Birnam v The "Hong Ming"
Birnam Ltd v The Owners of the Ship or Vessel “Hong Ming”, The “Hong Ming”
Hong Kong Court of First Instance: Reyes J: HCAJ No.105 of 2011: 26 August 2011
Ms Janet Ho, instructed by Messrs Holman Fenwick Willan, for the Plaintiffs
Mr Colin Wright, instructed by Messrs Ince & Co, for the Defendant Shipowners
WARRANT OF ARREST: SETTING ASIDE: CLAIM FOR OWNERSHIP OF VESSEL PURSUANT TO A TERMINATED CONTRACT FOR SALE OF VESSEL: MATERIAL NON-DISCLOSURE: MISUSE OF THE ARREST PROCESS
The present case concerned a contract for the sale of a Vessel which sellers had terminated due to the buyer’s failure to pay the full amount of the deposit. The Court set aside a Warrant of Arrest obtained by the buyer because the sale contract had been rightfully terminated and the buyer had no prospect of obtaining specific performance of the contract. Further, the buyer had misused the arrest process. During subsequent negotiations for a new sale contract, the buyer had procured that the vessel come to Hong Kong waters for inspection but had then arrested it in order to seek leverage against the sellers in the on-going negotiations.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
On 19 July 2011, the Defendant Shipowners entered into a Memorandum of Agreement (“MOA”) with the Plaintiff, Birnam Ltd (“Birnam”) for the sale of the Vessel, The “Hong Ming”. However, Birnam was only able to pay part of the deposit payable within the prescribed period under the MOA. The Shipowners refused to reduce the deposit payable and cancelled the MOA on 27 July 2011.
On 3 August 2011, the Defendants proposed to enter into a new agreement with Birnam on terms broadly similar to those in the MOA. Birnam made a counter-offer on the same day, and made an ex parte application to Macrae J for a Warrant of Arrest.
On 4 August 2011, Birnam proposed the Vessel be delivered for inspection in Hong Kong rather than in Singapore. Although the Shipowners initially indicated that this was not possible, they finally agreed to the proposal.
On 14 August 2011, when the Vessel duly arrived in Hong Kong, it was arrested by Birnam. By that time, Birnam had issued a writ, claiming possession or ownership of the Vessel arising out of the MOA or, alternatively, a refund of the deposit or damages.
The Shipowners applied to set aside the Writ and the Warrant of Arrest.
Insofar as relevant, s.12A of the High Court Ordinance (Cap.4, Laws of Hong Kong) (the equivalent of s.20 of the English Senior Courts Act 1981) provides that:
“(1) The Admiralty jurisdiction of the Court of First Instance shall consist of-
(a) jurisdiction to hear and determine any of the questions and claims mentioned in subsection (2);…”
“(2) The questions and claims referred to in subsection (1)(a) are
(a) any claim to the possession or ownership of a ship or to the ownership of any share therein;…”
Reyes J allowed the Shipowners’ application.
He was of the view that the Warrant of Arrest should be set aside because the present claim did not fall within the Court’s admiralty in rem jurisdiction. S.12A of the High Court Ordinance (“the HCO”) did not cover claims arising from contracts for the sale of a ship or claims by a buyer for the breach of such contracts. The 1952 Arrest Convention did not include such claims either. In any event, as the MOA had been terminated, Birnam had no prospect of obtaining specific performance of the it.
Birnam’s part payment of the deposit would not give it any proprietary interest in the Vessel. As Birnam had breached the MOA, the Shipowners were entitled to terminate the MOA and forfeit the sum paid by Birnam as liquidated damages. Although there were subsequent negotiations to enter into a new agreement, they did not constitute a waiver of Birnam’s breach. Thus, the present case did not constitute a claim to the possession or ownership of a ship within s.12A(2)(a) of the HCO.
Further, when Birnam applied for the Warrant of Arrest, it simply asserted that it had a right or interest in the Vessel. Macrae J was neither provided with an even-handed analysis of the authorities in connection with how such interest was alleged to arise, nor was his attention drawn to the conventional wisdom that Birnam’s claim did not fall within the claims giving rise to a right of arrest.
Birnam had also failed to disclose the re-negotiation with the Shipowners after the Warrant of Arrest was obtained. This constituted material non-disclosure because it was relevant to the existence of Birnam’s cause of action. By that time, Birnam had accepted that the MOA had been terminated and was entering into fresh negotiation with the Shipowners.
The Warrant of Arrest should also be set aside because the chronology of events clearly showed that Birnam had misused the arrest process. It was acting in a “cavalier attitude” and with “malicious negligence”: see The Maule (Hong Kong Court of Appeal, Civil Appeal No.187 of 1994, 11 July 1995). The inspection Birnam suggested during re-negotiation was merely a ruse to bring the Vessel into Hong Kong waters so that it could be arrested there. Birnam could then use the arrest as leverage in its negotiations for a new agreement with the Shipowners.
An inquiry was thus directed into the damages suffered by the Shipowners as a result of the wrongful arrest, as the Shipowners were in negotiation with several other potential buyers at that time.