Bridon NZ Ltd v The Ship "Wybia"

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
AD 926

BETWEEN
BRIDON NEW ZEALAND LIMITED
Plaintiff

AND
THE SHIP "WYBIA"
First Defendant

AND
NETWORK SHIPPING NZ (1994) LIMITED
Second Defendant

Hearing: 7, 8 & 9 February 2000

Counsel: P.A. Fuscic for Plaintiff
N. Gray for Owners of First Defendant
Judgment: 13 June 2000

RESERVED JUDGMENT OF FISHER J

Solicitors:
Kennedy Tudehope Railey & Martin, P.O. Box 105-150, Auckland for Plaintiff
Izard Weston, P.O. Box 5348, Wellington for Owners of First Defendant

Introduction

[1] The plaintiff Bridon brought proceedings in rem against the ship Wybia and in personam against the second defendant Network seeking payment for tackle supplied to the ship. In the current hearing the ship owner, LD Shipping, applies to have the proceedings set aside for lack of jurisdiction. Whether there is jurisdiction in rem turns on the question whether for present purposes a charter from LD Shipping to Network had terminated before Bridon commenced its proceedings on 18 September 1998. It requires one to revisit the way in which charters are legally terminated for the purpose of s 5(2)(b)(i) of the Admiralty Act 1973.

Factual background

[2] LD Shipping was a ship-owning company based in Tasmania. Its Director and principal shareholder was Mr Dick. The company was the owner of an ocean-going tug "the Wybia" and two barges. It chartered these to a succession of New Zealand companies which used them for coastal barge operations emanating from Wanganui. One of the early charterers was Southern Tug and Barge Limited to whom the tug and barges were chartered on a demise charter under the standard form of Barecon A. When that company went into receivership the charter operations were taken over by Pacifica Shipping Limited under the same form of charter. Next to take over the charters was Network Shipping Limited which again held the charter in a standard Barecon A form. After a fixed term charter, that was converted to a charter on a month to month basis but otherwise according to Barecon A terms.

[3] The charter operations were then taken over by a newly formed company, Network Shipping NZ (1994) Limited ("Network"). Sixty percent of the shares in Network were owned by LD Shipping and 40 percent by Mangerton Maritime Limited, a company owned by a Mr Armstrong. Mr Armstrong was the Wybia's Master and the Managing Director of Network in New Zealand. His company, Mangerton Maritime, provided the crew, provisions and other services required, Network paying, for these on accounts rendered to it by Mangerton Maritime. Mr Dick and Mr Armstrong were the original directors of Network. 

[4] The only witness called with direct knowledge of the agreement between LD Shipping and Network as to the terms of the charter was Mr Dick. Initially Mr Dick's recollections were confused and conflicting. In the end, however, his recollection was that on 8 June 1996 a fresh demise charter to Network was entered into adopting standard Barecon A terms, the rental being payable monthly in advance. The charter was to operate for two years with a charterer's right of renewal for a further two years.

[5] Thereafter the Wybia and barges continued coastal operations under the command of Mr Armstrong. On 27 August 1996 the Wybia was arrested by a Mr Griffith in an action against Network but two weeks later the Wybia was permitted to continue with its operations on terms agreed to by Mr Griffith.

[6] In October 1996 the two barges ran aground outside the Port of Wanganui. Network had an account with Bridon for the supply of maritime equipment. Mr Armstrong arranged for Bridon to supply ropes and shackles to assist in salvaging the grounded barges. These were supplied to the Wybia at the Port of Wanganui on 9 October 1996 and used in the salvage of the barges. Bridon's invoices totalling $24,076.36 were paid in part over the next two years but the balance of $10,306.51 went unpaid.

[7] On 25 December 1997 Mr Dick and Mr Armstrong fell out. Mr Armstrong was removed as Director and ceased to play any active part in Network's activities. Fraser took over as Network's manager in New Zealand.

[8] By mid-1998 the Wybia and one of its barges needed to return to Tasmania for repairs and class survey. Consequently when they returned to Wanganui from a coastal trip on 6 June 1998 preparations were made for the Wybia and one of the barges to go to Tasmania. It was expected that the return trip including operations in Tasmania would require about six weeks. They would then be able to continue coastal operations in New Zealand. Since the Wybia would be away for about six weeks the Master and crew were paid off and a freight contract arranged by Fraser for the end of June 1998 cancelled.

[9] On instructions from Mr Dick, Mr Fraser set about preparation of the Wybia and its barge for the Tasmania trip. For this purpose Mr Fraser used sundry crew members hired on an intermittent basis and made preliminary arrangements for a crew, provisions and bunkers. Repairs were also carried out to the barge in preparation for the trip. In Mr Griffith's proceedings a consent order was obtained on 8 June 1998 releasing the Wybia from arrest to enable it to travel to Tasmania. The terms of the release were that it was to return to New Zealand immediately upon completion of the repairs and survey following which the plaintiff was at liberty to re-arrest the vessel.

[10] Although preparations for the trip to Tasmania continued there were increasing difficulties over Network's debts. Another shipping company, Discovery Maritime Limited, brought proceedings in rem against the Wybia claiming the cost of repairing a barge which had earlier been chartered by Network. In those proceedings the Wybia was arrested on 24 June 1998 but released again on 7 August 1998. On 10 August 1998 Network circularised its creditors stating that it was insolvent and asking for patience over payment. Six weeks later on 18 September 1998 Bridon commenced these proceedings and arrested the Wybia on the same day. In December 1998 Network went into liquidation with no prospect of paying Bridon from the realisable assets. 

Issues

[11] There has been no issue over the supply of the tackle to the Wybia, the benefit to the ship and its barge, the resultant debt owed by Network to Bridon or the lack of funds from which the debt could be recovered from Network itself. The sole question is whether there is jurisdiction for Bridon to proceed instead against the ship in rem. Although in terms the application also sought an order dismissing the proceedings in personam, I heard no submissions on that topic and dismiss it from further consideration.

Legal principles

[12] Sections 4 and 5 of the Admiralty Act 1973 materially provide:

4. EXTENT OF ADMIRALTY JURISDICTION -

(1) The Court shall have jurisdiction in respect of the following questions or claims:

...

(l) Any claim in respect of goods, materials, or services (including stevedoring and lighterage services) supplied or to be supplied to a ship in its operation or maintenance:

...

5. ACTIONS IN REM -

(1) In any case in which there is a maritime lien or other charge on any ship, aircraft, or other property for the amount claimed, the admiralty jurisdiction of the High Court may be invoked by an action in rem against that ship, aircraft, or property.

(2) In addition to the rights conferred by subsection (1) of this section, the admiralty jurisdiction of the High Court may be invoked by an action in rem in respect of all questions and claims specified in subsection (1) of section 4 of this Act:

Provided that -

 (a) In questions and claims specified in paragraphs (a), (b), (c), and (s) of subsection (1) of section 4 of this Act the admiralty jurisdiction in rem may be involved against only the particular ship or property in respect of which the questions or claims arose:

 (b) In questions and claims specified in paragraphs (d) to (r) of subsection (1) of section 4 of this Act arising in connection with a ship where' the person who would be liable on the claim in an action in personam was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, the jurisdiction of the High Court may (whether the claim gives rise to a maritime lien on the ship or not) be invoked by an action in rem against -

 (i) That ship if, at the time when the action is brought, it is beneficially owned as respects all the shares therein by, or is on charter by demise to, that person; or

(ii) Any other ship which, at the time when the action is brought, is beneficially owned or on charter by demise as aforesaid.

[13] It is not contested that the goods and materials supplied by Bridon to the Wybia fell within s 4(1)(l) and thus within the general jurisdiction of the Court sitting in admiralty. It is also agreed that the case fell within s 5(2)(b) if within proviso (b) sub-paragraph (i). The question is whether "at the time when the action [was] brought" it was "on charter by demise to" Network. The proceedings were brought on 18 September 1998. The question is whether, for the purposes of s 5(2), the charter from LD Shipping to Network was still in force on that date.

[14] I think it reasonably clear why in rem actions for goods or services supplied to a ship were permitted and why this was extended to those supplied at the instigation of the charterer. It is in the interests of the maritime industry that suppliers should be encouraged to support shipping ventures. A supplier is more likely to provide such support if it knows that, however transient or insecure the owners or charterers, it can if necessary execute a judgment against the ship itself. The rationale for allowing in rem claims against the ship while in use by the owner extends equally to charterers during the period that they are using, or have immediate responsibility for, the ship.

[15] It is less clear why in rem proceedings have to be commenced by the supplier before the charter ends. Inferentially, however, the time limit is to ensure that if there are to be claims against the ship arising from debts incurred by charterers, the proceedings will be brought promptly. Such promptitude will protect others who might otherwise have ordered their affairs on the assumption that the ship was free of any such claims. The time limit enables owners to embark upon further ventures and to make further commitments in reliance upon the assumption that the ship is clear of debts incurred by charterers. It also enables other creditors to extend credit to the owner or new charterer safe in the assumption that the ship is not already burdened with debts from a previous charter.

[16] Inferentially, therefore, the time limit is intended to protect owners and other third parties thereafter dealing with the ship. That in turn suggests an emphasis upon objective and observable events and conduct evidencing an end to the charter rather than subjective intentions and decisions made behind closed doors. I concede immediately that there is an element of speculation about this but I am unable to think of any other reason for the time limitation in s 5(2)(b)(i).

[17] Consistent with that implied objective, there is clear authority to the effect that to terminate a charter for the purposes of s 5(2) there must be both an end to the contractual right to possession and a return of possession to the owner, whether physical, constructive or symbolic. As Giles J held in Mobil Oil New Zealand Limited v The Ship "Rangiora " [2000] 1 NZLR 49 at 77:

However, as did Tamberlin J, I conclude that at English law a demise charter is effectively brought to an end when the right to possession and control is withdrawn (the notice of termination) and redelivery is achieved. Neither act need be consensual. I reject Mr Broadmore's submission to the contrary. To so hold would enable a defaulting demise charterer to prolong the owners' vulnerability and exposure to s 5(2) liability. Most Admiralty jurisdictions contain such a provision. It cannot be the case that the law leaves it to the whim of a party in breach to decide when and how the innocent party can effectively bring an end to the relationship. That is not the law of contract and this charter-party is a contract to which general principles apply. Provided the default relied upon gives a right to termination (which it does) then cancellation is effected by giving notice. I much prefer Mr David's pragmatic approach whereby withdrawal is unilateral (although dependent upon established breach) but that the owner must nevertheless recover possession, actual, symbolic or constructive. I incline to the view that it would suffice for the owner to attend upon the vessel by an agent and announce to the world that it has retaken possession of the ship. Such a proclamation would not be affected by considerations such as the taking of accounts over provisions, spares and bunkers or removing cargo or terminating the employ of master and crew - to whom the owner enjoys no contractual obligation in a demise charter situation. It would signify positive action reclaiming possession. But on the evidence that did not occur. Alternatively, an owner could issue proceedings seeking possession. Or the parties could record redelivery.

[18] That was said in the context of a demise charter brought prematurely to an end due to the charterer's default but I do not think that the principles involved are limited in that way. A demise charter involves both a contractual relationship and a passing of possession. Given the apparent purpose of protecting third parties, it seems to me that both elements would always need to be terminated before the charter is brought to an end for the purposes of s 5(2)(b). The only element I would respectfully add is that in what will nearly always be a contest between competing creditors and owners, the emphasis should be placed upon objective signs of redelivery rather than matters of indoor management.

Contractual status of the charter in the present case

[19] For reasons previously outlined I approach the matter on the basis that this was a demise charter which began on 8 June 1996 and expired on 8 June 1998. At an earlier point Mr Dick had described it as a "month to month" charter but that was a legal conclusion which he was not qualified to draw. All a witness can say is what was said and done. It is for the Court to draw its own conclusions as to the. contractual construction of the communications.

[20] It is less easy to decide what happened to the charter in contractual terms after 8 June 1998. Potentially, the right of renewal could have been exercised. The charter could have continued on the basis that in the absence of notice from either side it would carry on from month to month in a manner analogous to a periodic tenancy. A third possibility is that neither occurred and that the charter simply terminated on 8 June 1998 and, at least in contractual terms, was not thereafter renewed or continued in any form.

[21] The question whether the charter continued after 8 June 1998 is not beyond argument given the possibility that coastal operations and monthly rentals were merely suspended for six weeks or so pending the return from Tasmania. It was not until 6 October 1998 that Mr Dick advised Mr Fraser that he had made the decision not to proceed further with the charter to Network. On the whole, however, I doubt whether the parties envisaged that Network had the legally binding right to insist upon the return of the vessel and its barge after repairs and survey in Tasmania. There was undoubtedly that intention but probably not that contractual commitment. If there was no such contractual commitment this meant that as from 8 June 1998 Network had no contractual right to possession of the vessel. The remaining question is whether, notwithstanding the lack of a contractual right to possession, possession was returned to LD Shipping.

Was there redelivery to LD Shipping?

[22] The question of redelivery from Network to LD Shipping is rendered no easier by the fact that the same individual, Mr Dick, was the controlling mind and spokesperson for both companies. However, I have been unable to find any act or event, physical, symbolic or constructive, indicating that Network ever returned possession to LD Shipping. In fact there are a number of indications to the contrary, particularly bearing in mind the objective emphasis referred to earlier.

[23] First, until October 1998 the person with immediate control and supervision of the Wybia and its barge was not Mr Dick but Network's Manager, Mr Fraser. Mr Fraser was never an employee of LD Shipping. He continued as an employee of Network until October 1998. Although he was subject to the higher command of Mr Dick, Mr Dick was at all material times in Tasmania.

[24] In his role as Network's Manager Mr Fraser had dealings with a series of outsiders in a way which could only have given the impression that Network was continuing its operations in New Zealand, and hence its charter of the Wybia. These included arrangements with Telecom to continue with telephone services, a computer supplier to purchase a computer, Ocean Terminals Limited for storage, metfax services and office rental, and Wybia crew members for maintenance work on the Wybia and preliminary arrangements for crewing to Tasmania.

[25] At no stage were outsiders told that the charter relationship was at an end or that it was inappropriate for these liabilities to continue to be incurred by Network. It suited Mr Dick and LD Shipping to portray Network as the continuing charterer of the Wybia and its barge. Creditors would be more likely to hold their hand if they thought that Network's operations were continuing. On this subject Mr Dick wrote to Mr Fraser on 9 June 1998 commenting "You raised the matter of people becoming twitchy about the tug and barge returning to Australia. We are obliged by the Court to return to New Zealand and I do not think that broadcasting by anyone of our intentions does any good." Similarly, in his evidence Mr Dick stated candidly that "There were a lot of people and still are a lot of people who as a result and only as a result of the salvage were owed money, them people have spoken to me on various occasions about when the money would be due if they would get paid and I guess some would take some form of relaxation from the fact that the tug and barges were still in New Zealand and so were active but if they saw the boats sail off into the night then that would be in my view disturbing to them so all I was saying to Ross there's no need to be running around Wanganui telling everyone the tug and barges are going away."

[26] On behalf of LD Shipping, Mr Gray pointed to a number of acts by Mr Dick in connection with the Wybia and his dealings with Mr Fraser. Given Mr Dick's dual role as Managing Director of both companies I do not think that in themselves these acts and directions indicate acts of possession on behalf of either company. Even after 8 June 1998 his expenses relating to the Wybia continued to be treated as disbursements of Network, not those of LD Shipping. And Mr Dick did not supplant the activities of Mr Fraser by coming to Wanganui and taking charge of operations there. Initially Mr Dick's evidence was that he did so but after reflecting upon it overnight he decided that he was confusing such a visit with one which he had made in April 1998. It is common ground that the charter continued for at least another couple of months beyond that date.

[27] Mr Gray also pointed to some Court documents which referred to a release to the owner rather than to the charterer. That was the form of the order, for example, of 21 March 1997, the undertaking of 21 May 1998 and the Court order of 7 August 1998. The fact is, however, that for about two years the Wybia had been under arrest and subjected to various forms of full or partial release to the owner. That was not taken to inhibit the owner from chartering the vessel to Network. Creditors continued to deal with Network and the Wybia accordingly. In terms of appearances there was never any change of consequence in that state of affairs from beginning to end. In my view it would be contrary to the apparent legislative intention referred to earlier if a technical arrangement of that nature were permitted to change the position over possession and redelivery.

[28] My conclusion is that although as between the two companies Network lost the contractual right to possession in early June 1998, no act or event occurred to effect the return of possession to LD Shipping until after proceedings were issued on 18 September 1998. It follows that for the purposes of s 5(2) the Wybia was still "on charter by demise" when the proceedings began and there was therefore in rem jurisdiction for Bridon to bring these proceedings.

[29] The matter must, of course, be resolved according to the strict requirements of admiralty law but I do not think that outcome at all unfortunate. It is not disputed that the debt was incurred in the supply of goods to one of LD Shipping's ships and that LD Shipping stood to gain as one of the ultimate beneficiaries of the supply. Bridon cannot sue LD Shipping itself because the debt was incurred by its subsidiary. It cannot recover the money from the subsidiary because of its insolvency. It would have been unfortunate if LD Shipping had been able to shelter behind a termination of charter before Bridon had been able to issue proceedings. Fortunately the law does not require that result.

Result

[30] The first defendant's application to set aside the notice of proceeding in rem and in personam is dismissed. Costs are awarded to the plaintiff on a 2B basis. Leave is reserved for further directions if required.