Q&As

Recent Decisions on Admiralty jurisdiction

Monday October 12, 2015

This article was submitted by Tim Cocks, Partner, and Ashwin Nair, Solicitor, Cocks Macnish.

Recent decisions on Admiralty jurisdiction

Recent decisions of the Federal Court have explored further the scope of the Court’s Admiralty jurisdiction as conferred by the Admiralty Act 1988 (Cth) (the Act).

Two cases will be briefly noted in this article.

Virtu Fast Ferries Ltd v The Ship ‘Cape Leveque’ [2015] FCAFC 58

Facts

A ferry operator, Virtu, was in arbitration in London with Austal over a dispute concerning the construction of a ferry, the Jean de la Vallette. To secure its claim in the arbitration, Virtu commenced an action in rem in the Federal Court against the Cape Leveque, which was being built at the Austal yard in Henderson WA. Virtu contended that it was entitled to proceed against the Cape Leveque as a surrogate for the Jean de la Valette.

At the time the action was commenced, Austal was building the Cape Leveque as a patrol boat for the Australian government. The boat was nearly complete and the Commonwealth had paid about two-thirds of the purchase price.

Background to litigation

Austal challenged the validity of the action. It argued that the Act did not give Virtu the right to commence the action against the Cape Leveque. Accordingly, the Court had to determine whether the circumstances at hand gave rise to a right under the Act to commence the action in rem.

Section 19 of the Act permits actions in rem against surrogate ships. It provides that:

A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:

1. a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first mentioned ship; and
2. that person is, when the proceeding is commenced, the owner of the second mentioned ship.

If the elements of section 19 are satisfied, then an action may be commenced against the surrogate ship and that surrogate ship may be arrested.

First instance decision

At first instance, the Court agreed with Austal and dismissed the action on the basis that the Court did not have jurisdiction under s 19 of the Act.

The Court found that the Commonwealth, not Austal, was the owner of the vessel at the time the action was commenced. This was because, given the advanced state of the construction, the Commonwealth had, by that time, the right to obtain a court order to direct Austal to complete, launch and deliver the vessel to it on time. This indicated that the Commonwealth had a degree of dominion over the vessel that a beneficial owner, as understood in the context of the Act, would have.

Because the Commonwealth was the owner of the vessel at that time, the vessel was a government ship. Section 8(2)(1) of the Act did not permit actions in rem against government ships.

Full Court’s decision on appeal

On appeal, the Full Court dismissed the appeal, but for different reasons.

The Full Court focused on whether Virtu’s claim had any reasonable prospect of succeeding. This enquiry concerned the merits of Virtu’s claim, and not whether the Court had jurisdiction under s 19. In other words, the Full Court dealt with the matter as if it had jurisdiction in the first place.

The Full Court observed that Virtu’s action had to be based on a cause of action that arose:
a. after the Jean de la Vallette had been launched - because the Act does not regard a vessel under construction that has not been launched as a ‘ship’; and
b. before she was delivered to Virtu - because if it arose after delivery, then Austal cannot be said to have been in possession or control of the vessel.

This placed Virtu in a difficult position because it had to show that the causes of action pleaded in the arbitration arose within that specific period of time and that they were reasonably arguable.

Having closely examined the relevant causes of action raised in Virtu’s Points of Claim filed in the arbitration, the Full Court found that those causes of action were not reasonably arguable.

Accordingly, it dismissed the writ for failing to disclose a reasonable cause of action under section 31A of the Federal Court of Australia Act 1976 (Cth).

Comment

These decisions provide further clarification of the Court’s jurisdiction to adjudicate over in rem actions against surrogate ships, particularly with respect to vessels still under construction and in the context of the transfer of ownership under the terms of the shipbuilding contract.

They highlight the importance for plaintiffs to ensure that sufficient evidence is gathered prior to commencing an action in rem:
a. to establish the relevant jurisdictional facts (which the first instance Court held were not established); and
b. to demonstrate a reasonably arguable case (which the Full Court was not established).

What the relevant jurisdictional facts are would depend on the relevant provision of the Act being relied upon and the circumstances of the case. While a plaintiff does not have to prove its case on a preliminary basis, it must have a credible basis for advancing a claim in order to resist summary judgment at an early stage.

It is noteworthy that this was the first decision of the Federal Court to deal with the immunity of government ships from in rem actions under the Act.


Reiter Petroleum Inc v The Ship ‘Sam Hawk’ [2015] FCA 1005

Facts

While the Sam Hawk was under time charter, the time charterer arranged for bunkers to be supplied to the vessel. The time charterer entered into a contract with the plaintiff for this purpose. The time charterer failed to pay for the bunkers and the plaintiff proceeded directly against the ship for the unpaid bunkers. It commenced an in rem action against the vessel and subsequently procured the arrest of the vessel.

The plaintiff was Canadian. The vessel was flagged in Hong Kong and its owners were registered there too. The time charterers were Egyptian. The physical supplier of the bunkers was Turkish and the bunkers were supplied in Turkey.

Significantly, the plaintiff alleged that under the terms of the contract with the time charterer, it had a maritime lien for the supply of the bunkers to the vessel. This maritime lien was said to arise under US law.

Background to litigation

Relevantly, the owners of the ship contested jurisdiction on the basis that s 15 did not operate to recognise a maritime lien that does not arise if the applicable law was Australian law.

Pursuant to section 15(1) of the Act:

A proceeding on a maritime lien … in respect of a ship … subject to the lien … may be commenced as an action in rem against the ship.

The Court had to determine therefore whether the plaintiff’s action was founded upon a ‘proceeding on a maritime lien’.

Maritime liens are peculiar and exclusive to the Admiralty jurisdiction. They are effectively non-possessory claims upon a ship that are carried into effect by legal process by in rem actions. They are inchoate when they arise, attaching to the ship in question and travelling with the ship into anyone’s possession, and they are perfected by legal process. In Australian law, they arise in relation to a very narrow group of claims: damage done by a ship, master’s wages and disbursement, crew wages, and salvage. They do not arise in respect of claims for the provision of necessaries, such as bunkers.

US law provides for maritime liens for a much broader range of claims, including the supply of necessaries, such as bunkers.

The owners of the ship relied on the Privy Council’s decision in Halcyon Isle [1981] AC 221 in support of its assertion that matters pertaining to the recognition of maritime liens were to be determined according to the law of the forum. Because Australian law, as the law of the forum, did not recognise a maritime lien for the supply of bunkers, there was no maritime lien under section 15 and accordingly the Court had not jurisdiction.

The owners also argued that even if the Court was to depart from Halcyon Isle, the plaintiff had failed to establish that US law was the applicable law in this case and that accordingly, the matter must be dismissed by reason of Australian law’s restrictive view of maritime liens.

Decision

The Court disagreed. It held that, properly characterised, a maritime lien is a substantive right. Its existence, extent and enforceability were matters of substance that had to be determined by reference to the lex causae. Following the approach of the dissenting minority in Halcyon Isle, the Court held that it had jurisdiction over the plaintiff’s claim.

Comment

This decision is significant because of its express departure from The Halcyon Isle. It has long been understood in Australia and in England that Anglo-Australian law would not give effect to a foreign maritime lien that would not otherwise be recognised by the law of the forum. This remains the case in England and in other countries in the region like Singapore.

However, the Privy Council’s decision has been criticised for treating a maritime lien as a procedural matter to be governed by the law of the forum. The substantial academic criticism and the ‘reclassification’ of substance and procedure by the High Court in Pfeiffer v Rogerson (2000) 203 CLR 503 were instrumental in the judge’s decision not to follow Halcyon Isle.

On the one hand, this decision reflects the Court’s willingness to recognise and adjudicate in matters raising a foreign maritime lien. However, it does not necessarily follow that anyone asserting a foreign maritime lien will be able to commence in rem actions in Australia.

The Court did not express a view on whether the plaintiff had to establish that US law was applicable (ie the lex causae) in this case, and if so, whether it had indeed done so. Accordingly, while it is implicit in the judgment that US law was applicable, it is not clear what the legal basis for this is. It also remains unclear what choice of law rule the Court would apply when a foreign maritime lien is asserted.

Given that Halcyon Isle had been followed by a single judge of the Federal Court in Skulptor Vuchetich [1997] FCA 432, this decision leaves us with two potentially conflicting first instance Federal Court decisions on this issue.

Leave to appeal has been sought.

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