ALEENA SHIPPING INC. v. THE OWNERS OF AND OTHER PERSONS INTERESTED IN THE SHIP "ATHENIAN ZOE"

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

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BETWEEN

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RULING

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1. The plaintiffs in this action Aleena Shipping Inc. are the owners of a ship named "Zelia". In 1982 Zelia was delivered up to a company called Athenian management S.A., which I shall refer to, as it was referred to in argument, as AMS, on a time charter. There was a written charter party, and the parties to that contract were the plaintiffs and AMS. It is alleged by the plaintiffs that AMS have defaulted under that charter party, that hire rental is outstanding, and that a liability in damages exists. In furtherance of that claim the plaintiffs started this action on 11th June of this year against "the owners and other persons interested in the ship Athenian Zoe (ex Athenian Anna)". On the same day an order for the arrest of that ship was sought and made.

2. I have, in fact, two applications now before me both dated 25th June. The first is by the defendants to set aside that arrest for a large number of reasons. The second is by the plaintiffs seeking certain ancillary orders in the hope that it will help them to prove their case and maintain the arrest. I have been told that the full hearing of all the issue raised on these summonses, and particularly the defendants, will take a little time. The whole of yesterday the argument was devoted to a single prelimiary point, taken by the defendants. It is quite independent of the merits because the point is a technical one. It is said in substance by the defendants, that the claim which the plaintiffs now wish to assert is simply not open to them on the documents: that the application must be dismissed and the arrest set aside, leaving the parties to start again.

3. In order to explain how this has happened it is necessary to refer to the Administrative of Justice Act 1956, which is specifically applied to Hong Kong, to see what it is that a party seeking to arrest a sister ship in Admiralty proceedings has to establish. The answer is four things. First he has to show that he has an Admiralty claim at all. He must bring himself within one of the sub-sections in section 1(1) of the Act. Here he relies on ss(h) because his claim is in connection with the charter party. That presents no problem. The problems emerge under section 3(4) where propositions 2, 3 and 4 arise. Proposition 2 is that he has to identify the person "who would be liable" if the claim had been made in personam. By Proposition 3, the plaintiff has to show that that person is "the owner or charterer of, or in possession or control of the ship", and the ship for that purpose means the ship in respect to which he claim arises i.e. "Zelia;". Fourthly he has to show that that same person is, (and I paraphrase) the beneficial owner of the ship he is seeking to arrest i.e. "Zoe".

4. Now the plaintiffs here are seeking to say that they can satisfy that by showing that the person in propositions 2, 3 and 4 is the same, namely a man by the name of Kyriakou. Mr. K he has been called in argument and I shall continue so to call him. Mr. K, the plaintiffs assert, is the ultimate head of the pyramid. He is, in truth, they seek to assert the ultimate fleet owner, because he is the owner and the controller of the Athenian group. What they are seeking to assert are really two things. First of all the group owns many ships including 'Zoe': that each of the ships is registered in the name of a single ship owning company: that the shares in those companies are all owned beneficially by Mr. K; and that by that route Mr. K, they assert, is the beneficial owner of the ships himself. Secondly they say that Mr. K owns and controls AMS, and that company does two things. First it manages all the ships that Mr. K, on the plaintiffs' analysis, owns. Secondly it manages all the ships which K, again on the plaintiffs analysis, charters. One of the ships so chartered, the plaintiffs seek to assert, is Zelia. They point to what they assert to be close financial links between Mr. K and the group and to the various dealings in this group of companies.

5. This really leads them to make these assertions in respect of the three propositions under section 3(4). Proposition 2 has two sub-headings: (a) Mr. K is the person because he is the guarantor named in the charter party; and (b) Mr. K is the person as being the undisclosed principal behind AMS.  Proposition 3 is likewise double barrelled. (a) Mr. K is the charterer because the named charterer in the charter party is AMS, and he is likewise, the undisclosed principal behind AMS. (b) he is in control of the ship, the 'Zelia', they say because they are hoping to satisfy the Court, that control for these purposes does not mean direct control, it can mean indirect control, and that his control of AMS gives him sufficient control, they would wish to assert, of the ship itself. Under Head 4 they rely upon the alleged beneficial ownership of the shares in the two owning companies which stand, in fact, between Mr. K and "Zoe"; one is the Blue Emblem, which I think is a Cypriot company and the other is Helmin.

6. As I have said I am not concerned with the merits or validity of those assertions at all. It is quite obvious from what I have seen in the documents, that very real and formidable questions arise on number of aspects of the case. My problem at the moment is to determine whether this case can be advanced at all, in the existing proceedings, because it is said it was not properly stated or set out in the initial affirmation upon which the arrest was based. That was an affirmation of Mr. Quincy Chuang dated 11th June. If one turns to paragraphs 5 and 6 of that affirmation, one can see how Mr. Chuang was there setting out the plaintiffs' case. He set out the plaintiffs' case under 2a in my above analysis i.e. liability as guarantor. He set out the plaintiffs' case under 4, beneficial ownership of "Zoe". He does not spell out, in any way at all, the plaintiffs' case under 2b or 3.. This, it is said, is required by the rules because 0. 75 Rule 5(8)(b) says "every affidavit must state that in the beliefs of the deponent" then it goes on to repeat the words of sections 3(4).

7. That there has been a failure to comply with that rule is plain and indisputable. The first question is to determine the consequences of that. Mr. Waung for the defendants submits that it is fatal. It goes, he says, to the jurisdiction, and it produces a void which cannot now be filled. It simply shows that the Court had no jurisdiction whatever to make this arrest, and there is only one thing which the Court can now do, that is to dismiss the present.. proceedings and leave the parties if they wish to start again.

8. I cannot accept that proposition. First of all, it seems to me that the Court's jurisdiction stems from section 3(4) itself. That jurisdiction exists if the three elements specified in that section exist. That in turn depends upon the totality of the evidence before the Court, and the Court's view of such evidence. I cannot accept that it depends upon the use of any particular form of words.  Secondly, it seems to me that this rule is procedural and directive and not substantive. What it is doing is telling the party applying for an arrest warrant, what he should put in his affidavit, how he should set out his case for the benefit both of the Court and the other parties to the suit. But I cannot treat sub-rule 8 as a mandatory requirement, which leaves the Court without jurisdiction, if it is not complied with, having regard to the terms of sub-rule 4. This having said that the warrant for arrest "shall not be issued unless" (I leave out a few words) "an affidavit made by him or his agent containing the particulars required by", among the other things, sub-rule 8; goes on: "so however the Court may, if it thinks fit, allow the warrant to issue notwithstanding that the affidavit does not contain all those particulars". It simply cannot be read as a mandatory or absolute requirement.

9. I therefore conclude, that the failure to comply with the rules does not go the jurisdiction. It is in fact an "irregularity" which is covered by 0. 2, r 1. There has been a failure to comply with the rules which has to be treated as an irregularity, and the Courts powers are then set out in 0. 2 r. 1(2) which are to set everything aside, or on such terms as to costs or otherwise to allow amendments to be made, (I am paraphrasing rather than reading from the rule itself). Therefore, the issue before me is whether I should exercise my discretion to allow the void to be filled by the equivalent of an amendment here, which would be the delivery of a supplemental affirmation; or whether I should set the whole thing aside and leave the parties to start again.

10. The matters which I regard as particularly relevant in deciding that issue are these. First the initial affirmation before the Court, although it failed to spell out the plaintiffs' case in the way I analysed it earlier in this ruling, did in fact contain the primary piece of evidence upon which the plaintiffs rely, which is a financial statement containing combined accounts of all the companies in this group prepared by, Coopers and Lybrand. This contains a number of statements made by that well-known firm of accountants, relative to Mr. K's position in relation to the group and his ownership and/or control of it. That statement was certainly put before the Court in support specificially of proposition 4 i.e. beneficial ownership of "Zoe". But in fact, it is also the evidence principally relied upon in respect of proposition 3.

11. Secondly, that evidence having been advanced initially it has been added to and attacked considerably since.  A lot of evidence directed to it has been filed by the defendants in support of this application, and it has been answered by further evidence from the plaintiffs. All that matter now adds to the material before the Court in relation to issues 3 and 4.

12. Thirdly it seems to me that in those circumstances this objection can be seen to be much more a point of form than of 'substance'. I used the word 'substance' in this context in inverted commas because whether in fact there is any real substance in the allegations remains to be seen. The substantive matter upon which the plaintiffs seek to rely, is there in the documents, whether those matters are good, bad or in different. What is lacking is something akin to a pleading, the prelimary statement which summaries how the plaintiffs seek to use that material, and the case they seek to spin out from it. Now that is a matter of form as it seems to me. A significant matter of form, certainly, because the defendants are entitled to know how the matter is put against them, and they are   entitled in part at least, to tie the plaintiffs down to that formulation.

13. I accept that this is a special remedy. I accept, as far as I am personally concerned, it is a very peculiar remedy. I also accept that it is a remedy which has got to be operated carefully, properly and fairly to both parties. But it seems to me that the position is not totally removed from that facing a Court, when application is made at the trial to amend a pleading, particularly a statement of claim, by adding a new cause of action at the trial based upon facts already asserted in that statement of claim.  I am minded to think that the modern practice in those cases is to be less strict and less technical than some of my predecessors were in the past.

14. In these circumstances I have as I see it two choices. The first is to give leave to amend, by giving leave to file a supplemental affirmation with an appropriate order as to costs. It is quite obvious that the costs of yesterday were totally devoted to this argument, and to that extent have been thrown away. That is choice number one. The second choice is to set aside the arrest altogether, to give the defendants the whole of the costs in this exercise, and to leave the plaintiffs to start again, or to leave one of the two caveators, who are waiting in the wings, to start again. Giving the matter the best consideration I can, I regard the plaintiffs failure in this case as more technical than substantive. I think it is a failure which is capable of being cured by way of supplement, and that that is a fairer result in the circumstances then dismissing, setting aside and forcing everybody to start again.

15. My ruling accordingly is that the plaintiffs have leave to file a supplemental affirmation reformulating the way in which they wish to use the material before the Court, and that the costs of yesterday should be the defendants in any event.