INTERNATIONAL TRANSPORTATION SERVICE INC. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "CONVENIENCE CONTAINER"

HCAJ150, 151, 153, 268
and 270-272/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 150 OF 2003

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Admiralty action in rem against the ship or vessel
 “CONVENIENCE CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 151 OF 2003

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Admiralty action in rem against the ship or vessel
“KINGDOM CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 153 OF 2003

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Admiralty action in rem against the ship or vessel
“LIBERTY CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 268 OF 2003

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Admiralty action in rem against the ship or vessel
“CONVENIENCE CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 270 OF 2003

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Admiralty action in rem against the ship or vessel
“KINGDOM CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 271 OF 2003

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Admiralty action in rem against the ship or vessel
“LIBERTY CONTAINER” (Singapore Flag)

BETWEEN

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AND

ADMIRALTY ACTION NO. 272 OF 2003

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Admiralty action in rem against the ship or vessel
“MANDARIN CONTAINER” (Singapore Flag)

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(HEARD TOGETHER)

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J U D G M E N T

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1. There are 7 Motions before the Court.  This judgment, on the 7 Motions is concerned with the inter-action between the jurisdiction of the Admiralty Court in Hong Kong (in particular assets under its control) and the Singapore voluntary winding up of companies owning the various ships.

2. There are four ships in question :

(1)     Convenience Container (“Container C”);

(2)     Kingdom Container (“Kingdom C”);

(3)     Liberty Container (“Liberty C”); and

(4)     Mandarin Container (“Mandarin C”).

All four of the above vessels were owned by Powick Marine (S) Ptd Ltd, a Singapore company (hereinafter referred to as “Powick”).  As result of the collapse of Powick these four ships were arrested in Hong Kong and sold by the Admiralty Court.  The four ships above will be called collectively as “the Vessels”.

3. This Judgment is concerned with 2 sets of plaintiffs :

(1)     International Transportation Services Ltd (“ITS”), stevedores and

(2)     Rudolf Oetker (“Oetker”), charterers of the Vessels.

4. There are 7 Admiralty Actions in rem, namely :

(1)     HCAJ 150 of 2003 (“AJ150”), HCAJ 151 of 2003 (“AJ151”) and HCAJ 153 of 2003 (“AJ153”).  In each of these 3 Actions, ITS was the plaintiff and the claim was made against respectively the three vessels, Convenience C (HCAJ 150), Kingdom C (AJ151) and Liberty C (AJ153);

(2)     In each of the 4 Actions (HCAJ 268 of 2003 (“AJ268”):, HCAJ 270 of 2003 (“AJ270”), HCAJ 271 of 2003 (“AJ271”) and HCAJ 272 of 2003 (“AJ272”) Oetker was the plaintiff and the claim was made against respectively the Vessels, Convenience C (AJ268), Kingdom C (AJ270), Liberty C (AJ271) and Mandarin C (AJ272).

5. The dates of the issue of the Writ in each AJ Action are as follows :

(1)     AJ150 — 16 May 2003;

(2)     AJ151 — 16 May 2003;

(3)     AJ153 — 16 May 2003;

(4)     AJ268 — 18 September 2003;

(5)     AJ270 — 18 September 2003;

(6)     AJ271 — 18 September 2003; and

(7)     AJ272 — 18 September 2003.

For ease of convenience I will hereinafter refer to AJ150, AJ151 and AJ153 actions issued by IFS collectively as the “IFS Actions” and AJ268, AJ270, AJ271 and AJ272 actions issued by Oetker collectively as the “Oetker Actions”.

6. The dates of the arrest of each vessel are as follows :

(1)     Convenience C — 16 May 2003;

(2)     Kingdom C — 24 May 2003;

(3)     Freedom C — 27 May 2003; and

(4)     Mandarin C — 2 June 2003

The Vessels were not arrested by either of the plaintiffs ITS or Oetker.  Other claimants had effected the arrests of these Vessels.

7. The date of the Voluntary Winding Up in Singapore of the Defendant Company was 14 May 2003, being the date of lodgment with the Court Registrar of the declaration made on the 13 May 2003 by the directors of Powick that Powick was unable to continue its business and Powick on that day appointed a provisional liquidator.

8. These Vessels were all sold (individually and not as a block) by the Admiralty Court of Hong Kong on 7 July 2003.  The Orders for Sale pendente lite were made in respect of each ship on 13 June 2003.

9. By Motions dated 2 January 2004, Powick (in Liquidation) sought the setting aside of the Writs in each of the 3 ITS Actions.  By Motions dated 5 January 2004, Powick (in Liquidation) sought the setting aside of the Writs in each of the 4 Oetker Actions.

10. The objection to the admiralty in rem jurisdiction of the 7 Actions was based on the contention that the requirement of section 12B(4)(i) of the High Court Ordinance was not satisfied.

11. Section 12B of the High Court Ordinance provides :

“(4) 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, 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)    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.”

12. A claim in rem can be brought under section 12B of the Ordinance against each of the 4 Vessels provided that Powick (being the person who would be liable on the claim in personam [not disputed] and who was the owner of the Vessel when the cause of action arose [not disputed]) was, at the time when the action was brought, the beneficial owner of all the shares in the relevant Vessel.  The words beneficial owner is underlined because the construction of those two words beneficial owner lies at the heart of the dispute between the parties.

13. Mr Sussex for Powick (in Liquidation) has raised three objections to the jurisdiction in rem of the claims.  The Issues for determination under the Motions are :

(I)      The winding up in Singapore does it have the effect of divesting Powick of the beneficial ownership of the Vessels, so that Powick was no longer the beneficial owner of the Vessels at the time when the Writs were issued against the Vessels.  I will call this the “Liquidation Point”.

(II)     Upon the sale of the Vessels by the Court, the beneficial ownership of the Vessels passed to the purchasers from the Court sale, so that Powick was no longer the beneficial owner of the Vessels at the time when the Writs were issued against the Vessels. I will call this the “Court Sale Point”.

(III)    The Writs in the 4 Oetker Actions were amended so that instead of each Writ in these Oeter Actions being identical and against all four Ships (therefore creating a situation of 4 writs each making identical claim against all four Vessels), the amended Writs limited each Action to a claim against one Vessel and a different Vessel. The amendment took place after the Writs were served and after the Vessels were sold by the Court.  The argument is that such service of 4 identical Writs was not permissible and that subsequent amendment could not cure it.  I will call this “the Service Point”.

14. It should be noted that whereas the Liquidation Point has been argued in respect of all 7 Actions against both ITS and Oetker, the Court Sale Point has been made only against Oetker (because the Writs in the Oetker Actions were issued after the Court Sale).  The Service Point was run only against Oetker.

15. ITS and Oetker however are not the only parties interested in the outcome of the 7 Motions in relation to their 7 Actions.  Other parties are also interested in the outcome because these other parties (with details in Bundles III and IV) are also plaintiffs in other Admiralty Actions against the same four Vessels.  They did not take part in the hearing but they will be bound by my Judgment in these 7 Actions.

Liquidation Point

16. What is described as the Liquidation Point in fact is made up of three issues, namely :

(1)     whether the true meaning of beneficial owner used in section 12B(4)(i) is the same as the beneficial owner understood by Lord Diplock in Ayerst;

(2)     if section 12B(4)(i) “beneficial owner” is within the meaning of Ayerst, whether Ayerst or Linter provides the correct principle on the title of property upon liquidation and will this be applied by Hong Kong court and/or by the Singapore court;

(3)     if the Ayerst principle on title to property is correct, whether it purports to have universal effect in relation to foreign assets, namely whether Singapore liquidation consequence of Ayerst would have any territorial effect outside Singapore and whether if so, would the Hong Kong Court give recognition to such extra-territoriality.

Construction of section 12B(4)(i)

17. The starting point of this first issue of the Liquidation Point is the construction of the expression “beneficial owner” in section 12B(4)(i).  It is necessary first to understand how that expression in admiralty jurisdiction came into being and how it was considered in earlier admiralty authorities and how it fits into the scheme of in rem jurisdiction arrests.

18. The Hong Kong section 12B of the High Court Ordinance is derived from The Supreme Court Act 1981 of the United Kingdom which substantially re-enacted The Administration of Justice Act of 1956 [“the 1956 Act”] which in turn was brought into force as a purported adoption by the United Kingdom into its domestic law of the 1952 International Convention relating to the Arrest of Sea-going Ships [“1952 Convention”].

19. The history of how the admiralty jurisdiction has expanded as result of the 1952 Convention and the subsequent 1956 Act is well known.  (See for example The Banco [1971] P. 137).  By the 1956 Act, admiralty in rem jurisdiction is greatly expanded.  It is available not only in cases of maritime lien (collision, salvage, wages etc.) or in cases of well-recognized statutory liens but extends also to sister-ships.  That is how and why it became necessary in the 1956 Act to spell out the scope of such jurisdiction.  The jurisdiction is defined by four factors :

(a) what type of claim (e.g. cargo, crew, charterparty, necessaries);

(b) connection between the claim and the ship;

(c) the person liable for such claim must be the owner of the ship at time of the incident or cause of action; and

(d) the person liable for such claim must also be the owner of that ship (or another ship, commonly known as sister ship) at the time action is brought.

The double requirement of (c) and (d) above is to ensure that there has been no change of ownership from the time of the incident to the time of the claim (issue of Writ under our system).  If there is a genuine change of ownership, then the admiralty claim in rem does not run against the ship or its new owner (maritime liens cases always excepted).  It is against this background that the words of beneficial owner was put into the requirement of (d) above.  Liability of the ship cannot be avoided merely by the change of legal ownership (such as change of the registered owner).  There must be a genuine change of ownership (beneficial ownership or equitable ownership).

20. In Andrea Ursula [1973] 1 QB 265, Brandon J (as the then Admiralty Judge) found it necessary to consider the expression “beneficially owned” which is the almost identical provision in section 3(4) of the 1956 Act.  The question in that case arose not in the context of liquidation or even change of ownership by the shipowner liable, but in the context of whether a demise charterer could be considered as beneficial owner of the ship and therefore a claim against the ship, for repairs ordered by the demise charterer, could be said to come within the admiralty jurisdiction.  At page 269E, this was said :

“… Trusts of ships, express or implied, are, however rare, and the words seem to me capable also of a different and more practical meaning related not to title, legal or equitable, but to lawful possession and control with the use and benefit which are derived from them.  If that meaning were right, a ship would be beneficially owned by a person who, whether he was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordinarily have.”

21. This liberal interpretation by Brandon J of beneficial ownership, connected it not to title but linking possession and control to benefit and use and thereby to beneficial ownership is to be contrasted with the well known judgment of Robert Goff J (as he then was) in the case of I Congresso del Partido [1978] 1 QB 501.  The context where Robert Goff J had to consider the same expression of “beneficially owned” is whether the admiralty claim can be made against the ship in question when Mambisa (the defendant) was merely operator and manager of the vessel and was not the legal or equitable owner of the ship.  At page 538E, this was said :

“…The decision in that case [The Andrea Ursula] is not binding upon me, and while of course I have the greatest respect for any decision of Brandon J., I have reconsidered the matter and, having done so, I have reached the conclusion that the words ‘beneficially owned as respects all the shares therein’ refer only to cases of equitable ownership, whether or not accompanied by legal ownership, and not wide enough to include cases of possession and control without ownership, however full and complete such possession or control may be… In my judgment, the natural and ordinary meaning of these words is that they refer only to such ownership as is vested in a person who, whether or not he is the legal owner of the vessel, is in any case the equitable owners… Furthermore, on the natural and ordinary meaning of the words, I do not consider them apt to apply to the case of a demise charterer or indeed any other person who has only possession of the ship, however full and complete such possession may be, and however much control over the ship he may have...”

Then at page 539G, the Judge said :

“… This provision, to which I can properly have regard… Reinforces my conclusion that section 3(4) of the Act is concerned with title, the word ‘beneficial’ being introduced to allow for the peculiar English institution of trust.”

Finally at page 542A, Robert Goff J said :

“As I read section 3(4), the intention of Parliament in adding the word ‘beneficially’ before the word ‘owned’ in section 3(4) was simply to take account of the institution of trust, thus ensuring that, if a ship was to be operated under the cloak of a trust, those interested in the ship would not thereby be able to avoid the arrest of the ship.”

22. I Congresso is a classic judgment of Robert Goff J before he became Lord Goff.  It was argued by two top teams and has always been considered as correctly stating the relevant principle.  (See The Pacific Bear [1978] HKLR125 at 132 per Cons J; The Father Thames [1979] 2 Lloyd’s Rep. 364 at 367 per Sheen J; The Nazym Khikmet [1996] 2 Lloyd’s Rep. 362 at 371 per Bingham MR; The Jian She 33 [2001] 2 HKC 493 at 499 per Waung J).  Mr Sussex has not sought to contend otherwise.  The important consequence of what was said by Robert Goff J in that judgment, is that beneficial ownership as construed and explained by Robert Goff J has to be applied, and in this case applied to the context of liquidation. What must be borne in mind is that beneficial ownership as considered by Robert Goff J is concerned with title and not possession or control or use or benefit.  An examination of Ayerst (Inspector of Taxes) v. C & K (Construction) Ltd [1976] AC 167 (hereinafter referred to as “Ayerst”) will show how this title concept of section 12B(4)(i) has to be properly applied to the circumstances of this case.  Whether Ayerst can be applied to this title concept will be the subject of consideration under this first issue of the Liquidation Point.

23. Ayerst claimed its authority from In Re Oriental Inland Steam Company Ex parte Sciende Railways (1874) LR 9 Ch App 557.  Oriental Steam is a case concerned with an Indian Judgment obtained by Scinde against Oriental Steam which went into liquidation in England.  Sciende proved for this Indian Judgment debt in the English Winding up.  In the meantime however Sciende obtained attachment in India against Indian properties of Oriental Steam.  The question at issue is whether Sciende could retain the fund in the English court representing the proceeds of its Indian attachment.  The Court of Appeal held Sciende could not.  The case could be decided on the basis that as Sciende has proved in the English liquidation, it could not at the same time try to steal a march on other English creditors.  Sciende’s argument is that it should not be placed at a disadvantage to the Indian creditors over whom the English Court has no jurisdiction or power to prevent them from executing on the Indian property of Oriental Company.  The Court held against Sciende really on two basis.  First that Sciende is in England and subject to the jurisdiction of the English Court, unlike other Indian creditors who are not amenable to the jurisdiction of the English Court.  Secondly that being so subject to the English jurisdiction, assets in England must be distributed in England on basis of equality and without any one in England having priority.  (See penultimate sentence of judgment of James LJ.)  James LJ took the view that upon winding up, the property becomes trust property, because there is an obligation under the English Companies legislation for such property to be dealt with by proper officer in a particular way and that therefore it has ceased to be beneficially the proper of the company.  Oriental Steam is a decision the correctness of its authority was doubted by the High Court of Australia in its recent judgment of Commissioner of Taxation of Commonwealth of Australia v. Linter Textiles Australia Ltd (in liquidation) [2005] 220 CLR 592 (hereinafter referred to as “Linter”) at 610-611, 634-5.  The High Court also referred at page 606 to Megarry J’s opinion on this and Megarry’s reference to Commissioner of Stamp Duty v. Livingstone (1965) AC 694.

24. In Ayerst, the authority of Oriental Steam was relied on by Lord Diplock to reach his conclusion of divesting of beneficial ownership. Ayerst is concerned with tax relief arising out of a tax statute.  The dispute was whether the taxed company could set off its profits against the losses of the liquidated parent company.  The House of Lords held it could not because of its construction of the expression beneficial ownership in the tax statute. Trust analogy was used by Lord Diplock and in doing so, he came to the conclusion at page 177A-D, that upon liquidation :

(1) custody and control of company’s property transferred from the directors to the liquidator who has the statutory duty of dealing with the assets in accordance with the winding up scheme;

(2) there was a statutory duty of liquidator to collect the assets of the company and to apply them in accordance with the winding up statutory scheme;

(3) all [powers] of dealing with the company’s assets are exercisable by the liquidator [for the benefit of those persons entitled to share in the proceeds per statutory scheme].

25. Those words in the brackets in proposition (3) above are relevant because the conclusion of Lord Diplock of the divesting of beneficial ownership of its assets by the company upon liquidation is based on the foundation that the property upon liquidation must be used for the benefit of other persons.  (See page 180F “… must be used or disposed of for the benefit of other persons”) concentrating on usage or control rather than on ownership.  It will be seen later when I come to consider the Linter judgment why the High Court of Australia and indeed the jurisprudence of Australia considered Ayerst to have stated the wrong principle and why I accept the logic and correctness of the Australia view of the law.

26. But assuming for the moment on the matter of construction, that Ayerst is correctly decided, what is its impact on the construction of section 12B(4)(i).  In my view, my task does not require the mechanical application of Ayerst (concerned with construction of a tax statute) to the construction of an admiralty statute (concerned with jurisdiction) which came into being under very different circumstances.  As was said by Chan J in Low Gim Har v. Low Gim Siah [1992] 2 SLR 593 at 603E :

“Their Lordships did not decide that for all other purposes or in some other context the beneficial ownership of the assets of a company in liquidation might not still be in the company.”

27. Bearing in mind that I am construing the very section of the admiralty jurisdiction statute which had been construed by Robert Goff J as limited to “title … to allow for the peculiar English institution of trust”, I must ask myself whether, notwithstanding there has been liquidation in Singapore, was there a trust in the narrow sense used in Chancery and was there a new equitable owner of the ship (again in the narrow sense of arising out of a trust).  The answers to these questions are undoubtedly no. That there was no new identifiable equitable owner was recognized in the Ayerst case itself as well as by Mr Sussex in argument.  Expression such as quasi trust and quasi trustee was used to acknowledge the fact that there was no basis to argue the conventional trust and with identified beneficiary having equitable title to the property.  It is not disputed that the trust recognized by Lord Diplock in Ayerst was not a trust in the Chancery narrow sense of equitable title.  This being the case, the short and really common sense answer to the whole case is that there was no change of equitable owner in the sense understood by Robert Goff J and that therefore there was no change of equitable ownership as to deprive the Court of jurisdiction over the claim in rem.  It follows therefore that there was valid exercise of the admiralty jurisdiction and the Motions against the plaintiffs in all 7 Actions must fail.

28. In reaching this conclusion, it seems to me that if one stands back a little and views the matter (specially as an Admiralty Judge) with some common sense, it is simply non-sense that a ship could sail in the open seas on a long voyage (when unknown to it, there had been winding up of the shipowning company) and all liabilities in the meantime could be incurred on behalf of unidentifiable beneficial owner (that is what a true reading of Ayerst will lead to) and that true and beneficial owner is neither the legal shipowner (on the ship-register) nor the liquidator nor the creditors.  An admiralty court is not easily driven to an interpretation leading to a result of a charter for maritime rogues incurring maritime liability but without the usual maritime consequence of arrest.

Ayerst or Linter

29. There is no dispute at the hearing that all the English based common law jurisdictions share the same family of statutory scheme governing winding up or liquidation of companies.  For all practical purposes, England, Australia, New Zealand, Hong Kong and Singapore they all have very similar statutory provisions governing winding up of companies and share very similar scope of duties and rights of liquidator of companies.  What is unfortunate (so far) is the different legal consequence of company liquidation on the company’s assets as perceived by the various jurisdictions at different points of time.  At the end of the day, all common law jurisdictions will have to decide which of the two judgments (both from mature jurisdictions) in its legal analysis correctly sets out the legal principle governing assets on liquidation, Ayerst or Linter.

30. Ayerst is a judgment in 1975 (reported in 1976) of the House of Lords (from Lord Diplock no less, albeit not an equity judge) and its authority seemed to have been accepted in a long line of subsequent English cases (In Re International Tin Council [1987] 1 Ch 419 at page 446 per Millett LJ; Mitchell v. Carter [1997] 1 BCLC 673 at 686-7 per Millett LJ; Buchler v. Talbot [2004] 2 WLR 582 at 589 per Lord Hoffmann).  Other jurisdictions such as Hong Kong (see Re Irish Shipping Ltd [1985] HKLR 423 and Re Yaohan Hong Kong Corp. Ltd [2001] 1 HKLR 363) and New Zealand also appeared to have accepted such position.  It was however not accepted as being correct by the Australian courts.  [See e.g. Meageher, Gummow and Lehane on Equity : Doctrines and Remedies, 4^th ed. (2002) pages 132–3 and the reference to Lord Diplock in Preface at page xi and Preface — Second Edition at page xv]

31. Linter on the other hand is a judgment in 2005 of a powerful High Court of Australia (with more than a few judges of equity learning) preceded by an earlier High Court judgment in 1970 of Franklin’s Selfserve Pty Ltd v. Federal Commissioner of Taxation [1970] 125 CLR 52 (hereinafter referred to as “Franklin”) from Menzies J.

32. Both Franklin and Linter like Ayerst are tax cases arising out of dispute between Australian revenue authorities and taxpayers as to the liability for tax where there was purported to be change of beneficial ownership within the meaning of the relevant tax statute.

33. Linter is a case where the Commissioner of Revenue won at the end of the day.  The issue which the Commissioner lost was the one where the High Court held (Kirby dissenting) that on liquidation, there was no change of beneficial ownership of its assets upon liquidation and the High Court refused to follow Ayerst.

34. The competing judgments are from two jurisdictions with history of developed equitable principles.  With humility from a novice in this area of equity, on a matter of such sharp disagreement between the two jurisdictions and between the two highest courts, I will try in this judgment to confine myself to stating without any over-elaboration or sophistication, why I have come to the conclusion, after careful consideration, for reasons below that Linter in my view has correctly stated the legal principle applicable to assets of the company upon liquidation :

(1) Franklin is a highly convincing judgment of Menzies J and was argued (by no less than three counsel who then went on to the High Court).  The following are important passages in Franklin at pages 70 and 71 :

“… To regard a company in liquidation as, in any strict sense, a trustee for creditors and contributories, would I think, be inconsistent with Commissioner of Stamp Duties v Livingston [1965] AC 694 … I have not been persuaded, however, that liquidation, of itself, deprives the company in liquidation of the beneficial holding of its shares. They are available for the purposes of winding up [70] … In each case it is for the liquidator to carry out the statutory scheme of liquidation, to pay creditors and to divide any surplus that there may be amongst contributories. Whether or not there may be a surplus hardly seems to me to bear upon the relationship between the company in liquidation and its assets. [70] … I do not think that, from the date of its liquidation, Major 8 held its shares in the taxpayer ‘for the benefit of others’.  They were held for the purpose of its liquidation in accordance with the statute. [71]”

(2) The reference in Franklin to the case of Commissioner of Stamp Duties v. Livingston [1965] AC 694 (hereinafter referred to as “Livingston”) is important because Lord Radcliffe (a Chancery Judge) at page 712 said this :

“Where, it is asked, is the beneficial interest in those assets during the period of administration?  It is not, ex hypothesi, in the executor: where else can it be but in the residuary legatee?  This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable.  There is no need to make this assumption.  When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and the equitable interest in that property, any more than there is for the property of a full beneficial owner.  What matters is that the court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in those assets.  Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.” [underlining supplied]

The words unlined show how, when equitable principle is properly understood and applied, both in Ayerst and in our case, upon liquidation of the company, the liquidator’s carrying out of his duties as required by the statutory winding-up scheme is consistent with the assets of the company not being subject to any new equitable rights of property. This is to say that the whole of the ship in our case can still be in Powick ownership after liquidation and this will sit comfortably with the statutory liquidation scheme. Lord Diplock in Ayerst although he made reference to Livingston, did not fully appreciate the full force of Livingston and therefore reached the wrong conclusion of recognizing new equitable title when there was no necessity to do so, as the control over the liquidator was through the personal remedies, without involving the recognition of equitable rights of property in the asset.

(3) Ayerst was decided in 1975 without the benefit of having Frankin being cited to the House of Lords.  In fact astonishingly, in the none of the cases earlier referred at paragraph 30, was Franklin cited to the English court.

(4) Oriental Steam was relied on as its basis of reasoning in Ayerst.  As indicated earlier, the High Court did not accept the proposition in Oriental Steam of divesting of beneficial ownership on liquidation.

(5) Linter was a judgment where the High Court had the benefit of argument on two separate occasions and with justices of considerable equity experience and learning. Both the combined judgment of 5 justices (Gleeson, Gummow, Hayne, Callinan and Heydon) and the single separate judgment of McHugh went into considerable detail in the reasoning of why they disagreed with Ayerst.  On the second issue before the High Court of the consequence of winding up, whether there was divesting of beneficial ownership, the following passages in Linter are to be noted [paragraph numbers indicated] :

“The critical point is that the change in control of the affairs of the company has no impact upon its beneficial ownership of its assets. [54]

Power to deal with an asset and matters of ownership or title are not interchangeable concepts. [55]

On liquidation, the ownership of the shares is not ‘for the benefit of others’; rather the administration of the assets is for the benefit of the creditors. [125]

There is a difference between the power to deal with an asset and ownership of that asset.  It is unnecessary to conflate the two concepts in order to give effect to the legislative purpose of the section. [125]

There is no trust in any sense that equity would recognize.  To describe the manner in which the company holds its assets for the purpose of discharging its liabilities in accordance with the statutory scheme as bearing the indicia of an equitable trust is erroneous ... The company holds the assets for statutory purposes not for persons. [128]

There is a difference between ‘being under a duty of trust’ and ‘holding something on trust’.  The former describes the obligation of a person in relation to the assets; the latter is the modern form of a use.  It is not the case that the shareholders or creditors are beneficiaries under a trust.  To the extent that Ayerst and other English authorities express a contrary view, they should not be followed. [129]”

(6) Kirby’s contrary view is to be seen summarized in his paragraph on Conclusion [247] where he emphasized the context of the revenue legislation and the similar conclusions reached by other jurisdictions such as UK, New Zealand and others.  He pointed to the unjustified imposition of judge-made law on trust to this statutory interpretation.

(7) The key in my view to the reasoning of the majority of the High Court in Linter against Ayerst is that there was no trust that equity court could recognize, that power or control of assets has no direct bearing on ownership.  The High Court took the view that administration of assets might be for benefit of creditors (per statutory scheme) but ownership of assets is not for the benefit of others but is and has always been for the benefit of the company and therefore there is no change in the ownership of assets.

35. In my view, when the legal principle is properly understood then all the courts in the common law jurisdiction earlier mentioned, whether Hong Kong, Singapore, New Zealand or England should and would hold Linter to be the correct principle. I am convinced that when fully exposed as to the correctness of Linter, Ayerst would no longer be regarded as good authority on the question of beneficial ownership of asset upon liquidation.

36. It was specifically however argued before me that from the Affidavit evidence (which of course also include the Singapore authorities), I should find that the Singapore law on this Liquidation Point is against the plaintiffs.

37. I will first start with an examination of the two relevant authorities in Singapore cited to me :

(1)     Low Gim Har v. Low Gim Siah [1992] 2 SLR 593 and

(2)     Ng Wei Teck v. Overseas-Chinese Banking Corp. [1998] 2 SLR 1.

I will refer to these cases respectively as “Low” and “Ng”.

38. In Low, Chan J said (after examining at great length all the relevant authorities including Ayerst and Franklin and Livingstone) this at page 607I to 608A :

“... it is possible for me to conclude that it is still the general rule that in a winding-up of a company, the company retains the legal ownership (and no differentiation needs to be made with respect to its equitable ownership) of all its assets …  It is not the law that the dualism of estates or rights in property is applicable or should be applied or recognized in every case.”

39. In Ng, there was no reference to Ayerst or the proposition that upon liquidation there was divesting of beneficial interest.  There was at page 17E about “unsecured creditors of a company are in the nature of a cestui que trust with beneficial interests extending to all the company’s property” but that is not the same thing as saying that the company ceased to have the beneficial ownership of its assets.  In fact the reference at page 20 to the property belonging to the company at common law and the ability to trace the property into its product, seems to indicate that there was no divesting of ownership upon liquidation.

40. There was a third case Kuok v. Commissioner of Stamp Duties [2003] 4 SLR 43 decided by Woo J where Ayerst was referred to but there was nothing was said whether it was correctly decided or that it was only valid for revenue situations.

41. If therefore being left to decide on the basis of these three judgments, Low, Ng and Kuok whether the Singapore Court would regard there was a divesting of beneficial ownership upon liquidation, I would have said no because of the greater weight I would give to the Low judgment.

42. But we are not in virgin territory.  We have the assistance of many affidavits from leading Singapore lawyers.  Speaking in favour of the defendants, there were Mr Toh Kian Sing, Mr Lee Eng Beng.  Speaking in favour of the plaintiffs, there were Mr Sarjit Singh Gill and Mr Pannirselvam.  The learned discussions by these Singapore lawyers with massive citation of authorities, however was without the benefit of considering the latest Linter judgment of the High Court of Australia.

43. It seems to me that the whole exercise is somewhat artificial because their views have been overtaken by the event of the latest Linter Judgment.  In Singapore, if there is this very same point to be decided at the highest court in Singapore, namely the Court of Appeal, the law will be decided by the Singapore Court of Appeal based, not so much on Ng or Low but, on their analysis of the correctness of Linter and Ayerst, namely doing what I have tried to do (with a great deal more learning and sophistication, of course).  It is my view (or studied forecast) that the Court of Appeal of Singapore would have come down in favour of Linter and hold this to be the law of Singapore.  I certainly reject any suggestion that by reason of the Application of English Law Act, the Singapore Court of Appeal is bound by Ayerst and must decide against Linter even if it takes the view that Linter is correct.  Although the Singapore highest court is in a somewhat different position from the Hong Kong Court of Finial Appeal (see Sir Anthony Mason speak of Hong Kong developing its own common law in his Talk on The Court of Final Appeal to the HKMLA on 16 December 2003 at http://www.hmlma.org/events), I am convinced that the Singapore Court of Appeal develops its own common law the way it sees best for Singapore.  As I have indicated earlier, for compelling reasons the Singapore Court of Appeal will take the view that Ayerst states the wrong proposition of law and this it will so decide, now there is the benefit of Linter for the common law world.

44. I say this not because it happens to coincide with my view but because of two factors.  Firstly, as I understand it, Singapore has a very sophisticated judiciary specially in the area of shipping and admiralty law.  I only need to refer to the cases of Permina 3001 [1979] 1 Lloyd’s Rep. 327 and Permina 1017 [1975-7] SLR 598 which were decided in 1977 against the interpretation advanced in Andres Ursula and along the same line as the judgment of Robert Goff J in I Congresso del Partido.  Secondly, there is every indication that Singapore Court does not feel constrained to differ from the House of Lords or the Privy Council or the High Court of Australia.  In my view, the Singapore highest appellate court (like the Hong Kong highest appellate court or very hopefully New Zealand highest court, see Preface at page xi of Meager on Equity, 4^th ed.) will decide what is the correct principle, irrespective of the pedigree of previous judgments from whatever jurisdictions.  The judicial world is now so global specially in the common law world, that a good judgment (backed up by compelling reasoning) will be recognized and adopted wherever it comes from.  There is also the converse, namely that these days long blood-line of any particular decision is no guarantee of acceptance in the world community of common law courts.

45. I am therefore of the considered view (with some optimism of my forecast being accurate) that in Singapore, it will be held that Linter (and not Ayerst) provides the correct statement of the law on the title of the company’s asset on liquidation.

Extra-territoriality & recognition

46. The plaintiffs argued that even if I should be wrong and that Ayerst is the governing principle, nevertheless it should have no effect in Hong Kong before the Hong Kong Court.  There seems to be little doubt that foreign liquidations give rise to no direct or automatic consequence in relation to assets located in other jurisdiction (see page 169 of Fletcher on Insolvency in Private International Law).  A foreign court which has ordered liquidation, has no control over the assets in a local court and local creditors are therefore known to attack successfully the local assets to the frustration of the foreign liquidator and foreign court.  As early as the important case of New Zealand Loan and Mercantile Agency Co. v. Morrison [1898] A.C. 49, the Privy Council held that Morrison in Australia (local creditor) could attack the asset of the company located in Australia (local assets) notwithstanding the making of the winding up order in England (foreign court).  The same reason prevails in the Oriental Steam where the English court (foreign court) could not control the Indian creditors (local creditors) but could control the English creditor who obtained attachment in India.  The same happened in the case of Vocalion (Foreign) Ltd [1932] 2 Ch. 196 where the English court (foreign court) could not assist an English liquidator (foreign liquidator) of a company liquidated in England from stopping a local creditor attacking assets outside England (local assets).

47. I believe that it is a common feature of most liquidations in the world that in the absence of setting up parallel winding-ups (in foreign court and in local court), local court prefers to protect local creditors (for obvious reasons) and that comity of nations (in the absence of international conventions on liquidation) is on the whole only given lip service.  There is therefore every reason and good sense for a local court (like the Hong Kong Court) to prefer the local creditors (such as the plaintiffs here) over foreign creditors (Singapore creditors purportedly being represented in their interest by the Singapore Liquidator).

48. Mr Panninselvam has explained this principle of no territoriality very clearly in his 2^nd Affidavit [see paragraphs 12 to 20].

49. But the question now confronting the court is not simply the making of a winding up order by a foreign court and whether we should give recognition to such winding up and not allow attack on local asset.  The problem is a little bit more complex under this third issue.  What is at issue is assuming by Singapore law, Ayerst is the correct principle and that there was a divesting of beneficial ownership of the Vessels upon Singapore liquidation, should the Hong Kong Court give recognition to that legal consequence and apply it to our jurisdictional restriction under section 12B(4)(i).  Having regard to what I have said earlier about local court preferring local creditors over assets under Court’s control, in the absence of a parallel Hong Kong winding up (as happened in Re Irish Shipping Ltd [1985] HKLR 423) there is every reason for the Hong Kong Court not to deny proper Hong Kong Admiralty remedies to Hong Kong maritime creditors of the Vessels.

50. This is particularly so in the special circumstances of this case. The winding up declaration was made in Singapore on 13 May 2003.  Immediately after the declaration on the 13 May 2003, all the Vessels could have been called back to Singapore so that they could be under the control of the Singapore Liquidator.  But this was not done.  On the 16 May the Writs in the ITS Actions were issued but only Convenience Container was arrested in Hong Kong on the same day, 16 May 2003.  The other three vessels were not arrested but were still not recalled to Singapore.  They were arrested on 24 May, 27 May and 2 June 2003.  And still the Singapore Liquidator took no step in Hong Kong against either the arrests or to prevent any sale.  I appreciate of course that the arrests by the many others in Hong Kong might not be all be challengeable by the Liquidator.  But the ITS Writs could be challenged and challenged before any Sale.  The fact that there would be more Writs in rem (from Oetker for example) would also have been known to the Liquidator.  Nothing was done until the issue of the Motion many months later, which was in substance an attempt to take advantage of the sale effected by the Admiralty claimants in Hong Kong.  This is an effort to have transferred to the Singapore Liquidator, the fruit of the efforts by these claimants in the form of proceeds of sale.

51. What is being attempted here is unprecedented.  It is not merely to prevent an attack on the local property, namely an execution of a local property.  It is an attempt to take advantage of a successful execution by others and seeking to take over the fruit of that execution, many months later.

52. In my view, it would be grossly unjust in the circumstances for this Court to apply the Singapore law on Ayerst (which is not what I hold to be the law) and therefore even if I should find against the plaintiffs on Issue 1 and Issue 2 (which I did not), I would find against the defendants on Issue 3.

53. The result therefore is that I find in favour of the plaintiffs on all Issues on the Liquidation Point.

Court Sale Point

54. On the 13 June 2003, the Admiralty Court made the following order of sale pendente lite in respect of all four ships.  The Order made was each in these terms :

“3.   The ... Vessel be appraised and sold by the Chief Admiralty Baliff ‘Pendente Lite’ …

…

6.    The gross proceeds of sale of the Vessel ... be paid into Court and placed in an interest bearing account and that thereafter priorities be determined ...;

…

12.  All questions affecting priorities or the validity of the claims of any party to such proceeds of sale, except as hereinbefore provided, and affecting the amount of any such claim shall be reserved;

13.  The order of priority of the claims against the proceeds of sale of the Vessel … shall not be determined until after the expiration of ninety (90) days, beginning with the day on which the proceeds of sale are paid into Court;

14.  Within 7 days after the date of payment into Court of the proceeds of sale, the Chief Admiralty Bailiff shall send for publication in the Lloyd’s List, South China Morning Post, and such other newspapers (or publications) as the Chief Admiralty Bailiff considers appropriate, a notice stating :-

(a)   That the Vessel ... has been sold by Order of the Court in an action In Rem …;

(b)   That the gross proceeds of the sale ... have been paid into Court;

(c)   That the Order of priority of the claims against he said proceeds will not be determined until after the expiration of the period of 90 days ...;

(d)   That any person with a claim against the … Vessel … or the proceeds of sale thereof, on which he intends to proceed to Judgment, should do so before the expiration of that period.”

55. The Vessels were lawfully sold on the 7 July 2003.  Notices of Sale were duly advertised in the South China Morning Post on 11 July 2003 to the effect that the Vessels had been sold on the 7 July 2003 and that the gross proceeds of sale had been paid into Court.

56. The effect of the Court sale is to confer a clean and unimpeachable title to the ship (free of all encumbrances and liens including statutory and maritime liens) on the purchaser and that thereafter, that purchaser became the new owner of that ship.  In return for being conferred the new title as owner, the purchaser paid to the Court the proceeds of sale of that ship which became a separate fund representing the ship to which all maritime claimants against that ship are restricted.  The maritime claimants are so restricted because by reason of the Court sale, the right of the maritime claimants against that ship is transferred to the proceeds of sale of that ship.

57. But, the maritime claimants can proceed against the proceeds of sale of that ship so long as the claim is not time barred and so long as there is still funds in court representing the proceeds of sale which would normally mean that there has not yet been any determination of priorities.  (See Waung on Final Phase in Hong Kong Admiralty Proceedings : Determination of Priorities & Payment Out @ http://www.hkmla.org/events/Final Phase.doc).  But once the proceeds of sale of that ship has been distributed and paid out (after determination of priorities) then there is nothing left for any unpaid maritime claimant to go against.  It is for this reason that the Admiralty Court reserves priority and does not order payment out until it is sure that all maritime claimants with claims against the ship are before the Court.  The critical time is the determination of priorities and the order of payment out and critical time is never known to be the time of the order for sale or its actual sale when the bill of sale is signed.  If Mr Sussex in his novel point is correct, then it will create a revolution in the common law admiralty world because the timing of the Court sale becomes critical as that time will close the door to any maritime claimants (who have not yet issued writs) because they can go neither against the proceeds of sale of the ship (per Sussex Court Sale Point) nor against the ship because it has changed ownership after the Court Sale.

58. With considerable restraint, Mr Haddon-Cave QC took me through the history of admiralty practice to explode the fallacy and to expose the heresy of the Court Sale Point.  I hope he will forgive me, if I merely summarise the main points of his submissions and not set out the submissions in full.

59. In Admiralty law and practice, there is no difference in nature between action in rem against an unsold ship and action in rem against the proceeds of sale of that ship.  The Writ is issued against the ship and when the ship is not yet sold by the Court, the Writ can be served on the ship but after the sale by the Court, then service of the ship is effected on the Registrar as provided by Order 75 rule 8(1)(b) which reads :

“(b)  where the property has been sold by the bailiff, the writ may not be served on that property but a sealed copy of it must be filed in the Registry and the writ shall be deemed to have been duly served on the day on which the copy was filed.”

60. The service of the Writ on the Registrar representing the proceeds of sale of the ship (as the Registrar was the custodian of the proceeds of sale of the ship) is merely the modern development of a long-standing Admiralty procedure where the proceeds of sale of a ship is to stand in the place of the ship once the ship has been sold by the Court.

61. The power of the Court to order a sale of the ship pendente lite (before judgment is entered against the ship) is derived from the inherent jurisdiction of the court where property held by the court is perishable.  (See Meeson on Admiralty Practice and Procedure, 3^rd ed., pages 157-162; The Myrto [1977] 2 Lloyd’s Rep. 243, 259-61.)

62. The correct analysis of this well known admiralty practice is that the proceeds of sale of the ship and her appurtenance including bunkers become the res.  All claims against the ship, upon the sale of the res, are transferred to the fund in court being the proceeds of sale of the ship.  [SeeMcGuffie on Admiralty Practice (1964) paragraph 6; Halsbury’s Laws of Hong Kong, Vol. 18(1), paragraph 250.145; The Queen of the South [1968] Lloyd’s Rep. 182, 191-2; The Leoborg (No. 2) [1963] 2 Lloyd’s Rep. 441; The Silia [1981] 2 Lloyd’s Rep. 534, 538.]

63. The Leoborg (No. 2) is particularly revealing as it shows how the Admiralty Judge Hewson regarded as, accepted law and practice in admiralty, that writs can be issued subsequent to the sale of the ship by the court.  The unspoken but universal assumption underlying such acceptance by Hewson J is that such writ (so issued after the sale) will be directed against the proceeds of sale of the ship which stands in for the ship sold.  In the Leoberg case, the Admiralty Judge had to issue public warning in the Lloyd’s List newspaper urging that all claims not yet issued must be brought before the court so that there would be no further delays in relation to the payment out of the proceeds of sale (being the fund in court).  At page 443 right hand column at the bottom, this was said by the Admiralty Judge :

“Since the sale of this ship on Mar. 23 1962, which was widely advertised, both in the country and in the country of the port of registry, as being up for sale, there has been ample opportunity for any claimant reasonably alive to his interests to issue a writ against the ship.”

There is no suggestion in Leoberg that the Admiralty Judge thought there might be any problem of admiralty jurisdiction in respect of admiralty writs issued after the sale of the ship.  In fact he was urging that it should be done quickly.

64. The opportunist submission was made by Mr Sussex based on a literary reading of section 12B(4)(i).  The argument is that once the ship has been sold by the court, the requirement of section 12B(4)(i) cannot be met because when the action is brought (namely at the time of the issue of the writ) Powick is not the beneficial owner of the ship (as the ship has been sold by Court).  That of course would be the result of a literal reading of section 12B(4)(i).  But a proper construction would require that provision has to be understood and construed in its proper context, namely that maritime claims are brought by different claimants at different times against a ship, both before as well as after sale and that the proceeds of sale has always been regarded in admiralty as standing in for the ship.  It is therefore possible to read section 12B(4)(i) as referring ship to proceeds of sale of the ship (notwithstanding that proceeds of ship is not in the definition of ship and there is other reference in the Ordinance to proceeds of sale of ship).  In such case of reading ship as referring to proceeds of sale of ship, then section 12B(4)(i) makes perfect sense when there is a claim brought against the proceeds of sale of a ship.  The owner of a ship like Powick, would be the beneficial owner of the proceeds of sale specially in a situation when the sale was pendente lite. The proceeds of sale of a ship belongs to the defendant and when all claims in rem against the ship fails, that proceeds of sale is returned to its rightful owner, the defendant.  When some of the claims succeeds say resulting in two judgments, then part of the proceeds are required to be paid out on behalf of the defendants to the successful plaintiffs judgment/creditors.  The balance will be given back to the defendants.  The unity of title of the asset of the shipowner/defendant therefore remains the same at all times in the shipowner/defendant :

(1)     at the time of accident or accrual of cause of action;

(2)     at the time of liquidation (per Linter);

(3)     at the time of issue of writ (before or after liquidation) and;

(4)     at the time of sale of ship and after the sale of ship.

The admiralty jurisdiction requirement is therefore matched by the admiralty practice.  No admiralty solicitor and barrister will be accused of having been negligent in not seeing the Court Sale Point earlier.

65. I of course acknowledge that Mr Sussex is entitled to bring forward an argument based on statutory interpretation of section 12B(4)(i).  But the Court in entertaining such application is entitled to show considerable skepticism having regard to the long establish practice that Writ in rem can be issued after sale and be served on the proceeds of sale. The Court in these circumstances will only be driven to a radical and unjust result when it is firstly clear that there is no other interpretation possible and secondly that the new interpretation is demonstrably correct.  This is certainly not the case here.

66. I mentioned earlier about unjust result.  What I was referring to is of course the invitation of the Court on all orders of sale that a period of time (e.g. 60 days or 120 days) is given for the maritime claimants to come in to make claim against the proceeds of sale.  There would be no point in such invitation if from the time of the sale they could never come in to make any valid claim.  Reliance has been placed by all claimants on such standard orders which are in fact published as part of the public notices of sale.  It is hardly just for the Court to take back on a representation which is untrue and which is contrary to the law (if the Court Sale Point is good).

67. Finally, it seems to me that in considering what should be the proper interpretation of section 12B(4)(i), the Court must have regard to the result of an interpretation contended by Mr Sussex.  It means that an early date of sale can be crucial for many people, the claimants as well as for the defendant owner.  It will be in the interests of the defendant to obtain a very quick sale (little advertised) in order to defeat as many maritime claimants as possible.  Instead of maritime claimants ranking by the usual category of priorities well known to the law and irrespective of the timing of the claim being brought, success in future will entirely depend on how quickly a sale can be secured from the court.  The faster the sale, more claims would be shut out.  A claim with an otherwise low priority which normally would expect to be paid little or nothing at all, will suddenly have a chance to be paid substantially or in full because by his fast sale, he could eliminate other claims.

68. As Mr Haddon-Cave quite rightly said if the point is correct then that will effectively destroy sale pendente lite.  The reason for sale pendente lite is so that the value of the res will be preserved by an early sale rather than be burdened by an increasing costs of maintaining arrest.  But if the timing of the sale order can have such a dramatic effect (except for maritime liens) the Court will have to exercise great caution and will likely decline many early sales specially when the court is doubtful as to whether the early sale sought is with the intention to defeat other claims.  As I have said during the course of the hearing, this novel Court Sale Point if successful will turn admiralty practice on its head.

69. In my view, there is no need for the Admiralty Practice to change.  This has worked well.  Wilmer J another Admiralty Judge explained very clearly the Admiralty Practice in The Eva [1950] 20 at 21 this way :

“The existence of a writ in rem presupposes the existence of a res.  Where a res has been arrested and passes into the custody of the Court, it may be necessary for one reason or another to sell it by an Order of the Court; and, if that should take place, provision is made – and there is abundant authority for it – for the proceeds in the hands of the Court to be treated as representing and taking the place of the res affected.  If a person has a claim against what had been the res, process is equally available against the funds in Court which represents the res.  In such circumstances, a writ in rem can be served upon the Admiralty Registrar.”

70. The Court Sale Point is totally devoid of merit and should not have been advanced.

Service Point

71. I will only dignify this Service Point with my conclusion that it is a technical point with no substance because the technical error had been corrected by later amendment and there was no prejudice whatsoever to the defendants.

Conclusions

72. My conclusion is therefore that the all objections to admiralty jurisdiction in rem fail.  The 7 Motions are dismissed with costs and I propose to have costs assessed on a gross sum basis on a date to be fixed.