FEDERAL COURT OF AUSTRALIA

Bank of Kuwait and the Middle East v The Ship MV “Mawashi Al Gasseem” [2007] FCA 550

PROCEDURE – application to strike out defence as an abuse of process – where plaintiff adduces uncontroverted evidence to show ground of defence not genuinely arguable – where no response from defendant – defence struck out

KC Park Safe (SA) Pty Ltd v Adelaide Terrace Investments Pty Ltd (unreported, Mansfield J, 17 September 1998) cited

Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275 cited

Remington v Scoles [1897] 2 Ch D 1 cited

Williams v Spautz (1992) 174 CLR 509 discussed

Re Elders Australia Ltd; Super John Pty Ltd v Futuris Rural Pty Ltd (No 2) (unreported, Foster J, 24 December 1997) cited

Munnings v Australian Government Solicitor (1994) 118 ALR 385 cited

Dey v Victorian Railways Commissioners (1949) 78 CLR 62 cited

National Mutual Holdings v The Sentry Corporation (unreported, 27 September 1989) cited

Bank of South Australia v Ferguson (1998) 192 CLR 248 cited

Colgate-Palmolive Co v Cussons Pty ltd (1993) 46 FCR 225 cited

BANK OF KUWAIT AND THE MIDDLE EAST v THE SHIP MV "MAWASHI AL GASSEEM"

SAD 276 OF 2005

MANSFIELD J

11 APRIL 2007

ADELAIDE

REASONS FOR DECISION

1                     These are my reasons for orders made on 11 April 2007 striking out the defence and consequential orders.

2                     The proceedings were commenced by the plaintiff on 19 October 2005.  It seeks an order that a mortgage dated 24 August 2003 (the mortgage) granted over the defendant (the vessel) by its owner Kuwaiti Saudi Co for Livestock Meat and Fodder (the owner) is valid.  It also seeks payment of the amounts owing to it by the owner under an agreement of 27 July 2003 by which the plaintiff agreed to provide certain credit facilities to the owner and under the mortgage.  Under the mortgage, the owner acknowledged its then indebtedness to the plaintiff at KD27,591,000.  As at 30 November 2005, the plaintiff claimed the outstanding indebtedness (allowing for payments made, and interest) was KD9,579,113/689.  It also claimed ongoing interest.

3                     The plaintiff also seeks an order that the monies owing to it be paid, to the extent they are available to do so, out of the monies held by the order of the Court following the sale of the vessel. 

4                     In July 2005, the vessel was arrested by order of this Court.  The vessel and the unused bunkers and lubricants contained therein were sold pursuant to an order of the Court in November 2005.  The proceeds of sale and accumulated interest, is now about US$4,830,000 (the sale proceeds).  It is common ground that there are insufficient monies available from the sale proceeds to meet the claim of the plaintiff, so that if the mortgage is valid and the plaintiff has first call on those monies as against other unsecured creditors of the vessel (several of which have obtained judgment against the vessel for significant sums), the unsecured creditors will not be able to participate in the distribution of those monies.  Consequently, the unsecured creditors who have brought claims against the vessel have been given leave to intervene in this proceeding so that their interests are properly protected.  None participated on the hearing of the present motion.

5                     This is an application of the plaintiff by notice of motion:

1.                  to strike out the amended defence filed on 9 January 2007 as an abuse of process;

2.                  alternatively, to strike out paras 2-5 of the amended defence on the basis that they do not comply with the Rules, are embarrassing and are otherwise an abuse of process; and

3.                  seeking further and better discovery from the owner.

6                     An earlier version of the notice of motion had not sought to strike out the whole defence.  I gave leave at the hearing on 9 February 2007 for the notice of motion to be amended to include that extra relief.  Counsel for the owner appeared at that hearing said he could not respond to the application in a meaningful way as he had no instructions regarding the amended notice of motion.  I allowed the owner until 28 February 2007 to file and serve any answering affidavit and any written submission in opposition to the motion.  No further material has been filed.  The owner has also not complied with a direction given on 9 February 2007 that it file a document indicating the extent to which, if at all, it disputes the allegations of the plaintiff about payment of monies to it from time to time, the amounts received by the plaintiff to reduce the indebtedness, and the claimed current indebtedness.

7                     The application to strike out the defence was brought on the basis that it was an abuse of the process of the Court under O 11 r 16.  The onus is on the party bringing the application to satisfy the court that there is an abuse of process: KC Park Safe (SA) Pty Ltd v Adelaide Terrace Investments Pty Ltd (unreported, Mansfield J, 17 September 1998). There is no exhaustive list of what would constitute an abuse of process: Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275, at 279.

8                     The defence admits the status of the plaintiff, the vessel and the owner.  It admits that a document dated 27 July 2003 between the plaintiff and the owner was made in the terms alleged (the agreement), and that a document dated 24 August 2003 between the plaintiff and the owner was made in the terms of an agreement and mortgage (the agreement/mortgage) as alleged.  It admits that the plaintiff advanced to the owner pursuant to the agreement the funds it alleges were advanced, and that the owner failed to repay the loan by 31 May 2004.

9                     There is also no dispute that on 25 May 2005 the plaintiff served notice on the owner requiring repayment of all outstanding advances, and of its intention to enforce the mortgage, that the vessel was arrested by order of this Court in July 2005 and the vessel and its unused bunkers and lubricants sold by order of the Court in November 2005, and that the proceeds of sale are presently held in two designated accounts.

10                  The defence pleads that no officer of the vessel or the owner was authorised to sign the agreement or the mortgage so as to bind the owner, so that neither agreement is binding on the vessel or the owner and so that there is no valid mortgage over the vessel.  It accepts that there is documentation that the mortgage was duly registered by the Kuwait Ministry of Communications, Maritime Affairs Department.

11                  The particulars of the defence are expressed as follows:

In accordance with Commercial Companies Law of Kuwait (Number 15), issued in 1960, Article 146 a Director has no authority to sign contracts on behalf of a company unless such authority is given either by the Board of Directors, the Articles of Association of the Company or a resolution of the General Assembly of the Company.  No such authority has been given to the signatory of [the Agreement and the mortgage] Naif Abdul Aziz Al-Enazy.

12                  The defence then pleads (as appears to be accepted by the plaintiff) that the agreement and the mortgage are governed by the laws of Kuwait.

13                  Hence, the defence denies that the owner failed to repay the advances as and when they became due, and that the owner is indebted to the plaintiff as it claims, because there is no valid agreement and no valid mortgage.  The owner denies that the plaintiff is entitled to any relief.

14                  A consequence of the way that is pleaded is that the owner has not directly pleaded to the extent of the present outstanding advances (having regard to payments made by the owner and to interest calculations under the agreement and other monies received by the plaintiff in reduction of the level of advances.  That should be a matter of record and arithmetic.  To clarify the owner’s position in that respect, I directed the filing and service of a further responsive document.  It was not provided, as noted above.

15                  The plaintiff argued that the defence was an abuse of process because the substantive defence was a sham.  I accept that a sham defence may amount to an abuse of process and may be struck out: see Remington v Scoles [1897] 2 Ch D 1.

16                  The plaintiff sought to adduce evidence to show that the claim that the signatory to the agreement and to the mortgage on behalf of the owner did not have the requisite authority could not genuinely be raised.  Obviously, the Court should be slow to be persuaded that a pleaded defence based on a matter of fact is not genuinely raised.  However, if the Court is satisfied that a defendant has pleaded a fact which it does not genuinely maintain, the inference must follow that it has some extraneous reason for asserting that fact.  It may be as simple as an attempt to delay the inevitable.  There may be other reasons.  If the fact is pleaded for an extraneous purpose, then it may amount to an abuse of process:  see e.g. Williams v Spautz (1992) 174 CLR 509.  Care must be taken, as Mason CJ, Dawson, Toohey and McHugh JJ pointed out at 526-527, to ensure that the relevant or immediate purpose is not misunderstood.

17                  While it is permissible for evidence to be adduced in proceedings such as these (see Re Elders Australia Ltd; Super John Pty Ltd v Futuris Rural Pty Ltd (No 2) (unreported, Foster J, 24 December 1997); Munnings v Australian Government Solicitor (1994) 118 ALR 385, at 389; Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 109), the Court should be cautious not to preclude a party from relying on a defence that might be proved at trial merely because evidence exists which brings it into doubt: National Mutual Holdings v The Sentry Corporation (unreported, 27 September 1989); Sea Culture International v Scoles (1991) 32 FCR 275.

18                  During submissions, counsel for the plaintiff reiterated that summary judgment was not being sought.  However, considering that the ground of defence complained of is the sole apparent ground of defence, striking out the defence in these circumstances may ultimately have the practical effect of summary judgment, at least as far as liability is concerned.  For that reason, I have considered the evidence supporting the plaintiff’s motion with added caution.

19                  I accept that Naif Abdul Aziz Al-Enazy (Al-Enazy) was the signatory on both the agreement and on the agreement/mortgage.  That is not contested by the parties.  Curiously, the translation of the mortgage section of the agreement/mortgage, annexed to the affidavit of Shaun Langhorne dated 24 January 2007 as SPL-15, shows the signatory for the owner to be Muhammad Abu an-Nour al-Jawhari, who is also listed as the signatory for the plaintiff on that document.  That is clearly an error.  The owner admits in paragraph 7 of the amended defence that Al-Enazy was the signatory of the agreement/mortgage and Al-Enazy is shown as the signatory to the agreement/mortgage.

20                  I also note that the name of the signatory is spelt in various ways in different documents filed in this matter.  In the absence of any contentions to the contrary, I accept that they are alternate anglicised spellings of Al-Enazy’s name.

21                  The evidence of the plaintiff is in two general categories.  The first is evidence that the owner has at other times recognised the validity of the mortgage.  The second is evidence that in any event Al-Enazy was duly authorised to sign the agreement and the agreement/mortgage on its behalf.  I shall address those categories of evidence in turn.

22                  On 30 November 2006, during the course of these proceedings and after its original defence had been filed (which also claimed that the signatory did not have its authority), the owner wrote to the plaintiff to inform it that the owner was carrying out “the cancellation process” of the vessel so that it would be removed from the records of the Ministry of Communications.  This would enable the owner to disconnect the satellite lines on the vessel.  The translated letter states:

Since the ship is mortgaged to you and the mortgage is registered the Ministry of Communications, Maritime Cancellation Controller, has requested the cancellation be made by you because the ship is mortgaged to you.

23                  That letter is in almost identical terms to another letter dated 16 May 2006, also after the original defence had been filed, sent from the owner to the plaintiff, which states:

Since the ship is mortgaged to you and the mortgage is recorded against it, the Ministry of Communications, maritime Cancellation Control, has required that the application for cancellation should be made by you because the ship is mortgaged to you.

24                  On 25 December 2003, the owner wrote to the plaintiff, with the heading “Rescheduling of Loans” setting out its liabilities to the plaintiff under the agreement and the agreement/mortgage.  The letter acknowledged that the “current guarantees” included the vessel, and requested the plaintiff as part of its proposal not to liquidate the assets (clearly including the vessel) if the proposed repayment schedule were adhered to.

25                  Thereafter the minutes of the administrative board of the owner contain reports of ongoing discussions with the plaintiff about the monies owed to it.  The plaintiff has adduced several translations of board minutes of the owner in which reference is made to the owner’s debt to the plaintiff.  The relevant meetings occurred on 9 May, 10 May, 10 June, 26 June and 2 October 2004.

26                  On 8 August 2004 the owner sent a fax to its insurer of the vessel asking that the plaintiff be recorded as the first beneficiary in case of any ‘actual total loss claims’.  By Notice of Assignment dated 22 August 2004, the owner assigned to the plaintiff all insurance over the vessel under its policy of insurance.  Also, by letters from the owner to the plaintiff of dated 28 December 2004 and 22 April 2005, the owner seeks the assistance of the plaintiff in covering its insurance repayments, arguing that it would be in the plaintiff’s interests as the mortgagee of the vessel to do so.  In each of those letters there is an unequivocal acknowledgment of the mortgage of the vessel by the owner in favour of the plaintiff.

27                  There may be an explanation for the owner’s acknowledgment of the existence of the mortgage consistent with its defence.  It has elected not to provide that explanation.  I am left to speculate.  It may be that the owner, knowing that there was no valid agreement and no valid agreement/mortgage because the signatory to those documents was not authorised to sign them, chose to continue to mislead the plaintiff deliberately.  That would be surprising.  It may be that the owner did not itself realise that those documents were not signed by a person authorised on its behalf until it addressed the defence to these proceedings.  If that were the case, the earlier out-of-court admissions would be understandable and would not necessarily lead to the conclusion that the essence of the defence is a sham, that is a purely fabricated defence for the purpose of buying time or for some other reason.

28                  In Australian law, even if the defence of the lack of authority of Al-Enazy to have signed the documents on behalf of the owner were established, it is likely on the presently available material that

(a)                the owner would be required to repay the monies advanced in any event:  Bank of South Australia v Ferguson (1998) 192 CLR 248; and

(b)               the owner would be estopped by its conduct from saying that the two documents were not validly executed, provided that the plaintiff showed that it had acted on the representations as to the existence of the agreement and of the agreement/mortgage.

29                  No evidence exists as to whether Kuwaiti law would have the same consequences, and of course the matter in (a) would only result in the existence of an unsecured indebtedness to the plaintiff.

30                  The second category of evidence takes the matter further.

31                  On 11 March 2003, a certificate was issued by the Ministry of Commerce and Industry.  It was issued at the request of the owner.  The translation states:

[Al-Enazy] is the chairman of the board of directors and authorized member of the Kuwaiti Saudi Company for Livestock, Meat and Fodder, Kuwaiti Shares Closed Company.

…

In accordance to Article (20) of the Company’s constitution, the chairman of the board of directors or his deputy or authorized member shall each have the right to sign separately.

32                  Article 20 of the Company’s constitution states that:

The chairperson of the board of directors or his deputy and authorized members of the board of directors, each according to his authorities defined by the board of directors, or any other member authorized by the board of directors for this purpose, shall have the right to solely sign on behalf of the company.

33                  The certificate from the Ministry of Commerce is referred to in both the agreement and the agreement/mortgage where the signatory’s authority is set out as follows:

[The owner] … represented in signing this contract by [Al-Enazy], Kuwaiti nationality, holder of civil card number 260010201667, chairman of the board of directors, by virtue of article (25) of the company’s articles of association and the certificate issued by the Ministry of Commerce and Industry number 8138, dated 11/3/2003…

34                  Al-Enazy is also referred to as the Chief Executive Director and Deputized Member in a letter dated 26 June 2003 and an administrative decision dated 2 November 2003, both of which are signed by him. 

35                  According to the administrative board minute, Al-Enazy remained as chairman of the board until at least 16 December 2003 when the board considered his letter of resignation as chairman.

36                  Again, that evidence has not attracted any response from the owner.  It was given a further period of time after the hearing to respond, as I thought it may have wished to do so in the light of the detailed submissions of the plaintiff.

37                  That material adds considerable weight to the plaintiff’s contention.  If there were any resolution of the board limiting the authority of Al-Enazy as chairman, in accordance with Article 20, to sign documents on behalf of the owner, it is within the power of the owner to have produced it.  It has not done so.  The material shows that Al-Enazy as chairman has signed documents on behalf of the owner, including the agreement and the agreement/mortgage.  It shows that the owner has treated those documents as being efficacious and has acted upon the basis that they are valid.

38                  In my view, upon the whole of the evidence, it is clear that the defence of lack of authority of Al-Enazy to have signed the agreement and the agreement/mortgage on behalf of the owner is not a genuine one.  There is not the faintest suggestion in the material that it has any factual foundation.  The owner has had the opportunity to advance any evidence which might conceivably support the claim, and has not done so.  Nor has it tried to explain at all the picture which the material paints.  The defence should be struck out as an abuse of process.

39                  I have struck out the whole of the defence simply because I think the pleading of lack of authority is so entangled in the various paragraphs of the defence that it could not fairly be removed without the risk of leaving a document which may not, in other respects, reflect the owner’s position.

40                  As the plaintiff did not seek summary judgment, and in case the owner has some other defence it may properly raise or wishes legitimately to put in issue any other matters (including the detailed allegations about the present indebtedness and how that sum is arrived at), I have given the owner 28 days to file and serve a further amended defence.

41                  I have adjourned the directions hearing and the plaintiff’s notice of motion of 24 January 2007 to a date after the 28 day period has expired.  If there is no further amended defence, the plaintiff may seek to further amend the notice of motion to seek judgment.  If there is a further amended defence, depending on its terms, the plaintiff might nevertheless seek to further amend the notice of motion to seek judgment, and in any event in the light of any further amended defence, I will need to address the claim for further discovery in paragraph 3 of the motion.

42                  The defendant and the owner should pay the costs of the notice of motion to date to the plaintiff in any event.  I accept the contention of counsel for the plaintiff that those costs should be payable on an indemnity basis, given my reason for striking out the defence:  see Colgate-Palmolive Co v Cussons Pty ltd (1993) 46 FCR 225 per Sheppard J at 232-234.

43                  I direct that the time from which any application for leave to appeal from this decision should run from the date of publication of these reasons for decision.

Associate:

Dated:         17 April 2007