Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune - [2024] FCA 1149 - FCA 2024 case summary — Zoe

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Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune

[2024] FCA 1149

Federal Court of Australia|2024-10-01|Before: Stewart J

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Source facts

Court

Federal Court of Australia

Decision date

2024-10-01

Before

Stewart J

Source

Original judgment source is linked above.

Judgment (46 paragraphs)

[1]

Admiralty Act 1988 (Cth), ss 3(2), 4(3)(d), (f), (m), (w), 18, 24 International Arbitration Act 1974 (Cth), s 8(3) Admiralty Rules 1988 (Cth), r 31 Legislation: Federal Court Rules 2011 (Cth), rr 2.25(1)(a), (b)(ii) Senior Courts Act 1981 (UK), s 21(4) International Convention Relating to the Arrest of Sea-Going Ships, opened for signature 10 May 1952, 439 UNTS 193 (entered into force 24 February 1956), Art 3(4) International Convention on Arrest of Ships, 1999, opened for signature 12 March 1999, 2797 UNTS 3 (entered into force 14 September 2011), Arts 3(1)(e), (3))

[2]

Aldrich v Cooper (1803) 8 Ves Jun 382; 32 ER 402 Atlasnavios Navegacao LDA v The Ship Xin Tai Hai (No 2) [2012] FCA 1497; 215 FCR 265 Australasian Global Exports Pty Ltd v The Ship M/V Yangtze Fortune, the Proceeds of Sale [2024] FCA 614 Bank of Tokyo-Mitsubishi UFJ Ltd v Owners of the MV Sanko Mineral (The Sanko Mineral) [2014] EWHC 3927; [2015] 1 Lloyd's Rep 247 Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 Comandate Marine Corp v The Ship Boomerang I [2006] FCAFC 106; 151 FCR 403 Commonwealth Trading Bank v Colonial Mutual Life Assurance Society Ltd [1970] Tas SR 120 Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune [2022] FCA 1556 Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune (No 2) [2023] FCA 148 Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune (No 3) [2024] FCA 219 Delta Corp Ship Management DMCCO v The Ship Caledonian Sky [2023] FCA 1058 Gator Shipping Corp v Trans-Asiatic Oil Ltd SA (The Odenfeld) [1978] 2 Lloyd's Rep 357 Heilbrunn v Lightwood Plc [2007] FCA 1518; 164 FCR 1 Herskope v Perpetual Trustees (WA) Ltd [2002] NSWCA 153; 41 ACSR 707 Icon Amazing LLC v Amazing Shipping Ltd 951 FSupp 2d 909 (SD Tex 2013) Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26 In re Aro Co Ltd [1980] Ch 196 In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 442 Jack Neilson Inc v Tug Peggy 428 F2d 54 (5th Cir 1970) Meck Petroleum DMCC v Owner and/or Demise Charterer of the vessel Victor 1 [2024] SGHC 165 Miles v Official Receiver in Bankruptcy [1963] HCA 24; 109 CLR 501 Monte Ulia v The Banco (The Banco) [1971] 1 Lloyd's Rep 49 Cases cited: Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391 Naxutu Pty Ltd v Perpetual Trustee Company Ltd [2012] FCAFC 163; 207 FCR 502 O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; 152 CLR 359 Opal Maritime Agencies Pty Ltd v Skulptor Konenkov [2000] FCA 507; 98 FCR 519 Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc [1994] HCA 54; 181 CLR 404 Patrick Stevedores No 2 Pty Ltd v The proceeds of sale of the vessel MV Skulptor Konenkov (1997) 75 FCR 47 Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour [2014] FCAFC 134; 315 ALR 66 Sam Hawk v Reiter Petroleum Inc [2016] FCAFC 26; 246 FCR 337 Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634 Ship Hako Endeavour v Programmed Total Marine Services Pty Ltd [2013] FCAFC 21; 211 FCR 369 Sterling & Freeman Advisory Pty Ltd v Callisi Pty Ltd [2024] VSCA 105 The Beldis [1936] P 51 The Freccia del Nord [1989] 1 Lloyd's Rep 388 The Guiseppe di Vittorio [1998] 1 Lloyd's Rep 136 The Helene Roth [1980] QB 273 The James W Elwell [1921] P 351 The Monica S [1967] P 741 The Pickaninny [1960] 1 Lloyd's Rep 533 The Posidon [2017] SGHC 138; [2017] 2 Lloyd's Rep 390 Trimmer v Bayne (1803) 9 Ves Jun 209; 32 ER 582 Berlingieri F, A Commentary on the 1952 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) Vol I Berlingieri F, A Commentary on the 1999 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) Vol II Evans M, Power T and Power J, Equity and Trusts (5th ed, LexisNexis, 2024) Law Reform Commission, Civil Admiralty Jurisdiction (Report No 33, Australian Government Publishing Service, 1986) Tettenborn AM and Rose FD, Admiralty Claims (2nd ed, Sweet & Maxwell, 2024) Turner PG, Heydon JD and Leeming ML, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, LexisNexis, 2014)

[18]

THE COURT ORDERS THAT:

Judgment be entered for Soar Harmony Shipping Ltd against the proceeds of the sale of the defendant "Yangtze Fortune" in the sum of US$2,652,467.24, comprising:
1. Unpaid charter hire of US$2,066,525.73; together with
2. Contractual interest thereon up to and including 18 June 2024 of US$585,941.51.
Judgment be entered for Australasian Global Exports Pty Ltd against the proceeds of the sale of the defendant "Yangtze Fortune" in the sum of US$2,963,415.08, comprising:
1. The principal sum of US$2,953,502.58; together with
2. Interest payable at the interest rate prescribed under r 39.06 of the Federal Court Rules 2011 (Cth) up to and including 18 June 2024 of US$9,912.50. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT STEWART J: A. Introduction [1] B. Procedural background [2] C. The competing claims [11] C.1 Dan-Bunkering (Singapore) Pte Ltd (DB) [12] C.2 Australasian Global Exports Pty Ltd (AGE) [13] C.3 Soar Harmony Shipping Ltd (SH) [16] D. The relevant facts [27] D.1 The sale and lease or demise charter back [28] D.2 Chronology of defaults, arrest, sale, service of writ, etc. [56] E. Soar Harmony's claim [84] E.1 Introduction [84] E.2 Is SH's claim a general maritime claim? [87] E.3 Was YF the bareboat charterer when SH commenced its proceeding? [97] E.3.1 Termination by YF on 11 November 2022? [100] E.3.2 Did SH accept YF's repudiation before 10 March 2023? [102] E.3.3 Termination by YF's loss of possession? [111] E.4 Was Soar Harmony's claim enforceable against the fund? [119] E.5 Entry of judgment in SH's favour [130] F. Priorities [131] F.1 Introduction [131] F.2 The parties' contentions [138] F.2.1 Necessaries [140] F.2.2 Execution creditor [143] F.2.3 Owner always goes last [144] F.2.4 Marshalling [146] F.2.5 SH's claim accrued after DB arrested the vessel [152] F.2.6 The owners' implied consent [154] F.2.7 The Yangtze Harmony [159] F.2.8 Penalty provisions [163] G. Conclusion on priorities [164]

[20]

B. Procedural background

This proceeding is one of several concerning the Yangtze Fortune, a Liberian-flagged container vessel later converted for use as a livestock carrier. The gist of the factual and procedural background to the various proceedings is set out in Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune [2022] FCA 1556 (the judicial sale judgment). Relevantly, one of those proceedings (NSD 958 of 2022) was commenced by Dan-Bunkering (Singapore) Pte Ltd (DB) issuing a writ on 10 November 2022 in the New South Wales Registry of the Court against the vessel claiming an amount for bunkers supplied to it. On 2 December 2022, the ship was arrested in that proceeding while it was anchored off Portland, Victoria.
Prior to that, Australasian Global Exports Pty Ltd (AGE) had also issued a writ against the ship in the Western Australian Registry of the Court on 9 November 2022 (WAD 238 of 2022), claiming an amount in damages for breach of a booking note.
On 14 December 2022, DB applied for orders for the judicial sale of the vessel. Orders for the sale of the vessel were made on 20 December 2022.
On 11 January 2023, I ordered the judicial sale to be conducted by a closed bid tender process, with the Admiralty Marshal to engage ship brokers to facilitate the sale. The details of the process are described in Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune (No 2) [2023] FCA 148.
After the sale to the highest bidder failed to complete, the second highest bidder was ultimately successful and paid the purchase price which was retained by the Court as the fund constituting the proceeds of the judicial sale of the vessel. After payment from the fund of the costs of arrest and sale and the undisputed priority claims of the crew, approximately US$4,700,000 and AU$40,000 remains for distribution.
On 16 March 2023, the publication of a notice of application to determine priorities was ordered stipulating that anyone who had a claim against the proceeds of sale of the vessel was required to file and serve a statement of claim in DB's proceeding by 13 April 2023 - which is conveniently referred to from then on as the priorities proceeding. AGE and SH filed statements of claim in order to press their claims against the fund. DB naturally relies on its default judgment.
For completeness, other claimants included the mortgagee of the vessel, the Export-Import Bank of China and another supplier of bunkers, China Merchants Energy Trading (Singapore) Pte Ltd. The former discontinued its claim while the latter filed its claim out of time and was refused leave to proceed out of time: see Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune (No 3) [2024] FCA 219.
On 25 June 2024, following a hearing on 17 and 18 June 2024, I ordered that judgment be entered for SH and for AGE, the latter being by consent of the other parties interested in the fund. What follows are my reasons for entering judgment for SH, and further reasons dealing with the priorities of the claims of the three judgment creditors as against the fund.
The relevance of AGE and SH seeking judgment against the fund, and DB having obtained a judgment against the vessel before it was sold, is that no claim can lead to a payment out of the proceeds of sale unless the claimant has recovered a judgment in rem against the vessel which was served with a writ and arrested, or a judgment against the fund which stands in its place: Opal Maritime Agencies Pty Ltd v Skulptor Konenkov [2000] FCA 507; 98 FCR 519 at [29] per Black CJ, Cooper and Finkelstein JJ.

[24]

C.3 Soar Harmony Shipping Ltd (SH)

SH commenced its in rem proceeding against the vessel (NSD 211 of 2023) on 10 March 2023. SH was the owner of the vessel prior to the completion of the judicial sale. Its claim was put on the basis that it had bareboat chartered the vessel to YF which failed to pay the charter hire from the 20th instalment. It claimed the unpaid hire for the 20th, 21st and 22nd instalments, amounting to US$2,066,525.73, all of which became due and payable before it terminated the charter on 10 March 2023 and before the vessel was sold by judicial auction. It did not claim the balance of hire payable after that date or any damages for repudiation or breach. Like AGE's claim, SH's claim is stated to be under s 4(3)(f) of the Act.
As a matter of context, it is necessary to say something more the character of SH's claim at the outset. Its claim, as with the claims of DB and AGE, relies on s 18 of the Act. That section provides as follows: 18 Right to proceed in rem on demise charterer's liabilities Where, in relation to a maritime claim concerning a ship, a relevant person: (a) was, when the cause of action arose, the owner or charterer, or in possession or control, of the ship; and (b) is, when the proceeding is commenced, a demise charterer of the ship; a proceeding on the claim may be commenced as an action in rem against the ship.
The unique feature of SH's claim is that it was the owner of the vessel at the time that it commenced a proceeding against the vessel under s 18 and it is the beneficial owner of the fund created from the proceeds of the judicial sale of the vessel. It may seem curious that a person can bring an action against their own property in respect of a debt owed by someone else and in that way gain an advantage in respect of other creditors that the owner would not otherwise have. That curiosity - acknowledging that other creditors would characterise it at a higher level, perhaps as high as injustice - is what underlies much of what was submitted by both DB and AGE. The parties did not refer to a single case where the owner of property has proceeded in that fashion. Nonetheless, all the parties before me made their submissions on the underlying assumption that if the owner (relevantly, SH) could establish the requirements of each of the paragraphs of s 18, then it was entitled to commence its action in the way in which it did. That is to say, it was not contended that the extension of the availability of the action in rem against a vessel to the debts of the demise charterer was not also available to the owner of the vessel.
As explained by Allsop J in Comandate Marine Corp v The Ship Boomerang I [2006] FCAFC 106; 151 FCR 403 at [19]-[21], it used not to be the case that an action in rem was available in respect of the debts of the demise charterer. That, however, changed in England with the enactment of s 21(4) of the Senior Courts Act 1981 (UK) (then the Supreme Court Act 1981 (UK)) and in Australia with the enactment of s 18. Those developments were preceded by Art 3(4) of the International Convention Relating to the Arrest of Sea-Going Ships 1952 which provides that "[w]hen in the case of a charter by demise of a ship the charterer and not the registered owner is liable in respect of a maritime claim relating to that ship, the claimant may arrest such ship or any other ship in the ownership of the charterer by demise …". Professor Francesco Berlingieri has observed that the provision "was adopted without a clear understanding of its possible consequences" and with "no clear understanding amongst the delegates on the nature and purpose of the provision": Berlingieri F, A Commentary on the 1952 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) Vol I at [11.92] and [11.100].
Those observations of Professor Berlingieri were animated, in particular, by obscurity in the wording of Art 3(4) which meant that it was not clear whether a vessel could be arrested even in respect of the debts of persons with a relationship with the ship other than owner or demise charterer. That was cleared up by Arts 3(1)(e) and 3(3) of the International Convention on Arrest of Ships, 1999: Berlingieri F, A Commentary on the 1999 Arrest Convention, Berlingieri on Arrest of Ships (6th ed, Informa, 2017) Vol II at [8.47]-[8.52] and [8.69]. See also Sam Hawk v Reiter Petroleum Inc [2016] FCAFC 26; 246 FCR 337 at [45] per Allsop CJ and Edelman J.
Section 18 of the Act requires a connection between the relevant person (being the debtor in personam) and the defendant vessel at two distinct points in time. The one is when the cause of action arose, and the other is when the proceeding was commenced. It is the latter that is presently relevant.
It was explained in Law Reform Commission, Civil Admiralty Jurisdiction (Report No 33, Australian Government Publishing Service, 1986) (ALRC Report No 33) (at [131]) that the value in extending the right of action in rem in respect of the debts of the demise charterer lies in the position of demise charterers as persons effectively in control of the ship. Attention was drawn to the tendency historically to emphasise the ways in which a demise charterer, because it has legal possession of the ship, is similar to an owner and in a legally different position to other charterers. The Commission (at [136]) recommended the extension essentially on the basis that it had become the generally accepted scope of the statutory right of action in rem in comparable countries, citing Singapore, Hong Kong, New Zealand, South Africa, Canada and the United Kingdom. The Commission did not discuss the question of a claim by the owner against its own ship based on the in personam debt of the demise charterer.
The extension is to be understood in Australia against the backdrop of the nature of the action in rem as, fundamentally, an action against the ship: Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at [120] and [128] per Allsop J, Finkelstein J agreeing. If the relevant person is the demise charterer, even if the owner appears in the action to defend against the claim the action does not thereby become (or also become) an action in personam; it remains an action in rem and the owner does not become personally liable for a judgment against it to the full extent of the claim: Comandate Marine at [109].
Understood in that way, an action by the owner against its own property is perhaps less curious than it might initially have seemed. True it is that in the absence of other claimants against the vessel, it is hard to conceive of a case where the owner would arrest its own ship in pursuit of a general maritime claim based on the in personam liability of the demise charterer - a proprietary claim would be different. That is because the logical end point to such an action is judgment against the vessel and then its sale and distribution of the proceeds to meet the judgment. Why would an owner go through such a process to get paid out of the proceeds of its own property? But where there are other claimants against the vessel, as in the present case, it is understandable why an owner would wish its claim to compete to share in the proceeds of sale of the vessel.
Whatever the considerations are for and against the wisdom of the extension as a policy choice, the court's task is to interpret the statute and to apply it. The language of s 18 is clear enough - it does not appear to limit application of this section to claims other than any claim by the vessel's owner, and, as mentioned, no submission was put to that effect. As will be seen, there may be some debate as to just what it means to be "the demise charterer" of the vessel, and in particular whether actual physical possession of the vessel by the purported charterer at the relevant time is an essential element, but that does not bear on the justice or otherwise of the owner being able to claim.
The position is that once the requirements for an action in rem under s 18 have been established, there is no discretion available to the court to dismiss or not recognise the claim, such as by releasing the vessel from arrest: Atlasnavios Navegacao LDA v The Ship Xin Tai Hai (No 2) [2012] FCA 1497; 215 FCR 265 at [80] per Rares J.

[26]

D.1 The sale and lease or demise charter back

The unchallenged evidence of SH, by affidavit of Qin Heng, is that SH is a single purpose entity wholly owned by China Aviation International Holding Co Ltd, which is in turn wholly owned by Avic International Leasing Co Ltd. Avic is a financial leasing service provider that operates a substantial ship leasing business. It holds each vessel that it has financed under a lease in a single purpose entity. SH is such an entity with respect to the Yangtze Fortune.
On 7 June 2017, YF as seller and SH as buyer concluded a memorandum of agreement on the SALEFORM 1993 in respect of the vessel "To be named Yangtze Fortune", built in 2005. The purchase price was recorded as US$24,600,000 "or the Market Value of the Vessel" as determined at least five business days prior to the delivery date in accordance with the terms of the bareboat charter, whichever was the lower.
Also on 7 June 2017, SH as "Owners" and YF as "Bareboat Charterers" concluded an agreement headed "BAREBOAT CHARTER" on a BARECON 2001 amended form. The vessel was identified as "To be named Yangtze Fortune", a livestock carrier built in 2005. The BARECON 2001 form is a widely used bareboat or demise charterparty standard form published by BIMCO, the Baltic and International Maritime Council, which is a pre-eminent international association representing shipowners.
It would appear that parallel with the financing arrangements in respect of Yangtze Fortune, similar arrangements were also entered into in respect of another vessel, Yangtze Harmony, that was chartered to a different single purpose entity, Yangtze Harmony Co Ltd (YH). Also, on 9 June 2017, SH and Avic as borrowers entered into a loan agreement with The Export-Import Bank of China, Shanghai Branch, as lender to enable SH to purchase the vessels and to then lease or bareboat charter them back to YF and YH. The agreement provided for first mortgages to be registered over the vessels in the bank's favour to secure the loans.
Returning to the charterparty, many, perhaps most, of the boxes in Part I of the standard form were not completed. Instead, reference was made in those boxes to clauses of the additional clauses, also dated 7 June 2017, appended to the standard form. Box 42 recorded the answer "no" to the question whether the standard form hire/purchase agreement in Part IV applied. Also, many of the standard clauses in Part II were deleted with references to clauses within the additional clauses recorded adjacent to the deletions. By cl 2, SH agreed to let and YF agreed to hire the vessel for the "Charter Period", which was defined in cl 32.1 as 96 months from the delivery date.
Amongst the deletions of standard form clauses was cl 5, the cancelling clause, with reference made to additional cl 33. Clause 10(a) provided that during the Charter Period the vessel would be in the full possession and at the absolute disposal of the Charterers (ie YF) and under their complete control in every respect. Clause 10(b), to which further reference will be made below, required YF at their own expense and by their own procurement to "man, victual, navigate, operate, supply, fuel and, whenever required, repair the Vessel during the Charter Period and … pay all charges and expenses of every kind and nature whatsoever incidental to their use and operation of the Vessel under this Charter, including annual flag State fees." It also provided that the Master, officers and crew of the vessel would be the servants of the Charterers for all purposes whatsoever, even if for any reason appointed by the Owners.
By cl 13(a), YF was obliged to keep the vessel insured against hull and machinery, war and Protection and Indemnity risks. Clause 17(a) provided that if the vessel was arrested or otherwise detained by reason of claims or liens arising out of its operation by YF, YF had to at its own expense take all reasonable steps to secure the release of the vessel within a reasonable time, including by the provision of security. Additional cl 42.3, which I will come to, gave further content to YF's obligations in such circumstances.
Clause 28(b), which in the standard form makes provision for termination of the charter by the Charterers on account of default by Owners, was deleted and reference was made to cl 44.
In the additional clauses, the following are pertinent to the submissions made by the parties.
Clause 32.1, the definitions clause, referred to guarantees in favour of SH by Sinomarine Ltd and Dalian Hesheng Holding Co Ltd, both incorporated in the People's Republic of China. Other securities were also referred to, including a "General Assignment" of freight, sub-freight and insurance in favour of SH, a "Manager's Undertaking" by the vessel's technical manager in favour of SH, and a "Share Charge" over the shares of YF in favour of SH. The "MOA" was defined as a memorandum of agreement between YF as seller and SH as buyer.
There is other evidence that establishes that Sinomarine Livestock Carriers Co Ltd was the sole shareholder in YF and YH, and it was defined as the "Chargor" in relation to the shares in YF. It is a different company to Sinomarine Ltd, one of the guarantors.
The "Purchase Price" was defined as the purchase price of the vessel under the MOA, being the lower of US$24,600,000 and the market value of the vessel. The "Charterhire Principal" was defined as the lower of US$18,250,000 and 74% of the market value of the vessel at delivery.
The "Fixed Charterhire" was defined as 32 consecutive equal quarterly instalments, each in an amount of US$570,312.50 being 1/32 of the Charterhire Principal as at the delivery date. The "Variable Charterhire" was defined as the interest payable from time to time.
In cl 35, SH's obligations to deliver the vessel to YF were made conditional upon delivery of the vessel by YF to SH and SH obtaining full title to the vessel pursuant to the MOA.
By cl 36.3, YF had the option to terminate the charter at any time after the delivery date provided that it gave SH at least 30 business days' prior written notice which included specifying a termination date, it redelivered the vessel to SH in accordance with cl 45.2 and, on or before the termination date, it paid to SH the "Termination Sum" and all other sums payable by it under the charter. The Termination Sum was defined in cl 32.1 as including all charter hire due and payable, but unpaid, under the charter up to and including the termination date together with interest and the aggregate amount of all charter hire which would have fallen due from the Termination Date to the end of the charter period. That is to say, if YF wished to terminate the charter early, it was required to pay the whole of the outstanding charter hire until the end of the charter period.
By cl 36.5, if the charter terminated either under cl 36.3 or upon expiry of the Charter Period, upon full payment of the Termination Sum and all other amounts owing, SH "shall" transfer ownership of the vessel back to YF for consideration of US$1. That clause is the foundation of AGE's contention, which I will come to, that the charter was not really a charter but a financing agreement.
Clause 38 dealt with charter hire as follows. YF was required to pay, on or prior to the delivery date, Upfront Charterhire in an amount equalling 26% of the purchase price and thereafter throughout the charter period the Fixed Charterhire and the Variable Charterhire.
The evidence is that the Charterhire Principal was US$18,250,000, which means that the ultimate purchase price under the MOA was the stated figure of $24,600,000 and not a lower figure based on an assessment of the value of the vessel. The Charterhire Principal accordingly had to be paid over the 96 months of the charter period in 32 instalments at quarterly intervals. The result is that the quarterly charter hire comprised a Fixed Charterhire amount of US$570,312.50 and a Variable Charterhire amount (ie interest on the financing) calculated as set out in cl 32.1.
By cl 38.4, the vessel would not at any time be deemed off-hire and YF's obligation to pay all charter hire and other amounts payable under the charter was absolute and unconditional "under any and all circumstances and shall not be affected by any circumstances of any nature whatsoever." Clause 38.8 made provision for default interest to be payable on any outstanding sum at the rate of 0.05% per day, and by cl 38.9 the time of payment of charter hire and other sums payable under the charter was made to be of the essence of the charter.
By cl 42.3, in the event that the vessel was arrested or detained at any time in any jurisdiction by any person having or purporting to have a claim against or any interest in the vessel not due to the fault of SH, within 90 days of such arrest or detention YF was obliged to resolve such arrest or detention by way of provision of guarantee or security for costs or by such other means necessary to ensure that the vessel was released from such arrest or detention and available for operation.
By cl 40.1(f), YF indemnified SH against all losses suffered or incurred by SH in preventing or attempting to prevent the arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the vessel caused by YF, or in securing the release of the vessel therefrom.
By cl 44.1, a "Termination Event" was defined to include when any charter hire was not paid when due unless it was paid within three business days of the due date, a failure by YF to observe or perform any of its other obligations under the charter and if the vessel was arrested or detained and not discharged from that arrest or detention in accordance with cl 42.3 within 90 days.
By cl 44.2, the occurrence of a Termination Event entitled SH by notice to YF to terminate the charter forthwith and recover any and all amounts due and payable "in the manner as set out in Clause 45."
By cl 45.1, at any time after a Termination Event, SH could, by notice in writing to YF immediately, or on such date as SH could specify, terminate the charter whereupon "the Vessel shall no longer be in the possession of the Charterer and the Owner shall be entitled (but not bound) to retake possession of the Vessel." Also, YF would be liable to SH for the Termination Sum if SH so demanded. There followed provisions with regard to the redelivery of the vessel by YF to SH in the event of such a termination.
Although by cl 48 the charter was said to be governed by and to be construed in accordance with English law, no party before me placed any reliance on that.
On 16 August 2017, SH was registered as the owner of the Yangtze Fortune on the Liberian register. On 28 August 2017, a first preferred mortgage granted by SH in favour The Export-Import Bank of China, Shanghai Branch, was registered on that register.
In summary, the arrangements with regard to the purchase and charter of the vessel were as follows. SH borrowed a sum of money from the bank, which it then paid to YF for the purchase of the vessel under the MOA. On SH becoming the registered owner of the vessel, it demise chartered it to YF for YF to operate for YF's commercial benefit, with the charter hire calculated as the purchase price amortised over the period of the charter into quarterly instalments plus interest on the amounts outstanding from time to time. At the completion of the charter period, being when all the charter hire instalments had been paid in full, SH would transfer ownership of the vessel to YF. In the meanwhile, SH granted the bank a registered mortgage over the vessel as security for its loan to SH, which SH was presumably obliged to pay-off in similar instalments to those payable by YF to SH under the charter.
The vessel was delivered into the demise charter in August 2017 and the first instalment of charter hire was due on 28 November 2017. YF duly paid the first instalment and the following instalments (although some were paid late) until the 20th instalment.

[27]

D.2 Chronology of defaults, arrest, sale, service of writ, etc.

The 20th instalment of charter hire was US$671,183.93 which was payable on 26 August 2022. YF failed to pay that instalment on time, or thereafter.
As already mentioned, on 9 November 2022, AGE filed a writ in a proceeding in rem against the vessel, and on 10 November 2022 DB did the same.
On 11 November 2022, YF sent an email to SH headed "Notice of Termination". The email referred to the charterparty and YF's "very hard financial status" and then purported to give "formal notice of termination … and redeliver the Vessel to the Owners … at any time."
On 16 November 2022, SH replied. It rejected the purported "formal notice of termination" and stated that its reasons included that YF's financial hardship is not a ground to terminate and YF had not exercised its option to terminate the charter and purchase of the vessel available to it under cll 36.3-36.5. SH demanded that YF duly perform the charter, pay all outstanding charter hire and rectify all current breaches of the charter, including breaches "in relation to paying for and procuring manning, fuel, and operation of the Vessel whether pursuant to Clause 10(b) or otherwise."
On 22 November 2022, YF replied. It said that it had not engaged a contractual right of termination, but that due to its financial position it had no intention, or was not financially capable, of performing the charter and that the charter "should now stand terminated as a matter of English common law." YF urged SH "to promptly take physical possession of the Vessel as soon as possible." YF went on to state that the charter "has now been terminated and all obligations and liabilities associated with the Vessel falls on Owners."
Despite the position taken by YF in its communication with SH that the charter had been terminated, on 25 November 2022 YF emailed the Liberian shipping registry asking for approval for the vessel to leave Portland, Australia where it was anchored and to proceed by one ballast voyage to Subic Bay, the Philippines, for permanent repairs to the cracked shell plate in the engine room. YF followed up that request on 29 November 2022 and 30 November 2022, saying that it was the bareboat charterer of the vessel and asking for all communications with regard to outstanding payments for the vessel to be made with YF and that it had approval from the Australian Maritime Safety Authority for the vessel to leave Portland for Subic Bay.
The 21st instalment of charter hire was US$688,886.80 which was payable on 28 November 2022. YF failed to pay that instalment on time, or at any time thereafter.
On 29 November 2022, YF sent a report titled "Work progress report for MV Yangtze Fortune" to SH covering standard items with regard to the position of the vessel, implying that YF was still in possession of the vessel at that time.
The vessel was arrested on the application of DB on 2 December 2022. That meant that under cl 42.3 of the charter, YF had until 2 March 2023 (ie 90 days) to secure the release of the vessel.
On 3 December 2022, the Liberian shipping registry granted approval, subject to certain conditions, for the vessel to sail from Portland to Subic Bay. On 4 December 2022, YF forwarded that email in the chain of emails between it and the Liberian registry (ie the emails referred to at [60]) to SH. That is to say, on 4 December 2022 YF communicated with SH in a manner that was inconsistent with its previously stated position that the charter had been terminated.
On 9 December 2022, SH replied to YF's email of 22 November. SH stated that it disagreed that the charter was terminated as a matter of English common law, and that although YF had wrongfully repudiated the charter, SH had not, and should not be taken to have, accepted the repudiation. SH repeated its demands that YF perform the charter and rectify various breaches, including taking immediate steps to procure that the vessel be released from arrest including by putting up security as required by the charter and "in relation to paying for and procuring manning, fuel, and operation of the Vessel whether pursuant to Clause 10(b) or otherwise." SH otherwise "expressly reserved" all its rights.
On 14 December 2022, there was a hearing in DB's proceeding. YF appeared conditionally by a solicitor who told the Court that "there is an issue as to whether or not the demise charter has been terminated. … The demise charterers purported to terminate the demise charter. The registered owners did not accept that termination. The demise charterers did not accept that non-acceptance of that termination."
Orders were made calling on any interested party to show cause on 20 December 2022 why it should not be ordered that the vessel be sold by judicial sale. It was also ordered that YF notify SH of those orders, which YF did on the same day. On 20 December 2022, the show cause hearing was held. SH did not appear. Orders were made that the vessel be sold by the Admiralty Marshal.
In the meanwhile, on 15 December 2022, YF sent a further report titled "Work progress report for MV Yangtze Fortune" to SH updating SH on standard items in relation to the position of the vessel. On 10 January 2023, YF sent an email to SH advising that it had paid hull and machinery insurance premiums up to 28 February 2023 and that its email was "without prejudice to the Charterer's position that [the charter] has been terminated." Attached to the email was a cover note issued by the insurance broker reflecting that position and recording both SH and YF as insureds.
On 11 January 2023, orders were made that the vessel be sold by closed bid tender process with 10 February 2023 as the closing date for the receipt of bids.
On 1 February 2023, Australian solicitors then acting for SH filed an appearance for SH in DB's proceeding.
On 3 February 2023, SH sent a follow-up email to YF as it had not had a response to its email of 9 December 2022. SH again stated that it did not accept that the charter had been terminated and it again recorded that it had not accepted any repudiation of the charter. SH again demanded that YF perform the charter and rectify its breaches.
On 14 February 2023, YF replied. It reiterated its position that the charter had been terminated and urged SH "to take responsibility for their own Vessel and mitigate any alleged loss and damage." YF also recorded that it had paid US$18,955.14 on 30 December 2022 to validate insurance cover for the vessel which would expire on 28 February 2023. It also "expressly reserved" its rights.
Also on 14 February 2023, orders were made that the Marshal accept the highest bid of US$8,500,000 for the vessel.
On 15 February 2023, YF sent a further report titled "Work progress report for MV Yangtze Fortune" to SH reporting on standard items in relation to the position of the vessel. Again, that implies that YF was still in possession of the vessel.
On 27 February 2023, orders were made that the Marshal cancel the sale to the highest bidder and accept the bid of the second highest bidder.
The 22nd instalment of charter hire was US$706,455 which was payable on 28 February 2023. YF failed to pay that instalment on time or at any time thereafter.
On 10 March 2023 at 9.20am AEDT, SH filed a writ in the Court claiming outstanding charter hire in the sum of US$2,066,525.73 under the bareboat charter dated 7 June 2017. The writ was accepted for filing at 11.20am AEDT. By rr 2.25(1)(a) and (b)(ii) of the Federal Court Rules 2011 (Cth), the writ is taken to have been filed when it was accepted for filing.
On 10 March 2023 at 4.49pm China Standard Time (ie 7.49pm AEDT), SH gave notice to YF of termination of the charter. The notice relied on various breaches of the charter amounting to Termination Events and, in the alternative, acceptance of YF's repudiation of the charter by its wrongful attempts to terminate the charter by its emails of 11 and 22 November 2022 and 14 February 2023. The breaches relied on included failure to pay charter hire when it was due including the 20th, 21st and 22nd instalments, failure to observe or perform various obligations including adequately maintaining the vessel and procuring its release from arrest within 90 days. It was also said that YF was in breach of cl 10(b) by having "failed to man, fuel, and operate the Vessel."
Having commenced a proceeding against the ship, being its own ship, SH was then confronted with what to do about effecting service of the writ. SH, by its former solicitors, wrote to the Marshal's solicitor on 10 March 2023 requesting that the Marshal serve the writ on the vessel. The solicitor replied almost immediately explaining that anyone wishing to board the vessel would be required to charter a launch at the cost of $1,000 (since the vessel was anchored off Portland), and saying that if SH was to persist in wanting to serve the writ it would have to place the Marshal in funds. SH's solicitors also wrote to YF's solicitors asking whether YF would accept service of the writ, but YF declined on the basis that the writ was against the vessel and not against YF.
On 14 March 2023, the Marshal executed the bill of sale thereby transferring ownership in the vessel to the second highest bidder. The proceeds of the sale thus became the fund referred to in s 24 of the Act. The fund was constituted in two amounts, US$6,232,350.01 (comprising US$6,000,000 for the vessel and US$232,350.01 for unused bunkers and lubricating oils) and AU$127,875.90 (for unused bunkers), although US$545,454.55 in respect of GST was later repaid to the purchaser as no GST was payable on the sale.
As already mentioned, on 16 March 2023 orders were made requiring anyone with a claim against the proceeds of sale to bring the claim by filing and serving a statement of claim in the priorities proceeding by 13 April 2023. On 12 April 2023, SH filed a statement of claim that asserted the same claim as had been asserted in its writ, including by citing the ship as the defendant.
On 17 November 2023, SH's new, and still current, solicitors served a copy of SH's writ that was filed on 10 March 2023 on the Registrar. The solicitors' covering letter explained that service of the writ on the Registrar was pursuant to r 31 of the Admiralty Rules 1988 (Cth).

[29]

E.2 Is SH's claim a general maritime claim?

Section 4(3)(f) of the Act provides that a general maritime claim includes: a claim arising out of an agreement that relates to the carriage of goods or persons by a ship or to the use or hire of a ship, whether by charterparty or otherwise;
AGE submitted that SH's claim for the unpaid charter hire does not relevantly relate to the "use or hire of a ship". Instead, it submitted that the relationship between SH and YF was characterised as a sale and lease-back transaction in which YF sold the vessel to SH for US$24,600,000 and SH leased the vessel back to YF. That is, "[t]he ultimate purpose of the [bareboat charterparty] is to facilitate the repayment of a loan agreement between SH and YF under the guise of a demise charter in which upon the expiry of the charter period, the Vessel is to be sold back and returned to its original owner being YF." On this view, the claim would fall outside the scope of s 4(3)(f) of the Act.
Conversely, SH characterised its claim as one "arising out of an agreement" between it and YF, "relat[ing] … to the use or hire of a ship". On its face, the charterparty was said to be orthodox in its terms, with the claim premised on breach of the clauses relating to payment of charter hire. As the agreement in question was not of itself a contract for the sale of the vessel with the charter hire being the price of such agreement, it was said that there was no reason why the claim was not within s 4(3)(f).
AGE relied on Icon Amazing LLC v Amazing Shipping Ltd 951 FSupp 2d 909 (SD Tex 2013) in support of its contention that the charter is not an agreement for the use or hire of the vessel, but is rather an instalment sale agreement. In that case, much as in the present case, there was an MOA by which the former owner and subsequent bareboat charterer sold the vessel to the subsequent owner and leased it back on an amended BARECON 2001 form. The Court (at 916-917 [16]) characterised the relationship as being a sale/financing contract rather than a true charterparty. It found (at 917 [19]) that the BARECON 2001 was not a conventional maritime charterparty, but was instead one inseparable component of a larger non-maritime vessel sale/financing transaction. That was in answering the inquiry whether the claim was "maritime in nature" with reference to the federal jurisdiction conferred by the United States Constitution, and not with reference, as in Australia, to particular independent yet sometimes overlapping descriptions of claims in a statute conferring admiralty jurisdiction. The case is therefore legally distinguishable on a fundamental point, it being no part of the inquiry by this Court whether the claim is "maritime in nature". But it is also distinguishable on the facts because unlike in the present case, there the parties between themselves characterised their relationship as being between lender and borrower, and not owner and charterer (at 913-914 [5]-[6]). In the circumstances, the case is ultimately of little assistance to the task at hand.
SH referred to Jack Neilson Inc v Tug Peggy 428 F2d 54 (5th Cir 1970), which is itself referred to and distinguished in Icon Amazing (at 917 [16(c)]). In circumstances where the owner of three vessels sought to recover unpaid monthly rentals for the lease of the vessels under a lease-purchase agreement cast in the form of a bareboat charter, the Court held that the charter provisions of the contract were maritime in nature, were severable, and were within the admiralty jurisdiction of the District Court (at 55). SH's claim is of a comparable nature, unlike in Icon Amazing where the claim was for the balance of the purchase price.
Putting the US cases to one side, the inquiry is whether "the assertions of right or interest recognised by law and carrying an entitlement to relief" made by SH have the legal character of that which is set out in s 4(3)(f): Heilbrunn v Lightwood Plc [2007] FCA 1518; 164 FCR 1 at [22] per Allsop J. In that regard, "[i]t is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words": Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc [1994] HCA 54; 181 CLR 404 at 421.
It was not suggested that the charter in this case is a sham, ie that it is dressed up to look like a charter but is in fact something else. The charter is what it is with reference to its terms. Undoubtedly then it is an agreement that "relates to" the use or hire of the vessel - it includes all the usual bareboat charter terms with regard to the owners' and charterers' respective responsibilities, term, hire, cancellation, maintenance, insurance, indemnities and so on. In short, it is an agreement by which SH as owner let the vessel to YF as charterer; it is an agreement by which "the owners confer on the charterer, for a term, sufficient of their rights to give the charterer possession and control of the ship, including the right to employ and direct the master and crew, so as to place the charterer in the same position, for the duration of the term, as the owners would have had to possess and control the ship, her master and crew": Ship Hako Endeavour v Programmed Total Marine Services Pty Ltd [2013] FCAFC 21; 211 FCR 369 at [54] per Rares J, Siopis J agreeing. See also The Guiseppe di Vittorio [1998] 1 Lloyd's Rep 136 at 156.
It is true that the charter is part of a broader set of contractual relationships, including the MOA and the securities, which were together concluded for the purpose of financing the purchase of the vessel by YF. It is also true that the instalments of charter hire were calculated with reference to the principal sum lent plus finance charges. But there is no credible basis on which it could be concluded that the charter did not operate as an agreement for the use and hire of the vessel during its term, or that SH's claim is not a claim arising out of that agreement.
Indeed, AGE's own claim against the fund depends on YF having been the demise charterer of the vessel at the time that it commenced its proceeding. AGE accepted that YF was not the owner and that it was the demise charterer (T68:19-41). If that is right, then it must have been the demise charterer under a demise charterparty and there is only one of those, being the same one that SH claims under. It would be an unsatisfactory - if not absurd - result if the law regarded YF as the demise charterer for the purposes of s 18 of the Act, but did not regard the agreement by which it was the demise charterer to be an agreement that "relates to" the use or hire of the ship.
In the circumstances, AGE's contention that the claim is not a general maritime claim fails.

[32]

E.3.2 Did SH accept YF's repudiation before 10 March 2023?

Secondly, it was contended that SH accepted YF's repudiation of the charterparty. It is not controversial that the stance taken by YF in its emails of 11 November 2022 and thereafter amounted to repudiation of the charter. Indeed, SH relied on those communications as amounting to repudiatory conduct which it accepted late on 10 March 2023. The question is whether SH had already accepted the repudiatory conduct at an earlier time and had thereby brought the charter to an end.
In that regard, DB submitted that SH accepted the repudiatory conduct of YF by acquiescing in the judicial sale of the vessel in the following way. Prior to the orders on 20 December 2022 that the vessel be sold, YF had taken and maintained the position that the charter had come to an end, and the vessel had been arrested and YF had not secured its release. SH was advised on 14 December of the show cause hearing on 20 December and it failed to appear to oppose the sale.
Acceptance of repudiatory conduct must be conveyed as an unequivocal election, "unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other": Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634 at 646. As election involves abandoning a right that is available, a party can only be held to have elected if it has communicated the election to the other party in clear and unequivocal terms: see Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26 at 38-39 citing Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391 at 398 per Lord Goff.
DB also referred to Gator Shipping Corp v Trans-Asiatic Oil Ltd SA (The Odenfeld) [1978] 2 Lloyd's Rep 357 as an analogous case. Relevantly, the conduct of the owners of a vessel in laying the vessel up during the existence of a time charter under which the charterers had stopped paying hire was held, with "considerable hesitation", to amount to an acceptance of the charterers' repudiation (at 378-379). Justice Kerr reasoned that the laying-up of a vessel is so inconsistent with the continuing existence of the charter that the owners could not "be heard to say in the same breath that the charter was still on foot."
There are a few reasons why that case is not good authority for the submission advanced by DB in the present case. First, I consider it doubtful - perhaps reflected in his Lordship's diffidence - that the laying-up of a vessel by the owner when the time charterer is not paying hire or giving instructions for the employment of the vessel and is taking the attitude that the charter is at an end, and the owner is simultaneously asserting that the charter is not at an end and that the vessel can be ready and available again for service at short notice, amounts to an acceptance of the charterer's repudiation; it might also be regarded as an effort to mitigate loss. Secondly, the position in respect of a time charter and a demise charter is quite different. Under the former, the owner crews and operates the vessel, so laying it up is to remove it from service under the charter - this is a consideration that weighed heavily with his Lordship. However, under a demise charter the charterer crews and operates the vessel. The owner is required to deliver the vessel into the possession of the charterer at the commencement of the charter, but it is not obliged thereafter to take any active steps in relation to the operation of the vessel. SH's failure to intervene in some unspecified way in the circumstances of the vessel off Portland or in the proceedings towards its judicial sale in no way removed the vessel from service under the charter. The case is therefore quite distinguishable from the present case.
Returning to the present case, on 9 December 2022 SH wrote to YF asserting its position that the charter was not terminated. To not, then, before 23 December 2022 enter the lists and oppose the sale of the vessel is not inconsistent with that position; it does not reflect an abandonment of the right to maintain the charter. After the orders for sale on 23 December 2022, it was still possible that DB's claim might be paid and the sale orders vacated.
It has to be remembered that under cl 17(a) of the charter, YF had the obligation to secure the release of the vessel, and YF had indemnified SH against all consequences of YF's operation of the vessel. There is therefore some basis to SH's position that YF had to secure the release of the vessel, and SH not itself intervening to do so. The further indemnity in cl 40.1(f) which would have enabled SH to claim against YF for any costs incurred by SH in seeking to secure the release of the vessel does not change that analysis. Indeed, had SH entered the lists to oppose the sale and rely on the indemnity for its expenses in doing so, that may well have been regarded as conduct accepting the repudiation because of its implication that YF was no longer being held to its obligations under cl 17(a) the charter. If to intervene to oppose the sale could be regarded as accepting conduct, then to not do so cannot possibly be regarded as unequivocal acceptance of the repudiation.
Inasmuch as DB also relied on SH's failure to oppose the subsequent orders that the vessel be sold by a closed bid process, or that the highest bid be accepted, or that the second highest bid be accepted, the analysis remains the same. That is, SH continued to assert to YF that the charter was on foot and that YF must act as it was obliged to do and secure the release of the vessel. Despite the increasing futility of the stance taken by SH, it was a clear stance that the charter remained alive; there was no unequivocal conduct the other way until SH's communication that accepted the repudiatory conduct and terminated the charter late on 10 March 2023.
In the result, I reject the submission that SH accepted YF's repudiation before 10 March 2023.

[33]

E.3.3 Termination by YF's loss of possession?

Thirdly, AGE contended that the charter was terminated by YF no longer having possession of the vessel at some time prior to 10 March 2023. It submitted that without possession, there could not be a bareboat charterparty. It described YF's position towards the vessel as one of "abandonment". AGE relied on statements made by SH in its correspondence with YF from 9 December 2022 through to its notice of termination on 10 March 2023 to the effect that YF was in breach of cl 10(b) by failing to, amongst other things, "man" the vessel. AGE also relied on the statement of claim of the crew in the proceeding by which they made their priority claim against the fund in which it was said that there had been failures by YF to pay the crew since April 2022, and that no payments had been made by YF to the crew after November 2022.
AGE's contention with regard to possession fails on the facts. It is not established by the evidence referred to by AGE that the Master and crew on board the vessel were no longer under the instructions of YF and that YF no longer had possession of the vessel. In particular, conclusionary assertions made in correspondence with regard to breaches of the charterparty, and similar assertions made in the crew's statement of claim, do not rise to the level of proof of the underlying facts. SH's assertions with regard to breach of the obligation to "man" the vessel do not give any particulars, and in particular do not go so far as to state that YF no longer had possession of the vessel; the allegation of breach could have been only with regard to YF's failure to pay the crew. Crew remained on board the whole time as the vessel was mostly at an exposed anchorage. It is not established that they did not do so in the exercise of YF's possession.
Also, the fact that in November 2022 YF offered to AGE that it take over the demise charter, or that it purchase the vessel - relied on by AGE - does not alter that analysis. Indeed, the offer necessarily assumes that the charter was still on foot.
Similarly, the fact that YF had stopped paying the crew does not necessarily mean that the crew were no longer employed by YF. Indeed, the crew continued to claim their entitlements under the contracts by which they were employed (through a crewing agency) by YF through to 14 March 2023 when the vessel was delivered to its new owners. The Marshal paid those wages, but not as employer; she paid them to YF's crewing agency who in turn paid them to the crew.
It should be recalled that as late as 15 February 2023, YF sent a report to SH on the position of the vessel. That report stated that the vessel was off Portland, "currently crewed with 16 persons and anchored in good condition." That is quite inconsistent with YF not being in possession of the vessel. Nor does it suggest the kind of wholesale abandonment described in AGE's submissions.
It may conceivably be the case, as submitted by AGE, that in order for a person to be "a demise charterer of the vessel" within the meaning of that phrase in s 18(b) they must be in actual possession of it, and that that is a separate question from whether as a matter of contract the demise charterparty is extant such as to give rise to rights and obligations. To take an example, can it be said that a person is the demise charterer for the purpose of s 18(b) after the charterparty has been concluded and even after the time when the owner was contractually bound to deliver the vessel into the possession of the charterer but has in breach not yet done so? Similarly, can it be said that a person is still the demise charterer for the purpose of s 18(b) if, regardless of the continuing contractual position as between them and the owner, they have abandoned the vessel at a berth and told the owner that they can take possession of it there? Those are novel questions that it is not necessary for me to answer in view of the conclusion I have reached on the facts.
I should add that my description in the judicial sale judgment (at [29]) of the vessel as having "all but been abandoned" does not establish that YF was no longer in possession of the vessel. That statement did not address the question of possession and was based on the observation that "no party, whether the shipowner or any bareboat charterer or mortgagee, has intervened to maintain the vessel while it is under arrest or even to continue to pay the crew" and that it "continues to deteriorate and the expenses to maintain it continue to mount."
For those reasons, the contention that YF was not the demise charterer within the meaning of s 18(b) at the time SH's proceeding was commenced fails.

[34]

E.4 Was Soar Harmony's claim enforceable against the fund?

It is well-established that when a vessel is sold by the Admiralty Court, a party's rights in rem are transferred to the proceeds of sale: Bank of Tokyo-Mitsubishi UFJ Ltd v Owners of the MV Sanko Mineral (The Sanko Mineral) [2014] EWHC 3927; [2015] 1 Lloyd's Rep 247 at [41] per Teare J. That principle is at least partly captured in s 24 of the Act as follows: Where, but for the sale of a ship or other property under this Act, a proceeding could have been commenced as an action in rem against the ship or property, the proceeding may be commenced as an action in rem against the proceeds of the sale that have been paid into a court under this Act.
AGE submitted that SH's claim could not be validly pursued against the fund for two related reasons as captured in the parties' issues (c) and (d) set out at [85] above. First, AGE submitted that since SH had not served its writ on the vessel, the jurisdiction of the Court had not been invoked so the rights in rem were not transferred to the fund on the sale of the vessel. Secondly, AGE submitted that at the time SH commenced its claim against the fund, being when it filed its statement of claim in the priorities proceeding, YF was no longer the demise charterer and therefore the requirements of s 24 (as read with s 18(b)) of the Act were not satisfied.
I say that the principle in The Sanko Mineral captured at [119] above is only partly captured by s 24 because that section does not deal with the situation where a proceeding has been commenced by an action in rem and there has been service of the writ on the vessel, as in the case of AGE's claim, and the vessel is subsequently sold and a fund established. In such a case, but for the sale, a proceeding could not be commenced against the ship because one had already been commenced. Even aside from that, since by the time the fund was established YF was certainly no longer the demise charterer, AGE would not have been able to commence a proceeding against the fund. AGE thus accepted, as it had to, that statutory rights of action in rem that have been crystallised by the filing and service of a writ in rem transfer to being enforceable against the fund after the vessel is sold. AGE's first point thus focussed on the significance of service of the writ in rem. AGE submitted that service is essential otherwise the statutory rights of action in rem do not transfer to the fund, whereas SH submitted that service is not necessary.
AGE relied on Monte Ulia v The Banco (The Banco) [1971] 1 Lloyd's Rep 49 at 53 where Lord Denning MR explained that when a plaintiff brings an action in rem, the jurisdiction of the court is invoked not when the writ is issued but when it is served on the ship and the warrant of arrest is executed. The judgment of McCaw LJ (at 57) is to the same effect, although Cairns LJ is to the contrary (at 59).
Reliance on The Banco is, however, misplaced because when the defendant ship is already under arrest and in the custody of the Marshal, as it was in the present case, what is required to invoke the jurisdiction of the court is the issue of a writ in rem against the ship - the court will be seized of jurisdiction from the moment when the writ is issued because the ship is already in the custody of the court: The Freccia del Nord [1989] 1 Lloyd's Rep 388 at 392 per Sheen J (noting his Lordship also had regard to the general principle outlined by Lord Denning MR in The Banco immediately above). It is true, as emphasised by AGE, that his Lordship also said that what is required is "the issue of a writ in rem against the ship and the entry of a caveat against release", and that no such caveat was issued by SH in this case. However, I do not understand that statement to mean that in order to invoke the court's jurisdiction in the postulated circumstances it is necessary to enter a caveat against release. That is because his Lordship stated that the issue of the writ is sufficient to invoke jurisdiction, and because a caveat against release gives only procedural protection to the caveator; it is not a process by which any proceeding is commenced or jurisdiction is founded or invoked: see Delta Corp Ship Management DMCCO v The Ship Caledonian Sky [2023] FCA 1058 at [18]-[19]; The Yangtze Fortune (No 3) at [28].
The more fundamental answer to AGE's point is that the relevant question is not one of invocation of jurisdiction, but rather when a claimant's statutory right of action in rem becomes effective, or crystallises, such that it transfers to the fund on the sale of the ship. It is now well-established in England that statutory rights of action in rem crystallise and take effect when the proceeding is commenced by the issue of the writ, whereafter a change in ownership of the ship will not defeat the claim: The Beldis [1936] P 51 at 65 per Sir Boyd Merriman P; The Monica S [1967] P 741 at 771 per Brandon J; The Helene Roth [1980] QB 273 at 281-282 per Sheen J. In those cases, it was held that commencement of the action by the issue of the writ without service was sufficient; that is when the rights in rem crystallised. The crystallisation of such rights in that way gives rise to what is referred to as a statutory lien: The Monica S at 768; ALRC Report No 33 at [192], [292].
The position is particularly well illustrated by In re Aro Co Ltd [1980] Ch 196 in the Court of Appeal of England and Wales. The question was whether the issuing of a writ against the vessel, without service or arrest, when the vessel was in the jurisdiction under the arrest of another creditor - ie materially the same circumstances as the present case - gave the plaintiff the status of a secured creditor when the liquidation of the owner of the vessel then intervened pursuant to which the ship was sold and a fund created.
The primary judge, Oliver J, citing The Banco, reached the conclusion that the plaintiffs did not become secured creditors on the issue of the writ in rem because the issue of such a writ did not "invoke" the jurisdiction of the Admiralty Court, but was merely the first step towards invocation. That is in essence the point argued by AGE in the present case. Lord Justice Brightman delivered the judgment of the Court of Appeal, whose other members were Stephenson and Brandon LLJ. Upholding the appeal, their Lordships held (at 209) that there is no particular reason for equating the date of the creation of the status of a secured creditor with the date when the Admiralty jurisdiction can be said to be "invoked". It is more logical to ask whether, immediately before the presentation of the winding-up petition, the vessel was security for their claim, not whether they could assert that they had invoked the jurisdiction of the Admiralty Court. Since they had issued the writ before the winding-up, the plaintiffs were considered as secured creditors.
As already mentioned, by s 3(2) of the Act the proceeding in rem is also commenced in Australia by the issue of the writ. Service is not necessary for that purpose. That intention was made clear in ALRC Report No 33 at [15], [191] fn 301, [192] and 291 with reference to cl 3(2) of the proposed Bill and the Explanatory Memorandum to the Admiralty Bill 1988 (Cth) at p 4. See also Comandate Marine at [108] and Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour [2014] FCAFC 134; 315 ALR 66 at [22] per Allsop CJ, Rares J agreeing, and [145] per Besanko J, Rares J agreeing.
For those reasons, it was by the issue of its writ against the vessel on 10 March 2023 that SH's rights in rem crystallised giving it a statutory lien, and it is those rights that transferred to the fund when the ship was sold. What happened with regard to service of the writ is irrelevant. SH thereafter, as required by the orders of 16 March 2023, asserted its claim against the fund by the filing of a statement of claim. That is also what AGE did. Both claims were equally validly asserted against the fund.
Because of that conclusion, it is not necessary to deal with AGE's second point. It is, however, clear from what I have said above that the demise charter ended on SH's acceptance late on 10 March 2023 of YF's repudiation. Thereafter, SH could not have validly commenced an action in rem against the ship, and it also could not have done so against the fund under s 24. Even if the charter had not been terminated on 10 March 2023, it was surely terminated by completion of the judicial sale, there being no continuation of the charter thereafter as if of the fund: Meck Petroleum DMCC v Owner and/or Demise Charterer of the vessel Victor 1 [2024] SGHC 165 at [22]-[27] per S Mohan J; cf The Yangtze Fortune (No 3) at [52]-[54].

[36]

F.1 Introduction

Having explained why I found SH's claim able to be validly maintained against the fund, with judgment entered accordingly, I now turn to the question of priorities.
The parties were agreed that the issue of priorities raises the following sub-issues: a. whether DB's claim has priority over the claims of AGE and SH (as DB contends)? b. whether all of the competing claims on the fund should be treated pari passu and share the fund rateably in the event of a shortfall (as SH contends)? c. whether SH's claim should be afforded a lower priority to the claims of AGE and DB so that those claims are paid from the fund in full ahead of SH's claim (as AGE and DB contend)?
It is uncontroversial before me that the determination of priorities is an equitable jurisdiction and, although in theory the court exercises its discretion afresh in the circumstances of each case, in practice there is a well-settled order of priorities. The court must consider whether there are any particular circumstances such that justice requires that the prima facie order be disturbed. See The Skulptor Konenkov at 50-51. Justice Sheppard described the settled order of priorities as follows: (i) The Admiralty marshal's charges and expenses are a first charge on the proceeds of sale and will be paid out in priority to any other claim. ... (ii) After the expenses of the marshal have been satisfied, priority is granted to the original arresting party in respect of the costs of his action up to and including the arrest and the costs of the party who obtained the order for appraisement and sale up to and including the date of the making of that order. … (iii) A claim with a maritime lien ranks first and has priority over all other types of claim. … (iv) Claims by mortgagees; ... (v) Claims of others entitled to proceed in Admiralty in rem will be subject to maritime liens and mortgages but will have priority over general creditors of the shipowner, except those who have perfected their execution prior to the issue of the writ in rem. (vi) The claims of in personam creditors of the owner and of the res will be last, having no priority. (vii) The owner of the res is entitled to the balance remaining, if any.
In Sam Hawk at [79] per Allsop CJ and Edelman J in obiter the position was described as follows: In Australia, there is a well-recognised order of ranking, but it is one that is capable of flexible variation by reference to equity, public policy, commercial expediency and justice: see generally [Thomas DR, Maritime Liens (Stevens & Sons, 1980)] at p 234 [418]; Yacht Carbonnade v Ship Ruta [2000] CLC 78; [Davies M and Dickey A, Shipping Law (3rd ed, LawBook Co, 2004)] at p 114; and [Derrington SC and Turner JM, The Law and Practice of Admiralty Matters (2nd ed, Oxford University Press, 2016)] at pp 187-204 [8.01]-[8.54]. See also Patrick Stevedores No 2 Pty Ltd v Proceeds of Sale of Vessel MV Skulptor Konenkov (1997) 75 FCR 47. Yet as Thomas observes (at p 234 [418]) this flexibility of values "is not however to suggest that the law is capricious, erratic or unpredictable. Arising from the 'value' framework within which the Courts operate there have emerged various principles which are capable of providing reliable signposts to the likely attitude of the Courts". Similarly, in ABC Shipbrokers v Ship Offı Gloria [1993] 3 NZLR 576 at 582, Holland J said that although the priority rules are not immutable, they "should not be varied or not applied unless the circumstances are exceptional and equity demands such a course to be taken".
In The Pickaninny [1960] 1 Lloyd's Rep 533 - an unfortunately named vessel - at 537, Hewson J said that there would have to be very strong reliable evidence before a court could upset the normal run of priorities and that the court must be slow to depart from the usual order of priorities.
The exposition by Belinda Ang Saw Ean J in The Posidon [2017] SGHC 138; [2017] 2 Lloyd's Rep 390 at [23]-[27] is to the same effect. The parties before me accept it as correctly reflecting the state of the law to be applied.
All three claimants in this case rank together in the same class, ie class (v) as identified and numbered in the quotation at [133] above. Thus, the question becomes whether there is reason to disturb the prima facie ranking of those claims pari passu "by reference to equity, public policy, commercial expediency and justice" or because "the circumstances are exceptional and equity demands such a course to be taken."

[40]

F.2.3 Owner always goes last

DB and AGE submit that SH, as owner, is not a "real creditor in the priority sense" - its interest in the residual proceeds as owner should rank last as a matter of ordinary principle and practice. They cite authorities that say that the claim of the owner of the res comes last. However, as captured in the quotation from Sheppard J at [133] above, that is a reference to the owner's residual claim, ie its claim as owner for whatever is left after all claims have been paid. Importantly, it is claims that are ranked according to their priority, not claimants. A particular claimant may have different claims in different classes. Although SH is the owner, its claim in respect of which I entered judgment is not its claim for the residue after all other claims have been paid. Its claim is one which, as I have found, can be exercised as a statutory right in rem under s 18 of the Act. That is the nature of the claim to be ranked. It ranks pari passu with the other claims within the same rank.
As I explained at the outset, at first blush it may seem odd that the owner of the vessel can participate in the fund pari passu with other creditors and not only in respect of any residue after all other creditors have been paid. But if one is to give s 18 of the Act its ordinary meaning and scope, an owner can arrest its own vessel to satisfy a claim that it has against a demise charterer, and if it can do that there seems to be no reason in principle why such a claim should not enjoy its ordinary ranking along with other statutory lien holders. DB and AGE's characterisation of that position as anomalous, or AGE's characterisation of SH being in a unique position of advantage - it could choose when to terminate the charter and in the meantime accumulate an ever-increasing claim enforceable against its own vessel draining any remaining equity in the vessel long after its arrest to the prejudice of the arresting party and other creditors - really amounts to a policy argument in support of an amendment to the Act. Applying the Act, as I must, I do not see that those contentions rise to the level of justifying alteration of the prima facie order and ranking of priorities.

[41]

F.2.4 Marshalling

DB also submits that SH's claim is subject to the doctrine of marshalling. It refers to Miles v Official Receiver in Bankruptcy [1963] HCA 24; 109 CLR 501 at 510-511. There, citing Lord Eldon in Aldrich v Cooper (1803) 8 Ves Jun 382; 32 ER 402 it was said that if a party has two funds, a person having an interest in one only has a right in equity to compel the former to resort to the other if that is necessary for the satisfaction of both. Also, citing Sir William Grant MR in Trimmer v Bayne (1803) 9 Ves Jun 209; 32 ER 582 at 211, it was said that "a person having resort to two funds shall not by his choice disappoint another, having one only." DB submits that SH had access to other "funds", being the ability to call on its securities referred to in the charterparty as identified above, whereas DB (and presumably also AGE) have no such access, and for that reason SH's claim should be subordinated.
It would appear that the juridical basis for marshalling as an equitable doctrine, and its application, are uncertain and that "the coercion theory" by which a court would require the double claimant (ie the one with more than one fund or other security to claim against) to claim against one fund so that the single claimant would not lose out is merely an historical curiosity: Turner PG, Heydon JD and Leeming ML, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, LexisNexis, 2014) at [11-005]-[11-025]. Be that as it may, the principal difficulty facing DB's submission is that there is no evidence before me as to the value of SH's securities under its financing arrangements including the bareboat charterparty. In particular, it is not known whether the guarantors are good for their guarantees, and it therefore cannot be said that SH has two "funds" to choose from. Also, the securities may already have been called on and their proceeds used to discharge SH's debt to the mortgagee which discontinued its claim against the fund presumably because it was paid. These matters are simply not canvassed in the evidence.
DB seeks to meet that difficulty by submitting that it was up to SH to prove the necessary facts with regard to the value of its securities, but I do not think that that is correct. In written submissions at an early stage to assist with case management (dated 7 November 2023), DB floated the possibility of the application of marshalling. That was, however, insufficient to put SH on notice that there was to be a case advanced based on marshalling. Then in written submissions specifically for the priorities hearing (dated 22 May 2023), DB stated that a claim under the doctrine of marshalling was "not before the Court in a formal sense." One might have thought that that made it clear to SH that the marshalling point was not being "formally" advanced, which is to say that it was not being advanced at all since the Court is not moved by informalities. DB nevertheless advanced oral closing submissions in support of the point, requesting that a line be drawn through what had been said in the written submissions about the claim not being before the Court in a formal sense (T132:18-46). That was all well and good, but it was too late at that stage to put SH on notice to adduce evidence on the point.
If DB wished to make a case on marshalling it was up to it to give formal notice of the point and then to procure the necessary evidence, including by notices to produce served on SH or requiring SH to discover relevant documents. It failed to do that. It also elected not to cross-examine SH's witnesses, Qin Heng and Qin Xiaojun, who can be expected to have had personal knowledge of the relevant facts. Having made those forensic choices, DB must live with them: Hako Endeavour at [47].
There is another difficulty, which is that the doctrine of marshalling requires that both funds are within the control of the court or that the right of the single claimant is subrogated to the claim of the double claimant against the second fund: Meagher, Gummow & Lehane at [11-090]; Evans M, Power T and Power J, Equity and Trusts (5th ed, LexisNexis, 2024) at [22.12]; Commonwealth Trading Bank v Colonial Mutual Life Assurance Society Ltd [1970] Tas SR 120 at 128 per Neasey J; Naxutu Pty Ltd v Perpetual Trustee Company Ltd [2012] FCAFC 163; 207 FCR 502 at [71]-[72] per Dowsett J, Yates J agreeing; Sterling & Freeman Advisory Pty Ltd v Callisi Pty Ltd [2024] VSCA 105 at [29]-[39] and [70] per Ferguson CJ, Kennedy and Lyons JJA. Neither of those requirements is met in the present case.
In the circumstances, there is no basis for the application of the doctrine of marshalling and DB's submission in that regard must be rejected.

[43]

F.2.6 The owners' implied consent

DB submits that by placing its vessel at the disposal of YF under the demise charter, SH had given implied consent to YF to contract for necessaries such that the claim in respect of those necessaries should rank ahead of its own claim. This was said to be analogous to the principle in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 that a person who is liable to contribute to a fund such as a deceased estate, trust fund, or insolvent estate, cannot take part in the net assets of that fund without first contributing to it. It was said that in this case the requisite contribution would be in the form of discharging liabilities accrued with its implied consent.
The rule as formulated by Sargant J in In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 at 150 is "that where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute." The decision was affirmed in the Court of Appeal: In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 442. See also Herskope v Perpetual Trustees (WA) Ltd [2002] NSWCA 153; 41 ACSR 707 at [4] per Sheller JA, Beazley JA agreeing.
The rule simply has no application in the present case, which is also not relevantly analogous. SH has no duty to contribute to the fund, and it gave no implied consent to YF to contract for necessaries on its account. As is standard with a bareboat charter, it was the obligation of YF as charterer to purchase and pay for bunkers for its operation of the vessel. DB's position was protected by s 18 of the Act, which protection it exercised by commencing its proceeding against the vessel, arresting it, obtaining judgment, having it sold and claiming against the fund. SH had the same rights under s 18, which it exercised in a similar way.
The effect of DB's argument on this point is that as a necessaries claimant it should enjoy the priority of a maritime lien holder, yet it is clear that in Australia a necessaries claim, including for the supply of bunkers, does not give rise to a maritime lien: Shell Oil Co v Ship Lastrigoni [1974] HCA 27; 131 CLR 1 at 3-4.
DB's submission must be rejected.

[44]

F.2.7 The Yangtze Harmony

AGE sought to make something of the apparently parallel position of the Yangtze Harmony, going so far as to submit that with SH owning both the Yangtze Fortune and the Yangtze Harmony at the material time, SH failed to adduce adequate evidence as to certain issues going to whether SH should be granted judgment. I have dealt with that above, but those issues also seem to be relied on in AGE's submission that "the equities are not in favour of SH." In particular, AGE submits the following: Relevantly SH (AVIC): (a) at all material times acted as a 'notional' ship owner; (b) took no steps during the Pre-Arrest Window to protect its imperilled asset; (c) failed to act upon multiple termination events and terminate the Finance Lease; (d) triggered its hell or highwater clause to allow hire to accumulate notwithstanding the arrest of the Vessel on 2 December 2022 and YF's asserted impecuniosity; (e) failed in the Pre-Arrest Window to mitigate its losses and withdraw the Vessel from charter and re-take possession notwithstanding the Vessel's availability for redelivery; (f) filed an appearance in these proceedings on 1 February 2023 whilst allowing hire to continue to accrue and not promptly issue a writ or serve the Vessel; (g) failed to issue its writ and terminate the Finance Lease until the 11th hour, on 10 March 2023, four days prior to the Vessel's sale; and (h) allowed the deterioration of the Vessel whilst under arrest; and the erosion of the security that it offers to creditors by the mounting costs of maintaining it while under arrest.
I have given each of those matters full consideration, but I fail to see how they shift the dial in any material way on the question of priorities. I have dealt with the "notional" shipowner point above in considering SH's right to judgment. There was nothing notional about it; SH was the registered owner. It is true that the reason for that was to facilitate a broader set of financing arrangements, but it could alternatively, and perhaps more conventionally, have lent to YF as owner and taken a mortgage as security. In that event SH would have ranked ahead of AGE and DB. I fail to see any injustice arising from the ownership and lease-back arrangements.
The reference to the "hell and highwater" clause in AGE's point (d) is a reference to cl 38.4 which is summarised at [46] above. It is simply incorrect that SH "triggered" that clause. There is no basis on which it might be said that the vessel was or should have been considered to be off-hire but for that clause. Under the standard BARECON 2001 cl 11, hire would have been payable by YF to SH right up to the termination of the charter. SH did not claim against the fund the Termination Sum, being the amount of the unpaid hire to the end of the 96-month charter period, which by the terms of the charter it was entitled to claim from YF after terminating the charter for a Termination Event. See [42] and [51] above. There is nothing inequitable in SH claiming from the fund the three overdue instalments as at the time of termination.
The remaining points sought to be made by AGE in the quoted extract above (at [159]) have already been dealt with.

Dan-Bunkering (Singapore) Pte Ltd v The Ship Yangtze Fortune

At a glance

Court

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Judgment (46 paragraphs)

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Legislation Cited (4)

Cases Cited (23)

Cited By (1)