ENFORCEMENT OF MARITIME CLAIMS

Transcription

1 CHAPTER 17 ENFORCEMENT OF MARITIME CLAIMS By Mr. Damien Laracy and Mr. Michael Ng PARA. 1. Introduction The Arrest Convention Maritime Liens and Statutory Claims Priorities Using the in rem Arrest to Establish Substantive Jurisdiction The Transferability of Maritime Liens and SROAIRs Arresting in rem (a) Arresting based on a maritime lien (b) Arresting based on a SROAIR (i) Arresting based on a SROAIR listed in sections 12A(2)(a), 12A(2)(b), 12A(2)(c) or 12A(2)(r) of the High Court Ordinance (ii) Arresting based on a SROAIR listed in section 12A(2)(e) to 12A(2)(q) of the High Court Ordinance (c) Multiple claims and piggybacking (d) Enforcing via an action in rem after obtaining an in personam judgment in Hong Kong (e) Enforcing via an action in rem after obtaining an in personam judgment in an overseas country (f) Enforcing via an action in rem after obtaining an arbitral award (g) Arrest and the insolvency of the in personam Defendant (h) Sovereign and Crown immunity (i) The Recognition of foreign maritime liens The Duty of Full and Frank Disclosure The Burden of Proof for a Challenge against an Arrest The Hybrid Action in rem and in personam Judicial Sale (Pendente Lite) of the Vessel Anticipating an Arrest Security for Release of the Arrested Vessel Costs of the Arrest (to the Plaintiff) Damages for Wrongful Arrest (to the Defendant) Other in personam Enforcement and Security Options Enforcement of Arbitration Awards Maritime Law and Practice in Hong Kong_CH17.indd 527

2 Maritime Law and Practice in Hong Kong_CH17.indd 528

3 1. INTRODUCTION Maritime claims can be enforced in personam 1 and/or in rem 2 in Hong Kong. The right of a maritime claimant to proceed in rem against a vessel is especially important as it allows a maritime claimant to arrest a vessel as security before obtaining judgment so that the underlying claim may in due course (i.e. after entry of judgment) be enforced against the vessel or her proceeds of sale. To advance a maritime claim, a claimant must first establish that the legal person defendant (for a claim in personam) or the ship (for a claim in rem) is within the Court s Admiralty jurisdiction. 3 This chapter will begin with an overview of how the Hong Kong Courts Admiralty right of arrest developed over the years, followed by an analysis of legal and practical issues one might encounter whilst enforcing a maritime claim THE ARREST CONVENTION 1952 The Hong Kong Admiralty Court s enforcement powers, which are closely linked to its Admiralty jurisdiction, can be traced back to the Colonial Courts of Admiralty Act 1890, which came into force in Hong Kong on 1 July Hong Kong s Admiralty Court s Admiralty enforcement powers have historically developed largely in line with the law in England and Wales. Following the advent of the International convention on the Unification of Certain Rules relating to the Arrest of Sea-going Ships 1952 (Arrest Convention 1952), the United Kingdom passed the Administration of Justice Act 1956, which incorporated the provisions of the Arrest Convention 1952 into its domestic law, with modifications. 4 The United Kingdom s Administration of Justice Act 1956 was extended to Hong Kong via order in Council by the Admiralty Jurisdiction (Hong Kong) Order in Council (No of 1962). The Administration of Justice Act 1956 expanded the enforcement powers of the English and Hong Kong Admiralty Courts significantly, through the partial adoption of the Arrest Convention The United Kingdom then re-enacted the Administration of Justice Act 1956 with essentially the same terms in the Supreme Court Act Like its predecessor Act, the Supreme Court Act 1981 was extended to Hong Kong by the Queen through Order in Council under the Admiralty Jurisdiction (Hong Kong) Order (no of 1985) Section 12B(1) of the High Court Ordinance (Cap. 4). 2 Sections 12B(2) 12B(4) of the High Court Ordinance (Cap. 4). 3 See Chapter 16 above on jurisdiction. 4 In The Convenience Container [2007] 3 HKLRD 575, at pg 618, Waung J described the Administration of Justice Act 1956 as the purported adoption of the Arrest Convention 1952 by the United Kingdom. 5 Now renamed the Senior Courts Act Maritime Law and Practice in Hong Kong_CH17.indd 529

4 530 ENFORCEMENT OF MARITIME CLAIMS Hong Kong s current statutory regime for Admiralty jurisdiction and enforcement powers can be found (mostly) in sections 12A 12B of the High Court Ordinance (Cap. 4) (HCO). These provisions are essentially identical to the corresponding sections in the United Kingdom s Senior Courts Act In short therefore, the substance of the modern legislative provisions in both countries has not seen significant change since the United Kingdom s Administration of Justice Act It is important to note that despite the historical connection, the Arrest Convention 1952 does not have the force of law in Hong Kong. This means that as far as possible, the Hong Kong Courts will construe the local legislative provisions relating to the arrest of vessels in rem consistently with the Arrest Convention As a matter of statutory interpretation, however, where the wording of the HCO is sufficiently clear, it has been held that it is unnecessary to refer to the Arrest Convention 1952 as an interpretive aid. 7 Bearing in mind that Hong Kong is a Special Administrative Region of the People s Republic of China (PRC), it is an interesting point of comparison that the PRC has enacted the main provisions of the International Convention on Arrest of Ships 1999 (Arrest Convention 1999) in its Special Maritime Procedure Law. 3. MARITIME LIENS AND STATUTORY CLAIMS Maritime claims can be divided into two rights: (1) maritime liens; and (2) statutory rights. Though there is mention of maritime lien in the HCO, 8 there is no statutory definition of what constitutes a maritime lien. Following English Admiralty case law, the following claims give rise to maritime liens recognised by the Courts: damage caused by a ship; salvage; seaman s wages; master s wages and disbursements; bottomry (outmoded); and respondentia (outmoded) In contrast to maritime liens, there is a list of statutory rights in the High Court Ordinance (Cap.4) (HCO). Section 12A(2) of the HCO provides that: 6 See e.g. The Oriental Dragon [2014] 1 HKLRD 649, at para [43] (per Ng J), citing the House of Lords decision in The Eschersheim [1976] 1 WLR 430, at 436); see also The Asian Atlas [2008] 3 HKLRD 461, at pg 468 (per Ma CJHC). 7 See e.g. The Halla Liberty [2000] 1 HKC 659, at pg 671 (per Stone J); see also The King Coal [2013] 2 HKLRD 620, at paras [10 11] (per Au J). 8 Section 12B(3) of the HCO. Maritime Law and Practice in Hong Kong_CH17.indd 530

5 MARITIME LIENS AND STATUTORY CLAIMS 531 (a) any claim to the possession or ownership of a ship or to the ownership of any share therein; (b) any question arising between the co-owners of a ship as to possession, employment or earnings of that ship; (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) any claim in respect of a mortgage of or charge on a ship or any share therein; any claim for damage received by a ship; any claim for damage done by a ship; any claim for loss of life or personal injury sustained in consequence of any defect in a ship or in her apparel or equipment, or in consequence of the wrongful act, neglect or default of- (i) (ii) the owners, charterers or persons in possession or control of a ship; or the master or crew of a ship, or any other person for whose wrongful acts, neglects or defaults the owners, charterers or persons in possession or control of a ship are responsible, being an act, neglect or default in the navigation or management of the ship, in the loading, carriage or discharge of goods on, in or from the ship, or in the embarkation, carriage or disembarkation of persons on, in or from the ship; any claim for loss of or damage to goods carried in a ship; 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; any claim- (i) under the Salvage Convention 1989; (ii) (iii) under any contract for or in relation to salvage services; or in the nature of salvage not falling within subparagraph (i) or (ii); or any corresponding claim in connection with an aircraft; any claim in the nature of towage in respect of a ship or an aircraft; any claim in the nature of pilotage in respect of a ship or an aircraft; any claim in respect of goods or materials supplied to a ship for her operation or maintenance; (m) any claim in respect of the construction, repair or equipment of a ship or in respect of dock charges or dues; (n) (o) any claim by a master or member of the crew of a ship for wages (including any sum allotted out of wages or adjudged by a superintendent to be due by way of wages); any claim by a master, shipper, charterer or agent in respect of disbursements made on account of a ship; Maritime Law and Practice in Hong Kong_CH17.indd 531

6 532 ENFORCEMENT OF MARITIME CLAIMS (p) any claim arising out of an act which is or is claimed to be a general average act; (q) (r) (s) any claim arising out of bottomry; any claim for the forfeiture or condemnation of a ship or of goods which are being or have been carried, or have been attempted to be carried, in a ship, or for the restoration of a ship or any such goods after seizure, or for droits of Admiralty; any claim arising under section 7 of the Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap 413). All of the statutory rights listed above in section 12A(2) of the HCO can be enforced in personam. 9 With the exception of sections 12A(2)(d) and 12A(2)(s) of the HCO as stated above, all of the said statutory rights can be also be enforced in rem (hereinafter referred to as statutory rights of action in rem, SROAIRs ). 10 It should also be noted that that there is a corresponding SROAIR for each of the recognised maritime liens, save for the outmoded respondentia: (e) corresponds with the damage lien; (i) corresponds with the salvage lien; (n) corresponds with the wages lien for seamen; (n) and (o) correspond with the Masters lien for wages and disbursements; and (q) corresponds with bottomry. There are some notable omissions from the list of maritime claims recognised under Hong Kong law. Claims for insurance premiums are not within the Hong Kong Courts Admiralty jurisdiction even though marine insurance is undoubtedly an important part of the shipping industry. This was confirmed in the matter of The Oriental Dragon where Ng J referred to the policy decision to leave insurance premiums out at the time the Arrest Convention 1952 was negotiated, concluding that: 11 In the view of this Court, the legal position is clear. A claim for insurance premiums is not a maritime claim justifying arrest of ship, period Contracts for the sale of a ship are also not within the Hong Kong Courts Admiralty jurisdiction. In the case of The Hong Ming, Reyes J held: 12 High Court Ordinance (Cap.4) s.12a(2) does not include claims arising from contracts for the sale of a ship or a claim by a buyer for breach of a contract for 9 Section 12B(1) of the HCO. 10 Section 12B(2) & 12B(3) of the HCO one can see that (d) and (s) are conspicuously missing from the list of claims giving rise to actions in rem. In respect of (d), damage received by a ship, see The Eschersheim [1976] 2 Lloyd s Rep 1, at pg 9, where Lord Diplock explains the history of the provision and why it is not possible to arrest in rem for it. 11 The Oriental Dragon [2014] 1 HKLRD 649, at para [43]. 12 The Hong Ming [2011] 5 HKLRD 139, at para [18]. Maritime Law and Practice in Hong Kong_CH17.indd 532

7 PRIORITIES 533 the sale of a ship as giving rise to a right to arrest the ship. The Arrest Convention 1952 does not include such claims either. It is however possible to arrest ships pursuant to a memorandum of agreement (MOA) under section 12A(2)(a) of the HCO which states: any claim to the possession or ownership of a ship or to the ownership of any share therein. A claimant must be careful, however, to ensure that the underlying contractual arrangements are such that he can still legitimately assert a right of possession or ownership over the vessel when invoking this ground of arrest. For example, where the MOA has already been terminated so that no proprietary right in the ship can be asserted by the buyer/claimant, the buyer/claimant cannot arrest. 13 The other side is if title in the vessel has been irrevocably divested to the buyer/ defendant, in circumstances where the seller/claimant can no longer assert a right of ownership and possession over the vessel, the seller/claimant may not arrest under the MOA even in the event of non-payment by the buyer/defendant. 14 A claim based on ship repairs can give rise to a right of arrest, as can a claim based on a ship construction contract. Section 12A(2)(m) of the High Court Ordinance allows for arrests based on: any claim in respect of the construction, repair or equipment of a ship. A shipbuilder or repairer who remains in possession of a vessel may also be able to assert a Common Law artificer s lien (as opposed to a maritime lien) over the vessel. 15 Ship management services, giving rise to a claim for unpaid management fees, can fall within the Court s Admiralty jurisdiction. This is so notwithstanding the fact that s 12A(2)(l) of the HCO refers to goods or materials supplied to a ship for her operation or maintenance, and it is on the face of it difficult to regard ship management services as goods or materials PRIORITIES The distinction between maritime liens and SROAIRs is significant for enforcement purposes due to the former enjoying higher priority in the event that the value of a vessel is insufficient to satisfy all in rem claims The Hong Ming [2011] 5 HKLRD 139 at paras [21 26]. 14 The Amigo [1991] 2 HKC 491, a case involving a dishonoured cheque drawn by the buyer/defendant. 15 Pacifi c Islands Shipbuilding Co Ltd v Don the Beachcomber Ltd (No 3) [1963] HKLR The Oriental Dragon [2014] 1 HKLRD 649, at para [27], relying on The Nore Challenger [2001] 2 Lloyd s Law Rep 103. Maritime Law and Practice in Hong Kong_CH17.indd 533

8 534 ENFORCEMENT OF MARITIME CLAIMS The Hong Kong Courts follow the same general rules of priority in admiralty claims as the English courts. In The Sparti, Waung J observed: 17 [T]he general order of priority for maritime claims usually seen in the admiralty courts of the United Kingdom and Hong Kong is as follows: (1) Costs of arrest; (2) Possessory lien of repairer; (3) Salvage (maritime lien); (4) Collision (maritime lien); (5) Wages (maritime lien); (6) Mortgage; (7) Statutory rights in rem such as necessaries claims, agent claims, cargo claims, charterer s claims, towage claims, etc The order of priorities above is only a strong prima facie framework based on precedents. The Courts maintain an overall discretion to rank claims differently based on the equitable considerations of each individual case. 18 Following the prima facie framework of priorities, save for extreme circumstances, maritime lien claimants will usually rank ahead of mortgagees, who will in turn rank ahead of SROAIR claimants. 19 As between mortgages, registered mortgages rank ahead of unregistered mortgages. The former rank by the date of registration between themselves, while the latter rank by the date of creation between themselves. 5. USING THE IN REM ARREST TO ESTABLISH SUBSTANTIVE JURISDICTION In Admiralty proceedings, the Hong Kong Courts will apply the same principles as those enunciated by the House of Lords in The Spiliada [1987] AC 460. In basic terms, where jurisdiction in Hong Kong has been founded as of right, a stay will only be granted where it is shown that there is another forum which is clearly or distinctly more appropriate than Hong Kong. In the context of an arrest claim in Hong Kong giving rise to jurisdiction here, the res provides security for the claimant(s). This provision of security has been described as a unique feature of the admiralty jurisdiction. 20 As such, the burden 17 The Sparti [2000] 3 HKLRD 561, at pg DC Jackson Enforcement of Maritime Claims (4 th Ed, LLP, London, 2005) para [23.9]. 19 For examples of such extreme circumstances, see the English decisions of The Eva (1921) 8 Lloyd s Rep 315; The Fairport (1885) LR 10 PD 13; and The Veritas [1901] P The Peng Yan [2009] 1 HKLRD 144, at para [23]. Maritime Law and Practice in Hong Kong_CH17.indd 534

9 THE TRANSFERABILITY OF MARITIME LIENS AND SROAIRs 535 on the party applying for a stay based on forum non conveniens grounds (i.e. to show that there is another clearly or distinctly more appropriate forum than Hong Kong) where a vessel has been arrested in Hong Kong as of right will not be a light one. Possible ways for a person applying for a stay to discharge this burden may include: 21 the plaintiff having brought the Hong Kong action in breach of a foreign jurisdiction clause/arbitration agreement; and/or the fact that alternative security (e.g. payment into court) has been put up in the purported forum conveniens. 6. THE TRANSFERABILITY OF MARITIME LIENS AND SROAIRS Transferability can be used loosely to refer to two different scenarios. The first is a contractual assignment of a maritime claim to a third party for whatever contractual consideration is agreed. The second is a subrogation where a third party pays off a maritime claimant for the whole maritime claim, and that third party purports to stand in the shoes of the maritime claimant. The late Professor Tetley, CM, QC characterised subrogation as a type of fictional or notional assignment. 22 It would appear that most SROAIRs are transferable by way of subrogation. For example, in the context of cargo claims, after paying off the insured s claim, cargo underwriters routinely advance claims as subrogated claimants against the responsible carrier(s). The only restriction is that the subrogated claimant must bring the claim in the name of the insured, rather than in his/her own name. Thus in The Aiolos, Oliver LJ held: The right of subrogation entitles the insurer to call upon the insured to permit his name to be used in a suit for the benefit of the insurer, but it does not vest the cause of action in him. The position regarding maritime liens, however, seems to be the opposite. There is authority that of all the maritime liens, only the bottomry bond is transferable. In The Sparti, Waung J noted: There is a lot of old learning on this subject which supports the basic submission (which I accept) of Mr. Sussex for the bank that maritime lien as understood by the British and Hong Kong Courts is regarded as a personal privilege which enured to the sole benefit of the maritime lienee. The personal right of maritime lien is not capable of being transferred and therefore not withstanding the wide wording of s. 9 of the Law Amendment and Reform 21 The Ocean Friend [1981] HKLR William Tetley Assignment and Transfer of Maritime Liens: Is there Subrogation of the Privilege? (1984) 1 Journal of Maritime Law and Commerce 393, at pg See e.g. The Aiolos [1983] 2 Lloyd s Law Rep 25, at pg The Sparti [2003] 3 HKLRD 561, at pg 565. Maritime Law and Practice in Hong Kong_CH17.indd 535

10 536 ENFORCEMENT OF MARITIME CLAIMS Consolidation Ordinance providing for the legal assignment to transfer legal right to debt or chose in action and legal remedies maritime lien cannot be voluntarily transferred [ ] Bottomry bonds have always been an exception to this general principle because of the transferable nature of this particular maritime right Accordingly it was held in The Sparti that the purported assignee did not acquire the seafarers maritime lien for wages because the maritime lien is not capable of being transferred by the assignment (whether legal or equitable). 25 In the recent case of The King Coal, a similar conclusion was reached albeit via different reasoning. 26 The arrest was set aside by reason of the wording of the SROAIR for wages under section 12A(2)(n) of the HCO. Au J held: 27 In my view, the legislature in enacting s.12a [of the HCO] had decided to expressly introduce these particular words: Any claim by a master or member of the crew in s.12a(2)(n) [of the HCO]. That is what the legislature had done by clear words. There may or may not be good reasons for that, but it is not for this Court to speculate those reasons. In light of the express words and the way s.12a(2)(n) [of the HCO] is drafted, the clear words of it mean that it is only limited to a claim for wages brought by the master or a member of the crew Since the purported assignee in The King Coal was not the master or a member of the crew, the arrest was outside of the Court s in rem jurisdiction. The literal approach to statutory interpretation in The King Coal, however, does not rest comfortably with an established line of English cases which provide for a special exception to the general rule that the wages lien cannot be transferred. These English cases permit the subrogation and assignment of the wages lien in circumstances where a party is directly ordered or permitted by the Admiralty Court to pay the seamen. 28 In light of The King Coal, it is not certain if this special exception can stand as a matter of Hong Kong law because it would seem that notwithstanding being ordered or permitted by the Admiralty Court to pay the crew, a subrogated claimant/assignee cannot as a matter of language be transformed into a master or member of the crew within the meaning of s 12A(2)(n) of the HCO where he was not one to begin with. By logical extension of the reasoning in The King Coal, the SROAIR for any claim by a master, shipper, charterer or agent in respect of disbursements made on account of a ship under s 12A(2)(o) of the HCO is also, by its inherent nature and specific wording, non-transferable. 25 The Sparti [2000] 2 Lloyd s Law Rep 619, at pg The King Coal [2013] 2 HKLRD Ibid., at paras [12 13]. 28 The World Star [1987] 1 Lloyd s Law Rep 452; see also The Berostar [1970] 2 Lloyd s Law Rep 403; Hobbs, Savill & Co Ltd v The Vasilia (Owners) Albaran Bay Corporation [1972] 1 Lloyd s Law Rep 51. Maritime Law and Practice in Hong Kong_CH17.indd 536

11 ARRESTING IN REM ARRESTING IN REM (a) Arresting based on a maritime lien Maritime liens are specific to each ship, and they can only be enforced against the property to which they are attached. 29 It has been said that maritime liens will remain enforceable as long as a plank remains of the ship. 30 If the res is completely destroyed, then any maritime liens that may have been attached to it will also be extinguished. Maritime liens are therefore powerful in the sense that they enjoy high priority, and they travel with the ship, remaining enforceable even through successive transfers of ownership in the ship. 31 Maritime liens are at the same limited because there are only four categories of them still in use today, and the maritime claimant can only enforce a maritime lien against the particular vessel to which the maritime lien is attached (b) Arresting based on a SROAIR SROAIR arrests are capable of more diverse factual permutations and they cover a wider range of maritime claims than the traditional maritime liens. (i) Arresting based on a SROAIR listed in sections 12A(2)(a), 12A(2)(b), 12A(2)(c) or 12A(2)(r) of the High Court Ordinance The four SROAIRs listed in sections 12A(2)(a), 12A(2)(b), 12A(2)(c) and 12A(2)(r) of the HCO can only be enforced against: the ship or property in connection with which the claim or question arises and such action. 32 A claim under this head is deemed to be brought by and upon issue of the writ in rem by the SROAIR claimant. 33 (ii) Arresting based on a SROAIR listed in section 12A(2)(e) to 12A(2)(q) of the High Court Ordinance The SROAIRs listed in sections 12A(2)(e) to 12A(2)(q) of the HCO can be enforced in rem in two ways: (1) against that ship, i.e. the ship in connection with which the maritime claim arose; or (2) against any other ship, commonly referred to as a sister ship See e.g. The Beldis [1936] P 51; see also section 12B(3) of the HCO. 30 The Madonna D Idra (1811) 1 Dods 37 at pg 39, 165 ER 1224 at pg Save that maritime liens are also extinguished by a judicial sale of the vessel followed by exhaustion of the proceeds of sale. See para [17.10] below. 32 Section 12B(2) of thehco. 33 Ibid. Maritime Law and Practice in Hong Kong_CH17.indd 537

12 538 ENFORCEMENT OF MARITIME CLAIMS To enable a more in depth analysis of the legal elements that must be satisfied, it is worthwhile to set out section 12B(4) of the HCO in its entirety: (4) In the case of any such claim as is mentioned in section 12A(2)(e) to (q), where- (a) (b) the claim arises in connection with a ship; and 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 Court of First Instance against- (i) (ii) 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 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 Put another way, for an arrest of that ship, a SROAIR claimant must satisfy 2 conditions: 1. When the cause of action arose (i.e. when liability for the maritime claim arose), the person who would be liable in personam was the owner, or charterer of, or in possession or in control of, ship X; and 2. When the action is brought (i.e. when the SROAIR claimant issues its in rem Writ with the High Court), the person who would be liable in personam is either the beneficial owner of all the shares in ship X, or the demise charterer of ship X For an arrest of any other ship, a SROAIR claimant must also satisfy 2 conditions (with the second condition being more restrictive than that for an arrest of that ship ): 1. When the cause of action arose (i.e. when liability for the maritime claim arose), the person who would be liable in personam was the owner, or charterer of, or in possession or in control of, ship X; and 2. When the action is brought (i.e. when the SROAIR claimant issues its in rem Writ with the High Court), the person who would be liable in personam is the beneficial owner of all the shares in ship Y Both limbs must be satisfied at the requisite points in time for the SROAIR claimant to establish the right to arrest. While the statutory tests above are relatively straightforward to paraphrase, the precise interpretation of the words and phrases that make up the elements of the tests has resulted in a good deal of litigation over the years. Explanations of the key words and phrases follow below. Maritime Law and Practice in Hong Kong_CH17.indd 538

13 ARRESTING IN REM 539 (A) Person who would be liable on the claim in an action in personam ( the relevant person ) In The St. Elefterio, Willmer J noted: The words used, it will be observed, are the person who would be liable not the person who is liable, and it seems to me, bearing in mind the purpose of the Act, that the natural construction of those quite simple words is that they mean the person who would be liable on the assumption that the action succeeds. This means that the SROAIR claimant need not definitively prove (or even prove on a balance of probabilities) at the arrest stage that the relevant person is liable. It is enough that SROAIR claimant alleges that the relevant person is liable (without bad faith, gross negligence, and whilst making full and frank disclosure to the Court when applying for a Warrant of Arrest). 35 This interpretation has been cited by the Hong Kong Court of Appeal with approval in two cases from the 1980s. 36 More recently, in the Bo Shi Ji 393, Ng J reiterated the correctness of Willmer J s view: As far as the relevant person is concerned, this Court accepts the plaintiffs submissions that it means the person who would be liable in an action in personam on the assumption that the action succeeds it is not necessary for the plaintiffs to establish, in order to found jurisdiction, that that person is in fact liable on the claim: The St Elefterio [1957] P 179, 186; The Rolita [1989] 1 HKLR 394. It is important for a SROAIR claimant to ensure that the person who would be liable in personam has been correctly identified. For instance, in The J Faster, where the maritime claim was for unpaid cargo handling services, it was held that under the relevant charterparty, the charterer of the vessel was contractually responsible for cargo handling operations, not the owner of the vessel. The arrest was set aside as the SROAIR claimant had incorrectly treated the ship owner as the relevant person. 38 (B) When the action is brought The landmark English case of The Monica S is authority that an action is brought within the meaning of sections 12B(4)(b)(i) 12(4)(b)(ii) of the HCO once the SROAIR claimant issues his writ in rem The St. Elefterio [1957] P 179, at pg See para [17.066] below. 36 The Harima [1987] HKLR 770, at pg 776 (per Sir Huggins V-P); and The Rolita [1989] 1 HKLR 394, at pg 397 (per Kempster JA). 37 The Bo Shi Ji 393 [2015] 3 HKLRD 424, at para [21]. 38 The J Faster [2000] 1 HKC The Monica S [1960] P 741. Maritime Law and Practice in Hong Kong_CH17.indd 539

14 540 ENFORCEMENT OF MARITIME CLAIMS This is of significance because a SROAIR claimant s in rem right is crystallised against the vessel(s) named in the writ in rem upon the writ s issuance. Subsequent transfers of ownership of the vessel will not affect a crystallised in rem right. It is therefore common practice for Admiralty practitioners to issue in rem writs as soon as possible, and have the writs extended every 12 months, pending an opportunity to arrest. 40 The Monica S has been applied by the Hong Kong Courts. 41 Waung J held in The Silver Ocean: 42 [ ] the principle of Monica S. gives to a maritime claimant the right to arrest a ship even in the possession of a new owner provided that the writ is issued before the change of ownership. The new owner in such circumstances has to live with the consequences so to speak of the sins of the former owner and his remedy is not to have the ship released from arrest but to seek indemnity against the previous owner who very often is not worth suing. The principle of Monica S. is well known to all maritime lawyers and the fact that the new owner will suffer by the arrest does not in any way influence the Admiralty Court s decision and duty to have a vessel arrested so long as the Writ in question was issued before the change of ownership Order 75, rule 5(1) of the Rules of the High Court (Cap. 4A) (RHC) states that: After a writ has been issued in an action in rem, a Warrant of Arrest may be issued It would seem that the sequence of events set out in the rule need not be strictly adhered to. In The Dragon No 1, the Plaintiff gave urgent instructions to its solicitors to arrest just before the weekend, but the solicitors were unable to issue the in rem Writ before the High Court Registry closed at 4:15PM on the Friday. 43 Thus the Warrant of Arrest was issued before any in rem Writ had been issued. The Defendant applied to set aside the Warrant of Arrest because Order 75, rule 5(1) of the RHC had not been complied with. Waung J refused the Defendant s application, noting that: 44 It is arguably not necessary for the plaintiffs to satisfy the requirements of O 75 r 5, in so far as they might be deprived of their statutory right to arrest in rem. This is both by reason of the historical nature of the in rem action which commenced with the warrant and because of the fact that the plaintiffs are exercising their maritime lien against the vessel Likewise, in The Hong Ming, the Writ in rem was issued the day after the Duty Judge granted the Warrant of Arrest For the Hong Kong Courts treatment of applications to extend writs, see: Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd [2013] HKLRD 508; see also The Shun An (unrep., 27 February 2014 (CFI)), Au Yeung J, [2014] HKEC See e.g. The Chong Bong [1997] 3 HKC 579, at pg The Silver Ocean (unrep., 3 December 2001 (CFI)), Waung J, [2001] HKEC 1463, at para [39]. 43 The Dragon No 1 [1998] 3 HKC Ibid., at pg The Hong Ming [2011] 5 HKLRD 139, at para [10]. Maritime Law and Practice in Hong Kong_CH17.indd 540

15 ARRESTING IN REM 541 A curious (theoretical) question arises in relation to the Hong Kong Courts liberal interpretation of Order 75, rule 5(1) of the RHC for a SROAIR arrest under section 12B(4) of the HCO, what happens if there is a change of ownership in the vessel between the time a Warrant of Arrest is pre-emptively granted and when the Plaintiff subsequently issues his in rem Writ? Though this scenario is unlikely to occur in practice, it is arguable that the proceedings were brought upon the earlier application for a Warrant of Arrest (i.e. before issuance of the in rem Writ). (C) Owner The Hong Kong Court of Appeal commented in The Almojil 61 that owner in section 12B(4)(b) of the HCO falls to be contrasted with beneficial owner as respects all the shares in it in sub-paragraphs (i) and (ii). 46 The implication is that the word owner alone, as found in section 12B(4)(b) of the HCO, has a wider meaning than beneficial owner as respects all the shares in it, found later in the section. (D) Beneficial owner as respects all the shares in it [that ship or any other ship] The word beneficial in the slightly cumbersome phrase set out in the sub-title above captures two scenarios: The common situation where the ship s registered owner is the full owner (i.e. the registered owner holds both full legal and equitable title in the ship); and 2. The more unusual situation where the legal/registered owner is merely a nominee for the true beneficial owner of the vessel under a trust arrangement. In essence, what matters is the relevant person s ability to deal with title in a ship. Reyes J held in The Convenience Container: And the key question is purely one about title. It is whether a particular ship is an asset in which a relevant person holds a proprietary interest against which a claimant can enforce his claim. To put another way, the question is whether a relevant person can sell or dispose of a ship and, in so doing, convey good title in the asset to a third party purchaser. Ng J likewise commented in the first instance decision of The Almojil 61 that the word beneficial was inserted: to cater for the possibility of a trust and to tackle the mischief that would otherwise exist if the true beneficial owner was able to operate its ship under the cloak of a trust. 46 The Almojil 61 [2015] 3 HKLRD 598 (CA), at paras [59 60]. 47 The Convenience Container [2007] 3 HKLRD 575 (CA), at para [47] (per Reyes J). 48 Ibid., at para [38]. 49 The Almojil 61 [2014] 4 HKLRD 313 (CFI), at pg 322. Maritime Law and Practice in Hong Kong_CH17.indd 541

16 542 ENFORCEMENT OF MARITIME CLAIMS In The Convenience Container, the relevant person was a company under liquidation in Singapore. 50 The liquidator argued that the in personam link necessary for establishing in rem jurisdiction had been severed because the in rem Writs were issued after the insolvency proceedings began in Singapore, and that under Singaporean insolvency law, the relevant person had been divested of its beneficial ownership in the vessels. This argument was rejected both at first instance and by the Court of Appeal. 51 It particular, Reyes J held: 52 Liquidation simply has meant that the disposition of the vessels, including the decision whether or not to sell them, rests with Powick s [person who would be liable in personam] liquidator and not with its board. But there is no question that full title to the ship remains vested in Powick Therefore save for a situation where a ship is owned by a beneficial owner behind the cloak of a trust, in most cases, it can quite fairly be assumed that a registered owner of all the shares in a vessel, as stated in a country s official ship registry, is also the beneficial owner as respects all the shares in the vessel. In The Resource 1, the Court of Final Appeal stated: 53 It is possible that registration is, as a matter of law, not conclusive on the issue of ownership; conceivably, there are circumstances where it might be shown that the registered owner was in fact not the legal and beneficial owner of all the shares in the ship: the fraudulent procurement of registration would be an example. But in the general run of things, registration would be virtually conclusive, and it would take a wholly exceptional case for it to be otherwise The sentiment that the particulars of ownership in the ship registry can in most cases be regarded as virtually conclusive evidence of beneficial ownership has been echoed in a number of subsequent decisions. 54 The Court of Appeal has recently clarified, however, that there is no presumption of law that the registered owner is also the beneficial ownership. 55 Rather, it is simply a question of fact in each individual case whether there are compelling circumstances to go behind the ship registration details. 56 (E) Charterer vs charterer of it [that ship] under a charter by demise The question of whether the word charterer alone as found in section 12B(4)(b) of the HCO should be read in the more restrictive sense of charterer of it [that ship] under a charter by demise as found in section 12B(4)(b)(i) of the HCO was originally met with opposing judicial opinions several decades ago. 50 The Convenience Container [2007] 3 HKLRD 575 (CFI); see also The Convenience Container [2007] 3 HKLRD 575 (CA). 51 Ibid. 52 Ibid., at para [50]. 53 The Resource 1 [2000] 3 HKLRD 49 (CFA), at pg 57 (per Litton PJ). 54 See e.g. The Almojil 61 [2014] 4 HKLRD 313 (CFI), at pg 336 (per Ng J); see also The Bo Shi Ji 393 [2015] 3 HKLRD 424, at para [28] (per Ng J). 55 The Almojil 61 [2015] 3 HKLRD 598 (CA), at para [62] (per Kwan JA). 56 Ibid., at paras [66 67]. Maritime Law and Practice in Hong Kong_CH17.indd 542

17 ARRESTING IN REM 543 The law in Hong Kong is now settled that the word charterer alone for the first limb of the SROAIR arrest test is not to be read as restricted to demise charterers. Back in 1978, in The Ledesco Uno, Li J held that charterer in the first limb of the test must be read as demise charterer. 57 In so holding, Li J was persuaded by an obiter comment of Lord Diplock in The Eschersheim. 58 This was at odds with a judgment of the Singapore Court of Appeal in the same year, which held that the word charterer should be given its ordinary meaning, and that it was not to be restricted to demise charterers. 59 A few years later, Sir David Cairns of the English Court of Appeal held in the Span Terza that: For my part, as a matter of construction I find it impossible to construe the words in that way. If only a demise charterer were meant, one would of course have expected the word demise to have been inserted before the word charterer. Alternatively the word charterer could have been omitted altogether, because a demise charterer would be included in the words the person in possession or control. The issue came before the Hong Kong Court of First Instance again in In The Sextum, Penlington J departed from Li J s earlier decision in The Ledesco Uno, holding that charterer also includes time and voyage charterers. 61 Penlington J held that: I prefer the reasoning behind The Permina 108 and The Span Terza. I consider that I should give the word charterer its ordinary meaning and it should not be restricted to demise charterer. I do not think that even if the Convention [Arrest Convention 1952] is worded differently from the Act that is sufficient reason to put such a restrictive meaning on it. Indeed I feel that as the Convention must have been before the House when it was considering the legislation and they apparently declined to use the word demise that is an argument for saying that such a decision must be taken to have been deliberate. I think the clause is clear and unambiguous. Almost twenty years later, the point was taken yet again in The Halla Liberty. 63 Stone J commented on the Intervener s argument that charterer should be read as demise charterer as follows: This is an echo of argument which found fashion in the admiralty courts during the 1980s, and which I confess I had thought, for all practical purposes, was long buried. 57 The Ledesco Uno [1997] HKLR The Eschersheim [1976] 2 Lloyd s Law Rep The Permina 108 [1978] 1 Lloyd s Law Rep The Span Terza [1982] 1 Lloyd s Rep. 225, at pg 227 (CA). 61 The Sextum [1982] HKLR Ibid., at pg The Halla Liberty [2000] 1 HKC Ibid., at pg 669. Maritime Law and Practice in Hong Kong_CH17.indd 543

18 544 ENFORCEMENT OF MARITIME CLAIMS Stone J was not convinced by the Intervener s argument, and further held that the term charterer includes a slot charterer. 65 The view that the word charterer for the first limb of the SROAIR arrest test includes time, voyage, slot and demise charterers was recently confirmed by the Hong Kong Court of Appeal in The Decurion: 66 charterer is not limited to a demise charterer (under which possession of the ship passes to the charterer) but may include a person who has entered into a contract for the sue or hire of a ship such as a time, voyage or slot charter (under which possession of the ship is retained by the owner) (F) In possession or in control The phrase in possession or in control was examined in detail by the Hong Kong Court of First Instance and the Court of Appeal in The Decurion, in the context of an unpaid bunkers claim. 67 In The Decurion, despite the relevant person not having been the owner, charterer or in possession of ten out of the eleven vessels in relation to which the bunkers claim arose for the first limb of the SROAIR arrest test, the bunker supplier sought to argue that the relevant person was nonetheless in control of the ten vessels. The Courts took a restrictive view of the phrase. Reyes J held at First Instance: 68 A company can be in possession of the ship if it employs the master and crew in the navigation of the vessel. Something else must be involved when determining whether a person is in control, despite not being in possession The most obvious for that something else must be the ability to tell the person in possession of a vessel (for example, the registered owner) what is to be done in relation to the vessel. In this case, by clause 8 of the time charters for the 10 vessels, that ability to direct the master and crew in the employment of the 10 vessels was expressly conferred by their owners upon Clan [a related entity to the relevant person] as charterer. Given that fact, there is no room for postulating that, despite the control contractually conferred by the owners of the 10 vessels on Clan, some other party such as Maruba SCA [the relevant person] nevertheless also controlled the 10 vessels The restrictive interpretation was upheld by the Court of Appeal, with Fok JA commenting: 69 In the present context, the court is not looking to see if a party is exercising control over a company which is the charterer but to see if it is exercising control over the 65 The Halla Liberty, at pg 673; see also The Tychy [1999] 2 Lloyd s Law Rep The Decurion (No 2) [2013] 2 HKLRD 930 (CA), at pg Re the Decurion [2012] 6 HKC 1 (CFI); see also The Decurion (No 2) [2013] 2 HKLRD 930 (CA). 68 Re the Decurion [2012] 6 HKC 1 (CFI), at paras [29 30]. 69 The Decurion (No 2) [2013] 2 HKLRD 930 (CA), at para [67]. Maritime Law and Practice in Hong Kong_CH17.indd 544

19 ARRESTING IN REM 545 ship itself. Unless the corporate veil is lifted, the separate corporate identity of the contracting party in the charterparty relationship cannot simply be ignored. This case demonstrates that in the ordinary course of things, the Hong Kong Courts will not loosely apply the phrase in control to enable a SROAIR claimant to make an arrest based on the mere inter-connectedness between the relevant person and other (related) entities. It was said that a loose test of in control would be commercially undesirable as that could lead to uncertainty in the law it would make it difficult for shipowners to know if their ships can be arrested by virtue of their dealings with, or the involvement with, some third party in the operation of their ships. 70 (G) Piercing the corporate veil to enable a SROAIR claimant to complete the in personam link The Decurion (above) also shows the Hong Kong Courts general reluctance to lift the corporate veil so as to enable a SROAIR claimant to make out the required in personam link against the relevant person. The Court of Appeal observed that: Although the evidence indicates they are plainly associated with one another [ ] [they] are separate legal entities and there is no basis to lift the corporate veil between each of the companies [ ] Even if the service and agency agreements were executed for reasons of tax efficiency, it was not contended that these should be regarded as being, in law, a sham. To justify piercing the corporate veil, a SROAIR claimant must demonstrate a case that there has been some sort of sham to obscure or sever the in personam link and to avoid an arrest in rem. In The Almojil 61, Ng J accepted Counsel s submission that the words beneficially owned as respects all the shares therein has an anti-avoidance function, similar to provisions found in tax legislation. Ng J remarked: If, for instance, there is a change in ownership of a vessel after the cause of action has accrued but before the issue of the writ, so that the genuineness of this change requires investigation [ ] then the court may have to investigate whether the alleged change is made solely with a view to avoiding the arrest of the vessel. If it is found that the original owner retains beneficial ownership of the vessel, then notwithstanding the apparent change, the vessel may still be liable to arrest. An example of a clear sham is where a shipowner transfers his ship(s) to a new owner after a liability has arisen (and before the claimant manages to issue an in rem Writ). 73 Also, if a shipowner transfers his ship(s) at an undervalue, the incentive to pierce the corporate veil will be stronger Re the Decurion [2012] 6 HKC 1 (CFI), at para [42]. 71 The Decurion (No 2) [2013] 2 HKLRD 930 (CA), at para [79]. 72 The Almojil 61 [2014] 4 HKLRD 313 (CFI), at para [38]. 73 The Saudi Prince [1982] 2 Lloyd s Law Rep The Tjaskemolen [1997] 2 Lloyrd s Law Rep 465, at pg 474. Maritime Law and Practice in Hong Kong_CH17.indd 545

20 546 ENFORCEMENT OF MARITIME CLAIMS (c) Multiple claims and piggybacking The Hong Kong Courts are wary of attempts by SROAIR claimants to mix maritime claims with non-maritime claims, in an effort to allow the latter to piggyback onto the former. For example in The Asian Atlas, the Plaintiff attempted to latch an indemnity claim (which was outside of the Court s in rem jurisdiction) onto a relatively small damage claim (which was within the Court s in rem jurisdiction), so that both claims could be enforced against the arrested vessel. 75 The Hong Kong Court of Appeal rejected this attempt and held that the two claims are quite separate. 76 Another example is The Decurion, where the bunker supplier SROAIR claimant could only establish the necessary in personam link in respect of one out of eleven vessels from which the unpaid bunker claims arose. The Court of Appeal held that it was open for the defendants to challenge the exercise of in rem jurisdiction because: 77 If that were not the case, it would otherwise mean that a plaintiff could simply piggyback speculative claims onto a good claim (ie one which satisfied all the elements of section 12B(4)) and thus seek to invoke the exercise of the in rem jurisdiction in respect of the whole, larger, claim In two recent cases, however, Ng J took a less hard-line approach to the piggybacking of claims. In The Oriental Dragon, although the SROAIR claimant had inflated their claims to include certain items that were not in rem claims (including insurance premiums and disbursements), Ng J held that: 78 However, given this Court s conclusion that the plaintiff s claims were substantially in rem claims, their application for a warrant of arrest would have been justified on the basis of those in rem claims alone. Further given the relative insignificance of the claim for insurance premium and disbursements to the application, it was inherently improbable that the inclusion of it as an in rem claim, as well as the rather unsatisfactory treatment of the disbursements portion of the claim for management fees, at the stage of the ex parte application, was deliberately calculated to mislead the court Having said that, Ng J commented that to prevent piggybacking, when applying for a Warrant of Arrest, a SROAIR claimant should clearly distinguish his/her in rem claims from the in personam claims. 79 The arrest was not set aside in The Oriental Dragon. 75 The Asian Atlas [2008] 3 HKLRD Ibid., at pg The Decurion (No 2) [2013] 2 HKLRD 930 (CA), at para [35]. 78 The Oriental Dragon [2014] 1 HKLRD 649, at para [50] & [80]. 79 Ibid., at paras [72] & [75]. Maritime Law and Practice in Hong Kong_CH17.indd 546