Case: Lufeng Shipping Company Limited Vs. M.V. Rainbow Ace &amp; Another

2) Facts leading to this appeal:a) The appellant admittedly has a maritime claim of US$ 1,628,658.07 against the Whim Star Chartering Co. Ltd. (respondent No.2 company). This claim arises out of a voyage charter party agreement dated 6 April 2011entered into between the appellant as owners of a vessel M.V. J Tong and respondent No.2 company as a charterer.b) The appellants maritime claim on respondent No. 2 company is covered by Article 1(f) and (g) of the International Convention of Arrest of Ships 1999 (Arrest Convention 1999). Consequently, the appellant was entitled to secure its maritime claim by proceeding against any vessel in the registered and/or beneficial ownership of respondent No.2 Company in terms of the Arrest Convention, 1999.c) The appellants claim is that the beneficial owner of respondent No.1 vessel is also the beneficial owner of respondent No.It is the case of the appellant that one Wang Wendong is the common beneficial owner of respondent No.1 vessel as well as respondent No.2 company. The appellants have sought to establish the common beneficial ownership of respondent No.1 vessel and respondent No.2 company in one Wang Wendong by submitting the following chart:d) On 28 January 2013, respondent No.1 vessel was arrested at the instance of the appellant for its maritime claim against respondent No.2 company. The case of the appellant as made out in the plaint for the arrest of respondent No.1 vessel was that it was in the beneficial ownership of respondent No. 2 company and that both respondent No.1 vessel and respondent No.2 company are in the common beneficial ownership of one Wang Wendong and/or one Shan Bing.e) On 11 February, 2013, the applicant took out a notice of motion before the learned single judge seeking that the arrest of respondent No.1 vessel by order dated 28 January 2013 be vacated. In the application the applicant admit that it is beneficially owned by Wang Wendong. However, it is denied that respondent No.1 vessel is in the beneficial ownership of respondent No. 2 company and that its beneficial owner Wang Wendong has any interest in respondent No.2 company and much less being its beneficial owner. Thus, the alleged maritime claim of the appellant on respondent No.2 company could not be secured by the arrest of respondent No. 1 vessel.f) On 6 May 2013, the learned Single Judge, by the impugned order vacated the order of arrest dated 28 January 2013 in respect of respondent No.1 vessel. The impugned order holds that though respondent No.1 vessel was beneficially owned by Wang Wendong the respondent No. 2 company was not. Therefore respondent No.1 vessel and respondent No.2 company were not in the common beneficial ownership of Wang Wendong. Thus the arrest of respondent No.1 vessel was not warranted. The impugned Order while disposing the application for vacation of arrest of respondentframed the following issues as arising before him:i) Whether the International Convention on the Arrest of Ships, 1999 can be applied to the present disputeii) If yes, whether by virtue of Article 3(2) thereof, arrest of a ship beneficially owned by the person against whom there is a maritime claim in respect of another ship, is permissibleiii) Whether the 1st Defendant vessel is of the beneficial ownership of defendant No.2f) So far as issues (i) and (ii) are concerned, they were answered in the affirmative and accepted by all the parties to the present proceedings. The only issue which has been raised in the present appeal is with regard to question (iii) above being answered in the negative i.e. in favour of the respondent No.1 vessel and against the appellant. The learned single judge also records the fact that the case canvassed before him by the appellant was not as raised in the plaint as formulated in question (iii) above but the submission before him was that the respondent No.1 vessel and the respondent No.2 company are in the common beneficial ownership of one Wang Wendong. This submission which is a facet of the issue raised in (iii) above was also answered in the negative i.e. respondent No.2 company is not in the beneficial ownership of Wang Wendong.

Reasoning:
13) In this case it is not the case of the appellant that the applicant company has been created so as to only defeat the maritime claims against the respondent No.2 company. In the present facts it is not the case of the appellant that the applicant company is a subsidiary of the respondent No.2 company when possibly it could be said that that the holding company is the beneficial owner of the subsidiary company. In cases where two independent companies are both 100% subsidiary of a common holding company then it may be possible to contend that the beneficial owner of both the companies is the common holding company. These are not the facts in the present case as the applicant company and the respondent No.2 company are not subsidiaries of one common holding company or have subsidiary and holding company relationship interThe appellant placed reliance upon the decision of the Division Bench of this Court in Great Pacific Navigation (Holdings) Corporation Ltd. V. M.V. Tongli Yantai rendered on 14 October 2011 on the ground that on similar facts, this Court had allowed the appeal of the appellant therein and set aside the vacation of the arrest of the vessel. The aforesaid decision rendered by this Court on 14 October 2011 has been set aside by the Apex Court in Civil Appeal No.8988 of 2012 in M.V. Tongli Vs. Great Pacific Navigation (Holdings) Corporation Ltd. on 12 December 2012. In view of the fact that the decision of the Division Bench of this Court dated 14 October 2011 has been set aside, no reliance can be placed upon the judgment which has been set aside. It is as though it never existed. In fact in Ramchandra Vishnu Tendulkar and ors. Vs. State of Maharashtra and ors. (1993) 1 Mah. L.J. 892 this Court has held that once a Judgment of the Division Bench was set aside by the Apex Court then neither the observations and/or conclusion of the judgment that has been set aside can be relied upon. Consequently, reliance upon the aforesaid decision in the matter of M.V. Tongli (supra) rendered on 14 October 2011 is completely misplaced. Therefore, no occasion to consider the same for the disposal of this appeal can arise.16) In these circumstances, the arrest of respondent No.1 vessel is not justified as a matter of law and the order passed by the leaned Single Judge cannot be found fault with.17) In view of our above finding that arrest of respondent No.1 vessel in the present facts is not warranted on an issue of law the consideration of the other submission such as a common director between the respondent No.2 company and a subsidiary of the applicant company, common agent and common signature would all warrant lifting the corporate veil of the respondent No. 2 company to determine its beneficial owner would not arise. The entire basis for looking at surrounding circumstances arises according to the appellant in view of the fact that 100% shareholding of respondent No.2 company is held by Cartier which is a company incorporated in Samoa. However under the laws of Samoa the names of the directors, shareholders are not required to be disclosed. It is submitted by the appellant that in view of the aforesaid peculiar situation that appellant is unable to establish beyond doubt the ownership of the Wang Wendong in Cartier and through it in respondent No.2 company. However the necessity to examine the surrounding circumstances and proceed on suspicion that Wang Wendong is the beneficial owner of respondent No. 2 company is obviated for the reason that Wang Wendong who is alleged by the appellant to be the beneficial owner of respondent No.2 company has filed an affidavit dated 8 February 2013 before the learned Single Judge wherein, he inter alia states asI state that I was never and I am not the Director nor hold any shares of M/s. Whim Star Chartering Co. Ltd., the Defendant No.2 in the captioned proceedings, at any given point of time. I further state that I was never and I am not the Director nor hold any shares of M/s. ZJHX Shipping Co. Ltd. at any given point of time.5. I also state that I was never and I am not the Director nor hold any shares of M/s. Cartier Investment Co. Ltd. at any given point of time.In view of the above categorical statements on oath of Mr. Wang Wendong the reason to act on suspicious surrounding circumstances cannot be sustained. In the face of the above affidavit it is impossible to accept the submissions of the appellant that the arrest of the vessel which admittedly is beneficially owned by Wang Wendong has to be continued to secure the appellants maritime claim against respondent No. 2 company. The learned single judge has examined the various surrounding circumstances and reached a finding that the same does not establish that Wang Wendong is the beneficial owner of respondent No. 2.18) In fact in the decision of Queens Bench Division in Mawan (1988) 2 LLYOD Law Reports 459, the argument on behalf of the plaintiff was that if one looks at all the connecting links between the shareholders, the directors, and the management of the two limited companies it would be clear that the beneficial ownership of the two ships is vested in the same person and they are truly sister ships even if attempt is made to conceal the fact. The Court negatived the aforesaid submission by holding that the approach suggested involves not merely lifting a corporate veil but also sweeping aside all the corporate structure. Therefore, in the present facts, no fault can be found in the impugned order dated 6 May 2013.19) The appellant had also submitted that while considering the application for vacation of said arrest of the vessel, the Court is required to consider not only the prima facie case but balance of convenience and irreparable injury involved in the matter. The above proposition is indisputable. However, a prima facie case cannot be built merely on suspicion. The arrest of the vessel on the basis of the suspicion raised certainly causes more injury to a third party than the plaintiff. Thus, the balance of convenience would be against the arrest of the vessel. In the case of Aventicum 1978 Vol. I LLOYDs Law Reports 184 Queens Bench Division (Admiralty Court) has held that onus is upon the plaintiff to show that the person against whom it is sought to invoke Admiralty jurisdiction is the person who beneficially owns both the vessel in respect of which maritime claim has arisen as well as the vessel which is sought to be arrested. The Court found that there were a number of factors to indicate that there is very close connection between two companies such as common address etc. yet the Court on the basis of the evidence before it held that there was no positive evidence produced by the plaintiff which could establish the beneficial ownership of the vessel sought to be arrested is in the same person as in respect of the vessel in which maritime claim arose. The appellant has not been able to establish that even prima facie that respondent No.2 vessel is in the beneficial ownership of Wang Wendong. In the circumstances the impugned order has to be upheld.