Chimbusco Pan Nation Petro Chemical Co Ltd v. The Owners and/or Demise Charterers of the Ship or Vessel ‘decurion’

CACV 198/2011 & CACV 214/2011
(HEARD TOGETHER)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 198 AND 214 OF 2011

(ON APPEAL FROM HCAJ No. 141 OF 2010)

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BETWEEN

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Before : Hon Yeung VP, Cheung and Yuen JJA in Court

Date of Hearing : 13 December 2011

Date of Judgment : 31 January 2012

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J U D G M E N T

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Hon Yeung VP :

1.I agree with the judgment of Cheung JA and would make the orders he proposes.

Hon Cheung JA :

2.The defendants applied to Reyes J for extension of time to file the defence (‘the extension application’).  The Judge refused the application.  As a result of the defendants not filing the defence, the plaintiff applied for judgment in default of defence (‘the judgment application’).  The Judge granted the application.

3.The defendants now appeal against both orders.

Background of the claim

4.The writ in this case was issued on 20 August 2010.  According to the statement of claim issued on 29 June 2011, the defendants are and were the owners and/or demise charterers of the vessel ‘Decurion’.  By a series of contracts made between 8 February 2010 and 22 June 2010 (‘the contracts’), the plaintiff agreed to sell and the defendants agreed to buy bunkers for delivery to ships owned and/or chartered by the defendants and/or in the possession or control of the defendants.  The bunkers were delivered by the plaintiff to Decurion and ten other vessels at the instruction of the defendants.  The amount of the bunkers delivered less partial payment of the first contract was US$4,217,419.89.  The amount of bunkers delivered to Decurion was US$85,460.  The plaintiff claimed US$4,217,419.89 from the defendants with interest.  For the purpose of this appeal it is sufficient to note that the bunkers were fuel for the ships. 

Procedural steps

5.The writ was issued on 20 August 2010.  A warrant of arrest of Decurion was executed in Hong Kong waters on the same day.  By an order dated 18 March 2011 the Judge ordered Decurion to be appraised and sold. It was sold in May 2011.

6.The defendants filed acknowledgment of the service of the writ on 25 August 2010.  Under the Rules of the High Court, the plaintiff was required to file the statement of claim within 14 days.  On 10 September 2010 the parties agreed to stay the proceedings which stay could be terminated by either party giving a 14-day notice.  On 20 January 2011 the plaintiff gave notice to terminate the stay.  The notice took effect on 3 February 2011. However, the service of the statement of claim was only effected on 29 June 2011 which was 10 months after the issue of the writ and five months after the lifting of the stay.  On 27 July 2011 the defendants issued the summons for an extension of 28 days to file the defence.  The application was heard after the summer vacation on 1 September 2011 and was refused.

7.The defendants were formerly represented by Laracy & Co.  Two days before the hearing of the defendants’ application for extension of time to file the defence, the defendants changed lawyers and instructed their present solicitors, Kennedys.

8.When Kennedys appeared before the Judge there was no supporting affidavit for the extension application and Kennedys was unable to offer any explanation for the delay.  According to the transcript of the hearing the Judge dismissed the application because there was no material on which the Court could exercise its discretion at that late stage.

Exercise of discretion

9.The refusal by the Judge to grant an extension of time was an exercise of discretion.  This Court will only interfere with his discretion if it was exercised on a wrong principle or where he had failed to take into account relevant matters.

Explanation for the delay

10.Counsel for the defendants, Mr. Sussex SC’s submission is that it is not necessary to file a supporting affidavit to explain the delay.

My view

11.In my view it is a matter of good practice for an application by summons to be supported by affidavit.  The summons only states the relief sought.  It does not tell why the relief is required.  Hence I would not accept that as a general rule it is not necessary to file an affidavit.  However in the present case, I would respectfully hold that the Judge had erred in the exercise of his discretion because he had failed to take into account relevant considerations. 

1)   It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case.  A rigid mechanistic approach is not appropriate : see Nantong Angang Garments Co. Ltd v. Hellmann International Forwarders Ltd, CACV 64/2005. There are two conflicting principles at play.  First, a party being required to observe the procedural rules, the default of which may result in judgment being entered against it.  Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs.  These two principles are not absolute.  A rigid application of the first principle may lead to dismissal of actions without consideration of whether the defendant has been prejudiced by the default.  But, the Court has treated the existence of such prejudice to be crucial and often decisive.  Likewise a rigid application of the second principle without exception may enable a wealthy litigant to flout the rules.  The resolution to these two conflicting principles is to consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb : see Costellow v. Somerset County Council [1993] 1 WLR 256, per Sir Thomas Bingham M.R. at 263.

2)   I do not consider this approach has been drastically changed by the introduction of the Civil Justice Reform in Hong Kong since 2 April 2009.  An expeditious disposal of a case has to be considered together with the equally salutary objective of ensuring fairness between the parties.

3)   This is the first application by the defendants for extension of time to file the defence.  The Judge who had previously ordered the sale of Decurion commented in the extension application that the defendants were ‘specialist in the last minute application’.  He was referring to the last minute application by the defendants in respect of the sale and not to the filing of defence.  The plaintiff itself had not been diligent in pursuing its claim.  As pointed out earlier, the statement of claim was only filed ten months after the issuance of the writ and five months after the termination of the stay.  The defendants’ delay in the filing of the defence must be viewed in this context. 

4)   The plaintiff’s explanation for its own delay which is not contained in any affidavit but stated by its counsel, Mr. Colin Wright in Court was that it had hoped for the mortgagee of Decurion to step in and resolve the dispute between the parties.  However, this turned out not to be the case.  This cannot be a satisfactory explanation because the mortgagee’s name is apparent from the ship register and if the plaintiff was really concerned with an intervention by the mortgagee this could have happened almost immediately after the arrest of the vessel which affected the interest of the mortgagee.

5)   The plaintiff was not prejudiced by an extension of time being given to the defendants.  On the contrary, a refusal operates to the defendants’ prejudice because default judgment would be entered against them.

6)(1)   Further, to refuse to give an extension of time would deprive the defendants of a substantial defence.  The plaintiff had invoked both the in personam and in rem jurisdiction of the Admiralty jurisdiction of the High Court.  A challenge by the defendants of the in rem jurisdiction can only be undertaken during the time limited for service of a defence as prescribed by Order 12, rule 8 of the High Court Rules which provides that

‘ 8.—(1) a defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of any such irregularity as is mentioned in rule 7 or on any other ground shall give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, apply to the Court for

(a)  – (f) —

(g)  a declaration that in the circumstances of the case the court has no jurisdiction over the defendant in respect of the subject-matter of the claim or the relief or remedy sought in the action, or ’

6)(2)   The ambit of this rule was considered by Sir Anthony Mason NPJ in Re Resource 1 (2000) 3 HKCFAR 187 at 211,

‘ Order 12 r.8, under the heading “Dispute as to Jurisdiction”, prescribes a procedure according to which such disputes are to be resolved. This procedure requires a defendant who wishes to dispute the jurisdiction of the court on any ground to give notice of intention to defend the proceedings and, within the time limited for service of a defence, to make an appropriate application to the Court (r.8(1)). The critical element in the procedure is that, except where the defendant makes such an application as prescribed, the acknowledgment by a defendant of service of a writ shall, unless the acknowledgment is withdrawn by leave of the Court, be treated as a submission by the defendant to the jurisdiction of the Court in the proceedings (r.8 (7)).’ (emphasis added)

6)(3)   Mr. Sussex S.C. submitted that the defendants intended to challenge the in rem jurisdiction in respect of the bunkers delivered to the ten vessels other than Decurion.  The defendants have filed evidence in the form of a draft affidavit by an Argentinian lawyer, Patricia Viotti in which she described the relationship of the owner of Decurion i.e. Maruba Sociedad en Comandita por Acciones (‘Maruba SCA’) with the other vessels named in the statement of claim.  Maruba SCA is a company incorporated in Argentina.  It has appointed Maruba Asia Limited (‘Maruba Asia’), a company incorporated in Hong Kong, as its shipping agent in Hong Kong.  Maruba SCA has entered into a Service Agreement with South Atlantic Container Lines Ltd (‘South Atlantic’) by which Maruba SCA would provide maritime services to South Atlantic, including arrangement for bunkers.  The service could be provided by Maruba SCA through its agent Maruba Asia.  South Atlantic is a BVI company which is not related to or controlled by Maruba SCA.  South Atlantic is wholly owned by Total Transport Container Lines Ltd.  South Atlantic in turn assisted Clan S.A. (Compania Latinoamericana de Navegicion S.A.), Montevideo (‘Clan’) with the provision of maritime services.  Apart from Decurion, all the other ten vessels that are the subject of this action were chartered by Clan.  Maruba SCA were not the owners of the ten other vessels named in the writ.

6)(4)   The defendants contended that the in rem jurisdiction was wrongly exercised in respect of claim of bunkers delivered to the ten other ships because the owner of Decurion was not the specified person who could be sued under the Admiralty jurisdiction.  The Admiralty jurisdiction is provided by section 12A of the High Court Ordinance (Cap. 4) which includes claims under section 12A(2)(e) in respect of goods or materials supplied to a ship for her operation or maintenance.  The exercise of the in personam and in rem jurisdictions is provided by Section 12B.  The relevant parts of which are

‘ 12B. Mode of exercise of Admiralty jurisdiction

(1) Subject to section 12C an action in personam may be brought in the Court of First Instance in all cases within the Admiralty jurisdiction of that court.

(2) –

(3) –

(4) In the case of any such claim as is mentioned in section 12A(2)(e) to (q), where—

(a) the claim arises in connection with a ship; and

(b) the person who would be liable on the claim in an action in personam (“the relevant person”) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship,

an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the Court of First Instance against—

(i) that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise; or

(ii)any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it.’

6)(5)   In The Evpo Agnic [1988] 1 WLR 1090 Lord Donaldson of Lymington M.R. at 1095 discussed the ambit of the relevant person to be liable :

‘ The first issue to be confronted and decided is therefore who is “the relevant person” for the purposes of section 21(4)(b) (of the Supreme Court Act 1981). Such a person has to meet two criteria. First, he must be the (or possibly a) person who would be liable on the claim in personam. Second, he must, at the time when the cause of action arose, have been the owner or charterer of, or in possession or control of, the ship. “Charterer” in this context, which includes the Convention, must I think mean demise charterer and the words “or in possession or in control of, the ship” must refer to a person who is in the position of a demise charterer, albeit not under a demise charter—a salvor might be such.’

6)(6)   Section 21(4)(b) of the Supreme Court Act 1981 was similarly worded as our Section 12B(4)(b).  For the purpose of this appeal it is sufficient to say, as agreed by the parties, that the in rem jurisdiction may be invoked against a defendant if it has the following capacities :

(i) the owner of the vessel, or

(ii) the charterer (charter by demise, slot charter and voyage charter) of the vessel, or

(iii) in possession or control of the vessel.

See The Evpo Agnic [1988] 1 WLR 1095H, 1096A, The Span Terza [1982] 1 Ll Rep 225, The Tychy [1999] 2 Ll Rep 11, The Halla Liberty [2000] 1 HKC 659, The Guiseppe di Vittorio [1998] CLC 149, The Laemthong Pride (1997) 149 ALR 675 and Meeson and Kimbell Admiralty Jurisdiction and Practice (4^th ed) pg 98 footnote 73.   

6)(7)   In the present case, Maruba SCA was neither the owner nor the charterer of the ten other vessels.  The only issue is whether it was in possession or control of these vessels.  Mr. Wright argued that there is no requirement that a person have full possession and control of the ship in relation to which the cause of action arose in order to fall within the scope of Section 12B(4) of the High Court Ordinance : the requirement is simply that the person has ‘some relationship’ with the ship in connection with which the claim arose.  This requirement would be satisfied by a person having ‘possession or control’ within the ordinary meaning of these words.  He relied on the The Tychy, where Clarke LJ at page 20 held that

‘ The purpose of the statute [i.e. section 21(4) of the Supreme Court Act 1981] was, as I see it, to ensure that before a person’s ship could be arrested in respect of a maritime claim, that person had some relationship with the ship in connection with which the maritime claim arose. I can see no reason in principle why a time or voyage charterer of the ship should not have been regarded as having a sufficient relationship. There is no reason to narrow the scope of that relationship by giving the words of s. 21(4) other than their ordinary and natural meaning. The protection for the defendant is to be found in the last part of the sub-section. Thus it is important to note that in the case of a sistership the ship being arrested must be wholly beneficially owned by the person liable in personam. Nothing less will do.’

6)(8)  In my view Mr. Wright’s submission begs the question of whether the defendants were in possession or control of the ten other vessels.  What is important, in order to show the relationship exists, is to show that the defendants were in possession or control if they were not the owner or charterer.  Whether someone is in possession and control of a vessel must be a question of fact.  At the very least possession and control implies some use and benefit of the vessel : see The Baumwoll Manufactur Von Carl Scheibler v. Christopher Furness [1893] A.C. 8 where Lord Herschell LC held that at 18,

‘ The law seems to me to have been so settled for a very long time. The case of Fraser v. Marsh (1), which was decided so long ago as 1811, appears to me directly to bear out this view. In that case it was sought to render the registered owner liable for stores furnished to the vessel, the fact being that by a charter-party the vessel had been let for a certain number of voyages at a certain rent to the captain, who ordered stores for her use. Lord Ellenborough said : “The Register Acts were passed diverso intuitu; but to say that the registered owner, who divests himself by the charterparty of all control and possession of the vessel for the time being in favour of another, who has all the use and benefit of it, is still liable for stores furnished to the vessel by the order of the captain during the time, would be to push the effect of those Acts much too far.’ (emphasis added)

6)(9)   The Judge when considering the plaintiff’s application for default judgment held that Maruba SCA was in possession or control of the ten other vessels :

‘ It would be odd for Maruba Argentina (i.e. Maruba SCA) to be ordering bunkers for the vessels unless it at least had possession or control of the same. Maruba Argentina had to be in a positon to ensure that the vessels accepted delivery of the bunkers. That seems to me sufficient evidence of Maruba Argentina’s possession or control of the other vessels.’

6)(10)   However, as pointed out earlier the ten other vessels chartered by Clan were managed by South Atlantic whose service included supplying bunkers as required by Clan.  In turn, Maruba SCA entered into Services Agreement with South Atlantic to perform those duties.  In my view the defendants have raised a meritorious case that, even proceeding on the basis that Maruba SCA supplied the bunkers, the plaintiff has not shown that Maruba SCA had an interest and benefit in the ten other vessels thereby making it in possession or control of these vessels.  In the circumstances to deprive the defendants time to file their defence will also deprive them of the opportunity of challenging the in rem jurisdiction.  The burden is, of course, on the plaintiff who seeks to uphold that jurisdiction to show that the jurisdiction existed : Kingstar Shipping Ltd. v. Owners of the ship ‘Rolita’ and another [1989] 1 HKLR 394.

7)(1)   Mr. Wright argued that it was pointless to set aside the in rem judgment because apart from the present judgment, there are many other in rem judgments that had been entered against Decurion.  The total value of these exceeded US$9.75 million but the combined value of the proceeds of sale of the vessel and the bunkers remaining on board paid into court is only about US$5.2 million.  As the other in rem judgments exceeded the proceeds of sale, the defendants can have no financial interest in pursuing the present appeal.  Even if the default judgment in the present matter were to be set aside, the defendants could not recover any part of the proceeds of sale of the vessel. The only consequence of allowing the appeal in the present matter would be to delay the plaintiffs obtaining judgment in rem.  In the event that the proceeds of sale were to be distributed before the plaintiff obtained judgment, the plaintiff would be prejudiced.  In the event that the determination of priorities was to be delayed pending the trial of the plaintiff’s claim, the other claimants to the proceeds of sale would be prejudiced.

7(2)   Mr. Sussex S.C. stated that the defendants intended to apply to set aside the other judgments as they involved the same issue on the in rem jurisdiction as the present case.  This may result in more money being made available for distribution and for return to the defendants.  In my view even leaving aside any return to the defendants, if the amount of the present claim is reduced, there will be more money for distribution to other judgment creditors and the potential liability of the defendants for any shortfall will proportionally be reduced.  Hence there is a real purpose to be served if the defendants are allowed to challenge the jurisdictional issue. 

Default judgment

12.The default judgment was obtained only because of the defendants not being able to obtain an extension of time to file their defence.  In any event, for the reasons discussed earlier, the defendants have shown a real prospect of success if they are allowed to defend the case.  In respect of the claim which includes the sum of US$85,460 which is the amount of bunkers delivered to Decurion, the issue is whether the defendants should be held liable when the sale of the bunkers were made to South Atlantic.

Conclusion

13.Accordingly I will allow the appeal, set aside the two orders made by the Judge and grant the defendants 14 days to file their defence.

Costs

14.There will be a provisional order that the costs of the appeal and below be to the defendants.

Hon Yuen JA :

15.I agree.

Mr. Colin Wright, instructed by Messrs Clyde & Co., for the Plaintiff

Mr. Charles Sussex S.C., instructed by Messrs Kennedys, for the Defendants