In a case involving “an important issue for the operation of maritime law in this country” a 5 member bench of the Federal Court has overruled an adventurous decision by a single judge to re-determine a long-contentious issue about the law applicable to maritime liens: Ship “Sam Hawk” v Reiter Petroleum Inc [2016] FCAFC 26.
Maritime liens are claims that can be made by a creditor against the ship itself, a long standing and common one being that of the crew for their wages, who can obtain an order that their ship be arrested if they are unpaid. Such a lien remains as a security against the ship, including through its transfer to a new owner.
Reiter Petroleum claimed a particular lien over the ship The Sam Hawk for the supply to it of ‘necessaries’ – bunkers (fuel) – recognised as supporting a lien according to Canadian or US law where the claim was said to have arisen (the lex causae). However, a maritime lien is not recognised under Australian law, where Reiter had the ship arrested for unpaid bunkers.
The legal issue was whether the law of the lex causae applied, or the lex fori, Australia. The Privy Council in Bankers Trust International Ltd v Todd Shipyards Corporation (The ‘Halcyon Isle’) [1981] AC 221 had decided that the law would enforce a maritime lien recognised in the law of the forum; conversely, it would not recognise a lien even if it existed under the law in which the circumstances giving rise to the lien arose.
The Full Court held that the lex fori applies to determine matters of substance rather than process. The priority given by maritime liens is a matter of substance. Australian law applied, including its more restrictive law for maritime lien claimants. Reiter could not assert its secured claim against the ship. It retained its ordinary enforcement rights as a creditor,
The Judges gave separate but consistent decisions – Allsop CJ and Edelman J; Kenny and Besanko JJ: and Rares J, dissenting as to the correctness of the Halcyon Isle decision, with closer analysis of the 128 pages of the judgments now required.
Comment
The need for certainty in the law, and in maritime law, was emphasised by the Court, with the principles of the Halcyon Isle having been long followed, even if “contentious”. The potential impact of the trial decision for an increased number of arrests of ships in Australian waters, based on the application of the lex causae may now not eventuate.
The Court also relied upon a practical issue as a matter of policy. Maritime liens arose historically out of the peripatetic nature of ships, which could readily sail off over the horizon leaving local creditors, and unwanted crew, unpaid. In discounting Reiter’s claim for unpaid bunker supplies, Rares J pointed out that international money transfers in the 21st century have changed the scene – a fuel supplier can demand immediate payment for fuel supplied without relying on credit and enforcement by later arrest and sale of the ship. There is no need for the law to give an added remedy to the supplier by way of a maritime lien.
From an insolvency perspective, the potential for the range of secured maritime lien claims to be potentially expanded, leading to a further erosion of the pari passu principle of equality between creditors, is now diminished.
And while not evidently connected, the recent matters before the Federal Court in the Hanjin Shipping collapse may see this legal issue again ventilated, now according to the accepted Halcyon Isle principles.
The Halcyon Isle resurrected – the law applicable to maritime liens
In a case involving “an important issue for the operation of maritime law in this country” a 5 member bench of the Federal Court has overruled an adventurous decision by a single judge to re-determine a long-contentious issue about the law applicable to maritime liens: Ship “Sam Hawk” v Reiter Petroleum Inc [2016] FCAFC 26.
Maritime liens are claims that can be made by a creditor against the ship itself, a long standing and common one being that of the crew for their wages, who can obtain an order that their ship be arrested if they are unpaid. Such a lien remains as a security against the ship, including through its transfer to a new owner.
Reiter Petroleum claimed a particular lien over the ship The Sam Hawk for the supply to it of ‘necessaries’ – bunkers (fuel) – recognised as supporting a lien according to Canadian or US law where the claim was said to have arisen (the lex causae). However, a maritime lien is not recognised under Australian law, where Reiter had the ship arrested for unpaid bunkers.
The legal issue was whether the law of the lex causae applied, or the lex fori, Australia. The Privy Council in Bankers Trust International Ltd v Todd Shipyards Corporation (The ‘Halcyon Isle’) [1981] AC 221 had decided that the law would enforce a maritime lien recognised in the law of the forum; conversely, it would not recognise a lien even if it existed under the law in which the circumstances giving rise to the lien arose.
The Full Court held that the lex fori applies to determine matters of substance rather than process. The priority given by maritime liens is a matter of substance. Australian law applied, including its more restrictive law for maritime lien claimants. Reiter could not assert its secured claim against the ship. It retained its ordinary enforcement rights as a creditor,
The Judges gave separate but consistent decisions – Allsop CJ and Edelman J; Kenny and Besanko JJ: and Rares J, dissenting as to the correctness of the Halcyon Isle decision, with closer analysis of the 128 pages of the judgments now required.
Comment
The need for certainty in the law, and in maritime law, was emphasised by the Court, with the principles of the Halcyon Isle having been long followed, even if “contentious”. The potential impact of the trial decision for an increased number of arrests of ships in Australian waters, based on the application of the lex causae may now not eventuate.
The Court also relied upon a practical issue as a matter of policy. Maritime liens arose historically out of the peripatetic nature of ships, which could readily sail off over the horizon leaving local creditors, and unwanted crew, unpaid. In discounting Reiter’s claim for unpaid bunker supplies, Rares J pointed out that international money transfers in the 21st century have changed the scene – a fuel supplier can demand immediate payment for fuel supplied without relying on credit and enforcement by later arrest and sale of the ship. There is no need for the law to give an added remedy to the supplier by way of a maritime lien.
From an insolvency perspective, the potential for the range of secured maritime lien claims to be potentially expanded, leading to a further erosion of the pari passu principle of equality between creditors, is now diminished.
And while not evidently connected, the recent matters before the Federal Court in the Hanjin Shipping collapse may see this legal issue again ventilated, now according to the accepted Halcyon Isle principles.
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