Harms Bergung Transport and Heavylift GmbH & Co KG v Harms Offshore AHT 'Uranus' GmbH & Co KG & Ors

This is the hearing of the Defendants’ applications dated 23 December 2014 seeking declarations that the Court has no jurisdiction in respect of the Claimant’s claims, or alternatively that any in personam claims be stayed under s.9 of the Arbitration Act 1996.

On 4 November 2014 the Claimant (a German ship management company) issued six in rem claims against the owners and/or demise charterers of six anchor-handling tugs registered in Germany: ‘Uranus’, ‘Magnus’, ‘Ursus’, ‘Taurus’, ‘Orcus’ and ‘Janus’ (‘the Vessels’).

The Claim Forms identified brief details of the claim. The details of the first claim are reasonably clear, with some additional punctuation:

Pursuant to the technical and commercial management agreement date 26 May 2009, as amended from time to time (‘the Contract’) between the Claimant as technical and commercial managers and the owners … and on the basis of acts of owners in way of tort or delict, the Claimant claims damages for wrongful termination of the Contract by owners by way of selling the Vessel without due notice or at all, causing loss and damage to the Claimants.

It is common ground between the parties that this is a claim for damages for the unlawful termination of ship management agreements by the Defendant; and that it is a claim falling within the Admiralty Jurisdiction of the High Court, by reason of s.20(1)(a) and s.20(2)(h) of the Senior Courts Act 1981, as amended: being a claim arising out of an agreement relating to the use of a ship. Although the parties have used different descriptions for these claims, I shall refer to them as the ‘the ship management claims’ and the contracts as ‘the ship management agreements.’

The second claim is less clearly articulated:

Further, under the articles of association of the corporate entity of the Owners, the Claimant was a co-owner of the Vessel by way of owning a share in the corporate entity of the Owners. Owners breached the terms of the articles of association by agreeing to sell the Vessel without due notice or at all. The Claimant seeks damages for the wrongful termination of the Contract and for selling the Vessel constituting a breach of the Contract and a breach of the articles of association, tort, and statutory duty in respect of all losses suffered as a result.

This claim is expressed as a co-ownership claim by reference to the Owners’ articles of association. It is convenient to refer to these claims as the articles of association claims. In summary, it relates to what is said to be the wrongful resolution by the Defendants to sell the Vessels without giving appropriate notice. The Claimant seeks orders that the resolutions be annulled. There is an issue between the parties as to whether this claim falls within the Admiralty Jurisdiction of the High Court, which turns on the proper interpretation of s.20(2)(a) and (b) of the Senior Courts Act 1981, as amended.

The Claimant’s purpose in issuing the Claim Forms was to obtain security for its claims. The ship management claims give rise to disputes which are subject to German arbitration under the terms of clause 15 of the ship management agreements; and the articles of association claims are linked to proceedings before the German Courts which have exclusive jurisdiction under Art. 22.2 of Council Regulation (EC) No.44/2001 of December 2000 (‘the Brussels 1 Regulation’) since the proceedings have as their object the validity of decisions of companies whose seat is in Germany.

The in rem Claim Forms were not served and none of the Vessels have been arrested within the jurisdiction; however, the Defendants filed an acknowledgement of service on 4 November 2014 and entered an appearance for the purposes of challenging the jurisdiction. There is agreement between the parties that the provisions of CPR Part 61.3(6)) entitled them to do so.

The Defendants’ initial attitude, reflected in their applications of 23 December 2014, was to challenge jurisdiction in relation to both claims. More recently their approach has changed in relation to the ship management claims. Not only do they accept that these claims fall within s.20(2)(h) of the Senior Courts Act 1981, they now wish these claims to be decided in this jurisdiction and are prepared to provide appropriate security for the determination of such claims, to be assessed by the Admiralty Registrar under CPR Part 61.5(10) if not agreed. They do not, however, accept that the court has jurisdiction in relation to the articles of association claims, and seek declarations to that effect.

Clause 15 of the ship management agreements provided for German law and arbitration.

This Agreement is governed by German law.

Any and all disputes arising in connection with this Agreement or with respect to its validity, shall be decided upon through a Court of Arbitration based in Hamburg and in accordance with the Rules of Arbitration of the German Maritime Arbitration Association. The proceedings will be conducted in the German language.

One of the issues that arise is as to whether and, if so, in what respects the English Court is conferred with jurisdiction over claims which are clearly subject to a German arbitration agreement.

The Claimant’s position is that, although it seeks security for both claims, it is content for these claims to be decided in this jurisdiction, if security is provided and other matters being agreed. However, it does not agree that only the ship management claims should be heard here.

Since no such agreement has been reached, the following issues arise;

Both disputes arise from the breakdown in the commercial relationship between the parties as a result of discoveries made in the Autumn of 2014; and there are two ways of viewing these events.

The Claimant’s case is that on 9 September it discovered that the Defendants had agreed to sell the Vessels to one of its competitors, a Dutch company, ALP Maritime Services BV.

It took the view that this was a breach of the terms of partnership agreements (‘the KG partnership agreements’) to which it was a party both as a partner and as an investor in the Defendants, and which gave them pre-emptive rights to purchase four of the vessels if the Defendants wished to sell them, provided the exercise of that right was notified within the time agreed in any sale contract for the giving of approval by the board of directors.

The Claimant claims that there was bad faith either in relation to the time at which the intended sale was made known (making it impossible for the Claimant to exercise its rights of pre-emption), or in concealing the negotiations, or in a failure to take into account the impact of the sales on the Claimant’s business. There is also a competition claim based on the purchaser’s position in the market.

The Defendants’ view of the facts is different. Their case is that the contractual relationships were brought to an end by their discovery that two of the Claimant’s directors had been taking secret commissions from the builders of ‘Taurus’, ‘Janus’ and ‘Ursus’.

An employee of one of the companies in the ship-building consortium, Herr Ebslöh, is said to have admitted his part in the secret payments; and the directors (Herr Albrecht and Herr Mayer) have been convicted of criminal breaches of trust, having been found to have received €750,000. It is said that Herr Mayer has admitted that, as part of the understanding, the price of these vessels was artificially increased. It was this discovery of the payments to the Claimant’s directors that led the Defendants to lose trust and commercial confidence in the Claimant as managers of the Vessel; and this, and (what are said to be) difficulties placed in their way when they asked to inspect relevant records, led them to terminate the ship management agreements in November 2014.

One of the issues which will arise, as a matter of German law, in relation to the ship management claims, is whether the Defendant in each case was entitled to terminate the ship management agreements without notice ‘for important reason’, within the meaning of section 314 of the German Civil Code. The Defendants say they were, since the dishonesty and criminal conduct of Messrs Albrecht and Mayer constituted a good cause for termination under German law. The Claimant says they were not, and that they acted in breach of contract or duties in tort or under statute.

Another issue which arises will be an investigation of the procedural steps which were required to be taken in view of, what the Claimant contends are, its rights as ‘co-owners’ of the Vessels before their sales could be agreed. This will involve a consideration of whether the shareholders’ resolutions passed on 31 October 2014 were valid (as the Defendants say) or invalid and a breach of fiduciary duties owed to the Claimant (as the Claimant says).

The Claimant has commenced court proceedings in Hamburg seeking a declaration that the resolution was invalid, and the Defendants have filed defences to the contrary.

Although the ship management agreements are subject to a German arbitration clause, Mr Kimbell QC submitted that the Claimant had, by its solicitor, expressed willingness to confer jurisdiction on the English High Court in relation to these claims.

In his 1st witness statement (dated 19 January 2015) Mr Salander, the Claimant’s solicitor, made it clear that the issue of the in rem Claim Form was for the purpose of obtaining security for the arbitration and the German court proceedings; and it is clear that an in rem claim can be used for such purposes: s.26 of the Civil Jurisdiction and Judgments Act 1982.

However Mr Kimbell QC drew attention to Mr Salander’s concluding remarks at §39:

The Claimant is in fact prepared to submit to the jurisdiction of the English Courts in respect of the substantive claims.

He argued that this was an offer to confer jurisdiction on the High Court and that it had been accepted on behalf of each Defendant on 10 April 2015 in the 2nd witness statement of their German lawyer Dr Dimigen. After referring to the short passage in §39 of Mr Salander’s 1st witness statement (as set out above), Dr Dimigen added:

My clients each hereby confirm they accept this offer in respect of the damage claims arising from the allegedly unlawful termination of the six ship management agreements and hereby submit to the jurisdiction of the Admiralty Court for these claims only.

Mr Kimbell further submitted either that this was the acceptance of an offer constituting a binding jurisdiction agreement or that Mr Salander’s remarks constituted a statement from which the Claimant was not entitled to withdraw.

In my judgment these submissions are unfounded. As Mr Smith pointed out, the passage in §39 of Mr Salander’s 1st witness statement about submitting to the jurisdiction must be read in full:

The Claimant is in fact prepared to submit to the jurisdiction of the English Courts in respect of the substantive claims. However, as the Defendant is not, the Claimant does not seek to subject these disputes to the jurisdiction of the English Courts in deciding on the merits. Instead, the Claimant has issued the in rem claim in respect of the Vessel in order to preserve its statutory rights to arrest for security in support of German Court proceedings and arbitration as it is entitled to do.

It is clear that this cannot be properly read as an offer to submit to the jurisdiction of the English Courts which was capable of acceptance. He was merely stating that the Claimant would have been willing to submit to the jurisdiction of the English Courts but for the Defendants’ opposition to such a course of action. Mr Salander made it clear beyond doubt that, since the Defendants did not agree to English jurisdiction, the Claimant was not seeking to submit the disputes for determination by the English Courts.

In any event, even if §39 of Mr Salander’s 1st witness statement contained an offer which was capable of acceptance, it was an offer that was clearly made in respect of both the ship management claims and the articles of association claims; and such an offer could only be accepted by the Defendants agreeing that both sets of claims were to be determined by the English Courts. Since the Defendants have made it clear that they do not accept the jurisdiction of the English Courts over the articles of association claims, they cannot therefore have accepted the ‘offer’.

Furthermore, even if §39 of Mr Salander’s 1st witness statement constituted an offer which was capable of acceptance, it was plainly rejected by the Defendants in Dr Dimigen’s 1st witness statement (dated 20 February 2015) which made clear (in §43) that the Defendants were not willing to submit the claims to English jurisdiction:

The Claim forms say the Claimant has a claim for damages for breach of the ship management agreement and/or for breach of the articles of association and is written in such a way as to suggest that the claim is subject to the jurisdiction of the Courts of England and Wales. However, the claim for damages arising from the breach of the ship management agreement is exclusively subject to a German Arbitration clause and any dispute about the alleged breach of the articles of association would be exclusively within the competence of the German Courts for dealing with company law disputes.

For similar reasons I reject Mr Kimbell’s alternative argument based on an estoppel which would operate in the Defendants’ favour.

In the course of his submissions Mr Kimbell advanced a further argument in support of his contention that the Defendants submitted to the jurisdiction in relation to the ship management claims. He submitted that once an in rem Claim Form has been issued, it is always open to a defendant to file an acknowledgment of service and submit to the jurisdiction; and that he was instructed on behalf of the Defendants to do so, save in relation to disputes in respect of which the Court had no jurisdiction, namely: the articles of association claims.

I will deal with the jurisdiction issue when I come to the second issue that arises on these applications; however, the effect of Mr Kimbell’s submission (if correct) would be that, having issued applications seeking orders that the Court had no jurisdiction over either claim, and in the knowledge that the Claimants were not arguing that the Court had jurisdiction for either claim, and having emphatically stated in Mr Dimigen’s 1st witness statement that the Court had no jurisdiction to determine either claim, the Defendants now wish to argue that the Court was bound to accept jurisdiction to hear the ship management claims. If he is right, it would be a strange conclusion to the Defendants’ previous approach. Nor is the appearance of oddity dispelled by his further submission that the Court’s power to stay the legal proceedings in relation to the ship management claims is a power which may only be exercised on the application of the party against whom legal proceedings have been brought (here, the Defendants), see s.9 of the Arbitration Act 1996.

Although this was not made clear on their face, the object of issuing the Claim Forms was, and remains, the legitimate purpose of obtaining security for foreign arbitration and legal proceedings. The Defendants’ acknowledgment of service under CPR Part 61.3(6) stated an intention to contest the jurisdiction, and their applications sought declarations that the Court had no jurisdiction over either dispute. This approach was followed until the Defendants appeared to have perceived some advantage in getting the Court to accept limited jurisdiction. In my view the way in which the Defendants have conducted themselves ending with a volte face on jurisdiction should not and does not confer jurisdiction over the ship management claims.

The starting point is the Brussels 1 Regulation. Article 22.2 provides for the exclusive jurisdiction of the seat of companies in relation to claims relating to the validity of company decisions. As already noted, it is common ground that the German Courts have exclusive jurisdiction in relation to the articles of association claims. Article 23 provides for the jurisdiction of a court where the parties have agreed, or are to be treated as having agreed, that a particular court has jurisdiction. Article 24 provides for the jurisdiction of a Court before whom a defendant enters an appearance. The rule does not apply when the appearance was entered (as here) to contest the jurisdiction. Article 31 provides that an application can be made to the courts of one member state for security which is available in that member state even if, under the Regulation, the court of another member state has jurisdiction as to the substance of the matter.

In my view the Claimant’s action in issuing in rem Claim Forms in order to obtain security was both unexceptional in domestic terms and consonant with the Brussels 1 regulation, see for example, The ‘Nordglimt’ [1988] QB 183 in relation to security for claims in another contracting state, and The ‘Jalamatsya’ [1987] 2 Lloyd’s Rep 164 in relation to security in arbitration proceedings, see also Admiralty Jurisdiction and Practice, Meeson and Kimbell (4th edition) at 4.29-30. The Court will normally recognise both the obligation to submit disputes to arbitration or courts in a foreign jurisdiction, and the claimant’s right to obtain and retain security in respect of such disputes, see for example The ‘Tuyuti’ [1984] 1 QB (CA) 838 at pp.46 and 850.

The Claimant’s position is similar to that identified by the editors of Enforcement of Maritime Claims, Jackson, 4th edition, at 15.94:

For property to be arrested to support arbitration the claimant must issue an in rem claim form, thereby breaching the arbitration agreement. It would then be expected that it would be the defendant who seeks to stay for arbitration. However, as now seems accepted, the arbitration agreement is not normally to be construed as excluding the power to arrest, and the issue of a claim form is proper despite its sole purpose being to obtain security. On that basis there should be no bar once security is obtained to the claimant seeking a stay of the action. If it is not so, the statutory provision leaves a claimant with the option of agreed arbitration without security or litigation with security, the arbitration agreement operating only at the option of the defendant.

The issue does not arise so acutely in this case since the Defendants’ application included an application for a stay under s.9 as an alternative to its application for orders that the Court had no jurisdiction in respect of any of the Claimant’s claims. However, I am of the clear view that even if the proceedings had been brought in breach of the arbitration agreement, the Court would have an inherent jurisdiction to stay the proceedings where the requirements of s.9 of the Arbitration Act 1996 are not met, see, for example, Al-Naimi v. Islamic Press [2000] 1 Lloyd’s Rep 522, Waller LJ at 525r. Where the proceedings have not been brought in breach of an arbitration clause (as I find) I am quite satisfied that the Court should be no less able to decline jurisdiction by way of a stay in the circumstances of the present case.

Accordingly I stay the ship management claims, subject to the provision of appropriate security in the arbitration proceedings.

Section 20(1) provides that the Admiralty Jurisdiction of the High Court extends to the hearing of determination of claims mentioned in s.20(2).

Section 20(2) extends to:

(a)

any claim to the possession or ownership of a ship or the ownership of any share therein;

(b)

any question arising between the co-owners of a ship as to possession, employment or earnings of that ship.

Mr Kimbell QC submitted that the articles of association claims do not fall within either subsection, because the claims advanced in the German Proceedings do not and could not amount to claims to the ownership of the Vessels or give rise to questions arising between co-owners of the Vessels as to their possession, employment or earnings.

Mr Smith’s response was that, while as presently constituted, the German proceedings are concerned with the formal validity of the sale transactions, there will be claims in respect of the ownership and/or possession of the vessels which will include claims for damages. Its case will be either that it ought to have been given the right to purchase the Vessels and hence become the owner; or that the Defendants ought not to have sold the Vessels at all and the Claimant should have been entitled to exercise their rights under the management agreements to run and charter out the Vessels, and that such claims plainly relate to the ownership and possession of the Vessels.

The first question for decision is the standard of proof which has to be satisfied in order to establish jurisdiction under s.20(2) of the Senior Courts Act 1981.

In The ‘Bunga Melati 5’ [2012] 4 SLR 546 the Singapore Court of Appeal considered the standard of proof which has to be satisfied where a party invokes the Admiralty jurisdiction. Step 1 was the need for a claimant to show that it had a claim falling within the statute; step 2 was the requirement that the claim arose in connection with a ship; step 3 involved identifying the person liable on the claim in personam; step 4 required showing that the relevant person was, when the cause of action arose, the owner or charterer of, or in possession or control of, the vessel; and step 5 involved showing that the relevant person had, at the time the action was brought, the requisite beneficial interest.

The analysis is helpful in identifying the various jurisdictional issues which arise for the purposes of establishing the Admiralty jurisdiction of the High Court. Step 1, being the threshold jurisdictional question, and steps 2-5, issues that arise under s.21(4) of the Senior Courts Act 1981.

In relation to step 1, the Singapore Court of Appeal stated that, on a jurisdictional challenge, a claimant has to prove on the balance of probabilities, the existence of the jurisdictional facts under the provision on which it was relying, and show an arguable case that its claim was of the type or nature required by the relevant statutory provisions. In relation to step 3, identifying the person who would be liable in personam, it was sufficient that there was a person who had been identified, see [112].

This is not dissimilar to the approach which has been adopted in this jurisdiction. The Court is not concerned, at the jurisdictional stage, with whether the claimant has a good cause of action, see for example, Clarke J’s review of the authorities in The ‘Yuta Bondarovskaya’ [1988] 1 Lloyd’s Rep 357. Where, however, there is a challenge to the jurisdictional basis of the claim that jurisdictional basis must be evaluated.

In general, where an English Court is called on to exercise jurisdiction in circumstances which are not agreed, the party wishing to invoke the jurisdiction will be required to have the better of the argument that the facts which support its invocation of the jurisdiction are satisfied, see Dicey, Morris and Collins on The Conflict of Laws,15th ed. at §12.114 and Beatson J’s review of the authorities in Global 5000 Ltd v Wadhawan [2011] EWHC 853 (Comm). It seems to me that ‘the balance of probabilities’ is a more appropriate way of describing the standard when it comes to assessing facts, and that ‘the better of the argument’ is the more appropriate way of describing the assessment of the legal submissions that may be made. However, there is not much practical difference between the tests: the choice in each case is binary.

For the purposes of the present applications this involves looking at the Claim Forms to see which party has the better of the argument that the claims which the Claimant seeks to advance fall within the Admiralty jurisdiction, and not which party has the better of the argument on likely success, see The ‘Moscanthy’ [1971] I Lloyd’s Rep p.37, Brandon J at p.42l.

Mr Smith submitted that the intent of the German proceedings was to nullify the resolutions to sell the Vessels. He added (although this was not in evidence) that if the claim were successful and the resolutions were invalidated, the consequence would be the annulment of the contracts of sale of the four vessels sold to ALP Maritime Services SA (it appears that transfer of two of the vessels has not occurred) and the vindication of the Claimant’s rights of pre-emption. It followed that the claim was properly characterised as a claim to the ownership of a ship, within the meaning of s.20(2)(a).

Mr Kimbell QC submitted that there was no dispute that the Defendants own the Vessels, that the Claimant had a small shareholding in each Defendant (the equivalent to approximately 0.6% of the share capital), and that the Claimant has made no claim to possession or ownership of the Vessels in the German proceedings. Its claim is that the operative resolutions by the Defendant were defective and that they are entitled to damages for the consequences. It followed that this was not a claim which fell within s.20(2)(a).

In my judgment the Defendants are right on this point and that, in any event, they have the better of the argument. The Claim Forms characterise the sale of the Vessels as constituting a breach of the Defendants’ articles of association. There is also a claim that the Defendants have carried out acts which are tortious and/or in breach of statutory duties owed to the Claimant. The consequence is said to be that the Claimant’s rights of pre-emption have been adversely affected. However, whichever way one looks at the matter, whether by reference to the German proceedings as presently constituted or by reference to its characterisation in the Claim Form, the Claimant’s claim is for damages caused by the sale of the Vessels and cannot, in my view, be properly characterised as a claim to the ownership of the Vessel, falling within s.20(2)(a).

Mr Smith relied again on his submission that the German proceedings are in the nature of assertions of an interest in the ownership of the Vessels and that, as the Vessels’ managers, the Claimant has a direct financial interest in their employment; and consequently, a question arose within the meaning of s.20(2)(b).

Mr Kimbell QC submitted that s.20(2)(b) is narrowly drawn. A claimant must show that it is a co-owner of the ship and that, even if it can, this does not give the Court jurisdiction for every issue arising between co-owners but only (in so far as relevant in the present case) if it concerns the employment of the ship.

Even if the claim can be characterised in terms of an issue or question arising as to the employment of the Vessels (and I note that the Claim Form makes no such assertion), I am not persuaded that the Claimant has the better of the argument that its claim is that of a co-owner. The claim seeks to vindicate rights as a shareholder and/or assert rights in tort or on the basis of a statutory entitlement. In my judgment, section 20(2)(b) is concerned with co-ownership of vessels or shares in the vessel, and not with claims relating to the ownership of shares in companies or other legal entities which may own vessels. Furthermore, and if amterial, the Claimant has not shown that in the argument between Mr Salander and Dr Dimigen, as to whether the Claimant’s rights can be characterised as akin to ‘a joint tenancy with traits of a tenancy in common akin to rights as shareholders’, that it has the better of the argument; and that its claim can be properly characterised as that of a co-owner of the Vessels in contradistinction to a claim (as expressed in the Claim Form) as: ‘a co-owner of the Vessel by way of owning a share in the corporate entity of the [Vessel’s owner]’.

I have therefore concluded that the Defendants are not entitled to submit to the jurisdiction of the Court in respect of the ship management claims, and that these claims should be stayed pending the provision of suitable security; but that they have succeeded in their challenge to the jurisdiction in relation to the articles of association claims.