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ASD Marine Proprietary Ltd v Pacific Navigation Ltd [1992] FJLawRp 23; [1992] 38 FLR 4 (24 January 1992)

[1992] 38 FLR 4

HIGH COURT OF FIJI

Admiralty Jurisdiction

1. ASD MARINE PROPRIETARY LIMITED

2. KELVIN DIESELS LIMITED

v

1. PACIFIC NAVIGATION LIMITED

2. SEA MANAGEMENT CORPORATION (IN RECEIVERSHIP) PROPRIETARY LIMITED

3. SHIP NO. 91

4. ROBERT JOHN DUFF

Byrne J

24 January 1992

Admiralty- action in rem- warrant for arrest of a vessel- claim in respect of its construction- whether gratuitous promisee has cause of action- how affected by prior debenture.

The 2nd Defendant owned the 3rd Defendant which was being constructed on behalf of the 1st defendant pursuant to a contract between the 1st and 2nd Defendants and to a design prepared by the 1st Plaintiff payment wherefor had been guaranteed by the 1st Defendant. Payment for the design not having been made the 1st Plaintiff commenced proceedings in rem and obtained the 3rd Defendant's arrest. On application made by the 4th Defendant debenture holder it was HELD: the 1st Plaintiff had no cause of action against the 3rd defendant and the warrant would therefore be discharged.

Cases cited:

Lee v Lees Air Farming Limited [1960] 3 All ER 420
Salomon v Salomon & Company Limited [1897] AC 22

Application to set aside warrant of arrest of a vessel.

P. McDonnell for the Plaintiffs
J. G. Singh for the Defendants

Byrne J:

The First Plaintiff is a duly incorporated company having its registered office at Southport, Queensland, Australia. The Second Plaintiff is a duly incorporated company having its registered office at Glasgow. Scotland, United Kingdom.

On the 20th of September 1990 the Plaintiffs issued a Writ against the first three Defendants claiming among other things the sum of A$130,000.00 on behalf of the First Plaintiff for design fees incurred by the First Plaintiff in designing the ship referred to as the Third Defendant, namely Ship No. 91 and on behalf of the Second Plaintiff the sum of £42,372.00 for the alleged supply by the Second Plaintiff of two marine diesel engines and ancillary equipment for installation in Ship No. 91 together with interest at the rate equivalent to the current National Westminster Bank rate plus two percent (2%) provided for in an Agreement between the Second Plaintiff and the First Defendant.

The other facts at present appear to be as follows:

By an Agreement dated the 18th day of April 1989, the First Defendant agreed with the Fiji Government Shipyard for the construction of a 38 metre catamaran known as Ship No. 91 for and on behalf of the Second Defendant.

By a letter dated the 19th of April 1989 the Second Defendant purported to guarantee the payment to the First Plaintiff of the design fees incurred by the First Plaintiff in designing Ship No. 91 on behalf of Pacific Navigation Limited the First Defendant in this Action.

Earlier on 22nd of March 1988 the Second Defendant executed in favour of National Australia Bank Limited of 500 Bourke Street, Melbourne, Victoria, ("the Bank") a debenture ("the debenture") mortgaging to the Bank all the Second Defendant's property, present and future, as security for banking accommodation provided to the Second Defendant by the Bank which debenture was on 9th of February 1990 entered as a mortgage in the Register of Shipping maintained by the Australian Registrar of Ships.

There is still alleged to be secured to the bank by the debenture the sum of not less than $2m Australian currency.

On 24th of November 1989 the Bank appointed one Robert John Duff one of the partners in Deloitte Ross Tohmatsu, Chartered Accountants, of Brisbane, Queensland, Receiver of the property of the Second Defendant which included Ship No. 91.

On or about the 28th of February 1990 the First Plaintiff delivered to the First Defendant an invoice for design work undertaken by the First Plaintiff concerning Ship No. 91 in the amount of $130,000.00 which I have previously mentioned. Since that date the First Defendant has not paid any of the money claimed by either the First or Second Plaintiff. However in the proceedings currently before me the Second Plaintiff has taken no part and I was informed by its counsel Mr. McDonnell that he had no instructions for these interlocutory proceedings on behalf of the Second Defendant.

It is not in issue that Ship No. 91 was constructed at the Fiji Government Shipyards. Walu Bay, pursuant to a contract between the First Defendant as Builder and the Second Defendant as Owner. By virtue of such contract the First Defendant sub-contracted construction to the Government Shipyards pursuant to a contract between the First Defendant and the Marine Department of the Government of Fiji.

Under clause 10.4 of the contract between the First and Second Defendants the property in Ship No. 91 was from commencement of construction and at all times, thereafter in the Second Defendant. It is also not disputed that the Second Defendant did not contract with any person other than the First Defendant and in particular did not contract with either of the Plaintiffs.

On or about the 10th of April 1991 Robert John Duff was added as the Fourth Defendant and on that day an affidavit was sworn and filed on Mr. Duffs behalf by Robert Anderson Smith of Suva a Consultant exhibiting a copy of the contract between the First and Second Defendants and the construction contract between the Marine Department of the Government of Fiji and Pacific Navigation Limited the First Defendant.

On the same day a Notice of Motion to set aside the Writ and discharge a Warrant of Arrest issued by this Court was issued and is presently before me. The Notice of Motion seeks an order for dismissal of the Writ as against Ship No. 91 on the grounds that the First Defendant Pacific Navigation is not and never has been the beneficial owner of all the shares in Ship No. 91 and the Second Defendant, Sea Management Corporation (In Receivership) Proprietary Limited is not and never has been the person who would be liable on the claim brought herein in an action in personam and that accordingly an action in rem does not lie. The Motion also seeks an order that the Warrant of Arrest be discharged on the grounds that it never ought to have been issued. The Motion was issued on behalf of the Fourth Defendant.

On the 26th of October 1990 on application by the Plaintiffs, Jayaratne J. ordered that the Defendants be restrained from disposing of or dealing with Ship No. 91 or removing it out of the jurisdiction of this court and that a Warrant be issued to arrest the ship. It appears that early in November 1'990 Ship No.91 was arrested.

To understand the application presently before me it is necessary to refer to some further facts after which I shall discuss the relevant law. A Mr. Stuart Ballantyne of Southport, Queensland, Australia, a Company Director has sworn an affidavit in support of the present injunction and application for Warrant of Arrest of Ship No. 91. Mr. Ballantyne deposes that he has a controlling interest in the First Plaintiff. He also deposes that he is the Managing Director of Sea Management Corporation (In Receivership) Proprietary Limited. He also deposes that Pacific Navigation Limited, the First Defendant whose registered office is at Port Vila, Vanuatu is a wholly owned subsidiary of the Second Defendant which I shall henceforth call "Sea Management".

In a letter written by Mr. Ballantyne in his capacity as Managing Director of Sea Management to the First Plaintiff, ASD Marine Proprietary Limited henceforth called "ASD Marine", Sea Management guaranteed the payment of design fees incurred by ASD Marine on behalf of Pacific Navigation Limited. Mr. Ballantyne also deposes that to the best of his knowledge and belief the only asset possessed by the Defendants within the jurisdiction of this Court is Ship No. 91.

It is not necessary to set out in this judgment a copy of the Invoice sent by ASD Marine to Pacific Navigation Limited on the 28th of February 1990, it being sufficient to say that it sets out, without giving detailed particulars, the various design work claimed to have been done by ASD Marine at the request of Pacific Navigation Limited. However, since-the letter from Sea Management to ASD Marine of the 19th of April 1989 is very relevant to my decision on this application I now set it out, omitting formal parts. It is addressed for the attention of Mr. S.J. Bennett, Director and reads thus:

"RE: NEW BUILDINGS/PACIFIC NAVIGATION

We confirm that we signed for the subject NEW BUILDINGS with the Fiji Government Shipyard yesterday, via the Vanuatu shell company of Pacific Navigation Ltd.

Sea Management Corporation Pty. Ltd. hereby guarantees the payment of the design fees incurred by A.S.D. Marine on behalf of Pacific Navigation Ltd.

We trust that you will find this satisfactory.

Yours faithfully
SEA MANAGEMENT CORPORATION PTY LTD.

Stuart Ballantyne
Managing Director"

Clause 10.4 of the contract between the First and Second Defendants reads:

10.4 Ownership

The vessel and its components shall be the property of the Owner as it is constructed, provided that the Builder shall have a lien on the Vessel for unpaid purchase monies. The Builder shall mark or tag all material and components intended for incorporation into the Vessel in such a way as to identify them with the Vessel. No materials or components which are deemed to be the property of the Owner shall be removed from the Vessel or the Builder's premises without the written consent of the Owner.

THE LAW AND SUBMISSIONS OF COUNSEL

The in rem jurisdiction of the High Court of Fiji is derived from Section 21 of the High Court Act Cap. 13 which reads as follows:

"The (High) Court shall be a Colonial Court of Admiralty within the meaning of the Colonial Courts of Admiralty Act, 1890, of the United Kingdom, and shall have and exercise such Admiralty jurisdiction as is provided under or in pursuance of subsection (2) of section 56 of the Administration of Justice Act, 1956 of the United Kingdom or as may from time to time be provided by any Art, but otherwise without limitation, territorially or otherwise."

Section 21 is in turn derived from Section 56(2) of the Administration of Justice Act 1956 of the United Kingdom which gave the Queen of England power by Order in Council to direct that the Colonial Courts of Admiralty Act., 1890 shall apply to any colony named by such Order in Council.

By Order in Council dated 27th of February 1962 the Courts of Admiralty Act 1890 was applied to the then Supreme Court of Fiji. (See Legal Notice No. 36, Laws of Fiji 1962, page 169.)

Section 1 of the Administration of Justice Act 1956 extends claims not only to liens known formerly as maritime liens but also to a series of claims, which, if they are of a kind made enforceable in rem by Section 3(4) of the same Act, may be invoked by an action in rem against any ship said to be subject to such a lien if at the time when the action is brought it is beneficially owned as to all the shares therein by the person who would be liable on the claim in an action in personam.

Section 1 of the Act lists 25 types of claim which may be brought in the Admiralty jurisdiction, one of them (n) being any claim in respect of the construction, repair or equipment of a ship. It is common ground, between the Plaintiffs and the Fourth Defendant that the affidavit of Mr. Robert Anderson Smith (supra) is the only evidence relating directly to the matter before me. (See paragraphs 3, 4 and 5.) Counsel for the Fourth Defendant submits that the Plaintiffs have no locus standi in so far as they seek the arrest of Ship No. 91. It is submitted that the Second Defendant contracted only with the First Defendant and particularly not with either of the Plaintiffs and that Mr. Smith's affidavit is consistent with the affidavit filed on behalf of the Plaintiff, that of Mr. Stuart Ballantyne of the 10th of October 1990 which sets out the history of the matter. Put simply it is said that Mr. Ballantyne's contracting company the First Defendant contracted with his ship-owning company the Second Defendant to have a ship built to a design of his design-creating company, the First Plaintiff, the contract for the design being made with the First Defendant and, it is claimed, the fees for which were guaranteed by the Second Defendant.

It is submitted that the Guarantor, now speaking through the Fourth Defendant, would deny the validity of the guarantee because it lacks consideration and would need to be by deed to be enforceable.

It is also argued that a guarantee will not support an action in rem especially when, as here, the guarantee is said to be dubious anyway. I find it unnecessary to make any finding as to whether the first part of this submission is legally correct for reasons which will appear shortly.

Essentially counsel submits that since the contract for the construction of Ship No. 91 was made with the First Defendant and since on the evidence the beneficial owner of the ship is the Second Defendant the present action against Ship No. 91 cannot be sustained. It is said that a claim for the design fees of the ship may or may not be valid against the First Defendant but as the First Defendant is not and never was the beneficial owner of the res, the action in rem against the Third Defendant is not available to the Plaintiffs.

As an alternative to this argument Mr. Singh relies on the debenture of the 22nd of March 1988 which is earlier than the so-called letter of guarantee and therefore, now that the debenture-holder has intervened, must give the Fourth Defendant, and, as a matter of course the National Australia Bank, priority over any claim presently made by the Plaintiffs.

In reply to these submissions counsel for the Plaintiffs concedes that no action in rem would he against the First Defendant, as it is merely the conduit through which ownership of Ship No. 91 would pass to the eventual and true beneficial owner namely the Second Defendant.

However counsel for the Plaintiffs contends that as a matter of law under Section 3(4) of the Administration of Justice Act the person who would be liable on the claim in an action in personam here is not the First Defendant but the Second Defendant. He relies on clause 5.2 of the contract between Sea Management and Pacific Navigation Limited of which only the first sentence is relevant. This simply states: "The Builder shall not sub-contract the whole of the work." It is then put that obviously the intention of the First and Second Defendants was that the ship was being built for the Second Defendant.

I fail to see how this argument helps the Plaintiff. It may be that the First Defendant by sub-contracting construction of the Ship to the Government Shipyard has breached its contract with the Second Defendant, possibly giving rise to an action for breach by the Second Defendant against its subsidiary company but I really cannot envisage any such action being taken and even if it were it would have to be now with the consent of the Receiver.

However Mr. McDonnell then continues that there is consideration for the guarantee between Sea Management and the First Plaintiff. He states that the First Plaintiff bases the claim on the letter of 19th of April 1989 which states that Sea Management signed for the building of ship with the Fiji Government Shipyard via Pacific Navigation Limited. Counsel argues that this letter is evidence of an agreement between a company which at all material times was the owner of Ship No. 91 and therefore could be proceeded against in rem and that the consideration for the work was the payment of the design fees of the First Plaintiff as shown by the invoice annexed to Mr. Ballantyne's affidavit. Thus; says Mr. McDonnell, a contractual relationship existed between the First Plaintiff and the Second Defendant sufficient to allow an action in personam and that because the Second Defendant was always the beneficial owner of the res it could be proceeded against in rem under Section 1 and 3 of the Administration of Justice Act.

THE LAW

At first glance there appears to be a certain air of unreality about the position of the First Plaintiff vis-à-vis the First and Second Defendants in as much as the common denominator in them all is Mr. Stuart Ballantyne whose company the Second Defendant guarantees payment of an account of his company the First Plaintiff for work done at the request of his other company the First Defendant. However a reading of the cases of Salomon v. Salomon & Company Limited [1897] AC 22 and Lee v. Lee's Air Farming Limited [1960] 3 All ER satisfies me that at least on the present material before the Court I should not attempt to "pierce the corporate veil" as it is some times described. Salomon v. Salomon & Company Limited has probably been the leading authority in the last century for the proposition that in law a company is a different person altogether from the subscribers to the memorandum who constitute it. In some respects the facts in Lee v. Lee's Air Farming Limited in which the Privy Council applied Salomon v. Salomon & Company Limited are similar to those in the instant case. There the Privy Council held that the deceased Mr. Lee who had formed the respondent company and who held all but one of the 3,000 shares forming the nominal share capital of the company was a different person in law for the purpose of a worker's compensation claim from his company, thus entitling his widow to claim worker's compensation from Lee's Air Farming Limited after Mr. Lee was killed in an accident during the course of his employment by the company. I am therefore not prepared to agree with Mr. Singh who during argument asserted that Mr. Ballantyne's affidavit really deposed to events only occurring between Mr; Ballantyne and himself. Later if this action ever goes to trial perhaps more may be said about this question but I consider it unnecessary to do so now.

If the Plaintiffs argument is correct then I am prepared to hold that the claim made by the First Plaintiff falls within Section 1(1)(n) of the Administration of Justice Act 1956, being a claim in respect of the construction of a ship. However then I must consider whether the letter of the 19th of April 1989 gives it the locus standi which it claims. It is submitted by the Fourth Defendant that the Plaintiff could not rely on this letter in that it lacks consideration. It is trite law now that a purely gratuitous promise i.e. a promise to make a plain gift is not enforceable as an original contract. Such promises may, however, be validly made by deed, and Mr. Singh avers that the letter is an excellent example of this. In my judgment he is correct. On the face of it the letter is simply a promise to make a plain gift, namely payment of the design fees. As such, in my view, it could not be enforced at law although had it been in the form of a deed I believe it probably would be enforceable provided more information was stated in it about the circumstances giving rise to the promise to pay the design fees.

In any event, even if I am wrong on this, as a matter of equity I hold that the debenture holder or the Fourth Defendant has a better equity than the First Plaintiff being first in time. In my judgment the First Plaintiff would have to defer to the debenture holder who has now intervened. It follows that should the action proceed further and the Plaintiffs be successful they would be obliged in law to defer to the debenture holder in respect of any judgment which they might obtain.

The result is therefore that for these reasons I hold that the Writ of Summons herein be dismissed against the Third Defendant and that the Warrant of Arrest issued herein against the Third Defendant be discharged. The First Plaintiff must pay the costs of the Fourth Defendant to be taxed if not agreed.

(Application granted.)