RUSSO ORIENT SHIPPING CO. LTD. v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE VESSEL "KUZMA GNIDASH" AND THE VESSELS LISTED IN THE ATTACHED SCHEDULE

HCAJ328/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO.328 OF 1999

----------------------

Admiralty action in rem against the vessel "KUZMA GNIDASH" (Russian Flag) and
the Vessels listed in the attached Schedule

-----------------------

Date of Judgment: 6 August 2001

-------------------------

J U D G M E N T

-------------------------

1. The plaintiff claims in this admiralty action in rem against the ship KUZMA GNIDASH based on alleged breaches of an agreement dated 21 April 1997 ("the Agreement") made between the plaintiff and Kamchatka Shipping Co. ("the Owners"), the defendant herein.

2. The intervener challenged the plaintiff's right to invoke the jurisdiction in rem of the High Court and the question before this court is whether any of the three separate claims set out in the Statement of Claim falls within the admiralty in rem jurisdiction of the High Court. The three separate claims are :-

(A) Earned but unpaid commission of US$497,488.51 ("Claim A");

(B) Damages due to loss of Commission from the wrongful withdrawal of the defendant's ships in the sum of US$310,100.78 ("Claim B"); and

(C) Disbursements and liabilities incurred by the plaintiff on behalf of the owners pursuant to the Agreement in the sum of US$1,180,508.15 ("Claim C").

3. The statutory scheme whereby the High Court is granted the admiralty in rem jurisdiction is set out in sections 12A and 12B of the High Court Ordinance ("the Ordinance"). Section 12A(1)(a) of the Ordinance confers admiralty jurisdiction on the Court of First Instance of the High Court to hear and determine certain questions and claims. This case is concerned with the claims mentioned in sections 12A(2)(h), (l) and (o), being :

"(h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship;

"(l) any claim in respect of goods or materials supplied to a ship for her operation or maintenance;

"(o) any claim by a master, shipper, charterer or agent in respect of disbursements made on account of a ship."

Section 12B(4) deals with the specific mode of exercise of admiralty jurisdiction in rem which is the jurisdiction relied on by the plaintiff. Section 12B(4) reads :-

"(4) In the case of any such claim as is mentioned in section 12A(2)(e) to (q), where -

(a) the claim arises in connection with a ship; and

(b) the person who would be liable on the claim in an action in personam ('the relevant person') was, when the cause of action arose, the owner or charterer of, or in possession or in control, of the ship,

an action in rem may ... be brought in the Court of First Instance against -

(i) that ship, if at the time when the action is brought the relevant person is either the beneficial owner of, that ship as respects all the shares in it or ... or

(ii) any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it."

4. The dispute between the parties on jurisdiction is not in relation to section 12B(4) but in relation to whether each of the three claims comes within the relevant provision in section 12A(2). The specific dispute is in fact within the narrow compass of whether Claim A and Claim B come within paragraph (h) of section 12A(2) and whether Claim C comes within paragraph (h), (l) or (o) of section 12A(2). A proper understanding of the Agreement is therefore essential for the determination of the jurisdictional dispute.

5. The Agreement is not a long document and its contents according to the English translation at pages 36-8, can be summarised as containing the following essential features :-

(a) the defendant is the owner of a fleet of unnamed container vessels of the "Nikolai Zhukov" type (hereinafter referred to as "Zhukov ships");

(b) the plaintiff is an operator of container ships;

(c) the Agreement is made with the purpose of providing long and highly efficient work for the defendant's container fleet by establishing a Container Line between Hong Kong, Chinese seaports and the Russian port of Vostochny;

(d) the defendant is to provide Zhukov ships for the Container Line;

(e) the defendant is responsible for the manning, running and maintenance of these Zhukov ships of the Container Line and to be responsible for the operating costs of these ships in the Container Line;

(f) the plaintiff is responsible for the proper maintenance of a management system for the efficient movement of the defendant's fleet in the Container Line;

(g) the plaintiff is responsible for the proper maintenance of a management system for the efficient movement of containers for the defendant's fleet in the Container Line and in particular the plaintiff is to provide the demand for containers of the Container Line and for that purpose, the plaintiff is responsible to control the movement of containers, to make short term lease of containers, to control the expenses of the defendant in relation to containers and to provide the Container Line with empty containers;

(h) the plaintiff is responsible to collect freight;

(i) the plaintiff is responsible to pay on behalf of the defendant for services rendered by third parties to the defendant's ships in the Container Line and the defendant is responsible to pay and reimburse the plaintiff for money so paid by the plaintiff; and

(j) the plaintiff is entitled to be paid 7.5% of the gross freight, as commission for its work.

6. It seems to me that the key nature of the Agreement is the combination by the plaintiff of efficient movement of containers and of the defendant's Zhukov ships so as to enable very efficient freight to be earned by the defendant ships of the Container Line and for this work by the plaintiff, the defendant is to pay the plaintiff, firstly 7.5% gross freight as commission and secondly all disbursements or liabilities incurred by the plaintiff for the defendant (on basis that the defendant is responsible to bear all operating costs). Having regard to that aforesaid key nature of the Agreement, the critical question is whether it can be said :-

(i) in relation to Claim A and Claim B, that these are claims arising out of an "agreement relating to the use of a ship" under section 12A(2)(h);

(ii) in relation to Claim C, that this is a claim :-

(a) arising out of an "agreement relating to the use of a ship" under section 12A(2)(h);

(b) "in respect of goods or materials supplied to a ship for her operation or maintenance" under section 2A(2)(l); and

(c) "by an agent in respect of disbursements made on account of a ship" under section 12A(2)(o).

Claim A and Claim B

7. Claim A is the sum total of earned but unpaid commission arising out of the gross freight earned on five ships of the defendant in the Container Line. The five ships in question are the Nicolai Zhukov, Grigory Kovanchuk, Vitaliy Kruchina, Roslavl and Rzhev. Nicolai Zhukov, Grigory Kovanchuk and Vitaliy were owned by the defendant at the time of the making of the Agreement and they started being employed in the Container Line from about May 1997. Roslavl and Rzhev joined the Container Line somewhat later mainly as replacement for Grigory Kovalchuk. The case of the plaintiff under Claim A is that total gross freight earned by the aforesaid five ships in the Container Line amounted to US$6,633,180.07 and therefore 7.5% of that gross freight comes to US$497,488.51 which is the amount of earned but unpaid commission due to the plaintiff.

8. Claim B is for loss of future commission under the Agreement which ought to have been earned by the plaintiff but was denied to the plaintiff because of the wrongful withdrawal by the defendant of its ships from the Container Line. The steady withdrawal of the defendant's ships from the Container Line was from April 1998 until April 1999. The amount claimed to have been lost by way of this wrongful withdrawal of the defendant's ships from the Container Line is US$310,100.78.

9. The Agreement may not have been well drafted (as appears in the English translation) but there is no doubt that the nature of the Agreement is to put the defendant's fleet, at least the three Zhukov ships, to better usage by going into the Container Line. This is to be achieved by means of the proper management, organisation and employment by the plaintiff of these container ships and containers to be carried therein. This Agreement is therefore not any conventional management agreement. It seems to me that in these circumstances, legal authorities bearing on other contracts or claims (such as sale of ship contract or management contract etc.) are not of a great deal of assistance in resolving the primary dispute between the parties, namely whether Claim A and Claim B come within (h) as being a "claim arising out of an agreement relating to the use of a ship". Take for example the first vessel put into service of the Container Line, the Nicolai Zhukov which was admittedly owned at the time of the Agreement by the defendant and being part of the defendant's container fleet referred to in the Agreement. Can it be said that the Agreement is an agreement relating to the use of Nicolai Zhukov. I believe yes. It is not necessary for the Agreement to provide the plaintiff to use Nicolai Zhukov, whether physically or not. The usage required by section 12A(2)(h) could be that of the defendant. What is important is the subject matter of the Agreement must be on the use of Nicolai Zhukov. The whole object of the Agreement is to put Nicolai Zhukov to an efficient Container Line use (see "Purpose of the agreement" on page 36). This is not a case where it might be argued that the use of the defendant's container ships has some marginal bearing on the performance of the contract. The use of these ships is the object and at the heart of the Agreement. I have therefore no doubt that this Agreement relates to the use of Nicolai Zhukov, Grigory Kovanchuk, Vitaliy Kruchina, Roslavl and Rzhev, even though their names were not specifically stated in the Agreement.

10. Claim B is really the other side of the coin of Claim A. Whereas Claim A looks to the past, Claim B looks to the future. Once it is clear that Claim A falls within (h) as being a claim arising out of an agreement relating to the use of a ship, then it inevitably follows that in respect of the breach of the Agreement by the wrongful withdrawal of defendant's ships, this Claim B also falls within (h), namely arises out of an agreement relating to the use of ships.

Claim C

11. Claim C in the amount of US$1,180,508.15 is made up of the following alleged disbursements made for and on behalf of the defendant and/or liabilities incurred by the plaintiff for the defendant arising out of the Agreement :-

(1)	Lease of containers-RX Shipping
		Paragraph 10 of Kerry Affidavit	$ 27,626.10
(2)	Lease of containers-Trans Siberian Express
		Paragraph 15 of Kleiman Affidavit	$210,171.00
(3)	Lease of containers-Xtra International & TEX
		Paragraph 16 of Kleiman Affidavit	$140,942.53
(4)	Lease of containers-Petra Vostrochy Leasing
		Paragraph 17 of Kleiman Affidavit	$46.790.55
(5)	Lease of containers-Sea Containers
		Paragraph 18 of Kleiman Affidavit	$24,990.00
(6)	Lease of containers-CBT Vostochny
		Paragraph 19 of Kleiman Affidavit	$281,823.10
(7)	Shipping Agency Services-Vostochny Int. Shipping
		Paragraph 11 of Kerry Affidavit	$12,282.97
(8)	Shipping Agency Services - Oriental Shipping Agency
		Paragraph 12 of Kerry Affidavit	$26,556.00
(9)	Return of abandoned containers - Wallem Shipping
		Paragraph 22 of Kleiman Affidavit	$6,466.19
(10)	Container Storage - Viconship Saigon
		Paragraph 23 of Kleiman Affidavit	$57,013.68
(11)	Abandoned Containers handling - Multiline Shipping
		Paragraph 24 of Kleiman Affidavit	$62,070.92
(12)	Agent in Thailand - Thasos
		Paragraph 25 of Kleiman Affidavit	$2,489.28
(13)	Vostochny Agent - Petra Vostochny Agency
		Paragraph 26 of Kleiman Affidavit	$7,174.58
(14)	Stevedoring-Vostochny Inter. Container Service
		Paragraph 27 of Kleinman Affidavit	$56,714.29
(15)	Stevedoring Vladivostok - Vlad. Commercial Port
		Paragraph 28 of Kleinman Affidavit	$18,845.17
(16)	Cargo Handling Vladivostok-Transek
		Paragraph 29 of Kleinman Affidavit	$11,728.00
(17)	Refrigerated Cargo-Fesco
		Paragraph 30 of Kleinman Affidavit	$5,832.00
(18)	Lube Oil purchase
		Paragraph 31 of Kleinman Affidavit	$24,500.00
(19)	Miscellaneous payments
		Paragraph 32 of Kleinman Affidavit	$83.967.00
(20)	Generator Hire for Roslavl
		Paragraph 33 of Kleinman Affidavit	$29,391.00
(21)	Repositioning empty containers - Chun Jee Shipping
		Paragraph 34 of Kleinman Affidavit	$8,772.18
(22)	Communication Expenses
		Paragraph 35 of Kleinman Affidavit	$ 28,816.39

12. The above 22 sub-claims (making up the total of Claim C) are of course disputed by the intervener. But on the hearing of the jurisdictional dispute, the approach of the court must be to assume that the claim can be substantiated and decide the jurisdiction question on the factual assumption asserted by the plaintiff.

13. The first and simple question on Claim C jurisdiction dispute is whether all these 22 sub-claims can be said to arise from the Agreement because if they can, then Claim C in the light of what had been determined earlier falls within (h) of section 12A(2). The 22 sub-claims are of course diverse in nature but in essence as I understand the case of the plaintiff it was the existence of the Agreement which gave rise to the incurring of the expenditure or liabilities by the plaintiff and in many cases due to the breach of the Agreement by the defendant. Claim C in substance therefore is a claim which arises from the Agreement which relates to the use of the five ships. Mr Smith for the intervener argued that there was no sufficient connection between each of the sub-claims and a relevant ship but it seems to me that this is not the correct approach to this jurisdictional problem. Once it is accepted that the Agreement is an agreement within paragraph (h) (on the basis there is a sufficient connection between the Agreement and the use of the ship) then the remaining question is whether the sub-claims in question arise out of the Agreement. If it can be clearly shown that one particular sub-claim could not possibly arise from the Agreement then there may be some force in the jurisdictional objection to that particular part of Claim C. I am however not satisfied that such a case has been made out by the intervener and I am therefore of the judgment that Claim C comes within paragraph (h) of section 12A(2).

14. Having decided that Claim C falls within paragraph (h), it is not necessary for me to consider the alternative case of the plaintiff that Claim C or part of it could also come within paragraph (l) or (o) of section 12A(2).

15. The objection of the intervener to the in rem jurisdiction of the court over Claim A, Claim B and Claim C therefore fails. The intervener must pay to the plaintiff the costs of this jurisdiction dispute.