LUAN GANG v. SIMPSON MARINE LTD

HCA 107/2011

[2020] HKCFI 207

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 107 OF 2011

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(By Original Action)

AND BETWEEN

AND

HCAJ 171/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 171 OF 2011

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R U L I N G

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1.  This is the ruling of the court. There is before this court an application by summons dated 24 April 2019 under Rules of the High Court, Order 75 rule 13 by the applicants, Mr Luan Gang and Offtech International Limited, for an order that all the money currently in court standing to the credit of the applicants in the consolidated actions of HCA 107 and HCAJ 171/2011 in the sum of HK$2,408,674.20 be released to Messrs Ho, Tse, Wai & Partners, solicitors for the applicants.

2.  The relevant historical background is that the vessel, “Maggie”, was arrested in HCAJ 171 and was subsequently sold by order of the court with the sale proceeds paid into court.  HCAJ 171 was consolidated with HCA 107 in June 2012 and the trial of the consolidated action was scheduled to commence before Deputy High Court Judge Hartmann on 3 September 2013.  That was adjourned on the first day of trial. 

3.  The trial was then resumed before this court in October 2015.  After trial, by a judgment handed down on 20 May 2016, this court granted judgment in favour of Simpson Marine Limited against Mr Luan in the sum of HK$542,089 together with interest but dismissed Simpson Marine’s counterclaim against Offtech.  The sale proceeds paid into court were subsequently used to satisfy the judgment debt and interest and paid to Simpson Marine.

4.  On 15 November 2016, this court made its first costs order, including, inter alia, that costs of the action be paid by Mr Luan and Offtech to Simpson Marine, to be taxed if not agreed.

5.  On 13 April 2017, this court made its second costs order dealing with various interlocutory costs as well as ordering (i) costs of the hearing on 3 September 2013 be paid by Simpson Marine to Mr Luan, and (ii) costs of Simpson Marine’s counterclaim be paid by Simpson Marine to Offtech, both to be taxed if not agreed.

6.  On 27 April 2018, Mr Luan’s appeal was dismissed by the Court of Appeal with costs to Simpson Marine.

7.  On 20 March 2019, Mr Luan’s application for leave to the CFA was dismissed with no order as to costs.

8.  On 24 April 2019, the applicants issued the present summons.

9.  As of today, the parties have yet to proceed to taxation of costs.  As far as Simpson Marine is concerned, it has instructed a law costs draftsman to prepare bills of costs for the costs of the action and costs of the appeal.  The draft bills show a total of around HK$2.7 million comprising HK$2.05 million for the action and HK$658,000 odd for the appeal which exceeds the HK$2.4 million now sitting in court which the applicants seek to release to them in full.  These sums do not include Simpson Marine’s costs of taxation. 

10.  Under Rules of the High Court Order 62 rule 32A, the party entitled to payment of any costs to be taxed is also entitled to costs of taxation.  So the totality of the costs claimed by Simpson Marine would be higher than HK$2.7 million.  Of course, under party-and-party taxation, the costs that Simpson Marine claims would usually be taxed down but even if they are taxed down by, say, 30 per cent, the taxed costs of the action and the appeal would still be quite substantial, to which costs of taxation would have to be added. 

11.  The draft bills have only very recently been sent to the solicitors for Mr Luan and Offtech, and Ms Yeung tells this court that they have yet the time to study them.

12.  As far as the applicants are concerned, they have not yet drawn up a draft bill of the costs which they claim from Simpson Marine, and there is simply no evidence as to what that amount might be.  On instructions, Ms Yeung tells this court the amount is around HK$400,000, but it is very difficult for this court to place any weight on that figure since it is unsupported by evidence.

13.  Mr Alder for Simpson Marine opposes the present application.  In gist, he submits that this court should not permit release of any amount now in court if there is an appreciable risk of Simpson Marine’s recoverable costs might become unsecured.  He relies on the well-established principle that an arresting party ie Simpson Marine is entitled to sufficient security to cover the amount of its claim with interest and costs on the basis of his reasonably arguable best case: TheHua Tian Long [2008] 4 HKLRD 745 at paragraph 8 and that the sale proceeds now in court represent such sufficient security.

14.  Further, he submits that even where the arresting party’s principal claim has been paid in full under protest, he is still entitled to have sufficient security for his likely costs of the action and not merely for the limited costs up to the time of payment under protest or release of the vessel: The Acrux [2004] SGHC 198 at paragraph 14, per Belinda Ang J.  Importantly, in that paragraph, the learned Singapore Admiralty Judge said, “It is for the defendant to seek a moderation of the quantum demanded.”

15.  By analogy, in the present case, it is for the applicants to persuade this court to what extent the costs now claimed by Simpson Marine in the two draft bills of costs should be moderated and work out how much of the sale proceeds in court, if any, should be paid out to them after such moderation.  This they have not done nor have they sought an adjournment to enable it to be done.  Instead, the applicants seek to have the entirety of the sale proceeds released to them.

16.  In this court’s view, the law has been neatly summarised in Meeson and Kimbell, Admiralty Jurisdiction and Practice 5th Ed at paragraph 4.78 cited by Ms Yeung:

“Property under arrest may not be released unless either the arresting party consents, which will normally only be upon terms that full security is provided for the claim, or the court orders release. Unlike arrest, the release of a ship from arrest is discretionary. However, the usual practice of the court is only to order release upon the provision of sufficient security to cover the amount of the claim, plus interest and costs, on the basis of the claimant’s best reasonably arguable case. The court may release arrested property without such security being provided, but this is only done in exceptional circumstances, and only where some satisfactory alternative to ordinary security is provided.”

citing The Vanessa Ann [1985] 1 Lloyd’s Rep 549 and North Saskatchewan Riverboat Company Limited v The Edmonton Queen (1995) LMLN 414, the same two cases cited by Ms Yeung to this court.

17.  Upon inquiry from the bench, Ms Yeung on instructions told this court her clients are not prepared to provide sufficient security or some satisfactory alternative to ordinary security.  In her skeleton submissions, Ms Yeung very properly accepts that the sale proceeds represent security for Simpson Marine’s claim.  She also accepts that the usual course of action is to allow the proceeds of sale of a vessel to serve as security to the plaintiff sufficient to cover the amount of his reasonably best arguable case in rem together with interest and costs. However, she submits that there are exceptional circumstances which warrant the making of the order for the release of the sale proceeds to the applicants now.

18.  As far as this court can see, the only circumstances relied upon is that Mr Luan has substantial assets in Hong Kong, including four properties valued at around HK$148 million. This court has also inquired with Ms Yeung earlier whether Mr Luan is willing to give an undertaking to execute a legal charge over any of the properties to secure Simpson Marine’s taxed costs.  On instructions, the answer is no.

19.  It seems to this court futile to suggest Mr Luan has a lot of valuable properties if he is free to sell them and remove the sale proceeds from Hong Kong anytime.  The end result would be as Simpson Marine fears would happen ie its recoverable costs would be unsecured.

20.  To conclude, this court agrees with Mr Alder that it is premature to release the sale proceeds in court to the applicants at this stage.  The application must be dismissed.  If and when after taxation of the parties’ costs and there is a surplus left which belongs to the applicants, then the balance should be returned to them and they can make a fresh application for that purpose unless that can be done by consent.  That is something that I have inquired with Mr Alder and he fully agrees with that course.

HCA 107/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTON NO 107 OF 2011

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J U D G M E N T

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Introduction

1. This is a dispute concerning the sale by Simpson Marine Limited (“Simpson Marine”) to Mr Luan Gang (“Luan”) of a brand‑new pleasure craft “MAGGIE” (“Yacht”), an Italian‑built “Azimut 43 Plus" and the supply and installation by Simpson Marine of certain extra items, mainly cable and satellite TV system, on the Yacht (“extras”).

2. The contract between Simpson Marine and Luan was evidenced by and/or contained in a written “ORDER CONTRACT” no. SML (HK) 086‑10 dated 21 December 2009 (“Principal Agreement”) between Mr Luan as buyer and Simpson Marine as seller at the total price of €664,104 (“Price”).

3. Appendix 1 to the Principal Agreement (“Appendix 1”) contained a list of optional items.  One of the optional items which featured prominently in this case was the joystick control for engines and thrusters.  Appendix 1 provided for the installation of two joysticks, one at the main helm, the other at the flybridge, at the cost of HK$11,500.

4. The Price of €664,104 was expressly stated to include not just the Yacht and the optional items, but also the following:

(1)  Delivery to Savonna, commissioning, sea trials.

(2)  Shipping documents & custom clearance from Europe.

(3)  Sea delivery to La Spezia.

(4)  Shipping Cradle.

(5)  Shipping Insurance.

(6)  Ocean freight to Hong Kong.

(7)  Offloading and commissioning.

5. In addition, after the Yacht had arrived in Hong Kong in July 2010, Luan requested and Simpson Marine agreed to supply and install the extras (“Supplemental Agreement”) for an additional price of HK$182,431.  The description of the extras and their prices were set out in a Simpson Marine invoice dated 12 August 2010 (“Invoice”) issued to Luan.

6. It was an express term of the Principal Agreement that:

“Delivery date (best estimate only — actual delivery depends upon ship availability): May 2010 ex factory Italy.”

7. The Yacht was ready for delivery ex factory in Italy in May 2010, as evidenced by a report after inspection of the Yacht at the port of Genoa on 25 and 26 May 2010.

8. Other express terms of the Principal Agreement, including the so‑called “Second Special Term”, relied upon by Luan will be referred to below.  Suffice it to say that while Clause 2 of the “Second Special Term” gave Luan an option to inspect the Yacht by his own inspector before shipment from Italy, the option had not been exercised by him.  There was no complaint by Luan about events in Italy.

9. The Yacht arrived at a container terminal in Hong Kong on about 3 July 2010 and was sent to Simpson Marine’s facilities at Aberdeen for commissioning.  Shortly afterwards, the Yacht was registered, as instructed by Luan, in the name of Offtech International Ltd (“OIL”).  There was, however, no suggestion by Luan of a novation of the Principal Agreement or an assignment of his contractual right to OIL.

10. As evidenced by the payment of the deposit of HK$120,000 (“deposit”) on 19 July 2010, Luan requested and Simpson Marine agreed to supply and install the extras under the Supplemental Agreement around that day.  Performance of the Supplemental Agreement, as far as Simpson Marine was concerned, was completed by 12 August 2010, as evidenced by the Invoice dated 12 August 2010.  There was no complaint by Luan about work done under the Supplemental Agreement as such.

11. It is common ground that (1) the Price was paid by Luan in full after signing the Principal Agreement, and (2) after deducting the deposit, HK$62,431 remains outstanding under the Supplemental Agreement.

12. It is also common ground that despite Simpson Marine’s requests, Luan did not accept delivery of the Yacht.

13. By letter dated 23 August 2010, Luan’s solicitors wrote to Simpson Marine rejecting the Yacht and seeking a refund of the Price.  For reasons which will become apparent later in this judgment, the ground of rejection given in the letter is telling.  The only ground given by Luan’s solicitors was that it was a term of the Principal Agreement that the Yacht should be installed with the joysticks.  The letter alleged that upon inspection (without specifying when), the joysticks had not been installed.  This amounted to breaches of various implied conditions of contract viz correspondence with description, merchantable quality and fitness for purpose, as well as misrepresentations by Simpson Marine.  There was no mention of delayed delivery at all.

14. The allegations of Luan’s solicitors were denied by Simpson Marine’s solicitors in a written reply dated 6 September 2010.  They said that the joysticks had in fact been installed in the Yacht and the Yacht had been ready for collection since 18 August 2010.  They demanded Luan to collect the Yacht and pay the outstanding balance of HK$62,431 under the Supplemental Agreement and threatened legal proceedings.

15. A few correspondence was exchanged between the parties’ solicitors, principally regarding the arrangement of an inspection of the Yacht and sea trial by Luan’s surveyor which was scheduled to take place on 17 September 2010.

16. By letter dated 27 October 2010, Luan’s solicitors wrote to Simpson Marine’s solicitors complaining inter alia about malfunctioning of the joystick control during the inspection and sea trial conducted by Luan’s surveyor on 17 September 2010.  They alleged that the malfunctioning constituted misrepresentations and breaches of implied conditions of contract and claimed to rescind and/or repudiate the Principal Agreement.  They also rejected the Yacht and asked for a refund of the Price. It was in this letter that Luan’s solicitors first referred to the date of 12 July 2010 as the agreed delivery date and complained of delayed delivery.

17. As a result of the impasse between the two, Simpson Marine was left with the Yacht and incurred costs in berthing and maintaining it.  Luan on the other hand left Hong Kong in November 2010 for reasons unrelated to the present dispute, at least on the face of it.  At the time of the trial, Luan was in custody.

18. On 19 January 2011, Luan issued the writ of summons in HCA 107/2011 against Simpson Marine.  Simpson Marine counterclaimed against Luan and OIL in HCA 107/2011 seeking a declaration that Luan had repudiated the Principal Agreement and recovery of the balance due under the Supplemental Agreement and its costs of berthing and maintaining the Yacht as damages.

19. Subsequently on 12 December 2011, Simpson Marine issued the in rem Action HCAJ 171/2011.  On 3 February 2012, Simpson Marine obtained from Reyes J an order for the appraisement and sale of the Yacht pendente lite.  On 3 April 2012, the Yacht was sold by the Bailiff and the sale proceeds paid into court.

The parties’ case

20. As pleaded in the amended Consolidated Statement of Claim, Luan claims against Simpson Marine for misrepresentations, rescission of the Principal Agreement, refund of the Price and the deposit, damages for breaches of contract and reimbursement of inspection fees of HK$16,000.  The pleaded bases of Luan’s claims are highly convoluted and would have involved an investigation into inter alia whether certain terms should be implied into the Principal Agreement, whether and when the joystick control was installed, whether and when the joystick began to function satisfactorily and whether certain pre‑contractual representations made by Simpson Marine regarding the joystick control were false and entitled Luan to rescind the Principal Agreement and obtain a total refund of the Price.

21. In his Supplemental Opening Submissions, Mr Cheung confirmed to this court that, after taking further instructions, Luan would only pursue the following relief against Simpson Marine:

(1)  damages for late delivery of the Yacht from 12 July 2010 to 17 November 2010 (a total of 128 days) at the rate of 0.5% of the Price per day ie a total sum of €425,025 pursuant to the “Second Special Term” of the Principal Agreement; and

(2)  inspection fees of HK$16,000.

22. As Mr Alder put it in his Closing Submissions, the near total collapse of Luan’s pleaded case and the withdrawal of his main claims on the eve of the trial speak volume as to his credibility.  There is considerable force in the submission.

23. The “Second Special Term” of the Principal Agreement was handwritten in the Principal Agreement as follows:

(1)  “卖方需出具第三方驗船合格報告” / “seller have to issue inspection certificate”.  (“Clause 1”)

(2)  “买方可选择委派驗船师前往意大利船厂验船” / “buyer can assign inspector to check boat before shipping”.  (“Clause 2”)

(3)  “2010年7月12日在香港到貨，晚到貨 0.5% 每天罰款.  (香港仔深湾游艇会)” / “boat deliver (sic) to HK before 12^th July 2010.  如迟0.5% penalty per day.  Force majore (sic), weather, shipping company cancelled or client delays payment”.  (“Clause 3”)

24. Mr Cheung first submits that upon the true construction of Clause 1, delivery could only take place[1] upon the issuance of the requisite certificate by a third party after inspecting the Yacht in Hong Kong.  On the evidence, Marine Surveys and Engineering Services Ltd (“MSES”), on behalf of Simpson Marine, only issued a surveyor’s report on 17 November 2010 after inspecting the Yacht in Hong Kong.  Hence, the Yacht should only be deemed to have been ready for delivery to Luan on 17 November 2010.  The period of late delivery was thus from 12 July to 17 November 2010.

25. Second, Mr Cheung submits, on the true construction of Clause 3, the Yacht must be ready in all respects for delivery to Luan in Hong Kong on or before 12 July 2010.  He submits the rationale of Clause 3 is that Luan had named the Yacht “Maggie” after his fiancée as it was meant to be a wedding gift to her at their wedding ceremony, scheduled to take place in August 2010.  The rather exact delivery date of 12 July 2010 and the penalty of 0.5% per day showed that time was of the essence — Luan was very eager to take delivery of the Yacht sometime in July 2010.

26. As outlined by Mr Alder in his Closing Submissions, Simpson Marine’s answers to the two submissions are as follows.

27. First, Luan’s construction of Clause 1 is misconceived.  The ordinary and natural reading of the three clauses is that they were arranged in chronological sequence.  Read in this sequence, Simpson Marine’s obligation under Clause 1 to procure an inspection certificate means pre‑shipment inspection in Italy and the issuance of a certificate by a third party afterwards.  Clause 2 also refers to pre‑shipment inspection, which gives Luan an option of arranging his own inspector to carry out the inspection.  Lastly, Clause 3 specifies the delivery date of the Yacht in Hong Kong.  On the facts, the certificate under Clause 1 was issued after inspection had taken place in Genoa on 25 and 26 May 2010 by STB Italia SRL.

28. Second, Luan’s construction of Clause 3 is also misconceived. The date 12 July 2010 is only the date specified for the arrival of the Yacht in Hong Kong at Simpson Marine facilities in Aberdeen, not the date for the delivery of the Yacht to Luan.

29. Once the Yacht had arrived in Hong Kong, it had to be moved to Aberdeen for “commissioning”.  Commissioning involves things like unpacking and fitting loose items, cleaning, fuelling, charging, testing fitted equipment and optional extras, holding initial customer and joint inspections, internal sea trial, checking for seaworthiness, remedying cosmetic and other defects and ‘snags’ such as loose fittings, ordering missing parts, registering etc.  As there was no express time for commissioning in the Principal Agreement, it would only have to be completed within a reasonable time.

30. Further, on 19 July 2010, Luan ordered the extras to be supplied and fitted onto the Yacht under the Supplemental Agreement.  This necessarily pushed back the time required for commissioning and delivery of the Yacht to him.

31. On Simpson Marine’s case, the commissioning and the installation of the extras were completed sometime around 12 August 2010.  The sea trial and the handover meeting took place successfully on 18 August 2010 and the Yacht was contractually compliant, seaworthy and in a state fit for delivery.  There was thus no delay on the part of Simpson Marine.

Main Issues

32. In light of the above, the principal issues in this case are:

(1)  the proper interpretation of Clauses 1 and 3, in light of the relevant factual matrix;  (“1^st Issue”)

(2)  what was the agreed time of delivery under the Principal Agreement;  (“2^nd Issue”)

(3)  whether Simpson Marine delivered the Yacht to Luan on 18 August 2010, as claimed by Simpson Marine, or only on 17 November 2010, as claimed by Luan;  (“3^rd Issue”)

(4)  whether there was late delivery, and hence breach of the Principal Agreement, on the part of Simpson Marine;  (“4^th Issue”)

(5)  if there was late delivery, the quantum of Luan’s loss and damage;  (“5^th Issue”)

(6)  if there was no late delivery, the quantum of Simpson Marine’s loss and damage as a result of Luan’s failure to accept the Yacht.  (“6^th Issue”)

The factual and expert witnesses — general observations

33. On the facts, Luan testified for himself and OIL at trial.  Further, a Ms Xiao Han (“Xiao”) also testified for him and OIL.  Simpson Marine, on the other hand, called only one factual witness ie Mark Woodmansey (“Mark”).[2]

34. I have carefully considered the testimony, as well as the demeanour, of all three witnesses, and assessed it against the documentary evidence and the known and undisputed surrounding circumstances of this case. I have in particular considered the inherent probabilities or otherwise of the parties’ respective contentions, and assessed the witnesses’ credibility accordingly.

35. This court has considerable reservation about Luan’s testimony. He is a recalcitrant witness who is unwilling to acknowledge even the perfectly obvious fact, as long as it seems to him to be against his case.  I will give one or two examples of his answers in cross‑examination.

36. First, he refused to accept that the Yacht had to go through the process of commissioning after it had arrived in Hong Kong.  This is so notwithstanding the fact that the Principal Agreement expressly provided for “commissioning” and his own Counsel’s express recognition, in his Supplemental Opening Submissions, of the need for “necessary commissioning”.  Second, Luan denied it would take time for Simpson Marine to supply and install the extras under the Supplemental Agreement and that would inevitably push back the date when the Yacht was ready for delivery to him.

37. Luan was admittedly a first-time buyer of a yacht and, was according to Xiao “very inexperienced”.  It is difficult to see how he could honestly and justifiably insist that no commissioning to the Yacht was necessary.  No explanation was provided by him in cross‑examination — he simply said he was not told about it when he signed the Principal Agreement.  His insistence is all the more untenable given the express term of the Principal Agreement which provided for commissioning and for which Simpson Marine charged €5,950.  Similar observation can be made of his denial that extra time would be required to get the Yacht ready for delivery, by reason of the supply and installation of the extras under the Supplemental Agreement.  As Luan was a first time buyer, it is reasonable to conclude that he also had no prior experience of or knowledge as to how long it might take for that kind of work. Common sense dictates that it would push back the time for handover of the Yacht to him.

38. As for Xiao, her testimony is of marginal relevance to the resolution of the present dispute.  This is partly because her principal, if not only, role in the case was to accompany Luan to the yacht exhibition in Marina Cove, Sai Kung, in December 2009 where they met Simpson Marine’s representatives viz Mark and Angel Zhou.  She was also present at Simpson Marine’s office when the Principal Agreement was entered into.  Further, while testifying in court, Xiao showed very little memory of the events at which she was present.  This is entirely understandable since she did not know Luan well. While working in a yacht club, Xiao had only met Luan previously in a yacht exhibition in Shenzhen, PRC — she had no interest whatsoever in the dispute between Luan and Simpson Marine.  She had since moved on from the job at the yacht club to a totally different field in about 2011.

39. On the part of Simpson Marine, this court finds Mark a truthful witness.  He gave his evidence clearly and calmly and his response to questions was mostly direct.  His credibility had withstood the test of cross‑examination. Importantly, his testimony is corroborated by contemporaneous documents, as shall be explained below.

40. Concerning expert evidence, Luan and OIL called Mr Raymond Yeung who prepared the Delta Report.  Simpson Marine called Mr Richard Lamble who signed off the MSES report.  There was no dispute as to their expertise.

41. Both experts confirmed in court the contents of their respective reports.  Their testimony was largely, though not completely, unchallenged.  This court finds both experts to be truthful on the whole.  For reasons which will become apparent, this court need only refer to and/or rely on their testimony with regard to one or two issues in this case.

1^st Issue

42. On the proper construction of Clause 1, having considered the parties’ respective submissions, which have already been outlined above, this court accepts Mr Alder’s submission that under it, Simpson Marine’s obligation was to procure a third party inspection certificate prior to shipment of the Yacht from Italy, and not after it had arrived in Hong Kong.

43. First, as Mr Alder submits, it is more natural to read Clauses 1, 2 and 3 as referring to events which were intended to take place one after another chronologically.

44. Second, there is no reference in the entire Second Special Term to inspection of the Yacht in Hong Kong as such.  On the other hand, Clause 2 expressly refers to Luan’s option to arrange his own inspector to carry out an inspection in Italy.  It can therefore confidently be concluded that the parties did contemplate a pre‑shipment inspection in Italy.  The same cannot be said of a post‑shipment inspection in Hong Kong.  This makes perfect sense since if any problem should be found with the Yacht, it would be much better for it to be found sooner rather than later, closer to the Yacht’s factory in Italy, rather than thousands of kilometres away from it in Hong Kong.  Hence, if Clause 1 were to impose an obligation on Simpson Marine to procure an inspection certificate, it is entirely logical that the inspection was to take place in Italy.

45. On the evidence, Simpson Marine did procure such a certificate after inspection had taken place in Genoa on 25 and 26 May 2010 by STB Italia SRL.  There is no other credible explanation for the existence of such a certificate, save and except that it was procured by Simpson Marine pursuant to its obligation under Clause 1.  Luan had not provided an alternative explanation for it.

46. Third, Luan’s argument that Simpson Marine had procured the MSES report dated 17 November 2010 in performance of Clause 1 is disingenuous.  On the evidence, Luan purported to reject the Yacht and threatened legal action as early as 23 August 2010.  His solicitors commissioned a survey by Delta on 17 and 20 September 2010.  According to a letter dated 22 October 2010 from Simpson Marine’s solicitors, Luan attended the Yacht on 16 and 17 September 2010 together with his solicitors and surveyor.  By letter dated 27 October 2010, Luan’s solicitors referred to Delta’s survey result that the Yacht failed the Side shift trial and the Diagonal trial and purported to reject the Yacht on that ground.  It is therefore clear and obvious that by the time of the inspection by Mr Lamble of MSES on 11 and 12 November 2010 leading to the MSES report, the parties were at loggerheads and were contemplating legal proceedings.

47. In these circumstances, this court has no difficulty rejecting Luan’s argument and finds as a fact that the MSES report was not procured by Simpson Marine pursuant to Clause 1 — instead, it was procured because and only because a dispute had broken out between Simpson Marine and Luan.

48. As for the proper construction of Clause 3, this court also accepts Mr Alder’s submission that 12 July 2010 is only the date specified for the arrival of the Yacht in Hong Kong, rather than the date of delivery of the Yacht to Luan.

49. First, Clause 3 uses the words “boat deliver to HK before 12 July 2010”.  In this court’s view, the ordinary and natural meaning of these words must be as what Mr Alder submitted.  If the parties had intended 12 July 2010 to be the date of delivery to Luan, Clause 3 would instead have read “boat deliver to Mr Luan before 12 July 2010”.

50. Second, the Principal Agreement already contained an express term as to delivery date ie “Delivery date (best estimate only — actual delivery depends upon ship availability)”: May 2010 ex factory Italy.” While it is permissible to give greater effect to written clauses than printed ones: Chitty on Contracts 32^nd Ed Vol 1, para 13‑072 should there be reasonable doubt as to the meaning of the contract as a whole, it does not appear to this court that there is any reasonable doubt as to the meaning of the Principal Agreement as a whole.  The express term as to delivery date means what it says: best estimate date of delivery would be May 2010 in Italy.  On the other hand, Clause 3 specified the date by which the Yacht should be physically in Hong Kong.  There is no inconsistency between the two.  Nor is there any ambiguity when the two are read together.  Again, as this court emphasizes above, the parties they could have specified, whether in Clause 3 or in the next clause, a date of delivery to Luan after the Yacht had arrived in Hong Kong, had that been their intention.  But they had not.  Luan’s unilateral intention that the Yacht should be ready for delivery to him in Hong Kong does not mean that Simpson Marine shared that intention or agreed to it as part of the contract.

2^nd, 3^rd and 4^th Issues

51. These three issues can conveniently be dealt with together.

52. It is well established that a seller’s duty is to deliver the goods to the buyer and the buyer’s duty is to accept the goods in accordance with the terms of the contract of sale: section 29 of the Sale of Goods Ordinance (“SOGO”).

53. With respect to the seller’s duty to deliver the goods, it is normally sufficient for the seller to place the goods specified by the contract at the disposition of the buyer in a deliverable state without any reciprocal act on the part of the buyer — the performance of the seller’s duty to deliver does not mean that delivery has in fact taken place if the buyer has not in fact taken possession of the goods: Benjamin’s Sale of Goods (9^th Ed) paras 8‑001 – 8‑002.

54. Under section 31(2) of the SOGO, where under the contract of sale, the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

55. In the present case, while the printed term of the Principal Agreement appears to suggest that delivery should be ex factory in Italy, it is not disputed that Simpson Marine was bound to send the Yacht to Luan in Hong Kong.  Indeed, it is Simpson Marine’s case that it had to carry out certain commissioning work after the Yacht had arrived in Hong Kong to make it deliverable to Luan.  The commissioning work was outlined in Mark’s supplemental witness statement at paragraph 17(7) (“Mark 2”).  This court sees no reason to doubt his evidence in this respect.

56. The question is: was a time (or rather, date) fixed for sending the Yacht to Luan in the Principal Agreement?

57. As this court has ruled earlier on the 1^st Issue, the time (or rather date) put forward by Luan was 12 July 2010, pursuant to Clause 3.  This court has already ruled against Luan on this.  No other date has been put forward by the parties.  This court can find none after considering the terms of the Principal Agreement.  In these circumstances, this court rules that, as a matter of construction, the Principal Agreement has not fixed any time for Simpson Marine to send the Yacht to Luan.  In accordance with section 31(2) of the SOGO, Simpson Marine was only bound to do so within a reasonable time, after 3 July 2010, alternatively after 12 July 2010.

58. The next question is: as a matter of fact, when was the Yacht “placed at the disposition of the buyer in a deliverable state”?  In this regard, Mark’s evidence, as stated in Mark 2, can be summarised as follows.

59. It is accepted by Simpson Marine that one of Luan’s requirements for the Yacht under the Principal Agreement was that it could revolve 360 degree and move laterally and diagonally.  For this purpose, Appendix 1 provided for the installation of the so‑called Xenta Systems “Vessel Manoeuvring Assistant” (“VMA”) consisting of a “black box” with circuitry and one or more joysticks.  A VMA is a set of controls in the shape of joysticks for the engines and thrusters of a yacht which overlay the main control for the two.  The VMA is not a necessity or requirement for safe navigation.  Nor is it a necessity in order for the Yacht to revolve 360 degree or move laterally and diagonally, which could be done by a competent skipper with or without the VMA.  It is simply a luxury item.

60. When the Yacht first arrived in Hong Kong on 3 July 2010, it came with two “old” model joysticks, one already fitted on the flybridge control panel, the other one in a cardboard box ready for fitting at the main helm control panel.  On 14 July 2010, two “new” model joysticks arrived in Hong Kong and Simpson Marine was prepared to install the “new” model joysticks in the Yacht as part of “commissioning”, at no extra costs to Luan.  That was done by 12 August 2010.

61. At the material time, Mark was very used to operating the VMA.  In fact, he was a professional delivery skipper and one of his jobs at Simpson Marine was to demonstrate the operation of the yachts to clients.  From Simpson Marine’s records, the VMA, including the two joysticks, had been installed and working properly by 12 August 2010.  He personally took Luan out on the Yacht at the sea trial/ handover meeting on 18 August 2010 and demonstrated the use of the VMA to Luan.  The VMA worked fine.

62. As to what happened in August 2010, Luan simply said this at paragraphs 26 and 27 of his first witness statement:

“26. On 2^nd August 2010, I engaged a surveyor to inspect the Yacht. The surveyor’s fees in the sum of HK$12,000.00 were paid by me. The delivery date was postponed to 12^th August 2010 as SML could not deliver the Yacht and I refused to accept the Yacht.

27.  On 12^th August 2010, I engaged a surveyor to inspect the Yacht.  The surveyor’s fees in the sum of HK$4,000.00 were paid by me.  SML could not deliver the Yacht and I refused to accept the Yacht.”

63. There was no mention of what happened at the sea trial/ handover meeting on 18 August 2010 in Luan’s first or supplemental witness statement.  To be fair to him, Luan did accept in cross‑examination that there was a sea trial with Mark on that day.  However, the most Luan did say in his first witness statement was that the joystick had not been installed at the helm on 28 July 2010:

“25. Another inspection was conducted by me on 28^th July 2010. The Defects [ie only the flybridge, but not the helm, was installed with the joystick] and the problem with the air‑conditioning system remained …”

64. This court has no difficulty accepting Mark’s evidence.

65. Not only does this court find Mark a credible and truthful witness and prefer his evidence to that of Luan, Mark’s evidence is corroborated by contemporaneous documents whereas Luan’s is not.  In this regard, an internal email message from Simpson Marine’s service department to Mark (and Angel Zhou) dated 9 August 2010 pointed out that certain missing parts for the joystick arrived in Hong Kong in the late afternoon of that day and that a staff of the department “will do it tomorrow”, which this court takes to mean the remaining installation work would be done the next day. In another internal email message from a technical personnel of Simpson Marine to Angel Zhou dated 25 August 2010, it was stated that the air‑con and joysticks issues had been resolved.  What was left was a new insert for the flybridge hatch, which had been removed for air‑con modification.

66. Luan’s case, on the other hand, is full of gaps.

67. His lawyers alleged in their 23 August 2010 letter that upon inspection, Luan noticed that the joystick had not been installed.  It did not specify which inspection (as Luan made a number of inspections in July and August 2010) or whether only one or both joysticks had not been installed. Further, in his first statement, Luan referred to two inspections on 2 and 12 August 2010 by his surveyor but did not explain, even in the briefest term, what had been observed during the inspections or what had been found to be defective or missing from the Yacht, whether the joysticks or otherwise, if any.  By the time of the sea trial survey conducted by Luan’s expert Mr Raymond Yeung on 17 September 2010, as evidenced by the survey report of Delta Marine Services Limited (“Delta”), there was no dispute that both joysticks had been installed on the Yacht.  The then complaint was that the joysticks did not function satisfactorily in all respects: it was alleged that the Side shift trial and the Diagonal trial failed, albeit it was accepted by the expert that the Rotation trial, the Rotoshift trial and the Approach trial were satisfactory.

68. Unsurprisingly, Simpson Marine disputes Delta’s findings.  For one, nothing untoward about the VMA was identified by Mr Lamble in the MSES report.  In fact, he described the Yacht in his report as “the usual high quality Azimut product”.  Importantly, Mark said Simpson Marine’s technical personnel found the bow thrusters fuse to be blown the day following Delta’s sea trial on 17 September 2010, rendering the bow thruster inactive and hence the failed result described in Delta’s report.  He said the fuse was easily rectified the next day.  He frankly admitted that he could not say whether the fuse was blown during the Delta inspection or before it.

69. In this court’s view, in the scheme of things, it matters little whether the fuse was blown during the Delta inspection or before it.  This is because Luan’s claim at the trial was confined to delayed delivery of the Yacht, not that the VMA was so “non‑functional” or the Yacht was so defective that Simpson Marine was in breach of the usual implied conditions of merchantable quality or fitness for purpose.  Nor can Luan establish that the express term of the Principal Agreement as to the provision of a VMA, including the two joysticks, was a “condition” of the contract in the legal sense, the breach of which entitled him to treat the contract as repudiated.  The reasons are these.

70. First, the supply of the VMA was only 1 out of 40 to 50 items of extras, all of which were optional, and it cost Luan merely HK$11,500 out of the Price of €664,104.  On any view of the terms of the Principal Agreement, this court is not satisfied it is a crucial part of the agreement or that it was a critical element of the Yacht.  Second, Mark’s evidence is that the VMA is a luxury item not necessary or required for safe navigation of the Yacht or for it to revolve 360 degree, move laterally or diagonally.  In this regard, Mark’s evidence is corroborated by Mr Lamble’s testimony in court. This court accepts the testimony of both.  After all, by definition, an optional item is neither necessary nor required for the operation of the Yacht.

71. The next question is: was the Yacht delivered by Simpson Marine to Luan on 18 August 2010?  Putting it in another way: was the Yacht in a deliverable state and placed at the disposition of Luan on that day?

72. Mark’s evidence as to what happened on 18 August 2010, which this court accepts, has been outlined above.  Luan seeks to contradict his evidence with the findings of Delta at the sea trial on 17 September 2010. However, it seems to this court the fact that the VMA failed 2 out of 5 trials during one inspection by Luan’s expert on 17 September 2010 is insufficient to establish the Yacht was not in a deliverable state.  While the VMA failed 2 out of 5 trials, it is accepted in the Delta report that the VMA passed 3 out of 5 trials during the survey. Importantly, Mark’s evidence was that the cause of the failed trial was likely to be a blown fuse which could easily be and was in fact rectified.  In this court’s view, the fact that one optional item of the Yacht encountered a minor and rectifiable problem is not evidence that the Yacht as a whole was not deliverable any more than the fact that, for instance, the sunroof of a car encountered a minor and rectifiable problem is evidence that the car as a whole is not deliverable.  The burden is on Luan to establish on balance of probabilities that the Yacht was not in a deliverable state on 18 August 2010.  This court finds Luan has failed to discharge the burden.

73. To conclude, this court finds that the Yacht was in a deliverable state as at 18 August 2010 and was placed at the disposition of Luan.  The alternative date put forward by Luan that delivery only took place on 17 November 2010, being the date of the MSES report, is rejected.  Further, given this court’s construction of Clause 1 above, the date of the MSES report has no relevance to the question of delivery and this court so finds.

74. This court has earlier ruled that in accordance with section 31(2) of the SOGO, Simpson Marine was only bound to send the Yacht to Luan within a reasonable time after 3 July 2010, alternatively, 12 July 2010.  This court has also earlier ruled the Yacht was in a deliverable state as at 18 August 2010 and was placed at the disposition of Luan.  The question is: was Simpson Marine in breach of the Principal Agreement for delayed delivery?  In order to answer this question, this court must decide: (1) what amounts to a reasonable period for the commissioning of the Yacht after its arrival in Hong Kong; and (2) whether further allowance should be made for the time required to carry out the work under the Supplemental Agreement?

75. Regarding (1), the testimony of Simpson Marine’s expert, Mr Lamble, is highly pertinent.  First, in the MSES report, he stated that it was usual for new yachts, even high quality yachts, to contain some defects which required a local broker’s attention.  Second, in cross‑examination, he explained that, from his experience, it was common for the commissioning of a yacht in Hong Kong to take less than two months but certainly more than one month.  One of the reasons was that Hong Kong did not have a huge reserve of experts who were able to carry out the work required.  During commissioning, the local broker ie Simpson Marine in this case, would pick up all minor defects and correct them, dealing with important matters first.  He also said some minor outstanding defects would be rectified during the warranty period.  All these were unchallenged by Luan’s counsel.  Mr Lamble’s testimony was supported by Mark’s testimony.

76. This court has no difficulty accepting Mr Lamble’s and Mark’s evidence.  This court finds as a fact that a reasonable time for commissioning the Yacht was one to two months after its arrival in Hong Kong ie 3 July 2010.

77. Regarding (2) above, it is self‑evident that time was required to carry out the works under the Supplemental Agreement, despite Luan’s denial in court.  Luan’s counsel did not really seek to argue otherwise.  If so, some further allowance should be given to Simpson Marine for such works.

78. In these circumstances, this court’s conclusion is: there was no delay, and hence no breach of the Principal Agreement, on the part of Simpson Marine for delivering the Yacht to Luan on 18 August 2010.

5^th Issue

79. Given this court’s conclusion on the 2^nd to 4^th Issues, the 5^th Issue does not arise for consideration.  In any event, given this court’s construction of Clause 3, the 0.5% per day clause is not applicable since the Yacht arrived in Hong Kong on 3 July 2010, well before the 12 July 2010 deadline.

6^th Issue

80. Under section 39 of the SOGO, when the seller is ready and willing to deliver the goods and requests the buyer to take delivery, the buyer who fails to do so within a reasonable time is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.

81. The parties have helpfully agreed on the quantum of Simpson Marine’s claim in the event this court dismisses Luan’s delay claim in full.  They are set out in Appendix 4 to Mr Alder’s Closing Submissions.

Disposition

82. Mr Luan’s claim is hereby dismissed.

83. There shall be judgment in favour of Simpson Marine on its counterclaim against Mr Luan in the sum of HK$542,089, together with accrued interest in the sum of HK$124,663 up to 18 August 2015[3], and daily interest thereafter at the rate of HK$89.10 to judgment.  Interest thereafter shall continue to accrue at the judgment rate until payment.  Simpson Marine’s counterclaim against OIL is dismissed.

84. In the absence of agreement on costs (including all costs reserved) within 14 days, the parties are at liberty to restore the hearing for substantive argument, ½ hour reserved, or such other time as the parties agreed.  As far as the sale proceeds of the Yacht are concerned which are presently in court, again, in the absence of agreement within 14 days, Mr Luan/OIL should, if so advised, make a formal application to this court under Order 75 of the Rules of the High Court, indicating clearly the amount they seek to be paid out, to be heard at the same time as the restored hearing on costs, if any.  Liberty to apply for all consequential matters, to be heard at the same time as the restored hearing on costs, if any.

85. Lastly, I thank counsel for their helpful submissions.

HCA 107/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 107 OF 2011

____________

____________

(By Original Action)

____________

(By Counterclaim)

AND

HCAJ 171/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 171 OF 2011

________________

________________________

R U L I N G

________________________

[This ruling was given extempore but with the consent of counsel has been edited.]

1. I have two preliminary applications before me. For reasons which I will outline, they determine whether this trial should proceed or whether an adjournment should be ordered.

2. Ms Wong, leading counsel for the plaintiff, has made an application to permit the filing of the witness statement of Ms Xiao Han so that she may testify on behalf of the plaintiff. The application is opposed by Mr Alder, counsel for the defendant.

3. For his part, Mr Alder has made an application on behalf of the defendant to permit the admission into evidence of a large bundle of documentary material consisting of photographs, e-mails, invoices, technical manuals and the like. This application is opposed by Ms Wong.

4. So that the applications may be considered in context, a very brief background of the dispute must be given.

5. In or about December 2009, the plaintiff entered into an agreement with the defendant for the purchase of a yacht to be built in Italy and then brought to Hong Kong.  Not unusually, the yacht was to contain certain extra features not included in the basic model.

6. Of central importance to this litigation, one of the extra features was a VMA system, VMA standing for ‘vessel maneuvering system’. This system is used in the main for berthing a vessel. It is the plaintiff’s case that it was agreed that the VMA system would be installed so that it could be operated from both the helm and the flybridge.  This he considered to be an important installation as he would in the ordinary course of events be berthing the vessel in a busy marina.

7. It is the plaintiff’s case that, as the yacht was intended as a gift for his bride-to-be, the time of delivery of the yacht was of the essence. 

8. In the broadest of terms, it is the plaintiff’s case that the defendant failed to deliver the yacht within time with the VMA system duly installed. Accordingly, by letter from his solicitors dated 23 August 2010, it was asserted that there had been a breach of the contract and the plaintiff was entitled to refuse to accept delivery of the vessel.  The plaintiff sought the refund of the purchase price that had been paid in full and the refund of deposits paid in respect of certain late additions.

9. The assertion that there had been a breach of contract was denied by the defendant on the basis that the vessel was ready on time with the VMA system duly installed.

10. What needs to be mentioned is that during the course of the litigation an order was made for the sale of the yacht with the proceeds being lodged with the Court.  Accordingly, the expense of maintaining the vessel pending a final determination of this litigation has been avoided. This, in my view, is a point of some importance in determining whether an adjournment should or should not be granted.

11. A further matter of importance is that yesterday afternoon a ruling was handed down denying the plaintiff the right to give his evidence in the trial by way of video link from the USA.  It appears that the plaintiff now lives in the USA; it further appears, or so he has asserted, that he suffers from a bi-polar disorder and, because of his illness, has apparently been advised not to travel. Accordingly, if this trial goes ahead today, the plaintiff will not give evidence.  In light of that fact, other evidence to be led in support of his case naturally takes on greater significance.

12. This brings me to the plaintiff’s application to admit the witness statement of Ms Xiao. Ms Wong submits that this is a statement of considerable importance.  Ms Xiao apparently is the operations manager of a marina, knows about vessels and was with the plaintiff when he negotiated the terms of the contract to purchase his vessel. She also appears to have acted as some sort of ‘mediator’ at a later stage.

13. However, at the PTR in this matter held on 26 July 2013, the Court directed that “any statement from further witness or witnesses be filed and served within 14 days from the date hereof”, it being agreed that this direction was subject to the condition – made clear at the PTR – that this direction did not give carte blanche to the parties to file and use any witness statements they chose.  Leave was still required.

14. Ms Wong concedes that, while the witness statement of Ms Xiao was filed and served within the time allocated, regrettably no application for leave to use it has been made. She has therefore made that application orally before me.  It is an application which is opposed by the defence on the basis that notice of an intention to apply for leave should have been made but was not and it is simply too late, at the very commencement of the trial with the witness herself at the door of the court, to now seek leave.  For the statement to be admitted at this late stage defies what was directed at the PTR.

15. As to the contents of the statement, while there may be issues as to the relevance or admissibility of certain portions, it does seem to me, potentially at least, to appear to be a statement of importance to the plaintiff, the more so, as I have said, as the plaintiff himself will not be giving evidence.  To refuse to allow Ms Xiao to testify could therefore, potentially at least, be a major blow to the plaintiff’s case.

16. The defence application to file and use a bundle of new materials has also arisen very late in the day.  Indeed I understand that the bundle of materials was only served this past Friday in the late afternoon, today being a Tuesday.

17. The materials, however, appear to be of considerable importance to the defence case.  That is because, so Mr Alder argues, they support the defence case that by a specific date, that date being 18 August 2010, sea trials took place with the plaintiff himself being aboard the vessel and on that date the MVA system was fully installed – with a control at the helm and on the flybridge – and all was in good working order.

18. By that date therefore – several days before the plaintiff’s solicitors purported to refuse delivery of the vessel on the basis of breach of contract, misrepresentation and the like – the normal commissioning work was completed and the vessel fully ready for delivery with the plaintiff (by his presence on board during the successful sea trial) acknowledging that to be the case.

19. Mr Alder has pointed out that there is a photograph already in evidence which shows the plaintiff on the vessel, that photograph bearing the date of 18 August 2010.  As Mr Alder said during the course of submissions before me: the 18 August has become a, if not the, central date in these proceedings.

20. That may be so. The problem, however, is that the importance of this date and the evidence supporting it, was not apparently focused upon in the pleadings nor in the defence witness statements that have been filed.  Put simply, the identification of what could be a critical date has only, in any substantial form, arisen at the eleventh hour.  Earlier references – while they can be found – have been oblique.

21. On this basis, Ms Wong has opposed the admission into evidence of the bundle of materials. She has accepted however – correctly in my opinion – that she cannot oppose it in absolute terms and her opposition has been based on the contention that, if the materials are to be placed into evidence, time must be allowed for her to take full instructions from the plaintiff.

22. That time must be allowed appears to have been conceded by Mr Alder who has submitted however that instructions could be taken during the course of the trial or over the next couple of days with time still left to complete the trial.  Mr Alder’s suggestion was appealing.  An adjournment should be avoided if at all possible even if it does mean that the midnight candle must be burned.  But on consideration I am of the view that it would be unfair to the plaintiff to force him to consider this substantial bundle of evidential material over the next day or so, or while evidence is otherwise being given, and to give his instructions to Ms Wong. First, the plaintiff resides in the USA.  Second, he does not speak or read English well; he will therefore require Chinese translations, a task that will take time.  Third, there are a good many documents.  The result could well be that he is able to give informed instructions when there only remains a day or so to complete the trial or when a great deal of the evidence in this trial has already been given.

23. On the other hand, in my view, fairness dictates that it would be wrong simply to refuse to allow the defence to make use of evidential material that quite clearly is directly relevant to the dispute and may even be decisive.

24. I have therefore very reluctantly been drawn to the conclusion that it would be wrong to deny the plaintiff the opportunity to call the evidence of Ms Xiao and wrong to deny the defence the opportunity to use the bundle of materials that it seeks to place into evidence.

25. That being said, I am satisfied that it would be materially unfair to the plaintiff to make him answer the evidence contained in the defendant’s new bundle of materials ‘on the run’.  Put simply, the defendant must be given time to consider this new evidence.

26. I will therefore grant both applications to admit evidence but will do so in accordance with Ms Wong’s submission that the plaintiff must be given time to consider the new defence materials.  The present trial dates must therefore be vacated and new dates set down.  Counsels are agreed that four days will be sufficient. The sooner those dates can be set by the listing officer the better.

27. I have sought the views of counsel as to the issue of costs and they have no complaint with my suggestion that the question of costs must be reserved. There will therefore be an order to that effect.

28. I confess that I do not like reserving costs, leaving the decision to another judge who is once removed from the issue.  But in the present case I believe that the new trial judge will be better placed to determine with the benefit of hindsight whether an adjournment was required and in light of that where the fault lay in necessitating it.

29. As to the exact wording of the orders that flow from this decision, counsel have agreed to suggest a form of wording that may also encompass broader matters, for example, whether leave should be granted to amend the pleadings and/or witness statements, and the time within which such steps must be taken.  Counsels’ suggested form of wording is to be filed within 14 days of the date of this decision.