By Maurice Lynch, Partner

A Government owned ship is Teflon and cannot be the subject of in rem proceedings to secure a claimant’s proprietary or general maritime claim under the Admiralty Act 1988 (Cth). What constitutes a Government owned ship for the purposes of the Admiralty Act is likely to be broader than you think. The Federal Court’s Decision in Virtu Fast Ferries Ltd v The Ship “Cape Leveque” [2015] FCA 324 extended the concept of a Government owned ship to a ship which had not been paid for by the Government, had not been delivered to the Government, and had not been finally constructed.

Facts

In Cape Leveque, Virtu Fast Ferries Ltd commenced in rem proceedings (proceedings against property as opposed to a person or company) against the ship Cape Leveque which Austral Ships Pty Ltd had contracted with the Commonwealth to construct. The ship was to be used by the Australian Customs and Border Protection Service.

The in rem proceedings were commenced against the Cape Leveque as a surrogate ship for the ship Jean de la Valette. The purpose of the in rem proceedings were so Virtu Fast Ferries could obtain security for the arbitration proceedings it had against Austral Ships for breach of the Jean de la Valette ship building contract.

Under section 19 of the Admiralty Act, the in rem proceedings would only be valid if (a) when Virtu Fast Ferries cause of action arose, Austral Ships was the owner of the Jean de la Valette, and (b) when Virtu Fast Ferries commenced the in rem proceedings, Austral Ships was the owner of the Cape Leveque.

Austral Ships argued that it was not the owner of the Cape Leveque at the time proceedings were commenced, and that the Commonwealth was the owner. The Commonwealth intervened in the proceedings supporting this position.

Decision

The Court held that the concept of “ownership” in the Admiralty Act involved connotations of dominance, ultimate control and ultimate title such that it can be concluded that a person has the right both to make physical use of the vessel, and to sell and keep the proceeds of the sale of the vessel.

Considering the above, and construing the ship building contract, the Court held that the Commonwealth was the beneficial owner of the Cape Leveque for the following reasons:

1. The Cape Leveque was 96% complete.
2. The Commonwealth was able to obtain an order for specific performance of the ship building contract especially considering the ship was a patrol boat which the Commonwealth contracted to purchase in discharge of its responsibilities to pursue and protect the national interest.
3. The ship building contract prevented Austral from registering a security interest in the ship in its own name.
4. The ship in question was inherently unsuitable for any other owner having features and functions confidential to the Commonwealth, and relevant to matters of national security. The ship could only be used as a patrol boat for the purposes of the Commonwealth.

With the Cape Leveque being beneficially owned by the Commonwealth not Austral, Virtu Fast Ferries had no jurisdiction to proceed in rem against or arrest it.

Take Home Message

It is not necessary for the Commonwealth to be in possession of or have paid the full purchase price of a vessel under construction to be an owner under the Admiralty Act. This is provided that the Commonwealth can seek specific performance of the ship building contract. It will be able to do this if when interpreting the contract (a) the work to be completed is defined, (b) the Commonwealth has a material interest in the execution of the work which cannot be adequately compensated by damages, and (c) the ship builder by the contract has obtained from the Commonwealth possession of the site on which the work is to be done. Accordingly, to ensure the Commonwealth is able to assert a right to specific performance and claim ownership, any ship building contracts need to be carefully drafted.

Had the ship builder had a defence to any action for specific performance of the ship building contract, then the Commonwealth may not have been considered the owner of the Cape Leveque.