Kent v "Maria Luisa" as Surrogate for the Vessels "Monika" and"Boston Bay" [2004] HCATrans 63 (12 March 2004)

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Kent v "Maria Luisa" as Surrogate for the Vessels "Monika" and"Boston Bay" [2004] HCATrans 63 (12 March 2004)

Last Updated: 22 March 2004

[2004] HCATrans 063

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S289 of 2003

B e t w e e n -

GREGORY DAVID KENT

Applicant

and

“MARIA LUISA” AS SURROGATE FOR THE VESSELS “MONIKA” AND “BOSTON BAY”

Respondent

Application for special leave to appeal

GUMMOW J
CALLINAN J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 MARCH 2004, AT 10.38 AM

Copyright in the High Court of Australia

MR J.B. WHITTLE, SC: May it please the Court, I appear with my learned friend, MR S.A. BENSON, for the applicant. (instructed by Conway Leather Shaw)

MR B.W. RAYMENT, QC: May it please your Honours, I appear with my learned friend, MR G.J. NELL, for the respondent. (instructed by Wallmans Lawyers)

GUMMOW J: Yes, Mr Whittle.

MR WHITTLE: Your Honours will see from the papers and from the judgments in the court below, both at first instance and on appeal, that there are two principal issues with which this case is concerned. Firstly, what does the term “owner” mean in section 19(b) of the Admiralty Act, and, secondly, do the facts as proved or agreed show that AFE was the owner of the “Maria Luisa” within the meaning of section 19(b).

GUMMOW J: I will tell you what puzzled me a little bit, Mr Whittle. That phrase “the owner” does not just appear in 19, it appears elsewhere in Part III, does it not? It appears, for example, in section 17, and in both sections 17 and 19 it is used in apposition to the owner or somebody else.

MR WHITTLE: Yes. For example, “or charterer” in 17.

GUMMOW J: Yes, that is right, or somebody “in possession or control” in 19.

MR WHITTLE: Yes.

GUMMOW J: Does that not throw some light, maybe, on the specificity or rigidity of the term “owner” when you are identifying the second ship?

MR WHITTLE: It does, your Honour, if one is looking at it in terms of charterer or possession, but it does not go to the question, really, we would say, of whether or not “owner” means legal owner or registered owner, on the one hand, or beneficial owner, on the other.

GUMMOW J: But this Act will apply to all sorts of legal systems. Why do we introduce this expression “beneficial owner”? They may not know what you are talking about in Liberia or Bermuda.

MR WHITTLE: That is so, your Honour, and it may be that in the appropriate case where there is no bifurcation of ownership, in a non-common law system, that there would be no place to say that owner could be anything other than legal or registered owner. But in the common law system, where a system of both legal and beneficial ownership is well recognised, there would be no reason to limit it simply to legal owner because in another system and applying another system of law you might get a different answer. Because, really, your Honour, that is dependent upon the particular system of law that you are dealing with. So, if your Honour takes the point that there are different systems of law, the question might be, what does the term “owner” mean within that particular system of law with which you are dealing?

CALLINAN J: It may be possible to give it a common meaning across all systems of law.

MR WHITTLE: That is really another way of putting, with respect to your Honour, what I was trying to say, yes. But the question would be, if you were applying a foreign law or looking at a different system of law, what constituted ownership within that system of law for the purposes of - - -

GUMMOW J: What is wrong with the formulation of paragraph 61 on page 75 in the joint judgment?

MR WHITTLE: Your Honour, can I say this about the tests that are applied in the majority judgment. With great respect to their Honours, we say this about them. They seem to be largely tests which are derived from considerations in our system – I mean the common law system – of legal ownership. If you look at all of the tests which Mr Justices Tamberlin and Hely use they are all very much tests which seem to be looking at the question of what is actual legal ownership. They are not really looking at tests of what is equitable ownership or beneficial ownership. For example, your Honour, there is no doubt whatsoever that we have - - -

GUMMOW J: There is another problem, too, Mr Whittle. It says “the owner”, not “an owner”.

MR WHITTLE: Yes.

GUMMOW J: Are you saying that it excludes the legal owner, excludes the whole of the legal title? It is one thing to say someone has a beneficial interest and is, in some sense, an owner. It is another thing to say that the person holding the legal title is not the owner.

MR WHITTLE: Your Honour, can I just, in answering that question, make one concession right away. It is suggested in some of the papers that we filed that a beneficial interest is the equivalent of beneficial ownership. That cannot be right and we do not press that point. Now, I attempt to answer your Honour’s question directly. In a situation where you have legal ownership and there is no question other than that the person is the legal owner of the vessel, they are the registered owner, and there is no question of any trust interests or any other interests of that kind, then the simple answer to the question is: the legal owner is the owner of the vessel.

GUMMOW J: Obviously.

MR WHITTLE: Yes, obviously.

GUMMOW J: That is not the difficulty.

MR WHITTLE: But, your Honour, if we go on and you say, all right, there are here legal interests or there is a legal title in a person, but there is also, for example, a trust instrument which says, “This ship is held on trust for B”, we would submit, your Honours, consistent with authority and consistent with the position of Mr Justice Sheppard in “Iron Shortland”, that in that case the law would say “owner” was the beneficial owner, that is, the trust owner, for the reasons referred to by his Honour in that judgment, because you have to look at what the purpose of this section really is.

The purpose of the section, it seems, we would respectfully submit, is to create a right which would not otherwise exist, apart from statute, to have recourse to a fund or to a res to satisfy a judgment where that right would not, for example, be available to the common law. The question then comes, perhaps, down to this. In order to make that res responsible or answerable for the judgment the question really has to be, who, in a real sense, is the owner of that vessel, so that they can properly be said to be responsible and liable for the damage which has been caused in the use, possession or control of the first vessel?

CALLINAN J: Mr Whittle, would the respondent have an effective right of alienation? Could the respondent compel alienation?

MR WHITTLE: In other words, sell the vessel or in some other way deal with it?

CALLINAN J: Yes.

MR WHITTLE: As trustee of the trust, I think the answer to that, your Honour, is yes.

CALLINAN J: I think this Court has said on a couple of occasions that alienation is critical to ownership. I am just trying to think of the names of the cases. Whereas the other matters to which the Full Court referred may not be so critical – a right to receive income – although if you compel alienation, you could probably compel the payment of the income for the respondent.

MR WHITTLE: Yes. Your Honour, if you look at it in terms of a simple and fairly straightforward trust – I am not sure I am altogether answering your Honour’s question, but say a trust of Blackacre, A holding Blackacre on trust for B, but with a power to change investments, even.

CALLINAN J: A simple trust, was it?

MR WHITTLE: A simple, straightforward – taking that example.

GUMMOW J: This was not a simple trust.

MR WHITTLE: No, it is not.

GUMMOW J: That is what I am asking you.

MR WHITTLE: It is not. I agree with that, your Honour, but my point is that even in a fairly straightforward trust, A holding Blackacre on trust for B, with a right to change investments, we would submit that, in normal usage and in normal legal parlance, it would normally be said that B was the equitable owner of Blackacre, even though A might from time to time - - -

GUMMOW J: Yes, the equitable owner, not the owner.

MR WHITTLE: Yes, or beneficial owner, your Honour, yes.

GUMMOW J: I know, but you always introduce an adjective. You have to.

MR WHITTLE: Yes, I concede that, your Honour, because if one does not say that, then, plainly, the extended meaning given in The “Iron Shortland” is incorrect and, really, one comes down to simply that 19 means the owner or registered owner, and nothing else – which I would say to your Honour, of course, is not a position that even the respondent has taken up in this case and is not the basis on which the case was fought in the court below by either party.

We would say that while alienation is important when one is dealing with a trust, it is not a crucial aspect in determining, in answer to your Honour Mr Justice Callinan, whether or not a person could normally be described as the beneficial owner of a piece of property, whatever it might be – real property or chattels of some kind or another, or even choses in action such as shares. The mere fact that there is a right in the trustee, so to speak, to change investments would not of itself be determinative of the question, though it does amount to a right to alienate.

CALLINAN J: Underlying all of this is a system of registration of vessels, too, is there not?

MR WHITTLE: Yes, there is, but it is, again, as Mr Justice Gummow said, I think, almost in his opening question, you may be dealing with a particular vessel where there is a system of registration or you may not be. It would depend - - -

GUMMOW J: Was there an applicable system here?

MR WHITTLE: Yes, your Honour, there was, but there was no requirement that the ship had to be registered. I mean, these vessels are all Australian vessels, as I understand it, your Honours.

GUMMOW J: Yes. So the Shipping Registration Act would apply, would it?

MR WHITTLE: Yes, as we understand it, it would. Your Honours, can I go back to perhaps what I was going to say before we went on to answering the questions?

GUMMOW J: Yes. We just thought we had better tell you up front what is on our minds, that is all.

MR WHITTLE: No, I can see, your Honours, thank you. Perhaps may I say this. As I said, it is common ground between the parties – although your Honour Mr Justice Gummow’s questions indicate that your Honour may have some doubts about it – that “owner” is not confined to legal or registered owner, but also includes beneficial owner. In The “Iron Shortland”, as your Honours will have seen from the judgment, Mr Justice Sheppard spoke - - -

GUMMOW J: Not “includes” beneficial owner. “Substitutes” beneficial owner, if there is one.

MR WHITTLE: I am sorry, your Honour, I did not quite catch that.

GUMMOW J: Not “includes” beneficial owner, because there can only be one owner.

MR WHITTLE: Yes, for the purposes of the section.

GUMMOW J: It substitutes the beneficial owner.

MR WHITTLE: Where such beneficial ownership exists.

GUMMOW J: That is right.

MR WHITTLE: Yes, your Honour. There is a question as to what his Honour meant, that is, Mr Justice Sheppard, by speaking of “beneficial, true or real owner” but for the purposes of this application we will confine it to - - -

GUMMOW J: His Honour no doubt had in mind the mischiefs that can arise with the drafting of this section.

MR WHITTLE: Yes, precisely, which is precisely why I was saying, your Honour, why it might be appropriate to look at the question in terms of beneficial ownership for the very mischiefs which his Honour spoke of. The majority in the appeal in this case said, beneficial owner, strictly speaking, is what needs to be shown. Mr Justice Moore took, I think it would be right to say, a more general or a wider view.

GUMMOW J: His formulation is at page 64, paragraph 30, is it not, about line 44?

MR WHITTLE: That is right, your Honour, yes. Really, the whole of the paragraph, but particularly the sentence beginning “Rather, having regard to the circumstances”.

GUMMOW J: Yes, “presently enjoys a bundle of rights”.

MR WHITTLE: Yes. Now, of course, your Honour, that bundle of rights is, on the facts of this case, if I can put it this way, rather extraordinary and about as strong a bundle of rights as you could find short of legal ownership, because you have - - -

GUMMOW J: Do you support what the dissenting judge said or do you supplement it?

MR WHITTLE: We would seek to argue that that is a view that is permissible on the meaning of the section, yes, but we would also seek, obviously enough, to say that even if you take the narrower view in this case the majority was in error. Your Honours, can I just say, the bundle of rights in this case is particularly strong, if I can describe it that way: (1) the ownership of all the units in the trust, (2) the fact that AFE controls the trustee, it owns all the shares in the trustee, (3) that any right the trustee has to be indemnified out of the trust fund is, on the facts as found, only referable to moneys it owes AFE.

So, any moneys it took out of the fund by way of indemnity, which seems to have been an important matter in the majority’s view, would simply be to then put it back into the pocket of AFE. There would be, in some sense, a circular transaction involved, which really would not, in effect, involve any money ultimately going to the trustee. The fourth matter, of course, which we say is relevant is that there can be no doubt that the ship was an asset of the trust at the time the action was commenced, and that is not seriously in dispute.

If we go to the view of the majority, we have already submitted to your Honours that there are tests which the majority apply which we say are inappropriate. If you go to the trust deed itself, which is reproduced in the appeal book at volume 1 - - -

GUMMOW J: This is not a publicly available document, obviously.

MR WHITTLE: No, not as I understand it, your Honour. It was produced on subpoena.

GUMMOW J: That is life. How can you work out who to sue without having some preliminary discovery action?

MR WHITTLE: Yes. Your Honour, I am not exactly sure of how it was in this case that it was decided that the action be constituted that way, but when it came to jurisdiction it was - - -

GUMMOW J: You would always have to do that, would you not, because you could not be sure that the name on the register was the one to sue, because, if there happened to be a beneficial owner out there, that would be substituted as the owner for the section.

MR WHITTLE: On one interpretation, yes, that is right, your Honour. I can only assume, but I do not know, that in this case somehow or other information was available which showed that this trust deed existed. I can tell your Honour, and your Honours unfortunately will have noted, that the trust deed is far from a complete copy, in the sense of there are lines missing, it appears, at the bottom of pages and there is a schedule missing. It came to light, as I am instructed, after a good number of subpoenas were issued and this is the best that we could get.

GUMMOW J: It may be the best that exists.

MR WHITTLE: That may be so, too, your Honour.

GUMMOW J: It would not be the first time.

MR WHITTLE: No. In any event, the central provisions of the trust deed are clear. Your Honours will see, of course, that the vital clause, really, in a sense, is clause 2(a), which is at page 4. It speaks of:

The beneficial interest in the Trust Fund as originally constituted - - -

GUMMOW J: I am sorry to interrupt you, Mr Whittle, but these issues could arise, could they not, with an arrest? At the time of an arrest?

MR WHITTLE: Yes – well, does your Honour mean arrest where a section 19 action has been commenced?

GUMMOW J: Yes. It has to be done in a hurry.

MR WHITTLE: Yes. Well, your Honour, as would be the case, if the arrest here, of course, was wrongful, there would be an action for damages for wrongful arrest if someone in my client’s position arrested the ship wrongfully.

GUMMOW J: Yes.

MR WHITTLE: Clause 2(a):

The beneficial interest in the Trust Fund as originally constituted and as existing from time to time shall be held by the Unit-holders for the time being in proportion to the units registered in their respective names and all units shall at any given time be of equal value.

That is a fairly classic sort of clause in a unit trust and certain things to note: no other beneficial interest is contemplated in the deed; there are no successions of interest; it is impossible to see anyone in the deed who could certainly have a beneficial ownership other than AFE, if it is not AFE. In fact, the deed does not contemplate that there could be anyone other than AFE as the beneficial owner.

The vital clause is clause 2(c) which, of course, again, is a fairly standard clause, it appears, looking at the cases in unit trust-type documents. In that respect, your Honour, can I have your Honour’s leave, if I may, and I need your Honour’s indulgence for this. There is a case we should have sent to your Honour in the bundle yesterday, which we did not, called Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 45 NSWLR 639. May I have your Honour’s leave to hand that up so that I can refer your Honours to it?

GUMMOW J: Yes. Is this Justice Meagher’s judgment?

MR WHITTLE: Actually, I was going to refer your Honour to Mr Justice Fitzgerald’s judgment. Mr Justice Meagher’s judgment in this case is interesting because he touches on that point of the famous footnote of Sir Frederick Jordan’s.

GUMMOW J: Yes, that is right. I think we have recently approved his Honour’s treatment of it.

MR WHITTLE: I am certainly not aware of any recent treatment, but I am also aware of his Honour’s article. Can I just take your Honour to - - -

GUMMOW J: In Tanwar, we approved it.

MR WHITTLE: Your Honours, in this case, the simple facts were these. Coles Myer Property Investments was the legal owner of some property. There was no question of outstanding beneficial interests. It went through a series of transactions with a trustee which ended up with the trustee being the legal owner and Coles Myer Property Investments being the beneficial owner. The question was whether there had been a change of beneficial ownership so as to attract duty.

On page 659, Mr Justice Fitzgerald looked again, at the top of the page, at a trust deed very similar to the current trust deed. Your Honours will see the relevant provisions set out there at A and B. Your Honours will see, again, a division of beneficial interests into units and no particular interest in any particular asset of the fund. Down at the paragraph commencing at letter E:

As I stated in Suncorp, in accordance with authorities there cited, a unitholder in a unit trust commonly has an interest in the trust property and its constituent parts.

Charles v Federal Commissioner of Taxation is probably the leading case on that –

It is unnecessary to consider that general proposition further in this matter. It is also unnecessary to consider the usual effect of a provision such as cl3.2. Consistently with the opinion which I expressed in Suncorp –

which is a decision of the Queensland Supreme Court when his Honour was President and which is a detailed consideration of these kinds of issues –

with respect to the broadly comparable trust deeds there under consideration –

and his Honour says they were comparable with the trust deed in this ISPT Case –

I am of the opinion that the trust deed of the Forster No 1 Trust entitles a sole unitholder to the full beneficial ownership of the trust fund and its constituent assets, subject only to any rights of the trustee with respect to those assets at the particular time.

His Honour then goes on and looks at the trust deeds and says, more emphatically, this is shown by certain provisions. I note the time, your Honour. May I proceed?

GUMMOW J: Yes – well, very shortly.

MR WHITTLE: Yes, I will be as short as I can. So we would say there is authority for the proposition, at least, that the sole unit holder of all the units in a trust is the full beneficial owner of the property in the trust, in a comparable trust deed to the one which the Court is considering here. As I said to your Honours earlier, in the majority judgment they seemed to have posed tests of legal ownership such as possession and the right to possession, which are inappropriate when one is considering beneficial ownership.

Secondly, your Honours will have seen a reference to vesting orders and the right to obtain a vesting order. With respect to their Honours, that is dealing in a different area of the law. The cases their Honours cite, such as Stern v McArthur, are cases where one is looking at the enforcement of contractual rights and the reduction into possession of property which is the subject of a contract of sale. Here, one is dealing with an express trust fully constituted in writing.

Thirdly, your Honour, it is repeated through the judgment of the majority that the failure, in effect, to reduce the ship into actual possession is a reason for saying that AFE was not the beneficial owner, and yet, by definition, that would not happen where someone was the beneficial owner.

Can I say, lastly, your Honour, the other matter that seems to have troubled or concerned their Honours was the right of the trustee to exoneration out of trust assets and that that might have, in effect, meant that there was in fact not a full beneficial ownership in AFE. With respect, your Honour, the right of exoneration, as exemplified in the Vacuum Oil Case and discussed in the Octavo Case, is not a right of ownership of assets to the extent of the right of exoneration. It is a right of lien and a right of charge over the assets in order to be satisfied it does not affect the beneficial ownership of the assets. Therefore, there is not, in a sense, a splitting of
beneficial ownership if the trustee has a right to indemnity, and, therefore, that, we say, is an issue which does not indicate that there is no beneficial ownership.

For those reasons, we say the majority judgment is seriously open to question, your Honour, and that there are good reasons for thinking it could be argued that it is incorrect. For other reasons we have advanced in the submissions, this is a case which does attract this Court’s jurisdiction to grant special leave.

GUMMOW J: Thank you. We do not need to call on you, Mr Rayment.

Without necessarily being taken as endorsing all of the reasoning in the Full Court, but particularly having in mind the subject, scope and purpose of the provisions for in rem proceedings in Part III of the Act, we are not satisfied that there are sufficient prospects that, if special leave were granted, there would be an outcome different to the outcome obtained in the Full Court. Accordingly, special leave is refused with costs. Call application No 3.

AT 11.04 AM THE MATTER WAS CONCLUDED