ALLIANZ MARINE SERVICES LLC v. THE OWNERS OF THE SHIP OR VESSEL “ALMOJIL 61”

HCAJ 9/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 9 OF 2013

_____________________

_____________________

_______________

J U D G M E N T

_______________

Introduction

1.  MV Almojil 61 (“Vessel”) was built by a Hong Kong company in or about 2012, registered in the port of Portsmouth, The Commonwealth of Dominica, and sold by Swissco Holdings Limited (“Swissco”), a Singaporean company, to Mohammed Al Mojil Group (“MMG”) of the Kingdom of Saudi Arabia. MMG was as from July/ August 2012 the registered owner of the Vessel as to all her shares (64/64) until her judicial sale on 7 March 2013.

2.  The Vessel was arrested in Hong Kong on 28 September 2012 by Arina Offshore JLT, the Plaintiff in HCAJ164 of 2012, on the basis that she was, at the time of the commencement of that Action, beneficially owned as respects all the shares in her by MMG, pursuant to section 12B(4)(ii) of the High Court Ordinance, Cap. 4 (“Ordinance”). The Vessel was subsequently sold on 7 March 2013 at the price of US$4.5 million (“Sale Proceeds”) which had been paid into court.

3.  Allianz Marine Services LLC (“Allianz”), the Plaintiff in these proceedings, had chartered the vessel “DOMINGUE TIDE” (“Chartered Vessel”) to MMG under a charterparty dated 15 December 2011 (“Charterparty”).

4.  On 21 January 2013, Allianz issued an in rem Writ of Summons in this Action to enforce its claim against MMG for breach of the Charterparty in that MMG had failed to pay hire, meals, bunkers and lubricants in the total sum of US$1,689,059.95. It invoked the in rem jurisdiction of this court by service of the Writ on the Vessel on 22 January 2013. 

5.  MMG had not filed an acknowledgement of service in these proceedings. By Notice of Motion dated 7 May 2013, Allianz applied for default judgment. The Notice of Motion was scheduled for hearing on 4 June 2013.

6.  On 3 June 2013, Al Mojil Investments Limited (“AMI”), a company incorporated under the laws of Dubai, United Arab Emirates, filed an acknowledgement of service in these proceedings as co-owner of the Vessel. It would appear from the evidence before this court that both MMG and AMI are part of the business interests of the Al Mojil family.

7.  AMI is also the Plaintiff in HCAJ 48/2013 against the Sale Proceeds. By that Action, AMI claims that it was part beneficial owner of the Vessel and had a beneficial interest in the Sale Proceeds paid into court. According to its Statement of Claim, AMI’s claim is for a declaration that the Sale Proceeds to the extent of US$1,593,939 are trust moneys to which it is beneficially entitled.

8.  The application before this court was AMI’s summons dated 17 June 2013 pursuant to RHC O 12 r 8 (“Summons”) for a declaration that

(1)   The Writ of Summons herein had not been duly served on the Defendants (“Service Issue”);

(2)   the Court had no in rem jurisdiction to try the claim brought against the Defendants alternatively should not exercise any in rem jurisdiction which it might have over the Defendants concerning that claim (“Jurisdiction Issue”).

9.  At the beginning of his oral submissions, Mr Sussex SC, for AMI, indicated to this court that he was not pursuing the Service Issue. In view of that indication, the only matter which called for this court’s determination was the Jurisdiction Issue.

10.  In brief, the ground of AMI’s application was that the requirements of section 12B(4) of the Ordinance had not been satisfied. This was because, AMI said, MMG were not the beneficial owner as respects all the shares in the Vessel. AMI claimed it had a share in the beneficial ownership of the Vessel in proportion to its contribution of US$1,593,939 towards the Vessel’s purchase price (approximately 22%).

The Jurisdiction Issue

11.  The Admiralty jurisdiction of the Court of First Instance of Hong Kong is set out in section 12A of the Ordinance. Allianz’s claim falls within section 12A(2)(h) as one “arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship”.

12.  The mode of exercise of Admiralty jurisdiction is governed by section 12B of the Ordinance. Sub-section (4) provides:

“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 party 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 ... 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”. (emphasis added)

13.  Actions against “any other ship” are referred to as sister‑ship actions because in the ordinary course of things the vessel against which in rem proceedings are brought will often be owned by the same entity as the vessel in connection with which the claim arose. But that does not have to be and is not invariably the case.

14.  In the present case,

(1)    for the purpose of section 12B(4)(a), Allianz’s claim arose in connection with the Chartered Vessel;

(2)    for the purpose of section 12B(4)(b), the party who would be liable on the claim in an action in personam ie “the relevant person” was MMG;

(3)    when the cause of action arose, MMG was the charterer of the Chartered Vessel;

(4)    for obvious reasons, Allianz did not seek to proceed against or arrest the Chartered Vessel it owned pursuant to section 12B(4)(i) as “that ship”;

(5)    instead, Allianz proceeded against the Vessel pursuant to section 12B(4)(ii) as “any other ship”.

15.  In order to do so, Allianz must show that MMG, being the relevant person, was the beneficial owner as respects all the shares in the Vessel at the time when this Action was brought. It did so by relying on the fact that MMG was the registered owner of all the shares (64/64) in the Vessel in the Dominican ship registry – AMI, on the other hand, was not shown in the registry records as having any interest in her.

16.  In Re Resource 1(2000) 3 HKCFAR 187 at 196B - D, Litton PJ (with whom Li CJ, Bokhary PJ and Sir Anthony Mason NPJ agreed) said:

“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 [on legal and beneficial ownership of a vessel], and it would take a wholly exceptional case for it to be otherwise.”

17.  Mr Scott SC, for Allianz, submitted that registered ownership in the name of MMG corresponded with beneficial ownership of the Vessel.

18.  AMI on the other hand alleged that it was part beneficial owner of the Vessel so that she was not “beneficially owned as respects all the shares” in her by MMG at the time of the commencement of this Action – section 12B(4)(ii) was thus not engaged.

19.  The foundation of AMI’s case was an agreement in writing dated 18 September 2012 between MMG and AMI (“Agreement”) under which AMI agreed to pay the final instalment of the purchase price (“final instalment”) on behalf of MMG to Swissco to enable MMG to acquire ownership of the Vessel. In return, MMG agreed that AMI would become part owner of her. The express terms of the Agreement were inter alia as follows:

(1)   AMI would pay the final instalment “on behalf of MMG to Swissco in consideration for [AMI] being part owner of the Vessel with it being understood that on payment of the [final instalment] the ownership of the Vessel is to be transferred in the name of MMG” (Clause 3.2(a));

(2)   AMI “shall at all times be entitled to the proceeds of any sale of the Vessel, the proceeds of which will be used to repay [the final instalment]” (Clause 3.2(b));

(3)   the Agreement would be governed by the laws of the Kingdom of Saudi Arabia (Clause 5).

20.  On the evidence, the total purchase price payable by MMG to Swissco was US$7.2 million. AMI did pay the final instalment in the sum of US$1,593,939 to Swissco and MMG did become the registered owner of the Vessel. By paying the final instalment, AMI claimed it had acquired a beneficial interest in the Vessel of approximately 22% ie US$1,593,939 divided by US$7.2 million, on the basis of the presumption of purchase money resulting trust: The “Venture” [1908] P 218.

21.  The first question for the court is whether AMI became a beneficial part owner of the Vessel as alleged, by reason of its payment of the final instalment.

22.  For the reasons set out below, the answer is, in my view, no.

23.  Where part of the purchase money is provided by a third party viz AMI at the request of and by way of loan to the person to whom the property is conveyed viz MMG, no resulting trust arises in favour of the third party since it did not advance the part purchase money as purchaser, but rather as lender: Underhill and Hayton, Law Relating to Trusts and Trustees 17^th Ed. paras. 1.24 & 31.20.

24.  In Re Sharpe [1980] 1 All ER 198, 201 d-e, Browne- Wilkinson J (as he then was) observed:

“In my judgment, if, as in this case, moneys are advanced by way of a loan there can be no question of the lender being entitled to an interest in the property under a resulting trust. If he were to take such an interest, he would get his money twice; once in repayment of the loan and once in taking his share of the proceeds of the sale of the property.”

25.  In Assured Quality Construction Ltd v Thompson [2006] EWHC 2440 (Ch), Lewison J observed at para. 23 that it is perfectly open to parties to regulate by contract the terms on which property will be owned, even where one person contributes to the purchase price. If so, there is no need for equity to fill a perceived gap in the beneficial interest of the property by reference to certain well-known presumptions and rules of thumb. In my judgment, that is what MMG and AMI have done in the present case.

26.  In my view, the terms of the Agreement are inconsistent with AMI having a beneficial/ equitable interest in the Vessel. Rather, they are entirely consistent with AMI having made a loan to MMG, repayable from the proceeds of sale of the Vessel. This is because:

(1)   Clause 3.2(a) provides that “on payment of the [final instalment], the ownership of the Vessel is to be transferred in the name of MMG” - there is no mention in the Agreement of the separation of legal and beneficial ownership or the apportionment of beneficial ownership between MMG and AMI.

(2)   Clause 3.2(b) provides for repayment of the final instalment to AMI from the proceeds of sale of the Vessel. AMI is not stated to have a proportionate interest in the Vessel which may appreciate or depreciate with time.

(3)   Clause 3 as a whole does not specify AMI has any rights over the Vessel other than to be repaid the final instalment from the proceeds of her sale.

27.  The provision for repayment to AMI of the final instalment is a clear indication that the arrangement between MMG and AMI was intended to be a loan. If so, the presumption of resulting trust is rebutted by the intention of the parties as expressed in the Agreement: Snell’s Equity 32^nd Ed. paras. 25-011 – 25-012.

28.  My view that the arrangement between MMG and AMI was intended to be a loan is further reinforced by AMI’s own conduct: Snell’s Equity 32^nd Ed. para. 25-013.

(1)    On 6 May 2013, AMI issued a Writ of Summons in HCAJ 48 of 2013 claiming as follows:

“The Plaintiff, as part owner of [the Vessel], claims the sum of US$1,593,939.06 being the amount contributed by the Plaintiff towards the purchase price of the Vessel when the Vessel was acquired by her former registered owners [MMG] from [Swissco]…”.

(2)    Similarly, on 10 May 2013, AMI filed a Praecipe for Caveat Against Release and Payment in HCAJ 164 of 2012 claiming to have an interest in the Sale Proceeds

“to the extent of approximately US$1,593,939.06 plus interest accruing and costs in the above-mentioned property representing the caveator’s beneficial interest in [the Vessel]”.

29.  Since the value of the Vessel has depreciated from US$7.2 million to US$4.5 million as at 7 March 2013 ie the date of its judicial sale, AMI’s alleged 22% beneficial interest in the Vessel should also have depreciated accordingly to approximately US$990,000. Nevertheless, AMI continued to claim the full amount of the final instalment plus interest in both HCAJ 48 of 2013 and HCAJ 164 of 2012. This is consistent with AMI also regarding its arrangement with MMG as a loan repayable from the Sale Proceeds.

30.  The fact that AMI was stated in the Agreement as being “entitled to the proceeds of any sale of the Vessel” is not determinative of whether it has a beneficial interest in the Vessel. As stated by Reyes J in The Convenience Container [2007] HKLRD 484 at para. 36, a mere right of enjoyment of the proceeds of sale is not to be equated with “beneficial ownership” within the meaning of section 12B(4).

31.  Whether and if yes to what extent AMI is entitled to lay a claim to the Sale Proceeds is to be determined in HCAJ 48 of 2013 as to which I shall refrain from expressing any view at this juncture.

32.  The second question for this court is whether, in the absence of fraud or other similarly compelling circumstances, it is open for AMI to go behind registration and contend that MMG was not the beneficial owner of the Vessel as to all her shares (64/64) at the time of the Writ.

33.  In my judgment, the answer is no.

34.  The word “beneficial” does not appear in the relevant article ie Art 3 of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships 1952 (“1952 Convention”). The 1952 Convention was given statutory effect in England by the Administration of Justice Act 1956 (“1956 Act”), subsequently replaced by the Supreme Court Act 1981 (“1981 Act”). The word “beneficial” was inserted before the words “owner as respects all the shares in it” in the English equivalent of our section 12B(4)(i) & (ii) 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.

35.  In I Congreso del Partido [1978] QB 500, 542A-B, Robert Goff J said in respect of the words “beneficially owned as respects all the shares therein” in section 3(4) of the 1956 Act[1] as follows:

“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 the 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”. (emphasis added)

36.  This meaning of the term beneficial ownership “is the accepted view in nearly all, if not all, maritime jurisdictions”: per Ma CJHC (as he then was) in The Convenience Container supra at para. 167(4).

37.  In The Convenience Container, the Court of Appeal had the opportunity to examine the concept of beneficial ownership under section 12B(4) of the Ordinance.  At paras 35, 36 & 38, Reyes J stated as follows:

“35. Thus, as far as “beneficial ownership” is concerned, HCO s.12B(4) must be concerned with title to property. “Beneficial ownership” cannot merely be about the control or administration of a vessel or even the enjoyment of the proceeds from the sale of a vessel.

36. A person can control a ship but have no title in it. By the same token, a person may for a variety of reasons (including mortgage, charge or assignment) have put out of his hands the full enjoyment of the proceeds of sale from an asset. But that would not necessarily mean that the person is unable to pass good title in the asset to third parties….

38.  And that 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 it in 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.” (emphasis supplied)

38.   In the present case, it was not seriously disputed that MMG was in a position to sell the Vessel and convey a good title to a third party purchaser. In fact, the evidence before this court was that in September  2012, Mr Stewart Macphail, MMG’s CEO, had contacted Mr Osama As’ad, CEO of AMI, and explained that MMG would be unable to pay the final instalment, and, due to lack of funds, MMG’s intention was to sell the Vessel very shortly after its purchase from Swissco. There was even evidence before this court that MMG offered to sell the Vessel to Allianz in December 2012. Applying The Convenience Container, it would follow that MMG was the “beneficial owner” of the Vessel within the meaning of section 12B(4).

39.  Those statutory words “beneficially owned as respects all the shares therein” were re-enacted in section 21(4) of the 1981 Act [2] and considered by the Court of Appeal in The Evpo Agnic [1988] 1 WLR 1090. At 1096C-D, Lord Donaldson MR (with whom the other two members of the Court agreed) said he regarded “the concept of a registered owner as being a nominal owner as a contradiction” as this would negate the fundamental importance of maintaining registers of ships which recorded the names of the owners.

40.  On the ambit of section 21(4), the Master of the Rolls said at 1097E-F:

“The purpose of section 21(4) is to give rights of arrest in respect of ‘the particular ship’, ships in the ownership of the owners of ‘the particular ship’ and those who have been spirited into different legal ie registered, ownership, the owners of ‘the particular ship’ retaining beneficial ownership of the shares in that ship. That was the situation in The Saudi Prince [1982] 2 Lloyd’s Rep 255 and was alleged to be the situation in The Aventicum [1978] 1 Lloyd’s Rep 184.”

41.  In the view of this court, the words “beneficially owned as respects all the shares therein” are there to serve a similar function as an “anti-avoidance” provision in a tax legislation. 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, as in the case of The “Aventicum” [1978] 1 Lloyd’s Rep 184 and The “Saudi Prince” [1982] 2 Lloyd’s Rep 255, 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: Meeson and Kimbell Admiralty Jurisdiction and Practice 4^th Ed. para. 3.59; The “Saudi Prince” supra.

42.  The fundamental importance of shipping registers in establishing legal and beneficial ownership of ships was reiterated by the Court of Final Appeal in Re Resource 1 (2000) 3 HKCFAR 187. At 207J, Bokhary PJ cited with approval the following passage in The Evpo Agnic:

“in real commercial life…registered owners, even when one-ship companies, are not bare legal owners. They are both legal and beneficial owners of all the shares in the ship and any division between legal and equitable interests occurs in relation to the registered owner itself”.

43.  It has been held that a plaintiff is entitled to rely on the particulars shown in the relevant shipping register not only for the purpose of ascertaining “ownership” ie “legal ownership” of a vessel for the purpose of section 12B(4)(b) of the Ordinance but also for the purpose of ascertaining “beneficial ownership” under section 12B(4)(i) or (ii) of the Ordinance: Tian Xiang 2 Hao unrep., HCAJ 322 of 2001; Reyes J., 8 October 2003 at para. 44.

44.  The actual decision and the reasoning of Reyes J were upheld on appeal. In particular, the Court of Appeal cited with approval the proposition that “the inference must be as a matter of common sense that a registered owner of a ship must be the legal and beneficial owner of the ship”: see Tian Xiang 2 Hao unrep. CACV 327 of 2003; 16 March 2004, at para. 8.

45.  From this survey, it is reasonably clear that the authorities speak in one voice and stress the fundamental importance of the shipping register.

46.  Mr Sussex SC sought to argue otherwise. He referred this court to The “Tychy” [1999] 2 Lloyd’s Rep 11. That case was principally concerned with the meaning of “charterer” under the English equivalent of our section 12B(4)(b). The Court of Appeal held that the ordinary and natural meaning of the expression “charterer of a ship” could include a slot charterer. At p 20, Clarke LJ (as he then was) observed:

“The purpose of the statute was, as I see it, to ensure that before a person’s ship could be arrested in respect of a maritime claim, that person had some relationship with the ship in connection with which the maritime claim arose. I can see no reason in principle why a time or voyage charterer of the ship should not be regarded as having a sufficient relationship. There is no reason to narrow the scope of that relationship by giving the words of s.21(4) other than their ordinary and natural meaning. The protection for the defendant is to be found in the last part of the sub-section. Thus it is important to note that in the case of a sister ship the ship being arrested must be wholly beneficially owned by the person liable in personam. Nothing less will do.” (emphasis added)

47.  With respect, the decision of The “Tychy” and the observation of Clarke LJ are of course entirely correct. But this court does not see it as offering any real assistance to AMI.

48.  The effect of the authorities relied upon by Mr Scott SC, as I understand it, is that barring wholly exceptional circumstances e.g. the case of a fraudulent procurement of registration, which have not been suggested here, a vessel’s register is virtually conclusive as to her legal and beneficial ownership, in which case, a plaintiff or the court need look no further than the particulars on the shipping register to decide whether the court’s in rem jurisdiction is engaged.

49.  The observations of Clarke LJ merely reiterate what is already clear from section 12B(4)(ii) anyway ie in the case of a sister ship action, the ship being arrested must be wholly beneficially owned by the relevant person. What Clarke LJ has not touched upon in The “Tychy” is to what extent the shipping register can be relied upon to ascertain the beneficial ownership of a vessel. The answer to that question lies in The Evpo Agnic, Re Resource 1 and Tian Xiang 2 Hao.

50.  Looking at the matter in this way, the law operates to provide a reasonable degree of certainty without unduly undermining the interests of someone who claims to have advanced a sum of money to enable a ship to be purchased by the intended registered owner. Those interests can be protected by bringing a claim under section 12A(2)(a), (b) or (c) of the Ordinance as the case may be.

51.  This view of the law also has the advantage of striking a fine balance between the interests of a claimant in being able to invoke the in rem jurisdiction of this court to arrest a ship by relying on the particulars of ownership shown in the register and the interests of a co-owner in being able to protect a co-owned ship from arrest in respect of a maritime claim for which it is not responsible ‑ all it has to do is to register its part ownership of the ship.

52.  To conclude, in my judgment, it is not open to AMI to assert in the present case that MMG was not at the time of the Writ herein the beneficial owner as respects all the shares in the Vessel.

53.  In the circumstances, the Jurisdiction Issue must be decided against AMI. It is therefore unnecessary for me to rule on, and I shall leave open, the question whether the acknowledgment of service filed by AMI in these proceedings is a nullity for lack of locus, as contended by Allianz.

Disposition and Costs order nisi

54.  The Summons is hereby dismissed and there will be an order nisi that costs of the Summons be paid by AMI to the Plaintiff, to be taxed if not agreed, with certificate for counsel.

55.  Lastly, I thank counsel for their helpful submissions.