Capital Dragon Global Holdings Ltd (defendant), the sole owner of the cruise ship Oriental Dragon (vessel), intended to start a cruise line under the Oriental Dragon brand. The defendant engaged Oceanic Group Pte Ltd and Oceanic Group (International) Ltd (plaintiffs) to prepare, implement and operate the cruise line under a consultancy agreement. The consultancy agreement provided for the payment of inter alia a lump sum consultancy fee for strategy implementation and provision of ship management services. It also provided for the reimbursement by the defendant of the plaintiffs’ travel, accommodation, legal and out-of-pocket expenses.

The defendant began to fall into arrears in paying the plaintiffs’ invoices. These invoices included management/agency fees for crew, P&I and H&M insurance premiums, telecommunication services, and spare parts.

The plaintiff issued a writ in rem claiming for monies due and owing for goods and materials supplied to the vessel and services rendered to the defendant and/or the vessel. The endorsement of claim stated that such goods, materials and services were ‘supplied to a ship for her operation or maintenance’ within the meaning of s 12A(2)(l) of the High Court Ordinance (HCO), and ‘disbursements made by an agent on account of a ship’ within the meaning of s 12A(2)(o) of the HCO.

A warrant of arrest was granted and the writ in rem and warrant of arrest were served on the vessel. According to the undated statement of account, the claims were broken down into about 20 items. Three of the items were mentioned in the judgment: ship management and consultancy fees, insurance premiums and crew wages. Barma JA assessed security and ordered that the vessel be released after payment into court.

The defendants applied to set aside the writ in rem and service on the ground that the court had no in rem jurisdiction over the vessel/the defendant and that the plaintiffs had improperly invoked the in rem jurisdiction of the court and/or on the merits.

Held: It would not be appropriate to set aside the writ or its service, or to discharge the warrant of arrest. The plaintiffs could invoke the admiralty in rem jurisdiction in respect of the ship management and consultancy fees and crew wages, but not insurance premiums. The court reduced the security in court in the amount of the insurance premiums and allowed the payment out of the excess to the defendant.

The disbursements incurred for ship management and consultancy fees must relate to the operational aspect of the ship to invoke admiralty jurisdiction (s 12A(2)(o) of the HCO). A ship’s agent is entitled to include a reasonable figure for its own services in its claim for disbursements made on account of a ship. There were two main components to the ship management and consultancy fees: the lump sum fee and the other disbursements (ie miscellaneous expenses and the claim for payment in lieu of the 3-month notice).

The nature of the lump sum fee must be determined by reference to the consultancy agreement. On the balance of probabilities, the bulk of the plaintiffs’ duties would have related to ship management rather than consultancy and thus the lump sum fee fell within the ambit of either section 12A(2)(l) HCO or section 12A(2)(o) HCO.

For the miscellaneous expenses, the plaintiffs failed to explain how the expenses related to supplies to the vessel for her operation or maintenance.

As for the claim for payment in lieu of the three month notice, it was far-fetched to suggest this claim related to supplies (whether of goods, materials or services) to the vessel for her operation or maintenance. In its natural and ordinary meaning, payment in lieu of notice of termination of the contract was not remuneration for services rendered to the vessel. Instead, it was compensation to the plaintiffs for not being given the opportunity to continue their services under the contract, including inter alia managing the vessel. As such, it could not be regarded as having any relations to any supplies (whether of goods, materials or services) to the vessel, whether for her operation, maintenance or otherwise.

Similarly, the disbursements incurred for the insurance premiums must relate to the ship’s operations to invoke admiralty jurisdiction. However, a claim for insurance premiums or the expenses of procuring insurance for the ship does not fall within the aforesaid section since the obtaining of insurance is to protect the financial interests of the owners. The legal position is clear: a claim for insurance premiums is not a maritime claim justifying arrest of ship. Historically, this was a policy decision made at the International Convention for the Unification of Certain Rules relating to Arrest of Sea-Going Ships (1952) (the Arrest Convention 1952). As far as possible, s12A(2) of the HCO should be construed in line with the Arrest Convention 1952. 

The provision of the services of crew and officers to a ship comes within the ambit of s 12A(2)(l) of the HCO. Notwithstanding the words ‘goods or materials supplied to a ship’, the jurisdiction includes claims for services as well. For instance, stevedoring services or services of crew and officers. Hence, the plaintiffs’ claim for crew wages can also come within s 12A(2)(o) of the HCO as a disbursement made on account of the vessel, if such disbursement had been made by the plaintiffs or they had rendered themselves liable for such wages. However, based on the evidence, the plaintiffs’ claim for crew wages was doubtful.