Bank of Kuwait and the Middle East v The Ship MV “Mawashi Al Gasseem” (No 2)

• Jurisdiction: Australia Federal only
• Court: Federal Court (Australia)
• Judgment Date: 29 May 2007
• Neutral Citation: [2007] FCA 815
• Date: 29 May 2007

FEDERAL COURT OF AUSTRALIA

Bank of Kuwait and the Middle East v The Ship MV “Mawashi Al Gasseem” (No 2) [2007] FCA 815

PROCEDURE – operation of O 35 r 2(2)(c) of the Federal Court Rules – whether declaration should be made on deemed admissions – where declaration sought as to validity of mortgage over ship – where declaration affects priority of other claims against ship – where other claimants have had opportunity to intervene – considerations in exercising discretion to make declaration – declaration made

Federal Court Rules 1976 (Cth)

Federal Court of Australia Act 1976 (Cth)

Admiralty Rules 1988 (Cth)

Admiralty Act 1988 (Cth)

Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427 followed

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 cited

Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 cited

BMI Ltd v Federated Clerks Union of Australia (1983) 51 ALR 401 cited

Termijtelen v Van Arkel [1974] 1 NSWLR 525 cited

Wallersteiner v Moir [1974] 1 WLR 911

Myer Queenstown Garden Plaza Pty Ltd v City of Adelaide Port Adelaide (1975) 33 LGRA 70 cited

Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955 cited

BANK OF KUWAIT AND THE MIDDLE EAST v THE SHIP MV "MAWASHI AL GASSEEM"

SAD 276 OF 2005

MANSFIELD J

29 MAY 2007

ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 276 OF 2005

BETWEEN:	BANK OF KUWAIT AND THE MIDDLE EAST Plaintiff
AND:	THE SHIP MV "MAWASHI AL GASSEEM" Defendant

JUDGE:	MANSFIELD J
DATE OF ORDER:	29 MAY 2007
WHERE MADE:	ADELAIDE

THE COURT DECLARES THAT:

1. For the purposes of all proceedings against the Ship MV “Mawashi Al Gasseem” commenced in the Federal Court of Australia and pertaining to the priority in which the proceeds of sale of the said vessel should be paid out, the mortgage over the Ship MV “Mawashi Al Gasseem” in favour of the plaintiff granted by Kuwaiti Saudi Co for Livestock Meat and Fodder as the owner of the said vessel by an agreement in writing dated 24 August 2003 (the mortgage) to secure the said owner’s repayment of the amounts due to the plaintiff under the facilities granted by the plaintiff to the owner under the mortgage and an earlier agreement in writing dated 27 July 2003 is valid.

THE COURT ORDERS THAT:

2. Judgment be entered for the plaintiff against the defendant in the sum of KD11,145,784/486 for outstanding principal and interest to 18 May 2007.

3. The defendant pay to the plaintiff its costs of the action, including any reserved costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 276 OF 2005

BETWEEN:	BANK OF KUWAIT AND THE MIDDLE EAST Plaintiff
AND:	THE SHIP MV "MAWASHI AL GASSEEM" Defendant

JUDGE:	MANSFIELD J
DATE:	29 MAY 2007
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1 This action was commenced following

(1) the arrest on 3 July 2005 and the sale on 4 November 2005 of the vessel Mawashi Al Gasseem (the vessel); and

(2) the notice of 17 November 2005 pursuant to r 73 of the Admiralty Rules 1988 (Cth) calling for claims against the funds held as proceeds of the sale of the vessel so as to identify any competing claims on those funds and to determine the priority of payment of those funds between any competing claimants.

2 The plaintiff, by its statement of claim, said that by agreement of 27 July 2003 (the agreement) it had agreed to advance certain credit banking facilities to Kuwaiti Saudi Co for Livestock Meat and Fodder (the owner) as then owner of the vessel upon certain terms and conditions, including that the vessel be mortgaged to the plaintiff as security for repayment of the sums advanced. Certain monies were advanced to the owner in accordance with the agreement. By a further agreement of 24 August 2003 (the mortgage), the owner acknowledged its then indebtedness to the plaintiff of KD 27,951,000 plus accumulating interest and costs, and agreed to mortgage the vessel to the plaintiff as security for repayment of the owner’s debt to the plaintiff from time to time. The mortgage of the vessel was duly registered by the Kuwait Ministry of Communications, Maritime Affairs Department. The plaintiff claimed that the owner had failed to repay the advances made or interest in accordance with the agreement and the mortgage, although some payments had been made, so that at 31 October 2005 the owner was indebted to the plaintiff in the sum of KD 9,579,113/689 including interest.

3 The plaintiff claimed that sum plus accumulating interest, and a declaration as to the validity of the mortgage.

4 The owner’s defence adopted a curious position. It admitted the existence of the two documents comprising the agreement and the mortgage, and that it had received the advances alleged by the plaintiff and had failed to repay them. Its defence was that no officer of the vessel or of the owner was authorised to sign either the agreement or the mortgage of the vessel, so it was not bound by those documents. That, it said, was the consequence of the law of Kuwait. Its claim involved it keeping the monies advanced with no obligation to repay them.

5 On 11 April 2007, I struck out that defence as an abuse of process. Until this action, and indeed during its currency, the owner had consistently and publicly acknowledged the existence of the agreement and of the mortgage of the vessel, and in any event the person who signed the agreement and the mortgage on behalf of the owner was (on the uncontested evidence) the chairman of the board of directors of the owner and authorised to sign the agreement and the mortgage under the owner’s constitution: see Bank of Kuwait and the Middle East v The Ship MV “Mawashi Al Gasseem” [2007] FCA 550. The owner was given leave within a specified period to file and serve an amended or fresh defence. It has not done so.

6 Consequently, the plaintiff has now applied for a declaration that the mortgage of 24 August 2003 over the vessel in favour of the plaintiff is valid, and for judgment for KD 9,579,113/689 and accumulated interest from 1 November 2005 to 18 May 2007 of KD 1,566,670/797.

7 Order 35A r 3(2) of the Federal Court Rules 1976 (Cth)(the Rules) provides:

If a respondent is in default, the Court may:

…

(c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings — give judgment against the respondent for the relief that:

(i) the applicant appears entitled to on the statement of claim; and

(ii) the Court is satisfied it has power to grant; or

(d) give judgment or make any other order against the respondent; …

8 The operation of O 35A r 3(2)(c) was considered by Kiefel J in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427. Her Honour, at [44], held that the rule deems a respondent to have admitted the facts alleged in a statement of claim, but not to have conceded the entitlement to the relief sought. Order 11 r 13 of the Rules also has the effect of the owner and the vessel being deemed to have admitted the facts alleged in the statement of claim.

9 The power under O 35A r 3(2) is discretionary. In this instance, I have no hesitation in exercising that power in respect of the claim for judgment for a liquidated sum. The owner and the vessel have never disputed that the claimed sums were advanced and have not been repaid. There is now nothing to suggest that the owner or the vessel has any defence to the claim. Indeed, the owner at material times acknowledged its indebtedness to the plaintiff and to others. The calculation of interest to date has been made in accordance with the pleaded terms of the agreement and the mortgage (and which are both in evidence), and has been verified by affidavit.

10 The making of the declaratory order sought is a little more problematical. The Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth): see Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2. The circumstances in which that power may be exercised are not circumscribed by strict rules: see per Gibbs J in Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 at 437. However, there has been a long held view that a declaration, a judicial act, should be made only on evidence and not simply on admissions or (as in this case) on deemed admissions: see BMI Ltd v Federated Clerks Union of Australia (1983) 51 ALR 401; Termijtelen v Van Arkel [1974] 1 NSWLR 525 at 533; Wallersteiner v Moir [1974] 1 WLR 911 at 1029. In addition, it is appropriate to be cautious because a declaration may have effects more broadly than as between the particular litigants: Myer Queenstown Garden Plaza Pty Ltd v City of Port Adelaide (1975) 33 LGRA 70 at 82 per Wells J; Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955.

11 Kiefel J in Dataline [2006] FCA 1427 expressed the issue pithily in the following terms at [57]:

The question is whether declarations should be made on deemed admissions, given that there has been no adjudication by the Court on the facts and the declarations may give the impression that there has.

12 Dataline [2006] FCA 1427 concerned alleged unconscionable conduct by a supplier of internet-related services contrary to s 51AC of the Trade Practices Act 1974 (Cth), and of misleading and deceptive conduct contrary to s 52 of that Act. Justice Kiefel made declaratory and injunctive orders, and imposed pecuniary...