SOLVANG SHIPPING CO v. THE OWNERS OF THE SHIP OR VESSEL "VYNTHIA G"(Panamanian Flag) RENAMED "OCEAN STAR 1"

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

____________

BETWEEN

___________

JUDGMENT

___________

1. The above named vessel (which I will refer to throughout as the "Cynthia G") was arrested on the 11th December 1984 in this action in rem on the authority of a warrant of arrest issued on the same date on the application of the Plaintiffs pursuant to Order 75 rule 5(1) made immediately after the issue of the writ. On the 13th December 1984 the Defendants' solicitors acknowledged service on the Defendants' behalf pursuant to Order 75 rule 3(5) describing the Defendants in compliance with the direction in Form No. 2B in Appendix B to the Rules of the Supreme Court by the description stated in the writ, namely as the owners of the vessel. On the 21st December 1984 the Cynthia G was released after the Defendants had furnished security in the form of a bail bond, but evidently without prejudice to their contention that the warrant should be set aside.

2. By their notice of motion dated the 27th December 1984 the Defendants now apply for an order setting aside the warrant of arrest or the bail bond inter alia on the ground of non-disclosure in the affidavit of Mr. Philip Mo Wan Yiu made on the 11th December 1984 leading to the warrant of arrest being issued on that date. However when the application was heard Mr. Faulkner, counsel for the Defendants, relied only on alleged material non-disclosure on the part of the Plaintiffs.

3. The action is a sister ship action under section 3(4)(b) of the Administration of Justice Act 1956 in which the Plaintiffs seek to enforce against the Cynthia G a claim arising in connection with another vessel, the Marcia (now we renamed "Seven Star 1" but which I will refer to throughout as the "Marcia").

4. The Plaintiffs contend that at all material times the Cynthia G and the Marcia were under common beneficial ownership. The claim is for US$66,934.17 with interest and costs allegedly due to the Plaintiffs in respect of bunkers and lubricating oil remaining in the Marcia when that vessel was delivered to the Defendants on the 26th November pursuant to a Memorandum of Agreement made on the 12th November 1984 between the Plaintiffs and Ocean Venture Shipping Company S.A. ("Ocean Venture") under which the Marcia was sold to Ocean Venture and the bunkers and lubricating oil were to be paid for by Ocean Venture at the current market price on delivery.

5. The contention of the Plaintiffs is that Ocean Venture, a Panamanian company, was formed by the true purchasers of the Marcia to acquire that vessel on its behalf and that Ocean Venture has at all material times been the nominee of the true purchaser.

6. The Cynthia G was acquired on the 23rd November 1984 by another Panamanian company called Huofung Maritime and Enterprises (Panama) Inc. ("Huofung") pursuant to a Memorandum of Agreement also made on the 12th November 1984 in the same terms mutatis mutandis as the Memorandum of Agreement governing the sale of the Marcia. The Plaintiffs contend that Huofung was a company formed and nominated by the true purchaser of the Cynthia G to acquire that vessel on its behalf as its nominee.

7. The purchase of the two ships is alleged by the Plaintiffs to have been an "en bloc" transaction wherely the two ships were in reality sold to one buyer who purchased through Ocean Venture and Huofung as nominees, trustees or agents. For the purposes of section 3(4)(b) of the Administration of Justice Act 1956 that buyer is alleged to be the person who would be liable on the claim in respect of the Marcia's bunkers and fuel oil in an action in personam and the same buyer is alleged to have been the owner of the Marcia when the cause of action arose and also the beneficial owner of all the shars in the Cynthia G when the action was brought.

8. For understandable reasons the Plaintiffs have not been consistent in their attempts to identify the alleged true buyers of the two ships and the present beneficial owners of the Cynthia G. Initially, when the warrant of arrest was applied for on the 11th December 1984 Mr. Mo, the Plaintiffs' solicitor, identified the true buyers and beneficial owners of the ships at the material times as Messrs. Sea Prosperity Enterprises Ltd. ("Sea Prosperity"). After evidence in rebuttal had been filed on behalf of the Defendants in proceedings mentioned below he deposed in an affidavit made on the 17th December 1984 that the true purchasers of the vessels were persons under the direction, chairmanship or control of a Mr. Chen Ming Ching.

9. Subsequently, on the 18th December 1984, Mr. William Wong, an assistant general manager of Skaarup Shipping (Asia) Ltd. ("Skaarup Asia") who negotiated the sale of the two ship on behalf of the Plaintiffs with Mr. Bill Chow, a ship broker, affirmed inter alia that he had been informed by Mr. Chow in a telephone conversation during the negotiations that Sea Prosperity or their nominees were in fact acting for Mr. Chen Ming Ching of Evolution Maritime and Enterprises Ltd. ("Evolution Maritime"). I should add that the Plaintiffs had demanded and obtained on the 13th November 1984 in the form of a letter from Evolution Maritime, a guarantee of Ocean Venture's and Huofung's obligations under their respective Memoranda of Agreement relating to the sale of the two ships.

10. The present application of the Defendants is made against the following procedural background subsequent to the arrest of the Cynthia G on the 11th December 1984. By a notice of motion dated the 13th December and returnable on the 19th December 1984, the Defendants applied for an order setting aside the warrant of arrest. This application was made on jurisdictional grounds. It was supported by evidence on affirmation by a number of witnesses seeking to establish that the Cynthia G was both legally and beneficially owned by Huofung at all material times and that the Marcia, in connection with which the Plaintiffs' claim arose, was never at any material time in common beneficial ownership with the Cynthia G.

11. By a second notice of motion dated the 14th December and returnable on the 19th December 1984 the Defendants sought an order for the Plaintiffs, a Liberian company, to give security for the Defendants' costs.

12. The Plaintiffs countered with a notice of motion dated the 17th December and returnable on the 19th December 1984 applying for discovery of a wide range of documents by the Defendants, for cross-examination of three of the witnesses who had made affirmations in support of the Defendants' application to set aside the warrant of arrest and for directions regarding the Defendants' pending applications.

13. All three motions came before me for hearing on the 19th and 20th December 1984. I heard counsel for the Plaintiffs on their application for discovery and cross-examination first. In the course of his submissions on the 20th December Mr. Faulkner, counsel for the Defendants, sought to attack the warrant on the basis of material nondisclosure when the application was made for it to issue. Counsel for, the Plaintiffs stated that the Plaintiffs would want to file evidence on this issue. After an adjournment for counsel to take instructions I acceded to their request for an order inter alia (1) giving liberty to the Defendants to file a notice of motion and supporting evidence in respect of non-disclosure by the Plaintiffs when applying for the warrant and (2) adjourning the further hearing of the Plaintiffs' motion and the Defendants' motion to set aside the warrant of arrest on jurisdictional grounds.

14. Thereafter, the Cynthia G was released on the 21st December after the Defendants had provided security in the form of a banker's bail bond and the Defendants made their present application by their notice of motion dated the 27th December returnable on the 17th January 1985 before me.

15. The principal matter raised by the Defendants to support the allegation of material non-disclosure at the time of the application by the Plaintiffs for the issue of the warrant for the arrest of the Cynthia G on the 11th December 1984 was the failure by Mr. Mo, the Plaintiffs' solicitor, to disclose that in a previous action in rem brought only a week earlier on the 4th December 1984 by the Plaintiffs against the Cynthia G he had deposed to the belief that Huofung were at all material times the purchasers and the beneficial owners of the Cynthia G. No reference was made on the 4th December by Mr. Mo to any possibility of Huofung being a nominee for a disclosed or undisclosed principal or beneficial owner as was subsequently alleged by Mr. Mo in the second action.

16. The Plaintiffs relied on two other matters of allegednon disclosure. One matter was that in his affidavit made on the 11th December when applying for a warrant of arrest Mr. Mo deposed that Sea Prosperity had paid or caused to be paid the purchase price of the ships in sums of US$1,800,000 on the 23rd November 1984 and US$200,000 on the 26th November 1984. No documentary exhibits supported this evidence but on the 19th December 1984 when counsel for the Plaintiffs was making his application for discovery and cross-examination he had, produced a copy of a letter dated the 16th November 1984 from Evolution Ship Management Ltd. ("Evolution S.M.") to the Belgian Bank arranging for US$200,000 to be remitted as a 10% deposit for the purchase price of the Cynthia G and the Marcia to a joint account in the names of Huofung and the Plaintiffs with the Chemical Bank in Hong Kong.

17. Mr. Faulkner contended on behalf of the Defendants that this letter indicated that payment had been made by Evolution S.M. and not Sea Prosperity and the letter should have been disclosed by Mr. Mo on the 11th December.

18. The other matter relied on by Mr. Faulkner was reliance by Mr. Mo in his first affidavit in this action on the single guarantee by Evolution Maritime of Huofung's and Evolution Maritime's obligations under the Memoranda of Agreements as pointing to the two vessels being in common beneficial ownership. Mr. Faulkner contended that Mr. Mo should have exhibited a telex dated the 27th October 1984 in which the Plaintiffs' agents indicated that it was the Plaintiffs who required that the buyers Sea Prosperity were to be guaranteed by Evolution Maritime.

19. The last two matters are not, in my judgment, of sufficient materiality to give rise to the discretion of the court to set aside relief granted ex parte. The real question arises in relation to the change of belief regarding the beneficial ownership of the Cynthia G between the first and second actions which were only separated in time by a week.

20. It was common ground between the parties that where a plaintiff applies under Order 75 rule 5(1) for the issue of a warrant of arrest of the ship concerned in an action in rem brought by virtue of section 3(4) of the Administration of Justice Act 1956 the affidavit made by the plaintiff or his agent under Order 75 rule 5(4) deposing to the matters and grounds of belief mentioned in rule 5(8) is made on the footing that the rule of the court that requires uberrima fides on the part of an applicant for an ex parte injunction applies.

21. The duty to make full and frank disclosure to the court when applying ex parte for relief is certainly not confined to applications for injunctions: see Rex v Kensingon ton Income Tax Commissioners [1917] 1KB486 (C A.) at pp. 505-6, 509 and 514; and the court has a discretion to set aside an order made ex parte when the applicant has failed to make sufficient or candid disclosure: Lazard Brothers & Co. v Midland Bank [1933] AC 289 (H.L.) per Lord Wright at p. 307 with whom all the other members concurred. Indeed the duty imposed upon the Plaintiffs to make full and frank disclosure when applying for the warrant of arrest in this action and in the first action was expressly acknowledged by Mr. Mo in his affidavit made in support of each application.

22. The fact that an application for the issue of a warrant of arrest is normally issued by the Registrar without a hearing if he is satisfied that rule 5 has been complied with or thinks fit to issue the warrant pursuant to rule 5(4) even if the affidavit of the plaintiff or his agent does not contain all the particulars required by rule 5(7), (8) and (9), does not in my judgment detract from the duty of the applicant to make full and frank disclosure in the evidence leading to the warrant which is not issued as a matter of course

23. Section 3(4) of the Administration of Justice Act 1956 provides for the invocation of the Admiralty jurisdiction of this court by an action in rem against a ship. That provision is in the following terms:-

24. My understanding is that it was common ground that the Plaintiffs' claim in respect of the Marcia's bunkers and fuel oil arose within section 1(1)(m) of the Administration of Justice Act 1956.

25. In order to comply with the requirements of section 3(4) of the Act and of Order 75 rule 5(8) for a sister ship action in rem against the Cynthia G in respect of the claim in connection with the Marcia's bunkers and lubricating oil Mr. Mo, the Plaintiffs' solicitor, deposed to the following matters on the 11th December 1984 in his affidavit leading to the arrest of the Cynthia G. He stated inter alia that the Cynthia G, the property to be arrested, was not the ship in connection with which the claim in this action arose. He then went on to depose to his belief that the persons who would be liable to the Plaintiffs in an action in personam were, when the cause of action arose, the owners of the Marcia in connection with which this claim arose, and were also at the date of the issue of the writ in this action the beneficial owners of the Cynthia G as respects all the shares therein.

26. Mr. Mo then deposed to the grounds for this belief, which were that Huofung and Ocean Venture had acted merely as nominees of Sea Prosperity in purchasing the Cynthia G and the Marcia as might be seen from the six telexes which he had earlier exhibited to his affidavit. The telexes in question were expressed to pass between "Skaarup Shipping HK" or "Skaarup HK" (meaning Skaarup Asia) on the one hand and "Golden Bay Shipping HK" ("'Golden Bay") on the other hand. Golden Bay is a firm of ship brokers called Golden Bay Shipping and Trading Company of which a Mr. Bill Chow is the sole proprietor. He sent all the telexes from Golden Bay and was named as the recipient of both the exhibited telexes sent to his firm by Skaarup Asia.

27. All four of the exhibited telexes which were addressed by Golden Bay to Skaarup Asia were expressed to be for the attention of Captain Ma or Mr. William Wong. As indicated earlier in this judgment, the latter individual made an affirmation in this action on the 18th December 1984 in which he described himself as the Assistant General Manager of Skaarup Asia and affirmed inter alia that he had acted in that capacity on behalf of the Plaintiffs "...... as agents in respect of the sale of their vessels, the "CYNTHIA G" and the "MARCIA" in October/November 1984"

28. In one of the exhibited telexes, dated the 30th October 1984, from Skaarup Asia to Golden Bay the address of the Plaintiffs is given as "C/O SKAARUP SHIP MANAGEMENT CORP. GREENWICH, CONNECTICUT, U.S.A." ("Skaarup U.S.A."). In his affidavit made on the 10th January 1985 Mr. Mo deposed that Skaarup Asia were the Hong Kong agents for Skaarup U.S.A..

29. To reinforce his belief, based on the exhibited telexes, that Huofung and Ocean Venture were the purchasers and legal owners of both ships as nominees for Sea Prosperity, the true beneficial owners, Mr. Mo relied on two additional matters in his affidavit leading to the issue of the warrant of arrest in this action. One matter was an addendum to the Memorandum of Agreement dated the 12th November 1984 by virtue whereof Ocean Venture purchased the Marcia. The addendum stated that the sale of the Marcia and the Cynthia G was on an "en bloc" basis. The Memorandum of Agreement in relation to the sale of the Cynthia G to Huofung was in similar form mutatis mutandis.

30. The other matter relied on by Mr. Mo was the single guarantee of the obligations of Ocean Venture and Huofung under their respective Memoranda of Agreement which was contained in a letter dated the 13th November 1984 addressed to the Plaintiffs by Evolution Maritime.

31. Concluding his evidence regarding the Cynthia G, Mr. Mo exhibited a telex dated the 3rd December 1984 from a firm of lawyers in Panama indicating inter alia that the Cynthia G was on that date registered in the name of Huofung as the "Ocean Star 1". Mr. Mo deposed that due to technical problems with a computer in the Panamanian registry it had not been possible to obtain more up to date information regarding the ownership of the Cynthia G.

32. Thus, in this action, the Plaintiffs sought, when applying for the issue of the warrant on the 11th December 1984, to look behind the registration of the Cynthia G and to claim that Huofung was at all material times a mere nominee for Sea Prosperity when purchasing the Cynthia G and holding her thereafter as registered owner. Also Ocean Venture was alleged to have purchased the Marcia as the nominee of Sea Prosperity who were therefore the true purchasers of the Marcia and would be liable to pay for her bunkers and fuel oil when the cause of action arose in connection with that ship under the relevant Memorandum of Agreement. On this footing the jurisdictional requirements of section 3(4)(b) of the Administration of Justice Act 1956 for a sister ship action were sought to be fulfilled and it did not matter that the registered owners of the Marcia (by now under the name of "Seven Star") were shown by the Panamanian telex dated the 3rd December 1984 to be Iplee Maritime and Enterprises (Panama) Inc. ("Iplee") and not Ocean Venture.

33. By contrast to Mr. Mo's evidence leading to the warrant of arrest in this action, on the 4th December 1984, when the same Plaintiffs, were applying by Mr. Mo for the issue of a warrant of arrest in their action in rem ("the first action") against the Cynthia G in connection with their claim in respect of her bunkers and fuel oil, they based their case on a different view of the beneficial ownership of the Cynthia G and relied on section 3(4)(a) of the Administration of Justice Act 1956.

34. In his affidavit made on the 4th December 1984 leading to the issue of the warrant Mr. Mo made no reference to the telexes which were to be the primary evidence relied on a week later in the present sister ship action. He exhibited the Memorandum of Agreement dated the 12th November 1984, the Panamanian Bill of Sale dated the 23rd November and the Protocol of Delivery and Acceptance dated the 24th November as evidence of the sale and transfer of the Cynthia G by the Plaintiffs to the Defendants in the first action on the basis that the vessel's bunkers and unbroached lubricating oil was to be paid for at the current market price on delivery. He also exhibited the relevant certificate relating to the quantity of the fuel and relevant invoices for the outstanding sum claimed by the Plaintiffs.

35. I should mention that the Memorandum of Agreement was exhibited without the addendum referring to an "en bloc" sale of the two ships which was later relied on in this action. Mr. Mo deposed in this action that he was unaware of this omission until the 20th December 1984 and that possibly the addendum became detached when his affidavit was being prepared in haste in the first action.

36. There followed, at the end of Mr. Mo's affidavit, evidence to comply with Order 75 rule 5(8) to show jurisdiction for the purposes of section 3(4)(a) of the 1956 Act. After stating that the Cynthia G was the ship in connection with which the Plaintiffs' claim arose, Mr. Mo deposed to his belief "..... that the persons who would ..... be liable to the Plaintiffs in an action in personam were, when the cause of action arose, the owners of the ship "CYNTHIA G" in connection with which this claim arose, and were also, at the date of issue of the writ in this action, the beneficial owners of the ship "CYNTHIA G" ..... as respects all the shares therein."

37. As to the ground for this belief, Mr. Mo referred to his enquiries on the 3rd December 1984 in relation to the Panamanian shipping" register and then deposed as follows:-

"My search revealed that the registered Owners of the Vessel is Huofung Maritime and Enterprises (Panama) Inc. which at all material times were the Purchasers/ Owners of the Vessel."

38. He concluded by exhibiting the above-mentioned Panamanian telex dated the 3rd December 1984 indicating that on that date Huofung was the registered owner of the Cynthia G.

39. In his affidavit leading to the issue of the warrant of arrest in the first action and in this action Mr. Mo stated his means of knowledge of facts and matters deposed to from information and belief to be derived from documents received by him as an assistant solicitor in the firm acting for the Plaintiffs and from instructions received from the Plaintiffs' managing agents Skaarup U.S.A. In his fourth affidavit, made in this action on the 28th December 1984, Mr. Mo's means of knowledge is stated to include instructions from Mr. William Wong of the Plaintiffs' agents Skaarup Asia. In his fifth and last affidavit in this action Mr. Mots means of knowledge is stated to include instructions from the Plaintiffs' managing agents Skaarup U.S.A. and their Hong Kong agents Skaarup Asia.

40. The warrants in the two actions were issued by different officers of the court. Master Clay issued the warrant in the first action. In the second action Mr. Registrar Betts issued the warrant. It was common ground that the bailiff, Mr. Salleh, had obtained the warrant from Master Betts and had informed him that there had been a previous arrest of the Cynthia G. There was no direct evidence before me of what transpired before Mr. Registrar Betts.

41. Mr. Mo, who deposed that he had informed one of the bailiff's staff that he would wait until the warrant was signed in case the Registrar should have any queries about the papers, stated that his understanding from Mr. Salleh was that the Registrar had queried why the Cynthia G had been released earlier when there were further claims pending against her. Mrs. Liang, the Defendants' solicitor, deposed that Mr. Salleh had informed her subsequent to the 19th December 1984 that the Registrar had expressed surprise that there should be two arrests, in this matter on the information available. The court cannot determine what actually transpired in the light of this indirect and unsatisfactory evidence, but one thing is clear, namely that there is no evidence before me that the Registrar was informed that the Plaintiffs had adduced evidence to support their contention in the first action, contrary to what was being alleged in this action, that the Cynthia G was beneficially owned by Huofung both when the Plaintiffs' cause of action occurred and when the action was brought.

42. Mr. Mo has given his explanation of the relevant events in his affidavit made on the 10th January 1985. He deposed that his firm was first instructed by the Plaintiffs on the 29th November 1984 in connection with their claims against both buyers for the unpaid price of bunkers and lubricating oil of both ships under the Memoranda of Agreement dated the 12th November 1984. He was not given the telexes which were exhibited to his first affidavit in this action or any of the additional telexes exhibited by him in his second affidavit made on the 17th December 1984. At the time of the arrest of the Cynthia G in the first action he had not yet seen the telexes in question. On the 30th November 1984 his firm was instructed to arrest both vessels for the claims arising in connection with them and on the same day Evolution Maritime refused to accept liability under its guarantee.

43. On the 3rd December 1984, Mr. Mo deposed, he was advised that the Cynthia G was scheduled to leave Hong Kong United Docks ("the docks") on the 6th December and he considered that she should be arrested on or before that date. On the 4th December, when he envisaged arresting the Cynthia G the next day, he received the Panamanian telex mentioned above which named the directors of Huofung and Ocean Venture and indicated that Huofung was the registered owner of the Cynthia G and Iplee the registered owner of the Marcia.

44. He was informed on the afternoon of the 4th December that the Marcia was leaving the docks and that the Cynthia G was scheduled to enter the docks the next morning. He then pressed on with a view to arresting the Cynthia G before she docked. He saw no reason for looking beyond the registration particulars of the Cynthia G as the claim was in respect of fuel unpaid for and remaining on board the vessel.

45. By the 7th December 1984, Mrs. Liang's firm had negotiated terms for the release of the Cynthia G on behalf of the Defendants in the first action. Mr. Mo deposed that before the release was effected he considered the possibility of entering a caveat against the release of the vessel for the price of the fuel remaining in the Marcia on the strength of the reference to an "en bloc" sale of the two ships in the addenda to the Memoranda of Agreement. However his evidence was that he deferred making a decision on this matter because in the late afternoon of the 7th December 1984 he learned in a telephone conversation with Captain Ma of Skaarup Asia that the negotiation telexes leading to the sale of the two ships contained substantial evidence to suggest that the two ships were beneficially owned by a single buyer. He accordingly deferred making a decision until he had had time to consider the contents of the telexes and he allowed the release of the Cynthia G to be effected.

46. Mr. Mo received the telexes on the 8th December and by the 10th December he had formed the view that the Marcia and the Cynthia G had been bought by a single buyer through the vehicle of two nominated Panamanian companies. After counsel had advised that the telexes contained strong evidence to support this view, Mr. Mo deposed, he telephoned the Plaintiffs' agents Skaarup U.S.A. to obtain firm instructions to arrest the Cynthia G as the Marcia's sister ship.

47. Mr. Mo's evidence concludes in forensic terms which Mr. Smith, counsel for the Plaintiffs, developed in argument. Mr. Mo contends inter alia that it was not necessary in the first action to look beyond the registered ownership of the Cynthia G and it was only in the second action, being a sister ship action, that the question of the true beneficial ownership of the vessel was crucial. He goes on to depose to his state of mind when preparing his evidence leading to the warrant of arrest in the second action in the following terms:-

"It did not occur to me that the statements made in my affidavit leading the first arrest, being based entirely on my appreciation of the documentary evidence then to hand, could be relevant in assessing my belief expressed in my first affidavit herein that the two vessels were in fact sister ships."

48. It is clear from the terms of section 3(4) of the Administration of Justice Act 1956 that where an appropriate claim arises in connection with a ship the claimant who can show that the person who would be liable on the claim in an action in personam was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship may bring an action in rem against any ship which is beneficially owned by that person at the date the action is brought.

49. It follows that whether the action in rem is brought against the ship in connection with which the claim arose or another ship it is essential that all the shares in the ship against which the action is brought be beneficially owned at the date of the writ by the same person who was the owner or charterer or in possession or control of the ship in connection with which the claim arose at the time the cause of action arose.

50. The question of the beneficial ownership of a ship at the date an action in rem is brought against it is therefore highly material in relation to jurisdiction whether or not the action is brought against the ship in connection with which the claim arose or a sister ship. I accept that, as Mr. Smith contended, in many cases a plaintiff will rely on prima facie evidence of registered ownership as the ground for his belief regarding beneficial ownership for the purposes of an affidavit under Order 75 rule 5(8). He will often have nothing else to go on. The practice notes in the 1985 English Supreme Court Practice, Vol. I at paragraph 75/5/5 and the forms of affidavit in Atkin's Court Forms, 2nd edition, (1979 issue) at pp. 168 and 169 contemplate such a situation as being common place.

51. However, in cases where beneficial ownership is contested the court will look (as the Plaintiffs invite it to do in this action) behind the registered owner to find the true beneficial owner where appropriate: see the "Aventicum" [1978] 1 Lloyd's Rep. 184 at p. 187. Moreover there is, in my judgment, a distinction between a party who has only particulars of registered ownership to rely on when applying for a warrant of arrest and a party who has strong evidence that A is the true beneficial owner of a ship but nevertheless alleges on oath that he believes B, the registered owner, to be the beneficial owner without disclosing that there is also evidence to show that A is the true beneficial owner.

52. In the present case Mr. Smith for the Plaintiffs stressed that when Mr. Mo made his affidavit on the 4th December 1984 leading to the arrest in the first action he had only the documents, namely the Memoranda of Agreement and related documents and the Panamanian telex dated the 3rd December 1984 to go on. He had not seen the telexes which are relied on in this action. The documents available to him were the the basis for his belief that Huofung purchased the Cynthia G pursuant to the relevant Memorandum of Agreement dated the 12th November 1984 and the Panamanian telex dated the 3rd December 1984 indicating that Huofung was the registered owner on that date was evidence of beneficial ownership of the kind often relied on by a claimant, particularly when the claim arose in connection with the ship to be arrested.

53. Mr. Smith further relied on the full disclosure by Mr. Mo in the second action of all the facts relied on by the Plaintiffs to establish, by Mr. Mo's evidence leading to the second arrest of the Cynthia G, that the two companies Ocean Venture and Huofung acquired the Marcia and the Cynthia G as nominees of Sea Prosperity and that the Cynthia G was in the true beneficial ownership of Sea Prosperity when the second action was brought. The only omission by Mr. Mo, contended Mr. Smith, was his failure to mention the fact of the previous arrest and the change of his belief regarding the beneficial ownership of the Cynthia G. The fact of such a change could not, Mr. Smith argued, be a ground of defence for Huofung in the second action and the failure to disclose the previous arrest and the change of belief were not material in the second action. It did not therefore occur to Mr. Mo, who had been the victim of circumstances, to explain himself in the second action.

54. The fact that Mr. Mo's firm's clients had not disclosed the telexes before the arrest of the Cynthia G in the first action and relied on prima facie evidence of beneficial ownership was not, Mr. Smith contended, relevant to the second action in which the Plaintiffs had made full disclosure. Mr. Smith contended that Mr. Mo's clients could be forgiven for not disclosing the telexes before the arrest in the first action.

55. In my judgment these submissions are not sound. When Mr. Mo made his affidavit leading to the arrest of the Cynthia G in the first action in compliance with Order 75 rule 5(4) and (8) he did so as the agent of the Plaintiffs, a Liberian company instructing him through their agents Skaarup U.S.A. of Greenwich Connecticut within a matter of less than two weeks after the completion of the sale of the two ships which had been negotiated by Skaarup Asia in Hong Kong with Golden Bay acting by Mr. Bill Chow.

56. Mr. Mo does not say in his final affidavit exactly how or by what individuals his firm was instructed on behalf of the Plaintiffs on the 29th November 1984 to recover the outstanding sums claimed in connection with both ships. However on that date Skaarup Asia, by Captain Ma and Mr. William Wong, had knowledge of the contents of the numerous telexes now before, the court. Also, Mr. William Wong, the Assistant Manager of Skaarup Asia who has affirmed that he acted on the Plaintiffs' behalf in negotiating the sale of their two ships in October and November, has deposed inter alia that shortly after the 26th October 1984 Mr. Chow of Golden Bay gave to Mr. Wong, and Mr. Wong passed on to the Plaintiffs by telex, the information that the person behind Sea Prosperity or their nominees was Mr. Chen Ming Ching.

57. In both his affidavits leading to both arrests Mr. Mo deposes to means of knowledge of facts and matters deposed to by him as being derived from documents received by him as an assistant solicitor in the firm of solicitors acting for the Plaintiffs and also derived from instructions received from the Plaintiffs' managing agents Skaarup U.S.A.

58. The position therefore seems to have been that immediately before the first arrest of the Cynthia G the Plaintiffs and their agents Skaarup Asia had Knowledge that Mr. Bill. Chow of Golden Bay had asserted in effect that the true purchaser of the two vessels behind Sea Prosperity was Mr. Chen Ming Ching of Evolution Maritime. Furthermore Skaarup Asia, by Captain Ma and Mr. William Wong had full Knowledge of a large number of telexes passing between Skaarup Asia and Golden Bay in which there is evidence which was the primary basis for the belief of Mr. Mo, when applying for the second arrest, that Sea Prosperity and not Huofung was the beneficial owner of the Cynthia G on the 11th December 1984.

59. Nevertheless Mr. Mo was so instructed as the Plaintiffs' solicitor as to be in a state of mind where he believed that apart from the addenda to the Memoranda of Agreement, the claim against the Cynthia G in the first action was one in which he could properly rely on oath on the particulars of Panamanian registration in conjunction with the relevant Memorandum of Agreement to establish the jurisdictional requirements of section 3(4) of the 1956 Act.

60. I emphasis that the present application concerns alleged material non-disclosure in the evidence leading to the second arrest, not the first arrest. However when Mr. Mo made his affidavit leading to the first arrest he did so as the agent of the Plaintiffs in reliance on documents and instructions obtained from the Plaintiffs whose agents for the purpose of negotiating the sale of the ships, a matter of days before the Plaintiffs instructed Mr. Mo's firm, were Skaarup Asia in Hong Kong. Mr. Mo's evidence makes it clear that he was not fully instructed before the first action as to the circumstances of the sale of the ships.

61. If when Mr. Mo made his affidavit on the 11th December 1984 leading to the second arrest of the Cynthia G on the basis that Sea Prosperity and not Huofung were the true beneficial owners of that vessel, he had disclosed in his evidence that a week earlier the same ship had been arrested on the strength of prima facie evidence, based on registration particulars, that Huofung were the beneficial owners of the ship, I consider that the Registrar would almost certainly have asked for an explanation of the change of belief of Mr. Mo within a period of only a week.

62. Mr. Mo, if called upon to give an explanation would have had no difficulty in explaining his own change of belief. He had not been fully instructed at the time of the first arrest. However the Master would surely have wanted to have an explanation for the failure of the Plaintiffs and their agents to disclose to Mr. Mo important evidence that was within their Knowledge at the time of the first arrest but not disclosed to Mr.Mo until it had become apparent that it would be in the interest of the plaintiff to have Mr. Mo express a different belief as to the beneficial ownership of the Cynthia G. Until he received a satisfactory explanation for the change of belief of the Plaintiffs whose agent Mr. Mo was, I apprehend that the Registrar would not have been prepared to issue the warrant of arrest.

63. At this stage he would, in my judgment, almost certainly have required evidence from the Plaintiffs, or their agents to explain their conduct, particularly as this is not a case in which the relevant evidence was discovered by the Plaintiffs or their agents after the first arrest of the Cynthia G. It was only Mr. Mo who was in the dark until the 7th December 1984.

64. 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 to 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.

65. Furthermore I accept Mr. Faulkner's submission that if the Registrar had been given a full account of the previous belief of Mr Mo as to the beneficial ownership of the Cynthia G and the reasons for it, it would have alerted him to the reasonable possibility that Huofung might indeed be intending to resist the Plaintiffs' claim against the Marcia on the ground that Huofung and not Sea Prosperity or its principal was at all material times the beneficial owner of the Cynthia G. Questions of estoppel could also arise.

66. 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.

67. Although the Plaintiffs may well suffer considerable loss if they are deprived of their relief obtained ex parte I consider that there are no circumstances justifying the exercise of the discretion of the court in their favour. Mr. Mo has explained why his belief regarding the beneficial ownership of the Cynthia G changed during the seven days between the two arrests. There has been no evidence to account for the conduct of the Plaintiffs or of their agents in the U.S.A. or Hong Kong. In my judgment if the Plaintiffs are allowed to retain the advantage of the security they have obtained ex parte the court would be refraining without good reason from condemning in the public interest material non-disclosure on an ex parte application.

68. At present the Plaintiffs have identified the Defendants in this action as Sea Prosperity or some other true beneficial owner of the Cynthia G other than Huofung. The Defendants' solicitors have not specified in terms whom they represent, but this is not a situation where the sanction of the court is prompted by an intention to grant relief to a particular party. When the court exercises its discretion and condemns material non-disclosure it does so as a matter of public policy to discourage the abuse of its procedure when ex parte applications are made.

69. In the present case I consider that the discretion of the court should be exercised against the Plaintiffs and that that Defendants' bail bond which is now the equivalent of the res should be cancelled. I order accordingly.

70. In my judgment the costs of this application should follow the event and I award the costs of the Defendants' motion to them in any event. It may be that, if this matter does not go further, the action will now be stultified and the Plaintiffs will be left to sue an Evolution Maritime's guarantee if they are so advised but I am not prepared to make any order as to the costs of the action on this motion without further submissions from counsel. The order as to the costs of the motion in favour of the Defendants is an order nisi under Order 42 rule 5B(6) and will become absolute 14 days after this judgment is handed down unless within that period an application is made to vary the order.