FEDERAL COURT OF AUSTRALIA Villasenor v The World of Residensea II Ltd [2007] FCA 647 SALVADOR VILLASENOR v THE WORLD OF RESIDENSEA II LTD NTD 13 OF 2006 MANSFIELD J 4 MAY 2007 DARWIN IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY NTD 13 OF 2006 BETWEEN: SALVADOR VILLASENOR Applicant AND: THE WORLD OF RESIDENSEA II LTD Respondent JUDGE: MANSFIELD J DATE OF ORDER: 4 MAY 2007 WHERE MADE: DARWIN THE COURT ORDERS THAT: 1. The applicant pay to the respondent costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY NTD 13 OF 2006 BETWEEN: SALVADOR VILLASENOR Applicant AND: THE WORLD OF RESIDENSEA II LTD Respondent JUDGE: MANSFIELD J DATE: 4 MAY 2007 PLACE: DARWIN REASONS FOR DECISION 1 On 24 August 2006 the applicant applied for urgent interlocutory relief directing the respondent to allow him to board and remain on the Ship "The World" (the Ship) pending the hearing and determination of the principal dispute as to whether he had properly been expelled from the Ship and could no longer reside on it. On 1 September 2006, his application was revised to an application for an interlocutory injunction directing the respondent to permit the applicant to board and remain on the Ship whilst it was in Australian waters, that is until 1 October 2006. 2 The applicant had purchased certain shares in the corporation which owns the Ship, and thereby acquired residency rights with respect to certain apartments on the Ship. Those rights are regulated by a Residence Agreement in respect of each apartment. Under those rights, the applicant was entitled to use the apartments on the Ship as a full-time residence, or as a vacation residence (as other shareholders with residency rights did) including offering their apartment for rental when not in use by the owner. It is not necessary for present purposes to refer in detail to the nature of those rights or the terms of the apparently standard Residence Agreement. 3 The reason for the urgent interlocutory application can be shortly stated. On 16 August 2006 the applicant was removed from the Ship when it was in port in Singapore, upon direction of the captain of the Ship, arising from an alleged incident involving a female guest on the Ship. He had not then been permitted to return to and reside on the Ship. The interlocutory application was brought upon the Ship arriving into Darwin Harbour, as part of its planned tour in Australian waters extending over some five weeks or so. 4 The applicant claimed that he had not committed inappropriate behaviour towards a female passenger, or towards another female passenger and a female staff member by or concerning whom allegations were also made, and that the respondent had failed to investigate and deal with the allegations of those persons appropriately and in accordance with the Residence Agreement. He thus claimed that the respondent was not entitled to have removed him from the Ship in Singapore, or to continue with that position. The two female passengers towards whom the applicant was alleged to have engaged in improper conduct were no longer on the Ship and the incident concerning the female staff member had allegedly occurred some months before, and she had had no adverse contact with the applicant since that time in any event. Hence, he claimed, there was a serious question to be tried as to whether he was entitled to continue to reside on the Ship, and submitted that the balance of convenience favoured the grant of an interlocutory injunction. That brief description does not purport to reflect all the matters which were the submissions of the parties. He therefore sought the return to the Ship pending the final hearing and determination of the disputes by the New York court. 5 Under cl 64 of the Residence Agreement, the applicant agreed that any disputes arising under it were to be subject to the exclusive jurisdiction of either the Supreme Court of the State of New York, New York County, or of the United States District Court for the Southern District of New York. Nevertheless, it was accepted that this Court had jurisdiction to hear and entertain the application, subject of course to its discretion as to whether or not to do so in the face of the jurisdiction clause in the Residence Agreement under s 9 of the Admiralty Act 1988 (Cth)as a general maritime claim: see in particular s 4(3)(f). The applicant also generally accepted that the final hearing and determination of the issues which arose in the proceeding would be likely to be resolved in a New York court in accordance with cl 64 so that, after the interlocutory application was resolved, the proceeding would probably be permanently stayed. 6 The application for an injunction was adjourned part heard to 1 September 2006 upon an undertaking given by the respondent to give the applicant supervised access to the Ship for the purpose of removing from his apartments such of his personal belongings as he considered appropriate or necessary to enable him to continue to live comfortably. He had particular concern about a computer which contained his personal financial and other records. The applicant was given that access. On 29 August 2006, the respondent instituted proceedings in the United States District Court, Southern District of New York, seeking a determination as to the propriety of its exclusion of the applicant from the Ship. That led to the applicant in that proceeding claiming against the respondent and others by way of counterclaim various forms of relief including a mandatory interlocutory injunction that he be permitted to return to the Ship, and for final relief to the same effect, as well as damages claims against the respondent and others for defamation, for negligence in the arranging and conducting the investigation into the conduct alleged against him, for discrimination against him by reason of his race, for conversion of his property still on the Ship, and for "tortious interference with contract". It is not necessary to refer to those other claims for relief other than to note them. 7 The respondent applied before the resumption of the interlocutory hearing for a permanent stay of the proceedings in this Court. At the resumed hearing, senior counsel for the applicant indicated that the application for a permanent stay would be consented to, subject to the hearing and determination of the interlocutory injunction, and (as noted) that the interlocutory injunction was to be limited to allow the applicant to board and remain on the Ship whilst it was in Australian waters only and subject to such conditions as the Court may impose, after hearing the respondent as to what those conditions might appropriately be. 8 At the end of that hearing, I declined to grant the interlocutory injunction sought. As I indicated briefly at the time, I did so because I was of the view that, irrespective of the merits of the applicant's claim, the balance of convenience favoured quite strongly the declining of the injunctive relief sought. The applicant on the material before the Court was a man of considerable means. He clearly had the resources to be able to live away from the Ship either temporarily in Australia or in his home or in New York without difficulty. He had been given access to and been able to remove such of his personal belongings as he considered desirable to ensure that he could live in as comfortable a fashion as was appropriate, including to his personal computer records. He accepted that in any event he would need to leave the Ship in the reasonably near future to travel to New York to prepare to resist the claim which the respondent had by then instituted against him and to give instructions with respect to it. Consequently, in practical terms, his application involved him being permitted to return to and remain on the Ship only for a relatively short period of time. As against that, although (as I noted) he firmly denied the allegations of improper conduct made against him, the captain of the Ship had formed the view that it was not in the interests of the Ship or of the applicant that he should be permitted to return there because of the safety of the Ship or of the applicant's own safety. The captain of the Ship gave evidence that he was concerned that the applicant's return to the Ship would jeopardise the Ship's safety and comfort, and that he could not ensure the safety of the applicant in the immediate future. There was some foundation for that view because of the reaction of one or more residents of the Ship towards the applicant, so that the captain assessed that the applicant would be returning to a hostile environment. He did not wish to take the chance to find out if he could properly ensure the safety of the applicant. I did not think that the views of the captain should be discounted or that the Court should substitute its views for those of the captain on that matter in the short term. The authority of the captain to remove a passenger from a vessel in the interests of its safety is long standing: The Lima (1837) 166 ER 434; Boyce v Bayliffe (1807) 1 Camp 58; and see the Navigation Act 1912 (Cth), ss 279(1) and 281(b). I therefore took the view of the captain into account in reaching my conclusion as to where the balance of convenience lay. 9 At the end of the hearing, I also made an order for a permanent stay of the proceeding. 10 The further proceedings were then conducted in the New York court. The applicant by his cross-claim pursued a claim for a "mandatory preliminary injunction" directing that he be permitted to return to the Ship. To consider that claim, evidence was heard on 21 December 2006 including from two of the persons he is alleged to have improperly confronted. On 20 March 2007, a judge of the United States District Court concluded that the motion for a mandatory preliminary injunction should be denied. His Honour also ordered that the respondent pay to the applicant the value of his residential rights in the apartments on the Ship at the date of his expulsion from it, adjusted for maintenance and other fees paid by the applicant since his expulsion, less any rental income received. It is apparent from that order that, although the relief sought was a preliminary injunction, the order will have the effect that the applicant's claim for a permanent order that he is entitled to remain on the Ship will have been lost, but he will be compensated by recovering the value of those apartments. The respondent has appealed from that decision to the extent that it requires the respondent to pay to the applicant the value of those apartments. 11 I do not think that decision has finally decided the merits of the applicant's claim. It does not adjudicate upon his claims for breach of contract, or his other claims other than his right to occupancy of the apartments. It was clearly based upon the applicant being required to demonstrate irreparable harm if he were to be deprived of his occupancy of the Ship, as well as meeting the need of showing a "likelihood of success on the merits" in the face of a subsequent decision of a properly elected board of the respondent having acted within its apparent authority and in accordance with its understanding of the Ship rules and the residence agreement to bar the applicant from the Ship by reason of his misconduct. They are, as the judge indicated, terms applicable to a preliminary or interlocutory injunction rather than a final decision. The court was clearly strongly influenced by that decision of the board, and did not think there was a strong case that it had acted outside the scope of its authority, in a way that it was not legitimately furthering its corporate purpose, or in bad faith. It has not made findings about the alleged misconduct itself. The only further reference in its findings to the evidence given on 21 December 2006 was in the following terms: … based on the testimony at the hearing, the court finds that the Ship Captain, the Ship's management and the Board acted within their authority to further the corporate purpose in good faith. It is not a finding about the existence or otherwise of the alleged misconduct. 12 It is in those circumstances that the respondent now seeks costs of these proceedings against the applicant, and on the basis that there are special circumstances (see Sony Computer Entertainment Australia Pty Ltd v Dannoun (No 2) [2001] FCA 1530, that those costs should be payable on an indemnity basis either from the commencement of the proceedings or from 30 August 2006. That is the date upon which the applicant was informed of the proceedings commenced in New York. 13 The applicant contends that there should be no order for costs of the proceedings at all. He submits that the circumstances are analogous to those cases where, for whatever reason, there has been no adjudication of the parties' rights but it is no longer appropriate to continue the proceedings: see eg Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 at 625 to the following effect: If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. See also the cases cited by McHugh J at footnote (7). More recently, that principle has been applied by Nicholson J in Quinlan v Safe International Forsakrings AB [2006] FCA 1718 at [45]-[46]. 14 I accept the submission of counsel for the applicant that the decision in the New York proceedings of 20 March 2007 does not decide the issue as to whether the applicant engaged in misconduct of such a nature as to warrant his removal from the Ship. That issue remains unresolved. In my view, too, both the applicant and the respondent acted reasonably in respectively commencing and defending the proceedings in this Court and in the conduct of them. However, the nature of the claim in this Court was confined to a claim for temporary interlocutory relief in respect of a claim which, it was accepted, would have to be finally determined in another jurisdiction. In those circumstances, the real issues in this proceeding were confined to those commonly applicable to a claim for interlocutory relief, that is whether there was a serious question to be tried and where the balance of convenience lay having regard to the existence of a serious question to be tried and the prospects of success on that issue. They are the issues upon which the applicant ultimately failed. Moreover, although it appears that the New York proceedings concerned an application for a mandatory preliminary injunction, the effect of the orders made are that the applicant's right to residency on the Ship has been permanently determined. He may nevertheless have a claim for damages, but the nature of the relief which he sought in this Court has been resolved adversely to him, even if its resolution was in part as a result of events which occurred subsequent to the interlocutory hearing in this Court. 15 Consequently, in the peculiar circumstances of this case, and notwithstanding my view that the applicant and the respondent both acted reasonably in relation to this proceeding, in my view it is appropriate that the applicant pay to the respondent its costs of this proceeding. 16 I include in my assessment of reasonableness the applicant invoking the jurisdiction of the Court in the first place with the Ship in Australian waters, the applicant in Australia, the captain of the Ship in Australia, and other potential witnesses or deponents also available within Australia. In my view, it was not unreasonable for the applicant to have commenced the interlocutory injunctive proceedings here or to have maintained them, with the acceptance that after the interlocutory injunction was heard the proceedings should be permanently stayed. I have not overlooked the observations of Brandon J in The Eleftheria [1970] P 94 at 99 and of Allsop J in Incitec Ltd v Alkimos Shipping Corporation (2004) 138 FCR 496 at 504-505. Those decisions concerned the principles upon which a decision should be made not to grant a stay in the face of an exclusive jurisdiction clause. As Allsop J said at 505, [43]: The question is one of the exercise of a discretion in all the circumstances, but recognising that the starting point is the fact that the parties have agreed to litigate elsewhere, and should, absent strong countervailing circumstances, be held to their bargain. 17 For those reasons, there should be an order for costs to be payable by the applicant to the respondent. I do not think the circumstances are such as to warrant an order for indemnity costs. There were several reasons put forward why such an order should be made. The first was that, under cl 44 of the Residence Agreement, the applicant, if in default of the Residence Agreement, should have to pay reasonable attorneys' fees and disbursements. That does not advance the contention. Nor does it advance the contention that clause 44 of the Residence Agreement was promptly brought to the attention of the applicant by the respondent. As I have said, I regard the application as having been brought reasonably in the circumstances. The reasons I have given also indicate why, in my view, there was a sufficient nexus to the jurisdiction to have justified institution of the proceedings for the limited purpose for which it was instituted. They also indicate why, in my view, it was reasonable for the applicant to maintain the claim for interlocutory relief on 1 September 2006, notwithstanding the institution of the New York proceedings on 29 August 2006. Finally, it was said that the applicant should have realised that there was no prospect of the interlocutory application being successful, so that at least by 30 August 2006 he should have known that he had no chance of success. I do not think the picture was as clear as that. There was significant contested evidence as to the events giving rise to the allegations of misconduct. The circumstances upon which the captain of the Ship formed the view that it was unsafe or not in the best interests of the Ship or of the applicant to permit the applicant to return to the Ship pending the hearing and determination of the proceedings in New York or whilst it was in Australian waters required considerable evidence and explanation on the part of the captain before that view was understood, at least by me, in its full context. 18 In those circumstances, I decline the application for indemnity costs. The applicant should pay to the respondent costs of the application to be taxed or agreed. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 4 May 2007 Counsel for the Applicant: Mr C Cureton Solicitor for the Applicant: Minter Ellison Counsel for the Respondent: Mr W Roper Solicitor for the Respondent: Clayton Utz Date of Hearing: 2 May 2007 Date of Judgment: 4 May 2007