The first instance judgment was summarised in CMI2824, from which the facts surrounding the claim arising out of the Nasco Diamond casualty can be found. Dissatisfied, the parties appealed and cross-appealed.

In the appeal, the plaintiff argued against the decision of the trial Judge to not lift the corporate veil. The plaintiff alleged that Tongli Samoa, against whom the plaintiff has raised a claim, was the alter ego of Tongli China, who beneficially owned the arrested ship (the Tongli Yantai): art 3 of the Arrest Convention 1999. Both Tongli entities, though separately incorporated, were alleged to be under the management and control of the same individual. The plaintiff argued that Tongli China incorporated a number of shell companies including Tongli Samoa, Halcyon, Eastshine, and Rainbow Success Ltd. It was alleged that these companies were a mere facade and that Tongli China was the real charterer of the Nasco Diamond, making the Tongli Yantai its sister ship.

The defendant (Halcyon) counter-argued that it, being the registered owner of the Tongli Yantai, was its only owner; Tongli China was not the beneficial owner. Relying upon the incorporation of 'one-ship' companies, the defendant argued that Tongli China was unconnected with Tongli Samoa. The defendant contended that only in cases of fraud may the corporate veil be lifted. Since the plaintiff can pursue arbitration only against Tongli Samoa in respect of its claim against the Nasco Diamond, the involvement of Tongli China, even as the beneficial owner of the Tongli Yantai, would be out of the scope of arbitration and hence does not support the arrest of the Tongli Yantai.

In the cross-appeal, the defendant argued that the trial Judge wrongly decided the issue of beneficial ownership in relation to art 3.2 of the Arrest Convention 1999. The defendant also objected to, among other things, the trial Judge's findings on jurisdiction, and the applicability of the Arrest Convention 1999 to the charterparty contract.

Held: Appeal allowed. Cross-appeal dismissed.

The arrest of the ship shall continue until the defendant deposits USD 56,600,000 in Court with interest.

The trial Judge was correct in: (1) accepting that the Arrest Convention 1999 was applicable to the plaintiff's maritime claim based on contract (see art 1.1.g); (2) concluding that in an action in rem, the owner of the ship need not be sued; (3) applying beneficial ownership in relation to art 3.2 of the Arrest Convention 1999; (4) finding that there was jurisdiction because the Tongli Yantai was within territorial waters when the suit was filed and the order of arrest came to be made (Geetanjali Woollen Pvt Ltd v MV X-press Annapurna 2005 (6) BCR 31); (5) rejecting the defendant's argument that the suit was bad for non-joinder of Tongli China and Eastshine; and (6) not opposing in principle the claim for obtaining security for an arbitral award by arresting a ship beneficially owned by a sibling company (ie Tongli China) of the would-be arbitral award debtor (ie Tongli Samoa) (JS Ocean Liner LLC v MV Golden Progress 2007 (2) BCR 1 (CMI2803), casting doubt on The Maritime Trader [1981] 2 Lloyd's Rep 153 (QB) (The Maritime Trader) (CMI2342)). The trial Judge fell in error only in refusing to lift the veil of incorporation. On the evidence, Tongli China was the alter ego of Tongli Samoa and the beneficial owner of the Tongli Yantai.

As the trial Judge accepted that 'owner' means equitable owner and not the registered owner alone, the distinction, if any, between equitable ownership and beneficial ownership must be examined. A beneficial owner is defined as (Bryan A Garner (ed), Black's Law Dictionary (8th edn, West 2004) 1137):

One recognized in equity as the owner of something because use and title belong to that person, even though legal title may belong to someone else; esp., one for whom property is held in trust. - Also termed equitable owner.

See also PJ Fitzgerald, Salmond on Jurisprudence (12th edn, Sweet & Maxwell 1966) (Salmond) 260. An equitable or beneficial owner is a person who would be entitled to sell and alienate the shares of a ship. Thus, if an equitable owner is an 'owner', the beneficial owner is likewise.

The Court can look behind the registered owner to determine the beneficial ownership of a ship. Consideration of ownership in a ship is not limited to a registered or legal owner alone: The Aventicum [1978] 1 Lloyd's Rep 184 (QB); The Saudi Prince [1982] 2 Lloyd's Rep 255 (QB) (The Saudi Prince); The Able Lieutenant [2002] 6 MLJ 433 (The Able Lieutenant) (CMI303). The purpose and object of the word 'beneficial' is to 'to catch the owner operating a registered ship under a nominee to avoid arrest': The Able Lieutenant. The plaintiff must prove that 'the vessel has been spirited into different ownership': The Andrea Ursula [1973] 1 QB 265 (The Andrea Ursula) (CMI2285).

As to the defendant's 'one-ship company' argument, such companies are expected to have their own corporate structure sufficient for their separate distinct presence. Such companies would be allowed to prevail if each one-ship company has its own place of business, shareholders and management distinct and separate from the group of companies so as to rely upon the assets or control of those companies for its survival. Otherwise, the one-ship company would not be a distinct incorporated person and merely a shadow of companies or the individual behind it. An aggrieved party can enforce an agreement against both the puppet company and puppeteer: Antonio Gramsci Shipping Corp v Stepanovs [2011] EWHC 333 (Comm), [2011] 1 Lloyd's Rep 647 [26].

Thus, the test is whether a one-ship company would be able to discharge its own liabilities. It should be capable of standing on its own feet as a juristic person, and not have to lean upon the shoulder of any other companies in their group. In such an event, the company having a larger capital base in the group of companies would not be held liable for their claims. However, the law would not permit a dollar company to be incorporated to limit the liability of a million-dollar company by its incorporation since the dollar company would be incapable of discharging its financial liabilities.

Circumstances may justify the lifting of one or more corporate veil(s) to reveal the truth: The Maritime Trader 157. See also The Andrea Ursula; I Congreso del Partido [1978] QB 500 (QB) (CMI556); The Permina 3001 [1977] SGCA 5, [1979] 1 Lloyd’s Rep 327 (The Permina 3001); The Ohm Mariana [1993] SGCA 43, [1993] 2 SLR(R) 113 (CMI1382); The Evpo Agnic [1988] 1 WLR 1090 (CA) (CMI2225); The Skaw Prince [1994] SGHC 18, [1994] 3 SLR(R) 146; The Opal 3 ex Kuchino [1992] SGHC 156, [1992] 2 SLR(R) 231; The Kapitan Temkin [1998] SGHC 427, [1998] 2 SLR(R) 537; Liverpool & London S P&I Association Ltd v MV Sea Success I (2004) 9 SCC 512 (The Sea Success I) (CMI884). Fraud is not the only basis to lift the corporate veil. Case law indicates other bases such as presumption of agency or trusteeship, avoidance of taxation, and cases where protection of public interest is required: see eg Salomon v Salomon [1897] AC 22 (HL); Smith, Stone & Knight v Birmingham Corp [1939] 4 All ER 116; DHN Food Distributors Ltd v London Borough of Tower Hamlets [1976] 1 WLR 852 (CA); William Cory & Son Ltd v Dorman Long & Co Ltd [1936] 2 All ER 386 (CA); Adams v Cape Industries plc [1990] Ch 433 (CA), Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL); Nahidco Housing (P) Ltd v State 1993 (23) RLR 183; State of UP v Renusagar Power Co 1991 (70) CC 127 SC; Workmen of Associated Rubber Industry Ltd v Associated Rubber Industry Ltd 1986 (59) CC 134. If any corporate entity was abused for an unjust or inequitable purpose, the Court would not hesitate to lift its veil to look into the realities so as to identify the person liable: Croft Sales and Distribution Ltd v MV Basil (OJ Appeal No 6 of 2011 in Admiralty Suit No 10 of 2010, Gujarat High Court) (The Basil) (CMI2790). In The Basil, the Gujarat High Court considered the application of the Arrest Convention 1999 in The Sea Success I and other cases relating to the general law of the lifting of the corporate veil. After examining art 3.2 it was held that it provided for the arrest of any other ship. That ship must be owned by the persons who are liable for the maritime claim. The arrest of any available ship was not provided even as per the Convention. However the word owned, it held, should be read and interpreted to mean and include the subsidiary company and also other companies by lifting the corporate veil.

Thus, the veil of incorporation would be lifted if it is prima facie shown by the plaintiff that: (1) there is a concerted effect in incorporating a company either as a sister company or as a subsidiary company under the management and control of a single company or a single person so that the assets of these companies are not distinguishable and cannot even be applied differently for the satisfaction of the claims of the creditors of those companies; and (2) there is an arrangement engineered to keep several companies within the group and the control of a single company or an individual is established which would result in an illegality or inequity.

In this case, the controller of Tongli China holds 80% of its shareholding. This controller also controlled Tongli Samoa and acted in consort with the controller of Halcyon. Tongli Samoa was incapable of managing its affairs independently of Tongli China. None of the companies, including Tongli Samoa and Halcyon, can be taken to be separate independent legal entities. They were a group of companies. First, Halcyon, Eastshine, and Tongli China share a common email identity. Second, Tongli Samoa's website shows the same telephone numbers as Tongli China. Both Tongli entities have the same operating address. Third, the controller of Tongli China was the President of Eastshine, which was incorporated in Samoa. Eastshine bareboat chartered the arrested ship from Halcyon, who is the registered owner of the arrested ship. Halcyon was an indirect subsidiary of FEHL, the financier of the arrested ship. The bareboat charter had unique clauses indicating that it was a hire purchase, in contrast to the trial Judge's finding that it was a pure charterparty. The charter facilitated transfer of title to the charterer upon the payment of balance hire. Halcyon could not mortgage or transfer its title to the ship without the permission of its charterer, Eastshine. The relationship of the parties in The Saudi Prince are similar to the relationship in this case. Thus, lifting of the corporate veil in this case is both justified and necessary: The Maritime Trader.

While a vessel might be held as security by a financier, if an entity (like Eastshine in this case) had a right to sell, dispose of or alienate the vessel upon repayment of the secured amount, that entity owns that vessel. This is the concept of beneficial ownership: Salmond 260.

An entity who has right to sell, dispose of or alienate all the shares in the vessel has the beneficial and equitable ownership whether it was the legal owner or not under s 4(4) of the High Court (Admiralty Jurisdiction) Act 1961 (Singapore), which is in pari materia with s 3(4) of the Administration of Justice Act 1956 (UK): The Permina 3001. As such, the defendant argued that there was a requirement for 'all the shares' and that this was not shown in this case. This argument was rejected because Indian law does not apply the expression of 'all the shares' in the absence of any statute analogous to the Singapore and UK Acts. The plaintiff rationally contended that in the absence of such statute in India only the Arrest Convention 1999 can be applied with the common law. Given that the expression of 'all the shares' is inapplicable, such percentage of the shares as would enable the sale, disposition or alienation of the ship (ie an almost absolute majority shareholding) would suffice.