The Blue Bridge

HCAJ 136/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 136 OF 1999

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Admiralty action in rem against: the ship or vessel “BLUE BRIDGE” formerly known as “GREAT POWER”

BETWEEN

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Before: Hon Reyes J in Chambers

Date of Hearing: 19 January 2010

Date of Judgment: 1 February 2010

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J U D G M E N T

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I. INTRODUCTION

1.West of England (WOE) applies to set aside my Judgment of 5 May 2009 in favour of the Plaintiff Cargo Owners and against the Defendant Shipowners (Great Power Shipping Ltd.).

II. BACKGROUND

2.Great Power is a Cyprus-registered company.

3.These proceedings concern a bulk cargo of soybean meal shipped on board the Vessel (then owned by Great Power) in 1998.

4.Great Power had insured the Vessel with the People’s Insurance Company of China (PICC). PICC reinsured the Vessel with WOE. The Vessel appears to have been sold to another owner under a Bill of Sale dated 1 July 1999. It was then transferred from the Cyprus to the Belize Ship Registry.

5.The cargo was loaded at Mumbai between 31 July and 25 August 1998. The Vessel left Mumbai for Bhavnagar to take on a bulk cargo of rapeseed. On 12 September the Vessel proceeded from Bhavnagar to Kashima (Japan), via Singapore (for bunkering). En route, the Vessel made several stops due to engine problems. The Vessel arrived in Singapore on 29 September. An attempt was made in Singapore to diagnose the reason for the Vessel’s engine problems. But nothing abnormal was found. The Vessel left Singapore for Japan on 5 October, but experienced further engine trouble and rough seas along the way. She did not reach Kashima until 30 October. Discharge of the soybean meal took place between 31 October and 11 November. Upon discharge, the soybean meal was found to be generally discoloured, heated and caked.

6.The Cargo Owners issued a Writ on 29 May 1999. The Vessel was arrested in Hong Kong and the Writ served in rem on 13 April 2002. The Vessel was released shortly afterwards on the basis of a Letter of Undertaking (LOU) dated 18 April 2002 from WOE in favour of the Cargo Owners. In consideration for the Vessel’s release, WOE undertook by the LOU to pay any sum awarded by this Court to the Cargo Owners up to JPY 175,992,860 (plus interest and costs). WOE also warranted in the LOU that it had “irrevocable authority from the owners of the ... ship to instruct solicitors as aforesaid and to give this letter of undertaking in these terms”.

7.WOE then caused solicitors (Koo & Partners) to file an Acknowledgment of Service in the Cargo Owners’ action on 22 April 2002. Points of Claim were filed on 4 June 2002. A Defence was filed on 6 December 2002. In relation to the proceedings, WOE obtained its instructions from PICC. PICC in turn (WOE believes) received instructions from Mr. Xu Wei of Qingdao Bi An Shipping Company (the Vessel’s then managers). Bi An seems to have wound up its operations in 2004 or 2005.

8.But, unbeknown to the Cargo Owners and WOE, Great Power had applied on 13 December 2000 to be struck off the Companies Register in Cyprus. It was struck off (and so ceased to exist) on 18 January 2002, the date when notice of the striking out appeared in Cyprus’ Official Gazette.

9.It was not until 2008 that Kennedys (solicitors then being instructed by WOE) learned about Great Power’s dissolution. Kennedys infomed Richards Butler (the Cargo Owners’ solicitors) of the dissolution in July 2008. This Court was informed of Great Power’s de-registration on 29 July 2008. Kennedys then applied to the Court to go off the record as Great Powers’ solicitors. That application was granted on 16 October 2008.

10.In early 2009 the Cargo Owners applied to the District Court of Limassol for the restoration of Great Power to the Companies Register. The application was made pursuant to s.327 of the Cypriot Companies Law (Cap.113). The Limassol District Court granted the application on 26 January 2009. In its Order, the Limassol Court stated that Great Power and all other persons “are placed in the same position as nearly as may be as before the Company had been struck off”. The Limassol Court also directed that “the time between the date of striking off and the date of restoration does not run for debts for which at the time of striking off had not been frozen/prescribed”.

11.By Motion dated 1 April 2009 the Cargo Owners applied for the Acknowledgment of Service and the Defence to be struck off and for judgment in default to be entered in their favour. The relief was sought on the basis that solicitors who filed the Acknowledgment of Service and the Defence could not have had authority to do so, Great Power having been dissolved before either document was filed.

12.By my Judgment dated 25 May 2009, I struck out the Acknowledgment of Service and Defence as requested. The time for filing an Acknowledgment of Service having long since expired, I also gave default judgment in the Cargo Owners’ favour, awarding damages of US$941,167.53 (representing the loss in value of the soybean meal cargo) and JPY 31,470,235 (representing fees and expenses incurred).

13.On 3 August 2009 WOE applied to set aside the default judgment and to be allowed to defend the action as Great Power’s agents or as Interveners.

14.The issues which I have to decide are as follows:-

(1)  Has WOE been duly authorised to act in these proceedings on Great Power’s behalf?

(2)  Even if WOE has no authority to act on Great Power’s behalf, should it be allowed to intervene in these proceedings?

(3)  On the basis that WOE is allowed to take part in these proceedings (whether as agent for Great Power or as Intervener), should the default judgment be set aside as WOE asks?

III.  DISCUSSION

A.  Issue (1): WOE’s authority to act on behalf of Great Power

15.I am not satisfied that WOE has actual authority to act for Great Power.

16.There is no evidence that, following its resurrection by the Limassol Court in January 2009, Great Power has actually authorised WOE to act on its behalf.

17.Instead, WOE argues that Great Power’s resurrection had the effect of ratifying a previous authority given to WOE by Great Power to act on Great Power’s behalf. The argument is based on the wording of s.327 of the Cypriot Companies Law. The provision stipulates that where a company is resurrected then:-

“the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.”

18.Mr. Edward Alder (appearing for WOE) suggests that, since by s.327 Great Power must be deemed to have continued in existence all along, then any previous authority given by Great Power to act as agent must have been retrospectively validated by Great Power’s restoration. Mr. Alder points to an expert report from WOE’s Cyprus lawyers in support of his contention. That report acknowledges that the Cyprus Court has not specifically considered the effect of the words which I have just quoted from s.327. But the report suggests on the basis of the decision of the English Court of Appeal in Tymans Ltd. v. Craven [1952] 1 All ER 613 that the Cyprus Court would decide the question of the effect of Great Power’s resurrection on a prior agency in the manner submitted by Mr. Alder.

19.However, Great Power did not directly authorise WOE to act as agent. Great Power instead authorised its insurer PICC to act on its behalf. It was PICC which in turn instructed WOE as reinsurer to act in relation to the proceedings here, including giving the LOU to obtain the release of the Vessel. Thus, PICC was Great Power’s agent and WOE was PICC’s sub-agent.

20.It does not follow from the appointment of a sub-agent by an agent that there is privity of contract between the principal and the sub-agent. It all depends on the terms under which Great Power appointed PICC as agent. If, for example, Great Power appointed PICC as agent on terms which expressly or impliedly authorised PICC to create privity of contract between Great Power and a sub-agent such as WOE, then the law will regard the sub-agent as the principal’s agent. Unfortunately, in this case, there is no evidence of the terms under which Great Power appointed PICC as agent. All that WOE has produced to this Court are the terms under which PICC constituted WOE as PICC’s agent. In the absence of the requisite evidence, I am unable to infer whether there ever has been privity of contract between Great Power and WOE.

21.When the absence of evidence as to WOE’s authority to act on behalf of Great Power (as opposed to PICC) was pointed out to Mr. Alder, he invited me to make good the deficiency by inference. But there is no material (much less any principle of law) by which I can legitimately infer privity of contract in this situation. In particular, I cannot draw the inference merely on the basis that PICC was an insurer and WOE a re-insurer.

22.Consequently, I cannot assume that, when PICC entered into a reinsurance contract with Great Power or when WOE gave the LOU (by which time Great Power had been dissolved), there was privity of contract between Great Power and WOE so that the latter could be treated as the former’s agent. Even if (by the order of the Limassol Court) Great Power is to be treated as having existed all along, it would not resolve the problem of a lack of evidence on the original basis by which Great Power appointed PICC as agent. The Cypriot Order would not by itself mean that Great Power had invested PICC with the authority to create privity between Great Power and WOE.

B. Issue (2): WOE’s ability to intervene

23.Unless set aside or reversed, the default judgment will undoubtedly affect WOE. This is because WOE undertook by the LOU to pay any amounts (including interest and cost) awarded by this Court to the Cargo Owners. Accordingly, as a matter of first impression, WOE should be allowed to intervene as a party with an interest in the outcome of the present action.

24.But this is not an ordinary case. A pertinent question is why WOE did not apply to intervene earlier. By the end of July 2008, WOE would have known (since it was instructing Kennedys at the time) that Great Power had ceased to exist in January 2002. Should not WOE therefore have applied to intervene in mid-2008? Why did WOE wait until now to apply to intervene? More than 10 years have elapsed since the voyage which is the subject matter of these proceedings. If WOE has no good reason for the delay in applying to intervene between mid-2008 and August 2009, it seems to me that it should not be allowed to intervene at this late stage.

25.Mr. Charles Sussex SC (appearing for the Cargo Owners) suggests that in mid-2008 WOE did not intervene because it calculated that the Cargo Owners could not obtain judgment against a non-existent defendant. WOE (Mr. Sussex submits) deliberately walked away from the proceedings under the mistaken belief that, Great Peace having been dissolved, the Cargo Owners could never draw upon the LOU.

26.Mr. Alder denies that WOE cynically walked away. He points to evidence from WOE to the effect that, upon learning of Great Power’s dissolution, WOE sought legal advice on the possibility of reinstating Great Power to the Companies Register. WOE was advised that such was not possible since WOE was not a shareholder of Great Power and, as reinsurer, WOE was not a creditor of Great Power. Further, as reinsurer, WOE could not assert subrogation or arrange an assignment of Great Power’s rights of suit.

27.Mr. Alder notes that WOE only learned in May 2009 of Great Power’s restoration and of the obtaining of a default judgment by the Cargo Owners. It then immediately took steps (Mr. Alder stresses) to obtain legal advice and make the present setting aside application.

28.But it is unclear to me why WOE should have regarded its ability to intervene in the proceedings as dependent on Great Power’s existence. By mid-2008 there were in rem proceedings against the Vessel. Since WOE had an interest in the outcome, why could it not have intervened then and there as an interested party? Indeed, in August 2008, Richards Butler invited WOE (through Kennedys) to ignore Great Power’s de-registration and continue as if Great Power were in existence with neither Cargo Owners nor WOE taking any point as to Great Power’s dissolution. WOE declined to do so.

29.Mr. Alder says, on the authority of a dictum of Lord Steyn in “The INDIAN GRACE” [1998] AC 878, that the in rem proceedings were a nullity in light of Great Power’s dissolution. In The “INDIAN GRACE” Lord Steyn stated (at 913B):-

“The idea that a ship can be a defendant in legal proceedings was always a fiction.  But before the Judicature Acts this fiction helped to defend and enlarge Admiralty jurisdiction in the form of an action in rem.  With the passing of the Judicature Acts that purpose was effectively spent.  That made possible the procedural changes which I have described.  The fiction was discarded.”

30.In The “INDIAN GRACE” the plaintiff cargo owners had obtained a judgment in personam before the Cochin Court. The question (among others) was whether, notwithstanding that previous judgment, the plaintiffs could commence in rem proceedings in London. Under s.34 of the Civil Jurisdiction and Judgments Act 1982 (c.27), a person is barred from bringing proceedings in England “on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties ... in a court of an overseas country”. The plaintiffs argued that, the Cochin action having been in personam and the London proceedings being in rem, the London proceedings were not in respect of “the same parties”. Lord Steyn (with whom the other Law Lords agreed) rejected the plaintiffs’ contention.

31.I do not read Lord Steyn’s dictum as implying that, where a ship has been properly arrested and served, if the shipowner fails to acknowledge service for whatever reason (including the shipowner’s dissolution after issue of the Writ), the in rem proceedings are a nullity. I doubt that Lord Steyn went so far, because immediately after the dictum cited above he said (at 913C):-

“It is now possible to say that for the purposes of section 34 an action in rem is an action against the owners from the moment that the Admiralty Court is seized with jurisdiction.  The jurisdiction of the Admiralty Court is invoked by the service of a writ, or, where a writ is deemed to be served, as a result of the acknowledgement of the issue of the writ by the defendant before service: The Banco [1971] P 137.  From that moment the owners are parties to the proceedings in rem.”

32.Note that Lord Steyn merely speaks of defendant shipowners becoming “parties to the proceedings in rem” upon service (or deemed service) of the Writ upon them. He says nothing about the validity or otherwise of the in rem proceedings where a defendant owner fails to acknowledge service for some reason or other.

33.According to Order 75 Rule 21, the Court may give judgment in default against a res where a defendant owner fails to acknowledge service or file a Defence. Nothing in Order 75 Rule 21 requires the Court, before granting judgment in default, to investigate whether since the issue of the Writ (an event which typically occurs long before a ship is arrested) a defendant owner has ceased to exist. To the contrary, where a Writ has been served on a res in accordance with Order 75 Rule 8, it is unnecessary to file an affidavit proving due service on a particular person. It will be enough to obtain default judgment against the res to produce a copy of the Writ together with the bailiff’s endorsement giving details of service on the res.

34.WOE’s affidavit evidence is unclear as to whether WOE was actually advised by its lawyers that it could not intervene in August 2008 due to some alleged nullity in the in rem proceedings stemming from Great Power’s dissolution. By a fax dared 1 September 2008 Kennedys asserted to Richards Butler that “[i]t is establishd law that no valid judgment can be obtained against a dissolved company”. For the reasons discussed above, I do not believe that the assertion was correct insofar as judgment against a res in Admiralty proceedings is concerned. Presumably Kennedys advised WOE in similar vein. I say “presumably” because this can only be surmise. There is no express statement to this effect in WOE’s affidavits.

35.I therefore do not find WOE’s affidavits to be wholly satisfactory on the question of why it did not apply to intervene earlier. Since WOE is seeking the Court’s indulgence to intervene at this late stage in the proceedings, one would have expected a fuller explanation as to why earlier intervention was not deemed possible. It should not be left to the Court to infer matters on the basis of a statement in a solicitors’ fax addressed to the other side.

36.This has the consequence that, on the issue of intervention, I would be against granting leave unless a compelling case can be shown that, if allowed to defend the claim against Cargo Owners, WOE would have a “real prospect of success”.

37.Mr. Sussex suggests that I could refuse leave to intervene outright, regardless of WOE’s prospects of success, because WOE is now estopped from applying to intervene. Mr. Sussex submits that WOE’s decision not to pursue matters in August 2008 might have constituted a representation that “it intended to abandon its defence of this Action”. The Cargo Owners (it is said) relied on that representation and acted to their detriment by initiating proceedings and incurring expense in Cyprus to resurrect Great Power.

38.But I am unable to accept that estoppel argument. If the foregoing analysis of in rem proceedings is right, when Cargo Owners learned of Great Power’s dissolution, nothing prevented them then and there from striking out the Acknowledgment of Service and Defence as unauthorised and from applying for default judgment. If that had been done, it should not have been necessary to go to Cyprus to restore Great Power. It is possible that Cargo Owners went to Cyprus because (as Mr. Alder observes) they took the view that Kennedys had correctly identified Great Power’s non-existence as a bar to obtaining judgment in rem. It does not appear to me on the evidence that, in going to Cyprus and incurring expense, Cargo Owners acted upon any representation by WOE that it was abandoning the defence of the action.

C. Issue (3): WOE’s prospects of success

39.Here I apply the well-known test for setting aside a default judgment identified in The “SAUDI EAGLE” [1986] 2 Lloyds Rep 221 (at 223). By that test, it is for WOE to show “a real prospect of success”. I apply this test because in my view the default judgment was a regular one. There is a suggestion by Mr. Alder that somehow Cargo Owners were at fault for not informing WOE beforehand of Great Power’s restoration or the application for default judgment. But I do not see on what basis there was a duty to inform WOE as the latter was not a party to the proceedings.

40.In assessing prospects of success, the Court does not operate in a theoretical vacuum. Instead it applies a robust practical commonsense. This must especially be the case where (as here) the trail of evidence has long since gone cold. More than 10 years have passed since the relevant voyage, so there will inevitably be problems in compiling further evidence.

41.In essence, this Court currently has before it all the evidence that there is likely to be at any future trial. Witnesses are now difficult (if not impossible) to locate. Even if a witness were traceable, it would be remarkable if the person could recall what happened long ago in relation to this particular carriage of soybean meal. Documents and other material evidence (if not already in solicitors’ possession and deployed in the present application for whatever they were worth as evidence) will most likely have been lost or destroyed. There is nothing available for a joint survey or inspection and there are no further “tests” which can helpfully be carried out on some preserved sample.

42.Given the present context, realistically, WOE’s task of demonstrating a “real prospect of success” must be an uphill battle. At the back of its mind, the Court will have to ask itself whether (after so much lapse of time) there can be a fair trial.

43.Trial would focus on the condition of the cargo at 3 different times: before loading, during carriage, and upon discharge. I now consider each stage below.

C.1 Cargo condition before loading

44.WOE alleges that the cargo was already suffering from inherent vice before loading. But how precisely will WOE discharge its evidential (as opposed to probative) burden of establishing this allegation?

45.There were 2 consignments of soybean meal loaded on board the Vessel. The soybean meal of both consignments was initially brought to ship side in bags. The bags were then opened and their contents bags loaded onto the Vessel as bulk cargo.

46.There will always be micro-organisms present in a consignment of soybean meal. If the moisture content of the soybean meal rises above a critical level of about 12.5%, the micro-organisms will react with the moisture and generate heat. That rise in temperature will itself cause increased micro-organism activity. This will in turn generate even more heat and more biological activity. However, most microorganisms in the soybean meal will die off if exposed to temperatures above 60 degrees. Depending on the extent of heating (in terms of time and temperature) to which it is exposed, soybean meal may discolour, suffer a deterioration in quality, or both.

47.In support of their case that the soybean meal loaded on board the Vessel was sound at the time of loading, the Cargo Owners rely on contemporaneous Quality Certificates issued by Geo-Chem Laboratories (P) Ltd. Those Certificates state that, at the time of loading, a composite (average) sample of soybean meal from the bags comprising the 2 consignment had a moisture content of 11.76%.

48.The Cargo Owners further rely on daily faxes from Geo-Chem during the loading process giving some 17 average moisture values for the consignments. The mean of those values is 11.64824% with a standard deviation of 0.12768. If one assumes a normal distribution, this means that 95% of average samples would be within 2 standard deviations (0.25536) of the mean and 99% of average samples would be within 3 standard deviations (0.38304). This suggests that one can be 99% certain that the highest average value of a composite sample of cargo would be 12.03128% (that is, 11.64824 + 0.38304). If one applies the standard deviations mentioned above to this latter percentage, then the highest individual sample value based on 3 standard deviations is likely to be 12.41432%. That would still be below the critical moisture level of 12.5%.

49.WOE denies the probative value of Geo-Chem’s Quality Certificates and daily faxes.

50.WOE accepts that the moisture content of the cargo upon loading was within contract specification. It also accepts that in normal commercial practice the moisture content of a soybean meal bulk cargo is tested by reference to an average or representative sample in the way that Geo-Chem appears to have done.

51.But WOE queries how much can be deduced from results obtained by testing average samples. According to WOE, within a given soybean sample, “the variations in moisture content are very important but, unfortunately, they remain always unknown”. Thus, whatever the Quality Certificates and daily faxes might have indicated about the moisture content of average samples, “there would undoubtedly have been pockets of relatively higher moisture content within the larger parcels (hundreds of tonnes) from which they [that is, the samples used to obtain a composite average] were taken which were pre-destined to start self-heating leading to the irregular pattern of discolouration as noted during the discharge operation”.

52.It seems to me that, on the condition of the cargo before loading, WOE’s case boils down to little more than speculation.

53.Assume that there will always be variations of moisture within any cargo of soybean meal. The crucial question is the extent of any such variation at the time of loading.

54.The best available evidence on this matter must be Geo-Chem’s Certificates and daily faxes. Nothing better is likely to turn up given the passage of time. The best analysis then that can be done is the statistical one conducted by the Cargo Owners’ experts outlined above. That analysis may not be perfect because it deals with average measurements and assumes a normal distribution. But the methodology and assumptions of the analysis seem to me an appropriate basis for establishing on a balance of probability that the cargo was sound in terms of moisture content before loading.

55.In contrast, WOE infers from the discolouration discovered upon discharge that there would “undoubtedly” have been pockets of relatively high moisture content at the time of loading. This only asserts what WOE seeks to establish. Why is it the only possible inference from irregular discolouration that, contrary to the Certificates and daily fax, the goods were already suffering from an inherent vice (moisture above 12.5%) before loading? What (say) of other explanations such as contamination of some parts of the cargo by water at the time of loading or in the course of carriage? WOE may be critical of the evidence said by the Cargo Owners to suggest wetting of the cargo after loading, but WOE’s scepticism by itself could not lead one to conclude “undoubtedly” that there was inherent vice (moisture of more than 12.5%) before loading.

C.2 Cargo condition during carriage

56.The Cargo Owners’ case has 2 principal limbs in relation to the cargo while under Great Power’s custody.

57.The first limb is that Great Power allowed the cargo to be wetted by rain water following loading onto the Vessel. This wetting increased the moisture content and led to the deterioration in the colour and quality of the cargo discovered upon discharge.

58.The second limb is that, even if the cargo was already suffering from an inherent vice before loading, such damage as the cargo may have sustained from that vice was exacerbated by the excessive duration of the voyage. The voyage was longer than it ought to have been because the Vessel was unseaworthy and had to make several stops along the way in order to deal with engine problems.

59.The first limb is hotly disputed by the parties.

60.The Cargo Owners point to the fact that it rained heavily in the course of the several days which it took to load the bulk soybean meal on board. WOE, on the other hand, argues that the Vessel was equipped with efficient hatch covers which were closed within minutes of rain starting during loading. Consequently, WOE suggests that only negligible amounts of rain water could have penetrated into the Vessel’s holds.

61.On the basis of a survey report prepared by Cosmo Mutual when the Vessel arrived in Kashima, WOE alleges that on outturn there was not much moisture apparent in the cargo. WOE contends that this suggests that the cargo was not much damaged. WOE reasons that, if the cargo had heated up to a temperature which would have imperilled its quality, this would have induced the micro-organisms within the soybean meal to generate moisture in large quantity. The Cargo Owners, on the other hand, respond that any heating generated could have caused whatever moisture there was (or most of it) to evaporate.

62.But, in my view, whatever the merits of the arguments or counter-arguments on the first limb, the second limb is fatal to WOE’s case.

63.This is because, on the evidence of WOE’s own expert (Mr. Robert Vart), there is every likelihood that the Vessel was unseaworthy.

64.Following the relevant voyage, the Vessel drydocked at Qingdao. There its main engine charge air cooler was removed for thorough cleaning. The air side of the cooler insert was found to be “heavily choked, reducing the effective area to about 50%, in the central area”. The blockage could “not be effectively cleared even by [using high pressure steam], and Owners elected to fit a new cooler instead”.

65.Mr. Vart inspected the air cooler insert at Qingdao in October 2002. He observed that:-

“the edge of the aluminium plates [of the cooler], where visible between tubes in the outer row, were all heavily corroded and part missing, and ... the air spaces between the tubes were almost totally blocked by grey/white coloured corrosion products and debris from the places”.

66.The Vessel’s Chief Engineer advised Mr. Vart that the air cooler had been cleaned at Mumbai on 20 June 1998 and at Singapore on 7 October 1998 using methods which were “not in accordance with the engine manufacturer’s instruction book”. As a result, it was “possible ... that failure to the engine manufacturers’ recommendations may have left the tubes and cooling plates only partially cleaned, following which the uncleaned areas would be prone to more rapid fouling due to localised reduction of the air flow”.

67.Mr. Vart further noted that, although the Vessel had been “fitted with chemical injection equipment on the charge air cooler” and shipowners had given instructions that “the cooler should be cleaned in service once per day, or once every second day,”there was no mention in the engine log book of this having been done. The failure to have so done would mean “allowing the cooler to become progressively choked as the voyage went on”.

68.Mr. Vart doubted that any acceptable chemical cleaner was used in any event for the vessel’s air cooler. There were stocks of the acceptable Unitor ACC on board the Vessel, but “it is believed that the crew of GREAT POWER had also purchased stocks of a different cleaning chemical, said to be stronger, from an unidentified source in Yangon”. Of this alternative cleaner, there was no record or documentation showing its constituent chemicals.

69.Mr. Vart concluded:-

“14.7  The main engine of the GREAT POWER operated normally during the short voyage from Mumbai to Bhavnagar, and for the first ten hours of the subsequent passage from Bhavnagar towards Singapore.  Thereafter, the engine was stopped by the Chief Engineer on ten occasions prior to reaching Singapore; all except one of those stoppages were planned and executed by the Chief Engineer for the purpose of carrying out remedial work or making adjustments in efforts to improve the engine performance....

14.8  In the opinion of the undersigned, the symptoms exhibited by the vessel’s main engine shortly after leaving Bhavnagar, and continuing throughout the voyage, should have alerted the Chief engineer to the likelihood that the engine was being starved of ait, probably due to the fouling/blockage of the turbocharger or charge air cooler.

14.9  Instead he appears to have become obsessed with the possibility that the problems (high cylinder exhaust temperatures and low turbocharger speed) were related to the fuel injection system and in particular the injection timing.  There is no logical reason why the injection timing should change during the course of normal engine operation; it normally requires setting/adjusting after a major overhaul during which components such as camshaft, camshaft drive gears etc., have been disturbed.

14.10  Had the Chief Engineer correctly diagnosed the cause of the problem, which was ultimately found to be a choked air cooler, this could have been addressed and remedied during the vessel’s scheduled call at Singapore by supplying and fitting a new insert to the air cooler. This is not an item for which spare parts are customarily carried on board.

14.11  Instead, the Chief Engineer elected to continue on passage from Singapore to Japan with the cause of the problems still unidentified, and the engine being operated at only about 50% of its normal power output.”

70.In short, the Vessel was probably unseaworthy in two respects at the start of the relevant voyage. The Vessel had an engine with a clogged air cooler and the Vessel seems to have had an incompetent Chief Engineer. This led to the voyage taking longer than it normally should (about 26% longer by Mr. Vart’s reckoning).

71.On the assumption of over 12.5% moisture in the cargo prior to loading, the protracted carriage would have meant that the soybean meal was exposed to heating from increased microbiological activity from whatever cause (including inherent vice) over a longer period than it should have been. On the assumption of inherent vice, the unseaworthiness of the vessel must at least be regarded as a cause of damage to the cargo.

72.It appears that the air cooler is no longer available for inspection at Qingdao. Therefore, there can be no further inspection of the cooler to supplement that previously undertaken by Mr. Vart.

73.Mr. Alder frankly acknowledged in submission that he did not have a strong case in relation to the seaworthiness of the Vessel at the commencement of the voyage.

74.Mr. Alder also fairly acknowledged the validity of the following legal propositions:-

(1)  “A breach of the unseaworthiness obligation only has to be a cause of the loss or damage to enable the cargo interests to recover.”  See Aikens and others, Bills of Lading (2006), para. 10.131, citing The “KAMILLA” [2006] 2 Lloyds Rep 238.

(2)  “[I]f the carrier can only show that some part of the damage to the goods was due to a cause within [an] exception [in the contract of carriage], he must also show how much of the damage is comprised in that part, otherwise he is liable for the whole.”  See Ceylon v. Chandris [1965] 2 Lloyds Rep 204 (at 216) (Mocatta J).

75.Assume the presence of inherent vice as an exception to a carrier’s liability. Given what Mr Alder accepts to be the law, unless WOE can show precisely how much of the damage is attributable to the inherent vice, Great Power must be held liable for all of the damage found on discharge.

76.In light of the Geo-Chem’s certifications and Mr. Vart’s opinion, it is difficult to see how WOE can discharge even an evidential burden of showing that inherent vice alone is responsible for some particular percentage of damage to the goods. By reference to what evidence, one asks rhetorically, will WOE be able to establish at trial what the damage to the soybean meal would have been if the voyage had not lasted for as long as it did? I do not think that WOE has any realistic prospect of discharging this burden.

C.3 Cargo condition upon discharge

77.According to the Cosmo Mutual report, the cargo was sorted into 3 categories upon discharge. These were: Category A -- “Slightly heated cargo mixed with discolored slightly brownish”; Category B -- “Discolored slightly brownish more than ‘A’ and/or heated at approx. 40-45 degrees C”; and Category C -- “Discolored brownish more than ‘B’ and/or heated over 45 degrees C”. Cargo-owners managed to on-sell Category A goods at a 40% discount, Category B goods at a 50% discount, and Category C goods at a 55% discount.

78.WOE contends that the goods were only slightly discoloured upon discharge and, in any event, the eventual receivers of the goods bought the same from Cargo Owners at a substantial undervalue. WOE accordingly suggests that damages should be minimal, if anything at all.

79.But again one asks how at trial will WOE counter the contemporaneous evidence in the Cosmo report. What evidence will WOE rely on to establish that the goods were on-sold at substantially below their reasonable value? It is no good saying (as Mr. Alder does) that the end receivers will have to be cross-examined at trial. If these end receivers can be found after so many years, how will they even begin to remember why they only paid so much for the soybean meal?

80.In the end, the Court will have to rely on the Cosmo Mutual report and a similar report prepared by Nippon Kaiji Kentei Kyokai as the best available evidence on the state of the cargo upon discharge. What the end receivers paid for the goods is a matter of fact. The Court will most likely be constrained at a trial to assume that they were acting bona fide and resale prices were agreed with them after arm’s length commercial bargaining.

C.4 Summary

81.In summary, I do not think that WOE has any real prospect of success. The probability is that at trial the Court will find that the cargo was sound immediately before loading, that damage to the cargo was at least exacerbated by the Vessel’s unseaworthiness, and that upon discharge the cargo was damaged to varying degrees such that the same had to be re-sold at discounts of between 40% to 55%.

IV. CONCLUSION

82.There is no evidence that WOE is or has been authorised to conduct these proceedings on behalf of Great Power.

83.The default judgment was regular. There is no point in setting it aside because WOE would have no real prospect of successfully defending the action. WOE’s application to set aside the default judgment is dismissed. In light of WOE’s lack of prospect, its application to intervene should be refused.

84.There will be an Order Nisi that WOE pay the Cargo Owners’ costs (including the Cargo Owners costs in relation to WOE’s application under Order 1B Rule 1(2)(j) to exclude expert evidence). Costs are to be taxed if not agreed.

Mr Charles Sussex, SC, instructed by Messrs Richards Butler, for the Plaintiffs

Mr Edward Alder, instructed by Messrs Hammonds, for the Defendants and the Intended Intervener