In a recent landmark decision, the Federal Court of Australia held it had jurisdiction to hear an in rem action brought in relation to a foreign maritime lien.
The facts
In Reiter Petroleum Inc v The Ship 'Sam Hawk' [2015] FCA 1005, the plaintiff Reiter Petroleum claimed it had not been paid for bunkers supplied to the defendant vessel. It commenced in rem proceedings and arrested the vessel on the basis of a "maritime lien" claimed pursuant to s15 of the Admiralty Act 1988 (Cth), or alternatively on a "general maritime claim" for goods and materials supplied to the vessel for its operation and maintenance pursuant to s4(3)(m) and s17 of the Act.
The plaintiff claimed that the bunker supply contract stated that it was to be construed according to the law of Canada. Importantly, clause 7 of the contract stated that the plaintiff was entitled to assert a lien over the vessel and that the law of the United States would apply to determine the existence of any maritime lien. The plaintiff argued that it had a maritime lien against the vessel for necessaries, which includes bunkers, and that such a lien was recognised under the laws of the United States. Alternatively, the plaintiff argued that under the laws of Canada, it had a maritime lien against the vessel for the bunkers supplied.
Maritime liens under the Admiralty Act
Under Australian law, a maritime lien does not arise from the supply of necessaries to a ship, including bunkers. Section 15 of the Act allows a plaintiff to bring an in rem proceeding on a "maritime lien", and explicitly recognises maritime liens for:
- salvage;
- damage done by a ship;
- wages of the master or of a member of the crew; and
- master's disbursements.
However s15's definition of maritime lien is not exhaustive and leaves open the possibility of other forms of maritime lien. The issue was therefore whether the Australian Court had jurisdiction to determine a matter involving the alleged existence of a foreign maritime lien, not recognised under domestic law. In other words, was the claimed maritime lien for necessaries a maritime lien for the purposes of s 15?
Reasoning and outcome
The answer to this question turned on whether maritime liens should be regarded as procedural and therefore governed by the law of the forum, ie Australian law, or substantive and therefore governed, in this case, by the law of the contract. If procedural, then there was no recognisable maritime lien and the Court had no jurisdiction. If substantive, then the Court did have jurisdiction to determine whether such a lien arose under the law of the United States or Canada.
The majority of the Privy Council in The Halcyon Isle [1981] AC 221, in a much-criticised decision, had held that the existence of a maritime lien was to be determined according to the law of the forum. However, in a subsequent Australian decision in John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503, the High Court effectively widened the scope of what may constitute "substantive" issues and held that matters that affect the "existence, extent or enforceability" of the rights or duties of parties are, on their face, matters of substance rather than procedure.
The judge in the Sam Hawk decision, McKerracher J, considered the unique nature of maritime liens, noting that they are powerful forms of security that provide a basis for an in rem action. They take priority over all other claims against the ship, and even survive a change of ownership to a bona fide purchaser for value without notice of the lien. McKerracher J concluded that maritime liens are "substantive in nature" and will operate independently of the forum chosen when the vessel is arrested. Accordingly, the Court had jurisdiction under s 15 because there was a proceeding under a maritime lien.
On the question of whether the bunker supplier had a "general maritime claim" under s 17 of the Admiralty Act, the owner contended that it was not a party to the bunker supply contract and therefore could not be bound by it. However, the Court considered those complaints really went to the merits of the case rather than the question of whether the Court had initial jurisdiction to allow arrest and hear the claim. McKerracher J therefore held that the claim as pleaded did fall within s 17. Whether the claim was ultimately upheld was a matter for a trial.
Consequences of the decision for the shipping industry
The general consensus among maritime scholars is that the majority decision in The Halcyon Isle should not be followed and that maritime liens should be regarded as substantive rather than procedural in nature. Advocates of uniformity in private international law will no doubt welcome McKerracher J's decision, as will maritime claimants relying on maritime liens that are well recognised in other jurisdictions but not necessarily recognised by the forum where the vessel is arrested.
This decision means that a party may successfully sue on a foreign maritime lien in Australia, even if Australian law itself does not expressly recognise the existence of such a lien. Parties will now be able to rely on the clauses in their private contracts when suing on a maritime lien, rather than being limited to those liens recognised by the forum in which the vessel is arrested. Suppliers and third parties will certainly welcome this decision as it widens the potential grounds on which in rem proceedings may be commenced.
Although the decision does not bode well for shipowners and carriers, it does mean that these parties will at least have greater certainty as to their potential exposure because Australian courts will now look to the agreed contractual terms when determining questions of jurisdiction. In this sense, some may view the decision as a "win" for commercial certainty. The other advantage of the decision is that it may discourage claimants from engaging in "forum shopping".
The decision is also significant for McKerracher J's comments in relation to "general maritime claims" in s 17. These findings also widen the grounds on which claimant suppliers may commence in rem proceedings against a vessel. In order for the Court to have jurisdiction, it will be sufficient for the claimant to point to a supply contract to which the owner/carrier may have been a party, even if the owner/carrier itself contends that it is not bound by the contract. The merits of these questions will fall to be decided at trial and will not necessarily deprive the Court from having jurisdiction to hear the dispute.
The owners of Sam Hawk have since appealed the decision. No doubt the outcome of the appeal will be eagerly anticipated by the domestic and international maritime community.
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