Silver Sen Navigation Inc. v. Xiamen Sheng Li Economy and Trading Development Co. and Another

HCCL000110A/1996

HCCL110/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.110 OF 1996

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Coram: The Hon Mr Justice Stone in Chambers

Date of Hearing: 29 September 1998

Date of Handing Down Judgment: 21 October 1998

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J U D G M E N T

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The Application

1. This is an application against the 2nd Defendant for summary judgment pursuant to the Plaintiff's summons dated 9th April 1998. The Plaintiff's claim is for judgment under two Guarantees in the respective sums of US$44,988.78 and US$415,226.43, together with interest and costs, alternatively, for interlocutory judgment with damages to be assessed.

The Factual Background

2. The Plaintiff's claims against the 2nd Defendant as guarantor of the 1st Defendant's liability to pay freight under two charterparties, both of which relate to the carriage of cargoes of granite from China to Dubai in late 1993 and early 1994. Although simply so stated, the underlying documentation is a little more complex.

(a) First Charterparty and First Guarantee

3. The Plaintiff entered into the First Charterparty with one Xiamen Hu Li Long Sheng Enterprises Company Limited ("Long Sheng") in respect of the M.V. "Silver Sen" on 5th October 1993, and on 20th October 1993, the Plaintiff further entered into a Freight Payment Agreement with Long Sheng. Also on 20th October 1993 a written guarantee (the First Guarantee) was purportedly issued on behalf of the 2nd Defendant in respect of Long Sheng's freight payment obligations. Both the First Charterparty and the first Freight Payment Agreement were apparently novated on 10th November 1993 so that the 1st Defendant became the charterer in lieu of Long Sheng, to which novation the 2nd Defendant purportedly consented on 12th November 1993. The commercial purpose of these contracts was to facilitate the performance by the 1st Defendant of a Sale Contract dated 12th November 1993 it had entered into with one Powin International Limited.

(b) Second Charterparty and Second Guarantee

4. On 11th December 1993 the Plaintiff entered into a second Charterparty with the 1st Defendant in respect of a vessel to be nominated, and on the same date the Plaintiff entered into a second Freight Payment Agreement with the 1st Defendant.

5. The Second Guarantee was purportedly issued by the 2nd Defendant in respect of the 1st Defendant's payment obligations thereunder, and it is the alleged obligations under this Second Guarantee (the sum claimed being crystallised at US$415,226.43), which has occupied the bulk of the argument on this application.

6. It is worthy of note, as indeed Mr Shieh for the 2nd Defendant emphasized in the course of his submissions, that the Charterparty between the Plaintiff and the 1st Defendant contained a Hong Kong arbitration clause and a choice of English law clause, the Freight Payment Agreement entered into between the Plaintiff and the 1st Defendant contained a Hong Kong choice of law and jurisdiction clause, and that the Guarantee in question, which Mr Shieh termed essentially "a handwritten homemade document", contained nothing in terms of a choice of law clause or a choice of jurisdiction clause.

7. I turn now to consider the precise manner in which the application was presented.

The Scope of the Argument

8. A perusal of the pleadings as they are presently constituted leads to the immediate reaction that there appear to be triable issues in this case. Certainly, the primary issues of illegality and absence of capacity under Chinese law of the 1st Defendant to enter into the contracts in question, and the lack of authority of the person purportedly executing the Guarantees on behalf of the 2nd Defendant, seemed to me to be insurmountable hurdles for the Plaintiff for the purposes of Order 14.

9. I also observe at the outset that the Statement of Claim is dated 19th April 1996 and the Defence of the 2nd Defendant 29th July 1996, so that under the rules the pleadings would have been deemed closed in the summer of that year. Yet notwithstanding both the pleaded Defence and the date thereof, this Court is now faced with an application for summary judgment, some two years later.

10. However, Mr Clifford Smith for the Plaintiff, was undeterred. He accepted, correctly in my judgment, that absent his argument on estoppel, there were indeed matters in this case which gave rise to issues requiring to be resolved at trial; in other words, said Mr Smith, the only real question on this application is whether the Plaintiff could successfully rely upon the "estoppel point", which he developed in terms of the concept of approbation and reprobation.

11. This particular argument arises thus, and, it should be noted, is relevant only to the Second Guarantee. The Plaintiff had commenced proceedings against the 2nd Defendant in the Xiamen Maritime Court in September 1994, and in those proceedings the 2nd Defendant had challenged the jurisdiction of that Court, relying upon the exclusive Hong Kong jurisdiction clause in the Freight Payment Agreement which, together with the Second Guarantee, was part of the documentation underlying the Second Charterparty. In this context, Mr Smith referred me in particular to the Plaintiff's Statement of Claim in the Xiamen proceedings, the 2nd Defendant's Notice disputing the jurisdiction, the judgment of the Xiamen Court rejecting the jurisdiction argument and the 2nd Defendant's Notice of Appeal against that decision, together with the Appellate Court's judgment in respect of the 2nd Defendant.

12. The broad thrust of Mr Smith's able submission was that, having obtained a stay of the Xiamen proceedings on the grounds that the Plaintiff and the 2nd Defendant had mutually agreed to Hong Kong jurisdiction, it was not now open to the 2nd Defendant to gainsay the validity of the very contracts on which it previously relied, and that by having obtained an advantage by asserting and relying on both the Guarantee and the Freight Payment Agreement, the 2nd Defendant "is and was estopped by the doctrine of approbation and reprobation from asserting the invalidity of the agreements in order to gain a further advantage".

13. Mr Smith sought to make the submission good by reference to a number of authorities dealing with the concept of approbation and reprobation, and also went on to submit that although in the circumstances the estoppel argument applied only to the Second Guarantee, nevertheless in terms of the First Guarantee the Court was invited to conclude that, having regard to the 2nd Defendant's conduct in relation to the Second Guarantee, "the defence is at best shadowy" in relation to the First Guarantee and that unconditional leave to defend ought not to be granted.

14. I think it fair to say, however, that this latter submission, although not specifically retracted, was not pressed with any degree of enthusiasm, and that the real focus of Mr Smith's submissions was aimed towards obtaining judgment under the Second Guarantee in the sum of US$415,226.43, there being no argument raised in this case as to the mathematics in terms of the unpaid freight due from the 1st Defendant to the Plaintiff.

15. In response, Mr Paul Shieh for the 2nd Defendant, in a precise and thoughtful address, made, I think, two fundamental points in opposition to the approbation/reprobation line of argument :-

16. First, and what he termed his 'killer' point, was that since the 2nd Defendant asserts that both the Second Charterparty and the Second Freight Agreement are illegal and ultra vires under PRC law, the lex causae, their validity is unaffected by a plea of estoppel; or, to put the argument another way, where the objection goes to vires, then the estoppel asserted cannot give the transaction a status which by law it cannot otherwise have; and

17. Second, in the Chinese proceedings the 2nd Defendant did not assert or rely upon the validity of the entire Second Charterparty or Second Freight Payment Agreement; all that the 2nd Defendant had done was to rely upon the exclusive jurisdiction clause, and that such reliance did and does not necessarily mean that the 2nd Defendant in the Chinese litigation asserted the validity of these contracts. In other words, what has occurred, and the stance adopted in this case by the 2nd Defendant, falls "on the right side of the line" as drawn in the well-known case of Mackender v. Feldia A.G. [1967] 2 QB 590.

18. In addition to these two major points, Mr Shieh further submitted that for the 2nd Defendant to be estopped from asserting that the Guarantee itself was invalid for want of authority, it was incumbent to demonstrate that the 2nd Defendant had asserted to the contrary and had derived a benefit therefrom, whereas the mere making of a plea is not enough to found an estoppel. Moreover, no estoppel could in any event arise from the first instance judgment in China (which went against the 2nd Defendant), whilst the PRC judgment focused exclusively upon the choice of forum clauses in the Second Charterparty and the Second Freight Payment Agreement, and it was clear on the documents that the PRC Court did not rely nor make any finding as to the validity or binding nature of the Guarantee.

19. Accordingly, looked at in the round, said Mr Shieh, there was no basis on which any alleged estoppel could operate against the 2nd Defendant so as to preclude it from challenging the vires, or legality of the Second Contract of Affreightment, and the lack of authority in the execution of the Second Guarantee. Whilst so far as the First Guarantee was concerned, the Plaintiff had not come close nor had properly attempted to make good the submission relating to the allegedly "shadowy" First Guarantee.

Decision

20. I remind myself of the general principles relating to Order 14 applications, and also in this context of the observations of the Court of Appeal as to the correct approach to be adopted : see Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225. In particular, I choose at this stage to express no concluded view upon the merits of the arguments raised; as Litton J.A. pointed out in Man Earn, op.cit., any such observation would be "unnecessary and otiose", and serve only to fetter the trial judge.

21. After hearing the wide-ranging argument on both sides, buttressed in each case by reference to a number of leading authorities, I am quite unable to conclude that the defence put forward by the 2nd Defendant is or can be categorised as "frivolous and practically moonshine", to adopt the terminology used by Godfrey J.A. in Man Earn, op.cit. To the contrary. Notwithstanding Mr Smith's capable efforts in taking the only line which appears to have been open to him in order to get this application off the ground, in my view it is very difficult successfully to contend that the 2nd Defendant's case (both on the pleadings and in response to the approbation/reprobation argument) is not arguable, and I confess to being surprised that this application has been forced to a full hearing.

22. In the circumstances it is also unusual that the estoppel or approbation/reprobation argument remains unpleaded, there being no Reply to the Defence, which was filed on 29th July 1996. So that, given Mr Smith's concession that, absent the estoppel argument, there would indeed be a triable issue (or issues), the Plaintiff's application for summary judgment has proceeded entirely upon an aspect of this case on which the pleadings are silent, when the Court (and indeed the Defendant) might reasonably have expected to see a precise formulation of a plea of this nature in circumstances in which the Chinese proceedings (which were issued on 19th September 1994) antedated the claim in this litigation (writ issued on 20th April 1996). And although Mr Smith met this observation by arguing that in Order 14 proceedings pleadings are as a matter of course not fully constituted, this seems to me in circumstances such as these to be a less than satisfactory response; in such 'normal' situations the Plaintiff's case at least is pleaded, and verified on affidavit, and such situations are far removed from the present where the Plaintiff's sole argument in favour of Order 14 has yet to be addressed on the pleadings.

23. Which brings me to the issue of delay, albeit this was a point specifically eschewed by Mr Shieh. The pleadings were deemed closed well over two years ago, and the Order 14 Summons was issued on 9th April 1998, just 11 days shy of the second anniversary of the Writ. Mr Smith had no instructions as to the reason for the delay, and in fact was constrained to accept that, with reasonable dispatch, the case could have been brought to trial by now; indeed, I note from the file that in this case in August 1996 security for costs was awarded by Mr Justice Woo up to and including the stage of a then anticipated Order 14 hearing, and to be dealing with such a hearing some two years down the line seems to me to be bordering on the absurd. Had the delay point been taken, I may well have been sympathetic given these particular circumstances, but in the event, in light of Mr Shieh's stance on the issue, I chose to hear the application in full. In my view, however, it cannot be said too often that the function of Order 14 is to facilitate the prompt dispatch of genuinely unarguable claims; in my experience, few cases attain this benchmark and this case, in my judgment, manifestly is not one of them.

24. My Order on this application, therefore, is as follows :-

1. The Plaintiff's summons dated 9th April 1998 is dismissed.

2. There will be an Order nisi that the Plaintiff do pay the Defendants the costs of and occasioned by the Order 14 application, to be taxed if not agreed.

25. I thank Counsel for their assistance.

Representation:

Mr Clifford Smith, inst'd by Ince & Co., for the Plaintiff

Mr Paul Shieh, inst'd by M/s Clifford Chance, for the 2nd Defendant