Federal Court of Australia

Malayan Banking Berhad v Proceeds of the Sale of The Ship “Teras Bandicoot” [2021] FCA 285

ORDERS

THE COURT ORDERS THAT:

1.    Judgment be entered for the plaintiff against the defendant in the sum of US$27,487,918.94.

2.    Interest be payable on the judgment sum in Order 1:

(a)    in the sum of US$21,625.19, as being such interest accrued on the judgment sum as at 30 November 2020;

(b)    at the rate of 2.5% per annum above the plaintiff’s cost of funds, calculated per day from 1 December 2020 until full payment, for that part of the judgment sum that relates to a vessel loan and two revolving credit facilities; and

(c)    at the rate of 8.75% per annum, calculated per day from 1 December 2020 until full payment, for that part of the judgment sum that relates to the overdrawn amount.

3.    The question of the costs of this application be adjourned to the case management hearing listed on 22 March 2021.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

1    These are short reasons for orders for judgment made on 16 March 2021.

2    The plaintiff Bank holds ship’s mortgages over two Ships, the “Teras Bandicoot” and the “Lauren Hansen” and claims that the mortgages are enforceable because events of default have occurred. It seeks full repayment of the outstanding sums secured by the mortgages, including interest.

3    In August 2020, an unrelated creditor (Bhagwan Marine Pty Ltd) commenced separate proceedings (Judicial Sale Proceedings) for the arrest and sale of both vessels. On 20 August 2020, I made ex parte orders for the arrest of both vessels: Bhagwan Marine Pty Ltd v The Ship “Teras Bandicoot” [2020] FCA 1224; and Bhagwan Marine Pty Ltd v The Ship “Lauren Hansen” [2020] FCA 1225. A few months later, order were made for the valuation and sale of both vessels: Bhagwan Marine Pty Ltd v The Ship “Teras Bandicoot” (No 2) [2020] FCA 1481; and Bhagwan Marine Pty Ltd v The Ship “Lauren Hansen” (No 2) [2020] FCA 1482. The Court now holds the proceeds of sale of both vessels pending a determination of priorities. Pursuant to orders made on 30 October 2020, judgment was entered for Bhagwan Marine against both vessels. The Bank, having commenced its own proceedings against the proceeds of the sales, seeks judgment so that its claim may be included in the determination of priorities pursuant to r 73 of the Admiralty Rules 1988 (Cth).

4    While the Bank’s claims against both vessels are effectively the same, these reasons are directed to the claim against the proceeds of sale of the Teras Bandicoot. Separate reasons have been produced for the Lauren Hansen: Malayan Banking Berhad v Proceeds of the Sale of The Ship “Lauren Hansen” [2021] FCA 286.

5    The Bank seeks judgment on its claim pursuant to:

(a)    s 31A(1) of the Federal Court of Australia Act 1976 (Cth) and r 26.01(1)(e) of the Federal Court Rules 2011 (Cth) – on the basis that there is no reasonable prospect of the proceeding being defended; or

(b)    alternatively, r 5.23(2)(b) of the Rules – on the basis that Teras Maritime Pty Ltd as the relevant person, being the owner of the vessel and mortgagor, is in default in its defence of the proceeding.

6    The Bank says that:

(a)    the Court has in rem jurisdiction in respect of the claim;

(b)    the writ and the particulars of claim as set out in it, together with the evidence available, demonstrate that the mortgages the subject of the claim are valid and enforceable;

(c)    for the purposes of summary judgment:

(i)    at the very least the Bank has a prima facie case for judgment;

(ii)    the Court may be comfortably satisfied that if raised, a defence would have no reasonable prospect of success; and

(d)    alternatively, for the purposes of default judgment:

(i)    there has been default on behalf of Teras Maritime under r 5.22 of the Rules; and

(ii)    the circumstances of the case are appropriate for the Court to exercise its discretion to grant default judgment where:

(A)    Teras Maritime has not evinced any intention to participate in the proceeding, let alone defend them; and

(B)    no risk of injustice arises in shutting Teras Maritime out of an opportunity to defend the claim.

7    It is not unusual to seek judgment on both bases, see for example: Henry v Sandlewood Aboriginal Projects Ltd (No 2) [2019] FCA 2061 per Rares J (at [29]); Southcorp Brands Pty Ltd v Australia Rush Rich Winery Pty Ltd [2019] FCA 720 per Beach J (at [20]). It would be expected that judgment if given, be given on the basis considered by the Court to be most appropriate in the circumstances.

8    In support of its application, the Bank relies upon the affidavit of Ms Lim Soh Hoong affirmed on 12 March 2021, and the affidavit and supplementary affidavit of Mr Cocks (solicitor) sworn on 12 March 2021 and 15 March 2021 respectively.

RELATED PROCEEDINGS, POWER TO DETERMINE EX PARTE

9    The Bank has commenced in rem proceedings against each of the proceeds of the judicial sale of the Teras Bandicoot (proceeding WAD 13 of 2021) and Lauren Hansen (proceeding WAD 14 of 2021). The writs were filed on 1 February 2021. They identify the mortgagor, Teras Maritime, as the ‘relevant person’ within the meaning of s 3(1) of the Admiralty Act 1988 (Cth). Teras Maritime is the owner of the vessels.

10    The Bank seeks identical relief in both proceedings, and seeks judgment by way of an interlocutory application filed in both proceedings.

11    There has been no appearance on this application by Teras Maritime or by Bhagwan Marine, the plaintiff in the Judicial Sale Proceedings. The Bank nevertheless provided a copy of the application and supporting affidavits to the solicitors for Teras Maritime. Bhagwan Marine was also made aware of the application.

12    In those circumstances and considering the nature of the application, the Court proceeded to hear and determine the application pursuant to r 17.04 of the Rules.

FACTUAL BACKGROUND

13    The affidavit evidence reveals the following matters:

(a)    the Bank provides substantial banking and credit facilities to the Ezion Group, which comprises subsidiaries and associated entities of the Singapore-incorporated offshore marine and logistics organisation, Ezion Holdings Limited. Teras Maritime, the subject of these proceedings (and the relevant person) is a member of the Ezion Group;

(b)    the loan and security documents giving effect to the legal relationship between the Bank and Teras Maritime are voluminous. They are the product of the extensive and long-standing financial relationship between the Bank and members of the Ezion Group. Ms Hoong produces a list of financing agreements between the Bank and various members of the Ezion Group and a list of various securities granted to the Bank by members of the Ezion Group;

(c)    these documents reveal that Teras Maritime granted to the Bank a ship’s mortgage over each of the Teras Bandicoot and Lauren Hansen to secure the obligations of its related entities, Teras Conquest 5 Pte Ltd and Teras Singapore 2 Pte Ltd, arising under a loan agreement between the latter two organisations and the Bank. The mortgages are subject to Western Australian law and jurisdiction;

(d)    non-payment of the instalments when due, as well as the arrest and judicial sale of the Teras Bandicoot and Lauren Hansen in the Judicial Sale Proceedings (proceedings WAD 191 of 2020 and WAD 192 of 2020 respectively) brought by Bhagwan Marine, constitute events of default under the mortgages;

(e)    as a result, the loan repayment obligation was accelerated such that the total outstanding under the loan agreement became, and is now, immediately payable;

(f)    despite demand, the total outstanding indebtedness (including continuing interest and costs on an indemnity basis) (Total Outstanding Indebtedness) remains due and payable but unpaid; and

(g)    the mortgages are enforceable in respect of the Total Outstanding Indebtedness, and the Bank claims accordingly.

RIGHT TO PROCEED IN ADMIRALTY

14    Although no challenge has been raised to jurisdiction generally, or specifically to admiralty jurisdiction, it is necessary for the Court to be satisfied itself that it has jurisdiction. In order to seek judgment in these proceedings, the Bank must establish that the Court has jurisdiction in rem: Norddeutsche Landesbank Girozentrale v The Ship “Beluga Notification” (No 2) [2011] FCA 665 per Rares J (at [22]). For the following reasons, the Court has jurisdiction.

15    This Court has jurisdiction conferred upon it by s 10 of the Admiralty Act 1988 (Cth) in respect of proceedings commenced as actions in rem. A party may only proceed in rem as provided by s 14 of the Admiralty Act. Pursuant to s 16, a proceeding on a proprietary maritime claim concerning a ship may be commenced as an action in rem against that ship. A proprietary maritime claim is defined in s 4(2)(a)(iii) to include a claim relating to the mortgage of a ship, and in subs 4(2)(d), a claim for interest in respect of the mortgage claim.

16    Where the Court’s admiralty jurisdiction is invoked on a proprietary maritime claim relating to a ship’s mortgage, the Court may be satisfied as to jurisdiction if the claim as set out and particularised in the writ has the legal character required by s 4(2)(a): Owners of Ship Shin Kobe Maru v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ (at 426).

17    The Bank’s claim, as stated and particularised in each writ, relates to the mortgage of a ship and for interest. It follows that the Court has in rem jurisdiction over the claim under s 16 of the Admiralty Act.

18    As noted, the vessels the subject of the Bank’s actions in rem were judicially sold in the Judicial Sale Proceedings following orders I made in those proceedings on 13 October 2020 and 18 November 2020. The proceeds of sale are held by the Court.

19    The in rem writ against the proceeds of sale was properly served by the Bank in accordance with r 31 of the Admiralty Rules by filing a copy with the Court’s Registry.

20    But for the judicial sale of the vessels, it is clear that the Bank could have commenced in rem proceedings against them. Accordingly, pursuant to s 24 of the Admiralty Act, the Bank’s claim is properly pursued as an action in rem against the proceeds of sale of each vessel: Opal Maritime Agencies Pty Ltd v Skulptor Konenkov [2000] FCA 507; (2000) 98 FCR 519 where Black CJ, Cooper and Finkelstein JJ said (at [29]-[32]):

29    In our view, the use of the phrase “in rem claim” by his Honour in that context, meant no more than that the maritime claim must be one which could be enforced in rem against the proceeds of sale before the claim could be recovered from those proceeds. In this, his Honour is echoing the observation of Sheppard J in the earlier judgments, that no claim can lead to a payment out of the proceeds of sale unless the claimant has recovered a judgment in rem against the vessel which has been served and arrested, or the fund which stands in its place: Patrick Stevedores No 2 Pty Ltd v MV “Skulptor Konenkov” (1996) 64 FCR 223 at 237; Patrick Stevedores No 2 Pty Ltd v Proceeds o/Sale o/Vessel MV “Skulptor Konenkov” (1997) 75 FCR 47 at 49,52; 144 ALR 394 at 396, 399.

30    Any right of Opal to recover a judgment against the fund represented by the proceeds of sale of the ship “Skulptor Konenkov” arises from s 24 of the Act. Unless Opal could bring itself within the terms of s 24, it was not entitled to the orders which it sought. Section 24 provides:

“Where, but for the sale of a ship or other property under this Act, a proceeding could have been commenced as an action in rem against the ship or property, the proceeding may be commenced as an action in rem against the proceeds of the sale that have been paid into a court under this Act.”

31    For the purposes of the present proceedings, the relevant ship was the “Skulptor Konenkov”. Opal was required to prove that, but for the sale of the ship, it could have commenced proceedings as an action in rem against the “Skulptor Konenkov”.

32    By virtue of s 14 of the Act, Opal’s right to commence an action in rem against the “Skulptor Konenkov” was limited to the statutory rights given by the Act. The right to commence a proceeding in rem is provided for in ss 15, 16, 17, 18 and 19 of the Act.

(Emphasis added.)

SUMMARY JUDGMENT

21    The Bank seeks judgment under s 31A(1) of the Act and r 26.01(1)(e) of the Rules. I am satisfied that Teras Maritime has no reasonable prospect of successfully defending the proceeding.

22    To assess the prospects of a defence ‘will necessarily require’ the identification and review of, on the one hand, the Bank’s case (in this instance) and evidence supporting its claim for judgment, and on the other, Teras Maritime’s defence and supporting evidence, if any: see the analysis in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60; (2008) 167 FCR 372 per Gordon J (at [126]).

23    Such an assessment may be made in favour of judgment if the evidence supporting the judgment application reasonably excludes the possibility that facts essential to the success of a defence will be able to be established: Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 per French J (at [20]). For example, if the Bank establishes a prima facie case that the defence has no reasonable prospect of success, then absent specific factual or evidentiary disputes that would make a trial necessary, the Bank should be granted its application: Fortron, [22]; Jefferson Ford (at [127]). If the Court is satisfied that the defence, if raised, has no reasonable prospect of success, then it retains no residual discretion and ought to give summary judgment: Jefferson Ford (at [128] and the authorities cited therein).

24    As explained, the Bank’s claim is for the enforcement of a ship’s mortgage in respect of a debt and continuing interest secured by that mortgage. The writ in rem sets out the nature of the claim and the relief sought. The draft statement of claim provided to Teras Maritime’s solicitors on 3 February 2021 fleshes out the relevant legal and factual bases of the Bank’s claim (albeit only provisionally).

25    Evidence has been provided of:

(a)    the mortgage and its terms, as well as the underlying financing documents giving rise to the obligations secured by the mortgage;

(b)    occurrences of default under the mortgage (ie non-payment, and the arrest of the mortgaged vessels in the Judicial Sale Proceedings);

(c)    letters of demand sent on the Bank’s behalf to Teras Maritime, (as mortgagor) notifying it of the default, the acceleration of the secured obligations, and the total outstanding sum in respect of which the Bank seeks enforcement under the mortgage;

(d)    the total outstanding sum and the rates of interest continuing to accrue, by way of the statement of indebtedness dated 27 January 2021, which is binding upon Teras Maritime; and

(e)    the fact that the total outstanding sum remains unpaid.

26    There is no reason to doubt that the mortgages are valid and enforceable, and that the Bank has, at the very least, a prima facie claim to the relief set out in the writ.

27    Despite having had ample notice of the Bank’s claim, the in rem proceedings, and the Bank’s intention to apply for judgment, Teras Maritime has not taken steps to appear, or to otherwise defend the claim. Such notice includes:

(a)    the caveats against release filed by the Bank on 2 December 2020 in the Judicial Sale Proceedings, which ought to have placed Teras Maritime on notice of a potential action by the Bank;

(b)    the letter of demand of 11 December 2020 which notified Teras Maritime of the Bank’s claim;

(c)    Mr Cocks’ letter to Teras Maritime’s solicitors of 3 February 2021, which provided a copy of the sealed writ, a detailed draft statement of claim, and notice of intention to apply for judgment;

(d)    Mr Cocks’ letters of 18 February 2021 to Teras Maritime’s solicitors and to Teras Maritime;

(e)    the orders made by the Court contemplating the Bank’s judgment application at the case management hearing on 2 March 2021, which Teras Maritime’s solicitor attended; and

(f)    provision of a copy of the application for judgment in draft form to Teras Maritime’s solicitors on 12 March 2021.

28    Putting aside the non-appearance by Teras Maritime, there is no material before the Court as to any factual or evidentiary dispute that may be raised in defence of the Bank’s claim.

29    The evidence and the circumstances of the conduct (or absence thereof) on Teras Maritime’s behalf disclose no reasonable possibility of a defence being raised to the claim, let alone one which may reasonably establish specific factual or evidentiary disputes warranting a trial.

30    In the circumstances, the Bank is entitled to judgment under s 31A of the Act.

DEFAULT JUDGMENT

31    The Bank alternatively seeks judgment by default under r 5.23(2)(b) of the Rules. It seeks an order giving judgment against Teras Maritime for the outstanding secured debt, interest and costs on the basis that there is default under r 5.22 and the circumstances of the case are appropriate for the Court to exercise its discretion in the Bank’s favour to make an order for judgment.

Default under r 5.22

32    Pursuant to r 5.22, a party is in default if it fails to do an act required to be done, or to do an act in the time required by the Rules, to attend a hearing in the proceeding, or to defend the proceeding with due diligence.

33    The Bank says that the failure of the Teras Maritime in an in rem proceeding:

(a)    to file an appearance following service of the writ;

(b)    to attend a hearing in the proceeding; and

(c)    to otherwise cause any response to be made to the Bank’s solicitors in respect of the proceedings;

constitutes default for the purposes of r 5.22: The Sanko Steamship Co Ltd v Australia Gloria Energy Group Ltd [2012] FCA 798 per Rares J (at [5]-[6]).

34    Teras Maritime is in default in the following circumstances:

(a)    the in rem writ was properly served on 3 February 2021 in accordance with r 31 of the Admiralty Rules by filing a copy with the Court’s registry;

(b)    that same day, a copy of the sealed writ, together with a summary of the claim, a draft statement of claim and notice of an intention to apply for judgment, was provided to Teras Maritime’s solicitors;

(c)    those originating documents were then provided directly to Teras Maritime on 18 February 2021;

(d)    neither Teras Maritime nor any person on its behalf entered an appearance in the proceeding within the time prescribed by r 23 of the Admiralty Rules, or at all;

(e)    in default of r 5.01 of the Rules, which requires a defendant to attend the Court on the return date fixed in the originating application, neither Teras Maritime nor any person on its behalf attended the Court at the hearing of the judgment application on 16 March 2021. Mr Jesper Martens of HWL Ebsworth Lawyers, attended on behalf of Teras Maritime by telephone at the case management hearing on 2 March 2021, but only in the Judicial Sale Proceedings. He did not appear in these proceedings; and

(f)    despite requests on 3 February 2021 and 18 February 2021 for a response to the these proceedings and the relief sought, Teras Maritime has not provided any response.

Discretion under r 5.23(2)(b)

35    The Court’s discretion to order default judgment under r 5.23(2)(b) of the Rules has thereby been enlivened: r 1.32 of the Rules; Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 per Flick J (at [17]).

36    The discretion must be exercised cautiously so as not to prematurely shut a defendant out of the opportunity to defend the claim: Speedo (at [21]). While trifling defaults may not necessarily warrant the exercise of the Court’s power, the Rules must be administered sensibly in the circumstances of the case and with an appreciation for the realities of practice and life: Speedo (at [21]) quoting Wilcox and Gummow JJ in Lenijamar Pty Ltd v AGC (Advances) Limited (1991) 27 FCR 388.

37    Where despite being notified of the claim, an owner fails to appear in an in rem proceeding within the time stipulated in the Admiralty Rules, and there is otherwise nothing to suggest that Teras Maritime has any defence to the claim, the Bank’s application is a suitable candidate for default judgment: The Ship Beluga (at [21]); Bank of Kuwait and the Middle East v The Ship MV “Mawashi Al Gasseem” [2007] FCA 815 per Mansfield J (at [8]-[9]).

38    In this case, following service of the writ in rem and contemporaneous notice thereof, Teras Maritime did not enter an appearance in the proceedings within the time specified by r 23 of the Admiralty Rules or at all. It has further not evinced any intention to participate in the proceedings, let alone defend them.

39    No risk of injustice arises in shutting Teras Maritime out of the opportunity to defend the claim given that it has not taken any steps at all to appear or to otherwise defend the claim despite having had ample notice of the claim, the in rem proceedings, and the intention to apply for judgment.

40    An order giving judgment in these circumstances is in service of the objectives of s 37M(2) of the Act, namely the efficient disposal of the proceedings in a timely and cost-effective manner. Continuing the proceedings in the face of Teras Maritime’s default serves no legitimate purpose other than to prolong them to the detriment of the Bank and to the judgment creditors seeking enforcement against the proceeds of sale of the vessels.

CONCLUSION

41    In this instance, I consider that summary judgment rather than default judgment is the appropriate mechanism for judgment. The claim is entirely straightforward and there is no hint of a possible defence. I made orders for judgment on the principal sum and interest but reserved the question of costs until the plaintiff in this proceeding and the Judicial Sale Proceedings (the Bank and Bhagwan Marine respectively) could confer on the question of priorities to the proceeds of sale and indicate whether determination by the Court would be necessary. At the time of making the orders for judgment, all four proceedings were listed for case management on 22 March 2021. That hearing was adjourned by consent to a hearing on the determination of priorities on 30 March 2021.

Associate:

Dated:    25 March 2021