Safezone v. The "Island Sun"

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Safezone Pty Limited v The Ship "Island Sun"
Australia: Federal Court of Australia: Lee J
[2004] FCA 1797: 12 December 2004
Application for arrest of a surrogate vessel under s.19 of the Admiralty Act 1988 (Cth); whether the "relevant person" was the
"owner" of the surrogate vessel under s.19
The plaintiff applied for a warrant to be issued under s.19 of Australia’s Admiralty Act 1988 for the arrest of a surrogate ship – that is, a ship other than the one that is the subject of a claim, in respect of which a party could have proceeded in rem (s.19). Section 19 requires, for a right to proceed in rem against a surrogate ship to be established, that the "relevant person" (or person against whom the claim could be commenced in personam) was the "owner" of the surrogate vessel at the time the proceeding was commenced. The plaintiff alleged that the "relevant person" was the owner of the surrogate vessel at that time because it was the wholly-owned subsidiary of the owner of the vessel. The Court held that this was not sufficient to make it an "owner" for the purposes of s.19, in reliance on Australian precedent as to the meaning of "owner" under the Act. The Court therefore refused to issue the warrant.

DMC Category Rating: Confirmed

This case note was contributed by Halani Lloyd, a solicitor at Ebsworth & Ebsworth Lawyers, Sydney. Ebsworth & Ebsworth Lawyers are International Contributors to the website for Australia

The plaintiff, Safezone, was the charterer of the MV "World Adventurer" under a charterparty dated 16 October 2004 with Mauritius Island Cruise Limited ("MIC"). The vessel was a cruise ship which the plaintiff, a pleasure cruise and tour operator, sought to charter to carry passengers on a cruise from Singapore to Fremantle via Darwin. MIC was not the actual owner of the vessel. It had taken a bareboat charter of the vessel from September 2004.

On 18 October 2004, MIC advised the plaintiff that it would be unable to deliver the vessel. The plaintiff discovered subsequently that the vessel had not been delivered to MIC, as MIC owed approximately US$500,000 in hire charges to the owner of the vessel. As a result of MIC’s failure to deliver the vessel, the plaintiff had to cancel bookings for the cruise and refund fares. This, together with negative publicity, had allegedly caused the plaintiff to suffer severe losses, totalling close to A$7 million.

In December 2004, the plaintiff filed a Writ in rem against the MV "Island Sun", together with an application for arrest, in respect of its breach of charterparty claim against MIC. This action in rem was purportedly brought under s.19 of Australia’s Admiralty Act 1988 (Cth). Section 19 provides:

A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:

(a) a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first-mentioned ship; and

(b) that person is, when the proceeding is commenced, the owner of the second-mentioned ship.

The claim for breach of charterparty was a "general maritime claim" under s.4(3) of the Admiralty Act. MIC was the "relevant person" in relation to the claim, being the person against whom the claim could have been commenced in personam, and it was also the charterer of the "World Adventurer" when the cause of action arose. The issue was whether MIC was the "owner" of the "Island Sun" at the time the proceeding was commenced, for the purposes of s.19(b).

The plaintiff’s principal argument was that MIC was the beneficial owner of the "Island Sun" and therefore "the owner" of the vessel under s.19(b). In the Lloyd’s Register of Ships 2004, the registered owner of the vessel was "Sun Shipholding Ltd". This company was the wholly owned subsidiary of MIC according to an Information Memorandum from Sun Shipholding to the plaintiff. In making its argument, the plaintiff also noted that the "Island Sun" was offered by Sun Shipholding as a substitute for the "World Adventurer" upon MIC failing to deliver the vessel.

As noted in the case note regarding The "Cape Moreton"1 the phrase "the owner" is used in sections 17, 18 and 19 of Australia’s Admiralty Act but is not defined in the Act, unlike similar legislation in the UK.

The Court held that MIC was not "the owner" of the vessel, for the purpose of s.19, at the time the proceeding was commenced. In making that finding, the Court relied primarily on the Full Federal Court of Australia’s decision in The "Maria Luisa"2. In that matter, the issue was whether for the purposes of s.19(b), an entity called AFE was the owner of the "Maria Luisa" (the surrogate vessel for the vessel on which the plaintiff claimed to have been injured) at the time the proceeding was commenced. AFE was the sole shareholder of the registered owner of the "Maria Luisa" – Everdene. It also held all the units in a unit trust, of which the Maria Luisa was an asset and of which Everdene was trustee.

Importantly, the Court accepted in that case that "owner" under s.19 of the Act did include "beneficial owner" of the vessel, affirming the decision in The "Iron Shortland". The Court found, however, that AFE was not the "owner" of the "Maria Luisa" at the time the proceeding was commenced because, at that time, AFE did not have direct and immediate rights of ownership of the vessel; it had only the potential to become owner of the vessel.

In this matter, the Court accepted that pursuant to The "Maria Luisa", "the concept of beneficial ownership in relation to proceedings against a surrogate vessel is to be construed narrowly and does not extend to wholly-owned subsidiary "one ship" companies." Despite the owner of the "Island Sun" (Sun Shipholding) being a wholly-owned subsidiary of the "relevant person" (MIC), pursuant to The "Maria Luisa", this was not sufficient to establish that MIC was the "owner" of the vessel under s.19(b) of the Admiralty Act at the commencement of the proceeding. Accordingly, the Court refused to issue the arrest warrant.

This case confirms the decisions of the Federal Court of Australia in The "Iron Shortland" and The "Maria Luisa" and accords with the reluctance expressed in English decisions to lift the corporate veil simply because a shipping group has chosen to operate through a number of one-ship companies, at least where there is no evidence of fraud. The Australian Law Reform Commission recommended that Australia’s Admiralty Act be enacted without specific provision for lifting the corporate veil in the context of identifying surrogate ships, fundamentally because it considered those issues to properly arise as a matter of general law, not of admiralty. The "Maria Luisa" suggests, however, that a sole shareholder of an owner of a vessel will never be the "owner" under the Act, because it will not have the bundle of immediate rights of ownership that the definition of "owner" in The "Maria Luisa" requires. This case confirms that narrow interpretation of beneficial ownership. Together with The "Cape Moreton", the case brings Australia’s admiralty jurisdiction into line with comparative common law countries such as the United Kingdom and Singapore.

1 The "Cape Moreton" (ex "Freya) [2005] FCAFC 68 (29 April 2005)
The "Maria Luisa" [2003] FCAFC 93 (16 May 2003)
The "Iron Shortland" [1995] 131 ALR 738

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