FEDERAL COURT OF AUSTRALIA

 

ADMIRALTY - arrest of vessel - application for release of vessel - where defendants proffered undertaking as security for release of vessel - whether application for release should be granted - dispute as to form and terms of undertaking - consideration of principles governing court’s power to order the release of a vessel under arrest where there is a dispute as to security - whether abuse of process - whether plaintiff acted oppressively in refusing to accept undertaking proffered by defendants - whether plaintiff’s conduct manifestly unreasonable.



Admiralty Act 1988 (Cth), s 34

Admiralty Rules, rr 51, 52, 56



Freshpac Machinery Pty Ltd v Ship “Joana Bonita” (1994) 125 ALR 683, cited

The “Polo II” [1977] 2 Lloyd’s Rep 115, cited

The “Gulf Venture” [1984] 2 Lloyd’s Rep 445, cited

The “Alletta” [1974] 1 Lloyd’s Rep 40, cited



Australian Law Reform Commission, Report No 33, Civil Admiralty Jurisdiction, 1986

Berlingieri on Arrest of Ships 1996 (2nd edn)

McGuffie, Admiralty Practice, in British Shipping Laws, vol 1, 1964

Jackson, Enforcement of Maritime Claims, 1996 (2nd edn)

Meeson, Admiralty Jurisdiction and Practice, 1993


THE OWNERS OF THE SHIP “CARINA” -v-

THE OWNERS OR DEMISE CHARTERERS OF THE SHIP “MSC SAMIA”

NG 748 OF 1997

 

 

TAMBERLIN J

SYDNEY

26 SEPTEMBER 1997


IN THE FEDERAL COURT OF AUSTRALIA

 

NEW SOUTH WALES DISTRICT REGISTRY

IN ADMIRALTY

NG 748  of   1997

 

BETWEEN:

THE OWNERS OF THE SHIP "CARINA"

plaintiff

 

AND:

THE OWNERS OR DEMISE CHARTERERS

OF THE SHIP "MSC SAMIA"

defendant

 

JUDGE:

TAMBERLIN J

DATE OF ORDER:

26 SEPTEMBER 1997

WHERE MADE:

SYDNEY

 

THE COURT ORDERS THAT:

 



IN THE FEDERAL COURT OF AUSTRALIA

 

NEW SOUTH WALES DISTRICT REGISTRY

IN ADMIRALTY

 NG 748 of 1997

 

BETWEEN:

THE OWNERS OF THE SHIP “CARINA”

PLAINTIFF

 

AND:

THE OWNERS OR DEMISE CHARTERERS

OF THE SHIP "MSC SAMIA"

DEFENDANT

 

 

JUDGE:

TAMBERLIN J

DATE:

26 SEPTEMBER 1997

PLACE:

SYDNEY


REASONS FOR JUDGMENT


On 17 September 1997 I dismissed an application for release of the ship “MSC Samia” which was arrested on 13 September 1997. A further application for release was then made on 19 September 1997 and I also dismissed that application.


I now publish my reasons in relation to both those applications.


The application for release was made by the defendant and was opposed by the plaintiff which is described as “the owners of the ship ‘Carina’”.  The ground on which release was sought was that “adequate security has been provided”.


As is usual in applications for release the application is brought in circumstances of great urgency and the evidence is somewhat scant and preliminary.


The plaintiff’s claims as set out in the Writ are as follows:


PARTICULARS OF CLAIM:

The Plaintiff claims from the Defendants damages and indemnity for liability to third parties as a consequence of a collision between the vessels “Carina” and “MSC Samia” due to negligence and/or breach of duty on the part of “MSC Samia” in Belgian waters on or about 7 July 1995 including but not limited to claims for structural damage and/or constructive total loss to “Carina”, liability for salvage services and/or for special compensation liability for pollution/environmental damage, and claims against the “Carina” by cargo interests and in respect of crew injuries, together with interest and costs. Further, the Plaintiff claims from the Defendant similar relief arising out of the said collision pursuant to written agreement made on or about 15 February 1996. The Plaintiff asserts jurisdiction under Sections 15, 17 and 18 of the Admiralty Act 1988.” (Emphasis added)



The Writ seeks judgment in the sum of US$12,580,841.02


For the purposes of the release application there was no dispute between the parties as to the quantum of security. This is because the undertaking proffered by the defendant was in the sum of US$6 million, which was the estimate made by valuers for the plaintiff.  The defendant attached copies of valuations asserting a valuation of between US$4.5 million to US$4.75 million.


The gravamen of the dispute as to security went to the identity of the corporation undertaking the obligation to pay and to the terms of the security.  In other words, it went to terms and form of the undertaking rather than to the sufficiency of the amount proffered.


The undertaking initially proposed was by CIGNA Insurance Company of Europe SA-NV (“Cigna Europe”). It provided as follows:


                                                                        “CIGNA International

                                                                        CIGNA Insurance Company

                                                                        of Europe S.A.- N.V.

                                                                        UK Property & Casualty

                                                                        Cigna House

                                                                        8 Lime Street

                                                                        London EC3M 7 NA

                                                                        .......

To:      The owners of the ship “Carina”

            80 Broad Street

            Monrovia

            LIBERIA

INCIDENT:  

            Collision between “Carina” and “MSC Samia” in Belgian Waters on 7th July 1995 (“the Incident”)

CLAIM

 

            Claims for collision damage, crew injury, salvage services and special compensation, pollution/environmental damage, cargo claims and indemnity and/or contribution claims against “Carina” presently estimated at US$12,580,841.02 (“the Claim”).

In consideration of your releasing from arrest and refraining from rearresting or otherwise detaining the “MSC Samia” for the purpose of obtaining security and/or jurisdiction in connection with the Claim against the Owners and/or Demise Charterers of the “MSC Samia” arising out of the above Incident we, Cigna Insurance Company of Europe SA - NV of Cigna House, 8 Lime Street, London, EC3M 7NA hereby undertake to pay you, or as you otherwise direct in writing any sum or sums in respect of damages, indemnity, contribution, interest and costs such as either be agreed in writing by the Owners and/or Demise Charterers of the “MSC Samia” to be due to you as a result of an amicable settlement or as may be found and finally adjudged upon exhaustion of all appellate processes to be due to you from the Owners and/or Demise Charterers of the “MSC Samia” by the Federal Court of Australia or an appellate Court therefrom provided however that such liability of the undersigned shall not in any circumstances exceed the sum of US $6,000,000 (SIX MILLION UNITED STATES DOLLARS) inclusive of interest and costs, such amount shall be paid within 28 days of the first written demand accompanied by a copy of the signed documents recording the said amicable settlement or final judgment of the relevant Court and upon exhaustion of the appellate processes.

The undertaking given herein is without prejudice to all the rights and defences whatsoever (including without prejudice to the generality of the foregoing limitation of liability) of the “MSC Samia” and her Owners and/or Demise Charterers.

This undertaking shall be governed by and construed in accordance with the laws of Australia and shall be subject to the exclusive jurisdiction of the Australian High Court of Justice.

Signed in London this 15th day of September 1997.

Signed                                                                         Countersigned

(Signature)                                                                  (Signature)

Senior Vice President                                                 Manager, Special Lines”

                                                                                                Emphasis added


Both the “Carina” and the “MSC Samia” are entered with the same P & I Club, namely the Liverpool and London P & I Club.


In a facsimile dated 16 September 1997 the solicitor for the plaintiff set out the plaintiff’s objections to the undertaking as follows:


“We refer to your fax last night attaching a proposed form of amended letter of undertaking from Cigna Insurance Company of Europe SA NV.  As discussed the wording of this undertaking is significantly different to our proposal sent to you by fax yesterday and, from our clients’ point of view, is unacceptable for the following reasons:

1.         We require the security to be extended to respond to any Judgment in favour of our clients in respect of damages, contribution, indemnity, interest and/or costs by any Court of competent jurisdiction. In this respect we note that was included at line 15 of your original proposed wording, but has been omitted from the most recent draft.

2.         As indicated previously, our clients require the undertaking to be from Cigna (UK) Ltd (or the appropriate full style of that entity), or alternatively from an International Group P & I Club or a first class Bank which has an office in and trades within Australia.


3.         The present wording precludes our client from arresting the “MSC Samia” in another jurisdiction and as this might be possible under the laws of another country, we require the words “.... and refraining from rearresting or otherwise detaining ....” to be deleted and the words “... in Australia ...” inserted.

4.         We require the undertaking to include an agreement to appoint solicitors to accept service of proceedings and to submit to the jurisdiction of the relevant Court.

5.         The law and jurisdiction clause must also refer to England and for the reason that the Club and our respective instructing solicitors are in the UK and any substantive proceedings are likely to be in Belgium (or possibly elsewhere).

6.         We further require an express acknowledgment of submission to the jurisdiction of the Australian Courts and English Courts for the enforcement of the undertaking.

7.         We require an undertaking to the Plaintiff and to the Court by Mediterranean Shipping Company (Aust.) Pty Ltd or the solicitor for the Defendants’ in relation to the release of the vessel to pay all the expenses and costs which the Marshall has or may claim from the Plaintiff’s solicitor upon demand by the Plaintiff or its solicitors.

The above matters are subject to final instructions.”


On 18 September 1997 a Notice of Conditional Appearance was filed by Latremia Corporation of Panama and Mediterranean Shipping Company SA of Geneva as defendants.


The Act and Rules


Section 34 of the Admiralty Act 1988 (Cth) provides:

“34(1)  Where, in relation to a proceeding commenced under this Act:

            (a)        a party unreasonably and without good cause:

                        (i)         demands excessive security in relation to the proceeding; or

                        (ii)        obtains the arrest of a ship or other property under this Act; or


            (b)        a party or other persons unreasonably and without good cause fails to give a consent required under this Act for the release from arrest of a ship or other property;

            the party or person is liable in damages to a party to the proceeding, or to a person who has an interest in the ship or property, being a party or person who has suffered loss or damage as a direct result.

    (2)   The jurisdiction of a court in which a proceeding was commenced under this Act extends to determining a claim arising under subsection (1) in relation to the proceeding.

 

The two applications for release were made pursuant to r 52 of the Admiralty Rules (“the Rules”).


Rule 52 reads as follows:


“52(1)             A party to a proceeding may apply to the court in accordance with Form 19 for the release of a ship ... that is under arrest in the proceeding.

    (2)               .....

   (3)                On an application under subrule (1), the court may order the release from arrest of the ship ... on such terms as are just.

   (4)                .....”


In addition to r 52, the Registrar of the court has power to release a ship from arrest where the Registrar is satisfied that an amount, equal to the amount claimed, or the value of the ship, whichever is the less, has been paid into court or a bail bond equal to the amount claimed or the value of the ship, whichever is the less, has been filed in the proceeding: see r 51.


Rules 54-60 provide for the manner in which bail is to be given and for objection against the sufficiency of the proposed surety to be taken and resolved.


Relevant principles


The principles which apply to applications for release, under r 52, in the event of dispute as to security, were considered by Sheppard J in Freshpac Machinery Pty Ltd v Ship “Joana Bonita” (1994) 125 ALR 683.  That was an application made pursuant to r 52 of the Rules in which the plaintiffs sought an amount of $350,000 as security. This consisted of $200,000 in respect of the claim itself, together with $50,000 for interest, and $100,000 for costs.  The latter estimate of costs was calculated on an indemnity basis.  After discussing the relevant principles his Honour ordered the provision of security in the sum of $275,000.


Although in that case there had initially been a question raised as to whether the plaintiffs were bound to accept a P & I Club letter of undertaking by way of security, the question as to the form of the security was not pressed and the dispute turned solely on the sufficiency of the amount.


In his reasons for judgment his Honour followed and applied the principles set out in two English decisions. The first was the statement by Brandon J in The “Polo II” [1977] 2 Lloyd’s Rep 115 at 119 which reads:

“And I took the view that the power of the Court to control security ... was derived from the inherent jurisdiction of the Court to prevent any abuse of the process of the Court, or the use of Court procedure in an oppressive way.  As I pointed out ... the power to arrest a ship is a very drastic power. And the power to insist that she shall remain under arrest unless security of a certain amount is given is equally a drastic power, and my view, which I expressed in The Moschanthy [1971] 1 Lloyd’s Rep 37 at 44 and which I repeat now, is that that power must not be exercised oppressively, and if it is exercised oppressively then the Court can and should interfere to prevent conduct of that kind. At the same time the Court must make sure that the plaintiff is not left without sufficient security to cover his reasonably best arguable case.” (Emphasis added)


That case was also concerned with the sufficiency of the amount of security.


The second decision referred to by his Honour, which also concerned the quantum of security, was that of Sheen J in The “Gulf Venture” [1984] 2 Lloyd’s Rep 445.  At 449 his Lordship said:


“There is plenty of scope for debate as to what sum should be secured in respect of this claim. I do not propose to analyse the evidence: it is incomplete. Such a procedure would be entirely inappropriate on a motion such as this. Although the claim endorsed on the writ is, as I have already said, for a sum in excess of £400,000, I was satisfied that the claim will not succeed in full. After some discussion with Counsel, the plaintiffs expressed their willingness to accept security in the sum of £300,000. I reached the conclusion that a lesser sum would be adequate and fixed the amount in the round sum of £250,000.”

Having referred to these authorities Sheppard J concluded that, in the case before him, there had been an abuse of process because the plaintiffs had pressed for an excessive amount of security.


In conclusion his Honour said at 687:


“ ... the other side of the picture must not be lost sight of. The plaintiffs, in either willingly accepting, or being required to accept, security for their claim in lieu of the vessel which has been arrested, are running a risk. The security may be insufficient.  The court determining the amount of security should be comfortably satisfied that the amount which is to be provided is likely to be sufficient to meet the claim ... If it errs on the side of caution and is found to have provided for a greater sum than was actually necessary ... that, I am afraid is one of the incidents of the exercise which is involved.”

There is little guidance in the cases, as to the appropriateness of form or as to terms of guarantee which should be accepted as sufficient security.  This lack of guidance is to be expected in view of the wide range of prospective guarantors or sureties and the varied terms and conditions on which such security may be appropriate to meet the exigencies of particular circumstances.  However, in the Australian Law Reform Commission, Report No 33, Civil Admiralty Jurisdiction, 1986 (the “ALRC Report”), as Sheppard J points out in his reasons, there is reference (at par 300) to “the widespread use of P & I Clubs”.  P & I Club guarantees, it is indicated, can be used to prevent threatened arrest and to ensure the timely release of any vessel or property that is arrested; thereby reducing the need for more formal means of protection.  As a practical matter the bail bond procedure or payment into court are likely to be more onerous and slower than the more summary procedure provided for by r 52.


It is interesting to note that in the ALRC Report the Commission, in expressing its conclusion in relation to frivolous and vexatious arrests, said (at par 304):


“The power of the court to modify bail should be spelt out in the proposed rules rather than being left to inference or to general court powers as at present. That power should not however be extended to non-court sanctioned agreements: private security arrangements should continue to remain a matter for the parties except to the extent that excessive demands give rise to a right to damages.” (Emphasis added)

There is also some discussion to be found as to the nature and the conditions of security considered appropriate for release of vessels in Berlingieri on Arrest of Ships, 1996 (2nd edn), at 114-116.  That work, of course, is a commentary on the 1952 Brussels Arrest Convention, which has not been ratified by Australia.  Nevertheless, the commentary is of some assistance.  The authors there indicate that, as a rule, the letter of undertaking provides that the guarantor shall pay, within a maximum limit, the sum awarded to the claimant by a court having jurisdiction and that judgment must be final or enforceable or, also, not subject to further appeal.


A number of text writers support the view that the court should be reluctant to assume the role of deciding whether a form of private security offered inter-partes ought to be accepted, except in the clearest cases. In McGuffie, Admiralty Practice, in British Shipping Laws, vol 1, 1964 at 139, for example, the authors say:

“There are certain alternatives to the bail bond. It may, for example, be agreed between the solicitors for the parties that the plaintiff will be satisfied with an undertaking on behalf of the defendants to enter an appearance and to provide security if called upon to do so. A guarantee by a bank or insurance company or other suitable company or corporation may be agreed upon, guaranteeing payment of any sum which may be held to be due to the plaintiff or may be agreed between the parties following a settlement. Such a guarantee is purely private and has nothing to do with the court.” (Emphasis added)

There are statements to similar effect in Jackson, Enforcement of Maritime Claims, 1996 (2nd edn) at 345-346 and  Meeson, Admiralty Jurisdiction and Practice, 1993 at 128.  In the latter work the author says at 128:


“Normally release is granted upon security being provided in a form satisfactory to the plaintiff, which is usually a bank or insurance company guarantee or P & I Club undertaking.  However, it appears that the plaintiff is not obliged to accept such a form of security and may insist upon bail or payment into court. The court has no power to order security in any other form, nor does the enforcement of such security by an action on the guarantee fall within the jurisdiction of the Admiralty Court.” (Emphasis added)

In The “Alletta” [1974] 1 Lloyd’s Rep 40 at 50 Sheen J declined to make a declaration releasing a security which was not given to the court and which did not take the form of a bail bond given under the provisions of the relevant rules (O 75, r 16).


The above authorities support the conclusion that, prima facie, the approach which the court should adopt in relation to the sufficiency of the security offered to obtain release under r 52 is that it is a matter for the parties.  If they are unable to agree the court cannot impose an agreement upon them.  However, in clear cases where it is evident that there is abuse of process or clearly oppressive conduct such as insistence on manifestly unreasonable terms it may be appropriate for the court to intervene to prevent the arrest giving rise to such abuse.


It should be borne in mind that any determination as to the sufficiency of proffered security must be examined against the background of the express provisions in the Rules for payment into court or provision of a bail bond.  In the case of the bail bond procedure there are specific procedures prescribed for determination of objections as to the sufficiency of the proposed surety: see r 56.


The present case

 

Because the objections raised in this case are concerned with the terms of the undertaking and the acceptability of the entity giving it, it is not easy for the court to make a properly informed determination as to whether the refusal by the plaintiff for the security is oppressive.  In cases where the dispute turns purely on quantum the court can more readily make a reasonable estimate as to an appropriate figure. This is what happened in the Joana Bonita where the court reached the conclusion that the amount demanded was such as to constitute an abuse of process.  Where, however, conditions proffered in the undertaking are in contest and, where there is a dispute as to whether the entity providing the undertaking is satisfactory, it is generally inappropriate for the court to interfere with the negotiations of the parties or to impose terms on them.  It will often be more appropriate for the court to leave that question to commercial negotiation between the parties. If they cannot agree the procedures relating to the provision of a bail bond or payment into court can be pursued.  The court should not be placed in a position of arbitrating or mediating in respect of ongoing negotiations between the parties as to what are the terms of an acceptable security. If there is to be any involvement of the court it should occur where it is established that there has been an abuse of the negotiating process in a way which amounts to clearly oppressive conduct or an abuse of the court’s process.


The plaintiff points out in the present case that the value of the vessel, on presently available valuations, is that it is worth US$6 million.  The amount of the claim is over US$12 million and there is therefore a significant shortfall in security.


On the first application the only evidence as to the financial standing of the party offering the undertaking, namely CIGNA Insurance Company of Europe SA-NV (“Cigna Europe”) was based on a copy of its 1995 annual report.  The plaintiff pointed out that the financial papers were not current and that there was no evidence of substantial assets available in Australia against which recourse could readily be obtained.


In addition, it was said that the undertaking was deficient in the seven respects set out in the letter quoted earlier in these reasons.

The objections raised by the plaintiff when taken in their totality are not on their face manifestly unreasonable or untenable.  As the result of the release the plaintiff stands to surrender a valuable security, worth somewhere between US$4.5 million and US$6 million.  The release of such a security clearly calls for caution on the part of the court when considering an application for release.


The objection by the plaintiff to accepting the terms of the proffered undertaking cannot be said, in my view, to be frivolous, vexatious or unjust.  Nor can insistence on its requirements be said to be oppressive or an abuse of the court’s process in causing the vessel to be detained under arrest.  The cumulative weight of the objections made by the plaintiff, in my view, is such that it was open to it to refuse to accept the undertaking as an adequate substitute for the vessel.


In reaching this conclusion I bear in mind the options available to the defendant, of either payment into court or provision of security by way of bail bond with the opportunity to ventilate objections as to the sufficiency of any surety under the bail bond. These are important considerations.  It must also be borne in mind that s 34(b) of the Act permits an award of damages where a person or party unreasonably and without just cause fails to consent to the release of a vessel from arrest. This provision is designed to discourage attempts to unreasonably detain an arrested vessel.


Of course, in many, if not most, applications for release, the sufficiency of proffered security will need to be considered in circumstances of great urgency.  It may not be commercially practical in such a situation to invoke the remedies of bail bond or payment into court.  Nevertheless they form part of the legislative scheme designed to enable early release of an arrested vessel.


Usually, release will be effected by the provision of a P & I Club letter of indemnity.  However, that course was not available in the present case as both parties are entered with the same P & I Club.


The power of the court to impose conditions under r 52(3) is calculated to empower the court, in its discretion, to order release provided that terms can be formulated which will take into account the legitimate countervailing interests of all the parties involved.  Of course, where it is clearly evident that sufficient security has been provided on appropriate terms, by a person or entity with ample assets and means to make good the undertaking, it may be that “just terms” can be formulated.  However, the court cannot impose an obligation on a party to provide or accept a satisfactory undertaking.  If a stance adopted by a party is manifestly unreasonable as to terms, quantum, or the form of the undertaking there may be an abuse of process in insisting on such unreasonable security.  Otherwise, the parties should avail themselves of the payment into court or bail bond options.


The present is not a case of manifest unreasonableness.  I am not persuaded that it is appropriate to order release of the vessel upon the basis of the undertaking first proffered.


At the conclusion of the hearing of the first application for release, I therefore dismissed it with costs.


The following day a second application was made. This time there were two alternative securities offered.  The first of these was in the same terms as the security referred to above but it was given by Cigna Insurance Asia Pacific Limited (“Cigna Pacific”) which, on the basis of its 1996 annual report, appears to have assets within Australia.  Nevertheless, the plaintiff pressed its objections to the terms and wording of this guarantee on substantially the same basis as it had done in relation to the first security.  An officer of Cigna Pacific, Mr Solley, was called and cross-examined but he was unable to provide any precise information as to the current financial position of Cigna Pacific.  His position in the company did not require him to be familiar with these details.  My conclusion with respect to this alternative security was that it did not substantially advance the defendants’ case. I did not consider that there was any abuse of process involved in the plaintiff declining to accept this security in substitution for the vessel itself.


A second further security, from Westpac Banking Corporation (“Westpac”), was proffered. The plaintiff objected to this mainly on the basis that it was not unconditional.  It provided for the possibility of the defendant being able to apply for an injunction to prevent payment after demand had been made.  Moreover, in a covering letter the defendants’ solicitor sought a collateral undertaking which further qualified the nature of the Westpac undertaking.  Counsel for the plaintiff indicated, during the hearing of the release application, that the plaintiff would not be prepared to give the undertaking. The Westpac undertaking was addressed to the solicitors for the plaintiff and not to the plaintiff itself. That is not of great importance. The Westpac undertaking was also, however, limited as to duration. It was only effective for two years. This was a matter of significance. Furthermore, the letter of 18 September 1997 which enclosed the Westpac undertaking made it clear that it only applied in relation to the present proceeding in the Federal Court.


Once again, it seems to me, that the objections raised when considered as a totality cannot be considered as oppressive or an abuse of process.  Accordingly, I also dismissed the further application for release with costs.


I note that at the close of proceedings last Thursday, after I dismissed the second application, the defendant made immediate arrangements for payment into court of an amount of US$6 million.



I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin



Associate:


Dated:              26 September 1997



Counsel for the Plaintiff:

Mr A W Street SC



Solicitor for the Plaintiff:

Norton Smith & Co



Solicitors for the Defendant:

Cocks Macnish

Ebsworth & Ebsworth



Date of Hearing:

16,17 & 18 September 1997



Date Reasons for Judgment Published:

26 September 1997