Law Analysis
A critical appraisal of sister-ship arrest laws in Bangladesh
S.M. Mohiuddin Hasan
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Photo: Peninsula Group.bit |
Due to the historically transient nature of the shipping industry and vessels themselves, modern maritime law provides for a procedure by which a claimant can arrest the offending vessel (i.e. the particular ship in respect of which the maritime claim arose). In common law countries whose maritime law is primarily derived from the admiralty law of England, the action in rem is the basic procedure to effect the arrest of a vessel. However, the arrest of sister-ship (i.e. a ship belonging to the same ship owner whose ship is involved in a legal issue) through an action in rem was a topic of debate under different jurisdictions for quite sometimes. Following the introduction of the International Convention relating to the Arrest of Seagoing ship 1952, the action in rem against the wrongdoing ship was extended to include an action against what has come to be known as the 'sister ship'. Under sister ship action, a claimant may arrest either the particular ship in respect of which the maritime claim arose, or any other ship which is owned by the person who was, at the time maritime claim arose, the owner of the particular ship. For example, if vessel A and B are owned by the same legal entity and this legal entity is the debtor for the claim, either vessel may be arrested, even if the claim arises only in relation to vessel A. In principle, both vessels must be owned by the same legal entity in order to allow for arrest of the sister ship.
The Arrest Convention was signed on behalf of the United Kingdom in 1952. Article 3 of the convention provided for provision of arrest of sister ships. This Article was introduced into English law by the Administration of Justice Act, 1956. The current English law of 'sister ship arrest' is found in section 21 of the Supreme Court Act, 1981. Both the Act use the term 'beneficial ownership' despite the term 'beneficial ownership' not being mentioned in the travaux préparatoires of the Convention. In particular, section 21(4)(b)(ii) of the Supreme Court Act 1981 provides for an action in rem to be brought against '[a]ny other ship of which, at the relevant time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it'. "Beneficial ownership" of ships in maritime law normally refers to the ownership of a party who is not the legal (i.e. registered) owner of the vessel, but who stands behind that legal owner and has rights over the vessel (including notably the right to dispose of it).
As regard the arrest of sister ship in Bangladesh, before the enactment of the Admiralty Act of 2000, the High Court Division in exercising its admiralty jurisdiction decided against proceeding in rem where the sister ship of the same owner was not concerned with the cause of action. In Kings Shipping Trading Co. vs. M/s. L.S. Lines & Other (1986) BLD 119 the High Court Division observed:
“Admiralty Court in Bangladesh has been exercising the same jurisdiction as was conferred upon the High Court of Admiralty in England under the provision of Colonial Court of Admiralty Act 1890 and Colonial Courts of Admiralty (India) Act 1891. The High Court Division of the Supreme Court of Bangladesh never exercised admiralty jurisdiction on the basis of practices of the English Court of Admiralty. The principles of Administration of Justice Act 1956 extending admiralty jurisdiction in England cannot be followed in Bangladesh, as the said Act is not applicable in Bangladesh. This Court exercising admiralty jurisdiction has no power to arrest any property or ship of the defendant other than the one which was concerned in the cause of action. The suit in rem is not maintainable but in personam is maintainable.”
It is clear while considering 'sister ship' arrests, the Admiralty Court adopted a conservative approach offending the international comity of the 1952 Arrest Convention. However, later on, without being a party to the Convention, the principle of 'sister ship' arrest was incorporated into the Admiralty Act 2000. The rule on arrest of sister ships under section 4(4) of the Act was enacted in similar fashion to section 21 (4) of the Supreme Court Act, 1981. From then on the admiralty jurisdiction of the High Court Division could be invoked by an action in rem not only against the offending ship in question but also against a 'sister ship', i.e., a ship in the same beneficial ownership as the ship in regard to which the claim arose.
In response to the 'sister ship' arrest provision under the Arrest Convention and the domestic laws of different countries, shipowners were quick to limit the exposure of their fleets by re-financing their ships into one-ship companies. Ship owners started registering their vessels in the name of different companies thereby making it very impossible for sister ship owned by the same person to be arrested. Due to the separate legal entity of such companies, a claimant was restricted to proceeding against only the 'offending ship'. The separate legal personality of each company was thus sufficient to prevent a ship owned by one of these one-ship companies being arrested for claims against other ships in the same group. In this way, the provisions of 1952 Convention were being defeated by the proliferation of “one ship companies”. This approach perpetuated the dispute between shipowners and claimants and highlighted the “one-ship company” issue, which has over the years become a standard practice in the shipping industry.
In order to tackle this challenge, the South African Admiralty Jurisdiction Regulation Act of 1983 came forth with the 'associated ship' concept. The associated ship arrest provision was introduced into South African legislation as an extension of the English sister ship provisions. These South African provisions are so extensive in that they permit 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 fact that the two companies are commonly controlled or owned. This proactive legislation to lift the corporate veil to unveil the disguise by ship owners is what makes the Admiralty Jurisdiction Regulation of South Africa unique and it is suggested that this should be incorporated into different maritime jurisdictions.
Shipping and admiralty law will continue to be an active practice in Bangladesh. It is now a little over 12 years since the Admiralty Act came into force and questions are being asked as to whether the provisions of the Act ought to be reviewed in light of international developments. Section 4(4) of the Act does not go far enough to give the plaintiffs a right of arresting a ship of a sister company of the owners of the particular ship. In the given circumstances, new rules relating to ship arrest law are very much essential to keep up with the demands in shipping practice. It is believed that such new rules would improve maritime practice in Bangladesh.
The writer is a Masters by Research Candidate at the University of Western Sydney
