SCHOELLER HOLIDAINGS LTD v. THE BENEFICIAL OWNERS OF HULL CZ007 & ANOTHER

HCAJ208/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 208 OF 2000

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Admiralty action in Rem against Hull CZ007, Now named "Silver Ocean"

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REASONS FOR JUDGMENT

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1. By the Notice of Motion dated 22nd of November 2001, the Intervener herein, FIORA SHIPPING CO. LTD. the present new owners of the ship SILVER OCEAN ('the Vessel") formerly known as Hull No. CZ007 sought to discharge the Warrant of Arrest of the Vessel issued by the Hong Kong Court on the 6th of October 2001. The Vessel was arrested pursuant to the said Warrant on the 15th of November 2001. Schoeller Holdings Ltd. the Plaintiff herein opposed the Motion and at the conclusion of the hearing I dismissed the Motion with costs and indicated that I will hand down my Reasons for the Judgment later. I now give my Reasons.

2. In 1995, the Plaintiff as buyer entered into two purchase agreements ("Purchase Agreements") with Weihei Shipyard of Shangdong Province ("Weihei Yard") and Hubei Machinery and Equipment Import and Export Corporation ("Hubei Mac") as sellers ("Sellers") for the construction and delivery of 2 vessels, Hull CZ007 and Hull CZ006 by Weihei Yard. The Purchase Agreements contained the London arbitration clause (English law and LMAA rules). There was an Addendum dated 11th of January 1999 to the Purchase Agreements. The ship which was formerly known as Hull CZ006 was delivered to the Plaintiff. There was no delivery of the ship which was formerly known as Hull CZ007 and this ship was subsequently sold to the Intervener, the new owners and is now known as the Silver Ocean. Dispute arose between the Plaintiff and the Sellers in relation to both ships with the Plaintiff claiming very large sums of close to US$2 million.

3. By its Application dated 4th August 2000 [page 2-5 of CRK-4], the Plaintiff applied to the Qingdao Maritime Court ("Qingdao Court") for arrest of Hull CZ007, namely the Vessel and sought security in an amount of not less than US$2.9 million. The Qingdao Court accepted the Application and by its Civil Ruling dated 10th August 2000 [page 90-92], ordered the arrest of the Vessel and ordered the furnishing of Letter of Guarantee in the sum of US$2.9 million by a financial organisation or an insurance company located in China. The Vessel was then arrested pursuant to an Arrest Order dated 10th August 2000 signed by the President of the Maritime Court [page 93-4].

4. Weihei Yard objected to the arrest and sought the release of the Vessel by offering security in the form of a "Letter of Indemnity" dated 16th August 2000 ("Weihei Undertaking") which in Chinese says "信 用担保 " meaning personal honour security [page 105]. The Plaintiff objected to the said Weihei Undertaking as being worthless security for the Plaintiff's claim but the Quindao Court accepted the said Weihei Undertaking and ordered the release of the Vessel by its Vessel Release Order dated 21st August 2000 signed by the President of the Qingdao Maritime Court Mr. Wang Yan Yi ("Release Order") [page 10-11 of CRK-4]. The Vessel was therefore released on the 21st August 2000.

5. On the 17th of August 2000, the Plaintiff caused the Writ in Rem in this Action to be issued in the Hong Kong Court.

6. The Intervener alleged that on the 25th August 2000 the Vessel was sold to the Intervener by Hubei Mac in a back to back sale by Weihei Yard to Hubei Mac. No document related to the alleged sales on 25th August 2000 was exhibited in the Affidavits and other documents exhibited suggest that if any sale to the Intervener was not completed until at least sometime after 6th September September 2000 (see for example page 156).

7. In November 2000 pursuant to the Arbitration Clause in the Purchase Agreements the Plaintiff sought London Arbitration against Weihei Yard and Hubei Mac and it would seem that London Arbitration is ongoing between the parties.

8. On the 15th of August 2001, the Writ in Rem herein was served on the Vessel but there was no arrest at that time. On the 6th of October 2001 the Plaintiff applied for the issue of the Warrant of Arrest against the Vessel by the Second Affidavit of Christopher Kerry dated 6th October 2001 ("Warrant Affidavit"). Unfortunately when the Warrant dated the 6th of October 2001 was issued, the Vessel had already left. Upon the next visit of the Vessel in Hong Kong, the Warrant was served on the Vessel on the 20th of November 2001 and the Vessel was arrested.

9. By the Notice of Motion dated 22nd of November 2001 the Intervener sought urgently for the hearing of the Motion that very afternoon for the release of the Vessel. I gave urgent directions that afternoon for the early hearing of the Motion, commencing on 26th November.

10. At the hearing of the Motion, three grounds were advanced by the Intervener for the release of the Vessel:-

(a) Material non-disclosure in the Warrant Affidavit;

(b) Adequate Security had already been furnished to the Plaintiff in the Qingdao Court;

(c) Second arrest in Hong Kong is oppressive and vexatious even if no adequate security had been furnished in the Qingdao Court.

11. Pursuant to my directions various Affidavits were filed and at the hearing I allowed the Plaintiff to put in as final affidavit in rejoinder the 4th Affidavit of Mr. Kerry. The Motion was argued therefore on the basis of the following Affidavits:-

(a) The First Affidavit of Claire Morgan of 27/08/01;

(b) The Warrant Affidavit of Christopher Kerry of 6/10/01;

(c) The Second Affidavit of Claire Morgan of 22/11/01;

(d) The 3rd Affidavit of Claire Morgan of 22/11/01;

(e) The 3rd Affidavit of Christopher Kerry of 24/11/01;

(f) The 4th Affidavit of Claire Morgan of 26/11/01;

(g) The 4th Affidavit of Christopher Kerry of 26/11/01.

As part of the exercise of my case management powers, I also refused the application of the Intervener made sometime after the commencement of the hearing to adjourn for a week the very hearing which the Intervener wanted to bring on so urgently.

12. Before I proceed to consider the three issues argued before me, it is appropriate that I say something about the proper approach which this Admiralty Court seeks to adopt in a case where much turns on the procedural law of a foreign maritime court and what are alleged to have happened in the foreign maritime court.

13. The Special Maritime Procedure Law of the People's Republic of China ("Code") is a recent code enacted in China in late 1999 (to take effect from 1st July 2000) and internationally it is considered a sophisticated maritime procedural law designed to bring China into line with the modern maritime procedure and practice of mature maritime jurisdictions such as Britain, Singapore and Hong Kong. Where it is necessary for this Hong Kong Court to be referred to the procedures alleged to have taken place in the Qingdao Court, I will of course give primacy to the written orders of the Qingdao Court exhibited as well as to the text of the Code exhibited. In so far as there is any difference between the parties as to the interpretation of the Code or the practice adopted in the Qingdao Court under the Code, then I will take into consideration the expert opinions of the various Chinese lawyers. But where there is a dispute or doubt as to what the Qingdao Court might or might not have done, on the basis of comity of nations I will assume (unless the contrary is convincingly proved) that the Qingdao Court acted in accordance with the Code and not outside the Code and that it acted in a judicial and impartial manner in full accordance with the common judicial requirements of natural justice, namely not acting unilaterally in the absence of both parties and not acting without giving both parties a chance to be properly heard.

MATERIAL NON-DISCLOSURE

14. There is no dispute that the Warrant was issued pursuant to the ex parte application on paper based on the Warrant Affidavit and that there was a duty on the part of the Plaintiff and its Hong Kong lawyers to make full and frank disclosure of all material facts. It is also accepted that a party can only make disclosure of facts which are within his knowledge or ought to be within his knowledge.

15. What is alleged to be the failure to disclose is that additional security in the form of mortgages on 3 pieces of properties of the Weihei Yard were furnished to and ordered by the Qingdao Court as evidenced by a document called "Supplementary Letter of Indemnity" dated 1st September 2000 [page 107-8] purportedly addressed by Weihei Yard to the Qingdao Court ("Supplementary Guarantee"). It is alleged by the Intervener that the Plaintiff knew of the additional securities of the 3 properties set out in the Supplementary Guarantee and/or that it ought to have known this and that the failure to make such disclosure was fatal to the continued existence of the Warrant.

16. The Plaintiff disputes:-

(a) the existence of such alleged property mortgage securities,

(b) the existence and/or authenticity of the Supplementary Guarantee,

(c) the allegation that the Supplementary Guarantee gave rise to any proper and full security for the Plaintiff's maritime claim,

(d) it was ever aware of the existence of the Supplementary Guarantee or the alleged property security and

(e) it ought to have known about the alleged property security or the Supplementary Guarantee.

17. Lying at the heart of this dispute is the wider dispute about the Supplementary Guarantee or how it is alleged it came into existence. It is not in dispute that when the Qingdao Court made the Release Order on the 21st August 2000 releasing the Vessel from arrest, the only security submitted to the Qingdao Court and to the Plaintiff up to that time was the Weihei Undertaking which I describe in the course of the hearing as being worthless or illusory security. Once the Vessel was released from arrest there was no reason for the Weihei Yard to offer any additional security unless the Qingdao Court made another order compelling or requiring Weihei Yard to put up additional security. It is of course true that the Plaintiff did submit to the Qingdao Court a letter dated 21st August 2000 asking the Qingdao Court inter alia to reconsider its decision of release against Weihei Undertaking, to detain the Vessel, to order the Weihei Yard to furnish a new acceptable LOG within a specified time and finally reserving its right to claim against the Qingdao Court under the National Compensation Law. But the Qingdao Court did not respond to that letter of the Plaintiff and it is agreed and not in dispute that no Order of any kind was made by the Qingdao Court after the 21st of August 2000. If any Order was made after 21st August 2000, it would have been in evidence in the Affidavits and would have been exhibited. I am therefore very doubtful that the Weihei Yard would have unilaterally offered to the Qingdao Court the document dated 1st September 2000 (I refer to it as Supplementary Guarantee) when it was under no compulsion to do so.

18. The evidence from the Intervener on the circumstances surrounding the Supplementary Guarantee is of poor quality, neither supported by first hand evidence or contemporaneous documentary evidence. Initially there was the mere assertion in paragraph 7 of 2nd Affidavit of Morgan, not based on any credible source of reliable informant in Qingdao. At the last minute, the Intervener purported to rely in the 4th Morgan Affidavit on the material supplied by Mr. Ji Gui Zhi ("Ji"), a Qingdao lawyer and in particular on the Fax letter dated 25th November 2000 from Ji [158-161] ("Ji Fax") on what happened in relation to the matter of additional security.

19. The Ji Fax stated the following:-

(a) Ji spoke with Mr. Song Jun Wen, the Presiding Judge of the Qingdao Court in charge of the case ("Judge Song") and Judge Song informed him the following;

(b) The Court telephoned Mr. Sun Fang Long or Ms Jiang Hai Bo, the lawyers on record for the Plaintiff to notify them the existence of the Supplementary Guarantee;

(c) Judge Song could not remember whether a copy of the Supplementary Guarantee was sent to the arresting party but usually it would be for the arresting party after notification to come to the Court to obtain a copy;

(d) Following the issue of the Supplementary Guarantee, the Qingdao Court issued an Assisting Enforcement Notice serving it on the relevant government authorities including the Real Estate Administration Bureau, directing that the properties covered by the Supplementary Guarantee shall not be transferred or mortgaged;

(e) The properties covered by the Supplementary Guarantee are dormitory for single persons, office building and a warehouse and all these properties could be auctioned by the Qingdao Court to enforce the Supplementary Guarantee.

20. It is to be noted that the Ji Fax is a last minute hearsay document from Ji who was not even purporting to be the lawyer in China previously advising the Intervener or assisting the Intervener with this case. Presumably because of his previous close work-connection with the Qingdao Maritime Court (having been a Judge previously in that Court) he was engaged urgently by the Intervener to obtain information as a non-party from Judge Soon who was apparently willing to talk informally to the lawyer of a non-party on matters concerning this case. It is important however to note that no contemporaneous document was given to Ji. In fact no document was given whatsoever to Ji to support the allegations made in the Ji Fax.

21. What is also vital are the following:-

(a) no date was given nor any detail in the Ji Fax as when or how or why the Qingdao Court was given the Supplementary Guarantee;

(b) no date was given in the Ji Fax as when there was the telephoning by the Qingdao Court to Mr. Sun or Miss Jiang of Wincon, the Qingdao lawyers of the Plaintiff with the alleged notification;

(c) no person of the Qingdao Court was identified as being the one who telephoned Mr. Sun or Miss Jiang of Wincon with the alleged notification.

22. The evidence from the Plaintiff as to the alleged notification from the Qingdao Court of additional security is totally different. The Plaintiff says that until the receipt of the 2nd Affidavit of Morgan, no one in the Plaintiff's camp knew of the existence of the Supplementary Guarantee and until the receipt of the 4th Affidavit of Morgan no one in the Plaintiff's camp knew that notification of the existence of the Supplementary Guarantee was alleged to have been given on an unknown date by an unknown person of the Qingdao Court by telephone to one or other of the two lawyers of Wincon.

23. I have the direct material from the relevant lawyer of Wincon, Miss Jiang Hai Bo who said categorically in her Statement (CRK-5) that neither she nor her colleague Mr. Sun as far as she knew had ever received a telephone call from the Qingdao Court giving notification of additional security. Wincon had received no copy of the Supplementary Guarantee or any document from the Qingdao Court after the release of the Vessel. She also said that due to Mr. Sun Fang Long studying abroad he was not able to give a written statement. She also in her Statement referred to her denying to Mr. Li of Sinclair Roche any knowledge of the existence of the Supplementary Guarantee but the reference to the conversation in 2000 (25th November) must be a mistake for 2001, namely the conversation took place on 25th November 2001, the day before the commencement of this hearing and not some one year earlier.

24. Given the choice between Ji version with all its imperfections and the Miss Jiang's Statement I have no doubt I prefer Miss Jiang's version. Criticism was made by Mr. Wright quite unfairly that there was no statement from Mr. Sun and that therefore somehow I should discount what had been given by Miss Jiang or that I should therefore accept what was said by Ji. I find this an absurd suggestion in the circumstances, specially when Ji could not even point definitely to Mr. Sun as the person who received the telephone call or identify who in the Qingdao Court made the telephone call or when exactly it was made.

25. But the case of the Intervener on the alleged telephone notification is in fact far weaker than what I have indicated earlier. It is inherently highly improbable that Wincon lawyers being notified by the Qingdao Court of the additional security, did not tell their Shanghai professional client, namely Bull Housser & Tupper (now Holman Fenwick & Willan) in Shanghai or the London professional client Hill Taylor Dickson. It is simply inconceivable for me when all the time the Plaintiff through Wincon was chasing for better security that when Wincon was told about additional security by the Court, somehow they just failed to inform their clients. The whole behaviour of everyone on the Plaintiff's side tells me clearly that the Plaintiff was looking for better security and they were frustrated in not getting it and therefore the Plaintiff was driven to come to Hong Kong to obtain its proper remedy.

26. I have therefore no doubt that the Intervener failed miserably on the allegation that the Plaintiff had knowledge of the additional property security/Supplementary Guarantee. But Mr. Wright submits however that the Plaintiff ought to have known of the additional property security because as he puts it, the Plaintiff and in particular Crump & Co. in Hong Kong ought to have made inquiries whether additional security had been furnished. I regard that point as wholly without merit and has no regard for reality. The impression given to the Plaintiff rightly or wrongly by the Qingdao Court and by the Weihei Yard is that no additional meaningful security will be forthcoming once the Vessel had been ordered to be released. It is of course true that a letter was written to the Qingdao Court the same day of the release but if there was any good news no doubt the Qingdao Court would have given written notice to Wincon. After all there was an obligation under Article 75 for consultation between the Plaintiff and Weihei Yard as to the amount and type of security and only when that consultation fails, can the Qingdao Court determine the proper security to be furnished. There was therefore absolutely no reason why the Plaintiff ought to search the Court file as Mr. Wright puts it to find out if any additional security had been ordered by the Qingdao Court. The suggestion is without merit. I find therefore that the Intervener fails on the first issue of material non-disclosure.

ADEQUATE FULL SECURITY IN CHINA

27. The second ground of attack of the Intervener is that there is in place in China an adequate and proper security for the Plaintiff's claim and that therefore there is no necessity for the second arrest in Hong Kong. To succeed on this ground, the Intervener must persuade the Hong Kong Court that there is an enforceable full and proper maritime security in Qingdao for this maritime claim.

28. It is universally recognised by all mature maritime jurisdictions that to avoid the arrest of a ship or to secure the release of an arrested ship, a proper security in the full amount of the claim plus interests and costs is required. A proper security for most maritime courts would generally be either a bank guarantee or a guarantee from a reputable insurance company or P & I Club and this is apparently also the view taken immediately by the Qingdao Court when it made its Civil Ruling dated 10th August 2000. Cash of course would be acceptable to the maritime courts. What is important is that the security accepted can be easily enforceable without too much dispute and that it is not capable of fluctuating in value. For that reason, it is extremely rare to see a maritime court accepting stocks and shares or real estate properties. Real estate properties are particularly inappropriate as security for maritime claim because its enforceable values are often very uncertain and in shipping time to investigate real estate as security is a luxury few can afford. I do not know of a single instance where real estate had been accepted by the Admiralty Court of Hong Kong or of Singapore or of England for the release of an arrested ship.

29. With that preface of the general unsuitability of real estate property as security for maritime claim, I can now turn to the question of whether there is now in place a good and adequate security in Qingdao for the Plaintiff's claim. I have already indicated earlier that I consider the Weihei Undertaking to be worthless and an illusory security if it could be called that. Mr. Wright tried to defend it but could find no answer to my question of what value it has. The word in Chinese used for that Weihei Undertaking is (信用担保) personal honour security. The English translation at page 106 unfortunately does not give the accurate translation of the essence of paragraph 2. The ultimate sentence of that paragraph should read: "Our yard is willing to give our personal honour as security in the maximum sum of US$2.96 million". Although at the hearing the details of the English translation at page 106 was not gone into, it was pointed out repeatedly by the Court to Mr. Wright that the Weihei Undertaking was at best an undertaking by Weihei to pay to the Plaintiff if ordered by the Qingdao Court to do so. It therefore gave nothing by that document. For me and I believe for all mature maritime courts, this document has no commercial or legal value. It is worthless security and as far as I can see it does not fit into any of the 4 types of maritime securities specifically referred to in Article 73 of the Code.

30. The proper question therefore on the second issue is whether a good and adequate security has been created by the Supplementary Guarantee which is the document at page 107-8, dated 1st September 2000. This is a crucial date because this is only some 10 days after the Vessel's release on the 21st August 2000. Is this document authentic and was it given by Weihei Yard to the Qingdao Court on or about the 1st of September 2000 as alleged by the Intervener. As I have said earlier, I find it inherently improbable that after the Vessel was released and with no Order from the Qingdao Court compelling Weihei Yard to furnish additional security that Weihei Yard would simply unilaterally offer this Supplementary Guarantee relating to three properties of the Weihei Yard as additional security for the Plaintiff's claim.

31. What is however far worse than the aforesaid inherent improbability is that in the contemporaneous Fax dated 7th September 2000 [157] from Weihei Yard to the Intervener, in response to the concern of the Intervener on the Plaintiff's lien known to be still outstanding against the Vessel and therefore the reluctance of the Intervener to complete the purchase with the takeover of the Vessel, Weihei Yard said that it had given to the Qingdao Court 2 properties of Weihei Yard which the Qingdao Court had accepted. The 2 properties listed in that Fax are (1) shipyard workshop and (2) shipyard slipway. These 2 properties are wholly different from the 3 properties set out in the Supplementary Guarantee [108] of (a) dormitory building for single persons, (b) office building and (c) electromechanical warehouse. The two documents are both supposed to come from Weihei Yard and only a few days apart but the properties alleged to be given to the Qingdao Court as security are wholly different. I have therefore the gravest doubt as to the authenticity of the Supplementary Guarantee at page 107-8 and on that basis alone it is sufficient for me to hold that the Intervener fails to satisfy me that there is a full and proper security in China for the Plaintiff's claim.

32. The case of the Intervener on this second issue has in fact no merits whatsoever. The Code provides the right of the maritime claimant under Article 75 to be consulted on the form and quantum of security. If therefore the Supplementary Guarantee was sent on or about the 1st of September 2000 to the Qingdao Court unilaterally by Weihei Yard, I have no doubt that as a proper and fair court and pursuant to the law provided by Article 75 of the Code, the Qingdao Court would have sent a copy of the Supplementary Guarantee to Wincon, the local lawyer of the Plaintiff and asked Wincon to agree or negotiate with the Weihei Yard on the proposed security and that furthermore it would have heard both parties on the adequacy of the Supplementary Guarantee before it would issue any new order on additional security. But the Qingdao Court sent no Supplementary Guarantee to Wincon and did not ask the parties to consult on the Supplementary Guarantee nor did it issue any new order. I can therefore only conclude that Qingdao Court as a proper court did not take any of these acts because it was never in receipt of the Supplementary Guarantee on the 1st of September 2000. I am aware of course that Miss Morgan claimed that Sinclair Roche & Temperley Shanghai was given a copy of the Supplementary Guarantee on 5th September 2001 [148] but the supply of that document at that late date must be contrasted with the refusal of the Qingdao Court to allow search of the Court file to ascertain the date of the alleged filing of the document [132]. The suspicion of the Plaintiff that the Supplementary Guarantee only found its way to the Qingdao Court after 1st September 2001 is not without some basis. It is to be remembered that the Writ in Hong Kong was served on the Vessel on the 15th August 2001 and it would be logical immediately after the 15th of August 2001 for Intervener to move heaven and earth in Qingdao including making claims against Weihei Yard. The suspect Supplementary Guarantee then surfaced to give the Intervener a basis to resist the Hong Kong Action. Qingdao Court might have possession of the document but the circumstances of it coming into possession of the document is the key as to whether any legal consequence follows from the receipt by the Qingdao Court of that document.

33. Much had been said by the lawyers of both side on the legal effect of the Supplementary Guarantee but having already decided against the Intervener on this issue for a number of reasons it is not necessary for me to form any concluded views on the opinions of the various experts except to say that in respect of a purported proper and full security on real estate property furnished to a maritime claimant:-

(a) This Court would expect that a full security charge on real estate property will only be ordered by any maritime Court after property lawyers on both sides had a chance to study the full details of the property put up as security, to report to the parties and to the Court on the suitability and enforceability of the proposed property security. Matters such as Article 38 of the Law of Property mentioned by Professor Ni in his Opinion fax [143] and the approval of the State is required for the mortgage by Weihei Yard of state real property [144] do good sense and must be taken into account by any proper maritime court. I certainly would not expect any proper maritime court to accept real property security arrangement as primitive and lacking of statutory basis as those set out in the Supplementary Guarantee notwithstanding the theoretical favourable opinions expressed by some of the maritime law experts engaged by the Intervener.

(b) It is wholly unrealistic to suggest that properties the details of which had not been ascertained (location, condition, encumbrance, valuation, saleability etc.) in the absence of proper and full investigation could provide full and proper maritime security for a maritime claim. The real estate properties of a government owned shipyard are not something which can be easily disposed of by auction. I have no doubt the reservation of Mr. Ni [144] on this aspect is correct and it seems to me that the approach of the lawyers on the side of the Intervener is somewhat naïve and simplistic. No foreign claimant would wish to buy himself a lawsuit in China against the State.

34. In the circumstances, I have no doubt that the Intervener has failed to persuade this Court that there is in existence an enforceable full and proper security in Qingdao for the Plaintiff's present claim.

SECOND ARREST OPPRESSIVE AND VEXATIOUS

35. The last issue submitted by Mr. Wright is that in any event even on the basis that there was no material non-disclosure and there is no proper and full security in Qingdao for the Plaintiff's claim, nevertheless because there was:-

(1) an arrest in Qingdao,

(2) release ordered by the Qingdao Court and

(3) change of ownership to the Intervener after the Vessel was released by the Court

it was vexatious and oppressive for the Plaintiff to effect this second arrest in Hong Kong.

36. I will consider each of the three grounds advanced in turn. Firstly, the fact that there was an earlier arrest in another jurisdiction does not make the second arrest in another jurisdiction oppressive and vexatious. Much will have to depend on the circumstances specially whether any security was obtained on the first arrest. Generally if no security is furnished on the first arrest then second arrest is often the only appropriate remedy available to the claimant in order that his maritime claim can be properly secured. No authority has been cited to me showing that it is oppressive and vexatious merely because there was an earlier arrest in another jurisdiction. In fact some of the authorities cited such as The Arctic Star and The Tjaskemolen suggest that second arrests were allowed.

37. Mr. Wright under this first ground of the first arrest creating a bar to the second arrest seems to suggest that somehow there is an irrevocable election because a party effects arrest in one jurisdiction. He cites to me however no authority that a party makes an irrevocable election by the commencement of proceedings in one jurisdiction or by the arrest of a ship in one jurisdiction. I do not believe that is the way the modern courts approach the problem. The circumstances of how proceedings are brought in two successive jurisdictions must be looked at and the lack of adequate security in the first jurisdiction in the context of admiralty cases would generally be fatal to any object to the second arrest.

38. The second ground advanced is that the Vessel was released by the Order of the Qingdao Court and that therefore there could be no second arrest. Again I do not find that proposition supported by authority. A ship does not purchase its future freedom merely because there was an order of the court releasing the ship from arrest. Freedom from future arrest has to be earned by a ship and the only two sure ways it can be earned so far as mature maritime jurisdictions are concerned, would be on the basis that the ship has been sold free of lien by a maritime court and on the basis that full security has been given to the maritime claimant thereby inducing the maritime court to order the ship's release. So release by itself does not in any way present a bar to a subsequent arrest in another jurisdiction.

39. The third ground relied on by Mr. Wright is that the Intervener purchased the Vessel after the release ordered by the Qingdao Court and that therefore it was unfair and vexatious of the Plaintiff to arrest in Hong Kong the second time and thereby injuring the interests of the Intervener. I of course accept that the second arrest now in Hong Kong injures the interest of the Intervener. But the law of Hong Kong allows the Plaintiff to do exactly that and by that I mean the principle of Monica S. gives to a maritime claimant the right to arrest a ship even in the possession of a new owner provided that the writ is issued before the change of ownership. The new owner in such circumstances has to live with the consequences so to speak of the sins of the former owner and his remedy is not to have the ship released from arrest but to seek indemnity against the previous owner who very often is not worth suing. The principle of Monica S. is well known to all maritime lawyers and the fact that the new owner will suffer by the arrest does not in any way influence the Admiralty Court's decision and duty to have a vessel arrested so long as the Writ in question was issued before the change of ownership. I have therefore no legal basis to disallow any arrest merely because of a change of ownership even though in the process the hardship is caused to the new owners by reason of the arrest

40. Mr. Wright says however that his case is special because the Intervener exercised due diligence (if I could use that expression) and was justified in taking the view that the Vessel was released upon full security having been given and that therefore it would be unfair to have the Vessel arrested a second time. Even if I accept the case that due diligence had been exercised, I would still decline to release the Vessel from its arrest in Hong Kong because I would be depriving a plaintiff its full statutory right under the High Court Ordinance. But in this case, I am not persuaded that full diligence has been exercised. In my view, the Intervener was well aware of the risk of the adverse claim of the Plaintiff. By the Intervener's Fax dated 18th August 2000 [page 16] and the reply from Hill Taylor Dickinson of 21st August 2000 [page 17] the Intervener was aware that outstanding maritime lien was being made by the Plaintiff against the Vessel. The purchase documents had not been put before this Court so no complete picture of the purchase can be established. But it is clear from the Faxes dated 6th and 7th September 2000 [156-7] that in early September 2000 the Intervener notwithstanding that the Vessel had been released by the Qingdao Court was still making inquiries. The Intervener should not have accepted the unreliable word of Weihei Yard. It should have at least checked the alleged security and satisfied itself that the 2 properties alleged to have been mortgaged did constitute full security for the Plaintiff's claim. Furthermore, it should have asked the Plaintiff directly whether the Vessel was free from lien and that it was safe for the Intervener to purchase and take over the Vessel. As far as this Admiralty Court is concerned, the purchase of this Vessel by the Intervener was no different from all cases of purchase of ships, namely on the basis that the purchaser buys with the usual risks of a lien attaching to a ship and the purchaser has to rely on the comfort of the seller's warranty and/or indemnity of good clean title free of all liens and claims. I see therefore no basis for the arrest in Hong Kong to be set aside on the third ground that the new owners is prejudiced by the arrest.

41. A large number of authorities had been cited to me in the course of Mr. Wright's submissions but they do not touch the points at issue in this case. Previous judgments relied on are usually cases where full and proper security required by the claimant had been given. There is no authority where it had been held that illusory security is to be regarded as full security and that the giving of illusory security prevents a subsequent arrest to obtain proper and adequate security.

42. The question of the illusory security which forms the basis of the release ordered by the Qingdao Court is therefore the key to the whole case. The illusory security is what this Hong Kong Court considers to be the injustice to the Plaintiff which requires the remedy of the arrest of the Vessel in Hong Kong.

43. I accept of course that when there was a debate in a foreign court as to what security should be ordered and the court ordered certain specific security which the claimant considers to be not sufficiently adequate, the second arrest might be considered oppressive and vexatious as being an attempt to reopen the question of adequacy of the security. It can be invidious for the second court to go into the sometimes difficult question of what is sufficient security when the first court has ordered security which is not illusory but is less than what is demanded by the claimant. But when the first court orders no security and released the vessel or when an illusory security was accepted by the court, then I do not see any case of second guessing the first court or doing any injustice to the ship which has suffered no harm since it has given no security at all. I do not see how in these circumstances, it will be unfair or vexatious or unjust for the vessel to be arrested the second time. As I see it, this is the only fair and just course to take.

44. I accept that the Vessel here must not be vexed in both jurisdictions by parallel proceedings ongoing at the same time. The Plaintiff accepts that it must abandon Qingdao if the Hong Kong Court allows the arrest to continue in Hong Kong. On the undertaking of the Plaintiff that it will within 14 days of the final determination of this present application of the Intervener, I order that the Motion of the Intervener be dismissed with costs to the Plaintiff.