Limiting foreign influences on australian maritime liens

Article written by Matthew Hudson, Manager Queensland

Maritime liens have had a long history of recognition throughout the Western World as a means to secure rights against ship owners.

A common example during the twentieth century might go something like: a cargo ship sails from the Port of Wellington, New Zealand, up the East Coast of Australia to the Port of Brisbane (where the ship docks for a period of time to re-stock). At the Port of Brisbane half the crew (the replaced crew) has substantial unpaid wages and is replaced with new crew (for whatever reason). The ship continues to travel on to a Port in Jakarta, Indonesia. Before the ship is able to leave Australian waters, the replaced crew would, amongst other things, apply to Court seeking a maritime lien in rem (meaning against the ship) for the due payment of unpaid wages. If the replaced crew had a valid claim they would enjoy a superior priority position against any other creditor of the ship owner.  This was powerful, especially prior to “globalisation” and “the internet”. As ships could take years to travel between docks and without proper protections in place, ship crews had little to no other prospects for recovering their dues.

Why is this important now? Over the course of the many future editions of the AI, we will look at discussing some of the more obscure possible defences to voidable transaction or unfair preference claims. In search of these obscure defences, we have liberally applied what Edelman J said in the matter of FPJ Group Pty Ltd (In Liq) [2016] FCA 392, by regarding unperfected retention of title claims as valid “secured debts” for the purpose of defeating or limiting an unfair preference claim. For a good summary of this case, I recommend this article. This broad interpretation of “secured debt” could potentially extend to any equitable or common law charge or lien (whether perfected or not). Hence, our interest in maritime liens. Save as to my concluding comments, the other important aspect of this issue is that thanks to the Full Bench of the Federal Court of Australia (the Full Bench), creditors in Australia can now rest easier that foreign creditors won’t easily be able to “jump the que” (so to speak) by broadly claiming maritime liens on unpaid debts.

The Ship “Sam Hawk” v Reiter Petroleum Inc [2016] FCAFC 26 (“The Sam Hawk”)

  • The Sam Hawk involved a chartering agreement between EBC (an Egyptian company) and the ship’s owner (a Hong Kong company), whereby EBC was granted time to charter the ship, subject to certain conditions. Two of those conditions being that: (1) the ship must be bunkered; and (2) the owner of the ship would not be liable for the liabilities incurred by EBC.
  • Upon the Sam Hawk’s arrival in Istanbul between November 2013 and December 2013, EBC contracted with Reiter Petroleum (Reiter) to supply bunkers to EBC. By way of amended agreement, it was agreed between EBC and Reiter that the bunkers would be so supplied, but that American law would apply to any question of Reiter’s right to a maritime lien in rem and Canadian law would apply in almost all other respects.
  • EBC never paid the invoice of USD$122,675 owing to Reiter’s. On 5 November 2014 Reiter’s filed an in rem application in Western Australia, procuring the Sam Hawk’s arrest in Albany. At first instance, the single Judge of the Federal Court, granted Reiter its maritime lien.
  • The ship owner subsequently appealed to the Full Bench to overturn the maritime lien.

Key issue

Section 15(2) of the Admiralty Act 1988 (Cth) (the Act) recognises the following four classes of maritime liens under Australian law:

(a)    salvage;

(b)   damage done by a ship;

(c)    wages of the master or crew of the ship; and

(d)   the master’s disbursements.

The majority in the Sam Hawk held that a claim for unpaid liabilities associated with “bunker costs” would not fall within any of the above categories.

Reiter’s main hope laid with the contractual clause requiring that American law be used in the question of whether or not a maritime lien could arise (ie for the purpose of the private conflict of laws issue). The interesting thing was that none of the parties involved had anything to do with America, and neither had the Sam Hawk sailed into American waters during its voyage. It was merely forum shopping, as admiralty lawyers would call it.

The argument put forward by Reiter’s was that the minority Privy Council judgement decision in The Halcyon Isle [1981] AC 221 (the Halcyon Isle) should be followed in that the relevant applicable law is the lex loci voluntatis (meaning the law of the place of choice). Applying the law of the place of choice (ie America), Reiter’s maritime lien would then be recognisable and enforceable under Australian law.

In considering a plethora of case law and academic commentary the majority of the Full Bench held that the majority decision in the Halcyon Isle should be followed instead, in that the relevant applicable law is the lex fori (meaning the law of the forum – ie Australia). Their Honours rejected Reiter’s claim to a maritime lien and ordered the return of the Sam Hawk to its owners. Two key reasons were given:

A.      Since Pfeiffer (2000) 203 CLR 503, the Australian position is that the lex causae (meaning the law of the place of the cause of the issue/dispute) is the primary determiner of private conflict of laws issues. As the lex causae could not be America or Canada, it could only be Australia, Hong Kong or Turkey. As no evidence was led on Hong Kong or Turkish law, their Honours relied upon the lex fori; and

B.      Even if the lex causae was Canadian or American law, the character of the foreign right (ie the unpaid bunker liabilities) would not be closely analogous to the definition of a maritime lien under s 15(2) of the Act. As was said in the Halcyon Isle at paragraph 231:

Insofar as the foreign right includes a right to priority over other creditors, the lex causae would yield to the lex fori.”

What does this mean?

1.       A possible High Court application may yet be lodged by Reiter’s following this decision. One such reason for this that I took out of the case was that at paragraph 190 of the judgement, two of the Justices rely upon the assumption that even if the lex causae was not Australia, the maritime liens would not in anyway be recognised under Hong Kong or Turkish law (no evidence was led during submissions on this). If it turns out either jurisdictions’ laws do recognise such a maritime lien, Reiter’s may just appeal.

2.       Maritime liens, at present, and under Australian law, are confined to a narrow set of circumstances. A simple unpaid debt may not suffice.

3.       The maritime lien is said to vest throughout the life of the debt. In his paper “Admiralty jurisdiction – some basic considerations and some recent Australian cases” (FCA) [2007] FedJschol 5, Allsop CJ argues that a maritime lien enjoys the following characteristics:

  • the charge attaches to the ship (in rem) wherever it travels, and remains indelible, irrespective of encumbrance or ownership (or changes to same);
  • it is perfected or enforced by the action in rem;
  • it is limited to the value of the ship; and
  • it generally is paramount in priority to almost all other classes of creditor rights (even against a security interest registered on the PPSR).

The timing of perfection of the maritime lien and its place in the order of creditor priorities would have important implications for the purpose of unfair preference claims under s 588FA(2) of the Corporations Act 2001 (Cth). Therefore, if your terms and conditions refer to a right to a maritime lien and you are being pursued by a liquidator, we encourage you to seek professional advice. SV Voidables can assist you in this regard.

4.       For any admiralty law enthusiasts, it was interesting to note the difference of opinion between Allsop CJ and Rares J in the Sam Hawk decision. Both Judges notably having particular keen interests in this area of law (see Rares J paper presented at the MLAANZ Conference on 19 September 2013, entitled “the far from Halcyon Isle: maritime liens, renvoi and conflicts of law”. Allsop CJ preferred the majority decision in Halcyon Isle, whereas Rares J preferred the minority decision, yet both Justice held in favour of the ship owner.

It will be interesting to see if this matter gets appealed to the High Court, but at least, for the moment, creditors have more certainty when dealing with Australian companies, especially ship owner companies. For further information on how maritime liens may affect you, please contact one of our SV Voidable experts or alternatively call us on 1800 246 801.

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