Hong Kong: Vessel Arrest In Hong Kong: An Analysis Of The Recent Decision In The MV Jimrise

Last Updated: 6 June 2012
Article by Max Cross and William Blagbrough

The Owners and/or Demise Charterers of the Ship or Vessel "Jimrise" HCAJ 180/2011

In this article, we examine the recent Hong Kong case, MV Jimrise, and consider what guidance it offers on when the courts in Hong Kong will set aside a ship arrest and order damages for wrongful arrest.

Arresting vessels for charterparty claims in Hong Kong

The legal system in Hong Kong is based on the English common law system as enshrined in the basic law of Hong Kong. Claims for which a vessel can be arrested are set out in section 12A(2) of the High Court Ordinance (the "Ordinance"). By virtue of this Ordinance, it is possible in Hong Kong to arrest a vessel for a claim arising out of an agreement relating to the use or hire of that vessel. In order to effect such an arrest in these circumstances, the claimant must show that:

  1. The person who would be liable on the claim in an action in personam (i.e. the claimant's counterparty to the charterparty) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the vessel; and
  2. At the time when the action was brought (i.e. the writ issued by the court), that relevant person was either the beneficial owner as respects all the shares in the vessel or the demise charterer of the vessel.

In order to effect an arrest, both of the above conditions must be met.

It was the second of these requirements that was the subject of the dispute in the case of the MV Jimrise. The court gave some helpful guidance as to the approach it will take when assessing the ownership of the vessel. It also re-affirmed the Hong Kong Court's attitude to awarding damages for wrongful arrest: that they are only granted in the (rare) circumstance where there is evidence of malicious negligence on behalf of an arresting party.

The background facts

Cosmotrade and Jimei Hua Shipping Ltd ("Jimei") entered into a time charterparty dated 4 August 2009 (the "charterparty") for the use of the vessel. Jimrise Shipping Pte Ltd ("Jimrise") were defined as "Original Owners" in the charterparty.

There was a dispute under the charterparty and, on 23 December 2011, Cosmotrade had the vessel arrested on the basis that:-

  1. Jimei were the vessel's charterers at the time of Jimei's alleged breach of charterparty; and
  2. Jimei were, at the time the writ was issued by the court, the demise charterers of the vessel.

That Jimei satisfied part (i) of the test was not disputed, but Jimei argued that they were not the demise charterers of the vessel at the time that the writ was issued.

In support of their assertion that Jimei were the demise charterers of the vessel, Cosmotrade relied on the following evidence:

  1. Jimei had registered as "Co-assured" on an insurance cover note for the vessel dated 16 January 2009;
  2. In the charterparty, Jimei were described with the expression "OWNS/MANAGERS/FULL STYLE";
  3. That in an escrow agreement between Jimei, Cosmotrade and their own sub-charterers Jaldhi, Jimei were described as "the Owners";
  4. That after London arbitration had been commenced under the charterparty, Cosmotrade's lawyers had sought confirmation from Jimei's previous solicitors as to whether they or Jimrise were the owners of the vessel and the answer that they received was that "Owners are Jimei";
  5. That at the time of the Hong Kong arrest hearing, the same firm of solicitors acted for both Jimei in the London arbitration proceedings and Jimrise in the Hong Kong Court proceedings;
  6. An Infospectrum report obtained by Cosmotrade stated that "anyone wanting to charter the four ships will have Jimei..., not the ship's registered owners, as their counter party."
  7. Emails from the vessel's master were routinely copied to Jimei.

Against this evidence, Jimrise pointed to the following to argue that Jimei were not the demise charterers of the vessel:

  1. Jimrise were registered as the owners of the vessel in the Panamanian Registry;
  2. Jimei were identified in Lloyd's List only as the vessel's commercial operators;
  3. Cosmotrade had signed letters of indemnity in favour of Jimrise which had identified it as "the Owners of the MV JIMRISE";
  4. Jimrise had entered into a Crewing and Vessel Management Agreement with a third party;
  5. Shortly after the arrest, Jimei and Jimrise's solicitors provided Cosmotrade's solicitors with a copy of a time charterparty between Jimei and Jimrise.

The court decision

The court found no evidence that Jimei were the demise charterers of the vessel. Rather, it found that all the evidence consistently pointed towards Jimrise being the owners and Jimei being only the commercial operators.

The fact that Jimei were co-assureds on the policy was not held to be compelling evidence. Rather, it was considered that Jimei had become co-assureds because, as commercial operators and time charterers of the vessel, they had an insurable interest akin to that of an owner.

Further Jimrise, having not been party to the escrow agreement, could not be considered to have represented that they either (i) were not the owners of the vessel or (ii) had bareboat chartered it to Jimei.

Being the commercial operators of the vessel, it was unsurprising that Jimei had been copied into correspondence from the master.

Overall, on the balance of probability, the court decided that Cosmotrade had been unable to establish that, at the time the action was brought, Jimei had been either the owners or demise charterers of the vessel. Accordingly, the arrest was set aside.

However, the court also refused to order an inquiry in respect of damages for wrongful arrest because it found that there had been no material non-disclosure in relation to the arrest. Although the court accepted that, soon after the arrest, Jimei and Jimrise's solicitors had provided information clarifying the relationship between Jimrise and Jimei, the court refused to find that there had been malicious negligence on the part of Cosmotrade. There was genuine confusion as to the ownership of the vessel at the time of the arrest which had been compounded by the statements of Jimei's previous solicitors in the London arbitration. In such circumstances, Cosmotrade's actions post-arrest could not be described as being in bad faith or cavalier.

Comment

The court has shown once again its reluctance to issue orders inquiring into damages for wrongful arrest in Hong Kong. The test for showing that an arresting party has acted in bad faith or with malicious negligence sets a high threshold and is difficult for an arrested party to satisfy, even if it is successful in having an arrest order set aside.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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