Patrick Stevedores No. 2 Pty Ltd & Anor v The Proceeds of the Sale of the Vessel MV "Skulptor Konenkov&amp" [1998] FCA 16899; [1998] FCA 99 (20 February 1998)

FEDERAL COURT OF AUSTRALIA

ADMIRALTY - sale of ship pursuant to order for appraisement and sale - claim in rem against fund representing the proceeds of sale - running offset account pursuant to agency agreement between plaintiff and shipowner - whether claim is in rem - whether a party can appropriate all credits so as to maximise its in rem claims - whether Court can or should segregate claims to make up the balance of a running account.

Admiralty Act 1988 (Cth) s 4(2)(r)

Patrick Stevedores No 2 Pty Ltd and Others v The Proceeds of the Sale of the Vessel MV "Skulptor Konenkov" (Unreported, 12 December 1997), cited

Airservices Australia v Ferrier (1995) 137 ALR 609, cited

Patrick Stevedores No 2 Pty Ltd and Others v The Proceeds of the Sale of the Vessel MV "Skulptor Konenkov" (1997) 144 ALR 394, cited

"The "West Friesland" (1859) Sw 454, cited

"The Comtesse de Frègeville" [1861] EngR 729; (1861) Lush 329, cited

"The Underwriter" (1870) 1 Asp Mar LC 127, cited

The "El Salto" (1908) 25 TLR 99, cited

"The Kommunar" [1997] 1 Ll Rep 1, cited

PATRICK STEVEDORES NO 2 PTY LIMITED and PATRICK STEVEDORES NO 1 LIMITED v

THE PROCEEDS OF SALE OF THE VESSEL MV "SKULPTOR KONENKOV"

NG 495 OF 1995

TAMBERLIN J

SYDNEY

20 FEBRUARY 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY IN ADMIRALTY	NG 495 of 1995

BETWEEN: and bY amendment:

PATRICK STEVEDORES NO 2 PTY LIMITED (Formerly Known as StRANG PATRICK STEVEDORING PTY LIMITED (ACN 003 893 141) first plaintiff PATRICK STEVEDORES NO 1 LIMITED (Formerly known as AUSTRALIAN STEVEDORES NO 1 LIMITED (ACN 003 621 645) second plaintiff BERGEN BUNKERS A/S ENSO-GUTZEIT OY FINNPAP MARKETING ASSOCIATION GLAVERBELL SA AnD G JAMES AUSTRALIA PTY LIMITED ROMET LIMITED (Formerly METRO MEAT LTD) and SHEED THOMSON INTERNATIONAL LIMITED OPAL MARITIME AGENCIES PTY LIMITED ADDITIONAL PLAINTIFFS

AND:

THE PROCEEDS OF SALE OF THE VESSEL MV "SKULPTOR KONENKOV" DEFENDANTS

JUDGE:	TAMBERLIN J
DATE:	20 FEBRUARY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Opal Maritime Agencies Pty Limited ("Opal") claims payment of debts said to be due to it from the proceeds of sale of the vessel MV "Skulptor Konenkov" ("the vessel"), which was sold pursuant to an order of this Court made by Sheppard J. The claims are based on a running offset account pursuant to an agency agreement made between Opal and the Baltic Shipping Co ("Baltic").

In a judgment, delivered on 14 May 1997, Sheppard J concluded that Opal had not proved its case: see Patrick Stevedores No 2 Pty Ltd and Others v Proceeds of Sale of the Vessel MV "Skulptor Konenkov" (1997) 144 ALR 394 at 419. This was because his Honour was not satisfied on the basis of the evidence put before him that he should accept the Opal claim as one entitled to a judgment in rem. However, a few days after delivery of his judgment, on 21 May 1997, his Honour granted leave to Opal to adduce further material in support of its claim. It was a condition of granting leave that Opal could only recover a maximum judgment in rem of not more than $364,146.57 together with interest and costs. The reasons for imposing this ceiling are set out in the judgment.

Pursuant to the leave granted by his Honour, Opal has now presented further evidence, at a continued hearing before me, in support of its claim.

The further evidence and submissions were heard by me on 24 October 1997. My reasons for judgment on the issues raised were delivered on 12 December 1997. See Patrick Stevedores No 2 Pty Ltd and Others v The Proceeds of Sale of the Vessel MV "Skulptor Konenkov", (Unreported, 12 December 1997 Judgment No 1424/1997). In those reasons I concluded that a number of substantial claims made by Opal were not recoverable against the proceeds because they were not properly characterised as in rem claims.

More specifically, my conclusion was that none of the contested items in dispute; including, for example, claims in respect of slot charters, items in the equipment operation account, and claims for agents' commission, should be accepted as in rem claims.

Having delivered my judgment, I required the parties to bring in Short Minutes to give effect to the reasons. When settlement of the Orders came before me on 18 December 1997, Opal raised the question of how "credits" in favour of Baltic should be taken into account when determining any net amount recoverable by it against the proceeds.

At the October hearing Opal argued its case on the basis that if certain items were disallowed and certain assumptions were not justified in relation to the equipment operation and the general account then there would be a nil recovery against the proceeds. The result was that Opal failed to satisfy me that the disputed claims were of an in rem character or that the assumptions were not justified. Accordingly, my view was that Opal had not made good its claims against the proceeds.

Opal now contends, however, that in order to arrive at the net amount recoverable by it against the proceeds, it is entitled to appropriate all credits in the accounts in favour of Baltic in such a way as to maximise its in rem claim. This could be achieved by applying all credits to the in personam items and thereby reducing such claims. Opal suggests there are four possible, alternative approaches which could be adopted in the calculation of the net amount due as an in rem claim. These are:

(1) Opal is entitled to appropriate all credits to any debits on the offset account. In particular, it may apply all credits first in satisfaction of in personam debits. The result is that the balance of the offset account constitutes an in rem debt recoverable in admiralty; or

(2) Conversely, Opal is not so entitled to elect to appropriate credits against particular debits but is obliged to do the opposite. It must appropriate credits first in payment of in rem debits with the result that the balance of the offset account constitutes an in personam debt and is not recoverable in admiralty; or

(3) The contractual arrangements and the course of dealings between the parties, the nature of the transactions conducted on the offset account and the nature of the admiralty jurisdiction requires that credits be applied to corresponding debits. The Court should be concerned with ascertaining the extent of the in rem debit by reference only to credits that correlate to in rem debits recoverable in admiralty; or

(4) The contractual arrangements and the course of dealings between parties are such that credits, or at least freight credits, are to be applied proportionately or rateably to all debits both in personam and in rem. They are to be applied to satisfy the oldest debits, regardless of the character of the debits or credits.

Opal's submission as to the preferable alternative is that:

(a) It is now entitled to appropriate all credits to any debits because there has been no direction by Baltic as to the manner in which those credits should be applied. Opal can, therefore, apply credits in satisfaction of in personam debits, thus leaving a balance of an in rem debt that is recoverable as a maritime claim.

(b) Alternatively, credits by debit adjustments should be applied to the corresponding debit items on both accounts in order to reduce the level of indebtedness on each of those accounts. Having adjusted the level of indebtedness, the freight credits:

(i) can now be appropriated at the election of Opal towards satisfaction of any debit items and may be so applied in satisfaction first of in personam debits; or alternatively

(ii) the freight credits should be applied rateably towards satisfaction of all debits, both of an in rem and in personam nature, on both accounts.

Rateable application of freight credits would be proportionate to the amount by which debits on both the general account and the equipment operation account make up the total debit on the offset account and would be applied in payment of the earliest debits on each account.

In opposition to the submissions of Opal, submissions were made on behalf of the Admiralty Marshal and on behalf of the Receivers and Managers of the assets of Baltic, Messrs McCann and Scott.

The Admiralty Marshal makes three submissions.

(1) Because Opal has chosen to present its claim in earlier argument on the basis that if the disputed claims are disallowed against the proceeds then there will be a nil balance, it cannot now purport to appropriate the benefit of credit items so as to depart from its originally elected position. It is now too late for Opal to appropriate credits and thus adopt a different position from that advanced at the hearing of 24 October 1997.

(2) The proper approach to calculate the amount recoverable against the proceeds is to offset all credits first against in rem debits. The Marshal submits that the Admiralty Court is concerned with in rem claims which are tested and proved in Admiralty proceedings and therefore it is appropriate to offset all credits firstly against in rem debts. The consequence of this approach is that the in rem claim of Opal will be minimised.

(3) The third submission, advanced as an alternative, is that if the Court decides to allow credits by debit adjustments, any such credits should be limited to those credits which are reversals of identical debit items.

Submissions were also made by Mr Nell on behalf of the Receivers and Managers which, broadly summarised, are as follows:

(1) The conclusions expressed in the judgment of 12 December 1997 require a finding that Opal is not entitled to judgment against the proceeds for any amount. This is a consequence of Opal conducting its case on the basis that if certain questions as to the characterisation of claims were adverse to it, then there would be a nil claim. The Receivers submit that it is unnecessary and inappropriate to determine the questions raised by Opal as to the treatment of debits and credits in the Baltic account.

(2) Opal's submission as to its right of election should be rejected because Opal does not have any right to elect as to the appropriation of credits between the debits (either in personam or in rem) that go to make up the balance of the account. Such an approach is artificial in the context of the present claim because this is not a case of specific payments being received and applied against specific debits and disbursements. Opal is bound by the way it has conducted the offset account. This is not a case where specified particular payments can be applied against specific disbursements previously incurred on a running account.

(3) At all relevant times, Opal claimed to have maintained a running account with Baltic. That account included both in rem and in personam claims. The entries were intermixed and were not separated in any way. Where a balance is struck on such a running account, it is not permissible to select out individual transactions as being of an in rem character. Consequently, it is submitted, Opal is not now entitled to recalculate and reformulate its claim through the retrospective application of credits to the in personam debits ahead of all in rem debits in order to maximise its in rem claim.

(4) A claim for the balance of an offset account cannot properly be characterised as in rem claim.

Reasoning

It is helpful to consider the description of a "running account" adopted by the majority of the High Court in Airservices Australia v Ferrier (1995) 137 ALR 609 where Dawson, Gaudron and McHugh JJ said at 625:

"...The significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a `running account' rather than the label itself. A running account between traders is merely another name for an active account running from day to day as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation of further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account. Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt."

In the present case, in my view, the parties dealt with each other on the basis of a running account as so described. Addendum N3 to the Agency Agreement of 24 January 1992 specifically provides for the periodic remittal of funds to the agent to satisfy debit balances as they arise.

In his principal judgment of 14 May 1997, Sheppard J observed, in relation to Opal's claim, (144 ALR 394 at 420) that:

"Probably, Opal would have had the right to appropriate particular credits against particular debits and it may have done that in the accounts to which I have referred but in the end one has the balance of $558,000. One is thus left in a state of uncertainty as to what the position about the indebtedness, assuming it were established, in respect of the four items is."

The uncertainty referred to by his Honour still remains unabated. The evidence does not indicate that, at any time prior to commencement of this proceeding, any appropriation was made in respect of any credits or debits with the result that Opal now contends for. The indication is that Opal simply offset each credit and debit against each other regardless of characterisation of the item in rem or in personam. The evidence does not establish that there has been any election made as to the treatment of in rem and non in rem claims. This is not a case where, for example, in rem claims and credits have been separated out and are applied against each other. In my view, it is too late to do so at this stage, having regard to the way in which the claim has been presented. Accordingly, I reject the submission that Opal is entitled to appropriate all credits, whether in rem or in personam, to any debits on the offset account and apply them firstly in satsifaction of in personam debts so as to maximise its in rem claim.

Nor do I accept the alternative approach advanced on behalf of the Marshal; that Opal is obliged to appropriate all credits firstly to payment of in rem claims. The dealings between the parties do not warrant such an approach. This is not the way the accounts were in fact conducted. The consequence of this approach is that the in rem debt will be maximised and the in personam debt will be reduced by the application of credits to debits which are not of a similar or corresponding character.

The third alternative proposed by Opal is that the extent of the in rem debt is to be determined by reference only to credits that correspond to the "in rem" debits recoverable in Admiralty.

There are two difficulties with this approach. The first difficulty is that Opal has chosen to base its claim on references to the balance of a running account. The way the case has been conducted renders it inappropriate to adopt such an approach in this case.

In addition, there is a long standing line of authority to the effect that an "in rem" claim cannot be brought for a general balance of a mercantile account. Lord Chelmsford, in the Privy Council decision of The "West Friesland" (1859) Sw 454 at 460 said:

"They say, in effect, that on taking an account, according to their own view, of all their dealings and transactions with the owners of the ship, they find a balance in their favour of [sterling]195,8s.7d., and that, in order to obtain a charge on the ship, they are entitled to select from the accounts the items which consist of charges for coals, and to attribute the balance specifically to those items. They thus propose to treat the sums received in respect of the six voyages, not as received on account of the disbursements made for each successive voyage, which would be the fair inference from the accounts then rendered, but as payments made in liquidation of a balance due to a previous account current. But there is no principle which can enable the respondents thus to make the supplies of coals a distinct and separate account.

Their Lordships are therefore of opinion, upon the facts, that the arrest of the ship by the respondents for a general balance of accounts was unjustifiable, and that their claim cannot be supported...." (Emphasis added)

A similar approach was taken by Dr Lushington in "The Comtesse de Frègeville" [1861] EngR 729; (1861) Lush 329 at 333-334 where he said:

"The present suit is brought by Messrs. Thompson & Co., under the following circumstances. They state that they were the agents of the owner of the vessel arrested, and also the brokers, that as such agents they received the freights, and paid dock dues, and other charges in 1860; that, in addition, they paid [sterling]186 for coals supplied to enable the vessel to leave London. An account is annexed, and this is a suit for the balance of that account. This is in fact an account between ship-owner and agent: all the business was done by the plaintiffs as agents; the monies were so advanced, and so received; and the monies received were sufficient to pay all necessary expenses, unless the coals are to be so considered, the vessel arrested being a steam-vessel. In one sense, no doubt, coals are necessaries for a steam-vessel, and there are cases in which I should probably hold them so to be. But in my judgment the arrest of the ship for the payment of the balance of an account of this description, was not contemplated by the statute: the statute looks to an immediate necessity, not to the liquidation of a mercantile account, where credit is given by the agent in the ordinary course of business. If I entertained this case, this Court might have to settle accounts between merchant and agent to an unlimited extent. I cannot so construe the statute. I reject this petition." (Emphasis added)

Of course, under the Admiralty Act 1988, (Cth) ("the Act") s 4(2)(r), a claim by an agent in respect of disbursements on account of a ship is a general maritime claim. Therefore, the mere circumstance that the disbursement in the present case was incurred by an agent is not now important. However, the rationale of Dr Lushington as to the inappropriateness of the Court being called upon to settle accounts between merchant and agent continues to carry weight.

The above authorities were cited with approval by Sir R Phillimore in "The Underwriter" (1868) 1 Asp Mar LC 127 at 128-129, and also in The "El Salto" (1908) 25 TLR 99 at 99-100. In the latter case Sir Gorrell Barnes P, said:

"The result was that at the beginning of 1908 there was a debit balance of [sterling]14,260, which included sums paid by the plaintiffs for the benefit of the company in matters which had nothing to do with the working of the vessels. No voyage accounts were sent by the plaintiffs, but a debit note was sent on showing expenses at one port or another. In June last the plaintiffs intimated to the owners that the matter could not go on, and the account was wound up in October. It was to be noted that the debit balance at the beginning of the year was larger than it was now - ie., the working of the vessels during that period must have paid, especially if the account had been made up voyage by voyage. The plaintiffs had brought an action in the King's Bench Division to recover the balance of account, and had recovered judgment for a large sum, and what the plaintiffs wanted was the balance due on the whole transaction. They had taken out items from the general account for necessaries, and objection was taken that the plaintiffs were not properly proceeding in thus picking out certain items. Could they do it? He would have liked to place as liberal a construction on the statute as possible, because it was impossible to sue a foreigner except in this way. But he felt bound by the authorities when he found the question was really based on a mercantile account, and he did not think he could assist the plaintiffs by allowing them to pick out the items of necessaries. "The Comtesse de Frègeville" (Lush, 329) decided the matter, and the other cases ... did not overrule it." (Emphasis added)

In the present case, of course, the claim is brought to recover an amount calculated by reference to the balance of a mixed account, comprising the in personam and in rem expenditure. In view of this inter-mixture arising from the dealings of the parties it is not, in my view, for the Court to settle the accounts between the parties.

Recently, in the English High Court case of "The Kommunar" [1997] 1 Ll Rep 1 at 5 Clarke J declined to follow the line of authority commencing with The "West Friesland", referred to above, on the ground that he considered the agents were not simply acting as bankers but were responsible for paying for the necessaries supplied by third parties to the vessel. However, that case did not require his Honour to consider the offsetting of debits and credits in a context where there was an inter-mixture of in rem and in personam credits and debits.

In the present case, in the light of these authorities, Opal, in my view, should not be permitted to maintain a claim against the sale proceeds for an amount based on the balance of the running account. The effect of such an approach would be to enable Opal to select, at this late stage, from the mixed debits and credits, items now claimed to be due as an in rem debit. For this reason, the alternative submission claimed by Opal must also fail.

The final suggestion for Opal was that any credits, or at least any freight credits, should be applied rateably towards satisfaction of all debits regardless of their nature. There is no indication in the evidence that this was ever intended or that it was done. For the reasons given above as to the way the claim was pleaded and the case was conducted, I do not think this approach should be followed.

Accordingly, my conclusion is that Opal cannot now elect to appropriate all credits, both in rem and in personam to maximise its in rem claim. I do not consider that the balance of the running account, conducted between the parties, which forms the basis of the present claim, gives rise to a general maritime claim against the proceeds of sale in circumstances where the balance is arrived at after the parties have indiscriminately offset both in rem and in personam claims and there has been an intermixture of such debits and credits. None of the alternatives advanced by Opal are available in the present case. For these reasons I am not satisfied on the evidence that there is any amount presently recoverable by Opal against the proceeds of sale.

Accordingly, I dismiss the claim brought by Opal. I will hear the parties as to cost orders. The parties are directed to bring in Short Minutes to give effect to these reasons.

I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated: 20 February 1998

Counsel for Opal Maritime Agencies Pty Ltd:	Mr S Glacken
Solicitor Opal Maritime Agencies Pty Ltd:	Goldsmiths
Counsel for the Receivers and Managers of the assets of the Baltic Shipping Company:	Mr G J Nell
Solicitor for the Receivers and Managers of the assets of the Baltic Shipping Company:	Zaparas Dandanis Pty Ltd
Solicitor for the Admiralty Marshal:	Mr Douglas Coleman
Date of Hearing:	18 December 1997
Date of Judgment:	20 February 1998