Ship Managers’ Claims and the Admiralty Jurisdiction

Steven Wise, Partner, Smyth & Co in association with RPC

The Admiralty jurisdiction of the High Court of Hong Kong includes claims in respect of goods or materials supplied to a ship for her operation or maintenance (s. 12A(2)(l) of the High Court Ordinance). A ship manager which has advanced funds to pay for bunkers (marine fuel) on behalf of the owner or demise charterer of the vessel thus has a claim in rem and can arrest the ship to enforce its claim.

However, the accounts between a ship manager and the owner or demise charterer of the vessel will encompass many different items. Some of these will fall clearly within the Admiralty jurisdiction, such as bunkers and crew wages. Others will fall clearly outside the jurisdiction, such as insurance. As a recent Court of Appeal judgment demonstrates, where a ship manager has funds on account to cover some but not all of its claims, care must be taken to appropriate such funds to the non in rem claims prior to invoking the court’s Admiralty jurisdiction.

In The “Ruby Star” [2014] HKEC 2125, the Court of Appeal, overturning the first instance judgment ([2014] 1 HKLRD 1154), held that the ship manager had not appropriated the funds until too late in the proceedings.

The issue arose in a slightly roundabout way. The ship manager’s contract was with the demise charterer of the vessel. The demise charterer elected not to defend the claim, but the registered owner intervened in the action to challenge the arrest.

At first instance, Mr. Justice Ng held that there was no “running account” between the manager and demise charterer (which would not give rise to a claim in rem) and that the manager was entitled to exercise its right of appropriation up to the last moment. On the facts, the judge held that the manager had not appropriated the funds until it served Further and Better Particulars of the Statement of Claim (the “FBPs”). At that point, the manager made it clear that the funds on account had been used to settle expenses other than bunker costs. Since the bulk of the claim was within the court’s in rem jurisdiction, even though it also formed part of a general balance of account, the arrest would be upheld.

On appeal, the registered owner changed tack, seizing on the judge’s finding that there was no appropriation prior to issuance of the writ. Thus, it was argued, at the time of the arrest, it was not possible to say whether the debts for which the vessel was arrested were in rem claims or not. This was fatal to the arrest because, as the Court of Appeal emphasised, the Admiralty jurisdiction must exist at the time of the commencement of the action; namely, when the writ is issued.

This led the manager to argue that, contrary to the judge’s finding, it had appropriated the funds on account to settle expenses other than bunker costs prior to issuance of the writ and that the FBPs merely clarified which in rem claims had been set off by the appropriation. However, the Court of Appeal rejected this submission as inconsistent with the judge’s finding that the manager had reserved its right of appropriation up to the last moment; namely, until service of the FBPs. Accordingly, when the writ was issued, it could not be said that the manager’s claim fell within the in rem jurisdiction of the court.