Is a Vessel's Registration Conclusive Evidence as to Her Legal and Beneficial Ownership?
Introduction
Pursuant to s.12A of the High Court Ordinance (Cap. 4) (“HCO”), the Court of First Instance (“CFI”) has Admiralty jurisdiction to determine, among others, any claim arising out of any agreement relating to the use or hire of a ship.
In respect of such claim, s.12B(4) of HCO provides that where (i) the claim arises in connection with a ship; and (ii) the party who would be liable for such claim (the “Relevant Person”) was the owner or charterer of, or in possession or in control of the ship when the cause of action arose, an action in rem may be brought in the CFI against (i) that ship, if at the time when the action is brought the Relevant Person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise; or (ii) any other ship of which, at the time when the action is brought, the Relevant Person is the beneficial owner of all the shares of the ship.
The Almojil 61 [2014] 4 HKLRD 313 is a very important case which discussed whether a vessel’s registration is conclusive evidence as to her beneficial ownership under s.12B(4) of HCO for invoking CFI’s in rem jurisdiction as described above. In this case, among others, the Court held that (i) the phrase “beneficial ownership” in s.12B(4) concerned title to the vessel and included the situation of trust where the beneficial owner was able to operate its ship under the cloak of trust; and (ii) barring exceptional circumstances, registration of a vessel provides virtually conclusive evidence of legal and beneficial ownership of the vessel.
Background
By an agreement between Mohammed Al Mojil Group (“MMG”) and Al Mojil Investments Limited (“AMI”) dated 18 September 2012 (the “Agreement”), AMI agreed to pay the final instalment of the purchase price of MV Almojil 61 (the “Vessel”) on behalf of MMG to enable MMG to acquire ownership of the Vessel. Further, it was agreed that AMI would be entitled to the proceeds of any sale of the Vessel, which would be used to repay AMI. Pursuant to the Agreement, AMI did pay the final instalment on MMG’s behalf and MMG did become the registered owner of the Vessel until the judicial sale of the Vessel (as explained below).
On 28 September 2012, Arina Offshore JLT (“Arina”) commenced action (HCAJ 164/2012) to enforce its claims under its charterparties with MMG. Arina invoked the in rem jurisdiction of the CFI by arresting the Vessel on the basis that all the shares in the Vessel were, at the time of commencement of the action, beneficially owned by MMG pursuant to s.12B(4)(ii) of HCO.
In January 2013, Allianz Marine Services LLC commenced another in rem action (HCAJ 9/2013) against MMG to enforce its claim against MMG for breach of charterparty.
In March 2013, the Vessel was sold for US$4.5 million (the “Sale Proceeds”), which was paid into court. AMI was the plaintiff in another action (HCAJ 48/2013) against the Sale Proceeds. By that action, AMI claimed that it was part beneficial owner of the Vessel and had a beneficial interest in the Sale Proceeds.
In respect of HCAJ 164/2012 and HCAJ 9/2013, AMI similarly claimed that it was part beneficial owner of the Vessel by reason of its payment of the final instalment and applied for a Court order that the Court had no in rem jurisdiction in both actions on the basis that the requirement of s.12B(4)(ii) of HCO had not been made out. The Almojil 61 [2014] 4 HKLRD 313 is a consolidated report of related judgments for the aforementioned two actions concerning the ownership of the Vessel.
The Issues
The 2 issues before the CFI were:-
1. Whether AMI became a part beneficial owner of the Vessel by reason of its payment of the final instalment; and
2. Whether, in the absence of fraud or other similarly compelling circumstances, it was open for AMI to go behind the registration and contend that MMG was not the beneficial owner of the Vessel as to all her shares at the time when the actions were brought.
Was AMI a part beneficial owner of the Vessel?
The CFI held that AMI did not become a part beneficial owner of the Vessel by its payment of the final instalment for the following reasons. Rather it was held that the provision for repayment to AMI of the final instalment is a clear indication that the arrangement between MMG and AMI was intended to be a loan.
1. The terms of the Agreement were inconsistent with AMI having a beneficial interest in the Vessel. To the contrary, they were consistent with AMI having made a loan to MMG, repayable from the proceeds of the sale of the Vessel. There was no mention in the Agreement of the separation of legal and beneficial ownership or the apportionment of beneficial ownership between MMG and AMI.
2. AMI’s claim of the full amount of the final instalment in HCAJ 48/2013 was consistent with AMI also regarding its arrangement with MMG as one of a loan.
3. The CFI relied on the observation of Brown-Wilkinson J (as he then was) in Re Sharpe (A Bankrupt) [1980] 1 All ER 198 that “if…moneys are advanced by way of a loan there can be no question of the lender being entitled to an interest in the property under a resulting trust. If he were to take such an interest, he would get his money twice; once in repayment of the loan and once in taking his share of the proceeds of the sale of the property.”
4. The CFI held that the fact that AMI was stated in the Agreement as being entitled to the proceeds of any sale of the Vessel was not determinative of whether it had a beneficial interest in the Vessel.
Was it open for AMI to contend that MMG was not the beneficial owner?
The Court in this case held that the concept of “beneficial ownership” under s.12B(4) of HCO was concerned with title to a vessel, i.e. whether one can sell or dispose of a vessel and convey good title to a third party purchaser. It also caters for the possibility of a trust and tackles the mischief that would otherwise exist if the true beneficial owner was able to operate its ship under the cloak of a trust.
It is well established by case law that except in exceptional circumstances (e.g. fraudulent procurement of registration), a vessel’s registration was virtually conclusive as to her legal and beneficial ownership. It was not necessary for a plaintiff or the Court to look further than the particulars in the shipping register to decide whether the Court’s in rem jurisdiction was engaged.
In the present case, there was no suggestion of any exceptional circumstances. As such, it was not open for AMI to go behind the registration and contend that MMG was not the beneficial owner of all shares in the Vessel at the time when the actions commenced. MMG was therefore the beneficial owner of the Vessel within the meaning of s.12B(4) of HCO. As a result, the requirement for invoking the Court’s in rem jurisdiction under s.12B(4) of HCO was satisfied and AMI’s application was dismissed.
Conclusion
The Almojil 61 illustrates that one would not acquire beneficial ownership in a vessel by making payment of final instalment of the purchase price of a vessel for the vessel owner under a loan arrangement. Further, barring exceptional circumstances (e.g. fraudulent procurement of registration), registration of a vessel provides virtually conclusive evidence of legal and beneficial ownership of the vessel.
As such, if parties intend to share beneficial interest in a vessel by reason of a party’s contribution to the purchase price, such intention should be expressly stated in an agreement and appropriate steps should also be taken to register such arrangement.
For enquiries, please contact our Litigation & Dispute Resolution Department:
T: (852) 2810 1212
W: www.onc.hk
F: (852) 2804 6311
19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong
Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
