ORIENTAL OVERSEAS MARITIME SERVICES LTD v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "FAN YUN 123 (番運123)"

Date of Hearing : 15 February 2006

Date of Judgment : 15 February 2006

Dates of Hearing : 13-15 February 2006

Date of Judgment : 15 February 2006

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J U D G M E N T

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1. I have before me a motion by the defendant to set aside the Warrant of Arrest on the basis that there was no admiralty jurisdiction in rem in respect of the claim brought by the plaintiff.

2. The plaintiff is the beneficial owner of a Tug which was at all material times registered in China in the name of the defendant.  The defendant is a PRC company.  By the law of China, only PRC company with the necessary licence could carry on river or sea carriage business in Guangdong.  The defendant had the necessary licence and therefore when the Tug was purchased in 2002 it was registered under the name of the defendant at the port of Guanzhou.  The defendant was appointed by the plaintiff as a manager of the Tug.  There is no dispute that at all material times, the defendant was the manager of the Tug.

3. This claim is brought by the defendant against a ship “Fan Yun 123” which is a barge owned by the defendant on the basis that the Tug had been chartered to the defendant and that the defendant had not properly paid charterhire under the charter agreement and that therefore a ship owned by the defendant could be arrested.

4. In order that a ship may be arrested, the statutory requirement under section 12 of the High Court Ordinance must be satisfied.  Section 12A of the High Court Ordinance provides :

“(1) The Admiralty jurisdiction of the Court of First Instance shall consist of —

(a) jurisdiction to hear and determine any of the questions and claims mentioned in subsection (2);

…

(2)   The questions and claims referred to in subsection (1)(a) are —

…

(h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship;

…”

Section 12B(4) of the High Court Ordinance provides as follows :

“In the case of any such claim as is mentioned in section 12A(2)(e) to (q), where—

(a) the claim arises in connection with a ship; and

(b) the person who would be liable on the claim in an action in personam (‘the relevant person’) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship,

an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the High Court against —

(i)   that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise; or

(ii)   any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it.”

5. It is common ground between the parties that the court may exercise an admiralty action in rem (where there was no maritime lien and this is not a case of maritime lien) when the following four conditions are satisfied :

(1) The claim must be within one of the claims in section 12A(2)(e) to (q);

(2) the Condition (1) claim must arise in connection with a ship;

(3) the person who would be liable on the claim in an action inpersonam was, when the cause of action arose, the owner or charterer of or in possession or in control of that ship in Condition (2); and

(4) The action in rem may be exercised against :

(a) that Condition (2) ship if the person liable in personam under Condition (3) was, when the action is brought, the beneficial owner of that ship, or

(b) any other ship which was beneficially owned by the person liable in personam under Condition (3), at the time the action is brought.  

There is dispute between the parties as to whether Conditions (1) and (3) have been satisfied. 

6. Condition (3) above is said to be not satisfied because the defendant contends that the plaintiff has not shown to the court by cogent evidence that the defendant was at the time the cause of action arose “the charterer” of the ship.  There is force in the contention of the defendant.

7. It is unusual for the court to set aside warrant of arrest on the ground that there was no jurisdiction in rem.  The opening words in section 12B(4)(b) “the person who would be liable on the claim …” made it clear that statutory presumption was applicable to the identity of “the relevant person”.  Authorities such as St Elefterio [1957] P 179, The Moschanthy [1971] 1 Ll.Rep.37 in UK and TheRolita [1989] 1 HKLR 394 in Hong Kong made it clear how the assumption that the action would succeed against the defendant would apply.  Kempster JA in TheRolita in a passage in the Court of Appeal said that section 21(4)(b) should in the instant case be construed to read :

“The person who would be liable on the claim in an action in personam (‘the relevant person’) arising out of an alleged agreement relating to the use or hire of a ship was, when the cause of action …”

A liberal interpretation was given in TheRolita to the presumption and to the first limb of section 12B(4)(b).  

8. But section 12B(4)(b) consists of two parts, with the first part dealing with the identity of the relevant person and the second part dealing with the requirement that the relevant person was at the time of the cause of action the “owner or charterer or in possession or in control of the ship”.  The second part or the second limb of section 12B(4)(b) which requires the appropriate nexus between the relevant person and the ship is vital to this case and vital to all admiralty actions in rem.  It is incumbent upon the plaintiff to show that there was such a nexus or in other words in this case to show that the defendant namely, the relevant person, was the charterer.  In my view, the evidence nowhere sufficiently established this.  In fact the contrary is the case.

9. I start with the admitted common ground that the defendant was the manager and as such there is a presumption that the manager would not be in breach of his fiduciary duty and assumed the role of the charterer and enter into a charterparty with himself, the registered owner.  Against these factors, it is necessary to have strong and cogent evidence to show that the defendant was the charterer at all the relevant times alleged.  The evidence was to the contrary and largely consist of evidence both written and affidavit coming from the defendant that the charterer of the Tug, if any, was Yi Xing.  This might have been a breach of fiduciary duty by Mr Fung, the proprietor of Yi Xing and who was also of course at the relevant time, the director of the plaintiff company and who was entrusted by the company to look after the affairs of the Tug.  It is certainly conceivable, and the evidence seems to point that way, that contrary to his fiduciary duty Mr Fung had made use of the Tug against the interest of the plaintiff.  But nowhere has it been perfectly shown that the charterer of the Tug was the defendant.  Rather the evidence points to the charterer of the Tug or the user of the Tug being Yi Xing.  

10. I am therefore not satisfied that the second limb of section 12B(4)(b) has been satisfied.  I say this, of course, without prejudice to any future action that may be taken by the plaintiff against any party — whether Mr Fung, Yi Xing or against vessels owned by the defendant.  There is no res judicata as far as I can see.

11. The matter however, it seems to me, should not just rest here.  Although it was not fully focused in the course of the debate at the hearing, it seems to me that looking at the evidence that section 12A(2)(h) also has not been satisfied.  Section 12A(2)(h) requires any claim arising out of “any agreement relating to the hire of a ship”.  I emphasize the words “any agreement”.  

12. Submission had been made that although there is the claim, it cannot be shown that the claim arose out of any agreement relating to the hire of a ship.  No sufficient agreement relating to the hire of a ship has been identified so as to give rise to a claim within section 12A(2)(h).  The affidavit leading to the Warrant of Arrest is vague as to allegation of the charter of the Tug by the defendant and there was certainly no specific allegation or even referral to an agreement to charter the Tug (see paragraph 5 at page 13).   In this respect one must have regard to the Schedule I as part of the Writ that set out a large number of voyages.  One can see that from pages 3 onwards, there are four pages of voyages consisting of a period from 2002 to 2005 and, although it is not previously stated, it must be the case of the plaintiff that in relation to each of these alleged voyages, there was an alleged charter agreement.  Now, nowhere has it been stated in the affidavit in respect of each charter agreement what was the agreement, who made them, what were the terms and there was a breach of it.  This is an unusual case of a large number of voyages said to be the subject of (each one of them) a separate agreement and in relation to each of which there was a breach in the sense of non-payment of the charterhire due under that agreement.  

13. In a normal case, it would be very easy to satisfy section 12A(2)(h), but this is an extraordinary case.  Having spent days on it now, I am not satisfied that section 12A(2)(h) has been satisfied.  It follows therefore that if section 12A(2)(h) is not satisfied then the first limb of section 12B(4)(b) is also not satisfied because in order to bring the presumption into play you have to satisfy the requirement of section 12A(2)(h).  I have not overlooked the liberal interpretation given by the Court of Appeal in The Rolita to the wide ambit under the relevant person identification first limb in section 12B(4)(b), but the nature of our case is such that, doing the best I can, I am not satisfied that even the first limb of section 12A(2)(h) has been satisfied. 

14. There is therefore compelling reason why I must accede to the application of the defendant.  The Warrant of Arrest must be set aside and I will hear the parties as to the consequence of that order.

Mr Patrick Chong, instructed by Messrs Dibb Lupton Alsop, for the Plaintiff

Mr Colin Wright, instructed by Messrs Ince & Co., for the Defendant

Date of Hearing : 13 February 2006

Date of Judgment : 13 February 2006