Lord Energy SA v The Ship “MV Dangjin [2018] FCA 1717

File number:

NSD 1982 of 2018



Date of judgment:

7 November 2018


ADMIRALTY where debtor as settlor transferred to trustee legal title to ship under trust for benefit of security holder – where ship registered in name of trustee hold as security for debtor’s performance of obligation to repay bank the value of bonds issued by debtor – where term of bonds fixed but agreement referred to earlier possible repayment in full when trust would come to an end – whether debtor legally unable to regain legal title to ship by repaying bonds early in full – where trust established under Korean Trust Act for specific purpose of trustee holding debtor’s ship as security for sum needed to redeem bonds – whether debtor was beneficial owner of ship while it was held in trust for purposes of s 19(b) of Admiralty Act 1988 (Cth) – whether debtor’s interest in ship analogous to mortgagor’s equity of redemption


Admiralty Act 1988 (Cth) ss 17, 18, 19

Trust Act (Act No. 12592, May 20, 2014) (Republic of Korea)

Cases cited:

Casborne v Scarfe (1735) 1 Atk 603

Ciaglia v Ciaglia (2010) 269 ALR 175

City Mutual Life Assurance Society Ltd v FCT (1948) 77 CLR 363

G and C Kreglinger v New Patagonia Meat and Cold Storage Company Limited [1914] AC 25

Heath v Pugh (1881) 6 QBD 345

In re Sir Thomas Spencer Wells: Swinburne Hanham v Howard [1933] Ch 29

Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12

Noakes & Co Limited v Rice [1902] AC 24

Pugh v Heath (1882) 7 App Cas 235

Schmeling v Stankovic (1984) 1 BPR 1

Shagang Shipping Co Ltd v Ship “Bulk Peace” (as surrogate for Ship “Dong-A Astrea”) (2014) 314 ALR 230

The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404

Tisand Pty Ltd v The Owners of the Ship MV Cape Moreton (Ex Freya) (2005) 143 FCR 43

Date of hearing:

6 November 2018


New South Wales


General Division

National Practice Area:

Admiralty and Maritime



Number of paragraphs:


Counsel for the Applicant:

Mr A M Stewart SC and Mr J S Emmett

Solicitor for the Applicant:

HFW Australia

Counsel for the Plaintiff:

Mr E G H Cox SC and Ms C O Gleeson

Solicitor for the Plaintiff:

Holding Redlich


NSD 1982 of 2018


LORD ENERGY SA (and another named in the schedule)










1.    The interlocutory application filed on 30 October 2018 be dismissed.

2.    The applicant on the interlocutory application, Korea Shipping Corporation, pay the plaintiff’s costs of the interlocutory application.

3.    The proceeding be stood over for case management to 9 November 2018 at 9.30am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.



1    On 26 October 2018 Lord Energy SA, as plaintiff, filed a writ in rem against the ship MV Dangjin. Dangjin was flagged in the Republic of Korea. The writ claimed over USD7.5 million in damages and interest at 5% p.a. based on a general maritime claim. Lord Energy alleged that Dangjin was liable on the claim under s 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).

2    The writ pleaded that the general maritime claim arose because of KSC’s breach of a charterparty in a recap, made on or about 10 October 2017, that incorporated the BPVOY4 voyage charter form, by it as disponent owner of DS Valentina. The breaches alleged included that KSC failed to exercise due diligence to make and maintain DS Valentina in a seaworthy condition for the chartered voyage, and that she had a substantial crack in her cargo tank that required repair and caused delay in the performance of the voyage. The writ named KSC as the relevant person.

3    Early on 28 October 2018, the Marshal arrested Dangjin as she entered the Port of Newcastle to load a cargo of coal.

4    On 30 October 2018, KSC filed an interlocutory application that, relevantly, sought an order that the arrest warrant and the arrest be set aside for want of jurisdiction. I fixed the hearing of that jurisdictional issue for 6 November 2018.

The jurisdictional issue

5    The sole issue is whether KSC was the owner of Dangjin on 26 October 2018 for the purposes of s 19(b) of the Admiralty Act. Section 19 provides:

19    Right to proceed in rem against surrogate ship

A proceeding on a general maritime claim concerning a ship may be commenced as an action in rem against some other ship if:

(a) a relevant person in relation to the claim was, when the cause of action arose, the owner or charterer of, or in possession or control of, the first‑mentioned ship; and

(b) that person is, when the proceeding is commenced, the owner of the second‑mentioned ship. (emphasis added)

6    Prior to 15 March 2018, KSC was the registered owner of Dangjin in the Korean Shipping Register. It is common ground that from about 15 March 2018, IBK Securities Co. Ltd became and has remained her legal and registered owner in its capacity as the trustee of a trust created by KSC as “truster (spelt variously as ‘truster’ or ‘trustor’) under the Trust Act of Korea. The precise legal interest of KSC in Dangjin under respectively Korean and Australian law in consequence of the complex series of transactions between KSC, IBK and KSC’s bank, Nonghyup Bank (as trustee of ADFKFB Investment Private Equity Trust) (the Bank) and the operation of the Trust Act, will be determinative of the issue of ownership for the purposes of s 19(b).

7    In essence, KSC contended that Lord Energy had not established on the balance of probabilities that the interest, if any, under the law of Korea that KSC had in Dangjin at the time that this proceeding commenced (26 October 2018) was what Australian law would characterise as that of her beneficial owner. This jurisdictional question must be decided on a final basis on admissible evidence: The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404 at 426-427.

8    I will describe the relevant provisions of first, the Trust Act and, secondly, the various transaction documents, before analysing their consequences.

9    The Trust Act and all of the relevant transactional documents were written in Korean. The parties put various translations of those documents in evidence. The translations are sometimes awkwardly expressed, as is often the case when a skilled, but lay, interpreter seeks to use a different language (here English) to express the foreign technical terminology and concepts.

The Trust Act

10    The purpose of the Trust Act was “to provide for the legal relations in private laws” (Art 1). Article 2, headed ‘Definition of Trust’ provided:

The term “trust” used in this Act means a legal relation that a person who creates a trust (hereinafter referred to as “truster”) transfers a specific piece of property (including part of business or an intellectual property right) to a person who accepts the trust (hereinafter referred to as “trustee”), establishes a security right or makes any other disposition, and requires the trustee to manage, dispose of, operate, or develop such property or engage in other necessary conduct to fulfil the purpose of the trust, for the benefit of a specific person (hereinafter referred to as “beneficiary”) or for a specific purpose, based on a confidence relation between the truster and the trustee. (emphasis added)

11    A trust could be created by a contract between the truster (which I infer is akin to a settlor) and the trustee (Art 3(1)1). Registration of a property right held in a trust that is capable of registration (such as the ownership of, or an interest in, a ship) is evidence of that fact (Art 4(1)).

12    Trust property cannot be the subject of compulsory legal processes, such as execution or enforcement of security rights, unless the right asserted arose before the property became subject to the trust (Art 22(1)). Where the trust property is used or employed to acquire or generate some other or additional property, the latter also becomes part of the trust property (Art 27).

13    Unless restricted by the trust deed, a trustee owns the rights to, and owes duties in respect of, the trust property, and has the authority to manage, dispose of or otherwise deal with the trust property and “to engage in all conduct necessary to fulfil the purpose of the Trust” (Art 31). The trustee must carry out his, her or its duties “with due fiduciary care as required of a good administrator”, unless the trust deed otherwise provides (Art 32). In other words, I infer, the trustee owes a fiduciary duty to the truster and all beneficiaries faithfully to perform the duties of a trustee of the trust in the trust deed. Further, a trustee must “perform trust affairs [sic] solely in the interests of the beneficiaries” (Art 33) and must act impartially between them, unless the trust deed otherwise provides (Art 35). However Art 34(1)5 and (2)3 enable a trustee to apply to the court for permission to engage in “conduct against the interest of the beneficiary”.

14    Article 61 provides nine categories of rights of a beneficiary cannot be restricted, even by the trust deed. None of those categories includes a right of a mortgagor or debtor to redeem or repay a debt at any time before it is due. Where there is more than one beneficiary under a trust then, unless the trust deed otherwise provides, the beneficiaries must make any decisions unanimously (Art 71).

15    A trust will terminate by force of Art 98 in any of six specific circumstances, including, relevantly, when the purpose of a trust has been fulfilled or becomes impossible to fulfil, and where a cause of termination occurs that is prescribed in the trust deed (Art 98, 1 and 6). Articles 99 and 100 provide:

Article 99 (Termination of Trust by Agreement)

(1)    A truster and a beneficiary may terminate a trust at any time by agreement: Provided, That the same shall not apply where no truster exists.

(2)    A trust, the benefits of which are wholly enjoyed by the truster may be terminated at any time by the truster, or his/her heir.

(3)    Where the truster, beneficiary or heir of the truster terminates the trust at the time disadvantageous to the trustee without any just reason, the truster, beneficiary or heir of the truster shall compensate for the loss.

(4)    Notwithstanding paragraphs (1) through (3), the deed of trust shall govern, if it prescribes otherwise.

Article 100 (Termination of Trusts by Court Orders)

Where it is evident that terminating a trust coincides with the interests of the beneficiary due to special circumstances unexpected at the time of the deed of trust, the truster, trustee or beneficiary may request the court to terminate the trust.

The trust agreement

16    The trust agreement became effective on 14 March 2018 and an amending trust agreement was registered on 28 August 2018. The amendment occurred because, as Jinho Park, one of KSC’s assistant senior managers explained, KSC had originally arranged to borrow KRW15 billion (about USD13 million) from the Bank for its operation fund on 23 February 2018. KSC had repaid that loan in full by 23 August 2018.

17    The amendments to the trust deed occurred because of a restructuring of the arrangements under which KSC borrowed KRW7 billion from the Bank through the issue of one year bonds. I will describe below the relevant terms of the documents, including the trust agreement, in their form as amended as at 28 August 2018, since it is common ground that those amended documents evidence the rights and interests, if any, that KSC may have in Dangjin. KSC’s bank statements showed on 28 August 2018 that it received the KRW7 billion.

18    The trust agreement identified:

    KSC as first, the trustor, secondly, a beneficiary, and thirdly, the debtor;

    IBK as the trustee;

    the Bank as the preferred beneficiary; and

    Dangjin as the trust property, she being a ship launched on 5 January 1995 and flagged in Korea on 29 May 2008.

19    The trust agreement recited that first, KSC was both trustor and beneficiary and had “trust[ed]” Dangjin to IBK as trustee which had accepted the trust and, secondly, in order for the trustee to grant rights to KSC (as both trustor and a beneficiary), IBK (as trustee) and the Bank (as preferred beneficiary), they “hereby enter into a property trust agreement…as below to define rights and obligations of each party”.

20    The purpose of the trust agreement was to determine necessary terms for Trustor [KSC] to trust a property to Trustee [IBK] and Trustee to collect, supervise, manage, dispose [sic] upon acquisition of Trust” (Art 1). The trust agreement defined (in Art 2):

    beneficiary right as a right to seek payment of trusted property (being the property subject of the trust under the agreement) “and subsidiary right of beneficiary” [sic];

    the initial effective date of the trust as 28 August 2018 as amended from 14 March 2018; and

    debtor as the trustor (viz KSC) “or concern party of Trustor [sic] obliged to provide secured debt to Beneficiary (emphasis added) being limited to KRW9.5 billion.

21    A beneficiary was defined in Art 4(1) as “a party capable of receiving payment from Trust Estate”, comprising both the ship and trust profits earned under the trust agreement (see Arts 2(6) and 10) and that defined term included KSC (Art 4(2)). KSC had a duty to have the trustee’s interest in the ship registered under Art 5. Article 10 defined the scope of the trust estate as:

Trust Estate indicates Trust Property listed on Annex 1 [being Dangjin] and other assets accrued from Trust Property (including but not limited to proceeds from sale of the property in trust, profits from the property in trust, profits from management of money in trust and assets acquired through subrogation. Hereinafter referred as “Trust Profit”.

22    The trust period was, relevantly, from 28 August 2018 to 28 August 2019 unless extended by agreement of KSC, IBK and the Bank (Art 6(1)), but would terminate earlier if, by agreement between KSC and IBK, the latter as trustee disposed of the trust property (Art 7).

23    If KSC, as debtor, defaulted “concerning secured debt”, IBK, as trustee, could require KSC to remedy its default within 5 business days, failing which, the Bank could request in writing that IBK sell the ship and dispose of the other trust property (Art 8(1)).

24    Article 15 gave the trustee the right to be paid a trust fee, but this was also provided in Art 8 of a special agreement made pursuant to Art 26 of the trust agreement (see below).

25    Importantly, Art 17, headed ‘Early Termination and Liability provided:

(1) Trustor shall not terminate Trust Agreement without fault of Trustee except in case agreed by all concerns parties including Trustee and Beneficiary.

(2) Despite Section 1 [scil: Art 17(1)], Trustee may terminate Trust Agreement if it is impossible or remarkably difficult to accomplish purpose of Trust or perform task for Trust and shall not be liable for such termination without fault of Trustee.

26    The terms of the trust agreement could only be varied by agreement in writing by all of the trustor, the trustee and the beneficiaries (Art 18(1)). On termination of the trust agreement, the trustor or beneficiary (viz: KSC) had to pay the trustee’s unpaid fees, expenses to wind up the trust and early termination fee (Art 19(1)).

27    If the trust estate, including Dangjin, became involved in legal proceedings, IBK (as trustee) had to notify, and would consult with, KSC and the Bank, but the trustee had the right to conduct any proceeding (Art 23). As noted above, Art 26 authorised the trustor and trustee to enter into an additional or special agreement.

The special agreement

28    The way in which the translated documents appear, and are phrased, does not distinguish explicitly the creation of what is headed “Special Terms of Trust Agreement” as a separate contract made under Art 26 of the trust agreement only between the trustor and trustee (the special agreement). However, the recital to the special agreement referred to the trust agreement that each of KSC, IBK and the Bank had entered into and then stated that “the parties hereby agree to decide the Special Terms thereof… as below” (emphasis added). The language of the special terms suggests, and I find, that they formed part of the trust agreement, having regard particularly to Art 14, which required each to give notice to the other of KSC, IBK and the Bank, and Art 16, which read, under the heading “Effect of Trust Agreement”, “The Special Terms shall prevail over this Agreement” (emphasis added).

29    Article 3 of the special agreement identified rights of the preferred beneficiary, the Bank, and (as amended on about 27 August 2018) it provided in Art 3(1) as follows:

Scope of debts secured by beneficiary right of the Preferred Beneficiary includes Trustor’s debts for principal and interest of the private placement bond and all other debts of Trustor (Debtor) to the Preferred Beneficiary in present and future under the Contract of Private Placement Bonds dated 27 August 2018 between Trustor and Preferred Beneficiary. (emphasis added)

30    The rights of the Bank as preferred beneficiary prevailed over those of KSC in its capacity as a beneficiary (Art 3(3)). The Bank could require, in addition to its rights under Art 8(1) of the trust agreement, the sale of the trust property (including the ship) before the termination of the trust if KSC defaulted under the “Contract of Private Placement Bonds” (the bond contract) or the value of the security decreased below the debt secured (Art 4).

31    Under Art 6(1) (as amended), the duration of the trust (as amended) was until 28 August 2019 or when the principal and interest due under the bond contract was repaid in full, whichever was later. Article 6(1) continued as follows: “However, notwithstanding other provisions, in the case when the distribution of disposal amount to [the Bank] or others is completed following the disposal of the Trust Estate, Trust shall be terminated(emphasis added). Article 6(2) confirmed that the trust would continue past 28 August 2019 until the full amount owing was paid.

32    Importantly, Art 7 set out the roles of IBK and KSC. It stated that IBK “only handles management task of ownership of Trust Property” (i.e. its function was to hold the trust assets in its name as legal owner) and KSC bore all the expenses and taxes in respect of IBK doing so (Art 7(1)). In addition, Art 7(2) provided that KSC had the duty of maintaining and managing the chartering of the ship, and had to bear all of the debts incurred in respect of any charterparty entered into “during and after terms of Trust Agreement”. Charter hire and profit from managing Dangjin were excluded from forming part of the trust property by Art 7(3). However, as will appear below, those moneys were the subject of the bond contract and associated agreements and became part of the property IBK held on trust. KSC had to notify any party to a charter of Dangjin of the existence of the trust and of IBK’s right to sell her if KSC defaulted (Art 7(4)). KSC also had to obtain the Bank’s consent prior to entering into a charterparty (Art 7(5)).

33    The special agreement (as amended) recorded in Art 8(1) that IBK had received the full amount of fees due to it up to 28 August 2019 and that, if the terms of the trust were extended, KSC and IBK would decide any further fee “by mutual agreement”.

34    Article 10 provided:

Notwithstanding Article 17 of this Agreement, Trustor shall not terminate Trust without an approval from the Preferred Beneficiary. However, in the event that Trustor repays the full amount of debts to the Preferred Beneficiary, Trustor shall terminate Trust with the written consent of the Preferred Beneficiary.

35    The trustee had to notify the Bank and KSC of any relevant events, including legal proceedings, and to cooperate with them in respect of such proceedings (Art 12(1)), but KSC had to bear all the costs of the proceedings and the Bank and IBK could extend the trust period until those costs were paid. In addition, IBK could sell the ship to obtain payment (Art 12(3)).

The bond contract

36    On 27 August 2018, KSC as “Investee Company”, the Bank as “Investor” and ADF Asset Management Co. Ltd as “Asset Management Company”, entered into a private placement bond underwriting agreement, being what I have called the bond contract. Under Arts 10 and 11, the Bank promised to pay KRW7 billion for the bonds that KSC would issue to it on 28 August 2018. The bonds were repayable on 28 August 2019 and carried interest at 6% p.a.

37    Under Art 11, KSC had the right to repay, and the Bank had the right to require KSC to repay, the full face value of the bonds early on 28 May 2019 by either giving 14 days prior notice to the other. Art 11(12c) provided that there were no fees due for early repayment under Art 11(12), but if KSC did not repay the bonds in full, interest would accrue on the amount unpaid at 20% p.a.

38    Interest was payable on the bonds monthly in arrears and, if KSC defaulted, increased to 20% p.a. on any amount not paid when due (Art 11(13)). KSC had to pay the Bank an underwriting commission of 2.5% on the date that bonds were issued (Art 11(14)).

39    If an event of default occurred, the Bank could call for repayment of the whole or part of the bonds under Art 12.

40    Importantly, Art 14(1) required KSC to enter into a trust agreement naming the Bank as preferred beneficiary and using Dangjin as the trust property (as Art 3(1) of the special agreement contemplated) to secure KSC’s obligation to repay principal and pay interest on the bonds. Clearly enough, the parties intended that the existing trust agreement (as amended) would constitute performance of this covenant.

41    In addition, Art 14(2) required KSC to establish a bank account in the name of IBK as trustee into which KSC had to deposit KRW780 million on trust for the Bank on each monthly date for payment of interest, being moneys that KSC earned as “marine freight receivables from charterparties of the ship. In addition, KSC had to assign to the Bank (but not, I interpolate, to IBK as trustee) its rights to any existing and future claims under the insurance policies and P&I Club arrangements for the ship (Art 14(3)). (This was achieved by an assignment agreement that KSC and the Bank entered into at about the time of the issue of the bonds).

42    The bond contract identified that it applied in respect of the existing charterparty for Dangjin that KSC had entered into on 3 July 2018 with Jiangsu Steamship. However, in answer to a notice to produce, that on 31 October 2018 I made returnable on 5 November 2018, KSC produced no other charterparties or documents evidencing that it had informed either the Bank or IBK that it had entered into any other charterparty at any time from when the trust agreement was made originally on about 14 March 2018 to date.

The receivables transactional documents

43    In addition to the bond contract, on 27 August 2018, KSC, IBK and the Bank (called in the recital “Type 1 Beneficiary”) also entered into both a trust monetary receivables contract (the receivables contract) and a special agreement made under Art 26 of the receivables contract (the receivables special agreement). The receivables special agreement substantially modified the receivables contract and, as will appear, gave it a more coherent commercial operation.

44    The receivables contract stated that its purpose was to provide for requirements to deal with the trust principal, being the marine freight receivables from charter revenues earned by the ship referred to in Art 14(2) and (5) of the bond contract up to KRW9.1 billion (Arts 1 and 3(1), (2)). KSC had to place those receivables in trust for the purpose of the receivables contract (Arts 4, 5). KSC or its nominee was the first beneficiary of the trust (Art 6). IBK had to register the trust (Art 8). KSC had to issue a beneficiary rights certificate which was transferable (Arts 9, 10). The trust period was to end on 28 August 2019 or at a date agreed by all of KSC, IBK and the Bank (Art 13). IBK had to pay the balance of the amount in the trust account as KSC directed, net of taxes, legal fees and statutory charges (Arts 14, 17).

45    Article 16 provided that the trust asset (namely the balance of the trust account) had to be paid to the beneficiary on the maturity date of the trust or when the receivables contract was otherwise terminated. IBK was entitled to deduct its fee of KRW10 million from the trust asset or claim payment from the beneficiary (Art 18). (It may be that the translator overlooked a subtle use of the defined expression “Type 1 Beneficiary” – i.e. the Bank – when interpreting the provisions of the receivables contract, but apart from the use of that expression in the recital and in the signature provisions, I could not find any reference to the Bank in it).

46    The receivables special agreement used the same description of the parties as in the receivables contract except that KSC was also called “Type 2 Beneficiary”. The Preamble stated that its purpose was to specify details of the trust pursuant to Art 26 of the receivables contract, and it provided that the terms of the receivables special agreement would prevail where it was inconsistent with the receivables contract.

47    The purpose of the receivables special agreement was to implement the financial transactions necessary to ensure that the Bank received the moneys that KSC had to pay into the trust account in order to repay the principal of the bonds (and, I infer, accrued, but unpaid, interest) (Art 1).

48    Article 2 contained definitions, including of “ship charter contract” which specified, in annexure 1, the 3 July 2018 Jiangsu charterparty, but also extended to include any further charterparties of the ship.

49    KSC had to deposit marine freight receivables (up to KRW780 million per month) in the trust account (Art 3). The funds in that account were to be held on trust for the Bank as the type 1 beneficiary and KSC as the type 2 beneficiary, but KSC could not require any payment to it without the consent of IBK and the Bank (Art 4).

50    The Bank had to pay KRW7 billion directly to KSC as the consideration for it being nominated as the type 1 beneficiary (Art 15). That payment occurred on 28 August 2018.

51    Article 5(1) provided that the trust period was up to 28 August 2019 or the date on which the Bank received full payment of the bonds and interest, whichever was later and it continued: “However, under any circumstances, the trust shall be terminated when the trust asset is fully paid to the beneficiaries (emphasis added).

52    The Bank, as type 1 beneficiary, was entitled to be paid its management expenses and its entitlement of KRW9.1 billion, being 130% of the face value of the bonds from the moneys in the trust account at the end of the trust period or at the time of any other termination (Arts 2(33), 8(2)) in priority to any sum payable to KSC, which was entitled only to the balance of those moneys (Art 8).

53    KSC had to pay KRW780 million into the trust account on the 28th day of each month up to and including 28 August 2019, at which time a total principal sum of KRW9.36 billion would be held in it (Arts 2(36), 15, Annexure 2). IBK could invest those moneys in identified types of securities (Art 14).

54    Article 12 dealt with early repayment if an event of default occurred. Article 29(1) provided for termination of the special receivables contract (and I infer the receivables contract) as follows:

This special contract cannot be cancelled unless there is full and mutual agreement among the trustor, the trustee and the beneficiaries. However, when the full payment of the par value of type 1 beneficiary rights is made, the special agreement shall be terminated on the last payment date, without any separate expression of intention by any party. (emphasis added)

55    I infer that “the last payment date” in Art 29(1) is the date when payment in full has occurred so that nothing is then outstanding. That would be consistent with Art 2 of the Trust Act and Art 3 of the special agreement. To date, KSC has complied with its obligations under the special receivables contract by paying into the trust account the two instalments of KRW780 million that have fallen due thus far.

The expert evidence

56    Both parties relied on written reports by Korean lawyers, but it was common ground that they did not give any admissible evidence as to whether KSC had retained any beneficial interest in Dangjin after transferring to IBK the legal title in her and the right to be registered as owner as occurred on 15 March 2018.

57    Lord Energy’s expert, K M Moon, said that KSC did not retain the right to dispose of the vessel but could only do so with the consent of IBK and the Bank. He said that the proceeds of any sale had to be applied to discharge KSC’s debt to the Bank before KSC could receive any balance in the trust account.

58    KSC’s expert, Sung-Won Kwon, said that the provisions of Arts 98-101 of the Trust Act meant that even if the trust terminated, the trust property remained the beneficiary’s (scil: the Bank’s) property and it could retain it until it had recovered what was due in full. He said that the trustor had no right “on the property” until the debt had been paid in full. He also said that the effect of Art 22 of the Trust Act was to protect the ship from arrest because it was held in trust and that KSC may not” have the right to terminate the trust at its “pleasure”.

KSC’s submissions

59    KSC contended that 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, for the purposes of s 19(b) of the Admiralty Act having regard to the principles in Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12 at 36 [73]-[74] per Tamberlin and Hely JJ; Tisand Pty Ltd v The Owners of the Ship MV Cape Moreton (Ex Freya) (2005) 143 FCR 43 esp at 73-74 [118]-[122] per Ryan and Allsop JJ and Shagang Shipping Co Ltd v Ship “Bulk Peace” (as surrogate for Ship “Dong-A Astrea”) (2014) 314 ALR 230 at 234-235 [18]-[24] per Allsop CJ with whom McKerracher J concurred, 239 [47]-[49] per Rares J.

60    KSC contended that the structure of the various agreements and Korean law in evidence was distinguishable from a transaction comparable to the Anglo-Australian concept of a mortgage in which the mortgagor retained an equity of redemption. KSC argued that both the contractual prohibitions on it from effecting early termination of the trust by repaying the debt in full and the fact that IBK held the ship in trust under the Trust Act, deprived KSC of the right to sell the ship and keep the proceeds of sale.


61    In Bulk Peace 314 ALR at 234-235 [19]-[20], [23], [24], Allsop CJ said:

19 It is now necessary to deal with both the test to be applied for that conclusion, as well as the evidence that has been led. The test in Australia is not in doubt. The concept of the owner has been analysed in a number of cases in this court, all consistent with each other. In Kent v SS ‘Maria Luisa’ (No 2) ((2003) 130 FCR 12); [2003] FCAFC 93, the Full Court dismissed an appeal from Beaumont J, reported at [130 FCR 1]. By majority of Tamberlin J and Hely J, the notion of the owner was dealt with in terms that reflected the discussion in the Australian Law Reform Commission Report No 33, Civil Admiralty Jurisdiction, and reflected the proprietary and property based analysis applied in England, and the refusal to follow Brandon J’s practical view of a ship owning person in Medway Drydock and Engineering Co v Owners of the MV Andrea Ursula (The Andrea Ursula) [1973] QB 265; [1971] Lloyd’s Rep 145.

20 I refer to, in particular, at [61] and following in the reasons of the majority in the Maria Luisa. Nothing I now say should be taken as an attempt to rework anything said by Tamberlin J and Hely J, or Ryan J and myself in Tisand Pty Ltd v Owners of the Ship MV Cape Moreton” (ex “Freya”) (2005) 143 FCR 43; [2005] FCAFC 68 at [100] – [122]. Broadly speaking, and with that caveat, what is required is to show what the evidence says about questions of property, such that it can be concluded that the relevant person has the right both to make physical use of the vessel and to sell and in effect keep the proceeds of a disposition of sale of the vessel. It involves connotations of dominance, ultimate control, and ultimate title. It is not sufficiently reflected in a notion of influence or control. It is the right of dominion and true ownership.

23 … an arresting party needs to be able to demonstrate ownership of a surrogate ship by the relevant person, not merely a degree of control, even a high degree of control, over the commercial disposition of the ship.

24 Mr Justice Brandon pungently put it in the Andrea Ursula that shipping was not conducted by equity lawyers, but “shipping men”. He asked where the money went. (emphasis added)

62    In my concurring judgment, with which the Chief Justice also agreed, I said (314 ALR at 239 [47]-[49]):

47 … the concepts of owner, and ownership, of property were, as the Chief Justice has discussed, explored in great detail in, among other cases, Tisand Pty Ltd v The Owners of the Ship MV Cape Moreton (Ex Freya) (2005) 143 FCR 43. There, Ryan and Allsop JJ explained that notions of “property” and “ownership” were not amenable to crisp, comprehensive definition in the abstract and that, in the context of s 19(b), they involve the possession and enjoyment of dominion over, and power or right to dispose of, a chattel of a kind that is usually engaged in a commercial enterprise. They said (at 143 FCR at 73 [119]) that in that context, “the word ‘ownership’ or ‘owner’ connotes the right or power to have and dispose of dominion, possession and enjoyment of the ship, subject, of course, to intervening interests”.

48 There is a distinction between the notion of the control as an incident of ownership that is, or is able to be, exercised by a person who, in fact, has dominion over property from the control over a company that owns the property that is, or is able to be exercised, by a person who is in the position of an actual or a shadow director or a holding company: see the discussion in Ho v Akai Pty Ltd (In Liq) (2006) 24 ACLC 1526 at [21], [73]-[75] per Finn, Weinberg and Rares JJ.

49 As the Chief Justice has indicated, it is important to ensure that a creditor who seeks to invoke the court’s exercise of its jurisdiction to arrest a vessel and compel a person who is, relevantly, the beneficial owner of the vessel to meet its obligations does not invite the court to do so on insufficient or inexact evidence. Nor is it appropriate for a creditor to use the power to arrest a vessel as a mere opportunity to seek subsequently to engage in a fishing expedition to determine whether, later, enough evidence to justify the arrest will emerge if it can be obtained by the Court’s compulsory processes. (emphasis added)

63    In my opinion, the qualification “subject, of course, to intervening interests”, that Ryan and Allsop JJ used in describing the connotation of “owner” or “ownership” for the purposes of s 19 in the passage (314 ALR at 239 [47]) that I quoted above (Cape Moreton 143 FCR at 73 [119]), necessarily referred to interests such as that of a mortgagee or other person who held a legal or equitable interest in the ship, not amounting to beneficial ownership, whose rights had to be respected in effecting a disposition of the ship. After all, many proceedings in rem involving general maritime claims under ss 17, 18 and 19 of the Admiralty Act would concern commercially operated ships over which lenders would hold security interests whether by registered or unregistered ship’s mortgages or fixed or floating charges or other security.

64    After all, the Parliament must have appreciated that the rights of an “owner” as used in ss 17, 18 and 19 and in the cases that have considered its meaning, necessarily can be circumscribed by restrictions imposed on that person by contract or under securities that have the prima facie effect of prohibiting the person from selling the ship without either the secured lender’s consent or repaying the secured debt in full. However, those restrictions are not usually interpreted by courts or commercial parties as precluding the person from entering into a contract to sell the asset on the basis that, at the time of completion, the proceeds of the sale will be applied, first, to discharge the secured debt in full, and only then would any balance be payable to the vendor. The inherent loss of control of a person’s unfettered right to sell a previously unencumbered asset when the person gives security over it, does not, as a matter of law, negate the right or power of the person to dispose of the asset in order to realise sufficient to pay out the lender in full and thus relieve himself, herself or itself of the secured debt associated with ownership of the now charged asset.

65    Here, the transaction documents in evidence demonstrate that, consistently with the purpose of a trust in Art 2 of the Trust Act, KSC created a security interest for the benefit of the Bank under Korean law, in the form of the trusts over Dangjin and the marine freight receivables, to ensure that KSC would repay the secured debt and interest. Under those arrangements, KSC retained possession of Dangjin and the right to control her operation and trading. However KSC also assumed an obligation to pay KRW780 million per month into the trust account, because the revenue that it earned from its business of carrying freight on Dangjin was impressed with a trust obligation up to that sum each month.

66    The various transaction documents all expressly contemplated that KSC could repay the Bank in full before 28 August 2019, and as Art 6(1) of the trust agreement provided, the trust would terminate notwithstanding other provisions when distribution of the disposal amount, relevantly to the Bank, occurred following disposal of the trust estate (see Arts 6(1), 8(1) and 10 of the special agreement and Arts 5(1) and 29(1) of the receivables special agreement).

67    No doubt the Bank and IBK, as trustee and legal owner of the ship, would have to consent to early repayment and cooperate with KSC in providing documents to effect a transfer of ownership on completion of any sale of the ship that KSC might arrange. However, under Arts 31-35 of the Trust Act, IBK had to act solely in the interests of the beneficiaries with fiduciary care as a good administrator. Once the Bank ceased to have a financial interest to secure through the trust (after repayment in full), IBK would only have a fiduciary duty to act in KSC’s interest.

68    Importantly, Art 8 of the special agreement recorded that IBK had already been paid all its fees due up to 28 August 2019, so that nothing would be due to it (cf. Art 99 of the Trust Act).

69    While theoretically the Bank might refuse an early repayment in full, that outcome is so commercially unlikely that I am not persuaded that the possibility could negate a finding that KSC had the right to sell its own ship. In the event of such an unexpected outcome, KSC could apply to the Korean courts under Art 88(3) of the Trust Act to modify the trust.

70    All the transaction documents contemplated that at the end of the trust and agreement periods, when KSC repaid what it owed to the Bank in full, the legal title in the ship would revert to KSC. The purpose of the trust (consistently with Art 2 of the Trust Act) was to hold the ship (and the marine freight receivables) as security for KSC’s performance of its obligations under the bond contract to pay the Bank the debt and interest that the transaction documents secured (see eg: Art 8(1) of the trust agreement and Art 3(1) of the special agreement). As Art 10 of the special agreement and Art 29(1) of the receivables special agreement provided (see too the other provisions to which I refer at [66] above), if KSC repaid the full amount due to the Bank, KSC could terminate the trust then and there. There is no basis to think that in such a case the Bank had a legal right to withhold consent or, even if it did have such a right, it could exercise it to interfere with or prevent KSC from completing a sale of the ship.

71    Moreover, there was nothing in the transaction documents to restrict KSC, for example, from arranging a sale of the ship, prior to the termination of the trust, that either would be completed on 28 August 2019 in order to enable KSC to make final payment or after the termination of the trust.

72    I am of opinion that KSC was the beneficial owner of Dangjin. Its interest, as the residuary beneficiary under the trust, was comparable to that of a mortgagor of land holding the equity of redemption. As Lord Hardwicke LC said in Casborne v Scarfe (1735) 1 Atk 603 at 605 [26 ER 377 at 379], in a passage approved by Lord Selborne LC, Baggallay and Brett LJJ in Heath v Pugh (1881) 6 QBD 345 at 360 (affirmed Pugh v Heath (1882) 7 App Cas 235) and by Cohen J in Schmeling v Stankovic (1984) 1 BPR 1 at 3:

The person….entitled to the equity of redemption is considered as the owner of the land… the interest in the land must be somewhere and cannot be in abeyance, but it is not in the mortgagee and, therefore, must remain in the mortgagor.

73    Here, Art 7 of the special agreement made clear the respective roles of IBK as trustee and KSC. IBK’s role was simply to hold the legal title in the ship, while KSC was free to operate it, as it chose, as its own commercial, income earning chattel. As Lawrence LJ explained in In re Sir Thomas Spencer Wells: Swinburne Hanham v Howard [1933] Ch 29 at 52 (see too per Lord Hanworth MR at 45 applying Casborne 1 Atk 603; and City Mutual Life Assurance Society Ltd v FCT (1948) 77 CLR 363 at 367 per Williams J):

In equity the right of the mortgagee is limited to the money secured and he holds the land only as security for his money…although he has the legal estate in the land… In equity the mortgagor is regarded as the owner of the mortgaged land subject only to the mortgagee’s charge

74    Once the sum secured by a mortgage is paid in full, the purpose for the provision of the security is at an end: Noakes & Co Limited v Rice [1902] AC 24 at 34 per Lord Davey; see too at 30 per Lord Macnaghten. The same concept is evident in Art 2 of the Trust Act.

75    Under Australian law, it would be essential to look at the substance of the transactions and not their mere form: G and C Kreglinger v New Patagonia Meat and Cold Storage Company Limited [1914] AC 25 at 47 per Lord Parker of Waddington; see too Ciaglia v Ciaglia (2010) 269 ALR 175 at 180 [12]-[13] per RW White J. I have done so here only after finding what the effect of the transaction documents is under Korean law in order to characterise the interests of KSC, the Bank and IBK for the purposes of applying Australian law.

76    On their face, the transaction documents contemplated that the trust would continue until 28 August 2019 (or to 28 May 2019 if there were early repayment under Art 11(12) of the bond contract) or when KSC repaid in full. If KSC had repaid the sum secured in full, there was no evidence of how Korean law would have treated its position. In my opinion, common sense, Arts 2 and 31-35 of the Trust Act and the presumption that, in the absence of evidence to the contrary, the foreign law is the same as that of the lex fori, support a finding that Korean law would have treated KSC as the owner and would not have prevented it from selling the ship and receiving the proceeds. Thus, for the purposes of s 19(b), KSC is the owner of Dangjin.

77    KSC had real and complete control of the ship, how she operated and where she sailed. It only owed money to the Bank whose sole interest, in combination with that of IBK, was having security over the ship and the marine freight receivables until KSC repaid its secured debt in full.


78    For these reasons, I find that KSC was the owner of Dangjin on 26 October 2018 for the purposes of s 19(b) of the Admiralty Act and the Court therefore has jurisdiction. KSC must pay Lord Energy’s costs of this jurisdictional issue.

I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.


Dated:    12 November 2018


NSD 1982 of 2018