FEDERAL COURT OF AUSTRALIA Bank of Kuwait and the Middle East v The Ship MV "Mawashi Al Gasseem" (No 2) [2007] FCA 815 PROCEDURE – operation of O 35 r 2(2)(c) of the Federal Court Rules – whether declaration should be made on deemed admissions – where declaration sought as to validity of mortgage over ship – where declaration affects priority of other claims against ship – where other claimants have had opportunity to intervene – considerations in exercising discretion to make declaration – declaration made Federal Court Rules 1976 (Cth) Federal Court of Australia Act 1976 (Cth) Admiralty Rules 1988 (Cth) Admiralty Act 1988 (Cth) Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427 followed Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 cited Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 cited BMI Ltd v Federated Clerks Union of Australia (1983) 51 ALR 401 cited Termijtelen v Van Arkel [1974] 1 NSWLR 525 cited Wallersteiner v Moir [1974] 1 WLR 911 Myer Queenstown Garden Plaza Pty Ltd v City of Adelaide Port Adelaide (1975) 33 LGRA 70 cited Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955 cited BANK OF KUWAIT AND THE MIDDLE EAST v THE SHIP MV "MAWASHI AL GASSEEM" SAD 276 OF 2005 MANSFIELD J 29 MAY 2007 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 276 OF 2005 BETWEEN: BANK OF KUWAIT AND THE MIDDLE EAST Plaintiff AND: THE SHIP MV "MAWASHI AL GASSEEM" Defendant JUDGE: MANSFIELD J DATE OF ORDER: 29 MAY 2007 WHERE MADE: ADELAIDE THE COURT DECLARES THAT: 1. For the purposes of all proceedings against the Ship MV "Mawashi Al Gasseem" commenced in the Federal Court of Australia and pertaining to the priority in which the proceeds of sale of the said vessel should be paid out, the mortgage over the Ship MV "Mawashi Al Gasseem" in favour of the plaintiff granted by Kuwaiti Saudi Co for Livestock Meat and Fodder as the owner of the said vessel by an agreement in writing dated 24 August 2003 (the mortgage) to secure the said owner's repayment of the amounts due to the plaintiff under the facilities granted by the plaintiff to the owner under the mortgage and an earlier agreement in writing dated 27 July 2003 is valid. THE COURT ORDERS THAT: 2. Judgment be entered for the plaintiff against the defendant in the sum of KD11,145,784/486 for outstanding principal and interest to 18 May 2007. 3. The defendant pay to the plaintiff its costs of the action, including any reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 276 OF 2005 BETWEEN: BANK OF KUWAIT AND THE MIDDLE EAST Plaintiff AND: THE SHIP MV "MAWASHI AL GASSEEM" Defendant JUDGE: MANSFIELD J DATE: 29 MAY 2007 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This action was commenced following (1) the arrest on 3 July 2005 and the sale on 4 November 2005 of the vessel Mawashi Al Gasseem (the vessel); and (2) the notice of 17 November 2005 pursuant to r 73 of the Admiralty Rules 1988 (Cth) calling for claims against the funds held as proceeds of the sale of the vessel so as to identify any competing claims on those funds and to determine the priority of payment of those funds between any competing claimants. 2 The plaintiff, by its statement of claim, said that by agreement of 27 July 2003 (the agreement) it had agreed to advance certain credit banking facilities to Kuwaiti Saudi Co for Livestock Meat and Fodder (the owner) as then owner of the vessel upon certain terms and conditions, including that the vessel be mortgaged to the plaintiff as security for repayment of the sums advanced. Certain monies were advanced to the owner in accordance with the agreement. By a further agreement of 24 August 2003 (the mortgage), the owner acknowledged its then indebtedness to the plaintiff of KD 27,951,000 plus accumulating interest and costs, and agreed to mortgage the vessel to the plaintiff as security for repayment of the owner's debt to the plaintiff from time to time. The mortgage of the vessel was duly registered by the Kuwait Ministry of Communications, Maritime Affairs Department. The plaintiff claimed that the owner had failed to repay the advances made or interest in accordance with the agreement and the mortgage, although some payments had been made, so that at 31 October 2005 the owner was indebted to the plaintiff in the sum of KD 9,579,113/689 including interest. 3 The plaintiff claimed that sum plus accumulating interest, and a declaration as to the validity of the mortgage. 4 The owner's defence adopted a curious position. It admitted the existence of the two documents comprising the agreement and the mortgage, and that it had received the advances alleged by the plaintiff and had failed to repay them. Its defence was that no officer of the vessel or of the owner was authorised to sign either the agreement or the mortgage of the vessel, so it was not bound by those documents. That, it said, was the consequence of the law of Kuwait. Its claim involved it keeping the monies advanced with no obligation to repay them. 5 On 11 April 2007, I struck out that defence as an abuse of process. Until this action, and indeed during its currency, the owner had consistently and publicly acknowledged the existence of the agreement and of the mortgage of the vessel, and in any event the person who signed the agreement and the mortgage on behalf of the owner was (on the uncontested evidence) the chairman of the board of directors of the owner and authorised to sign the agreement and the mortgage under the owner's constitution: see Bank of Kuwait and the Middle East v The Ship MV "Mawashi Al Gasseem" [2007] FCA 550. The owner was given leave within a specified period to file and serve an amended or fresh defence. It has not done so. 6 Consequently, the plaintiff has now applied for a declaration that the mortgage of 24 August 2003 over the vessel in favour of the plaintiff is valid, and for judgment for KD 9,579,113/689 and accumulated interest from 1 November 2005 to 18 May 2007 of KD 1,566,670/797. 7 Order 35A r 3(2) of the Federal Court Rules 1976 (Cth)(the Rules) provides: If a respondent is in default, the Court may: … (c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings — give judgment against the respondent for the relief that: (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant; or (d) give judgment or make any other order against the respondent; … 8 The operation of O 35A r 3(2)(c) was considered by Kiefel J in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427. Her Honour, at [44], held that the rule deems a respondent to have admitted the facts alleged in a statement of claim, but not to have conceded the entitlement to the relief sought. Order 11 r 13 of the Rules also has the effect of the owner and the vessel being deemed to have admitted the facts alleged in the statement of claim. 9 The power under O 35A r 3(2) is discretionary. In this instance, I have no hesitation in exercising that power in respect of the claim for judgment for a liquidated sum. The owner and the vessel have never disputed that the claimed sums were advanced and have not been repaid. There is now nothing to suggest that the owner or the vessel has any defence to the claim. Indeed, the owner at material times acknowledged its indebtedness to the plaintiff and to others. The calculation of interest to date has been made in accordance with the pleaded terms of the agreement and the mortgage (and which are both in evidence), and has been verified by affidavit. 10 The making of the declaratory order sought is a little more problematical. The Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth): see Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2. The circumstances in which that power may be exercised are not circumscribed by strict rules: see per Gibbs J in Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 at 437. However, there has been a long held view that a declaration, a judicial act, should be made only on evidence and not simply on admissions or (as in this case) on deemed admissions: see BMI Ltd v Federated Clerks Union of Australia (1983) 51 ALR 401; Termijtelen v Van Arkel [1974] 1 NSWLR 525 at 533; Wallersteiner v Moir [1974] 1 WLR 911 at 1029. In addition, it is appropriate to be cautious because a declaration may have effects more broadly than as between the particular litigants: Myer Queenstown Garden Plaza Pty Ltd v City of Port Adelaide (1975) 33 LGRA 70 at 82 per Wells J; Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955. 11 Kiefel J in Dataline [2006] FCA 1427 expressed the issue pithily in the following terms at [57]: The question is whether declarations should be made on deemed admissions, given that there has been no adjudication by the Court on the facts and the declarations may give the impression that there has. 12 Dataline [2006] FCA 1427 concerned alleged unconscionable conduct by a supplier of internet-related services contrary to s 51AC of the Trade Practices Act 1974 (Cth), and of misleading and deceptive conduct contrary to s 52 of that Act. Justice Kiefel made declaratory and injunctive orders, and imposed pecuniary penalties, under O 35A r 3(2)(c) of the Rules. The respondents had failed to comply with various interlocutory orders and their defence was struck out. 13 Justice Kiefel at [35]-[51] discussed the terms of O 35A of the Rules and their analogues in the various Supreme Court Rules for judgment in default of appearance or defence. I respectfully adopt her Honour's comments and conclusions. I do not need to repeat them. Her Honour concluded that O 35A r 3(2)(c) operates so that the allegations of fact in the statement of claim are taken to be admitted, so that the Court then has the power to grant such relief as it considers appropriate on the basis of those deemed admissions. Fairness in the conduct of litigation may require a defaulting respondent to be informed if the relief sought differs materially from that sought in the application, and for the respondent to be given an opportunity to respond to the claim for that more extensive or different relief. No such problem arises in this matter: the relief sought is that claimed in the application. Moreover, although the deemed admissions provide the basis for the relief proposed, her Honour considered that further affidavit evidence may be adduced to support the relief claimed, but not so as to alter the pleaded case: at [50]. 14 As the power in O 35 r 3(2)(c) is discretionary as to whether relief as sought should be granted, additional affidavit evidence to support the exercise of the discretion is in my view clearly admissible, subject to her Honour's qualification that it does not alter the pleaded case. 15 Considerations particular to granting declaratory relief under O 35 r 3(2)(c) were discussed by Kiefel J at [52]-[59]. Again, I respectfully adopt and agree with her Honour's views. In that case, her Honour at [59] said: It may no longer be correct to have a practice which operates as a prohibition in every case of default and preferable to consider the circumstances pertaining to the particular case and the purpose and effect of the declaration. Millett J made declaratory orders in Patten v Burke Publishing Co Ltd [1991] 1 WLR 541 where justice to the plaintiff required it. The order however operated principally inter partes and it might be doubted whether it would be of interest to other persons. Cases such as this, involving the protection of consumers, are of public interest. Declarations are often utilised in such cases to identify for the public what conduct contributes (sic, constitutes) a contravention and to make apparent that it is considered to warrant an order recognising its seriousness. It is however important that there be no misunderstanding as to the basis upon which they are made. This could be overcome by a statement, preceding the declarations, that orders are made 'upon admissions which [the respondent in question] is taken to have made, consequent upon non-compliance with orders of the Court'. (original emphasis) 16 I have reached the view that I should make the declaratory order sought on the basis of the deemed admissions, and in the light of the additional material relied on by the plaintiff. I have had regard to the background to the action, the nature of the claim (as deemed to be admitted), the apparent strength of the plaintiff's claim, the opportunity of others who may be directly affected by the declaration to have participated in the action, and the interests of fairness to the plaintiff and to others. 17 I shall briefly explain my consideration of those matters. 18 On 2 July 2005, OW Bunker & Trading Company Ltd A/S issued a writ against the vessel in matter SAD 146 of 2005. That action sought the arrest of the vessel to secure payment of US$639,379.60 for breach of contract for sale of fuel oil. The vessel was arrested by the Admiralty Marshal on 3 July 2005. Summary judgment was given in favour of OW Bunker & Trading Company Ltd A/S on 26 July 2005. On 23 August 2005, the Court ordered that the vessel be sold. The vessel and unused bunker and lubricant oil were sold on 4 November 2005. The remaining proceeds of that sale and accumulated interest, now totalling more than US$4,845,000, are held in two bank accounts administered by the Admiralty Marshal. One account holds the proceeds from the sale of the vessel (the vessel account), the other holds the proceeds from the sale of the unused bunker and lubricant oil (the unused bunker and lubricant account). 19 On 17 November 2005, an Order was made under r 73 of the Admiralty Rules 1988 (Cth) inviting claims against the proceeds of sale of the vessel as a preliminary to determining the priorities in the payment of those proceeds. 20 Various claims were then made against the vessel, which presently stand as follows: (1) In Roman B Alcantara Jr v The Ship MV "Mawashi Al Gasseem" SAD 201 of 2005, a maritime lien for wages and other employment benefits of the Master and crew of the vessel was claimed, and judgments totalling US$621,295.70 were entered on 11 October 2005 and 4 November 2005, for two groups of plaintiffs respectively. Those monies were ordered to be paid out on 17 November 2005, with interest and costs fixed at AU$80,000. (2) In OW Bunker & Trading Company Ltd A/S v The Ship MV "Mawashi Al-Gasseem" SAD 146 of 2005, judgment was entered on 26 July 2005 in favour of OW Bunker & Trading Co Ltd for US$639,379.60 for the supply of fuel oil. By consent, it was paid US$433,624.56 by order of 10 November 2006 from the unused bunker and lubricants account. On 26 October 2006, I ordered that it also be paid AU$135,000 for its costs incidental to the arrest and sale of the vessel from the vessel account. The taxation of its other costs in those proceedings is outstanding. (3) In Dubai Drydocks v The Ship MV 'Mawashi Al Gasseem' as Surrogate for the Ship MV 'Mawashi Tabuk' SAD 202 of 2005, judgment was given on 20 September 2005 in favour of Dubai Drydocks for US$161,538.41 plus interest and costs for repair work undertaken on the vessel's sister ship the Mawashi Tabuk. The amount has not been paid. (4) In Quin Marine Pty Ltd ACN 007 537 439 v The Ship Mawashi Al Gasseem SAD 208 of 2005, judgment was given on 20 December 2005 in favour of Quin Marine Pty Ltd for AU$76,648.87 plus costs for goods, materials and services supplied while the vessel was seized. The amount has not been paid. (5) In Arab Shipbuilding and Repair Yard Company v Mawashi Al Gasseem SAD 257 of 2005, judgment was entered on 7 December 2005 in favour of Arab Shipbuilding and Repair Yard Company for US$136,078.00 plus interest and costs for goods and services supplied and alteration, repairs and equipping undertaken to the vessel. The amount has not been paid. (6) In Viking Enterprises Co Ltd v The Ship Mawashi Al Gasseem SAD 274 of 2005, judgment was entered on 15 December 2005 in favour of Viking Enterprises Co Ltd for JY3,324,164 plus costs for goods and materials supplied to the vessel. That amount has not been paid. (7) In BP Oil International Limited v The Ship "Mawashi Al Gasseem" SAD 275 of 2007, judgment was entered on 7 November 2005 in favour of BP Oil International Limited and BP Marine Limited for US$136,354.79 plus interest and costs for marine lubricants supplied to the vessel. The amount has not been paid. (8) In Al Mawashi Al Mukairish United Co v The Ship "Mawashi Al Gasseem" SAD 342 of 2005, the defendant gave its consent on 29 May 2006 to judgment being entered in favour of Al Mawashi Al Mukairish United Co and Al Mukairish Australia Pty Ltd for separate amounts of US$1,629,508.60 and AU$3,086,227.93 respectively for management fees and the provision of goods and services to the vessel and its sister vessel the Mawashi Tabuk. Judgment was not entered because the plaintiff in this action (the Bank of Kuwait and the Middle East) as an interested party entered an appearance and defence in those proceedings not admitting the substantial paragraphs of the statement of claim and denying that the engagements to provided goods and services were general maritime claims within the meaning of ss 4(3) of the Admiralty Act 1988 (Cth). That matter will shortly be the subject of further directions. (9) In Ahmed Ali Maintenance & Ship Repairs (LLC) v The Proceeds of the Judicial Sale of the Ship MV Mawashi Al Gasseem SAD 343 of 2005, judgment was entered on 20 December 2005 in favour of Ahmed Ali Maintenance & Ship Repairs (LLC) for US$61,737.65 plus costs for repair services supplied to the vessel. That amount has not been paid. (10) This action. 21 Apart from this action, and the amounts paid to the Master and crew of the vessel and to OW Bunker & Trading Co Ltd, each of the above actions are awaiting the outcome of this matter. That is because it appears to have been accepted (provisionally at least) that, if the plaintiff has a valid mortgage over the vessel, the plaintiff will then rank ahead of the other claims (or most of them) in the distribution of the proceeds of sale of the vessel. There will then be no amount available from the proceeds to meet those other claims. The Court is shortly to give the parties to the various proceedings the opportunity to be heard on those matters. 22 The nature of the claim as deemed to be admitted is set out above. Its apparent strength is also referred to above. The defence which was struck out was a technical one, which did not dispute the existence of the agreement or of the mortgage. Nor did it dispute that the plaintiff had made the advances claimed by the plaintiff or that the claimed amount was still outstanding. The technical defence was struck out because, in significant ways, the owner of the vessel had acknowledged the existence of a valid mortgage and of the indebtedness to the plaintiff. On the basis of the owner's own documents and its Constitution, in addition, the technical defence of want of authority appeared to have no merit. The owner did not take up the opportunity to file and serve any further defence in the light of the reasons for striking out its defence. 23 All of the plaintiffs in the other proceedings referred to have had the opportunity of appearing and participating in this action. On 9 November 2005, at a directions hearing involving all of the other plaintiffs referred to above except Al Mawashi Al Mukairish and Ahmed Ali Maintenance & Ship Repairs (LLC) (who had not yet commenced their actions), any interested person or entity was given leave to file an appearance and to participate in this action. Apart from the owner of the vessel as defendant, appearances were filed by Dubai Drydocks and by an entity called Eurasian Maritime Corporation. A notice of ceasing to act was received from the solicitors of Eurasian Maritime Corporation on 3 February 2006, and it has taken no other step in the action. Dubai Drydocks has taken no other step in the action. The action of Al Mawashi Al Mukairish has been adjourned from time to time to the same date as this action, including the date on which the present application of the plaintiff was heard. It has not sought to appear or participate in this action. I am satisfied each of the other plaintiffs knows the nature of the plaintiff's claim and its potential significance to the priority of payment of the proceeds of sale. 24 The interests of all parties are to finally deal with the proceeds of sale of the vessel as soon as reasonably practicable. Consequently, the status of the plaintiff's claim as mortgagee of the vessel should be resolved. The plaintiff is entitled to have that issue resolved quickly. It has clearly advanced the monies claimed to the plaintiff and they remain partly unpaid. That has never been contested. The agreement under which those monies were advanced and remain unpaid and the mortgage are inter-dependent documents. At a practical level, it is not possible to disconnect the mortgage from the agreement, so fairness dictates that the status of the mortgage stands or fails with the enforceability of the agreement. I have struck out the defence which challenged their enforceability as an abuse of process of the Court. 25 The effect of making the declaration sought will have an impact beyond the parties to the agreement and the mortgage. But the extent to which the impact will be felt can be limited, by restricting the declaration to the purpose of this action and to the purpose of determining the priority in which the proceeds of sale of the vessel should be applied. Those who are thereby affected have been aware of, and have had the opportunity to participate directly to oppose the plaintiff's claim or to support the owner in opposing the plaintiff's claim; they have not done so. 26 For those reasons, in the exercise of my discretion I make the following declaration: For the purposes of all proceedings against the Ship MV "Mawashi Al Gasseem" commenced in the Federal Court of Australia and pertaining to the priority in which the proceeds of sale of the said vessel should be paid out, the mortgage over the Ship MV "Mawashi Al Gasseem" in favour of the plaintiff granted by Kuwaiti Saudi Co for Livestock Meat and Fodder as the owner of the said vessel by an agreement in writing dated 24 August 2003 (the mortgage) to secure the said owner's repayment of the amounts due to the plaintiff under the facilities granted by the plaintiff to the owner under the mortgage and an earlier agreement in writing dated 27 July 2003 is valid. 27 I also enter judgment for the plaintiff against the vessel in the sum of KD11,145,784/486 for outstanding principal and interest to 18 May 2007 owing under the said facilities granted to the owner of the vessel together with costs of the action, including any reserved costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 29 May 2007 Counsel for the Plaintiff: Mr H Austin Solicitor for the Plaintiff Minter Ellison Counsel for the Defendant: The defendant did not appear Date of Hearing: 18 May 2007 Date of Judgment: 29 May 2007