Babcock Fitzroy Ltd v The MV Southern Pasifika

[2012] NZHC 1254

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-001906 [2012] NZHC 1254

BETWEEN  BABCOCK FITZROY LIMITED Plaintiff

ANDTHE SHIP "THE M/V SOUTHERN PASIFIKA"

Defendant

ANDTHE MASTER AND CREW OF THE M/V SOUTHERN PASIFIKA

First Intervener

ANDPDL INTERNATIONAL PTY LIMITED Second Intervener

ANDOLDENBURGISCHE LANDESBANK AG

Third Intervener

Hearing:         15 and 16 February 2012

Appearances: A J Sherlock and S Holderness for the Plaintiff

P W David and F C Monteiro for the Third Intervener

Judgment:      14 May 2012

RESERVED JUDGMENT OF PRIESTLEY J

This judgment was delivered by me on 14 May 2012 at 12.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

A J Sherlock, Hesketh Henry, Auckland. Email: [email protected]

S Holderness, Hesketh Henry, Auckland. Email: [email protected]
P W David, Barrister, Auckland. Email: [email protected]

F C Monteiro, Wilson Harle, Auckland. Email: [email protected]

BABCOCK FITZROY LTD V "THE M/V SOUTHERN PASIFIKA" HC AK CIV-2011-404-001906 [14 May

2012]

Introduction

[1]      The  plaintiff  (Babcock)  and  the  third  intervener  (OLB)  dispute  their respective  priorities  in  the  sale  proceeds  of  a  ship,  the  motor  vessel  Southern Pasifika (the vessel).1

[2]      Babcock carried out repair and refit work on the vessel in February-March

2011.  The work was requested and authorised by the vessel’s “chief superintendent” Captain P Lodygowski.  There is no dispute that the relevant contract was between Babcock and the vessel’s owner.2

[3]      OLB held a mortgage over the vessel and its sale proceeds as a secured

creditor. A ship’s mortgagee would normally have priority.

[4]      Weise failed to pay Babcock for the work carried out on the vessel and consequential berthing costs.  The unpaid sum was large.  Babcock commenced in rem proceedings against the vessel in early April 2011.  The owners took no steps. OLB was initially unaware of the proceeding (the vessel being the sole defendant). Babcock, relying on r 25.32(4) of the High Court Rules applied for judgment by default in the action in rem.   It also sought, pursuant to r 25.34, a warrant for the vessel’s arrest.

[5]      The applications were determined by Woolford J on 2 May 2011.3   The Judge was totally satisfied that Babcock’s claim was well founded.  Judgment against the ship was entered by default for the sum of $1,523,499, plus daily berthing costs from

1 April 2011 at the rate of $1,461, plus interest.

[6]      The competing in rem priorities of Babcock and OLB are self-evident.  The vessel has been sold by the Registrar of this Court.  If Babcock’s in rem claim has

priority then there will be a shortfall under OLB’s mortgage.  If OLB’s in rem claim

1 The vessel was a 109m long 5,234 tonne container ship, operating predominantly between Fiji and other Pacific Islands under charter, flying under the flag of Antigua and Barbuda.

2 The owner was a German corporation based in Münster, abbreviated as Weise Schiffahrts. Weise has taken no steps in the proceeding.

3 Babcock Fitzroy Ltd v The Ship “The M/V Southern Pasifika” HC Auckland CIV-2011-404-001906,

2 May 2011.

has priority then a significant portion of Babcock’s judgment for its unpaid work on

the vessel will be unrecoverable.

[7]      Relying on a memorandum and authorities put before him by Babcock’s

counsel, Woolford J directed:

[12]     Accordingly, I direct that, should the Registrar issue a warrant of arrest of the M/V Southern Pasifika, the arrest of the ship and its resulting placement into the legal custody of the Registrar shall not affect the possessory lien maintained by the plaintiff over the ship.

...

[19]     Accordingly, I direct that, should the Registrar issue a warrant of arrest of the M/V Southern Pasifika, the ship is then to be appraised and sold and the proceeds paid into Court subject to an undertaking in writing satisfactory to the Registrar to pay the Registrar’s fees and expenses on demand.  In the event of the ship’s appraisal and sale, the plaintiff is entitled to a lien attaching to the proceeds of sale of the ship, such lien conferring priority rights equivalent to those arising pursuant to the possessory lien maintained by the plaintiff over the ship as at the time of the request for commission.

The significant authorities placed before the Judge were Singaporean authorities.

[8]      Mr David (for OLB) submits that, in the circumstances before him, Woolford J had no authority to direct that a lien in favour of Babcock attached to the vessel’s sale proceeds, such lien conferring “priority rights”.   OLB’s position is the Singaporean authorities on which Babcock relied did not apply to the position before Woolford J.  The competing priorities in the circumstances of this case, submits Mr David, give rise to an issue which is novel under both English and New Zealand Admiralty Law.

The issue

[9]      The evidence (which is canvassed in the next section of this judgment) establishes that when Babcock was carrying out repair and refit work the vessel was in its possession. As a repairer of the vessel, Babcock at common law was entitled to

a possessory lien for so long as the vessel remained in its possession.4

[10]     There is  undisputed authority under Admiralty Law that  the holder of  a possessory lien over a vessel (usually a repairer) will not lose its right to have unpaid repair costs satisfied if a third party embroils the vessel in litigation.5     Critically, however, the lien holder must be in possession of the vessel at the relevant time. What is significant about this proceeding (hence its novelty) is that it was Babcock, the possessory lien holder, which brought the in rem proceeding, sought the sale of

the vessel, and handed the vessel over to this Court’s Registrar to carry out the sale. Admiralty remedies were invoked by Babcock.   De facto possession of the vessel was clearly lost at the point the Registrar took over the vessel to arrange its sale.

[11]     Mr David framed the issues this way:

[a]      Did Babcock have a common law lien for its unpaid repair work when the vessel was arrested in the Admiralty jurisdiction?

[b]      Could Babcock maintain and protect its position as a common law lien  holder  when,  as  a  result  of  its  applications,  the  vessel  was arrested and sold by the Registrar, particularly when the Admiralty process was not forced upon Babcock?

[c]      If there is an affirmative answer to [b] did Babcock lose its lien holder status when it lost possession of the vessel after its arrest?

Mr David raised as a fourth issue: whether there was any reason in equity to prefer

one party’s claim to the others.

[12]    Mr Sherlock, for Babcock, expressed the issue at a broader level.   His formulation was whether, under New Zealand law, a possessory lien holder could

successfully seek the arrest and sale of a vessel under this Court’s Admiralty

4 Halsbury’s Laws of England (5th ed, 2008) vol 94 Shipping and Maritime Law at [1024]; The Laws of New Zealand (2003) vol 18 Maritime Law: Admiralty at [152].

5 The Tergeste [1903] P 26 (CA); adopted in New Zealand in Hill v The Ship “James Cook” [1997] 3

NZLR 752 (HC) at 757.

jurisdiction whilst at the same time receiving the benefit of a direction which carried the possessory lien holder’s rights across from the vessel itself to its future sale proceeds.  The attachment of the lien holder’s rights to the sale proceeds, of course, was what Babcock achieved through Woolford J’s direction.6

Chronology and relevant facts

[13]     There is little dispute over the relevant chronology.   OLB cross-examined two of Babcock’s deponents, Mr K F Drake and Mr S D Lister, both of whom had responsibility for the vessel’s repairs and contractual negotiations with its owners. The focus of the cross-examination was on the various movements of the vessel around Auckland Harbour, its ability to move under its own power, and general factual matters arguably relevant to Babcock’s possession of the vessel.

[14]   Between  November  2010  and  January 2011  there were  various communications between the owners and Babcock over the vessel being dry-docked so that Babcock could carry out repair and maintenance work.   At that time the vessel was under charter to the second intervener (PDL International Pty Ltd) who has taken no steps in this proceeding.

[15]     On 17 January 2011 the owner signed an application form for Babcock to carry out  work on  the vessel.   This  common  form  contractual  term  included  a requirement to pay for the repairs in full before the vessel left the dry-dock.  In the event, however, the owners and Babcock modified that term.   The vessel was subsequently to leave the dry-dock for a repair berth.

[16]     The  vessel  arrived  in Auckland  on  1  February  2011.    Three  days  later Babcock provided the owners with (effectively) a list of proposed dry-dock work and prices.    The  owners  endeavoured  to  modify payment  terms  so  that  half  of  the contract price could be paid prior to the vessel’s departure and the other half at a later

date.  Babcock, however, insisted on its contractual terms.

6 Supra [7].

[17]     The vessel appears to have entered the dry-dock on 14 February 2011.  The dry-dock used by Babcock was the dock at the Royal New Zealand Navy (RNZN) base at Devonport.   Between (approximately) 11 February and 3 March 2011 the scope of the work being carried out by Babcock was modified.   Various changes were approved by the owner.  Whilst the repairs were being carried out the crew of the vessel remained on board.   Babcock’s request for progress payments was not met.

[18]     On 28 February 2011 the vessel left the dry-dock and moved to a repair berth, also at the RNZN Devonport base.  Most of the repairs had been completed by then but the vessel’s engines still needed refit work.

[19]     Mr Drake, by emails to Weise on 1 and 2 March 2011, made it clear that, although the vessel had left the dry-dock, payment on completion of all the work would be acceptable to Babcock.   But the vessel would not be permitted to leave until all payment was received. This was acceptable to the owners although Babcock did not agree to all the extra work which the owners had requested.  Babcock made it very clear to  the owners  the vessel  would  not  leave the RNZN dockyard  until payment had been received.

[20]     The owners proved to be a broken reed with its payment commitments.  By 9

March 2011 Babcock had been informed by the charterers that the owner had insufficient funds to pay for the repairs.  There were discussions about alternative payment timetables, but nothing was concluded.

[21]     On 16 March 2011 Mr Drake made it clear that Babcock was exercising a repairer’s lien over the vessel.  The crew were informed the vessel could not leave the Devonport base.  At some uncertain time in March the ship’s telegraph (a small electronic box, the function of which is to signal movement and engine orders from the vessel’s bridge to the engine room) was removed.

[22]     Work had been completed, in large measure, by 17 or 18 March.   On 18

March the vessel was moved from the Devonport repair berth.  It was towed across

Auckland Harbour by tug.  Repairs to the ship’s engines and engine trials had yet to

be completed.  The vessel’s crew remained on board.  The ship’s telegraph was, for what Mr Lister saw as safety reasons, returned to the ship’s master but it was not installed.  It was subsequently returned to Babcock.  The reason why the vessel was removed from the Devonport repair berth was because RNZN required the space. From 18-23 March 2011 the vessel was berthed at a Ports of Auckland Authority berth, payment for which was guaranteed by Babcock.   Babcock also paid for the tow across the harbour.

[23]     The vessel was towed across the harbour back to the Devonport repair berth on  23  or 24  March.    Extra engine parts  arrived.    Repairs  to  the  engines  were completed, as were engine trials.  By 31 March 2011 Babcock had finished its work on the vessel.

[24]     Payment of the arrears was not forthcoming.  On 4 April 2011 Babcock filed its in rem proceeding in this Court and served notice on the vessel.

[25]     OLB, on the evidence of its deponent, Mr T Rottinghaus, was unaware that the vessel was being repaired by Babcock (the owners not having informed it) until

15  March  2011  (probably 16  March  New Zealand  time).    Babcock  for its  part became aware of OLB’s interest on 12 April 2011 when it was informed that Wilson Harle had been instructed.

[26]     On 19 April 2011, the relevant period having expired, Babcock applied for

judgment by default.  It also applied, without notice, for the vessel’s arrest and sale.

[27]     Babcock filed a memorandum on the issue of its possessory lien and the ship’s arrest.  On 2 May 2011 Woolford J, on the papers, gave judgment by default to Babcock  and  made  the  directions  to  which  I have referred,  carrying  Babcock’s possessory lien across to the vessel’s sale proceeds.7

[28]     The vessel was arrested on 3 May 2011.  At that time the full crew was still

aboard.  On 4 May Babcock’s berthage arrangements with RNZN were transferred to

the Court.   However, the berthage facility at Devonport would not run beyond 31

7 Supra [7].

May.  On 11 May the Registrar instructed Workboats NZ on the sale of the vessel and gave it authority to have access to the vessel at any time it was under arrest.  The Registrar also sought Babcock’s agreement to insure the vessel.   On 17 May Babcock’s solicitors consented to the Registrar paying off the master and the crew.

[29]     On 21 May 2011 the vessel was moved from the RNZN berth at Devonport to a berth further up the harbour operated by Chelsea Sugar Refinery.  Some time before then, it not being clear when, the ship’s telegraph was returned to enable the vessel to move up the harbour.   Berthage of the vessel (it being immaterial when) subsequently shifted from the Chelsea Sugar Refinery to a Ports of Auckland Authority berth.

[30]     Workboats NZ and the Registrar in combination (with funds supplied by Babcock) arranged for the vessel to be surveyed.   It was subsequently sold by the Registrar under Admiralty processes on 16 August 2011 and left New Zealand for Singapore on 15 September.

[31]     I am satisfied on the basis of the evidence of Babcock’s deponents (and the cross-examination of Messrs Drake and Lister) that Babcock intended to exercise the rights of a possessory lien holder.  Indeed I find it retained possession of the vessel from the time of Mr Drake’s email to the owners on 16 February 2011 (that being prior to the vessel leaving the dry-dock) until the arrest of the vessel by the Bailiff on

3 May 2011.   I do not consider the rights of the possessory lien holder were lost during the period 18-23 March 2011 when the vessel was towed across the harbour to  another berth  (towage and  berthage  being arranged  by Babcock).    Nor do  I consider the temporary return of the ship’s telegraph for safety reasons diminished or destroyed the rights of the possessory lien holder.

[32]     At the point, however, of Babcock’s request that the ship be arrested being implemented  (3  May  2011)  control  of  the  vessel  passed  to  the  Registrar  who assumed responsibility for the vessel’s control and berthage.

[33]     Up to the point of the ship’s arrest, I am satisfied that Babcock’s rights as

possessory lien holder were in force and unabated.  The central issue thus remains

whether, by exercising its right as an in rem judgment creditor to arrest the vessel and invoking the Admiralty processes for its sale, Babcock lost its possessory lien holder’s rights.   Additionally, was the direction made on 2 May by Woolford J ineffectual?   My reformulation of the issues in no way detracts from the issues correctly formulated by both counsel.8

Discussion

[34]     I have been greatly assisted by the comprehensive submissions of counsel. The relative brevity of this section of my judgment does not demean those submissions which I have considered carefully.  No useful purpose is served by my setting out in detail counsel’s arguments.  Their respective stances are self-evident, given the issues and the factual matrix.

[35]     To a large extent I consider the result will depend on which party pursued (or did not pursue) which remedy when.   OLB on the evidence of its deponent, Mr Rottinghaus, knew by 15-16 March 2011 that Babcock was repairing the vessel when the owner had forwarded a chart containing details of the repair amounts owing.  Its New Zealand solicitors notified Babcock of its interest on 12 April 2011.  Not until 3

May (when Wilson Harle received Woolford J’s judgment) did OLB (according to its counsel’s chronology) take the step of accelerating payments of the loans owing under the mortgage.

[36]     Had Babcock taken no steps in Admiralty and maintained its possessory lien and had OLB, faced with mortgage defaults, begun an in rem action, Babcock’s right to  recover  its  unpaid  repair  costs  would  not,  on  the  authorities,  be  seriously disputed.9     As Mr Sherlock submitted, OLB took no steps to attack or set aside Woolford J’s directions.  Instead it filed (13 May 2011) a caveat against release and payment and, on 27 June, leave to intervene.

[37]     Babcock chose not to wait, relying on its possessory lien and leaving it to

OLB or the charterer to seek the sale of the vessel.   Instead it obtained an in rem

8 Supra [11] – [12].

9 Infra [ 47].

judgment and sought the arrest and sale of the vessel, during the course of which process control passed to the Registrar.  The formulated issues starkly raise whether, by taking those steps, Babcock lost the advantage which a repairer of the vessel would otherwise have had if Admiralty enforcement proceedings were left to the mortgagee.

[38]     Common law recognises the right of an unpaid repairer to claim a possessory lien.   The remedy is essentially a self-help one, entitling the repairer to retain the relevant item until the debt incurred through the repairs is repaid.  The possessory lien is permanently lost if the lienee voluntarily parts with possession.10

[39]     Common law does not confer a power of sale on the repairer.   In New Zealand, however, unpaid repairers have a statutory power of sale under s 3 of the Wages  Protection  and  Contractors’ Liens  Act  Repeal Act  1987.    Both  counsel referred to that provision.  However, that statute is of little assistance in an Admiralty case.   It would be highly doubtful whether the repairer of any significantly-sized vessel (other than a modest motorboat or yacht) would easily or with sufficient authority satisfactory to potential purchasers, be able to exercise the s 3 power of sale.

[40]     As indicated, I am satisfied that up to 3 May 2011 Babcock was exercising a possessory lien over the vessel to secure its substantial and unpaid repair costs. Describing possession as a question of fact and degree, Brandon J in The “Narada” stated possession must:11

... depend on the extent and character of the repairs which are done, and on whether the repairs are of such a kind as to necessitate the ship-repairers being in overall or effective possession of the ship....

[41]      Given the vessel’s sojourn in the dry-dock and the repair dock, the necessary engine repairs (being the last to be completed) and given Babcock’s clear signalling that it would not release the vessel until it was paid, I have no doubt Babcock was a

possessory lien holder.   Although throughout the repair period the vessel’s master

10 Halsbury’s Laws of England, at [1041].

11 The “Narada” [1977] 1 Lloyd’s Rep 256 (QB) at 256–257.

and crew remained on board, this does not detract from the possessory lien.12    Nor can conclusions, adverse or otherwise, be drawn from the fact that for periods of time the vessel was berthed at a public dock or wharf, or at a wharf owned by an independent private entity.13

[42]     The “Gefion” is also authority for the proposition that removal and retention by the repairer of components of a ships propulsion system would be “the most effective way to retain possession”.14   I have found that by arranging for the vessel to be towed across the harbour to be berthed at a public wharf between 18-23 March and by removing the telegraph (restored only for a short period for safety reasons and ultimately sometime in late May 2011 being handed over so that the Registrar could move the ship), Babcock did not surrender possession of the vessel.

[43]     This clearly being an Admiralty case, the law to apply is New Zealand’s Admiralty jurisdiction.   That is both derived from the English Court of Admiralty and also from the Admiralty Act 1973.15    Section 4 confers Admiralty jurisdiction across  a  number  of  questions  and  claims  including  claims  in  respect  of  a construction, repair, or equipment of a ship (s 4(1)(m)).  Section 5(2) provides that this Court’s Admiralty jurisdiction in respect of s 4(1) questions and claims may be

invoked by an action in rem.  There are no statutory restrictions or qualifications of the in rem right conferred on a ship repairer.

[44]    Section 11 empowers the making of rules and regulations in respect of Admiralty claims.  These are found in Part 25 of the High Court Rules which deal with the form and procedure of in rem claims, in personam claims and collision cases.  Unremarkably the rules provide for judgment and enforcement.  Rule 25.33 provides for judgment by default (which both parties have obtained).   Rule 25.34 permits the parties of an in rem claim to apply for a warrant of arrest.  Subrule (1) envisages an arrest application being made at any time after the issue of an in rem

proceeding or counterclaim. The relevant form, Form AD9, for a warrant of arrest

12 See The “Narada” at 257.

13 The “Gefion” (1922) 10 Lloyd’s LR 305 (CA).
14 Ibid at 308.

15 Many provisions of this statute are based on Admiralty jurisdiction provisions contained in the

Senior Courts Act 1981 (UK).

directs the Registrar to keep the ship under safe arrest pending further court order. The explanatory note in McGechan on Procedure states the Registrar has custody only and  not  possession  of the  ship  whilst  it  is  under  arrest.16      It  is  contempt (r 25.40(2)),  however,  to  move  the  ship  without  the  Registrar’s  consent.    Rule

25.51(1) permits the party (as did Babcock here) to request a commission for the appraisement and sale of any arrested property.

[45]     Clearly Babcock, entitled as it was to an in rem action, invoked a number of relevant rules.  It obtained a default judgment.  It sought and obtained the arrest of the vessel.   It sought and obtained orders for the vessel’s appraisal and sale.  The distinction between custody and possession of an arrested vessel (supra [44] ) is of no significance here given that on the vessel’s arrest on 3 May 2011 the Registrar effectively took over control of the vessel including its berthage arrangements at Devonport with RNZN and responsibility for ongoing berthage fees.  By this stage the ship was capable of moving under its own engine propulsion.  Certainly before

31 May 2011 (the date being uncertain) Babcock returned the vessel’s telegraph so she could move up the harbour.  Such evidence as there is, however, suggests that although the Registrar understandably consulted with Babcock on a number of issues over the next few weeks, Babcock, having obtained an order for the vessel’s sale and the protection of Woolford J’s direction, was not exercising effective possession and control over the vessel.

[46]     Against this procedural narrative OLB’s submissions, if correct, would mean that  a  ship  repairer  who  chooses  to  exercise  its  statutory  in  rem  right  would effectively lose priority because enforcement of the in rem judgment necessitates losing possession of the vessel.

[47]     Under English Admiralty Law it is established that when a third party applies for the arrest and sale of a vessel which is in the possession of a repairer, the Admiralty Courts will protect the position of the possessory lien holder.17   On arrest

the  Admiralty  Marshall  only  assumes  custody  of  the  arrested  ship  whilst  the

16 McGechan on Procedure, (looseleaf ed, Brookers) at [HR 25.36.01].

17 The “Tergeste” at 32.

possessory lien holder continues to maintain possession.18     Because the Marshall must have possession to sell a vessel, the law developed pragmatically to avoid conflict between the Marshall and the possessory lien holder.  Conflict was avoided by ensuring the possessory lien holder’s claim was paid out by a notional lien against the ship’s sale proceeds.

[48]     This aspect of the law was classically summarised by Phillimore J in The

“Tergeste”:19

The view which the Admiralty Court took with regard to conflicting claims by shipwrights having a possessory common law lien, and claims which have been sustained by process in the Admiralty Court, has been well established and has been accepted by this Division of the High Court of Justice.  It is that it is [sic] the duty of the material man not to contend with the Admiralty marshal; to surrender the ship to the officer of the Court and let the officer of the Court, under the order of the Court, remove and sell her; but when he has done that, the Court undertakes that he shall be protected, and that he shall be put exactly in the same position as if he had not surrendered the ship to the marshal.

[49]     So  the  issue  arises,  should  this  pragmatic  solution,  which  effectively prioritised the possessory lien of a ship repairer, be altered because the Admiralty Law processes are being invoked, not by a third party, but by the repairer itself?

[50]     I can see no compelling policy reason for such a change.  The inclusion of a ship repairer among the category of potential in rem claimants by s 4(1)(m) makes the parliamentary intention clear that ship repairers were to have access to Admiralty jurisdiction.  Particularly in the light of my previous remarks about the choice and timing of remedies (supra [35]), it would be absurd if a possessory lien holder maintained priority when Admiralty jurisdiction was invoked by another claimant, but lost priority when the repairer itself invoked the jurisdiction.  Such a result, in respect  of  any  vessel  being  repaired,  could  lead  to  a  stalemate  which  would inevitably disadvantage claimants and creditors.  In a situation where a lienee and a mortgagee both waited in the hope that the other claimant would be the first to arrest a ship, the resulting delay would lead to the vessel losing value whilst berthage costs

rose.

18 The “Acacia” (1880) 4 Asp MLC 254 at 256; The “Árantzazu Mendi” [1939] AC 256 at 266.

19 At 32.

[51]     On  this  issue  I  consider  that  the  Singaporean  authorities  cited  to  both Woolford  J  and  me by Mr Sherlock  are  compelling  and  ought  to  be  followed. Singapore’s geographical position is a cogent reason for treating the decisions of its Admiralty Courts with respect.  Singapore lies across a maritime choke point at the narrows of the Straits of Malacca through which an enormous tonnage of mercantile shipping passes.  The Straits are the shortest distance from the Indian Ocean to the South  China  Sea  and  provide  passage  for  ships  carrying  oil  and  merchandise between East Asia, South Asia, the Gulf, the Mediterranean and Europe.   It is a sensible conclusion that  Singaporean  courts,  as a result of the sheer  volume of shipping in Singapore’s waters, must attract a constant and varied diet of Admiralty disputes.

[52]     One such case was The “Dwima 1”.20   The plaintiffs had carried out repairs to the vessel.   The repair costs had not been paid in full as a result of which the plaintiffs retained the vessel in their yard pending full settlement.   Various negotiations between the plaintiffs and the owners to secure the repair costs through a pari passu mortgage with the ship’s first mortgagee came to nothing, as did the owners’ attempts to sell the vessel.

[53]     The plaintiffs commenced an Admiralty action in rem for the recovery of their outstanding repair costs and obtained judgment by default.   They sought appraisement and sale of the vessel, without prejudice to the possessory lien of the plaintiffs. A Singporean judge granted the orders and the vessel was duly sold.

[54]     As here, the ultimate dispute was between the plaintiffs as possessory lien holders and the interveners who were the mortgagees.   The argument by the mortgagee of The “Dwima 1” before Rajendran J by the intervener’s counsel was similar to that put to me by Mr David.  Rajendran J summarised counsel’s argument thus:

9         Mr  Jude  Benny  did  not  seek  to  challenge  that  proposition.  He accepted that the arrest of the vessel at the instance of the lien holder would not affect the lien but submitted that if the lien holder went further and obtained a sale of the vessel, his possessory lien would necessarily be lost because the sheriff, in order to be able to sell the vessel, must first be in

20 The “Dwima 1” [1996] SGHC 83; [1996] 2 SLR 670.

possession. This was also the view expressed by Nigel Meeson in his book on Admiralty Jurisdiction and Practice where at p 158 the learned author says:

There appears no reason why the holder of a possessory lien should be held to have waived his right to the security afforded by his possessory lien simply by invoking the Admiralty jurisdiction in rem and arresting the vessel. However, it is arguable that if he were to go further than this and move the court for an order for appraisement and sale, he may then be taking a step inconsistent with his possessory lien, as the Marshal must have possession when the vessel is sold. A possessory lien is not a right to be enforced by action, but simply a self-help remedy. The court will not grant an injunction in support of a possessory lien, and it is, therefore, difficult to see upon what ground the court can sell the ship while maintaining the possessory lien. It is suggested that there comes a stage when the creditor must choose whether to persist in his possessory lien, or whether to give up possession to enable the ship to be sold by the court. If he chooses the latter course, he must at the same time lose the protection afforded by reason of the possessory lien, and his only priority is that arising by reason of his action in rem. [Emphasis added.]

10        Mr Jude Benny adopted the Nigel Meeson approach.

11        Mr Jude Benny submitted that where the repairer, having a lien on a vessel, proceeds to apply for the sale of the vessel, the repairer’s position would be akin to the position of a lien holder of goods who loses his lien when he proceeds to obtain execution of the goods under a writ of fi fa. There was, he submitted, no reason why a ship repairer having a possessory lien should be in a better position from any other person (such as a warehouser or innkeeper) who levies execution on his judgment by way of fi fa. He submitted that were this court to give recognition to the possessory lien of the plaintiffs in spite of the fact that the sheriff had, for the purposes of the sale, taken possession of the vessel, the court would be recognizing the  concept  of  a  ‘notional’  lien  —  a  concept  which  Mr  Jude  Benny submitted had been disavowed in The Gaupen (1925) 22 Lloyd LR 57 and The Ally [1952] 2 Lloyd’s Rep 427.

I return to these authorities later.21

[55]     The Judge went on to say:

20        A  possessory  lien  would  be  lost  if  the  lien  holder  waives  it, abandons it or obtains alternative security of a kind that is inconsistent with the lien. Although the plaintiffs parted with possession of the vessel for the purpose of the sale, that parting, by the terms of the court order applied for by the plaintiffs, was to be without prejudice to their possessory lien. This indicated that the plaintiffs had no intention whatsoever of abandoning their possessory  lien.  If  the  court  had,  at  the  behest  of  the  interveners  or otherwise, refused to order the appraisement and sale on those terms, the plaintiffs  would  still  have  possession  of  the  vessel.  In  my  view,  the plaintiffs, in applying for the order of appraisement and sale ‘without prejudice to their possessory lien’, were not taking any step that derogated

21 Infra [61]-[64].

from  the  lien;  to  the  contrary,  their  conduct  was  consistent  with  their wanting to preserve their lien.

21        Under common law, a repairer would lose his possessory lien if he parts with possession of the vessel. But the harshness of this rule has been mitigated in cases such as The Tergeste where upon a third party invoking the assistance of the court in having the vessel sold, the court protects the lien holder’s interest by transferring that interest from the vessel to the proceeds  of  sale  of  the  vessel.  I can  see  little  distinction  between  that situation and the present situation where the holder of the possessory lien (albeit as a result of his own initiative) parts with the vessel under a court order which protects his possessory lien. In both cases the lien holder parts with possession of the vessel. If the courts can protect the lien in the former case by attaching the lien to the proceeds of sale of the property, I cannot see any reason why the courts cannot in the latter case do the same.

22        A party desiring to object to any application to court for a sale

‘without prejudice to the possessory lien’ should do so at the time the order

is applied for, or, if he was not then a party to the action, he should take steps to set aside that order. The interveners, although they made themselves a party to this action, took no steps to have the order of sale made by Lai Siu Chiu J set aside. The order not having been set aside, this court, in my view, is bound to recognize and give effect to the order.

Clearly it was this approach on which Babcock relied when seeking without notice orders for the arrest and sale of the vessel.  Babcock specifically sought orders which preserved its possessory lien.  Significantly OLB, as intervener, took no steps to set Woolford J’s directions aside.   I consider Rajendran  J’s analysis in [20]-[22] is compelling.

[56]     The Judge’s conclusion in The “Dwima 1” was that the lien ordered against the vessel’s sale proceeds should be upheld and have priority over the claims of the mortgagees.   In particular the Judge, as do I, gave considerable weight to the repairer’s in rem right:

29        The  plaintiffs’  right  of  action in  rem against  the  vessel  for  the recovery of the repair charges is a right that the plaintiffs have by virtue of statute. Section3(1)(m) of the High Court (Admiralty Jurisdiction) Ac (Cap

123), specifically gives our courts admiralty jurisdiction to hear and determine any claim in respect of the construction, repair or equipment of a

ship. What the plaintiffs did in this case was to pursue the right given to

them by statute to bring proceedings against the vessel itself for the recovery of the repair charges. I would in passing note that in The Acacia (supra),

Townsend J, having held that the possessory lien was not lost by arrest of

the vessel, went on to say at p 256:

If I felt myself coerced to follow Jacobs v Latour, I should be bound to hold that the possessory lien was gone, and if the possessory lien be gone this case cannot be distinguished from The Aneroid (L Rep 2 P Div 189);

but I am reluctant to decide for the first time that the effect of an Admiralty arrest is to destroy the lien for the active enforcement of which it was sued out, or that a party having a valid claim up to that moment can be deemed to forego it by asking the statutory aid of the court to make it effectual.

30        I echo those sentiments. The plaintiff here was pursuing a remedy given to him by statute. To achieve his objective the vessel must necessarily be sold. All that the plaintiff effectively asked of the court was that, when the vessel was sold, his rights as holder of the possessory lien be attached to the sale proceeds. In seeking such an order the plaintiff, far from doing something in derogation of his possessory lien, was in fact seeking to preserve it, not as against the vessel as the vessel needs be sold, but as against the proceeds of sale of the vessel.

[57]     Two further Singaporean authorities in similar but not identical vein are The “Opal 3” ex “Kuchino”,22  and Pan-United Ship Yard Pte Ltd v Chase Manhatten Bank (National Association).23     I do not consider it is necessary to analyse those judgments.  Suffice to say the right of a ship repairer to enforce a statutory in rem right against the sale proceeds of the repaired vessels was recognised.

[58]     There  is  some  slight  academic  authority  in  support  of  the  Singaporean approach.    As  is  apparent  from  [9]  in  The  “Dwima  1”  (supra  [54])  the  view expressed  by  Nigel  Meeson  in  the  first  edition  of  his  text24   was  not  adopted. However, in the subsequent third edition, although there is no reference at all to The “Dwima 1” or other Singaporean authorities, the author states:25

There appears no reason why simply by invoking the Admiralty jurisdiction in rem and arresting the vessel, thereby enabling it to be sold by the court, the holder of the possessory lien should be held to have waived his right to the security afforded by his possessory lien.

There is obvious sense in this observation.

[59]     I consider a repairer, with the in rem right conferred by s 4(1)(m) of the

Admiralty Act,  who  has  a  possessory  lien,  is  entitled  to  enforce  any  judgment flowing from the exercise of that in rem right by seeking the arrest and sale of the

22 The “Opal 3 ex Kuchino” [1992] 2 SLR 585.

23 Pan-United Ship Yard Pte Ltd v Chase Manhatten Bank (National Association) [1999] 1 SLR (R)

703.

24 Nigel Meeson and John A Kimbell Admiralty Jurisdiction and Practice (Lloyd’s of London Press

Ltd, London, 1993) at 158.

25 Nigel Meeson Admiralty Jurisdiction and Practice (3rd ed, Lloyd’s of London Press, London, 2003)

at [6.29].

vessel.   By invoking the Admiralty jurisdiction in this way and inevitably parting with possession of the vessel to the Registrar, it cannot be said the in rem right should be rendered nugatory because possession has been lost.  A repairer with a possessory lien in this situation is entitled to the security of a court order or direction creating a notional lien over the sale proceeds of a vessel.

[60]     When dealing with the Singaporean cases, Mr David submitted they had made  it  clear  that  the  protection  afforded  to  a  lien  holder  was  dependent  on possession being maintained until the point of sale.  This is not correct.  It was not the case in The “Dwima 1”.  Nor was Mr David’s proposition consistent with the

facts of the other two Singaporean authorities.26

[61]     Returning  to  the  central  issue,  I have  given  careful  consideration  to  the authorities and submissions of Mr David to the contrary.  In The “Ally” Willmer J considered it was not part of the duty of an Admiralty Court:27

...to assist somebody who is engaged in ... a species of self-help.  The most the Court can be asked to do is not prejudice the rights of the party who is seeking to do that....

That was a case where the Court’s approval was sought by a possessory lien holder

to move a vessel from its dry-dock to a public dock.

[62]     Similar considerations arose in The “Gaupen”.28  A writ had been issued against a vessel which had not yet been arrested.  Again a possessory lien holder wanted the vessel to be moved from its dry-dock to a wet dock while still preserving the possessory lien.  The Court considered moving the vessel to the wet dock would be to surrender possession.  Lord Merrivale refused to use the Court’s powers to turn a genuine lien against a vessel into a notional one.

[63]     Mr  David  submitted  those  two  authorities  made  it  clear  the  English

Admiralty Court (unlike Woolford J) would not create a notional lien in order to protect a possessory lien holder who wished to surrender possession of a vessel.  It

26 Supra [57].

27 The “Ally”[1952] 2 Lloyd’s Rep 427 at 428.

28 The “Gaupen” (1925) 22 Lloyd LR 57.

was a fundamental requirement for a possessory lien that possession be maintained. Once the possessory lien was lost the Courts could not create a notional lien to protect the lien holder.

[64]     Leaving aside the contrary arguments which flow from Babcock’s statutory in rem right, I consider that The “Ally” and The “Gaupen” are distinguishable.  The Court in those cases refused to declare possessory liens attaching to the vessels once they were no longer in possession of the repairer.  As remarked by Rajendran J in The “Dwima 1” these cases go no further than to restate the common law position that the possessory lien is lost if the lien holder parts with possession.  The cases were not concerned with the sale of vessels by court order.  Nor were they concerned with the relevant possessory liens being transferred to the sale of proceeds.

[65]     There is no persuasive New Zealand authority to suggest I should take a different approach from that adopted by the Singaporean courts.  In Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd29 Gendall J indeed expressed the view that where a party holding a possessory lien over a vessel issued a writ of arrest the arrest might involve the giving up of possession and the release or termination of the lien.30

However, His Honour went out of his way to indicate that his comments involved only a preliminary non-binding view.31   There is no suggestion that the policy issues which I have canvassed or the Singaporean case law were placed before Gendall J.  I consider if His Honour had the benefit of full submissions and consideration his view might well have been different.

[66]     In the light of my findings and the view I have taken of the law, there is no room or need to consider any competing equities of the parties.

Result

[67]     My conclusion is that, as at 3 May 2011 when the vessel was arrested, Babcock had not lost its possessory lien over the vessel.  Furthermore, for the policy

29 Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd HC Nelson AD1/03, 6 May 2003.

30 At [7] and [12].

31 At [7].

reasons I have articulated, I consider that Babcock was entitled to ask the Court for an  order  that  its  possessory  lien  be  preserved  by  a  notional  lien  over  the  sale proceeds of the vessel once the vessel had been arrested and sold pursuant to this Court’s order.  It follows that I consider Woolford J, on the basis of the authorities placed before him and the factual situation at the time, was correct to direct that Babcock should have a notional lien against the sale proceeds of the vessel. By doing so, and in particular by directing that placing the vessel into the legal custody of the Registrar did not affect Babcock’s possessory lien, the Judge correctly put in place the mechanism  to  reflect  the policy choices  which arose out  of the  lien-holder

seeking to enforce its in rem rights.32

Orders

[68]     It  is  common  ground  between  the  parties  that  certain  costs  incurred  by Babcock, relating to its Admiralty proceedings, rank as a first priority in accordance with well established principles.

[69]     The sale proceeds of the vessel, by agreement with the parties, are held in various currencies in this Court’s trust account.   There will also be accumulated interest.

[70]     Rather than my attempting the required arithmetic for appropriate orders I direct counsel are to confer and to produce a memorandum of consent orders for my approval (the Registrar is not to seal the orders until the approval has been obtained from me), which accurately reflect the result of this judgment.

[71]     That result, of course, is that the unpaid repair costs of the plaintiff, protected by its possessory lien and the subsequent notional lien, have priority over the sum

owing to the third intervener under its mortgage.

32 Supra [7] at [12].

Costs

[72]     The plaintiff is entitled to costs on the hearing.  I tend to the view that 2B is the appropriate scale but Admiralty lawyers may well, as a matter of practice, have adopted a higher scale.

[73]     If counsel cannot agree costs I shall need to determine them.  If a hearing is necessary it should be requested and timetabled by agreement between counsel.

.......................................…

Priestley J