EDUARDO M. SOLOMON AND OTHERS v. THE OWNERS OF THE SHIP OR VESSEL "POINTER APITONG" (PANAMANIAN FLAG) AND ANOTHER

1990 Folio No. A.J. 353

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

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Admiralty action in rem against : the Ship or Vessel "POINTER APITONG" (Panamanian Flag)

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JUDGMENT

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1. The plaintiffs were the master and crew of the vessel "Pointer Apitong" which was arrested in Hong Kong on 7th December 1990. Each had entered into a written contract of employment in Manila in May or June 1990 with the owner's agents. Each contract provided for employment in the "Pointer Apitong" for a period of 12 months. Each contract also provided for the incorporation of the Standard Employment Contract for seafarers approved by the Philippines Overseas Employment Administration of the Department of Labour and Employment. Section P of that Standard Employment contract reads:-

"SEAMAN'S UNEMPLOYMENT INDEMNITY

2. Following arrest of the vessel, the plaintiffs commenced this action in rem claiming (a) arrears of wages and leave and overtime pay in a specified sum, and (b) unemployment indemnity of one month's basic wages.

3. On 15th May 1991, I gave the plaintiffs judgment in default for US$52,541.12, which sum included both (a) and (b) claims. The interveners accepted that a maritime lien attaches to claim (a) amounting to US$40,291.12, which claim has priority over the interveners' own claim for unpaid hire. The interveners accepted implicitly that the plaintiffs have a contractual entitlement to the unemployment indemnity. They did not accept, however, that a maritime lien attaches to this part of the claim. That issue was left to be determined. If such a lien attaches, of course, that claim would also have priority over the interveners' claim and reduce the balance of the proceeds of sale available to the interveners and other claimants not having priority.

4. A maritime lien is a right created by the Admiralty Court. It attached to some but not, I think, all matters which fell within the court's jurisdiction. It attached, inter alia, to wages due to a seaman under what was called an ordinary contract.

5. In the 19th century, the Admiralty Court's jurisdiction was confirmed and extended by the Admiralty Court Acts of 1840 and 1861. Amongst other things, jurisdiction in relation to wages was extended to wages under a special contract, which is essentially a contract in writing which might confer benefits on a seaman over and above a basic daily sum for his services. It was assumed that the Acts created new maritime liens in relation to claims arising from subject matters newly brought within the jurisdiction. That this was not so is succintly recounted by Brandon J., as he then was, in The Halcyon Skies 1977 1 Q.B. 14 at page 28:-

"This supposition was subsequently held to have been erroneous by the House of Lords, which decided that the statutory provisions concerned did not create new maritime liens, but only gave statutory rights of action in rem, in respect of such claims. This was decided, as regards the jurisdiction in respect of necessaries conferred by section 6 of the Act of 1840, in C. & C.J. Northcote v. Henrich Bjorn (Owners)(The Henrich Bjorn) (1886) 11 App. Cas. 270; and, as regards the jurisdiction in respect of masters' disbursements conferred by section 10 of the Admiralty Court Act 1861, in Hamilton v. Baker (The Sara) (1889) 14 App. Cas. 209. Following the latter decision Parliament intervened promptly to give to a master the lien which the House of Lords had held that he did not have: see section 1 of the Merchant Shipping Act 1889, replaced subsequently by section 167(2) of the Merchant Shipping Act 1894. That intervention, however, left the authority of The Sara (1889) 14 App. Cas. 209, as a decision on the effect of the Act of 1861, unimpaired.

        A further question arose, following the passing of the Acts of 1840 and 1861, as to whether, in cases where those Acts had enlarged the existing jurisdiction of the court as distinct from conferring new jurisdiction, it was intended that maritime liens recognised in respect of claims under the existing jurisdiction should extend also to claims of a similar kind under the enlarged jurisdiction. This further question did not fall to be decided in The Henrich Bjorn (1886) 11 App. Cas. 270 or The Sara (1889) 14 App. Cas. 209. Significant observations with regard to it, however, were made by Lord Bramwell in the former case at pp. 282-283 and by Lord Halsbury L.C. in the latter case at p. 216. These observations appear to indicate that, if it had been necessary to decide the point, both Lord Bramwell and Lord Halsbury L.C. would have held that, in such cases, the relevant maritime lien should be regarded as extending to claims under the enlarged jurisdiction.

        The correctness of this last view, so far as damage and salvage cases are concerned, appears to have been accepted early on, and I do not consider that it is any longer open to challenge today."

6. The position was different, however, in relation to wages. Brandon J. referred to The British Trade [1924] 104, a case involving a special contract. There Sir Henry Duke P. held that, assuming a claim for wrongful dismissal fell within jurisdiction in rem, no maritime lien attached.After a careful analysis of that case, Brandon J. came to the conclusion that it was wrongly decided. In The Halcyon Skies at page 30, he said:-

"As I explained earlier, the decisions in The Henrich Bjorn (1886) 11 App. Cas 270 and The Sara (1889) 14 App. Cas. 209 that no maritime liens had been created in respect of claims covered by the extended jurisdiction conferred on the court by the Acts of 1840 and 1861 were given in relation, and only in relation, to claims covered by new, as distinct from enlarged, jurisdiction. Further, as I also said earlier, there are observations in the speeches of Lord Bramwell in the former case and Lord Halsbury L.C. in the latter case which indicate that, if it had been necessary to decide the point, they would have held that, where existing jurisdiction had been enlarged, maritime liens recognised in respect of claims under the existing jurisdiction should be regarded as extending also to claims of a similar kind under the enlarged jurisdiction. There is, in my view, both in principle and on authority a vital distinction between the two kinds of case, and I think that the reasoning in The British Trade [1924] P. 104, since it takes no account of this distinction, cannot be supported.

        I have considered whether the decision in The British Trade, on the footing that it cannot be supported on the wider ground given in the judgment, could nevertheless be supported on the narrower ground, based on the words in section 10 of the Admiralty Court Act 1861 "earned ... on board the ship," which was relied on in the argument for the interveners. In my opinion, however, the decision cannot be supported on this narrower ground either.

        As I said earlier, the requirement that wages, in order to be recoverable in Admiralty, should have been earned on board the ship existed, in theory at least, under the law as administered by the High Court of Admiralty before 1861. In practice, however, such limitation was never interpreted strictly and did not prevent that court, as was recognised in The British Trade [1924] P. 104, 108-110, from exercising jurisdiction, under the head of wages, over claims for wrongful dismissal arising out of ordinary mariners' contracts, or from according to seamen the same maritime lien in respect of such claims as they had in respect of claims for wages in the strict sense. In these circumstances it seems to me reasonable to infer that when the legislature, by section 10 of the Admiralty Court Act 1861, enlarged the existing jurisdiction over claims for wages due under ordinary mariners' contracts so as to cover similar claims due under special contracts, it intended, despite the use of the hallowed phrase "earned ... on board the ship," that the enlarged jurisdiction should, so far as concerns the kinds of claims covered, be co-extensive with the existing jurisdiction.

        For the reasons which I have given I would hold that the effect of section 10 of the Admiralty Court Act 1861 was, first, to give the court all the same jurisdiction over wages claims arising out of special contracts as it had previously had over wages claims arising out of ordinary mariners' contracts, including claims in damages for wrongful dismissal; and, secondly, to extend the maritime lien which had been recognised as existing in respect of the latter claims to the former claims.

        If I am wrong in thinking that section 10 of the Act of 1861 achieved this result because of the inclusion in it of the words "earned ... on board the ship," then I would hold that such result has neverthless been achieved since by section l(1)(o) of the Administration of Justice Act 1956, which does not include those or any similar words.

        I would add that I am glad to have been able to reach a conclusion which means that, so far as a seaman's right and remedies in Admiralty are concerned, the old distinction between a special contract and an ordinary mariner's contract is no longer significant. As pointed out in effect by Worley C.J. in The Arosa Star [1959] 2 Lloyd's Rep. 396, 402-403, special contracts are today the rule and what were formerly called ordinary mariners' contracts are the exception. That being so, it would, in my view, be a reproach to the law if seamen did not have the same rights and remedies in respect of claims under the former as under the latter."

7. Thomas on Liens at paragraph 309 says that the effect of that decision, The Halcyon Skies, is that:-

    "The jurisdiction of the court and the existence of a maritime lien are coterminous."

At paragraph 313, relying on the same authority, Thomas says:-

"In the exercise of its wages jurisdiction the court has construed the concept of a wage liberally to include not only wages in a strict and narrow sense but also benefits which are incidental to the seaman's employment and claims for damages arising from wrongful dismissal or other breaches of contract. As with the case arising from the statutory expansion of the court's jurisdiction so also the judicial expansion of the substantive concept of.a wage has been accompanied by a corresponding expansion in the maritime lien. To the extent that a claim is in the nature of a "wage", it is accompanied by a maritime lien."

8. For the plaintiffs, Mr. Murray adopted both statements. With the first, I agree only in part. In my view, the decision of Brandon J. related only to those areas of jurisdiction which had been enlarged, in particular, jurisdiction as to wages and not to new areas of jurisdiction. Jurisdiction and the existence of a maritime lien are not, therefore, in my view, necessarily coterminous.

9. The second statement was criticized by Mr. Fok, for the interveners, on two grounds. First, he said that a recent authority, The Tacoma City, with which I shall deal in more detail shortly, scotches any idea that there has been a broadening of the concept of wage.

10. Second, referring to the last sentence of that quotation, he said that the argument tends to be circular and does not help the court. For my part, I have no difficulty in understanding what Thomas intended. That is to say, as long as after a careful analysis it has been established that a particular claim is a wage within the context of Admiralty jurisdiction, then to that extent a maritime lien automatically attached. So I accept the second statement provided, of course, as I said, the claim has first been analysed to see whether it can correctly be classified as wages.

11. The current approach of the court has most recently been canvassed, as I said, by the Court of Appeal in The Tacoma City [1990] 1 Lloyd's Law Reports 330. That case concerned, inter alia, a claim for severance pay in the commonly understood sense. Sheen J. held that a martime lien attached to seamen's wages earned in respect of services rendered to the ship, but that severance pay was payable on an officer or member of the crew becoming surplus to the requirements of his employer, and not payable for services to the ship. He therefore found against the plaintiffs.

12. The Court of Appeal upheld that decision, although on the different ground that the plaintiffs had not made out an entitlement to severance pay in the first place. It was not, therefore, necessary for the Court of Appeal to consider whether a lien would have attached to severance payments if entitlement had been established. The Court of Appeal did, however, deal. with the point with the most careful analysis. I find the judgments of the Court of Appeal highly persuasive.

13. Ralph Gibson L. J. who delivered the leading judgment dealt with the nature of a maritime lien at page 335 :-

"Mr. Justice Sheen considered the nature in law of a maritime lien by reference to its historical development. Principles mentioned by him include the following :

        (i)     the origin of the maritime lien in respect of a seaman's wage was based upon the concept of work and labour and upon the concept that the seaman –

... should have a remedy against the ship which he has served because it is reasonable that in whatever thing a person invests his services or his labour that very thing ought to pay him, wherefore everyone who shall buy such a ship must beware ... [The Customs of the Sea, cited in Roscoe's Admiralty Practice: 3rd ed. 1903].

        (ii)     The wages must have been earned in respect of service to the ship: The Chieftain, (1863) 167 E.R. 316 and The Ruby No. 2, [1898] P. 59.

        (iii)     The proper approach of the Court had been expressed by Sir Newman Worley, C.J. of Bermuda in The Arosa Star, [1959] Lloyd's Rep. 396 at p. 402

... the Court must keep up to date and have regard to the changed and changing conditions of seamens employment ... as a consequence of changed conditions and modern conceptions of welfare, most seamen are engaged on special contracts which provide for notice of termination of service, paid leave, sick leave, bonuses and so on which can be and are properly regarded as additions to wages, additions which the mariner can "be fairly said to have earned by his services" [Sir Henry Duke, The British Trade, 1924 pp. 108-109].

        (iv)     By s. 742 of the Merchant Shipping Act, 1894 "wages" includes "emoluments". The word "wages" is used in the Act in a large sense and may include not only what a seaman may get as a wage but also a bonus or gratuity as being something obtained in the course of his service as a recompense for the execution of his duty: see The Elmville No. 2, [1904] P. 422."

14. And impliedly, those principles were accepted. The Lord Justice then went on to agree that the judge was right in concluding that severance pay did not attract a lien, and he said at page 344:-

"Mr. Justice Sheen gave a number of reasons in support of his conclusion which included: (i) a severance payment is not payable "for service to the ship" because it may be payable to one officer, who is declared surplus, and not to another who is not; (ii) a severance payment is "compensation" for losing employment and is not part of the emoluments of employment; (iii) it is not paid for services rendered but because services are no long required; (iv) the essence of a severance payment is a reward for long service payable as compensation for having had the service cut short.

        I do not think it is possible to formulate a principle based upon any of those reasons and to demonstrate that it is supported by any particular authority. The cases show a development of the concept of "wages" based upon a liberal approach and a determination to do what is fair and just in order to secure to the seaman what he has earned by service to and in the ship.

Mr. Justice Brandon, as he then was, in The Halcyon Skies said:

... the effect of section 10 of the Admiralty Court Act 1861 was, first, to give the court all the same jurisdiction over wages claims arising out of special contracts as it had previously had over wages claims arising out of ordinary mariners contracts, including claims in damages for wrongful dismissal; and, secondly, to extend the maritime lien which had been recognised as existing in respect of the later claims to the former claim ... I would add that I am glad to have been able to reach a conclusion which means that, so far as seamen's rights and remedies in Admiralty are concerned, the old distinction between a special contract and an ordinary mariners' contract is no longer significant. As pointed out in effect by Worley C. J. in the Arosa Star ... special contracts are today the rule and what were formally called ordinary mariners contracts are the exception. That being so, it would, in my view, be a reproach to the law if seamen did not have the same rights and remedies in respect of claims under the former as under the latter.

        Mr. Justice Brandon was, I think, adopting what Worley C.J. had said in The Arosa Star including the passage cited earlier in this judgment to the effect that –

... most seamen are engaged on special contracts which provide for notice of termination of service, paid leave, sick leave, bonuses, and so on which can be and are properly regarded as additions to wages, additions which the mariner can "be fairly said to have earned by his services".

        The question, therefore, arises whether the severance payments agreement can fairly be regarded as the development of new terms in special contracts which are as much "additions to wages" as, for example, damages for wrongful dismissal or wages payable during sick leave."

At page 345, he rejected the principal thrust of the plaintiffs' argument:-

"I am, however, quite unable to accept the full extent of Miss Bucknall's argument, namely that any sum is "wages" and gives rise to a maritime lien, if it is promised to be paid in consideration of service in a ship. If, for example, the payment of a pension upon retirement age was promised by a shipowner by terms incorporated in a crew agreement, to be taken as a lump sum or by future periodical payments, I do not accept that that lump sum, or the value of the pension, or even the sums which have fallen due at the time of the termination of employment in the ship, would fall within the concept. of "wages", for which the law would give a lien. Such claims would not, in my judgment, be "wages", even though the immediate consideration for the promised pay was service by the seaman in the ship coupled with prior service to the shipping company or to other companies.

        All the additions to wages, payable under special contracts, "which the mariner can be fairly said to have earned by his services" (per Worley C.J. in The Arosa Star at p. 403) which have been accepted as giving rise to liens, have been claims which can be regarded as items in the quantification of the value of the current service in the ship by the seafarer. Pension, as contrasted with contributions towards a pension fund, is not part of the agreed value of the current service but, in substance, is the reward for past service.

        Modern conceptions of welfare, to which Worley C.J. referred, have led to the acceptance by shipping companies of the obligations to pay bonuses, to pay wages during sick leave, to give notice of termination of service, etc. but all, I think, represent the value of the current service in the ship by the seafarer. It is not possible to tell from the report of The Arosa Star the full terms of the sick leave entitlement arising under the tariff rates of West Germany in respect of which the lien was there allowed. It was, however, for a substantial sum of money, namely about ￡6000 making allowance for inflation. Nothing however, suggests that it was in the nature of a medical severance payment which is provided by one of the NMB agreements to be payable to seafarers with a minimum of 104 weeks specified service and who are declared to be permanently unfit for further service in the industry. Such a medical severance payment would not, in my judgment, be "wages" even though payable in consideration of service in a ship under a crew agreement incorporating the NMB agreements. Thus a pension, or a medical severance payment, or a redundancy payment payable under the redundancy payments agreement included in the NMB agreements, are not part of the value of the current service of the seafarer but are sums which in substance are to be paid in respect of earlier service in the same or different ships.

        I have no doubt that severance payments under the NMB agreement are outside the concept of "wages" and provide no basis for maritime liens."

15. In a short judgment, Leggatt L.J. said at page 346:-

"Wages constitute remuneration for services. Since wages include "emoluments", they are not confined to periodic payments. In its natural meaning a severance payment does not constitute remuneration, because it is not paid for services rendered or for services that would have been rendered, but for leave, sickness, wrongful dismissal or in lieu of notice. It is paid when a seaman who has been continuously employed for at least two years is dismissed by his employer. In other words it is a payment made not for services to a ship, but to compensate the seaman for the termination of his employment after a reasonably long period of service to the same employer. It is not paid for past service, even though the amount of the payment is calculated by reference to the length of it. In my judgment severance pay does. not constitute wages.

16. Dillon L.J. cited and clearly approved of the decision of Brandon J. in The Halcyon Skies. At page 347 he said:-

"We have had the advantage in this Court that the history of the maritime lien for "wages" and of the development of the jurisprudence on that subject has been very clearly set out by Mr. Justice Brandon in his judgment in The Halcyon Skies, [1976] 1 Lloyd's Rep. 461; [1977] Q.B. 14, a case which arose out of the collapse of another British shipping line, Court Line.

        That judgment established that a seaman, including a ship's officer, has a maritime lien on the ship for "wages" whether he was employed under an ordinary mariner's contract, or, as is normal nowadays, under a "special contract" with the terms set out in writing. It also establishes that the term "wages" includes both the employee's and the employer's contributions to a company pension fund during the term of his employment in the ship. The rationale of that is set out at pp. 25-26 by reference to Parry v. Cleaver, [1970] A.C. 1; the employee's contribution was a deduction from his basic wage and the employer's contribution was an additional emolument.

        The judgment further confirms that the lien for "wages" covers damage for wrongful dismissal as had been held earlier in The Blessing, (1878) 3 P.D. 35 and had been recognized in The Ferret, (1883) 8 App. Cas. 329. The basis of that is that, as shown in The Blessing, the damage for wrongful dismissal are founded on the wages and other emoluments which the claimant would have earned on the ship, but for the wrongful act of the shipowner, or of the master on behalf of the owner.

Dillon L.J. continued later,

"The "wage" are consideration for the seaman's service in the ship - or to the ship as it is sometimes put. Their rate during the service in the ship may take into account previous service in other ships, e.g. higher rates of pay for men who have held a particular rank for more than a particular period even if the whole tenure of the rank was not in the ship in question. Their rate may also depend on future contingencies, e.g. a contract may provide for higher rates of pay if in the course of a voyage the ship enters a war zone or if a new collective wages' agreement with a trade union comes into operation. But it does not follow from that that every payment to be made by the owner to a seaman under the seaman's contract of employment is necessarily a payment of "wages".

        The severance pay is payable when the seaman becomes surplus to the requirements of the shipping company or group, and is required to report to the Merchant Navy Establishment Administration for further employment. Under the contract in the ship's articles the liability to pay the severance pay is a liability of the company which owned the ship in which he was serving when he became surplus to requirements. But the severance pay is to be calculated by reference to the whole of his service with the company or group in question. It is not paid as extra remuneration, or deferred remuneration on a contingency, for his services merely during the voyage in his last ship when he becomes surplus to requirements. Indeed it is not paid as remuneration for his services at all; it is paid as compensation for the loss of the expectation he would otherwise have had that because of his long service he would have been offered further employment by the company or group after the end of what was in the event his final voyage in his last ship for the company or group.

        Such a payment is therefore not, in my judgment, "wages" even in the extended sense in which that word is used in the context of a maritime lien.

        Accordingly, for this reason, if no other, the appellants' claim to have a lien on the ship for severance pay, must, in my judgment,, fail."

17. Having regard to those authorities, I am satisfied of the following:-

To that extent, I disagree with Mr. Fok's criticism of the second passage from Thomas which I quoted.

18. Mr. Fok argued that a close analysis of the unemployment indemnity shows that it is akin to, if not in truth, a severance or redundancy payment. Paragraph 2 of that indemnity, he said, has the hallmarks of the situation where an employee is not entitled to any redundancy payment if his employer offers similar work at similar pay in a reasonable location and the employee unreasonably refuses that offer.

19. Mr. Murray contended that the indemnity is akin to damages for wrongful dismissal because it is payable for services that would have been rendered but for the arrest.It is founded on the wages the plaintiffs would have earned on the vessel but for the arrest.

20. There is, of course, abundant authority, as will have been seen from the quotations which I have cited above, where damages for wrongful dismissal have been held to be wages in the extended sense.

21. I am with Mr. Murray on this issue. The contract with which I am concerned was of relatively short duration and provided for service on one named vessel. There is nothing to suggest that the plaintiffs had had earlier employment with the defendants, or that they could expect further employment on the particular vessel or at all. There is no suggestion of any particular loyalty on either side. That reference to the indemnity is not included in the schedule of crew wages and benefits, or in the wages' account, is not, I consider, of particular significance.

22. True severance, as in The Tacoma City, usually calls for a minimum period of continuous employment and provides a scale of payment, based on the period of employment. Neither of those elements are present here. There is simply provision for one easily ascertained payment, however short the period of employment.

23. In my judgment, the payment is one which must inevitably be an item in the quantification of current services to the ship. It might be regarded as wages in lieu of notice. It might be regarded as a liquidated damage clause in case of wrongful dismissal. At all events, it arises out of the immediate voyage and the plaintiffs' immediate services in the ship.

24. I find, therefore, that the unemployment indemnity, in the particular circumstances of this case, constitutes wages and accordingly attracts a maritime lien. It must be accorded the appropriate priority.

25. As far as costs are concerned, I make an order nisi that the costs of today and, insofar as they are attributable to this application, of 15th May are to be paid by the interveners to the plaintiffs to be taxed if not agreed. The other costs of 15th May to be payable by the defendant to the plaintiffs.