Steamships Trading Company Ltd v Nissan Island Shipping Pty Ltd, PNG Development Bank and Toboi Shipbuilding Co Pty Ltd [1981] PNGLR 388 (18 September 1981)

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[1981] PNGLR 388 - Steamships Trading Company Ltd v Nissan Island Shipping Pty Ltd, PNG Development Bank and Toboi Shipbuilding Co Pty Ltd

SHERIFFS - Interpleader - Execution of writ of fi fa - Mortgaged ship - Mortgage properly registered - Ship not available to satisfy debt -Merchant Shipping Act 1975.

SHIPPING AND NAVIGATION - Ships - Mortgaged ship - Mortgage properly registered - Ship not available for seizure under writ of fi fa - Merchant Shipping Act 1975, s. 42.

A mortgaged ship, where the mortgage is properly registered under the Merchant Shipping Act 1975, cannot be seized by the sheriff under a writ of fi fa for another creditor.

This was the hearing of an interpleader summons commenced by the sheriff following disputed claims arising from the arrest of a ship under a writ of fieri facias and a notice of motion taken out by the Papua New Guinea Development Bank, both raising the same basic issues.

KAPI J: This matter came before me by way of sheriff’s interpleader under O. 59 of the National Court Rules. The facts are as follows.

Steamships Trading Company (hereinafter called “Steamships”) by writ of summons sued Nissan Island Shipping Pty. Ltd. (hereinafter called “Nissan”) for a large sum of money for work done and materials supplied on a ship owned by Nissan, the M.V. “Kohon”. On 19th May, 1981, Steamships obtained a judgment against Nissan for default of pleadings in the sum of K36,586.02 and K31.50 for costs. Nissan made an application to the court to set aside this judgment. The matter came on for hearing on 17th July, 1981, and the application was dismissed.

A writ of fieri facias was issued against Nissan for the execution of the judgment on behalf of Steamships. The sheriff consequently arrested the ship “Astronaut” owned by Nissan. The Papua New Guinea Development Bank (hereinafter called “the Bank”) served notice of claim on the ship. This claim was disputed by Steamships and the sheriff caused the interpleader proceedings to commence.

The claim by the Bank arises out of an agreement to make a loan of K27,000 to Nissan. Amongst other forms of security, Nissan mortgaged the ship “Astronaut” to the Bank under the provisions of the Merchant Shipping Act 1975. There is no dispute that this mortgage has been properly registered under the provisions of the Act.

Under the interpleader summons Steamships seeks an order that this ship be sold and the proceeds be paid into court to abide further order of the court on priorities. The Bank opposes the sale on the basis that the seizure of the ship was wrongful as it was against the registered mortgage under the provisions of the Act. By consent of the parties, counsel for Toboi ship repairing company appeared to be heard on these issues. Toboi is claimed to have a possessory lien at the time of seizure by the sheriff for work and repairs done on the ship. Counsel for this company simply adopted the submissions made by Mr. Gawi on behalf of the Bank.

Before I go into the issues raised, I should indicate that a notice of motion, M.P. No. 90 of 1981 taken out by the Bank, was by consent consolidated with the interpleader summons. I should point out that directions 1 and 2 in the notice of motion raise the same basic issues as in the interpleader summons. Directions 3 and 4 in the motion relate to the question of priorities. The parties agreed that if I make an order for the sale of the ship then I should direct an issue to be argued on the question of priorities.

Mr. Gawi, appearing for the Bank, opposes the sale of the ship on two alternative arguments. The first argument is that the seizure by the sheriff was wrongful as it is against the provisions of the Merchant Shipping Act 1975 which protects the rights of the mortgagee. Alternatively, he argued that Toboi ship repairing company had a possessory lien over the boat and had possession of the boat at the time of seizure by the sheriff and that this possession cannot be taken away from him.

Under s. 39 of the Merchant Shipping Act 1975 a ship registered under the Act may be a security for a loan. The same provision provides for registration of such a mortgage. There is no dispute that all these matters were complied with in this case.

Section 42 of the Act protects the mortgagee. Under s. 42(2) the mortgagee has absolute power to dispose of the ship. The mortgagor cannot dispose of the ship. Section 42(1) is important and it is in the following terms:

“Except as may be necessary for making a mortgaged ship available as a security for the mortgage debt, a mortgagee shall not by reason of the mortgage, be deemed to be the owner of the ship nor shall a mortgagor be deemed to have ceased to be the owner of the ship.”

This section is exactly the same wording as that of s. 70 of the English Merchant Shipping Act 1854. The only difference is that the proviso in the English legislation comes at the end of the provision. The English provision has been interpreted by courts in England. In Dickinson v. Kitchen[dcxl]¹ Lord Campbell, the Chief Justice, in this case in interpreting the English Merchant Shipping Act, said at p. 297:

“The ship was mortgaged, and the mortgage registered according to the requirements of sect. 66 of The Merchant Shipping Act, 1854; and by virtue of that mortgage the property in the ship passed prima facie to the mortgagee. He was thereby the owner of the ship, unless his rights as to that ownership are restrained by any other part of the Act. It is said that his alleged right of ownership is inconsistent with the earlier part of sect. 70. That depends upon what is the true meaning of that enactment. To hold that any other creditor may seize and sell a mortgaged ship as against the mortgagee is inconsistent with the latter part of that section. The true meaning and intention of the earlier part is to protect a mortgagee in doing acts necessary to make the ship available as a security for his debt. To make the ship so available, he may take possession of her and collect the freight; and yet, by the earlier part of the section, he is protected from liabilities, such as the debts of the ship, which might otherwise be urged against him as the legal owner in possession, receiving a beneficial interest. There is nothing in the Act to enable a creditor of the mortgagor to seize and sell a mortgaged ship: and the exercise of such a right by him is inconsistent with the right expressly retained in favour of the mortgagee.”

With respect, I would adopt this interpretation as the proper interpretation of our provision. Having come to this conclusion, I find that the seizure by the sheriff was wrongful as against the protection given by the Act to the mortgagee.

Counsel for Steamships further submitted that if the boat was sold, the Bank would recover its money from the proceeds and that its interest would not be prejudiced. Such a move would make sense to me but to make such an order would be against the wishes of the mortgagee. They are entitled to exercise their right as they please with regard to the ship. There is no provision under the Act which would enable a creditor to seize and sell a mortgaged ship.

Several other cases were referred to in support of the contention that a creditor can sell a mortgaged ship. An examination of these cases showed that the issue was never raised as the arguments were mainly on the question of priorities. The only instance where the court may order the sale of a mortgaged ship is under s. 42(3) of the Act where there is more than one mortgagee, but this does not deal with the creditor of a mortgagor. I therefore find that the seizure by the sheriff was wrongful and order that the ship be released.

[dcxl][1858] EngR 55; (1858) 120 E.R. 293.

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Papua New Guinea Law Reports

Steamships Trading Company Ltd v Nissan Island Shipping Pty Ltd, PNG Development Bank and Toboi Shipbuilding Co Pty Ltd [1981] PNGLR 388 (18 September 1981)

Papua New Guinea Law Reports - 1981