Scottish Court of Session Decisions

Petitioners: MacColl; HBJ Gateley Wareing (Scotland) for MacKinnons, Solicitors, Aberdeen

Respondents: Lake, QC; Cameron McKenna, Solicitors, Edinburgh

1 December 2010

Introduction

[1] The petitioners are respectively Swiss and English companies. The compearing respondents, a company organised under the laws of Cyprus, own the offshore intervention vessel "Sarah". In an action now pending in the High Court of Justice in England, the petitioners seek payment from the respondents of more than $2 million said to be overdue on invoices relative to an Agreement between the parties dated 1 April 2009 and a related Assignation dated 9 August 2010. That Agreement concerned the provision by the petitioners, to the order of the respondents, of remotely operated vehicle ("ROV") equipment, systems, services and personnel, and it is not in dispute that the vessel "Sarah" was the location at which the contract came to be performed.

[2] Section 27 of the Civil Jurisdiction and Judgments Act 1982 provides inter alia as follows:

"Provisional and protective measures in Scotland in the absence of substantive proceedings

27(1) The Court of Session may, in any case to which this subsection applies -

(a) subject to subsection (2)(c), grant a warrant for the arrestment of any assets situated in Scotland; ....

(2) Subsection (1) applies to any case in which -

(a) proceedings have been commenced but not concluded ... in England and Wales or Northern Ireland;

(b) the subject-matter of the proceedings is within the scope of ... [Article 1 of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters]; and

(c) in relation to [paragraph (a)] ... of subsection (1), such a warrant could competently have been granted in equivalent proceedings before a Scottish Court; ..."

[3] Relying on these provisions, the petitioners now claim entitlement to arrest the "Sarah" on the dependence of their English action. At an ex parte hearing on 19 November 2010, Lord Glennie granted warrant for arrestment in terms of the prayer of the petition, and on the same day the "Sarah" was duly arrested by messengers-at-arms within Montrose Harbour where she then lay.

[4] For their part, the respondents have enrolled a motion for recall of the arrestment and its underlying warrant, contending (by reference to section 27(2)(c) of the 1982 Act) that in equivalent Scottish proceedings arrestment of the "Sarah" could not competently have been sought or granted. The requirements of subsection (2)(a) and (b) were admittedly met, and the same could be said of the general requirements for interim diligence under section 15K of the Debtors (Scotland) Act 1986, as amended. But where arrestment on the dependence of an equivalent Scottish action would have been incompetent, then on that ground alone the respondents' motion for recall must succeed.

[5] In this connection, it was common ground between the parties that a ship could only be arrested on the dependence of Scottish proceedings if the claim fell within the scope of one or more of the subparagraphs of section 47(2) of the Administration of Justice Act 1956. The Part of the Act containing section 47 applied to Scotland only, although equivalent provisions for England and Wales and Northern Ireland had been re-enacted elsewhere, and section 47 itself provided inter alia as follows:

"Arrest of ships on the dependence of an action...

47(1) Subject to the provisions of this section ..., no warrant issued after the commencement of this Part of this Act for the arrest of property on the dependence of an action ... shall have effect as authority for the detention of a ship unless the conclusion in respect of which it is issued is appropriate for the enforcement of a claim to which this section applies, and, in the case of a warrant to arrest on the dependence of an action, unless -

(a) the ship is the ship with which the action is concerned, or

(b) all the shares in the ship are owned by the defender against whom that conclusion is directed.

(2) This section applies to any claim arising out of one or more of the following, that is to say -

....

(k) the supply of goods or materials to a ship for her operation or maintenance;

(l) the construction, repair or equipment of any ship;

...."

According to the petitioners, their claims fell within the scope of both subparagraphs (k) and (l) of section 47(2), but if (as the respondents maintained) they did not, then it was a matter of concession that the arrestment in this case would have to be recalled.

The respondents' position

[6] The principal argument for the respondents was to the effect that the parties' Agreement concerned the provision of services and materials to them, rather than to the vessel itself, and thus clearly fell outwith the scope of subparagraph (k) of the subsection. In The "River Rima" 1988 2 Ll 193, the House of Lords had authoritatively construed the equivalent English provision in section 20(2)(m) of the Supreme Court Act 1981. In order to qualify, such a claim must broadly relate to what used to be termed "necessaries", that is, "... whatever is fit and proper for the service on which a vessel is engaged". This mirrored the test later voiced by a single judge in The "Edinburgh Castle" 1999 2 Ll 362, namely "... all things reasonably requisite for the particular adventure on which the ship is bound ...". What really mattered, however, were the twin questions posed by Lord Brandon in The "River Rima":

"... first, whether [the supply in question] was to a ship and, secondly, if so, whether it was ... for her operation".

[7] Here, it was said, the services and materials provided could not be said to have been necessary for the operation of the "Sarah". The respondents could (in theory at least) have deployed the vessel without ROVs, and in any event, irrespective of their source, any ROVs would fall to be operated from the "Sarah" rather than as part of her operation. If, as suggested in The Riga 1872 LR 3 A & E 516, the test for necessaries was what a prudent owner would have required for the operation and maintenance of the vessel concerned, then that test was not met here. In that context, the mere existence of the parties' contract was neutral and only the content counted. Importantly, the Agreement did not even specify that relevant services were to be rendered to the "Sarah", as opposed to the respondents as her owners, and the same lack of any required nexus was evident elsewhere. Clause 101, for example, contained a definition of "Intervention Vessel" as meaning "... the vessel provided by Company from which the ROV services are performed", and furthermore such installation costs as were mentioned in Appendices A and B appeared to be of insignificant value.

[8] Not only were the requirements of subparagraph (k) not satisfied, in senior counsel's submission, but the requirements of subparagraph (l), concerning the "... construction, repair or equipment of a ship", were not met either. Very fairly, however, it was conceded that the services in question were provided in connection with the "Sarah" alone, at various locations where she was deployed, and that the "Sarah" at all times required ROV systems in order to operate effectively as an intervention vessel. As against that, such provision could be temporary and variable; different specialist suppliers might be involved from time to time; the respondents themselves might make use of the vessel without ROVs; and in such circumstances the key statutory requirements were not met. At best for the petitioners, the vessel might be described as "accommodating" equipment which would then be operated on its own account.

[9] It was of course true that section 47(2) of the 1956 Act covered claims "arising out of" any of the matters enumerated. As the House of Lords had recognised in The "Antonis P Lemos" 1985 1 AC 711, the phrase "arising out of" might be of wide application. But the issue here was quite different, namely whether the petitioners could bring themselves within subparagraph (k) or (l) in the first place. If they could not, then their claims "arose out of" something to which no power of arrestment could competently apply. According to senior counsel, that was indeed the position, and his motion for recall should therefore be sustained.

The petitioners' position

[10] In reply, counsel for the petitioners described the respondents' approach as altogether too narrow. Importantly, it was said, section 47(2) applied to all claims "arising out of" any of the enumerated matters, and in The "Antonis P Lemos" Lord Brandon had specifically emphasised the width of that Scottish provision as a means of giving equivalent treatment to the different wording of the English statute. "Connected with" was the proper connotation here.

[11] Further, as regards the approach of the House of Lords in The "River Rima", it was essential to recognise that the particular facts of that case were very different from the present. There, containers had been hired out by the plaintiffs without reference to the use to which they would be put. In every case they were delivered to, and collected from, landward depots, and the suppliers had no knowledge as to which ship or ships they might be carried on. In such circumstances it was not surprising that their Lordships had declined to regard the containers as having been supplied to any particular ship or for its operation.

[12] In sharp contrast, the ROV equipment and relative services had here been supplied for the "Sarah" and for no other vessel. Her picture alone appeared on the front page of the parties' Agreement. So far as the petitioners were aware, the "Sarah" was the respondents' only vessel, and perhaps their only significant asset. As the respondents conceded, the "Sarah" was an intervention vessel which would always be deployed with one or possibly two ROVs, and the whole purpose of the parties' Agreement was to equip her in that connection. To that end a measure of interface engineering was required, and significantly the invoices disclosed that, without exception, the point of delivery of all equipment and services was the vessel herself at various widely-spaced locations where she would then have been lying. The ROV equipment in particular would have had to be supplied "to the vessel" in order to form part of her operational capabilities. The deployment of that equipment thereafter formed part of the vessel's work. As in the case of The "Edinburgh Castle", where jurisdiction was in issue, the supply of a range of equipment to the vessel should be held to qualify as one of the matters enumerated in section 47(2) of the 1956 Act. For the purposes of subparagraph (k), the whole contractual supply was to the "Sarah" and for her operation. Alternatively or in any event, the subject matter of the Agreement was the equipment of the "Sarah" within the meaning of subparagraph (l). For these reasons, it was submitted, the respondents' motion for recall of the arrestment was ill-founded and should be refused.

Discussion

[13] So far as the law is concerned, I do not think that the parties were very much in dispute. I do, however, agree with the respondents that the phrase "arising out of" in section 47(2) of the 1956 Act is of somewhat limited importance here. That phrase merely describes the relationship between a party's claims and the enumerated matters which follow, whereas the real question for present purposes is whether any of the enumerated matters is engaged at all. Conversely, it does not appear to me that the respondents' insistence on the precise terms of the parties' Agreement is of great value either. As Lord Brandon observed in The "River Rima" at p. 196, it would be enough (for the Scottish subparagraph (k)) to demonstrate actual supply to a given vessel even if her identity was not clearly specified in an antecedent contract. Approaching the matter on a common-sense commercial basis, therefore, can the petitioners here lay claim to a supply of materials and services to the "Sarah" and for her operation? And, for the purposes of subparagraph (l), was the "Sarah" to any extent equipped through performance of the parties' Agreement?

[14] Except insofar as relevant principles are affirmed, I doubt whether other decided cases can truly be of more than illustrative value. On its facts, for example, The "River Rima" was so different from the present that the actual decision is now of limited assistance. What matters for the purposes of subparagraph (k), as the respondents submitted, is Lord Brandon's twin query as to whether a relevant supply was "to" a ship, and if so, whether that was "for her operation".

[15] Against that background, I have reached the conclusion that the respondents' motion for recall of the arrestment and its underlying warrant is not well-founded and must be refused. On the information available to the court, the "Sarah" was the only vessel remotely connected with the parties' Agreement. As disclosed by the produced invoices, she was the point of delivery of all of the equipment and services to which the contract related. No other ship was involved, and the petitioners' belief was that the "Sarah" was the only vessel owned by the respondents. So far as can be judged, the Agreement concerned the provision of ROV equipment, together with relative control systems and operating personnel, and at least some of the installation involved interface engineering between the vessel herself and the equipment and systems supplied. The contract was, in these various respects, vessel-specific and, whatever might be said about individual elements in isolation, I am not persuaded that it would be unreasonable to describe the relevant supplies as having been made "to" the "Sarah", and for her operation. Unlike the hired containers in The "River Rima", which were merely a form of cargo, it seems to me that the installation, maintenance and operation of the ROVs and associated systems on board the "Sarah" can properly be viewed as enhancing her operational capabilities.

[16] As senior counsel for the respondents very fairly conceded, the "Sarah" as an intervention vessel would always be deployed with one or two ROVs. It may be that such equipment would be furnished by different specialists from time to time, but for present purposes what matters, in my view, is that, in concluding the Agreement in question, the respondents plainly deemed it necessary to secure the provision of ROVs and associated systems for whatever work or adventure they had in mind for the "Sarah" at the material time. Without the Agreement, the "Sarah" would have had to be equipped with ROVs and associated systems from somewhere else. This was not, in other words, just a supply for the respondents' general purposes. On the contrary, it was the supply of marine equipment and services for the operational benefit of a specific vessel, and on that account I am satisfied that it must be held to fall within both subparagraphs (k) and (l) of section 47(2) of the 1956 Act.

Disposal
[17] Taking all of these considerations into account, I shall refuse the respondents' motion and (as agreed) find the petitioners entitled to the expenses of the contested hearing in which they have been successful.