Echo Star (ex Gas Infinity): Will the real owner please stand up?

Will the real owner please stand up?
5/12/2020 https://www.hellenicshippingnews.com/will-the-real-owner-please-stand-up/

In Echo Star ex Gas Infinity [2020] SGHC 200, the action in rem was brought pursuant to the plaintiff’s maritime lien for damage done by another ship following a collision in the Strait of Hormuz. A maritime lien survives a change in ownership of the vessel.

An action in rem is an action against a ship itself. The practice is to describe the defendant in the writ as “Owners of [X] ship” without naming the owners. The owners themselves then enter an appearance in the proceedings, at which point the claim converts from an in rem action to an in personam action.

The facts

In April 2019, the Echo Star (then known as Gas Infinity) collided with another ship – Royal Arsenal – in the Strait of Hormuz. At the time of the collision, the vessel was owned by Sea Dolphin Co., Ltd. In July 2019, Sea Dolphin sold the vessel to Cepheus Limited, following which the vessel was renamed the Echo Star. It was common ground to all parties that Cepheus was in no way involved in the collision.

On 6 November 2019, the owners of Royal Arsenal (“the plaintiff”) commenced proceedings in the Singapore Court for collision damage, by way of an admiralty action in rem against “the vessel Echo Star (ex-Gas Infinity)” and the defendant was named as:

‘Owner and/or demise charterer of the vessel Echo Star (ex-Gas Infinity) (IMO No. 9134294)’

Following the arrest of the vessel, on 15 November 2019 the lawyers acting for the new owners Cepheus, filed a Memorandum of Appearance (MOA) entering appearance for Cepheus as defendant, being the owners of the vessel as described in the writ.

Cepheus furnished security by way of a payment into court on 20 December 2019 and the vessel was released from arrest on the same day.

On 20 January 2020, the same lawyers also entered an appearance in the action on behalf of Sea Dolphin (the owners of the vessel at the time of the collision but no longer the owners) as defendant.

They then wrote on behalf of Cepheus to the plaintiff’s lawyers requesting the plaintiff’s consent for:

a) Cepheus to be granted leave to withdraw its MOA as defendant (because it was alleged to have been mistakenly filed); and

b) Cepheus instead to be granted leave to intervene in the proceedings and enter an appearance as intervener.

The plaintiff’s lawyers refused to consent, so Cepheus applied to the Court for an order granting the leave sought.

The Assistant Registrar allowed the application, and the plaintiff appealed the decision, as a result of which it came before the High Court.

The issues before the Court

The Court was required to determine two issues in the appeal:

1. Who was the correct party to enter appearance as the defendant in the circumstances of this case?; and

2. Whether leave ought to be granted to Cepheus to withdraw its appearance as defendant and to intervene in the action.

In cases involving maritime liens when there is no change in ownership of the subject vessel, the correct party to enter an appearance as a defendant is simply a matter of identifying the owner or demise charterer of the vessel on the day the in rem writ was issued.

However, what about owners of the vessel in this case, which had been sold to Cepheus after the date of the collision but before the date on which the in rem writ was issued?

As will be familiar to those involved in the marine claims field, in the wording of an admiralty in rem writ the defendant is not named specifically but generically. For example, the defendant can be described as ‘The owners of the ship [X]’. A similarly generic wording was used in the present case to describe the owners of the vessel.

The plaintiff’s lawyers argued that Cepheus had correctly entered appearance as the defendant and was the relevant owner for the purpose of the action because it was the owner “correctly so described at the date when the writ [was] issued” on 6 November 2019. Even though that post-dated the sale, the maritime lien was still effective.

Counsel acting for Cepheus contended that the proper defendant to which ‘Owners’ referred was Sea Dolphin, the former owners, and not Cepheus.

The decision of the Court

The Court deemed it necessary to examine the core features of a maritime lien when determining who was the proper defendant to the claim being described as ‘Owners’ on the writ. Citing The Halcyon Isle, the Court considered a maritime lien to have two key features:

1. The ‘Procedural Aspect’: Firstly, it survives changes of ownership (unless via a judicial sale), even if the vessel is transferred to a bona fide purchaser without notice. The offending ship may be validly arrested by an injured claimant to obtain security to enforce its claim despite the change in ownership, and to compel appearance by the wrongdoer.

2. The ‘Crystallisation Aspect’: Secondly, the maritime lien accrues simultaneously with the cause of action but lies inchoate until it is carried into effect by an action in rem. When the in rem action is commenced, the maritime lien crystallises and relates back to the period when it first arose.

In relation to the maritime lien for collision damage specifically, the Court considered it well-established that the lien arises as a result of the fault or negligence on the part of the servants of the offending ship (for example, the Master), as attributable to the shipowner. The personal liability of the shipowner is a necessary requirement for the accrual of this specific maritime lien when it arises upon the collision. The Court referred to this further factor as the ‘Fault Aspect’ of a maritime lien arising from collision damage done by another ship.

The Court held that when all three ‘aspects’ described above are considered together, it is logical that where an in rem writ is issued for a claim for collision damage, the action is in fact addressed to the owner (or demise charterer if applicable) of the ship at the time of the collision, even where the ownership of the offending ship has changed between the date of the collision and the issuance of the writ.

An action in rem commenced against a ship is an action against the ship itself. If the defendant does not enter an appearance and judgment is obtained, the judgment is enforceable only against the ship. However, if the defendant enters an appearance, the defendant (the owning company or demise charterer, as the case may be) submits personally to the jurisdiction of the court, and renders itself liable in personam such that if judgment is obtained by the plaintiff, it may be enforced in rem against the ship and in personam against the defendant.

On the facts of the case, it was the former owner, Sea Dolphin, whose servants or agents were navigating the vessel at the material time and against whom any fault would have to be established by the plaintiff in relation to the collision.

The Procedural Aspect of a maritime lien, the Court reiterated, allows the offending ship to be arrested by the injured party to obtain security for the damage suffered and to compel the wrongdoer to answer the claim. The wrongdoer can only be the owner (or demise charterer) of the offending ship at the time of the collision.

The Crystallisation Aspect of a maritime lien also reinforced the Court’s view that the proper in personam defendant is the owner of the vessel at the time of the collision. The maritime lien in question arises as soon as the collision causing the damage occurs and then crystallises upon the commencement of the in rem proceedings, at which point it relates back to the time it was first created.

Conclusion

The court found that the relevant point in time for the identification of the proper in personam defendant is when the collision occurred, even if the offending ship has changed ownership before the in rem writ against it has been issued. The proper party to enter an appearance as defendant was therefore the owners at the time of the collision, Sea Dolphin, not Cepheus.

Further, as the current owners of the vessel and the party who had furnished security in respect of the plaintiff’s claim in order to secure the release of the vessel from arrest, but also in no way involved in the collision itself, the Court held that Cepheus was plainly ‘a party with an interest in the property under arrest against which an action in rem is brought’. Accordingly, the Court agreed with the decision to grant Cepheus leave to intervene in the action and enter an appearance as intervener.

The principal issue before the Court in this case may appear to be a simple one at its core, however the matter of the correct identity of ‘the Owners’ is one which arises with surprising frequency in practice and can be fatal to the claim if not properly understood.

In all cases, a maritime claimant’s successful, timely, and cost-efficient recovery will depend on a solid understanding of the identity of the proper recovery target, and professional legal guidance on this issue is crucial.
Source: Clyde & Co.