Babcock Fitzroy Ltd v “The M/v Southern Pasifika” Hc Ak

• Jurisdiction: New Zealand
• Judge: Priestley J
• Judgment Date: 14 May 2012
• Neutral Citation: [2012] NZHC 1254
• Docket Number: CIV-2011-404-001906
• Court: High Court
• Date: 14 May 2012

BETWEEN

Babcock Fitzroy Limited

Plaintiff

and

The Ship “the M/v Southern Pasifika”

Defendant

and

The Master And Crew Of The M/V Southern Pasifika

First Intervener

and

Pdl International Pty Limited

Second Intervener

and

Oldenburgische Landesbank Ag

Third Intervener

[2012] NZHC 1254

CIV-2011-404-001906

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Dispute between plaintiff and third intervenor over their respective priorities in the sale proceeds of a vessel — plaintiff undertook repair work on vessel — third intervenor held a mortgage, and would normally have priority — plaintiff successfully applied for sale order under r25.32(4) High Court Rules (application for judgment by default in action in rem)— sale proceeds held by court — whether a possessory lien holder could seek the arrest and sale of a vessel under Court's Admiralty jurisdiction while receiving benefit of a direction which carried the possessory lien holder's rights across from the vessel itself to its future sale proceeds - whether plaintiff lost its claim of a possessory lien by surrendering vessel to Admiralty jurisdiction of Court — whether Singapore case authorities relied on by plaintiff were relevant.

Appearances:

A J Sherlock and S Holderness for the Plaintiff

P W David and F C Monteiro for the Third Intervener

RESERVED JUDGMENT OF Priestley J

Introduction

1 The plaintiff (Babcock) and the third intervener (OLB) dispute their respective priorities in the sale proceeds of a ship, the motor vessel Southern Pasifika (the vessel). 1

2 Babcock carried out repair and refit work on the vessel in February-March 2011. The work was requested and authorised by the vessel's “chief superintendent” Captain P Lodygowski. There is no dispute that the relevant contract was between Babcock and the vessel's owner. 2

3 OLB held a mortgage over the vessel and its sale proceeds as a secured creditor. A ship's mortgagee would normally have priority.

4 Weise failed to pay Babcock for the work carried out on the vessel and consequential berthing costs. The unpaid sum was large. Babcock commenced in rem proceedings against the vessel in early April 2011. The owners took no steps. OLB was initially unaware of the proceeding (the vessel being the sole defendant). Babcock, relying on r 25.32(4) of the High Court Rules applied for judgment by default in the action in rem. It also sought, pursuant to r 25.34, a warrant for the vessel's arrest.

5 The applications were determined by Woolford J on 2 May 2011. 3 The Judge was totally satisfied that Babcock's claim was well founded. Judgment against the ship was entered by default for the sum of $1,523,499, plus daily berthing costs from 1 April 2011 at the rate of $1,461, plus interest.

6 The competing in rem priorities of Babcock and OLB are self-evident. The vessel has been sold by the Registrar of this Court. If Babcock's in rem claim has priority then there will be a shortfall under OLB's mortgage. If OLB's in rem claim

has priority then a significant portion of Babcock's judgment for its unpaid work on the vessel will be unrecoverable

7 Relying on a memorandum and authorities put before him by Babcock's counsel, Woolford J directed:

[12]Accordingly, I direct that, should the Registrar issue a warrant of arrest of the M/V Southern Pasifika, the arrest of the ship and its resulting placement into the legal custody of the Registrar shall not affect the possessory lien maintained by the plaintiff over the ship.

…

[19] Accordingly, I direct that, should the Registrar issue a warrant of arrest of the M/V Southern Pasifika, the ship is then to be appraised and soldand the proceeds paid into Court subject to an undertaking in writing satisfactory to the Registrar to pay the Registrar's fees and expenses on demand. In the event of the ship's appraisal and sale, the plaintiff is entitled to a lien attaching to the proceeds of sale of the ship, such lien conferring priority rights equivalent to those arising pursuant to the possessory lien maintained by the plaintiff over the ship as at the time of the request for commission.

The significant authorities placed before the Judge were Singaporean authorities.

8 Mr David (for OLB) submits that, in the circumstances before him, Woolford J had no authority to direct that a lien in favour of Babcock attached to the vessel's sale proceeds, such lien conferring “priority rights”. OLB's position is the Singaporean authorities on which Babcock relied did not apply to the position before Woolford J. The competing priorities in the circumstances of this case, submits Mr David, give rise to an issue which is novel under both English and New Zealand Admiralty Law.

The issue

9 The evidence (which is canvassed in the next section of this judgment) establishes that when Babcock was carrying out repair and refit work the vessel was in its possession. As a repairer of the vessel, Babcock at common law was entitled to a possessory lien for so long as the vessel remained in its possession. 4

10 There is undisputed authority under Admiralty Law that the holder of a possessory lien over a vessel (usually a repairer) will not lose its right to have unpaid repair costs satisfied if a third party embroils the vessel in litigation. 5 Critically, however, the lien holder must be in possession of the vessel at the relevant time. What is significant about this proceeding (hence its novelty) is that it was Babcock, the possessory lien holder, which brought the in rem proceeding, sought the sale of the vessel, and handed the vessel over to this Court's Registrar to carry out the sale. Admiralty remedies were invoked by Babcock. De facto possession of the vessel was clearly lost at the point the Registrar took over the vessel to arrange its sale.

11 Mr David framed the issues this way:

Mr David raised as a fourth issue: whether there was any reason in equity to prefer one party's claim to the others.

• [a] Did Babcock have a common law lien for its unpaid repair work when the vessel was arrested in the Admiralty jurisdiction?

• [b] Could Babcock maintain and protect its position as a common law lien holder when, as a result of its applications, the vessel was arrested and sold by the Registrar, particularly when the Admiralty process was not forced upon Babcock?

• [c] If there is an affirmative answer to [b] did Babcock lose its lien holder status when it lost possession of the vessel after its arrest?

12 Mr Sherlock, for Babcock, expressed the issue at a broader level. His formulation was whether, under New Zealand law, a possessory lien holder could successfully seek the arrest and sale of a vessel under this Court's Admiralty

jurisdiction whilst at the same time receiving the benefit of a direction which carried the possessory lien holder's rights acrossfrom the vessel itself to its future sale proceeds. The attachment of the lien holder's rights to the sale proceeds, of course, was what Babcock achieved through Woolford J's direction. 6

Chronology and relevant facts

13 There is little dispute over the relevant chronology. OLB cross-examined two of Babcock's deponents, Mr K F Drake and Mr S D Lister, both of whom had responsibility for the vessel's repairs and contractual negotiations with its owners. The focus of the cross-examination was on the various movements of the vessel around Auckland Harbour, its ability to move under its own power, and general factual matters arguably relevant to Babcock's possession of the vessel.

14 Between November 2010 and January 2011 there were various communications between the owners and Babcock over the vessel being dry-docked so that Babcock could carry out repair and maintenance work. At that time the vessel was under charter to the second intervener (PDL International Pty Ltd) who has taken no steps in this proceeding.

15 On 17 January 2011 the owner signed an application form for Babcock to carry out work on the vessel. This common form contractual term included a requirement to pay for the repairs in full before the vessel left the dry-dock. In the event, however, the owners and Babcock modified that term. The vessel was subsequently to leave the dry-dock for a repair berth.

16 The vessel arrived in Auckland on 1 February 2011. Three days later Babcock provided the owners with (effectively) a list of proposed dry-dock work and prices. The owners endeavoured to modify payment terms so that half of the contract price could be paid prior to the vessel's departure and the other half at a later date. Babcock, however, insisted on its contractual terms.

17 The vessel appears to have entered the dry-dock on 14 February 2011. The dry-dock used by Babcock was the dock at the Royal New Zealand Navy (RNZN) base at Devonport. Between (approximately) 11 February and 3 March 2011 the scope of the work being carried out by Babcock was modified. Various changes were approved by the owner. Whilst the repairs were being carried out the crew of the vessel remained on board. Babcock's request for progress payments was not met.

18 On 28 February 2011 the vessel left the dry-dock and moved to a repair berth, also at the RNZN Devonport base. Most of the repairs had been completed by then but the vessel's engines still needed refit work.

19 Mr Drake, by emails to Weise on 1 and 2 March 2011, made it clear that, although the vessel had left the dry-dock, payment on completion of all the work would be acceptable to Babcock. But the vessel would not be permitted to leave until all payment was received. This was acceptable to the owners although Babcock did not agree to all the extra work which the owners had requested. Babcock made it very clear to the owners the vessel would not leave the RNZN dockyard until payment had been received.

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