The Owners of the Ship "Kafur Mamedov" v. The Owners and/or Demise Charterers of the Ship "Goldpath"

HCAJ000303/1995

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Admiralty Action in Rem against the ship "GOLDPATH"

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Admiralty Action in Rem against the ship "KAFUR MAMEDOV" and the 68 ships or vessels as set out in the Schedule "A" annexed hereto

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Coram: The Hon. Mr. Justice Waung in Court

Date of Hearing: 15th January 1996

Date of Handing Down of Judgment: 6th February 1996

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JUDGMENT

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1. By the Motion in AJ 303 of 1995 and the Motion in AJ 444 of 1995, the Owners of the Vessel Goldpath applied for extension of time under section 8 of the Maritime Conventions Act 1911. The said Owners of Goldpath are the Defendants in AJ 303 and the Plaintiffs in AJ 444. I will hereinafter refer to the Owners of Goldpath as the Defendants. The Owners of the Vessel Kafur Mamedov are the Plaintiffs in AJ 303 and the Defendants in AJ 444. I will call the Owners of Kafur Mamedov hereinafter as the Plaintiffs. The Motions of the Defendants for extension of time are resisted by the Plaintiffs.

2. On the 23rd of August 1993, the Plaintiffs' ship Kafur Mamedov was involved in a collision with the Defendants' ship Goldpath in Hong Kong waters. There followed correspondence between Solicitors for the Plaintiffs. Messrs Richards Butler ("RB") and Solicitors for the Defendants, Messrs Crump ("Crumps") on the question of securities to be furnished by each party to the other in respect of the mutual claim one party has against the other arising out of the collision between the 2 vessels. The discussion went on from September 1993 to April 1994. In April 1994, the Defendants offered to settle on a drop hands basis but the Plaintiffs rejected that offer, believing that the Defendants were more to blame for the collision and that the Plaintiffs were entitled to receive money from the Defendants in respect of the damage arising out of the collision. Further correspondence then ensued including without prejudice negotiation for the overall settlement between the parties. The Plaintiffs made an offer to the Defendants entailing some payment to the Plaintiffs. When there was no response from the Defendants, by faxes dated 7th and 24th February 1995 written on a without prejudice basis, RB for the Plaintiffs chased Crumps for the Defendants' proposal as to security required by the Plaintiffs and RB said that if nothing was forthcoming from the Defendants' side then the Plaintiffs would have no alternative but to take whatever action they deemed necessary to protect their interests. By Fax dated 24th February 1995, Crumps said that they were still taking instructions from the Defendants and as soon as there was a response from the Defendants, Crumps would get in touch with RB. Thereafter Crumps never got in touch with RB. In June 1994, Crumps were instructed by their clients, the Defendants in the form of People's Insurance Co of China. Shenzhen Branch, not to commence proceedings and apparently such instruction was not replaced by later contrary instruction and in the circumstances. Crumps did not issue any Writ against the Plaintiffs or their ships. It is to be noted that the Plaintiffs were owners of a large fleet of over 60 vessels which came regularly to Hong Kong and so the Defendants if they wished to, could at any time in 1994 or 1995 issue a writ against the Plaintiffs and arrest one of the vessels of the Plaintiffs. This was not done because of the instructions given that no proceedings should be commenced by the Defendants against the Plaintiffs. On 22nd August 1995. RB for the Plaintiffs issued the Writ in Rem in AJ 303 of 1995 against the Defendants. The reason that RB had to issue the Writ in AJ 303 on 22nd August 1995 was because that was the last day before the time under the Maritime Conventions Act 1911 would expire.

3. Maritime Conventions Act 1911 (hereinafter referred to as the "Act") as an imperial statute is applicable to Hong Kong by virtue of section 9 of the Act and pursuant to section 4(1)(b)(ii) of the Application of English Law Ordinance (Capt. 88). The Act brought about the major change in the apportionment of liability in respect of collisions between ships. Section 8 introduced for the first time an entirely new period of time limitation for institution of collision proceedings and provides for a 2 year period for the bringing of proceedings against the other colliding vessel (see notes to section 8 at pages 345-8 of Temperley on The Merchant Shipping Acts. 7th edition by Thomas & Steel). Section 8 provides:-

This present application by the Defendants for time extension had been made necessary because whereas the Plaintiffs had issued their Writ in time, namely before the 2 year period under section 8 of the Act expired, the Defendants did not and therefore the Defendants' counterclaim against the Plaintiffs was and is time barred, unless extended by the Court.

4. After the collision, the vessel of the Defendants. Goldpath visited Hong Kong on the 8th June 1994 but the Plaintiffs did not arrest her as it was then believed to be likely that the Defendants would be providing security for the Plaintiffs' claim and the parties were engaged in settlement discussion during that period. After the June 1994 visit, the vessel Goldpath did not revisit Hong Kong until 28th November 1995 when she was arrested by the Plaintiffs' in this AJ 303 Action. Thereafter the Defendants, took three steps. The first step was to issue on 5th December 1995 its Writ in Rem in AJ 444 against the Plaintiffs' ship Kafur Mamedov and her 68 sisterships. The second step taken by the Defendants was to file on 12th December 1995, their counterclaim in AJ 303 by counterclaiming against the Plaintiffs in the Preliminary Act lodged by the Defendants. The third step of the Defendants was to apply by the present two Motions for extension of time under section 8 of the Act.

5. At the hearing before me, the matter was argued by Mr. Thomas for the Defendants and Mr. Fok for the Plaintiffs on the basis that unless the Court grants extension of time, the Defendants would not be able to advance their claim for damages against the Plaintiffs. It was assumed by the parties that the Counterclaim which the Defendants wish to bring against the Plaintiffs, is subject to section 8 of the Act and that therefore if time was not extended by the Court under section 8 of the Act, the Counterclaim now in AJ 303 and the claim in the Writ in AJ 444 would be struck out or stayed on the basis that the claims therein are not properly maintainable.

6. Whether the Court should make an order under section 8 of the Act depends on:-

In the course of the hearing, the arguments really turned on only Issue (2) above. There was no dispute on the law under Issue (1) and if the Court is satisfied that there was good reason under Issue (2), the balancing exercise under Issue (3) was not a matter of much controversy before the Court. The real debate was in respect of whether good reason had been shown by the Defendants under Issue (2).

7. For the applicable legal principle as decided by the authorities, the parties referred me to Al Tabith [1995] 2 LI. R. 336 a case involving a collision where one party failed to issue its writ in time despite an extension of time given earlier, where the court refused to grant a time extension under section 8 of the Act. The refusal to grant extension of time was on the basis that no good reason had been shown since a mistake by the party which failed to issue the writ in time was not a good reason. By a series of decisions from Kleinwort Benson v Barbrak Ltd. (the Myrto) (No. 3) [1987] A.C. 597, Waddon v Whitecroft [1988] 1 W.L.R. 309, Baly v Barrett [1988] N.I. 369 to Dagnell v Freedman [1993] 1 W.L.R. 388, in relation to extension of time for validity of writ under Order 6 Rule 8, the House of Lords developed the principle and laid down what in effect was the two stage test of, requiring good reason to be shown for extending time in stage one and giving to the court the discretion to consider the balance of hardship under stage 2. That there is a two stage test is put beyond question by Lord Brandon in Baly v Barrett where he said at page 417 that:-

"....In the Waddon case the House corrected an apparent misunderstanding .... by emphasising that the question of the balance of hardship between the parties can only arise if matters amounting to good reason for extension, or at least capable of so amounting, have first been established. In that case the balance of hardship between the parties may be a relevant factor in the exercise of the court's discretion. But if no matters amounting to good reason for extension, or capable of so amounting have been established the effect of principle (1) is that there is no room for the exercise of discretion at all and that the question of the balance of hardship between the parties does not therefore arise."

In Al Tabith and in this case, it was accepted that the principle laid down in those House of Lords judgments also applies to extension of time under section 8 of the Act, namely good reason had to be shown for time to be extended. But what is good reason under section 8 of the Act and this is the dispute under Issue (2) which divides the parties.

8. Before I proceed to consider the arguments presented to me. it is worthwhile to bear in mind the words of some of the English Admiralty Judges on this section 8 of the Act In The Llansovery Castle [1920] P. 119, Mr. Justice Hill (an Admiralty Judge) said at page 125:-

"The section fixes a period of two years and the discretion can only be used in favour of a plaintiff if there are special circumstances which create a real reason why the statutory limitation should not take effect."

In The Alnwick [1965] P. 357, Lord Justice Willmer (a distinguished Admiralty Judge) in a powerful minority judgment said at page 381 to 383:-

"I think it is valuable to refer to what Hill J. and the Court of Appeal in fact said in that case (The Kashmir, Hill J. said

"The Maritime Convention Act by section 8 has extended the time from 12 months to two years. That extended time is not rigidly fixe, as it is qualified by the proviso in relation to the discretion which is given to the court Prima tacie, however, it is a limit of which the defendants are entitled to have the benefit. It is a statutory limitation which is given to them that they are not to be sued in respect of these life claims after a period of two years. Therefore one starts with that and it seems to me that it is upon the plaintiff. who comes to have the time extended to show that there are substantial reasons why the defendants should be deprived of the right to limitation which the law gives them."

...... It has been rather suggested in argument that in the 40-odd years that have elapsed since that decision (The Kashmir) there has been some change in the climate of opinion. particularly with regard to claims of this sort and that consequently, today the court should adopt a more generous approach to belated claims put forward by plaintiffs in circumstances such as these. I think that it is suggested that that change in the climate of opinion is reflected in the extensions of time provided for in the Limitation Acts of 1954 and 1963. In answer to that suggestion. I would first reiterate that until today I have never heard it suggested that the approach adopted by Hill J. and the Court of Appeal more than 40 years age was in any way wrong. Secondly if it is now thought that the approach adopted by them is too harsh having regard to the climate of modern opinion, then I venture to think that that is a matter for Parliament to deal with and is not a proper subject for what is sometimes described as "judicial legislation." Parliament clearly had the opportunity to give effect to any such change in the climate of opinion, if it thought fit, when it passed the Law Reform (Limitation of Actions) Act 1954. But it expressly refrained from dealing with the limitation period provided by the Act of 1911.

There is a further point which I think possibly explains the reasons why Parliament has not sought to after the provisions of the Act of 1911. The terms of limitationimposed by that Act wereintroduced in consequence of an international convention to which this country was a party and to which most of the maritime countries were parties. I think we must remember that we have to apply these limitation provisions to the foreign ships which come to this country. and equally we must expect that our ships will be subject to similar provisions when they visit ports in foreign countries. All the more therefore in my view is it necessary to apply the provisions of section 8 of the Act of 1911 with some strictness.

One thing is abundantly clear and that is that the burden is fairly and squarely on the plaintiff to show some substantial reason why her time should be extended so as to deprive the defendants of their statutory defence. Ex hypothesi, the plaintiff on any such application is already in default: he or she comes to the court asking for a concession and to that extent is in mercy ...."

In The Albany and Marie Josaine [1983] 2 Lloyd's Rep. 195, Mr. Justice Sheen (an Admiralty Judge) said at page 196:-

9. I will approach the exercise of my discretion, bearing in mind the above quoted views of the English Admiralty Judges on this section but more importantly to apply as directed by the House of Lords judgments, the 2 stages test principle. Against this background. I now proceed to consider the arguments presented to me. Mr. Thomas in his submission puts the case of the Defendants in his usually elegant way. He argues that great injustice would be done if time is not extended. In essence his points on good reason can be summarised as follows:-

10. The heart of the case of the Defendants is what might be called the "sleeping dog argument", namely that a defendant can adopt a let sleeping dog lie approach and not issue any writ at all. However on being attacked by the Plaintiffs invoking the jurisdiction of the Court with the issue of the Writ followed by subsequent arrest of the Defendants' vessel, the Defendants should be allowed to counterattack by a time extension as otherwise the Defendants would have been prevented from bringing into account in a counterclaim the Defendants' claim against the Plaintiffs and that therefore this constitutes good reason. I cannot accept such an argument. I am of the view that such a consideration or factual situation could not and does not constitute good reason. The fact that the Plaintiffs did not issue their Writ until the last day, does not change the matter in any way as the Plaintiffs were perfectly entitled under the Act to do so. What the Defendants were not entitled to do is to adopt a let sleeping dogs lie attitude and then complained when the dog does wake up and bite the Defendants. In my view, the Defendants have only themselves to blame for not arming themselves properly in time. Essentially, what it boils down to is what does the Act envisage. In my judgment, section 8 of the Act makes it very clear that in a collision situation, the claim of one ship against the other ship is barred after 2 years. This is the very situation where the statute had made it clear that each vessel which has a claim against the other vessel must institute the action within 2 years for otherwise such claim will not be maintainable. The nature of the very argument of Mr. Thomas is that a party is entitled not to invoke the jurisdiction of the court within 2 years and when the jurisdiction is invoked by the other side, can seek and obtain from the court an extension under section 8. I do not believe that is the intention of the Act or that the Act intends the court to apply the extension power of section 8 that way. It was also submitted to me that the very circumstances of the last minute writ and the subsequent arrest render this case one of good reason. I also do not agree. It cannot be the law that, whether the Plaintiffs issued the Writ 1 day or 1 month before the time limit or, whether the Plaintiffs arrested the other vessel before or after the time limit (all done perfectly properly as the Plaintiffs were entitled to do), could make any difference to whether good reason was shown by the Defendants or not. It cannot be the perfectly legitimate and proper acts of the Plaintiffs which could furnish the Defendants with a good reason for extending time. So long as it is recognised that any claim or cross-claim of the Defendants is covered by section 8 of the Act, then any omission of the Defendants in instituting the claim or cross-claim within the 2 year time limit, would have the inevitable consequence of barring the claim or cross-claim of the Defendants and if such non-institution of claim or cross-claim by the Defendants was a deliberate act then all the less reason that such circumstance or decision of the Defendants would or could provide a good reason for the court to extend time. It is true of course that by issuing the Writ on the last day before the limitation period expires (the 22nd August 1995) and then by arresting the Defendants vessel some months later, long after the 2 year time limit had expired, the Plaintiffs gave the Defendants no opportunity to cross-claim or to issue the Defendants' writ in time. But the Defendants only had themselves to blame for not issuing their writ in time and as admitted by Mr. Thomas the Defendants had every opportunity to do so. In my view, this is simply a case where the Defendants took a deliberate decision to take no action. Is it unfair that the Defendants would be prevented from bringing into account the Defendants' loss and damage, namely being shut out from the counterclaim. Yes, the net effect of what happened, is that the Defendants would be shut out, but no, it is not unfair, because this result was brought about by the conscious act of the Defendants. The Defendants took a gamble and lost. In my judgment, the inability of the Defendants to bring into account the Defendants' loss and damage, was caused solely by the Defendants own decision, and this does not constitute good reason, for otherwise as I put it to Mr. Thomas during the hearing, every defendant in a collision action with a potential cross-claim which had sat back and did nothing and took no step to issue its cross writ in time. would be able to rely on this consideration as a good reason. I do not believe the law is so benevolent to the defaulting party. In my view, neither the last minute timing of the issue of the Writ, nor the subsequent arrest of the Defendants' vessel after the elapse of the time bar, nor the inability of the Defendants to bring the time barred cross-claim, provide a good reason for the court to extend time.

11. In a sense, this effectively answers the fundamental issue in this application as the other matters raised by Mr. Thomas are merely variations on the same theme. The Fairplay XIV might be said to be of a somewhat different, older and more highly regarded authority for the Defendants' application. The Fairplay XIV [1939] P. 57 was a judgment of the President, Sir Boyd Merriman. What happened there was that there was a collision between the plaintiffs' yacht and the defendants' tug. The plaintiffs' yacht sank so the defendants could not hope to arrest the plaintiffs' yacht. The plaintiffs arrested the defendants' tug 11 days before the limitationtime under the Act expired, but the defendants although they had put in an appearance, omitted to issue their own writ within the limitation period or to counterclaim within that time and therefore had to ask the court for an extension of time. The President granted an extension of time. In an extempore judgment, the President in arriving at his decision, seemed to have taken into account:-

As was said by the President, he was merely in that case deciding on the particular circumstances of that case and it seems to me plain that there are a number of differences between that judgment and the facts of this case. Mr. Fok relies on the fact that there was in this case a deliberate decision not to issue any writ which was not the position in The Fairplay XIV and I accept that this is a vital distinction which alone will be sufficient for me not to apply The Fairplay XIV, assuming it is correctly decided. In this case. the vessels of the Plaintiffs came regularly into Hong Kong and could be the subject of an arrest or proceedings within the 2 year time limit whereas in The Fairplay XIV the yacht of the plaintiff was lost and there was no res against which the defendant could take action. This is yet another distinction. The other relevant difference is that there, the defendants had in any event 11 days and so if the defendants had acted correctly rather than mistakenly, the plaintiffs would not be able to prevent the cross-action from being brought. This is yet another distinction.

12. As I see it, The Fairplay XIV had laid down no legal principle and was merely the particular exercise of discretion by a particular judge turning on the particular circumstances of the case. But Mr. Thomas suggests that it is good law and I should apply it. I find that difficult to accept. First of all, I am not bound by any first instance judgment of an English Court. So there is really no question that I have to apply or follow The Fairplay XIV. But having considered that authority, I must say that I do not share the reasoning of the President in reaching his decision. It seemed to me that firstly, he did not pay sufficient regard to the fundamental purpose of section 8 of the Act and that secondly, he was not applying the good reason test which had been developed some 40 years later by the House of Lords.

13. What section 8 of the Act attempted to do was to provide for a situation where:-

By definition, collision of ships involves always two ships and entails always a situation of claim and cross claim, namely consideration of the respective responsibility of each vessel for causing the damage to the other. That is the purpose of section 1 of the Act. It is only on a rare occasion that one ship is wholly undamaged in a nautical collision. The question of timing of cross claim is therefore a fundamental aspect of section 8 and it is this fundamental aspect which gives rise to section 8 applying to both ships. namely that each ship must commence its action against the other ship within 2 years. In my view, if the learned President had given proper weight to this fundamental aspect of section 8 of the Act, he would have analyzed The Fairplay XIV in a very different way and probably would have reached a contrary conclusion. For the limited purpose of this Judgment, all I need to do is to say that I am not persuaded by the underlying reasoning of The Fairplay XIV and that I will respectfully decline to follow or apply it. In arriving at this conclusion, I have not overlooked the fact that for many years the correctness of The Fairplay XIV had apparently not been questioned and that in The Malandrinon (unreported transcript of Judgment of the English Court of Appeal) Lord Justice Evans at page 10 of the transcript approved and applied The Fairplay XIV.

14. The Fairplay XIV was decided in 1938 before the House of Lords expounded the two stage test of showing good reason at stage 1 and exercise of discretion by a balance of fairness at stage 2. It seems to me that many of the factors relied on by the President in The Fairplay XIV are stage 2 material and that there is really hardly any stage 1 material on which, following the House of Lords modern principle, it could be said that good reason had been shown. In the circumstances, it seems to me that The Fairplay XIV can no longer be regarded as a reliable authority for extending time in a counterclaim situation.

15. The various matters raised in the third point of Mr. Thomas that great injustice would be caused unless time is extended relate to considerations at stage 2 of the balance of hardship and do not really go to the question of good reason at stage 1. But even if some of them do relate to any stage 1 matter. I am not persuaded in the circumstances of the case that any of the matters relied on. either singly or collectively, show sufficiently to my satisfaction good reason. I would however like to say a particular word about the argument that extending time for the Counterclaim will not cause any prejudice to the Plaintiffs and would not in any way add to the evidence for the Court. I do not accept either of these submissions. The Plaintiffs by its proper issue of the Writ and its subsequent arrest had obtained an already accrued advantage of a limitation defence. The court should not likely take away that advantage unless good reason is shown. If the Court refuses to extend time for the Counterclaim to the Defendants, then the Plaintiffs would at the worst have their own damages reduced on the proper finding of the apportionment of responsibility for the collision and there will be no question of the Plaintiffs having to reduce their claim by the counterclaim of the Defendants. The granting of the application to the Defendants for extension of time will directly affect the recovery of the Plaintiffs on their claim. For me that is prejudice.

16. As for the contention that no additional burden will be added if the Counterclaim is permitted, this simply cannot be right. On the Counterclaim being held not maintainable, all questions relating to the Defendants' damages arising out of the collision will not be relevant and this is again an advantage which the Plaintiffs will lose upon the Court granting extension of time to the Defendants.

17. In the course of the hearing, a great deal of emphasis was placed by the Defendants on the unfairness and the injustice to the Defendants if no extension is granted. I was referred in particular to The Malandrinon as a good example of the exercise of discretion in a counterclaim situation. On the basis of the principle of good reason as laid down by the House of Lords, it is not unfairness or injustice or the lack of prejudice which is a good reason. As was said by Mr. Fok in his submission, good reason is primarily directed to reason of failure to issue the writ in time rather than the consequence of failure to issue the writ in time and injustice is not the reason for failure to issue the writ in time. The facts of The Malandrinon are very special and provide no comparison to the situation in this case which in a way is unique because it was the clear evidence in this case that the Defendants had deliberately decided to do nothing to protect their position or to issue any writ well knowing that the Plaintiffs were pushing their claims. Mr. Thomas sought to make a distinction between a case of a party starting the action itself requiring extension and a party waiting to be attacked and if attacked then seeking an extension from the court, namely the sleeping dog situation. For reasons stated earlier I do not see any difference. The test for good reason in both cases must be the same. In this day and age. to issue a writ is not such a hardship and when there is a statutory time bar, it is foolhardy for a party not to protect itself by the issue of the Writ in time. If a party by deliberate decision chose not to issue a writ in time, then in my judgment that party should be barred by the counterclaim it subsequently wishes to pursue.

18. At the end of the day, a determination of section 8 extension application must depend on the exercise of discretion by the individual Judge arising out of the particular circumstances of the case. However as was said by Lord Browne-Wilkinson in Dagnell v Freedman at page 395G:-

"..... a judge has to approach the exercise of that discretion in accordance with the principles laid down in the cases that I have referred to. ....."

The cases show clearly that good reason in stage 1 must be shown before the Court could exercise its discretion in favour of granting an extension. I have no doubt that given the material before me, and in particular the fact that a conscious decision was made by the Defendants not to take any step within the 2 year period and not to issue a writ or institute any proceedings anywhere in the world, the only proper exercise of discretion is to refuse the application of the Defendants. The Motion of the Defendants must therefore be dismissed with costs nisi against the Defendants.

Representation:

Mr. Michael Thomas, Q.C. and Mr. Godfrey Lam for the Defendants in AJ 303 and the Plaintiffs in AJ 444 instructed by Messrs Crump & Co.

Mr. Joseph Fok for the Plaintiffs in AJ 303 and the Defendants in AJ 444 instructed by Messrs Richards Butler.