Morris, Danny & Anor The Ship "Kiama" ("Mubum")
[1998] FCA 256
•16 MARCH 1998
FEDERAL COURT OF AUSTRALIA
ADMIRALTY LAW - CORPORATIONS LAW - proceedings commenced in rem against ship - ship arrested - order for sale of ship - ship sold and proceeds of sale paid into Court by Marshal before administrators appointed to corporate owner of ship - one plaintiff suing to recover loan of moneys - repayment secured by equitable unregistered charge of ship - both plaintiffs also suing to recover wages earned as crew members - whether leave required to enforce charge - whether leave to proceed required - whether obligatory that moneys in Court be paid to the administrators - whether s 440G of Corporations Law prevented Court from exercising discretion to retain proceeds of sale in Court - whether plaintiffs should have leave to proceed.
Admiralty Act 1988 (Cth) ss 4(2)(a)(iii), 4(3)(t), 10
Corporations Law ss 262(1)(d), 435A, 439A, 439C, 440B, 440D, 440F, 440G, 441A, 441B
Shipping Registration Act 1981 (Cth) ss 38, 47
The Liverpool Borough Bank v Turner (1860) 2 DeG.F & J 502; 45 E.R. 715 distinguished
M’Lartey v Middleton (1861) 4 LT 852 considered
Ward v Beck (1863) 13 C.B. (N.S.) 668; 143 ER 265 considered
The “Cella” (1888) Maritime Law Cases 293 considered
The “Zafiro” [1960] P1 followed
BBC Hardware Ltd v G T Homes Pty Ltd (1997) 15 ACLC 424 followed
Pioneer Water Tanks (Australia 94) Pty Ltd v Delat Pty Ltd (1998) 16 ACLC 36 considered
DANNY MORRIS AND CLIFF MORRIS v. THE SHIP “KIAMA” (“MUBUM”)
No. WAG 92 of 1996
CARR J
MELBOURNE (HEARD IN PERTH)
16 MARCH 1998
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAG 92 of 1996
GENERAL DIVISION
BETWEEN:
DANNY MORRIS AND CLIFF MORRIS
PlaintiffsAND:
THE SHIP “KIAMA” (“MUBUM”)
Defendant
JUDGE: CARR J DATE OF ORDER: 16 MARCH 1998 PLACE: MELBOURNE (HEARD IN PERTH)
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The plaintiffs have leave, pursuant to ss 440B(b) and 440D of the Corporations Law, to proceed with this action, subject to paragraphs 2 and 3 of these orders.
The leave referred to above shall, until further order, be limited to applying for and being allocated (in due course) a hearing date.
The plaintiffs have liberty to apply to proceed further once the creditors of Tamara Pty Ltd have considered the alternative resolutions referred to in s 439C of the Corporations Law, at a meeting convened under s 439A of that Law.
To the extent that the Marshal may require leave, pursuant to s 440F of the Corporations Law, to leave the Net Proceeds (as defined in the reasons for judgment delivered today) in Court, that leave be granted.
Defendant and the administrators pay the plaintiffs’ costs of the application which is the subject of the above orders.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
No WAG 92 of 1996
GENERAL DIVISION
BETWEEN:
DANNY MORRIS AND CLIFF MORRIS
PlaintiffsAND:
THE SHIP “KIAMA” (“MUBUM”)
Defendant
JUDGE: CARR J DATE: 16 MARCH 1998 PLACE: MELBOURNE (HEARD IN PERTH)
REASONS FOR JUDGMENT
INTRODUCTION
The Court has been asked to decide the following questions:
(a)Whether the plaintiffs (this is an Admiralty matter) need leave to proceed further with this action, because administrators have recently (on 8 January 1998) been appointed to the Company which owns the defendant ship?
(b)If so, whether that leave should be granted?; and
(c)Whether the net proceeds of sale of the defendant ship should remain in Court or be paid to the administrators?
BACKGROUND TO THE PROCEEDINGS
On 11 July 1996 the plaintiffs commenced these proceedings as an action in rem by filing a writ in rem in this Court against the defendant ship which is variously known as “Kiama” or “Mubum”. I shall refer to it as simply “the ship”. The plaintiffs thereby invoked the jurisdiction which is conferred on this Court by s 10 of the Admiralty Act 1988 (Cth) (“the Admiralty Act”). The plaintiffs, Mr Danny Morris and Mr Cliff Morris respectively claim the sums of $2,000 and $1,000 for work carried out on the ship in the nature of painting the hull, cleaning of the bilges, installation of rigging and other like work between 7 February 1996 and about early April 1996. In the alternative, they claim reasonable remuneration for this work. Mr Danny Morris also claims the sum of NZ$16,000 plus interest in respect of a loan in that amount made in March 1996 to the ship’s then owner or owners either to effect the release of the ship from arrest (as the pleadings suggest) or to pay for repairs to the ship (see the last sentence of the document reproduced below). It may be that the ship was then under arrest because payment had not been made for repairs to it. The terms of the loan are recorded in a short document (“the Acknowledgment of Debt”) a copy of which is set out below:
ACKNOWLEDGMENT OF DEBT
On the same date as the plaintiffs filed their writ in rem, they applied for the ship to be arrested. The ship was duly arrested and eventually sold. Counsel have informed me (and the Marshal has since confirmed) that the net proceeds of that sale (“the Net Proceeds”) amount to approximately $80,000. Interlocutory proceedings to date include the filing of a statement of claim, a defence and cross-claim, a reply to defence and a defence to cross-claim. Some further and better particulars have been requested and supplied. My assessment of the stage of the interlocutory proceedings is that the matter is very nearly ready to be set down for trial. Mr D C Leask, counsel for the plaintiffs, told me that his clients require some further and better particulars (which were requested in September last year) of the defendant’s amended defence and cross-claim, and discovery of the defendant’s documents. This is not a matter in which extensive discovery would appear to be required. There may be a need for interlocutory orders for the exchange of witness statements and the like, but that would normally be attended to in the course of a listing conference or listing conferences before a Deputy District Registrar.
On 8 January 1998, Mr Andrew John Saker and Mr Martin Bruce Jones, chartered accountants, were appointed joint and several administrators of Tamara Pty Ltd (“Tamara”). It appears to be common ground, for the purposes of these proceedings, that Tamara was the owner of the ship. On 10 February 1998 Mr Jones swore an affidavit deposing to the circumstances of the appointment of the administrators. In that affidavit he said that he was duly authorised by his fellow joint administrator to swear the affidavit on behalf of Tamara in support of Tamara’s request that the proceeds of sale of the ship be paid to the administrators. That affidavit has been treated as a vehicle for such an application and also as a vehicle for raising the question whether the plaintiffs require leave to proceed with this action. When the matter was before me for directions on 11 February 1998, Mr J C Vaughan appeared as counsel for a company called Chancliff Holdings Pty Ltd (“Chancliff”). There is evidence before the Court that Chancliff is registered as the chargee (probably by way of assignment) of two fixed and floating charges granted by Tamara and registered on 4 April 1990, originally in favour of Mercantile Credits Ltd. Mr Vaughan told me that his client’s only concern was that the Net Proceeds should not be paid to the plaintiffs. On that date I made an order that the Net Proceeds, stated in the order to be presently in Court, should remain in Court until further order. I also made provision for notice to be given to Chancliff before any such further order was sought. Chancliff was not represented in Court at the further hearing on 25 February 1998 when the above questions were argued. If there were to be an order for any payment out of Court, I think it would be prudent to ensure that further notice be given to Chancliff of such a proposed order, notwithstanding the qualified interest expressed by its counsel, to which I have referred above. Mr L D Ayres, counsel for the defendant, for Tamara and its administrators said that such a course was appropriate. I should disclose the fact that since reserving judgment on the above questions I have ascertained from the Marshal that the Net Proceeds are in Court. They stand to the credit of an interest-bearing account with the Reserve Bank of Australia. The account is styled “Federal Court of Australia WAG 92 of 1996 Mubum Proceeds of Sale Account”. I now turn to the issues to be decided.
DO THE PLAINTIFFS REQUIRE LEAVE TO PROCEED?
At the hearing of this application there was considerable argument about whether the plaintiffs are precluded by s 440B of the Corporations Law from enforcing various charges which they respectively claim, without obtaining leave from the Court. That question in turn depends upon whether either or both of s 441A and s 441B of the Corporations Law apply. The relevant portions of those three sections are as follows:
“440B During the administration of a company, a person cannot enforce a charge on property of the company, except:
(a) with the administrator’s written consent; or
(b) with the leave of the Court.441A(1) This section applies where:
(a) the whole, or substantially the whole, of the property of a company under administration is subject to a charge; and
(b) before or during the decision period, the chargee enforced the charge in relation to all property of the company subject to the charge, whether or not the charge was enforced in the same way in relation to all that property.
. . . .
(3) Nothing in section 437C or 440B, or in an order under subsection 444F(2), prevents any of the following from enforcing the charge, or any of the charges:
(a) the chargee;
(b) a receiver or person appointed as mentioned in paragraph (a), (b) or (d) of the definition of “enforce” in section 9 as that definition applies in relation to the charge, or any of the charges (even if appointed after the decision period).441B(1) This section applies if, before the beginning of the administration of a company, a chargee, receiver or other person:
(a)entered into possession, or assumed control, of property of the company; or
(b)entered into an agreement to sell such property; or
(c)made arrangements for such property to be offered for sale by public auction; or
(d)publicly invited tenders for the purchase of such property; or
(e)exercised any other power in relation to such property;
for the purpose of enforcing a charge on that property.
(2) Nothing in section 437C or 440B prevents the chargee, receiver or other person from enforcing the charge in relation to that property.
. . .”
A further question arises - if either or both of ss 441A and 441B apply and the plaintiffs may enforce some or all of their charges, do they still need leave under s 440D to proceed with this action? I think it is appropriate to dispose forthwith of that question, which arose in oral argument when Mr Leask suggested that there was a “tension” between s 441A and s 441B on the one hand, and s 440D on the other. Section 440D(1) provides as follows:
“440D(1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
(a) with the administrator’s written consent; or
(b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.”
I do not see any such tension. In my view, s 440D operates in accordance with its terms, whether the circumstances of a matter fall within s 441A or s 441B. It is certainly not expressed as being subject to those sections and nothing in those sections suggests that they somehow override s 440D. I respectfully agree with the view expressed by Thomas J in BBC Hardware Ltd v G T Homes Pty Ltd (1997) 15 ACLC 424 at 433 that leave is required in such circumstances. In that case his Honour, having found that the plaintiff had brought itself within s 441B(1)(e), did not require leave under s 440B. But he held that leave was required under s 440D to proceed to judgment and for an order appointing statutory trustees for the sale of certain properties forming the subject of the charge. If I were to find that the plaintiffs have brought themselves within s 441A or s 441B, I would nonetheless have to consider whether leave should be granted under s 440D. The plaintiffs contend that they do not need leave to enforce their charges. They put these contentions on several bases.
Mr Danny Morris’ Claims
First, Mr Danny Morris claimed that he was a chargee in respect of the ship pursuant to the Acknowledgment of Debt, the terms of which are set out above. Mr Leask submitted that the Acknowledgment of Debt is at the least an equitable mortgage, the validity of which is recognised by s 47 of the Shipping Registration Act 1981 (Cth). That section provides as follows:
“47. Subject to sections 41, 45 and 46, beneficial interests may be enforced by or against the owner or mortgagee of a ship or of a share in a ship in respect of his interest in the ship or share in the same manner as in respect of any other person or property.”
Mr Leask then referred me to the definition of a “charge” in s 9 of the Corporations Law which provides:
“‘charge’ means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.”
Mr Leask submitted that, by commencing these proceedings and/or obtaining the arrest of the ship and/or obtaining orders for the sale of the ship, Mr Danny Morris has enforced the charge before the “decision period” or before the commencement of the administration of Tamara within (respectively) the meaning of s 441A or ss 441B(1)(a) and/or (e). Accordingly, so Mr Leask submitted, the prohibition on enforcement of the charge otherwise imposed by s 440B of the Corporations Law is ineffective and Mr Danny Morris is entitled to proceed to enforce the charge by proceeding with this action.
The Defendant’s Contentions in Respect of the Above Claims
The defendant says that the Acknowledgment of Debt is completely invalid. Mr L D Ayres, counsel for the defendant relied on the provisions of s 38 of the Shipping Registration Act and some quite early English authorities decided in respect of the Merchant Shipping Act 1854 (U.K.). Section 38 of the Shipping Registration Act provides:
“38(1) A ship or a share in a ship may be made a security for the discharge of an obligation by way of a mortgage under this Act.
(2) The instrument of such a mortgage shall be made in accordance with the regulations.(3) As soon as practicable after the lodgment of a mortgage instrument so made, the Registrar shall register the mortgage by entering particulars of the mortgage in the Register and shall endorse on the instrument the fact of the entry having been made, together with the date and time of the making of the entry.
(4) Mortgage instruments lodged under this section shall be registered in the order of their lodgment.”
Mr Ayres referred me to Regulation 25 of the Shipping Registration Regulations which provides that an instrument of mortgage of a ship or a share in a ship shall specify the name and official number of the ship, the number of the shares affected, the name and address of each mortgagor and the name, address and nationality of each mortgagee. Mr Ayres submitted that the Acknowledgment of Debt does not specify the official number of the ship and the number of shares affected. He said that the English cases (I give the references below) are authority for the proposition that failure to comply in all respects with the prescribed form renders the mortgage completely invalid. Mr Ayres acknowledged that there is no prescribed form for a ship mortgage, but he relies on Regulation 25. The English cases cited by Mr Ayres were The Liverpool Borough Bank v Turner (1860) 2 DeG.F. & J 502; 45 E.R. 715; Ward v Beck (1863) 13 C.B. (N.S.) 668; 143 ER 265 and M’Lartey v Middleton (1861) 4 LT 852. For a proper understanding of The Liverpool Borough Bank case it is necessary to read the decision of the Vice-Chancellor at first instance, reported in (1860) 1 J. & H. 159; 70 E.R. 703 and in particular from 706 to 712. That is because, on appeal, Lord Campbell L.C., in dismissing the appeal said (at 45 E.R. 718):
“... I entirely approve of the decision appealed against, and concur in all the reasoning of the Vice-Chancellor by which he supported it. Indeed, his very elaborate and masterly judgment seems to me entirely to exhaust the subject.” [The Lord Chancellor did, however, make a few additional remarks of his own which referred to “the great peculiarity of the forms of transfer and mortgage here required” and the State policy reflected in the Merchant Shipping Act 1854].
My reading of the reports of that case strongly suggests that there was no counterpart in the Merchant Shipping Act 1854 of s 47 of the Shipping Registration Act. It is apparent from Ward v Beck (at 143 ER pp 266 and 268), that as a result of the Liverpool Borough Bank case, the United Kingdom Parliament passed a declaratory enactment, the Merchant Shipping Act 1862 (25 & 26 Vict. c.63), section 3 of which was similar in effect to s 47 of the Shipping Registration Act. Ward v Beck was decided on a different point but it is clear that the Court would, due to the declaratory enactment, not have followed the earlier case. M’Lartey v Middleton was decided in 1861 before the passing of the amending Act and before Ward v Beck was decided. My provisional impression is that s 47 of the Shipping Registration Act (or if that section had any Australian predecessor, that predecessor) was introduced specifically to provide for the enforcement of beneficial interests in a ship or a share in a ship. My further provisional impression is that the Acknowledgment of Debt created an equitable mortgage over the ship. I note, in passing that s 3 of that Act provides that “mortgage” means a mortgage registered under s 38. This would suggest that the Acknowledgment of Debt (which is not registered) is not the sort of mortgage to which the terms of Regulation 25 apply. However, I think that it is inappropriate to decide such an important issue in a summary manner, as I have been invited to do. Fortunately, it is also not necessary to decide the point finally. That is because I have formed the view that the plaintiffs need leave under s 440D to proceed further with this action. The question whether Mr Danny Morris is entitled to a charge arises here in the context of whether he needs leave to proceed to enforce that charge. Various other parties have an interest in the question whether such a charge exists. In addition to the administrators (and if Tamara goes into liquidation, the liquidator) Chancliff also has an obvious interest in whether Danny Morris is entitled to the equitable charge which he claims and, if so, where the priorities lie. In that regard there are further, perhaps more complicated, issues. They were argued in the context of whether leave should be granted. But the arguments go also to questions of security and the priority of any such security.
The Plaintiffs’ Other Claims
Mr Danny Morris claims that his entitlement under the Acknowledgment of Debt is a proprietary maritime claim within the meaning of s 4(2)(a)(iii) of the Admiralty Act 1988 (Cth). He points to the definition of mortgage in that Act as expressly including “... a charge on the ship ... whether at law or in equity ...”. Mr Leask submitted that this proprietary maritime claim is a statutory lien which arose at the commencement of these proceedings in rem and operates to give priority to the lien over any unsecured creditor. Mr Leask cites The “Cella” (1888) Maritime Law Cases 293 as authority for that proposition. In that case Lord Esher M.R. said (at 296)
“Further, it is to be remembered that in the Admiralty Division in an action in rem the effect of the judgment is greater than in any other division in which money is paid into court. In the latter the judgment is only between the parties, whereas in the other the judgment is between the parties and binds all the world and cannot be disputed. I am therefore of opinion that according to the true meaning of the statute, and the true meaning and effect of arrest, that from the moment of arrest the ship is a security for the judgment of the court, and that nothing happening after the ship has come into the hands of the court can have any effect upon the judgment of the court.”
Next, both plaintiffs claim a general maritime claim (“the wages claim”) pursuant to the provisions of s 4(3)(t) of the Admiralty Act. They say that that maritime lien takes priority over any mortgage of the ship whether registered or unregistered and whenever created. Mr Leask cited The “Tacoma City” (1991) 1 Lloyds Rep 330 at 347 (a decision of the Court of Appeal) for that proposition.
The administrators not only challenge the plaintiffs’ various claims to be entitled to a charge, but they also challenge whether the circumstances referred to in s 441A or 441B have arisen i.e. whether enforcement of the charge or charges began before the administration or before or during the decision period. They rely on the provisions of s 440F of the Corporations Law and say that the Marshall is obliged by s 440G(4) to pay to them the moneys presently in Court.
Once again, I do not consider that it is appropriate in the present matter to decide all these important issues [other than the submission based on s 440G(4)] on a summary basis. It is not necessary, because I have reached a view that, regardless of whether a charge or charges exist and (if so) whether enforcement of all or any of those charges began before administration or during the decision period, such leave should be granted to the plaintiffs as will enable them to proceed with their claims in this Court and to have the questions of (a) entitlement to recover against the ship, (b) security, and (c) priority, determined without further delay. I shall now give my reasons for that view.
As, at this stage, I propose to grant leave limited to the above extent I shall deal with the question primarily under s 440D(1) i.e. a question of leave to proceed further in this Court. I shall assume, without deciding, that in so proceeding the plaintiffs would be enforcing their respective charges within the meaning of the definition of “enforce” contained in s 9 of the Corporations Law and in particular paragraph (e) of that definition. Accordingly the order for leave to proceed will be worded to include leave, to that extent, under s 440B(b).
I reviewed some of the decisions under s 440D quite recently in Pioneer Water Tanks (Australia 94) Pty Ltd v Delat Pty Ltd (1998) 16 ACLC 36 at 39-40. As was the case in that matter, I do not think any of the decided cases are precisely (or even substantially) in point here. I acknowledge that there is a degree of judicial reluctance towards the grant of such leave. Sometimes the relevant factor against granting leave is that there is a substantial dispute about the matter in respect of which the relief is claimed. That certainly applies in this matter. Another consideration is that an administrator should not be distracted from his or her statutory duties and be obliged unnecessarily to incur substantial legal costs. I shall mould the orders to accommodate those concerns. Another relevant factor is whether the applicant for leave to proceed is a secured or unsecured creditor: see BBC Hardware at 443. In this case it can be seen that the plaintiffs claim to be secured creditors. If that turns out to be the case, then, as Thomas J pointed out, their rights will generally stand outside those that have to be administered with respect to the unsecured creditors.
Counsel for the defendant submitted that I should have regard to the objects of Part 5.3A of the Corporations Law as set out in s 435A. Those objects are stated as being to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or if it is not possible for the company or its business to continue in existence, in a way that results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
In assessing those matters, I have had regard to the Administrators’ report dated 27 January 1998, exhibited to Mr Jones’ affidavit. This shows that, as at that date, the only asset of Tamara was the Net Proceeds which, as I have mentioned, amount to about $80,000. Proofs of debt have been lodged from creditors claiming a total of $514,372. Chancliff claims to be a secured creditor in the amount of $110,000. Mr John Raymond Nelley, a director of Tamara and a signatory to the Acknowledgment of Debt, apparently disputes Chancliff’s claim to security. The administrators, in their report, refer to the registration of a fixed and floating charge in favour of Chancliff which they stated they were currently investigating. There are what are described as “Priority Creditors” in the sum of $23,500. On the other side of the ledger, the administrators refer to possible claims which the company may have and which might result in further assets becoming available to creditors. These include, apparently, a claim for damages against former professional advisers to the company and certain transactions which may be made the subject of investigation. The possible extent of those claims is not quantified. Assessing the matter as best I can, it seems to me that, in terms of s 435A(a), the company has no business which may continue in existence. That leaves the consideration of which course will result in a better return to the company’s creditors and members - administration, or an immediate winding up of Tamara? In the context of the present application for leave to proceed, I think that that consideration requires me to exercise my discretion in such a manner (consistent with doing justice to the plaintiffs) as will minimise any expense on Tamara’s part and will not distract the administrators from their statutory duties. That situation should be maintained for a reasonable period, during which the administrators and the creditors can obtain advice and consider what course they wish to take. I refer to the alternative courses set out in s 439C.
The administrators submit that the plaintiffs should not be given leave to proceed because their claims to be creditors together with their claims to be secured creditors can all be “dealt with according to law in the administration”. In some cases, that might be an attractive and sensible proposal. But this is an unusual case. It involves the application of principles of Admiralty law which have been developed over the centuries. They include principles which are designed to protect the interests of seafarers and those who extend credit so that a ship may go about its business. The plaintiffs’ claims fall into two categories well-recognised in Admiralty law. The smaller claims are for wages allegedly earned as members of the crew of the ship. The larger claim relates to an equitable mortgage and charge of a ship. The term “mortgage” is defined in the Admiralty Act more widely than in the Shipping Registration Act. In the latter Act, as I have mentioned, a mortgage means a mortgage registered under s 38 of that Act. In s 3 of the Admiralty Act “mortgage” is defined in terms which include an equitable charge. It can be seen from the express terms of the Acknowledgment of Debt that the parties to it had Admiralty law very much in mind when they executed that document. For example, it refers to the matter of the arrest of the ship and the purpose of the loan as being for repairs to the vessel. To some extent, the Corporations Law itself recognises the special nature of Admiralty matters: see, for example, s 262(1)(d). The effect of that sub-paragraph appears to be that in the case of a ship registered in an official register kept under an Australian law relating to title to ships, at least the major parts of the regime provided for by Part 3.5 of the Corporations Law do not apply to a charge over such a vessel. The inapplicable provisions include those relating to the giving of notice, registration and priority of charges both legal or equitable. It was common ground that the ship in this matter was at all material times registered under the Shipping Registration Act.
Then it must be borne in mind that the proceedings in this matter are proceedings in rem. It seems to me that it would be an injustice, in all these circumstances, to deny the plaintiffs leave to proceed. The very nature of the matter, the jurisdiction which has been invoked, and the common law and regulatory procedures involved in the exercise of that jurisdiction have (subject to the eventual findings of fact) a special value to the plaintiffs. To deprive them of what would otherwise be their right to proceed would simply not be fair if the policy of Part 5.3A can be given effect and the rights of unsecured and secured creditors of Tamara can be protected. I think that that policy can be given effect and those interests can be protected by an appropriately-moulded order granting leave to proceed. It may well be that, given the apparent financial position of Tamara, to which I have referred above, the dispute will end up being a dispute between two sets of creditors claiming security, namely the plaintiffs on the one hand and Chancliff on the other hand. If so, and to avoid the costs of additional proceedings, consideration may have to be given in due course to joining Chancliff as a party to these proceedings. Another factor which I take into account, to a lesser extent, is the nature of the defence in respect of the claim based on the Acknowledgment of Debt. The principal defence to that claim appears to be that, notwithstanding the express terms of that document, the lender and the person entitled to sue the ship, is not the plaintiff Mr Danny Morris, but his father, Mr Garry David Morris.
WHETHER THE NET PROCEEDS SHOULD OR MAY REMAIN IN COURT?
In view of the conclusions and reasons which I have expressed above, I would normally have no doubt that the Net Proceeds should remain in Court until these proceedings are finally determined. However, Mr Ayres submitted that the moneys should be paid out of Court to the administrators and that I had no discretion to prevent that occurring. To explain that submission I shall set out below the relevant statutory provisions upon which it is based. They are as follows:
“440F During the administration of a company, no enforcement process in relation to property of the company can be begun or proceeded with, except:
(a) with the leave of the Court; and
(b) in accordance with such terms (if any) as the Court imposes.440G(1) This section applies where an officer of a court (in this section called the “court officer”), being:
(a) a sheriff; or
(b) the registrar or other appropriate officer of the court;
receives written notice of the fact that a company is under administration.440G(2) During the administration, the court officer cannot:
(a)take action to sell property of the company under a process of execution; or
(b)pay to a person (other than the administrator):
(i)proceeds of selling property of the company (at any time) under a process of execution; or
(ii)money of the company seized (at any time) under a process of execution; or
(iii)money paid (at any time) to avoid seizure or sale of property of the company under a process of execution; or
(c)take action in relation to the attachment of a debt due to the company; or
(d)pay to a person (other than the administrator) money received because of the attachment of such a debt.
440G(3) The court officer must deliver to the administrator any property of the company that is in the court officer’s possession under a process of execution (whenever begun).
440G(4) The court officer must pay to the administrator all proceeds or money of a kind referred to in paragraph (2)(b) or (d) that:
(a) are in the court officer’s possession; or
(b) have been paid into the court and have not since been paid out.
440G(5) The costs of the execution or attachment are a first charge on property delivered under subsection (3) or proceeds or money paid under subsection (4).
440G(6) In order to give effect to a charge under subsection (5) on proceeds or money, the court officer may retain, on behalf of the person entitled to the charge, so much of the proceeds or money as the court officer thinks necessary.
440G(7) The Court may, if it is satisfied that it is appropriate to do so, permit the court officer to take action, or to make a payment, that subsection (2) would otherwise prevent.
440G(8) A person who buys property in good faith under a sale under a process of execution gets a good title to the property as against the company and the administrator, despite anything else in this section.”
Section 3 of the Corporations Law defines “enforcement process” as follows:
“‘Enforcement process’, in relation to property, means:
(a) execution against that property; or(b)any other enforcement process in relation to that property that involves a court or a sheriff;”
The term “sheriff” is defined as including a person charged with the execution of a writ or other process.
Mr Ayres points to the mandatory language of s 440G(4) as requiring the Marshal to pay to the administrators the Net Proceeds which he has paid into Court. There was some discussion, during the course of oral argument, about the significance of the fact that the command in s 440G(4) is to the court officer. If the court officer has paid the money into court and cannot pay it out without obtaining leave of the Court, did that mean that the Court had a discretion in the matter? I should clear that matter up first. In my view, if Mr Ayres’ submissions are correct, then the fact that Parliament’s command is addressed to the court officer would not, in the circumstances of the present matter, permit the Court a discretion which would have the effect of obstructing the court officer in carrying out that command. It may well be that the Net Proceeds, being in Court, are no longer in the Marshal’s “possession” within the meaning of that expression in s 440G(4). However, I shall assume (without deciding) for the purposes of this application, that they are in his possession.
There was some reference in argument to the discretion conferred by s 440G(7). When I first read that subsection I thought that it would permit the Court, in the circumstances of the present matter, to make an order permitting the Marshal to take such steps as are necessary to ensure that the moneys remained in Court. However, I do not think that the power conferred by s 440G(7) on the Court fits the somewhat unusual circumstances of this matter. I do not think that an order relieving the Marshal of his obligation (if it be an obligation) to pay to the administrators the Net Proceeds which were in Court, would fall within the words “... to take action, or to make a payment that subsection (2) would otherwise prevent.” I think that the Court’s discretion to retain the Net Proceeds in Court has a different basis. But before proceeding to that matter, I shall deal with s 440F. If the Marshal, by adopting the course of retaining the Net Proceeds in Court, can be characterised as proceeding with “enforcement process”, which I very much doubt, then substantially for the reasons which I have outlined above in relation to leave to proceed, I consider that leave should be granted to the Marshal to leave those moneys in Court.
I now turn to s 440G of the Corporations Law. The key question, so it seems to me, is whether the Net Proceeds are “proceeds of selling property of [Tamara] under a process of execution” (emphasis added). There is no definition of “execution” in the Corporations Law. Mr Ayres submitted that there was a distinction between “mere execution” and a “process of execution”. He submitted further that s 440G was directed at stopping any carrying out of an order of the Court which involved the property of a company, whether that be an execution process “in the narrow sense” to enforce payment of a particular amount of money or “a process of execution in the sense of executing or carrying out a judgment or the order of the Court ...”. I am quoting, principally, from Mr Ayres’ oral submissions. Building on that submission, Mr Ayres pointed to the fact that Lee J, in the present matter, had made an order for the sale of the ship and that the Marshal, when he sold the ship, carried out or executed that order, thereby engaging in a “process of execution”. I think that I should set out briefly the factual background of the sale. On 24 December 1996 his Honour ordered that “the ship be sold by the Marshal pursuant to the Admiralty Rules”. The Marshal had some difficulty in selling the ship. On 11 July 1997 an order was made that the ship be sold by private treaty by the Marshal on the open market for the best price obtainable by him, being a price not less than 75% of a particular identified valuation. On 21 October 1997 the Marshal was given leave to sell the ship by way of private treaty to its eventual purchaser for the sum of $107,500. On the same date an order was made that the proceeds of sale be paid into an interest-bearing account opened by the Marshal with the Reserve Bank of Australia. The Marshal carried out these orders. Was he, in so doing selling the property under a “process of execution” because he was carrying out the orders of the Court? This is what the defendant submitted. It is true that the term “judgment” is defined widely in the Federal Court of Australia Act 1976 (Cth) as meaning a judgment, decree or order, whether final or interlocutory, or a sentence. However, in my view, merely because the Marshal was carrying out an interlocutory order (as subsequently varied) he was not engaged in a “process of execution”. It would seem that the power to sell an arrested ship arises both at common law and under Order 69 of the Admiralty Rules. The principal purpose of the sale would appear to be to preserve the value of the res or thing against which the Admiralty proceedings are brought. Unless the parties reach agreement for release from arrest, there comes a time when the costs of maintaining the vessel can jeopardise the remedy sought by the plaintiff. It is in that context (preservation of the res) that the sale takes place. It is a matter which can be seen to precede any judgment which requires execution in the generally accepted sense of that word.
Mr Ayres’ submitted that “execution” should not be given a narrow interpretation as meaning the mere getting in and payment over of funds in relation to a claim by a judgment creditor.
In my view, the statutory context discloses an opposite intent, i.e. that execution should be defined narrowly. I should say that the extended phrase “a process of execution”, in my opinion, simply relates to the steps taken before, during and after execution and cannot justify extending the meaning of the word “execution”. In s 440F the expression “enforcement process in relation to property” is used. That expression is defined in s 3 as meaning:
“(a)execution against that property; or
(b)any other enforcement process in relation to that property that involves a court or a sheriff.”
I think that that definition, in a section so close to s 440G, strongly suggests that Parliament was distinguishing between execution in the traditional sense of the word and other enforcement processes. I do not think that the arrest of the ship can properly be characterised as “a process of execution” within the meaning of s 440G. I respectfully agree with the similar view expressed by Hewson J in The “Zafiro” [1960] P1 at p 15:
“Mr Brandon very strongly argued that an arrest such as this could be regarded as an anticipatory execution. As I see it, arrest is the means, given by law, whereby security is obtained for a debt of a special character, and, by so arresting, the necessaries man becomes a secured creditor. It seems to me (and I accept what Mr Brandon says) that the wording of some of the sections I have referred to in the Companies Act is very inapt when applied to certain Admiralty matters; but I see no reason why I should extend the meaning of the word “execution” to include a writ in rem in the circumstances that we have to consider in this case. Execution, in my view, succeeds, and does not precede, judgment, whereas in arrest there is no existing judgment upon which to execute.”
I am satisfied that, as a matter of law, the arrest of the ship did not occur as part of a process of execution. It came about at the behest of the plaintiffs in accordance with the Admiralty Rules. Similarly, the sale of the ship was to ensure that the whole purpose of the arrest would not be frustrated by the holding expenses exceeding the value of the ship.
For those reasons, I do not consider that the Net Proceeds are of a kind referred to in s 440G(2) or s 440G(4).
Another way of testing this construction of s 440G is to focus on the provisions of s 440G(7). Theoretically, by that latter subsection, Parliament has authorised the Court to make an order, in this matter, permitting the Marshal to pay the moneys at present in Court to, for example, the Public Trustee. It would be a very peculiar situation if the Court had power to make such an order, but did not have power to direct that the moneys remain in Court.
In view of the conclusions set out above, it is not necessary to consider Mr Leask’s alternative argument. That was that if the sale by the Marshal was a “process of execution” within the meaning of s 440G then it would also be “enforcement process” as defined in s 3 of the Corporations Law, the relevant part of which I have set out above. Mr Leask submitted that in those circumstances the Court could grant leave under s 440F to proceed with that enforcement process. In my view the plaintiffs should be granted leave to proceed further with this action. For the time being, until the creditors decide, under s 439A(4) of the Corporations Law, what to do with Tamara, the administrators should not be put to any unnecessary legal expense. The plaintiffs will have leave to approach the District Registrar for a hearing date of the principal application, which is to be fixed in accordance with the normal Court procedures. The matters of further and better particulars and discovery requested of the defendant are to be deferred for the time being. I will hear counsel on the question of costs.
I certify that this and the preceding seventeen
(17) pages are a true copy of the Reasons for
Judgment of Justice Carr.
Associate:
Date:
Counsel for the Plaintiffs: Mr D C Leask
Solicitors for the Plaintiffs: Messrs Frank Unmack & Cullen
Counsel for the Defendant: Mr L D Ayres
Solicitors for the Defendant: Messrs Fiocco Hopkins Nash
Date of Hearing: 25 February 1998
Date of Judgment: 16 March 1998
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