FEDERAL COURT OF AUSTRALIA Vilona v The Ship "Alnilam" [2001] FCA 411 ADMIRALTY ─ application for the release of a vessel from arrest – right to proceed in rem against a surrogate ship limited to "general maritime claims" – whether the plaintiff's claim should be summarily dismissed Admiralty Act 1988 (Cth) ss 4(2)(a), 16, 19 Admiralty Rules 1988 (Cth) r 19, r 18 Malaysia Shipyard and Engineering v The Iron Shortland (1995) 59 FCR 535 cited Laemthong International Lines Co Ltd as owners of the Ship Laemthong Pride v BPS Shipping Ltd (1997) 190 CLR 181 cited The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 cited KMP Coastal Oil Pty Ltd v The Owners of Motor Vessel "Iran Amanat" (1997) 75 FCR 78 referred to The Turiddu [1998] 2 Lloyds Rep 278 referred to General Steel Industries Ltd v Commissioner for Railways (1964) 112 CLR 125 cited The A P J Shalin [1991] 2 Lloyds Rep 62 cited Lloyd Werft Bremerhaven GmbH v Owners of Ship Zoya Kosmodemyanskaya referred to MAURIZIO VILONA v THE SHIP "ALNILAM" N 323 OF 2001 HELY J 10 APRIL 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 323 OF 2001 IN ADMIRALTY BETWEEN: MAURIZIO VILONA PLAINTIFF AND: THE SHIP "ALNILAM" DEFENDANT JUDGE: HELY J DATE OF ORDER: 10 APRIL 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The ship "Alnilam" be released from arrest, and that notice of the release be given to the Marshal. 2. The proceedings be dismissed pursuant to Order 20 r 2. 3. The plaintiff pay Fiesta's costs of the proceedings and of the Notice of Motion filed on 30 March 2001, including all costs of arrest and of the release of the vessel from arrest. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 323 OF 2001 IN ADMIRALTY BETWEEN: MAURIZIO VILONA PLAINTIFF AND: THE SHIP "ALNILAM" DEFENDANT JUDGE: HELY J DATE: 10 APRIL 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 28 March 2001 the plaintiff issued a writ in rem against the ship "Alnilam", a livestock carrier flying the flag of Malta. The registered owner of "Alnilam" ("the ship") is Fiesta Shipping Ltd ("Fiesta"), a company registered under the laws of Malta. 2 The manager of "Alnilam" is Gemarfin S.A. ("Gemarfin") a company controlled by Alfio Delorenzi ("Delorenzi"). 3 The particulars of claim endorsed upon the writ disclose that the plaintiff sues the ship "pursuant to s 4(2)(a) of the Admiralty Act 1988 (Cth) ("the Act") as surrogate for a claim for ownership of three vessels". It subsequently emerged that the three vessels referred to are: MV "Sea Grapes"; MV "Scalar"; and MV "Turiddu". (These vessels are hereinafter referred to as "the three vessels" except where it is material to distinguish between them.) The current registered owner of "Sea Grapes" (now the "Winco Pioneer") is Winco Maritime Ltd; the current registered owner of "Scalar" (now "Maria K II") is Sea Luck Maritime Inc; the current registered owner of "Turiddu" (now "Ekaterini") is Fortress Shipping Ltd. 4 The plaintiff applied for, and on 28 March 2001, obtained an arrest warrant for the ship. The ship was arrested in Fremantle on 29 March 2001. The affidavit in support of the application for arrest warrant stated: "The claim in respect of which the arrest is sought concerns a dispute as to ownership of several vessels." 5 On 30 March 2001 Fiesta filed a notice of motion in the proceedings seeking various orders, including an order that the arrest of the ship be set aside, and that the proceedings be dismissed, on grounds which included want of jurisdiction in the Court to entertain the in rem claim. 6 The plaintiff was given notice of the application during the course of 30 March 2001, and was represented by counsel when the motion came on for hearing at about 4 pm on that day. Over the opposition of Fiesta I adjourned the hearing of the motion until 3 April 2001, to afford the plaintiff an opportunity of responding to it. 7 A proceeding in Admiralty may only be brought in respect of "maritime claims". A "maritime claim" may be either a "proprietary maritime claim" or a "general maritime claim". The right to proceed in rem against a surrogate ship is provided for in s 19 of the Act. It is clear from the language of s 19 of the Act that the right to proceed in rem against a surrogate ship is limited to "general maritime claims". It does not extend to "proprietary maritime claims". The two categories of claim are mutually exclusive (see s 4(1) of the Act). 8 The effect of s 16 and s 19 of the Act is that a "proprietary maritime claim" in respect of a ship may only be pursued against the particular ship that is the subject of that claim. It is not possible for a plaintiff to pursue by way of in rem proceedings a "proprietary maritime claim" in respect of one ship against another ship, even another ship that would otherwise be a surrogate ship for the purposes of the Act: Malaysia Shipyard and Engineering v The Iron Shortland (1995) 59 FCR 535 at 546 ("Iron Shortland"); Laemthong International Lines Co Ltd as owners of the Ship Laemthong Pride v BPS Shipping Ltd (1997) 190 CLR 181 at 187. That result was intended: ALRC Report No 33 par 208 (at 159-160). 9 Thus the claim formulated by the writ is not one for which the Act provides, and is not within the jurisdiction of the Court conferred by the Act. No other basis was suggested on which the Court would have jurisdiction to entertain in rem proceedings against the ship in respect of the plaintiff's claim. 10 The writ names Fiesta as the "relevant person" in relation to the maritime claim (see rule 15(1)). Fiesta was the owner of the ship when the proceedings were commenced. However, there is no reason to suspect, let alone evidence which establishes, that Fiesta was the "owner or charterer of, or in possession or control of, the first mentioned ship", that is (in the present case), the three vessels alleged to be the subject of the plaintiff's claim and of which the ship is said to be a surrogate. Thus even if s 19 was applicable to the present claim, the nexus required by s 19(a) has not been established, nor is there any basis for assuming that it could be established. Evidence as to the ownership of the three vessels has been produced, and there is nothing to suggest that Fiesta was the registered owner of any of the three vessels in the period covered by the searches. Nor is there any material which suggests that Fiesta was the beneficial owner of any of the three vessels. 11 The writ asserts that the ship is liable as a surrogate for a claim of ownership in relation to the three vessels. The three vessels have been sold, and nowhere does the plaintiff contend that notwithstanding the sale of the three vessels, he remains the true owner of them. 12 For all of these reasons the claim made in the original writ was bound to fail. 13 On 3 April 2001 I gave leave to the plaintiff to file an amended writ in rem. I did so without prejudice to Fiesta's contention, to be debated in final submissions, that the amendment should be refused because it was futile. The particulars of claim as disclosed by the amended writ are: "the plaintiff sues the defendant pursuant to section 4(2)(a) of the Admiralty Act 1988 (Cth)". The words "as surrogate for a claim for ownership of three vessels" which appeared in the original writ have been deleted. The relief sought remains unchanged, namely damages in the sum of US$15,000,000. 14 Fiesta accepts that the claim propounded by the amended writ bears the legal character of a proprietary maritime claim as defined in s 4(2)(a) of the Act, and is thus within the jurisdiction of the Court: The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 427. Nonetheless it maintains its claim for release from arrest of the ship and for the dismissal of the proceedings, on the ground that the plaintiff's amended claim is untenable, and an abuse of the process of the Court. Fiesta contends that the material advanced by the plaintiff in support of its amended claim does not disclose the existence of any triable issue. 15 In KMP Coastal Oil Pty Ltd v The Owners of Motor Vessel "Iran Amanat" (1997) 75 FCR 78 the Full Court observed that the Act proceeds upon the basis that it is for the owner of a ship to satisfy the Court that it should not be arrested, or that it should be released from arrest, rather than for the plaintiff in a proceeding to satisfy the Court that the ship should be arrested. At 85 the Court said: "The owner of a ship under arrest would be entitled to move for summary dismissal of proceedings on the ground that they were vexatious or frivolous or disclosed no reasonable cause of action. Further, when hearing an application for release of a ship from arrest, the court may be entitled to consider the strength of the plaintiff's claim. If the court were satisfied that there was no serious question to be tried as to the plaintiff's claim, the court may be loath to maintain the arrest or to require security for the claim." An appeal to the High Court was dismissed: (1999) 196 CLR 130. 16 The plaintiff's case, as articulated in submissions, is that he is the equitable owner of the ship. Fiesta accepts that a claim to equitable ownership is a proprietary maritime claim. The claim to equitable ownership is based on the following contentions: - in the period 1994-1997 the plaintiff entrusted the management and operation of the three vessels to Delorenzi, or companies controlled by him; - monies derived from the operation of the three vessels belonged to the plaintiff, but were misappropriated by Delorenzi; - Delorenzi caused the ship to be constructed in 1998 with the misappropriated funds and put into the name of Fiesta. 17 Fiesta was registered in Malta on 19 June 1995. Fiesta is a standard limited liability company having its object focused solely on the ownership and operation of a vessel under a Malta flag. At the time of initial registration, its shares were held equally between Abrador S.A. and Konda Assets, companies formed in the Republic of Panama. At that time Delorenzi and Pietro Zanetti were the directors of Fiesta. 18 Searches reveal that on 8 April 1996 the shares in Fiesta were sold to Cugado Shipping Company S.A. and Camtrade International S.A., each of Panama. On 15 December 1997 Cugado sold its shares to Cresco Maining Enterprises Inc of Panama. On 24 March 1999 the shares were sold to Expedition Shipping Inc and Bey Shipping Inc (now known as Galaxy Group Holding Inc), who are the present equal holders of the shares in Fiesta. 19 Delorenzi resigned as a director of Fiesta with effect from 7 April 1997. Omnium Investments Inc was appointed in his stead with effect from that date. Pietro Zanetti resigned from the post of director of Fiesta with effect from 26 August 1998. 20 The ship was built in Italy in 1998. The builder was San Giorgio Del Parto Genoa. Evidence filed on behalf of Fiesta establishes the following facts: - Viking Ship Finance Ltd ("Viking") is a company incorporated in Switzerland and is active in the international ship finance market; - on 22 April 1996 Viking signed a loan agreement with Fiesta with respect to a US$12 million loan to finance building of the cattle carrier Alnilam; - the total loan amount of US$12 million was paid directly to the shipbuilder on 24 November 1998; - a first mortgage over the ship was registered in favour of Viking on 23 November 1998; - the loan agreement specifies that the ship has to be on time charter with Wellard Rural Exports, Fremantle, Australia ("Wellard"). The time charter has been assigned to Viking; - on 13 October 1998 Wellard entered into a charter party of the ship with Fiesta for an initial term of two years with a three year option of renewal. That option was exercised on the expiry of the original term; - Wellard pays daily hire in an amount of US$8,500 per day by telegraphic transfer to Fiesta's account with BDL Banco Di Lugarno; - payments of charter hire are received by Fiesta into its account with BDL Banco Di Lugarno, which account is pledged in Viking's favour as additional security to the mortgage; - semi-annual payments of principal and interest have been made on time, through transfers from Fiesta's account at BDL Banco Di Lugarno, leaving a balance outstanding of US$9,470,000 plus interest of US$278,260.17. 21 Viking has made a written declaration to the effect that neither Delorenzi nor Gemarfin has been the beneficial owner of the loan agreement. BDL Banco Di Lugarno has made a similar declaration in relation to the bank account established by Fiesta on 23 April 1996. 22 The plaintiff adduced evidence, or by his solicitor's affidavit, made claims, to the following effect: - in 1994 the plaintiff, as principal, entered into three trust agreements with Vecomar Shipping Management S.A. Lugarno ("Vecomar"), as trustee, whereby Vecomar agreed to acquire the following companies on behalf of the plaintiff: · Moonflower Shipping Ltd ("Moonflower"), · Moonshadow Shipping Ltd ("Moonshadow:), · Pius Shipping Ltd ("Pius"). (collectively "the three companies") - bearer shares in the three companies were to be issued to Konda Assets and Abrador S.A. at the direction of the plaintiff and deposited with the trustee; - Delorenzi became a director of Moonflower, Moonshadow and Pius. Each company acquired one of the three vessels earlier referred to. Delorenzi was a director of Vecomar until about 1995; - on 3 January 1996 the plaintiff received a letter from Gemarfin which notified him that the bearer shares in the three companies were now in the possession of Gemarfin; - on about 29 November 1996 Pius and Moonshadow borrowed US$1.8 million from First National Bank of Maryland ("the Bank"). Loan documentation recited that the shareholders in Pius and Moonshadow were Plaka Investments Ltd and Gregory Investments S.A. Delorenzi owns the shares in Plaka and Gregory; - the plaintiff became dissatisfied with the management services provided by Delorenzi and formed the view that Delorenzi was stealing substantial sums from the companies. Frequent requests for proper accounting documents and the provision of other information were ignored. One such demand is the letter of 14 February 1996; - on 30 June 1997 Revisuisse Price Waterhouse provided an accountancy opinion regarding the balance sheets of the three companies for the year ended 31 December 1994. The report identified the existence of "deficiencies" between balance sheet figures (prepared by Gemarfin) and bank transactions as follows: Moonflower $289,624.58 Moonshadow $370,976.66 Pius $148,664.42 $809,265.66 The discrepancies could not be clarified due to the lack of accounting records, which it was Gemarfin's responsibility to keep. - on 2 October 1997 a settlement agreement was reached whereby, inter alia, Delorenzi was to provide financial documentation and co-operate with a firm of forensic accountants in relation to the plaintiff's financial claims with respect to the operation of the three vessels. The documents were never provided, nor was the agreed co-operation. A document styled "Interim Settlement Agreement" bears the plaintiff's signature, but not that of Delorenzi. A letter from Delorenzi's solicitor of 3 October 1997 suggests that the terms of a proposed agreement were then still in a state of negotiation. 23 In addition, the plaintiff adduced some evidence as to the circumstances surrounding the arrest of MV Alim (owned by Hamlet Shipping Ltd) in Antwerp on about 22 May 1997. The issue appears to have been whether that ship was responsible for the claim which the plaintiff had against Gemarfin for bunkers delivered on board the Scalar and the Turiddu. The Court ordered the preparation of a report "regarding the existence or otherwise" of fraudulent confusion of companies within the Gemarfin group, a report which has not yet been prepared. The circumstances surrounding the arrest of the MV Alim have no bearing on whether Delorenzi misappropriated monies from the three companies, and if he did, whether the plaintiff (as distinct from the three companies) thereby suffered loss, or on whether any misappropriated funds were applied in the construction of the ship by Fiesta as the alter ego of Delorenzi. 24 Reliance was also placed on the arrest of the MV Alim in Rotterdam on about 31 July 1997. Reference was made in a judgment to a "smokescreen" which had been put up concerning the ownership of the Alim. But that decision was overturned on appeal. The case has no bearing on the issues identified in the previous paragraph, and in any event, the Court of Appeal in the Hague found that the various allegations of "financial malversations" were not sufficiently proven. 25 The plaintiff's affidavit evidence discloses that the "Scalar" was sold by public auction on 6 October 1997 to Universal Entity for US$1 million. The Turiddu was sold on 1 October 1997 by the Admiralty Marshal for US$1.1 million, also to Universal Entity (see The Turiddu [1998] 2 Lloyds Rep 278). The proceeds of sale went to the bank which held a mortgage over the vessel. There are hints or veiled suggestions in the affidavit of Mr Coleman of 2 April 2001 as to possible irregularities in connection with these sales, but no showing, whether by affidavit or in submission, as to how these matters bear upon the plaintiff's claim that monies were unlawfully extracted by Delorenzi from the operation of the three vessels, and applied in the construction of the ship. 26 Curiously, the affidavit asserts that "most striking is the fact that Delorenzi resigned as director (of Fiesta) on 7 April 1997, coinciding with the arrest of the ships in the European proceedings. He was replaced as director by Omnium Investments Inc of Panama". In fact, his resignation preceded the arrest of the ships, and no information is provided in relation to Omnium Investments Pty Ltd. 27 Fiesta contends that the proceedings instituted by the amended writ should be dismissed on a summary judgment application. The Admiralty Rules 1988 (Cth) do not contain provision for a summary judgment application, but those rules do not exclude the operation of ordinary Rules of Court, except to the extent of any inconsistency (rule 6). Once leave to amend the writ was given, counsel for Fiesta made it clear that it was his contention that the proceedings should be dismissed summarily, and submissions proceeded on that basis without objection, although no formal application to amend the Notice of Motion to include such a claim was then made. 28 It was accepted by the plaintiff's counsel that the issue for my determination is whether the plaintiff's materials show, as a matter of fact, that there is an arguable case that the plaintiff is entitled to a constructive trust over the ship. Counsel did not contend that there was anything inappropriate about my embarking on a determination of that question. 29 An order dismissing a claim summarily will not be made except in a very clear case: General Steel Industries Ltd v Commissioner for Railways (1964) 112 CLR 125. Even if Fiesta's application is confined to the release from arrest of the ship, it has been said that an order for release made in interlocutory proceedings before trial is a drastic order which should only be made in a clear case: The A P J Shalin [1991] 2 Lloyds Rep 62 at 66-67 per Sheen J. 30 Rule 19 of the Admiralty Rules requires a proceeding commenced as an action in rem to be commenced by a writ in accordance with Form 6. Note 5 to Form 6 requires that enough short particulars of the claim be given to identify the cause of action. The mere statement that the plaintiff sues the defendant pursuant to s 4(2)(a) of the Act does not identify any particular cause of action. But the plaintiff's written outline of submissions puts the plaintiff's case in this way: "15. The Alnilam was constructed in 1998, subsequent to the time the [plaintiff's] monies were misappropriated. The [plaintiff] will allege that the 'Alnilam' was constructed with monies belonging to him, and that he is therefore the equitable owner of the vessel." 31 The submissions did not address the question as to how that claim, if established, translates into a damages claim for US$15 million. In order to prove the case outlined in submissions, the plaintiff would need to establish: - that Delorenzi misappropriated funds of the three companies; - that the plaintiff was entitled to the funds misappropriated; - that the funds were applied in the construction of the ship; - that Delorenzi is the true owner of the ship, or that Fiesta was a knowing participant in the use of misappropriated funds to build the ship. 32 Fiesta has tendered positive evidence that the funds for the construction of the ship were obtained from Viking, by way of loan, and repaid, to the extent that they have been repaid, from the operations of the ship. The plaintiff does not directly impeach that evidence. 33 Counsel for the plaintiff accepted that "there are links missing from the chain" and that "the quality of its evidence is inferior to the standard usually required". But the problem lies deeper than that. Making every assumption in favour of the plaintiff which the proven facts might possibly justify, the plaintiff's case does not rise above the propositions that Delorenzi may have misappropriated funds to which the plaintiff may have been entitled, and that Delorenzi may have some interest in Fiesta. 34 Even if it is the case that Delorenzi is the ultimate beneficial owner of the shares in Fiesta, and even if it is the case that Delorenzi misappropriated funds to which the plaintiff was entitled, that does not give rise to a proprietary maritime claim against the ship. See, eg Iron Shortland at 743-744 and 748. In the circumstances of the present case, an irreducible minimum required to sustain a proprietary maritime claim against the ship is that the plaintiff's funds were employed in the construction of the ship. There is credible evidence from Fiesta that the funds came from Viking, and no evidence from the plaintiff that it was his funds which were employed. In those circumstances there is no triable issue. After I reserved my decision, I received a note from the plaintiff's counsel pointing out that Delorenzi's signature appears upon the charter party, and that the initials ADL appear on debit notes sent to Wellard. That may simply reflect the fact that Gemarfin is the manager of the ship. Whether that be so or not this material was said to be relevant to "the ultimate beneficial owner of Fiesta Shipping". For reasons earlier given even if it be assumed that Delorenzi is the ultimate beneficial owner of the shares in Fiesta, that is insufficient to sustain the proprietary maritime claim. 35 The plaintiff "anticipated" that Delorenzi might be joined as a defendant at a later stage of the proceedings, however, rule 18 of the Admiralty Rules would seem to preclude the adoption of that course. 36 In Lloyd Werft Bremerhaven GmbH v Owners of Ship Zoya Kosmodemyanskaya (Tamberlin J, 15 May 1997, unreported at 37) Tamberlin J described the arrest of a ship in trade as a drastic measure. At the time of the ship's arrest, it was about to load cattle for transport to Egypt. Losses in the vicinity of US$40,000 are being incurred by Wellard in relation to the arrest of the ship. The plaintiff originally procured the arrest of the ship pursuant to a claim which, for the reasons earlier given, this Court had no jurisdiction to entertain and which was, in any event, bound to fail. The evidence adduced by the plaintiff does not support the amended claim. The amended claim is contradicted by the evidence adduced by Fiesta. There is nothing put before the Court which establishes that there is any serious question to be tried as to the plaintiff's amended claim. That claim rests upon mere assertion. No caveat against release of the ship has been lodged. In those circumstances, the ship should be released from arrest. The proceedings should be dismissed pursuant to Order 20 r 2. The plaintiff should pay Fiesta's costs of the proceedings and of the arrests. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 10 April 2001 Counsel for the Plaintiff: L A Muston Solicitor for the Plaintiff: Conway Leather Shaw Counsel for the Defendant: G T Nell with E G H Cox Solicitor for the Defendant: Norton White Date of Hearing: 3 April 2001 Date of Judgment: 10 April 2001