KINGSTAR SHIPPING LTD v. THE OWNERS OF THE SHIP 'ROLITA' AND ANOTHER

Admiralty - summons to set aside grit and warrant of arrest - plaintiff vendor alleged purchaser agreed to charter ship back to vendor - but purchaser resold ship to intervener - change of ownership to intervener registered before writ issued - whether no jurisdiction in rem because change of ownership registered before issue of writ - burden of proving jurisdiction existed on plaintiff - dispute over standard of burden - Held: 1. Plaintiff at an interlocutory stage did not have to establish prima facie case; 2. Court obliged to assume plaintiff's allegations of fact true; 3. If le al assumptions resulted in unjust consequences owner's remedy to apply for stay or striking out; 4. Alternatively owner could obtain immediate release of ship by putting up bail; 5. Interlocutory legal assumptions resulted in each of plaintiff's alternative claims indorsed on writ being sufficiently wide to include intervener as a defendant; 6. Summons to set aside and obtain release of ship dismissed.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

No. AJ 105 of 1988

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J U D G M E N T

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1. This is an interlocutory application by way of originating summons, under which the Intervener applied for orders to release the ship "Rolita" from arrest and to set aside the writ of summons and the warrant of arrest issued in the action. At the end of the hearing I dismissed the summons and made orders as to costs. As then indicated I now hand down reasons for judgment.

2. On 29th July 1988 the plaintiff in its pleaded capacity as charterer, commenced an action in rem against the defendants claiming damages for breach of charter-party. The plaintiff in its indorsement of claim, further sought, in a separate unnumbered paragraph, damages for breach of an agreement with Worldlink Shipping Lines Co SA ('Worldlink') under which it pleaded that Worldlink agreed:

"... on behalf of itself or its nominee, the defendants, to charter the Defendants ship 'Rolita' to the plaintiffs, for the loss suffered by them in consequence of the defendants breach of the said agreement."

3. A warrant of arrest issued on 2nd August 1988 was executed on 3rd August 1988. The Intervener filed the present originating summons as Intended Intervener on 8th August 1988 and after appearing before Liu J., on 9th August 1988 was granted leave to intervene.

4. One of the plaintiff's subsidiaries, Kam Lee Navigation SA was an earlier owner of "Rolita" and had in fact only recently sold the ship to Worldlink on 7th June 1988. The sale price was US$1,280,000 and the ship was to be delivered to Worldlink on 7th July 1988. During the sale negotiations the possibility of Worldlink chartering the ship back to the plaintiff was discussed. On the sale of the vessel, Marubeni Hong Kong Ltd ('Marubeni') acted as brokers for Worldlink. I am also satisfied that Marubeni were involved in charter back negotiations. The plaintiff alleges that the parties agreed upon a charter back. The Intervener relies on Worldlink's assertion that agreement on a charter was never reached.

5. Worldlink commenced negotiations on or about 5th July 1988 for the sale of the "Rolita" to the Intervener. These negotiations concluded on 17th July 1988 when the Intervener purchased the ship from Worldlink for US$1.3 million and took delivery on 19th July 1988. The balance of the purchase price was paid in full on 23rd July 1988. The "Rolita" is registered in Panama. On 27th July 1988 the Intervener applied to the Consulate General of Panama in Singapore to be registered as owner. A provisional patente was issued on 28th July 1988 showing the Intervener as the registered owner of the "Rolita". The I Intervener quickly found a charterer for the ship, which sailed from Taiwan under charter on 1st August 1988 entering Hong Kong waters during the evening of 2nd August en route to the People's Republic of China, before being arrested on 3rd August 1988.

6. Counsel for the Intervener pointed out that the ground of its setting aside application was basically jurisdictional. When the action was commenced on 29th July 1988, Worldlink had already sold the "Rolita". Worldlink, it was argued, thereafter no longer had any property in the vessel. Because of the prior change of ownership, it was submitted, it was not open to the plaintiff to commence an action in rem but it could only proceed in personam against Worldlink. In summary, the Intervener's case was that the plaintiff had left it too late to commence proceedings in rem.

7. This Court's own admiralty jurisdiction is founded on the Admiralty Jurisdiction (Hong Kong) Order 1985 reprinted in Laws of Hong Kong, Appendix III, BJl, Cap. 29 under which Sections 20, 21, 22, 23 and 24 of the Supreme Court Act 1981 are extended to Hong Kong. The Intervener submitted that the burden was on the plaintiff to establish that the claim against the ship fell within Sections 21 or 22. Counsel for the plaintiff did not dispute that this was the position. I hold that the burden of proof does rest on the plaintiff to prove that its claim is within Section 21 or 22. I am also satisfied that the claim arises out of an alleged agreement relating to the use or hire of a ship. If the plaintiff can prove that such an agreement was entered into, the claim would be of the kind mentioned in Section 20(2)(h).

8. The plaintiff's right to bring an action in rem on the present facts is controlled by Section 21(4) the relevant portion of which provides:

"(4) In the case of any such claim as is mentioned in section 20(2)(e) to (r) where -

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

(b)     the person who would be liable on the claim in an action in personam ("the relevant person".) was,, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the High Court against

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

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

9. As was held in The Carmania II (1963) 2 Lloyd's Rep. 152, the time when the action is brought is when the writ is issued which in this case was 29th July 1988. The Intervener submitted that on 29th July 1988 it was clearly the owner but it was equally clear that it was not the statutory "relevant person" for the plaintiff's only possible action in personam, would have been against Worldlink and not against the Intervener. On the question of ownership generally I was referred to the recent observations of the Master of the Rolls on the primacy of registration in the judgment of the Court of Appeal in The Evpo Agnic delivered on 14th July 1988 extracts of which are reported in Fin. Times LR 20.7.88.

10. The plaintiff's submission that Worldlink had agreed to a charter back, was based on the telexes it had sent to and received from Marubeni. These telexes culminated with the plaintiff advising Marubeni on 9th June 1988 that it accepted Worldlink's charter terms "subject details NYPE charterers proforma". This proforma included various amendments to the standard form of the New York Produce Exchange which, according to the plaintiff, are commonly made including the deletion of New York and the insertion of Hong Kong as 'the venue for arbitration. No charter-party was ever signed by the parties.

11. The Intervener filed an affirmation by Mr. Koh Tat Ho, the President-Director of Worldlink who stated that Worldlink had acted solely on its own behalf in the charter negotiations, that the negotiations stopped when no agreement could be reached on certain issues and that no contract was reached or concluded between the plaintiff and Worldlink. Counsel for the Intervener referred to the judgment of Staughton J., in The Solholt (1981) 2 Lloyd's Rep. 574 which was the first judicial statement on the meaning in English law of "subject to details". The judgment referred to the fact that a charter had been "fixed subject to details" and went on to describe what that phrase meant at page 576:

"... 'fixed subject to details'. That means that the main terms were agreed, but until the subsidiary terms and details had also been agreed no contract existed."

Counsel for the Intervener pointed out that while this judgment accords with long established English practice, a different position exists in the United States. A number of American appellate decisions have held that where the "subject to details" formula is used, if the main terms are agreed, it is open to a Court to hold that a binding contract exists. One such decision is the judgment of the Court of Appeals for the Second Circuit in Great Circle Lines v. Matheson & Co Ltd 681 F 2d 121 (2nd Cir 1982). The American position in part follows from their less stringent requirements on the clear existence of each of the classical common law elements of contract, before a contract is created. Counsel for the Intervener submitted that the different principles which exist in England result in the inclusion of the words "subject to details" being analogous to the term "subject to contract". In neither case do those words indicate that a contract has been brought into existence. I accept that the position in Hong Kong is the same as in England and that the inclusion of the words "subject to details" means that the parties have not yet reached contractual agreement.

12. On the facts, the Intervener was well justified in submitting that the evidence did not establish that the plaintiff had reached agreement upon chartering back the vessel from Worldlink. If the test was whether the plaintiff had established a prima facie case that a binding contract had been created, I would have reached the conclusion that the evidence did not satisfy that prima facie test. Counsel for the Intervener conceded that if the change of ownership from Worldlink to the intervener had occurred after the issue of the writ, the position would have been very different and the Intervener would not have been in a position to apply to have the writ of arrest set aside. The Mara Lloyds Maritime Law Newsletter 20.7.88 is an example of the different position which arises where the change of ownership occurs after the issue of writ.

13. As to whether the Intervener was the owner of the vessel when the cause of action arose, I find that the cause of action in respect of the alleged charter back arose on 9th July 1988 when the plaintiff advised Marubeni as Worldlink's agent that it accepted the terms of the proposed charter subject to details. At that date the Intervener was certainly not the owner or charterer or in possession or in control of the "Rolita". It was further submitted that under Section 21(4)(b)(i) as at the date of the writ; Worldlink was clearly not the beneficial owner of the ship as required by that statutory provision to enable an action in rem to be brought.

14. Counsel for the Intervener referred to what he described as the unusual manner in which the indorsement of claim was drafted. But he very properly recognised from the outset that the second paragraph of the indorsement referred to an agreement for a charter from Worldlink not only on behalf of itself but also on behalf of its "nominee". The widening of the second paragraph to include "nominee", at least if taken in isolation, was potentially wide enough to encompass the Intervener. The reference to "nominee" had its genesis in the earlier agreement for the sale of the "Rolita" by the plaintiff's subsidiary to Worldlink "or its nominee". The Intervener's short answer to the plaintiff's nominee argument was that when after execution of the agreement, Worldlink elected to take delivery of the "Rolita" in its, own name, the contractual nominee provisions were spent. Accordingly, the reference to "nominee" in the indorsement, it was submitted, could not refer to the Intervener and in any event, as a matter of fact, the Intervener was never at any time the nominee of Worldlink.

15. Counsel for the Intervener also attacked the vague and speculative nature of affidavits filed in support of the application for the warrant of arrest. It was asserted that subsequent affirmations had demonstrated that those speculations were wrong. Further there was no evidence to suggest and certainly none to establish, any link between worldlink and the Intervener. In any event the failure of the plaintiff to issue the writ before ownership changed to the Intervener was fatal to the continuance of any prior right of arrest.

16. On this point I was referred to The Henrich Bjorn (1886) 11 App Cas 270 and in particular to the statement in the House of Lords by Lord Watson at page 277:

"The position of a creditor who has a proper maritime lien differs from that of a creditor in an unsecured claim in this respect - that the former, unless he has forfeited the right by his own laches, can proceed against the ship notwithstanding any change in her ownership, whereas the latter cannot have an action in ram unless at the time of its institution the res is the property of the debtor."

Here the court is concerned with an unsecured claim. The same principle was more recently applied by Brandon J., in The Monica S (1968) P 741 where there had been a change of ownership after issue of the writ but before service or arrest.

17. Counsel for the plaintiff accepted a number of the Intervener's submissions on general principle. The plaintiff recognised that it had to discharge the burden that it was entitled to the issue of the writ of summons and warrant of arrest. Where the plaintiff took issue with the Intervener was in relation to the standard of that burden. The plaintiff submitted that it was not obliged to establish a prima facie case. Indeed, its Counsel recognised that there might well be obstacles to overcome before a prima facie case could have been established. Alternatively, the plaintiff submitted that the evidence established that there had been no real change of ownership, for notwithstanding the name of the registered owner had changed, Worldlink remained the beneficial owner of the vessel.

18. Before going on to consider these submissions I will deal with the plaintiff's response to the Intervener's submissions on the pleading point. After referring to The Mara, Counsel for the plaintiff submitted that in the present case the action is brought against the defendant who was the owner of the vessel when the writ was issued. The owner as at that date on the Intervener's own submission was the Intervener. The Mara was concerned with the position of the former owner and Sheen J., emphasised that the correct procedure was for those who were the owners of the ship at the time when the writ was issued, to acknowledge service. As the Intervener was the owner at the time the writ was issued, it was submitted the Intervener could not contend that it did not have the status of a defendant.

19. Counsel for the plaintiff further submitted that the indorsement of claim was not unusual but was deliberately drafted to correspond with the twofold legal basis of the plaintiff's case. In the first paragraph the claim against the defendants caught the Intervener as owner at the date of issue of the writ. The indorsement's second paragraph includes as defendant, Worldlink's nominee, which again was wide enough to describe the Intervener. Under the first pleaded paragraph, it was submitted, the Intervener was the relevant person liable in personam, and so fell within Section 21(4). On that basis an action in rem could properly be brought and the Intervener's jurisdictional objection was unsound.

20. Turning to the proper standard of proof, Counsel for the plaintiff submitted that the provisions of Section 21(4)(b) obliged the Court to proceed on the assumption that the plaintiff would suceed on its pleadings in the action. Accordingly, the plaintiff was not obliged at an interlocutory stage to establish even a prima facie case. In support of that submission The St. Elefterio (1957) P 179 was cited. In that case the plaintiffs commenced an action in rem against the owners of the ship and succeeded in having it arrested. The defendants moved to have the writ and warrant set aside, on the ground that there was no jurisdiction to entertain an action in rem. The Court rejected the defendants submission that the plaintiffs at that interlocutory stage had to establish a sustainable case. On the meaning of the words "the person who would be liable on the claim in an action in personam" Willmer J. at page 186 declared;

'The words used, it will be observed, are "the person who would be liable" not "the person who is liable" and it seems to me, bearing in mind the purpose of the Act, that the natural construction of those quite simple words is that they mean the person who would be liable on the assumption that the action succeeds.'

21. The Court of Appeal in Sin Hua Enterprise Co Ltd v. The Owners of the Motor Ship Harima (1987) HKLR 770 applied that same principle. This Court, as a matter of law, is accordingly obliged to assume that the facts alleged by the plaintiff are true. The Court must adopt the same favourable view of the facts alleged by the plaintiff, as if it were determining a preliminary point of law.

22. Where a plaintiff has an unsupportable case and would be unable to establish its claim at trial, I recognise that it would be unjust to allow it to exploit at an interlocutory stage the legal assumption that its allegations of fact are true. In that hopefully uncommon situation a defendant's safeguard is to bring a summons under Order 18 Rule 19 R.S.C. and have the claim struck out. Unless and until a claim is struck out as vexatious or otherwise, the legal assumption that the plaintiff's allegations are true prevails.

23. I record that under order 18 Rule 19 a statement of claim or indorsement may be struck out if it discloses no reasonable cause of action; or is scandalous, frivolous or vexatious; or may prejudice, embarrass or delay the fair trial of the action; or is otherwise an abuse of the Court. The Moschanthy (1971) 1 Lloyd's Rep. 43 is an example of where a defendants application to set aside was supported by an application for a stay on the ground that the proceedings were vexatious. In the present action there is no application for striking out or for stay on the grounds that the claim is, vexatious or otherwise. If that issue were before the Court, the plaintiff's stance was that the affirmations, telexes and other documents showed that the claim was far from being frivolous or, vexatious.

24. Where a defendant considers it is not appropriate to apply for stay or striking out, I appreciate that, even if the defence succeeded at trial, a defendant might still because of the interim arrest of the ship, suffer irrecoverable loss. When faced with that possibility, an alternative course open to a defendant is to obtain the release of the ship pending trial by putting up bail. Counsel for the plaintiff after, emphasising the powerful position a plaintiff enjoys by virtue of, the legal assumption in its favour, pointed out that it had always been open to the defendant to obtain immediate relief by putting up bail.

25. In the light of the authorities cited, I accept that this Court is obliged to assume that the plaintiff's allegations in its indorsement of claim are true.  I am further satisfied that the first paragraph of the indorsement of claim does consititute a claim against the Intervener in its capacity as owner of the ship at the date of the issue of the writ. I further hold that the reference to "nominee" in the second paragraph is also  sufficiently wide to include the Intervener. The allegations in that paragraph are made not only against Worldlink but equally against the nominee. The nominee when the writ was issued was in effect sued as an undisclosed principal. The Court having to proceed in accordance with the legal assumption in favour of the plaintiff's allegations, results in the identity of the nominee at this interlocutory stage being sufficiently established as the Intervener.

26. This Court's clear obligation to make the appropriate legal assumptions in the plaintiff's favour, renders it unnecessary to go on and consider the plaintiff's alternative submission that there had been no real change in ownership. I merely observe that alternative basis to the plaintiff's opposition to the present summons, would have had to overcome the strong statements on the concept of registered ownership in The Evpo Agnic (supra).

27. As it is unnecessary to consider whether Worldlink remained the owner of the ship, so too it is unnecessary to give further consideration to the affidavit of Mr Philip Yang. This affidavit was filed by the plaintiff at a late stage after the Court overruled an objection to its admissibility. At that time the Court indicated that although the objection was overruled a number of the grounds on which the objection was made would remain relevant to weight. If it had become necessary to consider that unhappily worded affidavit, many of its paragaphs would have been given little weight. No weight would have been given to those paragraphs which were little more than purported submissions on the law or opinions on legal issues, expressed by a deponent who did not claim to be a. barrister or solicitor although be deposed he was a legal advisor. The plaintiff put this depondent forward as an expert but while he deposed he was a legal advisor, he omitted to set forth any qualifications which would have established him as an expert in that field. The manner in which the affidavit was drafted was unfortunate and the form in which it was filed largely misconceived.

28. After considering Counsels submissions and the legal principles to which they referred, I am satisfied that the Court had jurisdiction under the Admiralty Jurisdiction (Hong Kong) Order 1985 to issue the writ and the warrant of arrest. I am satisfied that the warrant of arrest was properly issued. The Intervener has failed to establish any ground to release the "Rolita" or to set aside the writ of summons and warrant of arrest. The Intervener's summons is therefore dismissed.

29. I confirm that there will be no order as to costs on the Intervener's application heard on 9th August 1988 for leave to intervene. I further confirm that the Intervener shall pay the plaintiff's costs of and occasioned by the present inter partes summons; to be taxed if not agreed. There will be a certificate for Counsel. Finally, I would express my appreciation to both Counsel for their very clear, comprehensive and attractively phrased submissions, on issues which at times were not without difficulty.