1 The Admiralty Law By Francis Lansakara - Abstract - This article discusses three common topics connected to admiralty law, forum non conveniens, piercing of corporate veil and conflict of laws. It analyses briefly their usage, limitations, and issues arising from other common law jurisdictions. Forum Non Conveniens Principle The Principle In The Spiliada 1 Case Lord Goff laid down the principal of forum non conveniens which consists of first stage and second stage tests. The first stage test considers the connecting factors and in the second all other appropriate factors including plaintiff will obtain justice. Cases where, natural forum failed to satisfy the conditions of second stage test, will be denied of jurisdiction. The burden of proof normally lies with the defendant or the party challenging the jurisdiction to show there is another more appropriate forum if successful the burden will then shift to the plaintiff to show there are special circumstances under the second stage test whereby the plaintiff unable to obtain justice. The question as to plaintiff s right to justice under English jurisdiction is approached in a flexible manner by taking into account factors at stated under one and two of the test. Caltex Singapore v BP Shipping 2 Following a collision between a BP ship and Caltex Oil Terminal in Singapore Caltex commenced its liability proceedings in England and BP also commenced its limitation proceedings in Singapore which is the natural forum. At the time of the trial 1957 Limitation of Liability Convention then applied in Singapore 3 and 1976 Limitation of Liability Convention applied in England in which limitation under 1976 convention was higher. BP relied on Spiliada 2 nd stage test 4 and requested that English action be stayed. Clark J rejected BP s claim, although Singapore is the natural forum plaintiff cannot be denied of higher limitation which is available under the 1976 Convention he also taken into account that limitation of liability is being part of UK s public policy and the plaintiff s right to higher limits. When Forum Shopping 5 be Discouraged Substantial justice may be obtained in foreign jurisdiction. Case: Herceg Novi and Ming Galaxy 6, The Court of Appeal 7 discourage forum shopping base on higher limitation, 1 [1987] 1 AC 460 (HL) 2 [1996] 1 Lloyd s Report 286 3 Singapore became a signatory 1976 Convention at a later date. 4 [1986] 1 AC 460(HL) 1 ST Stage test the courts will look at the connecting factors, 2 nd state test the courts Will look beyond the connecting factors such as service better justice 5 The practice of choosing the most favorable jurisdiction; plaintiff engage in filing suit in jurisdiction with a reputation in higher awards than other jurisdictions. 6 1998 1 Lloyd report 167
2 taking into consideration, having parallel proceedings in two forums available funds may be limited to satisfy the claims, 1976 Limitation Liability Convention not universally recognized and having preference for it had no greater jurisdiction than 1957 Limitation Liability Convention. Here the judge has given consideration for legal cost and lessons learnt from The Kapitan Shveston. 8 EC Regulations and their Impact on the Principal of Forum Non Conveniens EC Regulations which came in to force on 1 st March 2002 have caused several limitations to the application of the principal of forum non conveniens. Descriptions given below include briefly the domicile rule, when it can be exempted, other options available and their practical application in the Case Po. It is to be noted that prior to EC Regulations identical provisions were existed under the Brussels and Lugano Conventions and the Case Po was judged on those provisions under those Conventions. EC Regulations Article 71 is Brussels Convention Article 57 and EC Regulations Article 4 remains the same in Brussels Convention. The Content of EC Regulations and how they may be Categorized EC Regulations EC44/2001of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters: Domicile Rule: Article 2, Subject to provisions of this Convention, persons domiciled in a contracting State shall, whatever their nationality, be sued in the courts of that state. Persons who are not nationals of that State in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that state. The Mandatory Exceptions to Article 2: Article 22, exclusive jurisdiction relating to immovable property; Article 23, jurisdiction allocated to a Contracting State by agreement of the parties to a contract. Such jurisdiction shall be exclusive and; Article 24, available exceptions when the defendant enters appearance in a court of a Contracting State not just for contesting jurisdiction. The Optional Derogations: Articles 5 & 6, Special jurisdiction of a Contracting State as provided by Article 5 when there is a specific substantive link with the dispute and by Article 6 concerning suits with multidefendent parties or counterclaims in the Contracting State of one of the parties or where a claim has been brought; Articles 8-14 Jurisdictions in relations to insurance contracts; Articles 5-17 Jurisdiction over consumer contracts; Articles 18-21 Jurisdiction over contracts of employment and; 7 [1998] 2 Lloyd s Report 454 8 [1998] 1 Lloyd s Rep. 199 (Hong Kong 1 st Instance & CA).
3 Article 7 provides for an alternate jurisdiction to domicile of the limitation defendant, to the extent that he has not already commenced a limitation of liability action in the court of his domicile, another Contracting State. If he has not, then the limitation of liability action must be brought in the court which is seised with the liability claim. Other Factors Article 71 (1), this Regulation shall not affect any conventions 9 to which the Member States are parties and which in relation to particular matters govern the jurisdiction or the recognition or enforcement of judgments and Article 4(1), if the defendant is not domiciled in a Member State, the jurisdiction of the courts of each Member State shall, subject to Articles 22 and 23, be determined by the law of that Member State. The Po 10 The collision occurred in Brazil between an Italian ship and an American Naval ship. The plaintiff US Navy commenced proceedings in England and later issued a writ in rem 11 the Italian Owners (the defendants) brought two motions first they claim that the Brussels Convention prevented English court s action because the defendant is domicile in Italy which is a party to the EC Regulations and the second motion it claimed that English action should be stayed in favour of natural forum that is Brazil. The Court rejected the first motion on the grounds that arrest of a ship base on Article 1 of the 1952 Collision Convention as such it overrides the Regulations 12. The judge also rejected the second motion since the competing jurisdiction (Brazil) is not a party to Brussels Convention 13 and denied stay by applying second stage test of The Spiliada, interpreted as: end justice where prima facie evidence exist that this is a case of res ipsa loquitur 14, under the English law burden of proof will shift to the defendant but under the Brazilian law such judicial advantage is not available to the plaintiff. Conclusion: The principal of Forum Non Conveniens appeared to have survived EC Regulations As evident from the Article 4, if the defendant is not domiciled in a contracting state the jurisdiction of the court can be determined by the law of the member state there is English law and the principal of Forum Non Conveniens applied. In all other circumstance application of the principal shall be in consistent with EC Regulations. 9 The Deichland [1990] 1 QB 361; The Anna H [1995] 1 Lloyd s Report 11 10 1991]2 Lloyd Report 206 11 Action against the Ship; s20(2) of 1981 UK Supreme Court Act. 12 EC44/2001 Regulation Article 71 or Brussels Convention Article 57 13 EC44/2001 Regulations Article 4 also in Brussels Conventions broadly the same provisions. 14 Claimant have no difficulty in discharging the burden to the defendant because facts of the case is very clear. See also Case Merchant Prince [1892] P 179; the Kite [1933]P154
4 Piercing of the Corporate Veil Introduction Investigating into who is the real beneficial owner in an admiralty claim required under S21(4) SCA 1981 for claims in rem type described by S20(2) e-r, also known as non truly in rem claims which states: (i) The relevant person is either the beneficial owner of that ship as respects all the shares in it or the charter of it under a charter by demise; or (ii) any other ship 15 which, at the time when the action is brought, the relevant person is the beneficial owner as respect all the shares in it. Development Salomon v A Salomon & Co Ltd, 16 concept was no matter who are the share holders the company is a separate entity, no one could pierce the corporate veil to pursue the share holders for liability. This concept was altered in Adams v Cape Industries 17 which was a non admiralty case, the court of appeal laid down the guide lines as to when the court can consider piercing the corporate veil: (i) limitations imposed on his conduct by law; (ii) such right of relief against him as third parties already process, exclude the rights that may be acquired in future. It is common in shipping industry an owner having two ships having them registered under two different companies, under the English law this will not consider as sham nor the two ships will qualify as sister ship or other ship. In The Aventicum 18 it was held it is not permissible to pierce the corporate veil unless, there is evidence of a sham transfer of the legal ownership. For this purpose, the court can order evidence to be produced. In The Evpo Agnic 19 Lord Donaldson said however, it is legitimate for ship owners to arrange their affairs by running a series of one ship companies as a group and cause them use their individual assets to their mutual advantage. There is no reason why they should not do so without any risk of the arrangement being held to be a sham. Sham Transfer The corporate veil was pierced in The Saudi Prince. 20 Following a cargo claim, transfer of ownership in fear of an action in rem was carried out in paper by the owners of The Saudi Prince however, upon investigation including piercing of corporate veil found transfer was a sham the original owner is still the beneficial owner of all shares of the company. In Snook v London and West Riding Investments LTD 21 the meaning of sham given by lord Diplock Lj concerning hire purchase acts done or documents executed by the parties to the sham which were intended by them to give third parties or the courts the appearance of creating the between the parties legal rights and obligations different from the actual legal rights and obligations which the parties intend to create. 15 Other ship means sister ship owned by the same person. 16 [1897] 1 AC 22 (HL) 17 [1991] 1 All ER 929 18 [1978] 1 Lloyd report 184. 19 [1988] 2 Lloyd s Report 411. 20 [1982] 2 Lloyd s Rep 255 21 Shook v London and West riding Investment Ltd[1967] 2QB 786, p 802
5 But one think, I thing, is clear in legal principal, morality and authorities, that for the acts or documents to be a sham, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No expressions intension of a shammer affects the rights of a party whom he deceived. Comparison between English law and other Regimes Under the English law the approach is not flexible therefore a legal transfer of shares without a sham will relieve the owners of liability. South African and France have shown more flexibility in arresting sister ships whereas Canadian law appeared to be similar to English law. The South African provisions are more extensive in that they permit a piercing of the corporate veil. In this respect a vessel owned by a different company from the company which owns the ship concerned is susceptible to arrest simply by virtue of the two owning companies being commonly controlled. Section 3(7)(b)(ii) of the Admiralty Jurisdiction Regulation Act, No 105 of 1983 provides that ''a person shall be deemed to control a company if he has power, directly or indirectly, to control the company''. It was this sub-section that the court considered in the ''Heavy Metal'' 22. The Court held that the nominee shareholders have direct control over a company whilst their principals have indirect control. Canadian Supreme Court Act 1992, which is similar to the English Statute except no reference to all shares in a ship with regard to beneficial ownership. The Looiersgracht 23 This ship was arrested in respect of a maritime claim arose with her and five other ships. The defendant claimed that the security posted should not include security for other ships since they do not beneficially own all the shares in them. The Canadian Federal Court, Hargrave j : our legislation requires that the sister ship be beneficially owned by the person who is the owner of the ship that is subject of action. Conclusion: The development of the law on piercing the corporate law appeared have taken place place from the time of Salomon v A Salomon & Co Ltd [1897], the concept of no one could pierce the corporate veil to allow piercing of the corporate veil when there is sham. However the end results to date is that series of one ship companies are not a sham if they are established for legitimate reasons. Common law regime such as South Africa has shown more flexibility in arresting ships controlled by different legitimate companies controlled by the owner. The collision convention does not give an authoritative definition on the other ship or sister therefore different interpretations have seen between the English, South African and Canadian law regimes. 22 Belfry Marine Ltd v Palm Base Maritime SDN BHD 1999 (3) SA 1083 (SCA). 23 [1995] 2 Lloyd s Report 411 & 415
6 Conflict of Laws Introduction Law of the flag state was taken as the law governing the contact of mortgage by the English Courts however, with the increasing number of shipping registered under the flag of convenience, the law of the flag state did not always represents the law which governs the contract nor the law closely connected to it. 1980 Rome Convention on Law Applicable to Contractual Obligations has made headway in defining the law applicable to contractual obligations on the other hand, conflict of laws still exist in recognizing maritime liens governed by different national laws. Determination of Validity of Mortgage and Priority Case Angel Bell 24 a Panamanian company with a ship registered in Panama. The mortgage was not finally registered, the ship sank and the cargo owner brought a Mareva injunction against the insurance proceeds restraining the defendant from dealing from his assets within the jurisdiction or removing them out of the jurisdiction. The mortgagee (G) intervened on the action on the basis that (a) originally assured under one set of insurance policies; (b) designated loss payee and other such as assignee under the policies. One of the issues for the court was, whether, the mortgagee was a secured creditor. Under the Panamanian law the unregistered mortgages are not recognized as secured creditors. However, under the English law both registered and equitable mortgages are recognized. It was held by Lord Donaldson that although it was possible to have an English contract for a mortgage of foreign land which would result in the mortgage being governed by inter partes by English law, prima facie mortgages either of foreign land or ships would be governed by the law of their situs or flag, in this case Panamanian law. There was no contrary evidence to displace that presumption. Thus the failure of G to register the mortgage under Panamanian law reduced its effectiveness, in that it conferred no in rem rights against the ship but, only the rights in personam against the borrower. One of the agreements, however, governed by English law, G could rely upon the loss payable clause, G were held to be assignee of the policy under the notice of assignment and were the creditors of the borrowers. Under the English law 25 both registered and equitable mortgages are recognized and have the right to action in rem, the judgments were base on which law shall govern the mortgage and the factors taken into consideration when foreign registered ships and their mortgages involved were, the registration of the ship and specific law governing the contact of mortgage. Recognition of Maritime Liens Created by Law of a Foreign Country The decision of the Privy Council in the Halcyon Isle: Halcyon Isle 26 the mortgagees were English banks registered in England, the ship owners were Americans and the repairs to the ship were carried out in New York, by the repair yard under the repair contract was governed by the USA law. The ship was later arrested 24 [1979] 2 Lloyd s Report 491 25 SCA 1981 S20 (2) (c) 26 [1981] AC 221, p 235
7 and sold in Singapore, the proceeds from the sale were not sufficient to satisfy all the claimants. Under the USA law ship repairer has lien on the ship but under the English law repairers are secured creditors not lienees. The question was whether the maritime lien which was created in US under the American law was enforceable in England. Lord Diplock concluded that the question as the right to proceed in rem against a ship, as well as priorities in the distribution between competing claims of the proceeds of her sale in an action in rem in the High Court of Singapore, falls to be determined by the lex fori 27 There were dissenting opinions 28 their view on the balance of authorities, maritime lien created by USA law is recognized by English law therefore maritime law created by lex loci contractus 29 has precedence over the mortgagees mortgage. If it were otherwise injustice would prevail, the ship repairers would be deprived of their maritime lien, valid as it appeared to be throughout the world, and without which they would obviously never have allowed the ship to sail away paying a dollar for the important repairs upon which ship repairers had spent a great deal of time and money and from which the mortgagees obtained substantial advantages. 30 Other Jurisdictions and Recognition of Foreign Liens The Ioannis Daskalelis 31 The Canadian Supreme Court decision, the ship repairers were entitled to maritime lien under USA but not under the Canadian law. After considering authorities form the private international law 32 and The Strandhil 33 it was held that the ship repairer s lien took priority over the mortgagee s claim. The Andrico Unity 34 The South African Court recognized the English decision of the Privy Council in the Halcyom Isle, judge dismissed the claim by the Argentinean bunker supplier that a maritime lien is attached to ship under which govern the law of the contract or Argentinean law. Present Status of Maritime Liens The conflicting decisions lead to indicate non uniformity of recognition of liens. Rome Convention on the Law Applicable to Contractual Obligations 1980, which was implemented in the UK by the Contracts (Applicable Law) Act 1990, applies to contracts entered into after 1 st April 1991. The Act states that priority to be given to law chosen by the parties 35 and in the absence of choice, to the law of the country with which the contract is most closely connected. 36 1993 International Convention on Maritime Liens and Mortgages came into force in 2004 but, UK has not ratified the convention yet. 27 The law of the forum ; the law of the jurisdiction 28 The dissenting minority, Lord Salmon and Scarman 29 The law which governed the contract ; 30 [1981] AC 221, pp 246-47 31 [1974] 1Lloyd s Report 174 32 Cheshire s Private International Law 8 th Edition Page 676 33 [1926] 4 DLR 801 34 (1987) 3 SALR 794 35 Article 3(1) 36 Article 4(1)
8 Conclusion 1980 Rome Convention is clear as to which law will govern the contract of mortgage there is the law chosen by the parties or the law which the contract is most closely connected however, with respect to maritime liens created by law of a foreign country, English Courts decisions differ from the decisions of other common law jurisdictions and sometimes criticized by dissenting judges and academics. Further to that, 1993 International Convention on Maritime Liens and Mortgages although is in force, is not universally adopted.. The end.