A party with a statutory right to an admiralty claim in rem, which had issued its claim after the Admiralty court had ordered the sale of a vessel, did not lose its right to enforce the  claim1. The claim in rem could be enforced against the sale proceeds provided that the person  liable in personam was the beneficial owner of the sale proceeds.

Facts

The Defendant, Sanko Mineral (Sanko), owner of the MV “SANKO MINERAL” (the Vessel), applied for the  strike out or withdrawal of a caution against release of the sale proceeds of the Vessel, which had  been requested by Glencore, and for payment out of the same proceeds of sale.

The Vessel was the subject of various attachments, in Baltimore, by Sanko’s creditors , and was  thus delayed on her voyage from Bulgaria to New Orleans, whilst carrying Glencore’s cargo. On 7 May  2012, while the Vessel was delayed, Glencore commenced a claim in the local court  for breach of  contract of carriage. It was Glencore’s position that, as a consequence, it obtained a maritime  lien over   the Vessel. Pursuant to the charterparty, any claim would be deemed to be absolutely  disbarred unless made to an arbitrator within 12 months of cargo discharge. Such claim was never made. The Vessel was  released from its attachments on 2 August 2012, having been delayed by almost four months.

Meanwhile, Sanko petitioned in Tokyo for the commencement of insolvency proceedings and,  thereafter, entered into reorganisation proceedings on 23 July 2012.  The English court recognised  those proceedings as the main foreign proceedings under the Cross-Border Insolvency Regulations  2006. Glencore subsequently submitted two claims in those proceedings which were rejected by  Sanko’s Trustee. Glencore petitioned against that decision, and these petitions remained  outstanding at the time of this hearing. A reorganisation plan was approved on 17 October 2013, under which the Trustee was to sell Sanko’s vessels, and the proceeds of sale were then to be paid  in satisfaction of the secured reorganisation claims. Glencore’s claims were, at the time of the  hearing, still pending, and as such Glencore had not yet accrued a right to be paid out of the  proceeds of sale.

In 2014, the Bank of Tokyo-Mitsubishi UFJ Ltd (the Bank), which held a mortgage on the Vessel,  issued an in rem claim in the English Admiralty court, and the Vessel was arrested in May 2014. The  Bank subsequently obtained judgment on its claim, and the sale of the Vessel was advertised.

Glencore maintained that its alleged maritime lien, or its statutory lien in Japanese law, took  priority over the Bank’s mortgage. On 22 August 2014, it applied to commence an  in rem claim  against the Vessel, and requested the issue of  a caution against the release of the proceeds of  sale. The Trustee subsequently applied to have the caution struck out, or withdrawn, on the grounds  that (i) Glencore had not commenced an arbitration within 12 months of discharge, and (ii) as  Glencore had not issued an in rem claim form before the Vessel had been sold, it was no longer able  to enforce its claim in rem pursuant to the Senior Courts Act 1981 s.21(4), which required that when the action was brought, the person liable in personam  had to be the beneficial owner of the vessel.

Decision

The time bar issue

The court held that there was no doubt that in English law Glencore’s claim was barred. However,  the court decided that it would not be appropriate to determine the question of whether Glencore  could advance its claim in Tokyo notwithstanding its failure to have commenced arbitration. That  was found to be a matter for the Tokyo court.

The in rem claim issue

It was accepted that the English court would recognise and give effect to a judgment in the Tokyo  court, pursuant to either the principles governing the recognition of insolvency proceedings, or  the provisions of the Cross-Border insolvency Regulations, or the ordinary English rules of private  international law.

However, there remained the question of whether Glencore’s was a claim in rem. On that question,  the court found that it was not an in rem claim within the meaning of the order for the sale of the  Vessel.

The court, therefore, had to consider whether a claimant with a statutory right of action in rem  may enforce that claim against the proceeds of sale of the Vessel, notwithstanding that the Vessel  had been sold by order of the Admiralty  court, and no action in rem had been commenced before the  sale. The court had regard to the established principle that when a vessel is sold by the Admiralty  Court, rights in rem  are transferred to the proceeds of sale. By contrast, where a vessel is sold by an individual, a maritime lien can be enforced against the vessel in the hands  of the new owner. The court noted that the operation of s. 21 of the Senior Courts Act 1981 (SCA)  must be understood in this context. On considering the relevant principles, the court held that where the person liable in personam is the beneficial owner of the proceeds of sale he is to be  regarded as the beneficial owner of the vessel for the purposes of section 21(4) SCA. That  conclusion was reached because of:

  1. The long established principle of Admiralty law that when a vessel was sold by the Admiralty  Court, rights in rem were transferred to the sale proceeds
  2. The reflection of that principle in CPR r.61.10(2)(a) concerning notices of sale by the court,  and in PD 61 para.3.6(3) which provided that a claim was not served on the vessel but was to be  filed at court
  3. The fact that orders pursuant to CPR 61.10(2)(a) were intended to protect, not harm, the  interests of those with rights in rem; and
  4. The need to interpret the court’s order pursuant to CPR 61.10(2)(a) in a manner that was not  misleading

Therefore, it was found that Glencore had not lost its statutory right of action in rem, although  in light of the Court’s finding on the arbitration point, Glencore’s claim for breach of the  contract of carriage was absolutely barred.

Payment out

Ordinarily, the court’s findings would lead to an order for payment out to the Trustee. However, as  Teare J noted, the reorganisation in Tokyo had been recognised as the foreign main proceeding, and  the court did not wish to hinder those proceedings. The court stated that it would only be willing   to make payment out on terms that the Trustee kept the proceeds of sale in a separate account and  held them to the order of the Tokyo court.