Shagang Shipping Co Ltd v Ship 'BULK PEACE' as surrogate for the Ship... [2014] FCAFC 48 | Case summary

REASONS FOR JUDGMENT ALLSOP CJ: 1 In this matter the registered owner of the bulk carrier, Bulk Peace, Well Far Limited ("Well Far"), applies to have Bulk Peace released from arrest. I made a direction that the original jurisdiction of this Court be heard by a Full Court. Bulk Peace was arrested on 18 March 2014 by a Marshal of the Court pursuant to an arrest warrant issued by the Deputy District Registrar in Western Australia. She was arrested on the application of the plaintiff, Shagang Shipping Co Ltd ("Shagang" or the plaintiff), as a surrogate ship under section 19 of the Admiralty Act 1988 (Cth) for the ship Dong-A Astrea. 2 The first ship, Dong-A Astrea, was chartered under a long-term time charter under a New York Produce Exchange ("NYPE") 1946 Form on 6 August 2008 between Shagang as owners, and Grand China Shipping (Hong Kong) Co Limited ("Grand China Shipping"), guaranteed by HNA Group Co Ltd ("HNA") as charterers. Both Grand China Shipping and HNA were identified as parties to the time charter, though HNA was as guarantor. 3 On the same day as that time charter was entered, HNA executed a performance guarantee in favour of Shagang. The central terms of that performance guarantee were as follows: In consideration of your execution of a certain charter party (hereinafter called "the CP") dated the 6th day of August, 2008 for the time charter of deadweight 179,500DWT Class Bulk Carrier having Hull No. 2106 OR S 471 (hereinafter called the "Vessel") with Grand China Shipping (Hong Kong) Co., Ltd.. (hereinafter called the "Charterer"), we, HNA Group Co., Ltd., a corporation organized and existing under the laws of People's Republic of China, having its registered office at 29, Haixiu Rd., Haikou City, Hainan Province, People's Republic of China, the undersigned as a primary obligor and not as a surety merely, hereby absolutely and unconditionally guarantee to you, your successors, or asignees, the due and faithful performance and fulfillment by the Charterer of all the terms, and its assignee in the event of assignment of the CP, and conditions in the CP and any supplement, amendments, changes or modifications which may hereafter be made thereto. 4 It is sufficient to understand that the performance guarantee by HNA was in terms that that company undertook its obligations as a primary obligor, and not as a surety merely, absolutely guaranteeing the due and faithful performance by the charterer's, that is Grand China Shipping's, obligations. 5 The performance guarantee also went on to state that, in the event that the charterer failed to perform its obligations under the charterparty, written notice could be given by Shagang, and HNA agreed to take over the position of charterer under the charterparty, and perform the charterparty as charterer. 6 The charter was from 6 August 2008 for a period of between 82 and 86 months at charterers' option, in effect seven years plus or minus two months. The evidence reveals that from September 2010 Grand China Shipping failed to pay hire as it became due and payable under the charter, the charter hire being in the order of US$52,000 per day. 7 On 16 December 2010, through solicitors Holman Fenwick Willan, Shagang issued HNA with a notice anticipated by the performance guarantee, which notice contained the following paragraph: ... please take this as our formal demand on behalf of our clients that you also now comply with the further obligation and undertaking given in the performance guarantee, which is that HNA Group Co Ltd now take over the Charterparty and perform it for the remainder of the contractual duration. 8 Thereafter, there was no step taken by HNA to direct the first ship, whether pursuant to clause 8 of the time charter, or otherwise, and no funds were paid by the original charterer, Grand China Shipping, or HNA to Shagang. The commercial obligations of both those companies appear to have been ignored, and both companies appear to be in breach of the charter. Various steps were taken in other jurisdictions. There was an arrest in India, which is disclosed in the evidence, leading to a partial settlement to secure Bulk Peace's release. There was later another payment of some other moneys by either Grand China Shipping or HNA. However, all those partial steps for recovery of money were expressed to be without prejudice to the claim by Shagang for damages for loss of profits for repudiation if repudiation were ultimately to be accepted. 9 Upon that repudiation in fact being accepted, arbitration proceedings were commenced in London. An award has been given for a sum of USD$66, 356, 281.00. That sum has not been paid. That sum is the debt which HNA, as the relevant person, under the Admiralty Act, is said to owe Shagang. 10 The case before the Court today, however, does not concern the first ship. It concerns the second-mentioned ship for the purposes of section 19, being Bulk Peace. 11 There are two issues before the Court, being the satisfaction, respectively, of paragraphs 19(a) and 19(b) of the Admiralty Act. The matter comes before the Court procedurally by an interlocutory application brought by Well Far for the release of Bulk Peace. The relevant terms of the orders sought in the interlocutory application were as follows: … 3. That the Writ filed on 17 March 2013 [sic] and arrest warrant issued on 17 March 2013 [sic] be set aside. 4. That the proceedings be dismissed pursuant to Federal Court Rule 26.01 on the basis that the Court has no jurisdiction and that the proceedings are not authorised by s.19 of the Admiralty Act 1988 (Cth). 5. Alternatively, that the proceedings be struck out pursuant to Federal Court Rule 16. on the basis that the Court has no jurisdiction and that the proceedings are not authorised by s.19 of the Admiralty Act 1988 (Cth). 6. That the Plaintiff pay the Defendant's Costs of this application. … 12 Mr Cox, who appears on behalf of Well Far on the application, accepts that the matter can be dealt with as a summary application under the Federal Court Rules, in effect, for summary disposal. 13 The evidence that was led by both sides was of a nature that would not have been admitted if objected to in a fully contested final hearing. The Court is aware of, as was counsel, of what was said by the High Court in The Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc. (1994) 181 CLR 404, by the Full Court of this Court in Bremerhaven v 'Zoya Kosmodemyankskaya' (1997) 79 FCR 71 and by the Full Court of this Court in The Ship 'Hako Endeavour' v Programmed Total Marine Services Pty Ltd (2013) 211 FCR 369. So that there is no doubt as to what is being done today, Mr Cox was prepared to approach the matter on the basis that he has to demonstrate that there was no satisfactory evidence for jurisdiction of this Court, and the in rem action should be dealt with and the arrest set aside on the basis of summary judgment. He based that, as I indicated, both on para (a) and para (b) of s 19. 14 Before coming to para (b), I will deal with para (a) briefly. In my view, the challenge to para (a) of s 19, on a summary judgment basis, cannot be maintained. Para (a) requires, in terms, that the relevant person, that is HNA, be either the owner of, the charterer of, or in possession or control of the first-mentioned ship at the time when the cause of action arose. 15 The cause of action arose at the time of the acceptance of the repudiation of the long-term charter party. At that time, Shagang exercised its right under the performance guarantee to call upon HNA to undertake the obligations of charterer. HNA, in effect, has refused to do that. Nevertheless, there can be no doubt whatsoever that from that date, under the performance guarantee read with the charter party, Grand China Shipping (for the reasons I will identify shortly, in relation to s 19(b)) is part of a group of companies of which HNA appears to have some influence, HNA had the ability to exercise the right. The two documents can be read together as cognate commercial instruments. Shagang exercised rights under the performance guarantee to call upon HNA to take over the position of charterer, that latter company, previously guarantor, was then in a position to control the commercial disposition of the ship under the time charter and thereupon to give orders under clause 8 of the NYPE charter for the commercial disposition of the ship. 16 Those matters are sufficient, in my view, to satisfy the notion of control of the ship for the purposes of s 19(a), for the reasons set out by the Hong Kong Court of Appeal in the case of Chimbusco Pan National Petro-Chemical Co Limited v The Owners and/or Demised Charterers of the Ship or Vessel 'Decurion' [2013] HKCA 180; [2013] 2 Lloyd's Rep 407 at 418, in particular, at [61]. 17 It was argued that because HNA had failed to comply even with this obligation as well as payment, there was no undertaking of control and no undertaking of the capacity as charterer. There may be an argument, technical though it may seem, that HNA did not become charterer per se because of its refusal to honour its contractual obligations. Put thus, the lack of attraction of the argument is, perhaps, self-evident. Nevertheless, it was, in my view, in control of the ship in the natural and ordinary meaning of those words because it was in the position of a charterer, even if not described as such, with contractual power of control over the ship. That is, it was in the position through its contractual obligation to demand of the owner's master the commercial disposition of the ship. There is at least a strong argument to that effect, sufficient to ward off any summary disposal application, even if it is unnecessary for present purposes to express a final view. 18 Paragraph 19(b) however raises a different position entirely. That, of course, is the requirement, that at the time the proceedings commenced the relevant person, HNA, the putative or actual debtor under the arbitral award, was the owner of the second-mentioned ship. The second-mentioned ship is the surrogate ship, Bulk Peace. 19 It is now necessary to deal with both the test to be applied for that conclusion, as well as the evidence that has been led. The test in Australia is not in doubt. The concept of the owner has been analysed in a number of cases in this court, all consistent with each other. In Kent v SS 'Maria Luisa' (No 2) [2003] FCAFC 93; (2003) 130 FCR 12, the Full Court dismissed an appeal from Beaumont J, reported at 130 FCR 1. By majority of Tamberlin J and Hely J, the notion of the owner was dealt with in terms that reflected the discussion in the Australian Law Reform Commission Report No 33, Civil Admiralty Jurisdiction, and reflected the proprietary and property based analysis applied in England, and the refusal to follow Brandon J's practical view of a ship owning person in Medway Drydock and Engineering Co v Owners of the MV Andrea Ursula (The Andrea Ursula) [1973] QB 265; [1971] Lloyd's Rep 145. 20 I refer to, in particular, [61] and following in the reasons of the majority in The Maria Luisa. Nothing I now say should be taken as an attempt to re-work anything said by Tamberlin J and Hely J, or Ryan J and myself in Tisand Pty Ltd v Owners of the Ship 'MV Cape Moreton' (ex 'Freya') (2005) 143 FCR 43 at [100] - [122]. Broadly speaking, and with that caveat, what is required is to show what the evidence says about questions of property, such that it can be concluded that the relevant person has the right both to make physical use of the vessel and to sell and in effect keep the proceeds of a disposition of sale of the vessel. It involves connotations of dominance, ultimate control, and ultimate title. It is not sufficiently reflected in a notion of influence or control. It is the right of dominion and true ownership. 21 Other cases in the Court have dealt with the matter; it is unnecessary to refer to them. One must also understand the importance of the question of corporate individuality and separateness that is a consequence of the placement of ownership by a person at the centre of the operation of the s 19. A conscious legislative choice was made when the Admiralty Act was passed to eschew a right to arrest a vessel based on substantial control of it as a commercial enterprise. That choice was made in South Africa; it was not made in this country. The policy reasons for it, and the wisdom of those policy reasons are not for this Court to deal with, other than to recognise the clear statutory difference of a proprietary or ownership-based analysis - the history of which was discussed in Cape Moreton and other cases. 22 It must be recognised that a demonstration of control, or substantial control, is insufficient to demonstrate ownership because of its equivocality. Control can be exercised by a parent company exercising its rights as shareholder, nominating directors and seeing its commercial wishes put into execution through the lawful separateness of corporate entities carrying out those underlying commercial wishes of those who own the shares. It may be, in certain circumstances, that intervening companies between assets and parent companies are mere distractions, or shams, or have no part to play whatsoever in the legal activity of ownership and deployment. If that be the case, that must be proven. One of the difficulties that arises with the Admiralty Act, and regimes of its character, not only in Australia, but in many other countries, is the need to confront the commercial reality of one-ship companies, often with common directors and often with shareholding that goes back to ultimate parent companies. 23 That very possibility was adverted to by the Australian Law Reform Commission in its report, and notwithstanding the recognition of the difficulties that this might place in the way of arrests under surrogate ship arrest and under owner arrest, a deliberate choice was made by the legislature to found arrest upon proprietary ownership, and this Court must recognise and respect that legislative choice, and deal with cases such as the present, on the basis that an arresting party needs to be able to demonstrate ownership of a surrogate ship by the relevant person, not merely a degree of control, even a high degree of control, over the commercial disposition of the ship. 24 Mr Justice Brandon pungently put it in the Andrea Ursula that shipping was not conducted by equity lawyers, but "shipping men". He asked where the money went. Mr Justice Goff, as he then was, later Lord Goff, who might have been thought to be one of the former not the latter, took an entirely different view as to the role of property rights. His views have been vindicated both by case law in the United Kingdom, and by the Parliament of this country. 25 Turning to the evidence. The substantial evidence was by Ms Bazakas who deposed to the information available to Holman Fenwick Willan and to Shagang about the corporate group of which HNA appears to have been influential, is not the parent company. Mr Scott SC, helpfully, took us to the main parts of Ms Bazakas' affidavits to support the propositions that it could be concluded, at least at a prima facie level, sufficient to ward off summary judgment that HNA controlled and managed all the companies in the group in a way that entitled the inference to be drawn that other companies had no real part to play in the operation of those assets. 26 One must begin by recognising two pieces of evidence. There were two owners registered on the Lloyd's Register of Bulk Peace. Well Far, the applicant on the interlocutory application, was noted as the registered owner. Noted as the beneficial owner was a company called Grand China Logistics. The evidence as to the shareholding or ownership of Grand China Logistics, as best it appeared, was paragraph 11 of an affidavit of Mr Wong Sun Keung, one of the provisional liquidators of Grand China Shipping. 27 I will come to that gentleman's place in the events in a moment, but he indicated, broadly, that facts that could be inferred that HNA was ultimately interested in the shares controlling not only Grand China Logistics, but other companies such as Grand China Shipping, Bulk Majesty Shipping Limited and Mega Bulk Holdings Limited, and Hong Kong Chain Glory Shipping Limited who appear in the events recited in the evidence. 28 Mr Wong Sun Keung was appointed provisional liquidator on the application of Shagang in April 2013. In January 2014, liquidators were appointed and the provisional liquidator's tenure ended. Deloittes were appointed liquidator. Since early this month, Deloittes have been removed because of a perceived conflict difficulty with having acted for some of the subject companies beforehand. Nevertheless, it does not appear that the provisional liquidators have re-taken over any responsibility. 29 It is important, as will become evident in due course, that Mr Wong Sun Keung is not currently in a position, as far as the evidence reveals, of being in control of the affairs of the company as liquidator. He did, however, swear affidavits in Hong Kong proceedings which concerned the conduct of the provisional liquidation. The evidence revealed perhaps the high point of his views in para 27 of his September 2013 affidavit in the Hong Kong proceedings. In that paragraph, in answering an affidavit of another gentleman putting on evidence for other interested parties, he said: The following companies appear to have "influence" over the Company (that is Grand China Shipping) which I take to mean they are apparently under the command and direction from the management of HNA Group. 30 The companies to which he was referring included Bulk Triumph Shipping, Bulk Majesty Shipping, Hong Kong Chain Glory Shipping, but did not include Grand China Logistics. 31 From the whole of the affidavit of Mr Wong Sun Keung, however, including the place of Grand China Logistics, in appendix A to the affidavit, it can be concluded that, in his view, there was a reasonable basis for concluding that HNA exercised significant influence, if not a degree of command and direction, over companies in the HNA. Mr Cox, on behalf of Well Far, put the matter slightly less robustly, and said that Mr Wong Sun Keung had a suspicion of that. 32 On the interlocutory evidence on the summary judgment application, I think it can be said that the evidence goes higher than a suspicion. And it can be inferred that the man then in charge of investigating and ordering the affairs of Grand China Shipping came to the view that there was command and direction from the management of the HNA, from which it could be inferred that there was some reason for him to believe that, after his investigations, not only by interviewing members of the staff but also looking at the documents. I am prepared to approach the matter on that basis. I am not, however, prepared, from that evidence, to conclude that it can be inferred, even tentatively, that HNA owned Bulk Peace. 33 That evidence of the provisional liquidator is consistent with HNA exercising its command and direction, that is, its influence, through the regular use of the authority in its shareholding and its power to appoint directors and see its commercial wishes vindicated through the decisions properly made by directors of those companies. There is simply no basis for this Court to conclude that the individual companies in the group were conducted in such a way as to mean that they were either a sham or not, in fact, conducting their respective businesses, nor not, in fact, owning the assets they are said to have owned. 34 The argument was put that they were merely agents and nominees. One needs to be very careful with that expression of the matter. One needs more factual flesh before one fashions that initial expression of the matter into a conclusion that the agent did not own the asset which it is said to have owned. At one broad level of abstraction, subsidiaries are always agents of parents. Indeed, it was an argument run in Salomon v A Salomon & Co Ltd [1897] AC 22. That is not to say, however, that the agent is not a separate entity and, though in a very broad commercial sense, acting as an agent, but, in legal sense, acting for itself. If it has interposed creditors, principles of the kind set out in Kinsela & Anor v Russell Kinsela Pty Ltd (in liq) (1986) 10 ACLR 395 and The Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239 would mean that the directors had obligations to act no longer in the interests only of their shareholding parent. 35 As I said, the evidence is not sufficient to take one beyond the point of equivocation as to how the group ran. In those circumstances, there is no satisfactory evidence to demonstrate that what might be the parent company of the group, in terms of influence, HNA, owned the asset, being Bulk Peace, or the shares in Bulk Peace, on the relevant register; let alone owned it solely and not as a tenant in common, so as to engage the problem brought about by the Admiralty Act, as interpreted in The Ship 'Gem of Safaga' v Euroceanica (UK) Ltd (2010) 182 FCR 27. For those reasons, I would be prepared to accede to the summary disposal of the matter in terms of the interlocutory application. 36 This morning, Mr Scott, on behalf of Shagang, in effect sought an adjournment for at least two days to investigate the question as to whether further and better evidence could be brought from the provisional liquidator, or anyone else, as to the ownership of Bulk Peace. Supporting that application was an undertaking to pay relevant daily hire for a vessel of the character of Bulk Peace - which we are informed was in the order of $26,000 a day, but rising on the market - in effect, an adjournment which would cost his client something over $50,000. He suggested that the matter be brought back on Monday for a report to the Court as to any likely prospects of any further evidence. 37 Without putting any particular weight on the expression used by Mr Scott, he accepted that whether or not better evidence could be brought now was, to a degree, speculative, because that further investigation had not been done. This is why it is important to recall that the gentleman to whom I referred earlier, Mr Wong Sun Keung, is no longer in charge of the company. He had 10 months, or thereabouts, to investigate the company, no doubt not only in relation to this transaction. But his evidence, which was annexed to Ms Bazakas' affidavit, is the best he could do by September last year, after five months. 38 There is no evidence that the current liquidators and those in control of the company are willing, on an expedited or other basis, to bring forward material that would assist with this question. There is also evidence in the provisional liquidator's affidavit of the great difficulties he experienced in unravelling affairs of Grand China Shipping in a way that did not cast commercial credit on those who had been running it. That only compounds the difficulty, it seems to me, of the likelihood of concluding any helpful result will come from an adjournment. There is also a degree of paucity in the evidence of the shareholders and directors of these companies and the whereabouts of these people. 39 That said, it does appear that profitable or at least real revenue generation is still continuing with Bulk Peace. Put before us were two charterparties, one a demise charter from Well Far to a company called Congo Shipping Limited under Barecon 89 for the demise charter of Bulk Peace for 10 years plus or minus one year at charterers' option, at US$19,000 per day and also an NYPE 1946 charter from Congo Shipping to Fuk Hing Steamship Co Limited for 24 months plus twelve months in owner's option. The hire under this latter charter is payable to Bulk Majesty Shipping Limited, one of the companies in what might be called for present purposes the HNA Group. 40 Bulk Peace appears to be profitably engaged in international commerce. It might be thought that to the extent that there is a group of companies that might be called the HNA Group some companies have been let go and others are operating profitably. 41 The Court has insufficient material upon which to draw any conclusions that HNA was the owner of Bulk Peace or that any adjournment is likely to bring forward such evidence. 42 Arrest provisions of the Admiralty Act are significant commercial weapons in the hands of creditors. There were designed to be such. There is no undertaking as to damages required. It is not an application for an interlocutory injunction. It is a remedy of a very serious and very effective kind, which can and should only be brought and permitted to be maintained on the production of appropriate evidence. That is not a conclusion in any way about any default in the use of the proceeding whatsoever, or a criticism of any kind of the solicitors. However, I am not persuaded that there is any satisfactory evidence of ownership nor of the existence of any real likelihood of that evidence being improved. I do not think an undertaking to pay daily hire is adequate. A valuable fixture has been lost. If what was really asked for was an injunction in aid of preliminary discovery, quite different considerations would have applied, for instance as to an undertaking as to damages that would have encompassed the fixture that has been lost. 43 In my view, an asset such as this engaged in international commerce should not be held up by an arrest for which there is insufficient, indeed inadequate, evidence for a conclusion of ownership. 44 For those reasons, subject to hearing the parties, I would make orders in accordance with paras 3 and 4 of the interlocutory application, and order the plaintiff to pay the applicant's costs and refuse the application for an adjournment made by the plaintiff. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.

Shagang Shipping Co Ltd v Ship 'BULK PEACE' as surrogate for the Ship 'DONG-A ASTREA'

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