The "Convenience Container" (CofA)

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1. International Transportation Service Inc. v. The Owners of the vessels "Convenience Container", "Kingdom Container" and "Liberty Container" and Florens Container Inc. as Intervener;
2. Rudolf A. Oetker KG v. The Owners of the Vessels "Convenience Container", "Kingdom Container", "Liberty Container" and "Mandarin Container";
Hong Kong: Hong Kong Court of Appeal: Ma, CJHC., Stone & Reyes JJ.: CACV 234-240/2006: 16 July 2007
Mr. Colin Wright, instructed by Messrs. Johnson Stokes & Master, for the Plaintiffs/Respondents (International Transportation Service) in CACV 234-236/2006
Mr. Charles Haddon-Cave, QC, instructed by Messrs. Stephenson Harwood & Lo for the Plaintiffs/Respondents (Oetker) in CACV 237-240/2006
Mr. Charles Sussex, SC and Miss Liza Jane Cruden, instructed by Messrs Holman Fenwick & Willan, for the Defendants/Appellants in all appeals

In this case, the Court of Appeal affirmed the decision of the first instance court in dismissing applications to set aside certain in rem writs that had been issued against four vessels after their Singaporean owner had gone into liquidation. The Court confirmed that the judicial sale of the vessels did not bring about a change in their beneficial ownership for the purposes of the relevant statute. The Court also held that the sale of the vessels did not prevent claimants from subsequently issuing writs against the proceeds before they were paid out by the court.

DMC Category Rating: Developed

The Editor has compiled this case note in conjunction with Crump & Co, the International Contributors to this website for Hong Kong

Four vessels, "Convenience Container", "Kingdom Container", "Liberty Container" and "Mandarin Container" were owned by Powick Marine (S) Pte Ltd. ("Powick"), a Singapore Company. On 14 May 2003, Powick was wound up voluntarily. On 16 May 2003, ITS commenced three "in rem" actions in Hong Kong, in respect of amounts allegedly owed to it for stevedoring services. On 18 September 2003, Oetker commenced four in rem actions in Hong Kong, for amounts allegedly due to it as charterer. As a result of Powick’s collapse, the four vessels were arrested by other creditors in Hong Kong over the period 16 May to 2 June 2003and were all sold by the Admiralty Court of Hong Kong on 7 July 2003. No ancillary winding up proceedings were brought in Hong Kong.

In January 2004, Powick sought to set aside the in rem proceedings on the grounds that they were defective in that the requirement of section 12B(4)(i) of the High Court Ordinance was not satisfied. The Defendant maintained that the winding up in Singapore had the effect of divesting Powick of the beneficial ownership of the Vessels, so that Powick was no longer the beneficial owner of the Vessels at the time when the Writs were issued against them This was called the "Liquidation Point".

Further, as regards the Oetker writs issued in September 2003, it was argued that, upon the sale of the Vessels by the Court, the beneficial ownership of the Vessels passed to the purchasers from the Court sale, so that Powick was no longer the beneficial owner of them at the time when those writs were issued. This was called the "Court Sale Point".

At first instance, the judge, Mr Justice Waung, rejected both arguments and refused to set the writs aside. Powick appealed against that judgment.

Judgment of the Court of Appeal
The judgment of the Court of Appeal was unanimous. The leading judgment was given by Reyes J. Both Stone J. and Ma CJ. delivered supporting judgments.

The Liquidation Point
S12B(4)(i) of the High Court Ordinance provides that an in rem action can be brought against the vessel only if its beneficial owner is the same, both at the time the cause of action arose and at the time the writ is issued. It follows that liability of the ship can only be avoided if there has been – between these two points in time -a genuine change of ownership, that is, a change in beneficial or equitable ownership, rather than just in registered ownership. The Appeal Court applied – as had Mr Justice Waung – the interpretation of the meaning of beneficial ownership set out in the leading English case of I Congreso del Partido [1981] 2 Lloyd’s Rep 36. That case established that the term connoted title/ownership, rather than possession or control or use or benefit. The right to enjoy the proceeds of the sale of the vessel was not – as Powick had argued - a determinative consideration. On that basis, it was clear that – at the time the ITS writs were taken out - the only beneficial owner within the meaning of the statute was Powick.

In reaching this conclusion, the Court dismissed – as largely irrelevant - the differing constructions that had been put upon the term "beneficial ownership" in the two cases of Ayrest v C&K (Construction) Ltd [1976] AC167 and the Australian case Commissioner of Taxation of Commonwealth of Australia v. Linter Textiles Australia Ltd (in liquidation) [2005] 220 CLR 592. Both these cases related to the interpretation of the term under revenue statutes and the Court concluded that "the expression ‘beneficial ownership’ can [plainly] mean different things in different contexts or statutes". The Court held further that, even if the courts in Singapore were to apply the Ayerst principles (being those most helpful to the Powick interest), the decision taken by the court on the interpretation of s.12(B)(4)(i) of the Ordinance meant that Powick had to show that liquidation had the effect of vesting the equitable ownership of Powick’s assets in some person other than Powick. This was a burden that they could not carry.

The Court Sale Point
In this regard, the Court said:

 "In HCO ss.12B(4)(a) and (b) the references to "ship" clearly indicate a ship in connection with which an in rem claim is being made. This is because, at the time when a cause of action arises, there cannot yet have been an arrest and judicial sale of a relevant vessel. But the word "ship" in HCO ss.12B(4)(i) and (ii) must refer to a particular "ship or the proceeds from the judicial sale of a ship". This is because, by time-honoured tradition in the Admiralty jurisdiction, the proceeds from the judicial sale of a res (such as a ship) are treated as equivalent to the res itself.

Mr. Sussex submits that HCO s.12B(4) cannot reasonably be read in the way which I have just set out. But I do not see why… The purpose of a judicial sale following arrest is to prevent wastage of an asset. For example, in the case of a ship, the expenses of maintaining her (including the employment of a skeleton crew) pending resolution of a dispute, would diminish whatever value the ship may eventually fetch at the end of the day. 

It would be strange if the right to bring an in rem claim (especially one involving a statutory lien) were to be dependent on the timing of a judicial sale. Yet that would be the result if Mr. Sussex’ argument is right."

The Court concluded that "since a res once judicially sold is treated as equivalent to its proceeds, it is wrong to say the the beneficial ownership in the res has been transferred to someone else." 

In consequence, Powick failed on this point too. Accordingly, the Court confirmed the judgment at first instance dismissing all of Powick’s applications.

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