Late on Friday, in an ex parte hearing in the Federal Court in Sydney, Korean shipping company Hanjin Shipping Co (
Hanjin) obtained an
interim order under article 19 of the UNCITRAL Model Law on Cross-Border Insolvency (
Model Law). The order prevents the enforcement of any charge or lien over the ship "Hanjin Milano", its cargo, containers and bunker fuel and oil until 30 September 2016 or further order of the court.
Friday’s Federal Court orders do not prevent owners of cargo from removing the cargo from the Milano and the orders appear designed to allow the Milano to come into port and discharge its cargo without being arrested. However, despite the orders, it may not all be smooth sailing in Australian waters for Hanjin.
The Hanjin Shipping Collapse
South Korea’s largest shipping firm and the world’s seventh-biggest container carrier went into receivership in Korea in late August leaving more than 100 ships and their cargos at sea. Since then a number of its ships have been arrested by charterers, port authorities or other parties with maritime claims. The Milano's sister ship, the Hanjin California, was arrested on 6 September 2016 by a creditor, Glencore, when it berthed at Port Botany in Sydney.
Many of Hanjin’s ships were denied entry to ports as authorities around the world worried they would not be paid port fees or that the ships would be arrested and tie up busy berths for extended periods whilst the arrest proceedings play out. Others were told by Hanjin not to come into port for fear of being arrested by creditors and to remain at sea. One of those was the Hanjin Milano, which had been ordered to drop anchor outside Port Phillip Bay near Melbourne.
Recognition under Model Law
To stop vessels being arrested, so that Hanjin can continue to effectively operate its business while it attempts to restructure, the Korean appointed receivers started seeking recognition of the Korean proceeding in countries around the world. This recognition is being sought under the Model Law, in countries that have adopted it, to hopefully obtain a stay against arrest of ships in that country.
In some instances, recognition can still be sought in countries that have not adopted the Model Law. For example, the receivers successfully sought recognition in Singapore even though Singapore has not adopted the Model Law. The High Court of Singapore gave interim recognition to the Korean proceedings under the common law. When granting interim recognition, the court made orders preventing the arrest of ships in the Hanjin fleet (excluding the existing arrest proceedings involving the Hanjin Rome). The Singapore court has since made orders allowing the discharge of cargo controlled by five container shipping companies on the Hanjin Rome.
Australian Courts and maritime claims
So far, recognition of the Korean proceeding has been granted under the Model Law by courts in Japan, the USA and the UK. Australia has adopted and legislated the Model Law in the
Cross-Border Insolvency Act 2008 (Cth) (
CBIA) and Australian courts have recognised a number of foreign shipping insolvencies over recent years, including other Korean shipping related proceedings involving STX Pan Ocean Co Ltd, Daebo International Shipping Co Ltd, Samsun Logix Corporation and SW Shipping Co Ltd. However, our courts have made it clear that they will not lightly interfere with the rights of parties with maritime claims to arrest ships, a right which is at the heart of admiralty law.
While recognition in Australia of a foreign proceedings taking place in the debtor’s ‘centre of main interests’ results in an automatic stay, the scope of that stay is subject to Australia’s insolvency laws. The stays under Australian insolvency laws do not necessarily prevent secured creditors from enforcing their rights, which may allow a maritime lien to be enforced by arrest of a ship, despite the automatic stay.
Case example
In
Yu v STX Pan Ocean Co Ltd [2013] FCA 680, Korean rehabilitation proceedings were recognised as foreign main proceedings by the Federal Court in circumstances where there was a risk that local creditors would take steps to arrest the debtor’s ships were they to call into Australian ports. However the court refused to make orders which would prevent creditors from applying for the arrest of ships. The Court ordered that any application for the issue of an arrest warrant of any vessel owned or chartered by STX Pan Ocean Co Ltd be dealt with by a Judge of the Federal Court (rather than a Registrar as would usually be the case), and that the reasons for judgment be drawn to the attention of the court at the time any such application is made.
Despite the order for recognition in
Yu v STX Pan Ocean Co Ltd, one day later a creditor applied for the arrest of a ship operated by STX Pan Ocean Co Ltd and the Federal Court issued the arrest warrant and the ship was arrested.
Where a CBIA application “relates to an owner of a ship or ships engaged in any commercial trade”, this must now be brought to the Court’s attention before, or at the time, the application for recognition is filed, together with a copy of the reasons of the Court in
Yu v STX Pan Ocean Co Ltd.
The Federal Court also ordered that a copy of the orders be provided to the Victorian Supreme Court, so that the court is aware of them if an application is filed with it for the arrest of the Milano. The stay granted by the Federal Court is only an interim one and is subject to any further order of the court. Given recognition in
Yu v STX Pan Ocean Co Ltd did not prevent the arrest of a ship soon afterwards, it is not a fait accompli that creditors will be prevented from arresting the Hanjin Milano.
Read a recent article about the
overlap between insolvency and maritime law in Australia co-authored by Scott Butler, INSOL Fellow.
About the author
Scott Butler (Fellow INSOL International) specialises in corporate restructuring and insolvency, banking and finance recovery and dispute management and resolution. He is an expert in cross-border insolvency law, completing INSOL International’s Global Insolvency Practice Course with Honours.
