Proceedings were brought against the ship Skulptor Konenkov to recoup losses for services rendered to three other vessels allegedly owned by the Baltic Shipping Co (Baltic), which owned the Skulptor Konenkov. This made the arrest of the latter ship a sister, or surrogate, ship arrest. At the same time, proceedings were commenced against the ship Skulptor Vuchetich as a surrogate for seven other ships also owned by Baltic. Once both ships were arrested and sold, the proceeds of each sale were put into separate bank accounts against which claimants could bring their individual claims.

In response to this, the caveators in the matter of the Skulptor Konenkov sought a principal direction, pursuant to the Admiralty Rules, that both funds should be administered together as a single fund in respect of general maritime claims.

Some claims by the range of claimants were meant to be brought against both accounts and some were intended to be brought against one or the other. However, the caveators who were the applicants on this notice of motion only intended to claim against the Skulptor Konenkov sale fund. Because of the gap between the size of the sale fund and the amounts being claimed by these caveators and others, a deficiency was inevitable. Any claimant would first require a judgment in their favour from a suitable court before they could receive from either fund.

Because the directions sought in the notice of motion affected the proceeds of sale from both the Skulptor Konenkov and the Skulptor Vuchetich, Sheppard J decided to treat the notice of motion as being taken out in respect of both matters.

Held: The Admiralty Act 1988 (Cth) and Admiralty Rules did not allow for the direction sought, that the two funds from the sale of each ship should be treated and administered as one fund. Further, once a ship has been arrested pursuant to ss 17 or 19 of the Admiralty Act 1988 (Cth), and subject to s 20(4), no other additional ship can be arrested unless the first arrest was invalid or the first arrested ship has been unlawfully taken from custody (s 20(3)).

Both courts and arresting marshals have a number of discretionary powers available to them under the Admiralty Rules.The principal direction being sought in this case was a presumed discretionary power on the part of the Court to combine the two sale funds from the arrested ships into one fund for general maritime claims. Several other directions were also sought by the caveators.

Section 14 of the Admiralty Act 1988 (Cth) provides that, in a matter of Admiralty or maritime jurisdiction, a proceeding may not be commenced as an action in rem against any vessel or other property except as provided by the Act. Section 15 allows for proceedings on maritime liens or other charges in respect of ships and other property to be commenced as actions in rem against those ships or other property. Section 17 explains under what circumstances a proceeding in rem may be commenced against a ship by someone with a general maritime claim, and s 19 is about when such claimants can proceed against surrogate or sister ships instead, this being where a 'relevant person' was at the necessary time the owner of charterer of, or in possession or control of, the first-mentioned ship, and are also the owner of the second-mentioned ship (the surrogate ship) when the general maritime claim concerning the first-mentioned ship arises.

Persons may only bring claims in rem against surrogate ships when those claims are general maritime claims; proprietary maritime claims cannot be brought against surrogate ships, nor can liens be enforced against them, subject to s 20(4) of the Admiralty Act 1988 (Cth). Section 20(4) allows for the arrest of both a surrogate ship and the first-mentioned 'guilty' ship when the latter has been arrested to satisfy a proceeding on a maritime lien or other charge, and the amount claimed in the surrogate ship proceedings was less than the amount of the claim on the maritime lien or charge. Sheppard J considered the possibility that the operation of s 20(4) would require detailed consideration at a later stage. Section 24, moreover, allows for proceedings that would have been commenced against a ship or property in rem to instead be brought against the proceeds of sale in rem, such proceeds having been paid into Court. Section 35, and also r 73 of the Admiralty Rules, are about the prioritisation of general maritime clams against the proceeds of sale from a surrogate ship.

It is a general rule that only one ship can be arrested on a single cause of action, as demonstrated in art 3 of the Arrest Convention 1952, as noted in the Report of the Australian Law Reform Commission on Civil Admiralty Jurisdiction (1986). It was also noted at that time that the CMI's proposed draft revision to the Arrest Convention 1952 would allow for multiple arrests up the the value of the claim. The Commission preferred the single ship approach, which combined the jurisdictional and security consequences of an action in rem, with the potential for an action in personam against a shipowner, or 'relevant person', against which the value of a ship must be weighed. The Report also noted that in the UK, writs against multiple ships could be issued (naming the many ships on the writ) regardless of those ships later changing hands, creating 'contingent statutory liens' until service was conclusively brought against a specific ship. The Commission's stance was that only one ship could be served and arrested, and regardless, only one ship was being sued in this case.

Sheppard J proceeded to compare texts and case law on the differences between Mareva injunctions and actions in rem as means of bringing defendants into the jurisdiction and obtaining a prejudgment security, and on obtaining cumulative security (such as by having a ship arrested in order to bring a claim in rem against it, while also obtaining a Mareva injunction in respect of another ship in proceedings in personam).

No plaintiffs or caveators applied for a Mareva injunction in this case. However, the findings of Brandon J in The 'Rena K' [1979] QB 377 at 410 led Sheppard J to conclude that plaintiffs may, in the right circumstances, have two remedies, in the form of an arrest of one vessel, and a restraint over the disposal of other assets (including ships) aside from those subject to in rem proceedings (a Mareva injunction).

Having considered the above in some depth, Sheppard J concluded that s 20 of the Admiralty Act 1988 (Cth) did not permit for a ship to be arrested in the same proceeding as another ship that has been arrested pursuant to ss 17 or 19, when the latter had not been invalidly arrested or removed from custody unlawfully. This was further clarified by the Law Reform Commission Report. Section 20(4) provides the only exception to this rule, and was not particularly relevant here.

When arrested vessels are sold, any outlying proceedings that would have been brought in rem against such ships can instead be commenced as actions in rem against the proceeds of sale under s 24. The intended operation of s 20(3), moreover, seemed to be that no general maritime claims could lead to payment from the proceeds of sale of either vessel before the relevant claimant had received judgment against the served and arrested vessel or its replacement fund.

No claimants could therefore proceed to judgment against both vessels or both funds except perhaps for those with both claims for maritime liens and general maritime claims. If claimants could not satisfy their claims through a single fund, a Mareva injunction was a possible further remedy. Whatever the case, only a single ship could be arrested in respect of a single claim (art 3 of the Arrest Convention 1952).

Subject to s 20(4), Sheppard J concluded, no claimant could recover more than one judgment, which itself could only be brought against one vessel or one proceeds fund. The only claims that would be allowed were those that had been the subject of a judgment. These findings meant that the caveators' sought direction to have both funds combined into one could not be allowed, and in fact was not authorised by the Admiralty Act 1988 (Cth). It would go against both the spirit and text of the Act to allow it. The matters in question could only progress if persons with either general maritime claims or claims based on maritime liens or charges proceeded to judgment against one fund or the other, although it was also possible for a person to have a general maritime claim against both ships.

Sheppard J also rejected the applicants' attempt to rely on the doctrine of marshalling to support their application as irrelevant.

[For subsequent proceedings in this matter, see Patrick Stevedores No 2 Pty Ltd v Proceeds of Sale of the Vessel MV 'Skulptor Konenkov' [1997] FCA 1625 (CMI1467)].