SIN HUA ENTERPRISE CO LTD v. THE OWNERS OF THE MOTOR SHIP "HARIMA"

IN THE COURT OF APPEAL

1986, No. 121
(Civil)

Action in rem against:

THE MOTOR SHIP “HARIMA” (JAPANESE FLAG)

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JUDGMENT

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Sir Alan Huggins, V.-P.

1. The question raised in this case relates to the degree of disclosure required upon an application for the arrest of a ship. That in turn requires us to consider the extent of the discretion vested in the court to refuse to issue a warrant.

2. The appeal comes to us against the order of Hunter, J. dismissing an application to discharge a warrant for the arrest of the motorship Harima. The claim in the action is for breach of the terms of a bill of lading and for conversion of the goods shipped under the bill. The affidavit show that the plaintiff is a manufacturer of steel in Taiwan. It appears to have entered into a contract for the sale of the steel wire rods to which the Bill of Lading relates to a purchaser in China. There is an embargo on the export of such goods from Taiwan to China so that shipment direct to China was impossible. The goods were loaded - purportedly under the Bill of Lading sued upon, which showed the port of discharge as Hong Kong, but a Rider Clause in the voyage charter-party suggests that there may have been other bills of lading relating to the same goods. The goods were not discharged in Hong Kong but proceeded onwards to China and were apparently delivered to someone there.

3. The Bill of Lading was signed by the “Yangtse Shipping Line” on behalf of the master. That line's authority was that of an agent of the owner. The Bill was dated 24th December 1985 and purported to show that the goods had been loaded on board on that date. There is evidence that that was untrue: the vessel did not arrive in port until after that date and the goods were in tact loaded on or about 26th December. It is suggested that the reason for the false date appears from the terms of the Letter of Credit under which the shippers hoped to obtain payment from the consignee, the Bank of Credit and Commerce Hong Kong Ltd. That Letter of Credit provided for payment against documents which included a Bill of Lading to be dated not later than 24th December 1985. In the event the Bank declined to pay and the Plaintiff has not been paid for the steel. A further strange feature of the Bill of Lading was that the entry which was originally made under “Marks and Numbers” had been obliterated, Again it is suggested that the reason for this appears from the terms of the Letter of Credit, which expressly states "Bills of Lading must not show shipping marks”.

4. The Plaintiff founded its action upon the Bill of Lading signed by the Yangtse Shipping Line. It claimed the right to bring its action in rem within the Admiralty jurisdiction by virtue of ss.20 and 21 of the Supreme Court Act 1981. It alleged that the claim fell within para. (h) of sub-s.(2) of s.20, by reason of the fact that it had

“[a] claim arising out of [an] agreement relating to the carriage of goods in a ship”.

No attempt has been made to set aside the Writ under O.12 r.8 of the Rules of Supreme Court or to strike out the endorsement on the Writ under O.18 r.19. Indeed, it has been expressly conceded by counsel for the Defendant that the action is properly constituted and that, if the Warrant of Arrest be discharged, the action can proceed to trial in the ordinary way.

5. The procedure under O.75 r.5 for the arrest of the property against which, an action has been brought is confined to-actions in rem, and it is s.21 which lays down whether a claim may be brought in rem. The relevant sub-section for our purposes is:

“(4) In the case of any such claim as is mentioned in section 20(2)(e) to (5), 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 of 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;”

This, action has been brought in rem and, I repeat, no application has been made under O.12 r.8 or O.18 r.19 on the ground that the claim did not fall within s.21.

6. In addition to showing that a writ has been served in an act ion in rem an applicant for a warrant of arrest must file a praecipe and also an affidavit containing stipulated particulars: see O.75 r.5(4). It is common ground that a warrant will not be issued as a matter of course. In The Andria now renamed Vasso 1984 1 Q,B. 477 Robert Goff, L.J. said at p.489C:

“The court has the power to arrest. But the exercise of the power is as R.SC. O.75, r.5(1) shows, not mandatory; the court may decline to exercise it. Furthermore, under R.S.C. O.75, r.13(4) the court has a discretionary power to order the release of property under arrest. The court's decision whether to exercise either of those powers may be affected by the manner in which, or the purpose for which, the plaintiff has proceeded.”

That was elahorated by Staughton, J. in The Vanessa Ann 1985 1 Lloyd's Rep. 549, 551:

“No doubt in the ordinary way if the plaintiff has a valid claim within the Admiralty Jurisdiction of the High Court, the ship is arrested and, unless security is provided, she is not released. Counsel and the staff of the Admiralty Registrar could not recall a case which had departed from the ordinary practice. But the discretion is still there.”

7. Two cases have been cited to us showing circumstances in which the discretion could be exercised to refuse a warrant. Both were cases of non-disclosure of material fact s on an interlocutory application and I must first say something about the obligation of candour. It is not, I think, in dispute that non-disclosure is a ground upon which the court will, as a general rule, set aside any order made in favour of an applicant in interlocutory proceedings: The King v Kensington Income Tax Commissioners ex parte Princess Edmond de Polignac 1917 1 K.B. 486, where Warrington, L.J. said at p .509:

“It is perfectly well settled that a person who makes an ex parte application to the Court - that is to say, in the absence of the person who will be affected by that which the Court is asked to do - is under an obligation to the Court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him. That is perfectly plain and requires no authority to justify it.”

Lord Cozens-Hardy, M.R. asserted at p.504:

“It is a case in which it seems to me there was plainly a suppression of what was material, and we cannot be too strict in regard to that which to the best of my belief has been a long established rule of the Court in applications of this nature and has been recognized as the rule.”

While Scrutton, L.J. at p.514 cited with approval from the judgment of Kay, J. in Republic of Peru v dreyfus Brothers & Co.:

“If there is an important misstatement, speaking for myself, I have never hesitated, and never shall hesitate until the rule is altered, to discharge the order at once, so as to impress upon all persons who are suitors in this Court the importance of dealing in good faith with the Court when ex parte applications are made.”

It matters not that there may not be the slightest suggestion of bad faith made: per Lord Wright in Lazard Brothers & Co. v Midland Bank Ltd. 1933 A.C. 289, 306. All this must be understood in the light of what Warner, J. said in Re a Debtor 1983 3 All E.R. 545 at p.551d:

“The rule in Ex p Princess de Polignac exists because, by definition, on an ex parte application the person against whom the order is sought is absent. It is accordingly the duty of the applicant to inform the court of any facts which he knows which might tell in that person's favour. But the applicant is under no obligation to place before the court every fact that might reinforce his own case.”

8. The quest ion here is really What is “material” to an application for a warrant of arrest under O.75? The matter said not to have been disclosed was the reason for the back-dating of the Bill of Lading. It is not disputed that the possibility of back-dating was ascertainable from the affidavit filed, although one carrot say that it would necessarily have become apparent to the Registrar, In The Andria (supra), a warrant having been issued, the defendant applied to discharge it on the ground of non-disclosure of the facts that the parties had entered into an ad hoc agreement to arbitrate and that an arbitration was in train at the time when the writ in the action (which had been issued before the making of the arbitration agreement) was served. The Court of Appeal held that, although there was jurisdiction to issue a wart ant of arrest - because jurisdiction did not depend upon the purpose for which the jurisdiction was invoked - that jurisdiction should not be exercised for the purpose of providing security for an award which might be made in the arbitration proceedings: it was intended to provide security in respect of an action in rem. There had been an abuse of process and failure to disclose the facts which constituted the abuse was ground for discharging the warrant: it was unnecessary also to order a stay of the action.

9. The second case indicating circumstances in which a warrant of arrest might be refused was The Cynthia G 1985 (unreported). There the facts not disclosed were that the vessel had been previously arrested and that upon the application for the previous warrant the plaintiff had led evidence that the vessel was beneficially owned by a person other than the person named as beneficial owner in the second proceedings. What happened was this. Both ships had been owned by the plaintiff and they were sold by separate agreements, the Cynthia G to Huofung Maritime & Enterprises (Panama) Incorporated (“Huofung”) and the Marcia to Ocean Venture Shipping Co. S.A. (“Ocean Venture”). In each case the purchaser agreed to pay for the bunkers and lubricating oil on board. The Cynthia G was first arrested in respect of the bunkers and lubricating oil sold with her. The plaintiff had then adduced evidence that the vessel was beneficially owned by Huofung, which had been registered as the owner. When it applied for the second warrant, it was therefore necessary for the plaintiff to adduce evidence that the Cynthia G and the Marcia were sister ships (s.21(4)). The Marcia was not even nominally owned by Huofung, and the plaintiff now alleged that both Huofung and Ocean Venture were nominees of a third party, who was the true beneficial owner. There seems to have been some uncertainty whether that third party was Sea Prosperity Enterprises Ltd. or Evolution Maritime & Enterprises Ltd. It was, however permissible to look behind the registered owners to find the true beneficial owners: The Aventicum 1978 1 Lloyd’s Rep. 184, 187. The vessel having been released, she was then arrested a second time, as security for the bunkers and lubricating oil sold with the Marcia. On the application for the second warrant the plaintiff did not disclose that it had, only a week earlier, put before the court evidence that Huofung was the beneficial owner. (There were other facts not disclosed which the judge thought were of insufficient materiality). Had the Registrar been told of the previous inconsistent allegation as to who was the beneficial owner, he might not have been satisfied that jurisdiction under s.21(4)(ii) had been established. As in the present case there was no application under O.12 r.8 or O.18 r.19, and the non-disclosure related to a matter on which the jurisdiction to bring an action in rem was based, but it was also a matter to which the applicant was required to depose by virtue of O.75 r.5(8)(b). Clough, J, said:

“Whilst it is not for the plaintiff to prove his case when he applies for the issue of a warrant of arrest in an action in rem but only to comply with Order 75 rule 5(4), it seems to me that it is the duty of the Registrar when presented with an affidavit of the plaintiff’s solicitor acting on his client's instructions and expressing grounds of belief required under Order 75 rule 5(8), to enquire into any matter coming to the Registrar's notice that gives rise to doubts as to whether the grounds of belief expressed are genuinely those of both the plaintiff and of the solicitor acting for him. Otherwise the way would be open for abuse. In the present case the Registrar was as much concerned with the bona fides of the Plaintiffs and their agents as he was concerned with the bona fides of the Plaintiffs' solicitor making the affidavit as agent for the Plaintiffs.

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In all the circumstances I therefore conclude that the non-disclosure by the Plaintiffs; at the time of the second arrest, of the previous arrest of the Cynthia G only a week earlier on evidence of belief that Huofung was the purchaser and also the beneficial owner of that vessel when the first action was brought was a non-disclosure of facts which, had they been disclosed, the Registrar would have taken into account as being material to the granting or refusal of the ex parte application for the issue of the warrant and as tending in favour of the absent Defendants.”

Mr. Sussex for the ship-owner urges that here also “a clear distinction must be drawn between the right to proceed in rem and the availability to a claimant of the court's power of arrest”, but in The Cynthia G there was non-disclosure of matters other than those relating solely to jurisdiction to sue in rem to justify the court's exercising its discretion to refuse to issue a warrant.

10. There is this further distinction between The Cynthia G and the present case - here the non-disclosure, although it relates to a matter affecting the jurisdiction to sue in rem rather than to the procedural step of issuing a warrant of arrest, raises the spectre of illegality, and Mr. Sussex argues that the court is bound to take notice of the possible illegality on the authority of Alexander v Rayson 1936 1 K.B. 169, 190. The suspected illegality is, of course, that the Bill of Lading was back-dated with the object of defrauding not the Plaintiff but the consignee bank which had issued the Letter of Credit. Undoubtedly Alexander v Rayson is an authority that a court should not close its eyes to any illegality which is relevant to the questions then before it, but the legality of the Bill of Lading was not directly relevant to the issue of the Warrant of Arrest: the Plaintiff was under no obligation to depose to the merits of its claim when it applied for the warrant. Nevertheless, Mr. Sussex submits, he must depose to “the nature of the claim” (O.75 r.5(7)(b)) and it would be wrong for the court to lend its aid to a party who was even indirectly relying upon an illegal agreement: the duty of the Plaintiff extended to disclosing any such possible illegality.

11. Suppose the Registrar had been aware of the possibility - one might say “the strong possibility” - that the Bill of lading had been back-dated for the fraudulent purpose suggested, what ought the Registrar to have done? Mr. Sussex has conceded before us that the claim was not demurrable. These were interlocutory proceedings and there was no finding or conclusive evidence of fraud. Indeed, it is arguable that even if the Bill of Lading was back-dated with intent to defraud the bank it would still be enforceable against the ship-owner. Even assuming that to be wrong, it seems to we that the judge was right to hold that there was no ground for refusing a warrant. He relied in particular upon two cases to which I must briefly refer. The argument for the ship-owner was that, if the Bill of Lading was void for illegality, the ship-owner was not "the person who would be liable on the claim in an action in personam” and no action in rem would lie against the Harima, but in the St. Elefterio 1957 P.179, 186 Willmer, J. said:

"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.”

I agree with that view and with the observation of Brarnon, J. (as he then was) in The Moschanthy 1971 1 Lloyd's Rep. 37, 42 that no different principle is to be applied because a defendant in an action in rem may have to provide security and maintain it until the action is determined (that security being obtained by the arrest of the ship).

12. Although I hope I have appreciated the force of Mr. Sussex's argument to the effect that it would be unjust for the ship-owner to be subjected to the arrest of its vessel in the circumstances of the present case, I am persuaded that Hunter, J. came to the right conclusion and would dismiss the appeal.

Fuad, J.A.:

13. I agree that the appeal should be dismissed. To the extent that the exercise of a discretion is involved in the decision whether or not to grant an application to arrest a ship, I have not been persuaded that the fact not disclosed was material to the relevant weighing operation. In my judgment, Hunter, J. applied the right principles and his decision should be maintained.