The Federal Court case of Delta Corp Ship Management DMCCO v The Ship "Caledonian Sky" [2023] FCA 1058 (Caledonian Sky case) illustrates how caveats against release of an arrested vessel can be a powerful legal strategic tool in admiralty matters when used effectively.
The Caledonian Sky case highlights the purpose and technical principles that apply to caveats against release in practice and serves as a warning to parties who seek to use a caveat against release as a delay tactic rather than a springboard to launch their own arrest upon release of a vessel from arrest.
Before we dive into the principles laid down in the case, we must first understand what a caveat against release is and how they are used in practice.
What are caveats against release?
Caveats against release are provided for under the Admiralty Rules 1988 (Cth) and are filed in the court where the arrest warrant was issued. The purpose of a caveat against release is to ensure that the caveator is notified of applications for the release of the arrested property.
Typically, a caveat against release is used when a person has a claim against a vessel or other property already under arrest, with the caveat being lodged instead of a further application to arrest the vessel or property.
A caveat against release is a handy tool for maritime lawyers. When used effectively, it can ensure that a client's claim can be enforced against a vessel before it leaves Australia's jurisdiction as any person who lodges a caveat against release of a vessel must be given a copy of any application to the court for an order to release the vessel under arrest. This provides prospective claimants with advance notice of an impending release, giving them the opportunity to make their own arrest of the vessel as soon as it is released from the prior arrest.
How are caveats against release used in practice?
A recent case that illustrates the effective use of a caveat against release is Dan-Bunkering (Singapore) Pte Ltd v The Ship "Yangtze Fortune" IMO 9336282 (Yangtze Fortune case). In this case, a number of caveats against release were lodged in circumstances where the sale of the vessel was imminent. This then allowed the caveators to effectively piggy-back on the main proceedings and keep up to date with the judicial sale process. Once the vessel was sold, the caveators were then in a position to lodge their claims against the sale proceeds. Similarly, if the vessel did not proceed to judicial sale and was released from arrest, the caveators would have been able to effect their own arrest on the vessel to ensure it did not leave the jurisdiction.
In March 2024, the Yangtze Fortune case was back in the Federal Court in relation to an interlocutory application filed by an interested party seeking permission to lodge a late claim against the proceeds from the vessel's sale. This application was ultimately dismissed as the Court held that the interested party chose not to participate in the fund when it could have done so and therefore had to accept the consequences of that choice. Prior to this, the interested party had filed and withdrawn two separate caveats against release of the vessel. Notably, the Court remarked that filing a caveat does not commence legal action and once a vessel is sold, a caveat against release has no continuing efficacy. This is important to keep in mind if the vessel in respect of which you filed a caveat against release proceeds to judicial sale.
The Caledonian Sky
In the Caledonian Sky case, a small passenger vessel was arrested in Western Australia by the vessel's technical and crew manager (Delta) due to unpaid sums under an agreement with the vessel's bareboat charterer (Delos). Delos then issued a caveat against release of the vessel for unknown reasons, which was later abandoned. Two further parties, Nordic Hamburg Shipmanagement GmbH & Co KG (Nordic Germany) and Nordic Shipmanagement (HK) Ltd (Nordic HK), also issued caveats against release of the vessel. They intended to bring proceedings in respect of the vessel for claims against Delos relating to alleged failures to pay agreed crew management fees and expenses under respective agreements for managing the crew and ship.
A few days after the caveats against release of the vessel's release were lodged, Delta filed an application for the vessel's release from arrest with the Admiralty Registrar and the caveators, Nordic Germany and Nordic HK, were notified of the application on the same day. The hearing of the application for release was scheduled for the following day.
At the hearing, the caveators opposed the release of the vessel from arrest. They argued that they had not had sufficient time to receive instructions from their clients, who were based overseas in different time zones, regarding their stance on the release application. Specifically, they needed to determine whether their clients intended to arrest the vessel and how quickly they could act.
The question before the Court was how to balance Delta's interest in having the vessel released from arrest, thereby ending their liability for the costs and expenses of maintaining the arrest, against the caveator's interest in maintaining the arrest until they could determine whether they wished to effect their own arrest.
In reaching its decision the Court stated that the overriding consideration is the interests of the plaintiff, in this case Delta, and/or vessel owner or other party responsible for the operation of the vessel who is prejudiced or inconvenienced by the continuing arrest. The Court also stated that the purpose of a caveat against release is to ensure the caveator receives notice of any impending release so that it can then arrest the vessel if it chooses to do so. Interestingly, the Court stated that a caveator should be able to move to effect an arrest as quickly as it would have been had there been no initial arrest, adding that it would be an unfair burden on the plaintiff to delay the vessel's release merely to give the caveator more time to get organised.
The Court further stated at paragraph 19 of its judgment that:
"When a caveator files a caveat against release, it should be and remain in a position to immediately seek a warrant for the arrest of the vessel in the event that an application is made for the release of the vessel from arrest – there is no obvious reason why such an application should be delayed for the convenience of a caveator. The caveator's right is to have notice of an application for release so that it can arrest the vessel, not so that it can delay the release in order to give itself more time to act."
In coming to its decision, the Court noted that Nordic Germany was prepared to apply for an arrest warrant. However, they opposed the immediate release of the vessel as a precaution so that they could ensure the vessel did not leave Australia's jurisdiction before their application for arrest could be heard and any arrest effected. The Court stated that this is not a proper basis to delay the release of a vessel from arrest and therefore ordered Delta to release the vessel.
Conclusion
The Caledonian Sky case sounds a warning to prospective claimants and maritime practitioners that a court will not allow a caveat against release to be used as a tool to delay the release of a vessel. Furthermore, once a caveat against release is lodged, a party must be ready, willing and able to immediately effect the arrest of a vessel upon its release from arrest or else risk missing the boat.
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