Det Norske Veritas AS v The Ship "Clarabelle"

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
IN ADMIRALTY

IN THE MATTER of an Admiralty Action in Rem

 BETWEEN DET NORSKE VERITAS AS
Plaintiff

AND THE SHIP "CLARABELLE"
Defendant

Hearing: 12 March 2002

Counsel: Mr P W David for Plaintiff
Mr E W Gartrell for Defendant

Judgment: 12 March 2002

ORAL JUDGMENT OF FISHER J

Solicitors: Wilson Harle, PO Box 4539, Auckland, for Plaintiff
E W Gartrell, PO Box 5151, Wellington, for Defendant

Introduction

[1] The plaintiff, DNV, has applied to this Court in its Admiralty jurisdiction to re-arrest the fishing vessel Clarabelle. The application is opposed on behalf of the vessel and its owners, Straight Arrow. At issue are the security arrangements appropriate where a vessel has already been released from arrest, particularly where the vessel in question is locally owned and based.

Factual Background

[2] The Clarabelle is a New Zealand owned and registered vessel with a New Zealand crew operating from its base port in New Zealand. DNV is an international provider of annual surveys, the purpose of which is to keep vessels "in class". While in South Africa on a voyage, the Clarabelle received its annual survey from DNV.

[3] DNV charged $US 23,029 for its services. Straight Arrow complained and said in its letter of 24 August 2001, "We find this amount very excessive for a 38 metre fishing boat which is struggling. We cannot afford to pay this." The dispute escalated when Straight Arrow then alleged that the survey was negligently performed in that DNV had failed to detect deterioration in a holding tank. This was said to have caused a continuation of corrosive damage to the plating of the vessel and loss of use of the vessel during extensive repairs. Straight Arrow ultimately counter-claimed for $NZ 436,000.

[4] On 3 October 2001, DNV issued a statutory demand for $US 23,029 under s 289 of the Companies Act 1993. Straight Arrow applied to set aside the statutory demand. An affidavit in support exhibited a letter in which one of the directors of Straight Arrow recorded that "the company has substantial assets and has a history of successful operations" and that "the company was not at risk of trading while insolvent or being unable to meet its debts as they arise". Referring to the loss to Straight Arrow caused by DNV's negligence, the deponent went on to allege that the statutory demand was an abuse of process. DNV accepted that it was inappropriate to use the debt collection procedures of s 289 in this way and withdrew its statutory demand.

[5] DNV then issued proceedings in the Admiralty jurisdiction of the High Court and had the Clarabelle arrested on 5 December 2001. Prior to its arrest the vessel had been in constant use for fishing operations. Straight Arrow was anxious to get it back into service. Communications followed between the solicitors for Straight Arrow, the solicitors for DNV, and the Registrar. DNV sought $NZ 125,000 as security for release on the basis of its best reasonably arguable case. That was to be contrasted with the sum of $NZ 73,927 contended for by Straight Arrow. The lower amount was essentially the New Zealand version of the sum claimed in DNV's notice of proceeding plus contractual interest of 24 per cent to the date of the release of the vessel, plus $6,020 for service of the notice of proceeding. The higher sum contended for by DNV was arrived at by adding interest for a further two years and the anticipated additional legal costs that would be ultimately incurred in taking the matter to trial.

[6] The Registrar accepted the lower figure. When it was paid into Court he released the vessel on 6 December 2001. DNV says that in allowing the release at the lower figure the Registrar overlooked the principle established in The "Moschanthy" [1971] 1 LLR 37. The principle contended for is that in an Admiralty case the quantum of a claim to be paid in for security purposes should normally consist of the amount recoverable on the plaintiff’s best reasonably arguable case together with interest and costs, this to include an estimate of the future interest and costs of obtaining judgment after trial. DNV now applies to have the Clarabelle re-arrested pending payment of security reassessed at that higher sum.

Jurisdiction

[7] I accept that there is jurisdiction for the orders which DNV seeks. Re-arrest in these circumstances is not expressly provided for in the High Court Rules but R 767 confers on the Court the power to determine the most appropriate procedure in circumstances like these. In addition, the Court has an inherent jurisdiction to direct a re-arrest for the purpose of obtaining adequate security: The "Hero" (1865) 13 WR 927.

Legal Principles

[8] The circumstances in which the Court may order re-arrest are not proscribed. There is a broad discretion which must, of course, be exercised judicially. Original arrests are made under R 778(4), which provides that: "A release may be issued at the instance of a party interested in the property under arrest if the Court so orders. The discretion to re-arrest is similar, but with the added considerations that the defendants' affairs have already been disrupted once, that they no doubt gave the earlier security only in return for freedom to resume use of the vessel without further disruption, and that they will almost certainly have ordered their affairs on that not unreasonable assumption.

[9] Because the discretions arising in connection with original arrest and re-arrest have much in common, I think that decisions such as Turners & Growers Exporters Ltd v The Ship "Cornelis Verolme " [1997] 2 NZLR 110 have continued relevance to re-arrest. That case reiterated the proposition that the Court has a complete discretion to order release, with or without conditions, following an initial arrest. The decision in General Motors New Zealand Limited v The Ship "Pacific Charger" (HC Wellington, AD 135, 24 July 1981, Savage J) is to the same effect:

The Court has a complete discretion in the matter as there is no restriction on its power in the rules. The Court could, in my view, order a release without imposing any terms as to security at all if it chose and it might do so if the ship owner defendant was a New Zealand enterprise with ample assets in New Zealand to cover any possible judgment that the Court might give against it.

... obtaining a release by order of the Registrar referred to earlier provides for a standard kind of security which is prescribed in the rules. If that security is given then release ordinarily follows. In my view it is obvious that the Court is not obliged to require such a security for if it was there would be little point in making provision for application to the Court; a release could equally well be ordered by the Registrar. In my view the duty of the Court is to satisfy itself that the security ordered will be adequate to achieve the object for which it is required, namely, to ensure that any judgment that is ultimately given will be satisfied.

[10] Similarly, Nigel Meeson, the learned author of Admiralty Jurisdiction and Practice (2nd ed, 2000), states at 4-066 of that text:

Unlike arrest, the release of a ship from arrest is discretionary. The court may release arrested property without such security being provided, but this is only done in exceptional circumstances, and only where some satisfactory alternative to ordinary security is provided. For example, the court could order the release on terms of a fishing vessel whose continued detention deprives the defendant of his livelihood and ability to pay the claim, where no injustice would be done to the claimant.

[11] It is against that background that I must determine the quantum of the security which, in the ordinary case, would be required before a ship is released from arrest. I have no difficulty with Mr David's proposition that prima facie the plaintiff is entitled to sufficient security to cover the amount of its claim, with interest and costs, on the basis of its best reasonably arguable case on the "Moschanty" principle - for an example of its application in New Zealand see Pusan Shipbuilding and Engineering Company Limited v The Ship "Ivan Korobkin " (HC Auckland, AD 699/95, 18 April 1996, Williams J).

[12] I also accept that in this case the application of that principle would require security of approximately $NZ 125,000. Mr Gartrell resisted this conclusion, arguing that $NZ 125,000 was not viable on the face of DNV's own notice of proceeding. While the notice of proceedings in this case does not specify the computed sum it does provide the basis for it, setting out as it does the amount of the claim, the rate of interest and the fact that the interest is claimed until date of payment. The time and cost likely to arise in resolving a complex case at trial has to be estimated. No challenge has been mounted to $NZ 125,000 as a reasonable estimate in this case.

[13] Mr David saw the Moschanty principle as the end of the matter - the principle not having been applied in this case, re-arrest should automatically follow. I think it important to observe that, at least when the matter comes before a Judge, the Moschanty principle does not absolve the Court from the responsibility of deciding whether security for full costs is warranted in the individual case. In the interests of simplicity and expedition it might well have been appropriate for the Registrar to require the higher sum, whether paid in cash or secured by other means. The matter does not end there, however, because whatever may or may not have been done by the Registrar in the first instance, these matters are subject to judicial oversight by way of an application to this Court, whether for release, reduction in the sum secured, deletion of the security, or re-arrest.

[14] In all cases where there is the time and opportunity to judicially consider the justification and level of security for release, there is an anterior decision to be made before quantifying the security in Moschanty terms. The question is whether in the circumstances of the individual case any security is warranted at all and, if so, at what level and on what terms. As was pointed out by Brandon J in the Moschanty decision itself (at p 46):

It seems to me that the power to exact security in support of a claim in rem is a very strong power and it must not be used oppressively.

It should not be assumed that security at a Rolls Royce level is the inalienable right of a plaintiff simply because the Admiralty jurisdiction has been invoked.

[15] The plaintiff has no automatic right to security against a future judgment in other classes of litigation. Special grounds have to be shown, such as a reason for thinking that the defendant is making off with property which may later be required for execution purposes. Particularly strong grounds would have to be established before the Court would countenance seizure of a defendant's operating business assets until security was given, particularly security embracing not merely the principal claim and originating costs but an estimate of the full interest and costs which would be payable after any defended trial two years hence.

[16] Admiralty cases are not immune from the need to justify the quantum of security and the terms on which it is ordered, however nominal that task may be in the majority of cases. The rationale for normally requiring a high level of security in Admiralty matters is the peripatetic nature of substantial vessels, the risk that they will not be around for the execution of a judgment later, and the likelihood that there will be difficulties in enforcing in personam judgments against foreign owners and charterers. Those considerations should not be unthinkingly applied where the owners and/or the vessel have strong connections with New Zealand. Each case needs to be closely examined to see what security, if any, is justified.

Application of principles to this case

[17] One can understand the disappointment of DNV that the Registrar did not require security at the higher sum in this case. However, it was always open to the parties to bring the matter before this Court to have it determined on a more searching basis. Nothing decided by the Registrar finally determines the question of security.

[18] Mr David urged me to accept that the usual reasons for protecting a plaintiff at a Moschanty level apply in this case: that the vessel has recently been to South Africa; that there was a real danger that the Clarabelle could go offshore again and be placed beyond the reach of DNV; and that in its letter to DNV Straight Arrow stated that it was "struggling" and that "we cannot afford to pay".

[19] Against those considerations are the counter-arguments that this is a New Zealand registered ship, that it is owned by a New Zealand company; that all 20 crew members are New Zealanders; that the risk that the vessel and its owners will disappear is correspondingly reduced; that there appears to be a genuine dispute on the merits; and that there is conflicting evidence about Straight Arrow's creditworthiness. Despite Straight Arrow's letter there is sworn evidence, admittedly more obscure than it should have been, to the effect that Straight Arrow is a company of substance and that there is no risk of insolvency. Possibly Straight Arrow's letter of 22 August 2001 was nothing more than a tactical ploy, although I do not attempt to come to any final view on that. Straight Arrow has already suffered considerable disruption and expense due to the original arrest.

[20] Standing back from those details, I think that it would be oppressive to order re-arrest for the purpose of obtaining security at the higher sum sought by DNV. The usual reasons for ordering security at the highest possible level in an Admiralty case are diluted in this one.

Result

[21] The application to re-arrest is dismissed.

[22] I have now had the benefit of submissions as to costs. I have some sympathy for DNV in the sequence which followed in December of last year. On the other hand I do not think that there was any fault on the part of the defendant or Straight Arrow. I am not persuaded that there should be any departure from the usual approach that costs should follow the event. The plaintiff is ordered to pay costs to the defendant and owners assessed on a 2B basis, the details to be determined, if necessary, by the Registrar.

[23] Mr Gartrell has applied to have his client released from the undertaking recorded on 17 December 2001 that the vessel would be fishing in New Zealand waters until May 2002 and returning to ports from time to time. I regret that I can see no reason for a release from that undertaking, particularly given Mr David's indication that DNV would wish to consider an appeal from this judgment. With or without an appeal, it seems to me that the undertaking helps to reinforce, in a very modest way, the objective of this Court, which is to protect DNV as far as possible while preserving as far as possible the opportunity for Straight Arrow to continue fishing.