REASONS FOR JUDGMENT
1 I am faced in this case with a question of jurisdiction. The plaintiff had been negotiating to purchase the motor vessel "Cape Don" from the first defendant. During the negotiations the plaintiff paid $197,916.43 to the second defendant, who are the solicitors acting on behalf of the first defendant. The plaintiff says that this money was to be held in trust for it pending the making of an agreement to purchase the "Cape Don" and no such agreement ever came into existence. The plaintiff then commenced this action in the admiralty jurisdiction of the Court. The relief sought is first, a declaration that no agreement had been made to purchase the "Cape Don" and second, that the money paid to the solicitors be repaid. The defendants say that the Federal Court has no jurisdiction to entertain the action. They have filed a conditional appearance (see O 9, r 6 of the Federal Court Rules) and have moved for the dismissal of the suit for want of jurisdiction.
2 The Federal Court is given jurisdiction to adjudicate on questions of admiralty law by the Admiralty Act 1988 (Cth). Under s 9 of that Act the Court may adjudicate on in personam proceedings in a maritime claim or on a claim for damage done to a ship. Under s 10 the Court is vested with jurisdiction in respect of proceedings that may be commenced as actions in rem.
3 The plaintiff says that its claim is a proprietary maritime claim and therefore a maritime claim within the meaning of s 9. A maritime claim can be a proprietary maritime claim or a general maritime claim: s 4(1). Section 4(2) provides that a proprietary maritime claim is one or more of the claims listed in paras (a) to (d). The only paragraph that can cover the present case is para (a) which provides that a proprietary maritime claim includes "a claim relating to (i) … (ii) title to, or ownership of, a ship or a share in a ship." The question that must be resolved is whether or not this paragraph entitles the Federal Court to entertain an action in which the plaintiff must establish that it has not acquired ownership of a ship under a bill of sale in order to recover money paid.
4 In such a case the jurisdiction of the Court does not depend upon the existence of any fact. Whether the claim falls within s 4(2)(a) only requires consideration of the legal character of the claim. Accordingly, the issue of jurisdiction may be determined by reference to the allegations made in the statement of claim the contents of which I have summarised.
5 The Admiralty Act was passed to give effect to the recommendation of The Law Reform Commission Report on Civil Admiralty Jurisdiction (Report No. 33). The Commission recognised the comprehensive power of the Commonwealth Parliament to confer admiralty jurisdiction on appropriate courts and to confer that jurisdiction with respect to a wide variety of maritime causes which may or may not fall within s 76(iii) of the Constitution, where one subject of federal jurisdiction is "of admiralty and maritime jurisdiction". Other heads of power include s 51(1) (trade and commerce), s 51(20) (corporations) and s 51(29) (external affairs). One recommendation made by the Commission was that the scope of admiralty jurisdiction should be extended: Report, para 116.
6 As the Admiralty Act is a reforming statute it is not appropriate to construe its provisions by reference to the practice and principles of admiralty that applied before its commencement: Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 420. Nevertheless it is still interesting to note some aspects of that prior practice. Australian courts exercised admiralty jurisdiction by virtue of the Colonial Courts of Admiralty Act 1890 (53-54 Vict, c 27). The jurisdiction was that exercised by the English High Court as at the time of the passing of the 1890 Act. The conventional jurisdiction of the High Court of Admiralty had been confirmed and extended by two principal reforms brought about by the Admiralty Court Act 1840 (3-4 Vict, c 65) and the Admiralty Court Act 1861 (24-25 Vict, c 10). Until the 1840 Act came into force the Admiralty Court had no jurisdiction to adjudicate upon the title to a ship: see The Warrior (1818) 2 Dods 288 where it was held that questions of title could be determined only if they arose incidentally. The 1840 Act changed this by empowering the Admiralty Court to decide all questions of title to or ownership of a ship. Roscoe's Admiralty Jurisdiction and Practice (4th ed. 1920) at 47-8 explained the result as follows: "In pursuance of the authority thus conferred upon it, the Court of Admiralty acquired ample jurisdiction to adjudicate upon all questions of title, and wherever it became necessary it would inquire into the validity of an alleged sale, or concerning any other circumstances which affected the right to the property in the ship".
7 The jurisdiction is regarded as sufficiently broad to allow a claim by a plaintiff that he is entitled to be registered as the owner of a ship, he having purchased it from the registered proprietor: The Bineta [1966] 3 All ER 1007. A claim for the specific performance of a contract to purchase a ship is also within jurisdiction: Hart v Herwig (1873) 8 Ch App 860.
8 The position in the United States is not so clear. In The Tilton 5 Mason 465 (1855), Story J held that admiralty courts could entertain "petitory" suits, where the title to a ship is litigated, and "possessory" suits which seek to restore to the owner possession of a ship of which he has been unjustly deprived. It seems, however, that admiralty has no jurisdiction over contracts for the sale of a ship: 8 Benedict on Admiralty (7th ed) sec 1.04[C] para 2. The reason is difficult to understand. One basis for the rule which is put forward is that in admiralty there is no jurisdiction to grant specific performance of a contract of sale of a ship (Rea v The Eclipse 135 US 599 (1890) at 608) but it does not follow from this that all contracts of sale are outside the jurisdiction of an admiralty court. The other foundation for the rule is the view that a bill of sale of a ship is not "maritime": Flota Maritima Browning de Cuba Sociadad Anonima v The Ciudad de la Habana 181 FSupp 301 (1960). The rule has been criticised as illogical: Sisson v Ruby 497 US 358 (1990) at 372 per Scalia J in dissent. But it still seems to be the law: Gerard Construction Inc v Motor Vessel Virginia 480 FSupp 488 (1979); Twin City Barge & Towing Co v Aiple 709 F2d 507 (1983).
9 In proposing that the provision that became s 4(2) be enacted the Commission noted that all overseas admiralty legislation contained very similar wording. This is true up to a point. In the United Kingdom the comparable provision is s 20 of the Supreme Court Act 1981 (UK). So far as is relevant that section provides:
"(1) The Admiralty jurisdiction of the High Court shall be as follows, that is to say -
(a) jurisdiction to hear and determine any of the questions and
claims mentioned in subsection (2);
…
(2) The questions and claims referred to in subsection (1)(a) are -
(a) any claim to the possession or ownership of a ship or to the
ownership of any share therein;"
10 In Canada the comparable provision is s 22 of the Federal Court Act, RSC 1970, c 10 (2nd Supp) which relevantly provides:
"(1) The Trial Division has concurrent original jurisdiction as well between subject and subject as otherwise, in all cases in which a claim for relief is made or a remedy is sought under or by virtue of Canadian maritime law …
(2) Without limiting the generality of subsection (1), it is hereby declared for greater certainty that the Trial Division has jurisdiction with respect to any claim or question arising out of one or more of the following:
(a) any claim as to title, possession or ownership of a ship …."
11 In South Africa it is the Admiralty Jurisdiction Regulation Act 1983 (SA) which vests power in admiralty courts. By s 2 of that Act jurisdiction is conferred on a number of courts to hear and determine any maritime claim irrespective of the place where it arose. Maritime claim is defined in s 1(1) to include:
"any claim for, arising out of or relating to -
(a) the ownership of a ship or a share in a ship;
(b) the possession, delivery, employment or earnings of a ship;
(c) any agreement for the sale of a ship or a share in a ship, or any
agreement with regard to the ownership, possession, delivery, employment or earnings of a ship;"
12 It may be that in both the United Kingdom and Canada a maritime claim concerning title, possession or ownership of a ship is one where the plaintiff asserts or relies upon his own right to possession or ownership, although that is not altogether clear. In Antares Shipping Corporation v The Ship "Capricorn" (1979) 111 DLR (3d) 289 the Supreme Court of Canada held that s 22(2)(a) of the Federal Court Act, conferred upon the Federal Court jurisdiction to entertain an action for the specific enforcement of a concluded contract for the sale of a ship by delivery and by the execution of the bill of sale thereof. In Beauchamp v Coastal Corporation [1984] 1 FC 833 it was held that the Federal Court sitting in admiralty could order damages for breach of a contract for the sale of a ship in lieu of specific performance. Strayer J said (at 838):
"When this Court can order the arrest of a ship because of a dispute over a contract for purchase of the ship, and can order specific performance of such a contract, it surely can give an alternative or additional remedy with respect to the same parties, the same ship, the same contract, and the same breach. In the words of paragraph 22(2)(a) of the Act, this must be a 'claim or question arising out of' a 'claim as to title, possession or ownership'. (citations omitted)
13 The jurisdiction that is conferred by the Admiralty Act is not confined to a claim where the plaintiff asserts his own title to a ship. In Shin Kobe the High Court said (at 418) the words "a claim … relating to … ownership" are to be contrasted with "a claim to ownership" or "a claim for ownership". It is only the last two expressions that would limit the claim to one where the plaintiff must assert his own title. The words used in s 4(2)(a) are sufficiently broad to include claims which do not depend upon the assertion of title or ownership by the plaintiff.
14 What then is meant by the expression "a claim … relating to … ownership of a ship"? In this connection reference should be made to Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1985] AC 255. The question which the House of Lords was required to consider in that case was whether an action on a contract of insurance over freight could be litigated in the admiralty court. Section 47(2) of the Administration of Justice Act 1956 (4 & 5 Eliz 2, c 46) provided that a warrant to arrest a ship could be issued in relation to "any claim arising out … (e) any agreement relating to the carriage of goods in any ship whether by charterparty or otherwise; … ". The House of Lords held that there was not a sufficiently direct connection between the contract of carriage and the policy to permit the conclusion that the claim fell within the paragraph. Lord Wilberforce said (at 262):
"Taking the statutory words by themselves, it is obvious enough that they are, in a legal sense, ambiguous, or as I would prefer to state it, loose textured. It is not possible to ascribe a precise or certain meaning to words denoting relationships without an indication what the criterion of relationship is to be. Must the agreement be directly 'for' carriage of goods in a ship, or is it enough that it involves directly or indirectly, or that the parties contemplated that there would be, such carriage as a consequence of the agreement? How close, in such a case, must the relationship be between the agreement and the carriage? Is any connection of a factual character between the agreement and some carriage in a ship sufficient? If not, what is the test of relevant connection? Even when paragraph (e) is read in conjunction with the other paragraphs in s 47(2), the statute provides no guidance: the courts are left with a choice of a broad or a narrow interpretation."
Lord Keith said (at 270-271)
"It is necessary to attribute due significance to the circumstance that the words of the relevant paragraphs speak of an agreement 'in relation to' not 'for' the carriage of goods in a ship and the use or hire of a ship. The meaning must be wider than would be conveyed by the particle 'for'. It would, on the other hand, be unreasonable to infer from the expression actually used, 'in relation to', that it is intended to be sufficient that the agreement in issue should be in some way connected, however remotely, with the carriage of goods in a ship or with the use or hire of a ship, and I think there is much force in the view expressed by Lord Wylie in The Aifanourios 1980 SC 346as to the inference to be drawn from the presence of certain other paragraphs in s 47(2). There must, in my opinion, be some reasonably direct connection with such activities. An agreement for the cancellation of a contract for the carriage of goods in a ship or for the use or hire of a ship would, I think, show a sufficiently direct connection. It is unnecessary to speculate what other cases might be covered. Each case would require to be decided on its own facts. As regards the contract of insurance founded on in the instant appeal, I am of opinion that it is not connected with the carriage of goods in a ship in a sufficiently direct sense to be capable of coming within paragraph (e)."
15 Not without a good deal of hesitation, I have come to the view there is a reasonably direct connection between the plaintiff's claim and the ownership of the "Cape Don". In order for the plaintiff to succeed in the suit it must establish that it did not purchase the "Cape Don". In other words it must show that it did not acquire (equitable) ownership of the ship even for an instant. To defeat the plaintiff's claim the defendants must show that a contract of sale was concluded and that the plaintiff had become the (equitable) owner of the "Cape Don". Thus, the fate of the action is dependent upon the resolution of the question whether there was a valid sale pursuant to which ownership of the ship passed to the plaintiff. That is sufficient for me to conclude that the claimed relief "relates to" the ownership of the "Cape Don".
16 In arriving at this conclusion I have acted on the basis that the words "relating to" can be of wide import and in relation to legislation such as the Admiralty Act they are to be given their wide meaning: compare Owners of the Erkowit (MV) v Owners of the Ships Jade & Eschersheim [1976] 1 WLR 430 at 438; see also Shin Kobe at 422.
17 The plaintiff, having established that the Court has jurisdiction to entertain the claim, now asks for an interlocutory injunction pending trial to restrain the second defendant from paying the amount received from the plaintiff to or for the benefit of their client. Alternatively the plaintiff seeks an order that pending trial the amount be paid into an interest bearing account under the control of the Court or under the joint control of the second defendant and the plaintiff's solicitors.
18 At this stage of the proceeding, where the case has been presented on affidavit, the pleadings have not closed, discovery has not been obtained and witnesses have not been cross-examined, it is not possible to predict with certainty what will be the outcome of the case. However, I am quite satisfied that the plaintiff should have interlocutory relief.
19 First, there can be no doubt that the plaintiff's claim is neither frivolous nor vexatious. Indeed, that the plaintiff has a case that is worthy of trial was not seriously disputed by the defendants. In essence their case is as follows. There were negotiations for the sale of the ship. Those negotiations were between Herick Hotung representing the plaintiff and George Jekyll representing the first defendant. During the negotiations the first defendant's solicitors prepared a ship's purchase agreement for execution by the plaintiff and the first defendant. A copy of the agreement was provided to Mr Hotung. While the purchase agreement was not executed, the defendants say that Mr Hotung confirmed that its provisions were acceptable and had offered to sign it. This, it is said, resulted in a contract pursuant to which the first defendant is entitled to obtain payment of the money in its solicitor's trust account. On the other hand, Mr Jekyll refused to sign the agreement. He gives two reasons for his refusal. First, he says that he had been advised that the agreement should not be signed until the first defendant had received part payment of the purchase price in cleared funds. The second reason, which is related to the first, is that Mr Jekyll was not prepared to sign the agreement unless part of the purchase price had been paid because he did not wish the "Cape Don" to be under the control of a foreign company. The plaintiff is incorporated in Hong Kong.
20 When parties are proposing to enter into a contract the manner in which the contract is to be created, so as to bind them, is to be gathered from the intentions of the parties, express or implied: Eccles v Bryant and Pollock [1948] Ch 93 at 99. The conduct of the first defendant to which I have referred, strongly points to the conclusion that the parties contemplated, or at least that Mr Jekyll contemplated, that there would be no sale until the ship's purchase agreement had been signed and exchanged. To put the matter another way, although there may have been consensus as to the terms of sale, having regard to the parties' conduct it seems that what was contemplated was that the parties would not be bound in contract until a formal contract had been executed by them and exchanged. In the absence of that event it is likely that no binding contract came into existence: Allen v Carbone (1975) 132 CLR 528.
21 Although it has established that it has a strong case, to obtain interlocutory relief the plaintiff must show that it will suffer "irreparable harm" if the order that it seeks is not made. In this context "irreparable harm" means that the plaintiff is at risk of some injury which cannot be compensated or remedied other than through the grant of an interlocutory injunction. If damages will provide adequate compensation then ordinarily there will be no justification in running the risk of an injunction pending trial. In American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 408 Lord Diplock said that the question to be asked was the following:
"As to that … if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained … between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage."
22 Of course each case must be decided on the basis of fairness and commonsense in relation to all issues of facts and law which are relevant: Hubbard v Vosper [1972] 2 QB 84 at 97-98. The following are the relevant factors. The plaintiff is seeking to recover money which it is alleged is held in trust for it. The plaintiff has demonstrated a strong case for the recovery of the money. I have no evidence of the financial ability of the second defendant to meet a judgment. I suspect that if the plaintiff is successful at trial the second defendant will be able to satisfy any judgment obtained against them, but I cannot be sure that this will be the case. Why then should the plaintiff be at risk of obtaining a judgment that might be barren? The plaintiff should not be required to run that risk in my opinion. It is for this reason that an order preserving the fund, which the plaintiff claims as its own, should be made.
23 It is well established that as a condition of obtaining an interlocutory injunction the plaintiff must give an undertaking to pay to the defendant any damages that the defendant sustains by reason of the injunction should the plaintiff ultimately fail. It is not necessary to refer to the many cases that establish this principle.
24 The plaintiff does not dispute that it should give an undertaking in damages. The defendants complain, however, that any undertaking given by the plaintiff is commercially valueless because the plaintiff is a foreign corporation and has no assets within the jurisdiction. They point out that the very purpose of requiring an undertaking will be circumvented unless the undertaking can be acted upon.
25 There is no inflexible rule that a plaintiff should be denied interlocutory relief unless he can give a meaningful undertaking. In Allen v Jambo Holdings Ltd [1980] 1 WLR 1252 an impecunious plaintiff was not denied injunctive relief. On the other hand in Cambridge Credit Corp Ltd v Surfers Paradise Forests Ltd [1977] QR 261 evidence as to the substance of the plaintiff and the worth of his undertaking was received.
26 In this case I do not doubt that the plaintiff should be required to provide security either by way of a bank guarantee or by payment into court of an appropriate amount to support the undertaking. What is the amount of security that should be provided? The only loss that the first defendant is likely to suffer by reason of the injunction if it is successful in the action is the loss of the use of the funds presently under the control of the second defendant. The second defendant will not suffer any loss at all. The parties have indicated that the funds can be placed on an interest bearing deposit. Accordingly, it is appropriate that the plaintiff provide security in an amount being the difference between the bank deposit rate for $200,000 (approximately 4 per cent) and the commercial lending rate for that amount (approximately 7 per cent) for a period of one year. I have calculated that amount to be $5,937.49 which I will round off at $6,000.
27 I will dismiss the defendants' motion with costs. The plaintiff should bring in short minutes of orders to give effect to these reasons and provide for directions for the future conduct of this proceeding.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.