FEDERAL COURT OF AUSTRALIA

Fuk Hing Steamship Co Ltd v Shagang Shipping Co Ltd [2015] FCA 682

THE COURT ORDERS THAT:

1.    The interlocutory application be dismissed.

2.    The matter be stood over for directions on 3 July 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1    This is an application for default judgment. On 24 October 2014, I granted leave to the plaintiff to serve the defendant in Hong Kong with the originating application and statement of claim, in which the plaintiff sought damages under s 34(1) of the Admiralty Act 1988 (Cth) for the defendant’s wrongful arrest of the ship Bulk Peace. That section provided:

34    Damages for unjustified arrest etc.

(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 person 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. (emphasis added)

2    The plaintiff was a time charterer of Bulk Peace. The background circumstances of the arrest and release of Bulk Peace can be gleaned in the reasons of Allsop CJ, Rares and McKerracher JJ in Shagang Shipping Co Limited v Ship “Bulk Peace” (as surrogate for Ship “Dong-A Astrea”) (2014) 314 ALR 230.

3    After service on it the defendant appeared in these proceedings, and on 6 February 2015 I ordered, by consent, that the defendant file a defence on or before 6 March 2015. On 20 March 2015, the defendant’s solicitors filed a notice of ceasing to act, because the defendant had gone into liquidation in Hong Kong. It is safe to infer that the defendant has no assets in Australia, and its liquidators have no interest in the further conduct of the proceedings. Nonetheless, as the plaintiff correctly points out, in a technical sense, the defendant is in default under r 5.22(a) and (b) of the Federal Court Rules 2011 (Cth), because it failed to file a defence, in accordance with the order that it do so by 6 March 2015. Accordingly, on 28 April 2015, the plaintiff filed an interlocutory application seeking orders that default judgment be entered in its favour in the sum of USD1,595,986.25, pursuant to r 5.23(2).

4    In the ordinary application of r 5.23, a party seeking to make out an entitlement to judgment is able, in a case such as this where there is no defence, to rely on deemed admissions of the material facts asserted in its unanswered pleading: see e.g. Australian Competition and Consumer Commission v Dataline.net.au Pty Limited (2006) 236 ALR 665, 677-678 [45]-[48] per Kiefel J, affirmed (2007) 161 FCR 513; also Sanko Steamship Co Limited v Australia Gloria Energy Group Pty Limited [2012] FCA 798 at [6] per Rares J.

Background

5    The plaintiff’s statement of claim alleged that Bulk Peace was a bulk carrier of about 176,000 deadweight tonnes registered in the port of Hong Kong. It alleged that the registered owner, Well Far Limited, had bareboat chartered her to Congo Shipping Limited, and that the plaintiff was the time charterer of the ship from Congo Shipping at all material times.

6    On about 3 March 2014, the plaintiff chartered the ship to Rio Tinto Shipping (Asia) Pte Limited to carry a cargo of iron ore from Dampier, Western Australia to one or two safe ports in China. The statement of claim alleged that Bulk Peace arrived at Dampier in the early hours of 16 March 2014, and that the next day the defendant commenced in rem proceedings against her as surrogate for Dong-A Astrea under s 19 of the Admiralty Act. In those proceedings, the defendant claimed over USD66 million, or alternatively damages, for non-payment of moneys due to it under a contract of guarantee entered into between the defendant and HNA Group Limited, pursuant to which HNA had agreed to guarantee the due and faithful performance and fulfilment of the charter party of Dong-A Astrea by Grand China Shipping (Hong Kong) Co Limited, that it had entered into at the same time as the charter party.

7    The defendant obtained the arrest of Bulk Peace, which was effected by a Marshal, on 18 March 2014. On 21 March 2014, Well Far filed an interlocutory application and an application for release of the ship on the ground of want of jurisdiction. That was because Well Far asserted that HNA was not the owner of Bulk Peace for the purpose of s 19(b) of the Act at the time of the arrest. The Full Court heard that the application in the Court’s original jurisdiction on Saturday 22 March 2014. At the conclusion of the hearing on that day the Full Court held that it was not prepared, on the evidence, to conclude that HNA was the owner of Bulk Peace for the purposes of s 19(b) of the Act. It dismissed the defendant’s application for an adjournment of the hearing of the interlocutory application, and made orders setting aside the arrest warrant, and dismissing the proceedings for want of jurisdiction. The ship was immediately released from arrest.

8    Next, the statement of claim in these proceedings pleaded that, in the premises, the arrest of Bulk Peace by the defendant in support of its claim against HNA was unreasonable and without good cause within the meaning of s 34(1) of the Act. It pleaded that the plaintiff was a person who had an interest in the ship within the meaning, and for the purposes, of s 34(1). It then pleaded that the consequences of the arrest were that on 19 and 25 March 2014, Rio Tinto cancelled the voyage charter party for Bulk Peace as a consequence of the arrest proceedings. The plaintiff next pleaded that, first, on 19 March 2014, Rio Tinto also cancelled a second voyage charter party for another vessel, Bulk Genius, of which the plaintiff was also a time charterer, and, secondly, on 20 March 2014, Rio Tinto terminated the time charter of a third vessel, Bulk Harvest, of which the plaintiff was also a time charterer.

9    The particulars to the pleading concerning the time charter of Bulk Genius, although not part of the pleading itself for the purposes of r 5.23, revealed that the disponent owner under the New York Produce Exchange 1946 form time charter was Colorado Shipping Limited with the plaintiff as the charterer. The relationship between Colorado Shipping and the HNA Group was not explored in the pleading.

10    The statement of claim also alleged that Bulk Harvest Shipping SA was the registered owner of Bulk Harvest, that Grand Hualhe Shipping Limited was her bare boat charterer, and that the plaintiff was a time charterer of Bulk Harvest and it had then sub-chartered her to Pacific Bulk Shipping, and that company further sub-chartered Bulk Harvest her to a company called Hyundai Glovis, and that Hyundai Glovis had voyage chartered Bulk Harvest to Rio Tinto for the carriage of a cargo of iron ore and iron fines from Dampier to China, in about late February 2014.

11    The pleading asserted that, as a direct consequence of the arrest of the ship in the arrest proceedings and the delay occasioned to Bulk Peace by reason of that arrest, the plaintiff had suffered loss and damage. The statement of claim made similar claims of the plaintiff suffering loss or damage in relation to Rio Tinto’s terminations of the charter parties for each of Bulk Genius and Bulk Harvest.

12    On the present application, in answer to an inquiry by me, the plaintiff’s counsel accepted that there was no contractual provision entitling Rio Tinto to cancel any of the time or voyage charters of any of the three ships.

Consideration

13    The initial question which I must decide is whether, in the exercise of the Court’s discretion, I should permit the plaintiff to proceed by way of obtaining a default judgment under r 5.23 in the circumstances where, first, the defendant is in default because it went into liquidation in Hong Kong after it had appeared in the proceedings, but before it had filed a defence, secondly, where so far as counsel for the plaintiff and I are aware, this is the first time in the history of the operation of the Admiralty Act that a claim has been brought in the Court under s 34 of the Act.

14    The section raises a number of serious and important questions of statutory construction that would ordinarily fall to be resolved in contested litigation, concerning, first, what the test is for determining whether a party “unreasonably and without good cause” obtained the arrest of a ship, secondly, whether a person in the position of a time charterer is a person “who has an interest in the ship” and, thirdly, whether the loss or damage, and each of the different heads of loss or damage, sought to be recovered by the plaintiff in these proceedings, was suffered “as a direct result” of the arrest that had been obtained “unreasonably and without good cause”. Each of those three questions involves consideration of the detailed reasons of the Australian Law Reform Commission in its Civil Admiralty Jurisdiction Report (No 33) (ALRC 33) at [302]-[304], of the particularly carefully crafted terms of s 34(1).

15    Counsel for the plaintiff argued that it would be desirable, from the plaintiff’s point of view, for there to be a judgment of this Court on which the plaintiff could rely for the purposes of submitting its proof of debt in the liquidation in Hong Kong, and that I should proceed to give default judgment simply on the deemed admissions in the statement of claim for the significant sum of damages claimed.

Consideration

16    In my opinion, this is not a suitable proceeding in which I should permit the plaintiff to rely upon what, in the ordinary course of litigation, would be its right to proceed against the defendant on default under r 5.23. That is because the defendant has no presence in this jurisdiction, and its default has arisen solely because it has gone into liquidation in Hong Kong after appearing here. In those circumstances, the plaintiff will be able to submit a proof of debt in the liquidation and have it considered in the ordinary way.

17    It would not be appropriate for the Court to give a default judgment in this jurisdiction on the basis of the deemed admission of allegations in the statement of claim having regard to the real and problematic questions which I have identified. First, there is a real issue about whether a time charterer has an interest in the ship at all for the purposes of s 34(1) of the Act. That question involves considering whether s 34(1) requires only a mere economic interest of the plaintiff, as hirer of the ship, or requires the person to have a proprietary or possessory interest in her.

18    Secondly, there are real questions about whether or not in the circumstances the defendant did obtain the arrest of Bulk Peace unreasonably and without good cause, particularly in light of the observations which the members of the Full Court made on that topic. It would be unsatisfactory for that matter to be decided under r 5.23 on the basis of a mere pleaded assertion of the ultimate fact to be proved, rather than upon an examination of the evidence and state of mind of the defendant at the time the arrest was obtained, as would happen in ordinary contested litigation.

19    Thirdly, there is a real question as to whether each head of damage claimed by the plaintiff was suffered “as a direct result” of the arrest, apart from the straightforward, but relatively small, claim for loss of the value of the hire of Bulk Peace over the period of her arrest and the expenses of operating the ship, such as provision of bunkers and any other ordinary incidents of the charter party that the charterer had to pay during the period while the vessel was idle and unable to be employed. Moreover, the claims for the losses that the pleading asserted extended to losses said to have arisen from the terminations of the time charters of the other two vessels, which seem even more problematic. It is difficult to see how those terminations cause the plaintiff to suffer loss or damage as a direct result of the arrest of Bulk Peace. There must be real questions as to whether, if a third party cancels its contract either without a particular contractual right to do so or in breach of contract with the time charterer, that event creates loss or damage to the time charterer “as a direct result” of the wrongful arrest of the vessel. These issues as to remoteness are the more acute in relation to the termination of the time charters of Bulk Harvest and Bulk Genius, neither of which appeared to have been owned by Well Far or to have any pleaded connection with HNA.

20    The defendant’s claim of its entitlement to arrest Bulk Peace was not, and could never have been, founded upon the time charter of her by the plaintiff. That is because the right to arrest Bulk Peace depended upon the defendant establishing that HNA was her owner for the purposes of s 19(b) of the Act. It is possible that a court would find that the plaintiff’s loss of the time charter of Bulk Peace to Rio Tinto was a direct result of her being under arrest. However, it is difficult on the bare assertions in the statement of claim to see what risk of arrest either of the other differently owned ships presented to Rio Tinto, to justify its termination of the charter parties for them.

21    Moreover, s 20(1) and (3) prohibited the arrest of a second ship on a proceeding in rem under ss 15, 17, 18 and 19 of the Act, unless the service of the writ on the first ship had been set aside or the proceedings relating to her had been discontinued, dismissed or struck out or the arrest was invalid and she had been released from arrest. Thus, while the arrest of Bulk Peace continued, it is difficult to see what risk of interruption for the other two charters could have arisen to justify termination of them as a direct, or indeed any, result of the arrest. And, if the arrest were set aside or invalid, it is also difficult to see how either Bulk Harvest or Bulk Genius were at risk of arrest under s 19(b), given the absence of any pleaded ownership connection of them to HNA.

22    All of these issues, in my opinion, involve difficult questions of fact and law, which in the circumstances of the defendant having gone into liquidation, it would not be appropriate to resolve on a default judgment application. True it is that the defendant has no protection in this jurisdiction under s 471B of the Corporations Act 2001 (Cth) or under any current application for the recognition of the Hong Kong liquidation or any related liquidation as a foreign, or foreign main, proceeding under the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, that is given force of law in Australia by s 6 of the Cross-Border Insolvency Act 2008 (Cth) or under any consequent orders that could be made to stay these proceedings. Nor is there any suggestion that there will be any such proceeding here, given the apparent absence of any assets or presence of the defendant in this jurisdiction.

23    A decision to grant a default judgment of the kind and with the incidents of enforcing each and every claim in the statement of claim, in my opinion, would have far-reaching consequences for the understanding of how s 34 of the Act operates in a case of wrongful arrest. This would be quite unsatisfactory where in truth there had been no ability of the Court to consider or resolve the three significant legal issues that I have identified, let alone the underlying complex factual issues that the statement of claim raised. Such a default judgment would have the potential to create a chilling effect on plaintiffs wishing to avail themselves of their right to arrest ships in the Admiralty jurisdiction, which the Parliament chose to create, in proceedings that may be brought in rem under Pt III of the Admiralty Act in accordance with the careful and considered views of the Australian Law Reform Commission in ALRC 33 and its clear intent to limit the circumstances in which the claim of wrongful arrest in s 34 might be enforced.

24    In my opinion, in all of the circumstances it is not appropriate that these proceedings be determined on the interlocutory application for default judgment under r 5.23. It is not in the interests of justice that this be the first case to apply the important provisions of s 34(1), where there are the highly problematic claims that are made in the proceedings which may or may not be able to be proved, were they contested, but which, in my opinion, require careful attention, evidence and argument before they should be adjudicated, even in a situation where one party has not appeared in default.

25    That said, I am indebted to counsel for the plaintiff for his careful, if adventurous, argument to persuade me to proceed down this path, in which he collected and drew attention to a number of authorities that will no doubt be helpful if and when an application is filed under s 34 in the future that results in a contested hearing.

Conclusion

26    For these reasons, I dismiss the interlocutory application.

Associate:

Dated:    6 July 2015