Note: the decision in this case has been upheld by the Court of Appeal in a judgment delivered on 16 July 2007. To access the note on the Court of Appeal decision, click here

DMC Category Rating: Developed

This case note is contributed by Crump & Co, the International Contributor to the website from Hong Kong

Background
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".

The Defendant, Powick, had relied on Ayrest v C&K (Construction) Ltd [1976] AC167, a case that arose in the context of liquidation, to support its allegation that the beneficial ownership in the vessels had changed after Powick’s liquidation in Singapore. In that case, Lord Diplock held that a company in liquidation is divested of beneficial ownership of its assets since the liquidator has the duty to apply the assets of the company for the benefit of its creditors. In other words, the company in liquidation is no longer the beneficial owner of its assets. It can be seen that, in interpreting the meaning of beneficial owner, focus in this case was on the usage or control rather than on the actual ownership.

However, instead of applying Ayrest, the judge went on to consider the Australian case Commissioner of Taxation of Commonwealth of Australia v. Linter Textiles Australia Ltd (in liquidation) [2005] 220 CLR 592. He considered that Linter provides the correct statement of the law on the title to the company’s assets on liquidation. The judge held that, although the administration of the assets might be for the benefit of creditors, ownership of assets is not for the benefit of others but is and has always been for the benefit of the company and therefore there is no change in the ownership of the assets on liquidation. There was no trust that in equity the court could recognize, as power to deal with an asset has no direct bearing on ownership.

The Court Sale Point
In this regard, the judge said:
"The argument is that once the ship has been sold by the court, the requirement of section 12B(4)(i) cannot be met because when the action is brought (namely at the time of the issue of the writ) Powick is not the beneficial owner of the ship (as the ship has been sold by the Court).  That of course would be the result of a literal reading of section 12B(4)(i).  But a proper construction would require that provision to be understood and construed in its proper context, namely that maritime claims are brought by different claimants at different times against a ship, both before as well as after sale, and that the proceeds of sale have always been regarded in admiralty as standing in for the ship.  It is therefore possible to read ["ship" in section] 12B(4)(i) as referring to proceeds of sale of the ship…"

The judge confirmed that the law allows writs to be issued even after the court sale as, otherwise, the time of the court sale would become critical, as that time would close the door to any maritime claimants who – otherwise – could neither proceed against the vessel nor against the proceeds of sale.

The judge continued: …"if the point [in the paragraph above] is correct then that will effectively destroy sale pendente lite.  The reason for sale pendente lite is so that the value of the res will be preserved by an early sale rather than be burdened by the increasing costs of maintaining arrest.  But if the timing of the sale order can have such a dramatic effect (except for maritime liens) [namely, shutting out all claims where the writ has not been issued before the sale] the Court will have to exercise great caution and will likely decline many early sales, specially when the court is doubtful as to whether the early sale sought is with the intention to defeat other claims.  As I have said during the course of the hearing, this novel Court Sale Point if successful will turn admiralty practice on its head. In my view, there is no need for the Admiralty Practice to change. This has worked well. 

The judge accordingly concluded that the Defendant’s application to set aside the seven writs failed.

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