Darby International Investment Ltd v. Rong Tai International Shipping Ltd

HCMP 1438/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1438 OF 2013

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REASONS FOR  DECISION

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Introduction

1.The plaintiff was seeking declarations from this court that (i) the registration of a vessel M.V. “Rong Ming” (“Vessel”) by the defendant at the Hong Kong Marine Department (“Department”) and (ii) the registration of the Hong Kong Ship Mortgage by the defendant at the Hong Kong Registry of Ships were both valid, subsisting and enforceable under the Merchant Shipping (Registration) Ordinance Cap 415 (“Ordinance”). 

2.I shall refer to (i) above as the Ship Registration and (ii) above as the Mortgage Registration,and collectively as “HK Registrations”.

3.At the end of the hearing, on the face of the documents produced by the Department, I granted the declarations that the above registrations were valid, subsisting and enforceable under the Ordinance as at the date 17 February 2012, the date of the issue of the Transcript of Register by the Department, with costs to the plaintiff, to be summarily assessed.

4.My reasons are set out hereinafter.

Background

5.The plaintiff (“P”) is a company incorporated in the British Virgin Islands on 19 January 2010.

6.The defendant (“D”) is a Hong Kong company incorporated on 7 December 2007 with 10,000 shares of HK$1 each.  A Mr Zheng Zhi Long (“Zheng”) appears to be the sole director of D.  There are two shareholders, one Zhejiang Jiaolong Group Co Ltd (“Zhejiang Jiaolong”) and the other one Zheng himself, each holding 5,000 shares.

7.On or about 31 January 2013, P and D entered into a loan agreement (“Loan Agreement”) whereby a sum of HK$50m (“Loan”) was to be advanced by P to D[1].

8.In support of the Loan to be advanced, Zheng provided a copy of the Transcript of Register of the Vessel showing the Ship Registration dated 18 January 2012 issued by the Department (IMO No 9557630)[2]. According to the then Ship Registration, D was stated to be the owner holding 100% interest in the Vessel.  It also showed that the Vessel was unencumbered as of that date.

9.Upon reliance of the then Ship Registration and D’s agreement to grant a mortgage over the Vessel in favour of P, P advanced the Loan to D on or about 31 January 2012.

10.On about 6 February 2013, Zheng, on behalf of D, executed a statutory mortgage over the Vessel which was registered at the Hong Kong Registry of Ships on 17 February 2012[3].  This was reflected in the updated transcript of the HK Registrations of that date.

11.D defaulted in repayment of the Loan in breach of the terms of the Loan Agreement.

Legal Proceedings in Hong Kong and in PRC

12.P, through its former solicitors, issued an action in rem by writ on 5 June 2012 under HCAJ 100 of 2012 against the owners and/or demise charterers of the Vessel, which was subsequently amended[4] (“1^st HK Action”).  As the Vessel has never come within the waters of Hong Kong, neither the writ nor the amended writ was ever served on the Vessel.  The 1^st HK Action was not proceeded with.

13.Subsequently, with the assistance of PRC lawyers, it was discovered that the Vessel was berthed near the Zhoushan port, Ningbo, PTC.  Upon P’s instructions, the Vessel was arrested by the Ningbo maritime authorities in PRC and legal proceedings were commenced against D in PRC on 7 December 2012 for the repayment of the Loan plus interest (“PRC Action”)[5].

14.The PRC Action was contested by D which on 8 January 2013 filed an application to request for dismissal of the PRC Action on the ground that Hong Kong would be the more appropriate jurisdiction to deal with the dispute, as the action involved an overseas company, the mortgage of the Vessel took place in Hong Kong and that the dispute under the Loan Agreement should be governed by Hong Kong law[6]. The jurisdiction/forum issue appeared to be D’s only ground of opposition at that time.

15.D’s challenge to jurisdiction/forum was rejected by the Ningbo Maritime Court on 25 January 2013, and on 20 February 2013,D appealed against that decision[7]. D’s appeal was later dismissed on 20 March 2012 by the Higher People’s Court of Zhejiang Province[8].

16.The PRC Action then proceeded at the Zhoushan Tribunal Ningbo Maritime Court (“PRC Court”) and a hearing was scheduled on 28 May 2013 when evidence was to be exchanged.   Prior to that hearing, a couple of new actions sprang up.

17.First of all, on 23 May 2013, the Bank of China Ningbo Branch (“BOC”) issued a writ in Ningbo[9] against (i) a company called China Electronic Import and Export Corporation Ningbo Branch (“CEIEC”), (ii) Zhejiang Jiaolong, and (iii) another company called Zhejiang Chenye Shipbuilding Co Ltd (“Chenye”) over various loans which BOC advanced, and secured by, among other things, a mortgage dated 30 September 2010 of a vessel , also with the name of “Rong Ming”, with a registration number 070308000601 said to belong to Zhejiang Jiaolong, and said to be the same vessel arrested on 14 November 2012 by the PRC Court (“BOC Claim”).

18.One day later, on 24 May 2013[10], CEIEC filed an application to join in the PRC Action (“CEIEC’s Application”). From what one could gather from that application and further from a mediation agreement dated 2 November 2012 (“Mediation Agreement”)[11], it appeared that CEIEC had entered into a ship export agency contract with Chenye and Zhejiang Jiaolong on 2 November 2007 regarding the export of a ship.  There was a further supplemental contract on 15 December 2009 whereby the agency fee was to be increased every month if the ship delivery date was delayed.  CEIEC was to deliver the ship to a Hong Kong company.  It appeared that by 15 January 2010, as CEIEC was unable to deliver the ship to the Hong Kong company on the due date, arbitration proceedings took place in Hong Kong under which CEIEC and Chenye had to repay all advance payments and interest to the Hong Kong company.

19.According to CEIEC’s Application, Chenye and Zhejiang Jiaolong failed to make any repayments, as a result CEIEC had to repay all the sums to the Hong Kong company.  CEIEC then issued proceedings against Chenye, Zhejiang Jiaolong and Zheng in PRC.  The Mediation Agreement was reached in those proceedings between CEIEC, Chenye, Zhejiang Jiaolong and Zheng.

20.As a result of the Mediation Agreement, it would appear that the obligations of CEIEC under the export agency contract and supplemental contract signed with Chenye and Zhejiang Jiaolong were discharged and Chenye had to pay to CEIEC a sum of RMB 106,621,050.20, which was in turn undertaken to be paid by Zhejiang Jiaolong, out of which a sum of RMB 6,377,215.53 was guaranteed by Zheng.  Subsequently, according to CEIEC, Chenye, Zhejiang Jiaolong and Zheng all failed to comply with their obligations under the Mediation Agreement, and thus on 4 December 2012 CEIEC had applied to the PRC Court for enforcement.

21.According to CEIEC’s Application, a vessel by the name of “Rong Ming” was registered in the Zhoushan Maritime Administration Bureau under the name of Zhejiang Jiaolong which obtained 100% ownership of the vessel on 8 November 2008 (“PRC Registration”)[12]. Further the PRC Registration showed that on 30 September 2010, a mortgage was registered against that vessel by BOC for a debt of RMB 103,000,000, and this appeared to be the security referred to in the BOC Claim.

22.It was CEIEC’s Application that its interest would be affected in the PRC Action.  The PRC Court then adjourned the hearing to the following day to consider CEIEC’s Application.

23.From an email from P’s PRC lawyers of 5 June 2013 reporting to P on the progress of the PRC Action (“1^st Reporting Email”)[13], it appeared that on 29 May 2013, the Chief Judge of the PRC Court thought at that stage it could not entirely exclude the possibility that the vessels claimed by P and CEIEC referred to the same and only one vessel, the PRC Court therefore decided to allow CEIEC to join in the PRC Action as an interested party.  According to the 1^st Reporting Email, the PRC Court apparently requested P to obtain “the relevant original registration information and documents of M.V. “Rong Ming” under the name of D in the Department when such vessel was registered in Hong Kong under the name of D (emphasis added)” and to submit to the PRC Court for review.

24.Thereafter, P issued the originating summons in the present action on 13 June 2013 seeking the declarations against D (“OS”).

25.An order for discovery against the Department was made by Au-Yeung J on 25 June 2013, as a result of which various documents were obtained by P from the Department.

26.The latest position in the PRC Action was reported in another email dated 30 July 2013 from P’s PRC lawyers[14] (“2^nd Reporting Email”). It appeared from that email that the Judge in the BOC Claim had discussed with the Chief Judge in the PRC Action, and that the Judge in the BOC Claim had asked Zhejiang Jiaolong and Chenye to submit all original registration documents of ownership and mortgage of the Vessel when applying for the registration in Zhoushan and in Hong Kong (emphasis added).  It further appeared in the 2^nd Reporting Email that the PRC Action had been adjourned pending the outcome of the present application before this court.

Evidence

27.Ms Yeung, a director of P, made an affirmation in support of the OS, (“Yeung’s Affirmation”) which was further supported by two affirmations from a senior associate of P’s solicitors.

28.Only one affirmation was filed by a partner of D’s solicitors to oppose P’s application (“D’s Affirmation”), to which a partner of P’s solicitors filed a reply affirmation.

29.In particular, there were no affirmations filed by Zheng, D’s sole director, or by any representative of D.

D’s Grounds of Opposition

30.D’s grounds of opposition, as seen from D’s Affirmation, were, among other things, there were substantive proceedings taking place in the PRC Court concerning the Vessel and it was inappropriate for the Hong Kong Courts to make any declaration in relation to the Vessel, and thatsuch declarations would interfere with the PRC Action, and obstruct or hamper the management of PRC Action[15].

31.In support of the above grounds, various documents filed in the PRC Action were exhibited.  D’s Affirmation was filed after a hearing before G Lam J on 10 July 2013 when it was ordered that D’s application for stay or to challenge the court’s jurisdiction with respect to the OS, if any, should be taken out within 14 days and directions were also given for filing of affirmations, in the event of D taking out that application.  In the end, there was no such application filed on D’s behalf.

32.During the hearing, D’s Counsel Mr Lee had also clarified and confirmed that D was not disputing this court’s jurisdiction in respect of the OS.

33.Mr Lee, however, submitted that this court should not exercise its discretion in favour of granting the declarations sought and his main submissions are summarized as follows:

On the Ship Registration

(i)   As seen from the background of the case, the dispute was not so much between P and D and that P was prompted to commence the present proceedings because of conflicting claims of entitlement to sell the Vessel, and thus the dispute was not one merely of registration as such, or priority of mortgages, but the real ownership of the Vessel.

(ii)   P had chosen to comment proceedings in PRC, and notwithstanding D’s objection to forum/jurisdiction, the PRC Court had seized of the matter and that P’s present application at least had the incidental effect of hampering the proper decision of the issue of ownership by the PRC Court.

(iii)   The grant of the declarations would serve no useful function.

(iv)   The grant of the declaration could result in inconsistent decisions between Hong Kong and PRC Court.

On the Mortgage Registration

(v)   The above grounds were relied on.

(vi)   Further, an order on the validity of the mortgage was not necessary to settle the dispute between P on one hand, and CEIEC, BOC and Zhejiang Jiaolong on the other.

(vii)   Terms of the declaration sought were too wide as one of the issues before PRC Court was the validity of the Loan Agreement and the mortgage.

Legal Principles

34.O15 r16, RHC, provides that a party may seek a declaration in an action without obtaining other or further relief.  In particular, paragraph 15/16/3 of the Hong Kong Civil Procedure 2014, as referred to the court by Mr Lee, states that:

“Where specific relief, other than a declaration, is not claimed, the jurisdiction to make a binding declaration of right should be exercised with great caution…”

35.Further, declaratory relief should not be granted where the issue is academic.  A party seeking declaratory relief in private law proceedings without any public law element must establish that his rights are either being infringed or are threatened with infringement by the defendant.  Gouriet v Attorney General [1978] AC 435 authoritatively establishes that declaratory relief can only be granted in private law proceedings when:

“… the plaintiff, in proper proceedings, in which there is a dispute between then plaintiff and the defendant concerning their respective legal rights or liabilities either asserts a legal right which is denied or threatened, or claims immunity from some claim of the defendant against him …[16]”

“But the jurisdiction of the court is not to declare the law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not those of any one else.[17]”

“The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence of nature of the right claimed. So for then court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event.[18]”

36.Godfrey VP stated in Cheung Man Wai v Director of Social Welfare [2000] 3 HKLRD 255 that:

“The Court, even in public law proceedings, is loath to make any declaration in the nature of an advisory opinion as to the true construction or effect of legislation. It is equally loath to make a declaration in a situation which can be described as academic or hypothetical, because such a declaration would not be grounded on any factual basis. And the Court will certainly not make a declaration unless it is satisfied that the making of that declaration will serve some useful purpose.” (Emphasis added)[19]

37.Further, a declaration should only be granted when persons whose right would be affected by the grant of declaration are before the Court so that they can be heard.  Thus, in London Passenger Transport Board v Moscrop [1942] AC 332, the House of Lords refused to grant the declaration sought on the basis that interested parties (in the case, the trade union) had not been joined in the proceedings.  It was stated that[20]:

“It is true that in their absence they were not strictly bound by the declaration, but the courts have always recognized that persons interested are or may be indirectly prejudiced by a declaration made by the court in their absence, and that, except in very special circumstances, all persons interested should be made parties, whether by representation orders or otherwise, before a declaration by its terms affecting there is made.”

38.This court was further referred to passages in Zamir & Woolf, The Declaration Judgment (4^th edn)[21] on the general approach that it is desirable that all persons who appear to have a real interest in objecting to grant of a declaration should be make defendants.

Reasons

39.As submitted by P’s Counsel, Mr Lam, the declarations sought by P were only limited to the narrow issue of whether the Ship Registration and the Mortgage Registration were valid,subsisting and enforceable under the Ordinance as at their respective date of registration.  P had not sought any finding as to whether the Vessel was subject to multiple mortgages or as to the priority as between the mortgagees, nor was the court asked to go behind the HK Registrations to make any finding as to the “real ownership” of the Vessel.

40.The only defendant in the OS was D, the 100% owner registered in the HK Registrations.  D was also the only defendant in the PRC Action, until CEIEC applied on its own to join in.  There was no mortgage registered in favour of CEIEC in the HK Registrations, nor in the PRC Registration.  I see no reason as to why P would need to apply to join in CEIEC, as Mr Lee seemed to have suggested.

41.From the documents filed in the PRC Action and the two Reporting Emails, CEIEC, Zhejiang Jiaolong, Chenye, Zheng, and also BOC all appeared to be aware of the PRC Action and also the present application, but apart from CEIEC, the others did not seem to have even applied to join in the PRC Action.  In any event, the declarations sought by P in the OS concerned the HK Registrations by D, and I see no sufficient reason as to why any of the others needed to be joined in the OS.

42.D was the one which submitted all the original documents to the Department for the HK Registrations, and yet there was no affirmation from D or its sole director Zheng to clarify whether the HK Registrations and the PRC Registration related to the same and only one vessel, or they related to two different vessels since there were some discrepancies/variances in the descriptions of the vessel in the two registrations.

43.As stated in Yeung’s Affirmation[22], and in the 1^st Reporting Email, it was CEIEC’s position when they made their joinder application before the PRC Court that the validity of the HK Registration was a matter of Hong Kong law and that CEIEC had no idea as to their validity, and it seemed that it was under those circumstances that the PRC Court then requested P to obtain the relevant original registration documents of the Vessel.  It seemed clear from Yeung’s Affirmation that it was as a result of CEIEC’s position and what was reported in the 1^st Reporting Email that P issued the OS.

44.In any event, there was nothing in D’s Affirmation to contradict what was said above or in the 1^st or 2^nd Reporting Email.  I was of the view that there was no sufficient evidence to show that P was “cherry picking” one issue for decision by this court, as alleged in D’s Affirmation.

45.The documents produced by the Department were the following[23]:

(i)   Application form for registration of M.V. “Rong Mong” dated 4 June 2010;

(ii)   Declaration of Entitlement to own a ship registered dated 22 June 2010;

(iii)   Builder Certificate dated 3 June 2010;

(iv)   Certificate of Survey dated 31 May 2010;

(v)   Certificate or Declaration of Marking dated 12 June 2010;

(vi)   Certificate of Incorporation of D dated 7 December 2007.

46.The Assistant Registrar of the Department filed an affidavit[24] stating that the following were not in their possession, custody or power:

(i)   Form of Authority (Form No “MO 812”);

(ii)   Certificate of Deletion of any or all of the documents proving deletion from previous registry.

47.The documents produced by the Department were certified true copies but they were based on original documents lodged and remained with the Department.  It was not clear whether the PRC Court indeed required the originals or certified true copies from the Department would be acceptable to the PRC Court.

48.So far as this court was aware, no one had come forward to apply for rectification of the HK Registrations under s 9 of the Ordinance. Having considered the documents produced by the Department, I was satisfied that on the face of those documents, the Ship Registration and Mortgage Registration were valid at the time of their respective registrations.  I was further satisfied that the declarations sought would serve a legitimate and useful purpose and would put to rest any doubt raised by CEIEC in the PRC Action, namely whether the HK Registrations themselves were problematic according to the Hong Kong law.

49.As submitted by P’s Counsel, Mr Lam, which was accepted by this court, the declarations sought would not limit or hamper the PRC Court’s ability to make a finding on the real ownership of the Vessel or the priority of mortgages if it were to be eventually found by the PRC Court that different owners and multiple mortgages had been registered in different jurisdictions in respect of the same vessel.  I did not accept Mr Lee’s submissions that the grant of the declarations could result in inconsistent decisions between Hong Kong and PRC Court, or that there would be res judicata.  The declarations were made on the face of those documents produced by the Department, which were in turn based on original documents produced by D to the Department.

50.D had not made any allegation on the merits to challenge the validity and accuracy of the HK Registrations, and no evidence had been adduced to dispute the factual allegations made by P or the documentary evidence provided by the Department.  In my view, there was no arguable defence disclosed in D’s Affirmation.

51.Having considered all the circumstances of this case, I exercised my discretion and granted the following:

(i)   A declaration that the registration of the ship or vessel M.V. “Rong Ming” (IMO No 9557630) by Rong Tai International Shipping Limited at Hong Kong Registry of Ships, the Marine Department, Hong Kong, China (Official No HK-2814) was valid, subsisting and enforceable under and for the purpose of the Merchant Shipping (Registration) Ordinance, Cap 415, as at 17 February 2012;

(ii)   A declaration that the registration of the Hong Kong Ship Mortgage by Rong Tai International Shipping Limited at the Hong Kong Registry of Ships, the Marine Department, Hong Kong, China, in respect of the ship or vessel M.V. “Rong Ming” (IMO No 9557630) was valid, subsisting and enforceable under and for the purpose of the Merchant Shipping (Registration) Ordinance, Cap 415, as at 17 February 2012.

52.D was ordered to pay P’s costs, to be summarily assessed.  P was to submit a statement of costs within 14 days, and D was to submit any objections within 14 days thereafter.  The summary assessment will be disposed of on paper.

Mr Osmond Lam and Derek J Y Chan, instructed by ONC Lawyers, for the plaintiff

Mr Ken T C Lee, instructed by Tsui & Co, for the defendant

[1] B13-14

[2] B:18-19

[3] B:24

[4] B: 30-35

[5] B:156-160

[6] B:161

[7] B:162-165

[8] B:167-170

[9] B:178

[10] B:171-173

[11] B:174-177

[12] B:44-45

[13] B:47

[14] B:184

[15] Para 8, A:60

[16] per Lord Wilberforce, at p 483, F-G

[17] per Lord Diplock , p 501, G-H

[18] per Lord Diplock, p 501, D-F

[19] At p 259, J

[20] At p 345

[21] Paras 6-01-6-11

[22] Para 15, A:23

[23] B:136-153

[24] A:55-56