CATCHWORDS
SHIPPING AND NAVIGATION - ADMIRALTY JURISDICTION, LAW AND PRACTICE - Ships - action in rem - application for an order for valuation and sale of ship pendente lite - claim for payment for goods, materials or services supplied to ship - evidence of deterioration in value of ship - whether order for valuation and sale should be made where owner defends the action and has not abandoned the ship - substantial port charges and associated expenses being incurred by Marshal during ship's arrest - need for speedy resolution of claims where crew are claiming substantial unpaid wages
LEGISLATION
Admiralty Act 1988
Admiralty Rules, Part X r 69
CASES
The "Myrto" [1977] 2 Lloyd's Law Rep. 243
The "Gulf Venture" [1985] 1 Lloyd's Law Rep. 131
MARINIS SHIP SUPPLIERS (PTY) LTD
V
THE SHIP "IONIAN MARINER"
VG 553 of 1995
CORAM: RYAN J
PLACE: MELBOURNE
DATE: 04 SEPTEMBER 1995
IN THE FEDERAL COURT )
OF AUSTRALIA )
VICTORIAN REGISTRY ) No VG 553 of 1995
IN ADMIRALTY )
BETWEEN: MARINIS SHIP SUPPLIERS (PTY) LTD
Plaintiff
AND: THE SHIP "IONIAN MARINER"
Defendant
CORAM: RYAN J
PLACE: MELBOURNE
DATE: 04 SEPTEMBER 1995
MINUTES OF ORDER
1. That the Marshal have the ship valued in writing.
2. That the ship be sold by the Marshal pursuant to the Admiralty Rules.
3. That the application be adjourned for further hearing before Ryan J on 14 September 1995 for directions as to:
(a) the method of sale of the ship; and
(b) any other relevant matters.
4. That liberty be granted to each of the caveators against release to appear at the directions hearing referred to in paragraph 3 hereof if so advised and be heard as to the directions to be made, provided that before they are heard, they file affidavits specifying the nature of their respective claims or interests and providing evidence of the circumstances giving rise to their respective claims or interests.
5. That the solicitors for the Plaintiffs serve on each of the caveators against release:
(a) notice of these orders on or before 8 September 1995; and
(b) prior to the directions hearing referred to in paragraph 3 hereof, notice of the directions as to the method of sale which the Plaintiffs propose be made.
6. That the Marshal provide to the solicitors for the Plaintiffs, the Defendant and each of the caveators against release:
(a) a copy of the ship's valuation obtained pursuant to paragraph 1 hereof as soon as practicable after its receipt;
(b) prior to the directions hearing referred to in paragraph 3 hereof:
(i) the name of the broker it proposes to use to sell the ship;
(ii) the recommendations of the broker as to the method by which the ship ought be sold for the purposes of achieving the best possible price; and
(iii) the estimate of the broker as to the time the sale is likely to take.
7. That liberty be granted to the Marshal and all parties to apply to Ryan J on not less than 24 hours' notice in writing to each other party.
8. That the costs of all parties of the hearing of 31 August 1995 be reserved.
NOTE: Entry and settlement of orders is deal with in O 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
VICTORIAN REGISTRY ) No VG 553 of 1995
IN ADMIRALTY )
BETWEEN: MARINIS SHIP SUPPLIERS (PTY) LTD
Plaintiff
AND: THE SHIP "IONIAN MARINER"
Defendant
CORAM: RYAN J
PLACE: MELBOURNE
DATE: 04 SEPTEMBER 1995
REASONS FOR JUDGMENT
RYAN J: There is an application before the court seeking an order for the valuation and sale pendente lite of the ship "Ionian Mariner". The ship was arrested in Melbourne on 22 May 1995 after the issue of a writ by the plaintiff claiming $46,844.73 South African R (approximately $A18,000) for goods, materials or services supplied to the ship. The vessel, on the evidence, is subject to a mortgage but there is no evidence to suggest that a caveat has been lodged by the mortgagee.
By its defence, the defendant has admitted that a contract was made between the plaintiff and Adriatic Tankers Shipping Co SA ("Adriatic"), which has apparently been the manager of the "Ionian Mariner", for the supply to the ship of certain goods and materials. By sub-paragraphs 2(b) and (c) of the defence, it is pleaded:
"2(b) alternatively, to sub-paragraph (a), if the owner was a party to the contract referred to in paragraph 2 it will
say that it was a term or condition of such contract that:
(i) The supply of any goods and materials was to be on the terms, conditions and prices quoted by the Plaintiff and not otherwise.
(ii) The supply of any goods and materials was subject always to the approval of the owner.
(iii) The receipt of any goods or materials by the ship "Ionian Mariner" was subject always to the approval of the owner.
(iv) Any goods to be on the terms, conditions and prices quoted by the Plaintiff and not otherwise.
(c) Further to sub-paragraph (b), the owner will say that;
(i) If goods and materials were supply to it, such goods were not delivered to it on the terms, conditions and prices quoted by the Plaintiff;
(ii) Alternatively to sub-paragraph (i), if goods and materials were supplied to it, it has not approved the receipt of the goods as required by sub-paragraph (b)(ii) and (iii), as alleged in paragraph 2 or at all."
It is admitted in paragraph 3 that no payment has been made by the defendant ship.
The
evidence before the court includes an affidavit by Mr Martin, a deputy sheriff,
who has deposed that a cost of approximately $3,000 has been incurred since the
arrest in moving the ship to another berth at the direction of the Port of
Melbourne Authority. Mr Martin goes on
to depose that there are 19 crew members, including the captain, on board the
ship and that port charges and other expenses incurred from the time of arrest
to 22 August 1995 are of the order of $117,000.
At about that time, a payment of $50,000.00 was made on behalf of the
ship's owner on account of those charges.
As well, the Marshal has incurred costs of
approximately $6,535.00 in providing food and other necessities for the
crew. The crew is presently affording
security to the vessel but if they were repatriated to Russia, the Marshal
would incur costs for security of at least $4,010.00 per week.
An affidavit has been sworn on behalf of the plaintiff deposing, in effect, that the defendant has no defence to the plaintiff's claim. The defendant has not filed an affidavit deposing to facts tending to establish the existence of a defence. Nor has any proposal been made whereby there might be a speedy trial of the plaintiff's claim.
On 9 August 1995 the ship was surveyed by Captain Shepherd, a marine surveyor, who noted that the safety equipment certificate had now expired and a starboard lifeboat required replacement. His report, dated 14 August 1995, records that:
"Slop tanks used only for water ballast are heavily rusted and in need of attention, and cargo tanks were generally in fair to moderate condition."
The ship had last been dry docked in February 1993. The external shell plating of the hull was noted to be in urgent need of attention with heavy rust evident overall and a heavy marine growth visible. The surveyor advised that further painting or general maintenance was not being carried out as all consumable stores such as paint and the like had been used. The surveyor commented that no survey of underwater areas had been carried out and no check had been made of plate thickness. Accommodation and store rooms were sighted but not commented upon. The report ends with these conclusions:
"Generally we consider the areas specified to be consistent with age and service. Internal condition requires attention and external condition requires urgent attention.
The condition of the vessel will deteriorate rapidly now that maintenance has ceased due to lack of consumable stores."
In an affidavit sworn by an operating officer employed by the local agent of European Liberty SA, the owner of the defendant ship, it has been indicated that regular maintenance programs have been carried out as detailed in deck and engine room maintenance reports for June and July 1995. Diesel bunkers, arranged by the owner, were supplied to the ship on 14 July 1995 at a cost of $9,555.00.
There is some evidence of a hearsay kind that except for a subvention of US$1,000.00 recently paid by the owners to each crewman, the crew have not been paid wages for the past eleven months and the total amount of those unpaid wages is in the vicinity of US$360,000.00. The crew have been provisioned by the Marshal at a cost of approximately $6,535.00 to date and are otherwise dependent on the charity of the Melbourne Russian community and the Australian Maritime Union for recreation and hospitality during periods of shore leave. The Union has also arranged for members of the crew to telephone members of their families in Russia from time to time. In the light of that evidence, I made the following order on 31 August 1995:
"That until further order, the Marshal be authorised to expend an amount of not more than $2,000 as the Marshal's costs of the arrest on the provision of outings or other entertainment for the crew of the ship, including the provision of refreshments in connection with such outings or other entertainment.
In an affidavit sworn by Mr Francois Alwyn Loots, an officer of Adriatic, reference has been made to the negotiated withdrawal of 5 out of some 12 caveats which have been lodged against the ship since her arrest. The deponent indicates that further withdrawals of caveats are expected to be achieved by compromise or the provision of security. An examination of those caveats which have not so far been withdrawn reveals that four have been lodged by suppliers of provisions, bunkers, lubricants and agents' services; two by crew for unpaid wages; one by a supplier of provisions to alleged sister ships; one by the owner of cargo allegedly short-landed at Melbourne, and one by a voyage charterer of the ship.
The affidavit by Mr Loots of Adriatic includes these paragraphs:
"10. The restructuring and refinancing of the Owners is continuing with negotiations taking place with the main financiers involved. On 16 August 1995 Adriatic announced the appointment of Mr George Kokkinos, formerly a banker with Credit Lyonnaise Greece, to assist in this continuing restructuring and refinancing process.
11. As a result of the negotiations referred to in the preceding paragraph of this my Affidavit and steps towards the restructuring and refinancing, the Owners are confident that there will be a marked improvement in their own and Adriatic's operations in relation to the Defendant vessel. The Owners have already commenced making payments or otherwise settling or resolving outstanding issues in relation to the Defendant vessel."
The contentions against an order for sale are summarised as follows in the concluding paragraphs of the same affidavit:
"20. The Owners are concerned that any order for the Valuation and/or Sale of the Defendant vessel would at the very least be premature, and would severely prejudice the sensitive negotiations with the financiers of the Owners. The granting of such orders would become common knowledge in the shipping community and this would prejudice the on-going refinancing and reorganization being undertaken by the Owners and by Adriatic.
21. The granting of orders for the Valuation and/or sale of the Defendant vessel would be unreasonable and drastic as it would permanently deprive the Owners of the Defendant vessel of their property notwithstanding the steps taken by the Owners to retain and not abandon the Defendant vessel, as evidenced by the matters set out in paragraph 18 of this my Affidavit."
The court's power to make the order sought is derived from r 69 of the Admiralty Rules which provides:
"69.(1) The court may, on application by a party to a proceeding and either before or after final judgment in the proceeding, order that a ship or other property that is under arrest in the proceeding:
(a) be valued;
(b) be valued and sold; or
(c) be sold without valuation.
(2) An application for valuation or sale of a ship or other property shall be in accordance with Form 26.
(3) An order for valuation or sale of a ship or other property shall be in accordance with Form 27.
(4) An application under subrule (1) constitutes an undertaking by the party who made it to pay, on demand, to the Marshal an amount equal to the amount of the fees and expenses of the Marshal in complying with the order.
(5) If the ship or property is deteriorating in value, the court may, at any stage of the proceeding, either with or without application, order it to be sold."
It is common ground, and I accept, that the principles applicable to the comparatively rare circumstances of the present case, are those identified by Brandon J in the The "Myrto" [1977] 2 Lloyd's Law Rep. 243, where it is noted at 260:
"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.
Where defendants to an action in rem against a ship appear in the action with the intention of defending it, they almost invariably obtain the release of the ship from arrest by giving bail or providing other security for the claim satisfactory to the plaintiffs. For this reason there appears to be no reported case in which the Court has had to consider in what circumstances it would be right to make an order for appraisement and sale of a ship pendente lite in a defended case."
His Lordship then concluded on the same page:
"I accept that the Court should not make an order for the appraisement and sale of a ship pendente lite except for good reason, and this whether the action is defended or not, I accept further that, where the action is defended and the defendants oppose the making of such an order, the Court should examine more critically than it would normally do in a default action the question whether good reason for the making of an order exists or not. I do not accept, however, the contention put forward for the owners, that the circumstance that, unless a sale is ordered, heavy and continuing costs of maintaining the arrest will be incurred over a long period, with consequent substantial diminution in the value of the plaintiffs' security for their claim, cannot, as a matter of law, constitute a good reason for ordering a sale. On the contrary, I am of opinion that it can and often will do so."
That indication of the principles governing the exercise of the court's discretion on applications like the present has been approved by Sheen J in The "Gulf Venture" [1985] 1 Lloyd's Law Rep. 131.
For the
defendant, it has been argued that the court should not take the drastic step
of ordering sale where the owner, far from abandoning the ship has, since the
arrest, expended considerable sums of money to preserve the asset and retain
the co-operation of the crew. However, I
do not regard the
making of an order for sale as being conditional upon the owner's abandonment
of the ship. As was pointed in The "Myrto", where such an
application is made, it is almost invariable that owners procure the release of
the ship by giving appropriate security.
Here, the owners have apparently not had the resources to do that, despite
the assertion made on their behalf, that they are threatened with the loss of a
major commercial asset.
It was next urged on behalf of the owners, that r 69, especially having regard to the specific terms of sub-r (5) requires affirmative proof that the ship is deteriorating in value. Here, it was said, the evidence is conflicting and does not tend to a conclusion that there has been a deterioration in value. There are two answers to this submission. In the first place, even if, as is disputed, the ship is being maintained by the crew in accordance with the maintenance schedules, it is inevitable that there will be some deterioration in condition, as Captain Shepherd's report indicates, by reason of rust below the waterline and other factors affecting the hull which cannot be arrested until she is next dry-docked. Secondly, in the absence of evidence of a rising market value for ships of this age and type, the natural inference is that there will be some depreciation in value, merely by the passage of time, even with full and adequate maintenance.
I observe parenthetically that sub-r 69(5) appears to be framed to provide a facility for the court, of its own motion if necessary, to order a sale to forestall a deterioration in value. However I do not regard the words of that sub-rule as limiting, by implication the wide general discretion exercisable on application by a party under sub-r 69(1).
Of most significance in this context is the factor which weighed with Brandon J in The "Myrto" that, unless a sale is ordered, heavy and continuing port charges and costs of maintaining the crew will be incurred without being fully defrayed by the owners. That will bring about a consequent, substantial, dimunition in the value of the security which the plaintiff and those caveators who rank behind the mortgagee, have for their respective claims.
There must be added to the matters which I have just mentioned the possible impact of further delay on the claim of the crew, admittedly with a high priority, for unpaid wages and the humanitarian considerations which impel the court to a speedy satisfaction of those claims. In the light of all these considerations, and in the absence of any firm or workable proposal for a speedy resolution of the plaintiff's claim and the claims of the caveators, there is a significant balance in favour of an order valuation and sale. That conclusion is reinforced by the reflection that the court will be called upon to give directions as to the manner of sale and possibly a reserve price, and, as a result, some weeks must necessarily elapse before a binding agreement can be concluded. That will afford the owners a further time, in addition to the more than three months which they have already had, in which to "restructure and refinance" their operations.
In the circumstances, I shall make orders for the sale and valuation of the ship and shall direct that the application be adjourned to 14 September 1995 before myself for directions as to the method of sale and any other appropriate directions.
I certify that this and the preceding nine (9) pages are a true copy of the reasons for judgment of his Honour Justice Ryan
Associate:
Date:
Counsel for the plaintiff: Mr M Thompson
Solicitors for the plaintiff: Phillips Fox
Counsel for the owners of the
defendant ship: Mr G J Fitzgerald
Solicitors for the owners of the
defendant ship: Middletons Moore & Berins
Counsel for the Marshal: Mr A McIntosh
Solicitor for the Marshal: Ronald C Beazley
Victorian Government Solicitor
Solicitor appearing for various
seafarers: Mr A Clayton
Hearing dates: 17 and 31 August 1995
