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Web Alert: Australia, Recognition of foreign maritime liens? – revisited!

12 January 2017

Further to the club’s web alert on the Australian Federal Court’s first instance decision in The Sam Hawk (2015)[1], we now provide an updated on the appeal judgement handed down decision by the Full Federal Court.

The Full Court unanimously upheld the appeal overturning the first instance decision, restricting the circumstances in which Australia would recognise and enforce a foreign maritime lien, thereby limiting the number of claims that can bring about the arrest of a ship.

Re-cap on the facts

As reported back in February 2016, the time charterers (ECB) had entered into a bunker supply contract with the bunker suppliers (Reiter) in Turkey which was subject to Canadian law and which purported to grant a contractual maritime lien over the ship according to US law.

Reiter was not paid by ECB and arrested the vessel in Australia on the grounds that the owners of the shipwere liable to pay for the bunkers by virtue of a maritime lien, albeit a foreign maritime lien.

The owners put up security to allow the vessel’s release and then sought to have the arrest order struck out on the basis that the arrest was wrongful.

The First Instance decision

At first instance McKerracher J departed from the previously recognised position in Australian law, which did not recognise a maritime lien for the supply of bunkers. In deciding so, the Court departed from the Privy Council decision in The Halcyon Isle [2] where it had been decided that the existence of a maritime lien is a matter of procedure (not substance) and which is to be determined according to the lex fori (law of the country where the claim is brought) rather than the lex causae (the law of the contract).

It was therefore held that Australian courts may recognise and give effect to rights existing under foreign law and thus the arrest was upheld.

The appeal decision

On appeal by the owners, the Full Court held that foreign law rights which arose under the proper foreign law of a contract or transaction (the lex causae) would be recognised and enforced in Australia, but only if they:

  • arose in conformity with the law of the contract in question; and
  • they corresponded or were sufficiently similar to rights recognised under Australian law.

Considering that Australian law does not recognise the existence of a maritime lien for the supply of necessaries, including bunkers, the court decided that such a foreign law right did not correspond and was not sufficiently analogous to any of the maritime liens recognised in Australian law under s.15 of the Admiralty Act 1988 (Cth), and thus the arrest was struck out.

The court unanimously agreed to set aside the arrest, with the majority (Allsop CJ, Edelman, Kenny and Basenko JJ) generally inclined to follow the established position in The Halcyon Isle case. Justice Rares offered a dissenting view, suggesting a foreign maritime lien could, in principle, be accepted, but was not factually supported in this case.

Comment

The outcome of this decision is to be welcomed by owners as it significantly undermines the ability of claimants to enforce foreign maritime claims against vessels in Australia, where those claims would not be recognised under Australian law.

While Australian law may recognise foreign maritime law rights, the scope of maritime lien rights recognised under Australian law have not been extended (as they would have been had the first instance decision been upheld). For such a right to be recognised it will have to correspond or be sufficiently similar to the rights existing under Australian law.

The decision thus removes the previous international uncertainties arising out of the first instance decision and seems to confirm the view that it is unlikely that Australia will be departing from the position as enunciated in The Halcyon Isle.

It is worth mentioning however that the Court left open the question of whether the proper law in general circumstances would be the contractually incorporated law (if the Owners had been privy to that contract), the law of the jurisdiction in which the bunkers were supplied, the law of the flag of the vessel or the law of the jurisdiction in which the claim was brought. This will no doubt be the cause of further litigation in the future.

There is no indication as of yet whether an application for special leave will be made to the High Court.

This article intends to provide general guidance on the issues arising. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.

[1] Reiter Petroleum Inc v The Ship "Sam Hawk" [2015] FCA 1005

[2] ([1981] AC 221​