Federal Court of Australia

Viva Energy Australia Pty Ltd v MT “AG Neptune” [2022] FCA 522

ORDERS

THE COURT ORDERS THAT:

1.    The Ship AG Neptune (the vessel) presently under arrest off the Port of Newcastle, NSW, be permitted whilst under arrest as soon as practical with all despatch and without deviation and at all times remaining within the territorial sea to sail to Gladstone, Queensland and proceed directly to a designated lay up berth, buoy or other anchorage, stem LSMGO and VLSFO and remain there until further order of the Court.

2.    The cost of the vessel sailing to Gladstone and taking on bunkers there be for the vessel’s account in the first instance, with such accounting or apportionment as may be required to be done in due course.

3.    The Master of the vessel maintain records of the bunkers consumed during the period that the vessel is under arrest.

4.    The Marshal may authorise to be on board the vessel such persons as they shall, in their discretion, deem appropriate for the purpose of retaining the safe custody, control and preservation of the ship while sailing from Newcastle to Gladstone.

5.    Costs reserved.

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

REASONS FOR JUDGMENT

STEWART J:

1    Following an urgent interlocutory application heard on Sunday morning, these are my reasons for making orders permitting a vessel under arrest to sail from Newcastle, New South Wales, to Gladstone, Queensland.

2    The motor tanker AG Neptune was arrested off the Port of Newcastle on 3 May 2022 by Australian Border Force officers appointed as Admiralty Marshals. The vessel is a 105,405 deadweight product tanker with a length overall of 244 m. It is heavily laden with 472,248.37 US BBL at 60°F of gasoil 10PPM (ie, some 62,000 mt of diesel). That is to say, it is a large, specialised and unwieldy vessel which restricts where it can readily safely berth or anchor. The cargo was loaded at Kaohsiung, Taiwan, on 6 March 2022. The vessel apparently called at Cebu, Philippines, en route to Newcastle to facilitate a crew change and cleaning because of COVID -19 illness on board.

3    The plaintiff says that it is the owner of the cargo and the holder of the original bills of lading entitling it to delivery of the cargo at Newcastle. The plaintiff says that the cargo was within specification when it was loaded on board the vessel and has an arrived sound market value of US$52,465,849.41. The plaintiff says that upon arrival at Newcastle on or about 10 April 2022, the cargo in all tanks was found to be contaminated which has caused the plaintiff loss and damage in the sum of approximately US$41 million. The plaintiff caused the vessel to be arrested in an action in rem in which it names the owner and alternatively the demise charterer of the vessel as the relevant person.

4    OCM Maritime Flyer LLC, as owner, and AG Neptune Ltd, as bareboat charterer, have entered an appearance. I will refer to them compendiously as the owners.

5    Since it was arrested, the vessel has been adrift maintaining a position within 12 nautical miles of the coast off the Port of Newcastle. Apparently there is no suitable berth or anchorage for it at Newcastle.

6    On Friday afternoon I heard an interlocutory application brought by the plaintiff for access to the vessel for the purpose of undertaking certain inspections. I made orders allowing such access and for the preservation of evidence for similar reasons to those that I previously gave in another case, namely Orient Overseas Container Line Ltd v ANL Singapore Pte Ltd [2020] FCA 921. I am advised that those inspections commenced on Saturday 7 May 2022, although they have not been completed. The inspections necessitated the relevant people travelling to the vessel by launch and boarding it at sea.

7    It would appear that while the owners’ solicitor, Michelle Taylor, was on board during the inspections on Saturday, the Master informed her of the following:

(1)    his best estimate of available sulphur complaint diesel fuel on board at noon that day was 3.4 mt of LSMGO (ie, low sulphur marine gasoil) and 3.4 mt of VLSFO (ie, very low sulphur fuel oil);

(2)    it would be impossible for the vessel to safely stay adrift after noon on Sunday, 8 May 2022, without burning HFO (ie, heavy fuel oil) but that is not permissible due to sulphur fuel requirements pursuant to Annex VI of MARPOL;

(3)    once the diesel fuel (ie, the LSMGO and VLSFO) is used up, the HFO on which the main engines run will begin to cool and the ship will lose power, the main engines will not be able to be started, and the vessel will become a dead ship;

(4)    in addition, the inert gas system would not be able to be started to top-up pressure to preserve the safety of the ship and crew; and

(5)    to avoid those problems, the main engines would need to be started as soon as the diesel fuel ran out.

8    Ms Taylor informed the Admiralty Marshal of the above during the afternoon on Saturday and discussions ensued about bunkering options. I will return to these.

9    In the meanwhile, it is to be observed that the present situation of the vessel is somewhat precarious resulting in there being significant urgency in ensuring that it can stem diesel oil as soon as possible. It has not been well explained how matters were allowed to come to the position that an urgent application was foreshadowed late on Saturday evening – indeed, after 10.30pm on Saturday night it was asked whether the application could be heard later that night. I have not found it productive to go into who knew what and when, and what should have been done at an earlier time and by whom. Suffice it to say that arresting plaintiffs and the owners of arrested vessels all have a responsibility to ensure that issues with regard to the safe preservation of vessels in custody are raised in good time so that they can be addressed in an orderly manner at reasonable times.

10    Given the late stage at which the problem of the vessel running low in diesel fuel was raised, the information with regard to different bunkering options is not all that clear or certain. The position appears to be the following:

(1)    the vessel can take bunkers at a Gladstone anchorage by barge;

(2)    the vessel can take bunkers at Port Jackson at a berth, possibly ex trucks or barge;

(3)    the vessel can take bunkers at Botany Bay at a berth, possibly ex trucks or barge;

(4)    the vessel can take bunkers at Brisbane at a berth;

(5)    the vessel will not be permitted to enter the Port of Newcastle – it cannot take bunkers there; and

(6)    there may also be bunkering and anchorage options at Port Phillip Bay.

11    Mr Street, who appeared for the owners, submitted that there are three reasons that make bunkering at Gladstone the most preferable course.

12    First, it is known that there are the requisite bunkers available there which the vessel can stem at anchorage. Also, the owners accept incurring the costs of sailing to Gladstone and bunkering there, at least initially. That acceptance deals with the principal issue raised on behalf of the plaintiff, which is that it resisted having to foot the bill for taking on a substantial quantity of bunkers at Gladstone when only a small proportion of those bunkers might ultimately be consumed during the course of the arrest, depending of course on the duration of the arrest. For that reason, the plaintiff had initially taken the position that bunkering in small volumes ex trucks at Port Jackson or Botany Bay, which are also much closer, would be preferable.

13    Secondly, once the vessel takes bunkers at Gladstone it can apparently remain at anchorage without the need for a second move to another anchorage. That is not likely to be the position at the other possible ports where the vessel would have to be moved, possibly in and out of port, at considerable expense.

14    Thirdly, whilst there would be an agency fee at Gladstone, the vessel can bunker at anchorage and remain there without having to pay any port charges. That is to say, unlike at the other ports, the vessel can arrive at Gladstone, berth at the anchorage, take bunkers at the anchorage and remain at the anchorage all without port charges.

15    Apparently it is reasonably convenient for the parties’ experts and representatives to attend on board the vessel at the Gladstone anchorage to continue the inspections that commenced on Saturday.

16    Also, the Master advised that he has checked and he can sail to Gladstone remaining at all times within 12 nautical miles of the shore. That is to say, the vessel can sail to Gladstone without risking leaving territorial waters.

17    It is just as well to identify the relevant legal principles.

18    The starting point is r 47(1) of the Admiralty Rules 1988 (Cth) which provides that a Marshal who arrests a ship or other property has the custody of the ship or property. Rule 47(2) provides that the Marshal must, unless the court otherwise orders, take all appropriate steps to retain safe custody of, and to preserve, the ship or property. Such steps expressly include moving a ship that is under arrest: r 47(2)(d).

19    Rule 48(1) provides that if a Marshal has custody of a ship or other property, the Marshal or a party may at any time apply to the court for directions with respect to the ship or property. The owners bring their interlocutory application under that provision.

20    Rule 50 of the Rules provides that the court may, at any stage of a proceeding, make appropriate orders with respect to the preservation, management or control of a ship or other property that is under arrest in the proceeding. That is the power that the owners invoke by their amended interlocutory application.

21    There are a number of cases going back over the years in which the court has granted permission for a vessel to move from one port to another whilst under arrest. Because of the urgency with which such issues typically arise, and possibly because of the parties’ consent to appropriate orders, it may be that there are no published reasons for judgment in respect of some of these instances. There are nevertheless a number of published judgments from which some principles are discernible.

22    In Malaysia Shipyard and Engineering Sdn Bhd v “Iron Shortland” as the surrogate for the Ship “Newcastle Pride” [1995] FCA 768; 59 FCR 535 (The Iron Shortland) at 536-537, Sheppard J recorded that the Court approved an agreement of the parties that enabled the arrested vessel to keep operating although it was under arrest. The vessel was arrested at Port Headland in north-western Australia. Under arrest, it berthed, loaded 105,000 tons of iron ore and proceeded to Port Kembla on the south coast of New South Wales, a voyage of several thousand miles occupying a number of days. It discharged its cargo there, and then returned to Port Hedland to load another cargo. The arrangement for the vessel to remain trading whilst under arrest was apparently considered preferable to putting up security for the vessel. No principles with respect to the Court’s approval are expressed or readily discernible.

23    In Den Norske Bank (Luxembourg) SA v The Ship “Martha II” [1996] FCA 136, the vessel was arrested in the Port of Melbourne and then permitted by Olney J, whilst under arrest, to sail to “the Port of Sydney” to discharge cargo there and then to load cargo. Olney J ordered that the plaintiff be permitted to place a representative to remain on board the vessel for the period of the voyage to Sydney. The orders also provided that the Marshal might, in compliance with the orders, take on board the vessel such persons as he or she should, in their discretion, deem appropriate for the purpose of retaining the safe custody and preservation of the ship whilst under arrest.

24    Pursuant to those orders, the vessel sailed from Port Phillip to Port Botany with a representative of the Marshal, two officers of the Australian Protective Service (APS) (a now defunct Australian Commonwealth law enforcement agency) and a representative of the plaintiff on board. By consent, Sheppard J deleted the orders allowing the vessel to take on a new cargo in Sydney, and ordered that following completion of discharge at Port Botany the vessel should proceed forthwith to a berth, buoy or other anchorage at Port Jackson nominated by the Admiralty Marshal.

25    The issue that then arose is that the vessel had several cargoes on board, all of which were required to be discharged before the vessel could be sold by judicial auction. There were containers that were required to be discharged at Port Botany and the best place for a mineral sands cargo to be discharged was Newcastle, although it could also be discharged at Port Jackson. The Court had to decide where the vessel should discharge its cargo and under what conditions.

26    During the course of his reasons for judgment, Sheppard J explained that in the case of The Iron Shortland he had considered a number of matters in approving the parties’ agreement to allow the vessel to continue to trade:

There were a number of considerations, some of them involving the public interest, which suggested that if the vessel could maintain its regular schedule a potentially serious situation involving a grave shortage of iron ore at the Port Kembla steelworks would be avoided. For understandable reasons the charterer of the vessel was unwilling to provide security for the vessel. After some discussion, the parties reached an agreement which I approved which enabled the vessel to keep operating. One of the terms of the agreement was that BHP would give its own undertaking to provide security for the value of the vessel in the event that any untoward event occurred in relation to it. BHP, of course, is a very large company which carries on a large number of enterprises both in and out of Australia. It is an Australian company.

27    Sheppard J also considered a number of English cases with regard to whether a vessel should remain within the jurisdiction whilst under arrest even in circumstances where permission was granted for it to move from one port to another: The Myrto [1978] 1 Lloyd’s Rep 11 and The Bazias 3 [1993] QB 673; [1993] 1 Lloyd’s Rep 101. In The Myrto, the vessel was arrested at Sunderland and subsequently sailed to London whilst still under arrest. Nothing was said in the judgment about it remaining in the jurisdiction. The point was addressed in The Bazias 3. The vessels under arrest were employed as cross-channel ferries and the time-charterer intervened seeking orders that the vessels whilst under arrest be permitted to return to service as cross-channel ferries. The orders to that effect made by Saville J were varied by Sheen J to the effect that the vessels were required to remain in the jurisdiction pending a full hearing. On appeal from Sheen J’s order, it was common ground in the Court of Appeal that the order made by Saville J was a contradiction in terms. At [1993] QB 679; [1993] 1 Lloyd’s Rep 103, Lloyd LJ held that:

There is no way in which the vessels could remain within the custody of the Admiralty Marshal, as required by the Judge, and yet be allowed to trade outside the jurisdiction.

28    Returning to The Martha II, Sheppard J ultimately ordered that the vessel discharge first at Port Botany and then at Port Jackson, and that it is not proceed to Newcastle. The following are his Honour’s identifiable considerations:

(1)    the risk to the plaintiff’s security in the vessel of any voyage on the open sea;

(2)    convenience and cost;

(3)    any risk to the cargo;

(4)    the risk that the vessel “might be tempted to make a run for an overseas sanctuary”, even with a representative of the Marshal and members of the APS on board;

(5)    the importance of the vessel not leaving the court’s jurisdiction; and

(6)    appropriate undertakings and the provision of satisfactory security for all fees and costs likely to be incurred in moving the vessel.

29    In Sovremenniy Kommercheskiy Flot v “Socofl Stream” [1999] FCA 42 (The Socofl Stream), the time-charterer of a vessel under arrest applied for orders permitting it to sail from the Port of Brisbane to Newcastle, whilst remaining under arrest, to discharge its remaining cargo of steel and timber. Kiefel J refused the orders, taking into account at least the following:

(1)    the risk of removal of the vessel from the jurisdiction, including that there was no appearance yet on behalf of the vessel and the relevant person had no assets in the jurisdiction other than the vessel: [2];

(2)    even with the aid of an independent Master, the Marshal would not have effective control of the vessel at all times during the voyage: [2];

(3)    the commercial repercussions for the time-charterer of refusing the orders were not great or particularly convincing: [2]; and

(4)    a resolution of the application required consideration, on the one hand, of the risks which would attend the voyage and, on the other, the alternative methods of conveyance of the cargo to Newcastle: [3].

30    In Comandate Marine Corp v The Ship “Boomerang I” [2006] FCA 859, the vessel was arrested in Fremantle, Western Australia, on a Saturday. It was due to sail the following day, Sunday, for Sydney on its time-charterer’s east-west coastal service. An application came urgently before Allsop J on the Saturday evening to allow the vessel to sail whilst under arrest. His Honour permitted the vessel to load and sail to Port Jackson or Port Botany to discharge and to take other steps to load or deal with cargo there on the undertaking of the time-charterer to pay all the Marshal’s fees and expenses up to the time of arrival in Sydney and to maintain the vessel’s hull, machinery and P & I insurance until it arrived in Sydney. His Honour recorded that it was the Court’s intention, if it became necessary, to allocate responsibility between the parties who had given undertakings as to the Marshal’s fees and expenses in due course. It is to be observed that the approach of allowing the vessel to trade whilst under arrest, which can be distinguished from cases where the vessel is moved as an exercise in the Marshal’s custody, control and preservation of the vessel, has been the subject of criticism: Derrington SC and Turner JM, The Law and Practice of Admiralty Matters (2nd ed, OUP, 2015) at [7.34]. That criticism might be thought to apply equally to the approval granted in the Iron Shortland.

31    In Tai Shing Maritime CO SA v The Ship “Samsun Veritas” as surrogate for the Ship “Tai Hawk” [2008] FCA 1546, the vessel was arrested in Port Hedland fully laden with 140,000 tons of iron ore. Because of variable spring tides, there was a very real likelihood of the fully laden vessel running aground unless it was urgently removed from the port. The Admiralty Marshal applied to the Court on an urgent basis seeking directions for the movement of the ship from its berth in Port Hedland to a proposed anchorage point outside the Port’s area and beyond the territorial waters of Australia. The plaintiff accepted the concerns as to the safety and financial risks, but proposed that the vessel be permitted to sail under arrest to the Port of Dampier which was en route to its ultimate destination in Asia. Additional costs of berthing would be incurred at Dampier. McKerracher J allowed the vessel to sail for Dampier, even though it would sail outside of territorial waters in doing so. The overwhelming consideration was safety: [15]. The plaintiff was permitted to place a representative to remain on board the vessel for the period of the voyage, and the Marshal was given authority to put on board such persons as he or she should in their discretion deem appropriate for the purpose of retaining the safe custody, control and preservation of the ship from leaving the anchorage at Port Dampier.

32    It is apparent that the power under r 50 is broad. There are an infinite variety of factual circumstances in which it might come to be exercised, which makes it difficult and inapposite to attempt to identify a definitive list of relevant considerations; just what will be relevant to consider will depend on the facts and circumstances of the particular case in light of what is sought to be achieved. Nevertheless, considerations of convenience, or practicality, and cost will likely always be relevant, but they may have to give way to paramount considerations of the safety of the vessel, the public and the public interest. The at times competing interests of the various interested parties will also have to be considered, including any risk to the plaintiff’s security in the arrested vessel, and the Marshal’s responsibility to retain safe custody of, and to preserve, the ship.

33    Returning to the present case, the following are the material considerations which satisfied me in making the orders that I made.

34    There is considerable urgency in making orders that allow the vessel to replenish its stocks of LSMGO and VLSFO. To not do so would lead to the vessel either becoming a dead ship and thereafter becoming a severe safety hazard including because of the inert gas system for the cargo holds becoming inoperative, or it burning high sulphur HFO where it is not permitted to do so. There is considerable, even overwhelming, public interest in both those eventualities being avoided. Unlike in, for example, The Socofl Stream, there is no practical alternative to allowing the vessel to sail to another port; the question really is to where it should sail to stem bunkers and under what conditions.

35    It is relevant that no one opposes the orders that are sought. The plaintiff’s concerns were principally about the costs of fully re-stocking the vessel’s diesel fuel tanks at a costs of some US$500,000 which concerns were met by the owners agreeing to take on those costs themselves in the first instance. The plaintiff also did not have any particular concerns about the vessel fleeing the jurisdiction in circumstances where it is heavily laden, and did not require to place someone on board during the voyage. Although the plaintiff faintly submitted that documentation should be removed from the ship to lessen the risk of it doing a runner, it was not able to identify exactly what documentation should be removed or answer the owners’ concern that for the vessel to sail (as opposed to remain at a berth or anchorage) without its original certification documents (see r 47(2A)) might jeopardise its remaining in class or its insurances.

36    The Master says that there is no need for the vessel to leave the territorial waters on the intended voyage. Also, the voyage is expected to take approximately two days during which period no particularly adverse weather is forecast. The risk to the vessel in undertaking the voyage is therefore no greater than the ordinary risk of a ship of its size and circumstance at sea, and it is not materially greater than the risk of going to Sydney or Brisbane.

37    The alternative bunkering options are speculative and likely to be far more costly than bunkering and then remaining at anchorage in Gladstone. The chief difficulty is that there is little information on just what could be arranged at Sydney or Brisbane. It appears from the email communications annexed to the affidavit of the plaintiff’s solicitor that the plaintiff has been aware for at least some days that the need for the vessel to stem bunkers was becoming urgent, yet it has not put forward any particular evidence on which I can rely as to other options. It would also appear that although Sydney and Brisbane are closer, which implies less expense in sailing to them, once there the costs of maintaining the vessel at a berth or anchorage are likely to be far greater.

38    Whilst I provided for the Marshal to put someone on board, in the circumstances of this case including the importance of the vessel sailing urgently and the delay and cost of putting someone on board by launch, I am not sure that the Marshal will find it necessary to exercise that opportunity. The Marshal indicated that he has available to him personnel in Gladstone to assist in maintaining custody of the vessel there.

39    I also took into account that the vessel has been adrift up to 12nm from shore for several days. If there was an intention to do a runner, that might just as well already have occurred.

40    In the circumstances, I considered that there was no available alternative to allowing the vessel to sail from the vicinity of Newcastle to stem bunkers somewhere, and that of the possible alternatives Gladstone is the best. I considered that there is little risk of the ship simply sailing out of the jurisdiction and thereby escaping the arrest, and that there were limited measures that could be taken to reduce that risk still further.

Associate:

Dated:    9 May 2022