XCHRX THE XIANG CANG

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HCAJ221/2000

ADMIRALTY ACTION NO. 221 OF 2000,

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Admiralty Action in rem against the ship or vessel "JIAN SHE 33"

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J U D G M E N T

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1. There are three admiralty actions before me, namely, HCAJ221 of 2000, HCAJ232 of 2000 and HCAJ7 of 2001. In respect of each of which, the plaintiffs, as owners of cargo on board respectively "JIAN SHE 33" in relation to HCAJ221 of 2000 and "JIAN SHE 32" in relation to HACJ232 of 2000 and HCAJ7 of 2001, claimed for misdelivery of cargoes consigned to these ships. The ships in question were demise chartered on a long term basis to a company which we have called China Shipping Development Limited ("CSD").

2. The dispute now before the court is between the plaintiffs in those three actions and the caveators and the owners of these ships, arising out of the caveat dated 27 October 2000 that had been entered into by China Shipping (HK) Holdings Company Limited ('the Caveator"). The difference between the parties arose this way.

3. Under the admiralty in rem jurisdiction of the High Court of Hong Kong, claim in rem may be brought against either the ship in connection with which the claim arose under certain limited circumstances or against its sister ship. Section 12B(4) of the High Court Ordinance 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 (whether or not the claim gives rise to a maritime lien on that ship) 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 the charterer of it under a charter by demise;

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."

This provision in Hong Kong, came about as a result of an amendment in 1989 to the previous statute, following the 1981 Act in England which amended the 1956 Act in England.

4. I think it is known to everyone who practises in the admiralty court of Hong Kong, an action in rem pursuant to Section 12B(4) of the Ordinance lies in two situations. It lies in the first scenario against either that particular ship in connection with the claim if at the time when the action is brought, the person liable in personam was either the beneficial owner of that ship or demise charterer of that ship. It lies in the second scenario against any other ship where the relevant person is a beneficial owner as respects all the shares in that other ship.

5. Mr Sussex, counsel for the Defendant Owners and the Caveator, in his usual able submission, said it is well known that there are really two kinds of "animals" that can be the subject of admiralty arrest or action in rem : one is against the owner where a ship is arrested for the liability of the beneficial owners or owners; the other is against the demise charterer where a ship is arrested for the liability of the demise charterers. Demise characterer of a ship is a very distinct "animal" from the owners of a ship. This admiralty in rem jurisdiction distinction between the two "animals" is reflected in the long established practice in the admiralty court and by the admiralty practitioners, whereby you will find regularly, in the title of all writs issued, the defendants being expressed as the owners of Ship A and/or the demise charterers of Ship A.

6. What the court has now to resolve arising out of this distinction between the two "animals" is largely a construction of the Caveat that was entered on 27 October 2000. The Caveat was given pursuant to Order 75, rule 6 which is in these terms :

"6. Caveat against arrest

(1) A person who desires to prevent the arrest of any property must file in the Registry a praecipe, in Form No.5 in Appendix B, signed by him or his solicitor undertaking-

(a) to acknowledge issue or service (as may be appropriate) of the writ in any action that may be begun against the property described in the praecipe, and

(b) within 3 days after receiving notice that such an action has been begun, to give bail in the action in a sum not exceeding an amount specified in the praecipe or to pay the amount so specified into court,

and on the filing of the praecipe a caveat against the issue of a warrant to arrest the property described in the praecipe shall be entered in the caveat book.

(2) The fact that there is a caveat against arrest in force shall not prevent the issue of a warrant to arrest the property to which the caveat relates."

7. There is also under rule 7 a provision which provides for the consequence of an arrest when there was a caveat in place, namely the possibility of claiming damages for wrongful arrest against the arresting party.

8. The purpose of the caveat under Rule 6 is obviously to avoid the necessity of the usual procedure in admiralty of causing the warrant to be issued for the vessel to be arrested and for security to be furnished before the vessel could be released from arrest.

9. What had happened in this case was that the Caveat was entered dated 27 October 2000. The Caveat which can be found at page 49 of the bundle is in these terms :

" We, China Shipping (H.K.) Holdings Co., Ltd. of Rm 2510-12, 25/F, West Tower Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong request a caveat against the arrest of the vessels referred to in the attached Schedule and hereby undertake to cause an appearance to be entered on behalf of the owners of the above vessels in any action that may be begun in High Court against the said vessels and, within 3 days after receiving notice that such an action on behalf of the owners of the above vessels has been begun, subject to the note referred to in the attachment to this Praecipe for Caveat Against Arrest to give bail in the action in a sum not exceeding US$1,000,000 dollars (One million United States Dollars) or to pay that sum into court provide always that at the date when the action is begun, the registered owner of the vessel in question was the same as at the date of this praecipe. We consent that the writ of summons and any other document in action may be left for us at Messrs. Holman Fenwick & Willan (...) of 15th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong.

(Date)

(Signed by China Shipping (H.K.) Holdings Co., Ltd)"

The Schedule to the Caveat shows a list of 172 vessels, and included in that list are JIAN SHE 32 and JIAN SHE 33, as well as a vessel by the name of "XIANG LIAN".

10. The next stage after this Caveat was entered was that Clyde & Co., on behalf of the plaintiff, knowing of the Caveat (I think there had been some correspondence on this), wrote by letter dated 6 January 2001 to Messrs Holman Fenwick & Willan which reads :

"Dear Sirs,

Caveat Against Arrest Filio No 6 of 2000
HCAJ 232 OF 2000

We refer to the above-mentioned caveat IN WHICH China Shipping (HK) Holdings Co Ltd ('China Shipping') undertakes to cause an appearance to be entered on behalf of the owners of 172 vessels listed in a schedule to the caveat. We act for the owners of cargo lately laden on board 'JIAN SHE 33' which is one of the vessels listed in the Schedule. Our clients have a cause of action against this vessel in rem.

In the praecipe for the caveat against arrest China Shipping consent that the writ of summons may be left for them at your offices in Hong Kong. Accordingly, we enclose by way of service the above-mentioned writ of summons.

Please accept service of this letter as requisite notice of our clients' action and that our clients require security of their claim in accordance with the terms of the caveat. We await hearing from you with China Shipping's proposals for the provision of security."

11. This was then followed by an Acknowledgment at page 69 of the bundle where, in the usual form, the words inserted under para.1 were :

"1. *[In an action in rem

State the description of the Defendant, as stated in the Writ of Summons, by whom or on whose behalf the service of the Writ is being acknowledged."

and the words inserted are :

"THE OWNERS OF THE SHIP OR VESSEL 'JIAN SHE 33'".

It is to be noted that the words there are not the demise charterers of the ship JIAN SHE 33 although the heading of the title, both in the writ as well as in the Acknowledgment at page 69, is in the usual form "The owners and/or the demise charterers of the ship or vessel JIAN SHE 33".

12. What then followed was a Bail Bond at page 71 of the bundle where the relevant words are :

" WHEREAS this Admiralty action in rem against the above-mentioned property is pending in High Court of the Hong Kong Special Administrative Region and the parties to the said action are the above-mentioned Plaintiffs and the owners of the 'Jian She 33':-

Now, THEREFORE, We, China Shipping (H.K.) Holdings Co., Ltd of Rm 2510-12, 25/F, West Tower, Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong hereby submit ourselves to the jurisdiction of the said Court and agree that if they, the above-mentioned submit ourselves to the jurisdiction of the said Court and agree that if they, the above-mentioned owners of the 'Jian She 33', do not pay what may be adjudged against them in this action, with costs, or do not pay any sum due to be paid by them in consequence of any admission of liability therein or under any agreement by which this action is settled before judgment and which is filed in the said Court, execution may issue against us, our executors or administrators, goods and chattels, for the amount unpaid or an amount of US$1,000,000 (say, United States Dollars One Million) inclusive of interest and costs, whichever is the less."

This was dated 11 January 2001.

13. This series of activities then finally culminated in the withdrawal of the caveat of October 2000, and instead, a new caveat dated 11 January 2001 was put in at page 59. It is to be noted that the new caveat did not include the vessel XIANG LIAN.

14. What divides the parties is the contention by the Caveator and by the Owners of JIAN SHE 32 and JIAN SHE 33 that the Caveat, the Acknowledgement and the Bail Bond were all limited and bite on the liability of the owners of JIAN SHE 32 and JIAN SHE and not cover the liability of the demise charterers of JIAN SHE 32 and JIAN SHE, i.e. CSD, who is not before the Court.

15. The argument and the contention of the plaintiffs is that the Court should construe the word "owners" appearing twice in the Caveat liberally as to give it a wide meaning so as to include not just the owners in the sense of the owners beneficially having all the shares in the ship, i.e. "the first animal" under Section 12B(4) of the Ordinance, but to include also a demise charterer under "the second animal" of the same provision.

16. The argument of Mr Smith, for the plaintiff, is that the long line of cases or authorities shows that demise charterers have very often the characteristics of owners in the sense of having possession, control and use of the ship, and therefore in the books and old authorities they are often taken as temporary owners. That is undoubtedly true and that was a view which was very much attractive to Brandon J (as he then was) in the famous case of The Andrea Ursula [1973] 1 Q.B. 265. In the later and equally well-known judgment of Robert Goff J (as he then was) in The I Congreso del Partido [1978] 1 Q.B. 500, the learned judge considered extensively the history and authority of the relevant English statutory provisions and came to the view that the words "beneficial owners as respects all the shares therein" were not capable of including the demise charterers, notwithstanding the original intention of 1952 Arrest Convention and that the demise charterers were not included in that expression of beneficial owners of the ship as respects all the shares therein. As a result of that decision in The I Congreso del Partido, there was amendment by the 1981 Act in England, and there was similar amendment in 1989 in Hong Kong. That is why under Section 12B(4)(i) we have the clear expression of the owner in the form of the words "beneficial owner of that ship as respects all the share in it" and the clear expression of the demise charterer by the use of the words "charterer of it under a charter by demise".

17. The submission of Mr Sussex is that having regard to the context of the widely known admiralty jurisdiction in rem under Section 12B(4) of the High Court Ordinance and the practice of the admiralty solicitors and the admiralty court, the word "owners" in the Caveat of October 2000 cannot possibly and does not include demise charterers. He said that the two "animals" are very distinct and that what is intended to be covered by the Caveat is clearly, both subjectively and objectively, only one "animal", namely the owners, and not the other "animal", the demise charterers or both "animals". I accept that submission because it seems to me that having regard to the context in which this Caveat has been entered, there is really no scope for a construction of the wide import now contended by Mr Smith.

18. Mr Smith asked a rhetorical question : "Look at the purpose of a caveat? It is to prevent the arrest of a ship. How is the purpose going to be achieved if a caveat of only a limited scope is to be furnished?" But that, it seems to me is, the wrong question to ask. You have to look at the document and you have to look at also the commercial reality behind it. Owners normally are not liable for the liabilities of a demise charterer. So, why should the owners in the caveat take on en bloc the liability of not only itself but also that of the demise charterer. I think there are no compelling reason such as in the case of Stolt Loyalty where Hoffman LJ could say something like lack of reality (in relation to a different kind of document), with the construction contended. In my view, there are good reasons why in this case that the Caveat was given for and on behalf only of the owners to cover the liability of the owners, and not for and on behalf of the demise charterer in respect of the liability of the demise charterer. The demise charterer has an obligation normally under the demise charter to ensure that it takes care of the liability for cargo and to ensure that the vessel is not detained in relation to such liability of the demise charterer. On the primary difference on the Caveat between the parties, there is no doubt that I prefer the submissions of the Owners and the Caveator.

19. If we then look at the two subsequent documents, the Acknowledgement and the Bail Bond, having regard to the title of this action appearing in these two documents where there was a clear stated division of the two "animals" namely the owners and the demise charterers, there is no scope for any doubt that the reference to owners in these two documents does not include the demise charterers. I accept the submission of Mr Sussex that all three documents with the same words of owners should be given the same meaning. The same meaning is that the word owner is limited to beneficial owners of the vessels and does not include demise charterers of the vessels. It follows therefore that the primary case of the plaintiffs on this application fails.

20. The subsidiary case of the plaintiffs in relation to one of the actions, AJ7/2001, is that a special situation should apply in relation to that Action because one of the ships listed in the Caveat, XIANG LIAN, was beneficially owned by CSD and that therefore the wording of the Caveat is sufficiently wide, notwithstanding my previous construction against the plaintiffs. The problem with that submission, however, is that the actual events were against the plaintiffs. The plaintiffs' solicitors relied on the claim under the Caveat by the letter of 6 January 2001 against the vessel JIAN SHE 32 and JIAN SHE 33, and not against the vessel XIANG LIAN. The subsequent withdrawal of the Caveat and the replacement of that Caveat by the January 2001 caveat took away the basis for the present purported reliance of the plaintiffs against XIANG LIAN. The alternative case of the plaintiffs in relation to AJ7/2001 also fails.

21. It follows therefore that I must dismiss the summons of the plaintiffs. So far as the defendants', i.e. the owners' summons is concerned, they have asked that the action against the owners of the vessels be dismissed, and this is plainly right because there is no admiralty in rem jurisdiction against the owners of the vessels as opposed to against the demise charterers of the vessel. The Bail Bonds that have been lodged should be returned to the Caveators. I make such an order accordingly. I also order that the Plaintiffs do pay the Defendants Owners the costs of the Action including the costs of and arising out of the Summons now before the Court.