KOREA SHIPPING CORPORATION V LORD ENERGY SA (THE "M/V DANGJIN")

[2018] FCAFC 201, Federal Court of Australia, Allsop CJ, Besanko J and McKerracher J, 15 November 2018

Admiralty - Title to ship transferred to trustee under trust for benefit of security holder - Ship registered in name of trustee held as security - Whether debtor beneficial owner of ship - Admiralty Act (Cth) section 19(b)

This was the appeal of the decision of Rares J on 7 November 2018. On 26 October 2018 Lord Energy SA had filed a writ in rem against the ship MV Dangjin, flagged in the Republic of Korea, claiming damages for breach of charterparty. Lord Energy alleged that Dangjin was liable on the claim under section 19 of the Admiralty Act 1988 (Cth) as a surrogate, or sister ship of DS Valentina, on the basis that the owner of each ship was Korea Shipping Corporation (KSC). Dangjin was arrested on 28 October 2018 as she entered the Port of Newcastle to load a cargo of coal. On 30 October 2018 KSC filed an interlocutory application seeking an order that the arrest warrant and the arrest be set aside for want of jurisdiction. The issue was whether KSC was the owner of Dangjin when the proceedings were commenced on 26 October 2018, as required by section 19(b) of the Admiralty Act, and therefore a sister or surrogate ship of DS Valentina. From about 15 March 2018, the legal and registered owner of the vessel was IBK Securities Co Ltd, which held the vessel in its capacity of trustee of KSC as a result of a complex series of secured loan transactions between KSC, IBK and KSC's bank, governed by Korean law. KSC was the trustor, beneficiary and debtor under the transactions. The bank was the preferred beneficiary. KSC contended in support of its application that, under the trust arrangement, it had no right to repay the debt to the bank early or to dispose of the ship because of the existence of the trust over Dangjin and the restrictions on bringing about any early termination contained in the various transaction documents. It contended that these considerations demonstrated that it was not capable of being characterised as the owner, in particular as the beneficial owner, of Dangjin. The judge dismissed the application. This was the appeal of KSC.