Australia: Duty of disclosure when seeking the arrest of a ship

In brief - Case could be heard in Federal Court of Australia

In the case Atlasnavios Navegazao LDA v The Ship "Xin Tai Hai" [2012] FCA 1497 (24 December 2012), Rares J in the Federal Court of Australia had to consider whether firstly, a party seeking the issue of an arrest warrant to arrest a ship is in a similar position to a party seeking ex parte injunctive relief, ie under a duty to give full disclosure to the court, and secondly, whether the proceedings should be stayed on the basis that Australia was an inappropriate forum.

Collision causes sinking of vessel

A collision which caused the sinking of the "B Oceania" occurred in the Straits of Malacca on 29 July 2011, between the "B Oceania", owned by the plaintiff, a Portuguese company (ATLAS) and the "Xin Tai Hai", owned by China Earth Shipping Inc, a Panamanian company.

On 19 August 2011 ATLAS filed a writ in the High Court in Singapore but did not serve it (although the "Xin Tai Hai" had visited that jurisdiction in October and December 2011 and April 2012).

Cargo owner commences proceedings in Maritime Court in China

On 22 August 2011 the cargo owner brought proceedings in the Maritime Court in Qingdao, China, to preserve evidence.

On 24 August 2011 China Earth commenced proceedings to establish a limitation fund of 12,144,430 SDRS (LLMC 1976 for a vessel of 94,710 GT): US$18 million. On 26 August 2011 the Maritime Court issued a public notice of the application to limit.

Cargo owner arrests vessel and objects to application to limit liability

On or about 7 September 2011 the cargo owner arrested the "Xin Tai Hai" in China and on 9 September 2011 objected to China Earth's application to limit its liability.

On 19 September 2011 the cargo owner issued a statement of claim for US$12,708,563 in the Maritime Court.

On 27 September 2011 the cargo owner arrested a sister ship of "B Oceania" in Belgium for the loss of cargo on that ship and obtained security for its claim by way of a Swedish Club letter of undertaking, with the cargo owner's claim to be prosecuted at arbitration in London.

On 13 October 2011 the Maritime Court confirmed the establishment of the Limitation fund, constituted by a letter of undertaking from the China Shipowners Mutual Assurance Association, on behalf of Skuld.

Owner of sunken vessel commences proceedings in Australia

On 4 November 2011 ATLAS commenced two sets of proceedings:

  • in the Federal Court of Australia by writ seeking damages against "Xin Tai Hai"
  • in the Maritime Court, seeking to register its claim for damages in the order of US$105 million. Those claims included wreck removal costs of about US$65 million. The significance of the wreck removal claim is that it was subject to limitation under Chinese law but not Australian, it being excluded from limitation under section 6 of the Limitation of Liability for Maritime Claims Act 1989 (giving effect to LLMC 1976 and the 1996 Protocol).

On 10 November 2011 China Earth commenced proceedings against ATLAS in the Maritime Court for damages - those proceedings not being served on ATLAS until May 2012, due to an error.

On 26 November 2011 ATLAS commenced proceedings against China Earth by filing a statement of claim in the Maritime Court.

"Xin Tai Hai" arrested in Australia

ATLAS applied for a warrant of arrest of the "Xin Tai Hai" in Australia on 1 May 2012 and the ship was arrested on 2 May 2012. In making its application for an arrest warrant ATLAS did not disclose the existence of the proceedings in China.

Court finds no duty to disclose existence of proceedings in China and Australia not an inappropriate forum

Rares J held that ATLAS was not under a duty to make disclosure of the existence of the Chinese proceedings when it sought the arrest of the vessel in Australia and he also held that Australia was not an inappropriate forum for the hearing of the dispute.

In deciding that a party seeking a warrant of arrest was not in an analogous position to a party seeking an ex parte injunction, Rares J distinguished English authorities (such as The Vasso [1984] QB 477); Hong Kong (in the Sin Hua Enterprise Co Ltd v "Harima" [1987] HKLR 770) and the Singapore Court of Appeal (in the "Rainbow Spring" [2003] 3 SLR(R) 362) on the basis that the legislation in those jurisdictions at the time of those decisions made the right of arrest discretionary and not as of right, which he held that the Australian Admiralty Act 1988 provided. (The UK position, his Honour held, was not in line with his decision following a change in the UK rules and supported by the decision of the Court of Appeal in the UK in the Varna [1993] 2 Lloyds Rep 253).

Owner of vessel sought to benefit from legitimate advantages of having case heard in Australia

On the second issue Rares J held that notwithstanding the existence of the Chinese proceedings, Australia was not a clearly inappropriate forum. This was despite the High Court's decision in Henry v Henry [1996] 185 CLR 571, where as Rares J said, it was held that "prima facie it is vexatious, and oppressive to bring proceedings concerning the same issues in different countries that have jurisdiction in respect of the matter".

In essence his Honour took the view that by the time ATLAS issued its writ in Australia on 4 November 2011 the proceedings in China had not advanced substantially, ATLAS had regularly invoked the court's jurisdiction and sought the benefit of the legitimate advantages this forum offered - a greater amount of security for its claim, a larger limitation fund and exclusion from limitation of liability for wreck removal expenses. His Honour was also impressed by the fact that apart from Malaysia there was no obviously more appropriate forum - neither ship having any connection to Australia or China.

Stuart Hetherington
Trade and transport
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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