1. For millennia, man has sailed in ships to the corners of the known world. Those journeys, at least when undertaken peacefully,
almost always involved some trading activities, even if their purpose was simply to victual the ship for the return voyage. In these
endeavours, the ships and their masters incurred debts to foreigners far away from their home jurisdictions. From these beginnings
Professor William Tetley states that the Island of Rhodes had begun to develop an unwritten lex maritima by the 9th or 8th centuries BC. Prof Tetley noted that this led, first, to the Digest of Justinian recording some principles of sea
law and later to Rhodian sea-law scholars in Byzantium, formulating provisions dealing with maritime liens and ship mortgages.
2. The great English commercial judge, Lord Mansfield CJ said in 1759:
"… the maritime law is not the law of a particular country, but the general law of nations."
3. Over time, each major maritime jurisdiction has developed its own, adapted, legislative and judicial regimes for dealing
with matters of Admiralty. Lord Halsbury LC stated that the English and Scottish Admiralty law was derived from the laws of Oleron,
supplemented by the civil law. This law established principles and rules for dealing with various categories of claims that could
be enforced against the ship itself – the action in rem – and the person, usually the owners, by their agent the master, who incurred the liability – the action in personam. There is, remarkably, a distinct and relatively international legal system that today enforces maritime claims, as can be seen from
Judge Wang’s paper. In his 2009 William Tetley Lecture at Tulane University, Justice Allsop said:
"As Professor Tetley makes clear the varied arrangements of different legal systems through the maritime lien, the action in rem, the action in personam and maritime attachment have the effect of creating a coherent and harmonised (though not uniform) system of enforcement of maritime
claims. Personal claims are transformed by the exercise of maritime jurisdiction by maritime courts into secured claims over defined
and quarantined property, taking their ranking by reference to well-known harmonised rules, regulated in part by international conventionand
in part by the general law."
4. In general, the presence of a ship is what enlivens jurisdiction in Courts of Admiralty. This may be the only local connecting
factor. So, Admiralty jurisdiction can be exercised by courts of the forum in proceedings brought by one foreigner against another
equally foreign party. A number of international conventions may be relevant to resolving issues that arise in disputes involving
ships and Admiralty, particularly the 1952 Arrest Convention (International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships, Brussels 1952). However, that Convention does not represent or constitute customary international law. In addition, the more recent Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (UNCITRAL) may be added to the list.
5. Once sea trading developed, multinational business followed. Early examples were the British East India Company and its
Dutch counterpart. And, in time, as we know, international trade and commerce expanded beyond the transactions involved with sea
trading. With the ever expanding reach of multinational corporations came multinational insolvencies.
6. In more recent years, and even before the adoption by many common law jurisdictions of the Model Law some degree of international
co-operation in corporate insolvency has been achieved by judicial practice. This was exemplified in In re HIH Insurance Ltd. There, the House of Lords held that under s 426 of the Insolvency Act 1986 (Imp) a liquidator in an ancillary winding up could be directed by the Court of that jurisdiction not to apply the local law for
distribution but instead to remit the assets to the principal liquidator for distribution to all creditors according to the rules
for distribution in the jurisdiction of incorporation. Today, the Model Law on Cross-Border Insolvency has rationalised and systemised insolvent administrations in more than one jurisdiction. It represents an attempt to impose a "universalist"
approach on cross-border insolvencies. And the approach of their Lordships was acknowledged and emulated by Judge Glenn in a recent
decision recognising the primacy of Danish proceedings under the Model Law in the insolvency of a Danish shipowner
7. Over the centuries, individual nations and their courts have developed Admiralty and maritime law to provide a suite of
measures offering practical, and local, recourse against the ship itself, in addition to her owners and others interested in the
voyage. This is achieved by the two distinct procedures of an action in rem and an action in personam. The most powerful and unique remedy is, of course, the action in rem. It is the signature of Admiralty jurisprudence. In it, the res (ship or other property) is itself the defendant so as to answer for liabilities incurred in respect of its operation. I will leave
to one side other aspects such as the extension of liability of the res to answer for a sister or surrogate ship.
8. In an illuminating judgment, Binnie J writing for the Supreme Court of Canada, discussed the development of Admiralty
law as follows:
"25 Shipping was one of the earliest activities that required international cooperation in the regulation of the rights and obligations
of its participants. "For the cradle of our maritime law we must turn to the Mediterranean Sea where the sea commerce has had a continuous
history for nearly five thousand years": Benedict on Admiralty (7th ed. (loose-leaf)), vol. 1, at p. 1-4; and see generally W. Tetley, Maritime Liens and Claims (2nd ed. 1998), at pp. 7-8. Maritime lawyers were forced to confront the need for rules to govern international commerce centuries
before the "universalist approach" became a key issue in bankruptcy. Seamen, salvors, ship chandlers, repairers and other suppliers
of essential goods and services to the ship in foreign ports required some assurance of payment. They looked to the ship. Common
rules were essential because suppliers dealt with ships from many countries and the Masters found themselves in distant ports in
an age when communications with ship owners were slow and unreliable. In maritime commerce, "rules of practical convenience commanding
general assent are a virtual necessity": Laane and Baltser v. Estonian State Cargo & Passenger Steamship Line, [1949] S.C.R. 530, per Rand J., at p. 545. See also: Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683, at p. 695. Practicality required an in rem proceeding against the ship as distinguished from an in personam action against the shipowner. The need for predictability and uniformity was so strong that even the common law courts, ever protective
of their own ways, ceded jurisdiction to specialized courts of admiralty applying a largely international law of maritime commerce.
As Professor Tetley, supra, writes, at p. 56:
[M]aritime law as we know it today is civilian in nature, finding its source in the lex maritima (the law maritime) which is a part of the lex mercatoria (the law merchant). Maritime law was codified, international law and, in England, it was apart from, and opposed to, its nearly mortal
enemy, the common law.
26 The in rem interest in ships took many forms, some created by statute, others by mortgage, still others by possession. One of the most ancient
and effective forms of security was (and is) the maritime lien."
9. The legal theory underpinning how arrest, "provisional arrest", maritime attachment or, as the French say, "saisie conservatoire"
operates, varies from jurisdiction to jurisdiction. But such arrests, as I will call them, are different from steps taken to enforce
judgments by execution after judicial determination of parties’ rights in an action: i.e. attachment, as English law would describe
it, or "saisie exécutoire" as the French would. The 1952 Arrest Convention was drafted to reflect the more limited English conception of the right to arrest a ship as security for the categories of claims
capable of being brought as proceedings in rem. Australian and English law draw on, but are not governed by, the provisions of that convention.
The Australian Position in Admiralty
10. As most people are aware, Australia is surrounded by sea. For most of the last 200 years it has been engaged in very
substantial sea trading, exporting primary products such as wheat, wool and a variety of minerals like coal and iron ore. Australia’s
Constitution conferred power on its federal parliament to make laws in any matter of Admiralty and maritime jurisdiction. This power
was used to support the enactment of the Australian Admiralty Act 1988 (Cth). That Act is based on a scholarly and comprehensive report on Civil Admiralty Jurisdiction prepared by the Law Reform Commission in 1986.
11. Broadly the Act recognises that proceedings in rem can be brought in respect of:
(1) proprietary maritime claims, being ones concerned with ownership of ships or other interests in ships or their freight and enforcement
of judgments;
(2) general maritime claims, being claims in 22 categories of liability including claims for damage done by a ship, damage to cargo,
claims for freight, salvage, general average, towage, repair, crew wages, disbursements on account of the ship by the master, charterer
or agent and significantly, for the enforcement of arbitral awards;
(3) maritime liens, such as liens for salvage, damage done by a ship, wages of the master or crew members and master’s disbursements.
12. The Admiralty Act expressly provides, in s 29, for one further purpose to be served by an arrest when proceedings have been properly commenced in rem. This recognises the crucial role of arbitration as a servant of international maritime trade and commerce. A ship or other property
under arrest, or security put up for its release, can be retained by the Court as security for the satisfaction of any arbitral award
as well as any foreign judgment.
13. Critically, the Admiralty Act maintains the distinction between proceedings in rem and those in personam when it provides in s 31 for the differential consequences of judgments against, first, the ship or other property (which are limited to their value) and,
secondly, against a defendant who has entered an appearance and would be personally liable if sued in proceedings in personam. Next, s 36 provides that the power to arrest a ship under the Admiralty Act overrides the powers in all other laws, including Australian State or Territory laws, to detain the same ship in relation to a civil
claim that may be commenced as an action in rem, even when it has been detained prior to the arrest.
The Australian Cross-Border Insolvency Act and Model Law
14. The Cross-Border Insolvency Act gives the force of law in Australia to the Model Law, as affected by that Act. The Model Law both supports and supplements the Bankruptcy Act 1966 (Cth) and most of Ch 5 of the Corporations Act 2001 (Cth). As most ships likely to be involved with cross border insolvency issues will be owned by companies, not individuals, I will
discuss the Model Law questions in respect of corporations.
15. It is important to appreciate that the Model Law and the relevant provisions of the Corporations Act are concerned with an insolvent debtor whose assets and liabilities are to be administered. The functions of the Federal Court of
Australia and the Supreme Courts of the States and Territories under Art 4 of the Model Law, relating to recognition of foreign proceedings
and co-operation with foreign courts, include attaining objectives of the Model Law, such as the fair and efficient administration
of cross border insolvencies that protects the interests of all creditors, the debtor and any other interested persons and the protection
and maximisation of the value of the debtor’s assets.
16. A foreign representative, such as a liquidator, can apply to an Australian Court for recognition of foreign judicial
or administrative proceedings under a foreign State’s laws relating to insolvency that place the assets and affairs of the debtor
under the control or supervision of a foreign court for the purpose of re-organisation or liquidation. A foreign main proceeding
is one that takes place in the State where the debtor has the centre of its main interests. Unless there is proof to the contrary,
Art 16(3) provides that the centre of the debtor’s main interests is presumed to be its registered office (or, in the case of an
individual his or her habitual residence). This may be of significance for creditors with claims against a ship owned by a company
with a registered office in a country that permits the ship to fly a flag of convenience. Under the Model Law, other foreign proceedings
are ones in States where the debtor has an "establishment" being a place where it carries out a non-transitory economic activity
with human means and goods or services.
17. A distinction between the legal personality of the debtor and the debtor’s assets is fundamental to the operation of
the Model Law. The question arises how those two distinct concepts interact with proceedings in rem. Such proceedings have, at least, the effect of treating the res as the, or a, debtor.
18. Once proceedings are filed for recognition of a foreign proceeding, the Model Law provides important consequences. First,
the Court can grant provisional or interim relief, including, orders staying execution against the debtor’s assets, staying the commencement
or continuation of proceedings concerning the debtor’s assets, rights, obligations and liabilities and entrusting the administration
of the whole or part of the debtor’s affairs located here to the foreign representative or someone else.
19. Secondly, once a foreign main proceeding is recognised, usually, a stay is imposed by Art 20 against the commencement
or continuation of any proceedings concerning the debtor’s assets, rights, obligations and liabilities. There is also a stay preventing
execution against any of its assets. In addition to that automatic stay, Art 21 provides:
"Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests
of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:
(a) Staying the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights,
obligations or liabilities, to the extent they have not been stayed under paragraph 1 (a) of article 20;
(b) Staying execution against the debtor’s assets to the extent it has not been stayed under paragraph 1 (b) of article 20;
…"
20. Australia used its powers under Art 20(2) to apply the existing provisions of the Corporations Act as conditions relating to the scope, modification and termination of the automatic stay of proceedings against the debtor company.
Broadly speaking, the likely result of an Australian Court giving recognition to a foreign main proceeding under Art 20 is that proceedings
and enforcement processes against the debtor and its assets will be stayed. However, the Court then has a wide discretion to vary
or lift the automatic stay in individual situations. I will consider this issue below in relation to proceedings in rem.
21. The domestic court must also co-operate with foreign courts and representatives, including directly communicating with
them. In some cases, judges have written to their foreign counterparts for the purpose of the proceedings.
Administration under Ch 5.3A of the Corporations Act
22. Australian law permits a corporation that is or is likely to become insolvent to go into administration. The purpose
is to enable the corporation, its creditors and the administrator to explore whether some re-organisation of the debtor would preserve
it or its business or as much of these as possible. And, if that were not possible, they would explore how to obtain the best return
to the creditors in a winding up. All of this occurs within a tight time frame, usually within about two months, although the Court
can extend the time.
23. During this period ss 440D and 440F of the Corporations Act impose a very broad stay, retraining both secured and unsecured creditors from proceeding against the debtor and any of its property
except with the leave of the Court. And, creditors cannot enforce their guarantees against directors of the debtor or their spouses,
de factor spouses or relatives The statutory purpose of restraining secured creditors in this way is to facilitate the possibility
of the creditors reaching an overall solution that can employ the debtor’s most significant and valuable assets: i.e. the assets
most likely to be given as security to creditors. In addition, Div 7 of Pt 5.3A contains a number of exceptions protecting secured creditors from the automatic stay.
Winding Up under the Corporations Act
24. The other major form of resolving a corporate insolvency in Australia is by a winding up of the debtor. The Corporations Act creates an automatic stay once the Court orders, or the creditors or members resolve, that the company be wound up. The stay prevents
the commencement or continuation of proceedings against the company except with leave of the Court. However, the legislation then
descends into perplexing, and unnecessary, differences between court ordered and voluntary windings up.
25. Where the Court orders a winding up, then, under s 471B, proceedings "... in relation to the property of the company" and "enforcement process in relation to such property" are prevented except with leave of the Court. Thus, a ship or proceedings in rem may be affected. However, s 471C provides that nothing in s 471B "… affects a secured creditor’s right to realise or otherwise deal with its security".
26. In contrast, under s 500(1), after the passing of a resolution for a voluntary winding up, any "… attachment, sequestration, distress or execution put in force against the property of the company … is void". However, the Court presumably can grant leave to take or continue such action or proceedings under s 500(2). There does not appear to be any express exception for secured creditors comparable to s 471C in a voluntary winding up.
Debtors, Ships, Assets and Res
27. What justification exists in insolvency situations for treating in rem proceedings with maritime claims and liens differently to ordinary creditor’s claims against their debtors? First, a ship is peripatetic.
Secondly, it is often uncertain who is the owner at any precise time. Shipping registers, such as that maintained in Lloyd’s Registers
of Shipping and of Shipowners are not always reliable, especially since ships can be sold or chartered after the latest update is
provided to the registry. This difficulty has been adverted to by Martin Davies. And the registers are not necessarily conclusive
of who the true owner or charterer is if something occurs to make knowing this important. Thirdly, when a ship calls at a port and
someone, such as a ship’s agent, engages stevedores, orders fuel or necessaries, such as food, or repairs, it is not always clear
for whom that person is acting: the owner or a charterer. Once the ship leaves port with a bill unpaid, obtaining payment from the
person in fact liable is not always easy. Fourthly, shipowners often flag their vessels in places remote from where they do business,
with legal systems that are not always well regarded.
28. The justification for the right to arrest a vessel is that "… ships are owned and trade internationally, and unless a claimant can gain immediate security for a claim he may never have the opportunity
effectively to pursue it" . This doctrine was rationalised in similar terms over a century earlier by Dr Lushington who said "an arrest offers the greatest security for obtaining substantial justice, in furnishing a security for prompt and immediate payment".
29. Lord Simon of Glaisdale observed appositely in a dissenting speech dealing with the principle of "forum non conveniens":
"(8) Ships are elusive. The power to arrest in any port and found thereon an action in rem is increasingly required with the custom
of ships being owned singly and sailing under flags of convenience. A large tanker may by negligent navigation cause extensive damage
to beaches or to other shipping: she will take very good care to keep out of the ports of the "convenient" forum. If the aggrieved
party manages to arrest her elsewhere, it will be said forcibly (as the appellants say here): "The defendant has no sort of connection
with the forum except that she was arrested within its jurisdiction." But that will frequently be the only way of securing justice.
(9) "Forum-shopping" is, indeed, inescapably involved with the concept of maritime lien and the action in rem. Every port is automatically
an admiralty emporium. This may be very inconvenient to some defendants, but the system has unquestionably proved itself on the whole
as an instrument of justice."
30. In Holt Cargo Binnie J identified the sound policy reasons for treating the action in rem as an exception to the universalist approach to cross-border insolvency. His Lordship said:
"27 The reason for this privileged status for maritime lien holders is entirely practical. The ship may sail under a flag of convenience.
Its owners may be difficult to ascertain in a web of corporate relationships (as indeed was the case here, where initially Holt named
the wrong corporation as ship owner). Merchant seamen will not work the vessel unless their wages constitute a high priority against
the ship. The same is true of others whose work or supplies are essential to the continued voyage. The Master may be embarrassed
for lack of funds, but the ship itself is assumed to be worth something and is readily available to provide a measure of security.
Reliance on that security was and is vital to maritime commerce. Uncertainty would undermine confidence. The appellant Trustees’
claim to "international comity" in matters of bankruptcy must therefore be weighed against competing considerations of a more ancient
and at least equally practical international system -- the law of maritime commerce."
31. The practical effect of Admiralty proceedings in rem, of course, in general, stands outside the Model Law’s aspiration for an orderly distribution of an insolvent debtor’s assets amongst
its creditors. This is a new aspect to what one commentator described as a "law war" between Admiralty and insolvency jurisdictions.
Academic commentary on this area of interaction is expanding and earlier this year the Federal Court of Australia held a national
seminar on the topic.
32. But it is hardly surprising that Admiralty jurisprudence has developed a special status for maritime liens and maritime
claims recognised by the lex fori (law of the place of the proceedings). As Professor Tetley has noted:
"[p]re-judgment security is of the highest importance to the maritime creditor, who always faces the threat of being unable to recover
his debt from an impecunious or unscrupulous debtor, if the debtor’s ship –– the main asset on which so many maritime creditors depend
in extending credit –– should sail away without the debt being paid."
The Australian Action in rem
33. The law relating to the nature and incidents of an action in rem in Australia, New Zealand and, seemingly, Singapore is no longer coherent with the law in England since the controversial and conceptually
problematic decision of the House of Lords in The Indian Grace.
34. Following the decision in Comandate, under Australian law an action in rem is an action against the ship and not its owner or demise charterer, at least before a relevant person has entered an unconditional
appearance. Indeed, in Aichhorn & Co KG v The Ship MV "Talabot" Menzies, Gibbs and Mason JJ said:
"In Northcote v. Owners of the "Henrich Bjorn" [1886] UKLawRpAC 19; (1886) 11 App Cas 270 at 276-277 , Lord Watson described an action in rem as follows:
‘The action is in rem, that being, as I understand the term, a proceeding directed against a ship or other chattel in which the plaintiff
seeks either to have the res adjudged to him in property or possession, or to have it sold, under the authority of the Court, and
the proceeds, or part thereof, adjudged to him in satisfaction of his pecuniary claims.’
The essential nature of an Admiralty action in rem is concisely stated by the learned authors of Dicey and Morris: Conflict of Laws,
8th ed. (1967), at p. 214:
‘Its primary object is to satisfy the plaintiff's claim out of the res. For the essence of the procedure in rem is that the res may
be arrested and sold by the court to meet the plaintiff's claim, provided it is proved to the satisfaction of the court.’"
35. Their Honours later observed in passing that the action in rem is not simply against property, but indirectly impleads its owner and that, once an appearance is entered, the action proceeds as
an action in personam. But, as Gibbs J explained in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad", even so, " … it does not cease to be an action in rem:". In The Broadmayne Bankes LJ identified the advantage of the action remaining as one in rem, even when it was proceeding as an action in personam. He said that in an exceptional, but appropriate, case the Court could order the arrest of the ship.
36. Now under the Admiralty Act, there is a distinction in the jurisdiction to proceed in rem on a maritime lien or a proprietary maritime claim on the one hand, and on a general maritime claim, on the other. In the latter
situation, the plaintiff’s title to sue depends upon the existence of a critical jurisdictional fact, namely the identity and specified
capacity of a relevant person at each of the time at which, first, the cause of action arose, and secondly, the proceeding is commenced.
Each of ss 17, 18 and 19 addresses a discrete basis on which the plaintiff may sue. Thus, for example, under s 17 a plaintiff may commence proceedings in rem on a general maritime claim only if, at that time, the owner of the ship or property is the same person who, earlier, when the cause
of action arose, was the owner, charterer or in possession or control of the ship or property.
37. In The Indian Grace, Lord Steyn concluded that, in substance, the owner was always a party to the action in rem as an incident of its commencement, regardless of whether that owner appeared. Allsop J rejected that view in Comandate. He identified a number of criticisms, powerfully demonstrating that the effect of their Lordships’ decision would be to make the
action in rem a once for all procedure that would deny the plaintiff the right to proceed later in personam. This result would prejudice a plaintiff if the owner did not appear in the proceedings in rem and the res, when sold, realised insufficient proceeds, because of its inherent lack of value or because of the need to pay out other claimants.
38. I think too that there is a further conceptual difficulty with the reasoning in The Indian Grace. The mere arrest of the ship does not effect the exercise of jurisdiction over the owner personally. The ship must be present in
the court’s jurisdiction for proceedings in rem to be capable of valid service. There is no "long-arm" jurisdiction for service of a writ of arrest outside the territorial limits
of the court. Ordinarily, a court’s jurisdiction over a person depends upon his or her amenability to being served effectively so
as to be bound by the result in accordance with principles of private international law. Hence, most superior courts have "long-arm"
provisions in their rules enabling process to be served on a defendant in another country or jurisdiction. While a shipowner, or
other relevant person may feel a sense of practical compulsion to enter an appearance after his ship has been arrested in proceedings
in rem, he need not do so. Indeed, as a matter of practical reality, the owner will not appear if by doing so he submits to the jurisdiction
and becomes personally liable for the difference between the value of the res and the judgment sum in the in rem action.
39. The unsatisfactory consequence of The Indian Grace is that it fails to provide a coherent relationship between its putative joinder of the owner by the service of the proceedings in rem in the arrest of the ship and the patent absence of any personal submission to the jurisdiction by a non-appearing owner. That owner
can thus enjoy all of the benefits of a judgment in rem but eschew the detriment of any personal liability for any difference in value between the judgment sum and what the res realises when sold, a point Allsop J tellingly made.
40. Curiously, although most legal systems recognise various categories of claims as giving rise to a maritime lien, as does
s 15 of the Admiralty Act, the concept is not easy to define. Indeed, the learned author of the leading English text DR Thomas: Maritime Liens cited Sheen J’s apposite observation that it was not surprising that a maritime lien had not been defined in legislation "… because it is more easily recognised than defined".
41. The cases acknowledge that a maritime lien attaches to the ship or other property at the time that the circumstance occurs
for which proceedings are later taken in rem to enforce the lien, such as a collision, the rendering of salvage services, the owner’s default in paying the wages of the master
and crew or repaying the master disbursements made on behalf, and with the authority, of the owner.
42. The seminal decision of The Bold Buccleugh characterised a maritime lien as a right or privilege attaching to the res to be carried into effect by a proceeding in rem. The right or privilege, once attached to the res, remains in place and ordinarily it will prevail in proceedings in rem against a ship in priority to subsequent changes in ownership, or mortgages. The lien does not include, or require, the holder of
the right to have possession of the res; rather, it is in the nature of an hypothecation without possession.
43. A person who obtains a maritime lien arising from damage done by a ship anywhere in the world can bring proceedings in
Admiralty in rem against the ship here. So, if negligent navigation of a ship causes damage to another ship on the "high seas" or to property or personal injury to an individual, the person suffering the damage obtains, at that moment, a maritime lien that
attaches to the ship. The maritime lien is for the amount of the damage sustained by the injured party. As a security, that lien
has priority not only over the interest of the ship’s owner, but also over any interest of her mortgages. It may be that this lien
will also take priority over liens for earlier salvage, seaman’s wages and bottomry bonds. But, it is not possible to discuss the
priorities of maritime liens here – indeed the Australian Law Reform Commission eschewed a similar task, leaving the issues to be
decided by courts when necessary.
44. Importantly for present purposes, maritime liens survive the sale of a ship unless the sale is made by the Admiralty
Court. In The Tolten Scott LJ said:
"In my view the law maritime of ‘damage,’ as administered in our admiralty court, vests a right of action in any person, who suffers
an injury anywhere in the world either to his person or to his property, whether movable or immovable, afloat or ashore, when caused
by the maritime fault of the owner of a ship, he being responsible for the acts or defaults of his servants."
45. The reason why the maritime lien for damage by a ship creates such a significant intrusion into the proprietary and security
rights of other persons’ interests in the ship was explained over a century ago by Lord Watson. He said that the policy behind imposing
the lien was that:
"…when a ship is so carelessly navigated as to occasion injury to other vessels which are free from blame, the owners of the
injured craft should have a remedy against the corpus of the offending ship and should not be restricted to a personal claim against
her owners, who may have no substantial interest in her and may be without means of making due compensation."
46. This examination of the nature of a proceeding in rem and a maritime lien sets a context in which to discuss the impact on them of the automatic stay imposed by Art 20 of the Model Law.
Australia, like most nations now, has not limited the protection given to the creditors on their debtor becoming insolvent.
Leave to proceed in rem after insolvency
47. Does a plaintiff seeking to proceed in rem or to enforce a maritime lien need leave of the Court to do so after a debtor goes into administration or begins to be wound up?
In Morris v The Ship "Kiama" Carr J granted leave under s 440D to crew members to seek to enforce their maritime liens and other maritime claims against a ship
owned by a company in administration under Ch 5.3A of the Corporations Act. He said that they should be entitled to establish that they were secured creditors. Carr J held that the principles of Admiralty
law applied and hence the ordinary considerations for granting an exception to the automatic stay under the Act did not govern the
Court’s discretion.
48. A usual object of suing in rem is to obtain security. This is achieved once the arrest is made. Previously under English law, a plaintiff was granted leave to proceed
against a shipowner in liquidation where, before the winding up order was made, he had issued or commenced proceedings in rem. This was to be so even if the ship had not been arrested under the plaintiff’s writ. This is likely to be the same as the Australian
position, as the Australian Law Reform Commission anticipated in its Report. In the United States of America Congress enacted Ch
15 of the Bankruptcy Code in 2005. This largely gave effect to the Model Law. Under §1520 the automatic stay affects secured, as well as unsecured creditors,
like the position that previously existed in England.
49. By issuing proceedings in rem, and before service and actual arrest of the ship, in an insolvency of the shipowner, the plaintiff is treated as a secured creditor
entitled to enforce, at any time, the writ of arrest against his own, not the insolvent company’s, property. In In re Aro Co Ltd Stephenson, Brandon and Brightman LJJ, a strong English Court of Appeal, decided that the holder of a maritime lien ranked as a secured
creditor for the purposes of insolvency legislation. They held that the holder of a maritime lien would be automatically granted
leave to enforce its charge, despite the existence of a winding up order. They held that service of the writ was not necessary to
create or perfect the status of a secured creditor that the plaintiff had obtained merely by commencing the proceedings in rem. This is similar to the result reached independently by Carr J in the "Kiama".
In rem Sales
50. The dogged durability of a maritime lien that has attached to a ship creates important practical consequences for persons
who later seek to deal with her. Indeed, in The Tolten Scott LJ discussed what he described as the interdependence between the Admiralty law concepts of maritime lien and limitation of
shipowners’ liability. He said that Continental European and English law created maritime liens automatically and simultaneously
with the cause of action so as to confer a true proprietary charge on the ship and freight in favour of the creditor.
51. In order to enforce the maritime lien the creditor is entitled to bring proceedings in rem to put into operation what Scott LJ described as the Admiralty Court’s "… function of arresting and selling the ship, so as to give a clear title to the purchaser, and thereby enforcing distribution of the proceeds amongst the lien creditors in accordance with their several priorities,
and subject thereto rateably". Once the Court orders a sale, usually all the creditors come in prove their claims – it is a small industry in that sense.
52. The Admiralty Act contemplates that ships and other property arrested will be sold and the proceeds of sale applied. A sale in an action in rem is, as Scott LJ noted, the only means of passing a clear title to a purchaser. The Court can, of course, order the sale of a ship
or other property pending the final hearing of the underlying claims in the proceedings in rem if it is necessary to prevent wastage of the relevant asset. One example may be where the expense of maintaining the ship, including
employing a skeleton crew, pending resolution of the dispute would diminish whatever value she may eventually fetch. And, of course,
if perishable cargo is involved, a prompt sale may be the only realistic choice to realise any value.
53. What happens if a ship is sold by a liquidator or under an order of a court exercising insolvency jurisdiction such as
under the Model Law? Such a sale does not operate in the same way as a sale by order of the Admiralty Court. The two jurisdictions
deal with changes in status. But, because of the reach and operation of Admiralty law principles, or the general law of the sea,
most jurisdictions recognise the authority of a sale by an Admiralty Court as passing a clear title. Such a title will be free from
maritime liens attached to the ship or other res.
54. In giving a recent judgment of the Second Circuit Court of Appeals in In re Millenium Seacarriers Inc Judge Sotomayor discussed this problem. Her Honour said that in the United States of America:
"… traditional admiralty law principles suggest that only a federal admiralty court acting in rem has the jurisdiction to quiet title to a vessel exclusively by extinguishing its maritime liens."
55. And, of course, the mere fact that a shipowner enters into insolvent administration (such as being wound up) does not
extinguish the maritime lien, any more than it would a mortgage. In Millenium Sotomayor J held that the persons claiming liens had submitted the jurisdiction of the bankruptcy court and were bound by its decision
in relation to those liens. This was because those persons had not arrested the ship before the proceedings commenced in the bankruptcy
court and, they had asserted the validity of the liens before that court. Her Honor noted that this reasoning involved a risk that
a foreign admiralty court may not recognise the efficacy of a sale of the ship in the bankruptcy proceedings as extinguishing the
lien. However, Judge Sotomayor concluded that this was unlikely because the persons claiming the lien had actually submitted to the
bankruptcy court’s jurisdiction. The context of that "submission" appeared to be that the lien holders were asserting that the existence of the liens precluded the bankruptcy court from selling
the ships with a clear title and they had failed to withdraw their appearances when the trial judge offered them the chance to do
so.
56. The Federal District Courts have in rem and in personam jurisdiction over admiralty claims. Similarly to Australia and England, a plaintiff may seek the arrest of a ship under Supplemental
Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure. However, a ship may only be arrested under Rule C to enforce a maritime lien. A plaintiff also may attach any property or garnishee
any debt due to the defendant by a process known as Supplemental Rule B attachment. This permits a plaintiff who has an in personam claim cognisable in admiralty to attach any personal property of a defendant not then present within the District Court’s jurisdiction.
This process resembles the civil law process of saisie conservatoire, and is described as a quasi-in rem action.
57. Until October 2009 Rule B’s ambit was extremely broad and Rule B attachment was used to seize and freeze electronic funds
transfers that passed through any New York bank account instantaneously even though the transfer was only a means of transferring
US dollar money to a defendant’s account elsewhere in the world.
58. The United States District Court for the Southern District of New York had become a lightning rod for such proceedings
so that by early 2009 one-third of proceedings filed there sought Rule B attachment. Over 800 writs a day were being served on banks,
as Judge Cabranes wrote in a judgment agreed in by the whole of the Second Circuit Court of Appeals. That Court has now concluded
that funds in the process of electronic transfer in the possession of an intermediary bank are not the property of either the originator
or beneficiary of the transaction. This was because the funds, and hence the res, were not the property of the defendant at the moment that the transfer was attached.
59. One can see both commonsense and the law of banker and customer at work here. The funds were being transferred between
banks in order that the banks would be able to discharge their debts to their customers, not in New York, but at their ultimate destination.
No doubt, many New York law firms are experiencing a sharp downturn in Rule B work.
60. Shortly before this decision, Judge Glenn in the Bankruptcy Court for the Southern District of New York delivered an
important judgment applying the Model Law, as given effect in Ch 15, to the insolvency of a Danish shipowner. He decided to vacate
a number of Rule B attachments and to order that the funds be transferred into the hands of the Danish foreign representative. His
Honor accepted the need for inter-jurisdictional comity in recognising foreign main proceedings in order to facilitate the distribution
of the debtor’s assets in an equitable, orderly, efficient and systematic manner, rather than in a haphazard, erratic or piecemeal
fashion.
61. The decision in Jaldhi has thus removed a doctrinally unsatisfactory source in Rule B of the use for a frequent potential clash between Admiralty jurisdiction
and the adoption of the Model Law in cl 15. But, the potential for such clashes in the future remains in countries that have both
Admiralty jurisdiction and the Model Law.
62. In cases of insolvency involving significant shipping lines, there may well be the need for courts exercising Admiralty
jurisdiction over the line’s ships or other property to consider whether the Model Law ought be applied. Once again, those courts
will be astute to protect the interests of persons with maritime claims or liens from adventitious invocation of the Model Law. But,
there may be something to be said for a fair and orderly administration of a significant multinational insolvency, providing this
does not prejudice the rights of holders of maritime liens and other maritime securities.
Conclusion
63. The historical underpinnings of admiralty law and its centrality to world trade require it to remain a distinct and significant
influence in international trade and commerce. Over a long period, admiralty law has given effect to the expectations of shipowners,
traders and others affected by the operations of ships in adjusting their rights in its own unique, somewhat diffuse, but overall
harmonious fashion. While the Model Law will also offer opportunities for rational and harmonious administration of insolvent shipowners’
affairs, it should not be allowed to override the important demands and safeguards of maritime law evolved and applied internationally
over millennia.
A judge of the Federal Court of Australia
The author gratefully acknowledges the considerable assistance of his associate, Will Bateman, in the preparation of this paper. The
errors are the author’s alone.
William Tetley QC, ‘The General Maritime Law – The Lex Maritima’ (1994) 20 Syracuse Journal of International Law and Commerce 105 at 109-112
Currie v M’Knight [1896] UKLawRpAC 55; [1897] AC 97 at 102: see too at 106 per Lord Watson; The Tolten [1946] P at 155-156 per Scott LJ; Tetley, above n 1, at 110
President of the Court of Appeal Supreme Court of New South Wales: The 2009 William Tetley Lecture, Tulane University, Maritime Law – the Nature and Importance of its International Character, 15 April 2009 at [49]; see too: The Tolten [1946] P at 142 and 148 per Scott LJ.
William Tetley QC, International Maritime and Admiralty Law (2002) Ch 10.
International Convention for the Unifications of Certain Rules Relating to Maritime Liens and Mortgages 1926 (the 1926 Lien Convention); International Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages 1967 (the 1967 Lien Convention); International Convention on Maritime Liens and Mortgages 1993 (the 1993 Lien Convention)
In the first half of the twentieth century; an insolvent corporation with assets and or liabilities in more than one jurisdiction
could be wound up under the legislation of each jurisdiction. And, if a surplus was realised in an ancillary winding up only the
balance remaining after paying the claims of local creditors then be made over to the liquidator in a place of incorporation: Primary Producers Bank v Hughes [1931] NSWStRp 50; (1931) 32 SR (NSW) 14 at 19-20 per Harvey CJ in Eq; In Re Vocalion (Foreign) Ltd [1932] 2 Ch 196 at 207, 209-210 per Maugham J; In Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213 per Scott V-C
HIH [2008] 1 WLR at 859-860 [19]-[21], 861 [28] per Lord Hoffmann, 864 [43] per Lord Phillips of Worth Matravers, 872 [63] per Lord Walker
of Gestingthorpe and Lord Neuberger of Abbotsbury at 876-877 [78]-[81]
A useful working definition of this approach is outlined by a Canadian scholar, Professor J S Ziegel, 'Ships at Sea, International
Insolvencies, and Divided Courts' (1998) 29 Canadian Business Law Journal 417 at 417:
"International insolvency jurists have long classified counties and their conflict of laws rules according to their willingness to
recognise and give effect to foreign insolvency orders and judgments. Those regimes that are hospitable to extending such recognition
are labelled universalist; those that deny such recognition are classified as territorialist."
see, generally, The Hon JJ Spigelman ’Cross Border Insolvency: Co-operation or Conflict’ (2009) 83 Australian Law Journal 44: J Clift, ‘The UNCITRAL Model Law on Cross-Border Insolvency -- A Legislative Framework to Facilitate Coordination and Cooperation
in Cross-Border Insolvency’ (2004) Tulane Journal of International and Comparative Law 307; A J Berends, ‘The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview’ (1998) 6 Tulane Journal of International and Comparative Law 309; J L Westbrook, 'Locating the Eye of the Financial Storm' (2006-2007) 32 Brooklyn Journal of International Law 1019; S L Bufford, ‘Center of Main Interests, International Insolvency Case venue, and Equality of ARMS: The Eurofood Decision of the
European Court of Justice’ (2006-2007) 27 Northwestern Journal of International Law and Business 351; K Anderson, ‘Testing the Model Soft Law Approach to International Harmonisation: A Case-Study Examining the UNCITRAL Model Law on
Cross-Border Insolvency’ [2004] AUYrBkIntLaw 1; (2004) 23 Australian Yearbook of International Law 1; A Trichardt, ‘The UNCITRAL Model Law on Cross-Border Insolvency’ [2002] FlinJlLawRfm 6; (2002) 6 Flinders Journal of Law Reform 95; A Ranney-Marinelli, ‘Overview of Chapter 15 Ancillary and Other Cross-Border Cases (2008) 82 American Bankruptcy Law Journal 269
Holt Cargo Systems Inc v ABC Containerline NV (Trustees of ) [2001] 3 SCR 97 at 923-924 [25]-[26]
F Berlingieri (ed), The Travaux Préparatoires of the 1910 Collision Convention and of the 1952 Arrest Convention (1997, CMI) at 248-249, 296-297, Art 1(2) definition of "arrest" and "saisie" at 471
see Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45 at 87-88 [165], 94-95 [192]-[193] per Allsop J, Finn and Finkelstein JJ agreeing; see too Fiona Trust & Holding Corp v Privalov [2008] 1 Lloyd’s Rep 254 at 260 [31] per Lord Hope of Craighead
Preamble to the Model Law pars (c) and (d)
subject to the provisions of most of Ch 5 of the Corporations Act except Pt 5.2 and Pt 5.4; see s 20 and Art 20(2). The first exception (Ch 5.2) deals with a corporation’s position in relation to and after the appointment by a secured
creditor of a receiver or controller of its property and the incidents of that situation. The second exception (Ch 5.4A) deals with
the powers of the Court to wind up a corporation for reasons other than its insolvency.
see e.g. CSL Australia Pty Ltd v Britannia Bulkers PLC (USDC : SDNY 8 September 2009: 2009 WL 2876250 (S.D.N.Y.) at 4: In re Atlas Shipping A.S. 404 BR 726; 2009 AMC 1150 (Bankr SDNY 2009)
That is similar to the position in England when In re Aro Co Ltd [1980] Ch 196 at 202D-E was decided.
The "Volant" (1842) 1 W Rob at 387.
The Atlantic Star [1974] AC at 472H-473B; cited by Binnie J with approval in Holt Cargo [2001] SCR at 948-949 [93]-[94]
[2001] 3 SCR at 925 [27]; drawing on Lord Simon’s exposition Holt Cargo [2001] 3 SCR at 948-949 [93]-[94]
There is certainly a deal of literature on the topic, see, eg, John Levingston, ‘Admiralty and Insolvency Courts in Conflict’ (2008) 82 Australian Law Journal 849; ; John Stranburger, ‘The ABC’s of Admiralty and Bankruptcy in Concert or Conflict’ (1990) 21 Journal of Maritime Law and Commerce 273; Melissa KS Alwang, ‘Steering the Most Appropriate Course Between Admiralty and Insolvency: Why and International Insolvency Treaty
Should Recognise the Primacy of Admiralty Law over Maritime Assets’ (1996) 64 Fordham Law Review 2613; Gary F Seitz, ‘Interaction Between Admiralty and Bankruptcy Law: Effects of Globalisation and Recurrent Tensions’ (2009) 83 Tulane Law Review 1339; William Tetley QC, ’Conflicts of Law Between the Bankruptcy Courts Admiralty: Canada, United Kingdom, United States and France’
(1995) 20 Tulane Maritime Law Journal 257; Edward M Keech, ‘Problems in the Liquidation and Reorganisation of International Companies in Bankruptcy’ (1985) 59 Tulane Law Review 1239.
Federal Court of Australia: Admiralty and Maritime Law Nationwide Seminar 21 May 2009; papers available on the Admiralty page of
the Court website and in Vol 23 No 1 (2009) of Australian and New Zealand Maritime Law Journal at https://maritimejournal.murdoch.edu.au/index.php/maritimejournal
Raukura Moana Fisheries Ltd v The Ship "Irina Zharkikh [2001] 2 NZLR 801 at 821-822 [90]-[96] per Young J
Kuo Fen Ching v Dauphin Offshore Engineering & Trading Pte Ltd [1999] 3 SLR 721 as explained by Allsop J in Comandate 157 FCR at 75 [103]
157 FCR at 81 [128]-[129]
[1916] P at 77 as Allsop J pointed out recently in Comandate 157 FCR at 81 [129]
Comandate 157 FCR at 79 [118]
MV Talabot 132 CLR at 456
see too: Civil Admiralty Jurisdiction ALRC 330 [136]
This reality has long been known: The Tolten [1946] P at 145 per Scott LJ
Comandate 157 FCR at 79 [118]
The Father Thomas [1979] 2 Lloyd’s Rep 64 at 68
The Tolten [1946] P at 144 per Scott LJ; DR Thomas, Maritime Liens (1980) at [266]ff
Thomas, above n 74, at [355]ff
The Bold Buccleugh 7 Moo. P.C. at 284-285 [13 ER at 890-891]
The Tolten [1946] P at 147
[1897] AC at 106; Thomas, above n 74, Ch 9 esp at [426], [434]-[438]
The Tolten [1946] P at 145-146 per Scott LJ
[1946] P at 147; see too at 166 per Somervell LJ and 170 per Cohen LJ
In re Aro [1980] Ch at 207H-208D-E per Stephenson, Brandon and Brightman LJJ
This amendment was made by the Bankruptcy Abuse Prevention and Consumer Protection Act 2005 (US).
see generally, S A Melnik, "United States" in L C Ho (ed), Cross-Border Insolvency: A Commentary on the UNCITRAL Model Law (2009).
In contrast now the Cross-Border Insolvency Regulations 2006 (UK) implement the Model Law in England (see generally L C Ho, "England" in L C Ho (ed), above n 90. Those provisions modify Arts
20(2) and (3). The automatic stay in Art 20(1) has the same effect as that provided in the Insolvency Act 1986 (UK) (s 130(2) of the Insolvency Act 1986 provides for the automatic stay, s 248(a) protects the rights of secured creditors in an insolvency. Leave is required to proceed
against the assets of a company, however, this will "automatically be given" in the context of enforcement of a right in rem, whether it be a maritime lien or a statutory right in rem: In re Aro [1980] Ch at 205C)). However, Art 20(3)(a) provides that the stay and suspension referred to in Art 20(1) does not affect any right
to take any steps to enforce security over the debtor’s property.
In re Aro [1980] Ch at 204B-C, 209B-E
He had been a member of an English delegation negotiating an arrest Convention in the CMI Paris Conference of May 1937.
The Tolten [1946] P at 450: see too Moran v Sturges [1894] USSC 199; 154 US 256 (1894) at 278 and 282 per Fuller CJ giving the opinion of the Court. The charge goes with the ship everywhere, even in the hands
of a purchaser for value without notice, and has a certain ranking with other maritime liens, all of which take precedence of mortgages.
The Tolten [1946] P at 145-146
see ss 24, 31(3), 36(5) and 41(2)(g) which provides a rule making power for sale of a ship
The "Convenience Container" [2007] 3 HK LRD 575 at [90] per Reyes J, at [97] and [163] per Stone J and Ma CJHC agreeing
Millenium 419 F 3d at 93 [4, 5] footnotes and references omitted
Moran 154 US at 285 where Fuller CJ makes the point clearly
Millenium 419 F 3d at 103-104 [14]
Millenium 419 F 3d at 91 [1]
Pursuant to 28 USC §1333; Thomas Schoenbaum, Admiralty and Maritime Law (2004, 4th ed) at 78-83; Tetley, above n 50, at 1928, 1932
Tetley, above n 50, at 1933
The number of maritime liens are, however, far larger in the US than in England or Australia, with claims for "'necessaries" (supplies,
repairs, bunkers, etc), general average contributions, towage, and maritime insurance premiums" giving rise to maritime liens in
the US. Tetley has described the US position as so broad that "maritime liens are recognised for virtually any goods or services
of benefit to the navigation, management, business or purpose of the ship': Tetley, above n 50, at 1930.
Tetley, above n 50, at 1936-1937
Tetley, above n 50, at 1934
The Shipping Corporation of India Ltd v Jaldhi Overseas Pte Ltd (16 October 2009 CA:2) slip opinion at p 19
Jaldhi CA2 : 16 October 2009 at pp 4, 6
Jaldhi CA2 : 16 October 2009 at pp 19, 23-24
