Article

Note: Shagang Shipping Co. Ltd. (Owner/ Beneficiary) chartered the ship Dong-A Astrea (First Ship), under a long-term charter agreement to Grand China Shipping Co. Limited (Charter Party). Charter Party caused HNA Group Co. Ltd. (Guarantor) to execute a performance guarantee for the benefit of Owner, in which it assumed due and faithful performance of Charter Party's obligations of the charter agreement. Following Charter Party's failure to make hire payments for use of First Ship, Owner demanded that Guarantor undertake Charter Party's obligations in accordance with the performance guarantee.

When neither Charter Party nor Guarantor made payments to Owner, Owner made application, which was granted, to arrest Bulk Peace (Second Ship) as a surrogate ship pursuant to §19 of the Admiralty Act 1988. Second Ship had two owners: Well Far, the registered owner, and Grand China Logistics, the beneficial owner. Guarantor possessed controlling shares and had influence over Grand China Logistics.

The Federal Court of Australia, General Division, Allsop, CJ, ruled that Guarantor's possession of controlling shares and influence over an independent company, Grand China Logistics, was not sufficient to infer, "even tentatively, that [Guarantor] owned [Second Ship]." The court ruled that the relevant test of ownership is whether Guarantor had "the right of dominion and true ownership," and that influence or control is not sufficient to establish dominion.

The Judge ruled that evidence that only indicates how a group is run does not satisfy the ownership requirement of §19(b) of the Admiralty Act nor does it establish Guarantor's ownership of Second Ship as a tenant in common with Well Far. Absent evidence that Guarantor owned Second Ship, Owner's application for a warrant for the seizure of Second Ship as a surrogate in place of First Ship cannot be sustained.

Text of Performance Guarantee:

"In consideration of your execution of a certain charter party (hereinafter called 'the CP') dated the 6th day of August, 2008 for the time charter of deadweight 179,500DWT Class Bulk Carrier having Hull No. 2106 OR S 471 (hereinafter called the 'Vessel') with Grand China Shipping (Hong Kong) Co., Ltd., (hereinafter called the 'Charterer'), we, HNA Group Co., Ltd, a corporation organized and existing under the laws of People's Republic of China, having its registered office at 29, Haixiu Rd., Haikou City, Hainan Province, People's Republic of China, the undersigned as a primary obligor and not as a surety merely, hereby absolutely and unconditionally guarantee to you, your successors, or asignees [sic], the due and faithful performance and fulfillment by the Charterer of all the terms, and its assignee in the event of assignment of the CP, and conditions in the CP and any supplement, amendments, changes or modifications which may hereafter be made thereto." "The performance guarantee also went on to state that, in the event that the charterer failed to perform its obligations under the charterparty, written notice could be given by Shagang, and HNA agreed to take over the position of charterer under the charterparty, and perform the charterparty as charterer."

Comment: This underwriting appears to be and is treated by the court as a dependent guarantee notwithstanding the term, "as a primary obligor and not as a surety merely, hereby absolutely and unconditionally guarantee to you, your successors, or asignees [sic]."

[MJS]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.