Glencore Grain BV v The Ship Lancelot
[2015] NZHC 2052
•26 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001386 [2015] NZHC 2052
BETWEEN GLENCORE GRAIN BV
First Plaintiff
AND
GLENCORE GRAIN (NZ) LIMITED Second Plaintiff
AND
THE SHIP LANCELOT V Defendant
AND
THE MASTER AND CREW OF THE SHIP MV LANCELOT V
Caveators / Interveners
Hearing: 26 August 2015 Appearances:
A S Olney and A R MacDuff for First and Second Plaintiffs
M A Flynn for DefendantJudgment:
26 August 2015
ORAL JUDGMENT OF WYLIE J
Solicitors:
Russell McVeagh, Wellington for Plaintiffs
McElroys, Auckland for Defendant
Jones Fee, Auckland for Caveators/Interveners
GLENCORE GRAIN BV v THE SHIP LANCELOT V [2015] NZHC 2052 [26 August 2015]
Introduction
[1] The defendant vessel, Lancelot V, was arrested at Tauranga on 23 June 2015 at the request of the plaintiffs – Glencore Grain BV and Glencore Grain (NZ) Limited.
[2] Glencore Grain BV is a company incorporated in the Netherlands and it carries on business as a grain trader and marketer. Glencore Grain (NZ) Limited is a company incorporated in New Zealand and it carries on business as an importer of grain and stock food. I refer to them jointly in this judgment as “Glencore”.
[3] Lancelot V is registered in Panama. She is owned by an entity known as Orlando Shipping Co (“Orlando”). Orlando is incorporated in the Marshall Islands. The ship is operated through Greek operators – Throne Shipping SA – who are based in Piraeus, Greece.
[4] Glencore has applied for appraisement and sale of Lancelot V pursuant to r
25.51 of the High Court Rules.
[5] The application is supported by the master and crew of Lancelot V. It is opposed by Orlando.
Background
[6] The Lancelot V is a “handymax” sized bulk cargo carrier, of 41515 dead weight tonnage. She was built in 1996, and she has a normal compliment of 22 crew.
[7] According to Mr Aston, a maritime consultant of London, retained by Orlando, Lancelot V is insured with hull and machinery insurers for $7.5 million (US). Also according to Mr Aston, she has a registered mortgage in place in favour of Specova SA in the amount of $6,250,000 (US). That mortgage is registered on the Panamanian Registry. It was registered on 4 June 2015. Further, Mr Aston says that Orlando negotiated a potential sale of the vessel, at the agreed price of $5,800,000 (US). That agreement was apparently entered into in April 2015 but the sale was
unable to be completed because Lancelot V was arrested in New Zealand and could not be delivered to the purchasers.
[8] Under bills of lading issued by Orlando in Varna, Bulgaria, on 28 February
2015, Glencore Grain Bulgaria EOOD, as shipper, shipped 38,500 metric tonnes of Bulgarian corn in bulk on the Lancelot V, freight pre-paid, to discharge at one to three safe ports in New Zealand.
[9] The consignee under the bills of lading is stated as “to order”. The second plaintiff, Glencore Grain (NZ) Limited, is the receiver and consignee of the bulk corn, and this was notified to the Lancelot V. As a result, Glencore Grain (NZ) Limited is the lawful holder of the bill of lading.
[10] The bill of lading incorporates the terms of a single voyage charter party between Orlando and the first plaintiff, Glencore Grain BV. That charter party provided, amongst other things, that the Lancelot V would:
(a) proceed with all convenient speed to the discharge ports;
(b)supply free use of all cargo handling gear on-board, such gear to be in good working order; and
(c) have valid certificates for the cargo handling gear.
[11] The Lancelot V arrived at the first discharge port – Auckland – on 30 April
2015. Discharge of the bulk corn was delayed. It was not completed until 18 May
2015. Glencore says that the discharge was delayed due to deficiencies with the vessel, including the vessel’s cranes. It says that they were not fully operational, and that the certificates for the cranes were out of date. It is alleged that the cranes failed initial load tests. Glencore says that the cargo was ultimately discharged between 7 and 18 May 2015 using shore cranes arranged at its cost.
[12] The Lancelot V was unable to sail immediately thereafter, because, according to Glencore, the vessel’s cranes could not be stowed and because Orlando had failed to pay certain amounts requested by shipping agents.
[13] The vessel only sailed on 9 June 2015, when she proceeded to the second discharge port – Tauranga. The Lancelot V arrived in Tauranga on 10 June 2015. Again, discharge of the corn was delayed, due, according to Glencore, to the same deficiencies with the vessel. The remainder of the cargo had to be discharged using shore cranes. Discharge was only completed on 22 June 2015.
The proceedings to date
[14] Glencore has admiralty claims against the Lancelot V and Orlando arising from the charter party between Orlando and Glencore Grain BV and under the bills of lading held by Glencore Grain (NZ) Limited as consignee.
[15] In the substantive claim, Glencore alleges that the discharge of corn at Auckland was delayed due to the deficiencies with the ship noted above. When it finally reached Tauranga, again discharge was delayed due to the same deficiencies. Glencore claims that the ship is in breach of its obligations under the bill of lading and the charter party. As a result of the breach, Glencore says that it has suffered loss and damage in the sum of $340,106.36 (NZ) – approximately $221,000 (US). This amount comprises costs said to have been incurred for truck demurrage, shore crane hire, additional stevedores, additional product movement and contractual costs due to delay in delivery. Glencore also seeks interest and costs.
[16] The Lancelot V has filed a statement of defence. Many of the factual allegations are admitted, but it denies that there has been a breach of the charter party. It says that the ship arrived in Auckland with valid gear certification. It also says that the damages claimed were not within the reasonable contemplation of the parties as at the date of the contract, and are therefore too remote.
[17] Separately, the Lancelot V has filed a counterclaim alleging a breach of contract on the part of Glencore. It says that pursuant to the bill of lading and/or the charter party, Glencore was due to pay freight and demurrage in the sum of
$154,163.45 (US). It says that that sum has been withheld from it, and it claims that amount, together with interest and costs. It asserts that at least $107,154.11 (US) cannot be in dispute.
[18] Glencore has yet to file a statement of defence to the counterclaim. Time has not expired in that regard as yet.
[19] It is common ground between counsel that the proceedings can be dealt with relatively expeditiously. Counsel are confident that they can be made ready for hearing in the first quarter of 2016.
[20] The master and crew of the Lancelot V have been granted leave to intervene in the proceedings. They have also filed a statement of claim. They initially sought unpaid wages in the sum of $126,149.22 (US). This claim included wages for periods following the arrest of the Lancelot V, and those wages have since been paid by the Registrar. Further, the Registrar has made arrangements for the crew to receive payment on account of post-arrest wages at the minimum international transport federate rate, instead of the contract rate. It is common ground that the unpaid wages owing to the master and crew for the period from April 2015 (when partial payments were made) to the date of arrest total $91,041.76 (US).
[21] No statement of defence has been filed by Orlando or the Lancelot V to the claim made by the master and crew. I was advised by Mr Flynn appearing on behalf of Orlando and the Lancelot V that the claim made by the master and crew is not disputed. The time for filing a statement of defence has passed, and the master and crew have sought entry of judgment by default. That application is yet to be determined.
The application
[22] The application is brought pursuant to r 25.51 of the High Court Rules. Relevantly, it provides as follows:
25.51 Appraisement and sale of property
(1) A party may request a commission for the appraisement and sale of any property under arrest of the court…
(2) The court may, either before or after final judgment, order that any property described in the request—
(a) be appraised; or
(b) be sold with or without appraisement, and either by public auction or by private contract.
(3) If the property is deteriorating in value, the court may order that it be sold immediately.
…
(6) A commission for appraisement and sale may not be executed until an undertaking in writing, satisfactory to the Registrar, to pay the Registrar’s fees and expenses on demand has been lodged in the Registrar’s registry.
(7) The Registrar must pay into court the gross proceeds of the sale of any property sold by the Registrar under a commission for sale, and must bring into court the account relating to the sale (with vouchers in support).
[23] Rule 25.51 is supported by r 7.56. Relevantly, it provides as follows:
7.56 Sale of perishable property before hearing
(1) A Judge may, on application, make an order authorising a person to sell property (other than land) in a manner and subject to any conditions stated in the order if—
(a) the proceeding concerns the property or raises, or may raise, questions about the property; and
(b) the property—
(i) is perishable or likely to deteriorate; or
(ii) should for any other reason be sold before the hearing.
…
[24] Glencore applies for orders that:
(a) The ship be appraised and sold by public auction, private treaty, or tender at the Registrar’s discretion, on terms acceptable to the Registrar;
(b)Advertising for sale be commenced as soon as is reasonably practicable;
(c) If a tender or auction is to be organised, that the Registrar set a tender or auction date as soon as is reasonably practicable;
(d) Upon settlement of the sale, the Registrar, in accordance with r
25.51(7), pay the gross proceeds of sale into an interest bearing account held in the Registrar’s name;
(e) The costs of arrest, appraisement and sale incurred by the Registrar are to be a first charge on the vessel;
(f) Upon application to the Registrar the plaintiffs will be entitled to immediate payment from the proceeds of sale as a first priority of:
(i)All amounts paid by the plaintiffs to the Registrar in this proceeding; and
(ii)All payments made by the plaintiffs and approved by the Registrar in connection with the Lancelot V under arrest for the benefit of claimants against any fund resulting from the ship’s sale; and
(g) Any party is to have leave to apply to the Court on three days’ notice
for further directions in connection with the sale process.
Relevant law
[25] The statutory provisions relating to the admiralty jurisdiction are contained in the Admiralty Act 1973. New Zealand admiralty law has its origins in the law developed by the Court of Admiralty in England. The New Zealand High Court sitting in its admiralty jurisdictions still, to a significant extent, applies the law
developed by the Court of Admiralty.1
[26] The Courts in their admiralty jurisdiction have developed special procedures, rights and remedies. Amongst those is the action in rem whereby admiralty claims
1 Laws of New Zealand Maritime Law: Admiralty (online ed) at [1].
are brought directly against a relevant vessel. Because vessels are, by their nature, moveable, the Admiralty Courts have supported the action in rem by developing procedures by which the relevant vessel can be arrested. Under arrest, the vessel stands as security for claimants in rem.
[27] The owners of an arrested vessel may secure its release by putting up security for the in rem claims to stand in the vessel’s stead. Unless the owner does so, the vessel can be sold, and the claimants can be paid out of the proceeds of sale.
[28] While under arrest, the vessel comes under the custody of the Court, and the Registrar is responsible for its safe keeping. This will generally include such matters as berthage, security, day to day maintenance and provision for the vessel and its crew. The costs and expenses of the Registrar incurred in the care and custody of the vessel and the making it ready for sale, have the highest priority in claims against the ship, or against any fund representing the ship following its sale.
[29] Where an application for arrest is made, the Registrar requires the provision of security by the person applying for the arrest. The applicant must supply an indemnity. Once a ship is arrested, the Registrar can require actual payment of a specified sum.
[30] While priority amongst claimants is ultimately decided in each case at the Court’s discretion, as a matter of admiralty practice, the usual order of priorities is as follows:2
(a) The costs and expenses of the arrest;
(b)The costs of the party who has produced the fund realised by the sale of the ship;
(c) Maritime liens – for example crews’ and master’s wages;
(d) Mortgages, whether in New Zealand or overseas;
2 Laws of New Zealand Maritime Law: Admiralty (online ed) at [154]-[158]; ABC Shipbrokers v
The Ship “Offi Gloria” [1993] 3 NZLR 576 (HC) at 582.
(e) In rem claims; and
(f) In personam claims.
[31] Vessels are not usually subject to prolonged arrest. In most cases either the owner does not appear in the in rem action to defend the claim and judgment is entered. The vessel is then sold to satisfy the claim. Alternatively, where the defendant owner appears in the in rem action for the purpose of defending the claim, almost invariably, the defendant owner will obtain the release of the vessel by
putting up security for the in rem claims.3
[32] Counsel were agreed that the leading authority dealing with the sale of vessels pendente lite is the decision of Brandon J in the “Myrto”.4 In that case a plaintiff bank sought to enforce mortgages it held over a vessel and had it arrested. It was accepted by the plaintiff bank that the defendant owners had arguable defences that the mortgages were unforceable. This was not a determinative factor. The plaintiff bank sought an order for the sale of the vessel on the basis that the
security obtained by arresting the vessel was being progressively diminished by the continuing costs of maintaining the arrest, and because none of those costs were being met by the owners. Brandon J had no doubt that the sale should be ordered. He observed as follows:5
I accept that the Court should not make an order for the appraisement and sale of a ship pendent lite except for good reason, and this whether the action is defended or not, I accept further that, where the action is defended and the defendants oppose the making of such an order, the Court should examine more critically than it would normally do in a default action the question whether good reason for the making of an order exists or not. I do not accept, however, the contention put forward for the owners, that the circumstances that, unless a sale is ordered, heavy and continuing costs of maintaining the arrest will be incurred over a long period, with consequent substantial diminution in the value of the plaintiffs’ security for their claim, cannot as a matter of law, constitute a good reason for ordering a sale. On the contrary, I am of opinion that it can and often will do so.
… I have no doubt that, on the facts of this case, the Court should exercise its discretion to make such order. It would, in my view, be unreasonable to keep the ship under arrest at great expense for seven months or more, with
3 The “Myrto” [1977] 2 Lloyd’s Rep 243 (QB).
4 The “Myrto”, above n 3.
5 At 260-261.
the result that, if the bank succeeded in their claim, the amount of their recovery would be reduced by the costs incurred. If the owners were prepared to bear or contribute to those costs for the time being in order to prevent a sale, different considerations might apply.
[33] Brandon J’s observations in the “Myrto” have been quoted with approval in a number of subsequent judgments, including the “Gulf Venture”,6 the “Ionian Mariner”7 in Australia and in New Zealand, the “Abruka”.8 In the “Abruka”, the plaintiff brought an action in rem pursuant to rights under a credit agreement and sought sale of the vessel pendente lite. The master and the crew intervened in the proceedings and brought claims for unpaid wages. The owner had entered an
appearance to defend the plaintiff’s claim but had not put up security for any of the claims against the vessel. The owner said that it was without funds. The owner also resisted the plaintiff’s application for sale but it had met none of the costs of keeping the vessel under arrest. Those costs were being borne by the plaintiff. Salmon J referred to the relevant principles, and to the “Myrto”, the “Gulf Venture” and the “Ionian Mariner” cases. He ordered the appraisal and sale of the vessel. He relied in particular on the heavy and ongoing costs of arrest, the likely deterioration of the vessel, and on the issue of high importance, namely that the wages of the crew should be paid in full. This could only be done out of the proceeds realised by the sale of the vessel.
Submissions
[34] Glencore has applied for the orders sought on the following grounds:
(a) Orlando as owner of the Lancelot V has not provided the security necessary to have the ship released and is unable to do so while capital controls are in place in Greece;
(b)The costs of arrest are heavy and ongoing. Those costs are substantially diminishing the security available for the benefit of all in
rem claimants;
6 The “Gulf Venture” [1985] 1 Lloyd’s Rep 131.
7 Marinis Ship Suppliers (Pty) Ltd v The Ship “Ionian Mariner” (1995) 59 FCR 245.
8 Bank of Nakhodka v The Ship “Abruka” (1996) 10 PRNZ 326 (HC); and see UFL Charters Ltd v The Ship “Malakhov Kurgan” HC Christchurch CIV-2006-409-1370, 17 October 2006.
(c) The value of the ship will diminish significantly if she remains under arrest for a lengthy period of time. It is appropriate to commence the process of appraisement and sale as soon as is reasonably practicable to avoid diminution in the value of the vessel;
(d)The master and crew have not been paid wages since April 2015 and have brought claims for those amounts. Humanitarian considerations in relation to the master, crew and their families would be best served by the establishment of a fund from which all claims can be met;
(e) Orlando does not appear to have an arguable defence to the claims of Glencore or of the master and crew. Nevertheless the owner has not put forward a proposal for the speedy resolution of these claims and appears not to be in a position to do so while capital controls in Greece remain in force;
(f) No undue prejudice will be suffered by Orlando or any other party;
and
(g)It is in the interests of justice that the orders sought should be made so as to create a fund earning interest for the benefit of all claimants while the claims are litigated or otherwise resolved.
[35] Orlando and the Lancelot V oppose the orders sought on the following grounds:
(a) There are insufficiently strong grounds to order a sale pendente lite;
(b)The vessel is currently alongside and is not deteriorating at least to an extent which would prejudice the claimants;
(c) Orlando has confirmed its willingness to pay the costs of arrest and to put up security for the claimants but are unable to do so due to banking controls currently in place in Greece;
(d)The costs of arrest are not likely to substantially reduce the available security for the claimants and/or third parties;
(e) Any sale is a significant infringement of Orlando’s proprietary rights
as owner of the Lancelot V;
(f) Orlando has an arguable defence and counterclaim to Glencore’s
claims;
(g)A further period of delay pending lifting of the Greek banking controls is unlikely to prejudice Glencore or affect its ability to recover the costs it has incurred in the arrest, at least in the time being.
[36] Both parties have filed a number of affidavits in support of their respective positions. There are affidavits from Mr Alcorn relating to the wages owing to the master and crew. There is an affidavit from a Mr Murphy of Glencore Grain (NZ) Limited verifying the statement of claim and setting out the facts underlying the dispute from Glencore’s perspective. There are two affidavits from Mr Aston on behalf of Orlando and the Lancelot V. There is an affidavit from a Mr Fraser who is a director of Seaboats New Zealand Limited. That affidavit has been filed on behalf of Glencore. There are two affidavits from a Ms Drury detailing the amounts expended by Glencore to date in maintaining the arrest. There is an affidavit from a Captain Karras, filed on behalf of Orlando and the Lancelot V.
Analysis
[37] First, I note that the circumstances of this application are unusual. Not only is the application pendente lite but further:
(a) Orlando has accepted that the admiralty jurisdiction has been properly invoked by Glencore. It has waived any right to seek that the dispute be arbitrated and that it has appeared in the action in New Zealand for the purpose of defending Glencore’s claims against the vessel. There is no challenge to the validity of the arrest.
(b)Orlando does not contest the wages claims brought by the master and crew.
(c) Orlando has not, and it seems at present, cannot put up security for the
in rem claims against the vessel.
(d)Orlando has acknowledged its liability to put in place a fund to meet the in rem claims, and it has recorded that it is willing to do so. It wishes to reach agreement with Glencore regarding security. Indeed, according to Mr Aston, the parties did reach agreement on the appropriate sum. A draft agreement was circulated but it has not been signed.
(e) Orlando is unable to remit funds out of Greece due to the imposition of banking controls in that country imposed as a consequence of the recent and, at the time of this judgment, ongoing financial and political crisis in that country.
[38] It appears that Orlando is resisting prompt sale of the vessel in the hope that the capital controls in Greece will be lifted sooner rather than later.
[39] There are a number of factors which bear on the matters at issue. I discuss them in turn.
Ongoing costs of arrest
[40] Here payment of the costs of arrest and the ongoing costs has been required by the Registrar. The costs are heavy. As at 21 August 2015 Glencore had paid
$590,000 to the Registrar on account of the costs of arrest and the ongoing costs of maintaining the ship. Costs are being incurred on a daily basis in the sum of approximately $10,000. Glencore is required to pay to the Registrar an additional
$70,000 each week.
[41] On any basis, these costs can appropriately be described as heavy. In the absence of any offer by Orlando to meet these costs, they continue to be met by Glencore.
[42] The costs of arrest are diminishing the security available for the benefit of all claimants and the mortgagee. In this sense the vessel is a wasting asset.
[43] The accrual of costs on a daily basis also increases the amount of security that Orlando would need to put up to secure the release of the vessel, thus making it more unlikely that it will be in a position to do so. If the proceedings cannot be readied for hearing until the first quarter of 2016, significantly increased costs will be incurred. If the hearing were to be in say, six to eight months time, additional costs consequent on the arrest would be in the vicinity of $1.8 to $2.4 million. That would simply be a wasted cost for all concerned.
[44] As against this, it has to be said that Glencore’s claim is not large. If the
counterclaim is netted off, the balance said to be outstanding is approximately
$115,000 (US). Similarly the unpaid wages claim is modest - $91,041.76 (US).
[45] As noted above, the vessel is subject to a mortgage. However no caveat has been entered by the mortgagee in the New Zealand proceedings.
[46] There may be issues with the mortgage. The loan agreement which presumably was the foundation for the mortgage, has not been exhibited. The loan agreement is said to be dated 3 February 2014 and it is said that it was entered into to fund the purchase of the Lancelot V. However, the special resolutions apparently executed by Orlando to validate the transaction, were only executed on 27 May 2015 and the mortgage over the vessel was not registered until June 2015 - shortly after the dispute arose between Orlando and Glencore. While the mortgage has a priority sum of $6.25 million, there is no evidence before the Court as to whether or not the mortgage is in arrears, whether moneys have been advanced up to the priority sum, or whether more or less is owing.
[47] A similar situation arose in the “Gulf Venture”9 case. Justice Sheen took the view that it was appropriate to, in effect, flush out the mortgagee, and he ordered an appraisement and sale. He stated as follows:10
In opposing the application Mr Willmer submitted that the Court must critically examine whether there is good and sufficient reason to order a sale before judgment which will deprive the defendants of their property against their will. He submitted that such critical examination should involve consideration of the advantages and disadvantages to each party of not making the order. Mr Willmer submitted that there is no sufficient advantage to the plaintiffs in making the order because (1) even if they succeed on their pleaded case it is unlikely that the costs of maintaining the vessel under arrest until trial will render their security insufficient; (2) that it is unlikely that their full claim will be established; (3) that part of the time which had elapsed since the arrest of the vessel has been caused by non- compliance by the plaintiffs with my order of July 18; and (4) that there is a disadvantage to the plaintiffs in that if the order is made there is a risk that the mortgagees will intervene with a prior claim and the plaintiffs will get nothing.
…
As to the fourth point, there is no disadvantage to the plaintiffs in the risk that the mortgagees will intervene with a prior claim at this stage. Indeed, if
at some stage mortgagees are going to intervene and claim priority over the plaintiffs, it is in the interest of the plaintiffs that they should do so before
the plaintiffs have incurred very substantial legal costs.
…
I turn, therefore, to Mr Willmer’s first point which is that even if the
plaintiffs succeed on their pleaded case it is unlikely that the costs of maintaining the vessel under arrest until trial will render their security insufficient. That point cannot be divorced from his fourth point. Whether the security will be sufficient will depend upon the terms of the various mortgages. Those terms were not discussed in any detail during argument. But if the mortgagees are now entitled to enforce one or more of the mortgages, delay in the sale of the ship can only have the effect of increasing those costs which take priority over the mortgages, thereby reducing the security for the mortgage debt.
[48] I agree with these observations and adopt them.
[49] It must be borne in mind that the Lancelot V is security for all in rem claimants. There is no dispute that Glencore, the master and the crew have properly brought in rem claims against the vessel. While Orlando has disputed Glencore’s claims, the crew’s claims are undisputed. The master and crew are entitled to judgment, and as noted above, they have made application in that regard. When
judgment is entered the crew will be entitled to apply to have the vessel sold to
9 The “Gulf Venture”, above n 6.
10 At 134-135.
satisfy the undisputed sums. It is noteworthy that the master and crew support
Glencore’s application for appraisement and sale.
[50] In relation to Glencore’s claims, Orlando admits a number of the allegations made. It seems likely that the principle – although perhaps not the sole – issue at trial will be quantum.
[51] There is also the possibility that other claimants may seek to participate in any fund realised by the sale of the Lancelot V.
Orlando’s failure to secure release
[52] Orlando has now had 65 days to put up alternative security or to meet the claims against the vessel. It has failed to do so.
[53] Orlando has not signed the draft agreement which was circulated; nor has it suggested that that agreement could be conditional on capital controls in Greece being lifted. Orlando has produced no evidence about its financial strength to meet the claims of the vessel.11 Nor has it adduced any evidence as to why it is unable to avail itself of other means of securing the release of the vessel, such as mortgagees’ funds, a bank guarantee, or a guarantee from the Protection and Indemnity Club – a
maritime organisation which offers members a facility to obtain a letter of guarantee in circumstances such as these. Orlando could have adduced evidence of these various matters. It has not done so. Indeed no-one from Orlando has filed any affidavit. Orlando’s silence is surprising.
[54] There is no evidence as to the likelihood that capital controls will be lifted within a timeframe that would make deferral of sale an option. Nor is there any evidence that, even if they were lifted, Orlando, or its mortgagee in the Marshall Islands (which are not subject to capital controls), would then be in a position to, or would, put up the funds necessary to secure the release of the vessel. There is no
assurance that waiting will lead to a better result.
11 At 136.
[55] I also bear in mind that the making of the orders sought will not prevent Orlando from putting up the funds necessary to secure the release of the vessel at any point up until the sale is concluded. It is estimated in the affidavits that the organisation and completion of the sale will take at least five to eight weeks.
Further diminution in value
[56] The evidence establishes that the Lancelot V is currently out of class. It is not clear however what work is required to have the classification and other expired certificates renewed. It is the opinion of Mr Fraser that any purchaser of the vessel would need to obtain a single voyage permit from Maritime New Zealand to enable the Lancelot V to sail to another destination, either to carry out the work needed to bring it within class, or to break her down for scrap. Orlando’s evidence, through Captain Karras, is that the Korean Registry has advised that the vessel can sail as long as the crew have been paid for arrears of payment. As I understand it Lancelot V is classified by the Korean Registry. However there is no documentation confirming that assertion; nor is there any information before the Court on what advice was given to the Korean Registry before that assertion was made. Relevantly the matters raised by Mr Fraser in his affidavit were not challenged by Captain Karras.
[57] I accept Glencore’s argument that the longer the sale of the vessel is delayed, the more difficult it will become for any purchaser to obtain a single voyage permit. That will reduce its attractiveness to a potential purchaser. The alternative would be to carry out repairs in New Zealand or pay to tow the vessel to another destination. Either would be expensive and either would significantly decrease the value of the vessel on a sale.
Deterioration in condition
[58] There is evidence, from Captain Karras, that the vessel is in fair condition for her age. That view was initially shared by surveyors appointed by Glencore. On closer observation the surveyors did however note a number of items which they thought were lacking in maintenance or which were questionable. Mr Fraser’s view
is that if the vessel is kept crewed and the crew are properly directed to maintain her, she is unlikely to deteriorate in condition. This view is substantially shared by Captain Karras.
[59] Captain Karras acknowledged however that the crew have become somewhat dispirited and are not motivated to do any particular work on the vessel. Mr Alcorn did record that a number of the crew want to be repatriated, but that the remainder are prepared to remain on-board in order to assist with maintaining the ship’s minimum manning numbers and to keep her systems operational, provided however that they are paid all outstanding wages and overtime, and further provided that they continue to be paid at no less than their contracted rates.
[60] The crew have not been paid outstanding wages prior to the date of arrest.12
Further, it seems from Captain Karras’ evidence and that of others, that the crews’ relations with the master have deteriorated. Tensions on-board seem to have escalated when two Filipino crew members became particularly unsettled and took leave from the vessel without permission. As I understand it, nine of the original crew of 19 have been repatriated. Two more are about to be repatriated when a replacement engineer is sent by Orlando to New Zealand to maintain the vessel and the handover has taken place. Further, one more is about to be repatriated as well. Clearly crew numbers are reducing significantly.
[61] In the circumstances it is a matter of commonsense that there will inevitably be a deterioration in the ship’s condition over time which will erode the value of the ship and further limit the prospect of obtaining a single voyage dispensation.13
[62] There is also the possibility of the ship becoming what is known as a “dead ship” – that is all power systems, boilers and the like are shut down. If the Lancelot V were to become a dead ship, the rate of deterioration would accelerate and the re- commissioning costs to a purchaser would materially increase. There would be a
corresponding decrease in the value of the ship.
12 However, Davidson J in an interim judgment ordered that pre-arrest wages could be paid if the
Registrar considers that it is proper. See Glencore Grain BV v The Ship Lancelot V (IMO
9128439) [2015] NZHC 1874 at [69].
13 And see Marinis Ship Suppliers (Pty) Limited v The Ship “Ionian Mariner”, above n 7, at 250.
Humanitarian Considerations
[63] As noted above, the master and crew have not been paid from April 2015 until the date of arrest.
[64] A sale would realise a fund from which outstanding crew wages could be paid. A prompt sale would enable the remaining crew to return home, and bring an end to their currently uncertain positions. In my view humanitarian considerations in relation to the master and crew would be best served, and indeed can only be served given the impasse in Greece, by the establishment of a fund from which all claims can be met, including the undisputed claims for wages.
Absence of prejudice to third parties
[65] There is no evidence that any third party would be prejudice by the making of the orders sought. Orlando has not adduced any evidence from its mortgagee opposing the sale.
[66] Obviously the ship is a substantial asset and were she to be sold, Orlando would be deprived of its proprietary rights in respect of the same. As against this I note that Orlando had agreed to sell the vessel in April 2015, and that the sale was only precluded by the arrest order which was made.
Conclusion
[67] In all of the above circumstances, I am satisfied that it is appropriate to order the appraisal and sale of the Lancelot V. Indeed in my judgment there is little doubt about the matter – there is a significant balance in favour of appraisement and sale. I grant Glencore’s application and make orders in accordance with the same. The effect of those orders will be to create an interest earning fund for the benefit of all claimants including the crew. It is in the interests of justice that the ship be appraised and sold.
Costs
[68] I have discussed the issue of costs with counsel.
[69] I am told that, in matters of this kind, it is appropriate to award indemnity costs. Mr Olney was not in a position to indicate what those costs would be. He does of course accept the rider that indemnity costs must be reasonable. At Mr Olney’s request, and with Mr Flynn’s agreement, I direct that counsel are to endeavour to finalise an appropriate award of costs. In the event that they can reach agreement, they can file a joint memorandum and I will make the appropriate order. In the event that they are unable to reach agreement, I direct that any application for costs by Glencore is to be filed and served on or before 18 September 2015. Any response on behalf of the Lancelot V and Orlando is to be filed and served on or before 9 October 2015. I will then deal with the issue of costs on the papers unless I
require the assistance of counsel.
Wylie J
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