UAB GARANT V THE SHIP "Aleksandr Ksenofontov" (No 2)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY

CIV 2006 404 4167

IN THE MATTER OF an Admiralty Action in rem

BETWEEN UAB GARANT
Plaintiff

AND THE SHIP 'ALEKSANDR KSENEFONTOV'
Defendant

Hearing: 26 February 2008

Counsel: Barbara Versfelt and Kerryn Sparrow for Plaintiff
Michael Heard for DV Ryboprodukt Limited
John A Knight for Lyttelton Port Company Limited, Second Intervenor
Christopher J Graf for Mobil Oil (NZ) Limited

Judgment: 2 April 2008

JUDGMENT OF WILLIAMS J

This judgment was delivered by Hon. Justice Williams on 2 April 2008 at 5:00pm pursuant to R 540(4) of the High Court Rules

A. The application by DV Ryboprodukt Ltd for stay of the proceedings is dismissed

B. The application by DV Ryboprodukt Ltd for stay of “execution” of the Court’s judgment of 21 December 2007 is treated as an application for stay of the plaintiff’s adjourned application for sale pendente lite of the ship “Aleksandr Ksenofontov” and is granted on the terms appearing in paras [31] and [32] of this judgment.

C. Within 14 days of delivery of this judgment the plaintiff is to pay the Registrar the sum nominated by him for the unpaid past and continuing costs of arrest of the vessel.

Issue

[1] A reserved judgment delivered on 21 December 2007 dealt with a number of issues then before the Court relating to the ship Aleksandr Ksenofontov. She has been arrested by the plaintiff shipyard, UAB Garant, on four occasions during 2006-2007, the latest of which was on 16 August 2007.

[2] The principal matters dealt with in that judgment were UAB Garant’s application for an order for the ship’s appraisal and sale pendente lite and DV Ryboprodukt Ltd’s application as owner to set aside the arrest.

[3] The principal orders made in the 21 December 2007 judgment were as follows:

a) UAB Garant’s application for the ship’s appraisal was granted but the application for sale pendente lite was adjourned pending receipt of the appraisement and a further hearing. The owner’s application to set aside or strike out the notice of proceeding and arrest was consequently dismissed, as were all the owner’s objections to the shipyard’s application for appraisal and sale pendente lite.

b) Directions were made leading to a further hearing to deal with the adjourned application for sale pendente lite and various applications for relief against forfeiture, the ship having been forfeited to the Crown on 25 October 2007 after the Master pleaded guilty to charges brought against him under the Fisheries Act 1996 (with the ship being released to the owner on conditions by the Christchurch District Court on 2 August 2007).

[4] Since delivery of the judgment:

a) DV Ryboprodukt has appealed to the Court of Appeal against the various orders made (and has now sought priority for the hearing of that appeal).

b) On 13 February 2008 the owners sought an order that the “proceedings and/or execution of the judgment … be stayed” until the owner’s appeal is determined. It is with that application that this judgment principally deals.

c) An appraisement of the Aleksandr Ksenofontov on 14 February 2008 gave her fair market value as US$2.5m excluding duties and taxes. There is no firm evidence before the Court as to any encumbrances which may be affecting the ship though speculative comments suggested there may be considerable debt affecting the equity in the vessel.

d) On 10 December 2007 the New Zealand Customs Service advised the Registrar that it regarded the Aleksandr Ksenofontov as “uncustomed goods”. Because she arrived in New Zealand pursuant to a temporary import entry, Customs take the view she became liable to Goods and Services tax of $773,347.62 when she was not exported by 9 February 2007. The Service pointed out their powers include seizing the vessel as forfeited goods.

e) Neither UAB Garant or the owner have put the Registrar in funds to meet the ongoing costs of the arrest, particularly berthage and the cost of servicing the vessel. At the hearing on 19 February 2008 an order was made authorising the Registrar to disburse such funds as he still held in payment or partial payment of the invoices rendered to him in relation to the costs of arrest.

f) The hearing on 19 February 2008 took place against the background that the owner’s appeal to the Christchurch Registry of this Court against the order for forfeiture was then set down for hearing on 4 March 2008. It was presumably heard on that date but, as far as this Registry is aware, no decision has as yet been delivered on that matter. Depending on the outcome, various applications to the Auckland Registry for relief against forfeiture may need to be argued together with outstanding applications for transfer to the District Court.

Application for Stay

[5] The grounds on which DV Ryboprodukt sought stay were the conventional assertion that its right of appeal will be rendered nugatory if the orders under the judgment were carried out and that the appeal raises important issues concerning the exercise of the in rem jurisdiction and powers of re-arrest. The owner suggested neither the shipyard nor third parties would be prejudiced by a stay.

[6] The application was opposed by UAB Garant, Lyttelton Port Company Ltd and Mobil Oil, principally on the basis of prejudice each claimed it would suffer if the proceeding or execution of the judgment were stayed, particularly if the stay remained in place for an appreciable period.

Submissions

[7] Mr Heard for DV Ryboprodukt submitted both the appeal to this Court for relief against forfeiture and the appeal to the Court of Appeal should be determined before any further steps were taken in this proceeding. [8] After reviewing the history of matters between the shipyard and the owner and the course of this proceedings, Mr Heard accepted that the application is governed by R 710 which reads:

710 Stay of proceedings

(1) An appeal does not operate as a stay of the proceedings appealed against or as a stay of execution of any judgment or order appealed against.

(2) However, pending the determination of an appeal, the decisionmaker or the Court may, on application–

(a) order a stay of proceedings in relation to the decision appealed against or a stay of execution of any judgment or order appealed against; or

(b) grant any interim relief.

(3) An order made or relief granted under subclause (2) may –

(a) relate to execution of the whole of a judgment or order or to a particular form of execution;

(b) be subject to any conditions for the giving of security the decision-maker or the Court thinks fit.

[9] Mr Heard also accepted that authority shows the general rule is that a party is entitled to the fruits of its judgment and the onus is accordingly on the stay-seeker to persuade the Court that if stay is not granted its appeal rights would be rendered nugatory. The Court conducts a balancing exercise in reaching that decision (McGechan on Procedure para HR710.01 p 1-3608(a) and cases there cited).

[10] Mr Heard’s submissions covered the principal grounds earlier cited on which DV Ryboprodukt sought a stay. He emphasised the suggested importance to the maritime community of the points the owner intends to take on appeal. He also outlined the points the owner intended to take on the forfeiture appeal and any subsequent hearing in this Registry of the relief against forfeiture application. However, since those may remain for hearing, it would clearly be inappropriate to discuss them at this juncture.

[11] Mr Heard also submitted there was no principled basis to make payment by the owner of the Registrar’s costs of arrest a condition of stay as that would reverse the long-standing requirement that the arresting party meets those costs. He made the point that UAB Garant appeared to be in breach of the indemnity given by it to the Registrar in Form 73.

[12] Supporting UAB Garant’s opposition, Ms Versfelt, its leading counsel, submitted the owner’s application was effective trying to determine UAB Garant’s application for sale pendente lite through the mechanism of the appeal and the stay applications. Sale pendente lite is normally an urgent application determined and implemented quickly. Were stay to be granted, she submitted, a condition should be that the owner meets the Registrar’s costs of arrest. An arresting party in Admiralty is presumed to be entitled to full security for the costs and an owner should be required to provide security if it wishes to avoid a sale (The “Gulf Venture” [1985] 1 Lloyds Rep 131, 136) where Sheen J, when ordering appraisal and sale in a defended action observed:

I have not seen any evidence about the defendants’ financial strength. The defendants could have adduced evidence which disclosed the relevant facts. They have chosen not to do so. I have been left wondering whether they are unwilling to ask a bank to give a bail bond limited to £250,000 or whether their financial situation is so unstable that they are unable to persuade a bank to give a bail bond. If the former is the true position they can readily avert the sale of their ship. If the latter is the reality of the situation then it will not be improved by keeping their ship under arrest for a year, and the sooner the first mortgagees disclose their intentions the better for all concerned with the ship.

[13] Ms Versfelt submitted that RR 784 and 790 entitle Admiralty claimants to apply for sale pendente lite if no security is provided and DV Ryboprodukt, in both appealing and seeking stay, was trying to avoid sale without providing security. She pointed to the combined opposition by interveners and Admiralty claimants to the stay, the prejudice all are suffering through erosion in the net value of the vessel, the fact the latest arrests has now been in force for over six months which is a lengthy period for Admiralty arrest and the fact that sale pendente lite is not dependent on the arresting plaintiff succeeding in its claim (The “Myrto” [1977] 2 Lloyds Rep 243). She submitted the appeal was without merit and of limited importance, making the point the owner had entered an unconditional appearance in these proceedings, thus additionally exposing itself to in personam liability (The “Dictator” [1892] P 304, 315, 320; Danzas AG v Hally Press Ltd [2005] 3 NZLR 146, 154 paras [27] and [28]).

[14] Should stay be granted, Ms Versfelt submitted it should be on conditions that the owner pay the Registrar’s unmet and continuing costs of the arrest including all accrued and future wages of the current crew, and provide evidence of insurance cover.

[15] For Lyttelton Port Co Ltd, intervening, Mr Knight supported Ms Versfelt’s submissions. As at the end of January 2008 the Port Company was owed $195,957.84 with the costs increasing at about $25,000 per month. The Port Company was threatening to discontinue services to the ship if not guaranteed its costs. He made the point that if the Port Company’s invoices remained unpaid, its remedy was against the Registrar who would then be bound to enforce the plaintiff’s indemnity. All of that, Mr Knight submitted, meant the Port Company would be seriously prejudiced by a stay. However, were a stay to be entered, he, too, submitted it should be on condition requiring the owner to meet the unpaid and ongoing arrest costs.

[16] For Mobil Oil, Mr Graf also supported Ms Versfelt’s submissions. He said his client’s understanding was that at the date of the hearing the claims against the ship may total as much as $3.9m, somewhat in excess of the appraisement value. (Ms Versfelt handed in a schedule, not evidence, which supported that figure including the plaintiff’s claims plus interest at the maximum figure, the amounts owing to the known interveners, $159,000 for wages, the Customs claim, and $150,000 for legal fees).

[17] Mr Graf submitted a stay of these proceedings would “thwart the speedy resolution of commercial matters which the Admiralty jurisdiction seeks to provide” and would be inconsistent with balancing the various parties’ competing rights. He emphasised that a lengthy arrest is well-recognised as prejudicing claimants through increasing costs (The “Myrto” at 260, Bank of Nakhodka v The Ship “Abruka” [Sale of Ship] (1996) 10 PRNZ 326).

[18] Portside Logistics (Timaru) Ltd (for itself and on behalf of Wing On Wholesale Ltd) has sought but not yet been granted leave to intervene. Those claimants have issued proceedings out of the Christchurch Registry. Mr Brodie, counsel for those claimants, though not appearing, filed a memorandum supporting opposition to the stay application on grounds of ongoing erosion of equity in the vessel.

Discussion and Decision

[19] The principal – indeed almost the only – point in DV Ryboprodukt’s favour on the stay application is that its appeal challenges on several fronts the jurisdiction of this Court to arrest (or re-arrest) the Aleksandr Ksenofontov and thus jurisdiction to order her appraisement and sale. It is also of importance that UAB Garant’s application for sale, if granted, would not only deprive the owner of its property rights in the vessel but, being a sale pendente lite, would be a sale without full investigation into the claims of the plaintiff, the interveners and the other claimants. Further, given the jurisdictional challenge to the Court’s exercise of its Admiralty jurisdiction, the present situation amounts to a “defended case” and thus falls within the following observations of Brandon J in The “Myrto” (at 260):

The question whether an order for the appraisement and sale of a ship under arrest in an action in rem should be made pendente lite arises normally only in a case where there is a default of appearance or defence. In such a case it has been a common practice for the Court to make such an order on the application of the plaintiffs on the ground that, unless such order is made, the security for their claim will be diminished by the continuing costs of maintaining the arrest, to the disadvantage of all those interested in the ship, including, if they have any residual interest, the defendants themselves. Where defendants to an action in rem against a ship appear in the action with the intention of defending it, they almost invariably obtain the release of the ship from arrest by giving bail or providing other security for the claim satisfactory to the plaintiffs. For this reason there appears to be no reported case in which the Court has had to consider in what circumstances it would be right to make an order for appraisement and sale of a ship pendente lite in a defended case.

And that (ibid):

I accept that the Court should not make an order for the appraisement and sale of a ship pendente 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 circumstance 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.

[20] It is accepted that DV Ryboprodukt is doing all it reasonably can to obtain an early hearing of its appeal.

[21] That said, it is a little unclear precisely what the owner is seeking in this application.

[22] The terms of its application were earlier cited but there seems no basis for staying the proceedings. The claim, absent the adjourned application for sale pendente lite, can and should continue. For instance, depending on the outcome of the owner’s appeal against forfeiture, there remain outstanding several applications for relief against forfeiture which, since they follow a separate path not dependent on the appropriateness of the invocation of the in rem jurisdiction can proceed irrespective of the appeal.

[23] The owner’s application so far as it seeks stay of the proceedings must therefore be dismissed.

[24] It is also uncertain precisely what the owner had in mind in seeking stay of “execution” of the judgment under appeal, but, for the purposes of this judgment, it is assumed that all the owner seeks is stay of the application for sale pendente lite.

[25] As mentioned, that aspect of the application was strongly opposed by UAB Garant and all the present and proposing interveners, principally on the basis of the eroding equity in the vessel through non-payment of the ongoing costs of arrest. Given that the owner challenges the Court’s power to invoke the in rem jurisdiction and arrest or re-arrest of the ship plus the consequences of so doing, it would presently be inappropriate to continue with the plaintiff’s application for sale pendente lite. Accordingly that aspect of the stay application must be granted, with the remaining question then being what obligations should be imposed on the owner as a condition of stay to that extent.

[26] Under R 776(5) the Registrar is empowered to require the payment of additional security to cover fees, expenses and harbour dues pursuant to the indemnity in Form 73 provided by UAB Garant.

[27] The Registrar has issued a notice requiring additional security from the plaintiff. The plaintiff has not complied. The Registrar has sought the Court’s assistance under R 795(1) in that regard.

[28] There can be no doubt the plaintiff is obliged, pursuant to its indemnity and the Rules, to provide the Registrar with the additional security he requires. Accordingly, an order will be made for the plaintiff to provide additional security to the Registrar in the sum nominated by him within 14 days of delivery of this judgment.

[29] Ms Versfelt submitted any stay should be entered on condition that the owner, not the plaintiff, should provide that additional security. However, Mr Heard’s diligence led him to be able to provide the Court with a copy of the judgment of the Court of Appeal of South Africa in Sheriff of Capetown v The MT “Argun” & Ors (Case 166/2000 1 June 2001 p 12 paras [28] and [29]) where Scott JA, writing for the Court, held:

[28] The next question that arises is whether the sheriff was entitled to recover his expenses and fees from the owners prior to the sale of the vessel, or for that matter prior to the remaining arrests being withdrawn or set aside. It was common cause between counsel that in the latter event the expenses would be recoverable from the owners who would be obliged to pay the outstanding amount in order to procure the release of the vessel, but that is not an issue which requires to be determined in the present appeal.

[29] By reason of the practice in England … of requiring an undertaking to be given to the marshal, the question of the owners’ liability does not arise. If the marshal requires payment he looks to the arresting party’s solicitor in terms of the undertaking. In South Africa, as I have found, the sheriff may apply to court for an order entitling him to recover his disbursements and fees from the arresting party on pain of the arrest ceasing to have effect. I know of no case, whether in England or South Africa, in which it has been held that pendente lite and while the vessel is still detained under arrest the owners can be compelled to pay the sheriff’s disbursements and fees relating to the preservation of the vessel.

[30] Whether New Zealand Courts should follow those observations may, perhaps, be a little doubtful. But the judgment is deserving of considerable respect, particularly in that it discusses the position in South Africa and other jurisdictions under both common law and Roman-Dutch law. This Court is therefore prepared to take it into account and takes the view that, given the jurisdictional challenges earlier discussed and given that, at the end of the day, if the plaintiff is successful, it may succeed in recovering from the owner all the funds it has been required pursuant to its indemnity to lodge with the Registrar, the plaintiff’s application for the Court to impose an obligation on the owner to meet the Registrar’s unpaid and ongoing costs of arrest as a condition of stay should be dismissed.

[31] The stay, however, should be on conditions which will both ensure the determination of its appeal as early as possible and clarify the financial circumstances of the ship so as to enable the Court better to deal with whatever may then be the ongoing applications in relation to her in an appropriate manner.

[32] The stay will be on the following conditions:

a) That DV Ryboprodukt continue to take all reasonable steps to have its appeal heard and determined at the earliest possible date.

b) If DV Ryboprodukt’s appeal has not been heard and determined within two months of the date of delivery of this judgment, there will be a telephone conference with counsel on 6 May 2008 at 9:00am to make timetabling arrangements as to whether the stay should be continued.

c) Within 14 days of the date of delivery of this judgment DV Ryboprodukt is to file and serve an affidavit fully setting out:

i) Details of all encumbrances or claims against the Aleksandr Ksenofontov, whether registered or unregistered, including costs of any ongoing claims and exhibiting copies of supporting documentation (The “Gulf Venture” at 135).

ii) Details of all insurance cover on the vessel, whether it is current and exhibiting supporting documentation

iii) If available in English, copies of DV Ryboprodukt’s latest financial accounts.

Postscripts:

(1) Filatov evidence

[33] On 19 March 2008 DV Ryboprodukt filed an affirmation by Mr Filatov, its authorised representative in New Zealand, dated 17 March 2008 exhibiting the original (in Russian and Lithuanian) and a translation of what he understood to be the repair contract between UAB Garant and the owner, coupled with what he claimed was a list of expenses – principally crew expenses – incurred by the owner during the course of the latest arrest.

[34] Counsel for UAB Garant objected by memorandum dated 20 March 2008 on the basis that no leave was granted to file additional evidence and Mr Filatov’s affidavit may therefore be in breach of R 241 and s 98 of the Evidence Act 2006.

[35] On 26 March 2008 counsel for the owner sought leave for the introduction of Mr Filatov’s affirmation by way of memorandum filed on 27 March 2008.

[36] It will be apparent from the terms of this judgment that the various decisions appearing in it have been reached without reference to Mr Filatov’s latest affirmation and accordingly the contents have not been taken into account. In any event, some at least of the contents of the affirmation will be overtaken by DV Ryboprodukt’s compliance with the conditions on which stay has been granted. It is therefore unnecessary at this stage to deal with the application for leave.

(2) On 31 March 2008 Mobil Oil discontinued its claim against the ship.

Solicitors: Wilson Harle, P O Box 4539 Shortland Street Auckland, for UAB Garant
Anthony Harper Lawyers (P J Woods) P O Box 2646 Christchurch
Chapman Tripp (John Knight), PO Box 993 Wellington, for Lyttelton Port Company
Dawson & Associates (Peter Dawson), P O Box 84 Nelson, for shipowner
Russell McVeagh (C J Graf), P O Box 8 Auckland for Mobil Oil (NZ) Ltd (in CIV.2007-404-5566)
Bell Gully (Mike Colson/Kirsty Dobbs) P O Box 1291 Wellington, for Stark Brothers Ltd (Applicant in CIV.2007-009-3775)

Copy For: Paul W David, P O Box 4472 Shortland Street, Auckland
G Brodie, P O Box 130-121 Christchurch
Michael Heard, P O Box 2026 Shortland Street, Auckland
Kensington Swan (Elizabeth Harding) Auckland, for Amcor
Meredith Connell (Mark Davies), Crown Solicitors, Auckland for Ministry of Fisheries Christchurch
Tony Mortimer, Registrar, Auckland High Court
Stewart Scorgie, Case Officer, Auckland High Court