By Marc de Man
REITER PETROLEUM INC. vs. THE SHIP “SAM HAWK” [2015] FCA 1005
THE SHIP “SAM HAWK” vs. REITER PETROLEUM INC. [2016] FCA FC 26
THE FACTS
Allow me to present the facts.
Reiter Petroleum Inc., a Canadian bunker trader, claimed it was not paid for bunkers supplied in Istanbul, Turkey to the Ship “SAM HAWK”.
Reiter contracted with the Charterer of the Ship but contended that the Owners of the Ship had to pay for the bunkers supplied to the Ship.
Reiter arrested the Ship in Albany, Western Australia.
QUESTION TO BE DECIDED
Reiter claimed that both Canadian and US law applied as per its Terms and Conditions which entitled it to a maritime lien against the Ship pursuant to Section 15 of the Australian Admiralty Act of 1988. The Australian Admiralty Act at Section 15 grants jurisdiction in case of:
“a proceeding on a maritime lien or other charge in respect of a ship or other property subject to the lien or charge.”
Australian law has a very restricted number of maritime liens, as is the case in England. They are:
(a) Salvage
(b) Damage done by a ship
(c) Wages of the Master, or a member of a crew of a ship; or
(d) Master’s disbursements
and nothing else. These are stingy jurisdictions.
The question to be decided was whether a lien for necessaries pursuant to the law of Canada or the US by reason of the contractual “proper law” clause” in the Bunker Supply Contract with the charterer of the vessel was a maritime lien for purposes of Section 15 of the Admiralty Act of Australia.
In other words is a FOREIGN MARITIME LIEN ENFORCEABLE in Australia, even though it is common ground that the provision of bunkers would NOT give rise to a maritime lien under Australian substantive law?
THE PRIVY COUNCIL DECISION OF “HALCYON ISLE”
To succeed Reiter had to persuade the Australian Court that the Privy Council decision of the HALCYON ISLE (Bankers Trust v. Todd Shipyards [1981] A.C. 221) should no longer be followed in Australia.
Let us look briefly at the majority and minority decisions in the HALCYON ISLE.
If you recall, in that case the Ship was repaired in Brooklyn, New York, USA enjoying a US maritime lien. The Ship was arrested in Singapore by the Mortgagee Bank, Bankers Trust. She was sold via judicial sale and the proceeds could not satisfy in full the ship repairer and the mortgagee. The question arose whether the Ship repairer with a US maritime lien would rank higher than the mortgagee.
The majority led by Lord Diplock and two other judges decided that because the nature of a maritime lien under English/Singapore law was PROCEDURAL or REMEDIAL, it was governed by the law of the jurisdiction in which the proceeding was brought, namely the LEX FORI.
On the other hand, the minority, Lord Salmon & Lord Scarman asked the following question:
Does English law, in the situation presented by the facts, recognize a maritime lien created by the law of the United States, i.e. the LEX LOCI CONTRACTUS where no such lien exists by its own internal law?
It answered as follows:
“In our view, the balance of authorities, the comity of nations, private international law and natural justice all answer this question in the affirmative. If this be correct, the English law (the LEX FORI) gives the maritime lien created by the LEX LOCI CONTRACTUS precedence over the mortgagee’s mortgage. If it were otherwise, injustice would prevail.”
In addition, the learned minority justices stated:
“It would be a denial of history and principle, in the present chaos of the law of the sea governing the recognition and priority of maritime liens and mortgages, to refuse the aid of private international law.”
THE DECISION AT FIRST INSTANCE BY MR. JUSTICE McKERRACHER
Returning to the SAM HAWK, the learned trial judge, Mr. Justice McKerracher, against the background of different views states at the outset that the language of Section 15 of the Australian Admiralty Act is BROAD.
At paragraph 105 of his decision, he says:
“HALCYON ISLE is NOT binding on this Court, although as a decision of the Privy Council, it is accorded great respect and weight.”
He further states that the process of reasoning in the HALCYON ISLE turns on the distinction made between SUBSTANTIVE and PROCEDURAL issues and remedies.
At paragraph 106, he says:
“Rules which are directed to governing or regulating the mode or conduct of court proceedings are procedural and all other provisions or rules are to be classified as substantive.”
After the doctrine is dealt with, the learned judge at first instance favours the minority. He emphasizes that the HALCYON ISLE does not and should not apply in Australia. An Australian court should recognize and enforce a maritime lien arising under the foreign law governing the claim.
He adds that a claim pursuant to a maritime lien recognized under foreign law is a SUBSTANTIVE claim and not a procedural one. It is a claim as to the existence, extent or enforceability of the rights or duties of the parties, not merely directed to governing or regulating the mode or conduct of Court proceedings.
After citing several authors, including the late William Tetley, Mr. Justice Kerracher concludes that it is difficult to find any leading text which supports the majority ratio decidendi in HALCYON ISLE.
The trial judge concludes that even viewing the topic historically, it seems clear that a maritime lien is more than a procedural or remedial right.
He states at paragraph 117:
“Notwithstanding the majority view of the Privy Council in the HALCYON ISLE, there is much to be said for Reiter’s contention that the nature of the maritime lien is necessarily substantive. It is an inchoate right which attaches to the vessel and travels with the vessel independent of changes of ownership.”
At paragraph 119, he states:
“The minority view in the HALCYON ISLE should or indeed MUST be preferred in Australia as it accords with the substantive value of a maritime lien…A lien will operate independent of the fortuitous choice of venue at which a ship is arrested.”
He further states at paragraph 120:
“It follows that I am satisfied on the pleaded case under s.15 of the Admiralty Act that this is a proceeding on a maritime lien, and therefore JURISDICTION has been conferred on the Court by that provision.”
He concludes that it is premature to shut out Reiter from the Australian Court and the Application of the Owners was dismissed.
So far, so good! However, in
THE DECISION OF THE AUSTRALIAN COURT OF APPEAL
Four of the five judges adopted the HALCYON ISLE majority decision and reversed the first instance judge.
Chief Justice Allsop and Mr. Justice Edelman state from the outset that:
“although we disagree with the approach of the primary judge, our disagreement essentially involves DIFFERENT LEGAL CHOICES AS TO PRINCIPLE AND CARRIES NO CRITICISM OF A CAREFUL AND THOUGHTFUL JUDGMENT.”
Personally, this is a very strange qualification. If the judgment is thoughtful and rendered carefully, why was it not maintained.
The four judges cover 290 paragraphs to conclude that there should be certainty, clarity and predictability in the law. Ranking of priorities is a matter for the LEX FORI and the machinery of remedies cannot be altered by the existence of a foreign system.
The question of priorities as a substantive question must be governed by the law of the forum.
The Appeal Court concludes that even if the law of Canada or the United States applies, any foreign rights recognized would need to be characterized, including by reference to the circumstances in which they arose, by Australian law to determine whether they could be described as a “maritime lien”. Whatever foreign rights might have arisen by the transaction, they are neither a maritime lien nor analogous to a maritime lien as that concept is known in Australian law. The majority decision in the HALCYON ISLE was maintained as consistent with the evolution of English law.
DECISION OF MR. JUSTICE RARES
The fifth Appeal judge that held against Reiter, namely Mr. Justice Rares, does not agree with the conclusion that the LEX FORI is the proper law for the classification of a foreign maritime lien. He disagrees with the reasons of the Chief Justice and Mr. Justice Edelman. He agrees with their Order to reverse the first instance judge, but upholds the minority decision of the HALCYON ISLE. This is paradoxical. In fact, Mr. Justice RARES is of the opinion that Reiter did not have a contractual nexus with the Owners of the Vessel but rather with the Charterer, and the US law and Canadian law it invoked could not bind or involve the Owners of the SAM HAWK.
However, his decision, after a thorough historical analysis, strongly upholds the minority decision in the HALCYON ISLE.
Referring to the majority decision in the HALCYON ISLE he states at paragraph 356:
“With great respect, Lord Diplock’s reasoning in the HALCYON ISLE that a maritime lien is procedural or remedial is difficult to reconcile with his acknowledgement of its potent and substantive impact on third parties’ rights.”
At paragraph 357, he states:
“I am of the opinion that such a right is not “procedural or remedial”. It is so substantive that it transcends a change of ownership.”
He concludes, at paragraph 394, that:
“I agree with the dissenting reasons of Lords Salmon and Scarman and their conclusion in the HALCYON ISLE that the LEX LOCI CONTRACTUS determines whether as a matter of SUBSTANCE a maritime lien exists, but the LEX FORI determines its priority.”
THE CANADIAN PERSPECTIVE
It is interesting to note that Canada, where I come from, namely a jurisdiction that derives its admiralty law from England just like Australia applied exactly what Mr. Justice Rares states in the SAM HAWK in the IOANNIS DASKALELIS (Todd Shipyards vs. Altema, 1974 S.C.R. 1248). (The LEX LOCI CONTRACTUS determines whether as a matter of substance a maritime lien exists, but the LEX FORI determines its priority).
The IOANNIS DASKALELIS decision was rendered six years prior to the HALCYON ISLE and is highly respected by the minority judges in the HALCYON ISLE but hardly analyzed by the majority judges in the HALCYON ISLE, and for that matter the SAM HAWK, with the exception of Mr. Justice Rares and, of course, the first instance judge, Mr. Justice McKerracher.
In that case a Greek ship, the IOANNIS DASKALELIS, owned by a Panamanian company, and already subject to a Greek mortgage registered in 1961, was repaired in March 1963 in a Brooklyn, New York shipyard (Todd Shipyards, the same shipyard involved in the HALCYON ISLE!) and she left without paying the cost of repairs (U.S. $82,000). American law grants a maritime lien to an American ship repairer, which lien ranks ahead of an even earlier foreign mortgage (but not ahead of a recorded U.S. mortgage). The ship was diverted by the mortgagee away from the American port of Seattle and was sent to Vancouver, Canada, where she was arrested by the mortgagee. The Canadian Supreme Court accepted jurisdiction and recognized the U.S. maritime lien under U.S. law. The Court applied U.S. law, because it held that the lien was a right and therefore substantive. The Canadian Supreme Court used its own ranking (of the forum) and ranked the lien ahead of the ship mortgage.
The decision of the Supreme Court of Canada is equitable, because the repairs added to the value of the object mortgaged, so that payment of the repairs did not reduce the rights of the mortgagee who had value added to his equity. The repair and the lien also allowed the ship to sail and earn profits necessary to pay off the mortgage.
CONCLUSION
It is unfortunate that the Australian Court of Appeal decided to follow the majority decision in the HALCYON ISLE. This Privy Council decision and its majority have been analyzed and criticized by many legal authors, and I suggest to you that the Australian Court of Appeal rendered a regressive decision. The minority decision in the HALCYON ISLE and the decision of the first instance judge in the SAM HAWK are, humbly submitted, progressive and should be followed.
The immediate fallout of the SAM HAWK appeal decision is that it has left many a solicitor and barrister in Australia with very little work. No foreign maritime lien holder will knock on Australia’s door. On the other hand, I would not be surprised if Australian lawyers will be knocking at your doors for much needed work.
Thank you.
