Birnam and the defendant owners entered into two memoranda of agreement (MOAs) regarding the sale and purchase of the Hong Ming. The original MOA was concluded between the defendants and Birnam on 19 July 2011, requiring Birnam to pay a 20% deposit within three banking days. Birnam only paid part of the deposit by the deadline. The defendants rejected Birnam’s request to reduce the deposit payable and cancelled the original MOA.

On 3 August 2011, the defendants and Birnam negotiated a new MOA. This MOA provided for delivery of the Hong Ming in Hong Kong for inspection and sale. The defendants sought to comply with this understanding and sailed the Hong Ming to Hong Kong for inspection.

Birnam had the vessel arrested in Hong Kong, arguing that it enjoyed a maritime claim for the possession or ownership of a ship or the ownership of any share therein, and that its claim therefore fell within s 12A(2)(a) of the High Court Ordinance (Cap 4).

The defendants applied, amongst other things, to set aside the warrant for arrest.

Held: The court struck out the writ in rem and discharged the warrant for arrest.

Birnam could not claim possession or ownership of the Hong Ming as this was fully vested in the defendants. Birnam failed to pay the full deposit, entitling the defendants to terminate the original MOA, which they did. The partially paid deposit did not give rise to any proprietary or possessory interest in the ship; indeed, the defendants were entitled to treat the sum paid as forfeited by Birnam. It was also not possible to claim specific performance of a contract that was no longer in effect. In addition, the right to specific performance did not create an equitable interest for Birnam in the Hong Ming.

Moreover, neither s 12A(2) of the High Court Ordinance nor art 1.1 of the Arrest Convention 1952 included claims arising from ship sale contracts or a buyer’s claim for a breach of a ship sale contract as a maritime claim giving rise to a right to arrest the ship. In any case, the defendants did not breach the stipulations of the negotiation or, if there was a contract, the terms of the contract itself. Accordingly, there was no basis for a claim in personam against the defendants, much less a claim in rem, based on the breach of the negotiations or any concluded agreement made as a result.

Birnam breached its continuing duty of full and frank disclosure, was cavalier in its attitude, was maliciously negligent and abused the arrest process. There was a strong inference that Birnam’s request for an inspection was a ruse to bring the Hong Ming into Hong Kong waters in order to arrest it. The arrest was subsequently used as leverage or pressure to negotiate for terms favourable to Birnam in the revised MOA and to return the partial deposit paid previously.