Hanjin Rehabilitation. Claims by Owners and the UK Recognition Order

 

 

As well as having its own vessels, Hanjin is also believed to have time chartered a substantial number of vessels. It is a good bet that many of those charters will be subject to London arbitration and English law. The Hanjin collapse will see those shipowners making claims against Hanjin, such as for damages for the unexpired residue of the charters following their termination, (an issue on which the Court of Appeal’s decision in Spar Shipping is eagerly awaited).

Shipowners will also seek to claim against third parties connected with Hanjin, by exercising liens on sub-freights against parties who have sub-chartered from Hanjin, or by claiming freight due under shipowners’ bills incorporating the terms of those sub-charters. The mechanism for making such claims is by giving notice to the sub charterer or to the bill of lading shipper that payment is to be made to owners and not to Hanjin, and hoping that the freight hasn’t already been paid. However, the basis of the two types of claim is quite different. The nature of the lien on sub freights has not been definitively ascertained under English law, but the better view is that the lien operates as an equitable assignment giving  rise to a floating charge over the charterer’s asset, its contractual right to sub-freights. The claim to freight under the bill of lading on the other hand is a claim under a separate contract between the shipowner and the shipper.

Following the rehabilitation proceedings in South Korea (which are similar to US Chapter Eleven proceedings), recognition orders have been obtained in various jurisdictions including the UK. Under article 20(1) of the UNCITRAL Model Law, which is given the force of law by the Cross-Border Insolvency Regulations 2006, there will be then be an automatic stay of certain actions, such as commencement or continuation of actions or proceedings against the debtor or its assets, or execution against a debtor’s assets. The stay will effect any arbitration proceedings against Hanjin, or its sub-charterers against whom the lien on sub-freights has been exercised. However, article 20 (6) provides that the court has power to modify or terminate the automatic stay and to do so upon such terms and conditions as it thinks fit. Article 20(2) requires the court to apply the same test and principles as it would apply to the stay of a winding up order under section 130(2) of the Insolvency Act 1986 which gives the court a free hand to do what is right and fair according to the circumstances of each case. The stay will usually be lifted when disputed claims need to be resolved by proceedings and it is right and fair in all the circumstances to accept and implement this need.

Last year in proceedings arising out of another set of rehabilitation proceedings involving a South Korean charterer, Re Pan Ocean Co. Ltd Pan Ocean); subnom another  v. Pan Ocean Co Ltd and another [2015] EWHC 1500 Ch, the discretion was exercised in favour of allowing arbitration proceedings to continue, although the owners’ application to the Company Court was made however on the basis that they would not seek to enforce any arbitration award or subsequent judgement against the assets of Pan Ocean. This follows a similar result in Cosco v Armada [2011] EWHC 216 (Ch), a case involving a recognition order of Swiss bankruptcy proceedings against a time charter. Briggs J allowed the stay to be lifted in respect of owners’ arbitration proceedings against sub-charterers, pursuant to the lien on sub-freights. This was subject to a condition that after an award in owners’ favour had become final, charterers should have the opportunity to restore the matter to the court, in the event that any aspect of the interests of its creditors or office-holder have not been addressed by the arbitrators, or upon appeal.

However, a claim to freight under the bill of lading, as a contractual claim against the shipper, should not be affected by the recognition order unless the freight exceeded the amount of owners’ claim in which case the surplus would be held on account of the time charterer.

As a post-script it may well be that under South Korean insolvency law the rehabilitation proceedings will not affect the exercise of a lien on sub-freight. This was the position in The Bulk Chile [2012] EWHC 2107 (COMM). It was there argued at first instance that the lien on sub freight was subject to the Comprehensive Stay Order, designed to suspend creditors’ compulsory enforcement, which is defined in article 44 of the Debtor Rehabilitation and Bankruptcy Act as meaning, among other things, “the compulsory auction sale proceedings for the execution of security interests”. Andrew Smith J heard conflicting evidence from South Korean lawyers on this and concluded that the Stay Order did not affect the exercise of the lien. He stated [69]:

“Mr Kim’s suggestion of such a purposive construction of the statute is advanced in tentative terms. “Mr Choi firmly rejected it in a report in response dated 22 June 2012, and cited in support of his opinion the views of the Bankruptcy Division of the Seoul court published by them in “Practice in Rehabilitation Cases”. His opinion is in line with a decision of the Seoul court of 21 December 2011 in case no 2011 Hoehwak 382.” I cannot accept that Mr Kim’s suggestion represents the present state of Korean law, and I conclude that the orders of the Seoul court afford the defendants no answer to the lien claims. I uphold the lien claim against Metinvest.”

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s