The Nasco Diamond, owned by YDM Shipping Co Ltd, was time chartered to Da Sin Shipping Pte Ltd (Da Sin), who sub-chartered it to Great Pacific Navigation (Holdings) Corp Ltd (the plaintiff). The Nasco Diamond proceeded to Kolonodale, Indonesia, to load a cargo of nickel ore. It sank with loss of life. Da Sin sought compensation of USD 42,000,000 from the plaintiff. The plaintiff, having chartered the Nasco Diamond to another party, who gave orders for the Nasco Diamond to load cargo, sought to pass on this claim.

Seeking security for its claim in arbitration, the plaintiff arrested the Tongli Yantai, claiming that it was owned by Tongli Shipping Co Ltd (Tongli China). The plaintiff alleged that the Tongli Yantai, though nominally owned by Halcyon Ocean Shipping Limited (Halcyon), was beneficially owned and controlled by Tongli China. Halcyon applied to vacate the arrest and sought damages for wrongful arrest.

The plaintiff's case was as follows. The cargo was loaded contrary to the express terms of the charterparty, wrongfully and negligently, causing the casualty. The charterparty had an arbitration clause. This charterparty was executed only by the plaintiff and Tongli Samoa Shipping Co Ltd (Tongli Samoa). The charterparty was not executed by or on behalf of Tongli China. However, by lifting the corporate veil, Tongli China was liable as the real charterer who ordered the Nasco Diamond to load the cargo. As for the bareboat charter of the Tongli Yantai by Halcyon to Eastshine, Eastshine was a mere shell company and alter ego of Tongli China. This charter was part of a financial lease arrangement, whereby the title to the Tongli Yantai vested in Tongli China and not in Halcyon. Halcyon is the nominal registered owner; Tongli China was the real/beneficial/equitable owner. For the purposes of this application, the plaintiff no longer pursued the argument that Halcyon was the alter ego of Tongli China.

The plaintiff argued that its right to arrest was based on the Arrest Convention 1999. Halcyon argued that the Arrest Convention 1999 is applicable in India, but only for contracts which involve a public law element, and therefore is inapplicable in the present case: Liverpool & London S P&I Association Ltd v MV Sea Success I (2004) 9 SCC 512 (The Sea Success I) [60] (CMI884); Croft Sales & Distribution Ltd v MV Basil (OJ Appeal No 6 of 2011 dated 17 February 2011 in Admiralty Suit No 10 of 2010) of the Gujarat High Court (The Basil) (CMI2790).

The parties also disagreed over the scope of art 3.2 of the Arrest Convention 1999. Halcyon argued that art 3.2.b is limited to the registered owner of a ship. The plaintiff argued that it includes also the equitable owner and a person in possession or control of the ship.

Halcyon submitted that the suit was not maintainable and that the plaintiff was not entitled to security. Security could not be granted because the final award must decide the question of ownership of the vessel. Halcyon, who claimed to own the Tongli Yantai, was not a party to the arbitration agreement. Halcyon would, therefore, not be represented before the arbitral tribunal. An award, therefore, could not be made which affects the rights of Halcyon. Thus, even if the arbitral tribunal had the powers to pierce the corporate veil between Tongli China and Tongli Samoa, the issue relating to the ownership of the Tongli Yantai could not be decided without Halcyon, whose rights would be affected by any award that may be passed.

Halcyon had a further non-joinder argument that the necessary party, ie Tongli China, was not joined to the suit, and this prejudiced Halcyon as it did not have an opportunity of meeting the case even on facts.

Held: Application allowed in part.

The arrest should be vacated. Halcyon has proven its ownership of the Tongli Yantai even though there is some connection between Tongli China and Tongli Samoa. If Tongli China had appeared and not satisfactorily explained the evidence on record, the plaintiff would have been entitled to such security.

The Arrest Convention 1999 applies to India even for private contracts: MV Elisabeth v Harwan Investment and Trading (Pvt) Ltd 1993 Supp 2 SCC 433 (The Elisabeth) [64], [74], [76], [89] (CMI883). The Convention is not restricted to any type of contract or only in cases where the Government is a contracting party: The Elisabeth; The Sea Success I; JS Ocean Liner LLC v MV Golden Progress (2007) 2 BCR 1 (CMI2803). The Basil cannot be followed.

The words that the Arrest Convention 1999 'should be applied only for enforcement of a contract involving public law character' (The Sea Success I [60]) do not restrict the applicability of that Convention only to contracts where the interests of the Government are involved. Those words refer only to the restricted cases which do not involve maritime claims and hence do not permit the invocation of the admiralty jurisdiction.

The plaintiff's case falls under the Arrest Convention 1999 art 1.1.g, read with art 3.2.b.

The ambit of the phrase in art 3.2 'owned by the person' is not restricted to registered owners of such ships. Although art 3.2 does not expressly state 'beneficial owner', this does not indicate its applicability being so restricted. The term 'owner' refers to the true/real owner. If it were otherwise, art 3.2 would have so provided. Barring possibly a statutory provision to the contrary, ownership is not dependent upon registration. It is impossible and undesirable to enumerate cases where the true/real owner can be held to be one other than the registered owner. That must depend upon the facts of each case. To restrict the scope of the expression is neither warranted nor desirable. For example, the registration of a recently sold ship in the name of its new owner might take time. There is no reason why the ship cannot be arrested, if it otherwise can be under art 3.2, simply because registration is delayed or not effected for any reason. Similarly, if a ship is registered in the name of another to avoid liability without intending to transfer ownership to the registered owner, the transferor retains ownership. To hold otherwise would encourage and endorse deceit and make admiralty actions in rem for ship arrest redundant.

However, the term 'owner' does not encompass any person who merely has possession of the ship unless such possession is accompanied with all the incidents of ownership thereof. Mere possession, however complete, would not qualify a person being considered the owner thereof for the purpose of art 3.2: art 3.2.b. Article 3.2 requires the ship liable to be arrested to be owned by the person and not chartered by that person. Article 3.2.b foists the liability in respect of a maritime claim on the person who was, when the claim arose, either the owner or the demise, time or voyage charterer of the ship in respect of which the claim arose. Thus, art 3.2 itself draws a distinction between the rights of the person qua the ship to be arrested and the ship in respect of which the maritime claim arose. In the case of the latter, the person could be the owner or the charterer but in the case of the former, the person must only be the owner.

Nothing in Indian law prohibits a person from being considered an owner of a ship unless the ship is registered in that person's name. Foreign decisions must be read carefully because they are often based on foreign statutes, some of which use the terms 'owner' and 'beneficial owner'. This leads to an inference that the legislature intended the scope of the term 'owner' and the phrase 'beneficial owner' to be different. Furthermore, many overseas decisions also deal with the Arrest Convention 1952, which is different from the Arrest Convention 1999. Nevertheless, the term 'owner' or 'beneficial owner' is not restricted to the registered owner if the ship has been spirited into a registered ownership: The Evpo Agnic [1988] 1 WLR 1090 (CA) 1097 (CMI2225). See also The Ohm Mariana [1993] SGCA 43, [1993] 2 SLR(R) 113 (The Ohm Mariana) (CMI1382).

A person with full possession and control of a ship, such as its demise charterer, does not thereby have beneficial ownership of that ship, even in respect of art 3.2 of the Arrest Convention 1999: The Permina 3001 [1977] SGCA 5, [1979] 1 Lloyd's Rep 327; I Congreso del Partido [1978] QB 500 (QB) (CMI556). The contrary view is inequitable. It would expose an innocent owner of a ship to a maritime liability incurred by the ship's demise charterer in respect of operations of another ship.

The defendant's argument that the question of ownership of the vessel is to be decided by the arbitral tribunal is erroneous. The contention that the order of arrest cannot be granted because the arbitral tribunal cannot decide the issue of title/ownership of the vessel is rejected. The issue of ownership is irrelevant to the dispute in arbitration, which is whether Tongli Samoa is liable to pay compensation to the plaintiff. The tribunal cannot decide whether its award can be executed against the vessel or other security.

The Court must consider whether there is an arbitral agreement between the plaintiff and the owner of the arrested vessel. In this suit, which only seeks security in respect of an arbitration award that may be passed, the Court must be satisfied, at least prima facie, that there is an arbitration agreement between the parties. Unless the Court is satisfied that the dispute/issue relating to Tongli China being the real charterer of the Nasco Diamond and the actual owner of the arrested vessel can be arbitrated upon, this suit would not be maintainable.

The arbitral tribunal has no jurisdiction to adjudicate the question whether Tongli China was the real charterer of the Nasco Diamond because Tongli China did not consent to arbitration. The mere fact that a party is an alter ego of another would not predicate an agreement to refer disputes to arbitration by the one which is not a party to the arbitration agreement: Indowind Energy Ltd v Wescare (India) Ltd (2010) 5 SCC 306; Hemant D Shah v Chittaranjan D Shah (Appeal No 658 of 2006 in Arbitration Petition No 395 of 2006, 5 September 2006, Bombay High Court). If a final award cannot be passed in favour of the plaintiff against Tongli China, the relief claimed in this suit cannot be granted for this is a suit not for the recovery of the plaintiff’s dues, but only to obtain security in respect of an award that may be passed by the arbitral tribunal. Accordingly, the arrest should be vacated.

The defendant's non-joinder argument is rejected. An admiralty action in rem only for security is maintainable. It is unnecessary to make the owner of the vessel a party to an action in rem. The absence of the owner does not affect the maintainability of the suit. Thus, Tongli China is not a necessary party because this was an action in rem. Even in practical terms, Halcyon is no worse off by the absence of Tongli China.

The evidence suggests that the plaintiff did not sub-charter the Nasco Diamond to Tongli China acting through Tongli Samoa. The fixture note did not mention Tongli China.

The question of whether Tongli China is responsible for dues of Tongli Samoa (assuming that the latter was the alter ego of the former) should be left undecided. Assuming that Tongli China is liable for the dues of Tongli Samoa and that the arbitral tribunal can make an award against Tongli China, the next question is whether Tongli China owned the Tongli Yantai.

The main question is whether the Tongli Yantai is owned by Halcyon or in Eastshine Ltd and/or Tongli China. By a bareboat charterparty, Halcyon had chartered out the Tongli Yantai to Eastshine as demise charterer. By assuming that there was a connection between Eastshine and Tongli China, the Court refrained from deciding the question whether the assets of Eastshine can be proceeded against for the alleged liabilities of Tongli China, which raises the question of lifting the corporate veil. The contention that the Tongli Yantai is owned by Eastshine based on the bareboat charterparty with Halcyon is rejected, because that charterparty indicates that Halcyon owns the Tongli Yantai. Tongli China, as a commercial manager, does not own the Tongli Yantai. The charter arrangement was only to let the charterer have the benefit of becoming the owner upon payment of the entire amount due to the owner. Until then, ownership remained with Halcyon. As for the plaintiff's reliance on The Ohm Mariana, that case is distinguishable on its facts.

The plaintiff has not pressed the contention that Halcyon is the alter ego of Tongli China. Thus, even if the Court were to conclude that Tongli China is liable for the dues of Tongli Samoa, and that the assets of Eastshine vest in Tongli China, the two companies being the alter ego of Tongli China, the arrest must be set aside because Halcyon owned the Tongli Yantai.

Separately, the Court declined to consider the claim for damages for wrongful arrest; liberty is given to raise the claim at the appropriate stage by a separate application.

[For the successful appeal, see CMI2827.]