Mitsui O.S.K. Lines Ltd v The Ship: Yangze 22 [2025] FCA 563

(a) on 21 January 2025, Nebula applied to the Shanghai Maritime Court to constitute a limitation fund for maritime claims (excluding personal injury) arising from the collision, in the sum of approximately USD 9 million;

(b) on 24 January 2025, Nebula also applied to the Shanghai Maritime Court seeking pre-litigation seizure of the Vega Dream and an order that Protea Navigation provide a guarantee of RMB 200,000,000, which orders were made on 13 February 2025;

(c) on 13 February 2025, Protea Navigation commenced proceedings in the Singapore High Court against Nebula seeking damages arising from the collision and a declaration of indemnity, which proceedings were stayed and later discontinued;

(d) on 21 February 2025, the plaintiffs lodged an objection with the Shanghai Maritime Court asserting the collision was caused by the fault of Yangze 22 and, on 27 February 2025, a Chinese insurer provided a letter of undertaking to the Shanghai Maritime Court in the amount of RMB 200,000,000 on behalf of the plaintiffs;

(e) the Vega Dream was released from seizure by order of the Shanghai Maritime Court on 5 March 2025;

(f) on 18 March 2025, the claim brought by Nebula against the plaintiffs claiming damages of RMB 157,130,000 plus interest was accepted for filing in the Shanghai Maritime Court.

1. The principles for fixing security in the case of a vessel under arrest are uncontroversial. They may be summarised as follows:
   1. It is the usual practice of Admiralty Courts that an arrested ship will only be released on the provision of sufficient security to cover the plaintiff's reasonably arguable best case plus interest and costs, assessed on a standard basis: The "Moschanthy" [1971] 1 Lloyd's Rep 37 at 44; Freshpac Machinery Pty Limited v Ship "Joanna Bonita" (1994) 125 ALR 683 at 686-687.
   2. Admiralty Courts are often satisfied that it is appropriate to accept letters of undertaking or other security from protection and indemnity (P&I) clubs, as well as from insurance companies, even where such clubs or companies are foreigners in the jurisdiction: Navios International Inc v The Ship Huang Shan Hai [2011] FCA 895; 194 FCR 468 at [32].
   3. An order to release a vessel without security being given against the wishes of a claimant who has properly exercised the right to arrest is a drastic order that should only be made in a clear case: The "Myrto" [1977] 2 Lloyd's Rep 243; The "APJ Shalin" [1991] 2 Lloyd's Rep 62 at 67.
   4. Nevertheless, the power to insist that a ship remain under arrest unless security of a certain amount is given must not be exercised oppressively: The "Polo II" [1977] 2 Lloyd's Rep 115 at 119; The "Gulf Venture" [1984] 2 Lloyd's Rep 445 at 449; Owners of the Ship "Carina" v Owners or Demise Charterers of The Ship "MSC Samia" (1997) 148 ALR 623 (The Carina) at 628.
   5. If the parties are unable to agree on the sufficiency of the security offered, the Court cannot impose an agreement upon them: The "Alletta" [1974] 1 Lloyd's Rep 40 at 50; The Carina at 630.
   6. There is nothing objectionable in a ship, through its P&I club, proffering a conditional security where there is a challenge to jurisdiction: Tisand Pty Ltd v MV Cape Moreton [2004] FCA 752 at [18]- [19].

1. There is no dispute between the parties that the amount of the LOU is appropriate, nor that there is any risk with respect to a letter of undertaking proffered by Skuld P&I. The issue is whether certain conditions contained in the LOU render it an inadequate substitute security for the ship.
2. The LOU is Annexure NPC-3 to the Cecil Affidavit and is in the following terms:

In consideration of the Claimants releasing from arrest "Yangze 22" IMO 9958212 and refraining from taking action resulting in the further arrest of the "Yangze 22" IMO 9958212 or any other ship or property in the same ownership, associated ownership, management, possession or control for the purpose of founding Jurisdiction and/or obtaining security for the Claim of the Claimants against Nebula Shipping Pte Ltd, the registered owner of the "Yangze 22" IMO 9958212 at all material times ("the Shipowners"), we Skuld Assuranceforeningen Skuld (Gjensidig) Hong Kong Branch ("the Club"), hereby undertake to pay to the Claimants such sums:

1. as may be agreed in writing between the Shipowners and the Claimants; or

2. as may be adjudged by a final, unappealable, enforceable judgment of a Court of competent jurisdiction,

provided that the total sum of our liability hereunder shall not in any circumstances exceed, subject to what is provided below, a total of USD 25,375,672.00 inclusive of interest and costs.

And for the consideration aforesaid, we hereby warrant that we are informed by the Shipowners that the "Yangze 22" IMO 9958212 was not demise chartered at any material time.

This letter of undertaking is furnished without admission of liability and without prejudice to any rights, defences, immunities or limitations which the Shipowners may have, none of which are regarded as waived.

Subject to the paragraph below, this letter of undertaking will remain valid until such time as it is returned to us for cancellation or until all Australian appeal proceedings relating to the Claim have been finally determined, whichever is the earlier.

For the avoidance of doubt, the Claimants' rights to call for payment under this letter of undertaking shall automatically expire in the event that:

1. the Shipowners establish a limitation fund in any jurisdiction and it is either:

i. ordered by a Court of competent jurisdiction; or

ii. agreed in writing between the Shipowners and the Claimants

that the Claimants' claims in the Proceeding are limitable and (if so) to the extent those claims are limitable and may be brought against the limitation fund established by the Shipowners;

OR

2. the arrest of "Yangze 22" IMO 9958212 in the Proceeding is set aside.

OR

3. The Proceeding is withdrawn or dismissed.

We confirm that nothing contained in this letter of undertaking shall derogate from the rights of any party to seek such relief as may be available to them to reduce the quantum of security provided herein.

Specifically, this letter of undertaking shall in no way affect the rights of the Shipowners to contend that the arrest of "Yangze 22" IMO 9958212 was unjustified, that the arrest of "Yangze 22" IMO 9958212 ought to be set aside, that the Proceeding should be stayed, that the Proceeding should be dismissed, that the letter of undertaking ought to be discharged and/or that you were not entitled to security in the amount of this undertaking.

The Club shall not be obliged to make any payment under this letter of undertaking if provision of such payment would be a breach of any applicable sanctions (including but not limited to EU, US, Australia) ("Applicable Sanctions").

This letter of undertaking shall be considered automatically null and void if the fact of its provision itself represents a violation of Applicable Sanctions.

This letter of undertaking shall be governed by the laws of New South Wales, Australia and any dispute arising hereunder (including but not limited to determining whether any payment under this letter of undertaking would amount to a breach of Applicable Sanctions and/or the provision of the letter of undertaking itself represents a violation of Applicable Sanctions) shall be submitted to the exclusive jurisdiction of the Federal Court of Australia.

1. The plaintiffs' primary objection to the terms of the LOU is to paragraph 1 of the following section of the document, which is marked up to reflect the position the plaintiffs submit would be acceptable:

For the avoidance of doubt, the Claimants' rights to call for payment under this letter of undertaking shall automatically expire in the event that:

1. the Shipowners establish a limitation fund in any jurisdiction in Australia under the LLMC Act, and the claims are found or agreed to fall within Art 2 of the 1976 Convention made to have the force of law in Australia by the LLMC Act, s 6.and it is either:

i. ordered by a Court of competent jurisdiction; or

ii. agreed in writing between the Shipowners and the Claimants

that the Claimants' claims in the Proceeding are limitable and (if so) to the extent those claims are limitable and may be brought against the limitation fund established by the Shipowners;

OR

2. the arrest of "Yangze 22" IMO 9958212 in the Proceeding is set aside by the Federal Court of Australia on the basis that the arrest was not lawfully made.

1. The proposed amendments to paragraphs 2 and 3 are immaterial for present purposes. They are not matters that bear upon the sufficiency of the security proffered. As to paragraph 2, having been commenced in this Court, this proceeding can only be set aside by this Court. The additional words sought by the plaintiffs add little. The plaintiffs submit that the word "withdrawn" in paragraph 3 is unclear. I infer it embraces discontinuance. That may have a different connotation for Nebula than the word "dismissed." That is a matter for the parties to negotiate, not for me to impose an alternative form of wording.
2. The plaintiffs also proposed an amendment to the effect that the liability of Skuld P&I under the LOU "may be increased upon application to the Federal Court of Australia if the Claim (including interest and costs), on your best arguable case, is likely to be more than this amount." There is always the possibility for either party to apply to the Court for a variation to the security. In circumstances where the parties are agreed that the sum specified in the LOU is appropriate, the proposed amendment was not seriously pressed on this application. Counsel for the plaintiffs described this amendment, and those to paragraphs 2 and 3, as "peripheral matters."
3. By contrast, the proposed amendments to paragraph 1 are said to be "core". The plaintiffs submitted they would be at risk of the LOU simply "expiring" should a "limitation fund" - whether or not as provided for in the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC) - be established in any jurisdiction, whether or not a State Party to the LLMC, and whether or not the plaintiffs participate in the fund or obtain any compensation under the fund.
4. In this context, it is important to recall that the overriding purpose of the LLMC, implemented in Australia by the Limitation of Liability for Maritime Claims Act 1989 (Cth) s 6, is "to provide for the quantification of a shipowner's maximum liability in respect of a particular occurrence and for the enforcement of that liability against a single source of security, its geographical scope is confined to State Parties both in relation to the constitution of the limitation fund and in relation to the release of additional security (in the form of a ship or other property arrested or attached or any security given) which is 'within the jurisdiction of a State Party'": ICL Shipping Limited v Chin Tai Steel Enterprise Co Ltd [2003] EWHC 2320 (Comm); [2004] 1 Lloyd's Rep 21 at [44]. In circumstances where there is no dispute that the People's Republic of China is not party to the LLMC, the amendment sought to paragraph 1 by the plaintiffs is readily explicable.
5. Nebula contended that the LOU would remain responsive to any claims that are not limitable, and to the extent that the claims are not recovered, in another jurisdiction where a fund has been established (emphasis added). Senior Counsel for Nebula posited that if a limitation fund were established by the Shipowners in China for say $12 million, and the plaintiffs were the only claimant on that fund and so recovered $12 million against the fund, then "the value of this LOU would drop by $12 million because [the plaintiffs] had recovered on a fund elsewhere. That's all it does."
6. With respect, I am unable to read the plain wording of the LOU as having that effect. On its plain reading, the plaintiffs' right to call for payment under the LOU "automatically expires" in the event that a limitation fund is established in any jurisdiction and it is either ordered or agreed that the plaintiffs' claims in this proceeding are limitable and may be brought against the fund so established. The LOU says nothing about the value of the LOU being reduced or otherwise varied in that event; it is said to expire. The plaintiffs would therefore be left with nothing should this condition be met, contrary to their current position where they have the ship.
7. An example of an LOU which may have had the effect for which Nebula contends was given by Skuld to procure the release of the Xin Tai Hai in 2012: Atlasnavios Navegacao, LDA v The Ship "Xin Tai Hai" [2012] FCA 715; 291 ALR 795. It provided (at [11]):

This letter of undertaking is provided under protest and is made without prejudice to, or waiver of, any rights of the owners of the above ship or the above ship, including to limit their liability, to apply to have the arrest set aside or for the proceedings to be stayed in accordance with their application in Federal Court of Australia Proceedings No, NSD 1941 of 2011 filed 3 May 2012 (as amended) and for the security to be discharged or reduced by a competent court of Australia, including by reason of the receipt by the plaintiff of monies from the limitation fund established in the Qingdao Maritime Court, provided that nothing contained in this paragraph shall preclude any proceedings or applications being brought by the owners of the above ship or the above ship either in Australia or any other jurisdiction. In the event that a competent court of Australia orders, or the parties otherwise agree, for the security to be discharged, then the security is not effective and this letter of undertaking is to be immediately returned. In the event that a competent court of Australia orders, or the parties otherwise agree, for the security to be reduced, the sum referred to in the above paragraph is deemed to be reduced by such amount as ordered or as agreed.

(Emphasis added.)

1. I am not persuaded that the LOU can be construed in the manner urged by Nebula and, as such, it does not provide the plaintiffs with sufficient and reasonable security.

1. For these reasons, I decline to order the release of the Yangze 22 from arrest. The defendant is to pay the plaintiffs' costs of the application, to be taxed if not agreed.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Sarah C Derrington.