In a recent case before the Full Court of the Federal Court of Australia (Shangang Shipping Co Ltd v Ship 'Bulk Peace' as surrogate for the Ship 'Dong-A Astrea' [2014] FCAFC 48) the Court had the opportunity to revisit the meaning of "owner" in the context of sister ship arrest pursuant to the Admiralty Act 1988 (Cth).
Background and summary
The "Bulk Peace" was arrested on 18 March 2014 on the application of Shagang Shipping Co Ltd, as a sister ship of the ship "Dong-A Astrea". The underlying dispute related to hire said to be owed by HNA Group Ltd under a time charter party for the ship "Dong-A Astrea". In support of its arrest application, Shagang Shipping Co Ltd claimed the Court had jurisdiction to arrest "Bulk Peace" under Section 19 of the Admiralty Act 1988 (Cth). Section 19 states:
" Right to proceed in rem against surrogate ship
A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:
(a) a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first-mentioned ship; and
(b) that person is, when the proceeding is commenced, the owner of the second-mentioned ship."
Shagang Shipping Co Ltd contended it had provided sufficient evidence that HNA Group Ltd was the "beneficial owner" of "Bulk Peace" and the fact that another entity was the registered owner of "Bulk Peace" was irrelevant.
In the event the Full Court found there was insufficient evidence, even on a prima facie, interlocutory basis, for the Court to infer, even tentatively, that HNA Group Ltd was the "owner" of "Bulk Peace" within the meaning of section 19 of the Admiralty Act 1988 (Cth). Accordingly, the arrest was summarily set aside on 22 March 2014 and "Bulk Peace" was released from the arrest on that same day. In addition, Shagang Shipping Co Ltd was ordered to pay the applicant's costs in the proceeding.
Ownership test
The Admiralty Act 1988 (Cth)'s section 17 (on arrest for owner's liabilities) and section 19 (on arrest of sister ships) both refer to the term "owner". However "owner" is not defined in the Act. The word clearly covers a registered owner, but nothing in sections 17 and 19 excludes a so-called "beneficial owner".
The "Bulk Peace" case reaffirmed the broad concept of ownership available in Australia to encompass "beneficial ownership" and not merely registered ownership: The Ship "Gem of Safaga" v Euroceania (UK) [2010] FCA FC 14; Tisand Pty Ltd v Owners of the Ship MV “Cape Moreton” (ex “Freya”) (2005) 143 FCR 43; Kent v SS "Maria Luisa" (No 2) (2003) 130 FCR 12; Malaysia Shipyard and Engineering SDN BHD v "Iron Shortland" (1995) 59 FCR 535.
In his reasons, Chief Justice Allsop made helpful observations in respect of the meaning of "beneficial owner" and what evidence is required to prove this type of ownership. They serve to show that the burden of proving beneficial ownership is on the claimant and/or Arresting Party.
Allsop CJ observed as follows:
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Broadly speaking, and with that caveat, what is required is to show what the evidence says about questions of property, such that it can be concluded that the relevant person [ the person who would be liable for the claim ] has the right both to make physical use of the vessel and to sell and in effect keep the proceeds of a disposition of sale of the vessel. It involves connotations of dominance, ultimate control, and ultimate title. It is not sufficiently reflected in a notion of influence or control. It is the right of dominion and true ownership. [paragraph 20 of the judgment]
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One must also understand the importance of the question of corporate individuality and separateness that is a consequence of the placement of ownership by a person at the centre of the operation of s 19. A conscious legislative choice was made when the Admiralty Act was passed to eschew a right to arrest a vessel based on substantial control of it as a commercial enterprise. [21];
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It must be recognised that a demonstration of control, or substantial control, is insufficient to demonstrate ownership because of its equivocality. …… It may be, in certain circumstances, that intervening companies between assets and parent companies are mere distractions, or shams, or have no part to play whatsoever in the legal activity of ownership and deployment. If that be the case, that must be proven. [22]
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...this Court must recognise and respect that legislative choice, and deal with cases such as the present, on the basis that an arresting party needs to be able to demonstrate ownership of a surrogate ship by the relevant person, not merely a degree of control, even a high degree of control, over the commercial disposition of the ship. [23]
After having summarised Shagang Shipping Co Ltd's evidence, the Chief Justice noted: -
I am not, however, prepared, from that evidence, to conclude that it can be inferred, even tentatively, that HNA owned Bulk Peace. [32]
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There is simply no basis for this Court to conclude that the individual companies in the group were conducted in such a way as to mean that they were either a sham or not, in fact, conducting their respective businesses, nor not, in fact, owning the assets they are said to have owned. [33]
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The Court has insufficient material upon which to draw any conclusions that HNA was the owner of Bulk Peace or that any adjournment is likely to bring forward such evidence. [41]
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In my view, an asset such as this engaged in international commerce should not be held up by an arrest for which there is insufficient, indeed inadequate, evidence for a conclusion of ownership. [43]
One of the other judges, Rares J, added as follows: -
As the Chief Justice has indicated, it is important to ensure that a creditor who seeks to invoke the Court’s exercise of its jurisdiction to arrest a vessel and compel a person who is, relevantly, the beneficial owner of the vessel to meet its obligations does not invite the Court to do so on insufficient or inexact evidence. Nor is it appropriate for a creditor to use the power to arrest a vessel as a mere opportunity to seek subsequently to engage in a fishing expedition to determine whether, later, enough evidence to justify the arrest will emerge if it can be obtained by the Court’s compulsory processes. (I do not mean to suggest that that happened here.) [49]
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Importantly, as the Chief Justice has also discussed at [19]-[24] above, the Australian Law Reform Commission concluded, in its report Civil Admiralty Jurisdiction (ALRC 33) at [141], that it would not be appropriate for the purposes of Australian law to provide, in the Admiralty Act, a means to allow the lifting of the corporate veil. [50]
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Key principles emphasised
By way of summary, the decision emphasised the following important matters in the context of "beneficial ownership":
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An arresting party cannot ignore the reality of separate corporate entities and subsidiaries; to prove beneficial ownership a party must do more than merely assert a high degree of control by the party alleged to be a beneficial owner. The right to sell the ship in question and keep the proceeds are elements that must be proven. A simple right of control is insufficient. The Court will not lift the corporate veil. If intervening subsidiaries are claimed to be a façade or a sham, this must be proven.
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An arrest cannot be used as a method for "fishing" for further information as to the true ownership of a ship. An arrest cannot be obtained on the basis of insufficient evidence, and nor is an arrest permissible to obtain information that might assist the arresting party. If the arresting party does not have enough evidence to demonstrate beneficial ownership, the arrest will be set aside.
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We are grateful to Joe Hurley and Jesper Martens of HWL Ebsworth Lawyers, Sydney, for this article.
