Federal Court of Australia

This judgment is concerned with the claims of two plaintiffs, Morlines Maritime Agency Limited ("Morlines") and Transworld Marine Agency Company NV ("Transworld") on the fund arising from the sale of MV "Skulptor Vuchetich" ("the vessel").

The relevant background is set out by Sheppard J in a judgment given in this matter on 15 May 1997: see Morlines Maritime Agency Limited & Ors v The Proceeds of Sale of the Ship "Skulptor Vuchetich" (unreported, 15 May 1997). In that judgment his Honour discussed in detail the contentions advanced by all claimants. With the exception of two claims, his Honour found that all claimants, including Morlines and Transworld, had general maritime claims which entitled them to recover judgment in rem. The two claims which were refused were claims concerning legal costs by the plaintiffs McMaster Meighen and Terriberry Carroll & Yancey. Essentially, the reason for the disallowance of these two claims was that they were in respect of services rendered to the shipowner and not to the ship and were therefore not general maritime claims.

Because the matter had been heard on 17 and 18 June 1996, his Honour, after judgment, considered that it was appropriate to require all parties, before distribution of funds, to update their claims by filing affidavits as to funds received between the last hearing date, namely 18 June 1996 and the date of judgment in May 1997.

There were some differences between the parties as to the precise terms of the directions made by his Honour. In submissions, Morlines and Transworld referred to a direction given on or about 15 May 1997. The parties could not provide, nor could I locate, any directions or orders on or about that day relating to these matters. However, having examined the Court file I am satisfied that the concern evinced by his Honour was to determine whether the claimants on the fund had properly taken into account moneys received in the period which elapsed between the hearing and judgment. Support for this view is to be found in orders made by his Honour on 31 May 1996 (Order 1) and 22 May 1997 (Order 21) which reflect a concern on the part of his Honour that the unpaid amounts of the claims should be current as at the date of distribution.

I turn first to the Morlines claim.

The Morlines Claim

Morlines claims that it is entitled to be paid from the fund the total amount of USD$295,657 together with interest as from 15 May 1997.

This amount is disputed by the owner of the vessel, the Baltic Shipping Company ("Baltic"). I accept that Baltic has a sufficient interest to give it standing to make this challenge.

The first ground of challenge is that Morlines has failed to properly credit against the amount of the in rem claim the full amount of moneys received. Baltic submits that all moneys received by Morlines should have been deducted from the amount referred to as net disbursements incurred by Morlines, whereas in fact substantial portions of funds received have been allocated by Morlines in payment of agency commission, interest and legal fees.

Baltic refers to the determination of Sheppard J in his judgment of 15 May 1997 that agency commission earned by Morlines was not recoverable against the fund because it was not an in rem claim. In his judgment his Honour said (at 11):

" ....part of Morlines' claim appears to be for agent's commission. The claim should be reduced by the amount of commission included in it."

There is no dispute that the claim made by Morlines included agency commission.

The claim of Morlines is founded on a judgment of the Federal Court of Canada given on 18 December 1995 which "condemns" Baltic to pay Morlines the sum of CND$1,190,854.04 with interest to run from 20 January 1995 and costs. It is apparent from a written Acknowledgment of Debt made by the President of Baltic to Morlines on 28 December 1995 that the judgment debt compromised unpaid disbursements and agency fees plus legal costs and interest.

An affidavit has been sworn in the proceeding before me on 23 June 1997 by Mr Jones who is the Manager in Canada for Morlines of the Baltic Shipping Company account. It is an important document which sets out the approach taken by Morlines. The salient part states:

"8. By order signed on 18 December 1995, copy of which is annexed hereto and marked with the letter "A" judgement was ordered in favour of Morlines against BSC in the sum of CND$1,190,854.00 with interest to run from 20 January 1995. An acknowledgment of debt was given to Morlines by BSC on 28 December 1995. A copy of the acknowledgment of debt is annexed hereto and marked "B". Of the sum of $1,190,845.00, CND$166,542.00 was attributable to unpaid agency commission.

9. Up to June 1996 all sums received by Morlines from BSC had been applied in reduction of the principal debt owing by BSC to Morlines except for CDN$12,874.00 which was applied to legal fees 28 March 1996.

10. Morlines regarded each amount received from BSC as having been applied proportionally to the principal debt as between disbursements and agent's commission.

11. In June 1996 during the course of preparing material for the hearing of Morlines' general maritime claims in the Federal Court of Australia I became aware that Morlines' claim for agency commission may not be accepted in Australia as a general maritime claim under s.4(3) of the Admiralty Act 1988 (CMWLTH).

12. As a result of this concern I caused Morlines to apply all amounts received by it from BSC in reduction of the principal debt owing by BSC to Morlines, first in payment of agency commission.

13. Since June 1996 I have caused Morlines to treat all monies received by it from BSC in the following priority:

a) payment of agency commission;

b) payment of interest;

c) payment of legal expenses;

d) payment of principal debt, otherwise than agency commission.

14. Since December 1995 Morlines has received the following sums:-

a) Sale proceeds of Starostenko

(15 March 1996) CND$479,473.00

b) Lifting of caveat on Yevgrafov

(28 March 1996) CND$67,500.00

c) Lifting of caveat on Yevgrafov

(22 May 1996) CND$67,500.00

d) Sale proceeds of Prokofyev

(20 November 1996) CND$297,810.00

e) Sale proceeds of Starostenko

(14 January 1997) CND$7,055.00

f) Sale proceeds of Baranski

(14 January 1997) CND$5, 686.00

TOTAL CND$925,024.00

15. The sum of CND$925,024.00 has been applied as follows:-

a) Payment of agency commission CND$166,542.00

b) Payment of interest CND$50,275.00

c) Payment of legal expenses CND$110,423.00

d) Balance of principal CND$597,784.00

16. The interest calculation has been carried out in accordance with the schedule of calculations set forth in annexure "C" hereto, namely on the running balance at 10% per annum since 1 January 1995 taking into account the receipt of funds from Planmarine in respect of the Magnitogorsk.

17. The principal debt of BSC as at 22 May 1997 was CND$397,562.00 plus interest of CND$8,919.00 after allocation of any proceeds to the reduction of interest.

Converted as at 15 May 1997

(@ 1.06) AUSD$383,473.00

Converted as at 15 May 1997

(@ .771) USD$295,657.00

18. In addition of the above receipts Morlines has received the sum of USD$225,000.00 from Planmarine A.G. The sum of USD$225,000,00 was paid by Planmarine A.G. directly to Morlines to secure the release to Planmarine A.G. of M.V. Magnitogorsk which had been arrested by Morlines in Poland.

19. On or about 7 January 1997, USD$50,000.00 was paid in consideration of Morlines releasing the vessel.

20. The balance of USD$175,000.00 was paid on or about 19 March 1997. These sums have been applied:

a) in payment of legal costs incurred by Morlines in Poland;

b) in payment of legal costs incurred by Morlines in respect of arrests of other vessels in Canada, and the United States;

c) in reduction of the confession of judgment made by BSC to Morlines which comprised the initial CND$1,190,854.00 with interest at 10% as at January 1995 and legal costs amounting to CND$100,000.00

21. The whole of the amount received by Morlines has been applied in the following way:

1) payment of USD$26,899.00 to Marek Czernis the lawyers for Morlines in Poland;

2) in reduction of interest accruing on the principal debt at 10% per annum, being the sum of USD$121,198.00."

As the affidavit makes clear, up to June 1996, Morlines treated receipts from Baltic as applicable proportionately to disbursements and agent's commission. But, during June 1996 this approach was changed because Mr Jones became aware, at that time, that agency commission may not be accepted in Australia as a proper in rem claim.

In order to avoid the risk of disallowance of this claim, Mr Jones thereafter set out to allocate all payments from Baltic firstly towards the payment of agency commission as a priority and then to other items, namely interest, legal expenses and net disbursements. These latter three items were reduced but they were assigned a deferred priority to agency commission. It will be recollected that the judgment of Sheppard J delivered on 15 May 1997 determined that agency commission should not be allowed against the fund as an in rem claim and that therefore Morlines' claim should be reduced by the amount of the commission.

The effect of the allocation, if properly made, would be to reduce the amount of funds paid by, or on behalf of, Baltic which could be attributed to reduction of the in rem claim. By diverting the funds to agency commission Morlines was thereby increasing the amount it could claim in rem against the fund derived from the sale of the vessel.

Counsel for Baltic refers to the approach taken by Mr Jones as "innovative accounting" and it seems to me that this description is not inappropriate. In saying this, I do not criticise Mr Jones, who is no doubt performing his function as he sees it as a financial adviser to Morlines and no doubt he is acting pursuant to legal advice.

The question is whether the funds received by Morlines have been properly allocated by Mr Jones in reduction of the Baltic indebtedness.

Allocation of Funds

In order to justify the allocation of funds away from the in rem debts and in payment of the agency commission, Morlines relies on general law principles concerning the entitlement of a creditor to allocate general payments, which are not allocated by the debtor, to pay whichever indebtedness is considered appropriate by the creditor. Neither party submits that the rule in Devaynes v Noble ("Clayton's case") (1816) 1 Mer 572 applies in the present circumstances.

The general principle relied on by Morlines is that according to the general law:

".... it is open to the creditor, if the debtor himself in making the payment has not directed an appropriation, to appropriate the payment made by his debtor to any part of the debt he likes, or to whichever of two debts, if there are two debts, he prefers."

See In re Thomas Mortimer Limited [1964] 3 WLR 427 at 431 per Romer LJ; approved In re Yeovil Glove Co Limited [1963] Ch 528 at 539 . See also In re Sherry (1884) 25 Ch D 692 at 702.

If the debtor makes an appropriation at the time of payment the creditor is bound by the appropriation made by the debtor. However, if the debtor has not made an appropriation, the creditor has the right of appropriation up to "the very last moment". But, so long as the election rests with the creditor, and he has not determined his choice, there is no room for the application of rules of law such as the rule in Clayton's case: see Corey Bros & Co v Owners of the Turkish Steamship Mecca ("The Mecca") [1897] AC 286 at 292.

Mere entry of a payment by a creditor in a particular account would not amount to an appropriation and the creditor would still be at liberty to appropriate the payment as he pleased: see The Mecca at 292 .

In Seymour v Pickett [1905] 1 KB 715 the Court of Appeal applied the above principles in relation to a claim for a debt based on dental work. The claimant was not registered under the Dentists Act 1878 . He carried out dental work on a patient and supplied him with false teeth and gold. He made a charge of 45 pounds overall and the patient gave him two cheques, for twenty pounds and twenty-five pounds respectively. The latter cheque was post dated. The twenty pound cheque was duly paid but the twenty five pound cheque was dishonoured on presentation, the drawer having stopped payment of it by his bankers. When the dentist brought an action in the County Court against the patient on the twenty-five pound cheque the judge found that twenty-one pounds represented the price of the gold and other materials supplied by the plaintiff. The plaintiff then, when being examined as a witness in the case, claimed to appropriate the twenty pound cheque to the payment of his professional fees. No appropriation had been made by the patient. The Court of Appeal held that the plaintiff was entitled to make the appropriation and to recover twenty-one pounds in the action, notwithstanding that the Dentists Act 2000 prohibited a dentist receiving any fee for the performance of any dental operation unless registered. This decision indicates the wide power which a creditor has to appropriate a payment where no express allocation is stipulated by the debtor.

At 722-723, Vaughan Williams LJ said:

"A good many authorities have been cited upon the present appeal upon the question under what circumstances and for how long a creditor, who has received from his debtor a sum of money unappropriated to any particular debt, has a right to appropriate that sum.....Throughout all the authorities it is plain that the right which the creditor has is in the nature of an election, and the question to be ascertained in each case is whether anything has happened to determine that right to elect. Of course, the receiver of the money may make his election before there is any litigation.... But, on the other hand, there may be legal proceedings in which in no sense could the writ or the defence operate as an election, because there is nothing in the action which involves any election.... The first time at which any such question [as to election] was raised was when the action was remitted to the county court judge, and it is beyond dispute the plaintiff did, when he was in the witness-box in the county court, make his election. In my opinion he was entitled to do so then, if nothing had previously happened to determine his right of election." (Emphasis added)

The principles applied in The Mecca have been approved and applied by the High Court in Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354 at 371 and Airservices Australia v Ferrier (1996) 185 CLR 483 at 494-495.

Baltic submits that in the circumstances of the present case Morlines had no right to allocate the payments as it saw fit. It says that right was contractual and was based on the presumed intention of the parties. It submits that the first right to allocate a payment rests with the debtor and it is only if the debtor makes no allocation that the creditor is entitled to allocate. In the present circumstances Baltic has not itself voluntarily made any payments to enable an allocation to be made. The disputed funds have all been recovered by compulsion of legal proceedings in various jurisdictions internationally and Baltic has not been given the opportunity to exercise its right of first allocation which would then devolve to Morlines if not exercised. It is also said that the claim of Morlines is a compulsory one because it is based on the judgment of the Canadian Court given on 28 December 1995. Since the payment had not been made by voluntary act of the debtor, but under compulsion of law, the payment cannot give rise to the exercise of an election on the part of the debtor.

On this approach it is necessary to determine whether payments made pursuant to judgments by a debtor or under compulsion as the result of international legal proceedings, including sale or arrest, can be allocated by a creditor.

The question of allocation by the creditor does not in my view arise in the present case. This is because the funds paid to Morlines were impressed with the character of in rem payments. The sale or arrest proceeds from which the payments were made to Morlines as set out in the affidavit of Mr Jones are from funds which came into existence as the result of claims against various surrogate vessels. These are funds which must be treated as if they were held in substitution for the security provided by the vessel itself which has been sold or arrested in order to enforce the in rem claim made by Morlines. Accordingly, from their inception the payments bear the character of in rem funds and can only be used to pay so much of Morlines' claim as can properly be characterised as in rem in nature. They would for example, cover claims in respect of disbursements, which constitute general claims; interest on the amount of those claims, and legal costs involved in recovering the amount of those claims. But they could not be used to meet a claim for agency commission or interest on agency commission as that commission cannot give rise to a general maritime claim. Therefore, it was not open to Morlines to apply any part of the funds received by it from the arrest or sale of vessels in order to satisfy a claim for agency commission and interest on that commission, as appears to have been done according to the evidence given by Mr Jones.

In this proceeding the Court is concerned with payments which can be properly taken to reduce the in rem indebtedness of Baltic to Morlines. Where those payments derive from other in rem funds, arising in relation to the same debt, and which are security for the debt, they bear the in rem characterisation in the hands of the creditor. It is not open to allocate them towards in personam claims of agency commission.

I therefore consider that the claim of Morlines must be reduced by the amount of agency commission received which has not been credited towards the in rem claim comprising the net disbursements, interest and legal costs. Payments relating to these matters are in rem in nature. So much follows from the decision of Brandon J in The Moschanthy [1971] 1 Lloyd's Rep 37 at 44, where his Honour applied the principle that a plaintiff was entitled to sufficient security on an arrest to cover the amount of his claim against the vessel, together with interest and costs. In other words, a plaintiff in an in rem claim is entitled to have funds provided in lieu of the vessel to the extent of his in rem claim against the vessel, which includes the general maritime claim and the cost of recovering those amounts. See also The Tribels [1985] 1 Lloyd's Rep 128 at 130; The Bazias 3 and Bazias 4 [1993] 1 Lloyd's Rep 101; DC Jackson Enforcement of Maritime Claims (1996), 2nd edn, at 342-343.

In summary the result of the foregoing view is that the claim made by Morlines against the fund must be reduced by an amount equivalent to the in rem payments received which have been allocated towards agency commission and away from the total amount of net disbursements, interest and costs. This reduction must also include any moneys applied to meet interest on agency commission wrongly appropriated.

The Magnitogorsk Funds - Escrow Agreement

Mr Zaitsev, a financial adviser to Baltic, swore an affidavit on 26 June 1997. In the affidavit he notes that Mr Jones calculated the debt owing by Baltic to Morlines as at 22 May 1997 as USD$295,657. He annexes to his affidavit what he says is a true and correct copy of an escrow agreement dated 31 December 1996 pursuant to which the sum of USD$225,000 was paid to Morlines for the release of the MV Magnitogorsk, conditional upon payment by Planmarine AG of Switzerland ("Planmarine") as charterer and mortgagee over the vessel in order to procure its release from arrest in Gdansk.

The question which arises is how the funds from the proceeds of this agreement should be allocated. Mr Jones has allocated them to payment in respect of net disbursements, interest thereon, and legal costs.

In my view, for the reasons set out below, he was entitled to do so. However, it is necessary to consider the effect of the escrow agreement and the arguments advanced on behalf of Baltic to the effect that all the funds should have been allocated against net disbursements.

The escrow agreement relevantly provides:

"Escrow Agreement

dated 31 December 1996

Made amongst

(1) Planmarine AG of Switzerland ("Planmarine")

(2) Morlines Maritime Agency Limited of Montreal Canada ("Morlines")

(3) McMaster Meighen of Montreal Canada ("McMaster") and

(4) Messrs Sinclair Roche & Temperley of Royax House, 5 Aldermanbury Square, London EC2V 7LE (the "Escrow Agent")

Now it is agreed as follows:

1. Planmarine pursuant to its mortgage over the Russian flag vessel m.v. "Magnitogorsk" ("the Vessel") and in order to procure the prompt release of the Vessel from its arrest at Gdansk, Poland by Morlines and McMaster will deposit the amount of eighty thousand United States Dollars (US$80,000) ("the Amount") with Messrs Sinclair Roche & Temperley as its solicitors which will be promptly transferred into an escrow account ("the Escrow Account") in the joint names of Planmarine, Morlines, McMaster and the Escrow Agent for application as set out below upon receipt by the Escrow Agent of confirmations from either the Harbour Master, superintendent OST-West-Handel Bruno Bischoff GmbH or Zdzislaw Kminikowski, the legal adviser to Planmarine, that the Vessel has sailed out of Polish waters free of arrest in respect of proceedings brought against the Vessel in Poland by any party.

2. The Escrow Agent shall upon receipt of the said written confirmation that the Vessel has sailed form Polish territorial waters and written confirmation from Mr Kminikowski that all proceedings in Poland commenced by Morlines or McMaster have been discontinued permanently, release the Amount to McMaster for application as to Fifty thousand United States Dollars (US$50,000) against the claim of Morlines against Baltic Shipping PLC of St Petersburg ("BSC") that is the subject of the arrest proceedings taken by Morlines in Gdansk and as to Thirty thousand United States Dollars (US$30,000) against the claim of McMaster for legal services rendered to BSC that is the subject of like arrest. In the event that such confirmations are not received by 15 January 1997 Planmarine shall be entitled on demand to the return of all monies deposited in the Escrow Account and shall no further obligation or liability to Morlines or McMaster whatsoever or howsoever.

3. Planmarine shall conditional upon the receipt of the confirmations as contemplated above, in addition to its mortgage over the Vessel pay to Morlines, in respect of its said indebtedness owed by BSC two further sums one in the amount of Seventy five thousand United States dollars (US$75,000) and the other amount in the amount of One hundred thousand United States dollars (US$100,000) on the dates falling respectively three (3) months and six (6) months after the date of sailing of the Vessel from Gdansk and shall procure the issue of a guarantee by a first class international bank in respect of such payments on terms and conditions reasonably acceptable to Morlines as soon as practicable and pending the issue of the same shall deposit into the Escrow Account the amount representing the balance of such additional payments not yet covered by such guarantee. Upon the issue of a bank guarantee as contemplated above, Planmarine shall be entitled to receive from the Escrow Agreement an amount equivalent to that deposited therein pursuant to this clause that equals the amount covered by such guarantee.

.....

IN WITNESS whereof the parties hereto have executed this Agreement the day and year first before written.

As Witness the hands of

Planmarine Morlines McMaster and the Escrow Agent

the day and year first above written.

....."

As indicated it was executed by Planmarine, Morlines, McMaster Meighen of Montreal and the escrow agent.

The purpose and effect of the escrow agreement, according to its language, was to procure the prompt release of the vessel from arrest at Gdansk. The sum of $50,000 was to be released by the escrow agent and applied in payment of the claim of Morlines against Baltic. This is a reference to the in rem moneys claimed in the arrest proceedings taken by Morlines in Gdansk.

Upon receipt of confirmation that the vessel had sailed from Polish territorial waters Planmarine agreed to pay to Morlines in respect of the indebtedness of Baltic, two further sums, one for USD$75,000 and the other for USD$100,000 at the intervals stated.

In relation to these payments to Morlines totalling USD$225,000, the question is whether it was open to Morlines to allocate the fund as between the in rem claim, interest, agency commission, and legal fees or whether it was obliged to apply the whole amount to reduction of the in rem indebtedness. In order to resolve that question it is necessary to first determine the character of the moneys paid to Morlines as the basis for its agreement to release the vessel from arrest at Gdansk.

It is clear that the vessel had been arrested in Gdansk and that Planmarine as mortgagee wished to procure its release. The moneys paid by Planmarine were clearly moneys paid in respect of an in rem claim. Accordingly, they stand in substitution for the vessel after its arrest. When these moneys were paid across to Morlines they retained the character of, and must be treated on the basis that they were, in rem payments. As Sheppard J determined in his judgment of 15 May 1997, claims for agency commission do not give rise to a maritime claim and do not come within the category of in rem claims. Accordingly, in my view, the funds are not available for appropriation in accordance with general law principles relating to debtor and creditor.

The in rem claim entitlement of Morlines in the present case, is not limited to net disbursements but also includes interest and legal costs. I do not consider there has been any wrong or unlawful appropriation of the USD$225,000 payment by Morlines in the present case. Examination of the schedule of calculations set out in Annexure C to the affidavit of Mr Jones of 23 June 1997 indicates that the funds were applied towards a reduction of net disbursements, interest and legal costs and were not applied to agency commission. Therefore the whole of those payments totalling USD$225,000 made after the last hearing day on 18 June 1996 were properly attributed by Morlines towards reduction of the in rem claims of Morlines. Indebtedness consisting of the net disbursements together with interest and legal costs relating to the net disbursements claim are properly characterised as in rem in character.

Similarly, other moneys have been paid from proceeds of sales of sister vessels towards the Morlines debt. These amounts are to be treated as in rem payment and are not open to be allocated towards the payment of agency commission.

Conclusion

My conclusion is that Morlines was not entitled to use any funds, received from the proceeds of sale of vessels or from moneys paid for release of vessels in discharge of debts for agency commission and interest on agency commission. Such funds, however, can properly be paid towards the discharge of debts comprising net disbursement, and interest and legal costs related to those disbursements.

Further written submissions have been received from Mr Coleman, on behalf of the Admiralty Marshal, in relation to the allocation of funds by Morlines. These submissions are to a similar effect.

The above conclusion will require a revision of the figures which have been provided as the basis for consideration of the Morlines claims. It also raises matters which were not fully ventilated at the hearing. Accordingly I stand the matter over to a date to be fixed for further argument and submissions in relation to the precise quantum of the moneys to which Morlines is entitled.

The Transworld Claim

In his judgment of 15 May 1997, Sheppard J said in relation to the Transworld claim against the fund resulting for sale of the vessel "Skulptor Vuchetich" at 20-21:

"There are two matters relied upon in opposition to the claim. These raise respectively what I may call the double claims point and the agency agreement point. Subject to one matter, I am against the objection based upon the agency point. It is covered by the reasons I have given in relation to other claims and I do not propose to repeat what I have previously said. There is included as a component of the claim an amount for agents commission which is said to total 15,169,797 Belgian Francs. In accordance with what I have previously said, that sum should come out of the claim so that it will be reduced by that amount. Otherwise, subject to the double claim point, the claim succeeds.

I have referred to Mr Backx' evidence which refers to legal action taken elsewhere by Transworld. No recovery has been made as a consequence of any of these proceedings, but of course it is possible that there may be recovery at a later point of time.

In accordance with the approach I have taken in relation to other claims, I am of the opinion that the claims made by the plaintiff against other Baltic vessels do not affect its right to pursue its claim in rem in these proceedings. Subject to what I have said about commission, the claim will result in a judgment for approximately $US3 million or a little less."

On 1 July 1997 the Court ordered the Marshal to pay to Transworld from the fund, representing the proceeds of the sale of the vessel, by way of interim distribution the sum of USD$813,030.80 being 81.09% of USD$1,002,627.70 which was agreed as an amount appropriate to be paid out at that stage. The matter was stood over.

Also on 1 July 1997 the matter of the costs of Transworld, which were claimed in the sum of $35,000, were sought in Short Minutes. I did not then make an order. While Counsel for Baltic was not instructed to agree to the quantum of costs he has raised no objection. Therefore I propose to award Transworld its costs in the sum of $35,000 as claimed.

An affidavit dated 23 July 1997 from Mr Sidney Berneman, a Belgian lawyer, who is the trustee appointed to Transworld by order of the Commercial Court of Antwerp has been filed. His evidence is that the total claim of Transworld with interest up to 29 July 1997 will be USD$2,275,770.68. United States dollars was the currency agreed on for the payment but the claims were calculated in some instances by reference to Belgian Francs.

The amount of the claim is challenged by Baltic.

There is no dispute as to the standing of Baltic to challenge the amount claimed by Transworld.

The first ground of challenge arises from the direction by Sheppard J that all parties should disclose the amount of any funds received by them since the last day of the hearing of the matter which was on 18 June 1996.

In his judgment of 15 May 1997, Sheppard J noted that the claim by Transworld is for BF96,661,901. In addition, interest and costs are sought. He referred to an affidavit by Mr Backx who, at relevant times, was the Managing Director of Transworld. He noted an agreement of 10 October 1995, between Transworld and Baltic, wherein Baltic agreed that it had a debt to Transworld in an amount of BF93,414,464 and that the debt was a maritime debt. It is also noted in the above quotation from the judgment that an amount of agency commission in the sum of BF15,169,797 should come out of the claim so that it would be reduced by that amount.

In his affidavit, Mr Backx specifically referred to and relied on the October Statement of Account.

After the 15 May 1997 judgment, and in accordance with a direction by Sheppard J, the claimants put on evidence of amounts received since the hearing. In relation to the Transworld claim an affidavit was filed by Mr John Holmes dated 22 May 1997. He is the solicitor for Transworld. His affidavit annexes a letter from Transworld to Baltic dated 12 March 1996. The letter is said to be in confirmation of the moneys outstanding to Transworld. The letter is written on a Transworld letterhead. It is addressed to Baltic and is headed "Confirmation of balances as at 12/03/1996". The letter, which is important, reads:

"To :Baltic Shipping Company

5 Mezhevoi Kanal

St Petersburg 198036 (Russia)

Mrs Sedova

From :Transworld Marine Agency Cy N.V.

Van Schoonbekeplein 6

Antwerp (Belgium)

Date : 12th March 1996

Confirmation of balances as at 12/03/1996

Herewith Transworld Marine Agency Cy N.V. confirms that after discussions with Mrs Sedova and Miss Chernova following figures have been identified:

a) BFr 65.383.181. - have been invoiced to Baltic Shipping Company by Transworld Marine Agency Cy N.V. and all amounts included in this figure have been paid to suppliers.

b) BFr 18.578.166. - are not included in this figure, but have still to be paid to the suppliers.

c) No interest charges are included anymore. New interest charges will be calculated on the BFr 65.383.181. - on a periodical basis.

d) This cancels all previous statements of account.

Antwerp, 12th March 1996."

Baltic submits that this letter establishes two crucial facts. Firstly, that the balance on 12 March 1996 was BF65,383,181 which, it is said, is approximately BF30 million (or in the order of USD$1 million) less than the amount claimed at the hearing before Sheppard J. Secondly, it is said to establish that BF18,578,166 still have to be paid to suppliers and therefore cannot be claimed by Transworld. There is no dispute that the suppliers remain unpaid.

Transworld submits that the letter of 12 March 1996 should not be treated as a Statement of Account. It points out that the affidavit of Mr Backx, in evidence before Sheppard J, was sworn on 7 June 1996 nearly three months after the letter and that Mr Backx was not cross-examined on this affidavit. Therefore it is said that his evidence as to the amount outstanding (namely BF93,414,464) should be preferred to the inferences which might otherwise be drawn from the letter of 12 March 1996. Transworld also submits that the letter of 12 March 1996 was not intended to be, nor was it, a Statement of Account but was rather an offer of compromise which was not accepted. Therefore, the letter cannot be accepted as evidence of the state of indebtedness between the companies.

Transworld points out that the Backx affidavit was based on the agreement of 10 October 1995. It refers to an indebtedness on the part of Baltic, inclusive of interest, of BF96,661,901. The difference between this amount and the sum of BF93,414,464 is said to arise from ongoing activity by Transworld on Baltic's account.

In support of the submission that the letter of 12 March 1996 evidenced a proposed compromise and not a Statement of Account, Transworld refers to an affidavit of Mr Berneman of 17 June 1997. Mr Berneman, it will be recalled, is the trustee acting in the bankruptcy of Transworld which is being administered in Belgium. He therein states that prior to 22 May 1997, he informed his solicitor that, as trustee of the bankruptcy of Transworld, he would accept the compromised amount referred to in the 12 March 1996 letter to Transworld so that the matter could be brought to finalisation without incurring further expenses in proving the higher amount claimed in the affidavit of Mr Backx of June 1996. He says that the letter of 12 March 1996 was provided by Mr Holmes to the solicitors for Baltic. He refers to the amount set out in that letter as being the "compromised figure" and he states that it has been withdrawn.

In his subsequent affidavit of 23 July 1997 Mr Berneman states that the terms set out in the letter of 12 March 1996 were never confirmed by Baltic and that Baltic never undertook to pay those amounts and in fact never did. He says that he did not become aware of the letter of 12 March 1996 or its contents until a copy was provided to him by his Australian solicitor, Mr Holmes, shortly before swearing his affidavit of 17 June 1997. He states that he was satisfied that the goods and services referred to in the letter amounting to BF18,578,166 had been supplied.

On 20 May 1997 Mr Holmes wrote to Mr Berneman stating:

"Dear Sir,

Re: BALTIC SHIPPING COMPANY ("BSC")

The proceedings involving the Skulptor Vuchetich have been again adjourned until 10.15am tomorrow.

We enclose copy of the following:-

1. Letter from TWM to BSC dated 12 March, 1996

2. Schedule of claims on the Vuchetich Fund

We have adopted the letter of 12 March, 1996 as the starting point and converted the claim to Australian dollars and then to United States currency. Accordingly on our calculation the amount of your claim as at 12 March, 1996 is $US2,420,875.04. We have then calculated interest at 12% on that amount from 12 March, 1996 to 15 May, 1997 and this amount totals $US341,442.86.

We propose completing an Affidavit and handing it to the Court tomorrow which will seek that your claim be in the form outlined in this letter.

We urgently require a facsimile transmission from you to the effect that we are authorised to proceed in the manner as proposed.

We understand from BSC that they will not seek to adjust any further the letter of 12 March, 1996 provided such letter is the starting point of your claim.

Yours faithfully

HOLMES & BEVAN"

On 21 May 1997 a further letter was sent by Mr Holmes to Mr Berneman requesting urgent instructions by 9.00 am on 22 May 1997.

On 21 May 1997 Mr Berneman responded to Mr Holmes in the following terms:

"Re: Bankruptcy N.V. TRANSWORLD MARINE AGENCY Cy./BALTIC SHIPPING Co.

Your ref. JAH: JK: 960880

My ref.: 97.1500

I thank you for your facsimile transmissions of 20th and 21st May and refer to our telephone conversation of 21st May.

After having conferred with the judge in charge of the receivership of the bankruptcy of the N.V. TRANSWORLD MARINE AGENCY and my two colleagues-receivers, I hasten to confirm that you may indeed take the contents of the fax sent by TRANSWORLD MARINE AGENCY Cy. on 12th March 1996 to BALTIC SHIPPING COMPANY as basis for the accounts, provided that an explicit reserve should be made with regard to the amount of 18.578.166,-BEF., being unpaid accounts of suppliers, for the case the claims introduced by these suppliers in the bankruptcy's estate of the N.V. TRANSWORLD MARINE AGENCY Cy. should be accepted by the Commercial Court of Antwerp as debts of the bankruptcy (which is being disputed by the receivers).

In this eventuality, the receivers will have to claim back these same amounts from BALTIC SHIPPING COMPANY in the frame of the distribution of the proceeds of other sales of ships from B.S.C.(elsewhere in the world).

......

I can finally confirm that TRANSWORLD MARINE AGENCY Cy resp. the receivers have not received any other payments.

I would much appreciate if you could finalize this matter at the best in the interest of the creditors of TRANSWORLD MARINE AGENCY Cy. and let me know the amount which you will receive and be able to transfer to the receivers of TRANSWORLD MARINE AGENCY Cy.

Looking forward to hearing from you.

...." (Emphasis added)

Having regard to the evidence of Mr Berneman and the letter of 21 May 1997, together with the correspondence from Mr Holmes, I consider it more likely than not, that the letter of 12 March 1996 was premised on an offer of compromise. In particular, the letter from Mr Berneman of 21 May 1997 to Mr Holmes, indicates that he had discussed the matter with the judge in charge of the receivership of the bankruptcy of Transworld and his two fellow receivers. He refers to the contents of the letter of 12 March 1996 as the "basis for the accounts" subject to a proviso requiring a reserve. The reference in his letter to "finalize this matter at the best in the interest of the creditors" indicates a negotiation rather than a firm instruction to obtain a specific amount. This is reinforced by the request to "let me know the amount you will receive". I prefer and accept Mr Berneman's evidence that there was no acceptance of the compromise offer of 12 March 1996. This is consistent with the assertion of Mr Backx, who was not cross-examined on his affidavit of 7 June 1996, that the total amount of the debt as at 2 October 1995 was BF96,661,901.

The contrary evidence in the matter is set out in an affidavit of Mr Youri Zaitsev, a Russian citizen who is a financial adviser and consultant to Baltic. He refers to the letter of 12 March 1996 and describes it as "setting out the Statement of Account between the two companies". No factual basis is given for this opinion as to the effect of the letter and no reference is made to other countervailing evidence. Accordingly, I do not accord the affidavit any significant weight in reaching a determination as to the nature and effect of that letter.

The assertion by Mr Zaitsev is stated to be "unequivocal evidence" as contrasted with the "equivocal" evidence of Mr Berneman of 17 June 1997 to the effect that he was unable to explain the discrepancy. I do not accept this.

At the last moment in the proceedings Baltic sought to introduce an affidavit, sworn by Ms Galina Chernova on 28 July 1997, as to the circumstances surrounding the letter of 12 March 1996. However, in view of its late filing, the unfairness which would be occasioned to Transworld if it were admitted, and the need for resolution of this dispute, I rejected the affidavit. I have been asked to reconsider this rejection but I adhere to my earlier determination. The affidavit contains a great deal of detailed material and it would have been quite impracticable, in the circumstances, to afford an opportunity for cross-examination on it. Litigation must come to an end at some time and this litigation has already been protracted.

Unpaid suppliers

Baltic submits that Transworld has not yet paid suppliers of goods and services and may never have to do so. It refers to the affidavit of Mr Berneman of 23 July 1997 to the effect that the amount is still outstanding and that suppliers of goods and services can eventually introduce a Statement of Claim in the bankrupt estate for their invoices. It is pointed out that Transworld has not undertaken to the Court to pay the unpaid suppliers if an award is made in its favour. Because Transworld, it is said, has not suffered damage as a result of suppliers being unpaid, it cannot claim damages. This submission is contrary to the approach taken by the High Court in Carr v JA Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327 and TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 37 ALJR 289 at 291.

I do not accept this submission. The claim of Transworld is based in contract. Section 4(2)(m) of the Admiralty Act 1988 (Cth) refers to "a claim" in respect of goods and or services supplied to a ship. The claim in respect of the unpaid accounts in respect of goods and services undoubtedly supplied satisfies this description and the amount of the liability incurred by Transworld can properly be claimed against the fund.

"Assignment" of claim to Balt Orient Lines

Baltic has tended a letter from a company entitled Balt Orient Line Ltd ("Balt Orient") dated 14 February 1997, which is said to evidence the assignment of the debt by Transworld to Balt Orient.

The letter reads as follows:

"Baltic Shipping Company,

5 Mezhevoy Kanal,

198035 St. Petersburg,

Russia.

For the attention of Mr. M. Romanovskiy, President

Dear Sirs,

Re: Assignment of Debts of Baltic Shipping Company (BSC) towards Transworld Marine Agency Company N.V. (TWMA)

Please be advised that Messrs., Transworld Marine Agency Company N.V. have assigned in our favour the receivables in their favour due from BSC in the sum of Bef. 10.139.972,-. This sum represents part of the outstanding debt of Bef 93.414.467,- which is indisputable and acknowledged by Baltic Shipping Company as set out in the Agreement dated 10th October, 1995.

We have accepted this assignment by our letter of 14/2/1997 and hereby officially notify BSC thereof. We kindly ask you to note that upon receipt of this notice of the assignment, TWMA are no longer authorised to collect the debts up to the amount of the said assignment, i.e. Bef. 10.139.972,- directly from BSC and only payment of the aforesaid amount to our account will be treated as proper discharge of the above claim against BSC.

We shall advise TWMA of this assignment in due course.

Yours faithfully,

Balt Orient Line Ltd." (Emphasis added)

In his affidavit of 23 July 1997, Mr Berneman says that as trustee of Transworld he does not recognise the validity of the purported assignment. He also asserts that even if there were an assignment it would have been void under Article 445 of the Belgium Bankruptcy Law. No specific evidence is advanced as to the basis for this assertion.

I have been furnished with a copy of what is said to be the relevant Article from the Belgian Law in relation to the avoidance of assignments such as that under consideration. However, uninstructed by any other evidence or authority as to the meaning and effect of the statutory provisions referred to, I am not in a position to make a determination as to whether the purported assignment is void under Belgian law. I do not propose to embark on such an exercise.

In any event it is not necessary, on the view I have formed, to determine this question because I do not think that there is any basis to support the submission that there has been assignment of the debt.

The letter of 14 February 1997, relied on by Baltic, is internally inconsistent. It refers in the first line to Transworld having assigned the receivables due from Baltic in the sum of BF10,139,972. This is said to represent part of the outstanding debt of BF93,414,467 referred to in the agreement of 10 October 1995. The letter claims that the assignment has been accepted by Balt Orient by a letter of 14 February 1997, which is not in evidence. It "officially" notifies Baltic of the assignment. It then asserts, inconsistently with the earlier part of the letter, that Balt Orient will notify Transworld of this "assignment in due course". This is a curious statement. If there had been any assignment by Transworld it would hardly have been necessary to advise it of the assignment. There is no evidence as to the controlling law of the assignment, nor is any evidence produced in the shape of the basic document which purports to constitute the assignment. In terms, the letter is simply a notification that Transworld have assigned a debt. This document does not constitute or evidence an assignment of the debt.

This argument in relation to the purported assignment has no substance.

Conclusions

On the material advanced by Transworld and having regard to the submissions made I am of the view that the letter of 12 March 1996 has been explained as an offer of compromise only and I reject the submissions made by Baltic based on it.

With respect to the sum of BF18,578,166 due to suppliers, but which have not been paid, I am of the view that Transworld is entitled to claim this amount against the fund.

I am not satisfied that there has been any error in relation to currency conversion as originally suggested by Baltic in reaching the amount claimed and I note that no further argument was addressed on this point in the final submissions on behalf of Baltic.

I direct Transworld to bring in Short Minutes within the next seven days which sets out the precise amount of principal and interest claimed by it and the orders sought. The costs of Transworld in relation to this matter should be paid by Baltic. I make no orders at this stage.

I certify that this and the preceding nineteen (19) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated: 29 August 1997

Counsel for the Plaintiff and Transworld Marine Agency Company NV:	Mr J S Wheelhouse
Solicitor for the Plaintiff and Transworld Marine Agency Company NV:	Holmes & Bevan
Counsel for Baltic Shipping Company:	Mr B W Larkin.
Solicitor for Baltic Shipping Company:	Norton Smith & Co
Solicitor for the Admiralty Marshal:	Douglas Coleman
Date of Hearing:	26 June, 1 & 29 July 1997
Date of Judgment:	29 August 1997