Global Maritime Trust (S) Pte Ltd v. Fortress Group Ltd

HCCL 23/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 23 OF 2014

____________

________________________________

________________________________

1.On 8 October 2014, the plaintiff obtained an injunction on ex parte basis in the following terms (“the ex parte order”):

“The Defendant is hereby ordered on an interim basis to provide forthwith and in any event no later than 1:00 pm on Saturday, 11 October 2014 such security and/or bail, and/or take all steps as are required to prevent the arrest of the MV RIVER GLOBE or any other ship or property in the same or associated ownership, management or control for the claim by BNP Paribas, Hong Kong branch in relation to the alleged delivery without production of the original bills of lading of a cargo of Indonesian steaming (non coking) coal in bulk carried from Taboneo Anchorage, South Kalimantan, Indonesia to Tuticorin Port, India, for which the Defendant provided to the Plaintiff a Letter of Indemnity dated 4 April 2014 (amended on 7 April 2014).”

2.On 10 October 2014, the defendant applied for a stay of the implementation of the ex parte order, or for it to be varied or set aside.

3.On the other hand, on 14 October 2014 the plaintiff applied for the continuation of the injunction, and in addition, for disclosure of the defendant’s audited and management accounts for the past two years.  By a further application the following day, the plaintiff asked for disclosure of the defendant’s current bank account statements, including statements in a specified account in HSBC.

4.The defendant did not provide any security by the deadline stipulated in the ex parte order, but in the present applications I am not called upon to deal with any breach that might have occurred.  

5.As I have indicated at the hearing, since the time for compliance has already passed, it would clearly not be meaningful to continue the ex parte order on the same terms.  The plaintiff’s application ought to be treated as a fresh application for the injunction on inter partes basis.

6.After having heard arguments from counsel, I have granted an order for injunction on terms which are slightly different from the ex parte order.  Here are the reasons for my decision.

The Injunction

7.The injunction is mandatory in nature. 

8.By the injunction, the plaintiff seeks to compel the defendant to perform the latter’s obligation under a Letter of Indemnity, inter alia:

“……. to provide on demand such bail or other security as may be required to prevent such arrest or detention [of the ship, or other ship in the same or associated ownership, management or control] …… whether or not such arrest or detention or threatened arrest or detention …… may be justified.”

9.I do not propose to rehearse the background facts in detail.  It suffices to say that the plaintiff was the head charterer and the defendant the sub‑charterer of the vessel, “The River Globe”.  In early April 2014, when the vessel was about to arrive at Tuticorin Port in India, it became clear that there would be delay in the arrival of the original bills of lading.  The defendant requested release and delivery of the cargo of coal to its customer, one Apple Commodities Limited (“ACL”), without production of the original bills.  In order to facilitate release of the cargo, and pursuant to the terms of the sub‑charter, the defendant issued the aforesaid Letter of Indemnity in favour of the plaintiff.  The plaintiff, correspondingly, also issued a similar indemnity in favour of the head owner of the vessel.

10.For reasons which are not entirely clear at this stage, a few months later on 11 September 2014, BNP Paribas asserted its rights as the holder of five bills of lading and requested information about the status and whereabouts of the goods.  Later, on 29 September 2014, the head owner received a claim from BNP Paribas who claimed to have suffered loss of US$1,534,790 as a result of the wrongful release of the cargo, and threatened to commence legal action for the arrest of the vessel. 

11.On 3 October 2014, the head owner wrote to the plaintiff demanding that it made immediate arrangements to prevent the arrest of the vessel.  The plaintiff in turn made a similar demand on the same day, pursuant to the Letter of Indemnity, that the defendant should make immediate arrangement for bail or other security, or make payment of the sum claimed to prevent the vessel’s arrest.

12.From the presently available materials, it suffices to say that the plaintiff has demonstrated a clear case that the defendant’s obligation under the Letter of Indemnity to provide bail or other form of security was triggered.  And indeed, for the present purposes, there is no challenge by the defendant as to the merits of the plaintiff’s claim.  Nor has the defendant raised any argument regarding the threshold of granting a mandatory injunction. 

13.Mr Clifford Smith SC’s, on behalf of the defendant, opposed the injunction or as an alternative, asked for the injunction to be stayed or suspended but with liberty to the plaintiff to apply for removal of the stay at short notice.  Mr Smith relied mainly on the following grounds:

(i) the injunction is imprecise and therefore bad;

(ii) because of impecuniosity, the defendant would be unable to comply even if the injunction were precisely worded; and

(iii) the injunction is not necessary as there is no immediate risk of arrest, and the putative arresting party has asked for a P&I Club Letter of Undertaking.

Certainty of the Injunction

14.The principle that an order for injunction should be expressed in unambiguous language is not in doubt. 

15.Initially, Mr Smith submitted that the injunction lacked precision.  As the injunction applied for is mandatory in nature, it is incumbent upon the plaintiff to specify what the defendant is required to do – whether to pay money, provide a guarantee or other types of security, and if so, to whom and how it should be provided. 

16.This objection is now addressed.  At the hearing, Mr Luxton, for the plaintiff, submitted a revised draft order which set out the forms of security required, the amount as well as the manner of provision of such security.  In respect of the revised draft, Mr Smith has helpfully indicated that he would not pursue the argument of want of certainty.

17.In the circumstances, it is not necessary to dwell on issue.  I will refrain from expressing any views on the wordings of the ex parte Order in case it becomes an issue in any proceedings concerning its compliance. 

The Injunction or Stay

18.Having considered the materials before me with the assistance of helpful submissions from counsel, I am clearly of the view that the proposed injunction should be granted. 

19.The evidence shows that on 29 September, and again on 10 October 2014, BNP Paribas had asserted the claim of US$1,534,790 plus legal costs and interest, as holder of the bills of lading.  It was made clear in the demands that in default of the security, steps would be taken to arrest vessel. 

20.In addition, a writ in rem was issued in this jurisdiction against the vessel on 13 October 2014. 

21.As already noted, since 3 October, the plaintiff had invoked its right under the defendant’s Letter of Indemnity by demanding immediate arrangements for bail or other security.  On 13 October 2014, the plaintiff further sent to the defendant a draft of a guarantee which was considered likely to be an acceptable form of guarantee to BNP Paribas.  I am told that the draft was based on a form of standard wording commonly adopted among admiralty practitioners. 

22.There is as yet no response from the defendant on the draft guarantee. 

23.The main plank of Mr Smith’s argument is that there is no immediate risk of the River Globe being arrested.  He referred to the information regarding the movement of the vessel which showed that she had been trading only in the Persian Gulf region since April.  The information showed also that the River Globe’s next port of call will be Fangcheng in the PRC on 2 November 2014.  There is no sister ship belonging to the head owner which is liable to arrest.

24.Further, according to the defendant’s latest management accounts (made up to 9 October 2014), its main asset is the receivables due from ACL, the purchaser of the cargo, amounting to $23 million, while on the other hand, it has incurred liability of over $42 million towards an associate company, Kay‑El.  Kay‑El, which had provided finance for the transaction with ACL, is no longer prepared to provide further funding for the defendant.  The defendant has no other credit facilities.  The present situation of the defendant is such that it will not be able to comply with any order, although it is still negotiating with ACL with a view to obtaining payment for the cargo. 

25.Mr Smith also referred to the information that BNP Paribas has requested that security be provided in the form a letter of undertaking from the Owners’ P&I Club.  If the undertaking were forthcoming, the arrest of the vessel could be avoided.

26.Counsel referred to two principles: (i) that the Court should refrain from imposing an immediate injunction where the injunction is mandatory and there is no immediate damage; (ii) that the courts should not make an order that would be ineffectual: Snell’s Equity, 31^st edition, paras 16‑37, and 16‑16. 

27.I do not agree that the injunction should be refused at this stage, or alternatively, should be suspended.

28.In my view, this is one of those cases where the plaintiff has demonstrated a strong prima facie case on the merits (though my assessment of the merits is necessarily provisional at this stage).  The defendant’s obligation under the Letter of Indemnity to provide bail or other forms of security is one that the Court will enforce by specific performance: see The Laemthong Glory (No 2) [2005] 1 Lloyd’s Rep 632, Cooke J at paras 49 to 51.  The essence of the injunction is precisely to require the defendant to perform that obligation to prevent the vessel’s arrest. 

29.It cannot be said that there is no imminent risk of the arrest.  The correspondence shows clearly that the threat of arresting the vessel is still present.  With the issuance of the writ in rem, the vessel is liable to be arrested if she sails to Hong Kong.  One cannot rule out the possibility or even likelihood that similar process of arresting the vessel has been taken in other jurisdictions where the vessel is alleged to be trading. Even though the suggestion is that the vessel is now sailing at high seas and is only due to call at Fangcheng on 2 November, one cannot rule out the possibility of diversion or stopping at other ports en route.  When considered against the serious consequence of an arrest of the vessel, the presence of such possibility in my view weighs heavily in favour of the granting of the injunction.

30.As for the defendant’s financial ability to provide the security, I am wholly unimpressed by the defendant’s assertion of its inability to comply with the proposed injunction.  On the defendant’s evidence, Kay‑El was a family company of Mr Henry Mahtani, the sole shareholder and director of the defendant.  It was Kay‑El that had funded the defendant’s transaction with ACL.  Clearly, when the defendant issued the Letter of Indemnity, it must have represented to the plaintiff that it would honour the indemnity when called upon to do so.  Indeed, I do not understand Mr Mahtani to be saying otherwise (which, of course, would probably have been a fraud if he were). 

31.In the circumstances, I find it very artificial for Mr Mahtani now to say that the defendant should not be ordered to provide or enter into the proposed form of security on the ground that Kay‑El, which had been the defendant’s source of finance, had decided not to provide finance any longer.  In short, I do not accept a bear statement from Mr Mahtani that the defendant has no means of procuring finance.

32.Turning to the argument that the injunction might well be unnecessary because BNP Paribas had apparently been requesting for a letter of undertaking from the owners’ P&I Club.  First, the evidence regarding the provision of this letter of undertaking is very tenuous and one cannot even begin to assess the chance of that eventuating at all.  In any event, as Mr Luxton has submitted, the defendant’s obligation to provide bail or security under the Letter of Indemnity exists independently of any other party’s obligation to provide security (such as the ship owner or the plaintiff).

33.Finally, it was argued that the injunction should be stayed or suspended until the vessel comes into port, because if the ACL made payment in the meantime, the risk of the vessel’s arrest would be avoided.  In this regard, I would again say that the prospect of that happening is completely uncertain.  I agree with Mr Luxton that the defendant can always apply for a variation or extension of time to enable it to comply with the injunction if the negotiation with ACL is indeed making headway. 

34.In all circumstances, I am satisfied that an injunction should be granted in the terms as per the draft submitted:

“The Defendant is hereby ordered to provide forthwith and in any event no later than 1:00 pm on Tuesday, 21 October 2014 such security and/or bail, and/or take all steps as are required to prevent the arrest of the MV RIVER GLOBE or any other ship or property in the same or associated ownership, management or control for the claim by BNP Paribas, Hong Kong branch in relation to the alleged delivery without production of the original bills of lading of a cargo of Indonesian steaming (non coking) coal in bulk carried from Taboneo Anchorage, South Kalimantan, Indonesia to Tuticorin Port, India, for which the Defendant provided to the Plaintiff a Letter of Indemnity dated 4 April 2014 (amended on 7 April 2014), such security to be in the following form:

(a) by the Defendant paying into Court in the action herein the sum of US$1,700,000 (being the amount claimed of US$1,534,790 plus interest and costs); or

(b) by the Defendant procuring form a s security provider acceptable to the Plaintiff a letter of undertaking the form of the letter of undertaking annexed to the order.”

35.I would give the defendant liberty to apply to discharge or vary this order upon giving at least 48 hours’ notice to the solicitors for the plaintiff. There should also be liberty to apply generally.

36.As for the other applications for disclosure, Mr Luxton is content not to pursue the same in connection with the injunction application.  I would make no order in respect of the disclosure applications.  

37.The costs of the several applications are to be reserved.   

Mr Nick Luxton, instructed by Holman Fenwick Willan, for the plaintiff

Mr Clifford Smith SC, instructed by Ince & Co, for the defendant