Rush Corporation v Long Line Tuna Ltd [2004] PGNC 219; N2559 (3 June 2004)

N2559

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

WS 588 of 2004

BETWEEN:

RUSH CORPORATION,
the owners of the ship FV Mary-Mal, formerly known as Koun Maru
Plaintiff/Respondent

LONG LINE TUNA LIMITED
Defendant/Applicant

Waigani: Davani, .J
2004: 2, 3 June

ADMIRALTY PROCEEDINGS – action in rem – debt recovery not an admiralty action – action in rem and the Courts Admiralty jurisdiction invoked in certain circumstances only – O. 21 R. 2(1) of National Court Rules (‘NCR’)

PRACTICE AND PROCEDURE – Invoking Admiralty jurisdiction of Court – strict compliance with forms provided in NCR – non-compliance with forms, action defective and irregular

Authorities cited:
"British Shipping Laws" Vol. 1 Admiralty Practice

Halsburys Laws of England 4th Edition Vol 1(1)

Counsel:

C. Makail for the Plaintiff/Respondent

G. Sheppard for the Defendant/Applicant

RULING

(Application to strike out proceedings)

3rd June 2004

Davani .J: I have before me notice of motion filed by Maladinas Lawyers for the Defendant/Applicant (‘applicant’) on 27.5.04 seeking the following orders;

1. That the proceedings be struck out pursuant to O. 12 R. 40 of the National Court Rules (‘NCR’) on the basis that the proceedings are frivolous, vexatious and are an abuse of the process of the court;
   

2. Or alternatively that;

- the Warrant of Arrest dated 25.5.04 is set aside;

- or that the plaintiff gives security for costs in the sum of K100,000.00;

3. Or that the proceedings be stayed subject to the plaintiff paying K100,000.00 into court as security;
   

4. Costs and other orders.

The application is opposed by the plaintiff.

Background

On 24 May 2004, the plaintiff took out a Writ of Summons in an action in rem issued out of the Admiralty Registry of the National Court Waigani. This Summons and Statement of Claim pleaded amongst others, that by a written agreement between both the plaintiff and the defendant executed on 10 October 2003, the plaintiff agreed to lend to the defendant ¥4,400,000.00 to finance the relocation of a vessel described as FV Mary-Mal formerly known as Koun Maru, from Japan to Papua New Guinea. Both parties agreed to various things one of which was for the defendant to repay the loan of ¥4,400,000.00 to the plaintiff. The plaintiff claims that the defendant has only paid ¥200,000.00 and owes the plaintiff the balance of ¥894,228.00.

In the Writ of Summons and Statement of Claim, the plaintiff sought repayment of those monies together with interest and costs. It also sought an order for the arrest of the ship FV Mary-Mal known as Koun Maru.

Relying on O. 21 of the National Court Rules (‘NCR’), the plaintiff through its lawyers took out a Warrant of Arrest on 25.5.04 to arrest the Ship and "to keep the same under safe arrest until you shall receive further orders from us."

The application

In asking for orders for dismissal of the action, Mr Sheppard for the applicant submits that the plaintiff should not have issued an action in rem for the recovery of a debt. Furthermore, he submits that because the plaintiff is resident in Japan, that he must lodge security for costs.

In actions in rem, litigants have been advised over time to consider whether the contemplated action to file an action in rem will provide the relief which he seeks. This is important in admiralty because of the international character of many of the actions and the fact that a writ in rem cannot be served abroad. Where action is brought by a foreign sovereign State as in this case, there is a submission to the jurisdiction in regard to that action. It appears doubtful whether or not the defendant has a right to counter claim and certainly execution could not issue if there is no international convention in existence between the two countries. (see McGuffie, Fugeman, Gray, "British Shipping Laws" Vol. 1 Admiralty Practice pg.15 par. 26).

Having said that, the court should also ask whether an action for debt recovery can be instituted by an action in rem. O. 21 R 2(1) of the NCR is the order that provides for "admiralty causes and matters..." in this Jurisdiction. It provides for the categories of actions that will be commenced by an action in rem. It states;

"2. Certain actions to be assigned to Admiralty

(1) (a) Every action to enforce a claim for damage, loss of life or personal injury arising out of –

(i) a collision between ships, or

(ii) the carrying out of or omission to carry out a manoeuvre in the case of one or more ships, or

(iii) non-compliance, on the part of one or more of two or more ships, with the collision regulations, and

(b) every limitation action,

shall be heard by the National Court sitting in its Admiralty Jurisdiction.

(2) In this rule "collision regulations" means regulations adopted under the Convention on the International Regulations for Preventing Collisions at Sea 1972."

Halsburys Laws of England (‘Halsburys’) 4th Edition Vol 1(1) at par. 311 describes the admiralty jurisdiction of the high court and the instances when an action in rem may be invoked. It states:

"the admiralty jurisdiction of the high Court may be invoked by an action in rem against the ship or property in question in the case of claims to the possession of a ship or ownership of a ship or a share therein; questions arising between co-owners of a ship as to possession, employment or earnings of that ship, claims in respect of a mortgage or charge on a ship, or share therein and claims for the forfeiture or condemnation of a ship, or goods which are being or have been carried or attempted to be carried therein or for droits of Admiralty." (my emphasis)

The plaintiffs debt claim does not fall within the categories provided in O. 21 R. 2 of the NCR nor does it fall within the category in Halsburys (above), unless it is a claim in respect of a mortgage, which in this case is not. I say this because the plaintiff seeks to enforce a written agreement which is not in itself, security to a loan.

Having said that I refer to the agreement the plaintiff relies on in seeking recovery of debt owing to it. It is the agreement of Friday October 10, 2003 executed by Roger Drain as the plaintiff company’s President and Malcolm Chaney and Mary Chaney, the defendant company’s Directors. This Agreement refers to provision by the defendant Long Line Tuna Limited to the plaintiff Rush Corporation, of evidence of written approval from Credit Corporation PNG Limited who are the long term credit financiers of the vessel to confirm that payment of all outstanding loan monies and accrued interest will be paid directly to the plaintiff Rush Corporation within 7 days of the vessel’s arrival in Papua New Guinea. I note Mr Makail’s argument in relation to Clause 9 of that agreement that because the borrower Long Line Tuna has defaulted, that the plaintiff in exercising powers available to it under Clause 9 of that agreement has repossessed the ship. However, that agreement is not a mortgage or a charge on the vessel (see Halsburys (supra)). The secured creditor, Credit Corporation’s claim takes priority. So the plaintiff cannot rely on that agreement to assert that right to arrest.

To understand why this is so, I refer to the text, British Shipping Laws (supra) which expounds on the procedure for proceedings in rem.

"the method of commencing proceedings in rem was by the issue of a Warrant of Arrest except where the res was already under arrest, in which the case the initiating process was a citation in rem for service on the res. Unless the owner of the res or some other person having a recognized interest had entered a caveat, giving warning that he was prepared to enter an appearance and give bail, the res was always arrested and the Warrant was always served on the res. Then, as now, a res could be validly arrested even in face of a caveat but an unreasonable arrest might create a right in damages. Satisfactory bail led to a release from arrest as it still does. The Warrant of Arrest containing in its wording, a citation warning all owners and persons interested in the res that proceedings had been commenced and telling them that if no appearance was entered the court would hear the case and might make such order as seemed just. The effect of this was that if no one entered an appearance, then, subject to proof of the claim in the action, and to possible questions of priorities if there were more claims than one, the res would be sold and the claim would be paid out of the proceeds of sale." (see pg.8 and 9 par. 7 and 8) (my emphasis).

This passage confirms that immediately after arrest, the ship will be sold and the proceeds appropriately applied and disbursed in order of priority.

This issue of priorities must always be borne in mind before the institution of admiralty proceedings, to issue a writ in rem and to arrest a res. Where a vessel has been arrested and sold in an admiralty action in rem and there are rival claimants to the proceeds of sale, they are not usually paid ratably; the fund in court may be insufficient to satisfy all claims.

According to Admiralty Practice (supra):

"some claimants, such as the master and crew claiming wages and a master claiming in respectful disbursements, salvors and mortgagees, may take priority over contractual claimants and, for that matter, between each other, in a recognized and established order. There has been numerous cases in the last 20 or 30 years where the proceeds of the sale of the res has been insufficient to satisfy all the claimants, and those with a lower priority have received little or nothing in respect of their claims. Consequently, to issue a writ in rem and arrest the ship on behalf of a claimant with a lower priority would be of no benefit to him if there are prior claimants who are going to receive the whole of the proceeds of sale and if nothing, according to the circumstances, will be recoverable from the arrest of the property." (see pg. 24, 25 par. 45) (my emphasis).

In this case, there is a ships mortgage over the subject ship, taken out by the Credit Corporation. The Credit Corporation, is a secured creditor. In the event of the ship being sold, the Credit Corporation’s claim takes priority. It therefore means the plaintiff will or may not receive the monies it claims is owing to it.

Therefore, to the plaintiff, an action in rem is not the best procedure by which to seek recovery of its debt. As I have heard from Mr Makail, the vessel will be held until such time the debt is recovered. That may take another 6 months to a year or more. The plaintiff has not addressed the court on insurance over the vessel or the fate of the ship’s crew or other matters pertaining to the ship so I do not know if the plaintiff has given a thought to that. In any event, in a proper in rem action, the normal procedure after a ship’s arrest, is for the owner of the ship to immediately procure the ship’s release by either giving security for the plaintiff’s claim by paying the amount owing to the plaintiff into court or by providing bail or by furnishing in a guarantee acceptable to the plaintiff (see par. 386 Halsburys Vol. 1(1), 4th edition). I note the defendant has not applied for bail etc because it quite rightly submitted that this is not a claim that would qualify for an action in rem.

This then takes me to form of the documents filed. Again, I should emphasize that because of its peculiar nature, court documentation in actions in rem have been or are designed to suit the purpose for which they were created. Therefore the Writ of Summons must be in the form set out in form 105 of the first schedule of the NCR. As to the summons filed by the plaintiff, the part on the "endorsement as to service" pleads or cites the normal (debt claim), standard 30 day requirement to pay into court monies owing. This clause is not part of form 105 and in effect contradicts the command given in the second paragraph of form 105, which states, "we command you that within 14 days of the service of this writ, inclusive of the day of service, you do cause an appearance to be entered for you in an action at the suite of Rush Corporation and take notice that in default of your doing so the plaintiff may proceed therein and judgment may be given in your absence, and if the res describing the writ is then under arrest of the court it may be sold by the order of the court."

In my view, the both endorsements are in direct contradiction with each other, i.e that the plaintiff shall enter appearance within 14 days as provided on form 105, then, on the same document, a command that he pay money into court within 30 days, failing which action will be taken. The addition of the warning or command to pay within 30 days should not have been included because it contradicts the 14 day requirement as provided for in writs issued in rem actions. Therefore, on the face of it, the summons is defective in its present form.

Secondly, the form of the Warrant of Arrest should be in Form 106 of the first schedule to the NCR. However that is not so. The Warrant of Arrest, the subject of this application, does not state what the claim is for. Furthermore, the "Marshalls endorsement as to service," has not been completed. I note the warrant is issued "to the Admiralty Marshall" and is signed by the "Marshall Lohia Raka." Lohia Raka is the Registrar of the National Court. He is also the Admiralty Marshall. On the face of it, the Warrant was incorrectly signed by Mr Raka because he, in his capacity as the Admiralty Marshall, is the same person the Warrant is addressed to. In any event, Form 106 does not require that the Admiralty Marshall sign the Warrant of Arrest. There is no provision for that. So on the face of it, this warrant is defective in form.

An action in rem is not the proper mode. The Plaintiff’s counsel may wish to commence other modes of debt recovery of course bearing in mind that Credit Corporation is the secured creditor in this instance.

Arbitration

Clause 9 of the Memorandum of Agreement between the parties dated Friday October 10 2003 provides that "any dispute arising from this Agreement shall be submitted to the Arbitration held in the Court of Justice in jurisdiction of the sellers, and award given by the Arbitrator appointed in accordance with the said rules shall be final and binding both parties."

Counsel should investigate that possibility before filing court action.

Orders

The action is dismissed in its entirety.

The plaintiff shall pay the costs of the proceedings.

The Warrant of Arrest issued on 25.5.04 is also revoked.
_____________________________________________________________________

Lawyer for the Plaintiff/Respondent : O’Briens Lawyers

Lawyer for the Defendant/Applicant : Maladinas Lawyers