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[2011] ZAKZDHC 57
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China National Chartering Co Ltd v MT GC Guangzhou and Others (A71/2011, A 70/11, A72/11, A75/11, A77/11, A80/11) [2011] ZAKZDHC 57 (2 September 2011)
IN
THE KWAZULU-NATAL HIGH COURT, DURBAN REPUBLIC OF SOUTH AFRICA
CASE
NO: A71/2011
and
A 70/11, A72/11, A75/11, A77/11, A80/11
In
the matter between;
China
National Chartering CO LTD
….............................................................
Applicant
and
MT
"GC Guangzhou"
…........................................................................
First
Respondent
GC
Gaungzhou PTE LTD
….............................................................
Second
Respondent
The
Master of the MT " GC Gaungzhou
…..........................................
Third
Respondent
Judgement
DATE:
02-
SEPTEMBER
2011
Ploos
van Amstel, J
[1]
The mt GC Guangzhou was arrested in July 2011 pursuant to orders
granted in a number of applications brought in this court.
The
applicants in the various applications were Tumac Corporation from
the Marshall Islands (case A70/2011), China National Chartering
Co
Ltd from Beijing (case A71/2011), Shagang Shipping Co Ltd from Hong
Kong (case A72/2011), Korea Line Corporation from Seoul
(case
A75/2011), C Transport Cape Size Ltd from The Isle of Man (case
A77/2011) and Eastern Ocean Transportation Co Ltd from
Hong Kong
(case A80/2011). All the orders were sought and granted in terms of
s 5(3) of the Admiralty Jurisdiction Regulation
Act of 1983 in order
to provide security for claims brought by the applicants in
arbitration proceedings in London.
[2]
By agreement between the parties the only application which was
argued before me was case A71/2011, on the basis that the
order
which I make will also be made, mutatis mutandis, in each of the
other applications. The references in this judgment to
the applicant
and the respondents are therefore references to the parties in case
A71/2011. They are China National Chartering
Co Ltd, at whose
instance the arrest was obtained, the mt GC Guangzhou (the vessel
under arrest) and GC Guangzhou Re Ltd (the
owner of the vessel). The
Master of the vessel is the third respondent but took no part in the
proceedings.
[3]
The vessel under arrest is not the vessel in respect of which the
applicant's claim arose. It was arrested on the basis that
it and
the vessel which is the subject of those claims (the mv Global
Commander) are associated ships as contemplated in s 3
(7) of the
Act. The vessel was released from the arrest after the claim was
secured by way of an escrow agreement, but is deemed
to remain under
arrest in terms of s 3(10)(a) of the Act.
[4]
The applicant's claim in the arbitration arises out of a
charterparty between it and Grand China Shipping (Hong Kong) Co Ltd
relating to the mv Global Commander. It was a time charter for a
voyage from Australia to China for the carriage of a cargo of
bulk
iron. The applicant in turn concluded avoyage charter with Seawin
Chartering Ltd, after which two further sub-charters were
concluded.
The main charter was terminated before the voyage was undertaken.
The reason for this, and the lawfulness thereof,
must be determined
in the arbitration. The applicant's claim relates to the repayment
of hire and damages.
[5]
The parties before me were agreed that for current purposes it may
be accepted that the applicant has a claim as contemplated
in s 5(3)
and a reasonable need for security. The only issue is whether it has
been shown that the vessel under arrest (to which
I will refer as
'the vessel') and the mv Global Commander were associated ships at
the relevant time.
[6]
Counsel were agreed that the relevant part of S 3(7), for present
purposes, is ss (7)(a)(iii), which, paraplirased, provides
that an
associated ship means a ship other than a ship in respect of which
the maritime claim arose, owned by a company which
is controlled by
a person who controlled the company which owned the ship concerned
when the maritime claim arose.
[7]
I think it is useful to consider first what it means to say, in the
context of s 3(7)(a)(iii), that a company is 'controlled'
by a
person. The starting point is the deeming provision in ss
(7)(b)(ii), which provides that for the purposes of para (a) a
person shall be deemed to control a company if he has power,
directly or indirectly, to control the company.
[8]
The sub-section was considered in mv Heavy Metal: Belfry Marine Ltd
v Palm Base Maritime SDN BHD.
1
Smalberger JA said in the majority judgment that the sub-section
distinguishes between direct and indirect power. Indirect power
can
only refer to the person who de facto wields power through, and
hence over, someone else. The latter can only be someone
who wields
direct power vis -a- vis the company and the outside world and who,
therefore, in theeyes of the law (i.e. de jure),
controls the
shareholding and thus determines the direction and the fate of the
company.
2
[9]
Counsel were agreed that although we are dealing with an application
to set aside the arrest the onus to justify the arrest
remains on
the original applicant at whose instance the arrest was obtained.
[10]
It was common cause before me that the second respondent (the owner
of the vessel) is wholly owned by GC Tankers Pte Ltd.
The
shareholders of GC Tankers are Center Securities Ltd (40%), Hainan
American Ltd (10%), Grand Columbia Shipping Ltd (25%)
and Grand
Mississippi Shipping Ltd (25%). The latter two companies are wholly
owned by Mega Bulk Holdings Co Ltd. Both it and
Grand China Shipping
(Hong Kong), the owner of the mv Global Commander, are subsidiaries
of Grand China Logistics Holding Co
Ltd, a company in the HNA Group.
The HNA Group is a large Chinese conglomerate which operates in the
aviation, shipping and other
industries through a variety of
subsidiary and associated companies.
[11]
The parties approached the matter before me on the basis that the
HNA Group controls the company which owns the mv Global
Commander
and also controls the two companies which together own 50% of the
company which owns the vessel under arrest.
[12]
The applicant's contention that the ships are associated is based on
the averment that the HNA Group probably also controls
Hainan
America, which owns 10%. In that event it will control 60% of the
shareholding in GC Tankers.
[13]
The basis on which the applicant says the HNA Group probably
controls Hainan America is the following:
(a)
A subsidiary of the HNA Group, Pacific American Corp, was previously
known as Hainan America Co Ltd. It was registered in
New York in
June 1991.
(b)
That name is virtually identical to the name of Hainan America Ltd
(Bermuda), which was incorporated in July 1994. The suggestion
by
the respondents that Mr Liu chose that name because the province of
Hainan had been established as China's largest special
economic zone
and because the other two shareholders (Ms Ming Liu and Mr Guoqing
Chen) lived in America seems unlikely, having
regard to the fact
that at that time Hainan America Co Ltd (New York) was still known
as such. Its name was only changed to Pacific
American Corp in 1999.
Mr Liu was at the time (and still is) employed by the HNA Group. It
is not likely that he would have chosen
a name for a private
investment company which is so similar to one of his employer's
subsidiaries.
(c)
One of the shareholders in Hainan America (Mr Guoqing Chen) is the
chairman and chief executive of Pacific American Corp.
(d)
Mr Liu is a longstanding employee of the HNA Group and is a former
executive of a number of subsidiaries and the current chief
executive of an associated company.
(e)
If HNA controls 60% of the shareholding in GC Tankers then it
controls the board of directors, as four votes constitute a
majority.
(f)
GC Tankers is referred to in a web site relating to companies in the
HNA Group as a subsidiary of Grand China Logistics. This
will be an
accurate description if the 10% held by Hainan America is held by it
for the HNA Group as beneficial owner.
[14]
There is however a dispute on the papers in this regard. The
respondents deny that Hainan America is controlled by the HNA
Group
and say it is a private investment vehicle owned by Mr Liu, his
sister and her husband.
[15]
Counsel for the applicant urged me to refer the matter to oral
evidence. He submitted that the discovery process and
cross-examination
will probably reveal that the applicant's
contention with regard to Hainan America is correct.
[16]
Counsel for the respondents submitted that there is no point in
referring the matter to oral evidence. He argued that even
if the
HNA Group controlled 60%, which is disputed, then it will still not
have the power to control GC Tankers because of the
provisions of
the written shareholders agreement.
[17]
Clause 5.1 of the agreement provides that a quorum for a general
meeting of the company shall be four members present in
person or by
proxy. Clause 5.2 provides that the company shall not without the
prior resolution and consent of 75% of the votes
of shareholders at
a general meeting take any of the actions listed in that clause.
Those matters include changing the nature
of its business or the
manner in which it is conducted, changing the name of the company,
purchasing any vessel, chartering any
vessel for a period exceeding
five years, selling any part of its undertaking or assets, merging
with or acquiring shares in
another company, and so on.
[18]
Clause 6 provides for seven directors. Grand Columbia Shipping is
entitled to appoint one director, Grand Mississippi Shipping
two,
Hainan America one and Center Securities three. Decisions of the
board are taken by a majority vote.
[19]
Oral evidence may well show that Hainan America is controlled by the
HNA Group. But it seems to me that counsel is correct
in submitting
that 60% is not enough to control the company in the context of s
3(7). In the light of the shareholders agreement
one requires
control of 75 % to control the company. It is perfectly in order to
arrange one's affairs in such a way as
to
avoid
the effect of statutory provisions, provided of course that the
arrangements are genuine and not simulated so as to disguise
the
true position.
[20]
This raises the question whether the HNA Group controls Center
Securities. Most of the factors which suggest that it may
control
Hainan America do not apply to Center Securities.
[21]
Mr Ma is an experienced businessman in the shipbroking industry and
has been friends with the chairman and vice-chairman
of the HNA
Group for a long time. The respondents' case is that Mr Ma and his
friends in the HNA Group decided to form a joint
venture in the
tanker business, which resulted in me
lOimauon
or
viv,
lariKers
in
jauuaiy zwiw. nicy
say
uuu
ivii
ivio.
was
familiar with influential people involved in the Chinese crude oil
market and that he had a close relationship with China's
biggest oil
importer. The arrangement was that the HNA Group and Mr Ma would
each own 50% of the shareholding. The HNA shareholding
was split
between two of its subsidiaries, Grand Columbia Shipping and Grand
Mississippi Shipping. Mr Ma offered 10% of his shareholding
to a
friend, Mr Liu, who put the shares in Hainan America Ltd.
[22]
The applicant says it is unlikely that a conglomerate of the size of
the HNA Group would want to enter into a joint venture
with an
individual. It also says it is unlikely that Mr Ma would have been
able to finance his share of the joint venture, which
acquired two
tankers (the mt GC Guangzhou and the mt GC Haikou) at a total cost
in excess of USD 100m. It says the mt GC Haikou
has recently been
transferred from GC Haikou Pte Ltd to a newly established company,
GC Haikou BB Pte Ltd, the sole shareholder
of which is Grand China
Asset Management Corp Ltd, which is controlled by the HNA Group.
Another new company has been established,
with the name GC Guangzhou
BB Pte Ltd, with the same shareholder. The mt GC Guangzhou however
remains registered in the name
of the second respondent. One of the
directors of each of the two new companies is Mr Shuang Wang, who is
also a director of
GC Tankers, having been appointed to that
position by Grand Columbia Shipping Ltd.
[23]
The respondents say there is nothing untoward about this. The funds
to acquire the vessels were obtained in the form of bridging
finance
from private investors, who were willing to provide the loans in the
light of the reputations of the HNA Group and Mr
Ma. The transfer of
the mt GC Haikou to a subsidiary of Grand China Asset Management
Corp was part of the refinancing to replace
the bridging finance,
which involved the sale of the vessel to the subsidiary and bareboat
chartering the vessel back to GC Haikou
Pte Ltd, which is a common
way of financing the acquisition of a ship. The same arrangement was
intended in respect of the mt
GC Guangzhou, but has not been
implemented yet.
[24]
The application papers do not make a case for the conclusion that
the HNA Group controls the 40% in GC Tankers held by Center
Securities. I am not persuaded that there is a reasonable prospect
that oral evidence will show that it does. The applicant has
not
identified particular witnesses whom it would want to call to
testify. I think the suggestion is rather that it would like
to
obtain discovery of documents and have the opportunity to
cross-examine the various persons referred to in the respondents'
affidavits. Most of these people are from China or America. They
will have to come to Durban for something akin to a trial on
an
issue which will not be directly relevant in the arbitration
proceedings in London, namely whether or not the vessel under
arrest
is available as security. I do not think the evidence before me
justifies such an exercise. For all I know the evidence
may show
that the position is as has been described in the respondents'
affidavits
3
.
I am in the circumstances not prepared to exercise my discretion to
order that oral evidence be heard.
[25]
It follows that the applicant has not shown that the two vessels are
associated ships and the arrest cannot stand.
In
the result I make the following order:
(1)
The arrests and deemed arrests of the mt GC Guangzhou m case numbers
A 70, A71, A72, A75, A77 and A80 of 2011 are set aside;
(2)
The sheriff of this court is directed to release the vessel from
arrest;
(3)
The applicant is ordered to pay the costs of the applications to set
the arrests aside;
(4)
The parties are given leave to approach this court on the same
papers, supplemented if necessary, if any further orders need
to be
made relating to costs or the release of security provided pursuant
to the arrests.
PLOOS van AMSTEL
J
Appearances:
For
the Applicants:
Mr.
S. R. Mullins S C with Mr. P. J. Wallis
Instructed
by:
Shepstone
& Wylie Durban
For
the 1
st
and
2
nd
Respondents:
Mr.
D. Gordon S C
Instructed
by:
Edward
Nathan Sonnenberg Durban
Date
of Hearing:
22
August 2011
Date
of Judgment:
02
September 2011
1
1999
(3) SA 1083
SCA
2
1106
para [9]
3
See
in this regard Bocimar NV v Kotor Overseas Shipping Ltd
[1994] ZASCA 5
;
1994 (2) SA
563
AD at 5S6E to 5S7G