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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
CIV-2009-409-001087
IN THE MATTER OF an Admiralty Action in rem
BETWEEN
INDEPENDENT FISHERIES LIMITED
Plaintiff
AND THE FISHING VESSEL "ALTAIR II"
Defendant
CIV-2009-409-001161
AND BETWEEN INDEPENDENT FISHERIES LIMITED
Plaintiff
AND DEEP-SEA FISHING COMPANY
DALMOR LIMITED
Defendant
Hearing: 25 June 2009 (at Auckland)
Counsel:
G M Brodie and C Brown for Plaintiff
N A Beadle and J M Hayes for Dalmor Limited
Judgment: 2 July 2009 at
11:00am
Reasons: 10 July 2009
REASONS FOR JUDGMENT OF HUGH WILLIAMS J.
Reasons for Judgment were
delivered by Justice Hugh Williams
on
10 July 2009 at
11:00am
pursuant to r 11.5 of the High Court Rules
...................................................
Registrar/Deputy Registrar
Da te:
____________________________________________________________________
INDEPENDENT FISHERIES LIMITED V THE FISHING VESSEL "ALTAIR II" HC CHCH CIV-2009-409-
001087 2 July 2009
A The application
by Deep-Sea Fishing Company Dalmor Limited to set
aside the warrant of arrest executed by Independent Fisheries Limited
against "Altair II" on 27 May 2009 was dismissed.
B Independent Fisheries Limited was to have seven days from delivery
of
this judgment on 2 July 2009 to file and serve papers complying in all
respects with Rule 25.6 of the High Court
Rules.
C In light of Order A, Independent Fisheries Limited's application for a
freezing order in Proceeding 1161 was
adjourned to be dealt with as part
of the Summary Judgment application in that proceeding or with the
disposition of
that proceeding.
____________________________________________________________________
Introduction
[1] On 27 May 2009 the
plaintiff, Independent Fishing Ltd ("IFL") arrested the
defendant, the fishing vessel "Altair II", at the Port of Lyttleton by handing
the
captain a copy of the Registrar's notice of arrest, a copy of the warrant of arrest, and
a copy of a notice of proceeding.
[2] On 16 June 2009 the vessel's owner, Dalekomorska Kompania Polowowa
Dalmor Spólka z ograniczo odpowiedzialnoci or Deep-Sea
Fishing Company
Dalmor Ltd ("Dalmor") applied to set aside the proceeding and obtain the release of
"Altair II" from arrest on grounds
that the Court lacked jurisdiction under the
Admiralty Act 1973 to maintain the proceeding In Rem or the warrant of arrest
against
the ship. This was particularly as the notice of proceeding In Rem was said
to be a nullity for non-compliance with r 25.6 of the
High Court Rules as it was not
endorsed, as required by law, with a concise statement of the nature of the claim, the
relief required
or the amount claimed. IFL opposed both applications and, in the in
rem action, proposed to file an amended notice of proceeding
to remedy its
acknowledged error in not complying with r 25.6.
[3] In addition, IFL has sued Dalmor in Proceeding 1161 seeking
summary
judgment for $3,420,087.50 and further costs incurred since 1 April 2009. That
application is down for hearing on 10 August
2009. In order to preserve its position
and to stop "Altair II" leaving New Zealand, IFL also sought a freezing order against
Dalmor to
prevent the vessel's removal and an order preventing Dalmor from
"disposing of, dealing with or diminishing the value" of the vessel.
Dalmor opposed
the making of that order.
[4] In both proceedings Dalmor entered a conditional appearance.
[5] Both applications
requiring to be dealt with urgently, by agreement between
the parties the hearing of the two applications was removed to the Auckland
Registry
where hearing time was more readily available than in Christchurch.
[6] These Reasons for Judgment deal with the application
to set aside the arrest
and the freezing order application. Judgment on the applications to set aside the
arrest and freezing order
application was delivered on 2 July 2009 in terms of the
frontispiece, with Reasons for Judgment to follow. These are those Reasons.
Facts
[7] The factual background disclosed in the affidavits filed in both proceedings
which, by agreement, were all treated
as evidence in relation to the two interlocutory
applications showed that IFL, a large New Zealand private company with a
commercial
fishing fleet and a processing factory, formed a relationship with a
company called Dalmor S.A. of Poland in 1992. The arrangement,
according to
Mr McDonnell, a director of IFL, was that the companies would enter into a joint
venture agreement under which the joint
venture would charter a commercial fishing
vessel and its crew from Dalmor S.A. and IFL would provide deep water quota
within the
New Zealand Fishery Economic Zone and would process the catch.
[8] That arrangement continued until about 1996 using Dalmor's
vessel, the
"Dalmor II".
[9] On 8 February 1996 the parties set up a company called Dalfish Ltd with IFL
holding 76 per cent
of the shares and Dalmor S.A. the balance. Mr McDonnell said
that arrangement was agreed to avoid Dalfish being deemed a foreign
company, but
the shareholders' intention was always that IFL and Dalmor S.A. would equally
share the profits and expenses of Dalfish.
A 1995 agreement said to evidence that
arrangement was produced. That, in its terms, only provided for equal division of
the net
profit to be paid out as bonuses to Dalmor S.A. for arranging the charter and
to IFL of the cost of the lease of the quota. The agreement
said nothing about the
division of losses.
[10] "Dalmor II" continued to fish under the joint venture until 2002 when it was
joined by "Altair II" and a third vessel, "Atria". The first two fished for Dalfish and
"Atria" fished for Dalfish on behalf of Raukura
Moana Ltd.
[11] Quota reductions and rising costs meant the joint venture became
unprofitable and in mid 2005 "Dalmor II" returned
to Poland and the contract for the
operation of "Atria" was transferred to a company called Raudal Fishing Ltd, a joint
venture between
Raukura Moana Ltd and Dalmor S.A. However, "Atria"'s contract
with Raudal terminated at the end of 2007 when she was arrested for
offences under
the Fisheries Acts 1983 and 1996. She was allowed to return to commercial fishing
for the 2008 squid and hoki season
working for Dalfish, but "Atria's" charter with
Dalfish ended in October 2008. "Altair II" ceased fishing for Dalfish about
May/June 2008 at the end of the squid season.
[12] Mr McDonnell said in December 2007 Dalmor took over Dalmor S.A.'s
fishing
activities and Mr Dybek became president of Dalmor. A letter from
Mr Dybek to IFL dated 19 December 2007 said that from
that day Dalmor "is and
will be sole Party of contract(s) with your Company regarding this activity
concluded earlier by Dalmor S.A.".
IFL took that memorandum to mean that
Dalmor had taken over Dalmor S.A.'s contractual obligations. "Altair II", until then
registered in Malta, was re-registered in Poland under the ownership of Dalmor.
[13] Mr McDonnell said throughout the period
during which the fishing
operations had been unprofitable IFL continued the earlier arrangement as a
"goodwill gesture to Dalmor S.A. so the
crew would not suffer hardship".
[14] In the meantime "Atria" and "Altair II" incurred port and other costs which
Dalfish was
unable to pay. IFL met those costs as Dalmor S.A. was also unable so
to do.
[15] IFL's directors became increasingly concerned
about the situation and in
October 2008 Mr McDonnell and IFL's managing director, Mr Shadbolt, travelled to
Poland to discuss the
Dalfish joint venture with Mr Dybek and others. Minutes of
the meetings recorded that the costs of "Altair II" in Lyttleton after
1 June 2008,
about $NZD273,000, "will be paid back to IFL as well as $NZD166,000 which was
previously confirmed by e-mail that it
will be paid back to IFL till the end of
November". Dalfish's liabilities were recorded at about $NZ9m. There was
discussion
as to how Dalmor would meet its half share. The Minutes continued that
"Dalmor will respect agreement between both shareholders that
all expenses, profits
and losses are on an equal 50/50 basis" with further discussions concerning payment
of Dalmor's half-share
to follow.
[16] After the meeting the parties corresponded by email and, since some reliance
was placed on that exchange, it
is necessary to summarize its terms.
[17] The exchange began (as far as the evidence goes) with Mr Shadbolt
responding on 30
January to an email from Mr Dybek requesting a loan to Dalmor of
$NZD300,000 on condition Dalmor confirmed its liability for 50%
of Dalfish's
obligations, the proceeds of sale of "Altair II" and "Atria", would be paid to IFL's
solicitors "until such time as
all outstanding debts are satisfied by Dalmor in relation
to Dalfish as well as the $NZD300,000 loan" and Dalmor S.A. and Dalmor
guaranteed IFL to "cover all liabilities".
[18] Mr Dybek responded on 4 February saying there was "no problem" with the
requirement
for Dalmor to confirm its 50% obligation for Dalfish but refusing to
agree to the sale proceeds of the vessels being paid to IFL's
solicitors because
"Dalmor is a State-owned company" and thus its selling obligations were covered by
Polish law and required Ministerial
consent. While Dalmor was prepared to
guarantee "all liabilities towards Dalfish", Dalmor S.A. was unable to do so as it was
not the vessel's owner and it, too, required consent which, in effect, was from a
Minister.
[19] Mr Shadbolt replied later
the same day saying it was "commercially sensible
for us to hold some form of security" and seeking letters from Dalmor's board
"undertaking
to pay all outstanding debts from the proceeds of sale of the vessel or
vessels" with Government endorsement.
[20] Mr Dybek responded
on 5 February saying a ship mortgage was "not an
overnight exercise" and "requires time which we simply do not have", again because
of the need for Government approval. He made the point that buyers would be put
off by a mortgage.
[21] Mr Shadbolt replied on
6 February saying IFL would accept a "letter of
guarantee signed by a Notary Public", a condition Mr Dybek accepted.
[22] That
led to a Letter of Guarantee on Dalmor's letterhead dated 9 February
2009 relevantly saying:
Dalmor Ltd. Hereby declares
and guarantees that:
· In consideration of Independent Fisheries Ltd. financial assistance to the
company
Deep Sea Fishing Company Dalmor Ltd up to New
Zealand$300,000.00, by executing payments on behalf of Dalmor, the
company undertake to repay:
(i) The above mentioned financial assistance; and
(ii) All liabilities
incurred by Deep-Sea Fishing Company Dalmor
Limited as a shareholder of Dalfish Limited or taken over from
Dalmor S.A. (with the acquisition of Dalfish's shares) being 50% of
such company's obligations; the
amounts of such liabilities to be
paid to Dalfish and/or IFL, where relevant, from the vessel or
vessels sale monies to reimburse Dalfish and
IFL for creditors'
payments already made and still to be made by Dalfish or IFL. This
financial
assistance is also to be repaid to IFL from the
abovementioned vessels sale monies.
(iii) Dalmor hereby
confirms that it respects agreement between both
shareholders that all expenses, profits and losses are on equal
50/50
basis and that it will honour its commitments.
· The above mentioned financial assistance up to
New Zealand
$300,000.00 to be paid by Deep-Sea Fishing Company Dalmor Limited
upon written demand being
made by IFL and pending such demand,
interest to be paid at 10% per annum until repayment.
[23] In drafting the guarantee
Mr Dybek said he did not "name the vessels" but
suggested it did not matter as "Dalmor Ltd has not too many vessels to sale".
[24]
The NZD300,000 loan was to meet legal expenses in connection with the
prosecution of "Atria".
[25] "Atria" was sold in about
February 2009 for approximate $USD4m and left
Lyttelton in March . IFL and Dalfish received only $NZ1,513.950 from the sale
proceeds
which were applied first to reimburse payments by Dalfish funded by IFL
for "Altair II"'s ongoing costs after the cessation of charter
operations; secondly in
payment of the $300,000 loan; and with only the balance of $NZ54,556 available
towards Dalmor's liability
to the Dalfish joint venture.
[26] Mr McDonnell produced accounts for Dalfish for the year ended
30 November 2007 the last
accounts which directors had approved. His
reconciliation at that date showed each joint venture party owing $4,411,276
with
Dalmor's share being $3,690,261. Though not yet approved, the reconciliation of
30 November 2008 showed each joint venture partner
owing $5,274,480 with
Dalmor being liable for $3,628,980. Updated to 30 April 2009, Dalmor's debt to
Dalfish was $3,420,087.50 after
crediting the $54,566 balance of "Atria"'s sale
proceeds.
[27] Mr Dybek's affidavit said "Dalmor has every intention of complying
with its
obligations under the Letter of Guarantee dated 9 February 2009" and had offered
IFL an undertaking to the Court in that
regard.
[28] However, the arrest of "Altair II" and this application was, at least in part,
prompted by advice from the New Zealand
solicitor acting on behalf of prospective
buyers of the vessel that a final agreement for her sale had been negotiated,
notwithstanding
the arrest. Even though Mr Dybek said that on "Altair II"'s sale
Dalmor was prepared to undertake that the proceeds of sale would
be paid into its
solicitors' trust account with the proceeds remaining on interest-bearing deposit until
order of the Court, the
problem from IFL's viewpoint was that the sale of "Altair II"
will only be settled when the vessel reaches Pusan in South Korea and,
given neither
vendor nor purchaser are New Zealand companies and the vessel will be or must be
in Pusan for settlement, there was
no certainty any part of the proceeds will ever be
within New Zealand. Hence, IFL was not prepared to accept Dalmor's proffered
undertaking
since it may have turned out to be wholly unenforceable.
[29] In addition, even were IFL successful in obtaining judgment against
Dalmor
in New Zealand, Dalmor has no assets in this country other than "Altair II" and
enforcement of a New Zealand judgment in Poland
would be difficult.
Submissions
[30] Mr Beadle, Dalmor's leading counsel, first made the point that a challenge to
the applicability
of Admiralty jurisdiction must be decided on an interlocutory
application and cannot be left for trial: Vostok Shipping Co Ltd v
Confederation Ltd
[2000] 1 NZLR 37, 44, para [20].
[31] He submitted IFL's claim did not come within s 4(1)(c) of the Admiralty Act
1973 agreed by counsel as
the only statutory provision possibly applicable
because this was not a "claim in respect of a mortgage of or charge on a ship".
[32] Mr Beadle submitted that, at least presently, as against Dalmor direct, IFL
neither has a direct claim nor a mortgage or
charge.
[33] In support of that submission, Mr Beadle carefully traversed the documentary
evidence particularly the 9 February
2009 guarantee and submitted that, though
Dalmor did not dispute Mr McDonnell's evidence, the correct contractual position
was
that Dalmor S.A. and IFL as joint venturers were jointly and severally liable to
contribute to Dalfish's losses. Though Dalmor S.A.'s
obligations were assumed by
Dalmor in December 2007 and Dalmor acquired ownership of "Altair II" from
March 2008, nonetheless Dalmor's
contractual liability was to Dalfish not to IFL.
Further, Dalmor's offers through Mr Dybek were doing no more than what was
required
under the 9 February 2009 guarantee. Accordingly, in terms of s 4(1)(c)
IFL had no "claim in respect of a mortgage or charge on"
"Altair II".
[34] In response to IFL's submission it was entitled to an equitable charge over
"Altair II" because she was appropriated
to satisfaction of the debt, Mr Beadle
submitted the argument was flawed because the 9 February 2009 guarantee only
applied to the
"vessels sale monies". That, he submitted, was also consistent with
the email exchanges. Accordingly, he submitted, IFL was unable
to maintain its
arrest of the vessel: whatever its rights to repayment might be, they arose only from
the "vessels sale monies".
[35] He further argued that the 9 February 2009 guarantee compromised any
obligation on Dalmor's part to pay IFL pending receipt
of the sale proceeds. Any
debt by Dalmor to IFL was not, he submitted, due as yet and therefore, again, IFL
had no power to arrest
the ship.
[36] Though Dalmor had raised the omission by IFL to comply with r 25.6 in the
documents it served on arrest, Mr Beadle
properly acknowledged that Dalmor
was well aware of the basis of IFL's claim and IFL could amend the documents so as
to comply
with r 25.6, though not, of course, on arrest. In those circumstances, he
said, Dalmor would abide the decision of the Court on that
aspect of the dispute.
[37] For IFL, Mr Brodie, its leading counsel, submitted, in relation to IFL's failure
to comply with r
25.6, that an amendment was available, r 1.5 provides that non-
compliance with the rules does not nullify the proceeding and, given
Dalmor was
well aware of the ambit of the dispute and the amount of IFL's claim, IFL's
oversight should be excused (Attorney-General
v The ship "Tosa Maru" HC
Auckland AD585/91 15 May 1992 Robertson J, p14; Baltic Shipping Co Ltd v
Pegasus Lines S A [1996] 3 NZLR 641, 651 per McGechan J).
[38] On jurisdiction, Mr Brodie submitted the case fell within s 4(1)(c) as the
guarantee of 9 February
2009 amounted to an equitable charge over "Altair II" not
just the proceeds of her sale. He particularly relied on Dalmor's guarantee
that its
liabilities to Dalfish were to be met "from the vessel or vessels sale monies".
Relying on authority later discussed,
he submitted the guarantee amounted to an
"interest in an asset held as security for a claim" and that the authorities require no
formality but "simply a definitive indication that an interest in an asset is granted as
security for a benefit". The law, he submitted,
is encapsulated in 32 Hals Laws:
"Mortgage" (para 306 p 160) where the following passage appears :
"An equitable charge arises
where a particular asset is appropriated to the
satisfaction of the debt so that the chargee is entitled to look to the asset
and
its proceeds for the discharge of the debt. It is a security interest created
without any transfer of title or
possession to the beneficiary which can be
created by an informal transaction for value and over any kind of property."
[39]
He submitted the law is the same in New Zealand. In King v The Ship "Grey
Gull" (HC Auckland AD467/87 2 March 1993 p 6) Tompkins
J held:
"A claim based on an equitable charge or lien on a ship is within Admiralty
jurisdiction as being a claim
`in respect of a mortgage or charge on a ship or
share therein' and may be enforced by an action in rem against the ship.
I do not find ... any requirement that an equitable lien or charge is required to
be in writing, or that any other
formality is necessary. Provided the evidence
clearly establishes that it was the intention of the parties that the vessel
should be a security for the loan that ... is sufficient to establish an equitable
charge which in turn may be enforced
by an action in rem."
[40] Applying those authorities to the deed of guarantee, Mr Brodie made the
point that IFL would hardly
advance a further $300,000 to Dalmor were it to be no
more than an unsecured creditor. The ships were an integral element in the
parties'
commercial relationship and the only means of payment available. There had been
repeated promises by Dalmor to meet its
obligations concerning Dalfish. The deed
was therefore intended to apply both to the ship and its proceeds.
Discussion and Decision
re Arrest
[41] It was not in dispute that IFL's arrest of "Altair II" was beyond jurisdiction
unless, in the circumstances, it
could say it had a "claim in respect of a mortgage of
or charge on a ship" and thus bring its claim within s 4(1)(c).
[42] There
being no contention IFL was entitled to a formal mortgage on the
"Altair II", the question is whether in the circumstances at the
time of the arrest IFL
had a "charge" on "Altair II".
[43] In considering that question, the authorities quoted and others cited
by
counsel are critical.
[44] In his locus classicus on Enforcement of Maritime Claims (4th ed 2005 p 545
para 21.2) Professor
Jackson says that a "charge is simply an interest in an asset held
as security for a claim usually a monetary claim" and continues
that such a charge
"simply creates an interest in the asset commensurate with the claim in relation to
which the charge exists".
Discussing the equitable lien in Admiralty, the learned
author says (at pp 546-547 para 21.7)
An equitable lien or equitable
charge may be created in relation to ship,
cargo or freight in the same way as it may be in relation to chattels or choses
in action generally. A claim based on an equitable charge or lien on a ship is
within Admiralty jurisdiction as being
a claim "in respect of a mortgage or a
charge or a ship or share therein". [sic: "mortgage of or charge on a ship"
Supreme Court Act 1981 (UK) s 20(2)(c)]. It may be enforced by an action
in personam or an action in rem against the ship.
[45] Bowtle and McGuinness The Law of Ship Mortgages (p
37 para 3.29) say
that a mortgage:
"... must now be considered to be a form of security created by or under a
contract
that confers an interest in the property subject to it (which may be
either specifically identified or all property of a general
class which is
sufficiently descriptive to enable the subject property to be identified). That
is annulled upon the
performance of some agreed obligation usually, but
not necessarily, the payment of a debt with or without interest. The
term
`mortgage' and `charge' are now used interchangeably. ... For all practical
purposes, there is little difference
between the two classes of security.
[46] The learned authors then move to discussing equitable charges, saying (p 50
paras 3.58-3.59)
that:
"A charge is a limited property interest in the subject matter of the property,
created by debtor or other obligor
(the "chargor") in favour of the creditor to
whom the debt or obligation is owed (the "chargee"), allowing the chargee to
seize and sell the charged property and apply the proceeds derived from that
sale to the satisfaction of the secured
obligation. ... It may nevertheless still
be possible to create equitable charges against ships in much the same way
as equitable mortgages may be created. Indeed, the distinction between an
equitable mortgage and an equitable charge is
neither hard nor fast. ...
...
An equitable charge will be created by a contract between the owner and the
chargee. The contract may specifically create a charge or it may purport to
create a mortgage, but fail to do so because
of a formal defect or some other
reason, and therefor the contract takes effect only as an equitable charge.
[47] The position
is carefully discussed in an article discovered through the
diligence of Ms Brown, Mr Brodie's junior, Aitken: "The equitable charge:
A
remedy in search of an explanation: (2007) 18 JBFLP 157. The article begins with
the observation that "it is impossible to provide any comprehensive definition of an
equitable charge" (at
158), opines that the cases show that the "maintenance of a
separate fund by the chargor in relation to the property to be charged
is the most
useful objective indication of the intention of the chargor to `burden' it" (at 159) and
concludes (at 166) :
In order to demonstrate that property has been "charged" it is, if possible,
vital to be able to point to some "appropriation"
(by way of segregation or
otherwise) of the particular fund said to be subjected to the charge. It is
insufficient
merely to show that it was intended that a particular debt be paid
out of the proceeds as received from the disposal of a
particular property.
There is a large element of circularity in this approach since it will usually
be impossible in
advance of the actual receipt of the proceeds in the hands of
the putative chargor to "demarcate" or otherwise appropriate
the funds.
Carey v Palmer (1924) 3 CLR 380 and subsequent cases show the extreme
difficulty which may be involved in
determining the issue. The whole topic
is over-clouded by the studied insouciance that frequently attends the
"creation"
of the equitable charge. This is because either the parties are
unaware of the equitable complexities concealed in the transaction,
or
because it is too difficult at the time to turn one's mind to them.
[48] Those academic opinions are borne out by the
cases they cite.
[49] In Re Bank of Credit and Commerce International S.A. (No.8) [1997] 4 All
ER 568, 576 Lord Hoffmann, delivering the principal judgment of the House of
Lords, held:
There are several well-known descriptions
of an equitable charge (see eg that
of Atkin LJ in National Provincial and Union Bank of England v Charnley
[1924] 1 KB 431 at 449-450) but none of them purports to be exhaustive.
Nor do I intend to provide one. An equitable charge is a species of
charge,
which is a proprietary interest granted by way of security. Proprietary
interests confer rights in rem which,
subject to questions of registration and
the equitable doctrine of purchaser for value without notice, will be binding
upon third parties and unaffected by the insolvency of the owner of the
property charged. A proprietary interest provided
by way of security entitles
the holder to resort to the property only for the purpose of satisfying some
liability
due to him (whether from the person providing the security or a
third party) and, whatever the form of the transaction, the
owner of the
property retains an equity of redemption to have the property restored to him
when the liability has
been discharged. The method by which the owner of
the security will resort to the property will ordinarily involve its sale
or,
more rarely, the extinction of the equity of redemption by foreclosure. A
charge is a security interest created
without any transfer of title or possession
to the beneficiary. An equitable charge can be created by an informal
transaction
for value (legal charges may require a deed or registration or
both) and over any kind of property (equitable as well as legal)
but is subject
to the doctrine of purchaser for value without notice applicable to all
equitable interests.
[50]
In one of the most frequently-cited passages in this area, Swiss Bank
Corporation v Lloyds Bank Ltd [1980] 2 All ER 419, 426, Buckley LJ in the English
Court of Appeal held:
It follows that whether a particular transaction gives rise to an equitable
charge of this nature must depend on the intention of the parties ascertained
from what they have done in the then
existing circumstances. The intention
may be expressed or it may be inferred. If the debtor undertakes to segregate
a particular fund or asset and to pay the debt out of that fund or asset, the
inference may be drawn, in the absence of any
contra indication, that the
parties' intention is that the creditor should have such a proprietary interest
in the
segregated fund or asset as will enable him to realise out of it the
amount owned to him by the debtor. ... But notwithstanding
that the matter
depends on the intention of the parties, if on the true construction of the
relevant documents in the
light of any admissible evidence as to surrounding
circumstances the parties have entered into a transaction the legal effect
of
which is to give rise to an equitable charge in favour of one of them over
property of the other, the fact that
they may not have realised this
consequence will not mean that there is no charge. They must be presumed
to intend
the consequence of their acts.
...
A binding obligation that a particular fund shall be applied in a particular
manner may found no more than an injunction to restrain its application in
another way, but if the obligation be to
pay out of the fund a debt due by one
party to the transaction to the other, the fund belonging to or being due to the
debtor, this amounts to an equitable assignment pro tanto of the fund
(Palmer v Carey [1926] AC 703 at 706, [1926] All ER Rep 650 at 651,
Rodick v Gandell (1852) 1 De GM & G 763 at 777, 42 ER 749 at 777). Lord
Wrenbury said in Palmer v Carey [1926] AC 703 at 706-707, [1926] All ER
Rep 650 at 652 when delivering the judgment of the Privy Council:
`This is but an instance of a familiar doctrine of equity
that a
contract for valuable consideration to transfer or charge a subject
matter passes a beneficial
interest by way of property in that subject
matter, if the contract is one of which a Court of Equity will decree
specific performance.'
The Grey Gull is an example of the application of those principles in both the New
Zealand
and the Maritime setting.
[51] Applying those decisions to the facts of the present case, this is a situation
where Dalmor
S.A. and, after it assumed Dalmor S.A.'s debts to Dalfish, Dalmor
itself operated the fishing operation earlier described through
Dalfish. It is now
accepted by Dalmor that Dalmor S.A. and, now, Dalmor itself and IFL agreed to
share equally in the profits and
losses of the fishing operation. Unfortunately, the
operation ran at a considerable loss. It is now, therefore, the obligation of
Dalmor
and IFL to meet their half share of that loss.
[52] The next question is, as Mr Beadle submitted, whether IFL can enforce
against Dalmor the obligation that Dalmor has to meet the half share of Dalfish's
losses.
[53] There can be little doubt that,
at least as at 30 November 2007, the latest date
the directors of Dalfish approved its accounts, Dalmor's debt to Dalfish was
$3,690,261.
However, Dalmor's approval of Dalfish's accounts showing its debt to
Dalfish in that amount did not, at law, give IFL a direct right
of action against
Dalmor for its failure to pay its share of the Dalfish debt. It would be for Dalfish to
enforce payment of that
amount.
[54] Even though IFL would appear to have been funding the Dalfish obligation
either as a matter of goodwill or in
order to ensure liquidation or arrest proceedings
were not taken, there is no evidence to suggest it did so other than as a volunteer.
Certainly IFL nowhere suggests it undertook those payments as a result of an
agreement with Dalmor at that stage of the matter that
IFL should meet Dalfish's
obligations and that IFL would in consequence have a direct right of action against
Dalmor arising out
of Dalmor's failure to meet its share of Dalfish's debt.
[55] To that point, therefore, Mr Beadle's submissions are persuasive.
[56] The position, however, changed with the email exchanges leading up to the
guarantee of 9 February 2009 and the guarantee
itself.
[57] As the email exchanges earlier cited demonstrate, IFL was prepared to lend
Dalmor a further $300,000 on condition
that it received some form of security for
both that and Dalmor's pre-existing debt to Dalfish. It negotiated for a mortgage
over
"Altair II". That request was rejected for the reasons Mr Dybek gave.
Mr Dybek remained, however, keen for Dalmor to obtain the
advance and was
prepared to enter into an alternative form of security for IFL which did not involve
Polish Government agencies.
The parties accordingly settled on the guarantee which
was drafted by Mr Dybek and, though not naming "Altair II", clearly had that
vessel
in mind.
[58] Against that background, it is clear that as the price for Dalmor obtaining the
$300,000 loan from IFL,
Dalmor agreed both to repay the loan and meet, by
payment to IFL, all its liabilities to Dalfish, both direct and those taken over
from
Dalmor S.A., with those liabilities being met "from the vessel or vessels sale
monies". Further, the guarantee was for "payments
already made and still to be
made by Dalfish or IFL" with that, too, being repaid from the "vessels sale monies".
[59] While
there is a certain force in Mr Beadle's submission that payment of the
aggregated debt of Dalmor S.A. and Dalmor of their liabilities
to Dalfish by direct
payment to IFL is said to be secured against the "vessels sale monies" and that
provided security only against
the proceeds of sale of "Altair II" not the vessel itself,
that submission fails to give weight to the fact that the guarantee is of the aggregated
liabilities of Dalmor S.A.
and Dalmor to Dalfish and provides that payment will
come "from the vessel or vessels sale monies".
[60] The parties' use of
the disjunctive "or" makes clear that the security for
Dalmor S.A. and Dalmor's aggregated liabilities plus the additional IFL loan
was to
be whichever was available of either "Altair II" the only "vessel" to which the
guarantee could possibly relate or, should
"Altair II" have been sold, her proceeds.
[61] Put another way, if the parties' intention was that security to IFL for
repayment
of the Dalmor S.A./Dalmor debt to Dalfish and the additional advance
was intended to be confined only to the proceeds of the "Altair
II" sale, the words
"vessel or" in the guarantee would have been superfluous.
[62] It must follow, in terms of Swiss Bank and
the other authorities and texts
reviewed that Dalmor, by its execution of the guarantee in those terms, was
undertaking to "segregate
a particular fund or asset and to pay the debt out of that
fund or asset".
[63] The deed of guarantee of 9 February 2009 accordingly
amounted to an
equitable charge over whichever of the vessel or its proceeds was available at the
time it came to be paid as security
for payment of the aggregated debt and further
advance. "Altair II" or its proceeds, whichever was applicable, was accordingly
appropriated
to meet the aggregated debt and the further advance.
[64] IFL's claim falls precisely within Professor Jackson's description
of the
equitable lien in Admiralty and conforms with his opinion that a claim such as IFL's
comes within s 4(1)(c) of the Admiralty
Act 1973. IFL's claim is therefore in
respect of a mortgage of or charge on "Altair II". The application to set aside the
arrest
of "Altair II" through lack of jurisdiction under that section must therefore be
dismissed.
[65] On the procedural front, Mr
Beadle was right to abide the decision of the
Court concerning IFL's admitted failure to comply with r 25.6. That failure, as it
readily acknowledged, neither nullified the proceeding nor made it incapable of
correction. Accordingly there was the direction that
within seven days of delivery of
the judgment IFL filed and served amended arrest papers which comply in all
regards with r 25.6.
Freezing Order
[66] IFL's application for a freezing order was an alternative in the event Dalmor
was successful in its application
to set aside "Altair II"'s arrest. Dalmor has been
unsuccessful in that regard. Accordingly there was no need for the Court to consider
the freezing order application.
Result
[67] In the result
a) Dalmor's application to set aside IFL's Writ
of Arrest executed on
27 May 2009 was dismissed.
b) Within seven days of delivery of this judgment
IFL was to file and
serve papers concerning "Altair II"'s arrest which complied in all
respects
with r 25.6.
c) There being no reason to deal with IFL's application in Proceeding
1161 for a freezing
order, that application was adjourned to be dealt
with as part of the summary judgment application or, if that is
unsuccessful, with the disposition of that claim.
.................................................................
HUGH WILLIAMS J.
Solicitors:
Cunningham Taylor (B C Taylor), P O Box 1003 Christchurch
for plaintiff
DLA Phillips Fox ((J M Hayes) P O Box 160 Auckland, for Dalmor Ltd
Copy for:
G M Brodie. P O Box 130 121 Armagh, Christchurch
8141
Helen.Vermeulen@justice.govt.nz
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