DMC Category Rating: Developed

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

Facts
The plaintiffs alleged that on 25 July 2003, a cargo of zircon sand owned by them was damaged during carriage from South Africa to China and that the carrier, Freya Navigation Shipholding Ltd ("Freya"), was legally responsible. At the time the cause of action arose, Freya was entered as owner of the vessel on the Liberian Register. In June 2004 however, when proceedings were commenced, a Marshall Islands registered company, Alico Marine Ltd ("Alico"), claimed to be the vessel’s owner. Evidence adduced in the proceedings indicated that in May 2004, a Bill of Sale was executed and Alico had paid for the vessel in full and taken unconditional delivery of her. Permission had been granted for transfer of the "Cape Moreton" from the Liberian Register that same month, and Alico had in fact obtained provisional registration in Hong Kong, but at the commencement of the proceeding, Freya remained registered in Liberia as the vessel’s owner.

Under section 17 of the Australian Admiralty Act 1988 (Cth), an action in rem in respect of a "general maritime claim" (being, generally speaking, claims other than those concerning title in or possession of a ship) may be commenced where the "relevant person", being the presumptively liable person against whom the claim could be commenced in personam:

1. was, when the cause of action arose, the owner or charterer of, or in possession or control of, the ship or property; and
2. is, when the proceeding is commenced, the owner of the ship or property.

Here it was without doubt that Freya was "the owner" of the vessel, in any sense of the phrase, when the cause of action arose. The issue was whether Freya, by virtue of being the registered owner, was also "the owner" of the vessel at the commencement of the proceeding such as to satisfy s17(b) of the Act. Unlike corresponding legislation in the United Kingdom which specifies that at the time proceedings are commenced, the relevant person must be the "beneficial owner of [the] ship as respects all the shares in it", the Australian Act does not include any express qualification of the phrase "the owner". Previous Australian case authority had determined that the phrase "the owner" did at least include beneficial owner, but had not determined whether the phrase necessarily included the registered owner.

Judgment
Such was the significance of the issue to be determined that the Chief Justice of the Federal Court made a direction that the case be heard by a Full Court. In a majority judgment of Ryan and Allsop JJ, Cooper J having died prior to judgment, the Court found that the phrase "the owner" (as it appears in Part III of the Admiralty Act) did not necessarily include the registered owner. The question of whether a person was "the owner" of the vessel under the Act was, according to the Court, a question "as to whether the relevant person answers the description of "the owner" in a proprietary sense, in all the circumstances." In the Court’s view, applying that test, Freya was not "the owner" of the vessel at the commencement of the proceeding and an order was therefore made that the Writ in rem be set aside.

In making its findings, the Court firstly considered how the phrase "the owner" should be construed, with reference to the ordinary meaning of the phrase, Australian and international commentary/authority as to its meaning, and the context in which the Australian Admiralty Act was enacted. The Court noted that in The "Maria Luisa" concerning the surrogate arrest provisions of the Act (which allow a person entitled to commence proceedings against a ship to proceed instead against another ship owned by the same presumptive debtor), the Full Federal Court of Australia found that "the term ‘owner’ means any person who is vested with such ownership as to have the right to sell, dispose of or alienate the ship". Although that case was decided in the context of whether "owner" included the "true" or "beneficial" owner of the vessel, its definition of "owner" in a proprietary sense was bolstered by a review of the context in which the Act was enacted. In particular, a review of English and Australian law under the Admiralty Court Acts 1840 and 1861 (Imp) demonstrated that by the mid 20^th century, the statutory action in rem required a proprietary connection between the presumptive debtor and the ship at the relevant time (which was, according to one authority, the time that proceedings were commenced.)

Additionally, the Court considered that the Australian Law Reform Commission ("ALRC"), on whose recommendations the Admiralty Act was enacted in its current form and effect thereby given in Australia to most of the provisions of the Arrest Convention, had clearly intended for a ship to be the property of the presumptively liable relevant person, or be chartered by demise by that person, at the commencement of the suit for the ship to be subject to in rem jurisdiction and arrest. In particular, the ALRC had recommended that Australia’s arrest regime be broadly brought into line with that of comparable countries and that no substantive rights be created by way of a new maritime lien (which would arguably arise if a clear link, in a proprietary sense, was not maintained between the party presumptively liable and the property belonging to that party, the subject of arrest). The Court opined that the requirement of proprietary ownership was also embedded within the provisions of the Arrest Convention itself.

The Court considered secondly the legal consequences of registration. There was no evidence led as to the law of Liberia so, the Court was prepared to deal with the matter on the basis that if foreign law was relevant to the assignment of the ship, that law contained a statute in the same form as the Shipping Registration Act 1981 (Cth). Although that Act provides that the Register is evidence of title only, it also expressly confers power of absolute disposition on the party who is named on the Register as "owner". Nevertheless, the Court held that this statutory power was "empty of real and practical meaning or significance" since Alico had paid for the ship in full, taken unconditional delivery of her, and the agreement between Freya and Alico provided that title was to pass fully on the occurrence of these events. Freya could not have exercised the statutory power bestowed on it under the Act lawfully or honestly without the consent of Alico. For these reasons the Court considered that Freya was not "the owner" of the vessel at the time proceedings were commenced.

Comments
Some have suggested the decision is a controversial one which brings about an undesirable result in possibly making arrest in Australia more difficult. The decision however simply brings Australia’s in rem jurisdiction into line with other countries such as the United Kingdom, Canada, Singapore and New Zealand and it therefore supports the universality of the admiralty jurisdiction. The Court’s construction of the phrase "the owner" was also the most sensible one which could have been drawn, given that section 6 of the Admiralty Act expressly provides that nothing in the Act creates a new maritime lien, and given also the procedural theory which underpins the statutory action in rem: namely that actions in rem provide a means of compelling a debtor to appear in a specific jurisdiction, or face the claimant having access to its property.

As the Court explained in its well-reasoned judgment, plaintiffs seeking to arrest ships under the Act may still rely on registration as prima facie evidence of ownership and it will be for the defendant or other relevant party to show that the registered owner is not "the owner" under the Act. Bona fide purchasers of vessels can in the meantime take comfort that actions in rem cannot be maintained against their vessels in respect of general maritime claims for which other persons (even if still registered as owner) are liable.

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