The Alas renamed The Kombos

DMC/SandT/15/04

Hong Kong

The Alas renamed The Kombos: Hong Kong Court of First Instance: Ng J: HCAJ 241/2009: [2014] 4 HKLRD 160: 21 July 2014

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

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

ADMIRALTY: WARRANT OF ARREST: SHIPOWNERS’ CLAIM FOR DAMAGES AND UNPAID HIRE: FOREIGN ARBITRAL AWARD NOT SATISFIED: NO BAR TO ACTION IN REM FOR CLAIM ARISING OUT OF AGREEMENT FOR USE OR HIRE OF THE SHIP

Summary

The plaintiff shipowners obtained an arbitral award in London against the defendant charterers for unpaid hire and damages, but the award remained unsatisfied. The shipowners issued an in rem writ for unpaid hire and damages in Hong Kong and arrested a vessel owned by the defendant charterers. The Court refused to strike out the in rem writ and the warrant of arrest as the shipowners’ cause of action in rem did not merge in the arbitral award so long as, and to the extent that, it remained unsatisfied.

This note has been contributed by Ken T.C. Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.

Background

By a Shelltime 4 form charterparty dated 9 January 2008 (the Charterparty), the plaintiff shipowners (the Shipowners) chartered their motor tanker “BETH” to PT Arpeni Pratama Ocean Line Tbk (the Charterers) for five years.

The Shipowners claimed that the Charterers failed to pay the hire in full and/or on time between January 2009 and June 2009. In June 2009, the Charterers failed to comply with an anti-technicality notice issued by the Shipowners who then exercised their right to withdraw the vessel under the Charterparty. The dispute was then referred to arbitration in London pursuant to the Charterparty. On 1 March 2013, a final award in the sums of US$9,238,221.30 by way of damages and US$361,243 for unpaid hire (the Award) was issued in favour of the Shipowners.

The Award remained unsatisfied and the Shipowners invoked the in rem jurisdiction of the Hong Kong court in April 2014 by arresting the vessel “Dewi Umayi” (the Vessel) owned by the Charterers. The Shipowners’ claim as pleaded in the Endorsement of Claim was for damages for breach of the Charterparty and unpaid hire due under it.

The Charterers applied to strike out the Writ of Summons and set aside the warrant of arrest of the Vessel. The Charterers further sought the release of the Vessel and damages for her wrongful arrest. The Charterers contended that these proceedings and the arrest of the Vessel were fundamentally in the nature of an application to enforce the Award; that there was no head of Admiralty jurisdiction in Hong Kong which permitted the Shipowners to enforce a foreign arbitration award as such; and that the proceedings and the arrest were thus an abuse of process and ought to be set aside.

Judgment

The Court dismissed the Charterers’ application.

The Court noted that there was no head of Admiralty jurisdiction in Hong Kong for the enforcement of arbitration awards as such. The reason why the Admiralty jurisdiction could not be invoked in respect of a claim based on an arbitration award was that as a matter of construction, s.12A(2) of the High Court Ordinance (Cap.4, Laws of Hong Kong) (fn.1) (c.f. s.20 of the Senior Courts Act 1981) was not apt to cover a claim arising out of an arbitration agreement: see The Bumbesti [2000] QB 559.

However, Brandon J in The Rena K [1979] QB 337 held that a cause of action in rem did not merge in a judgment in personam, but remained available so long as, and to the extent that, the judgment remained unsatisfied; and that this principle equally applied to arbitral awards. These principles were not affected by s.5(1) of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance (Cap.46) (fn.2) (c.f.s.34 of the Civil Jurisdiction and Judgments Act 1982) which only applied to judgments of a foreign court.

Thus, the Court rejected the Charterers’ contention that the procedure of arrest was not available once a plaintiff’s claim had crystallised in an arbitral award. In any event, the Shipowners had not obtained an in rem judgment.

As the Shipowners’ claim as pleaded in the Endorsement of Claim was for unpaid hire and damages for breach of the Charterparty, it was in substance and in form a claim “arising out of any agreement relating to… the use or hire of a ship” under s.12A(2)(h) of the Ordinance and not a claim on the Award. On the evidence before the court, the Award had not been satisfied since March 2013 and it was unlikely that it would be satisfied. Thus, it was legitimate for the Shipowners to invoke the in rem jurisdiction of the Court to arrest the Vessel and keep her under arrest as security in respect of any judgment which it may obtain after “the hearing and the determination of a claim” falling within s.12A of the Ordinance: see The Cap Bon [1967] 1 Lloyd’s Rep 543; The Britannia [1998] 1 HKC 221.

Comment

The Court confirmed the long established principle in The Rena K [1979] QB 337 that a cause of action in rem did not merge in a judgment in personam until the latter had been satisfied. In seeking to arrest a vessel as security for an arbitral award which remains unsatisfied, practitioners should be careful that the in rem writ should rely on the underlying in rem claim and not the award; otherwise, they would risk the writ being found to fall outside the court’s Admiralty jurisdiction: see The Chong Bong [1997] 3 HKC 579; The Bumbesti [2000] QB 559.

Fn.1 "s.12(A)(1) The Admiralty jurisdiction of the Court of First Instance shall consist of-

jurisdiction to hear and determine any of the questions and claims mentioned in subsection (2);

(2) (h) any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship;"

Fn.2 "s.5(1) No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong."