UAB GARANT V THE SHIP "Aleksandr Ksenofontov"

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 KSENOFONTOV"
Defendant

Hearing: 24 October 2007

Counsel: Barbara Versfelt for plaintiff
Paul David and Michael Heard for defendant
Matthew Flynn for Portside Logistics (Timaru) Limited, First Intervenor
V E Donaghy for Lyttelton Port Company Limited, Second Intervenor

Judgment: 21 December 2007

RESERVED JUDGMENT OF WILLIAMS J.

A. The plaintiff’s application for appraisal of the ship Aleksandr Ksenofontov is granted and its application for sale of the ship pendente lite is adjourned for further hearing.

B. The D V Ryboprodukt Limited’s opposition to the plaintiff’s application for appraisal and sale is dismissed, as is its application to set aside or strike out these in rem proceedings.

C. All outstanding matters, including payment of the sums then due to the Registrar as security for the costs of the arrest, are to be dealt with as directed in para [74] of this judgment.

TABLE OF CONTENTS

Paragraph

Introduction [1]
Facts [6]
Plaintiff’s Application [12]
Submissions and Discussion [17]
Further Discussion and Decision [34]
Forfeiture [64]
Result [74]

Introduction

[1] The following matters were heard or dealt with during the hearing concerning the ship “Aleksandr Ksenofontov” on 24 October 2007:

(a) An application by Portside Logistics (Timaru) Ltd for leave to intervene in respect of its claim for the supply of pallets to, and the discharge of cargo from, the defendant at Timaru on and following 15 May 2007. Its invoices for that service totalling $22,138.34 remain unpaid. Portside Logistics had on 10 September 2007 caveated the ship against its release and sought payment of its invoices out of the proceeds of sale if the Court should order sale of the ship. Orders were made by consent at the hearing in terms of the application.

(b) An application by Lyttelton Port Company Ltd for leave to intervene and service of its supporting affidavit. The intervener claimed berthage and other associated costs of $93,853.47 including GST up to the date of the ship’s latest arrest. Of the sum owed, $33,469.02 including GST related to visits of the ship to Port Lyttelton earlier than that during which it was currently arrested. Port Lyttelton, too, had earlier caveated against the release of the ship and sought an order for payment out of its invoices should the Court order the ship to be sold. By consent orders were made at the hearing in terms of the interlocutory application

(c) An application by the plaintiff, UAB Garant, for appraisal and sale of the ship pendente lite with consequential orders for the Registrar to discharge and repatriate the crew and pay the plaintiff from the proceeds of sale after all costs of arrest and sale incurred by the Registrar. The owner of the vessel, D V Ryboprodukt Limited, filed an Unconditional Appearance and opposed that application generally and applied to set aside or strike out the latest notice of proceeding and writ of arrest in relation to the vessel. The plaintiff opposed the latter application. This judgment deals principally with those matters.

(d) In addition, on 6 September 2007, Mobil Oil New Zealand Limited issued separate in rem proceedings against the ship out of the Auckland Registry (CIV.2007-404-5566) for US$75,500.01 plus interest for bunkers and other lubricants supplied to the vessel. The owners entered a Conditional Appearance in that proceeding on 8 October 2007. Timetabling orders require to be made in relation to that proceeding having regard to the outcome of the matters discussed in this judgment.

(e) In addition, directions by the Registrar for the provision by UAB Garant of additional security for the costs of the arrest had not been complied with. As at 16 November 2007 $40,000 remained unpaid and the Registrar estimated costs still to be invoiced may be in the vicinity of a further $50,000. That matter, too, will need to be addressed.

[2] Certain other matters relating to the ship will also require discussion during the course of this judgment, not the least of which is that the master of the vessel pleaded guilty on 26 July 2007 to nine charges brought against him under the Fisheries Act 1996 for omitting material information in relation to required returns. The ship was released to the owner by order of the Christchurch District Court on 2 August 2007 but on 25 October 2007 Judge Bisphan forfeited the ship to the Crown.

[3] When that became apparent after judgment in this case was reserved, memoranda were sought from counsel as to the effect of forfeiture on the other matters with which this judgment is concerned, particularly in light of advice of counsel for the owner that an application was to be made seeking relief against forfeiture. No such application by the owner has, as yet, been filed. UAB Garant has applied for relief.

[4] On 10 December 2007 this Court received a claim transferred to it under s 156 of the Fisheries Act 1996 under which Amcor Kiwi Packaging, a division of Amcor Packaging (New Zealand) Ltd, claimed originally in the Christchurch District Court an interest in the Aleksandr Ksenofontov for $164,518 for packaging materials supplied between October 2006-May 1007 and not paid for. Timetabling orders in respect of that claim would also appear to be necessary.

[5] Those matters, too, will require later discussion.

Facts

[6] The latest – and current – arrest by UAB Garant of the Aleksandr Ksenofontov occurred on 16 August 2007. It was supported by an affidavit saying the plaintiff is a Lithuanian shipyard and repairer which claims €551725.48 being the amount now owing on original repair costs effected by UAB Garant on the ship plus costs, interest and late payment charges.

[7] In its statement of claim filed on 24 September 2007, UAB Garant said the initial contract repair price was €150,000 with the price capable of adjustment for additional works and services. The ship availed itself of that provision, such that the final contract price was €642,183.11. Under the contract the full sum was payable within three days of the owner’s acceptance of the vessel, with penalties of €200 p.d. thereafter and, under Article 6.210 ch17 of the Civil Code of Lithuania, interest at 6% p.a. The claim said the owner accepted the chip on 1 December 2005 but, by that date, had paid only €282,985 against the sum then owing, inclusive of penalties and interest, of €359,198.11. Despite the outstanding debt, the ship was released to the owner.

[8] UAB Garant arrested the Aleksandr Ksenofontov thrice before 16 August 2007. They were:

a) The first arrest by UAB Garant was on 19 July 2006 but she was released on 31 July following agreement between the parties that “the vessel be released, without prejudice to the plaintiff’s right to re-arrest the vessel in respect of its claim”. UAB Garant’s 24 September 2007 claim said the release followed the owner paying the plaintiff €11,550.12 promising payment of the balance including penalties in instalments prior to 31 October 2006 with 1% interest p.d. additionally payable on default.

b) On 30 November 2006 following, so the plaintiff asserts, breaches by the owner of the compromise of 27 July 2006. On that occasion the ship was released on 22 December 2006 on the same terms as previously. The plaintiff’s September 2007 claim said the release followed payment by the owner to UAB Garant of €76,216.40 on 20 December 2006 and a further compromise agreement between the parties for the balance to be paid by three instalments, the last of which fell due on 31 March 2007. Again, penalty interest was payable and the owner was liable to reimburse the plaintiff on an indemnity basis for any costs of enforcement.

c) On 13 April 2007 with the ship being released the following day on the same terms as the previous releases. The September 2007 claim does not detail the basis on which this arrest was released but the affidavit supporting the 13 April 2007 arrest exhibited the compromise agreement reached between the parties on 21 December 2006 and it is of importance, for reasons which will appear, to note that agreement included the following terms :

1. In case of breach … of any position of the present agreement UAB “Garant” reserves the right to undertake any necessary legal measures to protect its own interests including, but not restricting, re-arrest of the vessel “Aleksandr Ksenofontov”.

2. The present agreement is the basis for release from arrest the vessel “Aleksandr Ksenofontov” in the Dunedin (Port Otago, New Zealand). Thus the parties state, that the legal procedure started in New Zealand 18-07-2006, remains valid and, in case of breach of the present agreement, might be renewed at any moment.

[9] A number of other factual issues were raised by the parties in their affidavits. Those issues included the manning levels on the vessel at various times during the arrest in Port Lyttelton, together with repatriation arrangements for some or all of the crew to Ukraine and whether replacement crew would be flown to New Zealand. Figures in the various affidavits and affirmations varied – UAB Garant said only two, presumably watchkeepers, were needed – but shortly before the hearing Mr Filatov, the owner’s authorised representative, said the ship required 18 crew in order to maintain the vessel in good order whilst under arrest. She requires a minimum of 23 crew to take her to sea in terms of her Minimum Safe Manning Certificate, and normally operates with a complement of 80-90.

[10] The second matter covered in the affidavits is that the ship was chartered to Fish Market Holdings Limited from 1 October 2006 but the company went into liquidation on 24 August 2007 and the charter was cancelled on 28 August.

[11] There was material put in evidence concerning a number of other issues relating to the ship – stability, shore toilets, rubbish disposal, providoring for crew sustenance, fresh water and electricity supply – but apart from noting the mounting cost of the supply of such facilities, it is unnecessary to consider the detail.

Plaintiff’s Application

[12] UAB Garant’s application for appraisal and sale was based on an assertion that its case was strong, the vessel is deteriorating in value because of the costs of arrest and lack of security provided by the owner. The caveats against release mean the arrest may be lengthy, risking further deterioration. There is an allegation of lack of prejudice to the owner if the vessel be sold before judgment and the application was based on assertions that the ship had its full complement with any claim for wages having high priority against the vessel or proceeds. Thus any such claims would diminish the amount available for creditors.

[13] The ship’s first defence was to challenge the Court’s jurisdiction in relation to the claim. Various technical objections initially raised were satisfied by the date of hearing leaving the nub of the jurisdictional claim to rest on assertions that the statement of claim failed to comply with the High Court Rules in not delineating any cause of action and claiming excessive costs of $100,000. More particularly, the ship asserted that UAB Garant could not at law re-arrest or further arrest a vessel once it had entered into an agreement for alternative security and earlier agreed on the vessel’s release. Further, the owner claimed that, because of the earlier arrest and releases, and the fact this was a claim for the balance of debt owing, it did not amount to an in rem claim under s 4(1)(l)(m) of the Admiralty Act 1973 leading to an assertion that the writ of arrest should not have been issued.

[14] There was a further ground based on the fact that the memorandum supporting the 16 August 2007 release did not reveal that a personal guarantee had been provided as part of the 13 April 2007 release. That, it was said, was highly material to the grant of any release and should have been specifically drawn to the Court’s attention. Failure should also lead to the latest arrest being set aside.

[15] Those grounds also formed the basis of the owner’s application to set aside or strike out the latest arrest and were opposed by UAB Garant partly by reference to compliance with the procedure requirements but also on the basis:

a) That the previous releases did not result from security being provided but were under R 778(2), without the Court’s intervention and were expressly on the basis that the plaintiff’s right to re-arrest enured.

b) That the owner could not now dispute jurisdiction having filed the unconditional appearance and thus submitted to the jurisdiction of the Admiralty Court.

c) That the plaintiff’s claim remains one for repairs, not a claim for a debt under a settlement agreement and thus comes within s 4.

[16] The balance of the owner’s opposition to the sale pendente lite rested on assertions that there was no evidence of deterioration in value, crew costs were being met by the owners, an order for appraisal and sale would affect the employment contracts of the crew and the owner’s property rights and sale pendente lite was only granted for good reasons and exceptional circumstances which do not affect existing property rights. Such did not exist here and it was accordingly not in the interests of justice to order appraisal and sale.

Submissions and Discussion

[17] Ms Versfelt for UAB Garant first relied on R 784(2) which gives the Court power to order immediate sale of an arrested vessel if it is deteriorating in value. The deterioration in this case, she suggested, arose out of continuing crew wages plus the costs of maintaining and supplying the ship.

[18] She suggested the usual course of the owner obtaining release by providing security (R 778) had not been followed in this case because of shortage of funds. She supported that submission with reference to the history of this matter since the first arrest and the charterer’s liquidation – and she pointed to evidence the charterer was wholly owned by owner’s interests. The plaintiff’s delay in seeking sale pendente lite was only because of repeated assurances by the owner that it would meet continuing costs and wages. Those assurances, which led to the three releases, were all breached and the fourth arrest followed in consequence.

[19] Rule 784(2) contains no indication beyond deterioration in value for the Court to make an order pendente lite under the Rule. Whether defences may succeed is largely irrelevant, particularly if the continuing costs of maintaining the vessel until the substantive proceeding are significant (The “Myrto” [1977] 2 Lloyds Rep. 243, 260 followed in Bank of Nakhodaka v The Ship “Abruka” [Sale of Ship] (1996) 10 PRNZ 326 332).

[20] However, a cautious approach is mandated. In The “Myrto” Brandon J first held:

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.

[21] However, that acknowledged master of Admiralty law nonetheless went on to order appraisement and sale holding (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.

[22] Since Lyttelton Port Co supports UAB Garant, it is pertinent also to note the following observations from The “Myrto” (at 262):

As to the interests of the third parties, they will be affected just as much by a prolonged arrest as by a sale pendente lite. Indeed, they may be less adversely affected by a sale pendente lite in that it may possibly relieve them in whole or in part of the costs of discharging their cargo.

[23] Ms Versfelt also sought an order for costs, noting that the cost of providing a fund for creditors is a priority claim on that fund (Mobil Oil NZ Ltd v The Ship “Rangiora” (1999) 13 PRNZ 563, 568).

[24] UAB Garant had failed to provide security in lieu of the ship, a factor accepted as implying impecuniosity in ABC Shipbrokers v The Ship “Offi Gloria” (HC ChCh AD47/92, 26 March 1992 relying on The “Myrto” at 253). Ms Versfelt particularly relied on the owner’s admission of liability to UAB Garant but its failure on several occasions to honour the terms of the compromise which led to previous releases from arrest. That, she submitted, afforded strong evidence of the owner’s impecuniosity. Ms Versfelt submitted appraisal prior to sale would safeguard against possible prejudice to the owner by sale at an undervalue (See also High Court Rules Schedule I Form 81 paras 2 and 3).

[25] Ms Versfelt submitted the Registrar normally arranges for the discharge of crew and their repatriation to minimise the cost of maintaining arrest (Patrick Stevedores (No.2) Pty Ltd v Ship m.v. “Turakina” (No.1) (1998) 84 FCR 493, 503) and authority shows the Court may direct the Registrar, on his application under R 776A, to terminate the crew’s employment and offer repatriation to enable the ship to be sold (Bank of Nakhodka at 331).

[26] For the owners, Mr David’s response was to argue that UAB Garant’s application was contrary to established principles governing the Admiralty jurisdiction. There was no power to re-arrest – particularly in the same proceeding – and that this was not an Admiralty claim but a claim for an unpaid settlement and not, therefore, within s 4(1) of the Admiralty Act 1973. He relied on the decision of the High Court of Singapore in The Dilmun Fulmar [2004] 1 SLR 140, [2003] SGHC 270, where owners paid part of a repair bill for the ship but failed to pay the balance. Repairers arrested the vessel. The parties compromised their liability for a reduced sum payable by instalments with payment guaranteed by a director. The owners defaulted on instalment payments and the vessel was re-arrested (following a change of ownership and name). The vessel was released on provision of security and the then owners, as intervenors, applied to set aside the second warrant.

[27] Belinda Ang J noted the settlement agreement expressly purported to maintain the repairer’s “right to proceed” against the owner and “re-arrest” the ship. Later pleadings relied on the compromise agreement. There were also differences in the amounts claimed in various pleadings. The Judge held the repairers had affirmed the settlement agreement after breach. It was “wrong to have proceeded to enforce the settlement agreement under the guise of the original claim” (at 147 para [15]) and such a claim was not one under the Admiralty jurisdiction because “the cause of action was for money due under the settlement agreement namely the instalments that fell to be paid” (at 146 para [15]). The re-arrest was accordingly mala fide and an abuse of the Court process (an appeal was dismissed: Hailisen Shipping Co Ltd v Pan-United Shipyard Pty Ltd Court of Appeal of Singapore CA70/2003 NM88/2003, 6 November 2003).

[28] He submitted that the owner’s unconditional appearance was not fatal since R 773 was neither exclusive nor mandatory. More particularly, though R 769 permitted Admiralty proceedings to be commenced without filing more than a precise statement of claim, by claiming $100,000 costs – an excessive figure for any payment under R 778(5) for owners to secure release – UAB Garant’s proceeding was fundamentally flawed and a nullity, not merely a curable irregularity. On that point, the decision in Property Marine Insurance Co Ltd v The Ship “Condor of Bermuda” (HC AKL AD457 and 458 1987, 9 October 1987 p 4): “The owner or master of a ship which is thus impounded must be precisely told the amount and nature of the claim against him” was to be preferred to Attorney-General v The Ship “Tosa Maru” (1992) 5 PRNZ 661, 666 (relying on Athens v The Ship”Bungo Rye” HC AKL AD428, 8 September 1986, Barker J, and Koelmans v The Ship “Gulf Explorer” HC ROT. M.90/87, 27 March 1990, Fisher J) where it was held that “noncompliance is to be dealt with as an exercise of discretion under R 5 or a defect or error under R 11”.

[29] Mr David submitted the in rem procedure was designed to bring the owner to Court and give the plaintiff security for its claim in the form of the res. It follows that repeated arrests for the same claim were impossible after execution of a warrant because the arrest gave the plaintiff what it sought. The Registrar in this case was right, he submitted, to raise doubts about the jurisdiction to re-arrest the Aleksandr Ksenofontov in his memoranda to the Judges who granted the re-arrest applications.

[30] Mr David did, however, accept that re-arrest was possible in certain circumstances as a matter of inherent jurisdiction. The re-arrest jurisdiction was accurately described by the Court of Appeal in Det Norske Veritas AS v The Ship “Clarabelle” [2002] 3 NZLR 52, 58-60 where the following appears :

[27] We are unable to agree that release, and re-arrest (as in the present case) does involve the exercise of a broad largely unfettered discretion. To the contrary, we think the above passage accurately reflects the well-established and soundly based principle applied in the cases upon which the passage is based, namely that security on the basis of the claimants reasonably best arguable case is the normal approach, save that in exceptional circumstances other alternative forms of security may be approved.

[28] The Judge also relied upon an observation of Brandon J in Moschanthy [[1971] Lloyds Rep 37] itself (see para [11]) namely that the power to exact security is a very strong power and must not be used oppressively. Again, with respect, we think a somewhat longer passage from another decision of Brandon J in Re “The Polo II” [1977] 2 Lloyd’s Rep 115 at p 119, is worthy of note. There, speaking of his decision in Moschanthy, Brandon J said:

“I took the view that the power of the Court to control security in that way was derived from the inherent jurisdiction of the Court to prevent any abuse of the process of the Court, or the use of Court procedure in an oppressive way. As I pointed out in that case the power to arrest a ship is a very drastic power. And the power to insist that she shall remain under arrest unless security of a certain amount is given is equally a drastic power, and my view, which I expressed in The Moschanthy and which I repeat now, is that that power must not be exercised oppressively, and if it is exercised oppressively then the Court can and should interfere to prevent conduct of that kind. At the same time the Court must make sure that the plaintiff is not left without sufficient security to cover his reasonably best arguable case.”

[29] With reference to when it is appropriate to re-arrest a vessel, we are content to refer to two cases, one decided more recently and one in the nineteenth century. In Naval Consulate Assistencia A Maquinas Maritimas LDA v Owners of the Ship “Arctic Star” (Court of Appeal, Civil Division, The Times, 5 February 1985) Lloyd LJ said this at p 3:

“Mr Page referred us to a number of cases which establish the general rule that, once a vessel has been arrested and released on bail (whether in this jurisdiction or in any other jurisdiction) this court will not normally permit a second arrest, the reason being, as stated by my Lord, that the bail is said to represent the ship. But that rule is not without exceptions. The justification for the rule is, and always has been, the need to avoid oppression and unfairness. For myself, I can see nothing in the least oppressive or unfair in allowing the plaintiffs to arrest this vessel within this jurisdiction to top up their security in the circumstances which my Lord has mentioned.”

In that case subsequent to the provision of adequate security the vessel’s owner took steps which seriously impaired the value of a guarantee. In those circumstances the Court of Appeal readily concluded that re-arrest was appropriate.

[30] Even more in point is the case of Re “The Hero” [[1865] 13 WR 927] in which Dr Lushington held that the re-arrest of the ship was appropriate “to do full justice to the plaintiff” when, on account of a clerical error, the plaintiff had miscalculated the proper amount of security. A warrant for re-arrest was granted, albeit the plaintiff was fixed with costs on account of their earlier mistake.

[31] It follows that in our view the principles relevant to the determination of the present application to re-arrest are clear and well settled. First, following arrest a plaintiff is entitled to security assessed on a reasonably arguable best case basis in terms of the Moschanthy principle. Departure from that approach may be appropriate, in which case strict terms designed to provide adequate alternative security, for example of the kind described in Meeson’s Admiralty Jurisdiction and Practice at para 4–066 (see para [26]), are to be expected. … It was not suggested with reference to the Clarabelle that its owners were incapable of providing security, but would submit to other terms designed to achieve the same end. Rather the issue was solely one of quantum. As to that, a result was reached by the Registrar which was unsupportable in principle.

[32] Secondly, we do not accept the argument that re-arrest for the purpose of provision of increased security is only appropriate in exceptional circumstances. On the one hand there is a rule, or immunity, against rearrest. Its expression is ordinarily couched in terms of the need to avoid oppression or unfairness to a ship’s owner who has already provided security and thereby secured the release of the ship in the first place. But, on the other hand, there are clear exceptions to that rule, including in the situation where security was fixed at an inadequate amount initially, or where the actions of the owner have rendered originally adequate security inadequate. In such cases, an application to re-arrest may be granted in fairness to the plaintiff.

[33] These principles we regard as in keeping with an observation of this Court in Baltic Shipping Co Ltd v Pegasus Lines SA [1996] 3 NZLR 641 at p 650 where McKay J said:

“There is no doubt that the writ in rem and the arrest of a vessel is a very strong and effective remedy, but that does not make it unreasonable. It is a seizure by judicial process, to ensure that the ship or some alternative security is available to satisfy a claim which has still to be substantiated. It has been found expedient in international trade as giving some protection to those who give credit or who suffer damage in the course of maritime trade. If a claim is made unreasonably, in the sense of being without foundation, the defendant can always move to strike out as well as challenging jurisdiction, as was done in The ‘Moschanthy’.”

[31] Mr David submitted The “Clarabelle” and the other cases mentioned permit re-arrest for inadequate security but are not authority for the proposition that once a vessel is released from arrest on provision of agreed security, re-arrest is possible if the conditions of release are breached. Once arrest has given the arrestor the security of the res, re-arrest cannot occur other than in accordance with the principles discussed in The “Clarabelle”.

[32] As to the adequacy of the documents on which the most recent arrest was founded, Mr David was critical of the omission to mention the owner’s guarantee as part of earlier releases. The provision of personal security and its omission from the re-arrest, he submitted, did not amount to exceptional circumstances justifying rearrest. He relied on The Christiansborg (1885) 10 P 141. In that case, following a collision between German and Danish vessels, the owners of one sued in the Admiralty Court in Holland and arrested the vessel. She was released on a guarantee. Before the Dutch proceedings were concluded the same owners sued in rem in England in respect of the same collision and the vessel was again arrested. An application by the defendants for release of the vessel was successful. The case is largely concerned with the propriety of simultaneous proceedings in the courts of two countries between the same parties over the same event but Lord Esher MR did observe (at 151-152):

Then it is clear that after the release of the ship upon the guarantee between the parties an English Court of Admiralty would not try the case. A Court will not proceed to try a case so as to make itself ridiculous, and inasmuch as in an action in rem the mode of enforcing the judgment is by enforcing a bail bond entered into with the Court, it would not proceed when the ship has gone, where no bail bond has been given to the Court, and where there is nothing but the guarantee between the parties, which is a mere personal contract, which the Court of Admiralty would not enforce.

[33] Mr David also pointed to the fact the arrests were for different amounts as supporting his submission the claim is no longer in rem.

Further Discussion and Decision

[34] It is convenient to deal with the numerous applications concerning the Aleksandr Ksenofontov in discrete sections of the judgment.

[35] From The “Myrto” and The “Clarabelle” jurisdiction for appraisal and sale and power to re-arrest both exist, though only in the restricted circumstances discussed in those authorities.

[36] Appraisal and sale normally occurs in default of appearance. Here, the owners have entered an unconditional appearance – but that seems only to make the case unusual and not to debar the relief sought by UAB Garant if all other considerations are met.

[37] Dealing with the criteria discussed in The “Myrto” which usually lead to orders for appraisal and sale, the principal source suggested as to the depreciating value of the Aleksandr Ksenofontov is the cost of maintaining the arrest.

[38] The principal component of the costs of maintaining the arrest would normally be the continuing – and, possibly, accumulating – crew wages coupled with possible repatriation costs. However, as earlier mentioned, the evidence on that topic was unsatisfactory. The plaintiff endeavoured to put in evidence an unsworn and partially handwritten affidavit from the Chief Mate, suggesting there were arrears of wages at the date of the hearing. Objection, properly, was taken to that evidence and, although there is evidence of earlier pay disputes concerning this vessel, the conclusion must be that there was no acceptable evidence of arrears of wages at the date of hearing.

[39] As to ongoing wages, various hearsay statements were put in evidence as to the number of crew on the vessel in the lead up to the hearing. In particular, the plaintiffs endeavoured to put in evidence hearsay statements from the solicitor for the owner suggesting the entire crew of 67 were on the vessel on 28 September 2007 but that some 47 had return tickets and 15 were to be repatriated within a few days.

[40] The most reliable evidence came from Mr Filatov who said that on 17 October 2007 some 36 crew members had been repatriated, the departure of another 13 was imminent, and the owner intended to retain 18 crew to maintain seaworthiness and readiness to sail at the commencement of the squid season. That would seem to have been the position at the date of hearing, and there has been no additional evidence proffered since then.

[41] It would appear, therefore, that ongoing wages may, if unpaid, be eroding the value of the vessel but the numbers and crew on board are down to about a quarter of full complement and Mr Filatov said that “owners have paid the crew who have departed and are continuing to pay the crew who are remaining to maintain the vessel”. There is no admissible evidence to the contrary and accordingly it must be taken that the value of the vessel is not being eroded by priority claims for crew wages.

[42] The other costs of maintaining the vessel appear inevitable for a vessel under arrest, but liability for those costs of a vessel under forfeiture was not, having regard to the chronology of events, explored in evidence. Forfeiture of the vessel introduces a complicating factor to the question of how long the vessel is likely to remain under arrest.

[43] And an unusual feature of this case is the owner’s failure to engage with UAB Garant or the Registrar over the merits of the claim, leaving its defence to rest substantially on procedural arguments. That notwithstanding, although no figures are in evidence of the vessel’s worth, still less any encumbrances, the vessel is likely to be valuable. She is a stern trawler, 104m in length, and of 4370 gross registered tonnes.

[44] Also to be borne in mind are the ongoing failure to provide the Registrar with security for the increasing costs of the arrest coupled with the ongoing costs of berthage, provisioning and the like. However, even when all of that is considered, although there are grounds to conclude the value of the Aleksandr Ksenofontov is diminishing during arrest, the diminution in value may turn out to be relatively modest as a percentage of the vessel’s worth. As mentioned, there was no evidence on that topic and accordingly the Court’s view is that it is appropriate to grant UAB Garant’s application to the extent of ordering that the Aleksandr Ksenofontov be appraised on the terms appearing in R 784 and Forms 81 and 82, but that it would be premature to grant the application for sale until appraisal has been completed and the applications for relief against forfeiture dealt with. There will be orders to that effect.

[45] Since the application to set aside or strike out the notice of proceeding and the warrant of arrest was based on the same grounds as those just discussed, it follows that it must be dismissed.

[46] Although, perhaps, illogical to consider the validity of the arrests after dealing with the application for appraisal and sale, the Court nonetheless turns to that topic.

[47] The original notice of proceeding filed on 19 July 2006 is criticised for inaccuracy and over-statement of the claim for costs.

[48] In relation to the allegedly erroneous claim in the original notice of proceeding, Ms Versfelt acknowledged that the concise statement of claim must comply strictly with the Rules and failure may result in the action being set aside or struck out (The “Condor of Bermuda”, The “Tosa Maru”, Materiel Combined Service Forces of Taipeh v The Ship “Marthalina” HC Auckland AD591, 7 February 1994, Robertson J). However, those authorities also show that adequate notice of the default is sufficient. Naturally, she submitted, the concise statement in this case met the requirements of the Rules.

[49] As to the claim for costs, she submitted it was part of the relief sought or the amount claimed under R 769(2)(b)(ii) (iii). Indeed, a claim for costs in the notice of proceeding was mandatory until 1 July 2002 and altered only on promulgation of this Court’s new costs régime.

[50] In submissions countering those to the effect that this was not an in rem claim, Ms Versfelt referred to the Court of Appeal’s view expressed in Baltic Shipping Co. Ltd v Pegasus Line SA [1996] 3 NZLR 641, 650 that on a challenge to jurisdiction whether the claim is truly within the ambit of s 4 of the Admiralty Act 1973 is to be “decided by looking at the nature of the claim without reference to the evidence to support it to see whether the plaintiff has an arguable case”. Again, unsurprisingly, Ms Versfelt submitted the concise statement in the original notice of proceeding satisfied the requirements.

[51] She submitted The Dilmun Fulmar was distinguishable on the basis that although breach of the settlement agreement gave the repairer express power to rearrest the vessel (or its sister ships) it did not expressly revive the Admiralty claim previously discharged by other provisions of the agreement.

[52] In relation to the power to re-arrest, Ms Versfelt, whilst acknowledging the omission of reference to re-arrest in Part 14, submitted it was important to distinguish releasing a vessel by the Court or Registrar on provision of bail or other security as distinct from release following withdrawal of the warrant of arrest by the arresting party. She submitted The “Clarabelle” was authority for the proposition that it was open to a plaintiff in Admiralty proceedings, following release by Court order or the Registrar on provision of security, either to apply for leave to re-arrest or to review the Registrar’s decision under R 795(2). That distinction was emphasised by the contrasting provision of R 778(2) where an arresting party may withdraw the arrest by notice and R 778(5), which empowers the Registrar to release a vessel on payment into Court of the amount claimed plus costs of issue and execution or the provision of security and an acceptable bail bond.

[53] Whilst the $100,000 claimed is certainly an over-statement of the costs which might be payable to the plaintiff other than at trial, the notice of proceeding is expressly up to and including trial and the claim does not necessarily seem to be an over-statement of what might be ordered in a complex proceeding, perhaps involving evidence from several foreign countries and including payment of the Registrar’s costs of arrest.

[54] The balance of the original notice of proceeding seems to do no more than state UAB Garant’s reasonably best arguable case as required by The “Clarabelle” and the document overall gives adequate notice of the claim.

[55] Turning to the validity of all the arrests after the first, the subsequent arrests were all following agreement between the parties for payment of the outstanding balance by instalments with provisions intended to preserve the right to re-arrest for breach of the payment programme, breaches which eventuated. The question is whether agreements of that nature convert a claim for the balance owing for repairs to a ship which would clearly be within s 4(1)(m) of the Admiralty Act 1973 into a claim for debt. Also to be borne in mind in that regard is that the original arrest of the ship provided the res as security for a claim clearly within the Admiralty jurisdiction and that the “power to exact security is a very strong power and must not be used oppressively” as noted in The “Clarabelle”. As the authorities reviewed in that case show, re-arrest is permissible to top up security or to rectify clerical errors (The “Arctic Star”, The “Hero”) or “where the actions of the owner have rendered originally adequate security inadequate” (The “Clarabelle” at p 60 para [32]) or in other limited circumstances. Exceptional circumstances do not need to be demonstrated provided oppression and unfairness to owners is avoided.

[56] The agreement between UAB Garant and the owner made on 21 December 2006 was for payment of the balance then owing of “debts for the repair of the vessel ‘Aleksandr Ksenofontov’” in instalments with the agreement expressly providing that, in the case of breach by the owner, UAB Garant “reserves the right to undertake any necessary legal measures to protect its own interests including, but not restricting re-arrest of the vessel”. The parties expressly stated that “the legal procedure started in New Zealand 18-07-2006 remains valid and, in the case of breach of the present agreement, mighty [sic] be renewed at any moment”.

[57] The learned author of Foskett The Law and Practice of Compromise (5th edn para 8-07 p 150) says:

Generally speaking, therefore, an agreement of compromise will discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach. Where a party wishes to be able to revive his original claim in the event of the other party’s failure to comply with his obligations under the compromise, he would be well-advised to insist that a term to that effect should be incorporated.

[58] On that basis, it appears clear that, as part of agreeing to compromise payment of the balance of the repair costs for the Aleksandr Ksenofontov and to provide for payment by instalments, the parties expressly agreed, as Foskett suggests is prudent, that this proceeding was to remain on foot and that the right to re-arrest for breach would similarly persist.

[59] The major distinction between the form of the compromise agreement in this case and that in The Dilmun Fulmar was that the compromise agreement in that case provided that in the event of breach the repairer could proceed against the owner; and/or to re-arrest The Dilmun Fulmar or any of her sister ships and/or to claim for the amount outstanding. Critically, although the compromise agreement in The Dilmun Fulmar spoke of “re-arrest”, the right preserved to the shipyard would appear to have been no more than one to sue the owner including seeking the arrest of the ship or her sister ships under the Court’s jurisdiction in that regard. That does not appear to have been a contractually agreed preservation of the validity and continuation of the original arrest proceedings with any re-arrest for breach being pursuant to a power conferred by the original claim.

[60] In those circumstances, there is nothing to suggest that UAB Garant’s right to issue and continue in rem Admiralty proceedings against the owner under s 4(1)(m) of the Admiralty Act 1973 was subsumed into an action for debt.

[61] The owner’s reliance on the failure to mention the guarantee requirement in the compromise agreement as impugning UAB Garant’s claim is supported by the observations in The Christiansborg, but the thrust of that decision concerned the existence of simultaneous proceedings in different countries over the same collision and the guarantee question only arose in one. It was said the Court in Admiralty will not enforce a guarantee, something which is accepted, but what the judgment does not deal with is whether failure to mention a new term such as a guarantee in the arrangements between the parties might impugn a proceeding properly brought in Admiralty. In any event, though the compromise agreement led to the release of the Aleksandr Ksenofontov on 22 December 2006, the agreement only became relevant when the shipyard again sought to arrest the ship on 13 April 2007, and the compromise agreement was put before the Court in support of that application and this Court is not asked to enforce the guarantee.

[62] In all those circumstances, the owner’s objection on the grounds of procedural inadequacy is not made out, nor is the assertion that any power to rearrest was extinguished in favour of a right to sue via the Court’s ordinary procedure.

[63] All D V Ryboprodukt’s objections to UAB Garant’s application for appraisal and sale pendente lite are dismissed accordingly.

Forfeiture

[64] As mentioned at the commencement of this judgment, the Aleksandr Ksenofontov was forfeited to the Crown by order of the District Court at Christchurch made on 25 October 2007. The District Court judgment recorded the seizure of the vessel by the Ministry of Fisheries prior to 2 August 2007 and an order made by the Court that day for release of the ship to the owner on conditions.

[65] Memoranda were sought from counsel as to the effect of forfeiture on the matters in issue in this proceeding and, in particular, whether delivery of the whole of this judgment was appropriate.

[66] On 12 December 2007 UAB Garant applied to this Court for relief from the effect of the forfeiture of the vessel and reinstatement of the various interests in her, plus sale. Ms Versfelt had earlier advised that the Ministry of Fisheries was prepared to have any relief application dealt with in the Auckland Registry of this Court. Ms Versfelt filed full submissions in support but the application remains unheard in this Court pending delivery of this judgment.

[67] More specifically concerning the effect of forfeiture on the matters dealt with in this judgment, Mr David submitted on 30 November that judgment on the outstanding issues should be delivered in the usual course as if forfeiture had not occurred. He submitted that forfeiture under the Fisheries Act 1996 transferred the property into the ownership of the Crown free of all encumbrances, subject to the right to claim relief by those asserting an interest in the ship, utilising the process in s 256 of that Act. He submitted forfeiture terminated the in rem process.

[68] Accordingly, in Mr David’s submissions, there was no reason at law or on any other basis, for this Court to decide the application for appraisal and sale pendente lite but the Court could continue to decide whether UAB Garant had validly invoked the in rem procedure.

[69] Mr David advised that his instructions were that owners would also seek relief from forfeiture – but, as noted, no such proceedings have yet been filed.

[70] Ms Versfelt, in a memorandum dated 20 November 2007, agreed with Mr David that judgment be given on the owner’s application to set aside the proceedings and the warrant of arrest but disagreed that forfeiture terminated the Admiralty proceedings. Forfeiture, she submitted, transferred the vessel free of encumbrances but did not terminate the various interests in her. Her comprehensive memorandum dealt with what she submitted was the effect of forfeiture under the Fisheries Act 1996 s 255E(1) and the power to seek relief. She drew attention to the observations of the Court of Appeal on Kareltrust v Wallace & Cooper Engineering (Lyttelton) Ltd [2000] 1 NZLR 401 but, since it will obviously be necessary to consider those submissions in detail at the hearing of the relief application, the Court puts them to one side for the moment.

[71] Ms Versfelt accepted that forfeiture of the Aleksandr Ksenofontov affected UAB Garant’s application for appraisal and sale, at least in relation to the application for immediate sale. She made submissions as to the Court’s power to order sale without appraisal but, again, as long as the forfeiture remains in place, it would be premature to consider those submissions.

[72] Finally, Ms Versfelt submitted that if the ship cannot be sold prior to any successful application for relief, since the owner has opposed the sale the Court should order the owner to pay the Registrar’s costs including those already incurred, relying on UFL Charters Ltd v The Ship “Malakhov Kurgan” (HC Christchurch Civ.2006-409-1370 para [18]) where jurisdiction to make such an order was involved, though without reference to authority.

[73] Unsurprisingly, in a reply memorandum dated 23 November 2007, Mr David submitted that Ms Versfelt’s memorandum demonstrated an intention on the part of UAB Garant not to comply with the Registrar’s requirements concerning security and that, of itself, provided an additional ground why the warrant of arrest should be set aside. He, too, filed comprehensive submissions in that regard.

Result

[74] As a result of that exchange and the other matters discussed in this judgment:

a) A one day fixture should be allocated by the Schedulers for the hearing of:

i) The plaintiff’s adjourned application for sale pendente lite

ii) The hearing of the various applications for relief against forfeiture.

iii) Any other applications concerning the ship then outstanding.

Those directions are made on the assumption that appraisal of the ship will proceed forthwith.

b) Following allocation of the fixture date, the file is to be referred back to Williams J for the making of a timetable leading up to the fixture.

Solicitors:

Wilson Harle, P O Box 4539 Shortland Street Auckland, for UAB Garant
Anthony Harper Lawyers (GM Brodie) P O Box 2646 Christchurch
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

Copy For:

Paul W David, P O Box 4472 Shortland Street, Auckland
Michael Heard, P O Box 2026 Shortland Street, Auckland
Bill Gaffaney, Commercial Manager, Amcor Packaging Ltd, P O Box 16102 Hornby Christchurch
Ministry of Fisheries, 69 Nazareth Avenue, P O Box 8324 Christchurch.
Tony Mortimer, Registrar, Auckland High Court
Stewart Scorgie, Case Officer, Auckland High Court