FEDERAL COURT OF AUSTRALIA

Patrick Stevedores No 2 Pty Ltd v The Ship “Turakina” [1999] FCA 1615

ADMIRALTY – whether plaintiff’s legal costs form part of its costs of arrest – where costs of arrest and preservation rank in priority over all substantive claims other than the Admiralty Marshal’s fees and expenses – plaintiff’s opposition to owners’ application for release of vessel from arrest – application for sale of vessel and making orders for payment of costs – opposing application of solicitor to be released from undertaking given to Marshal on application for release – whether circumstances warrant taxation of costs on an indemnity basis – court discretion – ensure party not penalised by its initiative in preserving the arrest

WORDS AND PHRASES – “costs of arrest”

Federal Court of Australia Act 1976 (Cth) s 43

The “Falcon” [1981] 1 Lloyd’s Rep 13 cited

The “World Star” [1987] 1 Lloyd’s Rep 452 considered

The “Oceania Trader” (Drummond J, 9 January 1992, unreported) distinguished

Mobil Oil NZ Ltd v The Ship “Rangiora” (High Court of New Zealand, 11 August 1999, unreported) followed

“The Leoborg” (No 2) [1964] 1 Lloyd’s Rep 380 cited

Thomas, Maritime Liens 1980

Meeson, Admiralty Jurisdiction and Practice 1993

PATRICK STEVEDORES NO 2 PTY LTD & ORS v

THE SHIP “TURAKINA”

NG 114 OF 1998 (consolidated with NG 479/98)

TAMBERLIN J

SYDNEY

19 NOVEMBER 1999

REASONS FOR JUDGMENT

1                     The issue raised by the Notice of Motion filed on 27 August 1999 is whether the first plaintiff’s (“Patricks”) legal costs totalling $93,575, incurred in the course of this proceeding and culminating in the sale by the Court of the “Turakina”, form part of its costs of arrest.

2                     To the extent that they can be so characterised, they rank in priority ahead of all substantive claims other than the Admiralty Marshal’s fees and expenses: see The “Falcon” [1981] 1 Lloyd’s Rep 13 at 17; The “World Star” [1987] 1 Lloyd’s Rep 452 at 454; Thomas, Maritime Liens 1980 at par 457; Meeson, Admiralty Jurisdiction and Practice 1993 at 159 and The “Oceania Trader” (Drummond J, 9 January 1992, unreported).

3                     On 28 August 1998, following the sale of the ship, orders were made by the Court including an order that:

“From the sale proceeds there be paid forthwith by the Marshal the costs and expenses of arrest and sale.”

4                     Pursuant to that order Patricks has been reimbursed all the expenses, apart from its legal costs, paid by it as costs of arrest or for which it has provided advances to the Marshal. 

5                     On 22 September 1998 further orders were made including an order that:

“The Marshal pay to the plaintiffs out of the proceeds of sale the legal costs of arrest and sale as assessed by a Registrar or as agreed by interested parties …”

6                     After some discussion prior to the hearing of this motion, agreement was reached on three of the claims made on Patrick’s bills of costs, and orders have been made for payment out of the moneys claimed under those bills.  As to the remaining two claims on bills of costs, the parties have not been able to agree as to which of the legal costs incurred by Patricks form part of its costs of arrest.  The first claim concerns a bill of costs for $72,121.75 pursuant to orders made on 5 May and 22 September 1998, and the other disputed claim is for a bill in an amount of $2,461 pursuant to orders made 17 August 1998.

7                     As discussed above, the consequence of an affirmative finding in respect of any of the disputed items claimed is that it will confer priority on them over the claims of the second and third plaintiffs (“the Banks”): see The “World Star” at 454.  It is common ground that the costs which attract this priority, on the authorities referred to above, are those which relate to the arrest and preservation of the ship, and do not include legal costs which are properly attributable to advancement of the substantive claim.  The priority is not attracted unless it can be shown that the arresting party (Patricks) has by its action created or preserved a fund for the general benefit of all claimants.  The principle on which the policy is based is:

“… founded on a readily conspicuous equity, for the producer of the fund facilitates the functions of the Court and protects the interests of other claimants.” [Thomas at par 457]

8                     Meeson at 159 also notes:

“In practice the justice of this situation is often demonstrated where for example a person has supplied goods and material to a ship arrests, but subsequently a mortgagee appears on the scene and takes the whole of the proceeds of sale by virtue of its priority.”

9                     This is what occurred in the present case.  

10                  The first bill of costs of $72,121.75 concerns legal costs incurred by Patricks attending to various applications and matters upon and following the arrest of the vessel. The second and third plaintiffs dispute this bill of costs in respect of the following applications or matters:

(1)        Patricks’ successful opposition to the application by owners of the vessel for its release from arrest;

(2)        sale of the vessel; and

(3)        monitoring the sale of the vessel and making orders for payment of costs incurred in relation to the arrest.

11                  The second bill of costs relates specifically to the legal costs incurred by Patricks in opposing the application made by the solicitor for the vessel’s owners, to be released from his undertaking given to the Court in conjunction with the owners’ application for release of the vessel.

12                  The relevant time frame is as follows. Proceedings for arrest were commenced by Patricks on 19 February 1998 and the vessel was arrested upon the application of Patricks on that date.  On 25 March Patricks filed and served a Notice of Motion seeking an order for valuation and sale of the ship.  The solicitor for the owners of those interested in the ship then filed an application dated 30 March 1998 seeking release from arrest, and their solicitor gave an undertaking to the Court as required by the Admiralty Rules.  This application was heard in mid-April and on 11 May 1998 the Court dismissed the owners application with costs.  It was not until 21 May 1998 that the mortgagee Banks commenced proceedings against the vessel.  By Notice of Motion, dated 12 June 1998, the Banks sought an order for the sale of the vessel and the Banks’ proceedings were consolidated with the proceedings brought by Patricks by order dated 24 June 1998.  On that date the Court also ordered valuation and sale of the vessel.  This took place on 21 August 1998.  

Opposition to application for release of the ship from arrest – whether costs of arrest?

13                  The Banks submit that the costs and disbursements incurred by Patricks in opposition to the owners’ application for release of the ship are properly characterised as costs referable to maintaining Patricks’ substantive maritime claim against the ship and those interested in her, and not as legal costs of arrest.  Accordingly, it is submitted that the claim for these costs should not rank in priority to that of the Banks, but should have the same priority as Patricks substantive claim after the Banks.

14                  Patricks point out that in the present case the Banks did not commence their proceeding until three months after its arrest proceeding had been commenced.  By this time Patricks had filed and served on 25 March 1998, a Notice of Motion seeking an order for sale of the ship. Patricks submits that after having the two proceedings consolidated, the Banks took steps to have the ship sold and in so doing accepted the benefit of the arrest effected by Patricks and the successful maintenance of that arrest against the application for release.  Patricks says that its successful opposition to the application for release resulted in an order for sale being made, and this gave rise to the fund which is now the subject of the claims and out of which the Banks have already received US$ 1,537,516. 24 (as at 25 October 1999) on account of their claim.  Patricks point out that if the release application had been successful the present fund, from which the Banks have benefited, may not have come into existence.

15                  It is true that at the time when the arrest was made and the release application resisted, Patricks had a strong incentive to maintain the arrest in its own interest to recover its substantive claim.  However, this does not, of course, mean that the opposition did not in fact operate for the benefit of all creditors.  Obviously, creditors are generally presumed to act in their own financial and commercial interest. In the present context, when characterising a particular payment, motive or incentive is not controlling, it is necessary to also examine the consequences which flow from the opposition.  In the present case, the fact is that the security provided by the custodial detention and retention of the ship was for the benefit of the ship’s creditors.

16                  The expression “costs of arrest” is a wide one and is capable of encompassing the maintenance of the arrest against claims for release on the ground that there was no proper basis or jurisdiction for the arrest.  If the vessel is released the security provided by the arrest of course comes to an end.  Therefore, steps taken in order to keep the security on foot and defend the arrest so that the basic purpose of the arrest can be effected, is a cost of the arrest.  It is somewhat artificial to separate out the motive of the arresting party, which is of course to look after its own interests, and then to characterise the incurring of the costs on that basis alone in circumstances where the direct effect of the opposition to release is to ensure that the security remains available to all qualifying claimants.

17                  The Banks refer to the presence of caveators as a basis for a submission that it cannot be said that Patricks’s opposition in order to maintain the arrest was for the benefit of all creditors.  In other words there were caveators who might have resisted the release on their own account to secure their own claims.  However, the fact is that in this case none of the existing caveators intervened, and the mortgagee Banks were not a party to the proceedings at the time when the application for release was made and the opposition proceedings heard. Accordingly, it cannot be said that Patricks acted in any way unreasonably in opposing the owners application for release.  It seems to me that the fact that other caveators are “in the wings” does not effect the characterisation of Patrick’s costs in opposing the release.  The continuance of the security is for the benefit of those caveators as well as Patricks and other creditors.  A similar conclusion was reached by Fisher J in the case of Mobil Oil NZ Ltd v The Ship “Rangiora” (High Court of New Zealand, 11 August 1999 at 9-10, unreported).  That case considered closely related but by no means identical issues.  His Honour’s reasons for judgment, with which I agree, helpfully set out in some detail the relevant principles and considerations.

18                  Counsel for the Banks submit that some support is found in the Admiralty Rules for drawing a distinction between costs and expenses of arrest and those relating to applications for release of the vessel.  In particular, it is pointed out that the provisions relating to arrest, and those relating to release from arrest and the undertakings required to be given, are set out in different Divisions of Part VI of the Admiralty Rules.  For example, r 41 in Division 1 requires that an applicant for arrest on making an application is deemed to give an undertaking to pay the Marshal’s costs on demand.  In Division 3 of that Part of Rules, there are different provisions in rr 51-53 and the prescribed forms which require further specific undertakings to be given when release is sought. 

19                  In my view divisions of Part VI are not self contained compartments.  The ambit of these undertakings, to some extent, can be seen to overlap, and do not support a conclusion that the costs of opposition to a release application are not properly characterised as the costs of the arrest and preservation of the ship.

20                  Further, there is no suggestion made that Patricks acted unreasonably or wastefully or in bad faith in any way in mounting its successful opposition to the application for release by the owners. 

21                  For the above reasons I am satisfied that the costs and disbursements claimed in relation to the opposition proceedings are costs of the arrest.

Sale of the ship

22                  Two matters fall for consideration under this head.  The first is the claim by Patricks that priority should attach for its costs incurred in making an application for sale of the ship as a cost of arrest.  It says that the only reason that the application by Patricks did not proceed was because it became unnecessary due to the appearance of the Banks and their application which resulted in sale of the ship.

23                  Patricks seek to justify this claim on the basis that no other claimant or creditor had sought to intervene or to seek the sale and, as a practical matter, its application for sale “provoked” the application for release by the owners which enabled the legality of the arrest to be established.

24                  As a matter of language, action in relation to the arrest and preservation of the vessel does not encompass an application for sale of the vessel.   Such an application is designed to produce a substitute security for the ship, namely a fund, and as such does not preserve the ship but merely substitutes a different security which results from the sale of the ship.  In my view, this nexus is too tenuous

25                  A second matter raised by Patricks is that its expenses in relation to the costs of “monitoring” the sale of the ship and the making of orders for payments of costs incurred in  relation to the arrest, can properly be described as costs of the arrest.  This is said to be justified on the basis that on applying for the arrest it was necessary to give a r 41 undertaking by the solicitor to the Marshal in respect of costs relating to the arrest.  It is then said that by reason of its position as the arresting party, Patricks had a potential exposure that extended beyond the arrest and the order for sale, and it was therefore appropriate that Patricks should be compensated for monitoring the arrest and sale of the ship.

26                  This submission is not accepted because the “monitoring” of the sale of the ship and the administration of the fund was attributable, in my view, to the interest of Patricks: cf Meeson at p 159; “The Leoborg” (No 2) [1964] 1 Lloyd’s Rep 380 at 384.  It was not in the interest of creditors generally, because the Banks assumed the carriage of the valuation and sale and were bound to act in accordance with the Act and Rules.  Further, Patricks’ costs cannot be said to be costs attributable to the arrest itself: even if monitoring costs were incurred because Patricks incurred the liability for the costs of arrest in the first place, this does not give rise to a sufficient relationship to the arrest or preservation of the security as to attract the priority.

27                  Accordingly, I do not accept Patricks submissions in relation to its superseded application for sale or for costs of monitoring the sale process.

Opposition to application for release from undertaking given to Court in conjunction with application for release

28                  The costs of Patricks’ opposition to the application by the owners’ solicitor for release from his undertaking given in conjunction with the application for release of the ship, are claimed on the same basis as the costs in opposing the application for release itself.  They are said to be part of Patricks’ costs in opposing the release, which were incurred by reason of its position as the arresting party and as such bound by its r 41 undertaking.  In my view, these costs are not part of the costs of arrest because they were not incurred for the benefit of creditors generally, but were incurred in order to protect the plaintiff against a possible call by the Marshal on the undertaking proffered by the plaintiff when the vessel was arrested.

Assessment of Costs

29                  The first question on the assessment of costs is whether Patricks legal costs of arrest should be taxed or assessed by the Court.

30                  Under s 43 of the Federal Court of Australia Act 1976 (Cth) (the “FCA”) the Court has a wide discretion as to costs.  The general principles are well settled.

31                  The existing orders as to payment of Patricks legal costs of arrest, contemplate assessment by a registrar in the absence of agreement of all interested parties.  The parties are unable to agree as to the quantum of costs the subject of this bill.

32                  The submission of Patricks is that rather than require a taxation of costs which will incur additional expenses and fees, the convenient course is for the Court to fix on a figure.  However, the Banks do not agree to this course.

33                  In my view there is no sufficient material on which the Court can presently make an informed assessment as to the appropriate amount of costs and therefore unless the parties can agree the matter must proceed to taxation.

34                  The second question raised is as to the basis of taxation if the matter cannot be agreed.

35                  In this event, Patricks press for taxation on an indemnity basis or a solicitor-client basis as opposed to a party-party basis.  The Banks contend that a party-party basis is appropriate.  While the general rule is that costs are to be taxed on a party-party basis there is no general principle which resolves the present issue.  The question is one involving the exercise of discretion.  I think there are circumstances in this case which warrant the making of an order that if taxation is to take place it should be on an indemnity basis.  These circumstances are that Patricks have acted reasonably in arresting the ship and in resisting the release, and that their actions have advanced the interest of creditors generally including the Banks.  In these circumstances, I agree with the approach of Fisher J in The “Rangiora”, that only an indemnity would ensure that Patricks is not penalised by its initiative in preserving the arrest.

36                  Counsel for the Banks drew my attention to the decision of Drummond J in The “Oceania Trader” at p 24 where his Honour said:

“As to the plaintiffs’ claim for its legal costs of arresting and maintaining the ship while under the arrest (which does not, of course, include any of the costs of its substantive claim in the action), those costs stand on the same footing as the wages of the caretaker crew paid by the plaintiff: they form part of its own costs of the arrest and preservation of the ship and it is entitled to payment of those costs once taxed, but only on a party and party basis and not on the more generous basis claimed, out of the proceeds of sale. See The “World Star” (supra) at p 455.”

37                  In The "Oceania Trader”, the question of indemnity or party-party costs does not appear to have been argued.  Moreover, the decision of Sheen J in The “World Star” at 455 does not lead to the conclusion that costs must always be taxed on a party-party basis.  One order made by his Honour in that case was that there be paid out of the fund in Court to the plaintiff moneys paid to the Marshal for fees and expenses incurred by him in the arrest and preservation of the ship.  Similarly, his Honour awarded indemnity costs to an intervener on its proper application to move the ship.  Ultimately, the matter is one of discretion and I consider in the present case the interests of justice would be best served, having regard to the sequence of events and the late intervention of the Banks, by payment from the fund of Patricks’ costs on an indemnity basis.

Costs on the Motion

38                  As Patricks has been substantially successful in the motion I also consider that it should have the costs on the motion on an indemnity basis.

39                  I direct the first plaintiff to bring in Draft Short Minutes of Orders within fourteen (14) days which take into account these reasons for judgment.

Associate:

Dated:              19 November 1999