COSMOTRADE EXPORTS S.A. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “JIMRISE”

HCAJ 180/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 180 OF 2011

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J U D G M E N T

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I. INTRODUCTION

1.  The Owner of the Vessel, Jimrise Shipping Pte Ltd., brings the present application to set aside the Vessel’s arrest.  Jimrise contends that Cosmotrade has wrongly invoked the Admiralty Court’s in rem jurisdiction to arrest the Vessel.

2.  These proceedings arise out of a time charterparty (TC) dated 4 August 2009 between Cosmotrade and Jimei Hua Shipping Ltd. (a BVI company) in relation to the Vessel.  In such situation, under High Court Ordinance (Cap.4) s.12B(4), an action in rem leading to the arrest of the Vessel may be commenced if the following conditions are met:-

(1)    Jimei (the person alleged by Cosmotrade to be liable for breach of the TC) was, at the time when Cosmotrade’s cause of action arose, the owner or charterer of, or in possession or in control of the Vessel; and,

(2)    Jimei was, at the time when the action was brought (here the time of arrest), the beneficial owner of all shares in the Vessel or the charterer of the Vessel under a demise charterparty.

3.  On 23 December 2011 Cosmotrade had the Vessel arrested on the basis that:-

(1)    Jimei was the Vessel’s charterer at the time of Jimei’s alleged breach of the TC; and,

(2)    Jimei was, at the time of arrest, the demise charterer of the Vessel.

4.  There is no dispute that Jimei meets condition (1).  As part of its affirmation evidence, Jimrise has itself exhibited a time charterparty dated 22 November 2008 between itself and Jimei running for between 36 and 38 months. 

5.  The question is whether Jimei meets condition (2).

II.      BACKGROUND

6.  Jimrise is registered as Owner of the Vessel in the Panamanian Registry.  Lloyds List Intelligence identifies Jimei as the Vessel’s Commercial Operator. 

7.  An insurance cover note dated 16 January 2009 and issued by The London Steam-ship Owners’ Mutual Insurance Association Ltd. refers to Jimrise as “Member” and Jimei as a “Co-Assured”.  COSCO Shanghai Ship Management Co. Ltd. is mentioned in the cover note as another “Co‑Assured”.

8.  A Continuous Synopsis Record issued by the Government of Panama indicates that the Vessel was not subject to a demise (bareboat) charterparty as at 17 July 2009. 

9.  The TC was to run for between 4 and 6 months. In the TC, Jimei is described in line 2 as “Owners of the good M/V Jimrise”. But TC clause 63 identifies Jimrise as “ORIGINAL OWNERS” and Jimei is described with the expression “OWNS/MANAGERS/FULL STYLE”.

10.  On 30 October 2009 Cosmotrade signed a Letter of Indemnity (LOI) in favour of Jimrise (described as “The Owners of the MV JIMRISE”).  This first LOI agreed to indemnify Jimrise against the release of cargo carried on board the Vessel without production of a bill of lading.

11.  On 18 January 2010 Cosmotrade signed another LOI in favour of Jimrise.  This second LOI also requested the release of cargo carried on board the Vessel without production of a bill of lading.  Jimrise was similarly described in the 2nd LOI as the Vessel’s Owners.

12.  On 26 January 2010 Jimei, Cosmotrade and Jaldhi (acting by their solicitors (respectively, Rodgers & Co of Singapore, Ross & Co of the BVI, and Swinnerton Moore LLP of Singapore)) entered into an Escrow Agreement to resolve disputes among them by arbitration.  Jaldhi sub-sub-chartered the Vessel from Cosmotrade.  In the Escrow Agreement Jimei is defined as “the Owners,” Cosmotrade as “the Charterers,” and Jaldhi as “the Sub-Charterers”.

13.  On 1 January 2011 Jimrise entered into a Crewing and Vessel Management Agreement with TOSCO Keymax International Ship Management Co. Ltd.  This is said by Jimrise to evidence its continuing control over the Vessel, even now.

14.  By fax dated 11 March 2011 Rodgers & Co (acting for Jimei) initiated the arbitration in relation to the TC.

15.  On 8 June 2011 Jackson Parton (acting for Cosmotrade) sent an email asking Rodgers & Co to state whether Jimei or Jimrise was the Owner of the Vessel.  Jackson Parton pointed out the contradictory statements in the TC.

16.  On 9 June 2011 Rodgers & Co replied:-

“Finally, with regard to Owners’ identity, we attach a copy of the Clean Fixture Recap which we trust clarifies your query. As you can see, Owners are Jimei …, PRC. They are the party who commenced arbitration against your clients and the party to the Escrow Agreement. If you look through your files (although we appreciate the volume given the extensive exchanges at the time!) there were discussions prior to signing the escrow agreement in this regard and we clarified at the time that the Owners are Jimei. This would suggest that you have not even read the files and stalling for time. However, our clients’ patience is at an [e]nd.”

17.  On 22 July 2011 Cosmotrade by its solicitors Jackson Parton issued claim submissions in the arbitration.  The submissions defined Jimei as “Owner”.  The arbitration dispute relates to the time of re-delivery of the Vessel.  Cosmotrade claims that it re-delivered the Vessel earlier than Jimei contends.  Cosmotrade refuses to pay the hire that Jimei is demanding and instead argues that Jimei owes it money.

18.  Holman Fenwick Willan (HFW) act as Jimei’s London solicitors for the arbitration and Jimrise’s solicitors in these proceedings.

19.  On 22 September 2011 Infospectrum submitted a report to Jackson Parton on Jimrise.  The report noted that Jimei was a BVI company.  The report stated:-

“We then got one of our ethnic Chinese staff to telephone Jimei … today, 22 September 2011, in order to get more information from the company. He was told by the latter’s chartering manager that anyone wanting to charter the four ships will have Jimei … , not the ship’s registered owners, as their counter party. This was partly confirmed by a shipping company which told us that it has mv Jimrise on time charter from mid-June 2011 to mid-August 2011. The shipping company told us that it had chartered the ship from Jimei …”

20.  On 26 December 2011, following the Vessel’s arrest, HFW provided Cosmotrade’s solicitors (Hart Giles (HG)) with the Continuous Synopsis Record and with Jimei’s certificate of incorporation. Shortly thereafter HFW provided HG with a draft copy of the November 2008 time charterparty between Jimrise and Jimei.  HFW exhibited a final copy of the November 2008 charterparty in an affidavit dated 30 December 2011. 

21.  The final charterparty copy differs in some respects from the draft copy.  For instance, the daily rate of hire in the final copy is US$7,500, in contrast to US$9,000 in the draft version.  The draft copy directs that hire be remitted to the specified bank account of Jimrise as beneficiary.  The final version merely states that hire is “payable to Owners’ nominate bank account”.  HFW’s affidavit of 30 December 2011 explains why the final copy differed from the draft.

III.     DISCUSSION

22.  The evidence consistently points to Jimrise being the Vessel’s Owner and Jimei being only the Vessel’s Commercial Operator.  Further, there is no evidence that at the time of arrest the Vessel was under a demise charterparty to Jimei.

23.  In its Affidavit leading arrest, HG inferred that Jimei was a demise charterer from the fact that Jimei was named as Co-Assured in the cover note.  Reliance was also placed on the Escrow Agreement’s description of Jimei as Owner and in the fact that emails from the Vessel’s Master were routinely copied to Jimei.

24.  I do not find such evidence to be compelling. 

25.  After arresting the Vessel, Jackson Parton obtained an opinion from London P & I brokers on the significance of Jimei being named as Co-Assured.  The brokers pointed out that there was separate insurance available for time charterers.  Jimei (the brokers speculated) may not have arranged that latter type of insurance “because, as operators, they may not have undertaken any genuine liabilities under the time charter for it may not have been entered into at arm’s length”.  Consequently, the brokers suggested that Jimei’s insurance “is more akin to that of an Owner (be it as the actual owner, demise or barboat charterer) than that of a time-charter”.

26.  But it seems to me that the most likely (and natural) explanation is that Jimei was named as Co-Assured because (rightly or wrongly) it believed that as Commercial Operator or time charterer of the Vessel it had an insurable interest akin to that of an Owner.  Note that a COSCO entity, presumably (from its name) a manager of the Vessel, is also named as Co-Assured, even though there is no suggestion that such company is a demise charterer or Owner of the Vessel.

27.  Mr. Andrew Sheppard (appearing for Cosmotrade) submits that the signing of the Escrow Agreement estops Jimrise from asserting that it owns the Vessel or denying that the Vessel was let by demise to Jimei. But I am unable to treat the Escrow Agreement as any such representation by Jimrise.  This is because Jimrise was not a party to that document. 

28.  If by the Escrow Agreement (and later by the statements of Rodgers & Co) Jimei held out that it was the Vessel’s Owner, such representation could not estop Jimrise.  Obviously, if Jimei cannot be treated as Jimrise’s agent, there would be no reason to regard Jimei’s representation as binding on Jimrise.  Assume then in Cosmotrade’s favour that, as Commercial Operator, Jimei may be treated as Jimrise’s agent.  That would still not help.  A representation by an agent as to the scope of its authority (here to act as owner of the Vessel) cannot without more bind a principal. 

29.  It is only if Jimrise can somehow be linked to statements as to Jimei’s ownership, made in the Escrow Agreement and made by Rodgers & Co, that Jimrise would be estopped from asserting that Jimrise is the true Owner.  Here there is no hint of a link.  The best that Mr. Sheppard can do is to observe that Jimei and Jimrise are related companies and point to HFW acting for Jimei in London and Jimrise in Hong Kong.  But I do not think that those circumstances alone can support a conclusion that Jimrise expressly authorised Jimei or Jimei’s own agents to hold Jimei out as Owner or demise charterer of the Vessel.

30.  Jimei being Commercial Operator of the Vessel, it is hardly surprising that the Master would copy email or other correspondence concerning the Vessel to Jimei.  Little can be deduced then from the mere fact that there was copying by the Master to Jimei.

31.  There has been some debate among the parties as to whether there is more than one company named Jimei.  Jimei is a BVI company. But in documents it is often identified with a Mainland address.  Again there is nothing surprising in this.  Many BVI companies have their operations outside the BVI and maintain an address in some location outside the BVI.  The evidence does not indicate that there is more than one Jimei.

32.  Mr. Sheppard submits that I should not now summarily decide on the Vessel’s actual beneficial ownership.  Mr. Sheppard makes much of the discrepancies between the draft and final versions of the charterparty between Jimrise and Jimei.  He suggests that that charterparty was a mere fiction and the Court should await discovery of documents evidencing actual payment of hire under that charterparty.  For example, one should see (Mr. Sheppard argues) whether Jimei actually paid hire to Jimrise pursuant to that charterparty.

33.  But I do not see how that is going to help. Assume no hire was paid by Jimei to Jimrise.  That fact alone would not have the logical implication that Jimei (as opposed to Jimrise) was the Owner or Jimei was a demise (as opposed to time) charterer of the Vessel.

34.  In short, on the balance of probability, Cosmotrade has failed to make out a case that condition (2) has been met.  I should therefore set aside the arrest and release the Vessel.

35.  Mr. Edward Alder (appearing for Jimrise) asks that I order an inquiry in respect of damages (if any) arising from the wrongful arrest of the Vessel. 

36.  However, damages are only granted where there is evidence of malicious negligence in relation to an arrest. 

37.  Mr. Alder suggests that there has been material non-disclosure.  I do not think so.  In my view, the initial evidence was just about sufficient to justify an arrest on the basis of an inference that Jimei was a demise (not time) charterer. 

38.  While I accept that soon after the arrest HFW provided information clarifying the relationship between Jimrise and Jimei, I am not persuaded that Cosmotrade has shown any degree of malicious negligence to justify an inquiry into damages. 

39.  There was confusion whether or not Jimei was the Owner of the Vessel at the time of arrest.  That confusion was compounded by statements in the Escrow Agreement and by Rodgers & Co in correspondence with Jackson Parton.  In light of such statements, Cosmotrade’s solicitors cannot be said to have acted in a grossly negligent or malicious manner by not taking HFW’s materials at face value, by investigating the matter further, or by arguing the point before me today.  I do not think that anyone could fairly describe the conduct of Cosmotrade or its solicitors in the present case as cavalier or in bad faith.

40.  For that reason, I refuse to order an inquiry into damages.

IV.     CONCLUSION

41.  There was no in rem jurisdiction to arrest the Vessel.  The arrest is set aside.  I shall hear the parties on costs and consequential orders.