VICTORY STAR SHIPPING CO S.A. v. THE OWNERS AND ALL THOSE INTERESTED IN THE SHIP "AMIGO" AND ANOTHER

1991, Folio No.AJ115

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ADMIRALTY JURISDICTION

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Admiralty action in rem against the ship or vessel "AMIGO"

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DECISION

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1. At issue between the plaintiff and the defendant, World Happy Shipping Limited, is ownership of the vessel the subject of this action. Both plaintiff and defendant have perfectly respectable arguments that respectively they are owners of the vessel. The question is whether the plaintiff should be allowed to ventilate its argument at trial. A further question is whether the warrant for the arrest of the vessel which was obtained by the plaintiff should be set aside.

2. By memorandum of agreement dated 6th January 1991 the plaintiff agreed to sell and the defendant or its nominee to buy the vessel. The price was US$150,000. Delivery was to be in Hong Kong between 11th and 20th February. Upon delivery the balance of the purchase price of 90% was to be paid, while the plaintiff was to release the Bill of Sale and other documents including a certificate that the vessel was free from registered encumbrances. On 7th February there was an agreement to reduce the price to HK$700,000. On 18th February the plaintiff executed a Bill of Sale in favour of World Happy Shipping Limited S.A., the defendant's nominee. By that Bill of Sale the plaintiff purported to transfer 100% of the shares in the vessel. On the same day a provisional certificate was issued by the port of registry showing the defendant's nominee as purchaser and owner of the vessel. The following day there was issued a certificate that the vessel was free from encumbrances on behalf of the Commissioner for Maritime Affairs of the Government of Saint Vincent and the Grenadines.

3. On 12th March a Mrs. Ip Siu Wai, a director of the defendant, gave the plaintiff a post-dated cheque for $630,000 as the balance of the purchase price. The plaintiff provided copies of the bill of sale and other requisite documents to the defendant. The plaintiff also notified the Hong Kong Marine Department of transfer of ownership of the vessel to the defendant's nominee.

4. For reasons which I need not go into, other than to say that they are disputed, the cheque which the plaintiff received was dishonoured on 21st March, it having been countermanded by Madam Ip. On 23rd April the plaintiff commenced an action against Madam Ip on the cheque. On the same day the plaintiff commenced an action against the defendant for the balance of the price of $630,000. The inference to be drawn from these two actions is that the plaintiff had approved the contract for the sale of the vessel, had parted with the property and sought to recover the balance of the purchase price.

5. On 10th May the plaintiff commenced this action in rem in the Admiralty Jurisdiction of this Court. The Statement of Claim endorsed on the writ pleaded the Bill of Sale by which the plaintiff transferred 100% of the shares in the ship in favour of the defendant's nominee. It went on to plead that all necessary documents including the Bill of Sale were prepared by the plaintiff's agent and filed with the Hong Kong representative of the Commissioner for Maritime Affairs at the defendant's request. It further pleaded that on 7th March the registry of Saint Vincent and the Grenadines issued a certificate to the defendant's nominee registering the ship as owned by the nominee. There was then a plea that Madam Ip fraudulently induced the plaintiff to accept the post-dated cheque and that, in pursuance of the contract and receipt of that cheque, the plaintiff delivered the ship to the defendant as agent for its nominee. Finally, the plaintiff pleaded that the defendant had possession and control of the vessel and refused to allow the plaintiff to resume such possession and control. Upon that pleading the plaintiff claimed possession of the ship and judgment for the sum of $630,000.

6. On the following day, upon the basis of that Statement of Claim and the usual supporting affidavit which added nothing of materiality, the Registrar issued a warrant for the arrest of the vessel.

7. By letter dated 24th May the defendant's solicitors put the plaintiff's solicitors on notice that the Statement of Claim did not disclose a reasonable cause of action. They argued that claims for possession and for the balance of the purchase price were mutually exclusive while the pleading itself claimed that ownership had been transferred to the defendant and a cheque for the balance of the purchase price accepted. No doubt triggered by that letter, on 5th June the plaintiff amended its Statement of Claim pursuant to 0.20 r.3. By the amendments the plaintiff now pleads:

8. By summons dated 24th July the defendant asked first, that the amendment to the Statement of Claim be disallowed and that consequential thereon the prayer for possession be struck out. Second, that the warrant of arrest be set aside on the ground that the Statement of Claim before amendment did not disclose any reasonable cause of action and on the ground that there was material non disclosure on the part of the plaintiff. It was not necessary to pursue other relief which was sought.

9. I have no difficulty in saying that the warrant of arrest should be set aside on both grounds. It was not in dispute that the issue of a warrant is discretionary. Nor was it in dispute that there is a duty to make as full and frank disclosure to the Court when applying for ex-parte relief of this nature as there is when applying for an injunction: see Solvang Shipping Company v. The Owners of the ship or vessel "Cynthia G" (Panamanian Flag) renamed "Ocean Star 1" (1984) Folio No.367 per Clough J. as he then was. That was echoed by Hunter J. as he then was in Sun Hua Enterprise Company Limited v. The owners of the motor ship "Harima" (1986) AJ Folio No.132 in which he also held that on an application for a warrant under 0.75 r.5 the Court's first concern is to see whether the claim is one which prima facie brings the plaintiff within the Admiralty Jurisdiction, a decision which was subsequently upheld on appeal. In the instant case it is the apparent claim by the plaintiff to possession or ownership of the vessel that founds jurisdiction in Admiralty and gives rise to an action in rem.

10. It is important to bear in mind, however, that when considering an application for a warrant, the Registrar's function is limited. The Registrar is not required to consider the merits of a plaintiff's claim. He is required only to consider whether a plaintiff has disclosed a cause of action which is recognised by S.12B Supreme Court Ordinance as a basis for an action in rem.It is material which is relevant or germane to that consideration, i.e. whether there is jurisdiction, which must be fully disclosed.

11. For the defendant Mr. Chong argued that the plaintiff's claim to possession of the vessel simply cannot stand on its own pleading because the only proper construction that can be put on the Statement of Claim is that the plaintiff parted with both ownership and possession of the vessel. Certainly there is no assertion by the plaintiff that it remains the owner of the vessel. Further, S.20 of the Sale of Goods Ordinance, rule 1 when applied to the memorandum of agreement, which Mr. Chong said is unconditional, would provide for property in the vessel to have been transferred to the defendant upon the making of that agreement. Further again, the execution of the Bill of Sale, by application of s.26 of the Merchant Shipping Act 1894 and on the authority of The Spirit of the ocean (1865) 34 LJ Ad 74, entirely divested the title of the plaintiff vendor. Taking all those matters together, said Mr. Chong, it is unarguable that the Statement of Claim disclosed no cause of action giving rise to an action in rem under which a warrant of arrest might be issued.

12. Mr. Chong further argued that there were two matters of material non disclosure when application was made for the warrant. First, certain documents were not disclosed. I am satisfied that there is nothing in this and that they were sufficiently referred to in the Statement of Claim itself and that the reference to those documents, as can be seen, had the effect of hampering the plaintiff's claim. Second, the two actions which the plaintiff started against Madam Ip and the defendant respectively should have been disclosed. These actions, said Mr. Chong, demonstrated that the plaintiff had affirmed the contract rather than accepted an apparent repudiation thereof by the defendant. Such affirmation of the contract was inconsistent with any claim to ownership or possession. Although the existence of these actions may not have affected the exercise of the Registrar's discretion, nonetheless they were matters which he should have weighed when considering whether to exercise his discretion in favour of the plaintiff.

13. For the defendant Miss Wee conceded that the Statement of Claim was perhaps unskillfully drawn. She boldly argued, however, that the assertions therein were merely assertions of fact and were not intended to amount to any admission that the plaintiff had divested itself of ownership and possession in favour of the defendant. She said that the true intention of the plaintiff is now made plain in the affirmation of Mr. Ling, the technical manager of the plaintiff's agent, who set out the background to the transaction between the parties. That intention is now fully reflected in the amended Statement of Claim, which effectively cures any defect that may have existed when the warrant was issued. She said that, although the Statement of Claim may not have disclosed a cause of action giving rise to an action in rem (she did not however concede that this is so) the amended Statement of Claim makes it clear that there was in existence at the time a proper cause of action and that is sufficient to justify the warrant being issued.

14. I am bound to say that I have difficulty in accepting that argument. It is clear to me that Mr. Chong is correct and that on the material available to the Registrar when application for the warrant was made the plaintiff had apparently divested itself of ownership and possession, so that there could be no question of a claim giving rise to an action in rem. It is no answer to say that the position has now been remedied. The warrant clearly was wrongly issued.

15. Nor am I attracted by Miss Wee's argument in relation to the non disclosure of the two earlier actions. Plainly they were material to the question of jurisdiction. They were inconsistent with the apparent assertion by the plaintiff that it is entitled to ownership or possession, an assertion only discernible from the prayer for possession. They made the basis for an action in rem highly questionable. Clearly these actions should have been brought to the Registrar's attention. No attempt has been made to explain why this was not done. I am satisfied that the warrant should be set aside on this ground also.

16. Indeed, the only explanation afforded for this unhappy state of affairs is by the plaintiff's solicitor, who has deposed to the fact that the Statement of Claim was drafted by him and, in so far as it may have caused confusion as to the nature of the plaintiff's claim, and led to the conclusion that the ownership of the vessel had been vested in the defendant, such was done by inadvertence on his part. I regret to have to say that that explanation, while perhaps honest, is far from illuminating. It does not explain why the two earlier actions were instituted upon what can only have been an acceptance by the plaintiff of the contract, nor does it explain why the defendant at least is being subjected to a multiplicity of proceedings. I find the position thoroughly unsatisfactory. I can, in the circumstances, see no justification for making an order that the warrant should continue. Accordingly, the warrant is set aside.

17. Against that background, should I disallow the amended Statement of Claim which does admit of an action in rem and which, as I have already said, has a respectable argument to support it? In urging me to disallow the amendment, Mr. Chong said that the plaintiff by its amended Statement of Claim has retracted three admissions namely, as to ownership, possession and the giving of the cheque. Clearly, there have been retractions as to ownership and possession. I am not so sure about the cheque. The original plea was that the plaintiff was fraudulently induced to accept the cheque, whereas the plaintiff now says the cheque was given on certain conditions. Those are two very different stories. But they do not, I think, amount to a retraction of an admission.

18. Mr. Chong relied upon another decision of Hunter J. namely Tse Yuk In, Administrator of the Estate of Tse Yat Hung, deceased v. Chee Cheung Hing & Co. Ltd. and Another (1984) HKLR 391. After reviewing the authorities the Judge said at p.394:

"My understanding of the practice is and always has been, that the court allows a party of withdraw an admission deliberately made or to resile from a conscious choice for good reason, and if good reason is shown. In particular it expects the party to put before it a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake. A typical sort of case is where a party is able to say "yes, when I said this, or when I admitted this, I believed that to be the case, I have now got some totally fresh evidence in my possession which if true suggests that it was not the case, and I want to advance that proposition".

 

In those circumstances the court, I think, can readily give leave to withdraw the admission and does so. Conversely if no credible or convincing explanation is given, that is a powerful factor in favour of the exercise of discretion against the application."

 

19. Mr. Chong argued that no credible or convincing explanation has been given. I have already given an indication of the explanation. I have already given my views on that explanation.

20. Miss Wee sought to rely on Hollis v. Burton (1892) 3 CH 226. In that case a party was given leave to withdraw an admission that he had received payment of certain money. His explanation was that the admission had been made by mistake and he adduced conclusive evidence that the money had never been received. I do not think that authority assists.

21. More apt perhaps was the comparison with 0.27 r.2(2) relating to the withdrawal of admissions given in response to a notice to admit, where the guiding principle is whether or not it would be just to allow the withdrawal. Miss Wee said that the real issue between the parties is ownership of the vessel and that it would be only just to let the amendments stand so that the true issue can be ventilated.

22. That is an attractive argument with which I have some sympathy. The fact remains, however, that the plaintiff commenced two actions the essence of which is to recover the price of the vessel. Now the plaintiff seeks to recover the vessel itself. I concede that there may be cases where an action to recover the price of goods is not inconsistent with an action to recover the goods themselves. I do not, however, see that that is the position here. As I have said, no explanation has been advanced as to why the plaintiff took action to recover the price of the vessel, but then apparently changed its mind and sought, in a most inept manner, to recover possession of the vessel on the basis, as it now appears, that it never divested itself of ownership or possession. To my mind, that lack of explanation is insurmountable. In my judgment, the amendment to the Statement of Claim must be disallowed.

23. It follows that the plea for possession in the original Statement of Claim must be struck out.

24. I make an order nisi that the defendant have the costs of this summons.

25. I make a further order nisi that the sum of $630,000, paid into Court by the defendant in an attempt to secure the release of the vessel, be released to the defendant.