Handytankers Ks v. The Owners and/or Demise Charterers of the Ship or Vessel M/V “Alas”, Subsequently Renamed As “Kombos” and Those Other Vessels Named in Schedule “A” Annexed Hereto

HCAJ 241/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 241 OF 2009

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J U D G M E N T

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Introduction

1.This is the Defendants’ application by Summons dated 29 April 2014 for orders that the Warrant of Arrest of the vessel “Dewi Umayi” (“the Vessel”) and the re-amended Writ of Summons filed herein be set aside and/or struck out on the grounds that this Court has no in rem jurisdiction in respect of the Plaintiff’s claim and/or that the Plaintiff has improperly invoked the in rem jurisdiction of the Court. The Defendants further seek a Release of the Vessel and damages for her wrongful arrest.

2.The Warrant of Arrest was issued on the basis of the 2^nd Affirmation of Michael Wai Shing Ng dated 26 April 2014 (“Ng 2”). The facts sufficiently appear in Ng 2 and are not materially in dispute.

Background Facts

3.By a Shelltime 4 form Charterparty dated 9 January 2008 (“Charterparty”), the Plaintiff, as owner, chartered its motor tanker “BETH” to PT. Arpeni Pratama Ocean Line Tbk (“APOL”) for five years. The Plaintiff’s claim as pleaded in the Endorsement of Claim is for damages for breach of the Charterparty and unpaid hire due under it.

4.In Ng 2, it is said that in breach of clauses 8 and 9 of the Charterparty, APOL has repeatedly failed to pay hire in full and/or on time. In particular:

(1)   APOL paid the January 2009 instalment of hire late.

(2)   APOL paid the February, March and April 2009 instalments of hire late and only partially.

(3)   APOL failed to pay the May and June 2009 instalments of hire altogether.

(4)   On 2 June 2009, the Plaintiff sent APOL an anti-technicality notice pursuant to clause 9(a) of the Charterparty which stated inter alia as follows:

“In default of c/p, you have failed to pay the above hire by the 1 June 2009 deadline.

Accordingly, we hereby give you notice under cl 9(a) of the c/p of such default and that we require you to pay that hire together with interest… within seven (7) banking days of receipt of this notice; failing which we shall withdraw the vessel…”

(5)   APOL failed to comply with the anti-technicality notice and on 12 June 2009 the Plaintiff exercised its contractual right of withdrawal by reason of APOL’s repudiatory breaches and brought the Charterparty to an end.

5.Clause 79 of the Charterparty contains a L.M.A.A. Arbitration clause. The dispute between the Plaintiff and APOL was referred to arbitration in London. A Final Award in the sums of US$9,238,221.30 by way of damages and US$361,243 for unpaid hire (“Award”) was issued in favour of the Plaintiff on 1 March 2013. These sums are slightly less than the amounts stated in the in rem Writ herein ie US$11,311,032.00 for damages and hire in the sums of US$58,508.00 + US$441,375.00 + US$246,681.00.

6.In April this year, the Plaintiff invoked the Court’s in rem jurisdiction by applying for a Warrant of Arrest in respect of the Vessel owned by the Defendants. As set out paragraph 8 of Ng 2, the Plaintiff’s claim is that pleaded in the Endorsement of Claim and the Plaintiff specifically puts its claim as one falling under section 12A(2)(h) of the High Court Ordinance, Cap 4 (“Ordinance”) ie a claim “arising out of any agreement relating to …the use or hire of a ship”.

7.While the Plaintiff obtained the Award on 1 March 2013, it made plain in Ng 2 that the arrest of the Vessel was sought for the purpose of providing security for the anticipated judgment in rem in this action and not as a means of enforcing the Award.

Discussion

8.Mr Alder, for the Defendants, submitted that these proceedings and the arrest of the Vessel are fundamentally in the nature of an application to enforce the Award and in Hong Kong there is no head of Admiralty jurisdiction which permits the Plaintiff to enforce a foreign arbitration award as such. The proceedings and the arrest are therefore an abuse of process and ought to be set aside: The Chong Bong [1997] 3 HKC 579; The Bumbesti [2000] QB 559. 

9.Mr Alder further submitted that the procedure of arrest is not available once a plaintiff’s claim has crystallised in a judgment or arbitration award.  This is because inter alia in Article 1(2) of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships 1952 (“1952 Convention”), “arrest” means “the detention of a ship by judicial process to secure a maritime claim, but does not include the seizure of a ship in execution or satisfaction of a judgment”.  Mr Alder urged this court to construe section 12A(2) of the Ordinance consistently with Article 1 of the 1952 Convention.

10.It is of course correct that there is no head of Admiralty jurisdiction in Hong Kong for the enforcement of arbitration awards as such. The court’s Admiralty jurisdiction is statutory and the reason why it cannot be invoked in respect of a claim based on an arbitration award is simply that, as a matter of construction, section 12A(2) of the Ordinance is not apt to cover a claim arising out of an arbitration agreement, even though the arbitration agreement is contained in a charterparty or some other agreement relating to the use or hire of a ship: The Bumbesti.

11.In The Chong Bong, the affidavit leading to the warrant of arrest expressly stated that the writ was issued to enforce an arbitration award and the statement of claim only contained causes of action for an award claim – there was not a line in the statement of claim which could be said to plead a cause of action for a charterparty claim: see [1997] 3 HKC 579, 589A-D. It was on this basis that the court held the award could not be enforced by an action in rem and set aside the service of the writ and the arrest of the ship.

12.Like the Chong Bong, the cause of action pleaded in The Bumbesti was expressed to be “founded on” an arbitration award: see [2000] QB 559, 565A-B. On that basis, Aikens J (as he then was) held the breach of contract relied on by the claimants to found their Admiralty claim concerned the implied term to fulfil an award made pursuant to the arbitration agreement in the charterparty and had nothing to do with “the use or hire of a ship” which was necessary to found the Court’s Admiralty jurisdiction under section 20(2)(h) of the Supreme Court Act 1981 (“1981 Act”). It is however reasonably clear that Aikens J, following The Rena K [1979] QB 337, considered the Court would have in rem jurisdiction if the claim were to be based on the original cause of action under the charterparty: see 565H and 575C-D of the Judgment.

13.In The Rena K [1979] QB 337, Brandon J (as he then was) established the principle that a cause of action in rem does not merge in a judgment in personam, but remains available so long as, and to the extent that, the judgment remains unsatisfied, and this principle equally applies to arbitral awards. At 405F-406E, Brandon J explained the law of merger in relation to arbitral awards and causes of action in rem and the so‑called “no bar rule” in the following terms:

“I am prepared to assume, without finally deciding, that, just as a cause of action in personam which is adjudicated upon by an English court merges in the judgment of that court, so also a similar cause of action which is adjudicated upon by an English arbitral tribunal merges in the award of that tribunal. That is the view which is expressed in Spencer Bower and Turner, Res Judicata, 2nd ed. (1969), p. 362, and it appears to be supported at least by Gascoyne v. Edwards (1826) 1 Y. & J. 19, and possibly also by certain other cases to which I was referred.

It has, however, been held that a cause of action in rem, being of a different character from a cause of action in personam, does not merge in a judgment in personam, but remains available to the person who has it so long as, and to the extent that, such judgment remains unsatisfied: The Bengal (1859) Swab. 468; The John and Mary (1859) Swab. 471; The Cella (1888) 13 P.D. 82; see also The Sylph (1867) L.R. 2 A. & E. 24 (although this may have turned partly on an express reservation made in the submission to arbitration concerned) and Yeo v. Tatem (The Orient) (1871) L.R. 3 P.C. 696. The situation must, in my view, be the same in the case of an arbitral award, which is likewise based on a cause of action in personam.

….

The result is that I accept the argument of counsel for the cargo owners that, if an award should be made against the shipowners and they should be unable to satisfy it, the cargo owners would be entitled to have the stay of the action removed and to proceed to a judgment in rem in it.”

14.The Rena K was expressly approved by the English Court of Appeal in The Tuyuti [1984] QB 838. At 850C-E, Robert Goff LJ (with whom Ackner LJ agreed) said he found the reasoning of Brandon J persuasive and accepted the Rena K principle as being well founded. As noted by Lloyd LJ (as he then was) in The Bazias [1993] QB 673 at 681, the decision of Rena K was very welcome at the time and the principle was frequently applied. The Rena K was also cited with approval by Staughton LJ of the English Court of Appeal in The Indian Grace No. 2 [1998] AC 878, 896B-C.

15.The Rena K and The Tuyuti have been followed in Hong Kongin The Britannia [1998] 1 HKC 221. In that case, Waung J held that the Court had jurisdiction to maintain the arrest of a ship despite the mandatory stay of proceedings under the Arbitration Ordinance, provided that the arrest was for the purpose of providing security for the judgment in the in rem action itself, rather than for an arbitration award and the stay might be lifted because of the defendant’s failure to honour the award. Waung J also expressed the view at 226G that the analysis of the law in The Rena K and The Tuyuti was “obviously correct”.

16.The Rena K has also been followed in New Zealand and Australia: The Irina Zharkikh [2001] 2 Lloyd’s Rep 319 at 330.

17.Mr Alder submitted that The Rena K had been “irretrievably undermined” by The Indian Grace No. 2 [1998] AC 878. I do not agree.

18.The issue for the Court in The Indian Grace (No 2) was whether the plaintiff, who had obtained a judgment in personam in proceedings in India, was prevented by section 34 of the Civil Jurisdiction and Judgments Act 1982 (“1982 Act”) from pursuing an in rem action in England. The section reads:

“No proceedings may be brought by a person in England and Wales or Northern Ireland on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of another part of the United Kingdom or in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in England or, as the case may be, in Northern Ireland.”

19.This turned on whether the Defendants in the in personam proceedings in India and the Defendants in the in rem action in England were “the same parties” for the purposes of section 34. Both the Court of Appeal and the House of Lords held that they were the same so that, after the in personam judgment had been obtained, the in rem action could not be pursued.

20.In Hong Kong, section 34 of the 1982 Act finds its equivalent in section 5 (1) of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, Cap 46. It reads:

“No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong”.

21.Section 5, like section 34, only becomes relevant where there is a judgment of a foreign court. Thus, it cannot possibly affect the rule that an in rem action does not merge in an arbitral award. In my view, neither section 5 nor The Indian Grace (No 2) affects the Rena K principle or its application to the present case.

22.As I said earlier, the Plaintiff’s claim as pleaded in the Endorsement of Claim is for damages for breach of and for unpaid hire under a Charterparty. It is in substance and in form a claim “arising out of any agreement relating to…the use or hire of a ship” under section 12A(2)(h) of the Ordinance and not a claim on the Award. In my view, it is perfectly legitimate for the Plaintiff to invoke the in rem jurisdiction of the Court to arrest the Vessel and keep her under arrest as security in respect of any judgment which it may obtain after “the hearing and determination of a claim” falling within section 12A of the Ordinance: The “Cap Bon” [1967] 1 Lloyd’s Rep 543 at 547; The Britannia [1998] 1 HKC 221 at 226.

23.Regarding Mr Alder’s submission that the procedure of arrest is not available once a plaintiff’s claim has crystallised in an arbitral award, I am equally unable to accept it. The submission is contrary to The Rena K line of cases which held that an unsatisfied arbitral award is no bar to a cause of action in rem. If a plaintiff is entitled to pursue its in rem claim notwithstanding the existence of an arbitral award, he must be entitled to invoke the Admiralty jurisdiction of the Court to arrest a vessel as security for that in rem claim.

24.Regarding Mr Alder’s submission that the procedure of arrest is not available once a plaintiff’s claim has crystallised in an in rem judgment, it does not assist the Defendants in any way since the Plaintiff has not yet obtained in rem judgment in this action. Even that proposition of law, supported as it is by The Alletta [1974] 1 Lloyd’s Rep 40, is of dubious weight - it was not followed by the High Court of Singapore in “The Daien Maru No. 18” [1986] 1 Lloyd’s Rep 387 for good reasons. Arrest of a ship in an action in rem is a mere procedure the object of which is to obtain security from which the judgment can be satisfied: The Beldis (1936) 53 Ll L Rep 255; The Cap Bon supra. Like Thean J, I find it extremely odd that the right of security by the arrest of a vessel is available to a plaintiff who merely asserts a claim whereas it is lost when he finally obtains a judgment in the action.

25.To conclude, I am of the view that the Court’s in rem jurisdiction has been properly invoked in the present case.

26.For completeness, I would add, on the evidence before me, the Award has not been satisfied and it is unlikely that it will be satisfied – the fact that the Award was made in March last year and the Defendants have still not settled the sums awarded to the Plaintiff speaks for itself. In other words, I do not accept Mr Alder’s submission that the Rena K criterion was not met.  Lastly, I would also add that there was no material non‑disclosure when the Plaintiff applied for the warrant of arrest, as suggested by the Defendants. The argument that The Rena K is not good law,while interesting, is untenable and not something which needed be drawn to the ex parte judge’s attention.

Disposition and costs order nisi

27.The Defendants’ application by Summons dated 29 April 2014 is hereby dismissed. There will be an order nisi that costs be to the Plaintiff, to be taxed if not agreed, with certificate for counsel.

Mr Clifford Smith SC, instructed by Laracy & Co, for the plaintiff

Mr Edward Alder, instructed by Smyth & Co, for the defendants