This matter followed on from Patrick Stevedores No 2 Pty Ltd v MV Skulptor Konenkov [1996] FCA 1257 (CMI1466), which sets out the relevant context and facts. The primary issue in this case was the ranking of claims in rem by creditors against the Skulptor Konenkov proceeds of sale fund.

Held: Although Courts will usually defer to the well-settled order of priorities for general maritime claims, there is an inherent equitable discretion to depart from this on a case-by-case basis. Further, in accordance with s 20 of the Admiralty Act 1988 (Cth) (the Act), once proceedings have been initiated against a surrogate ship or its proceeds, no other proceedings can be brought against any other ship. However, this rule applies only within the Australian jurisdiction. Therefore, the fact that a claimant has exercised its right to proceed in rem against another ship in a different jurisdiction does not preclude it from proceeding against a ship in Australia.

The claimants against the Skulptor Konenkov proceeds of sale fund included Patrick Stevedores No 2 Pty Ltd and a number of other parties. On 31 May 1996, all claimants were joined as plaintiffs in the proceedings brought by the two original plaintiffs.

Rule 73 of the Admiralty Rules enables persons who have obtained a judgment in a court against some arrested ship or property, that judgment being enforceable in Australia, to apply to the Court for determination of the order of priority of claims against that ship or property. The first and second plaintiffs each obtained judgment in rem against the Skulptor Konenkov in 1995. As to the prioritisation of claims against the fund, there are no instructions to this effect in either the Act or the Admiralty Rules. Australian courts will thus defer to English practice. The order is, however, only a prima facie ranking, and the determination of priorities is an equitable jurisdiction exercised by courts according to the circumstances of every case. The prima facie order will be disturbed when justice demands it.

Sheppard J described the ranking order as follows: first, the Admiralty Marshal's charges and expenses, including the expenses from effecting the arrest, maintaining it, and other expenses authorised by the Court to have the ship sold at the best price. This is followed by the original arresting party's claim to the costs of their action up to and including the arrest, alongside the costs of the party who obtained the order for appraisement and sale, then maritime lien claims, claims by mortgagees, claims of others entitled to proceed in admiralty in rem, claims by general in personam creditors of the owner and of the res, and lastly, the owner of the res will be entitled to any remaining funds.

In this case, there were no maritime liens or claims by mortgagees. The claims left to be prioritised were those of the Admiralty Marshal, the costs of the first and second plaintiffs incurred in arresting and obtaining the order for the sale of the Skulptor Konenkov, and a range of other general maritime claims (including the amounts recovered in the first two plaintiffs' judgments against the fund). Generally these three categories can be prioritised in the order given above. However, the claims of claimants bringing actions to recover judgments in rem against the fund created some further difficulty. Only the first and second plaintiffs had already obtained judgments against the fund, ranking these as general maritime claims. The other claims, not yet realised, did not classify as general maritime claims. They first needed to be the subject of a judgment in rem against the fund.

Bergen Bunkers A/S

Bergen Bunkers A/S (BB) supplied bunkers to five Baltic Shipping Co (Baltic) vessels including the Skulptor Konenkov. BB had partly recovered the amount owing to it, but there was still a substantial sum outstanding including USD 2,500 for the travel costs of attending a creditors' meeting. BB had obtained a default judgment in Rotterdam for the amount still owing, but no payment had been received in respect of this.

BB had also claimed, in Canada, against the sale proceeds of the vessel Aleksandr Starostenko, which had been arrested by a different creditor, and BB had received a large sum. The other three claimants who shared in the proceeds of sale from the Aleksandr Starostenko were also claimants against the Skulptor Vuchetich proceeds of sale fund. BB had further claimed against the sale proceeds of the Truskavets, also owned by Baltic, which had also been arrested by a different creditor, but no money had been received in respect of that claim.

Having reviewed the evidence, Sheppard J was satisfied that Baltic was indebted to BB, and it appeared that the money which BB had received because of the action in Canada was received as a consequence of an action against the Aleksandr Starostenko proceeds of sale fund. There was no evidence to prove that BB had obtained a judgment to this effect. However, the Court assumed that the law surrounding this area in Canada was the same as that which would apply in Australia, and that BB's claim would not have succeeded without an accompanying judgment in rem.

There were three questions to be determined in relation to BB's claim in this matter: first, since BB had already recovered following proceedings in rem in Canada, could it still pursue the balance it claimed it was owed against the Skulptor Konenkov fund (being a fund comprised of the proceeds of a sold surrogate ship)? Second, the Court was concerned with the USD 2,500 being claimed by BB for the travel costs of attending a creditors' meeting. Lastly, the Court needed to consider how to prioritise BB's claim, given its prior successes in recouping other losses.

As in the previous decision on this matter, Sheppard J drew attention to ss 20 and 24 of the Act. Following s 20(3), where ships have been arrested in a proceeding commenced as mentioned in ss 15, 17, 18, or 19 of the Act, no other ship may be arrested in the same proceeding unless the first ship was invalidly arrested and has been released, or was unlawfully removed from custody and has not been recovered. Under s 24, proceedings may be commenced as actions in rem against the proceeds of sale of a ship or property to which the claim would otherwise have attached. Creditors require judgments in rem in their favour before they can claim upon a proceeds fund. In regard to BB, it was contended that since BB had already partially recovered its losses through a Canadian judgment, according to s 20(3) it could not proceed in rem against another vessel in Australia.

Sheppard J examined ss 20(1), (2), and (3) of the Act, and found that these three sections together affirmed that there can be only one proceeding in rem by any given creditor, whether that proceeding is brought against the vessel or the vessel's proceeds of sale fund. Moreover, once proceedings have begun against a surrogate ship, no proceedings may be initiated against another ship. The argument against BB's opportunity for recovery in Australia could only succeed if it was proven that the provisions of s 20 applied not only to proceedings commenced within Australia, but also outside of it. The specific phrase 'initiating process in a proceeding', which appears in ss 20(1) and (2), must be found to apply to all proceedings anywhere.

Section 5 of the Act states that it applies to all ships regardless of where their owners reside, and to all maritime claims. In argument, attention was also brought to art 3 of the Arrest Convention 1952, which had not been acceded to by Australia, but had been considered by the Law Reform Commission Report into Civil Admiralty Jurisdiction (1986) when making its own proposals emulating the Convention. Article 3 is about the arrest of ships, including surrogate ships, and the relevant criteria for ship arrest.

In its ordinary interpretation, s 20 of the Act allows creditors to proceed against only one surrogate ship even if two are within the jurisdiction. However, if the Act is read not to apply outside the jurisdiction, a ship in New Zealand could nonetheless have proceedings brought against it as well as one of the Australian ships, making the section's operation rather arbitrary. Construing s 20 in this way would limit the section and cause it to run counter to the general approach and purpose of the Act's claim and arrest provisions.

Viewing s 20 as applying to all proceedings everywhere rather than to Australian proceedings alone would fall better in line with international practice and the Act's intentions, and indeed with the intentions of the Arrest Convention 1952, so far as it applied to its member States (although Australia was not a party to it). However, reading s 20 in this way (as having extraterritorial reach) would create a problem in how to interpret the true nature of foreign proceedings and their rules around proceeds of sale funds, general maritime claims, and so forth. It would mean that the mere bringing of proceedings in another jurisdiction would be sufficient to bar proceedings in Australia. Further, no second action could be brought in Australia if the claimant had already sued in rem on another ship or fund in another Australian proceeding, allowing only a single proceeding in the one jurisdiction. This could be detrimental to courts unaware of such other proceedings. Also, claimants who have been successful in obtaining a favourable judgment in Australia, and have received distribution from the relevant fund, might go on to recover the balance in a foreign jurisdiction, even if they have made an empty undertaking not to do so.

Sheppard J returned to the plain meanings of ss 20 and 24 of the Act, and in particular the phrase 'initiating process in a proceeding' as used in ss 20(1) and (2). The above commentary illustrated a number of potential issues that could arise from giving these sections extraterritorial operation. These obvious potential hazards led the Court to find that Parliament could not have intended the sections to have that meaning, and further, the ordinary rule of construction led to the sections being read as Australia-specific. The Court found that local operation only was desirable and more consistent with Parliamentary intentions, and that while the Act had come into existence against the backdrop of the Arrest Convention 1952, Australia had still not acceded to it and was not recommended to do so.

Turning to s 20(3) concerning the arrest of only a single sister ship, Sheppard J found that the word 'arrested' referred to an Australian arrest, and proceedings must be taken in Australia. This provision could not have been meant to bind other jurisdictions from arresting ships and affecting their internal proceedings. The Act as a whole must have been meant to apply purely to arrests in proceedings within Australia, and the provisions of s 20 must be read consistently with one another, including the phrase 'initiating process in a proceeding' having that narrower meaning.

Because of these findings, the Court rejected the submissions seeking to have the Act apply internationally, and concluded that BB having exercised its right to proceed in rem against a sister ship of the Skulptor Konenkov did not prevent it from also proceeding against the Skulptor Konenkov here, regardless of the implications which that finding might have.

As to the matter of the creditors' meeting travel expenses, the Court found that this claim was not a general maritime claim within the meaning given by s 4(3) of the Act, and was thus not recoverable in an action in rem.

Other than this, BB was entitled to sue and its claim would be treated pari passu in the same way as other claimants with general maritime claims. BB had not sued on a foreign judgment here so it did not have a proprietary maritime claim, but a general maritime claim (s 4(2) of the Act), to which s 19 of the Act still applies.

Enso-Gutzeit OY and Finnpap Marketing Association

Enso-Guitzeit OY (EGOY)'s claim was for delivering cargo to Sydney rather than Melbourne and Adelaide, and Finnpap Marketing Association (FMA)'s claim was likewise for misdelivery of cargo. Both claims revolved around bills of lading for the carriage of a large cargo of paper rolls from Kotka in Finland to Sydney, Melbourne, and Adelaide, Baltic being the carrier. The bills of lading and contracts evidenced thereby were breached when the paper rolls were discharged in Sydney alone.

The question concerning these matters was related to costs. While costs are discretionary, the general rule is that in actions against the proceeds of sale of property arrested in rem, those costs are to be prioritised the same as the claim in respect of which the costs have been incurred. There was no submission against the Court taking this approach.

Glaverbell SA and Romet Ltd and others

Two groups of companies were involved in these claims: Glaverbell SA (Glaverbell) and G James Australia Pty Ltd (GJA), and Romet Ltd and Sheed Thomson International Ltd (Sheed). Each group brought its own claim. Romet Ltd and Sheed brought their proceedings against the Skulptor Konenkov fund pursuant to s 24 of the Act for cargo damage in respect of consignments of chilled beef, as carried on Baltic-owned vessels. The ships on which the beef was carried were both surrogates for the Skulptor Konenkov. On 19 September 1995, the plaintiffs and Baltic made an agreement whereby the latter would pay a particular amount to the former within 28 days of receipt of a letter of undertaking, which was delivered the day following. Romet Ltd and Sheed contended that no portion of this sum was ever paid. The agreement also dealt with the payment of costs, which amount had been pre-agreed. Romet Ltd and Sheed were now claiming for the original promised sum, interest on that sum, and costs.

The plaintiffs had issued a writ against Baltic's vessel Aleksandr Prokofyev in England, and an application had been made for its appraisal and sale, which was to be heard in January 1996. In June 1996, information was received that a consent order and 'side letter' had been signed by the claimants' solicitors and a solicitor on Baltic's behalf, agreeing to have the proceeds of the ship's sale transferred to a trust account out of reach of other claimants. A proportion of the proceeds would be recovered if the claim was successful or undisputed. However, an affidavit in support of Romet Ltd and Sheed stated that the sums owing had not been paid, and a caveat against the release of the Aleksandr Prokofyev had been issued in December 1995 to try to enable payment. That vessel was later sold, but no moneys had gone to the caveators involved in the distribution of proceeds.

Did the plaintiffs (Romet Ltd and Sheed) have a general maritime claim within the meaning supplied by s 4 of the Act? Further, did the fact that the plaintiffs had initiated proceedings in England against another surrogate ship, leading to the creation of a fund and the possibility of payment out of that fund to the plaintiffs, disable them from taking action in Australia? In answering these questions, the Court observed there had been no notification since of the plaintiffs receiving moneys from the English fund, and it was also still unclear whether the claimants had received a judgment in rem against the Aleksandr Prokofyev or its fund.

Consistent with the conclusion reached above regarding BB, Sheppard J found that Romet Ltd and Sheed could maintain their action in Australia as an action in rem regardless of the English proceedings.

The last issue with regard to Romet Ltd and Sheed was whether their claims were general maritime claims, relying on the definitions supplied in ss 4(3)(d)(vi) and 4(3)(e). Before the settlement in London, the claims made by the plaintiffs were evidently general maritime claims under either definition. However, in this case, the plaintiffs had not sued upon their general maritime claims relating to the carriage of goods on Baltic's vessels, but on the settlement agreement.

Sheppard J decided to adopt a 'realistic approach' to interpreting the character of the claim, searching for relevant Parliamentary intention in s 4(3) of the Act. It was held that to deprive the plaintiffs of their general maritime claim because its nature had been changed by the settlement would go against commercial reality, and discourage settlement of these kinds of claims. Suing on a settlement agreement is of course different to suing on a foreign judgment, which is a proprietary maritime claim under s 4(2).

Sheppard J was also of the opinion that the settlement had not drastically altered the character of the original claim, and that it retained its essential character as a claim for loss of or damage to goods carried by a ship. The claim based on the settlement agreement was still a general maritime claim and the plaintiffs were entitled to judgment all the same.

Regarding the other claimants, GJA and Glaverbell, Sheppard J found they were likewise entitled to judgment.

Opal Maritime Agencies Pty Ltd

Opal Maritime Agencies Pty Ltd (Opal)'s claim was for goods and services supplied in accordance with an agency agreement with Baltic. Opal's statement of claim was not filed in the Skulptor Konenkov proceedings but in those against the Skulptor Vuchetich fund. Sheppard J therefore directed that Opal's claim be transferred into the Skulptor Konenkov proceedings. Opal was in provisional liquidation when it filed its original statement of claim after July 1995, but by the time of this hearing the company was no longer in liquidation and had not been wound up.

Opal had been providing goods, materials, and services to a number of Baltic-owned vessels for their operation and maintenance under the agency agreement. It also incurred disbursements, and allegedly was operating a running 'offset' account with the company. Freight payments from Baltic's customers were credited to the account, and disbursements made by Opal for services and materials it supplied to Baltic's vessels were debited from the account. Sometimes the details of the account indicated that Opal owed Baltic money, and sometimes it was the other way around. In its statement of claim, Opal claimed that the balance of the offset account as of 10 July 1995 was skewed in its favour by a significant amount. Baltic submitted a proof of debt to the provisional liquidator, most of it allowed by the liquidator, and Opal later claimed a much smaller amount which was made up by subtracting the amount allowed by the provisional liquidator in respect of Opal's proof of debt from the balance of the offset account (as at 10 July 1995).

Sheppard J considered the content of the proof of debt in detail, as well as the provisional liquidator's affidavit. The proof of debt, issued by Baltic in order to claim against Opal, was followed by a notice of rejection of proof of debt by the provisional liquidator, who disallowed the amount that Baltic had claimed, allowing a smaller sum instead. A number of further calculations and examination of the evidence were necessary before landing on the sum now being sued for by Opal, the remaining outstanding amount in the offset account.

Both ss 4(3)(m) and (3)(r) of the Act came up for consideration. The former provides that a general maritime claim includes a claim in respect of goods, materials or services (including stevedoring and lighterage services) supplied or to be supplied to a ship for its operation or maintenance. Section 4(3)(r) concerns claims by a master, shipper, charterer or agent, in respect of disbursements on account of a ship.

The River Rima [1988] 2 Lloyd's Rep 193 was considered particularly relevant here, despite being, as the Court pointed out, dependent on the English legislation and on the provisions of the Arrest Convention 1952. The River Rima was a vessel owned by a Nigerian company, which had a number of contracts under which it leased containers. One of those particular contracts specified daily rates of hire, handling and other charges, and at what depots containers could be picked up and redelivered. A writ in rem was issued, claiming damages for the conversion of containers leased by the Nigerian company, and damages were also sought for breach of obligation to keep the containers in good condition and repair. The English court had to decide whether these claims could be treated as actions in rem, and whether the claims were in respect of goods or materials supplied to a ship for its operation or maintenance, in accordance with s 20(2)(m) of the Supreme Court Act 1981 (UK).

Other authorities, English and Australian, were also considered by the Court here. Sheppard J decided to adopt the distinction drawn by Lord Brandon in The River Rima between the two kinds of cases involving containers, which was followed by Foster J in Port of Geelong Authority v The Ship 'Bass Reefer' (1992) 37 FCR 374. The distinction was between two main kinds of contract pursuant to which goods or materials acquired for the operation of a ship might reach it: the first, a contract expressly providing that the goods or materials are required for the use of a particular ship, its identity being specified, or intending to be specified by the time the contract will be performed. The second kind of contract is one with no reference to any particular ship that the goods or materials are required for, allowing the shipowner to make a decision about that aspect later on. In Lord Brandon's view, the first type of contract was one under which goods or materials were supplied to a ship, and the second type was not, as the goods and materials were going to the shipowner instead. Sheppard J favoured this distinction, as it was a practical way to tell between contrasting situations, and the Australian legislation did not differ 'materially' from the English legislation.

There was no issue with Opal's claim arising from an agency agreement, as s 4(3)(r) of the Act includes the word 'agent', referring to claims by agents in respect of disbursements on account of a ship, and Opal was an agent attempting to recover disbursements incurred on account of several vessels. The claim was in respect of goods, materials or services supplied to the ships by third parties at Opal's request.

Counsel submitted that the fact that goods, materials and services were supplied to a shipowner was insufficient to make a claim for their outlay recoverable in rem under s 4(3)(m) or s 4(3)(r), which Sheppard J acknowledged to be a delicate distinction, regarding which his Honour struggled to accept that no disbursement made by an agent for the ship for which they have responsibility will not fall under either provision. However, his Honour agreed with counsel that the descriptions of categories of expenses claimed by Opal in the equipment operation accounts and for container handling fees were not for the supply of goods or services to a ship, but were more consistent with the business of Baltic as a carrier. That these costs were connected to the supply or handling of containers did not automatically cause them to fall under ss 4(3)(m) or 4(3)(r).

Regardless, the absence of clear evidence and detail as to the nature of the transactions involved made it difficult to say how the case should be decided. Opal's case was more robust in relation to the items making up the general account, including those for stevedoring, bunkers, crew costs, repairs and maintenance and other costs referable to a specific Baltic vessel under Opal's charge as agent. These items seemed to have been incurred for expenditure the payment of which would give rise to general maritime claims, but it was still uncertain which ones.

The poor quality and general lack of evidence for Opal's case was largely the reason why Sheppard J concluded that Opal failed to prove its case in this instance. Based on the evidence actually before the Court, Opal's claim was not a claim in respect of which it was entitled to judgment in rem. There were also other technical reasons for rejecting Opal's claim revolving around the accounts and Opal's indebtedness, which Sheppard J examined briefly. Generally, the information was insufficient to establish that three heads of Opal's claim were general maritime claims, although there was a chance that at least part of the general account was made up of such claims, which better evidence would illuminate.

Conclusion

The Court upheld the claims from the two original plaintiffs, from EGOY and FMA, from Glaverbell and GJA, and from Romet Ltd and Sheed. Opal's claim failed on this occasion, although the possibility was left open that further useful evidence could emerge as the result of an adjournment.