Lufeng Shipping Co Ltd owned the MV J Tong and chartered it out to Whim Star Chartering Co Ltd. The MV J Tong was detained while in port and Lufeng claimed against Whim Star for damages and losses sustained. Lufeng obtained an order of arrest for the MV Rainbow Ace on the ground that Whim Star was its beneficial owner. Lufeng contended that Wang Wendong was the beneficial owner of both the MV Rainbow Ace and Whim Star. In support, it relied on the common (i) address from which all the companies and individuals operated, (ii) signatures on various documents, (iii) directors and (iv) chartering arrangements. Lufeng argued that its claim fell within art 3.2 of the Arrest Convention 1999, and that it could therefore proceed to arrest any ship owned by Lufeng, since Lufeng was liable as voyage charterer of the MV J Tong when the claim arose. Lufeng, relying on MV Elisabeth v Harwan Investment and Trading Pvt Ltd (1993) SCC 433 (CMI883) (MV Elisabeth), Liverpool & London S P & I Association Ltd v MV Sea Success I (2004) 9 SCC 512 (CMI884) (Liverpool), The Aventicum [1978] 1 Lloyd's Rep 184 and s 71 of the Merchant Shipping Act 1958, further contended that the terms 'owner' and 'owned' under article 3.2.a included 'beneficial owner' and 'beneficially owned' and thus permitted the arrest of vessels forming part of the same beneficial ownership.

Rainbow Ace Shipping applied for the vessel’s release, contending that Lufeng failed to evidence any connection between the vessel and Whim Star. The applicant argued that Indian law and the Arrest Convention 1999 did not permit arrest based on beneficial ownership, relying on The Evpo Agnic (1988) 2 Lloyd's Rep 411 (CMI2225) and MV Elisabeth. The applicant further argued, relying on The MV Mawan (1988) 2 Lloyd's Rep 459 and Owners and Parties interested in the Vessel MV Dong Do v Ramesh Kumar & Co Ltd (2000) 1 Cal LT 367, that having common directors, address or shareholders does not make a ship owned by one company a sister ship of the other, nor does it mean that it is beneficially owned by the shareholders of both companies. The first company must be a shareholder of the second for the vessel to be arrested. Whim Star held no shares in Rainbow Ace Shipping, nor was there commonality of shareholders between Rainbow Ace Shipping and Whim Star. The applicant further argued, relying on Vital Ventures Ltd v MV Infinity (2017) ACC 704 (CMI186), Liverpool, and Croft Sales and Distribution Ltd v MV Bansil [2011] GLHEL 224598 that the Arrest Convention 1999 should be applied only for enforcement of a contract of public law character. The present case is a private commercial contract between foreign parties.

Held: Order of arrest set aside.

The court formulated the issues before it as follows:

1. whether the Arrest Convention 1999 could be applied here;
2. if so, whether arrest of a ship beneficially owned by the person against whom there is a maritime claim in respect of another ship is permissible; and
3. whether the MV Rainbow Ace was under the beneficial ownership of Whim Star.

As to the first issue, the Arrest Convention 1999 should not be restricted to the enforcement of contracts of public law character. The cases referred to by the applicant involved contracts of a purely private nature; the state was not involved. In MV Elisabeth, the plaintiff was a private limited company whilst the defendant was a foreign company. In Liverpool, the issue was whether outstanding insurance premiums were ‘necessaries’ and whether it was a maritime claim warranting arrest of the vessel - a purely commercial dispute between private parties. In any event, the court found that it was bound by J S Ocean Liner LLC, BUR Dubai (UAE) v MV Golden Progress (2007) 2 Mh LJ 410, which relied on MV Elisabeth and Liverpool.

Secondly, the court confirmed that arrest of a vessel beneficially owned by a person against whom there was a maritime claim in respect of another vessel was permissible. The court scrutinised the cases relied on by the applicant. In The Evpo Agnic, the English court was dealing with the definition of ‘owner’ of the offending vessel under art 3 of the Arrest Convention 1952 and s 21(4)(b) of the Supreme Court Act 1981 (which had to be its registered owner) rather than the owner of the target vessel. In The MV Mawan, the defendant did not own any shares in the target vessel at the time of the action. The court then came to the conclusion that the terms ‘owner’ and ‘owned by the person’ in article 3.2 are not restricted to registered owners. The concept of 'beneficial ownership' is widely accepted under India law (see s 71 of the Merchant Shipping Act 1958) and the courts are entitled to look at who the real beneficial owner is.

Thirdly, the court held that a shareholder has no interest in the property of the company, which is a juristic person distinct from its shareholders. However, for the corporate veil to be lifted to ascertain the real person liable in an action in personam, fraud must be alleged - simply alleging beneficial ownership as did Lufeng here through common address, signatures and directors without supporting evidence is not enough.