Wallace & Cooper Engineering  (Lyttelton) Ltd v F V Orlovka

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
NO AD 93-99/98
IN THE MATTER of admiralty actions both in rem and in personam

BETWEEN
WALLACE AND COOPER ENGINEERING (LYTTELTON) LTD AND ANOTHER
Plaintiffs

AND
F V ORLOVKA AND OTHERS
First Defendants

AND
KARELRYBFLOT JSC
Second Defendant

Dates of Hearing: 8th and 9th December 1999

Judgment Released: 10 December 1999

Counsel: Mr Matthews for the Plaintiffs
Mr Shamy and Ms Fox for Registrar
Miss Paterson (granted leave to withdraw) for BSP Ltd

RESERVED JUDGMENT OF YOUNG J

INTRODUCTION

[1] Disputes as to the extent and incidence of expenses associated with the care and custody of arrested vessels seem to be increasingly common.

[2] Admiralty rules and procedures, at least to the extent to which counsel in this case have been able to explain them to me, do not appear to have caught up with the range of issues which can arise in this context. In particular, the rules do not provide clear and straight-forward mechanisms by which Registrars can determine, in the first instance, what represents appropriate expenditure in respect of an arrested vessel and, secondly, for resolving disputes which later arise as to the way in which Registrars have met such expenses.

[3] The present case highlights inadequacies in the rules and difficulties in their practical administration. I draw the attention of the Rules Committee to what are certainly semantic and are possibly deeper difficulties with the Rules. I trust that, administratively, procedures can be put in place to assist Registrars to avoid the sort of difficulties which have arisen here.

FACTUAL BACKGROUND

[4] The fishing vessel the "Orlovka" was arrested on the 23 August this year at the suit of the plaintiffs (to which I will refer as "Wallace and Cooper"). The vessel was, and still is, fully crewed. The vessel is presently under arrest in Timaru Harbour.

[5] The underlying proceedings are presently the subject of an appeal to the Court of Appeal which, if allowed, might have the result that the vessel is released. Judgment from the Court of Appeal is likely next week. There is a jurisdictional issue involved.

[6] The current difficulties arise out of supplies arranged by the Registrar for the vessel. The issue arises most acutely in respect of the supply of Gardinia oil and diesel.

[7] I will deal first with the Gardinia oil issue.

[8] On 5 October 1999 the ship's agent faxed the Registrar with a message indicating that the vessel required "6 mt of Shell Gardinia oil". The Registrar acted on that request and authorised the supply of the oil as requested. On 12 October 1999 6,000 litres of Gardinia oil was supplied at a cost of $15,637.50 including GST. When that invoice was received, it was sent on to Wallace and Cooper. This was on 18 October 1999.

[9] There followed complaints from Wallace and Cooper. These complaints, in turn, led to a response from the chief engineer of the vessel (Mr Shvarev) via Mr Grinevich (who is associated with the vessel's owners and/or agents) to this effect:-

"It was essential to bunker vessel with 6,000 litres of Shell Gardinia oil because I made an analysis of the lube oil in the main and auxiliary engines and the quality was poor. It was therefore necessary to completely replace the oil in order to maintain the machinery in good working condition.

We are having to run the diesel generators in Port for very long periods. We also run the main engines for 1 hour per day. The machinery has not been properly serviced or repaired for some time and I am waiting for replacement parts to do this. I became very worried about excessive wear after conducting the analysis and asked the vehicle agent to supply replacement lubrication oil.

The machinery is in fair working order at present but consumption of fuels is higher than normal and we will have to complete proper servicing in the near future.

I tried to avoid this cost as long as possible as instructed by my company but ultimately the replacement lube oil was very necessary otherwise I could be seen to be irresponsible if machine was damaged."

[10] There have subsequently been substantial investigations conducted in relation to this issue on behalf of Wallace and Cooper. I have seen the results of those investigations. I have had, as well, the benefit of seeing the chief engineer, Mr Shvarev cross-examined in respect of his explanation for the oil. He was taken through relevant log entries.

[11] On 12 October this year, leaving aside what appear to have been approximately 6,500 litres of used (but probably recyclable) lubricating oil, there was present on the vessel 4,697 litres of lubricating oil. This was before the delivery, that day, of the 6,000 litres of oil which is in issue before me. A complete change of oil in the two main and two auxiliary engines would take 4,314 litres. There was thus sufficient oil to fully change all oil in all engines and to leave a balance left over. Approximate usage of oil per day is in the order of 5-10 litres a day and this is consistent with actual experience, as recorded in the logs, for the period between 20 May 1999 and 5 July 1999. The log entries in relation to the period after 12 October 1999 point, in fact, to the oil in one of the auxiliary motors being changed (957 litres) and, conceivably, although the log entry is ambiguous. the oil in one of the main engines. The log entries, as a whole, do not line easily up with Mr Shvarev's explanation, via Mr Grinevich, to the Registrar which I have set out earlier in this judgment.

[12] 1 deal now with the diesel oil issue.

[13] There have been four deliveries of diesel oil each of, or in the order of, 30,000 litres. These deliveries were on 21 September 1999 (30,000 litres), 8 October 1999 (30,232 litres), 29 October 1999 (30,000 litres) and 22 November 1999 (30,000 litres). The long and the short of it is that there appears to have been at least 78,400 litres of diesel held on the vessel as at 26 November. This points pretty clearly to the delivery of 30,000 litres on 22 November as having been unnecessary. It is far from clear to me that the request for this fuel was legitimate or honest. There also appears to have been limited candour displayed as to the contents of fuel tanks when the vessel was inspected.

[14] The evidence before me both as to the Gardinia and diesel was very much more detailed than this. Given the nature of the hearing and practical difficulties in reaching a final adjudication binding all parties, it is, I think, appropriate not to review the evidence in any more detail than I have.

[15] What is clear is that it is understandable that Wallace and Cooper is unhappy about the situation which has developed. The evidence does point fairly strongly to substantial quantities of Gardinia oil and diesel having been stockpiled and to a want of candour on the part of either the ship's owner or the crew. For present purposes, it is, I think enough to recognise that the grounds for concern on the part of Wallace and Cooper are substantial to say the least.

[16] It is also understandable that the Registrar has become anxious about his own position given the reluctance of Wallace and Cooper to meet directly payments associated with deliveries of oil and diesel to the vessel. Accordingly, a notice was given on 18 November by the Registrar under which he sought security.

THE STRUCTURE OF THE HIGH COURT RULES

[17] I turn now to consider the structure of the relevant High Court Rules.

[18] Rule 776 provides:-

"(1) After the issue of a notice of proceeding or counterclaim in rem, the plaintiff or the defendant to the notice or counterclaim may, by an application in form 72, apply for the issue of a warrant of arrest of the property against which the action or counterclaim is brought. ...

(4) In support of the application for a warrant of arrest there must be filed ...

(b) An indemnity to the Registrar in form 73 and security to the satisfaction of the Registrar for the fees, expenses and harbour dues (if any) of the Registrar and of the Registrar's appointed officers and agents.

(5) The Registrar may from time to time require additional security to cover fees, expenses and harbour dues (if any) referred to in subclause (4)(b)."

[19] Rule 778 (8) provides:-

"Before property under arrest is released in compliance with a release issued under this rule, the party at whose instance it was issued must, in accordance with the directions of the Registrar, either pay the costs, charges, and expenses due in connection with the care and custody of the property while under arrest or give a written undertaking to pay those costs, charges, and expenses."

[20] Rule 781 provides:-

(1) The amount and form of any security required under this Part may be determined by the Court or a Judge on an application by any party.

(2) If security is being given by a person not ordinarily resident within the Jurisdiction, that person must,--

(a) Unless otherwise ordered by the Court, submit to the jurisdiction of the Court for all purposes relating to the security and its enforcement; and

(b) Give an address for service within the jurisdiction of the Court-"

[21] Rule 795 provides:-

"(1) The Registrar may apply to the Court for orders to assist the Registrar in the performance or exercise of any function, duty, right, or power conferred or imposed on the Registrar by this Part, and the Court may make such orders in relation to the performance or exercise of that function, duty, right, or power as the Court thinks fit.

(2) Any party to a proceeding who is affected by a decision of the Registrar under this Part may apply by interlocutory application to review that decision, and the Court may make such order as it thinks just."

[22] The Rules require that the indemnity given to the Registrar be in the following form (form 73):-

"The applicant indemnifies you -

(a) For any fees and expenses (including harbour dues) that may be incurred by you in the execution of the warrant of arrest issued against ... ; and

(b) Against any liability arising out of or incidental to any act lawfully done by you in executing that warrant."

THE APPLICATIONS BEFORE ME

[23] There are presently two applications before me.

[24] The application by Wallace and Cooper seeks orders as follows:

"1. Giving directions as to whether a consignment of 6,000 litres of 'Gardinia' oil is a liability properly incurred by the Registrar for which the Plaintiff has given him indemnity.

2. Pursuant to Rule 781 determining the amount and form of security required by the Registrar pursuant to his notice dated 18 November ... "

[25] The application by the Registrar seeks directions along the following lines:-

"1. Is the indemnity given by Wallace and Cooper Engineering absolute or is it dependent upon the request made for the supply of fuel or lubrication oil being genuine?

2. If Wallace and Cooper Engineering are liable pursuant to the indemnity should payment be made by Wallace and Cooper Engineering now or when the vessel is released pursuant to Rule 795?

3. If Wallace and Cooper Engineering are not liable for payment, who is liable for payment and should payment be made out of the consolidated fund?"

THE ISSUES

[26] As I see it, there are three issues which are, in descending order of generality:-

1. Does the indemnity extend to expenses incurred by the Registrar in respect of the continued detention of the vessel as opposed to expenses relating to its arrest?

2. Does the indemnity extend to supplies of fuel/oil made to a vessel under arrest?

3 Does the indemnity extend to the expenses actually incurred by the Registrar in relation to the supply of Gardinia and diesel?

[27] I now turn to discuss these issues.

ISSUE 1 - DOES THE INDEMNITY EXTEND TO EXPENSES INCURRED BY THE REGISTRAR IN RESPECT OF THE CONTINUED DETENTION OF THE VESSEL AS OPPOSED TO EXPENSES RELATING TO ITS ARREST?

[28] I note that the provisions which apply in England and Wales via the Rules of the Supreme Court (Order 75, Rule 10 (3)) which correspond to our form 73 and Rule 776 require the arresting party to undertake to pay:-

"The fees of the marshall and all expenses incurred by him or on his behalf in respect of the arrest of the property and the care and custody of it while under arrest."

[29] The language employed in our High Court Rules is not so explicit. Indeed, construed literally, it appears to relate to expenses associated with the arrest rather than with the continued detention of a vessel.

[30] I am, however, of the view that the indemnity required of a plaintiff in New Zealand does extend to expenses associated with the care and custody of a vessel after it has been arrested. I say this for the following reasons:-

1. The reference to "harbour dues" in Rule 776 appears to presuppose that the Registrar is entitled to an indemnity for ongoing costs associated with the care and custody of a vessel and not merely those associated with its arrest.

2. As effectively an involuntary bailee of the arrested vessel, a Registrar will almost inevitably face expenses associated with the care and custody of the vessel which will have to be met. There can be no sensible basis for suggesting that these expenses should be borne by the public (via the consolidated fund) as opposed to by those who have procured the arrest.

3. This approach is consistent with the authorities to which I have been referred, particularly Turners & Growers Ltd v The Ship "Cornelis Verolme" (1996) 9 PRNZ 409 where Williams J expressed the view that the provisions of the then Admiralty Rules 1975 corresponding to the current High Court Rules to which I have referred:-

"entitle a Registrar to be indemnified against not merely the fees, expenses and harbour dues which may be incurred but also against expenses then incurred arising out of or incidental to and following upon the execution of a warrant of arrest as long as those actions are lawful and are connected in some way to the execution of the warrant."

That case was followed by Giles J in De Nationale Investeringsbank N. V v The Ship "Queeny Margreth" (1997) 11 PRNZ 454.

ISSUE 2 - DOES THE INDEMNITY EXTEND TO SUPPLIES OF FUEL/OIL MADE TO A VESSEL UNDER ARREST?

[31] Mr Matthews noted that in the Turners & Growers case Williams J observed that he was "unaware when further fuel may need to be supplied to the ship" and then went on:-

"Whether any future supply of fuel could be said to be an expense 'arising out of or incidental to any act ... done ... in execution' remains for argument and for future determination. Similarly, with the expense of sustenance for the crew. That which was supplied over Easter was supplied was supplied at the Registrar's request. His ultimate right of recoupment remains for later determination following submissions, as does the right of recoupment for any future supplies. At the present time, the costs would appear to be a Registrar's expense during the period of arrest ... . It also remains for argument whether those expenses fall within the ambit of [form 73] and are thus recoverable from Turners & Growers."

[32] I, however, have no doubt that, at least in principle, supplies of fuel and oil and provisioning for the crew can be an aspect of the custody and control of a vessel on the part of the Registrar so as to be potentially within the form 73 indemnity. As to bunkering, this is, I think, implicit at least in the decision of Colman J in Centro Latino Americano De Commercio Exterior SA v Owners of The Ship "Kommunar" [1997] 1 Lloyds Rep 22. This case dealt, in a context which is not, at least for the moment, exactly the same as the present, with an assertion by a plaintiff that it had been required to bunker excessively a vessel under arrest. The judgment proceeds on the basis that bunkering appropriately associated with the custody and care of a vessel is a liability which falls, in the first instance, on the arrested party.

ISSUE 3 - DOES THE INDEMNITY EXTEND TO THE EXPENSES ACTUALLY INCURRED BY THE REGISTRAR IN RELATION TO THE SUPPLY OF GARDINIA AND DIESEL?

[33] As I have indicated, the evidence before me points strongly to a significant element of stockpiling. I have stated my conclusions in fairly broad terms earlier in this judgment. There is little point in me reviewing the evidence as to those conclusions, in detail, in this judgment because any view I reach can only be provisional. But the combined effect of log entries, appropriate usage rates of fuel and oil and what was found on the vessel during inspections conducted on behalf of Wallace and Cooper, suggest strongly that there was in fact no necessity for the Gardinia oil supplied on 5 October or the diesel supplied on 22 November.

[34] It follows that it is likely that information conveyed to the Registrar, on behalf of the ship's owner, was misleading.

[35] Although the Registrar's application for directions addressed directly the issue whether the indemnity applies only to expenses genuinely associated with the care and custody of the vessel as opposed to such expenses which are reasonably believed by the Registrar to so relate, there was no focused argument on this issue. Indeed, there may be no direct authority on point. If there is such authority, it has not been cited to me.

[36] This issue is far from easy to resolve. It should be a matter addressed by the Rules which should define with clarity the extent of the indemnity. As I have indicated already, the Rules and form 73 do not even explicitly address liabilities for post-arrest expenditure by a Registrar. So the Rules come nowhere near to addressing specifically whether the indemnifier here is required to indemnify the Registrar for any expenditure, whether justified or not, incurred by the Registrar in relation to the care and custody of the arrested vessel.

[37] Before reverting to this point, there are a number of incidental considerations to which I should refer:-

1. In the overall scheme of things, it may be that issues associated with the alleged stockpiling of oil and diesel may be mopped up by the effluxion of time, particularly if the vessel remains under arrest following the decision of the Court of Appeal. So there is some point in the contention made by Kareltrust in a memorandum filed by its counsel that the issue may be premature to determine finally.

2. The possibility that the plaintiff may have incurred a liability for excessive bunkering, in a case where the in rem proceedings were later set aside on jurisdictional grounds broadly similar to those invoked by the owner in the present case was accepted with comparative equanimity by Colman J in The Kommunar case to which I have already referred. He saw that being balanced, in the circumstances of that case, by the fact that no undertaking as to damages from the plaintiff is required when a vessel is arrested and that the plaintiff there was not under any liability to compensate the ship owner for expenses and losses arising out of the arrest even though it was, in due course, held to have been unfounded.

3. Although such equanimity would not be appropriate if excessive bunkering had been obtained by deceit on the part of the ship's owner or crew, it is difficult, given the comparatively informal nature of the hearing before me, to express a final view on that and, in particular, I am reluctant to express a final view on that other than in proceedings in which the owner is unequivocally a party and will be bound by any decision reached.

4. Purely as a matter of impression, I would have thought that the Registrar and/or Wallace and Cooper would have a claim against the vessel in respect of "excessive" bunkering provided, that is beyond what was truly necessary for its proper care and custody.

[38] The issue whether the indemnity applies in relation to the supplies of the Gardinia oil and diesel in question before me relates, in part, to an issue of fact which I cannot fairly resolve definitively on the evidence before me although I certainly incline to the view that there has been stockpiling and some want of candour on the part of those who have been dealing with the Registrar. It also raises what is a difficult issue of construction in relation to the indemnity and one in respect of which, given the loose nature of the Rules, is capable of more than one reasonable answer. If the matter in the end is material, it will I suspect be really a subset of a broader range of issues which will require determination and I am, for this reason, reluctant to determine it in isolation from other issues which will, I think, be connected with it.

CONCLUSIONS

[39] Given the events which have occurred I see no alternative but for the Registrar to meet, from the consolidated fund, expenses so far incurred.

[40] In respect of any future expenditure, the Registrar would, I think, be well advised to appoint his own agent and adviser in relation to the necessity and appropriateness of any such expenditure. The expenses in relation to the appointment and retainer of such agent and adviser would be, in my view, well within the indemnity. Any further requests for bunkering or other expenditure related to the vessel while under arrest should be the subject of advice from such agent and adviser.

[41] I am not prepared to resolve the issue of interpretation which has been raised definitively. This is an issue which I think must be determined in a context where the owner of the vessel is properly a party to the proceedings and where any decision which I (or any other judge) makes is capable of resolving the dispute in the round.

[42] Accordingly, I am not prepared to make orders or give directions other than those specifically referred in this section of my judgment.

[43] I reserve costs.

[44] I direct that issues associated with the matters dealt with in this judgment be the subject of the conference already arranged in relation to this litigation for 16 December.

Solicitors:
The Crown Solicitor's Office, Christchurch
R A Fraser & Associates, Christchurch
(Counsel: J G Matthews)