Legal update: In what circumstances will Australian Admiralty law recognise a foreign maritime lien?

Date: 19/10/2016
Author: Danella Wilmhurst

The Full Court of the Federal Court of Australia has established the Australian law position on this question and the approach and choice of law rule that will be applied.

The Ship “Sam Hawk” v Reiter Petroleum Inc. [2016] FCAFC 26

The issue to be determined on appeal was whether the primary judge (see first instance judgment of McKerracher J in Reiter v The Ship “Sam Hawk” [2015] FCA 1005) was correct in concluding that the court had jurisdiction to entertain an action in rem against the ship “Sam Hawk” under section 15 of the Admiralty Act 1988 (Cth) which provides:

“…s.15.

(1) a proceeding on a maritime lien or other charge in respect of a ship or other property subject to the lien or charge may be commenced as an action in rem against the ship or property.

(2) a reference in subsection (1) to a maritime lien includes a reference to a lien for:

(a) salvage
(b) damage done by a ship;
(c) wages of the master, or offer member of the crew, of a ship; or
(d) master’s disbursements.

The Sam Hawk, a 57,000 dwt bulk carrier was arrested at Albany, Western Australia by Reiter Petroleum Inc. (Reiter) in connection with a supply of bunkers to the ship at the Port of Istanbul on 7 December 2013 procured by Reiter on terms agreed with vessel time charterers.  The contract of supply provided that Reiter could assert a lien against the ship in relation to the supply of bunkers and that Canadian or United States law would apply to any question in connection with the existence of the lien regardless of where any such question might be determined.

Reiter alleged in its Writ in rem it could rely upon the terms of its contract with the time charterer as giving it an enforceable maritime lien against the ship pursuant to section 15 of the Admiralty Act.

At first instance the judge found that the court did have jurisdiction to entertain the claim as giving rise to a maritime lien under s15 of the Admiralty Act.  Owners appealed the decision and the appeal was unanimously allowed with the result that the arrest was set aside and the underlying proceeding dismissed.

The joint judgment delivered by Allsop CJ and Edelman J. establishes a two-fold test in upholding the challenge by Owners of the vessel to the maritime lien claim on the bases that:

1. the lex causae was not Canadian or United States law (assumed to give rise to a maritime lien); and

2. any rights that might arise under the lex causae were not rights which would be characterised as a maritime lien under Australian law. 

In effect, the second part to the test requires that to be recognised, the foreign lien right must be analogous to one recognised in Australian law.  Further, in characterising the foreign right significant effect should be given to the lex fori having regard to considerations of the construction of the Australian Admiralty Act, reasons of principle and policy.  It was determined by the majority (Rares J disagreed) that the lex fori must be given significant effect also because the characterisation of rights of lien cannot be separated from the consequences on the question of priority which is determined in accordance with the laws of Australia as the forum.

The ‘Halcyon Isle’

The decision of the Privy Council in Bankers Trust International Ltd v Todd Shipyards Corporation (the “Halcyon Isle”) [1981] AC was a primary focus of both parties before the first instance judge.  The “Halcyon Isle” had been applied in Australian law as authority for the principle that the law of the forum should govern the question of the existence of maritime lien as a procedural matter.  This approach was critical to the question of the existence of a lien in the Sam Hawk case as Australian law does not recognise a maritime lien arising from the supply of necessaries, including bunkers to a ship:  Shell Oil Company v Ship “Lastrigoni” [1974] HCA 27:131 CLR.

However, since the decision of the High Court of Australia in John Pfeiffer Pty Limited v Rogerson [2000] HCA 36 Australian law recognises issues in relation to the existence and enforcement of a right to be substantive rather than procedural matters.  It had been widely considered by lawyers and academics after this statement of Australian law from the High Court that the ‘Halcyon Isle’ might no longer represent the state of the law in Australia.  This was confirmed by the first instance decision in the “Sam Hawk”.  The Full Court majority judgment recognises that a right in the nature of maritime lien might be seen as a substantive right but concludes that:-

“... whether such rights can be recognised as a maritime lien as conceptualised under Australian law is a process of characterisation.  Given the close relationship between the question of priorities in, and the jurisdiction of, Australian courts in the answer to that question, the lex fori is naturally suggested.”

It is further stated in the joint judgment of Allsop CJ and Elderman J that it does not matter that the majority in the ‘Halcyon Isle’ was incorrect in describing a system of priorities as a matter of procedure rather than substance.  The question of priorities must still be determined by the law of the forum.

Conclusion

As a result of this decision the Australian law position is that any question of whether a foreign maritime lien gives rise to a right to proceed in rem under Australian Admiralty law requires:

1. A determination of the rights that exist by reference to the lex causae; and

2. The characterisation of those rights, and the circumstances in which they arose, for the purposes of Australian law to determine whether they can be described as a maritime lien.

This two-fold test has the potential in practice to be more restrictive on the foreign maritime liens to be recognised at Australian law than the simple application of foreign law to determining the lien question.

Danella Wilmshurst and Alexis Cahalan are both Principal Lawyers at Thomas Miller Law, Sydney. If Members require more information, or have any further questions on this matter, please contact them.

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