Carter v Ports of Auckland Ltd (CA)

IN THE COURT OF APPEAL OF NEW ZEALAND
CA122/04

BETWEEN NEIL CARTER
IRENE WRIGHT Appellants

AND PORTS OF AUCKLAND LIMITED Respondent

Hearing: 15 August 2005

Court: Anderson P, Randerson and Rodney Hansen JJ

Counsel: A D Banbrook for the Appellants
G P Curry and B F Peachey for the Respondent

Judgment: 29 August 2005

JUDGMENT OF THE COURT

The appeal is dismissed. No order for costs. The proceeding is remitted to the High Court to permit, if requested in the light of this judgment, a review of the costs order.

REASONS (Given by Rodney Hansen J)

Introduction

[1] The appellants appeal against a finding by Harrison J that they had abandoned their ship at the port of Auckland and that as a result the respondent (POAL) was entitled to sell the ship under the Harbours Act 1908. They also challenge the Judge’s finding that POAL had sold the vessel at a fair value.

Background

[2] The ship, named “Nivanga”, was built in Hong Kong in 1962. She was made of steel, 41 metres long and weighing 353 tonnes. She was originally owned by the British Government and had seen service in the Gilbert and Ellice Islands and Fiji. The appellants leased the Nivanga before purchasing her in February 1995. They used her to provide a freight service between Auckland and Great Barrier Island.

[3] Soon after the vessel was purchased, the appellants found she had serious defects in the hull. She failed survey under the Maritime Transport Act 1995. In August 1996 she was detained by the Marine Safety Authority under ss 55 and 397 of that Act until the existing survey certificate was revalidated and all outstanding items from the last inspection were completed. She was towed into Auckland Harbour and berthed in a commercial area of the port. Apart from one unauthorised trip and her temporary removal to a workshop for repairs, the Nivanga remained there until seized by POAL in August 1997.

[4] The appellants spent $18,000 on repairs to the ship between August and December 1996 but were unable to meet survey requirements. No further repair work of any significance was done after this.

[5] On 22 July 1997 and again on 27 August 1997 POAL issued notices of abandonment under s 208 of the Harbours Act. It notified the appellants that the Nivanga had been abandoned and unless removed within seven days, she would be destroyed or sold. POAL then removed it to a secure part of the port, put it up for tender and sold it to a scrap dealer for $500. Claim and counterclaim

[6] In the High Court the appellants claimed POAL had no right to seize and sell the ship as she had not been abandoned. They sued for conversion, seeking damages of $138,000. They said this was the true value of the vessel and that POAL had sold at a gross undervalue.

[7] POAL denied the key allegations and also pleaded that the appellants had acquiesced in the seizure and sale of the ship and, on that account, could not recover even if they had been able to prove damage. POAL counterclaimed for berthage charges of $13,941.83 which had accumulated by the time of seizure.

Judgment of Harrison J

[8] Harrison J found that the Nivanga had developed serious corrosion problems and by December 1996 her structural condition was very poor, if not beyond repair. He found that a substantial injection of funds was required to restore her to a surveyable condition but the appellants were heavily indebted and had exhausted all available funding lines. He found reinstatement was therefore not a viable economic option for them.

[9] In late 1996 the appellants made unsuccessful attempts to sell the vessel. Harrison J found that after February 1997 these efforts ceased as did attempts to carry out the repairs necessary for the Nivanga to pass survey. The appellants allowed two people (including a son of one of the appellants) to live on the ship. Harrison J rejected a submission that they were crew. He said they were mere custodians. They were not employed by the owners to man or take the vessel to sea or maintain her in a serviceable condition.

[10] Harrison J referred to the evidence of Captain Ron McKenzie, a POAL manager of marine services, who by July 1997 had concluded that the Nivanga’s continued presence posed a safety hazard for members of the public and other vessels. He was particularly concerned about the risk that she may sink at her berth, causing oil pollution. The Judge noted that Captain McKenzie had never heard from the respondents who had not responded to his attempts to contact them during the period of detention. Berthage fees were not paid. He concluded that the appellants had abandoned the vessel.

[11] Harrison J saw the appellants’ response to the notices issued in July and August as confirming that the vessel had been abandoned. After the first notice was served, their solicitor wrote a letter claiming that the notice had been wrongly issued. He disputed the validity of the second notice but did not respond to a request to explain why it was illegal or to a letter advising that arrangements were in train to sell the vessel. Otherwise the appellants did nothing except to phone Captain McKenzie in early September to confirm that POAL was arranging to pump the Nivanga daily during weekends.

[12] In case his finding on abandonment was wrong, Harrison J went on to consider POAL’s affirmative defence based on acquiescence or estoppel and the measure of damages. He doubted that acquiescence was available as a defence to a claim of conversion but said there was, in any event, no evidence that POAL acted in reliance on the appellants’ representation so an estoppel could not arise. That finding is not challenged on appeal.

[13] Harrison J then reviewed the evidence of value. He decided that the tender process was designed to elicit and had elicited the best possible price for the Nivanga. While the sale was forced, the price was the ship’s true market value. He concluded that even if POAL had converted the ship, the appellants did not suffer any loss as a result.

Grounds of appeal

[14] Mr Banbrook submitted the Judge erred in finding the appellants had abandoned the Nivanga in terms of s 208 of the Harbours Act. It followed that he was wrong to have rejected the claim in conversion. As he did in the Court below, Mr Banbrook argued that the presence on board the ship of persons acting at the direction of the appellants was inconsistent with the notion of abandonment.

[15] Counsel argued that the tender process adopted by POAL was flawed and did not result in a sale at a fair value. He said POAL’s direction to advertise the ship for sale “as is where is” for “scrap or removal” suggested to potential buyers that the ship was not worth repairing and the offers received were artificially depressed as a result. He maintained there was valuation evidence to show the market value of the vessel was much higher.

Statutory power

[16] A consideration of whether the vessel was abandoned must begin with the statutory provision itself. Section 208 of the Harbours Act 1950 provides as follows:

Removal of wreck

(1) If any vessel, raft, or aircraft is sunk, stranded, or abandoned in any harbour or tidal water, or on the seashore, that vessel, raft, or aircraft, together with the tackle thereof and any goods in or on it (all of which are in this section hereinafter included under the term “the wreck”), may be removed in the following manner:

(a) The Board having jurisdiction over the place where the wreck is shall give notice in writing to the owner of the vessel, raft, or aircraft, or to an agent of the owner, that he is required within a time specified in the notice either to remove the wreck in a manner satisfactory to the Board, or to undertake, under security satisfactory to the Board, to remove the wreck in a manner satisfactory to and within a time to be fixed by the Board:

(b) Where the owner or agent cannot be found, or fails within the time specified in the notice to remove the whole of the wreck in a way satisfactory to the Board, or to enter into such undertaking as aforesaid to remove the same, or having undertaken to remove the wreck, fails to remove it in accordance with his undertaking, the Board may remove the wreck, and may recover from the owner, in any Court of competent jurisdiction, the expenses incurred in removing it (in this section referred to as the expenses of removal):

(c) The Board may, for the purpose of removal, destroy the wreck or any part of it, and may remove and take possession of the wreck or any part of it, and may sell the same; and may out of the proceeds (if any) of the sale, without any reference to the part of the wreck from the sale of which those proceeds may accrue, reimburse itself for the whole of the expenses of removal, and shall after reimbursing itself pay over the surplus (if any) to the owner:

(d) If the proceeds of the sale are insufficient to pay the whole expenses of removal the Board may recover the balance from the owner of the vessel, raft, or aircraft, if the vessel, raft, or aircraft was stranded or sunk by his fault or negligence, or from any other person by whose fault or negligence the vessel, raft, or aircraft was stranded or sunk:

(e) If the Board fails, within 14 days after notice in writing from the Minister of Transport, after consultation with the Minister of Conservation, to remove or to take steps to cause the owner of the vessel, raft, or aircraft to remove the wreck, the Minister of Transport shall be deemed the proper authority to remove the same, and shall have all the powers hereby given to the Board under the foregoing provisions of this section:

(f) The expenses of removal incurred by the Minister of Transport or any person by his direction or authority in pursuance of this section upon any default of the Board shall be recoverable from the Board, with full costs of suit, as a debt due to the Crown:

(2) For the purposes of this section the term “owner” includes not only the owner of the wreck at the time of the sinking, stranding, or abandonment thereof, but also any purchaser of any such wreck, or the materials of which the same may be or may have been composed, so long as the same remains sunk, stranded, or abandoned.

[17] It is common ground that the statutory provision must be construed purposively having regard to its concern with safety in harbours. Harrison J adopted the definition of “abandoned” proposed by Mr Banbrook as “the action or process of surrendering, forsaking, giving up completely, or leaving something with someone unprotected” (Butterworths New Zealand Law Dictionary). In argument before us Mr Banbrook also placed reliance on a discussion of what is meant by “abandoned ship” in Maritime Liens and Claims (2nd ed) William Tetley at 107 fn 12 which quotes Droit Maritime (12th ed) as follows:

Abandoned ship is an intermediate category between a ship and a wreck, because it is still capable of floating (like a ship) but, like a wreck it has been abandoned by its crew. Usually a ship is abandoned because it is heavily burdened with legal encumbrances and thus no longer of interest to its owner … the abandonment results from the absence of crew aboard or the nonexistence of measures of custody or manoeuvring …

Building on this definition Mr Banbrook argued, as he had before Harrison J, that the presence of crew on the vessel was counter to the idea of abandonment.

[18] For the purpose of s 208 the question of whether a vessel has been abandoned must be judged objectively. The subjective intentions of the owner will not be decisive. A port authority must be entitled to act if outward indications show that a vessel has been abandoned in the sense of having been forsaken, given up or surrendered.

[19] Harrison J relied primarily on the evidence of Captain McKenzie in deciding that the owners had “surrendered, forsaken or given up the Nivanga completely”. Their failure to respond to communications from him, to pay berthage and to carry out repairs were key factors. The concern that the ship could sink at its berth and cause oil pollution arguably added more to the case for invoking the statutory power than to the case for abandonment itself.

[20] We accept that the matters relied on by Captain McKenzie are suggestive of abandonment and, in the absence of countervailing circumstances, may have been decisive of the question. But, contrary to the view taken by Harrison J, we consider the presence of persons on board the ship at the direction of the owner was such a circumstance.

[21] It may be that those persons were not crew in the usual sense of that word. It may be, as the Judge said, that they are more accurately to be described as custodians. But they carried out some of the duties which would normally fall to crew to perform – among them, checking mooring lines, firing the engines and pumping the bilges. That, and their role as caretakers or custodians, in our view weigh against a finding that the owners had abandoned the vessel.

[22] Because of the financial constraints the owners faced and the condition of the ship, there seems to have been no foreseeable prospect that she would leave her berth. However, it could not be said that the owners had given up hope that a solution might be found. They were doing what they could to preserve their asset. They remained in possession. They asserted their rights as owners. Their actions in these respects were the antithesis of abandonment.

[23] The actions (or inaction) of the owners after the issue of the first notice do not affect this assessment. Harrison J saw their subsequent inactivity as consistent with abandonment. In fact they were not completely inactive; they instructed their lawyer to write to POAL’s solicitor taking issue with the notice. However, whether or not there had been abandonment must be assessed at the time the statutory power was first invoked. A state of abandonment must exist before the power to remove is exercised which, under the procedure prescribed by s 208, begins with the issue of the notice under subs (1)(a). The response of the owners is therefore ultimately irrelevant to the issue of abandonment.

[24] As the vessel was not abandoned, POAL was not entitled to invoke s 208 and its seizure and sale of the Nivanga therefore constituted conversion.

[25] It does not follow that POAL were without a remedy in the circumstances. Section 208 applies where a vessel represents a hazard, obstruction or nuisance for which the owner cannot or will not take responsibility. Where a ship poses a risk but abandonment has not occurred, the port authority could ask the Director of Maritime Safety to exercise powers under the Maritime Transport Act or could seek an injunction against the owners quia timet for removal of the vessel to a safe place.

Value

[26] The next issue is whether the Judge was right to find that the tender process could be relied on to fix the value of the ship. Mr Banbrook submitted that the following aspects of the tender process were unsatisfactory:

(a) The invitation to tender for the ship “for scrap or removal”.

(b) A requirement that the ship be removed within fourteen days.

(c) Evidence that some prospective purchasers with an interest in repairing and continuing to use the vessel, were “dissuaded” from making an offer.

Mr Banbrook submitted that the Judge was wrong to reject evidence of a valuation carried out on behalf of the owners in February 1997 which valued the Nivanga at between $100,000 and $145,000 on an “as is where is” basis.

[27] POAL instructed a marine broker, Mr Colin Wickham, to conduct a tender process on its behalf. At its request he invited tenders for the Nivanga’s scrap or removal. The notice inviting tenders read in part:

The former passenger cargo vessel is offered for sale by tender on a ‘where is as is’ basis, either for scrap or removal from the Port of Auckland and its environs.

It was widely advertised. Five offers were received, four of which were for scrap. Three required POAL to pay the tender amounts of up to $49,800 plus GST. Only two offered a cash payment. One was for $5,000 but was subject to conditions. Mr Wickham advised POAL to accept the other cash offer, which was for $500 and was accompanied by a comprehensive feasibility study. Enquiries were received from other prospective purchasers interested in buying the Nivanga for repair and recommissioning but, after making enquiries or inspecting the vessel, none of these parties submitted a tender.

[28] Mr Wickham and other experts who gave evidence agreed that the reference to a sale for scrap or removal would convey to prospective buyers that the vessel may have no value expect for scrap. In the circumstances, POAL’s insistence that the tender notice refer to sale for scrap may have been open to criticism were it not for a wealth of evidence that the vessel was indeed only good for scrap.

[29] Soon after the Nivanga arrived in New Zealand in 1995, ultrasonic tests revealed serious corrosion of its hull. Its overall condition was described as dilapidated in a report following the survey which read in part:

The whole hull, the decks, tanks and superstructure is [sic] in such a dilapidated condition that the vessel is bordering on unseaworthy unless major repairs are carried out. The deterioration has not suddenly happened, it is the result of gross neglect over a long period of time…

[30] Despite substantial expenditure on repairs (including $100,000 on repairs and replating of the hull), the fundamental problem remained. A further survey in November 1996 reported extensive structural corrosion of the hull and other parts of the ship. This was confirmed by an inspection by Mr Wickham for the purpose of arranging the tender. And the successful tenderer, who was in the best position to attest to the condition of the vessel, gave graphic evidence of severe corrosion throughout. He said she “leaked like a sieve” and her hull was so corroded that special care had to be taken not to drop anything as it would go straight through the bottom. He said he lost money on the scrapping of the Nivanga and believes he paid too much.

[31] The valuation relied on by the appellants was arrived at after a cursory inspection of the vessel above the waterline. The two reports which had revealed serious and worsening corrosion of the hull were not disclosed to the valuer. He was in no position to assess the state of the hull. He made no attempt to estimate the costs of bringing the vessel up to survey standard. Indeed, as he was not a marine engineer, he was not qualified to do so.

[32] The Judge was clearly right to reject his evidence and to rely on the sale process itself to provide the best evidence of value. The decision to invite tenders for scrap or removal was realistic. There is no evidence it artificially depressed the sale price. It did not deter enquiries from potential buyers interested in buying the ship to repair and recommission. Nor, on our reading of the evidence, did it discourage prospective buyers from considering a purchase for that purpose. There is no evidence, either, that the condition requiring removal within fourteen days adversely affected the offers.

[33] We see no reason to differ from Harrison J’s assessment that the tender process elicited the best possible price then available for the Nivanga and represented the ship’s true market value.

Result and costs

[34] Although differing from Harrison J on liability, we concur with the balance of his judgment. The appeal must therefore be dismissed.

[35] As each party has achieved a measure of success in this Court, we make no order for costs. The proceeding is remitted to the High Court to permit, if requested in the light of this judgment, a review of the costs order.

Solicitors: Gibson Sheat, Wellington for Appellants
Russell McVeagh, Auckland for Respondent