Petavius Shipping Inc v. The Owners of the Ship or Vessel "Kum Susan Ho"

HCAJ000156/1982

Headnote

S. 3(4) of the Administration of Justice Act 195 - Duty of Plaintiff to establish that a claim comes with in scope of the section - extent to which a corporate veil can be lifted - burden of proof - legal position of state owned corporations.

BETWEEN

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Coram: Hon. Mr. Justice Mayo in Court

Date: 2 June 1982

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JUDGMENT

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1. This notice of motion is issued by the defendants for the release of the "Kum Susan Ho" from arrest. Mr. Tong who was representing the defendants made an application to me for the notice of motion to be amended and I granted leave for this. In the amendment, it was stated that the defendant objected to exercise of the jurisdiction of the court on the ground that the plaintiffs claim in the action does not fall within Section 3(4) of the Administration of Justice Act 1956 and the relief he sought was that the writ and all subsequent proceedings should be set aside and the "Kum Susan Ho" should be released from arrest.

2. On the 19th May, the plaintiffs issued a writ which contained a general endorsement. The plaintiffs' claim was for 296,322 pounds sterling 25 pence due from the defendants in respect of freight and demurrage under a charter party of the plaintiffs' vessel "Eurotransport" dated 25th January, 1982. On the same day the plaintiffs issued a Warrant of Arrest to arrest the "Kum Susan Ho" which was in Hong Kong harbour at the relevant time. Pursuant to the provisions contained in Order 75 of the Rules of the Supreme Court and in support of the arrest, Mr. Charles Smallwood a solicitor swore an affidavit which set out the circumstances upon which he relied upon to make the arrest. For reasons which will later become apparent this affidavit is a document of particular importance in this case. What is immediately apparent from a perusal of the document is that as is customarily in such cases most of the facts deposed to by Mr. Smallwood are not within his direct knowledge and he bases much reliance upon hearsay evidence. Exhibited to the affidavit is a copy of the charter party which is referred to in the endorsement of claim on the writ. In paragraph 3 of the affidavit, Mr. Smallwood deposes that the plaintiffs contracted with the Government of the Democratic Peoples Republic of North Korea through the Korean Chartering Corporation for the carriage of 15,000 tons or thereabout of potash in bulk from Wismar and Hamburg to North Korea by the plaintiffs' vessel "Eurotransport". A perusal of the Photostat copy uniform general charter shows that the document was made between the plaintiffs of the one part and Korean Chartering Corporation o￡ the other part.

3. Mr. Smallwood then goes on to depose to the circumstances leading to the claim under the charter party. In paragraph 5 of his affidavit he states that the property to be arrested is the ship "Kum Susan Ho" and that it is not the vessel in connection with which the cause of action arose. It is evident that the plaintiffs are placing reliance upon the provisions contained in Section 3(4) of the Administration of Justice Act 1956 for this arrest. This subsection reads as follows :

This legislation has effect in Hong Kong.

4. In paragraph 6 and 7 of his affidavit, Mr. Smallwood puts forward the reasons for his belief that the provisions I have referred to in Section 3(4) of the Administration of Justice Act 1956 are applicable to the present case. These paragraphs read as follows :

5. Mr. Alistair Robertson, the solicitor representing the defendants filed an affidavit on the 28th May in which he took issue to the contents of Mr. Smallwood's affidavit I have referred to. In the same way as Mr. Smallwood's affidavit, Mr. Robertson had to place reliance upon information supplied to him by his clients. In paragraph 2 of his affidavit he stated that he was informed and verily believed "that Korea Daehung Shipping Co. was formed on the 20th June, 1975 by decision of the Administrative Council of the Democratic Peoples Republic of Korea and is described by the judicial authorities of the state of the Democratic Peoples Republic of Korea to be a "a social co-operative company" in addition to this in paragraph 4 of the affidavit be states -

"4.             ... Korea Daehung Shipping Co. state that they have no relationship with Korean Chartering Corporation being separate co-operative companies under the law of the state of the Democratic Peoples Republic of Korea. Further, it is said that there is a distinction between state ownership of assets and ownership by co-operative companies."

There is then a further exchange affidavits which do not in my opinion take matters much further.

6. At the commencement of the motion, there was a further notice of motion which had been Prepared by the plaintiff seeking an order that the defendants' notice of motion be adjourned pending discovery and production of documents referred to together with liberty for further affidavits to be filed and for the deponents of such further affidavits to be made available to the court for cross-examination. The necessary Notice for this notice of motion had not been given and Mr. Tong, declined to consent to short notice of the motion. After considering submissions from both counsel carefully I ruled that I would not hear this further notice of motion. Mr. Stone who was representing the plaintiffs made a further application of a similar nature on the second day of the hearing after Mr. Tong had completed his submission to me. He submitted to me that it was highly desirable that there should be discovery of documents. He referred to the case of Re Jelau⁽¹⁾ where Mr. Justice Zimmern had made an order that there should be discovery in a case where a defendant was making an application for an order that the plaintiff's writ should be set aside in similar circumstances. In the Maritime Trader⁽²⁾ while Mr. Justice Sheen was considering the extent to which the corporate veil could be lifted. He stated -

"I would not hesitate to lift that veil if the evidence suggested that it obscured from view a mask of fraud rather than the true face of the corporation."

It can be seen from the matters which have been referred to in the solicitor's affidavits that there is no allegation of fraud. In addition to this, it was by no means clear to me that any substantial advantage was likely to be gained by ordering that there be discovery as proposed by the plaintiffs at this stage. The defendants would, I understand, encounter difficulties in arranging for directors or members of their corporation to travel to Hong Kong as there is no North Korean Consul in Hong Kong. Weighing all relevant factors including the delay which would inevitably occur I came to the conclusion that my earlier ruling on the second notice of motion had been made correctly and I again declined to order that there should be discovery at this initial stage. Unsatisfactory though it may be I do not see any alternative to confining myself to the facts which are referred to is the affidavits.

7. I will now turn to the legal position. It is important to establish the extent to which a plaintiff can place reliance upon assertions contained in an affidavit in support of his application to arrest a ship and where the burden of proof lies. More specifically in the present case, if the plaintiff is to be entitled to take advantage of the provisions contained in Section 3(4) of the Administration of Justice Act 1956 he must show that the Korean Chartering Corporation, the party which entered into the charter party referred to in the writ is the nominee of the Korean Government and that accordingly in reality the defendant is the North Korean Government. They must go on to establish that the Korea Daehung Shipping Co. was a state owned corporation and in effect the North Korean Government was the true owner of the "Kum Susan Ho".

8. I am satisfied that there is a burden upon the plaintiffs to satisfy me on the balance of probabilities on the matters I have referred to. Authority for this proposition can be derived from the Aventicum⁽³⁾. At page 190 of the report on that case, Mr. Justice Slynn asked the question -

"Have the plaintiffs satisfied me on the balance of probabilities by their evidence that here the person who was the owner of the vessel at the time the cause of action arose is the person now at the time the proceedings are launched who beneficially owns all shares in the vessel?"

The next question which needs to be asked is the extent to which the court can look behind the registered owner to determine the true beneficial ownership. In other words to what extent can the corporate veil of a company he lifted? These matters were considered in the case of the Maritime Trader⁽2). Mr. Justice Sheen referred to the Aventicum⁽3) with approval and I quote from page 157 of the report on that case -

I regret that there is very little positive evidence in the present case to support the assertion made by Mr. Smallwood in his affidavit to the effect that the North Korean Government was when the cause of action arose the owner of and in possession and control of the ship, the "Kum Susan Ho". The only evidence deduced in support of these assertions is the extract from Lloyd's Confidential Index and the cable giving particulars from Lloyd's Intelligence London. The extracts which were produced from the North Korean Constitution and the inquiries which were made by his firm's Paris office do not in my opinion take matters any further and are mole within the realms of speculation than being firm evidence upon which reliance can be placed.

9. It is worth considering further the question of the extent to which a Government can be held responsible for the actions of any state controlled corporation. This question was considered in the case of the I Congreso⁽⁴⁾. Lord Wilberforce said this at page 378 of the report-

"Assuming that the actions of Mambisa amounted to a repudiation of contract, the action of the state - ex hypothesi, and in fact, not involved in any trading relationship - in ordering that repudiation cannot, with respect, amount to a repudiation by the state, or the distinction between jure imperii and jure gestionis would simply disappear. I cannot agree that there was ever any purely commercial obligation upon the Republic of Cuba or any binding commercial obligation: the Republic never assumed any such obligation; it never entered the trading area; the cargo-owners never entered into a commercial relation with it. I agree that the purpose, above, is not decisive but it may throw some light upon the nature of what was done. The acts of the Republic of Cuba were and remained in their nature purely governmental. The fact is, that if any wrong (contractually or delictually) was done as regards the cargo it was done by Mambisa."

As a matter of common sense this must be correct, If a state could be held accountable for the actions of state controlled corporations an impossible position would arise. I do not think that this is the case. Certainly on the evidence which has been deduced by the plaintiffs they fall far short of satisfying me that the Government of Democratic Peoples Republic of North Korea can be held responsible for the actions of the Korean Chartering Corporation or that they can be stated as being in possession and control of the ship "Kum Susan Ho".

10. Both Mr. Stone and Mr. Tong addressed me at some length on the question as to whether the plaintiffs could bring themselves within the ambit of Section 3(4) of the Administration of Justice Act 1956 having regard to the fact that the charter in the present was a time charter and not a charter by demise. I was referred to recent authorities on the subject which are somewhat inconclusive. Having regard to the way in which I have decided the other issues in this case I do not think that it is necessary for me to express a view one way or the other on this subject.

11. For the reasons I have given I find that the plaintiffs have failed to bring themselves within the scope of Section 3 Sub-section 4 of the Administration of Justice Act 1956. Z therefore order that the defendants shall succeed on this application and the writ of summons which has been issued shall be set aside and the "Kum Susan Ho"` will be released from arrest. The defendants will have their costs.

(1)    Unreported. Folio 201 of 1979.

(2)    1981 2 Lloyd's Reports 153

(3)    1978 1 Lloyd's Reports 184

(4)    1981 2 Lloyd's Reports 367

Representation:

Mr. W. Stone (Holman, Fenwick & Willan) for Plaintiff.

Mr. R. Tong (Robertson, Double & Doase) for Defendant.