reflect the payment of 1.25% commission to West Asia on all hire collected and the proportionate sharing of the expenses including the periodic debiting of 10% of the loan repayment instalments.  West Asia accepted during final address that there was no evidence of any actual payment, other than by journal entries, by or to Four M in respect of the “Gem of Safaga” for the period of over 30 months since she was purchased.  The closing balance in Four M’s ledger shows a total credit of over 1.6 million rupees, equivalent to about USD325,000 (based on the loan repayment of USD283,000 on 19 March 2009 being recorded as about 1.43 million rupees).

44                                          There is no challenge to that description of the records.

45                                          The primary judge said (at [54]) that the Co-ownership Agreement, accounting entries reflecting it and registration of Four M’s one share in the ship were not a sham, that is to say they were not documents created “to cloak the reality of a different relationship”. He said that what had occurred was a failure to perfect or create “the relationship which those documents were capable of representing”.

46                                          The approach taken by the primary judge involved two steps. First, he said (at [55]) that a Court of Equity would make an order for specific performance of the Memorandum of Agreement dated 2 February 2007, and therefore, by reason of that agreement West Asia held the equitable interest in the “Gem of Safaga”. That conclusion is not challenged by either party and is correct. Secondly, the primary judge said that no part of the equitable interest had been transferred to Four M because West Asia had not “effectively assigned or disposed of any part of its beneficial interest in the ship” (at [54]) and Four M had given “no consideration to West Asia for its acquisition or introduction into an existing contract to purchase the vessel” (at [51]). This second step is challenged by West Asia and, in my respectful opinion, in reaching those conclusions, the primary judge erred.

47                                          It seems to me that the key to the present issue is the correct characterisation of the legal effect of Addendum No 1 executed on 16 February 2007.

48                                          The “Buyers” under the Memorandum of Agreement were West Asia or its nominee, with West Asia to remain fully responsible for the correct and proper fulfilment of all the Buyers’ responsibilities, undertakings and liabilities under the agreement.

49                                          The reference in a contract for the sale and purchase of property to a nominee of the purchaser may amount to no more than express recognition of the fact that, in the ordinary case at law, a purchaser may require the vendor to transfer the property into the name of a person nominated by the purchaser. The nominee does not become a party to the contract or entitled to enforce rights under it. On the other hand, the reference may be one circumstance, among others, which indicates that the purchaser is empowered to nominate a new purchaser who stands in the place of the original purchaser as the contracting party and the original purchaser is relieved of his obligations under the contract. The second type of arrangement is unusual and the Court requires clear words before concluding that that is what the parties intended (Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460 per King CJ; Salter v Gilbertson (2003) 6 VR 466 at 473-474 [17]-18] per Phillips JA (with whom Winneke P and Batt JA agreed)). In this case, had the Memorandum of Agreement been followed by no more than a notice of nomination by West Asia to Tedross Navigation SA that the “Gem of Safaga” was to be transferred to it and Four M, there would be a good deal to be said for the conclusion that Four M was no more than a nominee to take a transfer of the “Gem of Safaga” with West Asia.

50                                          However, in my opinion, Addendum No 1 brought into existence a new agreement with Tedross Navigation SA as seller, and West Asia and Four M as buyers. It seems to me that this was the intention of the document which defines the buyers (and the parties subject to the buyers’ obligations) as West Asia and Four M (Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Care (Australia) Pty Limited (2000) 201 CLR 520 at 533-534 [22] per Gleeson CJ, Gaudron, McHugh and Hayne JJ). It is true that Addendum No 1 provides that West Asia remains fully responsible for all the buyers’ obligations, but that does not detract from the fact that Four M became a buyer under the contract with West Asia. It is also true that there is no reference to Four M holding only one of ten shares, but that does not affect its position vis-à-vis Tedross Navigation SA. It was open to the buyers to allocate rights of ownership between themselves, which they did in the Co-ownership Agreement.

51                                          There was consideration for the new agreement. The existing parties provided consideration by a mutual agreement to discharge the original agreement (Scarf v Jardine (1882) 7 App Cas. 345; Olsson v Dyson (1969) 120 CLR 365 at 389 per Windeyer J; Seddon N C and Ellinghaus M P, Cheshire and Fifoot’s Law of Contract ((9^th Australian ed, LexisNexis Butterworths, 2008) at 199-201). If it is necessary to show that Four M provided consideration to West Asia, it did that because it undertook, jointly with West Asia, the buyers’ obligations under the contract. Furthermore, and in any event, for reasons I will give, Four M in fact provided part of the purchase moneys under the contract.

52                                          In my opinion, as at 16 February 2007, the parties who had the right to seek specific performance of the contract of sale and purchase for the “Gem of Safaga” were West Asia and Four M.

53                                          It remains necessary to consider which party or parties provided the purchase price for the “Gem of Safaga”. If, in fact, West Asia provided the whole of the purchase price then a resulting trust over Four M’s one registered share would arise in West Asia’s favour.

54                                          A bill of sale has long been recognised as the usual and customary method whereby title in a ship is passed (Cape Moreton at 76 [129] per Ryan and Allsop JJ). The bill of sale in this case refers to West Asia and Four M as the joint buyers and transferees and to them having paid to Tedross Navigation SA the purchase price of US$13,600,000. The evidence before the primary judge established that West Asia and Four M obtained the purchase moneys by borrowing moneys from ICICI Bank Ltd (“ICICI Bank”). The ICICI Bank lent US$14,000,000 to West Asia and Four M under a Facility Agreement. West Asia and Four M were joint borrowers and they were jointly and severally liable for the loan. The security documents reflect this arrangement. In those circumstances, Four M provided the purchase moneys in the same way as West Asia (Calverley v Green (1984) 155 CLR 242 at 246-251, per Gibbs CJ; at 257 per Mason and Brennan JJ)

55                                          On the face of the documents, West Asia and Four M were joint purchasers of the “Gem of Safaga” and each of them contributed to the purchase price. As between themselves, they agreed an ownership structure of West Asia holding nine shares and Four M holding one share.

56                                          The matters the primary judge identified in support of his finding that there was a resulting trust are not such as to displace or alter those conclusions. Of course, the primary judge was proceeding from a different premise in that he was considering whether the circumstances showed that West Asia had an intention to benefit Four M and had perfected a transaction whereby any part of its equitable interest had been transferred to Four M. That premise is inappropriate because it disregards the legal effect of the agreements and loan arrangements.

57                                          I will now refer to each of the matters the primary judge identified as being relevant to his conclusion.

58                                          The primary judge referred to the absence of reasons in the evidence for Four M being included as a purchaser. West Asia put forward evidence from Mr Joshi, but it did not call any of its directors. Mr Joshi was involved in the negotiations and the execution of the contractual documents and he was given instructions by the executive director of West Asia to include Four M as a purchaser. Of those instructions, he said:

… it was stated that say 10 per cent of share will be given to Four M.

Mr Joshi was not told the reasons for this decision and nor did he ask. The primary judge said that he was satisfied that Four M was not included because West Asia needed financial or other assistance to complete the purchase or to continue operating the business once the purchase had been made. There was, said the primary judge, no evidence as to why Four M was included as a purchaser. The primary judge also referred to the fact that West Asia’s board minutes of 20 February 2007 were silent as to the reasons for introducing Four M as a purchaser. It seems that this is one of the topics in respect of which the primary judge inferred that West Asia’s evidence on these matters would not have helped its case and he referred to Jones v Dunkel (1959) 101 CLR 298 and Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466.

59                                          It seems to me that, if the agreements and loan documents have the effect I have indicated, the reasons why Four M was introduced as a purchaser were immaterial.

60                                          The primary judge referred to the absence of evidence of Four M’s ability to meet its obligations as a purchaser, assuming it to be no more than a nominee. He said (at [46]) that no financial accounts or other documents had been put in evidence “to show that Four M had any assets or financial substance to support its participation in the acquisition and holding of the ship”. He made a reference to some information shown in Four M’s 2009 annual return, but he did not go so far as to make a positive finding that Four M did not have the assets to support its purchase of an interest in the ship.

61                                          Like the first matter, in view of my conclusions about the effect of the agreements and loan documents, I do not regard Four M’s ability to meet its obligations under the contract as material.

62                                          The primary judge referred to the instructions given to Mr Joshi as set out in [57] above. The transaction was plainly not a gift and I doubt that it is appropriate to place any weight on the actual words used by the executive director who gave instructions to Mr Joshi.

63                                          The primary judge relied on the fact that Four M’s entitlements under the Co-ownership Agreement were not disclosed in the 2007 or 2008 annual reports of West Asia as part of Mr Qadir’s remuneration. It is not clear to me what conclusion the primary judge drew from this fact. The primary judge did not conclude that the Co-ownership Agreement was a sham. Plainly, Four M had entitlements under it.

64                                          The primary judge also relied on the fact that, at the West Asia Board meeting held on 20 February 2007, Mr Qadir disclosed his interest as a director of Four M, but not as a shareholder of Four M. The primary judge noted that there was no evidence of Indian law on a director’s obligations of disclosure. I think that, in the absence of evidence of Indian law on these matters, the extent of Mr Qadir’s disclosure is an equivocal factor. I do not think that it can be said that disclosure only of a directorship supports a case that Four M was no more than a mere nominee whereas disclosure of a directorship and shareholding would have supported a case that Four M was the legal and equitable owner of its registered share.

65                                          The primary judge referred to the ownership position as shown on various Registers. That reference did not help him resolve the issue he had formulated. He said:

36.       … I am not satisfied that the entries recording West Asia as sole owner were made or continued unchanged because it had caused those recordings to be made or remain.  For example, the ship classification society, the Indian Register of Shipping, has recorded West Asia as sole owner despite its surveyor at Port Suez issuing the provisional certificate of Indian Registry on behalf of the Republic of India that recorded Four M as having one of the ten shares.

66                                          The primary judge referred to the circumstances surrounding the taking out of protection and indemnity insurance with respect to the “Gem of Safaga”. He referred to the fact that a search conducted on 23 November 2009 with the protection and indemnity insurer of the “Gem of Safaga” revealed that West Asia was the member. The primary judge made no reference to the fact that the insurer’s documents for 2008 and 2009 recorded West Asia and Four M as the member and as joint owners. With respect, it seems to me more likely than not that the search conducted on 23 November 2009 produced erroneous information and that the policy documents issued by the insurer were correct.

67                                          The primary judge referred to the circumstances surrounding the engagement of the master and other officers of the “Gem of Safaga”. For example, the letter of offer to the proposed master was expressed as an offer of:

…the post of Master with effect from the date of joining onboard the vessel M.V. Gem of Safaga owned by West Asia Maritime Limited. 

(Original emphasis.)

68                                          It is perhaps unsurprising that this statement would be made having regard to West Asia’s position as majority owner and managing agent. At all events, it is not a factor which can displace the effect of the agreements and loan documents.

69                                          The primary judge referred to the use of the “Gem of Safaga” and the payment of income earned by the ship. He referred to the fact that, although the accounting records of West Asia (Four M’s accounting records were not in evidence) recorded Four M’s interest in one share and the income and liabilities associated with the operation of the ship, Four M was not actually paid its profit share by West Asia. The primary judge said:

51        … No explanation appears in the evidence for the apparent generosity of Four M in leaving its profit share in West Asia’s hands for over two years.

52        And, in contrast to Four M’s generosity in not taking any payments, Mr Qadir continued to be paid during this period in excess of the amount he could draw as salary, requiring the approval of the government and then the shareholders to West Asia waiving its right to recover that excess. If he or anyone other than West Asia were beneficially interested in Four M’s share of the “Gem of Safaga” it is commercially inexplicable, on the evidence before me, why no payment at all has ever been made to Four M.

70                                          The issue in this case is resolved by a consideration of the proper effect of the agreements and loan documents. The non-payment of income, which might be relevant where it is suggested the agreements are a sham, is not relevant to that issue.

71                                          Finally, the primary judge referred to the fact that there were several topics about which West Asia could have, but did not, call evidence. He said he was entitled to draw the inference that the evidence which was not called would not have helped West Asia’s case. One topic is identified in [58] above. Other topics included the failure to adduce evidence of Four M’s financial capacity and the failure to explain why Four M was not actually paid any of the income earned by the “Gem of Safaga”. It seems to me that these criticisms fall away when proper regard is had to the effect of the agreements and loan documents. There was simply no need for West Asia to adduce evidence on the topics the primary judge identified.

72                                          In my opinion, Four M held the legal and beneficial interest in the share in respect of which it was registered.

The Notice of Contention

Part Ownership

73                                          The plaintiff contends that, even if Four M was the owner of one share in the “Gem of Safaga”, West Asia’s part-ownership of the ship is sufficient to engage the right in s 19 of the Act. Its submission is that “the owner” in s 19(b) includes a part-owner of the surrogate ship and that West Asia was a part-owner of the “Gem of Safaga”. West Asia contends that the relevant person within s 19(a) of the Act must be the owner within s 19(b) before the right in s 19 is engaged. In other words, the right in s 19 is not engaged if there is a part-owner who is not a relevant person. As I understand it, West Asia does not dispute that the section will be engaged where there is more than one owner of the surrogate ship within s 19(b) provided all of those persons are relevant persons within s 19(a). The plaintiff acknowledges that, on its argument, s 19 would be engaged even if the relevant person owned only a small part of the property in the surrogate ship. For example, in the case of an Australian-owned ship, it acknowledges that, on its argument, s 19 would be engaged even if the relevant person owned only one share in the property of the ship. West Asia acknowledges that, on its argument, s 19 would not be engaged even if the relevant person owned the majority of the property in the ship. Again, for example, in the case of an Australian-owned ship, West Asia acknowledges that, on its argument, s 19 would not be engaged if the relevant person owned 63 of the 64 shares into which property in the surrogate ship is divided by s 11(1) of the Shipping Registration Act 1981 (Cth).

74                                          It is convenient to begin by identifying matters which do not assist in the resolution of the question of construction thus raised. First, the Court was not taken to any other section in the Act which assists in the determination of the proper construction of s 19(b). I do not think that the reference to co-owners of a ship in s 4(2)(b) of the Act assists in the determination of the question of construction. Nor do the sections related to s 19, that is to say, ss 17 and 18, provide any assistance. Secondly, the primary judge referred to s 23(b) of the Acts Interpretation Act 1901 (Cth) which provides that, in any Act, unless the contrary intention appears, words in the singular number include the plural and words in the plural number include the singular. I do not think that this principle of interpretation provides any assistance in the resolution of the issue of construction beyond making it clear that the right in s 19 is engaged if, in a case where there is more than one owner, all those owners are relevant persons within s 19(a) of the Act.

75                                          Section 19(b) uses the expression “the” owner. In Cape Moreton (at 73-74 [122]), Ryan and Allsop JJ referred to the use of the definite article in s 19(b), but it was unnecessary for their Honours in that case to consider its significance. I think that the use of the definite article is suggestive of the construction advanced by West Asia.

76                                          The role of Report No 33 of the Australian Law Reform Commission Civil Admiralty Jurisdiction (“ALRC Report”) in the enactment of the Admiralty Act 1988 (Cth) is clear. It has been referred to in a number of important authorities: The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404; Laemthong International Lines Co v BPS Shipping Limited (1997) 190 CLR 181. Regard may be had to the ALRC Report for the purposes of determining the question of construction. As I have said, I think that the use of the expression “the owner” is suggestive of the construction advanced by West Asia, and in those circumstances, regard may be had to the ALRC report by reason of s 15AB(1)(a) and (2)(b) of the Acts Interpretation Act 1901 (Cth). Further, or in the alternative, I think that, in terms of the present issue, the words “the owner” are ambiguous. It may be that, in terms of other and different issues, the words “the owner” are not ambiguous (Cape Moreton at 59-60 [60]) per Ryan and Allsop JJ), but that does not detract from the word’s ambiguity in terms of the present issue. Therefore, regard may be had to the ALRC Report by reason of s 15AB(1)(b) and (2)(b) of the Acts Interpretation Act 1901 (Cth).

77                                          In any event, the Court is entitled by reference to Australian common law principles, to have regard to the ALRC report for the purpose of considering the context of the Act and its component provisions: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 per Brennan CJ, Dawson, Toohey and Gummow JJ); Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 112 per McHugh J; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 at 280-281 [11] per McHugh A-CJ, Gummow and Hayne JJ.

78                                          The particular issue of whether an action in rem against a surrogate ship should be available where that ship is only part-owned by a relevant person was addressed by the Commission in paragraph 206 of its report. The Commission said the following:

206. Co-ownership. If an action in rem against any ship owned by the relevant person is to be the basic rule, two further issues arise. The first involves questions of co-ownership. The second is whether any extension should be made beyond vessels owned by the relevant person to vessels under charter by that person. On the first issue there are two different situations to be considered.

Surrogate Ship Part-Owned by Relevant Person. Where the other ship is only partly owned by the relevant person, neither the 1952 Arrest Convention art 3(2) nor any of the recent Acts allow an action in rem to be brought. It might be argued that the capacity of co-owners to seek indemnity from each other, combined with the existence of at least some legal interest of the relevant person in the ship, should be sufficient to justify allowing an action in rem in such cases. If A is the relevant person and A and B own another ship in equal shares should not B be able to look to A for reimbursement if any loss is suffered where the ship is arrested? If it is thought unfair to the “innocent” co-owner B that the ship should be liable to be arrested and stand security as a surrogate ship for A’s liabilities, the position could be modified. The security value of the ship, and hence the maximum bail which could be demanded to secure its release, could be limited to the value of A’s share. In other words, if A is the relevant person in a claim for $750 000 and A and B are equal owners of ship X, valued at $1 million, ship X could be arrested, but only $500 000 in bail would be required to secure its release. If sold, only $500 000 could be appropriated to the claimant. In effect there are three options: no action in rem; an action in rem with B left to look to A for any loss that B suffers; and an action in rem but with B protected to the extent described. The issue will seldom arise. There are, it seems, few ships trading internationally which are co-owned as opposed to being owned by a corporate body with two or more shareholders. Local fishing craft are more frequently co-owned but their owners would probably only rarely also be co-owners with others of a second ship. Moreover the priorities consequences of allowing arrest in respect of one co-owner's liabilities would be complex, whether the second or third of these alternatives was adopted. On balance there is no sufficient warrant for departing from the position adopted in the Brussels Convention and in all relevant overseas legislation. The proposed legislation should accordingly allow an action in rem against the other vessel only where all its co-owners are relevant persons on the original claim.

…

Accordingly, the Australian legislation should require that a relevant person be the only owner of the surrogate ship; where two or more persons are jointly the 'relevant person', identity of co-ownership should be required with respect to the surrogate ship. This does not mean that the proportion of co-ownership interest must be the same as the proportion of liability of the “relevant person”: indeed this would rarely be the case. Identity of the persons involved should be all that is required.

(Footnotes omitted.)

79                                          The Commission made the following recommendation:

12. Actions in Rem Against Surrogate Ships. “Sister ship” or surrogate ship actions should be introduced in Australia (para 203-4). A surrogate ship should be able to be served and arrested in an action in rem if the relevant person was an owner or charterer of or in possession or control of the wrongdoing ship when the cause of action arose and is the owner of the surrogate ship when the action is commenced (para 204-5). All co-owners of the surrogate ship must be relevant persons in respect of the claim (para 206). Where the relevant person is merely a charterer of the surrogate ship no action should lie (para 207). Surrogate ship arrest should not apply to proprietary maritime claims, but should apply to all general maritime claims (para 208). Actions in rem against surrogate freight and cargo should not be possible (para 209).

(Footnotes omitted.)

80                                          The Commission attached a draft Admiralty Bill to its report. Section 19 in that draft Bill is in the same terms as s 19 in the Act.

81                                          A further indication of the Commission’s clear but cautious approach to actions in rem in relation to surrogate ships can be seen in its discussion of whether an action in rem should be allowed against ships on charter by demise to the relevant person. In paragraph 207 of its report, the Commission said (footnotes omitted):

207. Surrogate Ships under Charter. The other issue is whether the category of surrogate ships which may be proceeded against in an action in rem should be extended beyond those owned to those on charter to the relevant person. The 1952 Arrest Convention does not go beyond ownership. Neither does the United Kingdom, Singapore or South African legislation. However, the legislation in New Zealand allows an action in rem against ships on charter by demise to the relevant person. This appears to have come about due to a misreading of the judgment of Justice Brandon in The Andrea Ursula, where it was stated that demise charterers should be treated as 'owners' for the purposes of s 3(4) of the 1956 Act. This was said in the context of establishing a nexus between the wrongdoing ship and the relevant person, not with reference to the nexus between the relevant person and surrogate ships. The judgment refers to the fact that the 1952 Arrest Convention allows arrest only of any other ship of which the demise charterer is the legal owner. Because the underlying premise in that judgment was the need to bring English law more closely into line with the Convention, it seems clear that Justice Brandon did not intend to allow an action in rem to be brought against a surrogate ship where the relevant person was merely the demise charterer of the ship. On the other hand the doubtful origins of a particular provision do not prevent it from being justified as a matter of policy. It can be argued that the rationale for extending the action in rem against the wrongdoing ship to liabilities of the demise charterer of that ship apply equally to actions in rem against a surrogate ship the demise charterer of which is the relevant person. The argument is not, however, persuasive. By definition a surrogate ship in such cases is a different 'enterprise' from the wrongdoing ship, with a different owner. It would be too great an extension of the relationship between owner and demise charterer of ship B to allow arrest of that ship in respect of the demise charterer’s liabilities arising with respect to ship A. In the absence of any other international support for such an extension, Australian legislation should require that a surrogate ship be owned by the relevant person with respect to the claim.

82                                          In my opinion, reference to the ALRC’s report and the draft Admiralty Bill attached to the report supports the construction of s 19(b) advanced by West Asia.

83                                          Reference to policy considerations does not provide a great deal of assistance in terms of resolving the question of construction. On the one hand, it might be said that allowing an action in rem against a surrogate ship only partly owned by a relevant person involves an unwarranted and unfair interference with the rights of the innocent co-owner. On the other hand, it might be said that it is difficult to distinguish between the rights of an innocent co-owner and an innocent security holder. The latter’s rights may be seriously affected even if the construction advanced by West Asia is the correct one.

84                                          The Court was referred to one overseas authority, namely, the decision of Prothonotary Hargrave in The Looiersgracht [1995] 2 Lloyd’s Rep 411 at 415. In that case, Prothonotary Hargrave said that, under the Canadian legislation in issue:

It is not enough to be an owner, but rather it must be the owner, that is a similar complete ownership of both vessels.

85                                          The observations of Prothonotary Hargrave do not go beyond what this Court is able to observe about s 19(b) of the Act.

86                                          The primary judge referred to Article 3(2) of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships, Brussels, 1952 (“the 1952 Arrest Convention”), s 21(4)(b) of the United Kingdom Supreme Court Act 1981 c.54 (UK), s 5(2)(b)(ii) of the New Zealand Admiralty Act 1973 (NZ) and s 3(7)(a)(i) of the South African Admiralty Jurisdiction Regulation Act 105 of 1993 (SA). He noted that, under the Convention and in those jurisdictions, the right to proceed in rem extends only to sister ships strictly related to those in the sole ownership (even if there is more than one co-owner) of the relevant person or persons that had the requisite connection with the offending ship (see Berlingieri on Arrest of Ships (4^th ed, 2006) at 159 [52.433]). The primary judge said that the statutory right to proceed in rem should be construed, where possible, harmoniously with concepts of the maritime law forming part of the general law of nations, and he referred to Luke v Lyde [1759] 2 Burr 882 at 887 per Lord Mansfield CJ and The Tolten [1946] P. 135 at 155 per Scott LJ. The primary judge did not err in taking that approach.

87                                          In my opinion, when all these matters are considered, it must be concluded that the construction for which West Asia contends is the correct one. In other words, part-ownership by the relevant person or persons is not sufficient to engage the right in s 19 of the Act. An alternative argument that the right in s 19 is engaged where the relevant person is the major owner of the surrogate ship must also be rejected. I cannot think that Parliament would have adopted such an imprecise test.

Ownership by reason of the Co-ownership Agreement

88                                          The plaintiff contends that, even if Four M held the legal and beneficial interest in its registered share, it had, by entering into the Co-ownership Agreement, given all ownership rights to West Asia such that it should be concluded that West Asia was the owner of the “Gem of Safaga” within s 19(b) of the Act. The plaintiff referred to the following passage from the speech of Lord Herschell L.C. in The Baumwoll Manufactur von Carl Scheibler v Christopher Furness [1893] AC 8 at 17:

But there may be two persons at the same time in different senses not improperly spoken of as the owner of a ship. The person who has the absolute right to the ship, who is the registered owner, the owner (to borrow an expression from real property law) in fee simple, may be properly spoken of, no doubt, as the owner; but at the same time he may have so dealt with the vessel as to have given all the rights of ownership for a limited time to some other person, who, during that time, may equally properly be spoken of as the owner. When there is such a person, and that person appoints the master, officers, and crew of the ship, pays them, employs them and gives them the orders, and deals with the vessel in the adventure, during that time all those rights which are spoken of as resting upon the owner of the vessel, rest upon that person who is, for those purposes during that time, in point of law to be regarded as the owner.

Those observations are not of direct assistance because the House of Lords in that case was dealing with quite a different problem in a different statutory and common law context.

89                                          I have already set out observations by members of this Court about the concept of ownership (at [14]-[15]) and I have summarised the provisions of the Co-ownership Agreement (at [32]-[37]).

90                                          In a case of co-owners, it is not unusual for there to be an agent for the purposes of the use and disposition of the ship and for that person to be one of the co-owners. I do not think Four M relinquished its ownership rights by entering into the Co-ownership Agreement. In fact, the Co-ownership Agreement may be seen as an exercise of ownership rights not a relinquishment of them.

91                                          Under the Co-ownership Agreement, neither party can dispose of its share or shares without the consent in writing of the other party (clause 2b). Certainly, West Asia has no authority to dispose of Four M’s registered share. Each party is said to be the independent owner of a defined proportion of the ship and to have the rights and obligations normally attendant thereon. Four M has a number of rights in connection with the books and records relating to the use of the ship.

92                                          The plaintiff referred to the undertaking (see [37]) and submits that it supports its contention that Four M has relinquished its ownership rights. That submission must be rejected. It seems to me that the effect of the undertaking is that Four M has secured its interest in the ship in favour of West Asia in return for the latter’s guarantee to the lender. It gives West Asia certain rights in relation to Four M’s share in the event of a default. It does not constitute West Asia the present owner of Four M’s share in the “Gem of Safaga”.

Ownership under Indian law

93                                          The plaintiff submits that, under Indian law, West Asia is the owner of the “Gem of Safaga”. It submits that a proper application of Australian principles of private international law leads to the conclusion that West Asia is the owner of the “Gem of Safaga” within s 19(b) of the Act. That follows, it is submitted, even if Four M is the owner at law and in equity of one share in the ship.

94                                          At the hearing before the primary judge, the plaintiff called evidence from an Indian lawyer, Mr Ananjan Mitter. Mr Mitter has 16 years experience as a lawyer and one of his areas of practice is Indian maritime law, including rights of arrest. Mr Mitter referred to provisions of the IndianMSA and Article 3(2) of the 1952 Arrest Convention. The relevant provisions of the Indian MSA are set out above (at [14]).

95                                          Mr Mitter expressed the view that, for the purpose of s 3(23) of the Indian MSA, West Asia is the owner of the “Gem of Safaga” and the ship can be arrested as security for maritime claims which have arisen against West Asia, irrespective of the fact that West Asia jointly owns the ship with Four M. Mr Mitter said he was not aware of any Indian or English authority on the point and that he had reached his conclusion having regard to the “plain words of s 3(23)” of the Indian MSA.

96                                          Both parties accepted that it was appropriate for the Court to consider the information contained in the Indian Register Book in light of the provisions of s 25 of the Indian MSA. The plaintiff submits that, by reason of the definition of owner in s 3(23) of the Indian MSA, West Asia is the owner of the “Gem of Safaga” and that the Court should accept and apply that conclusion to s 19(b) of the Act. West Asia submits that that would be to take a step not warranted by the relevant principles and that the characterisation of its rights in the “Gem of Safaga” is to be undertaken by reference to Australian law.

97                                          In the Cape Moreton, Ryan and Allsop JJ made observations concerning the role of foreign law in determining the issue of ownership under s 19(b) of the Act and the determination of the relevant foreign law. As to the role of foreign law, their Honours said (at 78-79 [140]):

From these cases, we favour an approach similar to that taken by the English Court of Appeal in The Nazym Khikmet and The Guiseppe di Vittorio, that the law of Australia will govern the question of the characterisation of such rights (and their existence, nature and extent) as are derived by Freya or Alico from the transaction of transfer or assignment of the ship. The existence, nature and extent of such rights created or recognised by the transaction will be governed or affected by any law that Australian rules of private international law regard as relevant. The characterisation of those rights as “ownership” or not and of either Freya or Alico as “the owner” is then undertaken by reference to Australian law. The process involves applying an Australian statute dealing with authority to commence a suit in an Australian court to the facts as found, those facts including the rights created or recognised by the foreign law mandated by the applicable Australian rule of private international law. The approach that we favour entails a rejection of the proposition that the law of the forum (as domestic law only and not including its rules of private international law) applies. We see no justification for limiting the role of the law of the forum in this regard. To do so would, by necessity, leave out of account in the assessment of the proprietary question any foreign law relevant to the assignment of the ship.

As to the determination of the foreign law which is relevant, their Honours said (at 79 [146]):

There seem to us to be powerful reasons for giving effect to the law of the country of register as the lex situs in relation to questions of title, property and assignment (subject, of course, to local statute and public policy). The chance location of a working merchant ship in a port within its range of sailing or on the high seas appears to introduce an element of arbitrariness to the legal analysis. This is especially so if, as is likely, the national register and registration laws of the port in question are directed to ships of that country. If a law of a country other than the country of registration is chosen to deal with the assignment of property in a ship, it is likely that there will be no statute dealing with registration that is made relevant.

98                                          The primary judge addressed this issue and expressed the provisional view that Indian maritime law would not regard West Asia as the sole owner of the “Gem of Safaga”. I have reached the conclusion that Indian law would not regard West Asia as the sole owner of the “Gem of Safaga” for reasons which largely accord with those of the primary judge. In those circumstances, it is not necessary for me to consider the role of Indian law in the determination of ownership under s 19(b) of the Act.

99                                          In the appellate decision of the Bombay High Court in MV “Sea Success 1” v Liverpool and London Steamship Protection and Indemnity Association Ltd (AIR 2002 Bombay 151), the Court made a number of observations and statements. First, the Court said that the Supreme Court of India in MV “Elisabeth” (AIR 1993 SC 1014) at [64]-[65] had said that actions in rem were resorted to by the Courts as a device to overcome the difficulty of personal service on a defendant by compelling them to enter an appearance and to accept service of a summons with a view to furnishing security for the release of the res (at [18]). Secondly, the Court said that the Supreme Court in MV “Elisabeth” (at [89]) had also said that it was appropriate to regard various Conventions, including the 1952 Arrest Convention, as part of the common law of India, even though the Conventions have not been formally adopted by India (at [19]). Thirdly, the Court said that the distinction between a parent and subsidiary company is fundamental, and the corporate veil should be lifted only in exceptional circumstances (at [54]). Finally, the Court said that, having regard to various authorities from other countries, the beneficial ownership of shares in a ship does not include possession and control of the ship. The test of beneficial ownership is “a right of that person to sell, dispose of or alienate the shares in the ship” (at [56]).

100                                       By reason of s 25(d) of the Indian MSA, West Asia does not have the right to sell, dispose of or alienate the “Gem of Safaga”, or any shares in the ship. Furthermore, by reason of the Co-ownership Agreement (clause 2b), West Asia may not transfer its shares in the “Gem of Safaga” without the prior consent in writing of Four M.

101                                       On the evidence before the primary judge, I think it is correct to conclude that Indian maritime law requires, for the purposes of arrest, that a person have a beneficial right to dispose of the entirety of the ship and that West Asia did not have that right. I do not think s 3(23) of the Indian MSA leads to a contrary conclusion. It is no more than a definition section which applies “unless the context otherwise requires”. Nor does a consideration of Mr Mitter’s opinion lead to a contrary conclusion as it is not supported by any authority or detailed reasoning.

The legal effect of the payment of commission

102                                       The plaintiff submits that, by reason of s 25(c) of the Indian MSA, a person may not be registered as owner of a fractional part of a share in a ship. It submits that Four M’s obligation to pay commission, both during the existence of the Co-ownership Agreement, and on the sale of the ship, means that, if it has an interest, it is less than one share. The plaintiff submits that, in those circumstances, West Asia is the owner of the ship.

103                                       With respect to the commission payable during the existence of the Co-ownership Agreement, clause 6j provides:

6.         The Co-owners agree that WAM shall:

            …

j     Be eligible for a commission of 1.25% of the net charter hire received/receivable by the Co-owners. Such commission shall be deducted from the earnings account on a quarterly basis.

104                                       With respect to commission payable on the sale of the ship, the primary judge found that there was no evidence of an actual agreement that such a commission would be payable on sale. I see no reason to disagree with that conclusion of the primary judge on a matter of fact.

105                                       In considering the significance of the agreement to pay commission during the existence of the Co-ownership Agreement, the primary judge said:

73.       The first argument has more force in respect of Four M’s legal entitlement to income.  This is clearly only 8.75%.  And this result follows because the structure of the co-ownership agreement was designed to empower West Asia to act as absolute owner of the ship regardless of Four M’s share, apart from a sale or a bank facility default.  However, a passive owner’s right to a smaller share of income than its proportionate capital share is not necessary [sic] indicative of its capital entitlement on sale being other than 10 per cent.  The lesser income share attached to that capital interest may make the latter less valuable if it is capable of separate sale.

106                                       In considering the significance of the possibility of a commission being paid on the sale of the “Gem of Safaga”, the primary judge said that the payment of commission was speculative and that “until a liability to some commission to West Asia comes into existence, prima facie, the legal right of Four M is to receive the full capital value of its one share”.

107                                       The primary judge rejected the plaintiff’s submission and I see no reason to disagree with his conclusions.

108                                       The plaintiff raised a further point in the course of its oral submissions on the appeal. I had difficulty following the point, but it seemed to be that, by reason of a revaluation of Four M’s share in West Asia’s books, Four M’s interest in the “Gem of Safaga” fell below one tenth. As far as I can see, this point was raised for the first time in the course of oral submissions. It was not dealt with by the primary judge and it is not expressly raised in the notice of contention. I would not permit the plaintiff to rely on the point at this stage.

Estoppel

109                                       The records of the Indian Register of Shipping, a classification society, showed West Asia as the registered owner of the “Gem of Safaga” and made no reference to Four M. The plaintiff submits that by reason of the information shown in that Register, West Asia is estopped from denying that it is the owner of the “Gem of Safaga”.

110                                       The primary judge addressed the significance of the entry in the Indian Register of Shipping in the context of arguments as to ownership. He said:

36.       First, Euroceania relied on descriptions of West Asia as sole owner of the ship in a number of public documents.  West Asia sometimes appeared as owner of nine shares, and other times appeared as sole owner of the ship in various registers maintained by the Republic of India, ship classification societies and Lloyd’s.  However, as the variety of these entries suggests, those documents leave the issue equivocal.  I am not satisfied that the entries recording West Asia as sole owner were made or continued unchanged because it had caused those recordings to be made or remain.  For example, the ship classification society, the Indian Register of Shipping, has recorded West Asia as sole owner despite its surveyor at Port Suez issuing the provisional certificate of Indian Registry on behalf of the Republic of India that recorded Four M as having one of the ten shares.

111                                       It seems to me that those conclusions are fatal to the plaintiff’s estoppel argument.

Conclusions

112                                       For these reasons, the primary judge erred in concluding that Four M was not the owner (at law and in equity) of one of the ten shares in the “Gem of Safaga”. The proper construction of s 19(b) of the Act is that the owner (or owners) of the surrogate ship must be (or all must be) a relevant person. Four M was not a relevant person and that element in s 19(b) was not satisfied. The primary judge should have granted the relief sought by West Asia in its notice of motion.

113                                       On 23 December 2009, and after the appeal had been heard, the primary judge made the following orders:

1.         Leave be granted to West Asia Maritime Ltd to file in court an application to Court for release of ship or other property pursuant to r 52(1) of the Admiralty Rules 1988 (Cth).

2.         The plaintiff’s notice of motion dated 11 December 2009 be dismissed and that there be no order as to the costs of that motion.

3.         The proceedings stand over to 5 February 2010 at 9:30am for directions.

4.         The parties have liberty to apply on such notice as is appropriate.

BY CONSENT, THE COURT ORDERS THAT:

5.         The ship “Gem of Safaga” be released from the arrest executed under the arrest warrant issued on 3 November 2009.

THE COURT NOTES THAT:

6.         The orders made today are made pursuant to a settlement agreement between the plaintiff, WAM Singapore Pte Ltd and West Asia Maritime Ltd dated 22 December 2009.

114                                       The appeal must be allowed, but, in the circumstances, the Court should hear from the parties as to the appropriate orders. The appellant is to file and serve within 7 days proposed minutes of further orders reflecting these reasons together with short written submissions in support of such proposed orders. The respondent (if so advised) is to file and serve within 14 days short written submissions in response to the appellant’s submissions.

I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate:     

Dated:         26 February 2010

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1440 of 2009

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

 

BETWEEN:	THE SHIP "GEM OF SAFAGA" Appellant
AND:	EUROCEANICA (UK) LTD Respondent

 

JUDGES:	RYAN, BESANKO AND JAGOT JJ
DATE:	26 FEBRUARY 2010
PLACE:	SYDNEY

REASONS FOR JUDGMENT

JAGOT J:

115                                       In common with Ryan J, I too have had the advantage of reading in draft form the reasons of Besanko J.  I also agree with those reasons and with the orders which his Honour has proposed.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Associate:

Dated:         26 February 2010