FEDERAL COURT OF AUSTRALIA Latitude Fisheries Pty Ltd v Ship 'South Passage' [2014] FCA 186 Citation: Latitude Fisheries Pty Ltd v Ship 'South Passage' [2014] FCA 186 Parties: LATITUDE FISHERIES PTY LTD v THE SHIP 'SOUTH PASSAGE' File number: WAD 25 of 2014 Judge: MCKERRACHER J Date of judgment: 6 March 2014 Catchwords: ADMIRALTY – owner of defendant vessel in default under mortgage – defendant vessel under arrest – interlocutory application brought by plaintiff for rights to possession of the defendant vessel, to perform survey, repairs and refitting and to exercise mortgagee power of sale – right to possession and to survey granted – right to perform repairs, refitting and to exercise power of sale declined at present – to grant rights would be inconsistent with the Admiralty Rules 1988 (Cth), r 50, r 69 which prescribe procedure for repairs to and sale of the vessel under arrest Legislation: Federal Court Rules 2011 (Cth) r 8.21(1)(g) Cases cited: Dick v The Vessel 'Percy & Jean' [2000] TASSC 140 Government of the Republic of Spain v S.S. Arantzazu Mendi [1939] AC 256 The Heather Bell [1901] P143 Date of hearing: 5 March 2014 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Plaintiff: Mr P Hopwood Solicitor for the Plaintiff: Cocks Macnish Counsel for the Defendant: The Defendant did not file an appearance IN THE FEDERAL COURT OF AUSTRALIA IN ADMIRALTY WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 25 of 2014 BETWEEN: LATITUDE FISHERIES PTY LTD Plaintiff AND: THE SHIP 'SOUTH PASSAGE' Defendant JUDGE: MCKERRACHER J DATE OF ORDER: 6 march 2014 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The Plaintiff have leave to amend its Writ filed on 5 February 2014, in accordance with the Proposed Amended Writ as attached to its Interlocutory Application filed on 28 February 2014. 2. The Proposed Amended Writ stand as the Amended Writ in these proceedings. 3. Service of this Interlocutory Application together with the Proposed Amended Writ as deposed to in the Affidavit of Ashwin Nair dated 4 March 2014 stand as service of the Amended Writ in these proceedings, and service thereof be otherwise dispensed with. 4. Whilst under arrest, and subject to the custody of this Court: (a) the Defendant ship be vacated and possession thereof be delivered to the Plaintiff pursuant to clauses 14.1(a), 14.1(y) and 15.1 of the Ship Mortgage and Assignment of Rights with respect to Vessel 'South Passage' executed by the Plaintiff and M & G Hoschke Pty Ltd on 8 September 2011 (Mortgage); (b) pursuant to clauses 14.1(a), 14.1(y) and 15.1 of the Mortgage, the Plaintiff have access to the Defendant ship; (c) pursuant to clauses 14.1(g), 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to lay up the Defendant ship on a hardstand bay in premises operated by Norship Marine at 56/62 Tingira Street, Portsmith, in the Port of Cairns, State of Queensland; (d) pursuant to clauses 10(e), 14.1(g), 14.1(x), 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to appoint, or otherwise engage, a surveyor or surveyors to board and/or inspect the Defendant ship for the purpose of determining if the Defendant ship has been maintained and kept in repair pursuant to clauses 10(c) and 10(d) of the Mortgage; and (e) pursuant to clauses 14.1(g), 14.1(x), 10, 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to appoint, or otherwise engage, a surveyor or surveyors to board and/or inspect the Defendant ship for the purpose of ensuring and/or facilitating the Defendant ship's classification, registration, employment in commercial fishing, and/or sale. 5. The Defendant pay the Plaintiff's costs of this Interlocutory Application. 6. There be general liberty to apply on short notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA IN ADMIRALTY WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 25 of 2014 BETWEEN: LATITUDE FISHERIES PTY LTD Plaintiff AND: THE SHIP 'SOUTH PASSAGE' Defendant JUDGE: MCKERRACHER J DATE: 6 MARCH 2014 PLACE: PERTH REASONS FOR JUDGMENT INTRODUCTION 1 A short time ago the defendant was arrested. Secured payments due to the plaintiff for the purchase of the defendant were outstanding. By this urgent interlocutory application the plaintiff seeks to amend its writ, take possession of the defendant and sell it. Service of the interlocutory application 2 A detailed affidavit of Mr Ashwin Nair, solicitor for the plaintiff, set out, in detail, the service of the papers for this interlocutory application on the defendant. 3 Additionally, in evidence were written communications received the morning of the hearing from the solicitors for the defendant. The correspondence which was forwarded to the plaintiff's solicitors on the morning of the hearing indicated that some additional bank finance had been approved in principle and was expected to be forthcoming. They confirmed, amongst other things, that the solicitors were aware that the interlocutory application was being heard. They asked the plaintiff to seek a 21 day adjournment. The plaintiff declined to do so. 4 No appearance has been entered in accordance with r 23 of the Admiralty Rules 1988 (Cth) (Admiralty Rules). No attempt was made for the defendant to appear in relation to the interlocutory application. The appropriate registry 5 I raised with counsel for the plaintiff the interstate protocol reflected in the Federal Court of Australia, Marshal's Manual, (Federal Court of Australia, Sydney, 2012), Ch 28, [9] and [10] which suggests that the appropriate registry in which to bring this application would be the Queensland District Registry as the ship arrest has been effected in that Registry and, from a practical perspective, staff of that Registry have already become involved. 6 Notwithstanding that, in light of the fact that there is some urgency to move the matter along, I proceeded to hear the application with a view to granting some prompt relief. That relief was granted this morning. The nature of the application 7 In the application, the plaintiff seeks a reasonably extensive amendment to the writ. (This was notified to the defendant and its solicitors by reason of the service). It also seeks certain specific orders pursuant to the powers set out in the mortgage documents which were annexed to the several supporting affidavits. The principal affidavits were those of Mr John Albert Boschetti, Director of the plaintiff, of 19 February 2014; and Mr Timothy Edward Cocks, solicitor for the plaintiff, of 5 February 2014. 8 In the circumstances, as the defendant did not appear, I do not propose to descend into the detail of the material set out in those affidavits. They show a significant history of default under vendor finance provided by the plaintiff for the acquisition of the defendant. 9 I am mindful that if there is a good reason why the defendant should not be liable and should not be subjected to the relief which has been notified in advance to it by way of service of the interlocutory application, then, due to its non-appearance and if it can show good reason why the orders I propose to make should be set aside, it may seek to do so. ARGUMENTS IN SUPPORT OF THE RELIEF 10 The plaintiff seeks to more fully protect its rights by amending its writ in accordance with r 8.21(1)(g) of the Federal Court Rules 2011 (Cth). 11 The evidence reveals that the plaintiff sold the defendant vessel to M & G Hoschke Pty Ltd (Owner) in 2011 on vendor finance terms. The Owner paid a deposit and promised to pay the remainder of the purchase price in instalments over a period of time. The sale price was $1.1 million including GST. The deposit paid was $200,000. 12 The remaining $900,000 plus interest was payable pursuant to a loan agreement dated 8 September 2011 (Loan Agreement) set out in Mr Boschetti's affidavit. Under the Loan Agreement by cl 5.1 and its schedule, there was an obligation to meet various payments on various dates. The Owner's obligations under the Loan Agreement were protected by a number of securities in favour of the plaintiff. For the purposes of these in rem proceedings, one of the securities was a ship mortgage dated 8 September 2011 which was granted by the Owner over the vessel (Mortgage). Pursuant to the Mortgage, the Owner is the mortgagor and the plaintiff is the mortgagee. The Mortgage secures the Owner's obligations including those pertaining to the timely making of various payments under the Loan Agreement. 13 Nothing in the correspondence from the Owner's solicitors suggests there has not been default as stipulated in the original writ and in accordance with the documents set out in support of the interlocutory application. The effect of the default is that there is a breach of cl 5.1 of the Loan Agreement and a corresponding cl 5.1 of the Mortgage. It is also an event of default under cl 12.2(a) of the Mortgage. Following an event of default, the mortgagee (the plaintiff) is entitled to appoint a receiver pursuant to cl 13.1 of the Mortgage. The receiver may exercise powers conferred by cl 14. By cl 15.1, the mortgagee may exercise all powers of the receiver at any time after an event of default, including the power to take possession of the vessel after an event of default. I accept the submission for the plaintiff that these contractual terms are also consistent with a mortgagee's 'unquestionable' power at common law to take possession where the mortgagor defaults in repayment of capital and/or interest: The Heather Bell [1901] P 143 per Jeune P (at 148). Clause 14.1 also sets out additional powers of the receiver which I have taken into account in granting the interlocutory relief. 14 Insofar as amendment of the writ is concerned, the original writ sought relief by way of a liquidated sum, ongoing interest and costs for breach of the Mortgage. The plaintiff now seeks to add to this relief to which it is entitled pursuant to the various breaches referred to above. Importantly, it seeks to regain possession of the vessel and to sell it as soon as possible so as to satisfy as much of the debt as it can from the sale proceeds. 15 I accept the submission for the plaintiff that the Court will generally grant leave to amend unless the proposed amendment is obviously futile or would cause substantial prejudice or injustice which could not be compensated. Moreover, if an amendment will facilitate the just resolution of disputes quickly and inexpensively in accordance with s 37M of the Federal Court of Australia Act 1976 (Cth) (FCA), then this statutory objective is a significant indicator in favour of granting amendment. AMENDMENT 16 In my view, it is appropriate to grant the amendment, largely for the reasons advanced for the plaintiff including the fact that service of the interlocutory application was effected and no communication for the defendant has suggested any opposition to the relief. In any event, the defendant has entered no appearance and is out of time to do so. The documents supporting the relief were clearly in the possession of the defendant and were certainly attached in the affidavit of Mr Cocks supporting the warrant for the arrest of the ship. 17 The application to amend has been made promptly at an early stage in the proceeding, the time for commencing actions in rem pursuant to s 37(1)(b) of the Admiralty Act does not expire and would not expire until at least October 2016, and if leave to amend is refused and the plaintiff seeks to press for the relief it would have to file fresh proceedings and a fresh application to arrest. This waste of time and costs would not be consistent with the objects of s 37M FCA. DEFAULT JUDGMENT 18 The plaintiff also orally sought, but without notice to the defendant, judgment by default. This appeared to be an afterthought as it was not set out in the Minute of Orders. I would not preclude it being granted but in the circumstances where the plaintiff has sought other specific relief as notified to the defendant, I consider the question of default judgment should be dealt with separately. In fact, it seems to be the sensible way to proceed if a sale is the objective. Judgment would be necessary before a sale could be effected. In contrast, as will be seen, the orders the plaintiff may presently pursue are more properly confined to possession, preservation and examination. POSSESSION 19 As to the relief under the Mortgage, I am satisfied on the affidavit material that the plaintiff has given the Owner a number of reminders and demands to meet its obligations under the Mortgage. The Owner has not complied or has apparently been unable to do so. An attempt was made on 5 February 2014 to take possession of the vessel through the Owner's agent, Norship Marine. Employees of the plaintiff's agent were refused access by a man who described himself as the son of Mr Hoschke. In those circumstances, the plaintiff has established a valid case for the Court's assistance to enforce its rights under the Mortgage. The defendant has not raised opposition nor sought time to raise opposition to the relief sought. 20 Shortly put, the plaintiff seeks to maximise its rights to preserve the vessel and/or improve its contractual value for prospective buyers who may use it in the imminent fishing season commencing in April, which requires a departure from Cairns at the commencement of the last week in March. The plaintiff aims to achieve these objectives by seeking possession of the vessel and the right to perform or arrange for survey, repairs and refitting, should that be necessary. 21 None of the relief which is proposed precludes the defendant from participating immediately in negotiations to attempt to restore its position or, if necessary, from competing with others to purchase the vessel at sale. Nothing prevents the defendant from seeking, on the production of additional evidence or alternative evidence, to set aside any of the orders made. Liberty to apply on short notice protects the defendant's position. 22 However, I am not satisfied at this stage that it is presently appropriate, on short notice, to grant the plaintiff a power of sale nor an unfettered power of repair or refit (see Dick v The Vessel 'Percy & Jean' [2000] TASSC 140 per Blow J). There is a prescribed procedure for sale by the Admiralty Marshal under the provisions of the Admiralty Rules (r 69). These are the rules which the plaintiff has invoked by commencing the proceeding in rem. It is by commencing the proceeding in rem that the plaintiff has secured the benefit of the vessel being arrested and being under the supervision of the Marshal. Those rules invoked by the plaintiff also spell out the steps for Court approval for the undertaking of repairs authorised pursuant to r 50 of the Admiralty Rules. While I can appreciate that the plaintiff wishes to move rapidly to avoid delay and no doubt considers that it can move more swiftly than the admiralty procedures might permit, a serious question remains unanswered as to how the plaintiff would be able to sell the vessel while it is still under arrest. I do not see this question addressed in the plaintiff's submissions. If the vessel is released from arrest, it would revert to its existing owners. It is one thing to acknowledge in the abstract that common law rights may coexist with rights in rem (Government of the Republic of Spain v S.S. Arantzazu Mendi [1939] AC 256 per Lord Atkin (at 266)). It is another to address these practical issues. 23 For those reasons I presently propose to grant the plaintiff only such relief as I am satisfied would not be inconsistent with the obligations under the Admiralty Rules which it has invoked. 24 Subject to those important limitations, the orders are appropriate as the works that the plaintiff would seek to carry out on the vessel would be undertaken on a hardstand at its agent, Norship Marine's premises. I accept the plaintiff's submission that the relief is appropriate as: (a) the orders sought give effect to the plaintiff's rights and entitlements under cl 14.1 of the Mortgage; (b) despite its attempts, the plaintiff was unable to exercise these rights as a result of the Owner's conduct; (c) had the plaintiff been able to exercise its rights under the Mortgage without impediment, it would have placed the vessel on a hardstand so that the works may be undertaken upon it; (d) the next fishing season commences in around April 2014, and the vessel would require the refitting, repairs and maintenance to be ready to be employed during that season; (e) it would be in the Owner's interest that the works be conducted because to the extent the works preserve and/or increase the value of the vessel, they would be to the Owner's benefit should there be funds remaining after the plaintiff has deducted what it is owed from the proceeds of sale; (f) the Norship premises are safe and suitable for the works; (g) the plaintiff has taken out hull and P&I cover in respect of the vessel as mortgagee; (h) Mr Boschetti of the plaintiff has undertaken to maintain the said insurance cover while the works are being undertaken, while the vessel is on the hardstand, and while the vessel is being taken out and put back into the water; and (i) Mr Boschetti of the plaintiff has undertaken to bear the costs associated with the works. 25 However, I reiterate that while the vessel is in the custody of the Marshal under arrest, I am not presently satisfied that repairs and/or refit, let alone her sale are appropriate by means other than those prescribed under the Admiralty Rules. 26 For the abundance of certainty, I have added a general liberty to apply on short notice. CONCLUSION 27 For the preceding reasons, the following orders are made: 1. The Plaintiff have leave to amend its Writ filed on 5 February 2014, in accordance with the Proposed Amended Writ as attached to its Interlocutory Application filed on 28 February 2014. 2. The Proposed Amended Writ stand as the Amended Writ in these proceedings. 3. Service of this Interlocutory Application together with the Proposed Amended Writ as deposed to in the Affidavit of Ashwin Nair dated 4 March 2014 stand as service of the Amended Writ in these proceedings, and service thereof be otherwise dispensed with. 4. Whilst under arrest, and subject to the custody of this Court: (a) the Defendant ship be vacated and possession thereof be delivered to the Plaintiff pursuant to clauses 14.1(a), 14.1(y) and 15.1 of the Ship Mortgage and Assignment of Rights with respect to Vessel 'South Passage' executed by the Plaintiff and M & G Hoschke Pty Ltd on 8 September 2011 (Mortgage); (b) pursuant to clauses 14.1(a), 14.1(y) and 15.1 of the Mortgage, the Plaintiff have access to the Defendant ship; (c) pursuant to clauses 14.1(g), 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to lay up the Defendant ship on a hardstand bay in premises operated by Norship Marine at 56/62 Tingira Street, Portsmith, in the Port of Cairns, State of Queensland; (d) pursuant to clauses 10(e), 14.1(g), 14.1(x), 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to appoint, or otherwise engage, a surveyor or surveyors to board and/or inspect the Defendant ship for the purpose of determining if the Defendant ship has been maintained and kept in repair pursuant to clauses 10(c) and 10(d) of the Mortgage; and (e) pursuant to clauses 14.1(g), 14.1(x), 10, 14.1(y) and 15.1 of the Mortgage, the Plaintiff be permitted to appoint, or otherwise engage, a surveyor or surveyors to board and/or inspect the Defendant ship for the purpose of ensuring and/or facilitating the Defendant ship's classification, registration, employment in commercial fishing, and/or sale. 5. The Defendant pay the Plaintiff's costs of this Interlocutory Application. 6. There be general liberty to apply on short notice. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate: Dated: 6 March 2014