Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad"

REASONS FOR JUDGMENT Clifton Navigation SA ("Clifton") seeks security for costs from the plaintiff, ("Thasos") in respect of an application by Clifton for release of the ship "Balakleya" ("the ship"), which was arrested at Melbourne on 22 November 1997. The arrest was made pursuant to a writ in rem filed by Thasos claiming judgment of USD131,893 together with damages for breach of contract, interest and costs. Subsequently, the sum of AUD294,496 was paid to enable release of the ship. The money was paid into a joint account in the names of the solicitors for the parties and the ship was duly released pursuant to r 54 of the Admiralty Rules ("the Rules"). The moneys held in the joint account are security for the plaintiff's claim in substitution for the ship. On 11 December 1997, Clifton filed a conditional appearance in the proceeding and on the same day it filed a Motion challenging the jurisdiction of the Court to arrest the vessel on the ground that the alleged debts were incurred by another entity prior to Clifton's incorporation or acquisition of the ship. Thasos is not resident in Australia and it has no assets in the jurisdiction to satisfy the costs of any adverse decision in the event that Clifton's challenge to jurisdiction is successful. Searches indicate that it is a resident in Bangkok, Thailand. Clifton's present application for security for costs relates only to the costs of the application challenging jurisdiction. The application is resisted by Thasos on two grounds. The first ground is that Clifton has only entered a conditional appearance and it is submitted that an unconditional appearance is necessary to enable Clifton to seek an order for security for costs. The importance of an appearance in an in rem Admiralty action is summarised by Gibbs J in Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" (1977) 136 CLR 529 at 538-9, as follows: "An action in rem is an action against the ship itself: ... However, when the defendants to such an action have entered an appearance, judgment may be enforced against them personally, and to the full extent of the damages proved, even though those damages exceed the value of the ship: ... As a general rule an unconditional appearance amounts to a submission to the jurisdiction of the court and to a waiver of irregularity, eg in the manner of service... In an action in rem the persons who may become defendants, if they choose to appear, are the owners and others interested in the ship." In order to consider this submission it is necessary to refer to the Federal Court Rules, which apply to the extent that they are not inconsistent with the Admiralty Rules: see r 6(1). It is common ground that there is no inconsistency in the present case. Order 9 of the Federal Court Rules relevantly provides: "2 (1) Subject to these Rules a respondent shall enter an appearance before the date appointed for a directions hearing and before filing any document. ... 6 (1) A respondent may enter a conditional appearance. (2) A conditional appearance shall have effect for all purposes as an unconditional appearance, unless the Court otherwise orders or the respondent applies under and in accordance with rule 7 and the Court makes an order under that rule." (Emphasis added) The applicant has made an application in accordance with r 7, which reads as follows: "7 (1) The Court may, on application made by a respondent to any originating process on notice of motion filed within the time fixed by sub-rule (2), by order - (a) set aside the originating process; (b) set aside the service of the originating process on the respondent; (c) declare that the originating process has not been duly served on the respondent; (d) discharge any order giving leave to serve the originating process outside Australia or confirming service of the originating process outside Australia. (2) Notice of a motion under sub-rule (1) may be filed by a respondent before he enters an appearance or within fourteen days after the date of entry of a conditional appearance by him." The effect of r 7 is that if Clifton is unsuccessful on the jurisdictional question, the appearance will be treated as an unconditional appearance for all purposes. Of course, if it is successful in the challenge, the vessel or the proceeds may be released. Thasos contends that although a conditional appearance may be filed, such an appearance is only for the purpose of challenging jurisdiction and does not enable an application to be made by Clifton for an order which has a positive effect such as an application for security for costs. In support of this contention, Thasos cites the recent decision of Lindgren J in Waitemata Stevedoring Services Limited v the Ship MV "Rangitata" and Ecomar-Schiffarts GMBH Co KG (unreported, judgment no 386/1998, 7 April 1998). In The "Rangitata" (supra) the question raised was whether any appearance at all was required before an application could properly be made for release of the ship. His Honour there decided that an appearance was required. That decision related to an application under r 52(1) of the Admiralty Rules, which provides: "(1) A party to a proceeding may apply to the court in accordance with Form 19 for the release of a ship or other property that is under arrest in the proceedings." His Honour gave weight to the circumstance in that case that the order sought would have an offensive or positive rather than a merely defensive effect. It was not necessary for his Honour to decide whether a conditional appearance would suffice and he did not do so. The distinction between orders which have a positive effect and those which are only defensive in nature was discussed by Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 627-8. In order to characterise the procedure it is necessary to look at the substance of the application or pleading and not merely the form. In the circumstances of this case, the application by Clifton for release is defensive in nature. It is responsive to the commencement of the arrest proceedings by Thasos and seeks to set aside the writ on the ground that there was no jurisdiction and therefore that it should not have been brought before the Court. Accordingly, it is fair and reasonable that Clifton should have some security for its costs if successful in setting aside the arrest. Viewed in an overall context, it is not appropriate to treat the application for security in respect of Clifton's own motion as a positive step. Because the challenge to jurisdiction is responsive and relates to a distinct part of the proceeding, there is no reason to require an unconditional appearance before an application for security is made where the security sought relates solely to the jurisdictional question. As the High Court points out in The Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 426, a question of jurisdiction should be determined as a preliminary and separate issue. By reason of O 9 r 6(2) of the Federal Court Rules, the conditional appearance filed by Clifton operates for all purposes as an unconditional appearance. Therefore, I see no reason to read down the plain wording of the subrule in the present case so as to compel an unconditional appearance by Clifton as a precondition to seeking security for costs of the release application. The 14 day time limit prescribed by r 6(2) is calculated to ensure that the strike out application is instituted in a timely manner so that there is no undue delay in resolving the preliminary matter. If the submission of Thasos is accepted, in the event that Clifton is successful in obtaining release of the vessel for want of jurisdiction, Clifton will have no security for payment of its costs in circumstances where the vessel has been wrongly arrested at the request of Thasos. Such a result is contrary to the underlying purpose of the Rules which provide for such security, namely to ensure that a successful party is not deprived of the benefit of an order for costs. The second submission of Thasos is that Clifton has waived its conditional appearance and submitted to the Court's jurisdiction because it made the application for security. In my view, the conduct of Clifton in making the present application does not support a finding that Clifton has waived its right to challenge jurisdiction. It is clear that it is only pursuing its claim that there is no jurisdiction. While maintaining this contention it cannot be said to have consented to jurisdiction. Nor, for the same reasons, does the application give rise to any estoppel or acquiescence. There appears to me to be no basis in principle why an applicant requesting the release of a vessel, in respect of which it claims to have an interest, should not, if successful, have security for the costs of the application to strike out the arrest for want of jurisdiction in circumstances where the arresting party resides outside the jurisdiction and has no assets in Australia. There is no suggestion in this case that an order for security would stifle litigation and produce a judgment in favour of a party without contest. Accordingly, I consider that the application for security for costs on the release application should be granted. Although the Notice of Motion seeking security nominated an amount of $15,000, I am satisfied that Thasos was well aware of the costs actually being claimed, namely $58,003 as itemised in the letter from the solicitors for Clifton of 24 April 1998. Under s 56(2) of the Federal Court Act (1976) (Cth) this Court has unfettered discretion as to the appropriate amount of security for costs. The discretion must, of course, be exercised in a judicial manner and not on arbitrary grounds. In the circumstances of this case, taking into account the difficulties inherent in estimating the duration or complexity of the application and the likely effect of taxation of costs, a figure of $30,000 appears to be an appropriate figure. Accordingly, I order that the proceedings be stayed until the plaintiff provides security in relation to the jurisdictional question in the sum of $30,000 in a form reasonably satisfactory to Clifton. Thasos is to pay the costs of Clifton in relation to this application. I reserve liberty to any party to apply on 24 hours notice.