Comment
| Date | 01 December 2017 |
| Author | Senthil SABAPATHY BA (Oxford), BCL (Oxford); Justices' Law Clerk, Supreme Court of Singapore. |
| Published date | 01 December 2017 |
ADMIRALTY JURISDICTION AND BENEFICIAL OWNERSHIP
Some Unanswered Questions
The Min Rui
The recent decision of the High Court in The Min Rui brought into focus the approach to be taken when determining the beneficial ownership of a vessel for the purpose of establishing the admiralty jurisdiction of the court. The case raised two interesting questions. First, in an interlocutory jurisdictional challenge, what is the standard of proof to be applied in determining whether the defendant was the beneficial owner of the vessel at the time the action was brought? Second, in this context, what law governs the issue of beneficial ownership? While the High Court did not conclusively deal with these questions, its decision does point towards what the possible answers might be.
1 When a vessel is arrested by a plaintiff, the defendant may turn around and say: that is not my ship – or at least, that is not my ship anymore. More precisely, the defendant may allege that, at the time the action was brought, it was neither “the beneficial owner of that ship as respects all the shares in it [n]or the charterer of that ship under a charter by demise” within the meaning of s 4(4)(i) of the High Court (Admiralty Jurisdiction) Act1 (“HCAJA”). If so, then the High Court's admiralty jurisdiction would not be established and the plaintiff's in rem action would fail. After all, a plaintiff has no business arresting a ship in which the defendant had no interest when the action was brought. This was precisely the objection raised by the defendant in The Min Rui.2
2 The facts of the case are uncomplicated. In June 2014, the plaintiffs, two Brazilian companies, shipped a consignment of steel structures on board the Min Rui for carriage from China to Brazil. The vessel was owned by the defendant, Min Rui Shipping Co Ltd, and registered in Hong Kong. There was apparently bad weather en route and the cargo was lost and/or damaged by the time the vessel arrived at the port of discharge in August 2014. So, the plaintiffs brought an admiralty action in Singapore against the defendant for failure to take reasonable care of the cargo. The in rem writ was issued on 16 December 2015 – this date was pivotal as it was when “the action was brought” for the purposes of the HCAJA.3 Hence, for the plaintiffs to establish admiralty jurisdiction, they had to prove that the defendant was either the beneficial owner or demise charterer of the vessel on that date.
3 Meanwhile, the defendant sold the vessel to another party, Qidong Shipping Ltd (“Qidong”). The sequence of the sale is important, and was as follows:
(a) In October 2014, the defendant entered into a memorandum of agreement for the sale of the vessel, which was governed by English law. The buyer of the vessel, Qidong, intended to register the vessel in Panama following the sale.
(b) Thus, in November 2014, it obtained a Patente Provisional De Navegacion (“Panamanian provisional licence”) from the Panama maritime authority. This was a temporary licence which allowed the vessel to sail under the Panamanian flag while the application for an official Panamanian navigational licence was pending.
(c) On 9 December 2014, a bill of sale was executed in favour of Qidong in which the defendant acknowledged receipt of the purchase price of US$3.75m.
4 Crucially, on 12 December 2014 – four days before the plaintiffs commenced their admiralty action in Singapore – the defendant delivered possession of the vessel to Qidong at Qingdao, China. The executed bill of sale was handed over to Qidong that day; it was not, however, formally notarised as required under the terms of the memorandum of agreement. Nevertheless, Qidong took delivery of the vessel. Later, on 16 December 2014 (that is, the same day the plaintiffs commenced their action in Singapore), the defendant submitted a notice to the Hong Kong Shipping Register to close the ship's registration. This was done on 7 January 2015, following which the vessel ceased to be
registered with Hong Kong as the flag state. Subsequently, the bill of sale was formally notarised and the vessel was finally registered in the name of Qidong in Panama in February 2015.5 The vessel was arrested in early February 2015. Following the arrest, the defendant brought an application to set aside the plaintiffs' in rem writ. It argued that the High Court's admiralty jurisdiction was not established because the beneficial ownership of the vessel had passed from the defendant to Qidong before 16 December 2015. At first instance, the assistant registrar dismissed the jurisdictional challenge.4 It was undisputed that the defendant remained the registered owner of the vessel on the Hong Kong Shipping Register on 16 December 2016. The ship's register was prima facie evidence of her true ownership,5 and the issue was whether the defendant had displaced this evidence. The asst registrar noted that the matter before him was an interlocutory application brought on the basis of affidavit evidence alone; neither party had applied to cross-examine the other side's witnesses. He, thus, relied on the observations made by Chan Sek Keong CJ in The Bunga Melati 56 that factual disputes in a jurisdictional challenge “can only be decided on the basis of oral evidence and cross-examination of the witness or deponent, unless the defendant is able to produce undisputable and conclusive evidence that the requisite jurisdictional fact does not exist” [emphasis added].7 The asst registrar judged that this standard of proof applied to the setting aside application. Consequently, he found that the defendant had not adduced “undisputable and conclusive evidence” that its challenge should succeed “at this time” given the prima facie evidence of the ship's registration in its name and certain deficiencies in the sale documentation. The asst registrar emphasised, however, that this was not a conclusive finding as the court at the liability stage would be entitled to come to a differing opinion based on evidence which might surface at trial. This is a point which bears closer examination and will be explored later.
6 In the course of his decision, the asst registrar also made two points on the applicable law, relying on the decision of Tan Lee Meng J (as he then was) in The Makassar Caraka Jaya Niaga III-398
(“The Makassar”). First, he held that Singapore law as the lex fori governed the question of whether the defendant was the beneficial owner of the ship at the time the action was brought. Second, notwithstanding the first point, the court may take into account “relevant aspects of the relevant foreign law for a better picture of how ships may be owned or transferred in order to determine who has the beneficial ownership under that foreign law”.9 These legal principles were not central to the asst registrar's decision. The only foreign law evidence adduced was on the effect of the Panamanian provisional licence under the laws of Panama; but this evidence was rightly judged to be irrelevant as the transfer of title in the vessel – which was registered in Hong Kong, sold pursuant to a sale agreement governed by English law and delivered to the buyer in China – did not have any connection with Panamanian law.7 On appeal, Belinda Ang Saw Ean J disagreed with the asst registrar's decision on the jurisdictional challenge. The main issue before her was whether beneficial ownership of the vessel had passed from the defendant to Qidong before the action was brought on 16 December 2015. There was also a preliminary issue as to the bona fides of the sale transaction. As was argued before the asst registrar, the plaintiffs alleged that the sale of the vessel was a sham. Ang J easily disposed of this allegation as the contemporaneous documentary evidence as a whole supported the existence of a genuine contract for sale and purchase. She also noted that the deficiencies in the sale documentation pointed out by the plaintiffs were more apparent than real. This was a finding on the facts, which need not trouble us further.
8 On the main issue, Ang J essentially agreed with the asst registrar that the principles set out by Tan J in The Makassar applied and that the statutory requirement of beneficial ownership must be decided by applying Singapore law as the lex fori but “having regard to the proper law of the sale contract and the legal effect of the transfer of property”.10 Ang J's observations on the governing law will be discussed shortly. She also agreed that expert evidence adduced on Panamanian law was largely not relevant.11
9 However, Ang J parted ways with the asst registrar's decision by finding that the beneficial ownership of the vessel had passed to Qidong before the action was brought. She first held that the plaintiffs could not
simply rely on the entry in the ship's register in the defendant's name. The ship's register was merely prima facie inference of ownership which could be displaced by evidence that someone else was the beneficial owner for the purpose of s 4(4)(i) of the HCAJA.12 There was sufficient such evidence before the court. In particular, the terms of the memorandum of agreement were consistent with the normal rule that the parties intended to pass property at the point of delivery of the bill of sale, exchange of closing documents and physical delivery of the vessel.13 While the bill of sale had not been notarised at the time of delivery, Ang J assessed that this was only a procedural requirement; the absence of notarisation did not affect the substantive rights vis-à-vis the parties at the point of closing.14 Hence, beneficial ownership as respects all the shares in the vessel had passed from the defendant to Qidong when the vessel was delivered on 12 December 2015. The plaintiffs had failed to establish admiralty jurisdiction.10...
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