Oceanic Group Pte Ltd and Another v. The Owners and/or Demise Charterers of the Ship or Vessel “Oriental Dragon”

HCAJ 162/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 162 OF 2012

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J U D G M E N T

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I. Introduction

1.Capital Dragon Global Holdings Limited (“the Defendant”) was at the material time the sole owner of the cruise ship “Oriental Dragon” (“the Vessel”).  It had bought the Vessel and intended to start a cruise line under the Oriental Dragon brand and engaged the Plaintiffs to prepare, implement and operate the cruise line under a Consultancy Agreement (“Consultancy Agreement”) and an Appointment Letter (“1^st Appointment Letter”), both dated 1 January 2011, another Appointment Letter dated 15 March 2011 (“2^nd Appointment Letter”) together with an Annex dated 1 April 2011 (collectively “the Contract”).

2.Clause 2 of the Consultancy Agreement provided for the payment of inter alia a lump sum consultancy fee (“Lump Sum fee”) of US$38,000 per month (subsequently increased to US$40,000) commencing 1 April 2011 as fees for the strategy implementation under Part II of it and for the provision of ship management services. It also provided for the reimbursement by the Defendant of the Plaintiffs’ business class travel, accommodation, legal and out-of- pocket expenses at actual costs, payment of which should be monthly in advance within 7 days upon receipt of the invoice from the Plaintiffs.

3.The Plaintiffs complained that from September 2011 onwards, the Defendant began to fall into arrears in paying the Plaintiffs’ invoices. A typical invoice would demand the payment of the Lump Sum fee plus some travelling, accommodation expenses, salaries of the Plaintiffs’ own staff etc. The Plaintiffs also complained that the Defendant had failed to reimburse the Plaintiffs for disbursements expended on the operation and management of the Vessel. From the invoices and contemporaneous emails provided, it would appear that these included management/agency fees for crew, insurance premium, telecommunication services, spare parts and so on.

4.On 14 September 2012, the Plaintiff issued an in rem Writ in this action. In the endorsement of claim, the Plaintiffs’ claims were described as monies due and owing for “goods and materials supplied to the Vessel” and “services rendered to the Defendant and/or the Vessel”, such goods materials and services were “supplied to a ship for her operation or maintenance” within the meaning of section 12A(2)(l) of the High Court Ordinance, Cap. 4 (“HCO”) and “disbursements made by an agent on account of a ship” within the meaning of section 12A(2)(o) HCO.

5.As at 25 September 2012, when the Plaintiffs applied ex parte for a warrant of arrest against the Vessel, the Plaintiffs’ claims were in the sum of US$1,729,596.73. According to an undated Statement of Account issued by the 2^nd Plaintiff (“Statement of Account”), 1 out of almost 300 pages of documents exhibited to the affirmation dated 25 September 2012 in support, the claims were broken down into about 20 items. For reasons which would become apparent later, only three need be mentioned here:

6.In the affirmation in support, the Plaintiffs simply described the nature of their claims as follows:

“5. At all material times the Plaintiffs are the consultant and/or advisor and/or manager and/or goods and services provider of the Defendants in respect of the ship technical management, marine planning, recruitment and procurement for the Vessel.

6. Pursuant to Clause 2 of the Agreement, the fees and disbursements expended by the Plaintiffs on behalf of the Defendants for goods and services provided to the Vessel and for the Plaintiffs’ management of the Vessel shall be payable monthly in advance at the beginning of each calendar month within 7 days upon receipt of the invoice from the Plaintiffs. Such disbursements include, inter alia, renovation, first fitting and conversion of the Vessel, fuel and port, hotel and food, safety and operational equipment on board the Vessel, their maintenance and repair, consumables, dry-dock, upgrading and refurbishment, overheads etc. In short, supply of goods and services required by the Vessel is its intended operation.

7. As can be seen from Part II of Annex I to the Agreement, outgoings relating to “technical, crew, fuel and port, hotel and food, entertainment, insurance, maintenance and consumables, dry-dock, upgrading and refurbishment, overheads, sales and marketing” are “expenses” which the Plaintiffs had already paid or had incurred liability for payment to third party suppliers for the management of the Vessel. Such ‘expenses’ were included in the invoices issued by the Plaintiffs for reimbursement by the Defendants. Goods and materials such as fuel and port, hotel and food, consumables, dry-dock, refurbishment, equipment etc. had been supplied to the Vessel for her management and operation.

8. The Plaintiffs rendered invoices to the Defendant in respect of the ‘expenses’, outgoings, disbursements and fees incurred for the management and operation of the Vessel…

9.    The Defendants also failed to reimburse the Plaintiffs for disbursements expended on the operation and management of the Vessel on behalf of the Defendants…”

7.The warrant of arrest was granted on 25 September 2012.

8.By a letter dated 7 October 2012 from the Defendant’s then solicitors to the Plaintiffs, the Defendant terminated the Contract by reason of the Plaintiffs’ alleged repudiation. The Plaintiffs said it was they who terminated the Contract by reason of the Defendant’s repudiation.

9.On 8 October 2012, the in rem Writ and Warrant of Arrest were served on the Vessel.

10.On 15 October 2012, the Defendant by its solicitors acknowledged service of the Writ.

11.By the time of the Statement of Claim dated 12 November 2012, the Plaintiffs had added further claims against the Defendant so that the total amount of the claims was increased to about US$2.5 million. One of the added claims was in respect of payment in lieu of 3‑month notice.

12.Also on 12 November 2012, the Defendant’s solicitors wrote to the Plaintiffs’ solicitors stating that the arrest was wrongful and demanding the immediate release of the Vessel on the grounds that inter alia the claims were not maritime claims and that there was material non‑disclosure in the ex parte application before the Court.

13.By 12 December 2012, the Defendant had made partial payment in the sum of over US$1.4 million. This amount consisted of manning fees, Lloyd’s service fees, supplies to the Vessel and crew wages. As a result, the Plaintiffs agreed to deduct the amount from their total claims figure.

14.On 13 December 2012, after a contested hearing, Barma JA assessed security at US$2,000,000 and ordered that the Vessel be released within 48 hours after payment of the said amount into Court.

15.On 2 January 2013, Barma JA made a further order by consent that the security be varied to US$2.4 million and that the Vessel be released forthwith upon payment of the sum into Court. On 3 January 2013, upon the said security being paid into Court, the Vessel was released.

16.There were seven applications in this action before the court:

a.   The Defendant’s Summons dated 10 December 2012 pursuant to RHC Order 12 r 8 for a declaration of the Court declining jurisdiction it may have over the action or a stay of the action on the ground that the action should be conducted in Singapore and/or that the Defendant was entitled to rely on an agreement excluding the jurisdiction of this court (“Stay Application”);

b.   The Defendant’s Notice of Motion dated 28 December 2012 to discharge the warrant of arrest under RHC Order 75 rr 12 & 13 (“Discharge Application”);

c.    The Plaintiffs’ Summons dated 6 March 2013 for Mareva relief against the Defendant up to US$847,492.00 out of the sum of US$2.4 million paid into Court by the Defendant on 3 January 2013 (“Mareva Application”);

d.   The Plaintiffs’ Summons dated 30 May 2013 for:

i.   leave to amend the Statement of Claim and to withdraw certain claims in this action (“Amendment Application”); 

ii.   summary judgment under RHC Order 14 r 1 in the sum of US$785,183.11 (“Summary Judgment Application”);

e.    The Defendant’s Summons dated 5 June 2013 to:

i.     set aside the Amended in rem Writ and service of it pursuant to RHC Order 12 r 8 (“Setting Aside Application”) on the ground that the court had no in rem jurisdiction over the Vessel/the Defendant and there be a declaration to that effect;

ii.   alternatively, strike out the Amended in rem Writ pursuant to RHC Order 18 r 19 on the ground that the Plaintiffs had improperly invoked the in rem jurisdiction of this court and/or on the merits (“Striking Out Application”). 

17.In the course of the hearing, Mr Smith SC indicated to the court that he would not be pursuing the Striking Out Application on the merits.

18.In addition, there were also before this court:

(1)   the Plaintiffs’ draft summons yet to be issued in HCCL 22 of 2013, a fresh in personam action instituted by the Plaintiffs on 18 June 2013 against the Defendant, for Mareva relief under section 21L of HCO (HCCL Mareva Summons);

(2)   the Defendant’s summons dated 24 June 2013 to set aside the Writ and service of it in HCCL 22 of 2013 (HCCL Setting Aside Summons);

(3)   the Plaintiffs’ Originating Summons dated 18 June 2013 in HCMP 1506 of 2013 for Mareva relief under section 21M of  HCO in support of intended foreign proceedings against the Defendant (HCMP Mareva application);

(4)   the Defendant’s summons dated 24 June 2013 to set aside the Originating Summons in HCMP 1506 of 2013 (“HCMP Setting Aside Summons”).

19.After discussion with counsel on both sides, this court decided as a matter of case management to hear submissions on the Discharge Application and the Setting Aside Application first. The reason was that in the affirmation in support of the Discharge Application, the Defendant relied on two grounds only: (a) many of the Plaintiffs’ claims did not fall within the admiralty jurisdiction of the court and (b) material non‑disclosure. In the affirmation in support of the Setting Aside Application, the Defendant relied on one ground only ie the Plaintiffs’ claims did not fall within the admiralty jurisdiction of the court. The two applications raised common issues of the court’s admiralty jurisdiction and a decision on them, one way or another, could render some of the remaining applications academic.

20.This is the court’s judgment on the two applications.

II.      Whether the Plaintiffs could invoke the admiralty in rem jurisdiction

21.Section 12A of HCO provides inter alia as follows:

(1)   The admiralty jurisdiction of the Court of First Instance shall consist of:- 

(a)   jurisdiction to hear and determine any of the questions and claims mentioned in subsection (2)…

(2)   The questions and claims referred to in subsection (1)(a) are:-

…

(l)      any claim in respect of goods or materials supplied to a ship for her operation or maintenance;

…

(o)     any claim by a master, shipper, charterer or agent in respect of disbursements made on account of a ship.”

22.Mr Smith SC, for the Defendant, contended that a number of items in the Statement of Account were not in rem claims as a matter of law. They were (1) management fees, (2) insurance premium, (3) crew wages. Further, the claim for payment in lieu of 3-month notice, added after the issue of the in rem Writ and the arrest, was also not an in rem claim.

23.Mr Smith SC further submitted that it was open to the Defendant to challenge the exercise of the in rem jurisdiction in respect of each discrete claim made by the Plaintiffs: The “Decurion” [2013] 2 HKLRD 930 paras. 33 to 36. As this approach was not disputed by the Plaintiffs, this court would proceed to examine the nature of each of the claims challenged by the Defendant.

Management Fees in the sum of US$459,225.80 and payment in lieu of 3‑month notice in the sum of RMB770,400

24.First and foremost, although the claim of US$459,225.80was described as management fees, there was no dispute that it comprised both the Lump Sum fee and disbursements.

25.Mr Smith SC submitted that, first of all, management fees did not on their face fall within section 12A(2)(l) HCO in that they were not “…in respect of goods or materials supplied to a ship for her operation or maintenance”. Nor did they fall within section 12A(2)(o) HCO as “disbursements made on account of a ship”.  Similarly, payment in lieu of 3‑month notice did not fall within either sub-section.

26.Further, from the recital and the terms of the Consultancy Agreement, it would appear that management fees were payable in respect of cruise consultancy and management services rendered to a cruise line under the Oriental Dragon brand name rather than to the Vessel specifically. Indeed, the scope of the services to be provided by the Plaintiffs, as described in the Annexes, encompassed inter alia research to be undertaken in ports like Shanghai, Cheju, Wen Zhou and Keelung into and promotion of the cruise line business. 

27.I would first remind myself of some uncontroversial legal propositions on the ambit of the admiralty jurisdiction under section 12A(2)(l) HCO:

a.   First, the section contains a jurisdiction which is no narrower than its predecessor jurisdiction in respect of claims for “necessaries”: The Edinburgh Castle [1999] 2 Lloyd’s Rep 362.

b.   Second, the jurisdiction encompasses “whatever is fit and proper for the service on which a vessel is engaged, whatever the owner of that vessel, as a prudent man, would have ordered, if present at the time…as applied to those repairs or things provided for the ship by order of the master, for which the owners are liable”: The Riga (1872) LR 3 A & E 516, 522.

c.    Notwithstanding the words “goods or materials supplied to a ship”, the jurisdiction includes claims for services e.g. stevedoring services or services of crew and officers: The Edinburgh Castle supra; The Nore Challenger [2001] 2 Lloyd’s Rep 103.

d.   No distinction is to be drawn between a claim by the person who actually supplied the goods materials or services to the ship and a claim by the person who pays for or renders himself liable to pay for the supply: The Kommunnar [1997] 1 Lloyd’s Rep 1; The Nore Challenger supra.

e.    There could be a supply of goods, materials or services to a ship even the contract in question does not specifically refer to her.  The matter must be judged as at the time when the services were supplied as a question of fact: The Bass Reefer (1992) 37 FCR 374, 385.

f.     It is essential that the claim relates to supplies to a particular ship for her operation or maintenance: The Bass Reefer (1992) 37 FCR 374, 386.

28.On the ambit of the admiralty jurisdiction under section 12A(2)(o) HCO, all I need to remind myself, for the present purpose, is that the disbursements must relate to the operational aspect of the ship: The Sea Friends [1991] 2 Lloyds Law Rep 322.  Further, a ship’s agent is entitled to include a reasonable figure for his own services in his claim for disbursements made on account of a ship: The Westport no. 3 [1966] 1 Lloyd’s Rep 342.

29.As far as Lump Sum fee was concerned, in the view of this court, their nature must be determined by reference to the Contract as a whole. In this regard, it was important to note that the research and consultancy services with regard to port information under Part I of the Consultancy Agreement were part only of the Plaintiffs’ duties, and were to be completed by 31 March 2011.

30.Under the 1^st Appointment Letter, the Plaintiffs, as ship manager, had also undertaken onerous ship management duties. These included, as per clause 2 in the 1^st Appointment Letter, marine planning, technical operations of the ship, deck and engine crew manning, bunkers, luboil, fresh waters, dry-dock, telecommunication interface and all technical spare supplies relevant for the smooth operation and regular maintenance of the ship. The division of labour and authority, as between the 1^st and 2^nd Plaintiffs, was that the 1^st Plaintiff’s role was consultancy and advisory, whereas the 2^nd Plaintiff would be responsible for ship technical management, marine planning, recruitment and procurement.

31.On the evidence, the cruise line under the Oriental Dragon brand consisted of the Vessel only. As there was only one ship, the ship management services provided under the Contract could only have been provided in respect of the Vessel alone.  As there was no agreed apportionment of the Lump Sum fee of US$40,000 as between the consultancy and ship management services, it could not be said that the monthly sum was payable only in respect of the consultancy part of the services. There was, on the evidence, also no rational basis to unilaterally attribute a percentage of the Lump Sum fee to the consultancy services on the one hand and ship management services on the other for a particular month during the period claimed. On balance of probabilities, from September 2011 onwards, the bulk of the Plaintiffs’ duties would have been ship management rather than consultancy.

32.For these reasons, this court concluded that the Lump Sum fee could come within the ambit of either section 12A(2)(l) HCO or section 12A(2)(o) HCO.

33.But that was not the end of it. The management fees claimed also included disbursements. This much was clear from the invoices and the particulars pleaded in the Statement of Claim.  As I said earlier, some of the invoices contained claims for miscellaneous expenses such as travelling, accommodation, salaries of the Plaintiffs’ own staff, telephone charges and so on. This was pointed out by the Defendant in the 2^nd affirmation of Jenkin Luk in support of the Discharge Application.

34.The Plaintiffs’ reply was contained in the 3^rd affirmation of Daniel Chui. He said some employees of the Plaintiffs, such as Bee Hong, a graphic designer and Sam, an I.T. manager, were seconded to the Vessel to provide technical and expertise services in respect of her operation and management. Hence, the Plaintiffs billed their salaries as disbursements in the monthly invoices issued to the Defendant, pursuant to the terms of the Consultancy Agreement.

35.Even accepting that two of the Plaintiffs’ own employees had been seconded to the Vessel and that they could temporarily be considered as “crew”[1], the evidence was rather unclear as to how all their expenses e.g. travelling, hotel, telephone charges related to supplies (whether of goods, materials or services) to the Vessel for her operation or maintenance. They might or might not be so, depending on the circumstances under which such expenses were incurred. If the Plaintiffs claimed such expenses related to the Vessel’s operation or maintenance, it was incumbent on them to explain the basis clearly when they made their application for the warrant of arrest. They had failed to do so.

36.With regard to the claim for payment in lieu of 3-month notice under clause 1 of the Consultancy Agreement, at one stage this court was attracted by Mr Alder’s submission that the payment in lieu of 3‑month notice was part of the package of remuneration that the Defendant and the Plaintiffs agreed to. On this basis, it could be argued that the Plaintiffs had earned this payment while providing inter alia ship management services to the Vessel during the currency of the Contract. Hence, this claim could be properly regarded as an in rem claim in the same way as the Lump Sum fee.

37.On reflection, this court was of the view that it was rather far‑fetched to suggest this claim related to supplies (whether of goods, materials or services) to the Vessel for her operation or maintenance. In its natural and ordinary meaning, payment in lieu of notice of termination of the Contract was not remuneration for services rendered to the Vessel. On the contrary, it was compensation to the Plaintiffs for not being given the opportunity to continue their services under the Contract, including inter alia managing the Vessel. As such, it could not be regarded as having any relations to any supplies (whether of goods materials or services) to the Vessel, whether for her operation, maintenance or otherwise.

38.In this regard, an analogy can be made with a seaman’s claim for wages which historically has long been recognised as a maritime lien. It is also expressly recognised as a proper in rem claim under section 12A(2)(n) HCO. The concept of “wages” has been construed liberally and extended to all sorts of remuneration for a seaman’s services including paid leave, sick leave, bonuses: The Arosa Star [1959] 2 Lloyd’s Rep 396; repatriation costs: The Westport no. 4  [1968] 2 Lloyd’s Rep 559. However, it has not been recognised as including severance payments, on the basis that a severance payment is not payable for service to a ship. Rather, it is compensation for losing employment: The Tacoma City [1991] 1 Lloyd’s Rep 330; The Pointer Apitong [1991] 2 HKC 503.

39.The same could in the present case be said of the claim for payment in lieu of 3-month notice. It was not remuneration for services rendered to the Vessel. Rather, it was compensation for the early discontinuance of the Plaintiffs’ management services to the Vessel.

Insurance Premium in the sum of US$144,213.67

40.In the present case, the insurance claim related to H&M ie Hull & Machinery and P&I ie Protection & Indemnity as can be seen from an email dated 21 August 2012 from the Plaintiffs to the Defendant and the Statement of Account.

41.As I said earlier, for the purpose of section 12A(2)(o) HCO, the disbursements must relate to the operational aspect of the ship: The Sea Friends [1991] 2 Lloyds Rep 322.  For this reason, a claim for insurance premiums or the expenses of procuring insurance for the ship does not fall within section 12A(2)(o) HCO since the obtaining of insurance is to protect the financial interests of the owners – it is not concerned with any of the operational aspects of the ship. 

42.There was no answer to this by the Plaintiffs save that the legal position was not as clear as the Defendant suggested.

43.In the view of this court, the legal position is clear. A claim for insurance premiums is not a maritime claim justifying arrest of ship, period. Historically, this was a policy decision made at the International Convention on the Unification of Certain Rules relating to the Arrest of Sea‑going Ships 1952 (“Arrest Convention”): Gatoil v Arkwright-Boston [1985] AC 255, 265A-C (Lord Wilberforce). As far as possible, the courts would construe section 12A(2) HCO in line with the Arrest Convention: The Eschersheim [1976] 1 WLR 430, 436.

44.For these reasons, the claim for US$144,213.67 could not be regarded as an in rem claim.

Crew Wages in the sum of US$559,125.19

45.The provision of the services of crew and officers to a ship comes within the ambit of section 12A(2)(l) HCO: The Edinburgh Castle supra; The Nore Challenger supra. Further, it would appear to be accepted by the Defendant that the Plaintiffs’ claim for crew wages could also come within Section 12A(2)(o) HCO as a disbursement made on account of the Vessel, if such disbursement had been made by the Plaintiffs or they had rendered themselves liable for such wages.

46.It was common ground that the outstanding crew wages were subsequent to the arrest settled by the Defendant. What the Defendant challenged was whether the Plaintiffs had rendered themselves liable for such wages in the first place. If not, then the Plaintiffs had no claim, in rem or in personam, against the Defendant for crew wages at all and this fact should have been stated clearly at the application for warrant of arrest.

47.Purely on the basis of the evidence used at the ex parte stage, this court accepted that the Plaintiffs’ claim for crew wages was doubtful.

48.First, there was no demand for crew wages in any of the monthly invoices sent by the Plaintiffs to the Defendant which were exhibited to the affirmation in support of the ex parte application. Second, in an email dated 21 August 2012 from Daniel Chui to Jenkin Luk demanding payment of outstanding sums due, there was a demand for crew agency fees but no mention of crew wages. This email was among the close to 300 pages of exhibits to the affirmation in support. Third, there was no explanation whatsoever in the affirmation in support the basis on which the Plaintiffs claimed to be responsible for crew wages and hence were entitled to make a claim for them. Clause 1 of the 2^nd Appointment Letter only provided that, the 2^nd Plaintiff, as Crew Recruitment Manager, would recruit, interview, employ and replace (on ship owner and/or operator’s behalf) the full complement of deck and engine officers and crew and hotel staff and service and entertainment crew on board the Vessel.

49.However, prior to the second day of hearing, the Plaintiffs had exhibited close to a thousand pages of the employment contracts of members of the crew to show that they had entered into those contracts personally. On that basis, Mr Smith SC properly accepted, on the second day of hearing, that the claim for unpaid crew wages could come within the court’s admiralty jurisdiction as “necessaries” and left the point at that.

Conclusion

50.From the analysis above, this court concluded that the Plaintiffs had “inflated” their alleged in rem claims against the Vessel when they applied for the warrant of arrest on 25 September 2012, but not nearly by as much as the Defendant had suggested.

51.Of the total claims of over US$1.7 million, it was clear that the claim for insurance premium was not an in rem claim, and it was unclear, on the Plaintiffs’ evidence, how much of the “disbursements” portion of the claim for managements fees was. As the evidence was unclear, the Plaintiffs had failed to demonstrate the “disbursements” part of the claim for management fees was an in rem claim. The Defendant did not challenge the in rem nature of the other items in the Statement of Account. In these circumstances, this court would conclude that the Plaintiffs’ claims, as they stood on 25 September 2012, were substantially in rem claims within sections 12A(2)(l) & (o) HCO.

52.Concerning the Plaintiffs’ present claims of ~US$785,000 as particularised in the draft Amended Statement of Claim, this court was also satisfied that the claim for payment in lieu of 3-month notice was not an in rem claim.

53.In these circumstances, it would not be appropriate to set aside the Writ or its service altogether. Nor would it be appropriate to discharge the warrant of arrest on this ground.

54.It is trite law that a plaintiff is not entitled to arrest a ship or security (put up for the release of the ship from arrest) for in personam claims. The amount of security now in court will have to be reduced to reflect this court’s conclusion on the extent to which the Plaintiffs’ claims are not in rem claims: The J Faster supra; Hong Kong Civil Procedure 2013 para. 75/13/4.

III.     Full and Frank disclosure

55.The Plaintiffs’ application for a warrant of arrest was made ex parte. It is not and cannot be disputed that the Plaintiff was under a general duty of full and frank disclosure.

56.In the context of admiralty in rem actions, an applicant for a warrant of arrest is under a strict duty of full and frank disclosure in respect of whether its claims falls within the in rem jurisdiction of the court, on the facts and the law: The Harima [1987] HKLR 770; The Trust unrep. CACV164 of 1991, Court of Appeal, 30 April 1992; The “King Coal” [2013] 2 HKLRD 620.

57.There is a sound policy reason for this need for full and frank disclosure.

58.In The Asian Atlas [2008] 3 HKLRD 461, Ma CJHC, as he then was, and with whom the other two members of the Court of Appeal agreed, explained at [36]:

“In my view, there was material non-disclosure in this case. The judge was of the view that there was not as far as this aspect was concerned, but, with respect, his reasons for this conclusion are not readily apparent. The admiralty jurisdiction of the court is often regarded as draconian; the arrest of a ship carries with it considerable inconvenience, if not financial loss, for which redress is not always easy, and it is precisely for this reason that considerable care must be taken to ensure that the affidavit leading to the warrant of arrest must properly depose to all material facts which are said to justify the exercise of this particular jurisdiction.” (emphasis added)

59.There was some dispute between the parties as to the ambit of this duty. In particular, there was a dispute as to whether facts going to the merits of the claim were within the ambit of this duty of full and frank disclosure.

60.Mr Alder, for the Plaintiffs, submitted that the answer was a definite no. For this purpose, he relied on the Hong Kong Court of Appeal decision in The Trust supra and the Singapore Court of Appeal decision in The Bunga Melati 5 [2012] SGCA 46. To this list of authorities, one could add The Harima supra and The Tat Yau [1998] 4 HKC 108.

61.Mr Smith SC, for the Defendant, submitted that the answer was not so definite. He relied on The Asian Atlas supra and The J Faster [2000] 1 HKC 652.

62.In The Asian Atlas supra the plaintiff asserted two separate in  rem claims in respect of “damage done by a ship” under section 12A(2)(e) HCO, described by the court as “Indemnity Claim” and “Damage Claim”. The claims arose out of a collision between a ship and a subsurface launchway owned by the plaintiff in the harbour of a US river. The ship in question was arrested in Hong Kong.

63.The Court of Appeal held that the Indemnity Claim fell outside the ambit of section 12A(2)(e) HCO so that there was no jurisdiction to arrest the ship in relation to it. The Court of Appeal further held that, while the Damage Claim did come within section 12A(2)(e) HCO, the admiralty jurisdiction of the court should not have been engaged and set aside the warrant of arrest. The reasons were that:

“33. The problem that faced the plaintiff here, however, was whether it had suffered any damage at all...

35. It was this fact (namely that the launchway had not been in use for 36 years) that led the defendant to allege in the present application that there had been material non‑disclosure in the application for a warrant of arrest. I accept that in the context of an application for a warrant of arrest, the requisite disclosure of material facts relate primarily to questions of jurisdiction and not to merits : see The Tat Yau 8 [1998] 4 HKC 108, at 114H‑115E (Stone J); Hong Kong Civil Procedure 2008 Vol.1 at paragraph 75/5/11. In the present case, however, given the inability of the Plaintiff to quantify any damage, if the Court had been informed at the ex parte stage that in fact the launchway had not been in use for 36 years, it may well have taken the view, as I do, that no real claim existed in the first place.” (emphasis added)

64.In the J Faster supra, Waung J dismissed the plaintiff’s action on the ground that there was no reasonable basis by which the defendants could be held liable in personam to the plaintiff. The Judge also set aside the warrant of arrest on the ground of material non-disclosure by the plaintiff at the ex parte application for a warrant of arrest. The court held that it was highly material on an ex parte application for proper evidence to be put before the court as to who was the person liable in personam. In the circumstances of that case the plaintiff had failed to discharge its duty of full and frank disclosure.

65.In the view of this court, the authorities are not difficult to reconcile.

66.In the context of an application for a warrant of arrest, the requisite disclosure of material facts (or law) relates primarily to questions of jurisdiction and not to merits: The Asian Atlas supra. That does not mean that the merits of a plaintiff’s claim are totally irrelevant. If there are matters of fact or law which potentially render a plaintiff’s claim against the defendant unsustainable so that in truth the plaintiff does not really have a cause of action at all, such matters must be disclosed at the ex parte application for a warrant of arrest, in compliance with the plaintiff’s duty of full and frank disclosure. The strength/weakness of the plaintiff’s cause of action is one matter. The existence/non‑existence of the plaintiff’s cause of action is another.

67.It should be uncontroversial that if a plaintiff’s cause of action against the defendant is unsustainable, he should not invoke the court’s admiralty jurisdiction and arrest the defendant’s ship at all. Unlike the present position in England, the court’s power to grant a warrant of arrest in this jurisdiction remains discretionary, although it is rare that the discretion is not exercised if the jurisdictional requirements in sections 12A and 12B HCO and, if I may add, the procedural requirements in RHC Order 75 are met: The Amigo [1991] 2 HKC 491, 494; The Dragon Supreme [1997] 3 HKC 405, 406.

68.This court ventures to hold that, jurisdictional and procedural requirements aside, if there is one matter which would critically affect the court’s exercise of its discretion when dealing with an application for warrant of arrest, it must be that the plaintiff has no sustainable claim against the defendant.  If a plaintiff fails to make full and frank disclosure to the court in this regard, that in itself is a ground for discharging the warrant of arrest. That was what happened in both The Asian Atlas supra and The J Faster supra.

69.In so ruling, this court is not seeking to introduce an independent merits test, whether on the “good arguable case” or any other standard, at the stage when a plaintiff invokes the admiralty jurisdiction of the courts. The introduction of such a test is impracticable and impermissible on the authorities. As Barnett J said in The Amigo [1991] 2 HKC 491, 495B-C,

“It is important to bear in mind, however, that when considering an application for a warrant, the registrar’s function is limited. The registrar is not required to consider the merits of a plaintiff’s claim. He is required only to consider whether a plaintiff has disclosed a cause of action which is recognized by s 12B Supreme Court Ordinance (Cap 4) as a basis for an action in rem. It is material which is relevant or germane to that consideration, ie whether there is jurisdiction, which must be fully disclosed.”

70.The position is similar in Singapore. In The Bunga Melati 5 [2012] SGCA 46, the Court of Appeal said this:

“113. While it is now clear that a plaintiff need not show a good arguable case on the merits of its claim (ie, under step 3) to establish admiralty jurisdiction, we would pause to remind prospective plaintiffs that their obligation to make full and frank disclosure when they apply ex parte for a warrant of arrest remains (see The Rainbow Spring at [33]; The Vasility Golovnin (CA) at [83]. Even at that early stage, a plaintiff who fails to disclose all material facts supporting its claim will run the risk of not being granted a warrant of arrest; or if granted initially, could subsequently have its arrest set aside (see The Rainbow Spring [35]-[37]) and be liable for wrongful arrest (see The Vasility Golovnin (CA) at [139]-[141]).

114. While the Assistant Registrar hearing an ex parte application for a warrant of arrest should not be overly concerned with the merits or sustainability of the plaintiff’s action, he or she could still exercise discretion not to grant the warrant of arrest if obviously insufficient or contradictory documentary evidence have been adduced to show that the defendant is indeed the “relevant person” under s 4(4) of the HCAJA…

117. For that reason, an Assistant Registrar hearing an application for a warrant of arrest must act as the first “gatekeeper” against a completely unmeritorious claim, by refusing to grant the warrant should the plaintiff’s claim be supported by obviously insufficient or contradictory documentary evidence…”

71.For the present purpose, it is necessary for this court to take the matter one step further.

72.At the ex parte application for a warrant of arrest, a plaintiff with multiple claims should, in compliance with his duty of full and frank disclosure, clearly set out in the affidavit in support whether all of those claims, or only some of them, come within the in rem jurisdiction of the court. If only some of them come within the in rem jurisdiction of the court, the plaintiff must clearly identify those claims which do, and those which do not.  This is necessary for three reasons.

73.First, in order for a plaintiff to fulfil the requirements as to the contents of the affidavit under RHC Order 75 r 5(8)(a) & (b), read together with RHC Order 75 r 5(10).

74.Second, it is common ground that, in the present context, a plaintiff is not allowed to piggyback an in personam claim (which does not support a warrant of arrest) onto an in rem claim: The Asian Atlas supra; The Decurion supra paras. 34-5. A plaintiff with multiple claims against a defendant will be doing exactly just that if only some of his claims come within the in rem jurisdiction of the court, but he proceeds on the basis that all of his claims do.

75.Unless a plaintiff clearly distinguishes his in personam claims from his in rem claims, it will be very difficult, if not impossible, for the courts to prevent “piggybacking” when faced with an application for warrant of arrest, which is often made on an urgent ex parte basis. The present case is a good illustration of this difficulty. If a plaintiff is not required, under its duty of full and frank disclosure, to clearly distinguish his in personam claims from his in rem claims in the affidavit in support, there will be no sanction after the grant of the warrant of arrest either.

76.Third, a plaintiff and its legal advisers have a duty to present his case fully and fairly and not to mislead the court. The same principle applies to material misrepresentations as much as material non-disclosure: Spry The Principles of Equitable Remedies 7^th Ed. pp 495-8; Bank Mellat v Nikpour [1985] FSR 87; Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350; Memory Corporation Plc v Sidhu (no. 2) [2000] 1 WLR 1443. A plaintiff with multiple claims against a defendant will not be presenting his case fully and fairly if he asserts all his claims are in rem claims when in fact and in law only some of them are.

77.In the present case, Mr Smith SC in his written submissions said the Plaintiffs clearly ought to have informed the court at the ex parte application there was at least a serious risk that a large proportion of the sum claimed did not fall within the court’s in rem jurisdiction as follows:

a.   Management fees did not fall under Section 12A(2)(l) or (o) HCO, and in any event, the management fees did not relate specifically to the Vessel.

b.   Insurance premiums and expenses were not claimable in rem. This principle was very well known and was clearly stated in the leading text books such as Meeson & Kimbell Admiralty Jurisdiction and Practice 4^th Ed. at para. 2.128.

c.    The Plaintiffs did not make any disbursements for the crew wages and were not liable for the same. The claim therefore did not fall within Section 12A(2)(l) or (o) HCO.

78.This court has concluded at paragraph 51 above that the Plaintiffs’ claims, as it stood on 25 September 2012, were substantially in rem claims within sections 12A(2)(l) & (o) HCO. Given this conclusion, it seemed to this court that the Plaintiffs’ failings, at the ex parte application, were three-fold:

a.   First, they failed to properly explain by evidence the basis on which the “disbursements” portion of the claim for management fees was said to be covered by section 12A(2)(l) or 12A(2)(o) HCO.

b.   Second, their inclusion of the claim for insurance premium as an in rem claim, when it was not.

c.    Third, they failed to properly explain by evidence the basis on which they asserted a claim for unpaid crew wages: see paragraphs 45 to 49 above.  

79.Further, as a general observation, this court would note that it is distinctly unhelpful for the affidavit in support of an application for warrant of arrest to exhibit voluminous documents without a proper explanation of the nature of the plaintiff’s claims in the body of it. The present case is also a good illustration in this regard. This court is not oblivious to the difficulties, often faced by an applicant’s legal advisers, of having to launch an ex parte application on an urgent basis. However, the courts at all levels, including this one, must endeavour to uphold the law as they find it.

80.However, given this court’s conclusion that the Plaintiffs’ claims were substantially in rem claims, their application for a warrant of arrest would have been justified on the basis of those in rem claims alone. Further, given the relative insignificance of the claim for insurance premium and “disbursements” to the application, it was inherently improbable that the inclusion of it as an in rem claim, as well as the rather unsatisfactory treatment of the “disbursements” portion of the claim for management fees, at the stage of the ex parte application, was deliberately calculated to mislead the court.

81.In the circumstances of this case, it would not be appropriate to discharge the warrant of arrest altogether.

82.Notwithstanding proof of misrepresentation/material non-disclosure which justifies the immediate discharge of an ex parte order, the court still retains a discretion to continue it or to make a new order, although this discretion is one to be exercised sparingly: Brink’s Mat Ltd v Elcombe supra. In the words of Robert Walker LJ (as he then was) in Memory Corporation Plc v Sidhu (no. 2) [2000] 1 WLR 1443, 1455:

“Above all the court must bear in mind the overriding objective and the need for proportionality. As Balcombe L.J. said in Brink’s Mat Ltd. v Elcombe [1988] 1 W.L.R. 1350, 1358, this judge-made rule cannot itself be allowed to become an instrument of injustice.”

83.Subject to the parties’ submissions on the topic, it would appear to this court that the Plaintiffs’ failings can properly be reflected by a suitable order on costs. At the risk of stating the obvious, future applications for the discharge of warrants of arrest will be decided on a case by case basis in light of the facts of each case and the observations made in this Judgment concerning, inter alia, the duty of full and frank disclosure.

IV.     Defects in the applications/ Whether the Defendant was out of time

in challenging admiralty jurisdiction / Submission to jurisdiction

84.Mr Alder, for the Plaintiffs, submitted to this court that the Discharge Application should also be dismissed on the following three grounds:

(1)   As a challenge to jurisdiction, the notice of motion was erroneously issued under RHC Order 75 rr 12 & 13 whereas the Defendant should have issued a summons pursuant to RHC Order 12 r 8(1) & (3).

(2)   The application was out of time. The Discharge Application should have been brought under RHC Order 12 r 8 within the time limited for the filing of a defence which expired on 10 December 2012 ie 28 days after service of the Statement of Claim. The Discharge Application was only issued 18 days later on 28 December 2012.

(3)   The application was inconsistent with the Defendant’s Stay Application which was issued under RHC Order 12 r 8 within time on 10 December 2012. The argument was that the Defendant had submitted to the jurisdiction of the Hong Kong court by inviting the court to decide whether Singapore was the forum best suited to adjudicate upon the Plaintiffs’ claims. Alternatively, Mr Alder argued that there was a submission to jurisdiction by reason of the Striking Out Application which was merits-based.

85.It would appear to this court that the third ground ie submission to jurisdiction was equally applicable to the Setting Aside Application. As that application was issued in June this year, it would also be out of time, if Mr Alder’s second ground was a valid one.

86.Given this court’s conclusions under Sections II and III above, it was strictly speaking unnecessary to rule on these three grounds. I would deal with them briefly in recognition of the efforts of counsel.

87.I should begin with The Resource 1 (2000) 3 HKCFAR 187. For the present purpose, I need only recite three propositions of law which can be derived from that case.

88.First, RHC Order 12 r 8 is “intended to be a comprehensive and exclusive code for the taking of jurisdictional objections, applying to Admiralty actions in rem as well as actions in personam save perhaps objections on the ground that the Court of First Instance has no admiralty jurisdiction at all.”: The Resource 1 supra at 211.

89.Second, RHC “Order 12 rule 8 excludes a challenge to jurisdiction under Order 75 rule 13”: The Resource 1 supra at 214.

90.Third, “the power to extend time [ under RHC Order 3 r 5 ] is conferred in very wide terms.  Its purpose is to ensure that the legal consequences which ordinarily flow from non-compliance with time limits fixed by the rules do not apply in cases where an extension is appropriate.  And in the context of an extension of time, there is no reason to differentiate between a deemed submission to the jurisdiction [ under RHC Order 12 r 8(7) ] and other legal consequences” : The Resource 1 supra at 203.

91.Next, Miruvor Limited v Panama-Globe Steamer Lines S.A. & Ors [2007] HKCU 243 (Rogers VP and Le Pichon JA). Two passages in the judgment of Rogers VP on submission to jurisdiction are particularly pertinent to the present case.

92.First, the quotations from The Messiniaki Tolmi [1984] 1 Lloyd’s Rep 266 and Sage v Double A Hydraulics Ltd [1992] TLR 165 at para. 7 of the judgment:

“In Astro Exito Navagacion SA v W T Hsu, otherwise known, more pronounceably, as The ‘Messiniaki Tolmi’, [1984] 1 Lloyds Reports, 266, Goff LJ (as he then was) at page 270, said:

‘Now a person voluntarily submits to the jurisdiction of the Court if he voluntarily recognizes, or has voluntarily recognized, that the Court has jurisdiction to hear and determine the claim which is the subject matter of the relevant proceedings. In particular, he makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the Court’s jurisdiction in respect of the claim which is the subject matter of those proceedings. The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the Court exercising its jurisdiction in respect of such claim. Whether any particular matter, for example an application to the Court, amounts to a voluntary submission to the jurisdiction must depend upon the circumstances of the particular case.’

In Sage v Double A Hydraulics Ltd, [1992] Times Law Reports, 165, Farquharson LJ said (and this is a report of the judgment which is not reported in oratio recta):

‘A useful test was whether a disinterested bystander with knowledge of the case would have regarded the acts of the Defendant, or his solicitors, as inconsistent with the making and maintaining of his challenge.’ ”

93.Second, the test to be applied “is whether looked at fairly and sensibly has what the defendant has done constituted a submission to jurisdiction”: see para. 9 of the judgment.

94.Next ABN Ambro Bank v Fortgang [2008] 2 HKLRD 349 which also confirms that the test on submission to jurisdiction is an objective one: whether a disinterested bystander with knowledge of the case would have regarded the acts of the defendant as inconsistent with the making and maintaining of his challenge to jurisdiction.

95.Lastly, The Decurion [2012] 1 HKLRD 1063 which supports the proposition that the applicable principle in deciding whether time should be extended under RHC Order 3 r 5 is to look at all relevant matters and consider the overall justice of the case – a rigid mechanistic approach is not appropriate.

96.Bearing these legal propositions in mind, my view on the submissions of Mr Alder was as follows.

97.First, the notice of motion for the Discharge Application was erroneously issued under RHC Order 75 rr 12 & 13 - the Plaintiffs should have issued a summons pursuant to RHC Order 12 r 8(1) & (3). This in my view was an error as to form, not substance since the Plaintiffs could not demonstrate that they had been prejudiced by the wrongful use of a notice of motion (instead of summons) and the wrong reference to RHC Order 75 rr 12 & 13 in the notice of motion: Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213 (CA).

98.Second, the Discharge Application and the Setting Aside Application were not out of time. This was because under RHC Order 18 r 2(3), where an application is made by a defendant under Order 12, rule 8(1) or (2), paragraph (1) shall not have effect in relation to him unless the application is dismissed or no order is made on the application and, in that case, shall have effect as if it required him to serve his defence within 28 days after the final determination of the application or within such other period as may be specified by the Court. See also The Convenience Container unrep. HCAJ 207/2003 Reyes J 31 March 2004 at para. 18.

99.Even if the two applications were out of time, this court would exercise its wide discretion to extend time under RHC Order 3 r 5. In the present case, the Defendant had as earlier as 12 November 2012 indicated to the Plaintiffs that it would be challenging the in rem nature of the claims and the legality of the arrest. The Plaintiffs could be under no misconception of the Defendant’s intention to challenge the court’s admiralty jurisdiction. As the Plaintiffs had shown no real prejudice, the overall justice of the case compelled this court to grant an extension of time so as to allow the proper adjudication of the Discharge Application and the Setting Aside Application on their merits.

100.Third, looked at it fairly and sensibly, what the Defendant had done in the present case did not constitute a submission to jurisdiction.

101.I had already mentioned the letter dated 12 November 2012 from the Defendant’s solicitors to the Plaintiffs’ solicitors. I should also mention:

(1)   in paragraph 36 of the affirmation of Jenkin Luk on behalf of the Defendant dated 10 December 2012, Mr Luk made the same point that the arrest of the Vessel was wrongful as the Plaintiffs’ claims (or part of them) did not fall within the court’s admiralty jurisdiction, and the Defendant would apply to set aside the warrant of arrest in due course;

(2)   in paragraph 7 of the affirmation of Li Min dated 12 December 2012, the Defendant again made it clear that it would apply to set aside the warrant of arrest in due course.

102.By alerting the Plaintiffs and the court that there would be an upcoming challenge to the warrant of arrest, the Defendant had made its non‑acceptance of the Hong Kong courts’ admiralty jurisdiction over the Plaintiffs’ claims sufficiently clear: The Convenience Container supra at para. 18. Put it in another way, a disinterested bystander with knowledge of the case would not have regarded the acts of the Defendant or its solicitors in making the Stay Application or the Striking Out Application as inconsistent with its challenge to jurisdiction: Miruvor Limited v Panama‑Globe Steamer Lines S.A. & Ors supra; ABN Ambro Bank v Fortgang supra.

V. Disposition

103.For the above reasons, this court would dismiss both the Discharge Application and the Setting Aside Application.

104.Notwithstanding the suggestion of Mr Smith SC in his written submissions, there appears to be no need to grant any declaratory relief - it would be sufficient to reduce the amount of security now in court and allow the payment out of the excess to the Defendant, in light of this court’s conclusion at paragraphs 51 and 52 above. If the parties are not agreeable to this approach, they should say so in writing within 7 days and this court would consider whether to hear them further on the terms of declaratory relief which should be incorporated into the Order to be drawn up in light of this Judgment.

105.I would hear the parties on costs and, unless the same can be agreed, the extent, in numerical terms, to which the security now in court should be reduced and payment out of the excess to the Defendant.

106.There would also be general liberty to apply.

107.Lastly, I thank Counsel for their helpful assistance.

Mr Edward Alder, instructed by Smyth & Co, for the plaintiffs

Mr Clifford Smith SC, Mr Douglas Lam and Ms Ebony Ling, instructed by Reed Smith Richards Butler, for the defendant