Australia: Australia permits arrest of vessel on foreign maritime lien claim

Last Updated: 20 September 2015
Article by Nathan Cecil
Most Read Contributor in Australia, September 2016

In a decision delivered on 11 September 2015, the Federal Court of Australia has upheld the arrest of the "Sam Hawk" in respect of a claim for a foreign maritime lien arising from the supply of bunkers to the vessel.

This decision is significant because it reverses the prior law in Australia and paves the way for the recognition and enforcement in Australia of foreign maritime liens, even where such liens do not exist independently under Australian law.

The practical effect of this decision is that the claims in respect of which vessels can be arrested in Australia has now expanded significantly, meaning that Australia is an even more arrest and enforcement-friendly jurisdiction.

The facts

The "Sam Hawk" was owned by SPV Sam Hawk Inc (Owners) and time chartered to Egyptian Bulk Carriers (Egyptian Bulk). The charter party contained a 'no lien' clause. Egyptian Bulk entered into a bunker supply contract with Reiter Petroleum, of Canada, to stem the vessel in Istanbul, Turkey. The bunker supply contract was expressly subject to Canadian law, purported to grant a contractual maritime lien over the vessel and was also said to be subject to U.S. law in relation to the existence of a maritime lien for the supply. Reiter Petroleum entered into a separate arrangement for the supply with KPI Bridge Oil, with the ultimate physical supplier being Socar Marine. Owners were not privy to or a named party to the supply arrangements.

However, Owners did ask Egyptian Bulk for the identity of the bunker supplier and were given Socar Marine's details. Prior to the supply, Owners sent a 'no liability' notice to Socar Marine, advising that Owners accepted no liability to pay for the supply and payment was the sole responsibility of Egyptian Bulk. Socar Marine refused to sign and return the notice. However, the Master of the bunker barge did accept, sign and return an identical notice prior to stemming the bunkers.

Egyptian Bulk did not pay for the bunkers, as a result of which Reiter Petroleum arrested the vessel at Albany, Western Australia. Owners provided security for the release of the vessel under protest and commenced these proceedings, seeking that the arrest be struck out and the security returned.

The law

Australian law does not recognise a maritime lien for the supply of necessaries, including bunkers. Prior to this case, following the Privy Council decision in the "Halcyon Isle" ([1981] AC 221) the existence of a maritime lien was held to be a matter of procedure, which was to be determined under Australian law for any claims commenced in Australia. However, a recent High Court of Australia case held that matters which relate to a party's rights, such as the grant of a maritime lien and right to arrest a vessel, are matters of substance, not procedure. As such, questions as to the scope of those rights fall to be determined by the proper law of the relevant contract, transaction or circumstances, which may not be Australian law. In resolving these questions of substance, Australian law may recognise and give effect to rights existing under foreign law.

Indeed, Reiter Petroleum claimed that the proper law of the supply was U.S. (the choice of law for questions relating to maritime liens) or Canadian (the law of the contract) law and that each granted a maritime lien over the vessel, regardless of the fact that the supply was made for Charterer's account.

Whilst Owners contested the validity of the claims for lien under U.S. and Canadian law, the Court held that such issues were ultimately matters for final hearing. Owners' arguments were not strong enough to warrant the summary dismissal of the proceedings.

Unless resolved by agreement, the matter will proceed to a final hearing in the usual way, at which time we will know whether Reiter Petroleum's claims for a maritime lien are held to be valid.

Consequences for bunker suppliers and Owners

Regardless of the final outcome, this decision means that Australian courts will uphold the arrest of a vessel in Australia in respect of an arguable claim based on a foreign maritime lien. Whilst the ultimate success of any such claim will depend on the particular circumstances in each case, this decision means that the circumstances in which bunker suppliers can arrest vessels in Australia, at least in order to obtain security for an arguable claim, have now been significantly increased.

As a result, bunker suppliers should consider Australia an even more friendly jurisdiction in which to seek security and enforce claims and Owners should be prepared to face an increase in such actions.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Nathan Cecil
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