IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ADMIRALTY & VICE ADMIRALTY JURISDICTION
NOTICE OF MOTION NO. 196 OF 2011
ADMIRALTY SUIT NO. 3 OF 2011
Great Pacific Navigation (Holdings) ) Corporation Limited, a company registered )
under foreign laws and carrying on business)
at Office B, Tower One, 11 F Tern Centre, )
237 Queens Road, Central, Hong Kong ) ... Plaintiff Versus
m.v. Tongli Yantai, ) (and her owners and all other persons ) concerned and/or interested in her), a motor ) vessel registered in a foreign port, flying ) the flat of Panama together with her hull, ) tackle, engines, machinery, boats, bunkers, ) equipment, paraphernalia and all other ) appurtenances. ) ... Defendant Mr. F.E. DeVitre, senior counsel with Mr.Zarir Bharucha i/b Bimal Rajshekhar for the Plaintiff.
Mr. Pradeep Sancheti, senior counsel with Mr.Rahul Narichania, Ms. Purnima Singh, Ms.Pooja Kapadia and Ms.Aarti Shah i/b M/s. Mulla & Mulla and Carigie Blunt & Caroe for the Defendant. 2 NMS196.11
CORAM : S.J. VAZIFDAR, J.
Date of Reserving : SUNDAY, 26TH JUNE, 2011. Date of Pronouncement : TUESDAY, 12TH JULY, 2011. ORAL JUDGMENT. :
1. This it the defendant's Notice of Motion to have an order of arrest dated 9th December, 2010, of the defendant-vessel, vacated and for an order directing the plaintiffs to pay damages towards losses suffered due to the wrongful arrest. I have not considered the claim for damages. The defendant is at liberty to raise the claim at the appropriate stage by a separate application.
2. The suit was filed essentially for security in respect of the plaintiff's claim pending an arbitration between itself and Tongli Samoa Shipping Company Limited, Samoa (hereinafter referred to as "Tongli Samoa") and Tongli Shipping Company Limited, China (hereinafter referred to as "Tongli China"). The plaintiff has also sought a decree in the sum of US $56.06 million, which was enhanced by an amendment to US $72.59 million together with interest at 12% per annum. The decree, however, was sought without prejudice to the 3 NMS196.11
arbitration. This is clear from paragraph 73 of the plaint where it is clarified that the plaintiff is merely seeking security for its claim against the defendant in arbitration at London pursuant to a clause in a charter party, by means of the arrest of the defendant-vessel. It is clarified that the suit is not and cannot be deemed to be a submission by the plaintiff to have the merits of the disputes determined in this Court.
3. The plaintiff's case is this. The plaintiff is a Hong Kong Company. The defendant is a vessel beneficially owned and controlled by Tongli China incorporated in the People's Republic of China. Tongli China has incorporated a group of shell companies and entities in various jurisdictions, including Samoa and Hong Kong that are, in fact, agents and/or alter egos of itself. The defendant-vessel, though nominally owned by one Halcyon Ocean Shipping Limited (hereinafter referred to as "Halcyon") is, in fact, beneficially owned and controlled by Tongli China. (The present Notice of Motion has been taken out by Halcyon who claims to be not merely the registered, but the true owner of the defendant-vessel.)
The plaintiff had chartered a vessel called Nasco Diamond from one Da Sin Shipping Pte. Ltd. (hereinafter referred to as "Da Sin"). Da Sin had, in turn time chartered the vessel from the head owners YDM Shipping Company Limited (hereinafter referred to as "YDM"). The plaintiff thereafter sub-chartered the vessel Nasco Diamond to Tongli China acting through its agents/nominees/alter ego Tongli Samoa pursuant to a fixture recap dated 6th October, 2010, for a time trip charter. The fixture recap was signed by Tongli Samoa. Tongli China, acting through its alter ego Tongli Samoa ordered the vessel to proceed to Indonesia to load the cargo of nickel ore. For the purpose of this Notice of Motion, it is not necessary to refer to the case set out in the plaint in support of the contention that the cargo was loaded contrary to the express terms and conditions of the charter-party, wrongfully and negligently, as a result whereof, the vessel reported a 4 degree list to the Taiwanese authorities on 9th November, 2010 and subsequently sank in the early morning of 10 th November, 2010. It was a tragic accident in which twenty-two crew members lost their lives.
The plaintiff was faced with a claim for a minimum amount of US $42 million plus uplift interest and costs as may be claimed by 5 NMS196.11
Da Sin, the disponent owners of the vessel Nasco Diamond. The plaintiff has, in turn, passed on the claim and called on Tongli Samoa to furnish security. Da Sin have enhanced the claim. The plaintiff, correspondingly, by an amendment to the plaint enhanced its claim in the suit.
4. Though the ostensible party liable to the plaintiff is Tongli Samoa, who had executed the fixture recap, the same being the alter ego of Tongli China, it is the latter that is also liable to the plaintiff. The plaint refers to certain facts in support of this contention that Tongli Samoa is the alter ego of Tongli China. I will deal with the rival contentions in this regard later. On this basis, it is averred that the companies within the Tongli Group of Companies which trade as one common economic entity be made liable for the dues of creditors defrauded by any entity within the group. None of these entities have any real independent existence, but are mere nominees controlled by Tongli China. Such companies, in particular Halcyon are bound head and foot to the dictates of Tongli China and are mere puppets, not having any independence or autonomy. They have been incorporated in jurisdictions with a view to masking the ownership and control of 6 NMS196.11
Tongli China over them. They have been incorporated in jurisdictions where it is virtually impossible to obtain any information indicating the true corporate structure. The other companies in this group are Eastshine Limited and Rainbow Success Limited. It is averred that the incorporation of one ship companies by Tongli China is a sham, a mere facade with a view to facilitating avoidance of legal obligations and the committal of other illegalities and wrongdoings by Tongli China, including wrongful loading of cargo on-board the vessel Nasco Diamond.
5. The suit was thus filed as a action in rem. A full Bench of this Court (to which I was a party) in the case of J.S. Ocean Liner LLC Vs. M.V. Golden Progress & anr. (2007) 2 BCR 1, held that such an action in rem only for security pending arbitration proceedings is maintainable.
6. By an order dated 9th December, 2010, the defendant-vessel was ordered to be arrested. Halcyon thereafter entered appearance and filed the present Notice of Motion for setting aside the order of arrest. 7 NMS196.11
7. The hearing of this Notice of Motion commenced on 21st March, 2011. On 30th March, 2011, the defendant requested for an adjournment to enable them to produce certain documents and file further affidavits in view of the contentions raised by the plaintiff, towards the end of the first term. Thereafter, further documents and affidavits were filed and the arguments continued on 26th April, 2011, and thereafter after the Court vacation.
8. In view of the disclosure by Halcyon, the plaintiff filed Chamber Summons No.884 of 2011 to amend the plaint. The Chamber Summons was allowed by an order dated 16th June, 2011. Mr. Narichania stated that the defendants reserved their right to challenge the order at a later stage. He, however, requested me to continue with the hearing in view of the urgency on account of the fact that the vessel was under arrest. I accordingly proceeded with the matter. Needless to state that the defendants are always at liberty to challenge the order on the Chamber Summons at the appropriate stage, including, if necessary, from the final judgment and order in the suit.
The amendment was sought in view of the further disclosure made by the defendant. It appears that the plaintiff had even earlier, including by Chamber No.222 of 2011, sought various particulars, including those now furnished, but the defendant had failed and neglected to furnish them at that stage.
9. In view of this disclosure, Mr.DeVitre stated that for the purpose of the Notice of Motion, the plaintiff would not contend that Halcyon is the alter ego of Tongli China.
10. Before considering the matter on merits, it is necessary to deal with a preliminary objection raised by Mr. Narichania under section 9- A of the Code of Civil Procedure, 1908. I decided the objection against the defendant. However, with a view not to waste time, both the counsel requested me to furnish reasons for my decision on this issue in the main judgment itself. Mr. Narichania reserved the right to challenge my finding at a later stage and requested me not to adjourn the hearing of this Notice of Motion to enable him to challenge the same at this stage.
11. Mr. Narichania submitted that this Court had no jurisdiction as when the suit was filed, the vessel was not within the jurisdiction of this Court. Referring to paragraph 84 of the plaint, he stated that there was no averment that the vessel was within the jurisdiction of this Court on the date of the institution of the suit. Mr. DeVitre admitted that when the suit was filed, the vessel was not within the jurisdiction of this Court. He, however, contended that when the application for arrest was made, it was.
12. The issue, as far as I am concerned, is decided by a learned single Judge of this Court in Geetanjali Woolen v. M.V. X-press Annapurna & Ors., (2005) 6 BCR 31. The learned Judge held :- "23. In light of the aforesaid view of the Apex Court I am required to consider whether the judgments of the English Courts which are cited before me should be accepted or not. I am of the opinion that normally the Court must strive in favour of holding of the jurisdiction in the courts. It is undoubtedly true that if the Court has no jurisdiction then it cannot confer the jurisdiction on itself but if on the appropriate interpretation of the law as laid down by various authorities if the court can hold 10 NMS196.11
that this Court has jurisdiction then obviously the law is that the Court must strive to hold a jurisdiction rather than holding that the suit is liable to be dismissed for want of jurisdiction. In the present case, in light of the view expressed as a binding precedent of the Apex Court that this Court must widen the jurisdiction and consider the jurisdiction of the Indian Courts in admiralty field as equivalent to the jurisdiction of the English Court in that field, it is necessary that I must consider the judgments of the English Courts which have been cited before me. On a proper reading of the judgments of the English Courts, I am of the opinion that the Court has always made a distinction between the filing of a suit, issuance of a writ and execution thereof. The issue there arose slightly in a different context that is whether a party is entitled to obtain writs against more than one ship of the owner or only that ship which is within the territorial ju- risdiction of the country can be sued and writ obtained against such ship only.
However the courts held that it is not provided under the law that only one ship alone should be sued which is within territorial water of England. It has been held that practice prevailed of obtaining various writ and execute against a ship which enters territorial water of England is valid and reasonable keeping in mind that to save limitation a suit may have to be instituted without 11 NMS196.11
any ship in the territorial water of England. Thus, a suit can be instituted within the period of limitation but at the same time no warrant of arrest can be executed unless the vessel comes within the territorial jurisdiction of the country. The Court can acquire jurisdiction if the writ or if the warrant of arrest is executed on the ship when it arrives within the territorial jurisdiction of this Court. The aforesaid view finds support from the aforesaid judgments of the English Court which are cited before me and I have quoted the same. In my opinion, the English view cited by the English judgments can be accepted particularly when there is no contrary judgment dealing with the issue directly of the Indian Courts, at least none such judgment has been brought to my notice except the aforesaid interim orders which are already been set out hereinabove." [emphasis supplied]
13. The Division Bench, I am informed, dismissed the appeal on merits, but did not decide this question of law. I was also informed that the Supreme Court has stayed the judgment of the Division Bench.
14. Thus, even assuming that the vessel was not within the jurisdiction of the Court when the application for arrest was made, 12 NMS196.11
this Court would have jurisdiction as the warrant of arrest was obviously executed when the vessel arrived within the territorial jurisdiction of this Court. The preliminary issue is, therefore, answered in the negative, against the defendant and in favour of the plaintiff. This Court had and has jurisdiction to entertain the suit.
15. Mr.DeVitre's submissions are as follows :- (i) The plaintiff has a claim against Tongli Samoa for breach of the charter-party under which the plaintiff had chartered the vessel Nasco Diamond to Tongli Samoa.
(ii) Tongli Samoa is only the alter ego of Tongli China and, therefore, Tongli China was the real charterer of the vessel Nasco Diamond. The plaintiff is, therefore, entitled to recover the claim against Tongli Samoa from Tongli China.
(iii) Tongli China is the beneficial owner/real owner of the defendant-vessel although the vessel is registered in the name of Halcyon Ocean Shipping Limited.
13 NMS196.11 This submission is based on several facts which I will refer to at the relevant stage. Accordingly, the plaintiff is entitled to proceed against a vessel in which Tongli China has a beneficial interest and of which Tongli China is the real owner.
16. Before dealing with the merits of these contentions, it is necessary to note the legal provision relied upon by the plaintiff to seek reliefs assuming they have established their case on facts.
17. Mr. DeVitre submitted that the plaintiffs right to an order of arrest is founded upon the 1999 Geneva Convention. Mr. Narichania submitted that the 1999 Convention is not applicable in the present case. He did not deny that the 1999 Convention is applicable in India, but submitted that it is applicable only to contracts which involve a public law element. The submission was based on a sentence of a judgment of the Supreme Court and on a judgment of the Gujarat High Court which I will refer to.
I have come to the conclusion that the Geneva 1999 Convention applies to India, including in respect of private contracts. 14 NMS196.11
18. The plaintiff's case falls under Article 1(g) read with Article 3(2)(b) of the 1999 Convention which reads as under :- "1. "Maritime Claim" means a claim arising out of one or more of the following:
(g) any agreement relating to the carriage of goods or passengers on board the ship, whether contained in a charter party or otherwise;
Exercise of right of arrest
2. Arrest is also permissible of any other ship or ships which, when the arrest is effected, is or are owned by the person who is liable for the maritime claim and who was, when the claim arose:
(a) owner of the ship in respect of which the maritime claim arose; or
(b) demise charterer, time charterer or voyage charterer of that ship.
This provision does not apply to claims in respect of ownership or possession of a ship."
19. I intend extracting extensive parts of the judgment in m.v. Elisabeth v. Harwan Investment and Trading (P) Ltd.,1993 Supp. 2 SCC, 433, to indicate that cases such as this are covered by the judgment and it is not restricted to cases, where the Government is involved. It applies even to claims in tort. The Supreme Court held :- "64. Where statutes are silent and remedy has to be sought by recourse to basic principles, it is the duty of the court to devise procedural rules by analogy and expediency. Actions in rem, as seen above, were resorted to by courts as a device to overcome the difficulty of personal service on the defendant by compelling him to enter appearance and accept service of summons with a view to furnishing security for the release of the res; or, in his absence, proceed against the res itself, by attributing to it a personality for the purpose of entering a decree and executing the same by sale of the res. This is a practical procedural device developed by the courts with a view to rendering justice in accordance with substantive law not only in cases of collision and salvage, but also in cases of other maritime liens and claims arising by reason of breach of contract for the hire of vessels or the carriage of goods or other maritime transactions, or tortious acts, such as conversion or negligence occurring in connection with the carriage of 16 NMS196.11
goods. Where substantive law demands justice for the party aggrieved, and the statute has not provided the remedy, it is the duty of the court to devise procedure by drawing analogy from other systems of law and practice. To the courts of the "civil law countries" in Europe and other places, like problems seldom arise, for all persons and things within their territories (including their waters) fall within their competence to deal with. They do not have to draw any distinction between an action in rem and an action in personam.
74. All foreign merchant ships and persons thereon fall under the jurisdiction of a coastal State as they enter its waters. Subject to the right of 'innocent passage', the coastal State is free to exercise jurisdiction over such ships in respect of matters the consequences of which extend beyond the ships. Such ships are subject to the local jurisdiction in criminal, civil and administrative matters. This jurisdiction is, however, assumed only when, in the opinion of the local authorities, the peace or tranquillity of the port is disturbed, when strangers to the vessel are involved or when the local authorities are appealed to. Questions which affect only the internal order and economy of the ship are generally left to the authorities of the flag State. Coastal States are entitled to assume jurisdiction in respect of maritime claims against foreign merchant ships lying in their waters. These ships 17 NMS196.11 are liable to be arrested and detained for the enforcement of maritime claims. The courts of the country in which a foreign ship has been arrested may determine the cases according to merits, provided they are empowered to do so by the domestic law of the country or in any of the cases recognised by the International Convention relating to the Arrest of Seagoing Ships, Brussels, 1952. The maritime claims in respect of which the power of arrest is recognised in law include claims relating to damage caused by any ship either in collision or otherwise; claims relating to carriage of goods in any ship whether by charterparty or otherwise, loss of or damage to goods etc. These principles of international law, as generally recognised by nations, leave no doubt that, subject to the local laws regulating the competence of courts, all foreign ships lying within the waters of a State, including waters in ports, harbours, roadsteads, and the territorial waters, subject themselves to the jurisdiction of the local authorities in respect of maritime claims and they are liable to be arrested for the enforcement of such claims.
76. It is true that Indian statutes lag behind the development of international law in comparison to con- temporaneous statutes in England and other maritime countries. Although the Hague Rules are embodied in the Carriage of Goods by Sea Act, 1925, India never became 18 NMS196.11
a party to the International Convention laying down those rules (International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, Brussels, 1924). The Carriage of Goods by Sea Act, 1925 merely followed the (United Kingdom) Carriage of Goods by Sea Act, 1924. The United Kingdom repealed the Carriage of Goods by Sea Act, 1924 with a view to incorporating the Visby Rules adopted by the Brussels Protocol of 1968. The Hague-Visby Rules were accordingly adopted by the Carriage of Goods by Sea Act 1971 (United Kingdom). Indian legislation has not, however, progressed, notwithstanding the Brussels Protocol of 1968 adopting the Visby Rules or the United Nations Convention on the Carriage of Goods by Sea, 1978 adopting the Hamburg Rules. The Hamburg Rules prescribe the minimum liabilities of the carrier far more justly and equitably than the Hague Rules so as to cor- rect the tilt in the latter in favour of the carriers. The Hamburg Rules are acclaimed to be a great improvement on the Hague Rules and far more beneficial from the point of view of the cargo owners. India has also not adopted the International Convention relating to the Arrest of Seagoing Ships, Brussels, 1952. Nor has India adopted the Brussels Conventions of 1952 on civil and penal jurisdiction in matters of collision; nor the Brussels Conventions of 1926 and 1967 relating to mar- itime liens and mortgages. India seems to be lagging 19 NMS196.11
behind many other countries in ratifying and adopting the beneficial provisions of various conventions intended to facilitate international trade. Although these conventions have not been adopted by legislation, the principles incorporated in the conventions are themselves derived from the common law of nations as embodying the felt necessities of international trade and are as such part of the common law of India and applicable for the enforcement of maritime claims against foreign ships.
89. All persons and things within the waters of a State fall within its jurisdiction unless specifically curtailed or regulated by rules of international law. The power to arrest a foreign vessel, while in the waters of a coastal State, in respect of a maritime claim, wherever arising, is a demonstrable manifestation and an essential attribute of territorial sovereignty. This power is recognised by several international conventions. These conventions contain the unified rules of law drawn from different legal systems. Although many of these conventions have yet to be ratified by India, they embody principles of law recognised by the generality of maritime States, and can therefore be regarded as part of our common law. The want of ratification of these conventions is apparently not because of any policy disagreement, as is clear from active and fruitful Indian participation in the formulation 20 NMS196.11
of rules adopted by the conventions, but perhaps because of other circumstances, such as lack of an adequate and specialised machinery for implementation of the various international conventions by co-ordinating for the purpose the Departments concerned of the Government. Such a specialised body of legal and technical experts can facilitate adoption of internationally unified rules by national legislation. It is appropriate that sufficient attention is paid to this aspect of the matter by the authorities concerned. Perhaps the Law Commission of India, endowed as it ought to be with sufficient authority, status and independence, as is the position in England, can render valuable help in this regard. Delay in the adoption of international conventions which are intended to facilitate trade hinders the economic growth of the nation."
It was a dispute between private parties. There is nothing in the judgment which even remotely suggests that the 1999 Convention applies in admiralty jurisdiction only in cases where the Government or the interests of the Government of India are involved. The judgment applies to admiralty actions in general. It does not limit the scope of Admiralty actions in the manner suggested by Mr. Narichania.
20. Mr. Narichania's submission was based essentially on a solitary statement in a judgment of the Supreme Court in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I, (2004) 9 SCC 512. Here again, it is important to note that the Government of India was not even a party to the litigation. It was not even contended that the 1999 Convention would apply only to contracts where the interests of the Government are involved. The parties before the Supreme Court were private parties. The admiralty jurisdiction in India was being considered. The Supreme Court referred to the judgment in m.v. Elisabeth (supra). The judgment deals at great length about the admiralty jurisdiction and the need to invoke principles of other jurisdictions. Mr. Narichania, however, relied only upon half a sentence in paragraph 60 of the judgment which reads as under :- "60. Application of the 1999 Convention in the process of interpretive changes, however, would be subject to: (1) domestic law which may be enacted by Parliament; and (2) it should be applied only for enforcement of a con- tract involving public law character."
21. The words "it should be applied only for enforcement of a contract involving public law character", certainly do not restrict the applicability of the 1999 Convention only to contracts where the interests of the Government are involved. If it were so, the entire judgment as well as the judgment in m.v. Elisabeth would be com- pletely diluted if not rendered redundant. Even in this case, the Government was not a party to the litigation. The contention had not even been raised before the Supreme Court. The words "public law" are not to be understood as they are in administrative law. Neither of the judgments even remotely indicate the same. They dealt with cases of purely private commercial transactions. The words obviously refer only to the restricted cases which do not involve maritime claims and hence do not permit the invocation of the admiralty jurisdiction. Instances of such cases are those which affect only the internal order and economy of the ship which are generally left to the authority of the flag State. At the cost of reproducing a part of the judgment in m.v. Elisabeth it is important to note paragraph 74 where is was ob- served :-
"This jurisdiction is, however, assumed only when, in the opinion of the local authorities, the peace or tranquillity of the port is disturbed, when strangers to the vessel are 23 NMS196.11
involved or when the local authorities are appealed to. Questions which affect only the internal order and econ- omy of the ship are generally left to the authorities of the flag State. Coastal States are entitled to assume jurisdic- tion in respect of maritime claims against foreign mer- chant ships lying in their waters. These ships are liable to be arrested and detained for the enforcement of maritime claims." [emphasis supplied]
22. The Full Bench of this Court in J.S. Ocean Liner LLC Vs. M.V. Golden Progress & anr., (2007) 2 BCR 1 followed the above judgments and held as under :-
"72. We find considerable force in the argument of the counsel for the plaintiffs that it is unnecessary to apply Rena K principle in view of the Arrest Convention, 1999 which is as much part of our law and the statute in view of the decisions of the Supreme Court in m.v. Elisabeth and m.v. Sea Success. As a matter of fact, Mr. Prashant Pratap also suggested and, in our view, rightly that the court can straightaway apply the principle set out in the Arrest Convention, 1999. The view of senior counsel Mr. V.C. Kotwal is also in line with the view of the counsel for the plaintiffs and Mr. Prashant Pratap in this regard. 24 NMS196.11
73. The application of Article VII of 1999 Arrest Convention, in admiralty jurisdiction in our view, would be purposive and preferable. The applicability of Arrest Convention, 1999 in the absence of any domestic law or inconsistency with the domestic law would be more in regard to the international general principles and interaction between the arbitration agreement and in rem action. Such purposive interpretation would be in consonance with broadly accepted international procedure by which the security obtained by the arrest of the ship in the action in rem is retained to satisfy the judgment and award of arbitral tribunal. Such construction shall neither be in conflict with section 45 of the Act of 1996 nor the judgment of the Supreme Court in P. Anand Gajapati Raju and Hindustan Petroleum Corporation Ltd. In the cases of P. Anand Gajapati Raju and Hindustan Petroleum Corporation Ltd., the subject matter did not relate to an action in rem nor the Supreme court was concerned with the question of retention method, as provided in 1999 Arrest Convention. The observation made by the Supreme Court in P. Anand Gajapati Raju that once the dispute has been referred to arbitration, nothing remains to be decided by the court has to be read to have been made in the context of section 8 of the Act of 1996 and cannot be construed as wide as to cover action in rem or the retention method as 25 NMS196.11
provided in 1999 Arrest Convention. Rather, the application of Arrest Convention, particularly Article VII is in accord and in conformity with the observations made by the Supreme Court in m.v. Elisabeth and m.v. Sea Success I."
23. Here again, it is important to note that the Full Bench was concerned with private parties. The Government was not concerned. The ratio of the Full Bench judgment is not limited to any particular type of contract. In other words, the applicability of the 1999 Convention was not restricted to any particular type of contract. The interpretation of the Full Bench of the judgments of the Supreme Court are, in any event, binding upon me. It is not open for me, therefore, in any event to restrict the applicability of the 1999 Convention to any particular type of contract or only in cases where the Government is a contracting party.
24. Mr. Narichania, however, relied upon the judgment of a Division Bench of the Gujarat High Court in the case of Croft Sales & Distribution Limited v. M.V. Basil dated 17th February, 2011 in OJ Appeal No.6 of 2011 in Admiralty Suit No.10 of 2010. After referring 26 NMS196.11 to the judgment of the Supreme Court in Liverpool & London v. M.V. Sea Success I (supra), the Division Bench held that the transaction there was purely a commercial one for the sale of the ship, not connected with our nation and there was no involvement of the State or any instrumentality of the State and that it, therefore, did not involve any public law character in any manner whatsoever. The Division Bench held that a contract may attract public law character if the State or instrumentality of the State is directly or indirectly connected therewith in enforcement of the contract or implementation thereof. The Division Bench further held that by virtue of such a contract if any question arises regarding the sovereignty of the Nation, environment, pollution, disputes of sea water etc., where public interest is involved, it could be said to be a contract that attracts public law character. The Division Bench, therefore, declined to grant any reliefs based on the 1999 Convention.
25. I am, with respect, unable to agree with the judgment of the Hon'ble Gujarat High Court. As stated above, in both the judgments of the Supreme Court, neither the State nor any instrumentality of the State was involved. The contracts were of a purely private nature. In 27 NMS196.11
m.v. Elisabeth (supra), the plaintiff i.e. the respondent was a private limited company. Defendant No.1 was a foreign vessel which was owned by defendant No.2, which was a foreign company. The dispute also involved only a breach of duty by leaving the Port and delivering the goods to the consignee in breach of the plaintiff's directions to the contrary, thereby committing the tort of conversion of the goods.
26. The suit is, therefore, maintainable and the 1999 Convention is applicable to the present case.
27. The scope of Article 3(2) of the 1999 Convention also fell for consideration. Mr. Narichania submitted that Article 3(2)(b) includes only the registered owner of a ship. Mr. DeVitre submitted that it includes not merely the legal but also the equitable owner. He further submitted that it includes a person in possession or control of a ship.
28. The applicability of Article 3(2) of the 1999 Convention is not restricted to a registered owner. In other words, the ambit of the expression in Article 3(2) "owned by the person" is not restricted to registered owners of such ships. That it does not use the expression 28 NMS196.11
"beneficial owner" does not indicate its applicability being so restricted. The term "owner" refers to the true/real owner. If it were otherwise, the Article would have so provided for, barring possibly a statutory provision to the contrary, ownership is not dependent upon registration.
29. I do not think it possible or even desirable to enumerate cases where the true/real owner can be held to be one other than the registered owner. That must depend upon the facts of each case. To restrict the scope of the expression is neither warranted nor desirable.
30. Take for instance, a case where a vessel is sold and the vendor has received the full consideration. The registration of the vessel in the name of the new owner may take some time. It may not be effected for any other reason as well. I see no reason why the vessel cannot be arrested, if it otherwise can be under Article 3(2), merely because the registration is delayed or because it has not been effected in the name of the purchaser for any reason. Again, if a vessel is merely registered in the name of another to avoid liability with no intention of transferring the ownership thereof to the registered owner, 29 NMS196.11
the transferor continues to be the owner of the vessel. To hold otherwise would not merely encourage but endorse deceit and render admiralty actions in rem for the arrest of vessels redundant. I will refer to the authorities on this point while considering the next aspect as they deal with both aspects.
31. I would, however, not include within the ambit of the term "owner" any person who merely has possession of the vessel unless the possession is accompanied with all the incidents of ownership thereof. In other words, mere possession, however complete, would not qualify a person being considered the owner thereof for the purpose of Article 3(2) of the 1999 Convention.
32. This, I think is clear from Article 3(2)(b) itself. Article 3(2) requires the ship liable to be arrested to be owned by the person and not chartered by him. Sub-clause (b) of the clause (2) of Article 3 foists the liability in respect of a maritime claim against the person who was, when the claim arose, either the owner or the demise, time or voyage charterer of the ship in respect of which the claim arose. Thus, Article 3(2) itself draws a distinction between the rights of the 30 NMS196.11
person qua the ship to be arrested and the ship in respect of which the maritime claim arose. In the case of the latter, he could be the owner or the charterer but in the case of the former, he must only be the owner.
33. It is necessary to refer to foreign judgments carefully for they are often based upon the language of the statues of those countries. In some cases, the statutes use the terms "owner" and "beneficial owner" leading to an inference that the law makers intended the scope of the term "owner" and the expression "beneficial owner" to be different. Many of the judgments also deal with the 1952 Brussels Convention, the provisions of which are different from those of the 1999 Convention. I am concerned here with the expression "owned by the person" and, therefore, with the term "owner". There is nothing in the law of this country at least, that prohibits a person from being considered an owner of a vessel unless the vessel is registered in his name. With these words of caution, I will refer to a few authorities.
34. In I Congress del Parido,  Q.B. 500 = (1978) 1 All ER 1169, it was held :
"Mr. Davenport, for Mambisa, to whose argument I am much indebted, has however urged me not to follow The Andrea Ursula  Q.B. 265 . The decision in that case is not binding upon me and, while of course I have the greatest respect for any decision of Brandon J., I have reconsidered the matter and, having done so, I have reached the conclusion that the words "beneficially owned as respects all the shares therein" refer only to cases of equitable ownership, whether or not accompanied by legal ownership, and are not wide enough to include cases of possession and control without ownership, however full and complete such possession and control may be. Since I have reached a different conclusion to Brandon J., I think it right to point out that I have had the benefit of a full argument by counsel for the defendants in this case, whereas The Andrea Ursula came before Brandon J. on a motion by plaintiffs for judgment in default of appearance, on which the defendants were not represented.
My approach to the case before me is as follows. I start with the statute, and the words with which I am particularly concerned, and which I have to construe in the context of the statute, are "beneficially owned as respects all the shares therein." In my judgment, the natural and ordinary meaning of these words is that they 32 NMS196.11
refer only to such ownership as is vested in a person who, whether or not he is the legal owner of the vessel, is in any case the equitable owner, in other words, the first of the two meanings of which Brandon J. thought the words to be capable. Furthermore, on the natural and ordinary meaning of the words, I do not consider them apt to apply to the case of a demise charterer or indeed any other person who has only possession of the ship, however full and complete such possession may be, and however much control over the ship he may have. Generally speaking, the essential characteristic of a demise charter is that it constitutes a contract of hire of the ship, under which the possession of the ship passes to the charterer, the master of the ship being the servant of the charterer, not of the owner. It is to be compared with the ordinary form of time charter, which is not a contract of hire but a contract of services, under which the possession remains in the owner and the master is the servant of the owner: see Sea and Land Securities Ltd. v. William Dickinson and Co. Ltd.  2 K.B. 65 , 69-70 per Mackinnon L.J. and Scrutton on Charterparties , 18th ed. (1974), articles 24-26. It is true that a demise charterer has in the past been described variously as "owner pro hac vice:" see, for example, Frazer v. Marsh (1811) 13 East 238 , 239, per Lord Ellenbrough C.J., The Lemington (1874) 2 Asp.M.L.C. 475, 478, per Sir Robert Phillimore, and The Tasmania (1888) 13 P.D. 110 , 118, 33 NMS196.11 per Sir James Hannen P.; or as a person who is "for the time the owner of the vessel:" see Sandeman v. Scurr (1866) L.R. 2 Q.B. 86 , 96, per Cockburn C.J.; or as a person with "special and temporary ownership:" see The Hopper No. 66  A.C. 126 , 136, per Lord Atkinson. I doubt however if such language is much in use today; and its use should not be allowed to disguise the true legal nature of a demise charter. Furthermore, no case has been drawn to my attention, and I am aware of more, (none) in which a demise charterer has been described as a "beneficial owner," still less as a "beneficial owner as respects all the shares in the vessel." Indeed, any reference in this context to ownership "as respects all the shares in the vessel" is, in my judgment, inapt to describe the possession of a demise charterer; such words are only appropriate when describing ownership in the ordinary sense of the word, and not possession which is concerned with a physical relationship with the vessel founded upon control and has nothing to do with shares in the vessel. A demise charterer has, within limits defined by contract, the beneficial use of the ship; he does not, however, have the beneficial ownership as respects all the shares in the ship." [emphasis supplied]
35. The Court of Appeal for Singapore in The "Permina 3001" (1979) 1 Lloyds Law Reports 327 took a similar view. I 34 NMS196.11
appreciate that the expression that fell for consideration in I Congress and in this case was "beneficially owned as respects all the shares therein". The Court of Appeal held :
"The question is what do the words "beneficially owned" as respects all the shares therein mean in the context of the Act. These words are not defined in the Act. Apart from authority, we would construe them to refer only to such ownership of a ship as is vested in a person who has the right to sell, dispose of or alienate all the shares in that ship. Our construction would clearly cover the case of a ship owned by a person who, whether he is the legal owner or not, is in any case equitable owner of all the shares therein. It would not, in our opinion, cover the case of a ship which is in the full possession and control of a person who is not also the equitable owner of all the shares therein. In our opinion, it would be a misuse of language to equate full possession and control of a ship with beneficial ownership as respects all the shares in a ship. The word "ownership" connotes title, legal or equitable whereas the expression "possession and control", however full and complete, is not related to title. Although a person with only full possession and control of a ship, such as a demise charterer, has the beneficial use of her, in our opinion he does not have the 35 NMS196.11 beneficial ownership as respects all the shares in the ship and the ship is not "beneficially owned as respects all the shares therein" by him within the meaning of s.4(4)."
36. I would readily adopt this line of reasoning in these authorities even in respect of Article 3(2) of the 1999 Convention. The description of the demise charter being the "owner pro hac vice" related in all probability to the manner in which it was entitled to operate the ship viz. as an owner would - with its own crew but, and not to the question of ownership/title to it, legal or equitable.
37. The consequence of the contrary view would be rather drastic or inequitable and not one that the concerned parties could ever have contemplated. It would expose a totally innocent owner of a vessel to a liability for no fault or even concern of his own. It would amount to this. A, the owner of the ship, charters it to B for a year. B incurs a maritime liability in respect of operations of another ship. The claimant is entitled to recover its dues against B by having arrested and then sold A's ship, though neither A nor its ship was in any manner concerned with or responsible for the incident that gave rise to the liability.
38. These judgments thus support my views of those two aspects. Mr. Narichania relied upon the judgment of the Court of Appeal in The Evpo Agnic (1988) 1 WLR 109 in support of his submission that the term "beneficial owner" will not apply to a ship owned by a sister company of the company liable for the maritime claim. I have, for reasons I have furnished later, not dealt with the question. The judgment, however, supports the second aspect viz. that the term "owner" or "beneficial owner" is not restricted to the registered owner if the ship has been spirited into a registered ownership. The observations must be read in the light of the statutory provisions in England viz. section 21(4) of the Supreme Court Act, 1981. Section 21(4) and the observations at page 1097 (E) read "- "Mode of exercise of Admiralty jurisdiction.
(4) In the case of any such claim as is mentioned in section 20(2)(e) to (r), 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 37 NMS196.11
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 High Court 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."
"The purpose of section 21(4) is to give rights of arrest in respect of "the particular ship, ships in the ownership of the owners of "the particular ship" and those who have been spirited into different legal, i.e. registered, ownership, the owners of "the particular ship" retaining beneficial ownership of the shares in that ship. This was the situation in The Saudi Prince  2 Lloyd's Rep. 255 and was alleged to be the situation in The Aventicum  1 Lloyd's Rep.184."
39. Mr.DeVitre relied upon a judgment of the Singapore Court of Appeal in The Ohm Mariana (1993) 2 SLR 698. The judgment, however, is clearly distinguishable on facts. The Court found that the appellant's held the vessel as security for the loan and other moneys owing to them from the respondents and that the beneficial ownership 38 NMS196.11
of the vessel remained vested in the respondents. Insofar as it was held that the word "owner" does not mean registered owner alone, I am in respectful agreement. In that case also, the Court considered the provisions of section 4(4) of the High Court (Admiralty Jurisdiction) Act which was in force in Singapore and not the 1999 Convention. Section 4(4), however, uses the terms "owner" and "beneficially owned". The Court came to the conclusion that at all material times since the purchase of the vessel, the respondents were the beneficial owners thereof and that they had the right to sell, dispose off or alienate the vessel. This was so even when the vessel was held for the appellant as security. That is not the case before me where neither the legal nor the equitable title of the defendant-vessel vested in Tongli China or its alter ego.
40. Mr.DeVitre relied upon the judgment of the Supreme Court in (2004) 9 SCC 512 Liverpool & London SP & I Assn. Ltd. v. Sea Success to contend that the Supreme Court had approved the view taken in The Andrea Ursula 1973 QB 265, which was dissented from in I Congress. The appeal was against the judgment of a Division Bench of this Court, rejecting a plaint in the defendant's application 39 NMS196.11
under Order VII, Rule 11 of the Code of Civil Procedure (CPC) on the ground that the plaint did not disclose a cause of action as unpaid insurance premium was not a "necessary" within the meaning of section 5 of the Admiralty Courts Act, 1861. The Supreme Court held the P & I insurance cover to be a "necessary". In that case, the plaintiff had a claim for the unpaid insurance in respect of two vessels Sea Ranger and Sea Glory owned by the defendant No.2. It was contended that the 1st defendant's vessel m.v. Sea Success was the sister ship. This was on the basis that defendant No.2 owned the 1st defendant vessel through its 100% subsidiary. The plaintiff, accordingly, pleaded that defendant No.2 was the beneficial owner of the 1st defendant vessel. The Supreme Court held that this was a mixed question of fact and law; that in ascertaining whether a plaint discloses a cause of action or not, the Court is not required to make an elaborate enquiry into doubtful or complicated question of law or fact; that so long as the claim discloses some cause of action or raises some questions fit to be decided by a Judge, the mere fact that the case is weak and not likely to succeed is no ground for striking it out and that the purported failure of the pleadings to disclose a cause of action is distinct from the absence of full particulars. The Supreme Court, 40 NMS196.11
accordingly, held that for the purpose of rejecting the plaint, it was not necessary for the Court to have considered whether the averments proved the factum of the first defendant vessel being beneficially owned by defendant No.2. It is important to note that the Supreme Court in paragraph 154 stated that these are questions which must be gone into when passing a final order as regards interim arrest of the ship or otherwise and that the vessel could file an application for vacating the order. In such an application, the Court could consider various questions, including whether a prima facie case had been made out and the aspect of balance of convenience and irreparable injury. The Supreme Court also held that if a legal question is raised by the defendant in the written statement, it does not mean that the same has to be decided only by way of an application under Order VII, Rule 11 of the CPC, which may amount to prejudging the matter. In paragraph 156, the Supreme Court held that the question as to whether the asset of a 100% subsidiary can be treated as an asset of the parent company would again depend upon the fact situation of each case. It is in this context that the Supreme Court referred to the judgment relied upon by Mr. DeVitre as under :- 41 NMS196.11
"158. Yet again in Andrea Ursula, The the Court opined: (All ER p. 824c-e)
"There is no definition in the Act of the expression 'beneficially owned' as used in Section 3(4). It could mean owned by someone who, whether he is the legal owner or not, is in any case the equitable owner. That would cover both the case of a ship the legal and equitable title to which are in one person, A, and also the case of a ship the legal title to which is in one person, A, but the equitable title to which is in another person, B. In the first case the ship would be beneficially owned by A, and in the second case by B. Trusts of ships, express or implied, are, however, rare, and the words seem to me to be capable also of a different and more practical meaning related not to title, legal or equitable, but to lawful possession and control with the use and benefit which are derived from them. If that meaning were right, a ship would be beneficially owned by a person who, whether he was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordinarily have."
41. The judgment was referred to, to indicate that there were serious questions of fact and of law to be decided and that the same 42 NMS196.11
ought not to have been decided in an application under Order VII Rule
11. The Supreme Court did not, in fact, decide these issues. This is clear from the previous paragraphs of the judgment. The doubt, if any, in this regard is set to rest by the subsequent paragraphs which clearly establish that the Supreme Court had left all the questions open to be decided in appropriate proceedings and not in an application under Order VII Rule 11. Paragraphs 159, 160 and 161 of the judgment, which establish this, read as under :- "159. Furthermore, the question as to whether the concept of ownership of a ship which has been introduced in the 18th century when there had been no joint stock companies and the concept of shares in a ship so as to encourage individuals to pool their resources by a sister ship so that they may become co-owners is a matter which is required to be considered at an appropriate stage. We do not think that such a question can justifiably be gone into at this stage.
160. We do not intend to delve deep into the questions as to whether the two ships named hereinabove are the sister ships of Respondent 1 vessel or whether the requirement of law as regard ownership of a ship in Respondent 1 as beneficial owner has been fulfilled or 43 NMS196.11
not. Such issues must be considered at an appropriate stage.
161. We, therefore, direct that in the event, a proper application is filed either for dissolution of the interim order of injunction passed by the learned Single Judge or if the High Court in its wisdom thinks fit to decide any issue as a preliminary issue such questions may be gone into in greater details. Any observations made by us must be considered to have been made only for the purpose of disposal of these appeals and not for the purpose of determining the merit of the matter."
42. Mr. Narichania submitted that the suit is not maintainable and the plaintiff is not entitled to security. He submitted that in the present case security cannot be granted because the final award must decide the question of ownership of the defendant-vessel. Halcyon, who claims to be owners of the vessel is not a party to the arbitration agreement. Halcyon will, therefore, not be represented before the arbitral tribunal. An award, therefore, cannot be made which affects the rights of Halcyon. Thus, even if the arbitral tribunal had the powers to pierce the corporate veil between Tongli China and Tongli 44 NMS196.11
Samoa, the issue relating to the ownership of the vessel cannot be decided without Halcyon whose rights would be affected by any award that may be passed.
43. The submission is founded upon the erroneous basis that the question of ownership of the defendant-vessel falls for the decision of the arbitral tribunal.
44. The plaintiff has only a monetary claim before the arbitral tribunal. The only question before the arbitral tribunal in the present case will be whether Tongli Samoa is liable to pay any monetary amounts to the plaintiff on account of the sinking of the Nasco Diamond. The issue of ownership of the defendant-vessel is not germane to the disputes before the arbitral tribunal.
45. Equally erroneous and for the same reason is the submission that there must be an independent finding by the arbitral tribunal that the defendant-vessel is owned and/or beneficially owned by Tongli China and that only then would the plaintiff be entitled to execute the award against the defendant-vessel or the security, if any, furnished in 45 NMS196.11
lieu of the release of the vessel. The arbitral tribunal cannot decide this issue. Indeed, the issue does not and will not arise before the arbitral tribunal.
In the event of an award being made in favour of the plaintiff, it would first have to take steps for having the same enforced in India. In the event of the award being enforceable, the plaintiff would then have to execute the same in India. The question of ownership will arise then either in this suit or in the execution proceedings, the plaintiff's case being that the vessel/security is the property of Tongli Samoa or Tongli China. It is in such proceedings that Halcyon's case regarding the ownership of the vessel would be determined.
46. In that respect, a suit such as this is similar to an application for attachment before judgment. When, in a money suit, a plaintiff applies for an order of attachment before judgment under Order XXXVIII, Rule 5, the question of title or ownership of the property sought to be attached does not fall for consideration and is not an issue in the suit. It is merely security which the plaintiff can move against in the event of obtaining a decree in the suit. If a third party claims ownership or any interest in the property, it is at liberty to intervene in the 46 NMS196.11
interlocutory proceedings for attachment before judgment and/or in the execution proceedings if the decree is sought to be executed by the attachment and sale of such property. The issue then of ownership between the third party and the plaintiff does not arise in the suit.
47. The contention that the order of arrest cannot be granted because the arbitral tribunal cannot decide the issue of title/ownership of the vessel is rejected.
48. The submission that in a suit, such as the present one, the Court is bound to consider whether there is an arbitral agreement between the plaintiff and the owner of the defendant-vessel is well founded.
49. In a suit such as the present one, which only seeks security in respect of a arbitration award that may be passed, the Court must be satisfied, at least prima facie, that there is an arbitration agreement between the concerned/relevant parties. This is obvious for the suit is based on the premise that there is a valid and subsisting arbitration agreement between the parties.
50. In the present case, it is necessary to ascertain whether there is an arbitration agreement not merely between the plaintiff and Tongli Samoa, but between the plaintiff and Tongli China. The plaintiff's case is that Tongli China was the real charterer from the plaintiff of the vessel Nasco Diamond and that the title/ownership of the defendant-vessel, in fact, vests in Tongli China. Thus, unless there is an arbitration agreement not merely between the plaintiff and Tongli Samoa, but between the plaintiff and Tongli China and unless the Court is satisfied that the dispute/issue relating to Tongli China being the real charterer of Nasco Diamond and the actual owner of the defendant-vessel can be arbitrated upon, this suit would not be maintainable. The suit being one only for security in respect of an award that may be passed by an arbitral tribunal, this, to my mind, is axiomatic.
51. It is admitted that the charterparty between the plaintiff and Tongli China was executed only by the plaintiff and Tongli Samoa. The charter party was not executed by or on behalf of Tongli China. Liability is sought to be foisted on Tongli China in respect of the sinking of Nasco Diamond only by lifting the corporate veil and 48 NMS196.11 contending that Tongli China was the real charterer. I find well founded, Mr. Narichania's submission that the arbitral tribunal cannot decide this question viz. whether Tongli China was the real charterer of the vessel Nasco Diamond. Indeed, as pointed out by him, the plaintiff had not even served any arbitration notice on Tongli China at the relevant time. Mr. DeVitre, of course, states that the plaintiff will be invoking the arbitration against Tongli China as well. Even assuming that it has now done so or will do so shortly, it would make no difference for, as the law stands in India, the arbitral tribunal will have no jurisdiction to adjudicate the question whether Tongli China was the real charterer of Nasco Diamond. If, therefore, a final award cannot be passed in favour of the plaintiff against Tongli China, the reliefs claimed in this suit cannot be granted for, at the cost of repetition, this is a suit not for the recovery of the plaintiff's dues, but only to obtain security in respect of an award that may be passed by the arbitral tribunal. In the present case, the arbitral tribunal would also have to decide whether, in fact, Tongli China was the real charterer and/or Tongli Samoa is the alter ego of Tongli China. If these issues cannot be decided by the arbitral tribunal there can be no question of the same being referred to the arbitral tribunal. In other 49 NMS196.11
words, if the question of lifting the corporate veil and thereby foisting liability on a party other than the party to the arbitration agreement cannot be referred to arbitration, the present application cannot be granted.
52. Mr. Narichania's reliance upon the judgment of a Division Bench of this Court dated 5th September, 2006 in Hemant D. Shah vs. Chittaranjan D. Shah & Ors., Appeal No.658 of 2006 in Arbitration Petition No.395 of 2006, is well founded. This was an appeal against an order of a learned single Judge in a petition filed under section 9 of the Arbitration & Conciliation Act, 1996. It was contended that the amounts lying to the credit of respondent No.8 could be considered to be the subject matter of the arbitration proceedings because respondent No.8 was nothing but an alter ego of respondent Nos.1 to
6. It was contended that the Court ought to lift the corporate veil of respondent No.8 and upon doing so, it would be found that the real persons behind the veil are respondent Nos.1 to 6. In the arbitration petition, the petitioners sought an order restraining respondent No.8 from withdrawing an amount lying to its credit. The learned single Judge had dismissed the application on the ground that respondent 50 NMS196.11
No.8 was an independent entity and not a party to the arbitration agreement and that, therefore, the property of respondent No.8 cannot be the subject matter of a dispute in the arbitration proceedings. The Division Bench held that the property belonging to a third party cannot be said to be the subject matter of a reference to arbitration of dispute between the parties to the arbitration agreement. The Division Bench answered the question in the negative. Answering the question in the negative, the Division Bench held :-
"8. That the respondent No.8 is not party, to the arbitration proceedings, is not in dispute. It could not be because it is not party to the arbitration agreement. The question is, in a dispute between the two parties to the arbitration agreement if the property belonging to the third party is brought in dispute, can such property belonging to third party be said to be the subject matter of dispute between the parties to the agreement. We do not think so. The forum of Arbitral Tribunal is chosen by the parties to the agreement for resolution of disputes amongst them. Obviously, in such proceeding the rights of third party in the property in which the parties to the arbitration agreement has no right, title or interest, cannot be affected. It needs no elaboration that the arbitration proceeding is not to adjudicate an action in rem i.e., the determination of the status of a particular 51 NMS196.11
thing that binds all persons. Rather it is adjudication inter parties. By no stretch of imagination, in arbitration proceedings, pursuant to the memorandum of understanding between the appellants and the respondent Nos.1 to 6, the status of the property owned by respondent No.8 viz. Rs.5,00,00,000/- (Rupees five crores) lying in surplus on sale of Worli property can be determined. In other words, in respect of the property in which neither of the parties to the agreement has any right, interest or title cannot be the subject matter of dispute in the pending arbitration proceedings between the parties. If what cannot be done finally on the conclusion of the arbitration proceedings, surely it cannot be done in the proceedings under section 9 of the Arbitration Act which is in aid of the final award that may be passed by the Arbitral Tribunal. In this view of the matter, the amount of Rs.5,00,00,000/- (Rupees five crores) lying in the Debts Recovery Tribunal as surplus of sale proceeds of the Worli property belonging to respondent No.8 is not and cannot be a subject matter of dispute in the arbitration proceeding. The prayer for interim relief made by the appellants under section 9 with regard to the said property, in our view, was wholly misconceived and cannot be said to have been wrongly rejected by the learned Single Judge.
9. We also do not find any substance in the contention of the senior counsel for the appellants that the court should lift the corporate veil of the respondent No.8 to find the real persons behind the veil. In our view this exercise cannot be done in the proceedings under section 9 of the Arbitration Act. Nothing has been shown to the contrary and more so at the back of the corporate entity."
53. The ratio of this judgment will apply to the present suit. A suit, such as this, is akin to an application under section 9 of the Arbitration & Conciliation Act, 1996, though not in all respects. Both proceedings are to protect the rights of a party in and/or in respect of an award that may be made in his favour. In whatever other circumstances the corporate veil may be lifted, it ought not to be in arbitration proceedings even in principle. To permit such a course would be contrary to the 1996 Act, and cause incalculabe prejudice to parties who are not parties to the arbitration agreement. A reference to arbitration is consensual. Even if a party is the alter ego of a party to an arbitration, it cannot be forced to join the reference as for a reference to an arbitration it is necessary for the parties to have agreed in writing to refer their disputes to arbitration. The mere fact that a 53 NMS196.11
party is an alter ego of another would not predicate an agreement to refer disputes to arbitration by the one which is not a party to the arbitration agreement. Courts have lifted the corporate veil to confer a benefit or to foist liability upon a party. An arbitration reference stands upon a different footing. It is a mode of adjudication of disputes dependent upon an agreement between the parties.
54. In Indowind Energy Limited v. Wescare (India) Limited, (2010) 5 SCC 306, an agreement was entered into between the respondent and one Subuthi Finance Limited. The agreement described the respondent as including its subsidiaries RCI Power Limited as the seller and Subuthi Finance Limited and it's nominee the appellant, as the buyer and as the promoters of the appellant. In the present case, in the charterparty between the plaintiff and Tongli Samoa, there is not even a mention of Tongli China. The respondent filed an application under section 11(6) of the Arbitration & Conciliation Act, 1996, against Subuthi Finance Limited and the appellant for appointment of a sole arbitrator to arbitrate upon the disputes in respect of the said agreement. The appellant resisted the petition on the ground that it was not a party to the arbitration agreement dated 24th February, 2006 54 NMS196.11
entered into between the respondent and Subuthi Finance Limited and that there was no arbitration, therefore, between the respondent and itself. The learned Chief Justice of the High Court held that the appellant before the Supreme Court was prima facie, a party to the arbitration agreement and was bound by it even though it was not a signatory thereto. It was, inter alia, held that by lifting the corporate veil, it could be seen that Subuthi Finance Limited and the appellant were one and the same party. He came to the conclusion as the agreement described Subuthi - promoter of the appellant and also described the appellant as the nominee of Subuthi and that Subuthi had entered into the agreement with the respondent for purchase of business assets of the respondent for its nominee, the appellant, and that the signatory of the agreement on behalf of Subuthi was also a Director of the appellant. He held that, therefore, the appellant could be held to be a party to the agreement even if it had not executed the same. The Supreme Court held in paragraph 14 that the respondent had not entered into any agreement with the appellant referring to the agreement dated 24th February, 2006, containing the arbitration agreement with the intention of making such arbitration agreement a part of their agreement. The Supreme Court further held :- 55 NMS196.11 "16. The learned counsel for Wescare referred to various clauses in the agreement dated 24-2-2006 to contend that it should be deemed to be an agreement executed/signed by Indowind. Firstly, it was submitted that the agreement was entered into by Subuthi as the promoter of Indowind and also described Indowind as its nominee and the agreement was signed on behalf of Subuthi by a person who was also a Director of Indowind. It is submitted that the agreement also specifically stated that Subuthi was desirous of purchasing certain assets of Wescare for its nominee Indowind, and in fact, Indowind purchased the said assets of Wescare. This according to the learned counsel for Wescare, led to an irresistible conclusion that Indowind was acting in terms of the agreement dated 24-2-2006 and therefore, it would be bound by the arbitration clause therein.
17. It is not in dispute that Subuthi and Indowind are two independent companies incorporated under the Companies Act, 1956. Each company is a separate and distinct legal entity and the mere fact that the two Companies have common shareholders or common
Board of Directors, will not make the two Companies a single entity. Nor will the existence of common share- holders or Directors lead to an inference that one company will be bound by the acts of the other. If the Director who signed on behalf of Subuthi was also a 56 NMS196.11
Director of Indowind and if the intention of the parties was that Indowind should be bound by the agreement, nothing prevented Wescare insisting that Indowind should be made a party to the agreement and requesting the Director who signed for Subuthi also to sign on behalf of Indowind.
18. The very fact that the parties carefully avoided making Indowind a party and the fact that the Director of Subuthi though a Director of Indowind, was careful not to sign the agreement as on behalf of Indowind, shows that the parties did not intend that Indowind should be a party to the agreement. Therefore the mere fact that Subuthi described Indowind as its nominee or as a company promoted by it or that the agreement was purportedly entered by Subuthi on behalf of Indowind, will not make Indowind a party in the absence of a ratification, approval, adoption or confirmation of the agreement dated 24-2-2006 by Indowind."
This judgment applies with greater force against the plaintiff's for in the present case, Tongli China was not even mentioned in the charterparty between the plaintiff and Tongli Samoa. 57 NMS196.11
55. Faced with this, Mr.DeVitre submitted that the arbitral tribunal is governed by the English law and not by the law of this country. Mr. DeVitre, however, did not produce any evidence to establish that English law is different from Indian law in this respect. He merely stated that this is for the arbitral tribunal to decide. Foreign law is a question of fact. In the absence of evidence to the contrary, the presumption is that the foreign law is the same as the Indian law. (The Parchim 1918 AC 157 (PC); Halsbury's Laws of England, 4th Edn., Vol.8(3), paragraph 28.) I have referred to the same in Malaysian International Trading Corporation Stn. Bhd. & Anr. v. Mega Safe Deposit Vaults Pvt. Ltd. (2006) 3 LJSOFT (URC) = AIR 2006 (3) Bom. 437 = 2006 (3) Bom.C.R., 109.
56. On this ground alone, the order of arrest ought to stand vacated. However, as the matter has been argued fully, I will proceed to deal with the other issues as well.
57. This brings me to the plaintiff's case that Tongli China was the real charterer of the vessel Nasco Diamond and that it had entered into the charterparty agreement with the plaintiff through its nominee 58 NMS196.11
Tongli Samoa. I will deal with the plaintiff's further case that in any event, Tongli China should be deemed to be the real charterer of the vessel Nasco Diamond because Tongli Samoa is its front/nominee/alter ego separately.
58. Before dealing with the merits of this contention I must consider Mr.Narichania's submission that there is a non-joinder of a necessary party viz. Tongli China. He submitted that the present submission affected the rights of Tongli China. He further submitted that by not impleading Tongli China, Halcyon is prejudiced for it does not have then an opportunity of meeting this case even on facts.
59. The submission is not well founded. As far as this Court is concerned, it is now established that an action in rem in an admiarlty matter only for security is maintainable. In an action in rem it is not necessary to make the owner of the vessel a party. That the owner of the vessel may subsequently enter appearance and submit to the jurisdiction of the Court is another matter. The absence of the owner does not affect the maintainability of the suit. Thus Tongli China was not a necessary party in a suit of this nature. If indeed this was a 59 NMS196.11
regular suit for the recovery of money against Tongli China by lifting the corporation veil, it would have been a different matter altogether. In the absence of Tongli China, no decree could have been passed against it, including by lifting the corporate veil.
60. Even in practical terms Halcyon is no worse off. If there was any collusion between the plaintiff, Tongli China and Tongli Samoa, Halcyon would not be prejudiced if ultimately it is found that Halcyon is the owner of the vessel and that Tongli China and Tongli Samoa had no interest therein. If indeed there was any collusion between the plaintiff, Tongli China and Tongli Samoa, it would matter little whether Tongli China appeared in answer to a summons or not. Even if Tongli China was impleaded in the suit, but chose not appear, Halcyon would be no better off. Halcyon, thus, could itself have adopted proceedings to implead Tongli China which it did not. Questions relating to Tongli China thus must be decided even in the absence of Tongli China in view of the nature of this suit.
61. I, however, do not find the plaintiff having established it's case that it had sub-chartered the vessel Nasco Diamond to Tongli China 60 NMS196.11
acting through its agents/nominee/alter ego i.e. Tongli Samoa pursuant to the Fixture Recap dated 6th October, 2010. The plaintiff has not adduced any evidence in support of this contention. On the other hand, the facts and circumstances of the case suggest the contrary.
62. The Fixture Note itself was signed only by Tongli Samoa. There is no mention of Tongli China therein. The plaintiff has not referred to any correspondence or discussions between itself and either Tongli Samoa or Tongli China to this effect. There is no indication why the plaintiff agreed to such an alleged arrangement of entering into the sub-charter with Tongli China, but executing the Fixture Recap only with Tongli Samoa. If indeed the agreement had actually been entered into with Tongli China, with Tongli Samoa merely executing the agreement there would have been discussions between the plaintiff's representatives and the representatives of Tongli China. I would have expected the same to be in writing. Further, it is not even the plaintiff's case that the parties acted on this basis in view of any past transactions or relying upon a course of conduct between them and that such an agreement could, therefore, be evidenced by the same.
63. Further, after the sinking of Nasco Diamond on 9th/10th November, 2010, the plaintiff lodged the claim only with Tongli Samoa. The plaintiff's solicitors addressed notices only to Tongli Samoa. It is not the plaintiff's case that it informed its solicitors about the involvement of Tongli China, but that they failed to take any steps pursuant thereto. Even after Tongli Samoa by its solicitors letter denied liability, the plaintiff did not approach or even contact Tongli China. Indeed, the plaintiff's solicitors, by a letter dated 29th November, 2010, sought an explanation as to why Tongli Samoa was not willing to furnish security for the plaintiff's claim.
64. It was only after the arrest of the defendant-vessel on 9th December, 2010, that the plaintiff, for the first time, addressed a notice dated 24th December, 2010, to Tongli China.
65. These facts militate against the plaintiff's case that they entered into the sub-charter with Tongli Samoa on the basis that they were in fact entering into the same with Tongli China. 62 NMS196.11
66. Mr.DeVitre then submitted that in any event, Tongli Samoa is the alter ego of Tongli China. He submitted that Tongli Samoa is one in a group of companies incorporated by Tongli China as a front/ nominee/shelf company and an entity with a view to defrauding creditors and evading genuine claims and confusing creditors as to which entity they are contracting with and giving a general impression to innocent third parties that it is the Tongli Group that they are dealing with. He submitted that by lifting the corporate veil, it will be evident that Tongli Samoa is the alter ego of Tongli China. Mr.DeVitre, inter-alia, relied upon the following circumstances to establish that Tongli Samoa is the alter ego of Tongli China. 67(a). Tongli China's website lists Tongli Samoa's personnel. This website was withdrawn after the sinking of Nasco Diamond. Tongli China and Tongli Samoa have the same operating address at Yantai, China. This is evident from the Lloyds List furnishing the details of Tongli China's address and Tongli Samoa in proceedings in the United States District Court, Southern District of New York having mentioned its address to be the same.
(b) Tongli Samoa had chartered a vessel m.v. Christy M. The invoice for charter hire had been raised upon Tongli China. The statement of accounts were prepared by Tongli China. There is, however, some uncertainty as the name of the company is merely stated to be Tongli Shipping Company Limited, without specifying whether it is Tongli Samoa or Tongli China.
(c) From the proceedings before the New York District Court relating to the charter of a vessel m.v. Jin Pu, it is found that the correspondence relating to the commercial terms was carried on by Tongli China. Here again, it is not clear whether it was Tongli China or Tongli Samoa.
(d) Rainbow Success Limited, stated to be a part of the Tongli China group of companies paid the charterhire of a vessel m.v. Yin Ning chartered by Tongli Samoa. The charter party which is relied upon by the plaintiff shows Tongli Samoa to be the charterer and that the charter hire would be paid by Rainbow Success Limited. Clause 11 of the charterparty which pertains to hire payment stipulates that the charterers i.e. Tongli Samoa declared Rainbow Success Limited or 64 NMS196.11
Eastshine Limited to remit the hire charges to the owner's designated account for the vessel.
(e) Tongli China's insurance brokers Andrew Liu & Co., by an e- mail dated 4th April, 2011, sought a quotation from the P & I Club Skuld (Far East) Limited for vessels chartered by Tongli China. Attached to the e-mail was a list of the fleet chartered by Tongli China in the year 2010. The attachment under the heading "Summary of claims as at 10/2/2011" shows, inter-alia, the vessel Nasco Diamond. Mr.Narichania, however, contended that from this e-mail it cannot be ascertained whether the reference is to Tongli China or Tongli Samoa. However, the e-mail states: "Tongli Head Office Limited at Yan Tai". Prima facie, this indicates a reference to Tongli China. In the proceedings before the New York District Court, Tongli Samoa has merely stated its address and that also happens to be the address of Tongli China's Head Office. Tongli Samoa, however, does not state that to be it's Head Office.
Mr. Narichania also submitted that there is nothing to show that the attachment relied upon by the plaintiff is an attachment to the e- mail dated 4th April, 2011. The defendants not having sought any 65 NMS196.11
inspection or particulars in this regard, prima facie, at least it must be presumed that the attachment relied upon by the plaintiff is to the e- mail dated 4th April, 2011. The attachment to the e-mail states that there is a potential claim against Tongli China in respect of the sinking of Nasco Diamond. The said e-mail also lists the vessel Yin Ning. From this, it is contended, that Tongli China, therefore, regards itself as a charterer of the vessel although on papers Tongli Samoa is shown as the charterer.
(f) After the arrest of the defendant-vessel, one Wang Weidong, a Director of Tongli China drafted a Memo setting out the basis for the settlement between the concerned parties with a view to avoiding legal costs regarding the claim relating to the sinking of Nasco Diamond. The said Wang Weidong holds eighty per cent of the shares in Tongli China.
68. I appreciate that Halcyon cannot prove the negative viz. that Tongli Samoa is not the alter ego of Tongli China. However, in a case such as this, it is necessary for the Court to take a prima facie view on the basis of the record. On the basis of the record, prima facie, I am 66 NMS196.11
satisfied that there is some connection between Tongli China and Tongli Samoa. In any event, it is not an aspect, which I can say with any degree of certainty, does not require further investigation at the appropriate stage. Had Tongli China appeared and not satisfactorily explained these facts, it would have entitled the plaintiff to such security. Its absence does not, to my mind, prejudice Halcyon for it does not claim ownership of the vessel through Tongli China, but entirely independent of it. Thus Halcyon must, in this Notice of Motion, succeed in establishing its title to the defendant-vessel.
69. The next question is whether even assuming that Tongli Samoa is the alter ego of Tongli China, Tongli China is responsible for the dues of Tongli Samoa. This question of law will also arise later while dealing with the transaction relating to the bareboat charter between Halcyon and Eastshine for it is contended on behalf of the plaintiff that Eastshine is the alter ego of Tongli China and that, therefore, Tongli China is the beneficial/real owner of the defendant-vessel. For reasons I will state at later, I have come to the conclusion that I ought not to decide this question.
70. Assuming that Tongli China is liable for the dues of Tongli Samoa and that the arbitral tribunal can make an award against Tongli China, the next question is whether Tongli China is the real or beneficial owner of the defendant-vessel.
71. Halcyon claims to be the owner of the vessel. According to the plaintiff, however, the bareboat charter was part of a financial arrangement, whereby the title to the defendant-vessel vested in Tongli China and not in Halcyon.
72. For the purpose of this Notice of Motion, the following facts and documents have been admitted.
(A) A Memo of Agreement dated 17th March, 2010, was entered into between Tongli China and Qingshan Shipyard of China (hereinafter referred to as "the shipyard") by which the shipyard agreed to sell and Tongli China agreed to buy the defendant-vessel for a price of US $31,800,000. Under the MOA, Tongli China paid a deposit of 10 percent of the purchase price. The balance ninety percent was sought to be paid by telegraphic transfer not later than 68 NMS196.11
three banking days before delivery. Under clause 5(b) of the MOA, the expected time of delivery was between 10th April, 2010 and 10th May, 2010 at the seller's option.
(B) On 23rd April, 2010, Addendum No.1 was executed between the shipyard and Tongli China whereby Tongli China nominated Halcyon Ocean Shipping Limited as the buyer under the MOA. Under clause 1, Tongli China remained fully responsible and guaranteed the full performance of Halcyon in accordance with the MOA and that such guarantee was to be on an on-demand basis in a form satisfactory to the shipyard. All other terms and conditions of the MOA remained unaltered.
Pausing here, it may only be noted that the plaintiff had called upon Halcyon to produce the MOA which I have referred to earlier and which is referred to in this bill of exchange. Halcyon having failed to furnish the same, the plaintiff filed a Chamber Summons. Halcyon produced the MOA in its reply to the Chamber Summons. (C) On 23rd April, 2010, the following further events occurred: (i) A bill of sale was issued by the shipyard to Halcyon. The 69 NMS196.11
bill of sale stated that in consideration, inter-alia, of the sum of US $31,800,000 paid to the shipyard, the shipyard had sold, transferred and assigned to Halcyon all its right, title and interest in the defendant-vessel.
(ii) Halcyon entered into a bareboat charter agreement with Eastshine Limited.
(iii) Eastshine remitted a sum of US $10,150,000, which constituted about thirty per cent of the purchase price of the defendant-vessel, as advance charterhire.
(iv) Far East Horizon Shipping Holdings Limited (hereinafter referred to as "FEHL") gave Halcyon a loan of US $18,150,000, which constituted the balance sixty per cent of the purchase price of the defendant-vessel. Incidentally in the plaint, the reference is to Sino Advance Limited which was the former name of FEHL.
(D) On 25th April, 2010, Halcyon paid the shipyard the balance purchase price of US $28,620,000.
The shipyard issued a commercial invoice dated 26th April, 2010 for the balance sum of US $28,620,000. On 26th April, 2010, the shipyard issued a commercial invoice for the full consideration of the defendant-vessel in the sum of US $31,800,000, certifying that the same was the true price actually paid for the vessel. (E) On 14th April, 2010, Halcyon obtained the provisional registration of the defendant-vessel with the Registry in Panama. On 18th August, 2010, the defendant-vessel was registered in the Republic of Panama. Halcyon Ocean Shipping Limited was shown to be the hundred per cent owner of the defendant-vessel. (F) On 30th November, 2010, the vessel was mortgaged to Sumitumo Mitsui Bank. On 10th December, 2010, the mortgage was registered with the Registrar of Companies, Hong Kong.
73. Based on the above facts and documents and on a Global Prospectus of FEHL, is Mr. DeVitre's argument in support of his case 71 NMS196.11
that the title of the defendant-vessel vests in Eastshine and not in Halcyon and that Eastshine being a mere shelf company and alter ego of Tongli China, the title of the vessel, in fact, vests in Tongli China. This was thus a different approach in support of the same contention viz. that Tongli China is the beneficial/true owner of the defendant vessel and Halcyon is only the registered owner thereof. Prior to the disclosure of further documents and the amendment, this submission was based on the contention that Halcyon is the alter ego of Tongli China. This contention is not pressed for the purpose of this Notice of Motion.
The plaintiff's contention now in this regard is this. Halcyon, though the registered owner of the defendant-vessel is only the nominee owner and Tongli China is the real/beneficial/equitable owner of the defendant-vessel. FEHL is only a financial services company in the business of financing the purchase of vessels and not in owning or operating them. Halcyon is the alter ego of FEHL, wholly controlled and owned by it. Halcyon is one of about 42 wholly owned subsidiaries of FEHL acquired by FEHL as a Special Purpose Vehicle (SPV) for its ship finance business. FEHL uses the assets of the SPVs to insulate other assets of the group as soon risks arises from 72 NMS196.11
the assets of the SPV. Halcyon was acquired as a shelf company by FEHL from GNLO9 Limited solely for the purpose of its financing business. The most important limb of this argument is that Halcyon has been used by FEHL solely for financing Tongli's acquisition of the defendant-vessel. In other words, the plaintiff's case is that the aforesaid acts were merely a financial set up for financing by FEHL the acquisition of the defendant-vessel from the shipyard not by Halcyon, but by Tongli China, acting through its nominee/alter ego Eastshine. It must be noted, therefore, that this line of argument does not pursue the original contention that Halcyon is an alter ego of Tongli China. This argument places Halcyon and FEHL on the one hand as financiers and Tongli China and Eastshine on the other as purchasers of the defendant-vessel.
74. It is admitted by the defendants that Halcyon is a wholly owned subsidiary of a wholly owned subsidiary of FEHL. FEHL was, therefore, referred to by the counsel as the grandparent of Halcyon.
75. The first point for consideration is whether Eastshine Ltd. is the alter ego of Tongli China. Assuming it is, the next question is whether 73 NMS196.11 the assets of Eastshine Ltd. can be proceeded against for the alleged liabilities of Tongli China. This aspect too raises the question of lifting the corporate veil which, for reasons I have stated later, I have not decided. The third and the most important question is whether the title to the defendant-vessel vests in Halcyon or in Eastshine.
76. Several factors were relied upon by Mr.DeVitre in support of the contention that Eastshine is the mere alter ego of Tongli China. The legal representative of Eastshine in proceedings adopted in China is its President the said Wang Weidong who is also a Director of Tongli China. Wang Weidong entered into negotiations with the plaintiff and its insurers regarding security subsequent to the sinking of Nasco Diamond. As stated earlier, Eastshine alongwith Rainbow Success was nominated by Tongli China to pay the charterhire for the vessel m.v. Yin Ning. The plaintiff also relied upon the affidavit of Ms. Regina Kwak dated 24th December, 2010, to show that the registered office of Eastshine in Hong Kong is just a secretarial office and that the company does not have any real substantial commercial existence. The plaintiffs have also relied upon the extract of Halcyon's bank statement. The plaintiffs have relied upon an affidavit 74 NMS196.11
of one Ms. Fiona I. That affidavit, however, is based on inferences and I would not consider it without anything more to support the plaintiff's case firmly.
77. What I said about Tongli China being a necessary party would also apply to Eastshine Limited and to Tongli China in respect of the present line of argument. They are not necessary parties in view of the nature of these proceedings which are in rem in an admiralty suit. Considering the material produced by the plaintiff, I would proceed on the basis that there is a connection, indeed a strong/close one between Tongli China and Eastshine. The material does not establish that Eastshine is a 100% subsidiary of Tongli China, but especially considering the view that I have taken regarding the ownership of the vessel, it would make no difference even if Eastshine is a 100% subsidiary of Tongli China.
78. This brings me to a consideration of the main question viz. whether the title/ownership of the vessel vests in Halcyon or in Eastshine and/or Tongli China.
79. Mr.DeVitre's main argument centered around the construction of the Bareboat Charter (hereinafter referred to as the "BBC") dated 23rd April, 2010, entered into between Halcyon and Eastshine Limited.
80. In my opinion, the BBC clearly indicates that the title/ ownership of the defendant-vessel vests in Halcyon, and not the bareboat charterer, Eastshine Limited. Neither the BBC nor the surrounding circumstances, including the Global Prospectus of FEHL indicates otherwise. It can hardly be disputed that most of the terms and conditions of the BBC proceed on that basis and, therefore, indicate that Halcyon is the owner of the defendant-vessel. Mr.DeVitre, however, relied upon certain clauses to contend otherwise. It is, therefore, necessary to analyze the clauses of the BBC.
81. The BBC expressly mentions Halcyon Ocean Shipping Limited as the owner of the defendant-vessel and Eastshine Limited as the bareboat charterer thereof. The charter period is sixty months i.e. till April, 2015. Clauses 16, 17 and 18 of the BBC, which militate against Mr.DeVitre's submissions, read as under :- 76 NMS196.11
The Charterers will not suffer, nor permit to be continued, any lien or encumbrance incurred by them or their agents, which might have priority over the title and interest of the Owners in the Vessel. The Charterers further agree to fasten to the Vessel in a conspicuous place and to keep so fastened during the Charter Period a notice reading as follows"
"This Vessel is the property of (name of Owners). It is under charter to (name of Charterers) and by the terms of the Charter Party neither the Charterers nor the Master have any right, power or authority to create, incur or permit to be imposed on the Vessel any lien whatsoever."
17. Indemnity (See also Clause 39)
(a) The Charterers shall indemnify the Owners against any loss, damage or expense incurred by the Owners arising out of or in relation to the operation of the Vessel by the Charterers, and against any lien of whatsoever nature arising out of an event occurring during the Charter Period. If the Vessel be arrested or otherwise detained by reason of claims or liens arising out of her 77 NMS196.11
operation hereunder by the Charterers, the Charterers shall at their own expense take all reasonable steps to secure that within a reasonable time the Vessel is released, including the provision of bail.
Without prejudice to the generality of the foregoing, the Charterers agree to indemnify the Owners against all consequences or liabilities arising from the Master, officers or agents signing Bills of Lading or other documents.
(b) If the Vessel be arrested or otherwise detained by reason of a claim or claims against the Owners, the Owners shall at their own expense take all reasonable steps to secure that within a reasonable time the Vessel is released, including the provision of ball.
In such circumstances the Owners shall indemnify the Charterers against any loss, damage or expense incurred by the Charterers (including hire paid under this Charter) as a direct consequence of such arrest or detention."
82. These clauses militate against the contention that the title to the vessel vested in the charterers/Eastshine Limited. Clause 16, in terms, establishes that. Clause 17 would have been unnecessary had the 78 NMS196.11
ownership been that of the charterer. If indeed, the charterer was the owner of the vessel, it would not have been provided that in the event of the vessel being arrested or otherwise detained by reason of claims arising out her operation, the charterers shall, at their expense, secure the release of the vessel. If Halcyon was not the owner it would not have been concerned with the release of the vessel at all. I will presume that the rest of the clause does not answer conclusively the question of ownership either way, for security to indemnify even the ostensible owner may be consistent as third parties would look to it for any damages.
83. Clauses 28 and 29 of the BBC, as amended by the parties, read as under :-
"28. Termination (See also clause 46)
(a) Charterers' Default
The Owners shall be entitled to withdraw the Vessel from the service of the Charterers and terminate the Charter with immediate effect by written notice to the Charterers if:
(i) The Charterers fail to pay hire in accordance with Clause 11. However, where
there is a failure to make punctual payment
of hire due to oversight, negligence, errors
or omissions on the part of the Charterers
or their bankers, the Owners shall give the
Charterers written notice of the number of
clear banking days stated in Box 34 (as
recognised at the agreed place of payment)
in which to rectify the failure, and when so
rectified within such number of days
following the Owners' notice, as provided
herein, shall entitle the Owners to withdraw
the Vessel from the service of the Charterers and terminate the Charter without further
(ii) the Charterers fail to comply with the requirements of;
(1) Clause 6 (Trading Restrictions)
(2) Clause 13(a) (Insurance and Repairs)
provided that the Owners shall have the option, by written notice to the Charterers, to give the Charterers a specified number of days grace within which to rectify the failure without prejudice to the Owners' right to withdraw and terminate under this Clause if the Charterers fail to comply with such notice;
(e) The termination of this Charter shall be without prejudice to all rights accrued due between the parties prior to the date of termination and to any claim that 80 NMS196.11
either party might have.
In the event of the termination of this Charter in accordance with the applicable provisions of Clause 28, the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call, or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities. Pending physical repossession of the Vessel in accordance with this Clause 29, the Charterers shall hold the Vessel as gratuitous bailee only to the Owners. The Owners shall arrange for an authorised representative to board the Vessel as soon as reasonably practicable following the termination of the Charter. The Vessel shall be deemed to be repossessed by the Owners from the Charterers upon the boarding of the Vessel by the Owners' representative. All arrangements and expenses relating to the settling of wages, disembarkation and repatriation of the Charterers' Master, officers and crew shall be the sole responsibility of the Charterers."
84. If the charterer was the owner of the vessel, the provisions of clause 28 would not have found place in the BBC. The entire language of clause 28 militates against the contention. Halcyon 81 NMS196.11
would never have been conferred the right to terminate the charter and/or withdraw the vessel for non-payment of the hire as per the BBC if it was not the owner thereof. The provisions of clauses 28 and 29 go together and what I say about clause 28 also applies to clause
29. Indeed, if the charterer was the owner of the vessel, for the contingencies mentioned in the above clauses, there would have been a provision for Halcyon to have security over the vessel for the payment of its dues. That security would obviously then have been created by the charterer as the real owner.
85. The BBC, however, had additional clauses. While I will construe the clauses relied upon by counsel separately, it would be convenient to set out at this stage some of the definitions in clause 32. They read as under :-
"Charter Hire" means, in respect of any Payment Date, the aggregate amount of Fixed Charterhire and Variable Charterhire payable on such Payment Date in accordance with Clause 38 of this Charter;
"Charterhire Principal" means the amount of United 82 NMS196.11
States Dollars Twenty-one Million (US$ 21,000,000); "Corporate Guarantee" means a joint and several corporate guarantee dated on or about the date of this Charter executed or to be executed by , the Original Buyer and
Rainbow Success Limited ( together the "Corporate Guarantors" and each the "Corporate Guarantor") in favour of the Owners guaranteeing all the obligations of the Charterers under this Charter;
"Fixed Charterhire" means any or each one of the sixty (60) consecutive monthly instalments of the Charterhire Principal payable on a Payment Date as set out in the Fixed Charterhire payment table in Schedule 1 to this Charter which shall include a final balloon payment in the amount of United States Dollars Four Million (US$ 4,000,000) to be paid together with the last instalment of Fixed Charterhire;
"General Assignment" means the assignment dated on our about the date of this Charter executed or to be executed by the Charterers in favour of the Owners whereby, inter alia, all the rights, title, interest and benefits of the Charterers in the Charter Hire and other earnings under this Charter and the insurances in respect of the Vessel are assigned to the Owners; 83 NMS196.11
"Interest Rate" means, with respect to each relevant period, the annual rate determined by the Lender to be aggregate of the Margin and LIBOR with respect to such period;
"MOA" means the Memorandum of Agreement dated 17 March 2010 made between Sellers and the Original Buyers in respect of the purchase of the Vessel by the Original Buyers, which is to be supplemented to nominate the Owners to take delivery of the Vessel under the MOA, and as may be further amended and
supplemented to nominate the Owners to take delivery of the Vessel under the MOA, and as may be further amended and supplemented from time to time;
"Original Buyers" means Tongli Limited, a company incorporated under the laws of the British Virgin Island and having its registered office at Sea Meadow House, Blackburne Highway Road Town, Tortola, BRITISH VIRGIN ISLAND;
"Owners" means Halcyon Ocean Shipping Limited , a company incorporated
under the Laws of Hong Kong and having its registered office at 30A Tower, 10 South Horizons, Hong Kong; 84 NMS196.11
"Termination Date" means the date on which the chartering of the Vessel is terminated under this Charter pursuant to:
(a) Clause 34.1;
(b) Clause 37.3;
(c) Clause 44.19;
(d) Clause 44.20;
(e) Clause 45.3; or
(f) Clause 47.1;
"Termination Event" has the meaning given to it in Clause 46.1 of this Charter;
"Termination Sum" means the Owners' estimate of its losses as a result of the early termination of the Charter Period which amount is to be calculated as being the aggregate of:
"Upfront Payment" has the meaning given to in Clause 38.1 of this Charter;
"Variable Charterhire" means, in respect of each Payment Date, the interest component of each Fixed Charterhire, which shall be calculated at the applicable 85 NMS196.11
Interest Rate on the Charterhire Principal Balance as of the immediately preceding Payment Date (or as of the delivery Date in the case of Variable Charterhire in respect of the first Payment Date) based on the actual number of days during the Hire"
86. Mr.DeVitre firstly relied upon clause 34 of the BBC. He submitted that the clause indicated that though the BBC generally suggests that Halcyon is the owner of the defendant-vessel, the parties had agreed that the ownership of the vessel would vest in the charterers/Eastshine Limited. Clause 34 reads as under :- "CANCELLING
34.1 Unless the parties hereto otherwise agree, should the MOA be cancelled for any reason prior to the occurrence of the Delivery Date or should the Sellers otherwise fail to deliver the Vessel in accordance with the terms of the MOA on or
before 15 May 2010 then:
(a) this Charter shall be deemed to be
cancelled forthwith and the
Owners shall be released from
any and all obligations, liabilities
and responsibilities whatsoever
(b) the Charterers shall forthwith pay
to the Owners:
(i) any and all costs, liabilities, debts and expenses incurred by the Owners as
a result of its entering into of this
Charter, the Security Documents and the
(ii) all other amounts due and payable
under this Charter together with
interest accrued thereon pursuant to
34.2 In the event this Charter is cancelled pursuant to Clause 34.1 above, if the Upfront Payment has been paid by the Charterers to the Owners, the Owners shall refund (without interest) to the Charterers the amount of the Upfront Payment
less any amount payable under Clause 34.1 above and less the amount of the MOA Deposit."
87. Mr.DeVitre construed clause 34 thus. Even if the MOA is cancelled and by reason thereof, or even otherwise, the vessel is not 87 NMS196.11
available, clause 34 requires the charterer/Eastshine Limited to pay to the owner all other amounts due and payable under the charter together with interest under clause 38.10, including the entire unpaid charterhire for the full term of the charter. If Halcyon was the true owner, this would lead to an absurd situation where on the one hand, the charterer is deprived of the vessel and at the same time, is required to pay the entire charter hire. This could never have been the intention of the parties, unless the ownership of the vessel vested in the charterer and not the ostensible owner.
88. The argument proceeds on a misconstruction of clause 34.1. Firstly, under clause 34.1(b)(1) Halcyon is indeed to be paid the costs, liabilities, debts and expenses incurred by it as a result of entering into the charter party, the security documents and the MOA. Clause 34.1(b)(1) does not mention "hire". This is not inconsistent with Halcyon being the true owner. There is nothing unusual about such a clause. For instance, in hire purchase agreements, the borrower often identifies the equipment. The lender purchases the same. They enter into a hire purchase agreement. The lender may well absolve itself of any liability in respect of the quality and performance of the 88 NMS196.11
equipment as well as any default on the part of the vendor in the delivery thereof, having left it to the borrower to ensure the same. The lender would nevertheless be entitled to the ownership of the equipment by paying for the same and thereafter hiring it to the borrower. Further, it is a matter of contract between the lender and the borrower as to who ought to pay for the costs in connection with the agreement, including for the documentation in connection with the purchase of the equipment. Even if the lender purchases the same, parties could always agree that the costs incurred in connection therewith, including the drawing up of documents must be paid by the borrower irrespective of whether the vendor ultimately defaults in any manner, as to the quality, the quantity of the equipment or the due delivery thereof or otherwise. There is nothing in law that prohibits such an arrangement. Indeed, very often even if the agreement does not provide for the same expressly, such costs are built into the costs and repayment clause.
89. Clause 34.1(b)(ii) does not require the charter to pay the hire if the vessel is not delivered by the shipyard/seller. Mr.DeVitre's entire 89 NMS196.11
argument proceeded on the misconception that it does. This is evident from clause 34.2. Under clause 34.2, if a charter is cancelled pursuant to clause 34.1 i.e. if the vessel is not delivered under the MOA, the upfront payment is to be refunded to the charterers less any amount payable under clause 34.1 and less the amount of the MOA deposit. If Mr.DeVitre's submission is accepted, there would be a clear inconsistency between clause 34.1(b)(ii) on the one hand and clause 34.2 on the other.
90. Mr.DeVitre's reliance upon clause 35.1 and 35.3 is also not well founded. The clauses read as under :-
"35 TERMS OF DELIVERY
35.1 The Charterers hereby acknowledge and agree that the Owners make no condition, term,
representation or warranty, express or implied (and whether statutory or otherwise) as to the Owners' title to the Vessel (to the extent that it will derive from the Original Buyers and /or the
Sellers) or as to the seaworthiness, merchantability, condition, design, operation, performance, capacity or fitness for use or as to the eligibility of the Vessel for any particular trade 90 NMS196.11
or operation or any other condition, term,
representation or warranty whatsoever, express or implied, with respect to the Vessel. Acceptance of delivery by the Charterers or (as the case may be) deemed delivery of the Vessel to the Charterers under this Charter shall be conclusive proof that, for the purposes of the obligations and liabilities of the Owners hereunder or in connection
herewith, the Vessel is at that time seaworthy, in accordance with the provisions of the Charter, in good working order and repair and without defect or inherent vice whether or not discoverable by the Charterers and free and clear of all Encumbrances and debts of whatsoever nature.
35.2 The Charterers agree that the Owners shall be under no liability to supply any replacement vessel or any piece or part thereof during any period when the Vessel is unusable and shall not be liable to the Charterers or any other person as a result of the Vessel being unusable."
The clause merely protects the owner against any possible defect in title on account of any corresponding defect in the title of the original buyer i.e. Tongli China and/or the sellers i.e. the shipyard. I 91 NMS196.11
cannot see how that reflects adversely upon Halcyon's title to the vessel. Similarly, I cannot see how the owner absolving itself of it's liability to supply a replacement vessel reflects adversely upon it's ownership of the vessel to be supplied. Indeed, if anything, the clause indicates Halcyon's ownership of the vessel. If the charterer was the owner and Halcyon a mere financier, there would have been no question of Halcyon being required or agreeing to provide another vessel.
91. Clause 36 was not construed on behalf of either party. Mr.DeVitre, however, stated that clause 36.2.1(a)(ii) provided that the owners/Halcyon had received the list of shareholders of the charterer i.e. Eastshine Limited. This, he said, would indicate the connection between Tongli China and Eastshine. He stated that though asked for, Halcyon did not furnish the same. As noted earlier, I have proceeded on the basis that there is a connection between Eastshine and Tongli China.
92. Clauses 37, 38.1, 38.9, 38.10, 38.13 and 38.14 of the Bareboat Charter read as under :-
"37. CHARTER PERIOD
37.1Subject to the terms of this Charter, the period of chartering of the Vessel under this Charter (the "Charter Period") shall commence on the Delivery Date and shall terminate on the date which falls 60 months after the Delivery Date.
37.2Notwithstanding the provisions of clause 37.1 above, the chartering of the Vessel under this Charter may be terminated by the Owners pursuant to Clause 47 and in accordance with the other provisions of this Charter.
37.3Notwithstanding the provisions of clause 37.1, the Charterers shall have the option after twelve (12) months of the Delivery Date to terminate the
chartering of the Vessel under this charter prior to the end of the Charter Period by giving to the Owners not less than thirty (30) Business Days' prior written notice specifying the date on which the chartering of the Vessel is to terminate (the "Early Termination Date") and, upon such termination, the Charterers shall redeliver the Vessel to the Owners in accordance with Clause 50.1. Forthwith upon the Early
Termination Date, the Charterers shall pay to the 93 NMS196.11
Owners the Termination Sum calculated up to such Early Termination Date.
37.4If the payment of the relevant Termination Sum by the Charterer as a result of a termination of this Charter pursuant to Clause 37.3 above is made (directly or indirectly) from proceeds of a financing by a bank, financial institution or finance company, then the Charterers shall pay to the Owners, together with such Termination Sum, a fee in Dollars in an amount equal to zero point five per cent (0.5%) on the Charterhire Principal Balance as at such Early Termination Date.
38. CHARTER HIRE
38.1 The parties hereto agree that on or prior to the Delivery Date, the amount of United States Dollare Ten Million and Eight Hundred Thousand (US$10,800,000) shall have been paid by the Charterers to the Owners as an upfront payment for the chartering of the Vessel under this Charter (the "Upfront Payment"). The Upfront Payment is non-refundable except as provided for in this Charter.
An amount equal to the MOA Deposit has been paid by the Original Buyer under the terms of the MOA and the release of the MOA Deposit to the Sellers on the 94 NMS196.11
Delivery Date shall be, and shall be deemed to be, payment by the Charterers to the Owners of part of the Upfront Payment by the same amount.
38.9 Subject to the terms of this Charter, the Charterers' obligation to pay hire in accordance with the requirements of this Clause 38 and to pay any Termination Sum in accordance with the terms of this Charter shall be absolute and unconditional under any and all circumstances, irrespective of any contingency whatsoever, including (but not limited to):
38.9.1 any set-off, counterclaim, recoupment, defence or other right which the Charterers may have against the Owners or any other person;
38.9.2 the unavailability of the Vessel for any reason, including (but not limited to) any invalidity or other defect in the title, condition, design, operation or fitness for use of the Vessel or the ineligibility of the Vessel for any particular trade or for documentation under the laws of any country or any damage to the Vessel; 38.9.3 any failure or delay on the part of the Owners whether with or without fault on their part, in performing or complying with any of the terms or covenants hereunder;
38.9.4any insolvency, bankruptcy, reorganisation, arrangement, readjustment of debt, dissolution, liquidation or similar proceedings by or against the Owners or the lack of due authorisation of or other defect in this Charter
38.10 In the event of failure by the Charterers to pay on the due date for payment thereof, or in the case of the sum payable on demand, the date of demand therefor, any hire or other amount payable by them under this Charter, the Charterers shall pay to the Owners on demand default interest on such hire or such other amount from the date of such failure to the date of actual payment (both before and after any relevant judgment or winding up of the Charterers) at the rate of zero point zero five per centum (0.05%) per day provided that no such default interest shall be payable if such unpaid amount is paid to the Owners within three (3) Banking Days the due date. The interest payable by the Charterers as aforesaid shall be compounded at such intervals as the Owners shall determine and shall be payable on demand.
38.13 The Charterers may, after twelve (12) months of the date of this Charter, prepay part or all of the Charter Hire on a Payment Date provided that:-
(a) the Charterers shall have given to the Owners not less than one (1) month prior written notice specifying the amount and date of prepayment; and
(b) the amount of any partial prepayment shall be at least Dollars Five Hundred Thousand (US$500,000) and an integral multiple thereof
38.14 If any prepayment is made (directly or indirectly) from proceeds of a financing by a bank, financial institution or finance company, then the Charterers shall pay to the Owners, together with the amount to be prepaid, a fee in an amount equal to zero point five per cent (0.5%) on the relevant prepaid amount as at such Payment Date."
93. Mr.DeVitre submitted that Halcyon's case that US $10.80 million were paid as advance charterhire by Eastshine is false. The falsity, he said, is evident from the fact that Halcyon, upon termination of the charterhire, called upon Eastshine to pay US $18.00 million in the termination notice. He submitted that US $10.80 million had already been paid. There was no question of calling upon Eastshine to pay US $18.00 million as the total charterhire was only US $21.00 97 NMS196.11
94. The fallacy of this argument arises on account of it being based on the incorrect assumption that the charterhire was only US $21.00 million and not US $31.80 million. In support of the contention that the charterhire was only US $21.00 million, he relied upon the definition of charterhire principal in clause 32, which I have set out earlier. The amount of US $21.00 million mentioned therein, however, is not the total charterhire. This is clear from clause 38.1 where the parties to the BBC acknowledged the fact that a sum of US $10.80 million had already been paid as upfront payment, which included the 10% deposit made by Tongli China when it had entered into the MOA with the shipyard for the purchase of the defendant-vessel. Thus, the upfront payment had to be adjusted against the total charterhire of US $31.80 million. This is clear on a conjoint reading of clauses 38.1 and 38.2. Clause 38.1 acknowledges the receipt of the upfront payment of US $10.80 million and clause 38.2 stipulates the requirement for the payment of the balance US $21.00 million in accordance with Schedule I. Schedule I specifies the sixty monthly payments to be made during the 60 month charter period. If 98 NMS196.11
Mr.DeVitre's contention was correct, clause 38.2 would be meaningless. The Schedule referred to therein would in that event have stipulated payment of sixty further instalments aggregating to US $10.20 million i.e. US $21.00 million less US $10.80 million being the upfront payment.
95. The submission that the total charterhire was US $21.00 million is even commercially impossible. It can hardly be suggested that an owner would stipulate a charterhire of US $21.00 million when the cost of the vessel was US $31.80 million and then agree to transfer the ownership of the vessel to the charterer upon payment of the charterhire as provided in the other terms of the BBC, which I will refer to shortly.
96. The contention that Tongli China/Eastshine financed the purchase of the vessel to the extent of forty per cent is unsustainable. The contention was based on the fact that Tongli China had paid an advance of ten per cent to the shipyard under the MOA and Eastshine had paid an amount of US $10.80 million as upfront payment. The upfront payment was made towards the charterhire under 99 NMS196.11
the BBC. Any upfront amount is bound to represent a percentage of the total charterhire. I cannot see how from that it must be presumed that the charterer paid for the acquisition of the vessel. What the charterer paid was charterhire. That the owner used the amount to pay the seller is another matter altogether. There is nothing unnatural about the owner utilising any amounts, including the charterhire, to make payment of its dues under the sale agreement with the shipyard.
97. Clause 38.4 also answers Mr.DeVitre's contention that Tongli China was not to be repaid the 10% it paid the shipyard towards the cost of the defendant-vessel. The amount was adjusted against the charterhire payable to Halcyon. Thus Halcyon reimbursed the same by adjusting the amount towards the hire payable under the BBC as is evident from clause 38. How Tongli China and Eastshine adjust the amount between themselves is for them to decide.
98. Clause 40.3 of the BBC reads as under :- "40. MORTGAGES
40.3 In respect of any sale of the Vessel by the Owners to the Charterers or its nominee, the Owners shall ensure that, after receiving from the Charterers all amounts due 100 NMS196.11
and payable by the Charterers to the Owners, the title in the Vessel is transferred free from Encumbrances and free from any Mortgage other than Encumbrances of whatsoever nature which the Charterers caused to become effective against the Vessel during the currency of this Charter."
This clause, in fact, militates against Mr. Devitre's submission and supports the defendant's case that Halcyon is the owner. Halcyon's obligation to transfer the title in the vessel is subject to Eastshine paying all amounts. Further, if Eastshine was the true owner, it would never had agreed to Halcyon encumbering the vessel by way of mortgage or otherwise.
99. Mr. DeVitre relied upon clause 41 of the BBC which reads as under :-
"41. TRANSFER OF VESSEL
41.1 Any change in the registered ownership of the Vessel shall require the Charterers' prior approval, which shall be granted provided that this Charter is continued on identical terms (save for 41.2 below) and that the change will not cause negative consequences for the Charterers as to economic or competitive 101 NMS196.11 relationships.
41.2 Upon Owners' sale of the Vessel, any reference to "the Original Buyers" and the "MOA", shall (except for such reference in Clauses 33 and 35) be deemed to be deleted herein, and any subsequent owner shall not be entitled to direct any claim against the Owners or on the basis of the MOA.
41.3 The Charterers agree and undertake to enter into any such usual documents as the Owners shall
reasonably require to complete or perfect the transfer of the Vessel (with the benefit and burden of this Charter) pursuant to Clause 41.1, any costs or expenses whatsoever arising in relation thereto to be borne by the Owners."
100. Clause 41.1 does not indicate Eastshine being the owner of the vessel. The clause is not inconsistent with Halcyon being the owner thereof. A charterer could well insist on such a clause to protect itself against any possible attempt by the new owner to alter the terms of the charterparty which indeed vests valuable rights in the charterer, including for the transfer of the vessel under clause 40. In fact, clause 41 militates against the plaintiff's contention. If Eastshine was the real 102 NMS196.11
owner, it would never have agreed to the ownership of the vessel changing hands by Halcyon at all. As it stands, under clause 41.1, Halcyon is entitled to change the registered ownership of the vessel and Eastshine was bound to grant the approval thereto provided its rights under the charterparty were left unaffected. If Eastshine was, for any reason or in any manner, the owner of the vessel, it would never have conferred this right of change of ownership of the vessel upon Halcyon. The doubt, if any, in this regard is set at rest by clause 41.3, which requires the charterer/ Eastshine to enter into all documents necessary to transfer the ownership of the vessel to a third party.
101. There are various other clauses which support the defendants. It is not necessary to refer to all of them. I will refer to only those clauses relied upon by Mr.DeVitre. He contended that despite such clauses, the true nature of the transaction is evident from the clauses relied upon by him.
102. Mr.DeVitre then relied upon clause 44.12 to 44.16, 44.20 and 44.21, which read as under :-
103 NMS196.11 "44. UNDERTAKINGS
44.12 upon reasonable prior notice by the Owners, to visit any of the Charterers' or any Security Parties' offices and to inspect any of the Charterers' or any Security Parties' assets, premises, books and records which accurately reflect in all material respects all of the Charterers' or such Security Parties' business, affairs and transactions;
44.13 unless with the prior written consent of the Owners, not declare or pay any dividend or make any other income distribution to its shareholders during the Charter Period;
44.14 not to incur any indebtedness other than (i) indebtedness owing to its shareholders which ranks after the indebtedness owing by the Charterers to the Owners under this Charter; and (ii) any indebtedness incurred in the ordinary course of its business on arm's length basis but in any event not overdue by more than 30 days; 44.15 not to create or permit to subsist any Encumbrance over any of its assets;
44.16 unless with the prior written consent of the Owners, not incur any borrowings from any person or 104 NMS196.11
otherwise create, incur, assume, suffer to exist or in any manner become or remain liable for any other financial indebtedness;
44.20 ensure that all times the Market Value of the Vessel (expressed in Dollars) is not less than 150% of the Charterhire Principal Balance at such time less the amount of the Deposit held by the Owners at such time. If at any time the Market Value of the Vessel (expressed in Dollars) is less than 150% of the Charterhire Principal Balance at such time less the amount of the Deposit held by the Owners at such time, then the Charterers shall within five (5) Banking Days of demand by the Owners pay to the Owners an additional amount of Deposit sufficient to ensure that the Market Value of the Vessel (expressed in Dollars) is no longer less than 150% of the Charterhire Principal Balance at such time less the aggregate amount of the Deposit held by the Owners at such time. The failure by the Charterers to pay such additional Deposit within such five (5) Banking Days, shall, and shall be deemed to, constitute a Termination Event under Clause 46.1 and the Owners shall then be entitled to exercise its rights as set out in Clause 47.
44.21 in the event the Vessel is arrested or detained at any time in South Africa or any other jurisdiction by any 105 NMS196.11
person having or purporting to have a claim against or any interest in the Vessel not due to the fault of the Owners, within ten (10) Banking Days of such arrest or detention resolve such arrest or detention by way of provision of guarantee or security for costs (whether by the Charterers or its P&I Club or otherwise) or by such other means necessary to ensure the Vessel is released from such arrest or detention and available for operation. If the Charterers fail to procure the release of the Vessel within such ten (10) Banking Days, the Owners may and shall be entitled to (but not obliged to) apply all or any part of the Deposit then held by the Owners towards guaranteeing or securing the release of the Vessel from such arrest or detention."
103. Mr.DeVitre submitted that the clauses are consistent with the charterer and not Halcyon being the actual borrower. Clauses 44.12 to 44.17 are not inconsistent with Halcyon's ownership of the vessel or with FEHL having granted the financial facility to Halcyon. The charter was for a reasonably long period of sixty months. It is understandable that the owner would, therefore, wish to safeguard its asset. These clauses are not inconsistent with the fact of Halcyon being the owner of the vessel . If the charterer was the owner, there was no reason for such provisions.
104. Clause 44.20 also does not support Mr.DeVitre's submission to the effect that it indicates a pure financial arrangement whereunder Tongli China was the borrower and the vessel was merely a security for the repayment of the dues to FEHL routed through Halcyon. Clause 44.20 is also not inconsistent with Halcyon being the real owner. Considering the long duration of the charter period, it is not unnatural that the owner of the vessel would insist upon the charterer keeping it in good order and condition. This is especially so in view of the fact that in the event of the termination of the charterparty, and in the event of the charterer not paying the termination sum the defendant-vessel would continue to remain of the ownership of Halcyon and not be transferred to the charterer under the subsequent clause of the BBC which I will refer to.
105. Mr.DeVitre relied upon clause 45.3. It is, however, necessary to read clause 45.3 together with clauses 47 and 51. Under clause 48, the charterer is not entitled to assign or transfer its rights or obligations under the charter except with the prior written permission of the owner and clause 50 provides for the mode of re-delivery of the 107 NMS196.11
vessel by the charterer to the owner upon the termination of the charterparty under clause 47. These clauses are inconsistent with the charterer being the owner. Before setting out these clauses, it must be noted that clause 46 provides for events which entitled the owner to terminate the charterparty. The charterparty has, in fact, been terminated by Halcyon.
106. Clauses 45.3, 47 and 51 of the BBC read as under :- "45. INSURANCES, TOTAL LOSS AND COMPULSORY ACQUISITION.
45.3 Notwithstanding anything to the contrary contained in this Charter, if the Vessel shall become a Total Loss, hire shall cease from the date when she was lost or, in the case where the Vessel is missing, from the date when a notice of abandonment is sent to insurers, and the Charterers shall within thirty (30) days of such date pay to the Owners the amount equal to the Termination Sum. Any insurance proceeds received by the Owners in respect of such Total Loss shall, within one (1) month after the date of receipt of such proceeds or such other longer reasonable period of time as agreed by the Owners and the Charterers, be paid to the Charterers after the Owners having deducted any outstanding Termination Sum or any other amount due and payable 108 NMS196.11
to the Owners under this Charter.
47. OWNERS' RIGHTS ON TERMINATION
47.1 At any time after a Termination Event shall have occurred or the right of the Owners to terminate this Charter under any other provisions of this Charter has arisen, the Owners may, by notice to the Charterers immediately, or on such date as the Owners shall specify, terminate the chartering by the Charterers of the Vessel under this Charter, whereupon the Vessel shall no longer be in the possession of the Charterers with the consent of the Owners, and the Charterers shall redeliver the Vessel to the Owners in accordance with Clause 50.
47.2 On or at any time after termination of the chartering by the Charterers of the Vessel pursuant to Clause 47.1 hereof the Owners shall be entitled (but not bound and without prejudice to the Charterers obligations hereunder) to retake possession of the Vessel. 47.3 If the Owners pursuant to Clause 47.1 hereof give notice to terminate this Charter and the chartering by the Charterers of the Vessel, the Owners may, at its entire discretion, demand that the Charterers pay to the Owners on the Termination Date or such later date as the Owners shall specify (and without prejudice to any other rights, claims or remedies which the Owners may have) the 109 NMS196.11
47.4 Any amount due to the Owners under Clause 47.3 shall bear interest pursuant to Clause38.10 (before and after any relevant judgment or any winding-up of the Charterers) from the Termination Date to the date of the Owners' actual receipt thereof.
47.5 Following termination of the chartering of the Vessel hereunder pursuant to Clause 47.1, the Charterers shall irrevocably (i) continue to comply with their obligations under this Charter until the Vessel is redelivered to the Owners in accordance with Clause 50 and (ii) pay, or reimburse, to the Owners on demand all Losses suffered by the Owners in connection with such termination including, without prejudice to the generality of the foregoing, all liabilities, costs and expenses so incurred in recovering possession of, and in moving, storing, insuring and maintaining, the Vessel and in carrying out any works or modifications required to cause the Vessel to conform with the provisions of Clause 50 together with interest thereon pursuant to Clause 38.10 hereof from the date on which the relevant Loss was suffered by the Owners until the date of payment or reimbursement thereof (both before and after any relevant judgment or winding up of the Charterers) pursuant to this Clause 47.
47.6 Upon full payment to the satisfaction of the Owners of the Termination Sum and all other amounts payable by the Charterers to the Owners under this Charter, the Owners shall, for a consideration of US $100, transfer to the Charterers (or its nominee) all of the Owners' rights, title and interest in the Vessel on the basis of "as is-where is" and without any recourse to, or representation or warranty from the Owners. All registration, legal or other expenses whatsoever incurred in transferring the title from the Owners to the Charterers (or its nominee) shall be payable by the Charterers.
51. SALE OF VESSEL
If the Charterers fail to meet in full the Owners' demand for payment pursuant to Clause 47.3:
51.1 the Owners may, at its option, sell the Vessel free of any charter, lease or other engagement concerning the Vessel for such price and on such terms and conditions as it may, in its absolute discretion, think fit. 51.2 the gross proceeds of the sale of the Vessel shall be deducted an amount equal to the aggregate of the expenses, disbursements, taxes, expenses and losses whatsoever as may have been incurred by the Owners in 111 NMS196.11
respect of the sale of the Vessel (the "Net Sale Proceeds").
51.3 an amount equal to the Termination Sum shall be deducted from the Net Sale Proceeds. If the Net Sale Proceeds are insufficient to satisfy all amounts due and payable from the Charterers to the Owners hereunder, the Charterers shall pay the outstanding balance to the Owners. If there is any amount remaining from the Net Sale Proceeds after the full payment of the amounts due and payable by the Charterers to the Owners hereunder, the Owners shall pay the difference to the Charterers. 51.4 notwithstanding any provisions to the contrary contained in the foregoing, the Owners may, at its option, retain the Vessel and have the Vessel valued in Dollars by two independent international leading ship brokers, one appointed by the Owners and the other one appointed by the Charterers, and the average value of the two valuations quoted by such two ship brokers shall apply. The Owners may offset against such value all costs incidental to such valuation of the Vessel. If the value of the Vessel is less the Termination Sum, the Charterers shall immediately pay the difference to the Owners upon demand by the Owners. If the value of the Vessel is higher than the Termination Sum, the Owners shall immediately pay the difference to the Charterers." 112 NMS196.11
107. Mr.DeVitre submitted that it is inconceivable that Halcyon would sell its own vessel to recover the dues from Eastshine. He submitted that Halcyon would sell the vessel to recover the amounts due to it from Eastshine only if Eastshine/Tongli was the real owner of the vessel i.e. the vessel represents an asset belonging to Eastshine. According to him, clause 51.3 makes this clear as it provided that the excess amount, if realised on sale, is to be paid over to Eastshine.
108. The charterer, Eastshine was indeed to have the benefit of the ownership of the vessel provided, however, it performed all its obligations under the charterparty, including the payment of the termination sum. Even presuming that under clause 47.3 the charterer was required to pay the termination sum and thereby acquire the ownership of the vessel upon payment of a sum of only US $100, it would make no difference to the facts and circumstances of the present case. The fact of the matter is that the charterer has not done so. It is significant to note that the plaintiff has not offered to pay the amount to Halcyon on behalf of Eastshine Limited and thereby step into its shoes.
109. Let me assume that under the BBC and especially in view of these clauses, the intention of the parties was that the charterer would have the benefit of the ownership of the vessel irrespective of whether the hire was completed successfully throughout the period or not. In other words, even in the event of the termination of the charterparty before the successful completion of the charter, the parties intended that the charterer would have all the benefits of ownership of the vessel. What is of vital importance, however, to note is that this would be so, subject to the charterer in that event complying with all its obligations, especially the obligation to make payment of the termination sum and/or only in the event of the vessel, upon the sale thereof, recovering the entire amount due and payable to Halcyon under the BBC. Such provisions can, by no stretch of imagination, vest the title of a vessel in the charterer. Even if such was the intention between the parties, the vesting of the title was subject to the said condition. Until and unless that condition is fulfilled, the vesting cannot take effect. No owner would risk divesting itself of title and thereby control of the vessel until and unless the owner recovers all the amounts due to it. Such an 114 NMS196.11
arrangement was only to let the charterer have the benefit of becoming the owner upon payment of the entire amount. It does not indicate an intention on the part of the owner to divest itself of the ownership. It, in fact, indicates the contrary. To hold otherwise would lead to absurd consequences of the owner having transferred its assets without being paid for it. Such an arrangement does not mean or lead to the conclusion ipso facto that the title thereby was transferred. The clauses do not support the plaintiff's case of the financial arrangement, in fact, being one whereby FEHL advanced the amounts to Tongli China.
110. Tongli China was the commercial manager of the defendant vessel. As I noted earlier, there also appears to be a connection, whatever it may be, between Tongli China and Eastshine Limited. It is not surprising therefore, that Tongli China and Rainbow Success guaranteed the payment of Eastshine's obligations under the BBC.
111. For the same reason it is also not unanatural that Tongli China guaranteed the payment of consideration to the shipyard. Halycon, obviously, depended upon the payment of the charter hire by 115 NMS196.11
Eastshine for payment by it of the purchase price to the shipyard. By guaranteeing payment of Halcyon's dues to the shipyard Tongli China, in effect, assured/guaranteed the payment of the hire. This, in turn, was in view of it being the commercial manager and connected to Eastshine.
112. The contention, therefore, that the title of the vessel vested in Eastshine based on the terms and conditions of the BBC is rejected.
113. Mr.DeVitre relied upon a "GLOBAL OFFERING" issued by FEHL. Mr.DeVitre relied upon the following extract from the Global Offering :-
We are a leading financial services company
specializing in providing customized financing solutions through equipment-based financial leasing, as well as providing extended value-added services to customers in targeted major industries in China, according to the report issued by our independent market research consultant, BHCC. We currently operate our business by targeting six focused industries which we believe to have sustainable growth potential, namely the healthcare, 116 NMS196.11
education, infrastructure construction, shipping, printing and machinery industries.
We have accumulated 20 years of industry expertise and have expanded our customer base in our target industries by organizing and operating our financial leasing services, sales and marketing, and risk management systems through an industry-focused approach. Our typical leasing business model provides our customers with a commercial arrangement where: (i) our customer, as the lessee, will select an asset (such as equipment); (ii) we, as the lessor, will then purchase that asset; (iii) the lessee will have the use of that asset for the duration of the lease; (iv) the lessee will make a series of rental payments for the use of that asset; (v) we will recover a majority or the entire cost of the asset and earn interest from the rental payments made by the lessee; and (vi) the lessee has the option to acquire ownership of the asset from us upon expiry of the lease term. See the section headed "Business" for further details about our financial leasing business. For finance leases, substantially all of the risks and rewards of ownership of the assets are transferred to the lessees. When we are a lessor under finance leases, an amount representing the minimum lease payment receivables and initial direct costs is included in the statement of financial position as loans and accounts receivable. Any 117 NMS196.11
unguaranteed residual value is also recognized at the inception of the finance lease. The difference between (i) the sum of the minimum lease payment receivables, initial direct costs and the unguaranteed residual value and (ii) their present value is recognized as unearned finance income. Unearned finance income is recognized over the period of the lease using the effective interest rate method. Operating leases refer to leases where substantially all of the rewards and risks of the assets remain with the lessors ."
114. Firstly, the rights and liabilities of the parties to the BBC viz. Halcyon and Eastshine Limited must be determined on the basis of the terms and conditions of the BBC and not on what is stated in the Global Offering. The Global Offering did not form part of the agreement between the parties. Nor was it incorporated into the BBC. Mr.DeVitre, however, submitted that the Global Offering indicates the manner in which FEHL conducted its business. He submitted that the present BBC was a financial lease and not an operating lease. He further submitted that the BBC has factors common to the typical Direct Finance Lease Model adopted by FEHL which transferred the risks and the rewards of ownership to Eastshine Limited/Tongli China. The Global Prospectus, according to him, 118 NMS196.11
establishes that Halcyon is a dummy used by FEHL solely as a corporate vehicle to partly finance Tongli China's acquisition of the defendant-vessel.
115. In any event, the Global Offering does not support Mr.DeVitre's contentions. As I have mentioned earlier, the intention between the parties to the BBC may well have been to entitle the bareboat charterer/Eastshine Limited to the benefits which would otherwise accrue to an owner, subject however, to various terms and conditions including the payment of all the termination dues. Till then, the title/ ownership of the vessel remained with Halcyon. In my opinion, the Global Offering is not contrary to this. This is evident from the first sentence of paragraph 3 of the above extract which is only general in nature. That it is so is qualified by the use of the word "substantial". It is also incorrect to pick that one sentence out of the entire document and read it in isolation. It must be read with the entire document. For instance, paragraph 2 of the above extract makes it abundantly clear that the title to the property always with FEHL/its group company and the lessee has the option to acquire the ownership thereof upon expiry of the lease term. This is provided however, FEHL recovers the cost 119 NMS196.11 of the assets and earns interest from the rental payments made by the lessee. The error in Mr.DeVitre's submission lies on account of his relying upon a solitary sentence without reading it in context.
116. Mr.DeVitre also relied upon various other factors in support of his submission.
117. Mr.DeVitre stated that Halcyon had not explained the source of funds for the balance sixty per cent of the consideration for the defendant-vessel. According to him, a false explanation was furnished to the effect that Halcyon had entered into a mortgage "in order to finance the defendant-vessel". This could never have been so as the entire consideration for the vessel was paid by 26th April, 2010, whereas the mortgage in favour of Sumitumo Mitsui Bank was created only on 30th November, 2010. The mortgage was registered with the Registrar of Companies, Hong Kong on 10th December, 2010. This false case, Mr.DeVitre suggested, was pleaded in the affidavit in support of the present Notice of Motion. It was only subsequently that Halcyon, by an affidavit dated 28th March, 2011, claimed that the balance sixty per cent consideration aggregating to US $18.15 million, 120 NMS196.11
was advanced to it by FEHL as a loan on 23rd April, 2010.
118. It is true that Halcyon did not obtain the funds under the mortgage. It could not have, as the mortgage was created almost seven months after the payment of the full consideration by Halcyon to the shipyard towards the cost of the defendant-vessel. The statement, however, was inadvertent. There was no intention to make a false statement. This is clear from the fact that in the affidavit in support of the Notice of Motion dated 20th January, 2011, Halcyon expressly stated the date of the mortgage to be 30th November, 2010 (paragraph 9(b) and paragraph 54). At the highest, it could be stated that the contention in the very paragraph 54 that the mortgage was entered into between Halcyon and Sumitumo Bank in order to finance the defendant-vessel was incorrect. Nor do these facts justify an inference that the mortgage was created to defeat the claims against the defendant-vessel in relation to the sinking of Nasco Diamond.
119. In a further affidavit filed on 26th February, 2011, the defendant clarified as under:-
"The allegation that the lender would not take for 5 months to register a charge is clearly unfounded. Essentially, FEHL have entered into a facility agreement with the Bank to obtain a facility amounting to USD162 million over several vessels. As and when funds are required (within a 12 months period), the Defendants would register the mortgage over a particular vessel and the Bank would release funds as part of its facility amounting to half of the purchase price/ market value of that particular vessel. The key point is that this only arises when the Defendants require to use the facility when it is in need of funding. Therefore, the registration of the TONGLI YANTAI took place 5 months later, when the Defendants needed funding and placed the vessel into the facility."
120. There is nothing unusual about FEHL granting its group company the said loan nor is there anything unusual about Halcyon offering its assets, including the defendant vessel, as a security for the loan availed of by its "grant parent" FEHL from the Sumitumo Bank. I do not see how these facts give rise to an inference that FEHL, in fact, advanced the loan to Tongli China and not to Halcyon. The case that Halcyon is an alter ego of Tongli China has been given up albeit 122 NMS196.11
for the purpose of this Notice of Motion. It is not contended that FEHL is a part of the Tongli Group.
121. The case that the loan had been granted by FEHL to Tongli China does not appear probable for another reason. There is no reason why Tongli China would agree to the mortgage of the vessel seven months later to secure the dues of FEHL to the Sumitumo Bank, despite the fact that it had also guaranteed the payment of the purchase price of the vessel to the shipyard. Especially as Halcyon is not a part of the Tongli China group, this sounds commercially impossible. If correct, it would mean Tongli China has made itself liable to pay the consideration for the vessel and also exposed itself to the possibility of losing it if the mortgage was enforced.
122. Even assuming that Halcyon is a shelf company under- capitalized and is incapable on its own of purchasing the defendant- vessel, it would not support the plaintiff's case that the defendant- vessel was owned by the bareboat charterer Eastshine Limited/Tongli China. FEHL's carrying on its business implementing a financial model using its group companies cannot possibly indicate in any 123 NMS196.11
manner that the title of the vessel vested in Tongli China.
123. Though Tongli China, as a commercial manager, may be entitled to control certain issues such as commercial factors, sailing routes and contracts, it would not vest it with the ownership of the defendant-vessel.
124. Eastshine having applied for an asset protection order from Tianjing Maritime Court against the plaintiff's assets seeking security for the arrest claim is understandable as it was after all the charterer interested in plying the vessel in accordance with its rights under the BBC. Thus, Eastshine adopting other proceedings is also understandable for the same reason.
125. Correspondence with different lawyers seeking to represent Eastshine and Halcyon is also of no assistance to the plaintiff. Even assuming that Eastshine and Halcyon sought to instruct the same lawyers it would be of any assistance on the question of the title to the vessel. Both Halcyon and Eastshine would be interested in releasing the vessel from arrest as each of them had an interest in the vessel - 124 NMS196.11
the former as the owner and the latter as the charterer.
126. The reliance upon Tongli China's website was in view of it mentioning the defendant-vessel. However, the website does not state the reason why the defendant-vessel is mentioned. It does not show the defendant-vessel as owned by Tongli China. A plausible answer is that Tongli China was the commercial manager of the defendant- vessel appointed by Eastshine Limited. This website was referred to in the affidavit of one Nathan Wheeler filed on behalf of the plaintiff. He is a Director of Infospectrum Limited, a company engaged in corporate investigations. The affidavit does not state that the website mentions Tongli China as the owner of the vessel. The affidavit of Nathan Wheeler relied upon by the plaintiff does not carry its case further. The first three paragraphs merely refer to the plaintiff's belief that Tongli China is the owner of the defendant-vessel. In paragraph 5 he refers to his conversation with an unnamed lady from the shipyard, who allegedly informed him that the vessel was originally ordered by Tongli China. Apart from the fact that no details even about the person he spoke to have been furnished, the information is obviously incomplete. It does not refer to Tongli 125 NMS196.11
China's nomination of Halcyon as the purchaser of the defendant- vessel from the shipyard. The shipyard was obviously aware of the same as the shipyard and Halcyon were contracting parties. Paragraph 6 of the affidavit refers to the information given to the said Nathan Wheeler by his company's corporate search sub- contractors. The search pertains to the details from the Government agency to the effect that the said Wang Weidong is the legal representative of the company holding 80% of the shares therein. Paragraph 7 again refers to a conversation between the said Nathan Wheeler and an unnamed person from Global Maritime Shipping, China (GMS). He states that he was informed by this person that GMS were the technical managers of the vessel and were paid by Tongli China. Apart from the fact that no details in that regard have been furnished, it must be remembered that Tongli China were the commercial managers of the defendant-vessel and their having made payment, therefore, would not establish their ownership of the vessel. In short, the affidavit of Nathan Wheeler does not assist the plaintiff in establishing it's case that Tongli China was the owner of the defendant-vessel.
127. The plaintiff does not appear to have pursued its allegation that the Protection & Indemnity Insurance Coub (P&I) cover from 26th April, 2010, if revealed, would show Tongli China as the legal assured and reflect Tongli China's interest in the defendant-vessel. The Certificate of Entry was disclosed. It shows Halcyon as the legal assured. It shows Halcyon also as the registered owner and Eastshine Limited as the bareboat charterer. The document also shows Tongli China as a co-assured in view of it being the commercial manager. Thus, the document itself supports the defendant and not the plaintiff. Subsequent Certificates of Entry of the P & I Club are to the same effect. In view thereof, it is not necessary to consider the affidavit of one Ms. Catherine Zhao filed on behalf of the defendant in support of the contention that a commercial manager such as Tongli China is entitled to become a co-assured. A subsequent certificate of February, 2011 deletes Tongli China's name even as the commercial manager in view of Halcyon having terminated the BBC on 31st January, 2011. This Certificate of Entry records the mortgage in favour of Sumitumo Bank.
In view of the nature of the documents, it is not necessary to refer to the commentary in the work "Introduction to P & I" by 127 NMS196.11
Christopher Hill, IInd Edition, Pages 17 and 18. Suffice it to state that the documents, at one stage relied upon by the plaintiff, does not support it.
128. Similarly, the plaintiff had alleged that the Hull & Machinery Insurance Policy, if disclosed, would reveal that the assured thereunder was Tongli China. The policy has since been disclosed by Halcyon. It shows Eastshine and Halcyon as the co-assured. The Hull & Machinery Insurance Policy also shows Halcyon to be the "ship owner".
129. Mr.Narichania's reliance upon clause 45.1.5 of the BBC in this regard is also well founded. It reads as under :- "45.1.5 the Charterers shall procure that the policies and/or entries in respect of the insurances against marine and war risks are, in each case, endorsed with the interest of the Owners to the effect that: (i) payment of a claim for a Total Loss of the Vessel will be made to the Owners; and
(ii) payment in respect of a claim which is not a 128 NMS196.11
Total Loss of the Vessel shall, subject to the proviso hereto, be made to the Charterers
who shall apply the same to make good the
loss and fully repair all damage and
otherwise maintaining the Vessel in accordance with their obligations hereunder
Provided however (a) that no such claims as
are payable in respect of a major casualty
(that is to say a claim or the aggregate of
the claims exceeds seventy-five thousand
Dollars (US$75,000) inclusive of any
deductible (or the then equivalent in any
other currency) shall be paid to the
Charterers without the prior written consent
of the Owners, and (b) that all such sums
shall be payable as aforesaid only until such time as the Owners may otherwise direct to
the contrary following a Termination Event
whereupon all such sums shall be paid to
the Owners or to the Mortgagee as the
The clause is self explanatory. Every part of the clause indicates Halcyon's ownership of the vessel. I would only highlight that in case of total loss of the vessel, payment is to be made to Halcyon. If Eastshine was the owner, in such a case, the clause would have required the payment to be made to it.
130. The reliance upon Sea Webs Report is now not material in view of the plaintiff not pressing at this stage the contention that Halcyon is the alter ego of Tongli China. In any event, the document does not even show Halcyon as a subsidiary of Tongli China though it shows another company as a subsidiary of Tongli China.
131. Mr.DeVitre submitted that Halcyon has made inconsistent statements and taken inconsistent stands at various stages of these proceedings and also disclosed the facts in driblets. In particular, Halcyon initially stated that it had no connection with Tongli China, that Tongli China was not connected with the defendant vessel in any manner and that Tongli China had not paid the sale consideration for the defendant-vessel. Halcyon had initially denied that Tongli China was the manager of the defendant-vessel and asserted that the vessel was always managed and operated by Halcyon.
132. Mr.Narichania stated that Halcyon never made a false statement. He stated that Halcyon only averred that Tongli China was not the manager of the defendant-vessel. In other words, Halcyon 130 NMS196.11
never stated that Tongli China was not the commercial manager of the vessel. He stated that this was factually correct as Tongli China was never the manager but only the commercial manager of the defendant- vessel.
133. This explanation is not entirely convincing. Though there is technically a difference between a manager and a commercial manager of a vessel, Halcyon ought to have come out clearly in the first instance and stated that Tongli China was the commercial manager of the vessel though not the manager of the vessel. This, however, would not justify keeping the ship under arrest despite the plaintiff not having established Tongli China's ownership thereof. Similarly, Halcyon ought to have come out with all the facts regarding the purchase of the vessel at the outset. It did so only subsequently as a result whereof, it was discovered that Tongli China was the initial purchaser having deposited 10% of the consideration. Halcyon did not make an incorrect statement when it said that Tongli China had not purchased the vessel. Halcyon, however, could have made a complete statement indicating Tongli China's initial interest in the transaction.
I have already dealt with the alleged inconsistency regarding the mortgage.
This, however, would also not justify keeping the ship under arrest despite the conclusion that Tongli China is not the owner of the vessel.
134. In this view of the matter, it is not necessary to consider Mr.Narichania's submissions that there is no basis for the quantification of the security and that the P & I Club would, in any event, insure any claim against the plaintiff.
135. The only question that remains is whether the doctrine of lifting the corporate veil is applicable in such cases - in this case to make Tongli China liable for the dues of Tongli Samoa on the ground that the latter is the alter ego of the former and the title of the defendant- vessel vests in Tongli China on the basis that it vests in Eastshine Limited and Eastshine Limited is the alter ego of Tongli China. This aspect of the matter assumed considerable importance before the amendment when it was contended that Halcyon was the alter ego of 132 NMS196.11 Tongli China. It has now lost much of its relevance, at least at this stage, in view of the plaintiff not pursuing the case that Halcyon is the alter ego of Tongli China. The question, of course, would arise as far as the plaintiff is concerned, if it makes a claim against Tongli China. It will then have to establish that Tongli China is liable for the dues of Tongli Samoa as Tongli Samoa is its alter ego. This question, however, would be relevant in a dispute between the plaintiff and Tongli China. However, in the present Notice of Motion it is not necessary and indeed ought not to be considered as the plaintiff has not pressed the contention that Halcyon is the alter ego of Tongli China. Thus, even if I were to come to the conclusion that Tongli China is liable for the dues of Tongli Samoa, and that the assets of Eastshine Limited vest in Tongli China, the two companies being the alter ego of Tongli China, the order of arrest must be set aside in view of my finding that Halcyon is the registered and the real owner of the defendant-vessel. It would not have been necessary to consider this question of law relating to whether the corporate veil can be lifted in such matters or not even if I had come to the conclusion that Eastshine Limited and not Halcyon was the real owner. In that event Halcyon would not have been affected by the order of arrest continuing. It 133 NMS196.11 would, at the highest, then have been entitled to look to the defendant- vessel merely as a security which would have been available to it even if the order of arrest remained.
136. This question of law relating to lifting the corporate veil will arise in proceedings between the plaintiff on the one hand and Tongli China and/or Eastshine Limited on the other. In the circumstances, although I received very able assistance from Counsel on this issue, I must refrain from dealing with the question, as it does not arise in this Notice of Motion.
137. Mr.DeVitre submitted that though Halcyon has terminated the BBC, nothing prevents the parties reviving the BBC. In that event, there is every possibility that Eastshine Limited would pay the termination sum and acquire the ownership of the vessel after it has left the territorial jurisdiction of this Court. He submitted that in that manner, these proceedings would be rendered infructuous.
138. An order of arrest cannot be based or continued on a speculation as to the course of conduct of parties in future. In certain 134 NMS196.11 cases, this may be possible provided a very strong case of fraud and collusion or possibility of fraud and collusion is made out, warranting an inference to this effect. In the present case, no such material exists. Moreover, in that event, Halcyon would receive it's entire dues which it is entitled to as the owner of the vessel. The plaintiff is not entitled to look to these dues as security or for payment in any event. There is no reason then why Halcyon's assets ought to be jeopardized by continuing the arrest of the defendant-vessel. Even if subsequently the vessel is transferred to Eastshine Limited upon Eastshine paying all the amounts to Halcyon, the plaintiff must seek its remedy against the defendant-vessel thereafter. This, of course, is subject to the plaintiff making out a case in all other respects as well.
139. In the circumstances, the following order is passed: The Notice of Motion is made absolute a terms of prayer (a). Liberty to the defendant to adopt independent proceedings in respect of the relief claimed in prayer (b).
The order is stayed upto 12th August, 2011. Mr. Sancheti's application for directing the plaintiff to deposit the day-to-day costs incurred during the period of arrest is rejected at this stage, with liberty to apply by a separate application.
No order as to costs.