Beneficial Ownership Of Vessel Shown Not To Lie With State Of Indonesia Introduction In ANLSingaporePteLtdvTheOwnersoftheShip MakasarCarakaJayaNiaga I-39 (the Makasar ) [2010]SGHC 306,ANL sarestwaschalengedbyanintervener,ptdjakartalloyd.accordingto ANL, the vessel was legally registered in Djakarta Lloyd snam e,and hence,djakarta Lloyd are the beneficial owners. However, according to Djakarta Lloyd, who are an Indonesian state-owned company, the beneficial owners are the Indonesian state. After considering the evidence against the backdrop of the principles of ownership under both Singapore and Indonesian law, the Court found that the vessel was indeed beneficially owned by Djakarta Lloyd and the arrest was valid. Registration in the oficialship s register would ordinarily be adequate evidence of ownership. However, the dispute centered around the fact that the Makassar had been constructed under an Indonesian government program, whereby the government provided loans to implementing agencies such as Djakarta Lloyd to facilitate the construction of vessels. The evidence before the Court was that these loans were unsecured loans, without any reservation of title to the vessels under construction. Tan Lee Meng J held that this was insufficient to disprove the presumption of ownership raised by the ship sregistration underdjakartalloyd snam e.under Indonesian law, the use of State funds for the construction of the vessel would only have resulted in an increased equity participation by the State in Djakarta Lloyd if further Government regulation had been passed. Without such a regulation, it did not follow that ownership of the Makassar remained with the State. It just meant that there was no formal increase in the equity of the company. It did not affect the beneficial ownership of the vessel. This case provides an example of the interplay of the laws of different jurisdictions, a common exercise in the area of admiralty arrests, which often include an international aspect. It also demonstrates how the Court is willing to look into the history and jurisdictionalcom plicationsofavessel sownership to determineitstruebeneficialownerforthepurposesofsingapore sadmiraltyjurisdiction. Brief Facts (1) ANL claimed against Djakarta Lloyd, for slot charter hire owed under a charterparty. ANL then arrested the "Makassar Caraka Jaya Niaga III-39" (the "Makassar"), a vessel registered in DjakartaLloyd sname,assecurityforitsclaim. 1 Rajah & Tann LLP
(2) Djakarta Lloyd claimed that the Makassar was actually owned by the Indonesian state, and that Djakarta Lloyd was merely an operator of the vessel. It then sought to have the Makassar released and the arrest set aside. (3) The Makassar had come about as a result of an Indonesian government program to strengthen the Indonesian national shipping sector. The government had provided loans to certain implementing agencies, including Djakarta Lloyd, in order to finance the construction of vessels. (4) The Makassar was thus constructed under this program, and subsequently registered in Issue DjakartaLloyd snameatthejakartashipregistry. In order to decide whether the writs and arrest should be set aside, the Court had to determine whether it had jurisdiction over the Makassar. The High Court (Admiralty Jurisdiction) Act provides that: TheHighCourt sjurisdictioncoversanyclaim arisingoutofanyagreementrelatingtotheuse or hire of a ship; and that Where the person liable is the beneficial owner of another ship, an action in rem may be brought against that ship. Therefore, the decision centered on the question of the beneficial ownership of the Makassar. Holdings Of The High Court After considering the history of the Makasar sownership as well as the relevant laws of Singapore and Indonesia, the Court held that the beneficial owner of the vessel was Djakarta Lloyd, and not the state of Indonesia. General law The Court first had to consider the concept of beneficial ownership. The beneficial owner of a ship is one who has the right to sell, dispose of or alienate all the shares in that ship (The Pangkalan Susu/Permina 3001 [1977-1978] SLR(R) 105). This right need not be absolute or unqualified. Therefore, a person who is the equitable owner of all the shares of a ship, but is not the legal owner, would still be considered the beneficial owner. Vice versa, a person in full control and possession of a ship, but is not the equitable owner of its shares, is not the beneficial owner. 2 Rajah & Tann LLP
(iii) The ascertainment of beneficial ownership of a vessel is a matter of Singapore law. However, in the case of foreign ships, the Court will take into account relevant foreign law to determine the ownership and transfer of the vessel. The test to determine the beneficial owner of a vessel was then laid out, with the Court placing special em phasisontheidentityofthevessel sregisteredowner. Under Singapore law, the registered owner of a vessel is the prima facie its beneficial owner (see The Kapitan Temkin [1998] 2 SLR(R) 573). Any party asserting otherwise thus has the burden of rebutting this presumption. The Court recognised that it would not be easy to prove that a registered owner of a vessel is not its beneficial owner, and that such a finding would only be made in a wholly exceptional case (The Tian Sheng No 8 [2000]2 Lloyd srep 430). Application In this case, Djakarta Lloyd was the registered owner of the Makassar, raising the presumption that it was also the beneficial owner. However, Djakarta Lloyd submitted that the vessel was a state asset under Indonesian law as it had been purchased using government funds, in the form of loans to Djakarta Lloyd under the government program. The Court thus had to consider Indonesian law on government assets to determine the Makasar strue ownership. It was found that the use of state funds to finance the construction of the vessel could have resulted in the state s equity participation in Djakarta Lloyd in the form of shares in the company. However, a government regulation had to be passed in order to convert the loans into equity participation. Here, no government regulation was passed, and there was thus no conversion of the loans into equity in Djakarta Lloyd. (iii) The Indonesian state took the role of an unsecured lender, and not a beneficial owner. Djakarta Lloyd also attempted to rely on certain correspondence with Indonesian Ministries and agencies to rebut the presumption of ownership. However, these arguments were rejected by the Court. The first letter was written by Djakarta Lloyd to the Minister of State-owned Enterprises seeking approval to pledge certain vessels for a loan. The Court held that the fact that such approvalwas required under Djakarta Lloyd s Articles ofassociationdid notm ean that Djakarta Lloyd was not the beneficial owner. It was akin to the company seeking approval from a lender before taking further security on its asset. The right to dispose of the vessel still remained with Djakarta Lloyd. 3 Rajah & Tann LLP
The second letter was written by the Indonesian Minister of Finance, which Djakarta Lloyd claimed to hold statutory force. However, upon inspection of the relevant Indonesian law, the Court found that the letter could not be regarded as having statutory force, and thus did not carry evidential weight. Finally, the Court took into account the fact that Djakarta Lloyd had not furnished any evidence of the contractual documents relating to the operation of the vessel despite its claim that it was merely the vessel soperator.further,the Indonesian government(asthe aleged ownerofthe vessel)had not intervened in the proceedings to assert ownership despite the fact that the vessel had been arrested for more than a year. Therefore, on the facts, Djakarta Lloyd had failed to rebut the presumption that it was the beneficial owner of the Makassar. The Court thus had jurisdiction over the Makassar, and would not set aside the writs and arrest of the vessel. Concluding Words Ownership of a vessel is an essential point in admiralty cases, as it defines whether or not the vessel is available as security for the claimant. Therefore, when investigating the true beneficial ownership, the Court will not only look into the history of the vessel, but also at the relevant foreign and Singapore law to determine the nuances of transfer and rights over the ship. The expert evidence on foreign law will often make or break the case, and in this instance, the Court clearly preferred the expert opinion from ANL sindonesianlawyersoverthatprovidedbydjakartalloyd. Ultimately, parties should note that the registered owner of the vessel will usually be taken to be the beneficial owner as well. To prove otherwise, clear and persuasive evidence must be produced to displace the strong presumption of ownership. 4 Rajah & Tann LLP
Contacts Toh Kian Sing SC Partner D (65) 6232 0614 F (65) 6225 7978 kian.sing.toh@rajahtann.com Leong Kah Wah Partner D (65) 6232 0504 F (65) 6225 7978 kah.wah.leong@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is one of the largest law firms in Singapore and Asia, with representative offices in Shanghai and Vientiane, as well as an associate office (Kamilah & Chong) in Kuala Lumpur. As a full service regional law firm, our knowledge, resources and insight can be your business advantage. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or e-mail the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5 Rajah & Tann LLP