A Vessel Renamed, Reflagged and Sold — and Still Arrested in Karachi

A shipowner that sees an arrest coming has a familiar playbook. Sell the vessel to a fresh company, reflag it and give it a new name, all before the claimant can act. The Sindh High Court has now confirmed that those manoeuvres will not, by themselves, defeat an arrest, at least where the claimant can show the sale for the façade it is. Acting for the cargo owner, Orkun Group Zanzibar Limited, we secured the ship arrest that tested the point.The voyage that went wrong

The dispute began with a cargo of iron commodities and cement, loaded for a Zanzibar developer and never delivered. After the vessel diverted to Mombasa, our client pursued it abroad. A warrant issued in Kenya, but the ship sailed before it could be served. Proceedings in Oman ended the same way, the vessel slipping off again. Only then did the owner discharge the cargo, to a third party, at Sharjah. The owner then sold the vessel to a newly formed company. That buyer applied to register it in Botswana, and in doing so renamed it from Napolia to Kever and switched its flag from Comoros to Botswana. By the time the vessel reached Karachi, it carried a new name, a new flag and a new owner on paper. We arrested it there.

Selling out of an arrest

The owner’s principal defence went to ownership. The Admiralty Jurisdiction of High Courts Ordinance allows a court to arrest a vessel for a claim of this kind on a narrow condition: the person who would be liable on the claim must have owned the vessel when the claim arose, and must still beneficially own it when suit is brought. The owner argued that it had sold the vessel before suit, so the condition failed.

Two answers met that defence. The first concerned the standard. A claimant seeking a ship arrest does not have to prove its underlying claim; as the court observed in The St Elefterio [1957] P 179, it can never be said at the outset who will ultimately win. The claimant need show only that the person who would be liable, were the claim to succeed, was the relevant owner at the relevant times. The question was therefore not whether our client would win at trial, but whether the owner still stood behind the vessel.

The second answer was that the sale was not genuine, and that beneficial ownership — who truly stands behind a vessel, whatever the register records — had never moved. Pakistani authority treats the beneficial owner as the party that is in substance the equitable owner, whatever the paper title: see Al-Yousuf Baghpati v M.V. Naran 1992 CLC 833. And where a transfer bears the marks of a sham, a court will look behind it. In The Tjaskemolen [1997] 2 Lloyd’s Rep 465, the English Admiralty Court held that an apparent sale engineered to put a vessel beyond arrest left beneficial ownership exactly where it had always lain. The record here carried the familiar hallmarks. The buyer was a special-purpose company of no apparent substance. The price, said to have been settled in cash, left no banking trail. The new Botswana flag was one the IMO’s own database records as false, while the earlier Comoros registry remained in place. The same master remained in command throughout. And the sale came only after the vessel had already been arrested in Kenya.

The Court accepted that, to the standard an arrest requires, the transaction was “not free from doubt”. The owner therefore remained beneficially liable, and the ship arrest could stand in spite of the paper transfer. We had also argued, in the alternative, that a buyer who takes a vessel already subject to an arrest inherits the claim against it. The Court did not need to decide that question, and it remains open for another day.

The limits of a shipowner’s lien

The case also tested how far a shipowner’s lien runs. A time charter of this kind gives the owner two distinct liens for what the charterer owes: a lien over sub-freights, and a lien over the cargo itself. We submitted that the owner could exercise neither against our client. The lien its notices actually asserted was a lien on sub-freights — a demand that the freight go to the owner — and our client had already paid its freight to the charterer in full, so nothing remained for that lien to reach. A lien over the cargo was a different matter. A charterparty lien binds the goods of a stranger to the charter only where the bill of lading incorporates the clause, as Turner v Haji Goolam Mahomed Azam [1904] AC 826 holds, and only where the owner can satisfy the further conditions for exercising it — among them, that notice reaches the cargo owner before it pays. A possessory lien, in any event, ends once the carrier parts with the goods.

The Court accepted that the bills purportedly carried the lien across to third-party cargo, but held that our client had at least an arguable case that the owner could not invoke it: our client had paid its freight before any notice of the lien. The decision is, we believe, the first judgment in Pakistan to address whether a charterparty lien reaches the cargo of a stranger to the charter.

Suing without the bill

A subsidiary question carried a lesson of its own. The owner contended that our client could not sue at all, because it held no bill of lading. A commercial reader might assume that no bill means no claim; that is not the law. The owner of cargo may sue for its loss as owner — here, for the conversion of goods bailed for carriage — relying on the cargo agreement and the mate’s receipts rather than the bill. The bills the owner did produce were, in any case, straight bills, naming our client as the only party to whom the carrier could lawfully deliver, which made the discharge elsewhere a misdelivery. The Court held that our client could sue as owner and consignee, even without the bill in hand. A further argument, that the dispute belonged in arbitration, did not survive: our client had never agreed to arbitrate, and an arbitration clause does not bar an arrest.

What the decision means

The ruling is interlocutory, and the suit continues to trial. Its interest lies less in the result than in what it signals. For owners, it is a caution: a lien over a stranger’s cargo is worth little unless it is perfected with care, and a court will examine a sale struck in the shadow of an arrest for what it truly is. For cargo interests, and the counsel who instruct us, it reassures on two fronts. A claim can survive the loss of the bill of lading, and it can survive an owner’s attempt to change a vessel’s identity and ownership mid-dispute. Where a vessel has already slipped through other jurisdictions, a ship arrest in Pakistan can still deliver the security a claimant needs.

Mayhar Kazi, Partner at RIAA Barker Gillette, said the decision had significance beyond the dispute. “A ship arrest can secure a claim even where a vessel changes its name, flag and owner,” he said.

The matter was led by Mayhar Kazi (Partner – Pakistan) and Doost Muhammad Jan (Associate), with support from Sheheryar Malik, Daniyal Zafar and Balach Khan (Associates).

For advice on ship arrest, cargo claims or other maritime disputes, please contact Mayhar Kazi today.

This article is not legal advice; it provides information of general interest about current legal issues.

…

RIAA Barker Gillette is Pakistan’s premier law firm, with an on-the-ground presence in three major cities in Pakistan: Karachi, Islamabad and Lahore, and affiliated offices in Dubai (DIFC) and London. 

The firm practices in all areas of corporate, commercial and dispute resolution law. Leading international legal directories consistently recognise the firm as a top-tier law firm in Pakistan.

RIAA Barker Gillette is the exclusive member firm in Pakistan for Lex Mundi, the world’s leading network of independent law firms with in-depth experience in over 125 countries worldwide.