Morlines Maritime Agency Limited v The Ship

[1997] FCA 1004

FEDERAL COURT OF AUSTRALIA

ADMIRALTY - sale of vessel pursuant to order for appraisement and sale - claims in rem against fund representing the proceeds of sale - previously determined that payments received in return for release of surrogate vessels from arrest and from the proceeds of sale of surrogate vessels could only be allocated to reduction of the plaintiff’s in rem claim - whether legal costs incurred by plaintiff in recovering those payments could be recovered against the fund.

Admiralty Act 1988 (Cth), ss 4(2), 19
Federal court of Australia Act 1976 (Cth), s 43

The “Kalamazoo” (1851) 15 Jur 885, cited
The “Wild Ranger” (1863) Br & L 84, 167 ER 310, cited
The “Christianborg” (1885) 10 PD 141, cited
The “Duchesse de Brabant” (1857) Swab 264; 166 ER 1129, cited
The “Gay Toucan” [1968] 3 All ER 819, cited
The “Cap Bon” [1967] 1 Lloyd’s Rep 543, cited

MORLINES MARITIME AGENCY LIMITED  v
THE SHIP “SKULPTOR VUCHETICH”
NG 730 of 1995

TAMBERLIN J
SYDNEY
26 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

IN ADMIRALTY

NG 730  of   1995

BETWEEN:	MORLINES MARITIME AGENCY LIMITED PLAINTIFF
AND:	THE SHIP “SKULPTOR VUCHETICH” DEFENDANT
JUDGE:		TAMBERLIN J
DATE OF ORDER:		26 SEPTEMBER 1997
WHERE MADE:		SYDNEY

THE COURT ORDERS THAT:

The defendant pay the costs of the proceedings of Morlines Maritime Agency Limited in the sum of AUD$40,000 from the fund retained for costs pursuant to order 11 of 22 May 1997.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

IN ADMIRALTY

 NG 730 of 1995

BETWEEN:	MORLINES MARITIME AGENCY LIMITED PLAINTIFF
AND:	THE SHIP “SKULPTOR VUCHETICH” DEFENDANT

JUDGE:	TAMBERLIN J
DATE:	26 SEPTEMBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Legal costs

I delivered reasons for judgment in this matter on 29 August 1997.  My earlier judgment concerned the allocation of payments received by Morlines since the last date of the hearing before Sheppard J and the date of his Honour’s judgment on 15 May 1997.

When I delivered judgment on 29 August 1997, I did not proceed to make any orders because, subsequent to the hearing, further written submissions were made on behalf of the Admiralty Marshal which, in my view, raised matters which had not been fully ventilated at the hearing. Therefore, I stood the matter over for further argument as to the way in which the payments received by Morlines should be treated with a view to deciding the precise amount of the Morlines claim which could properly be paid from the fund arising from the proceeds of sale of the vessel “Skulptor Vuchetich”.

In my reasons of 29 August, referring to the Morlines claim against the fund, I said:

“I therefore consider that the claim of Morlines must be reduced by the amount of agency commission received which has not been credited towards the in rem claim comprising the net disbursements, interest and legal costs. Payments relating to these matters are in rem in nature”.

I went on to say later:

“My conclusion is that Morlines is not entitled to use any funds, received from the proceeds of sale of vessels or from moneys paid for release of vessels in discharge of debts for agency commission and interest on agency commission. Such funds, however, can properly be paid towards the discharge of debts comprising net disbursements, and interest and legal costs related to those disbursements.”

The judgment of 29 August, so far as it concerned Morlines, mainly involved an examination of the question whether Morlines was at liberty to allocate, as it saw fit, payments as a result of overseas detentions or sales of other vessels in reduction of agency commission which it had earned.  I concluded that Morlines was not so entitled.

Subsequently, pursuant to directions, Morlines formulated Short Minutes to give effect to those reasons seeking judgment in the sum of $91,438.  The way that amount is calculated is set out in the Schedule attached to these reasons.

On 10 and 12 September 1997, at the request of Baltic Shipping Company (“Baltic”) and the Admiralty Marshal, I heard further argument mainly centred on the question as to whether legal costs, incurred in relation to overseas proceedings which resulted in payments, towards satisfaction of debts owed by Baltic, were recoverable against the fund arising from the sale of the “Skulptor Vuchetich”.

The Admiralty Marshal and Baltic made submissions to the effect that the legal costs incurred by Morlines in proceedings overseas in relation to the different vessels set out in the Schedule could not properly be claimed against the fund arising from sale of the “Skulptor Vuchetich”.  The way in which the legal costs were taken into account by Morlines can be seen from the Schedule.

In calculating its claim against the fund Morlines, as appears from the Schedule and the affidavit evidence of Mr Jones, has added the legal costs to the principal amount of its claim against the fund. The practical consequence of this approach is that the claim of Morlines against the fund has not been reduced to reflect the full amount of moneys received by it from sales or detentions.  As a result, it is said, the claim of Morlines is too high because in effect it wrongly includes the claim for overseas legal costs.

Both the Admiralty Marshal and Baltic submit that Morlines’ legal costs, other than those in the present proceeding, are not recoverable against the fund. This is said to be because a claim for legal costs incurred in overseas proceedings against a sister or surrogate vessel cannot give rise to a general maritime claim which can be asserted against the “Skulptor Vuchetich” or the fund which it represents.  This result, it is contended, arises from the circumstance that a claim for legal costs is not included within the definition of general maritime claim in s 4(3) of the Admiralty Act 1988 (Cth) (“the Act”).

Section 19 of the Act provides:

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

(a) a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first-mentioned ship; and

(b)that person is, when the proceeding is commenced, the owner of the second-mentioned ship.” (Emphasis added)

Of course, the Canadian judgment of Justice Dubé, dated 18 December 1995, in the sum of CDN$1,190,854.04 plus interest and costs, which is the starting point for consideration of the appropriate allocation of payments in the present case, gave rise to a proprietary maritime claim against the “Ivan Derbenev”, which was the defendant to those proceedings. Section 4(2) of the Act provides:

“(2)A reference in this Act to a proprietary maritime claim is a reference to:

(a)....

(b).....

(c)a claim for the satisfaction or enforcement of a judgment given by a court (including a court of a foreign country) against a ship or other property in a proceeding in rem in the nature of a proceeding in Admiralty; or

(d)a claim for interest in respect of a claim referred to in paragraph (a), (b) or (c).”

However, a claim for legal costs cannot come within s 19 of the Act because it is not a general maritime claim and therefore cannot be made against the “Skulptor Vuchetich” fund which is a fund arising from the sale of a surrogate vessel.

On further consideration of this question and in the light of the further specific submissions in relation to the question of legal costs, I have reached a conclusion different to that expressed in my earlier judgment. I am persuaded that legal costs in relation to the overseas arrests, sales and detentions cannot be recovered against the “Skulptor Vuchetich” fund, either directly or indirectly, by adding to the debt claimable against the fund amounts incurred by way of legal costs in relation to different vessels overseas.

Section 43 of the Federal Court of Australia Act 1976 (Cth), of course, gives power to this Court to award costs in relation to proceedings before it. This section, however, does not confer power to award costs in respect of overseas activities or proceedings for recovery of the debts due to Morlines against a different vessel.

The contention of Morlines is that it did not at any stage receive any funds paid out of the res following the arrest of vessels owned by Baltic.  Rather, it is contended Morlines received funds as a result of reaching a compromise of its claims against those vessels.  It agreed to accept funds on the condition that it would apply the funds in reduction of a debt owing to it by Baltic and not in satisfaction of any in rem claim.  It is further said that if the Court is to characterise the funds received by Morlines as if they were paid out of the res (which they were not), then to be consistent, the Court should characterise the legal costs incurred in obtaining those funds as a maritime claim for the purpose only of determining the extent to which the claim of Morlines should be reduced as a result of such payments received by it.

Morlines asserts that it is fundamental to appreciate that the Court is not now determining whether the expenditure of Morlines in arresting Baltic vessels outside Australia is a maritime claim, which should be admitted in this jurisdiction, because this was not the intent of the direction made on or about 20 May 1997.  The task of the Court, it is said, is merely to determine whether Morlines has properly accounted for its overseas receipts.

However, in my view, the question for decision is whether the adding on by Morlines to its claim against the fund of legal costs represents an appropriate accounting for moneys received. In my view it does not.

It is well settled law that by giving security by way of bail the owner of a ship or property which is under arrest may secure its release.  So much is provided for in r 51(1)(b) of the Admiralty Rules.

In The “Kalamazoo” (1851) 15 Jur 885 at 886 Dr Lushington said:

“The bail represents the ship, and when a ship is once released upon bail she is altogether released from that action.”

See also The “Wild Ranger” (1863) Br & L 84 at 87; 167 ER 310 at 312 per Dr Lushington; The “Christiansborg” (1885) 10 PD 141 at 145; The “Duchesse De Brabant” (1857) Swab 264 at 266; 166 ER 1129 at 1130, and The “Gay Toucan” [1968] 3 All ER 819 at 820.

In The “Duchesse De Brabant”, Dr Lushington said:

“I decide this case on the common ground that the bail ought, in justice and equity, and according to the practice of this Court, to be considered as bail, not for the amount of damage done, but for the value of the ship and freight proceeded against...”

In The “Cap Bon” [1967] 1 Lloyd’s Rep 543 at 547, Brandon J said:

“Bail in an admiralty action in rem represents the res, and it follows, in my view that the Admiralty Court has no jurisdiction to require bail as a condition of release, or maintain that bail, for the collateral purpose to which I have referred.”

In my opinion the funds paid to Morlines in the present case to procure the release of a vessel, or funds derived from a sale of a vessel, also bear an in rem character and it is therefore appropriate for such moneys be applied to satisfaction of so much of the debt owed by Baltic as is in rem in nature.

It is no doubt true that in order to secure release of a vessel detained under arrest in another jurisdiction or to procure the sale of a vessel it was necessary for Morlines to incur legal costs.  This, however, does not mean that the costs are recoverable against the fund arising from the proceeds of sale of the “Skulptor Vuchetich”.

The consequence of the approach contended for by Morlines is that the claim against the fund is increased by adding the amount of the legal fees so that effectively recovery is sought to be obtained against the fund of a non-maritime claim. Even if a judgment, including costs, were obtained in overseas proceedings, any such costs order could not be enforced against surrogate vessels under s 19 of the Act.

Further, I note that it appears that the costs which Morlines seeks to recover have neither been awarded nor assessed in the foreign jurisdictions in which they were incurred.  If these costs had been incurred in this jurisdiction and in these proceedings they would not be fully recoverable as against the fund.

Accordingly, I disallow the claim made by Morlines in respect of legal costs incurred in relation to  overseas proceedings.  My view is, after hearing full argument on this question, that the fund arising from the sale of the vessel cannot be used to pay legal costs incurred in other jurisdictions.

Morlines has pointed out that when the matter was heard before Sheppard J evidence was given by Mr Jones, on behalf of Morlines, and there was no cross-examination in relation to the claim for legal costs. Accordingly, it was suggested that neither Baltic nor the Admiralty Marshal should now be able to challenge the views advanced by Mr Jones.  In my view, this argument should not be accepted. It is not in accord with the purpose of the present exercise. The position is that the Admiralty Marshal is charged with the administration of the fund.  It is necessary to ensure that the fund is properly distributed in accordance with appropriate principles.  This involves consideration of the source and proper characterisation of the payments received by Morlines over the relevant period.  Both the Admiralty Marshal and Baltic have a clear interest in ensuring that this is so.

So far as Morlines is concerned, my conclusion is that legal costs incurred in overseas jurisdictions in other proceedings, against different vessels, cannot be recouped either directly or indirectly from the fund arising from the sale of the “Skulptor Vuchetich”.

A question was raised as to costs incurred by Morlines in proceedings in this court. The claim is for AUD$40,000.  Although payment of these costs was challenged by Baltic, I am instructed that they are in a sum agreed to with the other successful plaintiffs in the proceedings.  It has not been shown to be excessive.  Therefore, in the interest of equity and even handedness, I propose to order that Morlines costs in that amount should be paid from the fund.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated:            26 September 1997

Counsel for the Plaintiff:	Mr J S Wheelhouse
Solicitor for the Plaintiff:	Holmes & Bevan
Counsel for the Baltic Shipping Company:	Mr B W Larkin
Solicitor for Baltic Shipping Company:	Norton Smith & Co
Solicitor for the Admiralty Marshal:	Douglas Coleman
Date of Hearing:	10 and 12 September 1997
Date of Judgment:	26 September 1997

SCHEDULE TO JUDGMENT OF TAMBERLIN J
MORLINES MARITIME AGENCY LIMITED

Description  Interest  Principal
  CDN$   CDN$

Judgment amount as at 20/1/95  1,190,854.00
LESS agency fees disallowed   166,542.00

1,024,312.00
Interest at 10% to 22/6/95  42,936.91
Legal fees Derbenev 22/6/95  6,687.43

1,030,999.43
Interest at 10% to 24/7/95   8,756.43
Legal fees Magnitogorsk on 24/7/95  6,750.00

1,037,749.43
Interest at 10% to 25/7/95   284.31
Legal fees Magnitogorsk on 25/7/95  4,385.00

1,042,134.43
Interest at 10% to 1/8/95   1,998.61
Legal fees Magnitogorsk   19,401.57

1,061,536.00
Interest at 10% to 15/11/95  30,828.17
Legal fees Magnitogorsk   32,891.00

1,094,427.00

Interest at 10% to 20/12/95  10,194.66
Legal fees Magnitogorsk   12,142.88

1,106,569.88
Interest at 10% to 28/12/95   2,425.36
Legal fees Magnitogorsk  3,207.14

1,109,777.14
Interest at 10% to 24/1/96   8,209.31
Legal fees Magnitogorsk 24/1/96  759.93

1,110,537.07
Interest at 10% to 17/2/96   7,302.16
Legal fees Starostenko 17/2/96  3,547.89

1,114,084.96
Interest at 10% to 15/3/96   7,935.95
Proceeds of sale of Starostenko 15/3/96   (479,473.00)

634,611.96
Proceeds of sale of Yevgrafov 28/3/96   (67,500.00)

567,111.96
Interest at 10% to 10/4/96   2,019.85
Legal fees Magnitogorsk 10/4/96  1,806.55

568,918.51
Interest at 10% to 30/4/96   3,117.36
Legal Fees Starostenko 30/4./96  11,796,12

580,714.63

Interest at 10% to 22/5/96   3,500.20
Funds for releasing Yevgrafov   (67,500.00)

513,214.63
Interest at 10% to 22/7/96   8,577.01
Legal fees Magnitogorsk  22/7/96  3,425.00

516,639.63
Interest at 10% to 31/7/96   1,273.90
Legal Fees Trsukavetz 31/7/96  3,022.03
Legal fees Baranskiy 31/7/96  597.75

520,259.41
Interest at 10% to 20/11/96  15,964.12
Funds for sale of Prokofiev 20/11/96   (297,810.00)

222,449.41
Interest at 10% to 3/12/96   792.28
Legal fees Prokofiev 3/12/96  4,078.90

226,528.31
Interest at 10% to 6/12/96   189.19
Legal fees Prokofiev 6/12/96  1.740.06

228,268.37
Interest at 10% to 19/12/96   813.01
Legal fees Magnitogorsk 19/12/96  2,040.70
     230,309.07
Interest at 10% to 20/12/96  63.10

Legal fees Prokofiev 20/12/96  8,500.37

238,809.44
Interest at 10% to 7/1/97   1,177.69
Funds for releasing Magnitogorsk 7/1/97   (67,500.00)

171,309.44
Interest at 10% to 14/1/97   328.54
Funds for sale of Starostenko 14/1/97  (7,055.00)
Funds for sale of Baranskiy 14/1/97  (5,686.00)

158,568.44
Interest at 10% to 24/1/97   434.43
Legal Fees of Magnitogorsk 24/1/97         8,961.15

167,529.59
Interest at 10% to 18/2/97   1,147.46
Legal fees Baranskiy 18/2/97  1,212.94
Legal fees Truskavetz 18/2/97  4,575.12

173,317.65
Interest at 10% to 10/3/97   949.68
Legal fees Magnitogorsk  5,872.50

179,190.15
Interest at 10% to 13/3/97   147.28
Funds for releasing Magnitogorsk   (236,250.00)

(57,059.85)
Legal fees  Magnitogorsk 19/3/97  6,863.88

(50,195.97)

Total Interest to 19/3/97  163,624.23
Less credit balance  (50,195.97)
  CND$113,428.26
Converted to US$0.771   US$87,453.19
Interest at 10% from 19/3/97 to 29/8/97  US$3,905.44
Total Outstanding   US$91,358.63
Distribution of 81.09%  US$74,082.71