COMPANIA CHILEAN DE NAVEGACION INTEROCEANICA SAA v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "SEASPAC I"

IN THE COURT OF APPEAL

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J U D G M E N T

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Penlington, J.A.:

This is the judgment of the Court.

1. This is an appeal from an order of Bokhary, J., dated the 6th July 1992 that a security given to secure the release from arrest of the vessel "SEASPAC I" ("the vessel") be released to the defendants.

2. The background to the matter is that by a time charterparty dated the 3rd September 1990 the plaintiff chartered the vessel, then named "BANGLAR DOOT", from the defendants. It was then re-named "SEASPAC I". However disputes arose between the parties and on the 1st November 1991 the vessel was arrested by the plaintiff when it arrived in Hong Kong and a writ was issued claiming damages under various categories. On the 18th November a motion was filed by the defendants to stay the action and to discharge the arrest of the vessel. On the following day Mayo, J., made an order staying the action pending London arbitration, as was provided for in the charterparty. There is no dispute that that was the proper course. On the 28th November Master Woolley made a further order releasing the vessel from arrest upon payment into court of HK$1,950,000 as security, without prejudice to the motion for discharge. This was then followed on the 6th July 1992 by the order for return of the security to the defendants, stayed pending this appeal.

3. The point that was at issue before Bokhary, J., was as to whether the defendants would be able to satisfy the full amount of any award made in the London arbitration in favour of the plaintiffs. It was the plaintiff's case that on the affidavit evidence there was a real possibility they would not and the security should remain. Several grounds were put forward by the plaintiff as indicating that the defendants were in a troubled financial position and, being a government-owned corporation, there could be considerable difficulty obtaining the funds from the defendants who were in Bangladesh. Any award obtained in London may well go unsatisfied.

4. The first of the grounds raised was that on various occasions the master of the vessel had sought cash advances from the plaintiff although it was the defendants who were responsible for the ordinary day-to-day expenses of running the vessel. This indicated a shortage of cash. It was the defendants' argument on this that it is provided in the form of charter that cash for the vessel's ordinary disbursements may, at any point, be advanced, as required by the captain, by the plaintiff or their agents, subject to payment of a two-and-a-half percent commission, and that such advances were to be deducted from the hire. Monies advanced by the plaintiff therefore could be, and were, deducted from the next amount of hire payable. There was nothing unusual about such requests.

5. The next point was that another vessel in the owners' fleet had been arrested in Singapore by creditors in respect of debts outstanding of S$1,291,083. The vessel, the BANGLAR SHOURABH, was arrested twice. This was in September 1991 and on the first occasion there were 10 caveats entered in respect of alleged unpaid debts. These were apparently eventually paid and the vessel was released. However some two days later it was re-arrested in respect of a further claim, which was disputed, and was only released on the giving of a bank guarantee. Initially it was the plaintiff's case that two of the defendants' vessels had been arrested in Singapore but subsequently it was found that this was not so and it was accepted that it was only the BANGLAR SHOURABH which was detained. However, as a result of advice received from solicitors in Dhaka, it did become the plaintiff's case that other vessels owned by the defendants, namely the BANGLAR KAKOLI and the BANGLAR KALLOL, had been arrested in Antwerp and Dundee respectively in October 1991 and had only been released on production of a bank guarantee. To this the defendants said that it was perfectly normal for a bank guarantee to be given to secure the release of a ship if it had been arrested in connection with a disputed debt.

6. Some reliance is also placed by the plaintiff on an article which appeared in the "Dhaka Courier", an English weekly newspaper published in Bangladesh, dated the 7th February 1992. This article refers to the defendants as being "now part of the family of the money-losing state-run white elephants. Its cumulative loss amounting to 65.22 crore taka. It is now quaking under heavy loan liabilities with a long term debt of Tk 385 crore as of 30th June 1991." Apparently 385 crore is the equivalent of US$90 million. The defendants however point to a further part of the article which seems to suggest that the defendants had a promising future despite its debts.

7. Finally it is alleged by Emma Day, a clerk employed by the solicitors for the plaintiff, that she has been informed by solicitors in Dhaka, who are correspondents for the United Kingdom Protection and Indemnity Club, that an English arbitration award would not be enforced in Bangladesh and that there were exchange control regulations enforced in Bangladesh which would make it difficult to remove funds from that country even if they were available there in settlement of the plaintiff's claim. These are bare assertions but there is nothing in the defendants' affidavits in rebuttal of that allegation.

8. For the defendants it is submitted that while there have been claims against one vessel which is part of their fleet in Singapore these claims have been settled and the vessel has been released. This was done by way of a bank guarantee but this is perfectly normal where a claim is disputed. There is evidence that the defendant is a very large company with a substantial fleet which is free of mortgage, according to the master of the BANGLAR DOOT, and a certificate has been produced to that effect from the Commissioner for Bangladesh in Hong Kong. Requests for payment of running expenses made by the defendants to the plaintiff were perfectly normal and allowed for in the charterparty.

9. In his decision that the security should be released Bokhary, J., referred to the nature of the evidence before him as to the defendants' financial position. He said it was "extremely unsatisfactory". However the burden was on the plaintiff to show that if they were to obtain an award in respect of the full amount of their claim the owners might well be unable to satisfy it. There is no dispute that that is the correct test. He referred to the question of cash advances being made but pointed out that this was allowed for by the terms of the time charter. He also dealt with the question of other vessels in the defendants' fleet being detained and said that the release of such vessels only on the provision of a bank guarantee is not necessarily indicative of an unsound financial position. So far as the debts owing to the many caveators in Singapore he said that it certainly appeared that the defendants were not good paymasters but that the question he was concerned with was their ability to pay rather than their willingness to do so.

10. He dealt with the question of the other vessels in the fleet and as to whether they were mortgage free by saying that the evidence on this was "unsatisfactory in the extreme". He pointed out that it depended on the assertion of the master of the particular vessel and the certificate from the Commissioner for Bangladesh in Hong Kong. What was missing was a statement from, for instance, the financial controller of the defendants as to the state of the fleet and exhibiting accounts. However he decided, "without a great deal of confidence", that the defendants were, on balance, owners of a fleet of 18 ocean-going vessels free of mortgage. That, it seemed to him, pointed strongly to the fact that the defendants would be able to settle any award made against them in the London arbitration proceedings.

11. Bokhary, J., did not apparently consider the question of whether the defendants, being a state-owned corporation could be made to settle a London arbitration award and, if the monies were made available in Bangladesh, whether they could be removed from that country.

While clearly the onus is on the plaintiff to show that there is a real possibility that an award made in their favour in the London arbitration might not be settled, we consider that there is much in what Mr. Geoffrey Ma; counsel for the plaintiff, submits - that it is difficult for the plaintiff to point to more than what may be only straws in the wind as regards the defendants' financial position. This they have done by pointing to the requests for cash advances, the arrest of a sister ship in Singapore on two occasions and two other vessels in Europe. There is also the extract from the Dhaka newspaper which does seem to indicate that the defendants do have very substantial outstanding debts. Much of this evidence could easily be rebutted by the defendants producing evidence from a senior member of its staff supported by documentary evidence showing that the defendants' financial position is sound. There is a singular lack of such evidence.

12. This is a discretionary matter and this Court should be reluctant to interfere with the discretion exercised below. There was however considerable evidence pointing towards the defendants having financial difficulty and there is the unrebutted assertion that an award made in London arbitration proceedings could not be enforced in Bangladesh against a state-owned corporation. That was not dealt with by Bokhary, J., and we feel it is an important factor. We consider that here there is a distinct possibility that an arbitration award might well go unsatisfied and that the security provided should not be released.

13. For these reasons we allow this appeal and quash the order made by Bokhary, J., that the security be released.

There will be an order nisi that the plaintiff have the costs of this appeal and of the application before Bokhary, J.