INDEPENDENT FISHERIES LIMITED V THE FISHING VESSEL "ALTAIR II" HC CHCH CIV-2009-409-001087

INDEPENDENT FISHERIES LIMITED V THE FISHING VESSEL "ALTAIR II" HC CHCH CIV-2009-409- 001087 2 July 2009IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV-2009-409-001087IN THE MATTER OF an Admiralty Action in rem BETWEEN INDEPENDENT FISHERIES LIMITED Plaintiff AND THE FISHING VESSEL "ALTAIR II" DefendantCIV-2009-409-001161AND BETWEEN INDEPENDENT FISHERIES LIMITED Plaintiff AND DEEP-SEA FISHING COMPANY DALMOR LIMITED Defendant Hearing: 25 June 2009 (at Auckland) Counsel: G M Brodie and C Brown for Plaintiff N A Beadle and J M Hayes for Dalmor Limited Judgment: 2 July 2009 at 11:00am Reasons: 10 July 2009REASONS FOR JUDGMENT OF HUGH WILLIAMS J.Reasons for Judgment were delivered by Justice Hugh Williams on10 July 2009 at 11:00ampursuant to r 11.5 of the High Court Rules ................................................... Registrar/Deputy Registrar Date:____________________________________________________________________A The application by Deep-Sea Fishing Company Dalmor Limited to set aside the warrant of arrest executed by Independent Fisheries Limited against "Altair II" on 27 May 2009 was dismissed. B Independent Fisheries Limited was to have seven days from delivery of this judgment on 2 July 2009 to file and serve papers complying in all respects with Rule 25.6 of the High Court Rules. C In light of Order A, Independent Fisheries Limited's application for a freezing order in Proceeding 1161 was adjourned to be dealt with as part of the Summary Judgment application in that proceeding or with the disposition of that proceeding.____________________________________________________________________Introduction[1] On 27 May 2009 the plaintiff, Independent Fishing Ltd ("IFL") arrested the defendant, the fishing vessel "Altair II", at the Port of Lyttleton by handing the captain a copy of the Registrar's notice of arrest, a copy of the warrant of arrest, and a copy of a notice of proceeding. [2] On 16 June 2009 the vessel's owner, Dalekomorska Kompania Polowowa Dalmor Spólka z ograniczoą odpowiedzialnością or Deep-Sea Fishing Company Dalmor Ltd ("Dalmor") applied to set aside the proceeding and obtain the release of "Altair II" from arrest on grounds that the Court lacked jurisdiction under the Admiralty Act 1973 to maintain the proceeding In Rem or the warrant of arrest against the ship. This was particularly as the notice of proceeding In Rem was said to be a nullity for non-compliance with r 25.6 of the High Court Rules as it was not endorsed, as required by law, with a concise statement of the nature of the claim, the relief required or the amount claimed. IFL opposed both applications and, in the in rem action, proposed to file an amended notice of proceeding to remedy its acknowledged error in not complying with r 25.6. [3] In addition, IFL has sued Dalmor in Proceeding 1161 seeking summary judgment for $3,420,087.50 and further costs incurred since 1 April 2009. That application is down for hearing on 10 August 2009. In order to preserve its positionand to stop "Altair II" leaving New Zealand, IFL also sought a freezing order against Dalmor to prevent the vessel's removal and an order preventing Dalmor from "disposing of, dealing with or diminishing the value" of the vessel. Dalmor opposed the making of that order. [4] In both proceedings Dalmor entered a conditional appearance. [5] Both applications requiring to be dealt with urgently, by agreement between the parties the hearing of the two applications was removed to the Auckland Registry where hearing time was more readily available than in Christchurch. [6] These Reasons for Judgment deal with the application to set aside the arrest and the freezing order application. Judgment on the applications to set aside the arrest and freezing order application was delivered on 2 July 2009 in terms of the frontispiece, with Reasons for Judgment to follow. These are those Reasons.Facts[7] The factual background disclosed in the affidavits filed in both proceedings – which, by agreement, were all treated as evidence in relation to the two interlocutory applications – showed that IFL, a large New Zealand private company with a commercial fishing fleet and a processing factory, formed a relationship with a company called Dalmor S.A. of Poland in 1992. The arrangement, according to Mr McDonnell, a director of IFL, was that the companies would enter into a joint venture agreement under which the joint venture would charter a commercial fishing vessel and its crew from Dalmor S.A. and IFL would provide deep water quota within the New Zealand Fishery Economic Zone and would process the catch. [8] That arrangement continued until about 1996 using Dalmor's vessel, the "Dalmor II". [9] On 8 February 1996 the parties set up a company called Dalfish Ltd with IFL holding 76 per cent of the shares and Dalmor S.A. the balance. Mr McDonnell said that arrangement was agreed to avoid Dalfish being deemed a foreign company, butthe shareholders' intention was always that IFL and Dalmor S.A. would equally share the profits and expenses of Dalfish. A 1995 agreement said to evidence that arrangement was produced. That, in its terms, only provided for equal division of the net profit to be paid out as bonuses to Dalmor S.A. for arranging the charter and to IFL of the cost of the lease of the quota. The agreement said nothing about the division of losses. [10] "Dalmor II" continued to fish under the joint venture until 2002 when it was joined by "Altair II" and a third vessel, "Atria". The first two fished for Dalfish and "Atria" fished for Dalfish on behalf of Raukura Moana Ltd. [11] Quota reductions and rising costs meant the joint venture became unprofitable and in mid 2005 "Dalmor II" returned to Poland and the contract for the operation of "Atria" was transferred to a company called Raudal Fishing Ltd, a joint venture between Raukura Moana Ltd and Dalmor S.A. However, "Atria"'s contract with Raudal terminated at the end of 2007 when she was arrested for offences under the Fisheries Acts 1983 and 1996. She was allowed to return to commercial fishing for the 2008 squid and hoki season working for Dalfish, but "Atria's" charter with Dalfish ended in October 2008. "Altair II" ceased fishing for Dalfish about May/June 2008 at the end of the squid season. [12] Mr McDonnell said in December 2007 Dalmor took over Dalmor S.A.'s fishing activities and Mr Dybek became president of Dalmor. A letter from Mr Dybek to IFL dated 19 December 2007 said that from that day Dalmor "is and will be sole Party of contract(s) with your Company regarding this activity concluded earlier by Dalmor S.A.". IFL took that memorandum to mean that Dalmor had taken over Dalmor S.A.'s contractual obligations. "Altair II", until then registered in Malta, was re-registered in Poland under the ownership of Dalmor. [13] Mr McDonnell said throughout the period during which the fishing operations had been unprofitable IFL continued the earlier arrangement as a "goodwill gesture to Dalmor S.A. so the crew would not suffer hardship".[14] In the meantime "Atria" and "Altair II" incurred port and other costs which Dalfish was unable to pay. IFL met those costs as Dalmor S.A. was also unable so to do. [15] IFL's directors became increasingly concerned about the situation and in October 2008 Mr McDonnell and IFL's managing director, Mr Shadbolt, travelled to Poland to discuss the Dalfish joint venture with Mr Dybek and others. Minutes of the meetings recorded that the costs of "Altair II" in Lyttleton after 1 June 2008, about $NZD273,000, "will be paid back to IFL as well as $NZD166,000 which was previously confirmed by e-mail that it will be paid back to IFL till the end of November". Dalfish's liabilities were recorded at about $NZ9m. There was discussion as to how Dalmor would meet its half share. The Minutes continued that "Dalmor will respect agreement between both shareholders that all expenses, profits and losses are on an equal 50/50 basis" with further discussions concerning payment of Dalmor's half-share to follow. [16] After the meeting the parties corresponded by email and, since some reliance was placed on that exchange, it is necessary to summarize its terms. [17] The exchange began (as far as the evidence goes) with Mr Shadbolt responding on 30 January to an email from Mr Dybek requesting a loan to Dalmor of $NZD300,000 on condition Dalmor confirmed its liability for 50% of Dalfish's obligations, the proceeds of sale of "Altair II" and "Atria", would be paid to IFL's solicitors "until such time as all outstanding debts are satisfied by Dalmor in relation to Dalfish as well as the $NZD300,000 loan" and Dalmor S.A. and Dalmor guaranteed IFL to "cover all liabilities". [18] Mr Dybek responded on 4 February saying there was "no problem" with the requirement for Dalmor to confirm its 50% obligation for Dalfish but refusing to agree to the sale proceeds of the vessels being paid to IFL's solicitors because "Dalmor is a State-owned company" and thus its selling obligations were covered by Polish law and required Ministerial consent. While Dalmor was prepared to guarantee "all liabilities towards Dalfish", Dalmor S.A. was unable to do so as it wasnot the vessel's owner and it, too, required consent which, in effect, was from a Minister. [19] Mr Shadbolt replied later the same day saying it was "commercially sensible for us to hold some form of security" and seeking letters from Dalmor's board "undertaking to pay all outstanding debts from the proceeds of sale of the vessel or vessels" with Government endorsement. [20] Mr Dybek responded on 5 February saying a ship mortgage was "not an overnight exercise" and "requires time which we simply do not have", again because of the need for Government approval. He made the point that buyers would be put off by a mortgage. [21] Mr Shadbolt replied on 6 February saying IFL would accept a "letter of guarantee signed by a Notary Public", a condition Mr Dybek accepted. [22] That led to a Letter of Guarantee on Dalmor's letterhead dated 9 February 2009 relevantly saying:Dalmor Ltd. Hereby declares and guarantees that:• In consideration of Independent Fisheries Ltd. financial assistance to the company Deep Sea Fishing Company Dalmor Ltd up to New Zealand$300,000.00, by executing payments on behalf of Dalmor, the company undertake to repay: (i) The above mentioned financial assistance; and (ii) All liabilities incurred by Deep-Sea Fishing Company Dalmor Limited as a shareholder of Dalfish Limited or taken over from Dalmor S.A. (with the acquisition of Dalfish's shares) being 50% of such company's obligations; the amounts of such liabilities to be paid to Dalfish and/or IFL, where relevant, from the vessel or vessels sale monies to reimburse Dalfish and IFL for creditors' payments already made and still to be made by Dalfish or IFL. This financial assistance is also to be repaid to IFL from the abovementioned vessels sale monies. (iii) Dalmor hereby confirms that it respects agreement between both shareholders that all expenses, profits and losses are on equal 50/50 basis and that it will honour its commitments.• The above mentioned financial assistance up to New Zealand $300,000.00 to be paid by Deep-Sea Fishing Company Dalmor Limitedupon written demand being made by IFL and pending such demand, interest to be paid at 10% per annum until repayment.[23] In drafting the guarantee Mr Dybek said he did not "name the vessels" but suggested it did not matter as "Dalmor Ltd has not too many vessels to sale". [24] The NZD300,000 loan was to meet legal expenses in connection with the prosecution of "Atria". [25] "Atria" was sold in about February 2009 for approximate $USD4m and left Lyttelton in March . IFL and Dalfish received only $NZ1,513.950 from the sale proceeds which were applied first to reimburse payments by Dalfish funded by IFL for "Altair II"'s ongoing costs after the cessation of charter operations; secondly in payment of the $300,000 loan; and with only the balance of $NZ54,556 available towards Dalmor's liability to the Dalfish joint venture. [26] Mr McDonnell produced accounts for Dalfish for the year ended 30 November 2007 – the last accounts which directors had approved. His reconciliation at that date showed each joint venture party owing $4,411,276 with Dalmor's share being $3,690,261. Though not yet approved, the reconciliation of 30 November 2008 showed each joint venture partner owing $5,274,480 with Dalmor being liable for $3,628,980. Updated to 30 April 2009, Dalmor's debt to Dalfish was $3,420,087.50 after crediting the $54,566 balance of "Atria"'s sale proceeds. [27] Mr Dybek's affidavit said "Dalmor has every intention of complying with its obligations under the Letter of Guarantee dated 9 February 2009" and had offered IFL an undertaking to the Court in that regard. [28] However, the arrest of "Altair II" and this application was, at least in part, prompted by advice from the New Zealand solicitor acting on behalf of prospective buyers of the vessel that a final agreement for her sale had been negotiated, notwithstanding the arrest. Even though Mr Dybek said that on "Altair II"'s sale Dalmor was prepared to undertake that the proceeds of sale would be paid into its solicitors' trust account with the proceeds remaining on interest-bearing deposit untilorder of the Court, the problem from IFL's viewpoint was that the sale of "Altair II"will only be settled when the vessel reaches Pusan in South Korea and, given neither vendor nor purchaser are New Zealand companies and the vessel will be or must be in Pusan for settlement, there was no certainty any part of the proceeds will ever be within New Zealand. Hence, IFL was not prepared to accept Dalmor's proffered undertaking since it may have turned out to be wholly unenforceable. [29] In addition, even were IFL successful in obtaining judgment against Dalmor in New Zealand, Dalmor has no assets in this country other than "Altair II" and enforcement of a New Zealand judgment in Poland would be difficult.Submissions[30] Mr Beadle, Dalmor's leading counsel, first made the point that a challenge to the applicability of Admiralty jurisdiction must be decided on an interlocutory application and cannot be left for trial: Vostok Shipping Co Ltd v Confederation Ltd[2000] 1 NZLR 37, 44, para [20]. [31] He submitted IFL's claim did not come within s 4(1)(c) of the Admiralty Act 1973 – agreed by counsel as the only statutory provision possibly applicable – because this was not a "claim in respect of a mortgage of or charge on a ship". [32] Mr Beadle submitted that, at least presently, as against Dalmor direct, IFL neither has a direct claim nor a mortgage or charge. [33] In support of that submission, Mr Beadle carefully traversed the documentary evidence – particularly the 9 February 2009 guarantee – and submitted that, though Dalmor did not dispute Mr McDonnell's evidence, the correct contractual position was that Dalmor S.A. and IFL as joint venturers were jointly and severally liable to contribute to Dalfish's losses. Though Dalmor S.A.'s obligations were assumed by Dalmor in December 2007 and Dalmor acquired ownership of "Altair II" from March 2008, nonetheless Dalmor's contractual liability was to Dalfish not to IFL. Further, Dalmor's offers through Mr Dybek were doing no more than what wasrequired under the 9 February 2009 guarantee. Accordingly, in terms of s 4(1)(c) IFL had no "claim in respect of a mortgage or charge on" "Altair II". [34] In response to IFL's submission it was entitled to an equitable charge over "Altair II" because she was appropriated to satisfaction of the debt, Mr Beadle submitted the argument was flawed because the 9 February 2009 guarantee only applied to the "vessels sale monies". That, he submitted, was also consistent with the email exchanges. Accordingly, he submitted, IFL was unable to maintain its arrest of the vessel: whatever its rights to repayment might be, they arose only from the "vessels sale monies". [35] He further argued that the 9 February 2009 guarantee compromised any obligation on Dalmor's part to pay IFL pending receipt of the sale proceeds. Any debt by Dalmor to IFL was not, he submitted, due as yet and therefore, again, IFL had no power to arrest the ship. [36] Though Dalmor had raised the omission by IFL to comply with r 25.6 in the documents it served on arrest, Mr Beadle – properly – acknowledged that Dalmor was well aware of the basis of IFL's claim and IFL could amend the documents so as to comply with r 25.6, though not, of course, on arrest. In those circumstances, he said, Dalmor would abide the decision of the Court on that aspect of the dispute. [37] For IFL, Mr Brodie, its leading counsel, submitted, in relation to IFL's failure to comply with r 25.6, that an amendment was available, r 1.5 provides that non- compliance with the rules does not nullify the proceeding and, given Dalmor was well aware of the ambit of the dispute and the amount of IFL's claim, IFL's oversight should be excused (Attorney-General v The ship "Tosa Maru" HC Auckland AD585/91 15 May 1992 Robertson J, p14; Baltic Shipping Co Ltd v Pegasus Lines S A [1996] 3 NZLR 641, 651 per McGechan J). [38] On jurisdiction, Mr Brodie submitted the case fell within s 4(1)(c) as the guarantee of 9 February 2009 amounted to an equitable charge over "Altair II" not just the proceeds of her sale. He particularly relied on Dalmor's guarantee that its liabilities to Dalfish were to be met "from the vessel or vessels sale monies".Relying on authority later discussed, he submitted the guarantee amounted to an "interest in an asset held as security for a claim" and that the authorities require no formality but "simply a definitive indication that an interest in an asset is granted as security for a benefit". The law, he submitted, is encapsulated in 32 Hals Laws: "Mortgage" (para 306 p 160) where the following passage appears :"An equitable charge arises where a particular asset is appropriated to the satisfaction of the debt so that the chargee is entitled to look to the asset and its proceeds for the discharge of the debt. It is a security interest created without any transfer of title or possession to the beneficiary which can be created by an informal transaction for value and over any kind of property."[39] He submitted the law is the same in New Zealand. In King v The Ship "Grey Gull" (HC Auckland AD467/87 2 March 1993 p 6) Tompkins J held:"A claim based on an equitable charge or lien on a ship is within Admiralty jurisdiction as being a claim 'in respect of a mortgage or charge on a ship or share therein' and may be enforced by an action in rem against the ship. I do not find ... any requirement that an equitable lien or charge is required to be in writing, or that any other formality is necessary. Provided the evidence clearly establishes that it was the intention of the parties that the vessel should be a security for the loan that ... is sufficient to establish an equitable charge which in turn may be enforced by an action in rem."[40] Applying those authorities to the deed of guarantee, Mr Brodie made the point that IFL would hardly advance a further $300,000 to Dalmor were it to be no more than an unsecured creditor. The ships were an integral element in the parties' commercial relationship and the only means of payment available. There had been repeated promises by Dalmor to meet its obligations concerning Dalfish. The deed was therefore intended to apply both to the ship and its proceeds.Discussion and Decision re Arrest[41] It was not in dispute that IFL's arrest of "Altair II" was beyond jurisdiction unless, in the circumstances, it could say it had a "claim in respect of a mortgage of or charge on a ship" and thus bring its claim within s 4(1)(c). [42] There being no contention IFL was entitled to a formal mortgage on the "Altair II", the question is whether in the circumstances at the time of the arrest IFL had a "charge" on "Altair II".[43] In considering that question, the authorities quoted and others cited by counsel are critical. [44] In his locus classicus on Enforcement of Maritime Claims (4th ed 2005 p 545 para 21.2) Professor Jackson says that a "charge is simply an interest in an asset held as security for a claim – usually a monetary claim" and continues that such a charge "simply creates an interest in the asset commensurate with the claim in relation to which the charge exists". Discussing the equitable lien in Admiralty, the learned author says (at pp 546-547 para 21.7)An equitable lien or equitable charge may be created in relation to ship, cargo or freight in the same way as it may be in relation to chattels or choses in action generally. A claim based on an equitable charge or lien on a ship is within Admiralty jurisdiction as being a claim "in respect of a mortgage or a charge or a ship or share therein". [sic: "mortgage of or charge on a ship" Supreme Court Act 1981 (UK) s 20(2)(c)]. It may be enforced by an actionin personam or an action in rem against the ship.[45] Bowtle and McGuinness The Law of Ship Mortgages (p 37 para 3.29) say that a mortgage:"... must now be considered to be a form of security created by or under a contract that confers an interest in the property subject to it (which may be either specifically identified or all property of a general class which is sufficiently descriptive to enable the subject property to be identified). That is annulled upon the performance of some agreed obligation – usually, but not necessarily, the payment of a debt with or without interest. The term 'mortgage' and 'charge' are now used interchangeably. ... For all practical purposes, there is little difference between the two classes of security.[46] The learned authors then move to discussing equitable charges, saying (p 50 paras 3.58-3.59) that:"A charge is a limited property interest in the subject matter of the property, created by debtor or other obligor (the "chargor") in favour of the creditor to whom the debt or obligation is owed (the "chargee"), allowing the chargee to seize and sell the charged property and apply the proceeds derived from that sale to the satisfaction of the secured obligation. ... It may nevertheless still be possible to create equitable charges against ships in much the same way as equitable mortgages may be created. Indeed, the distinction between an equitable mortgage and an equitable charge is neither hard nor fast. ... ... An equitable charge will be created by a contract between the owner and the chargee. The contract may specifically create a charge or it may purport tocreate a mortgage, but fail to do so because of a formal defect or some other reason, and therefor the contract takes effect only as an equitable charge.[47] The position is carefully discussed in an article discovered through the diligence of Ms Brown, Mr Brodie's junior, Aitken: "The equitable charge: A remedy in search of an explanation: (2007) 18 JBFLP 157. The article begins with the observation that "it is impossible to provide any comprehensive definition of an equitable charge" (at 158), opines that the cases show that the "maintenance of aseparate fund by the chargor in relation to the property to be charged is the most useful objective indication of the intention of the chargor to 'burden' it" (at 159) and concludes (at 166) :In order to demonstrate that property has been "charged" it is, if possible, vital to be able to point to some "appropriation" (by way of segregation or otherwise) of the particular fund said to be subjected to the charge. It is insufficient merely to show that it was intended that a particular debt be paid out of the proceeds as received from the disposal of a particular property. There is a large element of circularity in this approach since it will usually be impossible in advance of the actual receipt of the proceeds in the hands of the putative chargor to "demarcate" or otherwise appropriate the funds.Carey v Palmer (1924) 3 CLR 380 and subsequent cases show the extreme difficulty which may be involved in determining the issue. The whole topic is over-clouded by the studied insouciance that frequently attends the "creation" of the equitable charge. This is because either the parties are unaware of the equitable complexities concealed in the transaction, or because it is too difficult at the time to turn one's mind to them.[48] Those academic opinions are borne out by the cases they cite. [49] In Re Bank of Credit and Commerce International S.A. (No.8) [1997] 4 All ER 568, 576 Lord Hoffmann, delivering the principal judgment of the House of Lords, held:There are several well-known descriptions of an equitable charge (see eg that of Atkin LJ in National Provincial and Union Bank of England v Charnley[1924] 1 KB 431 at 449-450) but none of them purports to be exhaustive. Nor do I intend to provide one. An equitable charge is a species of charge, which is a proprietary interest granted by way of security. Proprietary interests confer rights in rem which, subject to questions of registration and the equitable doctrine of purchaser for value without notice, will be binding upon third parties and unaffected by the insolvency of the owner of the property charged. A proprietary interest provided by way of security entitles the holder to resort to the property only for the purpose of satisfying some liability due to him (whether from the person providing the security or a third party) and, whatever the form of the transaction, the owner of the property retains an equity of redemption to have the property restored to himwhen the liability has been discharged. The method by which the owner of the security will resort to the property will ordinarily involve its sale or, more rarely, the extinction of the equity of redemption by foreclosure. A charge is a security interest created without any transfer of title or possession to the beneficiary. An equitable charge can be created by an informal transaction for value (legal charges may require a deed or registration or both) and over any kind of property (equitable as well as legal) but is subject to the doctrine of purchaser for value without notice applicable to all equitable interests.[50] In one of the most frequently-cited passages in this area, Swiss Bank Corporation v Lloyds Bank Ltd [1980] 2 All ER 419, 426, Buckley LJ in the English Court of Appeal held:It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend on the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred. If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owned to him by the debtor. ... But notwithstanding that the matter depends on the intention of the parties, if on the true construction of the relevant documents in the light of any admissible evidence as to surrounding circumstances the parties have entered into a transaction the legal effect of which is to give rise to an equitable charge in favour of one of them over property of the other, the fact that they may not have realised this consequence will not mean that there is no charge. They must be presumed to intend the consequence of their acts. ... A binding obligation that a particular fund shall be applied in a particular manner may found no more than an injunction to restrain its application in another way, but if the obligation be to pay out of the fund a debt due by one party to the transaction to the other, the fund belonging to or being due to the debtor, this amounts to an equitable assignment pro tanto of the fund (Palmer v Carey [1926] AC 703 at 706, [1926] All ER Rep 650 at 651,Rodick v Gandell (1852) 1 De GM & G 763 at 777, 42 ER 749 at 777). Lord Wrenbury said in Palmer v Carey [1926] AC 703 at 706-707, [1926] All ER Rep 650 at 652 when delivering the judgment of the Privy Council: 'This is but an instance of a familiar doctrine of equity that a contract for valuable consideration to transfer or charge a subject matter passes a beneficial interest by way of property in that subject matter, if the contract is one of which a Court of Equity will decree specific performance.'The Grey Gull is an example of the application of those principles in both the New Zealand and the Maritime setting.[51] Applying those decisions to the facts of the present case, this is a situation where Dalmor S.A. and, after it assumed Dalmor S.A.'s debts to Dalfish, Dalmor itself operated the fishing operation earlier described through Dalfish. It is now accepted by Dalmor that Dalmor S.A. and, now, Dalmor itself and IFL agreed to share equally in the profits and losses of the fishing operation. Unfortunately, the operation ran at a considerable loss. It is now, therefore, the obligation of Dalmor and IFL to meet their half share of that loss. [52] The next question is, as Mr Beadle submitted, whether IFL can enforce against Dalmor the obligation that Dalmor has to meet the half share of Dalfish's losses. [53] There can be little doubt that, at least as at 30 November 2007, the latest date the directors of Dalfish approved its accounts, Dalmor's debt to Dalfish was $3,690,261. However, Dalmor's approval of Dalfish's accounts showing its debt to Dalfish in that amount did not, at law, give IFL a direct right of action against Dalmor for its failure to pay its share of the Dalfish debt. It would be for Dalfish to enforce payment of that amount. [54] Even though IFL would appear to have been funding the Dalfish obligation either as a matter of goodwill or in order to ensure liquidation or arrest proceedings were not taken, there is no evidence to suggest it did so other than as a volunteer. Certainly IFL nowhere suggests it undertook those payments as a result of an agreement with Dalmor at that stage of the matter that IFL should meet Dalfish's obligations and that IFL would in consequence have a direct right of action against Dalmor arising out of Dalmor's failure to meet its share of Dalfish's debt. [55] To that point, therefore, Mr Beadle's submissions are persuasive. [56] The position, however, changed with the email exchanges leading up to the guarantee of 9 February 2009 and the guarantee itself. [57] As the email exchanges earlier cited demonstrate, IFL was prepared to lend Dalmor a further $300,000 on condition that it received some form of security forboth that and Dalmor's pre-existing debt to Dalfish. It negotiated for a mortgage over "Altair II". That request was rejected for the reasons Mr Dybek gave. Mr Dybek remained, however, keen for Dalmor to obtain the advance and was prepared to enter into an alternative form of security for IFL which did not involve Polish Government agencies. The parties accordingly settled on the guarantee which was drafted by Mr Dybek and, though not naming "Altair II", clearly had that vessel in mind. [58] Against that background, it is clear that as the price for Dalmor obtaining the $300,000 loan from IFL, Dalmor agreed both to repay the loan and meet, by payment to IFL, all its liabilities to Dalfish, both direct and those taken over from Dalmor S.A., with those liabilities being met "from the vessel or vessels sale monies". Further, the guarantee was for "payments already made and still to be made by Dalfish or IFL" with that, too, being repaid from the "vessels sale monies". [59] While there is a certain force in Mr Beadle's submission that payment of the aggregated debt of Dalmor S.A. and Dalmor of their liabilities to Dalfish by direct payment to IFL is said to be secured against the "vessels sale monies" and that provided security only against the proceeds of sale of "Altair II" not the vessel itself, that submission fails to give weight to the fact that the guarantee is of the aggregated liabilities of Dalmor S.A. and Dalmor to Dalfish and provides that payment will come "from the vessel or vessels sale monies". [60] The parties' use of the disjunctive "or" makes clear that the security for Dalmor S.A. and Dalmor's aggregated liabilities plus the additional IFL loan was to be whichever was available of either "Altair II" – the only "vessel" to which the guarantee could possibly relate – or, should "Altair II" have been sold, her proceeds. [61] Put another way, if the parties' intention was that security to IFL for repayment of the Dalmor S.A./Dalmor debt to Dalfish and the additional advance was intended to be confined only to the proceeds of the "Altair II" sale, the words "vessel or" in the guarantee would have been superfluous.[62] It must follow, in terms of Swiss Bank and the other authorities and texts reviewed that Dalmor, by its execution of the guarantee in those terms, was undertaking to "segregate a particular fund or asset and to pay the debt out of that fund or asset". [63] The deed of guarantee of 9 February 2009 accordingly amounted to an equitable charge over whichever of the vessel or its proceeds was available at the time it came to be paid as security for payment of the aggregated debt and further advance. "Altair II" or its proceeds, whichever was applicable, was accordingly appropriated to meet the aggregated debt and the further advance. [64] IFL's claim falls precisely within Professor Jackson's description of the equitable lien in Admiralty and conforms with his opinion that a claim such as IFL's comes within s 4(1)(c) of the Admiralty Act 1973. IFL's claim is therefore in respect of a mortgage of or charge on "Altair II". The application to set aside the arrest of "Altair II" through lack of jurisdiction under that section must therefore be dismissed. [65] On the procedural front, Mr Beadle was right to abide the decision of the Court concerning IFL's admitted failure to comply with r 25.6. That failure, as it readily acknowledged, neither nullified the proceeding nor made it incapable of correction. Accordingly there was the direction that within seven days of delivery of the judgment IFL filed and served amended arrest papers which comply in all regards with r 25.6.Freezing Order[66] IFL's application for a freezing order was an alternative in the event Dalmor was successful in its application to set aside "Altair II"'s arrest. Dalmor has been unsuccessful in that regard. Accordingly there was no need for the Court to consider the freezing order application.Result[67] In the result – a) Dalmor's application to set aside IFL's Writ of Arrest executed on 27 May 2009 was dismissed. b) Within seven days of delivery of this judgment IFL was to file and serve papers concerning "Altair II"'s arrest which complied in all respects with r 25.6. c) There being no reason to deal with IFL's application in Proceeding 1161 for a freezing order, that application was adjourned to be dealt with as part of the summary judgment application or, if that is unsuccessful, with the disposition of that claim. .................................................................HUGH WILLIAMS J.Solicitors: Cunningham Taylor (B C Taylor), P O Box 1003 Christchurch for plaintiff DLA Phillips Fox ((J M Hayes) P O Box 160 Auckland, for Dalmor LtdCopy for:G M Brodie. P O Box 130 121 Armagh, Christchurch 8141Helen.Vermeulen@justice.govt.nz