FEDERAL COURT OF AUSTRALIA
Den Norske Bank (Luxembourg) SA v “Martha II” [2000]
FCA 241
ADMIRALTY – Marshal’s costs and expenses – insurance – whether commercial insurance is a cost and expense of the arrest –admiralty practice in relation to insurance
PROCEDURE – jurisdiction to vary an order – discretion - order entered three years ago – merits of the substantive application poor
Admiralty Rules r 47
Federal Court Rules O 35 r 7(2)
Federal Court Practice Note No 12
Bailey v Marinoff (1971) 125 CLR 529 distinguished
Autodesk Inc v Dyason (No 2) 1993 176 CLR 300 considered
“The Mardina Merchant” [1974] 2 Lloyd’s Rep 424 distinguished
DEN NORSKE BANK (LUXEMBOURG) SA v
THE SHIP “MARTHA II”
VG 70 OF 1996
TAMBERLIN J
SYDNEY
9 MARCH 2000
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IN THE FEDERAL COURT OF AUSTRALIA |
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IN ADMIRALTY |
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BETWEEN: |
DEN NORSKE BANK (LUXEMBOURG) SA PLAINTIFF
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AND: |
THE SHIP "MARTHA II" DEFENDANT
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT ORDERS THAT:
1. The Notice of Motion be dismissed.
2. The Marshal be paid the costs of this application as a cost or expense of the Marshal in relation to the arrest.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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IN ADMIRALTY |
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BETWEEN: |
DEN NORSKE BANK (LUXEMBOURG) SA PLAINTIFF
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AND: |
DEFENDANT
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JUDGE: |
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DATE: |
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PLACE: |
REASONS FOR JUDGMENT
1 By Order dated 23 July 1996 (“the order”) Sheppard J ordered that certain moneys be paid out of the proceeds of the sale of the ship “Martha II” (“the vessel”). An amount of $103,332 of these moneys represented insurance premiums (“the premium”) paid by the Admiralty Marshal to Gault, Armstrong & Kemble (WA) Pty Ltd (“the Insurance Brokers”) for Hull, Machinery, Protection and Indemnity and Collision Coverage and in respect of the vessel (“the insurance”). The insurance was in the Marshal’s name. The Insurer was Lowndes Lambert Marine Limited. By Amended Notice of Motion filed on 28 January 2000 the plaintiff sought to vary the order. The effect of the variation sought is that only the component of the insurance relating to professional indemnity insurance for the Marshal will be paid out of the proceeds of sale.
2 The plaintiff seeks a further order that the difference between the premium for professional indemnity cover and the total premium should be repaid to the Fund established by the proceeds of sale of the vessel.
3 Alternatively, the plaintiff seeks an order that the Registrar take a general account of all the expenses of the Marshal in the course of his custody of the vessel relating to insurance.
4 The Amended Application raises the following questions for consideration:
1. Is there jurisdiction to vary the order of Sheppard J, entered on 30 July 1996?
2. If so, having regard to all the circumstances, including the strength of the merits of the plaintiff’s case, should the Court exercise its discretion to vary the order?
Background
5 The vessel was arrested in Melbourne. Pursuant to orders made by Olney J on 21 February 1996 the vessel travelled to Sydney. It arrived at Port Botany on 23 February 1996 and came under the custody of the Marshal. That custody was exercised by the Deputy Marshal in the New South Wales District Registry of the Court. By further order of the Court the vessel was moved from Port Botany to Port Jackson. At that time the solicitors for the plaintiff were Mallesons Stephen Jaques (“Mallesons”).
6 On 23 February 1996 the Marshal arranged insurance through the Insurance Brokers. The sum insured was $20 million and the period of insurance was expressed to be from 23 February 1996 “until time of release”.
7 On 4 March 1996 the Deputy Marshal in Sydney wrote to Mallesons requesting payment of an amount of $10,000 for costs and expenses of the Marshal incurred in the course of the arrest. The request was expressly in relation to insurance, although the nature of the insurance was not specified.
8 On 25 March 1996 Mr Don Brooker of Mallesons wrote to the plaintiff noting that he had been informed that the Admiralty Marshal had “effected his own insurance” through Lowndes Lambert. The letter continued that “[o]ne must question what risk (other than the negligence of the Marshal) is covered.”
9 On 29 March 1996 the Marshal wrote to the Insurance Brokers notifying them that the vessel had travelled to Newcastle, where some cargo had been discharged, and that it had returned to berth at Port Jackson on 27 March 1996.
10 On 11 April 1996 the Deputy Marshal again wrote to Mallesons in relation to the proceedings brought by the Bank against the vessel. The Marshal enclosed a Schedule of Invoices which had been received and pointed out that the invoices received had been paid, apart from the invoice for insurance from the Insurance Brokers. The outstanding invoice was described as that being dated 26 March 1996, for “insurance from Gault Armstrong & Kemble”, for a monthly premium of $25,000.
11 On 24 April 1996 the Deputy Marshal wrote to Mallesons’ Melbourne office enclosing a copy of the invoice for insurance, and stating that the premium of $25,000 represented the monthly cost of insurance for the vessel whilst under arrest. The invoice specified the nature of the insurance as being for Hull, Machinery, Protection and Indemnity, and Collision Liability.
12 On 29 April 1996 Mr Brooker wrote to the Marshal. He referred to the invoice and expressed considerable concern regarding the insurance. He was concerned that if the insurance sought by the Marshal was solely in respect of any liability arising from negligence, then the terms of the cover did not reflect it. He noted that the plaintiff had taken out its own insurance, and opined that the cover provided by the Insurance Brokers might be “ineffective in its terms and illusory” if it amounted to double insurance. Mr Brooker also considered that the premium agreed by the Marshal was substantially in excess of the monthly premiums otherwise available. He suggested that in the circumstances the Marshal should not pay any premium to the Insurance Broker, and should clarify the terms and period of the cover effected.
13 A Practice Note dated 10 May 1996, made by the Chief Justice of this Court, notified the public that it was not the practice of the Marshal during the period of arrest to hold commercial insurance for the benefit of persons who had an interest in the arrested property including cargo. The Note also stated that the Marshal would obtain indemnity insurance while the vessel was in the possession of the Marshal, and that the cost of that insurance would be an expense incurred by the Marshal, payable by the party issuing the writ for arrest.
14 Sheppard J ordered the sale of the vessel on 23 April 1996. An offer to purchase the vessel for $US 14.9 million was accepted by the Admiralty Marshal in June 1996. Mr Brooker was notified of this by letter of 19 June 1996.
15 By affidavit of 16 July 1996, made by the Deputy Marshal, a request was made to the Court for an order for payment out of various amounts, being the Marshal’s fees and expenses in connection with the sale of the vessel, including the premium. The affidavit annexed, among other documents, invoices relating to the insurance. It is common ground that no formal notice of the application for payment out of amounts to meet the insurance premiums was filed or served on the plaintiff or Mallesons. There is no evidence that any informal or other notice was given to the plaintiff or Mallesons.
16 On 23 July 1996 Sheppard J made orders for payment out. Order 2(b) reads as follows:
“2 Nothwithstanding the provisions of Rule 72R of the Admiralty Rules the following amounts be paid from the proceeds of sale of the M.V. Martha II:
a …
b A $216170.36 to the Federal Court of Australia Trust Fund and Other Trust Moneys Account (Job no. TD14) for expenses incurred by the Marshal in the arrest and sale of the ship with … Gault Armstrong & Kemble WA Pty Limited, …” (Emphasis added)
17 That order was entered on 30 July 1996.
18 Pursuant to this order the insurance premiums were then paid by the Marshal on 8 August 1996.
19 On 17 October 1996 Mallesons wrote to the Marshal referring to the Marshal’s insurance costs and stating their view that the payment was unnecessarily made. The letter also asserted that obtaining the insurance was inconsistent with the Federal Court Practice Note and that the plaintiff had itself arranged for appropriate insurance in respect of the vessel. In relation to the order of Sheppard J the letter noted that the application for the order was made without notice to the plaintiff. Mallesons asserted that the order was challengeable for that reason and that there was little doubt that, despite the passing of time, leave to appeal would be granted. The letter also asserted that the plaintiff had an alternative avenue of rectifying the situation, namely an application for the taking of accounts under Admiralty Rule 65 or an application under Admiralty Rule 80. Finally the letter requested that the Marshal accept the validity of the plaintiff’s claims, and asked whether he was prepared to offset the sum of $103,332 against claims yet to be made against the Fund.
20 One year later, in a letter to Mr Brooker dated 9 October 1997, the Marshal refers to the issue of the Marshal’s insurance cover remaining outstanding. On 30 April 1998 Mallesons wrote to the solicitor for the Marshal. They noted that half of the insurance premium under dispute was paid after 10 May 1996, the date of Practice Note No 12. There was in that letter a suggestion of a compromise.
21 During the period of almost four years from late February 1996 to November 1999 no application was made to the Court to challenge the entitlement of the Marshal to incur the premium although, as the above outline indicates, there was some protest by the plaintiffs.
22 Order 35 r 7(2) of the Federal Court Rules provides that:
“The Court, where it is not exercising its appellate or related jurisdiction may, if it thinks fit, vary or set aside a judgment or order after the order has been entered where:
(a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order;…”(Emphasis added)
23 Counsel for the Marshal submitted that the Court has no jurisdiction to vary the order because the plaintiff’s appropriate remedy was to appeal from the order, rather than wait over three years before seeking to invoke O 35 r 7 to vary it. Indeed, as appears from the above outline, on 17 October 1996 the plaintiff’s solicitors asserted that leave to appeal would be granted to the plaintiff at that time. They requested a response from the Marshal within seven days so that further time would not run. However the plaintiffs did nothing by way of application for more than three years. Given the lapse of time since the making of the order it is now unlikely that leave to appeal would be granted. No doubt this is the reason why the current application is sought to be made under r 7.
24 Reliance was placed by the Marshal on the remarks of Barwick CJ in Bailey v Marinoff (1971) 125 CLR 529 at 530-531, where his Honour emphasised the strong public policy in favour of preserving the finality of an order which has been entered, and the necessity for litigation to come to an end. However the remarks of the Chief Justice were expressly made subject to “any specific and relevant statutory provision”. In the present case O 35 r 7 is a specific provision to the contrary because it provides for the setting aside of an order after it has been entered.
25 Further, in Autodesk Inc v Dyason (No 2) 1993 176 CLR 300 the High Court proceeded on the basis that it had jurisdiction to re-open a judgment which had miscarried, at least where the orders under challenge had not been perfected by the taking out of formal orders. An example of an appropriate circumstance referred to by the members of the Court was where a party, by accident and without fault, has not been heard. Such a power must, however, be exercised with great caution: see Mason CJ at 302 and Gaudron J at 322. In that case the appellant unsuccessfully sought to persuade the High Court that it had been deprived of an opportunity to be heard.
26 The fact that the plaintiff could have appealed against the disputed order in the present case but did not do so does not mean that the Court does not have jurisdiction to set the order aside. I have considered the matters raised on behalf of Counsel for the Marshal as to jurisdiction. Although they carry some force, they go principally to the question of discretion rather than to jurisdiction. In my opinion O 35 r 7 gives the Court the jurisdiction to set aside the order of Sheppard J.
27 I now turn to consider whether the plaintiff has made out a case for the Court to exercise its jurisdiction and set the order aside.
Delay
28 This is a powerful consideration against the application in the present case. The plaintiff had been on notice of the insurance for over three and half years before it filed its original Notice of Motion challenging the Marshal’s decision to take out the insurance. Although the plaintiff registered its disagreement with the Marshal’s decision, it took no action to have the question determined during that period. It was aware of its right to seek leave to appeal but decided not to do so. Rather it stood by and allowed time to lapse, inevitably diminishing to the point of eliminating its prospects of obtaining leave to appeal. No satisfactory explanation has been proffered as to the reasons for adopting this course.
29 Given the length of the delay, and that the Marshal, no doubt, carried out his duties on the basis of the order being valid and effective, it is not an answer for the plaintiff to say that the Marshal ought to have known that the payment was disputed.
Merits of the Plaintiff’s case
30 The plaintiff contends that, “as a matter of interpretation”, Hull Machinery, Protection and Indemnity Insurance is not a type of cost or expense which the Marshal is entitled to incur in carrying out the functions assigned by r 47 of the Admiralty Rules or under the provisions of the Admiralty Act 1988 (Cth).
31 It is not necessary to finally decide this matter in the present application, but in my view the argument is not persuasive. Rule 47 of the Admiralty Rules provides:
“(1) Subject to these Rules, a Marshal who arrests a ship or other property has the custody of the ship or property.
(2) The Marshal shall, unless the court otherwise orders, take all appropriate steps to retain safe custody of, and to preserve, the ship or property, including:
(a) removing from the ship, or storing, cargo that is under arrest;
(b) removing cargo from a ship that is under arrest and storing it;
(c) removing, storing or disposing of perishable goods that are under arrest or are in a ship that is under arrest; and
(d) moving the ship that is under arrest.”
32 Rule 48(1) enables the Marshal or a party at any time to apply to the Court for directions with respect to the ship or property. This power was available at all times to the plaintiff in the present action yet was not availed of.
33 Admiralty Rule 50 enables the Court at any stage of a proceeding to make appropriate orders with respect to the preservation, management or control of the ship or other property that is under arrest in a proceeding. There is no requirement that notice be given to any person or party.
34 In support of its submission the plaintiff calls in aid the provisions of Federal Court Practice Note No 12 noted above. However that Practice Note was not made until 10 May 1996, after the Marshal took out the insurance policy. The insurance policy was expressed to be for the duration of the arrest. Accordingly by 10 May 1996 the Marshal was committed to the insurance and to payment of the insurance premium until the arrest ended
35 Prior to 10 May 1996 it seems that it was the practice of the Marshal to take out commercial insurance. The purpose of the Practice Note was to put practitioners and other bodies on notice that the Court, henceforth, would not take out Hull and Machinery insurance and to suggest that they should consider making their own arrangements. The Practice Note does not assist the plaintiff.
36 In the course of argument reference was made to a 1970 Practice Note published in the United Kingdom High Court to similar effect to Practice Note No 12. However it appears from the British Practice Note that for a long period of time the previous practice in England had also been for such cover to be taken out. The Note states that:
“As from May 1, 1970, the Marshal will cease to insure arrested property for the benefit of parties … ” (Emphasis added)
37 Similarly Practice Note No 84 of the Supreme Court of New South Wales made on 20 June 1995 simply notifies that the proposed practice of that Court is to change. None of these Practice Notes directly bear on the question before me.
38 However the Notes do indicate that there had previously been a practice whereby commercial insurance was taken out by the Marshal. This is relevant to a consideration of the appropriateness of the Marshal’s actions, which occurred prior to the issue of the Practice Note. In the Admiralty jurisdiction especially longstanding practice of the Court is of considerable importance. This is more so than in many other jurisdictions because the substantive law has tended to develop having regard to court and shipping practice.
39 The plaintiff also referred to the observations of Brandon J in “The Mardina Merchant” [1974] 2 Lloyd’s Rep 424 at 425 where his Lordship referred to “the ordinary principle which had been established in recent years, that the Marshal does not insure a ship under arrest, but that it is on the contrary for the parties who have an interest in the ship, because they have claims against her, to insure their interest in such a way and to such extent that they are minded to do so”. Those observations, in my view, do not carry the matter any further. They implicitly recognise that prior to the British Practice Note it was the practice in England to take out commercial insurance for a ship under arrest.
40 McGuffie, in Volume 1 of the British Shipping Laws (1964) at par 265, refers to the fact that the Marshal will insure a vessel for her full market value, after a commission of appraisement and sale is lodged with him, when the vessel is moved more than five miles within the Port where she is lying or any distance outside that port. He goes on to add that otherwise, the res is not insured by the Marshal and refers to the Practice Note of the Court posted on 31 July 1963 to that effect. Again, the indication is that the previous practice was that the Marshal would insure the vessel.
41 As I read r 47(1) the conferral of custody of the ship on the Marshal empowers the Marshal to incur all expenses appropriate and incidental to that custody. While subr (2) mandates certain action on the part of the Marshal it does not delimit the more general power to retain custody over the ship. In the course of exercising that custody in this case it was open, in my view, for the Marshal to form the opinion that it was appropriate to take out the insurance. What is necessary or appropriate for the performance of the Marshal’s duties is in the first instance a matter for the exercise of discretion and judgment on the part of the Marshal. Given the functions and powers of the Marshal conferred by the Act and Rules the Court will not lightly set aside a decision by the Marshal to adopt a particular course of action such as insurance. Practice Note No 12 does not affect this position. It is not directed to a question of power or jurisdiction but is simply intended to be a notification of the further practice of the Marshal. I no not accept the contention that the insurance was not “appropriate” to “retain safe custody” or “to preserve the ship”.
42 It was submitted by the plaintiff that while the insurance was designed to preserve the value of the vessel for the possible benefit of the plaintiff, it does not “preserve” the vessel itself in any way as, for example, painting or other maintenance may preserve the vessel. In my view, such a distinction is too narrow. The question as to what is appropriate should be approached on a broader basis. The broad scheme of the legislation is that the vessel or any fund which stands in its place, whether arising from sale or as a condition of release, is available to provide security for a properly based claim by a plaintiff. The insurance effected by the Marshal in this case was in order to preserve the security. Suppose, for example, that the vessel had been partly destroyed by fire. The insurance moneys resulting from a claim could have been used to repair or reinstate the vessel. It cannot be said to be inappropriate for the retention of safe custody of the vessel. On the contrary it is in every sense an appropriate measure to take, as indicated by the longstanding practice in the United Kingdom and Australia which led to the making of the various Practice Notes.
43 The circumstances of the original order of Sheppard J also mitigate against reopening the order. The order was made in the administration of the fund arising from the sale of the vessel by the Court. While no reasons were given by his Honour for making the order, given his Honour’s undoubted familiarity with the history of the arrest and the affidavit of the Deputy Marshal setting out the expenditures, when making the order his Honour would have been well aware of the insurance in question and of Practice Note No 12. Further, as Counsel for the Marshal points out, Sheppard J expressly dispensed with the necessity for taxation of expenses under r 72 of the Admiralty Rules in relation to valuation and sale. The insurance of course remained in force up to the point of sale. This is despite the fact that the affidavit of the Deputy Marshal only sought payment “on an interim basis pending taxation of the Marshal” fees and expenses.”
44 Rule 72 provides that:
“The Registrar shall tax the fees and expenses of the Marshal in connection with the valuation and sale of a ship or other property ordered to be sold.”
45 Sheppard J’s decision to dispense with it is, in my view, a further consideration which tends against disturbing the order.
Miscellaneous
46 Counsel for the plaintiff also submits that there can be no prejudice if the order is set aside because no party other than the Marshal could be adversely affected. In my view this submission is not persuasive. One consequence of the setting aside of the order would be that the Marshal may be exposed to a claim for repayment. Because the order has been in force for such a long period it is likely that the Marshal has adjusted his position on the basis that the order is valid and effective and could be acted on.
47 Counsel for the plaintiff advanced an alternative submission that at least there should be an apportionment of the insurance costs before and after the Practice Note, and that only those premiums for insurance coverage prior to the making of the Practice Note be paid out of the Fund. However it appears from the documents in evidence that the insurance commitment was for the duration of the arrest, which did not terminate until late June 1996. In any event the Practice Note does not reflect any intention to operate with respect to pre-existing insurance arrangements. It is a notification of a practice which parties should act on in the future.
48 In written submissions the plaintiff suggested that the Court could review the order under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“the ADJR Act”). The plaintiff’s original submissions were supplemented by written submissions from Counsel. However these later submissions did not refer to the ADJR Act and the point was not pressed at the hearing.
49 Nor was the alternative order pressed by the plaintiffs, that an account be undertaken by a Registrar, raised in Counsel’s supplementary submissions or in oral argument. Given the lack of argument and my view of the merits of the plaintiff’s case, I would, in any event, decline to order on account be taken of the Marshal’s fees and expenses.
50 Particularly having regard to the delay and the merits of the plaintiff’s case, I am satisfied that this is not a case in which the Court should exercise its discretion to vary or set aside the order.
51 In the course of argument two further matters were raised which I will now briefly consider. These relate to “parties” and to a Notice to Produce.
Parties
52 Counsel for the Marshal contended that the present case came within the principle that where third parties are affected by an order there is no basis for the Court interfering in the administration of a Fund other than by way of appeal. In the present case I do not think this principle applies. The Marshal is not a “third party” to the order of Sheppard J. The request for release of the funds was made to the Court on the basis of an affidavit filed by the Deputy Marshal requesting an order. The Marshal is a respondent to the motion presently before the Court and is an officer who may be affected adversely in the event that an order were to be made setting aside the order.
Notice to Produce
53 During the course of the proceedings a Notice to Produce was taken out by the plaintiff which was challenged by the Marshal. The language used in the Notice to Produce was as follows:
“1. All documents held by the Marshal relating to the effecting of insurances relating to the vessel “Martha II”, including any advices as to the nature of insurances required.” (Emphasis added)
54 In my opinion the Notice to Produce was framed in terms which were far too wide as to time and scope, and which could require the production of legally privileged material. The language extends well beyond the issues raised in the present proceedings. Accordingly I set aside the Notice. There was no application to amend it.
55 A further claim was made to set the Notice to Produce aside on the basis that the Marshal’s records were privileged on the grounds of public interest immunity, those records being internal Court documents that concerned the administration of the Court. It was said on behalf of the Marshal that there is a strong public interest in the non-disclosure of these documents. Because the Notice to Produce has been set aside on another ground it is not necessary to determine this question. Although I can see some force in the Marshal’s submission I consider that apart from questions of possible legal privilege, some records may not attract privilege where a challenge is made to the expenditure of the Marshal. A number of the Court Rules envisage a challenge to decisions of the Marshal with respect to expenses. To resolve such questions it would normally be necessary to obtain access to internal Court records to give directions to take an account, or to carry out a taxation of the Marshal’s expenses: see for example Admiralty Rules 48, 50, 65 and 72.
Conclusion
56 For the reasons outlined above the Amended Notice of Motion should be dismissed. I consider that the Marshal is entitled to payment of the costs of this application as a cost or expense of the Marshal in relation to the arrest.
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57 I certify that the preceding 56 numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. |
Associate:
Date: 9 March 2000
Counsel for the Plaintiff: Dr A S Bell
Solicitor for the Plaintiff: Blake Dawson Waldron
Counsel for the Respondent: Mr P King
Solicitor for the Respondent: Law Office of Douglas Coleman
Date of Hearing: 11 February 2000
Date of Judgment: 9 March 2000
