Delaware North Marine Experience Pty Ltd v The Ship “Eye-Spy” - [2017] FCA 708

FEDERAL COURT OF AUSTRALIA
Delaware North Marine Experience Pty Ltd v The Ship “Eye-Spy” [2017]
FCA 708

File number: NSD 1490 of 2015

Judge: MCKERRACHER J

Date of judgment: 23 June 2017

Catchwords:
ADMIRALTY– bareboat charter – whether charter breached due to failure to exercise due diligence to make vessel seaworthy – whether damage to vessel a result of a latent defect – whether the plaintiff’s crew took delivery of the crew “as is, where is” – whether damage to vessel caused by the negligence of the plaintiff’s crew – whether plaintiff relieved from strict compliance with redelivery obligations pursuant to the charter – whether redelivery clause of charter imposes a penalty and is therefore unenforceable

ADMIRALTY – Admiralty Act 1988 (Cth) s 34(1)(a)(i) – excessive security – whether the security sought for the release of the vessel from arrest was excessive, unreasonable and without good cause

Legislation:
Admiralty Act 1988 (Cth) ss 4(3)(f), 17, 31(2), 34, 34(1)(a)(i)

Admiralty Rules 1988 (Cth) r 39(3)

Real Property Act 1990 (NSW) s 74P(1)

Cases cited:
Atheman Tankers Management SA v Pyrena Shipping Inc (The Arianna) [1987] 2 Lloyds Rep 376

Atlasnavios Navegacao LDA v The Ship “Xin Tai Hai” (No 2) (2012) 215 FCR 265

Baxall Securities Ltd v Sheard Walshaw Partnership (2002) 83 Con LR 164

Bedford Property Pty Ltd v Surgo Pty Ltd (1981) 1 NSWLR 106

Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

Esanda Finance Corporation Ltd v Plessing (1989) 166 CLR 131

FC Bradley & Sons v Federal Steam Navigation Co Ltd (1926) 24 Lloyds Rep 446

Goldsmith v Sandilands (2002) 190 ALR 370

Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574

Jones v Dunkel (1959) 101 CLR 298

Lee v Ross (No 2) [2003] NSWSC 507

Lloyd Werft Bremerhaven GmbH v The Owners of the Ship "Zoya Kosmodemyanskaya" [1997] FCA 379

Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504

Ocean Towing & Salvage (Vanuatu) Ltd v Custom Fleet (NZ) Ltd & Anor [2006] NZHC 1481

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Prudent Tankers Ltd SA v Dominion Insurance Co Ltd (The Caribbean Sea) [1980] Lloyd’s Rep 338

Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 3 All ER 570

Riverstone Meat Co Pty Ltd v Lancashire Shipping Ltd [1961] AC 807

Shagang Shipping Co Ltd v Ship “Bulk Peace” (2014) 314 ALR 230

Transpac Express Ltd v MalaysianAirlines [2005] 3 NZLR 709

Date of hearing: 14-18 November 2016 and 21 December 2016

Registry: New South Wales

Division: General Division

National Practice Area: Admiralty and Maritime

Category: Catchwords

Number of paragraphs: 302

Counsel for the Plaintiff: Mr E Cox

Solicitor for the Plaintiff: Aus Ship Lawyers

Counsel for the Defendant: Ms M Harris

Solicitor for the Defendant: Gilchrist Connell

ORDERS

NSD 1490 of 2015

BETWEEN:
DELAWARE NORTH MARINE EXPERIENCE PTY LTD (ACN 137 854 696)

Plaintiff/Cross-Defendant

AND:
THE SHIP "EYE-SPY" (OFFICIAL NO 858508)

Defendant/Cross-Claimant

JUDGE:

MCKERRACHER J

DATE OF ORDER:

23 JUNE 2017

THE COURT ORDERS THAT:
1.Each party within 28 days file and serve upon the other a minute of orders inclusive of costs to which it contends it is entitled together with any affidavit in support and submissions not exceeding 3 pages.
2.The opposing party within 28 days file and serve upon the other a minute of orders inclusive of costs to which it contends it is entitled together with any affidavit in support and submissions not exceeding 3 pages.
3.Unless the Court otherwise orders, the remaining issues be determined on the papers.

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

REASONS FOR JUDGMENT
MCKERRACHER J:
INTRODUCTION

This costly and protracted litigation about a mechanical malfunction is most regrettable. The Court has attempted to encourage settlement on numerous occasions. The Court has also conducted two mediations. The difficulty when it comes to judgment is that the main dispute is not one which readily lends itself to resolution on some middle ground. Essentially the question is whether a vessel part was materially, albeit latently, defective such that the plaintiff suffered loss and damage or whether some human intervention on the part of the plaintiff caused relevant loss and damage. As counsel for the defendants put it, the question is "who turned off the tap?" referring to a valve which supplied crucial cooling water to an essential moving part of the vessel. For the reasons which follow, I have concluded that there is no plausible evidence of relevant human intervention on the part of the plaintiff. I have accepted the relevant evidence given by the plaintiff's witnesses, if not all evidence of all witnesses. It follows most probably that there was a relevant “latent defect” in the vessel. There is another question as to whether this part of the vessel was properly maintained. In my view, despite maintenance efforts, this part was not shown "to have been maintained". In my view, the plaintiff is entitled to most of the damages it claims. This is not a large sum. Most, but not all of the cross-claim must fail.
This is, amongst other things, a proceeding in rem against the vessel, “Eye Spy”. By writ dated 25 November 2015, the plaintiff named the "relevant person" as the owner, TKL Holdings Pty Ltd, under s 17 of the Admiralty Act 1988 (Cth). Whilst TKL Holdings is the owner of the vessel, Moreton Bay Whale Watching Tours Pty Ltd was the disponent owner in possession of the vessel at the time of the charter. Therefore, both parties entered into the charter with the plaintiff, and as such were proper defendants, and each entered an appearance. For convenience only I have referred to the two companies as the defendants unless the context otherwise requires. The human face and guiding mind and will of the defendants is Ms Kerry Lopez. Ms Lopez is the sole shareholder and director of each defendant.
A factual overview
The plaintiff owns and operates the “Heron Islander”, a catamaran passenger ferry. In early February 2015, that vessel was unavailable. The plaintiff chartered in its place the vessel for a minimum of 14 days from 6 February to 19 February 2015, with an option to extend the charter by mutual agreement. An amended “Barecon 89” Standard Bareboat charter form dated 6 February 2015 was executed. The plaintiff paid the hire for the whole charter in full on 6 February 2015.
The vessel was delivered on 6 February 2015 at Redcliffe, Queensland. Following an induction, the vessel was sailed by the plaintiff’s crew and a representative of the defendants to Gladstone without incident. It arrived at 0915 hours on 7 February 2015. On 8 and 9 February 2015, the vessel undertook return voyages from Gladstone to Heron Island. During the course of a voyage in the afternoon of 7 February 2015 the vessel suffered a failure of her starboard stern tube assembly (SSTA). The SSTA failed because there was inadequate cooling water supply. The cause of the restriction of water supply to the SSTA is the key issue in dispute.
The vessel did not sail on 9 February 2015 due to the condition of her stern seal. On 10 February 2015, Maritime Safety Queensland (MSQ), as the delegate of Australian Maritime Safety Authority (AMSA), issued a prohibition order prohibiting the use of the vessel until repairs were carried out. The vessel did not perform any further voyages under the charter and remained moored at the Gladstone Marina. It was returned to the defendants at 0800 hours on 18 February 2015 at Gladstone.
The mechanical detail
It is necessary to say something about the nature of the mechanical problem, although as will be seen, little turned in the end analysis on the very fine detail of the mechanical issues.
The vessel uses a conventional propulsion system consisting of an engine and a transmission, with a propeller and propeller shaft that propels the vessel. The propeller and propeller shaft must rotate to propel the vessel. The propulsion system goes through the hull well below sea level; it is pressurised so that raw seawater external to the vessel does not pour into the vessel.
The rotating propeller shaft has to be sealed within the hull of the vessel to stop “raw” water entering into the bilge of the vessel. The simplest way to do this is for the propeller shaft to rotate within a stern tube assembly. The stern tube is normally an aluminium tube welded onto the hull. It is an integral part of the hull. It is a structure rather than an operating part.
Within the stern tube are a shaft seal and a shaft bearing. The shaft seal is bolted to the inboard side of the stern tube and to the shaft. It is difficult to seal something whilst it is rotating, so the seals used in a stern tube assembly are highly engineered pieces of equipment. A number of different seals are available on the market. The defendants say they used the reputable Wartsilla seal made by Deep Sea Seals Limited. At delivery of the vessel, the vessel was fitted with an EJ seal, serial number 23080205EJ, 100 millimetres in diameter.
Both EL and EJ seals are manufactured by Wartsilla. Ms Lopez says that the vessel was originally fitted with an EL seal in 2002 but was replaced with an EJ seal in 2004 due to regulatory requirements. The EJ Seal was installed on 25 March 2010 by Rogers & Lough.
The purpose of the shaft bearing within a stern tube assembly is to reduce the friction caused by the rotating shaft within it. This is achieved by the shaft bearing being lubricated by water such that a hydrodynamic film is created between the propeller shaft and the bearing. It is therefore imperative that when the propeller is rotating, the bearing is lubricated by water at all times.
The charter
By the charter, the defendants chartered the vessel to the plaintiff ex-Redcliffe for a minimum of 14 days from 6 February 2015 to 19 February 2015, with an option to extend the charter by mutual agreement (charter period). The charter was signed by Ms Lopez for the defendants, and Ms Gabrielle Walton for the plaintiff.
The hire rate was $4,200 plus GST per day, payable in advance, being $58,800 plus GST for the charter period. The plaintiff paid the hire in full on 6 February 2015 (being an amount of $64,680 inclusive of GST).
The port of delivery provided for in the charter was Brisbane, Queensland and the port of re-delivery provided for in the charter was Redcliffe.
The terms of the charter required an on-hire survey and an off-hire survey to be conducted. An on-hire survey was undertaken on 6 February 2015 by Mr Darren Simmonds a director of Australian Marine Consultants Pty Ltd (AMC). Mr Simmonds gave evidence.
Key clauses of the charter were:
2.        Delivery (not applicable to newbuilding vessels)
The Vessel shall be delivered and taken over by the Sub-Charterer in the port or place indicated in Box 13, in such ready berth as the Sub-Charterer may direct.
The Owner shall before and at the time of delivery exercise due diligence to make the Vessel seaworthy and in every respect ready in hull, machinery and equipment for the service under this Charter. The Vessel shall be properly documented at time of delivery.
The delivery to the Sub-Charterer of the vessel and the taking over of the Vessel by the Sub-charterer shall constitute a full performance by the Owner of all the Owner’ obligations under Clause 2, and thereafter the Sub-Charterer shall not be entitled to make or assert any claim against the Owner on account of:
Any conditions, representations or warranties expressed or implied in respect of the vessel but the Owners shall be responsible for repairs or renewals occasioned by independently verified latent defects in the vessel, her machinery or appurtenances existing at the time of the delivery of the charter. Further, upon delivery of the Vessel, the Sub Charterer accepts the Vessel in its “as is – where is" condition.
The costs of delivery are to be borne by the Sub-Charterer pursuant to the Charter Hire provisions of this agreement. (emphasis added)
3.        Time for Delivery (not applicable to newbuilding vessels)
The Vessel is to be delivered not before the date indicated in Box 14 unless with the Sub-Charterer consents.
Unless otherwise agreed in Box 17, the Owner are to give the Sub-Charterer not less than 30 running days’ preliminary and not less than 14 days’ definite notice of the date on which the Vessel is expected to be ready for delivery.
The Owner to keep the Sub-Charterer closely advised of possible changes in the Vessel’s position.
…
7.        Inspection
Inspection – The Owner shall have the right at any time to inspect or survey the Vessel or instruct a duly authorized surveyor to carry out such survey on their behalf to ascertain the condition of the Vessel and satisfy themselves that the Vessel is being properly repaired and maintained at any time outside of the normal operating hours of the Sub-Charterer.
…
9.        Maintenance and Operation
The Vessel shall during the Charter period (i.e. commencing immediately upon the Vessel departing Brisbane and ending immediately upon the Vessel being redelivered to Brisbane) be in the full possession, at the full risk of and at the absolute disposal for all purposes of the Sub-Charterer and under its complete control in every respect. The Sub-Charterer shall maintain the Vessel, her machinery, appurtenances and spare parts in a good state of repair, in efficient operating condition and in accordance with good commercial maintenance practice. The Sub-Charterer is to keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times.
The Sub-Charterer will take immediate steps to have any necessary repairs done within a reasonable time failing which the Owner shall have the right of withdrawing the Vessel from the service of the Charters without noting any protest and without prejudice to any claim the Owner may otherwise have against the Sub-Charterer under the Charter. (emphasis added)
…
12.      Insurance and Repairs
During the Charter period the Vessel shall be kept insured by the Sub-Charterer at its expense against marine, war and Protection and Indemnity risks in such form as the Owner shall in writing approve, which approval shall not be unreasonable [sic] withheld. Such marine, war and P and I insurances shall be arranged by the Sub-Charterer to protect the interests of both the Owner and the Sub-Charterer and mortgagees (if any), and the Sub-Charterer shall be at liberty to protect under such insurances the interests of any managers they may appoint.
All insurance policies shall be in the joint names of the Owner, Charterer and the Sub-Charterer as their interests must appear. If the Sub-Charterer fail to arrange and keep any of the insurances provided for under the provisions of this clause in the manner described therein, the Owner shall notify the Sub-Charterer whereupon the Sub-Charterer shall rectify the position within seven running days, failing which Owner shall have the right to withdraw the Vessel from the service of the Sub-Charterer without prejudice to any claim the Owner may otherwise have against the Sub-Charterer.
The Sub-Charterer must, before delivery, and thereafter at any time on request by the Owner provide evidence of all insurances to the Owner including copies of certificates of currency of insurance policy wording and endorsements and evidence of payments of premiums.
The Sub-Charterer shall, subject to the approval of the Owner and the Underwriters, effect all insured repairs and shall undertake settlement of all costs in connection With such repairs as well as insured charges, expenses and liabilities. All insurance payments for such repairs shall be paid to the owner who shall pay and apply the moneys to payment or reimbursement of all proper repair costs to the repairer, Sub-Charterer or other party entitled.
The Sub-Charterer will also remain responsible for and to effect repairs and settlement of costs and expenses incurred thereby in respect of all other repairs not covered by the insurances and/or not exceeding any possible franchise(s) or deductibles provided for in the insurances.
All time used for repairs under the provisions of this Clause or otherwise (apart from for repairs of latent defects according to Clause 2 above) including any deviation shall count as time on hire and shall form part of the Charter period.
Notwithstanding Clause 2 and Clause b the Sub Charterer shall not be responsible for the costs of repairs and / or replacement of any major engine failure of the vessel where it is found and proven through independent third party consultation that such component had latent defects contribution [sic] to or causing the failure during the period of the charter. In the event that the insurance held covers all or part of the cost of such repairs the owner shall be responsible for both the insurance excess payment and any shortfall in the cost of such repairs over and above the insurance payout.
(emphasis added)
…
14.      Redelivery
The Sub-Charterer shall at the expiration of the Charter period redeliver the Vessel to the place as indicated in Box 16. The Sub-Charterer shall give the Owner not less than 30 running days preliminary and not less than 14 days definite notice of expected date, range of ports of redelivery or port or place of redelivery. Any changes thereafter in Vessel’s position shall be notified immediately to the Owner.
The Vessel shall be redelivered to the Owner in the same or as good structure, state, condition and class as that in which she was delivered, fair wear and tear not affecting class excepted. The Vessel upon redelivery shall have her survey cycles up to date and class certificates valid for at least the number of months agreed in Box 12.
The costs of redelivery are to be borne by the Sub-Charterer pursuant to the Charter Hire provisions of this agreement.
In the event that the Vessel is not redelivered by the date specified in Box 20 (or any other date agreed in writing between the parties to this agreement) or if it necessary for repairs to be carried out to the Vessel to restore the Vessel to the condition which it was in prior to departure for the Charter (save for fair wear and tear) as detailed following surveys detailed in clause 6 above, the Sub-Charterer agrees to pay to the Owner/Charter (as applicable) a penalty of $10,000 (including GST) for each and every day that the vessel is delayed or is undergoing such repairs.
The Parties to this agreement agree that this amount represents a fair estimate of the loss and damage which will be suffered owing the delay/Vessel undergoing repairs.
(emphasis added)
Overview of claim and cross-claim
The plaintiff contends that the failure of the SSTA and resultant damage to the vessel were caused by the defendants’ failure to exercise due diligence to make the vessel seaworthy, a breach of cl 2 of the charter. The plaintiff also says that the defendants are liable for the repairs to the stern tube pursuant to cl 2 of the charter because the problems were caused by a latent defect. Pursuant to cl 9, there is an obligation on the charterer to repair the vessel during the charter, however, this obligation does not apply to latent defects.
The plaintiff says that the nature and extent of the breach of cl 2, rendering the vessel entirely inoperable, relieved it from strict compliance with the redelivery obligations under the charter. The plaintiff then chartered alternative vessels from Rob Benn Holdings to perform as a ferry between Gladstone and Heron Island. The plaintiff says it was not practical for it to redeliver the vessel at Redcliffe as originally contemplated because of the latent defect in the SSTA and it is not liable for any consequent costs the defendants incurred at Gladstone in making the vessel seaworthy.

Some months later, despite exchanges and the commencement of other court proceedings in Queensland concerning these events, the plaintiff caused the vessel to be arrested in Tasmania on 26 November 2015 pursuant to s 17 of the Admiralty Act on a general maritime claim within the meaning of s 4(3)(f) of the Admiralty Act. The defendants originally contended that the arrest was “unreasonable and without good cause” and still maintains that the security sought for its release was excessive. The defendant’s former cross-claim for unjustified arrest was ultimately abandoned at trial.
The plaintiff’s case is that the condition of the SSTA had been deteriorating over time prior to 6 February 2015 due to water starvation during the previous operation of the vessel. This, it says, was the cause of the failure on 7 February 2015. It says the stern tube bearing (contained within the SSTA) had reached such a deteriorated condition that with the continued operation of the vessel, the bearing failed only two days into the charter.
The plaintiff contends that the problem with the SSTA had developed prior to the charter manifesting in excess exhaust heat and water leakage a fact which, the plaintiff says, was known to the defendants but not the plaintiff. The plaintiff says that the detection of a defect of this kind was not able to be discovered at delivery without knowledge of the vessel prior to operation or an internal investigation, and was therefore a latent defect.
The defendants, however, say that the damage to the vessel was caused by the negligent incompetency of the plaintiff’s master, engineer and/or crew of the vessel.
The plaintiff denies this and further denies that the failures and damage were caused by the failure of the plaintiff’s master/engineer to act in accordance with instructions given to them during an induction by Ms Lopez when the vessel was delivered into the charter on 6 February 2015.
The plaintiff claims the cost of substitute vessels that were required to continue performance of the charter and the costs incurred which they say were wasted as a consequence of the inability to use the vessel for the full period of the charter.
On 26 March 2015, the defendants issued an invoice to the plaintiff seeking payment of $271,120 comprising:
(a)$270,000 for "Redelivery delay" (27 days at $10,000 per day);
(b)$1,000 wages for a Mr Egan who assisted in the initial trip to Gladstone; and
(c)$120 for certain charts.
The plaintiff has refused to pay the invoice, denying any liability to do so.
On 31 October 2015, the plaintiff issued a letter of demand for payment of $316,000 plus interest for:
(a)$235,000 for the cost of replacement vessel and services incurred as a result of the vessel not being in service;
(b)$48,000 for the period the vessel was out of service;
(c)$5,000 for expenses incurred in positioning the vessel from Redcliffe to Heron Island;
(d)$13,000 for other miscellaneous costs in dealing with the breakdown: insurance, marina, ship keeping etc; and
(e)$15,000 for legal and survey fees.
The defendants have refused to pay the demand, denying any liability to do so.
At delivery, TKL Holdings, as the owner of the vessel, held a number of regulatory certificates. Relevant to the issues in this litigation, TKL Holdings:
(a)was the holder of Certificate of Operation number 900034230 current for the period 26 September 2014 to 25 September 2015 issued by a delegate of the National Regulator on 24 September 2014;
(b)was the holder of Certificate of Compliance for Survey number 35740 issued on 18 June 2014 by Mr Stephen Earp, an AMSA accredited marine surveyor for the category of aluminium machinery;
(c)held each of the design and construction standards to which the vessel was built; and
(d)complied with the NSCV vessel Equipment List - Class 1C and Vessel Equipment List - Class 1D, as issued by AMSA.
(Certificates)
At delivery on 6 February 2015, the vessel:
(a)was entered in class 9:
(i)IC for 319 passengers and 6 crew; and
(ii)ID for 319 passengers and 6 crew;
(b)held current Certificates;
(c)was operating under a certificate of operation and not a certificate of survey whilst in Queensland waters; and
(d)was not in class at the election of TKL Holdings.
The defendants contend that they (through Ms Lopez, her servants and agents) were the ordinary and careful owner and operator. As discussed, the vessel is a passenger ferry that operated under a certificate of operation in Queensland waters, but not under a certificate of survey. The defendants say that under the National Law that was permissible as it was a “Not in Survey (Scheme NS) existing vessel”. The consequence of not operating under a certificate of survey was that there was no regulatory requirement to pull (remove, inspect and maintain or replace) the vessel’s shafts every four years. Even so, the vessel was, the defendants say, properly maintained by Rogers & Lough Marine Engineers. Both the defendants and the plaintiff used Rogers & Lough to maintain their respective vessels.
The defendants say that the vessel was maintained annually by Rogers & Lough, and at times calls were made to that firm by the defendants to query whether maintenance work might be required as a result of operational matters that occurred during the year.
Of the vessel's documentation, the defendants say the relevant documents (which were on board the vessel at and after induction) were:
(a)the Certificate of Operation issued 24 September 2014;
(b)Certificate of Compliance Survey SUR35740 issued 16 June 2014;
(c)the Safety Management System Manual dated 10 June 2014; and
(d)the Technical Manual for EJ Seal published by Deep Sea Seals Limited on 1 April 2003.
The defendants say that:
(a)the annual maintenance work on the vessel carried out by Roger & Lough prior to delivery is described in tax invoices from Rogers & Lough. At the request of the defendants, Mr Justin Lough of Lough & Rogers was asked to inspect the SSTA, “as was” (that is, not by pulling the stern gear off) and to calibrate the stern seals, port and/or starboard, if required. Specialised callipers were used for that work. The defendants observe that as no charge for that work was made, that work is not identified in any of the Rogers & Lough tax invoices;
(b)part of the maintenance work is for Rogers & Lough to set the position of the tap/valve to the SSTA so there is sufficient water flow but not excessive water flow;
(c)the last time the defendants adjusted the SSTA was on 21 August 2014. The valve was re-opened after that adjustment. Rogers & Lough were contacted and they said no further steps needed to be taken;
(d)between that date and delivery, there is no record in any log and no evidence produced by the plaintiff, that the SSTA was ever described or evidenced as being “hot”;
(e)since 21 August 2014, there was no maintenance work or operational requirements that caused the tap/valve to be closed; and
(f)at the time of delivery, the tap/valve to the SSTA was observed to be open or partially open.
The defendants also say that:
(a)the vessel passed the “bump test”, a test used to measure the tolerance of the bearing in June 2014;
(b)the EJ Seal was only five years old out of an operational life of 10 years (as per the Technical Manual). The bearing in the SSTA had been replaced in 2011 and was only four years old. There was a history of maintenance and monitoring of the SSTA and the vessel as a whole;
(c)historical documents support their contention that they had a longstanding history of being “careful” and “prudent” owners of the vessel. There was no reason for them to depart from that history for this charter; and
(d)the cl 2 due diligence obligations do not extend to the defendants being obliged to induct the plaintiff’s crew as to the operation of the vessel. The defendants contend that the induction process, as to machinery and documentation, demonstrates the conduct of a “careful” and “prudent” owner. It does not in any way absolve the plaintiff from deploying competent crew to operate the vessel.
The defendants emphasise that the plaintiff, by cl 2 of the charter, was bound by two critical amendments to the standard terms:
(a)the “standard” term that (in effect) the plaintiff would not be entitled to recover against the defendants on account of any conditions, representations or warranties, save for any latent defect; and
(b)the specific amendment, that the plaintiff accepted the vessel "as is, where is".
The defendants contend that:
(a)the “standard” term has been given narrow meaning, where the defendants have not provided the plaintiff with any reasonable opportunity to discover by ordinary physical inspection of the chartered vessel: see Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 (at 599);
(b)the plaintiff’s crew, Mr Mark Ryan, the Master, Mr Ronald Mathew Snaith, the engineer, and Mr Michael Harvey, the deckhand arrived on the vessel around 0930 hours. The parties agree that the vessel departed Redcliffe at 1745 hours. During that time, the plaintiff’s crew had unrestricted access to the vessel. They were inducted by Ms Lopez as to the vessel’s operation and its documentation. All agree that an induction occurred, however, the ambit of that induction and the length of time it took is in issue. The on-hire surveyor, Mr Darren Simmonds was there for the same time. Mr Peter Egan was also present during that time;
(c)there was ample opportunity to make an ordinary physical inspection:
(iii)of the external view of the SSTA (that is, as to whether it was vulcanised and deteriorated as now claimed by the plaintiff);
(iv)to identify the location and position (on or off) of the taps and valves in the starboard and port engine rooms by tracing the lines from the stern seals back to the engine;
(v)to identify which lines fed the SSTA, including which was the hot feed and which was the cold feed, and identify whether the taps/valves for each of the hot and cold feeds were open, partially open or closed; and
(vi)to inspect the logs to determine how the vessel had been maintained and operated in the preceding months, and what issues, if any, the vessel had experienced.
(d)if the observed conditions of machinery or documents were different from that which they would expect, given their training and their experience, there was ample opportunity to make appropriate enquiries of Ms Lopez, Mr Simmonds the surveyor and/or Mr Egan, who was to accompany them on the delivery journey;
(e)having had that opportunity over nearly nine hours, to inspect a 29.5 metre long vessel and her engine rooms, the plaintiff’s crew took delivery of the vessel, “as is, where is”. The term, “as is, where is” as used in the maritime industry (and construction industry) means acceptance of the vessel in its current condition “warts and all” (i.e. latent defects and all) in Redcliffe. Such words are clearly understood to exclude liability for any latent defect, and as the specific amendment to a standard form contract, is by application of the usual construction principles of contract, to prevail over the generic “standard” term, should there be any tension between the two terms; and
(f)if the plaintiff’s crew elected not to avail themselves of the opportunity to inspect the vessel, this should not detract from the agreed basis the plaintiff accepted the vessel “as is, where is”.
According to the defendants the plaintiff is liable for the loss and damage caused to the vessel whilst under charter. The defendants also contend that if they were liable for repairs arising from any latent defect (which they deny), the matters identified are not latent defects, as by ordinary inspection, any one or more of the plaintiff’s crew could have observed:
(a)the state of the “lamination” of the SSTA;
(b)the apparent age of the EJ Seal;
(c)the wear between the EJ seal and the rubber body, including how many millimetres the EJ Seal was already compressed. The Technical Manual identified what the distance of 3-6 millimetres meant in terms of age and replacement. The Technical Manual was onboard at delivery; and
(d)from the logs, that there had been one incident on 21 August 2014 of the SSTA being "hot". The plaintiff’s experts contend this is the date that evidenced the beginning presumably, although that is not expressly stated, of the "extended" period of time that the SSTA had been running hot. If any other entries in the logs for the period of the whale watching season (which ended in October 2014) reported the SSTA being hot (which they do not) then the alleged defect contended by the plaintiff’s experts would have been observable to the plaintiff.
The defendants note that no contemporaneous complaint was made in regards to any of these matters, and the vessel was not accepted by the plaintiff’s crew under protest.
It is agreed between the parties that the delivery was effected when the plaintiff’s crew took possession and control of the vessel at Redcliffe to sail to Gladstone. However, costs relating to delivery are in issue. The plaintiff’s crew flew from Gladstone to Brisbane on 6 February 2015 to take delivery and undertake the delivery voyage from Redcliffe to Gladstone. The plaintiff seeks recovery of these costs.
On arrival at the vessel, the plaintiff did not have:
(a)charts for the delivery voyage;
(b)a SOLAS life raft; and
(c)its own SMS manual with their own procedures for operating a vessel.
The defendants purchased charts for the plaintiff’s expense. The defendants also collected a SOLAS life raft for the charter.
Mr Ryan requested that Ms Lopez accompany the plaintiff’s crew on the delivery voyage so they could make enquires about the vessel’s operations. Ms Lopez was unavailable, but arranged for Mr Egan, a master and engineer, to accompany the plaintiff’s crew on the voyage. The defendants claim from the plaintiff Mr Egan’s wages of $1,000.
The defendants contend that:
(a)Mr Egan and the plaintiff’s crew sailed the vessel for sailed 11 hours from Redcliffe to Gladstone in 30 knot south-easterly winds. The average speed was 23-24 knots. The defendants contend the vessel could not have sailed for that long, in those conditions and at that speed if the valve to the SSTA was closed, as the plaintiff contends it was. The defendants observe that there was no log entry, noting that the SSTA had been hot or that there had been water leakage;
(b)the vessel arrived in Gladstone at 0715 hours. Mr Egan then flew to Brisbane. The plaintiff’s crew along with another deckhand, Mr Nathan Crow, undertook the voyage from Gladstone to Heron Island departing at 1122 hours. During the voyage water spray from the SSTA was observed at around 1530 hours, as was a “burning smell” emanating from the SSTA. The water spray was said to be “manageable”. A manageable water spray is consistent with the “normal operations” of the vessel. There was no record of any overheating of the SSTA or what its measured temperature was using the onboard heat gun;
(c)these are matters that relate to the competency of the plaintiff’s crew; and
(d)the plaintiff’s crew had an opportunity to adjust the compression of the EJ Seal (as a means of stemming the water flow) when the vessel had effectively stopped in the lee of Polmaise Reef.
The experts agree that it was likely that the bearing in the SSTA failed at around 1500 hours on 7 February 2015 and that it was “catastrophic” and caused by an inadequate supply of sea water to the SSTA. What is in issue between the experts, is whether:
(a)the failure was acute, caused by the closure of valves A or B (as identified in the engineering drawing attached to the joint expert report) just before the incident; or
(b)the failure occurred over an extended period of time.
The defendants also point to the following sequence of events:
(a)following the events of 7 February 2015, Mr Ryan telephoned a local boat maker and operator, Mr Rob Benn (in Gladstone) on the morning of 8 February 2015 and requested that he come to the vessel to look at the SSTA. Mr Benn observed “shiny marks” inside the grub screws of the EJ Seal, and considered them to have been recently tightened. Neither of these observations was logged in the engineer’s or master’s log. The defendants say neither of these observations was made at delivery and the reasonable inference is that the valve was turned off after delivery, but before Mr Benn made the observations. The defendants say one or more of the plaintiff’s crew must have done this;
(b)on topic, the plaintiff filed the affidavits of Messrs Ryan, Snaith and Crow, but not Mr Harvey, who was a deckhand on board the vessel for each of the voyages on 6, 7 and 8 February 2015. (According to Mr Snaith, Mr Harvey was the person who identified the leaking SSTA. As a material witness, the defendants pressed for him to be available for cross-examination and consequently was called to give evidence viva voce); and
(c)when the vessel sailed on 8 February 2015 the plaintiff’s crew had difficulties with getting the starboard engine to run at more than 1500 RPM on the return voyage to Gladstone. That evening, Messrs Ryan and Snaith informed Ms Lopez of the incident by telephone. During the course of those discussions it emerged that there was a problem with the SSTA. The defendants say that what was described to Ms Lopez (but not to MSQ or entered in any log), was that on 7 February 2015, the SSTA started to leak, heat up and smoke. Those matters were entered in the logs, which the defendants say again relates to the competency of the plaintiff’s crew.
The defendants claim under cl 14 of the charter, $10,000 per day for every day the vessel remained undelivered. The defendants say this sum was a genuine and fair pre-estimate of the defendants’ damages and the onus is on the plaintiff to prove that cl 14 is unenforceable (as it claims) due to it being a penalty clause rather than a genuine pre-estimate as to liquidated damages: Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 (at 15). On that topic, the defendants contend that:
(a)the fact that the word "penalty" is used in an internationally based standard form document, amended in part for this charter, does not mean it is a penalty at law (which may be accepted);
(b)Ms Lopez’s affidavit sets out what factors she took into account when nominating $10,000 per day in damages (a figure that was not challenged by the plaintiff). The calculation was based on the "cost" to the defendants if the serious event of late delivery occurred, namely, loss of hire and the cost to effect re-delivery;
(c)the largest conceived damages were more than $10,000 per day for the 27 day period in which the vessel was late in being re-delivered (0500 hours on 18 March 2015 in Redcliffe). During that time, the vessel underwent repairs at MIPEC and re-certification in order for the prohibition notice to be lifted so that the vessel could operate commercially again. Each of the matters listed in the prohibition notice arose during the term of the charter. All items had to be repaired for the vessel to regain its certificate of operation; and
(d)the defendants could not fix a lucrative fixture due to the delay in delivery. That fixture would have paid up to $5,000 per day if the vessel was actually used, otherwise $2,200 per day (ex GST for both amounts). By chance, the vessel was fixed for charter later in March 2015, but after re-delivery.

The defendants also contend that the charter gave rise to a duty of care for the plaintiff to employ a competent crew to navigate and operate the vessel safely. The defendants submit that based on all the matters set out above, the duty was breached and they are entitled to:
(a)damages for breach of contract under cll 7, 9 and 12; or
(b)liquidated damages under cl 14; or
(c)common law damages for negligence.
The defendants also claimed damages for unjustified arrest and excessive security “under s 34 of the Admiralty Act. However, as will be discussed in more detail below, their claim for unjustified arrest under s 34(1)(a)(ii) was abandoned late in the trial.
The defendants still claim under s 34(1)(a)(i) that the plaintiff unreasonably and without good cause sought excessive security for the release of the vessel from arrest of $366,000 (which was comprised of $316,000 for its claim, $50,000 for legal fees and the balance interest).
On application by the defendants for the partial release of security, the Court ordered the release of $100,000 to the relevant person (or its nominee) on 4 April 2016. Based on the plaintiff’s documents produced in response to the 5 February Orders, the plaintiff’s “best case” was according to:
(a)the plaintiff, $120,379.61 (including GST but excluding costs and interest); and
(b)the defendants, about $85,000 (including GST but excluding costs and interest).
ISSUES IN THE CASE
While some of the issues listed below did not fall for determination by virtue of other findings having been made, it is helpful to illuminate in greater detail the contested matters.
The parties agreed that the pleadings and exchanged submissions gave rise to the following issues in the plaintiff’s claim and the defendants’ cross-claim:
Issues arising in relation to the plaintiff’s claim:
A1      As to the failures that the vessel experienced on 7 February and/or 8 February 2015:
(a)what was the nature of those failures?
(b)whether the SSTA failed on 7 or 8 February 2015?
(c)whether at delivery the tap/valve to the SSTA which prevented the flow of cold water to the SSTA was open or closed?
(d)whether at delivery the SSTA had not received an adequate supply of water for an extended period of time?
(e)whether at delivery the condition of the SSTA was in a state of disrepair beyond acceptable limits?
(f)what damage was sustained by the vessel as a consequence of the aforesaid failures?
(g)what repairs were required to remedy the aforesaid damage?
(h)what was the cause of the aforesaid failures and resultant damage to the vessel?
A2      The proper construction and effect of cl 2 of the charter, including what, if any, obligations did it impose upon the defendants prior to and at the time of delivery?
(a)What is the meaning of the term, “as is, where is”?
(b)What is the meaning of the term, “latent defect”?
(c)To what extent, if any, did the acceptance of the vessel by the plaintiff at delivery on an “as is, where is” basis:
(i)extinguish or vary any of the due diligence obligations, including any latent defect in the hull, machinery, appurtenances, and documentation of the vessel;
(ii)ratify any breach of any of the due diligence obligations including any latent defect in the hull, her machinery and appurtenances, and documentation?
A3      Who is liable for the aforesaid failures and resultant damage to the vessel?
A3.1     whether (as the plaintiff contends) the defendants are liable:
(a)because the aforesaid failures and resultant damage to the vessel were due to the defendants’ alleged failure to exercise due diligence to make the vessel seaworthy and in every respect ready in hull, machinery and equipment before and at the time of delivery, in breach of cl 2 of the charter; alternatively
(b)because the aforesaid failures and resultant damage to the vessel were caused by latent defects in the vessel, her machinery or appurtenances existing when the vessel was delivered into charter and for which the defendants remain responsible under cl 2 of the charter;
(c)the tap/valve to the SSTA which prevented the flow of cold water to the SSTA was closed, whether that closure was:
(i)        a breach of the due diligence obligations;
(ii)       an acceptance of the condition of the vessel, as is, where is;
(iii)      a latent defect.
(c)the SSTA had not received an adequate supply of water for an extended period of time, was that:
(i)        a breach of the due diligence obligations;
(ii)       an acceptance of the condition of the vessel, as is, where is;
(iii)      a latent defect.
A3.2     or whether (as the defendants contend) the plaintiff is liable:
(a)because the aforesaid failures and resultant damage were caused by:
(i)the alleged incompetency of the master, engineer and/or crew of the vessel; and/or
(ii)the alleged failure of the master/engineer to act in accordance with the oral instructions allegedly given to them when the vessel was delivered into the charter on 6 February 2015;
(b)for the repair of the resultant damage to the vessel pursuant to cl 9 of the charter;
A3.3Whether (as the plaintiff contends) the defendants by reason of those breaches of the due diligence obligations at delivery, they caused the SSTA failure and are liable for the SSTA failure.
A4      If issue A3.1(a) above is answered in the affirmative, what loss and damage has the plaintiff suffered as a consequence of the defendants’ breach of cl 2 of the charter? and what damages is the plaintiff entitled to in respect of that loss and damage?
Issues arising in relation to the defendants’ cross-claim
B1.1     In relation to the defendants’ claim for delay damages:
(a)       when was the vessel redelivered from the charter by the plaintiff?
(b)was the vessel redelivered from the charter by the plaintiff at 0800 hours on 18 February 2015 at Gladstone or at 0500 hours on 18 March 2015?
(c)whether in breach of cl 14 of the charter, the redelivery of the vessel by the plaintiff:
(i)at 0800 hours on 18 February 2015 at Gladstone (as the defendants contend), what damages arise from such a breach?
(i)at 0500 hours on 18 March 2015, was there a 27-day delay in the redelivery of the vessel, as the defendants contend?
(d)was there was a 27 day delay in the redelivery of the vessel, as the defendants contend?
(e)if so, was the plaintiff was responsible/is liable for that delay ?
(f)whether any such breach caused the defendants the loss of opportunity to earn future hire from the vessel?
(g)if so, are the defendants entitled, as they claim, pursuant to cl 14 of the charter to payment from the plaintiff of $10,000 per day?:
(i)        for each day of the delay period?
(ii)for each day during the period in which the vessel is to undertake the starboard shaft damage repairs?
(h)or is, as the plaintiff contends, cl 14 of the charter a penalty and as such unenforceable by the defendants?
B1.2     Whether by cl 9 of the charter, the plaintiff was obliged to:
(a)appoint competent crew;
(b)maintain the vessel in a good state of repair;
(c)take immediate steps to repair the vessel at its expense;
(d)man, operate, supply fuel and repair the vessel whenever required, at its expense.
B1.3If issue B1.1 [sic-B1.2] above is answered in the affirmative, whether the plaintiff breached cl 9 by:
(a)appointing incompetent crew because the master, engineer and/or deckhand:
(i)closed the tap/valve to the SSTA after delivery (for whatever reason); and/or
(ii)failed to open the tap/valve to the SSTA, whether it was closed at delivery or closed after delivery (for whatever reason);
(iii)having observed the consequences of the tap/valve to the SSTA being closed on 7 and/or 8 February 2015, whether there was a failure by the Master / Engineer to:
1.act in accordance with the oral instructions allegedly given to them when the vessel was delivered into the charter on 6 February 2015;
2.operate the vessel in accordance with or consistently with the instructions contained in the EJ Seal manual on board the vessel;
3.operate the vessel consistently with the SMS Manual on board the vessel by contacting Ms Lopez, as the designated person ashore to determine the problem.
(a)       the appointment of the incompetent crew which caused:
(i)        the SSTA to fail;
(ii)the prohibition notice to be issued by AMSA (and the resultant consequences of such a Notice being issued).
(b)failing to maintain the vessel in a good state of repair, repair or taking immediate repair works for the SSTA failure and each of the other items identified in the prohibition notice;
(c)failing to fuel the vessel in Gladstone for a delivery voyage to Redcliffe.
B2       In relation to the defendants’ claim for breach of charter:
B2.1     (a)       whether the plaintiff was in breach of cl 14 of the charter as the defendants allege? and; if so
(b)whether the defendants are entitled to recover the delay damages claimed?
B2.2     (a)       whether the plaintiff was in breach of cl 7 of the charter as the defendants allege? and; if so
(b)whether the defendants are entitled to recover the costs of the defendants Inspection claimed?
B2.3(a)       whether the plaintiff was in breach of cl 9 and cl 12 of the charter? And; if so
(b)whether the defendants are entitled to recover by way of damages the costs claimed in?:
(i)the cost of the inspection of the vessel once the prohibition notice had been issued (cl 7);
(ii)the cost of the survey work undertaken on 5 and 11 March 2015 to remove the prohibition notice (cl 7)
(iii)the cost of the repairs;
(iv)the replacement of the lost equipment;
(v)the cost of Mr Egan’s wages of $1,000 on the delivery voyage;
(vi)re-fuelling the vessel in Gladstone for the Gladstone to Redcliffe voyage;
(vii)re-fuelling the vessel in Redcliffe to reinstate the vessel to the state of repair as at delivery;
(viii)replacement of the broken and unusable firebox; and/or
(ix)loss of opportunity for future hire of the vessel.
B2.4Alternatively, whether the defendants are entitled to an indemnity from the plaintiff under cl 9 of the charter as claimed in respect of:
(a)       the repair costs?
(b)       the shaft repair costs?
B3       In relation to the defendants’ claim in negligence:
(a)whether the plaintiff owed the defendants the duty of care, namely, to take all reasonable steps to ensure the safety of the vessel including by:
(i)        employing a competent master, engineer and crew; and
(ii)       navigating and operating the vessel safely?
(b)if so, whether the plaintiff was in breach of that duty of care, in the particular respects?
(c)if so, whether the defendants are entitled to recover by way of damages for the plaintiff’s breach of duty of care?
B4In relation to the defendants’ claim for wrongful arrest:
B4.1whether the plaintiff unreasonably and without good cause obtained the arrest of the vessel? and; if so:
(a)       what, if any, loss or damage did the defendants suffer as a result?
(b)       whether the defendants suffered the loss and damage claimed?
B4.2whether the plaintiff unreasonably and without good cause demanded excessive security at the time of the arrest by reason of the matters alleged? and if so
(a)what if any loss or damage did the defendants suffer as a result?
(b)       whether the defendants suffered the loss and damage claimed?
B5What damages, if any, is each of the defendants entitled to as against the plaintiff, in respect of their aforesaid claims?
KEY WITNESSES
Before addressing the competing contentions on the evidence, the findings and the law, I propose to comment on the evidence of those persons treated as the key witnesses.
Mr Ryan, as Master of the vessel, gave evidence about the induction. Mr Ryan said that the induction was a busy occasion, with a lot of movement of people on the vessel in the morning. He left the vessel to get something to eat and returned at about lunchtime. Upon his return, there continued to be a lot of activity. He said there was a short induction of 30 minutes or so conducted by Ms Lopez. He was happy with the shortness of the induction because he understood that a person experienced with the vessel would be provided to sail as part of the crew for the voyage to Gladstone. This would enable the plaintiff’s crew to further familiarise themselves with the vessel and its operation. Mr Egan was subsequently provided to join the crew for the voyage. Mr Ryan recalls Ms Lopez saying that if she could not find anyone, she would go herself. He also recalled Ms Lopez pointing out the vessel’s procedure manual and safety manual during the induction, but did not recall her making any references to taking temperature readings from the stern tube seals. Ms Lopez did not show Mr Ryan the stern tube seals or inform him as to the method of inspecting the stern tube seals, or of any potential issue that could arise in relation to the stern tube seals, or that an inspection of the stern tube seals should be conducted hourly and recorded in the log book.
Mr Ryan went on to describe the vessel, the vessel’s voyage from Redcliffe to Gladstone and being uncomfortable at times due to a following sea. He then recalled the voyage from Gladstone to Heron Island and return on 7 February 2015. This commenced at about 1122 hours, when the vessel sailed from Gladstone Marina on a return voyage to Heron Island, arriving at Heron Island about 1340 hours on 7 February 2015. Mr Ryan describes this voyage as uneventful. On the same day, at about 1450 hours, the vessel sailed from Heron Island bound for Gladstone Marina. Shortly after leaving Heron Island Mr Ryan recalls Mr Crow, one of the vessel’s deckhands, coming to the wheelhouse where Mr Ryan was standing with the vessel’s engineer, Mr Snaith, and saying words to the effect that he could smell a burning smell coming from the rear of the vessel. Mr Ryan then recalls backing off the vessel’s speed, whilst Mr Snaith left the wheelhouse to investigate. At this time, the vessel had passed Erskine Island and Mr Ryan altered course slightly to shelter in the lee of Polmaise Reef. Mr Ryan said that they had “pretty much stopped there whilst the burning smell was being investigated”. Around five minutes later, Mr Snaith reported back to Mr Ryan in the wheelhouse saying words to the effect of “we have a small oil leak onto the transmission. I don’t think it’s anything to worry about. I’m going to have a look at the engine room then come back and report”. Mr Snaith then left the wheelhouse.
Another five minutes or so later, Mr Snaith reported back to Mr Ryan in the wheelhouse saying that there was “water leaking from the [SSTA] at a fast drip but it [was] manageable”.
Mr Ryan then decided to continue with the voyage to Gladstone Marina, arriving at Gladstone Marina about 1715 hours on 7 February 2015. During that voyage back to Gladstone Marina, Mr Snaith reported to Mr Ryan every 20 minutes or so with words to the effect that everything was fine and there was no change in the leak, it was manageable.
After returning to Gladstone and disembarking passengers, Mr Ryan recalls entering the starboard engine room to inspect the SSTA. He observed the stern seal to be dripping water at that time and said that it did not look “healthy” to him. Although Mr Ryan held a relevant qualification, he thought that someone more experienced with stern seals should be invited to come and have a look at it. The following day was a Sunday, so he deferred any contact at that point. His evidence was that he did not attempt to undertake any maintenance of the SSTA on Saturday, 7 February 2015, nor had he undertaken any maintenance of the seal prior to that day, nor did he observe any other person attempting to undertake any such maintenance on 7 February 2015 or prior to that date.
On the Sunday, 8 February 2015, prior to embarking on its passage, Mr Benn attended on board the vessel to inspect the SSTA. With Mr Snaith and Mr Benn, Mr Ryan inspected the SSTA, although he was “popping” in and out as he had other things to do to get the vessel ready for sailing again. Whilst Mr Benn was looking at the seal, Mr Ryan heard him say to Mr Snaith words to the effect “this has just been adjusted recently, there are marks on the grub screws on the coupling”. Mr Ryan gave evidence that he did not adjust that coupling and he had not observed any other crew member adjust that coupling at any time prior to the evening of Sunday, 8 February 2015. Mr Ryan noted that at that time Mr Benn did ask Mr Snaith whether he had just adjusted it. In response, Mr Snaith said that he had not adjusted it at all.
During this inspection, Mr Benn tracked the water supply to the SSTA and Mr Ryan recalls Mr Benn saying that he had found the inside valve in the closed position. Again, Mr Ryan said he had not closed this valve, nor had he observed anyone in the plaintiff’s crew close the valve.
Following Mr Benn’s inspection, to check whether this valve should in fact have been left in the closed position, Mr Snaith and Mr Ryan both went to check whether the same valve in the port engine room was closed. Significantly, as will be seen, Mr Ryan observed that the valve to the same cooling line in the port stern tube assembly was missing its handle, and on checking, using another handle, he could see that it was also in the closed position. Again, he had not closed the valve at all, nor had he observed any of the plaintiff’s crew close the valve. Mr Ryan says that neither he nor anyone he observed removed the handle from the valve.
Mr Ryan’s recollection of Mr Benn’s advice at the completion of the inspection was that doing a trip was manageable and it could be adjusted on return that evening.
At 1140 hours, on Sunday, 8 February 2015, Mr Ryan said the vessel sailed from Gladstone Marina on a return voyage to Heron Island, retuning to Gladstone Marina at about 1645 hours. During that voyage the plaintiff’s crew monitored the condition of the SSTA, Mr Snaith saying words to the effect “it’s still the same. It’s still manageable”. The voyage to and from Heron Island was otherwise uneventful, subject to a fuel pressure issue which arose on the trip back to Gladstone Marina.
On the same day and on returning to Gladstone and after disembarking passengers, Mr Ryan loosened the coupling that abuts the rubber boot part of the SSTA, pushing the coupling up the shaft by a few millimetres in order to tighten the stern tube seal before tightening the coupling. Before doing so, he used a marker pen to mark the shaft so that when he pushed up the coupling he could ensure that it remained perpendicular to the shaft. In the late afternoon, or early evening of 8 February 2015, after the vessel had returned to base and disembarked passengers, Mr Ryan had a telephone conversation with Ms Lopez to discuss the fuel pressure issue which had arisen that afternoon on the return voyage from Heron Island. During the call Mr Ryan also recalls a discussion about the starboard stern tube. He handed the phone to Mr Snaith who also had a discussion with Ms Lopez before returning the phone to Mr Ryan. Mr Ryan recalls the substance of the telephone conversation between Ms Lopez, Mr Snaith and Mr Ryan, insofar as the starboard stern tube was concerned, was that the stern tube had, on 7 February 2015, begun leaking, heating up and was smoking and that upon inspection it was discovered that the valve on one of the cooling water lines to the SSTA was closed and that the plaintiff’s crew had not touched the valve.

A transcript and audio recording of that phone conversation was produced and is in evidence.
On the morning of 9 February 2015, Mr Tim Fish of MIPEC Slipway inspected the vessel’s SSTA. Mr Ryan does not recall Ms Lopez’s request for Mr Fish to attend, but rather thought it was Mr Snaith who asked him to attend. Mr Fish said that without opening up the seal and having a look at it, he would not go to sea with that seal. On the same morning, after the inspection, photographs of the SSTA were forwarded to Rogers & Lough seeking an opinion as to whether the vessel should proceed to sea. Mr Snaith spoke with Rogers & Lough and reported to Mr Ryan that Rogers & Lough had indicated that they could not evaluate the seal based on photographs alone. No voyages were undertaken on 9 February 2015.
On 10 February 2015, an inspector on behalf of AMSA attended on board and inspected the vessel. Following the inspection, the inspector issued a notice to the vessel prohibiting the vessel from any further operation.
Mr Ryan produced his log book entries for 6-8 February 2015. He wished to correct two time records. The first was an entry on 7 February 2015, when he had said “stern tube seal failure STB, drift behind Polmaise Rf to monitor water ingress. Observed fast dript water ingress. Monitored until arrival alongside marina”. He wanted to qualify that the timing of that entry should be about 1525 hours, rather than 1500 hours, because he recalled that the stern tube failure was reported to him in the wheelhouse after the vessel had passed Erskine Island (recorded in the log book as being 1513 hours) and before the vessel passed North West Polmaise (recorded in the log as being 1535 hours) on 7 February 2015. He also sought to correct an error in relation to the time for arrival at Heron Island on 8 February 2015. The log book entry showed this relevant time as being 1555 hours, whereas the entry should have read 1335 hours. Mr Ryan had also made a handwritten statement in which he noted that the time at which the statement “deckhand [Mr] Crow came to bridge to advise of a burning smell coming from sub-engine room” was made should have been 1525 hours and not approximately 1500 hours as indicated in that statement. These timing adjustments were explored at considerable length by the defendants.
Mr Ryan said that when the vessel could not be operated due to the requirements of AMSA, the plaintiff took steps to hire from Mr Benn’s company its vessels “Seawatch”, “RB Trojan” and “Sarah B” to take passengers to and from Heron Island instead. Mr Ryan worked on “Seawatch” and “Sarah B” as a Master taking passengers between Gladstone Marina and Heron Island.
The relevant cross-examination of Mr Ryan (and the other witnesses for the plaintiff) will be considered when I come to consider the submissions advanced for the defendants. I considered that the Master of the vessel, Mr Ryan, was an honest witness. I think he tried to cooperate and although there were gaps in his recollection, that is not a factor inconsistent with common experience. In particular, his recollection was hazy about the matters he was shown on the induction, but that is not surprising.
I accept the plaintiff’s submission that Mr Ryan gave evidence in a straight forward and reliable way. I accept his evidence that the first indication of a problem with the stern seal was when Mr Crow discerned a burning smell at about 1525 hours after the vessel left Heron Island on the afternoon of 7 February. No real challenge was made to his credibility in cross-examination. He denied (to the extent he could be aware of it) that anyone on the vessel adjusted the valves prior to the smell or that there was any earlier problem with the SSTA.
Mr Snaith was the engineer on the vessel from 6-8 February 2015.
His evidence was largely corroborative of the evidence in chief given by Mr Ryan. I was initially impressed with Mr Snaith as being a reliable witness, but towards the end of his evidence, in cross-examination, certain inconsistencies between his recollections and what was said in the telephone conversations were identified.
More particularly, a real difficulty with Mr Snaith was the following cross-examination:
Now, you might recall that last evening the judge gave you a direction about not conferring with anybody about the evidence. Do you recall that? - - - Yes.
Where did you go to when you left the court here yesterday? - - - I went to a – a bar at – on Ann Street, and I spoke to Mark.
You met with the master, didn’t you? - - - Yes.
And whilst you were there, you spoke about Kerry Lopez? - - - No.
And you spoke about the log entries? - - - No.
And you spoke about the wharf at Redcliffe – what happened? - - - No.
And you spoke about Heron Island, and what happened at the wharf in Heron Island? - - - We did – we did speak generally, but not about the case. That was my understanding.
Well, what exactly did you say? - - - asked him how he felt. He said he needed a rum, so I said, “Okay. I will go into the bar and grab you a couple of rums.” As soon as we came out – when I first got there, we – we spoke how was it going, and basically I was interested in how he felt. And then he – he said it was a bit – a bit out there, and a bit – what do you call it – it was a long day sort of thing. I bought him a couple of rums, sat down, and I got a text from Drew, saying, “Don’t talk to anyone.” We – I showed him the text, and he said, “All right, Ron. We better go,” and we agreed that – to have – we agreed to have room service to – to not talk about it any more.
And what time did you leave? - - - It was – it was basically 10 minutes later, I suppose.
Well, roughly what time was that? - - - I – I can’t recall the actual time I was there.
Well, did you leave straight from the court and go there? - - - Yes.
Yes. And so what time did you receive the text from Drew? - - - Are you able to text that on your phone? - - - I’ve actually deleted all that, so.
Okay. And I put it to you that you were there until 5.15, that you left here when we – the court was adjourned at 4.15, and you went to that bar until 5.15? - - - That’s a long time. That’s - - -
Well, you had two glasses of rum? - - - I had one – one.
Well, okay. Well, Mr Ryan had two glasses of rum? - - - Mmm.
I put it to you that there were two girls seated beside you, and they overheard your conversation, and that you were speaking about what happened at Heron Island and the significance of the time entry in the logs of 14:54? - - - Yes, that did happen.
Yes. And as a consequence of that discussion, today you’ve come to this court and you have told the court that it’s in your usual practice to mark in the time that you leave Heron waters rather than admit what really happened was at 15 – 14:54 was there because that’s when the water leakage was first observed? - - - No, I disagree with that.
But you admit discussing significance of the 14:54 entry - - -?- - - Yes, .....
- - - in the logs? - - - Yes, I do.
And you would admit to me that that is discussing the evidence that was before this court? - - - Yes, I do.
And it’s fair to say that that’s not the only thing that was discussed by you about the evidence before this court? - - - Yes, that’s right.
That’s all you said? - - - We – we – Mark was saying how your accusations were a bit outlandish or whatever.
He’s allowed to say that? - - - .....
He’s entitled to his opinion, but in the process of doing that, you discussed what questions that he had been asked? - - - Yes.
Yes. And what answers he had given? - - - They were vague.
Well, did you or did you not discuss the answers that he gave to this court? - - - Very quickly.
Yes. So you knew what questions were being asked in this courtroom? - - - The 14:54 question, yes.
And other questions? - - - Well, I don’t recall.
And is it fair to say that you don’t actually recall a lot of things that are not convenient to recall? - - - No, I disagree.
If the plaintiff’s evidence depended solely on the evidence of Mr Snaith, there would be difficulties for the plaintiff. Nonetheless, I do not accept that the shortcomings in the evidence of Mr Snaith that I have identified positively indicate that he or anyone else in the plaintiff’s camp was established to have turned the valve to the closed position.
The timing of entries in the log book were treated as being of great moment by the defendants (as will be seen below), but for reasons I discuss below, very little it seems to me, turns on this topic.
As noted above, I will deal with his other relevant cross-examination when considering the defendants’ submissions.
Mr Crow was a deckhand on the vessel. His evidence was very brief. In evidence in chief, like other witnesses, he denied touching or turning off any valve to the SSTA. Both in evidence in chief and in cross-examination, there were some minor inconsistencies between his evidence and that of Mr Ryan and Mr Snaith (as there were with Mr Harvey, discussed below). However, I accept the plaintiff’s submission that these variants did not suggest any dishonesty and they were inconsequential on the key issues.
Mr Harvey was also a deckhand. The plaintiff had proposed calling Mr Harvey by video. The defendants had opposed this course. With some urging from me, the plaintiff arranged for Mr Harvey to fly to the hearing and give evidence. Mr Harvey was clearly not delighted to be there. Nor was he delighted with the “50 million” questions he was asked, but despite all of this, I found him to be a plausible witness. I certainly do not consider that Mr Harvey “turned off the tap”.
Having heard the plaintiff’s evidence and cross-examination of the lay witnesses, I am satisfied that the plaintiff has established that none of its crew went into the engine room on 7 February 2015 prior to noticing the burning smell. The vessel arrived in Gladstone at about 0915 hours on 7 February 2015 and the crew then spent time loading life-rafts and preparing for passengers. During this time, there was no reason for any of them to enter the engine room, other than Mr Snaith who conducted regular checks. There was no evidence of any problem on that voyage. At Heron Island the plaintiff’s crew again say they were assisting passengers disembark and assisting new passengers to embark in accordance with standard practice. I accept this evidence.
As will be discussed further below, the defendants have raised some speculation of sand or coral getting into the stern tubes because the tide was low. The tide was in fact half tide, rather than low tide. I do not accept that it is established that the manner of operating the vessel in and around Heron Island caused coral or sand to enter the SSTA. In my view, this was speculation created for the defendants in circumstances where it was difficult to prove that any of the plaintiff’s crew had actually turned off the relevant valve. I do not mean this in any sinister sense. The defendants were simply looking for answers and thought coral or sand might be one of them, but there is no more reason to find that this hypothesis was established than to find someone for the plaintiff turned off the valve. To do so would be merely to speculate which is, in my view, unwarranted.
There is no doubt that the SSTA did fail. I accept the evidence of the burning smell, which was caused by the stern tube bearing having failed.
To prove that the valve was open at the time of delivery of the vessel, the defendants relied upon the evidence of Mr Simmonds, a marine surveyor, who, as previously discussed, is an AMSA accredited marine surveyor employed by AMC. He conducted the on hire survey and the off hire survey. During on the on hire survey, he took some 946 photographs of everything which he considered was relevant and important.
Mr Simmonds reviewed all of those photographs and although one is of the starboard shaft and the SSTA, none identified the position of the valve of the SSTA. Notwithstanding this, Mr Simmonds’ evidence was that he observed that the valve to the SSTA, which supplied cooling water, was partly open. This he said was the correct position for the valve, which should be partly or wholly open so that the water cools the bearing. The valve, he said was, partly open as a means of regulating the amount of water entering the seal, but so as still to allow pressured water through. His evidence was that Ms Lopez had informed him that the position of the valve had been set by Rogers & Lough.
Unfortunately, I found Mr Simmonds’ account somewhat problematic. His recollection, despite the absence of any corroborative photograph amongst the 946 that he took, that the starboard valve was in a partially closed or partially open position (which was the correct) position, did not accord with evidence he gave that the port side valves were fully open. Nor did he give evidence, despite a very detailed statement, of observing that the port side valve was missing a handle. I considered this to be of some importance given his very detailed evidentiary account. He gave evidence that a partly closed valve or a removed handle were matters of concern which he would have photographed and included in his report, but there were no such photographs. His report contains a disclaimer that only a reasonable visual inspection was conducted and no responsibility was accepted for latent or other defects not discoverable on that basis and that his report was not a certificate of seaworthiness or a guarantee of condition. I also found the tenor of the evidence given by Mr Simmonds to be somewhat defensive, although it must be said, in fairness, that he was being pressed in cross-examination. He sought, in my view, to support the defence position rather than to deal with questions dispassionately. It is possible, although I do not need to affirmatively find, that he was, over time, confused with matters he had been told by Ms Lopez. As will be seen, I also did not consider the evidence of Ms Lopez to be reliable, which presents a considerable difficulty for the defence. The following extract of transcript in cross-examination of Mr Simmonds is an example of those difficulties:
But what I want to suggest to you is, that where you don’t have access to a photo and it’s not in your report, you are unlikely to have a specific recollection of a particular part of the vessel? - - - It all depends on the circumstances and what phase of an inspection I’m going through. I understand the basis of your question, and if I can elaborate.
Only if it’s necessary to answer my question? - - - Yes, it is, because I was sitting on top of the particular valves that are the point in case why we’re all here and I had a good conversation with Kerry Lopez as I was effectively sitting on it. So
I will come back to the conversation in a moment. I’m not? - - - Yes.
I’m not asking you about that subject at the moment? - - - Yes. It’s because of that I
Okay. And I? - - - I have a strong recollection.
Okay. Now? - - - In fact, it’s fact.
All right. You appreciate I haven’t asked you about that yet, don’t you? - - - Yes. Fair enough.
I appreciate you want to tell me about it but? - - - Okay.
This will be quicker if we stick to the questions that I ask? - - - Okay.
Would you agree that proper practise with the stern tubes or a vessel of this kind was for both of the valves to be fully open?- - - Not necessarily, no.
Well, certainly none of them should have been fully closed, should they? - - - For the supply water for the valves to the stern seal and stern tube, no, they should not have been fully closed.
Neither the raw water nor the water that has gone via the gearbox? - - - The water that goes via the gearbox or via the – the oil cooler are two separate circuits particularly in that vessel. But they’ve been pre-set. All the parameters on the valves that fed to the stern tube were pre-set by Rogers and Lough.
I suggest to you that that’s wrong? - - - Well, you can suggest that. That’s my understanding.
On what basis do you understand that they were set by Rogers and Lough? - - - Based on the information given by Kerry Lopez when I was sitting on the valve.
Now, would you agree that it’s bad practise to remove the handles off the valves for the stern tube seals – the valves? - - - Which – which particular valve are you talking about? - - - There’s three valves.
I’m asking you as a general proposition? - - - Well, you’re asking a specific valve question.
Okay. I will put the question again? - - - Yes.
Would you agree that it would be bad practise to remove the valve handle off any of the valves for the stern tube arrangements? - - - Not necessarily, no.
Certainly if that’s something that you saw on a survey, you would record it in your report, wouldn’t you? - - - Not necessarily, no, because I don’t – I don’t inspect every subsystem on a vessel.
All right? - - - I’m trying to gather a snapshot on the day.
Unless there’s something Ms Lopez particularly tells you about? - - - Well, she happened to be there when I was in that section of the vessel. And she was with me when we were doing tank dips.
Right. If you saw a water cooling valve to the stern tube system, would you agree that you would have photographed it if it was closed? - - - Yes, I would have.
And the reason you would have done that is because it was a matter of concern? - - - Matter of interest.
Well, it would indicate that the stern tube arrangement was not getting adequate water supply, wouldn’t it? - - - I inspected the engine when the engine was in a shut-down condition so
Is there a reason why you don’t want to answer my question? - - - I’m answering the question, thank you.
Okay. Please continue? - - - Well
Have you answered it? - - - The engine wasn’t running and you’ve asked earlier if – if the raw water salt water valves to the main engines were open or closed and it all relates to the same cooling system circuit for a main engine and its components.
Right? - - - So up to individual operators on how they run their vessels. Any valves that re set and then often with valve handles, we move – to go back to your valve handle question – is often so that people don’t inadvertently change parameters or turn them on or off beyond what hopefully they had set it at.
Right. Did you have a conversation with Ms Lopez about whether valves had been removed by Rogers and Lough? - - - No, I didn’t. We had a conversation about valve setting.
Right. And it was your understanding that they were set by Rogers and Lough and never changed except for maintenance? - - - That’s my understanding.
Right. Now, you would agree that you took no photographs of the port stern tube valve arrangements either, did you? - - - No, I didn’t.
Right? - - - I’m going off memory. I would have to check that but I – I believe that to be the case.
And would you accept that if you go off memory alone, you had no recollection of how the port side valves were set? - - - No, that’s not true.
Well, what do you remember seeing on the port side? - - - Very similar arrangements as the starboard.
Could you describe what you recall seeing? - - - The main water inlet branch pipe coming out of the – the cooling water circuit to the stern tube arrangement has two valves – one main feed valve and then they go into inlet water for the seal and inlet water for the stern tube.
And I take it from that answer that you do not recall the position of the valves when you made those observations? - - - Okay. The valves were set at about 45 degrees which is partial flow.
And you made that observation by the position of the handles? - - - Yes.
Right. Can I suggest to you you are mistaken in that recollection? - - - You can suggest that but I disagree.
All right. What I want to suggest to you is that one of the valves on the port stern tube had its handle completely removed and it was set in the off position. Do you recall that? - - - Yes. Would you like to describe which one it was? - - -
But you do recall that? - - - Yes.
Well, I want to suggest to you that that’s inconsistent with your last answer? - - - No. It comes back to my question to you – which particular valves are you talking about because there are three valves down there.
In your prior answer, you made no reference to the valve handle being removed, did you? - - - The valve handle that was removed was the one that was coming from the main engine oil cooler I believe which means that it’s a hot water circuit and was a – it’s there. I – I won’t query why it’s there but it’s there. It goes into the – the seal but it’s isolated. The salt water circuit that’s the cooler side of the circuit that then branches that goes to the seal and the stern tube was open – or partly open. Certainly wasn’t isolated.
(emphasis added)
…
I thought you just told me that she told you about a prior problem in August with overheating at some stage during the inspection? - - - Yes, she did but it was in passing and I didn’t pursue it down to the nth degree because the logbooks I showed had showed that there had been an issue which, sort of, confirmed what she had mentioned and that they attended to it in a normal maintenance type manner.
You had only reviewed? - - - So I didn’t – I didn’t grill her or give her the third degree.
Right. But you had only referred to logbooks between December and February, correct? - - - Yes.
Can I suggest to you that there is no entry between December and February that refers to any such maintenance work? - - - Look, I can’t tell you without checking my images because I take photos of the logbooks.
I ask you to assume that there is no such record? - - - I can’t answer that.
All right? - - - You can ask me to assume; I can’t answer it, so I won’t.
Okay. I want to suggest to you that you never looked at any logbook records that showed maintenance work during that period and you know it? - - - I beg your pardon? - - -
That you know you never looked at no [sic] such maintenance records? - - - No, that’s incorrect.
(emphasis added)
...
You regard yourself as giving evidence on behalf of Ms Lopez, correct? - - - I believe so, yes.
And expressing questions on general engineering questions, you regard yourself as doing so on behalf of Ms Lopez? - - - I believe so.
Yes. You don’t regard the purpose of you attending here today to be an independent expert to assist the court, do you? - - - That’s not your understanding? - - - I’ve been here – I’ve been called here on behalf of Ms Lopez’s legal team.
Yes. But not as an independent expert to assist the court? - - - I don’t believe so, no.
…
You referred in your affidavit to engine hours of 4,000 hours. I think it’s paragraph 26? - - - Yes.
Are you able to tell me where you got that figure from? - - - Without reviewing everything no, not off the top of my head.
It’s not recorded in any of the logbooks I would suggest? - - - Okay. Well then I must have got that from Lopez.
…
(emphasis added)

By [51]-[54] of its cross-claim the defendants pleaded:
51Further or alternatively, the [plaintiff] unreasonably and without good cause demanded excessive Security by reason that the [plaintiff] has.
a.Failed to provide the [defendants] with any documents to support the claim of $315,000 [sic] as security for the release of the Vessel, before the Arrest, at the time of the Arrest or since the Arrest;
PARTICULARS
The [defendants] refer to and repeat the sub-paragraph 69(j) [sic-50(j)] and the subjoined Particulars above.
b.Failed or refused to pay the Gladstone Port for port charges incurred by the [plaintiff] for the Charter Period, which amount forms part of the claim sought by the [plaintiff] as Security as “insurance, marina, ship keeping”.
PARTICULARS
Gladstone Port is owed $10,764 being 18 days at $598.00 per total for the period 14 February 2015 to 4 March 2015.
c.Improperly claimed AU$5,000 for positioning of the Vessel from Redcliffe to Gladstone as part of the Security, which costs were incurred by the [plaintiff] on 6 February 2015 as part of the Charter, and before the Seal Incident;
d.Has duplicated its claim for the period of time during which the Vessel was out of service (which period is denied to have been caused by the [defendants]) by reason of seeking the recovery of hire of $48,000 and the cost of a replacement vessel at AU$235,000;
e.The claim for AU$235,000 as the cost of a replacement vessel for a period of 11 days is excessive and unreasonable.
52At the time of the Arrest, each of the [defendants] had an interest in the Vessel by reason of being were [sic] the owner and disponent owner to the Third Party Charter.
PARTICULARS
The Third Party Charter was written. It was an amended Barecon 89 charter dated 29 September 2015 between [TKL Holdings] as the registered owner and [Moreton Bay Whale Watching Tours] as the disponent owner on the one part and World Heritage Cruises as the bareboat charterer.
53       As a direct result of the Arrest, the [defendants] suffered loss and damage
PARTICULARS
The costs of the Arrest estimated  $10,000.00
Claim by Third Party Charter arising from
loss of use of the Vessel by reason of the Arrest AU$20,000.00
Loss of opportunity for use of Security              TBA
Further particulars to be provided prior to trial
54By reason of these matters, the [plaintiff] was unjustified in the Arrest of the Vessel pursuant to sub-section 31(1)(a) and/or sub-section34(1)(b) [sic] of the [Admiralty Act]
…
THE [DEFENDANTS] CLAIM THE FOLLOWING RELIEF BY WAY OF CROSS-CLAIM
1.The amount of $271,120.00 as a debt due and owing to the [defendants] for damages and costs from the [plaintiff].
2.Further, or in the alternative, damages for breach of the charterparty dated 6 February 2015.
3.Further, or in the alternative, damages for negligence.
4.Further, or in the alternative, damages for the unjustified arrest pursuant to sub-section 34(1)(a) and/or subsection 34(1)(b) [sic] of the [Admiralty Act].
5.Interest pursuant to the Federal Court of Australia Act 1976 (Cth).
The defendants contend that:
(a)an extraordinary amount of legal costs has been incurred by the defendants in defence of this claim, that started at $316,000.00, but now is reduced to $40,336.30. It was a Magistrates Court debt claim at best;
(b)it is an abuse of the Admiralty Act to have so recklessly embarked upon an in rem proceeding, when in personam was adequate and proportionate to the claim, particularly where a Court of competent jurisdiction was already seized of the matter, Queensland District Court. In doing so, the plaintiff has had no regard to the impact on the defendants’ financial position to defend an arrest proceeding or the difficulties it has caused defendants and their charterers; and
(c)although [50] of the cross-claim was abandoned at trial, the defendants cannot be silent in submissions about this issue. It is an outrageous misuse of the Admiralty Act and the plaintiff’s overarching obligations under s 37N of the Federal Court of Australia Act 1976 (Cth). In those circumstances, it will come as no surprise that should the defendants succeed in this case, that they will seek indemnity costs.
Counsel for the plaintiff responded in oral closing submissions:
MR COX: In paragraph 35 and also in the primary submissions there is about four pages on the same subject the defendants persists with an abuse of process argument that it has abandoned. That is an allegation that, in my submission, ought not be made. The claim has been abandoned. There is a valid statutory right in rem to arrest the vessel and this submission should not be put in reply when it has been abandoned on day 4 of the trial. There is no amount by which in rem claims must exceed before there’s a valid statutory right in rem.
And the suggestion that that makes the arrest an abuse of the Court’s process, which is a serious allegation, that should not be advanced, in my submission, after it has been abandoned. …
Counsel for the defendants said in reply:
MS HARRIS: … And I just wish to make one final point in relation to the unlawful arrest issue, your Honour. The amount – in relation to paragraph 35 of the reply submissions by the defendants that paragraph is directed towards the amount of security that was sought.
The defendants – and, whilst my learned friend is correct that there is no monetary jurisdiction in relation to the Admiralty Act, nonetheless, the Admiralty Act does not stand in isolation from the parties’ obligations under the Federal Court Act and that’s section 37M and 37N of the Act. I’m sure your Honour is very familiar with the obligation.
HIS HONOUR: Yes.
MS HARRIS: And the point is that the overarching purpose is to resolve the disputes as quickly, inexpensively and efficiently as possible. Now, the overstatement of the claim at the time of arrest, not by a marginal amount but by a significant amount, all of which was capable of being identified by, A, reference to each of the invoices which ought to have supported [the solicitor’s] affidavit given that formed part of the cause of action.
And, secondly, at having a look at those matters, whether the security of $316,000 was excessive. Now, I appreciate counsel has now come into this matter and, having reviewed the situation, the claim has been reduced now to the replacement costs of the vessel and the port charges. The other matters have fallen away. Now, there is an obligation on parties, we say, under section 37N which must translate into an obligation in the admiralty space.
It cannot operate entirely independently – admiralty law cannot operate entirely independently of these obligations.
Although the claim for unjustified arrest has since been abandoned, the claim for excessive security still enlivens consideration of s 34 of the Admiralty Act.
Historical background
The Australian Law Reform Commission Report 33, Civil Admiralty Jurisdiction, 1986 (ALRC Report), which led to the Admiralty Act, considered the position in relation to excessive security as follows (at [303]-[304]) (footnotes omitted):
303. Excessive Security; Refusal to Release. Unjustified arrest does not exhaust the possibilities for excessive behaviour on the part of a plaintiff in an action in rem. For example, the threat of what might otherwise be a justifiable arrest might be used to extract excessive security, or demands for excessive security might be made after a justified arrest in order to delay or prevent release. Release might also be unreasonably delayed through the entry of an unwarranted caveat against release by a third party. The latter situation is currently provided for in most rules by a provision for damages for the delay unless there was a “good and sufficient” reason for the entry of the caveat. Demands for excessive security on the other hand are not generally provided for by a specific provision in the rules. It seems clear that, where the amount of security (in whatever form) has not yet been agreed between the parties or where security has actually been provided in the form of bail, an application can be made for moderation of the amount demanded as part of an application for release. In the case of bail that has already been provided (either to prevent arrest or secure release) such an application can also be brought separately. If security has already been provided in a form other than bail, on the other hand, the courts lack jurisdiction to moderate the amount or substitute alternative security, since the security is regarded as having been provided pursuant to a private agreement between the parties. A plaintiff demanding excessive bail is liable for the cost of providing the excess bail, though the plaintiffs liability in the case of excessive security provided in a form not sanctioned by the court is less clear. Security is not regarded as excessive if it simply turns out to exceed the sum recovered: it must have been an unreasonable amount at the time of the demand.
304. Conclusion. There is no good reason to differentiate between an unjustified arrest and an unjustified refusal to release. They have the same effect from the point of view of the defendants. The entry of a caveat against release unreasonably and without good cause should be treated in the same manner as an unreasonable arrest. This will in effect simply maintain the liability to damages prevailing in most Australian rules, though it will define more clearly who is entitled to claim damages from the caveator. The same approach should be adopted for an unreasonable refusal to release by the arresting party. The legislation should also spell out the liability to damages of a party demanding excessive security. The present law provides some safeguards against abuse, but in the light of the expanded right of arrest recommended for the proposed legislation, the responsibility of the arresting party to act in a reasonable manner should be expressly stated in the Act. Excessive demands for security (that is, demands that are unreasonable and without good cause at the time of the demand) should result in a liability for damages in the same manner as for an unreasonable arrest or caveat against release. This approach will also cater for the considerable overlap in practice between unreasonable demands for security and unreasonable arrests or refusals to release. However, excessive demands should only incur liability where the demand takes place after the commencement of proceedings. This will avoid the more speculative claims; the commencement of proceedings is a fixed time known to the plaintiff, and is thus a suitable point from which the obligation under the proposed provision can operate. The power of the court to modify bail should be spelt out in the proposed rules rather than being left to inference or to general court powers as at present. That power should not however be extended to non-court sanctioned agreements: private security arrangements should continue to remain a matter for the parties except to the extent that excessive demands give rise to a right to damages.
(emphasis added)
Consideration
On the excessive security claim, the defendants/cross-claimants bear the onus of demonstrating that the plaintiff “unreasonably and without good cause demand[ed] excessive security” under s 34(1)(a)(i) of the Admiralty Act.
The plaintiff says that the first difficulty that arises under the defendants claim is that there is no evidence that the plaintiff made an express demand for security. The letter of demand and the writ are not a demand for security.
The plaintiff says that the vessel was arrested and on the defendants’ application for release, the Court fixed the amount of security, no demand is proved and there is no evidence that the amount of security fixed by the Court (assuming that was a demand) was unreasonable and without good cause. The plaintiff relies on the comments made in the ALRC Report that the mere fact that the claim was later reduced does not demonstrate it was unreasonable or without good cause. Proof of both elements is required under s 34 of the Admiralty Act. The plaintiff suggests that some guidance on what “reasonably and without good cause” can be seen from cases on the caveat legislation, for example, s 74P(1) of the Real Property Act 1990 (NSW) (as the current NSW provision uses the term “without reasonable cause”). The plaintiff refers to Bedford Property Pty Ltd v Surgo Pty Ltd (1981) 1 NSWLR 106 (at 108) and Lee v Ross (No 2) [2003] NSWSC 507, where “reasonable cause” was held to mean an honest belief in a caveatable interest.
The plaintiff submits that the only loss arising from the excessive security claim could be the loss of use of money, for example, interest on the security provided between the time of release from arrest (27 November 2015) up until the Court determined the defendants’ application for the security to be reduced (1 April 2016). The vessel was arrested on 26 November 2015. That evening, upon the defendants’ application, the Court ordered that the vessel be released from arrest upon the defendants posting security of $366,000. That security was posted by way of cash paid into Court the following day, 27 November 2015, and the vessel was released from arrest later on that day.
On 1 April 2016, pursuant to the defendants’ application, the Court ordered that $100,000 of the security paid into Court be returned to the defendants thereby reducing the amount of security to $266,000. Further, on 4 April 2016, the Court ordered that the balance of the security be paid into an interest-bearing account. On 20 April 2016, the security of $266,000 was paid into an interest bearing account. Accordingly, if the security posted on 27 November 2015 was excessive, the plaintiff says it was so in the amount of $100,000.
The plaintiff submits that the defendants have not shown how the initial security was both “unreasonable and without good cause”. As discussed in Cremean DJ, Admiralty Jurisdiction: Law and Practice in Australia and New Zealand (Federation Press, 2015) (at 113 – 114), the phrase “unreasonable” and “without good cause” is to be read conjunctively, that is there are two requirements: “acting unreasonably” and “acting without good cause” (see also Woodford, M "Damages for Wrongful Arrest: Section 34 of the Admiralty Act 1988" (2005) 19 Australian and New Zealand Maritime Law Journal 115 (at 144 -146)). As to the first requirement, acting “unreasonably” looks to assess a person’s conduct to see whether it is unreasonable. The second requirement, acting “without good cause”, looks to the grounds on which a person has acted to see whether such grounds constitute acting without good cause.
The plaintiff’s suggestion that the Court, not the plaintiff, fixed the amount of security is unrealistic. Clearly, the Court was guided by the evidence of the plaintiff. As previously discussed, the letter of demand identified a series of costs in round figures. No invoices or charter were provided with that letter of demand, or at any previous time, that supported the assertion or any other assertion as to the alleged expenses. Those invoices were not provided until the defendants obtained the plaintiff’s consent on 5 February 2016 for the production of each document sought to be relied upon in support of the claim of $316,000. The sum of $316,000 plus $50,000 costs and $11,000 for interest was also sought as security for the release of the vessel. I accept the defendant’s contention that the affidavit in support claimed $316,000 as a bald assertion, unsupported by any documents scheduled to the affidavit. The non-disclosure of the invoices and proof of payments in support of the alleged debt and/or damages at the time of the affidavit, or any time prior, meant that the Court and the defendants had no information other than the assertion in the affidavit.
I accept the submission that it is difficult to see how the plaintiff, through its lawyers, could institute legal proceedings, particularly admiralty proceedings, without having given some forensic analysis to the case, particularly in regards to quantum. As noted by the defendants, the claim was based on third party invoices only rendered to the plaintiff. The plaintiff had 6 to 7 months to collate the invoices and proof of payment. In doing so, the plaintiff ought to have realised that the security sought was excessive.
Clearly, the sum sought at the instance of the plaintiff was at least $100,000 too much and was therefore excessive. No argument or evidence is now provided to explain why the position was thought to be otherwise. The assertion made in the affidavit in support and the security that was obtained on the basis of it, was unreasonable and without good cause.
As to damages, the defendants say that the damages they suffered was the loss of interest to Ms Lopez, who advanced the money from her account (as a director’s loan) when those funds were earning interest in that account. The plaintiff’s suggestion that there is no evidence of liability from the company to Ms Lopez is also unrealistic. There is no suggestion it was a gift. However, contrary to the defendants’ claim, there is no evidence the rate of interest was as high as suggested by Ms Lopez, or indeed, the rate at which, undocumented, the loan should carry interest to Ms Lopez.
For the period 20 April 2016 to 30 August 2016, the security monies earned in the interest bearing account the equivalent of 1.342% per annum. The interest payable on Ms Lopez’s personal account from which the security monies was funded was 2.5% per annum.
The plaintiff contends that if it is found to be liable for the lost interest, it calculates that loss by way of the following:
(a)the difference between the 2.5% p.a. payable on Ms Lopez’s account and the 1.342% p.a. payable in the Court’s account is 1.158% p.a; and
(b)interest at 1.158% on the $100,000 “excessive” security for the period 27 November 2015 until 1 April 2016, totals $401.81 (being $100,000 x 1.158% x 127/366).
The more appropriate basis for computation, I consider, is a commercial rate of interest that the company should pay Ms Lopez for this 127 days, less any interest actually received. However, I accept the computation would produce the same result. Other than that, it is not apparent to me that the defendants have proven other elements of damage in this part of the cross-claim, nor does it appear from the closing written submissions that further amounts are claimed.
DISPOSITION
I consider that on the cross-claim, the proper award is a figure of $1200 to take into account the computation as articulated above, plus other inevitable incidental expenses.
Finally, the defendants note that by writ dated 25 November 2015, the plaintiff named the “relevant person” as the owner, TKL Holdings, under s 17 of the Admiralty Act. Whilst TKL Holdings is the owner of the vessel, Moreton Bay Whale Watching Tours was the disponent owner in possession of the vessel at the time of the charter. Therefore, both parties entered into the charter with the plaintiff, and as such were proper defendants, and each entered an appearance. In the event of any judgment for the plaintiff, by the operation of s 31(2) of the Admiralty Act, the defendants contend that Moreton Bay Whale Watching Tours, having entered an appearance, but was not a “relevant person” named in the writ, should not be personally liable for judgment. The defendants contend that no case has been pleaded by the plaintiff against Moreton Bay Whale Watching Tours. It is not apparent to me that the plaintiff has addressed the issue. It should do so, if it challenges these contentions.
Each party should prepare a minute of the relief to which it contends it is entitled as a result of these reasons and any submissions and affidavits in support not exceeding three pages. Those submissions should be filed within 28 days. The opposing party will have 28 days to respond, subject to the same conditions. If either party requests, I will hear the parties orally, failing which those remaining issues will be determined on the papers.

I certify that the preceding three hundred-two (302) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.
Associate:
Dated: 23 June 2017

File number:	NSD 1490 of 2015
Judge:	MCKERRACHER J
Date of judgment:	23 June 2017
Catchwords:	ADMIRALTY– bareboat charter – whether charter breached due to failure to exercise due diligence to make vessel seaworthy – whether damage to vessel a result of a latent defect – whether the plaintiff’s crew took delivery of the crew “as is, where is” – whether damage to vessel caused by the negligence of the plaintiff’s crew – whether plaintiff relieved from strict compliance with redelivery obligations pursuant to the charter – whether redelivery clause of charter imposes a penalty and is therefore unenforceable ADMIRALTY – Admiralty Act 1988 (Cth) s 34(1)(a)(i) – excessive security – whether the security sought for the release of the vessel from arrest was excessive, unreasonable and without good cause
Legislation:	Admiralty Act 1988 (Cth) ss 4(3)(f), 17, 31(2), 34, 34(1)(a)(i) Admiralty Rules 1988 (Cth) r 39(3) Real Property Act 1990 (NSW) s 74P(1)
Cases cited:	Atheman Tankers Management SA v Pyrena Shipping Inc (The Arianna) [1987] 2 Lloyds Rep 376 Atlasnavios Navegacao LDA v The Ship “Xin Tai Hai” (No 2) (2012) 215 FCR 265 Baxall Securities Ltd v Sheard Walshaw Partnership (2002) 83 Con LR 164 Bedford Property Pty Ltd v Surgo Pty Ltd (1981) 1 NSWLR 106 Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Esanda Finance Corporation Ltd v Plessing (1989) 166 CLR 131 FC Bradley & Sons v Federal Steam Navigation Co Ltd (1926) 24 Lloyds Rep 446 Goldsmith v Sandilands (2002) 190 ALR 370 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 Jones v Dunkel (1959) 101 CLR 298 Lee v Ross (No 2) [2003] NSWSC 507 Lloyd Werft Bremerhaven GmbH v The Owners of the Ship "Zoya Kosmodemyanskaya" [1997] FCA 379 Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 Ocean Towing & Salvage (Vanuatu) Ltd v Custom Fleet (NZ) Ltd & Anor [2006] NZHC 1481 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Prudent Tankers Ltd SA v Dominion Insurance Co Ltd (The Caribbean Sea) [1980] Lloyd’s Rep 338 Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 3 All ER 570 Riverstone Meat Co Pty Ltd v Lancashire Shipping Ltd [1961] AC 807 Shagang Shipping Co Ltd v Ship “Bulk Peace” (2014) 314 ALR 230 Transpac Express Ltd v MalaysianAirlines [2005] 3 NZLR 709
Date of hearing:	14-18 November 2016 and 21 December 2016
Registry:	New South Wales
Division:	General Division
National Practice Area:	Admiralty and Maritime
Category:	Catchwords
Number of paragraphs:	302
Counsel for the Plaintiff:	Mr E Cox
Solicitor for the Plaintiff:	Aus Ship Lawyers
Counsel for the Defendant:	Ms M Harris
Solicitor for the Defendant:	Gilchrist Connell

JUDGE:	MCKERRACHER J
DATE OF ORDER:	23 JUNE 2017